The excessively general nature of the definition of investments that are such as to represent a threat to public policy and public security, without any reference to specific circumstances, renders the French legislation contrary to the Treaty.
On 1 February 1996, the Association Église de Scientologie de Paris, an association constituted under French law, and Scientology International Reserves Trust (a British trust) requested the Prime Minister of France to repeal a number of provisions in the French legislation laying down, in certain cases, a system of prior authorisation for direct foreign investments.
New legislative rules governing financial relations with foreign countries were adopted on 14 February 1996. These rules maintain, inter alia, a system of prior authorisation in the case of a foreign investment that is 'such as to represent a threat to public policy, public health or public security'.
Since the Association Église de Scientologie took the view that the entry into force of these new rules was tantamount to a refusal of its request, it challenged this decision of refusal before the French Conseil d'État on the ground that it was ultra vires.
The Conseil d'État has referred to the Court a question concerning the compatibility of such a system with the Community-law principle of the free movement of capital.
The Court first of all declares that a national provision which makes a direct foreign investment subject to prior authorisation constitutes a restriction on movements of capital even if authorisation is deemed to have been obtained one month after receipt of the request and even though no penalty is imposed.
Such a derogation from the fundamental principle of the free movement of capital can, according to the Court, be justified only by requirements of public policy or public security. Those grounds must be strictly construed and must be made subject to review by the Community institutions.
The threat must therefore be genuine and sufficiently serious and must be directed against a fundamental interest of society. Persons affected must have access to legal redress.
While the Court recognises that a system of prior declaration may prove to be inadequate to identify and block capital once it has entered a Member State, and while it acknowledges that a system of prior authorisation may in certain cases be justified, it none the less takes the view that the requirement of prior authorisation for every direct foreign investment 'liable to adversely affect interests of public policy, public health or public security' is too general and does not allow the persons concerned to be apprised of the extent of their rights and obligations.
The Court accordingly concludes that the French system is contrary to the principle of legal certainty and is to that extent incompatible with the Treaty.
N.B. : Since this is a preliminary ruling by the Court (Article 177 of the EC Treaty, now Article 234 EC) delivered at the request of the Conseil d'État, the proceedings in the case will now be resumed before that senior court.
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