JUDGMENT OF THE COURT (Fifth Chamber)

29 October 1998 (1)

(Failure of a Member State to fulfil obligations — Free movement of workers —Freedom of establishment — Freedom to provide services — Private securityactivities — Nationality conditions)

In Case C-114/97,

Commission of the European Communities, represented by Antonio Caeiro, LegalAdviser, and Fernando Castillo de la Torre, of its Legal Service, acting as Agents,with an address for service in Luxembourg at the office of Carlos Gómez de laCruz, of its Legal Service, Wagner Centre, Kirchberg,

applicant,

v

Kingdom of Spain, represented by Santiago Ortiz Vaamonde, Abogado del Estado,of the State Legal Service, acting as Agent, with an address for service inLuxembourg at the Spanish Embassy, 4-6 Boulevard Emmanuel Servais,

defendant,

APPLICATION for a declaration that, by maintaining in force Articles 7, 8 and 10of Law No 23/1992 of 30 July 1992, in so far as those provisions make the grant ofauthorisation to carry on private security activities, in the case of 'securitycompanies‘, subject to the requirement of being constituted in Spain and the

requirement that their directors and managers should reside in Spain and therequirement that 'security staff‘ should possess Spanish nationality, the Kingdomof Spain has failed to fulfil its obligations under the EC Treaty, in particularArticles 48, 52 and 59,

THE COURT (Fifth Chamber),

composed of: P. Jann (Rapporteur), President of the First Chamber, acting asPresident of the Fifth Chamber, J.C. Moitinho de Almeida, C. Gulmann, L. Sevónand M. Wathelet, Judges,

Advocate General: S. Alber,

Registrar: R. Grass,

having regard to the report of the Judge-Rapporteur,

after hearing the Opinion of the Advocate General at the sitting on 7 May 1998,

gives the following

Judgment

1.

    By application lodged at the Court Registry on 19 March 1997, the Commission ofthe European Communities brought an action under Article 169 of the EC Treatyfor a declaration that, by maintaining in force Articles 7, 8 and 10 of Law No23/1992 of 30 July 1992, in so far as those provisions make the grant ofauthorisation to carry on private security activities, in the case of securitycompanies, subject to the requirement of being constituted in Spain and therequirement that their directors and managers should reside in Spain and therequirement that security staff should possess Spanish nationality, the Kingdom ofSpain had failed to fulfil its obligations under the EC Treaty, in particular Articles48, 52 and 59.

Legal background

2.

    In Spain, private security activities are governed by Law No 23/1992 of 30 July 1992on private security (hereinafter 'the Law‘) and Royal Decree No 2364/1994 of 9December 1994 approving the private security regulation.

3.

    Under Article 5(1) of the Law, security companies may provide only the followingservices:

—    Surveillance and protection of property, premises, shows, contests orconventions [(a)];

—    Protection of specific persons [(b)];

—    Depositing, safekeeping, checking and sorting of coins and banknotes,securities and valuables, as well as the transport and disposition thereof [(c)and (d)];

—    Installation and maintenance of surveillance and alarm systems [(e)];

—    Operation of central control offices for the reception, checking andtransmission of alarm signals and their communication to the security forces(Fuerzas y Cuerpos de Seguridad), as well as provision of response servicesin so far as these do not fall within the sphere of responsibility of thesecurity forces [(f)];

—    Planning and assistance in connection with the security services covered by    the Law [(g)].

4.

    Under Article 7(1) of the Law, only undertakings which have obtainedauthorisation from the Ministry of the Interior, in the form of an entry in a register,may provide private security services. Article 7(1)(b) provides that, in order toobtain this authorisation, 'security companies which employ security staff must inany event be Spanish‘.

5.

    Article 8 of the Law also requires the directors and managers of security firmsentered on the register referred to in Article 7(1) to be resident in Spain. Thatcondition applies to all security firms, including those which do not employ securitystaff.

6.

    According to Article 10(1) of the Law, security staff must first obtain authorisationfrom the Ministry of the Interior. Article 10(3)(a) makes such authorisation subjectto the possession by security staff of Spanish nationality.

7.

    For the purposes of the Law, 'security staff‘ means watchmen, persons in chargeof security, private bodyguards, private field guards and private detectives. Fieldguards and private detectives may also pursue their activities in a self-employedcapacity, not as members of a security undertaking.

8.

    Security firms carrying on the activities described in Article 5(1)(e) and (g) of theLaw and do not require security staff. Other security firms include amongst theirpersonnel both security staff and administrative staff to which the nationalitycondition does not apply.

Pre-litigation procedure

        

9.

    On 4 April 1995 the Commission informed the Spanish Government that theprovisions of Spanish law relating to private security were, in its view, contrary toArticles 48, 52 and 59 of the Treaty and formally requested it to submit itsobservations on this matter.

10.

    By letter of 21 June 1995 the Spanish Government replied that the nationality andresidence conditions imposed by those provisions came under the derogationsprovided for by Articles 48(3) and 4, 55 and 56 of the EC Treaty.

11.

    By letter of 11 June 1996 the Commission addressed to the Spanish Governmenta reasoned opinion in which it concluded that, by maintaining in force legislativeprovisions making the exercise of private security activities subject to the conditionthat the security firm be constituted in Spain, that directors and managers of thefirm must reside in Spain and, finally, that private security staff must have Spanishnationality, the Kingdom of Spain had failed to fulfil its obligations under Articles48, 52 and 59 of the Treaty.

12.

    By letter of 20 September 1996 the Spanish Government repeated the argumentswhich it had raised in its reply to the formal letter calling upon it to submit itsobservations.

13.

    Not satisfied by those explanations, the Commission brought this action for adeclaration that the Kingdom of Spain had failed to fulfil its obligations.

The application

Arguments of the parties

14.

    As regards freedom of establishment, the Commission submits first of all that therule that a company's directors must reside in the Member State in which it isestablished entails discrimination on grounds of nationality contrary to Article 52of the Treaty.

15.

    Next, the Commission contends that the nationality condition imposed onundertakings by Article 7 of the Law is explicitly discriminatory and entails arestriction on the right of undertakings established in another Member State topursue their activities in Spain through a branch or agency, in breach of Article 52of the Treaty.

16.

    Finally, according to the Commission, the nationality condition laid down in Article10 of the Law is also contrary to Article 52 in so far as it is applied to security staffworking for their own account.

17.

    As regards freedom to provide services, the Commission contends that thenationality condition relating to undertakings, laid down in Article 7 of the Law,and that relating to directors' residence, laid down in Article 8, which presupposesa permanent establishment, have the effect of excluding any private security activitycarried out by undertakings or security staff which are not established in Spain. Such requirements constitute a discriminatory obstacle to the freedom to provideservices and are therefore contrary to Article 59 of the Treaty.

18.

    The Commission adds that the activities in question cannot be excluded from thescope of Articles 52 and 59 of the Treaty on the ground that they are connectedwith the exercise of official authority. That exception, provided for in the firstparagraph of Article 55 combined, where appropriate, with Article 66 of the Treaty,should be interpreted restrictively and limited to what is strictly necessary tosafeguard the interests which those provisions allow the Member States to protect. Furthermore, involvement in the exercise of official authority must be direct andspecific.

19.

    The Commission considers, however, that since the protection of property and ofprivate persons meets a purely private need, private security firms and staff are notdirectly and specifically involved in the exercise of official authority, which, in itsview, entails the exercise of powers of constraint. It is clear, on the contrary, fromthe Spanish legislation that security firms and staff are only involved in acomplementary and subordinate way in public security activities.

20.

    As far as Article 56(1) combined, where appropriate, with Article 66 of the Treatyis concerned, the Commission refers to the case-law of the Court according towhich a discriminatory national measure is justified only if it is directed against agenuine and sufficiently serious threat affecting one of the fundamental interestsof society (Case 30/77 Bouchereau [1977] ECR 1999) and the existence of such athreat must be demonstrated by the Member State on the basis of an assessmentof the individual conduct of persons.

21.

    According to the Commission, the exercise of the activity of detective or field guardin Spain by a national of another Member State does not clearly involve a genuineand sufficiently serious threat. The same applies to discrimination in relation tolegal entities. Besides, even if there were such a threat, Member States cannot puta ring fence around an entire sector of activities.

22.

    As regards freedom of movement for workers, the Commission contends thatArticle 10(3) of the Law infringes Article 48 of the Treaty since it excludesemployed persons who are nationals of other Member States from carrying onprivate security activities.

23.

    The Commission adds that the derogation relating to employment in the publicservice provided for in Article 48(4) cannot be applied to the occupations inquestion.

24.

    Similarly, the Commission considers that the nationality condition imposed byArticle 10(3) of the Law is not justified on the grounds of public policy, publicsecurity or public health, as referred to in Article 48(3) of the Treaty. TheCommission stresses the importance of interpreting that provision strictly andpoints out that the case-law contains no example of a situation in which thatderogation has been applied to a Member State's ban prohibiting nationals of otherMember States from employment in private undertakings.

25.

    The Spanish Government does not deny that its legislation impedes the exercise ofthe freedom of establishment, the freedom to provide services and the freedom ofmovement for workers within the Community. It considers, however, that thoserestrictions are justified by the derogations provided for by the Treaty.

26.

    Thus, the Spanish Government contends, first of all, that private security activitiesinvolve the exercise of official authority within the meaning of Article 55 of theTreaty owing to their purpose, which is to maintain public security. In this regard,it enumerates a number of obligations imposed on security firms and security staffwhich, in its view, demonstrate that a particular relationship of solidarity with theState is necessary. It is with this in view that an administrative authorisation byentry in a register or authorisation from the Ministry of the Interior are providedfor.

27.

    Second, the Spanish Government submits that a threat to public security and publicorder arises from the nature of the activities carried out by private securityundertakings, which demand rigorous controls. The effectiveness of such controlscould not be guaranteed if the undertakings or persons concerned did not haveSpanish nationality or if they were not established in the Member State in whichthey carry on their activities.

28.

    As regards, in particular, Article 48(3) of the Treaty, the Spanish Governmentstates that account must also be taken of the fact that security guards may use armsor other means of defence in providing their services and that in general they mustwear a uniform. They are also vested with particular rights which could affect therights and freedoms of citizens.

29.

    Third, the Spanish Government considers that the provisions in question arejustified for overriding reasons relating to the public interest, consisting of the need,first, to guarantee adequately the security of persons and property and, second, theneed to make clear what rights citizens may have to set up or use private securityservices. In advancing this argument the Spanish Government also points out theunderlying reasons on which security services are based, the need to prevent crimeand to contribute to the maintenance of public security, the need to prevent any

unwarranted assumption of authority and to ensure observance of fundamentalrequirements, the lack of approval standards, the risk of inadequate training ofsecurity guards, the risk of irregularities in the exercise of their functions and of thecommission of numerous infringements, the need to ensure that protection ofsecurity does not become the occasion for assaults, acts of violence, abuses of rightsor interference with the legal or property interests of other persons and the needto protect users of the services and to uphold the social system.

Findings of the Court

30.

    As the Spanish Government itself recognises, Articles 7, 8 and 10 of the Law entailrestrictions on freedom of establishment, freedom to provide services and freedomof movement for workers.

I — The nationality condition (Articles 7 and 10 of the Law)

31.

    It must be observed first of all that the nationality condition imposed onundertakings by Article 7 of the Law prevents undertakings established in otherMember States from carrying on their activities in Spain through a branch or anagency. Secondly, Article 10 of the Law precludes nationals of other MemberStates from carrying on permanently private security activities in Spain as employedpersons or self-employed persons. Finally, those provisions prevent nationals ofother Member States from providing private security services in Spain.

32.

    It is necessary, however, to consider whether those obstacles are justified by thederogations provided for by the Treaty, namely in Article 48(4), the first paragraphof Article 55 and Article 66 of the Treaty, on the one hand, and Articles 48(3),56(1) and 66 of the Treaty, on the other.

Article 48(4), the first paragraph of Article 55 and Article 66 of the Treaty

33.

    As far as Article 48(4) of the Treaty is concerned, it must be observed that privatesecurity undertakings do not form part of the public service and that this provisionis not therefore applicable in this case.

34.

    As regards the exception provided for in the first paragraph of Article 55combined, where appropriate, with Article 66 of the Treaty, it must be rememberedthat, as a derogation from the fundamental rule of freedom of establishment, itmust be interpreted in a manner which limits its scope to what is strictly necessaryfor safeguarding the interests which that provision allows the Member States toprotect (Case 147/86 Commission v Greece [1988] ECR 1637, paragraph 7).

35.

    According to established case-law, the derogation for which it provides must berestricted to activities which in themselves are directly and specifically connected

with the exercise of official authority (Case 2/74 Reyners [1974] ECR 631,paragraph 45, and Case C-42/92 Thijssen [1993] ECR I-4047, paragraph 8).

36.

    In the present case, it is clear from the evidence before the Court that the activityof security undertakings and security staff is to carry out surveillance and protectiontasks on the basis of relations governed by private law.

37.

    However, the exercise of that activity does not mean that security undertakings andsecurity staff are vested with powers of constraint. Merely making a contributionto the maintenance of public security, which any individual may be called upon todo, does not constitute exercise of official authority.

38.

    Furthermore, as the Advocate General points out in paragraphs 26 and 27 of hisOpinion, the Spanish legislation makes a clear distinction between tasks entrustedto security undertakings and security staff and those reserved for the public securityforces. Where in very specific situations the former are called upon to assist thelatter, the functions they perform are only auxiliary functions.

39.

    It follows that private security undertakings and private security staff are notdirectly and specifically involved in the exercise of official authority and that theexception provided for in the first paragraph of Article 55 combined, whereappropriate, with Article 66 of the Treaty does not apply in this case.

Articles 48(3), 56(1) and 66 of the Treaty

40.

    The nationality condition imposed on security undertakings and security staff byArticles 7 and 10 of the Law excludes the exercise, by a person or undertakingpossessing the nationality of another Member State, of private security activities.

41.

    Such a general exclusion from access to certain occupations cannot be justified onthe grounds of public policy, public security or public health referred to in Articles48(3) and 56 of the Treaty.

42.

    The right of Member States to restrict freedom of movement for persons ongrounds of public policy, public security or public health is not intended to excludeeconomic sectors such as the private security sector from the application of thatprinciple, from the point of view of access to employment, but to allow MemberStates to refuse access to their territory or residence there to persons whose accessor residence would in itself constitute a danger for public policy, public security orpublic health (see, as far as public health is concerned, Case 131/85 Gül [1986]ECR 1573, paragraph 17).

43.

    That reasoning applies a fortiori as regards the overriding reasons relating to thepublic interest which the Spanish Government puts forward as justification for thenationality condition.

II — The residence condition (Article 8 of the Law)

44.

    The rule according to which directors and managers of all security undertakingsmust reside in Spain constitutes an obstacle to freedom of establishment (see, inthis regard, Case C-221/89 Factortame [1991] ECR I-3905, paragraph 32) and to thefreedom to provide services.

45.

    This condition is not necessary in order to ensure public security in the MemberState concerned and is not therefore covered by the derogation provided for byArticle 56(1) combined, where appropriate, with Article 66 of the Treaty.

46.

    Recourse to this justification presupposes the existence of a genuine and sufficientlyserious threat affecting one of the fundamental interests of society (see, as far aspublic policy is concerned, Bouchereau, cited above, paragraph 35).

47.

    Contrary to what the Spanish Government contends, it cannot be argued that thisthreat would arise from the impossibility for the Spanish authorities, if the rule inquestion did not exist, to monitor effectively the activities carried on by privatesecurity undertakings. Checks may be carried out and penalties may be imposedon any undertaking established in a Member State, whatever the place of residenceof its directors. Moreover, the payment of any penalty may be secured by meansof a guarantee to be provided in advance (see, to this effect, Case C-350/96 CleanCar Auto Service [1998] ECR I-2521, paragraph 36).

48.

    It follows from all the foregoing that, by maintaining in force Articles 7, 8 and 10of Law No 23/1992 of 30 July 1992, in so far as those provisions make the grant ofauthorisation to carry on private security activities, in the case of securitycompanies, subject to the requirement of being constituted in Spain and therequirement that their directors and managers should reside in Spain and therequirement that security staff should possess Spanish nationality, the Kingdom ofSpain has failed to fulfil its obligations under Articles 48, 52 and 59 of the Treaty.

Costs

49.

    Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to beordered to pay the costs if they have been applied for. Since the Kingdom of Spainhas been unsuccessful and the Commission has applied for costs, the Kingdom ofSpain must be ordered to pay the costs.

On those grounds,

THE COURT (Fifth Chamber)

hereby:

1.    Declares that, by maintaining in force Articles 7, 8 and 10 of Law No23/1992 of 30 July 1992, in so far as those provisions make the grant ofauthorisation to carry on private security activities, in the case of securitycompanies, subject to the requirement of being constituted in Spain and therequirement that their directors and managers should reside in Spain andthe requirement that security staff should possess Spanish nationality, theKingdom of Spain has failed to fulfil its obligations under Articles 48, 52and 59 of the EC Treaty;

2.    Orders the Kingdom of Spain to pay the costs.

Jann                    Moitinho de Almeida        Gulmann         Sevón                        Wathelet

Delivered in open court in Luxembourg on 29 October 1998.

R. Grass

J.-P. Puissochet

Registrar

President of the Fifth Chamber

1: Language of the case: Spanish.