JUDGMENT OF THE COURT

14 March 2000 (1)

(Free movement of capital - Direct foreign investments - Prior authorisation -Public policy and public security)

In Case C-54/99,

REFERENCE to the Court under Article 177 of the EC Treaty (now Article234 EC) by the Conseil d'État, France, for a preliminary ruling in the proceedingspending before that court between

Association Église de Scientologie de Paris,

Scientology International Reserves Trust

and

The Prime Minister

on the interpretation of Article 73d(1)(b) of the EC Treaty (now Article58(1)(b) EC),

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, J.C. Moitinho de Almeida,D.A.O. Edward, R. Schintgen (Presidents of Chambers), P.J.G. Kapteyn,C. Gulmann (Rapporteur), J.-P. Puissochet, G. Hirsch, H. Ragnemalm,M. Wathelet and V. Skouris, Judges,

Advocate General: A. Saggio,

Registrar: R. Grass,

after considering the written observations submitted on behalf of:

-    Association Église de Scientologie de Paris and Scientology InternationalReserves Trust, by E. Piwnica and J. Molinié, Avocats having right ofaudience before the Conseil d'État and the Cour de Cassation,

-    the French Government, by R. Abraham, Director of Legal Affairs in theMinistry of Foreign Affairs, and S. Seam, Foreign Affairs Secretary in theLegal Affairs Directorate of that Ministry, acting as Agents,

-    the Commission of the European Communities, by M. Patakia, of its LegalService, acting as Agent,

having regard to the Report for the Hearing,

after hearing the oral observations of the French Government, represented byR. Abraham and S. Seam; the Greek Government, represented by F. Spathopoulos,Head of the Legal Service in the Ministry of Economic Affairs, acting as Agent;and the Commission, represented by M. Patakia, at the hearing on 7 September1999,

after hearing the Opinion of the Advocate General at the sitting on 21 October1999,

gives the following

Judgment

1.

    By decision of 6 January 1999, received at the Court on 16 February 1999, theFrench Conseil d'État (Council of State) referred for a preliminary ruling underArticle 177 of the EC Treaty (now Article 234 EC) a question concerning theinterpretation of Article 73d(1)(b) of the EC Treaty (now Article 58(1)(b) EC).

2.

    This question has arisen in proceedings between, on the one hand, AssociationÉglise de Scientologie de Paris, an association constituted under French law, andScientology International Reserves Trust, a trust established in the UnitedKingdom, and, on the other, the Prime Minister of France, concerning the latter'simplied decision rejecting the applicants' request for repeal of the provisionsgoverning the system of prior authorisation laid down by French law for certaincategories of direct foreign investments.

The relevant Community law

3.

    Article 73b(1) of the EC Treaty (now Article 56(1) EC) provides:

'Within the framework of the provisions set out in this Chapter, all restrictions onthe movement of capital between Member States and between Member States andthird countries shall be prohibited.‘

4.

    Article 73d of the Treaty provides as follows:

'1.    The provisions of Article 73b shall be without prejudice to the right ofMember States:

(a)    ...

(b)    to take all requisite measures to prevent infringements of national law andregulations, in particular in the field of taxation and the prudentialsupervision of financial institutions, or to lay down procedures for thedeclaration of capital movements for purposes of administrative or statisticalinformation, or to take measures which are justified on grounds of publicpolicy or public security.

2.     ...

3.    The measures and procedures referred to in paragraphs 1 and 2 shall notconstitute a means of arbitrary discrimination or a disguised restriction on the freemovement of capital and payments as defined in Article 73b.‘

The French legislation

5.

    Article 1 of Law No 66-1008 of 28 December 1966 on financial relations withforeign countries ('Law No 66-1008‘) provides:

'Financial relations between France and other countries shall be free. Thisfreedom shall be exercised in accordance with the arrangements set out in this Lawand in compliance with international commitments entered into by France.‘

6.

    Article 3(1)(c) of Law No 66-1008 provides:

'The Government may, with a view to ensuring the defence of national interestsand by decree adopted following a report by the Minister for Economic andFinancial Affairs:

1.    make the following subject to declaration, prior authorisation or control:

    ...

    (c)    the making and realisation of foreign investments in France;

    ...‘.

7.

    Article 5-1(I)(1) of Law No 66-1008, introduced by Law No 96-109 of 14 February1996 on financial relations with foreign countries in regard to foreign investmentsin France, provides:

'If he should establish that a foreign investment is being or has been made inactivities which are connected, even on an occasional basis, with the exercise ofpublic authority in France, or that a foreign investment is such as to represent athreat to public policy, public health or public security, or if that investment hasbeen made in activities involving research into, production of or trade in arms,munitions, explosive powders or substances intended for military purposes, ormaterials designed for warfare, the Minister responsible for the economy may, inthe absence of a request for prior authorisation required under Article 3(1)(c) ofthe present Law or despite a refusal of authorisation, or where the conditionsattached to authorisation have not been satisfied, order the investor to discontinuethe transaction, or modify or restore, at his own expense, the situation previouslyobtaining.

Such an order may be issued only after the investor has been given formal noticeto submit his comments within 15 days.‘

8.

    Article 11 of Decree No 89-938 of 29 December 1989, adopted for the purpose ofapplying Article 3 of Law No 66-1008, as amended by Decree No 96-117 of14 February 1996 ('Decree No 89-938‘), provides:

'Direct foreign investments made in France shall be free. When they are beingmade, these investments shall be the subject of an administrative declaration.‘

9.

    Under Article 11a of Decree No 89-938:

'The system defined in Article 11 shall not apply to the investments covered byArticle 5-1(I)(1) of Law No 66-1008 of 28 December 1966 governing financialrelations with foreign countries, as amended by, inter alia, Law No 96-109 of14 February 1996.‘

10.

    Article 12 of Decree No 89-938 adds:

'Direct foreign investments made in France which are covered by Article 11a shallbe subject to prior authorisation by the Minister responsible for the economy. Thatauthorisation shall be deemed to have been obtained one month after receipt ofthe investment declaration submitted to the Minister responsible for the economy,unless the latter has, within that same period, declared that the transaction inquestion is to be deferred. The Minister responsible for the economy may waivethe right of deferment before the period laid down in the present article hasexpired.‘

11.

    Article 13 of Decree No 89-938 states that certain direct investments are exemptfrom the administrative declaration and prior authorisation provided for underArticles 11 and 12; these include the establishment of companies, subsidiaries ornew undertakings, direct investments between companies all belonging to the samegroup, direct investments made, up to a maximum limit of FRF 10 million, in craft-based undertakings, undertakings engaged in retail and hotel trades, and purchasesof agricultural land.

The dispute in the main proceedings and the question submitted for a preliminaryruling

12.

    On 1 February 1996 the applicants in the main proceedings requested the PrimeMinister of France to repeal certain legislative provisions laying down a system ofprior authorisation for direct foreign investments. Having subsequently found thatlegislative amendments made on 14 February 1996 maintained in force a priorauthorisation system, they concluded that this constituted a decision by the PrimeMinister equivalent to a refusal of their request and challenged that decision beforethe Conseil d'État as being ultra vires. In support of their action, they submittedthat there had been a failure to comply with the rules of Community law governingthe free movement of capital.

13.

    Taking the view that it was unclear how Article 73d of the Treaty was to beconstrued, the Conseil d'État decided to stay proceedings and to refer the followingquestion to the Court for a preliminary ruling:

'Do the provisions of Article 73d of the Treaty of 25 March 1957 establishing theEuropean Community, as amended, according to which the prohibition of allrestrictions on movements of capital between Member States is without prejudiceto the right of Member States ”to take measures which are justified on grounds ofpublic policy or public security”, allow a Member State, in derogation from thesystem of full freedom or the declaration system applicable to foreign investmentswithin its territory, to maintain a system of prior authorisation for investmentswhich are such as to represent a threat to public policy, public health or publicsecurity, such authorisation being deemed to have been obtained one month afterreceipt of the investment declaration submitted to the Minister unless the latter,within the same period, declares that the transaction in question is to be deferred?‘

14.

    A provision of national law which makes a direct foreign investment subject toprior authorisation constitutes a restriction on the movement of capital within themeaning of Article 73b(1) of the Treaty (see, to this effect, Joined Cases C-163/94,C-165/94 and C-250/94 Sanz de Lera and Others [1995] ECR I-4821, paragraphs 24and 25).

15.

    Such a provision remains a restriction even if, as in the present case, authorisationis deemed to have been obtained one month after receipt of the request where thecompetent authority does not declare a deferment of the transaction in questionwithin the same period. Similarly, it is irrelevant that, as the French Governmentasserts in this case, failure to comply with the obligation to request priorauthorisation attracts no penalty.

16.

    The question which arises is therefore whether Article 73d(1)(b) of the Treaty,which provides that Article 73b thereof is without prejudice to the right of MemberStates to take any measures which are justified on grounds of public policy orpublic security, permits national legislation, such as that at issue in the mainproceedings, which merely requires prior authorisation for direct foreigninvestments which are such as to represent a threat to public policy or publicsecurity.

17.

    It should be observed, first, that while Member States are still, in principle, free todetermine the requirements of public policy and public security in the light of theirnational needs, those grounds must, in the Community context and, in particular,as derogations from the fundamental principle of free movement of capital, beinterpreted strictly, so that their scope cannot be determined unilaterally by eachMember State without any control by the Community institutions (see, to thiseffect, Case 36/75 Rutili v Minister for the Interior [1975] ECR 1219, paragraphs 26and 27). Thus, public policy and public security may be relied on only if there isa genuine and sufficiently serious threat to a fundamental interest of society (see,to this effect, Rutili, cited above, paragraph 28, and Case C-348/96 Calfa [1999]ECR I-11, paragraph 21). Moreover, those derogations must not be misapplied soas, in fact, to serve purely economic ends (to this effect, see Rutili, paragraph 30). Further, any person affected by a restrictive measure based on such a derogationmust have access to legal redress (see, to this effect, Case 222/86 Unectef v Heylensand Others [1987] ECR 4097, paragraphs 14 and 15).

18.

    Second, measures which restrict the free movement of capital may be justified onpublic-policy and public-security grounds only if they are necessary for theprotection of the interests which they are intended to guarantee and only in so faras those objectives cannot be attained by less restrictive measures (see, to thiseffect, Sanz de Lera and Others, cited above, paragraph 23).

19.

    However, although the Court has held, in Joined Cases C-358/93 and C-416/93Bordessa and Others [1995] ECR I-361 and in Sanz de Lera and Others, whichconcerned the exportation of currency, that systems of prior authorisation were not,in the circumstances particular to those cases, necessary in order to enable thenational authorities to carry out checks designed to prevent infringements of theirlaws and regulations and that such systems consequently constituted restrictionscontrary to Article 73b of the Treaty, it has not held that a system of priorauthorisation can never be justified, particularly where such authorisation is in factnecessary for the protection of public policy or public security (see judgment of1 June 1999 in Case C-302/97 Konle v Austria [1999] ECR I-0000, paragraphs 45and 46).

20.

    In the case of direct foreign investments, the difficulty in identifying and blockingcapital once it has entered a Member State may make it necessary to prevent, atthe outset, transactions which would adversely affect public policy or public security. It follows that, in the case of direct foreign investments which constitute a genuineand sufficiently serious threat to public policy and public security, a system of priordeclaration may prove to be inadequate to counter such a threat.

21.

    In the present case, however, the essence of the system in question is that priorauthorisation is required for every direct foreign investment which is 'such as torepresent a threat to public policy [and] public security‘, without any more detaileddefinition. Thus, the investors concerned are given no indication whatever as to thespecific circumstances in which prior authorisation is required.

22.

    Such lack of precision does not enable individuals to be apprised of the extent oftheir rights and obligations deriving from Article 73b of the Treaty. That being so,the system established is contrary to the principle of legal certainty.

23.

    The answer to the question submitted must therefore be that Article 73d(1)(b) ofthe Treaty must be interpreted as precluding a system of prior authorisation fordirect foreign investments which confines itself to defining in general terms theaffected investments as being investments that are such as to represent a threat topublic policy and public security, with the result that the persons concerned areunable to ascertain the specific circumstances in which prior authorisation isrequired.

Costs

24.

    The costs incurred by the French and Greek Governments and by the Commission,which have submitted observations to the Court, are not recoverable. Since theseproceedings are, for the parties to the main action, a step in the proceedingspending before the national court, the decision on costs is a matter for that court.

On those grounds,

THE COURT,

in answer to the question referred to it by the Conseil d'État by decision of6 January 1999, hereby rules:

Article 73d(1)(b) of the EC Treaty (now Article 58(1)(b) EC) must be interpretedas precluding a system of prior authorisation for direct foreign investments whichconfines itself to defining in general terms the affected investments as beinginvestments that are such as to represent a threat to public policy and publicsecurity, with the result that the persons concerned are unable to ascertain thespecific circumstances in which prior authorisation is required.

Rodríguez IglesiasMoitinho de Almeida Edward Schintgen Kapteyn Gulmann Puissochet Hirsch Ragnemalm             Wathelet                        Skouris

Delivered in open court in Luxembourg on 14 March 2000.

R. Grass

G.C. Rodríguez Iglesias

Registrar

President

1: Language of the case: French.