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JUDGMENT OF THE COURT

17 June 1997 (1)

[234s(Freedom of establishment Freedom to provide services Old people's homes Non-profit-making)[s

REFERENCE to the Court under Article 177 of the EC Treaty by the TribunaleAmministrativo Regionale per la Lombardia (Italy) for a preliminary ruling in theproceedings pending before that court between

Sodemare SA,
Anni Azzurri Holding SpA,
Anni Azzurri Rezzato Srl,
supported by
Fédération des Maisons de Repos Privées de Belgique (Femarbel) ASBL,

and

Regione Lombardia,

on the interpretation of Articles 3(g), 5, 52, 58, 59, 85, 86, 90 and 190 of the ECTreaty,

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, G.F. Mancini, J.C. Moitinho deAlmeida and L. Sevón (Presidents of Chambers), C.N. Kakouris, P.J.G. Kapteyn(Rapporteur), C. Gulmann, P. Jann, H. Ragnemalm, M. Wathelet andR. Schintgen, Judges,

Advocate General: N. Fennelly,

Registrar: L. Hewlett, Administrator,

after considering the written observations submitted on behalf of:

Sodemare SA, Anni Azzurri Holding SpA and Anni Azzurri Rezzato Srl, byG. Conte and G. Giacomini, of the Genoa Bar, and G. Tanzella, of theMilan Bar,
Fédération des Maisons de Repos Privées de Belgique (Femarbel) ASBL,by V. Tavormina, of the Milan Bar,
the Italian Government, by Professor U. Leanza, Head of the Legal Serviceof the Ministry of Foreign Affairs, acting as Agent, assisted by D. DelGaizo, Avvocato dello Stato,
the Netherlands Government, by J.G. Lammers, acting Legal Adviser, actingas Agent,
the Commission of the European Communities, by E. Traversa, of its LegalService, acting as Agent,

having regard to the Report for the Hearing,

after hearing the oral observations of Sodemare SA, Anni Azzurri Holding SpAand Anni Azzurri Rezzato Srl, the Italian Government and the Commission at thehearing on 4 December 1996,

after hearing the Opinion of the Advocate General at the sitting on 6 February1997,

gives the following

Judgment

By order of 2 March 1995, received at the Court Registry on 10 March 1995, theTribunale Amministrativo Regionale per la Lombardia (Administrative Court forthe Lombardy Region) referred to the Court of Justice for a preliminary rulingunder Article 177 of the EC Treaty five questions on the interpretation of Articles3(g), 5, 52, 58, 59, 85, 86, 90 and 190 of the EC Treaty.
Those questions were raised in proceedings brought by the Luxembourg companySodemare SA (hereinafter 'Sodemare) and two Italian companies, Anni AzzurriHolding SpA and Anni Azzurri Rezzato Srl, for the annulment, first, of Article18(3)(a) of Legge Regionale Lombardia (Lombardy Regional Law) No 39 of 11April 1980 concerning the organization and functioning of local health and welfarecentres (Bollettino Ufficiale della Regione Lombardia No 15 of 11 April 1980, 3rdsupplement, hereinafter 'the 1980 Law), second, of Order No 2157 of 3December 1993 of the Regione Lombardia (Lombardy Region) rejecting theirrequest for approval to enter into contractual arrangements under which theywould be reimbursed for providing social insurance services of a health-care natureand, finally, of Opinion No 41 of 7 September 1993 issued by the local health andwelfare centre. The Fédération des Maisons de Repos Privées de Belgique(Femarbel) intervened in support of those three companies.
The Italian Decree of 8 August 1985 (GURI No 191 of 14 August 1985, p. 5727),laying down guidelines and coordinating measures for the autonomous regions andprovinces regarding activities of a health-care nature linked with social welfare,draws a distinction between direct social welfare as such and social welfare of ahealth-care nature. The former includes, in particular, hospitalization in non-hospital sheltered accommodation which fully takes the place, even temporarily, offamily care. Social welfare of a health-care nature, for its part, is directly andprimarily intended to protect the health of citizens through prevention, care andphysical and psychological therapy.
Under Article 6 of that decree, the concept of social welfare of a health-carenature may apply in particular to hospitalization in sheltered accommodation usedmainly or solely for the provision of care for elderly and infirm people who cannotbe cared for in the home. Where health care cannot be dissociated from socialwelfare services, the regional authorites may, depending on the financial resourcesavailable to the Fondo Sanitario Nazionale (National Health Fund), concludecontracts with public bodies and, in their absence, with private bodies.
Legge Regionale Lombardia No 1 of 7 January 1986 on the reorganization andplanning of social welfare services (Bollettino Ufficiale della Regione LombardiaNo 2, of 8 January 1986, 1st supplement, hereinafter 'the 1986 Law) governs thesystem of social welfare services in the Lombardy Region. Under that Law, therunning of the system is entrusted to establishments directly managed by themunicipalities and by the bodies responsible for local services and to thoseoperating under the auspices of other public bodies which have contractualarrangements within the meaning of the 1980 Law. Similarly, private operatorswhich manage establishments meeting the requirements of Article 18(3) of the 1980Law participate in the running of the social welfare system.
The 1980 Law governs the conclusion in Lombardy of contractual arrangementswith the bodies managing the Unità Socio-Sanitarie Locali (local health and welfarecentres, hereinafter 'USSLs) for the provision of social welfare services, includingservices of a health-care nature. Article 18(2) of the 1980 Law provides thatprivate operators wishing to participate in the planning and organization of USSLservices must apply for and obtain from the regional authorities a certificate ofsuitability to enter into contractual arrangements with the bodies managing theUSSLs.
Pursuant to Article 18(3) of the 1980 Law, a condition for such suitability is thatthe body in question must be non-profit-making.
Under Article 18(5) of the 1980 Law, possession of a certificate of suitabilityentitles the holder to conclude contracts with USSLs. Article 18(10) provides thatthe contracts are to govern financial relations between the relevant publiccontracting authority and the private operator and also provides for the form ofreimbursement for each service on the basis of predetermined tariffs within thelimits set by the regional social welfare plans, under which, in any event, the actualcosts are reimbursable.
In addition, Article 50 of the 1986 Law makes management of a home for oldpeople or for people who are partially or entirely unable to live independentlysubject to the grant of an operating permit issued by the authorities of the provincewhere the home is situated.
According to the documents before the Court, the regional social welfare plan inforce at the material time, as approved by the Lombardy Regional Council,imposes for old people's homes which have been permitted to enter intocontractual arrangements stricter requirements regarding staff than those applicableto homes which have no such arrangements. The regional authorities finance thecosts of social welfare services of a health-care nature provided in homes withcontractual arrangements up to a specified reimbursement ceiling per day for eachresident who is not capable of living independently, regardless of the extent of thelatter's needs.
Sodemare set up a capital company governed by Italian law, named Anni AzzurriHolding SpA. That company, which Sodemare controls entirely, owns all thecapital of various companies running old people's homes, including the companynamed Residenze Anni Azzurri Rezzato Srl.
On 3 December 1992, the latter company was authorized to run an old people'shome by decree of the President of the Province of Brescia, under Article 50 of the1986 Law. On 29 April 1993, it applied to the Lombardy Regional Council forapproval to enter into contractual arrangements with the USSLs, which would haveenabled it to be reimbursed for services of a health-care nature which it is requiredto provide for elderly residents not capable of living independently.
By Order No 2157 of 3 December 1993, the Lombardy Region rejected thatapplication for approval to enter into contractual arrangements, on the basis of anegative opinion from the USSL, on the ground that the requirement that it shouldbe non-profit-making, imposed by Article 18(3)(a) of the 1980 Law, was notsatisfied.
The national court found that the plaintiffs in the main proceedings, althoughoperational and solvent, were not using their capacity to the full since the numberof beds occupied by elderly persons was considerably lower than the number ofplaces available in their homes.
It also observed that the effect of the article at issue was that the provision ofsocial welfare services of a health-care nature was essentially reserved to non-profit-making companies. The result of reserving public financing to such companies wasto make users of the services provided by profit-making companies bear a financialburden to which they would not be subject if they sought the same service from anon-profit-making company.
In those circumstances, the Tribunale Amministrativo Regionale decided to stayproceedings pending a preliminary ruling from the Court of Justice on the followingquestions:

'1.    Under Article 190 of the EEC Treaty, must a national provision which,although dealing with a matter falling within the field of application" of theCommunity Treaties, nevertheless contains no statement whatsoever of thereasons on which it is based be regarded as contrary to Community law withthe result that that provision, lacking a statement of reasons, cannot beapplied by the national court: that result being limited to those cases ofwhich the present case appears to be one where the national provisioncreates an ambiguous state of affairs, in that it keeps the persons concernedin a state of uncertainty regarding the possibilities available to them ofrelying on Community law?

    [Such cases being those in which the Member State has an obligation"(which, for the Italian Constitutional Court, is a precise obligation": seejudgment of the Constitutional Court (4 July), 11 July 1989, No 389, lastsubparagraph of paragraph 4 of the grounds of the judgment) to removefrom its legal order those provisions which are incompatible withCommunity law: judgment of the Court of Justice in Case 104/86 [1988]ECR 1799. This obligation has been mentioned by the Court on severaloccasions".]

2.    Is a national provision which (without stating reasons) reserves to non-profit-making companies and firms" the provision of an entire category ofservices, which are important inter alia from the financial point of view,contrary to Article 58 of the EEC Treaty, in so far as that article makes aclear distinction between profit-making companies and firms" and non-profit-making companies and firms"?

3.    Do Articles 52, 58 and 59 of the Treaty prohibit national legislation whichhampers the pursuit of a business activity by imposing on an undertakingestablished in a particular Member State, which wishes to establish itself inanother Member State within the meaning of the Treaty, the alternative ofeither carrying on that activity on a non-economic basis in that caseadopting one of the legal forms which are listed exhaustively but do notcoincide with those that facilitate establishment or if it intends carryingon the activity on an economic basis accepting the burden of serviceswhich should be provided at the expense of the public health service?

    4.    Does Article 59 of the Treaty prohibit national legislation which, by virtueof the procedures laid down by domestic law, directs the users of welfareservices who are allowed by the said domestic law to choose who is toprovide them solely towards undertakings to which, exclusively byreference to their legal structure, the State reimburses the costs of thehealth services which all the authorized undertakings are required toprovide, thereby, first, channelling the demand for services towards certainproviders and, secondly, depriving the user of real freedom of choice?

5.    Do Articles 3(f), 5, 85 and 86, possibly in conjunction with Article 90, of theTreaty, prohibit the legislation at issue which, under the machinery providedby national law,

    (a)    allows only companies with a particular legal structure to provide,without charges to be borne by the undertaking, services which areancillary to the services provided by it against payment;

    (b)    allows them to present themselves on the market as a category ofundertakings which, having similar qualitative and quantitativecharacteristics, are described to users as a largely unitary organization;

    (c)    makes it possible to channel towards the undertakings referred to inparagraph (b) the demand for welfare services provided to oldpeople;

    (d)    allows imposition on undertakings of the obligation to provide, at theirown expense, services ancillary to those provided by them in returnfor payment;

    (e)    gives rise to arrangements whose effect is to impose on non-participating undertakings the obligation to provide at their ownexpense services ancillary to the service offered, passing the costthereof on to users;

    (f)    thus creates the necessity of transferring to users the economic burdenof such services, which are otherwise, where users avail themselves ofthe services of the undertakings participating in the arrangement, freeof charge?

The first question
It is apparent from the order for reference that the first question concerns theobligation to state the reasons for national rules of general scope which, like thoseat issue in this case, prohibit profit-making companies from participating in a socialwelfare system by concluding contracts which entitle them to be reimbursed by thepublic authorities for the costs of providing social welfare services of a health-carenature.
The national court thus seeks essentially to ascertain whether Community law, andin particular Article 190 of the Treaty, lays down conditions concerning thestatement of reasons for national rules of general scope which come within the fieldof application of Community law, where such rules leave the persons to whom theyapply in a state of uncertainty as to the possibilities open to them underCommunity law.
The obligation to state reasons laid down in Article 190 of the Treaty concerns onlyacts of the institutions. It is true that Community law imposes the obligation tostate reasons for national decisions affecting the exercise of a fundamental rightconferred on individuals by the Treaty (see, in particular, Case 222/86 UNECTEFv Heylens and Others [1987] ECR 4097, paragraphs 14 to 17). However, in view ofits purpose, such an obligation concerns only individual decisions adversely affectingindividuals against which the latter must have some remedy of a judicial nature, andnot national measures of general scope.
The answer to the first question must therefore be that Community law, and Article190 of the Treaty in particular, does not lay down conditions concerning thestatement of reasons for national rules of general scope which fall within the sphereof Community law.

The second, third, fourth and fifth questions
By these questions, the national court seeks essentially to ascertain whether Articles3(g), 5, 52, 58, 59, 85, 86 and 90 of the Treaty preclude a Member State fromallowing only non-profit-making private operators to participate in the running ofits social welfare system by concluding contracts which entitle them to bereimbursed by the public authorities for the costs of providing social welfareservices of a health-care nature.
Since the participation of private operators in the running of the social welfaresystem by means of such contracts is subject to the condition that they are non-profit-making, it is necessary to examine that condition (hereinafter 'the non-profitcondition) in relation to the provisions of the Treaty mentioned by the nationalcourt.

Articles 52 and 58 of the Treaty (second and third questions)
The second and third questions concern the situation of a profit-making companyestablished in Luxembourg which has set up one or more profit-making companiesin Italy in order to run old people's homes in that country.
Since the Luxembourg company is involved on a stable and continuous basis in theeconomic life of Italy, that situation falls within the provisions of the chapter of theTreaty on freedom of establishment, namely Articles 52 to 58, and not those of thechapter concerning services (see, to that effect, Case 2/74 Reyners v Belgium [1974]ECR 631, paragraph 21, and Case C-55/94 Gebhard v Consiglio degli Avvocati eProcuratori di Milano [1995] ECR I-4165, paragraph 25).
As regards Article 58 of the Treaty, taken in isolation (second question), it mustbe borne in mind that the effect of that provision is to assimilate, for the purposeof giving effect to the chapter relating to the right of establishment, companies orfirms formed in accordance with the law of a Member State and having theirregistered office, central administration or principal place of business within theCommunity, to natural persons who are nationals of one of the Member States,although non-profit-making companies are excluded from the benefit of thatchapter (see Case 182/83 Fearon v Irish Land Commission [1984] ECR 3677,paragraph 8). Since that provision does no more than define the class of personsto whom the provisions on the right of establishment apply, it cannot preclude, assuch, national rules of the kind at issue in the main proceedings.
As regards Article 52 of the Treaty, read in conjunction with Article 58 thereof(third question), it must be borne in mind that the right of establishment with whichthose provisions are concerned is granted both to natural persons who are nationalsof a Member State of the Community and to legal persons within the meaning ofArticle 58. Subject to the exceptions and conditions laid down, it allows all typesof self-employed activity to be taken up and pursued on the territory of any otherMember State, undertakings to be formed and operated, and agencies, branchesor subsidiaries to be set up (Gebhard, cited above, paragraph 23).
In assessing the compatibility of the non-profit condition with those provisions ofthe Treaty, it must first be borne in mind that, as the Court has already held inCase 238/82 Duphar and Others v Netherlands State [1984] ECR 523, paragraph 16,and Joined Cases C-159/91 and C-160/91 Poucet and Pistre v AGF and Cancava [1993] ECR I-637, paragraph 6, Community law does not detract from the powersof the Member States to organize their social security systems.
It should be noted that the non-profit condition mentioned in Article 18(3)(a) ofthe 1980 Law forms part of the social welfare system established by the 1986 Law,which seeks in particular to promote and protect the health of the populationthrough social welfare and health services and to operate in the interests ofdependent persons who have no family or whose family is not in a position to lookafter them, by bringing about or encouraging their reintegration into suitablefamilies or environments within the Community.
It is clear from the documents before the Court that that system of social welfare,whose implementation is in principle entrusted to the public authorities, is basedon the principle of solidarity, as reflected by the fact that it is designed as a matterof priority to assist those who are in a state of need owing to insufficient familyincome, total or partial lack of independence or the risk of being marginalized, andonly then, within the limits imposed by the capacity of the establishments andresources available, to assist other persons who are, however, required to bear thecosts thereof, to an extent commensurate with their financial means, in accordancewith scales determined by reference to family income.
Under the 1986 Law, private organizations which meet the requirements laid downby Article 18(3) of the 1980 Law, in particular the non-profit condition, and areallowed to conclude contractual arrangements contribute to the running of thesocial welfare system as described, which determines the quality of the services tobe provided to welfare recipients and the extent to which the costs of the servicesprovided by those organizations are to be reimbursed.
According to the Italian Government, application of the non-profit condition hasbeen found to represent the most logical approach, having regard to the exclusivelysocial aims of the system at issue in this case. The choices made in terms oforganization and provision of assistance by non-profit-making private operators arenot influenced by the need to derive profit from the provision of services so as toenable them to pursue social aims as a matter of priority.
In that regard, it must be stated that, as Community law stands at present, aMember State may, in the exercise of the powers it retains to organize its socialsecurity system, consider that a social welfare system of the kind at issue in thiscase necessarily implies, with a view to attaining its objectives, that the admissionof private operators to that system as providers of social welfare services is to bemade subject to the condition that they are non-profit-making.
Moreover, the fact that it is impossible for profit-making companies automaticallyto participate in the running of a statutory social welfare system of a Member Stateby concluding a contract which entitles them to be reimbursed by the publicauthorities for the costs of providing social welfare services of a health-care natureis not liable to place profit-making companies from other Member States in a lessfavourable factual or legal situation than profit-making companies in the MemberState in which they are established.
In view of the foregoing, the non-profit condition cannot be regarded as contraryto Articles 52 and 58 of the Treaty.
The answer to the second and third questions must therefore be that Articles 52and 58 of the Treaty do not preclude a Member State from allowing only non-profit-making private operators to participate in the running of its social welfaresystem by concluding contracts which entitle them to be reimbursed by the publicauthorities for the costs of providing social welfare services of a health-care nature.

Article 59 of the Treaty (fourth question)
The plaintiffs in the main proceedings claim that, having established themselves inItaly, they provide from that State, in their old people's homes, services comprisingmainly accommodation for beneficiaries established in other Member States. Because of the cross-frontier nature of those services, they claim, they are entitledto rely on the provisions of the Treaty concerning freedom to provide services inorder to challenge the rules at issue.
In that regard it must be borne in mind that the right freely to provide services maybe relied on by an undertaking as against the State in which it is established if theservices are provided for persons established in another Member State (CaseC-18/93 Corsica Ferries [1994] ECR I-1783, paragraph 30; Case C-379/92 Peralta[1994] ECR I-3453, paragraph 40; and Case C-384/93 Alpine Investments [1995]ECR I-1141, paragraph 30).
On the other hand, those same provisions do not cover the situation where anational of a Member State goes to the territory of another Member State andestablishes his principal residence there in order to receive services there for anindefinite period (Case 196/87 Steymann v Staatssecretaris van Justitie [1988] ECR6159, paragraph 17). Those provisions cannot be applied to activities which areconfined in all respects within a single Member State (Case 52/79 Procureur du Roiv Debauve and Others [1980] ECR 833, paragraph 9, and Case C-41/90 Höfner andElser [1991] ECR I-1979, paragraph 37).
In this case, the nationals from other Member States who go to Italy to stay in theplaintiffs' homes do so in order to enjoy permanently or for an indefinite period theservices provided in those homes. As is clear from the documents before theCourt, it is essentially on that basis that the plaintiffs offer to take in residents.
The answer to the fourth question must therefore be that Article 59 of the Treatydoes not cover the situation of a company which, having established itself in aMember State in order to run old people's homes there, provides services toresidents who, for that purpose, reside in those homes permanently or for anindefinite period.

Articles 3(g), 5, 85, 86 and 90 of the Treaty (fifth question)
It must be borne in mind that, in themselves, Articles 85 and 86 of the Treaty areconcerned solely with the conduct of undertakings and not with laws or regulationsadopted by Member States. However, it is settled case-law that Articles 85 and 86,read in conjunction with Article 5 of the Treaty, require the Member States torefrain from introducing or maintaining in force measures, even of a legislative orregulatory nature, which may render ineffective the competition rules applicable toundertakings (see, in particular, Case C-96/94 Centro Servizi Spediporto v SpedizioneMarittima del Golfo [1995] ECR I-2883, paragraph 20, and Joined Cases C-140/94,C-141/94 and C-142/94 DIP and Others v Comune di Bassano del Grappa andComune di Chioggia [1995] ECR I-3257, paragraph 14).
The Court of Justice has already held that Articles 5 and 85 are infringed wherea Member State requires or favours the adoption of agreements, decisions orconcerted practices contrary to Article 85 or reinforces their effects, or where itdeprives its own rules of the character of legislation by delegating to privateeconomic operators the responsibility for taking decisions affecting the economicsphere (Centro Servizi Spediporto, cited above, paragraph 21, and DIP and Others,cited above, paragraph 15).
In this case, there is nothing in the documents before the Court to support theconclusion that the rules at issue required or favoured the adoption of such agreements, decisions or concerted practices by the undertakings permitted to enterinto contractual arrangements with the USSLs or reinforced their effects. Moreover, there is nothing to indicate that, as far as those rules are concerned, thepublic authorities have delegated their powers to private economic operators.
As regards Articles 3(g), 5 and 86 of the Treaty, they could only apply to rules ofthe kind at issue in the main proceedings if it were proved that such rules placedan undertaking in a position of economic strength enabling it to prevent effectivecompetition from being maintained on the relevant market by placing it in aposition to behave to an appreciable extent independently of its competitors, of itscustomers and ultimately of consumers (Centro Servizi Spediporto, cited above,paragraph 31, and DIP and Others, cited above, paragraph 24).
The Court has held that Article 86 of the Treaty prohibits abusive practicesresulting from the exploitation by one or more undertakings of a dominant positionon the common market or in a substantial part of it in so far as those practices mayaffect trade between Member States (Case C-393/92 Almelo and Others [1994] ECRI-1477, paragraph 40).
For a collective dominant position to exist, the undertakings in the group must besufficiently linked to each other to adopt the same conduct on the market (Almelo,paragraph 42).
In this case, there is no reason to infer that national rules of the kind at issue in themain proceedings, which make the conclusion of contracts with the USSLsconferring entitlement to be reimbursed for the costs of providing social welfareservices of a health-care nature conditional on the private operator being non-profit-making, place individual undertakings permitted to enter into suchcontractual arrangements in a dominant position or result in the creation ofsufficiently strong links between them as to give rise to a collective dominantposition.
In those circumstances, Article 86, read in conjunction with Article 90 of theTreaty, likewise cannot apply.
It follows from the foregoing that Articles 85 and 86, read in conjunction withArticles 3(g), 5 and 90 of the Treaty, do not apply to national rules which allowonly non-profit-making private operators to participate in the running of a socialwelfare system by concluding contracts which entitle them to be reimbursed by thepublic authorities for the costs of providing social welfare services of a health-carenature.

Costs
The costs incurred by the Italian and Netherlands Governments and by theCommission of the European Communities, which have submitted observations tothe Court, are not recoverable. Since these proceedings are, for the parties to themain proceedings, a step in the proceedings pending before the national court, thedecision on costs is a matter for that court.

On those grounds,
THE COURT,
in answer to the questions referred to it by the Tribunale Amministrativo Regionaleper la Lombardia by order of 2 March 1995, hereby rules:
1. Community law, and Article 190 of the EC Treaty in particular, does notlay down conditions concerning the statement of reasons for national rulesof general scope which fall within the sphere of Community law.
2. Articles 52 and 58 of the EC Treaty do not preclude a Member State fromallowing only non-profit-making private operators to participate in therunning of its social welfare system by concluding contracts which entitlethem to be reimbursed by the public authorities for the costs of providingsocial welfare services of a health-care nature.
3. Article 59 of the EC Treaty does not cover the situation of a companywhich, having established itself in a Member State in order to run oldpeople's homes there, provides services to residents who, for that purpose,reside in those homes permanently or for an indefinite period.
4. Articles 85 and 86, read in conjunction with Articles 3(g), 5 and 90 of theEC Treaty, do not apply to national rules which allow only non-profit-making private operators to participate in the running of a social welfaresystem by concluding contracts which entitle them to be reimbursed by thepublic authorities for the costs of providing social welfare services of ahealth-care nature.

Rodríguez IglesiasMancini

Moitinho de Almeida

SevónKakouris

Kapteyn

GulmannJann

Ragnemalm

Wathelet

Schintgen

Delivered in open court in Luxembourg on 17 June 1997.

R. Grass

G.C. Rodríguez Iglesias

Registrar

President

1: Language of the case: Italian.