JUDGMENT OF THE COURT (Sixth Chamber)

17 September 1998 (1)

(Transport — Public service obligations — Application for termination of part of aservice obligation)

In Case C-412/96,

REFERENCE to the Court under Article 177 of the EC Treaty by the KorkeinHallinto-oikeus (Finland) for a preliminary ruling in the proceedings pendingbefore that court brought by

Kainuun Liikenne Oy,

Oy Pohjolan Liikenne Ab,

on the interpretation of Regulation (EEC) No 1191/69 of the Council of 26 June1969 on action by Member States concerning the obligations inherent in theconcept of a public service in transport by rail, road and inland waterway (OJ,English Special Edition 1969 (I), p. 276), as amended by Council Regulation (EEC)No 1893/91 of 20 June 1991 (OJ 1991 L 169, p. 1), in particular Article 1(3) inconjunction with Article 4 thereof,

THE COURT (Sixth Chamber),

composed of: H. Ragnemalm, President of the Chamber, R. Schintgen,G.F. Mancini, P.J.G. Kapteyn (Rapporteur) and G. Hirsch, Judges,

Advocate General: P. Léger,

Registrar: H. von Holstein, Deputy Registrar,

after considering the written observations submitted on behalf of:

—    Kainuun Liikenne Oy and Oy Pohjolan Liikenne Ab, by Ari Heinilä, lawyerpractising in Helsinki,

—    the Finnish Government, by Holger Rotkirch, Ambassador, Head of LegalAffairs at the Ministry of Foreign Affairs, acting as Agent,

—    the Belgian Government, by Jan Devadder, General Adviser in the Ministryof Foreign Affairs, Trade and Cooperation with Developing Countries,acting as Agent,

—    the Commission of the European Communities, by Allan Rosas, PrincipalLegal Adviser, and Laura Pignataro, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Kainuun Liikenne Oy and Oy PohjolanLiikenne Ab, represented by Pekka Aalto, legal officer of Linja-autoliitto, theFinnish Government, represented by Tuula Pynnä, Legal Adviser in the Ministryof Foreign Affairs, acting as Agent, and the Commission, represented by AllanRosas and Laura Pignataro, at the hearing on 29 January 1998,

after hearing the Opinion of the Advocate General at the sitting on 26 March 1998,

gives the following

Judgment

1.

    By order of 13 December 1996, received at the Court on 23 December 1996, theKorkein Hallinto-oikeus (Supreme Administrative Court) referred to the Court fora preliminary ruling under Article 177 of the EC Treaty two questions on theinterpretation of Regulation (EEC) No 1191/69 of the Council of 26 June 1969 onaction by Member States concerning the obligations inherent in the concept of apublic service in transport by rail, road and inland waterway (OJ, English SpecialEdition 1969 (I), p. 276), as amended by Council Regulation (EEC) No 1893/91 of20 June 1991 (OJ 1991 L 169, p. 1) (hereinafter 'the Regulation‘), in particularArticle 1(3) in conjunction with Article 4.

2.

    Those questions were raised in proceedings in which Kainuun Liikenne Oy and OyPohjolan Liikenne Ab, transport undertakings, challenged the decision of the OulunLääninhallitus (Oulu Provincial Administration, hereinafter 'the Lääninhallitus‘)refusing to grant their request for partial termination of their obligation to providepassenger transport on the route for which they hold a licence.

Legislative background

3.

    The Regulation aims to eliminate disparities resulting from obligations inherent inthe concept of a public service which are imposed on transport undertakings byMember States and liable to cause substantial distortion in the conditions ofcompetition, while recognising that it is essential in certain cases to maintain suchobligations in order to ensure the provision of adequate transport services.

4.

    Under Article 1(3) of the Regulation, the competent authorities of the MemberStates are thus to terminate all obligations inherent in the concept of a publicservice, as defined in the Regulation, imposed on transport by rail, road and inlandwaterway.

5.

    However, under Article 1(4) of the Regulation, the competent authorities of theMember States may conclude public service contracts, in accordance with theconditions and details of operation laid down in Section V of the Regulation, witha transport undertaking in order to ensure adequate transport services which takeinto account in particular social and environmental factors and town and countryplanning, or with a view to offering particular fares to certain categories ofpassenger.

6.

    Article 3 of the Regulation provides:

'1.    Where the competent authorities of the Member States decide to maintain,in whole or in part, a public service obligation, and where this can be done in morethan one way, each capable of ensuring, while satisfying similar conditions, theprovision of adequate transport services, the competent authorities shall select theway least costly to the community.

2.    The adequacy of transport services shall be assessed having regard to:

(a)    the public interest;

(b)    the possibility of having recourse to other forms of transport and the abilityof such forms to meet the transport needs under consideration;

(c)    the transport rates and conditions which can be quoted to users.‘

7.

    Under Article 4(1) of the Regulation, it is for transport undertakings to apply tothe competent authorities of the Member States for the termination in whole or inpart of any public service obligation where such obligation entails economicdisadvantages for them.

8.

    Article 5 of the Regulation provides inter alia that an obligation to operate or tocarry imposes economic disadvantages where the reduction in the financial burdenwhich would be possible as a result of the total or partial termination of theobligation in respect of an operation or a group of operations affected by thatobligation exceeds the reduction in revenue resulting from that termination.

9.

    Article 6(2) of the Regulation further provides that decisions to maintain orterminate a public service obligation or part thereof are to provide forcompensation to be granted in respect of the financial burdens resulting therefrom,the amount of compensation being determined in accordance with the commonprocedures laid down by the Regulation.

10.

    Under Article 7 of the Regulation, there may be attached to any decision tomaintain an obligation conditions designed to improve the yield of the operationsaffected by the obligation in question.

11.

    The Regulation entered into force in Finland on 1 January 1994 on the accessionof the Republic of Finland to the European Economic Area.

The main proceedings

12.

    On 21 December 1993 the Finnish Ministry of Transport granted Kainuun Liikenneand Pohjolan Liikenne a scheduled service licence for the period from 1 January1994 to 31 December 2003 for the Kajaani-Rukatunturi route (about 275kilometres). That licence entitles them to transport passengers by bus on that routein accordance with specified timetables.

13.

    Following the accession of the Republic of Finland to the European EconomicArea and the entry into force of the Regulation in Finland, the Ministry ofTransport requested undertakings engaged in road transport by bus to makeapplications to the competent administrative authorities by 1 September 1994concerning the routes to be operated from June 1995. The applications were torequest the withdrawal of services which the undertakings were unwilling to operateon passenger revenue alone.

14.

    Kainuun Liikenne and Pohjolan Liikenne applied for termination in part of theirobligation to operate the Kajaani-Rukatunturi route, in such a way as to limit it tothe Kajaani-Peranka and Kajaani-Suomussalmi sections. According to theapplication, the entire service made a loss. They stated, however, that they wereprepared to continue operating the route and to negotiate with the Lääninhallitus

for a public service contract making public funds available for the section of theroute for which they had applied for the transport obligation to be terminated.

15.

    By decision of 9 January 1995 the Lääninhallitus rejected the application, on theground that Kainuun Liikenne and Pohjolan Liikenne had not shown in the mannerprescribed in Article 5 of the Regulation that by cutting the workings in questionback to Peranka and Suomussalmi they could achieve an economically better resultthan by continuing to operate under the previous conditions. According to theLääninhallitus, they were entitled to discontinue the operations in questioncompletely. Termination in part of the operating obligation, on the other hand, wasnot the correct approach in the present case, as the section concerned was to beregarded as an integral part of the Kajaani-Rukatunturi route.

16.

    Kainuun Liikenne and Pohjolan Liikenne thereupon appealed to the KorkeinHallinto-oikeus for the decision of the Lääninhallitus to be set aside. In support oftheir appeal, they referred to the provisions of the Regulation as showing that theLääninhallitus was not entitled to refuse to allow them to withdraw the route inpart.

17.

    According to the Korkein Hallinto-oikeus, Kainuun Liikenne and Pohjolan Liikenneare to be regarded as having shown, by means of the calculations they havesubmitted in accordance with Article 5(2) of the Regulation, that the section of theroute which they have applied to withdraw entails an economic disadvantage forthem within the meaning of Article 4 of the Regulation, since the reduction in thefinancial burden as a result of the partial termination exceeds the reduction inrevenue resulting from that termination.

18.

    That court further states that where a transport undertaking wishes to reduce aservice based on a licence in force, the procedure under the national legislationconsists of first revoking the operating licence on application by the transportundertaking concerned and then issuing a new licence for the reduced service. Thatprocedure also makes it possible, before the new licence is granted for the reducedservice, to call for tenders for the old service, if it is thought necessary to maintainit. The national legislation also entitles the competent authorities to revoke alicence on its own initiative under the conditions laid down in Paragraph 20 of LawNo 662/1994 on passenger transport.

19.

    The court observes, finally, that to enable new undertakings to gain access to thesector, organise transport rationally and maintain adequate transport services withas little public subsidy as possible, and to arrange effective competition for thecontracted services, it may be necessary, having regard to the situation in Finland,to consider that the competent authorities, without being precluded by Communitylaw, have either the power to reject an application for partial termination of apublic service obligation which relates to a very small part, from the point of viewof organisation of the transport, of the undertaking's operating obligation, or else

the possibility of revoking on their own initiative, in accordance with national law,the operator's licence of an undertaking which has applied for partial terminationof its operating obligation where revocation of the licence is necessary forrationalisation of the service.

20.

    Those were the circumstances in which the Korkein Hallinto-oikeus stayedproceedings and referred the following questions to the Court for a preliminaryruling:

'1.    Is the regulation on public service obligations (Regulation (EEC) No1191/69 as amended by Regulation (EEC) No 1893/91), in particular Article4 in conjunction with Article 1(3), to be interpreted as meaning that itentitles a transport undertaking to have a part, of whatever size, of itsoperating obligation terminated, for example, only a certain part of oneroute operated?

2.    If the answer to the first question is wholly or conditionally in theaffirmative, in which case the Korkein Hallinto-oikeus may remit the caseto the Lääninhallitus for a fresh decision, in order to reach a final decisionin the case the question arises whether it also follows, from the right givento transport undertakings in the regulation on public service obligations tohave a service obligation partially terminated, that the authorities' powerunder national law to revoke a bus operator's licence for the purpose ofreasonable reorganisation of transport is precluded or restricted where theneed to reorganise results from a partial termination.‘

Preliminary point

21.

    Since Kainuun Liikenne and Pohjolan Liikenne consider that the national court'saccount of the national legislation is incorrect, they formulate additional questionswhich they claim the Court should also rule on, in order to take due account oftheir point of view.

22.

    It should be recalled that, according to the Court's case-law, it is for the nationalcourt to assess the scope of the national provisions and the manner in which theymust be applied (see, in particular, Case C-194/94 CIA Security International vSignalson and Securitel [1996] ECR I-2201, paragraph 20).

23.

    As regards the additional questions proposed, it should be observed that underArticle 177 of the Treaty it is for the national court, not the parties to the mainaction, to bring a matter before the Court of Justice. The right to determine thequestions to be put to the Court thus devolves upon the national court alone andthe parties may not change their tenor (see, in particular, Case 44/65 HessischeKnappschaft v Singer [1965] ECR 965, at 970).

24.

    Moreover, to answer the additional questions mentioned by Kainuun Liikenne andPohjolan Liikenne in their observations would be incompatible with the Court'sfunction under Article 177 of the Treaty and with its duty to ensure that theGovernments of the Member States and the parties concerned are given theopportunity to submit observations under Article 20 of the EC Statute of the Courtof Justice, bearing in mind that under that provision only the order of the referringcourt is notified to the interested parties (see, in particular, Case C-352/95Phytheron International v Bourdon [1997] ECR I-1729, paragraph 14).

The first question

25.

    By its first question, read in the light of the second question, the national courtessentially asks whether the Regulation, in particular Article 1(3) in conjunctionwith Article 4 thereof, entitles a transport undertaking to obtain partial terminationof its public service obligation.

26.

    It should be noted that under Article 4(1) of the Regulation a transportundertaking may apply for the termination of all or any part of a public serviceobligation, but that no provision of that regulation obliges the Member States togrant that application, even if the undertaking shows that maintaining it involveseconomic disadvantages within the meaning of Article 5 of the Regulation.

27.

    On the contrary, it follows from Article 1(4) and Article 3 of the Regulation thatthe competent authorities of the Member States are entitled to maintain in wholeor in part a public service obligation which they consider necessary to ensure theprovision of adequate transport services.

28.

    That interpretation is supported, as the Advocate General observes in points 40 to45 of his Opinion, by both the objective and the general scheme of the Regulation.

29.

    Consequently, the Regulation does not entitle a transport undertaking to obtainpartial termination of its public service obligation.

30.

    However, as the Advocate General observes in points 48 to 51 of his Opinion, adecision to maintain public service obligations is subject to certain rules, inparticular those in Articles 3, 6(2) and 7 of the Regulation.

31.

    Moreover, as stated in paragraph 27 above, the maintenance in whole or in partof a public service obligation is permitted solely in order to ensure the provisionof adequate transport services.

32.

    The concept of ensuring the provision of adequate transport services is not,however, defined in the Regulation, which merely provides certain factors forassessing it.

33.

    Thus the second recital in the preamble to the Regulation states that 'the adequacyof transport services must be assessed in the light of the state of supply anddemand in the transport sector and of the needs of the community‘.

34.

    It must also be noted that Article 3(2) of the Regulation provides that theadequacy of transport services is to be assessed by reference to the public interest,the possibility of having recourse to other forms of transport and the ability of suchforms to meet the transport needs under consideration, and the transport rates andconditions which can be quoted to users. Where there are several ways of ensuring,while satisfying similar conditions, the provision of adequate transport services, thecompetent authorities must, under Article 3(1) of the Regulation, select the wayleast costly to the community.

35.

    It follows that, where the requirements of Article 3 of the Regulation are compliedwith, the competent authorities of the Member States have a wide discretion inassessing whether ensuring 'the provision of adequate transport services‘ requiresa public service obligation to be maintained.

36.

    The answer to the first question must therefore be that the Regulation, inparticular Article 1(3) and Article 4 thereof, must be construed as not obliging theMember States to grant an application by a transport undertaking for partialtermination of its public service obligation, even if that undertaking shows thatmaintaining the obligation involves economic disadvantages for it. However, theonly ground for refusing such an application is the need to ensure adequatetransport services. That concept is to be assessed, in accordance with Article 3 ofthe Regulation, by reference to the public interest, the possibility of having recourseto other forms of transport and the ability of such forms to meet the transportneeds under consideration, and the transport rates and conditions which can bequoted to users. Where there are several ways of ensuring, while satisfying similarconditions, the provision of adequate transport services, the competent authoritiesare to select the way least costly to the community.

The second question

37.

    In view of the answer to the first question, there is no need to answer the secondquestion.

Costs

38.

    The costs incurred by the Finnish and Belgian 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 action pending before the national court, thedecision on costs is a matter for that court.

On those grounds,

THE COURT (Sixth Chamber),

in answer to the questions referred to it by the Korkein Hallinto-oikeus by orderof 13 December 1996, hereby rules:

Regulation (EEC) No 1191/69 of the Council of 26 June 1969 on action by MemberStates concerning the obligations inherent in the concept of a public service intransport by rail, road and inland waterway, as amended by Council Regulation(EEC) No 1893/91 of 20 June 1991, in particular Article 1(3) and Article 4 thereof,must be construed as not obliging the Member States to grant an application bya transport undertaking for partial termination of its public service obligation,even if that undertaking shows that maintaining the obligation involves economicdisadvantages for it. However, the only ground for refusing such an application isthe need to ensure adequate transport services. That concept is to be assessed, inaccordance with Article 3 of Regulation No 1191/69, by reference to the publicinterest, the possibility of having recourse to other forms of transport and theability of such forms to meet the transport needs under consideration, and thetransport rates and conditions which can be quoted to users. Where there areseveral ways of ensuring, while satisfying similar conditions, the provision ofadequate transport services, the competent authorities are to select the way leastcostly to the community.

RagnemalmSchintgen Mancini Kapteyn Hirsch

Delivered in open court in Luxembourg on 17 September 1998.

R. Grass

H. Ragnemalm

Registrar

President of the Sixth Chamber

1: Language of the case: Finnish.