We have been asked to advise Xana on the likelihood of her being able to bring a successful claim against Yvette under EC law to recover the outstanding balance of her account; namely, that proportion of the total fees payable required, under the Free Movement of Services Act 2008, as a contribution towards the quality audit which Xana is required to undergo in accordance with the provisions of that same Act. Central to this problem question is the Law of the European Union pertaining to the freedom to provide and receive services and also the freedom of establishment In order to provide a reasoned argument in response to this question it will be necessary to examine the provisions of Council Directive 2006/123/EC, which the Free Movement of Services Act 2008 purports to implement; Articles 43 to 55 of the Treaty of the European Union (1992), which provide (inter alia) the core governing principles on which restrictions to aforementioned freedoms are permissible under EC Law; and, the case law of the European Court of Justice, the decisions from which provide insight into how these principles are likely to be interpreted and applied, in order to determine whether or not:
- The tutorial services supplied to Yvette by Xana, on a distance-learning basis, are likely to be considered â€˜servicesâ€™ for the purposes of Articles 43 to 55 of the Treaty of the European Union and Council Directive 2006/123/EC;
- The â€˜quality auditâ€™ restriction imposed on Xana by the Free Movement of Services Act 2008 is permissible under European law; and,
- The â€˜contribution requirementâ€™ imposed on Yvette by the Free Movement of Services Act 2008 is valid, taking into account the overriding objectives of Articles 43 to 55 of the Treaty of the European Union and Council Directive 2006/123/EC.
In regard to whether or not the tutorial services supplied to Yvette by Xana, on a distance-learning basis, are likely to be considered â€˜servicesâ€™ for the purposes of Articles 43 to 55 of the Treaty of the European Union and Council Directive 2006/123/EC: For the purpose of the freedom to provide and receive services across the European Union, a â€˜serviceâ€™ is defined by Article 50 EC, which states: â€œServices shall be considered to be â€˜servicesâ€™ within the meaning of this Treaty where they are normally provided for remuneration, insofar as they are not governed by the provisions relating to freedom of movement for goods, capital and persons.
â€ While it has been held by the European Court of Justice, in the case of Belgium v. Humbel
, that the provision of education by the State does not fall within the scope of this definition, even where students are required to pay fees towards the operational costs of the institutions providing their education; in the present case, because the services provided by Xena are fully commercial and independent from the duties of the United Kingdom to provide subsidized education to its citizens, it is highly likely that the services in question would be deemed to fall within the scope of Article 50 EC. For the purposes of Council Directive 2006/123/EC, a â€˜serviceâ€™ is defined by Article 4(1) of the Directive as being, â€œ...any self-employed economic activity
, normally provided for remuneration, as referred to in Article 50 of the Treaty.
â€ Additionally, a list of activities which are expressly excluded from the scope of the Directive is provided by Article 2(2)(a)-(l) and Article 2(3) of the Directive, which includes such activities as private security services
and gambling activities
. Because the services provided by Xena to Yvette are of an economic nature, being provided in return for valuable consideration, and are not of the kind excluded by Articles 2(2) and 2(3) of the Directive, we can conclude that it is likely that the services in question would be deemed to fall within the scope of Council Directive 2006/123/EC. One exception to these rules should be noted briefly: In the case of Grogan
it was held that the provision of financial information did not fall within the Treatyâ€™s definition of a service, it rather representing a manifestation of freedom of expression. While it could be argued that Xenaâ€™s primary business activity is supplying her clients with information, the reason that the Grogan decision can be distinguished from this present case is that, in Grogan, the information was being provided for free-- Xena charges for her information and offers it as part of a structured educational service. We can therefore conclude with some confidence that the service provided to Yvette by Xena qualifies as a â€˜serviceâ€™ for the purposes of the European Treaty and also Council Directive 2006/123/EC. Bearing this conclusion in mind, we must now turn to consider whether or not the â€˜quality auditâ€™ restriction imposed on Xana by the Free Movement of Services Act 2008 is permissible under European law: Of particular relevance to this enquiry is the freedom of establishment as provided by Article 43 EC
. This Treaty Article provides, inter alia, that: â€œ[R]estrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited.â€ Within the context, establishment includes the â€œsetting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State,â€ and also, â€œthe right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms.
â€ While it is true that the â€˜audit requirementâ€™ does not prohibit establishment of English language service providers in the United Kingdom, the jurisprudence of the European Court of Justice has interpreted the freedom of establishment widely. In the Gebhard
case, the European Court of Justice provided four conditions which must be satisfied in order for a restrictive nation measure to be deemed valid at law: â€œIt follows... from the Court' s case-law that national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfil four conditions: they must be applied in a non-discriminatory manner; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it.
â€ This latter requirement of â€˜necessityâ€™ was provided in the earlier case of Kraus v Land Baden-Wuerttemberg
and is further supported by Council Directive 2006/123/EC: â€œ[N]o such authorisation scheme or restriction should discriminate on grounds of nationality. Further, the principles of necessity and proportionality
should always be respected.
â€ The questions which therefore fall for determination are as follows:
- Is the â€˜quality auditâ€™ requirement imposed by the Free Movement of Services Act 2008 an imperative requirement in the general interest?
- If so, is the â€˜quality auditâ€™ requirement a suitable and proportionate way of achieving those objectives? And,
- If so, does the â€˜quality auditâ€™ requirement go beyond what is necessary to achieve its legitimate objectives?
In regard to (a); the justifications which have been proffered by the government of the United Kingdom for the imposition of the â€˜quality auditâ€™ requirement are two-fold: First, that it promotes â€˜the purity of the English languageâ€™; and, second, that it â€˜protect jobs in the UK further and higher education sectorâ€™. In regard to the latter of these aims, because it is an economic aim, i.e. promoting employment for the benefit of the United Kingdomâ€™s economy, the Courts are unlikely to consider this in the â€˜general interestâ€™ or a â€˜legitimate public interestâ€™
. This conclusion is further supported by the decision in the case of Finalarte Sociedade de ConstruÃ§Ã£o Civil V Urlaubs und Lohnausgleichskasse der Bauwirtschaft
. In regard to the former aim: While it is true that one of the legitimate aims suggested by Council Directive 2006/123/EC is the objective of promoting higher quality in education
, it is difficult to argue that the aim of â€˜promoting purity of languageâ€™ falls within this legitimate category, especially since the European Courts of Justice generally take an highly restrictive interpretation of â€˜legitimate aims
â€™. If anything, this profferred justification fits more comfortably inside one of the cutural heads of public policy objectives, such as for the â€˜promotion of the national language
â€™. However, even if this former aim is considered legitimate and in the general interest, it is not obvious that imposing a costly and rigid
â€˜quality auditâ€™ is a proportionate way of achieving this objective, nor that it is necessary in order to achieve that objective. For example, Xena might already be in possession of a quality approval certification from her home State which would serve the purpose equally well. While this is mere speculation, it reveals one circumstance under which the â€˜quality auditâ€™ imposed by the Free Movement of Services Act 2008 is a disproportionate and unnecessary requirement in light of the objective of promoting the national language. However, as per the decision in the case of Jean Thieffry v Conseil de l'ordre des avocats Ã la cour de Paris
, this argument will only defeat the UKâ€™s claim (that the derogation for the freedom of establishment is justified) if it can be shown that there exist equivalent â€˜qualificationsâ€™ or audit certification processes in other Member States of Europe. If such equivalences exist, then the UKâ€™s claim is more likely to be successful and the â€˜quality auditâ€™ provision of the 2008 Act will likely be deemed valid. Conversely, if it is held that equivalences do exist in other Member States, then I would argue that the Courts would not be satisfied that the â€˜quality auditâ€™ requirement satisfies the test as set out in the Gebhard
case. One final point on this enquiry: We have not been provided with details of the enforcement mechanisms which have been adopted under the 2008 Act to compel business compliance; if this Act creates a criminal law offence for failing to undergo the â€˜quality auditâ€™ process, which is quite possible, then the measure must be deemed contrary to the objectives of Council Directive 2006/123/EC which, at Article 1(5) states: â€œMember States may not restrict the freedom to provide services by applying criminal law provisions which specifically regulate or affect access to or exercise of a service activity...
â€ We are not in possession of the facts required to make any firm conclusion in this regard. In regard to the final enquiry of this paper; namely, whether or not the â€˜contribution requirementâ€™ imposed on Yvette by the Free Movement of Services Act 2008 is valid: Of particular relevance to this enquiry is Article 14(1) of Council Directive 2008/123/EC which provides that: â€œMember States shall not make access to... a service activity in their territory subject to compliance with... discriminatory requirements based directly or indirectly on nationality...
â€ Because only residents of the United Kingdom are subjected to this contributory surcharge, there is no doubt that this measure would be deemed discriminatory by the European Court of Justice. This is supported by the decision in the case of Van Binsbergen
in which it was held that measures discriminating on grounds of nationality (whether directly or indirectly) must be abolished in accordance with Article 49 of the European Treaties. While it could be argued that because the measure looks to country of residence rather than nationality, per se
, that it does not discriminate on the basis of nationality. However, this argument is likely to fail as, in practice, this means that more UK nationals are likely to be affected negatively by the measure than non-UK nationals
. In conclusion, if Xena brought a claim against Yvette, Yvette would likely be successful in arguing that she should not have to pay the additional audit charge. Even if the Court do accept that the objectives of imposing this charge on Xena are legitimate, proportionate and necessary, the restriction to Yvettes freedom to access educational services has been compromised by a discriminatory measure; namely, the requirement that recipients of English language services in the United Kingdom must pay a surcharge to contribute to the costs of the audit process imposed under the Free Movement of Services Act 2008. References:
Barnard, C. and J. Scott, â€˜The Law of the Single European Market
â€™, Hart Publishing, Oxford and Portland, Oregon, 2002. Craig, P. and G. De BÃºrca, â€˜EU Law Text, Cases and Materialsâ€™
, Fourth Edition, Oxford University Press, Oxford, 2007 Foster, G. â€˜Blackstoneâ€™s Statutes EU Treaties & Legislationâ€™,
Eighteenth Edition, Oxford, Oxford University Press, 2007 Tobler, C., â€˜Indirect Discrimination: A Case Study Into the Development of the Legal Concept of Indirect Discrimination Under EC Lawâ€™
, Antwerpen â€“ Oxford, Intersentia, 2005.
Article 50 of the EC Treaty 
Belgium v Humbel (Case 263/86)  ECR 5365 
Insight into when an activity will be considered â€˜economicâ€™ is provided by paragraph 17 of the text of the Directive which states: â€œThis Directive covers only services which are performed for an economic consideration. Services of general interest are not covered by the definition in Article 50 of the Treaty and therefore do not fall within the scope of this Directive.â€ [Council Directive 2006/123/EC, para.17] 
Article 4(1) of Council Directive 2006/123/EC 
Article 2(k) of Council Directive 2006/123/EC 
Article 2(h) of Council Directive 2006/123/EC 
The Society for the Protection of Unborn Children Ireland Ltd v Stephen Grogan and others (1990) Case C-159/90. 
The reason that the freedom of establishment provisions of the European Treaty are relevant here rather than the freedom of services provisions is because the services being supplied by Xena are permanent, in that she plans to provide these educational services in the United Kingdom on a regular basis for a significant duration of time. This is very similar to the arrangement pursued by Mr. Gebhard in the Gebhard case: At paragraph 27 in this case it was held: â€œHowever, that situation is to be distinguished from that of Mr Gebhard who, as a national of a Member State, pursues a professional activity on a stable and continuous basis in another Member State where he holds himself out from an established professional base to, amongst others, nationals of that State. Such a national comes under the provisions of the chapter relating to the right of establishment and not those of the chapter relating to services.â€ Gebhard v Consiglio dellâ€™Ordine degli Avvocati e Procuratori di Milano  Case C-55/94 ECR I-4165 at para. 27. 
Article 43 EC 
Gebhard v Consiglio dellâ€™Ordine degli Avvocati e Procuratori di Milano  Case C-55/94 ECR I-4165 
Ibid, at para. 37 
Dieter Kraus v Land Baden-WÃ¼rttemberg (1992) Case C-19/92. 
In regard to the applicability of the principle of proportionality to assessments of these kind, it was held, in the case of Bond van Adverteerders v Netherlands State  Case 352/85 ECR 2085, that whenever a Member State seeks to rely upon a public policy justification for derogating from a freedom contained in the European Treaty, a proportionality assessment must be conducted when deciding upon the validity of that derogation. 
Council Directive 2006/123/EC at para. 56. 
The way that Craig and De Burca (2007) describe this requirement is as follows: â€œ[T]he restriction must be adopted in pursuit of a legitimate public interest, which is not incompatible with Community aims.â€ Craig and De Burca (2007) p827. 
For example, see the case of SETTG V Ypourgos Ergasias  Case C-350/89 ECR 1-2387, paras. 22-23 
Finalarte Sociedade de ConstruÃ§Ã£o Civil V Urlaubs und Lohnausgleichskasse der Bauwirtschaft (1998) Case 71/98. 
Para. 40 of Council Directive 2006/123/EC: â€œ[T]his Directive has been developed by the Court of Justice in its case law in relation to Articles 43 and 49 of the Treaty and may continue to evolve. The notion as recognised in the case law of the Court of Justice covers at least the following grounds: ... the need to ensure a high level of education.â€ 
Barnard and Scott (2002) p9. For an example of a restrictive approach for permitting public policy derogations, see the case of Raymond Kohll v Union des caisses de maladie (1996) Case C-158/96. 
Rigid in that the audit must be conducted by a â€˜designated auditorâ€™ appointed from one of the Schools of Education of UK universities and colleges. 
Jean Thieffry v Conseil de l'ordre des avocats Ã la cour de Paris (1976) Case 71/76 
Fn. 10. 
Article 1(5) of Council Directive 2006/123/EC. 
Article 14(1) of Council Directive 2006/123/EC. 
Van Binsbergen (1974) Case 33/74 
For example, Yvette is a Polish national being levied with the audit surcharge because she utilized the service while residing in the United Kingdom. 
Jean Thieffry v Conseil de l'ordre des avocats Ã la cour de Paris (1976) Case 71/76. For a detailed analysis of this argument, see Tobler (2005) p129.