In a judgment rendered on 30 January 2018, the Grand Chamber of the Court of Justice of the European Union (ECJ) ruled that retail trade in goods such as shoes and clothing must be regarded as falling within the term “service” within the meaning of the Services Directive. The judgment was rendered in response to a request for a preliminary ruling submitted by the Administrative Division of the Council of State. This preliminary ruling is of great importance for legal practice.

The Division was previously positive (for example in its judgment of 25 June 2014) that the economic activities to which zoning plan provisions applied, namely retailing, did not fall within the scope of the Services Directive, and it persisted in that opinion when the order for reference (i.e. the ruling at issue) was issued, finding that retail activities relating to goods do not constitute services within the meaning of the Services Directive. Nevertheless, the Division saw reason to request a preliminary ruling. This was due to doubts that had arisen because in 2015, for example, the French Council of State had found that the Services Directive applied to the retail trade.

What is a preliminary ruling?

The ECJ has the task of ensuring that the laws and regulations made in Europe are applied properly and implemented in the same way in all the Member States. One way of ensuring this is by means of a preliminary ruling. If a national court is in doubt regarding the interpretation or validity of EU rules, it can request a preliminary ruling from the ECJ so as to determine whether the national legislation and practices are compatible with EU law.

What was the problem?

A property owner wished to lease a building in a zone exclusively designated for retail trade in bulky goods to Bristol BV, which operates a chain of discount shoes and clothing shops. The municipal council refused to permit this in the context of the adoption of a zoning plan. The property owner then appealed to the Administrative Division of the Council of State. In support of its appeal, the property owner argued, inter alia, that the zoning plan was contrary to Articles 9 and 10 of the Services Directive. Those articles provide, amongst other things, that Member States cannot make access to, or the exercise of, a service activity dependent on an authorisation scheme. That is only permitted if a number of specific conditions are met (for example that the need for an authorisation scheme is justified by an overriding reason relating to the public interest). As a result of the property owner’s appeal, the Division saw reason to submit requests for a preliminary ruling to the ECJ by way of the order for reference dated 13 January 2016. The main question – to which we will limit ourselves in this blog – was “Should the term ‘service’ in Article 4(1) of the Services Directive be interpreted as meaning that retail trade consisting of the sale of goods such as shoes and clothing to consumers is a service to which the provisions of that Directive apply under Article 2(1) of that Directive (i.e. the scope)?”

Main conclusion: the activity of retail trade in goods constitutes a “service” within the meaning of the Services Directive

The ECJ makes it clear on the basis of the definition of “service” that there can be no doubt that the activity of retail trade constitutes, firstly, an economic activity other than paid employment and, secondly, does not fall within the scope of the exclusions. The ECJ also reiterates what the European Commission has stated, namely that “the rules of the zoning plan at issue in the main proceedings concern not goods as such, but the conditions governing the geographical zone where activities related to the sale of particular goods can be established and, consequently, the conditions of access to those activities”. Partly for this reason, the activity of retail trade in goods such as shoes and clothing must be regarded as falling within the scope of the concept of “service” within the meaning of the Services Directive.

The ECJ’s preliminary judgment makes clear that the Division’s approach to the assessment of zoning plan cases that involve retail aspects, and in which recourse is had the Services Directive, cannot automatically be followed. Above all, this means that (local) authorities must carefully consider the extent to which retail trade restrictions in the zoning plan relate to the guarantees that apply in such a case. To this end, criteria apply (such as non-discrimination, necessity, and proportionality) that prevent public authorities from imposing prohibited requirements.

In line with this, the ECJ also clarifies other legal obstacles which have sometimes led to an appeal that invoked the Services Directive being ignored by the Division, for example that the provisions on a service provider’s freedom of establishment must be interpreted as also being applicable to a situation in which all the relevant aspects occur within a single Member State. To this end, the ECJ attaches importance, inter alia, to the legislative history of the Services Directive and the intention of the EU legislature to create a single internal market for services, without the obstacles encountered by service providers, whether in their own Member State or in another Member State, and which are liable to affect adversely their ability to supply services to recipients located throughout the EU. The Court also points out that that the proposed amendments submitted in the course of debates before the European Parliament, to the effect that the Directive should be reformulated in such a way as to limit its scope solely to cross-border situations, were not adopted.

What now?

With the ECJ’s clear answers at its disposal, the Division will now continue dealing with the appeal. It will do so by holding a second hearing. The Division will assess whether the aforementioned conditions (non-discrimination, necessity, and proportionality) are met by prohibiting non-volume retail trade in geographical zones situated outside the city centre. According to the ECJ, maintaining the viability of the city centre of the municipality and preventing vacancy in inner-city areas could, in the interests of good spatial planning, be capable of constituting an overriding reason relating to the public interest that may justify a territorial restriction. The Division will then render a final ruling. Given their significance for legal practice, we are following these developments closely. Are you also a service provider that is subject to restrictions, or do you represent a public authority that is confronted by an appeal to the Services Directive? Please don’t hesitate to get in touch with us. We’d be only too happy to provide input.

Read the full text of the order for reference by the Division dated 13 January 2016.

Read the full text of the judgment by the ECJ in Luxembourg dated 30 January 2018.