E.C. Commission v. Spain (Case C-114/97) Before the Court of Justice of the European Communities (Fifth Chamber) ECJ (5th Chamber) (Presiding, Jann (Rapporteur) P.C.; Moitinho de Almeida, Gulmann, Sevón and Wathelet JJ.) Mr Siegbert Alber, Advocate General. 29 October 1998 Application under Article 169 E.C. for a declaration that Spain had failed to fulfil its Treaty obligations. Freedom of movement--freedom to provide services--nationality and residence requirements for private security firms and their staff--constituted obstacles to the free movement of workers and the freedom of establishment and to provide services--derogations inapplicable because activities were not connected with the exercise of official authority and the restrictions were unnecessary to protect public security. Spanish law (Law 23/1992) restricted the activities of private security companies and required them and their security staff to obtain authorisation from the Spanish authorities. It was a precondition of authorisation that the company and its security staff were Spanish, and its directors and managers resident in Spain. The Commission, which considered that these provisions were contrary to Article 48, 52 and 59 E.C., brought an action under Article 169 E.C. for a declaration that Spain had failed to fulfil its Treaty obligations. Held: Nationality and residence requirements and the meaning of "public authority" and "public security". (a) The nationality conditions imposed upon the private security companies and security staff prevented undertakings established in other Member States from carrying on business in Spain, and prevented nationals of other Member States from providing private security activities there. These obstacles were not justified by the derogations in Article 48(4) for the public service because private security undertakings did not form part of the public service. The derogations in Articles

55 and 66 E.C. were to be interpreted strictly and applied only to activities directly and specifically connected with the exercise of official authority. Merely contributing to the *702 maintenance of public security did not constitute the exercise of public authority, and indeed Spanish legislation made a clear distinction between tasks reserved for the public security forces and those entrusted to private security firms. The derogations in Articles 48(3), 56(1) and 66 E.C. relating to public policy, security and health were also inapplicable to measures excluding whole economic sectors such as private security from the application of the principle of free movement. [30]-[43] Commission v. Greece ( 147/86): [1988] E.C.R. 1637; [1989] 2 C.M.L.R. 845; reyners (2/74): [1974] E.C.R. 631; [1974] 2 C.M.L.R. 305; thijssen v. controledienst voor de verzekeringen (C-42/92): [1993] E.C.R. I-4047; gül (131/85): [1986] E.C.R. I-1573; [1987] 1 C.M.L.R. 501, followed. (b) The residence conditions imposed on directors and managers of security undertakings constituted an obstacle to the freedom of establishment and the freedom to provide services. The derogation in Articles 56(1) and 66 was inapplicable because the conditions were not necessary to ensure public security. No genuine and sufficiently serious threat to one of the fundamental interests of society would arise in the absence of such conditions, because checks could still be carried out on private security firms wherever they and their managers were based, and a guarantee provided in advance. By maintaining in force the nationality and residence conditions of Law 23/1992 Spain had failed to fulfil its Treaty obligations under Articles 48, 52 and 59 E.C. [44]-[48] Factortame v. Council ( C-221/89): [1991] E.C.R. I-3905; [1991] 3 C.M.L.R. 582; bouchereau v. council (edicom) (30/77): [1977] E.C.R. I-1999; [1977] 2 C.M.L.R. 800; clean car auto v. council (C-350/96): [1998] E.C.R. I-2521; [1998] 2 C.M.L.R. 637, followed. Representation Antonio Caeiro, Legal Adviser, and Fernando Castillo de la Torre, of its Legal Service, acting as Agents, for the E.C. Commission. Santiago Ortiz Vaamonde, Abogado del Estado, of the State Legal Service, acting as Agent, for Spain. Cases referred to in the judgment: 1. Boucherau v. E.C. Council (Edicom) (30/77), 27 October 1977: [1997] E.C.R. 1999; [1977] 2 C.M.L.R. 800. 2. E.C. Commission v. Greece (147/86), 15 March 1988: [1988] E.C.R. 1637; [1989] 2 C.M.L.R. 845. 3. Reyners v. Belgium (2/74), 21 June 1974: [1974] E.C.R. 631; [1974] 2 C.M.L.R. 305. 4. Thijssen v. Controledienst voor de Verzekeringen (C-42/92), 13 July 1993: [1993] E.C.R. I-4047. 5. Gül v. Regierungspräsident Düsseldorf (131/85), 7 May 1986: [1986] E.C.R. 1573; [1987] 1 C.M.L.R. 501 *703 . 6. R. v. Secretary of State for Transport, Ex parte Factortame Ltd and Others (C-

221/89), 25 July 91: [1991] E.C.R. I-3905; [1991] 3 C.M.L.R. 589. 7. Clean Car Autoservice GmbH v. Landeshauptmann Von Wien (C-350/96), 7 May 1998: [1998] E.C.R. I-2521; [1998] 2 C.M.L.R. 637. Further cases referred to by the Advocate General: 8. Gebhard v. Consiglio Dell'Ordine degli Avvocati E Procurati di Milano (C55/94), 30 November 1995: [1995] E.C.R. I-4165; [1996] 1 C.M.L.R. 603. 9. E.C. Commission v. Germany (205/84), 4 December 1986: [1986] E.C.R. 3755; [1987] 2 C.M.L.R. 69. 10. E.C. Commission v. Italy (C-101/94), 6 June 1996: [1996] E.C.R. I-2691; [1996] 3 C.M.L.R. 754. 11. Vander Elst v. Office des Migrations Internationales (C-43/93), 9 August 1994: [1994] E.C.R. I-3803; [1995] 1 C.M.L.R. 513. 12. Van Duyn v. Home Office (41/74), 4 December 1974: [1974] E.C.R. 1337; [1975] 1 C.M.L.R. 1. 13. Rutili v. Ministre de L'Interieur (36/75), 28 October 1975: [1975] E.C.R. 1219; [1976] 1 C.M.L.R. 140. 14. E.C. Commission v. Belgium (149/79), 17 December 1980: [1980] E.C.R. 3881; [1981] 2 C.M.L.R. 413. 15. E.C. Commission v. Greece (290/94), 2 July 1996: [1996] E.C.R. I-3285; [1977] 2 C.M.L.R. 999. Opinion of Mr Advocate General Alber A --Introduction 1. These proceedings brought against Spain for failure to fulfil its obligations under the Treaty concern Law No. 23/1992 of 30 July 1992 [FN1] and Royal Decree No. 2364/1994 of 9 December 1994 approving the Private Security Regulation. The Law requires undertakings providing private security services to be "constituted in Spain". [FN2] The directors and managers must reside in that Member State. In addition, security staff must possess Spanish nationality. The Commission views each of those conditions as a form of discrimination prohibited under the fundamental freedoms, namely freedom of establishment, the freedom to provide services and freedom of movement for workers. The Spanish Government does not dispute that there is discriminatory treatment but is of the opinion that it can rely on the grounds of justification provided for by the Treaty. FN1 BoletÍn Oficial del Estado of 4 August 1992. FN2 Article 7(1)(b) reads: "... las empresas de seguridad ... deberán tener la nacionalidad española." 2. The Commission claims that the Court should: *704 1. Declare that, by maintaining in force Articles 7, 8 and 10 of Law No. 23/1992 of

30 July 1992, in so far as those provisions make the grant of authorisation to carry on private security activities in the case of "security companies" subject to the requirement of being constituted in Spain, the requirement that their directors and managers should reside in Spain and the requirement that the "security staff" should possess Spanish nationality, Spain has failed to fulfil its obligations under the E.C. Treaty, in particular Articles 48, 52 and 59; 2. Order the Kingdom of Spain to pay the costs. 3. Spain contends that the Court should: 1. Dismiss the action; 2. Order the Commission to pay the costs. B --Facts I. The uncontested facts 4. Law No. 23/1992 (hereinafter "the Law") in conjunction with Royal Degree No. 2364/1994 (hereinafter "the Decree") defines the purpose of, and requirements applicable to, private security services. Article 5(1) of the Law defines the services to be provided by security firms, which cover the following activities: -- surveillance and protection of goods, premises and events of various kinds, [FN3] -- protection of specific persons, [FN4] -- depositing, safekeeping, checking and sorting of coins and banknotes, securities and valuables, as well as the transport and distribution thereof, [FN5] -- installation and maintenance of surveillance and alarm systems, [FN6] -- operation of central control offices for the reception, checking and transmission of alarm signals and their communication to the security forces (Fuerzas y Cuerpos de Seguridad), as well as provision of response services in so far as these do not fall within the sphere of responsibility of the security forces, [FN7] -- planning and assistance in connection with the security services covered by the Law. [FN8] FN3 See Article 5(1)(a). FN4 See Article 5(1)(b). FN5 See Article 5(1)(c) and (d). FN6 See Article 5(1)(e). FN7 See Article 5(1)(f). FN8 See Article 5(1)(g). 5. Under Article 7 of the Law, only undertakings which have an authorisation from the Ministry of the Interior, in the form of an entry in a register, are entitled to provide private security services. Article *705 7(1)(b) states that one condition for

the entry of an undertaking which employs security staff is that it should be constituted in Spain. [FN9] FN9 See fn. 2 above. 6. Article 8 of the Law requires the directors and managers of undertakings providing private security services to reside in Spain. 7. Under Article 10(1) of the Law, "security staff" require prior authorisation from the Ministry of the Interior. Article 10(3)(a) makes such authorisation subject to the possession of Spanish nationality. "Security staff" for the purposes of the Law means: watchmen, persons in charge of security, bodyguards, private field guards and private detectives. Field guards [FN10] and private detectives [FN11] may also pursue their activities in a self-employed capacity. FN10 See Article 18(b) of the Law. FN11 See Article 19 of the Law. 8. Some of the activities of a security company, such as those described in Article 5(1)(e) and (g), do not require the involvement of "security staff". To perform their other tasks, the companies employ both "security staff" within the meaning of the Law and administrative staff. The nationality requirement does not apply to the latter. II. The Commission's view 9. The Commission prefaces its observations by pointing out that its action is not aimed at liberalising the activities of private security firms. It opposes only the discrimination on grounds of nationality contained in the Spanish legislation, which cannot be justified by the objectives of the latter. 1. Freedom of establishment 10. The Commission argues that the residence requirement applicable to directors and managers of the security companies amounts to a nationality requirement and is therefore incompatible with Article 52 of the Treaty. It relies in this connection on the Factortame judgment. [FN12] It claims that the "nationality requirement applicable to the undertakings" [FN13] itself amounts to a partial negation of freedom of establishment since an undertaking is prevented from exercising its activity through a branch or agency. The nationality requirement applicable to self-employed field guards and private detectives is likewise contrary to Article 52. FN12 Case C-221/89: [1991] E.C.R. I-3905; [1991] 3 C.M.L.R. 589. FN13 See fn. 2 above.

2. Freedom to provide services 11. The Commission argues that the activities pursued by the undertakings and their staff are services within the meaning of Article 60 of the Treaty. The requirement to have an establishment in Spain in order to exercise those activities is in itself a negation of the freedom to *706 provide services. The "nationality requirement applicable to undertakings" [FN14] and the residence condition applicable to their executive staff preclude any provision of services by persons not established in Spain. FN14 ibid. 3. Freedom of movement for workers 12. According to the Commission, the majority of the staff employed by the security companies are workers. The nationality requirement to which "authorisation" by the Ministry of the Interior is made subject has the effect of completely excluding nationals of other Member States from employment in the private security sector. That is a restriction of freedom of movement for workers. 4. The grounds of justification (a) Articles 55 and 66 of the Treaty 13. Article 55 and Article 66 of the Treaty together provide that activities which are connected, even occasionally, with the exercise of official authority are not subject to the provisions of the respective chapter of the Treaty (right of establishment or provision of services). By reference to the Court's case law, [FN15] the Commission takes the view that it cannot be assumed that all security services are connected with the exercise of official authority. The protection of goods and private individuals serves a private interest and cannot be regarded as the exercise of sovereign powers. The nature of the services offered by the security companies has no official character. At best, those services make a subordinate contribution to public security. Since the security companies operate only in the framework of private-law relations, any claim that they have a general responsibility for the maintenance of public security must be disputed, even if they contribute to a certain extent to crime prevention. Crime prevention is not a prerogative of the authorities. Even occasional assistance given to the security forces should not necessarily be regarded as the exercise of official authority. FN15 See judgments in Case 2/74, Reyners: [1974] E.C.R. 631; [1974] 2 C.M.L.R. 305, and Case C-42/92, Thijssen: [1993] E.C.R. I-4047. (b) Article 56 of the Treaty 14. With regard to Article 56 of the Treaty, the Commission argues that discriminatory treatment is justified only if it is directed against a genuine threat

serious enough to affect a fundamental social interest. The Member State must show that such a threat exists. The exercise of the activity of a private detective or field guard cannot, in itself, be regarded as such a threat. The same applies to discrimination against legal persons. Even if a threat exists, a Member State may not prohibit access to a whole sector of economic activity. Such a measure is in any *707 case disproportionate. It is up to the Member State to show that such a measure is proportionate to any threat which might arise. The grounds put forward by the Spanish Government do not satisfy that requirement. (c) Article 48(3) and (4) of the Treaty 15. In connection with freedom of movement for workers, the Commission takes the view that the Spanish Government cannot successfully rely either on Article 48(3) or on Article 48(4) E.C. The staff of private security companies are technically not public officials and are not entrusted with the exercise of official authority for the protection of State interests. Otherwise, the Commission refers to its arguments on the applicability of Article 55 and 56 of the Treaty. III. The Spanish Government's view 16. The Spanish Government does not deny that freedom of establishment, the freedom to provide services and freedom of movement for workers are restricted, but is of the opinion that it can successfully rely on the grounds of justification provided for by the Treaty. In view of their objective, which consists in the maintenance of public security, the activities of private security companies involve the exercise of official authority. 17. Under Article 13 of the Law, security companies have authority to protect isolated residential developments or industrial estates in which persons and vehicles move around freely, and to require persons in public places to produce identification. Likewise, when protecting valuables in transit, the activity of the undertakings in question extends to the public highway. The duty of private security companies to provide certain auxiliary services for public officials in the performance of particular supervisory functions shows that their activity can impinge on the rights and freedoms of citizens. Security companies can therefore be expected to demonstrate a certain solidarity vis-à-vis the State. According to the Spanish Government, the State reserves to itself control of the means of maintaining law and order by issuing authorisations and licences. 18. With regard to the grounds of public security and public policy, the Spanish Government is of the opinion that it is the task of the Commission to prove that there are less drastic means than those chosen by the Spanish State. As is clear from the nature of the functions which the security firms exercise, public security and public policy may, in some circumstances, be threatened by the security firms themselves and therefore they must be strictly controlled. However, according to the Spanish Government, that is only possible to the extent necessary if the undertakings and natural persons concerned are established in the Member State in which they pursue their activities. Likewise, without a permanent establishment, rapid and direct contact *708 with customers is not

possible. Article 55 must be interpreted in the light of Article 56 E.C. 19. Finally, the Spanish Government relies on overriding reasons relating to the public interest. In connection with the regulation of private security firms there are reasons which demand particular caution, such as [FN16]: -- the need to guarantee adequately the security of persons and property, -- the need to make clear what rights citizens may have to set up or use private security firms as well as the underlying reasons on which the public security service is based, -- the need to prevent crime and to help maintain public security, -- the need to prevent unwarranted assumption of authority, lack of standards for the approval of products, inadequate training of security guards, irregularities in the exercise of their functions and the commission of numerous infringements, and the absence of minimum requirements, -- the need to ensure that the protection of security does not become the occasion for assaults, acts of violence, abuses of rights or interference with the legal or property interests of other persons. FN16 The text of the Spanish Government's defence reads: "(a) Garantizar adecuadamente la seguridad de personas y bienes. (b) Articular las facultades que puedan tener los ciudadanos de crear o utilizar los servicios privados de seguridad, con las razones profundas sobre las que se asienta el servicio público de seguridad. (c) Prevención del delito y contribución al mantenimiento de la seguridad pública. (d) Evitar el intrusismo, la falta de normas de homologación de productos, deficiente formación de los vigilantes, irregularidades en su funcionamiento y comisión de numerosas infracciones, asÍ como la ausencia sobrevenida de requisitos esenciales. (e) Garantizar que la defensa de la seguridad no sea ocasión de agresiones, coacciones, desconocimiento de derechos o invasión de las esferas jurÍdicas y patrimoniales de otras personas. 20. Moreover, according to the Spanish Government, the protection of those who use the services and--in a more general sense--of consumers and the social system must be ensured. All of what would be impossible if the fundamental freedoms provided for in the Treaty were applied without prior harmonisation in this sphere. Finally, it is for each Member State to determine the requirements arising from its public policy. 21. With regard to freedom of movement for workers, the Spanish Government believes that it can rely successfully on the derogation in Article 48(3) E.C. because security personnel wear uniforms, are authorised to bear arms and are vested with special privileges which could affect the rights and freedoms of citizens. *709 C --Opinion I. Legal persons 1. Freedom of establishment

22. Since the end of the transitional period, the prohibition of discrimination on grounds of nationality has been a directly effective constituent of freedom of establishment. [FN17] Under Article 52 in conjunction with Article 58 of the Treaty, it applies to natural and legal persons. The requirement that a security undertaking should be constituted in Spain [FN18] prevents a security undertaking established in another Member State from pursuing its activity in the form of a legally dependent branch or agency. That requirement is therefore contrary to Article 52 E.C. FN17 See the judgment in Case 2/74, cited in fn. 15, at paras [30] and [32]. FN18 See fn. 2 above. 23. The question arises as to whether the activities of security firms fall within the scope of the exception defined by Article 55 E.C., that is, whether the provisions of the Treaty relating to freedom of establishment and to Article 66 do not apply to them. Under the first paragraph of Article 55 of the Treaty, that chapter does not apply to activities which are connected, even occasionally, with the exercise of official authority. In examining that criterion, account must be taken, on the one hand, of the fact that the exception cannot be given a scope which would exceed the objective for which it was inserted [FN19] and, on the other hand, of the fact that it is limited to those activities "which, taken on their own, constitute a direct and specific connection with the exercise of official authority." [FN20] FN19 See the Reyners case, cited in fn. 15, at para. [43]. FN20 ibid., at para. [45]. 24. It is true that, in the absence of any Community directives providing for harmonisation in the field of private security, reliance on Article 55 must be appraised separately in respect of each Member State. However, such appraisal must take account of "the Community character of the limits" set by Article 55 to the exceptions "in order to prevent the effectiveness of the Treaty in this area from being undermined by unilateral provisions adopted by the Member States." [FN21] FN21 See judgment in Case 147/86, E.C. Commission v. Greece: [1988] E.C.R. 1637; [1989] 2 C.M.L.R. 845 at para. [8]. 25. The object of establishing and operating a security undertaking is to assume functions of surveillance and protection on the basis of private-law relations. The assets to be guarded (real property and valuables) will to a great extent be privately owned. The guarding of movable property in particular may also take place on public thoroughfares and in public places, as the Spanish Government has pointed out. Likewise, security contracts awarded in connection with

sporting, cultural, political or similar events may entail the exercise of functions in public facilities. However, ultimately none of those factors *710 nor the ownership of the assets to be guarded, is relevant in determining the nature of security firms' object. What matters is that they act on private initiative pursuant to contractual relations and in so acting are not vested with official authority. 26. For example, establishing the identity of persons entering a building does not require the delegation of official authority. Security firms must not, therefore, be regarded as persons exercising such authority. The Spanish legislation regulating private security firms draws a clear distinction between the functions to be assumed by security firms [FN22] and those reserved for the public security forces. When Article 5(1)(f) of the Law states, for example, that certain transmission services may be performed "in so far as they do not fall within the sphere of responsibility of the security forces", [FN23] that is proof of the clear separation of functions. Even accidental overlap in the carrying out of comparable functions (transmission of alarm signals) must be avoided. FN22 See Article 5 of the Law. FN23 The original text reads: "... cuya realización no sea de la competencia de dichas Fuerzas y Cuerpos". 27. Even assuming that security firms take on auxiliary functions for the security forces, that cannot hide the fact that the main functions are reserved for the security forces. In that connection, the distinction between main and auxiliary functions must be understood, not as a quantitative criterion, but as a qualitative one. The Law's description of the tasks of private security firms supports the conclusion that it is precisely the exercise of official authority that is reserved for the security forces. For example, when, in the course of performing their surveillance duties, private security firms notice suspicious occurrences or persons acting suspiciously, any questioning or even arrests may be carried out only by the security forces, [FN24] which clearly shows the difference of degree between their respective powers. FN24 See, for example, Article 71(1)(d) or Article 76(2) of the Decree. 28. It can therefore be concluded that private security firms are not "directly and specifically" involved in the exercise of official authority. Consequently, the exception provided for in Article 55 E.C. does not apply in this context. 29. In examining whether the Spanish Government is entitled to rely on Article 56 E.C., which allows special treatment for foreign nationals "on grounds of public policy, public security or public health", account must be taken of the fact that that provision also authorises Member States to apply to Community citizens, on the said grounds, provisions providing for special treatment for foreign nationals exercising an activity in a self-employed capacity. In so far as it applies to natural persons, it is analogous to Article 48(3) E.C. In that respect, the structure and purpose of the provision are not such as to justify making the "nationality of an

undertaking" a condition of its freedom to pursue an activity. *711 30. In so far as a Member State considers it necessary to regulate a sector of the economy for overriding reasons relating to the general interest, it may do so by means of non-discriminatory measures, provided that such measures are suitable for securing the attainment of the objective which they pursue and do not go beyond what is necessary in order to attain it. [FN25] Thus, making the exercise of an activity by an undertaking subject to authorisation [FN26] appears to be a valid means of protecting the general interest. Authorisation as such, and supervision of the undertakings, as required by the Spanish legislation, are not complained of by the Commission and are therefore not the subject-matter of these proceedings. It is therefore sufficient to point out at this stage that the overriding reasons of general interest asserted by the Spanish Government can be taken into account in connection with the authorisation and supervision of the undertakings. However, it is not possible to justify prescribing the "nationality of the company" as one of the conditions of authorisation. FN25 See the judgment in Case C-55/94, Gebhard: [1995] E.C.R. I-4165; [1996] 1 C.M.L.R. 603, at para [37]. FN26 See the judgments in Case 205/84, E.C. Commission v. Germany: [1986] E.C.R. 3755; [1887] 2 C.M.L.R. 69, at paras 42 et seq., and Case C-101/94, E.C. Commission v. Italy: [1996] E.C.R. I-2691; [1996] 3 C.M.L.R. 754, at paras [9] to [11]. 2. Freedom to provide services 31. The finding of unjustified discrimination applies with regard to the provision on freedom of establishment. However, it applies a fortiori in relation to the provisions on freedom to provide services. That is because the requirement of a permanent establishment in the territory of a Member State as a condition for an undertaking to pursue its activity must be regarded as the very negation of the freedom to provide services. [FN27] The "nationality requirement" in respect of security firms goes even beyond that. Moreover, a Member State may not make the provision of services in its territory "subject to compliance with all the conditions required for establishment and thereby deprive of all practical effectiveness the provisions whose object is to guarantee the freedom to provide services". [FN28] The exceptions (Article 55 E.C.) and grounds of justification for any discrimination (Article 56 E.C.) which are applicable in relation to freedom of establishment also apply, pursuant to Article 66, to freedom to provide services. Their content, however, does not go beyond their scope which is applicable in relation to freedom of establishment. The "nationality requirement" for undertakings must therefore be characterised as contrary to Community law. FN27 Judgment in E.C. Commission v. Germany *712 , cited in fn. 26, at para. [52], and judgment in E.C. Commission v. Italy, cited in fn. 26, at para. [31].

FN28 Judgment in Case C-43/93, Vander Elst: [1994] E.C.R. I-3803; [1995] 1 C.M.L.R. 513, at para. [17]. II. Natural persons 1. Freedom of establishment (a) Residence of directors and managers 32. The question arises as to whether the residence requirement for directors and managers of security firms is to be regarded as indirect discrimination on grounds of nationality and thus as contrary to the principles of freedom of establishment. 33. It must be assumed that the great majority of the nationals of a Member State are resident and domiciled in that State, whereas the nationals of other Member States are established primarily in those States. Consequently, such a residence requirement definitely amounts to discrimination on grounds of nationality. [FN29] The nationals of other Member States must first transfer their residence to that State in order to comply with the requirements of its legislation. FN29 See Factortame judgment, cited in fn. 12, at para. [32]. 34. The Spanish Government considers that the condition is justified, on the one hand, because of the need for strict controls and, on the other, because of the direct contact with the customers which may be necessary. 35. To that it must be replied that the authorisation and supervision of undertakings can be carried out without the directors and managers having to take up residence in the territory of the Member State. Authorisation and supervision constitute a rather abstract process in relation to a company, one which is not affected by the place of residence of the company's executive personnel. In the context of freedom of establishment in particular, Article 54(3)(f) E.C., which is a provision concerning the abolition of restrictions, demonstrates the point that the entry of executive personnel into managerial or supervisory posts in secondary establishments is to be encouraged. [FN30] FN30 Article 54(3)(f) reads: "The Council and the Commission shall carry out the duties devolving upon them ... by effecting the progressive abolition of restrictions on freedom of establishment in every branch of activity under consideration, both as regards the conditions for setting up agencies, branches or subsidiaries in the territory of a Member State and as regards the conditions governing the entry of personnel belonging to the main establishment into managerial or supervisory posts in such agencies, branches or subsidiaries" (emphasis added). 36. Finally, the way in which contact with customers is established and organised is, ultimately, a matter for the security firms on the one hand and the potential customers on the other. The fact that business relations are shaped on the basis

of private law does not entitle a Member State to impose, by a sovereign act, a residence requirement on a particular group of executive personnel. The residence requirement must therefore be regarded as unjustified discrimination and thus as contrary to the principles of freedom of establishment. *713 (b) Nationality of field guards and private detectives 37. The nationality requirement imposed on workers defined as "security personnel" constitutes, in the case of field guards and private detectives (the Law expressly includes also those acting in a self-employed capacity), direct discrimination on grounds of nationality. Such discrimination could be justified only under Article 55 or 56 E.C. In so far as neither field guards nor private detectives are entrusted with the exercise of official authority, reliance on Article 55 E.C. is precluded. However, under Article 56 E.C., only limitations based on risks posed by the person concerned may be imposed on self-employed persons on grounds of public policy, public security or public health. For example, measures implementing the derogation under Article 3(1) of Directive 64/221 [FN31] must be based exclusively on the personal conduct of the individual concerned. Consequently, general considerations relating to crime prevention are not sufficient justification for barring access to an entire occupation by means of a nationality requirement. Such a requirement must therefore be regarded as contrary to Community law. FN31 Council Directive 64/221 on the co-ordination of special measures concerning the movement and residence of foreign nationals which are justified on grounds of public policy, public security or public health [1964] O.J. No. 56/850, in its judgment in Case 41/74, Van Duyn: [1974] E.C.R. 1337; [1975] 1 C.M.L.R. 1, at paragraph [15] of the grounds and paragraph [2] of the operative part, the Court declared Article 3(1) of Directive 64/221 to be directly applicable. 38. The same must also be true with regard to freedom to provide services. 2. Freedom of movement for workers 39. As far as employed persons are concerned, in principle no other conclusion can be reached. By laying down a nationality requirement in respect of security personnel, nationals of other Member States are barred from entering that occupation. Such a condition of entry appears to be discrimination between workers of the Member States as regards employment, which is prohibited under Article 48(2) E.C., if it cannot be justified under Article 48(3) or (4). 40. Article 48(3) allows limitations of freedom of movement for workers on grounds of public policy, public security or public health. As already indicated in the examination of Article 56 E.C., only grounds connected with the person concerned can justify invoking that derogation. Thus, restrictions may not be imposed on the right of a national of any Member State to enter the territory of another Member State, to stay there and to move freely with in it unless his presence or conduct "constitutes a genuine and sufficiently serious threat to

public policy". [FN32] A blanket and absolute exclusion from an occupation, as constituted by a nationality requirement, is not permissible. FN32 Judgments in Case 36/75, Rutili: [1975] E.C.R. 1219; [1976] 1 C.M.L.R. 140 *714 , at para. [28] and Case 30/77, Bouchereau: [1977] E.C.R. 1999; [1977] 2 C.M.L.R. 800, at paragraph [35]. 41. There can be no objection to an official authorisation or examination of the suitability of a person for the exercise of a particular activity, provided that it is carried out without discrimination. In principle, therefore, "ministerial authorisation", as prescribed by the Law, is unproblematic from the point of view of Community law. For that purpose, it would be reasonable and possible to verify that the individual applicant satisfied certain conditions, such as possessing the right to vote and hold public office. 42. Finally, Article 48(4) excludes "employment in the public service" from the scope of freedom of movement for workers provided for under Article 48. As a derogation from the rule, that exception must be construed in such a way [FN33] as to "limit its scope to what is strictly necessary for safeguarding the interests which that provision allows the Member States to protect". The content and limits of the exception must be determined on the basis of Community law. The Court has consistently held that employment in the public service is to be understood as limited to such posts as "involve direct or indirect participation in the exercise of powers conferred by public law and duties designed to safeguard the general interests of the State or of other public authorities." [FN34] FN33 Judgment in Case 225/85, E.C. Commission v. Italy: [1987] E.C.R. 2625, at paragraph [7]. FN34 See the judgments in Case 149/79, First Judgment In That Case, E.C. Commission v. Belgium: [1980] E.C.R. 3881; [1981] 2 C.M.L.R. 413, at paragraph [10] and Case C-290/94, E.C. Commission v. Greece: [1996] E.C.R. I3285, [1997] 2 C.M.L.R. 999, at paragraph [2]. 43. Although the services provided by the private security firms certainly also contribute to the maintenance of public security, which undoubtedly counts as one of the general interests of the State, I have already pointed out, in the examination of the provisions on freedom of establishment, that the security firms are not, in principle, vested with sovereign powers. Moreover, the activities performed by the workers employed by those firms may not go beyond the purpose for which the employing firm was established. Consequently, it is not possible to rely on Article 48(4) in order to justify discrimination on grounds of nationality. [FN35] FN35 See the judgment in E.C. Commission v. Greece, cited in fn. 34, at para. [36].

44. The forms of order sought by the Commission should therefore be granted. Costs In accordance with the first paragraph of Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since, in accordance with the solution proposed above, the defendant would be the unsuccessful party, it should be ordered to pay the costs. *715 D --Conclusion 45. In the light of the foregoing I propose that the Court: (1) Declare that, in so far as Articles 7, 8 and 10 of Law No. 23/1992 of 30 July 1992 make the grant of authorisation to carry on private security activities in the case of "security companies" subject to the requirement of being constituted in Spain, the requirement that their directors and managers should reside in Spain and the requirement that the "security staff" should possess Spanish nationality, Spain has failed to fulfil its obligations under the E.C. Treaty, in particular Articles 48, 52 and 59. (2) Order Spain to pay the costs. JUDGMENT [1] By application lodged at the Court Registry on 19 March 1997, the E.C. Commission brought an action under Article 169 E.C. for a declaration that, by maintaining in force Articles 7, 8 and 10 of Law No. 23/1992 of 30 July 1992, in so far as those provisions make the grant of authorisation to carry on private security activities, in the case of security companies, subject to the requirement of being constituted in Spain and the requirement that their directors and managers should reside in Spain and the requirement that security staff should possess Spanish nationality, Spain had failed to fulfil its obligations under the E.C. Treaty, in particular Articles 48, 52 and 59. Legal background [2] In Spain, private security activities are governed by Law No. 23/1992 of 30 July 1992 on private security (hereinafter "the Law") and Royal Decree No. 2364/1994 of 9 December 1994 approving the private security regulation. [3] Under Article 5(1) of the Law, security companies may provide only the following services: -- Surveillance and protection of property, premises, shows, contests or conventions [(a)]; -- Protection of specific persons [(b)]; -- Depositing, safekeeping, checking and sorting of coins and banknotes, securities and valuables, as well as the transport and disposition thereof [(c) and

(d)]; -- Installation and maintenance of surveillance and alarm systems [(e)]; -- Operation of central control offices for the reception, checking and transmission of alarm signals and their communication to the security forces (Fuerzas y Cuerpos de *716 Seguridad), as well as provision of response services in so far as these do not fall within the sphere of responsibility of the security forces [(f)]; -- Planning and assistance in connection with the security services covered by the Law [(g)]. [4] Under Article 7(1) of the Law, only undertakings which have obtained authorisation from the Ministry of the Interior, in the form of an entry in a register, may provide private security services. Article 7(1)(b) provides that, in order to obtain this authorisation, "security companies which employ security staff must in any event be Spanish". [5] Article 8 of the Law also requires the directors and managers of security firms entered on the register referred to in Article 7(1) to be resident in Spain. That condition applies to all security firms, including those which do not employ security staff. [6] According to Article 10(1) of the Law, security staff must first obtain authorisation from the Ministry of the Interior. Article 10(3)(a) makes such authorisation subject to the possession by security staff of Spanish nationality. [7] For the purposes of the Law, "security staff" means watchmen, persons in charge of security, private bodyguards, private field guards and private detectives. Field guards and private detectives may also pursue their activities in a self-employed capacity, not as members of a security undertaking. [8] Security firms carrying on the activities described in Article 5(1)(e) and (g) of the Law and do not require security staff. Other security firms include amongst their personnel both security staff and administrative staff to which the nationality condition does not apply. Pre-litigation procedure [9] On 4 April 1995 the Commission informed the Spanish Government that the provisions of Spanish law relating to private security were, in its view, contrary to Articles 48, 52 and 59 of the Treaty and formally requested it to submit its observations on this matter. [10] By letter of 21 June 1995 the Spanish Government replied that the nationality and residence conditions imposed by those provisions came under the derogations provided for by Articles 48(3) and (4), 55 and 56 E.C. [11] By letter of 11 June 1996 the Commission addressed to the Spanish Government a reasoned opinion in which it concluded that, by maintaining in force legislative provisions making the exercise of private security activities subject to the condition that the security firm be constituted in Spain, that directors and managers of the firm must reside in Spain and, finally, that private security staff must have Spanish nationality, Spain had failed to fulfil its obligations under Articles 48, 52 and 59 of the Treaty.

*717 [12] By letter of 20 September 1996 the Spanish Government repeated the arguments which it had raised in its reply to the formal letter calling upon it to submit is observations. [13] Not satisfied by those explanations, the Commission brought this action for a declaration that Spain had failed to fulfil its obligations. The application Arguments of the parties [14] As regards freedom of establishment, the Commission submits first of all that the rule that a company's directors must reside in the Member State in which it is established entails discrimination on grounds of nationality contrary to Article 52 of the Treaty. [15] Next, the Commission contends that the nationality condition imposed on undertakings by Article 7 of the Law is explicitly discriminatory and entails a restriction on the right of undertakings established in another Member State to pursue their activities in Spain through a branch or agency, in breach of Article 52 of the Treaty. [16] Finally, according to the Commission, the nationality condition laid down in Article 10 of the Law is also contrary to Article 52 in so far as it is applied to security staff working for their own account. [17] As regards freedom to provide services, the Commission contends that the nationality condition relating to undertakings, laid down in Article 7 of the Law, and that relating to directors' residence, laid down in Article 8, which presupposes a permanent establishment, have the effect of excluding any private security activity carried out by undertakings or security staff which are not established in Spain. Such requirements constitute a discriminatory obstacle to the freedom to provide services and are therefore contrary to Article 59 of the Treaty. [18] The Commission adds that the activities in question cannot be excluded from the scope of Articles 52 and 59 of the Treaty on the ground that they are connected with the exercise of official authority. That exception, provided for in the first paragraph of Article 55 combined, where appropriate, with Article 66 of the Treaty, should be interpreted restrictively and limited to what is strictly necessary to safeguard the interests which those provisions allow the Member States to protect. Furthermore, involvement in the exercise of official authority must be direct and specific. [19] The Commission considers, however, that since the protection of property and of private persons meets a purely private need, private security firms and staff are not directly and specifically involved in the exercise of official authority, which, in its view, entails the exercise of powers of constraint. It is clear, on the contrary, from the Spanish legislation that security firms and staff are only involved in a complementary and subordinate way in public security activities. [20] As far as Article 56(1) combined, where appropriate, with *718 Article 66 of the Treaty is concerned, the Commission refers to the case-law of the Court

according to which a discriminatory national measure is justified only if it is directed against a genuine and sufficiently serious threat affecting one of the fundamental interests of society [FN36] and the existence of such a threat must be demonstrated by the Member State on the basis of an assessment of the individual conduct of persons. FN36 Case 30/77, Bouchereau: [1977] E.C.R. 1999; [1977] 2 C.M.L.R. 800. [21] According to the Commission, the exercise of the activity of detective or field guard in Spain by a national of another Member State does not clearly involve a genuine and sufficiently serious threat. The same applies to discrimination in relation to legal entities. Besides, even if there were such a threat, Member States cannot put a ring fence around an entire sector of activities. [22] As regards freedom of movement for workers, the Commission contends that Article 10(3) of the Law infringes Article 48 of the Treaty since it excludes employed persons who are nationals of other Member States from carrying on private security activities. [23] The Commission adds that the derogation relating to employment in the public service provided for in Article 48(4) cannot be applied to the occupations in question. [24] Similarly, the Commission considers that the nationality condition imposed by Article 10(3) of the Law is not justified on the grounds of public policy, public security or public health, as referred to in Article 48(3) of the Treaty. The Commission stresses the importance of interpreting that provision strictly and points out that the case-law contains no example of a situation in which that derogation has been applied to a Member State's ban prohibiting nationals of other Member States from employment in private undertakings. [25] The Spanish Government does not deny that its legislation impedes the exercise of the freedom of establishment, the freedom to provide services and the freedom of movement for workers within the Community. It considers, however, that those restrictions are justified by the derogations provided for by the Treaty. [26] Thus, the Spanish Government contends, first of all, that private security activities involve the exercise of official authority within the meaning of Article 55 of the Treaty owing to their purpose, which is to maintain public security. In this regard, it enumerates a number of obligations imposed on security firms and security staff which, in its view, demonstrate that a particular relationship of solidarity with the State is necessary. It is with this in view that an administrative authorisation by entry in a register or authorisation from the Ministry of the Interior are provided for. [27] Second, the Spanish Government submits that a threat to public security and public order arises from the nature of the activities carried out by private security undertakings, which demand rigorous controls. *719 The effectiveness of such controls could not be guaranteed if the undertakings or persons concerned did not have Spanish nationality or if they were not established in the Member State in which they carry on their activities.

[28] As regards, in particular, Article 48(3) of the Treaty, the Spanish Government states that account must also be taken of the fact that security guards may use arms or other means of defence in providing their services and that in general they must wear a uniform. They are also vested with particular rights which could affect the rights and freedoms of citizens. [29] Third, the Spanish Government considers that the provisions in question are justified for overriding reasons relating to the public interest, consisting of the need, first, to guarantee adequately the security of persons and property and, second, the need to make clear what rights citizens may have to set up or use private security services. In advancing this argument the Spanish Government also points out the underlying reasons on which security services are based, the need to prevent crime and to contribute to the maintenance of public security, the need to prevent any unwarranted assumption of authority and to ensure observance of fundamental requirements, the lack of approval standards, the risk of inadequate training of security guards, the risk of irregularities in the exercise of their functions and of the commission of numerous infringements, the need to ensure that protection of security does not become the occasion for assaults, acts of violence, abuses of rights or interference with the legal or property interests of other persons and the need to protect users of the services and to uphold the social system. Findings of the Court [30] As the Spanish Government itself recognises, Articles 7, 8 and 10 of the Law entail restrictions on freedom of establishment, freedom to provide services and freedom of movement for workers. I --The nationality condition (Articles 7 and 10 of the Law) [31] It must be observed first of all that the nationality condition imposed on undertakings by Article 7 of the Law prevents undertakings established in other Member States from carrying on their activities in Spain through a branch or an agency. Secondly, Article 10 of the Law precludes nationals of other Member States from carrying on permanently private security activities in Spain as employed persons or self-employed persons. Finally, those provisions prevent nationals of other Member States from providing private security services in Spain. [32] It is necessary, however, to consider whether those obstacles are justified by the derogations provided for by the Treaty, namely in Article 48(4), the first paragraph of Article 55 and Article 66 of the *720 Treaty, on the one hand, and Articles 48(3), 56(1) and 66 of the Treaty, on the other. Article 48(4), the first paragraph of Article 55 and Article 66 of the Treaty [33] As far as Article 48(4) of the Treaty is concerned, it must be observed that private security undertakings do not form part of the public service and that this

provision is not therefore applicable in this case. [34] As regards the exception provided for in the first paragraph of Article 55 combined, where appropriate, with Article 66 of the Treaty, it must be remembered that, as a derogation from the fundamental rule of freedom of establishment, it must be interpreted in a manner which limits its scope to what is strictly necessary for safeguarding the interests which that provision allows the Member States to protect. [FN37] FN37 Case 147/86, E.C. Commission v. Greece: [1988] E.C.R. 1637; [1989] 2 C.M.L.R. 845, at para. [7]. [35] According to established case law, the derogation for which it provides must be restricted to activities which in themselves are directly and specifically connected with the exercise of official authority. [FN38] FN38 Case 2/74, Reyners: [1974] E.C.R. 631; [1974] 2 C.M.L.R. 305, at para. [45]; and Case C-42/92, Thijssen: [1993] E.C.R. I-4047, at para. [8]. [36] In the present case, it is clear from the evidence before the Court that the activity of security undertakings and security staff is to carry out surveillance and protection tasks on the basis of relations governed by private law. [37] However, the exercise of that activity does not mean that security undertakings and security staff are vested with powers of constraint. Merely making a contribution to the maintenance of public security, which any individual may be called upon to do, does not constitute exercise of official authority. [38] Furthermore, as the Advocate General points out in paragraphs 26 and 27 of his Opinion, the Spanish legislation makes a clear distinction between tasks entrusted to security undertakings and security staff and those reserved for the public security forces. Where in very specific situations the former are called upon to assist the latter, the functions they perform are only auxiliary functions. [39] It follows that private security undertakings and private security staff are not directly and specifically involved in the exeercise of official authority and that the exception provided for in the first paragraph of Article 55 combined, where appropriate, with Article 66 of the Treaty does not apply in this case. Articles 48(3), 56(1) and (66) of the Treaty [40] The nationality condition imposed on security undertakings and security staff by Articles 7 and 10 of the Law excludes the exercise, by a *721 person or undertaking possessing the nationality of another Member State, of private security activities. [41] Such a general exclusion from access to certain occupations cannot be justified on the grounds of public policy, public security or public health referred to in Articles 48(3) and 56 of the Treaty. [42] The right of Member States to restrict freedom of movement for persons on grounds of public policy, public security or public health is not intended to

exclude economic sectors such as the private security sector from the application of that principle, from the point of view of access to employment, but to allow Member States to refuse access to their territory or residence there to persons whose access or residence would in itself constitute a danger for public policy, public security or public health. [FN39] FN39 See, as far as public health is concerned, Case 131/85, Gül: [1986] E.C.R. 1573; [1987] 1 C.M.L.R. 501, at para. [17]. [43] That reasoning applies a fortiori as regards the overriding reasons relating to the public interest which the Spanish Government puts forward as justification for the nationality condition. II --The residence condition (Article 8 of the Law) [44] The rule according to which directors and managers of all security undertakings must reside in Spain constitutes an obstacle to freedom of establishment [FN40] and to the freedom to provide services. FN40 See in this regard, Case C-221/89, Factortame: [1991] E.C.R. I-3905; [1991] 3 C.M.L.R. 589, at para. [32]. [45] This condition is not necessary in order to ensure public security in the Member State concerned and is not therefore covered by the derogation provided for by Article 56(1) combined, where appropriate, with Article 66 of the Treaty. [46] Recourse to this justification presupposes the existence of a genuine and sufficiently serious threat affecting one of the fundamental interests of society. [FN41] FN41 See, as far as public policy is concerned, Boucherau, cited above, para. [35]. [47] Contrary to what the Spanish Government contends, it cannot be argued that this threat would arise from the impossibility for the Spanish authorities, if the rule in question did not exist, to monitor effectively the activities carried on by private security undertakings. Checks may be carried out and penalties may be imposed on any undertaking established in a Member State, whatever the place of residence of its directors. Moreover, the payment of any penalty may be secured by means of a guarantee to be provided in advance. [FN42] FN42 See, to this effect, Case C-350/96, Clean Car Auto Service: [1998] E.C.R. I-2521; [1998] 2 C.M.L.R. 637, at para. [36]. [48] It follows from all the foregoing that, by maintaining in force Articles 7, 8 and 10 of Law No. 23/1992 of 30 July 1992, in so far as those provisions make the

grant of authorisation to carry on private security *722 activities, in the case of security companies, subject to the requirement of being constituted in Spain and the requirement that their directors and managers should reside in Spain and the requirement that security staff should possess Spanish nationality, Spain has failed to fulfil its obligations under Articles 48, 52 and 59 of the Treaty. Costs [49] Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for. Since Spain has been unsuccessful and the Commission has applied for costs, Spain must be ordered to pay the costs. Order On those grounds, THE COURT (Fifth Chamber), HEREBY: 1. Declares that, by maintaining in force Articles 7, 8 and 10 of Law No. 23/1992 of 30 July 1992, in so far as those provisions make the grant of authorisation to carry on private security activities, in the case of security companies, subject to the requirement of being constituted in Spain and the requirement that their directors and managers should reside in Spain and the requirement that security staff should possess Spanish nationality, Spain has failed to fulfil its obligations under Articles 48, 52 and 59 E.C. 2. Order Spain to pay the costs. (c) Sweet & Maxwell Limited [1999] 2 C.M.L.R. 701 END OF DOCUMENT