Judgment — ECLI:EU:C:2005:670
Date: 2005-11-10
Language of the case: German
Court formation: First Chamber
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Right of establishment;Approximation of laws;Freedom to provide services
Concepts: 'In house' exemption
Procedure: Action for failure to fulfil obligations - successful
Origin: Austria

summary form, the legal and factual particulars on which those complaints are based. 27. Like the formal notice addressed by the Commission to the Member State, and like the reasoned opinion issued by the Commission, which defines the subject-matter of the dispute, the application must enable the Member State concerned to put forward its defence and to contest all of the complaints raised against it by the Commission. 28. That case-law precludes infringement proceedings from being initiated by an application that prejudices the rights of the defence, because the complaints raised are insufficiently precise, or for lack of legal or factual reasons. (3) 29. In this case the Commission set out clearly in the pre-litigation procedure why it considers that the Austrian Government failed to comply with the procedural rules laid down in Directive 92/50 in concluding the waste disposal contract. It examined in great depth the factual circumstances which led to the award of the waste disposal contract and the legal grounds on which it based the infringement. 30. In particular the Commission deduced from the facts relating to the conclusion of the contract and the circumstances under which Saubermacher AG acquired a holding in AbfallGmbH that in this case there was a contract to which Directive 92/50 applied. Therefore, the subject-matter of the action was adequately defined. 31. Consequently, the Austrian Government’s complaint that the Commission failed to define the subject-matter of the action is unfounded. 32. The Austrian Government’s other complaints regarding admissibility are of a substantive nature. I will examine them in my appraisal of the substance of the action below. 33. It follows from the foregoing that the Austrian Government’s objection of inadmissibility must be dismissed. B – Substance 1. Views of the parties 34. In its application the Commission observes that the municipality of Mödling must, in its capacity as a local authority, be regarded as a contracting authority within the meaning of Article 1(b) of Directive 92/50. Waste disposal is a service which comes within Category 16 of Annex I A to the directive. Therefore, the contract to supply this service must be awarded in accordance with the provisions of Titles III to VI. In addition, the waste disposal contract exceeds the threshold of 200 000 special drawing rights (SDRs), as provided in Article 7(1)(a)(ii) of Directive 92/50, as amended by Article 1(1) of European Parliament and Council Directive 97/52/EC of 13 October 1997 amending Directives 92/50/EEC, 93/36/EEC and 93/37/EEC concerning the coordination of procedures for the award of public service contracts, public supply contracts and public works contracts respectively. (4) Consequently, the rules on procedure laid down in Article 11(1) and the rules on advertising laid down in Article 15(2) of Directive 92/50 are applicable in their entirety. 35. In the present case the Commission takes the view that there is no internal relationship between the municipality of Mödling and AbfallGmbH. In support of this view it refers to the judgment in Teckal. (5) In that judgment the Court held that the directives on the award of public contracts do not apply in the case where ‘the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments.’ Where a contracting authority did not intend to entrust the tasks assigned to it to a third party but merely to redistribute those tasks internally, the directives on the award of public service are not applicable. However, as soon as a private undertaking holds shares in the contractor, the contracting authority is no longer able to exercise a control which is similar to that which it exercises over its own departments. A minority holding of a private undertaking is sufficient to rule out the existence of an internal relationship. 36. The Commission contends, furthermore, that Saubermacher AG’s minority holding means that this undertaking has acquired considerable rights of veto and the power to appoint one of the two managing directors having identical rights: – Saubermacher AG enjoys a right of veto over important decisions concerning AbfallGmbH, such as increasing or reducing the share capital, amending its object as defined in its statutes, merging or selling shares, or splitting shares in the company; – by appointing one of the two managing directors, Saubermacher AG exercises influence over AbfallGmbH since the two managing directors jointly manage and represent the undertaking in its internal and external relations and are jointly authorised to sign. Furthermore, the operational activities of the managing directors do not require prior decisions of the general assembly. 37. The Austrian Government takes the view that the conclusion of the waste disposal contract with AbfallGmbH does not fall within the scope of Directive 92/50/EEC because it involves a so-called ‘in-house’ transaction. In its view, the holding of a private person in an undertaking does not mean that there can be no internal relationship. The decisive element is the ‘degree of autonomy’ of the contractual partner, that is to say AbfallGmbH, and not the possible influence of a private partner within that undertaking. In the present case AbfallGmbH did not and does not have autonomous decision-making powers, either at the time the contract was entered into or at present. 38. In the view of the Austrian Government, the contract concluded between the contracting authority and the service provider is not really a contract at all for the purposes of Article 1(a) of Directive 92/50 since the contracting authority is able to influence the way in which the service provider operates and the latter consequently lacks autonomy. (6) 39. Moreover, the requirement laid down in Teckal, (7) namely ‘exercising a control which is similar to that which a local authority exercises over its own departments’, requires comparable and not identical control. A global assessment of the legal and factual circumstances is necessary to ascertain whether or not there is comparable control. When all the relevant factors are taken into account, it is clear that the municipality of Mödling is able to exercise such ‘comparable’ control even after the transfer of 49% of the shares. In this respect the following factors are relevant: – because it has the majority of votes in the general assembly the municipality of Mödling is able at any time to rescind the waste disposal contract with AbfallGmbH or to dissolve AbfallGmbH itself; – the operations of AbfallGmbH can be determined in any respect by the municipality of Mödling alone since the two managing directors are subject to the limits laid down by the general assembly; – under the agreement determining the legal relationship between the parties, all decisions on the operations of AbfallGmbH can be taken by a simple majority (that is to say by the municipality of Mödling alone); – by virtue of the simple majority of shares and voting rights which it possesses the municipality of Mödling can at any time and without giving reasons remove the managing director of AbfallGmbH from his post and also remove the managing director proposed by the private undertaking from his post. In addition, it can also decide at the general assembly to reduce the remuneration of the managing directors. 40. In the reply the Commission dismisses the Austrian Government’s view that it is necessary to ascertain whether or not there is an internal control relationship on a case-by-case basis and having regard to all the circumstances. Such an examination would lead to legal uncertainty as regards the applicability of Community directives relating to public contracts. On the other hand, the scope of Directive 92/50 can be defined simply and predictably by the criterion applied by the Commission, that is to say the influence of a third party on the contractor. 2. Appraisal 41. In order to determine whether the present action brought by the Commission is well founded, the following two questions must be examined: (a) must AbfallGmbH, in which Saubermacher holds 49% of the shares, be regarded as a legal entity which, although it has, in legal terms, been hived off as a separate legal person, remains an integral part of the organisation which the municipality of Mödling has to perform its public duties, including the disposal of waste? If the answer to this question is in the affirmative, the waste disposal contract given to AbfallGmbH by the municipality of Mödling must be regarded as a contract awarded within the organisation of the municipality. In that case there is no contract to which the rules on the award of contracts laid down in Directive 92/50 would apply; (b) and, if it is assumed that AbfallGmbH in its present legal form, that is to say with the acquisition of a holding by Saubermacher AG and the provisions of the statutes and the law applicable thereto, must be regarded as an entity outside the organisation of the municipality of Mödling, is there proper compliance with the relevant provisions of Directive 92/50? 42. As I have explained above, the action brought by the Commission raises the question of what is to be understood by a contract which is not awarded within a local authority’s power structure. According to settled case-law, Directive 92/50 is applicable where a contracting authority, such as a local authority, plans to conclude in writing, with an entity which is formally distinct from it and independent of it in regard to decision-making, a contract for pecuniary interest. (8) It therefore follows that a contractor is not regarded as coming under the same power structure as the contracting authority where it is legally distinct from it. However, even where the contractor is an entity legally distinct from the contracting authority, there may be other circumstances in which a call for tenders is not mandatory. (9) In this respect Teckal provides two cumulative criteria which are used to ascertain whether or not there is an internal power structure. This is the case where the criterion is satisfied that ‘the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority or authorities’. (10) 43. In the abovementioned Teckal judgment the distinct body was fully owned by a public corporation. The judgment in Stadt Halle, (11) which was given after the written procedure in the present case had ended, related to whether a contracting authority could exercise over a so-called ‘semi-public company’, that is to say a company in which private companies also have a holding, a control which is similar to that which it exercises over its own departments. The Court ruled that ‘the participation, even as a minority, of a private undertaking in the capital of a company in which the contracting authority in question is also a participant excludes in any event the possibility of that contracting authority exercising over that company a control similar to that which it exercises over its own departments.’ 44. In that case one of the factors on the basis of which the Court reached its judgment was the fact that the award of a public contract to a semi-public company without calling for tenders would interfere with the objective of free and undistorted competition and the principle of equal treatment of the persons concerned, referred to in Directive 92/50, in particular in that such a procedure would offer a private undertaking with a capital presence in that undertaking an advantage over its competitors. (12) 45. In brief, a legal entity which has been hived off, in legal terms, as a separate legal person cannot be regarded as forming part of a contracting authority where a private undertaking also has a capital presence in that undertaking. 46. The following is clear from the facts set out in points 7 to 16 above and the information taken from the statutes which was cited by the Commission and has gone unchallenged, as reproduced in point 36 above: – Saubermacher AG has a share holding of 49% in AbfallGmbH; – attached to this holding is the right to appoint one of the managing directors; – these directors are responsible for the business operations of AbfallGmbH; – a qualified majority of the general assembly of shareholders is necessary for important decisions concerning the structure and organisation of the undertaking. 47. On the basis of these facts it is justified to conclude that the relationship between the municipality of Mödling and AbfallGmbH is not an internal relationship in which the municipality of Mödling can exercise control which is similar to that which it exercises over its own departments. This finding is not altered by the fact that the municipality can decide to end its cooperative link with Saubermacher AG. However, in this respect it is bound by the general and specific rules of national law on natural and legal persons which govern relations between parties working together in a company, which means that it must in any event take account of the legitimate interests of Saubermacher AG. It seems unlikely that Saubermacher AG would have been prepared, by taking a – considerable – interest in AbfallGmbH, to establish a cooperative link with the municipality of Mödling, as another major shareholder, if the continuity of that cooperative link were entirely at the discretion of the municipality. 48. In the present case the conversion of an internal department of the municipality of Mödling into a private undertaking cannot be regarded as an ‘in-house’ transaction in view of the hiving-off process and the activity of AbfallGmbH itself. 49. Immediately after AbfallGmbH had been incorporated by the municipality of Mödling on 16 June 1999, it started, following the decision of the municipal council of 25 June, to look for a private partner for the undertaking that had been set up. With Saubermacher AG’s involvement the municipality of Mödling acquired the expertise necessary for the commercial operation of AbfallGmbH. 50. This interpretation of the facts is further confirmed by the following facts: – a start was made on implementing the waste disposal contract between the municipality of Mödling and AbfallGmbH only after Saubermacher AG had acquired a holding in AbfallGmbH; – third parties account for 20 to 30% of AbfallGmbH’s operations (see point 16 above). 51. Since AbfallGmbH, in its present legal form, that is to say with the acquisition of a holding by Saubermacher AG and the provisions of the statutes and the law applicable thereto, must be regarded as an entity outside the organisation of the municipality of Mödling, it is necessary to examine whether the waste disposal contract, by which the municipality of Mödling transferred responsibility for the collection and treatment of waste exclusively to AbfallGmbH, comes within the scope of Directive 92/50 and whether there has been proper compliance with the relevant provisions. 52. I would observe first of all that the municipality of Mödling is a local authority. Moreover, this fact is not contested by the Austrian Government. Article 1(b) of Directive 92/50 provides that contracting authorities are to mean the State, regional or local authorities, bodies governed by public law, associations formed by one or more of such authorities or bodies governed by public law. As a local authority, the municipality of Mödling is, therefore, a contracting authority and comes within the scope ratione personae of the directive. 53. Secondly, the services which form the subject-matter of the relationship at issue come within the scope of the directive. Annex I A to the directive lists among the categories of services referred to therein Category 16 relating to ‘[s]ewage and waste disposal services; sanitation and similar services’. As regards the specific content of the services, Annex I A refers to the CPC reference number (Central Product Classification of the United Nations) which is indicated alongside the category in question. The core operations of AbfallGmbH comprise the collection and treatment of waste, large objects, refuse, biologically degradable waste and hazardous substances. Therefore, it follows that AbfallGmbH’s core operations are among the services listed in Annex I A to the directive and that the provisions of the directive are applicable thereto. 54. The next aspect which must be examined is the nature of the relationship between the municipality of Mödling and AbfallGmbH. The eighth recital in the preamble states ‘the provision of services is covered by this directive only in so far as it is based on contracts; … the provision of services on other bases, such as law or regulations, or employment contracts, is not covered.’ Article 1(a) provides a definition of the term ‘public services contract’ for the purposes of the directive, namely ‘contracts for pecuniary interest concluded in writing between a service provider and a contracting authority.’ 55. In order to be able to describe the relationship as a public contract, it is necessary to examine whether the contract was concluded in the form of a contract and whether a monetary consideration was agreed. This is so in the present case. It is an undisputed fact that the waste disposal contract, by which the municipality of Mödling transferred responsibility for waste collection and treatment exclusively to AbfallGmbH, provides that the municipality of Mödling is to pay remuneration to AbfallGmbH which consists of a fixed amount per dustbin or container by way of payment for collecting and treating waste. 56. In addition, the two legal persons which have entered into the contract must be legally distinct from one another, otherwise there is an ‘in-house’ service. I stated earlier in points 46 to 50, that AbfallGmbH must not be regarded as an internal department of the municipality of Mödling either in law or in fact. 57. The fact that the decision to enter into a contract between the municipality of Mödling and AbfallGmbH was adopted while AbfallGmbH was still fully owned by the municipality of Mödling does not alter the finding that the public contract concerned should, under Article 8, in conjunction with Article 11(1) and Article 15(2) of the directive, have been awarded in accordance with the provisions of Titles III to VI thereof. The certainty that AbfallGmbH would gain the contract from the municipality of Mödling made the acquisition of a holding in that undertaking attractive to a private tenderer. However, such forms of external hiving-off in which the hived-off entity is made appealing to private tenderers by means of a contract for an unlimited period acquired in advance by way of a ‘dowry’ may not undermine the effectiveness of Directive 92/50. The directive is also applicable to such arrangements. 58. In the light of the foregoing I conclude that the Commission has demonstrated an infringement of Article 8 of the directive, in conjunction with Article 11(1) and Article 15(2) thereof. VI – Conclusion 59. On the basis of the foregoing I propose that the Court should: – declare that, by virtue of the fact that the award of the waste disposal contract entered into by the town of Mödling failed to comply with the procedural and advertising rules laid down in Article 8, in conjunction with Article 11(1) and Article 15(2) of Council Directive 92/50/EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts, the Republic of Austria has failed to fulfil its obligations under that directive; – order the Republic of Austria to pay the costs. 1 – Original language: Dutch. 2 – OJ 1992 L 209, p. 1. 3 – See, inter alia, Case C-191/95 Commission v Germany [1998] ECR I-5449, paragraph 55; and Case C-340/96 Commission v United Kingdom [1999] ECR I-2023, paragraph 36. 4 – OJ 1997 L 328, p. 1. 5 – See Case C-107/98 Teckal [1999] ECR I-8121, paragraph 50. 6 – See also the Opinion of Advocate General Léger in Case C-94/99 ARGE [2000] ECR I-11037, point 59. 7 – Cited in footnote 5 above. 8 – See ARGE, cited in footnote 6 above, paragraph 40, and Teckal, cited in footnote 5 above. 9 – See Case C-26/03 Stadt Halle [2005] ECR I-1, paragraph 49. 10 – See Teckal, cited in footnote 5 above. 11 – See Stadt Halle, cited in footnote 9 above. 12 – Stadt Halle, cited in footnote 9 above.