OPINION OF ADVOCATE GENERAL

SIR GORDON SLYNN

delivered on 20 March 1986

My Lords,

This is the first of four cases heard simultaneously in which the Commission seeks declarations to the effect that restrictions imposed by the defendant Member States on coinsurance operations infringe Community law, the others being Cases 252/83 Commission v Denmark, 205/84 Commission v Germany and 206/84 Commission v Ireland. The importance of the cases is underlined by the fact that eight out of the ten Member States took part in these proceedings: the Netherlands and the United Kingdom intervened in support of the Commission, while Belgium and Italy have intervened in support of the four defendants.

Because of differences in the national legislation and the different issues which arise in the different cases it is necessary to deal with each case separately. The arguments, however, to some extent overlap and it is convenient to deal with them principally in this, the first, case in so far as they concern coinsurance, since as the Irish Government has stressed this case is concerned only with coinsurance.

It appears to be common ground between the parties that coinsurance involves insurance of a single risk by a number of coinsurers, each of which is liable only for the proportion of the risk covered by him. Thus the coinsurers are not jointly and severally liable for the entire risk. One of the insurers acts as leading insurer and as such negotiates the contract terms and conditions, but he need only take up a small proportion of the risk. It is thus different from reinsurance where the insurer passes on part of the risk whilst remaining liable to the insured for the full amount.

The application

In its application the Commission seeks declarations that France has:

(a) Infringed Articles 59 and 60 of the EEC Treaty by adopting Law No 81-5 of 7 January 1981 and Decree No 81-443 of 7 May 1981 in so far as those instruments require a Community insurance undertaking either to be established in France or to undergo an authorization procedure in order to be able to provide coinsurance in France as the leading insurer;

(b) Infringed the same Treaty provisions by adopting the decree referred to in that it prevents Community insurance undertakings not established in France from participating in coinsurance transactions for risks which, by reason of their nature or their size, are not within the scope of Article 1 of that decree; and

(c) Failed to observe the direct effect of those Treaty provisions and the primacy of Community law by applying, through the expedient of decisions of the national authorities, the legislation mentioned under (a) and (b) above.

Although the Commission has, in my view, limited its claim to saying that the provisions of French law in question violate Articles 59 and 60 of the Treaty (and not that the directives had not been correctly transposed into French law), much attention has been paid in argument to two Council directives. Since the effect of these is relevant to the claims made it is convenient to summarize them at the outset.

Those directives are 73/239 on the taking-up and pursuit of the business of direct insurance other than life insurance (Official Journal 1973, L 228, p. 3) and 78/473 relating to Community coinsurance (Official Journal 1978, L 151, p. 25). The 1973 directive is based on Article 57 (2) of the Treaty, while the 1978 directive is founded both on that provision and on Article 66.

Directive 73/239 requires each Member State to make the taking-up of the business of direct insurance (other than those branches which are excluded such as life insurance) in its territory' subject to an official authorization which must be obtained from the competent authority of the ‘Member State in question’ by any undertaking which establishes its head office in that Member State or which, having its head office in another Member State, opens a branch or agency in the Member State ‘in question’. That clearly requires authorization to be obtained both in the Member States where the head office is established and where an agency or branch is opened. It is, however, dealing with establishment and not the provision of services in the Member State where there is neither head office nor branch nor agency.

The directive goes on to lay down certain requirements which must be met before the authorization can be granted. In particular, Articles 15 to 21 provide for the establishment of financial reserves and solvency margins to ensure that companies can meet their financial obligations. It is the responsibility of the Member States indicated to ensure that these are maintained. In this regard, the directive does not impose complete uniformity. Thus, for example, the amount of technical reserves is to be determined according to rules fixed by the Member States. Moreover, the directive does not harmonize general and special policy conditions (i. e. contractual terms) or insurance rates (Article 10(3)).

Directive 78/473 does not apply to all coinsurance.

Thus Article 1(1) stipulates that the directive applies only to risks in certain classes in the Annex to the 1973 directive, (e.g. classes 4 (railway rolling stock), 5 (aircraft), 6 (ships)) and by Article 1 (2) it applies only to risks referred to in subparagraph (1) ‘which by reason of their nature or size call for the participation of several insurers for their coverage’.

Moreover, Article 2 provides:

‘1. This directive shall apply only to those Community coinsurance operations which satisfy the following conditions: (a) the risk, within the meaning of Article 1(1), is covered by a single contract at an overall premium and for the same period by two or more insurance undertakings, hereinafter referred to as “coinsurers”, each for its own part; one of these undertakings shall be the leading insurer; (b) the risk is situated within the Community; (c) for the purpose of covering this risk, the leading insurer is authorized in accordance with the conditions laid down in the first coordination directive, i.e. he is treated as if he were the insurer covering the whole risk; (d) at least one of the coinsurers participates in the contract by means of a head office, agency or branch established in a Member State other than that of the leading insurer; (e) the leading insurer fully assumes the leader's role in coinsurance practice and in particular determines the terms and conditions of insurance and rating.’

Article 3 provides that: ‘The right of undertakings which have their head office in a Member State and which are subject to and satisfy the requirements of the first coordination directive to participate in Community coinsurance may not be made subject to any provisions other than those of this directive.’ Article 4 lays down rules in relation to technical reserves for coinsurance operations.

The adoption of Article 2(1) in its final form led to the following statement being entered into the minutes of the Council's meeting:

‘The Council emphasizes that the adoption of this directive and in particular Article 2(1) thereof, is entirely without prejudice to the resolving of the dispute between the Member States and the Commission on the interpretation to be placed on the rulings of the Court of Justice on freedom to provide services (Case 33/74 Van Binsbergeri).

This text is without prejudice to national provisions relating to the establishment of the leading insurer, which are to be appraised on the basis of the Treaty, by the Court of Justice as a last resort if necessary.’

In the light of the ruling in Case 33/74 Van Binsbergen [1974] ECR 1299, the Commission considered, and still considers, that a Member State may not require insurers established in other Member States, which wish to provide insurance in its territory, to be established there or to obtain an authorization to do so and that such an obligation applies, by virtue of Articles 59 and 60, equally to the leading insurers in a coinsurance operation. The majority of Member States took the view that such requirements were lawful, at least until such time as national measures relating to insurance were fully harmonized, and that the 1978 directive obliged them only to abolish the establishment and authorization requirements for Community coinsurers, but not for the leading insurers. Accordingly, they have in fact abolished these requirements for such coinsurers other than the leading insurer.

On 30 December 1975 the Commission submitted to the Council a proposal for a second directive on the coordination of the laws, regulations and administrative provisions relating to direct insurance other than life insurance and laying down provisions to facilitate the effective exercise of freedom to provide' services (Official Journal 1976, C 32, p. 2). This draft is still before the Council, albeit in a considerably amended form. The aims of this draft directive are, inter alia, to supplement the provisions of the first directive in relation to technical reserves and to determine the law applicable to the contract. Substantial differences, however, exist between the Commission and some Member States on the one hand and the majority of Member States on the other as to the terms to be adopted.

The French measures at issue were adopted to implement the 1978 directive. Article 36 of the Law of 7 January 1981 provides that ‘French or foreign insurance undertakings which act as leading insurer in regard to a Community coinsurance contract must be authorized in accordance with Article L321-1’ of the Insurance Code. According to the latter article, ‘undertakings subject to State supervision ... may not begin trading until they have received authorization’.

This seems to involve the leading insurer setting up an establishment in France, since Article R321-7(l)(e) of the Insurance Code provides that an application for authorization submitted by a foreign undertaking whose registered office is in the territory of a Member State of the European Economic Community must include ‘... proof that the undertaking has a branch where it elects domicile’. In its answer to the Commission's reasoned opinion France denied that this amounted to a requirement that insurance companies be established in France. The French Government has not pursued the point, however, and in view of the wording of the relevant provisions, I take the view that it is indeed a requirement of establishment, as it has been regarded for the purposes of much of the argument.

It follows that an insurer is required both to be authorized by the French authorities and to be established in France, if he is to act as leading insurer of a risk situated in that country. Thus the two requirements are cumulative and not alternative, as the Commission stated in its reasoned opinion and its application. On the other hand, the other coinsurers are exempted from these requirements by virtue of Article 36 of the Law and the Court was told at the hearing by the agent for the French Government that these provisions do not apply where the policyholder resides in France but the risk is situated elsewhere.

Article 36 of the Law also provided for the adoption of a decree laying down the conditions under which Community coinsurance can operate. Accordingly, by Decree No 81-443 of 7 May 1981 such operations were limited to the classes of risk covered by the 1978 directive. It follows that life insurance is not at issue in these proceedings. In addition, that decree empowered the Minister for Economics to lay down thresholds below which Community coinsurance is prohibited. The decree lays down the maximum thresholds which may be fixed by the Minister. For risks in classes 4, 5, 6, 7, 11 and 12 the threshold may not be higher than 30 million units of account. For those in classes 8, 9 and 16 they may not be higher than 50 million units of account. Finally, for risks in class 13, in so far as they are caught by the 1978 directive and Decree No 81-443 at all, the threshold is to be set by reference to the turnover of the insured. This may not be higher than 200 million units of account. No thresholds have in fact been fixed by the Minister for any of these classes of risk.

Finally, Article 1004 of the Tax Code provides that ‘foreign insurers must have a French representative who has been approved by the taxation authorities and who will be personally liable for taxes and penalties’. The Commission has not as such attacked this provision, but it has been indirectly relied on by France.

Admissibility

The French Government has claimed that by the measures complained of it has faithfully implemented the 1978 directive and thus, in reality, the Commission is impugning the validity of that directive. It suggests that the proper course for the Commission would have been to seek the annulment of the directive pursuant to Article 173 at the appropriate time. It follows in the French Government's submission that at this stage it is not open to the Commission to question the validity of the directive in proceedings based on Article 169. This, it is said, is contrary to the principle of legal certainty. A number of other Member States have expressed the same view.

The Commission vigorously denies that it is in any way calling into question the validity of the directive. It claims to construe the directive in such a way as to render it compatible with its reading of Articles 59 and 60 of the Treaty.

That seems to me to be the Commission's case and I do not consider the claim inadmissible on this ground.

Ireland, in its case, raises an argument as to admissibility which the Court can consider of its own motion in this case since, if it is right, it is equally applicable to this case and the other cases. Ireland contends that, by bringing these proceedings while the second draft directive is still in discussion before the Council, the Commission is ‘attempting to preempt the constitutional procedures already set in train by the Council under Article 57(2) of the EEC Treaty... The Commission is asking the Court of Justice to perform the task assigned by the EEC Treaty to the Council under Article 57(2) of the said Treaty’I can see no valid reason why the Commission should not, as a matter of law, challenge a Member State's legislation even if a further directive is under negotiation in the Council. The two procedures are separate and not mutually exclusive. If it were otherwise the Commission would need to withdraw its draft directive and even greater delay might ensue. I reject this contention as to admissibility.

I would thus not accept that these proceedings must be rejected in limine as being inadmissible.

The first claim

Although in the German and Irish cases the Commission seeks a ruling that the establishment and authorization requirements for the leading insurer infringe Articles 59 and 60 of the Treaty and the 1978 directive, in its application in this case, as in the Danish case, the Commission is claiming only that they infringe Articles 59 and 60. Despite arguments which crept in that the directive had not been correctly transposed into French law the only claim falling to be considered, in my view, is whether the French provisions infringe the Treaty.

The French rules effectively run the requirements of establishment and authorization together. On the other hand, if it were found that a requirement of establishment were not justified, it would still be necessary to consider whether a requirement of prior authorization is justified. Ex facie this may seem a more difficult question since inter alia the deterrent costs of establishment do not fall for consideration. Yet clearly a requirement of prior authorization can constitute a real restriction on the provision of services within the meaning of the two articles of the Treaty in question.

I consider first the question of establishment.

A ban by one Member State on an undertaking established in another Member State from providing insurance, as the leading insurer in a coinsurance operation in that Member State, on the ground that it is not established there, is in my opinion plainly a prima facie restriction on the provision of services within the meaning of Articles 59 and 60, which are accepted by all parties to have direct effect.

The first argument put forward, that the requirement of establishment falls outside Articles 59 and 60 because it merely puts undertakings from other Member States on the same footing as insurers established in France, ignores the whole nature and purpose of Articles 59 and 60. For the reasons set out in the Opinion in Case 279/80 Webb [1981] ECR 3305, at pp. 3330 and 3333, I take the view that those articles prohibit all restrictions on the provision of services between Member States, whether they are discriminatory or not, subject only to their being justified.

As was said in the judgment in Case 76/81 Transporoute v Minister of Public Works [1982] ECR 417, *to make the provision of services in one Member State by a contractor established in another Member State conditional upon the possession of an establishment permit in the first State would be to deprive Article 59 of the Treaty of all effectiveness, the purpose of that article being precisely to abolish restrictions on the freedom to provide services by persons who are not established in the State in which the service is to be provided' (at pp. 427 and 428).

In the insurance field, moreover, the substantial expense likely to be incurred in setting up a branch or subsidiary in another Member State is itself a considerable potential deterrent, not least in the coinsurance sphere where such contracts may be made infrequently and be of such a size as to be likely to involve the head office of the insurer.

The question then arises as to whether the requirement that a leading insurer be established in France before he can provide insurance services there is justified either on public policy grounds under Article 56(1) of the Treaty or in the general interest according to the general principles laid down in Van Binsbergen and subsequent judgments.

On the basis of Article 60(3) of the Treaty (‘without prejudice to the provisions of the chapter relating to the right of establishment, the person providing a service may, in order to do so, temporarily pursue his activity in the State where the service is provided, under the same conditions as are imposed by that State on its own nationals’) and Mr Advocate General Reischl's Opinion in Van Binsbergen at p. 1316 that Article 60(3) ‘clearly envisages’ the case in which the person providing the service is occasionally required to be physically present in the Member State, the Commission seeks (a) to draw a distinction between the situation in which the person providing the service is physically present, and that where, as is likely to happen in insurance contracts, the service is provided by correspondence or by telephonic communication or telex, and (b) to say that Article 60(3) only applies where there is physical presence.

I do not accept this distinction. If it is justifiable to impose terms on the provision of a service, that can be so whether the provider is physically present or not. In Case 15/78 Société Générale Alsacienne de Banque v Koestier [1978] ECR 1971 the defendant was able to rely on German law relating to wagering contracts, some of which were made whilst the defendant was in Germany, consistently with Articles 59 and 60 even though the plaintiff bank providing the service was not in Germany.

Nor is it right to treat Article 60(3), as the Commission's argument appears to do, as equating the temporary pursuit of activity in the State where the service is provided with establishment.

Thus Article 60(3) does not of itself permit the imposition of the same conditions on the provision of services as may be justified on establishment. In paragraph 16 of Webb the Court said:-

‘The principal aim of the third paragraph of Article 60 is to enable the provider of the service to pursue his activities in the Member State where the service is given without suffering discrimination in favour of the nationals of that State. However, it does not mean that all national legislation applicable to nationals of that State and usually applied to the permanent activities of undertakings established therein may be similarly applied in its entirety to the temporary activities of undertakings which are established in other Member States.’

Moreover, it may perhaps be said that a second principal aim of Article 60 is to preserve the distinction between establishment and the situation where the person providing services goes only temporarily to a Member State, in which case the provisions as to services and not as to establishment apply to him.

The restrictions imposed on the supply of services, however, whether the person providing them is physically present or not, must be shown to be justified in the general interest, to be proportional to the aim sought to be achieved and take account of conditions satisfied by the provider in the country where he is established.

Insurance is an important and sensitive branch of the provision of services: the solvency of the insurer, adequate protection of the insured and indeed of third parties who may be affected by the events giving rise to a claim have to be considered. Moreover, despite the fact that all Member States may take these matters into account there is no doubt that divergences as to national laws exist — as to what may not be the subject-matter of insurance, as to the ways and the extent to which the necessary protection is obtained, as to the effect of nondisclosure of material facts — and the 1973 directive itself leaves the amount of ‘sufficient’ technical reserves to be determined by rules fixed by the Member States and rules as to matching assets and the localization of assets can be relaxed by Member States. It is against these and similar considerations that the question of justification has to be considered.

The cases in which a complete ban on the provision of services from another Member State is justified in my view must be rare, as indeed they are in relation to the free movement of goods (Cases 155/82 Commission v Belgium [1983] ECR 531 and 247/81 Commission v Germany [1984] ECR 1111 where it was held not justified on grounds of public health to require an undertaking selling toxic or potentially toxic products in another Member State to be established in the State in question).

What then are the principal factors relied on in this case to justify the requirement of establishment?

France claims, firstly, that the requirement of establishment is justified to prevent tax evasion. This contention is clearly related to the existence of Article 1004 of the Tax Code to which I have already referred. If accepted it would seem to apply with equal force to all other activities covered by Article 59. A coach and horses would then be driven through that article. At all events, as the British and Dutch Governments have rightly pointed out, this objective can be, and according to the Dutch Government has in the Netherlands been, achieved by requiring policyholders to deduct tax from their premiums and pay it directly to the tax authorities. Other ways equally seem to be available. I do not, therefore, accept this alleged justification.

Next, it is argued that the establishment requirement is necessary to prevent insurers in other Member States and even policyholders from evading mandatory French legal obligations. Actions relating to the policy might then be brought outside France before courts which refused to apply the French requirements at issue. Alternatively, actions might be brought in France but the courts of the other Member States concerned might refuse to enforce them. The danger of French law being circumvented in this way, it is said, would be particularly great where the coinsurance contracts were governed by another legal -system.

Even if it is to be assumed that the French rules could be justified on the grounds of consumer protection, or in the legitimate interests of third parties who suffer injury or damage, it is not, in my view, necessary to require the leading insurer to be established in France to ensure the observance of obligations with respect to such parties.

In the first place, their rights are guaranteed by the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Official Journal 1978, L 304) to the extent that that Convention is in force. By virtue of Article 9, a third party who has suffered damage or injury will be able to bring an action against the insurer ‘in the courts for the place where the harmful event occurred’. As is clear from Case 21/76 Handelskwekerij Bier v Mines de Potasse d'Alsace [1976] ECR 1735 which related to the identical wording in Article 5(3), this would enable the third party to bring an action in the place in which the insured property was situated. In addition, the first paragraph of Article 10 provides as follows: ‘In respect of liability insurance, the insurer may also, if the law of the court permits it, be joined in proceedings which the injured party has brought against the insured’. Where the State concerned does not permit such joinder, this would be a difficulty of its own making and could not justify the establishment requirement. Moreover, the public policy exception in Article 27(1) must be construed restrictively and ‘ought only to operate in exceptional circumstances’ Genard Report, Official Journal 1979, C 59 pp. 1 and 44). Consequently, the courts of the State of the insurance company's domicile could rarely, if at all, refuse recognition of a judgment delivered in France pursuant to Article 9 or Article 10 on the grounds that the French requirements as to third-party insurance were contrary to public policy.

There is, of course, nothing to prevent the third party from bringing his action outside France in one of the other States having jurisdiction. That is inherent in Articles 7 to 12 of the Convention which give persons suing an insurer a wide choice of forum. To the extent that France is bound by the Convention it cannot, in any event, prevent a third party from bringing his action outside France if he so wishes.

These considerations do not exhaust the matter since the Brussels Convention is not yet in force as between all the Member States. Yet even as regards insurance companies established in the newer Member States in which the Convention is not yet in force, the French requirement of establishment is not in my view justified. To the extent that its mandatory requirements as to protection of third parties were justified, France would, as I see it, be entitled to require insurers domiciled elsewhere in the Community to submit to the jurisdiction of the French courts by agreement, e.g. by choice of forum clauses to be incorporated into their policies relating to risks situated in France. The ensuing judgments will be recognized, subject to very limited exceptions, by the courts of those Member States in which the Convention is not yet in force. This is because submission to the jurisdiction is universally regarded as a sound basis for asserting jurisdiction. If an insurer reneged on this undertaking, the French authorities could impose sanctions on it. They could also notify the authorities of the Member State of the company's domicile which could also take such sanctions.

It follows that, in my view, the requirement of establishment cannot be justified on the basis of considerations of private international law.

In addition, certain Member States contend that, unless the leading insurer is established in the State of the risk, he is unable to evaluate that risk and is not adequately acquainted with the conditions prevailing in that State. The mere fact, however, that an insurer is established in a particular State does not necessarily ensure that he is any better acquainted with the conditions obtaining there than one established elsewhere who makes due inquiry and takes proper advice.

A further argument which I understand France and Belgium to be advancing is that the establishment requirement is necessary to prevent the distortion of competition between insurers established in France and those established elsewhere in the Community. This seems to amount to saying that measures whose sole function is to prevent national insurance rates from being undercut are justified on this basis. That would make a virtue of protectionism that would wholly undermine the operation of Articles 59 and 60. In relation to the free movement of goods such an argument was dismissed by the Court as long ago as 1961 when it was held that Article 36 ‘is directed to eventualities of a non-economic kind’ (Case 7/61 Commission v Italy [1961] ECR 317, at p. 329; see also Case 182/84 Miro [1985] ECR 3731, at p. 3738: ‘If a Member State could impose restrictions on imports... on the footing that imported products were cheaper or attracted a lower amount of ad valorem tax, competition and the principle of free movement of goods would be wholly undermined’). The same arguments apply with equal force to the provision of services.

Equally, I would dismiss the argument canvassed inter alia by France, Belgium and Italy to the effect that the requirement of establishment is justified to restrict movements of capital. Reliance is placed on Article 61(2) of the Treaty which provides that ‘the liberalization of banking and insurance services connected with movements of capital shall be effected in step with the progressive liberalization of movement of capital’. Yet such capital movements have in fact been liberalized by the first Council directive for the implementation of Article 67 of the Treaty (Official Journal 1960, English Special Edition, p. 49) as amended by the second council directive (Official Journal 1962, English Special Edition, p. 5). According to Article 1(1) of the first directive ‘Member States shall grant all foreign exchange authorizations required for the conclusion or performance of transactions or for transfers between residents of Member States in respect of the capital movements set out in List A of Annex 1 to this directive’. Included in List À are ‘transfers in the performance of insurance contracts as and when freedom of movement in respect of services is extended to those contracts in implementation of Article 59 et seq. of the Treaty’. If, conversely, sums paid in relation to non-life insurance do not constitute capital at all, but current payments, they have already been liberalized by virtue of Article 106(1) of the Treaty. In the present context it is unnecessary to decide whether such payments fall to be considered as capital or current payments, since in either event they have been liberalized. Accordingly, I do not accept this argument either.

The grounds so far considered seem relevant only to the requirement of establishment; they cannot in any event justify a requirement of authorization.

A number of other grounds have been advanced to justify the prior authorization which are relevant also to the issue whether establishment can be justified. The first of these is consumer protection which the Court has recognized, in relation to the free movement of goods, to be a justification and which can also, in my view, apply to the provision of services. The second is the protection of third parties who may suffer damage or injury if the events insured against happen. It seems to me that this is also capable of constituting a justification in the general interest.

The question, however, is whether prior establishment or authorization are objectively necessary and the least restrictive way of achieving the protection of the insured (in particular in regard to the general standing and to the solvency of the insurer) which is justified, taking into account other forms of protection which may exist, including those provided pursuant to the two relevant directives.

A number of factors seem to be of importance. In the first place coinsurance on the information before the Court is likely to be taken out by commercial or industrial or governmental organizations who are likely to have either legal or insurance departments, or access to expert professional advice, including the use, at any rate in some Member States, of an independent broker who is not the agent of the insurer.

The leading insurer is likely to be an insurer of standing and experience who will be well able to assess the risk and the cover and the minimum amount of reserves for outstanding claims needed but who may not be established in the country of the risk or the insured. The risk may indeed exist in more than one Member State. Although theoretically it can be used in relation to all risks, even life insurance, coinsurance is likely to feature only in special cases or those involving large amounts, and to be the subject of tailor-made policies of insurance.

Secondly, it is accepted that coinsurers in other Member States (apart from the leading insurer) can participate in respect of a risk situated in France without being established or authorized there, without it being suggested that any difficulties have arisen. Yet any one or all of such coinsurers may have accepted a percentage of the risk greater than that of the leading insurer who is not subject to any requirement that he takes a minimum percentage of the risk.

Thirdly, the Council has established a scheme in the 1973 directive which lays on Member States the duty of ensuring that certain financial conditions are satisfied by undertakings established in their territory.

Thus:

(a) In each Member State where business is carried on sufficient technical reserves must be established. Though rules may vary as to the amount of such reserves, the amount must be ‘sufficient’ and be covered by equivalent and matching assets localized in each country where business is carried on. By Article 15(4): ‘The supervisory authority of the Member State in whose territory the head office of an undertaking is situated shall verify that its balance sheet shows in respect of the technical reserves, assets equivalent to the underwriting abilities assumed in all the countries where it undertakes business’. Each Member State must require every undertaking whose head office is situated in its territory to establish an adequate solvency margin ‘in respect of its entire business’ (Article 16). The same Member State must require each such undertaking to produce an annual account covering all types of operation of its financial situation and solvency, and to render returns with statistical documents necessary for the purpose of supervision.

(b) Article 20 gives powers to the competent authority where an undertaking does not provide the necessary reserves, or maintain the necessary solvency margin, and it may take ‘all measures necessary to safeguard the interests of the insured’ if these reserves and margins are not maintained. An authorization may be withdrawn if an undertaking no longer fulfils the conditions of authorization or fails seriously in its obligations under the national regulations (Article 22).

(c) The supervisory authorities of the Member State are to collaborate and consult. Thus by Article 13 Member States are to collaborate closely with one another in supervising the financial position of authorized undertakings. The supervising authority of the Member State where the head office of each undertaking exists must verify the state of the solvency of the undertaking ‘with respect to its entire business’. ‘The supervisory authorities of the other Member States shall provide the former with all the information necessary to enable such verification to be effected’ (Article 14). Further provisions are to be found, inter alia, in Articles 19(2), 20(5) and 21(2).

Moreover, by the 1978 directive the amount of the technical reserves is to be determined by the different coinsurers according to rules fixed by the Member States where they are established but the reserve for outstanding claims must be ‘at least’ equal to that determined by the leading insurer according to the rules where it is established, and matching assets must exist either in the Member States of the coinsurers or the leading insurer (Article 4). The Member States are to ensure that coinsurers established in their territory keep statistical data showing the extent of coinsurance operations (Article 5). This clearly includes the leading insurer. Again the supervisory authorities are to cooperate and provide information necessary to implement the directive.

The Council has thus, in my view, established a system of control and financial protection, on a Communitywide basis, the responsibility for implementing which rests both on the Member State or States where the undertaking is established and that where it has its head office. It is true that there are differences between the approach to calculating technical reserves — some countries including the amount of reinsurance (the gross method), others excluding it (the net method). The overriding obligation, however, is to have ‘sufficient’ technical reserves and the net method adopted by e.g. the Federal Republic of Germany has not been shown to be inadequate; nor has there been any attempt to suggest that it is insufficient even if the gross method produces a larger sum. The same comment in my view applies to the difference which apparently exists in relation to brokers' commission; in some countries it is and in some countries it is not taken into account.

Fourthly, France does not require as a condition of authorization that the leading insurer shall deposit any sum or guarantee in respect of its share of the liability or the total sum. Such deposit is presumably not considered to be necessary.

Fifthly, the authorization is given once — it is not required specifically for each contract of coinsurance. Such an authorization cannot, as I see it, constitute a guarantee against breaches of national law or dishonesty which may have to be dealt with as and when they occur.

Sixthly, some Member States do not find authorization to be necessary to protect the insured in a coinsurance contract, and even some of those who require such authorization do not require that the terms of the policy be submitted to the competent authorities in their State.

All of these factors seem to me to indicate that financial control exists in the Member States where the undertaking is established, that the establishment or authorization requirement is not necessarily going to add to the kind of protection which has been referred to. It is significant that several Member States do not find it necessary to go to the lengths even which France does of requiring establishment and authorization and looking at the wording of standard form policies, though France does not apparently, like the Federal Republic of Germany, supervise the details of specific coinsurance policies.

Nor can I see, subject to the requirements of the 1978 directive, that there is such a difference between the leading insurer and the coinsurers as justifies establishment or authorization of the leading insurer in the Member State where the risk is situated.

It is true that by Article 2(1) thereof, the 1978 directive only applies where the leading insurer is authorized in accordance with the conditions laid down in the 1973 directive and that he fully assumes the leader's role in coinsurance practice and in particular determines the terms and conditions of insurance and rating, though no doubt in many cases the leading insurer who is chosen will have regard to the terms required or likely to be required by other coinsurers. It is also true that the preamble to the 1978 directive recites that the leading insurer is better placed than the other coinsurers to assess claims and to fix the minimum amount of reserves for outstanding claims.

The provision in Article 2(l)(c) ‘i.e. he is treated as if he were the insurer covering the whole risk’ may not be clear, but it does not seem to me that those words or the words in the preamble to the 1978 directive require that the leading insurer- shall be established in the country where the risk is situated or at the very least be authorized there, as France and the interveners supporting France contend.

Even if the provisions of Article 2(l)(c) were thought to be ambiguous on this point (which is the most that can be said against them) it seems to me that they should be construed if possible in a way which is consistent with their being compatible with the Treaty (Case 218/82 Commission v Council (rum quotas) [1983] ECR 4063) and clearly the directive cannot authorize or require restrictions contrary to Articles 59 and 60 (See Cases 80/77 and 81/77 Ramel v Receveur des Douanes [1978] ECR 927).

To prohibit a leading insurer from providing insurance in France unless established there, or requiring him to be authorized (unless justification in the general good or under Article 56 of the Treaty is shown), clearly would be in breach of Articles 59 and 60 of the Treaty. In my opinion Article 2(l)(c) does not require this and at the least can reasonably, even readily, be construed as not requiring it.

Nor do I derive assistance from the argument advanced by Belgium that Article 2(l)(d) points to the need for the leading insurer to be established in the State where the risk is situated. Articles 4 and 5 which are also relied on in this respect stress the control of the Member State where the leading insurer is established. They do not as I read them require him to be established in the State where the risk is situated, nor indeed does Article 4(1) require the technical reserves to be determined in the State in which the leading insurer is established or authorized.

The real security for the insured lies in the fact that all the coinsurers have to be authorized in the Member State or Member States where they are established.

Accordingly, in my opinion the 1978 directive, on all the arguments advanced, does not require that the leading insurer be established or receive prior authorization in the Member State where the risk is situated.

Reliance is then placed on the Court's judgments in Cases 110 and 111/78 Van Wesemael [1979] ECR 35 and Webb which accepted that a licence might be required in the general good for the provision of services in an area of a particularly sensitive nature. It is, however, to be noted that the Court held there that ‘the freedom to provide services is one of the fundamental principles of the Treaty and may be restricted only by provisions which are justified by the general good and which are imposed on all persons or undertakings operating in the said State so far as that interest is not safeguarded by the provisions to which the provider of the services is subject in the Member State of his establishment’. Similarly, the Court stated that ‘the Member State in which the service is provided ... must take into account the evidence and guarantees already furnished by the provider of the services for the pursuit of his activities in the Member State of his establishment’.

In those cases, however, there was no Community directive as there is here. So long as the directive is satisfied in respect of financial matters it does not seem to me to be right to say that additional financial requirements can be imposed under national law. Member States must in this area of coinsurance take into account the supervision effected by the authorities of other Member States pursuant to the directive. (See Case 272/80 Frans- Nederlandsche Maatschappij voor Biologische Produkten [1981] ECR 3277)

It seems to me that the aim sought to be achieved by France could be sufficiently achieved by a requirement that coinsurance contracts made by a leading insurer outside France in respect of risks situated in France be notified to the competent authorities (since the number, as shown by the statistics provided by the French Government, is not large) and by reliance on provisions of national law which do not conflict with Articles 59 and 60 of the Treaty. This would, for example, answer the argument that but for a requirement of establishment or authorization, a leading insurer could contract for a risk in a Member State which could not lawfully be insured against in that State, such as deliberate harm, kidnapping, fraud, or the result of a wagering contract. However, it goes further than that and other specific rules of national law, to be enforced in its own courts or in other courts under the Brussels Convention or by virtue of rules of private international law, can undoubtedly provide a substantial degree of protection for insured persons and third parties without requiring the leading insurer to be authorized or established in the Sute where the risk is situated.

In view of the fact that solvency and financial protection of the insured and third parties are the primary considerations here relied on, this conclusion does not seem to me to be undermined by the fact that harmonization in respect of other matters such as the terms of the contract and tariff rates has not yet been achieved.

Accordingly, in my view the Commission has made out its first head of claim both in relation to establishment and authorization.

The second claim

In this case the Commission began by contending that the French rules as to thresholds, below which coinsurance contracts could not be made in respect of risks situated in France, offended both (a) against Articles 1(2) and 8 of the 1978 directive and (b) against Articles 59 and 60 of the Treaty. In its application to the Court it specifically abandoned the first of those claims under the directive.

It appeared in the preliminary letter and the reasoned opinion that the real complaint was that the thresholds had been fixed too high, although that was not entirely clear. In the application to the Court and at the hearing the Commission contended that its case was that it was contrary to Articles 59 and 60 of the Treaty for thresholds to be fixed at all, since undertakings were free to effect coinsurance for all risks whatever their nature or importance, but that in any event it contended that the thresholds which had been fixed were too high.

On the face of it, to fix thresholds below which coinsurance cannot be undertaken is a restriction on the free movement of services. On the other hand it is said that cross-frontier coinsurance is a special aspect of the insurance market involving large amounts and likely to be used in a limited class of cases. Does this in itself justify the imposing of financial limits below which coinsurance may not take place? It may at first glance appear reasonable to do so. At the end of the day I am not satisfied that the special nature of coinsurance has been shown to justify thresholds being fixed under Article 56 or in the general interest.

In the first place, as argument in this case has shown, there may be special cases where the amount is not necessarily so very large but where the risk is very likely to happen and where coinsurance may be justified. A mere financial limit would exclude such cases. In the second place it seems to me that it is primarily for market forces to decide what kind or sire of risk justifies coinsurance. It seems unlikely that insurers will take on the extra task of organizing coinsurance if it is unnecessary. In the third place France has not to my mind produced any convincing argument that, but for the fixing of thresholds, some particular form of abuse is likely or possible or greater risk is involved for the insured. There is theoretically a greater inconvenience, though not necessarily a greater risk, for an insured if he has to sue more than one coinsurer. It seems somewhat unreal to approach the case on the basis that such an insured may be compelled to accept coinsurance in a situation which does not really call for it. He is far more likely to find a single insurer who will accept the risk even if he reinsures.

Accordingly, I consider that the fixing of thresholds was contrary to Articles 59 and 60 of the Treaty.

If I had come to the opposite view I should have considered, disregarding the effect of the 1978 directive which I consider in the case against Germany, that such thresholds could not be fixed in such a way that they exclude (a) cases where the amount involved may not be very large but the likelihood of the risk is so great that it is reasonable to coinsure; or (b) cases which are currently accepted on the market as being the normal subject-matter of coinsurance.

If I had come to the view that the fixing of thresholds had been justified in this case I would not consider that the Commission has established that the maxima fixed by France were too high, even though they seem high. This seems to me to be entirely a matter of evidence which the Commission has not produced in this case.

I do not consider (for reasons which I give in my Opinion in the case against Germany) that the 1978 directive itself empowers Member States to fix thresholds independently or in a group in respect of the particular forms of insurance which are dealt with in that directive. In any event, it seems to me to be strongly arguable that even if there were prior to the making of the directive an inherent power in Member States to fix thresholds by way of a justified limitation on the rights conferred by Articles 59 and 60, the directive preempts the exercise of that power in respect of the classes specified in the 1978 directive. If thresholds are needed they must be fixed by the Community.

Direct effect

By its third head of claim the Commission seeks a ruling to the effect that France has failed to observe the direct effect of Articles 59 and 60 of the Treaty by applying instead the provisions complained of in its first two heads of claim. The Commission has repeatedly insisted that this infringement is independent of the first two but I do not find its position convincing. The failure to observe the direct effect of a Community provision is not an infringement in its own right. I would therefore reject this part of the Commission's case.

Conclusion

In the light of these considerations I conclude that Law No 81-5 of 7 January 1981 and Decree No 81-443 of 7 May 1981

(1) by requiring a Community insurer to be established or authorized in France in order to be able to participate in a coinsurance operation in that State as leading insurer and

(2) by preventing Community insurers not established in France from participating in coinsurance transactions for risks which, by reason of their size are not within the scope of Article 1 of that decree, infringe Articles 59 and 60 of the Treaty.

In my view France should bear the Commission's costs and the costs of the Netherlands and the United Kingdom. France, Belgium, Denmark, the Federal Republic of Germany, Ireland and Italy should bear their own costs.