Court of Justice demands proportionality in limiting retail locations

A zoning plan designating locations for retail trade and excluding branches by means of use rules constitutes a 'requirement' within the meaning of the Services Directive (ECLI:EU:C:2018:44). The big question to be answered now is whether this constitutes a prohibited requirement and, above all, whether a desired branch restriction is 'proportionate'. Freedom of establishment remains paramount.

The case study

The City of Appingedam zoning plan covers the residential plaza in Appingedam and allows only bulky retail sales there, such as furniture, building materials and kitchens. The owner, who wants to rent to a chain offering clothing and shoes, opposes the branch restriction in the zoning plan. To do so, it invokes the European Services Directive. Back in January 2016, the Administrative Law Division of the Council of State (the Division) put preliminary questions to the Court of Justice about the interpretation of this European Services Directive. Now that the answers have been provided with the judgment of the Court of Justice of January 30, 2018, it is possible to take stock.

The Court of Justice's responses

At first glance, the Court of Justice's answers to the preliminary questions raised are not spectacular:

• The activity consisting in retailing of goods constitutes a service, so the provisions on the freedom of establishment of service providers apply.
• The applicability of the Services Directive does not require an international dimension, the Services Directive also applies in purely national situations.
• Restrictive conditions, such as branch restrictions in a zoning plan, must meet the requirements of Article 15(3) of the European Services Directive. That article sets three requirements: the provisions of the zoning plan, in this case the branch restriction, must (1) not discriminate. The branch restrictions must further (2) be necessary, that is, justified by an overriding reason of public interest. And finally, the industry restrictions must be (3) proportionate.

The national court reviews

The Court of Justice has indicated that national courts must test whether the three conditions of Article 15(3) of the Services Directive are met. The ECJ has already provided some guidance in this regard. If the purpose of the zoning plan provisions, the sector restrictions, is to preserve the livability of a city center or to prevent vacancy in inner-city areas, this may be an overriding reason of general interest, so that the necessity requirement is met. This seems to scare the hell out of Dutch zoning practice, which is full of industry-restricting rules. In practice, it will be possible to add a paragraph to the already extensive explanation of a zoning plan, in which the considerations regarding the sector restrictions in the zoning plan are brought together, with the conclusion that an overriding reason of general interest is pursued. But that is not the end of the matter.

Proportionality

Indeed, the industry restriction must also be proportionate. In this context, proportionality means that the requirements must be appropriate to achieve the objective pursued, that they do not go beyond what is necessary to achieve that objective , and that the objective cannot be achieved by other, less restrictive measures. Whether this hurdle can be overcome with a short additional paragraph in the explanatory statement is doubtful. Indeed, it will not be easy to establish that the goal being pursued - usually livability of the city center or prevention of vacancy - cannot be achieved by other less restrictive measures. And it is to be expected that property owners and competing retail chains will also want to play their part. For example, they could provide a rationale in advance that concludes that industry restrictions are disproportionate. They can take the municipal objectives from the retail memorandums and other policy documents and then paint a picture of what the desired new retail activity will contribute to those objectives. A variety of other opportunities to achieve the objectives can also be pointed out. It is then up to the municipality to rebut all that in order to still stick to an industry restriction. The next question is then whether, in the review that follows, the court may suffice with the hitherto customary detached review (the marginal test).

It is possible that along this path, entry for retail businesses will be facilitated and eventually a freer distribution of retail space will be created.

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