By Desirée C. Schmitt and Thomas Giegerich
Filing a constitutional complaint with the German Federal Constitutional Court (hereinafter: FCC) for an amount in dispute of merely € 2.5 shows a certain endurance but also an almost insatiable thirst for justice. But as the past has taught us, legal disputes over a very small amount of money (see for instance the judgment of the European Court of Justice in Case Costa v. E.N.E.L.), can produce important and far-reaching judgments. The case under review, FCC-Case 2 BvR 470/08, which was decided by a Chamber of the FCC’s Second Senate on 19 July 2016, may turn out to be such a case.
I. Facts of the Case
The applicant is an Austrian national who lives in Austria. He went to a leisure pool in Bavaria, which is operated by a limited liability company established under German private law but wholly owned by a public-law corporation whose members are a Bavarian county and five of its municipalities. Whereas the applicant had to pay the full entrance fee, inhabitants of the aforementioned five German municipalities were given a discount of about one third of the regular price (approximately € 2.5). The applicant felt discriminated by that practice and brought an action against the operator demanding the repayment of the price difference and the confirmation that he would henceforth only have to pay the reduced entrance fee.
The action before the local court (Amtsgericht), as well as the appeal to the higher regional court (Oberlandesgericht), were unsuccessful. In his constitutional complaint, the applicant asserted that there had been infringements of his fundamental constitutional rights to equality (Art. 3 para. 1 of the German Basic Law [BL]) and to his lawful judge (Art. 101 para. 1 sentence 2 BL) because the lower courts had applied EU law in an arbitrary manner and failed to make a reference to the Court of Justice of the EU (CJEU).
II. Decision of the FCC
The FCC is not a general court of last resort but a special court charged with the implementation of constitutional law. Accordingly, it reviews lower court decisions only as to whether their interpretation and application of statutory law was arbitrary and thus unconstitutional. The FCC found that this was the case here. The lower courts had infringed both Art. 3 para. 1 BL and Art. 101 para. 1 sentence 2 BL by permitting the operator of the leisure pool to discriminate against inhabitants of other EU Member States with regard to the entrance fee. The Court therefore reversed the challenged judgments and remanded the case to the local court. The FCC’s reasoning will be discussed briefly in the following.
1. Infringement of Art. 3 para. 1 BL
a) Fundamental rights enshrined in the BL bind companies effectively run by public authorities
As a preliminary matter, the question arose whether the operator of the leisure pool was bound by the fundamental rights enshrined in the BL at all. According to Art. 1 para. 3 BL, only the federal and state governments with all their branches and not private actors as such are obligated to respect the fundamental constitutional rights. The FCC stated that, although the operator of the leisure pool was a private limited liability company, it was wholly owned by a public-law corporation, which was completely controlled by public authorities (the county and five of its municipalities). This made the private company in fact part of the public authority of the State of Bavaria and directly subject to the BL’s fundamental rights catalogue. The organizational form used to run the pool could not free the county and municipalities from the constraints of the BL. It was also irrelevant whether the State or one of its subunits exercised classical forms of public authority in the operation of the pool or rather acted in the form of private law and for commercial purposes. Therefore, the private company that was operating the leisure pool was directly bound by the fundamental constitutional rights. The lower courts had disregarded the fairly simple truth that a public authority is not allowed to evade their constitutional obligations by choosing private-law forms of organization and action.
b) Discrimination because of unjustified differential treatment
Since people who do not live in the five municipalities that are effectively controlling the operation of the leisure pool have to pay a higher entrance fee than the locals, they are treated unequally.
Unequal treatment only violates Art. 3 para. 1 BL if it cannot be justified by objective grounds. The place of residence alone cannot as such provide sufficient justification, whereas objective reasons that are linked to it may have a justifying effect. The FCC mentions e.g. the need for promoting local development possibilities, the burden of additional expenses created by the admission of non-inhabitants and the interest in reserving local budgetary resources for the fulfilment of local governmental functions vis-à-vis the residents. But none of those possible grounds of justification for varying the entrance fee according to the residence of the customers was actually fulfilled in the present case. Rather, the marketing strategy of the pool was aimed at attracting foreign visitors and the public-law corporation was even created to promote tourism in the first place. The leisure pool should also be made attractive to visitors from outside the region. Moreover, the reduced entrance fee applied only to the inhabitants of the five municipalities and not the much larger number of inhabitants living in the other parts of the county beyond those municipalities, although the county as such was also a member of the public-law corporation owning the operator of the pool.
Therefore, there was no objective ground justifying the differential treatment, which accordingly constituted discrimination contrary to Art. 3 para. 1 BL.
c) Discrimination due to infringement of Art. 56 TFEU
Furthermore, the FCC found that the decision of the higher regional court constituted an infringement of Art. 3 para. 1 BL also because it misapplied the prohibition of (indirect) discrimination on grounds of nationality included in Art. 56 TFEU. There was indirect discrimination contrary to Art. 56 TFEU because the group of persons benefitting from the reduced entrance fee consisted almost entirely of Germans whereas citizens of other EU Member States were almost completely excluded. That misapplication of Art. 56 TFEU consisted of the court’s refusal to treat that Union-law prohibition as a sufficient ground in the sense of § 134 German Civil Code (hereafter GCC) for voiding the contract which the applicant had concluded with the company when entering the pool and which provided the sole basis for his obligation to pay the higher entrance fee.
The higher regional court had argued that the violation of the prohibition of discrimination under Art. 56 TFEU did not nullify the contract because it was only addressed to the company and not also to the applicant.
The FCC, however, found that this reasoning was contrary to the object and purpose of § 134 GCC and Art. 56 TFEU because it perpetuated the discrimination and the ensuing interference with the plaintiff’s freedom to receive services. Even though the prohibition of discrimination contained in Art. 56 TFEU was only directed to one of the contracting parties, its violation nevertheless had to render the contract void in conformity with § 134 GCC because this was the only way to effectively achieve the purpose of Art. 56 TFEU. The Union-law prohibition of discrimination would become ineffective if discriminatory contracts were nevertheless treated as valid under national law. This was so obvious that the contrary decision of the higher regional court was utterly unreasonable and thus arbitrary.
Consequently, the FCC determined that there was a violation of Art. 3 para. 1 BL by the lower courts for two reasons: because of the lack of any justification for the unfavourable treatment of non-inhabitants of the five municipalities and because of the misapplication of § 134 GCC read together with Art. 56 TFEU. It is worth noting that the FCC took up that second reason even though this was unnecessary to decide the case. Apparently, the FCC found the disregard of EU law by the lower courts so disturbing that the friendliness of the BL (and the German legal order as a whole) towards EU law had to be underlined once more.
2. Infringement of Art. 101 para 1 sentence 2 BL
In the second part of the decision, the FCC held that the judgment of the higher regional court also infringed the applicant’s right to his lawful judge (Art. 101 para. 1 sentence 2 BL).
a) The right to a preliminary ruling by the CJEU enshrined in the BL
European Union law is silent when it comes to the question of whether a private person can enforce an obligation to make a reference to the CJEU. The FCC, however, has voluntarily transformed this obligation into a fundamental constitutional right under the BL which can be enforced through the constitutional complaint procedure. The pertinent case law of the FCC is an expression of the Court’s friendliness towards EU law.
If the requirements of Art. 267 para. 3 TFEU are fulfilled, national courts are obliged to request a preliminary ruling from the CJEU. If a German court fails to fulfil its reference obligation, the affected party in the main proceedings can plead that his or her right to the lawful judge was infringed. According to the settled case law of the FCC, the CJEU constitutes the lawful judge in the sense of Art. 101 para. 1 sentence 2 BL to the extent of the reference obligation pursuant to Art. 267 para. 3 TFEU. But the failure to fulfil that obligation does not as such suffice to qualify as a violation of Art. 101 para. 1 sentence 2 BL. Rather, the failure to make a reference to the CJEU must have been “simply incomprehensible and obviously untenable”. This is particularly the case when a last-instance court does not even consider making a reference according to Art. 267 para. 3 TFEU although it has doubts concerning the right answers to the pertinent EU law questions at stake but instead tries to develop EU law all on its own. This is especially true when the national court has not sufficiently examined if there is relevant EU law to be applied in the pending case, including pertinent case law of the CJEU. The FCC finds that the higher regional court committed that very mistake in two ways (see infra b and c).
b) Is a public enterprise bound by the fundamental freedoms of the internal market?
First, the FCC stated that the higher regional court should have further examined the question of whether a public enterprise fully controlled by public authorities such as the operator of the pool was directly bound by the fundamental freedoms of the internal market, including the freedom to receive services across Member States’ borders. In view of the case law of the CJEU concerning the binding effect of the fundamental freedoms and in particular the prohibition of discrimination on grounds of nationality for companies fully controlled by the state as well as the impact of Art. 106 TFEU, the FCC indicates that the defendant in the civil court proceedings was bound by the fundamental freedoms in the present case.
c) Can a preference granted to inhabitants of the municipalities be in accordance with the fundamental freedoms?
Secondly, the FCC rebuked the higher regional court for not further examining the question of whether the differential pricing mechanism was compatible with Art. 56 TFEU. The FCC refered to the case law of the CJEU dealing with entrance fee systems privileging local residents and thereby indirectly discriminating against nationals from other Member States who mostly do not fulfil the residency criterion on which that privilege is based. In such cases, the CJEU has stated that economic purposes cannot justify restrictions of the fundamental freedoms and that fiscal grounds of justification require a specific connection between taxation and tariff advantages which are simply not present in the case at hand.
The decision of the FCC amounts to a slap in the face for the lower courts, in particular the higher regional court.
Both the local court and the higher regional court had refused to accept that the operator was directly bound by the fundamental rights provisions of the BL. This was untenable and incomprehensible. It is a unanimous opinion among scholars and settled case law that public enterprises are so bound, even when choosing a private form of organization and operation. The decisive factor is the dominant influence of public authority on the operation of the business, which was clearly the case here.
The same holds true with regard to the fundamental freedoms of the internal market. The CJEU had already ruled on several comparable cases, which the higher regional court should have taken into account. It was utterly untenable for the higher regional court to disregard that case law without making a reference to the CJEU concerning possible remaining questions of EU law that needed to be clarified.
Moreover, the higher regional court claimed that there were objective grounds to justify the differential treatment of non-inhabitants of the five municipalities involved in the control of the company operating the pool, but did not elaborate on the facts in this regard. As the FCC has shown, that claim was simply not true. Even the public-law corporation behind the operator of the leisure pool had argued before the courts that it had been founded with the aim of attracting tourists and making profit. On that basis, there was obviously no justification for the preferential treatment of inhabitants of the five municipalities. This should have been clear to the higher regional court – especially because there is settled case law of the FCC on this issue.
The higher regional court also refused to accept that Art. 56 TFEU read together with § 134 GCC required a finding that the contract was void for reasons of illegality. Instead it asserted that EU law did not provide for such a sanction in this case. Moreover, it stated that it was for the national courts alone to determine whether EU law required discrimination-free pricing and included a subjective right to such pricing. Again, no reference to the CJEU was made even though the case law of the CJEU clearly pointed in the opposite direction. In our opinion it is important that the violation of Art. 56 TFEU renders the contract void by virtue of § 134 GCC. In accordance with the FCC’s decision, this is the only way to make the freedom to receive services in other Member States and the prohibition of discrimination on grounds of nationality enshrined therein effective. No less is required from the national courts by Art. 4 para. 3 TEU.
To sum up, the lower courts utterly misapplied the law in the instant case to the extent that one can speak of a denial of justice both with regard to German constitutional law and EU law. It is therefore no wonder that the FCC has chosen strong language to drive that point home to them.
However, this decision also constitutes an, admittedly slender, silver lining in the relationship between the FCC and the CJEU. By sternly reminding the German courts of their obligation to properly apply EU law and in particular to take preliminary references under Art. 267 TFEU seriously, it strengthens the role of the CJEU. After the FCC’s decision in December 2015 concerning the European Arrest Warrant, which was rather taxing on the relationship with the CJEU, the present decision can be seen as an attempt to reconcile.
There is one fly in the ointment, however: It took the FCC more than eight years to determine that the constitutional complaint was “manifestly well founded”. This delay regrettably constitutes a manifest violation of the applicant’s right under Art. 6 para. 1 of the European Convention on Human Rights to have his civil rights determined by a court within a reasonable time. In any event, we owe a debt of gratitude to the Austrian leisure pool fan whose endurance and thirst for justice enabled the FCC to render this interesting decision and promote the effective implementation of EU law in Germany.
 Dipl.-Jur. Desirée C. Schmitt, LL.M. is a PhD candidate and research assistant at the Chair for EU Law, Public International Law and Public Law of Prof. Dr. Thomas Giegerich, LL.M.
 Chair of European Law, Public International Law and Public Law, Jean Monnet Chair for European Law and European Integration and Director, Europa-Institut.
 CJEU, Case 6/64, 20 February 1964, ECLI:EU:C:1964:66. The amount in dispute was 1925 Italian lira, which is less than one Euro.
 See FCC, Case 2 BvR 470/08, 19 July 2016, paras. 2 et seq.
 Settled case law, see FCC-Case 2 BvR 470/08, 19 July 2016, para. 23.
 FCC, Case 2 BvR 470/08, 19 July 2016, paras. 25 et seq.
 FCC, Case 2 BvR 470/08, 19 July 2016, paras. 29 et seq. The so-called „escape to civil law“ without any obligations by the BL is forbidden.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 34.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 38.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 39, with references to the case law of the FCC.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 42.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 43
 FCC, Case 2 BvR 470/08, 19 July 2016, paras. 44 et seq.
 FCC, Case 2 BvR 470/08, 19 July 2016, paras. 45 et seq.
 See Giegerich, Zwischen Europafreundlichkeit und Europaskepsis – Kritischer Überblick über die bundesverfassungsgerichtliche Rechtsprechung zur europäischen Integration, ZEuS 19 (2016), pp. 3, 19 et seq.
 FCC, Case 2 BvR 470/08, 19 July 2016, paras. 52 et seq.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 54.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 55.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 56.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 57.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 58.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 59.
 Ibid., with reference to CJEU, Case C-388/01, Dogenpalast, 16 January 2003, ECLI:EU:C:2003:30, paras. 22 et seq.
 FCC, Case 2 BvR 470/08, 19 July 2016, paras. 35, 36.
 Hillgruber, in: Epping/Hillgruber (eds.), Beck’scher Online-Kommentar Grundgesetz, 29nd edition 2016, Art. 1 GG, paras. 70 et seq.; Herdegen, in: Maunz/Dürig (eds.), Grundgesetz-Kommentar, 76th suppl. 2016, Art. 1 Abs. 3 GG, para. 28; Giegerich, Gemeindeunternehmen zwischen Kompetenz, Konkurrenz und Kohärenz: Privatisierung, Reform des kommunalen Wirtschaftsrechts und Widerspruchsfreiheit der Rechtsordnung, in: Tradition und Weltoffenheit des Rechts, Festschrift für Helmut Steinberger, 2002, pp. 419, 432 et seq., fn. 45, 47 with further references.
 See above all the FCC landmark case 1 BvR 699/06, Fraport, 22 February 2011, paras. 45 et seq. See also the German Federal Supreme Court, Case V ZR 227/14, 26 June 2015, para. 9.
 CJEU, Case 155/73, Sacchi, 30 April 1974, ECLI:EU:C:1974:40, p. 430; CJEU, Joined Cases 188/80-190/80, Transparency Directive, 6 July 1982, ECLI:EU:C:1982:257, pp. 2575, 2579; CJEU, Case C-260/89, ERT, 18 June 1991, ECLI:EU:C:1991:254, paras. 10 et seq.; CJEU, Case C-281/98, Angonese, 6 June 2000, ECLI:EU:C:2000:296, paras. 30 et seq.
 FCC, Case 2 BvR 470/08, 19 July 2016, paras. 11, 37.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 42.
 See the Cases mentioned in FCC, Case 2 BvR 470/08, 19 July 2016, para 39.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 47.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 49.
 FCC, Case 2 BvR 470/08, 19 July 2016, para. 50.
 See for further references to this opinion: Fischer, Zur Durchsetzbarkeit des gemeinschaftsrechtlichen Diskriminierungsverbots vor nationalen Gerichten, EuZW 2009, pp. 208, 210; Tietje/Hölzel, Grundfreiheiten und Zivilrecht – Die Ignoranz deutscher Gerichte gegenüber dem Unionsrecht, Policy Papers 2009, No. 32, p. 5.
 FCC, Case 2 BvR 2735/14, 15 December 2015. See Müller, Vertrauen ist gut, Kontrolle ist besser: Einordnung des neuen EuGH-Urteils zum Europäischen Haftbefehl in das grundrechtliche Mehrebenensystem in Europa, ZEuS (3) 2016, pp. 345 et seq.
 See ECtHR, Voggenreiter v. Germany, 8 January 2004, Appl. No. 47169/99; Leela Förderkreis e.V. et al. v. Germany, 6 November 2008, Appl. No. 58911/00.
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