Important legal notice

61996C0062

European Court reports 1997 Page I-06725

Opinion of the Advocate-General

1 By application pursuant to Article 169 of the Treaty lodged on 6 March 1996 the Commission calls on the Court to rule that the Hellenic Republic has failed to fulfil its obligations under Articles 6, 48, 52, 58 and 221 of the Treaty and under Article 7 of Regulation (EEC) No 1251/70 of the Commission of 29 June 1970 on the right of workers to remain in the territory of a Member State after having been employed in that State, (1) and Article 7 of Council Directive 75/34/EEC of 17 December 1974 concerning the right of nationals of a Member State to remain in the territory of another Member State after having pursued therein an activity in a self-employed capacity. (2)

In particular, the Commission complains that the Hellenic Republic has maintained in force legislation (Article 5 of the Code on Maritime Law) which restricts the right to registration in the Greek shipping registers to vessels at least half the shares in which are owned by Greek nationals or which are owned by Greek legal persons at least half of whose capital is held by Greek nationals.

Procedure

2 The Commission sent three letters before action to the Hellenic Republic pursuant to Article 169 of the Treaty. In particular, in the first letter, dated 13 June 1990, the Commission claimed that the Greek Government was in breach of Articles 7 (now 6), 52 and 221 of the Treaty by reason of the conditions for granting Greek nationality to fishing vessels laid down in Article 5 of the Code on Maritime Law. In the same letter the compatibility with Community law of Article 11 of Royal Decree No 666/66 was called into question (for breach of Articles 7 and 52 of the Treaty) as it made the grant of a professional licence for sponge fishing subject to a vessel owner's having spent ten years as a member of the crew of a fishing vessel authorized to practise sponge fishing under that Decree. Finally, in the same letter, the Commission questioned the lawfulness of national legislation stipulating that a certain percentage of the crew of fishing vessels should be composed of Greek nationals because of its incompatibility with the principle of freedom of movement for workers.

A second letter before action, dated 9 July 1990, concerned pleasure craft. In particular, the Commission claimed that the Greek authorities were in breach of Articles 7, 48, 52 and 221 of the Treaty by reason of the aforementioned Article 5 of the Code on Maritime Law concerning the conditions for the grant of Greek nationality to vessels.

In the third letter before action, dated 5 June 1992, the Commission made the same allegations against the Hellenic Republic as in the previous letter, but in relation to commercial shipping.

3 As the Commission was not swayed by the arguments advanced by the Greek Government in response to the first two letters before action, (3) on 27 July 1993 it adopted a reasoned opinion pursuant to Article 169 of the Treaty.

The complaints made in the reasoned opinion, like those in the letters before action, concerned the conditions for the registration of vessels of all types in the Greek shipping register, the restrictions on the employment on Greek fishing vessels of crew members who are nationals of other Member States and the requirements for the grant of licences for sponge fishing.

4 The application, made following consideration of the replies to the reasoned opinion provided by the Greek Government, concerns only the conditions for the grant of Greek nationality to vessels of all types, and no mention is made of the other two points concerning incompatibility raised in the letters before action and the reasoned opinion.

The Commission has therefore implicitly limited the scope of the complaints made in the pre-litigation procedure, limiting the subject-matter of the procedure to the Greek rules for the grant of nationality to shipping vessels and thus to the conditions for their registration in the Greek shipping register. (4)

The contested legislation

5 The provision whose compatibility with Community law the Commission disputes is contained in Article 5 of the Greek Code on Maritime Law. (5) Under that article Greek nationality is granted to vessels at least half the shares in which are owned by Greek nationals or which are owned by Greek legal persons at least half of whose capital is held by Greek nationals. (6)

The article lays down the conditions for the grant of Greek nationality to and the registration of all types of vessels in the Greek shipping register, whether fishing vessels or leisure or commercial craft. I therefore propose to analyse the conformity with Community law of the provision in issue by considering it as a whole, except where otherwise stated.

Relevant case-law

6 Many aspects of the matter under consideration have already been dealt with in the decisions of the Court, so that the arguments of the Hellenic Republic only raise fresh issues to a certain extent.

In particular, in the Factortame judgment, (7) the Court ruled that national legislation (8) which made registration of a fishing vessel in the national shipping register subject to the condition that the owner should be a national of that State or a company set up in that State and, in the latter case, that at least 75% of the capital of that company should be held by nationals of that State, was contrary to Article 52 of the Treaty. That same legislation was held to be contrary to Articles 7, 52 and 221 of the Treaty in a judgment handed down by the Court soon afterwards in proceedings taken against the United Kingdom for failure to fulfil Treaty obligations. (9)

That principle was reaffirmed in relation to French legislation (10) which restricted the right to registration in the national shipping registers and to fly the French flag solely to vessels more than half the shares in which are owned by French nationals or owned by legal persons with a head office in France or managed, supervised or controlled by French nationals or more than half of whose capital is held by French nationals. (11) An interesting aspect of this judgment is that, for the first time, there is a ruling of incompatibility with Community law in respect of leisure craft as well, on the ground that access to leisure activities is `a corollary to that freedom of movement' so that `the registration by such a national [from another Member State] of a leisure craft in the host Member State falls within the scope of the Community provisions relating to freedom of movement'. (12)

7 More recently still, Irish legislation restricting the right to register pleasure craft and merchant vessels to vessels wholly or partly owned by the government, a Minister of State, an Irish national or an Irish legal person (13) was held to be in breach of Articles 6, 48, 52 and 58 of the Treaty, Article 7 of Regulation No 1251/70 and Article 7 of Directive 75/34/EEC.

8 The national legislation in issue does not differ substantially from that of other Member States which has already been held to be incompatible with Community law in the judgments mentioned above. Similarly, as already pointed out, the arguments advanced by the Hellenic Republic in support of its contention that the legislation in question is compatible with Community law reiterate by and large the defences of those States in the proceedings concluded by the above judgments.

Arguments advanced by the Hellenic Republic in its defence

(a) Compliance with international law in granting nationality to vessels

9 The Greek Government argues that there is no Community legislation governing rules for granting nationality to vessels and that, therefore, as the Court of Justice itself recognized in the Factortame judgment, it is within the power of each Member State to lay down conditions, in accordance with the relevant rules of international law, for the registration of vessels in the national shipping registers enabling them to fly the flag of the State concerned. (14)

Specifically, the Hellenic Republic refers to the rules of international law on treaties such as Article 5 of the Geneva Convention of 1958 on the High Seas (hereinafter the `Geneva Convention') and Article 91 of the United Nations Convention on the Law of the Sea concluded in Montego Bay on 10 December 1982 (hereinafter the `Montego Bay Convention'). Both provisions, after reaffirming that each State determines the conditions for granting its nationality to vessels, require there to be a `genuine link' between the State and a vessel which flies its flag. (15) The Greek Government also refers to the United Nations Convention on conditions for registration of ships of 7 February 1986 (16) (hereinafter the `1986 Convention'), whose objectives include `ensuring or, as the case may be, strengthening the genuine link between a State and ships flying its flag'. (17) In particular, the defendant State argues that Articles 7 to 10 of the Convention are of relevance as they stipulate that a `genuine link' exists where ships are the property of nationals of the State whose flag they fly, or where their crew includes a sufficient quota of such nationals or persons domiciled in that State.

10 The Greek legislation, and Article 5 of the Code on Maritime Law in particular, are thus said to be aligned with the principles of international law on the nationality of ships. As those principles are not incompatible with Community law, the Commission's complaint is said to be unfounded.

11 As already observed in the decided cases of the Court, the existence of an international rule requiring a specific form of link between a ship and the State whose flag it flies must be ruled out at the current stage of development of international law. Therefore, there is no requirement in international law that ships must be wholly or partly owned by nationals of the State of registration.

12 Whatever ideological or political solution might be appropriate for the problem of flags of convenience, (18) international practice and rules do not allow any other reading of the law on this subject. (19)

13 As to the international conventions cited by the Hellenic Republic on this subject, it should be pointed out that Article 5 of the Geneva Convention cannot be interpreted as a rule requiring a genuine link between a State and a ship to be in a particular form as a necessary precondition for the grant of nationality. Apart from the fact, not to be overlooked, that it is precisely the definitive version which refutes the idea of making the grant of nationality in respect of a ship dependent on the ship's being owned preponderantly by citizens of the flag State, (20) it must be said that the aforesaid provision is silent as to the preconditions for the existence of a `genuine link', so that it comes to mean effective control and jurisdiction which the State is bound to exercise over ships to which it has irrevocably granted its nationality. If anything, then, far from being a condition for the grant of nationality, the `genuine link' amounts primarily to a duty of supervision resulting from the grant of nationality. It is consistent with this interpretation of a `genuine link' to require that the place where the vessel is managed, directed and controlled should be in the territory of the flag State. (21)

The same conclusion can be drawn with regard to the Montego Bay Convention, which, on the one hand, repeats the wording used in the Geneva Convention without shedding any further light on the concept of `genuine link' (Article 91) and, on the other, appears to rule out the possibility that States might refuse to recognize the nationality granted to a ship in the absence of a `genuine link'. A State which has clear grounds to believe that proper jurisdiction and control with respect to a ship have not been exercised may simply `report the facts to the flag State', which `if appropriate', shall `take any action necessary to remedy the situation'. (22)

14 That interpretation of the international rules on the nationality of ships has already been adopted by the Court in the Poulsen and Diva Navigation judgment, in which the provisions of the convention which have just been discussed were interpreted as the expression of a principle of international law by virtue of which `a vessel in principle has only one nationality, that of the State in which it is registered'. The fact that the sole link between a vessel and the State whose flag it flies is the administrative formality of registration `cannot prevent the application of that rule. It was for the State that conferred its nationality in the first place to determine at its absolute discretion the conditions on which it would grant its nationality'. (23) That interpretation was expressly confirmed in the judgment in Commission v Ireland, which followed soon afterwards and in which the Court stated that `under international law a vessel has the nationality of the State in which it is registered and ... it is for that State to determine in the exercise of its sovereign powers the conditions for the grant of such nationality', thereby ruling out any possible justification for the Irish regulations on the basis of public international law. (24)

15 The Court has not hitherto dealt with the possible significance of the 1986 Convention to which the Greek Government makes extensive reference in its defence. Only Advocate General Mischo, in his Opinion in the Factortame case, noted that Articles 7 to 9 of the Convention confer on States party thereto the right to choose between the criterion of nationality of the owner and the criterion of nationality or place of residence of the crew. Those articles, together with Article 5 of the Geneva Convention and Article 91 of the Montego Bay Convention, led him to conclude that `whilst ... the criterion of the owner's nationality is consistent with a fairly widespread international practice, it cannot, however, be regarded as forming part of customary international law'. (25)

In this connection, it should be pointed out that the 1986 Convention is not yet in force as it does not have the number of Contracting Parties required by Article 19. (26) In any event, Article 8 of the Convention allows States the widest discretion in deciding the level of participation of nationals of the flag State in the ownership of ships, whilst reserving the right of the State of registration to choose the other connecting factor, namely the nationality (or residence) of the crew. Moreover, the nationality requirements laid down by Articles 8 and 9 only apply to ships intended for the transport of goods or passengers or both, whereas it appears from Article 2 that it was not deemed necessary to define the concept of `genuine link' between State and ship in the case of fishing vessels. (27)

16 Overall, in the light of the above observations, I believe the possibility must be ruled out that possession of the nationality of the flag State by the owners (of all or part) of a vessel is the link imposed on the State by international law for the grant of that State's flag to the vessel.

(b) Compliance with Community law

17 In the absence of an international rule requiring the owner to hold the relevant nationality as a precondition for the registration of a ship, the power of the Member States to determine the criteria for the grant of their flag must be exercised in compliance with Community law and, in particular, the principles of non-discrimination and freedom of movement for persons.

That principle was laid down in the Factortame judgment. (28) Moreover, if the limitations imposed by Community law apply to the grant of nationality to natural persons, (29) they must also apply to the grant of nationality to ships.

18 The Hellenic Republic argues that the conditions for the registration of fishing and merchant ships do not constitute a breach of the principle of equal treatment nor a restriction of the freedoms guaranteed by the Treaty to nationals of other Member States.

As the Court stated in the Factortame judgment, where the vessel constitutes an instrument for pursuing an economic activity which involves a fixed establishment in the Member State concerned, the registration of that vessel cannot be dissociated from the exercise of freedom of establishment. That freedom includes, in the case of nationals of another Member State, the right to take up and pursue activities as self-employed persons under the conditions laid down for its own nationals by the law of the country where such establishment is effected. (30) It follows that national legislation which, for the purposes of ownership of ships, requires natural or legal persons to be of a particular nationality, is contrary to Articles 6 and 52 of the Treaty. With reference to legal persons, in particular, the Greek legislation is contrary to Articles 58 and 221 of the Treaty because it requires the legal person owning the ship to be constituted under Greek legislation, and because, by requiring that the capital of the legal person owning the ship be controlled by Greek nationals, it restricts participation by nationals of other Member States in the capital of such companies. (31)

19 The Greek Republic justifies its own legislation on the registration of ships by reference to the existence of a Community system for fisheries deriving from Council Regulation (EEC) No 3760/92 of 20 December 1992. (32) In particular, it argues that the nationality requirement laid down in Article 5 of the Code on Maritime Law serves to ensure compliance with the system of national catch quotas which, under Article 6 of Regulation No 3760/92, is to be retained until 31 December 2002.

Apart from the fact that this argument could only apply in the case of fishing vessels, it has already been considered and rejected in the Jaderow and Agegate judgments. (33) The Greek legislation at issue in these proceedings, like the United Kingdom legislation in the above cases, is concerned not with access to fishing activities but with the registration of ships and thus operates ultimately as an obstacle to fishing as such, and not just as a set of rules for managing the national quota. In the light of the above case-law, Member States may determine which vessels in their fishing fleet are authorized to include their catches in the national quotas, but the condition for such authorization is that there must be a link between the activities of the vessel and the coastal population which is particularly dependent on fishing and related industries. On the other hand, any requirement of an economic link which exceeds those limits cannot be justified by the system of national quotas. (34)

Nor can the Greek legislation be justified on the basis of the system of maritime cabotage introduced by Council Regulation (EEC) No 3577/92 of 7 December 1992. (35) The fact that, under Article 6(3) of that regulation, Greece enjoys a temporary exemption from the system of freedom to provide maritime transport services until 1 January 2004 cannot justify legislation affecting the conditions for the registration of ships. As the exemption which the Hellenic Republic enjoys under the regulation constitutes a derogation from the principle of freedom to provide transport services, it must be interpreted narrowly and thus allowed only where necessary to fulfil the socio-economic purpose for which it was intended. Accordingly, the legislation in question cannot justify restrictive rules which have no direct bearing on access to maritime transport services.

Next, the Hellenic Republic seeks to justify the legislation in issue by reference to the requirements of its military defence organization, which it considers to be particularly relevant in the light of the specific historical and geo-political background of this region of the Mediterranean. In particular, the nationality of owners of vessels, it is argued, is a link which allows the Greek authorities to requisition ships, if necessary, and make the ship and its crew subject to the decisions of the military authorities.

In this connection, suffice it to note that the Greek authorities could decide for military purposes to requisition ships flying the Greek flag whatever the nationality of the owner of the vessel. In more general terms, if, by such arguments, the Hellenic Republic seeks, even implicitly, to refer to possible derogations from the freedoms guaranteed by the EC Treaty in the event of war or serious international tension, it is sufficient to refer to Article 224 of the Treaty which, in laying down rules governing this eventuality, does not allow Member States to adopt unilateral derogations from fundamental principles of Community law as general preventive measures where the exceptional circumstances described do not obtain and are not even alleged to prevail.

In the case of vessels not used for economic activity, the Greek Government merely points out that the Greek legislation does not prevent nationals of other Member States from acquiring and using ships flying the flags of other Member States or third countries for leisure activities in Greece.

This argument is wholly devoid of substance. Access to leisure activities by a person who lives in a State to pursue an employed or self-employed activity, or after having pursued such an activity there, is a corollary to freedom of movement and, in laying down rules governing such access, a State must respect the principle of equal treatment. (36) For that reason, the Greek legislation in issue, which reserves to Greek nationals alone the right to register a leisure craft in Greece, is incompatible with Articles 6, 48 and 52 of the Treaty and with Article 7 of Regulation No 1251/70 and Article 7 of Directive 75/34. (37)

Costs

I consider that all the Commission's claims that the Hellenic Republic is in breach of its obligations under Community law should be accepted. Accordingly, as the Hellenic Republic must be deemed to have been entirely unsuccessful in its submissions, it must, under Article 69(2) of the Rules of Procedure, be ordered to pay the costs.

Conclusion

In the light of the foregoing considerations, I propose that the Court should:

declare that, by maintaining in force legislation which restricts the right to register in the Greek shipping register and to fly the Greek flag to vessels at least half the shares in which are owned by Greek nationals or which are owned by Greek legal persons at least half of whose capital is held by Greek nationals, the Hellenic Republic has failed to fulfil its obligations under Articles 6, 48, 52, 58 and 221 of the Treaty and under Article 7 of Regulation (EEC) No 1251/70 of the Commission of 29 June 1970 and Article 7 of Council Directive 75/34/EEC of 17 December 1974.

order the Hellenic Republic to pay the costs.

(1) - OJ, English Special Edition 1970 (II), p. 402.

(2) - OJ 1975 L 14, p. 10.

(3) - The Commission states, without being contradicted, that the Hellenic Republic did not reply to the third letter before action.

(4) - It is within the Commission's power to limit the scope of the dispute by comparison with the pre-litigation procedure without prejudicing the right to a fair hearing of the defendant State (on the partial discontinuance of a complaint during the course of the procedure, see judgment in Case 252/85 Commission v France [1988] ECR 2243, paragraphs 21 and 22).

(5) - Decree Law No 187, published in the Official Journal of the Hellenic Republic No 261 of 8 October 1973.

(6) - The article lays down certain formalities, to which the Commission raises no objection, in cases where the contract transferring ownership of the vessel was concluded abroad and where the vessels are intended for passenger transport.

(7) - Judgment in Case C-221/89 [1991] ECR I-3905.

(8) - In particular, Article 14 of the Merchant Shipping Act 1988.

(9) - Judgment in Case C-246/89 Commission v United Kingdom [1991] ECR I-4585.

(10) - Article 217 of the Customs Code.

(11) - Judgment in Case C-334/94 Commission v France [1996] ECR I-1307, which, as far as the composition of the crew of vessels flying the French flag is concerned, finds that the French Republic has also failed to fulfil its obligations under Article 171 of the Treaty in that it did not comply with the previous judgment in Case 167/73 Commission v France [1974] ECR 359.

(12) - See paragraph 22 of the judgment cited in the previous footnote.

(13) - Judgment in Case C-151/96 Commission v Ireland [1997] ECR I-3327.

(14) - The principle was recognized by the Court in its judgment in Case 223/86 Pesca Valentia [1988] ECR 83, paragraph 13.

(15) - Under Article 5 of the Geneva Convention `each State shall fix the conditions for the grant of its nationality to ships, for the registration of ships in its territory, and for the right to fly its flag.... There must exist a genuine link between the State and the ship; in particular, the State must effectively exercise its jurisdiction and control in administrative, technical and social matters over ships flying its flag'. Article 91 of the Montego Bay Convention provides that `every State shall fix the conditions for the grant of its nationality to ships, for the registration of ships in its territory, and for the right to fly its flag. Ships have the nationality of the State whose flag they are entitled to fly. There must exist a genuine link between the State and the ship'. Note that the latter Convention, pursuant to Article 311 thereof, takes precedence, as between Contracting States, over the Geneva Convention.

(16) - See International Transport Treaties, Supplement 12 (May 1988), page I-387 ff.

(17) - See Article 1 of the 1986 Convention.

(18) - This subject has been discussed at length in legal writings, where no solution finds unanimous support. See, amongst the many contributions, apart from those cited below, J.M. Rou, Les pavillons de complaisance, Paris, 1961; B.A. Boczek, Flags of Convenience, Cambridge 1962; H. Meijers, The Nationality of Ships, The Hague 1967. For a recent, positive, assessment of the practice of flags of convenience, see D.F. Matlin, Re-evaluating the Status of Flags of Convenience Under International Law, in Vanderbilt Journal of Transnational Law, 1993, at p. 1017 et seq.

(19) - As early as in the case of Dohws of Mascate (U.N. Reports of international arbitral awards, XI, p. 92 et seq.) it was clearly stated that it fell to each State to decide to whom it should grant the right to fly its own flag. As it came after Article 5 of the Geneva Convention, the opinion of the International Court of Justice on the membership of the Committee on Maritime Safety of IMCO (Opinion of 8 June 1960, ICJ Reports, 1960, p. 150 et seq.) is significant. It stated that, in the light of international practice, ships must be considered to belong to the State in which they are registered and that it is not possible to choose the nationality of a merchant fleet on the basis of other criteria.

(20) - In accordance with the document prepared by the International Law Commission of the United Nations. On the different wording of the draft compared with the definitive version, see H.W. Wefers Bettink, Open Registry, the Genuine Link and the 1986 Convention on Registration Conditions for Ships, in NYIL, 1987, p. 80 et seq.

(21) - See the Factortame judgment cited in footnote 7, paragraphs 34 to 36, and the Opinion of Advocate General Mischo in the same case delivered on 13 March 1991 ([1991] ECR I-3932, at points 56 to 58). The assessment of compatibility is limited only by the caveat that the requirement is satisfied even where operations are carried out in a branch which follows instructions from a decision-making centre located in the same Member State as that in which the head office is situated.

(22) - See Article 94(6) of the Montego Bay Convention.

(23) - Judgment in Case C-286/90 Poulsen and Diva Navigation [1992] ECR I-6019, paragraphs 13 to 15.

(24) - Judgment in Case C-280/89 Commission v Ireland [1992] ECR I-6185, paragraphs 23 and 24.

(25) - See the Opinion of Advocate General Mischo (cited in footnote 21), point 18.

(26) - Under Article 19, the Convention is to enter into force once not less than 40 States, the combined tonnage of which amounts to at least 25% of world tonnage, have become Contracting Parties to it.

(27) - It might be added that Article 234 of the Treaty does not allow obligations under the Treaty itself to be ignored where fulfilment of those obligations does not prejudice the rights conferred on non-member countries (judgment in Case 286/86 Deserbais [1988] ECR 4907, paragraphs 17 and 18).

(28) - Cited in footnote 7, paragraph 17.

(29) - The existence of limits imposed by the need to comply with Community law on the power of Member States to grant their nationality to natural persons was affirmed, admittedly somewhat enigmatically, in the judgment in Case C-369/90 Micheletti [1992] ECR I-4239, paragraph 10.

(30) - Cited in footnote 7, paragraphs 22 to 25. That position was reaffirmed in subsequent judgments: see the judgment of 4 October 1991 in Commission v United Kingdom (cited in footnote 9), paragraphs 21 to 27; the judgment of 7 March 1996 in Commission v France (cited in footnote 11), paragraphs 12 to 17; the judgment of 12 June 1997 in Commission v Ireland (cited in footnote 13), paragraph 12.

(31) - These aspects have also been dealt with by the Court in its judgments (see, inter alia, the judgment of 7 March 1996 in Case C-334/94 Commission v France, cited in footnote 11, in particular paragraphs 18 and 19).

(32) - Regulation establishing a Community system for fisheries and aquaculture (OJ 1992 L 389, p. 1).

(33) - Judgments in Case C-3/87 Agegate [1989] ECR 4459 and Case C-216/87 Jaderow [1989] ECR 4509.

(34) - See, in particular, the Jaderow judgment (cited in the preceding footnote), paragraphs 22 to 27, referred to in the Factortame judgment (cited in footnote 7) at paragraph 40.

(35) - Regulation applying the principle of freedom to provide services to maritime transport within Member States (maritime cabotage) (OJ 1992 L 364, p. 7).

(36) - See the judgments in Case C-334/94 Commission v France (cited in footnote 11), paragraphs 21 to 23, and in Commission v Ireland (cited in footnote 13), paragraphs 13 and 14.

(37) - One might usefully discuss the incompatibility of the Greek legislation in issue with Article 8a of the Treaty and the 1990 and 1993 directives on the right of residence which, in guaranteeing freedom of movement and of residence to citizens of the Union, whether or not they are pursuing or have pursued an economic activity, extends to such persons the right to equal treatment with regard to the enjoyment of subjective rights which can be described as corollaries to the freedom of movement and residence. For a note on this point, see the Opinion of Advocate General Fennelly in Commission v France (cited in footnote 11), in particular footnote 55.