delivered on 7 May 1986 (*1)

Mr President,

Members of the Court,

1.Is national legislation which requires residents of a Member State who acquire foreign securities dealt in on a stock exchange

(a)to lodge those securities with an approved bank and

(b)to deposit a sum which is fixed in proportion to the purchase value of those securities and does not bear interest

compatible with the provisions of Article 67 of the EEC Treaty, as put into effect by the directives adopted for their implementation, subject to the protective measures authorized pursuant to Article 108 (3) of the Treaty?

That is the substance of the questions submitted for a preliminary ruling by the Pretore di Genova who has asked the Court for an interpretation of the abovementioned Community provisions in connection with a dispute between Luigi Brugnoni and his agent, Roberto Ruffinengo, on the one hand and the Cassa di risparmio di Genova e Imperia, the defendant in the main proceedings, on the other.

Before recalling the facts let us look at the relevant Community and national law.

2.Article 67 (1) of the EEC Treaty requires the Member States to abolish ‘progressively ... between themselves all restrictions on the movement of capital belonging’ to persons resident there ‘and any discrimination based on the nationality or on the place of residence of the parties or on the place where such capital is invested’.

According to Article 69, as interpreted by the Court in Casati (judgment of 11 November 1981 in Case 203/80 [1981] ECR 2595), the free movement of capital is dependent on the adoption by the Council of ‘the necessary directives for the progressive implementation of the provisions of Article 67’.

Two directives, one of 11 May 1960 (Official Journal, English Special Edition 1959-1962, p. 49), the other of 18 December 1962 (Official Journal, English Special Edition 1963-1964, p. 5), have been adopted ‘for the implementation of Article 67 of the Treaty’. Both will hereinafter be referred to as ‘the directive’.

Article 2 (1) of the Directive provides that:

‘1. Member States shall grant general permission for the conclusion or performance of transactions and for transfers between residents of Member States in respect of the capital movements set out in List B of Annex I to this Directive’.

That list, which deals with ‘operations in securities’, includes in particular the ‘acquisition by residents of foreign securities dealt in on a stock exchange and use of the proceeds of liquidation thereof’ and also ‘physical movements’ of such securities, namely, according to the nomenclature of the directive, import and export.

Article 5 of the Directive preserves ‘the right of Member States to verify the nature and genuineness of transactions or transfers’ and ‘to take all requisite measures to prevent infringements of their laws and regulations’.

Because the free movement of capital, as introduced and circumscribed by secondary legislation, may prove incompatible with a crisis situation, the Treaty lays down two sets of provisions authorizing temporary derogations from that freedom. Article 73 permits the adoption of ‘protective measures’‘if movements of capital lead to disturbances in the functioning of the capital market in any Member State’. Such measures must be authorized by the Commission after consulting the Monetary Committee (Article 73 (1)). In exceptional cases they may be adopted by a Member State on its own, in which case the Member State must inform the other Member States and the Commission which may, after consultation, decide that the measures are to be amended or abolished (Article 73 (2)).

The second set of provisions is contained in Articles 108 and 109 of the Treaty.

3.By three successive decisions, the Commission authorized the Italian Republic to take certain protective measures pursuant to Article 108 (3) of the EEC Treaty (Commission Decisions Nos 74/287 of 8 May 1974 and 75/355 of 26 May 1975, Official Journal L 152, p. 18, and L 158, 1975, p. 25) or to continue to apply certain of those measures (Commission Decision No 85/16 of 19 December 1984, Official Journal L 8, 1985, p. 34).

Article 5 of the first of those decisions authorized the Italian Republic to require its residents ‘to lodge an interest-free bank deposit not exceeding 50% of the value of their investment transactions in other Member States covered by Articles 1 and 2’ of the directive. That authorization, which was granted ‘temporarily’ without any other indication as to its duration, was maintained unchanged by the 1975 decision (see the last recital of its preamble), although that decision repealed certain provisions of the 1974 decision.

Article 1 of the 1984 decision provides in that regard that, for a period of three years,

1.‘1. The Italian Republic is authorized, temporarily and within the limits of the measures listed in the Annex hereto, to restrict the performance of transfers relating to the capital movements liberalized at the date of this Decision, pursuant to Articles 1 and 2’ of the directive.

The annex to which reference is made reduces from 50% to 30% the amount of the interest-free bank deposit for securities issued, as in this case, by a European Community institution, ‘on condition the securities purchased are held for at least a year’, it being stated that ‘otherwise the deposit is equal to 50% of the value of the securities’.

Article 3 of the 1984 decision completed the repeal of the 1974 decision.

4.By a Ministerial Decree of 12 March 1981, the Italian Republic made use of the authorization granted to it.

In Article 15 that decree required residents acquiring securities issued or payable abroad to pay into a blocked, interest-free account with the bank or credit institution instructed to carry out the transaction an amount in Italian lire equal to 50% of the sum invested.

Article 20 of the decree requires that such securities

‘must be deposited with banks authorized to act as depositories and administrators within 30 days of the date on which residents acquire possession or the right to dispose of the securities...’ (Article 20 (1)).

Article 20 (3) states that that requirement is also discharged if authorized banks deposit the securities within the prescribed period with foreign banks in their own name and for the account of the beneficial owners.

A Ministerial Decree of 30 November 1984, which therefore preceded the third Commission decision, reduced to 30% the amount of the compulsory interest-free deposit in respect of purchases of bonds issued by Community institutions.

5.Those, then, are the main provisions in point in these proceedings.

Towards the end of November 1984 Mr Ruffinengo, acting as agent, gave instructions to the Cassa di risparmio di Genova e Imperia to purchase for the account of Mr Brugnoni DM 5000 worth of bearer bonds issued by the ECSC and quoted on the foreign stock exchange in the Federal Republic of Germany.

On 28 November 1984, acting on those instructions, the defendant bank, the Cassa di risparmio, debited the account of the purchaser not only with the lire value of the securities (LIT 3260292) but also with 50% of that sum (LIT 1630146) representing the deposit required by Article 15 of the Ministerial Decree of 12 March 1981 which was paid into a non-interest-bearing account opened with the bank. On 11 February 1985, in accordance with the abovementioned Ministerial Decree of 30 November 1984, an amount of LIT 651758, being 20% of the purchase price of the securities, was credited to Mr Brugnoni.

Pursuant to Article 20 of the Ministerial Decree of 12 March 1981, the Cassa di risparmio deposited the ECSC bonds in question with the Deutsche Bank in Frankfurt for the account of the plaintiffs but in its own name. Custody charges of LIT 7600 were debited to the plaintiffs for the period from 28 November 1984 to 31 December 1984. It should be noted that the Cassa di risparmio holds securities for its clients free of charge as from 1 July 1985, subject, in the case of foreign securities, to any charges made by the foreign bank with which they are deposited.

I should add that an Italian Law of 1976 provides for penal sanctions against bank officers and employees who fail to comply with ‘the provisions relating to exchange regulations for foreign commercial and financial transactions’.

Before the Pretura di Genova, Mr Brugnoni and Mr Ruffinengo challenged the obligations placed upon them of lodging the securities with an approved bank and paying an interest-free deposit.

6.The Pretura has therefore referred to the Court for a preliminary ruling the four questions whose text is set out in the Report for the Hearing.

After stating that the operation in question fell within List B of the directive (which is not disputed), the Pretura then requests the Court to rule on each of the following questions:

Whether that fact confers upon persons acquiring such securities directly enforceable rights derived from Community law and, if so, whether restrictive measures imposed by national law, in particular that requiring the securities to be lodged with a bank, are compatible with the existence of such rights;

Or whether such a measure may be imposed by a Member State under Articles 67 and 68 of the Treaty owing to the effect of Article 108 (3), pursuant to which the third Commission Decision (No 85/16), covering the operation in question, was adopted;

Whether the Italian Government infringed the Treaty by failing to follow the consultation procedure provided for in Article 73;

Whether the measures taken by the Italian Republic are compatible with the provisions of the Treaty and the directives adopted for their implementation;

—Finally, whether the third Commission decision extended the authorizations granted since 1974 or whether, by virtue of the second paragraph of Article 191 of the Treaty, it only granted a new authorization applying only to operations after 19 December 1984.

I shall now consider whether the two measures challenged by the plaintiffs are compatible with Community law, starting with the compulsory interest-free deposit.

7.Mr Brugnoni and Mr Ruffinengo argue that the operation at issue was governed by the 1974 decision, which was expressly repealed by the 1984 decision. The effect of its repeal must have been to put an end to the requirement to lodge a deposit. As regards the requirement laid down in the 1984 decision, which had no retroactive effect, it could not apply to previous operations.

In the view of the Italian Government and the Commission, which refer to the fifth recital of its preamble, Decision No 85/16 maintained in force that protective decision without any break in continuity.

It is clear, therefore, that the Commission, in enacting the legislation, intended to maintain in force the authorization granted to Italy from 1974 to require residents, in the circumstances described above, to ‘lodge an interest-free bank deposit’. Therefore, since it extends that authorization, the 1984 decision does not give rise to a new protective measure under Article 108 (3). However, it places other restrictions on the authorization, essentially concerning the maximum amount of the deposit and, above all, the duration of the authorization itself. Whereas neither the 1974 decision nor the 1975 decision fixed a time-limit for the authorization, the 1984 decision, as I pointed out above, expressly granted authorization for a period of three years.

Like the Commission, I should point out that the procedures provided for in Articles 73 and 108 of the Treaty are alternative and not cumulative. Therefore, the Italian Government was not required in this instance to observe the procedure laid down in Article 73.

8.There remains the more controversial question, to which the first two questions relate, of the compatibility with primary or secondary Community legislation of the requirement imposed upon owners of foreign securities to deposit them with an approved bank.

The plaintiffs take the view that it is incompatible with Community law.

As far as Article 67 (1) of the Treaty is concerned, they refer to the interpretation of that provision given by the Court in Casati, cited above (Case 203/80 at paragraphs 8, 10 and 11 of the decision [1981] ECR 2595 at p. 2613), in which it held that:

—‘the free movement of capital constitutes, alongside that of persons and services, one of the fundamental freedoms of the Community’;

—‘there is an obligation to liberalize capital movements only “to the extent necessary to ensure the proper functioning of the common market”’;

—‘such an assessment is, first and foremost, a matter for the Council, in accordance with the procedure provided for by Article 69’, under which the Council has adopted two directives with annexes dividing all movements of capital into four lists (A, B, C and D), and ‘prescribing unconditional liberalization’ for the capital movements listed in Lists A and B.

Mr Brugnoni and Mr Ruffinengo infer from that judgment that, since the capital movements in question are unconditionally liberalized, the Member States must abolish in regard to them all discrimination referred to in Article 67 (1). Such abolition, which is a corollary of unconditional liberalization, should come about automatically and does not require a Council directive. However, the Italian legislation on the compulsory deposit of securities is discriminatory with regard to both the place of residence of the parties and the place where the capital is invested.

Furthermore, it is contrary to the provisions of the directive, more specifically, Article 2, in so far as it applies to the performance of transactions relating to the capital movements enumerated in List B of Annex I, and to the provisions of List B, which expressly provide for the right of the purchaser to transfer securities to his own country. None of that legislation can be regarded as a supervisory measure adopted pursuant to Article 5 of the directive or as a protective measure authorized under the Community legal system since the procedure provided for in Article 73 of the Treaty has not been observed.

Finally, the plaintiffs submit that the measure at issue constitutes a serious violation of the right to property and may even jeopardize their ownership of the assets should the depository bank or the intermediary bank collapse.

9.For the following reasons, in particular those put forward by the Italian Government and the Commission, I do not find the plaintiffs' arguments convincing.

In order to evaluate the measure at issue in the light of the principle laid down in Article 67 (1), it is necessary to go back to the Court's judgment in Casati.

Although the Court did describe the free movement of capital as a ‘fundamental’ freedom, it immediately went on to state that:

‘... Article 67 (1) differs from the provisions on the free movement of goods, persons and services in the sense that there is an obligation to liberalize capital movements only “to the extent necessary to ensure the proper functioning of the common market”. The scope of that restriction, which remained in force after the expiry of the transitional period, varies in time and depends on an assessment of the requirements of the common market and on an appraisal of both the advantages and risks which liberalization might entail for the latter, having regard to the stage it has reached and, in particular, to the level of integration attained in matters in respect of which capital movements are particularly significant’ (Case 203/80 paragraph 10 [1981] ECR 2595 at p. 2614).

The Court therefore followed the course suggested by Mr Advocate General Capotorti, who took the view that:

‘... Article 67 (1) does not display features such as to enable it to be numbered among the provisions which became directly applicable after the end of the transitional period’ (Case 203/80 [1981] ECR 2595 at p. 2625).

In asking the Court to draw a distinction between the first part of Article 67 (1), dealing with restrictions on capital movements, and the second part, dealing with discrimination (the abolition of the former must, in their view, entail the abolition of the latter), the plaintiffs are in fact suggesting that the Court should reverse its previous decision. The plaintiffs are suggesting ‘automatic’ direct effect which neither the letter nor the spirit of the provision bears out.

If that had been the intention of the authors of the Treaty they would not have used the word ‘and’ but the words ‘and, consequently,’ or ‘therefore’. Discrimination, like restrictions on capital movements, is to be ‘progressively’ abolished by the Member States, on the basis of an assessment which, according to the Court, ‘is, first and foremost, a matter for the Council, in accordance with the procedure provided for by Article 69’ (Casati, cited above, paragraph 11 [1981] ECR 2595 at p. 2614).

10.It is therefore necessary to investigate whether the compulsory deposit of securities with an approved bank is contrary to the provisions of the directive adopted for the implementation of Article 67 (1).

It is common ground that the capital movements in question are governed by Article 2 of the directive and by List B of Annex I thereto.

‘In the case of the movements covered by Lists A and B’ the Court stated that ‘unconditional liberalization is prescribed by the directives’ (Casati, paragraph 11).

That liberalization, however, must take effect subject to the limits, which need to be defined, of the abolition of restrictions effected by the directive.

In this instance it will be for the national court to determine, in the light of the interpretation of Community rules to be provided by the Court, whether the Italian legislation permits ‘the conclusion or performance of transactions’ and ‘transfers between residents of Member States’ relating to ‘operations in securities’ making possible the ‘acquisition by residents of foreign securities dealt in on a stock exchange and use of the proceeds of liquidation thereof’, including ‘physical movements of the securities mentioned above’.

It has not been argued that the measure at issue prohibits or even restricts the acquisition by residents of foreign securities dealt in on a stock exchange. Clearly, it has been possible for the capital movements necessary for such acquisitions to take place in the normal way and there is nothing to support the assertion that the measure mentioned above represents an obstacle to use of the proceeds of any liquidation of the securities involved.

What of the ‘physical movements of the securities’, and, more specifically, what ‘operations in securities’ are covered by such an expression? Does it mean, as the plaintiffs argue, the importation of the foreign securities into the purchaser's State of residence in order for him to hold them physically?

I do not believe that the framers of the Community legislation had in mind such a transfer, which runs counter to a steady development whereby the rights of the owner of a security have lost their material character. The right of ownership has increasingly become separated from the security itself and assumed scriptory form in the account books of banks.

Therefore, in my view, the physical movements referred to in List B are those which are necessary for operations in securities and in particular to their negotiation. (1) The compulsory deposit would therefore be incompatible with the requirements of the directive only if it hindered capital movements and, in such a case, only to the extent to which they were hindered. From that point of view, national legislation prohibiting the export of foreign securities dealt in on a stock exchange when their export was necessary in order for them to be negotiated for the purpose of acquisition would be incompatible with the directive.

However, in so far as it does not affect the capital movements liberalized so far, legislation requiring purchased securities to be deposited with an approved bank does not, in my view, encroach upon the area unconditionally liberalized by the directive. Therefore, the measure at issue falls within the competence which, in the present state of Community law, still belongs to the Member States.

I therefore consider that the Member States may adopt such a measure without the need to have recourse to one of the procedures laid down in Articles 73 or 108 of the Treaty and that they may prescribe penal sanctions for failure to comply with it.

11.I therefore propose that the Court answer the questions raised by the Pretura di Genova as follows:

(1)Provided that it does not affect capital movements, a national measure requiring residents of a Member State to deposit with an approved bank foreign securities dealt in on a stock exchange and falling within List B of Annex I to the Council Directive of 11 May 1960 is not, in the present state of Community law, contrary to the provisions of Article 67 (1) of the EEC Treaty, as implemented by that directive, supplemented and amended by the Council Directive of 18 December 1962. The adoption of such a measure does not therefore at present require Commission authorization under Article 73 or 108 of the Treaty.

(2)A national measure adopted pursuant to Article 108 of the EEC Treaty in accordance with the procedure laid down in that article is not also subject to the procedure provided for in Article 73 of the Treaty.

(3)Commission Decision No 85/16 of 19 December 1984‘authorizing the Italian Republic to continue to apply certain protective measures pursuant to Article 108 (3) of the Treaty’ does not have the effect, in relation to Commission Decisions Nos 74/287 and 75/355 which it repeals, of abolishing the obligation to lodge an interest-free deposit for purchases by residents of foreign securities dealt in on a stock exchange made before its entry into force

*1 Translated from the French.

1 See in this connection P. Oliver, ‘Free movement of capital: Art. 67(1) and implementing directives’, European Law Review, 1984, p. 401, particularly at p. 404.

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