ECJ: Freedom to Establish Cannot Be Restricted to Ensure Supply

Aug 25, 2023 Benn-Ibler Rechtsanwälte

A restriction on freedom of establishment cannot be justified by the objective of ensuring regional supply of construction materials at local level, according to the European Court of Justice (ECJ). Such regional supply does not meet the fundamental interest of society. Reasons of public safety and order cannot therefore be invoked.

The case concerned a Hungarian concrete products manufacturer which had challenged a decision taken by the Hungarian Minister of Innovation and Technology. The purpose of the decision was to prohibit the acquisition of another Hungarian company active in the extraction of gravel, sand, and clay. The complainant company is owned by foreign companies. Hungary had previously adopted a review mechanism for foreign investments. According to the Minister, the company to be acquired is considered strategic within the meaning of the review mechanism. It will indirectly become the property of a company registered in a third country, in this case Bermuda. This poses a long-term risk to the security of supply of basic raw materials for the construction sector.

The Hungarian court has now asked the ECJ for a preliminary ruling on the compatibility with EU law of the foreign investment review mechanism in question.

According to the ECJ, the provisions in question are incompatible with EU law. The review mechanism constitutes a serious restriction of the freedom to provide services.

The objective of ensuring security of supply for the construction sector, in particular at local level, with regard to certain basic raw materials, namely gravel, sand, and clay, cannot justify such interference. Security of supply in the construction sector does not correspond to a fundamental interest of society, such as public safety and order. According to the established case law of the ECJ, this is only the case for security of supply in the oil, telecommunications, and electricity sectors.

ECJ C-106/22 (13 July 2023)