Central to the doctrine of scarce government rights is the search for a transparent distribution system. Scarce rights are rights that are limited in number and where demand exceeds supply. Examples include capped subsidies, market licences, FM band broadcasting licences, parking permits, etc. Spurred on by the ECJ’s case law on the Services Directive, the development of this doctrine is no longer optional, but a necessity.
Scarce rights are rights that are limited in number and where demand exceeds supply. When government rights are scarce, fair distribution is crucial. Distribution can be done in several ways, but one thing is common to all: the allocation of a scarce right to one party necessarily implies the rejection of another party’s application. The importance of a system of fair distribution is further reinforced by the fact that scarcity and value (often) go hand in hand. The acquisition of a scarce right can give a party a huge financial and competitive advantage over another party that misses out. It is therefore crucial that the distribution is done correctly. The search for a fair distribution system is therefore the starting point of the doctrine of scarce government rights.
European legal framework on the distribution of scarce government rights
EU law has given an enormous impetus to the development of rules in the allocation context.
Concerning the procedure of comparing offers, the principle of transparency – which derives from the principle of equal treatment and non-discrimination – cannot be omitted. The Court of Justice put this principle on the map in 1996 with the judgment Commission v Belgium (C-278/94) on the award of government contracts and developed it further in the 2000 Telaustria judgment (C-324/98). In this judgment, the Court held that the principle of transparency also applies to the award of concession contracts, even though secondary EU law does not apply to such contracts. The obligation of transparency “consists in ensuring, for the benefit of any potential tenderer, a degree of advertising sufficient to enable the services market to be opened up to competition and the impartiality of procurement procedures to be reviewed.” (Para.62).
EU law does not apply indefinitely, however. Directives on scarce authorisations often have a limited scope and the freedoms in the TFEU presuppose the existence of economic activity with a cross-border interest. It is precisely in this context that the Services Directive plays an important role. Indeed, the distribution system of scarce rights under this directive has an extremely broad and ever-expanding scope of application. The Services Directive provides a general regulatory framework applicable to scarce authorisations (for services), distinguishing between cases of natural and policy-based (or artificial) scarcity. (C.J. WOLSWINKEL, “Concurrerende verdelingsregimes? Schaarse vergunningen onder Unierecht en nationaal recht na Vlaardingen en Appingedam”, SEW 2018, (288) 290.)
Natural scarcity means that the number of authorisations is limited because of natural resources or technical capacity. The Services Directive provides specific distribution rules for these forms of scarcity. For example, article 12 provides that a selection procedure must be carried out which offers “full guarantees of impartiality and transparency, including, in particular, adequate publicity about the launch, conduct and completion of the procedure”. Furthermore, art. 12 provides that “authorisation shall be granted for an appropriate limited period and may not be open to automatic renewal nor confer any other advantage on the provider whose authorisation has just expired or on any person having any particular links with that provider”.
For cases of policy-based scarcity, the directive is (somewhat) less strict. Indeed, it lacks similar distribution rules such as those in art. 12. However, with regard to policy-based scarcity cases, art. 11 applies, meaning that authorisations shall not be for a limited period unless, amongst others, the number of available authorisations is limited by an overriding reason relating to the public interest.
European Court of Justice case law
The European Court of Justice has further clarified the scope of the distribution rules in the Services Directive in its case law.
In the Trijber judgment (1 October 2015, C-340/14 and C-341/14), the Court interprets the notion of cross-border interest and the concept of service within the meaning of the directive broadly. Thus, in relation to tour boats on the Amsterdam canals, the Court held, among other things, that since nationals of other Member States could also enjoy this service, it was not a purely internal situation.
The Promoimpresa and Melis judgment (14 July 2016, C-458/14 and C-67/15) deals with concession contracts for tourism facilities on Lake Garda and the Sardinian coast. The Court states that (concession) contracts can be characterised as authorisations within the meaning of the Services Directive as far as they constitute formal decisions, irrespective of their characterisation in national law, which must be obtained by the service providers from the competent national authorities in order to be able to exercise their economic activities. In the same judgment, the Court interprets the concept of natural scarcity broadly, by assessing it at the level of the authorisation provider. In this case, the authorisation was not granted at the national but the municipal level. The municipality is a geographically smaller area, so natural scarcity is more likely to occur. In other words, the Court gives a broad interpretation of art. 12 Services Directive. (M.R. BOTMAN, “Kapers op de Italiaanse kust. De gevolgen van het arrest Promoimpresa voor de verdeling van schaarse rechten”, Gst. 2017/3, (1) 5.)
In the cases mentioned above, the ECJ did not comment on whether the Services Directive also applies to purely internal situations. The discussions this caused were brought to an end with the Appingedam judgment (30 January 2018, C-360/15 and C-31/16). The case concerns a zoning plan of the Dutch municipality of Appingedam prohibiting the establishment of retail trade in, inter alia, shoes and clothing in the planning area. The first question at issue is whether the Services Directive also applies to such purely internal situations. According to the Court, it does. The Court finds “[…] that the scope of that directive is capable of extending, in certain cases, beyond what is strictly laid down in the provisions of the FEU Treaty relating to freedom of establishment and the free movement of services, without prejudice to the obligation on the Member States, under Article 3(3) of that directive, to apply the provisions of that directive in compliance with the rules of the FEU Treaty” (para.107). After all, “[i]n order to achieve a genuine internal market in services, the approach adopted by the EU legislature in Directive 2006/123 is based, as set out in recital 7 thereof, on a general legal framework composed of a mix of various measures designed to ensure a high degree of legal integration within the European Union, by means of, inter alia, harmonisation with respect to specific aspects of the regulation of service activities.” (Para.106).
Impact of this case-law on Member States’ national distribution systems
Given the Services Directive and its expanding scope (through the case law of the Court of Justice), the elaboration of a doctrine on the distribution of scarce government rights is no longer optional, but a necessity. There is no doubt that we need to fundamentally rethink how we allocate government rights. The next question is the fate of national distribution systems of scarce government rights. Indeed, some member states have already developed their own national systems independently of the European context.
The doctrine of scarce government rights developed mainly in the Netherlands in recent decades (there named as scarce public rights). With his inaugural speech, Professor VAN OMMEREN put the scarce permit on the radar of Dutch administrative law as early as 2004. (F.J. VAN OMMEREN, Schaarse vergunningen. De verdeling van schaarse vergunningen als onderdeel van het algemeen bestuursrecht, Deventer, Kluwer, 2004, 82 p.) Twelve years later, in the Vlaardingen case, the Dutch Council of State gave its first leading ruling on a licence to operate a gaming machine hall (ECLI:NL:RVS:2016:2927). According to the Council, the national principle of equality (a principle of proper administration) implies that when distributing scarce licences, the administration must provide space for all (potential) candidates to compete for the available licences. Moreover, the government may only grant the licence for a certain duration and must ensure an appropriate degree of publicity about (i) the availability of the scarce licences, (ii) the distribution procedure, (iii) the application period and (iv) the distribution criteria applied. The Vlaardingen judgment and the concurring opinion of Advocate General WIDDERSHOVEN have set the new legal standard for the distribution of scarce governmentrights in the Netherlands.
The rapidly expanding scope of the Services Directive and the distribution rules contained therein raises questions about the added value of such national distribution systems. The distribution of such rights is more often captured by the Services Directive than previously thought (ECLI:NL:RVS:2018:1847). Does this make national distribution systems redundant? In our view, it does not. First, the distribution rules of the Services Directive need to be further elaborated in national law. In addition, numerous scarce government rights fall outside the scope of the Services Directive, or even of Union law in general. Art. 2 of the Services Directive states for example that it shall not apply to financial services, electronic communications services and networks, services in the field of transport, gambling activities, etc.
The Services Directive and related case-law provide important impetus for the development of a broadly applicable distribution system of scarce government rights in the Member States. What these distribution systems might look like, and whether the Services Directive-inspired distribution system deserves application mutatis mutandis, requires further investigation. (See also C.J. WOLSWINKEL, F.J. VAN OMMEREN and W. DEN OUDEN, “Limited Authorisations Between EU and Domestic Law: Comparative Remarks from Dutch Law”, European Public Law 2019, 559—586) In any case, compartmentalisation without reasonable justification should be avoided as much as possible.
Posted by Steven Verbeyst (PhD, Assistant Professor of administrative law at Vrije Universiteit Amsterdam), Simon Devroe (PhD student at the KU Leuven Institute for Contract Law), and Steven Lierman (Professor of administrative law at KU Leuven Centre for Public Law)
This blog post is a summary of an extensive article previously published in the Belgian journal Rechtskundig Weekblad: S. VERBEYST, S. DEVROE and S. LIERMAN, “Noodzaak van een Belgisch leerstuk van schaarse overheidsrechten, belicht vanuit Nederlands en Unierechtelijk perspectief“, RW 2021-22, 850-866.
Suggested citation: S Verbeyst, S Devroe and S Lierman, “Why we need a doctrine of scarce government rights”, REALaw.blog available at https://wp.me/pcQ0x2-tG