Court of Justice Rules that Flemish Language Decree Violates EU Law on Free Movement of Goods

On 21 June 2016, the Grand Chamber of the Court of Justice of the European Union (the “ECJ”) handed down a judgment in response to a request for a preliminary ruling from the Ghent Commercial Court (the “Commercial Court”) regarding the compatibility with European law of the Flemish Decree of 19 July 1973 on the use of languages in relations between employers and employees, as well as in company acts and documents required by law and by regulations (Decreet van 19 juli 1973 tot regeling van het gebruik van de talen voor de sociale betrekkingen tussen de werkgevers en de werknemers, alsmede van de door de wet en de verordeningen voorgeschreven akten en bescheiden van de ondernemingen – the “Decree”) (ECJ, Case C-15/15, New Valmar BVBA v. Global Pharmacies Partner Health Srl).

In line with the Laws of 18 July 1966 on the use of languages in administrative matters (Wetten van 18 juli 1966 op het gebruik van de talen in bestuurszaken/Lois du 18 juillet 1966 sur l'emploi des langues en matière administrative), the Decree provides that legal persons having a place of business in Flanders must use Dutch for all “company acts and documents”, such as cross-border invoices. Failure to use the prescribed language results in such documents being legally null and void.

The reference for a preliminary ruling was made in proceedings between New Valmar BVBA (“New Valmar”), a company established in Flanders, and Global Pharmacies Partner Health Srl (“GPPH”), an Italian company which had been acting as New Valmar’s exclusive concession-holder in Italy. In accordance with the contract between the two parties, which was governed by Italian law, New Valmar had drafted its invoices to GPPH in Italian. After New Valmar had terminated the concession agreement prematurely, it brought an action before the Commercial Court seeking an order requiring GPPH to pay a number of unpaid invoices. GPPH defended itself by (i) lodging a counterclaim to obtain a compensation for the wrongful termination of the concession agreement; and (ii) contending that New Valmar’s invoices were null and void on the ground that they were not in Dutch. While New Valmar conceded that its invoices violated the Decree, it claimed that the Belgian legislation is contrary to, inter alia, the EU provisions on the free movement of goods. The Commercial Court decided to stay the proceedings and refer a preliminary question to the ECJ.

Slightly reframing the originally referred question, the ECJ examined whether Article 35 of the Treaty on the Functioning of the European Union (“TFEU”), which prohibits measures having equivalent effect to quantitative restrictions on exports, must be interpreted as precluding language legislation such as the Decree in the case at hand.

In its judgment of 21 June 2016 the ECJ held that language legislation such as the Decree deprives traders of the possibility to freely choose a language for drawing up their invoices which they are both able to understand, thus increasing the risk of disputes as to the validity of invoices and the non-payment of invoices. The potential nullity would, moreover, result in loss of default interest for the issuer of the invoice, as the newly issued invoice in Dutch would not include the interest that would have accrued from the original null invoice. Further, the ECJ ruled that the impact of the Belgian legislation is not too indirect or uncertain to warrant preclusion by Article 35 TFEU. Invoices, it stated, are often the only concrete manifestation of contractual relations and language legislation such as the Decree in question are therefore likely to have an impact on those relations.

As for the presence of legitimate objectives in the public interest, the ECJ acknowledged two objectives justifying the language restriction, namely (i) the promotion of the use of one of the official languages of an EU Member State; and (ii) the need to protect the effectiveness of fiscal supervision. However, the ECJ found that the language legislation in the case at hand was not proportionate since an altered version of the Decree would be less prejudicial to the free movement of goods while retaining public interest goals. In its altered form, the Decree would require invoices to be drawn up in Dutch, but would permit the drawing-up of an additional authentic version of such invoices in a language known to both parties.

For these reasons, the ECJ concluded that the Decree in its current iteration constituted a disproportionate restriction of the principle of free movement of goods laid down in Article 35 TFEU.

In light of this judgment, the Flemish legislator will now have to review the Decree. In addition, the judgment of the ECJ is not only binding on the referring court, but also on other courts in other proceedings relating to the language requirements set out in the Decree.