Report for the Hearing in Case C-15/90

I — Facts and written procedure

1. National legislation

Under the Child Benefit Act 1975, child benefit is payable to a person who is responsible for one or more children. Unless certain conditions are met, such benefit is due only in respect of children who are present in Great Britain.

Unemployment benefit, as provided for under the Social Security Act 1975, is payable only to persons who have paid class 1 contributions as employed persons, or have been credited with such contributions. The conditions governing payment of such contributions applicable to the present case (prior to their amendment in 1988) were as follows :

1) Unemployment benefit is payable only to persons who, prior to the day in respect of which the benefit was claimed, had paid a minimum number of class 1 contributions for each previous year of contributions.

2) Those persons must also have paid such contributions or been credited with them in respect of the last complete year before the beginning of the benefit year in which the beginning of the period of interruption of employment which includes the day in respect of which the benefit was claimed fell.

It should be noted that the payment of class 2 contributions (self-employed persons) does not entitle a person who subsequently becomes unemployed to receive unemployment benefit even if he satisfies the remaining conditions of entitlement: it entitles him only to receive other benefits such as sickness benefit, provided that he satisfies the remaining conditions governing entitlement to those benefits.

2. Community law

Under Article 1 of Regulation (EEC) No 1408/71 of the Council of 14 June 1971 on the application of social security schemes to employed persons and their families moving within the Community (Official Journal, English Special Edition 1971 (II), p. 416), as amended by Council Regulation (EEC) No 1390/81 of 12 May 1981 extending to self-employed persons and members of their families Regulation (EEC) No 1408/71 (Official Journal 1981 L 143, p. 1), the version applicable in this case:

‘For the purpose of this Regulation: (a) “employed person” and “self-employed person” mean respectively: (i) any person who is insured, compulsorily or on an optional continued basis, for one or more of the contingencies covered by the branches of a social security scheme for employed or self-employed persons; (ii) any person who is compulsorily insured for one or more of the contingencies covered by the branches of social security dealt with in this Regulation, under a social security scheme for all residents or for the whole working population, if such person : can be identified as an employed or self-employed person by virtue of the manner in which such scheme is administered or financed, or, failing such criteria, is insured for some other contingency specified in Annex I under a scheme for employed or self-employed persons, or under a scheme referred to in (iii), either compulsorily or on an optional continued basis or, where no such scheme exists in the Member State concerned, complies with the definition given in Annex I; (iii) any person who is compulsorily insured for several of the contingencies covered by the branches dealt with in this Regulation, under a standard social security scheme for the whole rural population in accordance with the criteria laid down in Annex I; (iv) any person who is voluntarily insured for one or more of the contingencies covered by the branches dealt with in this Regulation, under a social security scheme of a Member State for employed or self-employed persons or for all residents or for certain categories of residents: if such person carries out an activity as an employed or self-employed person, or if such person has previously been compulsorily insured for the same contingency under a scheme for employed or self-employed persons of the same Member State’.

Under Article 73(1) of the same regulation, also in the version applicable in the present case :

‘An employed person subject to the legislation of a Member State other than France shall be entitled to the family benefits provided for by the legislation of the first Member State for members of his family residing in the territory of another Member State, as though they were residing in the territory of the first State’.

Finally, under Annex I(I)(J) of the same regulation:

‘Any person who is an “employed earner” or a “self-employed earner” within the meaning of the legislation of Great Britain or of the legislation of Northern Ireland shall be regarded respectively as an employed person or a self-employed person within the meaning of Article l(a)(ii) of the Regulation. Any person in respect of whom contributions are payable as an “employed person” or a “self-employed person” in accordance with the legislation of Gibraltar shall be regarded respectively as an employed person or a self-employed person within the meaning of Article l(a)(ii) of the Regulation.’

3. The main proceedings and the questions referred for a preliminary ruling

Mr Middleburgh, a British citizen, worked in Ireland between January 1981 and August 1982, when he was made redundant. In October 1983, he returned to the United Kingdom, leaving behind in Ireland his child Aaron, born of a relationship in that State with an Irish citizen.

Following his return to the United Kingdom, Mr Middleburgh was employed in hospitals from 15 November 1983 to 13 April 1984. Between 16 April 1984 and 29 April 1984 he was unemployed. Between 30 April 1984 and 29 July 1984 he was self-employed.

The Adjudication Officer refused to award Mr Middleburgh child benefit from 16 April 1984 on the ground that his son was not in Great Britain, and he appealed against that decision. The Social Security Appeal Tribunal and thereafter the Commissioner, Mr Commissioner Rice, ruled that the appellant was not entitled to child benefit for the period 30 April 1984 to 29 July 1984.

Mr Middleburgh appealed against the decision of the Commissioner to the Court of Appeal, which stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling:

‘1. Where (1) a person is self-employed, and (2) is entitled (under national law) to unemployment benefit upon the involuntary cessation of such self-employment, and (3) is so entitled by reason of contributions paid or credited as an employed person, is that person to be regarded as an employed person for the purpose of Article 73 read together with Article 1 of Council Regulation No 1408/71 of 14 June 1971 on the application of social security schemes? 2. If a national of Member State A resides in Member State B for a period and, whilst there, (a) works as an employed person and (b) cohabits with and has a child by a national of Member State B, is it a breach of either Article 48 or Article 52 of the Treaty for Member State A to refuse to pay family benefit in respect of the child on the sole ground of the child's absence from Member State A during a period when the national has returned to Member State A and is self-employed there, but the child remains in Member State B? 3. If the answer to the second question is in the affirmative, does Article 48 or Article 52 have direct effect in the circumstances of the present case?’

4. Procedure before the Court

The order of the Court of Appeal referring those questions to the Court was received at the Court Registry on 19 January 1990.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by the appellant in the main proceedings, represented by Richard Drabble, Barrister; by the Chief Adjudication Officer, represented by David Pannick, Barrister; and by the Commission of the European Communities, represented by Karen Banks and Nicholas Khan, members of its Legal Department, acting as Agents.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry.

II — Written observations submitted to the Court

1. The appellant in the main proceedings submits first that he should not be penalized in terms of financial treatment by the relevant UK authorities for the fact that his movements have temporarily separated him from his family. If in 1981 he had taken up employment, not in Ireland but in the United Kingdom, and had there formed a new attachment, he would unambiguously have been entitled to child benefit for the period in question upon his return to his home base away from his new family. Mr Middleburgh goes on to point out that there is no provision in United Kingdom taxation law for tax allowances for the self-employed in respect of child dependants. Child benefit forms the only means of compensation in tax or benefit terms. In this connection he quotes a statement made by the Secretary of State for Social Services when the 1975 Act was going through Parliament: ‘[this system] achieves a long overdue merger between child tax allowances and family allowances into a new universal, non-means tested, tax-free cash benefit for all children, including the first...’ The appellant in the main proceedings believes that he must be considered during the period in question to have been an employed person within the meaning of Articles 1 and 73(1) of Regulation No 1408/71. He points out in this connection that if he had been unemployed at any date between 30 April 1984 and 29 July 1984, he would have been entitled, by virtue of contributions paid during the relevant year, to unemployment benefit on the basis of contributions paid in the past in his capacity as an employed person. It follows that during the period in question, although he was self-employed, he must be considered to have been an employed person within the meaning of Articles 1 and 73(1), since the manner in which his scheme is administered and financed enables him to be identified as such. In his opinion, such an interpretation is supported by the judgment of the Court of 29 September 1976 in Case 17/76 Brack v Insurance Officer [1976] ECR 1429, which, although concerned with the restricted area of sickness benefits, treated as an employed person someone who in fact did not have that capacity, by virtue of the manner in which the scheme applicable to him was administered and financed. Like the appellant in the main proceedings, Mr Brack had paid contributions to the scheme as an employed person. As the Court pointed out in that judgment, ‘... it cannot be excluded that the regulation may be applicable, where appropriate, to persons who, although they have lost the status as employed persons, remain compulsorily insured under the same scheme which covered them previously when they had that status’. If Mr Middleburgh was a ‘worker’ within the meaning of Article 1(a) of Regulation No 1408/71 in its original version, he was also an ‘employed person’ within the meaning of the same provision as amended by Regulation No 1390/81. The concepts are substantially identical. Mr Middleburgh adds further that if he cannot be brought within the provisions of Article 73(1) of Regulation No 1408/71, it is necessary to accept the paradoxical result that a claimant disqualifies himself from receipt of family benefits during a period when he is insured against the risk of unemployment because of contributions he has paid but where he does not need to draw the appropriate benefit because he has found some self-employment. If it should be decided that Article 73(1) is not applicable to him, Mr Middleburgh submits that the British legislation limiting entitlement to child benefit to children who reside in the United Kingdom is contrary to Articles 7, 48 and 52 of the Treaty. According to the case-law of the Court, those provisions prohibit not only direct discrimination but also indirect discrimination. Although the limitation of child benefit to children who reside in the United Kingdom applies without distinction to British citizens and citizens of the other Member States, it has a more appreciable effect on the latter in view of the fact that British workers in the United Kingdom generally reside there with their families. He considers that Section 13 (2) (a) of the Child Benefit Act constitutes in any case a new restriction on the right of establishment prohibited under Article 53 of the Treaty. According to Mr Middleburgh, if such considerations are valid in the case of citizens of the other Member States, they must equally be valid in the case of British citizens when, as in his case, they come within the scope of the Treaty. This, he submits, follows from the case-law of the Court (judgment of 7 February 1979 in Case 115/78 Knoors v Secretary of State for Economic Affairs [1979] ECR 399). In view of the foregoing, the appellant in the main proceedings suggests that the Court should answer the three questions referred in the affirmative.

2. According to the Chief Adjudication Officer, Article 73(1) applied only to employed persons, as was accepted, moreover, by the Court of Justice in its judgment of 5 December 1989 in Case C-114/88 Delbar v Caisse dAllocations Familiales de Roubaix-Tourcoing [1989] ECR 4067. Only since 15 January 1986 has that provision also applied to self-employed persons, by virtue of Regulation No 3427/89 of 30 October 1989 (Official Journal 1989 L 331, p. 1). Mr Middleburgh was not an ‘employed person’ during the period in question: (a) in view of the fact that he paid class 2 contributions as a self-employed person, Mr Middleburgh was a self-employed person for the purposes of the relevant fund; (b) in order to determine whether a person is an employed person for the purposes of Article 73(1), it is necessary to have regard not to the general definitions in Article 1 of Regulation No 1408/71, which are designed to define the general scope of the regulation, but rather to the actual facts of the case; (c) there is a strong indication in the language of Chapter 7, sections 1 and 2, that Regulation No 1408/71 requires consideration of whether a person is in fact employed, self-employed or unemployed. Article 74, dealing with unemployed persons, focuses on the existence of certain facts and not on whether a person is insured against certain contingencies. Article 74 excludes from the definition of ‘employed persons’ under Article 73 those formerly employed but presently unemployed, even though in receipt of unemployment benefit (that is, protected against certain risks under the relevant State fund). It would therefore be consistent with this to understand Article 73 also to exclude from the scope of ‘employed’ persons those who were employed, have ceased to be employed, and are presently self-employed, and who are not in receipt of unemployment benefit (but merely eligible to receive it in certain circumstances). With regard to Articles 48 and 52 of the EEC Treaty, on which Mr Middleburgh relies, the Chief Adjudication Officer makes the following submissions. The United Kingdom legislation does not discriminate either directly or indirectly. It does not give rise to discrimination on grounds of nationality, and if there is any disparate impact of the United Kingdom legislation, it benefits British citizens. In any event, Article 48 is not applicable to Mr Middleburgh in view of the fact that he was self-employed during the period in question. Turning to Article 52 of the Treaty, the Chief Adjudication Officer points out that that provision refers to ‘the conditions laid down for its own nationals by the law of the country where such establishment is effected’ (see the judgments of 21 June 1974 in Case 2/74 Reyners v Belgium [1974] ECR 631, at paragraph 25, and of 28 June 1977 in Case 11/77 Patrick v Ministre des Affaires Culturelles [1977] ECR 1199, at paragraph 9). There is no question of different conditions being applied to Mr Middleburgh as compared with other nationals of the United Kingdom. In order to ensure the effective exercise of the right of establishment pursuant to Article 52 a Member State is not required to provide social security benefits to members of a person's family who are not residing with him in the United Kingdom and thus treat that person more favourably in this respect than it treats its own nationals. He considers that in any event the absence in Chapter 2 of Title III of the Treaty of any provision comparable to Article 51 of the Treaty shows that Article 52 was not concerned with detailed social security provisions. In conclusion, the Chief Adjudication Officer states that although, as the Court has held, Articles 48 and 52 do have direct effect, they are not applicable in the present case. In view of the foregoing, he suggests that the Court should answer the questions referred as follows:

‘(1) A person such as the appellant who is self-employed is not to be regarded as an employed person for the purpose of Article 73 read together with Anicie 1 of Council Regulation No 1408/71 of 14 June 1971 on the application of social security schemes.

2) There is no breach of Article 48 or Article 52 in the circumstances of the present case.

3) It is unnecessary to answer the third question.’

3. According to the Commission, Article 73(1) did not apply to self-employed persons during the period in question. This, in its view, follows from the judgment of 5 December 1989 in Delbar, cited above. With regard to the application of Articles 48 and 52 of the EEC Treaty, the Commission begins by pointing out that the first of those articles does not apply to Mr Middleburgh since he was working in a self-employed capacity during the period in question. It goes on to point out that Article 52 of the Treaty must be interpreted as prohibiting all restrictions on the freedom of establishment, even those which are not discriminatory. That, in its opinion, follows from the judgment of 14 January 1988 in Case 63/86 Commission v Italy [1988] ECR 29, in which the Court accepted that that article ‘... is concerned not solely with the specific rules on the pursuit of occupational activities but also with the rules relating to the various general facilities which are of assistance in the pursuit of those activities’ (paragraph 14), and from the judgments of 10 July 1986 in Case 79/85 Segers v Bedrijfsvereniging voor Bank- en Verzekeringswezen, Groothandel en Vrije Beroepen [1986] ECR 2375, at paragraph 16, of 7 July 1988 in Case 143/87 Stantonx /AM577[1988] ECR 3877, at paragraph 14, and of 22 February 1990 in Case C-228/88 Bronzino v Kindergeldkasse [1990] ECR I-531, and Case C-12/89 Gatto v Bundesanstalt flir Arbeit [1990] ECR I-557, at paragraph 12. The Commission considers that entitlement to child benefit does affect the exercise of the right of establishment. Referring more particularly to the last two cases cited, it points out that, if a refusal to grant family allowances which became payable as a result of the unemployment of the children of the applicants on the grounds that they were not available for employment in the Member State paying the allowances dissuades the person concerned from exercising his or her right of free movement, then it follows that the refusal to pay child allowance to a self-employed person in respect of a child resident in another Member State is similarly incompatible with the rights granted to such persons by Article 52 of the Treaty. With regard to the direct effect of Article 52 of the Treaty, the Commission refers to the case-law of the Court which acknowledges such an effect. For the reasons already outlined, the Commission suggests that the Court should give the following answers to the questions referred : 1. Where, (1) a person is self-employed, and (2) is entitled (under national law) to unemployment benefit upon the involuntary cessation of such self-employment, and (3) is so entitled by reason of contributions paid or credited as an employed person, that person is not to be regarded as an employed person for the purpose of Article 73 read together with Article 1 of Council Regulation No 1408/71 of 14 June 1971 on the application of social security schemes. 2. Article 52 of the Treaty is to be interpreted as meaning that if a national of Member State A resides in Member State B for a period as an employed person and has a child there which remains in Member State B, a refusal by Member State A to pay family benefit in respect of the child solely on the ground of the child's absence from Member State A, when the national has returned to Member State A and is a self-employed person there, has the effect of placing at a disadvantage the pursuit of occupational activities outside the territory of that Member State, contrary to Article 52. 3. Article 52 has direct effect in the circumstances of the present case.

J. C. Moitinho de Almeida

Judge-Rapporteur

1 Language of the case: English.