The practice of law today crosses borders more than ever before. Lawyers regularly work with colleagues and clients from different countries, and legal issues often involve multiple jurisdictions. To help lawyers better understand how courts work internationally, we’re creating this series of articles that analyse interesting cases globally.
Each article will break down an important court decision, explaining what happened and why it matters for legal practice. We will also endeavour to get an expert to comment on these decisions and to provide their insights.
Introduction
The Court of Justice of the European Union (“CJEU”) recently published a decision in Case C-295/23[1]. It represents a crucial moment in the ongoing debate about non-lawyer investment in law firms[2].
At its heart, this case addresses a fundamental tension in modern legal practice: the balance between accessing capital for innovation and growth and maintaining professional independence and ethical standards.
The rise of legal technology and alternative legal service providers has intensified pressure for law firms to fund innovation and expansion. However, this case demonstrates how traditional principles of lawyer independence and professional integrity continue to influence regulatory frameworks, particularly in Europe.
The Court’s decision provides important guidance on how EU member states can regulate law firm ownership while remaining compliant with EU principles of free movement of capital and freedom of establishment. This makes the case particularly relevant for legal practitioners, regulators, and investors interested in the future of legal service delivery models.
The article also includes expert analysis of the CJEU’s decision from Klen Teder, Head of European law at NOVE.
The decision is available here[3].
Background and Facts
This case came before the CJEU as a request for a preliminary ruling from the Bayerischer Anwaltsgerichtshof (Higher Bavarian Lawyers’ Court). When national courts face questions about the interpretation of EU law, they can refer these questions to the CJEU for guidance. The CJEU’s role is to interpret EU law, while the national court applies this interpretation to resolve the actual dispute.
The case centres on Halmer Rechtsanwaltsgesellschaft UG (“HR”), a German law firm which was initially owned solely by Daniel Halmer, a practicing lawyer and registered with the Munich Bar Association in August 2020[4].
In March 2021, HR transferred 51% of its shares to SIVE Beratung und Beteiligung GmbH (“SIVE”), an Austrian company acting purely as a financial investor. To accommodate this transfer, HR amended its articles of association to allow non-bar registered companies to hold shares while maintaining exclusive management rights for registered lawyers. The amendments also included extensive provisions protecting lawyer independence and legal professional privilege.[5]
However, the Munich Bar Association revoked HR’s registration in November 2021, citing violations of the Federal Lawyers’ Code in Germany[6].
Legal Framework
The case brought into focus several intersecting legal provisions from both EU and German law.
EU Law
At the EU level, the Court examined Article 49 of the Treaty on the Functioning of the European Union (“TFEU”) concerning freedom of establishment and Article 63 TFEU regarding free movement of capital.
Article 49 TFEU:
“Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.
Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.”
Article 63 TFEU:
“1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.
2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.”
Article 63(1) TFEU was under consideration in this case.
Central also to the analysis was Directive 2006/123/EC (the Services Directive), particularly Article 15 which addresses requirements for shareholding in service providers and establishes conditions under which Member States may restrict such ownership.
German Legal Framework
The German legal framework, primarily through the Federal Lawyers’ Code (Bundesrechtsanwaltsordnung or the “Code”), imposed specific restrictions on law firm ownership, requiring that shares be held only by lawyers and certain other professionals, that members actively practice in the firm, and that lawyers maintain majority shareholding and voting rights.
The English version of the Code is available here for reference.
Key Issues
The Higher Bavarian Lawyers’ Court sought guidance on four key questions[7]:
- Whether German law restricting law firm ownership constitutes an unlawful restriction of the right to free movement of capital under Article 63(1) TFEU in three scenarios:
- When shares are transferred to non-qualified personsWhen a partner satisfies professional requirements but isn’t active in the firm
- When lawyers no longer hold the majority of shares
- Whether restrictions on voting rights for non-qualified partners violate EU law
- Whether these restrictions satisfy the conditions in Article 15 of the Services Directive
- If capital movement rights aren’t affected, whether the restrictions violate freedom of establishment
Court’s Analysis
Applicable EU Freedoms
The Court determined that both freedom of establishment and free movement of capital were equally relevant, given that SIVE’s majority shareholding suggested establishment rights, while its purely financial nature implicated capital movement principles. Neither freedom was considered secondary to the other.[8]
Identification of Restrictions
The Court found that the German laws created restrictions by limiting both establishment opportunities and investment possibilities as this “deprives law firms of access to capital which could assist in their creation or development”. However, the analysis then focused on whether these restrictions could be justified.[9]
Justification Analysis
- Legitimate Objectives: The Court found the German restrictions served several valid purposes including protecting lawyer independence, ensuring sound administration of justice, maintaining professional integrity, and safeguarding legal professional privilege.[10]
- Necessity Test: The Court emphasized the unique nature of legal services and recognized that purely financial investors could compromise these objectives through direct or indirect influence.[11]
- Proportionality Assessment: The restrictions were found proportionate as they effectively prevented conflicts between profit motives and professional obligations.[12]
Member State Discretion
The Court acknowledged that Member States retain significant discretion in regulating legal professions, particularly given the lack of EU harmonization in this area. [13]
Professional Independence Considerations
The Court accepted that even indirect influence through investment decisions could threaten lawyer independence, and that less restrictive measures might not provide sufficient protection.[14]
Decision and Implications
The Court ultimately held that the German legislation was compatible with EU law, ruling that Article 15 of the Services Directive and Article 63 TFEU do not preclude national legislation prohibiting purely financial investors from holding law firm shares. This decision has significant implications for the future of legal services regulation in the EU, affirming Member States’ authority to maintain strict regulations on law firm ownership structures when protecting professional independence and integrity, even where such regulations restrict capital movement.
Case Status
Following the CJEU’s interpretation of EU law, the case returns to the Bayerischer Anwaltsgerichtshof to apply these principles and make a final decision on HR’s challenge to the bar association’s decision.
Expert Comments
We reached out to a European law expert – Klen Teder, Head of European law at NOVE for his comments on this decision. He said:
“The ruling by the CJEU affirming the compatibility of the German Federal Lawyers’ Code with Article 63 TFEU and Directive 2006/123 will have significant implications for the freedom of establishment and the free movement of capital within the EU.
Regarding the freedom of establishment, the ruling reinforces the ability of Member States to regulate access to the legal profession in order to uphold professional integrity and independence. By confirming that restrictions on share ownership in law firms by non-lawyers are justified, the decision underscores the importance of protecting the legal profession’s core values, such as confidentiality, transparency, and ethical compliance. Consequently, this may limit the ability of businesses and individuals to freely establish or expand their professional activities across borders if such national regulations are deemed necessary to protect public interest.
As for the free movement of capital, the Court acknowledged that the German legislation imposes a restriction by preventing financial investors from acquiring shares in law firms. Such restrictions could discourage cross-border investments and limit access to external funding, which might otherwise contribute to the modernization and expansion of legal services. However, the ruling establishes that these restrictions are justified on the grounds of maintaining the integrity and independence of the legal profession, which serves the public interest. This sets a precedent that allows Member States to prioritize professional ethical considerations over the liberalization of capital flows in regulated professions.
Overall, while the ruling supports the principle of national regulatory autonomy in sensitive professional fields, it simultaneously limits the extent to which businesses and investors can leverage the freedoms of establishment and capital movement to expand or finance legal services in a cross-border context. This decision highlights the delicate balance between economic freedoms and public interest considerations in the EU’s internal market.”
You can reach out to Klen on Linkedin here.
Conclusion
The case ultimately reaffirms that while the practice of law continues to evolve in response to market pressures and technological advancement, core professional values – particularly lawyer independence and ethical obligations – remain paramount in the EU legal framework.
Looking ahead, the challenge for the legal profession will be finding ways to embrace modernization and secure necessary capital while working within these regulatory constraints. This may require creative solutions that preserve professional independence while enabling law firms to compete effectively in an increasingly sophisticated and technology-driven legal market.
[1] in Halmer Rechtsanwaltsgesellschaft UG v Rechtsanwaltskammer München
[2] Paragraphs 47-48 of the decision.
[3] The Court of Justice of the European Union, Case C‑295/23, https://curia.europa.eu/juris/document/document_print.jsf;jsessionid=8440DCD61D7B40790E5B48EAE0E7E796?mode=DOC&pageIndex=0&docid=293838&part=1&doclang=EN&text=&dir=&occ=first&cid=2125463 (last accessed 22 January 2025)
[4] Paragraph 25 of the decision
[5] Paragraphs 27-28 of the decision
[6] Paragraph 33 of the decision
[7] Paragraph 46 of the decision
[8] Paragraph 55-57 of the decision
[9] Paragraphs 76-77 of the decision
[10] 64-66 & 71 of the decision
[11] Paragraph 64-66 of the decision
[12] Paragraph 67-74 of the decision
[13] Paragraph 72 & 73 of the decision
[14] Paragraph 69 & 74 of the decision
Leave a Reply