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The rise of the ‘golden’ age of free movement of capital: A comment on the golden shares judgments of the Court of Justice of the European Communities

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Abstract

This case note comments on three important judgments delivered by the Court of Justice of the European Communities (full court) on 4 June 2002, concerning restrictions on the acquisition of shares in companies in Portugal (Case C-367/97), France (Case C-483/99) and Belgium (Case C-503/99) in relation to the free movement of capital guaranteed by the EC Treaty. In doing so, it analyses these judgments from two angles. First, it scrutinises the legal reasoning of the Court, particularly with regard to the recognition of the free movement of capital as a fully-fledged freedom and the relationship between capital movements and the freedom of establishment. Second, it considers the practical consequences of the judgments for Member States. While noting some minor problems of interpretation in relation to the judgments, this case note assesses whether the Member States retain some control over the acquisition of share capital in strategic companies.

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References

  1. P. Câmara, ‘The End of the “Golden” Age of Privatisations? The Recent ECJ Decisions on Golden Shares’, 3 EBOR (2002) p. 503 at pp. 510–513.

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  2. The new proposal for a Directive on takeover bids was submitted by the Commission on 2 October 2002 (COM (2002) 534 final). Note that in the explanatory memorandum to the proposal, the Commission states that restrictions from Member States, as opposed to restrictions by private persons, shall continue to be governed by the case law of the Court. According to the Commission, only private law restrictions should be governed by the rules of the Directive.

  3. Communication of the Commission on certain legal aspects concerning intra-EU investment, OJ 1997 C 220/15.

  4. Ibid., Point 9.

  5. Note that the Commission also initiated proceedings before the Court against Spain (C-463/00) and the United Kingdom (C-98/01) on the same legal basis. Case C-463/00, concerns a prior administrative authorisation procedure for certain fundamental decisions in Telefónica de España and Tabacalera. Case C-98/01 concerns the 15 per cent equity limit in British Airport Authority plc as well as prior authorisation for the disposal of assets of the company or control in subsidiaries and winding-up. Both cases are currently pending.

  6. See para. 39 of the Advocate General’s opinion.

  7. According to the Advocate General, a more extensive interpretation of Article 295 EC should have prevailed, due to the specific position of this provision, which is found in Part VI of the Treaty among its ‘general and final provisions’. A wide interpretation should also have derived from the unconditional wording and function of Article 295 EC. In paragraph 56 of his opinion, the Advocate General invited the Court to define the system of property ownership in the Member States, embodied in Article 295 EC, as extending to any measure which, through economic intervention in the public sector, allows the State to contribute to the organisation of the nation’s financial activity.

  8. According to the Advocate General, all national measures at issue had the same objective, despite their difference in scope. They all constituted means for the State to intervene in the activities of certain undertakings with strategic importance for the national economy, with a view to imposing objectives of economic policy on these undertakings. In the Advocate General’s view, such measures would fall under the definition of Article 295 EC and should be acceptable since a fortiori the Treaty allows a Member State to be the sole shareholder of certain undertakings. The rule concerning the neutrality of the Treaty towards national systems of property ownership requires that national measures, which affect decision-making within the public sector, should be considered compatible with the Treaty until the reverse has been demonstrated. The Advocate General therefore invited the Court to use a certain amount of ‘judicial restraint’ in the absence of any secondary EC legislation.

  9. The Advocate General referred specifically to two cases, namely, Case C-58/99 Commission v. Italy [2000] ECR I-3811 and Case C-302/97 Klaus Konle v. Österreich Republik [1999] ECR I-3099. The first case concerned an action brought by the Commission against the special powers granted to the Italian State in two newly privatised companies, ENI SpA (an energy company) and Telecom Italia SpA. The Court found that Italy had failed to fulfil its obligations, contrary to Article 73b EC (now Article 56 EC) and Article 52 EC (now Article 46 EC), which prohibit restrictions on the free movement of capital and the freedom of establishment, respectively. However, Italy did not present any arguments to defend itself against the Commission’s action. The Advocate General labelled the case ‘disturbing’ and set it aside (see paras. 76–77 of the opinion). In Konle, the Court found that an indistinctly applicable national authorisation procedure for the acquisition of land in Austria was incompatible with Article 56 EC. The Advocate General stressed that the similarity between this case and the three cases at hand was more apparent than real, as Article 295 EC genuinely extends to the control of undertakings by public authorities. The Advocate General also noted that the Court took account of different specific considerations in Konle, which lead it to believe that the authorisation procedure at issue entailed a certain risk of discrimination. In the three cases at hand, the Commission did not advance any considerations of this kind.

  10. Case C-367/98, para. 40.

  11. Ibid., para. 41.

  12. A system of ‘opposition’ may be defined as a notification system in which the competent national authorities have the right to veto an intended acquisition within a certain time limit. If the competent authorities fail to react or abstain to react within the set time limit, the acquisition takes full effect.

  13. Case C-367/98, para. 45 and Case C-483/99, para. 41. In Case C-503/99, the Belgian government did not dispute that the measure was restrictive in nature, so the Court did not have to recall the principles outlined in the two other cases (para. 40).

  14. Case C-367/98, paras. 47–48; Case C-483/99, paras. 43–44 and Case C-503/99, paras. 43–44.+

  15. Case C-367/98, para. 49; Case C-483/99, para. 45 and Case C-503/99, para. 45.

  16. The three main objectives of the restrictions were to choose a strategic partner, to strengthen the competitive structure of the market concerned or to modernize and increase the efficiency of the means of production.

  17. Para. 52 of the judgment. The Court referred to Case C-265/95 Commission v. France [1997] ECR I-6959, para. 62 in relation to the free movement of goods and to Case C-398/95 SETTG [1997] ECR I-3091, para. 23 in relation to the free provision of services.

  18. Para. 56 of the judgment. The same applies to the French case (C-483/99, para. 56).

  19. Cf. Case 72/83 Campus Oil Limited and others v. Minister for Industry and Energy and others [1984] ECR 2727, para. 34, in the context of the free movement of goods.

  20. Case C-503/99, para. 52 [emphasis added].

  21. See, e.g., T. Emmerson, ‘EC takeovers, golden shares and British control’, 3 International Financial Law Review (1988) pp. 11–15.

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  22. On actions spécifiques, see J-L Delahaye, ‘La golden share à la française: l’action spécifique’, 13 Droit et Pratique du Commerce International (1987) p. 579; A. Pézard, ‘L’action spécifique des sociétés privatisées’, 19 Droit et Pratique du Commerce International (1993) p. 523.

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  23. See D. Carreau and R. Treuhold, ‘Privatisations, droit boursier et pratiques des marchés’, 1 Revue des sociétés (1994) p. 1 at p. 10.

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  24. For more on this, see S. Mohamed, European Community Law on the Free Movement of Capital and the EMU (Stockholm, Kluwer Law International 1999) pp. 39–117, as well as J.A. Usher, ‘Capital Movements and the Treaty on European Union’, Yearbook of European Law (1992) pp. 35–42.

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  25. Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty, OJ 1988 L 178/5. Note that this Directive applies in the European Economic Area (EEA) in conjunction with Article 40 of the EEA Agreement. This Agreement applies between all EC Member States and the EFTA States that are party to it, i.e. Iceland, Liechtenstein and Norway.

  26. This Directive, which was published by the Commission in 1989 in view of the 1992 single market deadline and listed ‘general arrangements applicable to capital movements’, is illustrative of the large variety of restrictions applicable at that time throughout the Community.

  27. See Joined Cases C-163/94, C-165/94 and C-250/94 Lucas Emilio Sanz de Lera [1995] ECR I-4821, para. 41. However, the Court never had an opportunity to rule on a possible ‘horizontal direct effect’ in relation to Article 56 EC. For a convincing opinion in favour of directly applying Article 56 EC in relations between private parties, see J.A. Usher, loc. cit. n. 24, at pp. 44–46.

  28. Lucas Emilio Sanz de Lera, loc. cit. n. 27.

  29. Case C-54/99 Association Eglise de Scientologie de Paris v. Premier Ministre [2000] ECR I-1335.

  30. Case C-423/98 Alfredo Albore [2000] ECR I-5965.

  31. In this author’s opinion, Case C-478/98 Commission v. Belgium [2000] ECR I-7587, concerning national legislation prohibiting the acquisition by residents of a Member State of securities or loans issued in other Member States, should be classified in the same category of cases, since the Court has indeed admitted that such a situation ‘goes well beyond a measure which is intended to dissuade residents of a Member State from subscribing to a loan issued abroad or which imposes the requirement of prior authorisation’ (para. 19). However, the Court appears to classify the measure as a mere restriction (para. 27), which therefore opens the way for the Member State concerned to justify its legislation on wider grounds. In a similar vein, see the EFTA Court’s advisory opinion of 14 July 2000 concerning State Debt Management Agency v. Íslandsbanki-FBA hf, nyr, available at <http://www.efta.int/structure/court/efta-crt.asp>.

  32. Case C-222/97 Manfred Trummer and Peter Mayer [1999] ECR I-1661, paras. 26, 31 and 34. The Court found a national rule requiring a mortgage securing a debt payable in the national currency and in the currency of another Member State to be registered in the national currency ‘liable to dissuade the parties concerned from denominating a debt in the currency of another Member State’ and therefore constituting a restriction on the free movement of capital. This judgment was confirmed in Case C-464/98 Westdeutsche Landesbank Gironzentrale v. Friedrich Stefan [2001] ECR I-173, paras. 18–19.

  33. Case C-307/97 Klaus Konle v. Republik Österreich [1999] ECR I-3099. The Court’s judgment was recently confirmed in Joined Cases C-515/99, C-519/99 to C-524/99 and C-526/99 to C-540/99 Hans Reisch e.a.v.Bürgermeister der Landeshauptstadt Salzburg [2002]ECR, nyr.

  34. Case C-367/98, para. 44.

  35. The Court states ‘and’ in these cases, but, in the author’s opinion, this was merely an indication of the effect of the rules in those cases and not a criterion for prohibiting restrictions in accordance with Article 73b EC. In other words, if it is demonstrated that a particular measure is liable to dissuade investors from investing in other Member States, it is not necessary to demonstrate that the same measure may also impede the investment. At any rate, the two conditions appear to be so closely linked that one could be forgiven for thinking that the fulfilment of one automatically leads to the fulfilment of the other.

  36. In Case C-58/99 Commission v. Italy [2000] ECR I-3811, the Court declared that, ‘by adopting Articles 1(5) and 2 of the consolidated text of Decree Law No. 332 of 31 May 1994, converted, after amendment, into Law No. 474 of 30 July 1994, providing for acceleration of the procedures for the sale of shareholdings held by the State and public bodies in joint stock companies, and the decrees concerning the “special powers” laid down in the case of the privatisation of ENI SpA and Telecom Italia SpA, the Italian Republic has failed to fulfil its obligations under Articles 52 and 59 of the EC Treaty (now, after amendment, Articles 43 EC and 49 EC) and Article 73b of the EC Treaty (now Article 56 EC)’.

  37. Paragraph 39 of the judgment.

  38. For a recent example, see Case C-436/00 X and Y v. Riksskatteverket [2002] ECR, nyr. In this case, the Court found that the national legislation at issue (unfavourable tax treatment of cross-border share transfers in Sweden) was contrary to both freedoms. However, the Court only applied the freedom of establishment to the extent that the transfer ‘gave definite influence’ over the transferred company.

  39. See e.g. A. Landsmeer, ‘Movement of Capital and Other Freedoms’, 1 Legal Issues of Economic Integration (2001) at p. 67. Landsmeer regards both provisions as laying down an ‘anti-competitive clause’ between both freedoms.

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  40. Case C-204/90 Bachmann [1992] ECR I-249, para. 34.

  41. See the opinion of Advocate General Alber in Case C-251/98 C. Baars v. Inspecteur der Belastingen Particulieren [2000] ECR I-2787, para. 16.

  42. The judgment in Joined Cases C-397/98 and C-410/98 Metallgesellschaft Ltd and others [2001] ECR I-1727 was based only on the freedom of establishment, despite the fact that the national court referred to both freedoms.

  43. Compare the cases delivered in 2000, Case C-251/98 Baars [2000] ECR I-2787 and Case C-35/98 Staatssecretaris van Financiën v. B.G.M. Verkooijen [2000] ECR I-4071, in which the Court ruled discriminatory tax exemptions for investments were contrary to the freedom of establishment (Baars, wealth tax exemption) and the free movement of capital (Verkooijen, income tax exemption), respectively. Note that the Court appears to have respected the order in which the questions were raised in the preliminary rulings, since in Baars the first question by the referring court concerned the freedom of establishment and the second related to capital movements, while in Verkooijen the reverse was true. See also Case C-307/97 Klaus Konle v. Republik Österreich [1999] ECR I-3099 and Case C-423/98 Alfredo Albore [2000] ECR I-5965, which were based solely on the free movement of capital, and Case C-200/98 X AB and Y AB v. Riksskatteverket [1999] ECR I-8261, which was based solely on the freedom of establishment.

  44. Case C-58/99 Commission v. Italy [2000] ECR I-3811. Note that in Konle, loc. cit. n. 43, the Court in principle accepted a cumulative application of both freedoms (but only ruled on the free movement of capital), much in the same manner as Advocate General La Pergola, who nevertheless based his opinion solely on the freedom of establishment. Note also that a similar approach was taken in cases concerning the free movement of services and the free movement of capital. Cf. Case C-484/93 Peter Svensson and Lena Gustavsson [1995] ECR I-3955 and, more recently, Case C-279/00 Commission v. Italy [2002] ECR, nyr.

  45. Cf. the opinion of Advocate General Fenelly in Joined Cases C-397/98 and C-410/98 Metallgesellschaft Ltd and others [2001] ECR I-1727, para. 40, which refers to the opinion of Advocate General Tesauro in Case C-118/96 Jessica Safir v. Skattemyndigheten i Dalarnas län [1998] ECR I-1897, paras. 14–17, concerning the free movement of capital and the free provision of services. See also Advocate General Alber’s opinion in Baars, loc. cit. n. 43, paras. 26–30.

  46. Case C-58/99 Commission v. Italy [2000] ECR I-3811.

  47. Case C-367/98, para. 56; Case C-483/99, para. 56 [emphasis added].

  48. Loc. cit. n. 43.

  49. Paras. 26 to 30 of the opinion.

  50. Case C-503/99, para. 59 [emphasis added].

  51. A restriction on the free movement of capital would exist a fortiori if there is a restriction on investing above a certain threshold in the share capital of companies in a particular sector, even if there is a discretionary authorisation by national authorities to invest above this threshold. In this regard, see the reasoned opinion sent on 30 October 2001 by the EFTA Surveillance Authority to Norway concerning a prohibition on purchasing more than 10 per cent of the share capital of financial institutions, which contravened Article 40 of the EEA Agreement on the free movement of capital. Press Release (01) 19, available at <http://www.efta.int/structure/SURV/efta-srv.asp>.

  52. Case C-367/98, para. 47; Case C-483/99, para. 43 and Case C-503/99, para. 43 [emphasis added].

  53. On this question, see generally P. Behrens, ‘Public services and the Internal Market — An Analysis of the Commission’s Communication on Services in the General Interest in Europe’, 2 EBOR (2002) at p. 469.

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  54. Paras. 51–52 of the judgment.

  55. Paras. 49–52 of the judgment.

  56. Para. 53 of the judgment.

  57. Cf. Case C-307/97 Klaus Konle v. Republik Österreich [1999] ECR I-3099, paras. 44–46; Case C-54/99 Association Eglise de Scientologie de Paris v. Premier Ministre [2000] ECR I-1335, para. 19.

  58. Contrary to what P. Câmara argues in his comment (loc. cit. n. 1, at p. 509), this author believes that the Court’s analysis of the legal certainty criterion does not mix two different criteria (the necessity test and proportionality test), but addresses only whether the measure at issue is necessary to fulfil the objective pursued. The fact that, in the Belgian case, the Court further pointed out that the Commission did not demonstrate the possibility of achieving the same objectives by less restrictive means (the proportionality test) is a clear indication of the Court’s two-step approach, rather than an ‘enhanced proportionality review’ in a one-step approach.

  59. It is interesting to note that, while it is normally for the Member States to demonstrate whether national measures that derogate from fundamental rules of the Treaty are justified (substantive requirement), the Court confirmed that, in the context of Article 226 EC proceedings, it is for the Commission to prove that the obligations incumbent upon the Member State have not been fulfilled (procedural requirement; cf. Case 96/81 Commission v. The Netherlands [1986] ECR 1791, para. 6; Case C-159/94 Commission v. France [1997] ECR I-5818, para. 102). As illustrated by Case C-503/99 Commission v. Belgium, this exception extends to the proportionality of the national measure in question. It is therefore extremely important that, when the Commission assesses restrictive measures, the alternative means it proposes should be genuinely capable of achieving results that are equivalent to those existing in the Member State concerned.

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    Vincent Kronenberger (Doctor of Law, Officer at the EFTA Surveillance Authority)

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Kronenberger, V. The rise of the ‘golden’ age of free movement of capital: A comment on the golden shares judgments of the Court of Justice of the European Communities. Eur Bus Org Law Rev 4, 115–135 (2003). https://doi.org/10.1017/S1566752903001150

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