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All That Glitters Is Not Gold: European Court of Justice Strikes Down Golden Shares in Two Dutch Companies

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Abstract

This paper seeks to provide an analysis of Commission v. Netherlands,1 a judgment handed down by the First Chamber of the European Court of Justice (hereinafter, ECJ) on 28 September 2006. Although this is the eighth ruling in the increasing series of so-called Golden Share judgments,2 it too raises interesting questions concerning the Member State condemned in a privatised company and the EC Treaty provisions on the free movement of capital.

The first issue that is analysed is the application of Article 56 EC to situations where golden shares are not created by legislation but within the framework of domestic company law. The ECJ decided that even in such situations the Member State concerned acts not as a private shareholder but as a public authority whose actions fall within the scope of application of Article 56 EC. This approach by the ECJ is applauded, firstly, because it prevents Member States from escaping the reach of Article 56 EC by having recourse to mechanisms of general company law and, secondly, because it allows the ECJ to avoid the thorny issue of whether Article 56 EC is capable of horizontal direct effect.

The holding of golden shares as a restriction on the free movement of capital is also examined. In this context, the expansive interpretation given by the ECJ to the concept of restriction is criticised. Attention is then focused on the justification ground invoked by the Dutch state with regard to the golden share in TPG NV, namely the need to guarantee a universal postal service.

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References

  1. Joined Cases C-282 and C-283/04 Commission of the European Communities v. Kingdom of the Netherlands [2006] ECR I-9141.

  2. The previous seven rulings are Case C-58/99 Commission v. Italy [2000] ECR I-3811; Case C-367/98 Commission v. Portugal [2002] ECR I-4731; Case C-483/99 Commission v. France [2002] ECR I-4781; Case C-503/99 Commission v. Belgium [2002] ECR I-4809; Case C-463/00 Commission v. Spain [2003] ECR I-4581; Case C-98/01 Commission v. United Kingdom [2003] ECR I-4641; and Case C-174/04 Commission v. Italy [2005] ECR I-4933.

  3. For more details on this subject, see P. Câmara, ‘The End of the “Golden” Age of Privatisations? — The Recent ECJ Decisions on Golden Shares’, 3 EBOR (2002) pp. 503–513 at pp. 503–504.

  4. Oxera, Special rights of public authorities in privatised EU companies: the microeconomic impact, Report prepared for the European Commission (November 2005) p. 17. The report is available at: http://ec.europa.eu/internal_market/capital/docs/2005_10_special_rights_full_report_en.pdf (last consulted on 27 April 2007).

  5. See Case C-98/01 Commission v. United Kingdom.

  6. Joined Cases C-282 and C-283/04 Commission v. Netherlands.

  7. Case C-483/99 Commission v. France.

  8. Case C-503/99 Commission v. Belgium.

  9. Case C-58/99 Commission v. Italy.

  10. Case C-367/98 Commission v. Portugal.

  11. Case C-463//00 Commission v. Spain.

  12. Special rights conferred on the state can be of limited or unlimited duration. By and large, they fall into two categories. The first are rights enabling the state to control changes in ownership and influence the shareholder structure of a company. This can be done by imposing restrictions on ownership by way of caps on the level of foreign investment or a restriction on substantial blockholdings, by limiting investments and voting rights above certain thresholds and by requiring state approval of, or conferring on the state the right to veto, acquisitions above a certain threshold. The second category concerns rights granting the state influence over the corporate decision-making process in the company concerned, such as the right to approve or veto, ex ante or ex post, certain strategic management decisions.

  13. See Communication of the Commission on Certain Legal Aspects concerning Intra-EU Investment, OJ 1997 C 220/15.

  14. The cases concerned were against Italy (Case C-58/99), Portugal (Case C-367/98), France (Case C-483/99), Spain (Case C-463/00), the United Kingdom (Case C-98/01) and Italy (Case C-174/04).

  15. This was the ruling against Belgium (Case C-503/99), which was delivered on the same day as the judgments against Portugal and France.

  16. Joined Cases C-282 and C-283/04 Commission v. Netherlands.

  17. A naamloze vennootschap (NV) is a Dutch joint stock company or public limited liability company that is often listed on a stock exchange, as opposed to the besloten vennootschap which is a Dutch closed company or private limited liability company.

  18. On 6 August 2001, TNT Post Groep NV changed its name to TPG NV, and on 11 April 2005 the name was changed to TNT NV.

  19. For more details, see Joined Cases C-282 and C-283/04 Commission v. Netherlands, para. 9. Originally the state also had the right to appoint three members to the supervisory board of each company. When the Commission brought proceedings against the Netherlands before the ECJ on 20 June 2004, this right had been removed from the articles of association of both companies. Thus, the right to appoint members to the supervisory board was not the subject of proceedings. For this reason, it will not be discussed in this paper.

  20. When the Dutch state sold its golden share back to KPN in December 2005 (see section 4 of this paper), the agreement with KPN expired.

  21. For the state of affairs on January 2007, see section 4 of this paper.

  22. This was after the ECJ had rendered judgment in the first six Golden Share cases.

  23. Both cases were joined by an Order of the President of the First Chamber of the ECJ of 23 November 2005.

  24. The first four Golden Share rulings were handed down by eleven judges. The judgments in Case C-463/00 Commission v. Spain and Case C-98/01 Commission v. United Kingdom were delivered by thirteen judges, whereas the judgment in Case C-174/04 Commission v. Italy was also handed down by the First Chamber consisting of five judges.

  25. See section 4 of this paper. In accordance with settled case law (see Case C-289/94 Commission v. Italy [1996] ECR I-4405, para. 20 and Case C-302/95 Commission v. Italy [1996] ECR I-6765, para. 13), the question whether a Member State has failed to fulfil its obligations must be determined by reference to the situation prevailing in the Member State on the date on which the deadline set in the reasoned opinion expires. In the case at issue this was 6 April 2003.

  26. The ECJ makes no mention of the free movement of capital between the Member States and third countries as it had done in the previous Golden Share judgments.

  27. See, for example, Case C-367/98 Commission v. Portugal, para. 37; Case C-483/99 Commission v. France, para. 36; and Case C-503/99 Commission v. Belgium, para. 37.

  28. Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty, OJ 1988 L 178/5.

  29. This is questioned by Advocate General Ruiz-Jarabo Colomer in paragraph 36 of his Opinion on Case C-463/00 Commission v. Spain and Case C-98/01 Commission v. United Kingdom. He observes: ‘… it is particularly inappropriate to use secondary legislation for the purposes of ascertaining the meaning of one of the fundamental freedoms laid down in the Treaty.’

  30. See Case C-483/99 Commission v. France, para. 41; Case C-174/04 Commission v. Italy, paras. 30– and Case C-265/04 Margaretha Bouanich v. Skatteverket [2006] ECR I-923, paras. 34–35.

  31. Joined Cases C-282 and C-283/04 Commission v. Netherlands, para. 20.

  32. Joined Cases C-282 and C-283/04 Commission v. Netherlands, para. 27.

  33. It is regrettable that the ECJ has not adopted a standard term for this head of justification. See S. O’Leary and J.M. Fernandez-Martin, ‘Judicially-created Exceptions to the Free Provision of Services’, 11 European Business Law Review (2000) pp. 347–362 at p. 349. Occasionally, the ECJ refers to this head of justification as ‘imperative reasons of public interest’ (Case C-384/93 Alpine Investments BV v. Minister van Financiën [1995] ECR I-1141), ‘matters of overriding general interest’ (Case C-264/96 Imperial Chemical Industries (.ICI.) v. Kenneth Hall Colmer (.Her Majesty’s Inspector of Taxes) [1998] ECR I-4695), ‘objective considerations’ (Case C-237/94 O’Flynn v. Adjudication Officer [1996] ECR I-2617) or ‘overriding requirements relating to the general interest’ (Case C-208/00 Überseering BV and Nordic Construction Company Baumanagement (NCC) [2002] ECR I-9919). For reasons of simplicity, I will use the terms ‘overriding requirements in the general interest’ and the ‘rule of reason’ interchangeably throughout this paper.

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  34. Since 2000, the Dutch government has consistently stated that since a solid regulatory framework providing adequate protection of the general interests in the telecommunications sector now exists, the golden share held in KPN is primarily justified by financial motives (.protection of the participation of the state in the capital of KPN) and will be abolished once the state has reduced its stake in KPN substantially. See Documents of the Second Chamber of the Dutch Parliament, 2002–2003, 28 165, no. 7. Of course, such a justification would not find grace in the eyes of the ECJ. See Case C-367/98 Commission v. Portugal, where the protection of purely financial or economic interests was flatly rejected by the ECJ.

  35. Joined Cases C-282 and C-283/04 Commission v. Netherlands, para. 40. Compare this with the ruling of the ECJ in Case C-503/99 Commission v. Belgium, in which the ECJ found the use of the golden shares at issue to be justified under Article 58(1) EC in order to maintain minimum supplies of gas in the event of a real and serious threat.

  36. It is settled case law that a participation in the capital of a company permitting the holder to exercise decisive influence over the management and control of the company in question is a form of exercise of the right of establishment. See Case C-251/98 C. Baars v. Inspecteur der Belastingen Particulieren/Ondernemingen Gorinchem [2000] ECR I-2787, paras. 21–22; and Case C-208/00 Überseering, para. 77.

  37. See, for example, Case C-367/98 Commission v. Portugal, para. 56; Case C-483/99 Commission v. France, para. 56; and Case C-463/00 Commission v. Spain, para. 86.

  38. The reverse is also true. In a number of cases in which the ECJ found that a national measure infringed Article 43 EC, it did not examine the same measure in the light of Article 56 EC. See, for example, Case C-118/96 Jessica Safir v. Skattemyndigheten i Dalarnas Län [1998] ECR I-1897, para. 35; Case C-200/98 X and Y v. Riksskatteverket [1999] ECR I-8261, para. 30; Case C-251/98 Baars, para. 42; Joined Cases C-397/98 and C-410/98 Metallgesellschaft and Others v. Commissioners of Inland Revenue and HM Attorney General [2001] ECR I-1727, para. 75; and Case C-436/00 X and Y v. Riksskatteverket [2002] ECR I-10829, para. 66.

  39. Joined Cases C-282 and C-283/04 Commission v. Netherlands, para. 43.

  40. Advocate General Poiares Maduro delivered his Opinion on 6 April 2006.

  41. TPG did not pay the price for the golden share set out in its articles of association (48 eurocents) because the sale of the share would involve costs in excess of 48 eurocents.

  42. Case C-98/01.

  43. Case C-98/01 Commission v. United Kingdom, paras. 24, 26, 31 and 32.

  44. Given this argument, it was rather paradoxical for the Dutch government to argue later that the retention of the golden share in TPG had as its objective the protection of a public interest, namely to guarantee the proper provision of a universal postal service in the Netherlands.

  45. In principle, the power to issue priority shares vests in the general meeting of shareholders, but Article 96(1) of Book Two of the Dutch Civil Code permits the power to issue such shares to be granted to some other company body, for example the board of management, for a specified period of time.

  46. Until 1971, no statutory provisions existed requiring the disclosure of the identity of the holders of priority shares. Article 392(1)(e) of Book Two of the Civil Code now requires the management board of the company concerned to append to the annual accounts and report a list of the names of the persons to whom a special right of control in relation to the company has been granted under the articles of association, with a description of the nature of the right concerned. If such a right is attached to a share, the number of such shares held by parties entitled thereto shall be stated. If such a right has been conferred on a company, association, cooperative society, mutual insurance society or foundation, the names of the directors thereof shall be published. For stock exchange listed companies, Appendix X to the Stock Exchange Regulations (Fondsenreglement) contains more extensive requirements. See also Article 10(1)(d) of the Takeover Directive (Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids, OJ 2004 L 142/12), which requires the companies to which it applies to publish in their annual reports detailed information on, inter alia, the holders of any securities with special control rights and a description of those rights.

  47. With respect to companies listed on the Amsterdam Stock Exchange, Appendix X to the Stock Exchange Regulations lays down certain requirements concerning the independence of the board of a foundation holding priority shares.

  48. An important right often conferred on the holders of priority shares is the right to submit binding nominations to the general meeting of shareholders concerning the appointment of members of the management and supervisory boards of the company in question. This is a rather complex issue. As this was not one of the powers conferred on the Dutch state by the golden shares in KPN and TPG, I will not elaborate on this issue in this paper.

  49. I use the term ‘vertical direct effect’ to refer to provisions of EC law that are binding on the Member States and can therefore be invoked by an individual vis-à-vis the public authorities, and the term ‘horizontal direct effect’ to refer to provisions of EC law that are binding on private parties exercising their private autonomy and that are therefore capable of being relied on before a national court by one private party against another. In the legal literature, some controversy exists as to whether the term ‘horizontal direct effect’ can be used in this sense. See J. Baquero Cruz, ‘Free movement and private autonomy’, 24 E.L. Rev. (1999) pp. 603–620; and P. Oliver and W.-H. Roth, ‘The Internal Market and the Four Freedoms’, 41 CML Rev. (2004) pp. 407–441 at p. 421.

  50. The same Advocate General put forward similar observations in his Opinion in Joined Cases C-463 and C-464/04 Federconsumatori and Others and Associazione Azionariato Diffuso dell’AEM and Others v. Commune di Milan, delivered on 7 September 2006. This case is currently pending before the ECJ. It concerns preliminary questions referred by an Italian regional court on the compatibility with Article 56 EC of Italian rules enabling a public body to introduce into the articles of association of a privatised company special rights pursuant to which the public body, despite retaining a minority shareholding (33.4 per cent), retains the power to appoint an absolute majority of the members of the board of directors of the company concerned.

  51. Opinion of Advocate General Poiares Maduro, paras. 22–24.

  52. In paragraph 48 of Case C-98/01 Commission v. United Kingdom, the ECJ refuted similar arguments of the UK government by stating: ‘The restrictions at issue do not arise as the result of the normal operation of company law. BAA’s Articles of Association were to be approved by the Secretary of State pursuant to the Airports Act 1986 and that was what actually occurred. In those circumstances, the Member State acted in this instance in its capacity as a public authority.’

  53. The ECJ does not specify which decisions these were. Presumably it concerns decisions of the Dutch state as a majority shareholder at the moment of creation of KPN and TPG.

  54. In a sense, the Opinion of Advocate General Poiares Maduro points in this direction when he states that legislation that enables some shareholders to obtain certain special rights in order to shield them from the market process may itself constitute a restriction on the free movement of capital. However, the Advocate General is careful to restrict himself to legislation (by definition a state measure). He does not go so far as to qualify the adoption of special rights in the articles of association by a company or the exercise of these special rights by shareholders (market participants) as falling within the scope of Article 56 EC.

  55. In Case C-281/98 Roman Angonese v. Cassa di Risparmio di Bolzano SpA [2000] ECR I-4139, the ECJ stated that Article 39 EC (free movement of workers) was capable of horizontal direct effect. For some of the criticism levelled at this judgment, see S. van den Bogaert, ‘Horizontality: The Court Attacks?’, in C. Barnard and J. Scott, eds., The Law of the Single European Market: Unpacking the Premises (Oxford/Portland, Oregon, Hart Publishing 2002) pp. 123–152 at pp. 139–143; J. Snell, Goods and Services in EC Law: A Study of the Relationship between the Freedoms (Oxford, Oxford University Press 2002) at pp. 144–153.

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  56. See the last paragraph of Article 16 of the Statute of the Court of Justice (November 2005), which states: ‘where it considers that a case before it is of exceptional importance, the Court may decide … to refer the case to the full Court.’

  57. Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids, OJ 2004 L 142/12.

  58. Case C-367/98 Commission v. Portugal, para. 44; Case C-483/99 Commission v. France, para. 40; and Case C-503/99 Commission v. Belgium, para. 36.

  59. Case C-367/98 Commission v. Portugal is the only Golden Share case to date that was concerned with directly discriminatory measures.

  60. Joined Cases C-282 and C-283/04.

  61. Joined Cases C-282 and C-283/04 Commission v. Netherlands, para. 20 [emphasis added].

  62. Case 8/74 Procureur du Roi v. B. & G. Dassonville [1974] ECR 857.

  63. Case C-55/94 Reinhard Gebhard v. Consiglio dell’Ordine degli Avvocati e Procuratori di Milano [1995] ECR I-4165.

  64. Case C-55/94 Gebhard, para. 37.

  65. This is a plausible argument given that, on 31 December 2006, KPN had a total of 1,928,551,326 ordinary shares outstanding with a nominal value of 24 eurocents, and that, on 22 February 2007, TNT NV had a total of 405,560,790 bearer shares outstanding with a nominal value of 48 eurocents. See: http://www.kpn.com and http://group.tnt.com (last consulted on 25 April 2007).

  66. A similar argument was put forward by the UK government in Case C-98/01 Commission v. United Kingdom, para. 36, but was dismissed by the ECJ.

  67. Directive 888/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty, OJ 1988 L 178/5.

  68. The ECJ has refused to apply the free movement provisions when the facts of the case at hand were considered to be too hypothetical to form a restriction on free movement. See Case 180/83 Hans Moser v. Land Baden-Württemberg [1984] ECR 2539; and Case C-299/95 Friedrich Kremzow v. Republik Österreich [1997] ECR I-2629.

  69. In a number of cases, the ECJ has found the effect of the national measure at issue too uncertain and indirect to constitute a restriction on free movement. See, for example, Case C-69/88 H. Kranz GmbH & Co v. Ontvanger der Directe Belastingen and Staat der Nederlanden [1990] ECR I-583; Case C-93/92 CMC Motorradcenter GmbH v. Pelin Baskiciogullari [1993] ECR I-5009; Case C-379/92 Criminal proceedings against Matteo Peralta [1994] ECR I-3453; and Case C-190/98 Volker Graf v. Filzmoser Maschinenbau GmbH [2000] ECR I-493.

  70. E. Spaventa, ‘Case C-442-02, Caixa-Bank France v. Ministère de l’Économie, des Finances et de l’Industrie’, 42 CML Rev. (2005) pp. 1151–1168.

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  71. See, for example, the Opinion of Advocate General Tizzano in Case C-442/02 Caixa-Bank France v. Ministère de L’Économie, des Finances et de L’Industrie [2004] ECR I-8961 and the Opinion of Advocate General Fennelly in Case C-190/98 Graf.

  72. Joined Cases C-267 and C-268/91 Criminal proceedings against Keck and Mithouard [1993] ECR I-6097.

  73. See, for example, the never-ending saga of cases on Sunday trading: Case 145/88 Torfaen Borough Council v. B & Q plc [1989] ECR 3851; Case C-306/88 Rochdale Borough Council v. Stewart John Anders [1992] ECR I-6457; Case C-312/89 U.D.S. GGT de l’Aisne v. SIDEF Conforama and Others [1991] ECR I-997; Case C-332/89 Criminal proceedings against André Marchandise and Others [1991] ECR I-1027; Case C-304/90 Reading Borough Council v. Payless DIY Ltd and Others [1992] ECR I-6493; and Case C-169/91 Council of the City of Stoke-on-Trent and Norwich City Council v. B & Q plc [1992] ECR I-6635.

  74. Case C-98/01 Commission v. United Kingdom, para. 47.

  75. Joined Cases C-282 and C-283/04 Commission v. Netherlands, paras. 37–40.

  76. Joined Cases C-282 and C-283/04 Commission v. Netherlands, para. 40.

  77. Case C-503/99.

  78. In Case C-503/99 Commission v. Belgium, the strategic assets concerned and the management decisions which could be opposed by the Belgian state were specifically listed.

  79. The provision of a universal postal service has been recognised by the ECJ as a service of general economic interest. See Case C-320/91 Criminal proceedings against Paul Corbeau [1993] ECR I-2533, para. 15.

  80. Case C-503/99 Commission v. Belgium, paras. 33–34.

  81. Case C-463/00 Commission v. Spain, paras. 82–83.

  82. See paragraph 38 of the Opinion of Advocate General Poiares Maduro, where reference is made to Directive 97/67/EC of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service, OJ 1988 L 15/14, as amended by Directive 2002/39/EC of 10 June 2002, OJ 2002 L 176/21.

  83. See Documents of the Second Chamber of the Dutch Parliament, 2002–2003, 28 165, No. 7, at 3.

  84. See Documents of the Second Chamber of the Dutch Parliament, 2006–2007, 30 536, No. 8, at 2.

  85. Joined Cases C-282 and C-283/04 Commission v. Netherlands.

  86. Joined Cases C-267 and C-268/91 Criminal proceedings against Keck and Mithouard.

  87. In Case C-463/00 Commission v. Spain, however, the ECJ did not accept in the case of Tabacalera (a tobacco company) and Argentaria (a commercial banking group operating in the traditional banking sector) that the Spanish legislation at issue was justified for overriding reasons relating to the general interest because those two companies do not provide services of general interest.

  88. Other cases are at present pending before the ECJ. On 4 March 2005, the Commission brought proceedings against Germany before the ECJ with regard to the alleged incompatibility with Articles 43 and 56 EC of certain provisions of the so-called ‘Volkswagen Law’ (Case C-112/05, OJ 2005 C 143/15). On 13 February 2007, Advocate General Dámaso Ruiz-Jarabo Colomer handed down his Opinion in this case. He found that the relevant provisions of the socalled ‘Volkswagen Law’ infringed Article 56 EC and that they were incapable of justification under Community law. On 23 June 2006, the Commission brought proceedings against Spain, requesting the ECJ to declare that Spain has failed to fulfil its obligations under Article 56 EC by maintaining in force measures limiting the voting rights of public entities in Spanish undertakings in the energy sector (Case C-274/06, OJ 2006 C 212/19).

  89. See Annex 3 to Commission Staff Working Document, Special rights in privatised companies in the enlarged Union — a decade full of developments, Brussels 22 July 2005. This document has not been made public but can be consulted at: http://ec.europa.eu/internal_market/capital/docs/privcompanies_en.pdf (last consulted on 27 April 2007).

  90. Subject to numerous commitments, the merger between Gaz de France and Suez was approved by the EC Commission on 14 November 2006 in a decision of some 357 pages taken under Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ 2004 L 24/1. See Case COMP/M.4180, OJ 2007 L 88/47.

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    Anne Looijestijn-Clearie (Senior Lecturer in European Law)

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Looijestijn-Clearie, A. All That Glitters Is Not Gold: European Court of Justice Strikes Down Golden Shares in Two Dutch Companies. Eur Bus Org Law Rev 8, 429–453 (2007). https://doi.org/10.1017/S1566752907004296

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