[No. 139] The ECJ's Ruling Against the Golden Share in Portugal Telecom - What Went Wrong?

This Post comes from our guest contributer Jaron van Bekkum

 

I am puzzled by the new golden share judgment of the European Court of Justice (ECJ) against Portugal. In this judgment of 8 July 2010 (C-171/08) the ECJ ignored the new approach taken by itself in its previous golden share judgment of 26 March 2009 against Italy (C-326/07). I cannot explain why. The result is that the ECJ has created uncertainty as to the scopes of the freedom of establishment (article 49 EU Treaty) and the free movement of capital (article 63 EU Treaty) and as to whether Member States are free under the EU Treaty to apply certain golden shares against non-EU investors. Let me explain a little bit.

Golden shares are generally understood to refer to all legal structures applicable to individual companies that preserve or help to perpetuate the influence of a public authority over such companies. In its 2009 judgment against Italy the ECJ abandoned the approach taken in all former golden share cases to assess such legal structures on the basis of 

the free movement of capital. In the Italian judgment the ECJ determined that veto rights of public authorities in companies fall within the exclusive scope of the freedom of establishment.

 

This had been advised by AG Colomer who recognised a legitimate interest of Member States to prevent a certain level of influence of non-EU investors with dubious objectives over strategic companies in the most sensitive sectors in the EU. The AG pleaded to give Member States some leeway to restrict the influence of such investors. In this view the AG had pointed out that article 63 EU Treaty affects all restrictions of the free movement of capital, irrespective of whether such capital is invested by an EU or a non-EU investor. In contrast, article 49 EU Treaty only affects restrictions of the freedom of establishment of EU investors. Hence, by bringing veto rights under the exclusive scope of the freedom of establishment, Member States became allowed to use veto rights that infringe the freedom of establishment against non-EU investors.

 

Although it is hard to see that this will actually enable Member States to restrict the influence of non-EU investors over strategic EU companies – non-EU investors can after all easily (indirectly) rely on the freedom of establishment by incorporating an EU company – the ECJ apparently agreed and decided that in as far as veto rights also restrict the free movement of capital, this is an unavoidable consequence of the restriction of the freedom of establishment and cannot warrant an independent examination in the light of article 63 EU Treaty. (I discuss the 2009 judgment against Italy in more detail in ‘Golden Shares: A New Approach’ (European Company Law, Volume 7/1, February 2010, p. 13-19).)

 

In the new golden share case against Portugal once again veto rights were at stake. The Portuguese government held such rights in Portugal Telecom. These rights were challenged by the Commission in an infringement procedure. In the beginning of this year I had noted with surprise that AG Mengozzi in his opinion of 2 December 2009 ignored the new approach to golden shares taken by the ECJ in the then most recent golden share judgment. I concluded that the AG apparently overlooked that judgment. To my even bigger surprise now, the ECJ itself also seems to have overlooked its own previous judgment. The veto rights of Portugal are once again assessed on the basis of the free movement of capital. Thereby the ECJ ignored its own consideration in the case against Italy that in as far as veto rights also restrict the free movement of capital, this is an unavoidable consequence of the restriction of the freedom of establishment and cannot warrant an independent examination in the light of article 63 EU Treaty.

 

I have no explanation for this. The ECJ itself provides no explanation either. The new approach in the 2009 Italian judgment is simply ignored in the 2010 Portuguese judgment. A possible explanation could be connected to the fact that the 2009 Italian judgment was rendered by the Third Chamber of the ECJ and that the 2010 Portuguese judgment was rendered by the First Chamber and that there was no overlap in judges. In addition, both cases have a different AG and a different registrar. Hence, it seems that from the side of the ECJ no persons were involved in the 2010 Portuguese judgment that had also been involved in the 2009 Italian judgment. Also, the parties in the Portuguese case had probably not been able to take account in their pleadings of the 2009 Italian judgment. However, all of this does of course not justify the ECJ to ignore the 2009 Italian case and to render a judgment that is inconsistent thereto.

 

What are the consequences? I don’t know. I do not know which judgment takes precedent, the more recent one or the more comprehensible one? This leaves parties to cases on national and EU levels in which golden shares play a role considerable freedom to argue either way. I fear that it will not become clear prior to the next golden share judgment of the ECJ whether or not veto rights fall within the exclusive scope of the freedom of establishment and whether or not Member States are free under the EU Treaty to apply certain golden shares against non-EU investors. Let’s hope that by that time the ECJ is fully awake.