European Commission v Portuguese Republic.
Date: 2010-07-08
19. In relation to the first plea of inadmissibility, it should be noted at the outset that, in accordance with established case-law, in proceedings for failure to fulfil an obligation under Article 226 EC it is for the Commission, which must prove the existence of the alleged infringement, to provide the Court with the evidence necessary for it to establish that the obligation has not been fulfilled, and, in so doing, the Commission may not rely on any presumption (see, inter alia, Case C‑434/01 Commission  v United Kingdom  [2003] ECR I‑13239, paragraph 21, and Case C‑342/05 Commission  v Finland  [2007] ECR I‑4713, paragraph 23).
23. In those circumstances, it cannot be considered that the Commission based its action on mere presumptions without providing the evidence necessary to enable the Court to assess the infringement which the Portuguese Republic is alleged to have committed.
25. As regards the second plea of inadmissibility, it should be noted that, in accordance with set tled case-law, the subject-matter of an action under Article 226 EC for failure to fulfil obligations is determined by the Commission’s reasoned opinion, so that the action must be based on the same grounds and pleas as that opinion (see Case C‑33/04 Commission  v Luxembourg [2005] ECR I-10629, paragraph 36 and case-law cited).
26. However, that requirement cannot be stretched so far as to mean that in every case the statement of the objections expressly set out in the reasoned opinion and the form of order sought in the application must be exactly the same, provided that the subject-matter of the proceedings as defined in the reasoned opinion has not been extended or altered (see Case C‑433/03 Commission  v Germany  [2005] ECR I‑6985, paragraph 28, and Case C‑484/04 Commission  v United Kingdom  [2006] ECR I‑7471, paragraph 25).
29. Therefore, the fact that, in its application, the Commission set out in detail the complaints it had already made more generally in the letter of formal notice and the reasoned opinion, by referring to other special rights held by the Portuguese State in PT, did not alter the subject of the alleged infringement, and has thus had no effect on the scope of the proceedings (see, to that effect, Case C‑185/00 Commission  v Finland  [2003] ECR I‑14189, paragraphs 84 to 87).
33. The Commission also submits that the allocation of golden shares to the State cannot fall outside the scope of Articles 56 EC and 43 EC, in accordance with Article 295 EC, which provides that the EC Treaty is in no way to prejudice the rules in Member States governing the system of property ownership. According to settled case‑law (see, in particular, Case C‑367/98 Commission  v Portugal  [2002] ECR I‑4731, paragraph 48, and Case C‑302/97 Konle  [1999] ECR I‑3099, paragraph 38), the Member States cannot plead their own systems of property ownership by way of justification for obstacles to the fundamental freedoms guaranteed by the Treaty, resulting from a system of administrative authorisation relating to privatised undertakings. Since the special rights at issue confer on their holders rights of veto in respect of numerous decisions which PT is required to adopt, they establish such a system of administrative authorisation.
37. In the first place, as regards the need invoked by the Portuguese authorities to ensure the availability of the telecommunications network in the event of crisis, war or terrorism, the Commission considers that, contrary to the requirements of the case‑law and, in particular, Case C‑463/00 Commission  v Spain  [2003] ECR I‑4581, paragraphs 71 and 72, those authorities have not shown the existence of a ‘genuine and sufficiently serious threat to a fundamental interest of society’ capable of justifying the shares at issue on grounds of public security and public policy.
39. In the third place, given that the Portuguese Republic also makes reference to the need to avoid disruptions on the capital market, the Commission cites the case‑law, and in particular Commission  v Portugal  (paragraph 52), according to which economic grounds cannot serve as justification for obstacles prohibited by the Treaty.
42. Next, the Portuguese authorities claim that the holding of special rights by shareholders constitutes a fundamental right, which is characteristic of private law or of the law of commercial companies, which also has a basis in Article 295 EC. The Court is entrusted with the task of safeguarding those rights, even when their holders are public sector bodies. In support of that argument, those authorities recall that, in accordance with the Court’s case‑law, the protection of fundamental rights is a legitimate interest which, in principle, justifies a restriction of the obligations imposed by Community law (Case C‑341/05 Laval un Partneri  [2007] ECR I‑11767, paragraphs 91 to 93).
44. The Portuguese authorities also point out that, even supposing that the existence of special rights in PT constitutes a restriction on the fundamental freedoms guaranteed by the Treaty and invoked by the Commission, such a restriction is justified.
45. In their submission, that justification is based, first, on the fact that PT owns the major part of the infrastructure for transmitting and distributing telecommunications, which thus renders the holding of those special rights necessary on grounds of public security and public policy so as to safeguard the provision of telecommunications services in case of crisis, war, terrorism, natural disasters and other types of threat. In this regard, that Member State submits that, contrary to the Commission’s reading of the judgment in Commission  v Spain , the justification related to such grounds is not dependent on the existence of a current threat to a fundamental interest of society.
46. Second, the restriction in question is also justified by the need to ensure a certain degree of competition on the telecommunications market, and the need to prevent a possible disruption of the capital market, which constitute overriding reasons in the public interest.
48. It should be noted, at the outset, that, according to consistent case-law, Article 56(1) EC generally prohibits restrictions on movements of capital between Member States (see, inter alia, Joined Cases C‑282/04 and C‑283/04 Commission  v Netherlands  [2006] ECR I‑9141, paragraph 18 and case‑law cited).
49. In the absence of a Treaty definition of ‘movement of capital’ within the meaning of Article 56(1) EC, the Court has acknowledged the indicative value of the nomenclature of movements of capital set out in Annex I to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the [EC] Treaty (article repealed by the Treaty of Amsterdam) (OJ 1988 L 178, p. 5). Thus, the Court has held that movements of capital within the meaning of Article 56(1) EC include in particular ‘direct’ investments, namely investments in the form of participation in an undertaking through the holding of shares which confers the possibility of effectively participating in its management and control, and ‘portfolio’ investments, namely investments in the form of the acquisition of shares on the capital market solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking (see Commission  v Netherlands , paragraph 19 and case‑law cited).
50. Concerning those two forms of investment, the Court has stated that national measures must be regarded as ‘restrictions’ within the meaning of Article 56(1) EC if they are likely to prevent or limit the acquisition of shares in the undertakings concerned or to deter investors of other Member States from investing in their capital (see Commission  v Portugal , paragraphs 45 and 46; Case C‑483/99 Commission  v France  [2002] ECR I‑4781, paragraph 40; Commission  v Spain , paragraphs 61 and 62; Case C‑98/01 Commission v United Kingdom [2003] ECR I‑4641, paragraphs 47 and 49; Case C‑174/04 Commission v Italy  [2005] ECR I‑4933, paragraphs 30 and 31; and Commission  v Netherlands , paragraph 20).
51. In the present case, the Portuguese Republic disputes the classification of the contested measure as a national measure within the meaning of the case‑law cited in the preceding paragraph, by maintaining that the preferred shares at issue are private in nature and that their introduction into PT’s articles of association resulted solely from the will of the company and not that of the State.
56. Therefore, the creation of those golden shares must be regarded as being attributable to the State and, consequently, falls within the scope of Article 56(1) EC.
57. Next, as regards the restrictive nature of the system whereby golden shares in PT are held by the State, which is provided for in the national legislation in conjunction with the articles of association of that company, such a system is liable to dissuade operators from other Member States from investing in the capital of that company.
60. Thus, the Portuguese State’s holding of those golden shares, in so far as it confers on that State an influence on the management of PT which is not justified by the size of its shareholding in that company, is liable to discourage operators from other Member States from making direct investments in PT since they could not be involved in the management and control of that company in proportion to the value of their shareholdings (see, inter alia, Case C‑112/05 Commission v Germany  [2007] ECR I‑8995, paragraphs 50 to 52).
61. Similarly, the structuring of the special shares at issue may have a deterrent effect on portfolio investments in PT in so far as a possible refusal by the Portuguese State to approve an important decision, proposed by the organs of the company concerned as being in the company’s interests, is in fact capable of depressing the value of the shares of that company and thus reduces the attractiveness of an investment in such shares (see, to that effect, Commission  v Netherlands , paragraph 27).
64. First, as regards Article 295 EC, which states that ‘[the] Treaty shall in no way prejudice the rules in Member States governing the system of property ownership’, it is sufficient to note that, in accordance with settled case‑law, that article does not have the effect of exempting the Member States’ systems of property ownership from the fundamental rules of the Treaty and cannot, therefore, be relied on by way of justification for obstacles, resulting from privileges attached to the position of Member States as shareholders in privatised undertakings, to the exercise of the freedoms laid down in the Treaty (see Commission  v Spain , paragraph 67 and case‑law cited).
66. According to that judgment, the application to products from other Member States of national provisions restricting or prohibiting, within the Member State of importation, certain selling arrangements is not such as to hinder trade between Member States so long as, first, those provisions apply to all relevant traders operating within the national territory and, second, they affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States. The reason is that the application of such provisions is not such as to prevent access by the latter products to the market of the Member State of importation or to impede such access more than it impedes access by domestic products (Case C‑384/93 Alpine Investments  [1995] ECR I‑1141, paragraph 37).
67. In the present case, although the restrictions at issue apply without distinction to both residents and non-residents, it must none the less be held that they affect the position of a person acquiring a shareholding as such and are thus liable to deter investors from other Member States from making such investments and, consequently, affect access to the market (see Commission v Spain , paragraph 61 and case‑law cited).
68. That said, it therefore needs to be examined whether and, if so, under what conditions the restriction at issue may be allowed on the basis of the justifications relied on by the Portuguese Republic.
69. According to settled case‑law, national measures which restrict the free movement of capital may be justified on the grounds set out in Article 58 EC or by overriding reasons in the public interest, provided that they are appropriate to secure the attainment of the objective which they pursue and do not go beyond what is necessary in order to attain it (see Case C‑112/05 Commission  v Germany , paragraphs 72 and 73 and case‑law cited).
70. First of all, as regards the justifications based on overriding interests in the public interest, raised by the Portuguese authorities, it should be noted that the Court has already held that, an interest in ensuring the conditions of competition on a particular market cannot constitute valid justification for restrictions on the free movement of capital ( Commission  v Italy , paragraphs 36 and 37, and judgment of 14 February 2008 in Case C‑274/06 Commission  v Spain , paragraph 44).
71. Similarly, as regards the need to prevent a possible disruption of the capital market, it is sufficient to note, as the Commission does, that this objective constitutes an economic ground which, in accordance with settled case‑law, cannot justify a restriction on the free movement of capital (see, inter alia, Commission  v Portugal , paragraph 52).
72. Next, as regards the derogations permitted under Article 58 EC, it cannot be denied that the objective invoked by the Portuguese authorities to ensure the security of the availability of the telecommunications network in case of crisis, war or terrorism may constitute a ground of public security (see, by analogy, in relation to energy supply, Case C‑274/06 Commission  v Spain , paragraph 38) and possibly justify an obstacle to the free movement of capital.
73. However, it is established that requirements of public security must, in particular as a derogation from the fundamental principle of the free movement of capital, be interpreted strictly, so that their scope cannot be determined unilaterally by each Member State without any control by the institutions of the European Union. Thus, public security may be relied on only if there is a genuine and sufficiently serious threat to a fundamental interest of society (see, inter alia, Case C‑54/99 Église de scientologie  [2000] ECR I‑1335, paragraph 17).
77. Thus, such uncertainty constitutes serious interference with the free movement of capital in that it confers on the national authorities, as regards the use of such powers, a latitude so discretionary in nature that it cannot be regarded as proportionate to the objectives pursued (see, to that effect, Case C‑326/07 Commission  v Italy  [2009] ECR I‑2291, paragraphs 51 and 52).
80. In that regard, it is sufficient to note that, in accordance with settled case‑law, in so far as the national measures at issue entail restrictions on freedom of establishment, such restrictions are a direct consequence of the obstacles to the free movement of capital considered above, to which they are inextricably linked. Consequently, since an infringement of Article 56(1) EC has been established, there is no need for a separate examination of the measures at issue in the light of the Treaty rules concerning freedom of establishment (see, inter alia, Commission  v Netherlands , paragraph 43).
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