A more prudent approach in the “golden share” cases

Last week’s Grand Chamber judgments Commission v Germany (C-95/12) and Essent (C-105/12) may have brought some important clarifications on the “golden share” case law. They seem to point towards a more prudent, differentiated understanding of Art 63 TFEU in regard to the corporate governance of publicly owned companies. In the decision Commission v Germany, the Court dismissed an action brought under Art 260(2) TFEU for failure to comply with the 2007 VW law judgment; and in Essent it found Dutch measures ensuring public ownership of gas and electricity transmission system operators justifiable on public interest grounds.

Commission v Germany – VW law

In 2007, the Court had found that parts of the so-called VW law infringed Art 63 TFEU. The law had secured privileges for the two main public owners of the car manufacturer Volkswagen, the German Federal Republic and the Land Lower Saxony, which each held 20% of the shares. In particular, the Court had objected to the following two arrangements in the VW law:

  1. Para 4(1) held that the German Federal Republic and the Land Lower Saxony could each appoint two members to the supervisory board, on the condition that they hold shares in the company.
  2. Para 2(1) in conjunction with para 4(3), whereby
    • Para 2(1) held that voting rights were capped at 20% of the votes, even when shareholders held more than 20% of the shares (vote cap);
    • Para 4(3) raised the necessary votes for resolutions of the general meeting that usually require 75% under the Law on public limited companies to 80% (lower blocking requirement).

In the wake of the decision, Germany repealed paras 2(1) and 4(1), whereas para 4(3) remained in force. Moreover, VW’s Articles of Association essentially replicated the lower blocking requirement, and had not removed the vote cap until nine months after the corresponding provision of the VW law had been repealed. For these reasons the Commission – which strongly advocates the one-share-one-vote principle in corporate governance – brought action for failure to comply with the 2007 judgment.

Concerning the Commission’s allegations relating to VW’s Articles of Association, the Court took a formal perspective and found them inadmissible, as the subject-matter of the 2007 judgment had related exclusively to provisions of the VW law, and not the Articles of Association (para 26).

In regard to para 4(3), the Court took a similarly formal approach. The Commission had argued that the 2007 judgment would require a repeal of all the incriminated provisions, including the lower blocking requirement of para 4(3). The Court rejected this view, however, and emphasized that the operative part of the 2007 judgment – construed in the light of the grounds of the judgment – had found an infringement of Art 63 TFEU in “Paragraph 2(1) in conjunction with Paragraph 4(3)” [italics added]. This meant that Germany was under the obligation to eliminate the restrictive effects that arose from the combination of the provisions, but the Court had not ruled on whether or not para 4(3) by itself infringed Art 63 TFEU (para 45).

The Commission had seemingly understood the 2007 judgment as a sort of carte blanche to challenge all measures relating to the corporate governance of VW, regardless of whether or not they had been actually been challenged in the original decision. In the light of this strategy, the Court’s explicitly formal stance may appear as a refutation of the Commission’s expansive, essentially instrumentalist interpretation of the 2007 judgment. Admittedly, the present judgment is based on formal grounds alone, and does not answer the substantive issues raised by the Commission, namely whether VW’s Articles of Association can be challenged on the basis of Art 63 TFEU, nor whether the lower blocking requirement of para 4(3), by itself, constitutes a restriction. The decision seems, nonetheless, to point towards an increasingly prudent approach of the Court in matters relating to the corporate governance of companies in (partially) public ownership.


The decision Essent, dealing with the Dutch requirement of public ownership of energy transmission system operators, similarly points towards a differentiated understanding of the “golden share” case law. The European Gas and Electricity Directives require the “unbundling of transmission systems owners”, i.e., the independent organization and management of transmission systems. It does not, however, require the separation of ownership of assets. The Court had to rule on three requirements of Dutch law:

  1. The “prohibition of privatization”: shares held in an electricity or gas distribution system operator must be held, directly or indirectly, by public authorities;
  2. The “group prohibition”: distribution system operators must not be part of the same group as companies that generate, supply or trade in electricity;
  3. The “prohibition of activities which may adversely affect system operation”: system operators that are part of such above-mentioned group are prohibited from engaging in certain activities, such as burdening themselves with guarantees of debts of other companies of that group.

The Dutch government argued that the measures entailing the prohibition of privatization were covered by Art 345 TFEU, which protect national rules “governing the system of property ownership”. The Court confirmed that “the Treaties do not preclude, as a general rule, either the nationalisation of undertakings or their privatisation” (para 30). However, Art 345 TFEU does not immunize the national measures from the internal market law provisions: like any other national measure, the Dutch provisions have to conform to the requirements of the Treaty freedoms (para 36). The Court found the Dutch measures to constitute restrictions of the free movement of capital, which raised the question of their justifiability.

The Court held that while Art 345 TFEU “cannot justify a restriction on the rules relating to the free movement of capital”, the reasons “underlying the choice of the legislature in relation to the rules on the public or private ownership” (para 53) might constitute such justification. According to the Court, the Dutch measures aimed at “combating cross-subsidisation in the broad sense”, ensuring “undistorted competition on the markets for the generation/production, supply and trade of electricity and gas” and guaranteeing ”adequate investment in the electricity and gas distribution systems”. The Court found that such measures serve “the ultimate aim […] to protect consumers” as well as (in the case of the adequate investments in the distribution system) “security of energy supply” (already recognized in Campus Oil), and are therefore justifiable on overriding grounds in the public interest (para 66). Maybe most importantly, the Court held that these grounds were in accordance with the regulatory goals pursued by the Gas and Electricity Directives (para 65).

Concluding remarks

The 2013 VW law judgment and Essent, even though decided on different legal grounds, both seem to move the “golden share” case law into a similar direction: in the former judgment, the Court shuns the Commission’s overly expansive, instrumentalist interpretation of the application of Art 63 TFEU in the 2007 judgment, which the Commission would have liked to understand as a carte blanche for challenging all measures deviating from its preferred model of corporate governance. The latter judgment reiterates a similar point in substantive terms: not only can Member States organize transmission system operators as public companies, they can also impose additional obligations on energy providers, if these requirements are justified on overriding grounds of the public interest.

Ultimately, these decisions point towards a more prudent understanding of the “golden share” case law. The Treaty provisions do not impose a specific form of corporate governance, such as the one-share-one-vote principle. Member States may design the corporate architecture of certain companies in ways that deviate from the general system laid down in their respective corporate laws if these alterations are justified on overriding grounds in the public interest.