Today (22 October 2013) the Grand Chamber of the Court of Justice of the European Union delivered its judgment in joined cases Staat der Nederlanden v Essent NV (C-105/12), Essent Nederland BV (C-105/12), Eneco Holding NV (C-106/12) and Delta NV (C-107/12). It is a judgement that has been eagerly awaited by all European property law lawyers. We are not left disappointed!

The case concerns, in very short terms, Dutch legislation made following Directive 2003/54/EC and Directive 2009/72/EC on the ‘unbundling’ of energy networks in the European Union. ‘Unbundling’ here essentially means that the management and therefore ownership of the energy network (electricity and gas) and the services provided on the network must be separated. Dutch legislation basically prohibited private ownership of the distribution network as well as private investments in this network. Following the implementation of the ‘unbundling’ Essent NV, a large electricity provided, was split up in two companies in 2009, creating Enexis Holding NV, with shares held by the state, owning the network, and Essent NV, with shares privately owned – most recently by the German company RWE AG – which, like Eneco and Delta, provides electricity and gas on the Dutch network.

These three energy providing companies each brought an action against the Dutch State arguing that the prohibition of private ownership and private investment in the network infringes Article 63 TFEU, which guarantees the Free Movement of Capital in the European Union.

The Dutch government argued, and here it becomes really interesting for EU property lawyers, that Article 345 TFEU precludes the application of EU law to such matters as rules governing the system of property ownership are excluded from the scope of the European Union Treates (TEU and TFEU). The Dutch court stayed national proceeding and asked a preliminary question to the Court of Justice of the EU on the meaning and interpretation of Article 345 TFEU.

The Advocate General, Jääskinen, delivered opinion (not available in English) on 16 April 2013 and held that such was an incorrect interpretation of Article 345 and that the Article refers to the principle of neutrality in EU law, meaning that the EU treaties do not decide whether a company is in private or public ownership. This position is also held by EU property law academics and was defended, inter alia, by M-EPLI fellow Eveline Ramaekers and myself in the European Law Journal in 2010.

Today, the Grand Chamber confirmed this position. It states in paragraphs 29-35:

(29) Article 345 TFEU is an expression of the principle of the neutrality of the Treaties in relation to the rules in Member States governing the system of property ownership.

(30) In that regard, it is apparent from the Court’s case-law that the Treaties do not preclude, as a general rule, either the nationalisation of undertakings (see, to that effect, Case 6/64 Costa [1964] ECR 585, at 598) or their privatisation (see, to that effect, Case C‑244/11 Commission v Greece [2012] ECR I‑0000, paragraph 17)

(31)  It follows that Member States may legitimately pursue an objective of establishing or maintaining a body of rules relating to the public ownership of certain undertakings.

(32) In the main proceedings, it can be seen from Article 93(2) of the Law on electricity, Article 85(2) of the Law on gas and Article 1 of the 2008 Decree, the effect of which was summarised in paragraph 17 of this judgment, that the prohibition of privatisation, within the meaning of the national legislation at issue in the main proceedings, allows, in essence, the transfer of shares held in a distribution system operator only to the authorities and to legal persons owned, directly or indirectly, by those authorities, since any transfer which has the result that the shares become the property of persons other than such authorities and legal persons is prohibited.

(33) It follows that the prohibition of privatisation precludes ownership by any private individual of shares in an electricity or gas distribution system operator active in the Netherlands. Its objective is therefore to maintain a body of rules relating to public ownership in respect of those operators.

(34)    Such a prohibition falls within the scope of Article 345 TFEU.

(35)    In this case, it is moreover apparent that the prohibition of privatisation encompasses the prohibition contained in Article 10b(2) of the Law on electricity and Article 2c(2) of the Law on gas, which provide that an undertaking established in another Member State and active in the generation/production, supply or trade in electricity or gas in the Netherlands and companies of another Member State which are members of the same group as such an undertaking may not acquire shares in an electricity or gas distribution system operator active in the Netherlands.

It seems that the Grand Chamber thus partly sides with the Dutch Government as Article 345 applies to this case. However, the Grand Chamber then continues:

(36) However, Article 345 TFEU does not mean that rules governing the system of property ownership current in the Member States are not subject to the fundamental rules of the FEU Treaty, which rules include, inter alia, the prohibition of discrimination, freedom of establishment and the free movement of capital (see, to that effect, Case 182/83 Fearon [1984] ECR 3677, paragraph 7; Case C‑302/97 Konle [1999] ECR I‑3099, paragraph 38; Case C‑452/01 Ospelt and Schlössle Weissenberg [2003] ECR I‑9743, paragraph 24; Case C‑171/08 Commission v Portugal [2010] ECR I‑6817, paragraph 64; Case C‑271/09 Commission v Poland [2011] ECR I‑0000, paragraph 44; and Commission v Greece, paragraph 16).

(37) Consequently, the fact that the Kingdom of the Netherlands has established, in the sector of electricity or gas distribution system operators active in its territory, a body of rules relating to public ownership covered by Article 345 TFEU does not mean that that Member State is free to disregard, in that sector, the rules relating to the free movement of capital (see, by analogy, Commission v Poland, paragraph 44 and the case‑law cited).

(38) Accordingly, the prohibition of privatisation falls within the scope of Article 63 TFEU and must be examined in the light of that article, as must the group prohibition and indeed the prohibition of activities which may adversely affect system operation.

The Grand Chamber here clearly confirms that the rules of the EU internal market are to be applied, regardless of the starting point of neutrality of the Treaty vis-a-vis the ownership regime of such companies. This is a point that I (link 1, link 2, link 3), as well as Eveline Ramaekers, have defended before. Article 345 TFEU does not, therefore, prevent the freedom of capital (in this case) from applying. A Member State must therefore still take into account the rules on the fundamental freedoms in making what is otherwise national law. In the words of the Court:

(48) Consequently, the answer to the first and second questions is that Article 345 TFEU must be interpreted as covering rules entailing the prohibition of privatisation, such as those at issue in the main proceedings, which have the effect that shares held in an electricity or gas distribution system operator active in the Netherlands must be held, directly or indirectly, by the public authorities identified by the national legislation. However, that interpretation does not mean that Article 63 TFEU does not apply to provisions of national law, such as those at issue in the main proceedings, which prohibit the privatisation of electricity or gas distribution system operators or, further, which prohibit, first, ownership or control links between companies which are members of the same group as an electricity or gas distribution system operator active in the Netherlands and companies which are members of the same group as an undertaking which generates/produces, supplies, or trades in electricity or gas in the Netherlands and, secondly, engagement by such an operator and by the group of which it is a member in transactions or activities which may adversely affect the interests of the system operation.

More will certainly be written about this case, because much more can be said about it.  A point that is very much worth consideration is the final statement of the Court in which it holds that objectives which underly the choice to prevent privatisation may be used to justify (as an overriding reason) what would otherwise be a restriction on the free movement of capital. But that is food for a later discussion!?