Commission v Portugal

In January 2008, the European Commission referred Portugal to the European Court of Justice because it considered that the special rights conferred on the State by its golden shares in Portugal Telecom (PT) discouraged investment from other Member States in violation of the EC Treaty.

The Grand Chamber of the Court of Justice of the European Union held that the Portuguese law violated free movement of capital.

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).

62 In those circumstances, it must be found that the Portuguese State’s holding of the golden shares at issue constitutes a restriction on the free movement of capital for the purposes of Article 56(1) EC.

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).

• United Kingdom enterprise law