European Private Law: (1) Private law, the Internal Market and European

Constitutionalism; (2) Company law and financial markets

Professor Mads Andenas, OsloVisiting Professor, Sapienza, Roma

(1) Private law, the Internal Market and European Constitutionalism

– Private law in the Internal Market and in an EU constitutional order

– The legal base for EU legislation in private law – The resistance at national level

(2) European Private Law: Company law and financial markets

– EU law: Company law and financial markets. The role of free movement.

– The right of establishment and the free movement of capital. The Centros and Golden Shares lines of cases.

– The harmonisation of company law and financial market regulation and reactions in national private law.

– The impact of the financial crisis.

(1) Private law, the Internal Market and European Constitutionalism:

Three parts: 1) private law in the Internal Market and in an EU constitutional order2) the legal base for EU legislation in private law 3) the resistance at national level

1. Private law in the Internal Market and an EU constitutional order

Role of private law in the Internal Market and in an EU constitutional order: incidental but the total impact considerable.Remains fragmented and not consistent

1.1 Internal market and private law

• Individual rights and effectiveness through the constitutional doctrines of direct effect and supremacy.

• Impact on private law obligations.• Free movement rights and private parties.

Wider EU rights and remedies:

• Breach of EU obligations and remedies in tort and contract against public authorities and private parties.

• Developed by ECJ and national courts under Article 267 TFEU (ex Article 234 EC)

• Directly effective treaty rights, (Case 2/74) Defrenne and Sabena [1974] ECR 631, competition law, state aid, public procurement

Remedies in EU legislation:

• Remedies directives: public procurement, Public procurement Directive 2007/66/EC revising Remedies Directive for the utilities sector (Directive 92/13/EEC) and Remedies Directive for the public sector (Directive 89/665/EEC)

• State aid• IP rights, Enforcement of intellectual property rights

(Directive 2004/48/EC), current reform process on the challenges posed by the digital environment.

Making competition remedies effective

• 2008 Commission White Paper on Damages Actions for Breach of the EC antitrust rules.

• 2011 Draft Guidance Paper on quantifying harm in actions for damages based on breaches of the EU antitrust rules.

Tort law:• Breach of EU law and tort remedies: all aspects of liability• Public authority liability for breach of EU law. • Summing up the ‘incidental’ instruments and policy

initiatives mentioned.• Then adding ‘the first private law directive’: Directive on

Product Liability (85/374/EEC). Sharing common feature with many of the other instruments: responding to moves to regulate at national level with consequences for internal market. Head of liability not causation and quantum.

Contract law

Contract law consequences of breach of EU law Consumer law directives, proposed and withdrawn directive on consumer rights (2008)Financial markets, consequences for professional actors in the financial marketsNational contract law including different models for the basic contracting mechanism with offer and acceptance (consideration) remainUnclear impact on general contract law: emphasis on mandatory rules and non-derogable rights, against the paradigm of contractual freedom for general contract law.

1.2 Human rights and private law

• ECHR and private law, family and inheritance law, property law, the reach of protection against discrimination. Pla and Puncernau v. Andorra.

• One of the autonomies, EU law and human rights. Solange and the end of the EU as an autonomous treaty regime.

• The Charter and the Lisbon treaty.

Relationship to ‘purely’ domestic rights discourses

Domestic discussion of constitutional rights in private law, breaking through in different jurisdictions

1.3 Private law in an EU constitutional order

• Private law in any constitutional order• ‘Incidental’ role in EU law: what does it add up• Harmonisation paradigm: also applies when

the EU recognises its general constitutional dimension

1.4 “National” private law

Is there anything such as purely “national” private law? Was there ever?

2. The legal base for EU legislation in private law

Article 114 TFEU: “the European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure … adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market”or Article 352: absence of any other legal basis in the Treaty unanimity in the Council.

Previous discussion

Very German. And Stephen Weatherill, but after strong criticism of ‘competence creep’ and calls to private lawyers to resist, he concluded eventually, after the Commission Green Paper that the Commission had taken the ‘heat out of the competence question’.

Current discussion

Jürgen Basedow and MPI study: Outside Article 114 TFEU and has to rely on Article 352. Hans Micklitz: Article 114 TFEU cover the measures but need to pare down the CESL

• National” private law

The history of competence challenges

The history of company law, the early directives, directives in other fields: banking (deposit guarantee schemes), SE/SCE (more below)W.H. Roth: doorstep selling directive no cross border element and no treaty base, not succeeded before courtsParallels on fundamental freedoms in the ECJ:against the application of free movement post Centros . Private international law not free movement. IP rights, labour rights

Limits to the competence under Article 114 TFEU

Case C-376/98, Germany against the European Parliament and Council , citing ‘health’C-380/03 Germany v European Parliament and CouncilC-436/03 EP v Council [2006] ECR I-3733 (SE and SCE)

Subsidiarity and proportionality

• Art 5 TEU• Impact asessment

Impact on current CESL proposal• The competence discussion, a natural challenge and

generally good process? But little likelihood of carving out an exception for general contract law.

• Relationship with political consensus moving• Impact on current CESL proposal: clear. Problematic:

Christiane C. Wendehorst building on Hans Micklitz: ‘the purely instrumentalist approach to private law, which is suggested by Article 114 TFEU, can negatively affect both the legislative process and the rules themselves. In the long run, good European private law may be possible only if it gets a clear and firm legal basis in the Treaty.’

3. The resistance at national level

National traditions as an obstacle. Defending the national system as a reflex. The variety of national law as a value and the inherent tension with rights at a European level and the internal market. Many complex relationships where the conflicts between disciplines and different parts of the legal community plays a role.

3.1. ‘The end of comparative and private international law’

Jürgen Basedow and MPI Study: balanced and good argument, but also emphasis on the perspective of the comparativist and private international lawyer. Comparativist discourse often not engaging with EU law: the end of comparative law. Similar tendencies among some private international lawyers. Focus on international instruments in their scholarship, and a long time before the effect not only of EU or EU initiated private international law instruments was accounted for, not to speak of the effects of free movement and ECHR.

3.2. The autonomy and autonomies of national law

• Public/private• Constitutional rights and the rest of the legal

system• Constitutional, administrative and public law.

Regulatory law.

Within civil law

• Traditional divisions of disciplines.• Civil and commercial law: should there be

general rules or specialised regimes. Consequences for contract interpretation, less protections, role of custom.

• Consumer law. Mandatory or default rules: freedom of contract. Professor Alpa’s article in reading.

• Impact of constitutional and ‘other public law’

Proportionality in private law

• German example:– Grundrechte im Privatrecht– Strahlungswirkung and not fully fledged

proportionality– Exception: labour law.– New scholarship

• French and Italian law

Role of EU and ECHR in domestic reform

3.3 The interference of EU law in the national law autonomies

The variety of national law as a value and rights in the internal market. Role of consumer law protection with mandatory rules and non-derogable rights, against the paradigm of contractual freedom for general contract law. What is ‘general contract law’: compare commercial and civil law conflicts, inclusion of consumer rights in general contract legislation

4. ConclusionsThe outside-in perspective, Eric A Posner, in a recent paper completely rejects the CESL proposal:1. the introduction of an optional instrument should increase rather than reduce

transaction costs.2. It can produce benefits (reduction of “uniformity costs”), but it is unlikely that

these benefits exceed the transaction-cost harms. 3. The potential dynamic effect of CESL for jurisdiction competition: benefits slight4. The CESL might not be desirable as a means for helping to establish a common

European identity, and reject it. Posner, Eric A., The Questionable Basis of the Common European Sales Law: The Role of an Optional Instrument in Jurisdictional Competition (May 1, 2012). University of Chicago Institute for Law & Economics Olin Research Paper No. 597. Available at SSRN: http://ssrn.com/abstract=2049594 or http://dx.doi.org/10.2139/ssrn.2049594

(2) European Private Law: Company law and financial markets

1. EU law: Company law and financial markets. The role of free movement.

2. The right of establishment and the free movement of capital. The Centros and Golden Shares lines of cases.

3. The harmonisation of company law and financial market regulation and reactions in national private law.

4. The impact of the financial crisis.

2.1 EU law: Company law and financial markets. The role of free movement.

2.2. The right of establishment and the free movement of capital. The Centros and Golden

Shares lines of cases up to Vale.

Free movement of companies?• There is still no free movement of companies in EU law.

Natural persons and goods can move, practically without restriction, from one member state to another.

• Article 48 EC Treaty provides that companies shall be treated in the same way as natural persons. But national company laws still discriminate in different ways against companies from other Member States.

• Many discriminatory restrictions remain against foreign companies, and there are also restrictions on the movement of home companies out of the jurisdiction.

• National company laws do not provide ways in which a company can reincorporate in another Member State.

Impact of fundamental freedoms• In a number of recent decisions, the European Court of Justice

has applied the principles of its free movement case law on the company law and tax law of the Member States.

• Furthermore, in cases brought by the Commission a number of Member States, the Court of Justice has reviewed the different ways in which Member States attempted to extend control in privatised companies.

• The fundamental freedoms, in particular the right of establishment and the free movement of capital, are beginning to dismantle the obstacles to the movement of companies in national law.

German company law doctrineAnd free movement: a cautionary tale • Concern over free movement, Commission v France• Sigh of relief over Daily Mail Case 81/87 Ex parte

Daily Mail [1988] ECR 5483• Concern before and after Centros• See Harald Halbhuber ’National Doctrinal Structures

and European Company Law’(2001) 38 Common Market Law Review 1385–1420

Company law, capital and establishment in the Internal Market

Company law and the fundamental freedoms

Freedom of establishment is a fundamental freedom in EC law (Article 43 EC)

– Case C-205/84 Commission v Germany (Re-insurance)– Case C-442/02 Caixa Bank France (ban on interest for current

accounts) [2004] ECR I-89615Free movement of capital is a fundamental freedom in EC law (Article 43 EC)

Company law directives IFirst Company Law Directive 68/151/EEC, on co-ordination of safeguards (...) for the protection of the interests of members and others, repealed by 2009/101/ECSecond Company Law Directive 77/91/EEC, on formation of public companies and the maintenance and alteration of capital, updated by 2006/68/EC and 2009/109/EC, repealed by 2012/30/EUThird Company Law Directive 78/855/EEC, on mergers of public limited liability companies, repealed by 2011/35/EUFourth Company Law Directive 78/660/EEC, on accounting standardsSixth Company Law Directive 82/891/EEC, on division of public companies, amended by 2007/63/ECSeventh Company Law Directive 83/349/EEC, on group accountsEighth Company Law Directive 84/253/EEC, on the approval of persons responsible for carrying out the statutory audits of accounting document, repealed by 2006/43/EC, on statutory audits of annual accounts and consolidated accounts

Company law directives IITenth Company Law Directive 2005/56/EC, on cross-border mergers of limited liability companiesEleventh Company Law Directive 89/666/EEC, on disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another StateTwelfth Company Law Directive 89/667/EEC, on single-member private limited-liability companies, repealed by 2009/102/ECThirteenth Company Law Directive 2004/25/EC, on takeover bidsMarket Abuse Directive 2003/6/ECTransparency of Listed Companies Directive 2004/109/ECShareholder Rights Directive 2007/36/EC, on the exercise of certain rights of shareholders in listed companiesMerger Tax Directive 90/434/EEC, on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States, repealed by 2009/133/EC

Proposals

Draft Fifth Company Law Directive, on structure of public companies, shareholder right to determine director pay and codeterminationDraft Ninth Company Law Directive, on corporate groupsDraft Fourteenth Company Law Directive, on cross-border transfer of the registered offices of limited liability companies

Proposed 14th Company Law Directive on the cross-border transfer of company seats

• To provide a simple mechanism for the cross-border transfer of company seats.

• Commission staff working document on impact assessments for the 14th company law directive, December 2007.

• EP resolution on the 14th Directive, 10 March 2009. Own-initiative report adopted by JURI on 9 January 2012.

• EP adopted report at plenary session on 2 February 2012. • Commission Action Plan on company law and corporate

governance envisages further consultations in 2013 to update its impact assessments, 12 December 2012.

• Commission publishes consultation on cross-border transfer of company seats, 14 January 2013.

Merger of existing company law Directives

Commission Action Plan for company law and corporate governance contains Commission's plans to adopt a proposal codifying and merging major company law Directives in 2013, 12 December 2012.

Commission Action Plan for company law and corporate governance

outlines the initiatives which the Commission intends to take in this area in the coming years in order to modernise and enhance the current framework.The initiatives, which will be both legislative and non-legislative, follow three main lines:• Enhancing transparency between companies and

investors• Encouraging long-term shareholder engagement• Improving the framework for cross-border operation of

companies

Free movement of companies: five cases

First setting the scene: the ECJ case law1. C-212/97 Centros Ltd v. Erhvervs- og

Selskabsstyrelsen [1999] E.C.R. I-1459.2. C-208/00 Überseering [2002] ECR I-9919.3. Kamer van Koophandel en Fabrieken voor

Amsterdam v Inspire Art [2005] ECR I. 1095 4. C-411/03 Sevic Systems AG [2005] ECR I-108055. C-210/06 Cartesio

The right of investment and the free movement of capital

• Golden Shares Cases, Case C-174/04 Commission v Italian Republic suspension of the voting rights attached to shareholdings exceeding 2% of the capital of companies in the electricity and gas sectors.

• Volkswagen Case C-112/05 Commission of the European Communities v Federal Republic of Germany

Case C-212/97 Centros v Erhvervs-og Selskabsstyrelsen [1999] ECR I-1459

Contrary to Articles 52 and 58 EC for a Member State to refuse to register a branch of a company formed in accordance with the law of another Member State in which it has its registered office but in which it conducts no business where the branch is intended to enable the company in question to carry on its entire business in the State in which that branch is to be created, while avoiding the need to form a company there, thus evading application of the rules governing the formation of companies which, in that State, are more restrictive as regards the paying up of a minimum share capital.

C-208/00 Überseering [2002] ECR I-9919

The real seat doctrine, or, in the official English translation of the judgment in Überseering, the "company seat principle", is one of two alternative models in the private international law of companies. Under the real seat doctrine, the law applicable to a company is the law of the country where the company has its actual centre of administration. In the U.K. an incorporation doctrine is followed. The law of the country of incorporation applies irrespective of where a company carries out its business.

Since the company is not incorporated under German law, it does not exist, even if it is still recognised under the law of the country of incorporation (the U.K.). In a number of cases, German courts refused standing to companies incorporated abroad. There is also the threat of loss of the protection by limited liability for directors and shareholders.

C-411/03 Sevic Systems AG [2005] ECR I-10805

Sevic decided a few weeks after the enactment of the Tenth Directive on Cross-Border Mergers, that a Luxembourg company had the right to merge with a German company, despite contrary rules of German law. Refusal to permit a merger would be a restriction in the meaning of Articles 43 and 48 EC and could only be justified if it pursued a legitimate objective under the Treaty and justified by imperative grounds in the public interest. The ECJ regarded the treatment of the Luxembourg company as an instance of discrimination.

C-411/03 Sevic Systems AG [2005] ECR I-10805 [para 22]:

In so far as, under national rules, recourse to such a means of company transformation is not possible where one of the companies is established in a Member State other than the Federal Republic of Germany, German law establishes a difference in treatment between companies according to the internal or cross-border nature of the merger, which is likely to deter the exercise of the freedom of establishment laid down by the Treaty.

Cartesio (C-210/06)

The question in Cartesio

May a Hungarian company request transfer of its registered office to another Member State of the European Union relying directly on community law (Articles 43 and 48 of the Treaty of Rome)? If the answer is affirmative,may the transfer of the registered office be made subject to any kind of condition or authorisation by the Member State of origin or the host Member State?

AG Maduro’s opinion and the judgment in Cartesio

• Overturns Daily Mail in so far it allows restrictions on exit

• More measured from the ECJ but to same effect

National Grid Indus (C-371/10)

VALE Építési kft (C-378/10)

Hungarian company law conversion rules were incompatible with the freedom of establishment because they provided for conversion opportunities when the companies involved in the operation were Hungarian but not when a company involved in the conversion operation was established in another member state, such as Italy.

The general reach of the Fundamental Freedoms

• Freedom of establishment is a fundamental freedom in EC law (Article 43 EC)– Case C-205/84 Commission v Germany (Re-insurance)– Case C-442/02 Caixa Bank France (ban on interest for current

accounts) [2004] ECR I-89615• Free movement of capital is a fundamental freedom in EC law

(Article 43 EC)– Golden shares cases

• The core test: restriction, market access, making less attractive

• Horizontal direct effect• Indirect direct effect

– with particular application to company law: Case C-106/89 Marleasing [1990] ECR I-4135)

Issues for our discussion

National doctrine and EU law– Autonomy of national law and resistance to EU

law • Horizontal direct effect? • The impact of the ECJ case law on national

company law on– transfer of shares– exit of companies

Exit of European companies, SEs

• Here Italian law is not so far out from the European mainstream.

• But again, a question of ’restriction’ under freedom of establishment or free movement of capital.

• What is the consequence of EU secondary legislation.• Consequences of free movement on interpretation

and application of EU legislation.

2.3 The harmonisation of company law and financial market regulation and reactions in

national private law.Briefly about the harmonisation of financial market regulation: impact of free movement.• Institutional, and marked structures: moving

from national to EU level. Diamond/Dybvig, Modigliani/Miller and Prescott/Kydland.

• Investor protection. Monetary policy, costs of financial system• Internal marked dilemmas

2.3 The harmonisation of company law and financial market regulation and reactions in

national private law.Briefly about the harmonisation of company law:Company law directives on harmonisation of national company lawsEU companies

Briefly about the harmonisation of financial market regulation: impact of free movement.

• Institutional, and marked structures: moving from national to EU level. Diamond/Dybvig, Modigliani/Miller and Prescott/Kydland.

• Investor protection. Monetary policy, costs of financial system to the economy• Internal marked dilemmas

Financial market regulation and free movement: impact on private law

• Contracts with investors• Limitations on contracts between professionals• Increased intensity of competition regulation• Payments• Insolvency• Security• Settlements and clearing• Proposed Euro mortgage

2.4 The impact of the financial crisis.

• Monetary policy, costs of financial system to the economy. Macro and micro level reforms

• Restrictions on contractual freedom of financial institutions