The Advocate General of the E.U. Court of Justice issued an opinion urging the Court to dismiss the European Commission’s action against the Federal Republic of Germany to impose penalties for failure to fully comply with the Court's earlier ruling on the amti-takeover Volkswagen law. In his opinion, Nils Wahl found that German federal legislation enacted after the Court’s ruling fully complied with that ruling. The Advocate General’s Opinion, while persuasive, is not binding on the Court of Justice. It is the role of the Advocates General to propose to the Court, in complete independence, a legal solution to the cases for which they are responsible. The Judges of the Court are now beginning their deliberations in this case. Judgment will be given at a later date.
The Volkswagen law was hammered out in 1960 with
the participation of workers and trade unions that, in return for relinquishing
their claim of ownership rights in the company, secured protection against any
large shareholder gaining control. The legislation allows the federal
government and Lower Saxony to each appoint two members of the supervisory
board and gave them each a 20 percent stake.
In 2007, the Court of Justice ruled that Germany’s Volkswagen Law restricted
the free cross-border movement of capital through the intervention of the
public sector. The Court found that capping the voting rights of every
shareholder at 20 percent regardless of their shareholding violated the
requirement that there be a correlation between shareholding and voting rights.
The Court also held that provisions in the law conferring two seats each on the
company’s supervisory board (equivalent to the board of directors in the US)
for the German Federal Republic and the State of Lower Saxony, regardless of
their shareholding, also constituted a restriction on the cross-border movement
of capital. (European Commission v. Federal Republic of Germany, No. C-112/05).
Subsequent to the Court’s opinion, Germany enacted legislation abolishing the
provisions providing for the representation of public authorities on the board
and the 20 percent voting cap. But the Commission contends that the legislation
did not modify the provision establishing a 20 percent blocking minority in
favor of Lower Saxony. Further, no changes were foreseen to the VW Articles of
Association, which contain majority voting requirements mirroring the VW law
and which were considered as a State measure by the Court.
Advocate General shares the German government’s reading of the 2007 judgment
that the Court found two infringements: the first in relation to the provision
on the appointing rights and the second in relation to the provisions on the
capping of voting rights and on the blocking minority combined. Therefore,
reasoned the Advocate General, by repealing the provision constituting the
first infringement and by repealing one of the two provisions constituting the
second infringement, Germany has complied fully with the 2007 judgment.
In the Advocate General’s view,
the use of the expression in conjunction with in the operative part of the 2007
judgment excludes, on its own, the interpretation proposed by the Commission.
In addition, he found that the grounds of the 2007 judgment also fail to
confirm the view taken by the Commission. In this respect, he emphasized that
the Court, taking into account notably that the Land of Lower Saxony retained
an interest in the capital of Volkswagen of approximately 20 %, considered it
appropriate to analyze the provisions on the capping of voting rights and the
blocking minority together and explicitly referred to the cumulative adverse
effects of the two provisions on investors’ interest in acquiring stakes in
The Advocate General further
pointed out that the purpose of the present proceedings is not to determine
whether the provision on the blocking minority, considered on its own,
infringes EU law, but only whether Germany has complied with the 2007 judgment.
With respect to additional complaints put forward by the Commission in the
present action, namely that also the Articles of the Association of Volkswagen
should have been amended, the Advocate General urged the Court to reject those
complaints as inadmissible, because the Articles of Association were not
scrutinized by the Court in the 2007 judgment.