C-367/96

The regulatory framework and the relevant It should be noted from the outset that the case-law case has arisen from contentious proceedings in Greece concerning the application and interpretation, in a case concerning compa­ nies in financial difficulties, of Article 25 of Community law Council Directive 77 / 91 / EEC of 13 Decem­ ber 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required by Mem­ ber States of companies within the meaning 2. It is sufficient to recall here that Article of the second paragraph of Article 58 of the 25(1) of the Second Directive provides that: Treaty, in respect of the formation of public limited liability companies and the mainte­ nance and alteration of their capital, with a view to making such safeguards equivalent 1 2 — See Joined Cases C-19/90 and C-20/90 Karelia and Karellas v Minister for Industry, Energy and Technology and Organ- (hereinafter 'the Second Directive'). The ismos Anasygkrotiseos Epicheirisseon AE [1991] ECR I-2691; Case C-381/89 Syndesmos Melon tis Eleftheras Evangeliku Court is well-acquainted with such proceed­ Ekklissias and Others v Greek State and Others [1992] ECR ings as it has already had several occasions to I-2111; Joined Cases C-134/91 and C-135/91 Kerafina- Keramische-und Finanz Holding AG and Vioktimatiki AEVE v Hellenic Republic and Organismos Oüonomikis Anasygkrotissis Epicheirisseon AE [1992] ECR I-5699; and Case C-441/93 Pafitis and Others v Trapeza Kentrikis Ella- dos AE and Others [1996] ECR I-1347. * Original language: Italian. 3 — Judgment cited in the preceding footnote, at paragraphs 67 1 — OJ 1977 L 26, p. 1. to 70.

4. Article 281 of the Greek Civil Code, which provides that 'the exercise of a right is prohibited where it manifestly exceeds the bounds of good faith or morality or the economic or social purpose of that right', is of particular relevance here. It is precisely on 4 the grounds of this provision that the Hel­ 3. Law No 1386 of 5 August 1983 set up lenic Republic challenges the applicability of the Organismos Oikonomikis Anasygkrotisis Article 25 of the Second Directive in the Epicheiriseon AE (Organisation for the present case. Restructuring of companies, hereinafter 'the OAE'), a public limited liability company the capital of which is fully subscribed by the Greek State, with the aim of furthering the country's economic and social develop­ The relevant case-law ment (Article 2(2)). To this end, the OAE may, inter aim, take over the administration and day-to-day running of companies under­ going financial difficulties or of nationalised companies, acquire participations in the capi­ tal of companies, grant loans, issue bonds 5. As indicated above, the Court has already and transfer shares to public bodies and pri­ had occasion to clarify the scope and effect vate individuals (Article 2(3)). of Article 25 of the Second Directive, pre­ cisely in relation to the aforesaid provisions of Greek law. Asked to give a preliminary ruling in various proceedings instituted by 4 — Official Journal of the Hellenic Republic, EK Edition 107 of 8 August 1983, p. 14. The provisions of Law No 1386/1983 shareholders opposing capital increases were subsequenuy amended by Law No 1882/1990 (Official effected by administrative act, the Court Journal of the Hellenic Republic EK Edition A43 of 23 March 1990) in order to comply with the Second Directive, ruled in effect that the general meeting of and in particular with Articles 25 and 29 thereof. Needless to say, the case at issue is governed by the provisions of Greek shareholders has exclusive competence to law in force prior to the amendments enacted by Law No decide alterations of capital. More particu- 1882/1990.

larly, the Court ruled that Article 25(1) of 9 case, the Court made it clear that, even on the Second Directive has direct effect, and the basis of special regulations designed to that this provision precludes application of a enable companies in financial difficulties to national provision which, in order to ensure be restructured, the general meeting may not the reorganisation of companies in critical be deprived of that most essential, unrelin- difficulties, provides that capital increases quishable right, namely the right to alter the may be decided by administrative act with composition of the share capital, that is to 6 no involvement by the general meeting, say the assets of the company and of the even when original shareholders are granted shareholders themselves. 7 pre-emptive rights on the new shares. The aim of ensuring a minimum level of protec­ tion for shareholders in all Member States, which is the main aim of the Second Direc­ tive, would, the Court stated, be 'seriously frustrated if the Member States were entitled to derogate from the provisions of the direc­ 6. In Pafitis, moreover, the Court further tive by maintaining in force rules — even stated, although no specific question had rules categorised as special or exceptional — been submitted in this respect, that 'the uni­ under which it is possible to decide by form application and full effect of Commu­ administrative measure, outside any decision nity law would be undermined if a share­ by the general meeting of shareholders, to holder relying on Article 25(1) of the Second effect an increase in the company's capital Directive were deemed to be abusing his which would have the effect either of oblig­ rights merely because he was a minority ing the original shareholders to increase their shareholder of a company subject to reor­ contributions to the capital or of imposing ganisation measures or had benefited from on them the addition of new shareholders, the reorganisation of the company. Since thus reducing their involvement in the Article 25(1) applies without distinction to decision-taking power of the company'. 8 all shareholders, regardless of the outcome of any reorganisation procedure, to treat an action based on Article 25(1) as abusive for such reasons would be tantamount to alter­ 1 ing the scope of that provision'. 0

national court reached the conclusion that million. By Decision No 153 of 6 June 1986, the facts of the case before it met the condi­ the Minister for Industry, Research and tions required by national law to determine Technology approved the capital increase that the right conferred by Article 25 had and set out the terms thereof, providing in been exercised abusively. Even before particular for pre-emptive rights, to be exer­ excluding that this had occurred, the Court cised within one month of the publication of expressly stated that it was not necessary 'to the decision in the Official Journal, for rule as to whether it is permissible, under the former shareholders in respect of the new Community legal order, to apply a national share issue. rule in determining whether a right con­ ferred by the provisions of Community law at issue is being exercised abusively'; it cau­ tioned however that 'the application of such a rule must not detract from the full effect and uniform application of Community law in the Member States'. 1 1 The former shareholders did not exercise this right. They in fact considered that the capital increase, decided in the aforesaid manner, was in conflict with Article 25(1) of the Sec­ ond Directive. On 10 November 1987, they therefore brought an action before the Polimeles Protodikio (Court of First The facts and the questions referred for a Instance), Athens, seeking annulment of the preliminary ruling capital increase. This action was dismissed by judgment No 5136/1988.

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KEFALAS AND OTHERS v GREEK STATE AND OAE

stayed its final judgment and required the 13 made bankruptcy certain; to the evident Greek State, which had raised the objection advantages that the appellants themselves of abuse of rights, to produce evidence that had drawn from the government's reorgani­ the right, conferred by Article 25 of the Sec­ 14 sation measures; as well as to the fact that ond Directive, to bring an action in annul­ the appellants did not exercise their pre­ ment had been exercised abusively by the emptive rights in respect of the shares issued shareholders. The national court therefore after the company was reorganised. takes the view that the general rule laid down in Article 281 of the Greek Civil Code sanctioning the abusive exercise of rights could well be capable of application even in cases where the provision relied upon before a court had its origin in Community law.

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OPINION OF MR TESAURO — CASE C-367/96

Following this line of reasoning, the national The first question court consequently considered it necessary, in order to rule on the proceedings pending before it, to ask the Court to clarify whether, to what extent and under which conditions, it is possible to apply the concept of abuse of rights also in cases where the right relied upon is conferred by Community law. More precisely, it referred to the Court the follow­ ing two questions for a preliminary ruling:

11. By its first question, the referring court therefore asks the Court to clarify whether the possible abusive exercise of a right con­ ferred by a provision of Community law may be assessed by the referring court on the '1 . Can the national court apply a provi­ basis of the relevant provisions of its own sion of national law (in this case Article national law, or whether, precisely because 281 of the Greek Civil Code) in order the right relied upon in the proceedings has to assess whether a right granted by the its origin in Community rules, the abuse of Community provisions at issue is being rights should be examined with reference to exercised by the party possessing it or the general principles laid down in Commu­ are there other Community law prin­ nity law. ciples, and if so which, to be found in legislation or settled case-law, on which the national court may, if need be, base itself?

12. First of all, a clarification is necessary. It present case. While explaining that the appli­ is indisputable, in proceedings for a prelimi­ cation of a national rule on abuse of rights nary ruling, that the decision as to whether must not detract from the full effect and uni­ or not there has been an abuse of rights lies form application of Community law, the in any case with the national court: and this Court in effect confined itself to ascertaining regardless of whether the abuse of rights is whether in that case the conditions for determined on the basis of national rules or regarding the right conferred by Article on the basis of Community criteria. It goes 25(1) of the Second Directive as having been without saying, however, that in all cases the exercised abusively were fulfilled. Basing Court has the power of interpretation, albeit itself on the interpretation of the rule of from different angles, in order to ensure that Community law at issue, the Court the provision of Community law relied upon answered this question in the negative. is correctly construed and applied.

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Article 25(1) of the Second Directive abu­ 16. This conclusion is confirmed by the pos­ sively. Such a reply was without doubt suffi­ ition taken by the Court in a case where the cient in the earlier case, but could well seem national court asked whether it could apply a too summary here, given that the referring 'principle of objective unfairness', which court asks the Court to resolve the issue left would have resulted in the non-application open in Pafitis, in other words to clarify of a Community provision. The Court did whether or not it is permissible under Com­ not fail to point out that it would be con­ munity law to apply a national rule on abuse trary to the division of powers between the of rights — obviously where rights conferred Community and the Member States if it by provisions of Community law are were to be accepted that 'a national authority involved — or whether only Community were entitled, or even obliged, not to apply a criteria may be used to determine whether provision of Community law in a case in such a right has been exercised abusively. which it considered that its application would lead to a result which the legislature would clearly have sought to avoid if it had envisaged such an eventuality when enacting the provision in question. If such a general principle were recognised, it might prevent the provisions of Community law from hav­ ing full effect in the Member States and would be prejudicial to the fundamental principle that Community law must be applied uniformly throughout the Commu­ 17 nity'.

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KEFALAS AND OTHERS v GREEK STATE AND OAE

may possibly be justified in connection with no case be applied in such manner as to the formalities applicable to the imposition cause the Community legal order to give its of a charge introduced by Community law; 'blessing' to an infringement of its provi­ on the other hand, 'such a rule may not be sions. applied in so far as its effect would be to modify the scope of the provisions of Com­ munity law concerning the basis of assess­ ment, the manner of imposition or the amount of a charge introduced by that 18 law'.

All things considered, the Court followed the reasoning in Pafitis. Declaring that Article 25(1) applies without distinction to This conclusion, however, does not fully all shareholders regardless of the outcome of answer the question referred, since the any reorganisation procedure, and that con­ national court also asks whether there arc sequently 'to treat an action based on Article principles of Community law which are 25(1) as abusive for such reasons would be capable of sanctioning cases of abuse of tantamount to altering the scope of that pro­ rights. Certainly, it seems difficult even to 19 vision', the Court again underscored that a envisage the existence of a general rule of provision or principle of national law can in Community law capable of negating a right conferred by a Community provision, espe­ cially in a harmonised field such as the com­ pany law field involved here, in confronta­ 18 — Case 118/76 Balkan-Import-ExportGmbH v Hauptzollamt Berlin-Packhof [1977] ECR 1177, at paragraph 5. tion with a domestic provision infringing 19 — See Pafitis (cited in footnote 2), at paragraph 70. that right. None the less, given the terms and

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OPINION OF MR TESAURO — CASE C-367/96

It should be pointed out that these principles are simply created by the Court, as occurs in the national sphere, and they accordingly constitute principles specific to Community law, in the sense that they are not borrowed However, that affirmation should not be in individual cases from other legal systems. understood as meaning that there are two Therefore, while the Court is certainly different categories of general principles: inspired by national legal practice in elabo­ those specific to the Community legal order rating and defining general principles, it nev­ and those derived from national practice. It ertheless always adapts the specific principle is indeed true that certain principles have concerned to the needs, functioning and their foundation in the actual provisions of objectives of the Community. the Treaty itself, or can at least be traced back to them (I refer here, for example, to the principle of proportionality), whereas

20 — Joined Cases C-46/93 and C-48/93 Brasseńe du Pêcheur SA v Bundesrepublik Deutschhnd and The Queen v Seaetary of State for Transport, ex parte: Factortame Ltd and Others 20. It would not be superfluous to add here [1996] ECR I-1029, at paragraph 27. See also paragraph 41 that the fact that the only Community provi­ of the same judgment, where the Court stated that, in the absence of written rules, it referred to the general principles sion which refers to 'the general principles common to the laws of the Member States in areas other than the non-contractual liability of the Community. common to the laws of the Member States',

Although it is true that the majority of the Member States recognises the concept of 23 abuse of rights, it is also true that in cer­ tain States this legal concept, far from having In the Opinion I delivered in Pafitis, while the value of a general principle of law, is noting that the abusive exercise of rights by a person on whom a right is conferred may be contested in nearly all Member States, albeit 22 — It was precisely for this reason that I came to the conclu­ in different manners and under different con­ sion that it is under its own legal order that a national court ditions, I promptly added that no such rule may, in principle, ascertain whether a right conferred by a provision of Community law has been exercised abusively (see the Opinion in Pafitis, cited in footnote 16, at para­ graph 28). As explained in that Opinion, such an assessment can under no circumstances detract from the objectives of the provision at issue and, consequently, from its uniform 21 — See L. Neville Brown, Is there a General Principle of Abuse application in all Member States: such a result would clearly of Rights in European Community Law? in Institutional have occurred in that case (see paragraphs 30 to 33). Dynamics of European Integration, Essays in Honour of 23 — However, the concept docs not exist at all, at least not as Henry G. Schermers, vol. II, Dordrecht/Boston/London such, in the law of the United Kingdom, of Ireland or of 1994, page 511 et seq. Denmark.

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24. That said, it is none the less true that any legal order which aspires to achieve a mini­ The fact that it is not possible to arrive at a mum level of completion must contain self- common, but precise and detailed, definition protection measures, so to speak, to ensure of abuse of rights by drawing on the general that the rights it confers are not exercised in principles common to Member States is a manner which is abusive, excessive or dis­ torted. This requirement is not at all alien to Community law; on the contrary, it has been 24 — This is the case, for example, in Italian law, in which the repeatedly recognised in the Court's case- concept of abuse of rights relates solely to property rights law. (Article 833 of the Civil Code). Similarly, even if one were to categorise the cases where United Kingdom, Danish and Irish law sanctions certain conduct as entailing application of a concept of abuse of rights, the fact remains that these cases are still confined to certain specific areas. 25 — Although this is in any case a simplification, in certain legal systems abuse of rights covers conduct that goes beyond the limits of the exercise of the right involved (Belgium, Spain, Luxembourg and Portugal), while in others it relates to conduct which is contrary to good faith and accepted principles of morality (Germany, Greece, Portugal). More­ over, while in certain legal systems the determination of an abusive exercise of rights is based solely on objective ele­ I refer, above all, to the established case-law ments (Germany, Belgium, Luxembourg, the Netherlands, Greece, Spain and Portugal), in others certain subjective according to which 'the facilities created by elements are required, in particular the intent to harm oth­ ers (Italy and, according to some writers, France). the Treaty cannot have the effect of allowing

25. More generally, it is appropriate to recall So, essentially, the Court recognises that a the statement of the Court whereby national court may sanction an excessive or 'although the national courts may, therefore, distorted use of Community law only where take account, on the basis of objective evi this is not prejudicial to the objectives pur dence, of abuse or fraudulent conduct on the sued by the relevant provision, in particular in cases where the provision relied upon is only 'apparently' the one governing the cir cumstances concerned, or when the situation 26 — Case C-370/90 The Queen v Immigration Appeal Tribunal and Surinder Singh [1992] ECR I-4265, at paragraph 24. To of the person relying upon the right con the same effect, see, inter alia. Case 33/74 van Binsbergen v cerned only 'apparently' meets what is laid Bestuur van de Bedrijfsvereniging voor de Metaalnijverheid

So, reli GmbH v Hauptzollamt Hamburg-Jonas [1993] ECR I-779, in which the Court stated that 'the position would be dif ance on a right may be refused only where it ferent only if it could be shown that the importation and is proved that those limits have been re-exportation of that cheese were not realised as bona fide commercial transactions but only in order wrongfully to exceeded. From that angle, where a legal benefit from the grant of monetary compensatory amounts. The bona fide nature of those transactions is a question of position is one conferred by Community facttobc decided by the national court' (at paragraph 21, law, the question of any abuse of rights the italics arc mine). It was also the case in Case 130/88 van de Bijl v Staatssecretaris van Economische Zaken [1989] ECR 3039, at paragraph 26, in which the Court held that the host Member State was not bound by a certificate con firming that the holder had exercised a period of profes sional activity in the Member State from which he came 28 — Paletta II (cited in the preceding footnote), at paragraph 25. when 'it is clear that during that same period the person in The Court thus stateci in the case before it that the pre question has pursued his activities in the territory of the sumption of abusive conduct on the part of the person rely host Member State' (at paragraph 27). The judgment in ing upon & legal position conferred by Community law Case C-206/94 Brennen v Paletta [1996] ECR 1-2357 took could not in any case be such as to require that the worker

On a proper view, ance with Article 18 of Regulation No 574/72, he was not therefore, that case did not involve abuse of rights in the sick at all' (the italics arc mine). true sense of the term but fraud.

26. This interpretation of the case-law to Once again, therefore, the Court began by which I have referred is, in my view, con­ defining the aim of the provision at issue and firmed by a recent judgment in which the determining its intrinsic limits and then left Court explicitly ruled on an abusive exercise it to the national court to rule out its invo- of rights. The case involved a Turkish cability only where those limits were worker who, despite the fact that he had exceeded, that is to say where in the specific expressly declared he would return to Tur­ case the worker's conduct was shown to be key after a period of vocational training and fraudulent. had obtained, on the basis of such declara­ tion, a temporary residence permit from the competent authorities in Germany, intended to extend his stay in Germany and sought to rely upon the relevant 'Community' provi­ 29 sion for this purpose. The Court's answer was clear and to the point: 'The fact that a Turkish worker wishes to extend his stay in the host Member State, although he 27. So, the Court has essentially allowed expressly accepted its restriction, does not each national legal system to apply its own constitute an abuse of rights'. The Court rules of ordinary law (whether sanctioning then added that the fact that the worker had 'fraudulent evasion of statutory law', 'false declared his intention of returning to Turkey representation', or, why not, even 'abuse of after having been employed in the Member rights') to withdraw the right to rely upon State for the purpose of perfecting his voca­ rules of Community law in well-defined tional skills was not liable to deprive him of cases, in which, in the final analysis, such the rights deriving from Article 6(1) of rules were not meant to apply, and where Decision No 1/80 of the EEC-Turkey Asso- there can therefore be no adverse effect on the uniform application of Community law. In such cases, I repeat, the Court's interpre­ tation may still be necessary in order to 29 — See Case C-36/96 Faik Giinaydin and Others v Freistaat Bayern [1997] ECR I-5143. More specifically, the Court define the objectives and the limits of the was asked: 'Can a claim under Article 6(1) of Decision No 1/80 be opposed as an abuse of law if the Turkish worker has expressly declared his intention of returning to Turkey after preparation for the work there and the competent authority has authorised him to reside in the country tem­ porarily only in view of that declaration?' 30 — As above, at paragraph 61; the italics are mine.

To sum up, I conclude that at present Com­ munity law has no general principle sanc­ tioning the abusive exercise of a right con­ ferred by Community law and that, even if one were to exist, it could not in any event be applied so as to 'endorse' a breach of In view of the conclusion I reached on the Community law, which would otherwise be first question, I consider it unnecessary to 3 the result in this case. Given the wording of rule on this point. Moreover, in Pafitis, 1the the question submitted, I would add, finally, issue of the application of the Greek provi­ that it is also not possible in this case to refer sion on abuse of rights for the purpose of to established principles of Community law, preventing Article 25(1) of the Second Direc­ such as the principles of proportionality, tive from being relied upon has already been legal certainty and legitimate expectations. considered and resolved by the Court. I shall Nor do I consider it possible to envisage the therefore confine myself to a few brief obser­ use of those principles to render inoperative vations. the protection afforded to individuals by Community law, much less to 'endorse' an established breach of Article 25(1) of the Second Directive.

The second question 29. I would recall that, according to the Greek court, the shareholders' attempt to oppose an increase in share capital would constitute an abuse of rights, in that, first, the shareholders themselves derive evident economic benefits from this, and second, the appellants have not exercised their preferen­ 28. By its second question, the referring tial rights to take up the new shares issued as court asks whether — in the event that it is a result of the increase in share capital. precluded from assessing whether there has been an abuse of rights on the basis of provi­ sions of its own national law, which would 31 — Judgment cited in footnote 2, at paragraph 70.

On this point, it is sufficient to note that, had they exercised their option on the new shares, the shareholders would have thereby endorsed the decision to increase capital taken without the general meeting's consent, a decision which they challenged precisely on the ground that it infringed Article 25(1) of the Second Directive. Under the circum­ Moreover, as further confirmation of the stances, it would be odd, not to say para­ foregoing conclusion, the fact that the out­ doxical, to characterise as abusive the exer­ come of reorganisation measures is not fore­ cise of the right conferred on the seeable from the outset and that it would shareholders by that provision, when the therefore be arbitrary to judge the share­ holders' intentions after the fact, particularly shareholders themselves wanted to oppose in view of the positive results achieved the infringement of this right, brought about, through government intervention, should without their consent, through an increase of not be underestimated. In any case, it would capital by means of administrative act. Oth­ be odd to make the abusive character of the erwise, the scope of the rule of Community exercise of a right dependent on the fact that law at issue would be modified: and one the capital increase led to an improvement in would arrive at a result inconsistent with the the company's asset position, that is to say to result pursued by Community law through the very achievement of the main objective harmonisation of the company law rules in pursued by an increase in share capital. question.

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