ABUSE OF FREEDOM OF ESTABLISHMENT IN EUROPEAN LAW – MAGMA ENERGY CANADA/SWEDEN.

CONCLUSIONS OF MY LEGAL REPORT GIVEN TO THE COMMITTEE OF FOREIGN INVESTMENTS ON 19 MARCH 2009

Dr. M. Elvira Méndez Pinedo.* 

Under European law (EU/EEA law) States may prohibit abuse of freedom of establishment (when companies try to circumvent national rules through artificial arrangements). In the field of energy law,  States retain regulatory power in order to  secure supply, protect the environment or prevent abuse or fraudulent conduct within their territories.1. Based on the EU/EEA Treaties and on the case law from the Court of Justice of the European Union or ECJ (Factortame 1991, Cartesio 2008 and Societé Centrale de Gestion 2010 and EFTA Court (Norwegian falls 2007), I concluded that:It is possible for national authorities to stop purely artificial arrangements – devoid of economic reality, created with the aim of escaping or avoiding current national prohibitions (abuse of the right of establishment by foreign companies in order to escape national prohibition of tax law, energy law, etc).

 In other words, finally the ECJ has recognised that 1) the misuse of EU law cannot be regarded as promoting the internal market and 2) national authorities can prevent this abuse of freedom of establishment on the basis of the general public interest. 

1.A. Canadian companies operating in the energy field do not have rights in the EU internal market of energy.

Member States can decide wheter they want to open their markets or not.The pre-necessary condition for legal persons to enjoy rights related to the internal market is to be legally established in one Member State of the EU. Without this economic link to the EU, there are no rights to expand activities to other Member States under EU Law. The same is applicable to EEA law. Establishment is defined as “the actual pursuit of an economic activity through a fixed establishment in another Member State for an indefinite period” [emphasis added by author].Investments in energy companies in the EEA territory by foreign companies or undertakings established outside the EEA fall under national law. It is up for national legislators to decide upon this issue. EU law is neutral on this point.

1.B. National sovereignty over natural resources. Neutrality EU/EEA law over property rights (private, private, collective ownership or a mix).

Energy policy is a sector of strategic importance where certain restrictions could be justified due to public interest reasons. EU/EEA Member States have national sovereignty over natural resources and are free to decide the system of public/private property ownership, rights and duties and rules of exploitation. Public/private ownership is a matter for each State to decide in respect of current international and European law in force. Under EU/EEA energy and environmental law there is the possibility to restrict free movement and free establishment for non-economic and public policy reasons such as the security of supply, environmental concerns or any other public policy such as prevention of abuse or fraud.

 The EFTA Court has to follow the case-law of the ECJ in order to secure homogeneity between EU and EEA law (case Norwegian falls 2007).

* M. Elvira Méndez Pinedo is Doctor in European Law. She is married to Sigurður H. Sigurðsson

***************************

I am aware that my legal opinion on the case Magma Energy is slightly different than the opinions drafted by other qualified specialists in general European law on which the Committee built its final opinion. This, in my view, is due to the following factors:

-          First of all, because I am only interpreting European law (EU/EEA law) while the other specialists are interpreting EEA law as incorporated into Icelandic law. We differ on the doctrine of the abuse of rights in European law but the problem is mostly located in the application and interpretation of Icelandic law. I plead, however, that Icelandic law has to be interpreted in the light of the most recent judgments of the ECJ. 

-          The case-law of European courts on the abuse of freedom of establishment used to lead in the direction of the primacy of the internal market and freedom of the companies but my conclusion is based on judgments from the ECJ and EFTA Court that were not taken into account in the other legal opinions and that are very recent (2007, 2008 and 2010). 

 -           EU law is dynamic, changes quickly, it  important to have themost recent legal sources, law, doctrine and case-law. I argue that  a change of jurisprudence has taken place on the issue of abuse of freedom of establishment where the regulatory powers of the States have been preserved (a similar turn of jurisprudence that happened with the ECJ Keck case concerning the free movement of goods in the 90s). The last judgment from the ECJ in 2010 confirms, in my view, a similar turn in the field of right of establishment for legal companies in the EU/EEA. The doctrine had expected a final approach to be taken on the issue by the ECJ as it was unclear until then. 

-          EEA law incorporates most of the EU law on the internal market (economic law)  but it has to be interpreted in the light and context of EU law (which has a much broader material scope and includes social law, environmental law, fundamental rights law, etc). Since the EEA Agreement was signed, EU law has developed very important policies that complement and correct the failures and imperfections of the internal market. These are the areas that I personally find mor einteresting and where I focus on my research. The new Lisbon Treaty takes the EU to a higher level of development in areas  that go much beyond the internal market. Those general principles developed in EU law cannot be discarded when interpreting current EEA law. In short, economic EEA law and the freedoms of the internal market must interplay with the context of other important principles such as protection of the environment (precautionary approach), sustainable development, protection of fundamental rights and social justice, all goals now recognised in the EU Treaties. To hold the opposite view, to interpret EEA law without its natural context inherited from EU law when EU law is applicable to the EEA legal problem, is to simply misunderstand the nature and trends of current European law. 

-         Weapons vs. Ice-cream. Are all  economic freedoms equal? Obviously not.  States need to regulate differently those sectors on the basis of different public interests and the vital interests of their nations.  The freedom  of establishment for legal persons must be connected to the field of activity where they operate. Because the EU presents an asymetric profile of competences or powers depending on the different policies at stake, the powers of States are also asymetric. EU law does not pre-empt national law in all circumstances and in all cases. It all depends on the issue at hand. EU competences can be exclusive, shared or supportive to the States. The EU has an energy policy for European economic actors but it does not have yet a natural resources  policy for hydrowater resources simply becuase no other European country, except for Norway, presents this prpofile. The EU has not opened its energy resources to Canada. When the EU is given no express competence, the powers remain at State level.  

 -          In this case a center of gravity test must be used to determine which is the main issue at stake: freedom of establishment vs. natural resources policy/energy. In my view the balance shifts towards natural resources because that is the main central issue of the deal. The freedom of establishment in this case (Magma Sweden) is subsidiary to the main purpose of the economic operation discussed which is the acquisition of HS Orka in order to exploit the economic hydropower resources in a specific area of Iceland. Services of general interest and of strategic importance such as energy justify a stronger role for the State in order to defend the public interest and the abuse of national/EEA law.  

-          Last but not least, I am aware of the difficulties to prove the intention to abuse the freedom of establishment at an initial stage. However, I think that the requisite of actual economic activity that the ECJ requires cannot be discarded so easily. To my best understanding, a year after Magma Sweden was created by Magma Canada, the Swedish company has no economic activity at all in Sweden, country where they claim their primary establishment to fall under the scope of the European internal market rules. In these circumstances, I do not find it disproportionate for the Icelandic State to research the legality of the operation under national/European law.

All these factors explain why I disagree with other specialists which gave their opinions in all respect for their positions. Disagreement is a natural part of the legal science and it is the main reason why courts do always have an uneven number of judges. During our legal educationn we are trained to agree and disagree with a professional attitude and without taking issues personally.  I encourage all actors to take a similar approach and to discuss issues at the highest intellectual level, whithout making personal arguments. At the end the right interpretation is subject to judicial review. Nevertheless it is also my opinion that while a proper research on the legality of the sale proceeds, we should look to the future and start thinking about the energy/natural resources policy that we need.

Athugasemdir

[Bjarni Kjartansson, 28.7.2010 kl. 11:25]

Þarna hafið þið það.

Mama er hér á fölskum forsendum, líkt og flestir ,,erlendu kröfuhafarnir " hans Villa míns Egils.

Allt tal um, að erlendir fjárfestar (af betri gerðinni) muni hræðast að fjárfesta hér, er bull í boði þeirra sem vilja ganga erinda mis heiðvirðra kaupsýslumanna.

Ég lofa lesndum, að þeir hugsa EKKI fyrst og fremst um hag þjóðarinnar, heldur líkt og þeir gera annarstaðar í ,,þróunarlöndunum" um sína eigin buddu og eingöngu sína eigin buddu.

Miðbæjaríhaldið

[Einar Björn Bjarnason, 28.7.2010 kl. 14:18]

Thank you Elvira!

Einar