## Facts

- Portugal privatized parts of its energy sector and created GALP Energia SGPS SA (GALP) as a public limited company, while the State retained “golden shares.”
- Portuguese legislation and GALP’s governing rules granted the Portuguese State and other public bodies special rights not tied to the size of their shareholding.
- The special rights included power to secure the appointment of the chairman of the board of directors and veto powers over specified corporate decisions, including board appointments up to a stated fraction, amendments to articles of association, certain structural/control transactions, and decisions that could jeopardize national oil and gas supply.
- The European Commission brought an infringement action alleging these special rights restricted free movement of capital.
- Portugal argued the measures were justified by public-interest objectives, primarily security of energy supply and related public security concerns.

## Issues

1. Whether Portugal’s golden-share-based appointment and veto rights in GALP restricted the free movement of capital under Article 56 EC (now Article 63 TFEU).
2. If so, whether the restrictions were justified on public security, public policy, or overriding public-interest grounds such as security of energy supply, and satisfied proportionality.

## Decision

- The court held that Portugal, by maintaining special rights in GALP for the State and other public bodies, failed to fulfill its obligations under Article 56 EC.
- The appointment right and veto rights constituted restrictions on capital movements because they allowed State influence over management and control beyond what ordinary shareholding would permit and could deter both direct and portfolio investment.
- Although security of energy supply can qualify as an overriding public-interest objective, the Portuguese regime was not justified because the powers were not sufficiently limited and relied on overly broad discretion.
- The court found the measures disproportionate because the exercise of the special rights was not structured by precise, objective, stable, and reviewable criteria.

## Legal Principles

- State-retained special rights in a privatized company, conferred through golden shares and departing from ordinary company law, can restrict free movement of capital when they enable influence over management/control beyond the State’s shareholding.
- Measures that deter direct investment (by limiting investor participation in governance proportional to shareholding) and portfolio investment (by depressing share value through veto uncertainty) may constitute capital-movement restrictions.
- Public security or energy-supply objectives may justify restrictions only if the measures are appropriate and necessary and do not grant public authorities excessively broad or vague discretion.
- Justifying regimes must define the exercise of special rights using objective, clear, and reviewable criteria consistent with proportionality and legal certainty.

## Conclusion

The court ruled that Portugal’s golden-share appointment and veto rights in GALP unlawfully restricted the free movement of capital and were not saved by energy-security justifications because the regime conferred overly broad, insufficiently constrained discretion on the State.


European Commission v. Portuguese Republic, Case C-212/09, 2011 E.C.R. I-10889 (C.J.E.U. 2011)