A. General Applicability of the EEA-Agreement on Ownership Rules?

The relevant ownership rule can contradict Article 40 EEA-Agreement only if it is not exempt from the applicability of the EEA-Agreement by virtue of Article 125 EEA-Agreement. Article 125 EEA-Agreement states that the EEA-Agreement «shall in no way prejudice the rules of the Contracting Parties governing the system of property ownership». This provision mirrors the substance of Article 295 EC-Treaty in identical language. 1The meaning of the term «system of property ownership» (I) is decisive for answering the question whether the relevant ownership rule can be affected by provisions of the EEA-Agreement (II).

I. Rules Governing the System of Ownership

The «rules governing the system of ownership» in the sense of Article 295 EC-Treaty have not yet been defined by the European Court of Justice (ECJ) in a clear and coherent way. The ECJ has approved the applicability of the EC-Treaty only on certain aspects of «property», in particular on industrial and commercial property rights (patents et al.) 2 and on the admissibility of Community measures concerning the common organisation of agricultural markets 3. Advocate General Colomer recently pointed out that the ECJ «has barely had occasion to give a ruling on the true purpose and scope of Article 295 EC» 4.

Legal doctrine favours a rather broad, but in the light of the objective of Article 295 EC-Treaty potentially probably misleading definition of the system of property ownership (in German: «Eigentumsordung»). According to Hochbaum the system of property ownership has to be understood as «die Gesamtheit der Vorschriften..., die in jedem Mitgliedstaat die mit dem Eigentum verbundenen Rechte und Pflichten, die Möglichkeiten zur Beschränkung oder Einziehung von Eigentumsrechten sowie insbesondere auch die Rechte und Pflichten bei der Überführung von privatem Eigentum in Gemeineigentum oder andere Formen der Gemeinwirtschaft regeln.» 5

Despite such broad formulations a widely shared opinion in doctrine understands Article 295 EC-Treaty that it does not bring all rules which govern the system of property ownership beyond the applicability of the EC-Treaty, but concentrates in its core on decisions on property assignment to private or public owners (privatisation or socialization; «Eigentumszuordnung in private oder öffentliche Trägerschaft» 6) as far as they are not incompatible with other provisions of the EC-Treaty (e.g. Article 12 EC-Treaty or Article 87 EC-Treaty 7). Article 125 EEA-Agreement is understood in a similar way 8. However, this interpretation may turn out to be too strict in the light of a teleogical interpretation of Article 295 EC-Treaty and Article 125 EEA-Agreement. Advocate General Colomer recently pleaded for such a teleological approach in three cases involving state influence on enterprises 9.

II. The 10 %-Ownership Rule

While it is true that the Norwegian 10 %-ownership rule of Section 2-2, paragraph 1, of the Law on Financial Activity and Financial Institutions, does not fall within the classical category of «Eigentumszuordnung», it can be clearly distinguished from civil rules concerning property relationships or the shape and content of industrial and intellectual property rights. Different from the latter the 10 %-ownership rule provides for a structural system of property ownership in financial institutions 10. It´s purpose in respect to property 11 is to preserve the relative independence of the financial industry from other industry (and, by that, the relative indepedence of other industry from the control of a financial institution which is controlled by other industry). This objective of avoiding «undue concentration of economic power in private hands» generated by the control of Norwegian financial institutions which control other Norwegian commercial sectors in the small-sized Norwegian economy is a rationale in the core of political considerations to bar inadequate private power in certain enterprises, in particular in economically strategic sectors of public interest.

It could be also served by means of socialisation or nationalisation which would doubtlessly not be prejudiced by the EEA-Agreement nor by the EC-Treaty. It could as well be achieved by conferring exceptional rights and powers in financial institutions on the public authorities which -according to Advocate General Colomer - should also be considered as being not in itself contrary to the fundamental freedoms established by the Treaty although the specific manner in which they are applied (in the sense of discrimination of foreigners) may indeed be so 12.

In comparison to those alternatives a device like the 10 %-limit for a single private shareholding is obviously less restrictive for private domestic and transnational activities and hence should be understood to fall within the scope of Article 125 EEA-Agreement in the way that such a measure does not have to be considered per se as incompatible with the Treaty unless it is proved otherwise 13. This parallels the situation in cases of «conditioned privatisation» for which Advocate General Colomer pointed out that «it is almost unthinkable that the Treaty should be intended to allow a Member State to retain the full shareholding in any undertaking, with the maximum restriction on the freedoms of establishment and movement of capital which that implies, and, at the same time, to stand in the way of a liberalised system subject to limited administrative conditions which are non-discriminatory and, therefore, more in keeping with the aim of integration» 14 (rule of «he who is able to do the most, can also do the least» 15). The indistinctly applicable 10 %-rule can be clearly distinguished from the (discriminatory) Portuguese legislation which limits the access of foreigners, including Community nationals, to the capital of undertakings which are in the process of being privatised, which in particular allows each decree privatising undertakings to limit the number of shares which may be acquired or subscribed for by companies which are foreign or have mostly foreign capital, and to fix the maximum foreign interest in the share capital of the privatised company and in its management bodies, and which led to decree-laws privatising banks and insurance companies which limited the foreign capital holding to between 5 % and 40 %, depending on the circumstances and to a decree-law which sets a limit of 25 % on foreign capital holdings in undertakings whose process of privatisation has been completed, unless a higher limit has been determined 16.

Since the applicability of the «system of property ownership»-clause to the 10 %-rule is a new type of issue both for the EFTA-Court and for the jurisprudence of the ECJ it is an open question whether the EFTA-Court will follow or disregard the interpretation of Article 125 EEA-Agreement outlined above. The EFTA-Court cannot easily discard the arguments for the applicability of Article 125 EEA-Agreement. At least the EFTA-Court would be barred to consider the rule as per se incompatible with the EEA-Agreement, unless proved otherwise.

On the other side it is not unlikely that the EFTA-Court would leave the question open and state that in any case general rules of the EEA-Agreement would have to be respected such as the prohibition of discriminatory treatment, be it within or outside a fundamental freedom.

But even if the EFTA-Court should deny the applicability of Article 125 EEA-Agreement and would assess the 10 %-ownership rule on the basis of the fundamental freedoms of the EEA-Agreement the EFTA-Court would be faced with the problem whether an indistinctly applicable rule which aims at securing the partition of private power in a key-sector of the economy can constitute a relevant restriction of a fundamental freedom at all and would - at least - be confronted with the necessity of considering the justification of the 10 %-rule by the mandatory requirement of the national policy to restrict private power in a key-sector of the economy (see below B and C).

B. Restriction on the Movement of Capital?

In case that the EFTA-Court should find that the 10 %-ownership rule of Section 2-2, paragraph 1, first sentence of the Law on Financial Activity and Financial Institutions is not covered by Article 125 EEA-Agreement or that it is covered, but has to be compatible with other fundamental provisions of the EEA-Agreement such as the general prohibition of any discrimination on grounds of nationality (Article 4 EEA-Agreement) or a basic freedom such as Article 40 EEA-Agreement 17 the 10 %-ownership contradicts the obligations of Article 40 EEA-Agreement only, if this rule falls within the applicability of Chapter 4 of the EEA-Agreement (I) and constitutes a restriction on the movement of capital (II).

I. Applicability of Chapter 4 of the EEA-Agreement on Ownership Rules

Chapter 4 of the EEA-Agreement (Articles 40-45) is applicable to the relevant ownership rules only if no special rules exclude the applicability of Chapter 4. Since Section 2-2 of the Law on Financial Activity and Financial Institutions covers investment in financial institutions the question arises whether the compatibility of a national measure with Article 31 EEA-Agreement on the right of establishment excludes the applicability of the guarantee of Article 40 EEA-Agreement, as far as the intended investment serves a transnational establishment. This question finds a parallel in the EC-Treaty (1) and its solution there has at least persuasive weight for the adequate answer in the EEA-Agreement (2).

1. EC-Treaty

Under the EC-Treaty Article 58 par.2 states that the provisions of the Chapter on capital and payments «shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with this Treaty.» This provision is interpreted by doctrine in the way that restrictions on establishment (such as rules on prudential supervision -aufsichtsrechtliche Regelungen-), which are compatible with the rules on the right of establishment (scil.: Articles 43-48 EC-Treaty), but constitute indirect restrictions on the movement of capital, are not subject to the prohibition on the movement of capital as laid down in Article 56 EC-Treaty 18. In the case Bachmann which related, inter alia, to the former Article 67 EEC-Treaty, the precursor of Article 56 EC-Treaty, the ECJ stated even more generally that Article 67 EEC-Treaty «does not prohibit restrictions which do not relate to the movement of capital but which result indirectly from restrictions on other fundamental freedoms 19. Hence it can be concluded that national measures on establishment, even if they indirectly generate a restriction on the free movement of capital, are subject only to the assessment on the basis of Article 43 EC-Treaty.

This may seem to be contradicted by the formulation of Article 43 par.2 EC-Treaty that the freedom of establishment is «subject to the provisions of the Chapter relating to capital» 20. However, Article 43 par.2 EC-Treaty can not be read to create supremacy for the legal assessment of a national measure which affects both establishment and capital investment (e.g. a measure on direct investment) on the basis of the rules on the free movement of capital, but states that in such an overlapping situation the right of establishment is only granted within the guarantees of the free movement of capital. In other words: Article 43 par.2 EC-Treaty does not provide for the overruling of justified restrictions of the right of establishment, thereby extending it, by refering to the free movement of capital. On the contrary Article 43 par.2 EC-Treaty refers to the potential limits for exercising the right of establishment drawn by justified restrictions of the free movement of capital. This is the vice versa-version of Article 58 par.2 EC-Treaty which limits the scope of the rules of free movement of capital by justified restrictions of the right of establishment.

Hence, if in the case of a direct investment -as different from a portfolio-investment- the aspects of establishment (exertion of entrepreneurial influence or control) form the core of the transaction and outweigh the aspects of capital movement, the legal assessment of a national measure which restricts establishment has to be based on the rules of the right of establishment and, if the measure is found to be compatible with these rules, the compatibility cannot be circumvented by the scope of the free movement of capital. In the same way justified restrictions of the free movement of capital cannot be circumvented by the requirements of the right of establishment 21.

2. EEA-Agreement

The EEA-Agreement in Article 31 contains the «subject»-provision which mirrors Article 43 EC-Treaty, but lacks a provision which is analogous to Article 58 par.2 EC-Treaty. However, in view of the objective of the EEA-Agreement to establish a «dynamic and homogenuous European Economic Area, based on common rules and equal conditions of competition» (see Preamble of the EEA-Agreement) it is cogent that the basic rules for the relationship between the provisions on the right of establishment and on the movement of capital as laid down in the EC-Treaty, i.e. in particular the «without prejudice»-rule in Article 58 par.2 EC-Treaty, are implied in the EEA-Agreement. It is difficult to see how the EFTA-Court could escape this conclusion.

a. Principle

If this rationale is followed the compatibility of a national measure with the EEA-Agreement does not depend upon its compatibility with Article 40 EEA-Agreement, but with Article 31 EEA-Agreement, if the measure restricts investments, in which the aspect of establishment in the sense of Article 31 EEA-Agreement is inherent (for this prerequisite see below c).

b. Consequences

A possible practical consequence of this dividing line is a potential difference in the compatibility of a national measure with EEA law. Restrictions of establishment which stem from indistinctly applicable national rules may more easily be considered to be compatible with the EEA-Agreement than restrictions of the movement of capital, which stem from the same rules. Although Art.31 no.1 par.1 EEA-Agreement provides that «there shall be no restrictions on the freedom of establishment of nationals of an EC Member State or an EFTA State in the territory of any other of these States» and insofar parallels the prohibition of «restrictions between the Contracting Parties on the movement of capital» in Article 40 EEA-Agreement, Article Art.31 no.1 par.2 EEA-Agreement empasizes that freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings «under the conditions laid down for its own nationals by the law of the country where such establishment is effected.» This equal treatment principle («Inländergleichbehandlung») has its reason in the permanence of the connection to a certain country which is usually effected by an establishment. As a consequence an indistinctly applicable national requirement which contradicts the rules on the free movement of services can - in the case of an establishment - nevertheless be compatible with the right of establishment 22. While the ECJ has also found some few indistinctly applicable rules to contradict the right of establishment in the EC-Treaty 23, the core of the right of establishment is the prohibition of open or factual discriminatory treatment and only marginally the prohibition of indistinctly applicable provisions. The latter became relevant mainly in cases in which a national rule rendered impossible a transnational establishment without giving up the establishment in the home country 24. The 10 %-ownership rule does not render impossible a transnational establishment by way of acquisition of a subsidiary since it is accompanied by the exception of Section 2-2, paragraph 2 No.6 of the Act on Financial Activity and Financial Institutions that the 10 %-rule does not prevent a foreign financial institution from having a subsidiary established in Norway with authorisation from the King.

c. Dividing Line

Crossing the line from a simple capital investment to establishment is not marked by a explicit definition in the EEA-Agreement (nor in the EC-Treaty) nor by a clear line of the acquisition of a certain percentage of the shares of an enterprise. It is common opinion in German doctrine that the acquisition of shares falls within the scope of applicability of the right of establishment in Article 43 EC-Treaty, if the acquisition gives a control on the enterprise 25. Whether such influence is obtained largely depends upon national company law, but also upon factual situations. In the case Baars a 100 %-capital share was subjected by the ECJ to the right of establishment 26.

However establishment starts much earlier than that. Troberg has elaborated the threshold to establishment in cases of direct investment as different from portfolio investment or finance investment, thereby emphasizing the criterion of «control», but alternatively substituting it with the criterion of a «permanent relation» to a foreign enterprise: «Investitionen im Ausland sind keine Niederlassungen, wenn der Anleger ein rein passiver Geldgeber bleibt (man spricht dann von «Portfolio- oder Finanzinvestitionen»); sie werden dagegen zu einem als Kapitalverkehr und zugleich als Niederlassung zu bezeichnenden Vorgang, wenn es sich darum handelt, die Kontrolle über ein Unternehmen in einem anderen Lande zu erwerben oder jedenfalls eine dauerhafte Verbindung mit einer ausländischen Firma zu schaffen («Direktinvestition»). Eine Direktinvestition führt also zur Niederlassung, wenn der Anleger infolge der Transaktionen als Unternehmer im Ausland erscheint» 27.

As a first consequence Troberg classifies the acquisition of any dominant position ( «beherrschende Position») in an enterprise as an establishment, be it conveyed by a share-holding or by a domination contract (konzernrechtlicherr «Beherrschungsvertrag») or special voting rights («besondere Stimmrechte»). This conclusion is supported by the use of the term «subsidiaries» («Tochtergesellschaften») in Article 43 par.1, second sentence EC-Treaty, since subsidiaries are dominated enterprises («beherrschte Unternehmen») 28.

In addition, Troberg also includes minority holdings («Minderheitsbeteiligungen»), if the transaction conveys on the investor the factual control ( «faktische Kontrolle») of the enterprise 29. This conclusion is supported by the definition of the «subsidiary» in Article 1 par.1 lit.d and par.2 of the Directive 83/349/EEC on the consolidated annual closing of accounts («konsolidierte Jahresabschlüsse») 30, which includes any enterprise, in which an other enterprise holds a minority share and on which it factually exerts a dominant influence. On the other side all those investments do not constitute an establishment, which do not create an entrepreneurial function of the investor 31.

3. Consequences for Ownership Rules

It follows from these observations that Article 31 EEA-Agreement does not only come into play in cases of the acquisition of an ownership share in excess of 50 %, but already in any case, in which an acquisition gives control or a dominant indluence on the enterprise; for Troberg already in any case in which a «permanent relation» to a foreign enterprise makes the investor appear as an entrepreneur («Unternehmer») in an other country 32.

Concerning the 10 %-threshold it is not very convincing, to presume that such a control or dominant influence on the enterprise is generally already obtained alone by the acquisition of an ownership share in excess of 10 %. The qualification of a direct or indirect holding in an undertaking which represents 10 % or more of the capital as a «qualifying holding» in the scope of applicability of the Banking Directive (Article 1 No.10) bears no solid relevance for the delineation between capital movement and establishment in primary law, although an other form of a «qualifying holding» is defined by the Banking Directive as a direct or indirect holding which makes it possible to exercise a significant influence over the management of the undertaking in which a holding subsists. It is apparent that in cases of acquisitions below 50 % the control which turns the investment into an establishment in the sense of Article 31 EEA-Agreement results from additional specific elements (e.g.: specific voting rights; factual influence on the board). In cases of investments which do not lead to such a control or dominant position, in principle only Chapter 4 of the EEA-Agreement is applicable for the assessment of the compatibility of a restricting national measure.

Whether the acquisition of a share in excess of 10 % in a Norwegian financial institution by a foreign investor can be assumed as (typically) creating a «permanent relation» to that institution which makes the investor appear as an entrepreneur in Norway is an open question.

III. Restriction on the Movement of Capital?

As far as the applicability of Article 40 EEA-Agreement on a transnational direct investment is not preempted by the applicability of Article 31 EEA-Agreement national measures contradict the obligation of Article 40 EEA-Agreement only if they constitute a «restriction on the movement of capital». Hence the 10 %-rule of Section 2-2, paragraph 1, first sentence of the Law on Financial Activity and Financial Institutions can be a measure contrary to Article 40 EEA-Agreement only if this rule is capable to restrict transnational capital investment.

1. The Meaning of «Restriction»

According to the wording and the purpose of Article 40 EEA-Agreement impediments to transnational capital movement which are covered by the prohibition can take not only the form of discriminatory national rules («no discrimination based on nationality or on the place of residence of the parties or on the place where such capital is invested»), but also the form of indistinctly applicable rules («no restrictions between the Contracting Parties on the movement of capital belonging to persons resident in EC Member States or EFTA States»). Even more general is the wording of the corresponding Art.56 EC-Treaty according to which «all restrictions on the movement of capital between the Member States...shall be prohibited».

a. EC-Treaty

The term «restriction» in Article 56 EC-Treaty is neither defined by the Treaty nor has it yet been interpreted by the ECJ in a general way 33. Hence it might seem to be not fully clear whether it has to be interpreted in the same wide sense, which in the area of free movement of goods is pursued by the «Dassonville»-jurisprudence of the ECJ for the term «measures having equivalent effect to quantitative restrictions on imports» in Article 28 EC-Treaty 34. However, several judgements of the ECJ on concrete issues 35 point into the direction of a potentially rather broad understanding of the term «restriction» in the area of free movement of capital 36. Moreover the overwhelming doctrine in German literature favours a broad interpretation and partly even explicitly refers to the «Dassonville»-formula 37. Although the free movement of productive factors (persons, capital) can be distinguished from the free movement of products (goods, services), the free movement of capital as guaranteed by Article 56 EC-Treaty is one of the four basic freedoms of the internal market concept as defined in Article 14 par.2 EC-Treaty and is worded in a similar way to the free movement of goods (Article 28 EC-Treaty) and services (Article 49 EC-Treaty). Hence a broad interpretation of the term «restriction» in Article 56 EC-Treaty seems reasonable and likely to occur before the ECJ. As a consequence there seems to be no succesful argument available that indistinct applicability of national ownership rules prevents them from falling within the scope of applicability, if they are liable to hinder, dissuade or discourage the free movement of capital 38.

b. EEA-Agreement

A parallel interpretation of «restrictions» in Article 40 EEA-Agreement would be barred only if on one side the objectives of the «internal market» (Article 14 EC-Treaty) and on the other side the objective of the «homogenuous European Economic Area» (Preamble of EEA-Agreement) had to be understood in a substantially different way concerning the free movement of capital. However, there is no substantial point for such a distinction. Hence it is convincing to understand restrictions in Article 40 EEA-Agreement in principle as measures which are liable to hinder, dissuade 39 or discourage the free movement of capital.

2. Consequences for Ownership Rules a. Principle

On the basis of this understanding the 10 %-rule would have to be qualified as being liable to hinder capital investment in Norwegian financial institutions in the span between above 10 % to 50 % of the shares (while an investment of a foreign investor above 50 % of the shares can be authorized 40 and would in principle have to be assessed as an establishment anyway). The 10 %-rule may even dissuade or discourage capital investment below 10 % of the shares. The restrictive effects can not be considered as being too uncertain or indirect 41.

The assessment whether a national rule is capable of generating restrictive effects in the sense of Article 40 EEA-Agreement may be influenced by the question whether the scheme provided for by the Banking Directive is not more liable to dissuade foreign investors than the ownership rule 42. However it is rather difficult to compare two fundamentally different systems (strict percentage-system on one side; information, control and authorization system on the other side) under the aspect of being «less» or «more» or «not more» impeding. A clear percentage rule such as the 10 %-rule may - due to its clarity - be well considered to be less or not more liable to dissuade investors than a system of information, control and authorisation as envisaged by the Banking Directive. On the other hand the 10 %-rule does not allow a qualifying holding so that the proportion of the capital held by the acquirer would exceed 10 % at all (except in the case that a foreign financial institution wants to establish a subsidiary or the exceptions of the Act on Financial Activity and Financial Institutions concerning wholly owned financial institutions are met), while Article 16 par.1 Banking Directive does not oblige Mermber states to apply such an absolute threshold, but requires information and allows «opposition» if the threshold of 20 %, 33 % or 50 % (proportion of the voting rights or of the capital held by the acquirer) would be reached or exceeded or if the credit institution would become the subsidiary of the acquirer.

However in the case of a national ownership rule which falls in the teleological scope of applicability of Article 125 EEA-Agreement 43 the general (i.e. indistinctly applicable) rule cannot itself (per se) constitute a violation to the EEA-Agreement, but only if it is accompanied by qualifying elements which contradict basic rules of the EEA-Agreement, such as discriminatory applicability or implementation or the character as a state aid. Such elements are lacking in the case of the 10 %-ownership rule.

In case the EFTA-Court would not draw this conclusion, additional questions would arise.

b. Limited Restriction?

It is apparent that the 10 %-rule is capable of hindering, dissuading or discouraging the transnational investment of only the single investor, while it does not exclude transnational investment up to 100 % of the shares, if this investment is partitioned among 10 or more investors. Whether this excludes an assessment of the 10 %-rule as a «restriction» in the sense of Article 40 EEA-Agreement, is rather doubtful. Under the EC-Treaty the ECJ understands unconditioned prohibitions within the fundamental freedoms as implying individual rights 44. Given the unconditioned wording of the first sentence of Article 40 EEA-Agreement («no restrictions», «no discrimination») it can be expected that the EFTA-Court will uphold the same understanding concerning the movement of capital. The second sentence («Article XII contains the provisions necessary to implement this Article») should not be read as hindering the basic understanding that the prohibition aims at protecting and entitling individuals. Hence the possibility - independent from the exception of Section 2-2, paragraph 2, no.6 of the Act on Financial Activity and Financial Institutions - that 100 % of the shares of a Norwegian financial institution can be acquired by transnational investment (although only partitioned among 10 or more investors) does not abolish that the impediment posed to a single investor is a «restriction» in the sense of Article 40 EEA-Agreement.

c. Keck-Limitation?

A relevant «restriction» in the sense of Article 40 EEA-Agreement could only be denied, if - despite the described impediment to transnational investment - the so called Keck-limitation would apply. This formula was developed by the ECJ in the area of free movement of goods for limiting the broad scope of the ECJ´s Dassonville-definition of measures having equivalent effect to quantitative restrictions in Article 28 EC-Treaty. It reads: «...the application to products from other Member States of national provisions restricting or prohibiting certain selling arrangements is not such as to hinder directly or indirectly, actually or potentially, trade between Member States within the meaning of the Dassonville judgement, provided that those provisions apply to all affected traders operating within the national territory and provided that they affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States.» 45 It is far from clear in which way this formula («selling arrangements») could be reasonably adapted to the area of the free movement of capital, whether this would have any limiting impact on the assessment of the 10 %-rule as a restriction and whether the EFTA-Court would be willing to carry out such an adaptation. One could reasonably argue that the 10 %-rule applies to all affected investors and affects in the same manner, in law and in fact, the investment of domestic capital and of that from other Contracting Parties. However, different from (certain) selling arrangements the 10 %-rule affects a core element of a fundamental freedom, namely the concrete placement. Hence it is rather unlikely that the EFTA-Court would circumvent substantial reasoning by simply denying the existence of restriction on the basis of an adapted Keck-formula.

d. Removal of Restriction by Authorisation?

The «restriction» of capital movement is not removed, but only partially transformed by the exception for the financial institutions as laid down in Section 2-2 par.2 No.6. First, the authorisation for foreign investment (No.6: «subsidiary») does not cover - in principle 46- investments in the span between above 10 % to 50 %. Second, the requirement of authorisation is itself a restriction. Under EC-law the ECJ found for the area of free movement of goods that a national requirement of authorisation of imports is an impediment even if it is only a formality, is generally granted and accessible without conditions for anyone, since the free movement (of goods) is a right, which must not be subject to discretionary powers or a licence of a national administration 47. Third, in cases of a majority holding a special obstacle for obtaining a licence exists in the requirement that all other shareholders are financial institutions 48, but in this case the problem shifts to the EEA-rules on the right of establishment.

C. Compatibility of the 10 % Ownership Rule by Way of Serving Mandatory Requirements («Justification»)

In case of a restriction caused by the 10 %-ownership rule, on which Article 40 EEA-Agreement is held to be applicable at all (see above A and B) the rule is incompatible to the obligations of Article 40 EEA-Agreement only if it does not serve legitimate mandatory requirements («justification»). While the concept of mandatory requirements as immanent limitations to the basic freedoms (in other words: limits to the prohibitions of restrictions) is not yet coherently elaborated by judicial practice for the prohibition of restrictions on the movement of capital in EEA law and only partially for Article 56 EC-Treaty 49, it can be reasonably assumed that a parallel is likely to be drawn by the judiciary in Article 40 EEA-Agreement to this concept as developed in the area of the free movement of goods in Article 28 EC-Treaty (headword: « Cassis de Dijon») 50 and as already partially generalized for all fundamental freedoms in the EC-Treaty by the Gebhard-decision 51. Hence it can be assumed for Article 40 EEA-Agreement that the compatibility («justification») of a restriction requires that the restriction is indistinctly applicable (I), serves a legitimate mandatory requirement (II), does not fall within the scope of preempting EEA law (III) and is suitable, necessary and proportionate (IV).

I. Indistinct Applicability

It is apparent that the 10 %-rule is indistinctly applicable to Norwegian investors as well as to investors from other Contracting Parties to the EEA-Agreement.

As far as the acquisition of less than 100 % of the shares of a financial institution is concerned, investors from other Contracting Parties to the EEA-Agreement presently enjoy even a more favorable treatment than Norwegian investors. While the former can obtain an authorisation already for having established a «subsidiary» (Section 2-2, paragraph 2, No.6 of the Act on Financial Acitivity and Financial Institutions) provided that the other shareholders are financial institutions, the latter are generally required to acquire 100 % of the shares of a financial institution («wholly owned»), if they want to hold more than 10 % (Section 2-2, paragraph 2, No.1 to 5; exceptions in No.8 for financial institutions which pursuant to its articles of association offer special financial services and in No.9 for holdings in special cases).

II. Legitimate Mandatory Requirements

The compatibility of the restriction caused by the 10 %-rule with Article 40 EEA-Agreement depends - second - upon serving legitimate mandatory requirements. Whether this is the case depends upon the underlying purposes pursued with the 10 %-rule (1) and their qualificability as legitimate mandatory requirements in Article 40 EEA-Agreement (2).

1. The Array of Purposes

The 10 %-rule is explained to serve several purposes:

• Limiting private power in financial institutions;

• Independence of financial institutions from other industry;

• Limiting public discretionary powers;

• Guarantee of free competition;

• Prudential supervision;

• Guarantee of market-orientated conduct (credit allocation and other business relations);

• Securing regional credit allocation in Norway.

Some public discussion has also pondered on an idea, which is not an object of the ownership rules, namely that the 10 %-ownership rule could safeguard a certain «national ownership»-structure in a key sector of a comparatively small national economy.

2. Legitimate Mandatory Requirements

Although no explicit jurisprudence on mandatory requirements in Article 40 EEA-Agreement is elaborated so far it can reasonably be assumed that all of the listed objectives can qualify as legitimate mandatory requirements (with - most likely - the exception of the additional aspect raised in public discussion), when compared to the already broad (and open) array of mandatory requirements recognized by the ECJ in Article 28 EC-Treaty until now; such as 52: efficient tax control, public health, fair trade, consumer protection, protection of the environment, social policy, cultural policy, protection of national, regional, social and cultural specificities, proper functioning of the public network of telecommunication, preservation of financial balance and social systems, statistical requirements.

Prudential supervision (i.e.: protection of the public against shaky financial institutions 53) and safeguarding a market-orientated conduct (in particular credit allocation) come partially even close to consumer protection, an objective which is also evoked by Article 72 EEA-Agreement. The guarantee of free competition is a requirement inherent in and recognized by Articles 53 et seq. EEA-Agreement.

Securing a permanent and safe regional credit allocation in Norway by means of financial institutions can be understood in two ways: either as a requirement of public security - similar to the requirement to guarantee the existence of a State by preventing the interruption of the supply with oil products as recognized by the ECJ in the case Campus Oil (provided that the main purpose of such measures is not economically induced (keine wirtschaftliche Hauptzielsetzung)) 54-; or in particular as a requirement of regional policy, if emphasis is given to credit allocation in every regional part of the differently populated and long stretched country.

The objectives of limiting private power in financial institutions as well as of safeguarding the independence of financial institutions from other industry can be assumed to constitute mandatory requirements in Article 40 EEA-Agreement, since they are, if not already considered to be directly recognized by the objective of Article 125 EEA-Agreement 55, at least close to its purpose to leave to the Contracting Parties the discretion to decide on the question of the proportion of and between the private and the public power in the economy on their own. It is difficult to see how the EFTA-Court could deny this objective to have the weight of a mandatory requirement.

The objective of limiting discretionary public power to intervene into the structure of the financial sector by way of a strict percentage rule can also be recognized as a mandatory requirement of a specific national attitude towards the basic relationship between public authorities and the economy.

The recognition of the idea which has been partially raised in the public debate, but is not an object of the ownership rules, to safeguard a certain «nationally based ownership»-structure (independent from foreign domination) in the financial sector as a key sector in a comparatively small national economy as a legitimate mandatory requirement in Article 40 EEA-Agreement by the EFTA-Court seems more than doubtful. Although this thought points to the delicate question of a balance between - on one side - requirements of an homogenuous European Economic Area and - on the other side - «national autonomy» (it is estimated that in Norway 35-40 % of the banking sector and 67 % of the property insurance sector are controlled by foreign-owned subsidiaries) it is inevitably discriminatory and is bound to violate the prohibition of discrimination on grounds of nationality (Article 4 EEA-Agreement). Moreover it directly contradicts the objective of a homogenuous and dynamic European Economic Area which is based on the concept and the provisions of the four fundamental freedoms. The underlying idea of the comparative cost advantage requires the free movement of productive factors (persons, capital) as well as products (goods, services) in order to achieve the expected overall optimal allocation. Hence the protection of an economic sector against domination by actors from other Contracting Parties can be hardly accepted by the EFTA-Court as being a legitimate requirement within the EEA-Agreement (nor by the ECJ within the EC-Treaty), if it is not pursued on the basis of non-discriminatory measures (public enterprises, nationalisation or public intervention 56) which are in line with Article 125 EEA-Agreement.

III. No Preempting EEA-Law

The indistinctly applicable 10 % ownership rule can be held to be compatible with the EEA-Agreement on the basis of serving mandatory requirements only if no preempting EEA-law of the respective objective exists - provided the primacy of an implemented part of Community law is recognized by domestic law in compliance with Protocol 35 of the EEA-Agreement 57. The question whether preemptive EEA-law exists and enjoys primacy in Norway can turn out to contain difficult issues in detail for a pursued objective: such as, e.g., the question whether the content of a certain provision of the Directives 88/361/EEC and 2000/12/EC or a rule on competition in the EEA-Agreement would have to be considered to conclusively («abschließend») govern exactly one objective (e.g. prudential supervision or guarantee of free competition) pursued by the Norwegian ownership rule. This can be denied for the Banking Directive within the scope of it´s Recital 12 which recognizes that home Member States may also establish rules stricter than those laid down in Article 16 and in some other provisions (among them Article 51 concerning qualifying holdings outside the financial sector). Stricter rules have been adapted by the Member States of the EC in various forms 58. Some Member States have defined a qualifying holding in a stricter way than the Directive requires 59, consider also combined holdings of persons «acting in concert» 60 or have multiplied the thresholds 61. Distinctions are made between thresholds that trigger the duty to notify the competent authorities and those which also trigger an authorisation requirement. Concerning the question whether a person is «suitable» in view of a sound and prudent management a majority of Member States has left a wide discretionary power to the supervisory authorities under the control of the courts. In view of sanctions a wide variety has been adopted by the Member States.

Concerning «stricter rules»than those laid down in Article 16 Banking Directive - as a matter of course - they have to respect the obligations of the EEA-Agreement, in particular the basic freedoms ensured by the EEA-Agreement 62. Since Article 16 is basically concerned with requirements and details of information and the opposition to plans to hold, directly or indirectly, or to increase a qualifying holding (definition in Article 1 no.10 of the Directive 63) «in view of the need to ensure sound and prudent management of the credit institution» concerning «the suitability of the person» of the acquirer, it does not govern requirements and concerns outside «sound and prudent management». Article 14 No.1 of the Banking Directive states that the competent authorities may withdraw the authorisation issued to credit institutions only in the cases listed in lit.a to lit. d and, in addition (lit.e) where it «falls within one of the other cases where national law provides for withdrawal of authorisation». Although Article 14 of the Banking Directive does not deal with the specific question of acquiring or increasing a qualifying holding, but with the question of the taking-up and pursuit of the business of credit institutions there is - in view of Recital 12 of the Preamble - no substantial reason that the taking into consideration these general rules is excluded in a national authorisation procedure concerning the acquisition or increase of a qualifying holding. Thus Article 16 of the Directive should not bar the opposition to plans to hold or to increase a qualifying holding in view to ensure the fulfilment of other mandatory requirements. Hence one could conceive a requirement of «functional suitability» (as different from personal suitability) to meet the particular needs of the Norwegian national, regional and social structure. However, Article 9 of the Banking Directive, which governs the taking-up of the business of credit institutions, would have to be respected. It reads: «Member States may not require the application for authorisation to be examined on terms of the economic needs of the market». Whether a rather broad criterion of «functional suitability», which respects Article 9 of the Banking Directive and confers a potentially rather broad discretionary power on the competent public authorities, would be held by the EFTA-Court to be compatible with EEA law depends upon its formulation and application, which would have to be non-discriminatory.

IV. Suitability, Necessity, Proportionality

The 10 %-ownership rule is compatible with the EEA-Agreement on the basis of the mandatory requirements rule only if it is - in addition - suitable, necessary and proportionate for serving the respective requirement. This question has to be separately assessed for every single requirement. Since these issues in general require evaluations and in particular - in relation to a 10 %-ownership rule in financial institutions - lead EEA law as well as EC law into new territory, it is - as a matter of course - difficult to predict the course the EFTA Court will take.

I. Limiting Private Power in Financial Institutions

For the objective of limiting private power (i.e. the power of single investors) in Norwegian financial institutions the 10 %-rule can doubtlessly be considered to be a suitable device. Although its impact may be weakened in practice to some degree by the exceptions contained in Section 2-2, paragraph 2 of the Act on Financial Activity and Financial Institutions, this does not deprive the 10 %-rule of its basic suitability.

The necessity of the 10 %-rule for serving the objective of limiting private power in financial institutions could be challenged if devices were available which serve the objective to the same degree, but with less impeding effects on capital movement. While an authorisation requirement with an assessment procedure of the «power»-implications for any acquisition reaching or exceeding certain percentage thresholds of holdings in a financial institutions can be abstractly conceived it is unclear which criterion of «power» assessment could and should be applied by the competent public authority which is reliable, foreseeable and discretion limiting in the same way as the 10 %-rule. It is an open question, whether the EFTA-Court accepts the position that any decision rests with the State concerned whether such a «power»-issue should be solved either by way of setting a foreseeable, clear and objective percentage limit or by way of an (unpredictable) individual assessment in any given case. If the EFTA-Court would deny the necessity of the 10 %-ownership rule in view of the alternative of an authorisation scheme the Court would limit the discretion of a State to decide upon the relevant standard and method for solving questions of the admissible private power in an economic key sector in its territory. Hence, if the EFTA-Court wants to avoid this consequence there would be a chance that the Court accepts the necessity of the rule.

If the necessity is accepted, then the proportionality (between the gain for the mandatory requirement and the hindering effect on capital movement) should also. While simple capital investment in a financial institution is limited to 10 % of the share without exception, the establishment of a «subsidiary» by a foreign financial institution is not. This covers at least the acquisition of a majority holding, which transforms the capital investment into an establishment 64.

2. Independence of Financial Institutions from Other Industry

Concerning the independence of financial institutions from other industry similar considerations apply as to limiting private power in financial institutions 65. The independence of financial institutions from other industry is one specific aspect of limiting private power in financial institutions. Article 7 par.3 of the Banking Directive only covers the aspect of holdings of banks in other industry and is not preemptive for stricter national rules (Recital 12 of the Preamble).

The 10 %-rule is suitable to prevent a dependence which is based on more than a 10 %-share. Its necessity and proportionality can be based on the same reasons as in the framework of the objective of limiting private power in financial institutions 66.

3. Limiting Discretionary Public Power

As far as the objective of limiting discretionary public power in questions of the structure of the financial sector is concerned, this objective is not an objective in itself, but connected both to the objective of limiting private power 67 and securing the independence of financial institutions from other industry 68. As shown above 69 its choice in the alternative to a system of authorisation with discretionary public power can be considered as falling within the realm of political discretion of a Contracting Party.

4. Guarantee of Free Competition a. 10 %-Rule

The suitability of the 10 %-ownership rule for serving the requirement of competition policy (i.e.: ensuring an effective competition structure in the financial sector) is challenged by the argument put forward by the ESA that the same 10 persons who each hold 10 % of the share capital in the financial institution X may also hold together all the shares in the financial institution 70. This argument is not very convincing. Although the described possibility cannot be excluded, it can be submitted that the 10 %-rule makes it, at least, more difficult to lessen competition by acquiring a higher share in a competitor. Moreover the jurisprudence of the ECJ distinguishes in cases of inadequate means. While totally unsuitable means cannot justify an impediment to interstate transactions, an insufficient measure can do 71. The 10 %-rule cannot be considered to be a totally unsuitable measure for fostering a structure of effective competition in the Norwegian financial sector.

The necessity of the 10 %-rule for serving the competition policy depends upon the existence of available alternatives which are less burdening for the transnational movement of capital. Instead of a rather strict and rigid rule of an upper limit for the admissible share of ownership in a financial institution a more flexible evaluation of the competitive implications in any individual case could be conceived and is indeed proposed by ESA 72. While the latter has the advantage of individual adaptation, the former grants legal certainty. In a situation in which different systems for ensuring competition are available it can be argued that a Contracting Party has political discretion which system should be established and pursued provided that, first, the discretion of the Contracting State is not preempted by other EEA law or watered down by the existence of sufficient other domestic devices and, second, the impeding effects of one system on the free movement of capital are not unproportionally higher than those effected by the alternative system.

The discretion would be lacking if the mentioned Directives or the competition rules of the EEA-Agreement would conclusively cover the requirements of competition policy as pursued by the Norwegian legislation. However, the Banking Directive primarily aims at making effective the freedom of services and the right of establishment and at securing prudential supervision (i.e. securing the reliability of financial institutions). The Capital Movement Directive aims at granting free transnational movement of capital. Hence the provisions of these Directives pursue objectives which are different from the requirements of competition policy. Whether the requirements of Norwegian competition policy are conclusively covered by the competition rules of the EEA-Agreement depends upon the content of both sets of rules. On the other side it has to be taken into account that the strength of the argument for the necessity of a «structural» or «institutional» approach in competition policy is gradually weakened as far as separate procedures of authorisation or licence requirements for the acquisition of a share in financial institutions sufficiently englobe or could englobe «competition implications« 73.

The proportionality of the 10 %-rule is doubtful. In view that the alternative system of competition policy which assesses the «competition implications» in the individual case on concrete markets - like in the merger control system of the EC or of Germany - is likely to discover unproblematic cases among acquisitions of more than 10 % of the shares in a financial institution the restrictions on the transnational movement of capital would be less than those caused by the strict 10 %-rule. Hence, the conclusion is not far that the gains for competition policy achieved by the rigid 10 %-rule are disproportionate to the impediments on capital movement generated by this rule.

b. Authorisation Requirement

Concerning the authorisation requirement for acquiring a majority share holding in a Norwegian financial institution such a procedure can serve as a suitable means to assess the competition implications of such an investment. If such a control is deemed to be required in the interest of ensuring effective competition then the necessity of the authorization requirement can not be denied and no fundamental aspects against its proportionality are visible.

5. Prudential Supervision a. 10 %-Rule

As far as the requirements of prudential supervision (i.e. in particular: fostering sound and prudent management of the financial institution; suitability of the buyer; avoidance of conflicts of interests between credit or influence seeking owners on one side and stability of the financial institution on the other side; avoidance of favourable treatment of owners or certain potential debtors; avoidance of bankruptcy; fostering confidence into the financial system; good reputation of the financial system 74) are concerned, it is not clear why the 10 %-rule is suitable to precisely or generally serve this purpose. For convincing the EFTA Court of the causal contribution of the 10 %-rule to specific elements of prudential supervision substantial reasons 75 would have to be submitted. One aspect, albeit still rather abstract, could be the consideration that the division of powers and the pluralities effected by the 10 %-rule structurally generate a better chance for a continuous sound and prudent management. An other aspect could be that the 10 %-rule could avoid the problem that supervision cannot sufficiently tackle undue influence in practice.

However, it needs additional substantial reasoning why a 10 %-limit on ownership is necessary for the objective of prudent supervision and proportionate in relation to the impediment to capital movement. It can not be assumed as a principle that already a holding of 10 % plus one share grants legally (company law) or factually a privileged and undue influence on the credit policy or on the general business policy of a financial institution. The definition of a «qualifying holding» in Article 1 no.10 Banking Directive does not answer this question 76. Insofar it has to be taken as a general starting point for any consideration that Article 16 of the Banking Directive sets a standard in considering notification and information procedures and control as a necessary and proportionate means of prudential supervision.

b. Authorisation Requirement

An authorisation requirement can suitably serve certain aspects of prudential supervision (in particular the ex-ante assessment whether new owners are fit and proper), as it can be concluded from the Banking Directive. Whether the specific elements of an authorisation procedure are necessary and proportionate depends upon their concrete shape and implementation.

6. Guarantee of Market Orientated Conduct (Credit Allocation and Other Business Relations)

As far as the requirement of a market-orientated conduct is concerned (i.e.: protection of third parties against a unreasonable conduct in the area of credits, guarantees or other business relations as a result of a privileged treatment of a private owner or in relations to the business connections of the owner), similar considerations are valid as for the assessment of the suitability and necessity of the 10 %-rule for serving either requirements of prudential supervision (under the aspect of avoiding conflicts of interests) 77 or requirements of competition policy 78.

For convincing the EFTA-Court of the suitability, the requirements and the causal contribution of the 10 %-rule to these objectives need to be substantiated 79. The possibility that this rule would be deemed to not totally realizing the objective would not generally exclude its suitability 80.

Only a partial problem in the assessment of the necessity of the 10 %-rule in view of the question, if less impeding means are available, would arise from the measures contained in Directive 92/191/EEC on the monitoring and control of large exposure of credit institutions (limits on large exposures of credit institutions to a client) 81. This Directive does not englobe the whole range of risks for a market-orientated conduct of a financial institution.

7. Securing Regional Credit Allocation in Norway

As far as the requirement of securing regional credit allocation in Norway is concerned - a consideration that is neither mentioned as a relevant objective in the preparatory works nor has ever been applied towards a foreign institution - again the suitability of the 10 %-rule is not clear. If a reliable regional credit allocation in Norway is to be safeguarded, this could be served with less impeding effects for transnational investments by applying either an adequate licensing system (authorisation) or by securing a sufficiently potent sector of public banks.

Summary

1. The compatibility of Norwegian ownership rules with the EEA-obligations of Norway depends upon the content of the relevant EEA-obligations. The preceding analysis concentrates on the question whether the 10 %-ownership rule of Section 2-2, paragraph 1, first sentence of the Act on Financial Activity and Financial Institutions is compatible with Article 40 EEA-Agreement.

2. The 10 %-ownership rule contradicts Article 40 EEA-Agreement only if it is covered by the general scope of applicability of the EEA-Agreement, constitutes a restriction in the sense of Article 40 EEA-Agreement and is not justified by serving legitimate mandatory requirements.

3. The applicability of the «system of property ownership»-provision of Article 125 EEA-Agreement to the 10 %-ownership rule is a new type of legal issue for the EFTA-Court.

4. The prime objective of the 10 %-ownership rule to avoid undue concentration of economic power generated by the control of Norwegian financial institutions is a rationale which is covered by the objective of Article 125 EEA-Agreement.

5. According to Article 125 EEA-Agreement the EEA-Agreement shall in no way prejudice the rules of the Contracting Parties governing the system of property ownership. Hence the 10 %-ownership rule does not itself violate the EEA-Agreement.

6. The 10 %-ownership rule is indistinctly applicable to domestic and foreign investors. It is not discriminatory. Hence it complies with Article 4 EEA-Agreement. Foreign investors -different from domestic investors - can obtain an authorisation for setting up a subsidiary below acquiring 100 % of the share.

7. The prohibition of restrictions on transnational capital investments (Article 40 EEA-Agree­ment) cannot overcome justified restrictions of the right of establishment (Article 31 EEA-Agreement). Article 31 EEA-Agreement does not only come into play in cases of the acquisition of an ownership in excess of 50 %, but already in cases, in which the acquisition gives control or a dominant influence on an enterprise.

8. Restrictions in the sense of Article 40 EEA-Agreement are measures which are liable to hinder, dissuade or discourage the free movement of capital. The 10 %-ownership rule is capable of having this effect.

9. Since the 10 %-ownership rule falls within the teleological scope of Article 125 EEA-Agreement it cannot per se constitute a violation of the EEA-Agreement.

10. The 10 %-ownership rule is not accompanied by qualifying elements such as discriminatory applicability, discriminatory implementation or the character of being a state aid. Hence it does not contradict basic rules of the EEA-Agreement.

11. A restriction in the sense of Article 40 EEA-Agreement is not removed, but partially transformed by the possibility of exceptions which are granted by way of an authorisation procedure. They cannot be considered to violate Article 40 EEA-Agreement as far as they implement the Banking Directive or are justified by mandatory requirements.

12. In case of a restriction caused by the 10 %-ownership rule on which Article 40 EEA-Agreement is held to be applicable the rule is incompatible with Article 40 EEA-Agreement only if it is not justified by legitimate mandatory requirements.

13. In view of a justification by serving mandatory requirements the 10 %-ownership rule meets the requirement of indistinct applicability.

14. The concept of mandatory requirements - as developed by the jurisprudence of the ECJ for the compatibility of restrictions of the fundamental freedoms - is characterised by an open array of such requirements. In view of the 10 %-ownership rule such mandatory requirements can be: limiting private power in financial institutions; safeguarding the independence of financial institutions from other industry; limiting public discretionary powers; guaranteeing free competition; safeguarding prudential supervision; safeguarding market orientated conduct (in particular in relation to credit allocation); securing regional credit allocation.

15. According to Recital 12 of the Preamble of the Banking Directive Article 16 of the Banking Directive does not preempt stricter national rules which govern the acquisition or increase of a qualifying holding in a financial institution.

16. The 10 %-ownership rule is suitable, necessary and proportional in serving the legitimate mandatory requirement to limit private power in financial institutions as well as safeguarding the independence of financial institutions from other industry. The basic political decision whether a power issue should be solved either by way of setting an objective percentage limit or by way of an individual assessment (connected with discretionary power) rests with the Contracting Party.

17. Specific issues are connected with the question of suitability, necessity and/or proportionality of the 10 %-ownership rule in serving other mandatory requirements (see C IV 4-7).