APPLICATION OF ADMINISTRATIVE LAW TO PRIVATIZATIONS IN THE NETHERLANDS Inge c. van der vies, Suzanne w. stoter IV D2 and d.A. Lubach Preliminary remarks Adm inistrative law in the Netherlands is applicable to any action with regard to the execution of public law power. Public law power is defined as authority to decide on the behaviour ofanother person. Application of adm inistrative law is not entrusted to govemmental bodies only. It can be applica ble va acts of privatised organisationsas well. The most important matter is though, the application of administrative law with regard to privatised organisations. Privatised organisations are largely regulated by adm inistrative law. In the process of conversion from a state organisation towards a privatised company, administra tive law is applicable in all stag In this essay we will describe in what length and to what decree administrative law to protect the public interest is developed, as regulations on privatisation largely provide a mixture of private lw and public law aspects. As regulations for privatisations are growing, a system of checks and balances is elaborating. Special supervisory bodies or specal guarantees for private law bodies, obta ning a monopoly on a privatised market, are developing. These will be discussed as well Generaloverview of administrative law The Constitution of the Netherlands is written and, with all due respect, could be characterised as a pamphlet, under recognition of its broader meaning. It protects right of property, but it does not contain detailed articles on issues as property, freedom of negotiation or administrative aw. Property rights are not dependent on protection by the Constitution only, international treaties offer protection as well Nowadays protections is regulated in EC Treaties, is often ca lled Furthermore a law with a nearly constitutional status is re levant within the context of privatisation, namely: the general administrative law Act. This Act conta ins general noms with regard to decisions of all administrative authorities and enforcementof public law power in the Netherlands A privatisation is regulated by a specific Act for the privatisation as such enforced by many Decree-laws and ordinances, and an Act with regard to the upervision. Transition law is laid down in the Acts The legal way to privatise on state level is to design a Bill, laid out by the ministry that is charged with the policy upon the moment of privatisation. All ministries have been called upon to undertake privatisations. To enable the various ministries to fulfil the operation of privatisation successfully, a knowledge centre is vested in the ministry of Finance, Interdepartementale Begeleidingscommissie Privatisering (IBP), i.e. the interministerial advisory service for privatisation Though consultation of this centre is not obligatory for other ministries, this centre is often approached. It published a guidebook, under the responsibility of the Minister of Finance, containing the man issues in privatisation. The guidebook suggests the University of Amsterdam
APPLICATION OF ADMINISTRATIVE LAW TO PRIVATIZATIONS IN THE NETHERLANDS Inge C. van der Vlies,* Suzanne W. Stoter* IV D 2 and D.A. Lubach** Preliminary remarks Administrative law in the Netherlands is applicable to any action with regard to the execution of public law power. Public law power is defined as authority to decide on the behaviour of another person. Application of administrative law is not entrusted to governmental bodies only. It can be applicable via acts of privatised organisations as well. The most important matter is though, the application of administrative law with regard to privatised organisations. Privatised organisations are largely regulated by administrative law. In the process of conversion from a state organisation towards a privatised company, administrative law is applicable in all stages. In this essay we will describe in what length and to what decree administrative law to protect the public interest is developed, as regulations on privatisation largely provide a mixture of private law and public law aspects. As regulations for privatisations are growing, a system of checks and balances is elaborating. Special supervisory bodies or special guarantees for private law bodies, obtaining a monopoly on a privatised market, are developing. These will be discussed as well. 1 General overview of administrative law The Constitution of the Netherlands is written and, with all due respect, could be characterised as a pamphlet, under recognition of its broader meaning. It protects the right of property, but it does not contain detailed articles on issues as property, freedom of negotiation or administrative law. Property rights are not dependent on protection by the Constitution only, international treaties offer protection as well. Nowadays protection as is regulated in EC Treaties, is often called upon. Furthermore a law with a nearly constitutional status is relevant within the context of privatisation, namely: the general administrative law Act. This Act contains general norms with regard to decisions of all administrative authorities and enforcement of public law power in the Netherlands. A privatisation is regulated by a specific Act for the privatisation as such, enforced by many Decree-laws and ordinances, and an Act with regard to the supervision. Transition law is laid down in the Acts. The legal way to privatise on state level is to design a Bill, laid out by the ministry that is charged with the policy upon the moment of privatisation. All ministries have been called upon to undertake privatisations. To enable the various ministries to fulfil the operation of privatisation successfully, a knowledge centre is vested in the ministry of Finance, Interdepartementale Begeleidingscommissie Privatisering (IBP), i.e. the interministerial advisory service for privatisation. Though consultation of this centre is not obligatory for other ministries, this centre is often approached. It published a guidebook, under the responsibility of the Minister of Finance, containing the main issues in privatisation. The guidebook suggests the * University of Amsterdam. ** University of Groningen
VAN DER VLIESISTOTER/LUBACH use of a check list, which mentions amongst other checks, the following: Is the state activity, taken into consideration the Constitution and the current la ws, a suita ble candidate for privatisation, Is influence of the Govemment necessary, after privatisation Which conditions follow from the rule of law Which conditions should be met from a legal and organisational point of view? Though the limitations, set by the Constitution, are rather marginal, they offer indications a bout the level of regulating. Taxing, for example, could never be completely privatised, as the Constitution prescribes taxing by an Act The choice between different foms of government withdra wal could also be guided by the decree of the desira ble ministerial accounta bility, indicated in the second checkpoint. In case of rejection, the parliament cannot hold ministers accountable for any aspect of activities, performed in the market. The choice for a complete withdra wal of the state is not unavoidable. Other forms of privatisation are In many cases to prefer, if some aspects of the activ ities have to remain under the influence of the government Knowledge of parties concemed should be timely called for, before starting the operation of privatisation as such. Looking for assistance facilitates acting in compliance with the last checkpoint of the guidebook, on legality. For example the minister of home affairs should always be given the opportunity to assess the effects of a privatisation for the legal position of civil servants, the minister of socialaffairs for the effects on pensions and la bourconditions, et cetera The political and economic context States are recommended to lim it their duties in order to perform fewer tasks better Privatisation has been part of the political debate in the Netherlands since 1981 Elements of a centrally panned economy have been replaced by a market-oriented approach. Privatisation is supposed to generate a more effective management of the The continuing integration as is foreseen in the legal policy of the EC, forces to increase competition. Growing competition is anyhow a characteristic of the international market. The govemment of the Netherlands has to cut back its redistributional role, which was rather large. Furthemore considerations with regard to allocation of resources and productive use of activa are relevant. The governmental administration is often stigmatised as a more or less ponderous body, slowing down the mana gement of a topic instead of running it in a more economic way. By privatisation the obstacles, characteristic for governmental way of handling, vanish and make mom for a more goal-oriented way of working. Making profit is not the main issue, but more or less the spin off, resulting from a more effective way of working. Privatisation might by the way reduce the complaints of private businesses about unfair com petition by state-owned companies Comparable considerations are decisive in leav inga number of organizations in the private sphere. Only some of their activ ities will be regulated by statutory law This was the case for example with De Nederlandsche Bank N.V.(The Bank of the Netherlands, u.c. )and de Stichting Toezicht Effectenverkeer (Foundation Supervision Stake trading). In the end regulations are similar, be it to regulate a
VAN DER VLIES/STOTER/LUBACH 2 use of a checklist, which mentions amongst other checks, the following: - Is the state activity, taken into consideration the Constitution and the current laws, a suitable candidate for privatisation, - Is influence of the Government necessary, after privatisation, - Which conditions follow from the rule of law, - Which conditions should be met from a legal and organisational point of view? Though the limitations, set by the Constitution, are rather marginal, they offer indications about the level of regulating. Taxing, for example, could never be completely privatised, as the Constitution prescribes taxing by an Act. The choice between different forms of government withdrawal could also be guided by the decree of the desirable ministerial accountability, indicated in the second checkpoint. In case of rejection, the parliament cannot hold ministers accountable for any aspect of activities, performed in the market. The choice for a complete withdrawa l of the state is not unavoidable. Other forms of privatisation are in many cases to prefer, if some aspects of the activities have to remain under the influence of the government. Knowledge of parties concerned should be timely called for, before starting the operation of privatisation as such. Looking for assistance facilitates acting in compliance with the last checkpoint of the guidebook, on legality. For example the minister of home affairs should always be given the opportunity to assess the effects of a privatisation for the legal position of civil servants, the minister of social affairs for the effects on pensions and labourconditions, et cetera. 2 The political and economic context States are recommended to limit their duties in order to perform fewer tasks better. Privatisation has been part of the political debate in the Netherlands since 1981. Elements of a centrally planned economy have been replaced by a market-oriented approach. Privatisation is supposed to generate a more effective management of the topic. The continuing integration as is foreseen in the legal policy of the EC, forces to increase competition. Growing competition is anyhow a characteristic of the international market. The government of the Netherlands has to cut back its redistributional role, which was rather large. Furthermore considerations with regard to allocation of resources and productive use of activa are relevant. The governmental administration is often stigmatised as a more or less ponderous body, slowing down the management of a topic instead of running it in a more economic way. By privatisation the obstacles, characteristic for governmental way of handling, vanish and make room for a more goal-oriented way of working. Making profit is not the main issue, but more or less the spin off, resulting from a more effective way of working. Privatisation might by the way reduce the complaints of private businesses about unfair competition by state-owned companies. Comparable considerations are decisive in leaving a number of organizations in the private sphere. Only some of their activities will be regulated by statutory law. This was the case for example with De Nederlandsche Bank N.V. (The Bank of the Netherlands, u.c.) and de Stichting Toezicht Effectenverkeer (Foundation Supervision Stake trading). In the end regulations are similar, be it to regulate a
APPLICATIONOF ADMINISTRATIVELAW TOPRIVATZATIONS formerstate organization, or to regulate a traditionally private organization. Three main forms of privatisation are used to focus on the differences rejection: complete transition from the public sphere into the private sphere, be It gradually. Rejection can be achieved by selling a going concem to a private company or by selling stakes of which the state was the holder Contracting-out: production of a good or a service is entrusted to a private company, possibly with the transference of staff, liberation: a profitable stateactivity is transubstantiated into a legal and economic autonom ic body, which can be a private company oran agency under Rejection as such is in more com plicated cases introduced by a process of gradua lly withdrawal of the govemment, as is usual with the third kind. Outplacement regards a way of handlingonly; it does not need special legislation Controlling agencies Privatisation is regulated pe ough some general guidelines are now developed Standards and cont of actions by privatised companies have to be regulated. The methods to set rds are various and linked with the nature of the privatised activity In case of outplacement a fom of private control only might be sufficient. If liberation is at stake, it is largely preferable to lay down some noms in an Act and to charge a Supervisory Board with most of the assignments of ruling and controlling. Minister are deemed to be less fit for the details of these tasks, while they might be influenced by political preferences, with a potential to affect the functioning of the arket. To minimise the negative effects of ministerial interference, an agency could be charged with the power to control the companies in certain markets. To ensure an independent control, instituting an independent supervisory Board might be the best way. Boards usua lly have the authority to regulate, recommend certain policies and to impose an administrative sanction on the legal body or bodies within ts working field. Boards, composed of professionals, are granted with public law authority. Their decisions are contestable before the adm inistrative aw courts. Apart from these Boards, every legal person in private law shall have, in compliance with private law, its own organization that includes controlling committees The safeguarding of public interests 4/ Methods The Research Council for Govemment policies(WRR)dedicated a study on the effects of privatisations on the public interests. The main issue was, in the view of the WRR: the contribution of public and private responsibilities should be established with due respect for the obligation of the govemment to perform an overall responsibility for the public interest. What should be considered as the public interest Is changeable, due to intemational relations, the development of technology and olitical views. The preferences for certa in methods of safeguarding and weighing them are therefore also changing
APPLICATION OF ADMINISTRATIVE LAW TO PRIVATIZATIONS 3 former state organization, or to regulate a traditionally private organization. Three main forms of privatisation are used to focus on the differences: - rejection: complete transition from the public sphere into the private sphere, be it gradually. Rejection can be achieved by selling a going concern to a private company or by selling stakes of which the state was the holder. - Contracting-out: production of a good or a service is entrusted to a private company, possibly with the transference of staff, - liberation: a profitable stateactivity is transubstantiated into a legal and economic autonomic body, which can be a private company or an agency under public law. Rejection as such is in more complicated cases introduced by a process of gradually withdrawal of the government, as is usual with the third kind. Outplacement regards a way of handling only; it does not need special legislation. 3 Controlling agencies Privatisation is regulated per issue, though some general guidelines are now developed. Standards and controlling of actions by privatised companies have to be regulated. The methods to set standards are various and linked with the nature of the privatised activity. In case of outplacement a form of private control only might be sufficient. If liberation is at stake, it is largely preferable to lay down some norms in an Act and to charge a Supervisory Board with most of the assignments of ruling and controlling. Minister are deemed to be less fit for the details of these tasks, while they might be influenced by political preferences, with a potential to affect the functioning of the open market. To minimise the negative effects of ministerial interference, an agency could be charged with the power to control the companies in certain markets. To ensure an independent control, instituting an independent supervisory Board might be the best way. Boards usually have the authority to regulate, recommend certain policies and to impose an administrative sanction on the legal body or bodies within its working field. Boards, composed of professionals, are granted with public law authority. Their decisions are contestable before the administrative law courts. Apart from these Boards, every legal person in private law shall have, in compliance with private law, its own organization that includes controlling committees. 4 The safeguarding of public interests 4.1 Methods The Research Council for Government policies (WRR) dedicated a study on the effects of privatisations on the public interests. The main issue was, in the view of the WRR: the contribution of public and private responsibilities should be established, with due respect for the obligation of the government to perform an overall responsibility for the public interest. What should be considered as the public interest is changeable, due to international relations, the development of technology and political views. The preferences for certain methods of safeguarding and weighing them are therefore also changing
VAN DER VLIESISTOTER/LUBACH Methodically speaking, safeguarding of public interest could be achieved by the following rules(from Acts or contracts); com petition creatingvalues Most cases of privatisation will need regulating by Acts, not only for the conversion Itself, but to keep certa in standards alive in the markets well. The necessary refining in the rules is dependent on the subject of the privatisations The public interest might be served by competition, but only under specific conditions. Even if the com petition is real, the public interest might need more guarantees. If privatisation leads to competition for the market only and not to competition in an open market, competition is in fact void. The choice between several candidates for the rights of a monopolised market might be real the first time the market is available fora temporarily concession, but that will certa inly not be the case the next time the concession will be put for auction in one way or another(for xample the case of the Netherlands railway infrastructure). The position of the company that got the concession in the first pace is almost unbeatable for other competitors in a second or next round Hierarchy as a safeguard includes supervision of a political authority ctions of a privatised company. Statutory law should regulate powers fora minister, who is made accountable. This construction can only respect privatisation and afeguard the public interest as well, if the supervision is not prohibitive to the development of the privatised company. Too close supervision might mock the privatisation. Notable is also the fact that nationalauthorities are losing their position in the ranking in favour of international authorities, in case of the Netherlands especially in favourof the EEC Hierarchy will then involve other political levels A reliable condition for safeguarding the public interest might be also the professionalism of the employees. Some companies or institutions cannot function without people with a high education, like hospitals. In such a case the public interest will probably not be damaged, while the standard of the services will be sufficient Professionals will likely develop values to mainta in the standards of their profession A combination of two or more methods of safeguarding is in most cases t 4.2 Checkpoints Reorganizing public and private responsibilities should always be started with the public interest in view. The best possible way to serve public interests should be the aim of such reorganisations. Though views on the best way to serve public interests, ght differ. the debate on the what of privatisations should not prohibit the levelopment of the best possible way how to do it. The WRR endeavours to contribute to good procedures in privatisations. It is for this reason, the WRR developed five main checkpoints for good governance in privatisation democratic legitimisation equity before the law, legal certaint
VAN DER VLIES/STOTER/LUBACH 4 Methodically speaking, safeguarding of public interest could be achieved by the following: - rules (from Acts or contracts); - competition; - hierarchy; - creating values. Most cases of privatisation will need regulating by Acts, not only for the conversion itself, but to keep certain standards alive in the market as well. The necessary refining in the rules is dependent on the subject of the privatisations. The public interest might be served by competition, but only under specific conditions. Even if the competition is real, the public interest might need more guarantees. If privatisation leads to competition for the market only and not to competition in an open market, competition is in fact void. The choice between several candidates for the rights of a monopolised market might be real the first time the market is available for a temporarily concession, but that will certainly not be the case the next time the concession will be put for auction in one way or another (for example the case of the Netherlands railway infrastructure). The position of the company that got the concession in the first place is almost unbeatable for other competitors in a second or next round. Hierarchy as a safeguard includes supervision of a political authority over the actions of a privatised company. Statutory law should regulate powers for a minister, who is made accountable. This construction can only respect privatisation and safeguard the public interest as well, if the supervision is not prohibitive to the development of the privatised company. Too close supervision might mock the privatisation. Notable is also the fact that national authorities are losing their position in the ranking in favour of internationa l authorities, in case of the Netherlands especially in favour of the EEC. Hierarchy will then involve other political levels. A reliable condition for safeguarding the public interest might be also the professionalism of the employees. Some companies or institutions cannot function without people with a high education, like hospitals. In such a case the public interest will probably not be damaged, while the standard of the services will be sufficient. Professionals will likely develop values to maintain the standards of their profession. A combination of two or more methods of safeguarding is in most cases the best way. 4.2 Checkpoints Reorganizing public and private responsibilities should always be started with the public interest in view. The best possible way to serve public interests should be the aim of such reorganisations. Though views on the best way to serve public interests, might differ: the debate on the what of privatisations should not prohibit the development of the best possible way how to do it. The WRR endeavours to contribute to good procedures in privatisations. It is for this reason, the WRR developed five main checkpoints for good governance in privatisation: - democratic legitimisation, - equity before the law, - legal certainty
APPLICATIONOF ADMINISTRATIVELAW TOPRIVATZATIONS efficiency ethical Democratic legitimisation holds two items: democratic steering and democratic accountability. To accomplish his accountability towards parliament, a minister should have the power to give directions to the privatised company: without power no accountability (and vv ) The necessary power can be contributed in various ways Aside from the various methods in the public domain, other foms of founding democratic legitimatisation are feasible. In a more traditional vision an immedate link between responsibility for the public interest and public domain, might be deemed as the only possible way. Though democratic legit im isation for the public interest is essental, accountability within the public doma in is not the only way to achieve it. Other methods are feasible. It might be made obligatory for the com panies to publish annual reports, to respond to special representative or independent councils and to operate with an objective supervisory board. with certain creativ ity democratic legitim isation might be provided in a different, but effective way. It can be seen as a challenge in privatisation to make privatised companies more responsible towards society Guarantees should however not develop into a deta iled network ofrules, which will make the privatisation void The strains of the principle of equity before bw might comer the options of a company too sharply and restrict it too much to operate effectively onan open market And moreover, from the other hand, competition might lead companies nto infringement of the principle. A commercal insurance company is to be expected exclude risk groups, though behaviour like that is not socially correct. Of course an attitude like that could be prohibited by aw, but making deta iled rules on how to run a company might affect the company s position on the open market, or have more effects on the functioning of the open market as such. For these reasons the vermment might refra in from conversion of state activ ities into an open market system, if the principle of equity before the la w is at stake egal certa inty is partly connected with predictability of actions of the adm inistration. The adm inistration is tied to public law rules and citizens know what to expect by reading the rules. To draw the conclusion that public law has a monopoly in legal certa inty, would be incorrect however, Two remarks could be made. Private law companies are bound to produce certainty towards the public a well. And the public legal certainty is lim ited in itself. It cannot be denied, that rules leave room for interpretation and civil servants are partly free to act in compliance with their own common sense. This is a phenomenon known as the discretion of lic authorities. The freedom of private companies is guided by law that can set minimum standards for quality and maximum levels for prices With respect to the rinciple of legal certa inty it might be possible in many cases to find a balance between the need for legal certa inty and reasonable freedom for market options. If too many rules are needed however, the govemment should refra in from transformation of state a ctiv ities into open market competition With regard to the ast two checkpoints might be remarked: a new mix between government and market as coordination mechanisms (Bovenberg, 1999) should be created. Whether a public or a private organisation of a service is effective or efficient depends ma inly on the character of the serv ice. Electricity was due to be
APPLICATION OF ADMINISTRATIVE LAW TO PRIVATIZATIONS 5 - efficiency, - efficacy. Democratic legitimisation holds two items: democratic steering and democratic accountability. To accomplish his accountability towards parliament, a minister should have the power to give directions to the privatised company: without power no accountability (and v.v.). The necessary power can be contributed in various ways. Aside from the various methods in the public domain, other forms of founding democratic legitimatisation are feasible. In a more traditional vision an immediate link between responsibility for the public interest and public domain, might be deemed as the only possible way. Though democratic legitimisation for the public interest is essential, accountability within the public domain is not the only way to achieve it. Other methods are feasible. It might be made obligatory for the companies to publish annual reports, to respond to special representative or independent councils and to operate with an objective supervisory board. With certain creativity democratic legitimisation might be provided in a different, but effective way. It can be seen as a challenge in privatisation to make privatised companies more responsible towards society. Guarantees should however not develop into a detailed network of rules, which will make the privatisation void. The strains of the principle of equity before law might corner the options of a company too sharply and restrict it too much to operate effectively on an open market. And moreover, from the other hand, competition might lead companies into infringement of the principle. A commercial insurance company is to be expected to exclude risk groups, though behaviour like that is not socially correct. Of course an attitude like that could be prohibited by law, but making detailed rules on how to run a company might affect the company s position on the open market, or have more effects on the functioning of the open market as such. For these reasons the government might refrain from conversion of state activities into an open market system, if the principle of equity before the law is at stake. Legal certainty is partly connected with predictability of actions of the administration. The administration is tied to public law rules and citizens know what to expect by reading the rules. To draw the conclusion that public law has a monopoly in legal certainty, would be incorrect however. Two remarks could be made. Private law companies are bound to produce certainty towards the public as well. And the public legal certainty is limited in itself. It cannot be denied, that rules leave room for interpretation and civil servants are partly free to act in compliance with their own common sense. This is a phenomenon known as the discretion of public authorities. The freedom of private companies is guided by law that can set minimum standards for quality and maximum levels for prices. With respect to the principle of legal certainty it might be possible in many cases to find a balance between the need for legal certainty and reasonable freedom for market options. If too many rules are needed however, the government should refrain from transformation of state activities into open market competition. With regard to the last two checkpoints might be remarked: a new mix between government and market as coordination mechanisms (Bovenberg, 1999) should be created. Whether a public or a private organisation of a service is effective or efficient depends mainly on the character of the service. Electricity was due to be
VAN DER VLIESISTOTER/LUBACH traded on a monopoly market, because the infrastructure was technically too less ophisticated to allow competition (E.E. ten Heuvehof, a.o. ). Nowadays infrastructures with regard to electricity allow competition without losing the availa bility of electricity for everybody. This makes privatisation feasible In theory social welfare might be privatised, with substantal financial support of the govemment. It is however not predictable that such a transfomation will favour find. uy and efficiency. In situations like that a good reason to privatise is hard to find; the challenge is not in the decision to privatise or not, but to be sought in finding a good institutional frame for management of the product 5 Private corporations with public tasks 5.1 Introduction Some forms of privatisation do not imply a total rejection by the government of the tasks which were fomerly carried out by organs of the govemment themselves. The bjective of privatisation of these tasks, which are still regarded as mportant in the general interest of society, is not as much to get rid of any govemment influence. market conform, The motives of privatisation are dealt withun more efficient c Being privatised, the form in which these tasks are carried out is those of priva legal bodies, mainly public com panies limited by shares(NV)or private companies with limited liability(BV). Sometimes the fomm of a foundation(stichting)is used These three legal persons are regulated in chapter 2 of the Civil Code(Bw) Hereafter we will focus on the two types of companies and leave the foundation In a considerable amount of cases the govemment wants to maintain a certain degree of influence in the way these tasks with a general interest and therewith a public character are carried out by a private organisation In Dutch law organisations with a mixed character, such as in France le societe d economie mixte, are not developed. And apart from the public organisa tor govemed by legislation prescribed in the Constitution, general rules on organisations with a public law characterare underdeveloped Of course there are a lot of so-called independent adm inistrative bodies(=elfstandige bestuursorganen)more or les form can only be a legal body accordingto private law WTi comparable with administrative agencies. But when we privatisation is at stake the This implies inherently a certain tension between the private fom of the legal body and the more or less public content of the tasks that havet be executed In general this has to do with the relation between private and public law in the Dutch While preparng this chapter we heavily relied on the study of C.A. Schreuder, Publiekrechtelijke taken, privaatrechtelijke rechtspersonen, Kluwer, Deventer 1994 The terms public and private are used here in a different sense than n the dstnction between pubhc and private law. Both the Nv and the Bv are legal persons accord ing to private law Public here has t do with openness or transparancy private with the closed structure of the
VAN DER VLIES/STOTER/LUBACH 6 traded on a monopoly market, because the infrastructure was technically too less sophisticated to allow competition (E.E. ten Heuvelhof, a.o.). Nowadays infrastructures with regard to electricity allow competition without losing the availability of electricity for everybody. This makes privatisation feasible. In theory social welfare might be privatised, with substantial financial support of the government. It is however not predictable that such a transformation will favour efficacy and efficiency. In situations like that a good reason to privatise is hard to find; the challenge is not in the decision to privatise or not, but to be sought in finding a good institutional frame for management of the product. 5 Private corporations with public tasks1 5.1 Introduction Some forms of privatisation do not imply a total rejection by the government of the tasks which were formerly carried out by organs of the government themselves. The objective of privatisation of these tasks, which are still regarded as important in the general interest of society, is not as much to get rid of any governement influence, but mainly to carry out these tasks in a way that is supposed to be more efficient or market conform . The motives of privatisation are dealt with in chapter 1. Being privatised, the form in which these tasks are carried out is those of private legal bodies, mainly public2 companies limited by shares (NV) or private companies with limited liability (BV). Sometimes the form of a foundation (stichting) is used. These three legal persons are regulated in chapter 2 of the Civil Code (BW). Hereafter we will focus on the two types of companies and leave the foundation aside. In a considerable amount of cases the government wants to maintain a certain degree of influence in the way these tasks with a general interest and therewith a public character are carried out by a private organisation. In Dutch law organisations with a mixed character, such as in France le societe d economie mixte, are not developed. And apart from the public organisa tions governed by legislation prescribed in the Constitution, general rules on organisations with a public law character are underdeveloped. Of course there are a lot of so-called independent administrative bodies (zelfstandige bestuursorganen) more or les comparable with administrative agencies. But when we privatisation is at stake the form can only be a legal body according to private law. This implies inherently a certain tension between the private form of the legal body and the more or less public content of the tasks that have te be executed. In general this has to do with the relation between private and public law in the Dutch 1 While preparing this chapter we heavily relied on the study of C.A. Schreuder, Publiekrechtelijke taken, privaatrechtelijke rechtspersonen, Kluwer, Deventer 1994 2 The terms public and private are used here in a different sense than in the distinction between public and private law. Both the NV and the BV are legal persons according to private law. Public here has to do with openness or transparancy , private with the closed structure of the BV
APPLICATIONOF ADMINISTRATIVELAW TOPRIVATZATIONS legal system. Departing from the viewpoint that government can use private aw to execute public tasks, the important notion is developed over the last decades in both case law and legislation, that when adm inistrative authorities do so, a mix of private and public law is applicable In this respect and not the least for the subject of this paper it is important that e discem between two major fields of private aw I. e contract law in general and the law governing private legal bodies Regarding contract law we have to keep in mind that in Dutch law we do not ve public contract law to speak of For Dutch lawyers a contract is a private contract. Connected with the notion we just mentioned, this does not mean that a govemment contract is governed by public law only On the contrary, when a pu bl authority uses a contract the applicable law is very often a mix of private and public law. Being a flexible instrument a contract very easily absorbs public law. To a great extend one can, so to speak, colour (pre)contractual relations with elements of public law or in another metaphor fill contracts with a public content In this respect the law concerning private legal bodies is different. This has to do with the structure of this part of aw. Law conceming organisations has an intemal structure. It has to deal with the different competences of the different organs of the organisation. In most cases the legal provisions bring about a certan balance of owers. Public rules can easily interfere with this balance and disturb it. Another spect is that a private company has a specific interest, that cannot be equal with the general interest public authorities always have to keep in mind. We will elaborate on that point lateron For now it is sufficient to make clear that law regarding private organisations is vulnera ble for alien influences To use one other metaphor: one can compare contract law with a balloon, it is empty inside, you can fill it with different contents and only when the pressure becomes too high it will burst. Law on organisations you can compare with a honeycomb, it has an nternal structure which can be damaged very easily So, com ing back to our subject, it is probable that there are inherent legal limits the way and extend to which public authorities are allowed to influence private corporations. And that goes also for private corporations executing tasks regarded for the In the following paragraphs we will discuss the possiblities(par 5.2)and the limits(par. 5.)of govermment influence in private hw companies. In par 5. 4 we will give some attention to thethe influence of public law on the output of these companies In par 5.5 we conclude with some conclusions 5.2 Possibilities of government influence in public and private companies In general public authorities with a regulatory competence can exercise influence on public and private companies in two different ways a. by using the instruments of private law. b. by means of specific public law regulation Ad a Strictly the use of prive lw in exercising influence on privatised organisations
APPLICATION OF ADMINISTRATIVE LAW TO PRIVATIZATIONS 7 legal system. Departing from the viewpoint that government can use private law to execute public tasks, the important notion is developed over the last decades in both case law and legislation, that when administrative authorities do so, a mix of private and public law is applicable. In this respect and not the least for the subject of this paper it is important that we discern between two major fields of private law. I.e contract law in general and the law governing private legal bodies. Regarding contract law we have to keep in mind that in Dutch law we do not have public contract law to speak of. For Dutch lawyers a contract is a private contract. Connected with the notion we just mentioned, this does not mean that a government contract is governed by public law only. On the contrary,when a public authority uses a contract the applicable law is very often a mix of private and public law. Being a flexible instrument a contract very easily absorbs public law. To a great extend one can, so to speak, colour (pre) contractual relations with elements of public law or in another metaphor fill contracts with a public content. In this respect the law concerning private legal bodies is different. This has to do with the structure of this part of law. Law concerning organisations has an internal structure. It has to deal with the different competences of the different organs of the organisation. In most cases the legal provisions bring about a certain balance of powers. Public rules can easily interfere with this balance and disturb it. Another aspect is that a private company has a specific interest, that cannot be equal with the general interest public authorities always have to keep in mind. We will elaborate on that point later on. For now it is sufficient to make clear that law regarding private organisations is vulnerable for alien influences. To use one other metaphor: one can compare contract law with a balloon, it is empty inside, you can fill it with different contents and only when the pressure becomes too high it will burst. Law on organisations you can compare with a honeycomb, it has an internal structure which can be damaged very easily. So, coming back to our subject, it is problable that there are inherent legal limits to the way and extend to which public authorities are allowed to influence private corporations. And that goes also for private corporations executing tasks regarded important for the general interest. In the following paragraphs we will discuss the possiblities (par 5.2) and the limits (par. 5.3) of government influence in private law companies. In par 5.4 we will give some attention to the the influence of public law on the output of these companies.In par 5.5 we conclude with some conclusions. 5.2 Possibilities of government influence in public and private companies In general public authorities with a regulatory competence can exercise influence on public and private companies in two different ways: a. by using the instruments of private law. b. by means of specific public law regulation Ad.a Strictly the use of prive law in exercising influence on privatised organisations
VAN DER VLIESISTOTER/LUBACH is not a subject we should discuss in a paper devoted to the ole of administrative aw in privatisation. The use of private legal ins ts per se is not a matter of adm instrative law. But it is obvious that the two ways are closely linked together in the sence that specific public law regulation is only appropriate when the reguar instruments of the private aw on legal persons are not sufficient. So since the two above mentioned ways ha ve to be regarded as complementary, we cannot do without any attention to the first way of influence Important to note is that the regulation of Ch 2 CC is mandatory. The fomal act, according to art.. Comptabiliteitswet, necessary for the govemment to found a company can theretically variate the system of the legal person, but in general it is accepted that the State as a founder of a public or private com pany has to stay within the limits of ch 2 Cc In this respect we have to focus on two important bodies: the shareholders meeting and the supervisory board. The first is common to both the public and private company. The ast is only optional for the regular public company and the private company, but obligatory for the statutory two-tier company(structuurvennootschap) Since major privatisations have taken place by founding a two-tier company the supervisory board is in this respect a common feature. A common way of exercising influence is to participate in the company as a shareholder. The State or other public authorities can participate as a shareholder and have the same powersas normal shareholders. In this respect it is noteworthy that every shareholder may look a fter his own interests. For any public authority this interest has to be the common interest of society. This implies that, where noma shareholders mostly are only interested in making profit on their shares, a public authority mostly will be interested in the companies activ ities and policy decisionsas such. In many cases this is reflected also in the fomulation of the goal or mission statement in the fomalact by which the company is founded. This makes it more important for the public authority than for other shareholders that he can exercise influence on the decision of the appointment of executive board members(art. 2: 132 CC)and on the decision making powers of the executive board, among others by reservation of the right of approval on certa in decisions or reserving the authority to give instructions(art. 2: 129 CC). These instructions however must not completely wipe out the descretion of decision -making the executive board normally has. Principally the power to give instruction cannot go further than for normal shareholders an can only be of a general nature. Instructions in concrete cases hamper the freedom to exercise the decision-making power of the executive board to much. Instructions of the shareholders meeting can only relate to more general aspects of the companies policy on financal, social economic and human resources Secondly represention of an administrative authority in the supervisory board an be an important method of influencing the policy of the decides on the annual account and has the right of approval of a number of executive decisions as stated in art. 2: 164 BW(a0. financal structure company. This is especially the case in the statutory two-tier company, where the supervisory board the authority to appoint the executive board, of the company, cooperation, investments, changes in the articles of association) Art 2: 158 par 12 Bw gives the opportunity that the articles of assocation
VAN DER VLIES/STOTER/LUBACH 8 is not a subject we should discuss in a paper devoted to the role of administrative law in privatisation. The use of private legal instruments per se is not a matter of adminstrative law. But it is obvious that the two ways are closely linked together in the sence that specific public law regulation is only appropriate when the regular instruments of the private law on legal persons are not sufficient. So since the two above mentioned ways have to be regarded as complementary, we cannot do without any attention to the first way of influence. Important to note is that the regulation of Ch.2 CC is mandatory. The formal act, according to art. . Comptabiliteitswet, necessary for the government to found a company can theretically variate the system of the legal person, but in general it is accepted that the State as a founder of a public or private company has to stay within the limits of Ch 2 CC. In this respect we have to focus on two important bodies: the shareholders meeting and the supervisory board. The first is common to both the public and private company. The last is only optional for the regular public company and the private company, but obligatory for the statutory two-tier company (structuurvennootschap). Since major privatisations have taken place by founding a two-tier company the supervisory board is in this respect a common feature. A common way of exercising influence is to participate in the company as a shareholder. The State or other public authorities can participate as a shareholder and have the same powers as normal shareholders. In this respect it is noteworthy that every shareholder may look after his own interests. For any public authority this interest has to be the common interest of society. This implies that, where normal shareholders mostly are only interested in making profit on their shares, a public authority mostly will be interested in the companies activities and policy decisions as such. In many cases this is reflected also in the formulation of the goal or mission statement in the formal act by which the company is founded. This makes it more important for the public authority than for other shareholders that he can exercise influence on the decision of the appointment of executive board members (art. 2:132 CC) and on the decision making powers of the executive board, among others by reservation of the right of approval on certain decisions or reserving the authority to give instructions (art. 2:129 CC). These instructions however must not completely wipe out the descretion of decision-making the executive board normally has. Principally the power to give instruction cannot go further than for normal shareholders an can only be of a general nature. Instructions in concrete cases hamper the freedom to exercise the decision-making power of the executive board to much. Instructions of the shareholders meeting can only relate to more general aspects of the companies policy on financial, social economic and human resources issues. Secondly represention of an administrative authority in the supervisory board can be an important method of influencing the policy of the decides on the annual account and has the right of approval of a number of executive decisions as stated in art. 2:164 BW ( a.0. financial structure company. This is especially the case in the statutory two-tier company, where the supervisory board the authority to appoint the executive board, of the company, cooperation, investments, changes in the articles of association). Art 2:158 par 12 BW gives the opportunity that the articles of association
APPLICATIONOF ADMINISTRATIVELAW TOPRIVATZATIONS ovide for one or more specal supervisory directors to be appointed by public authorities, mainly the national govemment. This right of appointment is an exeption to the rule that the mem bers of the supervisory board are appointed by the board himself. This opportunity is, according to the law, especially appropriate when the common interest is involvedin the company in aspecal way It is rather obv ious that in cases of privatisation, where the governmentwants to maintain a certain degree of influence this will be the case. So almost all statutory acts by which in the framework of privatisation a company is founded, provide fora possibility forappointing one or more special supervisory board members As to the extent of the influence of the government can have through the speia supervisor one can suppose that there is an inherent tension between the interest of the company as such on which the supervisory board has to focus and the public problem when we discuss the lim its of govemment influence m par. S, aI with this interest which has to be the focus of any public authorith. We will de Ad b. Besides the instrument of the private law on legal persons the govemment can xercise influence by means of specific powers on the basis of public law. Basica lly this is only nessesary when the possibilities inside the private hw are deficient In this sense specific rules based on public law are a complement to the instruments based on private law Obviously the govemment as legislator can and will have a substantive influence, since in the fomal act, that is, as we mentioned before, necessary for founding a private legal body the goal and the tasks of the company will defined and assigned. This assigment implies that the assigned tasks have to be executed. In this sense there is a direct influence of the govemment on the company, which can still be inforced by more detailed regulations and instructions in which cond itions the company has tot fulfil are laid down Where the instruments mentioned above are of a more general character, the govemment can retain also more concrete powers, such as the power to appo int executives, rights of approval of tariffs, the budget. It goes without say ing that the more detailed those regulations and instructions are, the more they might interfere with the descretionary powers of the executive board of the company 5.3 Limits ofgovernment influence 53 1 Within the context of the private lawon legal person When the influence is exercised by using the possibil ities of the private law as elaborated in par 5.2 sub a the basic question te be answered is whether or not the govemment in his role as shareholder or represented by a member of the supervisory board holds a different position. To which extend can the govemment, representing the common interest influence the different decision making bodies in the company, whose decisions all have to be directed on the com panies interest. This comes down to the essential question in which way the common interest and the interest of the company differor(partly )coincide n recent days the interest of the company is regarded to be more than the interest of the shareholders in the maximum retum on their shares. In prevailing opinions the
APPLICATION OF ADMINISTRATIVE LAW TO PRIVATIZATIONS 9 provide for one or more special supervisory directors to be appointed by public authorities, mainly the nationa l government. This right of appointment is an exeption to the rule that the members of the supervisory board are appointed by the board himself. This opportunity is, according to the law, especially appropriate when the common interest is involvedin the company in aspecial way. It is rather obvious that in cases of privatisation, where the governmentwants to maintain a certain degree of influence this will be the case. So almost all statutory acts by which in the framework of privatisation a company is founded, provide for a possibility for appointing one or more special supervisory board members. As to the extent of the influence of the government can have through the speial supervisor one can suppose that there is an inherent tension between the interest of the company as such on which the supervisory board has to focus and the public interest which has to be the focus of any public authorithy. We will deal with this problem when we discuss the limits of government influence in par. 5.3. Ad b. Besides the instrument of the private law on legal persons the government can exercise influence by means of specific powers on the basis of public law. Basically this is only nessesary when the possibilities inside the private law are deficient. In this sense specific rules based on public law are a complement to the instruments based on private law. Obviously the government as legislator can and will have a substantive influence, since in the formal act, that is, as we mentioned before, necessary for founding a private legal body the goal and the tasks of the company will defined and assigned. This assigment implies that the assigned tasks have to be executed. In this sense there is a direct influence of the government on the company, which can still be inforced by more detailed regulations and instructions in which conditions the company has tot fulfil are laid down. Where the instruments mentioned above are of a more general character, the government can retain also more concrete powers, such as the power to appoint executives, rights of approval of tariffs, the budget. It goes without saying that the more detailed those regulations and instructions are, the more they might interfere with the descretionary powers of the executive board of the company. 5.3 Limits of government influence 5.3.1 Within the context of the private law on legal persons When the influence is exercised by using the possibilities of the private law as elaborated in par 5.2 sub a the basic question te be answered is whether or not the government in his role as shareholder or represented by a member of the supervisory board holds a different position. To which extend can the government, representing the common interest influence the different decision making bodies in the company, whose decisions all have to be directed on the companies interest. This comes down to the essential question in which way the common interest and the interest of the company differ or (partly) coincide. In recent days the interest of the company is regarded to be more than the interest of the shareholders in the maximum return on their shares. In prevailing opinions the
VAN DER VLIESISTOTER/LUBACH interst of the company is regarded as the result of balancing the different interests of those involved in the activities of the company. When, as is the case in companies we are discussing here, public authorities are involved in the com pany, the common interest has at least to be regarded as one of the relevant interests to be balanced Thus the common interest can be seen as a relevant part of the interest of the company, but cannot be identical with the companies interest. That means also that a public authority within the the framework of the com pany cannot let the common interest play the same role as it would in a organisation governed by public law. Speakingof privatisation this should not be very surprising. Still in another way the govemment has to respect a balance. This is the balance between the powers a ttributed to the different bodies within the companies structure This balance is based on the Civil Code and public authorities, having choosen for a fomm based on private law have to stay within the given interdependence of the different organs. Basically does that mean thata public authority actingas a(mem ber of a) body of a private legal person does have smilar powers as any other organ or member thereof. Exercising his power he has to represent the common interest, but this cannot be a sufficient motive to disturb the companies intemalstructure 5.3.2 Using specific regulations based on public law Theoretically the govemment can by means of a formalact varate on the rules of Ch 2 of the Civil Code. Any formal act(enacted by the Crown and the parliament)has an equal status. And the axiom lex specials derogat legi generali applies. In such a case a legal person sui generis is created though not unimportant in the context of privatisation we will leave this aside Here we will discuss the lim its of influence by public regulations. This comes down to the question to which extent the as we saw, obligatory rules of Ch 2 CC, limit the enactment of public rules as ela borated in par. 5.2 sub b A more general limit follows from the viewpoint we mentioned above: public law regulation should be complementary to the possibilities of the private law on legal persons. Systematically itit is preferable that in cases that the government uses private legal persons the methods of influence should stay as muchas possible within the framework of the private construction that has been chosen. To many dev ations rom the regular structure brings a bout a hybrid organisation and it becomes unclear whether or not we have to do with a real private com pany. If there is a need for many specal rules the the fom of a private legal person is may not be suita ble for the issue which is at stake. This general lim it plays a role in the judgement of any public rule that is meant to influence the decisions of the competent bodies of the company whether they are of a more general or a more specific nature But public regulation in order to be able to influence concrete decisions even more easily interferes with the discretion which is an inherent part of the executive power in a company. That goes for instance for the power to approve the budget or annualaccount. Also questiona ble are specif ic rules which allow public authorities to give instructions as to to content of specific decisions the executive board has to So there is a need for restraint in making specific public rules in order to influence the company representing tasks in the common interest
VAN DER VLIES/STOTER/LUBACH 10 interst of the company is regarded as the result of balancing the different interests of those involved in the activities of the company. When, as is the case in companies we are discussing here, public authorities are involved in the company, the common interest has at least to be regarded as one of the relevant interests to be balanced. Thus the common interest can be seen as a relevant part of the interest of the company, but cannot be identical with the companies interest. That means also that a public authority within the the framework of the company cannot let the common interest play the same role as it would in a organisation governed by public law. Speaking of privatisation this should not be very surprising. Still in another way the government has to respect a balance. This is the balance between the powers attributed to the different bodies within the companies structure. This balance is based on the Civil Code and public authorities, having choosen for a form based on private law have to stay within the given interdependence of the different organs. Basically does that mean that a public authority acting as a (member of a) body of a private legal person does have similar powers as any other organ or member thereof. Exercising his power he has to represent the common interest, but this cannot be a sufficient motive to disturb the companies internal structure. 5.3.2 Using specific regulations based on public law Theoretically the government can by means of a formal act variate on the rules of Ch 2 of the Civil Code. Any formal act (enacted by the Crown and the parliament) has an equal status. And the axiom lex specialis derogat legi generali applies. In such a case a legal person sui generis is created. Although not unimportant in the context of privatisation we will leave this aside. Here we will discuss the limits of influence by public regulations. This comes down to the question to which extent the as we saw, obligatory rules of Ch 2 CC, limit the enactment of public rules as elaborated in par. 5.2 sub.b. A more general limit follows from the viewpoint we mentioned above: public law regulation should be complementary to the possibilities of the private law on legal persons. Systematically it it is preferable that in cases that the government uses private legal persons the methods of influence should stay as much as possible within the framework of the private construction that has been chosen. To many deviations from the regular structure brings about a hybrid organisation and it becomes unclear whether or not we have to do with a real private company. If there is a need for many special rules the the form of a private legal person is may not be suitable for the issue which is at stake. This general limit plays a role in the judgement of any public rule that is meant to influence the decisions of the competent bodies of the company, whether they are of a more general or a more specific nature. But public regulation in order to be able to influence concrete decisions even more easily interferes with the discretion which is an inherent part of the executive power in a company. That goes for instance for the power to approve the budget or annual account. Also questionable are specific rules which allow public authorities to give instructions as to to content of specific decisions the executive board has to make. So there is a need for restraint in making specific public rules in order to influence the company representing tasks in the common interest