Posts Tagged Joined Cases C‑226/13

Kuhn: ‘Civil and commercial’ viz bearers of Greek bonds. Bot AG applies Fahnenbrock’s ‘direct and immediate effect’ and distinguishes Kolassa.

Advocate-General Bot opined on 4 July 2018 in the case of C-308/17 Leo Kuhn, domiciled at Vienna, who had purchased through an Austrian bank, Greek sovereign bonds. Pursuant to a forced exchanged /haircut carried out by Greece in March 2012, the bonds were replaced with new bonds with a lower nominal value. Mr Kuhn sued to have the initial borrowing terms enforced.

The Advocate-General is of course aware of the similarities with Fahnenbrock – in which he himself had also opined but was not followed by the Court. He first of all points out the similarities between the service Regulation and the Brussels I Recast (both e.g. limiting their scope of application to ‘civil and commercial’ matters), however also flags the specific recitals (in particular: recital 12) suggesting that in the context of the services Regulation the analysis needs to be done swiftly hence only cases which prima facie fall outside the scope of application (including where they manifestly (see the dictum of Fahnenbrock and para 50 of the AG’s Opinion in Kuhn) are not covered by that Regulation.

Coming next to the consideration of the application of ‘civil and commercial’, the facts of this case reflect very much the hybrid nature of much of sovereign debt litigation. In my view yes, the haircut took place within the wider institutional nature of Greece’s debt negotiations with the EU. Yet the ‘collective action clause’ (CAC) which was not part of the original terms and conditions (there was no CAC in the original lex causae, Greek law, but there is one in the newly applicable lex causae, English law: at 63 of the Opinion), was negotiated with the institutional holders of the bond and crammed down the minority holders like Mr Kuhn (at 66). The AG suggest that this does not impact on the qualification of the changes being ‘immediate and direct’, this being the formula employed by the Court in Fahnenbrock.

I am not so sure of the latter but it will be up to the CJEU to decide.

The Advocate General note bene subsequently ‘completes the analysis’ in case the CJEU disagrees with this view, and finds that if the issue is civil and commercial, it can be litigated under Article 7(1)’s rule on special jurisdiction for contractual obligations (the AG at para 88 ff distinguishes the case from C-375/13 Kolassa (in which the CJEU saw no contractual bond between the issuer of the bonds and the acquirer on the secondary market), the obligation at issue, he suggests, having to be performed in Greece. As for the latter element, the Advocate General does refer for the determination of the place of performance to the initially applicable law: Greek law, leaving the later lex causae, English law, undiscussed.

Whether the Court will follow the AG remains of course to be seen.

Geert.

 

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Fahnenbrock: ‘Civil and commercial’ viz bearers of Greek bonds. ECJ puts forward ‘direct and immediate effect’.

[Postscript 11 March 2016. The decision of the Bundesgerichtshof on 8 March 2016 is at odds with the CJEU’s finding. Peter Bert has background. The German Court declared action by German bondholders against the Greek State inadmissable  on grounds of sovereign immunity: if the case were admissible, the German courts would have to assess the merits of Greek acta iure imperii].

Within the context of the service of documents Regulation (1393/2007) but with no less relevance for the Jurisdiction Regulation, the Court held last week on the qualification of an action by (German) holders of Greek bonds, against the Greek State, for the involuntary shave they took on those bonds. I reviewed Bot AG’s Opinion here. He had suggested that in the case at issue, the Greek State, with its retroactive insertion of the collective action clause in the underlying contract, exercised acta uire imperii with direct intervention in the contract itself. Not an abstract, general regime (such as a change in overall tax) which only has an impact on said contract at arm’s length.

The ECJ disagreed. Its finding may be distinguishable, in that it emphasises (at 40 and 44 in particular) that for the service of documents Regulation, things need to move fast indeed and hence interpretation even of core concepts of the Regulation needs to proceed swiftly: ‘in order to determine whether Regulation No 1393/2007 is applicable, it suffices that the court hearing the case concludes that it is not manifest that the action brought before it falls outside the scope definition of civil and commercial matters. (at 49) However in the remainder of the judgment it does refer to precedent in particular under the Brussels I Regulation, hence presumably making current interpretation de rigueur for European civil procedure generally.

As noted in my earlier review, Bot AG opined that the Greek State’s intervention in the contracts was direct and not at a distance from the contract. The Court on the other hand essentially emphasised (at 57) that even though the Greek State, with its retroactive insertion of the collective action clause in the underlying contract, enabled the subsequent vote by the majority of the bondholders (to the dismay of the outvoted applicants), it was the vote, which led directly and immediately to changes to the financial conditions of the securities in question and therefore caused the damage alleged by the applicants – not the Act which enabled it. Not acta iure imperii therefore and hence European civil procedure is applicable.

I need to ponder this a bit further however at first sight the ‘direct and immediate’ effect test brings back soar memories of the ‘primarily aimed at’ test in WTO law, which took some time for the Appellate body to shake off. A bit of a leap, I know, but the trade lawyers among you will know what I mean. Applicants in the case at issue may be left arguing that identifying the Greek State’s intervention as the cause of the change in law, is no application of the butterfly effect (an extremely remote event which is being blamed for downstream effects) but rather an elephant in the Greek bond market room.

‘Direct and immediate effect’ may become an important consideration in the ECJ’s application of ‘civil and commercial’ in EU civil procedure law.

Geert.

 

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Fahnenbrock: Bot AG opines on ‘civil and commercial’ viz bearers of Greek bonds and the collective action clause.

Update 11 June 2015 the Court itself today held differently. (Seperate post on the judgment will be up soon).

Within the context of the service of documents Regulation (1393/2007) but with no less relevance for the Jurisdiction Regulation, Bot AG opined on the qualification of an action by (German) holders of Greek bonds, against the Greek State, for the involuntary shave they took on those bonds. (A ‘collective action clause’ ( I am quoting Wiki here. And I have donated) allows a supermajority of bondholders to agree to a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring).

Bot AG revisits all the usual suspects in the discussion of ‘civil and commercial’ (see recently the ECJ itself in flyLAL). He suggests that in the case at issue, the Greek State, with its retroactive insertion of the collective action clause in the underlying contract, exercised acta uire imperii with direct intervention in the contract itself. Not an abstract, general regime (such as a change in overall tax) which only has an impact on said contract. Had the latter been the case, the change in say tax would of course have been acta iure imperii however that exercise of sovereign authority would have taken place at a distance from the contract and would have not impacted the ‘civil and commercial’ nature of the contractual dispute.

The Regulation therefore in the Advocate General’s view does not apply in the case at issue. All in all an interesting add-on to the ‘civil and commercial’ case-law.

Geert.

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