Posts Tagged kolassa

Non multa, sed multum. Sovereign debt litigation in Kuhn leads to surprising final (?) curtain in Vienna.

In C-308/17 Leo Kuhn the CJEU held that Brussels Ia was not engaged for the matter is acta iure imperii. I suggested in my review of the judgment that in solely emphasising context, the Court casts the net too wide. I also emphasised that Greece’s sovereign immunity defense, lonely an argument as it may be, is a strong argument (I referred to the German approach to same): non multa sed multum.

Thank you Stephan Walter for alerting us to, and analysing the final judgment in Vienna: Greece enjoys immunity; and even if it had not (this is how I understand Stephan’s analysis – I trust he will correct me should I be wrong), the court would have declined jurisdiction given that the ‘assets held in Austria’ head of jurisdiction, was not mentioned in the particulars of claim.

Stephan clearly is not happy with the judgment: the Supreme Court not only reverses its earlier stance on immunity; it also could be argued it should be estopped as it were (my words, not Stephan’s) from disciplining a claimant’s absence of reference to residual private international law rules, given that hitherto the Supreme Court had never strayed from steering the course of Brussels Ia applying.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Heading 2, Heading 2.2, Heading 2.2.9.

 

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Sovereign debt litigation in Kuhn: ‘Civil and commercial’ viz bearers of Greek bonds. CJEU holds litigation falls outside of Brussels I Recast. Pays lip-service only to Fahnenbrock.

Update 22 November 2018 see yesterday’s comments by prof Mankowski here. He is right to point out that defence mechanisms available to Greece, are effeitvely limited to sovereign immunity. However that defence is of course a strong one, as I pointed out here, given that even the German courts have acepted it.

I had earlier reviewed Bot AG’s Opinion in C-308/17 Leo Kuhn, in which the Court held on Thursday. The case concerns the retrofit introduction of CACs – Collective Action Clauses, in Greek bonds, allowing the amendment to the initial borrowing terms by decisions adopted by a qualified majority, of the remaining capital owed and applying also to the minority.

Along the lines suggested by the AG, the Court finds the litigation not to relate to civil and commercial matters (likely also leading to a finding on the basis of national law, of sovereign immunity).

Extensive reference is made of course to Fahnenbrock , among others. Yet the Court pays lip service only to Fahnenbrock: in that judgment, it launched the ‘direct and immediate’ formula: in that case it found it was the bondholders’ vote, which led directly and immediately to changes to the financial conditions of the securities in question, not the public authorities’ actions essentially dictating it: therefore that litigation was held not to be actum iure imperii, and it was found to be subject to the service of documents Regulation.

In Kuhn, Brussels I Recast is engaged and here the Court would seem to be inclined to follow (also) Bot AG’s Opinion in Fahenbrock (where he was not so followed): there, Bot AG had opined that the Greek State’s intervention in the contracts was direct and not at a distance from the contract. His focus was more on the circumstances of the case than on the legal nitty-gritty. There are certainly many similarities between Fahnenbrock and Kuhn: in the latter, the crammed-down haircut was formally the result of a majority decision of bondholders to accept the restructuring offer made by the Greek State. Not unlike Fahnenbrock were as noted it was also a bondholders’ vote which was the formal trigger.

In Kuhn, the Court emphasises the context, like Bot to no avail had done in Fahnenbrock: after a succinct tour d’horizon of the debt crisis leading to the CACs, the Court concludes ‘It follows that, having regard to the exceptional character of the conditions and the circumstances surrounding the adoption of Law 4050/2012, according to which the initial borrowing terms of the sovereign bonds at issue in the main proceedings were unilaterally and retroactively amended by the introduction of a CAC, and to the public interest objective that it pursues, the origin of the dispute in the main proceeding stems from the manifestation of public authority and results from the acts of the Greek State in the exercise of that public authority, in such a way that that dispute does not fall within ‘civil and commercial matters’ within the meaning of Article 1(1) of Regulation No 1215/2012.’

I suggested at the time that ‘direct and immediate effect’ is not a criterion which is easy to handle. Yet in solely emphasising context, the Court now casts the net too wide in my view, and at the very least leads to more speculation (pun intended) in the litigation context of sovereign debt.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Heading 2, Heading 2.2, Heading 2.2.9.

 

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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.

(Handbook of) EU Private International Law, 2nd ed. 2016, Heading 2, Heading 2.2, Heading 2.2.9.

 

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Lodi Trading, a lotta fog: Kolassa in the Belgian Supreme Court.

Many thanks Michael Verhaeghe  (whom I have the pleasure with jointly to be representing a client) for alerting me to Lodi Trading in which the Belgian Supreme Court applied (and distinguished) Kolassa. Lodi Trading is registered in The Netherlands and seemingly had been duped into transferring funds to a gang of fraudsters.  As always, the judgment is very very scant on factual reference, and I have not been able to find the Court of Appeals’ judgement: if anyone can: Court of Appeal Gent, 8 December 2015.

Like the CJEU itself did clearly in Universal Music, the Hof van Cassatie distinguished Kolassa (although it does not refer to Universal Music in this part of the judgment) by insisting there be circumstances specific to the case, over and above the simple presence of a bank account, which point to the damage occurring in that State.

In Universal Music the CJEU had emphasised the need for case-specific facts for bank accounts to be a relevant factor in determining jurisdiction, by holding that ‘it is only where the other circumstances specific to the case also contribute to attributing jurisdiction to the courts for the place where a purely financial damage occurred, that such damage could, justifiably, entitle the applicant to bring the proceedings before the courts for that place.’ (emphasis added).

What seems (but again: see the joint caveat of the Supreme Court’s judgment being scant and the Court of Appeal’s judgment being untraceable) to be specific to this case is that the Court of Appeal had held in favour of the location of the bank account of recipient of the funds being locus damni, given that ‘internal law’ (by which I take it reference is made to Belgian, not Dutch law) determines that the time of payment is determined by the moment of accreditation of the funds to the beneficiary’s account: not (the alternative reading; but again I am assuming for the judgment’s 10 brief paras do invite speculation) the time of the funds leaving the account holder’s account.

It could well be therefore that the Supreme Court is rebuking the Court of Appeal for having Belgian law enter the equation, given the need for autonomous interpretation of European civil procedure. But I am not entirely sure.

Geert.

(Handbook of) European private international law, second ed. 2016, Chapter 2, Headings 2.2.11.2, 2.2.11.2.7

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