ECJ judgment affects Greek government bondholders

September 2015 | PROFESSIONAL INSIGHT | BANKING & FINANCE

Financier Worldwide Magazine

In a judgment handed down on 11 June 2015 the European Court of Justice (ECJ) has removed a significant hurdle for holders of Greek government bonds who seek legal protection before German civil courts against an involuntary haircut they took on these bonds. In February 2012, Greece passed a statute under which holders of certain government bonds received an offer to exchange their bonds for new government bonds with a considerably reduced nominal value. Moreover, the Act introduced a restructuring clause according to which the majority vote of the bondholders to accept or refuse the restructuring offer was binding on all the bondholders concerned. In March 2012 the majority of the bondholders accepted the offer to exchange the bonds. The minority of the bondholders, who had voted against the haircut, were considered to be bound by the majority vote. As a consequence, certain minority bondholders filed complaints against the Hellenic Republic with the Regional Courts of the German cities of Wiesbaden and Kiel.

When the German courts started the process of serving the complaints on the Greek State, the question arose if the actions concerned civil or commercial matters in the meaning of EU Regulation 1393/2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (in the following the Regulation). The German courts stayed the proceedings and referred the question to the ECJ.

Advocate General Yves Bot proposed in his opinion on 9 December 2014 that service under the Regulation should be denied. The Advocate General reasoned that while the Greek State had acted like a private person when it issued the bonds, it exercised its state authority when it passed the law allowing for the haircut. Given that the lawfulness of this statute was at the centre of the disputes pending before the German courts, these lawsuits should not be considered as civil or commercial matters and, therefore, did not fall in the scope of the Regulation.

The ECJ did not follow the opinion of Advocate General Yves Bot. First, it confirmed that the Regulation did not cover liability of a state for actions or omissions in the exercise of state authority (acta iure imperii). However, the distinction between acta iure imperii and civil or commercial matters could be difficult, and could be made only after having given all parties to the proceedings the opportunity to express their views on the matter. In contrast, the method of service of the complaints at hand had to be determined before the defendant could be given the opportunity to comment. The ECJ ruled that in these circumstances, taking into account the objective of speedy service of judicial documents pursued by the Regulation, the national court concerned had to limit itself to a preliminary review of the available evidence, which was inevitably incomplete, in order to decide whether the action brought before it was a civil or commercial matter. The ECJ concluded that service should be affected under the Regulation unless the request for service of the complaint manifestly fell outside the scope of the Regulation.

By applying these principles to the facts at hand, the ECJ came to the result that the claims at stake could not be regarded as manifestly outside the scope of the Regulation and, therefore, the German complaints should be served on the Greek government under the Regulation.

However, from these findings one cannot conclude that the actions should also be regarded as civil or commercial matters when it comes to the determination of jurisdiction. The ECJ explicitly pointed out that the decision on the service of the complaints was without prejudice to subsequent decisions that the German courts would be required to make as regards, in particular, their own jurisdiction and the substance of the cases concerned. Therefore, after the complaints have been served and after having given the Greek State the opportunity to file a statement of defence followed by an oral hearing, the German courts will have to decide again whether the actions constitute civil or commercial matters in order to determine if they have jurisdiction under EU Regulation 1215/2012, which governs international jurisdiction in civil and commercial matters within the European Union. It might well happen that the German courts will refer this question again to the ECJ so that the ECJ will have to definitely decide whether the actions at stake constitute civil or commercial matters. Only if this is the case will the German courts be able to rule on the substance of the case. If the German courts find in favour of the plaintiffs, in principle such judgments will be enforceable in all Member States, including Greece.

Jan Kraayvanger is a partner at Mayer Brown LLP. He can be contacted on +49 (0) 69 7941 2271 or by email: jkraayvanger@mayerbrown.com.

Jan Kraayvanger

Mayer Brown LLP