The ‘Brussels 1a’ regulation is not applicable in determining which member state’s courts have jurisdiction to rule on claims brought against the Greek state by an individual who invested in Greek sovereign bonds, the value of which depreciated following their forced exchange in exceptional circumstances connected to a Eurozone bailout plan, Advocate General Yves Bot states in conclusions returned on Wednesday 4 July (case C-308/17).
Mr Leo Kuhn, who is domiciled in Austria, purchased Greek sovereign bonds with a nominal value of €35,000 on the secondary market through an Austrian custodian bank. These bonds carry entitlement to repayment of the capital upon maturity and to the payment of interest.
In the framework of the forced exchange carried out by Greece in March 2012 in the framework of the second bailout plan (see EUROPE 10571), Kuhn’s bonds were replaced with new bonds subject to English law and with a lower nominal value, causing him to lose at least 53.5% of his capital.
Kuhn brought proceedings in Austria for enforcement of the initial borrowing terms or compensation. In particular, he argued that up until the day of the forced exchange, Greece paid interest into his account with a bank in Austria.
Athens considers that the Austrian courts do not have jurisdiction.
The Austrian Supreme Court asked the Court of Justice to interpret the ‘Brussels 1a’ regulation (1215/2012) on jurisdiction in civil and commercial matters. Under the regulation, the courts of the member state in which the defendant is domiciled generally have jurisdiction. However, a rule of special jurisdiction may provide for the courts of the place of performance of the obligation in question to have jurisdiction.
The Austrian Supreme Court therefore asked whether the place of performance is determined by the borrowing conditions upon the issuance of these bonds, notwithstanding subsequent transfers of them, or by the actual performance of the borrowing terms, such as the payment of interest.
In his conclusions, Advocate General Bot advises the Court to reply that in this particular case, an action brought against a member state by a natural person who acquired bonds issued by that the state do not constitute a civil or commercial matter within the meaning of the ‘Brussels 1’ regulation, if that individual is aiming to obtain the performance of the initial borrowing terms or compensation for non-performance due to an exchange of bonds imposed upon him under exceptional circumstances seeking to ensure the stability of the Eurozone.
In February 2012, Greece adopted a law that included class action clauses allowing a majority of owners of sovereign debt instruments to impose an exchange of this kind upon the minority. Natural persons constituted a minority of owners of Greek state bonds (around 1% of the total government debt). They did not participate in these negotiations between Athens, its creditors and institutional investors (banks and credit institutions).
If the Court does not share that analysis and rules that the dispute does fall within the scope of ‘civil and commercial matters’ within the meaning of the ‘Brussels 1a’ regulation, Bot concludes that an action brought by the purchaser of bonds constitutes a matter ‘relating to a contract’ for the purposes of the above-mentioned special jurisdiction.
In this particular case, however, he considers that the jurisdiction of the Austrian courts cannot be based on this rule. The place of performance of the sovereign bond is determined by the borrowing conditions when that bond was issued, notwithstanding subsequent transfers of it, or the actual performance, elsewhere, of the borrowing conditions concerning the payment of interest or repayment of capital.
In this case, the place of performance of the bond (that of the payment of coupons and repayment of capital), which forms the basis of Kuhn’s claim, is in Greece. (Original version in French by Mathieu Bion)