(CN) – Because Greece was wielding its public authority when it devalued bonds during its financial crisis, the European Court of Justice ruled Thursday that a foreign bond holder cannot rely on the EU’s commercial or civil rules to bring a suit in Austria.
Leo Kuhn had bought about 35,000 euros worth of Greek bonds through a bank in Austria some years ago, but Greece forced the exchange of those bonds in 2012 with new bonds that were worth less.
When Kuhn sued Greece in Austria to enforce the initial borrowing terms, Greece claimed that Austrian courts lacked jurisdiction to rule on such disputes.
Grappling with Kuhn’s claim that Greece had been paying interest into his account with a bank in Austria up until the forced exchange in 2012, the Austrian Supreme Court sought to determine whether the place of contract performance is determined by the borrowing terms established when the sovereign bonds at issue were issued, or by the place of actual performance of those borrowing terms, such as the payment of interest.
Invited to weigh in, the Court of Justice responded Thursday that the the EU regulation on jurisdiction known as the Brussels Ia Regulation is not applicable here as the matter is neither a civil or commercial matter.
“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 [collective action clause], 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,’” the ruling states.
“In those circumstances, the answer to the question referred is that Article 1(1) of Regulation No 1215/2012 is to be interpreted as meaning that a dispute, such as that at issue in the main proceedings, relating to an action brought by a natural person having acquired bonds issued by a member state, against that state and seeking to contest the exchange of those bonds with bonds of a lower value, imposed on that natural person by the effect of a law adopted in exceptional circumstances by the national legislator, according to which those terms were unilaterally and retroactively amended by the introduction of a CAC allowing a majority of holders of the relevant bonds to impose that exchange on the minority, does not fall within ‘civil and commercial matters’ within the meaning of that article,” the ruling concludes.