(CN) – An Austrian investor in Greek bonds who is suing Greece over a forced exchange of bonds he purchased into bonds of lower value cannot invoke EU rules for seeking redress in his home country’s courts, a magistrate said on Wednesday.
The case was referred to the European Court of Justice by an Austrian court after Leo Kuhn, who bought $41,000 in Greek bonds, sued over the forced exchange of bonds at the height of the Greek financial crisis in 2012.
After the parties got into a dispute over jurisdiction for the case, the Supreme Court of Austria, known as the Oberster Gerichtshof, asked the European Court of Justice to interpret the EU’s Brussels Ia Regulation on jurisdiction in civil and commercial matters.
That regulation sets down as a general rule that jurisdiction lies with the courts of the member state in which the defendant is domiciled.
In matters relating to a contract, however, that regulation lays down a rule of special jurisdiction, according to which the courts for the place of performance of the obligation in question also have jurisdiction. Kuhn claimed in that regard that, until the day of the forced exchange of the bonds, Greece paid interest into his account with a bank in Austria. Greece disagreed.
On Wednesday, Advocate General Yves Bot advised the Luxembourg-based European Court of Justice to tell the Oberster Gerichtshof that an action brought against a member state “by a natural person who has purchased bonds issued by that State does not fall within the scope of ‘civil and commercial matters’ within the meaning of the Brussels Ia Regulation” in a case where the adjustment of the initial borrowing terms was imposed under “exception circumstances.”
Bot’s opinion is not available in English, but a press release from the court says those exceptional conditions were preventing the Greek state from defaulting and ensuring the stability of the euro zone.
The recommendation of an advocate general is not binding on the Court of Justice. Acknowledging this, Bot said if the Court of Justice does not agree with his analysis and rules the case does actually fall within the scope of civil or commercial matters within the meaning of the Brussels Ia Regulation, he proposes that the court rule that Kuhn’s action is a matter “relating to a contract,” triggering the special jurisdiction provision of the rule.
In that event, Bot said, jurisdiction over the case would not fall to Austria, but rather to Greece, “the place of performance of a government bond is determined by the borrowing terms when that bond was issued, notwithstanding subsequent transfers of that bond or the actual performance in a different place of the borrowing terms relating to the payment of interest or the repayment of capital.”