CJEU confirms that ECB is bound by Charter of Fundamental Rights of the European Union

On 12 March 2020, the Court of Justice of the European Union (“CJEU”) delivered its final verdict on the appeal lodged against the Steinhoff case (T-107/17), which was decided in May 2019.

By way of background, the case related to the Greek public debt crisis that plagued the country back in 2009. In order to turn the situation around and return to a more viable situation, Greece had introduced a program whereby Greece’s private creditors would share a part of the burden. To this end, the Greek State introduced legislation whereby it offered a restructuring offer to Greek bond holders, which entailed exchanging their old bonds for new ones, with a significant reduction in value.

Furthermore, a Collective Action Clause was introduced by which if a majority of two thirds of the bond holders approved the bond swap, it would affect all the holders, even the ones which did not agree to it. This resulted in a situation where a portion of the bondholders sustained significant losses which they did not approve or consent to.

In line with Article 127(4) of the Treaty of the Functioning of the European Union (“TFEU”), the Greek national authorities sought the advice of the European Central Bank (“ECB”) prior to enacting such a law. The ECB did not see any reason to flag the proposed legislative initiative, but went as far as to praise it and held that Greece’s initiative was to be commended and that it was Greece’s sole responsibility in solving its debt crisis.

The dissenting creditors felt aggrieved by this decision and brought an action against the ECB in the General Court for the losses they suffered, holding that the ECB was responsible for not informing Greece that the law that they sought to implement was unlawful and constituted a breach of their fundamental human rights. They based their claim on their right to property, the principle of equality, the principle of pacta sunt servanda, the principle of proportionality, as well as the principle of legitimate expectations and legal certainty.

As a point of departure, the General Court held that for the ECB to be held non-contractually liable, three cumulative conditions must be satisfied as follows:

• The rule of law that has been allegedly breached must confer rights on individuals; • actual damage must have been suffered; and

• a casual link must exist between the breach of obligation of the institution and the damage suffered.

The General Court did not find the ECB liable and held that the obligation to highlight a violation of rights or obligations does not fall within its remit in the particular context and therefore, it cannot be held liable for failing to do so. Furthermore, investing in State bonds always carries with it a degree of risk and it is not uncommon for unforeseen changing circumstances to come about, forcing the State to have to renegotiate its obligations.

On appeal, the CJEU was tasked with re-examining if the ECB did indeed shoulder a part of the responsibility in allowing such a law to be enacted.

Primarily, the appellants alleged that the General Court, by failing to point out the fact that the ECB was bound to advise that the Greek law was unlawful, was a failure on the Court’s part to take into consideration Article 17(1) and Article 52(1) of Charter of the Fundamental Rights of the European Union (“the Charter”). The General Court had held that although Article 17(1), which protects the right to property of individuals, could be breached if the ECB fails to declare any infringement of that right when exercising its powers, the Court went on to say that the enjoyment to the right to property may be restricted when the aim of the law is the pursuing of the objective of public interest.

The CJEU agreed with the General Court’s reasoning and held that although Article 17(1) of the Charter does protect the individual’s right to property, such right is not absolute and may be subject to certain restrictions, such as the common good of the Union. Since the law in question sought the stability of the Greek economy, and by extension the banking system of the Union, the restriction imposed on the dissenting bondholders was not disproportionate but was, in fact, necessary.

The appellants further held that the General Court failed to answer if the Greek law violated the freedom of movement of capital, as guaranteed by Article 63 of the TFEU. However, the CJEU did not find a breach of this right, holding that the appellants failed to show that the restriction was disproportionate. Furthermore, even if there was such a breach, it would have been justified in view of these exceptional circumstances by overriding reasons in the general interest.

As regards the ECB’s non-contractual liability, the CJEU agreed with the stance that the General Court took, holding that national authorities are not bound by the ECB’s opinions and that they alone bear the responsibility for the acts that they adopt. Only a grave and manifest breach of the limits of its powers could render the ECB liable, and such breach did not exist in the present case.

Therefore, the CJEU dismissed the appeal and confirmed the judgement as delivered by the General Court.

This judgement is particularly significant as although it did not find the ECB guilty of any particular breaches, the Court did illustrate the fact that the ECB is bound to respect and promote the rights and principles that emanate from the Charter. Interestingly enough, in a recent letter addressed to the European Parliament, Christine Lagarde, the president of the ECB referred to the judgement discussed and held that it serves to show that the ECB acts in line with the Charter.