Greek Debt Restructuring Case

Summary:1The facts:—Two complainants brought a constitutional complaint before the Federal Constitutional Court (“the BVerfG”). The complaint was directed against a judgment of the Federal Court of Justice (Bundesgerichtshof) that dismissed their action on the grounds that the Hellenic Republic enjoyed State immunity before the German courts.2

In January and April 2011, the two complainants bought government bonds issued by the Hellenic Republic. The bonds were book-entry securities governed by Greek law. The complainants bought them on the secondary market from participants in the securities settlement system of the Greek central bank.

Less than a year later, in February 2012, Greece restructured its debts through a bond exchange in response to its major debt crisis. In this exchange,

The complainants did not tender their bonds in the bond exchange, but the required majority of bondholders accepted. By virtue of the exchange's publication in the Greek Government Gazette and its confirmation by the Greek Council of Ministers, the exchange became a generally binding regulation in the rank of statutory law for all bondholders. The custodian banks of the complainants cancelled the old bonds and registered the new bonds in the accounts of the complainants.

The complainants brought claims against the Hellenic Republic before the Regional Court of Osnabrück for the repayment of the funds that they originally paid to acquire the bonds, or alternatively, for the loss in value suffered due to deliberate immoral damage, unlawful expropriation, or unlawful interference equivalent to expropriation.

The Regional Court of Osnabrück, on 15 May 2015, dismissed the claim on State immunity grounds. It held that the debt restructuring was without doubt sovereign in character and covered by State immunity. On 18 April 2016, the Higher Regional Court of Oldenburg upheld the judgment of the Regional Court. It found that State immunity did not apply to contractual claims for repayment but applied to the alternative claim in tort. However, German courts lacked jurisdiction over the contractual claims pursuant to the Brussels I Regulation.3

On 19 December 2017, the Federal Court of Justice upheld the judgment of the Higher Regional Court. The Federal Court of Justice held that, although the Higher Regional Court had reached the correct conclusion on State immunity overall, it had erred in finding that the principle of State immunity did not apply to contractual claims since any finding on these contractual claims required, at least incidentally, passing judgment on the sovereign acts of Greece. As State funds were at issue, the Hellenic Republic could not be equated to a private debtor.

In their constitutional complaints, the complainants invoked breaches of their right to a lawful judge based on Article 101(1) second sentence,4 Article 100(2)5 and Article 25 first sentence6 of the German Basic Law

Held:—The constitutional complaint was not accepted for decision.

(1) The Federal Constitutional Court had already decided the relevant constitutional questions. The Federal Court of Justice based its decision on significant case law on State immunity by the Federal Constitutional Court. It merely applied a general rule of international law. Accordingly, a norm verification procedure was unnecessary in the present case. The challenged judgment of the Federal Court of Justice did not violate the complainants' right to a lawful judge (paras. 14–17 and 20).

(2) The majority of States and previous decisions by the Second Senate followed a restrictive understanding of State immunity. Accordingly, State immunity only applied to sovereign acts (acta jure imperii), not to commercial acts (acta jure gestionis) (paras. 18–19).

(3) The issuance of sovereign bonds was a commercial act. However, the issue in the present case was whether the debt restructuring qualified as a commercial or as a sovereign act. Considering the involvement of the Greek legislature, the restructuring of bonds amounted to a sovereign act under German law and was not subject to the jurisdiction of the German courts. A reduction of the nominal value by statute was not available to private market participants and was part of the core of sovereign action, at least in so far as bonds issued under the law of the debtor State were concerned. Law-making was a generally recognized area of sovereign acts—like the unilateral imposition of taxes and levies on those subject to a State's sovereignty for the purpose of generating revenue without providing anything in return. The BVerfG found support for its approach in several other jurisdictions (paras. 22–9).