The Parodi Case
Licence Requirements
Supreme Court Decision
Mixed Reactions
Further Developments
The European Court of Justice (ECJ) recently delivered preliminary rulings in the Parodi Case . The ECJ acted on the request of the French Cour de Cassation (Supreme Court) to solve a conflict between French banking law and the freedom to provide services under the EC Treaty, which had arisen prior to the entry into force of the Second Banking Directive.
Before the Second Banking Directive came into force, certain foreign banks (mainly Belgian and Dutch) had granted loans to French residents. When some of these French clients were unable to meet their payment obligations, they asserted that the loans were void because the foreign banks that had made the loans were not licensed in France as French credit institutions, as required by the French Banking Act (January 24 1984). The banks argued that they were not subject to the licence requirement imposed by the act because the territorial connections between their credit activity and the French legal system were not tight enough. Most court rulings were then in favour of the foreign banks.One of these cases (the Parodi Case ) was brought before the Supreme Court which was asked to determine whether, before the Second Banking Directive had come into force, the licence requirement imposed by the French Banking Act on European banks, duly licensed in their home country, was consistent with the freedom to provide services as provided by the EC Treaty.
The ECJ had held that before the Second Banking Directive came into force, the freedom to provide services stated was directly applicable in all EU member states and that the licence requirement imposed by the French Banking Act was clearly an obstacle to it. It confirmed that EU law only allows restrictions to the freedom to provide services when they are justified by the general interests of the public. Usually, the ECJ then assesses whether general interests would justify this type of restriction. However, in the Parodi Case the ECJ did not carry out this analysis. Instead, the ECJ allowed the French Supreme Court to assess whether the licence requirement imposed by the French Banking Act on foreign banks could be justified on the grounds of general interests. The ECJ did, however, define guidelines which the Supreme Court was invited to take into account when applying the general interest test.
In its decision of October 20 1998 the Supreme Court deemed that the licence requirement imposed on European banks was justified and was therefore valid. This decision has been strongly criticized for two reasons. First, the Supreme Court did not take into consideration all the criteria expressly indicated by the ECJ in its decision. The Supreme Court merely checked:
- that the licence requirement was based on general interest considerations;
- that it was not discriminatory; and
- that cooperation between supervisory authorities in the harmonization of prudential rules had been achieved.
Secondly, although the ECJ had clearly indicated that the application of the general interest test required that the nature of the service and the nature of the risk incurred by the beneficiary of the service be taken into consideration, the Supreme Court remained silent on these two indications. It refused to consider that the need for protection may differ depending on whether the bank's client is a depositor or a borrower.
The Montpellier Court of Appeal in its decision of March 22 1999 (Thomas v Anhyp) and the Aix-en-Provence Court of Appeal in its decision of June 30 1999 (Dipo v Epoux Milano) chose not to uphold the Supreme Court's position and ruled in favour of the freedom to provide services, on the basis of the criteria set out by the ECJ.
Conversely, in its decision of May 26 1999 (Gebahi v Ippa) the Paris Court of Appeal elected to follow the Supreme Court's reasoning and ruled that the licence requirement imposed by the Banking Act was valid under EU law. Consequently, the court held that, as the bank had granted the loan without the required licence, the loan was null and void.
These cases preceeded the Second Banking Directive but the precedents they set may be relevant for unlicensed, non-European banks that grant loans to French residents.
In 1999 the Paris Court of Appeal ruled on a case that developed after the Second Banking Directive had come into force. The issue was whether a loan granted by a Belgian bank was void as a result of the failure of the lender to comply with the notification obligation imposed by the Second Banking Directive. The notification obligation applies to all banks intending to provide banking services in another member state, on the basis of the freedom to provide services. In its decision of June 17 1999 (Dipo v Tillon) the Paris Court of Appeal held that the bank's failure to comply with the notification obligation does not render the loan null and void as this type of sanction would disproportionately impair the freedom to provide services.
For further information on this topic please contact Raphaële Navelet-Noualhier at Jeantet et Associés by telephone (+33 1 45 05 81 96) or by fax (+33 1 47 04 87 98) or by e-mail ([email protected]).
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