On March 21, 2014, the Hellenic Council of State (Plenary Session) published judgments 1116/2014 and 1117/2014, by which applications for the annulment of certain government acts, ministerial decisions and acts of the Governor of the Bank of Greece relating to the exchange of bonds issued or guaranteed by the Greek State (Private Sector Involvement) were rejected.
The provisions of law 4050/2012 (‘the Greek Bondholder Act’) do not contravene the constitutional principles of economic freedom, private autonomy, freedom of contract, protection of legitimate expectations and legal certainty and do not affect any procedural rights of the beneficial owners of the bonds
The Hellenic Council of State held that in light of the changes in financial conditions, which resulted in the Greek State being unable to fulfil its financial obligations in a full and timely manner (i.e. because of the risk of suspension of payments and collapse of the national economy), restructuring part of the public debt does not contravene the principles of economic freedom, private autonomy, freedom of contract, protection of legitimate expectations and legal certainty, all of which are protected by the Greek Constitution.
Article 1 of the Greek Bondholder Act provides that an accountholder with the System for Monitoring Transactions in Book-Entry Securities (which is managed by the Bank of Greece) is deemed to be the Bondholder with respect to the bonds held in such account. The Hellenic Council of State found that this does not affect any procedural rights of the applicants in their capacity as beneficial owners of the bonds. This is because the issuer of the bonds has a contractual relationship with the aforementioned accountholders, and not with the investors. The contracts between such accountholders and the investors do not produce legal effects vis-à-vis the Greek State or the Bank of Greece and, therefore, the applicants did not have the right to require the Greek State to invite them directly to participate in the restructuring negotiations.
According to the dissenting opinion of seven members of the Plenary Session, the conditions of the relevant bonds did not include collective action clauses and such collective action clauses were imposed on the applicants’ bonds by the Greek Bondholder Act. This resulted in the exchange of the applicants’ bonds (without their consent) for new bonds of lesser nominal value and longer maturity. Consequently, the abovementioned constitutional principles and the principle of proportionality, also protected by the Greek Constitution, were contravened.
The provisions of the Greek Bondholder Act and the Government Act 5/24.2.2012 do not contravene the constitutional principle of equality
The Hellenic Council of State held that the provisions of the Greek Bondholder Act and the Government Act 5/24.2.2012, pursuant to which (i) the bondholders who neither participated in the restructuring procedure nor consented to the restructuring were treated in the same manner as the bondholders who participated or consented; and (ii) bonds held by the national central banks and the European Central Bank were excluded from the relevant procedure, do not contravene the constitutional principle of equality.
According to the dissenting opinion of seven members of the Plenary Session, the inclusion in the restructuring procedure of beneficial owners of bonds who were neither professional investors nor consented to the restructuring proposal contravenes the constitutional principle of equality.
The annulment of bonds does not constitute expropriation
The Hellenic Council of State held that constitutional provisions which prohibit expropriation without prior payment of full compensation determined by a competent court do not apply to the annulment of bonds. This is because such provisions only apply in relation to rights in rem.
One member of the Plenary Session dissented. He argued that the aforementioned constitutional provisions also apply in relation to contractual rights and, therefore, the annulment of the applicants’ bonds without prior payment of full compensation determined by a competent court contravenes such provisions.
The Greek Bondholder Act and the relating governmental, ministerial and acts of the Governor of the Bank of Greece do not contravene Article 1 of the First Protocol to the European Convention on Human Rights
The Hellenic Council of State found that in view of the extreme circumstances, and also taking into consideration that the restructuring plan was approved by a vast majority of private sector bondholders, the restrictions imposed on the private sector bondholders’ rights (and the financial loss incurred by the applicants as a result of such restrictions) were neither a measure that exceeded the necessary limits (as set by the principle of proportionality) nor were they unfit to achieve the goal of reducing the public debt and preventing the collapse of the economy of the Greek State.
Seven members of the Plenary Session dissented; the aforementioned measures did not serve the public interest (on the contrary, the imposition of collective action clauses harmed the public interest as the creditworthiness of the country was reduced even further as a result of such imposition) and run contrary to the principles of foreseeability and proportionality. As such, Article 1 of the First Protocol to the European Convention on Human Rights was contravened.