The Trasta Judgment and the Court’s New Approach on Standing Requirements in Actions of Annulment in Banking Supervision


Today, in the case of Trasta Komercbanka (C-663/17 P, C-665/ P and C-669/17 P), the Court of Justice rendered a landmark decision in the field of standing requirements to bring an action of annulment The Court clarified the use of Article 47 of the Charter in the interpretation of Article 267, paragraph 4 TFEU, and it has also rejected the interpretation made by the General Court on the criterion of “direct” concern. It is a judgment that opens the standing doors on one end, at the same time that it closes them on the other. Overall, it is a relevant development that sheds light into the complex domain of standing by private parties in actions of annulment and it could have ramifications beyond the field of banking supervision.

The Trasta case is a highly complex affair, but simply put, and for the purposes of this comment, it concerns the ECB’s decision to withdraw the banking license of the bank (the contested act), whilst shortly after the bank was put into liquidation by the Latvian authorities. As a result, a Riga court appointed a liquidator who revoked all the powers (including powers of attorney) granted by the bank prior to his appointment.

In the meantime, before the revocation of the powers of attorney took place, the management of the bank decided to lodge an action of annulment against the ECB’s decision to withdraw the banking license of Trasta. In addition, a group of shareholders of the bank also lodged actions of annulment against the same act of the ECB. These are the two groups that are mainly involved in the Trasta case, whose direct and individual concern were under scrutiny before EU courts.

In first instance, the General Court ruled that Trasta was no longer represented by an attorney as a result of the revocation by the liquidator of the powers of attorney. Thus, the action was declared inadmissible. As to the shareholders, the General Court solved the ECB’s plea of inadmissibility and dismissed it, on the grounds that they were individually and directly concerned. On the last requirement, direct concern, the General Court argued that the withdrawal of the banking licence had an intensive “economic effect” on the applicants which allowed them to claim to be directly concerned by the measure.

The Court of Justice overruled the General Court in practically every one of its substantial arguments. First, the Grand Chamber states that the revocation of the powers of attorney cannot impede a legal person from launching an action, particularly when the revocation reflects a conflict of interest (the liquidator has an interest in not challenging the ECB’s and national authority’s decisions of withdrawal and eventually appointment). Second, the Grand Chamber openly discards a criterion of “direct concern” based on economic effects and concludes that the shareholders had no direct concern on the grounds of legal criteria only.

Let us explore the details of the reasoning by separating the two groups of applicants involved.

When it comes to Trasta and its management’s decision to bring an action of annulment, the Court makes a rather broad interpretation of the requirements under the Rules of Procedure, particularly the requirement that legal persons must be represented by a lawyer holding appropriate powers of attorney. It is interesting to note that the Court links the bank’s standing requirements as set in Article 263 TFEU as a result of the applicant’s right to an effective remedy. Therefore, although the conditions under which the powers of representation are granted by a legal person are a matter of national law, the Court adds that “the autonomy enjoyed by the Member States in that regard is restricted by their obligation, in particular, to ensure compliance with the right to an effective remedy and to a fair hearing enshrined in Article 47 of the Charter”. Therefore, an interpretation of the rules on the conferral of powers that leads to the practical impossibility of the legal person to bring an action of annulment, entails a violation of Article 47 of the Charter. That was particularly the case when the lawyers of the bank had been instructed to bring the action at the General Court prior to the revocation of their powers. Consequently, there was a genuine intention on the part of the bank to challenge the ECB’s decision, precluded by the decision of the liquidator to revoke all powers. According to the Court, that circumstance does not deprive the bank and its managers from bringing an action of annulment against the withdrawal act, and that decision should not be curtailed by those who have a prima facie interest in defending the act’s legality (the liquidator).

When it comes to the shareholders, the Court rejects the General Court’s more open-ended approach towards standing, which was based not so much on the legal direct concern, but on the intensity of the economic effects of the measure on the applicant. The General Court considered that the withdrawal of the license precluded the bank from exercising its right to distribute dividends, which is a substantial economic component of a shareholder’s interests. However, the Court was unconvinced by this argument and stated that the criterion based on “direct concern” is not subject to an economic effects analysis. The Court rejects the argument by stating that the shareholder’s right to perceive dividends has not been extinguished, it still exists (even if, in liquidation, it is economically inexistent). Also, the Court admits that the contested act has affected the shareholder’s right to participate in the management of the company, but it then adds (quite rightly) that the withdrawal of the banking license is not the decision that puts the bank into liquidation. Therefore, as long as the withdrawal is only the first step in a series of complex and multiple upcoming decisions, the Court concludes that the shareholders were not directly concerned by the ECB’s decision to withdraw the banking license.

The Trasta judgment deserves careful attention. It’s true that it is rendered in the specific context of banking supervision, but its effects could easily ripple into other domains.

First, the interpretation of the Rules of Procedure and the requirement of legal persons to provide a power of attorney has been flexed in light of Article 47 of the Charter. This is a good message being passed on to the General Court, so that its literal understanding of the Rules of Procedure does not become an obstacle, rather than a means, to ensure an effective legal protection of private applicants in actions of annulment. The fact that the Court rules on this point in light of Article 47 of the Charter only is quite telling, thus leaving Article 267 TFEU on a secondary position when it comes to the interpretation of access requirements.

Second, the criterion of “direct concern” is still proving to be very much alive and subject to reinterpretations and new routes. In fact, the General Court’s effort to pave the way for shareholder access clashes with the Court’s formalistic approach. The Court admits that the case-law allows competitors to bring actions of annulment in competition and state aid cases, in terms that would show that the criterion of direct concern has an economic dimension. However, the Court rejects the argument with a formalistic stance, by claiming that a competitor’s standing is not based on the economic effects of the contested act, but on its right under the Treaties not to be subject to distorted competition. Following that rationale, something similar could be argued of shareholders being dragged into a liquidation procedure, for they could claim to have a right not to be subject to an unlawful procedure that would eradicate their rights as shareholders. The Court has reinstated orthodoxy by confining the “direct concern” to legal requirements only, but its reasoning is still to be improved.

Finally, it is telling that the Court of Justice and the General Court are still struggling in finding the right tone and scope in a subject-matter that should have been settled for years. The Trasta judgment of the Court of Justice is a significant overruling of the General Court’s position on a matter that, at this stage, should have been subject to an overall consensus among both courts. It is true that banking supervision is a new domain in which both courts have a considerable amount of exploration to do, but the categories are apparently the same as before, and criterions such as “direct concern”, after all these years, should have been consolidated at this stage. With an expanded General Court and a filtering system for appeals, the Union courts are in a better position to expand their jurisdiction in areas in which private parties traditionally had no standing. The time might have come to use those resources and flex the criteria. The Trasta judgment confirms that there is still some margin of manoeuvre, but it also shows that it will be a long and contentious process.

About the author

Daniel Sarmiento

Daniel Sarmiento is Professor of EU Law at University University Complutense of Madrid and Editor in Chief of The EU Law Live Blog.

By Daniel Sarmiento