September 22
2021
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Dolores Utrilla
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14th September 2021
Banking & Finance Human Rights Justice & Litigation

ECtHR: system of compensatory remedies under former Slovenian banking law is incompatible with the right of property

The European Court of Human Rights (ECtHR) has given its Chamber judgment in Pintar and Others v. Slovenia (applications no. 49969/14, 20530/16, 4713/17, 13244/18, and 16311/18), ruling that the extraordinary measures taken by the Bank of Slovenia in 2013-14 in respect of several major Slovenian banks, resulting in the cancellation of all shares or subordinated bonds held by the applicants, breached the right to property under Article 1 of Protocol No. 1 to the European Convention on Human Rights (ECHR).

The decisions of the Bank of Slovenia were adopted based on the relevant provisions of the Slovenian Banking Act, and justified inter alia by reference to Council Recommendation of 9 July 2013 on the National Reform Programme 2013 for Slovenia. The decisions concerning the extraordinary measures were served on the banks, which were required to inform the respective holders thereof. The information about the extraordinary measures was published on the special online service of the Ljubljana Stock Exchange and the Bank of Slovenia’s website. Apart from certain information that was published, the content of the decisions was classified as strictly confidential. It seems that it later became available, at least to some extent. However, several other documents including the material produced by the consulting firms (relating to the AQR and stress tests), which underpinned the impugned measures, appear to be treated as confidential and continue to be inaccessible to the former holders.

On 19 October 2016, the Slovenian Constitutional Court delivered, unanimously, its decision no. U-I-295/13, finding that certain provisions of Slovenian banking law were inconsistent with the Slovenian Constitution as regards the right to judicial protection, but confirming the constitutionality of the remaining provisions under review. Within this procedure, the Constitutional Court made a preliminary reference to the Court of Justice, considering that the objective of the impugned legal provisions was to transpose the European Commission’s 2013 Banking Communication into national law in order to enable the national authorities to grant State aid. By its Grand Chamber judgment in Kotnik and others (C-526/14), the Court of Justice found, inter alia, that the Banking Communication was not binding on Slovenia. 

The Constitutional Court took into account the Court of Justice’s judgment but considered the Banking Communication was relevant to its assessment and, with regard to the right to private property, it noted that the imposition of the extraordinary measures had been necessary to avoid the initiation of bankruptcy proceedings against the banks. As for the right to judicial protection, the Constitutional Court confirmed the constitutionality of the rules reserving to banks the right to challenge the Bank of Slovenia’s decisions on extraordinary measures, because this does not preclude that the former holders can seek protection by way of a compensation claim. However, the Constitutional Court noted that such compensatory remedy needed to be effective, something that was not assured under section 350a of the Banking Act, which failed to take account of the imbalance in the position of the former holders and the Bank of Slovenia. It therefore instructed the National Assembly to remedy the established unconstitutionality within six months following the publication of its decision in the Official Gazette. On 22 November 2019 the National Assembly adopted the Act on Judicial Protection Procedure for Former Holders of Eligible Liabilities of Banks (‘the 2020 Remedy Act’).

Against this background, some of the individuals affected by the controverted measures lodged applications before the ECtHR, alleging in particular that the measures were unjustified, that they should have received compensation for the cancellation of their shares and subordinated bonds, and that they had no effective procedure at their disposal to challenge the central bank’s decisions.

In its judgment today, the ECtHR noted that the Bank of Slovenia’s decisions had a basis in domestic law, in particular the relevant provisions of the Banking Act, which were found by the Constitutional Court to be compatible with the Constitution. The Strasbourg-based Court also considered that the legislation in question met the qualitative requirements of accessibility and foreseeability. However, it noted that neither the compensatory remedy nor any of the other remedies which were tried by some applicants had provided for a reasonable opportunity to challenge the Bank of Slovenia’s impugned decisions and/or seek compensation. The ECtHR therefore concluded that the measures did not have sufficient procedural guarantees against arbitrariness attached to them, in breach of Article 1 of Protocol No. 1 to the ECHR. In this regard, the ECtHR recalled that Slovenia remained responsible for securing the former holders’ rights under Article 1 of Protocol No. 1, in spite of the fact that ‘the provision of an effective remedy has in the present case been bound up with complex questions regarding the respect for various principles under EU law’ (paragraph 101).

In view of this finding, the ECtHR expressly decided not to address the specific elements of the remedy provided by the 2020 Remedy Act, a review of which is currently pending before the Slovenian Constitutional Court. 

The judgment is available here.

An Op-Ed on this case by Kern Alexander will be published soon on EU Law Live.

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