Financial Assistance Conditionality and Effective Judicial Protection: Chrysostomides

Image from Unsplash

By Anastasia Karatzia, Essex Law School

Dr. Anastasia Karatzia and Dr. Menelaos Markakis (Erasmus University Rotterdam) jointly published an article in the Common Market Law Review titled ‘Financial assistance conditionality and effective judicial protection: Chrysostomides‘. 

The article is a commentary on the ECJ’s judgment in the case of Council v K. Chrysostomides & Co. and Ors. It analyses the reasoning behind the ECJ’s findings regarding the legal nature of the Eurogroup, explores the implications of these findings for the accountability of the Eurogroup, and looks at the justiciability of the actions of the Council, Commission, and ECB in the context of the financial assistance programme for Cyprus and the EMU more generally speaking. 

The authors argue that the ECJ could have concluded that the Eurogroup is an EU institution within the meaning of Article 340(2) TFEU and that the theoretical possibility to hold the other EU institutions involved in financial assistance programmes accountable for their actions does not always suffice to guarantee the effective judicial protection of aggrieved individuals. This is the culmination of years of research on the topic of judicial protection in financial assistance given to EU Member States.

The article can be accessed in full here.

The Essex Law School represents the UK at the 2022 IACL General Congress

Photo by Mikel Parera

Dr Anna – Mari Antoniou, Lecturer in Maritime and Commercial Law, has been appointed as the UK’s special national rapporteur at the International Academy of Comparative Law’s (IACL) General Congress, which will take take place in Asunción, Paraguay in 2022.

Dr Antoniou will be representing the United Kingdom for Trade Finance and her report deals with Topic IV of the Congress: ‘The Effectiveness of International Legal Harmonisation through Soft Law – UCP600’. It discusses the UK’s approach to several trade finance issues, including how courts, arbitral tribunals and financial institutions solve recurring problems in documentary credit contracts.

The report’s most significant contribution is an investigation and analysis of two current problems: first, how the COVID-19 pandemic has affected the industry and supply chains; and second, the way the pandemic has forced the issue of digitisation of trade finance.

It discusses the Law Commission’s Electronic Trade Documents project, which is in the consultation phase, and if the proposed draft Bill is adopted by Parliament, electronic transport documents will become a reality.

Dr Antoniou’s report looks at the issue both from a practical perspective and a legal perspective; international trade is worth £1.153 trillion to the UK so an incredibly significant amount is reflected in this report.

Moreover, the legal issues discussed are an excellent example of how the law needs to be updated to reflect the commercial reality. COVID-19 has highlighted other failings in the trade system, but has also emphasised the need for electronic alternatives for an industry deeply rooted in paper-only transactions.

Dr Antoniou’s preliminary report was submitted on 31 August 2021 with final reports due November 2021.

Secure Financing in International Trade

Photo by John Simmons

In August 2021, Dr Anna Mari Antoniou, Lecturer in Maritime and Commercial Law at the University of Essex, published an article on Trade Finance in the Journal of International Banking Law and Regulation.

The article, Bank Security in Letters of Credit: Mere pledgee or something more?, looks at security measures for financial institutions when financing international trade transactions via letters of credit. It examines banks’ security rights as pledgees of shipping documents and potential security rights under The Carriage of Goods by Sea Act 1992.

The article argues that the traditional approach, a bank as pledgee, has limits, and is now superseded by the bank’s position as bill of lading holder under the Act. Though the Act is almost 20 years old, cases concerning the position of banks under it and related issues are still common, for example, The Erin Schulte [2014] EWCA Civ 1382 and Sea Master Shipping Inc v. Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm).

Dr Antoniou argues that pledgee rights are none the less necessary in some circumstances and clarifies how the two positions can work together by proposing a tiered system of rights. The shipping market has been particularly volatile since the 2008 financial crisis and the COVID-19 pandemic has exasperated the situation.

Secure financing is considered a backbone of international trade and the particular financing method, the letter of credit, has often been described as the ‘lifeblood of international commerce’. The combination of this volatility in the market and the importance of the credit in commerce, makes bank security rights a crucial issue to examine.

The proposals in the article provide solutions in practice, enhancing bank efficiency, giving certainty to the parties involved in high value transactions. The proposals also provide a more transparent view of the law, a troublesome area for years, as evidenced by the cases.

Dr Antoniou’s article is available via Westlaw and in print with the full citation: Antoniou, A-M., (2021). Bank Security in Letters of Credit: Mere pledgee or something more?. Journal of International Banking Law and Regulation. 36(9), 367-378.

The German Constitutional Court’s Decision on PSPP: Between Mental Gymnastics and Common Sense

The Federal Constitutional Court

Professor Theodore Konstadinides, School of Law, University of Essex

The 5th of May 2020 will be remembered as a strange day for EU law and German constitutionalism. The German Constitutional Court upheld the constitutional complaints by several groups of individuals against the European Central Bank’s Public Sector Purchase Programme (PSPP). As explained in yesterday’s post by Thomas Horsley, the PSPP set up a framework that enabled the ECB to purchase government bonds or other marketable debt securities issued by the governments of Member States in the eurozone with a view to return to an appropriate level of inflation (below 2 per cent). The Constitutional Court found that the PSPP carried considerable impact on the fiscal framework in the Member States and the banking sector in general. As such, the Court concluded that both the German Government and Parliament violated the complainants’ rights under the Constitution by failing to monitor the European Central Bank’s (ECB) mandate, in particular as regards the adoption and implementation of the PSPP.

Most importantly perhaps, the Constitutional Court held that it was not bound by the preliminary ruling of the CJEU (Article 267 TFEU) on the same issue (in Weiss discussed below). Its reasoning was centred on the Luxembourg Court’s alleged failure to properly apply the proportionality principle under the Treaty (Article 5 (1) and (4) TEU). This failure was due to a lack of assessment of the possible economic policy implications of the purchase program of public debt and lack of consideration of the availability of less restrictive means. Consequently, the Constitutional Court held that the CJEU acted ultra vires.

Two immediate reactions to the judgment

The judgment reaches beyond the practical implications of policing the boundaries between monetary and economic policies. Its impact is twofold.

First, on an institutional level, questioning the monetary mandate of the European Central Bank (ECB) as a sui generis institution operating within the EU institutional system may destabilise the high degree of independence enjoyed by the ECB in the financial crisis related cases heard before the CJEU and national courts. As feared by Maduro, the ripple effect of the judgment may therefore reach beyond the credibility of the PSPP. It may further endanger the coming into fruition of similar ECB ventures such as its recent response to Covid-19 through its new Pandemic Emergency Purchase Programme (PEPP). New cases may emerge in Germany against this and future financial assistance decisions questioning the economic side effects of the ECB’s own programmes.

Second, constitutionally the judgment poses questions of an existential nature in the midst of the Covid-19 crisis concerning the balancing between the authority and primacy of EU law, and national competences and sovereignty beyond budget matters. It also questions the current stability of the preliminary reference procedure under Article 267 TFEU as the main communication channel fostering dialogue between the national and EU legal orders. This post will consider the judgment’s constitutional implications by criticising what the judgment means for the limits of the transfer of sovereign powers to the EU, and for judicial dialogue between national courts and the CJEU, but also between the three branches of government in Germany.

Constitutional confrontations prior to the PSPP judgment

While the judgment has attracted a great deal of attention in the blogosphere, little is mentioned of the fact that the PSPP judgment is not the first instance where the German Constitutional Court has challenged the validity of the decisions of the ECB. A few years back the same Court established that its powers of review may extend outside the context of Treaty revision or secondary law implementation qua an act of an EU institution, such as the ECB, that has its own legal personality and decision-making bodies. In the seminal Gauweiler judgment of 2015 (the first ever preliminary reference from the German Constitutional Court to the CJEU) the German Constitutional Court contested the validity of the Decision of the Governing Council of the ECB on features of the ECB’s government bond buying programme (Outright Monetary Transactions – OMT) arguing that it violates EU rules on monetary policy and the Protocol on the Statute of the European System of Central Banks and of the ECB. Its reasoning was purely constructed on legal grounds – i.e. whether the OMT programme marked an important shift in the delimitation of competence to the Member States’ detriment.

In its OMT judgment, the BVerfG placed the ECB’s Decision under the scrutiny of German constitutional law due to the fact that it operated without any express judicial or parliamentary approval. It was in this regard that its constitutional identity review power kicked in as a means to reinstate the default constitutional position that fiscal policy is only to be exercised according to the principles of representation and of distribution of powers. Equally, the Bundestag was responsible for the overall budgetary responsibility. As such, the Constitutional Court’s reasoning was predicated on the condition that the balance of competence would only be restored once the CJEU provided assurances that the OMT Programme merely consists of a supporting mechanism for the EU economic policies and not one concerning the stability of the EMU. Indeed, the CJEU provided such assurances and, despite its reservations, the Constitutional Court nodded to its satisfaction.

Shortly after Gauweiler, the German Constitutional Court made another request for a preliminary ruling in Weiss, this time on the validity of the ECB’s Decision on PSPP and its subsequent amendments as a means to maintain price stability. The applicants in Weiss asked similar questions to Gauweiler in relation to ECB’s monetary mandate and its potential ultra vires acts by venturing into economic policy reserved by the Member States. The CJEU rejected this claim and ruled in 2018 that the PSPP is a proportionate measure for mitigating the risks to the outlook on price developments and that it falls within the ambit of the ECB’s competences. It is worth mentioning that compared to OMT, the CJEU’s judgment in Weiss received little wider publicity, perhaps because one could almost predict another positive nod from the German Constitutional Court.

The constitutional dimension of the PSPP judgment

This brings us to the current judgment of the Constitutional Court of 5 May 2020 vis-a-vis the refusal of the German Constitutional Court to implement the above judgment of the CJEU. This refusal was based on the grounds that the CJEU manifestly failed to give consideration to the principle of proportionality which applies under the Treaty to the division of competences between the EU and national legal orders (Article 5 (1) and (4) TEU). The judgment is reminiscent of the scenario that the Constitutional Court has been rehearsing for years (since its Maastricht decision in 1993) in its collective mind: that when push comes to shove it will be competent to decide whether an act of EU secondary law is ultra vires. It is a scenario that we have been teaching our students with the caveat that this had never materialised in Germany. As mentioned elsewhere, our syllabi might have to be revised for next year, given that the judgment signals the first time that the BVerfG directly diverges from the ruling of the CJEU in a case that it has initiated through the preliminary reference procedure (Article 267 TFEU).

But the PSPP judgment goes beyond a declaration of ultra vires of EU secondary legislation. The Constitutional Court extends its ultra vires review to the interpretation of proportionality undertaken by the CJEU as exceeding its mandate as conferred by the Treaty (Article 19 (1) TEU). It confronts the CJEU as acting ultra vires because its standard of review is not conducive to restricting the scope of competences conferred by the Treaty upon the ECB. The Constitutional Court declares that it is the final arbiter and thus not bound by the CJEU’s judgment in Weiss because it does not agree with its reasoning which it describes as ‘simply not comprehensible’ (see for instance paras 116 and 153). By holding that the Weiss judgment exceeded the mandate conferred upon the CJEU, the Constitutional Court disregards the principle that rulings of the CJEU are binding on all national courts. The Constitutional Court also seems to take no notice of Article 344 TFEU which provides that ‘Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided therein’. It both hinders any future communication between the two courts on the matter and oversteps the boundaries of its powers by acting ultra vires itself.

Yet, despite its bravado, the PSPP decision does not provide any assurances that the BVerfG has finally adopted a unified and coherent approach when it comes to exercising its power to impose constitutional locks upon EU competence. A careful review of the Constitutional Court’s previous record of decisions reveals that its constitutional review has been purely theoretical and consisted of a means of getting assurances from both the EU and domestic institutions that the balance of competence between the EU and the Member States has not been transgressed. We cannot, however, overlook the possibility that in the present case this may be a gamble too far for the credibility of the German Constitutional Court. If the Court, for instance, accepts the Bundesbank’s stronger justification for why the ECB program, and decisions implementing it, are proportional the PSPP judgment may be remembered as some of the most scathing satire to scrape across the Karlsruhe courtroom since the days of Lisbon Urteil. There, the Constitutional Court took it upon itself to scrutinise the exercise of EU competences through an intra vires identity review (even when the EU is acting within its bounds of competence) in order to preserve the inviolable core content of Germany’s constitutional identity.

Throughout Germany’s history of EU membership, the Constitutional Court’s ultra vires competence review has been constructed on a ‘so-long-as’ presumption of equivalence of constitutional standards which were never deemed to be deficient at the EU level by the judges of the Constitutional Court. The current decision, however, is different because the same judges placed an additional caveat on the judicial interpretation of EU law by the CJEU. They boldly declare that:

As long as the CJEU applies recognised methodological principles and the decision it renders is not objectively arbitrary from an objective perspective, the Federal Constitutional Court must respect the decision of the CJEU even when it adopts a view against which weighty arguments could be made (para. 112)

Hence there are two important dimensions of the case where the Constitutional Court interferes with the current EU rulebook. On the one hand, the Constitutional Court appears unequivocal about imposing external controls upon the ECB’s economic assessment, seeking more transparency and proportionality as to its measures. It throws the ball aggressively into the Bundesbank’s court hoping that it will bounce in the right direction and strike at the ECB’s headquarters. There is a silver lining to this dimension of the judgment given the growth of the ECB’s competence in recent years. However, the Court’s economic analysis is hardly so convincing as to make a bulletproof argument.

On the other hand, the PSPP judgment establishes an ultra vires test that is insensitive to the CJEU’s jurisdiction conferred under the Treaty. There is a surprise element here given that the CJEU has been consistent in its last two preliminary rulings about proportionality. Of course, one can argue that the CJEU’s proportionality control over the acts of the ECB has always been based on the wrong footing. But for the above reasons, unlike the Constitutional Court’s previous theoretical Kompetenz-Kompetenz challenges, the current decision seems to allow little scope for putting the reverse gear in place (unless the Court is prepared to accept any proportionality justification). But even if the judgment is about principle and the Court runs with just about any Bundesbank proportionality justification thrown at it, some damage is too severe to handle on its own without causing further harm to Germany’s EU membership.

By disregarding the CJEU’s exclusive powers of treaty interpretation the Constitutional Court endangers Germany’s duty of sincere cooperation (under Article 4(3) TEU) to the EU against the wishes of the other two branches of government. Even if the judgment is about principle, the price is too high to pay as an ultra vires act is not to be applied in Germany. This means effectively that the German Government is put on the spot and asked to choose between its EU membership obligations and its allegiance to the Constitution as interpreted by the Constitutional Court. At the same time, the judgment raises a question about the extent to which the duty of sincere cooperation under EU law applies in the internal tensions of a Member State.

While, therefore, protecting individual rights under the Constitution, the PSPP judgment questions the principle of separation of powers under the German Constitution and the unity between the three branches of government and people to respond to external pressure from the ECB. The judgment is, however, more than an attempt of the German Constitutional Court to revert to a long-standing statement of intention to review EU law and show its real teeth to the EU Institutions. As such we must be careful in attributing it a veneer of constitutional patriotism. By holding that both the German Government and Parliament violated the Constitution, judges turn in effect against all parties involved in the materialisation of the PSPP, albeit them sitting in Frankfurt, Luxembourg or in Berlin. One can hardly interpret as healthy national dialogue the 3-month ultimatum given by the Constitutional Court to the German Government and Parliament to secure a new evaluation of the PSSP from the Governing Council of the ECB that complies with the proportionality test set by the Court as regards its economic and fiscal policy implications. The ECB needs, in particular, to provide authorisation to the Bundesbank to send to the Constitutional Court all relevant documentation both published and unpublished providing the necessary proof that all possible consequences of the purchase program were considered. Failure to do so means that the Deutsche Bundesbank will have to withdraw from the implementation and enforcement of the PSPP.

Conclusion

While EU Institutions are far from being infallible and Member States can and should confront their counterparts in the EU, the current decision sets a dangerous course because it allows no room for internal dialogue to be fostered between the Constitutional Court, the Government, and Parliament so that a uniform national approach can be adopted against ECB policies, whether this means accepting them or challenging them before the CJEU as a Member State. The Constitutional Court’s judgment shall not therefore be only interpreted as an act of defiance against the EU but also as a decision that jeopardises the Constitutional Court’s own reputation (which, as explained yesterday, has been envied by last instance courts across Europe) and, depending on the EU’s reaction, Germany’s good record of membership in the EU.

The ECB’s and CJEU’s responses to the judgment, as well as the Commission’s issuing of a Press Release warning of the possibility of bringing infringement proceedings against Germany (if  the Bundesbank fails to implement its obligations under the Eurosystem) are proof that the judgment is more than a storm in a teacup and that the current mutiny in Karlsruhe may have to be resolved by using formal EU dispute resolution mechanisms. Any fears that the PSPP judgment is emblematic of the wider rule of law crisis (in the form of defiance towards EU membership obligations) that has been brewing for the last half decade at the heart of the EU are indeed legitimate. Responding to such a crisis during an extraordinary period of disruption, ill health and economic hardship is perhaps the biggest challenge that the EU has been confronted with since its very inception. This is tenfold when faced with a founding Member State questioning, through its judiciary, the integrity of EU Institutions. Let us hope that both the EU institutions and the German Constitutional Court will measure the cost of this episode and common sense will prevail.

The author wishes to thank Mike Gordon and his colleagues Anastasia Karatzia and Nikos Vogiatzis for their useful suggestions. This post was originally published on the UKCLA Blog and is reproduced here with permission and thanks.

Visiting the Shanghai Stock Exchange to discuss Capital Market Issues between China and the UK

Dr Flora Huang, Senior Lecturer in Law at the University of Essex, visited the Shanghai Stock Exchange (SSE) in China between 21-25 October 2019.

This research visit, which is funded by the British Academy Mid-Career Fellowship, aims to promote research on the development of Chinese capital markets and simultaneously engage with the regulatory authorities to facilitate knowledge exchange.

The SSE, established in November 1990 in China, is the fourth largest Exchange in the world by market capitalisation at USD 4.77 trillion as of October 2019, following the New York Stock Exchange, Nasdaq and Tokyo Stock Exchange.

The Shanghai-London Stock Connect, namely an exchange tie-up, which was launched in June 2019, has drawn wide attention for giving mutual market access to the two stock exchanges for the first time.

During her visit, Dr Huang met the staff and experts from SSE’s Investor Service Department, Listed Company Supervision Department, Global Business Development Department and Capital Market Institute.

Visiting the SSE’s Investor Service Department 

They discussed issues regarding the stock connect, the Chinese and UK capital markets, supervision of listed companies, regulatory cooperation and cross-border enforcement.

This visit has laid down a strong foundation for further research collaboration and engagement between academia and market regulators in the two countries.

Analysing the character of the Memoranda of Understanding signed by the European Central Bank

European Central Bank

In recent years the use of instruments characterised as “atypical acts” or “soft law” has proliferated in EU law. Memoranda of Understanding (MoUs) provide a good case in point as they comprise a convenient way to conclude what are perceived as non-binding agreements negotiated and adopted bilaterally by EU Institutions and third parties.

Dr Anastasia Karatzia, Lecturer in Law and Prof Theodore Konstadinides, Professor of Law have recently published an article on the nature, characteristics, and legal effects of MoUs signed between the European Central Bank (ECB) and third parties.

The article explores the practice of the ECB for two reasons: first, owing to historically making active use of MoUs, and secondly, owing to its new role of banking supervisor for the Euro area and the specific role accorded to MoUs in banking supervision. For instance, the ECB’s central role within the EU Banking Union, which requires a high level of co-operation between the ECB and national supervisory authorities, has increased the use of MoUs as co-operation tools. Taking stock of these developments, the article provides the first comprehensive mapping-out exercise of the legal nature and character of MoUs as instruments used by the ECB. It offers an empirical analysis of the respective MoUs and establishes a legal framework that should assist our understanding of their nature, operation, and legal consequences.

The authors’ full paper was published under the title ‘The Legal Nature and Character of Memoranda of Understanding as Instruments used by the European Central Bank’ in 2019 in Vol. 44 Issue 4 of the European Law Review pp. 447 – 467. It was prepared under the Legal Research Programme sponsored by the ECB. It is one of the first articles looking at the ECB’s role in signing Memoranda of Understanding beyond the context of financial assistance provided to EU Member States. Any views expressed are only those of the authors and do not necessarily represent the views of the ECB or the Eurosystem.


Workshop on ‘Brexit: Regulatory Challenges for Business Law’

10 May 2019 10.00am – 5.00pm University of Essex, Wivenhoe Park, Colchester, CO4 3SQ

The UK’s withdrawal from the EU will result in far-reaching, significant consequences for the regulatory spheres of both the UK and the remaining Member States. Even after the completion of the withdrawal process, EU laws will still impact businesses operating in the UK, both directly and indirectly. Fields which are most likely to be affected include product specifications, competition, employment, health and safety, banking and financial services, company law, insolvency, consumer protection and insurance. Despite this, there continues to be gaps in the research which has been carried out to explore the ultimate consequences of Brexit on the business regulatory environment.

This workshop, organised by the Commercial Law Cluster at the University of Essex, aimed to cover this research gap by exploring the opportunities and risks faced by UK business in this time of legislative change. In particular, this workshop focused on three key legal fields: (i) finance and banking law; (ii) corporate law; and (iii) maritime and insurance law.

The purpose of this workshop was to raise awareness and foster debate on the rules that will govern the UK after Brexit. The regulatory changes for each of these three economic sectors were discussed in separate panels. In each panel, invited speakers provided an overview of the opportunities and challenges faced by businesses. Invited discussants then complemented these presentations with views from both academia and legal practice.

The programme and speakers included:

Welcome: Professor Theodore Konstadinides (University of Essex)

Keynote Presentation: Professor Takis Tridimas (King’s College London; Matrix Chambers)

Session One: Finance and Banking

Financial Markets: Professor Stuart Weinstein (Aston University) and Dr Flora Huang (University of Essex)

Banking Supervision: Dr Menelaos Markakis (Erasmus University Rotterdam) and Dr Anastasia Karatzia (University of Essex)

Session Two: Corporate Law

Chair: Dr Eugenio Vaccari

Company Law: Professor Janet Dine (Queen Mary University of London) and Dr Marios Koutsias (University of Essex)

Insolvency Law: Hamish Anderson (Norton Rose Fulbright) and José Carles (Carles Cuesta Abogados y Asesores Financieros, Madrid)

Employment Law: Dr Jennifer Gant (University College Cork) and Dr Niall O’Connor (University of Essex)

Session Three: Maritime, Shipping and Insurance

Chair: Dr Lijie Song

Shipping: Zoumpoulia (Lia) Amaxilati (Queen Mary University of London) and Dr Durand Cupido (University of Essex)

Insurance: Dr Keren Wu (University of East Anglia) and Dr Anna Antoniou (University of Essex)

Closing Presentation: Professor Steve Peers (University of Essex)