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CJEU sets aside General Court judgment on inadmissibility of Portuguese bondholder claims concerning the bailout of Banco Espirito Santo


On 7 November 2018, the CJEU gave judgment in Case C-544/17 P, BPC Lux 2 Sarl v European Commission, allowing the appellants’ appeal and remitting the case back to the General Court.

The case arose from the decision of the Portuguese government in 2014 to split Banco Espirito Santo (“BES”) into a ‘Bridge Bank’, into which BES’s sound business activities were transferred, and a ‘Bad Bank’, which took on the residual assets and liabilities of BES. On Sunday 3 August 2014, the Portuguese authorities notified the Commission that they proposed to grant €4.899 billion of State aid to the Bridge Bank by way of initial share capital. The Commission adopted a decision on the very same day, concluding that the State aid at issue was compatible with the internal market under Art.107(3)(b) TFEU.

BPC Lux 2 Sarl and the other appellants were all subordinated bondholders of BES (“the Bondholders”). One of the commitments given to the Commission by the Portuguese authorities was that no subordinated debt could be transferred to the Bridge Bank, such that their debt became effectively worthless. They brought an action for annulment of the Commission’s decision on 12 December 2014.

The General Court held in its order of 19 July 2017 (T-812/14) that the action was inadmissible, since the appellants had no interest in bringing proceedings for annulment. The General Court’s reasoning focused on the fact that it was the decision of the Portuguese authorities to put BES into resolution, not the Commission’s approval of the State aid involved, which had caused the Bondholders’ losses. The annulment of the Commission’s decision would not, the Court said, require the reversal of the resolution decision. The Bondholders had responded that the annulment proceedings would be likely to have an impact on their parallel judicial review proceedings pending before the Lisbon Administrative Court, but the General Court rejected that submission on the basis that it considered the Portuguese proceedings to turn on different points of law not raised in the General Court annulment action.

The CJEU rejected this reasoning. It confirmed the principle (established in previous case-law) that an interest in bringing annulment proceedings may arise where the annulment might benefit the applicant in pending proceedings before the national courts. In this case, while the Bondholders’ judicial review action was directed against the decision of the Portuguese authorities, that was inextricably linked to the Commission’s decision. The General Court could not, therefore, properly conclude that the annulment of the Commission’s decision was incapable of having an effect on the Portuguese proceedings. The CJEU noted, in this regard, that it is not for the EU Courts in this context to assess the merits of an action brought before national courts.

The CJEU therefore set aside the decision of the General Court and referred the case back for the General Court to consider a further admissibility objection raised by the Commission and, if necessary, the substance of the action for annulment. 

The judgment is here.

Kelyn Bacon QC and Ben Woolgar (instructed by James Webber of Shearman & Sterling) represented the Bondholders.