In a judgment that
may come to have far-reaching implications, on 6 November the European Court of
Human Rights handed down a decision in the case of Ališić and Others v. Bosnia and
Herzegovina, Croatia, Serbia, Slovenia and the Former Yugoslav
Republic of Macedonia. The text of the judgment makes clear that it
is intended as a pilot judgment, to be used in resolving more than 1,650 other,
similar cases that are pending before the court. At the same time, by law the judgment is not
to be considered final until three months will have passed without any appeal
having been made.
According to a
press release issued by the court, the judgment was given by a chamber of seven
judges, one each from the UK, Poland, Croatia, Slovenia, Bosnia and
Herzegovina, Serbia, and Macedonia
(FYROM).
Particularly
noteworthy, from the viewpoint of banking theory and jurisprudence, is the
dissenting opinion registered by the judge from Slovenia, Boštjan M.
Zupančič. For the convenience of readers
it is reproduced in its entirety below.
Sources:
Mark Pleas
Eastern Europe Banking & Deposits
Consultant
DISSENTING
OPINION OF JUDGE ZUPANČIČ
I regret that I cannot
follow the majority judgment. For a number of reasons, only some of which are
outlined in this dissent, it is my considered opinion that the outcome of this
judgment by the ad hoc Chamber will, before the Grand Chamber, most
certainly prove not to be in accordance with the letter and the spirit of the
Convention.
If we begin with the
Protocol No. 1, Article 1, paragraph 1 provision of the Convention, we see that
its purpose is to protect bona fide possessions, legitimate
expectations, arguable claims, etc. However, in this case we are, in the final
analysis, safeguarding the speculative impact and the defects of a Communist
state-run pyramid scheme of state-wide proportions. The scheme had been set up
by the now defunct Yugoslav regime—then in dire need of hard currency funds.
More importantly and from the moral point of view, since the LB bank and/or the
Republic of Slovenia had not set up this Ponzi scheme, they are decidedly not
the Madoffs of the story!
In the worst case scenario,
in which the LB Bank and by implication the Republic of Slovenia were to be
liable for the, to put it bluntly, “theft” of the depositors’ money –, it would
still not make sense to reimburse the depositors with the absurd 12% on the
initial deposits. Ethically speaking, this share of the reimbursement claim had
been a speculation of the naïve, as usual, investors in the said Communist
Ponzi scheme.
In banking and in similar
succession situations, the territorial principle applied and implemented
in order to reimburse debts owed in a particular country, mirrors the
well-known economic consideration that the moneys received from depositors’
deposits are invested, in terms of the so-called ‘book money’, in the very territory
in which the bank had been functioning as a debtor vis-à-vis the bank’s
depositors, but especially as a creditor vis-à-vis numerous enterprises that
the same bank had concurrently financed through its loans. The majority
judgment, to put it differently, is in violation of the territorial principle.
The territorial principle
maintains that the creditors – i.e., the savers of the bank – are to be
reimbursed for their deposits in the region, area or territory in which the
compounded commercial loans derived from their deposits were in fact extended
to different enterprises. As put in the oft-cited and seminal article on the
Yugoslav succession: “[...] the territorial principle clearly serves as the
general rule on state succession related to tangible movable property.”
(see, Carsten Stahn, Agreement on Succession Issues of the Former Socialist
Federal Republic of Yugoslavia, 96 Am. J. Int’l L. 379 (2002)). We shall
see straightaway why this is logical and therefore fair.
One must understand that all
banks have always been functioning in this mode of speculative assessment of
their future risks, based on which the depositors’ money is multiplied in a
virtual fashion in extending the loans far beyond the capital of initial
deposits (‘book money’). ‘Virtual’ here means that the ‘book money’ is
literally borrowed from the future and is in this sense ‘virtual money’.
Thus the hard-currencies
deposited and converted into the ‘book money’ were extended as credit to
enterprises in the territory or to the individual in the territory
that were willing and capable of repaying and to paying a normal interest rate on
the loan they were taking from the bank. Of course, the interest paid may never
be as high as 12%. This tends to prove that the said pyramid scheme – was just
that.
This well-known mode of
banking, however, is to be seen in the light of the then moribund Marković
government and in the light of the impending financial and federal state
breakdown, of which the very Communist hard-currency Ponzi scheme had been a
clear warning sign for all to see and to take into account.
It is also obvious that any
‘run on the bank’ will immediately end in the bankruptcy of the bank. Every
bank is essentially a speculative delay operation as is also true of every
pyramid scheme, Ponzi scheme, etc. — except that in honest banking the
loan–repayment cycle is realistic. Thus, for example, the Tudjman regime in
Croatia abruptly closed down the LB Bank on its territory, which had implied –
as it would for any bank – an immediate liquidation of the LB Bank. In such a
situation, all the debts of all the depositors are instantly called in, whereas
the loans are still in the long-term process of repayment. In other words, the
closing of the bank by the fiat of the regime will cause an immediate
default of the bank – especially vis-à-vis its individual depositors,
creditors.
The territorial principle
denotes the dynamic view of the banking function: it is guided by the idea that
the determinative aspect of the bank’s function is its continual placement of
its own loans in a particular territory. When the territory in question is
therefore considered to be the main criterion for repayment, this has its own
justified logic that cannot be comprehended from the simple private law
perspective of Article 1, paragraph 1 of Protocol No. 1.
In the event that the bank
is unable to repay its depositors, only depositors from that territory,
irrespective of their citizenship, etc. will be covered by the state guarantee
–, for the obvious macroeconomic reason that the book money originally derived
from the depositors’ deposits has in fact been invested and has stayed in
the territory in question. There it had stimulated economic activity, etc.
It thus makes sense, when
the talk is of succession, that the successor states likewise cover their
territories with their guarantees as the central authority, in this case the
Central Bank in Belgrade, had not fulfilled its own guaranteeing function. If
such is the logic, it is easy to understand that it also makes sense for the
six successor States to underwrite their depositors’ claims – each one on its
own territory.
This is in fact what
happened at least to some extent, i.e., in so far as Croatia has largely
reimbursed the depositors of the LB Bank on its territory. One might ask the
question whether the State of Croatia has done this out of pure good heartedness
vis-à-vis their own citizens –, or has there perhaps been in this move a
built-in macroeconomic justice, which the Croatian state when coming into being
has duly taken into consideration. In other words, were it not for the logic of
the territorial principle in the first place, why would the Croatian state take
over part of the debt of LB Bank for all those citizens who wished to be
reimbursed by the Croatian state?
In any event, the logic of
the territorial principle is obvious on both sides of this case. We wish to
reiterate the simple idea that individualised justice, as considered by
Protocol No. 1, has its fully compatible complement in Aristotle’s distributive
justice built into the territorial principle.
In pectore, I have for many years harboured another question
because there is another travesty in this case: viz. the issue in the present
adversary setting is thoroughly miscomprehended. The dispute is confused
because this is not, as it ought to be, an interstate case. Unmistakeably, the
atypical private law issue would in the interstate adversary backdrop
have rightly developed into an expected, natural, and logical interstate
succession issue. This would result in a far clearer perspective on the case.
Why is it that not one of the respondent States has filed, in the European
Court of Human Rights, an interstate action against the Republic of Slovenia?
Why is it that the respondent States hide behind the individual complainants
when everything points to the fact that these are succession questions? I think
the answer is clear.
Another of my major
objections to this majority judgment derives from the actual composition of the
present ad hoc Chamber, in which four of the members, i.e., a simple
majority at least, are from the creditor states, one of the members is from a
fellow debtor state, whereas there are only two other members of the panel who
are not, in one sense or another, national judges in the case. We understand
perfectly well the usual procedural logic of the Convention to the effect that
the national judge of the country concerned must in all cases be a member of
the panel in order to facilitate the assessment of the case. However, in a
situation in which we have seven successor States addressing what is
essentially a succession problem, the logic of the presence of the national
judge in each particular case will result in an ad hoc composition, as
in the present one, in which the plaintiffs’ ‘representatives’ have a clear
majority over the influence of the defendants’ ‘representatives’. This is
absurd since it was discernible from the very beginning that the interests of
the plaintiffs will instruct the outcome of the ad hoc casu majority
judgment. Fortunately, the Convention’s sacrosanct separate opinion philosophy
will here save the day in as much as the case clearly must be examined in the
Grand Chamber. In the Grand Chamber, the composition with the presence of all
national judges will be attenuated in the group of 17 judges, i.e., the bearing
of the plaintiff’s interests will likewise be less decisive. I wish to
emphasise, that I have no doubts about my colleagues’ impartiality, while
keeping in mind of course that conscious impartiality when it comes to
contemplating national interests has its own objective confines. However, even
if it were not for the numeric prevalence in the ad hoc casu panel as
such, the so-called ‘appearances’ will make it obvious that such a panel will
not, to the outside world, appear objective and impartial.
For years I have maintained,
and still do, that the issue in this case is best documented in the now famous
Professor Jürgen’s Report (Repayment of the deposits of foreign exchange
made in the offices of the Ljubljanska Banka not on the territory of Slovenia,
1977-1991, Doc. 10135, 14 April 2004, Report, Committee on Legal Affairs
and Human Rights, Rapporteur: Mr Erik Jürgens, Netherlands). The sense of the
report, at 20 & 21, is as follows:
“The economic conclusion must be that the original
deposits had, in 1991, in fact ceased to exist. The depositors had, attracted
by the high interest rates, run a risk by depositing their money in banks
within the SFRY. When this risk was recognised, they were reassured by the
guarantee given by the SFRY government that the deposits would be repaid with
accumulated interest. But this guarantee evaporated at the moment the SFRY was
dissolved, unless and inasmuch the successor states were willing to take over
this guarantee. This was duly realised, but the different successor states did
it in different ways. Slovenia [...] took over the guarantee for FE savings
deposited in banks on its territory, expecting the other republics to do the
same.”
The timing of this judgment
is particularly bad because negotiations between Slovenia and Croatia at least
are now moving forward and are run by expert bankers of the two countries who
understand the problem. The judgment will be misunderstood as final and it will
be as a matter of course and on both sides politically misinterpreted.
If one considers paragraph
58 of the judgment in which the Slovenian government criticised Croatia for
having refused to resolve the issue by IMF arbitration in 1999; for having
refused to discuss it in the standing joint committee; for having agreed to
continue Bank for International Settlements negotiations, allegedly under the
pressure of the EU only in 2010; for having reneged on that offer after the
closure of the EU accession negotiations in 2011; and lastly for making it
impossible for LB Bank Zagreb Branch to engage in regular banking activities
and thus generate additional assets (see para. 58 of the majority judgment).
These allegations of the Slovenian government have not been properly answered
by the Croatian government, neither have they been addressed by the majority
judgment. It follows inexorably that the villain in this story is not Slovenia,
because Slovenia has tried at least five times to decently negotiate this
succession problem with Croatia – but to no avail. Of course, it is impossible
to know whether this time, despite everything, the Croatian government is
serious or not. One would hope at least that this time the negotiations could
in fact move forward because, as pointed out above, they are now run by two
experts who understand the problem. Moreover, Croatia’s entry into the European
Union is conditioned upon the success of these negotiations. We reiterate that
the judgment is badly timed because it will create a political impression as to
who is now in the winning position, despite the fact that the case might be
going to the Grand Chamber, and needs no longer to show benevolence and a
constructive attitude in the ongoing negotiations.
In this context, we must
call attention to the essence of the Kovačič case judgment, which was
before the Grand Chamber on a pure technicality, and carries its real message
in the concurring opinion of the former judge, Professor George Ress, a
world-renowned specialist in international law, i.e., a specialist on succession.
In Kovačič, the question had not been addressed in the judgment, but
Professor Ress had articulated the message in his concurring opinion. That
message was essentially the same as the one found in the Jürgen report, i.e.,
that the issue cannot be properly resolved by a judgment between private
parties and the State. Unless this was to be an interstate case, it can only be
resolved by negotiations in the context of a future succession agreement.
