Legal summary

February 2023

Freire Lopes v. Portugal (dec.) - 58598/21

Decision 31.1.2023 [Section IV]

Article 1 of Protocol No. 1

Article 1 para. 2 of Protocol No. 1

Control of the use of property

Failure to buy back shares despite undertaking to do so, by a bank that was wound up after being resolved by the country’s central bank: inadmissible

Facts – In August 2012 the applicant acquired 3,700 shares in a company, for an amount of 185,000 euros (EUR), which were sold to him by the bank Banco Espírito Santo (BES) acting as a financial intermediary. BES undertook to buy back the shares on 24 August 2014, together with EUR 20,202 in interest.

On 30 July 2014 BES published record losses of EUR 3.57 billion resulting from its exposure to the debt of the Espírito Santo Group (GES) to which it belonged. Portugal’s central bank (BdP) immediately prohibited BES from early repayment of any securities issued by it.

On 3 August 2014 the BdP decided to resolve BES, in accordance with the General Regulations on Credit Institutions and Financial Companies (RGICSF), in order to shore up the bank’s financial position and preserve the stability of the Portuguese financial system. It set up a bridge bank called Novo Banco, S.A. (N.B.), to which it transferred selected assets and liabilities managed by BES. It also injected EUR 4.9 billion into the bank’s share capital from the Resolution Fund set up by the State in accordance with N.B.’s articles of association. On 11 August 2014 and 29 December 2015 the BdP clarified which of the assets and liabilities referred to in its decision of 3 August 2014 were to be transferred to N.B. Those items which the BdP deemed to be toxic remained within BES, which thus became a “bad bank”. The BdP subsequently started winding-up proceedings in respect of BES of its own motion, after the European Central Bank (ECB) had revoked BES’s banking licence in July 2016.

The applicant brought proceedings against the bank N.B. seeking repayment of the debt, but the courts dismissed his claims.

Law – Article 1 of Protocol No. 1:

(1) Applicability of Article 1 of Protocol No. 1 – The domestic courts found it established that BES had undertaken to buy back on 24 August 2014 the 3,700 shares held by the applicant, for a total amount of EUR 205,202. Accordingly, on that date the applicant had had a claim vis-à-vis BES that was sufficiently established to constitute a “possession” within the meaning of Article 1 of Protocol No. 1.

Conclusion : Article 1 of Protocol No. 1 applicable.

(2) Compliance with Article 1 of Protocol No. 1 –

(a) The applicable norm – The facts of the present case arose out of a commercial relationship between an individual and a commercial bank which had been resolved by the BdP under the RGICSF. That measure came within the BdP’s powers of oversight of the national banking system and had been designed to ensure its smooth operation. The Court agreed with the CJEU’s conclusion in its judgment BPC Lux 2 and Others (5 May 2022, C-83/20 ), and found that the situation complained of amounted to control of the use of property within the meaning of the second paragraph of Article 1 of Protocol No. 1.

(b) The nature of the alleged violation – Although the present case arose out of a commercial relationship between an individual and a private bank, the measures taken by the BdP in respect of BES under its powers of oversight of the banking sector could indeed be said to have had repercussions on the applicant’s claim, as a result of the order prohibiting BES from early repayment of any securities issued by it, the domestic courts’ finding that the applicant’s claim formed part of the problematic claims remaining with BES after the transfer of the other claims to N.B., and the winding-up of BES.

The Court could not speculate as to the sum that the applicant would have received had the resolution measure not been adopted. Like any financial investment, the products in question had been subject to the vagaries of the market in a context of widespread economic crisis; this was especially true since the market in question had been unregulated.

Accordingly, the Court saw no need to determine specifically whether the case should be examined from the standpoint of the State’s positive obligations or of its negative obligation to refrain from unjustified interference with the peaceful enjoyment of property. It would therefore assess whether the conduct of the Portuguese authorities – whether it was to be regarded as interference or as a failure to act, or a combination of both – had been justified.

(c) Compliance with the lawfulness principle and the legitimate interest pursued by the domestic authorities – The resolution of the bank and the initiation by the BdP of winding-up proceedings in respect of BES had been based on the RGICSF and had thus been in accordance with domestic law.

Those measures had also formed part of the measures introduced by the European Union in the wake of the 2008 financial crisis, in order to harmonise and improve the instruments available to manage banking crises in Europe.

As observed by the CJEU in BPC Lux 2 and Others , the measures had pursued an aim in the public interest as they had been designed to ensure the continuity of essential financial services, prevent systemic risk, protect the interests of taxpayers and of the Treasury and maintain investor confidence, in a situation where the ECB had recently suspended BES’s counterparty status in respect of Eurosystem monetary policy operations.

(d) Whether the domestic authorities struck a fair balance – In view of the economic context and BES’s weak financial position at the relevant time, the State, through the BdP, had had a degree of discretion in determining which measures, both preventive and remedial, to take in relation to BES. In this case, the resolution of the bank had been aimed at removing from BES all the products deemed to be toxic owing to their exposure to the debts of GES, which had thrown BES into serious financial turmoil, and thus at preventing the complete collapse of BES, a situation that would have had far-reaching consequences for the entire domestic and indeed European banking system. The fact that the applicant’s claim had not been transferred to the bridge bank, which had recently been the subject of a public bailout, had lessened his prospects of securing repayment of the sum owed to him by BES. However, Article 1 of Protocol No. 1 to the Convention could not be interpreted as imposing any general obligation on the Contracting States to cover the debts of private entities. Moreover, given BES’s very weak financial position at the material time, there was no guarantee that it would have been able to honour its debt towards the applicant.

The applicant contested the findings of the domestic courts in the civil proceedings he had brought against the bank N.B. However, the Court could not call into question the interpretation of the facts and the law in the present case, which was a matter first and foremost for the national authorities. Moreover, the courts’ interpretation did not appear arbitrary or unreasonable and was consistent with the case-law of the Supreme Court in similar cases.

Furthermore, at the time of the first judgment of the Court of First Instance concerning the facts of the present case, the BdP’s decision of 29 December 2015 to transfer back to BES certain liabilities that had originally been transferred to N.B. had already been published. The Court therefore failed to see how the BdP, in adopting that decision, had infringed the principle of separation of powers or the principle of legal certainty. The present case fell to be distinguished in that regard from the CJEU judgment in Banco de Portugal and Others (29 April 2021, C-504/19 ).

Lastly, the applicant could have asserted his claim in the proceedings for the winding-up of BES that were pending in the Commercial Court. He could not have incurred greater losses In that context than if BES had been wound up immediately. Had this not proved to be the case it would have been open to the applicant to apply to the Resolution Fund seeking compensation in respect of any damage sustained in connection with the recovery of the debt.

Hence, a fair balance had been struck between the public interest pursued and the property rights of the applicant and of any other persons in the same situation.

Conclusion : inadmissible (manifestly ill-founded).

(See also Süzer and Eksen Holding A.Ş. v. Turkey , 6334/05, 23 October 2012, Legal summary ; Project-Trade d.o.o. v. Croatia , 1920/14, 19 November 2020, Legal summary )

© Council of Europe/European Court of Human Rights This summary by the Registry does not bind the Court.

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