Greek Debt Writedown Can't Be Attacked in German Courts

  • German Federal Court of Justice throws out bondholder suits
  • Greece's government action immune from foreign jurisdiction

Bondholders seeking to topple the 2012 debt writedown ordered by the Greek government can’t use German courts for their attack.

The Federal Court of Justice, Germany’s top civil court, threw out a lawsuit on Tuesday, saying it doesn’t have jurisdiction over the Greek government. The reduction to the bond value was ordered by the Greek council of ministers and based on a 2012 law, the court said in statement on its website.

"A state cannot be subject to foreign jurisdiction, this would be incompatible with the principle of sovereign equality of states," the judges said.

Tuesday’s decision is a setback to hundreds of German plaintiffs who set hopes on their country’s courts. The bondholders argue that in 2012 Greece forced them to swap their securities with new government bonds of a significantly lower nominal value. While none of the claimants accepted Greece’s initial offer, the government carried out the proposed exchange. The European Union’s top court last year ruled that EU jurisdiction rules don’t prevent serving the German suits to Greece.

Franz Braun, a lawyer for the plaintiffs, said he will consider asking Germany’s Federal Constitutional Court to overturn the ruling. The constitutional court can hear challenges against any government action when plaintiffs claim it violates the constitution.

"I am bewildered at the lack of perspective that the Federal Court of Justice showed in ruling this way," he said in an e-mail.

The Greek writedown-order retroactively introduced a mechanism to allow the reduction by bondholder majority vote and to extent it to those investors who didn’t agree to it. The plaintiffs claim this was an illegal appropriation as the terms didn’t have these rules when the bonds were issued.

Today’s case is: BGH, VI ZR 516/14.

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