Summary:

I.

Between 1998 and 2010, the Hellenic Republic issued various government bonds. Both applicants acquired such bonds on the secondary market. In February 2012, Law 4050/2012 came into force, which introduced a debt-restructuring scheme for the purpose of restructuring the Greek state budget. Based on this law, the Hellenic Republic made an exchange offer to the bondholders, which was accepted by the majority of the bondholders, but not by the applicants. The issued bonds were to be exchanged for new bonds at a 53.5% lower nominal value (so-called Hair-Cut). As a result, the applicants' existing bonds were written off and the new bonds were booked into the accounts of the depositary banks.

The applicants brought an action against the Hellenic Republic for repayment of the funds used for the originally acquired government bonds in return for the bonds being written back, or alternatively for compensation for the losses in value suffered. Legal recourse taken by the applicants remained unsuccessful. With their constitutional complaint, the applicants challenge this decision and claim a violation of the right to their lawful judge under the second sentence of Article 101.1 in conjunction with Article 100.2 in conjunction with the first sentence of Article 25 of the Basic Law. They claim that the Federal Court of Justice would have been obligated to refer questions of international law to the Federal Constitutional Court.

II.

Based on the considerations below, the Federal Constitutional Court decided that the challenged judgment of the Federal Court of Justice does not violate the applicants’ right to their lawful judge.

While it is a universally recognised rule under international law that a state is in principle not subject to the jurisdiction of foreign courts, the majority of states today follow a restrictive understanding of immunity according to which state immunity applies only to sovereign acts (acta iure imperii), but not to private economic activity. This is also in line with the case-law of the Federal Constitutional Court.

The Federal Court of Justice merely applied this general rule of international law. It assumed that issuing state bonds constitutes private economic activity and thus a non-sovereign act. However, the Federal Court of Justice stated that in the present case it is not the issuing of state bonds that is relevant, but the legal nature of the sovereign measure that led to the writing-off and rebooking of the government bonds by the applicants. These debt-rescheduling measures had been carried out by the Greek legislator, were applicable only to contracts under Greek law and could therefore be considered sovereign acts. This is not objectionable under constitutional law.

The remainder of the judgment rendered by the Federal Court of Justice is also not objectionable under constitutional law. While issuing government bonds is predominantly considered to be a non-sovereign act, passing legislation belongs to the generally recognised area of sovereign acts. This also includes the unilateral imposition of taxes and levies on those subject to a state’s sovereignty for the purpose of generating revenue without providing anything in return.

Based on this assessment of the German legal system, which is the decisive factor for the delimitation, an act of public authority is also at issue in the present legal dispute. The dispute concerns the reduction of the applicants’ claims on account of the compulsory exchange brought about by a Greek law and the associated failure to pay out in full the entire nominal value originally owed for the government bonds issued under Greek law and then forcibly exchanged. Such a reduction of the nominal value by a law is not available to a private market participant and is part of the core of sovereign action, at least where bonds issued under the law of the issuing state are concerned. As a sovereign act of a foreign state, it is not subject to the jurisdiction of the German courts.