Euro crisis: focus on non-sovereign investments ABA International Business Law Committee Chicago, Illinois August 3, 2012 Reid Feldman Kramer Levin Naftalis & Frankel LLP 47, avenue Hoche 75008 Paris, France telephone: + (33) 1 44 09 46 03 fax: + (33) 1 44 09 46 01 rfeldman@kramerlevin.com
Topics covered Possible outcomes – and the likelihood of a legally coherent solution in case of exit EU legislation and other applicable rules – how they can be used to achieve that result Practical legal issues for contracts with private counterparties – risks to evaluate and questions to ask Note: This outline is for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Legal advice should be sought in assessing the impact of any of the matters mentioned herein. 2
Possible outcomes Recent developments ECB “will do whatever it takes to preserve the euro”. (Mario Draghi, July 26, 2012) ECB statement, August 2, 2012: � “Risk premia [in government bond prices in several euro area countries] that are related to fears of the reversibility of the euro are unacceptable, and they need to be addressed in a fundamental manner. The euro is irreversible.” � “In order to create the fundamental conditions for such risk premia to disappear, policy-makers in the euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination” � “There is no going back to the Lira or the Drachma or to any other currency. It is pointless to bet against the euro. It is pointless to go short on the euro. . . . It is pointless because the euro will stay and it is irreversible.” Preparations for exit from the euro – example: “The parent company of Spanish carrier Iberia and British Airways said it has made contingency plans for Spain’s possible exit from the single European currency, the most high-profile acknowledgment yet by a European blue-chip company of the dangers of a euro-zone collapse.” (WSJ, 4 August 2012) “Accepting more inflation at home is . . . a way for the [northern euro-zone countries] to restore debt sustainability in the [southern euro-zone countries].” (Bruegel, July 2012) Priorities: bring down sovereign borrowing costs; make laggard economies “more competitive” (including employment and retirement issues); promote growth (or initially, a softer recession); institutional and related reforms; resolution of the Greek situation; price stability; maintaining adherence to certain principles (perhaps the least important in this context). 3
Possible outcomes Exit from the euro � national legislation, probably to include: redenomination of debts into new currency; bank holiday; capital and exchange controls; prohibition of payment in euro of redenominated debts � possible EU legislation favoring a legally coherent exit � restrictions on movement of capital and payments are permitted to protect public policy or public security (if non-discriminatory and proportionate) � such legislation will likely impact private contractual obligations Break-up � stakes: the acquis communautaire ; dislocations, dysfunction, defaults � issues to resolve: what of the acquis communautaire to preserve; settling accounts; favoring a legally coherent break-up (perhaps in a very difficult economic/political environment) Harmonization/federalization � issues to resolve: taxation, employment law, institutional reform, geopolitical considerations, etc. � more harmonization of legal rules � risk of protective national law being overridden by EU law This paper focuses on the impact of these measures on private investments, and not issues involving sovereign debt and recourse against sovereign states (e.g., under investment treaties). 4
EU legislation and other applicable rules Applicable rules Law applicable to contractual obligations: Regulation 593/2008 ( “Rome I Regulation” or “RI”) � choice of applicable law generally upheld � regulation not applicable to certain contracts, including negotiable instruments, company law, family-related obligations, trusts and arbitration agreements � special rules for transport, consumer, insurance and employment contracts � for contracts concluded prior to December 17, 2009, choice of law determined by Rome Convention (“RC”) � conflicts rules of chosen law may subject specific issues to other bodies of law, e.g. lex monetae and capacity Choice of forum and recognition/enforcement of judgments � Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Brussels I Regulation” or “BI”), applicable to disputes where the defendant is resident in an EU member state other than Denmark � Lugano Convention of 2007 as amended (“Lugano II”), applicable in EU member states plus Iceland, Norway and Switzerland Insolvency proceedings: Regulation 1346/2000 � principal proceedings to be organized in jurisdiction with “center of main interests”, whose law is applicable to “the effects of the insolvency proceedings on current contracts to which the debtor is party”, with exceptions including real estate, employment and “payment systems or markets” � secondary proceedings allowed in other jurisdictions, limited essentially to disposition of assets therein via winding-up proceedings � does not apply to proceeding concerning insurers, credit institutions, custodians or collective investments undertakings (but see Directives 2000/17 and 2001/24) IMF (Bretton Woods) Agreement article VIII 2(b) – deals with restrictions on current payments European Convention on Human Rights (“ECHR”) 5
EU legislation and other applicable rules Applicable rules – summary of relevant provisions Parties’ choice of applicable law (including future changes in that law) and choice of forum will be upheld (RI §3(1), RC §3(1)) Forum court may apply: other laws by renvoi , including lex monetae (law governing the currency of the contract), if so provided by applicable law � mandatory provisions of the law of a country where “all other elements relevant to the situation” (other than choice of law) are located (RI � §3(3), cf. RC §3(3) & 7(1)) mandatory provisions of EU law when all such other elements are located in the EU (RI §3(4)) � “overriding mandatory provisions” of the forum state (RI §9(2), RC §7(2)) � “overriding mandatory provisions” of the country of performance, “insofar as” such provisions render performance illegal and the forum � deems their application appropriate (RI §9(3), cf. RC § 7(1) & 10(2)) Forum court may refuse application of chosen law or enforcement of foreign judgment if manifestly incompatible with the public policy ( ordre public ) of the forum (RI §21, RC §16, BI §34(1), BC §27(1)) ECHR protocol on “Protection of property” guarantees “peaceful enjoyment of . . . possessions” subject expropriation with compensation and to protection of “the general interest” Judgments of courts in EU member states plus Iceland, Norway and Switzerland will be generally be recognized and enforced in all those countries IMF (Bretton Woods) Agreement article VIII 2(b) makes unenforceable “exchange contracts which involve the currency of any member and which are contrary to the exchange control � regulations of that member maintained or imposed consistently with this Agreement” allows member states to “cooperate in measures for the purpose of making the exchange control regulations of either member more � effective, provided that such measures and regulations are consistent with this Agreement” Insolvency proceedings and judgments recognized throughout the EU unless “manifestly contrary “ to public policy Reg. 1346/2000 §26 � limit “personal freedom and postal secrecy” – Reg. 1346/2000 §25(3) � 6
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