European Commission's proposal for a pan-European freezing order
A number of clauses frequently used in financial contracts have received judicial scrutiny in various European courts recently. The Luxembourg District Court upheld an asymmetrical jurisdiction clause under Article 23 of the Brussels Regulation (disagreeing with the French Supreme Court's ruling in Mme X v Rothschild).
The German Federal Court of Justice has upheld a waiver of rights that private clients might otherwise claim to have to distribution fees that banks receive from issuers. A non-assignment clause and an obligation to exercise a discretion in a "commercially reasonable manner" have been examined in the context of finance agreements by the Dutch and English courts respectively, and found to take effect in a manner favouring commercial flexibility and wide discretion.
A number of decisions will cause concern among financial institutions. A recent ruling by a prominent Spanish court pierced the corporate veil of a UK bank in a dispute concerning an interest rate swap. Thus the claim by Spanish investors against the Spanish subsidiary was allowed to proceed in Spain, even though the UK parent had entered into the transactions in question. Whether this can be treated as a wholly exceptional case or as having wider implications when dealing with Spanish counterparties (eg in terms of calculating net exposures) will need to be resolved. In Italy, the Court of Appeal of Milan has held that an interest rate swap was null and void for lack of "causa" due to inadequate information having been provided to the investor. This ruling has provoked much criticism in Italy.
The Czech Supreme Court and German Federal Court have reached opposite conclusions concerning the legality of loan administration fees. Applying national laws implementing the same EU Council Directive 93/13/EEC on unfair terms in consumer contracts the German Federal Court ruled that such fees are invalid, whilst the Czech Supreme Court has ruled them to be lawful. A reminder that, even at the same EU table, one man's fish remains another man's poisson.
Finally, the European Commission's proposal for a pan-European freezing order has now completed its legislative progress. Although implementation is not expected until 2016, this new law will impose new burdens on banks operating in participating Member States (the UK has not opted into this measure). Banks will be required within a three day period to send a declaration to the authorities that relevant accounts with them have been identified and frozen. If there is large-scale uptake of this measure, the burdens on banks' systems and processes could prove significant. A client bulletin will be published on this in due course.