On 12 October 2022, the General Court delivered its judgment in Case T-502/19 Francesca Corneli v European Central Bank. The case is particularly important for the European Banking Union, as it sheds light on a much-debated provision in the Single Supervisory Mechanism (SSM) Regulation, namely Article 4(3), which provides, inter alia, that: ‘For the purpose of carrying out the tasks conferred on it by this Regulation, and with the objective of ensuring high standards of supervision, the ECB shall apply all relevant Union law, and where this Union law is composed of Directives, the national legislation transposing those Directives. Where the relevant Union law is composed of Regulations and where currently those Regulations explicitly grant options for Member States, the ECB shall apply also the national legislation exercising those options.’ It mandates the European Central Bank (ECB) to apply not only EU law, but also national law, in the cases adumbrated above.[i] The application of national legislation transposing an EU Directive was of interest in the Corneli case.
In what follows, we will first briefly set out the facts of the Corneli case. This is followed by an analysis of the standing requirements under Article 263 TFEU, as they were applied by the General Court in this case. The penultimate section focuses on arguably the most interesting part of this judgment, namely the application of national law by the ECB. We will conclude our analysis with some remarks on the current state of the law, following Corneli, as well as the questions that were left unanswered by the General Court.
Facts
The applicant, Ms Francesca Corneli, was a minority shareholder in Banca Carige SpA, which has been directly supervised by the ECB since 2014. She sought the annulment of an ECB decision that placed the bank under temporary administration, as well as of any consequent or subsequent act, including an ECB decision that extended the period of temporary administration. The facts of the case are rather convoluted and need not be fully replicated here. Suffice it to say for present purposes that, prompted by the ECB, the bank made various unsuccessful attempts to replenish its capital base to comply with the applicable capital requirements, until it was eventually placed by the ECB under temporary administration. More specifically, this decision had the following effects: the bank’s board of directors was dissolved and the former members were replaced by three temporary directors, the bank’s supervisory committee was dissolved and the former members were replaced by three other persons, and the new bodies were assigned with the mandate to take the necessary steps to ensure that the bank once again complied with asset requirements on a sustainable basis. That period of temporary administration was extended by the ECB three times through separate decisions. The action was admissible only as far as it was directed against the decision to place the bank under temporary administration and the first extension decision (paras 22-29).
Standing
Supported by the Commission, the ECB raised a plea of inadmissibility alleging that the applicant did not have the requisite standing to bring an Article 263 TFEU challenge against the contested decisions, since those decisions were not, according to the argument, of direct and individual concern to her.
Direct concern
As regards direct concern, the General Court held that ‘the applicant’s legal situation is, in the present case, affected by the contested decisions without the intervention of an intermediate measure, since those decisions themselves alter the applicant’s rights to participate, as a shareholder, in the management of the bank in accordance with the applicable rules’ (para 34). More specifically, those decisions affected the applicant’s right as a shareholder to elect the management and supervisory bodies of the bank, as well as the right of shareholders, such as the applicant, to convene the general meeting of shareholders and to set the agenda. The contested decisions further altered the conditions under which the managing and supervisory bodies could be held liable by shareholders, such as the applicant. It was apparent, according to the General Court, that the legal relationship between the bank and its shareholders was altered, without the intervention of any intermediate measure, by the contested decisions, which therefore directly concerned her (paras 34-35).
The ECB and the Commission argued that the Grand Chamber judgment in Joined Cases C-663/17 P, C-665/17 P and C-669/17 P ECB and Others v Trasta Komercbanka and Others (or, in short, Trasta) confirmed their point of view that the present action was inadmissible. However, in the present case, the General Court distinguished the Trasta judgment. It held that the judgment in Trasta concerned a different situation, namely the withdrawal of the authorisation which that establishment required to execute its banking activities. Following that withdrawal, the establishment concerned had been liquidated, in accordance with national law, by a national court. Unlike the contested decisions in Corneli, that decision did not directly affect, in itself, the legal situation of the shareholders (paras 47-54). Following the General Court’s judgment in Corneli, the shareholders of a bank are directly concerned by a decision to place the bank under temporary administration, but not by a decision to withdraw the authorisation of the bank.
Individual concern
The ECB and the Commission further argued that the applicant was not individually concerned by the contested decisions, because, in their view, her rights were affected by the contested decisions to an extent which was no different from that experienced by the bank’s other shareholders. However, the applicant was successful in showing that the requirement of individual concern was satisfied in the present case.
More specifically, the General Court ruled that the applicant was identifiable, in her capacity as a shareholder, at the time when the contested decisions were taken. The decision to place the bank under temporary administration was adopted (on purpose) on 1 January, namely on a day when credit institutions were closed, hence the shares held in the capital could not be traded. At that time, the list of shareholders was closed, and the identity of each of them could be verified. The General Court’s assessment was no different as regards the extension decision, even though it was not adopted on a public holiday, since the fact remained that, at the time of its adoption, the list of shareholders liable to be affected was also determined (para 58). Furthermore, the shareholders such as the applicant were affected, as a result of the adoption of the contested decisions, in respect of an attribute which characterised them individually, namely, first, that of holding shares in the bank and, second, that of being prevented, by the effect of those decisions, from exercising certain rights attaching to those shares (para 59). Citing the well-known Case C-125/06 Commission v Infront (concerning the exclusive television broadcasting rights to the FIFA World Cup finals), the General Court held that the contested act altered rights acquired, prior to its adoption, by the person concerned. The applicant had, specifically, prior to the adoption of the contested decisions, rights attaching to her shares which were affected during the period covered (paras 60-61).
The General Court remained equally unconvinced by the ECB’s (and the Commission’s) argument that the case law concerning closed groups (such as Infront) whereby litigants are exceptionally recognised as meeting the requirement of individual concern under Article 263(4) TFEU must be limited to entities with a small number of members. In the view of the two institutions, to accept that an action for annulment could admissibly be brought by such a large number of persons would run counter to the approach followed in Plaumann. Several judgments relied on by the applicant concerned groups with a small number of members (Joined Cases C-182/03 and C-217/03, Belgium and Forum 187 v Commission; Infront; Joined Cases 106 and 107-63, Toepfer), whereas, in this case, the bank had approximately 35,000 shareholders. Legal argumentation took a complicated turn, with the applicant arguing that the case law allows actions in situations which may involve a large number of applicants, invoking the example of actions brought by beneficiaries against Commission decisions addressed to one or more Member States in respect of schemes concerning aid granted or likely to be granted by the latter (para 72). The Commission retorted that, in such cases, the contested measures are regulatory and not individual (para 73). The General Court responded that ‘…the position adopted by the Commission concerning the regulatory nature of the acts referred to in cases concerning beneficiaries of aid would not have the effect of rendering the action inadmissible if that nature were to be confirmed. The fourth paragraph of Article 263 TFEU guarantees the admissibility of actions brought against regulatory acts where the situation of the applicants is affected without implementing measures. It is without the intervention of an intermediate measure of any kind that the contested decisions affected the legal situation of the shareholders, in the present case, by depriving them of the possibility of exercising some of the rights attached to their shares while the bank was under temporary administration…’ (para 74). It seems that the General Court is arguing that, if the Lisbon category of the regulatory act were applicable, it would not matter whether the contested act was of individual concern to the applicant (see also para 75), which is in principle correct. However, the conclusion reached by the General Court was that the applicant was individually concerned by the contested decisions (para 76).
Substance
In support of her action, the applicant relied on several pleas in law (para 84). However, the General Court considered it appropriate to begin by considering the plea alleging an error of law in the determination of the legal basis used to adopt the contested decisions (para 85), that legal basis being rooted in national law, which makes this by far the most interesting and consequential part of the judgment.
The applicant’s argument was essentially that the ECB, in its capacity as a supervisor for the bank concerned, had misapplied national law. More specifically, she submitted that the ECB erred in law in basing the contested decisions on Article 70(1) of the (Italian) Consolidated Law on Banking, whereas that provision did not refer to the situation relied on to justify the temporary placement under administration, namely a ‘significant deterioration’ of the bank’s situation (para 86). It will be recalled that the ECB as a banking supervisor must, according to Article 4(3) of the SSM Regulation, apply all relevant Union law, and where this Union law is composed of Directives, the national legislation transposing those Directives.
The General Court went on to interpret two provisions of national law, viz. Article 69octiesdecies(1)(b) and Article 70 of the Consolidated Law on Banking, both of which transposed different provisions of the Bank Recovery and Resolution Directive 2014/59 into Italian law. The General Court held that: ‘On a reading of Articles 28 and 29 of Directive 2014/59 which the abovementioned provisions are intended to transpose, the measures at issue cannot be regarded as equivalent or as alternatives, since the former is less intrusive than the latter […] The conditions for the application of Article 69octiesdecies(1)(b) of the Consolidated Law on Banking and of Article 70 of that law also differ. …’ (paras 91-93). The General Court held that it was ‘…clear from a textual analysis of the wording of the conditions for the application of Article 69octiesdecies(1)(b) of the Consolidated Law on Banking and of Article 70 of that law that the conditions listed are exhaustive and are alternatives…’ (para 94). The General Court concluded that ‘[i]t therefore follows from Article 69octiesdecies(1)(b) of the Consolidated Law on Banking and from Article 70 of that law that the latter provision does not provide for the dissolution of the administrative or supervisory bodies of banks and the establishment of extraordinary administration in the event that “the deterioration of the situation of the bank or banking group is particularly significant”’ (para 95). In the present case, the General Court found that the power exercised by the ECB to place the bank under temporary administration, as well as in the decision to extend it, was referred to in Article 70 of the Consolidated Law on Banking (paras 98-99). ‘It follows that the ECB infringed Article 70 of the Consolidated Law on Banking by relying, even though that condition was not provided for in that provision, on the “significant deterioration in the situation of [the bank]” in order to dissolve the bank’s management and supervisory bodies, set up a temporary administration and maintain that temporary administration during the period covered by the extension decision’ (para 100).
That conclusion was contested by the ECB and the Commission. They observed that placement under temporary administration was provided for in the relevant Directive (Article 29 of Directive 2014/59). According to them, Italian law (Article 70 of the Consolidated Law on Banking) should be read in the light of that provision, which it was designed to transpose, as the principle of conforming interpretation (in other words, the principle of harmonious interpretation or ‘indirect effect’) would require. According to the two institutions, it followed from such a reading that placement under temporary administration was permitted under Article 70 even if the situation under consideration, namely the significant deterioration in the bank’s situation, was not expressly referred to in that national law provision (para 102).
Recalling its well-established case law on indirect effect, the General Court held that ‘[t]he Court has the same duty [as national courts] to interpret national law in conformity with EU law in the light of a directive where it is led, as in the present case, under the relevant provisions, to apply that law’ (para 103). ‘Furthermore, in so far as the interpretation of a provision of national law is at issue, it should be borne in mind that, according to settled case-law, the scope of national laws, regulations or administrative provisions must be assessed in the light of the interpretation given to them by national courts (see judgment of 24 April 2018, Caisse régionale de crédit agricole mutuel Alpes Provence and Others v ECB, T‑133/16 to T‑136/16, EU:T:2018:219, paragraph 84 and the case-law cited)’ (para 104).[ii] However, the principle of conforming interpretation has limits, and it cannot go as far as a contra legem interpretation of the relevant rules of domestic law (para 105). ‘It follows that the obligation to interpret national law in conformity with EU law that has just been recalled cannot serve as a basis for an interpretation which runs counter to the wording used in the national measure transposing a directive’ (para 106). ‘That would, however, be the result if that method of interpretation were used in the present case’ (para 107). According to the General Court, the conditions explicitly laid down by law for placing a bank under temporary administration should be observed, and those conditions laid down for the adoption of a less intrusive measure could not be regarded as sufficient to justify the adoption of the most intrusive measure (placement under temporary administration) without a specific reference in the law (para 108).
The ECB and the Commission submitted that the ECB was required to apply, in addition to national law, all the standards laid down in EU law. It was required, according to them, to apply the provision in the Bank Recovery and Resolution Directive which provides for placement under temporary administration in the event of a significant deterioration in the situation of the establishment in question (para 110). The General Court noted that those two institutions – it is unclear why the Commission is also referred to here, as it was not involved in the adoption of the contested acts – must comply with EU law in their actions. That obligation stems from the principle of legality, which requires the institutions to observe, subject to review by the EU Courts, the rules to which they are subject. More specifically, as regards prudential supervision, that obligation is expressed in Article 4(3) of the SSM Regulation (para 111). ‘It follows from that provision, however, that, where the EU law involves directives, it is the national law transposing those directives that must be applied. The provision cannot be read as having two distinct sources of obligations, namely EU law in its entirety, including directives, to which the national law transposing them should be added. Such an interpretation would imply that the national provisions differ from directives and that, in such a case, the two types of document are binding on the ECB as separate legislative sources. Such an interpretation cannot be accepted, since it would be contrary to Article 288 TFEU, which provides that “a directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods”. Furthermore, according to settled case-law, a directive cannot of itself impose obligations on an individual and cannot therefore be relied on as such against an individual ([…] Marshall […]; see also […] Kücükdeveci […] and the case-law cited)’ (para 112). ‘Thus, the error made by the ECB in the application of Article 70 of the Consolidated Law on Banking cannot be remedied by a free interpretation of the texts which would allow the conditions for the application of provisions conceived separately in Directive 2014/59 and national law to be reconstructed’ (para 113).
The General Court seems to be reasoning that, when the ECB is required to apply national law transposing EU law, it is the national law transposing those directives that must be applied, read in the light of EU law, subject to the usual caveats (namely, that this interpretation cannot result in a contra legem interpretation, and so on). In this scenario, the ECB cannot pick and choose, as it were, which legislative sources to apply (EU or national), since this would be contrary, according to the General Court’s reasoning, to the nature of Directives under Article 288 TFEU. The references to the seminal rulings in Marshall and Kücükdeveci are somewhat harder to understand, as this does not seem to be a case of horizontal direct effect. Was the General Court simply summarising its relevant jurisprudence on the direct effect of Directives? Was it perhaps meant that direct effect only works to the benefit, and not to the detriment, of private parties? Furthermore, the General Court does not explain – as this case does not seem, according to its ruling, to concern such a situation – what would happen if the relevant EU law provisions and the national law transposing them were at odds with each other. Corneli was a relatively ‘easier’ case of misapplication of national law by the ECB, which could not be remedied by relying on the relevant Directive instead. The plea was therefore upheld by the General Court and the contested ECB decisions were annulled, without there being any need to examine the other pleas put forward by the applicant (para 114).
Conclusions
Corneli is a remarkable judgment. The General Court annulled the contested decisions because the ECB, in its capacity as banking supervisor, had misapplied the relevant national law. In reaching that conclusion, the General Court provided some remarkably interesting thoughts on the (interpretation and) application of national law by the ECB, as well as the control exercised by the CJEU in such cases. It is fairly reasonable to assume that the ECB will appeal against the judgment to the Court of Justice. The application of the requirements for standing under Article 263 TFEU is also significant, as the applicant, a minority shareholder in the bank that was placed under temporary administration, was found to be both directly and individually concerned by the impugned ECB acts. The current state of the law, pending affirmation by the Court of Justice, is that shareholders are directly (and individually) concerned by the ECB decision to place the bank under temporary administration, but that they are not directly concerned by the decision to withdraw the authorisation of the bank (Trasta, paras 102-116).
Posted by Dr Menelaos Markakis (Assistant Professor, Erasmus School of Law, Erasmus University Rotterdam & Co-coordinator, Erasmus Center for Economic and Financial Governance). This blog post was written whilst the author was a Visiting Fellow at the University of Milano-Bicocca.
It should be noted that, at the time of writing, the text of the judgment was merely provisional.
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Suggested citation: M Markakis, “The General Court annuls an ECB decision for misapplying national law: Case T-502/19 Francesca Corneli v ECB“, REALaw.blog available at https://realaw.blog/?p=1947.
[i] See among others Florin Coman-Kund and Fabian Amtenbrink, ‘On the Scope and Limits of the Application of National Law by the European Central Bank within the Single Supervisory Mechanism’ (2018) 33(2) Banking & Finance Law Review 133-172; Lena Boucon and Daniela Jaros, ‘The Application of National Law by the European Central Bank Within the EU Banking Union’s Single Supervisory Mechanism: A New Mode of European Integration?’ (2018) 10 European Journal of Legal Studies 155-187; Fabian Amtenbrink, ‘The Application of National Law by the European Central Bank: Challenging European Legal Doctrine?’ in European Central Bank, Building Bridges: Central Banking Law in an Interconnected World (ECB Legal Conference 2019) 136-151; Andrea Biondi and Alessandro Spano, ‘The ECB and the Application of National Law in the SSM: New Yet Old…’ (2020) 31(6) European Business Law Review 1023-1046; Enrico Gagliardi and Laura Wissink, ‘Ensuring Effective Judicial Protection In Case of ECB Decisions Based on National Law’ (2020) 13(1) Review of European Administrative Law 41-71; Gianni Lo Schiavo, ‘The ECB and Its Application of National Law in the SSM’ in Gianni Lo Schiavo (ed), The European Banking Union and the Role of Law (Elgar Publishing 2019) 177-196; Andreas Witte, ‘The Application of National Law by the ECB, Including Options and Discretions, and Its Impact on the Judicial Review’ in Chiara Zilioli and Karl-Philipp Wojcik (eds), Judicial Review in the European Banking Union (Elgar Publishing 2021) 236-250.
[ii] See generally Miro Prek and Silvère Lefèvre, ‘The EU Courts as “National” Courts: National Law in the EU Judicial Process’ (2017) 54(2) Common Market Law Review 369-402.
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