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Introduction
The 2008 financial crisis underscored the critical importance of banks to the economy. An efficient process for channelling savings into productive activities is vital for growth and general welfare.1 However, the crisis also highlighted that when a major bank fails, authorities often resorted to using taxpayer money to prevent a complete financial system meltdown.2
This realisation in the EU led to the creation of the Single Resolution Mechanism, which established harmonised rules and procedures for the resolution of credit institutions. The Single Resolution Board (the "SRB") was conceived as the central resolution authority, aiming to ensure the orderly resolution of failing banks with minimal impact on the economy and the public finances of Banking Union countries.3
To date, the SRB has adopted three resolution decisions, two of which involved Sberbank d.d. (a Croatian subsidiary) and Sberbank banka d.d. (a Slovenian subsidiary). These were subsidiaries of Sberbank Europe AG ("Sberbank Europe"), a banking group headquartered in Austria and wholly owned by Sberbank of Russia PAO ("Sberbank Russia"), a Russian state-owned bank and Russia's largest bank.4 Following these resolution decisions, Sberbank Russia filed several annulment actions before the General Court under Article 263 of the Treaty on the Functioning of the European Union ("TFEU").
This article focuses on the resolution decision concerning Sberbank d.d. (the Croatian subsidiary). Following the General Court's dismissal of its application, Sberbank Russia appealed to the Court of Justice of the European Union ("CJEU"). Sberbank Russia sought to set aside the General Court's dismissal of its annulment action, which had targeted the resolution decision, the associated valuation reports for Sberbank d.d., and the European Commission decision that endorsed the resolution scheme.
Facts of the Case
Following Russia's invasion of Ukraine on February 24, 2022, Sberbank d.d.'s liquidity rapidly deteriorated. Consequently, the SRB adopted Valuation Report No. 1 to determine if the conditions for resolution were met, in accordance with Article 20(5)(a) of the Single Resolution Mechanism Regulation (the "SRMR"). The SRB then adopted Valuation Report No. 2, under Article 20(5)(f) of the SRMR, providing the necessary information to support a decision that would transfer Sberbank d.d.'s shares to a potential buyer. This process culminated in the resolution decision, which was addressed to and approved by the National Bank of Croatia, and subsequently endorsed by a decision of the European Commission.
Arguments brought by Sberbank Russia, the SRB and the European Commission
Sberbank Russia argued that the General Court's order should be set aside, and the case referred back to the General Court for a consideration of the merits. It relied on three grounds of appeal: the first two alleging infringement of the fourth paragraph of Article 263 TFEU and the third alleging an error of law by the General Court.
On the first two grounds, Sberbank Russia claimed the General Court erred in concluding it was not directly affected by the SRB's decision and the European Commission's endorsement decision. Sberbank Russia also contended that the General Court adopted an unduly narrow definition of the concepts of "direct concern," "property," and "banking group." In response, the SRB raised a preliminary point arguing that Sberbank Russia's first two grounds were inadmissible. Both the SRB and the European Commission maintained that these grounds should be dismissed as unfounded.
Regarding the third ground, Sberbank Russia claimed the General Court misinterpreted its action, specifically when the General Court dismissed the claim for annulment of the valuation reports, which Sberbank Russia asserts it had no intention of challenging separately. The SRB and the European Commission requested the CJEU to reject the third ground of appeal as ineffective and unfounded.
Findings of the CJEU and Outcome of the Judgement
1. Admissibility of the Action Against the SRB's Decision
For the first two grounds of appeal, particularly concerning the challenge to the SRB's decision, the CJEU referred to its Commission v SRB judgment.5 In that case, the Court held that a resolution action adopted by the SRB does not produce binding legal effects capable of affecting the interests of a natural or legal person. Consequently, the action against the SRB's decision was deemed inadmissible, confirming the General Court's initial finding.
2. Admissibility of the Action Against the European Commission's Endorsement Decision
The European Commission's endorsement decision does produce binding effects. However, under the fourth paragraph of Article 263 TFEU, annulment proceedings may only be instituted if the decision is of direct and individual concern to the challenger. This requires two cumulative criteria, which consist of the following:
- The decision must directly affect the legal situation of the individual; and
- The contested decision cannot leave any discretion to those implementing it; the implementation must be automatic and result solely from EU rules.
The CJEU rejected Sberbank Russia's arguments challenging the General Court's analysis of the European Commission's endorsement decision. The General Court had correctly found that Sberbank Russia was not a shareholder of Sberbank d.d. and therefore had no right to dispose of its assets, receive dividends, or participate in its management, because such rights belonged to Sberbank Europe. Since the Commission's decision did not concern Sberbank Europe, Sberbank Russia's rights were not directly affected in its capacity as Sberbank Europe's shareholder.
Furthermore, the CJEU disagreed with Sberbank Russia's argument that the General Court misapplied the law concerning the endorsement decision, stating that Sberbank Russia could not claim any property rights over Sberbank d.d.. The General Court also appropriately considered Sberbank Russia's status as an "ultimate parent," which the CJEU deemed irrelevant to the issue of direct concern. As a result, the first and second grounds of appeal were rejected.
3. Challenge to the Valuation Reports
The Court was brief regarding Sberbank Russia's third ground of appeal. It noted that Sberbank Russia did not specify whether it wished to challenge the lawfulness of the valuation reports separately. Crucially, Article 20(15) of the SRMR stipulates that valuation reports cannot be separately challenged from the SRB's resolution decision. The CJEU thus confirmed the General Court's decision to dismiss the action as inadmissible, thereby rejecting Sberbank Russia's third ground of appeal.
Outcome of the Judgement
On the basis of this analysis, the CJEU dismissed Sberbank Russia's appeal and ordered it to bear its own costs, as well as the costs incurred by the SRB and the European Commission.
Footnotes
1 Franklin Allen, Elena Carletti and Xian Gu, 'The Roles of Banks in Financial Systems' in Allen N. Berger, Philip Molyneux, and John O. S. Wilson (eds) The Oxford Handbook of Banking (3rd edn, OUP 2019).
2 What is a bank resolution? | Single Resolution Board
3 Single resolution mechanism – Finance – European Commission
5 Commission v Single Resolution Board (SRB) (Case C 551/22 P) [2024] ECLI:EU:C:2024:520 (ECJ).
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