Sigrún Davíðsdóttir's Icelog

Warming up for the Icesave judgement – updated

with 3 comments

Alors, on Monday January 28 the EFTA Court will rule in the Icesave case, which ESA applied to put to the court.

The thrust of the case is:

The EFTA Surveillance Authority submits that by failing to ensure payment of the minimum amount of compensation to Icesave depositors in the Netherlands and in the United Kingdom within the time limits laid down in Directive 94/19/EC, Iceland has failed to comply with its obligations arising under Articles 3(1), 4(1), 7(1) and 10(1) of Directive 94/19/EC. Additionally or in the alternative, the EFTA Surveillance Authority submits that Iceland has breached the prohibition on discrimination on grounds of nationality under Article 4 EEA. 

Having studied some EFTA Court judgments where ESA is the applicant it is fair to conclude that it is not promising to be on the receiving end of an ESA action: ESA almost never loses a case as ESA is clearly most careful in choosing and preparing its action. But ESA will not win its case on statistics – and it is notoriously difficult to gauge a judgement.

I have not met a single informed person, unrelated to the Icelandic case, who thinks that Iceland is likely to win but there is not much debate on the issue in Iceland right now. The heat is out of the Icesave issue in Iceland.

One Icelander has however aired his strong view, president Olafur Ragnar Grimsson. He used an interview with Sky in Davos today to send icy regards to former Prime Minister Gordon Brown (whom Grimsson might run into in the Davos corridors of power) and his Government at the time for putting Iceland on a list of countries harbouring terrorism when Landsbanki assets were frozen following the collapse of the Icelandic banks.

Correct, this was a harsh action, caused Iceland and Icelandic companies serious problems and it is difficult to see it was necessary – but it doesn’t only show Brown’s panic at a time when some British banks were teetering on the brink of collapse. It also shows an extreme frustration within the British Government and Whitehall, built up over more than half a year, by lack of reaction from the Icelandic banks to demands by the FSA and by lack of understanding – so as not to say misleading information – from the Icelandic Government. Grimsson did not mention this rather unflattering part of the Icesave Saga. The UK authorities took action – albeit brutal and harsh – and saved Icelandic authorities from themselves closing down the banks.

The presentation made by the Icelandic Government during 2008, until the banks collapsed in early October, is spelled out here (see paragraph 26-30)in the ESA application to the EFTA Court. This is one of ESA’s arguments for its case.

But even if the Court rules in favour of ESA Monday will not mark an end to the Icesave saga. The Court will only rule on a yes/no to alleged failures by the Icelandic Government to comply with EU directives and the EEA Agreement. It will not order Iceland to anything. However, the judgement will no doubt be used by the British and Dutch Government to knock on the door of the Icelandic Ministry of Finance to remind Icelanders that well, Iceland still hasn’t paid what these two countries think they are owed.

Iceland’s refusal to pay the Icesave debt has, misleadingly been presented as a popular uprising against bailing out banks. The debt to the two Governments arose as they bailed out depositors in Icesave – not banks, bankers or bondholders. Deposit holders who may well argue that they kept their money in Icesave because they heard Icelandic politicians, for example in this Channel 4 report, as well as bankers, tell them that their money was save and Iceland had a deposit guarantee scheme, just like the UK and the Netherlands.

At the hour of extreme national anxiety the Icelandic Government made the understandable decision to secure domestic deposit holders. But that hour has long passed and the UK and the Netherlands think it is high time to get their money back.

*See earlier Iceogs on Icesave here. Here is the ESA page with all relevant information re the ESA Icesave case.

Updated: According to Sky Grimsson said the judgement will only be advisory, and that “it will not lead to any financial obligations or transactions of any sort”. – As far as I know, an EFTA Court judgement is all but advisory. It is the final say in our earthly realm of reality – there is no other court that can rule on a breach of EU directive/EEA Agreement or not, for an EEA country.


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Written by Sigrún Davídsdóttir

January 23rd, 2013 at 9:53 pm

Posted in Iceland

3 Responses to 'Warming up for the Icesave judgement – updated'

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  1. “Iceland still hasn’t paid what these two countries think they are owed.”

    I thought Landsbanki had made some repayments already?


    24 Jan 13 at 12:53 am

  2. Sky’s report that the President of Iceland has launched “an extraordinary verbal attack on Gordon Brown” on the fringes of the World Economic Forum in Davos really is the story of the pot and the kettle. Olafur Grimsson (what an appropriate name) saw himself as the cheerleader for the Icelandic banks, and was proud of this role. Thanks to Sigrun in large part we now know much more about the true state of banks like Kaupthing and Landsbanki. It tells us so much about politicians and the banks that Gordon Brown and Olafur Grimsson are allowed to go anywhere near Davos, and that anybody interviews them. Much as Lance Armstrong’s books are reportedly being categorised as “fiction”, the same should be the case for the opinions of Brown and Grimsson.

    Tony Shearer

    24 Jan 13 at 8:32 am

  3. Sigrún,

    I am “an informed person, unrelated to the Icelandic case”, but no threat to your statistic, because I recognize that Iceland has already won the ESA (and EC) v. Iceland case. It is possible that the judges of the EFTA Court panel who received the case may recognize this, and may, in consequence, find for Iceland on both counts (perhaps attempting damage control), but I am hoping they do not. It will be much more fun if the court steps into it with the ESA and the EC.

    The official statements and the synopsis of the allegations, which you have quoted, do not state what the case is really about, or what the ESA and EC have done. There is neither room nor time to explain entirely here, but, in brief, the first legal questions the first allegation is asking the court to decide is, “May a state, and, therefore the people of a state, be ordered to bail-out a private-enterprise insurer that has found itself with insufficient funds to meet its obligations?” The second question put to the court derives from the way the ESA, and EC, presented their arguments in support of the first question. It is, “Does a state’s engagement in close regulatory supervision of an insurer, in compliance with laws requiring supervision of unspecified degree, cause the state to acquire a financial obligation for the supervised private-enterprise entity’s fiduciary obligations in the event that the private-enterprise entity becomes, or is found to be, despite the supervision, unable to meet its obligations?”

    To recognize what the case is really about you have to bear in mind the relationships between the entities involved, specifically that the banks and banking systems, and the insurers, in all the states involved, are private enterprise entities. The only nation-state that is involved in the case is Iceland. Politician and judges in both Holland and Britain poked into some matters of the situations in each, and weighed in with dicta (only words) opinions, in some cases (e.g., engaging in direct address to the ESA) in violation of the EEA Agreement (you must remember that the EEA Agreement is between the EFTA States, who signed the Agreement [each of which is a sovereign state], and the EU, which holds sovereignty for the EU member states. Britain and Holland, themselves, are EU members, subject to the EU’s authority, and required by the EEA Agreement to have the EC carry their grievances to the ESA). With the matter of the last parenthetical in mind, do you see why the EC being allowed to appear in the ESA’s EFTA Court’s jurisdiction is an EEA Agreement violation?

    I will note only two problems for the second allegation, that Iceland “discriminated” against British and Dutch Icesavers. The first is a really amateurish error, one that would embarrass any qualified lawyer to have committed: In the law, and in practice everywhere, responsibility for paying out on insurance claims rests with the insurer. The insurer in the Icesave case was TIF, a private-enterprise entity. For this Iceland, however it might have been obligated, could not be responsible for any discrimination resulting from TIF’s failing to pay out. Iceland could only be responsible for causing TIF to fail (by not coercing the taxpayers of the Republic to provide TIF the funds it lacked). Second, Iceland nationalized the domestic portions of the failed banks in October, 2008. It did not pay the insurance pay outs TIF owed to the Icelandic account-holders, it took them off TIF’s hands by taking the banks’ in-Iceland assets. Iceland relieved TIF, preventing its plight being worse. But that is not the legal point; the legal point is that the ESA failed to make any objection to Iceland’s action in nationalizing the Icelandic portions of the banks. Not in 2008, or in 2009, or in 2010, or in 2011, or in 2012. The ESA only raised the matter of Iceland’s for four years fait accompli action being potentially discriminatory in its Application suit. The allegation is, therefore, parochial. Its raising is indicated to not be a serious raising of a serious point, but a raising for an Application-related purpose. That is, “discriminatingly”.

    What I suspect is that the EFTA Court will find against Iceland on the first allegation, but, to “soften” the blow, will find that Iceland did not discriminate, at least not intentionally…

    The first allegation is, after all, the one private-enterprise entities need to establish in legal precedent that the taxpayers of nations may be obligated to pay the bills of private-enterprise entities… Except it won’t work…


    25 Jan 13 at 3:52 am

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