Judgments - Three Rivers District Council and Others (Original Appellants and Cross-Respondents) v. Governor and Company of The Bank of England (Original Respondents and Cross-Appellants)

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    Article 2 of the Directive of 1977 begins with the proposition that the Directive "shall apply to the taking up and pursuit of the business of credit institutions." It then sets out a number of exceptions and qualifications, but these are not significant for present purposes.

    The articles on which the appellants mainly rely are in Title II of the Directive, which bears the headnote "Credit institutions having their head office in a member state and their branches in other member states" and comprises articles 3 to 8. But it is necessary to have regard also to article 10 which is included among the general and transitional provisions in Title IV, as the Bank's contention is that when article 3 is read together with article 10 it is clear that it did not apply to B.C.C.I. S.A. which had already taken up business as a credit institution before the coming into force of the Banking Act 1979. Title III deals with the situation where credit institutions which have their head offices outside the Community have branches in a member state. There is nothing in article 9, which is the only article in Title III, which is relevant to this case.

    The first two paragraphs of article 3 provide:

    "1. Member states shall require credit institutions subject to this Directive to obtain authorisation before commencing their activities. They shall lay down the requirements for such authorisation subject to paragraphs 2, 3 and 4 and notify them to both the Commission and the Advisory Committee.

    "2. Without prejudice to other conditions of general application laid down by national laws, the competent authorities shall grant authorisation only when the following conditions are complied with:

    - the credit institutions must possess separate own funds

    - the credit institutions must possess adequate minimum own funds

    - there shall be at least two persons who effectively direct the business of the credit institution.

    "Moreover, the authorities concerned shall not grant authorisation if the persons referred to in the third indent of the first sub-paragraph are not of sufficiently good repute or lack sufficient experience to perform such duties."

The words "before commencing their activities" in paragraph 1 of article 3 indicate that its function was to deal with the authorisation of credit institutions with their head offices in one member state which were seeking to carry on business in another member state after that member state had implemented the Directive. The appellants claim in their re-amended statement of claim that B.C.C.I. S.A. was incorporated in Luxembourg in 1972, that it carried on business there as a bank under an authorisation issued by the Luxembourg authorities and that it established an office in London in the same year through which it had been carrying on business as a banker and deposit-taker for several years before it was granted a licence under the Banking Act 1979 by the Bank. On these facts it is plain that, as B.C.C.I. S.A. had already commenced its activities as a credit institution in the United Kingdom prior to the implementation of the Directive in domestic legislation by the Banking Act 1979, article 3 did not apply to it. The Bank says that no authorisation procedure was required by the Directive to enable it to continue with its activities. The fact that B.C.C.I. S.A. was granted a licence under the Banking Act 1979 which required all credit institutions to submit to the licensing procedure was a matter of domestic law only, not of Community law.

    The Bank submits that this conclusion is confirmed by the first sub-paragraph of paragraph 1 and paragraphs 3 and 4 of article 10, which provide:

    "1. Credit institutions subject to this Directive which took up their business in accordance with the provisions of the member states in which they have their head offices before the entry into force of the provisions implementing this Directive shall be deemed to be authorised. They shall be subject to the provisions of this Directive concerning the carrying on of the business of credit institutions and to the requirements set out in the first and third indents of the first sub-paragraph and in the second sub-paragraph of article 3(2).

    "3. If a credit institution deemed to be authorised under paragraph 1 has not undergone any authorisation procedure prior to commencing business, a prohibition on the carrying on of its business shall take the place of withdrawal of authorisation.

    Subject to the first sub-paragraph, article 8 shall apply by analogy.

    "4. By way of derogation from paragraph 1, credit institutions established in a member state without having undergone an authorisation procedure in that member state prior to commencing business may be required to obtain authorisation from the competent authorities of the member state, concerned in accordance with the provisions implementing this Directive. Such institutions may be required to comply with the requirement in the second indent of article 3(2) and with such other conditions of general application as may be laid down by the member state concerned."

The appellants claim in their reply to this submission that the head office of B.C.C.I. S.A. was in London, not Luxembourg. They point out that there were no authorisation procedures for credit institutions in the United Kingdom prior to the coming into force of the Banking Act 1979. Furthermore all credit institutions were required to undergo the licensing procedure under that Act, irrespective of whether they had previously taken up business in the United Kingdom. The appellants also say that, even if in making that requirement the United Kingdom was exercising its right of derogation under article 10(4), this would not affect the Bank's obligation to grant authorisation only on the conditions permitted by the Directive.

    On the assumption that the facts stated in the re-amended statement of claim are true, there may be some force in the appellants' argument that deemed authorisation under article 10(1) does not apply to B.C.C.I. S.A. as there were no "provisions" regulating the business of credit institutions when it commenced its activities in this country. But on balance it seems to me that this is to construe the word "provisions" too narrowly. An institution which was legitimately carrying on business here under the system of law in force at the time, as B.C.C.I. S.A. was doing because there was no prohibition to the contrary, could be said to be doing so "in accordance with the provisions" of the member state within the meaning of article 10(1). That provision does not stipulate any particular requirements which those provisions had to satisfy. In any event, this still leaves article 10(4), which clearly does apply to B.C.C.I. S.A. as it had not undergone an authorisation procedure in the United Kingdom before commencing business here. The derogation provided by this paragraph, which permits a member state to require credit institutions which are legitimately carrying on business in that state to obtain authorisation on such conditions as may be laid down by that member state, is inconsistent with the view that B.C.C.I. S.A., which was already legitimately carrying on its activities as a credit institution in the United Kingdom, required to be authorised under article 3(1).

    The appellants submit as a general principle that, where a member state voluntarily accepts obligations under Community law, it cannot escape its liabilities by saying that it need not have assumed these obligations in the first place. In support of this proposition they rely on Wagner Miret v. Fondo de Garantía Salarial (Case C-334/92) [1993] E.C.R. I-6911, which concerned Directive 80/987 relating to the protection of employees in the event of the employer's insolvency. The Directive permitted member states to exclude certain categories of employee from the scope of the protection, and a list of the excluded categories of employee was set out in an annex to the Directive. Spain requested the exclusion of one category of employee only, and the exclusion of that category was entered in the list. It did not request the exclusion of the category of employee to which Mr. Wagner Miret belonged. The European Court held that he was entitled to the protection of the Directive, and that it was no answer to say that Spain could have excluded that category from that protection if it had chosen to exercise the option to do so. It seems to me that that case provides no support for the argument that, in the reverse situation which arises under the Directive of 1977, the United Kingdom was obliged to require an institution which was already legitimately carrying on business here to be authorised. A requirement made under article 10(4) is voluntary, not obligatory. The exercise of the option to make that requirement cannot affect the scope of the obligation under article 3. I think that it is clear, as a matter of principle, that the voluntary incorporation by a member state of a provision in a Directive into national law which it is not obliged to incorporate under Community law does not give rise to a Community law obligation. The scope of that provision is a matter for determination by the national courts as a part of the domestic law of the member state. The European Court may assist the national court in construing the Directive, but it does not follow that the obligation in question is a Community law obligation: see Leur-Bloem v. Inspecteur der Belastingdienst/Ondernemingen Amsterdam 2 (Case C-28/95) [1998] Q.B. 182, 209, paragraphs 33-34.

    For these reasons I would hold that the Bank was not obliged by article 3(1) of the Directive to require B.C.C.I. S.A. to obtain authorisation as a condition of continuing to carry on its business in the United Kingdom. But even if it was obliged to do so as a matter of Community law, I do not find a sufficient indication, in the conditions for authorisation of credit institutions which are set out in article 3(2), that the result to be achieved by the Directive entailed the granting of rights to individuals or groups of individuals affected by their activities. The purpose of article 3(1), as indicated by the first, second and eighth recitals, was to take the first step towards the introduction of uniform authorisation requirements for comparable types of credit institution having their head office in one member state and their branches in other member states. The obligations which it imposed were designed to bring to an end, in a manner which was consistent with the nature of the business carried on by credit institutions, any discriminatory treatment as between the laws of member states with regard to establishment and the provision of these services.

    Article 6(1) provides:

    "1. Pending subsequent co-ordination, the competent authorities shall, for the purposes of observation and, if necessary, in addition to such coefficients as may be applied by them, establish ratios between the various assets and/or liabilities of credit institutions with a view to monitoring their solvency and liquidity and the other measures which may serve to ensure that savings are protected.

    To this end, the Advisory Committee shall decide on the content of the various factors of the observation ratios referred to in the first sub-paragraph and lay down the method to be applied in calculating them.

    Where appropriate, the Advisory Committee shall be guided by technical consultations between the supervisory authorities of the categories of institutions concerned."

The appellants rely on this article as the basis for their claim that the Bank was under an obligation owed to the depositors to supervise the activities of B.C.C.I. S.A. and B.C.C.I. Overseas at all times during the relevant period. Auld L.J. said [2000] 2 W.L.R. 15, 113B-C:

    "Article 6 deals with supervision. In my view, and contrary to that of Clarke J., at p. 616, it imposed on regulators immediate duties of a technical banking nature to 'ensure that savings are protected,' and it did so in advance of the process and achievement of co-ordination. It is clear from the wording of the article and the context of the Directive as a whole, concerned as it is with 'the taking up and pursuit of the business of credit institutions' (my emphasis), that the intended purpose of the supervision was to ensure, as a minimum, continuing compliance with the requirements of authorisation under article 3."

    In my opinion however article 6, although concerned with supervision, had a more limited purpose in view. As the twelfth recital indicates, it imposed a duty on the supervisory authorities, pending subsequent co-ordination, to formulate structural ratios which would make it possible for the national authorities to co-operate with each other in the setting of standards, or coefficents, to ensure the sound management of credit institutions which in due course would be co-ordinated between member states. The ultimate aim was to set equivalent financial standards which would, in terms of the recital, achieve the twin requirements noted by E.C.O.S.O.C. of ensuring "similar safeguards for savers and fair conditions of competition between comparable groups of credit institutions." It did not impose a duty of supervision. The assumption on which it proceeds is that the competent authorities in each member state would be performing that function under the national law of that member state. No minimum standards of supervision or other criteria are laid down in the article. The whole emphasis is on co-operation between the supervisory authorities, with a view to harmonisation in due course of the means by which the performance of credit institutions carrying on business in more than one member state could be monitored. The protection of savings was assumed to be the purpose of the monitoring system. But it was not necessary in order to establish observation ratios and their co-ordination between member states to impose a Community law duty of supervision or to grant rights in that regard to individuals or groups of individuals.

    Article 7 is also concerned with supervision. Here again Auld L.J. was of the view that it imposed a duty to supervise: p. 113G. But I think that the duty which it imposed was one of co-operation between the supervisory authorities. Paragraph 1 of the article provides:

    "1. The competent authorities of the member states concerned shall collaborate closely in order to supervise the activities of credit institutions operating, in particular by having established branches there, in one or more member states other than that in which their head offices are situated. They shall supply one another with all information concerning the management and ownership of such credit institutions that is likely to facilitate their supervision and the examination of the conditions for their authorisation and all information likely to facilitate the monitoring of their liquidity and solvency."

As in the case of article 6, article 7 assumed the existence in each member state of a competent authority or competent authorities whose function it was to supervise the activities of credit institutions in that member state.

    Prior to the implementation of the Directive of 1977 there were no supervisory authorities in either the United Kingdom or Denmark. So it was necessary, to give effect to the Directive, for authorities to be set up with the function of supervising credit institutions operating in those member states. An obligation to do so is not expressed in article 7. It is to be found in the third paragraph of article 189 of the E.E.C. Treaty (now article 249 E.C.), which provides that a Directive is to be binding as to the result to be achieved but leaves the choice of form and methods to each member state. Here again however it is necessary to distinguish between the duty under Community law for an authority to be set up under the national law of each member state whose function it was to supervise and the duty under article 7 of the supervisory authorities of each member state to co-operate. I do not think that article 7, which refers to the sharing of information "likely to facilitate" supervision, examination and monitoring, imposed a duty under Community law to supervise. The absence from the article of any prescribed system of supervision, and of any criteria or standards to be applied by the supervisory authority, is an indication to the contrary. It is noteworthy that, although the appellants claim that there was a general duty to supervise, they do not point to the breach by the Bank of any particular duties of supervision imposed by either article 6 or article 7.

    The appellants rely upon the observations of Advocate General Sir Gordon Slynn in Municipality of Hillegom v. Hillenius (Case 110/84) [1985] E.C.R. 3947, 3948, where he said that article 7 of the Directive of 1977 "provides that the supervisory authorities of the various member states shall collaborate closely in order to supervise credit institutions operating in more than one member state." I do not think that this comment, which simply repeats the wording of paragraph 1 of the article, is in any way inconsistent with the view which I have formed, that the duty under article 7 is a duty to collaborate in order to assist the competent authorities in the performance of their supervisory functions under national law. The observations which the European Court made in its judgment, at p. 3963, paras. 26 and 27, to the effect that the Directive was designed to facilitate the overall monitoring of credit institutions operating in more than one member state by the competent authorities of the member state in which the credit institution has its head office and about the need for the monitoring of banks through supervision within a member state and the exchange of information by the competent authorities to function properly, do not go to the length of suggesting that the court saw the Directive as entailing the grant of rights to individual depositors.

    The appellants also rely on Carbonari v. Università degli studi di Bologna (Case C-131/97) (unreported), 25 February 1999. That was a case which was concerned with the direct effect of provisions in two Directives (82/76/E.E.C. amending 75/362/E.E.C. and 75/363/E.E.C.), the first of which related to training periods and remuneration of doctors. Detailed provisions were included about the training requirements, and there was a provision in the Annex to the Directive of 1975 that the posts which specialists were to hold while in full-time training were to be "subject to appropriate remuneration." The European Court in para. 44-47 of its judgment applied the first limb of the Becker test. The right of the medical students to appropriate remuneration during their training period was in itself unconditional and sufficiently precise. But the Directives were not unconditional as to which institution was to bear the obligation to pay the remuneration. They did not include any Community definition of the remuneration which was to be regarded as appropriate or the methods by which it was to be fixed to enable the national court to determine the body liable to pay it or the level at which it was to be paid. Such definitions were to be a matter for the member states when they were implementing the Directive. In other words, as the Directive did not itself define as a matter of Community law what was appropriate remuneration or lay down a Community law method to fix that amount, the medical students had no Community right which they could enforce to obtain payment.

    The appellants say that the Carbonari case supports their claim that articles 6 and 7 imposed a duty of supervision notwithstanding that the precise methods or forms of supervision are not specified in the Directive. In my opinion however the case tends to support the Bank's argument. None of the provisions in articles 6 and 7 of the Directive of 1977 define any categories of individual on whom rights were being conferred, nor do they state in obligatory terms that the credit institutions "shall be subject to appropriate supervision" by the competent authorities. Even if such an obligation in general terms could be said to be implied, the absence of even the slightest amount of detail as to the system of supervision required by Community law which was to be adopted and enforced by the national courts would make it impossible to say that, as matter of Community law, the obligation to supervise was unconditional and sufficiently precise to satisfy the Becker-type liability test.

    The appellants also rely on article 8 which deals with the withdrawal of authorisation. Paragraphs 1 and 2 of this article provide:

    "1. The competent authorities may withdraw the authorisation issued to a credit institution subject to this Directive or to a branch authorised under article 4 only where such an institution or branch:

(a)

    does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased to engage in business for more than six months, if the member state concerned has made no provision for the authorisation to lapse in such cases;

(b)

    has obtained the authorisation through false statements or any other irregular means;

(c)

    no longer fulfils the conditions under which authorisation was granted, with the exception of those in respect of own funds;

(d)

    no longer possesses sufficient own funds or can no longer be relied upon to fulfil its obligations towards its creditors, and in particular no longer provides security for the assets entrusted to it;

(e)

    falls within one of the other cases where national law provides for withdrawal of authorisation.

    "2. In addition, the authorisation issued to a branch under article 4 shall be withdrawn if the competent authority of the country in which the credit institution which established the branch has its head office has withdrawn authorisation from that institution."

In my opinion the key word in paragraph 1 is the word "only" which precedes the list of the various situations in which authorisation may be withdrawn. It seems to me that this is a limiting provision, as indicated by the second recital, with a view to eliminating differences between the laws of member states. The reference in sub-paragraph (e) to cases where "national law provides for withdrawal of authorisation" ensures that the matter is not left to the administrative discretion of the competent authority in that member state.

    Auld L.J. said [2000] 2 W.L.R. 15, 114G that he recognised the fact that, while paragraph 2 was obligatory, paragraph 1 was in general terms permissive in the various circumstances specified. But his view was that the article should be read as imposing a duty on competent authorities to withdraw authorisation in the circumstances referred to in sub-paragraphs (c) and (d). He added this explanation at p. 114H:

    "It is inconceivable that the Directive should be read so as to require banking regulators to insist on certain minimum requirements of authorisation and to supervise to ensure continued satisfaction of them, yet leave them with a discretion, unspecified as to criteria, to permit continuance of trading without check or condition when those requirements are no longer met."

On my reading of the Directive as a whole however, it is to be regarded as laying down a series of provisions with a view to the harmonisation of the criteria to be applied to credit institutions having their head office in a member state and their branches in other member states. That being so, there is nothing surprising in an approach to the withdrawal of authorisation in the circumstances referred to in paragraph 1 which permits withdrawal in these, and only these, circumstances but provides that withdrawal in the situation mentioned in paragraph 2 is to be obligatory. I do not think that there is anything here which entails the grant of rights to individuals to insist upon the withdrawal of authorisation in the circumstances mentioned in paragraph 1. For their part, the credit institutions could hardly object to a decision to withdraw authorisation in the circumstances mentioned in sub-paragraphs (c) and (d) of paragraph 1 which, in order to protect savings, it was obviously necessary to include in the list of circumstances in which the withdrawal of authorisation was to be permissible.

Conclusion

    Looking back at the Directive as a whole, the key to a proper understanding of its purpose and effect seems to me to lie in the fact that it was the first step in a process of harmonisation of provisions for the regulation of credit institutions carrying on business within the Community. It was about the removal of barriers to the right of establishment under article 52 of the E.E.C. Treaty (now article 43 E.C.). It confined itself to imposing a number of minimum conditions and prohibitions on member states as to the authorisation and supervision of credit institutions having their head offices in another member state or having their head offices outside the Community. It was based upon an appreciation of the fact that credit institutions require regulation in order to protect savings. So any measures of harmonisation had to meet the twin requirements of protecting savings on the one hand and creating conditions of equal competition between credit institutions operating in more than one member state on the other. It placed duties of co-operation on the competent authorities where a credit institution was operating in one or more member state other than that in which its head office was situated. But it stopped short of prescribing any duties of supervision to be performed by the competent authority within each member state. It is not possible to discover provisions which entail the granting of rights to individuals, as the granting of rights to individuals was not necessary to achieve the results which were intended to be achieved by the Directive.

    For these reasons I am unable, with great respect, to agree with Auld L.J.'s conclusions [2000] 2 W.L.R. 15, 102H-103A that the Directive of 1977 imposed clearly defined obligations on member states and on their regulatory bodies and that in doing so it gave rise to corresponding Community law rights in depositors to enforce those obligations by an action of damages. I prefer the views of Clarke J. [1996] 3 All E. R. 558, 616D-E where he said:

    "The true position, as it seems to me, is that the Directive was not intended to require the imposition of a duty to supervise upon the supervisory authority because, whatever the underlying purpose of the system of supervision, the immediate purpose of the Directive, rather like that in R. v. International Stock Exchange of the U.K. and the Republic of Ireland Ltd., ex parte Else (1982) Ltd., R. v. International Stock Exchange of the U.K. and the Republic of Ireland, ex parte Roberts [1993] Q.B. 534, was a first step towards harmonisation of the systems in the member states, which was assumed to and no doubt did exist. Its purpose was not to lay down the duty to supervise or radically to alter the existing systems, but, even if was, it was not (as I see it) to confer rights upon either savers or other creditors."

 
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