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The issue of the transferred foreign currency deposits savers in Croatia

When the Socialist Federal Republic of Yugoslavia (SFRY) disintegrated in 1991 and 1992 and the banking system collapsed, each successor state sought a solution to ensure the stability of its financial and economic system, which included assuming part of the liabilities of the SFRY or guarantees from the National Bank of Yugoslavia for foreign currency savers.

  

An Agreement on Succession Issues was signed in Vienna on 29 June 2001 by five successor states (Slovenia, Croatia, Bosnia and Herzegovina, Macedonia, and the Federal Republic of Yugoslavia – today Serbia) under the auspices of the international community. The principal aim of this Agreement was to regulate the mutual rights and obligations among the five successor states in respect of succession issues arising upon the break-up of the former federal state, in accordance with the rules of international law.

  

Under Annex C to the Agreement on Succession Issues, transferred foreign currency deposits are a subject of succession that needs to be resolved in the context of succession negotiations. 

 

In the Memorandum of Understanding signed at Mokrice in 2013, the two countries undertook to seek a solution to the question of transferred foreign currency deposits in the context of succession negotiations. Croatia, furthermore, undertook to suspend all judicial proceedings in progress before Croatian courts against Ljubljanska Banka (LB) and Nova Ljubljanska Banka (NLB) in the matter of transferred foreign currency deposits until the final resolution of this issue. Slovenia, for its part, undertook to begin the process of ratifying Croatia's EU accession agreement following the signing of the Memorandum. 

 

Slovenia has fulfilled its part of the obligations, but Croatia has not, since proceedings in the Croatian courts against LB and NLB are continuing. To date, final judgments have been handed down in four proceedings, in three cases to the detriment of LB and NLB. This has resulted in a loss to these two companies and to Slovenia, in part because the value of the state's investment in NLB is reduced, as has also been seen in the process of privatisation of NLB.

 

The proceedings in progress before Croatian courts against LB and NLB in the matter of transferred foreign currency deposits represent an infringement of Croatia's obligations under international law, Slovenia's constitutional order and EU law. 

Croatia has failed in past years to respond to Slovenia's calls to resolve this issue in the context of succession negotiations. On 23 April 2018, in view of the continuation of judicial proceedings against LB and NLB in Croatia, Slovenia requested the European Commission to act as mediator in the case of transferred foreign currency deposits. 

 


Historical background

In the former SFRY, the Federation (SFRY) guaranteed that, in the event of bank liquidation, bankruptcy or insolvency, each individual saver would be compensated for their foreign currency deposits in any bank on the territory of the SFRY.  In compliance with the applicable legislation at that time, the National Bank of Yugoslavia guaranteed deposits in dinars.

  

After the dissolution of the SFRY in 1991 and 1992 and the collapse of the banking system, each successor state sought solution to ensure the stability of its own financial and economic system, which included assuming part of the guarantees of the SFRY for foreign currency deposits of foreign currency savers.  

 

Following the break-up of the SFRY in 1991, Slovenia adopted a constitutional act containing the territorial principle. On the basis of this act and relevant legislation, Slovenia facilitated, without discrimination, the disbursement of all foreign currency deposits in banks and branches of domestic or foreign banks on its territory which had been guaranteed by the former SFRY. The banks effected the disbursement of foreign currency deposits to the debit of Slovenia. 

 

Similarly to Slovenia, in 1991 Croatia facilitated through its legislation the disbursement of foreign currency deposits in Croatian banks based in Croatia or with branches of foreign banks on Croatian territory; however, unlike Slovenia, savers were discriminated against on the basis of their citizenship. Only Croatian citizens with foreign currency deposits in Croatian banks on Croatian territory were repaid, including Croatian citizens with foreign currency deposits in branches of foreign banks on Croatian territory and those who had transferred their deposits to banks based in Croatia in compliance with the Croatian legislation (transferred foreign currency deposits). The banks based on the territory of Croatia repaid the foreign currency deposits, including the transferred foreign currency deposits, to the debit of Croatia.

 

On this basis, the option to transfer foreign currency deposits to banks based on Croatian territory was also taken by Croatian citizens holding foreign currency savings accounts in Ljubljanska banka, Zagreb branch. Most of these deposits were transferred to Zagrebačka banka Zagreb (ZABA) and Privredna banka Zagreb (PBZ). In accordance with Croatian law, all these savers were repaid in full

  

The deposits of savers who did not meet the conditions of citizenship or did not opt to transfer foreign currency savings to a bank based in Croatia are referred to as non-transferred foreign currency deposits, regarding which the European Court of Human Rights ruled in the Ališić case in 2014. The judgement has no effect on the transferred foreign currency deposits. Paragraph 147 of the judgement clearly states that the latter are excluded from the repayment schemes in the Ališić case. Slovenia has been implementing the judgement consistently and effectively; therefore, on 15 March 2018, the Committee of Ministers’ Deputies of the Council of Europe in Strasbourg adopted a final resolution to officially end the supervision of measures taken by Slovenia to implement the judgement.

   


Court proceedings in Croatia

In 1994 and 1996, the aforementioned Croatian banks (PBZ, ZABA) brought 27 cases against LB and NLB before Croatian courts to recoup foreign currency deposits, which were later combined into 15 cases. There are currently 13 cases pending at various stages, whereby decisions in these cases are being made at different instances.  

 

Seven of these cases are final; one ended in favour of LB and NLB (the principal amounted to EUR 788.59) and six in favour of Croatian banks:

  • In the first case, the principal amounted to EUR 254.76
  • In the second case, the principal amounted to EUR 492,430.53
  • In the third case, the principal amounted to EUR 220,115.98
  • In the fourth case, the principal amounted to EUR 222,426.39
  • In the fifth case, the principal amounted to SEK 3,855,173.35 (cca EUR 275,000) 
  • In the sixth case, the principal amounted to 9,185,141.76 USD (cca EUR 8,170,000)

 

Both Croatian banks are now in foreign ownership; however, in these proceedings, they act on direct instructions and for the account of Croatia. The authorisation to conduct proceedings and collect claims in respect of the transferred foreign currency deposits was issued by the Croatian Ministry of Finance in 1994 and 1996. The amount of the principal in the claims totals EUR 172.2 million (converted at exchange rates as at 31 December 2016, and excluding late payment interest).  In view of the fact that court proceedings have been in progress for a considerable time, late payment interest exceeds the principal amount. 

 

Until 2008, all actions brought by PBZ and ZABA were either dismissed (because the plaintiffs had no active standing) or rejected (non-jurisdiction of courts), i.e. ended in favour of LB and NLB. However, in its review proceedings of 2008, the Croatian Supreme Court overturned ten years of established case law by ruling that the authorisation issued by the Croatian Ministry of Finance to conduct proceedings and collect claims in respect of the transferred foreign currency deposits should be regarded as an offer to conclude an assignment agreement. By accepting this offer (authorisation), the two Croatian banks were to conclude an assignment agreement, and thereby obtain the right to bring legal action against LB and NLB, including the Supreme Court’s recognition of the active standing of both PBZ and ZABA in their lawsuits against LB and NLB

 

At the same time, the Supreme Court of Croatia, without substantiation and contrary to the purpose of the 1994 Slovenian Constitutional Act, determined the solidary liability of NLB as a "universal legal successor to LB". On the basis of these findings, all the above-mentioned actions were remitted to the court of first instance.

 

In 1994, LB’s assets and liabilities were divided between LB and NLB in accordance with the Slovenian Constitutional Act. As the Constitutional Act preserved the status quo with regard to the LB "branches" in other republics of the former SFRY, their liabilities and assets have never been transferred to NLB. That the interpretation of the provisions contained in the 1994 Slovenian Constitutional Act by the Croatian courts is a mistake of law has been confirmed by rulings of Slovenian and foreign courts (e.g. German). 

    


International legal aspects 

Annex C to the Agreement on Succession Issues stipulates that the financial liabilities of the SFRY which are subject to the Agreement on Succession Issues include the guarantee of the SFRY or its National Bank of Yugoslavia for hard currency savings deposited in a commercial bank and any of its branches in any of the successor states prior to its declaration of independence. 

 

As, in accordance with Annex C to the Agreement on Succession Issues, transferred foreign-currency deposits are subject to succession, Slovenia has continuously opposed the judicial proceedings before Croatian courts and actively striven to continue the succession negotiations. It was not possible to reach an agreement between the successor states, mostly due to the position of Croatia.

 

All the above implies that no liability exists for the repayment of transferred foreign-currency deposits in Croatia either for LB or NLB or for Slovenia

 

From October 2005 to Croatia's accession to the EU, this issue was also emphasised in the framework of Croatia's accession negotiations. On the basis of prolonged bilateral discussions, in order to stay the court proceedings before the Croatian courts, a Memorandum of Understanding between the Slovenian and Croatian Governments was signed in Mokrice on 11 March 2013. In the Memorandum, the two countries agreed that the solution to the transferred foreign-currency deposits would be based on the Agreement on Succession Issues (Annex C), and that – pending the final resolution of this issue in keeping with the Agreement – the Croatian Government would ensure the stay of all court proceedings initiated by the two Croatian banks (PBZ and ZABA) with regard to the transferred foreign-currency deposits. 

 

In the Memorandum, Slovenia undertook to start – upon its signature – the ratification process for Croatia's EU Accession Treaty in the National Assembly. Slovenia honoured its obligations under the Memorandum, but Croatia did not

 

The proceedings against LB and NLB before the Croatian courts are still pending. With regard to transferred foreign-currency deposits, Croatia is not honouring its commitments under the agreements in force (Agreement on Succession Issues and Memorandum of Understanding signed in Mokrice). LB and NLB have consistently pointed out this fact in judicial proceedings in Croatia. Furthermore, representatives of Slovenia have pointed out Croatia's failure to honour its commitments to their interlocutors at the political level, urging them to change the course of action, but with no tangible results. 

  


Measures taken by Slovenia and consequences of court proceedings

Slovenia insists that the issue of transferred foreign-currency deposits is a successions issue; in early February 2018, it once more called on all successor states to the former SFRY (repeating its call from July 2013 and November 2015) to re-launch negotiations on foreign-currency guarantees, urging them to submit their positions by 15 March 2018. Of all the successor states, only Macedonia submitted its position.

  

Due to the court proceedings against LB and NLB in Croatia, financial and business damage has been incurred by the two companies. Consequently, Slovenia has also suffered damage, as the court proceedings have been reducing the value of its investment in NLB. Should NLB be forced to make provisions for the risk arising from the court proceedings; this might affect the amount of dividends paid out to the state. The issue of court decisions was particularly reflected in the sales procedure of a 50% share in NLB, in which potential investors perceived court proceedings in Croatia as a financial risk affecting the prices they offered to acquire shares in NLB. 

  

All of the above suggests that the outstanding issue of transferred foreign-currency deposits in Croatia goes beyond bilateral relations between Slovenia and Croatia; therefore the Government decided to refer the matter to the European Commission for mediation. In international relations, mediation is an established method for resolving outstanding issues of a political nature; mediation is not a legal procedure, but a way to assist the parties to a dispute to find an appropriate solution. 

 

Parallel to the initiative for mediation, an intensive search for solutions to protect NLB property is underway. 

 




SFRY succession

Five countries (Slovenia, Croatia, Bosnia and Herzegovina, Macedonia and the Federal Republic of Yugoslavia – today Serbia) signed the Agreement on succession issues by which it was conclusively confirmed that five sovereign equal successor states were formed upon the dissolution of the former SFRY.


Implementation of the case Ališić and oth.

Slovenia has been executing the judgement in the Ališić case consistently and in accordance with the legislation


Inter-state application against Croatia

Slovenia lodged before the European Court of Human Rights (ECHR) an inter-state application against Croatia related to the claims of Ljubljanska Banka towards Croatian companies.