Hoppa yfir valmynd
Ministry for Foreign Affairs

Defence of the Government of Iceland in the Icesave case

Tim Ward aðalmálflytjandi Íslands
Tim Ward aðalmálflytjandi Íslands

 The Government of Iceland has lodged with the EFTA Court its statement of defence in the Icesave case. The statement is submitted in response to the application lodged by the EFTA Surveillance Authority (hereinafter “the Authority”) and forms the basis of Iceland's defence.

 The Government entirely rejects the claims of the Authority and contends that the claims of the Authority should be dismissed by the EFTA Court.

 Last December the Authority filed a case against Iceland seeking a declaration that Iceland had failed to comply with the Directive on deposit guarantee schemes and/or Article 4 of the Agreement on the European Economic Area, regarding non-discrimination. The Authority believes that the breach consists in a failure of the Icelandic deposit guarantee scheme to ensure payment of compensation to Icesave depositors in Landsbanki's Amsterdam and London branches. The claim of discrimination rests on the assumption that depositors in Icelandic banks were treated more favourably.

 The following is a summary of Iceland's legal arguments:

 The Directive on deposit-guarantee schemes  

 (1) The Government contends that the claim is entirely misconceived. The Authority has misunderstood the true nature and extent of the so-called obligation of result. The Directive was appropriately implemented in Iceland and the Icelandic deposit-guarantee fund was established and operated in the same manner as was generally the case in Europe.

 (2) No deposit-guarantee scheme can withstand a system-wide banking failure. It is clear from various sources relating to the legislative history of the Directive and numerous reports as to the functionality of the deposit guarantee schemes that they are not meant to. In the event of a system-wide banking failure other measures have to be taken.

 This was done in Iceland by the passing of the Emergency Act and the subsequent establishment of the new banks. In the winding-up of the old banks the claims of all depositors in domestic as well as foreign branches had the right of priority. This ensured that no depositor was at a disadvantage.

 (3) Reports by the University of Iceland, Institute for Economic Studies, clearly demonstrate that the deposit-guarantee schemes are not able to finance payments to depositors in a system-wide banking failure. That in itself shows that the States have to be able to resort to a range of alternative options when dealing with crises of such magnitude.

 (4) The Authority's case is, in effect, based on the assumption that the Icelandic State would have had to ensure payment, should the assets of the fund prove insufficient. No such obligation is to be found in the Directive nor does any state assume such obligations. If such obligations did exist, it has been calculated that the cost of funding the deposit-guarantee scheme in each Member State of the EU, in the event of a system-wide banking crisis, would average 83% of gross domestic product (GDP).

 (5) The Authority's argument would thus, especially during a difficult recession, create severe burden on the state. The Authority's attempt to derive such an obligation from the wording of the Directive is contrary to the requirements of legal certainty, which requires that the rules of EEA law should be clear and their application foreseeable for all those concerned, as there is no express obligation of State guarantee in the Directive itself.

 (6) Any financial support provided by the state would have to be in strict compliance with the state aid rules and approved by the Authority, or the Commission. Thus, any such state funding would fall outside the scope of the Directive.

 (7). British and Dutch depositors were compensated by the deposit-guarantee schemes of their respective states. These deposit-guarantee funds will be reimbursed from the Landsbanki estate.

 Force majeure

 (8) For the reasons stated above, the Icelandic State was under no Directive obligation to compensate depositors in light of the failure of the deposit-guarantee scheme to do so.  But even if there was such an obligation, it was defeated by virtue of force majeure.

 (9) The guaranteed deposits amount to 650 billion Icelandic kronas (ISK). That represents approximately one and a half years' tax revenue of the Icelandic State. It was impossible for the Icelandic authorities to raise such an amount in a matter of a year and in the wake of the bank crisis, as the Authority maintains that the perpetration of the alleged infringements was concluded by October 2009.


 (10) If the obligation to ensure payment cannot be based on the Directive on its own, the Authority claims that it is required by the principle of equal treatment. However, these claims are entirely misconceived. The Icelandic deposit-guarantee scheme did not make any payments to domestic depositors. Neither did the Icelandic State. No discrimination has thus occurred within the deposit-guarantee scheme or by disposition of state funds. In this respect all depositors have been treated equally.

 (11) The Directive does not extend to measures taken during the restructuring of the Icelandic banking system. The restructuring was a necessary measure aimed at maintining accessibility of deposit accounts. The credit balances at foreign branches were granted the right of priority in the winding up process of the old banks.

 (12) Other forms of different treatment of bank deposits, arising from measures taken outside the scope of Directive, were perfectly justifiable. Restructuring of the banks through granting priority ranking to deposit claims at the establishment of the new banks has already been recognized and accepted by the Authority itself and the Supreme Court as a necessary measure in order to prevent a system-wide failure and collapse of the real economy.

 (13) Moving overseas accounts of depositors in Britain and the Netherlands to the new banks would have been completely impossible. The Authority has not argued the contrary. Instead, by granting priority ranking to depositors, they will recover far more than the sums guaranteed by the Directive.

 Further processing of the case

 It is expected that the Authority will be allowed to submit a Reply to the Defence which will then be responded to by the Icelandic Government by a Rejoinder. In parallel to this part of the process, other EFTA states and EU Member States will also have the opportunity to participate in the proceedings, as well as the EU Commission.

 An oral hearing is expected to be scheduled in the second half of this year.

 Iceland's Lead Counsel is Tim Ward QC. He is assisted by a team of lawyers and external advisors both within Iceland and outside, including Professor Miguel Poiares Maduro, former Advocate-General of the European Court of Justice.

 In Iceland the case team is composed of the State Attorney General Einar Karl Hallvarðsson, Supreme Court Advocates Jóhannes Karl Sveinsson and Reimar Pétursson, and Lecturer Kristín Haraldsdóttir, former member of the EFTA Court´s staff. The work is conducted by the Ministry for Foreign Affairs in cooperation with the Ministry of Economic Affairs. Ambassador Kristján Andri Stefánsson is responsible for the processing of the case on behalf of the Ministry for Foreign Affairs and Director Þóra M. Hjaltested on behalf of the Ministry of Economic Affairs.


Contact us

Tip / Query
Please answer in numerics

This website uses cookies to ensure you get the best experience on our website. Read more