French Court of Cassation limits "instrumentality of the State" doctrine where its application would undermine EU financial objectives

In Privinterest and others v Greece (Appeal No 23-10.435), the French Court of Cassation held that debts owed by foreign sovereigns can be enforced against assets held by entities with separate legal personalities if those entities qualify as instrumentalities of the state. However, this qualification must not be applied if it jeopardises the achievement of objectives pursued by EU measures.

The French Court of Cassation (CC) has provided useful guidance on the limits to the "instrumentality of the State" doctrine where its application would undermine EU financial objectives.

The dispute arose from efforts by Hellenic Shipyards SA (HSY) to enforce an award rendered against Greece. HSY sought to attach funds held in Paris by a Greek company (HCAP), arguing that HCAP constituted an instrumentality (émanation) of the Greek state and therefore, its assets could be used to satisfy the state's debt resulting from the award.

After HSY's initial request to seize sovereign assets was dismissed by the French Juge de l'exécution, the Paris Court of Appeal (CA) sided with HSY's proposition. The CA acknowledged that HCAP had been created as part of Greece's commitments under the European Stability Mechanism (ESM) programme, but found that the Greek state retained sufficient powers of control and direction over the company, and that HCAP lacked genuine patrimonial autonomy. Therefore, the CA deemed it to be an instrumentality of the Greek state, susceptible to enforcement measures aimed at satisfying debts owed by the state. HCAP appealed.

Before the CC, HCAP argued that its creation had been specifically required by European institutions as a condition for Greece's access to financial assistance under the ESM. The CC reviewed the case under article 2284 of the French Civil Code (a debtor is liable for its obligations for all present and future assets), interpreted in light of EU law, Article 136(3) of the Treaty on the Functioning of the European Union and Article 12(1) of the Treaty Establishing the ESM, which permits the granting of financial assistance where necessary to preserve the financial stability of the euro zone.

The CC quashed the CA's decision, holding that HCAP's independence from the Greek state was an essential condition under the ESM. Furthermore, the HCAP's purpose of monetising the transferred state assets to contribute to the repayment of European assistance to Greece was fundamentally incompatible with enforcement actions brought directly by creditors of the Greek state
against HCAP's assets. Therefore, HCAP could not qualify as an instrumentality of the state.

The CC did not remand the case but rendered its own final merits decision, holding that the assets of HCAP could not be subject to any enforcement measures in France initiated by creditors of the Greek State, and ordered the retraction of the authorization previously granted by the CA for the attachment.