Contributed By KLC Law Firm (Athens - HQ)
Developments in Greek Civil Procedural System: Law 4335/2015 and Subsequent Amendments to the Greek Code of Civil Procedure
Civil Procedure in Greece sets out the rules and principles of organisation and dispensing of justice in the field of private law.
The civil procedural landscape in Greece was drastically altered by law 4335/2015, which introduced various amendments to the Greek Code of Civil Procedure. These amendments were enacted on 1 January 2016. The main objective of law 4335/2015 is to accelerate and improve the efficiency of the procedure before civil courts. Below are some of the most noteworthy amendments:
As regards ordinary proceedings before civil courts, oral hearings have been replaced by written submissions. Civil courts no longer examine witnesses on the hearing date, unless this is considered imperative by the court seized of the case for issuing its judgment. If there is a special reason for the examination of witnesses, which is determined at the discretion of the court, witnesses may be examined after the hearing date but within the same judicial year.
The timelines of the procedure before civil courts from the initiation of proceedings to the issuance of the judgment have been significantly shortened. In particular, the new provisions of the Code of Civil Procedure provide for the filing of pleadings and evidentiary material within 100 days from the filing of the lawsuit/statement of claim, whereas cross-pleadings must be filed within 15 days from the filing of initial pleadings. Afterwards, the court sets the hearing date for the case, which has to take place within 45 days from the submission of the cross-pleadings. The court judgment should then be issued within eight months from the court hearing. Hence, a case brought before a first instance court will reach its final stage (issuance of court judgment) within approximately one and a half year. In practice, though, observance of any procedural time limits provided by law which refer to the court depends on the workload of the court seized of each particular case, and therefore the overall time period for the conclusion of the relevant proceedings could be extensive. Moreover, depending on the time of service of the judgment, the appeal by the defeated (in total or in part) party may be filed within 30 days from service of the relevant judgment, or within two years from its issuance, if no service of the judgment is effected.
As regards the enforcement proceedings, law 4335/2015 eliminated a debtor’s ability to challenge enforcement actions brought against such debtor by its creditors. Before law 4335/2015 came into force, the debtor was able to challenge every single compulsory enforcement action against them, and, consequently, to considerably delay the completion of the enforcement proceedings. Under the new legal regime as established by law 4335/2015, the debtor has the right to challenge enforcement actions during the following two stages and within specific time limits from the enforcement action which is being challenged: first, during the proceedings before the auction invoking the invalidity of the enforcement actions having taken place until the auction and, second, during the time period between the auction and the award of the auction by pleading all possible defects of the procedure at that stage.
Finally, one of the most significant amendments introduced by law 4335/2015 pertains to the classification of creditors entitled to receive a distribution from auction proceeds, as analysed below. Timelines have also been introduced in respect of the auction procedure, which must be conducted either within a time period not exceeding eight months from the date the seizure is imposed or, if the auction is not conducted at its initial date, within three months of the continuation statement.
Ranking of Creditors in Enforcement Proceedings
As mentioned above, the ranking of creditors in enforcement proceedings changed considerably after the enactment of law 4335/2015 and subsequently of law 4512/2018. In particular, three main categories of creditors are recognised: creditors with general privilege, creditors with special privilege (ie, secured with a mortgage or a pledge) and non-privileged creditors. The satisfaction of each category is conditional upon the full satisfaction of the previous, higher ranked one.
Of note, the Greek Code of Civil Procedure provides also for a general ranking privilege of employees against all the creditors (supra-privilege), which was introduced by law 4512/2018. Specifically, claims of employees are preferentially satisfied from the proceeds of the auction prior to any other creditor’s claim, on the following conditions:
In case of concurrence of all the three categories of privileges (ie, general privileges, special privileges and non-privileged), the creditors with general privileges will be satisfied to a percentage up to 25%, whereas the creditors with special privileges will be satisfied up to a percentage of 65%. The remaining amount of 10% of the proceeds of the auction is allocated to the non-privileged creditors. In case of concurrence of privileged (with special privilege) and non-privileged creditors, an amount of 10% of the distribution price of the auction is allocated to the latter. In case of concurrence of claims with general privileges and non-privileged claims, the percentage of satisfaction of the former is 70%.
It should be noted that the amendments introduced by law 4512/2018 regarding the ranking of creditors shall apply only if the relevant claims arise from 17 January 2018 onwards and any encumbrance (such as pledge or mortgage) on unencumbered – on such date – asset has been established after that date. According to the Explanatory Memorandum of law 4512/2018 these two conditions should both be met in order for the aforementioned provisions to apply. As a result, the new provisions are not applicable to a significant number of expected auctions within the coming period, since these pertain to claims that arose prior to 17 January 2018 and the relevant encumbrances were created before that date. For this reason, the legislator did not repeal the already existing provisions and thus the new provisions will apply in parallel with the older ones.
Mediation in Greece is tending to become the most popular type of alternative dispute resolution, following the adoption of the laws 3898/2010 and 4512/2018, which both transposed the European Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters (the “Directive”) into Greek law.
Mediation in Greece is a structured process in which two or more parties to a dispute try to resolve it amicably with the help of a mediator, who seeks to facilitate the resolution of the dispute in a suitable, effective and impartial way. Any person can become a mediator, provided they are specially trained and designated as mediators. Recourse to mediation in Greece is subject to the following prerequisites: (a) the dispute must be a private law one relating to civil and commercial matters, either present or future; (b) the parties must have the right to dispose the relevant rights and obligations under the Greek law (eg, rights arising from breach of contract, infringement of trademarks, etc; in contrast, provisions of the law on mediation may not extend to revenue, customs or administrative matters or to the liability of the State for acts and omissions in the exercise of State authority); and (c) the parties must agree to recourse to mediation and their agreement must be made in writing. Mediation either may be used on the basis of an agreement between the parties to a dispute, or may be decided during court proceedings if the court encourages the parties to resolve their dispute amicably through mediation. If such encouragement by the court is successful and the parties agree to use mediation as a means of resolution of their dispute then the agreement to access mediation shall be mentioned in the court records and is used in lieu of a written agreement by the parties. Access to mediation can also be ordered by a foreign court of a third EU Member State unless it violates Greek public order and principles of morality.
Agreements reached in the context of mediation are enforceable according to the Greek Code of Civil Procedure. The mediator prepares the mediation agreement including all the necessary information (ie, the name and surname of the mediator, the place and the time of mediation, the names and surnames of the parties, the agreement reached or the unsuccessful outcome of the mediation, the causa of the dispute, etc). The mediation agreement is signed by the mediator, the parties and their respective lawyers or, if no agreement was reached, it is signed only by the mediator. The mediation agreement can be submitted by each party to the Secretariat of the Single Member Court which would be competent to hear the case in case of litigation. The mediation agreement is valid and effective following the signing of the agreement as described above, but the enforceability of the agreement commences upon its submission to the Secretariat of the Single Member Court. Thus, the mediation agreement constitutes an enforcement instrument and can be executed much like a court judgment. Recourse to mediation suspends temporarily (from three to six months) any court proceedings already commenced. Moreover, the parties may seek provisional measures by filing a relevant petition for stay of proceedings during the ongoing mediation process.
The key change introduced by the recently enacted law 4512/2018 is the obligatory recourse to mediation for certain categories of civil and commercial matters which before were only optionally subject to mediation. The so-called “obligatory mediation” pertains to the following disputes: (a) disputes among the proprietors of horizontal and vertical properties relating to proprietary rights; (b) claims relating to damages from car accidents; (c) disputes relating to outstanding fees of various categories of persons (ie, lawyers, bailiffs, doctors, engineers, etc); (d) family-related issues; (e) claims of patients or their relatives against doctors; (f) disputes arising from infringement of trademarks, patents, industrial designs and models; and (g) disputes arising from stock exchange agreements. Hearing of such cases shall be invalid if the mandatory mediation process stipulated in the law has not been followed. Thus, recourse to mediation becomes a typical prerequisite in order to pursue further legal actions and each party is obliged to submit to court the content of an unsuccessful agreement on mediation. On the other hand, for all cases for which no obligatory mediation is provided by law, these are still subject to “optional mediation” if so decided upon by the parties.
Further, the new law on mediation introduces the obligation of lawyers to inform their clients in writing about the possibility to resolve their dispute amicably through mediation and contains provisions for the establishment of a “Central Mediation Committee” which is a multimember body consisting of judges, prosecutors, law professors, representatives of the Ministry of Justice and representatives from lawyers bars as well as mediators. The Committee is responsible for dealing with any issue relating to the efficient operation of the mediation procedure. New legal provisions have also been introduced regarding the skills, impartiality, independence and the discretion of the mediators, freedoms of the parties during the process, the regulation of disciplinary consequences against mediators and the obligation of the mediators to submit an annual report of their previous year’s activities.
In a nutshell, recent law 4512/2018 provides for a more complete and concrete mediation process which is compatible with its purpose of further harmonisation with the Directive. However, the lack of the necessary social and legal adaptation to the new developments in the field of mediation in Greece recently resulted in the suspension of article 182 of law 4512/2018 regarding obligatory mediation until September 2019.
Non-performing Loans (NPLs)
Non-performing loans (“NPLs”), or so-called “red loans”, are regulated by law 4354/2015, as amended and currently in force (the“NPL Law”), which governs both the management or servicing as well as the transfer of claims arising from loans and creditsgranted by credit or financial institutions (with the exception of loans and credits granted by the Greek Consignment Deposits and Loans Fund). The initial introduction of this law into the Greek legal order was an effort to assist credit institutions and particularly Greek “systemic banks” to clean up their balance sheets from bad loans. Moreover, various changes have been made by virtue of recent laws 4472/2017 and 4549/2018,among others,which reflect the intense interest of market players in investing in this developing market. In this context, law 4472/2017, by its article 65, introduced the long-awaited “immunity” for state and bank officials involved in bad loan restructuring.
According to the latest developments, there is currently a plan being processed by the Bank of Greece aimed at the radical reduction of bad loans in an effort to restore the credibility of the Greek financial system. The plan is expected to be presented by the end of 2018 and it is highly possible that it will bring further changes to the existing legal framework in the near future.
A high-level outline of the legal regime and current status regarding NPLs is presented below:
Loan Management Companies and Loan Transfer (or Acquisition) Companies are eligible to take on the management and transfer of claims, respectively. Both types of companies must include the management or transfer of claims, as the case may be, in their statutory scope of business. In particular, these companies must have their registered seat either in Greece, being incorporated in the form of a “société anonyme”, or in a member state of the European Economic Area (“EEA”) in which case they must have legal establishment in Greece through a branch. Transfer companies can also be established in third countries and may obtain “domicile” in Greece through the operation of a branch. However, in order to operate in Greece, their registered seat should not be: (a) in a country with “a favourable tax regime”; or (b) in a non-cooperating country (as these countries are set out in the acts issued under the Greek Income Tax Code).
The transfer of claims may have as a legitimate causa only the sale of the claims, whilst the fiduciary transfer (ie, transfer by way of security) of the claims is expressly prohibited and any fiduciary term is also not applicable. In order for a sale to be valid, a management agreement of claims must have been signed between a transfer (acquisition) companyand a management companywhich is properly licensed and supervised by the Bank of Greece as described above.
From a procedural point of view, it is to be noted that Loan Management Companies are entitled as non-beneficiary parties to exercise any legal remedy and to take judicial or extrajudicial actions in order to collect the claims/debts under management, as well as to be involved in liquidation proceedings, insolvency proceedings, settlement procedures and special administration proceedings. Thus, management companies may participate, having the right to sue and be sued, in any of the above procedures, despite the fact that they are not the beneficiaries of the claims, which they only manage on behalf of the actual beneficiaries. In all such court, insolvency or pre-insolvency proceedings, management companies appear as non-beneficiary parties; however, any relevant judgment shall be binding also upon the actual beneficiaries of the relevant claims – lenders of the respective loans. Management companies may also subcontract specialised collection companies or companies with similar scope of business operating in a member state of the European Union or the EEA to be engaged with the notifications to the borrowers relating to NPLs.
If the borrower is a consumer in the meaning of the Greek Consumer Law 2251/1994, an extra condition for the sale of claims is required: at least 12 months prior to an NPL sale, the seller is obliged to make debtors an appropriate offer to settle or restructure their debt, in accordance with the rules of the revised banking Code of Conduct (law 4224/2013).
The transfer agreement is effective vis-à-vis third parties following (a) registration in the books of the Registry of Pledges, according to Greek law 2844/2000 on publicity relating to security rights in movable property, and (b) notice of assignment to the debtors and any guarantors.
The new creditors (ie, the acquisition company or transferee) are also protected by any agreements made between the transferring credit or financial institution (ie, the transferor of claims) and the borrowers regarding the non-transferability of claims. Any agreements which prohibit the transfer of claims cannot be opposed to the new creditor and the transfer agreement is valid and enforceable.
According to recently enacted law 4549/2018,the notification of the registration of the assignment of claims is made informally to the debtors and the guarantors by all appropriate means, including electronic media. Besides this, prior to registration of the assignment agreement and notification thereof, rights deriving from the transfer of claims may not be invoked vis-à-vis third parties. Payment to the credit or financial institution made by the borrower prior to the notification of the transfer agreement releases the borrower vis-à-vis the new creditor.
Moreover, transfer companies following the acquisition of the transferred claims become the actual beneficiaries of the relevant claims entitled to exercise any legal remedy and to take any other judicial or extrajudicial action. The res judicata deriving from any court judgment is binding only on the new beneficiary of the claims (ie, the transferee) and not the previous one (ie, the transferor – lender). Thus, any judicial or extrajudicial action made by the transfer company is made in its own name as it has become the new “owner” of the claim. On the other hand, management companies which only manage the claims can only become non-beneficiary parties in judicial and extrajudicial proceedings, pursuant to the NPL Law.