Would Iceland’s Icesave victory remain good law after EU accession?

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BrusselsReport.eu
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By Prof. Dr. Dr. h.c. Carl Baudenbacher, former President of the EFTA Court (2003-2017), Visiting Professor at the London School of Economics, Baudenbacher Law AG

The EFTA Court’s judgment of 28 January 2013 in the Icesave case, which cleared Iceland of liability to the British and Dutch governments after Landsbanki’s online branch collapsed, is widely regarded as Iceland’s most consequential modern legal victory. It shielded Icelandic taxpayers from billions in liabilities and affirmed sovereign self-determination after the financial crisis.

Iceland faced claims of roughly EUR 4 billion plus interest from the United Kingdom and the Netherlands, an enormous sum for its small economy and population. The EFTA Court dismissed the claims, holding that EU/EEA Directive 94/19/EC did not require a state to assume the debts of a deposit guarantee scheme in an unprecedented systemic financial crisis. The ruling also validated the position of Icelandic voters, who had twice rejected negotiated repayment packages in referendums.

Formally, the Icesave judgment binds the parties to Case E-16/11, the EFTA Surveillance Authority (“ESA”) and Iceland, with the European Commission as intervener. Substantively, it has broader significance as an authoritative interpretation of EEA law by the EFTA Court. It is particularly relevant to the EEA/EFTA States and has an erga omnes effect vis-à-vis the EU States. In fact, it ended the Icesave dispute.

In 2014, the European Union adopted Directive 2014/49/EU, recasting the Deposit Guarantee Schemes Directive. It fixed coverage at EUR 100,000, required officially recognised schemes, made membership compulsory for credit institutions, shortened repayment deadlines, and introduced detailed rules on eligible deposits, financing, risk-based contributions, depositor information and cooperation between national schemes. It was addressed to the EU Member States, which had to transpose it, generally by 3 July 2015, and notify the Commission. Compliance remained subject to Commission supervision and, where necessary, infringement proceedings.

Although designated EEA-relevant, the directive did not bind the EEA/EFTA States. For the directive to become EEA law, an EEA Joint Committee Decision amending the relevant annex to the EEA Agreement was required, followed by national implementation. According to EEA-Lex, the act remained under scrutiny for incorporation by Iceland, Liechtenstein and Norway. Iceland then withheld consent to EEA incorporation; that position has stood for 12 years since the directive was adopted.

Had Iceland not done that, the directive would have become binding on it as an EEA/EFTA State after an EEA Joint Committee Decision and national implementation. Supervision would have remained with ESA and interpretation with the EFTA Court.

If a new Icesave-type case were to arise after EU accession, the CJEU would not be bound by the EFTA Court’s 2013 judgment and would decide under the EU acquis then in force. Whether the Commission would consider itself bound can be left open; in practice, it almost certainly would not.

The 2014 directive did not supersede the EFTA Court’s Icesave ruling. A later legislative act cannot retroactively set aside a final judgment on the previous legal regime. The judgment therefore remains authoritative for the law as it stood in Case E-16/11.

If, however, Iceland acceded to the European Union, the EU deposit guarantee acquis now in force would become part of the obligations it had to accept as a Member State. Iceland would be required to transpose and apply that regime under Commission supervision and the jurisdiction of the Court of Justice of the European Union. The previous absence of EEA incorporation would become irrelevant for the future.

EU accession would therefore not overrule Icesave in the strict sense. The CJEU would not sit as an appellate court over the EFTA Court. Accession would, however, essentially render the judgment obsolete for the future. Iceland’s subsequent legal position would be governed by the EU acquis and the institutional system of EU law; Icesave would remain important historically, doctrinally and perhaps interpretatively, but no longer determinative for Iceland’s future obligations.

What the Icelandic Government is not telling voters

These consequences can hardly be unknown in Icelandic governmental circles. EU accession necessarily entails acceptance of the EU acquis, including banking and deposit guarantee law. The question is therefore not whether the Government understands the legal effect, but why this is not being stated plainly in the public debate. Accession would not overturn Icesave, but it would strip the judgment of its practical relevance for the future.

By failing to explain this consequence, the Icelandic Government is withholding a politically material implication of EU accession from voters. Icesave remains central to Iceland’s sovereignty narrative after the financial crisis, and its practical neutralisation should not be left to inference. It should be stated openly in any honest debate on EU membership.

The omission could materially affect the political debate and possibly the outcome of a referendum. The Government should not be allowed to present accession as legally harmless while avoiding the central consequence: the Icesave judgment would survive formally, but lose almost all of its practical force for the future. That is a material fact voters are entitled to know before they decide.

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