Our Attorney-at-Law Kristjan Nõges is representing Swedbank in an Oral Hearing at the Estonian Supreme Court

The new year has started off vigorously! The Supreme Court is holding public hearings in two civil cases. The first is based on Swedbank's appeal and concerns the right of credit institutions to unilaterally terminate the basic payment service agreement with consumers. Swedbank is represented in the Supreme Court by partner and attorney-at-law Kristjan Nõges of the law firm Lepmets & Nõges, who says that the outcome of the case will be significant for the financial market in any event. The importance of the dispute is also reflected in the Supreme Court's chosen procedure - the Supreme Court rarely holds oral hearings.

What is the dispute about?

This court case concerns a claim brought by an individual customer against Swedbank due to the termination of the payment account and payment card agreement. The customer demands that Swedbank continue to provide payment services. Swedbank, however, justified the termination of the contract by the high risk of money laundering associated with the customer. The termination of the contract followed nationwide media coverage linking the customer of the bank to the so-called Magnitsky money laundering scandal.

What is the Magnitsky affair?

This infamous case began in the summer of 2007 when the Russian authorities took over funds belonging to American businessman Bill Browder and falsified them. The new owner then applied to the Moscow tax office to return $230 million previously paid as taxes due to a mistake. With this same fraudulently obtained $230 million, schemes were set in motion to give the money a clean look. Sergei Magnitsky was Bill Browder's lawyer who began to bring the fraud to light. However, the Russian authorities soon arrested and imprisoned him. While in prison, Sergei Magnitsky developed pancreatitis, was not given timely medical attention, and died in 2009, with signs of beating found on his body. From then on, there was a hint of blood in this murky money, and the case was dubbed the Magnitsky affair.

How did the district court resolve the matter?

The district court dismissed the claim. The district court found that the formal and material prerequisites for terminating the payment services agreement were met and that Swedbank had a basis, among other things, for terminating the agreement. According to the district court, there was no reason to doubt Swedbank's risk assessment and the justification for terminating the customer relationship, taking into account the regulations on determining risk appetite and the responsibility and sanctions (up to revocation of authorisation) of credit institutions for non-compliance with the Money Laundering and Terrorist Financing Prevention Act and related international regulations. The district court also considered it necessary to note that the problem of ensuring the provision of the basic payment service to consumers is not solvable or surpassable in the court's opinion by interpreting the law or applying analogy but is rather a question that requires a more systematic approach as it is related to the regulation of several national and European Union legal acts.

What decision did the appellate court make?

The appellate court overturned the district court's decision and made a new decision, which granted the claim and determined that the payment service agreement between the parties did not end on the basis of Swedbank's termination notice. The appellate court took the view that since Swedbank had relied solely on ordinary termination and had not claimed that its intention was to terminate the agreement extraordinarily, the district court should not have evaluated Swedbank's termination notice as extraordinary termination. Regarding the ordinary termination of the payment service contract concluded with the consumer, the appellate court took the view that it is not possible.

What is being disputed in the Supreme Court?

One of the main issues in the Supreme Court in this case is under what conditions a credit institution may unilaterally terminate a basic payment service contract concluded with a consumer, taking into account the rules established for the protection of consumers by the Law of Obligations Act and European Union law, in particular Directive 2014/92/EU of 23 July 2014. Among other things, the question arises as to whether the directive has been properly transposed into domestic law and, if not, whether Directive 2014/92/EU could have direct or indirect legal effects in resolving the dispute and, in the affirmative, what the consequences of such legal effects would be.

When is the session taking place?

The session of the Supreme Court will take place on January 19th, 2023, at 11:00. The session will be held in the general assembly hall, which is also the largest session hall of the Supreme Court. The session is public and the lawyers from Lepmets & Nõges law firm recommend interested parties to come and see it!