1.

This request for a preliminary ruling concerns the interpretation of the provisions of EU law relating to professional secrecy. It arises out of proceedings between the aggrieved investors, ( 2 ) and the Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Office for the Supervision of Financial Services, ‘the BaFin’) in connection with the BaFin’s decision to refuse access to certain documents and information relating to Phoenix Kapitaldienst GmbH Gesellschaft für die Durchführung und Vermittlung von Vermögensanlagen (‘Phoenix’).

2.

As to the relevant EU law, three directives were expressly identified in the referring decision, namely Directives 2004/109/EC, ( 3 ) 2006/48/EC ( 4 ) and 2009/65/EC. ( 5 ) However, in the course of proceedings it has been indicated that the only provision requiring interpretation by the Court is Article 54 of Directive 2004/39/EC. ( 6 )

3.

In the course of performing the functions entrusted to them pursuant to the various directives, offices for the supervision of the financial sector receive an enormous quantity of information from the undertakings they supervise. The question arising in the present case is whether investors are entitled to access to such information, where a fraudulent investment firm has been declared bankrupt or is in compulsory liquidation. The Court will, moreover, need to determine the circumstances in which ‘confidential information which does not concern third parties … may be divulged in civil or commercial proceedings if necessary for carrying out the proceeding’.

4.

Articles 54(1) and (2) of Directive 2004/39, which concern “Professional Secrecy”, provide as follows:

‘1.   Member States shall ensure that competent authorities, all persons who work or who have worked for the competent authorities or entities to whom tasks are delegated pursuant to Article 48(2), as well as auditors and experts instructed by the competent authorities, are bound by the obligation of professional secrecy. No confidential information which they may receive in the course of their duties may be divulged to any person or authority whatsoever, save in summary or aggregate form such that individual investment firms, market operators, regulated markets or any other person cannot be identified, without prejudice to cases covered by criminal law or the other provisions of this Directive.

2.   Where an investment firm, market operator or regulated market has been declared bankrupt or is being compulsorily wound up, confidential information which does not concern third parties may be divulged in civil or commercial proceedings if necessary for carrying out the proceeding.’

5.

The relevant provisions of German law are contained in:

6.

It appears from the order referring the matter that insolvency proceedings were opened in respect of Phoenix by order of the Amstgericht Frankfurt am Main (Local Court, Frankfurt am Main) of 1 July 2005. The company was dissolved on that occasion and is now in compulsory liquidation. The company’s business model was based on investment fraud. Some 30000 investors were defrauded, with the loss amounting to 600 million euros.

7.

In criminal proceedings, two former directors of the company were found guilty of abuse of trust and investment fraud by judgment of the Landgericht Frankfurt am Main (Regional Court, Frankfurt am Main) of 11 July 2006, and were sentenced to terms of imprisonment of seven years and four months and two years and three months respectively.

8.

On 21 May 2012, Mr and Mrs Altmann, relying on Article 1 of the IFG, ( 10 ) sought access to documents relating to Phoenix from the BaFin, such as audit reports, agreements, file notes, internal opinions, relevant correspondence and activity and field reports produced by the investor compensation fund. The request did not include business or trade secrets of third parties or information covered by the obligation of secrecy.

9.

By decision of 31 July 2012, the BaFin largely acceded to the request for information. However, it refused access to a special audit report drawn up by Ernst & Young on 31 March 2002, to the reports of Phoenix’s auditors (including those relating to financial years 1998 to 2005 and all other audit reports) and to internal opinions, reports, correspondence, documents, agreements, contracts, file notes and letters relating to Phoenix and dating from 1992 to 2005, as well as all internal opinions and correspondence post-dating the communication of the Ernst & Young report.

10.

The BaFin refused those requests on the ground that granting access to the documents in question would have adverse effects on its monitoring and supervisory tasks within the meaning of Paragraph 3(1)(d) of the IFG. It also considered that, by virtue of Paragraph 3(4) of the IFG, access to the information in question was precluded by the obligations of secrecy contained in Paragraph 9 of the KWG and Paragraph 8 of the WpHG. ( 11 )

11.

On 21 August 2012, Mr and Mrs Altmann lodged an administrative appeal against that refusal. The BaFin rejected this by decision of 9 October 2012. In addition to the reasons for refusal given in the original decision, it also stated that access to the information was precluded by the law relating to protection of intellectual property, business and trade secrets, and personal data.

12.

On 12 November 2012, Mr and Mrs Altmann brought an action challenging the BaFin’s decision before the referring court, the Verwaltungsgericht Frankfurt am Main (Administrative Court, Frankfurt am Main). By judgment of 11 December 2012, the referring court ordered the BaFin to provide access to at least some of the information sought, despite the specific obligation of secrecy incumbent on it under Paragraph 9 of the KWG.

13.

It appears from the request for a preliminary ruling that, in another case concerning access to information held by the BaFin in relation to Phoenix, the referring court decided, in a judgment of 12 March 2008, that a right to information under Paragraph 1(1) of the IFG also existed where the protective aims of Paragraph 9 of the KWG and Paragraph 8 of the WpHG no longer required secrecy. It therefore held that there was no legitimate interest in maintaining the secrecy of the business and trade secrets of Phoenix, as the information sought related to criminal acts or other serious infringements of the law.

14.

The referring court emphasises that, in a case such as this, it is not necessary to protect the interests of Phoenix, and that in those exceptional circumstances, it is possible to derogate from the obligation of secrecy contained in Article 9 of the KWG and Article 8 of the WpHG.

15.

It was against that background that the Verwaltungsgericht Frankfurt am Main decided to stay proceedings to refer the following questions to the Court for a preliminary ruling:

16.

A request for an expedited ruling, made by the referring court pursuant to Article 105(1) of the Rules of Procedure of the Court of Justice, was rejected by order of 28 June 2013.

17.

Written observations were lodged by the BaFin, the German, Estonian, Greek and Portuguese Governments, and the European Commission.

18.

Following a request for clarification made by the Court in accordance with Article 101 of the Rules of Procedure, the referring court informed it, by way of a letter filed on 19 May 2014, that it had decided to withdraw the first question, and also provided further information, particularly in relation to the nature of Phoenix’s activities and the relevance of Directive 2004/39.

19.

Mr and Mrs Altmann, Frank Schmitt (the liquidator of Phoenix), the German and Greek Governments and the Commission were represented at the hearing of 4 June 2014.

20.

As to the provisions of EU law which apply in this matter, I note at the outset that three directives were mentioned in the order for reference, namely Directives 2004/109, 2006/48 and 2009/65. However, in the course of proceedings before the Court, following the receipt of written observations and the request for clarification, the referring court confirmed, having regard to the nature of Phoenix’s activities, that the relevant provision was Article 54 of Directive 2004/39.

21.

According to the referring court, Phoenix had been carrying on business since 26 March 1998 pursuant to an approval under Paragraph 64(6)(2) of the KWG. Under that provision, the approval envisaged by Paragraph 32 of the KWG, which Phoenix required because of the investment management mandates it held and its portfolio management activities, was deemed to have been granted to credit institutions which had been regularly carrying on their business activities on 1 January 1998, without the BaFin approval, provided that they declared, no later than 1 April 1998, that they were carrying on activities which were subject to approval under the KWG, and intended to continue doing so. In the present case, those conditions were fulfilled. Consequently, no express approval from the BaFin was required.

22.

In this regard, I note that Directive 2004/39 applies to investment firms and regulated markets. ( 13 ) For the purposes of the directive, ‘investment firm’ means any legal person whose regular occupation or business is the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis. ( 14 )‘Investment services and activities’ means any of the services and activities listed in Section A of Annex I relating to any of the instruments listed in Section C of Annex I, ( 15 ) including reception and transmission of orders in relation to one or more financial instruments, dealing on own account, portfolio management and investment advice relating to transferable securities, money market instruments or derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash.

23.

It seems to me that the parties which submitted written observations and the referring court are in agreement that Directive 2004/39 applies to the activities of Phoenix as an investment firm. In those circumstances, it is appropriate for this analysis to focus on that directive, notwithstanding that it was not cited in the order for reference. ( 16 ) The second referred question should therefore be considered on the basis of Article 54 of Directive 2004/39 alone.

24.

In this particular case, the fact that the directive to be interpreted was substituted after the referring order was lodged does not present an insurmountable problem. The Court has received further information in the written observations and in response to the questions addressed to the referring court. Equally, given that the response to the request for clarification received in accordance with Article 101(1) of the Rules of Procedure was served on all interested persons pursuant to Article 101(2), all the Member States have been given the opportunity to attend the hearing and make submissions on the entirety of the written material presented to the Court, or indeed to request a hearing. In those circumstances, there is no need to reconsider the admissibility of the request for a preliminary ruling in terms of the effectiveness of Article 23 of the Statute of the Court of Justice. ( 17 )

25.

The referring court described Phoenix’s business model as consisting of large-scale fraud. In line with the Commission’s position as indicated at the hearing, I take the view that this fact cannot alter the applicability of Directive 2004/39, because Phoenix was approved as an investment firm and supervised as such by the BaFin.

26.

Lastly, in relation to the identification of the provision to be interpreted, I should note that ‘cases covered by criminal law’ is mentioned twice as an exception in Article 54 of Directive 2004/39, more specifically in paragraphs 1 and 3. ( 18 )

27.

In my opinion those two exceptions, which in principle are always applicable, unlike that contained in Article 54(2), are intended to make criminal investigations and prosecutions possible at any time, even while the investment firm is carrying on its normal business activities, and thus to enable the supervisory authority to divulge information for the purposes of such investigations or prosecutions. Furthermore, in my view it is conceivable that, in a case covered by criminal law, the supervisory authority may also divulge information which is subject to professional secrecy to the public, for example to calm the market where there are rumours that a firm under the under the authority’s supervision is involved in criminal activity.

28.

The present request for a preliminary ruling has of course been made by an administrative court, in the course of administrative proceedings relating to access to documents held by an authority which is under an obligation of secrecy. Moreover, it appears from the order for reference that the criminal proceedings had been concluded before the administrative proceedings were commenced. Thus the aim of the request for information and documents is not to use them for the purposes of criminal proceedings, and in fact from the point of view of criminal law it would seem that ‘the Phoenix matter’ is no longer extant.

29.

On that basis, the exceptions relating to ‘cases covered by criminal law’, contained in paragraphs 1 and 3 of Article 54 of Directive 2004/39, appear to be inapplicable in the present case. Given the inapplicability of the other paragraphs of that article relating to the exchange and transmission of information between the competent authorities, and the use of such information, ( 19 ) it is appropriate to focus on the interpretation of paragraphs 1 and 2 of that provision.

30.

According to its title Article 54 of Directive 2004/39 relates to professional secrecy. Paragraph 1 sets out the basic principle and further detail is given in paragraphs 2 to 5.

31.

Article 54 of Directive 2004/39 lays down obligations relating to secrecy. Those obligations are mandatory. By contrast, the exceptions are formulated in permissive terms. ( 20 ) In other words, the article allows disclosure in certain cases, but does not stipulate whether the authorities are under a legal obligation to disclose confidential information, or if so to what extent.

32.

Article 54 of Directive 2004/39 only designates situations where disclosure is authorised under EU law. The existence of a legal duty of disclosure can only be based on other provisions of EU or national law, such as Paragraph 3 of the IFG or a procedural rule requiring the supervisory authority to give evidence in commercial or civil proceedings. Nevertheless, a duty of disclosure on the part of the supervisory authority can only be imposed or enforced to the extent permitted by Article 54 of Article 2004/39.

33.

It follows that this Court’s response cannot be based on a balancing exercise in which the reasons for and against the disclosure of the information and documents requested in the present case are weighed against each other. To the extent that disclosure is possible under Article 54(2) of Directive 2004/39, it is for the authority in question, or the competent national court, to carry out that exercise. This Court’s role is only to determine the limits which Article 54 of Directive 2004/39 imposes on the disclosure of information by the supervisory authority. More specifically it is to determine, firstly, the scope of professional secrecy in the present case, and secondly, the basis on which an exception can be made to the supervisory authority’s obligation of secrecy. It goes without saying that, as an exception, paragraph 2 of Article 54 should be construed narrowly.

34.

Under Article 54(1) of Directive 2004, confidential information received in the course of the duties of a competent authority to which the directive applies is subject to professional secrecy. The directive does not give a more detailed definition of such information, or a definition of professional secrecy by reference to concepts such as business secrets, trade secrets or other duties of confidentiality which have been considered in the case-law of the Court. ( 21 )

35.

In my view, the information held by an authority supervising markets in financial instruments, being information falling within Article 54 of Directive 2004/39 and thus subject to ‘professional secrecy’ may be subject to different types of confidentiality.

36.

Firstly, there is information covered by so called ‘banking secrecy’, which applies to relations between an investment firm or other financial undertaking and its clients and contractors. ( 22 ) In my view, the reference to ‘confidential information which does not concern third parties’ in Article 54(2) of Directive 2004/39 relates to this category of confidential information.

37.

Secondly, there is information which is protected as ‘business secrets’ of the supervised undertakings. This consists of the trade and business secrets of the credit institution, investment firm or other financial undertaking in question. It is clear that the level of trust needed by the competent authority in respect of the supervised entities requires such secret information to be covered by an obligation of professional secrecy which binds the authorities. Otherwise, the confidential information which the competent authorities require for the purposes of supervision would not be communicated to them without reluctance or even resistance.

38.

Thirdly, there is information which is subject to a form of secrecy particular to supervising authorities, ‘prudential secrecy’, the corresponding obligation being imposed on authorities for the supervision of the financial sector and those working within them. ( 23 ) This category includes, amongst other things, the methods of supervision adopted by the competent authorities, communications and transmissions of information between the various competent authorities, and between those authorities and the supervised entities, and all other non-public information as to the state of the supervised markets and the transactions made on those markets.

39.

In a situation such as that at issue in the main proceedings, the supervising authority is required to comply with three types of duty of confidentiality. However the circumstances in which an exception can be made are different. ( 24 )

40.

Firstly, the exception contained in Article 54(2) of Directive 2004 does not permit disclosure of confidential information relating to third parties. I note that the claim in the main proceedings does not seem to relate to information of that kind.

41.

Secondly, in relation to the so called prudential secrets of the competent authority, I note that the BaFin refused the requests of Mr and Mrs Altmann mainly on the ground that granting access to the requested documents would have adverse effects on its monitoring supervisory functions.

42.

However, it seems to me that, in reality, the second question referred does not concern prudential secrets, but relates solely to whether the professional secrecy obligations of a supervisory authority apply to the business and trade secrets of an investment firm which has been declared bankrupt or is in compulsory liquidation, and whose activity consisted in criminal conduct or other serious infringements of the law. Therefore, it is that situation which I will consider below.

43.

It is clear that the extent to which trade or other business secrets merit protection can diminish, and generally will diminish when the undertaking in question ceases trading. Nevertheless, secrets which have a commercial value that can be realised in the course of a liquidation, as part of the assets of the undertaking, continue to merit protection in full.

44.

At the hearing, the liquidator of Phoenix emphasised that, despite the liquidation, the company still owns property and still enjoys the rights attaching to its assets in respect of the period following the collective settlement process. A fraudulent company which is in compulsory liquidation may have business secrets that merit protection, such as analyses of business opportunities, software or information relating to marketing structures.

45.

I also consider that an investment firm which is insolvent or in compulsory liquidation may have information which constitutes business or trade secrets, and which remains confidential in the hands of the competent supervisory authority by the professional secrecy laid down by Article 54(1) of Directive 2004/39. None the less, during this period the duty of confidentiality is less stringent than when the supervised entity is trading normally. The scheme of Article 54 makes clear that with respect to such companies, the standard of professional secrecy is applied less rigorously, otherwise the exception contained in paragraph 2 thereof would be unnecessary.

46.

The fraudulent nature of the business carried on by the company does not affect this conclusion. This matter may be taken into account in deciding, under the exception in Article 54(2) of Directive 2004/39, whether or not to disclose the information, but of itself it does not affect the applicability of professional secrecy as provided for by Article 54(1). In the case of an investment firm which is bankrupt or in compulsory liquidation, such professional secrecy actually protects the collective economic interests of creditors and investors in the debtor company, who may also be considered, where appropriate, to be victims of infringements of the law by the directors or members of the company.

47.

Having regard to those matters, the second question referred must be answered in the affirmative. A supervisory authority such as the BaFin can rely, as against a person who has applied to it for access to information concerning a particular in an investment firm, on the obligation of secrecy contained in Article 54(1) of Directive 2004/39, in circumstances such as those of the main proceedings. Nevertheless, in order to provide a response which will assist the referring court, it is also necessary for this Court to clarify the interpretation of the exception contained in Article 54(2).

48.

More specifically, in relation to the exception contained in Article 54(2) of Directive 2004/39, it is a narrowly circumscribed exception and is formulated as follows:

‘Where an investment firm, market operator or regulated market has been declared bankrupt or is being compulsorily wound up, confidential information which does not concern third parties may be divulged in civil or commercial proceedings if necessary for carrying out the proceeding.’ ( 25 )

49.

Thus, the applicability of Article 54(2) requires, first of all, that the entity in question (in this case an investment firm) has been declared to be insolvent or put in compulsory liquidation. It is in such case that the barrier to disclosure of confidential information in Article 54(1) of Directive 2004/39 can be lifted pursuant to the exception in Article 54(2). Nevertheless, as I have already pointed out, information concerning third parties may not be divulged under that exception. Furthermore, the disclosure must be ‘in civil or commercial proceedings’ and the information disclosed must be ‘necessary for carrying out the proceeding’.

50.

It should be noted that the applicability of that exception requires that the investment firm, market operator or regulated market has been declared bankrupt or placed in compulsory liquidation. In other words, this exception only applies where there has been a serious deterioration in the circumstance and the entity in question is no longer carrying on its normal activity. This fact justifies derogating them the supervisory authority’s obligation of professional secrecy so as to enable other legitimate interests to be taken into account, particularly interests relating to the smooth running of civil and commercial proceedings.

51.

The request for disclosure of confidential information must be made in civil or commercial proceedings. ( 26 ) This requirement gives rise to two questions of construction which are closely linked and were the subject of extensive argument between the parties. The first concerns the link between the civil or commercial proceedings and the disclosure of confidential information which is subject to professional secrecy by virtue of Article 54(1) of Directive 2004/39. The second concerns the relationship between concepts of national procedural law and the requirement that the proceedings are civil or commercial.

52.

As to the first issue, I note that the legislature permitted disclosure in civil or commercial proceedings and not for the purposes of such proceedings. Therefore, according to the wording of the exception, which is to be construed strictly, there must always be pending civil or commercial proceedings in order for Article 54(2) of Directive 2004/39 to apply.

53.

The requirement for pending civil or commercial proceedings is naturally satisfied by the bankruptcy or winding up proceedings themselves. However, in my view the wording of the provision shows that the legislature did not intend to limit the circumstances in which disclosure of confidential information is possible to those proceedings, but wished to include other proceedings which are related to the relevant main proceedings. ( 27 )

54.

Thus, the exception contained in Article 54(2) of Directive 2004/39 may also apply in relation to civil or commercial proceedings between an undertaking which is bankrupt or indeed in compulsory liquidation and a third party, concerning the recovery of debts due to the undertaking, the recovery of its property, or its liability in contract or tort. The objectives of EU legislation on financial markets clearly require that the supervisory authorities assists, so far as possible, in clarifying the economic and legal relationships of an bankrupt investment firm. None the less, it is clear from the judgment in Paul and Others that this is possible only within limits set by the need to protect the public interest, and particularly the stability of the financial system, such protection being the specific function of the supervisory authorities. ( 28 )

55.

In my view, EU law does not prevent the proceedings in question extending to proceedings between other interested parties, such as individual investors or creditors of the company concerned, on the one hand, and its directors, members or employees, on the other, either in the interests of the company which is insolvent or in liquidation (actio pro socio) or in their own interests, to the extent that such proceedings are admissible under national law.

56.

However, the exception does not extend to requests whose purpose is to obtain confidential information held by the competent supervisory authority, so as to discover whether any of that information might assist in a subsequent, independent claim, not being part of existing civil or commercial proceedings.

57.

As to the second issue, I am in agreement with the Commission that the reference in Article 54(2) of Directive 2004/39 is not to the type of national court, but to the nature of the proceedings in which disclosure may be made. Thus is it possible, exceptionally, for civil or commercial proceedings to be brought, by virtue of national law, before an administrative court. The concept of civil or commercial proceedings, therefore, does not correspond to the proceedings referred to in EU legislation on cooperation in civil and matters.

58.

However, in a single set of administrative proceedings before an administrative court regarding access to documents and information held by a supervisory authority, which are not brought with the objective of ensuring procedural fairness for a party to pending civil or commercial proceedings, but in reliance on the principle of transparency in the context of access to administrative documents and freedom of information, do not in any way constitute civil or commercial proceedings within the meaning of Article 54(2) of Directive 2004/39.

59.

Finally, it should be noted that the information to be disclosed must be necessary in order for the conduct of civil or commercial proceedings. The extent of disclosure must thus be limited. In the first instance it is for the supervisory authority in question to decide whether disclosure is necessary or not. However, within the limits set by national law, it may be appropriate for the court hearing the civil or commercial proceedings to determine what is necessary and what is not, in light of the proceedings which are under way. To the extent that there is a difference of opinion between the authority and the court hearing the civil or commercial proceedings in question, the provisions of national law governing the division of powers between general courts and administrative courts will apply for the purposes of determining whether the civil or commercial court has power to make a binding decision on the issue, under the law of evidence, or whether it is required to refer the issue to the competent administrative court.

60.

According to the information provided by the referring court, the main proceedings would appear to be a single set of administrative proceedings which fall outside the framework of Article 54(2) of Directive 2004/39. If that is the case, which is for the national court to determine, the exception contained in that provision will not apply.

61.

In light of the foregoing considerations, I propose that the Court should answer the question submitted by the Verwaltungsgericht Frankfurt am Main as follows:

A competent supervisory authority can rely, as against a person who has applied to it for access to information concerning a particular financial services provider which is in compulsory liquidation, following its dissolution on grounds of insolvency, on obligations of secrecy incumbent upon it under EU law, and specifically by virtue of the professional secrecy provided for by Article 54(1) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC, even in circumstances where the essential business concept of the company consisted in large-scale investment fraud and the wilful harming of investors’ interests and the responsible executives of the company have been sentenced by final judgment to terms of several years’ imprisonment.

In any event, where an investment firm has been declared bankrupt or placed in compulsory liquidation, confidential information which does not concern third parties may be disclosed, pursuant to Article 54(2) of Directive 2004/39, only in civil or commercial proceedings, and only where it is necessary for the purposes of those proceedings. Such confidential information may not be disclosed with a view to supporting a subsequent, independent claim which does not form part of existing civil or commercial proceedings.