The Limassol District Court proceeded on Tuesday, February 20, to reject six joint lawsuits filed by six companies regarding deposit haircuts under the 2013 Credit Institutions and Other Institutions Restructuring Law and the restructuring measures adopted in 2013.
The lawsuits, as stated in a relevant announcement by the Legal Service, were directed against the Bank of Cyprus, the Central Bank of Cyprus, and the Republic of Cyprus (defendants).
According to the announcement, the six companies, through their lawsuits, claimed, among other things, compensation for alleged negligent acts and/or omissions by the Bank of Cyprus, the Central Bank of Cyprus, and the Republic of Cyprus, which led to the haircut of their bank deposits, additionally challenging the constitutionality of the restructuring measures adopted by the State by alleging a violation of their rights.
Rejecting the claims of the plaintiff companies, the Court decided that with the adoption of the restructuring measures, the depositors of the Bank of Cyprus, including the plaintiff companies, were not ultimately placed in a worse position than they would have been if the Bank of Cyprus had been placed under resolution, with the Court accepting that the bail-in measure applied to the Bank of Cyprus was the most correct and appropriate under the circumstances.
An indicative reference by the Court is: “With the adoption of the above restructuring measures, the preservation and continuation of the provision of basic and critical banking services have been achieved, resulting in the financial stability of the Cypriot banking system as a whole. In addition, the depositors who would be compensated by the Deposit Protection Fund in case of its activation have been fully protected, ensuring the immediate access of depositors to insured deposits, and the cost of bank restructuring has not been passed on to taxpayers. Moreover, the possibility of thousands of employees of the Bank of Cyprus and Laiki Bank being unemployed has also been avoided, as this would have been the result of the collapse of these banks.”
It was also a finding of the Court that if the restructuring measures were not taken and the Bank of Cyprus was placed under resolution, “the Republic of Cyprus would be placed in an insurmountable, dire economic situation with catastrophic consequences for the depositors and creditors of the banks, for financial stability, and society as a whole.”
Regarding the alleged violation of the rights of the plaintiff companies, the Court, referring to previous case law, ruled that there was no violation, noting that “the reason why certain categories of deposits were exempted, such as the deposits of charitable foundations, schools, and educational institutions, was to promote the public interest and serve the public interest, to defend education and philanthropy. It is therefore clear that the reason for the exemption of the above categories of deposits from the provisions of the decrees issued under the Law was fully justified. By extension, there is no question of unequal treatment of plaintiff companies, so as to violate the principle of equality or equal distribution of burdens.”
As for the claims of the plaintiffs about the unjustified delay of the Republic of Cyprus in applying to the European Stability Mechanism, the Court concluded that there was no unjustified delay in submitting the relevant request, as well as that “the request for a loan from the European Stability Mechanism, as well as the time of submission, was a political decision of the then Government and such decisions are beyond the control of the Court and do not fall within the acts or omissions for which the Republic of Cyprus may be liable for compensation.”
Finally, the Court found no negligence and/or fraud on the part of the Republic of Cyprus and dismissed all six consolidated lawsuits, awarding costs in favor of the Republic. The case was handled by Ms. Zakelina Erotocritou, Attorney of the Republic, and Mr. Angelos Panayi, lawyer.
