The necessity of taking resolution measures, in particular the specific ones taken under the Resolution of Credit and Other Institutions Act of 2013, is confirmed, inter alia, a decision of the Limassol District Court, dated 3 June 2022, rejecting a claim by Bank of Cyprus depositors for the impairment of their deposits in 2013 and their conversion into shares.
The depositors had taken action against the Republic of Cyprus, the Central Bank of Cyprus and the Bank of Cyprus claiming damages alleging loss of money as a result of the resolution measures taken in 2013, while they also claimed that the transfer of Laiki Bank's liabilities to the Bank of Cyprus severely burdened the Bank of Cyprus' finances and maximised the rate of deposit impairment.
In its multi-page judgment, the Court, having analysed the plaintiffs' claims, rejected them in their entirety, finding them to be arbitrary and unsubstantiated, noting that no scientifically substantiated evidence was put before the Court in support of those claims. On the contrary, the Court accepted the defendants' testimony that the assets of Laiki Bank transferred to the Bank of Cyprus were greater than the transferred liabilities of Laiki, so that there was no question of any further burden on depositors.
The Court also accepted the position of the Attorney General of the Republic of Cyprus that the Republic of Cyprus wrongly and/or erroneously complained of inadequate and/or insufficient supervisory control over the banks, since it is not legally charged and/or competent to do so. In the same context, the plaintiffs' allegations of any errors by the Republic of Cyprus in relation to the management of its finances, which resulted in the acceptance of the terms of the Memorandum, remained unsubstantiated, with the Court accepting the Republic's position that the problems of the Cypriot economy existed, but were manageable in themselves and were not of such a nature as to necessitate the adoption of the specific measures.
Characteristically, the Court states in its judgment:
"By the above agreement [I.E. THE MEMORANDUM], the Central Bank, exercising its powers as the Resolution Authority and after taking into account the opinion of the Ministry of Finance, issued a series of decrees for the adoption and implementation of the agreed programme. With the adoption of the resolution measures, the maintenance and continuation of the supply of core and critical banking operations was achieved, thus ensuring the financial stability of the Cypriot banking system as a whole. In addition, depositors were fully protected, ensuring their immediate access to insured deposits, without passing on the cost of bank resolution to taxpayers. It also avoided the possibility of thousands of Bank of Cyprus and Laiki Bank employees being put out of work. The above measures were absolutely necessary and unavoidable, all possible options were exhaustively examined before they were taken, and the depositors of the two affected banks are ultimately not in a worse position than they would have been if the above measures had not been taken."
As to the plaintiffs' claims of violation of the Constitutional right to property, the Limassol District Court held that they are not valid since, according to a previous decision of the Supreme Court Plenary (Myrto Christodoulou and Others - v. Republic, 553/13 et al.), once money is deposited in the bank, it ceases to be an asset of the depositor but of the bank. "[...] it follows, in the clearest possible way, that once the money is delivered by the depositor to the bank, it ceases to be an asset of the depositor and instead becomes an asset of the bank. What is stated immediately above makes it clear that the deposits of the Claimant are not an asset of the Claimant, but an asset of the Defendant 3 [I.E. BANK OF CYPRUS]. Consequently, it cannot benefit from the protection of Article 23 of the Constitution."
As to the plaintiffs' claims of discrimination against them because the reorganisation measures were not applied to certain categories of depositors, such as charitable institutions and the general government, they remained unsubstantiated, with the Court accepting - as it notes - unreservedly the position of the Advocate General that " [...] the effect that any application of the measures to the specific categories of depositors would have, which would be to reduce the deposits of the Bank of Cyprus and, by extension, of Enagousa to a greater extent [...].'
In conclusion, the Court is satisfied that prior to the application of the resolution measures to the banks, the full range of facts and data existing at the material time were examined and taken into account by the competent authorities and, on the basis of these, it was considered that the application of the own resources rescue measure was the most appropriate measure in the circumstances.
Consequently, the Court found that no actionable act or omission on the part of the Republic of Cyprus was established, accepted the position that the resolution measures at issue were absolutely necessary and unavoidable and concluded that the depositors of the two affected banks were not in a worse position than they would have been in had the measures in question not been taken at the material time.
The Court dismissed all of plaintiffs' claims, dismissed the action, and awarded costs in favor of defendants.
The case was handled on behalf of the Attorney General of the Republic by Ms Theano Mavromoustaki, Senior Advocate of the Republic.
(BL)
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