Cyprus Mail

Legal opinion does not bode well for Cypriot depositors case (Updated)

EU courts have no jurisdiction to hear actions for annulment against the Eurogroup statement of March 2013 or the Memorandum of Understanding (MoU) as neither of these texts can be attributed to the European Commission or the European Central Bank, a legal opinion ruled on Thursday.

The case before the Court of Justice of the European Union (ECJ) regards a challenge brought by a number of Greek Cypriot depositors against the decisions leading to the March 2013 ‘bail-in’.

According to Advocates General Melchior Wathelet and Nils Wahl, the General Court was fully entitled to dismiss the actions for annulment and damages concerning the restructuring of the Cypriot banking sector.

The opinions are not binding on the ECJ judges but do not bode well for the case.

In their opinions delivered, Wathelet and Wahl, responsible for examining the appeals brought against the ECJ’s General Court orders of 16 October 2014 and of 10 November 2014 respectively, suggested that the Court uphold the orders of the General Court.

“Neither the Eurogroup statement nor the Memorandum of Understanding finalised between the ESM [European Stability Mechanism] and Cyprus can be imputed to the Commission or to the ECB, so that the EU Courts have no jurisdiction to hear the actions for annulment brought against these texts and the non-contractual liability of the EU cannot be incurred,” a press release read.

Concerning the appeal relating to the actions for damages, Wahl opined that “the loss claimed to have been suffered by the individuals on account of the finalisation of the Memorandum of Understanding between the ESM and Cyprus was not caused by an institution of the EU.”

This was because “firstly, the ESM is not an institution of the EU and, secondly, the adoption of the Memorandum of Understanding cannot be regarded as originating from the Commission or the ECB.”

“Nevertheless, the Advocate General makes it clear that, since the ESM and, in short, the Member States comprising it are responsible for the Memorandum of Understanding, the individuals who consider themselves to be prejudiced by this memorandum may bring actions before national courts or tribunals for the purpose of having the States concerned held liable.”

In June 2012 Cyprus applied to the EU for financial assistance to recapitalise Bank of Cyprus and Laiki Bank which, like many banks in Europe, faced financial difficulties owing to the fallout from the Greek financial crisis and the EU’s dismal handling of that crisis resulting in the ‘haircut’ of Greek government bonds, causing the two banks huge losses.

The EU initially agreed to provide bank recapitalisation assistance as it was necessary to safeguard the Eurozone, but in March 2013 the European Commission and the European Central Bank relented and set new conditions for providing financial assistance that involved depriving Laiki Bank depositors of all their savings – except the government-guaranteed amount of €100,000 – and in the case of Bank of Cyprus of 47 per cent of uninsured deposits.

The Cypriot appellants’ appeals are on the ground that the deprivation of deposits was unlawful as there was no law in the EU or Cyprus in force authorising such a ‘haircut’ at the time, and that Cyprus was persuaded by the European Commission and the ECB to pass such a law on pain of having the monetary spigots turned off and a resultant disorderly and catastrophic exit from the euro zone.

Asked to comment, Alper Riza QC, the barrister representing the appellants in Luxembourg, said that though the Advocate General’s opinion is unfavourable toward the Cypriot depositors, it “leaves the door ajar.”

Riza cited paragraph 69 of the opinion, which reads: “I agree with the Appellants that even when acting outside the EU legal framework, the EU institutions must scrupulously observe EU law. The Commission is not permitted, even when acting on behalf of the ESM, deliberately to breach EU rules. Moreover the Commission may not contribute, through its conduct, to an infringement of the EU rules committed by other entities or bodies.”

According to Riza, this begs a question: why not allow the cases to proceed to trial of the facts to enable the court to decide if the EU institutions had indeed deliberately breached EU law?

“In two thirds of cases the Court follows the Advocate General’s opinion, so unless the Court decides to make a stand in favour of the individual against the mighty institutions of the EU, it is more likely than not that the appellants will not be successful,” Riza said via email.


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