By Alper Riza QC
ON SEPTEMBER 20, 2016 the Court of Justice of the EU ruled that in negotiating the conditions under which Cyprus received financial assistance in 2013 the European Commission had a duty to ensure that the conditions were compliant with EU law.
Furthermore, the Court of Justice also decided that the condition that Cyprus was required to bail-in its two main banks was an interference with the property rights of depositors.
However, the court also decided that such interference was proportionate and therefore not unlawful. In the result the depositors were not entitled to compensation for non-contractual liability – damages for tortious acts in plain English.
The European Commission’s main argument before the court was that the cases could not get off the ground because the approval of the conditions that included the bail-in was not an act of the EU but of the European Stabilisation Mechanism body which, it was submitted, was a body separate from the EU in international law; and that in any event the conditions requiring a bail-in were exclusively the act of the Cypriot authorities.
The Court of Justice rejected both these two arguments as they affect claims for compensation in private law.
The Court of Justice decided that in non-contractual liability cases – liability in tort in English law – EU institutions had to act in accordance with EU law and that if they did not they could be liable for flagrant breaches of fundamental laws.
On that basis the Court of Justice allowed our appeals, but then it took an unusual course. It proceeded to evaluate on untested evidence without investigation under the best possible conditions, the question of proportionality, and did not afford us the opportunity to make submissions why the bail-in was wholly disproportionate in all the circumstances.
This would never happen in English or indeed Cypriot proceedings. The principle with the Latin tag audi alteram partem (hear the other side) is so deeply ingrained in our common law traditions, this would never happen in England or Cyprus.
More importantly however the Court failed to address our main argument, which was that the bail-in was inflicted on depositors without legal back-up at the material time.
In other words, as matters stood on or about March 15, 2013 there was no law in the EU or Cyprus enabling depositors to foresee and organise their financial affairs accordingly.
This is a fundamental pillar of the rule of law and trumps proportionality. Indeed, it IS the rule of law! The bail-in laws Cyprus was required to pass after March 20, 2013 do not count as they were in breach of the rule against retrospection. No depositor could foresee and organise his financial affairs to protect his savings before the bail-in law was passed because it was still being negotiated both in the EU and in Cyprus.
There are a number of other cases pending and this decision does not resolve the allegation that the bail-in law was in fundamental breach of the rule of law. The Cyprus bail-in saga will continue in the EU courts.
Alper Ali Riza QC represented the Appellants as Leading Counsel before the Grand Chamber of the Court of Justice of the European Union. He is a Queen’s Counsel and a part time judge in England.