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EU court rejects claims for compensation for 2013 haircut

July 13, 2018 at 4:35pm
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The Court of Justice of the European Union has rejected claims for compensation brought by several individuals and
companies in relation to the restructuring of the Cypriot banking sector in 2013.

In a press released posted on its website on Friday, it said that the condition relating to the unlawfulness of the conduct complained of the European Union is not satisfied.

“The Court concludes that the individuals and companies which initiated the actions have not succeeded in demonstrating an infringement of the right to property, of the principle of protection of legitimate expectations, or of the principle of equal treatment,” it said.

“Since the first condition for establishing the non-contractual liability of the European Union (namely unlawful conduct alleged against an EU institution) has not been satisfied, the Court rejects the claims for compensation,” it added.

Outlining the facts of the case, it said that several individuals and companies who were at the time depositors in Laïki and Bank of Cyprus or shareholders or bondholders of those banks,  had filed for compensation for losses they claim to have suffered as a result of Cyprus’ economic adjustment programme, particularly the loss of their deposits, bonds or shares.

The court said it had already in a 2016 decision examined three of the measures imposed in accordance with the memorandum of understanding, namely, firstly, the takeover by BoC of the insured deposits in Laïki and the maintenance of uninsured deposits in Laïki pending its liquidation, secondly, the conversion of 37.5% of uninsured deposits in BoC into shares, with full voting and dividend rights, and, thirdly, the temporary freeze of another part of the uninsured
deposits. In those judgments, the Court of Justice held that those measures could not be considered to constitute a disproportionate and intolerable interference which infringes the right to property.

“The Court considers that the individuals and companies concerned failed to adduce any evidence showing that that conclusion is not applicable in the present case,” it said.

The Court examined next the conformity of the other measures with the right to property, including, firstly, the measure relating to the reduction of the nominal value of the ordinary shares of BoC and, secondly, that relating to the sale of the Greek branches of BoC and of Laïki.

It notes first of all that the conversion of bonds of BoC into shares and the reduction of the nominal value of BoC shares were intended to restore the equity capital of BoC and thus to ensure the stability of the Cypriot financial system and the euro-zone in its entirety.

According to the Court, it is a measure which is proportionate to the objective pursued, since the less restrictive alternatives
would not have been feasible or would not have allowed the expected results to be achieved. The Court concludes that that measure does not constitute a disproportionate and intolerable interference contrary to the right to property.

As regards the sale of the Greek branches, the objective was to avoid any contagion between the Cypriot and Greek banking and financial systems so as to maintain financial stability. In the light of the importance of the objectives pursued and the fact that that sale took place in an open, transparent and non-discriminatory procedure, the Court concludes that the sale of the Greek branches did not constitute an infringement of the right to property.

The Court also examines the existence of a possible infringement of the principle of equal treatment, which constitutes a general principle of EU law enshrined in the Charter. It is apparent from settled case-law that the principle of equal treatment requires that comparable situations are not treated differently and that different situations are not treated the same, unless such treatment is objectively justified.

In that regard, the individuals and companies which initiated the actions claim that the uninsured depositors in Laïki were discriminated against vis-à-vis creditors thereof whose claims are based on the Emergency Liquidity Assistance (ELA) granted to Laïki. In so far as the debt of Laïki resulting from ELA was transferred to BoC, those creditors could turn to BoC, whereas the debt of Laïki towards uninsured depositors would be extinguished. The Court notes in that regard that only
the Central Bank of Cyprus granted ELA to Laïki and, as a result, had a claim against the latter. Whereas a private operator (such as the uninsured depositors and shareholders of the banks concerned) acts in his private pecuniary interest, the decisions of a central bank of the Eurosystem (such as the Central Bank of Cyprus) are exclusively motivated by objectives of public interest, so that the situations of those two categories of person are not comparable and there is thus no question of discrimination.

Moreover, the individuals and companies claim that those of them whose deposits in the banks concerned exceeded €100 000 were discriminated against vis-à-vis depositors whose deposits did not exceed that amount. Deposits of €100 000 or less were entirely covered by the Cypriot Deposit Guarantee Scheme, whereas deposits exceeding that amount were covered only up to a maximum of €100 000. In addition, the individuals and companies consider that they were discriminated
against vis-à-vis the depositors, shareholders and bondholders of banks established in Member States which benefited from financial assistance before Cyprus because the amount of that assistance was each time greater than that of the financial assistance facility granted to Cyprus, and the deposits, shares and bonds of those Member States were not affected. Finally, they consider that they were also discriminated against vis-à-vis companies in the cooperative banking sector, since the latter were not subject to a bail-in.

In response to all of those arguments, the Court holds that the case concerns different situations which are not comparable, so that no unlawful discrimination can be found.

Finally, the individuals and companies consider that they suffered discrimination on the basis of nationality vis-à-vis depositors in the Greek branches. According to them, although the grant of the financial assistance facility was conditional on the adoption, by the Cypriot authorities, of a bail-in measure affecting deposits in the banks concerned in Cyprus, that grant was not subject to a similar condition with regard to deposits in the branches of those banks in Greece. The Court
holds in that regard that those situations are comparable and that there is a difference in treatment, but that that difference in treatment is justified by an objective and reasonable objective, namely the need to prevent any effect of contagion from the Cypriot banking system to the Greek financial system.