Supreme Court’s Judgment on Administrative Recourses regarding the Bank Resolution Decrees (“Bail in”)

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By a majority of seven to two, the Supreme Court of Cyprus issued on 7th of June 2013 its judgment regarding the administrative recourses filed against the Banks’ Resolution Decrees dismissing the same on the ground of non-admissibility. A vast number of recourses filed against the so called “bail in” Decrees should be now considered as inadmissible.

The recourse applications were filed against the two Decrees issued on the 29th March 2013 by the Central Bank in its capacity as the Resolution Authority for credit institutions with the approval of the Minister of Finance. The Decrees derived from the Law 17(1)/2013 passed on 22nd of March 2013 within the frame of the agreement reached by the Government with the Eurogroup.

At the preliminary stage the Office of the General Attorney acting for the Republic raised objections as to the Supreme Court’s jurisdictional power to determine the validity of the Degrees an argument accepted by the Court which considered that the Decrees do not regulate the relationship between the State and individuals but relates to the Bank (Cyprus Popular Bank Public Co Ltd) as such and the sale of certain assets of the Bank, an act which falls under private law principles. In this sense the depositors have a contractual relationship with Popular Bank as creditors like all other creditors and any possible consequences to the depositors are or shall be the result of acts of Popular Bank whereas the State’s intervention in imposing Popular Bank such measures and the effects on depositors are issues that could be raised before the civil Courts.

Those persons who have suffered losses because of the Bank’s Resolution Orders have the option to pursuit damages or otherwise against the respective financial institution but also against the Republic of Cyprus and any persons who acted negligently in relation to such matters. The Supreme Court commented further that in applying the applicable private law principles the District Courts should be required to decide whether the loss suffered by each depositor as a result of the Orders and the parallel agreements that each bank entered into for selling its assets was in excess of the loss the depositor would have suffered had the respective financial institution gone into liquidation. This is certainly rises extremely the burden of proof.

Our Firm’s Comment:

It is worth a moment’s digression to suggest that the circumstances resulting to the Supreme Court’s judgment underline the weaknesses of the European Monetary System and at the same time constitute a reminder of an old problem, the relativity of the Law. No doubt the Supreme Court was put in an extremely difficult position called upon exercising its powers over issues in relation to which elements of the political-economical sphere prevail. Issues of unconstitutionality and illegality of the measures affecting depositors implicating at the same time European and State Institutions involved, challenge and add further to a rising disbelief towards the elite in Brussels.

The bail in did not correspond to or reflect any existing legislation either on European or State level.

The Cyprus case though characterized as “special” appears however that it will become a template on a European level. At the ECOFIN Council of 27 June 2013, finance ministers of the Member States agreed on a general approach on the draft directive establishing a framework for the recovery and resolution of failing banks. Shareholders, creditors and depositors would be partially “bailed in” to contribute to the costs of saving future failed banks. Insured deposits under €100,000 would be excluded, as would liabilities to employees of collapsed institutions.

The failed-bank resolution mechanism entering into force until 2018 is another strong indication that the “solution” opted for Cyprus was made on a legal vacuum evidencing that politics are in nature superior to the law. Decisions made on a political level comprehended the law, in this instance Law 17(1)/2013 and the subsequent Decrees issued by the Central Bank merely as a mean for the fulfillment of specific political goals.

Whether the Supreme Court decided on the opposite it would step into a minefield dominated by the conflict of law and politics. The depositors still shocked, politics inevitably prevailed over the law reducing and damaging the autonomy of the rule of law long before the Court’ s judgment.

For further information on this topic please contact Dr. Pavlos Neofytou Kourtellos at P. N. KOURTELLOS & ASSOCIATES LLC, by telephone: +357 25 745575 or by fax: +357 25 755525 or by e-mail: pnk@kourtelaw.com.

Disclaimer

This publication has been prepared only as a general guide and for information purposes. It does not constitute or should not be read as a legal advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.