The European Court of Justice concluded on Tuesday 20 September that that legal liability of the European institutions in the Cypriot bailout programme can theoretically be incurred within the framework of the damages claims on the part of European Union citizens.
This Court ruling on several joined cases (C-8-10/15P, C-105-109/15 P) and is not expected to call into question this kind of programme or make it significantly easier for individuals seeking damages. It potentially amends by the European judiciary the supervisory framework of macro-economic adjustment programmes put in place by the "Troika" (the Commission, ECB and IMF). Although the Cypriot case is very specific, the Court, for the first time, declared itself competent to verify whether EU law, including the provisions of the Charter of Fundamental Rights, were respected by the European institutions in the bailout programme.
Such an interpretation of the Court's competences was not exactly expected. The General Court concluded in decisions made in 2014, that it was unable to rule on such a programme because the European Stability Mechanism (ESM) through which financial assistance of €6.3 billion for Cyprus was provided between 2013-16 (see EUROPE 11522), is not a European institution. However, the General Court, only the liability of the ESM can be incurred because the Commission had not signed the memorandum of understanding that confirmed the restructuring of the two Cypriot banks (Laiki and Bank of Cyprus) and carried out the activities, together with the ECB, in the name of the ESM.
This interpretation of the role of the European institutions (and, therefore, the competences of the European Court of Justice) has just been overturned. On the substance of the cases involving Cyprus, the judges reached the same conclusion as the General Court. The European Court of Justice thus rejected all the appeals and applications for compensation essentially from Cypriot individuals who had deposits in the two restructured banks. It also rejected the appeals for the annulment against the declaration made by Eurogroup in March 2013, which set out the initial framework for the restructuring (see EUROPE 10814).
The most striking feature of the ruling is, then, in the Court’s acceptance of the claims for compensation as being admissible. The Court, contrary to the General Court and Advocate General Nils Wahl, argued that there was no impediment to turn to the European courts for damages from the Commission and the ECB because of their alleged illegal behaviour in the adoption of a memorandum of understanding on behalf of the ESM. The Commission is the most exposed because it is, in all cases, the guardian of the treaties. This effectively means that it is its duty not to sign a memorandum of understanding if there are doubts about its compatibility with Union law, stated the Court.
The so-called non-contractual liability of a Union institution can therefore be incurred in this context, even if this remains hypothetical. The reason for this is that fault is extremely difficult to demonstrate for a citizen because the same three conditions have to be met, namely: the unlawfulness of the conduct alleged against an institution, the fact of damage and the existence of a causal link between the conduct of the institution and the damage complained of. Fulfilling these three conditions is highly unlikely except where a European institution clearly committed a serious and manifest error intentionally.
In the case of the Cypriot bailout programme, the first condition, according to the Court, is missing, which explains the rejection of the compensation claims. The Commission believes that its action was taken in pursuit of the general interest and whilst attempting to ensure the stability of the banking system in the eurozone as a whole. The restructuring of the two Cypriot banks was not therefore in these circumstances a “disproportionate” or "intolerable" measure that damaged the very substance of property law affecting deposit holders. The use of the terms "disproportionate" and "intolerable" to describe a measure taken by a European institution that could be mistaken in the context of a financial bailout of the country in the eurozone further strengthens the view that it is difficult incur legal liability. (Original version in French by Jan Kordys)