In judgements returned on Friday 13 July (cases T-680/13 and T-786/14), the judges of the General Court of the European Union found that the non-contractual liability of the European Union could not be invoked due to the reduction of the value of financial securities or deposits held by individuals or companies in the framework of the restructuring plan of the Cypriot banking sector.
In 2012, a number of Greek banks (including Cyprus Popular Bank (Laïki) and Trapeza Kyprou Dimosia Etaireia (BoC) experienced considerable financial difficulties, justifying the setting in place of a financial adjustment programme in the framework of the European Stability Mechanism (ESM) in 2013 (see EUROPE 10819).
At the time, there were individuals and companies that owned deposits and were compulsory shareholders or creditors of the two banks. Considering that the implementation of the measures set out in the Cypriot bailout plan had caused a devaluation of their securities or deposits, they brought an action before the General Court for non-contractual damages against the EU.
In its judgements, the General Court firstly recalls that an action for the EU’s non-contractual liability presupposes that all three of the following conditions are met: - the unlawfulness of the conduct complained of to the EU institutions; - the reality of the damage, and; - the existence of a causal link between the conduct of the institution and the harm invoked.
For the first condition to be met, a sufficiently serious infringement of the rule of law intended to confer rights on individuals must be established, according to the case-law of the Court.
In this case, the applicants are invoking violations of the right to property, the principle of legitimate expectations and the principle of equal treatment.
Right to property. The General Court firstly points out that the Court of Justice of the EU (CJEU) has already concluded that there was no breach of the right to property in similar cases, also concerning the restructuring of the Cypriot banking sector, on 20 September 2016 (see EUROPE 11628). It considers that the plaintiffs have provided no evidence that this case-law is not applicable in this case concerning the aspects that are similar.
The magistrates also found that the measures concerning the reduction of the nominal value of ordinary shares in BoC were proportionate and therefore do not constitute a disproportionate and intolerable interference which infringes the rights to property.
They further note that the sale of the Greek subsidiaries of BoC and Laïki are also not to be deemed a breach of this right, as it was appropriate to avoid any contagion between the Cypriot and Greek banking and financial systems and that the procedural rules were followed.
Legitimate trust. To allow an entity to rely on the principle of legitimate trust, the General Court also points out that precise, unconditional and consistent assurances from authorised and reliable sources must have been supplied by the competent authorities of the EU. Although the plaintiffs argue that these authorities did provide such assurances as to the non-application of the measures set out in the financial assistance plan for Cyprus, the Court found that none of the acts or conducts referred to are sufficient to invoke legitimate trust.
Equality of treatment. The plaintiffs also argue that the principle of equality of treatment was contravened, in that a difference was applied between owners of deposits with Laïki and its creditors, whose claims relate to a support measure granted by the Central Bank of Cyprus.
Observing that in the latter case, it was an entity of public law that intervened, unlike in the former, the judges reject the argument of violation of the principle of equality of treatment on the grounds that the two situations are not comparable.
The applicants also consider that they were discriminated against for several reasons, for instance concerning deposits of more than €100,000 that were not protected to the same degree as those below €100,000, or due to the lower level of financial support (€10 billion) awarded to Cyprus than that awarded to other states, such as Greece.
Finding that the situations in question are also not comparable, the General Court rejects the argument that the principle of equality of treatment was violated.
Finally, the individuals and companies invoke discrimination on the basis of nationality, as the holders of deposits with Greek branches did not receive the same treatment as holders of deposits in the Cypriot parent banks.
Although it acknowledges a difference of treatment on this point, it considers that it is justified, objective and reasonable for the purposes of avoiding any contagion between the banking systems of the two countries.
As it was hence not possible to establish the illegality of the conduct of an EU institution, the General Court rejected all of the applications for compensation in relation to the EU’s non-contractual liability. (Original version in French by Lucas Tripoteau)