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Judicial Review against the haircut on Laiki’s and BoC’s Depositors

The judicial proceedings against the haircut on Laiki and Bank of Cyprus’ depositors are ongoing. The objective of the applications filed for judicial review is to annul the governmental decrees by which deposits in excess of €100.000 in Laiki and BoC were subjected to massive reductions. There have been six consecutive sittings at the Supreme Court. The hearings for the preliminary objections had been completed on Tuesday, 14 of May and the Court has reserved its decision on the issue.

Preliminary Objections

The Republic’s defense stated to the Court that the verdict of the Central Bank according to which the tax on deposits was imposed, was a Governmental Act. The government based its case on the claim that the measures taken are direct or indirect consequences of a political decision amounting to an international agreement between the Republic of Cyprus and the Euro Group, and as such cannot be invalidated or subject to review before the Supreme Court.

In addition, the Republic asserted that the verdict is an assessment of an administrative authority which has a regulatory and not an executive nature, and therefore cannot be contested before the Supreme Court. They suggested that if any rights of the depositors are influenced by it, then the suitable venue is the District Courts of Cyprus.

The petitioners’ side stated to the Court that there are no precedents to this effect, as whenever an administration authority is deciding on verdicts affecting contractual human rights; such decisions are always subjected to review before the Supreme Court. With regard to the international agreement issue, they stressed that there was not an agreement, but only a commitment of the Republic to the Euro Group, which is not a formal instrument of the European Union and thus incompetent of entering into any type of agreement.

The lawyers also asserted that a Governmental Act is confined to decisions that affect fields of foreign policy, such as war, and not decisions breaching private property rights. Moreover, they stressed that the European Council’s Crisis Management Directive clearly allows the judicial review of such decrees.

Petitioners’ Main Arguments

The petitioners’ main arguments are based on the allegation that the specific decree violates Articles 6, 23, 26 and 28 of the Constitution. They support that it breaches Article 6 and 28 which pertain to the doctrines of equality and fair treatment, because as the purpose of the decision is to safeguard the financial system of Cyprus as a whole, as such it should have been affecting all deposit holders of all banking institutions in Cyprus and their branches abroad. This was not applied in that case, as the haircut affected only Laiki and BoC, and only the depositors of these banks in the Republic of Cyprus.

The decree also violates Article 23 which refers to the protection of the rights of private property which covers any kind of property. The Article clearly states that withholding once property may only be done in cash and with just and immediate compensation. Moreover, the decree breaches Article 26 which stipulates the right to enter into a contract, as the depositors had a private agreement with the banking institution and a third party, which the Government terminated unilaterally.

Invoke the Law of Necessity

As its final defense tactic, the Republic calls upon the law of necessity, as it was developed by the Cypriot case-law. There is a series of Court verdicts that upholds such doctrine. Decrees based on the law of necessity were issued considering the circumstances that existed in the island after the Turkish invasion in 1974. In order to be applicable, the specific law provides that there must be:

  • an urgent and unavoidable necessity or extraordinary conditions
  • no other solution to employ
  • the measure taken must be in proportion to the necessity
  • it must be of a provisional nature limited to the duration of the extraordinary conditions

In our case, the verdict of tax on deposits does not imply or refer to any condition of emergency and definitely does not raise the law of necessity. To the contrary, it was set based on a legislation that explicitly lays down that property rights should be shielded according to the Cypriot Constitution. In addition, all the precedents with regard to the applicability of the law of necessity were related to legislative measures taken and approved as such by the House of Representatives and not by an executive authority.

Claim your right to be compensated

Michael Chambers & Co. is accepting instructions by deposit holders for filing judicial review applications. The applications can be submitted within 75 days from the date of publication of the verdict. Please contact our litigation team to give you instructions on how to proceed and provide you with information regarding all documentation needed in order to file the application in a timely manner.