Supreme Court Of Cyprus Decision On Administrative Recourses Concerning Bank Resolution Measures

Article 146 of the Constitution of the Republic of Cyprus gives the Supreme Constitutional Court (now the Supreme Court of Cyprus) exclusive jurisdiction to adjudicate on any complaint that a decision, act or omission of any organ, authority or person, exercising any executive or administrative authority is contrary to any of the provisions of the Constitution or of any law or is made in excess or in abuse of powers vested in such organ or authority or person.

Recourse to the court is available to any person whose existing legitimate interest (whether personal or as a member of a community, is adversely and directly affected by the decision, act or omission concerned. Application for recourse must be made within seventy-five days of the date when the decision or act was published or, if not published and in the case of an omission, when it came to the knowledge of the person making the recourse.

The Supreme Court may confirm the act or decision or declare it to be null and void. In the case of an omission, it may declare that whatever has been omitted should have been performed. The Supreme Court's decision is binding on all courts, organs or authorities and must be acted upon by those concerned. The Supreme Court's jurisdiction is limited to the review of the legality of the act. It cannot consider the merits of the decision and replace the decision made by the administrative body with its own decision, since this would violate the strict separation of powers prescribed by the Constitution, under which decision making in the field of administration rests entirely within the province of the executive branch of the government.

A number of applications were made to the Supreme Court for review of the decision made by the Central Bank of Cyprus in March 2013 to place Cyprus Popular Bank Public Company Limited and Bank of Cyprus Public Company Limited under the bank resolution regime, which led to substantial losses for customers of those banks holding deposits in excess of €100,000.

On 7 June 2013 the Supreme Court of Cyprus issued its judgment on these applications. It decided, by a majority of seven to two, to dismiss the recourses filed against the administrative decision on the ground that the creditor-debtor relationship between the depositor on the one hand and the bank on the other is governed by private law as opposed to public law. Accordingly the Supreme Court decided that the administrative decision falls within the exclusive jurisdiction of the relevant District Court and should be decided by the District Court under private law principles and not under administrative recourse or judicial review principles. The Supreme Court went on to direct that in applying the applicable private law principles the District Court should be required only to determine whether the loss suffered by each depositor as a result of the decrees issued by the Central Bank of Cyprus and the agreements that each bank entered into for selling its assets was greater than the loss the depositor would have suffered had the respective financial institution gone into liquidation.

Although not immediately favourable, the Supreme Court judgment could be construed as a positive development for depositors, as there is now no requirement to wait until the final hearing of all the legal recourses filed, which could take a year or more. Instead, any person affected by the resolution and restructuring of the banks may now proceed immediately with an action in the appropriate District Court. However, this may not be practical, due to difficlties in quantifying losses at this stage. 

The Supreme Court decision states that a civil law claim can be pursued not only against the respective financial institution but also against the Republic of Cyprus and any person or persons who acted negligently in any way in relation to such matters. The amount recoverable under such a civil law claim would be the difference, if any, between the actual loss suffered by the claimant and the loss that the claimant would have suffered had the institution concerned gone into liquidation. At this stage there are immense practical difficulties in quantifying this either of these amounts and in gathering evidence to substantiate the claim before the District Court. Bank of Cyprus depositors face an additional obstacle in quantifying their loss since they were partially compensated by being allotted shares equivalent to the amount used for the bail-in. No shares have yet been issued and it will be impossible to value any shares that are issued until trading in them begins.

The limitation period for civil law claims in respect of any book debt claim against a credit institution is six years, though different limitation periods may apply depending on the subject matter of the claim.

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