In a ground-breaking legal development, a recent court judgment issued by the Limassol District Court in Cyprus may have far-reaching implications for aggrieved depositors and creditors of Cyprus Popular Bank, widely known as Laiki Bank. The ruling, while subject to an ongoing appeal process by both the Central Bank and the Republic of Cyprus, marks a pivotal moment at the crossroads of finance, government responsibility, and depositor rights. The case centres around a foreign depositor who suffered significant losses during the 2013 Laiki Bank ‘haircut’ and was awarded, at first instance, a substantial compensation of €780,832 by the Cypriot Centrsl Bank and state.
The judgment, which has triggered significant interest locally and abroad, asserts that the depositors’ losses resulted from negligent acts committed by the Republic of Cyprus and gross negligence exhibited by the Central Bank of Cyprus. The plaintiff’s victory is the first of its kind in a lawsuit filed against Laiki Bank, its administrator, the Central Bank of Cyprus (CBC), and the government itself. Notably, all prior legal actions initiated by depositors following the 2013 crisis had failed.
Several key extracts from the judgment shed light on the court’s rationale and findings:
- Negligent Government Handling: The court emphasized that the financial crisis of 2009 in Cyprus was mismanaged by the government, which bears the primary responsibility for planning, developing, and safeguarding the nation’s economy. The judgment criticized the government’s failure to turn to European mechanisms for a timely loan and its subsequent pursuit of a loan without a clear understanding of the bank’s needs, which were ultimately greater than the state’s resources.
- CBC’s Oversight Failures: The Central Bank of Cyprus, tasked with overseeing the financial system and ensuring the proper functioning of banks, was found negligent for allowing the banking sector to expand without adequate control or depositor protection. The judgment noted that the CBC did not take measures to address liquidity issues, despite acknowledging such problems since 2010. Moreover, it highlighted the CBC’s lack of independence and failure to evaluate the government’s shortcomings.
- Former President’s Influence: The court underscored the role played by former President Nicos Anastasiades, who assured depositors that there would be no haircut on their savings. These assurances, the judgment argued, led the plaintiff to keep their savings in the bank, ultimately resulting in significant financial losses.
The court’s final decision can be summarized as follows:
“In view of all the above, subtracting from the amount of the deposits, i.e., €1.629.556,81, the amount of €748.723,91 and €100.000,00, the amount of €780.832,90 remains. This is the total financial damage and loss of the plaintiff on the date of completion of his legal action and in the usual course of the proceedings.
Further to all the above, judgment is issued in favor of the Plaintiff and against Defendants 2 and 3 (NB the Central Bank of Cyprus and the Republic of Cyprus) for the amount €780,832,90 plus legal interest until full repayment.”
This landmark judgment has far-reaching implications for Laiki Bank depositors and creditors and, pending appeal, has thrusted Cyprus into new, potentially troublesome, territory. The court’s ruling, which attributes financial losses to government negligence and the Central Bank’s failure to act independently and protect depositors’ interests, has the potential to reshape the landscape for depositors seeking damages for negligence and breach of statutory duty.
While the appeals are pending, the implications of this judgement are profound and if the appeals lodged by the Central Bank and the Republic of Cyprus prove unsuccessful, this could pave the way for a multitude of legal actions by a significant number of depositors seeking to recover their deposits in full. The outcome of this appeal will set a critical precedent that may impact how similar cases are disposed of in the future.
Disclaimer: This article is intended for informational purposes only and does not constitute legal advice. Consultation with legal professionals is recommended for specific legal matters.