Financial tsunami looms as Limassol court decision sends shockwaves through Cyprus

In a potentially precedent-setting decision, the Limassol District Court has upheld its initial ruling in favor of a Russian depositor of the People's Bank, potentially exposing the state to financial implications of up to 2-3 billion euros. The court's decision, which awarded 780 thousand euros in compensation to the depositor of the former Laiki Bank, could have far-reaching consequences for Cyprus.

The verdict has sparked concerns about the state's financial burden if the Court of Appeal supports the District Court's decision. The fear is that this move could open the floodgates to billions in lawsuits from other depositors affected by the 2013 haircut, not only from Laiki Bank but potentially extending to Bank of Cyprus as well.

The Attorney General of the Republic of Cyprus is set to appeal the Limassol District Court's decision, emphasizing the significant financial repercussions the state could face if it honors the compensation awarded to the Russian depositor. The court's decision raises questions about the potential domino effect, with other depositors seeking similar compensation.

G.G. Panteli, the Director General of the Ministry of Finance, expressed confidence in the Republic's chances of vindication based on previous decisions of District Courts. However, the implications of the Limassol District Court's ruling, if upheld, would undoubtedly set a precedent with far-reaching consequences.

Adonis Papaconstantinou, President of SYKALA, commended the Limassol District Court for deviating from the Central Bank's narrative. He highlighted the court's scrutiny of the government and Central Bank's actions in mishandling the 2013 deposit haircut issues.

The court's written decision, dated November 8, 2023, detailed the negligence of the Central Bank in protecting the rights of depositors. It outlined the failure to explore European borrowing mechanisms in a timely manner and the lack of a backup plan, leading to the enactment of Law 17(I)/2013. The court held the Central Bank responsible for the loss of deposits, citing its negligence and gross negligence in handling the financial crisis.

The decision further asserted that the Central Bank's actions violated the claimant's right to property and failed to achieve a reasonable balance between conflicting interests. The Limassol District Court concluded that the Cypriot state's consolidation measures were justified under the circumstances, rejecting claims of unconstitutionality regarding Law 17(I)/2013.

As the Republic of Cyprus prepares to appeal this decision, the financial implications and the potential for a wave of lawsuits loom large, emphasizing the critical importance of the upcoming Court of Appeal ruling.