The substantive law governing interim injunctions and disclosure orders under Cyprus law is found in section 32 of the Courts of Justice Law 14/60, which provides the following. "32(1) Subject to any Rules of Court every Court, in the exercise of its civil jurisdiction, may, by order, grant an injunction (interlocutory, perpetual or mandatory) or appoint a receiver in all cases in which it appears to the Court just or convenient so to do, notwithstanding that no compensation or other relief is claimed or granted together therewith :
Provided that an interlocutory injunction shall not be granted unless the Court is satisfied that there is a serious question to be tried at the hearing, that there is a probability that the plaintiff is entitled to relief and that unless an interlocutory injunction is granted it shall be difficult or impossible to do complete justice at a later stage."
(2) Any interlocutory order made under subsection (1) may be made under such terms and conditions as the Court thinks just, and the Court may at any time, on reasonable cause shown discharge or vary any such order".
(3) If it appears to the Court that any interlocutory order made under subsection (1) was applied for on insufficient grounds, or if the plaintiff's action fails, or judgment is given against him by default or otherwise, and it appears to the Court that there was no probable ground for his bringing the action, the Court may, if it thinks fit, on the application of the defendant, order the plaintiff to pay to the defendant such amount as appears to the Court to be a reasonable compensation to the defendant for the expense and injury occasioned to him by the execution of the order.
Payment of compensation under this subsection shall be a bar to any action for damages in respect of anything done in pursuance of the order; and any such action, if begun, shall be stayed by the Court in such manner and on such terms as the Court thinks just."
There are various conditions which must be met under the law. First, there must exist a serious question to be tried: an arguable case based on the pleadings/affidavits and exhibits before the court. The court does not issue a final decision on the merits of the case, but such issues are to be decided at full trial. Findings will only be relevant as to the issues at stake (issuance, or not, of the interim injunction) and no final findings on the facts and the law are made.
Secondly, there must be a possibility that the plaintiff is entitled to relief. There must be something more than a good possibility of success without the need at this stage to prove the case on the balance of probabilities which is needed for the action itself to be successful. The test is based on the evidence submitted before the court and there should be a clear reference to such facts by the court.
Third, it should be difficult or impossible to do complete justice at a later stage, unless the interim order is issued. If the remedy of damages is not an adequate remedy, the interim order is issued.
Lastly, the issuance of an order must be fair and justified. Even if all the previous conditions are met, the court will apply this test, which is indicative of the discretionary nature of the remedy. Interim orders that intend to preserve the status quo or relate to the subject matter of the action are more likely to be approved or sustained.
Non-disclosure
Non-disclosure is the most common reason for revoking an interim order on return. It is directly related with the principle of good faith which applies whenever a remedy is sought in the absence of the other party (ex parte). All material facts and evidence that could enable the court to exercise its discretion or affect its judgment is material as determined by the court and not by the lawyers of the parties. Other important points to note are as follows:
- Materiality is always dependent on the nature of the actual dispute, while non-disclosure is fatal to the claim.
- The obligation does not cover counterclaim rights of the other side or of third parties.
- Non-disclosure covers also the cases of not presenting the facts in full or presenting them in a deceiving way, irrespective of intention; it also covers facts that the applicant is deemed to have learned with reasonable care. A mere conflict of affidavits as to the facts is not a non-disclosure.
- The applicant should assist the court to identify the material issues in the bulk of the evidence submitted taking into account the very strict time limits within which the court is to take decision.
Ex parte applications
Section 9 of the Civil Procedure Rules (Cap. 6) allows for an ex parte application. Unreasonable delay in applying is fatal for the issuance of the interim order. The section is as follows.
"9.(1) Any order which the Courts has power to make may, upon proof of urgency or other peculiar circumstances, be made on the application of any party to the action without notice to the other party.
(2) Before making any such order without notice the Court shall require the person applying for it to enter into a recognizance, with or without a surety or sureties as the Court thinks fit, as security for his being answerable in damages to the person against whom the order is sought.
(3) No such order made without notice shall remain in force for a longer period than is necessary for service or notice of it on all persons affected by it and enabling them to appear before the. Court and object to it; and every such order shall at the end of that period cease to be in force, unless the Court, upon hearing the parties or any of them, shall otherwise direct; and every such order shall be dealt with in the action as the Court thinks just.
(4) Nothing in this section shall be construed to affect or apply to the powers of the Court to issue writs of execution."
Other procedural issues
An interim injunction is normally issued on the same day on which it is presented before the court, provided the judge is satisfied as to the urgency of the matter. Affidavits may be filed in English, as may exhibits, without the need for translation. The affiant preferably must have personal knowledge in case of cross-examination.
An interim order is issued provided the undertaking as to damages imposed by the court is satisfied. Normally a simple guarantee is sufficient, but in some cases a bank guarantee will be required.
An interim injunction is fixed in seven to 10 days from issuance as "returnable". A final decision will be made in one to three months at the latest. Skeleton arguments are filed before the court and oral addresses are also allowed. Affidavits in reply may only be made with the leave of the court; cross-examination is allowed only on specific issues and, again, only with the leave of the court. Fourteen days is given for an appeal. An interested party may file an objection with the leave of the court.
Case study: Restraining orders in parallel to arbitration
The District Court of Nicosia in case number 339/09 issued a very interesting decision on international arbitration issues that could be useful to bear in mind as to remedies that could be claimed in Cyprus courts in parallel to arbitration proceedings.
The facts of the case were as follows. RBC, a Russian public company, through its holding Cyprus entity acquired a loan from Barclays in the amount of $40 million. Among the securities provided were guarantees by various entities including a Cyprus entity, Ad Net. Under a credit default swap arrangement the rights of Barclays were assigned to Commercial Bank of Moscow. The borrower failed to repay the loan on time and Commercial Bank of Moscow initiated proceedings with the London Court of International Arbitration.
At the same time Commercial Bank of Moscow filed two applications in the District Court of Nicosia, Cyprus, asking interim orders to be issued forbidding the Cyprus guarantors from disposing off their assets, which consisted of movable and immovable property situated outside Cyprus.
The court approved the application and issued the interim order without notice to the other side. The court refused another application for the issuance of an interim order, the sole purpose of which was not the preservation of a certain legal and factual status but for defendants to disclose information as to assets held abroad.
Upon an objection filed, the court affirmed the following:
(i) That it had jurisdiction to issue such interim order based on the International Commercial Arbitration Law of 1987 and the Council regulation (EC) No.44/2001;
(ii) Such interim order may be issued even before the initiation of the arbitration proceedings;
(iii) That it had jurisdiction to block the transfer of assets belonging to a Cyprus company even if such assets were situated abroad; and
(iv) That it is possible for a court in any other jurisdiction other than the one in which the arbitration is taking place to issue restraining orders, provided such restraining orders aim to assist and are taken in parallel with the arbitration and with the intent of preserving the status quo.
The interim order was finally revoked because of a technicality: non-disclosure by the applicants of material information which the judge decided that they should have had disclosed, such an obligation arising from the mere fact that the application was filed ex parte and without the parties affected being present.
The Bank failed to disclose the correct higher amount of the loan creating a false impression that the defendants showed no interest in repayment, and that a payment of $11 million before such amount was due was done under the impression by the defendants that there would be a three-year extension of the loan.
Chabra-type orders
In a very recent case the Supreme Court acknowledged the power of courts in Cyprus to issue what is known as Chabra-type orders: orders against a party against which there is no direct cause of action. The Supreme Court judge decided the following:
i) It has power to grant such a Mareva injunction against a co-defendant against whom no direct cause of action lies, provided that the claim for the injunction is ancillary and incidental to the plaintiff's cause of action against that co-defendant;
ii) Especially in the case in which appears that assets which beneficially belonged to an individual defendant were vested in a limited company of which he appeared to be the alter ego and against which no cause of action;
iii) The court's jurisdiction will only be exercised where there are grounds to believe that a co-defendant is in possession or control of assets to which the principal defendant is beneficially entitled;
iv) The jurisdiction is not limited to cases where such assets can be specifically identified in the hands of the co-defendant. Once the court is satisfied that there are such assets in the possession or control of the co-defendant, the jurisdiction exists to make a freezing order as ancillary and incidental to the claim against the principal defendant, although there is no direct cause of action against the co-defendant; and
v) The purpose of granting such an injunction against the co-defendant is to preserve the assets of the principal defendant so as to be available to meet a judgment against him.
Norwich Pharmacal relief
On the basis of a long line of English Court decisions on the subject, the Cyprus Courts have simultaneously imposed freezing orders and required respondents to disclose the value and location of their assets.
Furthermore, by applying equitable principles the courts in Cyprus may in certain circumstances grant an order for the discovery of documents or information against a third party who is not a party to the proceedings. This form of relief derives from the classical decision of the English House of Lords in Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133, p 175, where the following was pointed out:
a) A person involved in a tortuous act even though not in fault he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers.
b) justice requires that he should co-operate in fighting the wrong if he unwittingly facilitated its perpetration ... ...
The Cyprus courts are prepared to grant Norwich Pharmacal orders when the judge is satisfied that it would be reasonable to make order and that doing so will serve the interests of justice. The availability of such orders always depends upon the facts of each particular case. Their possible applicability is wide, ranging from simple disclosure to asset tracing, and can affect a wide variety of entities including banks, trustees, corporations and their servants.
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About the author
Stelios Americanos is the managing partner of the firm, in charge of the corporate and commercial department and heading a team of lawyers with specialisations in corporate law, M&A, tax, banking, finance and EU law. He specialises in company and commercial law, banking and finance and commercial litigation.
Americanos has extensive experience in the set up and completion of complex joint-ventures and cross-border structures through the use of Cyprus vehicles. In 2010 he represented a UK public-listed company before Cyprus courts obtaining freezing orders and acted before the Arbitration Court of Athens on behalf of a major public-listed Cyprus developing company against Sonae Sierra of Portugal over its claim for e40 million.
He also acts as Cypriot counsel for Nordea Bank regarding the financing of a $100 million shopping mall in Moscow for Abris Capital. His firm represents Immofinanz, the Austrian leading institutional real estate investor in Eastern Europe in all its banking finance projects, as well as ING, Amsterdam Trade Bank, Wold Business Capital, Transcredit and the majority of the Cyprus banking institutions.
He has contributed a number of articles on legal and tax issues in professional journals and has participated in conferences and seminars. He is a director of a number of private and public companies and a vice-president of the European Party, one of the parliamentary parties of the Republic of Cyprus. Recently, he was appointed for a second three-year term by the Council of Ministers of the Republic of Cyprus as a Member of the Board of Directors of CYTA, the country’s national telecommunication authority. |
Contact information
Stelios Americanos
Stelios Americanos & Co
48 Themistokli Dervi Ave.,
ATHIENITIS CENTENNIAL BUILDING
1ST floor, office 104
1066 Nicosia, Cyprus
Tel: +357 22465500
Fax: + 357 22338500
Email:info@americanoslaw.com
Web:www.americanoslaw.com |