Cyprus Court Orders: Freezing, Discovery and Search Orders
Interim injunctions in Cyprus- in simple words an interim injunction is the temporary order given by a court of law which tells someone either to do or not do something until an official decision on the case can be made.
As in plentiful developed places of the world, so in Cyprus, the need of issuing various types of court injunctions as a form of protective measures has been long introduced and broadly used.
Over the last decade however, 21st century’s transactions and the rapid development in the way people do business as well as the increased number of Cyprus holding companies in multinational complex company structures, mainly due to reasons of taxation, has led to an increase in the granting of injunctions by the Courts of Cyprus, in situations whereby (i) either the Respondents, against whom the injunction is addressed, are subject to the in personam jurisdiction of the Cyprus Courts or (ii) the assets of the Respondents requested to be frozen, are in Cyprus, hence within the jurisdiction of the Cyprus Courts.
What types of interim injunctions are there?
There are many different types of injunctions and essentially the wording of orders requested is tailor-made to the particular facts and needs of each case, decided judiciously on a subjective basis. Consequently, there can be no standard list of types of interim orders.
Two main and common types of orders are the prohibitory and the mandatory injunction. A prohibitory injunction is an order to refrain from doing specific acts whereas a mandatory order compels a party to do a specific act within a specific timeframe. For instance, the Court can issue an order directing the shareholders of a Cyprus company to refrain from convening a shareholder’s meeting and passing a resolution over a certain matter or it may issue an order prohibiting the Respondents from taking any measures or steps for the implementation of a certain resolution already passed. Another example could be a court order ordering a person to refrain from using a trademark that infringes the plaintiff’s rights of ownership of such trademark.
Freezing injunctions have proven to be most prevalent, widely-used for the protection of assets and are largely-known as ‘Mareva’ injunctions due to the leading case of the Court of Appeal called Mareva Compania Naviera SA v International Bulk Carrier SA. The purpose of a Mareva is to ensure that a judgment/award will be satisfied and effectively enforced. One of the first cases which confirmed the use of freezing injunctions in Cyprus was the Supreme Court’s case of Nemitsas Industries Ltd v S&S Maritime Lines Ltd and others.
The so-called “Chabra orders” are used where there are grounds to believe that a co-defendant is in a possession or control, of assets to which the principal defendant is beneficially entitled.
Search orders are a form of interim injunctive relief, originally known as “Anton Piller orders”. The name derives from the English case of Anton Piller KG v Manufacturing Processes Ltd. It is the classic example of a without-notice application due to the fact that notice given to the Respondent would negate the whole purpose and go against the nature of such orders that ultimately seek to preserve evidence that relates to the proceedings in issue. The idea is that if and once notice is given to the Respondent, evidence may be destroyed.
A Norwich Pharmacal order is a procedure aiming in assisting the plaintiffs to either secure information or documents in order to decide whether they will instigate legal proceedings and/or to discover the identity of the wrongdoer(s), either in Cyprus or in other jurisdictions, prior to instigating such proceedings through a party who facilitated the wrongdoing. The principle was laid down by Lord Reid in the case of Norwich Pharmacal Co. & Others v Customs and Excise Commissioners:
The conditions for a Norwich Pharmacal order to be granted were laid down in the English case of Mitsui & Co Ltd v Nexen Petroleum UK Ltd and they read as follows:
i) A wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer;
ii) There must be the need for an order to enable action to be brought against the ultimate wrongdoer; and
iii) The person against whom the order is sought must: (a) be mixed up in so as to have facilitated the wrongdoing; and (b) be able or likely to be able to provide the information necessary to enable the ultimate wrongdoer to be sued.
An anti-suit injunction is another type of injunction that prevents an opposing party from commencing or continuing a proceeding in another jurisdiction or forum.
A quia timet injunction is an order to prevent an apprehended legal wrong, where none has been committed at the date of the application.
What conditions, other than the balance of convenience being in favour of the applicant, must be met?
As the Supreme Court clarified in the leading case of Odysseos Andreas v A Pieris Estates Ltd and Another, “the justice and convenience of the case is not the sole consideration to which the Court should pay heed in the case of an interlocutory injunction, and no such injunction should be granted, unless the following conditions are satisfied:-
(1) A serious question arises to be tried at the hearing.
(2) There appears to be "a probability" that plaintiff is entitled to relief and, lastly,
(3) Unless it shall be difficult or impossible to do complete justice at a later stage without granting an interlocutory injunction”.
Can the Cyprus courts issue orders with world-wide effect?
The answer is in the affirmative; in the key 2007 case of Seamark Consultancy Services Limited v Joseph P. Lasala & Others, the following was said:
It is apparent that by virtue of Section 32 of Law 14/60 which grants the Courts, whilst exercising their civil jurisdictions, wide powers to grant interim orders and based on what has been stated in the case of Kitalides (above) regarding the reconstruction of the frame of courts’ and so that interim orders so granted can be effective until the final determination of the dispute but also having regard to all that has been noted generally, in relation to modern changes in the ways people make their transactions, the court at first instance was provided with a basis upon which to grant interim orders, pursuant to which the assets of the appellants outside of the jurisdiction were frozen.
With the range under Section 32 of Law 14/60, as interpreted in the case of Kitalides (above), it is held that there was no estoppel whatsoever for the Court of First Instance to extend the Mareva type injunction issued to assets outside of the jurisdiction. We note that in Section 32 there is no restriction whatsoever, apart from the three preconditions …….”
It should be noted that the power of the Cyprus courts is not limited to Mareva injunctions but where deemed fair and necessary, Cyprus courts may proceed to issue interim mandatory injunctions directing a specific performance or even may go as far as appointing a receiver.
What can form the subject matter of an injunction?
Assets to be blocked can be movables in Cyprus and if necessary outside of Cyprus, (i.e. cash deposits, funds, shares, goods etc.) as well as immovable property in Cyprus.
What is the procedure for applying for interim injunctions?
A plaintiff has two options when applying for an interim order or injunction:
i. To apply in the absence of the other party and therefore not notify the Respondent (ex-parte); or
ii. To notify the other party (by summons).
What is an Ex-parte (Without-Notice) application?
An ex-parte application, as the name suggests, is one filed and presented in Court without the other party’s presence. Such opponent party is not notified merely because notification served upon him of the intended proceedings and the sought order would quash the whole purpose of the exercise.
To succeed on an ex-parte application, the element of ‘urgency’ as well as the ongoing ‘duty of full and frank disclosure’ must be satisfied.
What happens in the event that the applicant fails to prove the condition of “urgency”?
Any failure to satisfy the aforesaid condition will result in the failure to obtain the order ex-parte and the judge will order for the application to be served so that the other side is heard on the matter before adjudicating accordingly. At this point in time, the initial ex-parte application transforms automatically into a by-summons one.
What happens when during the hearing of the order following its service on the respondent, it transpires that the duty of full and frank disclosure has been breached?
In the event that the Court finds that there has been a material non-disclosure of information, which had the Court been apprised with, it would have reached a different result and would in fact not have issued the order ex-parte, the court may then discharge the injunction.
It should be however noted that the court may well make the order final or grant a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the hidden facts been disclosed.
Are there any undertakings of the applicant for the issue of an injunction?
For the Court to grant an injunction the applicant will be simultaneously ordered to file a security into Court and such security is a pre-condition to the granting of the order. Such security is necessary in order to cover for all potential loss to be caused to the respondent in the even that such order was groundlessly and wrongly obtained. Of course, for the respondent to be able to claim funds on the basis of that security, he need not only show that the injunction was obtained without reasonable cause or mala fides but must also prove loss which resulted directly from the issue and/or existence of such injunction.
The amount and form of such security rests upon the discretion of the Judge and is based on the given facts of each case; it can take the form of letters of bank guarantees issued by Cyprus banks, personal guarantees or cash deposits, all of which are filed with the Registrar of Court.
The respondent has the right to apply for the increase of such security amount, on the condition that he satisfies the Court that such increase is indispensable on the basis of supporting evidence.
What is the procedure following the issue of an injunction?
After the issuance of any injunction obtained ex-parte, the order is fixed as ‘returnable’ within a few days and the injunction/order together with the application filed, its accompanying affidavit and exhibits must in the meantime all be served on the respondent, who, chances are, will appear before Court on the return date fixed by the Judge at the initial hearing of the ex-parte application and ask for time to file his opposition to the granting of such an Order.
What is the practical effect of the order?
The order is addressed to the defendant but it also binds third parties with knowledge of it. A person with knowledge of the order who assists in the disposal of enjoined assets is therefore in contempt of court. If an order is made against a bank account, i.e. in the event of a Mareva injunction, it operates to freeze the account up to the amount of the order as soon as the bank has notice of the grant of the order. Technically, the bank does not owe a duty of care in tort to the claimant not to pay the money out to the defendant. However, the bank, despite not being a party to the procedure, would be in contempt of court if it honoured cheques drawn on the account after being notified of the terms of the order. The order should thus be served on the bank and then on the defendant.
Interim Injunctions - Post Judgment
Freezing injunctions can continue to be in force even post-judgment in aid of execution as the Cypriot case Linmare Shipping v Boustani has proven.
In the UK, discovery, freezing and receivership injunctions have been issued post-judgment, irrespective of whether such injunctions have been issued prior to judgment and it is most probable therefore that the Cypriot Courts, if such issue arose, would follow the same position.
What are the consequences of a breach of an injunction?
A breach of an injunction constitutes a contempt of Court, punishable by either penalty or imprisonment or both.