Free standing orders in Cyprus
“Free standing” or “Stand-alone” injunctions in Cyprus: Do they exist? A lacuna in law in an offshore financial jurisdiction
With the increased use of Cyprus companies by foreigners as offshore holding companies in a corporate group structure, one question we are increasingly being asked to advise on is whether it is possible to obtain interim freezing injunctions in aid of foreign court proceedings without first having to instigate substantive proceedings in Cyprus. Unfortunately, the answer to this question is not a clear cut yes or no unlike in other common law jurisdictions; In fact Cyprus Courts have jurisdiction to issue the so called “stand-alone” or “free standing” injunctions only in aid of Court proceedings pending before Courts of Member States of the European Union pursuant to Regulation No 1215/2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters or in aid of international commercial arbitration cases by the use of Section 9 of the Cyprus International Commercial Arbitration Law of 1987, Law No. 101/1987. These orders, as the name suggests, “stand-alone” in the sense that an injunction can be issued where no other substantive relief is sought within the jurisdiction. So far the Cyprus Courts have been reluctant in granting this type of orders due to the lack of the necessary legal framework providing for such jurisdictional power.
In other words, and in answer to the aforesaid central question, Cyprus Courts do not have jurisdiction to issue stand-alone injunctions in aid of foreign proceedings and they limit themselves only to cases which fall within the ambit of the provisions of the aforesaid legal framework contrarily to other common law jurisdictions which follow the approach adopted by the English Courts in relation to orders of this kind.
A landmark case whereby this revolutionary approach was adopted in another common law jurisdiction like Cyprus is that of the BVI Courts in Black Swan Investment ISA v Harvest View Limited (BVI HCV (Com) 2009/399) where the Court, in the absence of local legislation equivalent to section 25 of the UK Civil Jurisdiction and Judgments Act 1982, found that the BVI Courts should be ready to grant stand-alone injunctions, freezing the assets of legal persons over which they had in personam jurisdiction, in order to assist foreign litigants to enforce monetary judgments that they might ultimately obtain in foreign proceedings.
The time has developed for Cyprus Courts to adopt a less conservative approach in order to meet the needs that have to be satisfied in every offshore financial jurisdiction such as Cyprus. This need was strongly suggested in the Black Swan case and the following considerations should be wisely taken into account by the Cyprus Courts:
“ ..., there are sound policy reasons why important offshore financial centers, such as Jersey and the BVI, should be in a position to grant such orders in aid where necessary. The business of companies registered within such jurisdictions is invariably transacted abroad and disputes between parties who own them and others are often resolved aboard. It seems to me that when a party to such a dispute, is seeking a money judgment against someone with assets within this jurisdiction, it would be highly detrimental to its reputation, if potential foreign judgment creditors were to be told that they could not, if successful, have resort to such assets, unless they were to commence substantive proceedings here, in circumstances where, in all probability, they would be unable to obtain permission to serve them abroad - thus presenting them with an effective brick wall or double bind of the sort so deplored by Lord Nicholls in Mercedes Benz ...”
It seems that now is the time for a reform in the Cyprus legal system, especially in the rapidly growing commercial sector, in order to incorporate this helpful tool in our jurisdiction as an ancillary remedy to proceedings where an applicant/claimant has instigated or intends to instigate proceedings in a foreign jurisdiction.
However, as we lawyers like to say, each case should be considered on its own particular facts and merits therefore the content of this article is of no general applicability and professional advice should be sought based on your specific facts of the claim.