Sponsored briefing: Cypriot courts hear major international civil fraud cases: here is why

SCORDIS, PAPAPETROU & Co LLC examines the key elements of civil fraud proceedings in Cyprus

Introduction

The development of Cyprus as an international business centre has also led to it becoming a serious hub for international dispute resolution, involving, more often than not, international white-collar crime cases instigated by private individuals, companies and governmental bodies alike. The accession of Cyprus to the EU has also contributed to the number of civil fraud cases coming before the Cypriot courts, especially when coupled with the fact that Cyprus is a common law jurisdiction and most of the leading litigators are UK educated and qualified lawyers with support teams of analogous education and background.

This article will examine the key elements in bringing proceedings in Cyprus in respect of civil fraud. These include the application of the EU rules on international jurisdiction and the recognition and enforcement of judgments, the wide powers of the Cypriot courts to grant effective interim relief both in cases where substantive proceedings are brought in Cyprus and in cases where such proceedings are brought in the courts of other EU member states. It also includes the willingness of the Cypriot courts to exercise these powers in order to facilitate the identification of wrongdoers, enable the preservation or evidence and the disclosure of information and documents relating to the fraud, ensure the preservation of assets for the purposes of execution and facilitate the tracing of misappropriated funds. While there is always scope for improvement of the justice system (such as by the wider implementation of e-justice, reducing backlogs and increasing the number of specialised courts), experience has shown that the Cypriot courts are a solid and successful option for international common law dispute resolution and especially international civil fraud cases.

Jurisdiction

Cyprus being an EU member state, the rules governing the international jurisdiction of the Cypriot courts primarily consist of the rules set out in the Recast Brussels I Regulation¹, which apply with respect to defendants domiciled in Cyprus or in another EU member state, the rules set out in the Lugano Convention², which apply with respect to defendants domiciled in Switzerland, Norway and Iceland, and the national rules of jurisdiction which apply with respect to defendants domiciled in other countries. These rules enable substantive civil fraud proceedings to be brought in Cyprus in a wide variety of situations, such as where the defendants or any one of them is domiciled in Cyprus or where a significant part of the wrongful acts giving rise to liability occurred in Cyprus. It should be noted that:

• Where the provisions of the Recast Brussels I Regulation apply, the defendant’s domicile in Cyprus is, generally, a sufficient basis for jurisdiction notwithstanding the facts of the case have little or no connection with Cyprus³;
• In cases involving multiple defendants, the fact that one of the defendants is domiciled in Cyprus may permit the Cypriot courts to assume jurisdiction over other co-defendants not domiciled in Cyprus if the claims against such co-defendants arise from the same or similar facts or are otherwise sufficiently connected with the claims against the ‘anchor defendant’.

Interim relief modelled after UK practice

Section 32(1) of the Courts of Justice Law of Cyprus⁴, Law No. 14/60, provides that every court in the exercise of its civil jurisdiction may grant an interlocutory, perpetual or mandatory injunction or appoint a receiver ‘in all cases in which it appears to the court to be just and convenient to do so’.

Section 32(1) of the Courts of Justice Law is based on the predecessor of section 37(1) of the UK Senior Courts Act 1981. Given its historical origins, in exercising their power to grant interim relief, the Cypriot courts have consistently looked into the case law of the English courts. As a result, Cypriot case law on interim relief has developed and continues to develop along the same lines as the case law of the English courts, as was noted by the Supreme Court of Cyprus in a landmark judgment in the case of Seamark Consultancy Services Limited v Lasala⁵. This case was:

• The first time a Cypriot granted a worldwide freezing order and ancillary orders for the disclosure of assets in support of a civil fraud claim;
• Used by the Supreme Court to encourage the lower courts to follow the developing English case law and make use of the very wide powers given to them by section 32 of the Courts of Justice Law so as to grant effective interim relief, bearing in mind the constant and rapid changes in the ways in which assets are held and transactions are carried out in a global environment as well as the fact that, in today’s world, fraud knows no borders.

Types of court orders

Over the last 15 years the Cypriot courts have granted a wide range of interim orders in support of both domestic and foreign civil fraud proceedings, including, among others:

• Worldwide freezing orders;
• Ancillary orders for the disclosure of assets (including assets located outside Cyprus;
• Pre-action disclosure orders ordering the disclosure of information and documents held by banks, providers of administrative services in respect of companies and other parties for the purpose of enabling the applicant to identify wrongdoers involved in the fraud or obtain vital information concerning the wrongdoing;
• Disclosure orders ordering the disclosure of bank statements and other information for the purpose of enabling the applicant to trace misappropriated funds and/or identify assets acquired with misappropriated funds;
• ‘Chabra orders’ freezing assets held or controlled by third parties as trustees, agents or otherwise for or on behalf of the defendants and/or assets which could otherwise become available to satisfy a judgment against the defendants; and
• Search orders (known as ‘Anton Piller orders’) ordering persons who were in control of premises situated in Cyprus to permit an independent ‘supervising advocate’ and the applicant’s representatives to enter such premises for the purpose of searching them and obtaining and removing documents and information relating to the fraud or to the tracing of misappropriated funds which would otherwise be at risk of destruction.

The granting of such orders is, of course, always at the discretion of the court which must be satisfied, on the basis of detailed evidence on affidavit, that the conditions for the granting of such orders (the general conditions for the granting of interim relief and the special additional conditions which are required to be satisfied in each case depending on the type of order sought) are met.

Power to grant interim relief in support of foreign proceedings

The Cypriot courts have the power to grant the types of interim relief described above both in support of substantive civil fraud proceedings brought in Cyprus and in support of substantive proceedings pending before the courts of other EU member states. The power of the Cypriot courts to grant interim relief in support of substantive proceedings pending before the courts of other EU member states derives from Article 35 of the Recast Brussels I Regulation, which provides that application may be made to the courts of a member state for such provisions, including protective measures as may be available under the law of that member state, even if the courts of another member state have jurisdiction as to the substance of the matter.

As per the case law of the Court of Justice of the European Union⁶, in order for a Cypriot court to exercise its power to grant interim relief in support of proceedings pending before the courts of another EU member state, there must be a ‘real connecting link’ between the subject-matter of the interim relief sought and Cyprus. This condition has been interpreted as meaning that a Cypriot court may only grant interim relief in support of proceedings pending before the courts of another EU member state if (a) the defendant against whom interim relief is sought is domiciled in Cyprus; and/or (b) the assets in respect of which interim relief is sought are situated in or held through legal entities incorporated in Cyprus.

An illustrative example: JSC BTA Bank v Ablyazov

The well-known and long-running international case of JSC BTA Bank of Kazakhstan v Ablyazov⁷ is a case which illustrates both the wide range of tools that are available in the quest to recover assets in cases of white-collar crime in Cyprus and how putting them to good use can lead to tangible and significant relief, benefits and results.

The Cypriot courts granted a series of orders which were instrumental and significantly assisted the claimant bank in achieving a successful outcome and recovering assets.

In the case in question, which concerned a series of proceedings brought by the claimant bank in a number of jurisdictions against members of its former owner, management and persons associated with them in connection with the recovery of fraudulently misappropriated funds exceeding US$4bn, the Cypriot courts granted a series of orders which were instrumental and significantly assisted the claimant bank in achieving a successful outcome and recovering assets. These orders included:

• Worldwide ‘Chabra orders’ freezing the assets of over 600 companies believed to be ultimately owned and controlled, through various nominees, by the bank’s former owner and used by him in order to conceal his wrongdoing and put misappropriated assets beyond the bank’s reach;
• Search orders directed against two Cypriot providers of administrative services and a Cypriot company which resulted in the bank obtaining crucial evidence in respect of a wide-ranging fraudulent scheme as well as evidence which led to the bank’s former owner being found guilty of contempt by the English High Court;
• Recognition orders, in relation to an order of the English High Court appointing interim receivers over the assets of the bank’s former owner which resulted in the receivers assuming control of a large number of Cypriot companies believed to be ultimately owned and controlled by the bank’s former owner and their assets;
• Disclosure orders against the administrator of a bank formerly operating in Cyprus which resulted in obtaining significant information with respect to transfers of misappropriated banks made using accounts maintained
  with the bank.
• Injunctions prohibiting a Cypriot company and its directors from invoking or relying on a forged ‘Factoring Agreement’ purportedly entered between the bank and the Cypriot company in question which resulted in the Cypriot company admitting that the purported ‘Factoring Agreement’ was illegal and void.
• Intervention orders granting permission to the bank’s lawyers to intervene in Cypriot court proceedings in which the bank was not a party in order to protect the bank’s interests and prevent the granting of relief affecting the bank’s rights.
• Imprisonment for contempt where a key person in the operations of the main defendant (Mr Ablyazov) actively sought to evade the orders of the court.

The effects of Brexit

Cyprus combines a common law system with many of the advantages of England as a jurisdiction with the added advantage of ensured enforceability of Cypriot orders and judgments, not just in all other EU member states but also in many non-EU countries with which Cyprus has bilateral agreements, including Russia and Ukraine. Brexit, and the absence of provisions in the UK’s and EU’s Trade and Cooperation Agreement of 30 December 2020 regarding jurisdiction and the enforcement of judgments, means there are few options for putting a claim before a common law court, seek the remedies and processes that a common law system makes available and enjoy the benefits of EU-wide automatic recognition and enforcement. This is expected to lead to an increase in the number of international civil fraud cases coming before Cypriot courts.

Conclusion

All the above combine to make Cyprus a suitable and attractive jurisdiction for civil fraud litigation, well placed to host and handle a bigger number of major international cases successfully. With significant reforms and innovations currently being introduced in order to ensure that cases are dealt with expeditiously as well as fairly, the Cypriot courts and Cypriot litigators will be better-equipped to rise to the challenge.

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1. Regulation (EU) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters
2. Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters signed in Lugano on 30 October 2007
3. See Owusu v Jackson (Case C-281/02) [2005] ECR I-1383
4. Law No. 14/1960 as amended
5. (2007) 1 (A) Α.Α.Δ. 162
6. See Van Uden Maritime BV t/a Van Uden Africa Line v Kommanditgesellschaft in Firma Deco-Line, C-391/95
7. SCORDIS, PAPAPETROU & Co LLC acted as local counsel for the claimant

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