Category: Knowledge

Even though the Securities Financing Transaction Regulation (EU) 2015/2365 (“SFTR”) has been adopted by the European Parliament and the Council in November 2015 and came into force on 12 January 2016, reporting obligations start one year after the formal adoption of the reporting rules by the Commission; they are therefore expected to go live in Q2 of 2020. SFTR catches within its ambit, banks, brokers, insurance companies, pension funds, other financing companies and non-financial companies, managers of AIFMs, UCITS and management companies of UCITS. SFTR aims to expand transparency on the collateralised transactions given the concerns arising out of the use of a collateral for multiple times as part of a chain of transactions for liquidity purposes and reduction of funding costs. It targets to the use of repos, securities or commodities lending and securities or commodities borrowing, a buy – sell / sell – buy back transactions and margin lending transactions (“SFTs”). 

Transparency for reuse is achieved through the reporting obligations imposed on the entities covered by the SFTR to the trade repository. In accordance with Article 15 of the SFTR reuse should take place with the express knowledge and consent of the providing counterparty. In accordance with the Commission’s Q&A back in 2015 the reporting of SFTs will in practice be based on the existing reporting framework for derivative contracts established by the European Market Infrastructure Regulation (EMIR) and will work in a similar way i.e. a counterparty to a SFT will have to report the details of this transaction to a trade repository. The Regulation allows the delegation of the obligation to a third party. A financial counterparty concluding an SFT with a non – financial counterparty shall be responsible to report on behalf of both parties, an AIFM is responsible to report on behalf of an AIF (where the AIF is the counterparty), the management company of a UCIT must report on behalf of a UCIT (where the UCIT is a counterparty). EU branches of non – EU entities are subject to SFTR reporting. Counterparties must in general keep records of any SFT for at least five (5) years following the termination of the transaction. Main information to be reported include the parties to the SFT, the beneficiary of the rights and obligations arising therefrom, the principal amount, type, quality and value of the assets used as collateral and other details specified in the SFTR.

ESMA published a consultation paper relating to its guidelines for reporting under Articles 4 and 12 of the SFTR and invited an open hearing on the same on 15 July 2019.  ESMA will consider the feedback it receives and expects to publish a final report on the Guidelines on Reporting under SFTR in Q4 2019.

While SFTR reporting obligations are just around the corner (starting in 2020), EU firms are still getting used to the reporting responsibilities imposed by EMIR and MiFiD II. The reporting frameworks set by EMIR and MiFiD II do not appear to overlap with the SFTR. However, the process of collecting, extracting and eventually reporting the data may appear to be costly, complex and far reaching.

This is the last article of a series of articles relating to interim orders in Cyprus.

Part B | Part A

How long does it take for an interim order to be tried?

Clients often ask the logical question of how long will it take for final judgment on an application for an interim order. The answer harks back to the old English adage of “how long is a piece of string?”. There is no fixed timeline for trying an application for an interim order. Some finish within two months, others can take even years.

The time it takes for the date of filing to the date of final judgment by the Court is influenced by a multitude of factors. Some of these factors are:

• Whether one is serving within or out of the jurisdiction of the Court.
• Whether service can be effected speedily and with ease or not.
• Whether other interim applications will occur within the main application of the interim order (such applications may be for the cross examination of affiants, for supplementary affidavits to be filed, for contempt of Court in relation to the ex parte issued interim order, for amending the terms of the interim order etc.)
• The Court’s own schedule
• Time required for preparation by either side.
• Delaying tactics by either side

What is the actual legal procedure for trying an interim order?

Step 1: As interim order applications cannot be filed on their own in Cyprus, a main legal proceeding, either in the form of an action or a general application, must be filed. In its simpler form (the filing of an action), the procedure is as follows: The applicant files a claim under Order 2 Rule 1 of the Civil Procedure Rules. This is a generally endorsed claim as opposed to a specifically endorsed claim under Order 2 Rule 6 of the Civil Procedure Rules. 

Step 2: Along with the filing of the claim the applicant also files the application for the interim order which is accompanied by the supporting affidavit which in turn has as attached exhibits all the documentation that must be brought before the Court.

Step 3: The Court Registrar brings the interim order before a judge based on a secret rotor which only the Court Registrar knows. The judge decides, based on his schedule, when to hear the ex parte application. It could be on the same day, the day after or even three days down the line. It depends on the judge’s schedule.

Step 4: The applicant appears on the set date and the Court decides if it will issue the interim order on an ex parte basis or if it will refuse its ex parte issuance and order it to be served.

Step 5: If the interim order is issued ex parte the applicant the Court gives directions for it to be served to the opposing party fixing a date for service. The applicant must then furnish the guarantee to the Court Registrar who types up the interim order so it can be served along with true copies of the application on which it was issued.

Step 6: On the date fixed for appearance to check if service has been effected the opposing party will (most likely) appear (if they have indeed been served) and request for time to file an objection. The Court will set another appearance for directions and give directions for the objection to be filed by then.

Step 7: Once the objection has been filed, if there are no other applications lodged, the Court will proceed with setting a date for the hearing of the application. The hearing will be conducted by both oral and written submissions which will be presented to the Court on the date set for hearing.

Step 8: Once the hearing takes place the Court will most probably reserve judgment for a later date but could also hand judgment down on the day from the bench by way of what is known as an ex tempore (at the time) judgment. If the judgment is reserved the Court has up to two months to issue it. With the final judgment the interim order will either be made absolute or be quashed. In some instances, some parts of interim order may be made absolute while others quashed, depending on the circumstances of the case.

Of course, the above process is not always the case. Sometimes, and especially if there are a number of applications ancillary to the main application, things can become more complex and the procedure takes longer to reach a conclusion.

Enforcement of interim orders

An interim order is always accompanied with a penal notice. The penal notice states that a party not adhering to the interim order may have its property confiscated by the Court or may be jailed. Once a party (or person) served with an interim order disregards it and/or acts contrary to it he is deemed to be in contempt of Court. Being in contempt of Court is considered a very serious transgression under the Cypriot legal system. It is not an exaggeration to say that persons found in contempt of Court in relation to disregarding and/or acting contrary to interim orders do indeed run the risk of jailtime.

This article is “Part B” of a series of articles relating to interim orders in Cyprus.

For “Part A” please click here.

What type of interim orders can be issued by the Cypriot Courts?

The Cypriot Courts enjoy wide powers when it comes to issuing interim orders. The powers of the Cypriot Courts extend to issuing, among others, worldwide freezing orders, Mareva type orders, Norwich Pharmacal type orders, Anton Piller type orders and Chabra type orders.

It is also important to note that Cypriot Courts also have the power to issue interim orders in aid of foreign arbitral or court proceedings. Such foreign proceedings need not be started but may be in the stage of contemplation.

Interim orders may be made on an ex parte basis or by summons

A party can apply for an interim order on an ex parte basis, that is without the opposing party being before the Court or it can apply by summons, this meaning that the application is served on the party and they are given a chance to appear and give reasons why the interim order should not be issued.

When applying ex parte the applicant must convince the Court that there is an urgency in the application and/or that if the other party were to be served with the application for the interim order the opposing party could take steps to negate the effect of the interim order under scrutiny. 

This means that an applicant, if he wishes to maximise his chances of obtaining an interim order on an ex parte basis, must move quickly once certain circumstances that give rise for the necessity for an interim order come to pass. This means that applicants should not waste time in applying to the Court or else they run the risk of the matter being deemed not urgent and the Court will most likely order the application to be served so the opposing party can also be heard.

The need for swift actions is borne out of the equitable maxim that “delay defeats equity”. Thus, an applicant who is applying for an interim order, which is an equitable remedy, must not delay. If he does, equity will not offer him protection.

Preventive vs mandatory interim orders

An interim order may be preventive or restrictive in its scope i.e. forbidding the opposing party from taking an action or it can be mandatory i.e. ordering, or mandating, the opposing party to take a specific action. There is a clear distinction between the two in that mandatory interim orders require a higher threshold of certainty before being issued.

For a mandatory interim order to be issued the facts must be quite clear and the circumstances must be such that the issuance of the mandatory interim order will not severely alter the situation at hand. A Court will thus issue a mandatory interim order when it feels that it needs to bring an end to a circumstance that it feels is illegal or that is in clear violation of the rights of the applicant. There is a somewhat different set of legal considerations that come into play when the Court is faced with the prospect of issuing a mandatory interim order as opposed to a preventive interim order.

The need for full and frank disclosure

When applying to the Court on an ex parte basis an applicant must make full and frank disclosure of all material facts to the case. This means that the applicant must make all material facts of the case known to the Court and must not leave anything that could influence the Court’s opinion behind. If, once the interim order is issued and the opposing parties appears before Court, they are able to demonstrate that they applicant sought to hide a material fact from the Court then the Court will quash the interim order for lack of full and frank disclosure.

Again, the requirement for full and frank disclosure is borne out of the equitable maxim of “he who comes to a Court of equity must come with clean hands”. Making full and frank disclosure does not mean attaching volumes of documents to the affidavit. There have been instances where documents were attached to affidavits but the Court’s attention was not brought to them during the ex parte hearing in such a way that the Court felt that it had been duped into issuing the interim order. In making full and frank disclosure an applicant must, if the documents are voluminous, guide the Court to all relevant facts and not seek to hide aspects of the case that are not in his favour from the Court by drowning it in documents.

How much does English common law affect Cypriot caselaw in relation to interim orders?

Cyprus was a British colony up to 1960. Upon independence, the English common law as it stood at the time was enshrine by way of legislation as binding precedent as far as the Cypriot Courts we concerned. Therefore, the natural legal reasoning underpinning every Cypriot judicial decision handed down since then can be traced back to some pre 1960 English decision.

After 1960, the Republic of Cyprus amended the colonial era legislation but to a very slight extent. For example, even Article 32 of the Courts of Justice Act of 1960 is, in some parts, a word for word translation of Article 37 of the English Supreme Court Act of 1981.

In some instances, Cypriot caselaw has moved away from the common law but these instances are few and far between. Even as far as interim orders are concerned, some of the requirements are different, but the overall reasoning behind the outcome is borne out of common law legal notions and cases.

In short English common law decisions issued before 1959 are binding precedent while those issued after independence are highly persuasive. Furthermore, if a Cypriot court is faced with a novel circumstance as far as Cypriot law is concerned then it will look to modern English common law for guidance and will most likely follow it.

Who should swear the affidavit in an application for an interim order?

The short answer to this is that the client should be the affiant. It is by far the safest and most prudent route. It is permissible for a lawyer to swear an affidavit on behalf of his client if his client is not within the jurisdiction at the time but we, as a firm, advise against this practice.

The reason we advise against it is because there might, at some stage, be an application to cross examine the affiant from the opposing party. In such instances it is far better for the client, who has lived through and who has intimate knowledge of the facts of the case, to be cross examined on them, rather than a lawyer who in essence only knows what his client has told him. An applicant can land in hot water if the wrong person finds himself on the stand, therefore, we always advise that clients should take the time to come to Cyprus and swear their own affidavits.

What language does the affidavit need to be in?

The official languages of the Republic of Cyprus are Greek and Turkish (but judges in the Republic of Cyprus do not speak or write Turkish). Therefore, an applicant who does not speak these languages must swear an affidavit in his own language and a translation of the same in Greek must also be provided. The translation is done and sworn upon by a person who is fluent in both Greek and English, usually a lawyer who has studied in the UK or perhaps a Barrister i.e. someone who by virtue of his studies is deemed to have a very good command of the English language.

Sometimes affidavits are submitted in English. A judge may well accept an affidavit in English but this happens very rarely. Most judges will require for all case papers to be in Greek.

Material documents and evidence in other languages other than English or Greek also need to be translated to Greek. Judges will usually not ask for a translation of a document which is in English because they are proficient in this language due to the island’s colonial heritage.

The requirement for placing a monetary guarantee with the Court before the interim order is issued.

A court may grant in interim order but will not issue it i.e. type it up, unless the applicants submits with the Court a monetary guarantee. Clients are often perplexed as to why the Court requires of them to pay money into Court or provide a bank guarantee before the interim order is typed up.

The Court requires a guarantee so that if, at a later stage, the interim order is quashed, the party against whom it was issued can be compensated for any loss or damage caused by the wrongful issuance of the interim order. But if an interim order is quashed a separate action is required before the opposing party is entitled to payment under the guarantee of the interim order. In this action the party who alleges damage due to the wrongful issuance of the interim order must prove this damage.

Furthermore, there is no formula for ascertaining what the level of the guarantee will be. It could range from a few thousand euros to hundreds of thousands of euros, depending on what is at stake. The court has complete discretion in fixing this amount therefore it ranges from case to case and from judge to judge. In essence it is as low or as high as the Court feels it should be.

Therefore, an applicant, before applying for an interim order must make sure that he has the funds from which to provide the guarantee. The Court also has a discretion to decide what the guarantee should be. Sometimes a Court will accept a guarantee from a foreign bank but in most cases the Court will require a guarantee from a bank in Cyprus so that the guarantee is within the Court’s jurisdiction. In addition to this, a party appearing to oppose in interim order may alleged that the guarantee provided is insufficient. This does not lead to a quashing of the interim order but a Court may very well order that a further guarantee, of a higher sum, be provided.

By virtue of Cyprus’s position as well-known corporate and administrative services centre that has, over the last 30 or so years, proved an extremely popular venue to the former Eastern Block countries especially, companies registered in Cyprus often find themselves embroiled in multijurisdictional legal disputes. Sometimes the Cypriot company is at the centre of the dispute, other times it is on the fringes. Whatever the case may be, parties will sooner or later find themselves before the Cypriot Courts and, most often than not, their first experience of the Cypriot legal system comes through either applying for or resisting an interim order (aka an interim injunction).

First off, the term interim order and interim injunction is, nowadays, interchangeable. Both terms mean the same thing i.e. a discretionary interlocutory equitable remedy granted by the Court in the interim, the interim being the time before final judgement on the merits of the case.

One of the first questions clients ask once they have given a description of their case is whether they can obtain an interim order against their adversary. It is true that an interim order, once obtained and maintained, is an important step in the right direction because it can have a pivotal significance on the overall outcome of a case. In multijurisdictional disputes, an interim order issued by a Cypriot court could drastically affect proceedings not only in Cyprus but in other jurisdictions too. It is thus a highly coveted and bitterly contested legal tool.

Cypriot Courts do not issue interim orders readily or in a haphazard fashion. A Court will only issue an interim order once the party applying for it has convinced the Court that a certain set of legal and factual requirements have been fulfilled. The Court’s authority to issue interim orders is derived mainly (other legislative provisions also come into play) from Article 32 of the Courts of Justice Act, Law no.14/1960.  Before an interim order is granted a Court must be convinced that a set of three requirements have been fulfilled cumulatively. These requirements are:

First requirement: a serious issue to be tried

The first requirement is that there is a serious issue to be tried. Case law has interpreted this requirement quite liberally. In essence Courts have interpreted this requirement as meaning that the action must not be “frivolous or vexatious”. Cypriot courts follow, to some extent, the English judgment in the case of American Cyanamid Co v Ethicon, 1975, 1 All ER 504 HL in which it was explicitly stated that a serious issue to be tried should not be taken to mean a prima facie case and that the threshold of showing a serious issue to be tried was lower than that of showing a prima facie case.

In short, almost all applications for interim orders manage to surmount this first hurdle.

Second requirement: a probability that the applicant is entitled to relief

Once the Court is satisfied that the first requirement has been met it will move on to the second requirement which is that the applicant must demonstrate that there is a probability that he is entitled to relief. He must demonstrate this on the strength of the evidence adduced. The leading case on this requirement in the judgment of the Supreme Court of Cyprus in the case of Odysseos v Pieris Estates Ltd, 1982, 1 CLR 557. This judgment contains a passage which sums up how the Court’s determine if this requirement has been met. The passage states:

«a probability that the plaintiff is entitled to relief relates to something other than the complexion of the pleaded case of the applicant, and that could not be, in the context of this statutory provision, anything other than the evidential strength of the case of the plaintiff; that the standard required for the plaintiff to overcome the evidential hurdle is not very high; that he is only required to establish “a probability” of success; that the concept of “a probability” imports something more than a mere possibility but something much less than the “balance of probabilities”, the standard required for proof of a civil action; that legal probability is something different from a mathematical probability as the Court explained in Re J.S. (a minor), 1980, 1 AH E.R. 1061 (C.A.); that “a probability”, in the context of the proviso to s. 32(1), requires the applicant to demonstrate that he has a visible chance of success»

Understandably, this second requirement is somewhat harder to surmount that than the first requirement precisely because both the evidence relating to the case as well as the legal basis on which the case is grounded come into consideration by the Court. Having said that though, the requirement speaks of a probability of success and as long as the applicant can demonstrate this probability the Court will consider this second requirement fulfilled.

Third requirement: unless the interim order is granted it will be difficult or impossible for justice to be served at a later date.

Once the first two requirements are met the Court moves to examine the third and final requirement which is that the Court must be convinced that if it does not grant the interim order there will be a difficulty or impossibility of justice being served at a later stage.

This requirement is closely connected to the adequacy of damages in the monetary form. The Court will consider this requirement fulfilled if the applicant can show that unless the interim order is granted, a final judgment in his favour will most likely remain unsatisfied or that, unless the interim order is granted, a damage other than monetary damage will be caused to the applicant.

Cases in which there is a risk of alienation of property or other assets rendering execution of the final judgment difficult or impossible are instances in which the Court deems this requirement fulfilled.

This requirement is the most cumbersome to surmount because the applicant must show, with specificity, the damage other than mere pecuniary loss that will be brought upon him unless the interim order is granted. General and vague assertions of damage will not do. The applicant has to actually evidence the risk of damage to the Court.

The Court’s discretionary power

Once the three requirements have been fulfilled, the Court, before granting the interim order, looks to whether it should exercise its discretionary power to grant or refuse the interim order. Interim orders are a discretionary remedy borne out of the law of equity therefore a Court may exercise its discretionary power against the issuance of an interim order even if all the three requirements are fulfilled. The Court, in deciding how to exercise its discretionary power to grant or refuse an interim order seeks to convince itself that the “balance of justice” leans towards the interim order being granted. In adjudging the balance of justice, the Court looks balance the specific needs of the parties and/or the danger of injustice coming to the party against whom the interim order is issued if at a later stage it is proved that the interim order was wrongly issued.

An ideal tool for managing the wealth of individuals and families taking into consideration important matters such as tax optimization, asset protection and estate planning.

A Cyprus International Trust (CIT) has been traditionally used for various purposes such as:

• management of funds on behalf of others via a trustee

• organisation of collective investment and management of profit sharing and pension schemes

• tax optimization

• asset protection

• holding of property in the name of the trustee

• protection against spendthrifts and safeguarding of family capital for the next generation

• promotion of causes and charities

A CIT is a private arrangement between the relevant parties, with no requirements to disclose the trust deed or the names of the settlor or beneficiaries in any public domain and therefore retains a high level of confidentiality.

The concept of a “trust” is well-known, long-established and invariably enforced by the courts of Cyprus. Creation of a trust involves transfer of legal ownership of relevant assets to the trustee, who will hold, manage, dispose of and distribute the assets or realised proceeds to the beneficiaries, in accordance with the terms of the instrument creating the trust. The extent of the powers or discretion vested to the trustee and the extent of powers retained by the settlor or conferred upon a protector will be determined by the settlor during set-up.

A trust will qualify as a CIT if at least one of the trustees is a permanent resident of the Republic and the settlor and beneficiaries were not Cyprus tax residents in the year preceding the year of inception of the trust. There is generally great flexibility in setting up a CIT, such as the extent of discretion/power conferred on the trustee, ability to add assets, change beneficiaries, appoint a protector, change applicable law, validity in perpetuity etc. The flexibility, stability and history of the Cyprus legal framework coupled with low cost, professional experience, and regulation of the trustee’s role, whose services may only be provided by persons authorised for the purpose in accordance with the law, combine to comfort the settlor in entrusting the Cyprus trust-system.

A CIT benefits from the advantageous tax framework of Cyprus pursuant to which the trust itself will not be subject to tax as it is not afforded a separate legal personality, any income derived from sources outside the Republic will be exempt from Cypriot tax, whereas income realised by the trust will be considered as income of the beneficiaries who may be taxable in Cyprus on income derived from sources within the Republic, although tax assessment will be issued in the name of the trustee as a representative of the beneficiary.

Professional advice should be sought in all cases, to ensure a long-term solution in the preservation and growth of wealth, whilst balancing trustees’ discretion and control, having taken account of the settlor’s wishes but also the increasingly complex international regulatory framework which aims towards transparency and disclosure.

Cyprus is a small European country whose economy largely relies on the services sector which is manned by highly qualified and experienced professionals and this is one of the reasons why the country has been established as a popular business hub. In the face of many challenges in recent years, the services sector in Cyprus has exhibited resilience and has strived for growth. Nowadays, in a rapidly evolving international business environment, largely reliant on technology, the lack of modern infrastructure and the often-excessive bureaucracy proves to be a significant obstacle for professionals in Cyprus.

In an effort to reduce bureaucracy and increase the efficiency within the much-criticized Registrar of Companies (“RoC”), the first steps towards modernizing the corporate legal framework have been made through the introduction in the past year of a number of amendments including the requirement for notifications and statutory forms to be filed the RoC electronically and the possibility to file documents with the RoC which are signed or certified or validated electronically, subject to the issue of regulations in this respect by the RoC. Recently, further amendments have been implemented in an effort to change the infrastructure of the RoC on a more extensive level.

The latest key amendments include the following:

• Update of statutory forms

Over 100 existing statutory forms of the RoC have been revised to introduce simplified and user-friendly forms which will include guidance notes, aiming to reduce time-consuming correspondence with the RoC caused by unclarities. The changes include in particular (i) the merging of forms where this has been considered necessary, (ii) the removal of unnecessary information previously included in forms, such as the occupation and previous names of directors, and (iii) the introduction of new notification forms aiming to unify submissions to the RoC, such as the notification by the company directors of the decision to strike-off the company.

• Abolition of capital duty

The capital duty payable on the authorized share capital and on any subsequent increase of share capital is abolished, an amendment which apart from being an incentive for investors, will lead to the simplification of the increase and reduction of capital of a company.

• Electronic publications

An official gazette which shall be maintained by the RoC electronically is introduced, to allow for publications which would have been made in the official gazette of the Republic of Cyprus to be made on the RoC electronic gazette. This is a significant step towards efficiency and transparency as it will reduce time required for a publication and will give easier access to the public to information of interest in relation to companies.

• Provisions relating to companies strike off

The provisions of the Companies Law, Cap.113, in relation to the strike off of companies from the companies register have been amended to allow creditors or members of a company to object to its striking-off, and to provide the power to the RoC to reinstate a company without a court order under certain circumstances.

• Administrative Fines

Several provisions of the Companies Law have been amended to provide for the imposition of administrative fines in the case of late flings of statutory notifications to the RoC including notifications of allotment of shares, transfer of shares and filing of the annual return.

Even though the recent amendments include several provisions which are not directly aimed at modernizing the infrastructure of the RoC, these are considered to be a step in the right direction. Provided the amendments are properly implemented, they could be a much-needed shift to digitalization and a streamlining of the statutory requirements with the practical procedures of the RoC, in a way which is expected to reduce inconsistencies and bureaucracy and enable professionals in Cyprus to offer a higher quality of service to local and foreign investors.

What remains to be seen is whether the everyday implementation of the revised procedures will bring about the long-awaited improvements or whether they will result in further complications and backlog. 

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