Category: Knowledge

In a continuous effort to raise investors’ confidence and establish itself as an attractive center for the establishment and operation of EU funds and asset management companies, Cyprus has recently updated its current legal framework to adhere to the gold standards set in the sector by regimes such as Luxembourg’s and Ireland’s. Cyprus offers both EU-regulated Undertakings of Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs).

With respect to the applicable Alternative Investment Funds (AIFs) framework, Cyprus has introduced a new piece of legislation in July 2018 with a view to align the jurisdiction with recent EU and international trends. Evidently, the most important aspect of the new legislation was that it has provided a significantly time and cost-efficient means of establishing AIFs in Cyprus through the introduction of Registered AIFs (RAIFs), which offers new benefits such as fast-tracking. In this regard, RAIFs do not require authorisation by the supervising Cyprus Securities and Exchange Commission (CySEC) to commence operations provided they are externally managed by an Alternative Investment Fund Manager (AIFM) based in Cyprus or another EU country whilst they can also be converted into an AIF at a later stage and convert into a regulated vehicle. In addition, the applicable AIF regulatory framework has also been praised for a successful combination of investor protection and freedom of operation for asset managers.

In particular, the delegation of asset management services licensed in the jurisdiction appears to have triggered great interest in the fund community and is running alongside the new fund regime. In accordance with applicable laws, an Alternative Investment Fund Manager (AIFM) is generally allowed to delegate some of its functions to third parties provided that delegation arrangements are premised upon the following basic principles:

(a) the AIFM retains the ultimate and complete liability towards the Alternative Investment Fund (“AIF”) it manages as well as its investors, and;

(b) that the AIFM’s liability towards such parties is not in any way affected by the fact that the AIFM has delegated its functions to a third party.

What regulates the obligations and limitations that the AIFM will need to adhere to in case that delegation arrangements are put in place, is the nature and type of function that will be outsourced.

Subject to the prior notification of the Cyprus Securities and Exchange Commission (“CySEC”), an AIFM established and licensed in the Republic of Cyprus is generally permitted by CySEC to delegate some of its functions to third parties, provided that the following conditions are met:

• The AIFM must be able to justify its entire delegation structure on objective reasons;
• The delegate must dispose of sufficient resources to perform the respective tasks and the persons who effectively conduct the business of the delegate must be of sufficiently good repute and sufficiently experienced;
• The delegation must not prevent the effectiveness of supervision of the AIFM and in particular, must not prevent the AIFM from acting, or the AIF from being managed, in the best interests of the investors;
• The AIFM must be able to demonstrate that the delegate is qualified and capable of undertaking the functions in question and is in a position to monitor the delegated activity, as well as to withdraw the delegation with immediate effect when this is in the interests of investors;
• The services provided by each delegate such be reviewed on an ongoing basis; and
• The AIFM shall not delegate its functions to the extent that it can no longer be considered as the manager of the AIF and is therefore considered as a letter-box entity.

As it becomes evident, an AIFM must not only retain the ultimate responsibility towards the AIFs and their investors but more importantly it must ensure that its regulatory obligations (arising out of the performance of its activities) are not in any way tampered with, by reason of such delegation arrangements.

What is also important to note at this point, is that delegation arrangements must be evidenced by a contract in writing which must specify the following:

• the AIFM ensures that the delegate protects any confidential information relating to the AIFM, the AIF affected by the delegation and the investors in that AIF;
• the AIFM ensures that the delegate establishes, implements and maintains a contingency plan for disaster recovery and periodic testing of backup facilities while taking into account the types of delegated functions;
• that the AIFM will be able to terminate the delegation arrangements with immediate effect; and
• whether any sub-delegation is going to be permitted under their arrangements in its terms.

The delegation of investment management functions under the EU regime has attracted increased scrutiny by EU regulators in the context of Brexit. At the same time, the recently reformed Cyprus fund sector could provide significant support for British-based investment funds and managers in the event of the EU revoking Britain’s passporting rights. As reported, Cyprus can offer British based firms the flexibility to maintain their current operations, without having to relocate staff or operations post-Brexit to a jurisdiction within the EU whilst British managers would have a fully-compliant management platform with a European passport and pre-existing structure to market their funds in the EU.

Filing a claim in Cyprus and serving it to a defendant residing outside the jurisdiction of Cyprus is a process which requires strict adherence to a certain set of rules and/or procedures. The procedures change depending on which country the defendant is residing in.

The procedure is as follows:

1. The claimant prepares a writ of summons and prior to the filing of the same with the Court Registrar, applies to the court for leave to have it sealed so that it can be served out of the jurisdiction. This application is accompanied by an affidavit and culminates in an order being issued allowing for the sealing of the writ of summons. The significance of this process of applying for leave (permission) to seal the writ is that it is the process by which the Cypriot court examines whether it can, and should, extend its jurisdiction over the defendant residing abroad.
2. Once leave to seal is granted, the claimant files the writ of summons.
3. Following the filing of the writ of summons, the claimant must then apply to the Court for leave to serve outside the jurisdiction. This application is accompanied by an affidavit and culminates in an order being issued allowing for service outside the jurisdiction.
4. Once leave to serve outside the jurisdiction is granted the claimant must prepare a notice of the writ of summons. This is a standard form of notice in accordance with the Cypriot Civil Procedure Rules.
5. Thereafter, the claimant must translate and serve all these documents to the defendant.  The defendant should receive the following documents in their original Greek language, together with a copy in a language that he comprehends:

• a notice of the writ of summons;
• the application, affidavit and order permitting the sealing of the writ of summons;
• the application, affidavit and order permitting service outside the jurisdiction.
• other formal documentation depending on whether the Hague Convention or the Council Regulation (EC) No. 1393/2007 is applicable.
• it is also considered good practice to accompany these with a covering letter providing relevant explanation.

Council Regulation (EC) No. 1393/2007 of 13 November 2007 on the Service in the Member States of Judicial and Extrajudicial Documents in Civil or Commercial Matters, regulates the service of judicial and extrajudicial documents between European Union member states. Seeking to improve and expedite the transmission of judicial and extrajudicial documents in civil or commercial matters for service between the member states, the regulation provides, inter alia, a procedure for the service of documents via designated “transmitting agencies” and “receiving agencies” without recourse to consular and diplomatic channels, and other methods of service. These liberal methods of transmission aim to safeguard the right to a fair trial of the parties.

In order to expedite or simplify the transmission of documents, the Regulation allows member states to conclude bilateral agreements or arrangements, provided that they are compatible with the Regulation. Despite the fact that these bilateral agreements seek to facilitate the transmission of documents between member states, in various cases, the Cyprus courts determined that a possible breach of the provisions of a bilateral agreement concerning the service of judicial and extrajudicial documents leads to the annulment of the service.

This strict obligation of the parties to comply with the provisions of the bilateral agreements derives from the case Earlsfield Steel Ltd v. Joint Stock Company Electrometallurgical Steel Works (2009) 1CLR 1350, where the Supreme Court examined this matter. The Supreme Court, applying a strict formalistic framework, determined that a breach of the Agreement between Ukraine and the Republic of Cyprus on Legal Assistance in Civil Matters could not be remedied with the mechanism of Order 64 of the Cyprus Civil Procedure rules.

Although the Cyprus courts tend to take a strict and robust approach when deciding whether there is a violation of the terms of a bilateral agreement concerning the service of documents, they are not following this approach when deciding whether there is a possible breach of the Regulation.

The Supreme Court of Cyprus, applying principles established by the Court of Justice of the European Union decided in alpha Bank Cyprus Ltd ν. SI Senh Dau and others, Civil Appeals No. Ε23/2013, Ε24/2013, Ε25/2013, Ε26/2013, Ε27/2013, Ε28/2013 and Ε29/2013, that the omission of the Appellants to serve a standard form of the Regulation accompanied with the relevant English translation, should not have led to annulment of the service according to the purpose of the Regulation.

Taking everything into consideration, it is obvious that the Cyprus Courts take a more ‘liberal’ approach when deciding whether there is a possible breach of the Regulation and escape from the strict and usual formalistic frameworks. This approach is justified, as it is fully harmonized with the meaning and main purpose of the Regulation and aims to facilitate the service of documents between the European member states.

For financial institutions in Cyprus, the floating charge has always been considered as one of the most important types of security in their attempt to minimize exposure to the risk of non-repayment. Once the floating charge became commonplace, the number of receivers appointed under such debentures has been ever increasing and so has the amount of cases brought before the Cyprus Courts by or against such receivers.

The receiver and manager appointed out of court has been described as a ‘‘protean character, changing his colour, shape and function according to circumstances’’. The receiver is appointed by the lender, however he’s the debtor’s agent and under these circumstances, an unusual tripartite relationship emerges between the receiver, the debenture holder and the company in receivership. The receiver will often need to reconcile the competing (and often conflicting) interests of the two, as well as the interests of third parties, such as the company’s shareholders, secured and unsecured creditors and employees. This uncomfortable position could be untangled by considering what duties are owed by receivers and to whom such duties are owed to.

The Cyprus Courts recently examined for the first time in detail the scope of a receiver’s duties and liabilities in the context of two actions filed before the Nicosia District Court. Shareholders, directors and employees of a company that had already been liquidated brought the actions against the debenture holder and the two former receivers of the company. The plaintiffs claimed that, as a consequence of the receivers’ negligent and/or fraudulent actions during the receivership, actions which constituted alleged breaches of their duties owed to them, they incurred losses and damages of different nature and had been wrongfully deprived of the value of their shares in the company and of their continued employment by the company.

The receivers, who had been successfully represented by our firm, raised a preliminary objection in their statement of defense, arguing that a receiver appointed under a floating charge, does not owe a duty of good faith to directors, shareholders and employees of the company and thus, the claims made against them ought to be rejected.

The Nicosia District Court, considering the matter at a preliminary stage, decided that the duties owed by receivers are equitable in nature and not based on common law principles. Accordingly, the proposition that the receivers owed a duty of good faith to all those directly affected in any way by the exercise of the rights and powers conferred to them by the debenture, based on the neighbour principle originally established in the landmark decision of Donoghue v. Stevenson [1932] UKHL 100 was rejected. The Court, applying principles established by relevant English case law, determined that a receiver’s primary duty is owed to the debenture holder, a secondary duty is owed to the company (whose right to enforce such a duty remains vested in the directors) and to any third parties who can show they are interested in the equity of redemption. Consequently, no duty is owed to directors, shareholders and employees of the company, nor to unsecured creditors, as none of these persons has a direct interest in the charged assets. In applying the above principles to the cases in question, the Court decided that the plaintiffs did not have an actionable right and were not entitled to initiate an action against the receivers and therefore rejected the actions as far as the receivers were concerned.

The legal status of receivers continues to give rise to disputes, as a result of the various capacities under which they may act. The aforementioned decisions however, although issued by a court of first instance, do provide some much needed clarity and guidance for both the practicing receivers and financial institutions, as well as the debtor companies, their representatives and other interested third parties.

AD_GOLD_2019_INTERVIEW

Third-Party Ownership (“TPO”) is a mechanism whereby a football club assigns all or part of the economic rights of a player (including transfer/ contract negotiation fees) to third parties. Through TPO, investment funds often co-finance the acquisition of players in return for owning a percentage of the players’ subsequent transfer fees. This practice was widely used in South America and Europe and has been heavily criticized due to lack of players’ freedom of choice, in that they would be pressured to transfer as instructed by the third-party investors and lose control of their career in sport.

In early 2015, FIFA, considering that TPO threatened the integrity of sporting competitions, amended Article 18 of the Regulations on the Status and Transfer of Players (“RSTP”), to prohibit clubs and players from entering into economic rights agreements with third parties, with the ban taking effect on 1 May 2015. The RSTP excluded from the definition of ‘third parties’:

1. the two clubs that were parties to the transfer agreement; and
2. the player’s previous clubs.

This meant that all other parties, including the player, were considered ‘third parties’ for the purposes of the prohibition, making it practically impossible for a player to financially exploit his/ her economic value as an employee, unlike many other professionals in the world. For this reason, the legality of the prohibition was questioned before the Court of Arbitration for Sport (“CAS”), particularly, as to whether the relevant RSTP provisions:

1. restricted the free movement of persons, services and capital; and
2. had as their object the prevention, restriction or distortion of competition.

The CAS rejected the above arguments, stating that the purpose of the restrictions imposed by the RSTP was to safeguard players’ independence and to preserve the regularity of sporting competitions. A subsequent decision of the Swiss Federal Supreme Court upheld the CAS findings, confirming the validity of Article 18 of the RSTP under the EU law provisions regarding the freedom of capital, workers and provisions of services movement.

The legal debate post TPO prohibition has prompted FIFA to consider a more flexible approach, resulting in the amendment of the RSTP, as of 1 June 2019, to exclude players from the definition of ‘third party’, therefore permitting players themselves to enter into an agreement with a club, whereby they are entitled to participate in full or in part, in compensation payable in relation to their future transfer from one club to another. This means that players now legally own their economic rights and may negotiate a percentage of transfer fees for themselves.

Supporters of the recent amendments have commented that the RSTP are more in line with the players’ interests, while critics have described the recent amendment as the ‘return of TPO’, fearing that it creates loopholes subject to exploitation. Of course, the effects of the recently amended RSTP still remain to be seen, in the hope that FIFA has managed to strike a balance between protecting the football sector from distortion and granting players their economic independence.

Cyprus is a member of the European Union (EU). It acceded to the European Union on 1^st May 2004.

Since its accession, as is incumbent on all member states, Cyprus has complied with the EU public procurement directives and has enacted legislation on public procurement.

In accordance with Directive 2014/2016, Cyprus has enacted the Regulation of Procedures for the Award of Public Contracts and for Related Matters Law of 2016 (Law 73(I)/2016).

This is the basic legislation governing the procedure for the procurement of public contracts. This law is based on EU Directive 2014/24 as amended.

Additionally and also in accordance with Directive 2014/16, Cyprus has enacted the Regulation of Procedures for the Award of Public Contracts by Authorities Acting in the Water, Energy, Transport and Postal Services Sectors and for Related Matters Law of 2016 (Law 140(I)/2016), which is based on the EU Directive 2014/25 as amended.

The ‘effective remedy’ process for any tenderer that believes that it has been the victim of injustice in a public procurement process is the Recourse Procedure in the field of Public Contracts Law (Law 104(I)/2010) (the Remedies Law). It regulates remedies and the functioning of the Tenders Review Authority. This law was enacted in compliance with Directive 2007/66/EC of the European Parliament and of the Council of 11 December 2007, amending Council Directives 89/665/EEC and 92/13/EEC.

The above laws represent the basic legal framework for the public procurement process in Cyprus.

They are supported by subsidiary legislation, namely, in the case of Central government, the applicable regulations are the General Regulations for the Award of Public Supply Contracts, Public Works Contracts and Public Service Contracts (Regulatory Administrative Act (RAA) 2001/2007). These regulations regulate procedural matters and provide for the establishment and the operation of the appropriate technical and administrative evaluation bodies and organs for the public tender process.

The above RAA of 2007 sets out the rules and the procedures that must be followed in respect of:

• the formulation of a tender;
• the content of the tender document;
• the form of communication of the tender process;
• the submission of the tender;
• the technical and financial evaluation of the tender; and
• the award of the tender.

Other RAAs regulate the public procurement procedures to be followed by awarding bodies in the wider public sector, which encompasses the public law bodies such as the Electricity Authority of Cyprus, the Cyprus Stock Exchange, the University of Cyprus and others, including municipalities, regional development boards and the like.

Qualifying Threshold Values

Each tender process, being for the supply of goods or services or financial facilities, is governed by threshold values.

The threshold values are reviewed in line with the reviews made by the EU Commission in accordance with Directive 2014/24/EU.

Currently the thresholds are as follows:

• Central government contracts: services and supply contracts of minimum €144,000 and works contracts of minimum €500,000.
• Public sector (local or rural authorities and the public law organisations): services and supply contracts of minimum €221,000 and works contracts of minimum €500,000.
• Contracting authorities of the central government or the public sector in general, acting in the public utility fields: services and supply contracts of minimum €443,000 and works contracts of minimum €500,000.
• Concession contracts: services contracts of minimum €5,548,000 and works contracts of minimum €500,000.
• Contracts in the defence and security fields: services and supply contracts of minimum €443,000 and works contracts of minimum €5,548,000.

The threshold values are significant as they determine the recourse procedure that applies to the tender process.

Remedies in Public Procurement Procedures

For those tenders with values equal to or above the above thresholds, the recourse procedure to be followed may be either the Tenders Review Authority or the Administrative Court.

In the case of tender processes falling under the threshold values, the only recourse procedure open to tenderers is the Administrative Court.

The above is significant as the Tenders Review Committee provides a much more effective remedy than a recourse to the Administrative Court.

The most significant difference is the injunctive relief that is available to a tenderer that feels that it has suffered injustice. The injunctive relief has the effect of suspending the procurement process until the application of the tenderer is reviewed. A review process typically takes between four and six months.

In the case of a recourse to the Tenders Review Authority, the injunctive relief is issued at the time that it is applied for and the burden of proof is on the awarding authority to show why the injunction should not continue. The application for an injunction is returnable within five days and the decision as to whether the injunction will remain in place is issued within five working days from the filing of the recourse.

In the case of a recourse to the Administrative Court the remedy that is realistically available to a party cannot truthfully be described as effective.

An injunction will only be granted by the Administrative Court in the rarest of cases – where there is a flagrant and apparent violation of law.

A recourse before the Administrative Court also takes much longer than a recourse before the Tenders Review Authority; the time varies between six months and one year.

Time Limits for the Filing of Applications for Relief

Applications before the Tenders Review Authority must be filed within fifteen days of the tenderer becoming aware that it has been the victim of injustice or of an unlawful act or decision by the awarding entity.

Recourses before the Supreme Court may be filed within 75 days of the tenderer being notified of any act or omission that constitutes a breach of the law and causes injustice to the tenderer.

The General Principles to be followed in Public Procurement Procedures – the guiding principles for awarding authorities and tenderers

Awarding Authorities

Awarding Authorities must comply with the three basic principles in each step of the tender process:

• Transparency;
• Equal Treatment of Tenderers;
• Proportionality.

The above principles must be complied with in each step of the tender process by all public sector awarding authorities.

It should be noted that, even if a contract does not fall within the above threshold values, the thresholds and a recourse to the Tenders Review Authority is not available, the above mentioned principles governing public procurement procedures as well as the legislation and subsidiary legislation all need to be complied with as a recourse to the Administrative Court is available to a tenderer who has suffered injustice.

The Awarding Authorities must take care to formulate tender documents in a fair and transparent manner and avoid inequality or bias both in the formulation of tender documents and in the evaluation of tenders.

It should be noted that a recourse is theoretically possible and represents an important available option to a tenderer as soon as the tender document is issued. If a tenderer feels that the tender document as issued contains inequality or bias with respect to the technical or financial criteria or with respect to the tender conditions, then it must file a recourse against the said inequality or bias contained in the tender documents. It is not permissible for a tenderer to submit a tender (thereby taking part in the tender process) and at the same time allege inequality or bias in the said tender process.

Tendering Entities (Economic Operators)

Tenderers must ensure that they are fully conversant with the law and the contents and requirements of the tender document.

Each tender process has a period for the submission of questions by tenderers relating to the requirements of the tender and for the submission of requests for clarifications of submitted tenders by the authority that has issued the tender.

Tenderers must ensure that their questions and requests for clarifications to the authority issuing the tender and its own responses to requests for clarification are clearly drafted so that no misunderstandings can occur.

Common Issues Leading to Disqualification

Experience shows that there are certain areas where tenderers must take particular care in order to avoid disqualification.

The requirement for equal treatment of tenderers extends to the evaluation of tenders. A non-compliant tender or a tender containing a material non-conformity in terms of the financial or technical capability and capacity of a tenderer, must be disqualified.

A tender once submitted may not be amended so as to rectify a non-conformity.

Tenderers should be aware that tenders are evaluated with care and the compliance with the terms of the tender, the requirements for transparency, equal treatment of tenderers and proportionality are strictly adhered to.

Where a tenderer wishes to rely upon supporting entities, it must ensure that it does so in strict accordance with the terms contained in the tender documents both with respect to the aspects of the eventual contract that may be performed by the supporting entity as well as to what documentation and undertakings must be provided by the supporting entity as provided for in the tender documents.

Similarly, the documentation evidencing the financial and technical capability and capacity of a tenderer must be provided in strict accordance with the requirements of the tender documents. If they are not, a tender will be disqualified. Such requirement extends samples and to type test certificates of goods or materials to be provided, certification of a tenderers experience, ISO certificates, bank references, parent company undertakings or guarantees, powers of attorney, registration certificates, licenses, board of directors’ decisions required under the tender documents.

Tenderers must also take care to ensure that any tender (bid) bonds and performance bonds are provided in strict accordance with the requirements of the tender.

It is essential for a tenderer to ensure that it clarifies all areas of doubt within the time allowed in the tender documents so that it is certain that it has submitted a compliant tender. There is no rule against asking as many questions and as often as a tenderer requires in order to obtain the necessary clarity.

The form and method of submission of the tender must also be in strict accordance with the terms and the time limits contained in the tender documents.

In the case of Electronic Tender Processes, tenderers must be aware that the E-Procurement portal of the Accountant General’s Department of the Ministry of Finance, which is the entity that receives E-Tenders, often experiences difficulties, delays, date jams and even crashes with respect to the uploading of electronic tenders. Tenderers are therefore advised to ensure that they commence uploading process in good time so as to ensure that they are in a position to comply with the time limit for the submission of their tender.

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.