Cyprus: Interim Relief In The Context Of Shareholders Disputes

INTRODUCTION

Cyprus Courts, have jurisdiction to issue any interim order, in all cases, in which it appears to the Court, just and convenient to do so, provided that the following conditions are satisfied by the applicant/plaintiff:

a. A serious question arises to be tried, at the hearing of the main proceedings;

b. It appears, that the applicant has a probability to obtain a favourable judgment in the main proceedings;

c. There is a great risk that, if the injunction is not issued, then it will be difficult or impossible to do justice at a later stage; and

d. The balance of convenience is in favour of the applicant.

INJUNCTIONS AND INTERIM ORDERS CAN BE ISSUED ON AN EX-PARTE BASIS OR ON BY SUMMONS

Provided, that the applicant satisfies the Court that, there is an element of urgency, the Cypriot Courts have jurisdiction, to issue injunctions and other interlocutory orders, on an ex-parte basis or without notice to the Respondent.

In the event, that there is no element of urgency, the Cyprus Courts do not have jurisdiction to issue any injunction or interlocutory order, without notice to the Respondent.

DUTY OF APPLICANT TO DISCLOSE ALL MATERIAL FACTS AND DOCUMENTS TO THE COURT AT THE EX PARTE HEARING.

In the event, that the applicant applies ex parte, to obtain injunction or other interlocutory orders, he has to disclose, fully and frankly all material facts, and documents, of the case to the Court, at the ex parte hearing.

Any failure, will result to the automatic cancellation of the ex parte orders by the Court. What constitutes material facts, and documents depend on the decision of the Court and not what the applicant or his lawyers ,consider as such.

It has been held inter alia that, the disclosure of arbitration and jurisdiction clauses contained in relevant contracts or agreements, are material facts to be disclosed.

OBLIGATION OF APPLICANT TO FILE A COUNTER-SECURITY IN ORDER TO OBTAIN THE INJUNCTION.

Cyprus law, requires that the applicant, shall file a counter-security – (to be directed by the Court upon issuing the injunction or the interlocutory order) – in order to cover all losses to be caused, to the Respondents, due to the issue of the injunctions or the interim orders, in the event that, same are found by the Court, at a later stage that they were issued, without any reasonable cause, or mala fides. The amount of such counter-security is within the discretion of the Court.

The Respondent, has the right to apply for the increase of the amount of counter-security, provided that he produces supporting evidence for such a request, but any decision for increase depends on the discretion of the Court.

For foreign applicants, the counter-security, can be either cash deposits, or letter of bank guarantees to be issued by Cyprus banks.

There is no Cyprus precedent where an applicant lost his counter-security. There are risks on a situation where applicant files a baseless action and the injunction was obtained mala fides and without reasonable cause.

IN SUPPORT OF WHAT PROCEEDINGS CYPRUS COURTS CAN ISSUE INJUNCTIONS OR INTERIM ORDERS?

Cyprus Courts have jurisdiction to issue injunctions, and other interim orders, in support of:

a. Proceedings pending before Cyprus Courts;

b. Arbitration proceedings pending in Cyprus;

c. International Commercial arbitration cases to be filed or pending in any country including the members states of E.U. pursuant to UNCITRAL MODEL LAW, ON INTERNATIONAL COMMERCIAL ARBITRATION; and

d. Proceedings pending before any Courts of any Member State of EU (except Denmark) pursuant to Regulation 44/2001.

CAN THE CYPRUS COURTS ISSUE WORLD-WIDE INTERIM ORDERS?

The Supreme Court of Cyprus in 2007, extended the jurisdiction of Cyprus Courts, empowering them, to issue world-wide interim orders, provided that one of the following inter conditions is met:

a. Either the Respondents, to whom the interim orders are addressed, are subject to the in personam jurisdiction of Cyprus Courts; or

b. The assets to be blocked are within the jurisdiction of the Cyprus Courts.

Without the satisfaction of one of the above two conditions, any injunction or order issued by Cyprus Courts, cannot be implemented or enforced.

WHAT TYPES OF INTERIM ORDERS CAN BE ISSUED BY CYPRUS COURTS.

The following inter alia types of interim orders can be issued by Cyprus Courts:

a. Freezing injunctions of assets

Such injunctions, can be issued for assets situated in Cyprus or for assets situated outside Cyprus, but when the respondents to whom the orders are addressed, are residing in Cyprus, and they are subject to the in personam jurisdiction of Cyprus Courts.

Assets to be blocked can be movables (i.e. funds, deposits, shares, goods etc.) and immovable property – (only if same is situated in Cyprus).

b) .Interim orders blocking the exercise of certain acts or the implementation of certain events.

This type of orders might include inter alia:

i. Blocking the shareholders of a Cyprus Company to convene a shareholders' meeting or take any decision;

ii. Blocking the directors of the Cyprus Company to convene a Board meeting or to take or implement any decision taken; and

iii. Blocking the participation of a Cyprus company in a shareholders meeting of its foreign subsidiary or to vote and support any decision in such a meeting.

iv. Appointment of Interim Receiver / Manager

In the proper circumstances, Cyprus Courts have jurisdiction to appoint an Interim Receiver/Manager, of assets as an ancillary relief in order to support the protective regime imposed by a freezing order or any other interim order.

Due to the draconian nature of such an order, Cyprus Courts issue same in very strong cases.

In the context of such proceedings for the appointment of interim receiver, the Cyprus Courts direct the applicant to secure by a bank guarantee the fees and expenses of the receiver to be appointed etc., in addition the counter-security needed to secure the losses of the Respondent.

Such interim receivers / managers can be lawyers, auditors or other professionals.

The Court orders appointing the Interim receiver/Manager usually states the powers duties and rights of the Interim Receiver. Usually the interim receiver is granted powers to inter alia:

i. Safeguard the assets;

ii. Exercise voting rights of a Cyprus Company in its Subsidiaries;

iii. To preserve the status quo of the corporate structure of the subsidiaries of the Cyprus Company; and

iv. Other powers.

v. Discovery orders or Norwich Pharmakal orders

In the context of such applications, Cyprus Courts can issue inter alia orders:

i. For disclosure an oath by a respondent of the location and value of his assets;

ii. For disclosure of information and documents regarding assets stolen in order to assist the victim of fraud, to trace his assets, to identify the wrongdoer, to plead his case and to prove his case.

The discovery orders, can be issued against parties and not parties to the action. They can be issued against banks and professionals and in the proper cases their issue cannot be blocked, due to the banking secrecy or professional privilege etc.

vi. Chabra Orders

The Cyprus Courts, have jurisdiction to issue the so called "Chabra" freezing orders, where there are grounds, to believe that a co-defendant is in a possession, or control, of assets to which the principal defendant, is beneficially entitled.

Once, the Court is satisfied prima facie, that there are such assets in the possession and control of the co-defendant, the chabra-type jurisdiction exists, to make a freezing order – (blocking the said assets in the hands of the Co-defendant) – as ancillary and incidental to the claim, against the principal defendant, although there is no direct cause of action against the Co-defendant.

vii. Anton Piller Orders

Cyprus Courts have jurisdiction to issue interim orders requiring a party to admit another party to premises for the purpose of preserving evidence, or property which is or may be the subject matter of the proceedings or as to which any question arises or may arise in the proceedings.

Such Search Orders, are called "Anton Piller Orders" and are based on the Courts inherent jurisdiction enunciated in the English Case Anton Piller KG –v- Manufacturing Processes Ltd.

Reasons for obtaining Anton Piller Orders

The Anton Piller orders can be requested by a Party:

i. To enable him to discover and preserve evidence against the defendant which is in the possession of the defendant and it is likely to be concealed or destroyed by him.

ii. To identify and to obtain evidence against others who have been involved with the defendant in the tortuous activities.

iii. To prevent the defendant from warning others to destroy or conceal evidence.

iv. To present further damage to the applicant including in an appropriate case, identification of the assets of a defendant against whom judgments has already been given.

g. GAGGING ORDER

Cyprus Courts have jurisdiction to issue the so called "gagging order" in order to prohibit a respondent to an injunction or Norwich Pharmakal discovery order, from notifying, or informing any other person, about the existence of the legal proceedings.

It is an ancillary order granted to strengthen the enforceability and the purposes of implementation of a freezing order, or of a Norwich Pharmakal order.

It is usually issued against Banks or service providers etc.

INTERIM ORDERS IN AID AND/OR IN SUPPORT OF COURT PROCEEDINGS PENDING BEFORE COURTS OF MEMBER STATES OF EU (EXCEPT DENMARK).

Article 31 of the EU Regulation 44/2001 ("Regulation"), empowers the Cyprus Courts to issue any type of interim relief in aid and/or in support of proceedings, pending before Courts of Member States of EU, except Denmark.

It has been decided by the European Court, that Article 31 of the Regulation gives jurisdiction of the Court of members States, to issue interim relief, also in aid and/or in support of arbitral proceedings, pending in Member States (except Denmark).

The granting of interim measures of protection under Article 31 of the Regulation, is conditional on inter alia, the existence of a real connecting link, between the subject-matter of the measures sought, and the territorial jurisdiction of the contracting state of the Court, before which those measures are sought.

INTERIM ORDERS OR INTERIM MEASURES OF PROTECTION IN AID AND/OR IN SUPPORT OF INTERNATIONAL COMMERCIAL ARBITRATIONS PENDING IN CYPRUS OR OVERSEAS

Pursuant to Article 9 of the International Commercial Arbitration Law of Cyprus, the Cyprus Courts have jurisdiction to grant interim measures of protection in aid and/or in support of international commercial arbitrations to be conducted or pending in Cyprus or overseas.

The application for such interim relief can be made ex parte if there is an urgency or by summons, if such urgency cannot be proved.

The application for interim measures can be filed before the filing of the arbitral case or after the filing of same (but before the issue of the arbitral award).

REGISTRATION AND ENFORCEABILITY OF INTERIM INJUNCTIONS ISSUED BY CYPRUS COURTS IN OTHER MEMBERS STATES OF EU

Any interim injunction or order, issued by Cyprus Court can be registered and enforced, pursuant to Articles 32-52 of the EU Regulation, in any Member State of EU, except Denmark, provided that such order is issued on a by summons basis.

Upon the appearance of the respondents before the Court, on the returnable date, of the injunctions, the Court re-issue same on the presence of the respondents → Such a renewed order meets the requirements of registration and enforcement, under Articles 32-52 of the Regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advise should be sought about your specific circumstances.

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