Cyprus: An Arbitral Award Cannot Be Made Subject Matter Of A Winding Up Petition

A foreign judgment or an arbitral award has no immediate effect in Cyprus. A procedure must be followed in order to enforce the foreign judgment. This can be made under EU regulations, common law and statute depending on the country issuing the judgment and/or the arbitral award. The requirements in order to enforce any country's judgment in Cyprus are briefly the following:

  • The Court issuing the foreign judgment must have jurisdiction according to the Cypriot rules on conflict of laws.
  • The foreign judgment must not have been obtained by fraud.
  • The foreign judgment must not oppose to the Cypriot Public Policy.
  • The proceedings which led to the issue of the foreign judgment were not contrary to the laws of natural justice.

In the 'URALMETPROM" INTERDEPARTMENTAL CONCERN OAO URALMETPROM ν. With reference to the company BESUNO LTD, Civil Appeal No. 269/2009, 20/2/2014 which concerned the filing of a petition to wind up a company on behalf of a creditor whose capacity as such was based on an arbitration award which was not registered or recognized in Cyprus the petition was destined to fail, since the award was not enforceable.

The Supreme Court agreed with the court at first instance that, without prior due process of registration and recognition of the arbitration award so that it will produce its full legal effect in Cyprus, enforcement measures cannot be taken solely on the basis of the arbitral award.

The whole philosophy covering international commercial arbitration aims to provide a quick justice and dispute resolution mechanism at the international level. Such is the philosophy behind the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Ratification) Law N.84/1979 (the "Ratification Law"), based in New York corresponding Convention of 1958 (UNCITRAL).

The general obligation for the Contracting States to recognize such awards as binding and to enforce them in accordance with their rules of procedure is laid down in Article III. A party seeking enforcement of a foreign award needs to supply to the court (a) he arbitral award and (b) the arbitration agreement (Article IV). The party against whom enforcement is sought can object to the enforcement by submitting proof of one of the grounds for refusal of enforcement which are limitatively listed in Article V(1). The court may on its own motion refuse enforcement for reasons of public policy as provided in Article V(2).

According to the ratio of the Supreme Court international conventions referring to the enforcement proceedings of a foreign court's judgment in a third state should be strictly interpreted. Strict is the approach so as to satisfy the prerequisites for recognition, registration and enforcement of foreign judgments. It is imperative to meet all formalities and requirements, including the presentation of the original or duly endorsed a certified copy of any decision or award.

It is based on the above principles that the Court, identifying lack of regularity and legality of the documents, rejected, on 28/11/2006* at first instance, the creditor's application for winding up of the debtor company. The recognition of a foreign court's judgment confirms perfectly the judgment's valid existence, integrating it, for enforcement purposes, with the procedures and limitations of the court's system where recognition is intended. Through the recognition and registration process the validity of the foreign award is secured and established within the frame of the internal legal order. The existence of a debt is the necessary and natural consequence of the confirmation of the foreign judgment or arbitral award, such confirmation achieved through the recognition and registration of the same otherwise such debt is not evident. An unregistered award is not a good piece of evidence as to the payability of the debt.

If the Court was to encourage winding up proceedings on the basis of a foreign award this might lead to protracting litigation, abusing the law and by-passing the provisions of the Ratification Law. If one reads the preamble of the Law as a whole the intention of the legislation is made clear. It has been enacted to honour the international convention and to minimize the hardship of the litigants as per as practicable and not by protracting the litigation by using one more or the other. The Ratification Law is a complete code by itself.

According to the argument put forward at first instance: "Essentially the applicant intends that the court formulate and develop of a new enforcement pathway penetrating domestic law for an arbitration award whereas enforcement was not made possible under the proper procedural mechanism provided by the same international conventions and the relevant legislative framework ratifying the same".

* Our senior partner Dr. Pavlos Neofytou Kourtellos handled the case for the Respondent at first instance.

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

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