Cyprus: Asset Tracing In Cyprus

Last Updated: 27 July 2015
Article by Soteris Flourentzos

Even in cases in which the identity of the wrongdoer or the whereabouts of the misappropriated property is unknown, there are tools available for recovery of property, or proceeds of property, which have been misappropriated from a Cyprus company or a company managed and controlled from and in Cyprus,.

Tracing consists of the rules developed by common law to deal with situations where assets have been misappropriated and the wrongdoer is not in a position to compensate, or money compensation is not adequate. In Foskett v McKeown [2001] 1 AC 102, the House of Lords explained that "tracing" is the process of identifying a new asset as the substitute for the old. In other words, tracing identifies the traceable proceeds of the plaintiff's property, enabling a plaintiff to substitute the traceable proceeds of the original asset as the subject matter of the claim.

Asset Tracing Tools

The remedies available to victims whose assets have been misappropriated include: Norwich Parmacal orders, Bankers Trust orders, Anton-Pillar orders, Chambra orders, and the appointment of Interim Receivers. These interim relief orders are mostly done by way of ex parte applications, provided that the plaintiff can satisfy the Court that there is urgency for the ex parte issue of such an order, e.g. further alienation of the assets in question.

Obtaining Information through Norwich Parmacal & Bankers Trust Orders

Disclosure orders constitute a very powerful weapon for the tracking down and recovery of assets. This remedy is often made to Norwich Pharmacal relief, and it is available before action against third parties who have become involved in or facilitated wrongdoing by the intended defendant, however innocent their involvement may be.

The information sought must be relevant to and necessary for the plaintiff to pursue the wrongdoers. These orders are relevant in Cyprus and are frequently used to obtain information from corporate service providers relating to companies which they administer.

Cyprus Courts frequently issue also Bankers Trust orders, which is a remedy available against third parties in circumstances where a prima facie case of fraud or breach of trust has been made out and the information is required to recover, trace, or preserve assets
that are the subject of a proprietary claim.

This remedy is usually directed against the bank, at which the wrongdoers had or have their accounts, to provide information which might ordinarily be protected by the privilege of bankers' secrecy or other duty of confidentiality. In Bankers Trust v Shapira [1980] 1 WLR 1274, the order was granted in relation to bank records and was ancillary to the applicant's right to trace the missing monies. The applicant had no right against the bank itself.

Bankers Trust orders are similar to Norwich Pharmacal orders except that: (a) there is no requirement to prove any involvement in the alleged wrongdoing by the respondent; and (b) the remedy is only available where the plaintiff is tracing assets that he claims belong to him but have been taken by the defendant.

In order for an application for Bankers Trust relief to be successful, there must be strong evidence of fraud. Therefore, the applicant must be able to demonstrate that there is a good ground for thinking that the money is his money, and that there is an immediate danger of dissipation of assets.

Gagging Orders

Cyprus courts have an inherent jurisdiction to grant gagging orders to restrain a respondent against whom an ex parte disclosure order is made from communicating with the intended defendant regarding the disclosure order.

This relief is generally granted in conjunction with Norwich Pharmacal and Bankers Trust orders. Any breach of a gagging order may result in contempt proceedings.

Anton Pillar Orders

Anton Pillar orders are effectively search orders allowing persons to enter the respondent's premises to search for and remove property and preserve it as evidence pending trial. Anton Piller Search Orders may be pursued by a party so as to:-

  1. allow this party 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 the latter;
  2. identify and to obtain evidence against others who have been involved with the principal tortfeasor in the tortuous activities;
  3. prevent the defendant from warning others to destroy or conceal evidence; or
  4. unveil further ham and damage to the applicant.

Application for an Anton Pillar order is made ex parte. Due to the draconian type of the remedy, such an order is only granted where absolutely necessary and the court will ensure that the order contains sufficient safeguards to protect the person on whom the order is to be served, such as the appointment of independent lawyers to supervise the search and to specify the limits on the parameters of the search.

Securing Assets and Proceeds

Cyprus Courts have the power to grant an interim injunction to preserve assets. This enables the plaintiff to secure the assets to prevent them from being dissipated in any way pending the outcome of substantive proceedings. The application for such an order may be made ex parte at the same time as the filing of an action.

To succeed in an application for a freezing injunction (or often referred to as a Mareva injunction), the applicant must be able to demonstrate that: (i) he has a good arguable case against the defendant, (ii) the refusal of an injunction would involve a real risk that a judgment in favour of the applicant would go unsatisfied, and (iii) it is just and convenient for the injunction to be granted.

Nevertheless, as a general principle, a Mareva injunction ought not to interfere with the ordinary course of business of the defendant. It is not intended to give the plaintiff security in advance of judgment but merely to prevent the defendant from defeating the plaintiff's chances of recovery by dissipating or secreting away assets.

In determining whether it is just and convenient to grant the injunction, the court will consider factors such as the conduct of the plaintiff, the rights of any third party who may be affected and the potential hardship to the defendant.

When a freezing injunction is granted, the court will almost always require the applicant to give a cross undertaking in damages. This is intended to compensate the respondent if it is later found that the interim relief should not have been granted and the injunction has caused the respondent loss. Such an undertaking is enforced by an inquiry into what loss the respondent has suffered as a result of the injunction.

Appointment of Interim Receivers

Under Section 32 of the Courts Law 14/1960 (as amended), Cyprus Court have the power to appoint interim receivers and managers with mandate to secure and protect the relevant assets, on behalf of the party applying to appoint them, pending trial.

In order to obtain such relief, the court will have to be satisfied that the circumstances to justify a freezing order exist and that the additional protections afforded by a receivership order and any potential prejudice to the respondent can be justified in the circumstances of the case.

An interim receivership may also be granted to supplement the powers of a freezing injunction if it can be shown that the injunction is not providing adequate protection on its own.

Asset Tracing in Aid and/or in Support of Court Proceedings Pending Before Courts of Other Members States

Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, empowers the Cyprus Courts to issue any type of interim relief in aid and/or in support of proceedings to be commenced or pending before Courts of other Member States of the European Union, except Denmark.

The granting of interim measures of protection under 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.

Therefore, all the above asset tracing tools are available in aid and/or support of proceedings to be commenced or pending before Courts of other Member States of the European Union

Asset Tracing in Aid and/or in Support of International Arbitration Proceedings

Pursuant to Section 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.

As such, all the above asset tracing tools are available in aid and/or support of International Arbitration (e.g. before the London Commercial International Arbitration).

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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