The day after Convoy Collateral Ltd v Broad Idea International Ltd

1. Introduction

Cyprus is one of the European Union's few common law countries, with a friendly tax regime and a plethora of Double Tax Treaties with over 60 countries; thus naturally becoming a financial centre, a meritorious holding jurisdiction, a lucrative investment and headquartering destination.

Inevitably, like all upcoming and established financial centres, Cyprus has seen a rise in high-profile disputes, asset tracing exercises and asset recovery operations occurring in or through the country.

Afortiori, a Cypriot entity may be involved in international disputes taking place abroad, thus, bringing to the fore the relevancy (and need) of the assistance of Cyprus Courts by issuing free-standing injunctions in aid of foreign proceedings.

In the present article we:

  1. briefly consider the circumstances where the Cyprus Courts are willing or unwilling to issue protective measures or freezing orders in aid of foreign proceedings;
  2. consider the Privy Council's decision Convoy Collateral Ltd v Broad Idea International Ltd [2021] UKPC 24 ("Broad Idea"); and
  3. seek to address whether the Cyprus Courts will follow the rationale of Broad Idea.

2. Cyprus EU framework

The Cyprus Courts, pursuant to (i) Article 35 of the Brussels Recast Regulation (EU) No 1215/2012 (the "Regulation"); and (ii) Article 31 of the Lugano Convention 2007, have the jurisdiction (and power) to issue interim protective measures (including freezing orders) in aid of proceedings pending or contemplated in other member states of the EU (except Denmark), Switzerland, Iceland and Norway, without filing substantive proceedings in Cyprus.

Such protective measures can also include worldwide freezing orders, as was decided in Primafacio Limited ν Euroenergy Investments Limited and others, Application No.: 213/2021, 28 March 2022 regarding the Regulation and in Vinogradova and others ν Bescant Enterprises Ltd and others, Application No.: 100/2020, 10 June 2020 regarding the Lugano Convention.

3. Cyprus Arbitration

The same jurisdictional power exists in aid of arbitration proceedings under Section 9 of the International Commercial Arbitration Law of 1987 (No 101/1987), which incorporates the UNCITRAL Model Law, for the issue of interim protective measures in aid of international commercial arbitration cases pending or contemplated.

4. Cyprus Courts before Broad Idea

The next issue to consider is whether the Cyprus Courts can issue free-standing injunctions in aid of foreign proceedings that are not within the Regulation or the Lugano Convention.

Since the enunciation of the first instance BVI judgment in Black Swan Investment ISA v Harvest View Ltd (BVIHCV 2009/399) 23 March 2010 - whereby it was decided that the BVI court had the power to grant a free-standing freezing injunction in aid of proceedings in South Africa, without the issue of a substantive proceeding in the BVI; and its later approval by the Eastern Caribbean Court of Appeal judgment in Yukos CIS Investments Ltd v Yukos Hydrocarbons Investments Ltd (HCVAP 2010/028) 26 September 2011, the Cyprus Courts had some opportunities to consider as to whether to follow this nascent development.

Closed Joint-Stock Investment Company Finansovy Dom

In Closed Joint-Stock Investment Company Finansovy Dom v UFS Capital Limited and others, Action No.: 4480/15, 19 May 2016, the Claimants filed an action in Cyprus to issue, inter alia, worldwide freezing orders in aid of three Russian Proceedings. The President District Judge dismissed the application since:

  1. there was no statutory framework allowing in aid orders to be issued in support of proceedings of states outside the Regulation;
  2. there was no provision for the issuance of interim protective measures in the Bilateral Treaty between the Republic of Cyprus and the Union of Soviet Socialist Republics on Legal Assistance in Civil and Criminal Matters;
  3. no statutory regime existed in Cyprus as was introduced in England & Wales (Section 25 of the Civil Jurisdiction and Judgments Act 1982); and lastly
  4. he heavily relied on The Siskina (Owners of cargo lately laden on board) v Distos Cia Naviera SA [1979] AC 210 judgment. Although acknowledging the merits of Lord Nicholl's minority judgment in Mercedes-Benz AG v. Herbert Heinz Horst Leiduck Co (Hong Kong) [1995] UKPC 31 he decided it could not be followed. Lord Nicholl's minority judgment in Mercedes-Benz was endorsed in Black Swan.

Volodimir Spilnichenko

A year later in Volodimir Spilnichenko ν. Angileri Investmaents Ltd and others, Action No.:5652/15, 31 March 2017, the Claimant sought injunctions in aid of proceedings in Belize. In examining a set-aside application brought by the Defendants, the Judge had to decide whether Cyprus Law recognises and empowers the courts to issue injunctions where there are no related substantive proceedings in Cyprus.

The Judge referred to and quoted TheSiskian and Credit Suisse Fides Trust SA v. Cuoghi (1997) 3 All. E.R 724 and in turn decided that he could not issue a free-standing order without a statutory provision or a bilateral treaty empowering it. He further noted that:

  1. Belize is not a member of the EU and thus, the Regulation does not apply;
  2. the proceedings initiated in Belize were not arbitration proceedings for Section 9 of the International Commercial Arbitration Law of 1987 (No 101/1987) to apply; and
  3. there was no other multilateral or bilateral agreement between the Republic of Cyprus and Belize providing the power to issue injunctions or protective measures in aid of proceedings.

Given the above, the Judge concluded that the Cyprus Courts had no power or jurisdiction to issue such orders in aid of foreign proceedings.

It is rather clear from the above cases that the Cyprus Courts having adopted The Siskina were reluctant to assist other foreign jurisdictions in issuing free-standing injunctions.

5. Convoy Collateral Ltd v Broad Idea International Ltd [2021] UKPC 24

On 4 October 2021, the Privy Council issued its ground-breaking and much-anticipated judgment in Broad Idea.

The decision constitutes a landmark development in the law of injunctions - freezing injunctions in particular. It affirms the Black Swan jurisdiction (albeit obiter) and thus granting the power to common law courts to issue freezing injunctions against parties, subject to its jurisdiction, in aid of any foreign proceedings which may render a judgment capable of being enforced through the court's process.

Thereby casting away the fog of uncertainty over the true nature underpinning freezing injunctions by providing a sound juridical rationale.

Factual Background

Convoy Collateral Ltd in aid of anticipated proceedings against Dr Cho in Hong Kong applied and obtained freezing injunctions in the BVI against both Dr Cho and Broad Idea International Ltd, a BVI company of which Dr Cho owned 50,1% (non-cause of action defendant).

The freezing injunctions were granted by the first instance judge, pursuant to the Black Swan jurisdiction but overturned by the Court of Appeal, which concluded that the BVI court had no power to grant freezing injunctions absent the existence of BVI proceedings claiming substantive relief; following The Siskina and Mercedez Benz.

The issue before the Privy Council

The Privy Council had to address two issues: (i) do the BVI courts have the power pursuant to their civil procedure rules ("EC CPR") to authorise service on a defendant outside the jurisdiction of a claim form in which a freezing injunction is the only relief sought; and (ii) if the BVI courts have personal jurisdiction over a party, do they have the power to grant a freezing injunction against that party to assist enforcement through the court's process of a prospective (or existing) foreign judgment.

Service Issue

On the service issue, the Privy Council upheld The Siskina and Mercedes-Benz – deciding that the EC CPR did not contain a provision allowing for a claim form to be served out of the territorial jurisdiction where the only relief sought against the prospective defendant was a freezing injunction. Thus, the board concluded that the BVI court had no jurisdiction to permit the service of the claim to Dr Cho in Hong Kong.

Power issue

While ultimately dismissing the appeal on the facts of the case the Board, consider "both necessary and important on this appeal to confront and decide the power issue" - the second issue.

On the second issue, a 4:3 majority of the board departed from the traditional analysis in The Siskina and Mercedes Benz (and other leading authorities) and accepted that where a court has personal jurisdiction over a party, it has the power to grant a freezing junction against that party to assist the enforcement through its court's process of a prospective (or existing) foreign judgment. Thus, clarifying that granting a freezing injunction is not contingent on the existence of substantive (extant or prospective) domestic proceedings.

Pivotal to the majority's reasoning in upholding the existence of the power to issue freezing injunctions in aid of foreign proceedings was the enforcement principle. The enforcement principle holds that the jurisdiction to grant a freezing injunction lies in the court's power to protect enforcement of an existing or future judgment and not in any need to protect a substantive claim of right.

Ergo setting freezing injunctions apart from other interlocutory injunctions - since freezing injunctions are used to facilitate the enforcement of a future judgment, while other interlocutory injunctions are ancillary to a cause of action as they provide substantive relief on a temporary basis, paragraph [85]:

"the essential purpose of a freezing injunction is to facilitate the enforcement of a judgment or order for the payment of a sum of money by preventing assets against which such a judgment could potentially be enforced from being dealt with in such a way that insufficient assets are available to meet the judgment."

Lord Leggatt, summarised the true position in paragraph [101]:

" [A] court with equitable and/or statutory jurisdiction to grant injunctions where it is just and convenient to do so has power— and it accords with good practice—to grant a freezing injunction against a party ... over whom the court has personal jurisdiction provided that:

(i) the applicant has already been granted or has a good arguable case for being granted a [money] judgment ... that is or will be enforceable through the process of the court;

(ii) the respondent holds assets ... against which such a judgment could be enforced; and

(iii) there is a real risk that, unless the injunction is granted, the respondent will deal with such assets ... other than in the ordinary course of business with the result that the availability or value of the assets is impaired and the judgment is left unsatisfied."

He also went on and provided the following guidance and clarification on the application of the test:

"(i) There is no requirement that the judgment should be a judgment of the domestic court - the principle applies equally to a foreign judgment or other award capable of enforcement in the same way as a judgment of the domestic court using the court's enforcement powers.

(ii) Although it is the usual situation, there is no requirement that the judgment should be a judgment against the respondent.

(iii) There is no requirement that proceedings in which the judgment is sought should yet have been commenced nor that a right to bring such proceedings should yet have arisen: it is enough that the court can be satisfied with a sufficient degree of certainty that a right to bring proceedings will arise and that proceedings will be brought (whether in the domestic court or before another court or tribunal)."

6. Cyprus after Broad Idea

We consider that the Cyprus Courts will readily adopt and use their newly broadened common law weapon provided by the landmark judgment of Broad Idea in aiding foreign proceedings for the following reasons:

1. Firstly, section 32 of the Court of Justice Law of 1960 (Law 14/60), grants the Cyprus Courts the power to issue injunctive reliefs, in cases, in which it appears to the court just and convenient to do so, provided that: (i) there is a serious issue to be tried;(ii) there is a probability that the applicant is entitled to relief; and (iii) it would be difficult or impossible for justice to be served at a later stage if the injunction is not issued.

Section 32 has been interpreted by the Cyprus Courts to encapsulate Chabra orders, which are granted on the premise that the respondent holds or controls assets amenable to enforcement under a judgment that will be given against the cause of action defendant. Chabra orders are not issued in aid of the substantive claim, since the applicant has no such cause of action against the Chabra respondent. This indicates that the Cyprus Courts have already adopted the enforcement principle, rather than the assertion of substantive rights.

Also, the Cyprus Courts have asserted that section 32 is wide enough to cover the principle governing third-party disclosure orders (i.e. Norwich Pharmacal and Bankers Trust orders) - third parties themselves innocent of wrongdoing mixed up in it may be ordered to provide relevant information in their possession which the applicant needs in order to advance his claim. This reflects that the Cyprus Courts give effect to a process-oriented imperative of ensuring the proper administration of justice, rather than satisfying some existing rights of the plaintiff.

The above examples, inter alia, formed the stepping stones on which Lord Leggatt concluded that "there is no principle or practice which prevents an injunction from being granted in appropriate circumstances against an entirely innocent party even when no substantive proceedings against anyone are taking place anywhere"; mutantis mutantis there is no principle reason why the Cyprus Courts having espoused and applied the principles relating to Chabra orders, Norwich Pharmacal and Bankers Trust orders should not align themselves with the articulation of Lord Leggatt decision.

2. Secondly, it is apparent from the first instance of Cyprus cases provided above that the Cyprus Courts had to leapfrog (until recently) the insurmountable hurdle of The Siskina. The shackles of The Siskina were restraining the Cyprus Courts from exerting their power in assisting foreign proceedings in the absence of a statutory framework or a multilateral or bilateral treaty. Now that Broad Idea has curtailed The Siskina, there is no principal reason why the Cyprus Courts should not exert their power in assisting foreign proceedings.

3. Thirdly, distilling the essence of Broad Idea, it is clear that it has extended (or at least clarified) the common law principles relating to freezing injunctions. Pursuant to section 29(c) of the Courts of Justice Law (Law 14/1960), the Cyprus courts, in the absence of contrary legislation, must follow the principles of common law and equity a fortiori the common law principles espoused in Broad Idea should (and will) be followed by the Cyprus Courts.

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.