An extract from The Asset Tracing and Recovery Review, 8th Edition

Seizure and evidence

i Securing assets and proceeds

As one would expect given the common law influence on the Cyprus legal order described above, the means that are available to a victim of dishonesty in England and other common law countries to secure assets and proceeds and to obtain evidence are available in Cyprus, too. Indeed, if in its evolving nature the common law made available new means to these victims, it is likely that the Cyprus courts would soon follow suit.

Injunctions freezing the assets of a defendant

Injunctions freezing the assets of a defendant until the conclusion of main proceedings that have been filed against him or her can be issued ex parte on the combined basis of Section 32 of the Courts of Justice Law and Section 9 of the Civil Procedure Law. Essentially, for a court to issue such an injunction it must be satisfied that the matter is urgent, that the applicant has a strong prima facie case against the defendant and that, if the injunction is not issued, it will be difficult or impossible for justice to be delivered at a later stage.

For many years, the Cyprus courts declined to issue freezing injunctions in relation to assets that were situated abroad. This changed with the issuance of the Supreme Court of Cyprus' judgment in the case of Seamark Consultancy Services Limited v. Joseph P Lasala and Others. Here, the Supreme Court confirmed as correct the first instance judgment whereby a freezing injunction over assets situated outside the jurisdiction was issued. The Supreme Court noted that the English courts had adopted the same approach (starting with the case of Derby & Co Ltd and Others v. Weldon and Others), and that the injunction had an in personam effect, meaning that if it was breached, sanctions can be imposed on persons within the jurisdiction who are responsible for this breach.

Recently, in assessing the broad powers conferred on the courts pursuant to Section 32, the Supreme Court cited Seamark Consultancy Services Limited v. Joseph P Lasala and Others and added that:

The Cyprus courts, following the English Courts, held that they should adopt a line of judgments in order to meet the rapid changes in technology and the communication sector as well as . . . modern change in the ways people trade. The transactions concluded in all parts of the world within minimum time through the electronic system and the transfer of money from one account to another, from one country to another, in almost minimum time require new approaches in relation to the issuance of interim orders so that they provide an effective weapon in the hands of the parties until the conclusion of the dispute.

Injunctions freezing assets until the conclusion of proceedings filed or to be filed abroad can also be issued on the basis of the following:

  1. The International Arbitrations Law: on the basis of this Law, a Cyprus court can issue an injunction freezing the assets of a defendant in Cyprus until the conclusion of international arbitration proceedings filed or to be filed against the defendant either in Cyprus or abroad. An international arbitration is defined by this law as one where:
    • at the time of conclusion of an agreement providing for arbitration, the parties to this agreement had their business seat in different countries; or
    • the place where an arbitration will take place or to which the subject matter of the agreement is more closely connected is outside the country where the parties have their seat of business; and
  2. Article 35 of Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012: on the basis of this provision, a Cyprus court can issue freezing injunctions over assets in Cyprus in aid of proceedings that have been filed or are to be filed in the courts of another EU Member State.

In the now-leading case of Commerzbank Auslandsbanken Holding AG and another v. Adeona Holdings Limited, the Supreme Court of Cyprus (reversing the first instance judgment) issued freezing injunctions and disclosure of information injunctions in support of foreign arbitration proceedings before the International Chamber of Commerce.

The Supreme Court of Cyprus examined the conditions for the issuance of interim injunctions on the basis of this EU Regulation in a recent judgment in the case of Trafalgar Developments Limited and others v. Uralchem Holdings PLC and others. The case concerned an application for freezing injunctions and disclosure orders in support of a civil action pending in the High Court of Ireland.

The above-mentioned provisions of the International Arbitrations Law and of Regulation EU No. 1215/2012 are both very regularly applied by the Cyprus courts.

ii Obtaining evidence

There are various ways in which a claimant may obtain documentary evidence or information. On the basis of the civil procedure rules, a defendant can be ordered to disclose under oath the documents in his or her possession that are relevant to a pending case, while witnesses can also be summoned to adduce relevant documents in their possession.

Perhaps more importantly, the courts also have the power to issue what are known as Norwich Pharmacal disclosure orders. On this basis, a third party not necessarily involved in any wrongdoing may be ordered to produce relevant documents and information. These documents can be requested on the basis that they are needed to discover the wrongdoers or because information is needed for a case to be filed and pleaded. In the Avila case (see Section I), the Supreme Court confirmed that disclosure orders on this basis can be issued in order for proceedings to be filed abroad.

Disclosure orders on this basis are very commonly issued against banks by the Cyprus courts. In a recent case, a major international pharmaceutical company discovered, through the use of private investigators, that certain individuals were selling counterfeit copies of its products through a website. It was also discovered that proceeds from these sales were being paid into bank accounts in a Cyprus bank. A disclosure order was issued against the bank, ordering the bank to disclose the beneficial owners of these bank accounts and also details of the movement of the bank accounts. Such orders are also issued very commonly in tracing actions where the victims of fraud need to find out where their money has been transferred.

A person who, in breach of a disclosure order, refuses to make disclosure is liable to face contempt proceedings, which are of a quasi-criminal nature.

As noted above, disclosure orders can also be issued in the context of the AML Law. Section 46 of the AML Law provides that the disclosure order may be granted if the court is satisfied that:

  1. there is a reasonable ground to suspect that a specified person has committed or has benefited from the commission of a prescribed offence;
  2. the information is likely of itself or together with other information to be of substantial value to an investigation;
  3. the information is not privileged; and
  4. it is in the public interest for the information to be disclosed.

The provisions of Section 46 of the AML Law were considered by the Supreme Court of Cyprus in the case of Edrinotio Ltd and others. Here, MOKAS obtained a court injunction ordering four local banks to disclose information in relation to the bank accounts of 59 companies. MOKAS applied for this injunction following a request for legal assistance made towards it by the Russian Federation. This was in the context of investigations carried out by the Russian police against a number of ex-officials of the Bank of Moscow who were suspected of defrauding the bank and illegally transferring funds to bank accounts held in Cyprus by these 59 companies.

After the issuance of the above injunction, the 59 companies filed a certiorari application at the Supreme Court seeking its annulment. They based their claim on certain provisions of the Cyprus Constitution that safeguard the inviolability of correspondence and the right to privacy.

On the correspondence point, the Supreme Court held that the bank documents that were ordered to be disclosed could not be classified as correspondence and rejected the relevant submission. On the right to privacy issue, the Supreme Court held that the bank documents in question could not be considered as being of a private nature; and that, in any event, the case was covered by the exception provided for by the Constitution that permits an infringement of the right to privacy for reasons pertaining to the public interest and the protection of the rights of other persons.

The Supreme Court, therefore, rejected the certiorari application and held that the disclosure orders had been issued lawfully by the court.

Preserving evidence

This can be achieved through the issuance, in the context of a civil case, of an Anton Piller order, which can be issued on an ex parte basis.

In its judgment in the Stepanek case, the Supreme Court laid out the conditions for the issuance of such an order, which it described as a 'nuclear weapon' in the hands of a plaintiff:

  1. the plaintiff must be able to demonstrate that it has a strong prima facie case;
  2. the activities of the defendant are causing very serious damage to the plaintiff;
  3. there is reliable evidence that the defendant does possess incriminating documents or other evidence; and
  4. there is a real danger that the defendant may destroy the relevant documents or evidence if it becomes aware that court proceedings will be filed against it.