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Enforcement of Arbitration Awards in Cyprus – recent developments

Constantine Lambrianides

The global financial crisis of 2008 has generated a substantive amount of financial disputes between multinational and international entities. A much favoured method of resolving such disputes is through Arbitration proceedings. The merits of Arbitration are not going to be explored in this article. Suffice it to mention that cost, speed and privacy are the main reasons why parties opt for arbitration as a preferable mode of dispute resolution.

Cyprus Courts have seen a rise in the filing of petitions for the Recognition and Enforcement (“R&E) of International Arbitration Awards (“IAAs”). This is due to the fact that a number of entities participating in International Arbitrations are in fact incorporated in Cyprus. It is worth noting that even after the Cyprus banking crisis of 2013, Cyprus still remains a preferred destination for setting up corporate structures.

R&E of IAAs is facilitated in Cyprus through the operation of the provisions of Law 84/1979 (which is the ratifying Law of the New York Convention of 1958) as well as Law 101(I)/1987 on International Commercial Arbitration.

Whereas Laws 84/1979 and 101(I)/1987 provide for the substantive law framework for R&E proceedings, Law 121(I)/2000 on the Recognition and Enforcement of Foreign Judgments provides for the procedural law framework in such proceedings.

The overwhelming majority of R&E of IAAs proceedings brought before Cypriot courts concern enforcement against Cypriot Entities. This kind of enforcement has been consistently uneventful, as legal principles governing the R&E of IAAs against Cypriot Entities are now set in stone. Courts can only reject a petition for R&E of IAAs for the specific reasons that are provided for in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention 1958) Article V (and in the ratifying Cyprus Law 84/1979) namely,

  1. if the party against whom the award is sought to be enforced presents proof that the arbitration agreement was not valid under the law of the country where the award was made;
  2. no proper notice of appointment of the arbitrator was given;( Cyprus courts are satisfied if the notice is given through a recorded method i.e. process server or any other method usually prescribed for this purpose by the Arbitration Tribunal)
  3. the award dealt with issues beyond the scope of the submission to arbitration (Cyprus courts give a wide interpretation to the “scope of the submission of arbitration” adopted the position expressed in Premium Nafta Products Ltd and others v. Fili Shipping Company Ltd and others (2007) EWCA Civ 20 namely “A proper approach to construction therefore requires the court to give effect, so far as the language used by the parties will permit, to the commercial purpose of the arbitration clause”);
  4. the composition of the arbitral authority or the arbitral proce¬dure was not in accordance with the agreement of the parties (As per Ukrainian Vodka Company “Nemiroff” ν. Nemiroff International Limited, Application No. 543/2013, 24/6/2015 provisions of the arbitration agreement as to the composition of the arbitral authority should be adhered to.);
  5. the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

Further to the abovementioned reasons of objecting to an application for R&E of IAAs, case law provides instances where R&E of IAAs were rejected for procedural reasons e.g. where a copy of the arbitral award presented to the Court was not duly certified (As per Arsanovia Limited ν. Cruz City Mauritius Holdings Application 706/13, 18/12/2013.).

The above reasons for objecting to the recognition and enforcement of an arbitral award in Cyprus may be presented by a Respondent to an R&E application or may be examined by the Court on its own motion with no request having being made by a Respondent (As per In Re Beogradska Banka D.D. (1995) 1 CLR 737.

As mentioned above, the R&E of IAAs proceedings against Cyprus entities is a tried and tested procedure with few to none surprises. The same certainty does not apply when R&E of IAAs is sought against entities that are not registered in Cyprus.

Law 121(I)2000 which as stated above operates as the procedural framework for the R&E of IAAs proceedings seems to lack definite and precise wording that would [apply to][include within its scope] entities incorporated outside Cyprus. As per Article 3 of the said law the definition “foreign court order” includes an arbitration award.

The issue was explored in the case of Hepp III Luxembourg Master SARL ν. Central Europe Finance (Holding) SA (Application 20/12, dated 24/9/2013) where the Court was called to decide upon an application to set aside an originating summons for the R&E of an IAA of the International Court of Arbitration of the International Chamber of Commerce. The said application for setting aside the originating summons argued that the Cyprus Courts “were lacking jurisdiction” to entertain a petition for the R&E of an IAA.

The Court took a conservative view on the issue and ruled that it did not have jurisdiction to entertain such petition since neither the Applicant nor the Respondent had their seat in Cyprus and this fact alone did not satisfy the procedural requirements set forth by Law 121(I)/2000 (Article 2 of Law 121(I)/2000 provides that “Court” means the District Court of the District where the Respondent resides […] In the case where the Respondent resides abroad or in the case where in the proceedings where a judgment was issued in absence of an adversarial party, “Court” means the district Court or Family Court of the District where the Applicant Resides.) .

A similar issue was raised in the case of Cruz City 1 Mauritius Holdings ν. Unitech Limited a.o (Application 402/14, dated 30/12/2015). The Court took a polar opposite view on the matter (compared to what was decided in Hepp III Luxembourg Master SARL above) and rejected the objections of the Respondent, namely that the Court lacked jurisdiction to register and enforce an LCIA award on the basis that both the Applicant and the Respondent were foreign entities and neither had a place of operation in Cyprus.

The Court adopted the rationale of Udruzena Beogradska Banka v Westacre Investment, Inc ((1999) 1(Α) CLR 124) as it was expressed in the case of Metal Trading v Open Stock Company “Novokouznetski Aliouminiyievi Zavont (MEAT “NKAZ”) (Application 58/01) that (i) since Law 121(I)/2000 does not apply in the case where Applicant and Respondent do not reside in Cyprus and (ii) no special rules are in place for the implementation of the New York Convention, then the Civil Procedure Rules would offer relief (The Civil Procedure Rules in question are not examined in this article. ). The Court went on to say that any other approach to the issue would annihilate the provisions of the New York Convention.

Neither the Cruz City nor Hep III judgments have a binding effect over Cyprus Courts since both judgments were issued by the District Court and not the Supreme Court. It should be noted that the judgment in Cruz City 1 Mauritius Holdings has been appealed. Until time of publication of this article no judgment on the appeal has been yet made and the issue still remains unresolved and pending final determination.

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