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Extending the reach of Mareva Injuction. The Worldwide effect.Cyprus case law development.

    Thinking in concrete terms the positive end of any litigation relates to the assets and the potential enforcement of the judgment being obtained. Nevertheless, there is always the risk that the defendant will remove his assets from the court’s jurisdiction, thus defeating the creditor of his claims. No court should allow the defendant to create such a situation which undermines the efficacy of the judicial process. Most common law litigants are aware nowadays of the effectiveness and success of Mareva injuctions. This type of order was the answering measure of the courts in England to this hide and seeks game.

    By way of introduction it is essential to note that English courts have exercised jurisdiction to grant injunctions, which has come to be called Mareva Injuction, since 1975 named after the well known homonymous decision Mareva Compania Naviera S.A. v International Bulkcarriers S.A. (The Mareva) C.A. June 23, 1975, the case in which its validity was first upheld by the Court of Appeal given on an ex parte application. 

    Mareva injuction is essentially the offspring of equity. Not exactly a procedural innovation but the evolution of the equity doctrines. As such, equity acts against the person whereas common law remedies exist as of right. In synopsis a Mareva injuction is an injunction that freezes assets. It is the unique characteristic of Mareva that it does not operate as an attachment of property, but it is a relief in personam, which restrains the owner of the assets from dealing with them. The freezing injuction restrains a defendant from dealing with or disposing of or removing from the jurisdiction any or all of his assets to prevent their dissipation. It is considered to be an extraordinary order whereas the general rule is that there should be no execution before judgment. It was thus stated by Lord Denning in the Mareva case that: 

“…the principle applies to a creditor who has a right to be paid the debt owing to him, even before he has established his right by getting judgment for it. If it appears that the debt is due and owing –and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment- the Court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets”. 

    While it appears that English courts had jurisdiction to grant Mareva injuctions over foreign assets it has been the practice to limit such orders and ancillary disclosure orders within the jurisdiction. In line with this approach was the decision in Ashtiani v Kashi [1987] Q.B. 888, known for its proposition that, where a Mareva injunction is granted before judgment, the injunction should be limited to assets within the jurisdiction of the court. The reasons for this view are nicely envisaged in the L.J Dillon’s speech:  

“In my judgment there are valid reasons why the Mareva injunction should be limited to the assets of the defendant within the jurisdiction of the court. First, it could very well be oppressive to the defendant that, as a result of an order of an English court, his assets everywhere should be frozen or he should be subjected to applications for seizure orders in many other jurisdictions. Second, it is difficult for the English court to control or police enforcement proceedings in other jurisdictions. It is not very desirable that the English court should attempt to control such foreign proceedings, and the difficulties are underlined, where, as here, the plaintiffs are not resident within the jurisdiction of the English court. Third, as Lord Roskill pointed out in his speech in Home Office v Harman [1983] 1 A.C. 280,323, our judicial process in requiring discovery involves invasion of an otherwise absolute right to privacy. The particular form of discovery he was concerned with there was the discovery in the course of an action and the production of relevant documents with a view to the fair trial of the action, but his comment that the order involves an invasion of privacy applies with fullest force to an order on an individual or a company to disclose all his or its assets throughout the world. Fourth, it has been many times laid down that the object of a Mareva injunction is not to give the plaintiff security for the amount of his claim in advance of judgment in the action; but, if there is an order for disclosure of foreign assets, that may lead to the plaintiff obtaining security in some foreign jurisdiction” 

    Reversing this restrictive approach the English Court of Appeal in a series of decisions issued such “protective” orders for assets located abroad. The three landmark decisions were Babanaft International Co. S.A. v Bassatne [1990] Ch.13, Republic of Haiti v Duvalier [1990] Q.B.202 and Derby & Co v Weldon No. 1 [1990] Ch.48.  The latest case sums up the stage of evolution of Mareva injuction as settled law contemplating this as an instrument of international cooperation. In subsequent litigation between the same parties Derby & Co v Weldon No. 6 [1990] the court held in that instance that the jurisdiction to grant a Mareva injuction depends on the unlimited jurisdiction of the English court in personam against any person who is properly made a party to proceedings. 

    Turning to the internal legal order the Supreme Court of Cyprus readily adapted the Mareva injunctions. Noted, that the doctrine of equity is applicable in Cyprus by virtue of section 29 of Courts of Justice Law (Law 14/60). The Mareva line was followed in the case of Nemitsas Industries Ltd V S & S Maritime Lines Ltd & Others (1976) 1 CLR. 302. Though some scepticism in a number of cases the doctrine was fully adopted from thereon. Further the statutory authority for the court to grant an injunction derives from section 32 of the aforesaid statute which gives wide discretional power to the Court in the exercise of its civil jurisdiction to grant an injunction (interlocutory, perpetual or mandatory) in all cases in which it appears to the Court just or convenient so to do. Provided that an interlocutory injunction shall not be granted unless the court is satisfied that there is a serious question to be tried at the hearing, that there is a probability that the plaintiff is entitled to relief and that unless an interlocutory injunction is granted it shall be difficult or impossible to do complete justice at a later stage.

    The conditions laid down by the Supreme Court for granting a Mareva injuction were the same as of any interlacutory order:

-there is a serious question to be tried at the hearing (prima facie case);

-that there is a probability that the plaintiffs are entitled to relief;

-that it shall be difficult, if not impossible to do complete justice at a later stage, unless an interlocutory injunction is granted provided that the applicant

-plaintiff should make full and frank disclosure of all matters in his knowledge that are material for the Court to know;

-the plaintiff should give some grounds for believing that there is a risk of the assets being removed or dissipated before the judgment or award is satisfied or a Mareva injunction is necessary to prevent a fraud on the court or the adversary, and

-the plaintiff must give an undertaking as to damages.           

    The Pastella Marine Company Ltd v National Iranian Tanker Company Ltd (“Pastella Marine”) [1987] case, which examined the history and development of the doctrine the Supreme Court, was concerned with an appeal against the decision of the Admiralty Court at first instance which concluded that an order in the nature of a Mareva injunction could be made, notwithstanding that the vessel in question was out of the jurisdiction because as the remedy is an equitable one and equity acts in personam, it matters not that the property in the control of the defendants (appellants) was outside the jurisdiction, so long as those to whom the order is addressed can appropriately be restrained horn parting with the properly.

    The Appeal Court bearing in mind the restrictive approach as was then approved in English case law hesitated to stress the jurisdictional limits of the Mareca injuction stating that the same can only be issued with regard to assets within the jurisdiction. Consequently the Mareva type order was set aside.  It was pointed out that the Court was not able to trace any authority to the effect that a ship outside the jurisdiction but registered and owned by a company registered within the jurisdiction can be the subject of a Mareva injunction. An extra territorial extension of Mareva injunction, was considered not only oppressive to the defendant but difficult to enforce as well in that case.

     Such was the background when recently the Supreme Court of Cyprus was invited to consider the principles of the territorial scope of the Mareva injunction in the joined appeals of Seamark Consultancy Services Ltd v Joseph P. Lasala and Fred S. Zeidman, Co-Trustees of the Aremisoft Liquidating Trust C.A. No.71/2006, 74/2006, 92/2006 (16/2/2007).

    As a result of a lawsuit filed by the Trustees of the Aremisoft Liquidating Trust, the District Court of Nicosia issued an interim order freezing assets world wide of Lykourgos Kyprianou and persons and companies affiliated with him. The order results from his role in one of the largest international frauds resulting in losses of over US $500,000,000 to over 6000 former investors of Aremisoft Coproration (hereinafter “Aremisoft”), a bankrupt Nasdaq-listed software company with offices in New Jersey, London, Cyprus, and India, who reside throughout the world. The Aremisoft Liquidating Trust was established in 2002 by order of the U.S. District Court (constructive trust) to pursue claims and recoveries for the former shareholders of Aremisoft. Following a settlement with Roys Poyiadjis, a former Chief Executive Officer at Aremisoft has consented to final resolution of the Commission’s securities fraud charges against him brought in October 2001. Poyiadjis agreed to disgorge approximately $200 million of unlawful profit from his trading in AremisSoft stock, and to entry of a final judgment that prohibits him from acting as an officer or director of a public company.

    The appellants primarily submitted that a Mareva injunction could not be made on the present occasion as it relates to assets “ex juris” based on the outcome of Pastella Marine case that a Mareva injunction can only be issued with regard to assets within the jurisdiction. The opposite reasoning of the judgment was founded on corresponding English case law. With the disapproval of the restrictive line of authorities by the subsequent English decisions as read above the foundation against “worldwide” Mareva has gone.

    The Supreme Court of Cyprus in a well reasoned appeal judgment adopted the worldwide effect of Mareva injuction implementing its English equivalent. The Court by way of reference to Î’P Holdings Ltd & Others v Andreas Kitallides & Others (No.2) [1994] J.S.C. 694 noted the wide wording of Section 32 of the Law 14/60 which could cover as a matter of jurisdiction the grant of an injunction of a Mareva nature in respect of assets which are not within the jurisdiction of the Court. The Appeal judge referred to the principles emerging from the English case law stretching that as fraudulent schemes increasingly involve international dealings, and as the ease with which assets may be transferred abroad increases, the worldwide Mareva order becomes an increasingly invaluable tool which may be used to assist victims of international fraud. The reason for the shift away from previous courts’ practices by the Court of Appeal is in full accord with the line laid down by the English case law which seems to have been the realisation that modern technological progress had made it extremely easy for defendants to transfer their assets with the minimum delay and effort, and that the new situation required a judicial response to the growing number of calls for action to be taken in order to restrain defendants from hiding assets abroad beyond the reach of plaintiffs.          

    As a result the Supreme Court dismissed the appeals launched by former chairman of AremiSoft Lycourgos Kyprianou and also rejected the appeals of King Mazzax Lines Limited, Sernark Consultancy Services Limited, Global Consolidator Limited, L. K. Global (Holdings) NV., Aremis Holdings Limited, Aremis Technology Ventures Limited, Sincock Holdings Corporation, Southwood Management Limited and Palantine Asset Management LW. The Supreme Court judge had ruled that the appeals were unwarranted, ordering that all their accounts worldwide remain frozen thus upholding the Court’s decision at first instance.

    Hence, it is now established beyond question that Mareva injuction may be granted in respect of assets abroad in appropriate cases and the said case marks the new era of evolution in this area of Cyprus law.

    A further dimension which the Supreme Court, given the facts of the above case, did not have to deal with, was that since the entry of Cyprus to E.U. the Republic is bound by the Council Regulation EC 44/2001 “On jurisdiction and the recognition and enforcement of judgments in civil and commercial matters”. Under section 10, article 31 confers jurisdiction to the courts of member states for such provisional, including protective, measures –like Mareva injuctions- as may be available under the law of that state, even if, under the Regulation, the courts of another member state have jurisdiction as to the substance of the matter. There is a further critical effect that such provisional measures amount to “judgments” within the meaning of Article 32 of the Regulation. Bearing in mind that the Judgments Regulation requires the recognition and enforcement of all judgments or orders which fall within its scope, whether final or interlocutory, subject to limited exceptions there is an additional reason for Cyprus courts not to refrain from granting inter partes Mareva injunctions in cases falling within the Judgments Regulation in relation to assets situated in the territories of other E.U. states.

    This article began by indicating that the Mareva injunction was developed as the responsive mechanism of English law to the maneuvers employed by the Defendants by the use of debt avoidance vehicles like foreign companies, nominee directors, bearer shares and the like to render any future judgment useless. Alongside with the disclosure orders which normally accompany a Mareva injunction to assets abroad came to be an integral part of an effective litigation strategy. The Mareva order adapted in its early stage by the Cyprus courts, the latest decision of the Supreme Court in the Aremisoft litigation meets the present commercial reality and it is justifiable in terms of international law. 

Cases referred:

  1. Mareva Compania Naviera S.A. v International Bulkcarriers S.A. (The Mareva) C.A. June 23, 1975.
  2. Ashtiani v Kashi [1987] Q.B. 888
  3. Babanaft International Co. S.A. v Bassatne [1990] Ch.13.
  4. Republic of Haiti v Duvalier [1990] Q.B.202.
  5. Derby & Co v Weldon No. 1 [1990] Ch.48.
  6. Nemitsas Industries Ltd V S & S Maritime Lines Ltd & Others (1976) 1 CLR. 302.
  7. Pastella Marine Company Ltd v National Iranian Tanker Company Ltd (“Pastella Marine”) [1987].
  8. Seamark Consultancy Services Ltd v Joseph P. Lasala and Fred S. Zeidman, Co-Trustees of the Aremisoft Liquidating Trust C.A. No.71/2006, 74/2006, 92/2006 (16/2/2007).
  9. Î’P Holdings Ltd & Others v Andreas Kitallides & Others (No.2) [1994] J.S.C. 694.

 By Dr. Pavlos Neofytou Kourtellos


Patrikios Pavlou & Co

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