Focus on: Dispute Resolution in Cyprus

Elias Neocleous & Co LLC

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Background

To date, in Cyprus, the dominant means of settling large commercial disputes is via litigation. There is often negotiation before and during court proceedings but no legal obligation on or expectation that the parties will engage in such discussions unless they have specifically agreed to do so.  Alternative dispute resolution methods (“ADR”) are a relatively new concept, other than in the construction and co-operative institutions sectors, but they do exist and are gaining in popularity. An important factor in this is that whilst the courts are generally efficient in determining applications for interim relief, final adjudication in a case can be protracted and commonly take between three and six years to obtain.

It is also generally accepted that the procedures and infrastructure of the courts are in need of reform and modernization.  During large periods of the Covid-19 pandemic in 2020, Cyprus courts were unable to operate at all as they lacked both the hardware and the technical know-how to work remotely.  This pushed the Ministry of Justice and the Supreme Court of Cyprus to embrace and introduce technology in the legal system of the country. Certain small but important steps in the right direction have been taken and many more are under implementation. Whilst this difficult situation has pushed most competent lawyers to explore and embrace other avenues of redress for their clients, including formal arbitration and mediation processes, it is expected to be several more years before these formal ADR processes become an established credible general alternative to litigation.

Cyprus has for many years worked hard to promote itself as an ideal venue for headquartering of international organisations and for foreign investment in general.  As a consequence it is quite common for large commercial disputes to involve international parties at corporate and individual level.

Cyprus has been a full EU member state since 2004. As a result, where main court proceedings take place in another EU member state – or in a third country with which Cyprus has a bi-lateral agreement – it is common, for the parties to seek provisional measures in Cyprus in support of the foreign court proceedings. The commercial disputes arising are varied and may be linked to issues such as fraud, contractual disputes, corporate disputes, common monetary claims and more.

Litigation

Legal framework

Cyprus is primarily a common law jurisdiction with a justice system which is based on the adversarial model. The courts are bound by the doctrine of precedent according to which the superior courts’ decisions are binding on subordinate courts. Whilst not necessarily binding, it is not uncommon for  judgments of superior UK courts to be cited in domestic court proceedings with persuasive force and be followed by local courts. In turn this offers the parties to a commercial action the advantages of consistency, predictability and efficiency.

The Supreme Court sits at the apex of the system and large commercial disputes are usually heard in the highest level of the district courts. The Supreme Court has unlimited jurisdiction, and its functions include acting as a court of appeal.  In this role its decisions are final unless overturned by the European Court of Justice (“ECJ”) or the European Court of Human Rights (“ECHR”). Initial hearings take place before one judge whilst, appeals are heard by a panel of three judges.

In general, the applicable laws for commercial disputes are a combination of EU Law, principles of common law and equity and domestic law including the Contract Law, the Civil Wrongs Law and the Companies Law.

The principal source of law for establishing jurisdiction in civil and commercial matters is EU Regulation 1215/2012.  If the matter in dispute falls outside of this domestic legislation and common law principles will apply.  When determining the law applicable to the dispute the court will have regard to EC Regulation 593/2008 (Rome I) and EC Regulation 864/2007 (Rome II).  It should also be noted that Cyprus law recognises the doctrine of res judicata.

Judgments of Cyprus courts are directly enforceable in other EU member states.  They may also be enforceable in other non-EU states with which Cyprus has entered into a treaty. There are currently agreements in place with Belarus, Bulgaria, China, Czech Republic, Egypt, Germany, Georgia, Greece, Hungary, Montenegro, Poland, Russia, Serbia, Slovakia, Slovenia and Ukraine. Similarly, Cyprus is required to enforce most judgments of other EU courts and of the nations with which it has bi-lateral agreements.

Interim measures

Whilst Cyprus court hearings may be lengthy it is possible for a claimant to ask the court to order a variety of interim measures to ensure that any eventual judgment in their favour can be satisfied. One of the most effective measures that may be imposed by the courts is a ‘freezing’ order preventing the defendant alienating and removing his assets from the claimant’s reach.  Such an order may be granted if the court is satisfied that:

  • The issue to be addressed is a serious one.
  • It is probable that the claimant is entitled to relief.
  • Failure to grant it would create difficulties in achieving complete justice at a future date.
  • The balance of convenience weighs in favour of it.

Other common forms of interim relief that may be granted include:

  • Discovery and tracing orders.
  • Interim injunctions blocking specific actions or events.
  • Anton Piller orders.
  • Gagging orders.
  • Appointment of a receiver or administrator.
  • Ancillary disclosure orders.
  • Anti-suit and/or anti-enforcement injunctions.
  • Quia timet injunctions to prevent unlawful actions that may have been threatened.

Under certain circumstances, injunctions are available in Cyprus even where jurisdiction over a matter rests with a foreign court or tribunal, either under Regulation 1215 or under the Cyprus law on International Commercial Arbitration (Law 101/87).

Remedies

A claimant must, in his claim, explicitly state the relief that he is requesting the court to award. The claimant bears the burden of proof and must provide adequate evidence for the court to decide on the balance of probabilities that his case is truthful.  The standard of proof required increases in line with the gravity of the case.  If the court finds in favour of the claimant it may award the requested relief if it believes it to be justified and within the power of the court to award. Alternatively, it may order a different remedy.

There are numerous remedies that the court may award.  The most common of these are:

  • Damages (general, special and punitive);
  • Possession and foreclosure;
  • Appointment of a receiver;
  • Rectification;
  • Recission;
  • Injunctions;
  • Account of profits;
  • Declaratory judgements; and
  • Specific performance.

Judgment and appeals.

Judgments are published online and are accessible by the public.  The length will depend on the complexity of the case, but normally the text will include: a summary of claims and proceedings; evidence adduced by both parties; evidence accepted by the court; relevant legal principles; summary of the legal arguments advanced by each party; application of legal principles to court accepted evidence; and the verdict.  The court has discretion over the granting of costs, and these are usually payable after the final judgment has been given.

Judgments may generally be appealed on points of law or on finding of facts in the event that they are erroneous or not supported by the evidence. The Supreme court will usually hear appeals within a period of two to four years from filing.  Appeals against interim orders may be heard sooner than this and if warranted, the Supreme Court may determine an appeal on an expedited basis.

Alternative Dispute Resolution

ADR is still in its infancy in commercial disputes in Cyprus. However, it is gaining in popularity, and many law professionals now also opt to train and gain relevant qualifications so that, where it may be beneficial to their client, they can promote ADR rather than litigation as a solution. Arbitration, international arbitration, mediation, and conciliation are all procedures which are available in Cyprus. The Cyprus courts have no power to compel disputing parties to use ADR, although they can recommend its use, engaging in it is on a voluntary basis only. In general ADR proceedings are confidential but in some circumstances disclosure may be possible.

Arbitration

In Cyprus arbitration is mandatory for disputes involving co-operative institutions.  It has also proved to be a popular means of settling disputes in the building and contracting sector, where internationally large construction and infrastructure projects have for many years incorporated arbitration clauses as a standard contractual provision. Increasingly other business sectors are also seeing arbitration as a cheaper and speedier means of resolving disputes than court action.  Many companies are now including arbitration clauses in their contracts requiring both parties to resolve any contractual dispute through a binding  arbitration process, either through a recognised arbitration centre or through an ad hoc process, both for its speed of resolution as compared to litigation, but also because of its confidential nature.

In matters of domestic arbitration the Arbitration Law, Cap 4 gives the court powers to:

  • Appoint an arbitrator, and
  • Issue orders for:
    • Security of costs;
    • Disclosure of documents;
    • Maintenance or sale of goods which are the focus of the arbitration procedure;
    • Security for the amount of money in dispute; and
    • Other interim measures such as the appointment of a receiver.

The court may also set aside any award made if it is proven that the Arbitrator has been guilty of misconduct or there is evidence of other impropriety surrounding the proceedings or award.

In matters of international arbitration, the procedures, duties and powers of the arbitrator and circumstances where the national court may be involved in the process are as set out in the International Arbitration Law (101/87) unless the parties have previously agreed otherwise. Where the parties have agreed to use a different procedural law any ‘gaps’ in it will be filled by the provisions of Law (101/87), which is closely modelled on the UNCITRAL Model Law.  Irrespective of the procedural law chosen, mandatory provisions of Cyprus law must be followed.  The national courts can also issue interim orders in support of the arbitration proceedings.

Mediation

In Cyprus, mediation is a purely voluntary process.  It offers a confidential low cost procedure through which disputing parties can attempt to reach a binding agreement. It is less popular for use in resolving commercial disputes since the outcome is linked to the specific interests and appetite for resolution of the relevant parties rather than any application of law.  It can, however, be a cost-effective way of organising and setting out the basics of the dispute ahead of any litigation.  EU Directive 2008/52/EC on mediation in commercial and civil matters has been transposed into Cyprus law via Law 159(I)/2012.

Conciliation

This is not a popular option in Cyprus for dealing with commercial disputes. It is similar to mediation but involves an independent conciliator providing a non-binding opinion on possible terms for settling the dispute.  If it is accepted it becomes a dispute resolution agreement.

Future Developments

The Government has announced that it intends to establish a specialised Commercial Court.  This would exclusively deal with complex commercial disputes involving claims of over €2m.  Once operational this should help to reduce the burden on the district courts and allow for swifter final judgments. So too should the imminent appointment of additional permanent judges. Alongside this the Covid-19 pandemic has provided impetus to the process of introducing ‘e-justice’ to the Cyprus court system. As noted previously, the courts’ paralysis during a large period of 2020 also served to spotlight the benefits of effective ADR.  Many legal professionals have been and are training and qualifying in arbitration, mediation and conciliation methods in order to offer their clients an alternative to litigation, with arbitration clauses being increasingly incorporated into a wide range of commercial contracts.