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Dispute Resolution in Cyprus

An interview with Nicos Georgiades and Nataly Papandreou

Georgiades & Pelides LLC


Nicos Georgiades has been in practice since 1988 and is a partner at Georgiades & Pelides LLC. He has a very strong litigation background, having acted for foreign governments, international banks and financial institutions, insurance companies and other international corporate and private clients. He specialises in large-scale international litigation and is considered a leading litigator in the urgent handling of cases requiring interim measures, including Mareva-type injunctions to freeze assets within the Cyprus jurisdiction. Nicos regularly advises in relation to complex cases involving shareholder disputes, corporate fraud, breaches of trust and fiduciary duty, and a wide variety of general commercial disputes. He has advised the Cyprus Securities and Exchange Commission in relation to its most complex investigation, into the affairs of a public company listed on the Cyprus Stock Exchange. Nicos is a barrister of the Middle Temple and is the co-author of the Cyprus chapter of International Fraud & Asset Tracing, published by Thomson Reuters (third edition, 2015).

Nataly Papandreou has been in practice since October 2012 and joined the firm in September 2015 as an associate in the litigation department. She specialises in banking and commercial litigation and advises on the whole spectrum of banking and commercial disputes. Nataly is dually qualified as an advocate in Cyprus and a barrister in England and Wales with full rights of audience. Nataly previously worked as a barrister in the commercial law department of a London City firm specialising in commercial fraud, and dealt with cross-jurisdictional issues under the Proceeds of Crime Act 2002, asset tracing and recovery, Financial Conduct Authority matters and insolvency claims. She also acted for clients in claims for withheld VAT in missing trader intra-community fraud cases and other UK Tax Tribunal claims. Nataly obtained her LLB (Hons) from University College London in 2010 and was called to the Bar of England and Wales in 2011. She was subsequently awarded a scholarship for academic achievement to complete an LLM and further qualified as a civil and commercial mediator by the ADR Group in London.

GTDT: What are the most popular dispute resolution methods for clients in your jurisdiction? Is there a clear preference for a particular method in commercial disputes? What is the balance between litigation and arbitration?

Nicos Georgiades and Nataly Papandreou: The most popular dispute resolution methods for clients in Cyprus are litigation and arbitration, though there has been a cumulative increase in the prevalence of mediation. Conciliation is less often but also used as an ADR mechanism. Although litigation remains the most prevalent dispute resolution regime with regards to commercial disputes, it is unclear whether this is the result of a specific preference as opposed to indulging in traditional and familiar pre-existing litigation practices. Depending on the nature of the commercial dispute, however, parties may resort to arbitration, for example, where issues that require extensive expertise to be resolved are likely to determine the outcome the case, such as in construction disputes. Litigation is far more common that arbitration, although arbitration is becoming increasingly popular as a method of dispute resolution.

GTDT: Are there any recent trends in the formulation of applicable law clauses and dispute resolution clauses in your jurisdiction? What is contributing to those trends? How is the legal profession in your jurisdiction keeping up with these trends and clients’ preferences? Does Brexit continue to affect choice of law and jurisdiction?

NG & NP: There are no recent trends in the formulation of applicable law clauses and dispute resolution clauses in Cyprus. It remains to be seen how Brexit will affect choice of law and jurisdiction.

GTDT: How competitive is the legal market in commercial contentious matters in your jurisdiction? Have there been recent changes affecting disputes lawyers in your jurisdiction?  How is the trend towards ‘niche’ or specialist litigation firms reflected in your jurisdiction?

NG & NP: Subject to the matters outlined below, Cyprus’ common law and adversarial system, geographical location and well-established international business infrastructure, render Cyprus an attractive international dispute resolution jurisdiction. Recent changes affecting disputes lawyers in Cyprus are outlined in detail below.

Additionally, via the continuous and successful efforts of various entities, Cyprus is now perceived as an ideal international ADR jurisdiction. Such entities include:

  • the Cyprus Chamber of Commerce and Industry, an independent body operating under specific legislation that aims to promote the interests of the business community and that submits relevant recommendations to executive bodies and provides continuous education courses;
  • the Cyprus Arbitration and Mediation Centre, which was established with a view to promoting arbitration and mediation in Cyprus and to act as an ADR forum; and
  • the Cyprus Eurasia Dispute Resolution and Arbitration Centre (CEDRAC) in Nicosia, which was inaugurated in 2011 as an international arbitration centre.

‘Niche’ and specialist litigation firms do not exist in Cyprus.

GTDT: What have been the most significant recent court cases and litigation topics in your jurisdiction?

NG & NP: One of the most interesting topics in the context of commercial disputes is the relatively recent express recognition by the Supreme Court of the existence of Cypriot courts’ jurisdiction to grant interim relief in the form of ‘Chabra’ orders – a power emanating from the English case of TSB Private Bank International SA v Chabra and another (1992). In this, a Cypriot litigant may join in an action as co-defendant to any person against whom no direct cause of action lies but against whom the grant of interim relief would facilitate the action against the main defendant (that is, the person against whom a cause of action exists). This would include instances where there are reasonable grounds to believe that such a co-defendant is in possession or control of assets that the main defendant is beneficially entitled to and that could potentially be used for execution purposes in satisfaction of any judgment to be issued against the main defendant. This power is particularly useful in Cyprus as litigation concerning fraud allegations via complex corporate and trust structures is increasingly prevalent.

A related and interesting topic has arisen recently before the Supreme Court in the case of Oneworld Limited v OJSC Bank of Moscow, where the defendants, a provider of fiduciary-services, applied for a stay of execution of a disclosure order issued by the first instance court, pending the appeal against the granting of that disclosure order. The Supreme Court in a majority decision held that, among other things, immediate compliance with the disclosure order would, for all practical intents and purposes, stifle the appeal. It remains to be seen whether and to what extent this decision will erode the drastic nature of disclosure orders granted by way of interim relief.

A further interesting development occurred recently in the context of trademark registration in the case of McDonald’s Corporation v The Republic of Cyprus, where a Singapore-based company, the owners of the trademark ‘MacCoffee’ depicting an eagle and referring to instant coffee mix, applied for its registration to the relevant authority – the Cyprus Trademarks Registrar. McDonald’s Corporation submitted an objection to the above application, which the registrar rejected, following which McDonalds submitted an application for judicial review. The administrative court rejected the application for judicial review but the Supreme Court, in allowing the appeal, held, among other things, that the registrar failed to compare the syllabic structure and acoustic rhythm of the two trademarks as he ought to have done, and wrongfully focused exclusively on an optical assessment of the trademarks in question.

One of the most interesting topics in the context of commercial disputes is the relatively recent express recognition by the Supreme Court of the existence of Cypriot courts’ jurisdiction to grant interim relief in the form of ‘Chabra’ orders.

One of the most debated judgments issued by the Supreme Court in the past few years was in relation to the ‘bail-in’ of the two major banking institutions in Cyprus: Cyprus Popular Bank Co Ltd and Bank of Cyprus (the Banks) in the case of Myrto Christodoulou and others v Central Bank of Cyprus and others (2013). The applicants, who were depositors or otherwise debtors of the banks, filed applications for judicial review against the relevant decrees issued by the Central Bank of Cyprus. In dismissing the applications, the Supreme Court held, among other things, that any claims the applicants have as depositors and debtors should be brought before civil courts; these claims falling within the ambit of civil law (breach of contract) and not public law. Following this decision a large number of civil actions were commenced and are now pending before the district courts (civil division). Additionally, a large number of misselling claims were commenced by holders of the banks’ debentures, of no value to date, alleging that employees or representatives of the banks induced them via a series of false misrepresentations into purchasing complex investment products by being led to believe, among other things, that they constitute mere depository schemes. These claimants invariably co-joined as co-defendants the Central Bank of Cyprus and the Cyprus Securities and Exchange Commission, among others, for breach of their statutory duties in, among others, failing to adequately supervise or monitor the issue and sale of these banking investment products to the general public. A large number of misselling actions have also been filed against a number of Cyprus banks in relation to the provision foreign currency loans. No final judgment on the substance has yet been issued in relation to these cases and it is yet to be seen whether and to what extent the district courts are to hold the implicated banks or authorities liable vis-à-vis the property and contractual rights and losses of each claimant. It is further noted, that in the absence of a group litigation or a binding ‘test case’ procedure in place, these cases have flooded the district courts and are likely to further delay or even stifle the resolution of other civil disputes, and may potentially lead to inconsistent results as different district court judges may take different views on matters of general application. This, in turn, renders the first-instance judgments to be issued more amenable to appeal and thus may also potentially flood the Supreme Court in the future.

GTDT: What are clients’ attitudes towards litigation in your national courts? How do clients perceive the cost, duration and the certainty of the legal process? How does this compare with attitudes to arbitral proceedings in your jurisdiction?

NG & NP: Clients’ attitudes towards litigation before Cypriot national courts vary depending on the nature of their case and the precise procedures it is likely to trigger. For example, whereas a delay between three and five years is generally observed for civil actions to be heard and decided upon by the district court, Cypriot courts are generally swift in hearing applications for interim relief, which is often a matter of a few days (depending on whether an order is issued on a without-notice basis).

Interim procedures are particularly attractive for commercial clients who wish, for example, to apply for interim relief against an entity with assets within the jurisdiction. The interim relief to be granted may range from mandatory, prohibitory and freezing injunctions, to worldwide freezing and anti-suit injunctions, to disclosure, tracing, search and seizure, gagging and Chabra orders. These interim procedures have been adopted as part of accommodating the English law of equity into the Cyprus legal system and ordinary equitable principles apply.

Clients do not generally exhibit similarly positive attitudes towards the duration, certainty and cost of the legal process in relation to main civil actions, primarily because they must get through a ‘bottleneck’ of the backlog of undecided cases that affects the even flow and disposition of cases of the litigation process often for a period of three to five years, depending on the particular judge. The delay caused by unqualified court congestion often leads to a loss of public respect for the justice system and is inextricably associated with practical and critical issues, such as the permanent deterioration of evidence. Delays often lead to an unjustified escalation of legal costs, although legal costs in Cyprus are awarded on the basis of costs ‘scales’. Additionally, these delays combined with the demonstrable hesitation of national courts to robustly apply their powers under the summary judgment procedure enshrined in the Cyprus civil procedure rules, invariably create an unwarranted opportunity for system abuse by any defendant to advance a non-meritorious defence, often amounting effectively to a bare denial, as a mere tactic for securing time. Such abuse of the legal process is mostly apparent and controversial in straightforward debt collection actions filed by banks that may need to wait for a period of six to seven years to collect the loan amount and interest from the date of default, assuming immediate execution of the consent judgment issued occurs.

To avoid the court congestion and associated delays outlined above, parties often resort to arbitration that often better serves parties’ interests where, for example, speedy resolution is critical for maintaining an ongoing business relationship or where matters of technical nature arise, such as in claims for defective premises. Parties, however, may feel that a legally qualified, trained and experienced court judge is better suited to resolve their dispute where complex legal or evidential issues arise, for example, where a non-legally qualified or trained arbitrator is faced with the question as to whether or not a particular term should be implied into a contract. However, it is often difficult or impossible to predict at the time of the drafting the relevant arbitration clauses whether litigation or arbitration would best serve the parties’ interests. This consideration, though, is of little relevance in relation to straightforward debt collection claims filed by banks for whom arbitration is clearly a more attractive dispute resolution method than litigation, for the reasons outlined above.

GTDT: Discuss any notable recent or upcoming reforms or initiatives affecting court proceedings in your jurisdiction.

NG & NP: The most notable reform affecting court proceedings in Cyprus is the recent amendment of Orders 25 and 30 of the Cyprus Civil Procedure Rules (Civil Procedure). This procedural amendment was intended to reduce pretrial delays and facilitate speedy resolution of disputes before Cyprus civil courts. Some of the main amendments are:

  • the imposition of stricter deadlines in taking steps toward litigation, where non-compliance leads to the immediate dismissal of the action or cross-action;
  • a provision that all interim steps a litigant intends to take must be disclosed to the court within 30 days from the date of issue of the ‘summons for directions’, which is issued within 30 days of the close of pleadings. Failure by a litigant to disclosure any such intended steps, disentitles him or her to later apply for the same;
  • after the issue of the summons for directions the parties may not amend their pleadings except under specific circumstances;
  • in relation to cases where the value does not exceed €3,000, the court issues directions with regards to the exchange of written evidence, taking into account the number of witnesses and the time of preparation of the written evidence as disclosed in advance; and
  • in relation to cases where the value exceeds €3,000, the court issues directions for the disposition of the action on the basis of a witness list and a summary of their evidence, provided in advance by the respective parties.

These amendments have sparked significant controversy among the Cypriot legal community. For example, the Cyprus Bar Association (CBA) has repeatedly, and more recently via a letter to the Supreme Court dated 11 July 2016, conveyed its strong disagreement in respect of the above amendments and called for a re-amendment and a further debate. It is the CBA’s belief that these amendments will not alleviate, nor even assuage, pretrial delays but, on the contrary, in view of their often ambiguous wording, ambiguous effect when read in conjunction with other civil procedure provisions and doubtful compliance with parties’ constitutional rights of access to due process, they are likely to lead to further delays by triggering unnecessary litigation so as to decipher their proper interpretation and effect. The CBA has set out specific recommendations in this regard including, among others, a recommendation that these amendments are restricted to cases where the value of which does not exceed €5,000 and for special courts to be completely exempted from these amendments. It is yet to be seen whether the Supreme Court in the exercise of its powers will heed the CBA’s concerns and recommendations, although no such indication exists to date.

The amendments to the Cyprus Civil Procedure Rules have sparked significant controversy among the Cypriot legal community.

GTDT: What have been the most significant recent trends in arbitral proceedings in your jurisdiction?

NG & NP: Arbitration proceedings in Cyprus are primarily governed by the detailed provisions of the Arbitration Law, Cap. 4 and Law 101/1987 on international commercial arbitration, which reflects the UNCITRAL Model Law with some minor amendments. There have been no recent significant trends in respect of these provisions.

GTDT: What are the most significant recent developments in arbitration in your jurisdiction?

NG & NP: The most significant recent developments in arbitration in Cyprus emanate from the enactment of relevant legislation pursuant to which certain disputes are referred to arbitration. For example, the amending law 122(I)/2014 inserted provisions into the Building Societies Law 22/1985 granting a power to the ombudsmen for buildings societies to refer a particular dispute to arbitration. The arbitral award issued may be appealed before the court within a specified deadline, otherwise it is rendered executable as an ordinary court judgment. Another important development in arbitration can be seen in the context of consumer disputes via the enactment of Law 148(I)/2015 on ‘out-of-court settlement of consumer claims by referring claims to arbitration’, which transposes the requirements of Directive 2013/11/EU on Alternative Dispute Resolution for Consumer Disputes. This law aims to provide an ADR regime to consumers via arbitration. It provides for the establishment of a relevant authority that is responsible for adjudicating consumer disputes submitted before it. The arbitrator, who must be listed in the relevant register, must issue an award within 15 days from the conclusion of the arbitral proceedings. Where a debt is not satisfied, the creditor may apply to the district court to have the arbitral award registered and executed as a court judgment.

GTDT: How popular is ADR as an alternative to litigation and arbitration in your jurisdiction? What are the current ADR trends? Do particular commercial sectors prefer or avoid ADR? Why?

NG & NP: Although no relevant official statistics have been reported, it may generally be observed that mediation is becoming increasingly popular in Cyprus, particularly following the enactment of Law 159(I)/2012 (Mediation Law) transposing the requirements of EU Directive 2008/52/EC on ‘certain aspects of mediation in civil and commercial matters’. The Mediation Law effectively constitutes an attempt to regulate the mediation process by making provision for, among other things:

  • the creation of a register of mediators and relevant minimum requirements;
  • mediators’ duties during the mediation process;
  • procedural matters pertaining to the mediation process;
  • the role of the court; and
  • enforcement of any settlement agreement reached.

The Mediation Law applies to civil disputes, defined as any dispute that may be the subject of civil proceedings and excludes family disputes. It also applies to cross-border disputes, including cross-border employment disputes. It does not apply to any dispute that the parties have no freedom to determine as per the applicable law or tax, customs or administrative disputes or disputes concerning the state’s actions or omissions. Thus, the wording of the Mediation Law is wide enough to capture the whole spectrum of commercial disputes.

Although, arguably, the very enactment of the Mediation Law has enhanced the use of mediation in Cyprus, the local legal culture often exhibits an indolent resistance to embracing the full benefits of the mediation process. Such complacency with existing and often unworkable litigation practice is arguably reinforced by the provisions of the Mediation Law itself in that, although section 15(1) provides that the court that an action is pending before may invite the parties to attend an information session on the use of mediation and the possibility of resolving the dispute via mediation, any of the parties may veto that possibility, as the consent of all parties is required before the power of the court to stay proceedings for mediation to take place is triggered. Thus, the use of mediation is subject to the absolute volition of the parties, which often suffers from a misinformation gap regarding the potential benefits mediation may confer over the litigation process. In our view, the popularity of mediation could increase if the Mediation Law is amended such that a power is conferred to the court to compel parties to engage in mediation process; which would inevitably compel parties, as well as their legal representatives, to consider, acknowledge and embrace the full benefits of mediation as an effective dispute resolution method.

Conciliation is, albeit more rarely, also used by parties to a dispute. Via this process the parties may refer an issue for expert determination and an agreement is entered into whereby the parties agree to accept the expert’s opinion. That agreement is enforceable as a private agreement and not as an arbitral award. There is no specific legislation that regulates the conciliation process. Both mediation and conciliation are often used, for example, by the construction industry where issues of technical nature arise and as a way to avoid disturbing an ongoing business relationship.

In view of the large caseload that is overwhelming the courts and causing substantial delays to the administration of justice, it is expected that parties to a dispute will increasingly turn to ADR. For example, there are extensive ADR processes taking place in Cyprus between consumers and the banks as per the provisions of Law 84(I)/2010 on ‘the establishment and operation of a single agency for the out-of-court settlement of disputes of financial nature (financial ombudsman)’, which was enacted to implement the EU Commission Recommendation 98/257/EC. These mediations occur with the aid of a financial ombudsman appointed pursuant to the provisions of this law. The financial ombudsmen examines consumers’ complaints against credit institutions with a view to settling those disputes. Generally, ‘consumer’ includes a natural person or a legal person whose annual turnover, in the year preceding the year of the submission of the complaint, does not exceed €250,000. The amount the financial ombudsman may award may not exceed €50,000. Acceptance by both parties of the binding nature of the ombudsman’s decision renders it final and not subject to an appeal before the court. Where the credit institution has not complied despite its express acknowledgment of the binding effect of the decision, a consumer may take legal measures against it before a court.

One cannot however ignore the persistent misalignment between the provisions of Cyprus civil procedure with today’s complex commercial needs and realities. In particular, the combined absence of a court’s power to compel parties to participate in any form of ADR practice other than arbitration, substantive or procedural obligations on intended litigants to consider ADR prior to commencing proceedings and a pre-action protocol on pre-action conduct, impose an unwarranted hindrance on the speed of development of ADR in Cyprus that must be adequately addressed to effectively entrench ADR in the local legal culture.

The Inside Track

What is the most interesting dispute you have worked on recently and why?

This would be the application for the recognition in Cyprus under common law principles of a liquidator appointed in a non-EU country. The case is interesting as it will test the limits that Cypriot court may refuse to recognise a liquidator appointed in a non-EU country, for public policy or a number of other reasons.

Describe the approach adopted by the courts in your jurisdiction towards contractual interpretation: are the courts faithful to the actual words used, or do they seek to attribute a meaning that they believe the parties actually intended?

Reforming civil procedure rules and rules of evidence in a way that it will facilitate speedy trials and obstruct delaying tactics by litigants and their legal representatives without jeopardising the litigants’ rights to due process.

What piece of practical advice would you give to a potential claimant or defendant when a dispute is pending?

Always to have a practical approach and to have in mind that more often than not (considering hearing issues, costs and other relevant factors) an out-of-court settlement might best serve the client’s interests.

Nicos Georgiades and Nataly Papandreou
Georgiades & Pelides LLC
Nicosia
www.cypruslaw.com.cy


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