Will the “Black Swan” fly over to Cyprus?

As widely reported, on 4 October 2021, the Judicial Committee of the Privy Council issued its much anticipated decision in Broad Idea International Limited v. Convoy Collateral [2021] UKPC 24. With its judgement, the Privy Council effectively upheld the Black Swan jurisdiction, which is derived from the BVI judgement in the case Black Swan Investment ISA v Harvest View Ltd (BVIHCV 2009/399) (unreported) 23 March 2010 and is expected to have drastic effects in broadening the traditionally conceived limits of the powers of common law Courts to issue freezing injunctions in aid of international creditors.

The Black Swan jurisdiction provides that BVI Courts have jurisdiction/power to issue stand-alone freezing injunctions against Respondents residing within the jurisdiction of the BVI Courts in aid of foreign proceedings so as to ensure that any final judgement to be issued in favour of the applicants within the framework of those foreign proceedings (and which could be recognised and enforced in the BVI) would not be left unsatisfied due to dissipation of assets by the BVI Respondents.

The Black Swan judgement was praised at the time it was issued for departing from the notion that freezing injunctions could only be issued within the framework of substantive proceedings pending before the same Court – an established common law principle emanating from the well known judgement of the House of Lords in the Siskina (owners of cargo lately laden on board) and others v Distos Compania Naviera SA [1979] AC 610. The reasoning in the Siskina, which has since been adopted by Cyprus Courts at first instance, provided that: “A right to obtain an interlocutory injunction is not a cause of action.  It cannot stand on its own.  It is dependent upon there being a pre-existing cause of action against the Defendant.”

The Black Swan had therefore expanded a much needed power of the BVI Courts, while making waves in all common law jurisdictions, to provide assistance to proceedings pending abroad on, what was universally deemed to be, sound policy grounds. As Bannister J stated in the judgement:

“The business of companies registered within such jurisdictions is invariably transacted abroad and disputes between parties who own them and others are often resolved aboard. It seems to me that when a party to such a dispute, is seeking a money judgment against someone with assets within this jurisdiction, it would be highly detrimental to its reputation, if potential foreign judgment creditors were to be told that they could not, if successful, have resort to such assets, unless they were to commence substantive proceedings here, in circumstances where, in all probability, they would be unable to obtain permission to serve them abroad – thus presenting them with an effective brick wall”.

Much to the disappointment of legal practitioners dealing with international asset recovery in common law jurisdictions where such power was not regulated by express statutory provisions (such as the BVI and Cyprus and unlike the UK where the Siskina reasoning was promptly dealt with by Section 25 of the Civil Jurisdiction and Judgments Act 1982), a decade later, on 29 May 2020 the BVI Court of Appeal issued its judgement in the Broad Idea International Limited v Convoy Collateral Limited (BVICMAP 2019/0026) (the “Convoy 2”), abolishing the Black Swan jurisdiction as wrongly decided and hinted at the need for the legislature to extend the powers of the Courts to that effect. It was held:

“as undesirable as it may be perceived in modern day international commerce, that the courts of the BVI, though having in personam jurisdiction over Broad Idea, being a BVI registered company, have no subject matter jurisdiction to grant a free standing interlocutory injunction against it in aid of foreign proceedings, there being no statutory basis for the exercise of such a jurisdiction. It is for the Legislature of the BVI to step in and clothe the court with such authority.”

Shortly thereafter, the question was brought before the Judicial Committee of the Privy Council – the court of final appeal for the UK overseas territories and Crown dependencies as well as those Commonwealth countries that have retained the appeal to Her Majesty in Council or, in the case of republics, to the Judicial Committee. With its judgement in the Broad Idea, the majority of the Privy Council, embarking on a very useful historic exploration of the development of the common law principles relating to Mareva injunctions, has now gloriously resurrected the Black Swan jurisdiction while casting doubts on the limitations deriving from the Siskina reasoning, effectively stating that it constitutes an anachronistic approach which was led down at the time where Mareva freezing injunction where still at their infancy. Effectively the Privy Council limited the Siskina principles to the interpretation of the relevant Civil Procedure Rule and did not extend it to cover the jurisdiction to issue injunctions under the broad powers of the Court.

Cementing the “enforcement principle” underpinning freezing injunctions, the Privy Council held that Courts have power to issue stand-alone freezing injunctions, regardless of the lack of statutory provisions to that effect, since “the purpose of the injunction is to prevent the right of enforcement from being rendered ineffective by the dissipation of assets against which the judgment could otherwise be enforced. Once it is appreciated that the essential purpose of a freezing injunction is to facilitate the enforcement of a judgment or other order to pay a sum of money, it is apparent that there is no reason in principle to link the grant of such an injunction to the existence of a cause of action.”

The Privy Council referred to the power granted to the Courts since 1873 to issue interim injunctions whenever it was just and equitable to do so. A power that has been retained throughout all the amendments of the relevant acts and which is directly reflected in the similar provisions of several common law and/or commonwealth countries, including Cyprus. In a useful summary of the (now) rediscovered powers of the Courts set out in the Broad Idea, the Privy Council held that a Court with equitable or statutory jurisdiction to grant injunctions (subject to the fulfilment of the standard requirements regulating such power based on the specific facts of each case– e.g. demonstration of good cause of action/possibility of success, balance of convenience, compliance with the duty for full and frank disclosure etc.) “has power to grant freezing injunctions against a party (the respondent) over whom the court has personal jurisdiction provided that:

1. the applicant has already been granted or has a good arguable case for being granted a judgment or order for the payment of a sum of money that is or will be enforceable through the process of the court;
2. the respondent holds assets against which such a judgment could be enforced; and
3. there is a real risk that, unless the injunction is granted, the respondent will deal with such assets (or take steps which make them less valuable) other than in the ordinary course of business with the result that the availability or value of the assets is impaired and the judgment is left unsatisfied.”

Where does this leave Cyprus?

In the period after the issue of the Black Swan and before the issue of the Broad Idea, the author could locate only three reported first instance judgements issued by President Judges of the District Courts of Cyprus dealing with the question whether Cyprus Courts have power/jurisdiction to issue interim freezing orders in aid of proceedings pending before the Courts of a non-EU Member State (or in support of enforcement proceedings over a foreign judgement – non-EU- not yet recognised in Cyprus) against respondents residing in Cyprus. These are: CLOSED JOINT-STOCK INVESTMENT COMPANY FINANSOVY DOM ν. UFS CAPITAL LIMITED and others, Action no.: 4480/15, 19/5/2016, Volodimir Spilnichenko ν. ANGILERI INVESTMAENTS LTD and others, Action no.: 5652/15, 31/3/2017, VTB Bank (PJSC) ν. Polchenko and others, Application no. 14/2019, 1/6/2020.

Much like in the Convoy 2, in all three cases, the Cyprus Courts held that in the absence of specific statutory provisions permitting the issue of interim protective relief under such circumstances (i.e. where the substantive/main proceedings are not pending for adjudication before the same Cyprus Court), the Cyprus Courts do not have jurisdiction/power to issue stand alone freezing injunctions in aid of foreign proceedings solely pursuant to the -otherwise wide- provisions of section 32 of the Cyprus Courts Law of 1960 (Law 14/60) and hinting that the matter should be left to be regulated via the enactment of specific legislation to that effect.

The statutory power of Cyprus Courts to issue freezing injunctions is derived from section 32 of the Cyprus Courts Law of 1960 (Law 14/60). Section 32 provides that every Court, in the exercise of its civil jurisdiction, has the power to grant an injunction (interlocutory, perpetual or mandatory) or appoint a receiver in all cases in which it appears to the Court just or convenient so to do, even if no other substantive relief is requested, subject to the following requirements: (1) a serious question arises to be tried at the hearing; (2) there appears to be a probability of success to that claim i.e. that plaintiff is entitled to relief; and (3) it shall be difficult or impossible for justice to be served at a later stage without granting an interlocutory injunction.

Over the years, the provisions of section 32 have formed the legal basis permitting the issue of an array of injunctions and other interim orders within the framework of existing proceedings pending before the Cyprus Courts – much in line with the Siskina reasoning. Moreover, in cases where other statutes or common law principles, expressly conferred power to the Cyprus Courts permitting the issue of injunctive relief in aid of foreign or contemplated proceedings, Cyprus Courts have always examined the provisions of section 32 in conjunction with such other statutes, sometimes by analogy (e.g. the Courts would examine whether a serious question to be tried has been demonstrated with reference to the foreign proceedings). Statute granting power to Cyprus Courts to issue orders in aid of foreign proceedings include section 9 of the International Commercial Arbitration Law of 1987 (Law 101/1987) and section 35 of the REGULATION (EU) No 1215/2012 (recast) with regards to measures issued in aid of existing or contemplated foreign arbitration proceedings worldwide or civil and arbitral proceedings before the EU Courts respectively.

More importantly for our purposes, Cyprus Courts have used the power conferred by section 32 to issue disclosure orders in favour of applicants seeking necessary information which would allow them to initiate substantive proceedings at a future date – commonly referred to as Norwich Pharmacal orders. In these cases, the substantive cause of action against the prospective defendants would not have been initiated yet and it is accepted that, upon disclosure, such cause of action might be initiated before the Courts of another country (and not necessarily before the Cyprus Courts). Interestingly, unlike the circumstances mentioned above where specific statutory provisions empower Courts to issue injunctions in aid of foreign proceedings, in the cases of Norwich Pharmacal orders there is no specific statutory provision empowering Cyprus Courts to issue such orders and Cyprus Courts, essentially adopting common law principles, have accepted that section 32 is wide enough to constitute the legal basis for the issue of such disclosure orders without the need for statutory amendment to that effect.

In light of the above, it may appear curious why the Cyprus Courts have recognised the ambit of section 32 as wide enough to allow for the issue of interim orders in order to assist applicants who have suffered wrongdoing and contemplate the initiation of an action either in Cyprus or abroad but, when faced with a Black Swan type of situation, felt that the same statute could not confer to them the same power to issue freezing injunctions in aid of foreign proceedings pending before a non- EU Court – without a relevant statutory amendment. Surely, when the respondent (either the alleged wrongdoer/judgement debtor or party holding assets on their behalf) is resident within the jurisdiction and, thus, when the Cyprus Courts have jurisdiction in personam over the said respondent, one would expect that Cyprus Courts would be able utilize the wide powers conferred to them by section 32 and issue protective measures in aid of proceedings pending abroad (regardless of whether the main proceedings are pending to be adjudicated in Cyprus). There is nothing in the wording of section 32 to restrict such possibility – especially given that the same provisions are used (by analogy) in cases where orders are already being issued in aid of foreign existing or contemplated arbitration or civil proceedings when separate statutes (above) provide so.

Similar considerations apply with regard to the issue of Chabra orders against non cause of action defendants, a practice adopted by Cyprus Courts applying the relevant principles developed by the English Courts.

In the author’s view, the reluctance of the Cyprus Courts to utilize the provisions of section 32 in Black Swan-type of situations lies on the simple fact that in such cases, Cyprus Courts have constrained themselves by following the reasoning of the Siskina and subsequent judgements with similar reasoning like Credit Suisse Fides Trust SA v. Cuoghi (1977) 3 All.E.R 724 , which, deriving from common law, have been adopted by the Cyprus Courts and provide that “the court could not grant interlocutory relief when the substantive proceedings were taking place abroad” unless relevant statutory provisions expressly permit so. In fact, in two out of the three reported Cyprus cases mentioned above, the respective Honourable Judges made specific reference to the Siskina and the Credit Suisse cases and stated that persuasive guidance was drawn therefrom. By contrast, in Norwich Pharmacal type of cases, the Cyprus Courts have not shown the same reluctance to utilise the powers of section 32 as the basis of interim relief as, on the one hand, the Siskina reasoning dealing with freezing injunctions did not expressly extend  to this type of disclosure orders and, in parallel, there was already established common law doctrine providing that courts have an equitable power to issue Norwich Pharmacal type of orders that Cyprus Courts could draw guidance from (and which was later adopted by Supreme Court of Cyprus and now forms precedent).  Of course, the recent issue of the Broad Idea judgement is about to change matters.

After the issue of the Broad Idea by the Privy Council, both of the above mentioned issues apparently underpinning the refusal of Cyprus Courts to grant a Black Swan type of relief have now been resolved: The Broad Idea, while not overruling per se, has adversely criticized this part of the reasoning of the Siskina to the extend that it can no longer be considered as good law and, at the same time, by re-interpreting the philosophy behind Mareva injunctions and advocating the “enforcement principle”, it serves as a novel common law expansion of the power of the Courts to issue freezing injunctions even when the substantive proceedings are taking place abroad (or are intended to take place abroad) in cases where the final judgement could be expected to be capable of recognition and enforcement domestically. 

But is the Broad Idea binding upon the Cyprus Courts?

Given that Privy Council jurisdiction was abolished upon the independence of the Republic of Cyprus, Cyprus Courts treat decisions issued by the Judicial Committee of the Privy Council as of persuasive, and not of binding, authority. However, it is emphasized that decisions issued by the House of Lords and/or the Supreme Court of England after 1960, such as the Siskina and Credit Suisse (above), are also treated as persuasive, and not binding, authority. In practise, Cyprus Courts, functioning in a common law jurisdiction, almost always adopt and follow the reasoning of common law, especially English, authorities (unless there are compelling reasons not do so: e.g. if different legislation is applicable and governs a specific area of the law upon which a judgement is issued). In this respect, in the same vein as Cyprus Courts have adopted and followed the reasoning of Siskina in the past, they are equally expected to draw guidance and follow the reasoning of Broad Idea too – and as explained above, there is, in fact, every reason to do so.

In other words, there is no longer any sound policy reason or common law doctrine which could serve as guidance or hurdle against the issue of Black Swan-type of relief by the Cyprus Courts. To the contrary, freed from the constrains of the Siskina, the Cyprus Courts will almost certainly draw guidance from the Broad Idea, the latter being a more recent (than the Siskina) and very persuasive authority for the Cyprus Courts on an issue which reflects accurately enough the current state of the existing legislation in Cyprus and is also mindful of the modern realities of international commerce.

Thus, it is submitted, that legislative amendment on the power of the Cyprus Courts to issue injunctive relief in aid of foreign proceedings, even though welcome, is no longer needed and Cyprus Courts have now, more than ever, all the legal tools at their disposal to adopt the reasoning of the Broad Idea and recognise their existing power to issue Black Swan type of relief in aid of foreign proceedings when just and equitable to do so. Even though, strictly speaking, not yet here, the Black Swan is evidently a few wing-flaps away from flying over to Cyprus too (obligatory pun intended)!

Authored by: Theodoros Symeonides