6 June 2011 | By Joanne Harris
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Cyprus is seeing a big rise in litigation. Joanne Harris finds out why, and looks at some of the ways lawyers are trying to get to grips with the situation
Cyprus has long been a popular place to establish companies. However, its popularity as a place to litigate disputes has until recently been more limited. In the past couple of years law firms on the island have seen the number of disputes rise sharply. But they are warning that this rise could in time lead to problems with volume in what remains a relatively small court system.
The reasons behind the rise in litigation are, lawyers say, only to be expected given the natural lifespan of companies.
Stelios Triantafyllides, a partner at Antis Triantafyllides & Sons, says many companies were established in Cyprus initially as pure holding companies. Over the years, Triantafyllides points out, these companies have gained in substance and size.
“As these companies mature they reach the point where disputes arise,” he explains. “I think the trend towards more litigation has to do with the fact that the market’s matured as a jurisdiction rather than there being more problems as such.”
Although others acknowledge that this would probably have happened anyway, there is a sense that the financial crisis speeded the process up.
“Following the crisis there were many disputes between shareholders because things weren’t moving as smoothly as before,” notes Panayiotis Neocleous, head of litigation at Andreas Neocleous & Co. “Projects came to a standstill because there was no way of paying off debt and loans.”
Although many of the companies bringing disputes could in theory litigate in a number of jurisdictions, Neocleous points out that Cypriot courts have jurisdiction by virtue of the place of incorporation.
Lawyers believe Cyprus has a number of other advantages when it comes to litigation.
“We’ve got a mature judicial system that was created and founded by the English, so we apply common law,” Neocleous comments. “Most of our statutes emanate from equivalent ones in the UK. By reference you can also refer to UK judgments and Privy Council judgments, although these aren’t of an authoritative nature.”
Cost is also an issue.
“Performing litigation in Cyprus is much less costly than in England, for example,” notes Alexandros Economou, a partner at Chrysses Demetriades & Co.
Harris Kyriakides partner Michalis Kyriakides agrees that the costs associated with dispute resolution in Cyprus are attractive. The country’s civil procedure rules provide a scale of costs, and a losing party will pay the opposing side’s costs on this scale. This provides some certainty on the most they will have to shell out.
However, Neocleous points out that parties are also free to pay legal advisers on an hourly rate should they wish. He believes this happens in most cases.
“The rates provided in the rules of the court are mean and nobody follows them,” he adds.
Time of actions
Timing is another advantage, say lawyers, although this is relative.
“The second incentive is time,” says Kyriakides. “We don’t have congested court cases in Cyprus. In Larnaca and Limassol you get a hearing within 12-18 months. The culture in Cyprus is result-orientated, so lawyers don’t spend thousands of hours on disclosure issues.”
Neocleous says judgments can sometimes take a while to appear. He cites the recent high-profile dispute over the Moskva Hotel in Moscow as an example. The litigation, which is being fought in several jurisdictions, was started in the London Court of International Arbitration (LCIA) by Russian member of parliament Ashot Egiazaryan.
Egiazaryan claimed businessman Suleiman Kerimov and other individuals and companies, a number of which are registered in Cyprus, had “deprived” him of his stake - worth $253m (£154m) - in the Moskva Hotel. While pursuing arbitration in London he also applied to the district court in Nicosia for interim relief against Kerimov and his associates, saying they were “trying to raise barriers between the plaintiffs and the disputed property and claims”. In September the court issued an interim order that froze shares owned by Kerimov worth more than $6bn.
However, six months later the court lifted the order, saying Egiazaryan and the other claimants had failed to provide sufficient evidence that it was needed. Neocleous says this delay was possibly too long.
“Clearly, going by the amount involved, this is a long time,” he says.
The backlog of cases in Cyprus is rising. At the end of 2010 the Supreme Court dealt with almost as many civil appeals as were filed, but still had 956 pending, an increase of 113 from 2009. At district court level the courts disposed of 22,059 cases in 2010, but there remained 31,136 pending.
Only 600 cases were heard partially or fully in Cyprus’s district courts, a drop on previous years (see tables). If litigation keeps rising the courts are likely to hit a point when the number of pending cases becomes too much to cope with.
Neocleous says lawyers would like to see some revision of Cyprus’s Civil Procedure Rules. There has been a number of small amendments to the way the courts function, but he wants a review to produce something similar to the recently revised rules in England and Wales.
“Our legislation requires some serious amendments or our court system will become obsolete,” he observes.
Meanwhile, arbitration is increasingly popular as a way of resolving disputes over Cypriot companies.
“There’s a big increase in arbitration that’s much faster,” Neocleous reports. “Because many agreements are governed by English law we get a lot of LCIA arbitration coupled with injunctive relief in Cyprus.”
Indeed, arbitration on Cyprus is set to rise.
“We have a good arbitration law,” states Triantafyllides.
The jurisdiction will shortly unveil its own arbitration and mediation centre. Neocleous explains that the initiative, backed by his firm, is designed to boost Cyprus’s profile in this area. The centre will adopt International Chamber of Commerce (ICC) rules and Neocleous believes it will save parties based in Cyprus a lot of time and money. When it opens later this year it will offer mediation, arbitration and training in alternative dispute resolution - mainly for lawyers from the Middle East and North Africa, who currently have little access to education in this area.
The centre will be headed by ex-UN Secretary-General Boutros Boutros-Ghali, who has encouraged the project.
“His presence is helping us to increase the number of specialist arbitrators who are willing to put their names forward as potential arbitrators,” says Neocleous.
“We think it will fill a need on the island,” the firm’s corporate head Elias Neocleous adds. “We’ve been lucky to persuade some top legal personalities in this area to help.”
Among the arbitrators who have put their names to the project is former head of Littleton Chambers Michel Kallipetis QC, now an independent arbitrator.
The Neocleouses hope the centre will encourage arbitration and help to speed up the process of handling disputes in Cyprus.
In the meantime, other lawyers point to different advantages the island has as a forum for litigation.
“There’s real independence of the judiciary,” says Kyriakides. “For people from other cultures, this is an advantage.”
Lawyers expect the amount of litigation in Cyprus to increase, at least for the time being. Kyriakides says many firms have seen a substantial rise in banking litigation, for example, “because there are many non-performing loans”.
Another area likely to increase is divorce cases involving high-net-worth individuals where, say, one half of a couple is seeking to gain shares held in a Cypriot company.
As Cypriot companies mature and the jurisdiction remains popular for the establishment of businesses, dispute resolution will be necessary. And the jurisdiction’s lawyers are keen to ensure all cases - in court and before arbitrators or mediators - are dealt with on the ground in Cyprus.