Guidance from the Cyprus Court of Appeal on interim injunctions involving fraud allegations

A recent ruling by the Cyprus Court of Appeal provides key insights into the standards required for granting such injunctions, especially where fraud and conspiracy are alleged.

?1. Brief summary of the case facts

The case of TOUCHSTONE SNAIL TECHNOLOGIES LTD κ.α. v. K. INVEST CONSULTING S.A.L. OFFSHORE (Civil Appeal no. E11/21, 29/3/2024) revolves around a business dispute between two entities, in which the claimants (the respondents) alleged that the defendants (the appellants) engaged in fraudulent behaviour and conspiracy. The respondents had entered into agreements with the appellants for investment in snail farming, which was expected to yield returns over several years. However, the appellants terminated the agreements, citing water shortages and other external factors. The respondents alleged that the termination was a pretext, as the appellants continued to attract new investors and form new entities without informing the original investors, which they claimed amounted to fraud and conspiracy.

The District Court had issued interim freezing orders on the appellants' assets and Norwich Pharmacal orders for the disclosure of financial information. The appellants challenged these orders, resulting in this appeal.

2. How courts should approach allegations of fraud in interim injunctions

The Court of Appeal took a detailed approach in explaining how fraud should be understood in the context of interim injunctions. Drawing from established common law principles, it emphasised that fraud is not an independent tort but falls under claims such as deceit or fraudulent misrepresentation. This understanding was supported by legal texts like Bullen & Leake & Jacob's Precedents of Pleadings and Clerk & Lindsell on Torts.

In cases involving fraud, the court must consider whether the claim involves false representations made knowingly or recklessly with the intent to deceive. Fraud must not be treated as a stand-alone civil wrong, but rather in conjunction with deceit. The Court referred to Pasley v. Freeman and Derry v. Peak to underscore the importance of intention and the falsehood of representations in establishing fraud.

Additionally, conspiracy was discussed as a separate ground of liability. As noted in the case law cited (Christoforou v. Barclays Bank Plc and Paikkos v. Kontemeniotis), conspiracy requires an agreement between two or more parties where the predominant purpose is to harm the claimant. The conspiracy claim must show that the actions taken were specifically intended to injure the other party, not merely to advance the defendants’ own interests.

3. Court's decision on the issue

In reviewing the District Court’s decision, the Court of Appeal found that the lower court had erred in its understanding and application of fraud and conspiracy. It clarified that the first two elements of fraud, as outlined in Article 36 of the Civil Wrongs Law, Cap. 148, were not adequately supported by the evidence. While there were allegations of false representations by the appellants, the court found that key components—such as whether the respondents acted upon those representations or suffered losses as a direct result—were not sufficiently proven.

Regarding the conspiracy claim, the Court acknowledged that the appellants had continued their business operations through new entities but did not find enough evidence to suggest that the appellants’ primary goal was to harm the respondents. The evidence showed that the appellants were primarily acting in their own commercial interests, which did not meet the legal threshold for conspiracy.

Consequently, the Court of Appeal partially overturned the District Court’s ruling. It lifted the freezing orders against some of the appellants (2-4) and limited the scope of disclosure orders under the Norwich Pharmacal doctrine. The freezing order for the first appellant was upheld, but the amount was reduced from €6.18 million to €1.17 million, as the initial sum was not proportionate to the evidence of potential damages.

4. Impact of the ruling on future cases

This ruling offers valuable guidance on the application of interim injunctions in cases involving fraud and conspiracy allegations. It emphasises the importance of courts applying a rigorous standard when granting interim remedies such as freezing orders. Specifically, the court must ensure that the legal ingredients of fraud and conspiracy are fully met before imposing such orders.

For future cases, this decision reinforces the notion that fraud must be tied to concrete misrepresentation and harm, and conspiracy must involve a clear intent to damage the claimant. Courts will need to examine evidence carefully to avoid granting excessive or disproportionate injunctions.

This ruling also highlights the importance of proportionality in freezing orders, particularly in cross-border business disputes, where asset dissipation is a concern. Businesses must be prepared for careful scrutiny of their financial dealings, and this decision demonstrates that courts will act to protect claimants' interests, provided that the legal thresholds are met.

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