Recent Developments in the Law on Cyprus Injunctions (Court Orders): The new Appeal Court clarifies the relationship and differences between the duty for Full and Frank Disclosure and the Equitable Doctrine of “he who comes to equity must come with clean hands”:
On 15/02/2024, the new Appeal Court handed the most recent judgment in INVESTAR SPC LTD v. INVESTAR INVESTMENTS LTD, Civil Appeal No. E50/21, 15/2/2024 regarding interim injunctions, and while overturning the first instance decision to not grant a series of freezing and disclosure orders, it outlined clearly the differences between the duty for full and frank disclosure and the equitable principle of “he who comes to equity must come with clean hands”.
When an application for any type of order is filed ex-parte (without notice), it is settled law that the applicant must abide by the principled of full and frank disclosure of all relevant facts. Failure to abide by the principle is reason to annul a without notice order given.
The old Supreme Court in older cases had already drew a distinction between the consideration of the duty of disclosure in cases where an order was made ex-parte (without notice) and the consideration of where the application was served on the other side and the defendants having had notice, then had the opportunity to raise all issues and objections before the Court. In set aside proceedings after an ex-parte order is given, the criterion is whether the non-disclosure of specific facts constitutes, in fact, an element of essential importance for the exercise of the court's discretion. Intent to defraud is not a prerequisite to setting aside an ex-parte order for failure to disclose material facts.
However, as the court further analysed, where an ex-parte (without notice) application for injunction is instructed to be served on the other side, then the element of non-disclosure is examined with different criteria. The scope of the duty of disclosure does not apply after an ex parte application is served on the other side.
In its recent judgment the Court of Appeal considered it useful to clarify that all injunctions are remedies under the law of Equity, whether they are issued in perpetuity or as an interim measure and whether they are issued ex parte or in an inter partes proceeding. Therefore, in any proceeding seeking a Court Order, the Court examines the principles of the law of Equity.
Referencing to the principle that "he who comes to equity, must come with clean hands" it concluded that this principle must be applied always where the party seeks a remedy under the law of equity and regardless of whether it is ex-parte or inter-partes. The focus of the principle is on the past, that is, the behavior of the party seeking the remedy toward the other party to date. If the court considers that the behavior of the party to date has not been appropriate, it is likely that it will exercise its discretion and refuse to grant the requested treatment. Concealment of evidence and perjury before the court have been considered factors for not granting a court order.
It also follows from the above passage that the axiom for clean hands (which includes the applicant's obligation not to mislead the Court) is also applied to the party in applications for court orders that are by summons from the outset.
However the Court of Appeal clarified that the “clean hands” axiom is separate and different than the rule for “full and frank disclosure” and are not applied equally in all proceedings, with the latter only applying at ex-parte applications where a respondent had not been heard prior to the issuance of the order, while the former applies always and at all stages.
Therefore in the specific case, the Appeal Court concluded that the first instance Court erred when it mistakenly considered the clean-hands equitable principle, to be identical with the rule for full and frank disclosure. On the basis of that error, the first instance Court wrongly went on to reject the application on the basis of non-disclosure only, without any finding as per bad faith or unclean hands and even though the initial ex-parte application was served and a hearing on the matters was made with both parties present.
The Court noted the need to ensure the seriousness of the duty of applicants in ex-parte applications for court orders for full disclosure, but the court was of the view that the application of the principle across the board, in the absence of culpability in the non-disclosure, cannot operate as a stand-alone reason for punishment for dismissing an application which has been adjudicated after hearing both sides. In this case, an independent reason for rejecting the application is only the violation of the duty of equity, as the applicant comes with clean hands.
Finally, the Court, referencing English jurisprudence as a guiding force in Equitable Remedies state that in England the issue has been regulated as stated in the book Commercial Injunctions, Steven Gee, Sweet & Maxwell sixth edition, p. 275, with reference to English jurisprudence:
"An applicant in inter partes relief on an application made with notice as required under the CPR, does not have a duty to make full and frank disclosure of material facts, but is under an obligation not to mislead the court, including knowingly".
The Appeal Court also interestingly exercised its discretion to instead of simply setting aside the first instance judgment and requiring a re-trial of the interim order application, it proceeded to issue the freezing and disclosure orders requested against the respondent, giving thus a practical and permanent solution to the matter.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For more information regarding commercial disputes, litigation and the issuance of court orders in Cyprus, contact Phoebus, Christos Clerides & Associates LLC at con.clerides@clerideslegal.com