Court discharges ex parte Mareva injunction due to lack of fraud and failure to serve defendants properly.

[*564] 1984 April 16

(BOYADJIS, P.D.C.)

IN THE DISTRICT COURT OF NICOSIA

Dermaplast Industries Ltd.,

Plaintiffs,

v.

1. NIZAR S.P.A., 2nd Another,

2. Bank of Cyprus Ltd.,

Defendants.

(Action No. 319/84).

Orders made ex parte - Application to set aside such an order - The Civil Procedure Rules 0.48, r.8(4) – “Person affected” - Interim order served on defendants 2 despite the fact that it was not specifically addressed to them - In the circumstances defendants 2 are “a person affected” and, therefore, they may apply for setting aside the order - The Civil Procedure Law, Cap. 6, section 9(3) - It does not mean that an order obtained ex parte cannot be set aside at the instance of one of the persons affected thereby before all other affected persons are also served with copy thereof.

Interim order made ex parte - Duty of applicant to act with uberrima fides - Suppression or mistatement of material facts - Ground for discharging the order - Mareva injunction - Mistatement in the affidavit in support of ex parte application that defendants

1 had a deposit of money within the jurisdiction - In the circumstances the Court should discharge the injunction.

Mareva injunction - Jurisdiction to issue - The Court of Justice Law 14/60, section 32 - In interpreting section 32

20 the Courts should follow the new approach of the English Courts in interpreting the corresponding section 45(1) of the English Supreme Court of Judicature (Consolidation) Act, 1925 - Jurisdiction assumed not in substitution but by way of exception to the rule in The polish Ocean Lines etc. and Another v. N. Spyropoulos and Another, 20(2) C.L.R.73 - Assets within the jurisdiction - A necessary prerequisite for granting a mareva injunction. [*565]

Letter of credit - Interim order - The Courts of Justice Law 14/60, section.32 - The principle of non interference with the bank’s obligation or the right of the beneficiaries there under - Justification of said principle - Exception in case the seller fraudulently presented to the confirming bank documents that contain expressly or by implication material representations of fact, which to his knowledge are untrue.

P. Polyviou, for Applicants-Defendants.

A. Eftychiou, for Respondents-Plaintiffs.

RULING

The following ruling was delivered by:-

BOYADJIS, F.D.’C.:- On January 14, 1984, the plaintiffs Dermaplast Industries Ltd., a local company dealing with the manufacture of leather goods, issued a specially indorsed writ against the 1st defendants NISAR S.P.A., an Italian corporation manufacturing and/or exporting raw materials, hereinafter called “the sellers”, claiming damages for en alleged breach by the sellers of their agreement for the sale of nods’ to the plaintiffs. Pursuant to the parties sales agreement, and at the application of .the plaintiffs, the Bank of Cyprus issued on 30th July, 1983, an irrevocable documentary credit for Italian Lire 40.000,000, being the value of the goods agreed to be sold and sent from Italy to Cyprus, payable to the sellers in Italy on 23rd 25 January, 1984. It is also alleged in the indorsed statement of claim that, when the purchased goods arrived in. Cyprus, they were by no means up to contract quality; they were, instead, according to the plaintiffs, faulty and unsuitable for the purpose for which they were bought. The plaintiffs joined as defendants No. 2 the Bank, of Cyprus Ltd. -The only [*566] claim, however, of the plaintiffs against the Bank of Cyprus is for an order of the Court ordering the bank to repay to them the amount of the documentary credit which they allege to have deposited with the Bank in consideration of the issue of the documentary credit. The reason for such claim, as stated in para. 16(c) of the statement of claim, is “to compensate the plaintiff of any damages which the Hon. Court might consider proper to award in favour of the plaintiff against the defendant 1”.

Two days later, i.e. on January 16, 1934 the plaintiffs filed an ex-parte application for an interim order restraining the defendants No.1 from collecting and/or transferring out of the jurisdiction and/or otherwise dealing with a sum of 40,000,000 Italian Lire and/or equivalent amount in Cyprus pounds deposited with the defendant 2, Head Office Nicosia by plaintiff and payable pursuant to an Irrevocable Documentary Credit No. 10-127653 issued by defendant 2 on the 30.7.1983 on the application of the plaintiff on account and for the benefit of the defendant 1”. The application came up before the Court on January 17, I98i4. It was supported by an affidavit dated. 29th December, 1983, sworn by a certain Andreas Yiannakou, an employee of the plaintiffs, who deposed that he was well acquainted with the facts of the case. He verified therein and he .repeated all the material allegations contained in the indorsed statement of claim and, in paragraph 12 thereof, he alleged in particular that “the plaintiffs, in order to pay the price of the said goods which they have bought from the defendant 1 In accordance with the said Contract of Sale, have deposited with the [*567] defendant 2, Head office in Nicosia an amount of Cyprus Pounds equivalent to 40,000,000 Italian Lire…” In paragraph 14 the affiant sworn that “the defendants 1 have no property in Cyprus, apart from the said amount of money which if they dispose of or remove out of Cyprus the plaintiffs may never 5 be able to recover same and will suffer irreparable damages”.

On the same day the Court issued the interlocutory injunction in the terms applied for by the plaintiffs and directed it

to remain in force until 29th February, 1984, in order to allow the necessary time to the plaintiffs to have it served on the sellers in Italy. On 20.2.1384 counsel for the plaintiffs informed the Court that it was not made possible to

serve notice of the order on the sellers, and the

Court adjourned the application to the 2nd April, 1984, extending the operation of the order in the meantime. On 2.4.1984 the application had to be adjourned again for the same reason, this time to the 4th May, 1984.

On the 18th January, 1984, however, the plaintiffs had caused copy of the order to be served on the Baric of Cyprus Ltd., who were thus placed in the dilemma of either refusing to honour their obligations to

the Italian beneficiary under the irrevocable documentary credit or to honour such obligations at the risk of

facing probable contempt proceedings at the Instance of the plaintiffs for disobedience to the order. It was evident that the only reason for

which the plaintiffs served the Bank of Cyprus who were not respondents to the application, with copy of the order, was to oblige the Bank to abstain from paying to the sellers In Italy the amount due under the said documentary credit.

The Cyprus Bank [*568] decided, very rightly if I may say so, to ask the advising bank in Italy with which it kept an account not to pay the beneficiary out of that account the amount of the documentary credit.

Faced with the protests of the beneficiary who threatened legal proceedings against the bank in Italy or in Cyprus, the Bank of Cyprus applied by summons on March 14, 1984, for an order of the Court for the discharge of the aforesaid order dated January 17, 1984. The plaintiffs opposed this application. The hearing commenced on the 3rd of April and was concluded on the 7th of April, 1984, when the ruling of the Court thereon was reserved till today. A lengthy affidavit was sworn in support of the application on the 14th March, 1984, by Athena Papadopoulou, one of the internal legal advisers of the Bank of Cyprus, and a number of documents were appended thereto as exhibits. The deponent of this affidavit was cross-examined during the trial by learned counsel for the plaintiffs-respondents.

The plaintiffs attached to their notice of opposition an affidavit sworn on 28.3.1934 by Andreas Yiannakou, i.e. the 20 same person who deposed the affidavit relied upon by the plaintiffs in their application for the issue of the interim order in the first place. Mr. Yiannakou was cross-examined on the contents of both his affidavits by learned counsel appearing for the Bank of Cyprus.

Two documents were produced by consent as exhibits at the hearing. One of these documents is a photocopy of the Uniform Customs and Practice for Documentary Credits issued by the International Chamber of Commerce which is admittedly [*569] incorporated in the present documentary credit and which has been marked as Exhibit 1. The other document is a photocopy of the application dated 30h June, 1983, submitted by the plaintiffs to the Bank of Cyprus, pursuant to which the irrevocable documentary credit already referred to was issued by the Bank of Cyprus in favour of the sellers-defendants No.1 who are the beneficiaries named therein.

The Bank of Cyprus now object to the order dated 17h January, 1984,two main grounds. First, on the ground that the affidavit of Andreas Yiannakou dated 29th December, 1983, on which the plaintiffs relied, falsely alleged that the plaintiffs had deposited with the Bank of Cyprus the amount of. the documentary credit and omitted to disclose all the relevant facts, in particular the fact that at the request of the plaintiffs the Bank of Cyprus accepted 15 a bill of exchange for the amount of 40,000,000 Italian Lire payable to the-order of the Italian sellers in Italy; and, secondly, on the ground that, in the absence of an allegation by the plaintiffs of either fraud or of divergence between the documentary credit and the documents submitted the Court cannot make an order interfering with the obligations of the issuing bank under an Irrevocable documentary credit.

The answer of the plaintiffs to the first argument of the Bank of Cyprus is that it is immaterial whether the plaintiffs actually deposited with the bank the amount of the documentary credit or whether they lodged sufficient guarantee with the bank for the obligations undertaken by the bank in favour of the sellers under the letter of credit and the bill of exchange. Mr. Eftychiou for the plaintiffs [*570] argued in this respect that from the moment the plaintiffs submitted their application

- Exhibit 2 the amount of 40,000,000 Italian Lire became in law the property of the plaintiffs deposited with the bank; and that from the moment the Bank accepted the bill of exchange payable to the order of the sellers, this money became the property of the foreign sellers-defendants No.1. This being so, Mr. Eftychiou further argued in answer to the second submission of the Bank of Cyprus, that the foreign defendants are deemed to have a deposit of 40,000,000 Italian Lire with the Bank of Cyprus within the jurisdiction of this Court, and the order issued in these circumstances is what is known as Mareva injunction

which this Court has power to make. He relied in this respect on the case of The Owners of Cargo Laden on Board the Ship “TINA” and

others v. Ventmare Maritime Company Ltd (1981) 1 C.L.R. 248, and the case of Linmare Shipping Co. Ltd. v. Mounir Boustani (1981) 1 C.L.R. 386.

The plaintiffs further submitted that the Bank of Cyprus Ltd. has no locus standi in the proceedings for the interim order once the order is not directly addressed to them and their interests are not affected thereby since they may plead in their defence the issue of this order if sued by the sellers either in Cyprus or in Italy. The plaintiffs further argued that this application by the Bank of Cyprus is premature in that the defendants No.1 to whom the order is directed have not as yet been served with it and we do not know what stand they will ultimately take towards it. Mr. Eftychiou cited in support of his last argument the provisions of section 9(3) of the Civil Procedure Law, Cap. [*571]

I propose to consider first whether the Bank of Cyprus Ltd. have a locus standi to intervene by their present application seeking to set aside the interim order issued against the Italian sellers-defendants No.1 in the action.

In Cyprus the matter is governed by the express provisions of 0.48, r.8(4) of the Civil procedure Rules which reads:-

“Any person (other than the applicant) affected by an order made ex-parte may apply by summons to have it set aside or varied and the Court or Judge may set aside or vary such order on such terms as may seem just”.

In the present case the order dated 17th January, 1984, was made ex-parte at the instance of the plaintiffs and the Bank of Cyprus may apply to set it aside if they can show that they are affected by it. The plaintiffs considered it necessary to cause service of copy thereof on the Bank of Cyprus despite the fact that the order is not specifically addressed to them. Furthermore, there is evidence to the effect that the beneficiary under the documentary credit and the bill of exchange (Exhibits A and D respectively, appended to the affidavit dated 14th March, 1984) threaten legal proceedings against the bank either in Italy or in Cyprus. This is evident from the letter of the advising Bank in Italy dated 16th February, 1984, and its translation in Greek, both appended as Exhibits E and F respectively to the aforesaid affidavit dated 14th March, 1984, sworn by Athena Papadopoulou. One should further take into account that the bank’s greatest asset, namely its credit and good name internationally, [*572] is in jeopardy by its inability, because of the present order, to honour promptly its obligations in accordance with internationally accepted customs and practice without any kind of excuse. It is clear to me, therefore, that the Bank of Cyprus is “a person affected” by the order within the meaning of the aforesaid Rule, and entitled as such to apply to have the order set aside. The meaning of the word “affected” in the context of the Rule is wide enough to cover the circumstances of the present case. It is not necessary for the bank to show that there will be no good defence in an action filed against them by the beneficiary either in Italy or in Cyprus. Be that as it may, it is very probable in the circumstances of this case, that, if the bank is sued in Italy, the order of this Court dated 17th January, 1984, may not be considered as a good answer to the beneficiary’s direct claim against the bank under either the documentary credit or the bill of exchange. The danger is demonstrable by one

case cited to me by learned counsel for the bank, namely the case of Power Curber International Ltd, v. National Bank of Kuwait SAK (1981) 3 All E.R 607 where the English Court refused to recognise

an order issued by the Kuwaiti Court provisionally attaching an amount due by the defendant Kuwaiti Bank to the plaintiff seller of goods under an irrevocable documentary credit given by the bank at the instance of the Kuwaiti purchaser of the goods.

Mr. Eftychiou for the plaintiffs also submitted that this application is premature because it was filed before defendants No.1 to whom it is directly and primarily addressed have been served

with copy thereof. Section 9(3) of the Civil [*573] Procedure Law, Cap.6, on which he relies in support of his proposition reads as follows:-

“9(3) - No such order made without notice

shall remain in force for a longer period than is necessary for service of notice of it on all persons affected by it; and every such, order shall at

the end of that period cease to be in force, unless the Court, upon hearing the parties or any of them, shall otherwise direct; and every such order shall be dealt with in the action as the Court thinks just”.

I find nothing in this section which might justify the argument advanced

by Mr. Eftychiou. The object of this section is to secure that an order made ex-parte shall not remain in force for a period longer than it is necessary for all affected persons to receive notice thereof and to appear before the Court and object to it

if they so wish. This does not mean that the order cannot be set aside at the instance of one of the affected persons before all other affected persons are also served with notice thereof and thus given an opportunity to be heard as well.

Having considered and having dismissed the aforesaid

preliminary or procedural objections of the plaintiffs against the present application, I now propose to examine the validity of the sub-judice order in the light of the allegation of the Bank of Cyprus to the effect that the plaintiffs’ affidavit upon which the order was founded misstated and/or suppressed material facts misleading thereby the

Court in its decision and/or that the plaintiffs [*574] did not act with the requisite uberrima fides.

In cases of this nature where the Court can have no ground upon which it can proceed, in granting an ex-parte injunction, but a faithful statement of the case, the established rule is that the applicant has a duty to bring to the notice of the Court all facts material to the determination of his right to the injunction and it is no excuse for him to say that he was not aware of the importance of any facts which he has omitted to bring forward. One of the earliest authorities where it was held that, if the applicant does not act with uberrima fides and put every material

fact before the Court, the Court will not grant him an injunction, is that of Dalglish v. Jarvie (1850) 20 L.J. Ch. 475

decided .by Lord Langdale and Mr. Baron Rolfe and which is regarded as a case of high authority. That case concerned 15 the issue of a special injunction on an ex-parte application. Mr. Baron Rolfe said that applications of this nature are governed by the same principles which govern insurance cases which require the utmost degree of good faith and added the following:-

“So here, if the party applying for a special injunction abstains from stating facts which the Court thinks are most material to enable it to form its judgment, he disentitles himself to that relief which he asks the Court to grant. I think, therefore, that the injunction must fall to the ground”.

In the later case of Peru (Republic) v. Dreyfus Brothers & Co. (1886) (55 L.T. 802), where a similar point [*575] arose in an application made ex-parte to serve the writ out of the jurisdiction, Mr. Justice Kay stated the law in this way:-

“I have always maintained, and I think it most important to maintain most strictly, the rule that, in ex-parte applications to this Court, the utmost good faith must be observed. If there is an important misstatement, speaking for myself, I have never hesitated, and never shall hesitate until the rule is altered, to discharge the order at once, so as to impress upon all persons who are suitors in this Court the importance of dealing in good faith with the Court when ex-parte applications are made”.

In Rex v. Kensington Income Tax Commissioners (1917) L.J. K.B. 257, a rule nisi calling upon the Income Tax Commissioners to show cause why a writ of prohibition should not be awarded to prohibit them from proceeding with an additional assessment to income tax, was obtained by an applicant in an ex-parte application upon an affidavit which concealed or misrepresented material facts. The Divisional Court discharged the rule nisi on account of the conduct of the applicant without going into the merits. Viscount Reading, C.J. said the following at p. 258 -

“Before considering the facts it is necessary to state that if the affidavit placed before the Court on an ex-parte application contains misleading statements this Court ought, for [*576] its own protection, to refuse to proceed with the merits of the case”.

The applicant who was a princes, appealed. In the Court of Appeal, Lord Cozens-Hardy, M.R. referred to Dalglish v. Jarvie (supra) which he described as a weighty authority and he added this at p. 262:-

“That is merely one and perhaps rather a weighty authority in favour of the general proposition which I think has been established, that on an ex-parte application uberrima fides is required,and unless that can be established, if there is anything like deception practised on the Court, ought not to go into the merits of the case, but simply say, ‘we will not listen to your application because of what you have done’ ”.

Concurring with the Master of the Rolls in the dismissal of the appeal, Scrutton, L.J., said this at pp. 266-267 of the report:-

“And it has been for many years the rule of the Court, and one which it is of the greatest importance to maintain, that when applicant comes to the Court to obtain relief on an ex-parte statement he should make a full and fair disclosure of all the material facts - it says facts, now law. He must not misstate the law if he can help it; the Court is supposed to know the law. It knows nothing about the facts, and the applicant must state fully and fairly the facts; and the penalty by which the Court [*577] enforces that obligation is that if it finds that the facts have not been fully and fairly stated to it the Court will set aside any action which it has taken on the faith of the imperfect statement. This rule arises in various classes of procedure. One of the commonest cases is an ex-parte injunction obtained either in the Chancery or the King’s Bench Division. I find Vice-Chancellor Wigram, in the case of Castelli v. Cook (1849) (18 L.J. Ch. 148; 7 Hare, 89), stating the rule in this way: a plaintiff applying ex-parte comes (as it has been expressed) under a contract with the Court that he will state the whole case fully and fairly to the. Court, If he fails to do that, and the Court finds, when the other party applies to dissolve the injunction, that any material fact has been suppressed or not properly brought forward, the plaintiff is told that the Court will not decide on the merits, and that as he has broken faith with the Court, 20 the injunction must go’. The same thing is said in the case, to which the Master of the Rolls has referred, of Dalglish v. Jarvie (20 L.J. Ch. 475)”.

The question, therefore, which I have to determine in this context is whether in the affidavit supporting the ex-parte application on which the interlocutory injunction was founded, the deponent has either misstated or suppressed any material fact, or, to put the matter in another way, [*578] whether the affidavit has disclosed the whole

case fully and fairly to the Court, or not. For the plaintiffs to be deprived summarily of their rights under the order on this ground

alone, without examining the merits, the Court must be satisfied that the mis-statement or suppression or misrepresentation in the affidavit must be of the species that would improperly lead the Court to the order which it made. See in this respect Brown v. Newall (1837) 40 E. R. Ch. 752.

What happened in this case? The plaintiffs relied on an affidavit dated 29th December, 1983, sworn by their employee Andreas Yiannakou. Although reference to an irrevocable documentary credit is made in that affidavit, there is in para. 12 thereof a very clear statement to the effect that the plaintiffs deposited with the Bank of Cyprus an amount equal to 40,000,000 Italian Lire in order to pay the price of the said goods. Though there is no express statement that the deposit was made in the name of the sellers, this may easily be concluded if this paragraph is read in conjunction with paragraph No.14 of the affidavit where it is stated that the defendants No.1 have no property in Cyprus apart from the said amount of money. Paragraphs 12 and 14 of the said affidavit were carefully drafted and were calculated to present to the reader the impression that the Italian sellers had an amount of 40,000,000 Italian Lire standing in their name with the bank of Cyprus,within the jurisdiction of this Court. This conclusion of mine is being strengthen by the insistence of Mr, Eftychiou in his address that the sellers may correctly be deemed as having in their name the aforesaid amount deposited in the bank within the jurisdiction, from the moment the bank accepted the bill of exchange. [*579] It was shown, however during the hearing, partly as a result of disclosures which Andreas Yiannakou was compelled to make in his subsequent affidavit dated 29th March, 1984, and in his oral evidence, and partly as a result of the affidavit and oral evidence of Athina Papadopoulou that:-

(i) at no time did the Italian sellers had any amount of money or other assets standing in their name with the bank of Cyprus; and

(ii) at no time did the plaintiffs deposit any amount whatsoever with the Bank of Cyprus either in their name or in the name of the bank or of the Italian sellers the sum of 40,000,000 Italian Lire or any other amount in Cyprus currency, in order to pay the balance of the goods.

The explanation given by Andreas Yiannakou during cross-examination regarding his allegations in his affidavit that in order to pay the price of the goods, the plaintiffs had deposited with the bank the equivalent in Cyprus currency of 40,000,000 Italian Lire, was that he only. meant that the plaintiffs had given to the bank guarantees for that amount, and he named as an example of these alleged guarantees the Cash Guarantee Account No. 4370 for only £1,336.-. This account was opened one month after the letter of credit. This explanation is obviously untrue. It is an attempt on his part to twist the facts and the well know meaning of simple words. I wish I could find a neutral word to describe it.

It is also admitted that there has been an omission to mention the fact that, to the knowledge of the plaintiffs, [*580] the bank accepted a draft for the value of the goods to the order of the sellers.

Why then the plaintiffs brought forward so improperly the true facts of this case in the aforesaid affidavit? The answer is simple. Although it may be argued that the omission regarding the acceptance of the draft could not improperly lead the Court to the order which it made, it would have made in fact no difference whether the draft did or did not exist, yet, the false allegation of the existence of a deposit of money within the jurisdiction, belonging to the it seller, was a very material consideration and pre-requisite for the granting of a Mareva injunction. This misstatement was clearly calculated to mislead the Court into thinking that this was a situation in which it would be appropriate to make a Mareva injunction. That was in fact what the Court thought and that was the basis upon which it proceeded in making the order, without examining further what it thought to be only an alternative basis for the injunction prayed for, i.e. the rights and obligations of the parties under the letter of credit and the circumstances in which the Court should interfere with such rights. The order was undoubtedly made under some misapprehension of the facts. The misapprehension was entirely due to, or it was at least contributed considerably by, the misstatement in the plaintiffs’ affidavit last alluded to. Having had to decide the matter in some haste the Court was thereby misled. It could have never made the Mareva injunction if a clearer picture of the facts had been presented to it and if the Court had thoroughly understood the facts as they have now emerge.[*581]

Unlike the affidavit which was under critisism in Brown v. Newall (supra), where the misrepresentation and the omissions complained of either referred to statements of facts which could not make the least difference in the case and could not improperly lead the Court to the order which it made, or consisted of statements of the legal consequences of the facts deposed (the rule being that a party though bound by the facts which he states, he is not bound by his statements of the legal consequences of those facts), in the present case the inaccuracy In the affidavit refers to a very material factual situation which was untrue to the knowledge of the deponent. In these circumstances and in order to protect it self the Court can and it should simply say to the plaintiffs that it will not listen to their application because of what they have done and it should discharge the injunction even if there is evidence to sustain it. See in this respect;- Dalglish v. Jarvie (supra), and Rex v. Kensington Income Tax Commissioners (supra). I have decided, however, to examine the case on its merits as well, because, if the order is discharged as a result of the conduct of the plaintiffs in swearing the aforesaid affidavit, the plaintiffs may after words apply again. See in this respect: The Hagen (1908) 77 L.J. p. 124, and Rex v. Kensington Income Tax Commissioners (supra). I think that this should be avoided and the parties may save unnecessary expenses, if on the true facts of this case the order could not have been made in any case.

Having conceded during the trial that section 4 of the Civil Procedure Rules is not applicable in the present [*582] case, learned counsel for the plaintiffs now relies only on section 32 of the Courts of Justice Law No.14 of 1960 which, provides as follows:-

“32(1) Subject to any rules of Court every Court, in the exercise of its civil jurisdiction, may, by order, 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, notwithstanding that no compensation or other relief is claimed or granted together therewith.

Provided that an interlocutory injunction shall not be granted unless the Court is satisfied that there is a serious question to be tried at the hearing, that there is a probability that the plaintiff is entitled to relief and that unless an interlocutory injunction is granted it shall de difficult or impossible to do complete justice at a later stage”.

From 1975 onwards the Courts in England started issuing what has come to be .known as Mareva injunction, interpreting the corresponding English provision, namely, section 45(l) of the English Supreme Court of Judicature (Consolidation)Act, 1925, which is a reproduction of section 25(8) of the Judicature Act, 1873, in a way which could not in fact be reconciled with deeply rooted principles laid down in a long series of authorities including Robinson v. Pickering (1881) Ch. D. 660, Newton v. Newton (1885) 11

P.D.11 , Lister & Co. v. Stubbs (1890) 45 Ch.D.1, Jagger v. Jagger (1926) P.93 and Scott v. Scott (1950) 2 All E.R. 1154, according to [*583] which

the Court was not competent to restrain a defendant from dealing with, .his property before judgment given against him. These were the principles which the Courts in Cyprus also followed invariably and, at least in one case, namely, The Polish Ocean Lines etc. and Another v. N. Spyropoulos and Another (1955) 20 (2) C.L.R.73, where the Supreme Court of Cyprus had occasion to consider on appeal. section 37(1) of the Courts of Justice Law, No.40 of 1953, of which section 32 of Law

14 of 1960, presently in force, is a reproduction, it was held

that no order could he made under that section restraining the defendant from disposing of .his property not the subject-matter of the action.

The new approach to the construction of section 45(1) of the English Act by the Courts in. England was initiated in Nippon Yusen Kaisha v. Karageorghis (1975) 2 Lloyd’s Rep. 137, C.A. followed immediately by Mareva Companies Naviera S.A. v. International Bulkarriers S.A. (1975)

2 Lloyd’s Rep. 504. The latter case lent its name “Mareva” to the type of the injunction which was. therein, made and which

has since established itself in a number of subsequent. decisions by English Courts of all levels, to which I need not refer for the purposes of this decision. I should, perhaps, only add that, during the short

period of its evolution, its application was extended to locally based defendants and to non -commercial or shipping cases and it is now a

permanent feature of English Law. Since 1981 it is regulated by statute, namely, section 37(3) of the Supreme Court Act 1981. [*584]

Now, how do these English decisions affect the law on the matter in Cyprus? At least two .Justices of our Supreme Court, each sitting alone in exercise of the Court’s Admiralty jurisdiction, issued Mareva injunctions, in at least three reported Admiralty actions, restraining locally based defendants from removing their assets out of the jurisdiction or from otherwise disposing of them pending trial of the action. The ground upon which these orders were made was that there was a real danger of removing out of the jurisdiction or otherwise dissipating by the defendants of their assets which they had within the jurisdiction and that, if that happened, the plaintiffs might never he able to recover the amount of the judgment which there was probability to be given in their favour. In all three cases the Mareva injunctions were given on ex-parte applications which were not contested at any stage. Two of the above cases are relied upon by the plaintiffs in support of the order made in this action. They are that of The Owners of Cargo Laden on Board The Ship “TINA” and Others v. Ventmare Maritime Company Ltd. (1981) 1 C.L.R. 248, and that of Linmare Shipping Co. Ltd. v Mounir Boustani (1981) 1 C.L.R. 386. The

third case is the one first decided by A. Loizou., J., namely that of Nemitsas Industries Ltd., v. S. & S. Maritime Lines

Ltd. and Others (1976) 1 C.L.R. 302, where section 32 had come up for interpretation in the present context for the first time. In none of those three cases, however, reference is made to the Polish Ocean Lines case (supra).

The answer to the question whether the Courts in Cyprus should in interpreting section 32, adopt the new approach which the English Courts have for some time followed [*585] in their interpretation in this context of the corresponding English, section 45(1) of the 1925 Act, should in my opinion be answered in the affirmative. The Mareva injunction has proved a very useful procedure in England and a valuable aid in the hands of the Court in helping to avoid great injustice in proper cases by depriving a defendant of the opportunity to defeat the interests of his creditors before the action against him in brought to fruition. In Goode, Commercial Law(l982) it is being described as a much-used and highly flexible device and also as a striking illustration of the importance of procedural law and of the creative role of the judiciary.

There is ample authority establishing the proposition that, though decisions of the English Courts, entitled as they are to the highest respect, are not binding upon the Courts of the Republic, yet, our Courts, in interpreting a legislative provision whose origin is to be found in the English legal system, should, as a matter of judicial comity, follow decisions of the English Court of Appeal relating to the construction of a corresponding statute, unless the Courts are convinced that those decisions are wrong. See in this respect: Solomos Stylianou v. The Police, 1962 C. L R 1 52, and Antonis Mouzouris and Another v. Xylophagou Plantations Ltd.

(1977) 1 C.L.R.287. This principle was applied recently by the Supreme Court in its appellate jurisdiction in Civil Appeals No. 6312 and 6313 involving the interpretation of section 34 of the Administration of Estates Law, Cap. 189. The Supreme Court there adopted the recent interpretation by the English Courts of the English ‘corresponding statute, namely, the English Law Reform (Miscellaneous Provisions) [*586] Act 1934, section l (2) (c), which was initiated by the decision in Pickett v. British Rail Engineering Ltd. (1979) 1 All E.R.775.

This being so, speaking for myself, I would interpret section 32 so as to assume jurisdiction thereunder to issue a Mareva injunction in a proper case, not in substitution to the principle laid down in the Polish Ocean Lines

decision (supra) which I feel duty bound to follow, but by way of exception to it. Be that as it may, I shall proceed on the assumption that I have jurisdiction to issue the Mareva injunction and I shall presently examine whether the facts and circumstances of this case would justify the granting of the order.

Before the Court issues a Mareva

injunction the defendant must appear to have assets within the jurisdiction: Third Chandris Shipping Corp. v. Unimarine S.A. (1979) Q.B. 645. In the present case the defendants-sellers are

the beneficiaries under a letter of credit and the payees under a bill of exchange payable in Italy. Mr. Polyviou for the Bank of Cyprus has submitted that, as the sellers are not possessed of any assets in Cyprus the Court cannot and ought not issue a Mareva injunction in these circumstances, even assuming that there was no other objection to its issue and, in fact, no other objection against it has been raised in this case. Several authorities were cited by Mr. Polyviou in support of his submission. First, there is the decision of the Court of Appeal in Intraco Ltd. v. Notis Shipping Corporation (The ‘‘Bhoja Trader”) 2 Lloyd’s Rep. 256, where it was held that in an appropriate case the Court may issue a Mareva injunction upon the fruits of the letter of credit [*587] if such fruits are payable within the jurisdiction. Lord Justice Donaldson said at p. 350 that -

“This is the natural corollary of the proposition that a letter of credit is to be treated as cash that when the bank pays and cash is received by the beneficiary, it should be subject to the same restraints as any other of his cash assets. Enjoining the beneficiary from removing the cash asset from the jurisdiction is not the same as taking action, whether by injunction or an order staying execution, which will prevent him obtaining the cash (see Montecchi v. Ghimoo (U.K. Ltd.) (1980) 1 Lloyd’s Rep. 50)”.

The facts in the Intraco case (supra) were that the buyers sued in England the Greek sellers for breach of the agreement for the sale of a ship. The sellers had no assets in England other than their rights under the bank’s letter of credit or guarantee which provided for payment in Greece of the amount representing the balance of the sale price of the ship. The Court issued a Mareva injunction and the sellers appealed, drawing in particular the attention of the Court to the fact that the amount restrained was payable to the sellers not in England hut in Greece. The buyers submitted that the bank guarantee ought to be treated as cash. The Court agreed with the buyer’s suggestion, adding that it ought to be treated as cash in Greece, outside the jurisdiction of the English Court and the injunction was discharged on this ground alone. [*588]

The same proposition was laid down in Z Ltd. v. A-Z and AA-LL

(1982) 2 W.L.R. 288, where it was clarified that a Mareva injunction operates In rem and takes effect from the moment it is pronounced on every asset of the defendant which it covers. Lord Denning M.R., expressed therein the opinion that the Mareva injunction does not prevent payment under a letter of credit or under a hank guarantee, but it may apply to the proceeds thereof only as and when received by or on behalf of the defendant hut not otherwise.

It follows from the aforesaid authorities that, in so far as the order dated 17th January, 1984, is purported to be a Mareva injunction, it was wrongly made and should be set aside for the simple reason that, as in the Intraco case (supra), the amount of the letter of credit is expressly and admittedly payable in Italy, outside the jurisdiction of this Court. The sellers are thus left without any assets within the jurisdiction for the Mareva injunction to operate upon.

If the order dated 17th January, 1984, cannot be supported on the basis applicable to Mareva injunctions, can it be supported on any other basis Learned counsel for the plaintiffs says that it can, He invokes the jurisdiction of the Court to interfere in a proper case, at the instance of the buyer, with the rights and/or obligations of the parties under an irrevocable documentary credit issued at the buyer’s request. There is undoubtedly jurisdiction under s. 32 of the Courts of Justice Law 1960 to make such an order. A similar jurisdiction exists in England. See in this respect the judgment of Sellers L.J., in Malas and Another (Trading [*589] as Hamzeh Malas and Sons) v. British Imex industries Ltd. (1958) 1 All E.R. 262. The question, however, is whether this jurisdiction is to he exercised in a case like the present one. The bank says that it ought not to he exercised. Mr. Polyviou on the bank’s behalf drew the attention of the Court to the special relationship created between the parties to an irrevocable letter of credit and to the absolute obligation of the banker to the seller to honour the letter of credit ignoring any dispute between the buyer and the seller regarding the quality of the goods sold. He further invoked the provisions of the Uniform Customs and Practice on Documentary Credits issued by the International Chamber of Commerce which are incorporated into the letter of credit which the Bank has issued in this case and he cited a number of English decisions to support his submission that the buyer is not entitled to an injunction restraining the seller from dealing with the letter of credit on the ground set up by the plaintiffs in this case, namely, that the goods are defective. Learned counsel concluded his argument by laying stress on the fact that, because of the order, the bank is suffering great damage to its reputation abroad and urged upon the Court the necessity to discharge the order which ought not to have been made in the first place.

I am convinced that learned counsel for the applicant bank is right and I entirely agree with him. There is no previous case to be found, upon the authority of which the order can be supported. From the authorities cited or from any of the other authorities which I have been [*590] able to find, no principle is to be extracted upon which the order which has been made may stand in the light of the facts as we know then now. On the other hand, a number of authorities support the view expressed by Mr. polyviou. The importance of the honouring by the issuing bank of its obligations to the beneficiary under a credit agreement is best illustrated in the judgment of Lord Denning M.R., in Power Curber v. bank of Kuwait (supra), where he said the following at p. 612-13 of the report.

“On this question of recognition, I must draw attention to the importance of letters of credit in international trade. They are the means by which goods are supplied all the world over. It is vital that every bank which issues a letter of credit should honour its obligations. The bank is in no way concerned with any dispute that the buyer may have with the seller. The buyer may say that the goods are not up to contract. Nevertheless the bank must honour its obligations. The buyer may say that he has a cross-claim in a large amount. Still the bank must honour its obligations. A letter of credit is like a bill of exchange given for the price of goods. It ranks as cash and must be honoured. No set-off or counterclaim is allowed to detract from it (see Nova Jersey Knit Ltd. v. Kammgarn Spinnerei Gmbh

(1977) 2 All E.R.463). All the more so with a letter of credit. Whereas a bill of exchange is given by buyer to seller, a letter of credit [*591] is given by a bank to the seller with the very intention of avoiding anything in the nature of a set-off counterclaim. This is borne out by the Uniform Customs and practice for Documentary Credits which have been adopted by the banks in all, or practically all, the countries of the world, from China to Andorra, from Cuba to Nauru. All subscribe to the Uniform Customs and Practice which declare in the general provisions and declarations……..

(c) Credits, by their nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts…..

If the Court of any of the countries should interfere with the obligations of one of its banks (by ordering it not to pay under a letter of credit), it would strike at the very heart of the country’s international trade. No foreign seller would supply goods to that country on letters of credit because he could no longer be confident of being paid. No trader would accept a letter of credit issued by a bank of that country if it might be ordered by its Courts not to pay. So it is part of the law of international trade that letters of credit should be honoured and not nullified by an attachment order at the suit of the buyer.[*592]

Added to this, it seems to me that the buyer himself by his conduct has precluded himself from asking for an attachment order. By opening the letter of credit in favour of the seller, he has implicitly agreed that he will not raise any set-off or counterclaim, such as to delay or resist payment. He has contracted under the terms of the Uniform Customs and practice by which he promises that the hank will pay without regard to any set-off or counterclaim, and implicitly that he will not seek an attachment order”.

The decision in Edward Owen Ltd. v. Barclays Bank International Ltd. (1978) 1 All E.R. 976, lays down the same principle. Speaking of

the effect of the letter of credit, Lord Denning said at p. 169:-

“It has been long established that when a letter of credit is issued and confirmed by a bank, the bank must pay it if the documents are in order and the terms of the credit are satisfied. Any dispute between buyer and seller must be settled between themselves. The bank must honour the credit. That was clearly stated In Malas (Trading as Hamzeh Mallas and Sons) v. British Imex Industries Ltd. (1958) 1 All E R. 262 at 263. Jenkins L.J., giving the judgment of this Court, said:…..it seems to be plain enough that the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes upon the banker an absolute [*593] obligation to pay, irrespective of any dispute which there may be between the parties on the question whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that bankers’ confirmed credits are of that character, and, in my judgment, it would be wrong for this Court in the present case to interfere with that established practice’. To this general principle there is an exception in the case of what is called established or obvious fraud to the knowledge of the bank”.

A still stronger case is Discount Records Ltd. v. Barclays Bank Ltd. and Another (1975) 1 All E.R. 1071, where the plaintiffs in England ordered

certain quantities of goods from the defendant seller in France. At the request of the plaintiffs, the Barclays Bank issued an irrevocable confirmed letter of credit for 4,000.- sterling, the seller in France being the beneficiary thereof, When the cartons arrived in England they were found to contain only a small quantity of the goods ordered; otherwise they were empty or contained rubbish and goods not ordered. The plaintiffs brought an action against the sellers alleging that the latter had been guilty of fraud, and sought an interlocutory injunction restraining the bank from paying to the seller the amount of the credit agreement or the amount of the draft which the bank had accepted payable to the seller. It was held that the Court would only interfere with bankers’ irrevocable credits if a sufficiently grave cause were shown and that no such cause had been shown in the aforesaid circumstances of that case. It was also held that, although if [*594] fraud is established the Court may interfere, the buyers had alleged fraud but failed to establish it.

In Power Curber v. Bank of Kuwait (supra) it was held that the same principles apply for all irrevocable letters of credit irrespective of whether they are confirmed or not.

I have further considered in this respect the cases of United City of Merchants Ltd. v. Royal Bank of Canada (1982) Lloyd’s Rep. 1, Intraco Ltd. v. Notis Shipping (The “Bhoja Trader”) (supra) and Bolivinter Oil S.A. v. Chase Mahhattan Bank (1984)

1 All E.R.351 (H.L.). They all all confirm the principle that the Court will only interfere with the obligations of the bank under a letter of credit or with the rights of the beneficiary thereunder, if the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain expressly or by implication, material representations of fact which to his knowledge are untrue. This exception is a clear application of the maxim ex turpi causa non oritur actio.

In the present case fraud is neither established nor even alleged. The case falls, therefore, squarely within the general rule of non interference which I have endeavoured to explain hereinabove, and it is my duty to put an end to the interference with the letter of credit which has been made so far through the order dated 17th January, 1984. This order is discharged forthwith. With regard to the costs occasioned by the present application, [*595] I think that the Bank of Cyprus Ltd., are entitled to their costs and I make an order to that effect against the plaintiffs accordingly. Such costs to be assessed by the Registrar if not agreed between counsel.

Order discharged.