CYPRUS Law and Practice Contributed by: Agathi Zervou and Maya Athanatou, George Z. Georgiou & Associates LLC
tive trusts are imposed in view of the state of affairs that has developed, independent of express or implied intention. Where a constructive trust is alleged, the claimant must prove not only the existence of the trust but also their standing to pursue the proprietary claim. This reinforces that proprietary remedies through tracing require both a proper equitable foundation and clear demonstration of the claimant’s entitlement to pursue the specific assets. When a claimant can establish a proprietary interest through a constructive trust or other equitable rem - edy, the claimed property is treated as never hav - ing belonged to the defendant’s estate. This means the claimant can recover the specific property (or its traceable proceeds) ahead of unsecured creditors, as the asset is held on trust for the claimant’s ben - efit rather than forming part of the insolvent’s general assets available for distribution to creditors. As Cyprus is a common law jurisdiction, and in instances where Cypriot case law is silent on an issue, guidance is typically sought from English case law and common law principles. This means Cyprus courts would likely apply established English tracing rules in relation to mixed funds, including: • the ability to trace fraud proceeds that have been converted or exchanged for other assets; • principles governing tracing into mixed bank accounts; and • rules distinguishing between mixing with the wrongdoer’s own funds versus mixing with funds of innocent third parties. Where fraud proceeds have been successfully invest - ed and have generated profits, a Cyprus court has the flexibility to: • impose a constructive trust over the enhanced asset (including gains); • order an accounting for profits; and • award an equitable lien over specific property as security.
Cyprus provides robust procedural tools to support asset recovery, including: • freezing orders (often issued when there is a real risk of alienation or dissipation of assets, both movable and/or immovable, situated in Cyprus or abroad); • disclosure orders requiring respondents to reveal asset details; • search orders to preserve evidence; and • appointment of receivers where necessary. 1.6 Rules of Pre-Action Conduct The new Civil Procedure Rules (in force since 2023) introduced mandatory pre-action protocols requiring parties to comply with certain steps before commenc - ing proceedings. Although there is no specific pre-action protocol tai - lored to fraud claims, prospective claimants are still generally required to send a letter before action. This letter should set out in detail the factual and legal basis of the claim, identify the relief sought and provide the prospective defendant with a reasonable opportu - nity to respond. In turn, the defendant is expected to engage meaningfully with the claim, whether by admitting, denying or seeking further clarifications. The court retains wide case management and costs powers to address non-compliance, including the ability to impose sanctions on a party who fails to adhere to these pre–action steps. However, in the context of fraud claims, strict compli - ance may not always be appropriate. Where there is urgency or a real risk of asset dissipation, a claimant may be justified in proceeding without prior notice and seeking ex parte interim relief, such as freezing orders or disclosure orders. In such circumstances, a departure from pre-action requirements will generally be accepted where giving notice would risk undermin - ing the effectiveness of the relief sought. In practice, such claims often begin with a without notice application before, or at the same time as, issuing the claim form. CPR Part 25 expressly allows the court to grant interim relief before proceedings are commenced where the matter is urgent, or it is
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