Restitution and Unjust Enrichment under Cyprus Law

Failed commercial transactions often raise a deceptively simple question: can money already paid be recovered? Cyprus law answers this question through the doctrines of restitution, unjust enrichment, and failure of consideration, areas of law that have been refined by Supreme Court jurisprudence.

Two decisions stand out as particularly instructive for litigators and commercial parties alike:

• Theocharides v Ioannou (2012) 1 A.A.D. 1311
• Archippea Investment Advisors Ltd v Dimitriou Kakavou (2015) 1 A.A.D. 2195

The Supreme Court of Cyprus answered these questions with clarity and authority in <strong>Vrasidas Stavrou v Andreas Demetriou (Civil Appeal No. 7548, (1991) 1 A.A.D. 304), a decision that continues to shape Cyprus contract law and arbitration practice more than three decades later.
This article explains why Vrasidas Stavrou case remains a cornerstone authority and why it is particularly relevant to modern disputes involving SPAs, conditions precedent and failed completions.

The legal significance of Vrasidas Stavrou case

The importance of Vrasidas Stavrou lies not in its factual background, but in the principles articulated by the Supreme Court. The Court drew a clear and uncompromising line as to the legal effect of rescission, emphasising that it is not a flexible or discretionary outcome, but a remedy with strict consequences.

The Supreme Court affirmed that rescission entails the setting aside of the contractual relationship itself, with the objective of restoring the parties, as far as possible, to their pre-contractual position. Once rescission is established, the contract ceases to operate prospectively.

Crucially, the Court held that rescission is incompatible with the continued enforcement of contractual obligations. A court cannot, on the one hand, declare a contract rescinded and, on the other, selectively preserve obligations or impose partial performance. Any such approach would be legally inconsistent.

Rescission is not partial, conditional or hybrid

One of the most powerful aspects of Vrasidas Stavrou is its rejection of “halfway” remedies. The Supreme Court made it clear that:

• Rescission cannot coexist with continued contractual performance;
• Once rescission is granted, the contract is treated as having ceased to operate;
• The legal consequence is restoration, not modification of obligations

Together, these cases explain how and when restitution operates in Cyprus law, and why recovery of payments is not automatic but principled.

Restitution is not damages

A recurring misconception in commercial disputes is that restitution functions as a form of damages. The Supreme Court has repeatedly rejected this view.

In Theocharides v Ioannou, the Court emphasised that restitution is concerned not with compensating loss, but with reversing an unjust enrichment. The focus is on whether one party has been enriched at the expense of another, and whether there exists an unjust factor that makes retention of that enrichment legally impermissible.

This distinction is critical in litigation. Unlike damages, restitution does not require proof of loss, causation or foreseeability. The inquiry is different, and often more favourable to a claimant in failed-transaction scenarios.

Total failure of consideration as an unjust factor

In both Theocharides and Archippea Investment Advisors Ltd v Kakavou, the Supreme Court analysed the concept of failure of consideration as a recognised unjust factor under Cyprus law.

In Archippea, the Court examined the collapse of the contractual basis upon which payments were made and confirmed that where the agreed foundation for a transfer of value has failed entirely, restitution may follow. The Court made clear that the enquiry is substantive rather than formal: what matters is whether the purpose for which the payment was made has been achieved.

This analysis is particularly relevant to advance payments, signing amounts, deposits under SPAs and aborted investments.

Restitution is not automatic

A key contribution of Theocharides is its clear statement that restitution is not automatic. Even where a contract fails, a claimant must still establish the elements of unjust enrichment, including:

• enrichment of the defendant;
• corresponding impoverishment of the claimant;
• absence of a legal basis justifying retention;
• absence of applicable defences.

This structured approach provides predictability while preventing opportunistic claims.

Interaction with termination and rescission

Restitution frequently arises following termination or rescission of a contract. Where a contract is treated as having come to an end, particularly due to non-satisfaction of a condition precedent, restitution operates as the mechanism for unwinding payments already made.
The combined effect of Vrasidas Stavrou (on rescission) and Theocharides / Archippea (on restitution) is doctrinally powerful: once the contractual basis collapses, Cyprus law provides a principled route to restoring the parties to their pre-contractual position.

Strategic importance in litigation and arbitration

From a litigation perspective, these cases are invaluable in structuring restitutionary claims; resisting arguments that payments are non-refundable by default; separating restitution from damages claims; and framing relief in arbitration proceedings.

They are particularly effective in litigation and arbitrations seated in Cyprus, where tribunals routinely apply Cyprus contract law principles.

AGPLAW insight

At AGPLAW, our litigation and arbitration team advises clients on high-value commercial disputes involving failed transactions, unjust enrichment claims and restitutionary remedies. Our approach is firmly grounded in Supreme Court jurisprudence and tailored to both court and arbitral proceedings. Understanding how Cyprus courts analyse restitution can be decisive in determining strategy, risk exposure and ultimate recovery.

The information provided by

AGPLAW | A.G. Paphitis & Co. LLC

is for general informational purposes only and should not be construed as professional or formal legal advice. While every effort has been made to ensure the accuracy and reliability of the information contained herein, no representation or warranty is given. In no event will the author or any related parties be liable for any loss arising from reliance on this article.