Georgiades & Mylonas Advocates & Legal Consultants
Law Update Inside this issue: Welcome Speech Yiannos G. Georgiades
MIFID (The full article) Yiannos G. Georgiades
Welcoming our New Staff 4
Late Delivery of Immovable Propertyâ€” Liquidated Damages V. Penalty Clauses Rebecca E. Howarth
Cyprus Regulation of Electronic Commercial Communications Oxana Meshkova
December 2007â€”December 2008
Welcome Speech Yiannos G. Georgiades I am pleased to welcome you to the next edition of our newsletter which covers the last year of activity, developments and news at our office. Since our 15 Year Anniversary Party last year, which I would like to thank all who attended and contributed to the success and enjoyment of the evening, our office has continued to grow, develop and gain strength. I are pleased to announce that new members have joined our team and I wish to take this opportunity to welcome them and wish them every success, throughout our newsletter you will have the chance to view our photographs and read articles written by our team. It is with great pleasure that I can now formally announce our new partnership with a UK based firm, which will further expand out international outlook and client base, further details are available on our new website. I am also excited to announce that after much time and effort we are aiming to launch are new website by Christmas 2008, I would like to ask you all to take some time to visit our new and improved website where you will be able to read further and in more depth about our office, staff and up and coming news and developments. Once again I wish to thank everyone who has taken part in our years growth and development and also to thank our clients for it is due to you that we have grown and expanded in such positive ways.
Our 15 Year Anniversary Party Images
Staff Members from both the Nicosia office and the Larnaca Office
Seasons Greetings & A Happy New Year from all the staff at Georgiades & Mylonas 1
Investment Services and Activities and Regulated Markets Law 144(1) 2007 (MIFID) in Cyprus As of November 2007, Cyprus has been fully compliant with the Markets in (Financial Instruments Directive), known as MIFID. The legislation was passed on 25 November 2007 and published in the Cyprus Gazette on 26 November 2007. The new law replaces the Investment Firm Law of 2002.
Yiannos G. Georgiades Advocate Founding Partner
The European Union is aiming, via MIFID, to facilitate the integration of Europe’s financial markets. All of the enterprises that are involved with the provision and performance of investment services, activities and the operation of regulated markets must be licensed by the Cyprus Securities and Exchange Commission. According to section 4(2) of the new law 144(1) 2007, which came into force on 1 November 2007, the persons who are entitled to provide investment services are (a) Cyprus investment companies authorised to operate under S. 6 (2) of the law, (b) investment companies of member states according to section 77(1) and S.80(1) (c) Third County investment companies under S.78(1) and banks under S.118 and co-ops. The authorities which are authorised to regulate the operation of the investment companies under the provisions of this law are the Central Bank, the authority for the supervision and development of coop societies and the Cyprus Securities and Exchange Commission. Under the law, no-one is entitled to receive payment for services unless they have a licence to provide investment services and if they do so without one, this amounts to a criminal offence. The criminal court has the jurisdiction to stay the activities of any person who is charged for any offence under the provisions of this law. If he finds the accused guilty of an offence under the law, the judge can not only punish him with a fine and by imposing imprisonment, but he can also order him not to provide any investment services regulated by the law for a 5-year period.
Terms such as “investment services”, “investment activities”, “regulated market”, “stock exchange”, financial services, “stock broking services”, broker or any other similar words in any language may not be used by anyone unless he is licensed according to the provisions of this law. Under section 6(5) of the law, the licence to operate investment companies is valid in all member states, either through a branch or by simply providing services or activities in any of the member states. According to the new law, the company is entitled to provide the services indicated in their licence and in order to avoid changing their memorandum and articles of association every time they want to expand their services, they are required to include in their memorandum and articles of association a clause providing that the company will provide the investment services specified in their memorandum of incorporation. Requirements for granting the licence The requirements for granting licence for an investment company to operate may be summarised as follows: 1.
Initial share capital
(a) In cases of reception, transmission, execution, portfolio management and investment advice 200,000 (b) For reception, transmission, investment advice without handling any clients’ funds/instruments 80,000 or 40,000 and professional indemnity insurance with coverage in all member state countries for at least 1,000,000 for each loss and a total of 1,500,000 annually for all losses due to negligence (c) for own account, underwriting and operation of Multilateral Trading Facilities MTF 1,000,000 (d) reception, transmission, investment advice without handling client funds/instruments and insurance intermediary 40,000 or 20,000 and professional indemnity insurance with coverage for all member states for at least 500,000 for each loss and 750,000 for all losses for each year.
2. In the memorandum of association, it must be mentioned that the company is operating as an investment company and provides the services provided in their licence, which was granted to them by the Commission.
the safeguarding of ownership/interests and prevention of the use of clients’ instruments/ funds. There are some additional requirements in cases of Multilateral Trading Facilities (MTF). The company must also use in this case the rules and procedures for trading and criteria for the execution of orders and for determining the instruments, provision of publicly available information and access to such information, rules governing access to the MTF and provide information to users for their responsibilities for the settlement of transactions and maintain procedures to facilitate the settlement of transactions:
3. The people who direct the company must have the required good standards of integrity and experience and the company must be managed by at least 2 such people. 4. The names of the shareholders or the ultimate beneficial owners must be disclosed and the shares they hold in the company. If the shareholders are not considered suitable, the Commission may refuse authorisation.
The investment company must have an internal procedure’s manual which includes all of the policies, procedures, regulations and mechanisms and the employees must acknowledge its existence and be aware of its context.
5. The persons employed by the company must have such integrity, good repute, skills, knowledge and expertise so that they can carry out their duties properly.
6. The company’s head offices must be located in The procedures and mechanisms to be impleCyprus. mented must be proportionate to the nature and complexity of the business activities of each 7. The company must be a member of the investor investment company. compensation fund. The Commission is entitled to issue a separate According to the law, the Commission will not ar- directive concerning what they consider necesrange authorisation if according to the laws, regula- sary in order to clarify, specify or add things. tions or administrative provisions of a third country, the effective exercise of the supervisory functions of Application the Commission are prevented. According to S.21(1), enterprises which are interested in applying for a permit must file an Organisational requirements application using the prescribed forms from the Many of the provisions of the law aim to protect the Commission. customers’ best interests by imposing organisational requirements. The organisational requirements may The Commission decides upon the style and the context of the forms and the kind of informabe summarised as follows: tion to be supplied by interested parties. The The company must have certain policies and proce- Commission is always entitled to request addidures to facilitate compliance with the legislation, tional information. rules for personal transactions, measures for protecting clients from any conflict of interest, to maintain The application will not be examined unless continuous and regular performance of services, ac- there is written confirmation that the company tivities, outsourcing of functions, services, activities has funds for the requested share capital and to third parties in such a way that it will not influence that they are willing to freeze them at the Comthe internal control and efficiency of the investment mission’s request. company when complying with their obligations, The application must be signed by the directors maintaining proper governance with transparency. of the company. Use of efficient administrative accounting procedures and internal audit mechanisms, risk management Under S.22, the Commission must decide on procedures and arrangements for information proc- the outcome of the application within 6 months essing systems, good recording of services and ac- of the moment the application is completed. It is tivities, prevention of money laundering (separate considered to be complete if it contains all of directive will be issued), policies, arrangements for the information provided by article 21.
If the applicant does not receive an answer within 6 months, he can proceed with a recourse to the Supreme Court against the Commission under article 146 of the Constitution. Termination The licence may be terminated by the Commission or stayed under the circumstances outlined in S.24 of the law. The licence automatically ceases to apply in cases where • the investment company does not start using its licence at all within 12 months of the time when the licence was issued • when the investment company expressly decides to stop having the licence if the investment company does not provide any investment services and/or has not exercised any investment activities for a period of 6 months Under S. 25 and 26 of the law, the Commission is entitled to either wholly or partially revoke or stay the investment company’s licence if it finds out that it has acquired the licence under false pretences, through misrepresentation or by using any other improper means.
The law covers all financial firms which offer investment advice, the receipt and transmission of orders, the execution of orders, trading on their own account, portfolio management, multilateral trading facilities and the underwriting or placing of financial institutions. Although it came into force on 1 November 2007, the Commission has clarified that they will not be adamant on penalising firms at this initial stage, provided that investment firms show that they are making a genuine effort to comply with the provisions. Instead they will try to co-operate with the firms in order to help them achieve full compliance within a very short space of time.
Welcoming Our new Staff
We would like to welcome our new staff to our office and wish them every success and a long and happy career here at our offices:
if they do not comply with the conditions of their licence and the provisions of the law and the directives • they are in serious breach and or continuous breach of their operational requirements and obligations provided by the law and the directives the stay is provided by any other Cyprus law which is relevant and applies to a particular investment company
Since the coming into force of the new law, the Commission has already passed 2 directives 144-2007-01 and 144-2007-01.
Rebecca Howarth—Legal Consultant / Trainee
The first one concerns the licensing and operation of the investment company and the other, the rules of ethics. The Commission has also prepared another directive which provides for the format and context of the application forms which need to be filled in by the applicants. Conclusion The new law and the directives afford better protection to the interests of clients of providers of investment services. It will improve transparency since under the law, the investment institutions are obliged to provide their clients with more information with regard to their transactions, activities and their product as well as warning them about various risks that the products that they offer might entail.
Katerina Menikou—Advocate Eva Hadjiantoniou - Secretary Maria Raphael—Advocate
Reception Nicosia—Maria Nicolaou
Late Delivery of Immovable Property—Liquidated Damages v Penalty Clauses As a buyer, you should be aware of the protection that is available to you in the event of the late delivery of the immovable property you have purchased and also some of the things you need to avoid including in your contract. If the sum stipulated is for an extravagant and unconscionable amount in comparison with the greatest loss that could conceivably be proven to have been occasioned by the breach, it is likely to be held by the Courts to be a penalty. There is a presumption that it is a penalty when a single lump sum is made payable by way of compensation upon the occurrence of one or more or all of several events, some of which may occasion serious, and others, maybe trivial events. However, this is a mere presumption and is not a written and enforced law.
Rebecca E. Howarth Trainee Solicitor
It is not unusual to find that the contract of sale contains a clause that entitles the purchaser to a specified sum of money for compensation in the event of late delivery of the property, for example, a monthly rate of compensation. However, it should be noted that this does not always guarantee that the purchaser will in fact be paid this amount.
It is important for a purchaser of immovable property to ensure that the clause is not open to post breach attack as a penal sanction. In taking the above considerations into account, the purchaser may wish to consider the inclusion of a graduated damages clause, which can be done with the assistance of a lawyer. This is a clause where the amount of compensation increases in proportion to the seriousness of the breach. In the case of immovable property, this could be a set amount per week for delay in the performance of the contract.
Where the parties agree that in the event of a breach of contract, for example, the immovable property not being delivered to the purchaser on the stated date, the party who is in breach will pay a specified sum of money, the Court must consider whether the fixed sum should be classified as a penalty clause which is irrecoverable or as liquidated damages which are recoverable, which is a question of law. When making the decision, the Court will have to take into account the terms and inherent circumstances of each particular contract. This will be judged at the time of making the contract, not at the time of the breach.
As a purchaser, the best method to use to protect yourself and your interests is to be able to provide the Court with evidence of the damage and real and substantial loss which has occurred and provide a means of proving that the amount stated was a genuine estimate at the time of making the contract. It is advisable to get this evidence from an expert property valuer as this will be accepted by the court as reliable, acceptable evidence.
The essence of a penalty clause is a payment of money stipulated as ‘in terrorem’ of the offending parties’, meaning that the provision is meant to act as a method of ensuring that a person complies with the terms of the agreement through fear of the consequences of noncompliance. The essence of liquidated damages is a genuine estimate of the likely damage.
The Supreme Court of Cyprus has considered the issue of compensation in cases of late delivery of property and concluded that;
The clause will be enforceable if it does not appear to exceed a genuine attempt to estimate, in advance, the loss the wronged party was likely to suffer from the breach of obligation in question. It will be enforceable irrespective of the loss actually suffered. It can be concluded that the sum must be a genuine estimate of the damage. The term genuine has not yet been interpreted by the Courts, but it can be taken to mean a serious attempt to estimate losses, made in good faith, irrespective of how unreasonable it may appear to others or how unreasonable it may in fact be at the time of the actual breach.
“The normal measure of damages is the value of the use of the land, which will generally be taken as its rental value, for the period from the contractual time for completion to the date of actual completion” (Metallika Iraklis Michaelides Ltd v. G & C Exhaust Systems Ltd (Civ. Appeal 10355) 26 April 2007).
Cyprus regulation of electronic commercial communications Electronic commerce relates to Information Technology area and the laws applicable to IT issues also cover e-commerce. Cyprus has passed new laws concerning IT issues to be in conformity with European standards. Before 2004, this law area was weakly regulated here and implementation of EU Directives brought the Republic to the European level and expanded the applicable legal framework. with EU law. On the other hand, EU law gives discretion to member states to impose their own specific legal requireOxana Meshkova ments in relation to IT matters, which should not violate EU Paralegal law though. So, when a company is planning to perform a promo-action of its goods and services through the Internet worldwide it should be aware of this “legal gap” and should also consult local lawyers on domestic position regarding IT law in order not to become liable for breach of domestic These days, businesses consider the Web to be one of the law. most effective tools for promotional purposes of their goods and services. Difficult to imagine a well-organized In relation to electronic commerce area, Cyprus law has and professionally managed company without having a come in conformity with EU standards by passing the followfirm webpage where potential customers and clients can ing legislation: inspect company’s profile, range of goods and services • Electronic Commerce and Associated Matters Law 156 provided, and to conclude a contract for delivery or supply (I)/2004, amended by Law No. 97(I)/2007; of these goods or services on-line. It is an internationally • Law on Processing of Personal Data (Protection of Peradopted practice that on-line agreements are regulated by son) 138(I)/2001, amended by Law No. 37(I)/2003; general contract law principles with several exceptions like • Law on conclusion of Distance Contracts 14(I)/2000, contracts for property purchase which need to be done in amended by Laws No. 237(I)/2004, No. 93(I)/2007, No. 16 writing and, therefore, can not be concluded on-line. (I)/2008; For commercial and marketing purposes large companies • Legal Framework for Electronic Signatures and Associuse “commercial communications” to attract the clients, ated Matters Law 188(I)/2004; which is “any form of communication designed to promote, Regulation of Electronic Communications and Postal Serdirectly or indirectly, the goods, services or image of a vices Law 112(I)/2004, last amended by Law No. 46 company, organisation or person pursuing a commercial, (I)/2008. industrial or craft activity or exercising a regulated profession…..the following do not in themselves constitute com- From the provisions of Law 156(I)/2004 it is clear that commercial communications: information allowing direct ac- mercial communications must comply with the following cess to the activity of the company, organisation or per- conditions: son, in particular a domain name or an electronic-mail address; communications relating to the goods, services or (a) the commercial communication shall be clearly image of the company, organisation or person compiled in identifiable as such; an independent manner, particularly when this is without (b) the natural or legal person on whose behalf the financial consideration.” commercial communication is made shall be clearly According to Directive 2000/31/EC of the European Parlia- identifiable; ment and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular elec- (c) promotional offers, such as discounts, premiums tronic commerce, in the Internal Market ('Directive on elec- and gifts, where permitted in the Member State where tronic commerce') and Electronic Commerce and Associ- the service provider is established, shall be clearly ated Matters Law 156(I)/2004, the above definition relates identifiable as such, and the conditions which are to be to services provided at a distance and by electronic met to qualify for them shall be easily accessible and means. In simpler words, companies use on-line promo- be presented clearly and unambiguously; tions which can be activated only by individuals who wish to participate. This kind of promotion is proved to be cost (d) promotional competitions or games, where permiteffective, innovative, technologically oriented, and regu- ted in the Member State where the service provider is established, shall be clearly identifiable as such, and lated by law. Companies incorporated under the laws of one of the EU the conditions for participation shall be easily and be presented clearly and member states can be sure that IT legislation of another accessible member state is not much different from the one their unambiguously country has because all member states have to comply
Also, promoters should bear in mind that performance of their on-line promotions can entail other legal issues apart from the above requirements. For instance, usually to identify the participants promoters require personal information to be provided. If so happens, promoters become “controllers” of the personal data received, according to the meaning of Law 138(I)/2001 “‘controller’ shall mean the natural or legal person, public authority, agency or any other body which alone or jointly with others determines the purposes and means of the processing of personal data” and laws protecting personal data will apply then. EU Directives on protection of personal data were based on principles of transparency, legitimate purpose and proportionality and the same principles were preserved by Cyprus legislation. So, if the promoter for the purposes of activation of its commercial communication gathers personal data of participants, like name, birth date, marital status, ID numbers, place of origin, he must fulfill the following requirements as to the treatment of this information. According to the amendment Law No. 37(I)/2003, personal data can be processed for the purposes of direct marketing only with the consent of participant and controller must notify participant of his right to object to the processing of his data for such purposes. Furthermore, personal data received from the participants by electronic means should be processed fairly and lawfully, collected for specified, explicit and legitimate purposes and not further processed in a way incompatible with those purposes, must be adequate, relevant and not excessive in relation to the purposes for which it’s collected and/or further processed, it must be accurate and, where necessary, kept up to date, and it must be kept in a form which permits identification of data subjects (participants) for no longer than is necessary for the purposes for which the data were collected or processed. The controller must provide the participant at least with the following information: the identity of the controller/his representative, the purposes of processing for which the data are intended, any relevant information like the recipients or categories of recipients of the data, whether replies to the questions are obligatory or voluntary, the existence of the right of access to and the right to rectify the data concerning him. There are special categories of personal data which can not be processed by the promoter unless the participant gave his explicit consent to the processing of such data which includes information revealing racial or ethnic origin, political opinions, religious beliefs, trade-union membership, health, and sex life; in other words the promoter
can not enquire this information during his promo-action from the participants unless they give their explicit consent. In case, the controller conducts an unlawful processing of personal data or commits any breach of the above mentioned laws he will be liable for damages suffered by participants whose data was processed. According to the law, the promoter, as a data controller in this case, must implement appropriate technical and organizational measures to protect personal data against accidental or unlawful destruction or accidental loss, alteration, unauthorized disclosure or access, and against all other unlawful forms of processing. However, if a data controller does not have ability or due to any other reason can not process data collected for his specific purposes, he should cooperate a “data processor” which will provide sufficient guarantees in respect of the technical security and organizational measures governing the processing to be carried out on his behalf. There must be a legally binding contract for supply of services concluded between the controller and processor (so the processor can not be one of the controller’s employees) according to which the processor will act only upon the controller’s instructions and should have the minimum security measures required by the controller due to the abovementioned legal obligations. The controller is obliged, prior to carrying out any automatic processing operation, to notify (not to ask for approval from) the Commissioner unless exemptions apply which, in respect of processing, are necessary for the fulfilment of an obligation imposed by law or by contract under an employment or contractual relationship and the data subject (participant) has been notified in advance; relate to customers or suppliers (except in the case of insurance and pharmaceutical companies, companies that sell information, banks and other financial institutions), provided that the data are not disclosed or transmitted to a third party; confidentially carried out by lawyers, doctors or health service providers, provided data are not transmitted to third parties (except where necessary in accordance with the client’s instructions in the case of lawyers); or carried out by any organisation (charity, society, company or political party) in relation to its members, provided that the members have consented to the processing and the data are not transmitted to a third party. As well as there is an obligation of the controller to obtain permission or approval of the Commissioner and consent of the participant if it needs the data to be transferred to a country outside the EU, or two or more filing systems records which contain sensitive data or from which data may be retrieved using common criteria are to be interconnected. Lastly, Law 112(I)/2004 and Law 156(I)/2004 distinguish commercial communications and unsolicited commercial communications (usually it is also called “Spam” but not all unsolicited commercial communications are spam).
The former is placed on the Web and can be activated only by the person whishing to take participation if he can fulfil and agree with terms and conditions stated in the commercial offer or promotion and the latter involves communications being sent to persons by electronic mail with or without their prior express consent. Unsolicited commercial communications involve two different policies called “opt-in” and “opt-out” which apply to different cases. If none of these policies’ requirements fulfilled the communication will be considered as spam and will be illegal. More precisely, an opt-in policy, also called permission marketing, means that the recipient should himself subscribe for the delivery of particular information which he wants to receive from the sender by ticking the box saying, for example, “Yes, I want to receive this information by e-mail”. According to Law 112 (I)/2004, an opt-in policy applies when communication for direct marketing purposes is sent to the potential clients or to those who gave their prior consent. While an opt-out policy means that the communication is sent to the recipient without his prior consent but it should provide him with an option to object further delivery of such e-mails. This policy should be preserved in cases with already existing clients, in other words with someone who previously dealt with the sender and had provided his e-mail address but the communication was sent without his express consent. In this case, the sender can deliver his commercial communications by e-mail only in relation to promotion of products or services similar to those which the client had been supplied with previously provided that at the moment of collection of client’s electronic contact details the latter was clearly and distinctly given an opportunity to object, free of charge and in an easy manner, to such use of his e-mail. Besides, the sender must also provide the client with an opportunity to object to such use of his e-mail with every email he sends to the client, in other words every new electronic communication must contain sort of a tick box asking whether the recipient wants to be receiving this kind of information in future. In cases other than these two situations EU Directive 2002/58/EC gave discretion for the member states to choose when an unsolicited communication for direct marketing purposes should be considered illegal and Cyprus law says that unsolicited communications, other than with prior consent of a potential client or opportunity of existing clients to object, will be considered illegal when there was no prior consent, so Cyprus adopted an opt-in approach.
and Law 112(I)/2004, as amended, these communications must be identifiable clearly and unambiguously as such as soon as they are received by the recipients and, in case with communications for direct marketing purposes, they must show identity of the sender and his valid address to which the recipient may send request that such communication cease. To outline, for legalization of spam, service providers which undertake unsolicited commercial communications should provide all recipients with opt-out register, so if they do not want to receive communication from some service providers they can register themselves for this. It is up to the promoter to choose the way he wants to deliver his commercial offer to people, either by way of commercial communication or unsolicited commercial communication but he must not forget that both ways entail legal requirements for him to follow otherwise he can be charged for sending spam's.
Also, according to Law 156(I)/2004, as amended,
Our Announcements: Christmas Greetings We would like to thank everyone who attended our anniversary party and are proud to say that it was a success and a perfect reflection of our years in practice. We also wish to thank everyone for their support and role in our development
Staff Announcements We are proud to announce that Rebecca E. Howarth has been accepted to commence her LLM with Huddersfield University via Electronic Distance Learning and wish her all the best in the forth coming year of study.
Office Announcements We are pleased to announce the launch of our new website See our new website at: www.gmadvocates.com
Happy Christmas ! ! !
Pictures from our 15 Year Anniversary Party:
Entertainment on the evening of the partyâ€”Professional Dancers
Yiannos Georgiades & his wife Sharron and two of his four children
Yiannos Georgiades presenting award to Rebecca Howarth
Awards given to members of the team for efforts and contributions
Michalis Rouvim, Sharron C T Conner Yiannos G. Georgiades Reception Nicosia
George P. Georgiades & Yiannos G. Georgiades Board Room Nicosia
2, Ay. Pavlos & Kadmos Str. Wisdom Tower 3rd Floor P.O Box 24144, 1701 Nicosia Cyprus Phone 00 357 22 819 292 Fax 00 357 22 778 444 Enquiries@gmadvocates.com The information given in this newsletter is for general guidance and information only, it cannot and should not take the place of detailed legal advice. Please contact us for further information and assistance.