Author: Paschalis Paschali

PRESS_RELEASE_CHAMBERS_GLOBAL_2020

As Tereza May said “Brexit is Brexit” many may not have believed her at the time but now it is a fact.

As of 1^st February 2020, the United Kingdom is no longer a member of the European Union.

The departure of the UK from the EU will have a profound effect on many industries.

The impending effective abolition of the free movement of workers / labour from the EU to the UK and vice versa (one of the two main pillars of the free market that is protected by the Treaty of Rome which established the union of nations now known as the European Union) will take the United Kingdom back to the situation that prevailed before entry into the EU in 1973.

There is no doubt that the membership of the European Union and the effect of the Bosman ruling have changed the face of football in the United Kingdom.

European footballers are by far the largest group of players in the British game. Henry, Ronaldo, KDB players of the past and present who have graced the British game.

Managers too, Wenger, Mourinho, Guardiola and, more recently, Klopp, have all left their mark on the English game and the Premier League in particular.

All Europeans who, with their status and skills, have made the Premier League the best and richest league in the world.

After Brexit and following the end of the transition period, European sportspersons (footballers and managers are no exception) who will not have applied for and received “settled status” (as explained below) will have to apply for a work permit on the same basis of sportspersons from third (non-European and non-European Economic Area [EEA]) countries.

All European citizens currently living and working in the UK may apply for “Settled Status” as explained below:

In a paper titled “The UK’s Future Skills-Based Immigration System Presented to the Parliament in Westminster in December 201,8 by the then Secretary of State for the Home Department, Sajid Javid MP began,” some may say ominously, as follows:

“The ability to control immigration and secure our border was an important part of why many people voted to leave the European Union.”

He then went on to say the following with respect to EU / EEA citizens who are currently living in the UK:

“We have been so clear to those EU citizens who have made their home here that we want them to stay, and we have given them certainty that their, and their family members’, rights will be protected.”

In making such a statement the UK Government was clearly seeking reciprocal treatment for the hundreds of thousands of British expatriates living and working or living as retirees in the EU. “Settled Status” may be obtained by EU and EEA citizens who are currently in the UK by way of an application made during the transition period to 31^st December 2020 and ensures that all pre- Brexit rights enjoyed by EU / EEA citizens will remain indefinitely.

Post 2020, however, the rules, in so far as entry into the UK is concerned, will change. Britain’s immigration policy will be “skills based” or… perhaps more accurately, “Britain First” based, as is evident from the same statement of the Home Secretary which goes on to state the following:

“To ensure we get the most from immigration though we must be able to control it. That’s why, in future, anyone wanting to come to the UK will need to obtain permission – enhancing the security and safety of our people.

This new system will be focused on those with the skills we need, who bring the most benefit to the United Kingdom. Our new route for skilled workers will enable employers – in both the private and public sectors – to access the talent they need. This will help support wage growth, and productivity improvements. But we understand this is the most significant change to the immigration system in more than 40 years, and so employers will need time to adjust.”

The above stated criteria are effectively a reiteration of the requirements for the issue of a “Tier 2” work permit for non-European and non-EEA elite sportspersons including, of course, footballers and coaches.

These are the following:

• The applicant must be an elite sportsperson or qualified coach, who is recognized by the sport’s governing body (in the case of football in England this is the English Football Association [FA]) as being at the highest level of the profession internationally.

• The employment must be of the type that will develop the sport in the UK at the highest level.

• The Football Association must also endorse the application.

The above rules will in all probability not adversely affect the influx of the uppermost tier of European and non-European and non-EEA players, namely players who are already established internationally.

However, the new rules may well stifle the influx of players who may be the stars of the future but are not yet considered ‘elite’ and recognized as ‘being at the highest level of the profession’.

There is a distinct possibility that the new rules may have the effect of taking the UK back to pre- Bosman times.

Given that the Bosman ruling will, of course, continue to apply to Europe, then it is clear that, unless there is a specific relaxation for ‘the national game,’ the new immigration rules as announced by the UK Home Secretary will certainly serve to reduce the competitiveness of English Premier League clubs in Europe.

To make matters worse, it is being heard that the FA, which is an organization with omnipotent powers and effectively answerable to nobody and which befitting its “God-like” status, more often than not moves in mysterious ways, will seek to use the new immigration rules and the resulting fact that European and EEA players will not be granted free access into the UK as an opportunity to seek to generally limit the number of foreign players in league squads. The old argument that the influx of foreign players adversely affects the quality and development of British footballers and British national teams will no doubt be heard again. The FA, depending upon the stance that they will take, may be of the mind that they must take a hard line in interpreting and endorsing a footballer or, for that matter, also a coach as ‘elite’ and ‘at the top of his / her profession’ or as a person ‘who will develop the game at its highest level in the UK.

It is not beyond the realms of possibility that an insular attitude in the FA inspired or in response to a hard Brexit may result in interpretations that may limit the influx of young European coaches as well as players into the UK. Anyone who follows English football will know the frequent calls for English coaches such as Steve Bruce and Eddie Howe to be given a chance with the bigger clubs.

Ask yourselves, for example, would the current Manchester United and Arsenal coaches, Ole Gunnar Solskjaer (Norway – although not an EU member – is part of the European Economic Area) and Mikel Arteta (Spain) have been able to gain a Tier 2 work permit if they were not Europeans or EEA? In reality they are as yet unproven. Would they be considered as being ‘elite’ and ‘recognized as being at the highest level of the profession’?  It is a matter of opinion and conjecture.

We have a no deal Brexit. We have no certainty. The Premier League and the FA must move quickly; the uncertainty must end. Footballers have short careers and increasingly wily and, with some notable exceptions, sophisticated and dedicated agents who will protect and encourage their stars to be prudent, especially at the outset of their careers, and to look for certainty rather than the uncertainty that will almost undoubtedly cast its deep long shadow in the post no-deal Brexit period.

Uncertainty will not only limit the influx of young players and coaches. It will also drive up the transfer fees of both elite British footballers who will now be at an ever increasing premium and the ‘eligible’ foreign players, making both inaccessible to all but the richest clubs.

Spanish, Italian and German clubs, as well as clubs from less popular leagues but in countries with a more liberal immigration policy than that of the UK (Holland for instance), must be rubbing their hands with gleeful anticipation that after 2020 they may well find themselves becoming increasingly attractive propositions for many of the foreign playing and coaching stars of the future than their premiership rivals.

The Immovable Property (Transfer and Mortgage) Law 9/1965 (hereinafter the “Law 9/1965”), was recently amended, introducing a fast track foreclosure process. The introduction of the new section to the Law 9/1965 provides a step by step process for the private sale of a mortgaged property whilst restricting the mortgagor’s capabilities to stop the proceedings of the sale.

Prior to the amendments, there were only two available options for the sale of a mortgaged property: through the department of lands and surveys or through a forced sale (after a judgment had been issued). The new section, i.e. Part VIA of the Law 9/1965, has offered mortgagees a new way of foreclosure: through private sale. The concept behind these new provisions is to offer to mortgagees / bank institutions, a faster way of foreclosure, whilst mortgagors retain the right to file an appeal against the foreclosure proceedings provided that one of the specific grounds of article 44Γ (3) is applicable.

It should be mentioned that despite the efforts of legislators to introduce a fast track foreclosure, Part VIA in its initial form, was effectively a failure.  Mortgagors could file an appeal against the announced foreclosure based on the ground that an action against the mortgaged debt was pending before the court. In essence, this ground of appeal had allowed manipulation of the Law 9/1965 due to mortgagors’ strategy to file claims against the mortgaged debt in order to delay the sale of the mortgaged property or even to suspend the foreclosure proceedings, a strategy which had opened the floodgates to claims in the already burdened legal system and also, once again, led to significant delays in the process of sale.

The latest amendment of the Law 9/1965, has eliminated the aforementioned manipulation of the Law 9/1965 by replacing the “pending action” ground with the “issuance of an interim order” ground. In essence, mortgagors who have legitimate reasons against the mortgaged debt can still challenge the foreclosure proceedings through an application based on the strict provisions of article 32 of the Courts of Justice Law 14/1960.

Today, the Law 9/1965 as amended constitutes the ultimate weapon for mortgage creditors, especially banks, to obtain repayment of borrowed money or to mitigate their losses through the invocation of the provisions of Part VIA of the Law 9/1965. Simple, but strict requirements must be met (especially when mortgagees are banks, due to the additional requirements that apply), the majority of which have to do with the context and the service of the various written notices that must be sent, i.e. notice of type «Ι», «Θ», «ΙΑ» and «ΙΒ». The time periods that must elapse between notices is of the essence as well. Consequently, if a bank fulfils all necessary requirements it is extremely difficult for a mortgagor to successfully challenge the fast track foreclosure proceedings, save where an interim order prohibiting the sale of a mortgaged property has been issued, although it still remains unclear whether such interim order must be issued prior to the filing of an appeal or not.

It is clarified that, in practice, when mortgagors file an appeal against the foreclosure proceedings, they may occasionally put forward other additional legal grounds such as alleged nonconformity with the Constitution, abuse of process etc.

However, based on our experience in handling multiple cases concerning appeals and interim orders that have been brought before the courts against foreclosure proceedings through private sale, the courts are reluctant to issue a judgment in favour of a mortgagor. Despite the above, it is of paramount importance to note that every case is unique and requires careful attention to detail at every step of the way and thus, specialist advice should be sought for every case.

In view of the upcoming changes to the current Trademarks Law in Cyprus, the law itself as well as the registration of trademarks have attracted great interest since their evolution is anticipated to assume great importance in the forthcoming years. A short review of this topic is presented below.

Significance

Under Cyprus laws, a trademark is defined as a sign that can be reproduced in various ways. This can be done graphically, by words that may include the names of persons, by pictures, letters, numbers, shapes of any products or any combination as long as they are distinctive as trademarks or service marks.  Generally, by registering a trademark the owner is granted an exclusive right of use, with specific reference to the class of goods or services for which it is registered.

A trademark is essentially a mark that allows a company to render its services or products distinct from those of other businesses. It also amounts to a highly valuable proprietary asset of the registered business holder. Article 24(1) of the domestic Trademarks Law provides that a trademark can be transferred or assigned either along with the goodwill of the business or remainder of the goodwill of the business or otherwise.

 A trademark is solely protected within the jurisdiction in which it was registered, so in the case of registration outside Cyprus, an additional procedure needs to be adopted. Trademarks cannot be registered if they are devoid of a distinctive or unique character or are the same or similar to previously registered trademarks. The rationale behind this proscription is that such use may bestow an advantage which usurps a pre-existing trademark. A trademark that violates public policy and is also contrary to accepted principles of morality is deemed as ‘scandalous’ by the law and it, too, can not be registered in Cyprus.                                                                    

The current legal framework

The domestic legislation governing trademarks is the Trademark Law Cap 268, as amended from time to time. The domestic law shall soon be replaced with the new law incorporating the EU Directive 2015/2436.

On the international perspective, Cyprus is also a party to, inter alia, the Paris Convention for the Protection of Industrial Property, the Convention Establishing the World Intellectual Property Organization (WIPO), the WIPO Treaty, the  Madrid Agreement for the international registration of marks and its Protocol, the Trademark Law Treaty and the Agreement on Trade-Related Aspects of Intellectual Property Rights.

Outline of trademark registration procedure in Cyprus

The designated office for the registration and protection of Trademarks in Cyprus is the Office of the Registrar of Companies and Official Receiver (“the Registrar”). The first step before registration of a national trademark in Cyprus is the undertaking of a search at the Registry of Trademarks which is regulated by the Registrar of Companies. Such an investigation is not mandatory but is highly desirable, in order to check and verify that no similar trademarks had been already registered and it requires approximately three weeks. With the conclusion of the search, an application form for the registration of a trademark along with a Power of Attorney, are filed. Through the said Power of Attorney, the applicant authorises a duly licensed practicing lawyer in Cyprus to proceed with the filing of the application for registration of the trademark on his/her behalf. 

Following the filing of the application and the required fee, the Registrar will appraise the application and examine the proposed trademark as to the extent of its distinctiveness and absence of creation of a sense of confusion or deception to the public.  The Registrar will proceed to publish it in the Official Gazette of the Republic for a period of two months, so that any party opposing the registration may have the chance to file an opposition within this period. If no opposition is filed, the Registrar will then proceed to register the trademark and issue a registration certificate along with a copy of the trademark. 

A landmark case concerning registration, was recourse no. 204/1991 Fournier Innovation et Synergie v The Registrar of Trademarks. It was decided that the word ‘ARPHA’ resembled the Greek alphabet letter ‘Alpha’ which, when used in the context of products implied high quality. The Cyprus Court, however, resolved that if the applicant’s name were to be added to the proposed word ‘Alpha’( i.e. ‘One Alpha Leo’), then this would confer the necessary distinctive character to the trademark. Hence, this decision paved the way for the potential addition of a name which in turn would render many applications to become acceptable to the Registrar.

In a case where an opposition is indeed filed within the aforementioned two months, the parties shall submit their observations and evidence. The Registrar, after hearing both sides,shall then determine whether the trademark is registrable or otherwise will refuse the registration.  The Registrar may also elect to approve the registration under certain conditions or may request the application to be amended. If the Registrar refuses to allow the registration of the trademark, the applicant may file a recourse in the Administrative Court.

On the basis of article 22(1) of the current Trademark Law CAP 268, trademarks in Cyprus have a validity period of seven years commencing after their initial registration. Once these lapse trademarks can then be renewed every fourteen years.

Trademarks can be registered beyond the scope of Cyprus. In order for a trademark to be legally valid and protected within the entirety of the E.U it can be registered as an E.U Trademark on the basis of Regulation 2017/1001, EU Directive 2015/2436 and others. The E.U Trademark has a unified character. It retains its own legal standing while at the same time it co-exists with the domestically registered Trademark. Since the accession of the European Union to the Madrid Protocol, both the European Union Trademark (EUTM) system and the so-called Madrid system have become interlinked. It is possible either to file an international application based on an EU Trademark, or to designate the EU in an international application. Furthermore, if a trademark is intended to be legally valid and protected internationally, it should be registered as an International Mark on the basis of the Madrid Protocol.

Outline of the changes introduced with the new domestic Trademark law

The new trademarks law shall be completely aligned with the EU Directive 2015/2436. The main targets of  the new law are to simplify and expedite the procedures for trademark registration, opposition and invalidation in order to conform with the contemporary commercial trends. Some of the changes that will be introduced are stated below:

a. Renewal and validity:

As mentioned above, after a trademark is registered it remains valid for seven years. After its first renewal it may be renewed every fourteen years. After the replacement of the current legislation and in accordance with the new law, future registration of trademarks will be valid for ten years with their renewal to be made every 10 years.

b. Procedures:

The new law will extend the period during which an opposing party may contest the registration of a trademark.  As noted above, the opposition period is currently set to two months, during which the trademark is published in the Official Gazette. The new law will extend this period to three months. The new law also provides for the initiation of a hearing to be reserved for exceptional situations and focuses on the introduction of amicable settlement of trademark disputes as well as the upholding of the rationale that trademarks will be primarily used as a defense mechanism.

The Power of Attorney at the registration stage will be replaced by a written statement signed by the applicant’s lawyer, thus obviating the need for a distinct Power of Attorney, and a unified levy fee will be introduced for the entirety of the registration procedure of the trademark. A graphic representation of the trademark will no longer be a requirement for its registration. Furthermore, the procedure for the transfer of the trademark will also be simplified.

c. New system of classification:

A system of multi-tiered trademark classification will be introduced. The goods and services in respect of which a trade mark registration is applied for shall be classified in conformity with the system of classification established by the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Mark. The goods and services for which protection is sought shall be identified by the applicant with sufficient clarity and precision in order to enable the competent authorities and economic operators, to determine the extent of the protection sought. Any modification of the classification of products/services can potentially be made at the renewal stage with the new Law.

d. Enhanced protection:

Trademarks related to geographical indications/names of origin will be protected more vigorously by the new legislation as well trademarks relating to natural plant varieties and traditional products of specific character.

A more meticulous regulation of collective marks and certification marks will also be undertaken in compliance with the new law.

What these changes practically mean for trademark law and procedures in Cyprus, and what further legal developments may follow as a consequence, remains to be seen.

Oil__Gas_Publication_Cover_Nov_2019_imh

In a continuous effort to raise investors’ confidence and establish itself as an attractive center for the establishment and operation of EU funds and asset management companies, Cyprus has recently updated its current legal framework to adhere to the gold standards set in the sector by regimes such as Luxembourg’s and Ireland’s. Cyprus offers both EU-regulated Undertakings of Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs).

With respect to the applicable Alternative Investment Funds (AIFs) framework, Cyprus has introduced a new piece of legislation in July 2018 with a view to align the jurisdiction with recent EU and international trends. Evidently, the most important aspect of the new legislation was that it has provided a significantly time and cost-efficient means of establishing AIFs in Cyprus through the introduction of Registered AIFs (RAIFs), which offers new benefits such as fast-tracking. In this regard, RAIFs do not require authorisation by the supervising Cyprus Securities and Exchange Commission (CySEC) to commence operations provided they are externally managed by an Alternative Investment Fund Manager (AIFM) based in Cyprus or another EU country whilst they can also be converted into an AIF at a later stage and convert into a regulated vehicle. In addition, the applicable AIF regulatory framework has also been praised for a successful combination of investor protection and freedom of operation for asset managers.

In particular, the delegation of asset management services licensed in the jurisdiction appears to have triggered great interest in the fund community and is running alongside the new fund regime. In accordance with applicable laws, an Alternative Investment Fund Manager (AIFM) is generally allowed to delegate some of its functions to third parties provided that delegation arrangements are premised upon the following basic principles:

(a) the AIFM retains the ultimate and complete liability towards the Alternative Investment Fund (“AIF”) it manages as well as its investors, and;

(b) that the AIFM’s liability towards such parties is not in any way affected by the fact that the AIFM has delegated its functions to a third party.

What regulates the obligations and limitations that the AIFM will need to adhere to in case that delegation arrangements are put in place, is the nature and type of function that will be outsourced.

Subject to the prior notification of the Cyprus Securities and Exchange Commission (“CySEC”), an AIFM established and licensed in the Republic of Cyprus is generally permitted by CySEC to delegate some of its functions to third parties, provided that the following conditions are met:

• The AIFM must be able to justify its entire delegation structure on objective reasons;
• The delegate must dispose of sufficient resources to perform the respective tasks and the persons who effectively conduct the business of the delegate must be of sufficiently good repute and sufficiently experienced;
• The delegation must not prevent the effectiveness of supervision of the AIFM and in particular, must not prevent the AIFM from acting, or the AIF from being managed, in the best interests of the investors;
• The AIFM must be able to demonstrate that the delegate is qualified and capable of undertaking the functions in question and is in a position to monitor the delegated activity, as well as to withdraw the delegation with immediate effect when this is in the interests of investors;
• The services provided by each delegate such be reviewed on an ongoing basis; and
• The AIFM shall not delegate its functions to the extent that it can no longer be considered as the manager of the AIF and is therefore considered as a letter-box entity.

As it becomes evident, an AIFM must not only retain the ultimate responsibility towards the AIFs and their investors but more importantly it must ensure that its regulatory obligations (arising out of the performance of its activities) are not in any way tampered with, by reason of such delegation arrangements.

What is also important to note at this point, is that delegation arrangements must be evidenced by a contract in writing which must specify the following:

• the AIFM ensures that the delegate protects any confidential information relating to the AIFM, the AIF affected by the delegation and the investors in that AIF;
• the AIFM ensures that the delegate establishes, implements and maintains a contingency plan for disaster recovery and periodic testing of backup facilities while taking into account the types of delegated functions;
• that the AIFM will be able to terminate the delegation arrangements with immediate effect; and
• whether any sub-delegation is going to be permitted under their arrangements in its terms.

The delegation of investment management functions under the EU regime has attracted increased scrutiny by EU regulators in the context of Brexit. At the same time, the recently reformed Cyprus fund sector could provide significant support for British-based investment funds and managers in the event of the EU revoking Britain’s passporting rights. As reported, Cyprus can offer British based firms the flexibility to maintain their current operations, without having to relocate staff or operations post-Brexit to a jurisdiction within the EU whilst British managers would have a fully-compliant management platform with a European passport and pre-existing structure to market their funds in the EU.

Filing a claim in Cyprus and serving it to a defendant residing outside the jurisdiction of Cyprus is a process which requires strict adherence to a certain set of rules and/or procedures. The procedures change depending on which country the defendant is residing in.

The procedure is as follows:

1. The claimant prepares a writ of summons and prior to the filing of the same with the Court Registrar, applies to the court for leave to have it sealed so that it can be served out of the jurisdiction. This application is accompanied by an affidavit and culminates in an order being issued allowing for the sealing of the writ of summons. The significance of this process of applying for leave (permission) to seal the writ is that it is the process by which the Cypriot court examines whether it can, and should, extend its jurisdiction over the defendant residing abroad.
2. Once leave to seal is granted, the claimant files the writ of summons.
3. Following the filing of the writ of summons, the claimant must then apply to the Court for leave to serve outside the jurisdiction. This application is accompanied by an affidavit and culminates in an order being issued allowing for service outside the jurisdiction.
4. Once leave to serve outside the jurisdiction is granted the claimant must prepare a notice of the writ of summons. This is a standard form of notice in accordance with the Cypriot Civil Procedure Rules.
5. Thereafter, the claimant must translate and serve all these documents to the defendant.  The defendant should receive the following documents in their original Greek language, together with a copy in a language that he comprehends:

• a notice of the writ of summons;
• the application, affidavit and order permitting the sealing of the writ of summons;
• the application, affidavit and order permitting service outside the jurisdiction.
• other formal documentation depending on whether the Hague Convention or the Council Regulation (EC) No. 1393/2007 is applicable.
• it is also considered good practice to accompany these with a covering letter providing relevant explanation.

Council Regulation (EC) No. 1393/2007 of 13 November 2007 on the Service in the Member States of Judicial and Extrajudicial Documents in Civil or Commercial Matters, regulates the service of judicial and extrajudicial documents between European Union member states. Seeking to improve and expedite the transmission of judicial and extrajudicial documents in civil or commercial matters for service between the member states, the regulation provides, inter alia, a procedure for the service of documents via designated “transmitting agencies” and “receiving agencies” without recourse to consular and diplomatic channels, and other methods of service. These liberal methods of transmission aim to safeguard the right to a fair trial of the parties.

In order to expedite or simplify the transmission of documents, the Regulation allows member states to conclude bilateral agreements or arrangements, provided that they are compatible with the Regulation. Despite the fact that these bilateral agreements seek to facilitate the transmission of documents between member states, in various cases, the Cyprus courts determined that a possible breach of the provisions of a bilateral agreement concerning the service of judicial and extrajudicial documents leads to the annulment of the service.

This strict obligation of the parties to comply with the provisions of the bilateral agreements derives from the case Earlsfield Steel Ltd v. Joint Stock Company Electrometallurgical Steel Works (2009) 1CLR 1350, where the Supreme Court examined this matter. The Supreme Court, applying a strict formalistic framework, determined that a breach of the Agreement between Ukraine and the Republic of Cyprus on Legal Assistance in Civil Matters could not be remedied with the mechanism of Order 64 of the Cyprus Civil Procedure rules.

Although the Cyprus courts tend to take a strict and robust approach when deciding whether there is a violation of the terms of a bilateral agreement concerning the service of documents, they are not following this approach when deciding whether there is a possible breach of the Regulation.

The Supreme Court of Cyprus, applying principles established by the Court of Justice of the European Union decided in alpha Bank Cyprus Ltd ν. SI Senh Dau and others, Civil Appeals No. Ε23/2013, Ε24/2013, Ε25/2013, Ε26/2013, Ε27/2013, Ε28/2013 and Ε29/2013, that the omission of the Appellants to serve a standard form of the Regulation accompanied with the relevant English translation, should not have led to annulment of the service according to the purpose of the Regulation.

Taking everything into consideration, it is obvious that the Cyprus Courts take a more ‘liberal’ approach when deciding whether there is a possible breach of the Regulation and escape from the strict and usual formalistic frameworks. This approach is justified, as it is fully harmonized with the meaning and main purpose of the Regulation and aims to facilitate the service of documents between the European member states.

For financial institutions in Cyprus, the floating charge has always been considered as one of the most important types of security in their attempt to minimize exposure to the risk of non-repayment. Once the floating charge became commonplace, the number of receivers appointed under such debentures has been ever increasing and so has the amount of cases brought before the Cyprus Courts by or against such receivers.

The receiver and manager appointed out of court has been described as a ‘‘protean character, changing his colour, shape and function according to circumstances’’. The receiver is appointed by the lender, however he’s the debtor’s agent and under these circumstances, an unusual tripartite relationship emerges between the receiver, the debenture holder and the company in receivership. The receiver will often need to reconcile the competing (and often conflicting) interests of the two, as well as the interests of third parties, such as the company’s shareholders, secured and unsecured creditors and employees. This uncomfortable position could be untangled by considering what duties are owed by receivers and to whom such duties are owed to.

The Cyprus Courts recently examined for the first time in detail the scope of a receiver’s duties and liabilities in the context of two actions filed before the Nicosia District Court. Shareholders, directors and employees of a company that had already been liquidated brought the actions against the debenture holder and the two former receivers of the company. The plaintiffs claimed that, as a consequence of the receivers’ negligent and/or fraudulent actions during the receivership, actions which constituted alleged breaches of their duties owed to them, they incurred losses and damages of different nature and had been wrongfully deprived of the value of their shares in the company and of their continued employment by the company.

The receivers, who had been successfully represented by our firm, raised a preliminary objection in their statement of defense, arguing that a receiver appointed under a floating charge, does not owe a duty of good faith to directors, shareholders and employees of the company and thus, the claims made against them ought to be rejected.

The Nicosia District Court, considering the matter at a preliminary stage, decided that the duties owed by receivers are equitable in nature and not based on common law principles. Accordingly, the proposition that the receivers owed a duty of good faith to all those directly affected in any way by the exercise of the rights and powers conferred to them by the debenture, based on the neighbour principle originally established in the landmark decision of Donoghue v. Stevenson [1932] UKHL 100 was rejected. The Court, applying principles established by relevant English case law, determined that a receiver’s primary duty is owed to the debenture holder, a secondary duty is owed to the company (whose right to enforce such a duty remains vested in the directors) and to any third parties who can show they are interested in the equity of redemption. Consequently, no duty is owed to directors, shareholders and employees of the company, nor to unsecured creditors, as none of these persons has a direct interest in the charged assets. In applying the above principles to the cases in question, the Court decided that the plaintiffs did not have an actionable right and were not entitled to initiate an action against the receivers and therefore rejected the actions as far as the receivers were concerned.

The legal status of receivers continues to give rise to disputes, as a result of the various capacities under which they may act. The aforementioned decisions however, although issued by a court of first instance, do provide some much needed clarity and guidance for both the practicing receivers and financial institutions, as well as the debtor companies, their representatives and other interested third parties.

AD_GOLD_2019_INTERVIEW

Third-Party Ownership (“TPO”) is a mechanism whereby a football club assigns all or part of the economic rights of a player (including transfer/ contract negotiation fees) to third parties. Through TPO, investment funds often co-finance the acquisition of players in return for owning a percentage of the players’ subsequent transfer fees. This practice was widely used in South America and Europe and has been heavily criticized due to lack of players’ freedom of choice, in that they would be pressured to transfer as instructed by the third-party investors and lose control of their career in sport.

In early 2015, FIFA, considering that TPO threatened the integrity of sporting competitions, amended Article 18 of the Regulations on the Status and Transfer of Players (“RSTP”), to prohibit clubs and players from entering into economic rights agreements with third parties, with the ban taking effect on 1 May 2015. The RSTP excluded from the definition of ‘third parties’:

1. the two clubs that were parties to the transfer agreement; and
2. the player’s previous clubs.

This meant that all other parties, including the player, were considered ‘third parties’ for the purposes of the prohibition, making it practically impossible for a player to financially exploit his/ her economic value as an employee, unlike many other professionals in the world. For this reason, the legality of the prohibition was questioned before the Court of Arbitration for Sport (“CAS”), particularly, as to whether the relevant RSTP provisions:

1. restricted the free movement of persons, services and capital; and
2. had as their object the prevention, restriction or distortion of competition.

The CAS rejected the above arguments, stating that the purpose of the restrictions imposed by the RSTP was to safeguard players’ independence and to preserve the regularity of sporting competitions. A subsequent decision of the Swiss Federal Supreme Court upheld the CAS findings, confirming the validity of Article 18 of the RSTP under the EU law provisions regarding the freedom of capital, workers and provisions of services movement.

The legal debate post TPO prohibition has prompted FIFA to consider a more flexible approach, resulting in the amendment of the RSTP, as of 1 June 2019, to exclude players from the definition of ‘third party’, therefore permitting players themselves to enter into an agreement with a club, whereby they are entitled to participate in full or in part, in compensation payable in relation to their future transfer from one club to another. This means that players now legally own their economic rights and may negotiate a percentage of transfer fees for themselves.

Supporters of the recent amendments have commented that the RSTP are more in line with the players’ interests, while critics have described the recent amendment as the ‘return of TPO’, fearing that it creates loopholes subject to exploitation. Of course, the effects of the recently amended RSTP still remain to be seen, in the hope that FIFA has managed to strike a balance between protecting the football sector from distortion and granting players their economic independence.