Client Alert: IOANNIDES DEMETRIOU LLC, acting on behalf of the Electricity Authority of Cyprus, has secured a victory of pivotal significance to our client and the electricity market of Cyprus in general before the Court of Appeal (Administrative Division).
The judgment in Appeals 13/2024 and 14/2024, handed down on the 18.7.2024, reverses the first instance judgment of the Administrative Court and paves the way for the signature of the contract between the Electricity Authority of Cyprus and the Cyprus Telecommunications Authority (CYTA) for the installation of 400,000 smart electricity meters all over Cyprus.
This project, valued at approximately EURO 50million, is a highly significant project as it represents a major and long awaited first step in the opening of the electricity market as well as the advent of the smart grid in Cyprus. Additionally, the introduction of a first roll out of 400,000 electricity smart meters will allow EAC and consumers to obtain electricity consumption data in real time. This translates to cost savings, improved efficiency, better planning and forecasting in relation to energy consumption and a host of other advantages the Cypriot consumer can benefit from.
The three lawyers involved in the matter from the outset on the part of our firm were our Managing Director, Andrew Demetriou and senior members of our Administrative law team, namely Partner Mrs. Anna Christou and Associate Director Mr. Demetris Kailis.
Pictured above at the signing ceremony of the contract between EAC and CYTA on 24.7.2024, from left to right, is the General Manager of EAC Mr. Adonis Yiasemides, the President of the Board of EAC Mr. George Petrou, the President of the Board of CYTA Mrs. Maria Tsiakka Olympiou, the Minister of Energy of the Republic of Cyprus Mr. George Papanastasiou and the Director General of the Ministry of Energy Mr. Marios Panayides.
The landscape of work has undergone significant transformation in recent years, which was particularly accelerated by the global pandemic. Teleworking has become increasingly common, prompting the need for a clear legislative framework to govern its implementation. This need has been addressed with the House of Representatives’ approval of a comprehensive framework regulating remote working. The Framework for Telework of 2023 Legislation (the “Law”), which came into effect on December 1, 2023, aims to establish guidelines and protections for both employers and employees navigating the remote work environment.
The Law stipulates that teleworking can be implemented under the following circumstances: (i) an optional teleworking scheme may be adopted subject to a written agreement entered into between the employer and the employee, (ii) mandatory teleworking may be imposed under a Decree issued by the Minister of Health due to public health considerations and (iii) mandatory teleworking may be required for an employee whose health is demonstrably at risk, which can be mitigated by refraining from working on the employer’s premises.
Apart from prescribing the conditions under which teleworking can be established, the Law also delineates the responsibilities that the employer bears towards the employee. Firstly, among these obligations is the coverage of expenses incurred by the employee related to teleworking. These expenses include various aspects, such as equipment costs (unless agreed to utilize the employer’s equipment), telecommunications, usage of the home workspace, and the maintenance and repair of equipment. Moreover, the employer bears the responsibility of ensuring that the employee receives the essential technical support required for their work. To further regulate the financial aspects, the Minister of Labour and Social Insurance is expected to issue a Decree specifying the minimum teleworking cost payable to the employee. Importantly, the Law stipulates that any expenses covered by employers will not be considered as part of the employee’s remuneration, but they are deemed as deductible expenses, exempted from both social insurance and taxation.
In maintaining consistency with the aforementioned responsibilities, the employer is obliged, among other things and in addition to those outlined in the Occupational Safety and Health Law 1996 to (i) have at their disposal a suitable and sufficient written risk assessment of the existing teleworking risks, (ii) determine the preventive and protective measures to be taken based on the written risk assessment, (iii) provide such information, instructions, and training to ensure the safety and health of their employees. Employers have the same health and safety responsibilities for employees, whether they work from home or in a workplace.
Furthermore, the Law requires that employers should provide certain information to employees regarding teleworking, within eight (8) days from the date of commencement of such arrangement. This information includes: a) The employee’s right to disconnect; b) An analysis of the extend of teleworking costs incurred by the employer; c) The equipment necessary for the provision of services remotely and the procedures in place for the technical support, maintenance and repair of the equipment; d) Any restrictions on the use of the equipment and any penalties in case of violation of the restrictions; e) The agreement regarding remote readiness, it’s time limits and the response deadlines of the teleworking employee; f) An evaluation of the risks associated with remote work and measures taken by the employer for their prevention based on the risk assessment; g) The responsibility to protect and secure the professional and personal data of the teleworking employee and the relevant procedure to comply with such obligation; h) The supervisor from whom the teleworker will receive instructions.
Any information which does not have to be personalised and addressed to teleworking employees, can be communicated to appropriate personnel through the employer’s internal policies.
Employees engaged in teleworking have the equivalent rights and obligations as their counterparts working on-site at the employer’s premises, including rights or obligations concerning their workload, assessment criteria and procedures, compensation, access to employer-related information, training, professional development, and where applicable trade union activity including their unhindered and confidential communication with trade union representatives.
A key protection established by the Law is the employees’ right to disconnect in order for the provisions of the Transparent and Predictable Working Conditions Law to be implemented. Employers and employees’ representatives are required to agree on the technical and organizational methods to ensure that remote employees can disconnect from electronic communication without any adverse consequences. If no such agreement is reached, employers must still notify employees of this right. Moreover, the Law also sets out the duties and powers of Inspectors, who are officials of the Ministry and/or other public servants appointed by the Minister of Labour and Social Insurance. Their primary responsibility is to ensure the thorough and effective enforcement of the provisions of the Law. Failure to comply with the provisions of the Law could render employers liable, with potential fines upon conviction not exceeding €10.000.
In conclusion, the Framework for Telework of 2023 represents a significant step towards formalizing and protecting the evolving landscape of remote work. This legislation not only establishes clear guidelines and responsibilities for both employers and employees but also ensures a fair and supportive environment for teleworking. By addressing key aspects such as expense coverage, health and safety requirements, and the right to disconnect, the Law aims to create a balanced framework that promotes productivity while safeguarding employee well-being. As teleworking becomes an integral part of the modern work environment, the effective implementation and adherence to this framework will be crucial in fostering a sustainable and equitable remote working culture.
On the 9th of June 2024, Cyprus and other Member States elected their representatives to the European Parliament. This is the only institution of the European Union whose members are directly elected from the people. Nevertheless, this is also one of the institutions with limited powers in many areas. As far as taxation is concerned, the European Parliament has no role whatsoever in the legislative process. This is rather ironic, given the general political slogan of ‘no taxation without representation’.
But which institution makes tax policy in the European Union? The answer is not very straightforward and requires a basic understanding of institutional dynamics in the European Union and competences.
The European Commission is the quasi-executive body of the European Union which proposes laws and manages and implements EU policies. In the field of competition law, it also has some judicial functions. There are 27 Commissioners – one from each Member State. The Commissioners are not directly elected but they are appointed by the government of each Member State. However, once appointed, they are not supposed to represent their Member State. Rather, they take on a portfolio of a policy area and assisted by the relevant directorates-general, they exercise leadership in that area. As far as taxation is concerned, the relevant portfolio is that of ‘economy’ and it is assisted by the DG-TAXUD.
The Council of the European Union is the institution which represents Member State governments in different configurations. The configuration relevant for taxation is the Economic and Financial Affairs Council (ECOFIN) configuration, which is made up of the economic and finance ministers from all Member States. It is in the ECOFIN meetings that the Commission tax proposals are considered and voted upon. The Presidency of the Council rotates among Member States every six months.
The European Council is the EU institution that defines the general political direction and priorities of the European Union. The members of the European Council are the heads of state or government of the 27 EU member states, the European Council President and the President of the European Commission. It has bi-annual meetings, usually at the end of each Council presidency.
The European Parliament comprises of the Members of the European Parliament, which are directly elected by voters in each Member State. Although usually parliaments are legislative bodies, the European Parliament’s powers are rather limited and circumscribed. In the adoption of legislative acts, a distinction is made between the ordinary legislative procedure (co-decision), whereby the European Parliament is on an equal footing with the Council, and the special legislative procedures, which applies only in specific cases where Parliament has a consultative role only. In certain areas such as taxation the European Parliament can only ever give an advisory opinion.
The Court of Justice of the European Union is the judiciary of the European Union and is considered to be the guardian of the Treaties. The judges of the Court of Justice are appointed by Member States though again, not to represent the Member States, but to apply and interpret EU law in the spirit of the acquis communaitaire.
As mentioned above, each institution can only exercise law-making powers only to the extent that it has competence to do so – this is EU competence. Broadly, EU competence can be exclusive or shared. Where the EU does not have any competence, then this area has remained within the exclusive powers of Member States.
Trade policy and trade law is an exclusive competence of the European Union. This means that only the European Union (through the relevant institution(s)) can legislate on trade matters and conclude trade agreements with third countries. A Member State cannot enter into its own trade agreements with other countries, nor deviate from the EU’s trade rules. This was one of the thorny issues under the Brexit negotiations: the UK was not able to negotiate trade agreements with third countries until it left the EU. That is why there was a brief transition period following the UK’s departure from the EU during which period it still benefitted from the EU’s trade agreements with third countries.
There can also be shared competence, where both the EU and Member States can legislate. Examples of shared competence are the internal market, environment and consumer protection.
As far as corporate taxation is concerned, the EU has no competence whatsoever. This remains within the powers of Member States. Nevertheless, even in areas where the EU has no competence, sometimes, the EU legislates by using what I call ‘proxy’ legal bases under the Treaty. More characteristically, in the area of taxation, general (i.e. non-tax specific) Treaty provisions have been used to propose tax legislation, such as Art 115 of the Treaty on the Functioning of the European Union. Pursuant to this Article, the Commission can propose directives in any area it does not have competence (e.g. taxation) on the basis that this is necessary for the establishment or functioning of the internal market. This Treaty provision stipulates that for these proposals to become law, they must be approved by all Member States in Council. This unanimity requirement often makes it very difficult for any tax proposal to go through, as even one Member State can veto the proposal.
A distinction should be made between direct taxation (which includes corporate taxation and the taxation of individuals) and indirect taxation (which includes VAT, customs & excise taxes, etc). The latter area is largely harmonized. It should be pointed out that the Treaty provision which enables the harmonization of indirect taxes (Art 113 of the Treaty on the Functioning of the European Union) also requires unanimity in Council. However, from the early stages of the European Union, there has always been more willingness by Member States to harmonise these taxes compared to direct taxes, which are thought of as more closely aligned with sovereignty.
In any case, due to the lack of competences and the use of general Treaty proxy bases, the Commission and the Council are effectively the only EU institutions that have a meaningful role in the development of direct tax policy. This can be problematic if it is a controversial proposal, which does not enjoy the support of all Member States. It can take years for such proposal to go through, if at all. Even if it does go through, the amendments made to appease some Member States may significantly water down the approved legislation or render it incoherent.
Let us take as an example the proposal for a Financial Transaction Tax. This was first proposed in 2011 but has never been approved. There was an attempt to bypass the unanimity requirement by proposing to introduce a Directive through enhanced cooperation (i.e. only to bind the Member States agreeing to it) but again, this has not been successful. Up until recently, a draft Directive on a Financial Transaction Tax featured in the agenda of ECOFIN meetings but it seems to have faded away.
A more recent example of a proposal which faced opposition in Council but this time eventually got through is the Directive on Minimum Effective Tax Rate. This was originally proposed in December 2021, with the expectation that it would be transposed into the domestic law of Member States by 1 January 2023. However, from the beginning Member States voiced concerns and asked for the delayed implementation of it (mostly, Estonia, Hungary and Poland). Two subsequent revised compromise texts were rejected at ECOFIN meetings in March and April 2022. Whilst many had written off this draft Directive, rather surprisingly, unanimity was achieved in Council (at an ECOFIN meeting) in December 2022 and the Directive was eventually approved.
One could argue that the power of the fiscal veto protects some of the smaller Member States from being forced into unwanted tax harmonization. However, experience from recent years suggests that apart from some Member States in the eastern bloc, smaller Member States such as Cyprus, Malta, Ireland, Luxembourg are unlikely to veto tax proposals. The fiscal veto is more effectively used by the larger Member States to block a proposal. For example, the UK’s objections to the proposed Financial Transaction Tax were one of the reasons that the proposal never went very far. It was feared that with the UK’s departure from the European Union there would be a power vacuum and all tax proposals would be pushed through in Council but some Member States have very effectively filled this gap.
This brief overview explains how the institutional dynamics, combined with the very restrictive legal bases (Treaty bases) for harmonization, have led to limited and often uncoordinated legislation produced in the area of corporate taxation. There have been calls to remove the unanimity requirement and allow other Treaty bases to be used which only require qualified majority voting. So far, these calls have been resisted by most Member States. Nevertheless, this seems to be a pyrrhic victory as experience so far shows that many of the smaller Member States are rather muted when it comes to negotiations in Council. But the threat of vetoing Commission tax proposals, especially if raised by more than one Member States, is a powerful deterrent for the Commission to make amendments. Therefore, alliances amongst Member States are crucial in influencing tax policy in the EU.
What this brief note shows is that in principle, Member State governments have the final say in the development of corporate tax policy, through their voting in Council. However, whether they choose (or are able to) exercise their power of veto is often a political question. Rather counterintuitively, due to the limitations of the legislative process, taxpayers often have a greater role in the development of tax law in the EU, but in a reactive manner. Taxpayers can challenge domestic tax laws on the basis that they breach the EU’s fundamental freedoms and fundamental rights. They can also make complaints to the Commission and urge it to start an infringement proceeding against a Member State on the basis of Art 258 of the Treaty on the Functioning of the European Union. Many important developments in the area of corporate tax policy in the European Union were in fact a result of taxpayers’ action, with the help of a good legal team.
For more information on any of the issues raised in this newsletter, please get in touch with us.
Client Alert:IOANNIDES DEMETRIOU LLC has achieved a significant win for its client, the Paphos Sewerage Board (SAPA) in the arbitration relating to the claim raised by the Saur-Iacovou JV consortium on 12/03/22 based on article 19.1 of the contract for the Operation and Maintenance of the Paphos Sewerage Board Biological Unit. located in Achelia, which involved an additional payment of €2,400,000 until the end of the 8- year contract. A final decision has been issued by the arbitrator Mr. Costas Clerides (former Attorney General of the Republic of Cyprus) which rejected the said claim in its entirety and awarded the legal costs of the Paphos Sewerage Board as the successful party to the proceedings.
Μια σύμβαση εργολαβίας, όσο περίπλοκη και αν είναι, είναι ουσιαστικά μια συμφωνία μεταξύ ενός εργοδότη / ιδιοκτήτη και του εργολάβου, σύμφωνα με την οποία, σε αντάλλαγμα για το ποσό της σύμβασης, ο εργολάβος συμφωνεί με τον εργοδότη / ιδιοκτήτη να εκτελέσει τις εργασίες για μια σταθερή ή προσδιορίσιμη τιμή, εντός καθορισμένου χρόνου, στην ποιότητα που ορίζεται στη σύμβαση, όπως εύλογα καθορίζεται από τον Αρχιτέκτονα / Μηχανικό / Εργοδότη / εκπρόσωπο του Εργοδότη, ανάλογα με την περίπτωση.
Επομένως, ο χρόνος είναι ένα σημαντικό στοιχείο σε μια κατασκευαστική σύμβαση. Είναι τόσο σημαντικός όσο το χρήμα.
Είναι επίσης η πιο κοινή πηγή διαφορών.
Διαβάστε πιο κάτω την μελέτη με τίτλο: Χρόνος στα Κατασκευαστικά Συμβόλαια του Ανδρέα Δημητρίου, Διευθύνων Σύμβουλος, Ioannides Demetriou LLC:
“No Court will lend its aid to a man who founds his cause of action upon an immoral or illegal act” said Lord Mansfield CJ in Holman v Johnson (1775) 1 Cowp 341, and marked the Cyprus legal framework around illegality in contracts up to the present date. The principle was redefined in the case of Tinsley v Millingan [1994] 1 AC 340 where the so called “reliance test” was established, essentially providing that if a Claimant needs to rely upon an illegal act in order to advance his claim, then that claim should be rejected. Also known as the common law principle of “ex turpi causa non oritur actio” (meaning “no action can arise from an illegal act”), this maxim usually presents itself as the “defence of illegality”, which is invoked by Defendants so as to argue that the claim against them should not succeed as it is based upon an illegal act.
The case of Christodoulou and others v Antonius H.F.M. Vraets, Civ.Appeal No. 329/2006, is a good example of how Cyprus Courts react to the invocation of this defence. In that case, the Claimant, claimed that he was entitled to the recovery of the amount of $856.000 which he paid as part of an agreement between himself and Defendants 1 and 2. The agreement considered the purchase of rough diamonds from Africa, which would subsequently be sold to the black market and would be exported from Angola to Belgium for processing. All three parties would divide the proceeds from the sale of the processed diamonds. The Claimant brought an action against both Defendants, as after the payment of the amount above he received no percentage from the sale of the processed diamonds. Defendant 1 attempted to rely on the “illegality defence” and subsequently alleged that since the agreement between the parties was carried out for an illegal purpose, the Court could not “lend its aid” to a man whose cause of action was based on an illegal contract and therefore the Claimant was not entitled to recover his money. The Cyprus Court of Appeal, based their reasoning on the cases of Holman v Johnson and Tinsley v Millingan above and upheld the Defendant’s argument. It was essentially held that since the Claimant was aware of and participated in the illegality of the transaction, he was not entitled to the recovery of his money.
The case of Andronikou v Mavropoulou and another, Civ. Appeal No. 14/2014 is also relevant. In this case, the Claimant brought an action against the Defendant and his daughter for fraud, false representation, deceit and unjust enrichment. The Claimant contended that she had made an agreement with the Defendant, that she would pay him an amount of money, which the Defendant subsequently would pay to certain “key officials” of a developing company so as to persuade them to buy the Claimant’s land. The Claimant’s land was indeed acquired by the developing company but the Defendant took the money and placed them to his daughter’s account instead. The first instance court held that the Claimant was entitled to the return of her money. The Defendant appealed. The Court of Appeal’s decision was not unanimous. It was held by majority that it was evident that the agreement between the parties was signed for an illegal purpose, namely bribery. The Court could not therefore “lend its aid” to the Claimant and hence the latter was not entitled to the recovery of her money.
Remarkably enough, the Court of Appeal accepted in both cases cited above that the Claimant and the Defendants were “in pari delicto”, meaning “in equal fault” regarding the signing of the illegal contract. Yet despite the above finding, the Court held that the Claimants were not entitled to the recovery of their property, the inevitable result of their decision being that the property remained to the Defendants’ possession.
The following questions subsequently arise: If it is accepted that both parties have contributed equally to the illegality of the contract, why is it acceptable for one party to retain the property and not for the other? Why do we consider it unacceptable for the Claimant to recover his property because of his misconduct, while, the Defendant who is culpable of the same misconduct, is often allowed to keep the property?
Although it is evident that this strict approach aims at encouraging morality and ethos in every-day transactions, it is doubtful whether it represents the common sense of justice given the “paradox” results that is sometimes creates.
The UK Courts did not fail to notice the “anomalies” created by the strict application of the “illegality defence” and completely changed their approach as to its application in 2016 with the adjudication of the case of Patel v Mirza [2016] UKSC 42. The Claimant in this case transferred an amount of money to the Defendant intending the latter to trade in shares in the Royal Bank of Scotland using insider information that he anticipated receiving. Neither the insider information, nor the purchase of shares ever materialized. When the Claimant brought an action against the Defendant, the Defendant attempted to rely on the “illegality defence” and argued that the Claimant could not recover his money as trading by using insider information is illegal. The Supreme Court held that the Claimant was entitled to the recovery of his money and that in fact, there is no reason for a party who manages to prove that he is capable of recovering his property on the basis of unjust enrichment, not to do so, just because the monies were paid to the Defendant for an illegal purpose. Additionally, the Supreme Court, held that in applying the “illegality defence” the following three considerations need to be taken into account: a)what is the purpose of the law that has been infringed and whether rejecting the claim would enhance that purpose b) any other relevant public policy on which the denial of the claim may have an impact c) whether the denial of the claim would be a proportionate response to the illegality.
The approach adopted in of Patel v Mirza demonstrates a shift from a rigid approach to a more flexible one which takes into consideration the peripheral circumstances of the case and is capable of producing more reasonable and pragmatic results.
Although the case of Patel v Mirza has been invoked in several first instance court decisions in Cyprus, to some of which, the invocation was indeed successful, it is apparent that the dominant approach regarding the application of the illegality defence remains the one established by Holman v Johnson andTinsley v Millingan. Of course, the fact that the Cyprus Court of Appeal has not yet been given the chance to apply or make holistic reference to the case of Patel v Mirza plays an important role to the reproduction of the strict approach established by the “reliance test”.
What is certainly inarguable is that the case of Patel v Mirza which has shown the “way forward” to a more liberal approach has not been overlooked by the Cyprus Courts. What remains to be seen is how this approach will affect and re-shape the application of the “illegality defence” in Cyprus law.
Article 263 of the Treaty on the Functioning of the European Union (TFEU) stands as a pillar of judicial oversight within the EU, providing a mechanism for private parties to challenge the legality of EU acts and serves as a vital instrument for ensuring legal integrity, accountability, transparency and the protection of fundamental rights.
Through the recent judgments of the General Court of the European Union on the cases of Russian oligarchs, Petr Aven and Mikhail Fridman, who successfully challenged their inclusion on the EU sanctions list, we examine its scope, standing requirements, and grounds for annulment of EU acts and explore the implications of Article 263 in the context of EU sanctions policy.
Bringing an action for annulment under Article 263
The EU Courts have jurisdiction to review the legality of acts of EU institutions (European Council, European Parliament, Commission, European Central Bank and other institutions, bodies, offices or agencies of the EU). Embedded within Article 263 of the TFEU lies the essence of judicial review, affording third parties the opportunity to contest the legality of EU legislative acts and acts intended to produce legal effects vis-à-vis such third parties.
Distinguishing between privileged applicants (EU countries, the European Parliament, the Council and the Commission), semi-privileged applicants (the Court of Auditors, the ECB and the Committee of the Regions), and non-privileged applicants (legal and natural persons amongst others), Article 263 limits non-privileged applicants’ standing to those acts that affect them particularly and requires private parties to satisfy stringent standing requirements and to demonstrate that the reviewable act is either addressed to them or is of direct and individual concern to them.
An action for annulment must be initiated within 2 months of the act’s publication or of its notification to the applicant. If the act is not published or notified, the deadline runs from the point at which the applicant gained knowledge about it by other means.
Article 263 TFEU enumerates grounds for annulling EU acts, including lack of competence, procedural irregularities, infringement of EU treaties or any rule of law relating to the application of the EU treaties, and misuse of powers.
If the applicant is successful, the General Court may declare the contested act void, usually from its entry into force. The General Court’s judgment is subject to appeal before the ECJ, on points of law only.
The Case of Aven and Fridman: Unraveling the Implications
In a watershed moment, the recent judgments by the General Court in Cases T-301/22, Aven v Council and T-304/22, Fridman v Council dealt a significant blow to the EU’s sanctions regime against Moscow.
Following Russia’s invasion of Ukraine, the Council of the European Union adopted acts placing Petr Aven and Mikhail Fridman, major shareholders of Alfa Group, a conglomerate including one of Russia’s major banks, on the EU sanctions list. The Council alleged their association with sanctioned individuals, including Vladimir Putin himself, and support for actions and policies undermining Ukraine’s sovereignty, leading to the freezing of their funds and economic resources.
In order to justify the inclusion of Fridman’s and Aven’s names on the disputed sanctions lists, the Council relied on articles published in the media and on several websites which concerned the control of Alfa Group by the applicants and the financing of a charity project run by Mr. Putin’s daughter and on an open letter signed by Russian and American journalists, intellectuals, activists and historians, in which the authors protested against the invitation of the applicants to the Atlantic Council’s headquarters in Washington.
The General Court upheld the applications filed by Fridman and Aven, concluding that the reasons provided in the initial acts lacked sufficient substantiation, rendering the inclusion of Aven and Fridman in the sanctions lists unjustified. While acknowledging a potential association between Aven, Fridman and Vladimir Putin or his circle, the Court asserted that the evidence relied upon, does not demonstrate their involvement in actions undermining Ukraine’s territorial integrity, sovereignty, or independence and found no proof of their provision of material or financial support to Russian decision-makers responsible for Crimea’s annexation or Ukraine’s destabilization, nor any benefits received from such decision-makers.
The successful challenge by Petr Aven and Mikhail Fridman not only exposed flaws in the EU’s sanctions mechanism but also shed light on the hasty assembly of evidence, often relying on questionable sources such as press coverage.
The judgment’s implications extend beyond the realm of legal scrutiny, sparking criticism of the EU’s sanctions policy and its effectiveness in addressing geopolitical challenges. Some argue that the judgment signifies a collapse of European sanctions policy and a declaration of impunity for acts undermining international stability. The designation of the judgment’s delivery as a ‘Day of Oligarch Triumph’ underscores the gravity of its consequences.
Conclusion
As the dust settles, questions loom over the future of EU sanctions policy and the role of judicial oversight in upholding accountability. The judgment serves as a reminder of the need for transparency, robust evidence, and adherence to legal standards in EU decision-making processes.
Article 263 TFEU once more emerges as a vital instrument for ensuring legal integrity and upholding the rights of individuals and entities within the EU and by evaluating its recent application, it becomes evident that the principles of judicial review are essential safeguards against arbitrary decision-making within the EU.
Trustees play a crucial role in managing trusts, ensuring the best interests of beneficiaries are upheld while navigating legal complexities. However, when trustees face litigation, the potential for personal liability can be a daunting prospect.
Indemnity out of the trust fund or personal liability?
Although the general rule of trust law is that a trustee is entitled to be indemnified out of the trust fund for any expenses or liabilities properly incurred on behalf of the trust, this general principle is only applicable when the trustee is acting properly and reasonably. Therefore, trustees may lose their right to protection from liability if it is found that they have brought, defended or continued proceedings unreasonably. As the trust lacks distinct legal identity, the proceedings typically involve actions either initiated by or directed against the trustee in their capacity as such and therefore trustees often litigate at their own risk as to costs.
Enter the Beddoe Order, a legal mechanism designed to protect trustees from such risks while safeguarding trust assets.
What is a Beddoe Order?
Named after the landmark case Re Beddoe (1893) 1 Ch 547, a Beddoe Order allows trustees to engage in legal proceedings in their capacity as trustees, ensuring that they will be reimbursed from the trust fund for any expenses incurred in the litigation. This order effectively shields trustees from personal liability and covers both the trustees’ own costs and the costs trustees are ordered to pay to third parties.
The primary reason for trustees to seek a Beddoe Order is to mitigate the personal financial risks associated with trust-related litigation. Without such protection, trustees could find themselves personally liable for legal costs if the court later deems their actions unjustified or not in the best interests of the trust.
Procedure for a Beddoe application
A Beddoe application should be brought by the trustee, before the latter embarks on any litigation. The application would normally be brought in separate proceedings by the alternative procedure provided by Part 8 of the New Civil Procedure Rules and pursuant to the provisions of the Cyprus International Trusts Law no. 69(I)/1992 as amended, which enables a trustee to seek the Court’s directions as to how they will act in relation to a particular matter.
The Court assesses the arguments presented by the trustee and any other parties to the Beddoe application, e.g. the beneficiaries, to determine whether initiating, defending, or continuing the underlying proceedings serves the overall interests of the beneficiaries. This decision involves discretionary judgment, with the Court having the freedom to consider any relevant factors. Specifically, the Court considers aspects such as the anticipated outcome and costs of the underlying proceedings, as well as the proceedings’ value to the trust.
Appropriateness of a Beddoe Order
However, a Beddoe application is not appropriate in all types of trust disputes. As per the distinction deriving from Alsop Wilkinson v. Neary [1996] 1 WLR 1220, there are three types of trust litigation:
(a) A third party dispute between trustees and third parties, for example for breach of contract between the trustee, in their capacity as trustee, and a third party.
A Beddoe application is more standardly used in third party disputes where in the normal course of events, a trustee acting reasonably would not bear the costs of the litigation personally.
(b) A trust dispute, namely a dispute concerning the trust and the trust assets. A trust dispute can be either ‘‘friendly’’ or ‘‘hostile’’.
Friendly claims are those who are deemed to be brought for the benefit of the trust fund as a whole and usually involve questions as to the proper construction of the trust instrument and questions arising in the course of the administration of the trust. Beddoe applications are considered appropriate in cases of friendly trust disputes.
On the other hand, hostile claims are usually third party claims alleging for example that trust assets should never have formed part of the trust fund or challenging the validity of the trust. A Beddoe application is rarely appropriate in the case of hostile trust disputes because the Court would first need to resolve the underlying dispute before deciding whether it is appropriate to determine the costs in advance.
(c) A beneficiaries dispute, i.e. a dispute between the trustee and one or more beneficiaries stemming from the trustee’s actions in administering the trust, for example, a beneficiary’s claim for breach of trust or for failure of the trustee to exercise their discretion or their duties.
As in the case of hostile trust disputes, by applying for a Beddoe Order in a beneficiaries dispute, the trustee is considered to be asking the Court to pre-empt the resolution of the underlying dispute and therefore, the appropriate course in such cases is to resolve the underlying dispute before determining the costs.
Can a trustee obtain Beddoe relief retrospectively?
Nevertheless, as it was decided in Blades v. Isaac [2016] EWHC 601 (Ch), the trustee’s failure to seek a Beddoe Order before embarking in litigation, does not prevent them from requesting a Beddoe Order and being indemnified from the assets of the trust at the end of the proceedings, once the issues at stake have been clarified.
As trust law evolves, the role of Beddoe orders continues to adapt to new challenges and legal interpretations. Recent developments in the UK and other common law jurisdictions indicate that courts are willing to grant Beddoe relief to trustees, provided that trustees act in the best interests of the trust overall when navigating legal proceedings and suggest an increased emphasis on transparency and accountability in trust administration.
Conclusion
Although in all common law jurisdictions, seeking for Beddoe relief is common practice, Cypriot courts have not yet thoroughly addressed the issue, possibly because of specific indemnity clauses in trust deeds. However, trustees should consider prudent to forego a Beddoe application only in circumstances where they already possess a distinct indemnity, specifically granted vis-a-vis the litigation in question. In the complex landscape of trust administration, Beddoe Orders serve as a crucial tool for trustees to navigate litigation safely while protecting trust assets and beneficiaries’ interests. By understanding the significance of Beddoe Orders and seeking them when necessary, trustees can fulfill their duties with confidence, without risking personal liability.
March 2024: IOANNIDES DEMETRIOU LLC has achieved top honours in The Legal 500 EMEA 2024 Rankings.
With top rankings in Banking and Finance, Commercial, Corporate and M&A, Dispute Resolution, Real Estate and Construction, and EU and Competition, our people also received notable recognitions for which we are proud.
“The law firm of Ioannides Demetriou LLC has exceptional associates and partners. The associates of Ioannides Demetriou have extensive legal knowledge, are always eager to assist, prompt in their turnaround and a team with qualities that anyone is glad to work with.”
Chairman Pambos Ioannides is in the Hall of Fame for Corporate and M&A, a Leading Individual for Dispute Resolution, and Recommended for Banking & Finance, EU & Competition, and Real Estate and Construction. Managing Director Andrew Demetriou is in the Hall of Fame for Real Estate & Construction, Dispute Resolution, and Recommended for Corporate and M&A, EU & Competition. Partner Christina Ioannidou, is a Leading Individual for Banking & Finance, and Recommended for Corporate and M&A, Dispute Resolution, and EU & Competition.
Note from the Editor at The Legal 500 Europe, Middle East and Africa (EMEA), Ella Marshall: “The EMEA guide provides researched coverage of over 80 countries and over 2,700 ranked law firms. Law firms pay nothing to participate and so we are free to make ranking decisions on merit alone.
Our research is conducted annually, providing a detailed qualitative assessment of various factors including work conducted by law firms over the past 12 months and historically; experience and depth of teams; specialisms and ancillary services; and, importantly, opinions of law firms’ clients – each year, The Legal 500 series contacts over 300,000 clients globally to obtain feedback on which law firms meet the criteria required by today’s in-house counsel and business leaders, wherever in the world their work takes them. All of this is used to benchmark each law firm versus competitors in the practice area in question.”
The abolition of the UK non-domiciled (or non-dom) status in the last UK budget marks the end of an era for the UK’s tax system. It might also be a game-changer in global mobility as many UK resident non-domiciled individuals might seek to relocate to other jurisdictions in order to shield their overseas earnings from taxation. One such jurisdiction could be Cyprus.
What are the UK’s non-dom rules?
Broadly, non-doms are individuals who are resident in the UK, but who claim that their domicile, being the centre of their personal and financial interests, is outside of the UK. Crucially, hitherto, a non-domiciled individual who was UK tax resident was broadly taxed on income and gains on a remittance basis only by contrast to a UK tax resident and domiciled individual who was taxed on income and gains on a worldwide basis, irrespective of remittance. The UK rules changed a few years ago whereby the non-dom status became time limited and, in fact, after a number of years, a hefty remittance basis charge was levied in order to benefit from the exemption. Nevertheless, it still remained an attractive (optional) regime for high net worth individuals with foreign earnings.
Following last week’s UK budget, the non-dom regime will be abolished from 6 April 2025. In its place, the UK government has introduced a new residence-based regime taking effect from April 2025. What is crucial to note is that the new foreign income and gains regime will be relevant only as far as new tax residents are concerned. This is because under the new regime, individuals who have been non-UK tax resident for at least 10 consecutive years will, regardless of domicile status, be eligible to use the new regime for four years.
Very importantly, under the new regime, non-UK income and gains will not be taxable in the UK and can be brought (i.e. remitted) to the UK without UK taxation during an individual’s four-year eligibility period. From the fifth year of UK tax residence onwards, an individual will be chargeable to UK income tax and capital gains tax on worldwide basis.
It would appear that the new regime will apply to all individuals becoming tax resident in the UK after not being tax resident for 10 consecutive years, irrespective of whether they are UK domiciled. As such, this new regime is likely to be very attractive to (UK) expats who decide to return to the UK.
Although Cyprus has many UK expats, as explained in this newsletter, Cyprus also has a very attractive non-dom regime. Therefore, it is unlikely that UK expats living in Cyprus would relocate to the UK just to benefit from the new regime, as many of the benefits of this regime are essentially replicated in Cyprus’ non-dom regime and for 17 years as opposed to the four years provided for by the UK non-dom regime.
What is likely to happen now is a competition between countries with preferential regimes for high net worth individuals to attract UK non-doms who will no longer benefit from the UK tax regime.
Cyprus is such a jurisdiction with an attractive system overall, combined with special privileges to non-domiciled tax residents.
The concept of domicile in Cyprus law originates from the Wills and Succession Law (Cap 195), which is based on English law. This law provides that every person has a domicile of origin or a domicile of choice. An individual’s domicile of origin is that of his/her father’s domicile (at birth). A person acquires a domicile of choice by establishing his home at any place with the intention of permanent or indefinite residence therein. The domicile of origin prevails and is retained until a domicile of choice is in fact acquired. Under the Special Contribution for Defence Law, a non-domiciled individual may be deemed as domiciled in Cyprus if he/she has been a Cypriot tax resident for at least 17 out of the last 20 years prior to the relevant tax year. This means that Cyprus’ non-dom privileges are available for 17 years.
But what are these non-dom privileges?
The combined application of Cyprus’ tax laws (i.e the Income Tax Law and the Special Contribution for Defence Law) allows Cyprus tax resident individuals who are not domiciled in Cyprus to be exempt on their worldwide dividends and interest, whether remitted to Cyprus or not. It is noteworthy that the exemption applies even if the dividends and interest have a domestic source (i.e. they are derived from Cyprus). There is also an exemption from the special defense contribution tax for rental income (but income tax is payable).
In addition to these privileges, the Cyprus tax system has other advantageous features for tax residents in general, whether domiciled or not.
For example, under Cyprus’ Capital Gains Tax Law, capital gains tax is only imposed on the sale of immovable property situated in Cyprus, and for the sale of shares in companies in which the underlying asset is immovable property situated in Cyprus. There is no capital gains tax in Cyprus for any other disposals. This means that the disposal of any other securities (shares, bonds, tradable contracts etc.) are not subject to tax in Cyprus.
Τhere is also a special tax regime for foreign pension income, which is exempt from tax up to €3,420 per year and taxed at only 5% above that threshold.
Furthermore, Cyprus does not have any inheritance tax or gift tax. Again, these rules are applicable to all Cyprus tax residents – whether domiciled or not.
It should be pointed out that dividends and interest received and pensions are subject to 2.65% General Healthcare System Contributions (GESY). However, this is capped so that for every natural person, the total maximum annual amount on which contributions will be paid is €180,000. This means that the maximum annual amount of GESY contribution levied is €4,770.
Another important tax exemption available to all Cyprus tax residents (whether domiciled or not) is the exemption on income from services rendered outside of Cyprus for more than 90 days in a tax year. The services must be rendered to a non-Cypriot tax resident employer. This, combined with the 50% exemption rule for individuals taking up employment in Cyprus (subject to some other conditions) makes relocation to Cyprus a very attractive option for UK non-doms who wish to explore other jurisdictions.
Of course, in order to access these benefits, as a non-dom or not, it is a prerequisite to become tax resident in Cyprus. For an individual to become tax resident in Cyprus, he/she must be resident in Cyprus for 183 days in the relevant tax year and must not reside more than 183 days per year in another jurisdiction. There is also a quicker route to becoming tax resident in Cyprus under the 60-day rule. Under this rule, an individual must spend at least 60 days in Cyprus in the relevant tax year and must not spend more than 183 days in another jurisdiction. The individual must also maintain a permanent home in Cyprus (owned or rented) and must carry on a business in Cyprus or be employed in Cyprus or hold an office with a tax resident of Cyprus during the relevant tax year.
On the basis of the 60-day rule, it is relatively easy to establish tax residence in Cyprus and obtain the non-dom status, if the aim is to access the specific privileges attached to this status.
Whether or not the abolition of the UK’s non-dom regime will lead to an exodus of high net worth individuals from the UK remains to be seen.
It is worth pointing out however that even before the changes to the UK non-dom regime were abolished Cyprus has for a long time now offered an advantageous tax regime for individuals wishing to take the relatively simple steps required to relocate their residence/domicile to Cyprus.
For information on any of the issues raised in this newsletter, please get in touch with us and note that working closely with our associated corporate services provider Nobel Trust we are able provide the full range of advice and services for anybody wishing to be advised as to the benefits of considering Cyprus as a replacement for UK non-dom status.
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