Answers

Applied Skills, LW – CYP

Corporate and Business Law – Cyprus (LW – CYP) December 2019 Answers

Section A

1 It must have at least two directors

There is an express provision in the Companies Law Cap. 113, which provides that public companies must have at least two
directors. The other restrictions relate to private companies, whose members must not exceed 50 (the opposite not being true) and
in which the right to transfer shares needs to be restricted.

2 21
There is a statutory requirement for at least 21 days’ notice to convene an annual general meeting. (See s.127(1)(a) of the
Companies Law Cap. 113.)

3 The right to receive notice before dismissal

An employee who has been made redundant does not receive compensation from the employer, but rather payment from the
redundancy fund. Such an employee clearly has no right to being reinstated. However, under the Termination of Employment Law,
an employee does have a right to be notified before dismissal, even in cases of redundancy.

4 The Supreme Council of Judicature

The Administrative Court was recently established by amendment of the Constitution and introduction of the Establishment and
Operation of the Administrative Court Law of 2015, pursuant to which its judges are appointed by the Supreme Council of Judicature,
a body composed of the judges of the Supreme Court.

5 Vicarious liability
Vicarious liability refers to liability or responsibility of employers for employee conduct.

6 Expiration of employment contract

In the case of redundancy, or of failure to exercise duties in a reasonably satisfactory manner, the employee is entitled to receive
notice prior to termination of his/her employment. However, expiration of employment contract does not give rise to a right to receive
prior notice. Like every ordinary contract, the employment contract which is of a fixed duration is discharged on its expiry.

7 The directors being found liable for fraudulent trading

The reduction of the number of members in a public company to below seven gives rise to the lifting of the corporate veil. A debt of
E500 or negligent advice do not justify lifting the corporate veil, although the directors’ involvement in fraudulent trading does so
(s.311 Companies Law).

8 A term which cannot be classified as a condition or warranty

An intermediate term is defined as a term which cannot be classified as a condition or warranty. A term fundamental to the main
purpose of the contract is a condition, breach of which always gives rise to the right to terminate the contract, whereas a term which
is only incidental to the main purpose of the contract is a warranty.

9 Recourses over governmental decisions

Admiralty cases, petitions for the application of electoral laws and applications for the issue of prerogative writs such as habeas
corpus, all fall within the jurisdiction of the Supreme Court. However, recourses over governmental decisions fall within the
jurisdiction of the Administrative Court.

10 Loss which was in the contemplation of the parties at the point when it occurred
There are two general rules for determination of remoteness of damage in contract, namely that losses will be recoverable if (i) they
occur in the ordinary course of events, or if (ii) they may have been reasonably contemplated by the parties at the time of inception
of the contract.

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11 Secondary legislation
Primary legislation refers to the main acts or laws passed by the House of Representatives. Delegated legislation is otherwise known
as secondary legislation. There is no legal term ‘tertiary legislation’.

12 Eight weeks
See s.9(1)(g) of the Termination of Employment Law.

13 Precedent
The doctrine of precedent is a fundamental principle of the jurisdiction of Cyprus, pursuant to which decisions of the Supreme Court
are binding on lower courts, including the Assize Court, as well as the Supreme Court itself, when deciding subsequent cases with
similar issues or facts.

14 The skill of the worker

Regular remuneration (e.g. monthly salary) as well as a fixed work schedule both suggest the existence of an employment relationship,
i.e. a contract for services. However, the skill of a worker is irrelevant in determining whether one is an employee or an independent
contractor.

15 Frustration
This is clearly an example of discharge by frustration as circumstances which were not the fault of either party make it impossible
to continue the contract.

16 The persons who may derive a benefit under the contract

A person who is not party to a contract may derive a benefit under the contract, although such a person may not sue or be sued
under the contract.

17 1, 3 and 4
Pregnant women and permanent employees may not be dismissed without cause (e.g. by virtue of being in the final year before
retirement, or union members). However, employees under probation can.

18 Interim accounts must be prepared evidencing that the available amounts for distribution suffice
Table A of the Companies Law Cap. 113 provides expressly that the directors may from time to time pay interim dividends as may
appear to the directors to be justified by the profits of the company. There is no express requirement for private companies to prepare
interim accounts evidencing availability of amounts for distribution.

19 Perpetual succession
Separate legal personality leads to limited liability of the shareholders, not to limited liability of the company itself, nor is it related
to the number of shareholders. However, perpetual succession (i.e. the continuation of a company’s existence despite a change in
membership) is a consequence of separate legal personality.

20 Their involvement in the day-to-day management of the company

The Companies Law does not distinguish between executive and non-executive directors as far as liability, voting power, or fiduciary
duties are concerned. The term ‘non-executive director’ refers to directors who are not involved in the day-to-day management of the
company.

21 Lack of express authorisation

Ostensible or apparent authority refers to a situation where a reasonable third party would consider that an agent had authority to
act, even though the agent had no actual authority, whether express or implied.

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22 1 and 2
Training of employees and implementation of record-keeping procedures are both part of the rules for prevention and suppression
of money laundering activities which apply inter alia to auditors. Although there are requirements to identify the client and to adopt
adequate policies, procedures and controls, there is no rule on having to meet clients in person.

23 The issue does not need to be approved by the general meeting

Public companies may issue shares at nominal value or at a premium, but not at a discount. The issued share capital cannot exceed
the authorised share capital of a private or public company. Pursuant to Table A of the Companies Law Cap. 113, the issue of shares
may be approved by the board of directors and does not require members’ approval.

24 A special resolution
Under s.19 of the Companies Law Cap. 113, a special resolution is required for a change of a company’s name.

25 1, 3 and 4
Mary is under 18 and so lacks capacity to enter into a valid contract. There is no consideration as Nicolas is not offering anything
in return. There is clearly no intention to create legal relations, as this is a promise between siblings at least one of which is
under-aged, with no consideration.

26 Interference with the protection is permitted only under circumstances prescribed in the Constitution
Part 2 of the Constitution deals with fundamental rights and liberties and the relevant provisions are clearly binding as opposed to
having only persuasive effect. Protection is not absolute in the sense that interference or restriction may be permitted in circumstances
expressly prescribed by the Constitution; for example, article 11 of the Constitution provides that no person shall be deprived of their
liberty, save in particular cases when and as provided by law, e.g. the detention of a person after conviction by a competent court.

27 A promise to assist in an illegal act

Past consideration, or a promise to pay or fulfil an act for the benefit of the offeror, or a third party, may constitute valid consideration
under Cyprus laws. However, a promise to be an accessory in an illegal act cannot constitute valid consideration under any
circumstances.

28 Personal injury
It is not possible to exclude or restrict liability for death or personal injury resulting from negligence. In the case of other loss or
damage resulting from negligence, such as financial loss or property damage, liability can be restricted, subject to certain conditions.

29 Inability to pay debts

Section 211 of the Companies Law provides the grounds pursuant to which a company may be liquidated by the court. These
include default in holding the statutory meeting (not an annual general meeting), failure to commence business within a year (not
six months) of incorporation and inability to pay its debts; the latter being the most common ground for a petition for compulsory
liquidation.

30 Encouragement of another person to deal in price-affected financial instruments in accordance with inside information
Encouragement of another to deal in price-affected financial instruments in accordance with inside information may constitute
insider dealing and thus market abuse, but this is different from market manipulation, which involves knowingly giving out false or
misleading information in order to influence the share price for personal gain.

31 Automatically
In accordance with s.153 of the Companies Law, at an annual general meeting a retiring auditor shall be reappointed without any
resolution being passed unless they are not qualified for reappointment, or a resolution has been passed at that meeting appointing
another or providing expressly that they shall not be reappointed, or they have given notice to the company in writing of their
unwillingness to be reappointed.

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32 Communication of notice of revocation after acceptance has been put in the course of transmission to the offeror
Lapse of time or expiration of the offer, as well as failure to fulfil a condition precedent to acceptance, clearly revoke an offer.
However, communication of notice of revocation after acceptance has been put in the course of transmission to the offeror will not
revoke an offer (although communication of such notice before acceptance has been put in the course of transmission to the offeror
would suffice).

33 There is a strong, rebuttable presumption of an intention to create legal relations

In commercial transactions there is a strong, rebuttable presumption of an intention to create legal relations, as opposed to family
or domestic transactions where the presumption is that there is no intention to create legal relations. In both cases, however, the
presumptions may be rebutted.

34 Capacity of contracting parties

Consideration need not be adequate, and there is generally no requirement for the instrument to be in writing, although there are
specific exceptions to the latter. However, capacity of contracting parties is invariably a requirement for the existence of a valid
contract.

35 To the shareholders as a body

The duty of care of company auditors is owed to the shareholders as a body (Caparo Industries PLC v Dickman [1990] UKHL 2).

36 1, 2, 3 and 4
All of the circumstances are affected by the distinction between employees and independent contractors, including vicarious liability
which applies to employers in relation to employees’ acts in the course of their employment.

37 Liquidation costs
Under s.300 of the Companies Law Cap. 113, liquidation costs have priority over the other payments listed.

38 Equity follows the law

‘Equity follows the law’ is a maxim of equity. The other correct maxims (wrong variations of which are mentioned in the question)
are as follows: ‘One who comes to equity must come with clean hands’, and ‘Equity does not allow a wrong to be without remedy’.

39 The standard of a reasonably competent driver

The standard of care is objective and does not depend on the personal circumstances of the driver, hence the correct answer is the
standard of a reasonably competent driver.

40 The board of directors

Under s.266 of the Companies Law Cap. 113, the drafting and signing of the declaration of solvency is the responsibility of the
board of directors.

41 1 and 3 only
Pursuant to s.29(1)(c) of the Courts of Justice Law of 1964, the common law applies in Cyprus provided that there is no statutory
provision governing the matter and that it is consistent with the Constitution of Cyprus. Therefore (1) and (3) must be satisfied.

42 A contract for the sale of land

Specific performance of a contract of personal services or an employment contract will not be ordered, on the basis that it is contrary
to public policy to force an unwilling party to maintain continuous personal relations with another. However, a contract for the sale
of land is a classic example where specific performance may be available, subject to certain formalities and conditions.

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43 A term of the contract
Given that Kevin is a distributor and hence in a better position to know the properties/qualities of the machine, and that Cameron
purchased the machine apparently on the basis of Kevin’s statement, Kevin’s statement should be deemed to be a term of the
contract rather than a mere representation. It is clearly not an advertisement nor an exclusion clause.

44 Ratification
This is an example of agency by ratification, where George inaccurately claimed to be agent for ABC Ltd and entered into an
agreement in that capacity, but ABC Ltd later accepted and recognised the agreement.

45 Ben has no contractual basis on which to recover the agreed fee

Anna may not claim the fee from John as John is not party to the agreement. Similarly, Ben cannot enforce the contract and claim
the agreed fee from Anna or John, hence Ben has no contractual basis on which to recover the agreed fee. This is an application of
the principle of privity of contract.

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Section B

46 (a) Penny has a general duty of care towards Roy, and her liability is to take reasonable care to avoid acts or omissions which she
can reasonably foresee as likely to cause injury to another (the ‘neighbour principle’). She has fallen below this standard by
bumping into Roy and so has breached her duty.

(b) The ‘thin-skull’ principle applies in this case, which provides that, in a case of negligence, the unexpected frailty of the injured
person is not a valid defence to the seriousness of any injury caused to them. Therefore, the fact that Roy had a fragile bone
syndrome is not a defence to Penny for the extent of the injury suffered by him as a result of her bumping into his car. Penny
would, therefore, be liable to cover Roy’s medical treatment, even if it was more extensive than would reasonably have been
foreseeable as a result of the impact.

(c) The rule of remoteness of damage may apply in the case of potential compensation for Roy’s trip. Penny can argue that this type
of harm (i.e. missing his luxury vacation to Japan, for which no refund would be available) was not a reasonably foreseeable
consequence of Penny bumping into his car, and thus she will not be liable to compensate him for this loss.

47 (a) Failure to register the partnership renders both Evan and Dona general partners and therefore Evan’s notice and Dona’s
bankruptcy may each lead to dissolution of the partnership, subject to the terms of the partnership agreement.

(b) Registration of the partnership with the Office of the Registrar and Official Receiver is a statutory obligation, and the law provides
for criminal and other sanctions if it is not met. One such consequence is that the limited partners lose their ‘limited’ status
and are deemed to be liable for all of the partnership’s debts and obligations. Therefore, even though Evan was not involved
in the management of the partnership, he will be deemed to be liable as a general partner (under s.48 of the Partnership Law
Cap. 116).

48 (a) Under s.178 of the Companies Law, a company may, by ordinary resolution, remove a director before expiration of his/her
period of office, notwithstanding anything in its articles or in any agreement between it and him/her. Therefore, neither the
special provision in the articles nor the three-year contract which Mary has with NORTOM Ltd is a bar to her removal from
office. A simple majority of the members of NORTOM Ltd present and voting at the meeting will suffice for passing the ordinary
resolution for Mary’s removal. So Tom’s objection, by itself, will be of no effect. Under the Companies Law, an ordinary
resolution for Mary’s removal must be passed, of which special notice is required.

(b) Mary is entitled to be heard at the meeting at which the motion for her removal will be considered. Mary can also make
representations to the company concerning the motion and the company is bound to circulate her representations to every
member of NORTOM Ltd unless received too late. If Mary’s representations are received too late, Mary may require that the
representations shall be read out at the meeting. Finally, even if Mary is removed from office before the expiration of her
three-year period, she will be allowed to claim compensation or damages in respect of the termination of her appointment as
director.

49 (a) Benjamin was knowingly party to the carrying on of the business of BOOK Ltd with intent to defraud the company’s creditors,
given that he was taking deposits for orders knowing that the company would be unable to deliver. Therefore, Benjamin was
clearly involved in fraudulent trading and thus may face criminal liability and may be subject to imprisonment and/or a fine. At
the same time, the court may order him liable to make such contribution to BOOK Ltd’s assets as it thinks fit.

(b) Given that Olivia was not party to the fraudulent trading in any way, she will have no personal liability by reason of Benjamin’s
actions.

(c) The issue whether Kate has any liability for fraudulent action is questionable and depends on whether her knowledge of
Benjamin’s actions and perhaps tolerance of it actually amount to her participation in the carrying on of the business in a
fraudulent manner. If so, then she will also be personally liable for all or any debts or liabilities of BOOK Ltd.

50 (a) The share capital of a company connotes the value of the assets contributed to the company by those who subscribe for its
shares. The term ‘loan capital’ is in fact a commercial expression and not a legal term, and it means the long-term loans granted
to the company.

(b) The authorised share capital of ATC Ltd is €10,000 whilst its issued share capital is €8,000. In order to increase its authorised
share capital, ATC Ltd would require an ordinary resolution of members, i.e. approval by 50% + 1 votes. Thus, if Carla
and Damien decide to participate in the company’s general meeting, which may be held to approve, if deemed appropriate,
a proposed resolution to increase the company’s authorised share capital, the resolution will not pass. Hence the board
of directors of ATC Ltd may proceed to issue the available 2,000 new shares of nominal value €1 each, and this would
only require a board approval. The board may decide to issue such new shares at a premium, e.g. €9 each, and on a full
subscription to the shareholders which would give rise to €20,000.

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Applied Skills, LW – CYP
Corporate and Business Law – Cyprus (LW – CYP) December 2019 Marking Scheme

Section A

1–45 One or two marks per question as indicated; total 70 marks

Section B

46 (a) Duty of care 1 mark

Falling below standard of care/breach of duty 1 mark
(2 marks)

(b) ‘Thin skull’ principle – explanation 1 mark

‘Thin skull’ principle – application 1 mark
(2 marks)

(c) Remoteness/reasonable foreseeability – identification 1 mark

Remoteness/reasonable foreseeability – application 1 mark
(2 marks)
(Total 6 marks)

47 (a) Effect of bankruptcy 1 mark

Effect of letter 1 mark
(2 marks)

(b) Requirements re registration 1 mark

Effect on limited partners if this is not met 1 mark
Application to Evan and correct conclusion 2 marks
(4 marks)
(Total 6 marks)

48 (a) Special provision ineffective 1 mark

Procedure to be followed 1 mark
Effect of Tom’s objection 1 mark
(3 marks)

(b) Right to be heard and to make representations 2 marks

Damages for termination of appointment 1 mark
(3 marks)
(Total 6 marks)

49 (a) Fraudulent trading as applied to Benjamin 2 marks

(b) Fraudulent trading as applied to Olivia 2 marks

(c) Fraudulent trading as applied to Kate 2 marks

(Total 6 marks)

50 (a) Correct account of share capital 1 mark

Correct account of loan capital 1 mark
(2 marks)

(b) Authorised share capital – ordinary resolution 1 mark

Effect if Carla and Damien vote against 1 mark
Possible board resolution for issue of the remaining shares 2 marks
(4 marks)
(Total 6 marks)