Cyprus: Cyprus Chapter Of International Agency And Distribution Law

Last Updated: 24 August 2017
Article by Elias Neocleous & Co LLC

Most Read Contributor in Cyprus, October 2017

CYPRUS

Introduction

The strategic location of Cyprus between three continents has always been considered ideal for trading purposes. Recently, and particularly since joining the European Union (EU) in May 2004, Cyprus has shown appreciable growth as an international business and financial center.

The country has a free-market, open economy. The authorities have implemented simple administrative procedures to expedite matters for foreign entrepreneurs, reflecting the importance Cyprus attaches to the development of its potential as an international business center. The attraction of foreign capital has always been among the primary objectives of the island's development policy as it contributes to the introduction of high technology and increased export prospects.

The Constitution guarantees the right of private property and does not discriminate between Cypriots and non-Cypriots. Nationalization has never been part of government policy. Cyprus is a signatory to the Multilateral Investment Guarantee Agency Agreement and the Convention for the Settlement of Disputes between States and Nationals of Other States.

The legislation of Cyprus encourages foreign investment and the establishment of corporate bodies in Cyprus. The tax reforms of 2002 created a favorable business climate with the lowest rates of corporate tax and VAT in the EU. The Cyprus tax regime, which fully complies with EU and OECD guidelines, combined with an extensive network of tax treaties, makes cross-border operations highly tax-efficient. EU accession removed barriers to trade, resulting in an increase in imports and exports. The adoption of the fundamental principles of free movement of goods, services, and persons which lie at the heart of the Single Market was a landmark development, not only for the law but also for the economy of Cyprus.

Cyprus is essentially a common law country. Most statutes relating to business matters and procedures are modeled on English law, and English case law is closely followed. The continental system of administrative law according to which the legality of administrative decisions can be judicially controlled has been introduced and applied by virtue of the Constitution.

The administration of justice is exercised by a separate and independent judiciary. There are six District Courts which exercise civil jurisdiction, as well as specialistcourts. Recourse for judicial review is to the Supreme Court. The Supreme Court hears all appeals and is empowered to pronounce final judgment in all cases of constitutional and administrative law.

General Environment for Agents and Distributors

Although agency and distribution law are relatively new areas of Cyprus law, the continuous development of the island's economy has made them very significant.

Articles 142–198 of the Contract Law, Cap. 149 ("the Contract Law") are the general legislative provisions governing this area of the law and essentially reflect common law. English common law principles are applicable where no express statutory provisions are made and also offer guidance in interpreting the provisions of the Contract Law.

The legislation regarding commercial agents is aligned with EU law and principally comprises:

  • The Commercial Agents Law ("the Commercial Agents Law"), as amended by Laws 21(I) of 1994 and 148(I) of 2000; and
  • The Regulation of Relations between Commercial Agents and Principals Law, Number 51(I) of 1992 ("the Regulation of Relations Law"), as amended by Law 149(I) of 2000.

These are supplemented by the Commercial Agents (Formation and Functioning of the Board, Registration of Members and Charges) (Amending) Regulations of 2003, which came into force on 1 May 2004.

What Is An "Agent"?

In General

At common law, the word "agency" is used to describe the body of general rules under which one person, the agent, has the power to change the legal relations of another, the principal.

Article 142 of the Contract Law defines an agent as: "a person employed to do any act for another, the principal, or to represent the principal in dealings with third parties".

The most important areas of law dealing with the power of the agent to bind the principal are the law of contract and the law of property. An agent may have power to bind his principal by contract and by acts connected with the performance of a contract, or he may have power to receive property for his principal or make a valid disposition of his principal's property. Similar principles may apply in areas such as torts or evidence.

The legal doctrines that have developed can be divided into two broad categories. The first category relates to the agent's power to bind his principaland is of great importance to third parties dealing with agents. The second category concerns the rights and liabilities of the principal and the agent between themselves and imposes fiduciary duties on the agent, and regulates his rights to remuneration and indemnity. The first category concerns the external aspects of agency, whereas the second regulates the internal aspects of agency. Where the agent's authority results from a manifestation of consent that he should represent or act for the principal, expressly or impliedly made by the principal to the agent himself, the authority is called actual authority, express or implied. Where the agent's authority results from such a manifestation made by the principal to a third party, the authority is called apparent authority.1 Article 147 of the Contract Law provides that implied authority may be inferred from the circumstances of the case. Any written or oral evidence or customary business practice may be regarded as circumstances of the case. As a result, the agreement between agent and principal need not be contractual. An agent can act gratuitously. The consent may also be given subsequently by ratification. Cyprus law recognizes seven categories of agents:

General Agent

A general agent has authority to act for his principal in all matters concerning a particular trade or business, or to do some act in the ordinary course of his trade, profession, or business, for example, as a solicitor or factor.

Special Agent

A special agent is an agent who has authority only to do some particular act or to represent his principal in some particular transaction not being in the ordinary course of his trade, profession, or business as an agent.

Sub-Agent

A sub-agent is defined under article 151 of the Contract Law as "a person competent to contract, employed by and acting under the control of the original agent in the course of business of the agency".

Article 152 provides that if a sub-agent is properly appointed, the principal is, as far as third parties are concerned, represented by the sub-agent and is bound by and accountable for the acts of the sub-agent as if he were an agent directly appointed by the principal. The agent is responsible to the principal for the acts of the sub-agent, and the sub-agent is responsible for his acts to the agent, but not to the principal except in case of fraud or willful wrong.2 Article 154 clearly states that where an agent appoints without authority a person to act as a sub-agent, the agent is liable for his acts both to the principal and to third persons. The principal is not represented by or liable for the acts of the sub-agent, nor is the sub-agent liable to the principal.3

Mercantile Agent

The definition of a mercantile agent can be found in article 2(1) of the Sale of Goods Law, Law 10(I) of 1994. He is the person who has in the customary course of his business as such agent authority either to sell goods, or consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods.4 The significance of the term "mercantile agent" has been greatly reduced nowadays and has become very scarce.

Canvassing Agent

A canvassing agent is a person who represents others, such as an estate agent or an insurance agent, in order to introduce business. Strictly speaking, canvassing agents are not agents in the legal sense, but certain doctrines established by the law of agency, especially those relating to the fiduciary obligations they owe to the principal, are applicable.

Distributors and Franchises

Franchise holders and distributors of particular products are often referred to as agents. Though it is possible that such persons are agents in the sense that their obligation to their principal is that of an agent, even though they deal with the outside world in their own name, such persons are regarded at common law as purchasers for resale and agency principles are not applicable.

Commercial Agent

A "commercial agent" is defined by article 2 of the Commercial Agents Law, as amended, as:

Every legal or natural person who, by his capacity as an independent intermediary, has the permanent authority to negotiate on behalf of another person, the principal, the sale or purchase of goods, or negotiate and conclude such actions in the name and on behalf of the principal.

Officers of companies or associations, partners, administrators appointed by the Court, insolvency practitioners, and liquidators are expressly excluded from the ambit of the definition. It should be noted that, prior to the amendment of the Commercial Agents Law in 1994, the definition of commercial agent covered distributors as well; Law 21(I) of 1994 amended the definition to exclude distributors.

Future Prospects

The 1986 Law and its amending laws were enacted to align domestic law with EU law, and contain similar provisions to those of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents ("the 1986 EEC Directive").

Article 3 of the Commercial Agents Law establishes a Council responsible for the registration of commercial agents and sets the qualifying conditions for registration. Under article 4, a register of commercial agents is established. Article 5 empowers the Council to remove the name of a commercial agent from the register in accordance with its provisions and also empowers it to issue regulations. Breach of any of the provisions of the Commercial Agents Law is an offence punishable by up to six months' imprisonment or a maximum fine of €519, or both.

The 1992 Law regulating relations between commercial agents and their principals was also enacted to align domestic law with EU law. It covers the duties of agent to principal and vice versa, remuneration and commission, termination of the contract and rights to indemnity and compensation upon such termination, and restraint of trade clauses.

Together, these laws incorporate verbatim the text of the 1986 EEC Directive. Consequently, any interpretation of the laws given by the European Court of Justice is likely to be followed by the Cyprus courts regardless of whether it follows common law principles.

Implementing regulations governing, inter alia, the procedure of registration and renewal of the commercial agent's annual license were passed in January 1988.

The Cyprus National Committee of the International Chamber of Commerce (ICC) has implemented a firm policy to educate and train Cypriot businessmen on issues relating to the smooth conduct of international trade.

The ICC has prepared a model form of international commercial agency contract and distributorship contract to assist business people engaged in international trade. The model form of international commercial agency contract was prepared specifically to cover only international agency agreements with self- employed commercial agents transacting the sale of goods.

The model form of a distributorship contract is intended to apply only to international agreements where distributors act as buyers or re-sellers and as importers in their own country. The set of uniform contractual rules devised by the ICC seeks to strike a balance by protecting the interests of both exporters and importers. At the same time, it attempts to provide flexibility by allowing the insertion of a choice of law clause. The ICC model form of contracts may offer useful guidance if adopted to meet the parties' specific requirements and the particular circumstances.

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Footnotes

1Bowstead on Agency, 14th Edition.

2 Contract Law, Cap 149, arts 151–152.

3 Contract Law, Cap 149, art 153.

4 Sale of Goods Act, Cap 267.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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