Managing a provident fund’s assets entails duties of care towards its members and beneficiaries. A culpable breach of those duties may expose members of its management committee to personal liability alongside the Fund itself.
This is the central significance of the unanimous judgment delivered by the Cyprus Court of Appeal on 30 September 2026 in Civil Appeals 401/2019 and 402/2019. The decision addresses three interconnected issues: negligence in investment management, personal and joint and several liability, and the evidential burden concerning an individual committee member’s exoneration.
The Case and the Reversal of the Finding on Personal Liability
The case concerned the provident fund for employees of Cyprus Popular Bank Public Co Ltd and its subsidiaries. Harutune L. Arakelian retired on 31 December 2008 after 42 years of service and claimed compensation for losses arising from the Fund’s management. Following his death, Andriani Arakelian continued the proceedings as administratrix of his estate.
The first-instance court awarded €194,708.44 against the Fund but dismissed the claims against the management committee members. The Court of Appeal dismissed the Fund’s appeal and allowed the appeal concerning personal liability. It entered judgment against the three respondent committee members, jointly and severally, for the same amount, with interest from 31 December 2008 and costs. The cross-appeal seeking increased compensation was dismissed.
Negligent Management: Good Faith Is Not Enough
The case centred on a failure to exercise the required care. Approximately 88% of the Fund’s assets remained invested in shares of the employer Bank. The Court characterised this concentration as manifest overexposure and a serious breach of prudent management and diversification requirements.
The committee had failed to examine adequately the need to diversify or respond appropriately despite the substantial decline in the Bank’s share price and the value of the Fund’s units. Liability rested on identified culpable omissions and the resulting financial loss.
Negligence may arise both from adopting an investment policy and from failing to review it when required. Assessing risk and protecting beneficiaries’ interests are continuing management responsibilities.
Referring to Cowan v Scargill [1985] Ch 270 and Harries v The Church Commissioners for England [1992] 1 WLR 1241, the Court reiterated the standard of a prudent person investing for others. Administrators must seek appropriate advice, assess it prudently and continually consider diversification.
Personal civil liability may arise from negligence without proof of intentional wrongdoing. Honesty and good faith do not replace due care. Investment losses alone, however, are insufficient: a culpable breach of duty causing the loss must be established.
Concurrent Personal and Joint and Several Liability
Personal liability was grounded in section 14(5) of Law 44/1981 and section 18(7) of Law 146(I)/2006, applicable at the material time. These provisions impose liability on the Fund for acts or omissions of its representative organs in performing their duties where those acts or omissions give rise to an obligation to compensate. Section 18(7) expressly adds that the person at fault is also liable in full.
The Court held that the Fund’s separate legal personality neither absorbs nor extinguishes the individual liability of the natural persons through whom it acts. The legislation establishes additional personal liability for members who participated in the harmful act or omission.
This liability arises directly under the statutory provisions; it does not require disregarding the Fund’s separate legal personality. Collective decision-making does not relieve culpable members of responsibility for their conduct.
The Court also drew upon Greek Supreme Court authority concerning Article 71 of the Greek Civil Code, particularly judgment 263/2021.
The omissions attributed to the Fund were omissions of the individual administrators. Proper application of the legislation to the first-instance findings therefore established their personal liability.
The Evidential Burden and Individual Exoneration
A particularly important aspect of the judgment concerns the injured party’s difficulty in establishing each member’s conduct within a collective decision-making body.
The Court held that once the tort and the culpable act or omission of the organs representing the Fund are established, the evidential burden shifts to each management committee member to advance a specific ground excluding their personal fault.
The injured party cannot be expected to know how each administrator voted or the position each adopted. These concern the body’s internal operation and lie within its members’ knowledge. Requiring the claimant to establish them at the outset would risk making the statutory provision for personal liability ineffective.
The distinction is important. The shift concerns the burden of adducing evidence supporting a specific ground of personal exoneration. The claimant remains responsible for establishing breach, loss and causation. Each member must, however, identify and support the particular circumstances relied upon as excluding their own fault.
Two respondent members neither testified nor adduced evidence at first instance. The third advanced no valid ground of personal exoneration beyond general assertions denying the committee’s fault and the deceased’s loss, which had been rejected.
This approach preserves the requirement of personal fault while addressing the claimant’s lack of access to facts concerning the committee’s internal affairs. It gives practical effect to the statutory protection available to beneficiaries.
Diversification, Independence and Accountability
The Court clarified that the transitional deadline of 23 September 2010 for compliance with the specific quantitative limit on investment in the sponsoring undertaking did not suspend existing duties of prudent management and diversification. The broader duty of care also predated the legislation under trust law.
Supporting the Bank’s share price did not justify excessive investment concentration. Nor did the requirement in the Fund’s rules for the Bank’s prior approval of investments restrict the committee’s statutory duties. The failure to prepare the required written statement of investment policy principles was also significant.
Similarly, formal approval of annual accounts did not amount to full, free and informed consent releasing the administrators from liability. The absence of regulatory intervention likewise provided no defence to breaches of their duties.
Assessing the Loss
Referring to Mastercard Incorporated and others v Merricks [2020] UKSC 51, the Court explained the “broad axe” approach to assessing damages. Once civil liability and actual, non-nominal loss are established, difficulty in quantifying that loss precisely does not justify refusing compensation.
The assessment based on the expert’s comparative methodology, using other funds’ returns, was upheld. The principle assists in quantifying established loss while retaining the need for a sufficient evidential foundation.
The Later Framework and the Judgment’s Continuing Significance
The judgment interpreted the law applicable to the management under scrutiny during 2006–2008. The framework has since been strengthened, particularly through Law 10(I)/2020, as amended, which transposed Directive (EU) 2016/2341 (IORP II) and introduced more detailed governance, risk management and internal control requirements.
Section 22(4) of the later legislation retains the personal liability in full of the person at fault alongside the institution. The Court’s reasoning therefore remains important interpretive guidance, subject to the legislation and facts applicable to each case. Its central contribution lies in connecting the duty of care with personal accountability and evidential rules that enable effective compensation claims.
The successful appellant in Civil Appeal 402/2019, Andriani Arakelian, as administratrix of the estate of the late Harutune L. Arakelian, was represented by Constantinos Clerides and Levon Arakelian of Phoebus, Christos Clerides & Associates LLC.
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.
