Lawyer Issue

Company formation 

in Taiwan 

Exclusivity Clauses in 

Lease Agreements 

Fair Dismissal On the 

Grounds of Capability

Content 

Contact 

www.lawyerissue.com 

Company formation in Taiwan 4 

Recent Update of Foreign Investment in China’s Senior Care Industry 7 

Local Fracking Bans: A Viable Threat or Mere Nuisance 10 

Employee Discipline and Termination 14 

Exclusivity Clauses in Lease Agreements 18 

Fair Dismissal On the Grounds of Capability 22 

Property Linked Units 28 

The Regulatory Framework of the Gas Industry 

in Brazil: a brief overview 31 

Changes to U.S. Court Rules Would Improve Civil Litigation 35 

New Argentine Unified Civil & Commercial Code – Impact in the real 

estate market 38 

10 Common Mistakes U.S. Employers Make When Trying To Comply With 

Employment Laws 42 

Good Night Contractors – Sanislo v Give the Kids 48 

Company Formations In Cyprus 53 

Computer-Implemented Inventions: Searching for Certainty In the Wake of 

the U.S. Supreme Court’s Alice Decision 59 

Company Formation in Costa Rica 64

Company Formations 

Company formation in Taiwan 

By Lu-Fa Tsai 

If a foreign company does not want to set up a 

subsidiary company or branch but just wants to 

designate a representative to run the relevant legal 

acts within the territory of Taiwan, it shall apply to the 

Department of Commerce, MOEA for designation of 

a representative in accordance with the provisions of 

Paragraph 1, Article 386 of the Company Act; if the 

representative needs to be stationed in the R.O.C., 

We are an American 

4 

company and 

we are interested in 

a Taiwanese listed 

company. What should 

we do if we want to 

invest in this company? 

he shall establish a representative office in 

You should file an application with the Securities 

accordance with the provisions of Paragraph 2 of the 

and Futures Bureau, Taiwan Financial Supervisory 

aforesaid article. 

Commission, Executive Yuan in accordance with the 

A foreigner intends to invest in a new 

2 

company in Taiwan. What is the 

minimum capital required? 

provisions of the Regulations Governing Overseas 

Chinese and Foreigners’ Investment in Securities. 

However, you may apply to the Investment 

The minimum capital is NT$500,000 for a limited 

Commission, MOEA under the following 

company and NT$1,000,000 for a company limited by 

circumstances: 

shares, unless other standards are prescribed by the 

competent authority in charge of the target business 

• To apply for subscription of common stock for 

for a specific industry or an additional branch. 

cash of the target business or to accept a transfer 

For enterprises established according to the Business 

of stocks from a Taiwanese stockholder, if the size 

Registration Act, there is no minimum capital 

of the investment is not less than US$50 million 

required. 

and the investor will participate in the long-term 

How many types of branches can 

1 

foreign companies set up in Taiwan? 

What differences exist between these? 

Foreign companies can set up three types of 

branches in Taiwan: subsidiaries, branches, and 

company at the corresponding government agency in 

charge of company registration. 

• Branch: 

A foreigner is prepared to invest in 

3 

a domestic business and acquire the 

bearer stocks of domestic stockholders. 

Should he file an application with the 

Investment Commission? If so, what 

matters should he attend to? 

• According to the provisions of the current Statute 

for Investment by Foreign Nationals in force, 

a foreign investor who intends to acquire the 

operation of the business, an operating plan, 

minute of shareholder’s meeting, and in addition, 

other relevant documents shall be submitted to 

the Commission for approval. 

• If the investor acquires stocks of the target 

business through the securities market with the 

approval of the Securities and Futures Bureau 

and is elected director or supervisor to participate 

in the long-term investment and operation of 

representative’s offices. 

A branch being a profit-seeking company organized 

shares of a domestic company (non-listed, non- 

the business, it shall submit a photocopy of the 

• Subsidiary: 

and registered according to the law of a foreign 

country shall first be applied to the Department of 

Commerce, MOEA for recognition of the foreign 

OTC, or non-emerging stock company) must, no 

matter what the size of the investment is, submit 

an application to the Commission in advance. 

letter of approval produced by the Securities and 

Futures Bureau, proceedings of the stockholder 

congress, and in addition, other relevant 

A subsidiary being a profit-seeking company is 

organized and registered according to the law of the 

R.O.C. First, one should submit the name chosen 

for the company to the Department of Commerce, 

Ministry of Economic Affairs (MOEA) for approval 

and reservation, then apply to the Investment 

Commission, MOEA for an investment permit (while 

to set up subsidiary company in export processing 

zone or science park, one should apply directly to the 

Export Processing Zone Administration, MOEA or the 

Science Park Administration, National Science Council 

(NSC) for an investment permit), and then register the 

company and registration of the establishment 

of a branch (while to set up a branch in an export 

processing zone or science park, the applicant shall, 

with authority from the Department of Commerce, 

apply to the Export Processing Zone Administration, 

MOEA or the Science Park Administration, NSC for 

registration of establishment of a branch), and then 

be applied to the Economic Development Bureau of 

the county/city government nearest to the branch for 

business registration. 

• Representative’s Office: 

• Although bearer stocks have no registered 

holder, they do have legal holders. A domestic 

stockholder who is transferring the shares shall 

state the name of the legal holder. 

• To accept bearer stocks transferred by a domestic 

stockholder, the foreign investor shall submit a 

photocopy of a securities transaction tax receipt 

for examination. 

documents to the Commission to apply for 

examination and recording thereof. 

We are a foreign-funded company, and 

5 

we have decided to invest in another 

company in Taiwan. Should we apply to the 

Investment Commission? 

• If the foreign investor holds more than 1/3 of 

the stock rights of the foreign-funded company, 

it shall apply to the Investment Commission 

in advance by submitting an application form 

enclosing therewith a detailed reinvestment plan 

4 | LawyerIssue 5


(including the amount of reinvestment, stock 

rights, proportion of stock, investment benefits 

etc.) before investing in a non-listed, non-OTC or 

non-emerging stock company in Taiwan. 

After the reinvestment is approved, an application 

shall also be submitted to the Investment 

Commission to apply for reduction of reinvestment 

before selling the stocks. 

• In addition, if the amount of stocks held by the 

foreign-funded company changes due to capital 

reduction or allotment by surplus, an application 

form (including such items as variation of stock 

rights and proportion of stockholding etc.) and 

a photocopy of the minute of shareholders’ 

meeting shall be submitted to the Commission 

for approval. 

6 

A foreigner wants to transfer the stocks 

he holds. What should he do? 

When an overseas Chinese or foreign investor 

wants to transfer the stocks of an invested business 

he holds with the approval of the Investment 

Commission to another overseas Chinese or foreign 

investor, he should bear in mind the following: 

• No fixed format is prescribed for the application 

form for stock transfers (where one can 

refer to the Application Form for Transfer of 

Stocks or Contribution of Overseas Chinese or 

Foreigners, which is available on the website of 

the Investment Commission). The applicant may 

write the application form (other than Application 

Form A) on an A4 paper by himself/herself. The 

subject should be “Investor applies for transfer/ 

acceptance of the stocks of invested business”, 

and the foreign capital registered number of 

the invested business should be disclosed. 

The Remarks column shall be filled in with the 

Lu-Fa Tsai 

Attorney at Law at Deep & Far 

T: +886 2 25856688 ext. 8187 

Email: lawtsai@deepnfar.com.tw 

number of shares held by the investor, number of 

shares to be transferred, transferee and transfer 

price, and both the transferor and the transferee 

shall seal the application form (where the 

application form may be sealed by an authorized 

attorney, but the transferor must authorize the 

attorney to handle the stock transfer). 

• When an overseas Chinese or foreign investor 

transfers his/her shares of an invested business 

originally approved by the Commission, he/she 

shall file an application with the Commission in 

advance, and after the application is approved, 

may pay the transfer price abroad without being 

required to remit it into Taiwan for auditing. After 

the procedure of transfer is finished, the transfer 

registration may be conducted. 

• If the transferee is a new overseas Chinese 

or foreign stockholder, the identity certificate 

(juristical person certificate or photocopy of 

passport or alien’s certificate), power of attorney, 

and attorney’s ID photocopy shall be submitted. 

The juristical person certificate and power of 

attorney shall be notarized by the representative 

office of the R.O.C. in the foreign country or by 

the local government, and a Chinese translation 

shall be submitted together with it. To obtain 

an alien’s certificate, one should apply to the 

Overseas Chinese Affairs Commission. If the 

investor is a natural citizen, he/she also may 

carry the original passport to the Commission 

personally to handle the procedure during office 

hours. 

• Information about application for transfer of 

contribution by foreigners and an application 

form for reference are available on the website of 

the Commission. 

Recent Update of Foreign Investment 

in China’s Senior Care Industry 

by Nancy Zhang 

The recent legislative moves have presented a huge 

opportunity for private and foreign investors to enter 

into the senior care market in China, which has long 

been dominated by publicly-run institutions, yet is 

significantly underfunded and has shown an urgent 

demand for viable business model and well-trained 

senior care professionals. 1 

To address the issue of fast aging society of China, 

the Chinese government lately amplified its voice for 

invitationand calling for private sector participation 

and foreign investment in senior care industry, by 

introducing a series of more detailed supportive 

measures and policies in favour of private and foreign 

investment in senior care sector, in response to the 

State Council’s earlier guidingrequirements to speed 

1 Sovereign China, “Foreigner Piety China’s Aging Population Creates 

Opportunities in Senior Care for Foreign Investors”, 1/2014, Business 

Journal of the German Chamber of Commerce in China, available at 

http://www.jljgroup.com/uploads/JLJ%20Articles/Senior_Care%20 

German_Chamber_of_Commerce_Ticker_magazine_Feb_ 

March_2014.pdf as of 12 February 2015. 

up the senior care industry in September 2013. 2 

These measures and policies not only provide 

clarification on how to establish foreign invested 

for-profit senior care institutions, but also ease 

thelingering difficulty in land acquisition and 

financing, and createmore appealing financial 

incentives to private and foreign investors with an 

attempt to invest in the sector. The measures are 

intended to clear the hurdles standing in the way 

of private and foreign investment in senior care 

industryso as to boost the investment in the industry 

in China. 

Clarification on Procedures 

Currently there is no express restriction on the form 

of entities that private and foreign investors may set 

up in China to afford senior care services.For-profit 

senior care institutions or non-profit institutions,joint 

2 “State Council’s Various Opinions on Development of Senior Care 

Industry” issued by the State Council on 6 September 2013. 


Construction & Real Estate 

ventureor wholly foreign owned enterprise, are all 

permitted.However, there had been no detailed 

measures on specific procedures for foreign 

investment in this industry. 

On 24 November 2014, the Ministry of Commerce 

(“MOFCOM”) and the Ministry of Civil Affairs (“MCA”) 

jointly released the “Public Announcement on 

Relevant Issues on Foreign Investment in For-profit 

Senior Care Institutions” (“Public Announcement”), 

which clarifies on the requirements and proceduresto 

establish foreign invested for-profit senior care 

institutions and sets a twenty-day timeframe for 

the approval process at local branch of MOFCOM. It 

isworth highlighting that foreign investors are allowed 

to obtain the business licence before they apply to 

MCA for the Permit on Establishment of Senior Care 

Institutions, a requisite permit to do business as a 

senior care institution (e.g. home for the aged). 

Moreover, foreign investors are also encouraged to 

participate in the privation and restructuring of the 

publicly-run senior care institutions and develop the 

franchise in the country. 

Elevated Priority in Land Supply 

to Senior Care Industry 

Despite China has encouraged foreign investment in 

senior care industry as early as 2002, it proved to be 

no more than dead letters in the law. It was not until 

2011 that the first foreign invested company in this 

sector was established. 3 This owes very much to the 

practical difficulty in acquisition of land for senior care 

facilities by private or foreign investors. 

Previously, in China, private or foreign enterprises in 

senior care industry have to secure the land use right 

of a piece of land from the government by a public 

bidding process 4 , which not only means the highest 

3 The first foreign investor that established the foreign invested 

company in senior care industry in China is Cascade Healthcare.Alyssa 

Gerace for ALFA Update, “Senior Living in China: Big Barriers, Bigger 

Opportunity”, available at http://www.alfa.org/News/2358/Senior-Living-in-China%3A-Big-Barriers,-Bigger-Opportunity 

as of 12 February 

2015. 

4 Under the current PRC law, the land is either state-owned land 

(“Guoyoutudi”) or land owned by rural collective economic organization 

(“Jititudi”). That being said, China has developed the concept 

of “land use right” (“Tudishiyongquan”) to effect the transfer of land 

between state-owned or private entities. Accordingly, the government 

on behalf of the state may allocate (“Huabo”) the land use right of a 

land lot to enterprises for zero consideration or grant (“Churang”) the 

bidding price but also in practice “a nearly impossible 

land acquisition process”, as remarked by Bromme 

Cole, a managing partner at Hampton Hoerter, a 

health care services company in Asia 5 . 

On 17 April 2014, the Ministry of Land and Resources 

issued the “Guidelines on Use of Land for Senior 

Care Facilities” (“Guidelines”), which made several 

improvements in terms of how private and foreign 

investors may acquire land for senior care services: 

• First, the land for senior care industry has been 

incorporated into the system of land planning 

and it has gained higher priority in land supply. 

• In the process of invitation for tender, auction 

and listing for land to be used for senior care, 

the government may not impose requirements 

in respect of qualifications on bidders, nor may 

the government impose limitation on level of 

creditworthiness on senior care institutions to 

be established. 

• For the purpose of encouraging non-profit 

senior care institutions, the government offers 

various ways for enterprises to acquire the land. 

In addition to the traditional land acquisition 

by invitation for tender, auction and listing, the 

investors may also: 

a. acquire the land by allocation 6 without 

going through the tender, auction and 

listing; or 

b. use the land collectively owned by 

peasants 7 . 

Furthermore, In the scenario (a) above, non-profit 

senior care institutions are allowed to be changed 

into for-profit senior care institutions later, under 

which circumstances the allocated land such an 

institution has obtained can be changed into 

land use right for the consideration of land grant premiums. The land 

used for profit-oriented purposes, such as retail, travel, office, industrial, 

residential, finance, entertainment and etc. shall be supplied in the 

form ofland grant through a public bidding process (i.e. invitation for 

tender, auction and listing). 

5 ibid [3]. 

6 ibid [4]. 

7 ibid [4]. 

granted land by way of agreement with local 

government and paying the land grant premiums. 

The land grant premiums are required to be set 

on the basis of the market price and no less than 

the minimum land price of the region published 

by the local government 8 , yet no public bidding 

process is required for the land during such 

transition. 

Although these measures remain to be tested in 

practice, they indeed indicate more likelihood for 

private and foreign investors to acquire the land for 

senior care industry and also increase the diversity in 

manners of land acquisition. 

Financial Incentives and Benefits 

The underdevelopment of a market is, more often 

than not, attributable to some extent to the difficulty 

in financing in this sector. This is also the case to the 

senior care market in China. 

To change the situation, the government adopted 

many measures to facilitate the financing in senior 

care industry, but the most striking is the permission 

of mortgage to be created on the land acquired by 

leasing for senior care purposes, which apparently 

breaks through the old rules and offers a brand-new 

source of financing to investors, especially those in 

senior care industry. 

Moreover, the government lends more financial 

incentives to these investors by reductions and 

exemption of taxes and fees and by provision of 

8 This is pursuant to the “Regulation on Transfer of Land Use Right of 

State-owned Land by Agreement” issued by the Ministry of Land and 

Resources on 6 November 2013. 

Nancy Zhang 

subsidies. First, it was expressly stipulated that the 

senior care institutions, for-profit ones and non-profit 

ones, may enjoy exemption from business taxes that 

would otherwise be levied on care services. 

Even more remarkable are theexemption from real 

estate taxes and urbanland-use taxes for all 

non-profit senior care institutions, and exemption 

from income taxes for qualified non-profit senior 

care institutions. 

As to the administrative charges, the construction of 

for-profit senior care and medical institutions may 

be granted 50% reduction of such fees while the 

construction of non-profit ones may be given full 

exemption from the same.In addition, some of local 

governments (e.g. Beijing) have also decided to pay 

subsidies from local financial budgets to senior care 

institutions, for-profit or non-profit. 

Conclusion 

Partner at Jincheng Tongda & Neal 

T: (86 10) 5706 8855 

Email: nancy_zhang@jtnfa.com 

Top-level Chinese government has made great efforts 

to pave the way for private and foreign investors to 

step into the senior care industry of China. 

To this end, a wide variety of supportive rules and 

regulations are successively issued, ranging from 

incorporation procedures to land acquisition, from 

financing tools to tax exemption. 

Despite some implementation rules have not been 

issued, it is foreseeable the legal environment for 

private and foreign investors in the senior care 

industry of China will become more favourable. 

Nancy Zhang has substantial experience in real estate investment and finance in China. Nancy Zhang’s real estate expertise 

includes real estate development, sales, acquisition of existing or unfinished buildings, joint ventures, acquisition of existing 

project companies, lease transactions, finance structures, real estate-backed non-performing assets, management and 

operation of finished projects, and other real-estate related matters. 


Energy & Natural Resources 

Local Fracking Bans: 

A Viable Threat or Mere Nuisance 

by Barclay Nicholson, 

Johnjerica Hodge 

Hydraulic fracturing is experiencing tremendous growth 

throughout the world. As is inevitable with any large and 

profitable industry, hydraulic fracturing has been the recipient 

of a variety of legal challenges. 

Parties have filed lawsuits, alleging 

a myriad of claims, such as trespass, 

nuisance, and negligence. Legislators 

have proposed bills to prohibit or 

substantially curtail fracking. Groups have 

also lobbied the federal government to 

issue heightened regulations concerning 

hydraulic fracturing. 

These efforts have generally failed to 

inhibit the development of hydraulic 

fracturing operations. 

One of the more recent trends in 

attacking hydraulic fracturing is the 

enactment of local fracking bans. 

These local fracking bans have taken a 

variety of forms. Some bans are written 

as outright prohibitions and specifically 

target hydraulic fracturing. 

For example, the recently enacted ban 

in San Benito County, California prohibits 

hydraulic fracturing “throughout all 

unincorporated areas” of the county. 

Likewise, the ban adopted in Denton, 

Texas was drafted in a similar manner. 

Other bans resemble a bill of rights that 

oftentimes encompasses far more than 

simply hydraulic fracturing. 

For instance, Athens County, Ohio 

adopted “a community bill of rights” 

that prohibited “shale gas and oil 

extraction and related activities.” 

Indeed, fracking bans styled as bills of 

rights can be quite expansive, especially 

when compared to other hydraulic 

fracturing bans. 

A fracking ban adopted by Mora 

County, New Mexico demonstrates the 

sheer breadth of these anti-fracking 

measures. Mora County’s ordinance 

purported to prohibit “the extraction 

of oil, natural gas, or other 

hydrocarbons” as well as “the 

extraction of water from any 

surface or subsurface source . . . 

for use in” oil and gas operations. 

In fact, the ordinance also barred 

companies from importing “water or 

any other substance . . . for use in” 

oil and gas operations and constructing or 

maintaining “infrastructure related 

to” oil and gas operations. The ordinance 

actually went so far as to prohibit parties 

violating the ordinance from raising 

preemption arguments and to strip 

corporations violating the ordinance of 

their constitutional rights. 

Irrespective of which approach localities 

follow, there are several legal stumbling 

blocks for local fracking bans. For example, 

the anti-fracking measures are susceptible 

to preemption arguments. 

Admittedly, the viability of a preemption 

argument depends on the scope of the 

state law applicable to the anti-fracking 

measure. However, several state courts 

have already invalidated local fracking 

bans on the basis of preemption. 

Colorado state courts have held that 

the Colorado Oil and Gas Conservation 

Act preempted anti-fracking measures 

enacted by Lafayette, Longmont, and Fort 

Collins, Colorado. 1 Similarly, a ban against 

hydraulic fracturing in Morgantown, 

West Virginia was also invalidated on 

preemption grounds. 

A divided Ohio Supreme Court has also 

weighed in on the validity of fracking bans. 

In the case, Beck Energy Corporation 

challenged the ability of Munroe Falls 

to prohibit it from engaging in drilling 

operations without a municipal permit 

although the company had a permit from 

the state. 

The Ohio Supreme Court stated that the 

local ordinance was preempted by state 

law. The court acknowledged that Munroe 

Falls possesses certain authority under 

the doctrine of home-rule; however, in the 

court’s view, that authority was insufficient 

1 Longmont and Fort Collins have appealed these 

holdings. 



The Mora 

County 

anti-fracking 

measure 

contained 

a provision 

stating that 

preemption 

arguments 

could not be 

raised; 

to support the city’s fracking ordinances 

that contradicted with state law. 

Preemption arguments have even been 

effective when hydraulic fracturing bans 

have taken proactive steps to stave off 

preemption defenses. 

The Mora County anti-fracking measure 

contained a provision stating that 

preemption arguments could not be raised; 

that provision proved to be ineffectual, at 

best. The federal district court reviewing 

In each of the lawsuits, the plaintiffs argue 

that the fracking ban is preempted by state 

law authorizing state agencies to regulate 

the oil and gas industry in the state. 

Based on the number of courts that have 

invalidated local fracking bans, the odds 

are strong that Texas courts will also find 

preemption arguments persuasive. 

There is also an additional lawsuit pending 

in Colorado state court that challenges a 

hydraulic fracturing measure adopted by 

the city of Broomfield. The suit is brought 

noted that Mora County’s anti-fracking 

measure “effectively destroy[ed] all 

economic value that [the plaintiff] 

has in its leases.” 

Certainly, some local fracking bans have 

been upheld. For instance, the New York 

Court of Appeals upheld a local ordinance 

that would undoubtedly impact the ability 

of companies to engage in oil and gas 

drilling operations. 

The court reasoned that the local measure 

Moreover, although the Mora County 

ordinance was invalidated, the district 

court acknowledged that state law allowed 

concurrent jurisdiction with localities for oil 

and gas operations. 

That said, the majority of courts to weigh in 

on the validity of local fracking bans have 

invalidated them. Localities weighing the 

costs and benefits of enacting fracking bans 

must consider the high likelihood that the 

anti-fracking measures will be invalidated. 

the challenge to Mora County’s ordinance 

by the Colorado Oil and Gas Commission 

did not run afoul of state law because it 

easily rebuffed Mora County’s attempt to 

(COGC), the same plaintiff in the lawsuits 

primarily concerned zoning, an area in 

constrain when preemption law would 

filed against Lafayette, Longmont, and 

which the city had authority to legislate 

apply to its anti-fracking measure. 

Fort Collins. 

pursuant to the doctrine of home rule. 

The court reasoned that “if a county 

could declare under what 

conditions federal law preempted 

its laws, federal law would not be 

preemptive at all.” It appears that cities 

are beginning to recognize the likelihood 

that local fracking bans will be invalidated. 

Compton, California adopted a hydraulic 

fracturing ban that it later retracted after 

the Western State Petroleum Association 

(WSPA) filed a lawsuit against the city to 

challenge the anti-fracking measure. 

The primary argument raised by the 

WSPA was that state law preempted 

Compton’s ordinance. In fact, the 

Department of City Planning for Los Angeles 

advised the city to not enact a hydraulic 

fracturing ban. This recommendation was 

based, in part, on the ban’s susceptibility to 

preemption arguments. 

The latest preemption debates concerning 

hydraulic fracturing bans are currently 

pending in Texas, Colorado, and New 

Mexico. Several parties have sued Denton, 

Texas to challenge the hydraulic fracturing 

ban enacted by the city. 

The COGC is raising arguments that are 

similar to those it made in the prior suits. 

As for the suit pending in New Mexico, the 

lawsuit is simply another challenge to the 

Mora County anti-fracking measure and is 

pending before the same court that already 

issued a ruling that the ban is preempted. 

Another argument raised by parties 

challenging local fracking bans is that the 

bans constitute an unconstitutional taking. 

Denton is facing a lawsuit from several 

mineral rights owners alleging that the 

city’s anti-fracking measure amount to an 

unconstitutional taking. This lawsuit was 

actually filed before the city enacted its 

fracking ban. 

The plaintiffs are challenging the fracking 

moratorium enacted by Denton before the 

fracking ban. Likewise, parties challenging 

Mora County’s expansive fracking ban also 

raised takings claims. 

Although the district court held that the 

takings claim was not ripe, the court’s 

reasoning suggested that the plaintiff would 

have a viable takings argument. The court 

Barclay Nicholson 

Partner at Norton Rose Fulbright 

T: +1 713 651 3662 

Email: barclay.nicholson@nortonrosefulbright.com 

Barclay Nicholson is a partner with Norton Rose Fulbright in Houston. Nicholson has significant 

experience in handling energy-related litigation and serves on the firm’s Shale Gas and Hydraulic 

Fracturing Task Force. 

Johnjerica Hodge 

Associate at Norton Rose Fulbright 

T: +1 713 651 7706 

Email: johnjerica.hodge@nortonrosefulbright.com 

Johnjerica Hodge is an associate with Norton Rose Fulbright in Houston. Hodge focuses her 

practice on energy-related matters. 


Labour & Employment Law 

Employee Discipline 

and Termination 

by Shayda Zaerpoor Le 

Employee discipline and termination are some of the more difficult aspects of 

operating a business. Despite this difficulty, it is important to take the time in 

making these decisions to protect yourself and your business. The particulars of 

how you handle discipline and termination can vary greatly from one business 

to the next, but these are some best practices that can be utilized in taking 

these actions. 

Progressive Discipline 

Most employers utilize a process of progressive 

discipline. For each succeeding 

infraction, the employee is given an incrementally 

greater penalty, and warned that 

future infractions may result in increased 

disciplined. 

A typical process can include a progression 

from verbal warnings and written warnings, 

to suspensions or performance improvement 

plans, and finally to termination. This 

method introduces a greater element of 

fairness, and lays an appropriate expectation 

for the employee in terms of what is 

to come. 

However, it is important for your disciplinary 

policies to include language that will 

allow you to deviate from this process or 

to skip steps at your discretion, or you may 

be locked into minor discipline for serious 

infractions. 

The first time your employee is tardy, you may want to 

give a verbal warning, but the first time your employee 

brings a weapon to work and threatens a coworker with 

serious bodily injury, skipping straight to termination 

would be appropriate. 

Establish a Methodology to 

Investigate Complaints of 

Employee Misconduct 

If an employer receives a complaint 

of employee misconduct, the employer 

should establish a methodology to investigate 

the complaint. The investigation 

will create a record for you to use when 

deciding whether discipline is warranted. In 

investigating complaints, it is not only important 

to document your steps, but also to 

follow an organized and consistent process. 

Take the time to conduct thorough interviews, 

starting with the complaining 

employee, moving to third-party witnesses, 

and ending with the subject employee. You 

will also want to gather all the relevant evidence 

(i.e. emails, work schedules, etc.), and 

use this information to make an informed 

decision on your course of action. 

Before making any decision, provide the 

subject employee with an opportunity to 

respond, and avoid the urge to pre-judge. 

Remind all employees who participate with 

the investigation of your company prohibitions 

on retaliation, and set the expectation 

that there will be no adverse employment 

action or retaliation based solely on someone’s 

complaint, or any employee’s participation 

in the investigation. 

Based on the record created by the investigation, 

you can decide whethera disciplinary 

action is warranted. 

Document, Document, 

Document 

Business professionals should apply this 

principle across many aspects of their operation, 

but it is particularly important in the 

context of discipline and termination.If a 

former employee challenges the decision to 

terminate, you will be expected to present a 

reason for the termination, even if the employment 

relationship is “at-will,” and you 

will want to have documentary evidence 

supporting the disciplinary actions taken. 

Keep in mind that your decision will be 

scrutinized by a jury with the benefit of 

hindsight and actions leading to termination 

may be taken out of context. This 

means that at some point, likely quite 

some time after the precipitating actions 

have taken place, you may have to explain 

the reasons for the termination, in detail. 

Documentation supporting that decision is 

going to be essential indefending against a 

claim. 

In the process of documenting the reasons, 

behaviors, incidents, and issues supporting 

your decision, be specific and avoid generalizations 

such as “bad fit,” “poor listener,” 

and “personality conflicts.” 

In addition, once you have painstakingly 

documented your decisions with supporting 

evidence, make sure these records are 

actually kept for the appropriate retention 

period. 

Timing 

The proximity of the discipline or termination 

to a protected event, such as the birth 

of a child, medical leave, or asking for an 

accommodation, may be sufficient evidence 

to allow a claim to get to a jury, and greatly 

increase the cost associated with a claim of 

wrongful termination. 



If the 

supervisor 

or manager 

conducting the 

meeting is not 

very careful of 

the message 

which they 

communicate, 

they can 

create major 

issues for the 

business down 

the road. 

If for any reason you have made the decision 

to terminate, but need to delay the 

action, document the timing of the decision 

carefully. Unless absolutely necessary, 

avoid terminations during family leave, 

injured worker status, or any other protected 

event. 

Even if you have good cause for discipline 

or termination, acting on that cause while 

an employee is in a protected status invites 

greater scrutiny. Alternatively, do not delay 

an investigation, disciplinary action, or 

termination unnecessarily, as the employee 

could move into a protected class with the 

passage of time. 

The Final Meeting 

If there are multiple reasons for the 

termination decision, provide all of them, 

and if some of them would independently 

constitute a sufficient basis for termination, 

make that specification as well. 

Be prepared with a clear and calm denial if 

the employee suggests that the motive for 

the decision may be improper and avoid 

giving ambiguous reasons. 

Failing to provide a clear reason when you 

have one might indicate to the employee 

that your decision was improper, or that the 

employee could still possibly save their job. 

Have a checklist prepared of any company 

property that you need returned, and ob- 

in providing the employee with their final 

paycheck, and therefore they should be 

very clear on the legal requirements in their 

particular state or country. 

Wage laws are strict and are always construed 

to the employee’s benefit. In addition, 

in the event of a violation, the penalties 

and attorneys’ fees can be automatic. 

The final paycheck must include all amounts owed, 

which can consist of much more than just the time 

worked: tuition reimbursement, earned but unused 

vacation or floating holidays (depending upon the 

employer’s policy), bonus amounts, commissions, and 

any other reimbursements. When in doubt, it is often 

safest, and cheapest, to pay it. 

practical, and important, to consider your 

corporate culture. Depending upon the 

particular business and the position held by 

the departing employee, some businesses 

will choose to ask the employee whether he 

or she would like to offer any input on the 

communication given upon their departure. 

Often, the cleanest and simplest approach 

is to tell both the departing employee and 

the remaining employees that no reasons 

for the departure will be provided so as to 

protect the individual’s privacy. 

This approach may stave off concern, and 

therefore potential action. In addition, it 

communicates to the rest of your employees 

that your business is professional, and 

At the termination meeting, effective 

and decisive communication is essential. 

This meeting should be short, and to the 

tain all items possible at the final meeting 

itself. For any remaining items, have a plan 

to facilitate the exchange, tell the employee 

clearly and decisively that the items must 

What to Tell Other 

Employees 

will also respect their individual privacy if an 

issue ever arises for them in the future. 

Taking the time to set the groundwork for 

point, and there ought to be more than one 

be returned, and provide a deadline. 

Understandably, the departure of an em- 

your decisions, following an established 

person present from the business so as 

ployee will be of significant concern to the 

process and documenting the relevant 

to provide a corroborating witness in the 

While you may withhold discretionary 

rest of your employees. In determining 

issues and events, being mindful of timing, 

event of future issues. 

benefits such as severance pay, it is imper- 

what communication to give your employ- 

and conducting an effective final meeting 

missible to withhold earned wages pending 

ees regarding the change, it is important 

will help protect your business, and ulti- 

You should take a minute to consider 

return of property. If it becomes necessary, 

to be wary of possible defamation claims 

mately create a more fair and predictable 

workplace safety when planning the final 

you may need to file a civil suit or involve 

from the departing employee. It is also 

environment for your employees as well. 

meeting and you should include safeguards 

the police, but do not withhold wages. 

as necessary. It is very important for the 

business to ensure that whoever is con- 

Employers are not obligated to pay sever- 

ducting this final meeting is clearly aware 

ance, but a severance payment can serve as 

of how significant of a role they play in the 

consideration in exchange for a release of 

process. 

claims against the business. 

Statements made at the time of termination 

will be attributed to the business and may 

be used as direct evidence of the motive 

behind the decision. 

If the supervisor or manager conducting the 

meeting is not very careful of the message 

which they communicate, they can create 

major issues for the business down the 

road. 

If applicable, you may also remind the 

employee of their obligations under any 

nondisclosure, non-solicitation, or non-compete 

agreements. 

Final Paychecks 

The last aspect to the employee relationship 

is most often the final paycheck. 

Employers must abide by strict timelines 

Shayda Zaerpoor Le 

Attorney at Barran Liebman 

T: +1 503 276 2193 

Email: sle@barran.com 

Shayda Zaerpoor Le is an attorney with Barran Liebman in Portland, where she represents and 

advises employers on a range of employment law issues. 



Exclusivity Clauses in 

Lease Agreements 

by Mariya Papazova, 

Dimitar Vlaevsky 

One of the keys for a successful commercial building, a shopping 

centre or an office tower, is to “lock” contractually its publicly 

known anchor tenants whose prestige and trade name recognition 

will attract other tenants and customers. Both the landlords and 

the anchor tenants are aware of the importance of such “locking”. 

Therefore, very oftenthe anchor tenants 

(supermarkets and electronics stores, in most 

cases) will insist on having an exclusivity clause 

in their lease agreements. 

Generally, such a clause restricts the right 

of the landlord to lease to anchor tenant’ 

competitors other sites, owned by the lessor, 

if they are in the same building and/or within 

certain distance outside the building. 

The anchor tenant usually claims that such 

clause allows it to provide a wide selection of 

quality products at reasonable prices which, 

in turn, draws more tenants and consumers. 

Hence, exclusivity seems to favour everyone. 

However, an exclusivity clause may have 

potential to distort or prevent competition on 

the relevant markets. Therefore, the general 

prohibition to agreements which may prevent, 

restrict or distort competition underarticle 

101 of the Treaty on the Functioning of the 

European Union (“TFEU”) and article 15 of the 

Bulgarian Competition Protection Act (“CPA”) 

apply to them. 

Further, the exemption from the general 

prohibition of vertical agreements under the 

Commission Block Exemption Regulation 

(EU) No. 330/2010 does not apply to lease 

agreements and, respectively, to the exclusivity 

clause/s which they may include. 1 

Possible approaches 

Until now the Bulgarian Competition for 

Protection of Commission has not examined 

this issue. 

However, on an EU level the following two 

approaches for assessment of theexclusivity 

clauses in lease agreements exist: 

• Formal approach 

According to the formal approach every 

exclusivity clause might be considered 

as distortive for competition without 

analysisof the market structure, position 

of the market participants, its potential 

to distort competition and its negative 

effects. 

This, in general, is the approach of the 

Latvian Competition Councilexpressed 

in the case of Maxima Latvija Ltd. which 

operates one of the leading retail chains 

in Latvia. 

• Efficiency approach 

This is the approach followed by the UK 

Competition and Markets Authority. 

According to the efficiency approach not 

1 Para 26 of the Commission Guidelines on Vertical Restraints. 

all restrictions in the lease agreements 

may violate Competition law but only 

those which might serve as a barrier for 

entry or for expansion. 2 

The exclusivity clause/s might have 

such an effect. However, this might be 

established with analyses of the impact 

of the clauses on the relevant markets. 

Two relevant markets should be considered 

for the purposes of the competition analyses: 

• The downstream (related) market - the 

market of the business activity for which 

the site is leased. 

• The upstream market – the lease 

market on which sites are leased for the 

purposes of the business activity which 

form the related market. 

The general principles to define the product 

and geographic scope of the markets should 

apply. 

Further, certain market factors should be 

considered in the competition analysis of the 

exclusivity clauses in lease agreements. 

Among the main factors are: 

• market power on the related market 

Here, it should be considered how strong 

is the position of the tenant on the 

related market on which it conducts its 

business activity. 

It is important to assess whether 

the tenant already faces effective 

competition from its competitors – 

i.e. number of competitors; market 

shares; and potential for growth and 

2 Land Agreements - The application of competition law 

following the revocation of the Land Agreements Exclusion 

Order, March 2011 (OFT1280a), Office of Fair Trading. 



If the market 

position of the 

tenant and the 

landlord on 

their relevant 

markets 

triggers is 

weaker, the 

exclusivity 

clause in 

the lease 

agreement 

may have 

less negative 

impact. 

expansion are considered. The potential 

competition from new entrants should 

also be analysed. 

An exclusivity clause has higher risk 

to foreclose the access to the related 

market when the tenant has stronger 

market position. 

• existing barriers to entry or expansion on 

the related and upstream market 

Further, the market share of the landlord 

on the entire market available for lease 

for the same purposes as those of the 

competition on the related market. 3 

• series of agreements 

The effect of foreclosure of the 

exclusivity clause/s in a lease agreement 

may arise if this clause is included 

inseveral agreements. 

The cumulative effect of several 

exclusivity clauses may create a barrier 

for entry into the related market. Thus, 

the single clause may have restrictive 

effect on competition. 

Bulgaria 

exemptionunder article 17 of the CPA (101 

(3) of the TFEU) from the general prohibition 

for anticompetitive agreements might be 

considered and proved: 

• efficiency gains (e.g., more efficient 

distribution of products); 

• indispensability of the exclusivity clauses 

(e.g., guarantee for a large investment); 

• fair share of consumers (e.g., economies 

of scale passed to the consumers); 

• and no elimination of competition (e.g., no 

reduction of competition so far), on order 

sanction to be avoid. 

Expected developments 

In connection with the Maxima case which 

was mentioned above, Latvian Supreme Court 

approached the European Court of Justice for 

guidance as to how a competition authority 

should assess exclusivity clause/s in lease 

agreements. 

The main point which was addressed was 

whether the authority should consider the 

market structure and the relevant market 

factors or whether such exclusivity clause/s 

should be considered as anticompetitive per se. 

particular lease agreement is of higher 

importance than the market share of the 

As mentioned above, the Bulgarian 

tenant. If the landlorddoes not have a 

Competition Protection Commission (“CPC”) 

significant market position, competitors 

of the tenant will be able to lease real 

has not examined this issue so far. Hence, we 

may not exclude that CPC will apply the formal 

Mariya Papazova 

estate, to conduct their business and to 

compete with the tenant. 

approach within an assessment ofexclusivity 

clause/s incorporated in lease agreement/s. 

Attorney at Schoenherr 

On the other hand, if the landlord 

has a strong position on the upstream 

lease market, this does not make the 

exclusivity clause anticompetitive per 

se. The exclusivity clause/s might have 

insignificant effects on the competition 

if their scope is limited to the same 

building or toa limited area within the 

relevant geographic related market. 

If the market position of the tenant and 

the landlord on their relevant markets 

triggers is weaker, the exclusivity clause 

in the lease agreement may have less 

negative impact. 

• term of the exclusivity clause 

The term of the exclusivity clause/s is 

also important in their assessment. 

A longer term might be an indication 

of a more significant impact on the 

CPC may qualify the exclusivity clause/s as 

a violation of article 15 of the CPA without 

conducting detailed economic analyses of 

the relevant markets and the effect of the 

exclusivity clauses. 

In that case, the risk will be imposition of a 

sanction on the parties to the agreement in 

the amount of up to 10% of their aggregate 

turnover for the last financial year. In addition, 

the exclusivity clause/s will be null and void. 

Even if CPC does not accept the above 

arguments for lack of anti-competitive effect 

and thus for lack of violation, these could be 

used as arguments for imposition of a sanction 

in the low range of up to 5% of the parties’ 

aggregate turnover for the last preceding year. 

In this respect, arguments for application of 

3 Para 4.26 of the Land Agreements - The application of 

competition law following the revocation of the Land Agreements 

Exclusion Order, March 2011 (OFT1280a), Office of 

Fair Trading. 

T: +359 2 933 10 87 

Email: m.papazova@schoenherr.eu 

Mariya Papazova’s main area of specialization is EU and competition law. Her further areas of 

specialization are unfair competition and consumer protection law. Before joining the firm, she 

worked in the Bulgarian Commission for Protection of Competition for four years. Mariya holds 

degrees from the Sofia University and University of Friedrich-Alexander University Erlangen- 

Nuremberg. 

Dimitar Vlaevsky 

Senior Lawyer at Schoenherr 

T: +359 2 933 07 40 

Email: d.vlaevsky@schoenherr.eu 

Dimitar Vlaevsky’s main areas of specialization are real estate, construction and infrastructure 

(including energy). He specializes also in dispute resolution and arbitration. Before joining the firm 

Dimitar worked for two years as an in-house lawyer for the Bulgarian Post-Privatization Control 

Agency and was responsible for the dispute resolutions with major foreign investors. 

He also worked for two years for the Bulgarian subsidiary of one of the leading European 

developers of shopping centers and office buildings. Dimitar holds degree from the Sofia 

University. 



Fair Dismissal On the 

Grounds of Capability 

by Lisa Sturgeon 

Capability is 

one of five 

potentially fair 

reasons for 

dismissal. 

simply incapable of delivering work to 

the required standard. In a recent report 

by the CIPD, it was noted that poor staff 

performance is one of an employers’ most 

common complaints. 

Indeed, managers have a tendency to 

avoid dealing with employees and their 

work standards particularly if an employee 

is potentially litigious. 

• First, did they honestly believe 

the employee was incompetent or 

unsuitable for the job? and 

• Second, were the grounds for that 

belief reasonable? 

In answering these questions, employers 

will need to be able to point to objective 

evidence. This will first of all help to 

ensure the fairness of any action taken, 

in the eyes of the employee, which could 

make it less likely that the decision will be 

However, ignoring the issue can 

challenged and viewed as discriminatory. 

demotivate other staff so tackling poor 

performance firmly is a must. That said, 

Also, and of equal importance, this 

great care must be taken to ensure that 

evidence will be required to back up 

the incompetence is not related to a 

the assertions as to lack of capability. A 

disability which could result in a disability 

tribunal cannot substitute its own view of 

discrimination claim. This issue will be 

the employee’s capability. An employer 

considered later in the presentation. 

must show that there was evidence 

available to him of the employee’s 

2. Illness – an employee’s illness can make 

incapability and that, relying on that 

it impossible for them to perform their 

evidence, it was reasonable to dismiss. 

duties if they are on long term sickness 

absence. This illness can be physical or 

mental. 

Incompetence/Poor 

Performance: 

The dismissal of employees on the grounds of capability is a very topical and 

emotive issue and it is an issue which employers are faced with on a day to day 

basis. Indeed, in the recent climate of austerity and mass redundancies in both 

the public and private sector, employers have often sought reasons other than 

redundancy to dismiss employees to avoid a redundancy payment – capability 

and underperformance are fair reasons for dismissal and thus avoid the need 

for such payments. 

Definition of Capability 

Capability refers to an individual’s ability 

to perform the work expected of them 

to the required standards. Capability, in 

relation to an employee, is defined in the 

Employment Rights (Northern Ireland) 

Order 1996 (Article 130 (3)(a)) as “his 

capability assessed by reference to 

skill, aptitude, health or any other 

physical or mental quality.” 

Hence, capability falls into two categories – 

an employee’s incompetence and also his 

inability to do his job as a result of illness. 

1. Incompetence or poor performance 

– this occurs where an employee is 

An employer must take great care to 

ensure that absences are managed 

effectively – a balance must be struck so 

that employees with health problems are 

supported to stay in or return to work. 

Steps to Ensure a Fair 

Capability Dismissal 

Capability is one of five potentially fair 

reasons for dismissal. To avoid potential 

unfair dismissal claims, an employer must 

not only get the procedure correct but 

also be able to show that capability is the 

actual reason for the dismissal. 

When dealing with a capability dismissal, 

there are two questions a tribunal will 

expect an employer to be able to answer: 

Proving incompetence/poor performance 

is not straightforward. In many cases, 

employers have appraisal or performance 

management systems in place that can 

be used to initiate capability proceedings 

when an employee is accused of not 

meeting certain standards. 

It is imperative that such procedures are 

followed in order to ensure a dismissal is 

fair. 

An analysis of case law suggests that 

there are a number of factors which a 

Tribunal will look for to see if an employee 

was given time and the correct support 

to improve before an employee was 

dismissed for capability on the grounds of 

poor performance. 



Specifically, the Tribunal will look at 

whether an employer: 

2. Did an employer carry out a reasonable 

investigation of the employee’s 

5. Was the employee offered suitable 

alternative employment? 

also need to make sure the employee 

understands at what point dismissal may 

performance? 

A tribunal will look at whether an 

be an option. 

genuinely believed the 

employee was incapable of 

doing the job and if there were 

reasonable grounds for them to 

believe this; 

carried out a proper 

investigation of the employee’s 

performance; 

told the employee about the 

under-performance and gave 

clear warnings; 

gave the employee a reasonable 

chance to improve; 

offered the employee suitable 


employer looked at why an employee 

was performing badly and whether there 

were any reasons that contributed to it. A 

tribunal will ask: 

• what the employer did to investigate 

an employee’s performance, who they 

spoke to and what evidence they got; 

• whether they could have done 

anything else to find out why the 

employee was under-performing; and 

• were there any reasons why the 

employee was under-performing, 

such as ill health, family problems or 

stress? 

3. Was an employee told about their 

under-performance? 

employer offered an employee suitable 

alternative employment and whether 

more could have been done to find the 

employee other work. If an employee 

doesn’t have the skills to do the job, it 

may not be reasonable to offer alternative 

work. However, it will depend on the 

circumstances. 

6. Was it reasonable to dismiss the 

employee? 

Having considered all of the above, 

a Tribunal will consider whether the 

employer: 

• genuinely found the employee 

incapable of doing their job after they 

did a proper investigation; 

This should involve personal contact 

between the employer and the employee. 

In addition, the employer should obtain 

up-to-date medical evidence from the 

employee’s general practitioner and, if 

appropriate, their hospital consultant. 

Their discussions should also include a 

look at what steps the employer could 

take to get the employee back to work 

including any adjustments that may be 

necessary; and, where the employee is not 

in a position to return to their substantive 

position, perhaps think about alternative 

jobs. 

A review of case law suggests that a 

tribunal will look for the following when 

alternative work, if this was 

possible. 

the tribunal will also consider 

whether the decision to 

dismiss was within the range 

of responses of a reasonable 


employee was warned about their underperformance 

and the consequences of 

failing to improve. 

A tribunal will want to know whether: 

• used reliable evidence to support 

their claim; 

• tried steps to help the employee 

improve, which failed and 

• gave the employee enough time to 

improve. 

they are trying to decide if it’s reasonable 

to dismiss an employee because she or he 

is unable to do their job because of longterm 

sickness. 

They will want to know whether an 

employer: 

employer. 

1. Genuine Belief 

In determining whether an employee 

genuinely believed the employee was 

incapable of doing the job, the tribunal will 

want to know exactly why an employee 

was dismissed. 

An employer doesn’t have to prove that an 

employee was incapable of doing the job. 

They just have to show that they genuinely 

believed the employee couldn’t do it and 

there were grounds for believing this. 

• the employee was told before that 

their performance needed to improve 

and what action had been taken 

against them 

• the employee was warned that s/ 

he could be dismissed if their 

performance didn’t improve 

• the employer offered to support the 

employee with training or mentoring. 

4. Was an employee given a reasonable 

chance to improve? 

The tribunal will look at the length of time 

between an employee first being told 

there was a problem and the employee’s 

dismissal to ensure the employee was 

given enough time to improve. 

Ill Health Dismissals 

Ill-Health dismissals are also considered 

capability dismissals. Deciding whether 

to dismiss on the grounds of ill health is 

a finely balanced and difficult decision. 

Generally, in the absence of a catastrophic 

illness or accident, this will necessitate 

a process of consultation with the 

employee; a thorough investigation of 

the up-to-date medical condition and 

prognosis; and consideration of other 

options apart from dismissal. 

For the procedure to be fair, the employer 

needs to have discussions with their 

employee at regular intervals. They 

carried out a reasonable 

investigation about the 

employee’s condition, and 

whether it would be likely that 

the employee could return to 

work; 

consulted the employee before 

they made the decision to 

dismiss; and 

made reasonable efforts to 

explore other options, such as 

flexible working, adapting the 

workplace or finding other work 

for the employee. 



As with any dismissal, a tribunal will 

always ask itself whether the decision to 

dismiss an employee was within the range 

of responses that a reasonable employer 

could be expected to make. In doing so, a 

tribunal will look at the following: 

• How long an employee has worked for 

the employer; 

• How an employee’s absence affects 

the business and other staff. 

A tribunal might ask: 

1. could other staff do the work or 

work overtime? 

2. could the employer hire a temp 

or use agency staff? 

3. what would it cost the employer 

to arrange temporary cover? 

• How important is it for an employer to 

have a permanent employee? 

• Is an employee likely to get better? 

• Was the reason for the absence workrelated? 

NHS Fife Health Board v Stockman (2014) 

UKEATS/0048/13/JW 

In this recent case, the EAT had to decide 

whether it was fair to dismiss an employee 

on grounds of capability without fully 

investigating all the medical evidence 

surrounding the case. 

Facts 

Stockman, a doctor, was convicted of 

driving while under the influence of 

alcohol. His registration with the General 

Medical Council (GMC) was suspended on 

an interim basis for 18 months. 

He was signed off as unfit for work while 

undergoing a course of treatment for 

alcoholism involving attendance at a 

centre most of the day and part of the 

evening. 

Given Stockman’s suspension from the 

medical register, the employer said he 

would have to be dismissed on grounds of 

capability unless he could be redeployed. 

No alternative position was available. At 

an internal appeal hearing against the 

dismissal, Stockman presented evidence 

to the effect that: 

• he was likely to respond to alcoholism 

treatment 

• his suspension from the GMC was 

likely to be revoked 

• most doctors in his position did 

recover 

• other NHS employers would not 

dismiss at an early stage of receiving 

treatment. 

The appeal failed, Stockman was 

dismissed after six weeks on suspension, 

and claimed unfair dismissal. 

Tribunal 

An employment tribunal found the 

dismissal for capability was unfair. The 

employer argued that it did not need 

any medical evidence because it would 

have made no difference – Stockman’s 

registration as a doctor was suspended so 

he could not fulfil his contractual duties. 

The tribunal noted that the test of 

reasonableness involved looking at the 

actions of an employer in the same line of 

business or profession. 

The expert medical evidence presented 

showed that NHS employers would always 

get an up to date medical report, that a 

doctor was unlikely to be dismissed while 

receiving treatment, and the majority 

succeeded in getting back to work. 

In addition, an HR specialist, who had 

been an assistant secretary at the doctors’ 

professional body, the BMA, for seven 

years, stated that she had never known 

of a doctor being dismissed in these 

circumstances. 

The employer appealed, arguing that the 

tribunal had substituted its own view for 

the employer’s and had wrongly admitted 

evidence of the supposed attitude of other 

health service employers. 

EAT 

The Employment Appeal Tribunal 

rejected the appeal, holding that the 

tribunal was entitled to decide that the 

employer had applied its policy in such 

a way as to make its decision to dismiss 

inevitable, and had acted unfairly in 

deciding to dismiss Stockman without 

having considered vital information. 

Comment 

The practical implications arising from this 

case are threefold. In circumstances where 

an employer is questioning employees’ 

ability to carry out their duties: 

• any decisions must be based on the 

Lisa Sturgeon 

Associate Solicitor at Napier & Sons 

T: +44 (0) 2890 244 602 

Email: lisa@napiers.com 

most up to date medical opinion 

• where employees provide their own 

medical evidence, it must be given 

careful consideration. 

• if there is any doubt about the 

medical evidence, the employer 

should obtain its own medical report, 

before taking a decision to dismiss. 

Conclusion 

Performance management procedures 

and sickness absence procedures are not 

difficult to implement but they do require 

patience and time. 

Hastily pushing through the procedures, 

while not adhering to all the steps that the 

procedure requires, can cost an employer 

in the long run as they may end up in a 

long, drawn out litigious unfair dismissal 

claim. 

Tribunals expect employers to follow a 

number of steps and consider a number 

of questions before dismissing an 

employee. The benefits of following such 

steps significantly outweigh the risks. I 

would encourage all HR practitioners to 

follow such steps and if, in any doubt, 

always seek legal advice. 

Lisa studied Law and Accountancy at Queen’s University, Belfast and graduated with LLB Honours (Law with 

Accounting). Lisa joined Napier & Sons in 2008 and has worked primarily in the area of Employment Law. She 

provides advice on all aspects of employment matters both contentious and non-contentious. Lisa regularly 

represents clients at the Industrial Tribunal and Fair Employment Tribunal. She delivers in-house employment 

law training for clients and is a regular speaker at seminars. 



Property Linked Units 

by Mwelwa Chibesakunda 

In recent years Zambia has seen huge growth in the construction sector, 

both residential and commercial. The establishment of three cement 

plants in the past seven years, given that until then there was only one 

from the 1970’s, is testament to this. 

In the 2013 Budget Address, the 

Honourable Minister of Finance, Alexander 

Chikwanda, introduced fiscal incentives for 

property linked units of a property loan 

stock company, commencing in 2014. 

While “Property linked units” and a 

”Property loan stock company” are new 

concepts to the Zambian legal scene, 

they have been in existence in the region, 

namely Botswana and South Africa for 

some time. 

It goes without saying that incentives for 

a hybrid financial instrument or an entity 

active in a particular economic sector, 

are intended to spur increased activity 

in a number of ways. In the case of the 

property loan stock company and property 

linked units, the apparent intention would 

be to spur property development with 

its allied effects on employment and 

infrastructure development. 

In addition, the intention in the case of 

the Minister of Finance’s Budget Address 

appears also to have an impact in 

developing breadth of the capital markets 

and wider participation directly in the 

Zambian capital market. 

The Income Tax (Amendment) Act, No 18 

of 2014 (the “Income Tax (Amendment) 

Act”) introduces to the income tax 

legislation the “Property linked unit” and a 

”Property loan stock company”. 

A property linked unit is: 

“...a unit comprising a share and a debenture 

in a company, where the share 

and debenture are linked together and 

cannot be disposed of independently of 

each other...”. 

A property loan stock company is: 

“...a company listed on the Lusaka Stock 

Exchange which is involved in real 

estate investment and development and 

has a capital structure that consists of 

property linked units;...” 

The Income Tax (Amendment) Act 

amends section 82A of the Income Tax Act 

Chapter 323 of the Laws of Zambia (the 

“ITA”). Section 82A of the ITA provides, 

inter alia, for persons making certain 

payments to withhold tax (withholding 

taxes) from that payment. These include 

rent, interest, royalties etc. 

Under section 82A the Commissioner 

General may, in certain circumstances, 

direct that no withholding be made 

in the cases of interest, royalties, or 

commissions. 

The amendment to Section 82A now 

provides that in the case of interest, such 

a direction (that no withholding be made), 

can only be made in respect of interest 

arising from a property linked unit of a 

property loan stock company (which by 

definition must be listed on the Lusaka 

Stock Exchange). 

The effect of this is that the lender will 

receive the full interest, and is responsible 

for payment of any taxes on such income 

based on their own status. Previously 15% 

withholding taxes was to be deducted by a 

borrower before interest paid over. 

Given that Zambia has double taxation 

agreements with 20 countries, there are 

opportunities for offshore lending to 

Zambian property companies, who issue 

property linked units that are listed on the 

Lusaka Stock Exchange. 

Considering that the second Tier of the 

Lusaka Stock Exchange only requires a 

minimum of 30 unrelated shareholders 

and low capitalisation, the bar is set quite 

low. 

A related amendment in the Income Tax 

(Amendment) Act is that the withholding 

tax rate on rent has been reduced from 

15% to 10% and from our research 

appears to be treated by the revenue 

authority, the Zambia Revenue Authority, 

as a final tax. 

Thus the effect is that a property 

development company whose property 

linked units are admitted to listing on 

the Lusaka Stock Exchange, would have 

a corporate tax rate of 10%, unlike 35% 

for most other businesses in Zambia. It 

would then (subject to a direction from the 

Commissioner General), pay interest on its 



loans without a deduction of withholding 

tax. 

There is some uncertainty about whether 

the reduced withholding tax on rental is a 

final tax, since the legal provisions do not 

expressly state this, as is usually the case 

with other similar provisions. However it 

was clearly the intention from the Minister 

of Finance’s budget address, where he was 

quoted as saying “..I propose to change 

the taxation of rental income by reducing 

the withholding tax to 10 percent from 15 

percent and make this a final tax....” 

As stated above, the Zambia Revenue 

Authority also appears to take this 

position. 

In the case of interest, the actual language 

of the statutory provisions may also not 

have reflected, the original intention. 

In the case of interest, the Finance 

Minister was quoted as saying: 

“...I propose to exempt from withholding tax 

interest arising from the debenture part of a 

property linked unit paid to Zambian investors 

in any Property Loan Stock Company 

listed on the Lusaka Stock Exchange..” 

However the provision as it currently 

stands makes this exemption subject to 

the Commissioner General’s direction. 

With a property developer in Zambia 

having the full benefits of a corporate 

tax rate of 10% on its rental income, and 

no withholding on interest payments to 

its lenders, the property market would 

be ripe for development. For lenders, 

depending on the jurisdiction that the 

financing originates from, the impact 

of taxation for financing this type of 

customer would be worth some level of 

consideration. 

Disclaimer: 

This should not be construed as 

legal advice on any specific facts 

or circumstances. The contents are 

intended for general information 

purposes only and may not be 

quoted or referred to in any other 

publication. Readers are advised 

to seek legal advice before considering 

taking any action. 

The Regulatory Framework 

of the Gas Industry in Brazil: 

A Brief Overview 

by Andre de Luizi Correia 

The regulation of the gas industry in Brazil is peculiar, since the activities 

within the gas supply chain are regulated both in federal and state 

levels by general provisions of the Federal Constitution, as well as by a 

number of different federal and state laws. 

Mwelwa Chibesakunda 

Business Development Manager at Chibesakunda&Co 

T: +260 211 366400 

Email: Mwelwa.chibesakunda@cco.co.zm 

The Federal Constitution of Brazil, enacted 

in 1988 and amended by Constitutional 

Amendment No. 05/1995, sets forth 

a clear division of power between the 

Federal Government and the state 

governments concerning the activities 

developed within the gas industry. 

Pursuant to articles 20 and 176 of the 

Federal Constitution, gas reserves 

located within the Brazilian territory, 

including continental shelf, territorial 

sea and exclusive economic areas, 

are considered assets of the Federal 

Government. Therefore, article 177 of 



the Federal Constitution grants to the 

On the other hand, article 25, section 

users of piped gas, seeking to provide 

user of piped gas and, consequently, 

Federal Government the monopoly on the 

second, of the Federal Constitution, as 

them with a specific volume of gas to 

should purchase gas from the State 

upstream activities, such as prospection, 

amended by Constitutional Amendment 

satisfy their individualistic needs. 

concessionaire, Comgás. 

importation, exploitation and production 

No. 05/1995, grants to the states the 

of gas, as well as the transportation of gas 

prerogative on the local distribution of 

In view of this legal framework, the 

On CSPE’s view, Petrobras would be 

along the Brazilian territory. 

piped gas to final users within the territory 

interaction among different players 

prevented from supplying natural piped 

of each state. 

along the gas supply chain may become 

gas directly to White Martins’ industrial 

These are considered economic activities 

somewhat complex, since their activities 

facilities, since this activity should be 

that can be performed by both state- 

Unlike the upstream activities, the 

may be regulated by different laws and 

qualified as distribution of piped gas 

owned companies and private companies, 

distribution of piped gas is considered 

agencies. 

to a final consumer, being under the 

under federal authorization. 

The hiring of state-owned or private companies for 

the execution of these activities is regulated by Federal 

Law No. 9,478/1997 (the Petroleum Law) and 

Federal Law 11,909/2009 (the Gas Law) 

In practice, most of the upstream 

activities in the gas industry are 

still carried out by the state-owned 

company Petrobras, because, prior 

to the Constitutional Amendment No. 

05/1995, Petrobras was the exclusive 

representative of the Federal Government 

for the execution of its monopoly on the 

gas industry. 

a public service, subject to a different 

number of rules and regulations that 

govern the rendering and the concession 

of public services in Brazil, such as Federal 

Law No. 8,987/1995 (the General Law 

of Concessions) and Federal Law No. 

8.666/93 (which sets out the general rules 

for bidding procedures). 

Moreover, each state is entitled to 

enact its own set of rules regulating 

the piped gas distribution, as well as to 

create its own state regulatory agencies. 

Consequently, each state regulatory 

agency is responsible for the regulation 

of the distribution of piped gas within its 

respective territory. 

A good example to illustrate this complexity is a 

controversy that arose between the State of São Paulo 

and a joint venture formed by Petrobras and White 

Martins on the interpretation of articles 177 and 25, 

section 2 of Brazil’s Federal Constitution, which is 

considered Brazil’s leading case in the gas sector. 

In 2006, Petrobras and White Martins 

formed a joint venture to produce and 

sell liquefied natural gas (LNG). Under 

their agreement, Petrobras would supply 

natural piped gas to an industrial facility 

held by White Martins in the City of 

Paulínia, State of São Paulo, which would 

then produce LNG out of the natural 

gas, through an industrial process called 

prerogative of the State of São Paulo 

and its concessionaries, as per article 25, 

section 2 of the Federal Constitution. 

Therefore, CSPE enacted the Ordinance 

No. 397/2005, prohibiting LNG producers 

from purchasing piped gas from any 

distributors other than the State 

concessionaries. 

Petrobras and White Martins filed a 

lawsuit before the Federal Court of São 

Paulo seeking the suspension of the 

State’s prohibition. 

A preliminary injunction was granted 

in favor of the Plaintiffs suspending the 

The regulatory agencies vested with 

liquefaction, which involves cooling natural 

Ordinance No. 397/2005, on the basis 

power to regulate gas activities on the 

Traditionally, scholars justify this division 

gas to extremely low temperatures to 

that the direct supply of natural piped gas 

federal level are: 

of competences set forth by the Federal 

shrink its volume 600 times, making it 

from Petrobras to White Martins should 

• (i) the Ministry of Mines and Energy 

(MME), responsible for planning the 

use of natural gas; 

Constitution based on the interests 

underlying each step of the supply chain. 

easier to store and ship it to final users. 

On Petrobras’ view, the direct supply of 

be qualified as transportation of gas, 

being therefore subject only to federal 

regulation. 

• (ii) the National Energy Policy 

Council (CNPE), responsible for 

fostering rational use of Brazil’s 

energy resources, ensuring proper 

functioning of the national fuels 

inventories system, reviewing energy 

matrixes for different regions of Brazil 

and establishing guidelines; and 

• (iii) the National Agency of Oil, 

Gas and Biofuels (ANP), in charge 

of regulating, contracting and 

supervising all the economic activities 

related to the gas industry. 

The economic activities of prospection, 

exploitation and production, importation 

and transportation along the country’s 

territory are driven by the public interest 

of the entire population. 

Such activities seek the satisfaction of 

collective needs, providing all Brazilian 

citizens and residents with adequate 

and diversified energy resources. On the 

other hand, the public services of local 

distribution of piped gas are driven by 

the individual interest of each of the final 

piped gas to White Martins would qualify 

as transportation of gas (economic activity 

under the federal monopoly, regulated 

by federal law), since White Martins 

would not burn or use the gas as a final 

consumer, but liquefy it and sell it to third 

parties. 

The State of São Paulo had a different 

view on the same issue. According to the 

State of São Paulo Regulatory Agency for 

Energy and Gas (CSPE), White Martins 

should qualify as a local industrial 

Both the Federal and State Regulatory 

Agencies, as well as the State of São 

Paulo and the Federal Government, 

joined the dispute on opposites sides, 

asserting different interpretations of the 

constitutional provisions that govern 

the division of competences in the gas 

industry. 

The case was then remitted to the Brazil’s 

Supreme Court (Claim No.4210/2006), 

which has exclusive jurisdiction to hear 



disputes among government entities on 

opposite sides. 

The Supreme Court has not come to a 

final decision yet. 

However, the Court has so far ruled 

in favor of the State of São Paulo and 

the State Regulatory Agency, granting a 

preliminary injunction recognizing the 

states’ power to regulate over the supply 

of natural piped gas to industrial facilities 

that aim to use it as raw material for 

producing liquefied gas. 

In fact, the preliminary injunction, 

rendered by Presiding Justice Cármen 

Lúcia, found that the supply of gas directly 

from Petrobras to White Martins seems to 

be a local service of distribution of piped 

and, therefore, the State concessionaire, 

Comgás, is the only one allowed to 

provide it. 

This decision was the first ruling by 

Brazil’s Supreme Court regarding the 

division of competence between the 

Federal Government and the States on gas 

matters, being thus of capital importance 

for the gas sector. 

Changes to U.S. Court Rules 

Would Improve Civil Litigation 

by Mark A. Behrens 

Andre de Luizi Correia 

Partner at Wald Associados Advogados 

Court procedures in the United States are widely perceived to be 

wasteful and subject to abuse. Pretrial discovery, in particular, is often 

marked by “fishing expeditions” and tactics intended to harass and 

pressure defendants into settlements, regardless of the merits. 

T: +55 (11) 3074 6088 

Email: andrelc@wald.com.br 

Andre de Luizi Correia has been a partner at Wald Associados Advogados since 2005.He has an LLM 

degree in Business Law from Northwestern University School of Law (2014) and an LLM degree in 

Procedural Law from the Pontifical Catholic University of São Paulo(2000). 

Andre practises in litigation; arbitration; banking and finance; and administrative and regulatory law. 

In a 2009 survey, 83% of American Bar 

Association members responded that 

litigation costs force the settlement of 

cases that should not be settled on their 

merits. 

It is also not unusual for plaintiffs’ 

attorneys to seek “discovery on discovery” 

and initiate disputes to try to turn a judge 

against the defendant and possibly draw a 

sanction or easy win for the plaintiff. 

Modest changes to the Federal Rules of 

Civil Procedure that are likely to take effect 

late this year will help fix some of these 

problems. State courts in the United States 

have their own procedural rules, but many 

of them mirror the federal rules, so the 


Litigation 

federal rules amendments will ultimately 

impact state court litigation too. 

Presently, civil defendants in the United 

States bear an asymmetrical proportion 

of the costs and burdens of discovery. 

A blue-ribbon advisory committee that 

develops amendments to the Federal 

Rules of Civil Procedure received 

comments and testimony from a wide 

variety of companies about the costs they 

bear in civil discovery. 

• A healthcare products company 

estimated that in the last five years 

it had produced 47 million pages of 

documents in various litigations. The 

base cost of processing, hosting, and 

producing those documents – before 

any associated fees from lawyers 

reviewing them – was more than $20 

million. 

• A drug manufacturer noted that 

during a recent trial, only 0.04% of 

the documents that the company 

produced in discovery were later 

offered and admitted into evidence at 

trial. 

• An automobile car manufacturer in 

a single-vehicle product liability action 

said that it was ordered to produce 

documents from 1,300 other lawsuits 

and 1,200 witness transcripts that 

the plaintiff alleged were related to 

the subject dispute. The carmaker 

estimated that the voluminous 

production request required more 

than 800 hours from its in-house legal 

staff and cost $2 million in outside 

counsel legal fees. 

More than 2,300 written comments 

and testimonies from 120 witnesses 

were received. Many pointed out that 

skyrocketing litigation expenses have 

driven up the cost of doing business and 

are dragging down American productivity. 

From this work, a culmination of a fouryear 

effort by the Committee on Rules 

of Practice and Procedure of the Judicial 

Conference and its Civil Rules Advisory 

Committee, a “package” of amendments 

to the Federal Rules of Civil Procedure 

emerged and are now pending before the 

Supreme Court of the United States. 

If the amendments are adopted in whole 

or in part and submitted to Congress 

before May 1, 2015, they will take effect 

on December 1, 2015 if legislation is not 

adopted to reject, modify, or defer them. 

Active Judicial Management, 

“Proportionality,” and 

“Reasonable Steps” to Preserve ESI 

Among the highlights of the proposed 

amendments are changes meant to get 

cases moving more quickly and encourage 

earlier and more active management of 

discovery by judges. 

The proposed amendments also place a 

greater emphasis on “proportionality” 

and clarify preservation issues regarding 

electronically stored information (ESI), 

including pre-litigation failures to preserve. 

The amended Rules shorten the time 

period for service of process and for 

judges to issue scheduling orders. A 

new provision added to the Rules allows 

discovery requests to be delivered to 

parties before the parties attend a 

required scheduling conference. 

There is also an emphasis on greater 

cooperation and active judicial guidance 

to discourage overly broad requests by 

plaintiffs’ counsel looking to drive up 

pretrial costs. 

In addition, a “proportionality” standard 

has greater prominence in the amended 

Rules. 

The scope of discovery must not only be 

relevant to a party’s claim or defense, but 

also: 

“proportional to the needs of the case considering 

the importance of the issues at stake in the action, 

the amount in controversy, the parties’ relative access 

to relevant information, the parties’ resources, 

the importance of discovery in resolving the issues, 

and whether the burden or expense of the proposed 

discovery outweighs its likely benefit.” 

Another proposed Rule change 

reminds judges that a protective order 

against undue burden or expense may 

include provisions for the “allocation of 

expenses.” 

The amendments also address ESI, which 

has exploded in volume in recent years. 

Parties are required “to take reasonable 

steps to preserve [ESI]” in the anticipation 

or conduct of litigation—a standard 

recognizing that it is impractical to expect 

perfect retention and preservation in 

every case. 

Judges are instructed that, if a party is 

prejudiced by lost information, the court 

Mark A. Behrens 

Partner at Shook, Hardy & Bacon L.L.P. 

T: +1 202 639 5621 

Email: mbehrens@shb.com 

“may order measures no greater than 

necessary to cure the prejudice.” 

If a party intentionally deprives another 

party of information needed in the 

litigation, the court may give adverse 

inference instructions to the jury or 

dismiss the action or enter a default 

judgment. With these changes, the Rules 

may help to establish a more uniform 

standard for preserving electronic 

information across the federal courts. 

Conclusion 

The proposed amendments to the 

Federal Rules of Civil Procedure are 

an acknowledgement that the current 

process of pretrial discovery in federal 

courts needs to be improved. The 

amendments still need to clear the United 

States Supreme Court and Congress, but 

that is likely to happen this year. 

The language has been carefully crafted 

and enjoys strong support. The “black 

letter” in the new Rules will provide 

a modest help. If judges and litigants 

embrace the spirit of the changes, the 

changes could be even more dramatic. 

Mr. Behrens co-chairs the Public Policy Group of Shook, Hardy & Bacon L.L.P. in Washington, DC. Ms. 

Dorell is an attorney in Shook, Hardy & Bacon L.L.P.’s Public Policy Group 


Real Estate 

New Argentine Unified Civil & 

Commercial Code – Impact in 

the real estate market 

by Pedro Nicholson 

The Commercial Code was enacted in 1862 

and was heavily amended in 1889. From 

then onwards, not many changes were 

made to this code. 

Argentina’s Civil Code, on its turn, was 

voted in 1869 and came in force in 1871. 

This code remained almost untouched 

until April 1968, when around 250 

articles (from a total of about 4,000) were 

amended by Law 17,711. This code was 

recognized as one of the most prestigious 

in Latin America, and was inspiration for 

further civil codes in other countries in the 

area. 

This means that the Civil and Commercial 

Codes have been in force for the last 150 years. 

which -as said- shall be key to everyone’s 

lives. 

The purpose of this article is likewise to 

mention just a few of the changes that 

the new Unified Code shall have on the 

regulations applicable to the real estate 

market: 

• Trusts: real estate trusts have been 

the most popularly used vehicle for 

structuring real estate projects during 

the last fifteen years. With the new 

Unified Code the structure of these 

trusts shall have some amendments 

which shall not affect their existence 

nor application, but nevertheless shall 

have to be borne in mind. 

As mostly all of the Latin American countries, Argentina is a civil law 

country, one of the principal effects of which is that the legislation is 

basically codified, and judges decide on the interpretation and scope of 

the law on a specific case (i.e. court decisions typically are not binding 

except for the parties involved, regardless the fact that court rulings are 

usually grounds for interpretating laws in the future). 

In other words, law is what generates 

formal rights in civil law countries, and 

judges just interpret how those rights 

should be applied to the instant case. 

On the contrary, in common law countries, 

judges are real creators of law: in these 

countries case law (rule of precedent) is 

what one should especially take care of. 

The Civil and the Commercial Codes 

are the two codes which rule the day to 

day lives (including, of course, business) 

in Argentina. These Codes contain the 

principal legislation that should be applied 

not only to the citizens in their daily lives, 

but also to the companies (and individuals) 

doing business in our country. 

In the last decades, many attempts to 

unify the two Codes were made, though 

without success. However, on October 

1 st , 2014, Law 26,994 was enacted, which 

derogated both the Civil and Commercial 

Codes, and “created” a new Unified Civil 

& Commercial Code, which shall be in 

force as from August 1st, 2015. This shall 

have a huge impact on our legislation and 

especially, in our law practice. 

Until now, any decent corporate lawyer in 

Argentina knew the Civil and Commercial 

Codes almost by heart, and also knew 

not only what the jurisprudence had 

interpreted on any specific article, but also 

what the most knowledgeable experts 

had written and stated about any specific 

matter. 

With the enactment of the new Unified 

Code, the knowledge that was harvest 

throughout the years shall be almost 

completely wiped out, which means that 

every single lawyer in the country shall 

have to hit the books again and study 

the impact of this new Code, the scope of 

Among others, we may find the 

following: 

◊ Trust agreements shall be 

registered, theoretically before 

a Registry which shall be newly 

created. There is no further 

information available about this. 

◊ Trustees may be beneficiaries 

of the trust (which currently -with 

the law now in force- is subject to 

discussion). 

◊ Trustees shall retain civil 

responsibility insurance to cover 

damages caused by the goods 

under trust. This, among other 

facts, shall cause the “creation” 

of an insurance which currently 

does not exist. 

◊ If the trust shall be offered to 

the public, the trustee shall be 

a financial entity. This has not 

been the case in the majority of 

the real estate projects in the last 


Real Estate 

foresee the coverage of these new 

responsibilities. 

• The new Unified Code created some 

new property rights, among them, 

the condominium right (i.e. propiedad 

horizontal) which has suffered some 

amendments from the one currently 

existing. 

structure accordingly. As one can 

imagine, this has brought some 

concern on the people living in such 

neighborhoods, especially because 

of the time, costs and expenses to be 

involved in such adjustment, as well 

as on the way such amendment shall 

be performed (i.e. there is not much 

information available yet). 

years in our country, although 

having in fact, been offered to 

the public. 

◊ The trust may be revoked by 

the trustor, if that possibility 

is expressly foreseen in the 

agreement. The revocation shall 

cause the extinction of the trust 

(i.e. this possibility does not 

currently exist in the law in force 

today). 

• Companies with just one shareholder 

shall be accepted (i.e. they are currently 

forbidden). These companies shall 

be organized as corporations (i.e. 

“sociedad anónima”). 

• Lease agreements shall have a 

maximum term of 20 years for 

residential purposes, and of 50 

years for all other purposes. This 

amendment is very positive, because 

the current maximum 10 years term 

has proved to be very insufficient in 

many cases (e.g. when a future lessee 

had to make a big investment, the 10 

years’ term usually turned out to be very 

short and inadequate to amortize the 

capital invested). 

• In construction agreements, the 

owner shall be able to amend the 

project without the constructor’s 

agreement, as long as those 

amendments do not affect 

“substantially” the nature of the 

work. We can imagine that the 

inconvenience may be faced here 

on the definition of what would be 

“substantial” and what shall not … 

• Until now, the constructor (together 

with certain professionals, as 

the architects involved) was the 

only one responsible for the total 

ruin or destruction of the work. 

However, with the new Unified 

Code, the developer shall also have 

responsibility. We gather that new 

insurance policies shall have to 

• Such new “condominium right” 

shall be the one to rule on all closed 

neighborhoods, no matter they are 

plain gated communities (i.e. barrios 

cerrados) or country clubs (i.e. clubes de 

campo). This would not be a problem 

if this regulation would apply just for 

the future: but unfortunately the new 

Unified Code foresees that all closed 

neighborhoods not organized as per 

the rules of the new condominium 

right, shall have to adapt their legal 

Pedro Nicholson 

Partner at Estudio Beccar Varela 

T: +54 11 4379 6835 

Email: pnicholson@ebv.com.ar 

As described, the new Unified Code shall 

bring many amendments to the laws and 

regulations currently applying to the real 

estate market (i.e. the ones described above 

are just a few of them). 

This shall under no doubt impact on 

the way real estate projects shall be 

instrumented in the future, and it will 

be a great challenge for us lawyers to be 

innovative on the new legal scenario that 

will appear before our eyes. 

Pedro Nicholson is the Head of the Real Estate and Hospitality Department of Estudio Beccar 

Varela. He has vast experience in real estate, hospitality, tourism, mergers & acquisitions and 

corporate finance. He has advised local and foreign clients in all sorts of local and international 

deals, including Prudential Real Estate Investors, JE Robert Companies, Groupe Accor, Groupe 

Casino, Groupe Saint-Gobain, C.B. Richard Ellis, Jumeirah International, The Rohatyn Group, K 

Group Holdings, Gafisa, Christies, Inc., Enjoy, Mc Kinsey, Ermenegildo Zegna, Round Hill Capital, 

Foster + Partners, Costa Activa, Bausch & Lomb, Interurban, Citibank, N.A., Groupe Saint-Gobain 

and G&D Developers. 



10 

by Ellen M. Leibovitch 

Common Mistakes U.S. Employers 

Make When Trying To Comply With 

Employment Laws 

involved in commerce between the states 

or “interstate commerce”). 

Many employers assume that employees who 

are paid a salary – as opposed to an hourly 

rate of pay – do not have to be paid overtime 

under the FLSA. 

Whether an employee should be paid 

overtime for working more than 40 hours 

a week does not depend on whether the 

employee is paid a salary. 

2 

Not having an 

employee handbook 

Most state and federal anti-discrimination 

laws apply to employers with over 

15 employees. In fact, some local 

anti-discrimination ordinances cover 

employers with as few as five (5) 

employees. Employers who are covered 

by these laws need to make sure to have 

policies in place to prohibit sexual and 

other harassment, discrimination and 

retaliation. 

Many employers think they understand employment laws like the Fair 

Labor Standards Act, 29 U.S.C. §201, et seq. (FLSA), only to find 

out – after costly litigation – that they were just plain wrong. In this 

article, I will highlight 10 of the most common mistakes that private, 

non-governmental employers (with a non-unionized work force) make 

when attempting in good faith to comply with employment laws. 

1 

Paying an employee a salary 

and assuming the employee 

need not be paid overtime 

The FLSA is a federal law which 

establishes minimum wage, overtime pay, 

recordkeeping and child labor standards 

affecting full-time and part-time workers 

in the private sector and in federal, state, 

and local governments. The FLSA applies 

to employers through either “enterprise 

coverage” (businesses with at least two 

employees that have an annual dollar 

volume of sales or business done of at 

least $500,000) or “individual coverage” 

(businesses whose workers are regularly 

Better put, simply paying an employee a 

salary does not excuse the payment of 

overtime. If an employee is not exempt 

as that term is defined under the FLSA, 

then the employer is required to keep 

track of the employee’s hours worked 

and pay overtime at time and one-half 

the employee’s regular rate of pay if the 

employee works over 40 hours in a week. 

Any employee who is not an executive, 

a manager or who does not exercise high 

level decision-making is probably not 

exempt. The determination of whether 

an employee is exempt or non-exempt 

is a factual inquiry that depends on the 

employee’s job duties, not the employee’s 

title. 

For example, if an employee has the 

title of “manager” but does not actually 

supervise two or more people and does 

exactly the same work that the hourly 

employees do, that so-called manager 

may very well be a non-exempt employee. 

While a non-exempt employee can still be 

paid a salary, timekeeping and payment 

of overtime for working over 40 hours in a 

week is nonetheless required. 

These policies must also include 

procedures for making and investigating 

complaints of harassment, discrimination 

and like. While no law requires employers 

have an employee handbook, the 

handbook can be a useful tool for an 

employer to memorialize and enforce its 

personnel policies and procedures and 

can help an employer prove compliance 

with the law. 

3 

Having an employee 

handbook and not 

following policies 

Even worse than not having an employee 

handbook is having a handbook but not 

following the policies! For example, if 

an employer has a policy that requires 

the reporting of sexual harassment to a 

manager, but the manager does not know 

or understand the employer’s duty to 

investigate the complaint in a confidential 

manner, the policy is useless. 

In that event, the employee who fails to 

complain to the employer before pursuing 

legal action will be excused from failing to 

comply with the employer’s policy. 

Employers are well-advised to inform 

managers about the company’s 



federal law and higher in many states) is 

exception to the “no required breaks” 

employment policies, train managers 

weeks notice (or payment in lieu of notice) 

all that is required. 

rule applies to nursing mothers, and the 

4 

to ensure compliance and accurately 

and uniformly enforce such policies 

throughout the work place. 

Having all employees sign 

non-compete agreements 

and severance. 

Employers are not required to explain to 

an employee the reasons for termination, 

either orally or in writing, except as 

required under state law or in the 

rare, “mass layoff” situation where the 

7 

Paying employees 

higher hourly rates for 

certain shifts and paying 

employees for not coming 

to work 

FLSA also requires that employers provide 

space for nursing mothers to express 

breast milk for one year after the child’s 

birth. 

Note that, even though break-time is 

generally not required under the FLSA, if 

Some employers require all employees 

Worker’s Adjustment and Retraining 

Employers may think that requiring 

an employer does allow breaks of 5 to 20 

sign non-compete agreements. The 

Notification (WARN) act 29 U.S.C. §2101, et 

hourly employees to work on nights, 

minutes, they must be counted as hours 

problem with this approach is that 

seq., requires notice prior to a lay-off. 

weekends and holidays warrants payment 

worked (and thus paid time). This includes 

competition cannot be prohibited unless 

of a higher hourly rate or even “double 

short periods away from work to smoke, 

the employer has a “legitimate business 

Additionally, employers are not required 

time” pay. Absent an agreement or state 

go to the restroom, make a personal 

interest” to protect through the non- 

to give two-weeks notice of termination. 

law to the contrary, the FLSA does not 

telephone call, get coffee, etc. 

compete agreement. 

If an employee has access to customer 

lists or other proprietary and confidential 

information belonging to the employer 

which the employer keeps secret and 

out of the hands of its competitors (as 

opposed to information that is readily 

available in the public domain), then a 

In most cases, a terminated employee 

is toxic to the work environment and 

should be escorted from the work 

site immediately after the termination 

meeting or exit interview. 

Finally, employers are not required to 

provide terminated employees with 

severance pay. Severance pay is a matter 

require higher rates of pay for employees 

who work night shifts, on holidays or 

weekends. Keep in mind, however, any 

non-exempt employee who works over 

40 hours a week must be paid overtime at 

time and one-half the employee’s regular 

rate of pay. 

Bona fide meal periods (typically lasting at 

8 

Thinking that an 

employee’s schedule 

cannot be changed 

without notice and that 

employees can only be 

scheduled for a certain 

number of hours per week 

non-compete agreement will be seen 

of agreement between an employer and 

least 30 minutes) or other breaks where 

After the weekly schedule is set, changes 

as reasonably necessary to protect the 

an employee, which usually goes hand-in- 

an employee is completely relieved of all 

may be required. Employers have the 

employer’s legitimate business interests. 

hand with an employee’s general release 

work duties, are not considered work time 

ability to adjust schedules to meet the 

of claims against the employer. 

and are not compensable. 

needs of the business even if that means 

However, requiring employees who do 

disrupting the employee’s previously-set 

not have access to this kind of information 

Note that most employees who are 

Similarly, many employers think hourly 

schedule. 

sign the same non-compete agreement 

terminated will still be able to collect 

employees must be given two breaks 

may diminish the ability to enforce the 

unemployment compensation unless 

a day, must be paid when the office is 

The FLSA does not cover the scheduling 

agreement against those employees 

the reason for the termination precludes 

closed for a legal holiday, are entitled to 

of employees (except for employees 

who can and should be prohibited from 

collection under state law. 

paid time off for a vacation and must be 

under the age of 16 who are limited in the 

competing. 

Giving employee a terminated 

of termination, a written two letter 

weeks 

notice and severance pay 

5 6 

Terminating an employee is difficult for 

both the employer and the employee. 

Employers who are apologetic about the 

termination decision often feel they owe 

certain things to the outgoing employee 

– like a written termination letter, two 

Thinking annual 

reviews, salary 

increases and bonuses 

are required 

Unless the employer has specifically 

agreed to provide performance and 

compensation reviews or to give periodic 

salary increases and bonuses, the law 

does not require any of these things. 

Under federal law, payment of a minimum 

wage (currently $7.25 per hour under 

paid when they cannot work due to illness 

(sick days). 

While some states may require that 

employees be paid when they do not 

come to work, federal law does not 

require payment for time not actually 

worked. 

Thus, time taken for breaks, meal periods, 

vacations, sick days and holidays need 

not be paid unless the employer has 

specifically agreed to do so. One limited 

number of hours they can work per day 

and per week). Thus, neither notice to the 

employee nor the employee’s consent is 

required when changing an employee’s 

work hours. 

Moreover, there is no minimum or 

maximum number of hours for which an 

employee can be scheduled, and the FLSA 

does not define what constitutes full-time 

or part-time employment. Employers 

make this determination, but regardless 

of whether an employee is full-time or 



part-time, the FLSA will still apply if the 

entitled to unemployment compensation 

relationship; no one factor is decisive. 

There is no end in sight, particularly 

employer is a covered entity. 

upon termination. Moreover, employers 

since cases brought under the FLSA are 

9 

Believing you cannot 

be individually liable 

for violating the law 

because your business is a 

corporation 

are not required to pay Social Security 

and Medicare for these workers or take 

other deductions from payments made to 

independent contractors. 

Tempting as it may be to classify all 

workers as independent contractors – 

For more details, go to: 

http://www.irs.gov/Businesses/ 

Small-Businesses-&-Self-Employed/ 

Independent-Contractor-Self-Employedor-Employee 

Conclusion 

lucrative for employees and quite costly 

for employers who may end up having 

to pay back wages, liquidated (double) 

damages, plus attorneys’ fees to the 

plaintiff’s counsel and to the employer’s 

own attorney. 

Corporations are wonderful legal fictions 

thus avoiding application of the FLSA, 

Employers who attempt to manage 

which exist for variety of reasons, not 

other employment laws and employer tax 

Litigation against employers has steadily 

compliance with employment laws 

the least of which is to shield its owners 

liability – the government (i.e., the Internal 

increased over the years as employees 

without consulting skilled employment 

from individual liability for corporate 

Revenue Service, the Department of Labor 

have become more aware of their 

counsel may be at risk. If you have made 

wrongdoings. While there are certainly 

and corresponding state agencies) have 

rights, and attorneys who regularly sue 

any of the foregoing mistakes, now is the 

exceptions to this rule, the corporate form 

created a nationwide misclassification 

employers advertise big awards on bus 

time to seek counsel before you too are 

generally will prohibit individual liability 

initiative designed to crackdown on 

benches and billboards around the 

served with a potentially costly lawsuit. 

for violation of the employment laws. 

offending employers. 

country. 

However, the FLSA, unlike most other 

The problem of misclassification is 

employment laws, specifically defines 

rampant in certain industries (such as the 

employers as as “any person acting 

construction industry), and such industries 

directly or indirectly in the interest of an 

the main targets in the initiative. 

employer in relation to an employee.” 29 

U.S.C. § 203(d). 

However, no employer is above the law, 

and improperly labelling an employee 

Therefore, managers and corporate 

an independent contractor can expose 

officers with operational control of the 

employers to a host of tax and other 

business can be individually liable for 

liabilities, as well as criminal penalties. 

claims brought under the FLSA. 

The IRS has developed a list of 20 factors 

Additionally, common law torts – like 

to determine whether the worker is an 

assault, battery and defamation – can 

independent contractor or an employee. 

be brought against corporate officers, 

At its core, the test focuses on whether 

employees and managers in their 

sufficient “control” is present to establish 

individual capacity. The corporate form 

is not a shield from personal liability for 

these acts. 

an employer-employee relationship 

or an independent contractor-client 

relationship. 

Ellen M. Leibovitch 

Head of Labor and Employment Practice at Assouline & Berlowe, P.A. 

10 

Classifying all staff as 

independent contractors 

means you do not have 

to worry about the 

employment laws 

According to the IRS, these factors should 

be considered guidelines. Not every factor 

is applicable in every situation, and the 

degree of importance or “weight” of each 

factor varies depending on the type of 

work and individual circumstances. 

T: +1 (561) 361 6566 

Email: eml@assoulineberlowe.com 

Ellen M. Leibovitch is a Florida Bar Board Certified Labor and Employment Attorney and heads 

the labor and employment practice at Assouline & Berlowe, P.A. Leibovitch serves on the Board of 

Directors for the South Palm Beach County Bar Association and is Editor-in-Chief of “The Advocate,” 

Independent contractors need not 

the association’s newsletter. Leibovitch is also past president of the South Palm Beach County Chapter 

receive overtime pay, are not protected 

However, all relevant factors are 

of the Florida Association for Women Lawyers. 

by the employment laws and are not 

considered by the IRS in probing the 



GOOD NIGHT CONTRACTORS 

– Sanislo v Give the Kids 

by David Salazar, 

Craig Distel 

Goodnight Contractors 1 : A brief analysis of the 

Florida Supreme Court’s recent ruling regarding 

the required language of exculpatory clauses 

and its effect on the construction industry. 

As construction lawyers, we endeavor to keep 

our clients abreast of legal developments that 

affect our industry. On February 12, 2015,The 

Florida Supreme Court issued a ruling, in 

Stacy Sanislo v. Give the Kids the World, Inc., 

which directly impacts the manner in which 

exculpatory clauses 2 inconstruction contracts 

are enforced in Florida. 3 This is why we chose 

1 The authors chose this title based on the acclaimed 

children’s bedtime book Goodnight Moon by Margaret Wise 

Brown because this decision should allow contractors to relax 

and rest easy regarding the nuances of language in exculpatory 

clauses. 

2 Black’s Law Dictionary defines the term “Exculpatory Clause” 

as “An agreed-to condition (1) preventing blame or liability on 

one party due to the improper behavior of the other party; (2) 

preventing liability on one party due to not meeting all of the 

contractual performance expectations.” 

3 No. SC12-2409 (Fla. Feb. 12, 2015) (note: the final opinion 

has not been released for publication in the permanent law reto 

write this article. 4 

In Sanislo, the Courtresolveda conflict 

between Florida’s fiveDistrict Courts of 

Appealas it relates to the requirements for the 

enforceability of exculpatoryagreements. 

The First 5 , Second, 6 Third 7 , and Fourth Districts 8 

all issued decisions in the 1980s requiring 

exculpatory provisions to comply with the same 

ports and until release, it is subject to revision or withdrawal). 

4 Notably, Florida statutes disallow exculpatory clauses in 

a number of contexts, including when applied to intentional 

torts, gross negligence, or certain statutory violations. This 

article focuses only on the exculpation of simple negligence 

claims. 

5 Levine v. A. Madley Corp., 516 So. 2d 1101 (Fla. 1st DCA 

1987). 

6 Goyings v. Jack & Ruth Eckerd Found., 403 So.2d 1144 (Fla. 

2d DCA1981). 

7 Tout v. Hartford Accident &Indem. Co., 390 So. 2d 155 (Fla. 

3d DCA 1980). 

8 Van Tuyn v. Zurich Am. Ins. Co., 447 So. 2d 318 (Fla. 4th DCA 

1984). 

language requirements as indemnification 

provisions. 

These opinions generally held that a party 

seeking to avoid its own liability must do 

so by way of the clear and unequivocal 

contractual languageenunciated in 

University Plaza Shopping Center v. Stewart. 9 

That is, the First through Fourth (not the 

Fifth) Districts required that exculpatory 

provisions include the terms “negligence” 

or “negligent acts” in order to be 

enforceable. 

Before it made its way to the Supreme 

Court, Sanislo 10 resulted inthe Fifth District 

certifying its conflict with the other districts 

when it rejected the University Plaza 

requirements. 

The Florida Supreme Courtaffirmed the 

Fifth District’s holding and heldthat an 

exculpatory provision is enforceable even 

if it does not specifically include the terms 

“negligence” or “negligent acts”. 

At least for now, the enforceability of 

exculpatory provisions has been more than 

marginally relaxed such that defendants 

in the construction field can apparently 

– on this rare occasion – breathe a sigh 

of relief and have a goodnight’s rest. As 

further discussed below, indemnification 

provisions, however, have not been 

afforded the same reprieve. 

Case Background Factual 

Background/Trial Court 

Sanislo concerned the enforceability of 

an exculpatory clause contained within an 

agreement executed by the Sanislo family 

9 University Plaza Shopping Center v. Stewart, 272 So.2d 

507, 509 (Fla. 1973). 

10 Give the Kids the World, Inc. v. Sanislo, 98 So. 3d 759 

(Fla. 5th DCA 2012). 

to take their child on a trip offered by a 

company named Give the Kids the World. 

The agreement at issue provided that: 

I/we hereby release Give Kids the 

World, Inc. and all of its agents, officers, 

directors, servants, and employees from 

any liability whatsoever in connection 

with the preparation, execution, and 

fulfillment of said wish, on behalf of 

ourselves, the above named wish child 

and all other participants. 

The scope of this release shall include, but 

not be limited to, damages or losses or 

injuries encountered in connection with 

transportation, food, lodging, medical 

concerns (physical and emotional), 

entertainment, photographs and physical 

injury of any kind. . . . 

I/we further agree to hold harmless 

and to release Give Kids the World, Inc. 

from and against any and all claims and 

causes of action of every kind arising from 

any and all physical or emotional injuries 

and/or damages which may happen to 

me/us. . . . 

Mrs. Sanislo was injured when the family 

used a handicap lift as a platform for 

a photo and sued Give the Kids, which 

claimed that the exculpatory clause in the 

agreement barred the Plaintiffs’ negligence 

claims. 

At the trial court level, the Sanislos and 

Give the Kids filed opposing motions 

for summary judgment on whether the 

exculpatory clause at issue barred the 

Plaintiffs’claims. The Sanislos argued 

thattheir claims were not barred 

becauseexculpatory provisionsare similar 

to indemnification provisions and therefore 

must specifically mention “negligence” to 

be enforceable. Give the Kids countered 



that because its release reasonably informed 

Give the Kids argued that the terms 

on this material distinction, the Court held 

The Sanislo decision also affectscontractual 

the Sanislos of the rights they were waiving, 

“negligence” or “negligent acts” were 

thatthe stated requirements inUniversity Plaza, 

indemnification provisions in the construction 

the exculpatory provision was clear and 

unnecessary because (1) the language was not 

Charles Poe Masonry, and Cox Cable Corp. did 

industry. Florida Statutes Section 725.06 strictly 

unequivocal and thus enforceable. The trial 

unclear, (2) the exculpatory clause’s language 

not apply to exculpatory provisions. 

governs these provisions when they allow an 

court agreed with the Sanislos and awarded 

would be rendered meaningless if found 

indemnitee to seek indemnification for its own 

damages in their favor. 

ineffective, (3) indemnification agreements and 

Exculpatory provisions are not “ineffective 

negligence. The statute’s strict requirements 

Fifth District Court of Appeal 

Decision 

exculpatory provisions serve different purposes 

and allocate risks differently, and (4) the 

Sanislos’ argument had been rejected in other 

states. 

simply because [they do] not contain express 

language releasing a defendant from liability 

for his or her own negligence or negligent 

acts,” held the Court. 14 The Court’s holding 

are consistent with the public policy that 

disfavors exculpatory provisions. 

While an exculpatory provision bars claims for a 

Give the Kids appealed the trial court’s 

in Sanislo is consistent with the majority 

party’s negligence, an indemnification provision 

decision to the Fifth District on the grounds 

Interestingly, the Court relied upon its previous 

of jurisdictions that have rejected the 

that complies with Section 725.06 allows a party 

that the release was unambiguous and did 

holdings regarding indemnification provisions 

requirement for specific “negligence” language 

to seek indemnification from another party 

not contravene public policy. The Fifth District 

to reject the Sanislos’ argument. For instance, 

in exculpatory provisions, notwithstanding the 

for its own negligence. A provision that allows 

agreed and reversed the denial of summary 

in University Plaza Shopping Center v. Stewart, 

general policy considerations that disfavor such 

an indemnitee to seek indemnification for its 

judgment. 

the Court held that an indemnification 

agreements. 

own negligence may disincentivize a party from 

It reasoned that the provision releasing Give 

the Kids for “any and all claims and causes 

of action of every kind arising from any and 

provision seeking to cover the indemnitee’s 

own negligence must contain specific language 

to that effect. Six years later, in Charles Poe 

Masonry, Inc. v. Spring Lock Scaffolding Rental 

Sanislo and the Construction 

Industry 

complying with the applicable standard of care. 

Section 725.06, therefore, makes an 

indemnification provision void and 

all physical or emotional injuries and/or 

Equip. Co., 11 the Court applied these principles 

The Sanislo opinion, as mentioned above, will 

unenforceable unless: 

damages which may happen to me/us” – even 

to situations where an indemnitor and 

likely impact construction cases in addition 

without inclusion of the terms “negligence” or 

indemnitee may be jointly liable for a plaintiff’s 

to personal injury claims. For example, many 

• it contains a monetary limitation on the 

“negligent acts” – wasclear and unequivocal 

injuries. 

construction companies lease equipment for a 

extent of the indemnification that bears a 

enough to ensure the Sanislos understood 

project. These leases often contain exculpatory 

reasonable commercial relationship to the 

what claims were covered under the release. 

Later, in Cox Cable Corp. v. Gulf Power Co., 12 

provisions allowing the lessor to avoid liability 

contract and 

the Court reaffirmed its holding in Charles 

for its own conduct that may damage the 

Public policy in Florida disfavors exculpatory 

Poe Masonry, Inc. finding that, regardless 

lessee. 

• is part of the project specifications or bid 

provisions because they tend to relieve one 

of potential fault between the parties, an 

documents, if any. 15 

party from the obligation to use due care and 

indemnification provision that purports to 

Under Sanislo, these agreements need not 

shift the risk to the party who is presumably 

provide an indemnitee with the right to seek 

specifically mention the lessor’s negligence so 

In Sanislo, the Court reaffirmed its requirement 

least equipped to take the reasonably 

indemnification for its own negligence must 

long as it is reasonably clear and unequivocal 

that an indemnification provisionproviding a 

necessary precautions to avoid injury; however, 

specifically identify that intent. 

what claims are barred by the exculpatory 

right for an indemnitee to seek indemnification 

the Fifth District did not thinkthe exculpatory 

provision.If a contractor leases a machine that 

for its own negligence must state that intent 

language would be lost on a person of ordinary 

In Sanislo, the Court found that exculpatory 

malfunctions due to the owner’s negligence, 

by use of the term “negligence.” Otherwise, the 

intelligence. 

provisions differ from indemnification 

claims arising out of that malfunction may be 

indemnification provision is unenforceable. 

Florida Supreme Court 

Decision 

The Sanislos appealed the Fifth District’s 

decision to the Florida Supreme Court, again 

arguing that exculpatory provisions are similar 

to indemnification provisions and should 

therefore require specific“negligence” language 

in order to be enforceable. 

provisions because exculpatory provisions 

limit a party’s right to recover under an 

agreement while an indemnification provision 

creates a right for the indemnitee to claim 

reimbursement from the indemnitor. 13 Based 

11 Charles Poe Masonry, Inc. v. Spring Lock Scaffolding Rental 

Equip. Co., 374 So. 2d 487 (Fla. 1979). 

12 Cox Cable Corp. v. Gulf Power Co., 591 So. 2d 627 (Fla. 

1992). 

13 Ivey Plants, Inc. v. FMC Corp., 282 So. 2d 205, 207 (Fla. 4th 

barred by contractual exculpatory provisions. 

This could function to bar personal injury 

as well as property damageclaims on a 

construction project. In addition to direct 

claims, exculpatory provisions could also bar 

pass-through claims such as common law 

indemnification, contribution, and subrogation. 

DCA 1973). 

14 Sanislos, No. SC12-2409 at 4. 

Accordingly, it appears that a provision which 

allows a party to seek indemnification for its 

own negligence must specifically express the 

terms “negligence” or “negligent acts,” must 

include a monetary limitation on the extent 

15 Florida Statutes Section 725.06(1) (2014) also provides that 

the “monetary limitation on the extent of the indemnification 

provided to the owner of real property by any party in privity 

of contract with such owner shall not be less than $1 million 

per occurrence, unless otherwise agreed by the parties.” 



of the indemnification bearing a reasonable 

commercial relationship to the contract, and 

must include the provision in the project 

specifications or bid documents, if any exist. 

It is no secret that contractual indemnification 

provisions are common in construction 

contracts. When disputes arise, downstream 

contractors (e.g., subcontractors, subsubcontractors, 

and materialmen) often argue 

that contractual indemnification provisions are 

void and unenforceable for failure to comply 

with the provisions of Section 725.06. 

Upstream contractors (e.g., sub-subcontractors, 

subcontractors, and general contractors) and 

owners, then, often face the incredibly stressful 

reality that someone may have failed to include 

a few critical words in the agreement and their 

negotiating leverage – or worse yet, exposure – 

is adversely affected as a result. 

The take-home for the industry is simple, 

however. While an exculpatory provision 

need not mention the terms “negligence” or 

“negligent acts,” indemnification provisions 

do. Moreover, indemnification provisions must 

comply with the strictures of Section 725.06. 

This way, we can all sleep a little better at night. 

As a postscript, it continues to be advisable 

to include specific “negligence” language in 

exculpatory provisions. In other words, it can 

only help. 

Company Formations In Cyprus 

by Lia Iordanou Theodoulou, 

Elena Georgiou 

David Salazar 

Partner at Cole, Scott, & Kissane P.A 

T: +1 (305) 350 5363 

Email: david.salazar@csklegal.com 

Cyprus has traditionally been a significant destination for the setting 

up of international business companies (IBCs) (that is to say companies 

with foreign interests). Factors which are taken into account in 

choosing Cyprus include the following: 

David Salazar is a Partner in Cole, Scott, & Kissane P.A.’s Construction Group at the Miami office. Mr. 

Salazar is a Board Certified Specialist in Construction Law and has devoted his practice to various 

areas of construction law including representation of developers, contractors, and subcontractors 

in construction defect, contract, and lien enforcement claims, as well as design professionals in 

professional liability claims. Mr. Salazar also writes and speaks on various legal topics in the context 

of construction law. 

Craig Distel 

Associate at Cole, Scott, & Kissane P.A 

T: +1 561 383 9205 

Email: Craig.Distel@csklegal.com 

Craig Distel is an Associate in Cole, Scott, & Kissane P.A.’s Construction Group at the West Palm 

Beach office. Mr. Distel has devoted his practice to various areas of construction including 

representation of developers, contractors, and subcontractors in construction defect, contract, 

and lien enforcement claims, as well as design professionals in professional liability claims. Mr. 

Distel earned his BA in International Affairs from The George Washington University and his JD 

from the University of Miami. 

1. Safe jurisdiction of keeping of assets 

through Cyprus IBCs triggers the 

provisions of international and bilateral 

treaties protecting investment (BITs). 

2. Double Taxation Treaties providing 

comfort to foreign governments, such 

as Russia, on issues of exchange of 

information while at the same time 

maximising tax efficiency and provide 

ample opportunities for international tax 

planning. 

3. Tax incentives created to attract new 

foreign investment through IBCs. The 

corporate tax rate is the lowest in the EU. 

4. No exchange control regulations or 

currency restrictions. 

5. Strategic location of Cyprus and excellent 

infrastructure. 

6. Highly skilled human resources and 

strong pro-business attitude of the Cyprus 

people. 

7. Cyprus is a jurisdiction which offers 

stability and security. The country has 

recently been ranked as the 5 th best 

relocation destination in the world by the 

Global Lifestyle Review. 

8. Cyprus abides by the Transparency 

Initiatives such as the US Foreign Account 

Tax Compliance Act (FACTA) and the 

OECD requirements (common reporting 

standard, which will come into effect in 

September 2017) 



9. Regulatory regime for fiduciaries 

mostly a reproduction of the 1948 Companies 

b. a company whose member’s liability 

Share Capital 

and service providers, licensed under 

Act of the UK, though extensively amended 

is limited to the amount that such 

the Cyprus Securities and Exchange 

Commission, in relation to the due 

diligence procedures, documentation, 

compliance and anti-money laundering 

procedures. 

10. Companies of substance as opposed to 

to comply with the requirements of the EU 

and the changing market. The Law applies 

to public (listed and non-listed) and private 

companies. It also contains a set of model 

articles of association, the so called “Table 

A” Regulations, which can be fully or partially 

adopted by public or private companies. 

member has undertaken to contribute 

to the assets of the company in case 

of its winding up (a “limited liability 

company by guarantee”). 

A limited liability company by shares is the 

most common form of a Cyprus company, 

There are no minimum or maximum share 

capital requirements for a Cyprus private 

company. On the other hand, a public 

company must have a minimum share 

capital of €25,630. The share capital may be 

denominated in any currency. 

mere shells. 

Legal System 

The legal system of the Republic of Cyprus is 

a blend of common law and civil law systems, 

with prominent features of common law in 

areas such as corporate law and commercial 

law, stemming from the historical fact that 

Cyprus was controlled and administered by 

the British between the years of 1878 and 

1960, before it gained its independence as a 

state. 

It should be borne in mind that other laws 

are also relevant in the incorporation and 

workings of a Cyprus company. 

For instance, the Assessment and Collection 

of Taxes Law of 1978 (L4/1978), as amended, 

provides that all newly incorporated 

companies are required to register with 

the Cypriot Tax Authorities immediately 

after their incorporation or the latest 

within 60 days from their incorporation. 

Additionally, the Prevention and Suppression 

of Money Laundering Activities Law of 2007 

whether of local or foreign interests (IBC); 

there is no distinction between them as there 

used to be at a time when the companies were 

called ‘offshore’ and ‘local’. 

Name 

When incorporating a new company, its 

proposed name must be approved by the 

Registrar of Companies (hereinafter the 

“Registrar”); the examination and approval 

or rejection of the name takes approximately 

three to six business days from the day of 

Shareholders 

A private limited liability company must 

have at least one and a maximum of fifty 

shareholders. A public company must have at 

least seven shareholders. Shares can be held 

by trustees/nominees in trust for the beneficial 

owners, thus safeguarding anonymity. 

However, the identity of the owners is made 

known to the lawyers or service providers 

administering the company for the purposes 

of the anti-money laundering legislation. 

The Republic of Cyprus acceded to the 

European Union (hereinafter the “EU”) in 

May 2004; these factors contributed to the 

formation of the current legislative framework. 

Since 2004, EU law is given supremacy over 

conflicting legislation of the member states of 

the EU. 

The law of the Republic of Cyprus is also 

premised on (i) a large body of statutory 

(L188(I)/2007) as amended, imposes Know 

Your Client (KYC) requirements in relation to 

the incorporation of a new corporate entity in 

the Republic of Cyprus. 

Incorporation of a Cyprus 

Company 

Form 

Any one or more persons in the case of a 

filing of the relevant electronic application. 

Objects and Articles of the 

Company 

Each company must have a Memorandum 

of Association setting out the objects for 

which the company is formed and Articles 

of Association, that is to say, the regulations 

for the company’s internal mechanisms of 

decision making, administration, transfers of 

Directors 

The directors are responsible for the day to 

day running of the business and operations 

of the company. The minimum requirement 

for private companies is one director, whereas 

for public companies it is two. There is no 

restriction as to the nationality of the directors 

and both physical and legal persons can be 

directors of a Cyprus company. 

legislation, (ii) a number of laws enacted by 

the British administration during the colonial 

period which, though amended in some cases 

extensively to meet the requirements and 

needs of the modern business world, have not 

been superseded, (iv) common law and (v) the 

principles of the doctrine of equity. 

private company (or seven or more in the case 

of a public company) may establish a limited 

liability company. 

A company (with Cyprus interests) or an IBC 

may either be: 

shares, and so on. 

A company may operate and be active in any 

legitimate form of trade or business provided 

that it does not act outside the scope of its 

objects; Once the name is approved by the 

Registrar, a hard copy of the Memorandum 

It should be noted that the residency of the 

directors is one of the key factors determining 

the residency of the Cyprus company. For this 

reason, it is recommended that the majority 

of the directors of the company are Cyprus 

residents. . 

Companies’ Law 

The Companies Law, Cap. 113, as amended 

(the “Law”) is the legislation which governs 

and regulates all Cyprus companies. The Law is 

a. (a) a company whose member’s liability 

is limited to the nominal value of the 

shares subscribed by that member and 

its articles restrict the right to transfer 

shares (a “limited liability company 

by shares”), or 

and Articles of Association, satisfying the 

relevant law provisions, signed by the first 

shareholders of the company along with forms 

indicating the company’s registered office 

address, directors and secretary, is filed with 

the Registrar. 

Accounts 

Directors are obliged to ensure the proper 

keeping of books of account necessary for the 

preparation of financial statements according 

to the Law. The accounts must be audited 



by qualified auditors and submitted to the 

may be used in instances where clients are 

developed through court decisions and the 

Dividends received from Cyprus companies 

Income Tax Authorities attaching a copy 

within tight timeframes and urgently need 

practice of the Department of Income Tax. 

(either resident or non-resident) or dividends 

thereof to the Annual Return filed with the 

the utilisation of a Cyprus company for a 

received from overseas companies are not 

Registrar. Consolidated financial statements 

forthcoming transaction. Any necessary 

According to current criteria, the effective 

subject to any corporate tax. Furthermore, 

on the basis of the International Accounting 

changes in relation to such companies may 

management and control of a company is 

there is no special defence contribution tax in 

Standards must be presented in the case 

be effected within a day, with the relevant 

exercised in Cyprus when the majority of 

the case of dividends received from another 

of a group of companies with subsidiary 

certificates being issued by the Registrar 

the directors are Cypriot residents, when 

Cyprus resident company, especially for 

companies. 

shortly after. 

the meetings of the board of directors of 

companies whose beneficial owner is either 

Public record 

Fees 

the company are held in Cyprus, all issues 

pertaining to the strategic and operational 

directly or indirectly not a Cyprus resident. 

Stamp duty is payable on the registration 

management of the company are resolved 

Dividends received from a non-resident 

The Cyprus corporate regime allows 

of a company and its level depends on the 

here and in general all vital decisions 

company are exempt from special defence 

transparency for all company members, 

authorized share capital of the company. 

concerning the company are made in Cyprus. 

contribution tax. 

entitling them to inspect the corporate 

Stamp duty payable is as follows: 

registers of the company. Any interested party 

Moreover, additional requirements may 

However, this exception is not granted 

may also inspect the company public records 

kept by the Registrar, upon payment of a 

prescribed fee. 

Authorized capital € Stamp duty € 

Fixed sum 105,00 

include the place of execution of documents, 

the keeping of copies of documentation and 

the place of real substance of a company 

where (a) the company paying the dividend 

is engaged directly or indirectly by more 

than 50% in activities resulting in investment 

Registrar of Companies 

Plus stamp duty of 

0.6% on the 

authorized amount 

(rather than merely having a postal address), 

all of which should be in Cyprus. Nonetheless, 

income and (b) the rate of the foreign taxation 

on the income of the company paying the 

real economic activity is required to take place 

dividend is substantially lower than the 12.5% 

The completion of the registration procedure 

Registration fees of 0.6% of the 

in Cyprus for the company to be considered a 

payable by the recipient Cyprus resident 

normally takes up to ten business days from 

aforementioned amount are also payable on 

Cyprus tax resident. 

company. When the exception does not apply, 

the day of submission of the aforementioned 

documentation. Following that, the procedure 

of incorporation of a Cyprus company is 

any share capital increase as opposed to the 

allotment and issue of new shares where no 

stamp duty is payable. For the minimization 

Exempt income 

the dividend income received from the nonresident 

company is taxed at the rate of 17% 

(20% in 2013). 

considered to be concluded and the Registrar 

of such fees, it is possible to issue shares as a 

The profits, which the tax resident Cyprus 

issues the relevant corporate certificates, i.e. 

premium, paying fees only on the basis of the 

Company may have from a permanent 

An 80% of royalty profit generated from any 

of incorporation, registered office, directors 

nominal amount of the authorised capital and 

establishment outside Cyprus, are fully exempt 

type of intellectual property right, patents 

and secretary, share capital, certificate of 

not on any premium paid. 

from any taxation, subject to some wide anti- 

and trademarks is exempt from income tax. 

shareholders and a certified original copy of 

the company’s Memorandum and Articles of 

Association. 

Corporate Tax 

abuse rules. 

In addition, any profits from the disposal of 

The remaining 20% is subject to the normal 

corporate tax rate. 

A Cyprus tax resident company is taxed on its 

titles such as shares, GDRs, ADRs, units in 

Any profits or gains made by reason of re- 

The Department of the Registrar of Companies 

worldwide income and although net profits are 

funds and repos on titles of companies and 

organisations, or the transfer of property and 

has recently launched an electronic system 

taxed at company level with a 12.5% corporate 

rights thereon, are fully exempt from any 

the transfer of shares in exchange for shares 

through which any filings or registrations 

tax rate, as mentioned above, dividends, 

corporate tax. 

in another company are exempt from income 

may be made electronically in order to avoid 

interest income, royalty income and profits, 

tax. 

unauthorised changes in the structure of 

from a permanent establishment abroad, are 

The definition of titles under the relevant 

companies. Further, the filing of Annual 

taxed under special rules. 

provisions of the relevant Cyprus tax 

There are no withholding taxes on payments 

Returns can only be done electronically from 

legislation is interpreted broadly to include, 

to non-residents in respect of dividends and 

now on. 

A company may take advantage of the 

inter alia, Profits realised from the disposal 

interest. There are also no withholding taxes 

corporate tax regime of Cyprus, if it is a 

of titles are also exempt from any capital 

on royalties arising from sources outside 

Companies which have already been 

Cyprus tax resident; a company is considered 

gains tax except when the profits relate to 

Cyprus. Royalties arising from the use of an 

incorporated in Cyprus but have not yet been 

as such when its “management and control” 

the disposal of shares of companies owning 

asset in Cyprus are subject to 10% withholding 

“activated”, also known as shelf companies, 

is exercised in Cyprus. This is a concept that 

immovable property in Cyprus. 

tax. 



Conclusion 

Cyprus’ status as an international 

business centre is regaining its reputation 

and trust after having been severely 

wounded by the banking crisis of 2013. 

The country is recovering at a surprisingly 

fast pace following major restructuring in 

the banking sector, the creation of new tax 

incentives attracting foreign investment 

and other reform which is underway. 

The Cyprus companies are gaining 

greater popularity over other jurisdictions 

and will be preferred by international 

serious organisations and foreign 

investors. 

Computer-Implemented Inventions: 

Searching for Certainty In the Wake of the 

U.S. Supreme Court’s Alice Decision 

by Beverly Hjorth, 

Lin Hymel 

Lia Iordanou Theodoulou 

Head of the Corporate Finance Department at Patrikios Pavlou 

& Associates LLC 

T: +357 25 871599 

Email: liordanou@pavlaw.com 

Lia received her LLB from the University of East Anglia, UK and she is a Barrister-at-Law of Gray’s Inn. 

She is listed in key legal directories as a leading practitioner “attesting to detail” and having “extensive 

experience and documentation skills”. Focussing on cross-border transactions, Lia advises major 

international banks, borrowers and multinational corporations. She is a member of several bodies, 

including the International Bar Association, the Honorable Society of Gray’s Inn and STEP. She is the 

author of several articles on financial and commercial law matters, corporate, real estate and trusts 

and has participated and spoken in seminars and conferences in Cyprus and abroad. 

Elena Georgiou 

Advocate-Legal Consultant at Patrikios Pavlou & Associates LLC 

T: +357 25 871599 

Email: egeorgiou@pavlaw.com 

Elena received her LLB from University of Kent in 2009 and then she continued her studies to 

obtain an LLM in Law from King’s College London. After her studies in the UK, she returned to 

Cyprus and she was admitted to the Cyprus Bar the following year. She specialises in corporate, 

commercial and banking law matters, as well as matters of corporate finance and advises clients 

on a wide range of finance transactions, including inter alia asset and acquisition financing, as 

well as mergers, acquisitions and corporate restructurings. Elena is fluent in Greek and English. 

There has been much negative publicity about patenting computer-implemented 

inventions since the U.S. Supreme Court’s decision in Alice 

Corp. v CLS Bank Int’l (573 U.S. __ (2014)). 

In Alice, the Court struck down claims directed 

to a computer-implemented business method 

as not being eligible for a patent. The Supreme 

Court has long recognized that laws of nature, 

natural phenomena, and abstract ideas are not 

patent eligible. 

A major concern of the Court is that the claims 

not preempt others from using “basic tools of 

scientific and technological work.” (Association 

for Molecular Pathology v. Myriad Genetics 569 

U.S., __ (2013)). The Court in Myriad set forth 

a two-step analysis to find in the claims an 

“inventive concept,” described as “an element 

or combination of elements that is ‘sufficient 

to ensure that the patent in practice amounts 

to significantly more than a patent upon the 

[ineligible concept] itself.’” 

The claims at issue in Alice involved what 

the Court described as “the abstract idea of 

intermediated settlement.” The Court relied on 

a treatise from 1896 to support its conclusion 

that the concept of intermediated settlement 


IP Article 

was a long-standing and fundamental economic 

practice. Providing little guidance, however, the 

Court stated: “In any event, we need not labor 

to delimit the precise contours of the ‘abstract 

ideas’ category in this case.” 

The Court gave only two useful clues to define 

an “inventive concept” that is “significantly 

more” than an abstract idea. These clues are 

that the claims at issue in Alice do not “purport 

to improve the functioning of the computer 

itself” or “effect an improvement in any other 

technology or technical field.” The goal of this 

article is to provide more useful clues as to 

which computer-implemented inventions are 

patent eligible and which are not. 

Recent Cases Illuminating the Alice 

Holding 

In the aftermath of Alice, many patents directed 

to computer-implemented inventions have been 

invalided by district courts, often on motions 

In attempting to determine whether an abstract 

idea was being claimed, the Federal Circuit 

listed some principles set forth by the Supreme 

Court: 

“We know that mathematical algorithms, 

including those executed on a generic 

computer, are abstract ideas. … We know that 

some fundamental economic and conventional 

business practices are also abstract ideas.“ The 

Federal Circuit listed a number of specific cases 

in which the claims were not patent eligible, 

all of which fall into the “business method” 

category. 

Concerning these cases, the Federal Circuit 

stated: “Although many of the claims recited 

various computer hardware elements, these 

claims in substance were directed to nothing 

more than the performance of an abstract 

business practice on the Internet or using a 

conventional computer. Such claims are not 

patent eligible.” 

challenges are eligible for patent.” 

However, the claims that survived the patent 

eligibility challenge in DDR Holdings “specify 

how interactions with the Internet are 

manipulated to yield a desired result—a result 

that overrides the routine and conventional 

sequence of events ordinarily triggered by 

the click of a hyperlink.” These claims also do 

not preempt “every application of the idea of 

increasing sales by making two web pages look 

the same.” 

Autoform Engineering GmbH v. 

Engineering Technology Associates, 

Inc., Case No. 10-14141 (E.D. Mich. 

2014) 

The claims related to software used to 

design tools for forming sheet metal parts. 

he defendant had alleged that the claims 

were directed to merely performing a mental 

process. 

8. the profile parameters being scalar 

values; 

9. laterally interconnecting the sectional 

profiles by a continuous surface to form 

the geometry of the addendum zone of 

the tool; and 

10. where the addendum zone complements 

the component geometry in the edge 

zone and runs into the component and 

the binder with a continuous tangent. 

Because of these claim features, the 

patent in question was found to cover 

more than merely an abstract idea. 

Helios Software, LLC and Pearl 

Software, Inc., v. Spectorsoft 

Corporation, C.A. No. 12-081-LPS 

(D.Del. 2014) 

The claims in question were directed to 

“remotely monitoring data associated with 

an Internet session and controlling network 

access.” 

to dismiss, before any claim construction has 

occurred. The U.S. Patent and Trademark Office 

(“USPTO”) also has been rejecting many more 

claims as patent ineligible in the wake of Alice. 

It will take quite a while before decisions 

Turning to the claims at issue in DDR Holdings, 

the court noted that the claims did not include 

“a mathematical algorithm or a fundamental 

economic or longstanding commercial 

practice.” 

However, in denying a motion for summary 

judgment, the court listed a number of 

limitations in the claims that narrowed the 

scope of the patent away from covering merely 

an abstract idea or reciting a mental process 

The court upheld the patent eligibility of the 

claims, noting that no evidence was provided to 

show that the claims at issue were fundamental 

truths or principles that would preempt basic 

tools of research. 

of the district courts and the USPTO make 

their way to the Federal Circuit, from whom 

we can only hope for greater predictability. 

Nevertheless, there are already some cases at 

the district court level, and one by the Federal 

Circuit, in which patents have survived Alice 

Importantly, the court stated: “Although the 

claims address a business challenge (retaining 

website visitors), it is a challenge particular to 

the Internet.” 

In particular, the court observed the following 

claim limitations as examples of specific 

features that were not mere mental steps: 

1. smoothing an irregular component edge; 

2. filling in a fill surface; 

The court pointed out that the defendant had 

failed to prove that the remote monitoring 

of data and controlling network access were 

“fundamental to the ubiquitous use of the 

Internet or computers generally.” 

determinations. These cases provide useful 

insights to guide ongoing patent preparation. 

DDR Holdings, LLC v. Hotels.com 

L.P., No. 2013-1505 (Fed. Cir. 2014) 

DDR Holdings involved claims directed to 

“generating a composite web page that 

combines certain visual elements of a 

‘host’ website with content of a third-party 

merchant.” 

The court continued: “These claims stand 

apart because they do not merely recite the 

performance of some business practice known 

from the pre-Internet world along with the 

requirement to perform it on the Internet. 

Instead, the claimed solution is necessarily 

rooted in computer technology in order to 

overcome a problem specifically arising in the 

realm of computer networks.” 

The court cautioned that “not all claims 

purporting to address Internet-centric 

3. forming a smooth component edge; 

4. where the fill surface runs into the 

predefined component geometry by a 

continuous tangent; 

5. arranging sectional profiles along the 

smooth component edge; 

6. avoiding an overlap or intersection 

condition between sectional profiles; 

7. parameterizing the sectional profiles by 

the means of profile parameters; 

The court also found that the claims satisfied 

the “machine or transformation test” because 

of meaningful limitations recited in the claims, 

including exchanging data over different 

Internet sessions to capture the content of an 

ongoing Internet communication session (i.e., 

real-time data capture and transmission). It was 

important to the court’s decision that a human 

alone could not perform the claim limitations, 

because the claimed method was tied to a 

machine. 


IP Article 

Card Verification Solutions, LLC v. 

Citigroup Inc., No. 13 C 6339 (N.D. 

Ill. 2014) 

The court held that there was a plausible 

reading of the claims under which they 

contained eligible subject matter. While the 

claims were directed to the abstract idea of 

verifying a transaction, they contained sufficient 

additional recitations to be considered patent 

eligible at the motion to dismiss stage. 

The court noted several relevant features. 

The claims included a limitation for a 

pseudorandom number and character 

generator, and a factual question remained 

as to whether a human could perform this 

limitation with pen and paper. 

By adding a new subset of numbers or 

characters to data, the claims were directed to 

more than merely manipulating, reorganizing 

or collecting data. Even though there was no 

physical transformation of matter, the claimed 

invention plausibly produced a concrete effect 

in the field of electronic communications. 

USPTO Guidance and Examples 

On December 16, 2014, USPTO published 

its 2014 Interim Guidance on Patent Subject 

Matter Eligibility (Fed. Reg. Vol. 79, 74618). The 

Guidance is based in part on the Alice decision, 

and lays out an analytical framework for use by 

patent examiners to determine whether a claim 

is directed to patent eligible subject matter. 

According to that framework, the examiner first 

determines whether a claim is “directed to a 

judicial exception” such as a law of nature, a 

natural phenomenon, or an abstract idea (the 

issue in Alice). Next, the examiner must identify 

how the judicial exception is recited in the claim. 

Finally, for method claims (the type most 

relevant to computer-implemented inventions), 

the examiner must determine whether or not 

the claim is directed to “significantly more” 

than the judicial exception (i.e., whether the 

claim recites significantly more than merely 

implementing an abstract idea on a computer). 

Only if it does is the claim directed to patent 

eligible subject matter, for purposes of patent 

examination. 

The Guidance provides a number of sample 

analyses. Example 6 describes the Alice case. 

In that example, consistent with the Supreme 

Court holding, USPTO concludes that the claim 

does not recite significantly more than an 

abstract idea, because the steps performed 

are directed to mere electronic recordkeeping 

(including obtaining data, adjusting account 

balances, and issuing automated instructions), 

which is “one of the most basic functions of a 

computer.” 

The Guidance also reviews a number of past 

Supreme Court decisions and recent lower 

court decisions regarding abstract ideas. The 

following cases from the USPTO Guidance 

provided a holding of patent eligibility for 

computer-implemented inventions. 

SiRF Technology v. ITC, 601 F.3d 1319 

(Fed. Cir. 2010) 

The claims at issue are directed to mathematical 

calculations of position using data obtained 

from a GPS receiver and signals generated 

by at least four satellites. Because the claim 

recites the use of a GPS receiver, which places 

a meaningful limit on the scope of the claim 

and plays a significant part in performing the 

method, the claim is directed to significantly 

more than the abstract idea behind the 

calculations and is patent eligible. 

Research Corp. Tech. v. Microsoft 

Corp., 627 F.3d 859 (Fed. Cir. 2010) 

The claims are directed to digital image 

halftoning, which allow computers to represent 

images with a limited number of colors or 

shades of gray. The method involves the use 

of algorithms and mathematical formulas 

(i.e., abstract ideas). However, the claims were 

considered patent eligible because, according 

to the Guidance, “the invention presents 

functional and palpable applications in the 

field of computer technology with specific 

applications or improvements to technologies 

in the marketplace.” 

Conclusion 

Accordingly, when drafting patent 

applications for computer-implemented 

methods, some principles to keep in mind 

are: 

Beverly Hjorth 

Counsel at McLane Law Firm 

T: +1 781 904 2715 

Email: beverly.hjorth@mclane.com 

Lin Hymel 

Director at McLane Law Firm 

T: +1 781 904 2700 

Email: lin.hymel@mclane.com 

• Control the definition of the “inventive 

concept” so as to include substantially 

more than computer implementation of an 

abstract idea 

• Ensure that the claims have sufficient 

specificity to preclude preemption of any 

relevant abstract idea 

• Improve the functioning of a computer 

itself, if applicable 

• Effect an improvement in another 

technology or technical field, if applicable 

• Where possible, draft claims that tie the 

claimed method to a machine that is more 

than a general purpose computer. 

Beverly Hjorth is Of Counsel with McLane Law Firm and specializes in mechanical engineering, environmental 

engineering, materials, medical devices, optics, manufacturing, and structural and civil engineering. 

Prior to attending law school, she was a Patent Examiner with the U.S. Patent and Trademark Office 

examining patent applications in a mechanical art unit. She received her B.S. in Civil Engineering from Lehigh 

University, her M.S.E. in Civil Engineering from Princeton University and her J.D. from Boston University School 

of Law. 

Lin Hymel is a Director with McLane Law Firm and specializes in patent prosecution, licensing, and opinions 

on patent validity, patentability, and patent infringement, pertaining to biotechnology, pharmaceuticals, 

chemistry, materials science, medical devices, nanomaterials , polymers, and semiconductor materials. 

Dr. Hymel was an academic scientist at Tulane Medical School and a Scientific Review Administrator at the 

National Institutes of Health. He earned a Ph.D. in Molecular Biology from Vanderbilt University and his J.D. 

from Georgetown University Law Center. 


Company Formations - Lawyer Issue 

Company Formation in 

COSTA RICA 

Bank in order to be able to repatriate 

after the funds to the country of origin. 

Costa Rica enforces, however, the policies 

known as “Knowing Your Client” prevailing 

in recent years in banking transactions. 

and with due anticipation. 

4 

Corporate Structure. Two 

alternatives of local legal entities are 

primarily being used in Costa Rica: 

by Miguel Ruiz Herrera 

2 

Real Estate Ownership by 

Foreigners using a company as 

vehicle: 

Foreigners (companies or individuals) have 

the same rights as nationals regarding 

ownership of titled land. Therefore the 

5 

6 

Corporations (Sociedad 

Anónima); 

Limited Liability Companies 

(Sociedad de Responsabilidad 

Limitada); 

transfer of land to foreigners is not 

subject to any limitations whatsoever. 

Incorporation usually takes two to three 

weeks, unless a new procedure using 

However, the first 200 meters of 

oceanfront property (known as 

“terrestrial-maritime zone”) do 

formation by Internet is selected. In this 

case, the Public Registry will register the 

company in 24/48 hours. 

have limitations in terms of ownership 

and foreign ownership. 

6.1 

Corporations. 

Part of that strip may be given under 

“Sociedad Anónima” -our type of 

a “concession right” and there are 

legal entity that is closer to common law 

limitations to foreigners. If a company, 

Corporation- is mostly used for business 

disclosure of ownership of the shares is 

purposes given their structural flexibility. 

required and therefore, attorneys have 

It must be formed by at least two parties. 

to be creative to reflect as owner a very 

However, immediately after formation a 

specific type of trust. A normal trust will 

single party may own all the stock. 

not solve the problem. If needed, please 

contact us and we will give you details 

Shareholders may be physical individuals, 

of the legal manner to achieve such 

legal entities or a combination thereof, 

Formation of companies is similar or predictable in most countries. 

Moreover, a simple consultation with the local attorney will clear the 

basic issues. Thus, I prefer to highlight here issues that will be more 

profitable for the reader. 

3 

ownership. 

Private Property: 

Section 45 of the Constitution provides 

that private ownership of property cannot 

be violated. It cannot be taken away, 

except in case of public interest in which 

regardless of citizenship and domicile. 

The legal corporate structure must 

meet the following basic requirements: 

• Company Name. It must consist of 

a word or a number of words with or 

1 

Limited restrictions for 

foreigners: Costa Rica does not 

differentiate between foreigners and 

However, certain limited restrictions 

do apply and refer mainly to oil refinery 

(state monopoly) and in private 

case local expropriation laws shall apply. 

As part of the actions to receive the 

compensation for the land that will be 

without a meaning as long as it is not 

deemed generic. It could also be just 

a number. It should be different than 

any one previously registered. The 

locals. Constitutionally, foreigners and 

generation of electricity (a minimum 35% 

subjected to expropriation, if the avenue 

company name must be followed by 

nationals are both entitled to the same 

rights and obligations. Therefore, a 

of Costa Rican equity is required). 

of an international arbitration is selected, 

ownership by foreigners of the shares of 

the words “Sociedad Anónima” or 

“S.A.” (“Incorporated” or “Inc.”), 

foreign individual or company can operate 

Costa Rica does not require registration 

the company that appears as owner of the 

identifying the nature of the business 

without restrictions. 

for the arriving capital with the Central 

concerned land has to be well established 

entity. 



• Legal Domicile. Besides its local 

and Treasurer. Additional Board 

• Preferred Shares and Shareholders. 

Unless specially provided otherwise in 

domicile, agencies and branches may 

members may be appointed at will. 

Preferred shareholders (if so agreed 

the Articles of Incorporation, transfer 

be created to carry out activities in 

Foreigners and non residents are 

at the bylaws) may hold Special 

of “quotas” may only be performed 

or out of the country. Companies are 

entitled to be directors. 

Shareholders’ Meetings. . 

with the unanimous consent of all 

allowed to carry out business all over 

partners;. 

the world. 

• President. The President has full 

• Quorum rules are applicable for all 

powers of attorney. However, other 

above mentioned meetings. 

• Management: Ltds are directed by 

• Company Term of Existence. A 

director or directors, as well as 

one or more managers (no Board of 

fixed term must be determined at 

managers and outside individuals, 

• Statutory Examiner. Companies 

Directors). 

will. This term may be shortened or 

extended also at will and convenience. 

may hold powers of attorney of any 

kind to act individually or jointly 

may appoint one or more “Fiscals” 

(Statutory Examiners) to exercise 

• Statutory Comptroller: The “fiscal” 

It generally ranges between 50 and 99 

on behalf of the company. These 

comptroller functions and ensure 

is not required in the case of Ltd’s. 

years. 

powers of attorney may be limited or 

that all corporate rules and statutory 

restricted by several means to meet 

obligations are duly and adequately 

Ltds’ legal structure is in accordance 

• Company Purpose. As opposed 

to other jurisdictions where 

comprehensive, meticulous and 

the company’s internal controls. 

• Board Members. Those are 

met. 

• Dissolution and Liquidation. 

with the United States concept of 

“Partnerships” and thus they qualify as 

such for U.S. tax purposes as having flow 

lengthy descriptions of the company 

appointed by the Shareholders’ 

Upon expiration of the legal term or 

through status. 

purpose are required, business 

meeting. Appointments thereof 

before, or given certain circumstances 

purpose and local activities are 

are for fixed time periods at will, in 

(achievement of its Corporate Purpose 

Branches of Parent Company. 

broadly implied in the law. Thus, 

accordance with provisions thereto in 

or impossibility therewith, or definitive 

simple and general provisions thereto 

the Articles of Incorporation. 

loss of 50% of its Share Capital unless 

In addition, foreigners may conduct 

are sufficient, although detailed 

the shareholders agree to replace 

business in Costa Rica through branches 

descriptions are also allowed. 

• Board resolutions. Board resolutions 

it), companies shall dissolve and a 

of their parent company provided that the 

are valid when taken with the vote of 

subsequent liquidation procedure 

following requirements are duly met: 

• Share Capital. Necessarily a fixed 

at least half of its members. Quorum 

shall be performed wherein remaining 

amount and divided into common 

rules may be further elaborated. 

assets are distributed among the 

• Appointment of a representative with 

par value shares, each entitled to one 

Board meetings may be held legally 

shareholders. 

full powers of attorney; 

vote at shareholders meetings. Shares 

in any location outside the country 

must be registered (nominative) 

when so provided for in the Articles of 

• Legal Books and Records. 

• Indication of: 

since local regulations do not allow 

Incorporation. . 

Companies must carry Legal Books 

bearer, neither non-par value shares. 

(accounting, including the Journal, 

◊ Corporate Purpose of the Branch 

Shares are freely transferable unless 

• General Ordinary and Special 

General Ledger, and Financial 

and such of the Parent; 

limited in the Articles of Incorporation 

Shareholders’ Meetings. These are 

Statements, and the legal records, 

(i.e. Right of First Refusal) and may 

for two basic purposes: i) Ordinary: 

including the Shareholders’ Registry, 

◊ Share capital of the Parent and a 

be issued as single units or as stock 

meets once a year to discuss 

the Minute Books for Shareholders’ and 

Capital assigned to the Branch 

certificates thereof. Other kinds of 

and approve (or disapprove) the 

Board Meetings). 

shares (such as preferred shares) 

may be issued with the privileges, 

restrictions, limitations and rights 

outcome of the previous business 

year; distribution of earnings; 

appointments; and any other 

6.2 

Limited Liability Company (Ltd). 

◊ Full names of the officers and 

managers of the Parent 

agreed upon by the shareholders, all 

matters provided for in the Articles 

General characteristics as well as 

◊ Legal term of the Parent 

of which must be set forth within the 

of Incorporation; ii) Special: meets at 

incorporation procedures are very 

Company. 

Articles of Incorporation. 

any time during the year to approve 

similar to those of sociedad anónima, the 

amendments, if any, to the Articles 

differences being: 

• Formal statement accepting that the 

• Board of Directors. An “SA” must 

of Incorporation and all those other 

Representative and the Branch shall 

have a Board of Directors with a 

provided for at the law and the 

• Share Capital: Ltds divide their share 

be subject to Costa Rican laws and 

minimum of three individuals holding 

the positions of President, Secretary 

Articles of Incorporation. 

capital in what local regulations call 

“quotas” as opposed to shares. 

jurisdiction inasmuch as concerns 

those acts performed or executed 



within Costa Rica. 

operations -provided that goods do 

operations of the local company vis a 

the advising given by tax counselors 

not enter into Costa Rica- even with a 

vis those of the parent company, the 

from the country of the parent 

Participation in trade agreements: 

contract having the situs in Costa Rica, 

tax obligation would be assessed on 

company. 

Foreign companies operating in Costa Rica 

negotiated in Costa Rica, etc. 

the operations conducted locally. This is 

(and local companies controlled by foreign 

similar in the case of the branch: Costa 

A final remark: Costa Rica does not 

interests) are allowed to be treated as a 

“domestic company” (rules of origin, 

• Profits accumulated in Costa Rica, 

when sent back abroad, might be 

Rica would not impose a tax on the 

activities of the parent outside Costa 

differentiate much from other civil law 

countries and has its legal structures 

etc.). 

subject to a 15% withholding tax, 

Rica. 

operate without difficulties with other 

unless the company profits from 

systems of law. 

International Arbitration: International 

exemptions. Costa Rica also has an 

• Differences not dramatic: 

conventions usually allow local companies 

elaborated system of tax exemptions 

As in every country, there might be issues 

owned or controlled by foreign interests 

for other activities (manufacturing for 

As you see, the differences may not be 

that will need to be consulted and solved to 

to be classified as a foreign entity for the 

export, exporting services, assembly for 

significant. Therefore, in most cases the 

avoid unfortunate consequences along the 

application of such agreements and, thus, 

export, etc.) 

decision is finally taken based on the 

operation of the selected entity. 

becoming eligible to use them in their 

issue of separation of accounts, under 

favor and benefit from their jurisdiction 

Comparison between a Branch and a 

rules (these agreements are intended 

Costa Rican company: 

generally to address differences between a 

contracting party -a country - and a national 

This section intends to give a brief 

of another contracting party - another 

comparison between incorporating 

country). 

a company here, versus registering a 

branch of a company incorporated or 

General Tax Considerations: 

organized abroad: 

• According to Section 1st. of the 

• Tort Suits Liability: 

Income Tax Law of Costa Rica (Ley de 

Impuesto sobre la Renta), # 7092 of 

In Costa Rica, tort suits do not 

April 21, 1988, income tax in Costa 

have the relevance neither the 

Rica, which for companies has a 

economical importance achieved in 

maximum rate of 30%, is assessed 

other countries. However, you may 

only over income or profits originated 

consider reducing risks by creating an 

from Costa Rican sources, and defines 

independent corporate entity. 

such as those originated from services 

rendered, goods located, or capitals 

Despite the fact that piercing the 

employed in the territory of Costa 

corporate veil is still possible (though, 

Rica. 

very rare), such entity –with whom 

the parent company contracts 

• Its Section 6th. provides that 

for production– permits a better 

income generated from contracts, 

agreements, negotiations over goods 

approach, limiting the responsibility 

of the parent. This seems to be also 

Miguel Ruiz Herrera 

or capitals located abroad are not 

part of the taxable income, even if 

beneficial from the standpoint of 

product liability in the foreign country. 

Member at Lex Counsel 

the respective contract, agreement or 

T: +506 2201 0301 

negotiation was entered into, totally 

or partially, in Costa Rica. Therefore, 

• Marginal Tax Advantages: 

Email: mruiz@lexcounsel.com 

you can have tax free trading 

With a clear a separation between the 


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