EURO-AMERICAN LAWYERS GROUP, EALG BRIEFING

The privacy rights of celebrities were given a boost this July when Princess Caroline of Monaco won a legal battle in the European Court of Human Rights to stop German magazines publishing pictures of her going about her daily life.

The court ruled that pictures of Princess Caroline breached Art 8 of the European Convention of Human Rights (ECHR) - the right to respect for private life - even though they were taken in public places, as they were not in the public's "legitimate interest". The ECHR became part of British law in 2000, and English judges must take heed of rulings from the European court.

Early indications that the UK courts are acquiescing to Europe were given this July when Noami Campbell won her libel case against the Daily Mirror for being photographed outside a drugs clinic.

For further details, please contact David Walton, Partner, Ricksons Solicitors, Manchester, England, david.walton@ricksons.co.uk; http://www.ricksons.co.uk

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ESTONIA

CORPORATE PROFITS TAX EXEMPTION IN ESTONIA NOT CHANGED BY ACCESSION TO THE EUROPEAN UNION

The Income Tax Act in force since January 1, 2000 exempted from corporate tax undistributed profits of a company resident in Estonia and a non-resident company having registered its permanent establishment in Estonia. The goal of the new regulation was to encourage foreign and domestic investments and thus contribute to the Estonian economic situation.

As of May 1 2004 Estonia is one of the ten new member states of the European Union and EU Law is applicable in full extent.

According to article 5 (1) of the Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (the Parent-Subsidiary Directive) profits which a subsidiary distributed to its parent company shall, at least where the latter holds a minimum of 25 % of the capital of the subsidiary, be exempt from withholding tax.

Taken account the broad interpretation given by the European Court of Justice (e.g. Case C-294/99.Athinaïki Zythopoiia AE v Elleniko Dimosio) to the aforementioned article there was a threat of amending the present corporate tax system of Estonia.

However, the accession agreement concluded on April 16, 2003 gave Estonia a derogation from article 5(1) of the Parent-Subsidiary Directive according to which Estonia may continue to apply taxation of profits distributed by Estonian subsidiaries to their parent companies established in other Member States on the condition that income tax on distributed profits is charged without taxing undistributed profits. The derogation is effective until December 31, 2008.

Therefore, investments to Estonia can still take the advantage of the current corporate tax system whereby undistributed corporate profits remain exempted from tax. It is hoped in Estonia that the current derogation will be extended after 2008.

For further information, please contact: Helmut Pikmets, Attorney-at-law, Partner, Advokaadibüroo Paul Varul,tallinn@varul.ee, www.varul.ee

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THE NETHERLANDS

DUTCH ENERGY COMPANIES SOUND THE ALARM

On 31 March 2004, the Dutch Minister of Economic Affairs, Mr. R.J. Brinkhorst, detailed his vision on the future of the Dutch electricity market. This was done at the urgent request of the Dutch Parliament, because all users have the right to choose their own energy providers as of 1 July 2004.

The principle of free market dynamics has been laid down in a number of European Directives, directives which the Netherlands, being a EU member state, has to comply with, too. The latest directive dates from 2003. In these directives the EU member states are obliged to make a legal separation between the network operators and the sales companies, and to create an institution that monitors this.

Network operators basically means the infrastructure, the cables that carry the electricity, and the sales companies are those parts of the energy providers that make money by selling electricity.

The latest European directive is not specifically intended for the Netherlands, but more particularly, for countries such as Germany and France. The Netherlands already has an independent organisation that monitors the network companies, the DTE, and the legal separation has also taken place. The energy companies are the owners of the network companies.

What does the Dutch Minister of Economic Affairs wish to achieve?

Briefly: a total separation between the network companies and the sales companies. In his opinion, there are doubts about the independence of the management of the energy network companies. These network companies are so crucial for the supply of energy that their independence must be absolutely guaranteed. In addition to that it is the Minister's opinion that the network companies must be owned by public entities. Suppliers can be privatised.

The Minister feels that at the moment, imperfect competition between the network companies and the sales companies leads to advantages, cross subsidies even, since both companies are parts of holdings. That is highly undesirable and leads to reduced competition. The vision of the current energy companies is the other side of the argument. The Netherlands has ± 16 million inhabitants, and more than 90% of them receive their electricity from 3 large companies, namely Essent, Nuon and Eneco. They utterly opposed to the Minister's viewpoint.

Firstly, the Minister's intended total unbundling is not suitable in Europe. Not one country will go that far, and also, it is absolutely unclear whether the energy market will develop into that direction. Further, this implies – which is also acknowledged by the Minister – a total dismantlement of Dutch energy companies. The most substantial and valuable element of the companies are the networks. They are worth billions. If unbundling is to take place, the ownership must be split, and simply put, that means that only sales companies will remain. The value that they represent is so small that they will fall victim to foreign companies.

That very point is currently being discussed in the Netherlands. The Minister's intentions have not materialised in laws yet, but that is to be expected by the end of 2004.

It may be clear that Dutch energy companies are totally opposed to the Minister's plans. In their opinion the connection of network operators and sales companies within a holding brings the advantages of synergy, which will eventually also be a benefit for the customers.

The DTE is quite capable of exercising proper control over the energy companies. And that indeed is the intention of the European directive.

Moreover, this would mean the end of Dutch energy companies. Looking at Europe, the Minister estimates that in the future 6 or 7 large players will remain, and that there is no place for Dutch companies. This is vigorously challenged by these Dutch companies. They feel that they should be given the opportunity to prove themselves in the European market. Now the situation that is created will be irreversible, while there is no European level playing field at that.

At the moment, they are joining forces.

For further information, please contact Jan Hermes, Partner, De Voort Hermes De Bont, Tilburg, Holland J.Hermes@devoort.nl; http://www.devoort.nl

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SCOTLAND

SCOTTISH REVIEW OF GREEN BELT PLANNING POLICY

The Scottish Executive has announced the first review of Green Belt planning policy since 1985. Green Belts are designated areas on the outskirts of UK towns and cities where development is restricted by planning authorities. According to the Executive, the review is being undertaken as a result of the changes in the development pressures facing Green Belts.

The Executive had commissioned research on various options in terms of reform of the Green Belt system, including scrapping them altogether. However, Communities Minister, Margaret Curran does not see this as a viable option, and intends to focus upon the means by which Green Belts can be strengthened. While the announcement has so far received a cautious welcome from environmental groups, the move is likely to cause concern among developers, many of whom view Green Belt land as providing a much needed source of land to satisfy the high level of expected demand for new homes over the next decade.

A new Green Belt planning policy is to be prepared by the Executive, with a draft expected by Spring 2005.

For further information, please contact Biggart Baillie, Glasgow and Edinburgh, Scotland and ask for David Ross, dross@biggartbaillie.co.uk; Alasdair Peacock, apeacock@biggartbaillie.co.uk; or David Jefferies, djefferies@biggartbaillie.co.uk, http://www.biggartbaillie.co.uk.

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SPAIN

THE SPANISH HOLDING COMPANY: INTERNATIONAL ADVANTAGES

Holding Companies in Spain ("ETVES") were introduced in 1996 with the aim to help the internationalisation process of the Spanish economy. In order to attract foreign capitals and companies, the legal regime for the ETVES has been modified thereafter and presently constitute the most effective Tax instrument to channel movements of capital outside the EEC: there are the only EU Holding Companies not subject to special Tax regimes, authorised to distribute dividends to non-resident shareholders without any withholding tax whatsoever (in contrary to other EU countries where dividend distribution is subject to at least 5% withholding Tax).

The Spanish ETVES are at par condition with other Holding Companies when not at an advantage. Some of the advantages (subject to certain criteria being met) of the General Tax Regime of the ETVES are listed below:

- Total exemption for dividends from CIT ("Corporate Income Tax").
- Participating companies are exempt from capital gains arising out of transfer of shares.
- Exemption in capital gains arising out of transfer of shares in the ETVE, liquidation of the holding company or purchasing the participation from a shareholder, when the rents are perceived by a non-resident corporation.
- Acquisition and/or maintenance related costs and all interests derived from financing the acquisition of the participation are deductible.
- Deductibility of depreciation in the value.
- Contribution of shares of non-resident companies to the share capital of ETVE is exempt of Stamp Duty.

The application of the regime does not require obtaining a ruling from the Tax authorities. The ETVES meet the requirements established in Directive 90-335-EEC on parent-subsidiary companies.

Whilst the use of ETVES in the international scene has been relatively slow in its growth, nowadays the trend is accelerating, providing groups which use it with a competitive edge over their competitors.

For further details, please contact Javier Sans Roig, Partner, Bufete Roig Aran, Barcelona, Spain, E-mail: bra.bcn@bra.es or js@bra.es

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UNITED KINGDOM

HOME WORKING: DANGERS AND OPPORTUNITIES FOR EMPLOYERS

Employers are increasingly likely to be faced with requests from workers to carry out some or all of their duties from home.

There is no automatic right for employees to work from home, but certain employees are afforded statutory protections. Employees with specific parental responsibilities can apply for flexible working arrangements, which could cover working form home, at which point the employer must follow a statutory procedure to consider and discuss the request (Employment Rights Act 1996, Flexible Working (Procedural Requirements) Regulations 2002 and Flexible Working (Eligibility, Complaints and Remedies) Regulations 2002).

A refusal to allow home working could constitute indirect sex discrimination, if it has a disproportionate effect on one sex, or disability discrimination if home working would constitute a reasonable adjustment by the employer under the Disability Discrimination Act 1995 to prevent the disadvantage suffered by a disabled employee.

Employers should therefore provide for a trial period in which to assess whether the home working arrangements are working with a right to require the employee to revert to office work at the end of the trial period if the arrangements are not satisfactory. Employers may wish to go further and include a right to require the employee to revert to office work on request, long after the end of the trial period: this may prove difficult to enforce in practice.

For further details, please contact David Walton, Partner, Ricksons Solicitors, Manchester, England, david.walton@ricksons.co.uk; http://www.ricksons.co.u

DIRECTORS AND AUDITORS: LIMITATIONS ON LIABILITY

The UK Government has decided not to introduce a cap on company directors’ financial and legal liability until after the next election, which is expected to take place next Spring.

Executives are keen to see their liability limited by statute to protect them against actions by shareholders, such as the £3.2 billion lawsuit against the board of Equitable Life. Business leaders claim that the lack of protection for directors may discourage individuals from accepting board positions for fear of unlimited liability. It is thought that Ministers are minded to support proposals to limit directors liability, but are not willing to commit to such a pro-executive policy in the run-up to a general election.

The accountancy profession is seeking similar protection, particularly in light of the £2.6billion claim against Ernst & Young by policyholders of Equitable Life. The profession wants to see an amendment to the UK Companies Act which would remove the prohibition on firms carrying on audit business from agreeing liability caps with clients. It is understood that the profession is involved in last-minute talks with the Trade Secretary to have such an amendment placed in the current Companies Bill before 7 September, which is the final date for insertion of amendments to the Bill.

For further information, please contact Biggart Baillie, Glasgow and Edinburgh, Scotland and ask for David Ross, dross@biggartbaillie.co.uk; Alasdair Peacock, apeacock@biggartbaillie.co.uk; or David Jefferies, djefferies@biggartbaillie.co.uk, http://www.biggartbaillie.co.uk.

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UK IMPLEMENTATION OF EU DIRECTIVE ON DISTANCE MARKETING OF FINANCIAL REGULATIONS

The UK Government has published Regulations designed to implement the EU Directive on the Distance Marketing of Consumer Financial Services. The new Regulations cover the marketing of such products as pensions and mortgages by telephone, email or online, and follow a similar format to the Distance Selling Regulations currently in place in relation to other types of goods and services.

The main focus of the new Regulations relates to the disclosures that must be made to the consumer in advance of conclusion of the distance contract. For example, the consumer must be provided with information in connection with the total price of the contract, rights of withdrawal and rights of redress.

The Regulations are due to come into force on 31 May 2005 in relation to activities that are regulated by the UK Financial Services Authority in terms of the Financial Services and Markets Act 2000 (for example pensions, investments and insurance), and 31 October 2004 for all other activities.

PUBLICATION OF FIRST INTELLECTUAL PROPERTY CRIME POLICY

A national strategy designed to deal with intellectual property crime has been published by the UK Government. The strategy has been developed by the Patent Office, and is aimed at combating the trade in counterfeit goods. In particular, the strategy will increase the information sharing and coordination between government agencies, and provide increased training for those involved in combating IP crime.

The strategy has been welcomed by industry leaders, who estimate that counterfeiting and piracy cost the UK economy £10billion and 4,000 jobs last year alone. The strategy can be viewed as part of an increasing focus by government on protecting the rights of IP holders at both a UK and European level, particularly in light of the new IP Enforcement Directive which was passed earlier this year.

ADVERTISING STANDARDS AUTHORITY TO HEAR ALL ADVERTISING COMPLAINTS

It has been announced that the Advertising Standards Agency will take responsibility for handling complaints in relation to advertising from 1 November 2004, regardless of the medium in which the advert appears. This will effectively create a “one-stop shop” for advertising standards in the UK for the first time.

Until that time, OFCOM will continue to deal with complaints relating to television and radio advertising, with the Advertising Standards Agency regulating adverts appearing in newspapers and other printed media.

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UNITED STATES

EMPLOYER BEWARE - YOUR TRADE SECRETS MAY NOT BE PROTECTED

In the interest of competition many courts in the United States allow employees with confidential and sensitive information to leave jobs and go to competitors. This is particularly true in California and now Maryland may be added to the list. A very recent decision by the Maryland Court of Appeals has rejected the "inevitable disclosure" theory used to grant injunctions against employees who have misappropriated trade secrets. The Maryland Court reasoned that the "inevitable disclosure" theory lets the employer influence the employee's employment relationship with the competitor. In short, unless the employer has a very specific confidentiality and non-compete agreement with the departing employee you may find that you cannot protect yourself until there is evidence that the trade secrets have been used to your detriment. That of course may be too late to avoid the damage.

For further information please contact Grove, Jaskiewicz and Cobert, Washington, D.C., Ronald N. Cobert, rcobert@gjcobert.com or Andrew M. Danas, Esq., adanas@gjcobert.com; http://www.gjcobert.com

D & O INSURANCE - NOT THERE WHEN YOU NEED IT MOST

In the United States, directors and officers of corporations, especially public corporations, typically have liability insurance ("D & O" insurance) to protect them from claims that they have breached their fiduciary duties to act in the best interests of the corporation and its shareholders. While such policies (together with the "business judgment rule") may provide adequate protection for the directors and officers in many cases (such as the garden variety derivative action brought by a disgruntled shareholder), they may provide little or no protection at all at the very time offices and directors most need the coverage-- i.e., a lawsuit brought when the company is in bankruptcy. The problems arise in two separate but related contexts.

(a) Company Sues its Officers and Directors

The typical D & O policy in the United States provides coverage (a) to a company's officers and directors to the extent they are entitled to indemnification by the company and (b) to the company when it has indemnified its officers and directors. However, many policies have an express exclusion from coverage for claims brought by one insured against another. Under this "insured vs. insured" exclusion, a suit by a company against its own officers and directors would not be covered. Such suits are quite common when corporations are in bankruptcy and the corporation becomes legally controlled by a trustee or practically controlled by a creditors' committee. In such cases, insurance companies have argued that the "insured vs. insured" exclusion precludes coverage. Case law in this area is unsettled, and policy language is extremely critical to the ultimate determination as to whether or not coverage will be afforded. For example, some courts have held that a company post-bankruptcy is not the same as the pre-bankruptcy entity, so that the exclusion is inapplicable. However, other courts have rejected this conclusion and have therefore enforced the exclusion.

In addition, some policies now contain an express exception to the "insured vs. insured" exclusion for claims by a bankruptcy trustee or receiver. However, where coverage is excluded for claims brought by "or on behalf of" an insured, and not just "by" an insured, this exception may not apply (since a trustee's claim would be "on behalf of" an insured), and coverage may still be denied.

(b) Companies Compete with their Officers and Directors to Receive Insurance Proceeds

The second factor which may negate or diminish the coverage of a D & O policy in the case of an action against officers or directors of an insolvent corporation is that the corporation is itself usually an insured under the same policy. Generally, there is a single aggregate coverage limit for all coverages, and defense costs are part of this limit. In the last several years, a number of cases have arisen in which a company (in reality, its creditors, trustees, etc.) has tried to prevent the officers and directors whom it is suing from obtaining recovery of defense costs under the D & O policy, on the ground that the company itself needs -- or even may need -- the exact same policy proceeds to defend against a securities claim (typical D & O policies also cover companies for securities law claims).

To illustrate the problem, consider the case of concurrent lawsuits (a) by the trustee or creditors committee, alleging breach of fiduciary duty claims against the directors and officers, and (b) by shareholders, alleging securities claims against the Company. If the plaintiffs in the two actions each (or even together) seek more than the policy limits of coverage, the defendants in the two actions (the officers and directors in one, and the company in another) will be competing for the same insurance coverage.

Under such circumstances, the proceeds of the D & O policy are likely to be deemed assets of the bankruptcy estate, thereby preventing the directors and officers from using those proceeds for their own defense, at least without bankruptcy court approval. The cases are not completely consistent and, in any event, make it clear that the facts of each case and the language of each policy must be individually analyzed before any conclusion can be reached as to whether the officers and directors will or will not be entitled to coverage for defense costs, and possibly even ultimate liability, under the D & O policy.

For further information, please contact Robert Fryd, Partner, Warshaw Burstein Cohen Schlesinger & Kuh, LLP, New York at rfryd@wbcsk.com; http://wbcsk.com.

COURT RULING ON TRUCK DRIVER HOURS WILL AFFECT DISTRIBUTION COSTS

In a decision that will have a significant impact on the distribution of goods in the United States, the United States Court of Appeals for the District of Columbia located in Washington, D.C. has told the United States Federal Motor Carrier Safety Administration (FMCSA) that its new rules adopted earlier this year revising hours of service regulation for commercial truck drivers were incorrectly adopted. The Court blasts the FMCSA revision as arbitrary and capricious. This is a major decision in the trucking industry which will have a significant impact on shipping economics as well as on the safety of truck operations. Some truckers will be happy to go back to the rules under which they operated for the past 65 years and the FMCSA will have to go back to the drawing board to make new revisions. The decision is also a victory for safety advocates who claimed that the revision did the exact opposite of what the federal agency had set out to do - improve safety. A request to stay the recission of the rules has been filed pending an appeal.

For further information please contact Grove, Jaskiewicz and Cobert, Washington, D.C. Ronald N. Cobert, rcobert@gjcobert.com or Andrew M. Danas, Esq., adanas@gjcobert.com; http://www.gjcobert.com

IN THE DANGER ZONE - THE ZONE OF INSOLVENCY

In the United States, directors of solvent companies owe a fiduciary duty to their shareholders to act with their best interests in mind. Today in many states, including New York, when a company becomes insolvent, its officers and directors also owe a fiduciary duty to protect corporate assets for its creditors. It is unclear to what extent, if any, officers and directors continue to owe a duty to an insolvent company's shareholders to the company's creditors.

Simply put, once a company becomes insolvent, the role of directors to seek profit maximization for the benefit of shareholders shifts to one of asset protection for the benefit of creditors.

In recent times, a disturbing trend has developed whereby courts in certain states have begun imposing a duty upon directors to protect creditors even before a company becomes insolvent, and this uncertain period preceding insolvency, when a company may be in some degree of financial distress, albeit not insolvent, has come to be known as the "zone of insolvency".

What makes this zone so dangerous is that (a) there is no bright light when a company has entered this zone and (b) once a company does enter the zone, a directors' duty doesn't shift from the shareholders to the creditors, but rather expands to include the creditors as well as the shareholders. And the simple fact is that, oftentimes, it will be difficult, if not impossible, for directors to act in the best interests of both shareholders and creditors at the same time.

For example, as a company starts spiraling towards insolvency, shareholders (particularly shareholders of privately held companies) will more often than not demand that directors take aggressive steps to stave off bankruptcy, whereas creditors' interests will usually be best served by conserving a company's diminishing asset base.

As a result, directors may well find themselves being "whip-sawed" - exposed to shareholders if they don't act aggressively and exposed to creditors if they do.

As to when a company has entered the "zone of insolvency" and how directors should balance their duties to two separate constituencies, the best advice is to seek legal counsel whenever a company begins to founder.

For further information, please contact Marshall N. Lester, Partner, Warshaw Burstein Cohen Schlesinger & Kuh, LLP, New York, at mlester@wbcsk.com;http://www.wbcsk.com

U.S. GOVERNMENT URGES MORE COMPETITION IN HEALTH CARE INDUSTRY

The official position of the United States Federal Government is that the $1.6 trillion healthcare industry can benefit from rigorous competition. On July 23,2004, the Federal Trade Commission and the Department of Justice released a lengthy report on competition in the health care industry. Among its many recommendations, these two federal competition agencies stressed the importance of giving consumers greater access to information on prices and quality and criticized state programs, such as certificate of need requirements, as anticompetitive barriers to market entry. A few weeks after the report was released the FTC issued a press release that two major generic drug manufacturers, Alpharma and Perrigo, consented to pay $6.25 million to settle charges that the companies had agreed to stop competing and share profits on the sale of the generic version of over the counter children's' Motrin. The FTC charged a clear violation of the antitrust laws since the agreement between the drug companies drove up the prices for wholesale customers.

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ABOUT THE EALG

The Euro-American Lawyers Group (EALG) is an association of Law Firms founded in 1985. The members of EALG believe that they can best serve their clients' interests overseas by co-operating with like minded firms who have local knowledge of, and immediate access to the legal system operating in their own jurisdictions.

EALG's philosophy is that local representation is vital in today's dynamic market where both legislation, and commercial practice are changing regularly at both national and international levels.

Since its inception in 1985 EALG has steadily developed, and now comprises 27 law firms working in 20 different jurisdictions. Each member has their own network of local contacts.

With member firms throughout Europe, the United States, and Asia, EALG provides excellent communications to many of the important commercial centres of the world and access to hundreds of lawyers. For further information about the EALG and its member law firms, please visit our website at http://www.ealg.com.

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EALG BRIEFING is a free monthly e-mail publication of the Euro-American Lawyers Group (EALG) and is distributed by EALG member law firms. The articles contained in EALG BRIEFING are a brief overview of recent legal developments in Europe and the United States. The articles do not constitute legal opinions or advice and should not be regarded or relied upon as such. By using this publication you agree to the Terms and Conditions of the EALG, which may be viewed on our website at http://www.ealg.com. If you have colleagues who may wish to subscribe to EALG BRIEFING, please feel free to pass along this e-mail to them. To subscribe and be placed on our distribution list, they may send an e-mail to adanas@gjcobert.com or to the EALG contact in their jurisdiction. To unsubscribe, please send an e-mail to the same address(es).