Judicial representation

The Court of Appeal, composed of Chief Justice Vincent De Gaetano, Mr Justice Joseph A. Filletti and Mr Justice Geoffrey Valenzia, on July 30, in the case Parklane Investments Ltd vs Luigi and Pauline Portelli, held, among other things, that if a lawsuit was filed against a person in his capacity as director without actually mentioning “in representation of the company”, legal action was still deemed to have been taken against the company and not against such person personally.

The facts in this case were as follows:

On May 24, 1973 the Commercial Court decided the case between L. Portelli vs Lino Agius and Joseph Busuttil as curators of Winston Carbone in his capacity as managing director of Parklane Investments Ltd.

In this case, the court decided that the contract whereby Parklane Investments had acquired 22 tumoli of land in Baħrija, limits of Rabat, on emphyteusis be rescinded on grounds of non-payment of the ground rent. The company was ordered to return the property to the owners.

Its decision had become res judicata.

Parklane Investments requested that this decision be annulled. It was stated that this decision did not affect the company, as allegedly the curators were nominated to appear on behalf of Mr Carbone and not in representation of Parklane Investments Ltd.

The company argued that the company Parklane Investments Ltd was never sued; that at the time, Mr Carbone was not the managing director of the company, and nor was the company ever notified of the judicial acts against it.

At the time of the lawsuit, in 1973, the company had two directors in addition to Mr Carbone: Inez Scicluna and Carol Calleja.

Mr Calleja had assumed the function of managing director in absence of Mr Carbone, who was absent from Malta.

The company did not deny that Mr Carbone was a registered director. Under its Articles of Association, the managing director of the company was vested with judicial representation.

It said that legal action should have been taken against two directors of the company, who were present in Malta, according to article 121 (2) of the Commercial Partnerships Ordinance, argued the company.

Allegedly the curators did not inform Mr Carbone of the lawsuit, and nor the company.

As a result, the company suffered serious prejudice and had become aware of the court decision after the lapse of several years.

The company had also registered a hypothec in favour of third parties and entered negotiations with third parties for the transfer of the land and this before it became aware of this court’s decision.

Faced with this situation, the company Parklane Investments Ltd filed legal proceedings requesting the court to declare the court decision of May 24, 1973 in Mr Portelli vs L. Aguis et noe, to be null and without effect at law, and that it was not binding upon it. It also asked the court to confirm that the 22 tumoli of land in Baħrija still belonged to the company.

In reply, defendants Mr Portelli and others pleaded that the company did not follow the remedies contemplated at law on retrial, in order to attack a decision which had become res judicata. They contested the company’s action to be unfounded in fact and in law.

On January 23, 2004, the court decided in favour of defendants and freed them from the proceedings.

The Court of Appeal on December 1, 2006, varied this judgment, insofar as the first court decision had revoked that part of the judgment which declared that the legal proceedings against Mr Carbone in his capacity as managing director did not constitute a “state of fact” against the company. The Court of Appeal referred the case to the first court to consider this plea.

The first court maintained that our law provided a procedure for retrials in specific cases, if a decision contained a defect.

According to article 818 (2) of Chapter 12 of the laws of Malta, a person could not request a retrial after five years, from when a judgment became res judicata.

Article 819 provides: “The time limit in the last preceding section is peremptory.”

The legislator did not want a period of uncertainty. The company Parklane Investments did not follow the procedure for retrials.

In Bugeja vs Azzopardi (CA) dated June 19, 2001, it was held that it was only possible to attack a decision by the legal remedy of retrial. A party who lost a court case could not reopen a decision that had become res judicata.

In this case the court had to consider whether the company was included as a party to the proceedings. The court felt that there was no need to investigate the point why curators were appointed to represent Mr Carbone, when the company had two other directors present in Malta, who also had judicial representation of the company.

As Mr Carbone was sued in his capacity as managing director, the court had no doubt that he was not sued personally. It would have been better, if it was stated in the okkju “in representation of the company”.

If he had been sued personally, there would have been no need to state in the okkju his position as director.

The first court concluded that the company Parklane Investments was a party to these proceedings and for this reason, dismissed the company’s requests.

Aggrieved by the decision of the first court, the company Parklane Investments entered an appeal, calling for its revocation. It reiterated its argument, that it was not included as defendant in the 1973 proceedings. It claimed to have never to have been sued.

The company contended that in 1973, Mr Carbone was not present in Malta, and had been replaced as managing director by Mr Calleja. As the law stood in 1973, article 121 (2) of the Commercial Partnerships Ordinance required legal action to be taken against two directors of the company.

On July 30, the Court of Appeal gave judgment by dismissing the company’s appeal and declaring that the company had been sued in the 1973 court proceedings.

The following reasons were given for the court’s decision.

Article 121 (2) of the Commercial Partnerships Ordinance provides: “Unless otherwise provided in the memorandum or articles of a company any two of the directors, or, if there is only one director, that director, shall represent the company.” The company’s memorandum stated that “the managing director or any other person expressly authorised by him shall represent the company in all judicial proceedings!”.

Mr Carbone resigned on November 28, 1973. On February 26, 1972, Mr Calleja was appointed director, but there was no evidence that Mr Calleja replaced Mr Carbone as managing director.

At the time a decision was delivered in the case Luigi Portelli vs Lino Aguis and Joseph Busuttil as curator to represent the absent Mr Carbone in his capacity of managing director of Parklane Investments Ltd, Mr Carbone was still officially a director of the company, as well as managing director.

From the okkju it was clear that he had not been sued personally, but as managing director of the company. There was also evidence that Mr Carbone had appeared on a public deed as the managing director of the company.

Reference was made to José Herrera noe vs Director of Public Works dated November 24, 1988 (Commercial Court) where it was held that a company through its shareholders was free to make provision in its Memorandum and Articles of Association, on the person(s) vested with representation. If the Memorandum and Articles was silent, the default provision in the law applied.

The court noted that as in the circumstances the company’s Articles provided for the manner of its judicial representation and authority was granted to the managing director, the only person who appeared to be managing director was Mr Carbone.