The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Giannino Caruana Demajo and Mr Justice Noel Cuschieri, on June 28, 2013, in the case “Michael Debono as trustee of The J. Saliba Trusts and Mary Saliba vs Mario Debono in his own name and on behalf of The Village Pharmacy Ltd and Kariza Company Ltd” held, among other things, that the claimants had the right to file action for unfair prejudice, even if they were not registered shareholders.

Mary Saliba’s deceased husband was the registered shareholder in both companies and the trustee was the heir.

The facts in this case were as follows.

The court had to consider the meaning of ‘member’ under article 402(i) of the Companies Act. Article 401(i) provides that “any member of a company who complains that the affairs of the company have been or are being or are likely to be conducted in a manner that is, or that any act or omission of the company have been or are or are likely to be, oppressive, unfairly discriminatory against, or unfairly prejudicial to, a member or members or in a manner that is contrary to the interests of the members as a whole, may make an application to the court for an order under this article.’’

Claimants Mary Saliba and Michael Debono as trustees of the J. Saliba Trust brought an action of unfair prejudice under article 402 to safeguard their rights as unregistered shareholders in the companies The Village Pharmacy Ltd and Kariza Company Ltd, against Mario Debono, who was secretary and director in both companies.

Mario Debono, on the other side, contested the locus standi of both Mary Saliba and Michael Debono as trustees to exercise this legal action in terms of article 402 Companies Act. He submitted that they were not entitled to file this legal action under article 402 as they were not members.

The court noted that Joseph Saliba (now deceased), who was Mary Saliba’s husband, held shares in both companies. On his death on September 25, 2007, his estate devolved to Michael Debono as trustee of the J. Saliba Trusts.

One half of Joseph Saliba’s shares in the companies belonged to his widow as her share of the community of acquests, and the other half was settled in trust.

But Michael Debono refused to register the share transfers in favour of the claimants, and at the time this lawsuit was filed, the shares were still registered in the name of Joseph Saliba.

The Court of First Instance decided that claimants Mary Saliba and Michael Debono as trustee qualified to present this action for unfair prejudice under article 402, even if both claimants were not entered in the register of members as shareholders.

The definition of ‘member’ in article 402 was wider than the definition given in article 2 (1) of the Companies Act.

The court noted that the word “includes” in sub-paragraph (6) of article 402 Companies Act was intended not to exclude anyone who should be entitled to exercise this legal action, but who would have been excluded within the parameters of the definition of “member”.

This was not the ratio legis of article 402 Companies Act.

The First Court felt that Mary Saliba should be included as a member in the companies. Reference was made to article 123(2) which provides that “where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this Act, be treated as a single member; and, unless otherwise provided in the memorandum or articles, the name of only one of such persons shall be entered in the register of members.

“Such person shall be elected by the joint holders and shall for all intents and purposes be deemed vis-à-vis the company to be the member of the company in respect of all the shares so held.’’

The court said that this provision applied to the case where one of the spouses was a registered shareholder.

It was not in dispute that these shares formed part of the community of acquests of Mary Saliba. These shares belonged to them jointly, and for purposes of law they were considered to be co-owned.

On the death of Joseph Saliba, the community of acquests had been dissolved. Mary Saliba, who was already a member, continued to be shareholder.

It was not necessary for her to be entered as a member in the register of members of the companies before she could take legal proceedings under article 402 of the Companies Act.

The First Court held that Michael Debono as trustee also came within the meaning of member under article 402(6).

Aggrieved by the decision of the First Court, Mario Debono entered an appeal. He submitted that the First Court had given an incorrect interpretation of the meaning of “member’’ for the purposes of article 402 Companies Act, and that it had also interpreted incorrectly article 123(2) of Chapter 386.

Reference was made to the decision in Jean Karl Soler et vs Raymond Vassallo et, dated December 3, 2012, where it was held that “in terms of article 2, a member was that shareholder who was registered in the Register of Companies. A married woman (as shareholder) today had the right, which she could exercise independently of her husband, to file a court case to protect her interests…”

Where two or more persons hold one or more shares in a company jointly, they shall be treated as a single member

In Vella et vs Vella Brothers Ltd dated March 9, 2007, it was held that there were remedies at the disposal of shareholders against unfair prejudice, and to provide them protection. It was not necessary for the spouse of a shareholder to intervene in cases which did not directly interest him.

Mario Debono maintained that article 402(6) of the Companies Act gave locus standi to a trustee who held shares in a company. In this case, however, Michael Debono as trustee held no shares in either company.

Reference was made to Andrew Muscat’s book Principles of Maltese Company Law.

“The requirement for a ‘member’ to have been entered into the register of members can well be a stumbling block to the successful exercise of the action. Article 402(6) does not however cater for the situation where shares have been transferred or transmitted by operation of law other than by intestate succession. Thus, for example, in the case of a division of a company, if shares held by the company to be divided are allocated to a particular recipient company, that recipient company will need to be registered in the register of members of the company in which the shares are held if such recipient company is to have locus standi to file an action under article 402.’’

The court considered the relevant provisions of law applicable in this case: article 2, article 123(1) and (2) and article 402(1) and (6).

Regarding article 123(2), in Jean Karl Soler et vs Raymond Vassallo et it was held that where two persons held shares jointly, and the shares were registered in the name of one person, such person was deemed to be a member.

However, in this case, the person who was registered as shareholder had passed away, and the surviving spouse was deemed to be a member. Any other interpretation did not make sense, otherwise owners of shares would be denied the protection of the law; in particular when the person who was in control of the companies refused to register the transmission of the shares, pointed out the court.

Article 402(6) of the Companies Act provides that “in this article, the term ‘member’ includes a person entitled at law to represent the interests of a deceased member, a person to whom shares in the company have lawfully devolved by way of testate or intestate succession, and a trustee, as defined in article 127, who holds shares in the company”.

A person who inherited shares was to be included as a member.

The court said that Michael Debono as trustee was the heir of Joseph Saliba. He was deemed to be a member and was manifestly entitled to file this legal action under article 402.

For these reasons, on June 28, 2013, the Court of Appeal gave judgment by dismissing the appeal. It declared that both Mary Saliba and Michael Debono as trustees were entitled to file this legal action.

The decision of the First Court was confirmed and the court ordered the acts of the case to be remitted to the First Court for continuation.

Dr Karl Grech Orr is a partner at Ganado Advocates.