The First Hall of the Civil Court, presided over by Mr Justice Jacqueline Padovani Grima, on July 11, 2014, in the case ‘Kashmiri Palace Ltd v Ian and Jacqueline Busuttil” held, among other things, that under article 181A of chapter 12, a shareholder of a company did not qualify to represent the company in judicial proceedings. As the sworn declaration in the circumstances was not valid, this rendered null and void the claimant’s legal proceedings under article 789(1) (d) chapter 12.

The facts in this case were as follows.

Ian and Jacqueline Busuttil purchased from Carmen Taliana her 95 shares in the company Kashmiri Palace Ltd, by virtue of a public deed dated April 27, 1999, in the acts of Notary Anthony Grech Trapani. Subsequently, Taliana resigned as director and company secretary, and was replaced by the Busuttils. The couple, as directors, managed and operated the clothes shop of the company in Manwel Dimech Street, Sliema.

The transfer of shares was declared null and void by the Court of Appeal on February 16, 2004, in the case ‘Busutill v Taliana’. The public deed was rescinded and the shares were transferred back to Taliana.

Taliana claimed that the Busuttils committed acts which were abusive, fraudulent, unlawful and grossly negligent and, as a result, were responsible for the damages suffered by the company by taking funds of the company, contrary to its interests.

The Busuttils allegedly did not hold annual general meetings, nor file accounts and nor VAT returns, she said.

Taliana stated that the couple abusively kept the keys of the shop and failed to give an account. Faced with this situation, she proceeded to file legal proceedings on behalf of the company for damages. Taliana was not a director nor secretary of the company; she acted in her capacity as sole shareholder.

The spouses in reply contested the legal proceedings against them. They denied liability for mismanagement, for occupying the shop without title and disputed any responsibility for damages.

They later filed additional pleas. They said that the legal action filed by Taliana was null as she was not vested with authority to file these legal proceedings.

Taliana maintained that it was not procedurally possible to raise the validity or otherwise of her legal action by way of an additional plea. Dilatory pleas could not be raised ‘in limine litis’, and should be deemed to have been renounced. She said there did not exist any justification for Busuttil to file additional pleas, which were not mentioned in their statement of defence.

The court noted that on June 3, 2004, the Busuttils resigned as directors of the company. They later deposited the keys of the shop in the custody of the court.

Taliana claimed to have suffered damages by their mismanagement of the company and by their allegedly unlawful occupation of the shop, as the stock in the shop was not worth anything.

A representative of the Malta Financial Services Centre confirmed that the Busuttils were the last registered directors of the company. The last annual return was filed for the year 2000. The last accounts covered the period up to December 31, 1998. The company had outstanding fines of €1,861.

The court limited its consideration to the plea whether Taliana as sole shareholder was the legal and judicial representative of the company. Article 141 of the Companies Act provides:

(1) Where for any reason the representation of a company ceases to be vested in any person or persons, the company shall appoint another person or persons to exercise such function. The appointment shall be made by ordinary resolution taken at a general meeting notice of which shall be issued within 14 days from the date when the vacancy occurs.

(2) The company may by ordinary resolution replace any person or persons vested with the representation of the company.

(3) Where, and for as long as, the representation of a company cannot be exercised in accordance with the memorandum of the company, any director shall represent the company in judicial proceedings against it.

Taliana had resigned on July, 8, 1999, as director and secretary of the company and the couple were registered as the last directors of the company. On June 3, 2004, they resigned as directors and company secretary. The effective date of the change was February 16, 2004. After that date, no one represented the company.

The sworn declaration in these proceedings was made by Taliana on behalf of the company.

Article 181A of chapter 12 of the laws of Malta provides:

Taliana claimed that the Busuttils committed acts which were abusive, fraudulent, unlawful and grossly negligent and as a result, were responsible for the damages suffered by the company for taking funds of the company, contrary to its interests

(1) Where a written pleading is filed by or against a body having a distinct legal personality, it shall be sufficient to state the name of such body.

(2) Any declaration or pleading to be sworn in terms of law shall, in the case of a body having a distinct legal personality, be sworn by the person or persons vested with the legal or judicial representation thereof or by any company secretary or by any other person authorised in writing by such body to file judicial acts on its behalf or to make any such declaration, sworn reply or pleading.

(3) When a written pleading is to be filed by or against a ship or other vessel, it shall be sufficient if there is designated the name of such ship or other vessel, as the case may be, and it shall not be necessary to mention the name of any person to represent such ship or other vessel: provided that the written leadings mentioned in this sub-article shall be served in accordance with the provisions of article 187(7).

Under article 181A, the court said that Taliana did not qualify to represent the company in judicial proceedings. The sworn declaration was not valid and this rendered null and void her legal proceedings under article 789 (1) (d) of chapter 12.

The court accepted that defendants could file their additional pleas to contest the power of Taliana to represent the company, in terms of article 732 of chapter 12. Such pleas could be raised at any stage of the proceedings, even at the appeal stage.

As regards to whether the court should accept the conclusions of referees, reference was made to case law: “The conclusions of technical experts were only recommendations to the court. The court was not bound to accept these conclusions if it disagreed with them. This did not mean that the court should discard lightly the conclusions of the technical expert. It should have good reasons even from a technical aspect that the report was not fair and correct”(‘Anthony Cauchi v Carmel sive Charles Mercieca CA’ dated October 6, 1999; ‘John Saliba v Joseph Farrugia CA’ dated November 19, 2001).

For these reasons, on July 11, 2014, the First Hall of the Civil Court declared that the writ of summons filed by the company was null and without effect. It abstained from considering the other claims and pleas of the parties.

Dr Karl Grech Orr is a partner at Ganado Advocates.