On November 30, 2022 the Court of Appeal (Superior Jurisdiction) delivered a judgement over a claim by a company that another company in which it had a shareholding had failed to appoint or reappoint its directors according to its articles of association.

The case was originally filed in the Civil Court, First Hall by Wintrade Ltd as one of the shareholding companies in Aparthotels Limited. 

It requested a declaration that the defendants, including the other shareholding companies and the apparent directors of Aparthotels Limited had failed to appoint, or re-appoint, the directors of Aparthotels Limited as laid down in its Memorandum and Articles of Association. The directors called in the suit as defendants were still appearing as the registered directors in the Register of Companies.

The articles of association stated that: “The directors of the company shall hold office for a period of two years and shall thereafter be eligible for re-appointment” .

The articles also provided that “The board of directors of the company shall consist of four directors, such that Wintrade Ltd and Cnus Ltd shall have the right to appoint one director each. Riza Leisure Complex Ltd shall have the right to appoint two directors.”

Wintrade Ltd claimed that on the expiry of the initial period of two years, in 1999, the apparent directors were not reappointed appropriately and it sought a judicial declaration to that effect.

Two of the defendants replied that the claim was not true and should be rejected. The other defendants did not submit replies.

The appeal was by the same defendants who filed the sworn reply at first instance, while the other defendants declared that they would accept the court’s judgement.

In its considerations, the appeals court gave a summary of the movements within Aparthotels Limited as a factual background on the relationship between the parties.

It is beyond the purposes of this article to delve into that. What is however important is the observation that no meetings of the board of directors or annual or extraordinary general meetings of Aparthotels Limited were being held. However, it was standard practice for its auditors to prepare the necessary documents to compile the audited financial statements.

The court noted that the accounts filed with the Registrar of Companies up to 2002 all showed the defendant directors as directors. However no accounts were filed after 2002. A shareholders’ resolution dated 29th November 2002 stated that all directors had to retain their roles.

Referring to the (confirmed) reasoning of the First Hall, the appeals court noted that the appointment of directors was a matter regulated by the articles of association, distinctly from the prescribed form submitted with the Registrar of Companies about change of directors.

The defendants had argued unsuccessfully that failing such a prescribed form (known as Form K) no changes were made. This argument was rejected in favour of what the articles of association actually provided.

Besides, the First Court reviewed all the evidence provided and concluded that between December 31, 1999 and November 29, 2004 there were de jure directors appointed for Aparthotels Limited. This conclusion came about with reference to testimony by the interested parties, the auditors and the fact that financial documents would not be closed off without the signature of the directors in office and the shareholders. Evidence was submitted to the effect that relevant directors acted as such after 1999.

However, this proof was limited up to 2004. There was no written and signed documentation beyond 2004 that proved the reappointment of directors.

The appeal was limited as to its scope. Two of the defendants argued that the First Hall had awarded something beyond what had been claimed. Appellants claimed that the action brought forward was a declaratory one and that the court could only accede and declare the requested declaration or deny it in toto.

Declaratory actions are common and often required for further purposes or for further actions. In partly accepting the plaintiff’s claims, the First Hall had made an analogy with claims of payment for pecuniary dues, in which the award of a lesser amount than claimed is very often a reality at law. Appellants held that such variations were, however, not possible for declaratory actions.

The Court of Appeal was quite concise and straight to the point on the matter. In fact, the choice of words is very telling as the court stated that the plaintiff’s claim could be acceded as to part thereof and proceeded to state that it made no difference at all whether the action was purely declaratory or not.

The appellants tried their chances on the use of the word “qatt” (never) in relation to the re-appointment of directors following 1999 and tried to interpret this as involving the whole period and nothing but the whole period.

The appeals court differed, and considered that term to include all the time and parts of it. It pointed out that nothing prejudiced the appellants in the proceedings and they could submit evidence and question evidence accordingly.

The appeal was denied and found to be frivolous, and the appellants were penalised by having to pay double the judicial expenses.

Dr Edric Micallef Figallo is an associate at  Azzopardi Borg and Associates Advocates.

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