Locus standi under Maltese law in relation to the transfer of employees

On the 21 October 2020, the First Hall of the Civil Court, presided over by Madam Justice Miriam Hayman, considered the requirements of locus standi (or legal standing) under Maltese law. The case in the names of Methode Electronics Malta Ltd. (C-664) v. Raymond Grasso concerned the alleged procurement of confidential information relating to Methode Electronics Malta Ltd. (C-664) (the “Plaintiff”) by Mr. Raymond Grasso (the “Defendant”) as ex-employee of the Plaintiff.

The facts of the case were as follows. The Defendant was an employee of the Plaintiff company for a period of fourteen years from the year 2000, during which time he was in contact with the specialised international suppliers of the Plaintiff company. During the period of his employment, the Defendant was bound by a Confidentiality and Intellectual Property Rights Agreement and the Methode Electronics Inc. Code of Business Conduct. It is alleged that following the termination of his employment, the Defendant procured confidential information relating to the Plaintiff’s suppliers and the products they offer, with the intention of divulging such information to third parties to the detriment of the Plaintiff. In this respect, the Plaintiff obtained a warrant of prohibitory injunction to restrain the Defendant from divulging or making use of the confidential information relating to the Plaintiff’s suppliers to his own advantage, which would prejudice the Plaintiff.

The Defendant raised a number of counter-arguments and in particular raised a preliminary plea that the Plaintiff company had no legal standing to institute an action against the Defendant in light of article 1001 of the Civil Code (Cap. 16 of the Laws of Malta) which states that contracts shall only be operative as between contracting parties and shall not be of prejudice or advantage to third parties. The Defendant claimed that the Plaintiff company was not a party to the Confidentiality and Intellectual Property Rights Agreement, nor to the Methode Electronics Inc. Code of Business Conduct, and thus argued that the Plaintiff could not enforce these agreements and had no locus standi to bring an action against the Defendant. The Court decided to consider this preliminary plea before proceeding to examine the merits of the case.

The Court acknowledged that all civil cases are triggered from the legal standing of the parties involved. In considering the requirements of locus standi under Maltese law, the Court cited the case in the names of Integrated-Capabilities (Malta) Ltd et v. Crowd Shout Holdings Ltd et, decided on the 31 October 2016. In particular, it was highlighted that the main principles of locus standi are that (i) the legal standing must be actual and in existence at the moment of instituting the action and must remain in existence during the course of the proceedings, (ii) the legal standing must be direct, (iii) the legal standing must be legitimate and compliant with the rights of the party instituting the action, (iv) a juridical interest must cause the party to take action in Court, (v) the legal action must be capable of creating a useful advantage for the party instituting the action, (vi) the legal standing must emanate from a violation, or risk of violation of a right of the party instituting the action, (vii) the legal action must be able to produce a result which is useful or advantageous to the party instituting the action, (viii) there must be a connection between the illegal actions allegedly committed by the defendant to the case and the damage or, at minimum, the prejudice, allegedly suffered by the plaintiff as a consequence of such actions, and (ix) the legal standing could not be hypothetical but may refer to moral or subjective rights.

According to the Defendant, the lack of locus standi arose from the fact that the two documents on which the Plaintiff was basing its claims, namely the Confidentiality and Intellectual Property Rights Agreement and the Methode Electronics Inc. Code of Business Conduct, were not enforceable in respect of the said Plaintiff company.

During the course of the proceedings, it was determined that the Confidentiality and Intellectual Property Rights Agreement was entered into between the Defendant and Hetronic Malta Limited (C 16025) in 2005. During 2008, by virtue of an Asset and Share Purchasing Agreement, a substantial part of Hetronic Malta Limited including its employees were transferred to the Plaintiff. It was noted that the Defendant was specifically included in the list of employees of Hetronic Malta Limited contained in the relevant Asset and Share Purchasing Agreement.

The Plaintiff argued that as a result of the transfer of employees in 2008, legally, all rights and obligations relating to the employees were also transferred by Hetronic Malta Limited to the Plaintiff and thus the Defendant remained bound by all obligations arising from the Confidentiality and Intellectual Property Rights Agreement without interruption. The Defendant disagreed on the basis that Hetronic Malta Limited and the Plaintiff were two separate companies with distinct legal personality.

The Court analysed article 38(1) of the Employment and Industrial Relations Act (Cap. 452 of the Laws of Malta) which provides that “when a business or other undertaking is taken over, in whole or in part by a person (hereinafter in this article referred to as the “transferee”) from any employer (hereinafter in this article referred to as the “transferor”) any employee in the employment of the transferor on the date of transfer of the undertaking shall be deemed to be in the employment of the transferee and the transferee shall take on all the rights and obligations which the transferor has towards the employee.” The Court also cited previous judgements on the matter and determined that although there was a change in the company which carried out the business and employed the employees, the business continuation was unaffected, and the fact that there was a change in role and title of the Defendant, does not mean that a transfer of business in terms of law did not occur. It was noted that the nature of business and the job carried out remained substantially the same. The Court decided that the above-mentioned transfer qualified as a transfer of business from Hetronic Malta Limited to the Plaintiff in terms of article 38(1) of the Employment and Industrial Relations Act (Cap. 452 of the Laws of Malta), and thus the terms and conditions of the Confidentiality and Intellectual Property Rights Agreement were also transferred to the Plaintiff. The Court therefore concluded that the Plaintiff had the required locus standi to make a claim under the Confidentiality and Intellectual Property Rights Agreement.

During the course of the proceedings, it was determined that the Methode Electronics Inc. Code of Business Conduct, dated 2012, referred to Methode Electronics Inc. and not to the Plaintiff. However, it was revealed that the Plaintiff company was an indirect subsidiary of Methode Electronics Inc. and the Code of Business Conduct specified that it was a guide to all employees, officers and directors of Methode Electronics Inc. “and all its subsidiaries”. The Court stated that the Plaintiff produced sufficient evidence to prove to the satisfaction of the Court that it was a subsidiary of Methode Electronics Inc. and therefore concluded that the Plaintiff had the necessary locus standi to enforce a claim under the Code of Business Conduct upon its employees and the Defendant.

The Court therefore rejected the Defendant’s preliminary plea and ordered the continuation of the case.