Interim measures in an unfair prejudice action

The Civil Court (Commercial Section) presided over by Mr Justice Joseph Zammit McKeon on 11 September 2018, in the case Frank Grisar, Kevin Schembri, and Lydon Laudi vs Dolittle & Fishmore Limited, Jan Erik Pantzar, Acorn Technology AB, and Thomas Stig Pantzar, held among other things that the principle of granting interim measures was not a matter of course in unfair prejudice proceedings. It was rather exceptional in nature, intended primarily to ensure that the status quo is maintained within the Company until this dispute between the members of the Company is decided by the Court. Frank Grisar, Kevin Schembri and Lydon Laudi filed a minority shareholder protection legal action under section 402 (1) of the Companies Act and requested interim measures in accordance with section 402 (3) of the Companies Act. Section 402 (1) provides:

...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...

The purpose of this legal action is not for the courts to decide on the merits.

Reference was made to Andrew Muscat’s Principles of Maltese Company law (2007) on Statutory Shareholders Measures: Unfair Prejudice and Winding Up. An examination has to be made on the remedies that are available under article 402 and where the court can grant interim orders.

Before examining the different types of order that can be made by the court, a preliminary question should be considered: whether a court may issue an interim order pending final judgment. The position in English law is that English courts do, where appropriate, have the power to issue the interim orders – usually orders for payment on account or orders designed to preserve the status quo. The Maltese Companies Act is silent on the question of whether a court, seized of an issue under article 402, is entitled to issue an interim order. Nor does any jurisdiction result from any general provision in the Code of Organisation and Civil Procedures.

It is significant that where the legislator wished to grant to a court the power to make interim orders the legislator did so by express provision, as with the power of the court to issue a “provisional order” under article 37(5) of the Merchant Shipping Act (prohibiting dealings in a ship until the court definitely decides on the merits) and the power of the court to initially issue a warrant of prohibitory injunction for an “interim period” under article 873(7) of the Code of Organisation and Civil Procedures. In practice, situations may sometimes arise where the issue of an interim order would be necessary to protect the interests of the complainant or of the company. The introduction of an amendment to article 402 would allow the court to issue interim orders would be another helpful tool in the court’s arsenal against oppressive, unfairly prejudicial or unfairly discriminatory conduct...

Reference was also made to page 587 of the Company law (34th Edition –OUP), Mayson, French & Ryan argue that:

It is desirable that the status quo should be preserved in the time between presentation and hearing of a petition under CA 2006, s.994, and the court will grant injunctions to achieve this {Re a Company (No 002612 of 1984) (1985) BCLC 80; Re a Company (No 00330 of 191) (1991) BCLC 597; Re a Company (No 00306 of 1993) (1994) BBC 883}

They also state that:

...As usual when considering whether to grant an interim injunction, the court will not do so if the balance of probabilities is against it {Rutherford (1994) BCC 876}

In the local scenario, on the strength of various court rulings, there is a consistent acceptance that the Court can grant interim orders or measures while the action filed on the basis of article 402 is still pending:

In Vella et vs Vella Brothers Limited of 9 March 2007, the Court of Appeal remarked that:

Il-hsieb wara dan l-arikolu (u cioe l-Art.402) huwa li jiftah l-iskop ta’ intervent da parti mill-Qorti, u din il-Qorti tkun qed taghmel “disservice” lill-azzjonisti minoritarji jekk tkun hi li terga taghlaq parzjalment il-bieb li fetah il-legislatur bl-Artikolu 402. Bis-sahha ta’ dak l-artikolu, il-Qorti tista’ taghti dak ir-rimedju li jidhrilha li jkun opportun, inkluz allura, rimedji u ordnijiet temporanji li jervu biex jigi rispettat l-istatus quo sakemm tigi mistharga kwistjoni jew sakemm tigi rizolta sitwazzjoni ta’ konflitt fi hdan il-kumpanija. Ovvjament, dan ma jfissirx li r-rimedju mitlub se jinghata, ghax il-Qorti ghad trid tisma l-provi u t-trattazzzjoni dwar il-kwistjoni li nqatghet, imma l-Qorti hi tal-fehma li rimedju jista’ jinghata ....

The purpose of Article 402 is to allow the courts to intervene and the courts would be failing the minority shareholders if it did not give a remedy in light of Article 402. Pursuant to Article 402, the court could provide any remedy even temporary measures to preserve the status quo until the issue was investigated or until the issue was resolved internally by the Company. Whilst the Court was still hearing the evidence to decide the case, a temporary measure could still be granted.

In America Cyanamid Co vs Ethicon Ltd (5 February 1975), the House of Lords set guidelines which should be considered before granting an interim order remedy namely: (1) it is not the court’s role to consider conflicting evidence in respect of an interim application as this is a matter for trial (2) that at this stage of the proceedings, the claimant should limit himself to show that there was a real issue to be tried; (3) that the Court is to consider whether an alternative remedy is available, should the interim order not be granted. These principles were re-affirmed by the Court of Appeal in England (Pringle vs Callard (2008)).

Where an application was filed for the grant of interim measures, the burden rests on the person making the request to prove prima face that without interim relief, his rights pending final judgement on the merits of the claim risk further prejudice. It was therefore up to applicants, noted the Court, to bring satisfactory evidence to enable the court to consider their requests.

The applicants claimed that a number of objects were being carried away and certain moveable items were being removed. The Court said that whether any items were actually removed and whether such removal did impinge on the merits of the case or the rights of claimants is a matter still to be determined by the courts after all the evidence is presented and considered. Any position which this Court could take to address this matter would be premature as it could have a bearing on the merits.

In addition, although claimants did request an interim order they did not specify the nature of these measures which they were requesting. This omission could not be supplemented by the Court, as that would be undue intervention.

The Court said that the principle of granting interim measures was not a matter of course in unfair prejudice proceedings. It was rather exceptional in nature, intended primarily to ensure that the status quo is maintained within the Company until this dispute between the members of the Company is decided by the Court.

The Court is of the opinion that the grievance raised by applicants should not be addressed through the grant of interim measures. Their grievances did not justify the grant of interim relief.

However, by taking this position, the Court did not exclude that should their grievances be proven according to law, in the case, this would be taken into consideration by the Court when deciding the merits. The Court said that it will remain vigilant pendente lite on the conduct of the affairs of the Company.

For these reasons, on September 11 2018, this Court rejected claimants’ requests for the grant of interim measures.