Lawyers’ obligations cease when company is struck off

A law firm engaged by shareholders to set up a company and other services cease when the company is eventually struck off

A law firm engaged by shareholders to set up a company and other services cease when the company is eventually struck off. This was held in a Court of Appeal judgement in Dr Suzanne Wolfe Martin bhala mandatarja specjali ta’ Frantisek Komarek, Karel Komarek u Utrica Limited, socjeta estera registrata gewwa l-gzejjer Caymen -v- Ganado & Associates Advocates u Ganado Services Limited, decided on 27 January 2021. The Court of Appeal was presided by Chief Justice Mark Chetcuti and Judges Joseph R Micallef and Tonio Mallia.

The judgement concerned 2 appeals filed by both parties following a judgement by the First Hall of the Civil Court on 30 June 2015. The Court had upheld a number of pleas presented by Ganado and Associates, while rejecting others. The Court also upheld some of the claims of the plaintiffs, ordering the law firm to pass on information to two of the shareholders of Bonatrans Group Holding Limited, within 30 days.

The plaintiff instituted an action against the law firm, asking the court to order it to give them access to information and documents on a company, Bonatrans, which they asked the law firm to incorporate.

The law firm filed a statement of defence, challenging representation in Malta and whether they had a juridical interest in the case.

The First Hall of the Civil Court in its judgement held that Bonatrans was incorporated in 2010 and struck off the following year. The plaintiffs and Komarkova had originally instructed the law firm to incorporate the company. In May 2013, Komarek has asked to given a copy of the file of Bonatrans. The law firm rejected the request on the ground that such a request had to be made by the 3 shareholders of the company and not by just one of the shareholders.

The Court held that it is of the opinion that any of the persons who had instructed the law firm has a right to the information on the incorporation of the company. The law firm challenged this, since the instructions were given by all three shareholders. They quoted from the Letter of Instruction that the plaintiff signed, where the term “client” is a reference to any person or persons instructing the law firm such person were joint and several. The lawyer in charge of the file held that there was no objection for any of the shareholders to have a look at the documents. The law firm argued that once the company, Bonatrans, was incorporated, it was that company that became the clients of the law firm and no longer the individuals who instructed them to set it up. Now the company was liquidated and struck off.

The defendant law firm lodged an appeal, asking the court to overturn the order to forward the information on the incorporation of Bonatrans. On the other hand, the plaintiffs also filed an appeal in order to overturn the judgement which rejected the claim to order the law firm to give the information on the administration of the company.

The Court of Appeal started to discussion the law firm’s appeal. The First Court made a distinction between the instructions given to the law firm in order for Bonastrans to be incorporated and the services given after the incorporation. The law firm pointed out that they were in fact instructed by three foundations registered in Liechtenstein, which were the shareholders of the company. Since the request for information came from the individuals who held shares in the company, then they did not have the right to receive information.

The Court of Appeal pointed out that when the lawyers received instructions to incorporate the company, they had created a separate judicial personality from the shareholders. The Court disagreed with the law firm on how the shareholders were treated with regard to the company incorporation. Once the individuals signed the letter of instruction, they became the law firm’s clients and therefore there was a professional relationship between the two sides and therefore, the Court of Appeal agreed with the judgement appealed.

As to the plaintiffs’ appeal, they argued that the law firm’s obligations towards them did not stop when the company was registered; and that the agreement between the two sides stipulates that the services may be terminated before or after incorporation. Therefore, the services continued after the incorporation.

The law firm countered this, by saying that there was a separate agreement entered into between the law firm and the newly registered company and therefore, their professional relationship was with Bonatrans and not with the plaintiffs. They claimed the firm could not give information on any trading due to professional secrecy. The Court of Appeal agreed with the firm’s arguments. The access to the company’s documents were not without limitations: the plaintiffs were not the shareholders of the company. The agreement with the law firm states that it was bound by professional secrecy in the interest of the company. The plaintiffs were not the clients for that time the company was registered.

The Court considered the fact that action was instituted after the company was struck off. Once the company was struck off, the relationship with the law firm was terminated. The Court compared the situation with a death of a person. The difference is that there are no heirs in the death of the company. The instructions given before the company was incorporated, cannot be reverted once the company is struck off.

The first instructions were to set up the company and not its administration. Therefore after the incorporation the relationship is with the shareholders and not with those who gave instructions to set it up.

The Court of Appeal then moved to reject the appeals of both parties.

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