When can a law firm disclose information?

A dispute between ultimate beneficiaries of a company registered in Malta, led the court to allow them partial information from the law firm that incorporated the company. 

This was decided on October 27, 2014 by Mr Justice Anthony Ellul in Dr Suzanne Wolfe Martin for and on behalf of Frantisek Komarek and Karel Komarek. -v- Ganado & Associates and Ganado Services Limited.

The two plaintiffs explained in their application that the defendants had received instructions from an international law firm, White & Case, to incorporate Vivax Holding Limited. Frantisek Komarek and Karel Komarek gave the defendants a power of attorney to carry out these instructions. Vivax was registered.

Subsequently there was a change in shareholding, following changes that took place in the foundations registered in Liechtenstein. In fact there are legal proceedings in the Principality and due to these proceedings the plaintiffs are asking for information from the Maltese law firm in terms of the letters of instructions. However the defendants refused to release this information. The plaintiffs asked the court to order the defendants to pass on the information requested and to condemn the lawyers for damages.

The defendant law firm held that the instructions they received were not limited to the two plaintiffs but also from Jitka Komorkova and they were also limited to the incorporation of Vivax. The new company had to have three shareholders which were three foundations registered in Liechtenstein. The law firm held that there was no removal of shareholders but merely a transfer of shares.

Furthermore Ganado & Associates were not aware of the legal actions mentioned in the application and the reasons for which caused this dispute. The plea raised included that the plaintiffs were never director or officials of the company. Also that the defendant law firm has to be released from the professional secrecy obligations and such release also is to be given by the third original ultimate beneficial shareholder, Jitka Komarkova. Finally the law firm said it is not responsible for damages.

Mr Justice Ellul examined the case, where Frantisek Komarek, Karel Komarek and Jitka Komarkova wanted to incorporate a company in Malta by the name of Vivax. The shareholders were Santon Foundation, Serravall Foundation and Landovery Foundation, but the individuals were the ultimate beneficial shareholders.

The three signed a Letter of Instructions for the Registration of a Private Limited Liability Company in Malta under the Companies Act, Chapter 386 of the Laws of Malta. The plaintiffs’ complaint was that the law firm was refusing to disclose information about the company.

On May 1, 2013 Karel Komarek wrote to Ganado & Associates: “As representatives of your principal, we herewith for sake of completion of our files kindly ask you to provide us with a full copy of your entire file in connection with the mandate and founding of Vivax Holding Ltd, including also the entire correspondence in connection with the founding of Vivax Holding Ltd, may it be with our client or other persons”. The reply was give on May 14, 2013: “Please note that without prejudice to any legal basis as to why your request can or cannot be acceded, we are only able to consider your request to disclose information pertaining to the establishment of Vivax Holding Ltd if we receive instructions from all parties which had instructed us to establish such company”.

However, in his testimony, Dr Stephen Attard held that there was no difficulty if one of the beneficial owners asked for documents or other information on the incorporation of the company. The court commented that there was a difference of positions from what was written to the testimony.

The court held that the plaintiffs had a right to ask and receive information on the incorporation of Vivax, since they are beneficial owners and did not need to receive authorisation from other beneficial owners. The law firm as mandatories were bound to give this information and therefore, the request for information as listed in the letter of May 1, 2013 was a legitimate request. 

The court took a different position with regard to the request for information on the administration of the company. The plaintiffs held that they had a right under the letters of instructions, however, the court pointed out that these were signed before the company was incorporated and the instructions themselves referred to incorporation and not on the company’s administration. 

The court pointed out that a company has a separate legal entity and may have an interest that is different to its shareholders’. In fact the plaintiffs are not shareholders of the company, although in the letters of instructions they are mentioned. 

The court explained that the Companies Act stipulates where shareholders may receive information, as for example in Article 149, which allows shareholders to inspect the register of the minutes of the general meeting or Article 125 which allows shareholders to inspect the register of members of the companies.

The court said that a company has a separate legal entity and may have an interest that is different to its shareholders’

Then the court turned its attention to the letter of instructions where the defendants are allowed to receive “… instructions on any matter concerning the company at any time in the future”. However, this document was limited to the incorporation of the company and not its operations. Later on the same document points out that the law firm is bound by “strict standards of professional secrecy and confidentiality” on the company business and affairs. There is no evidence that the law firm received instructions to forward information to third parties, as the law firm offers its services to the company.

The court concluded by upholding the plaintiffs’ request to receive information within 30 days, limited to its incorporation, and nothing else. The court also ruled that there was no case for the law firm to pay damages.

Malcolm Mifsud, 

Partner, Mifsud & Mifsud Advocates

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