Shareholder is distinct from the company

An agreement entered into by the majority shareholder of a company may have no bearing on the company. This was held in the Court of Appeal on 25 April 2024 in Cedric Mifsud in the name and in representation of the foreign company Adria Yachting NV vs Stephen Christopher Schlosser. The Court of Appeal was presided over by the Chief Justice and judges Christian Falzon Scerri and Josette Demicoli.

The Defendant, Schlosser appealed from a judgment which dismissed a plea with regard to a Novation Agreement in which it dealt with a number of issues that regulated the relationship between Altra Foundation and the Defendant. One of these issues was with regard to the revocation and termination of the use of a vessel by the name of SY Adria 1934. The Defendant held that this agreement gave jurisdiction to Zurich, Switzerland when there was a dispute.

The First Court pointed out that the Plaintiff filed the action in order for the Defendant to return the vessel SY Adria and also asked for the liquidation of damages.

The Defendant pleaded lack of jurisdiction, since the Novation Agreement signed in April 2018 mentioned that the correct forum would be Zurich.

The First Court held that the novation agreement dealt with debts between the parties, however, it makes no reference to the vessel. The action dealt with who is the owner of the vessel. The Plaintiff argues that it is the owner of the vessel. The ship-owning company was not a party to the novation agreement.

The Court looked at Article 742(1)(c) of the Code of Organisation and Civil Procedure which states that the courts in Malta have jurisdiction over any action concerning “any person, in matters relating to property situated or existing in Malta”. In fact, the vessel in question was arrested in Malta and was in Maltese territorial waters. The Court quoted from Philip Manduca noe vs Mark Chetcuti et noe decided by the Commercial Court on 25 February 1993. The Court held in this judgment that the Maltese Courts have jurisdiction to hear a case if the matter relates to property that is situated in Malta.

The case before the First Court dealt with the ownership of a vessel which was found in Malta’s territorial water. Therefore, the principal issue is the ownership of the vessel and the ancillary issue is damages. The First Court therefore turned down the plea.

In the Defendant's appeal, he argued that the novation agreement did not deal with debts but referred to the ownership of the vessel. The agreement makes reference to previous agreements, however, the novation agreement extinguished these other agreements.

The Plaintiff argued that the novation agreement was signed by a different company and not the Plaintiff company. And the ownership of the vessel was not mentioned in this agreement.

The Court of Appeal referred to Article 1180 of the Civil Code which states that novation must not be presumed but it must be clearly shown in an agreement.

The Court of Appeal held that the major obstacle the Defendant faces is that the Plaintiff company is not a party to the novation agreement. The parties to the novation agreement are Altra Foundation and the Defendant.

The Plaintiff company is claiming that it is the owner of the vessel and presented prima facie evidence to show it is the owner such as certification documents. Altra Foundation is the majority shareholder of the Plaintiff company; however, it does not mean that it can enter into an agreement it has shares in. Both companies have a distinct juridical personality.

Therefore, one company cannot bind the other company unless such company is a party to that agreement. This is outlined in Article 19 of Schedule 2 of the Civil Code. The novation agreement does not show that the Foundation was binding the Plaintiff company.

The Court of Appeal then moved to reject the appeal.