Administrative penalties imposed by MBR must be clear enough, satisfy requisites set out in law
In Marco Aquilina u Euro Concrete Blocks Limited (C 16202) v. Ir-Reġistratur tal-Kumpaniji, decided by Mr Chief Justice Mark Chetcuti, Mr Justice Robert G. Mangion and Mr Justice Grazio Mercieca (Court of Appeal) on 3 September 2024, the Court a
In Marco Aquilina u Euro Concrete Blocks Limited (C 16202) v. Ir-Reġistratur tal-Kumpaniji, decided by Mr Chief Justice Mark Chetcuti, Mr Justice Robert G. Mangion and Mr Justice Grazio Mercieca (Court of Appeal) on 3 September 2024, the Court agreed with the judgement of the first court and rejected the appeal of the respondent the Registrar of Companies (Registrar) within the Malta Business Registry (MBR) as the Registrar failed to give a clear explanation and breakdown of the amounts of the penalties in the penalties notice and the judicial letter, thus prejudicing the rights of the applicants to properly contest such penalties.
Facts of the Case
The applicant Marco Aquilina had been appointed as a director of the company Euro Concrete Blocks Limited (Company) on 11 May 2011 (Marco Aquilina and the Company are hereinafter together referred to as the Applicants). The Company had been registered with the MBR since 28 April 1994. On 5 November 2021, the Registrar sent a letter to Marco Aquilina (but not to the Company too) titled "Final Warning", with the subject being "Re. Euro Concrete Blocks Limited - penalties due under the Companies Act, Chapter 386 of the Laws of Malta". This letter called upon the director to settle the total sum of Euro 16,553.75 representing the indicated penalties, and stated that unless such amount was settled within seven days from the date of the letter, the Registrar shall institute judicial proceedings against him, including the filing of warrants for the recovery of such penalties, without further notice. On 20 January 2022, the Registrar then presented a judicial letter against the Applicants, annexing to it the payment notification, and calling upon them to settle within seven days the indicated amount, as
in the absence of payment, it will proceed with executive proceedings without any further notification.
On 8 February 2022, the Applicants filed an application before the Civil Court - Commercial Section in terms of Art. 401(5) of the Companies Act (Act) objecting to the Registrar's letter stating that:
(i) The Registrar's action to collect the alleged penalties is prescribed by the lapse of 5 years in terms of Art. 427(3) of the Act;
(ii) Marco Aquilina is not the legitimate adversary to the Registrar's claim in so far as it refers to the period prior to 11 May 2011 and it was only on that date that he became director of the Company;
(iii) The notice annexed to the Registrar's judicial letter was addressed only to Marco Aquilina and not also to the Company, and therefore in terms of Art. 401 (4) of the Act, the official letter cannot constitute an executive title against the Company;
(iv) The onus of proof on the alleged infringements by the Applicants lies on the Registrar;
(v) The onus of proof on how the alleged penalties were calculated in terms of the Act is on the Registrar;
(vi) That the claims of the Registrar are unfounded in law and in fact.
After various procedural issues, the first court accepted the pleas of the Applicants and their objections, and declared that the penalties expected by the Registrar, were not due in terms of law, assigning all costs of the proceedings to the Registrar.
However, the Registrar felt aggrieved with this judgement and on 22 June 2023 filed an appeal on the basis of a wrong application of the law by the first court. The Registrar argued that the fact that from 29 December 2002 to 11 March 2011 Marco Aquilina was not a director of the Company, does not exonerate him from the responsibilities tied to the time he occupied the role of director. During that time, he occupied the role of the secretary of the Company and thus was well aware of the Company's obligations, and was therefore responsible even for that period. In this respect, the Registrar referred to Art. 427(4) of the Act which provides: "A company shall be jointly and severally liable with its officers for the payment of any administrative penalties imposed under this Act.", and to Art. 150 of the Act which states that: "Anything required to be done by a company under any provision of this Act shall be deemed also to be required to be done by the officers of the company."
The Registrar also stated that the imposed penalties were not more than the maximum allowed by law, but just a small percentage, in terms of the Eleventh Schedule of the Act, and therefore the lack of indication by the Registrar if the amounts were the maximum or not, should not have led to the revocation of the penalty by the first court.
By means of their reply dated 5 February 2024, the Applicants opposed this appeal.
The Court of Appeal, however, after examining the acts, considered that there was no need to hear out the Registrar's appeal, and immediately proceeded to judgement by virtue of Art. 152(5) of the Code of Organization and Civil Procedure, Chapter 12 of The Laws of Malta, which stipulates that: "It shall be lawful for the court, to proceed to judgment or, to order the hearing of a cause the written pleadings whereof have been closed, irrespective of its turn."
Judgement
The Court of Appeal first dismissed the Registrar's grievance about lack of documentary evidence on its part because such documents were not in the acts of the case. The Court noted that the Registrar had filed its reply late, with the consequence that the reply and all the documentary evidence it presented, were removed from the acts of the proceedings. The Court quoted Art. 401(12) of the Act: "On the day fixed for the hearing of the application, the court shall consider only the issues of fact and of law as are ascertainable from the application, reply or documents filed, by either of the parties, or from the evidence indicated by either of the parties in the application or reply, as the case may be, or from the oral pleading of either of the parties."
The Court then went on to consider the other 'aggravju', i.e. that the first court had to find Marco Aquilina responsible not only for the penalties during the time he was a director, but also for the preceding years. The Court noted that a company secretary is indeed an officer of a company in terms of Art. 2 of the Act, and that although in the acts of the case there was proof that he is the secretary of the Company, however there was no proof of when he was appointed as the company secretary and if he was indeed the secretary in the years relevant to these proceedings. Therefore, the Court also dismissed this grievance.
The Court then turned to the appellant's grievance that the first court should not have declared the entire amount of penalties as not due, because from its notice, attached to its judicial letter, it was clear that the Registrar had imposed a penalty much less than the maximum permitted by law. The Court again dismissed this grievance, and agreed with the first court's detailed motivation for declaring the penalties as not due. The Court quoted Art. 401(3) of the Act: "Where the Registrar gives notice in writing to any person that such person has become liable to a penalty under this Act specifying the nature of the infringement, and indicating an amount as due by way of penalty in respect of such infringement, the person to whom the notice is given shall... be deemed to have incurred a penalty under this Act, and the amount indicated as aforesaid as due by way of penalty including any penalty due for each day during which the default continues shall be deemed to be the penalty due under this Act in respect of the infringement specified in the notice."
Therefore, the Court stated, the requisites at law are for the Registrar's written notice to specify:
- "the nature of the infringement"; and
- the "amount as due by way of penalty in respect of such infringement".
The Court reviewed carefully the Registrar's written notice and saw that it referred to a long number of years and did not satisfy the above-mentioned requisites. The Court then proceeded to refer to one instance of the penalties as an example - the larger one in the amount of - and examined it in detail throughout its judgement. The nature of the infringement in this particular case was described as "Accounts 2004-2018 Not Yet Filed Till 06.04.2020" in violation of "CA-Sect.183(10) - Directors failing to deliver or delivering defective annual accounts etc. to Registrar".
The Court then proceeded to refer to Art. 401(6) and (7) of the Act:
"(6) The application shall, under pain of nullity, state clearly and concisely the nature of the complaint, the facts out of which the complaint arises, the reasons why such complaint should be upheld, and the claim that the penalty is not due at law or is due at law only in a smaller amount.
(7) The court shall not annul or reduce a penalty as aforesaid unless such penalty cannot at law be imposed in the circumstances of the case, or cannot at law be fixed in the amount fixed by the Registrar."
The Court noted that the Applicants had the onus to prove that that the penalty in question "cannot at law be imposed in the circumstances of the case, or cannot at law be fixed in the amount fixed by the Registrar." Moreover, the Applicants also had the onus to prove that it was not the case that until 6 April 2020 the Annual Accounts for the years 2004 to 2018 were not submitted. The only evidence the Applicants presented was an affidavit from Marco Aquilina, and nowhere was it stated that between 2011 and 2018 (when he was a director of the Company) were presented the Annual Accounts for those years.
The Court also noted that on the other hand, the Registrar failed to show how it reached the figure of Euro 11,726, both in its written notice and in its judicial letter. There was no indication of what the Registrar decided the penalty to be for each year in default, even more so if, ex admissis, it imposed the maximum. The Court therefore stated that the Registrar could not expect to obtain an executive title without any reasonable explanation on how it reached the figure of Euro 11,726. The argument that since the Registrar did not impose the maximum and therefore no prejudice was created, does not hold.
Based on the above, the Court decided that the Registrar's failure to give a clear indication of the amounts it considered as penalties, both in its written notice and in its official letter, seriously prejudiced the rights of the Applicants to properly contest the Registrar's pretensions. The Court also went on to say that the same considerations it made above towards the Euro 11,726, were also applicable to the other amounts that make the global penalty of Euro 16,553.75. The Court therefore rejected the appeal of the Registrar, and confirmed the first court's judgement, assigning the costs of both instances to the Registrar.
Stephanie Jean Coppini is an Associate at Ganado Advocates
Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.
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