Court declares plaintiff remains a company member despite absence, rejecting lost profit claim due to lack of evidence.

[*586] 1982 August 7

(MICHAELIDES, D. J.)

IN THE DISTRICT COURT OP FAMAGUSTA SITTING

AT LARNACA

Panayiotis Kkafa,

Plaintiff,

v.

Νέα Εταιρεία Μεταφορών Αμμοχώστου

(ΝΕΜΑΦ) ΛΤΔ.,

Defendants,

(Action Νo. 28/8I).

Company - Membership - Subscribers to memorandum - No allotment of shares is required and no entry in the register necessary in order to constitute membership - When a person ceases to be a member of a company.

N. Economou, for the Plaintiff.

G. Mettouris, for the Defendant.

JUDGMENT

The following judgment was delivered by:-

MICHAELIDES. D.J.: With the present [*587] action the Plaintiff claims:

(a) A declaration that the defendant company is obliged under its Memorandum and Articles of Association to employ and/or assign to the plaintiff and/or his representatives and-employees Transport operations.

(b) An order of thé Court ordering the defendant company and/or its Directors and Officers to employ and/or assign to the plaintiff and/or his representatives and employees, transport operations.

(c) An amount of £500.= as lost profit (διαφυγόν κέρδος) and/or damages as a result of the failure of the defendant company to employ him from February, 1977.

(d) Any other order which the Court may deem appropriate.

The facts.

"NEMAF" Ltd. was registered in 1964. Its memorandum and Articles of Association were produced and are exhibits 1A and 1B before the Court.

The registered office of the Company was in Famagusta. Panayiotis Kkafas , the plaintiff’s name, appears in the list of subscribers to the memorandum of associatior for four shares.

After the Turkish invasion of Cyprus and the occupation of Famagusta many of the shareholders of the company found themselves in Limassol, where, on the initiative of D.W.1 Georghios Nicolaou, tried to raise the [*588] company again on its feet. A general meeting of the company was called. 12 out of the 25 shareholders attended that meeting, which took place in 1975. The plaintiff did not participate as he had left the island after the invasion, at first settling in Greece and then in U.K. Each of the shareholders' who participated, made a cash payment of £200.= to get the company running. Plaintiff returned to Cyprus in February, 1980, and tried to claim rights in the company, by virtue of being the owner of the four shares.

The defendant company put him off. They told him that he ceased to be a member long ago, contributed nothing to the re-activation of the company and has no right to mix in the affairs of the company. The plaintiff denies that he ever ceased to be a member, hence the present proceedings. On plaintiff's request, P.W.l, Theophanis Michael, an Examiner in the office of the Official Receiver and Registrar, produced a form which is Exhibit 2 before the Court. It is a special form used by companies to submit their annual report to the Registrar. It was sent in by the company. It was completed on the 14 th of January, 1979, and received by the Registrar on the 2nd of May, 1979. It was presented to the offices of the Registrar by one A. Malathouras. It is signed by a director named Kyriacou and the secretary of the company whose name is given on the form itself as Georghios Nicolaou. This document contains other important information about the company, [*589] among other things a list of present and past members. At page 4 there is an entry showing that Panayiotis Kkafas, the plaintiff, transferred his 4 shares to one Chambis Moustaka on the 24th December, 1978. P.W.1 could not recall any subsequent change on this matter.

The Plaintiff in his evidence said that he was one of the

original promoters of the company. Each of his four shares had the value of £50..= which were paid by instalments. He worked with the company

as a driver till the beginning of 1968 when the car was being driven and owned by his son till 1974. Plaintiff denied that, he has ever sold his shares to anybody and that the first time that he was informed that his shares were sold was in Court with the testimony of P.W.2. He

said in unambiguous and clear language that he never instructed anybody to sell his shares. Plaintiff had requested with

a letter dated 1.8.80, Exh.3, that he be employed by the company for transportation works with his car. No reply was sent to him. In cross-examination Plaintiff added that no share certificates were ever issued by the company before the invasion. The son of Plaintiff, who was also in U.K. till 1977, brought a lorry with him and when plaintiff demanded that some transportation works be assigned to him the Chairman of the company informed them, in February, 1980, that he was no longer a member of the company. Despite this the son was employed as an auxiliary driver. Plaintiff himself emphatically stated that he is not in a position to drive a lorry but he considered his son’s lorry as a [*590] "family car" which his son drives for him as well.

Defence witness 1, Georghios Nicolaou said that he has been a director and secretary of the company since 1964, when the company was established. He is a shareholder as well. He affirmed what the plaintiff said on the manner that the shares were paid and added that by 1971 each shareholder paid the value of two of his shares and 16 only out of the 25 shareholders received their shares. (Επιάσαν τις μετοχές τους). The rest (9) sold out their rights (επώλησαν τα δικαιώματα τους) and left. Plaintiff did the same. The procedure followed when a shareholder would sell his car, was for him to sign a document and present it to a clerk of the company. Plaintiff, D.W.l said, had sold his car to one Christoforos Christoforou who was not a shareholder. This sale the company interpreted, in the exact words of this witness,

"that the company automatically got the rights of the driver who would sell his car, the said driver would lose all his rights in the company."

With regard to the "revival" of the company he said that only twelve shareholders appeared at the general meeting out of the 25 shareholders.

Pausing here for a moment I must say that this witness had mixed up in his mind the acts of selling a car, selling shares and abandoning rights. [*591]

In 1978 the company called in an auditor. He made inquiries and the witness and his friends were surprised to be informed that all the shareholders were still considered as members. Only 8 of the old members attended the general meeting in Limassol, A new general meeting was convened at which a resolution was passed to the effect that all the so called "dead" shares be allotted to the shareholder who paid cash, i.e. the £200.= at the revival of the company. In cross-examination he said

that the plaintiff "εξεχώρισεν τα δικαιώματα του" (assigned his rights to the company) by signing a document, while

they were still in Famagusta but could not remember when. Possibly in 1968. Despite the fact that he, as a secretary, would send returns to the Registrar every year, as he said, it was not, paradoxically, until 1978 that they notified the Registrar of companies of the fact. To his mind if a shareholder sold out his car this meant that he c ased to be a member of the company. He also said that he did not notify the Registrar about the sale of shares. Pressed further in cross-examination, D.W.1, said by changing his : form of expression, that the plaintiff sold his shares (not that he assigned his rights as he used to say before in his testimony) and no new shares were issued to him. Later he changed again and said that some

members would sell their cars and donate their shares to the company, others : would sell their cars but keep the shares.

He could not, however, say what actually happened in the case of the [*592] plaintiff. He added that the 1978 general meeting was convened by oral notices.

Findings.

I have watched the demeanour of witnesses very carefully I have not been impressed by the witness for the defence. He lied to the Court on many occasions.

I find that the company under the name "Nea Eteria Metaforon Ammohostou 'NEMAF' LTD." a private company limited by shares was established and registered with the Registrar of Companies on the 2nd of April, 1964. The registered office of the company was in Famagusta. The authorized and issued capital of the company was £5,000.= divided into 100 shares of £50.= each. 25 persons subscribed to the memorandum and Articles of Association and each one of these persons, including the plaintiff Panayiotis Kaffa, got four shares.

The shares in question were not paid in full. The value of two shares taken by each one of the shareholders was paid with the method of deductions from the daily takings of each driver. The value of the remaining two shares was not paid to the company by 1974·, the time of the invasion and abandonment of Famagusta.

I do not believe the evidence of D.W.1 that tbs plaintiff ever sold his shares. He may have stopped working as a driver himself but the company tacitly approved [*593] the carrying out of transportation works by the son of the plaintiff. The plaintiff, in my judgment never sold his shares and I exclude the possibility that his name appeared on the list of shareholders in exhibit 2 (the annual report) by mistake of the auditor. The defendants knew very well the situation when they sent in the report, hence their surprise when they were informed by the audito: that the plaintiff was still as member. Nor can I accept the explanation of "mistake" as the annual report was duly signed by two experienced and responsible officers of the company, the chairman and the secretary, who, on his own evidence used to send these reports to the Registrar of companies for many years. Similarly no explanation was given by the defendants as to how the shares of the plaintiff were transferred to Chambis Moustakas on the 24.12.78.

The Law.

By Article 1 of the Article of Association the company adooted the Regulations in Part I of Table "A" of the companies Law, Cap.113 with the exception of Regulations 24, 53, 60, 89, 91, 92, 93 and 94.

I. Membership of Company.

The first question which poses for an answer is this: Has the plaintiff ever ceased to be a member of the company? [*594]

Under s.27(1) of Cap.113 the subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company. There is ample authority that in the case of subscribers to the memorandum no allotment is required and no entry on the register of members is necessary in order to constitute membership. See Nicol's case (1885) Ch. D.444; Alexander v. Automatic Telephone Co.

(1900) 2 Ch. 56 at p.63. A subscriber who had not been placed on the register, was nevertheless held liable after a lapse of nine years for the shares for which he had subscribed. See In Re Esparto Trading Co. (1879) 12 Ch. D. 191.

In Palmers Company Law, 21st Edition p.447, it stated that a person may cease to be a member of a company -

1. By transferring his shares to another person in such a case the transferor ceases to be a member so soon as the transferee is registered, but not before;

2. by his shares being forfeited;

3. by his shares being sold by the company under some provision in its articles (eg. for enforcing a lien) and by the purchaser being registered as holder in his place;

4. by death;

5. by a valid surrender; [*595]

6. by the trustee in bankruptcy of ah insolvent member disclaiming his shares;

7. by rescission of the contract of membership on the ground of misrepresentation or mistake. This however does not apply to shares subscribed for in the memorandum of association.

At p.439 of the same work the following are mentioned:

"Every company is composed of members, though in the contemplation of law it is an entity distinct from its constituent members. In the case of a company limited by shares, a member is a person holding shares in the company; there can be no membership, i.e. proprietary relationship to a company otherwise than through the medium of share holding. Consequently the terms 'members' and 'shareholder' are synonymous, apart from the now exceptional case of the bearer of the share warrant who is a shareholder but is not a member because he is not registered in the register of members.

It is in his capacity of member that the shareholder exercises the rights, enjoys the benefits and is subject to the obligations which the holding of shares carries." [*596]

(See also Halsbury's Laws of England, 3rd Edition, Vol. 6, p.233 paras 485 and 486, going Lack now to the above list, and applying it to the present case, I find that

1. No evidence has been placed before the Court on which a finding can be made that the plaintiff ever transferred his shares. Under Art. 22 of Table "A", which has been adopted by the company, the instrument of transfer shall be executed by or on behalf of the transferor or transferee, and except as provided by sub-paragraph 4 of paragraph 2 of the seventh schedule, the transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the register of members in respect thereof.

And under s.73 of Cap. 113, notwithstanding anything in the articles of a company it shall not be lawful for the company to register a transfer of shares in or debentures of the company unless a proper instrument of transfer has been delivered to the company.

With the above in mind and after directing myself to the evidence before the Court, I hold that the plaintiff never transferred his shares to the person named in the annual return or to any other person. I fully believe the allegation of plaintiff that the first time that he ever heard of a transfer was in Court when P.W.1 was testifying. [*597]

2. Forfeiture.

Provision about the manner in which shares may be forfeited is made in Articles 33 - 39 of Table "A". Under Art.33 if a member fails to pay any call or instalment of a call on the day appointed for payment thereof the directors may, at any time thereafter, during such time as any - part of the call or instalment remain unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.

Under Art. 34. the notice shall state that in the event of non-payment at or before the time appointed the shares in respect of which the call was made will be liable to be forfeited.

No evidence has been placed before the Court that the shares of the plaintiffs have been forfeited or tha any notice has been given to that effect as required by the Articles. Even his absence abroad would not be a justification as public notice should have been given. (See Halsbury's 3 rd Edition, p.39. para 59).

3. Sale of Shares under provision in the Articles.

Under Articles 11-14 the company has a first and paramount lien on every share, for moneys presently payable by the shareholders But under Art. 12 no sale shall be made unless a sum of which the lien exists is presently payable, nor until the expiration of 14 days [*598] after a notice in writing... has been given to the registered holder for the time being of the share.

Nothing was placed before the Court indicating that the above procedure has been followed.

As regards the remaining manners in which a cessor of membership may arise, i.e. death of the member, surrender of shares, insolvent member disclaiming shares and rescission of the contract of membership on the ground of misrepresentation of mistake, I need not elaborate to analyse as, on the evidence, do not apply at all in the present case.

I do hold, in view of the above, that the plaintiff never ceased to be a member of the defendant company.

What are the rights of members.

In Palmers Company Law 21st Edition, p.498, the following are mentioned:

"By his contract with the company the shareholder undertakes with respect to some - and, in fact, most - rights which his membership carries, to accept as binding up on him the decision of the majority of shareholders, if arrived at in accordance with the law and the articles; these membership rights are referred to as corporate membership rights. Other rights of the shareholder, [*599] according, to his contract with the company, cannot be taken away from him unless he consents; if such right is in question, a single shareholder can, on principle, defy a majority consisting of all the other shareholders. Rights of this type are referred to as individual membership rights."

In Edwards v. Halliwell (1950) 2 All E.R. 1064 at p.1067, Jenkins L.J. observed:

"The personal and individual rights membership of each of them have been invaded by a purported, but invalid alteration ... In those circumstances, it seems to me the rule in Foss v. Harbottle has no application at all; for the individual members who are suing sue ... in their own right to protect from invasion their own individual rights as members..."

Further on Jenkins L.J. said

"that among these rights is the right .... to maintain (himself) in full membership with all the rights and privileges appertaining to that status."

In Halsbury’s Laws of England 3rd Edition Vol. 6, p.222, paragraph 456, these rights were classified under the following heads: [*600]

1. “Statutory;

2. given by the company's memorandum and articles;

3. given by the general law, more particularly such rules as relate to contracts and members of' corporations".

It is clear from the evidence before me that the officers of the company acted under a misconception that the sale of the car with which transportation works were carried out, automatically disqualified the plaintiff from being a member of the company.

No evidence was produced as to the sale of the plaintiff’s shares to Chambis Moustakas as stated in the annual return Exh.2. Even if it was actually made, it can only be a void one for the reasons stated earlier in the judgment. In any case, the circumstances of this entry in the Annual return necessitate a further investigation with a view to find out whether or not an offence has been committed under s.373 of the Companies Law, Cap.115.

As regards the prayer for £500.= for lost profits or compensation due to the failure of the defendant company to employ the plaintiff. I need only say that no evidence whatever has been placed before the Court about this topic. The object of damages is to compensate and, with the exception of rare cases not to punish. I need not refer to ample authority on this topic. [*601]

Having in mind the above findings of the Court and after directing myself to the memorandum and articles of association of the company and especially to object 3(a) of the memorandum

a) A declaration is hereby made that the plaintiff is still a member of the company; and is entitled to the rights

b) and bound by the obligation that this entails; as per prayer "A" of the statement of claim.

Prayer "B" need not be touched by this Court in view of the above declaration.

Prayer "C" fails for the reasons given earlier.

Costs which are adjudicated in favour of the plaintiff, to be assessed by the Registrar.

Order accordingly.