Commercial Law in Malta

Formation of Companies Introduction Associations of persons can take numerous forms. When discussing associations set up for the purpose of conducting trade, one considers three principle forms of partnership; partnership en nom collectiff; partnership en commandite and limited liability companies, with the latter being the most popular choice. A company is formed by the registration of certain documents with the Register of Companies as per article 76 (1). In instances of public or private companies, the documentation may vary depending on the particular circumstances of the company. To further complicate the matter, certain tax law requirements may sometimes impact company registration. Formation formalities:

   

Memorandum of association Article of association Registration of memorandum and articles Alteration and addition to memorandum and articles

Memorandum of Association Article 68 states that: ‘A company shall not be validly constituted under this Act unless a memorandum of association is entered into and subscribed by at least two persons, and a certificate of registration is issued in respect thereof. Article 69 (1) stipulates that the memorandum of every company shall state whether the company is public or private; i. the details of each member (legal or natural person); ii. the name of the company; iii. the registered office of the company; the objects of the company; iv. the amount of share capital which the company proposes to register; v. the number of directors (and their details); vi. the name and details of the company’s secretary; and vii. the period of duration of the company (where and if applicable). Sub-article 2 thereafter stipulates that instances whereby the company is a public company, annexed to the memorandum there shall be a document stating, the total amount (or an estimate) of the costs payable for the reason of the formation up to the time it is authorised to commence business. Moreover, this document is to depict any special advantage, if any, granted prior to the time the company is authorised to commence business. The name clause, is as stated, an important element to be included within the memorandum. The name given to the company may be of any type however, general limitations are imposed,

especially in instances whereby they may create confusion with any other lawfully constituted and registered name. It is important to note that, a name may be pre-registered and such registration shall be valid for 3 months. Henceforth, if a company is not registered within 3 months from such pre-registration, it shall not remain valid. Article 70 (1) thereafter suggests that a public company may be designated by any name, but such name is to include the words; ‘Public Limited Company’ or its abbreviation ‘p.l.c.’. Subarticle 3(b) thereafter holds that when the public company is an investment company with fixed share capital, the name shall end with ‘INVCO’. In the case of an investment company with variable share capital, it shall end with SICAV. Article 70 (2) suggests that a private company may be designated by any name, but such name shall end with the words ‘Private Limited Company’ or the word ‘Limited’ or its abbreviation ‘Ltd.’. In the case of a private company as an investment company with variable share capital, the name shall end with SICAV followed by Ltd. With regards to the objects clause, the purpose of the company is to be indicated in the Memorandum of Association. There is no restriction on the type of objects and quantity of objects, as long as these are lawful. Generally, the objects consist of a series of paragraphs under 3 headings: i. Main and subsidiary objects of the company ii. Powers which are consequential on the company’s objects iii. Powers to the company to do all such other things which are consequential to the company’s objects in order to attain the company’s objects Although some claim that the object clause is beneficial to third parties, really and truly this may be prejudicial to third parties due to the Ultra Vires Rule. However, it is beneficial to shareholders as to restrict the powers of directors. Other Important Prints The requirement that the memorandum of association should be subscribed by at least two persons refers to the general rule that a company requires at least two members. However, if the object clause so permits, the Companies Act today allows a single member company. When the Companies Act suggests that the memorandum of association is to be entered into subscribed by the subscribers, this indicates that it must be signed by the subscribers. Evidence of this is the Maltese Text of the Act, which uses the words ‘sottoskritt’. Articles of Association While the memorandum of association is deemed to be an outward looking document, the articles of association constitutes an inward looking document regulating the relationship between the company and its members, and the members between each other. Thus, in other

words, the role of the articles of association is; ‘the internal organisation of the company.’ The Companies Act stipulates that the memorandum of association is to be registered, whereas the articles of association need not necessarily be registered. However, if the articles are not registered, the first schedule of the Companies Act shall ipso jure become the articles of the company. The first schedule is a model form of article. It is divided into 2 parts;  Part1 contains the regulations for the management of a public company; whereas  Part 2 contains the regulations for the management of a private company. Hence, the company will adopt either Part1 or Part 2 depending on the status of the company. As is the case of the memorandum of association, the articles of the association, where these are registered, are to be signed by the members of the company. The articles are usually divided into a series of paragraphs and the matters which are generally dealt with thereby, are the following: i. The exclusion or variation, in whole or in part, of the 1st Schedule of the Companies Act ii. The share capital and variation of rights iii. Calls on and forfeiture of shares iv. Transfer and transmission of shares v. General meeting and proceedings thereat vi. Borrowing powers vii. Directors viii. Dividends and reserves ix. Accounts x. Notices Registration of memorandum and articles As stated, the memorandum is to be registered. The articles may not be registered, however if this path is adopted, then the first schedule is to apply. A certificate of registration given in respect of a company is in itself evidence of the compliance of the registration provisions. Upon registration, a company comes into existence and is therefore authorised to commence business. Sometimes, the memorandum of articles of association indicates a latter date for the commencement of business, and as the commencement will occur on that particular date and not immediately upon registration. It is important to note that, all persons carrying business or entering into agreements in the name of the company before the registration is made, do so on personal and jointly and severally liable for the dealings made. However, it is to note that, if the company is eventually registered, then the transaction will be deemed to have been entered into by the company if the third party acted in good faith.

Alterations and addition to memorandum and articles Although not exclusively related to the formation of a company, it is important to note that alteration and addition to memorandum of article may be altered and amended by an extraordinary resolution. The copy of any resolution altering or adding to the memorandum and articles of a company must be duly authenticated and is to be duly delivered by the directors or the company secretary to the registrar for registration within 14 days from the date of the resolution. Any such alteration shall not take effect unless and until it is so registered. The Definition of Undertaking Article 5 (1) of the Competition Act and article 101 (1) – the Treaty of the Functioning of the EU, more ore less are identical. In a nutshell, it prohibits agreements, decisions by associations of undertakings, and concerted practice that are restrictive/ preventing/ distorts competition. Both articles may be declared inapplicable where the criteria set out in sub-article 3 of the same article are satisfied. Given their similarity, and the wealth of case-law available from judgements handed down by the ECJ, an analysis of the principle as presented by the ECJ is hereby depicted. Article 101 makes reference to undertakings, but the Treaty fails to define this term. The ECJ in the Hofner case, 1991, claimed that the term undertaking covers any entity engaged in an economic activity regardless of its legal status and the way in which it is financed. Hence the term undertaking has been held to include: corporations, partnerships, individuals, trade associations, the liberal profession, state-owned corporations and co-operatives. Indeed, Craig and De Burca suggest that state-owned corporations can qualify as undertakings when they operate in a commercial context. However, this may not be so when they exercise their public law powers. Likewise, the concept of undertaking does not seems to cover bodies that pursue an exclusively social objective and do not engage in economic activity, such as bodies entrusted with the management of statutory health insurance and old-age insurance schemes. The Wouters case concerned a regulation made by the Bar Association of Netherlands, which under the Dutch law has the power of Law. Dutch Law gives the power to the association of lawyers to regulate the profession. One of the regulations which applied to lawyers claimed that there could not be a partnership which involved multi-disciplines. The plaintiff claimed that this was anti-competitive. The question as to whether the Bar Association was an undertaking arose. The ECJ held that one had to look at the profession of the members of the association to see if there is an undertaking, and it came to the conclusion that lawyers are an undertaking and held that:

Members of the Bar offer for a fee, service in the form of legal assistance consisting in the drafting of opinions, contracts and other documents and representation of clients in legal proceedings. That being so, registered members of the Bar in the Netherlands, carry on an economic activity, and are therefore, undertakings for the purposes of the Treaty. The FIFA case related to the FIFA World Cup organised in Italy. FIFA instructed the Italian Football Federation (FIGC) to organise the event. Thereafter, FIGC set up ad hoc sub-committee to organise the event. With regards to ticket sales, the committee gave a number of tickets to each football federation and sold exclusive rights to a travel agency to sell packaged tours. A number of travel agencies claimed that this was anti-competitive. A question arose as to whether FIFA/ FIGC/ the ad hoc committee were undertakings. The court held that FIFA sold TV rights, merchandise and so forth and hence had an economic activity. FIGC took a share of the profits from ticket sales. The ad hoc committee likewise, took a share of the profit. Thus, the court claimed that indeed they were undertakings. In the case Rai vs. Unitel, in 1977, Rai was planning to broadcast on mondo visione the opera ‘Don Carlos’ in La Scala in Milan. Four of the opera singers participating in this show, had previously participated within a similar show by Unitel. These performers had signed an agreement that they could not partake within a similar show to the one organised by Unitel. Unitel thereafter held that there was a breach of agreement. The Commission investigated the case, and as part of the investigation it sent a letter to Unitel to request information. Unitel held that, the opera singers were not undertakings. To the contrary, the Commission said that opera singers when they commercially exploit their performances, they pursue an economic activity as they get a reward for their performance. Hence this goes to show that an individual may indeed be an undertaking. The key test as stated in Hofner is whether or not the individual/ entity is engaged in an economic activity. One may claim that, the key words of the definition of undertaking are: ‘every entity in an economic activity; regardless of the legal status or form of the entity; relative concept- one should look at the function.’ This hence indicates that, the undertaking can be an individual, a company or otherwise. With regards to the function of the undertaking, it could include elements which are economic in nature and other elements which are not. The Maltese Law definition of undertaking includes a group of undertakings. This means that a group of undertakings refers to one undertaking. This derives from the European concept of the single economic doctrine. For the purpose of Competition Law, companies which form part of a group of companies and hence are not autonomous, are deemed to be a single unit, and as such a single undertaking. This has particular relevance in instances whereby companies within the same holdings enter

into agreements. In such cases the agreement will not run counter to article 101 or article 5 of the TFEU or the Competition Act respectively. In the case VIHO vs. Commission, 1996, VIHO lodged a complaint with the Commission against Parker Pen Ltd. as it claimed that Parker was stopping their subsidiaries from selling their pens outside their territories and thus infringing the Treaty. The issue which arose was whether a subsidiary was to be considered as a separate undertaking. However, the ECJ held that Parker Pen and its subsidiaries are one economic activity and one cannot say that there is an agreement between undertakings. The ECJ has held that where a subsidiary does not enjoy real autonomy in determining its course of action in the market, the prohibitions set out in the Treaty, may be considered inapplicable in the relationship between it and the parent company with which it forms one economic unit. This has also another implication in that, if the subsidiary company is within the EU but the parent company is not, the parent company may be deemed to be acting in breach of competition rules.

Agreement between undertakings Article 5 (1) of the Competition Act and article 101 (1) – the Treaty of the Functioning of the EU, more ore less are identical. In a nutshell, it prohibits agreements, decisions by associations of undertakings, and concerted practice that are restrictive/ preventing/ distorts competition. Both articles may be declared inapplicable where the criteria set out in sub-article 3 of the same article are satisfied. Article 5(1) states: ‘Subject to the provisions of this Act, the following is prohibited, that is to say any agreement between undertakings, any decision by an association of undertakings and any concerted practice between undertakings having the object or effect of preventing, restricting or distorting competition within Malta or any part of Malta.’ Thus, the there are two requisites in the above provision: i. Collusion  Agreements between undertakings  Decisions of association of undertakings  Concerted practices between undertakings market distortion a. Having the object or effect of; b. Preventing, restricting or distorting competition

ii.

Prior delving into the proper element of the question posed, agreement between undertakings, it is important to claim that unless the entity is not given the status of an undertaking, such may not

be in breach of this provision. Agreement between undertakings An agreement can be a horizontal agreement, where the agreement is between undertakings at the same level of production, or a vertical agreement, where the agreement is between the manufacturer and the distributor. In the early case-law, it was argued that the aforementioned provisions of the law were only applicable to competing undertakings, i.e. on the horizontal level. However, in the case Consten vs. Grundig, 1966, the court held that this same provision applies to both horizontal agreements and to vertical agreements. The court held: ‘no distinction can be made where the treaty does not make such a distinction.’ When referring to agreements between undertakings, the law seems to cover any ambit with an intention to co-ordinate market behaviour. Henceforth a legally enforceable contract qualifies as an agreement. However, the ECJ and the Commission held that agreements in the scope of article 101 are not restricted to legally enforceable agreements, but that even Gentlemen’s Agreements and simple undertakings have been held to be agreements for the purpose of this provision.

In this Quinine Cartel case, the Commission investigated the Quinine Cartel established by a number of undertakings which had an export agreement which provides for the fixing of prices and quotas for exports of Quinine. Both fixed prices and quotas were against article 101. The court held that a gentlemen’s agreement shall be deemed to run counter to article 101. In discussing the element of agreement between undertakings, it is important to make reference to the concept of the single economic doctrine. For the purpose of Competition Law, companies which form part of the same group of companies, and hence are not autonomous, are deemed to be a single unit, and as such a single undertaking. This has a particular relevance in instances whereby companies within the same holding enter into agreements. In such instance, the agreement will not run counter to article 101 or article 5 of the Treaty of the Functioning of the EU or the Competition Act, respectively. Also, in the case Bayer AG vs. Commission, 2004, the court held that the concept of ‘agreement’, centres around:  The existence of a concurrence of wills between at least two parties;  The form in which it is manifested being unimportant;  So long as it constitutes the faithful expression of the parties’ intention In this case, Bayer had a UK subsidiary which sold Adalat in the UK and quite suddenly Bayer found that its sales within the Uk were reduced by half as the buyers were purchasing Adalat

from resellers in Spain and France. From its end, to counter such a situation, Bayer reduced the volume of sales to France and Spain. The Commission reached the conclusion that the fact that volumes of the product were reduced to prevent exports to the UK meant that they had acquiesced to stopping exports of Adalat to the UK. Bayer appealed and the court agreed that there was no agreement here and it was purely unilateral conduct by Bayer and that this article did not apply in unilateral conduct. The court further held that there was no evidence of any acquiescence on the part of the resellers and consequently there was no existence of the concurrence of wills between the parties. Decisions of association of undertakings In the case Wouters vs. Netherlands Bar Association, 2002, one of the questions asked to the ECJ was whether a body like the bar association could be considered as an association of undertakings. The Court had to answer the question by first establishing whether lawyers were undertakings, and it reached the conclusion that lawyers, in view of the fact that they perform an economic activity are undertakings. The second question that the Court had to ask itself was whether there is an association which ahs rule making powers and which could be considered an association of undertakings. The answer was positive in that the bar had to be regarded as an association of undertakings. Although, the article uses the word ‘decision’, the word has been given a wide interpretation. As in point of fact, in the case Fedetab (Belgian Association), 1980, Fedetab was a non-profit association of Belgian and Luxembourg companies dealing in tobacco. The court held that a recommendation by the association was tantamount to a decision by an association of undertakings as it was complied with the undertakings concerned. The ECJ also said that, it is not important whether it is a profit making association or not. Concerted practices between undertakings Even if there are no agreements or decisions by associations of undertakings, still undertakings may be caught by article 101 if there is a concerted practice. It is important to note that even if firms have never committed anything to paper at all, but they relied on understandings and verbal exchanges, there still can be concerted practice. If the term is interpreted broadly, it is able to catch within the prohibitions of article 101 parallel pricing. Within the market industry, it is unlikely that firms will price at the same level, due to different price / cost structures. However, within an oligopolistic mechanism, this is very much the reality, and more often than not, price structures are homogenous. This is not due to any form of collusion, but due to the nature of the mechanism, which entails relatively few sellers; high barriers to entry; little product differentiation and price transparency. In the case ICI and others vs. Commission (Dyestuffs), 1972, the Commission had investigated

three price increases which occurred in 1964, 1965 and 1967, which involved a large number of undertakings which produced Dyestuffs. The Commission concluded that there was a concerted practice in this case. The court defined a concerted practice as: ‘A form of coordination between undertakings which without having reached the stage where an agreement properly so called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition’ By its very nature, a concerted practice does not have all the elements of a contract but may inter alia arise out of coordination which becomes apparent from the behaviour of the participants. Also, The Sugar Cartel case clearly indicates that, there can be a concerted practice even though there is no actual plan operative between the parties. The key load is that, each undertaking should operate independently on the market. In analysing concerted practice, Craig and De Burca enlist four important elements. i. The burden of proving an infringement of article 101 rests in the hands of the Commission, and the mere existence of parallel conduct will not, in itself, be sufficient to prove the existence of a concerted practice. Hence, if the person can show that although there is parallel behaviour, there are explanations for what has taken place other than the exercise of concentration, they may be exonerated. The court will not accept the uniformity of price as a result of oligopolistic market structure. If the facts do not indicate that the market structure will lead to price uniformity, and if there are other factors indicative of collusion, then the onus shifts onto the firms to prove otherwise. There are different views on how this element (concerted practice) is employed: In the Wood Pulp case, the Commission held that, there existed concerted practice due to the fact that the wood pulp producers charged similar prices, and altered them uniformly and simultaneously. A significant part of the Commission’s findings was annulled by the ECJ. It held that, parallel conduct cannot be regarded as a proof of concerted practice. Article 101, the court held, did not deprive firms of the ability to adopt their behaviour intelligently to that of their competitors. Also, in the Sugar Cartel case, 1975, an investigation was carried out by the Commission on a cartel of sugar producers in the Netherlands. The sugar producers claimed that there was no plan between them, but the ECJ held that no plan was necessary to prove concerted practice. In the Polypropylene case, the court made reference to the Sugar Cartel case and held that exchanging information in between competitors about price structure constituted concerted practice.

ii.

iii.

iv.

There is this issue of whether a concerted practice must have been put into effect. This was addressed in Huls vs. Commission, whereby the plaintiff claimed that there was a lack of proof of conduct on the market corresponding to a concerted practice. The court, inter alia, held that concerted practice is caught by article 101 even in the absence of anticompetitive effects on the market. The text of the provision clearly indicates that concerted practice is prohibited even if it is not availed off thereafter.

Conclusion It is important to note that, not all forms of agreement between undertakings are deemed to run counter to article 101(1) of the TFEU or article 5 (1) of Competition law. When the decision is such which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing a fair share of the resulting benefit, than the provision of the law shall not hereby apply. Distortion Article 5 (1) of the Competition Act and article 101 (1) – the Treaty of the Functioning of the EU, more ore less are identical. In a nutshell, it prohibits agreements, decisions by associations of undertakings, and concerted practice that are restrictive/ preventing/ distorts competition. Both articles may be declared inapplicable where the criteria set out in sub-article 3 of the same article are satisfied. Article 5(1) states: ‘Subject to the provisions of this Act, the following is prohibited, that is to say any agreement between undertakings, any decision by an association of undertakings and any concerted practice between undertakings having the object or effect of preventing, restricting or distorting competition within Malta or any part of Malta.’ Thus, the there are two requisites in the above provision: iii. Collusion  Agreements between undertakings  Decisions of association of undertakings  Concerted practices between undertakings market distortion a. Having the object or effect of; b. Preventing, restricting or distorting competition

iv.

Prior delving into the proper element of the question posed, agreement between undertakings, it is important to claim that unless the entity is not given the status of an undertaking, such may not be in breach of this provision. Agreement between undertakings

An agreement can be a horizontal agreement, where the agreement is between undertakings at the same level of production, or a vertical agreement, where the agreement is between the manufacturer and the distributor. In the early case-law, it was argued that the aforementioned provisions of the law were only applicable to competing undertakings, i.e. on the horizontal level. However, in the case Consten vs. Grundig, 1966, the court held that this same provision applies to both horizontal agreements and to vertical agreements. The court held: ‘no distinction can be made where the treaty does not make such a distinction.’ Object or Effect The ECJ has held that these two elements are distinct, in that the agreement/ decision/ concerted practice need not satisfy both elements. If the object is deemed to be anti-competitive whereas the effect is not, the claim would still hold. This likewise applies a contrario sensu, in that, if the object is lawfully competitive, but the effect is anti-competitive, than the claim will still hold. In simple words, if it is established that the object of an agreement is that of preventing competition, then one does not need to prove that the effects of the agreement is also restrictive of competition. Once one establishes that the object of the agreement is anti-competitive, the authorities do not need to conduct an analysis of the market to prove that the effect was anti-competitive as well. In the British Sugar case, 2001, the object of the agreement has been defined as the : ‘objective meaning and purpose of the agreement considered in the economic context in which it is applied’ Thus, it is not what the parties intended subjectively but the objective meaning is what counts. Therefore, once the anti-competitive nature of the purpose of the meeting has been established, it is no longer necessary to verify whether the agreement also had any effects on the market. The aforesaid was again clearly stated in LTM vs. MBU, whereby the ECJ held that, it is necessary to analyse the object of the agreement/ decision/ concerted practice, and only if this is ambiguous and not clear, would there be the need to analyse the effect of the agreement. In the same court case, the ECJ enlisted a number of factors which must be taken into consideration in order to decide whether the objects or the effects of an agreement are that of restricting, preventing or distorting competition: i. ii. iii. iv. The nature and the quantity limited or otherwise the products covered by the agreement The position and importance of the parties as regards the market of the products concerned The nature of the disputed agreement The severity of the clauses intended to protect the exclusive dealership

Of preventing, restricting or distorting competition…. The courts to date did not feel the need to differentiate in between the three elements. Once the collusion results as having its object or effect, affecting market distortion, than it is held to be caught within the ambit of article 101. It is important to make reference to the de minimis doctrine. In the case Volk vs. Vervaecke, 1969, Volk was a German undertaking which produced washing machines. Vercaecle was a Belgian undertaking which distributed and sold housing appliances in Belgium and Luxembourg. Volk and Vecaecke entered into an exclusive distribution agreement which provided for ‘absolute territorial protection’ which stops parallel trade and which under the Treaty has been always classified as anti-competitive. Volk claimed that the agreement was anti-competitive and in breach of the Treaty. The German Courts referred a question to the ECJ on the basis that the market shared by the parties was extremely small. Volk had less than 1% of the washing machine market in Germany. The ECJ held that an agreement falls outside the prohibition of the Treaty when it has an insignificant effect on the market. Following this case, the Commission decided to issue guidelines on what ‘insignificant’ means, which although not legally binding are persuasive in nature. The Maltese position is found in Article 6 where the law states that if the impact of the agreement is minimal, the prohibitions do not apply. However, if there is a collective dominance, cumulative effect of parallel networks, the de minimis doctrine does not apply. Conclusion Article 101 (2) claims that, collusion that is caught by article 101 will ultimately lead to the agreement being deemed null and void. Moreover, article 101 (3) adds that when the decision is such which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing a fair share of the resulting benefit, than the provisions of sub-article 1 shall not hereby apply.

Difference in obligations The Commercial Code in article 3 stipulates that: ‘In commercial matters, the commercial law shall apply; provided that where no provision is made in such law, the usages of trade or, in the absence of such, civil law shall apply.’ In dealing with commercial obligations, the general presumptions of civil law obligations shall apply. Henceforth, the conditions essential to the validity of a contract are those articulated in article 966 of the civil code; capacity; consent; subject-matter; causa,

Likewise, the effects, mode of extinction and kinds of commercial obligations, are similar to those of civil obligations, as detailed in the Civil Code. Notwithstanding, the Commercial Code contains a number of modifications or departures of obligations from the manner in which the Civil Code manage obligations. These include joint and several liability; interest; retratio litigioso; resolutive conditions and prescription. Joint and Several Liability The Civil Code, in article 1094 claims that debtors are jointly and severally liable when they are all bound to the same thing in such a way that each of them may be compelled to discharge the whole debt and the payments made by one of them operates so as to release the others as against the creditor. Article 1096 thereafter stipulates that, the creditors may enforce his claim against any of the joint and several debtors at his opinion and it shall not be lawful for the debtors to set up the benefit of division. On the other hand, article 115 of the Commercial Code stipulates that, co-debtors are, saving any stipulation to the contrary, presumed to be jointly and severally liable. Hence in commercial obligations, there is no need to stipulate that that they are jointly and severally liable between the, but this is automatic. If joint and several liability is to be outset, then the co-debtors have to cater specifically with an agreement. The same situation is present is suretyship. In civil law circles, the surety is only bound to pay in default of the principle debtor. Henceforth, one may not claim that surety in civil law is jointly and severally liable. However, in commercial obligations, any person who stands as a surety to a commercial obligation is presumed to be jointly and severally liable with the principle debtor. Therefore, any person who stands as a surety to a commercial obligation, even if that person is not a trader, he is presumed to be jointly and severally liable with the principle debtor. Ritratio Litigioso Another departure from civil obligations is the right known as ritratio litigioso. The Civil law stipulates that, in instances whereby a right has been assigned, the debtor is given a right of first refusal to purchase the right himself. Such purchase would entail the payment of the actual price of the assignment, in addition to any expenses and interest to be reckoned from the day of the payment of the said price by the assignee. What is possible in civil matters is not permissible under the Commercial Code. In the case of assignment of litigious rights, it cannot be exercised where the litigious rights so assigned arise from a commercial transaction. The motivation for this is that, in commerce the Law wants to protect the assignment of rights, goods, etc… Resolutive Conditions

The Commercial Code does also make reference to resolutive conditions, however in a different fashion than the Civil Code. Article 1068 of the Civil Code stipulates that: ‘a resolutive condition is in all cases implied in bilateral agreements, and in the event of a party failing to fulfil the engagements, the agreement is dissolved ipso jure, however, the court in accordance with the circumstances may grant a reasonable time to the debtor to ratify his position.’ On the other hand, article 117 of the Commercial Code stipulates that; ‘the implied resolutive condition referred to in article 1068 produces the dissolution of the contract ipso jure, and it shall not be lawful for the court to grant to the debtor a time for clearing the delay.’ Article 117, than proceeds to state that, this provision shall not apply to contracts of:  Letting of immovable  Contracts of emphyteusis  Contracts of dissolution is specially regulated by law Prescription Another instance which bestows a difference in between civil and commercial obligations is prescription. Article 2128 of the Civil Code stipulates that the period of prescription may be interrupted by any judicial act, whereas article 2125, of the same Code, claims that the prescription period may be suspended. On its part, article 541 of the Commercial Code stipulates that, one cannot interrupt or suspend these periods. This was clearly stated in the case United Acceptance Finance Ltd vs. John Borg, 1999, whereby the defendant had bought a vehicle from the plaintiff and had signed a number of bills of exchange relating to the balance due. In bills of exchange, the period of time within which an action is to be brought in terms of the Commercial Code is 5 years from the day the bills of exchange expire. The car started giving Borg a lot of problems and he complained about this fact. The plaintiff company held that, irrespective of anything, Borg had signed bills of exchange in its favour, and as such owed the company money. Borg stopped the payments and parked the car in a garage. The plaintiff filled a judicial protest to interrupt the prescription. Some 8 years after the bills of exchange expired, the plaintiff instituted an action to make Borg pay the balance due. The court held that, the period of prescription is of 5 years and this could not be interrupted.

Public Company vs. Private Company Article 4 (3) of the companies Act chapter 386 of the Laws of Malta suggests that a company may be formed for any lawful purpose and shall have the status of a public company; or a private company.

Article 69 (1) suggests that the memorandum of every company shall inter alia state whether the company is a public or private company. Sub-article 2 thereafter holds that, in the case of a public company, there shall be annexed to the memorandum, a document providing: a) The total amount or an estimate of all the costs payable or chargeable to it by reason of its formation, up to the time it is authorised to commence business b) A description of any special advantage granted prior to the time the company is authorised to commence business to anyone who ahs taken part in the formation of the company Article 70 (1) thereafter suggests that a public company may be designated by any name, but such name is to include the words; ‘Public Limited Company’ or its abbreviation ‘p.l.c.’. Subarticle 3(b) thereafter holds that when the public company is an investment company with fixed share capital, the name shall end with ‘INVCO’. In the case of an investment company with variable share capital, it shall end with SICAV. Article 70 (2) suggests that a private company may be designated by any name, but such name shall end with the words ‘Private Limited Company’ or the word ‘Limited’ or its abbreviation ‘Ltd.’. In the case of a private company as an investment company with variable share capital, the name shall end with SICAV followed by Ltd. Article 72 defines the difference in between a private and a public company in terms of the Minimum Share capital:  In the case of a public company, the minimum share capital shall not be less that Euros 46,587.47 and be subscribed by a t least two persons  In the case of a private company, the minimum share capital shall not be less that Euros 1,164.69 and subscribed by at least two persons Furthermore, in the case of a public company, not less than 25%, and in the case of a private company, not less than 20%, of the nominal value of each share taken up, shall be paid upon the signing of the memorandum. Article 137 states:  A public company shall have at least two directors  A private company shall have at least one director

Article 182 differentiates in between the period for laying and approval of accounts for public and private companies. Sub-article 2 states: a) For a private company, 10 months after the end of the relevant accounting reference period; and b) For a public company, 7 months after the end of the period

Article 209 further distinguishes the two types of companies and states: 1) A private company is a company, which besides fulfilling the requirements of this Act, is one which by its memorandum or articles: a) Restricts the right to transfer its shares b) Limits the number of its members to 50 c) Prohibits any invitation to the public to subscribe for any shares or debentures in the company Article 213 states: 1) ‘A private company may change its status to a public company by altering its memorandum or articles and incorporating in such alteration all the changes required by the provisions of the Companies Act for a company to hold a status of a public company, including the restrictions within the M&A as per article 209. 4) A public company may change its status to a private company, if after adhering to the restrictions imposed through article 209, alters the memorandum and article of association as to reflect such alteration.

Separate Personality A company has a legal personality which is separate and distinct from that of its members. This principle of separate juridical personality applies not only to companies, but also to the other forms of commercial partnerships regulated by the Companies Act. Article 4 (4) of the Companies Act, chapter 386 of the Laws of Malta states: ‘A commercial partnership has a legal personality distinct from that of its members, and such legal personality shall continue until the name of the commercial partnership is struck off the register, whereupon the commercial partnership shall cease to exist.’ A company comes into existence, and is authorized to commence business as from the date of its registration as indicated in the certificate or registration issued by the registrar. It is, in effect, the company’s certificate of birth as a juridical person on the date in the certificate. As stated in article 4 (4), the juridical personality of the company continues to subsist until the name of the company is struck off the register. It is at this point that the company ceases to exist. Two observations must be hereby made: i. The company retains its juridical personality throughout the process of winding up until the moment it is struck off; and

ii.

The Companies Act allows a court to order that the name of the company be restored to the register and the winding up be re-opened, if it is satisfied that the winding up and liquidation have been vitiated by fraud or illegality of a material nature.

The juridical person has a will of its own from the first moment of legal existence. Given that, a juridical person is a persona ficta, the participation of the persons composing it, is evidently necessary to make up and form what is to be considered the will of the juridical person. Naturally, as the juridical person is a fictitious person, so is its will; yet both the persona ficta and the consequent ficta voluntas are juridical realities. The juridical person, given its own separate legal existence, is capable of acquiring assets and undertaking liabilities, and such assets and liabilities, will be its liabilities and assets and not those of its members. The distinction in between the creditors of the juridical person and the creditors of the underlying members can be illustrated as follows; i. ii. iii. iv. v. The creditors of the individual shareholders, may not enforce their rights against any portion of the assets of the company; In an action instituted by the company vs. a third party, the latter may not bring forward in defence the set-off of any amount which any shareholder may owe him; Vice-versa, the company may not plead in defence the set-off of any amount the third party may owe any of its members; The bankruptcy of the shareholders does not cause the insolvency of the company; The shareholders are not parties of any action instituted by or against the company

To better understand the issue of legal personality, one is to refer to case law dealing with such an issue, thus in the case Salomon vs. Salomon & Co. Ltd., 1897, Mr. Salomon decided to incorporate his trade, and as such Salomon Co. Ltd. was formed. Mr. Salomon took 20, 001 of the company’s 20,007 shares. The rest were shared, subscribed to by his children. The price fixed for the sale was of £39,000. This was satisfied by issuing to Salomon £10,000 in debentures, $20,000 in fully paid shares, and the rest paid in cash. Barely after a year of incorporation, the company ran into financial trouble and went into liquidation, with nothing being left for the unsecured creditors. The House of Lords overturned the judgement given by the court of first instance and considered that Salomon & Co. Ltd. was different from Salomon as an individual. The House of Lords concluded that Salomon was under no liability to the company or its creditors, that the debentures were validly issued and that the security created by them over the company’s assets, were effective against the company and other creditors. The case Macaura vs. Northern Assurance Co. Ltd., 1925, relates an instance whereby, the plaintiff assigned his timber estate to a company known as the Irish Canadian Saw Mills Ltd. All the shares in the Company were held by him or his nominees. The company proceeded with the cutting of timber. In the course of the operations, Macaura became the creditor of the company

for £19,000. Macaura insured the timber in his name. Sometime later, the timber was destroyed by fire. The insurance company, refused to pay out on the ground that the plaintiff had no insurable interest in the timber. This claim was upheld by the House of Lords. The court held that, notwithstanding the fact that Macaura owned almost all the shares in the company, Macaura had no insurable interest, since the company which owned the timber had a separate juridical personality. The case Lee vs. Lee’s Air Farming Ltd., 1961, was decided by the Privy Council on appeal from a New Zealand Court. Mr. Lee was the controlling shareholder and the governing director of the company. He was also engaged as its chief pilot. He was killed whilst piloting an aircraft in the course of his business. The New Zealand Court recognised that a director of a company may properly enter into a service agreement with his company, but it was held that, since Mr. Lee was the governing director in who was vested the full government and control of the company, he could not also be a servant of the company.

The Privy Council held otherwise. It stated that, the fact that someone was a director of the company was no impediment to his entry into a contract to serve the same company. Mr. Lee and the company had a separate juridical personality, and as such it was perfectly legal to have the same person in a dual capacity. In the case George Spiteri (Successors) Ltd. vs. Anthony Cremona ET, the court held that notwithstanding the fact that indeed the company was owned by the plaintiff, the two had a separate juridical responsibility. In the case Emmanuel Dalli vs. Data Systems Co. Ltd. the plaintiff had a lease agreement with the defendant, which expressly prohibited such sub-letting. During the tenancy of such lease agreement, the defendant company had a change in shareholding, and the company and leased premises, were now being managed by the new shareholders. The plaintiff held that, this amounts to a sub-letting agreement. The court held that, the business continued to be operated by the same company, irrespective of the different shareholders, in fact the change in management and shareholding does not make any difference. Hence, the court concluded that there was no sub-letting.

The Corporate Veil Article 4 (4) of the Companies Act, chapter 386 of the Laws of Malta states: ‘A commercial partnership has a legal personality distinct from that of its members, and such legal personality shall continue until the name of the commercial partnership

is struck off the register, whereupon the commercial partnership shall cease to exist.’ One should note that the most important characteristic of a company is the limited liability of all members composing it. This limited liability flows from the fact that a company is given its own separate legal status, separate from that of its members, making it liable for its own obligations. The question arises however, as to whether this separate existence which is given to a company may be revoked, especially when it is abused of by its members. This is known as the Lifting of the Corporate Veil. By Veil, we are hereby referring to the separate juridical personality which separates the company from its members. Thus, the Court sometimes by way of exception, occasionally ignores the separate identity of the company and that of its members and lifts the corporate veil. This process introduced inroads into the doctrine of separate juridical personality, either by looking beyond it, setting it aside or ignoring it completely. Circumstances when the Corporate Veil is lifted The first case is when a company has less than two shareholders. Under article 214(4) of the Companies Act, the remaining member is unlimitedly and jointly and severally liable for the obligations throughout the six months. The second scenario is in the case of fraudulent trading, dealt with under article 315 of the Companies Act. The fraudulent trading remedy, does not in essence really involve an exception to the principle of separate juridical personality, as the company nonetheless continues to be regarded as a separate juridical person and be liable for its obligations, but there is an additional liability imposed on the wrongdoer. The third case is wrongful trading. Under article 316, directors have the duty not to commence trading in instances whereby so doing; he would be jeopardizing the creditors’ claims. The Cork Committee in a commentary on the wrongful trading, held that trading when the business is heavily under-capitalized, will often fall within the concept of wrongful trading. Those responsible for carrying on trade with insufficient share capital and reserve, may well find themselves responsible for wrongful trading and accordingly subject to personal liability in this respect. Like in the concept of fraudulent trading, the wrongful trading remedy is also generally regarded as an example of lifting the corporate veil and that as a concept it does not constitute an exception to the principle of legal personality. The fourth case is whereby, the separate juridical personality of each company within a group of companies, is in a way ignored and the whole group is viewed as a single entity. Although, Maltese Law does not ignore the principle of limited liability within a group of companies, the requirement of a consolidated account for a group of company shows that the law is prepared to override the separate legal personality of companies within the group, where this does not

involve any infringement of the principle of limited liability. Judicial Inroads This was not very adopted by the Maltese Courts and in point of fact in such instances, the Maltese judgments tend to refer to British judgements. Thus, it is appropriate to review the position under English Law. Agency – Certain commentators such as Schmitthoff have classified agency as one of the main headings under which the courts have lifted the corporate veil. Fraud and Improper Conduct – Both the English and the Maltese courts have not hesitated to lift the corporate veil in such cases, including the cases of evasion of contractual or legal obligations, such as in the cases Herrera vs. Tabone and Enriquez vs. Farrugia. A façade concealing the true facts – This abusive situation occurs when there is no real business and whereby the company would lack assets, have no employees and run no business. Single economic unit – Economic integration can be abusive and thus requires control. This arises where the unitary enterprise, for no financial reason, is artificially fragmented into several single enterprises to cater for potential claims. Conclusion By law, a company is granted a separate juridical personality but, this is not a universal right and in fact, both Maltese and English Courts have not hesitated in lifting the corporate veil where indeed required.

Classes of Shares Article 69 stipulates that the memorandum of every company shall stipulate, inter alia, the amount of share capital, the division thereof into shares of a fixed amount, the amount of shares taken up by each of the subscribers and the amount paid up in respect of each share, and where the share capital is divided into different classes of shares, the rights attaching to the shares of each class. A company may issue its shares with the same or different rights. When a company issues its shares with different rights, the share capital is divided into different classes of shares with different rights attached to them. Occasionally there may be sub-classes within a class of shares, e.g. ‘A’ ordinary shares – ‘B’ ordinary shares. In any such case, each sub-class is to be considered as constituting a separate class of shares. The following are the most important types of classes of shares: Ordinary Shares

Such class of shares is the one most commonly used and in many cases, the capital of a company comprises only of ordinary shares. A person who has ordinary shares cannot have them redeemed. The only way he can do so is either by selling or by forfeiting them because he has not respected the regulations. Preference Shares These types of shares are those which are entitled to preference, as to dividend at a fixed rate before any dividend is paid on the ordinary shares, and in some cases, also to a preference as to capital in a winding up. A further right is sometimes given to preference shares, namely that of receiving a percentage of surplus profit over and above the fixed rate, but after the payment of a certain rate on the ordinary shares. 3 important elements of preference shares are: i. ii. Preference shares may be redeemable They may be cumulative or non-cumulative, cumulative in the sense that, if declared insufficient to pay the fixed rate, the deficiency must be made up out of the profits of subsequent years. Preference shares may carry voting rights or they may not

iii.

Authorised and Issued Share Capital Authorised The maximum threshold of authorised shares is inscribed within the memorandum and such may only be altered by an extraordinary resolution. Article 72 stipulates that the minimum authorised share capital shall be of: Euros 47,000 for public companies Euros 1,165 for private companies If the authorised share capital is equal to the minimum amount prescribed, than it shall be fully subscribed. When it is beyond the minimum, the minimum (E47, 000 in case of public companies and E1, 165 in the case of private companies) shall at least be subscribed. Issued Issued shares cannot exceed the authorised share capital. An increase in the share capital issued shall be authorised by an ordinary resolution, unless the memorandum requires a better form. The ordinary resolution is to be submitted to the Registrar of Companies within 14 days of the resolution. If the resolution is intended to reduce the issued share capital, it will not take effect prior to 3

months from its publication. If on the other hand, the reduction is intended to be lower than the minimum prescribed by law, than the court will annul it immediately. Authorised vs. Issued Share Capital The authorised share capital is the maximum amount of capital which a company may have at any particular moment in time. It is a sort of maximum threshold, which however may be altered by an extraordinary resolution. The purpose of such extraordinary resolution would be due to the fact that such alteration would in fact constitute an alteration in the memorandum. Article 72 of the Companies Act stipulates that, the authorised share capital of a company shall be not less than Euros 47,000 subscribed by at least two persons, in the case of a public company. The same provision thereafter stipulates that the authorised share capital shall not be less than Euros1, 165 subscribed by at least two persons, in the case of a private company. The legislator provides that, where the authorised share capital is equal to the minimum amount prescribed, it shall be fully subscribed. When it exceeds such minimum, at least the minimum shall be subscribed in the memorandum. In the case of a public company, not less than 25%, and in the case of a private company, not less than 20%, of the nominal value of each share taken up, shall be paid on the signing of the memorandum. The issued share capital is that amount of share capital which the company has actually issued which of course must be within the limit of the authorised capital. The issued share capital would than be converted into shares of a fixed value and distributed to the shareholders accordingly. Article 85 stipulates that any increase in the issued share capital of a company shall be decided upon by an ordinary resolution of the company unless the memorandum or articles require a higher percentage than that required for an ordinary resolution. The copy of the ordinary resolution, detailing such increase, shall be delivered to the Registrar for Registration, within 14 days after the date of the resolution. Besides having to be registered, when an alteration to the memorandum consists in the reduction of the issued share capital, such resolution does not take place before 3 months from the publication thereof. It is in this period, in fact in which a creditor may, by filing a writ of summons, object to such reduction, if he can show good cause regarding why such reduction should not take effect. It is up to the court to decide whether to allow the objection or allow the reduction. If the company is attempting to lower the issued share capital to a figure lower than that prescribed by the law, than the court would declare the reduction null immediately. Protection of Minority Shareholders – Article 402

Article 402 of the Companies Act bears a strong resemblance to the provisions of the English Companies and Insolvency Act. However, one may state that this provision is mostly modelled on article 209 of the New Zealand Companies Act of 1955. Article 402 (1) suggests that any member may make an application to the court. Although, generally this provision is made use of by minority shareholders, as the provision states; ‘any member may make such application’, in true fact, the law seeks to protect all types of members. This was in fact pointed out in the case Testaferrata Moroni Viana vs Testaferrata Moroni Viana (Holdings) Ltd. It is also important to note that for the purpose of this provision, the term member includes: i. ii. iii. A person entitled at law to represent the interests of a deceased member; A person to whom shares in the company shall have lawfully been devolved by way of testate or intestate succession; A trustee who holds shares in the company

Article 402 (2) thereafter suggests that, the Registrar may also make an application to the court under article 402. The Registrar may do so, where he has received a report on the company following an investigation by inspectors and it appears to the Registrar that the company’s affairs are being or have been conducted in a manner that is or is likely to be:  Oppressive to;  Unfairly discriminatory against;  Unfairly prejudicial; to a member or members of the company, in a manner which runs contrary to the interests of the members as a whole. Any member seeking relief under Article 402 must show that the conduct of act or omission complained of has been, is, or is likely to be, oppressive, unfairly discriminatory or unfairly prejudicial. It is important to note that, the plaintiff must only prove one effect of the conduct or omission so that proceedings can be successful in his favour. The Maltese Legislation did not define these three elements; however, hereunder an attempt to define such elements is depicted. Oppression The notion of oppression was examined in the Australian Case Gambotto Et vs. WCP ET. Hereby, the High Court, confirming the first court’s decision, held that where the articles of Association do not provide that the shares of a member may be expropriated, any resolution granting such power would be oppressive to the shareholders who do not wish to sell their shares. Hereby, the High Court sought to protect the interests of the minority shareholders.

Unfair Discrimination

From the words of the legislator, one may deduce that the law does not require identical treatment for all shareholders. Had it been otherwise, such a requirement would unnecessarily restrict the flexibility needed to ensure the proper functioning of companies. With regards to the definition of unfair, we make recourse to the thesis submitted by Tonio Ellul ‘Protection from Discrimination’ (1993) which defines it as being ‘the unequal treatment of members in an equal position’. Unfairly prejudicial With regards to this element, it is important to note that, although at prima facie Maltese Law seems to give the impression that a member can bring an action even though he may not have suffered any prejudice himself, this is not the case since Procedural Law demands that the person has to have a sufficient judicial interest in respect to the action he wishes to institute. This point was in fact confirmed in the judgement Farrugia vs. Buhagiar. Remedies If the court is satisfied that the complaint is just, the court may make an order in virtue of the orders listed in article 402 (3): i. ii. iii. iv. v. vi. vii. viii. Regulating the conduct of the company’s affairs in the future Restricting or forbidding the carrying out of any proposed act Requiring a company to do an act which the applicant claims that the company has omitted to do Providing for the purchase of the shares of any member of the company by other members of the company or by the company itself Directing the company to institute, defend, continue or discontinue court proceedings Providing for the payment of compensation by such person as may have been found by the court to be responsible for loss or damage suffered as a result of the act or omission Dissolving the company and providing for its consequential winding up Changing the memorandum of association

The complainant has a choice, he may either request a particular type of order or he may choose two types of orders, so that if the first is discarded by the court, the second may be ruled onto. Prescription The Companies Act does not mention a prescriptive period for the action, however, it is taken that the prescriptive period in such a case is that of 3 years, unless the member specifically asks for damages in which case the prescriptive period would be of 2 years, which is the prescriptive period applicable for actions under tort. The Moment of Conclusion of a Contract – Article 110 Establishing the moment of conclusion of a contract is of paramount importance. This can make

a great difference since there is ownership and risk in the goods which are transferred. Risk may be defined as a corollary of ownership, and as such if ownership is not yet transferred, the risk rests in the hands of the original person (natural or legal). Article 1347 of the Civil Code stipulates that a contract of sale is concluded when the thing and the price have been agreed upon. Henceforth, from such instance, the risk is transferred to the buyer. Generally the rule is that there is an agreement when there is the union of the wills of the parties. In Latin this is referred to as the idem in placitum consensus. Prior to this stage, which is composed of an offer and acceptance, there is the so-called negotiation stage. The offer and the acceptance are deemed to be unilateral and independent acts of the contracting parties, prior to the union of the wills. The Italian authors Torrente e Schelisinger in their literature, ‘Manuale di Diritto Privato’, suggested that; ‘Proposta ed unilaterale…’ accetazione costituiscono entrambi dichiarazioni di volonta

In instances where the parties to the negotiation stage are in the presence of each other, there isn’t really a problem since matters are discussed together. The problem arises when parties are discussing by means of correspondence. Article 110 ET of the Commercial Code defines the commercial obligations and seeks to address such a problem: ‘A contract stipulated by means of correspondence, whether by letter or telegram, between parties at a distance, is not complete if the acceptance has not become known to the party making the offer within the time fixed by him or within such time as is ordinarily required for the exchange of the offer and the acceptance, according to the nature of the contract and the usages of trade generally.’ One may elect a number of reasons why it is essential to determine when and where the contract is concluded: i. ii. iii. iv. v. vi. If the deed is not concluded, the person making the offer can withdraw the offer prior to there being acceptance To distinguish whether a contract has been concluded or otherwise, as to determine whether one sues for contractual or for pre-contractual damages To determine for instances when the parties (one of them) either dies or is interdicted or incapacitated For instances where there is a change in legislation determining when and how offer and acceptance are exchanged Due to the periculum rei (notion of risk) In terms of Private International Law, where a contract is concluded can make a massive difference, since there are different theories that should apply in terms of law of contract

The Theory of Acceptance Vivante suggests that it is; ‘la dichiarazione diretta al proponente di volere concludere il contratto secondo la sua proposta’.

In so far as acceptance is concerned, there are four elements that must be satisfied: i. The acceptance must correspond fully with the offer, otherwise there is not contract. In this respect, there is section 112 which states that: ‘a delayed acceptance or an acceptance subject to the condition, addition, restriction or alterations shall be deemed to be and shall count as a refusal of the original offer and as such shall count as a new offer.’ ii. iii. iv. In the case of an offer made to the general public, the acceptance must be made by the offeree The acceptance must be directed to the offeror The acceptance must be externally manifested. Sometimes, problems arise as to whether silence per se could amount to acceptance. The Maltese case law claims that silence does not amount to acceptance

As in point of fact, in regards to the last notion, in the case Grech vs. Farrugia, 1946, the court held that any doubt must be concluded and interpreted against the conclusion of the contract. Again in the case Azzopardi vs. Bonnici, the court held that there cannot be any presumption that there was an acceptance. However, one is to note that, there are instances whereby silence may lead to an acceptance: i. ii. When there has been an exchange of correspondence between the parties at the end of which one of the parties remained silent. There one could possibly construe silence If an agent concludes a contract beyond his authority, the silence of the principal could denote acceptance

In the case Parnis vs. Arpa, 1894, the court claimed that the silence of Arpa amounted to consent; else not he would have refused the claim by Parnis. In the case Portelli noe vs. McKenzie, 1942, once again the court referred to the silence of the defendant, and held that such silence amounts to acceptance of the condition. The Theory of Revocation Revocation is regulated by article III of the Commercial Code. The article stipulates that until the contract is complete, the offer and acceptance may be revoked. However, the same provision stipulates that, if the offer declares that same is to remain open until a specific time, a revocation before the lapse of such time will not prevent the completion of the contract. On the other hand, if the offer stipulates that the other party carry out the contract without previously communicating his acceptance, the contract is deemed to be complete as soon as its execution has commenced. The Electronic Commerce Act

Certain contracts, which do not require a particular formality, may be concluded through electronic means. A set of legal provisions regulate such form of contract:      Section 9 gives validity to contracts Section 10 regulates the confirmation of the contract Section 12 defines the time of dispatch Section 13 the time of receipt Section 14 establishes a set of rules to establish the place of dispatch and a place of receipt

One is to note that, with respect to article 9, this shall not be denied legality, validity, enforceability on the ground that it is wholly or partly in electronic form or has been entered into wholly or partly by way of electronic communication.

Abuse of Dominant Position Article 102 TFEU – Article 9 Competition Act Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may offer trade between Member States. In defining a dominant position of an undertaking, which was defined in the Hofner Case as ‘that entity on an economic activity regardless of its legal status’, it is important to investigate the relevant market. The aim of such is to differentiate between those performances of other undertakings, which must be taken into account in evaluating the position of the undertaking subject to the investigation. Craig and De Burca claim that such is constitutive of three variables; i. ii. iii. The product market; The geographical market; The temporal factor

The Relevant Market i. The Product Market

Undertakings will only have market power in the supply of particular goods and services. The narrower the definition of the product market, the easier it is to conclude that an undertaking is dominant under article 102. Henceforth, many such cases envisaged a defence being brought up by the alleged dominant undertaking abusing of its position, claiming that the commission adopted too narrow a definition of the product. The general approach of the Commission and the court has been on the focus of interchangeability, i.e. the extent of which goods and services under scrutiny are interchangeable with other products. This is done by looking at the demand and supply sides of the market. From the demand side, interchangeability requires investigation of cross-elasticities of the product. If the cross-elasticity is high, than the greater is the propensity of consumers to shift from one product to another. The aforesaid was clearly investigated in the United Brands case, where the court took into account a number of factors to determine whether the constituted market bananas, was separate from other market fruits. In this case, the ECJ compiled a thorough analysis of the crosselasticity and elements of bananas and other fruits. The court concluded that, the banana market is a sufficient distinct market from the other fresh fruit market and as such had a low crosselasticity.

ii.

The Geographic Market

This alludes to the territory in which all traders operate in the same or sufficient homogenous conditions of competition in relation to the relevant products or services. In the United Brands case, the ECJ held that the six States under examination form a sufficiently homogenous market and as such should be considered in their entirety. In the British Telecommunications case, being that the firm enjoys a monopoly in the provision of telecommunication services, it was easy to determine that the geographical market under investigation is to be Britain. In other cases, such as the Hilti case, the ECJ took an extreme and deemed the whole of the European Union as being the relevant geographical market. iii. Temporal Factor

Markets may have a temporal element to them. Thus, a firm may possess market power at a particular time of the year, during which competition from other producers is low because these other products are available seasonally. Market Power Single Firm dominance Following the definition of the product; geographical; and temporal elements of the relevant market, it has than to decide whether the undertaking is dominant or otherwise within that sphere. Craig and De Burca enlist two important elements to be taken in consideration: Market Share and Barriers to Entry. i. Market Share

Market share can vary from 0.1% - 100%. An undertaking with a statutory monopoly will garner 100% market share. Obviously, the greater the number, the greater is the propensity to be defined as a dominant undertaking. In the United Brands case, the ECJ held that a 45% market share resulted in dominance within the relevant market. It is important to note that, hereby the court took other factors into consideration in determining such. On the other hand, Hoffman – La Roche case, the court held that a 43% market share did not amount to a dominant position. In the British Telecommunications case, being a statutory monopoly it had a 100% market share. It is to note that article 9 of the Competition Act stipulates that a 40% market share shall constitute a dominant position, unless proof to the contrary is deemed fit.

ii.

Barriers to Entry

As was stated earlier, in determining the dominance, the court is to pay attention to factors other than market share. An essential aspect of the analysis relates to barriers of entry. The definition of barriers of entry is a contentious matter, in the sense that different people employ different meanings. Some adopt a broad meaning, whilst other employ a narrow approach. The court’s approach can be exemplified in the Hoffman – La Roche case. This case was concerned with abusive behavior in relation to vitamins. The ECJ persisted in taking a relatively wide/broad view of barriers of entry, as has the Commission. Joint Dominance Up until now, the discussion has assumed that one firm occupies a dominant position in the market. However, article 102 speaks of an abuse of a dominant position by one or more undertakings. It is clear that this covers the situation exemplified in the Continental Can case. where the dominant position is held by firms that are part of the same corporate group or economic unit (Single Economic Unit). What is less clear is whether the phrase also covers oligopolistic markets, in which a number of independent firms operate in parallel manner. The ECJ appeared to have rejected this in the Hoffman – La Roche case, when it held that unilateral behavior by a single firm occupying a dominant position had to be distinguished from interactive behavior by a number of independent firms, which made up an oligopoly. In the Italian Flat Glass case, the court annulled the Commission’s decision on the ground that there were errors in its reasoning, bot with respect to the definition of the relevant market and because it had not adduced the necessary proof of a collective dominance position. The Commission had previously held that the undertakings had a collective dominant position. Abuse Dominant position alone is not castigated. Article 102 TFEU and article 9 of the Competition Act, seek to condemn only the abuse of the dominant position. Craig and De Burca claim that the list within article 102 is not exhaustive; the practices specified are merely examples of abuse. Mergers An important case which tackled the issue of mergers was the Continental Can case. Crown Corks, an American company, via one of its European Subsidiaries acquired shares in a Dutch Company. The latter Dutch company, was in competition with Crown Corks in the European Market with respect to the supply of tins for meat and fish products. The court quashed the Commission’s decision since the Commission had not established its findings that the makers of other kinds of can could not easily start making fish and meat cans, nor had it given valid reason for excluding Crown Corks from the market in metal closures.

However, the case law is important since the court held that mergers could be in breach, if the action weakened the competitive market structure. The court in its conclusions made reference to the objectives of the EU Treaty, which included the creating of an internal market; removal of barriers; free movement of goods; and so forth. This also including that competition within the market is not distorted. Hence it is within the remit of the Commission and courts to verify that mergers do eliminate competition within the market. Refusal to Supply Refusal to supply was clearly exemplified with the Commercial Solvents Corporation case. Hereby CSC made raw materials, which were then used to make ethanbutol. CSC bought the majority shareholding in an Italian Company Istituto, which bought raw materials from CSC and thereafter sold them to another company Zoja. Istituto sought to acquire Zoja, but the negotiations were terminated. Eventually CSC stated that it will no longer sell the raw material, since it would be entering the market of supplying ethanbutol itself. The Commission held that this was an abuse of a dominant position. The court likewise held that this was an abuse of a dominant position, since CSC sought to eliminate all competition from the market. The discussion of refusal to supply will also bring along a discussion on the Essential Facilities Doctrine. This alludes to an instance whereby an undertaking which both owns and controls a facility of infrastructure to which competitors need access in order to provide service to customers, cannot refuse such access to such competitors. This was primarily established in the RTE case. RTE was a statutory authority providing broadcasting services. It reserved the right to publish a weekly schedule of TV programmes for its channels in Ireland. Another Irish company, Magill sought to publish a weekly guide which would have a formation on all available channels. RTE claimed that this infringed its copyright, and hence refused to give the information. The CFI held that this runs counter to competition rules, by preventing the emergence of a new product. The essential facilities doctrine is also apparent in the Commission decision of the Sealink case. Sealink owned the port of Holylead and operated a ferry service to Ireland. A rival ferry company complained that, Sealink operated the sailing schedules from Holylead for the rival companies, in a most inconvenient manner. The Commission held that, it was an abuse of article 102 from the owner of the facility, to use its power within the market to strengthen its position, at the expense of rivalry competitors. This essential facilities doctrine has been criticized by some, and fact later decisions have taken limited view of the doctrine. In the ENS case, the court held that a product or service could not be considered necessary or essential unless there was no real or potential substitute for it.

Price Discrimination Price discrimination alludes to instances whereby goods are sold or purchased at prices which are different, and which are not related to differences in cost. Henceforth, price discrimination can cover the situation in which the same product is sold at different, non-cost related price; and it can also cover the situation where the goods are sold at the same price, even though there are real cost differences entailed. Discrimination can occur in a variety of ways. It may be geographical, whereby the undertaking prices at different levels for different local markets, and therefore seeks to insulate one from the other in order to prevent reselling between them. It may assume the form of discounts or debates that are not related to cost differences, but have the objective of tying customers close to the producer. It may also assume the form of predatory pricing, whereby the dominant firm seeks to protect its dominance by dropping its prices below a certain level in order to deter a would-be entrant to the market Predatory Pricing The leading judgment is Azko vs. Commission, whereby Azko was a firm, which produced a number products. In an effort to strengthen its position, it offered prices to ECS’s customers (another firm) that were lower than Azko’s own average total or variable costs, and it had done so to remove ECS from the plastic market. The ECJ in its analysis held that a company that employs a price below average variable costs has no interest in applying such prices except that of eliminating competitors as to enable it subsequently to raise its prices by taking advantage of the monopolistic position. Selective Pricing As stated in the Irish Sugar case, whosoever employs a selective pricing mechanism will generally take account of the practice aimed at eliminating a competitor from the market.