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28 May 2019
In its decision in Mahasni v Eden Rock SAL (June 2016), the Beirut Appeal Court highlighted the requirements that shareholders must meet in order to submit claims against their company or its chair or directors.
Mr Mahasni – who held 12,417 bearer shares in real estate and tourism company Eden Rock SAL – submitted a lawsuit before the Beirut First-Instance Court (ruling on commercial matters) against:
Mahasni claimed that the chair had acted beyond his powers by entering into a development, construction and forward sale agreement. In particular, Mahasni claimed as follows:
The claimant asked the court to, among other things, annul the transaction and the resolutions adopted during the 18 November 2011 shareholders' general assembly based on the following grounds:
First-instance court decision
The Beirut First-Instance Court examined the two kinds of lawsuit which shareholders can file against their company or its chair or directors.
Article 166 of the Commercial Code stipulates that any shareholder or third party can file a lawsuit against a company or its chair or board of directors in the case of fraud or a breach of the law or the company's bylaws which results in damage. However, Article 166 also provides that such damage must:
In the present case, the court resolved that Mahasni had failed to prove that he had incurred specific damages as a shareholder, and that his claimed damages (although not proven) were the same as those which could be caused to the company. Therefore, the court rejected Mahasni's claim based on the requirements for individual actions set out in Article 166 of the Commercial Code.
Articles 167 and 168 of the Commercial Code stipulate that any shareholder can file a lawsuit against a company's chair or directors when any of the latter commit an administrative error. However, these articles also provide that such a suit must, in principle, be filed by the company. Where this is not the case, the shareholders can file the suit in lieu of the company on its behalf. Further, Articles 167 and 168 provide that the compensation claimed by shareholders in such cases will be restricted to the amount of their participation in the company's interest.
Based on the above, the court resolved that since a company action must be filed against a company's chair or directors in certain circumstances, its object cannot be extended to include a claimant's right to request the cancellation of an agreement signed by the company and a third party. It therefore rejected Mahasni's claim based on the requirements for company actions set out in Articles 167 and 168 of the Commercial Code.
Further, the court resolved that under Article 157 of the Commercial Code, only a company has the right to request the cancellation of an agreement between it and a third party. Such right cannot be transferred or conveyed to the company's shareholders in exercising its action.
Appeal court decision
The Beirut Appeal Court confirmed the first-instance court's decision and added that shareholders are, in principle, entitled to preserve their personal rights which derive from their participation in a company by exercising their voting right at shareholders' general assemblies.
In addition to the rights granted to shareholders under Article 192 of the Commercial Code, which enable them to challenge general assembly resolutions, their personal rights are further protected by their ability to challenge the company's management through an individual or company action. However, in either case, a shareholder's claim should be restricted to the damage which they have personally suffered and limited to their participation in the company.
For further information on this topic please contact Tarek Farran or Aline Saade at Farran Law Firm by telephone (+961 1 426 174) or email (firstname.lastname@example.org or email@example.com). The Farran Law Firm website can be accessed at www.farranlaw.com.
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