Judgment of the Court of Appeal of Évora of 10.09.2015

Judicial Exclusion of Partner – Active Legal Capacity

As regards private limited companies (quota companies), the law provides the possibility of judicial exclusion of a partner who, through a conduct that is disloyal or seriously disturbs the operation of the company, has caused or may cause significant losses. As a requirement for exercising the judicial exclusion of a partner, the law requires a resolution by the partners, on bringing an action against the offending partner.

In this case, the company only had two partners. The exclusion action was brought by one  partner  against  the  other,  on  the  grounds  that  his  conduct  was  disloyal  and detrimental to the interests of company. The partner initiated procedures in his own name and not in the name of the company, as provided in the law. The partner claimed that the existence of a decision by the company would make no sense in this specific case, since it would entail calling a general meeting, which would only be attended by the two partners – plaintiff and defendant. In his opinion, in such a situation, calling a general meeting would have the perverse effect of the offending partner being informed (and possibly voting) about the intention of the other partner to bring an action against him, with a view to his exclusion from the company.

In his defence, the other partner raised the lack of legal capacity of the (plaintiff) partner to bring the action, claiming that proceedings should always have been brought by the company itself, based on the existence of a company decision that validated its intent s.

The court of first instance accepted the interpretation of the defendant, having deemed that the partner was not a lawful plaintiff in the action. An appeal was submitted to the Court of Appeal of Évora, which supported the same interpretation: the legal c apacity to exercise the right to exclude a partner of a private limited company belongs to the company and the exercise of this right must always be preceded by a decision of the competent internal body (The General Meeting), regardless of the number of partners.

To support its theory, the Court of Appeal of Évora presented the following arguments: (i) legal capacity is analysed by reference to the direct interest in bringing the action, this interest expressed by the usefulness that can result from a favourable decision. It is indeed the company (and not the partner) that is the legal entity whose rights and interests have been harmed by the attitude of the defendant partner and therefore has an interest in suing that person; (ii) the company “speaks” thro ugh resolutions of its partners, for which reason this instrument (a resolution of the general meeting) can never be considered unnecessary or superfluous; (iii) the formality associated with need for a resolution is not excessive, since the partner to be excluded, although prevented from voting, would not be prevented from taking his place at the general meeting intended to decide upon the exercise (or not) of the right to exclusion. This is a core right of the partner, as stated in the law.