The First Hall of the Civil Court, presided over by Mr Justice Lino Farrugia Sacco, in the case ‘Joanne Cassar vs Joseph St John, Mary St John, and William and Tyrone St John’ on May 8, 2013, held, among other things, that the purpose of the action pauliana (article 1144 of the Civil Code) was to restore the creditor to the position before the fraudulent act was committed.
The facts in this case were as follows.
The court said that article 1144 of the Civil Code was intended to assist a creditor to impeach an act of his debtor, which was made deceitfully and to his prejudice
Joanne Cassar filed legal proceedings against Joseph St John, his wife and children on grounds of article 1144 of the Civil Code (actio Pauliana), to rescind two contracts of donation dated March 10, 2009, and March 18, 2009, which were published in the acts of notary Patricia Hall, whereby St John transferred all his immovable property to his children.
Article 1144 of the Civil Code provides:
“ 1. It shall also be competent to any creditor in his own name to impeach any act made by the debtor in fraud of his claims, subject to the right of the defendant to plead the benefit of discussion under the provisions of articles 795 to 801 of the Code of Organisation and Civil Procedure.
2. Where such acts are under an onerous title, the creditor must prove that there was fraud on the part of both contracting parties.
3. Where such acts are under a gratuitous title, it shall be sufficient for the creditor to prove fraud on the part of the debtor.
4. The action competent to the creditors under this article cannot be exercised against minors, except to the extent of any benefit which they may have derived, saving any other right of action competent to the creditors against any tutor who may have taken part in the fraud.”
Joanne Cassar obtained in her favour a judgment dated July 9, 2009, against St John where he was condemned to pay her €226,313. It was argued that by these donations, she was unable to recover payment; that these transfers were done fraudulently and to her prejudice, and with the intention of defrauding her rights.
Cassar asked the court:
1) to declare that the contracts of donation dated March 10, 2009, and March 18, 2009, were done fraudulently and to her prejudice;
2) to declare that these two contracts were null and without effect; and
3) to condemn defendants within a short time to appear for the publication of the notarial acts of rescission and to appoint a notary to publish the act.
In reply, Mary St John claimed that she was not a party to the proceedings against her husband dated July 9, 2009, and should be freed from this case.
Joseph St John claimed that Cassar’s requests were unfounded and should be dismissed. It was not true that he acted fraudulently. He said that the donations did not reduce his patrimony at the time when her action had been filed.
He contended, on a without prejudice basis, that once the property had been acquired during his marriage, Cassar’s claim could only be made, if at all, against his share of the property.
It resulted further that Joseph St John did not have money in the bank.
After reviewing the evidence, the court considered that the purpose of the actio pauliana was to preserve the patrimony of the debtor in order to safeguard the interests of the creditor re: ‘Anna Bellia vs Victor Grech and John Bellia (CA)’ dated October 6, 1999. Two elements had to be established:
1) the eventus damni (harm to the creditor making this suit); and
2) the consilium fraudis (the knowledge that creditors would be prejudiced).
It was also possible for the actio pauliana to be filed by a married woman against her husband to protect her interests, even while separation proceedings were still pending (XXXIV III – 851).
In ‘Mario Bongailas vs John Magri et noe’ dated March 15, 2002, the court held “la finalita della pauliana e di mettere il creditore nella condizione nella quale si trovava prima che l’atto fraudolento fosse stato compiuto. Dunque l’effetto dell’azione e essenzialmente restitutorio.” (The purpose of the action was to restore the creditor to the position before the fraudulent act was committed).
The fraudulent act was revoked by the actio pauliana. The court considered that there were four elements to exercise the actio pauliana:
• the creditor of the defendant;
• the act of disposal whereby the debtor reduced his estate or transferred rights to another or assumed new obligations in favour of third parties;
• the eventus damni – the harm to the creditor; as the patrimony of the debtor became insufficient to satisfy all creditors;
• the consolium fraudis: the knowledge of prejudice to a creditor.
The creditor only who successfully exercised the actio pauliana benefitted from this action.
In ‘Mario Camilleri vs Mario Borg (PA)’ dated October 21, 2004, it was held that the damages had to be caused by the impugned act.
As regards the eventus damni, this had to consist of the harm suffered by the creditor as a result of the act of the debtor, which act was prejudicial to the creditor.
In ‘Mario Camilleri vs Mario Borg et (PA)’ dated October 21, 2004, the court held that the consilium fraudis was established by the debtor knowing that his act would render him insolvent or financially precarious and by doing so, he would be harming his creditors.
He need not have a specific intention to cause damage to his creditor. It was sufficient if he was aware of the damage which he could cause. The animus nocendi was not required. It was enough if the debtor was aware of the harm, which his act would cause to his creditor. There was participatio fraudis when a third party knew that his act was harmful to a creditor: ‘PL Adrian Borg noe vs Agostino sive Winston Carbone noe PA May 30, 2002’.
In ‘Henry Pace et noe vs A. Portanier (CA)’ dated March 29, 1957, it was held that the fraudulent intention was presumed when the debtor did not an act which was harmful to a creditor, in the knowledge that he was insolvent or would become insolvent by such act.
This knowledge was easily established as a person should be assumed to know his state of affairs.
The court said that article 1144 of the Civil Code was intended to assist a creditor to impeach an act of his debtor, which was made deceitfully and to his prejudice.
In this case, after Cassar obtained a court decision (dated July 7, 2009) which condemned Joseph St John to pay €226,313, St John donated all his immovable property, with the effect that he was not in a position to pay her.
Cassar, by this action, wished to preserve his patrimony and restore it to the position before St John made the donations, as his assets were insufficient to satisfy her claim. The court had no doubt that St John was aware that his act would prejudice Cassar.
For these reasons, on May 8, 2013, the First Hall of the Civil Court gave judgment by dismissing the defence pleas of St John and his wife. It declared that the contracts of donations which were published on March 10, 2009, and March 18, 2009, in the acts of Hall were done fraudulently by St John to the prejudice of Cassar’s rights, and with the intention of defrauding her.
The court declared that the contracts were null and without effect. The government notary and Hall were to be notified.
The court further condemned defendants within one month to appear for the publication of the notarial contract to rescind the contracts of March 10, 2009, and March 18, 2009.
Notary Maria Spiteri was appointed to publish the act of rescission and a curator was nominated in case defendants were contumacious.
Dr Karl Grech Orr is a partner at Ganado Advocates.