The First Hall of the Civil Court, presided over by Madame Justice Lorraine Schembri Orland, on February 27, 2014, in the case ‘Bollicine Ltd vs Invicta Ltd’, held, among other things, that it was not necessary to have a separate request for the application of the penalty clause: this was covered by a request for damages.
The facts in this case were as follows.
The company Bollicine Ltd filed legal proceedings to recover the outstanding balance for providing and laying tiles in the showroom of Invicta Ltd (Lm2,077.58 – €4,839) under a contract dated October 20, 1997.
In reply, Invicta Ltd maintained that the work had not been done properly and proceeded to file a counterclaim for damages. It said it had ordered 380 square metres of tiles which had to be laid, but as a result of the poor workmanship it had suffered damages, in respect of which Bollicine Ltd should be held liable. Its showroom had had to be re-tiled at its expense and in this respect, Invicta Ltd requested the court to declare Bollicine Ltd responsible for damages suffered and to liquidate them, if need be with the assistance of a court-appointed expert, and to condemn Bollicine Ltd to pay the sum so liquidated.
Bollicine Ltd disputed that the work had been done carelessly. The technical expert appointed by the court reported that the grouting was defective and that the level of the tiles was not done properly. It was found that Bollicine Ltd was at fault; that the tiles had to be removed and re-laid; and that Bollicine Ltd should pay Invicta €3,313 as compensation.
The court noted that Invicta Ltd had engaged an architect to refurbish two showrooms. The architect had spotted certain defects and brought it to the attention of Bollicine Ltd that the works had not been done according to the agreement. Several attempts were made to repair the defects, but the works remained unacceptable.
Further, according to the agreement dated October 20, 1997, the works had to start on that same day and be completed by December 20, 1997. Owing to the defects, a third party had to be engaged to rectify these defects and the project was finally finished in June 1998.
Article 1640 of the Civil Code provides that:
“(1) It shall be lawful for the employer to dissolve the contract, even though the work has been started.
(2) If the employer has no valid reason for the dissolution, he is to compensate the contractor for all his expenses and work, and to pay him a sum to be fixed by the court, according to circumstances, but not exceeding the profits which the contractor could have made by the contract.
(3) If the employer has valid reason for the dissolution, he is to pay the contractor only such sum which shall not exceed the expenses and work of the contractor, after taking into consideration the usefulness of such expenses and work to the employer as well as any damages which he may have suffered.
(4) Any advance made to the contractor before the dissolution of the contract shall be applied to the sums due in terms of sub-article (2) or (3) of this article and the contractor shall return any resulting excess to the employer.
(5) The contract shall be immediately dissolved when the employer informs the contractor, by any means whatsoever, of his decision to dissolve the contract, and this without the need of any authorisation or confirmation by any court.”
If there was no valid reason to terminate a contract of works, an employer had to pay the person carrying out the works all expenses for his work and the sum liquidated by the court, not exceeding the value which the employer derived from that work. If there was a valid reason, the employer had to pay only such sum not exceeding expenses and value of the work, considering the utility of such expenses, the work as well as the damages.
Any deposit paid had to be applied to pay expenses and if there was a surplus, this had to be refunded. A contract of works was terminated immediately as soon as the employer informed the labourer of his decision to terminate the contract, and this without any order of the court.
An employer could terminate the agreement even if the work had already started: re: (PA) Alcasons & Co. Ltd noe v Tigné Development Co. Ltd noe dated July 28, 2004. The law only distinguished whether an employer had a valid reason to terminate or not. In P. Darmanin v M. Agius et (App. Inf.), dated October 6, 2004, the court had restated the following principles:
(1) A workman/person commissioned to carry out works was obliged to complete the work without defects (Vol. XXVII Pl p.373).
(2) A worker who did poor work was responsible for damages (Vol. XXXVII – P11 p.883) (Mario Blackman v Carmelo Farrugia et v Carmelo Farrugia et noe, Appell Kummerċjali, 27 ta’ Marzu, 1972).
(3) The above rules applied even if the work had been approved (Vol. XLI P1 p667) or if the worker acted according to specifications or instructions given by a contractor (Vol. XXV pl p.727). Or better explained: A worker was obliged to provide good work and had no excuse for shoddy work on grounds that he followed instructions of an employer (Vol. XLII – P11 p.1003).
(4) The payment of the work and/or the payment on account did not mean that the work was approved, if it later resulted that there were defects (Vol. XLI P11 p.892).
(5) When defects appeared, a worker was deemed to be at fault owing to non-performance (Vol. XXXVIII P1 p.292).
(6) Article 1069 (1) and (2) provides: “(1) Where the resolutive condition, whether express or implied, relates to any case in which one of the parties fails to fulfil his engagement, the party who is the creditor in the undischarged obligation may, at his option, upon the accomplishment of the condition, either demand the dissolution of the contract, or compel the other party to perform the obligation, if this is possible.
A worker was obliged to provide good work and had no excuse for shoddy work on grounds that he followed instructions of an employer
(2) In either case the defendant may be condemned in damages.”
A worker was not responsible for damages or defects which were insignificant or easily repairable (Vol. XLII P11 p.699). A contractor had the right to ask for repairs (Vol. XXX P11 p.433) or to accept a reduction of the price – John Bonnici pro et noe vs A. Sammut (App. Kum.) dated June 22,1994. If defects were of a substantial nature, a worker was deemed to have not performed and did not have a right to expect to repair the defects – V. Tabone v F. Mifsud (PA) dated October 5, 1994.
The court noted that the tiles had not been laid properly and that Bollicine Ltd did not request the appointment of an additional technical expert – G. Bugeja et v E. Muscat et (App. Ċiv.) dated June 23, 1967.
The obligation of a worker (person carrying the works) was to do a good job and if it resulted that the work was not up to a level acceptable at law, he had to take ulterior steps to reduce the responsibility imposed upon him by law. The court felt that the sum liquidated by the court-appointed expert was reasonable and acceptable.
Bollicine Ltd in addition pleaded that the technical expert should not have considered the imposition of the penalty, as this had not been expressly raised.
According to the agreement, the work had to be completed by December 20, 1997, and in default there was a penalty of Lm50 per day for delay. As Bollicine Ltd was not disturbed or obstructed in the performance of its work, it could not be excused for delay and for damages. Torrente writes in the Codice Civile Annotato p.1040 that the purpose of a penalty clause was to secure contractual obligations and the performance of obligations. Damages had to be paid irrespective of the actual harm suffered, in order to compensate for the prejudice caused by non-performance.
The law in article 1118 of the Civil Code allowed penalty clauses as pre-liquidated damages in the case of non-performance of contractual obligations as well as for delay. In this case, there was a penalty clause in the agreement, pointed out the court. Article 1120 (2) and (3) of the Civil Code provides:
“(2) The creditor may sue for the performance of the principal obligation instead of demanding the penalty incurred by the debtor.
(3) He cannot demand both the principal thing and the penalty, unless the penalty shall have been stipulated in consideration of mere delay.”
The court said that the request for payment of damages necessarily included the payment of damnum emergens and lucrum cessans (article 1045 of the Civil Code). A creditor need not have to prove loss of profits and could rely on the penalty clause. It was not necessary to have a separate request for the application of the penalty clause.
For these reasons, on February 27, 2014, the First Hall gave judgment by declaring Bollicine Ltd to be responsible for the damages suffered by Invicta Ltd. It liquidated the damages to €3,313 and condemned Bollicine Ltd to pay Invicta Ltd this amount with legal interests. The court in addition dismissed all Bollicine Ltd’s requests.
Dr Grech Orr is a partner at Ganado Advocates.