The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Giannino Caruana Demajo and Mr Justice Noel Cuschieri, on February 27, 2015, in the case ‘Hili Investments Ltd v Percius Car Hire’ held, among other things, that a conditional acceptance had no legal effect. Under the agreement, Hili Investments could either accept the offer to purchase the Jaguar or refuse it within seven days.

On May 31,1999, Hili Investments Ltd rented from Percius Car Hire Ltd a Jaguar S-Type car for five years, against monthly payments. Percius Car Hire Ltd was under the obligation to maintain the car and service it regularly, while Hili Investments Ltd obliged itself to take proper and reasonable good care of the car in order to ensure its road worthiness, fair wear and tear and faulty manufacture accepted. Clause 4 of the Agreement provided:

“Upon the expiration of this contract, the Owner (Percius Ltd) shall offer the said vehicle to the client for the predetermined fixed price of Lm6,500 [€15,145 on his part, the client (Hili Investments Ltd) undertakes to cover any costs including any registration tax or any other government fee or levy that may be incurred in respect of the said transfer; or extend the rental upon the clients’ request. The client must decide and inform the owner of his decision within a period of seven days from the date the offer is made.”

Percius Car Hire Ltd made an offer in October 2005 and according to the affidavit of Paul Hili, director of Hili Investments Ltd, the company had accepted the offer subject to the condition that Percius Car Hire Ltd carried out certain necessary repairs in the car, repairs to the gear box and the suspension of the car, before it was transferred.

Percius Car Hire Ltd refused to carry out repairs and demanded rental monthly payments of €1,165 from October 2005 onwards as the car remained in the possession of Hili Investments Ltd.

It was stated that according to an agreement in March 2006, Hili Investments Ltd accepted to pay for the repairs while Percius Car Hire Ltd allegedly dropped the claims for rent of the car after October 2005.

Hili Investments Ltd said that Percius Car Hire Ltd did not keep to the terms of the new agreement. It said that although it had taken the car for repairs, Percius Car Hire Ltd still insisted on payment for the rent of the car for the period after October 2005, onwards.

Percius Car Hire Ltd, on the other hand, disagreed and blamed Hili Investment Ltd for not observing the agreement. It refused to pay for the cost of the repairs.

In the meantime, Hili Investments Ltd requested the issuance of a prohibitory injunction against Percius Car Hire Ltd to prevent it from selling the car to third parties.

The court observed that while Hili Investments Ltd claimed it would take the car to Percius Car Hire Ltd for a service, Percius Car Hire Ltd said that Hili Ltd did not take the car in regularly.

On March 10, 2011, the First Hall of the Civil Court accepted all requests of Hili Investments Ltd and ordered Percius Car Hire to appear for the sale of the car, within one month. All expenses were to be suffered by Percius Car Hire Ltd.

The First Hall of the Civil Court considered that Hili Investments Ltd stated that their agreement was in the nature of a hire purchase agreement, while, on the other hand, Percius Car Hire Ltd disagreed.

Reference was made to the definition of ‘hire purchase’ in ‘Bonnet v Azzopardi’ dated June 28, 1992, as cited in ‘Regina v Miller’ dated May 30, 2002.

“The owner transferred an object to the lessee provided ownership did not pass until the full price was paid. The seller retained title of ownership of the object until its full price was paid.”

The First Hall of the Civil Court did not consider the agreement between the parties to be akin to a ‘hire purchase’ contract. It appeared to be closer in nature to rent with the option to purchase the car for a specific price.

The ‘hire purchase’ system as explained by the court in ‘Abela v Attard’ dated February 12, 1957, resembled a contract of sale subject to a ‘retention of ownership’. clause ‘pactum riservati dominii’.

In a sale subject to a retention of ownership clause, the seller could delay the delivery of title of the object of sale but once the condition was made, no new agreement was necessary between the parties. In a hire purchase contract, as applied in Malta, title of ownership passed when the full price was paid without any further agreement being necessary. It was effectively a sale by instalment.

The Court of Appeal did not feel that it should accept the requests of Hili Investments as it had not complied with the agreement

This case was different, noted the court. After the lapse of five years, the lessee, Hili Investments Ltd, was given the option to purchase the car for a specific price. The only condition was that it had to notify its acceptance to Percius Car Hire Ltd within seven days.

The First Hall of the Civil Court maintained in addition that contracts had to be performed in good faith. Article 993 of the Civil Code provides:

“Contracts must be carried out in good faith, and shall be binding not only in regard to the matter therein expressed, but also in regard to any consequence which, by equity, custom or law, is incidental to the obligation, according to its nature.”

The court said that Hili Investments Ltd clearly demonstrated its intention to purchase the car, especially after the parties reached a settlement.

However, after Percius Car Hire Ltd claimed damages, problems arose. Hili Investments Ltd withdrew all the conditions and had given its acceptance to acquire the car, pointed out the First Hall of the Civil Court, in accordance with the agreement. In this respect the first court considered that Hili Investments Ltd’s claims were justified.

Aggrieved by the decision of the First Hall of the Civil Court, Percius Car Hire Ltd entered an appeal calling for its revocation. It submitted that clause 4 of the agreement was equivalent to a promise of sale as soon as the offer was accepted. Percius Car Hire Ltd said that Hili Investments Ltd failed to give its consent within the time limit according to the original agreement.

Percius Car Hire Ltd stated that the intention was to have a contract of rent, which ended on its expiry. The eventual offer of sale was a separate agreement which consisted in the possibility of another contract over and above the contract of rent. It was clear that the contract of rent contemplated another agreement on the expiry of the lease, after Percius Car Hire Ltd made an offer and Hili Investments Ltd exercised its option by accepting the offer within the time prescribed.

Percius Car Hire Ltd claimed that Hili Investments Ltd had to accept the offer according to the agreement. It resulted that although Hili Investments Ltd declared immediately its intention to accept the offer and to buy the car, its acceptance was legally deficient, since it was made subject to a condition which was not indicated in the said clause 4.

Percius Car Hire Ltd made reference to article 112 of the Commercial Code which provides:

“A delayed acceptance or an acceptance subject to conditions, additions, restrictions or alterations shall be deemed to be and shall count as a refusal of the original offer and as a new offer”.

The conditions made by Hili Investments Ltd gave rise to a dispute between the parties. In fact, although several months had passed, the sale of the car still did not take place.

The Court of Appeal considered that regardless of the sale of the car at the time of the offer, the choice of Hili Investments Ltd was either to accept to purchase in terms of clause 4 of the agreement or to refuse the offer.

It maintained that once Hili Investments Ltd had given its acceptance conditional subject to certain factors not mentioned in the agreement, its acceptance was rendered without legal effect. This court did not agree with the decision of the First Hall of the Civil Court, where it held that Hili Investments Ltd had withdrawn all its conditions and gave a valid acceptance.

Hili Investments Ltd had to give its acceptance within seven days, and could not choose to give its consent months later after it withdrew its conditions.

The Court of Appeal did not feel that it should accept the requests of Hili Investments as it had not complied with the agreement.

As rightly pointed out by the first court, contracts had to be performed in good faith. However, in this case, there was three factors against Hili Investments Ltd’s case, said the court:

1. The fact that maintenance and servicing by Percius Car Hire Ltd was not done regularly, without any fault of Percius Car Hire Ltd as it only had access to the car when Hili Investments Ltd took in the car for servicing;

2. The car agent had to service the car; and

3. According to the agreement, Hili Investments Ltd had a choice, either to refuse the offer or to accept the car in its present condition.

For these reasons, on February 27, 2015, the Court of Appeal gave judgment by accepting the appeal of Percius Car Hire and by revoking the decision of the First Hall of the Civil Court. It declared that Hili Investments Ltd had not given a valid acceptance, and dismissed its requests.

Dr Karl Grech Orr is apartner at Ganado Advocates.