The First Hall of the Civil Court, presided over by Mr Justice Mark Chetcuti in the case “Jesper’s Ltd v MR Properties Co. Ltd” on October 3, 2013, held among other things that buyers were not at fault for not obtaining a Mepa permit, and were entitled to a refund of their deposit. The konvenju was subject to a condition that a permit would be granted.
The facts in this case were as follows.
The company Jesper’s Ltd entered into a promise of sale agreement (konvenju) on September 23, 2000, as further extended on June 20, 2001, to acquire two garages in Tal-Ħandaq, Qormi, including a warehouse from MR Properties Co. Ltd for the price of Lm170,000, under certain terms and conditions. The konvenju was subject to the condition that a permit would be obtained to convert the garages into a bakery.
Jesper’s Ltd paid Lm20,000 deposit on account of the purchase price. It was stipulated that in case Jesper’s failed to appear for the final contract without valid reason, the deposit would be forfeited in favour of the seller.
Jesper’s engaged an architect to apply for a permit, which application was rejected by the Malta Environment and Planning Authority. Jesper’s later maintained that Mepa’s refusal was beyond its control, that the resolutive condition in the konvenju occurred and that the Lm20,000 deposit should be refunded.
On the other hand, the seller claimed that the deposit was forfeited in its favour.
Faced with this situation, Jesper’s Ltd filed legal proceedings, requesting the court to declare that it had valid reason at law not to appear for a final contract, and that the Lm20,000 deposit paid under the konvenju should be returned.
In reply, the seller MR Properties disputed the legal action against it. It blamed Jesper’s for not obtaining the permit and claimed that the deposit was forfeited in its favour. The seller alleged that the real reason was that Jesper’s lost interest in the property after entering into a joint venture with Andrews Feeds.
The court noted that Jesper’s Ltd signed the konvenju with the intention of transferring its business in Buġibba to a bigger establishment. The permit had been refused for health reasons owing to the possibility of dust contamination. As the area was an industrial zone with spray painters in the vicinity and as the public road was not asphalted, Jesper’s felt that it could not give the guarantees to provide a dust-free environment as required by Mepa. It however claimed to have satisfied its obligation under clause 13 of the konvenju by engaging an architect to file an application.
It had abandoned the project of acquiring the property and entered a joint venture with Andrews Feeds. It did not appeal from Mepa’s decision.
The court considered that it should not discard the technical report unless it appeared to be unreasonable. There had to be grave reasons which placed the technical report in doubt: G. Bugeja v E. Muscat vol. L1/390 App. Civ. D. Grima vs C. Mamo App. Civ. dated May 29, 1998. Mepa had concluded that “the proposal does not comply with the requirements of the department of health in that applicant cannot safeguard the products intended to be produced for human consumption from possible contamination”.
The seller maintained that Jesper’s had failed to adopt such measures to meet the conditions of Mepa. In Brinx Ltd v Francis Said et (App Inf) dated November 23, 2005, and in George Farrugia v Paċifika Masini (Mag. Gozo) AE dated January 7, 2008, it was held that the reason not to appear for a contract could not be capricious.
In this case, the court was of the opinion that it was not proven that Jesper’s acted in bad faith. The law required that contracts and obligations be performed in good faith. Good faith was always presumed unless there was contrary proof. Bad faith had to be proven by the person making the allegation
A person had a good reason if he would suffer substantial damage, or if it would be contrary to what had been agreed in the preliminary promise (re: Micallef vs Axiaq Vol. XXXIV.II.514) or if the contract would not have any value. A person could not act in bad faith: Falzon v Formosa (PA) dated March 25, 2004.
However, the court was not convinced that Jesper’s had acted in bad faith in the circumstances.
The planning authority had imposed conditions which Jesper’s architect had found it difficult to satisfy. He had advised Jesper’s not to pursue its application and not to contest Mepa’s refusal.
In Networks Publications Ltd v Farrugia (PA) dated February 26, 2002, it was held that if there was a condition in the konvenju that bank finance had to be procured, it was deemed that the seller had accepted the risk that for whatever reason, save for bad faith, the bank could refuse to provide finance.
In this case, the court was of the opinion that it was not proven that Jesper’s had acted in bad faith. The law required that contracts and obligations be performed in good faith. Good faith was always presumed unless there was contrary proof. Bad faith had to be proven by the person making the allegation.
For these reasons, on October 3, 2013, the court declared that Jesper’s Ltd had good reason not to appear for the final contract, and ordered that the €46,587 deposit be returned. It accordingly condemned MR Properties Company Limited to pay Jesper’s Ltd €46,587 with legal interests from July 23, 2001.
Dr Grech Orr is a partner at Ganado & Associates.