The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Tonio Mallia and Mr Justice Joseph Azzopardi on November 29, 2013, in the case “Care Malta Group Limited v Avantgarde Holdings Limited” held, among other things, that a subcontractor who had no legal relations with the owner of the property had no right to register a privilege under article 2010 (b) Civil Code.

The facts in this case were as follows.

Care Malta Group Ltd was the owner of the Prince of Wales Residence in Manwel Dimech Street, Sliema. Vassallo Builders Ltd was engaged by Care Malta Group to carry out construction works and finishing in the property.

Vassallo Builders subcontracted and engaged Avantgarde Holdings Ltd to provide sanitaryware and fittings and to provide and lay floor and wall tiles at the Prince of Wales Residence. Avantgarde Holdings Ltd, as the subcontractor of Vassallo Builders, had no legal relations with Care Malta Group.

On December 15, 2005, Avantgarde Holdings Ltd registered a hypothec and privilege in the Public Registry of Malta (Note No. 20848/05) for the unpaid amount of Lm89,618 over the property against Care Malta Group and Vassallo Builders. It was stated that the amount claimed by Avantgarde Holdings Ltd represented the costs of works, which it carried out.

Care Malta Group opposed the registration of the privilege against its property, on grounds that it had no legal relations with Avantgarde Holdings. It denied delegating the project to Avantgarde Holdings Ltd. It said that it never engaged Avantgarde Holdings Ltd, and that it did not owe it anything.

Care Malta Group requested Avantgarde Holdings Ltd to cancel the hypothec/privilege registered over its property, which it said was registered illegally and fraudulently.

As Avantgarde Holdings Ltd refused to cancel the hypothec, Care Malta Group filed legal proceedings, asking the court:

• to declare that it had no contractual relations with Avantgarde Holdings Ltd and owed it nothing;

• to declare that the registration of privilege/hypothec No. 20848 dated December 15, 2005, was effected illegally over the property Prince of Wales Residence;

• to order the cancellation of the note of the hypothec and privilege; and

• to appoint a notary to publish the act of cancellation and to appoint curators in case Avantgarde Holdings fail to appear.

Avantgarde Holdings Ltd failed to file a reply and was contumacious.

The court of first instance, however, rejected Care Malta Group’s requests. At issue was whether a subcontractor, such as Avantgarde Holdings Ltd, was entitled to register a hypothec/privilege under article 2010 (b) of the Civil Code which provides for the payment of “architects, contractors, masons and other workmen, over the immovable constructed, reconstructed or repaired, for debts due to them in respect of the expenses and the price of their work”.

The article further states that “the same privilege is competent to the person who has, by means of a public deed, supplied money or materials for the construction, reconstruction or repair of the immovable, or for the payment of the workmen employed on such work, provided it is shown by the said deed that the supply was made for that purpose, and it is proved that the work was carried out or the payments to the workmen made, with the materials or out of the money supplied.

“The same privilege is also competent to a third party in possession over the immovable of which he has been dispossessed, for the repairs and improvements made in or on such immovable. The said privilege, in case of repairs necessary for the preservation of the immovable extends to the whole amount of the debt; in any other case, it is limited to the sum corresponding to the increase in the value of the immovable resulting from the works or expenses”.

Care Malta Group, on the one side, submitted that this right to register a privilege/hypothec under article 2010 (b) was only available to persons who had contractual relations with the owner of the property.

It said that, since Avantgarde Holdings as a subcontractor had no contractual relations with the owner of the property, it had no right to register a privilege.

Reference was made to the Court of Appeal decision dated October 6, 2000, in “G. Spiteri v E. Agius et” (No. 637/1994) and (CA) “G. Saliba v G. Attard” dated January 30, 1939, where it was decreed that “the stone masons, carpenters and other workmen employed in contract of works did not have the right of action against the person in whose favour the work was made, save for the amount due to the contractor, at the time of filing of legal proceedings – such persons did not have the right to a privilege/hypothec (article 2010 (b) Civil Code)”.

Although the first court had decided that a subcontractor, even if it did not have contractual relations with the owner, still enjoyed a privilege under the Civil Code, the Court of Appeal did not agree that a subcontractor should be considered to be in the same position as a possessor who was depossessed of the property

The court of first instance did not agree with this interpretation. It said that the argument was based on the premise that a subcontractor had no claim against the owner. The lack of legal relations did not, however, mean that there was no debt.

Article 1643 of the Civil Code provides that “masons, carpenters and other artificers employed in the construction of a building or other work undertaken in pursuance of a contract of works have no right of action against the person for whose benefit the work has been performed, except to the extent of such amount as may be due by such person to the contractor at the time their action is instituted”.

The first court said that the fact that a third party in possession who had no legal relations with the owner had a privilege showed that, for purposes of privilege, Maltese law did not just consider contractual relations.

It followed that a subcontractor having no contractual relations with the owner was not an obstacle to have a privilege.

The law did not require that stone masons and other workers be directly engaged by the owner in order to have a privilege.

Maltese law was different from French law. The first court maintained that it was up to the owner to show that the subcontractor had no claim against him, as he had paid the principal contractor. Care Malta Group did not bring such proof, pointed out the first court.

Aggrieved by the decision of the first court, Care Malta Group entered an appeal, calling for its revocation. It reiterated its plea that it did not have contractual relations with Avantgarde Holdings, that it did not owe it anything, and that the privilege against its property should be cancelled.

Although the first court had decided that a subcontractor, even if it did not have contractual relations with the owner, still enjoyed a privilege under the Civil Code, the Court of Appeal did not agree that a subcontractor should be considered to be in the same position as a possessor who was depossessed of the property. A subcontractor did not have possession in the legal sense of the property where he carried out the works, said the court.

A subcontractor did not have possession. He was only allowed to enter the premises to carry out the works. It could not be stated that he was dispossessed.

“A third party in possession” could not be stretched to include a sub-contractor, maintained the court. According to case law and doctrine, the court found that the subcontractor did not enjoy a privilege under article 2010 (b) of the Civil Code.

Such privilege was available only to the principal contractor who had direct relations with the owner and, in the absence of contractual relations between Care Malta Group and Avantgarde Holdings Limited, it was not possible to register a privilege.

Reference was made to “Ricci and Baudry-Lacantinerie”. The court said that it was clear that Maltese law did not entitle a subcontractor to register a privilege. A subcontractor had the right to sue the principal contractor under the subcontract to pay for his services.

The privilege was an exception to the rule that a creditor of a debtor ranked pari passu as regards the assets of his debtor. An exception should be interpreted strictly, the court said.

The credit of a subcontractor was dealt under article 1643 of the Civil Code.

The credit which stone masons, carpenters and other workmen had was up to the sum which the owner owed the contractor at the time legal proceedings were filed.

If the owner had already paid the contractor, the stone mason and other workmen had no right to take legal action against the owner.

The legal scholar Ricci writes that stone masons and other workers did not have a privilege for the cost of their work. A person could not have a privilege, if it was possible to extinguish his claim by paying another person before the date when payment was due.

The court agreed with Ricci’s explanation.

For these reasons on November 29, 2013, the Court of Appeal gave judgment by revoking the decision of the first court.

It accepted all requests of Care Malta Group Ltd and appointed notary Marco Burlò to publish the act. Dr Josette Grech was appointed as curator, in case Avantgarde Holdings did not appear for the public deed.

Dr Karl Grech Orr is a partner at Ganado Advocates.