The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Joseph A. Filletti and Mr Justice Geoffrey Valenzia, in the case “Dr Michael Caruana and Joseph Debrincat in their capacity as president and secretary, respectively, of the Leone Philharmonic Society vs Vassallo Builders Ltd”, held, among other things, that insurance coverage taken by the client in no way exonerated a builder under a contract of works from his liability to pay damages suffered as a result of his carelessness and poor work.

The facts in this case were as follows: The Leone Philharmonic Society of Gozo engaged Vassallo Builders Ltd to construct a new concert hall on a new floor over their current building in Republic Street, Victoria as well as to carry out alterations to its façade. The parties signed a private agreement on July 12, 1991. The total price for the works was fixed at Lm12,000

The construction of the new concert hall was to be effected according to the specifications and in accordance with the plans, which were attached to the contract of works.

Vassallo Builders were obliged under the contract to complete the works by the end of November 1991. However, by mid-1992, the works had not yet been finalised.

A dispute subsequently arose on the design of the façade.

Vassallo Builders claimed additional compensation to carry out certain works, which allegedly were not contemplated under the original agreement.

The band club refused to make additional payments over and above what was agreed in the contract.

It followed that Vassallo Builders stopped all works.

It resulted that the painting on the soffit below was damaged by water seeping from the new level three, which was left unplastered.

Owing to a stalemate between the parties, the band club went ahead and engaged the same sub-contractors privately to complete the works, at an additional expense.

They later demanded payment of damages from Vassallo Builders to recover (1) the additional costs and (2) the damage suffered to their painting, which, they claimed was caused as a direct result of Vassallo Builders’ carelessness and negligence in execution of the works.

Faced with this situation, the band club decided to fine legal proceeding:

(1) To declare the contract of works dated July 12, 1991 to be dissolved ipso jure, on grounds of non-performance by Vassallo Builders;

(2) To declare that Vassallo Builders were responsible for the damages suffered owing to non-performance of the contract;

(3) To liquidate and condemn them pay damages;

(4) To hold them responsible for the damage to the painting; and

(5) To liquidate the amount of damages.

In reply, Vassallo Builders contested the band club’s legal action. They disputed abandoning the works and non-performing their contractual obligations.

They also denied causing the alleged damages.

On June 20, 2008 the Magistrates Court in Gozo decided by holding Vassallo Builders liable for the damage to the painting, but did not hold them responsible for the non-performance of the contract of works. Vassallo Builders were ordered to pay €4,194 damages.

The court considered whether the contract of works was subject to a resolutive condition, which could either be express or tacit.

Article 1068 of the Civil Code provides that “a resolutive condition is in all cases implied in bilateral agreements in the event of one of the contracting parties failing to fulfil his engagement: Provided that in any such case, the agreement shall not be dissolved ipso jure, and it shall be lawful for the court, ac-cording to circumstances, to grant a reasonable time to the defendant, saving any other provision of law relating to contracts of sale.”

Reference was made to the Italian jurist Giovanni Pacchioni: Diritto Civile Italiano and to the court decision in the case “Mark Borda noe vs Rafael Muscat” (Vol LXVIII. III. 73).

A tacit resolutive condition had the same effect as an express resolutive condition. However, in the case of a tacit resolutive condition, the contract was not dissolved automatically.

The court here always gave the defaulting party the opportunity to comply. A party could not therefore terminate or rescind a contract unilaterally.

At most, one could request the court to order its termination.

The court noted that, although in the circumstances there was no express resolutive condition in the contract of July 12, 1991, the band club had not requested the dissolution of the contract.

In the circumstances, the band club chose to engage a third party to complete the works, on grounds that Vassallo Builders allegedly had abandoned the works.

The court said that for this reason it could not accept to hold Vassallo Builders’ liable for non-performance of its contractual commitments.

As regards the band club’s claim for damages suffered to the painting, the court referred to articles 1031 and 1032 (1) of the Civil Code which provide that “every person, however, shall be liable for the damage which occurs through his fault”; and “a person shall be deemed to be in fault if, in his own acts, he does not use the prudence, diligence, and attention of a bonus paterfamilias”.

The court noted that damages were caused as Vassallo Builders failed to plaster the walls and to take necessary precautions to protect the other levels in the band club.

The fact that the band club might have already been reimbursed by their insurance company did not affect Vassallo Builders’ responsibility, pointed out the court.

The court liquidated the damages as amounting to Lm1,800.

Aggrieved by the decision of the first court, Vassallo Builders entered an appeal, calling for its variation. It disputed any liability for the damage to the painting.

It was submitted that:

The court of first instance should not have relied on the valuation, provided in respect of the damages to the painting, as it had not been confirmed on oath;

The court should have considered the indemnity which was received from the insurance company;

The band club failed to mitigate the amount of damages, due to not giving a reply as to whether they had been reimbursed for the damages.

On October 29, 2010, the Court of Appeal gave judgment by dismissing the appeal and by confirming the decision of the first court.

The following reasons were given for the court’s decision.

The court had discretion to liquidate the damage to the painting, on an arbitrio boni viri basis. The fact that the band club might have received reimbursement was not relevant in determining the responsibility, if any, of Vassallo Builders Ltd, maintained the court.

The insurance coverage in no way exonerated Vassallo Builders from their liability to pay for the damages: Re: “Atlas Insurance Agency Ltd vs A J Callus” P.A. dated January 9, 2002. The band club’s right to contract with an insurance company did not benefit Vassallo Builders.

The court could not see how the principle that a plaintiff should minimise the damages could apply in the circumstances.

Dr Grech Orr is a partner at Ganado & Associates.