The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Tonio Mallia and Mr Justice Joseph Azzopardi, on January 29, 2016, in the case ‘Norbert and Elizabeth McKeon v Emanuele Azzopardi, his wife Rita Azzopardi, and Mario Borg and his wife Marcom Borg’ held, among other things, that compensation had to cover the refund of the price, all improvements and the loss of value of the property which buyers would have enjoyed, if the apartment had no ‘defects’. The court quantified compensation to amount to the price buyers would have to pay to buy a similar property at current prices.

By a public deed dated May 25, 1993, published in the acts of notary Pierre Falzon, Norbert and Elizabeth McKeon purchased from Emanuele and Rita Azzopardi and Mario Marcom Borg a flat in Sand Street, St Paul’s Bay, for the price of Lm4,000, subject inter alia to the condition that the apartment was constructed according to law and having the relative permits.

It later transpired that the apartment was not constructed according to permits of the competent authority and, as a result, the buyers suffered damages. Faced with this situation, the McKeons proceeded to file legal proceedings requesting the court:

• To declare that he acquired the property which was not built according to planning permits and up to the standards expected.

• To declare that defendants violated a condition of the contract of acquisition.

• To declare that defendants deceived them and that their consent was violated.

• To rescind the sale of May 25, 1993, published by notary Falzon and to appoint a notary to publish the contract of rescission as well as a curator to represent the defendants in case they failed to appear for the contract.

The McKeons also asked the court to award them compensation for damages suffered in consequence of the defendants’ non-performance of obligations and deceit.

The defendants in reply raised the plea of prescription under articles 1222, 1407, 1431 and 1222 of the Civil Code.

They denied that the flat was not built up to the expected standards and that they deceived the buyers.

They claimed, on the other hand, that the McKeons owed them Lm618 for their share of the lift.

On June 17, 2010, the court dismissed all pleas of prescription raised by the defendants, and on November 29, 2011, it accepted all the McKeons’ claims.

The court appointed notary Timothy Ellis to publish the contract of rescission at the Law Court on February 1, 2012, at 11am. Noel Bartolo was appointed curator, in case the defendants failed to appear for the public deed to rescind the contract of acquisition.

The defendants had undertaken to sell the property, which had to be built in accordance with the law. The McKeons, however, were deceived and, as a result, they lost any advantage and gain which they could have made from such property

The court condemned the defendants to pay the McKeons €110,000, representing the purchase price, the value of improvements and damage.

The court noted that the remedies available to a buyer were not limited to the traditional remedies in a contract of sale, which were subject to the strict periods of forfeiture; that is the rehibitory action and the aestimatoria action. A buyer still had rights against the seller under the contract, pointed out the court: ‘Renato Iannace et v J & T Company Ltd’, dated May 20, 2002.

The court said that the McKeons’ legal action appeared to be based on article 1125 of the Civil Code which holds a person liable to pay damages for non-performing his obligations. Article 1136 of the Civil Code provides:

“The debtor shall only be liable for such damages as were or could have been foreseen at the time of the agreement, unless the non-performance of the obligation was due to fraud on his part.”

A contract had to be performed in good faith, according to article 993 of the Civil Code. Good faith was always presumed. Any deceit by a party had to be proven, in order to rebut the legal presumption so as to rescind an agreement.

The McKeons’ grievances were that:

1. The internal yard’s dimensions were contrary to sanitary regulations;

2. The lift was not installed properly; and

3. The apartment block was not built according to the planning permit.

The buyers had plans showing one apartment at every floor level; when in reality the defendants built two flats per floor. The sellers were responsible to build the apartment in accordance with the necessary permits.

The buyers had no obligation to ensure that the sellers would act in good faith. It was assumed that the apartment would be built according to plans approved by the planning authorities.

The court was convinced that the McKeons had produced the necessary proof that the sellers were aware that the apartment was unlawfully built. They misled the buyers to believe that the property was built according to permits approval by the authorities. Reference was made to ‘Renate Zawisla et v V. Debono & Sons Company Ltd’ (PA October, 24, 2005

The McKeons claimed as damages the refund of the price, the cost of the improvements, and the loss of value of the property.

The court said that buyers should be restored to the position, as though there was no failure by the sellers, in the performance of their obligations: re ‘Francica v Piscopo’ (App Inf dated January 9, 2009

The first court said that the McKeons should not only recover what they spent but should also be placed in a position to buy a similar property at current prices.

In this respect the court liquidated compensation due them at €110,000 – the value of a similar property at current prices. Further, as the contract of sale was to be annulled, the court rejected the defendants’ counter claim.

Aggrieved by the decision of the first court, the defendants entered an appeal. They also pleaded five-year prescription under article 2156(f) of the Civil Code, and that the quantum of damages awarded by the First Court was exaggerated.

The court considered that article 2156(f) of the Civil Code (five-year prescription) did not apply when the debt arose from a public deed. In addition, once the defendants were not contesting responsibility, they could not also raise the plea of prescription. Once the defendants accepted responsibility, they could not claim that they were not responsible for damages.

The Court of Appeal agreed with the first court. The McKeons had to be restored to the position as if the defendants had performed their commitments. If the McKeons had to buy a similar property, this would now cost €110,000. Compensation had to cover the refund of the price, all improvements and the loss of value of the property which they would have enjoyed, if the apartment had no “defects”.

These damages were the immediate and direct result of the defendants’ non-performance of obligations (article 1137 of the Civil Code) and had to be refunded to the McKeons.

The defendants had undertaken to sell the property, which had to be built in accordance with the law.

The McKeons, however, were deceived and, as a result, they lost any advantage and gain which they could have made from such property.

The court said that buyers did not make any gain but were only being restored to the position which they should have been in, if not for the defendants’ failure. The court awarded the McKeons the equivalent of what he had been denied.

For these reasons, on January 29, 2016, the Court of Appeal gave judgment by dismissing the defendants’ appeal and by confirming the decision of the First Court.

It fixed the date of March 21, 2016, for the publication of the contract of rescission.

Dr Karl Grech Orr is a partner at Ganado Advocates.