The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Tonio Mallia and Mr Justice Joseph Azzopardi, on May 29, 2015, in the case ‘Saviour and Antoinette Micallef v Bank of Valletta plc’, held, among other things, that the freezing order issued by the Court of Magistrates under the Money Laundering Act and Criminal Code was no obstacle for the Civil Court to approve a sale by court auction of property at the request of the bank.

Saviour and Antoinette Micallef were charged before the Court of Magistrates with the offence of money laundering.

In terms of article 4 of Chapter 373 and article 23A of the Criminal Code, the Court of Magistrates issued a freezing order seizing their assets, in the hands of third parties, and prohibited the Micallefs from disposing their assets, both movable and immovable.

A copy of the decree was published in the Government Gazette of September 24, 2009. The Director of Public Registry was also notified, and a note was inserted in the public registry, on September 15, 2009.

After September 9, 2009, any transfer or sale of immovable property was prohibited and accordingly was null and void.

Saviour Micallef put forward the argument that, as a result of the freezing order, the Civil Court should not have ordered the court auction of his property in Siġġiewi at the request of Bank of Valletta.

Faced with this situation, spouses Micallef proceeded to file legal proceedings to invalidate the court auction. They requested the court:

• To declare that Bank of Valletta could not proceed with the sale by auction of their property in Siġġiewi and that these proceedings were accordingly null and void; and

• To declare the sale by court auction null and without effect at law.

The bank in reply contested the Micallefs’ claims. It pleaded that they should have contested the court auction at the initial stages, not after the court auction had been completed.

Besides, BOV maintained that the Civil Court had every right to order a sale by court auction at its request as creditor and was not restricted by the freezing order of the Magistrates’ Court.

In addition, the Civil Court could still order the sale by court auction even if the Court of Magistrates issued a freezing order under Chapter 373 article 5 and article 23A of the Criminal Code, argued the bank.

Bank of Valletta maintained that the court auction was intended to settle a debt incurred before the issuance of the order under Chapter 373 and the Criminal Code.

On October 4, 2011, the First Hall of the Civil Court rejected the Micallefs’ requests.

It was stated that the couple owed Bank of Valletta €232,454 under a constitution of debt dated October 1, 2006. The court auction was scheduled for October 22, 2010, and it resulted that no steps were taken to stop the court auction.

The Micallefs could not allow the court auction proceedings be concluded and only then take action to invalidate it

The Micallefs claimed that the freezing order of the Court of Magistrates impeded the bank from enforcing its credit under the constitution of debt. The court disagreed.

The court said that the order of the Court of Magistrates only prohibited the Micallefs and third parties from effecting transfer of property but did not affect the Civil Court from acting according to law at the request of a secured creditor, with a hypothec over his debtor’s property.

The first court noted that the Micallefs did not oppose the court auction proceedings. It felt that article 5 of Chapter 373 did not impede the Civil Court from acting according to law at the request of a creditor to court auction property.

The court said that the bank was not impeded by the freezing order to enforce its rights and declared that the Micallefs’ legal action was not legally founded.

The court also took into account that the the couple had not previously opposed the court auction proceedings. The Micallefs could not allow the court auction proceedings to be concluded and only then take action to invalidate it. It maintained that the couple had not acted in time.

Aggrieved by the decision of the first court, the Micallefs entered an appeal calling for the revocation of the decision of the First Hall of the Civil Court dated October 4, 2011.

They claimed that, as a result of the freezing order of the Criminal Court, the sale by court auction was null and without effect.

The Court of Appeal agreed with the first court’s decision.

The freezing order was imposed solely on the Micallefs, not to transfer assets to third parties. While this freezing order prohibited the Micallefs from transferring their property, it did not restrict the Civil Court from ordering or authorising the sale of property affected by the order.

Chapter 373 did not impose such limitations on the Civil Court. Nor did it state that the Criminal Court, which issued the freezing order, had to order the sale of the property. The freezing order did not preclude creditors from enforcing their rights. A court auction under the authority of the court was not equivalent to a transfer by the accused.

In ‘Borg v Fairplay Ltd’, dated October 15, 2014, it was held that, notwithstanding a prohibitory injunction to prevent the transfer of the accused’s car, such injunction did not impede the court from ordering the sale by auction of the car.

A freezing order was different from a prohibitory injunction but the same principle applied.

A freezing order did not prevent the Civil Court from approving a court auction. The proceeds had to be deposited in court and were released with the authorisation of the court. The fact that the bank initiated court auction proceedings did not mean that it had an advantage over other creditors – vide ‘Bank of Valletta v Attard (PA)’, April 29, 2004.

When there was a freezing order and the court authorised the sale of an object covered by the freezing order, the proceeds replaced the object affected by the freezing order. The proceeds had to be deposited in court and were deemed to be hit by the order of the Criminal Court.

While the Civil Court could authorise the sale of the property covered by the freezing order, however the release of the funds had to be approved by the Criminal Court which issued the freezing order. The substitution of the object, cash instead of property, did not neutralise the power of the Criminal Court which issued the freezing order.

The Court of Appeal noted on ‘obiter’ basis that the First Hall of the Civil Court found that the Micallefs acted in bad faith by contesting the court auction proceedings only after the court auction had been concluded.

The first court decided that the freezing order issued by the Court of Magistrates was no obstacle for the Civil Court to approve a sale by court auction at the request of the bank.

For these reasons, on May 29, 2015, the Court of Appeal gave judgment by dismissing the Micallefs’ appeal and by confirming the decision of the First Hall of the Civil Court.

Dr Karl Grech Orr is a partnerat Ganado Advocates.