The Court of Appeal, composed of (outgoing) Chief Justice Vincent De Gaetano, Mr Justice Joseph A. Filletti and Mr Justice Geoffrey Valenzia, on July 30, 2010, in the case Andrea Muscat vs Antonia Teresa, also known as Anthese, wife of Joseph Lautier, personally and in representation of the company Casa D’Oro Ltd, held, among other things, that it had to construe article 1530 of the Civil Code restrictedly in genuine cases of leases, which merited protection, provided the owners’ interests were also safeguarded. A lease granted by the temporary emphyteuta to a company which owned and controlled the emphyteuta did not deserve the protection of the law.

The facts in this case were as follows:

By a contract published in the acts of Notary G. Chetcuti of February 24, 1971, Andrea Muscat as owner granted by title of temporary emphyteusis (ċens) to Antonia Teresa a shop, No. 15, Constitution Street, Mosta for a period of 20 years, starting from July 1, 1971.

On expiry of the ċens on July 1, 1991, the property was not returned to the owners, and instead they discovered that their property was leased to a company, called Casa D’Oro Ltd.

As this company was owned and controlled entirely by Antonia Teresa and her husband, the owners felt that this was only a ploy to remain in occupation of the shop, after the termination of the grant.

The owners in addition maintained that they were not obliged to recognise and be bound by the lease as it was not done under fair conditions.

Owners claimed that Antonia Teresa retained the shop without valid title at law.

Faced with this situation, Andrea Muscat proceeded by filing legal action, requesting the Court

• To declare that Antonia Teresa, her husband Joseph Lautier and or the company Casa D’Oro Ltd were occupying the shop without valid title;

• To condemn them to vacate within a short and peremptory time limit and to pay all judicial costs.

Article 1530 of the Civil Code provides: The letting made by a person possessing the thing under entail or in usufruct or under any other temporary or dissoluble title, shall be valid even in regard to his successors, if it is made on fair conditions and for a term not exceeding eight years, in the case of rural tenements, or four years, in the case of urban tenements, or an ordinary period according to usage in the case of movable property, or for any period, shorter than the said periods respectively, in the case of property the letting of which for a period exceeding such shorter period is prohibited.

In reply, Antonia Teresa and her husband Joseph Lautier submitted that they should not have been sued in their personal capacity. The shop was leased under fair conditions to a company Casa D’Oro Ltd which had a separate juridical personality, well before the expiry of the ċens, on December 28, 1985.

The lease, they contended, was binding upon the owners.

It was argued in their defence that it was immaterial that they personally were the directors and shareholders of the tenant company Casa D’Oro Ltd.

This did not alter the legal status. Their argument was that the company had a distinct personality, which was separate from its shareholders. Once, it was established that the company had a valid title of lease, the owners’ claims should be dismissed, they said.

On May 21, 2004, the First Court decided in favour of the owners.

However on March 9, 2007, the Court of Appeal revoked this decision and sent back the case to the Court of First Instance, to decide if the lease conditions were fair.

The court had to decide whether a bonus paterfamilias would have leased the property under similar conditions. A number of considerations had to be made:

• If the conditions were not advantageous enough, the property should not have been leased: re: Dr A.G. Magri et vs Aeoroflot Russian International Airlines et (CA) dated July 1, 2005.

• A Court had to consider the factual circumstances when the agreement was concluded: re: B. Bugeja et vs C. Lacantier dated April 4, 2004.

• The lease should not be prejudicial to the persons succeeding, the temporary emphyteuta.

• The fairness of the conditions had to be considered at the time of the lease, at the discretion of the Court, in the light of the entire agreement. The appreciation of the Court had to be based on factual elements, to determine the idem placitum consensus at the time the lease was entered into.

• The court would not only consider the amount of the rent or whether the tenant had the right to sub-lease or whether there was an obligation to make improvements. The court had to consider whether the lease was advantageous to the owners. The temporary emphyteuta, creating the lease had to safeguard the interests of the owners.

In the circumstances, the lease was for three years duration, renewable annually, against the rent of Lm500 per year for the first three years, and for Lm1,000, thereafter. If the lease was extended for over four years the rent was increased by Lm200. The property had to be used commercially. It could not be sub-leased. Ordinary maintenance was at the expense of the tenant.

Though the terms of the rent were reasonable and not unjust, the Court felt that the lease was a manoeuvre by Mr and Mrs Lautier to continue occupying the property, after the expiry of the ċens. The company Casa D’Oro Ltd was registered only eight days before the lease agreement and its purpose was probably designed to allow them to keep the property.

Even if there was no fraud, the Court said that they acted in bad faith, and on this basis, it decided to ignore the separate legal personality of the company.

The court could not accept the lease, and ordered their eviction of defendants within three months.

Aggrieved by the decision of the First Court, defendants Lautier entered an appeal, calling for its revocation. They claimed that:

(1) The judge presiding the Court of First Instance should have abstained under our law of Civil Procedure;

(2) The First Court decision conflicted with what the court had decided in a preceding decision.

(3) The First Court decision was incorrect.

On July 30, 2010, the Court of Appeal gave judgment by dismissing the appeal and by confirming the decision of the First Court. Defendants were ordered to vacate within three months.

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

• Abstention of the presiding judge: in view of the fact that this plea was raised for the first time on appeal, it was not now acceptable to raise this plea. It should have been raised before the First Court.

• It noted that even if the emphyteuta was entitled to lease the property in terms of article 1530 Civil Code, any lease had to be entered into in good faith and in a manner, not prejudicial to the owner. If the lease was not entered in good faith, the court had the discretion to look through the corporate structure. In the circumstances, it appeared that the tenant leased the shop to himself. The court noted that the lease appeared to be part of a scheme to allow the emphyteuta to retain possession, after the expiry of the ċens, at the expense of the owner. The Court felt that as Mr and Mrs Lautier acted in bad faith, it should ignore the company’s separate and distinct personality: re: Dr J. Herrera noe et vs T. Tabone et noe dated January 22, 1992. The court had the authority to “pierce the corporate veil” in exceptional circumstances with reference to G. Briffa et noe vs E. Camilleri dated October 20, 2003, it said that it had to construe article 1530 of the Civil Code restrictedly, in genuine cases, of leases, which merited protection, provided the owners’ interests were also safeguarded.