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 ‘Gerit Company Ltd v A.M. Developments and Des Res Ltd’, held, among other things, that the defendant companies could not retain the deposit if the promise of sale agreement expired and if they did not obtain a court decision in their favour that the buyer had no good reason not to appear for the publication of the final act.

Under a promise of sale agreement (konvenju) dated May 5, 2009, the company Gerit Company Ltd obliged to purchase land in Qormi from A.M. Developments Ltd and Des Res Ltd. Gerit Company Ltd, as buyer, paid a deposit of €23,293 (Lm10,000) on account of the purchase price.

The final transfer was however never concluded but the sellers A.M. Developments Ltd and Des Res Ltd refused to return the €23,293 deposit.

Faced with this situation, Gerit Company Ltd filed legal proceedings to recover the deposit.

In reply, the defendant companies A.M. Developments Ltd and Des Res Ltd contested the legal action against them.

They pleaded two-year prescription under article 2153 and article 1027 of the Civil Code. They submitted that the deposit was forfeited in their favour under the konvenju as Gerit Company Ltd failed to appear for the contract without valid reason at law, despite their legal request.

On October 11, 2011, the court accepted Gerit Company’s requests, and condemned defendant companies to return the deposit of €23,293 with legal interests.

The konvenju stated that the deposit was forfeited to sellers as pre-liquidated damages not reviewable by the court insofar as the buyer did not appear for the contract under the konvenju, without valid reason.

The konvenju was valid for nine months from May 5, 2005, to February 5, 2006. Both buyer and seller had sent judicial letters to each other calling upon the other to perform their respective obligations under the konvenju. As no sale took place, Gerit Company Ltd demanded the return of its deposit in its judicial letter dated April 9, 2010.

Gerit Company Ltd maintained that it was impeded from purchasing the property some time after the konvenju by warrants filed against its director, by her husband, from whom she was in the process of personal separation.

These warrants also prevented thecompany from dealing with its assets.

The court dismissed the plea of prescription as raised by defendant companies under article 1029 of the Civil Code, applicable in relation to unjustified enrichment for no cause and under article 2153 of the Civil Code, in relation to damages (tort).

It was not proven that there was any collusion between the director of Gerit Company Ltd and her husband; nor could it be said that Gerit Company Ltd provoked the issuance of the warrants against it.

The First Hall of the Civil Court felt that Gerit Company Ltd as buyer had good reason not to appear for the contract. It said that the deposit was not forfeited in favour of the defendant companies and should be returned.

Aggrieved by the decision of the First Hall of the Civil Court dated October 11, 2011, the defendant companies entered an appeal.

While it was true that this konvenju was not made subject to bank finance, however, its purchase of the property was disrupted for reasons not imputable to it

The Court of Appeal noted that neither party filed a lawsuit to condemn the other to appear for the final contract under the konvenju. The defendant companies put forward the argument that Gerit Company Ltd had asked the court to declare that the sale did not take place for reasons attributable to them and although they were not to blame, the first court still upheld Gerit Company Ltd’s requests. They also maintained that the alleged impediment did not impede buyer from acquiring the property in question.

The Court of Appeal pointed out that buyers based their legal action for the return of the deposit. The first court decided that none of the defendant companies had a right to keep the deposit and in this respect there was nothing irregular in the first court’s decision.

It resulted that defendant companies did not follow article 1357(2) of the Civil Code to keep the konvenju still in vigore. Under article 1357(2), the effects of a konvenju came to an end if the procedure in this article was not observed before the lapse of the konvenju and unless a lawsuit was filed within 30 days from its expiry.

As in this case no lawsuit was instituted, the effects of the konvenju were extinguished.

In ‘Pont Gloria v J.L.J. Construction Co. Ltd’ dated February 1, 2008, it was held that in the context of enforcing a konvenju, the judicial letter only had the effect of extending the konvenju for one month and a lawsuit had to be filed within such month after the lapse of the konvenju. Re: ‘Bianchi v JMA Developments Ltd’ dated May 26, 2006.

The seller could not unilaterally claim that the other party had no valid reason to withdraw from the promise of sale and take the deposit. The seller had to sue judicially and for this purpose, the konvenju had to be kept in vigore in terms of article 1357 of the Civil Code, for the deposit to be retained.

The Court of Appeal explained that the defendant companies could not retain the deposit if the konvenju expired, and if they did not obtain a court decision in their favour that the buyer had no good reason not to appear for the publication of the final act.

In this agreement, there was no ‘survival provision’ which specified which provisions of the konvenju continued to remain in force after its termination, for whatever reason.

It could not be argued, therefore, that despite the lapse of the konvenju, part of the agreement remained binding on the parties.

The agreement to keep the deposit was intrinsically connected with the konvenju and once the konvenju lapsed, its effect was also subject to a suspensive condition and it had to be verified whether the event occurred.

The fact alone that the prospective buyer did not appear for the contract did not mean that the condition occurred.

Unless this was established, the seller could not keep the deposit and if the agreement terminated, the court could not consider whether this suspensive condition occurred and the position of the parties reverted to their original position; re ‘Jenkins v Bianco’ (PA) dated May 30, 2001.

In view of the above considerations, the Court of Appeal agreed with the first court.

The court said that Gerit Company Ltd had a valid reason not to appear for the publication of the contract. It did not appear that Gerit Company Ltd did not have genuine intentions to purchase the property.

While it was true that this konvenju was not made subject to bank finance, however, its purchase of the property was disrupted for reasons not imputable to it.

The court concluded that it could be stated that Gerit Company Ltd did have a valid reason not to purchase the property.

For these reasons, on May 29, 2015, the Court of Appeal dismissed defendant companies’ appeal and confirmed the decision of the First Hall of the Civil Court.

Dr Karl Grech Orr is a partnerat Ganado Advocates.