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International trust law in Malta

The right hand of financial services needs to work with the left hand of the law.

The right hand of financial services needs to work with the left hand of the law.

This piece is inspired by a recent application to the First Hall of the Civil Court for the issue of an injunction. The lawsuit is currently sub judice and therefore it is best to maintain anonymity. However, the process and decision concerning the precautionary relief raise serious issues of interest to the financial services industry at large in Malta.

A foreign national non-resident in Malta alleges to be a beneficiary of a trust governed by non-Maltese law. The trust has never had any legal or factual link to Malta. It has been determined a long time ago and has no assets.

The plaintiff alleges that former trust assets are now owned by a company incorporated in Malta. The plaintiff formulated the request for the issue of the warrant in the widest language imaginable – “prohibit the disposal of all property wherever and whatever it is.”

The legal basis for the request were: the closure of the trust and distribution of the assets occurred in breach of the foreign governing law; the assets, if any, allegedly held by the defendant Malta company were now held on a fiduciary basis in terms of the Malta Civil Code; and the Malta company was now a constructive trustee in terms of the Maltese law on trusts.

The defendant raised a multitude of defence pleas comprising procedural and substantive points of law including lack of the court’s jurisdiction, competence, lis alibi pendens, proper law, errors in formalities and errors in law on the three postulated grounds.

The court ignored both parties’ material legal submissions completely.

Without any evidence or minimal inquiry on its part as to whether the applicant was indeed a beneficiary of a trust long wound down or whether there was a prima facie case of any wrongdoing, the court upheld the request on a carte blanche basis. It argued – it seems that the applicant is possibly a beneficiary of a terminated trust overseas. It is of no concern (to this court) whether the termination of the trust or its revival (if at all permissible) or the distribution of assets is legitimate or otherwise.

Malta prides itself on taking the lead in emerging financial services sectors

The court paid extremely limited and superficial attention to these key points of law. It simply took the view that those matters are for others to determine even though the application for the injunction was formulated for decision on those very considerations.

This is as courageous a decision as it is devastating to what is now one of the major pillars of the country’s economy.

Whether this is a correct or incorrect decision is not the issue. The point is that it represents a doorway and unlike Mercutio’s wound it is as wide as a church door. It is also unchallengeable.

As long as one can find some excuse to file in Malta – which currently has in excess of 60,000 companies excluding trusts and foundations – one may allege anything no matter how frivolous or otherwise with devastating global commercial consequences because the bar is set so low by this decision that anything goes.

There is clearly an aversion to any form of judicial inquiry or discretion. The policy is to error on the side of caution without caution given to the consequences of erring.

The law requires the hearing of applications for injunctions to be concluded within 30 days from filing. This period is mandatory. The judge in this instance had in excess of 2,000 pages to read and absorb including foreign jurisprudence. The value at stake was alleged to be €2.5 billion. All of this was in addition to the sitting judge’s docket.

Malta currently does not have a set of judges expert in trust law. The judicial backlog is what it is. So are such outcomes surprising?

Malta prides itself on taking the lead in emerging sectors of the so-called financial services sector (the right hand) such as with blockchain. But, the administration of justice (the left hand) is incapable of servicing the industry. Arbitration in Malta is dead in the water so there is simply no effective and efficient dispute resolution process for foreigners who are continuously setting up business out of Malta because it currently holds the top spot jurisdiction in the EU. But it will lose its ranking when the players realise how financially risky and ruinous it is to go to court in Malta.

This lawsuit has had a first hearing in July and is adjourned for initial housekeeping session in January 2019. By the standards of competing jurisdictions that is unheard of.

Might it not be time for local innovation to focus on the establishment of a court to deal exclusively with all matters capable of being described as financial services? In this way the left hand and the right hand might actually work hand in hand.

Anton Micallef LL.D., Ph.D. (Lond.) is an international corporate lawyer.

www.internationalcorporatelawyer.com

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