The State has been ordered to fork out €76,880 to a couple whose matrimonial home was sold well below its value by a court auction forced by the bank they owed money to.
Sebastiano and Rita, spouses Guccione, had run into financial difficulties when their business under the name of International Plastering Company Ltd, had defaulted on loan and overdrafts payments to the bank, allegedly on a works project which had gone awry.
A civil suit was instituted by the bank, leading to the judicial sale by auction of their matrimonial home, consisting of a semi-basement, a garage with two overlying flats and a penthouse in Swieqi, valued on the market at €590,000.
On the day of the auction, the only bidder was the bank itself whose offer at €410,000 was accepted, thereby acquiring the block of property at €180,000 below its real value, as determined by a court-appointed architect.
Subsequently, the couple were targeted by further action by the bank for the remaining debt totaling €651,947 plus interests, by virtue of the original loan and overdrafts granted to the clients.
Faced with this situation, the couple filed a constitutional application before the First Hall, Civil Court claiming that their fundamental right against deprivation of property without compensation, had been breached by the law permitting the judicial sale at 60 per cent of its market value.
The law in question, namely article 319(5) of the Code of Organisation and Civil Procedure, amounted to a form of "forced expropriation" allowing a compensation that was "too meagre", the applicants argued, thus challenging the constitutionality of said law.
The court, presided over by Madam Justice Jacqueline Padovani Grima, pointed out that although an action by a creditor did not automatically entitle the debtor to claim a breach of rights, the scenario changed if it was proved that the latter was a victim of “an arbitrary and unjust dispossession of property in favour of another person”.
This breach was to be determined by means of a three-fold test based upon the lawfulness of the action by the State, whether the dispossession was intended for a legitimate purpose in the public interest and whether it achieved a just balance between said public interest and the fundamental right to enjoy one’s property.
While satisfying the first two tests, Maltese law faltered upon the final leg, as evidenced by the scenario of this case.
Although a defaulting debtor cannot claim victimisation and be allowed to go scot free, yet his rights could not be ignored, the court observed.
Citing extensively from local and EU case law, the court made reference to Rousk v Sweden (2013) where the ECHR had said that “the final bid which was accepted amounted to 80% of the estimated market value.”
Although Maltese law allowed the debtor to ask for a fresh judicial sale by auction, yet “the minimum threshold of 60% of the actual value of the property, was too low and thus not proportional to the purpose intended by law,” the court opined, thus upholding the applicants’ claim.
Abiding by the 80% in terms of ECHR guidelines and based on the real value of the property, namely €590,000, the court concluded that the sale should not have been allowed for less than €472,000.
The difference in sale price, namely €62,000, together with interest accrued on their bank debt over a 3-year period calculated at €14,880, totaled the sum of €76,880 which the court ordered the State to fork out to the applicants for breach of their fundamental right against deprivation of property without compensation.
Lawyers David Camilleri and Joseph Gatt assisted the applicants.