The Malta Independent 20 October 2018, Saturday

Law report: The performance of a contract and the principle of pacta sunt servanda

Ganado Advocates Wednesday, 16 May 2018, 10:20 Last update: about 6 months ago

In the case Concorde Developments Limited v B. Grima and Sons Limited decided by the Court of Appeal on the 8 March 2018, the defendant requested a retrial on the basis that the judgment of the First Hall Civil Court was the effect of an error resulting from the proceedings or documents of the cause.

The facts surrounding this case were as follows. The plaintiff (Concorde Developments Limited) entered into a contract of works with the defendant company (B. Grima and Sons) which was engaged to develop a plot of land. As partial payment for such works, the plaintiff would give the defendant company an apartment. The defendant company commenced works on the plot, but after some time stopped works to renegotiate the terms of its contract. The defendant contested the price of the contact and the total amount of payment it would receive once the works are complete. Once the defendant company stopped working on the project and failed to fulfil its obligations under the contract of works, the plaintiff engaged another company to finish the works the defendant started. The plaintiff subsequently sued the defendant for the non performance of the contract and damages resulting from said non performance.

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The  plaintiff is therefore asked the Court to declared that the defendant is liable for said damages and to liquidate those damages in its favour. The defendants did not raise any pleas before the First Hall Civil Court, but the Court held that the defendant’s contumacy does not automatically result in a favourable judgment for the plaintiff. Therefore, the plaintiff still had to prove its claims before the Court.

The Court noted that even though the contract of works was not signed or dated and lacked some formalities of a contract, the fact that the defendant commenced works on the basis of this meant that such terms were accepted. The Court held that if the defendant agreed to a contract, and during the performance of said contract, despite in the initial stages, it no longer agreed to the terms of the contract, it had no right to renegotiate these terms. The Court considered a disagreement over the price of a contract of works to be a primary and important element of the contract that gave the plaintiff the right to stop the contract unilaterally, especially since the defendant did not continue to execute the contact of works without a valid contract of works. The principle of pacta sunt servanda and good faith in the execution of contracts reign supreme and therefore the defendant’s failure to perform the contract was not excusable or justified.

The plaintiff also sued for damages, both for actual damages suffered as well as for the loss of profits that resulted on account of the defendants’ failure to perform the contract. Article 1125 of the Civil Code states that: “Where any person fails to discharge an obligation which he has contracted, he shall be liable in damages.”  Furthermore, Article 1127 of the Civil Code states that in the case of a “non-performance of an obligation to do, the creditor may be authorized to cause the performance thereof himself at the expense of the debtor.”

Therefore the defendant could either fulfil the contract, or alternatively pay for the damages that result from the failure to perform that obligation. The Civil Code specifically states that damages due to a creditor are ‘generally in respect of the loss which [it] has sustained, and the profit of which [it] has been deprived. This is the case, even if the debtor (in this case the defendant) was not in bad faith, the defendant would still be liable to pay for the damages that resulted from the non performance of the contract, unless the non performance of the contract was due to some extraneous cause which is not due to the defendant’s fault or if he was prevented from performing the contract due to an irresistible force or a fortuitous event.

The First Hall Civil Court granted all the plaintiff’s claims.

The defendant’s appeal was also rejected, as the Court found no justification for the defendant’s contumacy. The Court of Appeal held that the provisions relating the instances in which a retrial would be allowed should be given a strict interpretation, and that in fact the defendant did not bring enough evidence to show that there was a procedural error.

 

 

Dr Elise Dingli is an Advocate at GANADO Advocates

 

 

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