The Malta Independent 21 May 2019, Tuesday

Law report: Non-fulfilment of obligations in contracts of works

Wednesday, 13 March 2019, 13:14 Last update: about 3 months ago

The First Hall Civil Court, presided by Mr Justice Robert G. Mangion on 28 Februrary 2019, in the case ‘Angela Borg vs Allin One Group Turnkey Services Ltd’ held, among other things, that a contractor who fails to fulfill contractual obligations is not considered to be in default unless such non-fulfilment is of a substantial nature.

On 11 April 2016, plaintiff Angela Borg had entered into a contract of works with the defendant company, whereby Allin One Group Turnkey Services Ltd (‘Allin One’) undertook to carry out certain finishings in the construction of a block of 3 flats situated in Triq il-Bronja, Mellieħa. The value of the completed works, as agreed upon in the contract, was €100,300. The sum of €60,000 had already been paid off by the plaintiff in the first few months following the engagement of the defendant company. However, towards the end of the year 2016, Allin One ceased carrying out works on the plaintiff’s property, as a result of which, the property remained in an unfinished state.

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In view of the above, Angela Borg instituted proceedings against Allin One, in which she claimed that the defendant company remained in default of its contractual obligations, despite having been called upon by means of a judicial letter dated 21 December 2016 to continue the works undertaken. Therefore, in her application, the plaintiff requested the First Hall of the Civil Court (‘the Court’) to, inter alia,

                   Order the defendant company to continue and complete the works undertaken;

                   Appoint technical experts to survey the works of the defendant company, and to ensure that such works are carried out in accordance with the contract of works entered into on 11 April 2016;

                   Declare the defendant company responsible for causing damage to the plaintiff, liquidate the damages suffered by the plaintiff, and order the defendant company to pay the same; and

                   Authorise the plaintiff to carry out the works herself with the expenses to be borne by the defendant company, in case the latter remains in default notwithstanding the order of the Court;

In this case, Allin One did not raise any pleas to the plaintiff’s claims; nor did the defendant company appear before the Court when called upon to participate in proceedings. Nevertheless, the onus of proof lay on the plaintiff to prove its claims to the satisfaction of the Court.

Since the defendant company had failed to complete the project, the Court had to determine whether the works which the company had carried out on the property were sufficient to prevent a contractual breach and/or default in its contractual obligations. The Court noted that no time frame had ever been fixed by the parties for the execution and completion of works. Nevertheless, the effect of the filing by the plaintiff of the judicial letter on 21 December 2016 had been to place the defendant company in default.

Reference was made to Emanuel Grech et vs Emanuel Muscat et, a First Hall Civil Court judgment delivered on 10 June 2005, whereby it was held that under our law, a party who fails to fulfill its contractual obligations can be forced to do so. However, Article 1067 of the Civil Code, Chapter 16 of the Laws of Malta, prevents the court from granting any time to the defendant to fulfill its contractual obligations if the contract is subject to an express resolutive condition. An express resolutive condition entails that, ‘such agreement shall, upon the accomplishment of the condition, be dissolved ipso jure’. In Grech et vs Muscat et, the Court went on to note that, according to Article 1068,

‘A resolutive condition is in all cases implied in bilateral agreements in the event of one of the contracting parties failing to fulfil his engagement:

Provided that in any such case, the agreement shall not be dissolved ipso jure, and it shall be lawful for the court, according to circumstances, to grant a reasonable time to the defendant, saving any other provision of law relating to contracts of sale’.

In the case at hand, the Court remarked that Article 1067 and Article 1068 above should be read together with the legal provisions which regulate contracts of works. In particular, Article 1640(1)  states that, ‘it shall be lawful for the employer to dissolve the contract, even though the work has been commenced’. Furthermore, sub-article (3), which was of particular relevance to these proceedings, reads as follows,

‘If the employer has valid reason for the dissolution, he is to pay the contractor only such sum which shall not exceed the expenses and work of the contractor, after taking into consideration the usefulness of such expenses and work to the employer as well as any damages which he may have suffered’.

Article 1640(3) therefore provides the principal with the exceptional faculty of terminating the contract arbitrarily. Reference was made to Joseph Dalli et vs Mediterranean Film Studios Limited - in this 2010 judgment, the Court described this legal provision as being of an exceptional nature, owing to the fact that it derogates from the fundamental principle that parties cannot arbitrarily evade their contractual obligations.

Moreover, default in fulfilling primary obligations sets off the secondary obligation of making good the damages suffered by the non-defaulting party to the contract. Therefore, the court has 3 remedies at its disposal which it can grant to the creditor:

(i) authorise the creditor to carry out the primary obligations itself, at the expense of the debtor;

(ii) order the debtor to fulfil the primary obligations itself; or

(iii) payment for the damages suffered, in terms of losses incurred and profits which could have been made had the obligations been fulfilled.

In other words, the debtor remains responsible for the fulfilment of the obligations undertaken in the contract. However, the default can, depending on circumstances, be attributed to force majeure, or to the employer’s own actions.

The Court also considered whether the contractor’s non-fulfilment was substantial in nature or otherwise. According to local jurisprudence, the contractor cannot be deemed to be in default when non-fulfilment is not substantial. Nevertheless, it remains responsible for either making good the non-fulfilment, or accepting a reduction in price paid. On the other hand, the contractor may not claim any payment if the non-fulfilment is substantial. Moreover, the mere fact that the employer has already effected payment of the full price (or part thereof) does not mean that the contractor has fulfilled its obligations.

In this case, the defendant company had failed to install the doors, balustrades, and bathroom. Such non-fulfilment was considered by the Court to be of a substantial nature, as the plaintiff was being deprived of the enjoyment and use of her property. Indeed, on 10 October 2018, the Court had issued a decree authorising the plaintiff to appoint a third party contractor to finish the works on the property.

In light of the above, the Court went on to determine the damages claimed by the plaintiff. Angela Borg had requested threefold damages, that is:

(i) loss of income in terms of rent;

(ii) the difference between the price agreed upon with the defendant company, and the higher price which has to be paid to the third party contractor for completion of the remaining works; and

(iii) the difference between the sum of €60,000 paid by the plaintiff, and the works carried out.

However, since the plaintiff had failed to produce evidence of the income which could have been made in terms of rent, the Court was unable to award such damages. Therefore, the liquidation of the damages due to the plaintiff was limited to the €60,000 payment and the higher price paid to the third party contractor for the remaining works. 

For the purpose of liquidating the damages due, the Court applied Article 1640(4) of the Civil Code, which states that:

‘Any advance made to the contractor before the dissolution of the contract shall be applied to the sums due in terms of sub-article (2) or (3) of this article and the contractor shall return any resulting excess to the employer’.

Based on the above, the Court declared the defendant company responsible for causing damage to the plaintiff, liquidated the damages due and ordered the company to pay €73,546.57, with legal interests incurred as from the date of delivery of judgment.

Dr Calvin Calleja is an Advocate at Ganado Advocates

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