A company that agreed to buy a prime Sliema property only to renege on that deal has been told it must forfeit a €1 million deposit and cough up an added €200,000 in damages for dropping the sale.

All Round Entertainment Ind Ltd had signed a promise of sale agreement to purchase three tenements on Tower Road, corner with Guze Fava Alley, in March 2018.

That deal required it to pay SMS Group Limited €4.45 million for the properties. All Round paid a €1.04 million deposit, with the contract stating that the deposit would be liquidated in the seller’s favour “should purchaser fail to appear on the final deed of sale without a valid reason at law.”

The promise of sale was renewed several times up to the end of April 2021. SMS Group also filed four separate judicial letters between September 2020 and that date, calling on All Round to conclude the purchase. All Round said it did not have the capital to go ahead with the sale.

All Round Entertainment is owned by a company called Lifetime Limited. Its sole shareholder is Luke Chetcuti, the son of murdered Paceville magnate Hugo Chetcuti.

With SMS Group and All Round unable to reach an agreement on the sale, the seller filed civil proceedings in court.

SMS argued that it was entitled to keep the €1 million deposit and was also due damages.

All Round Entertainment argued that the promise of sale had expired and that SMS was now intent on pocketing the €1 million deposit for no valid reason.

When delivering judgment, Madam Justice Audrey Demicoli observed that the dispute pivoted on three main issues.

The first was whether the promise of sale was still valid and whether the seller had a right to claim damages without seeking to force the sale.

The court concluded that SMS Group had filed the necessary judicial letters within the legal time limit, but had not sought to force the sale in its civil action.

In terms of article 1357 of the Civil Code, the promise of sale had thus expired.

Did the seller thus have a right to keep the deposit and sue for damages?

Case law on this point differed, with one line stating that unless the deposit was described as “earnest” (kapparra) the sum was not forfeitable, and another line saying that a deposit termed as forfeitable if the purchaser does not sign the contract for no valid reason, is “earnest” no matter how it is termed.

In this case, the wording of the promise of sale was “clear and unequivocal” and the court concluded that the €1 million was “earnest, whatever it was called.”

The next issue was whether the purchaser had a valid reason not to sign the final deed.

Correspondence between Luke Chetcuti, All Round Entertainment director, and Simon Mifsud on behalf of the seller, showed that the buyer was not prepared to go ahead with the sale.

When testifying, Chetcuti described certain correspondence as “bluff,” simply an attempt to negotiate a more favourable price for the Sliema property.

But the court said that taken in context, Chetcuti’s explanation was not credible.

If the buyer really wanted to sign the contract, there was no need to renew the promise of sale three times, nor to be called upon four times to honour its obligations.

All Round Entertainment argued that the seller had allowed the promise of sale to expire and did not try to force the sale.

But the court observed that the buyer’s behaviour was indicative of someone who, after signing the promise of sale, had lost all interest in proceeding with the acquisition and went back on its promise.

The defendant put forward no evidence to prove that it was effectively in a position to buy the property.

The court concluded that the buyer had no valid reason not to sign the final deed and that the €1 million deposit was to be forfeited by way of pre-liquidated damages in terms of the specific clause which survived the expiry of the promise of sale.

The court also ordered the defendant to pay a further €199,694 in damages representing loss of rents and a sum paid by SMS Group to third parties to vacate the premises as it had agreed to on the promise of sale.

The judgment is subject to appeal.

Lawyers Mario DeMarco and Margo Zammit Fiorentino assisted SMS Group.