In today’s column, we briefly examine two recent decisions. The first relates to usury, simulation and the rights of the lender. The second award sheds light on best administrative practices to be adopted when serious decisions are being contemplated, as, the imposition of a penalty. The writer stresses that what follows are very brief, subjective and selective write-ups on the decisions in question intended solely for educational and discussion purposes. 

S. Cutajar, v L and M Polidano, decided by the Civil Court, Judge Dr Mark Simiana, on 18 October 2024 (Rikors 323/2019/ MS) 

David Fabri

A few weeks ago, this column criticized a recent Court of Appeal decision which nullified a series of loans given by a lender to one particular borrower. The CA unfortunately accepted the defendant borrower’s claim that the loans were invalid and unenforceable on the ground that the lender should have obtained an MFSA licence under the Financial Institutions Act, despite evidence that the borrower had received the funds on loan.

A recent court decision has to a degree indirectly revisited the situation and adopted a different stance that better safeguards the rights of the lender. In this case, the plaintiff requested the nullity of loans made to him by the defendants on the ground that they masked a higher usurious rate of interest in breach of the Civil Code.

In a learned judgement, which referred to earlier case law, the Court held without hesitation that despite the disguising of the real intended rate of interest, the loans were not to be annulled but were still valid and should be given effect to within the limits permissible under the Civil Code.  In other words, the nullity was not absolute but only applied to the amount of interests that qualified as usury.

In the words of the Court:

“The consequence of a finding that a particular transaction is tainted by a usurious condition is not the absolute nullity of that transaction as if to say that the transaction never existed, but the issue of orders deeming that the usurious conditions had never existed.  Even the case law quoted by the plaintiff in his note of submissions confirmed that the consequential nullity that results from a finding of usury relates solely to the extent of the usury itself. Therefore, the transaction entered into between the parties remains in force as if the usurious element did not exist, and the rate of interest that had been imposed in excess of the limits allowed by law will be set aside, and only the lawful rate of interest remains in force.” (In translation)

A recent court decision has to a degree indirectly revisited the situation

Cassar Fuel Limited v Malta Resources Authority, decided by the Administrative Review Tribunal on 7 October 2024 (Mag Dr Charmaine Galea (Rikors 249/2022) 

The Administrative Review Tribunals are set up by the Administrative Justice Act of 2007 (Chapter 490 of the Laws of Malta) which regulates their competence and lists the various laws to which it applies.  The Tribunals have the power to review administrative acts carries out by Ministries, government departments, local authorities and bodies corporate established by law. Administrative acts include the issuing, or the refusal to the issue, of a licence, a concession, and other administrative decisions. 

 A recent decision by one of the Tribunals merits attention as it indicates a standard for how administrative entities should deal with persons whose operations they oversee.

In this case, the Authority having found that the plaintiff company had breached mandatory reporting requirements relating to gas emissions, issued an administrative financial penalty against it. The plaintiffs had repeatedly refused to supply the Authority with the information it requested and instead insisted on holding a meeting.

The Authority insisted on receiving the information it required before a meeting could be held.  The information was not supplied and the meeting was not held.  Plaintiffs were then found to have breached legal requirements and a penalty was issued. 

The Tribunal held that, in such circumstances, an Authority was expected to concede a meeting if requested by the person or company affected whenever serious decisions are being contemplated against them “which could lead to serious consequences”..  Therefore the Authority should have conceded a meeting to hear plaintiff’s claims and arguments before issuing the penalty, described by the Tribunal as “onerous”.  

“The Tribunal is of the view that it is in everybody’s interest that the requested meeting should have been held, and this to allow Cassar to set out his explanations and to clarify certain matters with the Authority.  Instead, the Authority continued to adamantly insist that the information required (from Cassar) had to be supplied (to the Authority) before any such meeting could be held.” (In translation)

On this ground, the penalty was revoked.

David Fabri lectures at University and has just published books on financial regulation and company law. Another book on consumer protection is awaiting publication.

This article was first published in The Corporate Times