On October 28, the Court of Appeal (Civil, Inferior) pronounced its judgment in case 59/2018 ‘Agius Rosina v Global Capital Financial Management’. The judgment was given upon appeal application by the defendant Global Capital Financial Management, which disagreed with the first instance judgment by the Arbiter for Financial Services given on May 14, 2018. The latter had found in favour of plaintiff Rosina Agius. On appeal therefrom, the Court of Appeal confirmed the first instance judgment in full.

The substance of the case centres around the investment of a sum exceeding €30,000, which the elderly lady had inherited from her deceased brother by way of various investments and bank deposits held by him. The case the plaintiff successfully complained of was related to the defendant’s failure to provide adequate and diligent professional assistance in the field of financial investment, particularly with regard to the type of investor concerned.

Indeed, the latter was an elderly illiterate person having no knowledge of the English language, which was the main language used for the written contractual agreements entered into between the parties. The plaintiff had fully trusted the defendant, with the latter negligently betraying the trust afforded.

Before tackling the substance of the case, revolving on the obligations of the defendant company and its default, we have to open up a parenthesis on the plaintiff’s own fault.

The plaintiff was chastised by both the arbiter and the court for signing documents she did not read and could not read. While generally strong, this alone is not a sure-fire argument to raise against the signatory, particu­larly in certain transactions involving a negotiating imbalance between the parties, as was this case.

The arbiter apportioned 25 per cent of the judicial expenses to be borne by the plaintiff, but without affecting in any way the claim of the plaintiff, which was acceded to in full. This seems anoma­lous and was indeed raised as a grievance on appeal by the defendant company.

The Court of Appeal rejected it and stated that given the contractual relationship between the parties and the imbalance between them as resulting therefrom, and particularly the vulnerability of the plaintiff, then greater responsibility had to be cast upon the defendant company with none to be attributed to the plaintiff. While the plaintiff argued against it in the appeal proceedings, the Court of Appeal also pointed out that she did not file an appeal on the apportionment of judicial expenses by the arbiter, and hence it could not but deny the grievance of the defendant company and confirm the arbiter’s decision on this aspect.

Some investors should not be allowed to invest in categories of funds deemed to be beyond their capabilities

Another legal aspect central to the parties’ case was prescription and its determining factors. Did the alleged fault of the defendant result from contractual obligations or from tort? The former allows a period of five years, while the latter allows two years to file the relevant action.

Citing apparently conflicting jurisprudence, both the arbiter and the court determined that the relationship was indeed contractual, and they did so after considering numerous documents between the parties and their provisions. This led to the action not being time-barred (preskritta) as pleaded by the defendant company, thus foiling its attempt to avoid its liabilities.

Scrutiny should now turn upon the defendant company’s major fault. The plaintiff had approached the defendant so as to get advice on how to invest her capital (the money initially invested) in a manner that procured her income, was easy to liquidate and without putting the capital invested at risk. Upon receiving advice by the defendant, the plaintiff proceeded to invest in a financial pro­duct named The Protected Asset TEP Fund 2. This was a result of a prior process on which the arbiter and the court clearly found the defendant at fault for its handling of the defendant, meaning the client and her investment capabilities.

Categorising investors is central to access investment funds, and some investors should not be allowed to invest in categories of funds deemed to be beyond their capabilities, subject to consequences at law, as in this case. The burden lies with companies, such as the defendant, being appropriately licensed, regulated and well-resourced with supposedly diligent professionals so as to adequately assess the prospective investor and make such calls.

The final judgment confirmed that the defendant company should never have advised and accepted the investment by the plaintiff due to the fact that she could not, under any reasonable con­side­ration, be considered to be an experienced investor. The contractual relationship bet­ween the parties was based on various documents making up the agreement and confirming that the investment funds were fit for experienced investors.

The arbiter and the court, as did the Malta Financial Ser­vices Authority in a separate opinion, all concurred that from the documentation provided to the plaintiff by the defendant company it resulted that the funds invested in were fit for experienced investors, a far cry from the plaintiff. This investment mis-selling, and related lack of diligence by the defendant, compounded by the procedural fact that it raised numerous pleas without substantiating them with any evidence in the proceedings, was damning.

All this led to acceptance of the plaintiff’s claim that the defendant engaged in investment mis-selling, which results in compensation.

The causation between this mis-selling and the damages suffered by the plaintiff was contested but confirmed on appeal. The remedy granted and confirmed on appeal was that sought by the claimant, being that the defendant company repurchase the investment at the original price, with interest running as determined by the arbiter. This was to reinstate the plaintiff at her position prior to her investment, without loss of income.

The judgment on the interest is of interest (excuse the pun), in that, on appeal, the defendant contested the interest determined by the arbiter but the Court of Appeal confirmed the same, pointing out to the wide discretion afforded to the arbiter under the Arbiter for Financial Ser­vices Act, and the special legal provision by which interest could even run from the date of the conduct complained of.

Edric Micallef Figallo is an associate at Azzopardi, Borg & Abela Advocates.