On February 17, the Court of Appeal (superior jurisdiction) pronounced its judgment on application 963/2015/1 MCH, confirming the first instance judgment in full. The first instance judgment decided on the lack of justification of the procedural state of kontumaċja (default) by the defendant company, and the merits of the case as filed by the plaintiffs. This appeal was brought forward by the defendant company, which had succumbed at first instance.
We will not delve on the relevant aspects on the kontumaċja of the defendant, besides stating that the courts found that sending an e-mail to one’s lawyer and failing to follow up the matter with the same is not a reasonable excuse for the default in filing one’s reply in the proceedings, and the defendant company (i.e. the lawyer’s client) was found to be solely responsible for said failing.
As to the merits, we have had the opportunity to comment on similar ones in previous articles published in this column. These relate to investment services as affecting the common person, specifically in relation to the responsibilities pertaining to investment services providers. In this case, the plaintiffs alleged and proved that they had invested and lost their life savings.
It is important that trust is laid on entities regulated by law and through the Malta Financial Services Authority (MFSA), and any person interested in investing should approach someone else only if these are authorised, licensed and regulated by the MFSA. Indeed, this was the situation in this case and that significantly strengthened redress or made it possible to start with.
Among the failed justifications for the loss incurred by the plaintiffs was a disclaimer which held no value in this case. These types of disclaimers might deceive investors into thinking they are bound by them: “Value of these investments and the income derived can go down as well as up and you may get back less than the amount invested. Also if the investment in the fund is sold before maturity, you may get back less than the amount originally invested.”
Investors, who contract while aware of such disclaimers, should not assume that successful redress against investment services providers is not possible. Disclaimers, often an alien importation borne of an English-speaking culture ill-suited for our legal tradition, have often been rubbished by our courts and rightly so.
The grounds for so doing generally lie in our notions of diligence and negligence. In this case, the plaintiffs successfully laid emphasis on these central notions of our Civil Code and combined them with the alleged and proven failure to adhere to sector-specific law applicable for investment service providers in Malta.
It is important that trust is laid on entities regulated by law and through the Malta Financial Services Authority
Indeed, our highest civil court stressed that due to the EU’S MiFID Directive and the rules issued thereunder by the MFSA, the investment service provider had to fulfil certain obligations; foremost of which was the adequate fulfilment of the client’s suitability test if the investment service provider was to give advice towards investing in a certain manner. Said advice was provided in this case and, therefore, the suitability test had to be adequately performed by the investment service provider.
The Court of Appeal (superior jurisdiction) agreed with the first instance court in stating that this case had little evidence to be examined, presumably owing to the state of kontumaċja of the appealing company; however, it confirmed from the evidence filed by the plaintiffs that there was no doubt that they were investing on the advice of the defendant company.
The Court of Appeal (superior jurisdiction) also held that the defendant company was obliged to perform the suitability test required under the rules issued by the MFSA. This was not performed by the defendant company; at least this is what could result according to the acts of the proceedings and here it is fit to make reference to a major procedural principle, quod non est in actis non est in mundo. This Latin legal maxim means that what’s not in the acts of the proceedings does not exist in this world, for the court at least.
The Court of Appeal (superior jurisdiction) also made a positive reference to a final and binding decision by the arbiter of financial services given in case 448/2016. In that case, the arbiter had rubbished attempts by the relevant investment service provider to shift fault on the investor by relying on the actual brochures for the relevant investments. It stressed that if professional advisers could not determine the adequate level of risk, then this was not to be expected from investors who had to be appropriately classified as retail investors. Likewise in this case.
Our highest court also touched upon another matter plaguing consumers in general: so-called standard form contracts. The appealing company attempted to rely on the fact that the plaintiffs had read the file notes for the investment in the brochure provided, but our highest court dismissed these as standard forms and highly technical in nature, and as such could not be held to be understood by retail investors. It also appeared that said reading did not happen and the only explanation that the investors were given was that the security and suitability of the fund was evident because “ismu miegħu” (its name says it all).
Our highest court made it absolutely clear that this is not the way to give investment advice to retail investors without experience. Plaintiffs are to recover around €150,000, with interest and judicial expenses against the investment service provider.
This judgment follows other judgments by the arbiter for financial services and the Court of Appeal (inferior jurisdiction) which had lambasted investment service providers for failing in their obligations towards investors. The importance of this judgment is that it was given by the Court of Appeal (superior jurisdiction) and it further consolidates the principles involved. It is to be said that the first instance judgment, as confirmed on appeal, was given by the Chief Justice. Clear jurisprudence.
Edric Micallef Figallo is an associate at Azzopardi, Borg & Associates Advocates.