Insights

On 27 May 2021, the First Hall Civil Court (the “Court”), presided over by Mr Justice Robert G. Mangion considered the execution of a bill of exchange. The case in the names of Mark Gaffarena vs Brian Lia, related to an application opposing the execution of a bill of exchange.

The facts of the case were as follows. Mr Lia (the “Applicant”) was served with a judicial letter in June 2020, whereby Mr Gaffarena (the “Respondent”) sought to render a bill of exchange, dated 20 November 2015, executable. In response, the Applicant instituted an application in terms of the proviso to Article 253 (e) of the Code of Organisation and Civil Procedure (Cap. 12 of the Laws of Malta) (the “COCP”), whereby he claimed there were grave and valid reasons to oppose the said execution since the bill of exchange did not reflect the current reality of the obligations between the parties. The Applicant claimed that he was engaged by the Respondent to carry out construction works in 2015, and towards the commencement of the engagement, the Respondent requested to pay for the Applicant’s services in advance, so that the works would not be affected by potential freezing of his assets. The Respondent paid €70,000 in part-payment for works that were already completed and as a deposit for the remaining construction works which the Applicant was engaged to carry out. The Respondent asked the Applicant to sign a bill of exchange for the same amount, as a means of ‘guarantee’ by the Applicant to the Respondent, for the performance of the construction works. During March 2016, there was an exchange of communication between the parties’ lawyers, where it was explained that the value of the works which had already been concluded had exceeded the value of the bill of exchange and that a balance was in fact owed by the Respondent to the Applicant.

Nonetheless, a judicial letter was served on the Applicant to seek the execution of the relevant bill of exchange. The Respondent claimed that the bill of exchange was not related to the contract of works and the services provided by the Applicant, but instead served as a ‘guarantee’ for the repayment of a loan which the Respondent had lent to the Applicant. The Respondent claimed that the bill of exchange was in fact an executive title and should be honoured by the Applicant. The Applicant denied borrowing money from the Respondent.

The Court analysed article 253 (e) of the COCP, which states that bills of exchange are executive titles provided that the competent court may, by decree which shall not be subject to appeal, suspend the execution of such a bill of exchange in whole or in part and with or without security, upon an application of the person opposing the execution of such bill of exchange, on the grounds that the signature on the said bill of exchange is not that of the said person or of his mandatory or where such person brings forward grave and valid reasons to oppose the said execution. The application of the person opposing the execution of the bill of exchange must be filed within twenty days from the service of the judicial letter sent for the purpose of rendering the same bill of exchange executable, and in such case, any person demanding the payment of the bill of exchange shall file an action according to the provisions of the Commercial Code.

The Court observed that the law clearly provides two reasons for the suspension of the execution of a bill of exchange, namely where the signature is not that of the relevant person or of his mandatory and/or where such person provides other grave and valid reasons to oppose the execution. The Court also noted that bills of exchange which were transferred to third parties by endorsement become autonomous and independent from the obligations for which reason the bill of exchange was drawn up. Consequently, a bill of exchange that has not been transferred to third parties, may not proceed without reference to, and cannot be detached from, the original agreement and obligations which caused the bill of exchange to be drawn up.

The Court expressed that, although this was not clearly expressed in the law, the action at hand was considered to constitute a summary procedure whereby the Court was requested to carry out simply a prima facie analysis – in fact, it was the intention of the legislator for such cases to be decided expeditiously. Therefore, pleas which require a detailed examination and analysis are not admissible in such proceedings. This is the reason for the limited objections which one may raise when requesting the suspension of a bill of exchange in terms of article 253 (e) of the COCP.

With respect to the case at hand, the Court observed that the Applicant did not contest the validity of the signature on the bill of exchange. In considering whether there were any “grave and valid reasons” to oppose the execution of the bill of exchange, the Court noted that the law does not specify what reasons could be constituted as “grave and valid”, and therefore it was left up to the Court’s interpretation. The Court expressed that the arguments presented by the Applicant and the Respondent were contradictory, however, it was not expected to determine which version was most credible since it must only carry out a prima facie enquiry. The Court also considered that since the bill of exchange had not been transferred to third parties, it could not be considered autonomous and independent from the underlying obligations which gave rise to the bill of exchange. As a result, since the disagreements between the parties were inherent to the underlying obligations and the reasons why the bill of exchange was drawn up initially, the Court concluded that this was a grave and valid reason to merit the suspension of the execution of the bill of exchange. The Court, therefore, ordered the suspension of the execution of the bill of exchange dated 20 November 2015 in accordance with article 253 (e) of the COCP.