Breach of Fiduciary Obligations

On the 4 October 2023, the First Hall Civil Court, presided by Hon. Justice Anna Felice, in the case of Associated Supplies Limited (C-2891) versus Joseph Mizzi discussed the fiduciary obligations that arise during one’s employment.

Relevant facts of the Case

Joseph Mizzi was employed as a General Technical Manager under an indefinite contract with the plaintiff company, Associated Supplies Limited (ASL) (hereinafter referred to as the ‘Company’). In his capacity of providing technical assistance, he was tasked with engaging in negotiations with Burmeister and Wain Scandinavian Contractor (BWSC), a foreign company seeking consultancy services for a power station tender in Delimara.

During his tenure, Mizzi fell ill, requested to be boarded out and subsequently resigned from ASL. This led to the consultancy agreement between ASL and BWSC failing to reach finalisation due to the contractor’s insistence that the agreement would become void if Mizzi ceased to be employed by ASL. After Mizzi’s resignation, Company director Joseph Rizzo discovered that Mizzi had independently pursued the tender project with BWSC. This came to light when local newspapers circulated news confirming BWSC’s successful bid, prominently featuring Mizzi as its representative.

The Company perceived Mizzi’s actions as being clearly strategic; since when the agreement was nearly finalised, he manipulated the situation to his advantage and chose to act as a personal agent for BWSC.  He was able to do so due to the access he had to  private, confidential, and commercial information as an employee of ASL. In response, Associated Supplies Limited took legal action against Mizzi, alleging a violation of his employment contract and a breach of the fiduciary duties he was legally bound to adhere to as a highly technical employee within the Company.

Court’s Considerations

To reach a decision, the court proceeded to establish the sequence of events, detailing Mizzi’s actions in the months following his boarding out and subsequent resignation from the company.  The court failed to believe that such events occurred by pure coincidence and that the meeting with the BWSC representative was no “casual encounter” or “friendly visit”. Furthermore, the court took the following factors into consideration:

  1. BWSC’s Dependency: The court noted BWSC’s insistence on Mizzi’s involvement, refusing to finalize an agreement with ASL without him.
  2. Swift resignation: The fact that Mizzi swiftly resigned after being boarded out. This raised suspicions on the rationale behind his premature departure, especially since he was only a few months away from retirement. The court found it puzzling as to why he didn’t attempt to negotiate reduced working hours until he retired.
  3. Continued Involvement: Mizzi admitted to engaging in similar work after discontinuing his consultancy services with ASL.

Given these factors, the court believed that Mizzi seized the opportunity that arose when he fell ill, promptly resigning from ASL and thereby eliminating any hindrance that prevented him from serving as BWSC’s personal consultant.

Legal Considerations

During its deliberations, the court cited several judgements that elaborate on the effects of being bound by fiduciary duties under article 1124A of the Civil Code (Chapter 16, Laws of Malta). Notably, the Court referred to Carmen Xuereb v. L-Avukat Anton Micallef (02/12/2013) which held that “… A fiduciary has the obligation to keep the information he obtains confidential. They have a duty of loyalty towards the administration and must prioritize the interests of the person who employs them. With honesty and accountability, they must diligently handle the affairs assigned to them, exercising the care of a bonus pater familias. They should avoid conflicts of interest, always act in the best interests of their employer, and refrain from receiving any unauthorized profits.”

The Court also referred to the contribution by Dr Max Ganado entitled “Fiduciary Obligations under Maltese law”, published in  ‘Trusts e Attività Fiduciarie 2013’, which reads:

“Two fiduciary obligations, that of acting with utmost good faith and acting honestly, are absolute and cannot be waived or otherwise tampered with … All fiduciaries must act with utmost good faith as they have no interest to act otherwise as they are acting for the benefit of someone else. This is an obligation that cannot be waived or reduced either…”

The Court believed that Joseph Mizzi’s conduct directly contradicted with the fiduciary responsibilities he was obliged to adhere to, not only under his employment contract, but also in accordance with article 1124A. Joseph Mizzi, who held the position of manager, a role demanding significant responsibility, misused his authority with the aim of personal gain. He unilaterally aided BWSC in securing the tender, allowing himself to receive a percentage of the commission. Indeed, he was well aware that he was violating his obligations as instead of entering into an agreement under his own name, he opted to contract through ‘Typset,’ a company established by his children for typesetting work.

As a result, the court determined that according to article 1124A(5), Joseph Mizzi was obliged to reimburse the benefits he had received which included payments in the form of commission based on the value of the tender. According to the terms outlined in the ‘Advisory & Cooperation Agreement’ intended to be signed by ASL and BWSC, ASL was meant to receive a commission at a rate of 2% for ‘4 stroke engine’ and 3% for ‘2-stroke engine’. However, Joseph Mizzi argued that the commission rate he received differed significantly from the one specified in the agreement between ASL and BWSC. The court was sceptical on this fact and doubtful as to whether the actual commission rate was indeed only 1%. Despite these uncertainties, the court had no choice but to base its decision on the evidence presented by Joseph Mizzi who provided an authentic copy of the agreement between Typeset and BWSC which explicitly stated the 1% commission calculated on the tender’s value of €165,000,000, amounted to €1,697,658.25.

Ruling of the Court

In light of the above considerations, the court dismissed all the defendant’s arguments and those presented by Typeset Company Ltd. The court ruled that Joseph Mizzi had violated his fiduciary duties and the contractual obligations outlined in his employment agreement. As a result, the court ordered him and Typeset Limited jointly and severally to pay Associated Supplies Limited €1,697,658.25 in damages, together with the case-related costs.

This judgement has been appealed by the defendants and is therefore still sub-judice.

This article was first published on The Malta Independent 22/11/2023.