Inademplenti non est adimplendum - the right at law to plead non-performance of the other contracting party
The First Hall Civil Court, presided by Judge Toni Abela on 14 October 2019, in the case ‘SALPA Ltd (C 27996) vs Tigullio Srl’ reconfirmed the cumulative prerequisites necessary for the defendant to plead non-performance of the other contracting party.
The contending parties had signed an agreement on 6 February 2003, whereby Tiguglio Srl appointed Salpa Ltd to act as its sole distributor and agent for diving equipment locally. The agreement was valid for a definite period of one year i.e. from 1 January 2003 to 31 December 2003. An option was included in the fourth clause of the agreement which allowed the parties to extend its validity (by means of a letter) or to rescind the contract three months in advance (by means of a recommendation). The option to extend was not invoked, as a result of which the agreement lapsed at the end of the year. However, the contractual parties continued to give effect to the agreement for a number of years that is to say, until the dispute which led to the initiation of the current proceedings arose.
In this case, the plaintiff company argued that the defendants had unilaterally:
(i) ceased to supply its products for local distribution; and
(ii) terminated the agreement, of which no notice was given as stipulated in the agreement to the plaintiffs.
Moreover, Salpa Ltd claimed that Tigullio Srl had issued a public declaration whereby they compromised the future sale of the products already held by the former as sole agent and distributor. This, the plaintiffs insisted, was all part of the defendants’ plan to have the agency and distributorship of its goods pass on to a third party.
Therefore, by initiating the proceedings at hand, the plaintiff company was seeking payment of compensation and damages due as a result of the unilateral breach of contract. Its action was based on Article 1125 of the Civil Code, Chapter 16 of the Laws of Malta, which states that, ‘where any person fails to discharge an obligation which he has contracted, he shall be liable in damages’. This provision of law is to be read in conjunction with Article 1135 of the Civil Code which establishes the damages payable to the creditor, ‘subject to the exceptions and modifications hereinafter specified, the damages due to the creditor are, generally, in respect of the loss which he has sustained, and the profit of which he has been deprived’. Reference was made to the 2009 case decided by the Court of Appeal (Inferior Jurisdiction) in the names of ‘Saviour Muscat vs Sam
Pantalleresco’ whereby the court stated that Article 1135 lays down the principle that damages consist of:
(i) the market value of the object
i.e. the direct loss; and
(ii) the negative consequences which the default of the debtor has on the patrimony of the debtor i.e. the loss of profits.
The defendants relied on the legal principle inademplenti non est adimplendum, on the basis of which it argued that the plaintiff company’s failure to pay for the merchandise was conducive to the decision to cease the supply of such merchandise in the first place.
In examining the jurisprudential application of this defence, the Court made reference to the 2003 judgment delivered by the Court of Appeal in the names of ‘Engineering Services Limited vs Reuters Malta Limited’. In this case, the Court of Appeal had laid down the three prerequisites necessary for the plea to be upheld: (i) the plaintiff’s non-performance must be of an obligation which is integral to the agreement;
(ii) the non-performance must be attributable to the plaintiff; and
(iii) the element of proportionality between the non-performance of the parties i.e. the plaintiff’s non-performance has to be of a certain gravity. Moreover, Italian legal doctrine distinguishes between the general plea of ‘non-performance’ and the qualified plea of ‘performance not as stipulated in the contract’ (the latter is hereinafter referred to as ‘qualified non-performance’). There is conflicting jurisprudence as to which of the parties has to prove simple non-performance the line that the onus of proof rests on the plaintiff is however generally followed. On the other hand, in the second scenario, there is a general consensus that it is the defendant who has to prove qualified non-performance.
In the current proceedings, the plaintiff company did not bring any evidence to rebut the plea of non-performance raised by the defendants. Indeed, its failure to pay for the merchandise provided was admitted by the plaintiff’s representative in an affidavit submitted to the Court. Non-payment, the plaintiffs argued, was due to the fact that the goods provided were not according to the quality stipulated in their contract. This, in turn, was due to the fact that the defendant company was insolvent.
However, the Court did not agree with the plaintiff’s allegation regarding the stipulated quality of the merchandise. It observed that the juridical concept of ‘stipulated quality’ is intrinsically tied to the object of the sale itself. Therefore, in order to uphold such a claim, the object has to be different to the object agreed upon. The allegation that the defendant company is insolvent does not have the necessary bearing at law on the stipulated quality of the merchandise.
Moreover, the Court made a number of observations, inter alia: (i) the insolvency allegation was categorically denied by the defendants;
(ii) the allegation was not sufficiently proven by the plaintiff company as required under Article 562 of the Code of Organisation and Civil Procedure, Chapter 12 of the Laws of Malta, which states that, ‘saving any other provision of the law, the burden of proving a fact shall, in all cases, rest on the party alleging it’;
(iii) the current proceedings were instituted by the plaintiffs a year after the alleged insolvency. Such proceedings would only have been instituted if the plaintiffs knew that the defendant company was still in existence and financially stable;
(iv) the insolvency allegation was raised by the plaintiff company for the first time in its reply to the counterclaim; and
(v) even if the Court had to accede to the plaintiffs’ claim that the merchandise was not of the quality stipulated in the contract, the law did not permit them to arbitrarily retain the merchandise ‘without prejudice’ - this was not a remedy envisaged by the Civil Code.
On the basis of the evidence produced, the Court concluded that the plaintiff company had defaulted on its payment obligation. Reference was made to the Court of Appeal (Inferior Jurisdiction) judgement delivered in 2005 in the names of ‘AX Construction Limited vs Tony Mallia Bonello’ whereby it was held that ‘there is no doubt that the plaintiffs were at fault if they had failed to honour their payment obligation as stipulated in the contract’.
In light of the above considerations, the Court delivered judgment in favour of the defendant company by upholding its counterclaim for payment of merchandise supplied to the plaintiffs. The plaintiff company was declared to be the debtor of the defendant company in the amount of €23,373.79 with legal interests. Costs of the proceedings were also to be borne by the plaintiffs.
Dr Calvin Calleja is an Advocate with GANADO Advocates