Guarantees offering general and special hypothecs in favour of a bank, more than adequate security

A precautionary guarnishee order was filed by HSBC Bank Malta plc, in the acts of the case ‘HSBC Bank Malta plc v. Boris Arcidiacono Limited, Arcidiacono Limited, Barc Company Limited, Boris Arcidiacono and Carina Arcidiacono’ before the First Hall Civil Court presided over by Judge Robert G. Mangion. This guarnishee order was issued for the amount of two hundred ninety nine thousand, one hundred and fourteen euro and three cents (€299,144.03) which allegedly was the balance due on a banking facility granted to Boris Arcidiacono Limited, with the rest of the defendants acting as sureties thereof.

In response to this, the defendants filed an application, referred to as a counter-warrant under Article 836 of the Code of Organisation and Civil Procedure praying that the precautionary guarnishee order is revoked either in total or in part. The grounds brought forward for the cause where:

Article 836(c) that other adequate security is available to satisfy the claim of the person at whose request a precautionary act was issued either by the issue of some other precautionary act or if such other security can to the satisfaction of the court adequately secure the claim;

Article 836(e) that the security provided is deemed by the court to be sufficient;

Article 836(f) that in the circumstances it would be unreasonable to maintain in force the precautionary act in whole or in part, or that the precautionary act in whole or in part is no longer necessary or justifiable.

To justify the counter-warrant application, the defendants argued that the credit claimed by the bank was not only reduced after the garnishee order was issued but was also adequately secured by the inscription of general and special hypothecs. The value of these hypothecs, according to the valuation of an architect engaged by the defendants, surpassed ten million euro (€10,000,000).

The Court considered that in relation to any other debts the defendants may have which may rank before the debt claimed by the bank - there is no doubt, that the bank is in possession of the searches of the defendants and is in a position to make necessary verifications on the matter. The fact that the bank in its reply to the counter-warrant did not mention anything in this regard, was a clear indication that there are no other hypothecary creditors which would rank before the bank. Even if there was a possibility that the Commissioner of Revenue inscribes a hypothec against the defendants on debts which are currently not known, taking into account the value of the immovables concerned, the Court noted it is highly improbable that such inscription would de-value the guarantees currently held by the bank.

The bank proceeded to argue that it had a right to insist on having a liquidated sum of money as a security notwithstanding the fact that the credit claimed is already secured by general and special hypothecs. The Court considered that this submission did not have a legal basis because having an ‘adequate security’ as contemplated in Article 836, is not necessarily equivalent to a liquidated security consisting in cash. The law provides for an ‘adequate security’ and not a ‘liquidated security’ as is apparently being expected by the bank. On the same lines, it is not true that when banks confer banking facilities secured by general and special hypothecs, the said guarantees are in principle not sufficient for the purposes of securing the money being loaned by banks. The guarantees that offer general and special hypothecs in favour of a bank are to be considered, in the opinion of the Court more than an adequate security in the terms of the law.

Therefore, the Court held that the two immovable properties as valuated by the architect - upon which the bank holds general and special hyothecs - offer adequate security for the claims the bank has against the defendants. By virtue of a decree in chambers dated 22nd January 2021, the Court proceeded to uphold the request to revoke the precautionary guarnishee order on the grounds contemplated in Articles 836(1)(c) and (e), and reserved its position on whether to condemn the bank to pay penalties and damages, for when the Court determines the merits of the case.