Good faith is an essential component of contracts

A contractual obligation is created through an agreement that is reached between two or more parties and which must be carried in good faith. Such contractual obligations are binding by law and are subject to enforcement against any party that fails to honour them.

In a judgment delivered by the First Hall Civil Court in Bolwerk Limited vs Boian and Melody spouses Mitov as legal representatives of Mitov Software LLC  presided over by Honourable Madam Justice Joanne Vella Cuschieri and delivered on the 4th October 2022 the Court had to establish if the contractual obligations which were entered into by the parties were observed. The parties had entered into an agreement on 19th July 2014 for Mitov Software LLC to provide Bolwerk Limited a software for prototype gaming table for demonstration purposes by the 1st August 2014 and afterwards provide a fully functional gaming system satisfying all the requirements of the Lotteries and Gaming Authority of Malta by the 1st December 2014 against compensation.

The plaintiff company claims that the defendant company did not uphold its contractual obligations by providing such services as stipulated, whilst receiving payments for such services, out of which the plaintiff company suffered damages due to the bad faith carried out by the defendant company. The defendant company raised a preliminary plea that the action taken by the plaintiff company should not have been taken against Spouses Mitov as legal representatives of Mitov Software LLC, since Mitov Software LLC is a registered company with a separate legal personality. This is upheld in Maltese law under Article 4(4) of the Companies Act (Chapter 386 of the Laws of Malta) whereby a company has a separate and distinct juridical personality from its members as long as its name is not struck off from the register. The same principle is found under provision 17701.04(a) of the Revised Uniform Limited Liability Company Act of the State of California where Mitov Software LLC is duly registered.

The plaintiff company argued that this action was taken as it alleged that Spouses Mitov acted in bad faith as directors of the defendant company. The Court pointed out that from the sworn application it is clear that Spouses Mitov were not sued in their personal capacity, but as legal representatives of the company and the intention was to sue the company. This led the Court to accept the preliminary plea, declaring Mitov Software LLC as the legitimate defendant in the case and liberating spouses Mitov from the observance of the judgment decision.

The Defendant Company filed a statement of defence whereby it stated that contrary to what is alleged by the plaintiff company, Mitov Software LLC observed all its contractual obligations since it delivered the gaming system within the agreed timeframe. In addition, following the delivery of the prototype system, the plaintiff company kept changing system components, although their contractual obligations were reached. Furthermore, the plaintiff company failed to test the software provided, although it was advised to do so by the defendant company on several occasions. The plaintiff company also failed to provide the regulations and requirements of the Lotteries and Gaming Authority of Malta (LGA).

On analysing the evidence, the Court noticed that although the agreement stipulated timelines for the delivery of the prototype and finalised gaming software, clause 2.1.7 of the contract allowed for flexibility on these deadlines. This clause stated that if the services are not rendered by the specified deadlines, Mitov Software LLC will commit by priority and for own account to continue work until these services are rendered.

It was further established that whole parts of the documentation and communications that included e-mails, messages and skype conversations between the parties, provided by the representative of the plaintiff company were left out. Furthermore, the plaintiff company rested its case only on the evidence of one of its directors, without producing the evidence of the other directors, which from the same documentation provided, these directors were also involved in the project. The Court remarked that with the reluctance of the plaintiff company to present the other directors as witnesses, and the contradictory manner they testified when brought forward by the defendant company, considers that the witness is not genuine and factually truthful, whilst seriously doubting their credibility.

In his sworn declaration, the representative of the plaintiff company fails to elaborate about the supposed shortcomings of the defendant company. Furthermore, the Court notes that from the skype conversations provided by the defendant company, up to the 13th June 2015, the testing of the gaming software for submission to the Malta Gaming Authority was still ongoing between the parties and that at no stage there was any mentioning of breach of agreement. It was only on the 22nd June that such statement was made abruptly by the plaintiff company.

From the witness of one of the directors brought forward by the defendant company, it also resulted that up to March 2015 the plaintiff company was acknowledging that the work done by the defendant company was being well conducted and it was even paid it dues. It also transpired that the delays occurred from December 2014 to June 2015 were the result of the postponement from the plaintiff company to provide the necessary equipment to test the software.

The Court further elaborates that the sworn declarations of the spouses Mitov explain in detail the work and time undertaken on this particular project, which was further substantiated by the sworn declarations of their subcontractors and corroborated by the documentation presented. Furthermore, the plaintiff society chose not to cross-examine their testimony.

Based on the evidence brought forward, the Court does not consider that the defendant company did not perform its contractual obligations or that it acted in bad faith.  The Court then moved to reject the claims of the plaintiff company while upholding the pleas of the defendant company.