Court overturns finding of bad faith by HSBC in cheque fraud case

The Court of Appeal has overturned a lower court’s declaration that HSBC Bank Malta acted in bad faith when it failed to retain original cheques linked to an alleged long-running fraud, ruling that the claim for damages brought against the bank was already prescribed.

The decision was delivered on Tuesday by Chief Justice Mark Chetcuti, Judge Robert G. Mangion and Judge Grazio Mercieca.

The case was filed by Mario Fenech, a shareholder and employee of Percius Car Hire Ltd, who had maintained bank accounts with HSBC for many years. Fenech alleged that hundreds of cheques drawn on his personal account had been falsified between 2004 and 2009 by his wife, from whom he was undergoing separation.

The alterations included changes to payee names, in some cases replaced with the words “pay cash,” and increases to the cheque amounts, all allegedly supported by forged signatures.

Fenech informed the bank of the suspected fraud in late 2010, and requested that HSBC preserve all original cheques, as they would be required for police investigations and potential court proceedings.

The bank, however, did not retain the originals beyond its standard one-year retention period. This, Fenech argued, hindered the ability of handwriting experts to conduct forensic analysis in the criminal case against his wife.

In 2025, the Civil Court, First Hall, ruled that the bank had acted in bad faith and breached its fiduciary obligations by failing to safeguard the original cheques. However, it also found that Fenech’s action to recover damages was prescribed under Article 2156(f) of the Civil Code, as more than five years had passed between his formal demand and the filing of the lawsuit in 2020.

Both parties appealed. Fenech contested the prescription ruling, arguing that the prescriptive period should have started only once he became aware of the full extent of the damage.

The bank, in turn, argued that it had not acted in bad faith.

The Court of Appeal rejected the plaintiff’s arguments, stressing that prescription begins when the action could first be exercised, not when the extent of the harm is confirmed.

It noted that Fenech knew by late 2011 that the bank no longer held the original cheques.

The court also held that Article 1124F of the Civil Code, governing fiduciary obligations, could not be applied retrospectively to events predating its enactment.

The court accepted the bank’s contention that the action was unitary. It stated that once the damages claim was found to be prescribed, the accompanying request for a declaration of wrongdoing could not stand alone.

The prior finding of bad faith was therefore struck out.

The Court of Appeal consequently rejected Fenech’s appeal, upheld HSBC’s cross-appeal, and ordered Fenech to bear the costs of both instances.