Minimum value threshold for judicial sales by auction breaches rights, court says

A section of the law regulating judicial sales by auction of a property at 60% of its market value is in breach of the right to enjoy property

(File Photo)
(File Photo)

A Constitutional court has declared a section of the law, which regulates judicial sales by auction, to be in breach of fundamental human rights.

The declaration came after the First Hall Civil Court in its Constitutional jurisdiction upheld the argument that the section of the law permitting judicial sale by auction of a property at 60% of its market value, was in breach of the right to enjoyment of property.  

Sebastiano and Rita Guccione and International Plastering Company Limited had borrowed €905,300 in loans and overdrafts from Bank of Valletta. The debtors had been unable to repay the debt, which by that point also included money owed to Meli Bugeja Trading Limited.

The latter company had started proceedings for a judicial sale by auction of the block of flats which the Guccione’s Ibragg home formed part of. The property was valued by an auctioneer at €590,000.

Acting as an intervenor in the case, Bank of Valletta had offered to bid animo compensandi to set off the amounts due to it.

The bank won the auction as sole bidder with a bid of €410,000. It went on to file additional proceedings to recover the remaining amounts.

While the bank had acted according to the law, which allowed sales by auction where at least 60% of the debt had been reached, the plaintiffs argued that the auction had put them in an impossible situation where they could not repay the debt.

They said this law breached their right to property under Article 37 of the Consitution and Article 1 of the European Convention on Human Rights and Fundamental Freedoms. They had ended up without a defence in the case filed by the bank for the remaining balance, they protested.

The defendants, the Attorney General and Prime Minister had replied, saying that the property’s value had decreased due to a lack of demand for the type of property in question. The 60% threshold was placed in the law to protect the creditor from having the property sold for a derisory amount and ending up out of pocket, they said.

BOV had also replied, saying the complaint was “frivolous and vexatious” and unfounded both at law and in fact.

The court said what must be determined is whether the law had given rise to arbitrary and unjust dispossession of the debtor.

Quoting the ECHR in Kanala vs Slovakia, the court observed that “...there is no apparent public interest justification for such a financially advantageous transaction to have been permitted by the domestic law at the time in disregard of the actual value of the property and hence of the applicant's and the creditor's legitimate interests. In the Court's view, striking a fair balance between the competing interests required that the applicant should have been allowed an opportunity to have his property sold at a price corresponding to its market value. This could have been realised, for example, if the co-owner had been allowed to make use of his pre-emption right only after the close of the public auction.”

The court, presided by judge Jacqueline Padovani Grima, noted that the 60% legal minimum had been introduced to ensure that properties sold by judicial auction are not sold for derisory amounts to the detriment of creditors.

Therefore, the requirement of a legitimate purpose is satisfied, but this is not enough for the court to conclude that the plaintiffs did not suffer the infringement the complained of, as the law must be proportionate to its ends.

The court said it must adequately protect not only the rights of the creditor but also those of the debtor.

It was true that debtors must not be allowed to escape their obligations, but this didn’t mean that they were not entitled to the protection of the law, said the court.

One of the remedies due, said the court, was fitting monetary compensation that represented the difference between the estimated price at 60% and at 80%, which value had been adjudged by the ECHR as the minimum value permitted in the forced sale of the property of a debtor.

The court ordered the defendants to pay the couple €62,000 representing the difference in price and an additional €14,880 in interest.

Lawyers Joseph Gatt and David Camilleri were counsel to the Guccione family.

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