In its judgement delivered on the 2 February 2023 in the names Damaggio Giovanni et v. Suite Finance SCC plc, the First Hall of the Civil Court, presided over by Mr. Justice Grazio Mercieca, considered a breach of contractual obligations leading to the liquidation of an Italian company.

In brief, the pertinent facts of the case are as follows.

Background

On the 14th of February 2018, the plaintiffs (i.e. Giovanni Damaggio in his capacity as liquidator of Capolavori Srl (“Capolavori”), and Artex Srl, Techworlds Srl, and VmWay Srl – each in their capacity as shareholders of Capolavori) and the defendant company entered into an investment agreement pursuant to which the latter company agreed to, inter alia, inject capital to the tune of €2,450,000 into Capolavori in the form of: (i) an equity increase of €19,520, and (ii) the payment of an additional share premium of €2,430,480 thereon (the “Agreement”).

Capolavori was a limited liability company registered as an ‘Innovative Start-Up’ in Italy. It had planned to expand its operations in accordance with a carefully drafted business plan devised to this effect, but its ability to do so was almost wholly dependent upon the defendant company honouring its obligations under the Agreement.

In their sworn application, the plaintiffs alleged that the defendant company had failed to satisfy its contractual obligations by the agreed cut-off date – i.e., the 9th of March 2018. As a result, Capolavori quickly ran into serious financial difficulties – ultimately leading to its liquidation. On this basis, the plaintiffs petitioned the First Hall of the Civil Court to, inter alia, declare that Capolavori had suffered damages as a direct result of the defendant company’s breach of the obligations set out in the Agreement, and to liquidate those damages accordingly.

In its rebuttal, the defendant company cited (amongst other pleas) article 1357 of the Civil Code (Cap. 16 of the laws of Malta) which deals with the promise of sale (‘konvenju’) and noted that as a result of the parties’ failure to follow the procedure set out therein, the various rights and obligations emanating from the Agreement had been rendered null and void; with the parties reverting to the status quo ante.

The Court’s considerations

In considering the abovementioned plea raised by the defendant company, the Court took cognizance of the plaintiffs’ contention that the Agreement did not simply relate to a transfer of shares, but that rather, it focused principally upon the provision of financing to Capolavori (generally). The Court noted that the purpose of the Agreement was more akin to datio in solutum – i.e. the defendant company would be receiving shares in Capolavori in return for the provision of finance in accordance with the terms of the Agreement. More so, the Court noted that the Agreement was by no means preliminary in nature and that the defendant company had definitively agreed to provide financing to Capolavori upon its execution.

Rather interestingly, the Court also took the time to debunk one of the plaintiffs’ supplementary arguments on this point – i.e., that article 1357 of the Civil Code cannot refer to future things. Indeed, the Court confirmed that at no point does Article 1357 state that a promise of sale cannot be in relation to a future thing/s.

With reference to the plaintiffs’ request for damages caused by the defendant company’s failure to honour its obligations under the Agreement, the Court noted that the latter entity had failed to justify its actions in this respect. The Court referred to an analysis carried out by a third-party back in 2017 which valued Capolavori at €6,750,000. Contrary to the defendant company’s allegations, the Court remarked that there could be no doubt as to Capolavori’s financial viability at that point in time, given an extensive due diligence exercise carried out by Capolavori in collaboration with a number of external advisors prior to entering into the Agreement with the defendant company. The Court noted that the plaintiffs had sufficiently shown, during the compilation of evidence stage, that the investment sought from the defendant company was crucial for Capolavori’s continued growth, and that the defendant company’s default had caused Capolavori to go into liquidation. In quantifying damages, the Court remarked that no regard could be had to the potential increase in Capolavori’s valuation as a result of the substantial growth of the industry in which it operated (i.e. e-commerce) post-2018. Hence, the 2017 valuation was the only relevant gauge of Capolavori’s valuation.

The Court’s conclusions

On the basis of the foregoing, the Court rejected the defendant company’s pleas and, inter alia, declared that the defendant company had breached its obligations under the Agreement, and liquidated damages in the amount of €6,500,000 in favour of the plaintiffs.

This article was first published in the Malta Independent on 26/04/2023.

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