Investment companies should inform their customers on how their investment is developing in order to allow them to take educated decisions and query investment brokers on their investments. This was held in Carmelo u Carmen Baldacchino -v- Crystal Finance Investment Limited, decided on 11 November 2020 by the Court of Appeal presided by Mr Justice Lawrence Mintoff.
Crystal Finance had appealed a decision given by the financial services Arbiter on 28 March 2018. This concerned a complaint lodged by the Baldacchinos. The Arbiter had upheld partially the complaint and the company was ordered to pay the Baldacchinos a sum with regard to a second investment they carried out in a fund called BP211.
The facts of this case concern loss the Baldacchino sustained in a 5% Euro Bond BP211 with an underlying bond of 7% RENA GmbH. This was one of four funds. The Baldacchinos explained that they are an elderly couple and do not understand in investments. They were approached by the company to invest in a low risk investment, however, it turned out that they lost money and blamed the company for being negligent. The company had recommended that they invest in Rena, because other investments they had made were losing money. They invested in Rena in total €9,160, but they were not informed that this second investment was also not doing well. They only managed to retrieve €400. Their biggest loss was when they invested €30,075 and again they were not informed that the fund was doing badly.
The company contested this claim and held that the Arbiter was not empowered by law to hear the case in terms of Article 17 of the Terms of Business Agreements. The Company held that the loss took place because of the intervention of third parties. The company held that they could not give guarantees would be successful.
The Arbiter in his decision dealt with the competence plea. Article 17 of the Terms of Business Agreement held that there if there were any disputes then the Maltese Courts had jurisdiction. The Company had also informed the Baldacchinos that they could lodge a complaint to the Arbiter. In Edgar Cuschieri -v- Perit Gustavo R Vincenti decided on 13 February 1950, when a contract would not be providing for a particular event the Courts should interpret the contract primarily on how the parties to the contract intended it.
The Company explained that the Baldacchinos had signed a number of documents, which showed that they were educated enough to understand the terms of business. The Arbiter pointed out that these documents were long and technical, and it was not read to them. It was handed to them simply to sign. It is the service provider’s obligation to explain the agreements to their clients. In Raymond Camilleri et -v- Touring Mediterraneo Ltd decided on 6 October 2010, the principle pacta sunt servanda is based on the fact that the parties would negotiate the conditions of the agreement freely.
On the merits of the case the complaint concerned two investments that the Baldacchino carried out through the appellant company. €8,800 in RENA and €11,120 in BP211. They were convinced to invest in RENA because they were informed that their previous investment was not doing well but were not advised they RENA was also not doing well. The Baldacchinos’ greatest loss was in BP211, since the investment was done in one fund, when were meant to spread in different portfolios.
On the other hand, Crystal Finance blamed the Baldacchinos in that it was they who insisted to make this additional investment.
The Arbiter then did a technical analysis of the investments and found that the company did discuss options for the first investment, but the Baldacchinos chose BP211 to invest in. This did not take place when they invested for a second time. The forms filled in were identical to the first investment, showing this was a mere formality. And therefore, the Arbiter decided that the company should refund of €5,798.42 invested in the second investment.
Crystal Finance appealed on the ground that the Arbiter lacked jurisdiction and that his decision was erroneous.
The Court of Appeal on the first ground of appeal, held that the Arbiter did have jurisdiction because the agreements signed by the Parties did not give exclusive jurisdiction to the Courts.
As to the second ground of appeal, the Court of Appeal did not agree with the Arbiter that the second investment should have never been carried out, because the responsibility of the loss should not be bound by the company. Matthew Magro of Crystal Finance testified where he explained the Baldacchinos before 2008 invested in UBS funds and he used to explain where did not understand the implications and when they complained that the interest was not as high as they were used to, he suggested to invest in binds. They were interested in Euro High Yield bonds with a rate of 6.25% interest. A colleague had rung them up in 2016 to inform them that the companies they had invested in not doing well. They had several investments.
The Court of Appeal held it did not doubt the Client Review Forms that were filled in 2014. The Court held that if an investment does not succeed, then the investment company is not automatically to blame. However, the investment of BP 211 was doing badly from 2015 and could not make a profit. The company argued that it had no legal obligation to follow the investment. The investor may if he wishes ask the service provider for information. The Court held that without the necessary information, an investor is unable to judge whether he should ask for more information. Therefore, the service provider should follow the investments to safeguard against losses.
The Court then moved to reject the appeal.
Av. Malcolm Mifsud
Mifsud & Mifsud Advocates
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