A frozen deposit alone is no just cause for counter-security

The First Hall of the Civil Court held on 30 July 2026 that a garnished company had not shown the just cause needed to make the creditor give security for damages. Mr Justice Aaron M. Bugeja ruled that the freezing of funds is not in itself enough under article 838A of the Code of Organization and Civil Procedure (Chapter 12 of the Laws of Malta). He dismissed the application, with costs against the company.

The facts

In M.D. vs Vella Falzon Building Supplies Limited, the claimant had obtained a garnishee order against the company in support of a pending lawsuit, and €100,000 had been deposited. By a decree of 7 August 2025 the court had already refused to revoke the order. On 3 July 2026 the company applied for an order that the claimant give security within a set time, failing which the garnishee order would be lifted.

It argued that it was not the proper defendant, because another company had been called into the suit at the claimant's own request and would answer the claim on the merits. It put its loss at the opportunity cost of the frozen funds, calculated at 8% a year on €100,000 over four years. The claimant opposed, arguing that the claim was not frivolous and that the company had proved neither a concrete loss nor any abuse.

What the court held

Article 838A allows the court, "meta tintwera kawża ġusta għal dan" (when just cause is shown for it), to order the party who obtained a precautionary act to give adequate security for penalties, damages and interest, and failing that to revoke the act.

The court held that the remedy rests on article 829, under which precautionary acts issue at the risk of the person who asks for them. It is an alternative to revocation under article 836, not a subsidiary remedy, and it lapses if the warrant is revoked in full.

The court then set out the test: "Il-ġurisprudenza tistabbilixxi li l-ħruġ tal-mandat fih innifsu mhuwiex kawża ġusta" (Case law establishes that the issue of the warrant is not in itself just cause).

The applicant must show other factors: a legal basis on which the creditor could later be held liable, such as abuse, negligence or lack of merit; concrete proof of direct loss or exposure to a penalty; and, where relevant, that the creditor has no assets in Malta against which a later judgment could be enforced.

The amount must also be proportionate to the claim and the prejudice. An 8% rate for loss of use, linked to article 1139 of the Civil Code (Chapter 16), cannot be applied automatically.

Applying the test, the court agreed with the claimant. The company had shown neither just cause nor the other elements of article 838A. The court also found that the application rested on the same plea the company had raised in the main suit, namely that it was not the proper defendant.

That plea was still to be decided. To grant security on that basis, the court would have had to decide the plea in advance, in an incidental procedure, and it declined to do so.

Why it matters

A debtor who wants counter-security must bring evidence of fault or abuse by the creditor and of a real, quantifiable loss, not a notional return on frozen money. A plea that goes to the merits, such as not being the proper defendant, belongs in the main suit, not in an article 838A application. A creditor whose claim is not frivolous is unlikely to be ordered to give security.

Where it sits

Precautionary acts protect a creditor's claim before judgment, and the Code balances that protection with remedies for the debtor: revocation under article 836, with a possible penalty under article 836(8), and security under article 838A. Liability for a wrongly issued warrant follows the general rules on fault in articles 1031 and 1032 of the Civil Code.

The court named five authorities. In a civil appeal decided on 6 March 2017, the court held that as the creditor protects the claim with a warrant, the debtor's eventual claim should be protected with security. A decree of the First Hall (31 July 2007) required other, more serious and pressing reasons, usually founded on fault.

In an appeal decided on 25 November 2016, security was ordered because the garnished party was deprived of the use of the money, without any finding of bad faith. In 2020 the Court of Appeal refused security where the creditor had not acted out of caprice or bad faith. A decree of the First Hall (9 January 2014) set security at €50,000 where the creditor had no assets in Malta.

Source

First Hall of the Civil Court, M.D. vs Vella Falzon Building Supplies Limited, 30 July 2026: 679/2026