Issue link: https://maltatoday.uberflip.com/i/1268420
5 maltatoday | SUNDAY • 12 JULY 2020 NEWS European Union Programmes Agency Mtarfa Road Mtarfa, MTF 1140 europass.eupa@gov.mt 2558 6132 www.europass.eu europass.eupa.org.mt Looking or applying for your first job? Take the next step Visit the new Europass platform today Deloitte must pay damages over Priceclub fiasco MATTHEW AGIUS AUDIT firm Deloitte has been ordered to pay nearly €42,000 to former Priceclub supermar- ket suppliers Valle Del Miele (VDM) after losing an appeal it had filed against a judgment which had found it to have been negligent. In 2000, the defendants Deloitte had been auditors of a debtor of Valle Del Miele who owed the company €182,373. A statutory report it published had painted a rosy picture of the troubled Priceclub super- market chain's finances and had misled Valle Del Miele into allowing this credit to increase to over €350,000. Up to 200 suppliers and other creditors lost between Lm8 to Lm12 million when the Price- club crashed into bankruptcy. VDM was owed over €350,000 by the bankrupt Priceclub supermarket for merchan- dise sold to the supermarket. Deloitte had been engaged to carry out an audit for Priceclub on the basis of audited accounts from 2000, a year before the su- permarket chain went belly-up. VDM accused Deloitte of having portrayed an optimis- tic picture of Priceclub's busi- ness without indicating that the supermarket had financial difficulties, and on that basis decided to continue to supply merchandise to Price Club. Despite the published ac- counts, Priceclub stopped pay- ments to its creditors in April 2001, owing millions to various suppliers. VDM claimed Deloitte had acted in a negligent or fraudu- lent manner when it prepared Priceclub's accounts, and that its partners were liable in dam- ages, claims that Deloitte cate- gorically denied. In 2003, the courts declared that Deloitte had been negli- gent in connection with the work carried out for Priceclub Operators. Deloitte appealed, but in 2004, the Court of Appeal ruled that the appeal was inadmissable as it had not been filed within the legal time limit – 20 days from the date of the judgment and not within 20 days from the au- thorisation to appeal. Deloitte then filed a constitu- tional case in the First Hall of the Civil Court in its constitu- tional jurisdiction, claiming the Appeal Courts' decision had vi- olated its fundamental human right to a fair hearing. In 2006, that court ruled in Deloitte's favour. Subsequently, the Attorney General appealed to the Con- stitutional Court, which in turn overturned the previous court's ruling in 2007. So, Deloitte partners Raphael Aloisio, Malcolm Booker, Ste- ve Cachia, Edward Camilleri, Andrew Manduca, Paul Mer- cieca and Stephen Paris took the decision to Strasbourg, where in 2011 the ECHR found that their rights had been breached, ordering that com- pensation of €6,000 is paid to them for a breach of their right to a fair hearing. However, Deloitte filed a new case based on the ECHR's find- ings in 2013, requesting that the Maltese courts grant them the power to appeal the Valle del Miele decision. But both the First Hall of the Civil Court constitutional jurisdiction in 2017, and later the Constitu- tional Court, refused Deloitte's request. In a 56-page judgment hand- ed down on Thursday in an- other appeal filed by both par- ties, quoting volumes of local and foreign jurisdprudence, judges Giannino Caruana De- majo, Joseph R. Micallef and Anthony Ellul agreed with the original finding of negligence on the part of the defendants and reversed it where it had said that they were not an- swerable in damages. While it was true that ac- counts are prepared by the directors, it was the duty and responsibility of the auditors to verify the accounts and state whether they were reliable and trustworthy, said the court. This was why the law imposed the obligation on auditors to declare whether the annual ac- counts were compiled correct- ly. Besides this, there was a duty on the creditor to seek expert advice – but this advice would presuppose that the accounts were objectively correct, added the judges. Despite having insufficient capital from the outset, the debtor had loaned €400,000 to one of its shareholders, which ended up in the loss of €237,458. Besides this, the company to which the money was loaned, was itself the means through which shares in the debtor company were bought – effec- tively meaning that the debtor was financing the purchase of its own shares. But the court also stressed that the fact that the debtor compa- ny did not act in good faith did not necessarily mean that the defendant auditors were com- plicit in the deception. "Rather, the court doesn't be- lieve that the defendants, who have a famous and well-respect- ed firm, would ever stain their good name with complicity in something like this." This was not fraudulent behaviour, but negligence, said the court, stat- ing that with their vast expe- rience and resources, Deloitte should have recognised the signs which indicated the true capital structure and financial position of Priceclub and the corollary for its creditors. The court awarded VDM €41,911 in damages plus inter- est from the date the case was filed. Lawyers Shazoo Ghaznavi, Robert Galea and Mario Calle- ja appeared for VDM. Lawyers Tonio Azzopardi and Stefan Frendo appeared for the appel- lants. Deloitte was accused of portraying optimistic picture of Priceclub's business before supermarket chain's €30 million crash