By: Dr. Malcolm Mifsud, Partner at Mifsud & Mifsud Advocates
When a co-debtor pays the debtor, the other debtor cannot raise the plea of prescription, in order to refund his share of the debt. This was decided in Sergio Manche -v- Carmel sive Charles Grech on 4 February 2020 in the First Hall of the Civil Courts, presided by Mr Justice Francesco Depasquale.
Manche in his application explained that Grech was his former business partner and both had use of one common VAT number. In 2005, both agreed with the Tax Compliance Unit and VAT on how to pay the outstanding tax due, which amounted to €39,489.87. In turn both agreed that this sum would be split between them. Manche paid his share to the tax authorities, but Grech failed to do this. The tax authorities, started to chase the plaintiff, Manche, because the VAT number was registered on his name. Therefore, he had no choice but to pay the defendant’s share also, together with fines and interest. The Plaintiff asked the court to order the defendant to refund the amount that Manche paid.
Grech, the defendant, pleaded that this action is time barred by two years in terms of Article 2153 of the Civil Code or by five years in terms of Article 2156(f) of the Civil Code. The Court, presided by a different judge had upheld the plea of prescription, but the Court of Appeal, rejected the plea and ordered the Court to hear and the decide the case. However, the defendant filed a fresh plea of prescription under Article 2156(g) of the Civil Code.
The Court analysed the evidence brought before it. The parties used one common VAT number and both paid the VAT due during their partnership. In 2005, there was a tax investigation on their business activity. There was an agreement that each would make a payment to the tax authorities. However, at the end of the day, the plaintiff had to pay the whole sum, since the defendant failed to pay his share. The last payment was made in July 2010.
The Court had to decide whether the defendant should refund the plaintiff, although five years had passed from when the last payment was made and the action was instituted. The defendant held that the plaintiff had owed him a substantial amount of money and in fact instituted an action against him.
The Court pointed out that Article 2158 of the Civil Code read:
“The prescriptions established in articles 2147 to 2157 may be set up even against the party who has paid for the debtor, unless the payment was made on the demand or with the concurrence of the debtor himself, or unless the payer was, as surety, or as a joint and several debtor, or for any other cause, bound to pay.” From this article there are three instances when the plea of prescription does not apply. These are when the payment has been done on request of the debtor or else if the payment has been made in agreement with the debtor or else when the payment was made by a debtor in solidum.
From the acts of the case the debt of Lm16,953 was owed to the VAT Department, by both parties in solidum. Therefore, two of the elements of the Article 2158 apply in this case. As a consequence the plea of prescription cannot be applied. The Court then rejected the plea and ordered that the case continues to be heard on its merits.
