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Max Ganado: Will COVID-19 Provoke A Radical Change In Malta’s Contract System?

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Apart from the social contract guiding our state-citizen relationship, we have the many private and commercial contracts among ourselves.

The modern concept of the social contract we often speak about seems to have emerged strongly in the period leading up to the French revolution, which also brought about new ideals in statehood and democracy.

In the same era, we also saw a major shift in the ethical and social underpinnings of the civil law, specifically through the Napoleonic Civil Code revision which found its way into Malta years later.

Most contracts are the result of a negotiation and each party promotes and defends its own interests. In raw economic terms, there is no duty by one party to worry about the rights and interests of the other party. Each party protects itself but then must respect its obligations once an agreement is reached.

There are strong notions of obligations at the pre-contract stage and it is now widely accepted that a party must act properly even when negotiating a contract and has a duty not to waste the other party’s time or abuse of information shared in negotiations and use it for other self-interested purposes.

Cheating and taking advantage of the other party, who may or may not be weaker or vulnerable, is never an option and when that happens it seriously prejudices the validity of the contract concluded between the parties. So even in negotiations being fair is critical and being honest is non-negotiable.

Our law imposes good faith on all parties in the performance of contracts. Once discussions are concluded, each party is bound to the terms agreed – verbally, in writing or sometimes by mere behaviour – but good faith floats around and gives positive substance to contracts which make them humane, fair and reasonable. And our courts can then help to enforce them if breached. 

Again, the law gives the courts a tool called “equity” with which they can again imbue a contractual context with justice, fairness, proportionality and reasonableness. Fraud invalidates all contracts. When unexpected things like COVID-19 happen, we have to deal with the unexpected situation and these principles of good faith and equity play a major part.

These are the challenges around the social contract and private contracts in these COVID-19 days. Has the State lived up to the standards expected of it before this crisis and is it living up to expectations now? I think we all appreciate the efforts being made during the crisis, particularly of those who endanger themselves for someone else.

We can also appreciate the efforts by the State to come to the defence of sectors of our population, particularly the ones most in need – those who lost their jobs or could easily lose them. It takes a particular value system for a state to do this in these difficult times and we need to celebrate when we see this in our nation just as we are able to judge the state’s priorities based on what actually happens.

It is a relief to see that in Malta, during this crisis, dismissing employees appears to be scorned upon and flexibility on all sides combined with state support is seen as the proper thing to do. This is a society that is willing for its Government to share what we all have generated together and take some economic risks on the future, together.

This contrasts with what we are seeing in some other counties, where the system seems far less sensitive to the plight of ordinary people, where hundreds of thousands are losing their jobs.

Are we, as citizens, performing our side of the social contract? I can confidently say we are, so far, and we are benefitting from the results on many fronts, particularly through the security to our elders and vulnerable. Are we, as ordinary people, living the ethical qualities in the way we manage our private contracts (employment, rental, debt?) with others, and should the State interfere with our private dealings should it notice unfair practices, abuse, unreasonableness and so on, including on taking assistance from public funds?

Are we all respecting our fiduciary duties to our environment, especially as we now face a climate crisis, again with unknown outcomes?

In contracts we have a notion of what we call causa, consideration, or the reason for the contract. This must be lawful, moral, possible and not contrary to public policy. The causa equivalent in the social contract is no other than the maintenance of law and order, respect of human rights, non-discrimination, democracy and the rule of law, good governance and administration and like ideals.

That is why the population respects the law and pays its taxes as due. If the State fails to respect the law can it expect reciprocity from the population?

We often see bad practices in the contracts entered into between private individuals and between the State and private interests. With private interests, the Courts resolve disputes but when a State acts incorrectly we are often left asking questions as to whether the action of government are valid for the same reasons private agreements may not be valid.

Fraud annuls all private contracts just as it affects the validity of State behaviours, but while private contracts are enforceable and annullable by a Court, it is very difficult to enforce the social contract expectations for a State to act properly. The population has to pay for State mistakes and abuse through taxes. The effect of that is loss of trust and social unrest, apart for an erosion of the respect of law in general and that has long standing implications.

One aspect of how law on contracts works is worth noting in this context. It is well known that it is virtually impossible for a contract to cover all aspects in a verbal or written agreement. In life, things happen which need the parties to respect the spirit of the contract and not to seek to be literal, violate it or to get out of obligations.

As human nature is problematic at times, the laws of most countries often operate as an ethical gap-filler when a contract is silent on an issue. When gaps emerge, the law usually says what should happen. Our Civil Code does this in many of its provisions. This is the place to look for ethical choices in the law.

These choices started being made thousands of years ago based on the value system at the time, the perception of what is socially good and just, the outcomes promoted by leaders at the relevant time.

Do we have the same mechanism for the “social contract” operating in Malta?  It is natural to think so; but here we may have a mismatch between expectations and reality. This emerges from time to time sometimes in very emotional terms.

The underlying ethics of our civil laws on contracts were last subject to very radical change in the social upheavals of pre-Napoleonic times and today we are still governed by many of the ethical choices made at the time. Many are influenced by the broad conceptions of justice in Catholic values. What mechanism do we have to fill in gaps in the social contract?

A practical example is the need for some restrictions on the destruction of our agricultural land, the urban heritage and the social sharing of the opportunities generated in our nation. There is evidently a problem on many fronts as the State acts in a manner which is considered to be diametrically opposite to the long-term interests of the nation on the basis of a purely economic agenda.

Suspicion of corruption and discrimination resulting from the system of patronage long operating in Malta is widespread. The collapse of institutions is the result of State decisions and methodologies, particularly that relating to the operation of a system involving persons of trust in critical positions.

Is the state performing its side of the social contract, as many understand it, and what happens when there is a gap in guidance on behaviours? Whose ethics fills the gaps? How do you fill the gap when there are no rules on these areas of behaviour touching our national reputation and environment? Some expect the Constitution to be the means of dealing with such problems.

We need to ask whether COVID-19 will provoke a need for radical change in the social underpinning of our civil law on contracts and in the social contract in Malta, just as the French revolution changed many things in the early 1800s. The answer to that will depend on how we manage our contracts in the crisis. Not only our private contracts but the social contract as well.

This article is the second in a series of articles by Max Ganado on contracts in the age of COVID-19. The first one can be read here.

Lovin Malta is open to external contributions that are well written and thought-provoking. If you would like your commentary to be featured as a guest post, please write to [email protected], add Guest Post in the subject line and include a profile photo to be included near your byline. Contributions are subject to editing and do not necessarily represent Lovin Malta’s views.

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Tim is interested in the rapid evolution of human society brought about by technological advances. He’s passionate about justice, human rights and cutting-edge political debates. You can follow him on Twitter at @timdiacono or reach out to him at [email protected]

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