Strengthening contract rules through Fiduciary Obligations

Contract, as the law’s formalisation of promise, has historically been viewed through the twin lenses of autonomy and exchange. Yet every exchange presupposes a zone of vulnerability: one party inevitably entrusts some aspect of her asset to another. Classical contract law responded through doctrines such as consideration and caveat emptor; equity responded through conscience and good faith. The 2004 insertion into law of a section titled “Of Fiduciary Obligations” into Malta’s Civil Code marked a deliberate convergence of these two worlds. Fiduciary doctrine brings a vocabulary of loyalty, self-denial and prudence to the heart of private ordering, moving the law beyond the minimalist morality of bargain toward a thicker, relational ethic.

Article 1124A opens with a single, wide-ranging statement:

“Fiduciary obligations arise in virtue of law, contract, quasi-contract, unilateral declarations including wills, trusts, assumption of office or behaviour whenever a person (the ‘fiduciary’):

(a) owes a duty to protect the interests of another personand it shall be presumed that such an obligation where a fiduciary acts in or occupies a position of trust is infavour of another person; or (b) has registered in his name, holds, exercises control or powers of disposition over property for the benefit ofother persons, including when he is vested withownership of such property for such purpose; or (c) receives information from another person subject to aduty of confidentiality and such person is aware or ought, in the circumstances, reasonably to have been aware, that the use of such information is intended to be restricted."uciary obli In other words, fiduciary duties in Malta are triggered whenever one person wields discretion over another’s patrimony, interest, property or confidential information, whatever the label attached. These rules fortify the normative core of contract by converting discretionary power into an enforceable duty of undivided loyalty, ensuring that autonomy operates inside a sphere of trust, protected at law.

The same provision lists the fiduciary’s core tasks. He must “exercise the diligence of a bonus pater familias”, “avoid any conflict of interest”, and “not receive undisclosed or unauthorised profit”; he must act fairly when several beneficiaries are involved and must keep the entrusted assets apart from his own. These are clear, concrete duties.

Property entrusted to a fiduciary is also formally protected. Article 1124C(1) declares that such property “shall constitute a distinct and separate patrimony … and shall not be subject to the claims or rights of action of the fiduciary’s personal creditors, nor of his spouse or heirs at law”.

Maltese courts had already intuited much of this view before the 2004 amendments, especially in the line of cases on prestanome mandates. In Carmela Farrugia vs Giuseppe Farrugia (1953) it transpired that a mother asked her son to buy immovable property in his own name; when he refused to hand her the property, the Court of Appeal compelled specific performance, reasoning that his retention breached the duties of loyalty inherent in the mandate. The judgment foreshadowed today’s Article 1871A, which now states that anyone “holding property for another” is automatically a fiduciary, and cross-refers to Article 1124A.

The same functional idea was applied to fungible assets in Joann Cordina vs Charles Cordina (2007). A husband who banked his wife’s inheritance with his own funds and later claimed it was his was held to be a mandatary subject to fiduciary duties; the court ordered restitution plus any traceable gains, invoking 1871A and 1124A as twin pillars of liability.

The 2004 reform, introducing a codified system of fiduciary obligations, ultimately invoked common-law fiduciary ideals (that were already being utilised by our courts) onto a positive law. Since then, the philosophical trajectory has been clear; Malta’s Civil Code no longer treats loyalty as an equitable afterthought; it locates it at the normative centre of private exchange, and strengthens contract law through strong codified rules that protect loyal undertaking. Indeed, we find a number of judgments post-2004 that have embraced the traditional presta-nome mandate into the more modern codified principle of Fiduciary Obligations. For instance, in Maxine Camilleri vs Alessio Speranza (2019) the court ordered a nominee to transfer half a property to the true beneficiary, confirming that fiduciary duties can override mere title formalities. In sum, articles 1124A to C transform Maltese contract doctrine by insisting that the legitimacy of consent depends on the integrity of the relationship it creates. It delivers proprietary recovery of land, restitution of money, disgorgement of secret profits and damages for negligent misperformance. Through the fiduciary lens, contract becomes less a clash of isolated wills and more a cooperative project in which autonomy is exercised responsibly, under the quiet but exacting discipline of loyalty.

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Dr Carlos Bugeja is Partner at PROLEGAL Advocates.

Disclaimer: This article is not to be construed as being legal advice, and is not to be acted on as such. Should you require further information or legal assistance, please do not hesitate to contact Dr Carlos Bugeja at carlos@prolegal.mt.