Mr R acquired bonds issued by a UK company. These bonds which were held through a nominee account of a licenced Maltese entity (“MTL-LH”) were due to be redeemed on 1 December 2006. On 5 December 2006, Mr R received a letter from MTL-LH whereby he was informed that a cheque of £16,000 representing the capital amount due on maturity and the interest due on the bonds was sent to his account for deposit.
During the second week of February 2007, MTL-LH informed Mr R that they had received a letter stating that the bonds were erroneously redeemed by their bank in the UK. He was told that, in error, the bonds should have been redeemed at £0.40 rather than at par. This resulted in an overpayment to Mr R of £9000. Mr R was also informed that the interest payment too was also paid in error. MTL-LH requested that the full amount paid in error should be returned.
In subsequent correspondence exchanged between MTL-LH and Mr R it transpired that the alleged overpayment was not MTL-LH’s fault.
On 25 November 2006 (a few days before maturity of the bond) the UK company which issued the bond announced that it would be notifying bondholders that an extraordinary meeting was planned for the first week of January 2007 (i.e. after redemption date) for the purpose of assenting to an extraordinary resolution to amend the terms of the bonds to provide for their redemption and any accrued interest for a total consideration of £0.40 for each £1 face value.
It transpired that this announcement was made on a weekend in one of the leading UK newspapers. Although the UK company was liaising with its principal paying agent on the proposed resolution, the latter effected payment for these bonds (including Mr R’s bonds) in full. Some three days after, a reclaim notice was issued. The bondholders’ meeting was held and approved the extraordinary resolution with retroactive effect. The paying agent reclaimed back the excess funds from the bank in the UK, which in turn reclaimed it back from MTL-LH.
MTL-LH acknowledged that the events which led to the repayment of excess funds were certainly not Mr R’s fault. However it stated that the mistake was certainly not its fault, either. It stated that the bank in the UK had blocked the amount which it overpaid from its own account, pending Mr R’s refund. In turn, MTL-LH was partially withholding proceeds from another bond which had matured in the meantime to set-off what it claimed to be Mr R’s debt.
Mr R stated, through his lawyers, that MTL-LH was acting illegally and that he should not suffer financially as a result of other entities’ negligence. It was also obvious that the UK company had acted in an unorthodox manner when it informed bondholders of the resolution purely through an advert in a UK newspaper on a weekend.
Although the UK Financial Services Ombudsman was asked to intervene in this case, it had no jurisdiction to review the case. On the other hand, the MFSA had to consider the approach and behaviour adopted by the MTL-LH vis-à-vis its client.
The Consumer Complaints Unit argued that anything which might have happened subsequent to the payment date cannot be attributable to either MTL-LH or Mr R, unless of course MTL-LH had, before the payment date, received instructions which were not executed correctly. In this case MTL-LH were duty bound to inform Mr R about the instructions immediately. Indeed, any mistake or omission taking place at the level of the UK bank or any other instructing entity should not be suffered by either Mr R or MTL-LH.
In the meantime, Mr R claimed that, from his contacts in the UK, other brokers and banks were not claiming a refund from investors and therefore he should not be treated differently from other investors (if what he was claiming was true). The Unit could not verify if Mr R’s claim was correct.
Given that MTL-LH was acting as nominee, the Unit attributed a high degree of responsibility on it to obtain information about the “mistake”. The Unit argued that unless MTL-LH proved beyond reasonable doubt that the reclaim was being made to all investors, it would be unfair for Mr R to refund any funds. Despite several requests for this information, MTL-LH informed the MFSA that its counterpart in the UK was not able to provide it.
MTL-LH agreed to release all funds to Mr R and dropped its claim for refund.