Court dismisses Steward appeal, hospitals privatisation deal remains invalid

Updated at 11am with government statement

The Court of Appeal has dismissed Steward Healthcare’s appeal against the decision to annul the hospitals privatisation deal.

In a judgement handed down this morning, the Court of Appeal presided by Chief Justice Mark Chetcuti, together with judges Giannino Caruana Demajo and Anthony Ellul, confirmed Mr. Justice Francesco Depasquale’s judgement on the Government’s privatisation deal with Vitals Global Healthcare and subsequently Steward Healthcare in its entirety.

The only amendment to the February judgement was that the costs of the case were to be shared by the Government and Steward Healthcare, an not borne by Steward Healthcare alone.

The deal was originally struck in 2015, when the government granted a concession for the running of three hospitals to Vitals Global Healthcare (VGH).  The hospitals’ concession had been negotiated by Konrad Mizzi, who was health minister at the time.

Under that agreement, Vitals was handed St Luke’s Hospital, Karin Grech Hospital and the Gozo General Hospital. The deal with VGH, a relatively known consortium at the time, had caused many a raised eyebrow. Less than two years after being granted the concession, Vitals sold it to Steward Healthcare together with €55 million in debts accrued by VGH, for the nominal price of €1.

Mr. Justice Depasquale had been scathing in his condemnation of the contract, expressing doubts about Steward’s intention to honour it in the first place.

“The glaring failure of the Steward companies to try to justify the their position and defend their insistence that there was no breach of the contractual obligations on their part, leads the Court to seriously doubt Steward’s good faith [and intention] to honour the agreement and the obligations imposed on it and freely assumed by it at the moment that it acquired the shares of Vitals on 16 February 2018, as well as raising serious doubts about the honesty and good faith of the same Steward when they entered into the 27 August 2019 the agreement where the Government bound itself to to pay it a penalty of one hundred million Euros in the event that the Court, as composed, declared the contracts that had been awarded to Vitals, and which it had failed than to honour, as void.”

Court rejects Steward’s attempts to distance itself from Vitals

In today’s decision, rejecting the appeal, the court stressed that the February judgement had annulled the contract, not “because of the collusion between the appellant companies and the high ranking government officers were not taken as a defect of consent…but because of inaction…“ This meant that Steward’s attempt to distinguish between a defect of consent and wrongdoing under civil and criminal law were therefore irrelevant.

The judges agreed with the appellants, not insofar as they were denying complicity in the collusion, but with their argument that the first court ought not to have declared the shareholders guilty of “wrongful, rather criminal, actions.” This, said the judges, was not being pointed out because of any relevance to the case, because the shareholders were not parties to it, “but because this court agrees that an injustice might have been done to the shareholders.”

“Although it finds the fact that the shareholders in Steward obtained their shares and entered into a deal worth hundreds of millions without doing due diligence assessment, suspicious…this court however believes that the new shareholders entered into the deal in good faith and the fact that it was only after the transfer of shares that some work started being carried out, which did not only consist in laying the bathroom tiles, as a reading of the appealed judgement might lead one to understand.”

However, the judges were clear in stating that this ground of appeal had been added to correct the impression created by the original judgement about the present shareholders. “It is only in this sense that these grounds are being viewed favourably, and not the part where they request the overturning of the appealed sentence or where they are arguing that the relationship between the shareholders and the government has no relevance to the purposes of this case.”

“Once again, the appellant companies are forgetting, or trying to make us forget, the fact that the failures - which they themselves admit - that took place before the change in shareholders are and remain their own,” said the Court of Appeal.

“A recurring theme in this appeal is [Steward] seeking to make us forget the distinction between the companies and their shareholders as if when they obtained their shares, the new shareholders, the appellant companies, started off with a clean slate.”

Hospitals concession was the result of collusion, judges confirm

The judges made no attempt to sugar-coat their disgust at the government's collusion with Vitals/Steward, in violation of its duties to the country and the electorate. 

“We have seen that the granting of the concession to the appellant companies was not the result of deceit by either party, but the result of collusion between the two parties, which happened not only when the appellant companies were selected as the preferred bidder after being given access to privileged information, and when the concession was granted when it was known to be unachievable, but also when the agreement was supposed to have been carried out, although nothing happened, the persons meant to protect the nation’s interests, instead of protecting those interests, gave extension after extension to avoid what was in fact a one-page agreement, instead of ‘the real deal’ becoming public and continued to pay millions of euros to the appellant companies, although these were not fulfilling their contractual obligations.

"It is not known why those whose duty it was to protect the national interest failed to protect those interests, and instead, had the interests of the appellant companies at heart, so much so that in their reply to the sworn application, the other defendants [the government] stood up for the appellant companies and it was only when this appeal was filed that they had started to defend the judgement which had found for the plaintiff.

“The fact is, however, that they failed in their duties towards the country, they failed to seek the remedies that they should have sought and it had to be the plaintiff to take the initiative so that in the interests of the country, used those remedies to impugn the concession contract and the other contracts tied to it.”

Government 'did not wait for appeal'

In a statement reacting to the appeal, the government said that it was proactive in taking back control of the hospital operations by conducting a 'controlled step-in' after the initial judgement nullified the contracts. 

The government also pointed out that it started international arbitration proceedings in front of the International Chamber of Commerce. It had won an emergency arbitration proceeding in April.

"Just as the government did not wait for this sentence to take back control of the hospitals, it will continue to implement a strong political vision in the health sector that focuses on the needs of Maltese and Gozitan citizens."