‘Do the right thing’, National Bank shareholders tell government

On Thursday 9 January 2014, Mr Justice J.R. Micallef finally handed down a historic judgment in a Constitutional Court case that had been originally filed in 1977 - almost 40 years earlier - and which had been deferred by various judges ever since.

The case concerned the methods used by the government of the day to coerce (following Thursday's ruling, the word can now be used in no uncertain terms) shareholders of the National Bank of Malta into handing over their shares to government for zero compensation in 1973, in breach of the Constitution of Malta.

The details of the case are perhaps too complex to go into here - there were over 300 shareholders in the NBM, and all have stories to tell - but Thursday's Constitutional Court ruling finally puts the entire picture into considerable perspective.

Shareholders originally claimed that they had been made to transfer their shares under duress, namely in the form of a threat by former prime minister Dom Mintoff to remove their limited liability. This would have made them personally liable for any losses incurred by the NBM, at a time when: a) depositors were withdrawing their money en masse (Note: shareholders also claim that the 1973 run on NBM had been artifically engineered by government specifically to devalue the bank and facilitate its takeover); b) the bank's lucrative assets were being devalued to nothing, and; c) its loans were being reclassified as 'unrecoverable'.

Forty years on, the Constitutional Court has finally reached its verdict, finding the government guilty of violating articles 37 and 42 of the Constitution, and of breaching the shareholders' human rights.

The rights stuff

Max Ganado, who provided legal counsel to the NBM shareholders, welcomes this verdict as a long overdue acknowledgment of an injustice.

"This is a great opportunity for our country to correct past wrongs and do the right thing. For too many years this issue has been put aside as the government continued to take great assets and business taken over in 1973, through annual dividends and capital gains on sale of shares."

This profit, Ganado estimates, runs into "millions and millions of euros".

"No one in our governments had the decency to offer fair compensation. The value of addressing this injustice is so much greater when the parties do so voluntarily. Court judgements are good but they don't necessarily re-establish proper standards. How can our governments expect people to be honest, pay their taxes, not steal and plunder the assets of others when they themselves show they are totally insensitive to the human rights relating to the property of its citizens?"

Ganado urges government to 'do the right thing' in the light of the court ruling. But there is perhaps slightly more to the picture than the issue of a government violation of the original shareholders' human rights.

The NBM may no longer exist as a bank, but a new government-owned bank was promptly formed from its ashes: the Bank of Valletta, which in 1974 took over all the NBM's assets (including immoveable property) after these had only just been valued as 'worthless'.

Curiously, however, the Bank of Valletta immediately began to register profits (as in fact the NBM had for years - 1972 having been its most profitable year ever); and not only did the previously 'worthless' assets suddenly acquire considerable value for its new owner, the government of Malta... but debts that had been previously been classified as 'unrecoverable' were nearly all recovered in full.

Among the companies whose debts were deemed unrecoverable in 1974 were some of the foremost commercial enterprises of the island, many of which went on to post huge profits in the decades that followed.

Fast-forward to 1992 - five years after a change in government that was supposed to right wrongs by the previous administration in the name of 'work, justice and liberty' - and not only did the incoming Nationalist administration under Eddie Fenech Adami fail to compensate the shareholders for their shares in NBM; but in 1992 finance minister George Bonello Dupuis announced that government would be selling many of its own shares to the greater public... which hungrily lapped up the opportunity to buy shares in an immensely profitable bank which can now, following Thursday's ruling, be declared to have been acquired and retained illegally.

Ganado points towards this avenue as a possible example of what he means by 'the right thing'.

"The solution has always been easy as the government is still sitting on a large proportion of the shares in Bank of Valletta which still continues to enjoy the properties of the National Bank. Many shareholders did the right thing when they put the interest of depositors, employees and business first, before their own. This was a moral decision. Now is the time for the government to show it too can take a moral decision and do the right thing. This should have been done years ago and the delay has only made the moral choice more obvious and necessary. I do hope people will see this for this simple choice it is."

National guilt

In his 37-page ruling, Mr Justice J. R. Micallef observed that Article 37 of the Constitution of Malta had been breached in the course of the National Bank takeover, and that the shareholders' human rights had been infringed because "the way their shares (and consequently the wealth that those shares represented) had been taken away was done in violation of the most basic elements required by [Article 37]".

Article 37 states that "No property of any description shall be compulsorily take possession of, and no interest in or right over property of any description shall be compulsorily acquired, except where provision is made by a law applicable to that taking possession or acquisition -

For payment of adequate compensation;

Securing to any person claiming such compensation

Securing to any party to proceedings."

By implication, it follows that the legal instruments used by the Mintoff administration to acquire the NBM for no compensation in 1973 have likewise been declared unconstitutional, and therefore null and void.

This includes Act XVL of 1973, which effectively removed the NBM's board of directors (its banking licence had already been suspended via Article 18 of the Malta Banking Act). Even without the recent ruling, the legality of this law has all along been questioned, with shareholders consistently claiming that government did not have the necessary 65% majority shareholding required to depose the former board of directors, as stipulated in the terms of its own law.

Act XVL of 1973 was also the foundation stone upon which BOV was built.

Effectively Thursday's ruling appears to confirm what the shareholders have been arguing for 40 years: that BOV in fact represents a case of stolen goods having been rebranded and resold. And considering the contribution made by this bank to Malta's economy in the decades following the establishment of the Maltese republic, there is a case to be made for the entire country to be considered an accessory to the crime.

Compensation

In view of all this, it is to say the least debatable whether the extent of the injustice suffered by the original owners can be rectified merely by paying out a lump sum. Questions must also be asked about the legal status of all that has since built from the wreckage of the National Bank of Malta. As Ganado implies, government still owns 25% of BOV (which, interestingly enough, claims on its own website to enjoy "180 years of banking history"... despite having officially been founded in 1974). What will happen to government's shareholding as a result of this ruling? And will the same ruling will have any impact on the value of all shares in BOV... as would almost certainly be the case with any other internationally listed bank?

One possibility is provided for at law by article 1021 of the Civil Code, which states (rather bluntly) that, "A person who receives, whether knowingly or by mistake, a thing which is not due to him under any civil or natural obligation, shall be bound to restore it to the person from whom he has unduly received it."

It remains to be seen whether the shareholders or their heirs will pursue this avenue in court. It also remains to be seen whether it is even possible for the NBM to be 'restored' to its original owners, given that its ownership is now widely distributed among the population.

Jeremy Cassar Torregiani, great-grandson of former NBM director Anthony Cassar Torregiani and a longtime campaigner for the disenfranchised NBM shareholders, acknowledges that redressing the injustice at this very late stage is not a straightforward matter.

"While the more important question has been answered, the practical dimension is still complex. What is adequate and fair compensation? The guiding principle behind expropriation should be that those who benefit from a project should bear its costs. This principle can be traced back to the Magna Carta, the Great Charter of Liberties, signed in 1215, that forbade the king's agents to take a man's timber or horses without his agreement, and provided for compensation in the event of expropriation. If the king benefited from a taking, the king would have to pay..."

In this case, Cassar Torregiani suggests that just compensation would not only represent long-overdue justice for the shareholders, but would also finally put to rest an issue that has arguably damaged Malta's credibility as a country where the rule of law is paramount.

"That the property, business the assets and liabilities of the national bank of Malta were expropriated in the public interest for no compensation is a fact," he said. "That the way in which it happened was wrong has also been confirmed in the judgment. What we now must wait to see is what method of compensation will be offered to the shareholders. Only in this way can we put the matter to rest and look forward to creating a better stronger Malta where the rule of law and civil fairness go beyond any prejudice."

Other shareholders who preferred not to be named likewise hinted that the issue is far from over.

"There are some who feel that now we have waited so long, why bother trying to come to an out of court settlement?" one shareholder told this newspaper. "But until the shareholders have met to discuss the implications and reached a common front, it is too early to say what the next step shall be..."

Ultimately, there are implications for others too... regardless of any connection with either the National Bank or the Bank of Valletta. By upholding Article 37 of the Constitution, Micallef's ruling also serves to protect property rights across the board from any present/future attempts at illegal acquisition. It seems strange that - until 9 January 2014, with Malta a full EU member state for 10 whole years - the Maltese Republic was simply incapable of providing any guarantee that privately held property could not be 'compulsorily taken possession of' by the government under circumstances that are tantamount to threats and duress.

"We are only free if our neighbour is free also," Jeremy Cassar Torregiani observes. "If the freedom of my neighbour is threatened then so is my own by the same measure. So while this case means so much for the former shareholders in the National Bank of Malta, it means just as much for all Maltese as the way we treat each other is in the end the way we treat ourselves."