The Prime Minister is basing his claim in court to nullify a deal with Mark Gaffarena on a mistake that he says was made by a department falling under his political responsibility.

Legal sources described the case as “very ambiguous” yesterday and said that it delved into “unchartered waters”.

“Although it is difficult to say how it will be dealt with by the courts, it is a very strange case,” a senior lawyer said.

“It is very difficult to see whether the government will be able to recoup the €3.4 million given to the Gaffarenas in cash and property as the government itself is admitting in the same court application it was its own department [Land] that made the crucial mistake,” he said. “To make the case even more ambiguous, the Prime Minister himself is now suing the office of the Commissioner of Land, which, ultimately, falls under his own political responsibility,” another lawyer noted.

The rights of compensation did not belong only to the Gaffarenas but also to the other owners of the building

In their application filed on Thursday, Prime Minister Joseph Muscat and the Attorney General are arguing that the departments that struck the expropriation deal on the property in Old Mint Street, Valletta, committed a technical error when it gave compensation only to the Gaffarenas.

“The rights of compensation did not belong only to the Gaffarenas but also to the other owners of the building,” Dr Muscat argues in his court submission.

The court case was initiated after the National Audit Office published its report on an investigation into the deal.

It found “collusion” and “bad governance” though no mention of the findings is made in the application.

The controversy, exposed by the Times of Malta, was sparked off by the expropriation of one half of a Valletta palazzo by the government in exchange for €3.4 million, in cash and parcels of land, to the Gaffarenas.

The remaining half of the building is still the property of various private owners who were not approached by the government to either buy them out or compensate them.

In its report, the Auditor Officer notes: “It is a moot point whether the government could successfully sue for the recession of the deeds; however, even if the deed is not nullified, the other co-owners could possibly bring a claim against the government for the payment of their respective share of compensation established as due for this expropriation in terms of the deed.”

Citing the advice which had already been given by the Attorney General to the Internal Audit and Investigations Department at the Office of the Prime Minister on this case, the Audit Office said that government compensation for each of the undivided shares expropriated should have been proportionally paid to all the co-owners.

“In the case of the first one-fourth undivided share expropriated, Gaffarena should have been paid €205,625, with the remaining €616,875 paid to remaining co-owners in a proportionate manner according to ownership,” it said.

“It may therefore be argued that the contracts are effectively flawed as, though Gaffarena was in a position to transfer a one-fourth undivided share in the property, the acquisition by the government was from all the co-owners and not only from the Gaffarenas,” the Auditor General added.

The same argument applied for the second deed, the report pointed out.

The Auditor General said that “it is unfortunate that legal advice was not sought by the Land Department prior to the finalisation of the two deeds with Gaffarena”.

Planning parliamentary secretary Michael Falzon resigned in the wake of the report and was succeeded by Deborah Schembri.