The First Hall of the Civil Court, presided over by Mr Justice Joseph R. Micallef, on January 9, 2014, in the case “Dr Philip Attard Montalto and others v the Prime Minister and others” held, among other things, that even if the measures taken by the government in 1973 served to avoid greater harm, to protect deposit holders, the jobs of the bank’s employees as well as the economy of Malta with Parliament’s approval, the government was still obliged to provide compensation for the shares. There was a lack of proportionality at the expense of the former shareholders.

The court declared that the transfer of shares without payment by the former shareholders of NBM to the government violated their fundamental human right to enjoy property in terms of article 37 of the Malta Constitution.

The facts in this case were as follows.

The applicants, former shareholders of the National Bank of Malta (NBM), on September 30, 1992, filed a human right action against the government requesting the court to declare that the transfer of their shares in NBM without compensation was in violation of their right to enjoy property under article 37 of the Malta Constitution and to their right of free association under article 42 of the Constitution. They also asked the court to award them a suitable remedy.

It resulted that towards the end of November 1973, a good number of deposit holders of NBM made a run on the bank where they withdrew their deposits, affecting NBM’s liquidity, pushing it below the limits permissible by law.

The applicants stated that they were under pressure to transfer their shares to the government and to sign a declaration to pass NBM’s assets to the government. NBM ceased its operations on December 12, 1973. Parliament appointed a council of administration to manage the bank in this period of transition to safeguard the jobs of NBM’s employees, its liquidity and to protect deposit holders.

In the period between December 26, 1973, and February 1974, the shareholders of NBM transferred their shares to the government without payment. Subsequently the government passed NBM’s assets and debts to a new entity, Bank of Valletta.

The shareholders of NBM in their judicial letter dated December 17, 1975, requested the government and council to reintegrate their rights and to return their shares. In 1976, the NBM Investments Ltd was set up. Former shareholders of NBM acquired shares in this company by assigning their litigious rights and on September 16, 1976, the NBM Investments filed a suit requesting the revocation of four share transfers.

This human rights case took 22 years to be decided. The court was aware of the administrative problems in the compilation of evidence. This court said that reference would be made to the European Convention of Human Rights’ interpretation of equivalent corresponding provisions of our articles 37 and 42 of the Constitution, even if the applicants based their action upon articles 37 and 42 Constitution.

Article 37 provides:

“(1) No property of any description shall be compulsorily taken 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 of possession or acquisition:

(a) for the payment of adequate compensation;

(b) securing to any person claiming such compensation a right of access to an independent and impartial court or tribunal established by law for the purpose of determining his interest in or right over the property and the amount of any compensation to which he may be entitled, and for the purpose of obtaining payment of that compensation; and

(c) securing to any party to proceedings in that court or tribunal relating to such a claim a right of appeal from its determination to the Court of Appeal in Malta:

Provided that in special cases Parliament may, if it deems it appropriate to act in the national interest, by law establish the criteria which are to be followed, including the factors and other circumstances to be taken into account, in the determination of the compensation payable in respect of property compulsorily taken possession of or acquired; and in any such case the compensation shall be determined and shall be payable accordingly.

Even after the assets of NBM passed to Bank of Valletta, the government still took measures against the private companies of former shareholders of NBM to reduce them to financial ruin. Parliament at the time ratified certain administrative practices to remove any power of former shareholders and to give the takeover of NBM a veneer of legality

(4) Nothing in this article shall be construed as affecting the making or operation of any law for the compulsory taking of possession in the public interest of any property, or the compulsory acquisition in the public interest of any interest in or right over property, where that property, interest or right is held by a body corporate which is established for public purposes by any law and in which no monies have been invested other than monies provided by any legislature in Malta.”

The defendants in reply contested these legal proceedings.

Their first four pleas had become irrelevant with the passage of time. As regards the merits, the government denied infringing the claimants’ human rights. It was stated that applicants freely transferred their shares in NBM. They said that this court should decline to exercise its powers in terms of the proviso of article 46 (2) of the Constitution, in view of the availability of remedies under ordinary law.

The defendants’ fifth plea that the claimants lacked legal interest was rejected as no evidence had been brought to show that the applicants had not transferred their shares to the government. Nor was it shown that none of the claimants had legal interest. In addition, in absence of reasons why this court should decline to exercise its power, the court dismissed the defendants’ seventh plea, and chose to consider this case.

The claimants’ grievance was that the transfer of their shares in NBM to government in 1973 was a deprivation of their assets without adequate compensation. They claimed that the government had taken the assets of the bank without payment and later assigned them to Bank of Valletta. Although these shares were not expropriated ‘formally’, the applicants claimed to have suffered a loss of possession without compensation. They said that they were compelled to transfer their shares, at a time when the government wished to control the economy, and that the government orchestrated the event to acquire control of NBM.

Even after the assets of NBM passed to Bank of Valletta, the government still took measures against the private companies of former shareholders of NBM to reduce them to financial ruin. Parliament at the time ratified certain administrative practices to remove any power of former shareholders and to give the takeover of NBM a veneer of legality. This court pointed out that it would focus its attention on the legal and not political considerations.

The court said that there was no doubt that the shares of NBM belonged to the claimants. Shares constituted a form of property under article 37 of the Constitution. There was also no doubt that by virtue of the assignment of shares, the claimants lost possession of their shares and of all rights attached to these shares. Although the shares did not appear to have a commercial value at the time of transfer, there was no doubt that NBM did have assets at the time.

The court felt that the claimants were forced to transfer their shares without payment. Nor was there a law providing the shareholder legal guarantees, to apply to a court or tribunal to safeguard their interests and for the determination of due compensation. The claimants exercised their ordinary remedy to attack the transfer of shares but they could not demand payment of adequate compensation by way of ordinary remedies.

The court said that even if the measures taken by the government in 1973 served to avoid a greater harm to protect deposit holders, the jobs of the bank’s employees as well as the economy of Malta with Parliament’s approval, the government was still obliged to provide compensation for the shares. There was a lack of proportionality, at the expense of the shareholders, pointed out the court.

In the Theory and Practice of the European Convention on Human Rights by Van Dijk, Van Hoof, Van Rign: “The taking of property without payment of an amount reasonably related to its value will normally constitute a disproportionate interference. However, legitimate objectives of ‘public interest may call for less than reimbursement of the full market value’. A total lack of compensation can be considered justifiable only in exceptional circumstances. Such a lack of compensation does not make a deprivation wrongful, provided that the interference in question satisfies the requirement of lawfulness and is not arbitrary.

“Decisive is, whether in the context of a lawful expropriation, a disproportionate and excessive burden has been imposed of the various interests in issue, bearing in mind that the Convention is intended to safeguard rights that are ‘practical and effective’. There, it is necessary to look behind appearances and investigate the realities of the situation complained of. That assessment may involve not only the relevant compensation terms, but also the conduct of the parties. In that context, uncertainty is a factor to be taken into account in assessing the State’s conduct. Public authorities have to act in good time as well as in an appropriate and consistent manner.”

It was not fair not to give compensation to the applicant maintained the court; such would be a disproportionate burden on the shareholders. The court maintained that the transfer of shares constituted a deprivation of possession and loss of enjoyment by private persons to the benefit of a public authority, without any compensation. It was noted that instead of the following the 1970 Banking Act, the government rushed legislation through the stages in Parliament, and a few weeks later amended it. It appeared that this was to give an ‘illegality’ some semblance of legality. No provision was made for payment of compensation and it seemed that a law was passed for this specific case.

The parties disagreed on the solvency of the bank. On the one side, the claimants complained that the council of administration tried to give the impression that NBM was in a bad financial condition. The claimants disagreed, and said that its assets, exceeded its liabilities. The government, on the other hand, argued that NBM was insolvent at the time of transfer and the government had to invest public money to continue NBM’s business.

It resulted, however, that the business of the bank remained stable, strong and profitable and this continued even after the business was passed on to Bank of Valletta. The court was of the opinion that although at the time of the transfers, the shares did not have much value, NBM had substantial assets, in excess of its debts.

In this respect, the court concluded that the applicants did indeed suffer a violation of their property rights under article 37 of the Constitution. As regards the alleged infringement of article 42 (rights of association) the court did not agree that the claimants suffered any breach of their right to remain in association. The claimants suffered a loss of their shares without due compensation and were not prevented from forming an association.

For these reasons, on January 9, 2013, the First Hall of the Civil Court gave judgment by declaring that the claimants suffered a violation of their human rights under article 37 (enjoyment of property) of the Constitution but not under article 42 (right to form an association). The case had to be continued for the court to provide the applicants an adequate remedy.

Dr Karl Grech Orr is a partner at Ganado Advocates.