The constitutional rights of National Bank of Malta shareholders were breached when they were forced to surrender their stakes without any compensation, a judge ruled yesterday.

The judgment by Mr Justice Joseph Micallef, sitting in the Constitutional Court, arrived more than 40 years after the government led by the late Dom Mintoff had taken over the National Bank, which then became Bank of Valletta.

The case was instituted by 49 shareholders or their heirs in 1992 against the prime minister, the finance minister and the Administration Council, which briefly ran the bank in 1973, claiming that their constitutional rights were violated when they were obliged to surrender shares to the government without any compensation.

They also claimed breach of their fundamental right of association.

While the court upheld the claim that their constitutional rights had been breached, it ruled this was not the case with regard to the right of association.

The bank had substantial assets, which compensated for the debt

The court will proceed to liquidate damages, which can run into millions of euros.

Contacted by Times of Malta, lawyer Max Ganado, who appeared for the shareholders, said the judgment was a clear win for the former bank shareholders after years of battling their case in court. He said the court would now determine the level of compensation due to the shareholders.

Sources close to the case pointed out that the judgment might prompt the government to seek an out-of-court settlement, which might make more financial sense for the Exchequer.

The government can also choose to appeal, further lengthening the final closure of the case.

The previous Nationalist Administration had unsuccessfully tried to negotiate an out-of-court settlement with shareholders.

According to the sources, the shareholders were asking for about €20 million to drop their case.

Making it clear that the decision was solely based on the law and was not in any way passing judgement on the political and historical aspect of the issue and on the way the National Bank was taken over by the government, the court said it was clear from the evidence produced that the shareholders were forced to give up their shares even though this might have been in the national interest or to avoid the financial collapse of the bank.

Mr Justice Micallef said that even if the takeover of the bank had been a “salvage operation”, this did not give the government the right not to compensate the shareholders for their loss.

“Although it is true that, at the time they were surrendered, the shares had no commercial value due to the bank’s lack of liquidity, it is also true that the bank had substantial assets, which compensated for the debts,” the court said.

It said the assets had a substantial value for which the shareholders got absolutely nothing in compensation.

Freedom of association right ‘intact’

The judge said there was no evidence that the shareholders’ right of freedom of association was breached because the surrender of the shares and related compensation were in no way connected with such right.

Mr Micallef also remarked on the long proceedings of the case, which had been handled by a number of judges, the majority of them now retired.

The National Bank saga

End November 1973: many clients of the bank started withdrawing deposits.

December 6, 1973: two branches of the bank reported abnormal and high withdrawals.

December 11, 1973: a huge sum of money was withdrawn and the bank directors started wondering what was happening as the bank’s liquidity was in jeopardy. It appeared a run on the bank was taking place and it was in trouble.

The public was aware of what was happening and the government threatened to withdraw deposits of State companies that would have made the bank’s situation much worse.

Discussions were held between the bank’s directors, the government and the Central Bank so the National Bank could ask for help from foreign banks already associated to it or for a direct intervention by the Central Bank to help tackle the crisis.

Prime Minister Dom Mintoff instructed the Central Bank not to give any extraordinary help and asked the bank’s directors to persuade two-thirds of the shareholders to pass on their shares to the government before a law taking over the bank was approved by Parliament.

December 11, 1973: the bank’s directors passed a resolution to transfer the bank to the government.

December 12, 1973: the National Bank of Malta ceased operations and its licence was withdrawn. The directors were given notice of the licence’s withdrawal by the police at their home in the early hours.

On the same night, Parliament approved, after agreement by both sides of the House, a law establishing an Administration Council to take care of the business of the National Bank and Tagliaferro Bank.

December 26, 1973 to mid-February 1974: shares were transferred free of charge by the shareholders to the government.

March 22, 1974: a notarial deed was signed providing for the shares, assets and liabilities of the National Bank to be passed to a newly established bank known as Bank of Valletta.