A landmark judgment on a hospitals' deal is significant because it nullified all the agreements signed by the government, Vitals Global Healthcare and Steward Healthcare, and ordered the hospitals to be returned to the state.

But the strongly worded, 136-page judgment went even further, condemning Vitals and Steward for "fraudulent" behaviour and slamming government officials for incompetence.

Judge Francesco Depasquale said there was fraud throughout the time Vitals and Steward ran the hospitals, but also when the deal was being negotiated and even before the tender was issued.

Fraud timeline

On October 10, 2014, a group of investors – most of whom later set up Vitals Global Healthcare – secretly signed a memorandum of understanding with the government.

In it, they expressed their interest to set up a ‘Gozo Medical Complex’. In return, the government bound itself not to negotiate with anyone else on the Gozo hospital and to provide the investors with all the information they needed about the health system so they could plan their investment.

At this stage, the government had not yet issued a public call for expressions of interest for the privatisation of the hospitals. That came five months later, in March 2015.

Information abused

A few months after the tender was issued, Vitals made a proposal to take over the three hospitals. It was impressive enough to persuade government officials to hand them the contract.

Judge Depasquale had no doubt the Vitals investors unfairly made use of the information they were privy to through the MoU and that they blinded government officials into thinking they were the right people for the job.

And they never informed government officials of their conflict of interest, despite the tender clearly stating bidders must declare conflicts.

The court had no doubt that Vitals abused the information to make a proposal “that the government could not refuse”, the judge said.

“The fact that they deliberately hid the existence of the MoU is a clear indication that they had fraudulent intent when they presented their proposal to the government.”

They threw in the idea of medical tourism to “blind” the government into conceding the mammoth contract to them.

These manoeuvres, according to the judge, constituted fraudulent behaviour.

‘Unprofessional’

But Depasquale had harsh words for government officials as well, slamming the “lax, unprofessional and amateurish methodology” with which they operated.

Furthermore, the tender did not request any due diligence testing on the bidders and the government evaluation committee did not perform any financial due diligence on Vitals.

“The court can conclude that it is clear that the agreement signed between the investors and the government in October 2014 was an intrinsic part of an entire process that led to the government issuing a tender and awarding them the contract,” the judgment reads.

Broken promises

Vitals continued to defraud the country during its entire time running the hospitals, the judgment adds.

The company did not deliver on its promises to build a new hospital and add beds and medical equipment, and medical tourism never took off. Meanwhile, Vitals continued to guzzle millions in taxpayer money every year, with no consequence.

“Vitals began to break every one of the obligations and milestones that it had agreed to,” the judge said. “Financial promises failed, other projects were not completed and most of them did not even begin.”

Depasquale was also incredulous at how the government continued to support Vitals, despite clear indications they would not keep their word.

“Instead of stopping the agreement and taking back the properties, the government incredibly succumbed to and accepted a change in agreement.”

The government agreed to give Vitals an extension of three years to deliver on its promises. If it failed to do this, the extension was to be automatically renewed by a further year-and-a-half.

All four-and-a-half years passed and still, both Vitals and Steward – which meanwhile had taken over the concession – failed to honour their obligations, the judge noted.

Self-enrichment

The judge was damning of Steward Health Care, saying that when it took over the concession from Vitals in 2018, it continued to ignore its obligations while still sucking taxpayer money.

It promised the government it would take loans from international banks to complete the promised projects, only to borrow nearly €36 million from Bank of Valletta alone – technically loaned to them by the government.

The judge goes further. In 2019, Steward signed an agreement in which the government agreed to absorb all of the company’s BOV debts and pay it €100 million if, for any reason, the contract fell through.

Adrian Delia had filed his court case to nullify the contracts a year earlier, the judge noted, so Steward were well aware that the contract could fall through if the court ruled in Delia’s favour.

The court had no doubt that Steward was acting fraudulently when it tried to take advantage of the situation to “enrich itself at the expense of the government and its citizens”, the judge said.

“The court is very concerned over how government officials could ever agree to such obligations. The court is certain that no person with the national interest at heart would agree to such obligations.”

What’s next?

The government will not be appealing the sentence but it is likely Steward will and Vitals can too. If they do, the hospitals will remain in Steward’s hands until the appeal is decided.

If the appeal goes Steward’s way, the company could continue to run the hospitals. But if the appeal court confirms the first judgment, then Steward would have to pack up and leave, and the hospitals would return to the goverment.

The government would have no €100 million fee to pay and would not need to incur the bank debts, given that the court has annulled every agreement signed on the three hospitals.

Can the people get their money back? The government would have to sue Vitals and Steward to achieve that.

Meanwhile, a separate criminal inquiry, triggered by rule-of-law NGO Repubblika, is ongoing. Both Joseph Muscat and Konrad Mizzi are considered suspects.

Muscat’s home was searched by the police last year in connection with payments he received that are suspected to be kickbacks from the deal. Mizzi too has been the subject of a police search.