Former Minister Konrad Mizzi signed every contract related to the Vitals hospitals concession, save for the emphyteusis on the land, Auditor General Charles Deguara told a court on Thursday.

The case against former Prime Minister Joseph Muscat, Konrad Mizzi, Keith Schembri and a host of others continued on Thursday, with Deguara being the star witness of the day.

Deguara's testimony centred on the work of his office on the hospitals concession: The NAO had issued three voluminous reports including an addendum about the hospitals deal, and was the first national institution to expose the shortcomings in the procurement process, having found that it was "vitiated" from the start, amongst other things.

The first report, Deguara explained, focused on the tendering process for the hospitals deal. This was published on 7 July 2020.  It was the result of a request by Parliament's Public Accounts Committee, and the thing which worried the NAO most was reports in the media and other institutions that a Memorandum of Understanding had been signed a bit before the Request for Proposals (RfP) was issued.

The MoU was dated October 2014, and the tender was issued in March 2015.

"It worried us because there was an emphasis from the Energy [Ministry] side but less so from the Health [Ministry] side, even though this was a health project," Deguara told the court.

"This was a very big project... one of the biggest if not the biggest project ever... and we felt there should have been more input from the Health Ministry - in the context of good governance, we didn't feel like this was good governance," he said.

He also commented that the NAO had wanted a copy of the MoU, but they were told that it could not be found - only for it to be found two weeks after the first report was published, which is why the addendum to the report was published.

"Our office, like any Auditor General's office in the world, focuses on good governance - we have no authority to investigate criminal wrongdoing," he clarified.

Deguara said that the NAO felt that having considered the tendering process, they felt that the tender to Vitals should not have been granted. On the basis of the MoU, Vitals' bid should have been rejected, Deguara added.

Attorney General lawyer Rebekah Spiteri asked Deguara to expand on what he means when he speaks of good governance.

"This is set on existing regulations. In this case, the Public Procurement Regulations are the Bible, and in this case we felt that when that MoU was signed four to five months before the formation of the RfP, that this wasn't according to public procurement regulations, and within the context of ethical frameworks it shouldn't have been accepted," he said.

The second report, Deguara continued, focused on the drafting of the agreement. Deguara explained that there were shortcomings in the Labour Services agreement because the government was not suitably compensated for these services.

The third report focused on when Steward Health Care bought out the shares of Vitals and therefore took over the concession. On a good governance side, Deguara said that the NAO was worried about the lack of documentation on the discussions - "we found practically nothing," he said.

Zeroing in on the evaluation of the tender, Deguara said that the NAO felt that there had been a certain degree of "subjectivity."

"It was clear that the Vitals bid was too ambitious. They could never stick to those timeframes, especially when you remember that Vitals had no experience in hospitals management, and were very weak financially," he said.

He noted that the investment that Vitals had to make was supposed to be made from medical tourism - but this medical tourism never happened, so neither did the investment.

Deguara further added that the feasibility study was also not adequate for what was ultimately a €400 billion concession. "We felt that the feasibility study should have been a lot more robust," he said.

The concession was initially based on 30 years, but there was an optional extension for another 39 years - Vitals however, Deguara said, had simply assumed - even in their workings in the bid - that the concession would get extended.

He continued that when the NAO asked why Konrad Mizzi's Energy Ministry had been given such a leadership role in the decision, the office was told it was a Cabinet decision. The NAO however felt that the Health Ministry should have been a lot more active in the process due to their expertise.

"Every contract - except the emphyteusis - was signed by Konrad Mizzi," Deguara said. On who authorised Mizzi to sign the contracts, Deguara replied that from their investigations it appeared to be a Cabinet decision.

Questions also turned to the various addendums that had been signed between the government and the concessionaire. The most publicised of these is the one which had introduced a €100 million liability clause which essentially meant that the government was liable to pay the concessionaire that much if the concession was to be terminated - even if it was terminated due to the concessionaire not reaching their aims.

"We felt that the government had no strength to enforce the concession. It gave up a lot of its strength," Deguara testified. He said that Konrad Mizzi was the one who signed it.

There were significant differences created by the addenda to the agreements - and Deguara said that it was the NAO's opinion that each addendum was "against the government's interests."

Deguara was asked what the intention behind each addendum to the agreement was.

"Some of them were done a couple of days after the agreement... I cannot answer you... de facto I can say that our team felt that whenever these changes were done, they were against the government's interests," Deguara replied.

A portion of Deguara's testimony was also dedicated to Vitals' audited accounts, which were published years late - in 2020, after Steward had taken over the concession.

"In the first four years of Vitals, they never issued audited accounts. They were published later and the financial problems that they had were obvious," Deguara said of these accounts.

He quoted portions from the NAO's report, where it details a meeting held between the NAO and the Health Ministry wherein the Ministry said that it had concerns that funds which the government was paying Vitals were not actually being used for the concession.

"Should that alleged by the MFH, lent credence by the dire situation depicted in the VGH's financial statements and the failure to effect the required capital investment, be proven, this may lead to the conclusion that there was the misuse of public funds. This prompts the NAO to recommend further investigation by the competent authorities in terms of any possible financial mismanagement and misuse of public funds in connection with this concession awarded by Government,"  the NAO had written in its report on this meeting.

The accounts which were eventually published supported the Health Ministry's suspicions, Deguara said.

Under cross-examination, Deguara said that his office's judgements on the accounts were on the contents of the accounts themselves - not on the competence or otherwise of the auditor.

A number of other minor witnesses testified.  These included representatives from Jobsplus, Mulberry Insurance Brokers, MAPFRE MSV Life, Bank of Valletta, and the Clerk of the House Eleanor Scerri.

The secretary of the Accountancy Board, Martin Spiteri, also testified and shared the warrants of the accused who are either accountants or auditors. 

The case continues on 21 August.

14:55: Deguara was the final witness for the day.

The next sitting will take place on 21 August at 10am – thank you for following this live commentary!

14:51: Deguara now faces cross-examination.

Lawyer Jason Grima asks Deguara to confirm that when Steward took over the concession, they could see the financial situation that Vitals left them.  He does. Therefore, the auditor responsible for the accounts for Vitals which were published – and were published after Steward took over – had qualified the issues. Deguara agrees with that too.

Deguara says that the audited accounts which pertained to Vitals confirmed the concerns that the Health Ministry had shared with the NAO.  These audited accounts were published in 2020.

Grima asks whether the NAO had seen anything wrong in the audited accounts.  Deguara says that his office does not comment on the competence or otherwise of a private auditor.  “We relied on them,” Deguara says.  “We had no suspicion or thought that the private auditor was not competent – we didn’t mean that; we commented on the poor results of the audit, not the auditor,” he says.

That concludes Deguara’s testimony.

14:36: There were significant differences created by the addenda to the agreements – and Deguara says that it was the NAO’s opinion that each addendum was “against the government’s interests.”

Deguara is asked what the intention behind each addendum to the agreement was.

“Some of them were done a couple of days after the agreement… I cannot answer you… de fact I can say that our team felt that whenever these changes were done, they were against the government’s interests,” Deguara replies.

Deguara says that the government could have sanctioned Vitals over its lack of publication of its financials, but it never did.

14:33: “In the first four years of Vitals, they never issued audited accounts.  They were published later and the financial problems that they had were obvious,” Deguara says when asked about Vitals.

He continues that there was a meeting with the Health Ministry where they indicated to the NAO that a lot of the funding given by the government to Vitals was not being used for the concession.

Deguara cites from a particular part of the NAO’s second report on this.  This paragraph reads as follows:

“Serious concerns regarding the regularity of use of funds provided by the Government were highlighted by the MFH, who alleged that funds provided by the Government to the VGH were being channelled outside of the company. This understanding was based on the premise that despite the concession fee paid by Government being sufficient to cover existing operations, the VGH had accumulated significant creditors.”

The Health Ministry had highlighted that Vitals had not filed accounts on time, but the NAO observed that it was unable to delve further into the matter as verification would require access to Vitals’ financial transactions – something beyond its remit.

“Should that alleged by the MFH, lent credence by the dire situation depicted in the VGH’s financial statements and the failure to effect the required capital investment, be proven, this may lead to the conclusion that there was the misuse of public funds. This prompts the NAO to recommend further investigation by the competent authorities in terms of any possible financial mismanagement and misuse of public funds in connection with this concession awarded by Government,”  the NAO had written.

14:23: He is asked about an addendum to the Service Concession Agreement which was signed.

This is the addendum which had introduced a €100 million liability clause which essentially meant that the government was liable to pay the concessionaire that much if the concession were to be terminated – even if it was terminated due to the concessionaire not reaching their aims.

“We felt that the government had no strength to enforce the concession.  It gave up a lot of its strength,” Deguara says.

He says that Konrad Mizzi was the one who signed it.

14:20: Deguara is asked for an overview of the Service Concession Agreement.

This, Deguara says, was one of the most important parts of the concession as it set out the milestones and targets.  Only one out of the myriad of milestones was ever reached, Deguara says.

Vitals never sent any designs, but when it comes to Steward one must keep in mind the context that the government had an issue because the European Union Statistics Agency Eurostat had decided that the concession expenses would be put on the government’s balance sheet – something which the government did not want as it would affect the deficit.

Steward meanwhile felt that the conditions of the concession were not bankable.  “There were financing issues, income issues, but there was no agreement between the government and Steward,” he explains.

This affected the timeline for when designs had to be submitted, he adds.

14:16: Spiteri now asks who was engaged in leading negotiations between Vitals and the government.  Deguara says that a steering committee was founded, with the involvement of Konrad Mizzi, and there was a negotiating team as well.

This negotiating team kept no documentation, Deguara says – something that the NAO determined to be a shortcoming, given the magnitude of the project being negotiated.

“Konrad Mizzi was in charge,” Deguara says when asked who was ‘pushing’ for the agreement to be done from the government’s side.

In the case of a hold-up with negotiations, the government would appoint legal experts to help out, Deguara says.  He can’t remember who the legal firm was, but says it is named in the first report.

14:10: The concession was initially based on 30 years, but there was an optional extension for another 39 years – Vitals however, Deguara says, had simply assumed – even in their workings in the bid – that the concession would get extended.

He continues that when the NAO asked why Konrad Mizzi’s Energy Ministry had been given such a leadership role in the decision, it was a Cabinet decision.  The NAO however felt that the Health Ministry should have been a lot more active in the process due to their expertise.

“Every contract – except the emphyteusis – was signed by Konrad Mizzi,” Deguara says. On who authorised Mizzi to sign the contracts, Deguara says that from their investigations it appeared to be a Cabinet decision.

14:07: Deguara says that when it came to the evaluation of the tender, “there was a certain subjectivity.”

“It was clear that the Vitals bid was too ambitious.  They could never stick to those timeframes, especially when you remember that Vitals had no experience in hospitals management, and were very weak financially,” he says.

He notes that the investment that Vitals had to make was supposed to be made from medical tourism – but this medical tourism never happened, so neither did the investment.

Deguara adds that the feasibility study was also not adequate for what was ultimately a €400 billion concession.  “We felt that the feasibility study should have been a lot more robust,” he says.

14:03: Spiteri asks who cooperated with the NAO and who didn’t, with her question particularly phrased around the MoU.

Deguara says that the MoU was signed with Malta Enterprise, but they could not find it.  The Office of the Prime Minister – which is where it was signed – could not find it either, he adds.

“This was a very important document within the context of the investigations,” he says.

Within two weeks of the first report being issued, the Office of the Prime Minister had told the NAO that the MoU had been found, which was why an addendum was issued soon after.

He says that on the whole the NAO found cooperation from everyone, but there were certain cases were some entities blocked information.  Malta Enterprise was one such entity as it hid behind a law governing confidentiality on documents, Deguara says.

14:00: Deguara goes through the terms of reference for each report – it’s largely as he’s already explained: the first was on the tendering process, the second on the discussions for the agreement, and the third on the concession transfer to Steward.

Spiteri asks Deguara to expand on what he means when he speaks of good governance.

“This is set on existing regulations. In this case, the Public Procurement Regulations are the Bible, and in this case we felt that when that MoU was signed four to five months before the formation of the RfP that this wasn’t according to public procurement regulations and within the context of ethical framework it shouldn’t have been accepted,” he says.

“This was a very big project… one of the biggest if not the biggest project ever… and we felt there should have been more input from the Health Ministry – in the context of good governance, we didn’t feel like this was good governance,” he continues.

13:55: The second report, he continues, focused on the drafting of the agreement.

He says that the NAO was concerned with an amendment which was done at a late stage.  Deguara explains that there were shortcomings in the Labour Services agreement because the government was not suitably compensated for this.

The third report focused on when Steward Health Care bought out the shares of Vitals and therefore took over the concession.  On a good governance side, Deguara said that the NAO was worried about the lack of documentation on the discussions – “we found practically nothing,” he says.

He also says that the NAO was given conflicting views on how Steward were put in touch to take over the concession.

13:52: The first report, Deguara explains, focused on the tendering process for the hospitals deal.  This was published on 7 July 2020.  It was the result of a request by Parliament’s Public Accounts Committee, and the thing which worried the NAO most was reports in the media and other institutions that a Memorandum of Understanding had been signed a bit before the Request for Proposals (RfP) was issued.

The MoU was dated October 2014, and the tender was issued in March 2015.

“It worried us because there was an emphasis from the Energy [Ministry] side but less so from the Health [Ministry] side, even though this was a health project,” Deguara says.

He also commented that the NAO wanted a copy of the MoU, but they were told that it could not be found – only for it to be found two weeks after the first report was published, which is why the addendum to the report was published.

“Our office, like any Auditor General’s office in the world, focuses on good governance – we have no authority to investigate criminal wrongdoing,” he clarifies.

Deguara says that the NAO felt that having considered the tendering process, they felt that the tender to Vitals should not have been granted.  On the basis of the MoU, Vitals’ bid should have been rejected, Deguara adds.

13:48: Auditor General Charles Deguara is the man to take the witness stand next.

Attorney General lawyer Rebekah Spiteri is the one asking the questions for the prosecution.  She opens the floor by asking for some background to the National Audit Office (NAO)’s investigations into the hospitals concession.

The NAO had issued three voluminous reports including an addendum about the hospitals deal, and was the first national institution to expose the shortcomings in the procurement process, having found that it was “vitiated” from the start, amongst other things.

13:45: Ivan Vladimir Buttigieg, the managing director of Mulberry Insurance Brokers, is up next.  He testifies about policies held by Pierre Sladden, and shares that the accused has two cars which are pending payment for their licence and insurance.

The company need authorisation from the courts in order to receive the payments to this end.

He steps off the witness stand as well.  These witnesses are the product of court applications filed by the accused, likely in order to get court permission for the respective payments which are due to be authorised.

13:42: A representative from MAPFRE MSV Life PLC is testifying next.  He says that Ivan Vassallo had five accounts open with the company.

The first was opened in 2016 and was valid for 13 years, he says. The second one was Legacy Protection Plan which was opened in February 2017 for a term of 14 years. The third was a Savings Plan opened in August 1996 for a term of 30 years.  It is currently worth around €44,000, he says.

The representative continues to detail Vassallo’s policies with the company: with each one there are payments which are still pending because the company needs the court’s authorisation in order to accept payments from the accused’s bank accounts.

He steps off the witness stand.

13:34: Luana Agius, representing Bank of Valletta, is next.  She has been asked to testify about the bank loans of Ivan Vassallo.  She says that he has four loan accounts with third parties (who have not been named). 

The first two accounts were opened on 28 July 2016, the third was in 2013 and the last was on 28 June this year – after he was charged.  The latter was a credit card loan, Agius says, issued because Vassallo had become subject to a freezing order.   This is a standard procedure, Vassallo’s lawyer points out.

She departs the witness stand.

13:30: Martin Spiteri, the secretary of the Accountancy Board is up next.  He is presenting information about the warrants related to Nexia BT and any of the other accused.

He says that Nexia BT Limited was not registered with the board, but rather Nexia BT was registered as a civil partnership.  It was first registered in 2008 as Brian Tonna & Co, and then in 2010 the name was changed to Nexia BT.

Christopher Spiteri, one of the accused, is a warrant holder as a certified public accountant and auditor, and the certificate showing this was issued in 1999, he says.

Mario Victor Gatt is a certified public accountant and has held a warrant since 2003, he continues, while Brian Tonna has been a certified public accountant and auditor since 1990 but had asked the board to voluntarily suspend his warrant in April 2023, a request which the board had accepted early the following month.

Karl Cini meanwhile was registered as a certified public accountant and auditor, and was granted a warrant in 2002, Spiteri says.

He steps off the witness stand.

13:22: Eleanor Scerri, the Clerk of the House – which is Parliament, is up next.

She goes through the political history of Joseph Muscat and Konrad Mizzi, detailing when they were elected and providing their oath of office to the courts.  She has also provided evidence of their income and declaration of assets.

She departs the witness stand.

13:15: Joyce Cassar, a Permanent Secretary within the Office of the Prime Minister, is the next person to testify. 

She says that she was asked whether a list of public officials or public employee and says that none of them are currently employed in the public services.

Brian Bondin, she says, was a staff nurse and resigned from the civil service in 2001 and Clarence John Conger Thompson was employed with Malta Health in 2011, and resigned in 2024.

She steps off the witness stand.

13:10: A JobsPlus representative – Louis Buhagiar – is the first witness to testify.

He presents a set of documents.  These include the employment histories of Joseph Muscat, Konrad Mizzi, Keith Schembri, and the rest of the individuals who are accused in this case.

He steps off the witness stand.

13:06: Magistrate Rachel Montebello has returned to the court room and the case can get underway.

12:50: The EPPO case has just concluded - that means that we'll probably have a few minutes break, after which point the Muscat case will (finally) begin.

12:05: The previous court case – which is the case brought by the EPPO against 11 people in relation to a customs fraud investigation – is still ongoing, which is why the Muscat case is yet to begin.

Magistrate Rachel Montebello – who will hear the Muscat case – has emphasised the need for haste in wrapping this case up.

11:43: Good morning and thanks for joining us for this court sitting.  The sitting was scheduled to begin at 11:30am, but another case is currently being heard.