Shareholders forced to relinquish their National Bank of Malta shares in 1973 are taking their fight for compensation to the European Court of Human Rights.
The shareholders are contesting the manner by which the Maltese Constitutional Court last year awarded approximately €71.8 million in compensation, significantly less than the €1.4 billion sought.
The government had nationalised the National Bank of Malta without compensating shareholders. NBM was reborn as Bank of Valletta and years later, the government shed most of its shareholding to private investors but retained a 25% stake.
However, now, the NBM shareholders are contesting the methodology adopted by the Maltese courts when assessing compensation solely on the basis of today's market value of the State's retained 25% shareholding in BOV.
They insist the method used is "fundamentally flawed" and inconsistent with the principles governing unlawful deprivations under Article 1 of Protocol No. 1 of the Convention for the Protection of Human Rights.
The ECHR application argues that the state's actions constituted a "direct and unlawful deprivation from the outset in December 1973" unlike the gradual process of dispossession adopted in the Guiso-Gallisay vs Italy case decided in 2009 by the ECHR that was cited by the Maltese courts.
"The compulsory revocation of the National Bank of Malta's licence, forced transfer of its business and assets, imposition of a state-controlled Council of Administration, and ultimate substitution by the fully state-owned BOV were all effected through legislative spoliation without compensation or colour of lawful expropriation," the application argues.
NBM takeover was complete dispossession of going concern
It adds that unlike the gradual, constructive process in Guiso-Gallisay, the NBM takeover was an "immediate, complete dispossession of a going concern". The applicants argue NBM was a profitable, operational banking enterprise and whose successor, BOV, remains a "dynamic, profit-generating entity" of identical nature.
The applicants are insisting that the court should apply the principles outlined in Papamichalopoulos and Others vs Greece, decided in 1993, which dictate that "unlawful acts of direct deprivation" come with the obligation of "full reparation to wipe out all consequences of the breach and re-establish-as far as possible-the situation that would have existed had there not been the violation".
"Where restitution in kind has become impracticable, compensation must reflect an ex-post valuation capturing the current realised value of the position the applicants would have held, inclusive of attributable growth, profits, accretion, and benefits unjustly derived by the State over more than 50 years," the applicants are arguing.
They insist that confining damages to the present value of the state's remaining 25% stake and ignoring the value realised from the 75% sold to third parties over the decades, is "illogical and distorts equitable valuation".
Moreover, the NBM shareholders argue that the application of a 30% discount-standard for static land holdings-is inappropriate since the expropriated property was a going concern, not immovable real estate. They also argue that a further 20% deduction for supposed market uncertainties in rental and use income is equally unwarranted.
Compensation manifestly inadequate
The shareholders say that the Maltese courts' award of €72 million, which was reduced from an initial figure approaching €111 million for all shares, is "manifestly inadequate" and equates to less than six months' typical operating profits of BOV.
"This is a glaring disproportion after 53 plus years of continuing interference, during which the applicants lost use, enjoyment, dividends, and commercial opportunities that accrued exclusively to the perpetrator state," the shareholders say.
They are asking the ECHR to reject the Guiso-Gallisay methodology adopted by the Maltese courts and instead prioritise restitutio in integrum (full restitution) or its monetary equivalent based on the current value of BOV.
"Failure to do so risks endorsing a precedent whereby states may unlawfully seize valuable going concerns, exploit and appreciate them under public ownership for decades, and discharge their convention obligations with token sums unrelated to the harm inflicted or benefits obtained-thereby undermining the effective protection of property rights and the Convention's object of accountability," the applicants insist.
Maltese court ruling
The Maltese Constitutional Court had found that while the economic circumstances of the time justified urgent government intervention to protect depositors and the financial system, the complete absence of compensation to the shareholders amounted to a violation of their constitutional rights.
The compensation award was calculated using a model previously endorsed by the European Court of Human Rights in Cauchi vs Malta. The starting point was the government's current 25% holding in Bank of Valletta, valued at €198.5 million based on 2024 market figures.
Two reductions were then applied: a 30% deduction to reflect the legitimate public interest in safeguarding the financial system at the time, and a further 20% deduction to account for uncertainty as to how the bank would have fared had it continued to operate independently.
The remaining sum was then reduced to reflect that the applicants represented around 70% of the former shareholder base.
Crucially, the court declined to grant the shareholders' principal demand for restitutio in integrum or compensation equivalent to the present-day value of the Bank of Valletta, a figure exceeding €1.4 billion. It described the claim as not feasible and noted that it would have significant repercussions for Malta's financial sector and third-party shareholders who were not involved in the original dispute.
Many original claimants died during the more than thirty years of proceedings, requiring the substitution of heirs.
The court noted the distress caused by the protracted process but reiterated that non-pecuniary damages of that nature are generally not inherited unless the original claimant died after the proceedings had begun.
The ECHR application was signed by lawyers Conrad Cassar Torregiani, Sarah Grech, Evelyn Caruana Demajo, Massimo Vella, Patrick Galea, Mark Refalo, Michael Psaila and Max Ganado.