Former health minister Chris Fearne has told a court that he was sidelined when handling the Vitals hospitals concession, as he described being kept in the dark about agreements between the company and Konrad Mizzi.

In a lengthy court sitting, Fearne began his testimony as he looked back on 2013, the year he was elected for the first time.

At the time, Malta was facing sustained pressure from the European Union to reduce its deficit and capital expenditure.

The government’s response, he explained, was the creation of “Project Malta”, a vehicle under then minister Konrad Mizzi aimed at attracting private investment into major infrastructure while keeping such spending off the national balance sheet.

At the time a parliamentary secretary responsible for health operations, Fearne said the wider legal and financial architecture remained firmly under Mizzi’s control.

Barts vision and early proposals for hospital expansion

Among the ambitions driving the initiative was the establishment of a campus for Barts Medical School in Malta, following contact from Maltese medical professionals already affiliated with the London institution.

Fearne said that such a project required not only lecture facilities but access to functioning clinical environments.

He recalled attending presentations at Malta Enterprise involving various international proposals, ranging from elderly care facilities to the development of a new specialised hospital in the south.

A formal call for interest was eventually issued, covering Gozo General Hospital and St Luke’s Hospital. Karen Grech Hospital was later added on to the list of hospitals.

Selection of Vitals and the financial model explained

In June 2015, Cabinet was presented with a plan following an evaluation process that selected Vitals Global Healthcare.

The decision, he said, was informed by a PwC study that had projected positive growth in the niche of medical tourism and was endorsed by a technical committee.

Financially, the arrangement was explained to him as cost-neutral.

The concession, as it was explained to them at the time, appeared to make sense because the government would continue paying for medical services at the same rate it had been paying before the hospitals were handed over to the concessionaires.

The concessionaire, on the other hand, would be responsible for financing the construction and upgrading of the hospitals. It would then recover its investment using the increased capacity to generate revenue through medical tourism, with foreign patients paying for services.

Fearne told the court that this was not a new concept.

Oversight by the National Audit Office, he added, provided assurances of value for money.

In fact, during the first year of the agreement, in 2016, €51 million was spent on healthcare, mirroring the €52 million spend of the previous year.

Claims of sidelining

Fearne told the court he was frequently frustrated by the way that responsibilities were divided between him and Konrad Mizzi.

While Fearne would be dealing directly with VGH at an operational level, the actual terms of the concession would be negotiated separately with Mizzi.

This often left him frustrated, as during negotiations he would be told that different terms had already been agreed with Mizzi.

He said that made it clear internally, with his associates, colleagues, Mizzi, and even with former prime minister Joseph Muscat, that things were not progressing as he had hoped with VGH.

Transition to Steward and lack of transparency

By late 2017, Fearne said, he was informed by Prime Minister Joseph Muscat that Steward Healthcare would take over the concession.

The American company was presented as an established operator with a substantial hospital network of 40 hospitals.

At that stage, two main issues had arisen. The first concerned the performance guarantee.

During the VGH period, Vitals had provided a €90 million performance guarantee in the form of a bank guarantee.

Steward, however, would replace this with a guarantee issued by a third-party parent company, Steward America. Fearne made it clear that this was unacceptable. Steward, in turn, insisted that the arrangement had already been agreed with Konrad Mizzi.

Cabinet granted Steward two months to regularise the matter, but the guarantee ultimately remained a company guarantee rather than a bank guarantee, with Mizzi issuing a waiver.

The second issue related to the financing model of the concession.

Fearne explained that one of its main advantages had been that the cost of building the hospitals would not fall on the government.

Instead, the concessionaire would recoup its investment through medical tourism, meaning the expenditure would not be reflected in the government’s deficit.

However, Eurostat later indicated that, given the way the concession was structured, the investment would still be recorded on the government’s books, despite being undertaken by a private operator.

Against this backdrop, Steward proposed selling the concession to an American real estate company and leasing it back. Under the original arrangement, Barts was to pay an annual lease.

Steward argued that, rather than receiving a fixed annual income over 30 years, it could sell the asset to a US property trust, secure a lump sum upfront, and then lease it back, with Barts effectively paying rent to the new owners.

Fearne said the proposal was not illegal, but he remained uneasy.

It would have meant transferring the emphyteusis from an entity with which the government had a contractual relationship to one with which it had none.

An MOU had already been signed by Konrad Mizzi, but the proposed changes would have increased government expenditure and marked a departure from the original medical tourism model.

Steward had indicated it intended to adopt a system similar to that used in the United Kingdom, which would ultimately see the government paying higher fees. Fearne made his position clear to Mizzi: he would not accept the changes.

Nevertheless, Konrad Mizzi continued to push for their inclusion in the final agreement.

Fearne escalated the matter to Cabinet, warning that these discussions would result in a substantial increase in government spending and risk the government losing control of the medical school. Cabinet ultimately agreed that the medical school should remain with Steward and not be transferred to the trust.

In early October, while Fearne was in Austria, a Cabinet meeting was held at which Mizzi presented a memorandum that ran counter to Fearne’s position.

He went on to submit two such memoranda, which were approved by Cabinet. In November 2019, Mizzi resigned, and Fearne informed Steward that the agreement would be withdrawn.

Discovery of €100 million penalty clause

Following Mizzi’s resignation in November 2019, Fearne said he informed Steward that the land deal would be withdrawn.

Fearne testified that when Robert Abela became prime minister in January 2020, in the first Cabinet meeting he [Fearne] proposed that discussions with Steward focus on terminating the concession.

It was at this stage, Fearne testified, that he became aware of a clause indicating that the government could face a €100 million penalty even if the courts annulled the agreement.

Legal advice sought from several avenues, including the Attorney General pointed towards a mutually agreed termination as the only viable route to avoid triggering the penalty and admitting liability.

COVID-19 pressures and parallel negotiations

These developments coincided with the outbreak of the COVID-19 pandemic.

Fearne described working extended hours to manage the national response, during which Malta received high international rankings for its handling of the crisis, second only to Israel.

He noted that despite the disputes, Steward still delivered their work during the pandemic. Negotiations with Steward continued in parallel but failed to produce an agreement.

Turn to international arbitration

This led government to initiate arbitration proceedings before the International Chamber of Commerce.

A Grant Thornton assessment concluded that €41 million was due for services rendered, forming the basis of the government’s case.

Fearne noted that the government opted not to appeal a separate court judgment by Francesco Depasquale, which had found elements of fraud, as this strengthened its position in arbitration.

The ICC ultimately ruled in the government’s favour, rejecting Steward’s claims and concluding that the state had in fact received services exceeding payments by €5 million.

Smear campaign and blackmail attempt

Fearne’s testimony also addressed what he described as a coordinated attempt to blackmail him.

While serving as president of the World Health Assembly in Geneva, he said, fabricated reports appeared in foreign media alleging corruption by people close to him linked to Malta’s citizenship schemes.

He immediately requested an investigation, and a financial probe led by the FCID found no evidence of wrongdoing.

Further revelations emerged through journalists’ investigations indicating that a British intelligence firm had been engaged to gather or fabricate damaging information on Fearne, identified in the correspondence as the concessionaire’s principal opponent.

Matthew Caruana Galizia, Fearne said, confirmed that attempts had been made to plant the stories with him, which he refused to publish after he found out that they were false.

Disputes over additional payments and costs

Fearne went on to provide several examples of financial disputes with Steward.

He said that he resisted the claims by Steward for additional payments.

These included charges for orthopaedic beds, air ambulance services, and renovation works Steward said the Government were liable for, as the request for such works had come from the government.

Fearne had also blocked a proposed agreement that would have introduced a charge of 9% compounded increases in government payments.

The sitting was presided by Magistrate Leonard Caruana. Lawyers Alex Sciberras and Stephen Tonna Lowell are representing Chris Fearne.