Updated | NAO finds gross negligence in 2009 transfer of former Lowenbrau land

The actions of the Government Property Division officials – especially those of the director general at the time – involved in the transfer of the site of the former Lowenbrau brewery in Qormi in 2009 were to be considered negligent and of the gravest concern, the National Audit Office said.

In a report tabled in Parliament on Monday, the NAO concluded the transfer of the land was fraught with failure in terms of good governance, accentuated by “the extraordinary haste of the process”, which should have involved – but did not – various ministers and even parliamentary intervention.

The plot of land at Ta’ L-Istabal, Qormi, measuring approximately 21,000 square metres, was granted to Löwenbräu Ltd by the Government of Malta on 13 November 1990. This direct allocation of land was authorised by the Minister for Economic Affairs, justified in terms of the economic benefit that was to be generated.

The Minister for Economic Affairs established that the allocation was to be made on a perpetual basis against the annual payment of a non-revisable ground rent of Lm 10,000 (€23,294).

The contract stipulated that the land was to be used specifically for the production of alcoholic and non-alcoholic beverages.

On 1 December 2009, LBM Breweries Ltd submitted a request for the redemption of the perpetual ground rent. The Government Property Division (GPD) endorsed this request on 2 December 2009, simultaneously authorising the cancellation of all the conditions burdening the land in Qormi, which effectively rendered the site free and unencumbered.

This agreement was formalised through a contract entered into by Government with LBM Breweries Ltd on 3 December 2009, wherein payment of €465,875 was effected.

The legality of the 2009 contract was called into question in 2011, with the Commissioner of Land (COL) noting that the transfer of the land following the cancellation of the conditions had probably been in breach of the Disposal of Government Land Act, which allowed for the sale of such land to be made only through a call for tenders or through a parliamentary resolution.

Negotiations to rectify this situation were held between Government and Vassallo Builders Group Ltd, who had, in the interim, acquired LBM Breweries Ltd.

According to a committee established to determine the freehold value of the land as at 1990, the value of the land in Qormi was established at €706,400.

The difference between the €706,400 and the €465,875 paid in 2009, that is, €240,525, was settled against compensation due to the company for other properties that had been previously expropriated.

‘Highly suspect’ haste

The NAO discovered that, following the request as captured in a minute recorded only by the GPD’s notary, the relevant authorisations were obtained and the contract was finalised in a mere two days.

“It is in this context that this Office considers the haste in processing the request for the redemption of ground rent and the cancellation of the conditions as highly suspect,” the report reads.

“More so, when one considers that stated by the GPD officials involved, who maintained that the case had not been discussed with other GPD officials aside from the briefest of minutes documented in the GPD file.”

The NAO said it failed to understand how the authorisation process was seemingly carried out through the forwarding of the relevant file, with the haste exhibited impeding any due consideration of whether the action proposed by the GPD was legal, or otherwise.

“In this Office’s opinion, the actions of the GPD officials involved in this process may, to varying extents depending on their involvement and responsibility, be considered as negligent and draw the NAO’s gravest concerns,” the report said.

The NAO noted that the authorisation of the Minister of Finance, the Economy and Investment or the Parliamentary Secretary for Revenues and Land was not sought prior to the signing of the 2009 contract.

The NAO said the matter should have been referred for ministerial endorsement, as this case did not solely entail the redemption of ground rent, but the sale of the ‘directum dominium’.

“Furthermore, this Office is of the understanding that ministerial sanctioning was to be the precursor to eventual referral to Parliament or the issue of a call for tenders,” the report reads.

“The NAO considers this shortcoming as the responsibility of the DG GPD (Director General of the Government Property Division).”

In its audit, the NAO discovered that the GPD did not keep any record of the submission of the LBM Breweries’ request to redeem the ground rent, making it impossible for the NAO to establish a true and factual account of developments leading to subsequent decisions by the GPD.

“This, together with other aspects of the case, detracted from the required level of transparency, shrouding key developments that would eventually lead to the 2009 contract,” the report said.

The NAO singles out the director general of the GPD, the division’s notary and the assistant director for contracts, for failing to obtain any form of legal advice assuring the Department of the legitimacy of the intended course of action.

“Not only did these officials, through negligence or otherwise, fail to safeguard Government’s interests, they also acted without due authorisation when failing to refer the matter for ministerial endorsement and subsequent possible parliamentary scrutiny,” it said.

The NAO accused the three officials of further shortcomings after determining that no charge was levied by the GPD for the renouncement of limitations,  seriously undermining any consideration of whether value for money was obtained.

Transaction legality questioned

In seeking to determine the legality, or otherwise, of the transaction, the NAO noted that the Commissioner of Lands and the GPD notary put forward opposing views, and that the issue was directly related to an ongoing court case involving the government

“Irrespective of the eventual outcome of this dispute, this Office is of the opinion that this matter could have been averted had an open call for tenders or referral to Parliament been resorted to,” the NAO said.

“Aside from eliminating any doubt as to the legal basis of this disposal, resort to any of these options would have ensured an element of transparency and scrutiny.”

Moreover, the NAO argued that had such procedures been referred to, the government would have secured payment for the freehold value of the land, that would have been much higher than the mere redemption of ground rent and reflected the true value of the site at the time.

The NAO also drew attention to evidence indicative of prior agreement between Marsovin Ltd and Agrico Ltd (shareholders of LBM Breweries Ltd), and Vassallo Builders Group Ltd, which was contingent on the government acceding to the cancellation of conditions burdening the land in Qormi.

“This latter aspect is of concern to the NAO as evidence reviewed indicated that Government was aware of, and possibly facilitated, this transaction,” the NAO said.

“This Office’s convictions are supported by the preliminary agreement entered into by Marsovin Ltd and Agrico Ltd as vendors and Vassallo Builders Group Ltd as purchasers on 30 November 2009, wherein it was stipulated that the entire shareholding of LBM Breweries Ltd, whose sole asset was the land in Qormi, was to be transferred subject to Government’s agreement to cancel the conditions burdening this land within seven weeks.”

The NAO said that – had the appropriate legal mechanisms for the disposal of government land been adhered to - the cancellation of those conditions within the stipulated seven-week period was a highly improbable outcome

Other supporting evidence was an LBM Breweries Ltd board resolution to proceed with the redemption dated 1 December 2009 and a bank draft by Vassallo Builders Group Ltd payable to the Commissioner of Land dated 2 December 2009.

Highly indicative was an affidavit by the Chairman of  Vassallo Builders Group Ltd, wherein it was stated that the representatives of Marsovin Ltd had informed him that they had an agreement with the Minister and the GPD for the cancellation of all the conditions on payment of €465,875.

Additionally, Marsovin Ltd had assured the chairman of Vassallo Builders Group Ltd that once Marsovin Ltd had sourced the required funds, the transaction rendering the site free and unencumbered would be effected within a few days.

“Although these allegations were denied by all involved, the NAO is of the opinion that the facts of the case lend credence to that stated,” the report said.

Zammit Lewis questions PN's reaction to NAO reports

Education Minister Edward Zammit Lewis, speaking in parliament on the Public Life Standards Act, said he could not understand how Nationalist Party spokesman Jason Azzopardi could say he was pleased with the NAO report on the Lowenbrau land transaction and with a separate NAO report on the 2011 acquisition of HSBC property in Valletta.

The minister said the opposition could not question the government's record on good governmance when the NAO had earlier on Monday clearly uncovered negligence and malpractices in the two cases.

In the case of the former Lowenbrau land, the NAO had concluded that the extreme haste in which the transaction was concluded was extremely suspicious, he noted.

Zammit Lewis said the NAO report was damning for the previous administration, going as far as to say that the Government had failed to demand compensation for the renouncement of limitations, which decision had seriously undermined any consideration of whether value for money was obtained.

"And yet the PN is pleased with the NAO concluding that there was a lack of transparency and that the level of scrutiny was insufficient," he said.