Bank of Valletta wins appeal on La Valette property fund compensation

Finco Treasury Management partner Paul Bonello

Bank of Valletta has won a series of appeals against decisions in the name of investors in the La Valette Multi Manager Property Fund.

The bank won the appeals from a decision given by the Arbiter for Financial Services in relation to a number of property fund claims.

BOV had filed an appeal before the Court of Appeal from a series of decisions delivered by the Arbiter for Financial Services on 12 September, where the arbiter found in favour of the claimants against the bank. 

In a statement, Finco Treasury Management said the Appeals Court had declared that the “settlement agreement” of May 2011 between the bank and the property fund investors was not deemed to be a matter of review for the court in terms of the EU’s Unfair Contract Terms Directive.

“The Court of Appeal did not enter into the merits of the investors’ complaint. It decided on a point of law that the Settlement Agreement was not subject to review in terms of Part VII of the Consumer Affairs Act which implements the Unfair Contract Terms Directive of the European Union.

“Therefore the decision of the Arbiter for Financial Services of the 23rd February 2018 which upheld the complaints of circa 400 retail consumer investors and awarded compensation in excess of €3.4 million plus interest has now been overturned. Finco Treasury Management Ltd and its legal advisers are analysing the decisions.”

The remaining five appeals are expected to be delivered on the 10th January 2020.

The financial services arbiter had found a clear case of “mis-selling” by the bank when it sold what was a professional investment fund to retail clients. Back then the arbiter ordered had BOV to refund millions in lost savings with interest, due to alleged mis-selling - specifically €3.4 million plus legal interest of 8% from the date of complaint, to some 500 aggrieved investors. 

Those complaints had been submitted by stockbroker Paul Bonello of Finco Treasury Management and law firm Refalo Zammit Pace in July 2016, with the decision having been overdue since 2017. The investors had complained that the 75c share offer by BOV in 2011, offered just weeks before sanctions were issued, was insufficient. A further 25c share compensation ordered by the MFSA was also considered insufficient.

Finco has always argued that it was the responsibility of BOV’s investment arm Valletta Fund Management to see that investment restrictions in the fund’s prospectus were not broken. The arbiter had confirmed then that property fund had invested in nine other underlying funds in breach of restrictions on gearing. Those nine funds incurred losses of €33 million up until 2011, but BOV issued custodian reports where it insisted that no breaches of investment restrictions had taken place, according to Finco having “misled investors for years since 2006”. 

In the original complaint, the arbiter had also said BOV’s initial 75c offer was a breach of consumer rules, and that “the majority of clients were elderly investors who had expected to be entering a safe investment with operators who knew more than they knew, and who would observe the prospectus rules they themselves issued, with self-imposed restrictions they had to observe. This did not happen as observed by both the MFSA and the arbiter.” 

The Malta Financial Services Authority also fined BOV six times between 2011 and 2012 for mis-selling the fund to inexperienced investors and for breaching its own investment restrictions. 

Around 2,300 investors had then accepted the bank’s subsequent compensation of 75c per share on condition that that they waive legal action against the bank should the MFSA find it had breached property fund conditions. 

Others, represented by Finco, demanded that BOV repay them based on the value of the shares at the time of investment and were indeed eventually compensated in full. However, BOV ignored the MFSA’s subsequent demand to bring compensation up in full for the other 2,300 who had accepted its original offer.