Court awards around €72 million in compensation over 1973 National Bank of Malta takeover

The Constitutional Court has brought to a close more than three decades of litigation over the government’s 1973 takeover of the National Bank of Malta, ruling that shareholders were subjected to a disproportionate burden when they were forced to relinquish their shares without compensation.

The Constitutional Court has awarded approximately €71.8 million in compensation to former shareholders of the National Bank of Malta (NBM), bringing to an end one of the country’s longest-running and most contested financial disputes.

The judgment, delivered on Monday in two linked constitutional cases filed in 1992, concludes that the government’s 1973 intervention imposed an excessive and disproportionate burden on the shareholders, in breach of their constitutional property rights.

The case concerned the events of December 1973, when the National Bank of Malta experienced a severe liquidity crisis as withdrawal demands outpaced available funds.

The government withdrew the bank’s licence and required the transfer of its shares, without compensation, to facilitate the creation of the Bank of Valletta.

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The Constitutional Court found that while the economic circumstances of the time justified urgent 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 litigation was brought by two distinct groups of former shareholders.

The first group, consisting of 49 original applicants, had signed the transfer deeds under what they claimed was pressure from the authorities. The second group, consisting of 33 original applicants, had refused to sign, but their shares were later rendered worthless through subsequent legislation.

The court ruled that both groups suffered the same constitutional breach.

The compensation award was calculated using a model previously endorsed by the European Court of Human Rights in Cauchi v Malta. The starting point was the government’s current 25% holding in the 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.

The final pecuniary award is therefore €77,815,430, to be distributed proportionally according to each applicant’s original shareholding.

Approximately €50.7 million is allocated to the larger shareholder group, and €21 million to the second group. An additional €30,000 in non-pecuniary damages is to be shared among the surviving original applicants and eligible heirs.

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.