How Steward Healthcare came for its pound of flesh, and why the government couldn’t stop it

If there is one thing that the International Chamber of Commerce’s (ICC) judgement in Steward Healthcare v Malta clearly shows, it is that the government could have never negotiated its way out of the concession without triggering an existential crisis.

The 200-page judgment provides an extensive analysis of how the government’s years-long failure to terminate its own concession effectively undermined its own claims that the concessionaires had not delivered on promised investment.

After a decade of bold declarations about a revolution in the healthcare sector and the wholesale denial of news reports about fraud and corruption in the deal, the case heard before the ICC fatally exposes the crippling bind in which the government found itself.

In a nutshell, the ICC’s role in this complex arbitration case was to determine the best approach to ensuring the “restitution” of both parties to their original state prior to the deal being signed. Both Steward and the Maltese government agreed to these terms.

Prime Minister Robert Abela was at the forefront of the government’s efforts to preempt any potential fallout, framing the judgment as a victory before it was made public.

In reality, it was Steward’s lawyers who made every decisive move, and the pace of the proceedings was entirely dictated by Opposition MP Adrian Delia’s successful efforts to have the deal rescinded through Maltese courts.

When the local court first rescinded the deal as a result of Delia’s case, it was Steward who followed up.

Within days, Steward filed a termination notice blaming the government for “non-rectifiable defaults” (failures that were beyond fixing). This formed part of its bid to take advantage of the infamous €100 million buyout clause it had secretly signed with disgraced former health minister Konrad Mizzi.

To top off its legal onslaught against the Maltese government, Steward then proceeded to file the case at the ICC, effectively describing the local court’s first judgment in the Delia case as yet another failure that the government could not fix.

No matter what the ongoing propaganda blitz suggests, the reality is that the only way the government could have conclusively proven that Steward reneged on its obligations would have also led to the government’s implosion at every stage.

As the ICC’s tribunal (not a court) observes multiple times throughout its lengthy judgment, the government could have terminated the concession before the case ever got to court on the basis that Steward failed to provide the services for which it was responsible.

Instead, the government was busy signing agreements with Steward to cover the costs owed to the concessionaire, as late as the last few months of disgraced former prime minister Joseph Muscat’s tenure in 2019.

Up until Delia’s landmark case in early 2023, while refusing to disclose what was going on with the ICC case publicly, Prime Minister Robert Abela’s administration exchanged increasingly bitter volleys of emails and letters with Steward, who were urgently seeking to increase the share of money allocated to them to run the concession.

Had the government chosen to terminate Steward’s concession based on its evident lack of promised investment before the conclusion of Delia’s case, which was already ongoing at the time Muscat resigned, it would have amounted to a tacit admission that the deal was as fraudulent and corrupt as investigative reports had long been suggesting.

Had the government pursued the route of filing a court case like Delia’s, it would have had to throw a former prime minister and his associates under a bus, effectively condemning the Labour Party to political oblivion.

In this damning context, the government’s only option was to accept whatever Steward threw at it, knowing full well that the company would go after every cent it could squeeze out of a concession that was always designed to favour the private operator over the taxpayer, as the Maltese courts confirmed.

It is hardly surprising, then, that the government went to great lengths to create the false impression that the ICC’s decision somehow ruled out any fraud in the deal, deliberately obscuring the fact that its own refusal to acknowledge corruption prevented it from taking any tangible action to address it.

Below, you can find all the key details you need to know about the arbitration case.

Two and a half years of splitting hairs

One of the very first assertions made by the ICC tribunal on this case reads: “The primary victims of this (concession’s) failure are the citizens of Malta who were anxious of receiving through a public private partnership improved healthcare services in an improved hospital environment in their beautiful country.”

Indeed, throughout the two and a half years it took for this process to come to a conclusion, Malta’s hospitals deteriorated while Steward and the government bitterly clashed over nearly every aspect of the arbitration.

A year and a half was needed just for the tribunal to be able to actually determine what the parties’ “divergent views” were, with disputes ranging from disagreements about who the parties in the case actually are (largely due to Steward’s opaque corporate structures and bankruptcy filings in the US) to wildly different interpretations of the court’s judgement in the Delia case.

As the claimant, Steward sought compensation of up to €148 million, arguing that it had terminated the concession due to the government’s alleged failure to adequately secure vacant land for ‘infrastructure development’ and that the first-instance judgment in the Delia case amounted to a “non-rectifiable default”.

In its counterclaim, the government sought compensation of up to €488 million, describing a litany of contractual breaches committed by Steward, including misrepresentation of its financial capacity, its lack of investment, its abandonment of the “medical tourism” concept that was supposed to make the concession viable, and erroneous overcompensation.

The government’s line of confrontation throughout the private arbitration case stands in total contrast with its public rejection of any criticism, which suggests that Steward failed to tangibly invest in the country’s healthcare system.

While the government sought to discredit Delia’s crusade against the hospitals concession from day one, it ended up basing its entire line of attack on the fact that the concession agreements were rendered null and void by the local court and that therefore, restoring both parties’ original position was the only way forward.

Before the ICC tribunal, the government’s legal team described Steward’s claims as “a speculative attempt to shift liability onto the Maltese government, with Steward not shying away from fabricating contrived and opportunistic claims to extort yet more money out of the concession and Malta.”

Evidence disclosure failures

Perhaps the most revealing aspect of the arbitration process lies in the glaring shortcomings of both parties when presenting evidence to substantiate their claims – evidence that could have just as easily cast a bad light on whoever’s submitting it.

“Notably, neither side offered evidence from those people who were either decision makers or very closely associated with the concession, be it at its initial or final stages or in between,” the tribunal noted.

The judgment specifically names former Steward Malta’s CEO Armin Ernst, Steward’s global CEO Ralph De La Torre, Steward’s global CFO Marc Rich, and former Steward Malta president Nadine Delicata from the concessionaire’s side.

As for the government’s decision makers whom the tribunal believes should have testified during proceedings, the judgement names disgraced former health ministers Konrad Mizzi and Chris Fearne, reinstated permanent secretary Ronald Mizzi, former permanent secretary Joseph Rapa and his successor, Joseph Chetcuti, and the health ministry’s former CFO Edgar Borg.

“…although there may be certain gaps in the factual record before the tribunal, this does not prevent the tribunal from adjudicating the parties’ claims and deciding the merits of the dispute. As will become clear, the central issues in this case are primarily rooted in legal analysis rather than in the resolution of factual matters,” the tribunal notes, referring to the lack of relevant testimonies.

Lax contractual obligations

Another distinct thread that emerges from the judgment is the manner in which the lax contractual obligations imposed by the government on the concessionaire effectively erased any future hopes of recovering that money if and when a breach of contract were to occur.

Steward’s mother company in the US was let off the hook throughout these arbitration proceedings for the simple reason that its Malta-registered subsidiaries were the actual signatories on any agreements with the Maltese government.

In other words, the government clearly failed to account for the possibility that such arbitration proceedings would need to involve multiple subsidiaries in multiple jurisdictions.

“In any event, it can hardly be said that the Maltese government acted with much diligence when allowing Steward Group to take over the claimants, since it received neither a Performance Guarantee as foreseen in the Services Concession Agreement nor a Parent Company Guarantee as also foreseen in the same agreement,” the judgement notes.

In fact, Steward used the government’s failure to hold it accountable for any guarantees it was supposed to provide against it by repeatedly arguing that the government did not bring up any of these issues while the concession was still in place.

No absolution

In a particularly candid admission, the ICC’s tribunal notes that it is practically impossible to pick “a winner” in this arbitration case, acknowledging that the concession was tainted by serious governance failures and apparent collusion.

As a result, there was no possibility of awarding damages to anyone, as the entire process had to be revoked.

“Damages are meant to compensate for a loss caused by one party to the other, whereas restoration solely seeks to put the parties in the situation they would have been in if no contract had existed,” the tribunal notes.

“It is precisely because of the nullity of the underlying agreements that no contractual obligations exist that a party could have breached by failing to discharge it and for which it could owe damages to the other party,” the judgment continues.

This conundrum at the heart of the long, winding case was reflected in the ICC’s decision regarding who was to pay the exorbitant legal costs of the proceedings, which called upon both parties to cover their respective costs themselves.

This clearly puts into question the government’s claims of a “victory” at the ICC. 

In this context, the only adjudication which the tribunal could actually do was to determine the net inflow of “benefits” (ie money and/or services rendered) towards Steward and the net inflow towards the government.

After noting the exchange of funds and services between the parties, the tribunal concluded that Steward received a total of €884.6 million while the government received a total of €889.4 million, which means the government is to pay back Steward a shortfall of €4.8 million.