Author: GMX USER

19 Nov 2019

The 5AMLD: What changes to expect

The fight against money laundering and terrorist financing in the EU financial market has spurred on the drafting of the fifth Anti-Money Laundering directive (“5AMLD”)[1] to eradicate the risk of having a repeat of such scandals and leaks in the future.  The 5AMLD will reinforce what the fourth Anti-Money Laundering Directive (“4AMLD”)[2] had achieved, and will serve to ensure increased transparency, public scrutiny and accountability.

What changes will the 5AMLD introduce?

Changes introduced by the 5AMLD should include:

Widened scope of AML/CFT regime

The 5AMLD has substantially increased the number of entities which must comply with anti-money laundering/combating the financing of terrorism (“AML/CFT”) legislation.  The obliged entities now include:

  • Persons providing aid, assistance or advice on tax matters as principal business or professional activity;
  • Real estate agents when acting as intermediaries in the letting of immovable property having a minimum monthly rent of ten thousand euros,
  • Providers engaged in exchange services between virtual currencies and fiat currencies and custodian wallet providers; and
  • Persons trading in works of art. 

Increased transparency on real owners

Beneficial ownership information on legal entities (such as companies) will be available to the public.  While this measure may be perceived as bringing more transparency in the corporate and the financial sectors, discussions and argumentation against such a drastic measure viz a viz a person’s personal data will, in all probability, abound.  In terms of the 4AMLD, information on beneficial owners was available provided that the person or organisation seeking to obtain such information “[could] demonstrate a legitimate interest”.  This had led to different interpretations as to what constitutes a legitimate interest which had in turn resulted in varying degrees of accessibility across the EU member states. 

The issue of diverging and potentially conflicting interpretations of the concept of legitimate interest cannot be said to be have been completely done away with in the 5AMLD since the same directive provides that beneficial ownership information on trusts (previously undisclosed to the general public) will now be available upon the demonstration of legitimate interest.  Although the 5AMLD does not provide a uniform definition of legitimate interest, it dictates that the said concept is to be defined by the law of a member state. 

Harmonised treatment of high-risk third countries

Business relationships and transactions involving high-risk third countries (as identified by the Commission) will be are now obliged to apply enhanced due diligence (“EDD”) measures as specified in the 5AMLD.  Harmonised EDD measures should include:

  • the acquisition of additional information on the customer (and the beneficial owner if applicable) and their respective source of funds and source of wealth;
  • the acquisition of additional information on the intended nature of the business relationship;
  • the acquisition of information on the reasons for an intended or performed transaction.

Senior management approval should also be obtained prior to establishing (or continuing) a business relationship.  The paramount importance of enhanced monitoring of the relationship is to be coupled with a selection of patterns of transactions for further examination.  The implementation of the above-mentioned measures does not exclude that additional mitigating measures may also be required.

Clarity on Politically Exposed Persons (“PEPs”)

The 5AMLD requires each member state to indicate which functions are considered as prominent public functions.  Persons performing such functions should be considered and treated as PEPs for AML/CFT purposes.  By moving away from an indicative to an exhaustive list as to what prominent functions render a person a PEP, obliged entities will benefit from an additional degree of legal certainty when considering customer risk. 

Additional means of verification

In light of prevalent technological advancements, the 5AMLD recognises that obliged entities may now accept electronic identification means or any electronic identification process accepted by national authorities.  Electronic identification is “the process of using person identification data in electronic form uniquely representing [a person]”[3]. 

Increased cooperation between national authorities

The 5AMLD aims to increase the cooperation and the exchange of information between competent national authorities across different member states.  A register of all competent AML/CFT authorities as well as their contact details should be published on the Commission’s website, easing competent authorities’ contact with foreign counterparts.  The interconnection of national central registers holding beneficial ownership information will also assist and strengthen national authorities.   

When will the 5AMLD come into force?

The 5AMLD entered into force on 9 July 2018 and will have to be implemented by EU member states by 10 January 2020.  On 14 October 2019 the Financial Analysis Intelligence Unit (the “FIAU”), which is the Maltese competent authority dealing with AML/CFT, issued a consultation document containing a draft transposition of the 5AMLD provisions to the Prevention of Money Laundering and Funding of Terrorism Regulations[4].  Now that the deadline of the consultation period set on the 5 November 2019 has passed, the FIAU should be embarking on transposing the provisions into the said national legislation.

To conclude, the 5AMLD takes anti-money laundering legislation to the next level.

[1] DIRECTIVE (EU) 2018/843 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU

[2] DIRECTIVE (EU) 2015/849 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC

[3] REGULATION (EU) No 910/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC

[4] Subsidiary legislation 373.01 of the Laws of Malta.

6 Nov 2019

Entry into force of the Malta-Kosovo Double Tax Treaty

By means of Legal Notice 280/2019 published on 5 November 2019, the convention between the Government of the Republic of Malta and the Government of the Republic of Kosovo for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to taxes on income entered into force on 20 September 2019.  The Double Tax Treaty was signed on 6 March 2019 and was published in the Government Gazette of Malta on 23 July 2019, by means of the Legal Notice 168/2019. Malta has a vast network of double tax treaties both with important trading countries and emerging economies in order to encourage the growth of international trade. Malta’s double tax treaties are modelled on the OECD’s Model Tax Convention on Income and on Capital, and attempt to eliminate or reduce double taxation.

6 Nov 2019

Contradicting rulings or an astute strategy to expand territorial scope of EU digital rights?

Google v CNIL (C-507/17) and Glawischnig-Piesczek v Facebook (C-18/18)

The General Data Protection Regulation (GDPR) is widely said to have exported the legislation of the European Union (EU) worldwide since it also applies (in certain instances) to controllers and processors of data which are established outside of the EU. Yet, in a preliminary ruling of the 24th of September the European Court of Justice (ECJ) ruled that Article 17 of the GDPR, which provides for the right to be forgotten, is only required to be applied in the EU internally and not worldwide (Case C-507/17 Google v Commission nationale de l’informatique et des libertés). That ruling was prompted by a fine imposed by the French data protection authority on Google because of that company’s refusal, when granting a de-referencing request, pursuant to the right to be forgotten, to apply it to all its search engine’s domain name extensions.

In another preliminary ruling of the 3rd of October, regarding Directive 2000/31/EC on electronic commerce (E-Commerce Directive) the ECJ seems to have reached the conclusion that measures granted by national courts to block access to or to remove illegal content online, in terms of Article 18 of the E-Commerce Directive, may be applied worldwide (Case C-18/18 Glawischnig-Piesczek v Facebook Ireland). In this case, an Austrian politician sought an order that Facebook remove and stop disseminating content (and identical or, subject to certain conditions, equivalent content) which was found to be defamatory, and thus illegal, by an Austrian court.

How come the E-Commerce Directive grants a worldwide remedy but the GDPR grants only an EU-wide remedy; and this decided upon by the ECJ in the space of just a few days? In truth, there is much more to be read into with respect to both preliminary rulings.


The ECJ’s consistent reasoning

In both cases the ECJ begins its reasoning by reading into the E-Commerce Directive and the GDPR, respectively, the wish of the EU legislature to strike a balance between the interests at stake (para 43 of the Facebook case and para 60 of the Google case). In the Facebook case the interest of the person seeking to have defamatory content taken down is balanced against the difficulty of the host provider to comply with a measure in respect of the E-Commerce Directive. In the Google case the interest of the person seeking to take down content infringing his data protection rights is balanced against the right to freedom of information which evidently is adversely affected by a de-referencing order in respect of the GDPR.   

In the Google case the ECJ reasons that while EU legislature has struck a balance between the right to privacy and the right to freedom of information (see Article 17(3)(a) of the GDPR) as regards the application of the right to be forgotten within the EU, it has not struck such a balance as regards application outside the EU territory (para 61). This is because the rights arise from the EU Charter of Fundamental Rights. As a result, that balancing exercise inhabits a purely EU legal order and is necessarily an exercise in EU law which cannot be exported outside its territory to other regions of the world where the balance of the two rights at stake may vary significantly. The ECJ further holds that nowhere does the GDPR indicate that any of its provision should apply outside of the territory of the EU, therefore, it is only required to be given effect to within the territory of the EU (para 62 and 63).

However, this is not the end of it. The ECJ continues to argue that neither does the GDPR expressly prohibit its application worldwide (para 72). Therefore, the national data protection authorities and the national courts may decide to apply the de-referencing pursuant to the right to be forgotten worldwide but, given what has been said about the EU Charter, the balance should be struck in the light of national standards of protection of fundamental rights (para 72).

In the Facebook case the ECJ simply states the balance of the individual’s and the host provider’s interests must mean that the host provider cannot be burdened with an excessive obligation, that is, a host provider cannot be obliged to generally monitor for illegal activity (para 43). In fact the Member States are expressly prohibited from imposing such a general obligation by Article 15 of the E-Commerce Directive; therefore, a balance struck in this sense is purely made in terms of EU legislation and, by implication, cannot be applied to measure which have effect worldwide.

Yet, the ECJ rests on Recital 58 of the E-Commerce Directive which states that “in view of the global dimension of electronic commerce, it is, however, appropriate to ensure that the Community rules are consistent with international rules; this Directive is without prejudice to the results of discussions within international organisations (amongst others WTO, the OECD, Uncitral) on legal issues” to allow the application of measures worldwide made on a balance of interests made in terms of international rules to which the Member States subscribe. The ECJ further posits that nowhere does the E-Commerce Directive make any territorial limitation to the application of the measures permitted under Article 18, therefore, those measures may be given worldwide effect (para 49 and 50). Nevertheless, in the case that a Member State applies a measure with worldwide effect it must do so in a manner consistent with the framework of the relevant international law (para 51).

Conclusion: a converging territorial scope

Contrary to first impressions, the effect of the two cases is the convergence of the territorial scope of the GDPR and the E-Commerce Directive. That is, they can apply within the EU territory but also with global effect provided that a balance must then be struck between the interests at stake, in the case of the GDPR, in terms of national standards of protection of fundamental rights, and, in the case of the E-Commerce Directive, in terms of international law. Even this difference between striking a balance in terms of national standards and international law, respectively, seems superficial.

National standards for human rights protection necessarily derives from international law be it in the form of binding treaties like the European Convention on Human Rights, or soft law made in the fora of the United Nations or of regional organisations or their affiliated agencies and bodies, or even general principles. The ECJ clearly adopts a single strategy as to the territorial scope of EU rules in relation to online activity. That is, prudently deferring to apply EU law as such outside of the EU territory while leaving the Member States free to apply deriving or analogous rules worldwide.

31 Oct 2019

Malta’s ship registry continues growing

Malta continues to be regarded as a strong and safe maritime jurisdiction and so far its efforts are reaping rewards as the Malta flag continues to be the sixth largest maritime flag in the world. The constant growth of the Malta maritime flag speaks volumes. During 2019 Malta flag ranked among the very top performers following the UNCTAD Review of Maritime Transport 2019 on the leading flags of registration by dead-weight tonnage. The geographical position and its reputation as a strong and safe jurisdiction makes the Maltese flag attractive for shipowners, financiers and shipmanagement companies. Malta’s tonnage tax system was approved by the European Commission and it added on Malta’s reputation as a maritime nation. In addition, Malta caters for efficient corporate and tax structures with regards to the shipping industry. Apart from all the other benefits, the main advantage of Malta flag is that it is viewed and acted upon holistically. At GMX we believe that the Malta flag is a leading maritime flag chosen by the better ship owner.

17 Oct 2019

The IMO 2020 sulphur cap: what does this mean for the bunkering world?

Through the implementation of Regulation 14.1.3 of Annex VI of the MARPOL Convention, the International Maritime Organisation (IMO) announced on the 27 October 2016 that it would implement a global sulphur cap of 0.5% on marine fuels starting from 1 January, 2020, for ships operating outside Emission Control Areas (ECA’s) [1]; a decision which will inevitably impact refiners, crude producers and bunker suppliers. The current cap stands at 3.5% outside the four internationally designated ECA’s where the sulphur limit has been capped at 0.1% since January 2015.

Regarding applicability, the 2020 cap will apply to all ships flying the flag of a state that has ratified MARPOL Annex VI and/or calling at a port or passing through the waters of a state that has ratified the Convention. This will effectively include a great number of the world’s fleet. Regarding the level of enforcement and the imposition of fines, this would vary from jurisdiction to jurisdiction. Additionally, the IMO’s Marine Environment Protection Committee (MEPC) has adopted a further amendment to MARPOL Annex VI which will furthermore prohibit the carriage of non-compliant fuel oil for combustion purposes for propulsion or operation on board a ship – unless the ship has an equivalent compliance method such as scrubbers. This amendment is expected to enter into force on 1 March 2020.

When trying to assess the effective implementation of the cap in practice, the fact that this projected shift demands drastic adjustments, produces a risk of severe product shortages and inflated prices. It is also estimated that the refining capacity should not meet the demand for low sulphur fuels in 2020 and that approximately 60-75% additional sulphur plant capacity would require to be built by the deadline when compared with already planned projects.

No silver bullet solution can be provided in the sense that each respective party will have to decide on the most appropriate approach to take to suit their operations and remain commercially sustainable in the long run all within the context of the intended amendments. Refiners, although not regulated by the IMO, have a commercial interest in catering to market needs. Shipowners, on the other hand, who are at the receiving end of the IMO regulation have various options; namely the installation of scrubbers on their ships which would involve a hefty investment and would obviously be limited generally speaking by access to finance, manufacturing capacity and technological uncertainty; purchasing compliant fuel (such as marine gas oil (MGO)) at higher costs which would require close to zero upfront investment but will inevitably mean higher bunker bills or running their vessels on the clean gas LNG as fuel. The latter option is however dependant on the availability of a worldwide network of LNG bunkering infrastructure which is currently still severely underdeveloped.

In view of the above, what is certain is that shipowners and refiners should have to work hand in hand and adopt a parallel approach to finding the solution which works best for both industries. There is currently little idea what the true demand for MGO will be in 2020. Undoubtedly, any response to the lack of demand will be slow since any investment to convert fuel oil into distillates is not only expensive but time consuming.

From an environmental perspective some may opine that through the adoption of some of the specific solutions provided, the pollution problem is not being solved but is merely being transferred from the air to the sea. More specifically, the main concern is regarding the installation of scrubbers on vessels which would automatically necessitate the wastewater produced, contaminated by a toxic cocktail of chemicals, to enter the ocean and thus cause this status quo.

The shipping industry should be ready to meet the deadline and adopt the new regulations and the refining industry should be ready to meet the upcoming demand. IMO on the other hand maintains its position that there can be no change in the 1 January 2020 implementation date, as it is too late now to amend the date and for any revised date to enter into force before 1 January 2020.     

*This article has been published on THE ARREST NEWS, issue 26.

[1] These are the Baltic Sea area, the North Sea area, the North American area (covering designated coastal areas off the United States and Canada) and the United States Caribbean Sea area (around Puerto Rico and the United States Virgin Islands)

16 Oct 2019

In preparation for Brexit; the potential impact on the gaming industry operating in or from Malta

In preparation for Brexit, the Malta Gaming Authority (MGA) issued, on 14 October, the Guidance document on the Impact of the United Kingdom’s Exit from the European Union

The note assesses the potential impact on the gaming industry operating in or from Malta, and the transitory measures that may be availed of in order to ensure minimal impact on regulatory efficiency and the ongoing business as well as lists regulatory matters that will not be affected by Brexit. The document is crucial for entities established in Malta and operating in the UK, or entities established in the UK providing services and supplies within Malta.

15 Oct 2019

Malta Budget 2020

Yesterday evening, the 14th October 2019, Malta Finance Minister Hon Profs Edward Scicluna laid out the plans of the Government for 2020.In the first semester of 2019 the Maltese economy has grown at a rate of 4.7%, more than three times the average rate of growth of 1.4% for the European Union. The government is looking to close the year 2020 with a financial surplus of 1.4 % of GDP. The Budget announced no new direct taxes. Several social measures were introduced including: an additional day of leave, the cost of living allowances will increase to €3.49 per week, increases in bonuses, a new bonus for every new-born or adopted child, increase in allowances, and enhances sickness benefits and disability assistance. Notable positives are the introduction of measures which target anti-money laundering and tax evasion in view of the MoneyVal report and also measures to promote environmental sustainability.

BREAKDOWN OF MALTA’S 2020 BUDGET

Property-related measures

  • the Government will be financing the 10% deposit (up to €17,500) through an interest free loan and repayable over a 15-year period to certain individuals under 40 years of age
  • the first €100,000 of any profits or gains arising on the assignment or cessation of any rights acquired under a promise of transfer of immovable property or any rights thereon will be subject to a reduced tax at the rate of 15%; profits or gains exceeding €100,000 will continue to be subject to tax at 35%
  • the stamp-duty exemption for First-Time Buyers of immovable property will now apply on the first €175,000 of the value of the property (previously €150,000)
  • the reduction or refund of stamp duty on the purchase of a new residential home for Second-Time Buyers is extended, in Gozo (reduced from 5% to 2%) and in Urban Conservation Areas (reduced from 5% to 2.5%)
  • the reduced rate of 3.5% on inherited immovable property being the residential property of the heirs now applies on the first €175,000 of the value of the property
  • the reduced duty rate of 1.5% on certain intra-family transfers of business property and securities has been extended
  • the property rental subsidies introduced during 2019 shall be extended such that, subject to other conditions, individuals earning annual income of not more than €19,000 (up from €14,500) and couples with two children earning annual income of not more than €32,000 (up from €28,600) can avail themselves of this subsidy
  • a new authority shall be established to further supplement regulatory reforms to the construction sector

Income tax

  • the first 100 hours of overtime in relation to employees with a basic salary of not more than €20,000 (and not in a managerial post) will be taxed at 15%
  • tax refunds to employees earning less than €60,000 shall be extended, the refunds will vary between €40 and €68 depending on the level of income and tax status of the employee
  • the maximum amount of exempt pension income will be increased to €13,798, and persons claiming to married rates will be entitled to an additional €2,000 tax free in respect of income from other sources

VAT and other taxes

  • the VAT exemption on educational services shall extend to distance learning, and to vocational training or re-training by a school or institution recognised for this purpose
  • extension of grants on the purchase of renewable energy battery storage, on the purchase of bicycles, electric bikes and motorcycles, and on the purchase of specialised apparatus bought for persons with disabilities
  • investment in Customs to enhance security and to combat illicit activity and evasion of taxes and duties, including security and scanning processes
  • cash payments for the purchase of property, cars, yachts, and diamonds exceed €10,000 will be prohibited to combat illicit activity and limiting evasion of taxes and duties

Green measures

  • plans for a national strategy geared towards achieving carbon neutrality by the year 2050
  • measures to improve waste management including the development of a new plant to convert waste to energy
  • introduction of special electricity rates for individuals charging their electric car from their residence
  • improvement of the public and alternative modes of transport including an increase in the number of buses, free school transport, free use of public transport for young people and elderly and extension of “on-demand buses”, incentives for investment in bicycle racks and eco-friendly vehicles, extension of scrappage schemes and grants in respect of vehicles converted from petrol to gas
  • the importation and production of single-use plastics will be banned as from 2021 and the sale and distribution of plastic bags, cutlery, straws, and plastic plates will be banned as from January 2022
  • cash incentive for the acquisition of new eco-friendly machinery in the construction industry
  • measures to increase use of renewable energy sources, including solar panels, heat pumps and solar water heaters and a new subsidy of 25% of the cost (capped at €1,000) shall be introduced in relation to purchase of rechargeable batteries for renewable energy

30 Sep 2019

VACANCY – SENIOR CORPORATE LAWYER

The Senior Corporate Lawyer, who will be reporting to Partners, will be working with both the firm’s legal team as well as the financial services team. The successful candidate will be requested to show initiative, take on certain responsibilities within the firm, work in a multinational environment and will immediately be given the opportunity to further advance their career within the law firm.

Responsibilities:

  • Providing legal advice and legal opinions;
  • Drafting, revising, negotiating and concluding agreements;
  • Drafting / preparing corporate documents such as M&As, resolutions, MFSA forms, pledge agreements etc.
  • Assisting with all corporate ventures such as incorporation, mergers and acquisitions, share transfers and Authorisations, shareholders’ agreements etc.
  • Liaising directly with the Malta Business Registry, Malta Financial Services Authority, Commissioner For Revenue, Malta Gaming Authority and other national and international governmental authorities;
  • Assisting with reporting requirements to local and overseas regulatory authorities;
  • Undertaking any ad hoc projects as may be required from time to time;
  • Provide training both in-house and to third parties in related sectors;

Requirements:

  • University degree in law (LL.B / LL.D); a Master’s degree (LL.M) will be considered advantageous;
  • A minimum of 5 years of corporate law experience, whilst experience in tax law will be considered advantageous;
  • Excellent written and verbal communication skills in English, whilst other languages will be considered advantageous;
  • IT literate, with experience of Word, Excel, PowerPoint, database management and other major software applications;
  • Ability to deal with a multi-cultural work environment and client base;
  • Keen to develop his/her experience through training, qualification and continuing professional development;
  • Team Management Experience;
  • Strong interpersonal and organisational skills and ability to perform under pressure;
  • Experience in negotiating, drafting and closing complex commercial transactions;

Applicants are expected to take an interest in the technical aspects of the issues as they arise and are expected to take a hands-on approach.

Good to Have:

  • Court experience will be considered advantageous
  • Experience in tax, maritime and company law
  • Be pro-active and willing to learn further and develop skills

The chosen candidate will be given exposure to clients in different industries and jurisdictions. S/he can expect a continuous emphasis on intellectual growth and skills development.

Get in touch and let’s discuss further! Send your CV on hr@gmint.com

27 Sep 2019

Appeal from the decision of the Consumer Claims Tribunal

Court Case

The facts

An appeal to the Court of Appeal (Inferior Jurisdiction) was filed following the decision of the Consumer Claims Tribunal (“the Tribunal”) in the names James Formosa vs. Sunday Johnson (CCT/153/17/S) dated 5 July 2019.

The Tribunal upheld the plaintiff’s claim for a default order against respondent in terms of Rule 4.1 of S.L. 378.01 and in view of such order:

  1. Ordered respondent to pay to the plaintiff  the amount of Euro 600  ex aequo et bono;
  2. Declined to take cognisance of respondent’s reply in view of the late submission;

and ordered the cost of the case to be borne by the respondent.

The facts of the case were as follows:  The plaintiff James Formosa had engaged the respondent Sunday Johnson to perform tiling works and plastering.  It transpired that part of the works were not according to the art and trade.  The certificate issued by the plaintiff’s architect confirmed this.

It was noted that the respondent’s reply to the Tribunal was fuori termine, and consequently, the   Tribunal discarded the respondent’s reply.

The Tribunal agreed in parte with the plaintiff’s claim, and awarded the amount of Euro 600 ex aequo et bono.   The original claim of the plaintiff amounted to Euro 1,704

The plaintiff appealed the decision of the Tribunal claiming that the Tribunal had made an incorrect interpretation of the facts together with a misapplication of the law.  The Court referred to the verbale of the sitting held on 4 May 2018 where it resulted that both the plaintiff and the respondent were present for the sitting and despite the fact that it was declared that the respondent  was going to testify, the plaintiff did not register an opposition to his evidence.   This despite the fact that the plaintiff had filed a note in the   acts of the case stating the respondent’s reply was fuori termine.  In this respect, the Court differed and stated that the Tribunal had the evidence as well as the architect’s report and this with the appellant’s approval.  Therefore, the Tribunal would have been wrong had it not taken the evidence and its analysis before reaching its decision into consideration.

Furthermore, the plaintiff argued that the Tribunal decided to decrease the claim from Euro 1,704 to Euro 600 given that the architect testified that he could not state with certainty whether the defect in the tile laying was the result of defective tiles or, whether it was due to bad workmanship.  The plaintiff argued that the defect issue was irrelevant given that the contractor had been obliged not to lay any defective tiles in the first place. However, despite the doubt on whether the defect was the result of a flawed manufacturing process or, whether it was a matter of deficient tile laying, the architect still indicated that the tiles of the bathroom at the ground floor should have been properly laid.

The decision of the Court of Appeal

The Court noted that the respondent could not have known that the tiles were defective before the tiles were laid.   Rather, the evidence showed that if the tiles were defective, this issue was raised after the tiles were laid.   Therefore, the Court held that the respondent should not bear all the consequences that the tiles were defective.   On the other hand, it was evidently clear that the bathroom tiles had not been laid in a professional manner, irrespective of whether the tiles were defective or not.

Therefore the Court held that the Tribunal’s decision to establish the damages ex equo et bono at Euro 600 was not legally and factually justified.  The Court upheld the appeal and liquidated the amount of Euro 1,574 in damages in favour of the plaintiff.

23 Sep 2019

The ‘ineffectiveness’ of a public contract & the jurisdiction of the PCRB

Court Case: Virtu Holdings Limited

The Facts

On the 28 April 2017, the Ministry for Transport and Infrastructure issued the “Request for proposals for a Public Services Concession Contract for the provision of passenger and vehicle ferry services between Malta and Gozo”.  

On 13 June 2017, Gozo Channel (Operations) Limited issued the Preliminary Market Consultation inviting economic operators to submit offers to the same Gozo Channel (Operations) Limited.  Virtu Holdings Limited submitted its offer and the Evaluation Committee expressed its views that its offer was the most advantageous offer and technically compliant.

Following the cancellation of the call for offers of 28 April 2017, the Ministry for Transport and Infrastructure issued another call for offers on 26 January 2018. This call consisted of offers for transport services between Cirkewwa and l-Imgarr and between Belt Valletta and l-Imgarr, as per the first offer, as well as for a fast ferry service between other localities in Malta.  Thus, Gozo Channel (Operations) Limited re-issued the Preliminary Market Consultation inviting economic operators to submit offers together with the same Gozo Channel (Operations) Limited.

Virtu Holdings Limited and Islands Ferry Network Limited subsequently submitted their offers.

By letter dated 13 April 2018, Gozo Channel (Operations) Limited informed Virtu Holdings Limited that its offer had not been accepted and that Islands Ferry Network Limited was the preferred bidder. Subsequently, Gozo Channel (Operations) Limited and Islands Ferry Network Limited signed a charterparty agreement  whereby Islands Ferry Network Limited obliged itself to lease with payment a fast ferry to Gozo Channel (Operations) Limited in the eventuality that it is awarded the contract of the Ministry for Transport and Infrastructure.

The Objection before the Public Contracts Review Board

By letter dated 20 April 2018 Virtu Holdings Limited filed an objection to the PCRB requesting the cancellation of the decision given that Gozo Channel (Operations) Limited did not have:

  1. The technical capabilities to meet the requirements set (directly or indirectly) by Gozo Channel (Operations) Limited;
  2. The necessary experience to meet the requirements set (directly or indirectly) by Gozo Channel (Operations) Limited;
  3. The necessary economic standing to meet the requirements set (directly or indirectly) by  Gozo Channel (Operations) Limited

On 31 August 2018, the PCRB decided that Gozo Channel (Operations) Limited’s Preliminary Market Consultations was not an offer for a public contract that falls within the remit of the Public Procurement Regulations and that therefore the PCRB did not have the jurisdiction to decide on the objection. In fact, the PCRB opined that “the invitation issued by Gozo Channel (Operations) Limited should have been designated as a “Call for Interest” to participate and not a “Preliminary Market Consultation”, the latter of which caused a confusion of interpretation of the action taken by the same in seeking a partner for the fast ferry service. This Board would respectfully emphasize the fact that, under normal circumstances, a “Preliminary Market Consultation” is issued by a contracting authority and this Board has established that Gozo Channel (Operations) Limited cannot be regarded as the contracting authority but rather as a prospective bidder for the concession”.   The PCRB decided:

  1. “does not uphold Virtù Holdings Limited’s preliminary plea to suspend this board’s decision to this appeal, pending the reply to the letter sent to the Director of Contracts by the Appellants;
  2. upholds Gozo Channel (Operations) Limited’s preliminary pleas, in that:
  3. Gozo Channel (Operations) Limited is not the contracting authority in this appeal;
  4. the “Preliminary Market Consultation” issued by Gozo Channel (Operations) Limited to seek a partner does not constitute any form of public procurement;
  5. the Public Procurement Regulations do not provide remedies to be heard by this board in respect of “Preliminary Market Consultations”;
  6. concludes that the sole objective for the issue of the “Preliminary Market Consultations” by Gozo Channel (Operations) Limited does not constitute a direct objective to represent a call for a tender or a call for concession”

The decision of the Court of Appeal

Virtu Holdings Limited appealed the decision of the PCRB dated 31 August 2018.  (Virtu Holdings Limited (C30642) v Gozo Channel (Operations) Limited (C76704) u Islands Ferry Network Limited (C85742) ghal kull interess li jista’ jkollha Appell Numru 290/2018).

The Court of Appeal provided guidelines to the PCRB which ultimately has jurisdiction to consider and decide about it. The Court of Appeal noted that there were still open issues, namely   Islands Ferry Network Limited’s affirmation that   Virtu Holdings Limited had not proved that Islands Ferry Network Limited did not satisfy the requisites  requested by Gozo Channel (Operations) Limited, and that on the contrary, all the depositions of the Evaluation Committee confirmed that Islands Ferry Network Limited satisfied all the points requested by Gozo Channel (Operations) Limited, and that compared with Virtu Holdings Limited, Islands Ferry Network Limited was the most attractive and advantageous offer.  Therefore, the Court of Appeal held that these issues do not constitute the merits of the procedure before the Court of Appeal, but that these issues have to be considered by the PCRB now that it had been established that the PCRB has jurisdiction to hear the objection of Virtu Holdings Limited.

The Court of Appeal dismissed the preliminary exceptions of Islands Ferry Network Limited, upheld the appeal of Virtu Holdings Limited, revoked the decision of the PCRB and referred back the acts of the case to the PCRB to consider and decide on the objection of Virtu’ Holdings Limited

The Outcome

Following the referral by the Court of Appeal, the Public Contracts Review Board (PCRB) delivered its decision on 30 August 2019.  The PCRB noted that following the Court of Appeal’s decision, the Preliminary Market Consultation (PMC) published by Gozo Channel (Operations) Limited is to be regarded as a tender document, whilst at the same instance Gozo Channel (Operations) Limited is to be deemed as the Contracting Authority.  The PCRB reiterated that the PMC issued by Gozo Channel (Operations), specifically referred to the fact that, the prospective partner must have the necessary experience, expertise and resources to provide the services (Fast Ferry Services) as duly requested in the ‘Request for Proposals’ (RFP) issued by the Ministry for Transport, Infrastructure and Capital Projects.

The PCRB noted that the processing of the offer of Islands Ferry Network Limited by Gozo Channel (Operations) Limited consisted of two main deficiencies namely that:

  • “Signing of the contract prior to the decision of the Public Contracts Review Board in respect of application filed by Virtu Ferries, in breach of regulation 277(3)(a), and
  • The Authority requested a partnership whilst the offer submitted by Islands Ferry constituted a subcontracting arrangement.

Hence, a change of goal posts at the very start of the evaluation process.”

The PCRB reached the following conclusions:

i)             That the contracting authority failed to abide by the principle of self-limitation, by processing an offer which had to be an offer for a partnership, whilst, in actual fact accepting an offer that was a subcontracting arrangement;

ii)            That the agreement signed between Gozo Channel (Operations) Limited and Islands Ferry Network Limited breached the Public Procurement Regulations and declared same to be ineffective;

iii)           Gozo Channel (Operations) Limited established that during the evaluation process, the Authority applied a weighting principle of 25% to technical and 75% to financial aspect, stating that the weighting adopted by the Authority was not sufficient and proportional enough to establish which offer was fully compliant with the technical specifications and conditions as duly requested in the RFP;

iv)           The Evaluation Committee did not delve into a satisfactory level of assessment with regard to the technical aspect of the offers.

v)            The Evaluation Board did not attribute the expected importance to the technical aspect and the relative consequences of failing to abide by the maritime regulations, which are enforced to ensure proper certification and safety, at sea.

vi)           The technical specifications and conditions, as laid down in the RFP should be technical specifications and conditions of this PMC which the Bidder must satisfy, in all respects, to be eligible for the award of the tender, without any compromises.

Following the abovementioned conclusions, the PCRB did not uphold the Contracting Authority’s decision in the award of the tender; directed the Authority to appoint a new Evaluation Committee (with two members having a technical standing and well versed in maritime activities and regulations); stated that the weighting of the evaluation process should reflect more prominently the technical compliance aspect; and that the new Evaluation Committee shall carry out an in-depth assessment of the two shortlisted offers namely, those of Islands Ferry Network Ltd and Virtu Holdings Limited to arrive at a fair and transparent conclusion in their deliberation; and that now that both competing offers are   public,  both offers are to be reassessed on their present merit.

The GMX Commentary

The main issues of this case comprised whether the Preliminary Market Consultations was an offer for a public contract that would fall under the remit of the Public Procurements Regulations and ergo’ whether the PCRB had the jurisdiction to hear the objection.  In its first decision, the PCRB held that the Public Procurement Regulations do not provide remedies with respect to Preliminary Market Consultations.  Furthermore, the PCRB held that the Gozo Channel (Operations) Limited is not to be considered as the contracting authority.

Interestingly, the Court of Appeal did not enter into the merits of the PCRB’s decision, but rather decided that the PCRB had the jurisdiction to   hear the objection filed by Virtu Holdings Limited, and to this effect referred back the acts to the PCRB.

Having established the vires of the PCRB by the Court of Appeal, the PCRB decided that the Preliminary Market Consultations is to be regarded as a tender document and that Gozo Channel (Operations) Limited is to be deemed as the contracting authority.  The PRCB also established that the agreement signed between Gozo Channel (Operations) Limited and Islands Ferry Network Limited was “ineffective” in terms of the Public Procurement Regulations. The PRCB also commented on the importance of technical specifications and the financials surrounding the offers, and their importance for the evaluation process, namely to verify whether a tender is compliant or not.