An investigation of Goverment’s acquaisition of the Cafe’ Premier

On 19 August 2014, the Opposition Members on the Public Accounts Committee, together with the then Opposition Spokesperson for Home Affairs and National Security, submitted a request for an investigation to the National Audit Office (NAO). In essence, they requested the Auditor General to investigate disclosures in the media that Government had paid €4,200,000 for the reacquisition of the utile dominium of the Café Premier premises, which Government had conceded through an emphyteutical grant to Cities Entertainment Ltd (CE) in 1998.

The sequence of events leading to Government’s reacquisition of these premises was traced back to early April 2013, when a CE Director wrote to the Prime Minister. Negotiations between CE and Government were concluded in August 2013, and the matter was approved by Cabinet in September 2013. On 29 January 2014, Government and CE signed an agreement whereby Government acquired the utile dominium relating to the temporary emphyteusis of the premises for €4,200,000.

The NAO maintains reservations regarding the manner by which this reacquisition was made. Although the amount paid by Government reflects a fair market value, this does not necessarily imply that value for money was achieved. The lack of rigorous and documented consideration of other options and the failure to properly evaluate such alternatives constrains the Office in determining whether value for money was achieved. One such alternative was the follow-through of legal action, which Government failed to pursue. This resulted in the eventual withdrawal of legal proceedings without clear justification or documentation, which action detracted from the required level of transparency expected in such a decision. This must be seen within a context where the tenant, CE, was in breach of the lease agreement, as the three-year threshold in ground rent payments had been exceeded when negotiations commenced. Poor governance was a factor central to this shortcoming, with Government’s negotiating team failing to involve the Government Property Department from the initial stages of negotiations.

Government’s justification for the reacquisition of the Café Premier focused on four main objectives, namely, the removal of possible danger posed to the National Library, the provision of greater accessibility, resolution of the problem of arrears faced by CE and the re-dimensioning of available space. The absence of documentation substantiating these policy objectives is considered as a significant shortcoming by the NAO.

Finally, the NAO established that the payment of €210,000 to M&A Investments Ltd was an intermediary payment, that is, a brokerage fee or commission, equivalent to five per cent of the transfer value of €4,200,000. This is rendered evident by documents reviewed by the NAO, wherein one refers to this payment as ‘intermediary costs’, while the other as a ‘commission on sale’. Despite the fact that Government would still have paid €4,200,000, irrespective of the arrangement with M&A Investments Ltd, this Office is of the opinion that the €210,000 payment should not have featured in the agreement. The dealings between CE and M&A Investments Ltd were a private matter, and Government bore no relationship with the latter. Moreover, the €210,000 payment made in this respect was unsubstantiated and deemed by the NAO as inappropriately included in the agreement. Aside from this payment, no evidence of other commissions being paid out of public funds was found.