Government will likely have to pay to compensate a contractor for a sewage treatment plant that was never built, according to an arbitration award handed down last August.

 

And on Tuesday, the Commercial Court heard arguments from the contractor’s lawyers asserting that government should also pay the company for revenues that it would have received for operating the treatment facility.

That could leave taxpayers footing a bill for millions of dollars.

Breached contract

On Sept. 19, 2006, then-Chief Minister Dr. Orlando Smith signed a $2.68 million no-bid contract with the Virgin Islands-registered Global Water Associates to design, build and install a plant in Paraquita Bay capable of processing 250,000 gallons of wastewater per day.

The same day, he inked another contract stipulating that Global would be paid $20 per thousand gallons of treated waste to operate the plant over a 12-year period.

But while plant designs were drafted and construction materials were shipped to the territory, government failed to allocate land for the plant, which prompted Global to terminate the contract in 2008, according to the firm.

Government’s “breach of contract” caused Global damages estimated at more than $22 million, according to a “case summary” drafted by the law firm O’Neal Webster in 2012 and obtained by the Beacon in 2013.

Arbitration

Last year, the matter went to arbitration in hopes of resolving the dispute outside of court.

As part of that process, two arbitrators — one chosen by Global and the other by government — considered the case. They agreed that the company should be compensated for the value of the contract to design, build and install the plant.

But the award didn’t include the revenues Global could have received from operating the plant — an omission the company’s lawyers believe was a serious mistake on the arbitrators’ part.

It is unclear how much money would have been awarded by the arbitrators, as the court process started before they had ruled what Global’s claim may be worth.

Commercial Court

In an appeal before Commercial Court Justice Barry Leon, which was held in the judge’s chambers Tuesday, Global attorney Benjamin Strong, QC, said that the arbitrators chose not to award Global damages for the breach of the operating contract because they viewed it as a separate matter from the design-and-build contract.

“That fact that there are two contracts is the hook on which the arbitrators hanged their conclusion that my client wasn’t entitled to damages with respects to profits that would have been made under the [operating agreement], and that’s the error in law, we say,” he explained.

A legal principle called “remoteness of damages” could limit the extent to which government is responsible for paying damagesunder the operating contract, which was never executed because the build contract wasn’t completed.

However, in two hours of legal submissions, Mr. Strong argued that the connection between the issues isn’t remote at all.

He cited a case that occurred in the United Kingdom in 1949 where a laundry service successfully sued a boiler manufacturer because delays in a boiler delivery caused it to lose a lucrative contract to clean government uniforms. A court awarded the laundry service the profits it would have made had it not lost the contract.

Government’s side

Representatives of the Attorney General’s Chambers were also present at the hearing, ready to present government’s case to oppose having the arbitration award set aside. However, the amount of time scheduled for the hearing fell short. Government will present its case at a future hearing on a date to be determined.

According to Mr. Strong, if Mr. Leon agrees that the arbitration award should be set aside, then he will have the option of sending the matter back to the original arbitrators to reconsider or restarting the process with new arbitrators.

{fcomment}