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High Court of Fiji |
IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION
Civil Action No. 92 of 2004
BETWEEN:
KABARA DEVELOPMENT CORPORATION LTD.
PLAINTIFF
AND:
1. ATTORNEY GENERAL OF FIJI
FIRST DEFENDANT
AND:
2. THE MINISTER FOR TRANSPORT AND CIVIL AVIATION
SECOND DEFENDANT
SUBMISSIONS FOR THE DEFENDANTS
1. Introduction
As directed by this Honorable Court counsels were to file submissions simultaneously by 1 November 2006. The relevant facts and issues drawn from the Minutes of the Pre-Trial Conference served on the Defendants on 5 September 2005 (as relevant).
AGREED FACTS
4. On 29 August 1997 the Plaintiff ...., at the Controller of Government Supplies and the Director of Marine ...., entered into an agreement pursuant to which shipping service would be provided by the Plaintiff for certain islands in the Lau group.
5. The agreement was for a term of 3 years and reviewable 12 monthly.
6. _____________________
7. In 1999 the Controller of Government Supplies purported to extend the agreement for 10 years.
8. ______________________
9. In 2004 the Second Defendant advertised for tenders for shipping service in the said area, and the Plaintiff forwarded its tender without prejudice to its rights under the agreement, but the Plaintiff was unsuccessful.
10. On 20 December 2004 the defendants purported to terminate the said agreement.
B. ISSUES TO BE DETERMINED BY THE COURT
1. Are the defendants in breach of the agreement
2. What remedy, if any, maybe granted to the Plaintiff
2. The Defendant's position
The Defendant maintains as its primary position that the contract terminated on 20 December 2004 could not have been the agreement entered into between the parties on 29 August 1997. This Agreement for all intents and purpose was terminated on 30 August 2000.
The primary reason for our basic premise that the agreement terminated in 2004 was not that entered into between the parties in 1997 are briefly;
(i) As clarified in our Amended Defence filed on 18 July 2005 the purported extension was not made pursuant to law as was the case when the 1997 Agreement was formed (see paras 6 and 8)
(ii) The requirement highlighted in (i) is not negotiable for as governed by the Finance (Supplies and Services) (General) Regulations (reg. 3(1)), which governed the 1997 award.
(iii) The extension was improper and the Plaintiffs knew of this because it was awarded contrary to the process which they along with other interested service providers had to adhere to in 1997.
(iv) The terms of the "extension" are not clear, other than it amounts to 3 times the duration and cost of the 1997 contract.
3. Government Procurement and the Requirement for Tender
This case is of importance because it probably is the first opportunity for a Court to examine the tender process, the principal method by which Government decides to award major contracts and the importance of adhering to it for transparency and good governance.
Laws regulating the tender process may serve two policy objectives,
In this matter, the Defendants focus on this first objective when examining the case brought by the Plaintiffs.
In Fiji the public tender process is governed by a number of subsidiary enactments. At the relevant time these were:
i) The Finance (Supplies and Services) (General) Regulations - Cap.69
ii) The Supplies and Services Instructions (as amended by Finance Circular 3/1992) dated 31 December 1992.
The integrity of a system which has as principal objectives open access to government contracts and the proper conduct of, accountability for, and transparency of tenders must require with respect the support of this Court.
4. The 1997 Contract - Franchise System
Frequent, regular and reliable transport is essential to the well being of remote communities. To address this problem Government in 1997 introduced the service franchise scheme to facilitate and sustain the provision of shipping services on uneconomical outer island routes.
The Transport Sector Institutional Strengthening Project (TSISP) in 1996 recommended a clear franchising plan, under which Government determines those areas to which it believes services are inadequate and defines the minimum level of service to these areas that it regards as acceptable. Commercial ship owners then tender to provide the required services in an open bidding process.
This system was subject to re-evaluation as is the case with any Government policy.
The tender process for the award of the 1997 Franchise Agreements was governed by the Finance (Supplies and Services) (General) Regulations Cap.69.
Regulation 3(1) and 20 of these Regulations is important;
3-(1) No tender for the supply of goods or services, or for the purchase of public stores shall be called for, considered or accepted otherwise than in accordance with these Regulations.
20 Subject to the provisions of this Part of these Regulations all goods and services shall be purchased from the most advantageous source and wherever practicable, at competitive prices.
Otherwise the relevant parts in these Regulations are cited;
reg 12
reg 15
reg16
reg 19
The process for the award of the 1997 Shipping Franchise Contracts have been clearly identified in Court.
| 1 Advertisement | - Franchising Scheme for Shipping Services to Outer Islands d.18 December 1996. - signed by Director of Marine (Tenders only from prequalified organization). |
| 2. Call for Tenders | - Sent to Plaintiff on 23 April 1997 as a prequalified organization (Exhibit PE3). |
| 3. Tender Reply | - (Exhibit PE 4) (Major Tenders Board in its meeting of 30 July 1997 awarded contract for Southern Lau Franchise Area at $30,000 per month ($360,000 per annum) |
| 4. Agreement | - (Exhibit PE5) The letter of acceptance, Bids and call for Tenders are part of this Contract. |
Relevant terms of the franchise contract (Drawn from Exhibit PE3).
| Period of the Contract | - Contract will be for a period of three years (No provision for renewal) |
| Commencement of Service | - no later than 12 September 1997 |
| Contingency Arrangements | - arrangements to ensure continuity |
| Signing of Agreement | - within 14 days of notification of status and 14 days of Contractor receiving Form of Agreement. |
The terms of the Contract are specific. It is a 3 year contract commencing from 29 August 1997 to expire on or about 29 August 2000.
What happened?
Prior to the expiry of the 3 year contract a number of events occurred.
| 1. | Memorandum dated 26 February 1999 from Controller Government Supplies to Director of Marine (Exhibit DE7) | Indicating that a tender seeking the extension of the existing contract (1997) for additional ten years as sought by the Assistant
Minister for Communications, Works and Energy was not approved. |
| 2. | Memorandum from Permanent Secretary for Communications, Works and Energy dated 25 March 1999 to Director of Marine. (Exhibit DE8) | - Advised that the Major Tenders Board in a meeting on 17 March 1999 the extension of approved CTN45/97 for a further ten (10) years
from 17/3/99. |
The Plaintiff relies on this second memorandum to state that they have a current subsisting 10 year contract from 17 March 1999 to expire on or about 17 March 2009.
The Defendants maintain that this extension was clearly illegal for several reasons which are enumerated;
1). The terms of the 1997 contract were specific, including a a provision that it was for a period of 3 years. This means that;
2). A specific tender process as governed by the Finance (Supplies and Services) (General) Regulations was required to be followed for a limited contract (1997). This was clearly not adhered to in the 10 year "extension". It is called an "extension" but its terms are unclear. No new contract was entered into.
The Plaintiffs clearly did not submit a tender for this "renewal", and are fully aware that this "extension" was not obtained pursuant to the tender process followed in 1997.
"It is reasonably safe to say that if the calling of tenders is required by law then a failure to call tenders is an unlawful procedure rendering the contract which was awarded void-Wade -v- Gold Coast City Council (1972) 26 LGRA 349. It was held in Wade -v- Gold Coast City Council that a legislative provision was mandatory in the sense that it required that contracts involving a price over a certain sum ($10,000 at the time) must be awarded by means of calling tenders.
In this case the plaintiff's contract had initially been awarded after tenders had been called but the contract was then renewed without calling tenders. It was held that the renewed contract was invalid and could not be enforced. Seddon, Government Contracts (2nd Edition) 1999 at p310 -311 (Copy supplied).
At the footnote (1999) at p311, Seddon maintains that the contractor would nevertheless have been entitled to a reasonable remuneration done on a quantum meruit basis.
The Defendants maintain that the 10 year extension (granted a full. year before the original contract expiry) is invalid and cannot be enforced. The 10 year extension exposes Government to a financial burden amounting to 53,600,000. Finance Circular No. 3/1992 requires supply of services costing over $30,000 to be approved by the Major Tenders Board in a "proper" tender process (emphasis mine). This must mean that the tender process ought to have been strictly followed. A failure to follow the tender process in such an instance means that Government purchased services without adhering to a competitive, transparent process.
Matters to be noted by the Court:
(i) Whilst the Plaintiffs did not submit a fresh application to extend its 1997 Contract they had sought the intervention of the Minister for Communication, Works and Energy and the Assistant Minister in a meeting on 4 January 1999 as outlined in a letter from the Plaintiffs to the Director of Marine on 12 January 19999 (Exhibit DE5).
It is the Assistant Minister who lodges the application for extension on behalf of the Plaintiffs which was rejected on 26 February 1999 (Exhibit DE7). It is unclear who lodged the application for an extension on behalf of the Plaintiffs that was approved by the Major Tenders Board on 17 March 1999 but, on the balance of probabilities, it may have been the Assistant Minister since the decision is conveyed from that Ministry in a memorandum dated 25 March 1999 (Exhibit DE 8).
With respect, a number of points have to be made.
(a) The involvement of a Minister in a "selective tender" process in order to favour private interest is "improper and so unlawful" Korovulavula -v- Public Service Commission Civil Appeal No. 6/1994 at p16. (In this case the Minister sought to use his directory powers under statute to influence the Principal Licensing Authority to award taxi licences to certain individuals).
(b) The direct involvement of a Minister to benefit a private party in the tender process may amount to "collusive tendering" and ought to have been rejected, as was the case on 25 February 1999 (Exhibit DE 5) - regulation 12 (10).
The Defendants were clearly advised against such an extension in an advice from its solicitors rendered on 21 July 2000 to the Permanent Secretary for Tourism and Transport dated 21 July 2000 in which the Court of Appeal directive in the Korovulavula case was relied on (Exhibit DE 10).
The Director Fiji Islands Maritime Safety Administration (FIMSA) consistent with this advice confirmed with the Plaintiffs on 29 August 2000 that its 1997 contract had expired (Exhibit DE 11).
What happened after 29 August 2000?
A series of short term extensions were granted beginning from 3 July 2000 (Exhibit DE 14) as the process under which the new franchise awards were to be determined was yet to be settled therefore all applicants including the Plaintiffs (Exhibits DE12 and DE13) were granted short term contracts (rolled over), pending the resolution of this issue. The terms of the expired contracts were continued on a short term basis pending the finalization of the new supervisory structure. Aside from Exhibit DE14 other evidence as to these extensions were not admitted on the objection of this Court.
The Defendants wishes to emphasize several issues;
i) The continuation of service of the Plaintiff from 2000 to 2004 could not have been governed under the Agreement awarded on 29 August 1997. (This contract was specific in its terms and effectively expired on 29 August 2000.) The Plaintiff was informed of this as the expiry of its 1997 contract was conveyed to them by Director FIMSA on 29 August 2000 (Exhibit DE10).
The Plaintiff were aware that the 10 year extension was held to have no legal basis in a letter sent to them by the then Permanent Secretary for Tourism and Transport dated 7 February 2001 (Exhibit DE13) after the Plaintiff acknowledged that the validity of the 10 year extension was in doubt in a letter to the Ministry also on 7 February 2001 (Exhibit DE 12).
ii) In the said letter (Exhibit DE 13) the Permanent Secretary for Tourism and Transport had indicated that those who had contracts spilt over from last year will continue to be paid the subsidy until all cases had been reheard by the Supplies and Services Board and new contracts offered.
3). It will be noted that (PW1) Taniela Tabu clarified in evidence that a new Franchise Scheme was advertised in February 2004, although the area that the Plaintiff had serviced under the 1997 Agreement (Southern Lau) had been split up into 2. The Plaintiff put in an application for a new award on a "without prejudice basis" because of the subsisting litigation on 4 March 2004. This application was made to the Fiji Shipping Corporation which was to effectively take over the administration and management of the new Franchise Scheme. The Court ought to note that the Plaintiffs received a letter from the Ministry of Transport Tourism and Civil Aviation dated 26 July 2004 (Exhibit P 16) that their Franchise (1997) contract had again been extended.
It is incumbent on the Plaintiff to confirm to this Court whether their application for the new Franchise award made in 2004 succeeded. Our understanding is it did not when the Fiji Shipping Corporation took over management of the Scheme in January 2005 but it is for the Plaintiff to confirm this issue.
The Incident - Importance of the Contingency Arrangement
The importance of the contingency arrangement can only be gauged when one understands the purpose of the subsidy provided under the Franchise Award, was to ensure that the shipping operator was able to provide "continuity" of shipping services to remote, uneconomical destinations. In the Call for Tenders the Contingency Arrangement is clarified as follows;
The tender shall clearly indicate the arrangements if any that the tenderer intends to make in order to ensure continuity of service to the Franchised area in periods during which the nominated vessel is out of service due to slipping, scheduled maintenance or breakdown.
There are 3 important factors to be noted;
i) This is not an arrangement that ought to be made when slipping, scheduled maintenance or breakdown occurs. It had to be done beforehand to ensure that "service continuity" was to be maintained.
(ii) The purpose of the franchise is to support the company in making regular voyages to Southern Lau. In this case $30,000 a month was paid to the Plaintiff. It is a private company running its own vessel and its own operational obligations. It cannot rely totally on Government subsidy to survive, which is the case it seeks to portray. PW 1 provide evidence that the Plaintiff's financial performance was improving despite the subsidy and given the debt it was servicing initially.
(iii) The arrangements the Plaintiff sought to enter into after its vessel was directed to be taken on dry dock clearly indicates that it had not made pre-existing contingency arrangements nor understood its importance in relation to the subsidy it was receiving regularly from Government (Exhibit DE 16). (PE 27). There were vessels available that could have been engaged earlier for this purpose.
The Reason for Dry Docking
DW1 - Misaele Vakadranu and DW4 - Jone Tunidau both expert witnesses the former a Marine Surveyor and the latter, a Marine Engineer both gave evidence as to the extent of leakage into the hull and the non-installation of the auxiliary generator (in the workshop).
The Defendant submit that their evidence is credible, expert evidence based on actual test and observation which, on the balance of probabilities ought to be accepted by the court. The Plaintiff offered no evidence to counter their evidence. They state that proper process was not followed, not bearing in mind that an urgent decision had to be made, as the vessel was loaded and about to depart.
Cancellation of the Contract
Pursuant to the Call for Tenders document which is part of the contract the Principal may cancel the contract if the contractor.
1. fails, for reasons other than weather conditions of force majeure, on two (2) consecutive occasions to operate a service nominated in the service schedule.
A Letter (Exhibit DE 18) was written by A/Director FIMSA on 20 December 2004 to the Plaintiff informing it that its current shipping contract would be terminated in fourteen days for the non provision of shipping service to Southern Lau on two consecutive occasions. The Plaintiff proposes that it was unable to provide this service due to "force majeure" conditions. The phrase is used in commercial contracts to describe events possibly affecting the contract and that are completely outside the parties control (Oxford Dictionary of Law) (5th Ed) 2001.
It is submitted that the making of "contingency arrangement" is not something completely outside the Plaintiff's control. This was an important pre-existing obligation under the Franchise Agreement given its primary purpose of maintaining regular shipping service to isolated dependent destinations.
The Plaintiff by its conduct chose to ignore this obligation and it is submitted that the grounds on which the termination was based was proper.
The Plaintiff maintains that the contract was not properly terminated because the "Principal" did not cancel the contract.
The Defendant makes the following observation;
i) The Principal in the 1997 Agreement is designated as the Permanent Secretary for Communications Works and Energy and who is to enter into the contract with the Contractor. [Plaintiff] The 29 August 1997 Agreement on this terms was not entered into between the Plaintiff and the Principal as defined, but with the Controller of Government Supplies. This suggests that other enactments were accommodated for despite the specification in the Agreement. Pursuant to regulation 19 of the Finance (Supplies and Services) Regulation the Controller or a person authorized by him was to execute the contract. It is therefore the Controller not the Principal; who entered into the contract with the contractor.
(ii) FIMSA became a reorganization enterprise pursuant to a major maritime administration reform on 7 November 2000 see Legal Notice No. 118 of 2000. It assumed administration of shipping franchise contracts on behalf of the Ministry of Tourism and Transport.
FIMSA was not in existence in 1997. It was previously the Director of Marine.
(iii) The Principal identified in the 1997 Contract no longer existed as the transport portfolio had been subsumed into a different Ministry by 2004, the Ministry for Transport and Civil Aviation whose Minister is the Second Defendant in this matter. Arguably, Director F1MSA because of this subsequent re-organization and because it administered the franchise agreements was properly the party to terminate, what was a short term agreement in any event. The Principal in the 1997 Agreement had changed by 2004.
(iv) The letter of 20 December 2004 indicates that the Ministry of Transport and Civil Aviation, was involved in the decision.
Conclusion
The Defendant submits that the Plaintiff's case cannot subsist on the 1999 extension. It is an extension that was granted contrary to law and ought to be invalidated by this Court in circumstances which have been identified in the Korovulavula case by the Court of Appeal and in other jurisdictions.
For this Court to hold otherwise would be with respect countenance growing concerns about lack of transparency and accountability in government procurement processes.
The Plaintiff's case must subsist on the short term extensions granted to it after its 1997 contract expired on 2000. Should this Court find that the termination of December 2004 was irregular, which is not admitted, then the Plaintiff must inform this Court whether it was granted a contract for the new franchise scheme. If not, then its contract must expire on that date and any voyages undertaken prior to that can be remunerated, if not done already.
Otherwise, further submissions on damages may be provided
Dated this 9th day of November 2006
For the Defendants
Office of the Solicitor- General
Suvavou House
Suva
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