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Ranch de la Falaise v Republic of Vanuatu [2013] VUSC 162; Civil Case 58 of 2010 (27 September 2013)

IN THE SUPREME COURT OF THE REPUBLIC OF VANUATU
(Civil Jurisdiction)
Civil Case No. 58 of 2010


BETWEEN:


RANCH DE LA FALAISE LIMITED
First Claimant


AND:


MAAK QUARRY LIMITED
Second Claimant


AND:


LAKENASUA ENTERPRISES LIMITED
Third Claimant


AND:


REPUBLIC OF VANUATU
Defendant


Coram: Justice D. V. Fatiaki


Counsels: Mr. G. Boar for the Claimants
Mr. J. Ngwele for the Defendant


Date of Decision: 27 September 2013.


JUDGMENT


  1. This case is set against the back drop of the successful bid by the Government of Vanuatu in obtaining funds from the Millennium Challenge Corporation Inc. ("MCCI") in March 2006 for infrastructural development, including, in particular, the construction and sealing of the Efate and Santo Ring Roads.
  2. These were large multimillion vatu national projects and the Government was naturally concerned to encourage and facilitate as far as possible participation of locals in the projects. To this end local expressions of interest were sought and encouraged from local entrepreneurs including the principals of the claimant companies.
  3. The three (3) claimants companies (hereafter "RDF"; "MQL" and "LEL" were encouraged to participate in the projects and accordingly applied for and were issued with 12 quarry permits for the extraction, preparation and supply of the necessary aggregates required for the project.
  4. This necessarily entailed the outlay of many man hours and financial resources by the claimant companies to ensure that they were in a position to supply the necessary aggregates once work began on the project. This included:
  5. In May 2008 the tender for the construction of the Efate Ring Road was awarded to Downer EDI Works ("Downer") a New Zealand company.
  6. Thereafter there were a series of meetings and exchanges of correspondence between the claimants' principal spokesperson and senior government officials charged with over-seeing the project and with the local representatives of the successful tenderer. These exchanges included expressions of concern by the then Director General of Lands and the Prime Minister about delays in commencing the project and the issuance of quarry permits.
  7. Although not entirely clear why the successful tenderer decided to source its own supplies of aggregate for the project, the upshot of the various meetings and correspondence resulted in the claimant companies agreeing, for a consideration of 15% of all royalties paid to the Government, to surrender all their quarry permits back to the Government to allow the successful tenderer to have a "free-hand" in accessing its preferred quarry sites (see: Director of Lands letters of October 14, 2008 and November 04, 2008 (to the principal of RDF) and the undated letter of Virelala Consultancy Services entitled Re: Goodwill Payment to Licence Holders.).
  8. It is convenient at this stage to set out the relevant letters in date sequence:

"Our Ref: DFMWR/070/12H

To Whom It May Concern,


As Commissioner of Mines of the Republic of Vanuatu and the regulator of quarry activity around the country I write to confirm that the following companies:


  1. Ranch de la Falaise Limited
  2. Lakensua Enterprise Limited; and
  3. Maak Quarry Limited

Have been issued official quarry permits to extract and sell limestone around 12 sites on Efate Island.


The Quarry permits to the above-mentioned companies are specifically to be used for the Efate Ring Road under the Millenium Challenge Account (MCA) project. The MCA project (Efate Ring Road) will only be utilizing quarries that have been approved for the companies mentioned above and no other licenses will be issued due to time constraints of the project. The project is schedule to commence in June 2008. A total of approximately 250,000 cubic meter of limestone aggregates has been approved for the project to utilize and I have great confident of the above-mentioned companies to deliver aggregate material for the Efate Ring Road Project.


Should you have further queries regarding the above-mentioned companies and their status with regard to the Efate Ring Road Project please do not hesitate to contact me on the above address.


Toney Tevi

Commissioner of Mines of the Republic of Vanuatu."


"Mr. Tony Sewen

Acting Director

Millenium Challenge Account (MCA) Vanuatu

PMB 9053

PORT VILA


October 14, 2008


Dear Mr Sewen,


Re: Supply of aggregates arrangements for Efate ring-road


The supply of aggregates for the Efate ring-road has created a lot of speculations and confusions that warrant some ultimate decisions to be taken to provide clear directives from the responsible Ministry.


As we are all fully aware of the quarry issues that is becoming too complicated through a number of initiatives coordinated by the former head of Millenium Challenge Account (MCA) Vanuatu which saw the issuing of three valid licenses. The licenses were granted solely to supply the quarry for the Efate ring-road. This is legal issue that may costs the Government a lot of money if not addressed adequately.


Along the way, there was communication breakdown between MCA and the licenses for some unexplained reasons. With the negotiations between the wining contractor, and the limited timeframe, it became apparent that there should be some adjustments to the previous understanding and arrangements.


There had been a lot of meetings with regard to the best options with the prime objectives: to allow smooth implementation of the project; and equally critical is to maximize the benefits to all parties involved at a minimum costs.


The options were discussed and presented to both the MCA Steering Committee, current license holders, custom owners, and the contractor that seemed to leave the issue in limbo.


To avoid further delays with the project, I as the Chief Executive Officer within the Minister of Lands responsible also for mines and mineral, hereby make the following instructions:


The above instructions are guided by the following key principals of understanding:


For further information and clarification, please do not hesitate to contact the undersigned.


Thanking you for your understanding and your utmost cooperation in this matter would be highly appreciated.


Yours sincerely,


Russel Nari

DIRECTOR GENERAL."


"Dear Mr Virelala,


Re: Agreement between Vanuatu Government & Ranch de la Falaise


I refer to my letter dated 14th October 2008 and the meetings held with the three licenses of October 27, and confirm the following understanding:


  1. The Commissioner of Mines and Minerals will facilitate 15 percent royalties paid to the Government which is inclusive of goodwill payment and all your expenses incurred during the processing of the licenses.
  2. The 15 percent will be shared between the licensees based on their own agreement. It is not the responsibility of the Government to share the funds between the three licensees.
  3. In return, the licenses will be surrendered to the Government to allow Downer DEI Works, the contractor to full access to existing sites and new quarry sites of their preferences.
  4. The quantity of read aggregates to be used for Efate ring-road is estimated at about 1,932,000 m³. This figure is subjected to the monthly adjustment from the actual quantity uplifted by the contractor.
  5. The payment is to be made in lump sum of 15 percent to the licensees on a quarterly basis.

I thank you for your understanding and your cooperation in facilitating the handing over of the licenses to the Contractor.


Yours sincerely,


Russel Nari

Director General."


"Mr. Russel Nari

Director General

Ministry of Lands and Natural Resources


Dear Colleague,


Quarry Licenses Issued for the MCA Project


I appreciate your time to attend the meeting between Mr. Jean Paul Virelala representing RDF, LEL and LQL and myself with regard to the above.


The licenses were issued by the Commissioner of Mines for the sole purposes of the MCA project.


During our meeting, we considered the circumstances surrounding the issuance of the licenses to RDF, LEL and MQL as well as those leading to the voluntary surrender of these licensed when it appeared that EDI Works would prefer to have direct access to quarries without intermediaries.


Following consultations between the Ministry of Lands and the license holders RDF, LEL and MQL, you wrote to them (your letter of 4 November 2009) agreeing for the Commissioner of Mines to facilitate payment of expenses incurred as well as goodwill payment.


Our meeting concluded on the same understanding i.e. that the license holders be reimbursed for the cost incurred in securing the licensee and be paid a goodwill payment for voluntarily surrendering the licenses.


We also agreed that this understanding would be considered and decided upon by the MCA Steering Committee during December 2009.


I hope this reflects the substance of our above meeting.


Yours sincerely,


George Maniuri

Director General."

(my underlinings)


After an unsuccessful letter of demand dated 29 March 2010 the claimants issued proceedings claiming various sums on behalf of each claimant company totaling hundreds of millions of vatu for nett profit including unpaid royalties, interest on defaulted bank loans and for other expenses incurred.


  1. The defendant denied liability on the following basis:

In short, the defendant denied that the claimants had a sustainable "cause of action".


  1. At the outset the defendant filed an application seeking security for costs and this was met by a counter-application for summary judgment on liability pursuant to Rule 9.6 of the Civil Procedure Rules which was subsequently withdrawn on 20 September 2010 with the filing of an amended claim.
  2. Defence counsel also filed an outline of submissions dated 13 August 2010 opposing the claimants' summary judgment application on the dual basis that "the statement of claim struggles to disclose a proper cause of action" and the defence discloses "triable issues of fact and law" including:

"(a) Whether there is any cause of action;


(b) Whether the defendant's alleged participation in pre-quarrying preparation in fact occurred as pleaded;


(c) What is the legal effect of a quarry permit; and


(d) Whether the agreement alleged in paragraphs 14 and 15 are caught by the Government Contract and Tenders Act."


And counsel forcefully submits:


"It should always have been obvious to the claimants that this claim has not a suitable candidate for summary judgment. In the circumstances, the claimants' application should be seen as an abuse of process for which indemnity costs should be awarded to the defendant".


  1. On 20 September 2010 an amended claim was ordered "... with causes of actions clearly identified" and this was eventually filed on 20th October 2010 wherein the claimants pleaded two (2) contracts – "a verbal and oral agreement" about 2007; and a second oral and partly written agreement whereby the claimants agreed to surrender their quarry permits in exchange for expenses and goodwill payments from the defendant.
  2. On 3 November 2010 defence counsel advised the Court that RDF had been struck-off the register of companies and therefore no longer existed. This was formalized into an application to strike out RDF filed on 8 November 2010. The application was met by an application on 1 December 2010 again seeking the entry of "judgment (liability) against the defendant" which had still not filed. Presumably what was meant was that the defendant had not filed an amended defence as ordered.
  3. On 6 December 2010 the matter was adjourned for three (3) months at claimant's counsel's request to allow for the reinstatement of RDF which eventually occurred on 25 March 2011.
  4. An amended defence was ordered and this was subsequently filed on 19 May 2011. The defendant again denied the existence of any contract with the claimants and, whilst accepting that there was an agreement to pay 15% of royalties in exchange for the surrender of the claimants' quarry permits, the defendant nevertheless maintained that the agreement "was void pursuant to section 2A of the Government Contracts and Tenders Act [CAP. 245]" on the basis that it was in excess of VT5 million and did not comply with the requirements of section 3.
  5. In June 2011 the parties completed filing sworn statements and mutual discovery. On 1 July 2011 the Court ordered:

"By agreement parties to file written submissions on the following preliminary issue:


'whether there was any enforceable agreement between the parties? And (if so) what are the nature and best evidence in support of it (if any)?"


A timetable for written submissions was set and this was later extended on numerous occasions to allow for the claimants to file response sworn statements to additional sworn statements referred to in the defence submissions that had not been served on the claimants. There then followed a whole host of sworn statements from both parties which occupied the remainder of 2011 and 3 months of 2012.


  1. It was becoming plain that oral evidence might need to be heard on the agreed preliminary issue and so a final order was made for a further detailed written submission to be filed by the claimants by 22 March 2012.
  2. On 12 April 2012 the case was further adjourned to 28 May 2012 to allow the parties to comply with the following orders with a view to settling the case, namely:

"(a) Claimants to write to the defendant itemizing in a break down the expenses figure claimed restricted to those "incurred during the processing of the licenses" by 18 April 2012;


(b) Defendant to respond to the claimants' correspondence by 30 April 2012;


(c) Defendant to write to the claimants' offering to settle liability on the goodwill component, as discussed as well as the expenses component, by 11 May 2012 with interest;


(d) Claimants to respond to without prejudice offer by defendant to settle by 25 May 2012."


  1. On 28 May 2012 in the absence of defence counsel and at claimants' counsel's request an adjournment was granted till 13 June 2012 to allow for settlement talks to continue. This extended over the next 3 months with little success.
  2. On 11 July 2012 the defendant filed its submissions on the agreed preliminary issue.
  3. On 6 September 2012 the claimants eventually filed their written submissions which the Court had earlier ordered on 22 March 2012.
  4. Having carefully considered the competing submissions and the sworn statements filed by the parties, I am firmly of the view that the defendant has no real prospect of defending the part of the claim that avers a second contract dealing with the surrender of the claimant's quarry permits in consideration of the defendant's written "Agreement" to pay the claimants:

"... 15% royalties paid to the Government which is inclusive of goodwill payment and all expenses incurred during the processing of the licences".


Furthermore:


"... (the) quantity of real aggregates to be used for Efate ring road is estimated at about 1,932,000 m³. This figure is subjected to the monthly adjustment from the actual quantity uplifted by the contractor."


and finally:


"The payment is to be made in lump sum of 15% to the licensees on a quarterly basis."


  1. Noteably, this letter dated 4 November 2008 of the Director General of Lands is entitled "Re: Agreement between Vanuatu Government and Ranch de la Falaise" and was copied to: "Hon. Minister of Lands; Hon. Minister of Finance & Economic Management; Director General, Ministry of Finance & Economic Management" and the "Commissioner of Mines & Minerals".
  2. Needless to say in upholding the second contract, I accept claimants counsel's submissions on the inapplicability of the provisions of the Government Contracts and Tenders Act [CAP. 245] to the "second contract" in so far as the agreement to compensate the claimants for surrendering their quarry permits was not a "Government Contract" payable out of "public money".
  3. In this latter regard the Public Finance and Economic Management Act No. 6 of 1998 which prevails over the Government Contracts and Tenders Act and which defines "public money", clearly differentiates between "trust money" and "public money" for accounting and management purposes and according to the source and purpose of the particular funds [see: Sections 44 read with Section 57 (2) (c) and (d) and Section 68 of the Public Finance and Economic Management Act].
  4. The Court is also unattracted to the apparent suggestion that very senior government officials who are also members of "MCA – Vanuatu" can individually reach firm understandings and agreements with the claimants representatives, yet, still require a minuted collective decision of "MCA – Vanuatu" in order for such "understandings" and "Agreement" to be binding and enforceable against the Government.
  5. As the leaned author (Nichols Seddon) of Government Contracts Federal State and Local (3rd edn) relevantly observes in para 3 – 16 at p. 106:

"Commercial bodies or individuals dealing with the Government usually do not check to see whether the public servant with whom they are negotiating has the required formal authority. Indeed, it would not be conducive to good negotiations for the outsider to ask a public servant to produce his or her credentials. Further, it may be asked why it is incumbent on the outsider to ensure that the Government is adhering to its own internal procedures ... There is a strong policy argument that outsiders who deal with government should not be put at risk by the government's failure to observe procedures which are designed to ensure proper accountability and efficiency within government. Additionally, governments who have failed to observe procedures should not be allowed to take advantage of their own wrongs to escape otherwise valid contracts."
(my underlining)


  1. In the present case there was never any mention of the need for the claimants to comply with the provisions of the Government Contracts and Tenders Act and the claimant companies surrendered their valuable, exclusive quarry permits to the Government upon its very senior officers' written and verbal "understandings" and "agreement" to compensate the claimants for their magnanimous gesture.
  2. In those circumstances, I cannot agree with the opportunistic defence based on the Government Contracts and Tenders Act or accept that such a "total failure of consideration" and the corresponding "unjust enrichment" on the Government's part must be left without a remedy.
  3. As was said by Professor de Smith in his classical work (4th edn) at p. 307:

"Special considerations arise where a statutory power vested in a Minister of a department of State is exercised by a departmental official the official is the alter ego of the Minister or the department, and since he is subject to the fullest control by his superior he is not usually spoken of as a delegate. .... The courts have recognized that 'the duties imposed on Ministers and the powers given to Ministers are normally exercised under the authority of the Ministers by responsible officials of the department. Public business could not be carried on if that were not the case'. In general, therefore, a Minister is not obliged to bring his own mind to bear upon a matter entrusted to him by statute but may act through a duly authorized officer of his department. The officer's authority need not be conferred upon him by the Minister personally; it may be conveyed generally and informally by the officer's hierarchical superiors in accordance with departmental practice."
(my underlining)


  1. In light of the foregoing, judgment is entered in favour of the claimants on the second contract as pleaded for an amount to be quantified in accordance with a joint Memorandum to be agreed by the parties with interest of 5% per annum calculated from 20 January 2011 and submitted within 14 days for the court's consideration.
  2. As for the remaining part of the claim I find that there are triable issues of law and fact and accordingly I dismiss the application for summary judgment in so far as it relates to the "first contract" as pleaded and I fix a pre-trial conference to take place on 18th October 2013 at 10.30 a.m.
  3. There will be no order for costs at this stage pending the final determination of the remainder of the claim.

DATED at Port Vila, this 27th day of September, 2013.


BY THE COURT


D. V. FATIAKI
Judge.


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