Arbitration tribunal in GMR hearing agrees separate assessment of liability

The GMR-Malaysia Airports Holdings Berhad (GMR-MAHB) consortium has won an early legal skirmish in the Singapore-based arbitration hearings into its US$1.4 billion compensation claim for early termination of its contract by the Maldivian government.

GMR-MAHB won a concession agreement to manage and upgrade Ibrahim Nasir International Airport (INIA) under the Maldivian Democratic Party (MDP) administration, which was ousted from power on 7 February 2012 amid protests and a police mutiny.

The new government, comprising a coalition of former opposition parties under current President Mohamed Waheed, declared in late 2012 that GMR-MAHB’s agreement was ‘void ab initio’ (invalid from the outset) and gave the developer seven days’ notice to leave the country.

The US$511 million agreement was at the time the country’s single largest foreign investment. According to the government’s own engineering assessment, the development was 25 percent complete at the time GMR-MAHB was evicted.

The consortium has since lodged a US$1.4 billion claim with the Singapore Court of Arbitration, an amount eclipsing the Maldives’ annual state budget. The government is being represented by a Singapore National University Professor M. Sonarajam, while GMR-MAHB is being represented by former Chief Justice of the UK, Lord Nicholas Edison Phillips. The arbitrator is retired senior UK Judge, Lord Leonard Hubert Hoffman.

Latest hearings

During the second round of procedural hearings earlier this month, the tribunal acceded to GMR-MAHB’s request to split the proceedings into firstly determining liability, before quantifying the amount of compensation to be paid separately.

Minivan News understands that the tribunal agreed this would simplify examination and quantification of what was effectively three claims being made in the hearing: GMR-MAHB’s claim for compensation as per the termination clause of its concession agreement, its parallel claim for loss of profits over the lifespan of the agreement due to its termination, and the government’s counter-claim for restitution should the tribunal decide in its favour.

According to a source familiar with the matter, the government’s legal team opposed splitting the proceedings in such a fashion as they had not had access to GMR-MAHB’s documentation, and would therefore be unable to assess the scope of the claim at stake.

Minivan News understands that the tribunal rejected the government’s position on the grounds that it would be quicker, fairer and less costly to resolve the case by first determining liability for each of the claims, and then quantifying these.

Separate development paths

Local media has meanwhile reported that Maldives Airports Company Limited (MACL), which took over management of the airport following the government’s eviction of the foreign investor, has sought a US$150 million loan from Thailand’s Exim Bank for the construction of a new runway.

Sun Online reported MACL Managing Director Bandhu Saleem as stating that MACL’s three-year development project, involving reclamation of land for the runway and development of a new terminal, would cost a total of US$380 million.

“The terminal is being designed. The funding will be available in the next six months or so. We are planning to start the construction of the terminal as soon as the runway is completed,” Saleem reportedly told Sun.

Future development of the airport and fallout from the arbitration proceedings is likely to be affected by the upcoming election.

Of the four presidential candidates contesting the presidential election on September 7, both resort tycoon Gasim Ibrahim and incumbent President Mohamed Waheed have taken strongly nationalistic positions on MACL retaining full control (and responsibility for financing) the airport’s development.

Gasim’s running mate, Dr Hassan Saeed, was an early and emphatic proponent of GMR-MAHB’s eviction, previously issued a pamphlet calling for the cancellation of the agreement and likening it to “taking bitter medicine to cure a disease” or “amputating an organ to stop the spread of cancer.”

The Progressive Party of the Maldives (PPM), a major opponent of the MDP’s government’s signing of the concession agreement, has in recent months appeared to have taken a more conciliatory position, blaming the fallout of the agreement’s sudden cancellation on President Waheed.

“We told the next President Mr Waheed that he should hold discussions with the GMR Group and the Indian government to arrive at an acceptable solution, after which the government was free to act on its own,” PPM head and former Maldivian President Maumoon Abdul Gayoom told Indian media in June. “Unfortunately, this was not done and suddenly there was this unhappy ending.”

The MDP has meanwhile signalled that if elected, it intends to negotiate the return of the developer. Construction of the new terminal was originally pegged for completion by 2014.

“The coup government nullified the agreement, and we will see how best to rectify it,” former Economic Development Minister Mahmoud Razee told Minivan News.

“If need be we will go to the Majlis. Our objective is to get work restarted as quickly as possible,” he said.