GMR-Maldives arbitration to begin mid 2014: Attorney General’s Office

The Attorney General’s (AG’s) Office has confirmed that an arbitration case concerning the government’s decision to void its concession agreement with Indian Infrastructure giant GMR will begin by the middle of next year.

Deputy Solicitor General Ahmed Usham today told Minivan News that both parties had agreed to commence proceedings by the middle of 2014 and were now waiting on arbitrators to confirm the exact schedule for when their respective cases would be presented.

The initial agreement was reached after representatives for the state and GMR met in London, England on April 10 for a preliminary procedural meeting.  A timetable was agreed upon for holding hearings over the cancellation of a US$511 million contract to develop and manage a new terminal at Ibrahim Nasir International Airport (INIA).

Usham said that the hearing in London last week had been focused solely on establishing a timetable for when arbitration will begin proper in Singapore.

“It is quite straight forward in these procedural hearings.  We discussed the schedule for hearings, such as when cases would be presented, as well as when parties can reply and make counter claims,” he said. “These arbitrators are quite busy, so it can be difficult to manage time in their schedules.”

The AG’s Office has previously claimed that the Maldives will be represented by Singapore National University Professor M Sonaraja, while former Chief Justice of the UK, Lord Nicholas Addison Phillips, will represent GMR.

The arbitrator mutually agreed by both GMR and the government is retired senior UK Judge, Lord Leonard Hubert Hoffman.

Concession agreement

In 2010, GMR-Malaysia Airports Holdings Berhad (MAHB) consortium, the government of former President Mohamed Nasheed and Maldives Airport Company Limited (MACL) entered into a 25-year concession agreement worth US$511 million (MVR 7.787 billion). The agreement charged the GMR-MAHB Consortium with the management and upgrading of INIA within the 25 year contract period.

However, in November 2012, the government of President Dr Mohamed Waheed Hassan Manik declared the developer’s concession agreement void and ordered it to leave the country within seven days.

A last minute injunction from the Singapore High Court during arbitration proceedings was overturned on December 6, after Singapore’s Chief Justice Sundaresh Menon declared that “the Maldives government has the power to do what it wants, including expropriating the airport.”

GMR is seeking US$800 million in compensation for the sudden termination, while the Maldivian government is contending that it owes nothing as the contract was void ab initio – meaning the contract was invalid from the outset.

Should the argument of void ab initio fail, the government has claimed the second legal grounds on which it would argue in favour of termination of the contract would be that the contract had been ‘frustrated’.

‘Frustration of a contract’ is an English contract law doctrine which acts as a device to set aside contracts where an unforeseen event either renders contractual obligations impossible, or radically changes the party’s principle purpose for entering into the contract.

“The government has given a seven day notice to GMR to leave the airport. The agreement states that GMR should be given a 30 day notice but the government believes that since the contract is void, it need not be followed,” said then Attorney General Azima Shukoor.

The awarding of the bid in 2010 was overseen by the World Bank’s International Finance Corporation (IFC), which the Waheed government has accused of being “negligent” and “irresponsible”.

Should the matter be decided in the government’s favour, uncertainty remains as to the potential impact on foreign investor sentiment given the prospect of sudden asset seizure under the ‘void ab initio’ precedent.

If decided in GMR’s favour, the outcome of the case could potentially see the Maldives facing sovereign bankruptcy, with millions of dollars in additional debt emptying the state’s already dwindling reserves, crippling the country’s ability to obtain further credit, and potentially sparking an economic or currency crisis.