Comment: Conspiracy of silence over GMR arbitration

Amidst the high decibel of the election campaign, it is easy to completely miss out on some critical issues.

This seems to have happened last week, when the Maldives Airport Company Limited (MACL) recorded an early loss in its legal battle with GMR over [President Dr Mohamed] Waheed’s government’s decision to terminate the Male airport concession agreement. There has been no word or confirmation from the Waheed government on this and his eager-than-ever spokespersons are nowhere to be found. This is especially interesting since they have been more than keen to take any credit they can on the entire airport saga.

Per a report in Minivan News, this is an “early legal skirmish” for GMR in its $1.4Bn claim against Government of Maldives and MACL for illegal termination of its concession agreement in December last year. In one of the earlier comment pieces in this same publication, it has been argued how the termination was a political decision, not an economic decision and how politicisation of the airport by Waheed and his ex-allies is systematically destroying our national asset. This latest news now is all the more concerning and I am certainly surprised to see that it hasn’t been picked up by any of the other newspapers which leads me to believe many people didn’t realize what this may mean for us as a nation.

While Minivan News hasn’t highlighted their source for this judicial order. I wish they had.  In this column I will highlight what I believe are the implications of this order.

Legal setback – arbitration panel leaning away from MACL?

No doubt this is a major setback for Waheed and his Attorney General, Azima Shukoor. Waheed’s government has lost the first round of the battle and the first blood has gone to the other side. The judicial order provides early indications as to which way the arbitration panel may be leaning based on the arguments that they have heard from both parties till now.

Waheed government could not convince the tribunal members on the right way to proceed with the case and this would certainly make one nervous about whether they will be able to convince the panel about their legal position that the contract is void. We have to keep in mind that members of the government and their allies were publicly criticising the deal, protests were being staged against GMR and cries of nationalisation were being made just before Azima suddenly pulled the rabbit out of the hat and claimed that there was no contract all this while!

Details of the political campaign run by members of the government are in the public domain, and they raise questions as to whether the contract was invalid or if the lawyers were asked to find ways of canceling it.

Certainty of compensation by Maldives for termination?

The most important part of the article that the tribunal has discussed is awarding three different types of claims according to which way the panel decides on the legal question of whether the contract was void ab initio or not: “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”. If one thinks deeply about it, this doesn’t sound like good news at all for Waheed and Azima, or for our nation.

If we lose the legal arguments, we will be faced with a US$1.4 billion claim that we may have to pay for how the airport contract was terminated. However, if Azima wins the legal arguments in the panel then it’s the restitution claims that will be relevant. Otherwise, the contract itself has some termination clauses and this is the third type of claim that may be awarded by the panel based on legal arguments. Let’s look at each of these three claims one by one.

GMR’s US$1.4 billion claim is what it is and we will have to wait and watch if they are awarded this claim. The more interesting aspect is what the panel seems to have said on the other two types of claims.

On the termination payments per the contract, I am all but reminded that in a press conference last year Azima herself said that if the contract is cancelled, we may have to pay GMR anywhere between US$600-700 million in compensation. Given that Azima has been maintaining that Nasheed’s government did not do any due diligence while procuring the contract, whereas she has done extensive due diligence before canceling the contract, I am tempted to take her word on the estimated cost of termination. Hence, in this case, we may have to pay GMR around US$600-700 million.

Now, for the worst part and which Azima has argued in court: in case we win the legal arguments in court, the panel will decide for restitution. If one quickly goes to Wikipedia and understands what restitution refers to in legal terms, it means “orders the defendant to give up his/her gains to the claimant… to restore the benefit conferred to the non-breaching party”.

In essence, if restitution is done in this case, the government will have to give back all the money that GMR brought to Maldives with them to invest and GMR will have to give back what they got from Maldives. Even some quick ‘back-of-the-envelope’ calculations reveal that this would still mean paying around US$240 million to GMR!

If one believes their statements that they have already invested ~US$240 million in the airport, then this money will need to be given back to GMR. At the same time, they have also said that they haven’t taken investment out of the airport and whatever they earned was put back in the airport. Hence, we are still looking at a claim of US$240 million that we may need to give GMR even if we win the legal case!

Conspiracy of silence?

During his controversy-ridden reign in which he has lost allies one by one, Waheed has taken a number of suspect decisions which he has been too happy to slip under the carpet. He perhaps thought that the decision to axe the airport contract was a populist decision and he had probably hoped that it would bring him back to power.

This is why his spokespersons as well as the AG were trigger-happy to announce that nothing will happen in the arbitration before next year – “since there is no valid contract, there can be no compensation”.

Now, this early legal setback– which may cost us millions of dollars in damages even if we win the arbitration– has laid bare all the arguments that Azima gave when the contract was cancelled. The shallowness of her arguments has now left the nation with a US$240 million bill in the best case, and more than a billion dollars at worst! So much for the “legal due diligence and advice of foreign lawyers” that she received.

No wonder that there has been no word from the government on this so far. This may be either because they have nothing to say given the early setback that they have received or they would rather push this under the rug and hope they can get through the elections without making any comment which may jeopardise their chances. At the end of it, they seem to have taken advantage of a tight election schedule to hide without giving any explanations whatsoever!

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