Government violated pre-contractual obligations towards Windward Roads

GREAT BAY – The government violated its pre-contractual obligations towards contractor Windward Roads when it unilaterally terminated negotiations on December 19, 2011 about the construction of a waste to energy facility on Pond Island. This appears from a ruling from the Court in First Instance.

The waste-to-energy saga

The court sentenced the country to pay Windward Roads 60,730 guilders for turnover taxes; earlier the country already paid the contractor a bit more than 1 million guilders in a partial settlement on August 7, 2013. Windward Roads demands compensation to the tune of 4.5 million guilders.

The court allowed the company to present an elucidation about all the damages it is claiming and to substantiate each claim with evidence. The case returns to court on June 13.

The court ruling sheds light on the busted negotiations about the construction of a waste to energy plant and about the role the government and government-owned utilities company Gebe played in it.

On May 15, 2009 the legal predecessor of Country St. Maarten informed Windward Roads that its proposal for the construction of a solid waste processing facility contained sufficient information to continue with the negotiation phase.

The idea was that the contractor would finance, build, own, operate and transfer the facility. A special purpose vehicle, the company Agrisoil (later to be replaced by Sustainable Waste Services B.V.) would be paid by Gebe for the production of energy. But already in the first months after the May 15 confirmation letter things went out of control.

On November 9, 2009, Windward Roads informed Public Works Commissioner Theo Heyliger that it had not received additional information it needed to secure financing for the project and that this put the feasibility of the project schedule in peril.

The response from the government was that it had no obligations in this respect and that obtaining financing was the sole responsibility of Windward Roads. Later that month, after apparent “fruitful contract meetings” the company said that it would have a contract package ready for signing by January 31, 2010, with a possible extension until March 31.

Everything seemed to be on track: “In principle we have finalized the arrangements for securing the capital needed in order to carry out the project in full,” a letter to the government dated November 26, 2009 stated.

In December Windward Roads noted that the only pending issue was a business plan of Agrisoil (the company that was supposed to get paid by Gebe for the energy-production of the facility).

On May 16, 2010 Sipke de Haan, chairman of the steering committee for the project suggested to go through the contract one more time and to agree on adjustments to the original text.

That led to an irritated response from Windward Roads on June 3: “Let me begin by pointing out that most of the adjustments are caused by you by changing the payment mechanism. Increasingly I am getting the impression that you don’t care when this process comes to an end. I want to emphasize once more that the National Investment Bank will increase the interest rates if there is no agreement on the level of the Island Council by June 21. I hope I do not have to explain the consequences of this. Secondly, if there is no agreement in the Island Council by June 21, then when will this happen? I don’t understand anything of this anymore.”

Then there is a radio silence until September 1, 2010 when De Haan asked Windward Roads: “Are you going to adjust the contact based on the last round of comments? If so, when can I expect the adjusted version?”

Half October De Haan has commented on the latest adjustments and by November 5, he was ready to do business and send the contract by November 11 to consultant KEMA.

But on December 7, 2010, Minister Heyliger said in a digital conference that he has diligently examined the work of De Haan, advisor KPMG and KEMA and said: “I want to make a few issues very clear. Please do not confuse the acceptance of the above mentioned consultants as my approval or consent to go to Parliament. This is a multi-million dollar project that will mean a great deal but I must be assured that it is in the best interest of my people and in line with contracts that have been negotiated before. Please do not get into any tantrum but that is the way it goes. (….) Your investments thus far will come to fruition but now under my due diligence. So patience.”

On January 10, 2011, De Haan send an email to Gebe, noting that he did not receive any comment on the proposed power purchasing agreement, a document that regulates the tariff Gebe will pay to Agrisoil for electricity.

On March 7, 2011, De Haan mailed to Windward Roads: “No idea when or if we will still get a reaction from Gebe. I mailed Brooks a couple of times but I did not get a reaction.”

On March 21, 2011, Windward Roads wrote in a letter to the Vromi-department that the company and its partners have invested $3.9 million in the project and that it seems likely that the contract will not be signed by March 31, “due to the non-cooperation of Gebe.”

On July 20, the minister of Vromi wrote to Windward Roads that it was not the government’s responsibility to ensure the cooperation of Gebe.

On September 21, in a reaction to new proposals from the government, Windward Roads noted that the government is “looking for a system with a long term annual maximum capacity of the cBOS installation of 70,000 ton and a construction and demolition installation with a long term annual maximum capacity of 50,000 ton, in combination with optimal sorting techniques for glass, steel and aluminum.”

The introduction of these new criteria required, in the view of the contractor, “a balanced and fair statement of indemnification.”

Then, on December 19, 2011, the government abruptly terminated the negotiations, mentioning five arguments; one of them was a dispute about the reliability of the cBOS technology. But the government also alleged that Windward Roads failed to inform that the supplier of the cBOS-technology, W2E USA had gone bankrupt.

“The omission of not informing us did not qualify you as a ‘good faith’ partner in the negotiations,” the Vromi-Minister wrote in this letter.

The contractor expressed its amazement about the decision in a letter dated March 5, 2012. “We are of the opinion that the failure to complete this project is mainly caused by non-compliance of the government of St. Maarten.”

Windward Road said that the government made financing impossible, among others by “not delivering on its commitments regarding the power purchase agreement drafts.”

The letter ended with an invitation for talks about an amicable settlement.

On August 7, parties reached a partial settlement for a bit more than 1 million guilders, plus 15 percent costs.

The court went with a toothcomb over all the arguments from both parties and found that the government had no grounds for terminating the contract negotiations.

“The reasons the country has used as the basis for its decision to terminate the negotiations are not in order,” the court wrote in its ruling, adding that the country violated the principles of reasonableness and justness and that the country also violated its pre-contractual obligations towards Windward Roads.

Photo caption: The Dumfries waste processing plant in Scotland uses the same cBOS technology Windward Roads proposed to the government in 2009. Photo contributed