This article examines the recent Court of Appeal ruling that the THA did not have the power to enter certain PPPs as had been done in the MILSHIRV project.
In November 2011, the THA entered a Public Private Partnership with the Rahael Holdings group for MILSHIRV, a new office building at the corner of Claude Noel Highway and Shirvan Road in western Tobago. I was heavily critical of that project as it was clear to me that the basic principles of needs assessment had been violated, as detailed later in this article.
At that time the PP was in government and the then AG sued to test the legality of the MILSHIRV PPP, which was done via an arrangement to Build Own Lease and Transfer (BOLT) that property to the THA at the end of the 20-year lease. Crucially, the parties entered into a Consent Order to convert the litigation to an interpretation matter in which the Court was asked to rule on –
- Finance Ministry approval – Is THA required to obtain approval from the Ministry of Finance before entering a BOLT arrangement?
- Tendering procedure – Is THA required to follow the procedures of the Central Tenders Board Act (CTB Act) in entering a BOLT arrangement?
On 30 April 2014, the High Court ruled that the THA was lawfully entitled to enter BOLT arrangements and the AG appealed that ruling. On 21 October 2019, the Court of Appeal ruled that the THA is not lawfully entitled to enter into BOLT arrangements or to proceed outside the ambit of the Central Tenders Board Act. The THA has now declared that it is going to appeal that ruling at the Privy Council, which I expect to result in yet another defeat.
Given the Court of Appeal ruling on 21 October 2019, it is a good thing for the developers that such a shift was agreed. The Courts generally do not entertain purely interpretation matters as those could be considered merely academic and a waste of valuable resources unless issues of wider importance can be clarified, as is the case here, given the growing role of PPPs in national development.
When one considers the existence and meaning of that Consent Order, it poses a serious issue of public administration before us. The meaning of the Court of Appeal ruling is that the MILSHIRV arrangement effectively failed both legal tests being litigated. That is my reading. The plain meaning of all this is troubling, since both parties to this litigation — the AG and the THA— agreed to leave the commercial deal intact and to limit the Court’s role to interpretation of the law for future reference.
Even more troubling for me, even if it is unsurprising, is that this agreement to leave the legality of the commercial deal unexamined was made between supposedly opposed political sides.
The Courts must be alive to the real impact and consequence of these damaging deals, especially when the nation’s fortunes are at a low point.
ADDENDUM: The MILSHIRV BOLT arrangement
- THA purchased this 3-acre parcel of land from private landowners for $12M and immediately leased it back to them for a 199-year lease at a nominal rent;
- The private developers agreed to design and build a fully fitted and finished 83,000 sq. ft office building at a cost of $143M;
- THA agreed to lease it for 20 years at a fixed rent of $15.61 per sq. ft — an annual rent of about $15.55M, totalling some $311M over the term of the 20-year lease;
- The property reverts to the THA at the end of the lease.
ADDENDUM: The meaning of the MILSHIRV BOLT arrangement
This project was analysed by reference to the 225 pages of project documentation released by the THA (now no longer available on its website, for whatever reason) and in my opinion, the greatest areas of concern were –
- Size – THA stated that the Divisions for which this building was being leased occupied 28,500 sq. ft, yet the completed project is 83,000 sq. ft — almost three times more space;
- Quality – The new building is projected to cost $143M, which equates to $1,723 per sq. ft, which is at the upper end of office costs, even when we consider that the contract was reported to be for a fully fitted building;
- Rent – The rent paid by the THA for the Divisions to be relocated to MILSHIRV averages $8.17 per sq. ft. The rent for the new facility was agreed at $15.61 per sq. ft, which is almost twice that rate. It was telling that the THA relied on the statements of a Civil Engineer, Peter Forde, who sought to justify that rent by reference to the fact that $10 per sq. ft was being paid for some offices in Scarborough. Forde is an esteemed engineer with whom I have worked well in the past, but that is like relying on my advice, as a Chartered Valuation Surveyor, as to the correct steel to use in some complex structure.
- Total Costs – The total monthly rent which THA paid for those Divisions was $231,788, while the new project has a monthly rent of $1.295M – more than five times more.
In its publication, the THA made a compelling case that the Central Government has starved them of financial resources over a considerable period. The THA, starved of money, attempted to justify a deal which hugely increased its monthly rent bill, for an office building three times larger than required at a higher quality than any other in Tobago. That is the sense of this deal.