Dear Editor,
I’ll admit, from the perspective of a Guyanese citizen that the parking meter contract and its enforcement can be quite disheartening. Yet, from a legal perspective it is a constant source of intrigue, so much so in fact that had I attempted to produce a legal opinion on it, in its entirety, I would end up with a book rather than a pamphlet. As such, I have decided to narrow my scope to perhaps the most amusing term of the seemingly ill-fated contract between the Mayor & City Council and Smart City Solutions Inc, that is, clause “14.2. Unilateral Termination by the City”.
For those who have not yet seen this term (perhaps the Mayor and City Council themselves) it reads as follows:
“If this Agreement is terminated by the City without the written consent of the Concessionaire, or is cancelled, rescinded or voided during the Term for any reason over the objection and without the consent of the Concessionaire a lump sum payment equivalent to (i) the total direct and Indirect, hard and soft cost cumulative gross investment of the Concessionaire in the Project; plus (ii) an amount equal to 25,0% of the total direct and indirect, hard and soft cost cumulative gross investment of the Concessionaire in the Project; multiplied by (iii) the number of years (or fraction thereof) remaining under the Term at the time of the occurrence of such termination, cancellation, rescinding or voiding; plus, without duplication, (iv) the reasonable out-of-pocket and documented costs and expenses incurred by the Concessionaire as a direct result of such termination, cancellation, rescinding or voiding…”
(Kaieteur News, February 13, 2017)
The first objection to this term is not one which requires the trained eye of a qualified attorney. Indeed, you can head down to University of Guyana and ask any first-year student doing law about the concept of rescission and about the effects of a contract being declared void. When a contract is voided, or rescinded, it is deemed never to have come into existence in the first place. The effect of this is that a party to a contract cannot attempt to enforce any of the terms of the contract at all, since legally, there was never a contract in the first place. Therefore, clause 14.2 is analogous to saying the following: “In the event that there is no contract in existence between us, we will enforce this term of the contract that can only be enforced if this contract in fact exists”.
But what if the contract is not voided, what if the city simply terminates the contract against the wishes of Smart City Solutions, can this term be enforced?
The general position in contract law is highlighted by the case of L’Estrange v Graucob (1934) All ER Rep 16 which essentially states that one is bound by what he signs. There are exceptions to this position, the law has developed protections against grossly unfavourable terms. While Guyana does not seem to have a statutory equivalent of the Unfair Contract Terms Act of other jurisdictions, there are still common law protections. The court’s long established refusal to enforce what it deems to be penalty clauses is a protection that is particularly relevant in this situation. In order to better understand this protection, and its basis, it is helpful to consider the overarching principle on damages for breach of a contract. In law, as set out in the case Addis v Gramophone (1909) AC 488 the damages awarded by the court for breach of a contract, according to Lord Atkinson, are meant to be “adequate compensation in money for the loss of that which he would have received had his contract been kept, and no more.” It is this “more” with which we are presently concerned, since “more” represents profiting from a breach of contract. It would be poor public policy to allow aggrieved parties to profit from the breach of their contract, that is, to receive more than adequate compensation in money for the loss which they incurred, since it would provide incentive to induce the breach of their contract for profit. It is upon this very principle that ‘penalty’ clauses in contracts have been held to be unenforceable since they do not represent a genuine pre-estimate of the loss that would occur to the aggrieved party on the occasion of a breach; they in fact represent more than adequate compensation; without valid reason that is unconscionable. The test the court uses to determine whether a clause of a contract is penal in nature has recently been tweaked and is set forth in Cavendish Square Holding BV v El Makdessi; Parkingeye Ltd v Beavis –(2016) EGLR 15 where Lord Neuberger and Lord Sumption stated “The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.”
The legitimate interest that Smart City Solutions has in the enforcement of the contract is, of course, the profit which is expected to derive from it; but is the sum stipulated in clause 14.2 proportional to this profit?
According to various news sources Smart City Solutions estimated its investment to be US$10M; so we have a figure to work with. According to clause 14.2 if the Mayor & City Council choose to step out of the contract unilaterally they must pay back US$10M in addition to US$2.5M for each year the contract would have run had it not been terminated. The length of the contract according to article 2 is forty-nine years (49). This means that if the Mayor & City Council terminated the contract unilaterally in the first year, they would have to pay US$130M (10M + 2.5M*48) as a lump sum. This amount of money is enough to fund an entirely new Caribbean Court of Justice (US$100M) with enough left over to put up numerous multi-level car parks around Georgetown.
The Mayor & City Council claim that the contract was amended, but I, much like the court would be hard pressed to simply take their word for it without having sight of these amendments. The excuse that the Mayor & City Council are bound by a confidentiality clause is unacceptable since they bound themselves; it concerns public funds, so they should make it a public contract.
In any event, under the hypothetical revised contract, the penalty of US$38.5M for an early unilateral termination of the contract by the Mayor & City Council is actually not much better since it means that Smart City Solutions expects to nearly quadruple its investment in two decades.
I would be utterly flabbergasted if the court had held clause 14.2 was anything short of an exorbitant, unconscionable and unenforceable penalty clause. I cannot conceive of any valid argument from Smart City Solutions in favour of it representing a genuine pre-estimate of loss, especially in light of the fact that Georgetown almost became a ghost town upon the implementing of parking fees.
More worrisome still is that clause 14.2 leads me to believe that no attorney was consulted by the Mayor & City Council before signing.
Maybe they did consult an attorney but as he was about to head to City Hall, he noticed that his vehicle was clamped.
Yours faithfully,
Joshua Abdool
