A Disaster in Waiting

The Betamax case involving a breach of contract by the government appears to have now been determined. The Singapore International Arbitration Centre (SIAC), which was in charge of deciding the case between Betamax, a local company, and the State Trading Corporation (STC), a state enterprise involved in importing several commodities including petroleum products, gave its decision on 6th June in favour of Betamax. Accordingly, the STC would have to pay damages amounting to between $115-125 million (Rs 4.1-4.5 billion) to Betamax for unjustified breach of contract.

The ruling of the SIAC, protected by confidentiality provisions, will not be available for public consultation, and it is known whether it has gone beyond the issue of breach of contract to examine the terms and conditions thereof. It may be recalled that one of the first dossiers the government issuing from the general election of December 2014 took up after assuming power was the contract given out to Betamax by the STC under the preceding government in 2009. It tried at first to negotiate Betamax out of the country’s petroleum transportation contract in January 2015, on the ground that the contract had been awarded unlawfully thanks to a colourable device consisting of amending public procurement laws and singling it out for privileged contract allocation.

To no effect, since, as advised to the government by the State Law Office previously, the contract had been made fully compliant with the changed legal dispositions and was seemingly cast in iron. Given this, Betamax which had arranged to transport our petroleum requirements in association with a Singapore company, knew that it stood on the right side of the law.

That this was actually the case was affirmed, as it were, by the Office of the Director of Public Prosecutions (ODPP), later in November 2016. The ODPP explaining its decision not to prosecute several persons including the former Prime Minister; former Minister of Public Infrastructure, Transport & Shipping; the director of Betamax and certain public officials for alleged offences of bribery of public official, forgery, conspiracy and related offences under the Prevention of Corruption Act and the Public Procurement Act, as asked for by the police in December 2015, found no evidence that the law, as it now stood, had been breached.

While it may be that the previous government appeared to have facilitated the deal by, for example, amending the Public Procurement Act and the Public Procurement Rules, all the tender procedures had already been amended before the petroleum transportation contract had been allocated by the STC to Betamax. So, it could not be stood up that the contract would have been allocated contrary to prevailing legal provisions. In the circumstances, it is beside the point to argue that the new tendering procedures would have been tailor-made to ensure that the contract be allocated to Betamax.

However, the present government was adamant that the law had been breached and colourable devices had been resorted to so as to allocate the contract to Betamax. Not being able to negotiate the company out of the contract, it decided by end-January 2015, rashly and unilaterally, to rescind the Betamax contract despite having been advised by the State Law Office (SLO) previously that it would be out of order to do so. It found a presumably cheaper alternative for transporting our petroleum requirements. Whether this is true or not, we don’t know, but that is no substitute for failing to comply with the law of contracts.

The fact now is, as established by the Singapore Arbitration Centre, that the Lepep government acted in breach of law by rescinding the contract, for which the State is now called upon to pay enormous damages. This means that those frontline ministers who insisted in early 2015 they were right to rescind the Betamax contract unilaterally, were not competent. It is they who have landed the country in this bad plight.

Mr Xavier-Luc Duval, Leader of the Opposition, whose PMSD recently broke ranks from the government, was at the time the contract was given to Betamax the Vice Prime Minister of the then government of 2009. After this week’s Singapore award in favour of Betamax, he has stated that while he was in the present government in January 2015, he had “beseeched the government not to go ahead to breach the contract with Betamax”. The fact remains however that the government collectively, including Messrs Duval, Bhadain and the others, decided to go ahead, with the consequences that we see today.

What defies comprehension is the adamant attitude taken by the Lepep government in the face of what its spokespersons now qualify as a “contract cast in iron” when referring to the STC-Betamax contract but nonetheless deciding to unilaterally rescind it despite contrary advice from the State Law Office. That qualification – “contrat en béton” — was also employed by the present Minister Mentor since January 2015 regarding the same contract, but also with reference to the CEB-Independent Power Producers’ contracts for the supply of sugar industry-generated electricity. In the latter case, no such action was envisaged to rescind what are generally considered to favour the IPPs at the expense of the CEB and consumers.

The next point of relevance is compliance with the verdict of the SIAC. In the usual case, parties to an arbitration procedure agree beforehand that they will be bound by the decision of the arbitral court. Any device resorted to – such as appealing the arbitral decision before the Supreme Court – so as to appear to fight it out to the end serves as no excuse for the elementary failure of the politicians in question. Just like the ODPP and the SLO, the Arbitral Court goes by the state of the law as it stands. If it has been given a particular bias that is of no concern to it. Besides, the law of contracts is perfectly clear and its observance or non-observance by anyone of the two parties is what the Arbitrator goes by.

The country is paying the price for a situation where power goes to the head of politicians who think that they can get off scot-free no matter which questionable decisions they take, how they twist existing laws and rules to suit their momentary conveniences and how they explain away controversial decisions they take as it suits their moods and preferences. So, the present situation – and similar other forthcoming cases for damages in view of wrongful decisions taken by office holders – not only has significant monetary impact on the country. It is also symptomatic of a state of affairs in which ungovernable politicians feel free to take arbitrary decisions and undermine public institutions, no matter how much it bleeds the public purse eventually.

This was a disaster in waiting. Others of the same nature are expected to happen in time to come for the same reason – rash political decisions which satisfy the egos of politicians in power while undermining the good working of public institutions.


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