Ocean Conversion (BVI) Ltd v Attorney General of the Virgin Islands

• Jurisdiction: British Virgin Islands
• Judge: Bannister J
• Judgment Date: 28 October 2009
• Docket Number: BVIHCV2008/0192,BVIHCV2007/0277
• Court: High Court (British Virgin Islands)
• Date: 28 October 2009

EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE (CIVIL)

BVIHCV2007/0277

BETWEEN

The Attorney General of the Virgin Islands

Claimant

and

Ocean Conversion (BVI) Limited

Defendant

Appearances:

Mr. Baba Aziz and Ms Karen Reid of the Attorney General's Chambers for the Attorney General Mr. Sydney A Bennett QC and Ms Anthea L Smith, both of J.S. Archibald & Co, for Ocean Conversions Limited

(Contract with BVI Government for production of fresh water by reverse osmosis technology — whether determined by election of BVI Government to purchase plant at end of first contractual term — whether continued for additional contractual term or month to month — whether BVI Government entitled to ownership of the plant without payment at end of second contractual term — whether contractor a trespasser — whether contractor entitled to charge for supply of water to BVI Government after end of second contractual term — whether supply contravening Water Ordinance Cap 153 — illegality — whether contractor entitled to compensation for improvements and enlargements by way of equitable compensation)

1 Bannister J [ag]: These proceedings are comprised within two separate actions which ought to have been dealt with by claim and counterclaim or, at the very least, to have been consolidated. They never were and the result has been quite unnecessary complication and added expense. I heard them together on 23 and 24 July 2009.

Introduction

2 The disputes between the parties have their origin in a contract entered into on 9 May 2009 between the Government of the British Virgin Islands (“the Government”) and a Massachusetts incorporated company called Reliable Water Company Inc (“RW Inc”“the contract”) The contract provided for the installation by RW Inc on land owned by the Government at Baughers Bay, Road Town, Tortola (“the site”) of a plant for the production of potable water from seawater (“the plant”). RW Inc was to extract the seawater from boreholes adjacent to the site and turn it into fresh water using the reverse osmosis system (essentially a sophisticated method of high pressure filtration). The contract provided that RW Inc should deliver the potable water thus produced to a clearwell owned by the Government on the site. The water would then be pumped from the clearwell through a pipeline owned by the Government to a 275,000 Igal reservoir, also owned by the Government, at Fort Hill, Road Town. RW Inc was to be paid for the water delivered to the Government at the clearwell on monthly invoices calculated by means of a formula containing a basic price per 1,000 Igal, adjusted for inflation and electricity costs and with a penalty for any breaches of certain quality specifications.

3 On 4 July 1990 RW Inc assigned its interest in the contract to a BVI incorporated company called Reliable Water (BVI) Ltd, which subsequently changed its name to Ocean Conversion (BVI) Limited (“OC”).

4 I shall have to consider the terms of the contract in detail later in this judgment. There are difficulties with some of the drafting, but it can be safely stated by way of introduction that the contract was structured to run for a seven year term from the “Startup Date” (the date when the plant was certified to be capable of delivering water to the clearwell). If, eight months prior to expiration of the seven year term, the Government advised OC of its decision to purchase the plant, then the Government was to pay OC $1.125 million and OC was obliged to hand over the plant to the Government. If the Government did not so advise OC of its decision to purchase the plant, then the contract was automatically extended for a further seven year term, at the expiration of which the plant became the property of the Government “without any further payment”. The commercial thinking underlying this arrangement is self evident: a fourteen year term must have been envisaged by the parties as sufficient to provide OC with a commercially acceptable return on its investment. It must further have been considered that that would not have been achieved by the end of a mere seven years of operation. Hence, it is to be inferred, the provision for the Government to make a payment to OC if the contract ran for the initial term only.

5 The original seven year term was expressly extended by two supplemental agreements so that it ended on 31 May 1999. On 30 September 1998, precisely eight months before the expiry of the initial term, the acting permanent secretary at the Ministry of Communications and Works wrote to OC advising it that the Government was prepared to exercise what the letter described as the option to purchase the plant. No purchase money was ever paid by the Government to OC or requested from the Government by OC. OC continued delivering water to the Government and the Government continued to pay for it as if the terms of the contract governing price (which had been amended by the first supplemental agreement) continued to govern the position between the parties.

6 On 31 May 2006 (the date when the second seven year term, on the assumption that the Government had not elected to purchase the plant upon the end of the original seven year term, would have expired) OC wrote to the Government asserting that the contract had expired on that day and asking for a meeting to discuss the way forward. OC asked for an “extension” of the contract until the parties had reached agreement as to the way forward. There is a reference to, but no evidence about, a meeting between the parties on 15 August 2006. On 25 September 2006 the Ministry of Communications and Works served OC with what it called a “Notice of Vesting”. That notice, which was signed by the Minister, stated that upon the expiration of the seven year extension of the contract on 31 May 2006 the plant “hereby vests in the Government”.

7 The Government continued to pay for water delivered to the clearwell by OC at the contract rate until 31 December 2006. Since then invoices totalling some $26,443,138 have been delivered by OC to the Government in respect of water delivered down to April 2009. There is no dispute that the Government has had the water and no suggestion that the amounts claimed in the invoices are not correctly calculated by reference to the pricing mechanism laid down in the contract. Instead, the Government says that it “temporarily suspended” payment for water produced from the plant pending resolution of the dispute between the parties about the ownership of the plant. Subsequently, says the Government, it decided to pay for water delivered by OC since 1 January 2007 at the rate of $6.88 per thousand Igal, this being the amount which the Government claims is the cost to OC of producing the water. The resulting shortfall between the amounts invoiced by OC and the amounts paid to it by the Government as at April 2009 was some $13,773,950.

8 On 21 November 2007, the Government started an action against OC claiming a declaration that the Government “became vested” with an absolute proprietary interest in the plant with effect from 1 June 2006; possession; and a further declaration that it is entitled to “all profits or benefits” that OC has had or may subsequently obtain from wrongfully operating the plant after 31 May 2006. I shall refer to this action as the possession claim. The position originally taken in the possession claim by the Government was that (despite the terms of its letter of 30 September 1998) it had not elected to purchase the plant at the end of the initial seven year term, so that the contract had gone into its additional seven year term and expired by effluxion of time on 31 May 2006. OC attempted to stay the possession claim on the basis of an arbitration clause in the contract, but a stay was refused by Joseph-Olivetti J on 14 December 2007 and her decision was upheld by the Court of Appeal.

9 Instead of counterclaiming in the possession claim, OC on 4 July 2008 brought a separate action against the Government for the difference between what it had invoiced and what it had been paid for water since 1 January 2007. I shall refer to this action as the payment claim.

Procedural events

10 I have already mentioned the fact that these proceedings were never consolidated. I should also mention that on 12 May 2009 I heard an application by OC in the payment claim for judgment by way of preliminary issue. I refused that application, in large part on the grounds that I did not consider that it was prudent, in the light of the overlap with the pleaded issues in the possession claim, to determine the payment claim summarily and in isolation. Ultimately, the two claims were set down to be heard together in the week commencing 21 July 2009. Orders had been made for expert evidence to be adduced in the possession claim on the issue of the value of the extensions or improvements carried out by OC as summarized above and in the payment claim on the issue of what was the actual cost to OC of the production of potable water at the plant. Shortly before the claims were due to come on for trial, the Government's expert witness in the payment claim suffered a family crisis. It was agreed that the claims should proceed within the week commencing 21 July 2009, but with the expert evidence being stood over to be heard at a later date. The parties have also agreed that in delivering this judgment I should determine as many of the issues as I feel able to decide in the absence of expert evidence and to defer deciding only such issues, if any, as I consider turn upon the expert evidence.

The contractual documents

11 With that brief introduction I can now turn to the contractual and other material documents and to the limited amount of admissible oral evidence of fact which was adduced by the parties.

12 Clause 1 of the contract, the interpretation clause, is in the following terms:

Interpretation

In this...