Ocean Conversion (BVI) Ltd Appellant v Attorney General Respondent

JurisdictionBritish Virgin Islands
CourtCourt of Appeal (British Virgin Islands)
JudgeMITCHELL, J.A.,Don Mitchell,Janice M. Pereira,Justice of Appeal,Davidson K. Baptiste
Judgment Date18 April 2012
Judgment citation (vLex)[2012] ECSC J0418-4
Date18 April 2012
Docket NumberHCVAP 2009/019
[2012] ECSC J0418-4

THE EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Before

The Hon. Mde. Janice M. Pereira Justice of Appeal

The Hon. Mr. Davidson K. Baptiste Justice of Appeal

The Hon. Mr. Don Mitchell Justice of Appeal [Ag.]

HCVAP 2009/019

HCVAP 2009/020

Between
Ocean Conversion (BVI) Limited
Appellant
and
Attorney General
Respondent
Between:
Attorney General
Appellant
and
Ocean Conversion (BVI) Limited
Respondent
Appearances:

Mr. Sydney A. Bennett, QC, Ms. Anthea L. Smith with him, both of J. S. Archibald & Co. for Ocean Conversion (BVI) Limited

Mr. Baba Aziz, Attorney General [Ag.], Ms. Karen Reid and Ms. Maya Barry with him, for the Attorney General

Civil appeal - Contract - Construction of contracts - Exercise of option - Meaning of the words "prepared to exercise the option" -Failure to tender purchase price - Trade fixtures - Plant expanded beyond originally agreed size - Expenditure encouraged by one party - Expectation of compensation by other party - Estoppel - Unjust enrichment - Illegal contracts - Trial judge's primary findings of fact - Function of appellate court

A water desalinisation company entered into an agreement with Government intended to continue for two consecutive 7-year terms. The agreement was for the company to produce potable water up to a maximum quantity for public distribution by Government. The company would build and own the plant. Government had an option to purchase the plant for an agreed sum at the end of the first 7-year term. If the agreement was renewed for another 7 years, at the end of that period the plant would belong to Government without further payment. At the end of the first 7-year term, Government served a notice that it was "prepared to exercise the option" to purchase the plant.

The company accepted this as a valid exercise of the option by Government and countered by proposing to re-negotiate the agreement. Government offered the company a three-month extension to finalise the re-negotiations. This offer was not expressly accepted, and expired without any new agreement being concluded. Government did not tender any payment for the purchase of the plant nor did it demand possession of the property. The company remained in possession, continuing to produce and sell water to Government as before. The company subsequently took the position that the agreement had been extended for a further 7 years. Government responded to this suggestion that the agreement was in force only on a month to month basis until negotiations were concluded. The parties subsequently agreed to disagree on the question of whether the agreement had been terminated or renewed.

The company continued to produce and sell water to government as before. Government persuaded the company to increase water production beyond the originally agreed maximum. This necessitated constructing a new plant beyond that contemplated by the original agreement at a cost to the company of $4.765 million. A government minister promised the company that it would be compensated for the extra investment. Government agencies cooperated with the company in catering for the increased supply of water by engaging in major public works needed to handle the increased supply. At the end of the second 7-year term, Government served a notice on the company that ownership of the plant vested in the Government. Government thereby would appear to have reversed its position that the agreement had been terminated at the end of the first 7-year period and that the agreement had been renewed for a second 7-year period. Government now ceased paying for the water supplied and sued for possession.

The company sued for payment. Government refused to pay on the basis that the production of water beyond the maximum agreed was illegal under the Water Supply Ordinance and that no payment was due under an illegal contract. Government denied that it had ever made any promise to pay for the increased capital expenditure on the plant, and demanded immediate possession and an accounting for profits made by the company while in possession of the government's plant. Government asserted that the company had, by its conduct, abandoned any claim to be paid for the plant on the exercise of the option.

Held: dismissing the company's appeal challenging the order of the trial judge giving Government immediate possession of the plant; allowing the company's appeal against the trial judge's dismissal of its counterclaim for compensation for the monies spent in replacing the old plant by a new one and directing an inquiry as to the value of the plant as at the date when the company gave up delivery to Government and further directing that the initial purchase price of $1.42 million be offset against that value as found; dismissing Government's appeal against the various findings of fact of the trial judge; and ordering that Government pay the company its costs in the High Court to be assessed if not agreed and two thirds of that amount in the Court of Appeal, that:

  • 1. The construction of a disputed contract is a matter for the court and does not depend on the understanding of the parties. The test applied by the court in constructing a disputed contract is that of the reasonable man.

    Bahamas International Trust Company Limited and Another v Threadgold [1974] 3 All E.R. 881 applied; Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 All E.R. 98 applied.

  • 2. An appellate court will not easily interfere with a trial judge's primary findings of fact, especially where such findings derived from seeing and hearing the witnesses. However, where a finding was an inference drawn from primary facts and depended on the value to be given to the evidence, the appellate court is as well placed to determine proper inferences to be drawn.

    Janice Reynolds-Greene v Community First Co-operative Credit Union Antigua and Barbuda HCVAP 2008/027 (delivered 25 th October 2010, unreported) followed.

  • 3. The desalinisation plant was not a landlord's fixture as found by the learned trial judge but a trade fixture. Furthermore, the agreement between the parties expressly stated that ownership of the plant was in the company until purchased or acquired by Government in accordance with the terms of the agreement. As such, it remained the property of the company as agreed until it was either paid for at the end of the first 7-year term or vested in government at the end of the second 7-year term.

  • 4. The trial judge's finding that the words in Government's letter, "prepared to exercise" its option, was a valid exercise of the option was justified for the reasons he gave. The only reason government had to send the letter to the company was to give notice of its election to purchase the plant. If Government wanted to do otherwise it would simply have done nothing and the plant would vest in the Government at the end of the second 7-year term without payment for it.

  • 5. Government had exercised the option to purchase the plant at the end of the first 7-year term. By electing to purchase the plant, Government had foreclosed on the possibility of acquiring it by any means other than purchase.

  • 6. The plant that was eventually turned over to Government more than 7 years after the exercise of the option, was not the original plant subject to the agreement. Government had requested the company to incur expense of $4.765 million in expanding the plant on Government's land for Government's benefit, to a size in excess of that contracted for. The old plant for which Government had agreed to pay the sum of $1.42 million was entirely replaced. The company's expectation for an extended tenure or for an allowance for the expenditure had been created or encouraged by Government. It could not have been the common intention of the parties that Government could demand immediate possession of the newly expanded plant without compensation: It would be inequitable for Government to expect ownership of the new plant to be transferred to it without compensation.

    Plimmer and Another v The Mayor, Councillors and Citizens of the City of Wellington [1884] 9 App. Cas. 699 (P.C.) applied; Cobbe v Yeoman's Row Management Limited and Another [2008] 1 W.L.R. 1752 cited.

  • 7. It had always been the intention of the parties that the company would both make a profit on the sale of water and be paid for the capital investment unless the company was permitted to supply water for a sufficient period of time to compensate it for its capital investment. Government took possession of the new plant a few years after it had been completed. The profit made by the company in selling water to Government during the extended period did not amount to double dipping in the event Government was ordered to pay compensation.

  • 8. Government's assertion that the production of water in excess of the quantity mentioned in the written agreement was illegal was misconceived. The company had been approved as a producer of water for supply to Government by the Governor in Council. The Water Supply Ordinance was directed to the identity of the supplier, not to the quantity of water manufactured.

  • 9. The trial judge was right in finding that the company was not a trespasser operating an illegal water supply plant. The company had been encouraged at all times by Government to expand its plant and to remain in possession of the property until the filing of Government's claim finally brought the licence to occupy the property to an end.

1

MITCHELL, J.A. [AG.]: These are two appeals against judgments of Bannister J. of the Commercial Court in two separate cases concerning a dispute between a water desalinisation company and the Government of the Territory of the Virgin Islands, over a contract between the two parties for the production and sale of water, which he had ordered consolidated. The facts are complicated and, as the...

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