This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its February 2007 decision in Massai Aviation Services & Anor v. The Attorney General & Anor (The Bahamas), the Judicial Committee of the Privy Council found the government of The Bahamas liable for breach of contract in an airport development deal. The dispute dealt with a contract that was awarded pursuant to a tendering process for the provision of operational services at the Nassau International Airport in The Bahamas. The winning contractor signed a 21-year lease with the government, whose state-owned airline operated an airport hangar on the land in question. After the award, the airline refused to leave the hangar until the contractor agreed to build it a new hangar at a cost of $324,000. This caused delays in the larger development plans and the contractor ultimately claimed that its business collapsed as a result. The contractor sued the government and the airline. The Court ultimately ruled that the government was liable for breaching the terms of the lease by failing to provide the unencumbered land to the contractor as originally promised:
It cannot seriously be doubted that the Government was in breach of this covenant by allowing Bahamasair to remain in occupation of the buildings after agreeing to grant a lease of the whole site. CAASL knew that Bahamasair was in occupation of the two buildings but not that they were claiming to be entitled to remain there indefinitely. It has not, of course, been established that they had any such right. But whatever right they were claiming was undoubtedly “under the Lessor” who had let them put buildings on the Government’s land. It was clearly in opposition to the claim of the Lessee, CAASL. Quite apart from the refusal of Bahamasair to vacate the stores building until provided with somewhere else to go, they continued for a while to collect rents from the occupants of the hanger and refused to account to CAASL for them. CAASL did not take its lease subject to any interest that Bahamasair might have in the site or any part of it. The whole purpose of the transaction was the comprehensive redevelopment of the site so as to provide an FBO facility, including a terminal building, and for that the Lessee required access to the whole site. This it was denied in breach of the Lessor’s covenant.
The Court therefore awarded the contractor damages for lost sublease revenues and the amount paid to the airline for the new hangar, as well as 10 percent interest. As this case illustrates, government institutions should ensure that they have the full legal authority to fulfil their obligations under a contract prior to proceeding with a contract award.
