CMC burdened with massive arbitration cost

14 cases before arbitration

Owes Ms. Burns Rs. 14 million

Never in the past has the council faced such a situation. Whenever problems arose, in respect of contracts and conventions, the council had managed to settle disputes through discussion or dialogue. But under the present administration run by the United Peoples Freedom Alliance (UPFA) the council, it appears, has not been able to find solutions to a plethora of problems faced with various groups and organisations

By Wilson Gnanadass
With the Colombo Municipal Council (CMC) standing indicted in the public eye for its failure to deliver the goods to the rate payers due to inefficiency, mismanagement and corruption, it also creates another milestone of being dragged to a record number of arbitration cases by aggrieved parties.

For the first time in the life of the CMC, the council stands guilty of being referred to, by aggrieved parties, for nearly 14 arbitration cases, following allegations of mismanagement and violation of various contracts and conventions.

Never in the past has the council faced such a situation. Whenever problems arose, in respect of contracts and conventions, the council had managed to settle disputes through discussion or dialogue. But under the present administration run by the United Peoples Freedom Alliance (UPFA) the council, it appears, has not been able to find solutions to a plethora of problems faced with various groups and organisations.

‘Burning’ the garbage prevented

Of the 14 cases pending before arbitration, the one that has cost the council millions of rupees is the arbitration case filed by Ms. Burns Trading Company (Pvt) Limited, a private company that has been disposing of garbage from the city of Colombo, since 2001 officially.
Inability to settle disputes and further reneging on previous pledges on various job agreements are some of the reasons for taking up cases before arbitration.

In this context, the CMC has therefore become indebted and wonders how it could raise millions of rupees to pay Ms. Burns, the private company that has now been prevented from disposing of garbage following a court order.

Staggering sum

The present CMC led by Imtiaz Mohamed is indebted to Ms. Burns a staggering sum of Rs. 14 million. This amount is in addition to the millions of rupees already spent as payments to the arbitrators.

The arbitration board, comprising retired judges, J. F. A. Soza (Chairman), A. S. Wijetunga (Arbitrator) and S. B. Goonewardene (arbitrator) who conducted the cases has already found the CMC guilty and had further informed the council that the money should be paid to Burns Ltd.
Following this, the finance committee of the CMC also took a firm decision that the council should pay the money to the private company, as per the request of the arbitration board.
Shockingly, to date, the council has not paid Ms. Burns a single cent, and presently the accumulated cost, with interest to be paid to Burns remains at a staggering Rs. 14 million.

What went wrong?

In the agreement reached between Ms. Burns Ltd, and the CMC, it has been clearly stated that; “ the council shall during the period of first four years after commissioning of the compost plant guarantee the payment for 15,000 tons per month and thereafter payments will be made for the actual tonnage delivered to the said compost plant by the council.

The agreement says that; “The council shall pay Rs. 550 per ton for the first year commencing from the date of first delivery of garbage to the said plant and thereafter from second to fifth year, five per cent will be added each year to the previous year’s price.”

The agreement further states; “Thereafter on the sixth year the contractor shall allow 20 per cent deduction from the fifth year’s price and from sixth year to the 25th years annual increase of five per cent to the previous year’s price shall be given to the contractor and all these payments are inclusive of GST.

Further the agreement says; “up to five percent of the contract price shall be considered as the fuel component of this project and any increase or decrease of the fuel price will be agreed and adjusted by the council and the contractor mutually.”
Having agreed to all these provisions in the agreement, the CMC has failed to adhere to it, thereby violating the said contract reached with Ms. Burns.

Burns angered

The first agreement bearing No. 3177, with Burns was reached by the CMC in March 21, 2001 while the second was signed on December 12, 2002.
Until 2005, both Burns and the CMC worked with coordination and understanding, honouring all the provisions in the agreement.

But gradually the council started to neglect its payment to Burns.
Annoyed by the council’s attitude, Burns too decided not to dispose of garbage, until its dues were paid by the CMC, in keeping with the already signed agreement.

This prompted the CMC to take Burns to court. The council filed an action against Burns in the Court of Appeal (case number 394/05) on April 26, 2005. The council informed the court that the private company was not fulfilling the agreement reached with the CMC.

However the Court of Appeal referred the case to the arbitration board and advised the CMC, as per the agreement reached with Burns, that any dispute with Burns should be placed before the arbitration board.

Clause 9 of the second agreement signed on December 12, 2002 says thus; “all differences arising out of this agreement shall be referred to the decision of an arbitrator to be appointed in writing by the parties in difference or if they cannot agree upon a single arbitrator the decision of two disinterested persons as arbitrators of whom one shall be appointed in writing by each of the parties within one calendar month after having been required so to do in writing by the other party.”
The CMC thereafter was compelled to seek intervention from the arbitration board to deal with Burns.

The arbitration board then started the inquiry based on the presentation made by both parties. From April 2005 to May 2006, there had been 11 arbitration sittings. The final decision of the arbitration was delivered on May 11, 2006.

CMC jumps the gun

In the meantime, after the fourth arbitration sitting was over, the arbitrators found the CMC guilty and further arrived at a conclusion that the council was entitled to pay Ms. Burns the outstanding amount of Rs. 8 million.

Based on these findings a directive too was issued on the council by the respective arbitrators to make the payment soon.

Following this directive, the council members too decided that the money should be paid. Though a decision was unanimously taken by the council to pay the money, the money was never paid to Burns.

The arbitration board was thereafter forced to deliver an ex-parte order on the CMC to pay Ms. Burns, this time, Rs. 11 million, inclusive of interests.
The arbitration board also informed the council that the more the council delayed the payment, the more it would have to pay.

The council’s reaction to this order too was cold. Though the finance committee of the council took a decision in favour of the arbitrators, and further the council members unanimously agreed that the money should be paid, the council however did not make any attempt to pay Burns, what it owed.

The council thereafter took a highhanded action by bypassing the clause in the agreement reached with Burns, that underscored the need to go before arbitration if differences arose, went before the High Court, testifying itself against Ms. Burns.

The High Court, in turn, not only rejected the case filed by the council but also found the council guilty of defaulting payment to Ms. Burns and warned the council that it should now pay Burns a staggering Rs. 14 million, inclusive of all the interests.

Notwithstanding the court order, the council has to date, not paid Ms. Burns what it owes.
Opposition leader of the council and Presidential advisor Vasudeva Nanayakkara has gone on record as saying that the money should be paid to Burns without fail.

He made this observation to the finance committee on September 16, 2008.
Council members now say that the failure of the council to pay Rs. 8 million after the fourth hearing of the arbitration board, has now compelled the council to pay an additional Rs. 6 million to Burns.

Cost of arbitration

A Supreme Court judgment of Justice Shirani Bandaranayake is clear that the award of the arbitrators is final and conclusive and could not be contested before any court of law unless on grounds of mala fide.

This has certainly put the council on the spot. The council can no longer drag this case to any court of law and further the council can no longer ignore its payment to Burns.
The cost of arbitration is also enormous. For instance, each arbitrator has been paid Rs. 60,000 per sitting. There have been three arbitrators including a senior counsel and eleven sittings to finalise this particular case.

The CMC has also paid a sum of Rs. 1.1 million to the senior counsel, Ikram Mohamed PC.
The eleven sittings are pertaining only to one case that is in relation to Burns Ltd.
There are 13 more other cases that have been heard and the council had spent colossal amount of money on arbitration. Some arbitration cases have not yet commenced though referred to arbitration.

Shortsightedness

The large sums of money spent on arbitration could have been saved if the council members and the administrators were capable enough to settle disputes on their own, amicably.
It is the failure to do so, that has allowed the aggrieved party to go before arbitration, which is practiced and allowed in any commercial contract. And the CMC has incurred heavy losses due to this shortsightedness.

With the situation at the council continuing to deteriorate with no political or administrative leadership at present, the rate payers are continuing to face untold hardship and are in fact, at the receiving end.

The rate payers therefore are legally entitled to raise questions regarding the poor services of the CMC and also query the council on the misuse of funds.

home