The Federal Government has been ordered to pay a total of N54 billion in damages to Dr. Wale Babalakin’s Resort International Limited, in a decision handed down by an Arbitration Tribunal late last year, it has been revealed.
The Arbitral Award is a major vindication for Babalakin, whose company was granted a lease to develop the Federal Secretariat Complex in Lagos into residential properties only for the project to be controversially stalled. It will be recalled that Lagos State Government had stopped works on the site in September 2007 with the use of dozens of mobile police men and street urchins popularly known as ‘area boys’.
The stoppage was the culmination of a series of actions by an uncompromising LASG that, many say, constituted itself into a major impediment to the project, in its determination that it would not go ahead. The Tribunal heard that Babalakin “has been discredited by several banks and organisations as a result of the negative press which occurred as a result of the failure of the project.”
Finding in favour of Resort International Ltd in a formal award dated 3rd December, 2015, the Tribunal – chaired by foremost Nigerian Architect, Fred Adeniyi Coker, supported by a leading legal practitioner, Mr. Yusuf Alli SAN and former Attorney General of the Federation, Alhaji Abdullahi Ibrahim SAN – declared that the Federal Government had failed in its obligations to Babalakin’s company under the Development Lease Agreement (DLA) entered into by both parties.
The DLA, dated October 10, 2006, granted Resort a 99 years’ lease to redevelop the disused Federal Secretarial Complex, Ikoyi, into 480 luxury apartments. Work had started on the site when the Lagos State Government suddenly stopped the redevelopment of the complex. Resort claimed at Arbitration that it had suffered damages totalling N88 billion as a result of the breach of a clause of the DLA by Federal Government.
Observers are of the view that FG was hamstrung by the Lagos Government, which once showed interest in acquiring the Federal Secretariat complex for certain vested interests, according to reports. Trouble was in store by the time the project was formally handed over to Babalakin’s Resort International Ltd in December 2006.
By 2007, speculation was rife about “political intrigues” plaguing the project. The Lagos monarch, Oba Rilwan Akiolu, fired an early salvo, accusing the Obasanjo government of selling the complex to so-called powerful interests instead of LASG, a claim denied by Resort International. The company’s then Executive Director, Dr. Niyi Odunlami, had responded by saying, “We won the bid through due process.”
Oba Akiolu declared that he had assembled a powerful group of traditional rulers and prominent Lagos citizens to lobby Obasanjo’s successor, President Umaru Yar’Adua, with a view to stopping the project. Many believe the Lagos State Government put stumbling blocks in the way of the project by its insistence on unreasonable demands, including: the requirement that Resort International Ltd as leaseholder must obtain a fresh Certificate of Ownership (C of O) from the state government, irrespective of documents issued by Federal Government on the property.
The company was also required to apply for the consent of the Lagos governor on property leased to them; apply for a change of use as well as a development permit from the state government.
As Odunlami told the press, “The state is demanding between 15 and 50 percent of the cost of properties from buyers as an additional condition before work can commence. If the buyers should get C of O from Lagos State Government, it means they are compromising the properties, because the properties already have valid title documents.”
Despite all entreaties, the state government would not budge, and refused to grant the ‘No-Objection Approval’ required under Clause IV of the Development Lease Agreement. Federal Government’s inability to secure the ‘No-Objection Approval’ ultimately proved fatal to the project.
Lagos State officials reportedly vowed not to consider applications for planning permits or other processes related to projects such as the Federal Secretariat, including those for redevelopment.
The Tribunal heard that the fundamental terms of the DLA were that: FG had ‘good title’ to the Complex and full power and legal authority to enter into the agreement; and as a condition of the DLA would facilitate a ‘No-Objection Approval’ from Lagos State Government.
Resort claimed that FG’s failure to fulfil its obligation to assert ownership, to deliver vacant possession and to facilitate the obtaining of a ‘No-Objection Approval’ from Lagos State Government adversely affected the company and put it in a precarious position owing to financial obligations to lenders that it was unable to fulfil. The company therefore claimed direct expenses, loss of profit and damages against Federal Government to the tune of N88,070,917,933.00. It additionally claimed interest on the Direct Expenditure as well as on the Expected Profit at the rate of 17.26 per cent.
The Federal Government claimed in its defence that the undertaking to ‘facilitate’ a ‘No-Objection Approval’ amounted to no more than an obligation to produce documents in support of Resort’s application to the Lagos State Government. FG also argued that the subsequent promulgation of the Lagos State Model City Development Authority Law was in effect a ‘frustration’ of contract.
Sounding a death knell for the Federal Secretarial and other such projects, the law, enacted in 2009, provides that: “Government institutional offices within a Model City Area shall continue to be used for the public purpose for which the offices were developed and no alteration of use shall be allowed.”
In its deliberations, the Tribunal considered the issues arising for determination in the dispute to be: whether FG fulfilled its obligations under the Development Lease Agreement; whether the defence of ‘frustration’ was available to FG as Respondent; and thirdly, whether Resort was entitled to reliefs as set out in its claim lodged in 2014.
The Arbitration panel found in favour of Dr. Babalakin’s company on all three issues for determination.
“The claimant proceeded on the strength of these covenants to commence work on the demised premises, only to be stopped by the Lagos State Government on the ground that the land belonged to it and not the Respondent,” the Tribunal observed.
“The inability of the Respondent to resolve the dispute between itself and the Lagos State Government over the demised premises revealed a defect in title, which is a clear breach of the covenant as to good title.”
The panel concluded that, “The Respondent in this case has clearly failed to carry out the obligations it undertook under the DLA.”
In resolving the question of whether the enactment of the Lagos State Model City Development Authority Law 2009 could be considered a ‘frustration’ of contract between FG and Resort Ltd, the panel noted that there was sufficient time for the Federal Secretariat project to have been concluded in 24 months as agreed by the parties. The defence of ‘frustration’ was therefore not available for FG because, “were it not for the default of the Respondent in facilitating the ‘No-Objection Approval’ and resolving the challenge to its title by the Lagos State Government, the contract between the parties would not have been frustrated by the law.”
In considering an award of damages to Resort in December 2015, the Tribunal noted that, “It is the Claimant’s claim that it suffered unquantifiable harm flowing from the failure of the Respondent to fulfil its obligations under the DLA. These included damage to its reputation with subscribers and its relationship with finance partners.”
The Arbitration panel concluded that Federal Government “has not shown any extenuating circumstances for its flagrant violation of its covenant under the DLA. The Respondent did not even try to address these points of the Claimant as to its general loss of business, reputation, goodwill and credibility.”
The Tribunal awarded damages as follows:
1). N12 billion as Direct Expenditure with Interest at 17.26% from September 2008.
2). N9 billion as Loss of Expected Income with Interest at 17.26% from September 2008.
3). N5 billion as Special Damages.
The totality of the awards means that as at January 2016, the Federal Government owed Resort International Limited the sum of N54 billion which continues to accumulate interest at 17.26 per cent per annum. The Tribunal also confirmed Resort International Limited’s title to the Federal Secretariat property.