Tribunal fines govt N54b over Lagos Federal Secretariat project

The old Federal Secretariat, Ikoyi, Lagos

The old Federal Secretariat, Ikoyi, Lagos

Following lingering dispute between the Lagos authorities and concessionaire of the Federal Secretariat Complex in Lagos on the plan to redevelop the edifice into residential apartments, Messrs Resort International Limited has secured an Arbitration Tribunal decision that ordered the Federal Government to pay a total of N54 billion in damages.
The Lagos State Government had halted works on the site in September 2007 and the stoppage culminated to a series of actions, which constituted a major impediment to the project. The Tribunal heard that the promoter Dr. Wale 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.”
Under the Development Lease Agreement (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.
The Tribunal heard that the fundamental terms of the DLA were that: Federal government 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.  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.
In its deliberations, the Tribunal considered the issues arising for determination in the dispute to be: whether FG fulfilled its obligations under the DLA ; 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.
Ruling in favour of Resort International Ltd in a formal award dated December 3, 2015, the Tribunal – chaired by foremost Nigerian Architect, Fred Adeniyi Coker, supported by a leading legal practitioner, Mr. Yusuf Alli and former Attorney General of the Federation, Alhaji Abdullahi Ibrahim – declared that the Federal Government had failed in its obligations to Babalakin’s company under the DLA entered into by both parties.
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.”
The Tribunal awarded damages as follows: N12 billion as Direct Expenditure with Interest at 17.26 per cent from September 2008; N9 billion as Loss of Expected Income with Interest at 17.26 per cent from September 2008 and 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.
Many believe the Lagos State Government put stumbling blocks in the way of the project by its 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.

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1 Comment
  • Goke Odunlami

    This is a classic Award and lesson for PPP Initiators.