Supreme Court holds ruling on Unilateral Variation and Termination of Contracts entered into with the State

September 16, 2013

The Supreme Court on 16 September 2013, in the appeal lodged by Nexbis Ltd., Australia against measures of the Anti-Corruption Commission (ACC) in the Maldives Immigration Border Control System (MIBCS), decided that contracts that are related to ‘public services’ are exceptional to the general rule which says that parties to a contract are bound as they have agreed to.

“Administrative contracts are not entered into between parties with similar interests therefore unlike absolute civil contracts entered into between private persons for specific private interests; the doctrine of Pacta Sunt Servanda does not apply. This doctrine is not without restrictions or limitations…. Such administrative contracts include concession agreements, supply contracts, contracts of public works and other similar agreements…. Such administrative contracts also grant the State or State Department which is a contracting party with the power to unilaterally terminate the contract.”

According to the Supreme Court, this new genre of ‘administrative contracts’ by their very nature provide the State or State Department the inherent rights and privileges in amending the terms of the contract. According to the Judgment, this includes contract or project monitoring, implementation, and taking related punitive measures against the other party. How the legal profession interprets this precedent, we are yet to see. One argument is that the decision grants states the right to manipulate multi-million dollar projects based on the will and fancies of political persons and forces without the necessary safeguards of the Courts. The other side of course relied on to the principles of state sovereignty and executive prerogative.

Husnu Al Suood, Mohamed Shahdy and Ismail Wisham from Suood & Anwar LLP represented Nexbis. The Anti-Corruption Commission was represented by its in-house counsel and the state was represented by the Attorney General.

Related Attorneys