I swear I wrote most of this blog post before reading last Friday’s Age article regarding contract law experts including Dr Nick Seddon. It confirmed my suspicions:
Should Labor win the November state election, there is no legal impediment stopping it from tearing up the contract for the East West Link if it is sincere in its opposition to the road project, experts in contract law and public policy say.
— Age 18/4/2014: Labor could tear up East West Link contract if it wins election
Labor are in the interesting position of officially opposing the East West Link (section 1, at least), but saying that if the contracts are signed before the election, they’ll build it anyway, citing “sovereign risk”:
If Dr Napthine snubs the state Labor’s plea and signs a contract before November (2014), Mr Andrews said he would not rip up the contract despite it being the “wrong project”.
— Herald Sun 31/7/2013: Opposition Leader Daniel Andrews will lead Labor opposition to East West Link
The Victorian Greens are threatening not to direct preferences to Labor in marginal seats at this year’s state election unless the ALP pledges to rip up contracts on the east-west link if it wins government.
Labor leader Daniel Andrews has consistently said that while he does not support the east-west link, he would not rip up contracts once they were signed because of sovereign risk.
It happens all the time
Now, I’m no lawyer, but even before Dr Seddon spoke out, it seemed pretty clear that the argument of sovereign risk doesn’t really up.
A quick look around the place finds numerous examples of both threats to tear up contracts, and governments actually doing it.
- The government’s contract with Telstra to build a national broadband network (NBN) could be thrown out if the Liberal Party wins the next election, the opposition says. Opposition communications spokesman Malcolm Turnbull said although he had not read the contract between Telstra and the federal government, it would be cheaper to rip it up than to follow through with the NBN. — 20/7/2011
- The NSW government is threatening to rip up its contract with the operators of Sydney’s M5 East tunnel after a second shutdown in three months caused massive delays for motorists. — 22/9/2008
- The federal government has cancelled the contract for Optus and Elders to build a WiMAX broadband network. … Futuris and Optus, in an equal partnership called OPEL, were awarded $958 million by the Howard government to construct a broadband network for rural and regional Australia. — 2/4/2008
- The $6.6 billion purchase of 24 Super Hornets as a stop-gap fighter jet could be jettisoned by the Rudd Government as it reviews all aspects of the program to give Australia an edge in air-combat capability in the region. … Even if contracts have been signed, as is the case with the Super Hornets, the Government is prepared to break them if the case is compelling. This marks a shift from previous Labor thinking. — 31/12/2007
- The controversial Tcard contract will be dumped after years of delays and a $64 million bill. NSW Transport Minister John Watkins… said a notice of intention to terminate had been issued on Monday to ERG Limited, the Perth company that had been contracted in 2003 to introduce the Tcard system. 9/11/2007
- The State Government announced yesterday it was prepared to tear up its contract with National Express to run V/Line passenger services after the company said the contract was not financially viable. — 24/8/2002
It seems to be abundantly clear that governments of any persuasions can rip up contracts if they like, as long as they are prepared to stomach the legal and political consequences.
The latter might include accusations of sacrificing jobs, and undermining business/investor confidence.
Sovereign risk, as Bernard Keane at Crikey writes, has morphed into a general meaning of governments doing anything that a business doesn’t like, no matter how much it might be in the national interest.
Another good example (though not directly related to a specific contract) is the Rudd government last year ending FBT car rorts costing taxpayers billions of dollars a year by effectively allowing people to claim personal use of cars as a business tax deduction. The Coalition reversed that decision, perhaps helped along by what I hear was a massive lobbying push from the novated car lease industry.
If East West Link is so good, take it to an election
East West Link is likely to be the most expensive infrastructure ever built in the state — and it’s not just about the construction cost, it’s also the cost of decades of availability payments from taxpayers to the private owners, to ensure they make a profit.
In the case of the East West Link, the Coalition government has ignored years of opinion polls showing people want public transport ahead of motorways. And they’ve refused calls to release the business plan, and to seek a mandate for the project at November’s election, despite it being a hugely expensive, largely unwanted project.
As Andrew Herrington wrote in Crikey: Inner urban resident groups opposing the freeway are incensed that… Labor will quietly let the freeway be built. They urge Labor to pledge to “tear up the contracts” arguing that the ink will be barely dry and the normal arguments about sovereign risk and payment of damages hold little weight if the validity of the contract is questioned in advance.
If Labor really believe it’s a dud project, they should properly differentiate themselves from the Coalition. They should make it clear right now that if they win, they will tear up the contracts, scrap the project (no substantial work is likely to have started anyway), and put the money into alternative projects, such as new rail lines and more Smartbus services.
Flagging it before the election, and before contracts are signed, means investors can only blame themselves if they get burnt, knowing that the risk existed all along.
As it is, it seems both major parties are denying the Victorian people any kind of say about a project which is not only unpopular, but will also generate heaps of traffic in the inner north, and swallow up billions of tax payers’ dollars.
Sign the peition: No mandate: Give Victorians a chance to vote on the East-West toll road