Court upholds government’s right to take Oncology Centre contractors’ bank guarantee

Court turns down prohibitory injunction against health ministry, to prevent it from using bank guarantee to make good for the extra costs it incurred in addressing hospital defects

Health minister Chris Fearne at the new oncology centre
Health minister Chris Fearne at the new oncology centre

A judge has turned down a request for an injunction to stop the government from taking a financial guarantee deposited by the building contractors at the new Oncology Centre at Mater Dei Hospital, to make good for unspecified defects.

BVP Joint Venture – made up of Blokrete, Vassallo Builders and Panta Contracting Ltd – had filed an application for a warrant of prohibitory injunction against the Ministry for Health and the Foundation for Medical Services, amongst others, on the 13 June, requesting the court prevent the government from using BVP's bank guarantee to make good for the extra costs it incurred in addressing the defects.

The guarantee had been given on 3 December 2014 after an amendment to the contract of works, in view of an advance payment.

The bone of contention is a condition in the original contract of works from 2012, as a result of which the joint venture hand the ministry of health, elderly and care in the community had agreed that the joint venture would be paid in advance for the works. In exchange for this advance payment, the joint venture had made a bank guarantee, payable to the ministry, for the refund of the total should the joint venture fail to fulfil its contractual obligations.

But all the defendants, bar the Permanent Secretary for Health, had insisted that they were not legitimate parties to the case. The court noted that the contract and the guarantee had been made between the joint venture and the ministry, who was also the sole beneficiary of the bank guarantee. The court, however held that in this case, the Permanent Secretary could not be a sole defendant as he was not proven to be empowered to order the withdrawal of the bank guarantee.

An engineer engaged by the ministry had established a new, lower value for the works, having deducted the costs of remedial works that had been required to fix defects in the original job. The engineer had reduced the value to €869,700, which amount would be taken from the bank guarantee because the joint venture had already been paid by government for the works. Instead of demanding a refund, the government had chosen to claim the bank guarantee provided before the start of the works, as was its right.

The joint venture argued that it had already accepted a lower price and that the deduction of the advance payment from an interim payment had, in effect, acted as a set-off of the reciprocal obligations of the parties. This set-off could not be reversed by a new reduction in value of the contract of works, they said.

The defendant ministry had told the court that there had been three years of shortcomings that were yet to be addressed by the contractors, but this was hotly contested by the joint venture. The contractual clause invoked spoke of an immediate reduction of the agreed value of the contract of works with the presumption that this reduction in price was an acceptance of the works, defects and all, by the defendants, they argued.

Judge Mark Chetcuti held that the argument relating to set-off had no legal or factual merit. “In this case there was only the contract of works for which the contractor was paid before the execution of the works and who had made good for any claims against the works by giving the bank guarantee.”

The pre-payment did not create a new obligation and neither did it nullify the original obligations, held the court.

Rejecting the demand for an injunction, the court also revoked the temporary injunction it had granted on the 13 June, holding that, at first glance, there was no right to be protected by it.