Victoria faces $1.1 billion compensation bill if Labor cancels East West Link contract

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Herald Sun: Victoria faces $1.1 billion compensation bill if Labor cancels East West Link contract. Jame Campbell and Michelle Ainworth. 25 November 2014

Victorians face a $1.1. billion compensation payout to the consortium building East West Link if Labor abandons the project.

Government sources have revealed the first details of the top-secret compensation clauses in the confidential East West contract.

While the contract does not specify an exact figure, it sets out a formula dictating how any compensation would be calculated.

The Herald Sun has learned that, based on this formula, the compensation bill would hit $1.1 billion by March – the earliest, according to legal experts, that a settlement could be reached to abandon the project.

The formula includes the money being contributed by the consortium, both debt and equity, at the time the contracts are terminated.

It also includes lost profits and returns that would have been earned during the 25-year contract to construct and operate the road link.

The compensation revelation sets the scene for a frantic final four days leading up to Saturday’s election, which are likely to be dominated by the battle over the East West Link.

What the lawyers say.

The compensation payout would come on top of $1.5 billion in federal funds that Victoria has received for the project, which it would have to return to Canberra.

The East West Link consortium already has 250 staff working on the project and has advertised another 158 roles.

Of those jobs, 15 are on the East West Link jobs portal, including for a quality engineer, a senior planner, a foreman and a site engineer.

Opposition Leader Daniel Andrews has argued that if a court case brought by three councils succeeds in having the planning approval for East West deemed invalid, the contracts for the $6.8 billion project are also invalid.

Just last week, Mr Andrews said: “Labor’s advice is the contract is not worth the paper it’s written on.”

He has based this view on legal advice from former Federal Court judge Ray Finkelstein, QC, who argues that the Government can only enter into the East West contracts under the Major Transport Project Facilitation Act.

In Mr Finkelstein’s opinion if the planning approvals for the project under that Act are invalid, then so are contracts.

Opposition leader Daniel Andrews speaks to paramedics and ambulance officers at the Australian Nursing & Midwifery Federation building in Melbourne on Monday 24th November, 2014. Picture: Nathan Dyer

But according to Allan Myers, QC, one of Australia’s leading commercial barristers, the East West contracts are almost certainly valid even if the Supreme Court decides in favour of the councils on the planning approval.

In a legal opinion, seen by the Herald Sun, Mr Myers has argued “there can be no doubt that the construction of roads (as well as the maintenance of those roads) is within the ordinary and recognised functions of government” and that it does not need to rely on the power of the MTPF Act to sign the East West contracts.

Another legal opinion seen by the Herald Sun, by Nunzio Lucarelli, QC, argues the consortium “will be entitled to compensation if the state does not proceed with the Agreement”, which is likely to be “very substantial”.

Mr Lucarelli has also said that Labor has misrepresented Mr Finkelstein’s advice, pointing out he “specifically warns” that even if the councils win their court case, the consortium could still bring a case for compensation.

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