High Court ruling adds to EFCL's debt woes

Justice Frank Seepersad -

Already debt-ridden Education Facilities Company Ltd (EFCL) has added yet another creditor to its growing list, after the High Court ruled in favour of a Mt Hope-based construction firm.

Saran Sampath Ltd obtained judgment against EFCL in the sum of $327,619.88 following a brief trial before Justice Frank Seepersad on January 8.

EFCL is already facing multiple claims from contractors, with judgments taking priority.

In its claim, Sampath contended that by a letter of contract dated August 2, 2011, EFCL accepted its tender to carry out remedial works at the Malabar Government Primary School for the sum of $5,948,230. The letter of contract was formally signed on September 11, 2011.

Under the agreement, the work was to be completed within a period of 20 days. Sampath said it complied with the contractual terms and began mobilising resources, procuring materials, and assigning personnel and equipment. It also maintained dedicated standby resources in preparation for the commencement of the contract.

However, by letter dated April 26, 2013, EFCL terminated the agreement, stating that it had decided to proceed with an open invitation for the services and apologised for the change in the tender process. Sampath contended that this amounted to a breach of contract which caused it to suffer loss and damage.

On September 25, 2013, Sampath submitted a claim for loss of profits and standby resources. EFCL responded on October 22, 2014, offering $327,619.88 in full and final settlement of the claim.

That offer was accepted by Sampath on November 18, 2014. As part of the settlement, the parties agreed that the sum would be paid within one year of acceptance, by November 17, 2015.

Sampath’s claim alleged that, in breach of the settlement agreement, EFCL wrote on August 18, 2015, stating that the claim was once again “under review” and that it would revert shortly thereafter. No payment was made.

Sampath said it made several attempts to resolve the matter up to May 11, 2017.

In July 2019, Sampath’s attorneys again wrote to EFCL. In response, EFCL’s chief executive officer acknowledged receipt of the claim and indicated that the company would respond within 21 days after completing internal investigations to arrive at an amicable solution. According to Sampath, the 21-day period expired without any response.

Sampath ultimately claimed $327,619.88 for breach of contract, representing the agreed loss of profits and standby resources.

In its defence, EFCL denied each and every allegation. It admitted that Sampath had been awarded a contract dated August 2, 2011, for remedial works at the Malabar Government Primary School but said the agreement was governed by the FIDIC short-form contract conditions.

EFCL contended that it never issued instructions for Sampath to take possession of the site or to commence mobilisation, and said it had no record of communicating such directions.

It further alleged that Sampath never submitted a programme or schedule of activities, a method statement, insurance coverage, policies, or a mobilisation plan, and that it had no record of receiving any such documents.

EFCL also argued that the claim was statute-barred, having been commenced in 2019, well after the four-year limitation period for bringing such claims.

While EFCL admitted that the agreement was terminated and that Sampath submitted a claim, it said it had no record of any agreement to pay the settlement sum within one year from October 2014 and applied for the claim to be struck out. It also admitted receiving Sampath’s letter in July 2019.

In reply, Sampath maintained that the settlement agreement was valid and enforceable and could not be struck out. Sampath was represented by Lesley-Ann Lucky-Samaroo and Sasha Nath. Amrita Ramsook appeared for EFCL.

The judgment comes against the backdrop of EFCL’s ongoing financial turmoil.

In July 2023, High Court judge Justice Carol Gobin dismissed a petition by EFCL’s board seeking to wind up the company. The petition was objected to by dozens of contractors who said they were owed millions of dollars for unpaid work.

In a strongly worded ruling, Gobin rejected the winding-up application and issued harsh criticism of the State’s handling of EFCL.

“I have found that the government deliberately starved EFCL of funding—guaranteeing its demise—even as its corporate purpose could not have been said to be spent or frustrated,” she said.

“This was a chokehold followed by a winding-up petition, the purpose of which was to have the court certify the death. It hardly requires further proof.”

EFCL had asked to be wound up in April 2022, claiming insolvency. The judge rejected that assertion.

In its petition, EFCL said it had no income, had ceased carrying on project management services, was insolvent, and could not meet its debts. It claimed its liabilities to contractors totalled $889,561,246.

At the time the petition was filed, EFCL’s debts were stated at $46,737,205.09, in addition to more than $800 million owed to contractors. The company also disclosed that it had 79 unsatisfied judgments or awards dating back to December 2016, totalling $321,376,009.75 as of February 25.

It further said that approximately $112 million ordered to be paid to contractors was not reflected in invoices in its possession, and that it was defending 30 active claims totalling $119 million.

Justice Gobin acknowledged that EFCL was unable to pay its debts but agreed with the objectors that allowing the winding up would be an abuse of process and would deprive creditors of their property.

She described EFCL as fundamentally different from an ordinary private company.

“A company which is wholly owned by the corporation sole is unlike the ordinary private commercial company,” she said, noting that the shareholder is constitutionally accountable to Parliament and the public.

Allowing the winding up in the absence of accountability, she ruled, was “impermissible.”

She found no evidence that EFCL’s directors had recommended winding up the company, concluding instead that the decision was made solely by the shareholder, which is the Minister of Finance as corporation sole,

Justice Gobin also found that EFCL’s insolvency was directly caused by the Government’s deliberate withdrawal of funding and the halting of projects.

“The buck stops with the corporation sole,” she said, rejecting attempts to lay blame exclusively at the feet of the company.

She criticised what she described as “gross recklessness” in the handling of litigation against EFCL, noting that default judgments were allowed to accumulate with interest “with a seeming disregard for the effects on the public purse.”

One of the most troubling aspects of the petition, she said, was the transfer of EFCL’s functions to another state entity, MTS, under the direct management of the Ministry of Finance.

“EFCL is unable to carry out the objects for which it is established only because of the execution of a deliberate plan to redirect project management services through another company,” she said.

She warned that state companies could not be treated as pawns to be arbitrarily shut down while their creditors were left unpaid.

Justice Gobin concluded that the corporate veil had effectively been “voluntarily removed” by the Government itself, exposing it to potential liability for EFCL’s debts. She said EFCL should be “assimilated” into the Government, which may ultimately be responsible for satisfying those claims.

EFCL was established in 2005 under the Patrick Manning-led Government as a special-purpose company tasked with managing the construction, refurbishment, and repair of public schools on behalf of the Ministry of Education.