Attorney General of the Virgin Islands v Global Water Associates Ltd [2020]

Attorney General of the Virgin Islands v Global Water Associates Ltd [2020] UKPC 18 involved a contractual dispute between the Government of the British Virgin Islands and Global Water Associates Ltd (GWA) regarding the construction and operation of a water reclamation treatment plant. The Privy Council considered the issue of damages and remoteness of damage in contract.

The Design Build Agreement (DBA) for the construction of the water reclamation treatment plant and the Management, Operation, and Maintenance Agreement (MOMA) for GWA to operate the plant for a period of 12 years. The Government's failure to provide a prepared project site led to GWA's termination of the DBA and a subsequent claim for damages, seeking the profits it would have earned under the MOMA.

The arbitration process and lower court decisions played a crucial role in shaping the legal landscape of the case. Initially, the arbitrators found that the damages claimed were too remote to be recoverable. The High Court in the BVI, however, sided with GWA's argument, stating that the damages were not too remote, and remitted the award to the arbitrators for reassessment. The BVI Court of Appeal, in contrast, allowed the Government’s appeal, prompting GWA to appeal to the Privy Council.

The Privy Council allowed GWA’s appeal, aligning with the High Court's view that there was an error of law in the arbitrators' decision regarding the claim for damages. Lord Hodge, who delivered the judgment, meticulously considered established principles on the remoteness of damage in contract, referencing significant cases such as Hadley v Baxendale [1854], Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949], and C Czarnikow Ltd v Koufos [1969].

Several principles were derived from the analysis, emphasising that damages for breach of contract aim to restore the innocent party to the position they would have been in if the contract had been performed. Recoverable damages are confined to losses reasonably contemplated as a serious possibility at the time the contract was made. The test is objective, focusing on what the defendant must be taken to have had in contemplation at the time of contracting, and the criterion is factual, considering what the defendant must be taken to have contemplated as a result of a breach.

Applying these principles to the case, the Privy Council concluded that losses resulting from the inability to earn profits under the MOMA were within the reasonable contemplation of the parties when they entered into the DBA. The interrelation of the contracts, entered into on the same day and relating to the same plant, underscored the foreseeability of such losses. The attempt by the arbitrators to distinguish Victoria Laundry was deemed untenable, reinforcing the interconnected nature of the contracts.

In essence, the decision clarified fundamental principles of the remoteness of damage in contract and underscored that damages for the loss of profits under one contract may be recoverable for the breach of another contract if it was within the reasonable contemplation of the parties at the time of contracting.
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