Newsletter December 2017: issuance of domain land in long lease by the Government of Aruba (English version)
Is the new Aruban government obliged to honor agreements with project developers entered into by the previous government regarding issuance of domain land in long lease for commercial purposes? This issue has become relevant in light of statements made by the new Aruban government that they will make an inventory of all these agreements to see if they are in line with the policy vision of the new government, before the new government decides whether to honor those agreements or not.
Main rule: the government must abide by contracts entered into and commitments made
The statement made by the new government raises two important legal questions:
- Can the new government simply decide not to abide by agreements made by the previous government ?
- Under which circumstances can the new government take the position that they are not bound by agreements entered into by the previous government ?
The main rule is of course that the government is bound and must abide by agreements it has entered into. The same goes for commitments issued by the government and legitimate expectations created by such commitments. In principle it makes no difference if an agreement is entered into by the current government or by a previous government. The government must respect the continuity of its actions. The actors in the play and theater may change from time to time, but the show must go on!
Exceptions to the main rule : (1) unforeseen circumstances; (2) violation of the public order
In the context of a change of government there are two important exceptions to this rule.
One, is that a new administration may have a different view of what protection of the public interest requires than its predecessor. This raises the question of whether a new administration may invoke the existence of unforeseen circumstances, which require a policy change, if it has a different view than its predecessors?
Two, it is possible that a demissionary government may intentionally decide to enter into a dubious and questionable agreement with a project developer in order to limit the freedom that the new administration will have to make and implement its own policy. This raises the question of whether the new administration can take the position that the agreement entered into under such circumstances is null and void because it violates the public order and fundamental principles of good governance.
1. Unforeseen circumstances and policy change
It is generally accepted that the government must always keep in mind that it is guardian of the public interest and that therefore the public interest may sometimes dictate that an agreement, entered into with a private party, or a commitment issued to a private party, cannot be complied with if such compliance would go against important public policy and public interest values or considerations.Under these circumstance a policy change implemented by a new administration may be justified and the private party may have to accept damages rather than specific performance or compliance with an agreement entered into with the government.
A case in point was decided by the Dutch Supreme Court: Den Dulk vs Island Territory of Curaçao HR 10/0-9/1993 NJ 1996/3. In that case the new administration of the island decided that it could not honor a commitment issued by the previous administration to issue a parcel of domain land near the harbour in long lease for a hotel project to mr Den Dulk. The reason for the policy change was that the new administration wanted to expand the harbour in order to promote economic development of the island. Therefore Den Dulk could not get the land in long lease and had to accept damages instead.
Invoking unforeseen circumstances necessitating a policy change is not always succesfull as is demonstrated by a recent decision of the Dutch Supreme Court : Municipality of Bronckhorst HR 13/10/2017 ECLI:NL:HR:2017/2615. In that case the Supreme Court rejected the municipality’s defense based on unforeseen circumstances requiring a policy change, because the government had failed to offer adequate damages to compensate the developer for the losses incurred by the developer as a result of the governments’ failure to honor the agreement.
Conclusion with respect to unforeseen circumstances and policy change
The new Aruban government could in theory invoke unforeseen circumstances requiring a policy change to justify not honoring agreements with project developers regarding issuance of domain land in long lease for commercial purposes.The new Aruban government would have to demonstrate however that the policy change is required by important considerations based on what the public interest requires and would also have to pay damages to the project developers. Such damages could constitute a high price to pay for a policy change. The same is true for the damage that not honoring agreements with foreign or local investors would do to the investment climate and to the reputation of Aruba.
2. Violation of the public order
There are several decisions from the courts for Aruba and the other islands of the Dutch Antilles which have held that a new government may take the position that certain obviously questionable agreements entered into by its predecessor are null and void because they violate the public order. Circumstances that are relevant in that respect are:
- An outgoing government must limit itself to non-controversial, urgent decisions and policies in order not to restrict the new government in its freedom and flexibility to conduct the public policy for which it has been democratically elected;
- Decisions by an outgoing administration, which are obviously taken in violation of fundamental principles of good governance, which go against all advice issued by the governments advisory departments, which violate existing procedures, will generally not be considered legally valid and binding;
- If a transaction with domain land is entered into for the benefit of a party with close ties to the outgoing government shortly before the change of administrations, this typically constitutes improper political favoritism.
- The courts have an important responsibility to judge if the actions of an outgoing government prior to a change of administration are proper in a small society like these of our islands, where improper actions of an outgoing government may negatively impact scarce public goods and funds;
Based on these criteria the courts have repeatedly held that issuance of domain land in long lease for commercial purposes by an outgoing government was null and void because of violation of the public order. See Joint Appeals Court 01/03/2002 NJ 2002/376 Courtyard Terrace vs St. Maarten, Court of First instance Aruba 18/09/2013 ECLI:NL:OGEAA: 2013/2 Natura Development vs Land Aruba and Court of First Instance St Maarten 31/05/17 ECLI:NL:OGEAM:2017/25.
Conclusion with respect to violation of the public order
The new Aruban government could take the positions that certain agreements entered into with project developers by the previous government are null and void because they violate the public order if the circumstances described above indeed apply to these agreements. If however the agreements with project developers were entered into after following the normal procedures and if these agreements are not clearly dubious or questionable, it is likely that their validity will be upheld by the courts, since honoring legitmate expectations raised by agreements with or commitments issued by the government, is one of the fundamental principles of the Aruban and any other bona fide legal system.