http://www.theage.com.au/victoria/victorian-taxpayers-face-massive-east-west-link-compensation-bill-contract-or-not-20150205-1379ob.html
Victorian taxpayers face massive East West Link compensation bill, contract or not
February 5, 2015 - 9:41PM, Josh Gordon, Benjamin Preiss
Victorian taxpayers are facing a massive East West Link compensation bill – even if a court renders the contract for the $6.8 billion road invalid.
In a high-stakes political gamble, former treasurer Michael O'Brien on Thursday released a previously secret "side letter" reassuring the East West Connect consortium that it would get its money regardless of whether a valid contract exists.
The need for the extraordinary guarantee was triggered by publication of a report in The Age in September last year revealing Labor intended to dump the project if it won the election. To make that case, Labor relied on high-level legal advice to claim the contract was "unenforceable" because of a looming court case waged by the Yarra and Moreland councils.
The Age also revealed the East West Connect consortium threatened to walk away from the project through fear it would be dumped if Labor won, prompting the Department of Treasury and Finance to recommend the side letter for reassurance.
Mr O'Brien's letter to the consortium, signed exactly two months before the November 29 election, highlights the lengths the former government was prepared to go to to lock the deal in before the election.
"I declare on behalf of the State if the Supreme Court of Victoria or other court … makes a declaration … such that the Project Agreement is void or otherwise unenforceable, then the State will pay to EWC one or more amounts by way of compensation," the letter says.
Treasurer Tim Pallas claimed the side letter represented "an act of treachery and treason" proving the former government was always aware the contract for the project was shaky.
"It is an obscenity, it is a contortion of public policy and good pubic interest protection," Mr Pallas said. "The fact is there was considerable uncertainty, uncertainty that went directly towards the protection of the Victorian taxpayers' interests."
Mr O'Brien remains adamant that the side letter was only necessary to reassure the consortium, arguing the former government was always confident its contract, signed just weeks before the November 29 election, was legally valid and completely watertight.
"The letter simply provides an assurance that the government will honour the termination provisions of the contract and provides no additional benefit whatsoever to the East West Connect," Mr O'Brien said.
He confirmed that the consortium had asked for the letter after Mr Andrews' claimed the contract was not valid and promised to dump the project.
To make the point, on Thursday, Mr O'Brien also released legal advice provided by top commercial lawyer Allan Myers, QC. It found the former government had "executive powers" to enter into the contract.
Labor has repeatedly claimed the contract for the project is "not worth of the paper it is written on". Despite this, it is now locked in negotiations with the consortium over an appropriate level of compensation, which is expected to be as high as $1.1 billion.
Associate Professor Ken Coghill, a former state MP and now director of the Monash Governance Research Unit, said it was very unusual for a government to issue a side letter promising compensation for a project that might not proceed.
"It really is highly irregular and very suspicious," he said. "They should never have considered making an assurance like that."
Professor Coghill said it was inappropriate for the Coalition to commit to paying compensation without a public debate first. "It should have been raised publicly in Parliament before the Parliament was dissolved for the caretaker period."