Colombia: Liquidation payments in concession agreement early termination

Author: | Published: 8 Jul 2019
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Brigard Urrutia

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Calle 70A # 4 - 41 Bogotá

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Article 20 of Law 1882 of 2018 was very important for reactivating the financing of the 4G concession road projects, because it clearly stated the guidelines for calculating the termination payment in concession agreements in the case of early termination events caused by a declaration of invalidity. On August 30 2018, the Controller General filed a claim of partial unconstitutionality of the article before the Colombian Constitutional Court, arguing that this article contravened the prohibition of illicit enrichment, among other arguments.

Recently, the Colombian Constitutional Court made its decision (press release No 14 was published on May 15, of the Ruling C-207 of 2019, the full text is pending publication) on the constitutionality of this article. In its decision, the Court recognised that in concession contracts, a large percentage of the risks are assumed by financial institutions and third parties that provide the funds for the performance of the projects in good faith. Consequently, denying the recognition of economical rights or compensation to such third parties due to the annulment of a concession contract seemed unjustified. Also, it seemed unjustified to deny compensation when the concessionaire was not the subject of any wrongful conduct. In this regard, the Colombian Constitutional Court allowed compensation in favour of (i) good faith third parties; and, (ii) the concessionaire, its members, shareholders and related third parties, when: (1) it was not proven that they acted through willful misconduct; (2) they did not act in bad faith; and, (3) they had no knowledge of the wrongful conduct that gave rise to the grounds for the annulment declaration or administrative infractions. According to this decision, compensation in favour of the concessionaire and/or the concessionaire´s sponsors will strictly depend on the fact that they acted in good faith and that they had no knowledge of the wrongful conduct that gave rise to the grounds for the annulment declaration or administrative infractions. Consequently, if it is proven that they acted in bad faith, no compensation will be recognised regarding the remnants derived from the liquidation of the concession agreement.

On the other hand, the Colombian Constitutional Court declared unconstitutional and consequently eliminated the exception under which it was possible to be compensated for the costs or penalties that had been applied in the context of credit agreements, financial leasing or the termination of contracts derived, and financial coverage of the project was recognised and compensated.

Carlos
Fradique-Méndez
Mario Forero