The Tribune

The original developer of a Bahamas-based resort was this week awarded more than $4 million in damages against the insurer that cost it “millions of dollars” and threatened the project’s very “survival” by failing to spot title defects.

Governor’s Harbour Resort & Marina, which secured the first Heads of Agreement with the Government for Eleuthera’s French Leave Marina Village project in 2003, won an almost unanimous jury verdict in the Florida courts this Tuesday.

The jury found that First American Title Insurance Company breached the policy it provided to Governor’s Harbour “by failing to act diligently to cure the title defect”, a breach that resulted in the latter incurring $1.57 million in “out-of-pocket” damages.

The Palm Beach County jury, in a verdict obtained by Tribune Business, also found that problems with the title to its real estate cost Governor’s Harbour $1.48 million in lost real estate sales.

And it also found that First American Title Insurance should indemnify Governor’s Harbour for the $995,717 it paid out via promissory notes to settle with real estate purchasers once the title defects became known.

Court documents obtained by Tribune Business show the case involved well-known Bahamian realtor, H. G. Christie; prominent Bahamian attorneys, Valentine Grimes and the Glinton, Sweeting & O’Brien law firm; and the Bahamian title/real estate services firm, Computitle.

It also resulted in a temporary dispute with the Government over real property taxes that was ultimately resolved under the former Ingraham administration.

Eddie Lauth, one of Governor’s Harbour’s principals, declined to comment when contacted by Tribune Business yesterday.

However, Tribune Business understands that it has taken four-and-a-half years for the courts to resolve the company’s legal battle with First American Title Insurance, a fight that also spawned claims by land buyers against Governor’s Harbour.

And it also took three years to cure the title defect that initiated the case, this newspaper understands, delaying a project that the first Christie administration viewed as vital to reviving the Governor’s Harbour and central Eleuthera economy.

Happily, the French Leave project has put these woes behind it, and acted as the venue for yesterday’s Eleuthera Business Outlook conference (see other articles on Page 1B).

Mr Lauth, subsequent to the court dispute, partnered with the Pennsylvania-based Shaner Hotel Group, which owns/operates more than 34 resort properties around the US and Italy, to bring his vision for French Leave to fruition, and their efforts are starting to pay off.

But the dispute with First American Title highlights the difficulties that are frequently encountered in establishing good title to Family Islands real estate, and detecting problems that may prevent or encumber property purchases.

This acts as a further deterrent to Family Island economic growth and development, which is why some attorneys and others in the real estate industry have called for the Bahamas to transition to a system of registered land.

Outlining the claim that gave rise to this week’s verdict, Governor’s Harbour paid $5.25 million to acquire the 34 acre-site that was the former Club Med resort in December 2003.

To further its plan for a “world-class resort and marina”, it moved to acquire adjacent land parcels that could be combined with the 34 acres purchased from the Club Med owner.

Governor’s Harbour, which obtained a Heads of Agreement for the development from the Government in 2004, purchased 13 land parcels - totalling 240 acres - from a company called Urania Nominee Holdings (UNHL) in August 2005, paying $10 million.

Unbeknown to Governor’s Harbour, this was where its problems started. To secure its real estate purchases, it purchased title insurance from First American Title Insurance and its Florida-based agent, International Data Management (IDM).

Both firms were alleged to use Computitle as their Bahamian agent, and following searches of the title and corporate registry in Nassau, Governor’s Harbour was told by IDM that there were no ‘defects’ with its properties prior to their acquisition.

Governor’s Harbour alleged, in its original complaint, that it received First American Title policies worth $5.25 million and $10 million for the Club Med and UNHL properties, respectively.

The problems began in 2008 “when the global financial crisis caused Governor’s Harbour’s anticipated financing to dry up”, causing it to resort to selling some of its Eleuthera real estate to finance “a scaled back” version of the project.

It signed a contract to sell one parcel to H. G. Christie and Peter Christie, who informed Governor’s Harbour that his inspection of the relevant records revealed “a potential problem” with title to the land.

After hiring a Bahamian attorney to investigate, Governor’s Harbour alleged that it was duly informed about title problems to the UNHL property.

These stemmed from UNHL’s ownership of three companies, Blue Ocean Investments & Developments (BIOD), Perfecto Properties and Hospital House.

BIOD, prior to April 1995, had held title to some of the UNHL land parcels prior to going into voluntary liquidation that month, so that its assets could be transferred to the latter.

Governor’s Harbour alleged that BIOD’s liquidator, who was not named in the court papers, erred by winding-up the company before its real estate was transferred to UNHL.

Because it was removed from the Companies Register on October 17, 1995, BIOD’s transfer of the land parcels to UNHL some two months later fell afoul of the Companies Act’s section 273.

This prevents non-existent companies from disposing of assets vested in them, and automatically vests such assets in the Treasurer (meaning the Bahamas government).

Governor’s Harbour alleged that First American Title and its agents had missed this defect, so it submitted a claim under the $10 million policy on November 17, 2008.

Fearing that the title defect could undermine its entire real estate sales strategy, Governor’s Harbour alleged it was reassured by the title insurers that there was no problem with the real estate previously owned by Perfecto Properties.

By 2009, as it adjusted to the global credit crunch, Governor’s Harbour was selling real estate parcels to “investors and friends” on a land tract known as ‘South Beach’. These sales would generate the funds enabling Governor’s Harbour to finance the build-out of its resort plans.

The developer also negotiated a revised Heads of Agreement with the Government, adding: “This amended agreement is very valuable to Governor’s Harbour because it grants similar concessions with respect to taxes and duties, but reduces the obligations on Governor’s Harbour for development.

“The amended Heads of Agreement requires Governor’s Harbour to spend a minimum of $5.575 million for the purpose of constructing facilities on the Club Med Property, the marina property (which includes both Club Med and UNHL parcels) and the South Beach property.”

However, Governor’s Harbour then found that the Perfecto/South Beach land was also “infected” by the title defect, a development that had a “devastating” impact for its development plans. The real estate purchasers “rescinded” their acquisitions, and ultimately sued Governor’s Harbour to recover their monies.

“In essence, the Perfecto parcels which Governor’s Harbour had sold to the [buyers] in reliance on IDM’s and First American’s representations had been conveyed by operation of law to the Bahamian government in October 1995,” the lawsuit alleged, “just like the Christie Parcel, such that Perfecto could not convey good and marketable title thereto to UNHL in December 1995 (and hence, UNHL could not convey such good and marketable title to Governor’s Harbour in August 2005.”

The developer claimed that First American Title in November 2009 refused to issue insurance policies to both itself and the buyers, despite having committed to doing so and receiving the necessary premium payments.

Governor’s Harbour added that it had committed to transferring $3 million worth of UNHL land parcels to three of its investors, in exchange for their investments, but was prevented from doing so by the title problems.

“In addition to the [buyers] and the referenced additional investors who had agreed to accept conveyance of parcels from the UNHL property, Governor’s Harbour lost numerous other sales of individual parcels,” it alleged.

“Governor’s Harbour also lost millions of dollars expended to develop and market the entire project, which it would not have done had it known it did not have good and marketable or insurable title to a large portion of the property. Governor’s Harbour has also lost the anticipated profits from the project.”

Governor’s Harbour’s then-attorney, Mr Grimes, conducted “significant legal work and investigation” to determine the root cause of the title problems.

This was passed to First American Title, but the company allegedly refused to compensate Mr Grimes for his work.

After a “six months delay (in all respects without justification or explanation)”, First American Title retained Glinton, Sweeting & O’Brien to “implement a legal strategy” to cure the title problems.

“On June 12, 2009, nearly eight months after Governor’s Harbour’s formal notice of the BOID defect, First American, through Glinton, Sweeting & O’Brien, finally submitted a letter to the Prime Minister of the Bahamas [Hubert Ingraham], acting in his capacity as the Minister of Finance, requesting that he exercise discretion to cure the title defect by conveying the BOID property from the Government to Governor’s Harbour,” Governor’s Harbour alleged in its 2012 complaint, which gave rise to this week’s verdict.

“After several more months delay, during which Glinton, Sweeting & O’Brien, and First American, resisted suggestions by Governor’s Harbour and Mr Grimes to meet personally with representatives of the Government, the office of the Minister of Finance finally informed Glinton, Sweeting & O’Brien on September 16, 2009, that the Minister would agree to re-vest the property (corrective conveyance) that was the subject of the pending request, but only in exchange for payment of 50 per cent of the documentary Stamp Tax based on the value of the property. Governor’s Harbour demanded that First American pay the documentary taxes so that the defect could be eliminated expeditiously.”

Glinton, Sweeting & O’Brien was then asked to obtain corrective conveyances from the Government for the Perfecto property, with Governor’s Harbour complaining that it - and First American Title - took six months to meet with government officials on the issue.

“During this time, Glinton, Sweeting & O’Brien learned that its correspondence had been misplaced and ignored by various government officials, and yet Glinton, Sweeting & O’Brien still declined to request personal meetings with government officials to press for resolution of the title defects,” Governor’s Harbour alleged.

Andy O’Brien, the Glinton, Sweeting & O’Brien partner who heads its real estate practice, was yesterday said to be out of office until next week and unavailable for comment when Tribune Business called.

Governor’s Harbour’s legal filing said Glinton, Sweeting & O’Brien told it on July 17, 2010, that the Investments Board had approved the issuance of a new permit for all the 2005 land acquisitions, contingent that it pay all due real property taxes form 2005-2010.

“Governor’s Harbour informed First American and Glinton, Sweeting & O’Brien that it was not obligated to pay real estate taxes because it had not owned the property. Rather, the property had been owned by the Government of the Bahamas,” the developer alleged.

The demand for taxes persisted, with the Government also issuing “incorrect” corrective conveyances to Governor’s Harbour.

Eventually, the developer hired another Bahamian attorney to argue its case with the Government, and they met with David Cates of the Ministry of Finance’s valuation office, and officials from the Attorney General’s Office and Prime Minister’s Office.

This ultimately resulted in success, with Governor’s Harbour obtaining “the express and binding agreement of the Bahamian government” that no real property taxes were due. All title defects were ultimately cured in 2011.