The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Grand Bahama Port Authority (GBPA) is bracing for the Government to formally initiate arbitration proceedings as early as this week after talks failed to break the deadlock over the latter’s $357m demand.

Tribune Business understands that last-ditch talks involving attorneys representing both sides made little headway in resolving the dispute over whether Freeport’s quasi-governmental authority owes such a sum, representing how much the Government alleges it has spent in the Port area over and above tax revenues generated by the city between 2018-2022, to the Public Treasury.

“The next step is to get a formal notice of arbitration, which I suspect the Government will serve on the GBPA this week,” one source, speaking on condition of anonymity, said yesterday. The Government team at the talks, which took place during the middle and end of last week, was headed by Ryan Pinder KC, the attorney general, while the GBPA was represented by Fred Smith KC and Robert Adams KC.

With the 30-day deadline imposed by the Government for the GBPA to pay-up having now expired, and no such payment having been made, arbitration proceedings appear all but inevitable as indicated by Prime Minister Philip Davis KC.

And this newspaper can disclose that the Government is directing “a legal force of hurricane strength” to lead its legal strategy. That perhaps unfortunate description, given Freeport’s recent history, is the billing given to Harry Matovu KC, the UK-based barrister from Brick Court Chambers, who sources said was present at last week’s negotiations and will head the Government team in its arbitration battle.

He was described by the Legal 500 publication in 2021 as “a legal force of hurricane strength, analytical skills combined with creativity and advocacy, topped by the smoothest and most highly lethal approach to cross-examination that I have ever experienced”.

An arbitration and public international law specialist, he was nominated as Silk (KC) of the Year for international arbitration in the Legal 500 Awards in 2020 and 2022, as well as arbitrator of the year in the Legal 500 Bar Awards 2023. As previously revealed by Tribune Business, the Government has also hired UK law firm, Simons Muirhead Burton, to act as Mr Matovu’s instructing and supporting solicitors.

Tribune Business understands that, once the formal notice of arbitration is served by the Government on the GBPA, both parties will then move to appoint the three-strong panel of arbitrators who will hear the dispute and ultimately determine whether the GBPA owes the Government anything and, if it does, how much.

Both the Government and GBPA will then select one arbitrator each, with the two chosen then picking a chairman to head the arbitration panel from a shortlist drawn up and approved by both parties. This is likely to be the start of what could be a long, drawn-out legal process with both sides having to exchange evidence via the discovery process and ‘settle the record’ to determine what will be presented at arbitration.

This process could take months, if not years, and questions were yesterday being asked whether - given the “huge public interest” and issues generated by the dispute - the Government will agree to invoke the waiver in the latest Arbitration Act that allows both sides to agree private hearings should be made public.

Besides the potential impact on Freeport’s very future, and the potential fall-out for the GBPA’s 3,000-plus business licensees and residents, the very nature of the Government’s $357m payment demand raises questions involving the spending of public/ taxpayer monies and the collection of taxes in the Port area.

“They want transparency for the benefit of their licensees and residents,” one contact, speaking on condition of anonymity, said of the GBPA. “They don’t understand why the Government would not readily agree to transparency. That is a very important question that needs to be answered by the Government sooner rather than later.

“This should be out in the open. There should be nothing to hide. The PwC report, there’s no reason for it to be kept confidential. It’s about the expenditure of public money and revenue collected. There’s absolutely no good reason for the Government to have that covered by a veil of secrecy if they are confident it is accurate.”

The PricewaterhouseCoopers (PwC) accounting firm was hired by the Government to analyse, and calculate, just how much the GBPA owes the Public Treasury for public spending in Freeport that exceeds the tax revenues generated by the city. The GBPA denies that anything is owed, alleging that Freeport contributes around $200m annually in tax revenues.

The Government is seeking reimbursement under section one, sub-clause five, of the Hawksbill Creek Agreement, Freeport’s founding treaty, which stipulates that it can demand payment from the GBPA for providing “certain activities and services” if the costs involved exceed certain tax revenue streams generated in the city.

The original 1955 clause required the GBPA to pro- vide rent-free office and living accommodation to government employees involved in the “the maintenance of law and order, the administration of justice, the general administration of Government, the collection of Customs Duties and other revenue and the administration of the Customs Department the administration of the Immigration Department, Post Offices” and other functions to be mutually agreed.

The GBPA was also required to “reimburse the Government annually” within 30 days of detailed accounts being presented by the latter, but only if “Customs Duties and emergency taxes received by the Government in respect of goods entered or taken out of bond at the Port Area are less than the amount” spent by the Government.

Multiple sources have questioned why the Government has waited until now - some 60 years or six decades - to try and enforce a Hawksbill Creek Agreement clause dating from the 1950s and 1960s. They argued that it smacked of the Davis administration using this as leverage to force the Haywards and St Georges, the GBPA owners, to sell and exit after they declined to accept the Government’s purchase offer.

And the Hawksbill Creek Agreement clause at the centre of the dispute may not be all it seems. It was last amended in 1960, when Freeport was five years-old, the city’s development very much in its infancy, and the only revenues earned by the Public Treasury at the time from the Port area were Customs duties.

While it indeed stipulates that the Government should not spend any more in the Port area than it earns in revenues, and that any excess costs over and above the latter should be reimbursed by the GBPA, that clause has not been amended to account for either the Freeport of today or multiple taxes that have been added since then.

Thus VAT, departure taxes and a host of other revenue streams have to be factored into the calculation of whether the Government is spending more than it is earning in Freeport. Several sources have suggested that, rather than go to arbitration, the two sides should instead negotiate amendments to section one, sub-clause five of the Hawksbill Creek Agreement to ensure it is fit for purpose and attuned to the modern world’s realities.