The Tribune

• Smith and Adams hired for Gov’t arbitration

• Meetings planed in effort to resolve dispute

• Chamber fears revival ‘slow down or stop’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

TWO top attorneys have been hired by the Grand Bahama Port Authority (GBPA) to defend an anticipated $200m demand from the Government amid last-ditch efforts to avoid a legal confrontation.

Tribune Business can reveal that Fred Smith KC, the Callenders & Co partner and former GBPA external counsel, and Robert Adams KC the Delaney Partners attorney, have been engaged by Freeport’s quasi-governmental regulator should the Davis administration initiate arbitration proceedings over its reimbursement claims.

This newspaper understands that the unpaid bills/invoices submitted to the GBPA, claiming sums allegedly due to the Government to cover the costs of providing public services in Freeport that exceed tax revenues generated by the city, now total over $150m - with the expectation of further imminent demands that will take the final sum sought to over $200m.

Both Mr Smith and Mr Adams declined to comment when contacted by this newspaper yesterday. However, it is also understood that the Government has hired a London-based law firm, Simons Muirhead Burton, to represent it and help argue its case should it progress to actual arbitration.

Tribune Business sources, speaking on condition of anonymity, said attorneys for both sides will likely meet soon - possibly as early as next month April - to see if the dispute between the Government and GBPA can be resolved without resorting to arbitration and subsequent legal appeals that could drag the battle out for years and potentially harm Freeport’s attractiveness to Bahamian and foreign investment.

“The lawyers are discussing, identifying dates for a series of meetings to see if there’s a way to compromise and resolve the dispute,” one contact revealed.

“The goal is to avoid a collision. It’s going to be bad for Freeport’s investment climate for the Government and Port Authority to be fighting over this reimbursement claim.

“Freeport is finally seeing green shoots, so to speak, with the Shipyard, Carnival and other projects coming on. It seems that the momentum is finally starting to build.” James Carey, the Grand Bahama Chamber of Commerce president, yesterday voiced similar fears that launching arbitration proceedings could “slow down or stop” Freeport’s potential economic rebirth.

While any battle between the Government and GBPA is unlikely to stall the cruise line investments or Grand Bahama Shipyard’s, as these are all underway or in process, Mr Carey added that any fight between entities charged with the city’s governance and regulation threatens to create uncertainty and undermine investor confidence.

“I don’t think that process is healthy for business in Freeport because obviously it will come into the public domain and it will raise questions about the viability of doing business in Freeport,” he told this newspaper. “Persons with money don’t like putting it into an area with some danger to its viability.

“I don’t think it’s ideal, certainly not for us at this time, given what we’ve been through. I don’t think it bodes well. There’s no saying how long that [arbitration] process will take. It could go on forever. The Port Authority continues to talk about now up to $2bn in confirmed investments.... Freeport seems to be moving and we don’t want to slow it down or stop it.”

Mr Carey said the Government also has yet to publicly state what its ultimate goals and ambitions are for both the GBPA and Freeport, while asserting his belief that “there’s still room to sit down and have a conversation” in a bid to resolve the two sides’ differences.

“It would be good if we can understand and appreciate what the overall objective is,” the GB Chamber chief added. “Is it to seize control of the Port? Is it to cause the families [the Haywards and St Georges] to abandon and pass it on to someone else? It’s not clear what the Government’s objective is and it would be good to know that.”

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 seek payment from the GBPA for providing “certain activities and services” if the costs involved exceed certain tax revenue streams generated in the city.

“It’s important to note there’s a provision in the Hawksbill Creek Agreement that specifies that the cost borne by the Government for certain activities and services provided are to be reimbursed by the Grand Bahama Port Authority for amounts in excess of Customs duties and emergency taxes collected,” Prime Minister Philip Davis KC said last June.

“My government has begun to invoice the Port Authority for these reimbursable expenses, as calculated by an independent accounting firm. To date, the Port Authority has not provided reimbursement in connection with any of these invoices.” The accounting firm involved is PriceewaterhouseCoopers (PwC).

However, several sources yesterday 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 1960s. They argued that it smacked of the Davis administration using this as leverage to force the Haywards and St Georges to sell and exit after they declined to accept the Government’s purchase offer.

“They’ve never taken any steps to enforce that clause in 60 years,” one source said, adding that it smacked of government overreach that could “damage the whole image and reputation of the country” if the administration was perceived to be seeking to force out private owners.

Tribune Business previously reported that these alleged costs, and the Government’s demands that they be repaid, are one tactic at the Davis administration’s disposal should it seek to financially squeeze the the Hayward and St George families in a bid to pressure them to sell their ownership interests. It may be hoping that the families will struggle to repay if it succeeds at arbitration.

However, the Hawksbill Creek Agreement clause referred to by the Prime Minister 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 are not factored into the calculation of whether the Government is spending more than it is earning in Freeport. PwC is thought to have been given a remit to include all the Government’s costs in its billings, even though the clause in question only refers to covering expenses associated with police, Customs and Immigration.

Thus, while all the Government’s tax and revenue streams are not covered by the Hawksbill Creek Agreement clause, the invoices are also seeking to recover expenses for public services it fails to mention such as education, social services and health. Millions of dollars are involved, but the GBPA will almost certainly contest the Government’s figures given the lack of a detailed accounting or breakdown of the numbers.