The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The outcome of the $357m Grand Bahama Port Authority (GBPA) arbitration dispute must be swiftly disclosed to uphold business and investor confidence, it was argued yesterday, amid subtle hints the verdict may not have gone fully the Government’s way.

Dillon Knowles, the Grand Bahama Chamber of Commerce’s president, told Tribune Business that - given the decision’s importance for Freeport’s governance and future development - it was vital that both sides rapidly agree to release the outcome and any “conditions” attached because “investors abhor a vacuum and uncertainty”.

He asserted: “Freeport’s governance is dependent on what the ruling is, what the conditions of the ruling are and, the sooner we know what the ruling is and conditions are, the better because investors abhor a vacuum and uncertainty.

“Therefore, it’s important for all parties to know what the rules of engagement in Freeport are going to be going forward. Uncertainty is the bane of investors. Investors love certainty. They are not going to plonk down their hard-earned cash in an environment where they don’t know what’s going to happen next from a legal and regulatory perspective.

“That’s the world over, and is not specific to The Bahamas. We need to know the rules of engagement, both as investors and as residents of Freeport. We need to know the rules of engagement. We’ve waited this far, and I guess we have to wait a bit longer, but hopefully we will not have too long to wait.”

Prime Minister Philip Davis KC yesterday confirmed that “a partial decision has been made” by the three-strong arbitration panel in relation to the Government’s demand that the GBPA pay it $357m to cover public spending incurred in the Port area over a six-year period and which exceeded tax revenues generated by Freeport.

“Well, as you know, the arbitration was confidential,” Mr Davis said. “I can tell you that the decision has been made - a partial decision has been made. But I can't say any more than that at this moment.” Arbitration was chosen as the dispute resolution forum precisely because it provides all parties with more confidentiality than if they used the court system in The Bahamas or any other jurisdictions.

Tribune Business can reveal that the arbitrators released their decision at mid-morning on Friday but, due to strict confidentiality and non-disclosure provisions that cover both sides and their legal representatives, the outcome has not been disclosed and no one is willing to comment.

However, this newspaper has received indications from multiple sources that the GBPA and its owners, the Hayward and St George families, may be reasonably satisfied - and are not desperately disappointed - with the decision. When it was suggested to one contact that the verdict was by no means a comprehensive victory for the Government, they replied: “It’s even more interesting than that” but declined to comment further.

Yet Tribune Business was also informed last night that some of the Government’s major supporters were hailing the arbitration outcome as a “big win” for the Davis administration, although this was labelled subsequently as “definitely incorrect” by other contacts. The mixed signals further bolster Mr Knowles’ call for swift disclosure of the decision and its implications for Freeport given the information vacuum that is likely to develop and be filled by rampant speculation.

It is understood that the decision by the arbitrators - Sir Anthony Smellie KC, former chief justice of the Cayman Islands as chairman, and the two UK law lords, Lord Neuberger of Abbotsbury and Dame Elizabeth Gloster - may never be made public. However, given the immense public interest and consequences of the verdict, something will have to be released.

Tribune Business has been told that both sides, the Government and GBPA plus the latter’s two shareholder families, will have to agree a joint statement for public release that must also be approved by the arbitrators. Under The Bahamas' existing Arbitration Act, the panel's verdict is confidential and will not be publicly disclosed unless both parties agree to this.

The arbitration panel's decision could be the final verdict in a dispute whose outcome will potentially have a profound impact on Freeport’s future governance and development, as well as ramifications for the city’s economy, the GBPA’s estimated 3,000-plus business licensees and the wider Bahamas.

It is thought that there is no automatic right, or pathway, for the losing or any aggrieved party to appeal the panel's verdict to the Supreme Court. Such an appeal can only be mounted with the consent and approval of both parties - the GBPA and the Government - and neither is likely to agree to a further challenge to a decision that favours themselves.

Sources yesterday suggested a government defeat would force it back to the drawing board on tactics and mechanism, but is unlikely to alter the Davis administration’s publicly-sated goal of overturning Freeport’s “status quo” by securing the removal of the Hayward and St George families as the GBPA’s owners.

Mr Davis reaffirmed these ambitions at the recent Grand Bahama Business Outlook conference, branding Freeport a “corporatocracy” that has been managed and administered to favour the private interests of a few rather than the Bahamian people. He also did little to disguise the Government’s position that the city has stagnated under GBPA oversight and the latter has failed to uphold its development obligations as set out in the Hawksbill Creek Agreement, Freeport’s founding treaty.

The Government’s calculation is likely to have been that, even if not awarded the full $357m claim, the arbitrators would have still have found the GBPA was owing major sums to the Public Treasury. And this sum would have been an amount that Freeport’s quasi-governmental authority and its owners cannot pay.

And, if they failed to respond to a demand letter to pay, the Government’s plan would then likely have been to petition the Supreme Court for the appointment of a receiver to take possession of the Port Group and all its assets, ousting the Haywards and St Georges and selling them off to a new buyer while devolving Freeport’s governance powers to either Nassau or a newly-created local authority. This strategy, though, may have to be reappraised if the GBPA has won or the Government awarded an insignificant sum, while the timing of any reverse would not be desirable with a general election approaching.

The amount demanded by the Government is likely to have increased significantly since the $357m arbitration claim was launched given that the Davis administration has signalled in its annual Budget that it intends to bill the GBPA, Freeport’s quasi-governmental authority, for $75m every year to fund incurred expenses that are not covered by tax revenues generated in the Port area.

These annual billings were to take effect every year from 2024-2025, meaning that - at least in the Government’s eyes - a further $150m is already outstanding, which would take the total now demanded to $507m. Many observers believe the GBPA owes something; it is just a question of how much.

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 has denied that anything is owed, alleging that Freeport contributes around $200m annually in tax revenues.

The Government was seeking reimbursement of the claimed $357m under section one, sub-clause five, of the Hawksbill Creek Agreement, 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 provide rent-free office and living accommodation to government employees involved in “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 argue that it smacks 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.