The Tribune

By RASHAD ROLLE

Tribune News Editor

rrolle@tribunemedia.net

THE government’s $357m claim against the Grand Bahama Port Authority has collapsed in a landmark arbitration ruling that nonetheless confirmed it has regulatory authority in Freeport and can seek future payments under the Hawksbill Creek Agreement until 2054.

The decision, issued in a Partial Final Award by a three-member international tribunal, resolves the most contentious phase of a years-long legal battle between the Davis administration and the Grand Bahama Port Authority (GBPA) over the financial and governing structure of the Freeport Port Area.

While both sides quickly claimed sweeping victory after the ruling, the tribunal’s findings leave a more complicated picture.

Although the body rejected the government’s immediate bid to collect hundreds of millions of dollars in alleged administrative costs, it clarified key elements of the Hawksbill Creek Agreement framework that governs Freeport, including the government’s continuing authority in the Port Area and the existence of a mechanism through which the GBPA may be required to make annual payments to the state for the remainder of the agreement’s life.

That agreement, signed in 1955 and subsequently extended, remains in force until 2054.

The arbitration was heard by a tribunal chaired by Sir Anthony Smellie, the former chief justice of the Cayman Islands, alongside Lord Neuberger of Abbotsbury, former president of the UK Supreme Court, and Dame Elizabeth Gloster, a former judge of the Court of Appeal of England and Wales.

The government had sought more than $357m for the years 2018 through 2022, arguing that it had incurred substantial expenses providing services in the Port Area — including customs, immigration, environmental oversight, and regulatory administration — that should have been reimbursed by the GBPA.

That claim was based on a PwC report, which the government argued constituted a detailed accounting of the costs it had borne on behalf of Freeport.

The tribunal, however, concluded that the government could not rely on that approach to enforce payment for those years.

Central to its reasoning was the conclusion that the historical mechanism cited by the government for recovering those expenses had been replaced by a different arrangement negotiated between the parties in the 1990s, when tax concessions under the Hawksbill Creek Agreement were extended.

That later arrangement provided for a fixed annual payment from the GBPA to the government for an initial period, followed by a review process intended to determine the appropriate payment level thereafter.

According to the tribunal, that review mechanism — rather than the earlier reimbursement clause — governs the parties' financial relationship going forward.

Because that review process was never implemented to establish new payment levels after the initial period expired, the tribunal found that the government could not simply retroactively calculate and claim expenses for several years based on the PwC report.

In effect, the tribunal concluded that while a payment structure exists, the amount owed must first be determined through the agreed review process.

That finding dismantled the government’s attempt to enforce the $357m claim as presented in the arbitration.

However, the tribunal also made clear that the payment mechanism itself remains active.

It said the government retains the right to invoke the review process in order to determine the annual payments the GBPA should make to defray administrative costs associated with the Port Area.

The tribunal noted that the mechanism can be invoked for future years and indicated that it remains enforceable for the remainder of the Hawksbill Creek Agreement, which runs until 2054.

Questions surrounding whether payments may also be determined for past years — and how far back such determinations could reach — were left unresolved at this stage of the proceedings. The tribunal declined to rule on that issue because it had not been formally pleaded as part of the government’s claim.

Instead, it said the parties may seek further determinations in the next phase of the arbitration if they wish to address those matters.

The ruling also addressed a wide range of counterclaims brought by the GBPA.

The Port Authority had argued that successive governments interfered with its administration of the Port Area, diverted investment projects away from Freeport and undermined the governance structure established under the Hawksbill Creek Agreement.

It sought damages that were said to exceed $1bn.

The tribunal rejected the overwhelming majority of those claims.

In particular, it dismissed arguments that the GBPA possesses exclusive authority to administer the Port Area.

The tribunal concluded that the government retains legislative and regulatory authority in Freeport and that its role in areas such as immigration, customs, environmental regulation, development approvals and utility oversight has long operated alongside the Port Authority’s functions.

Evidence presented during the arbitration indicated that this shared arrangement had been accepted and practised by both sides for decades.

The tribunal found that the parties' historical relationship made it inequitable for the GBPA to argue that the government lacked such authority.

The ruling also rejected claims that the government improperly diverted investment opportunities away from Freeport.

The tribunal held that the state retains discretion to pursue development policies across the wider island of Grand Bahama in the public interest.

Several other counterclaims involving land purchases, utilities and regulatory actions were similarly dismissed.

The GBPA succeeded on only one limited issue. The tribunal ruled that the government breached its obligations by failing to take timely steps to approve and implement environmental bye-laws proposed for the Port Area.

Those bylaws had first been submitted by the Port Authority in 2006. The tribunal granted a declaration confirming that the government had not fulfilled its obligations to give reasonable and timely consideration to those measures.

However, the tribunal stopped short of awarding damages for that breach. It said it was not yet clear whether the GBPA had established recoverable losses and directed the parties to provide further submissions on whether damages should be assessed.

The award is described as “partial” because several matters remain unresolved. Those include whether the GBPA may owe damages relating to the environmental bye-laws issue, whether any payments may be determined for past years under the review mechanism, and which party should bear the costs of the arbitration.

The tribunal has instructed both sides to confer and propose a procedure to address the outstanding issues. The government said yesterday that it intends to pursue a determination of the sums payable by the GBPA under the payment review mechanism for historical periods.

The arbitration had been closely watched around the country, especially in Grand Bahama. Under the Hawksbill Creek Agreement, the Port Authority was granted sweeping powers to administer and develop the Freeport Port Area in order to transform the northern island into a major commercial and industrial hub.

Over the decades, however, tensions have periodically surfaced over the balance of authority between the private entity that administers the Port Area and the national government. Those tensions have intensified under the Davis administration.