The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Davis administration’s ambition of forcing a rapid ownership change at the Grand Bahama Port Authority (GBPA) suffered a setback - but has not been ended - by the ruling that dismissed its $357m payment demand.

The long-awaited decision in the Government’s two-year arbitration claim against Freeport’s quasi-governmental authority, which was released in full yesterday, rejected its reimbursement bid on the basis it was brought under a Hawksbill Creek Agreement clause that had been superseded, and replaced, by a section in the 1994 agreement that the then-Ingraham administration struck with the GBPA.

That section, described as paragraph three, required the GBPA to pay the Government $500,000 every year “for the purpose of defraying the administrative expenses incurred by the Government in the Port area” for a period of five years between 1996 and 2000. But, while the two sides’ commitments obligated them to jointly “review” this obligation and the sum to be paid in future years, no agreement was reached and payment lapsed.

But, while its $357m demand for reimbursement of expenses incurred over and above tax revenues generated by Freeport between 2018 and 2022 was rejected, the three-strong arbitration panel - featuring a former Cayman Islands chief justice and two UK law lords - nevertheless set out an alternative path by which the Government can secure outstanding payments determined to be due and owing by the GBPA.

Besides finding that paragraph four’s “review mechanism” remains operational and enforceable, and has not been eroded by inactivity, the arbitrators’ decision also left the door open to the Government seeking retroactive reimbursement from the GBPA going back more than two decades’ to at least 2001-2002. This, in effect, could pave the way for the Government to renew its demand that Freeport’s quasi-governmental authority pay it a nine-figure, multi-million dollar sum.

The immediate impact from the 139-page “partial decision” rendered by Sir Anthony Smellie KC, the arbitration panel’s chairman, and Lord Neuberger and Dame Elizabeth Gloster, is to send both parties back to the negotiating table to first develop the “review mechanism” - including its governance framework and how it actually functions - then work out the annual amount the GBPA should pay the Government.

While they may agree on the formula and sums to apply from 2023 moving forward, which would cover the final 30 years’ of the Hawksbill Creek Agreement’s lifespan, it appears likely that the Government and GBPA will again find themselves at odds over any retroactive sums due to the former to cover Freeport-related expenditure that has exceeded tax revenues.

Ryan Pinder KC, the attorney general, yesterday made clear that the Government intends to pursue retroactive reimbursement from the GBPA for the past 20-plus years. “The application of the review provision in relation to costs incurred by the Government in past years… pre-demand, our demand was in 2023, that’s still a live issue,” he told a media briefing at the Prime Minister’s Office.

“So historical costs due to the Government is still a live issue. The Tribunal stated that it would be ‘able and prepared’ to determine what is owed historically if asked to do so by the parties. The Government will request the tribunal to do so.” And he later reaffirmed: “Recovery for earlier years remains subject to further determination and directions from the Tribunal, which the Tribunal has indicated that it is ready and willing to undertake as soon as possible. We will ask them to do so.”

Mr Pinder argued that the 1994 agreement’s paragraph three “is almost identical in scope to what we could expect” under the Hawksbill Creek Agreement clause used to bring the claim, implying that it could result in the GBPA owing a similar sum to the original $357m demand. “My opinion is that the full amount of our claim still stands,” he said. “We look forward to a review with the GBPA of the parameters of what they owe the taxpayers of the Commonwealth of The Bahamas”.

This is unlikely to be desired by the GBPA. The arbitrators said they were “reluctantly persuaded” by Freeport’s quasi-governmental authority not to address in their initial ruling questions over whether the “review mechanism” can be applied retroactively and “how far back the Government can go”.

“However, if both the parties would like the tribunal to resolve this issue, given that this is a partial award, the tribunal would be able and prepared to take that course and would anticipate giving directions to enable the issue to be resolved as quickly as is practical and consistent with justice,” the arbitrators said. However, there were indications that the GBPA would prefer to put such an issue before the judicial court system rather than arbitration again, signalling that a ‘retroactivity’ battle looms.

Both the Government and GBPA yesterday moved rapidly to set the public relations narrative by highlighting, and talking up, the aspects of the verdict most favourable to them but the ruling shows that neither side was completely successful with their case and claims.

Mr Pinder, and his fellow Cabinet ministers, Ginger Moxey and Dr Michael Darville, current and past ministers for Grand Bahama, focused on the “review mechanism” remaining operational and enforceable, and the fact the arbitrators had determined this establishes an annual liability the GBPA owes the Government if the latter’s Freeport expenditure exceeds revenue in any given year.

The Attorney General pledged that the Government would “give a good faith effort to come to the table” and negotiate a settlement of the review mechanism and all outstanding issues, but quickly warned that if the GPBA is “not willing to come to the table or be rationale in their approach” it will quickly invoke fresh arbitration proceedings.

However, Mr Pinder did not address or mention that the Government had failed in its key objective in launching the arbitration proceedings. This was to obtain sufficient leverage to force the GBPA’s two owners, the Hayward and St George families, to exit by winning a verdict that Freeport’s quasi-governmental authority owed $357m or some other significant sum that it could not pay.

This would have either forced the families to sell or, if they proved reluctant, the Government would likely have petitioned the Supreme Court to appoint a receiver to take control of the Port Group of Companies and sell them off to a buyer. However, the immediate threat of this happening has been lessened by the arbitrators’ rejection of the $357m demand, although the danger has not been eliminated.

“Given that clause 1(5)(d) has been replaced by paragraph three with effect from the date of the 1994 agreement, it must follow that the Government is not entitled to claim any payments under clause 1(5)(d),” the three-strong arbitration panel ruled. “It therefore follows that the Government is not entitled to any sum in respect of administrative expense for any of the years 2018 to 2022, at least unless and until a sum in respect of those years is assessed pursuant to the review” mechanism.

Prime Minister Philip Davis KC has made no secret of his desire to overturn Freeport’s “status quo” by securing the removal of the Hayward and St George families as the GBPA’s owners, reaffirming these ambitions recently by branding Freeport a “corporatocracy” that has been managed and administered to favour the private interests of a few rather than the Bahamian people. While this goal may now be delayed, it has not been abandoned.

“The Port Authority and the families can gloat and say they don’t have to write a cheque for $357m,” one prominent Freeport source, speaking on condition of anonymity, told Tribune Business yesterday, “but it doesn’t let them off the hook. I think they are going to get an ultimatum, and hopefully they understand they had better cut a deal, take some money and go. They have no chance to stay, but nothing’s going to happen between now and the election.”

Another, voicing doubts over whether the working relationship between the Government and GBPA will improve as a result of the arbitration outcome, said: “The main thing is they want the families gone. If the Haywards and St Georges find new Bahamian partners that would be the best case scenario. I think they’ve got the message. They just need to find an off-ramp that works for everyone.”

The GBPA, meanwhile, focused on the $357m payment demand’s dismissal and the success of one of their seven counter-claims - that the Government breached the Hawksbill Creek Agreement, Freeport’s founding treaty, by failing to promulgate and enact four environmental bye-laws submitted by the GBPA - a failure that spanned four administrations and 20 years from 2026.

The arbitrators are now awaitng submissions from both sides on what, if any, damages should be paid by the Government to the GBPA. Mr Pinder, though, scoffed at this yesterday, saying: “I know today the GBPA said they are going to pursue damages. The Tribunal said there’s a question as to whether any damages are due. I would put it to you that these damages are nominal if any.”

The GBPA yesterday hailed the verdict as a “landmark arbitration victory” for itself, its 3,500-plus business licensees and the people of Grand Bahama because the $357m payment demand - the core basis for bringing the claim - had been “dismissed in full”.

It added: “The arbitration tribunal fully rejected the Government’s argument that it was owed hundreds of millions of dollars by GBPA under Clause 1(5)d, in a decision that provides much-needed clarity and confidence in the future of Freeport following the prolonged shadow of uncertainty cast by this sweeping claim.

“In addition, the tribunal upheld the GBPA’s counterclaim in respect of the Government’s sustained failure to approve environmental bye-laws proposed by GBPA, which were intended to strengthen health, safety, sanitation and environmental governance within the Port Area. The Government was declared in breach of the Hawksbill Creek Agreement for this failure, and the tribunal directed the parties to make submissions on a damages award to the GBPA arising from those breaches.”

The GBPA, though, made no mention that its seven other counter-claims were all rejected by the arbitrators. It added that the decision will “stabilise” Freeport’s business and invetsment climate, and provide renewed confidence to businesses and investors, as it also called for renewed “collaboration” with the Government.

“This is more than a legal victory,” the GBPA trumpeted. “It is a stabilising moment for Freeport. We trust the ruling will give licensees, investors, stakeholders and Grand Bahama residents renewed assurance and optimism for the future.

“We have advised the Government repeatedly since June 2016 that this claim was wrong and would fail. It was not a good use of time or public resources. We have always maintained that benefit for Grand Bahama would best be obtained by GBPA and government working together.

“Genuine collaboration between the Port Authority and the Government aimed at ensuring that both parties meet their moral and legal obligations for the benefit of all stakeholders and the people of Grand Bahama is essential,” the GBPA reiterated.

“With this claim substantially behind us, we see this as an opportunity to reset Grand Bahama’s future through a renewed partnership, a modernised regulatory framework and greater empowerment of local stakeholders.

“GBPA didn’t ask for this fight; we were forced to defend ourselves and stand up for the rights of our licensees and stakeholders. We would like to take this opportunity to thank the tribunal for their extensive work and for producing a fair and just decision.”