By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Freeport’s fate is set to be determined by two weeks of arbitration hearings that will launch on Monday to determine the Government’s $357m dispute with the Grand Bahama Port Authority (GBPA).

Tribune Business can reveal that the long-awaited arbitration, which will ultimately decide whether the GBPA owes the Government for public spending in Freeport over and above tax revenues generated by the city, is to begin on September 8 and be held privately at an undisclosed location in Nassau. No members of the media or public will be permitted to attend, it is understood.

This newspaper can also disclose that Sir Anthony Smellie KC, former chief justice of the Cayman Islands, has been selected to chair the three-person arbitration panel where he will be flanked by two UK law lords - Lord Neuberger of Abbotsbury and Dame Elizabeth Gloster.

Besides the arbitration panel, other leading UK attorneys will play a key role in determining Freeport’s future. Harry Matovu KC, the UK-based barrister from Brick Court Chambers and his colleague, Richard Eschwege KC, will head the Government’s legal team while Jonathan Adkin KC, of Serle Court, will be joined by Bahamian KC, Robert Adams of Delaney Partners, in spearheading the GBPA’s defence.

No timeline has been given for when the arbitration panel will render a verdict, but the 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. All parties to the proceedings are under orders to maintain strict confidentiality.

The sum 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 $75m is already outstanding, which would take the total now demanded to $432m. And, given that it is now the 2025-2026 fiscal year, a further $75m is coming due.

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.

However, the Government is seeking reimbursement of the claimed $357m 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 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.

Prime Minister Philip Davis KC has consistently asserted that fundamental change is required for Freeport to achieve its true economic potential. He has argued that the GBPA has failed to live up to its governance and development obligations under the city’s founding treaty, the Hawksbill Creek Agreement, and that the two St George families are not up to the task required.

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.

The UK legal participants in the GBPA arbitration all come with strong reputations. Mr Matovu was described 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. His colleague, Mr Eschwege, is said to specialise in “heavyweight litigation and arbitration; he has acted in some of the highest profile and most significant cases of recent years”.

Mr Adkin, meanwhile, is billed by his chambers as someone who regularly appears “in domestic and international arbitrations, and in international commercial courts and offshore jurisdictions including” The Bahamas. He was shortlisted for Commercial Dispute Resolution Silk of the year at the Chambers and Partners UK Bar Awards 2024.

The arbitrators are no less distinguished. A former Law Lord who sat on the London-based Privy Council, the highest court in the Bahamian judicial system, Lord Neuberger is also an ex-UK high court judge, Lord Justice of Appeal and Master of the Rolls before he became president of Great Britain’s Supreme Court between 2012 and 2017.

Dame Elisabeth, meanwhile, became the first woman to be appointed a judge on the UK’s commercial court in 2004. She was later named to the UK’s Court of Appeal in 2013, and became vice-president of the latter’s civil division in 2016. Dame Elisabeth is now also retired and, in common with Lord Neuberger, is at One Essex Court where she practices as “a full-time international commercial arbitrator”.

An alternate member for the UK on the International Court of Arbitration, she is one of 25 persons listed as being able to serve on an alternative dispute resolution (ADR) panel to address issues that arise between the UK and Europe as a result of the former’s so-called Brexit.