The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian law firm has accused a resort developer of “exaggerating” claims it was slow to resolve its title defect crisis, arguing that its approach to handling the Government was the best available option.

Glinton, Sweeting & O’Brien, in a statement to Tribune Business, suggested that Governor’s Harbour Resort & Marina (GHRM) only claimed it was ‘tardy’ to bolster its case in a Florida court battle with title insurer, First American Title Insurance Company.

First American had hired the Bahamian law firm to represent Governor’s Harbour, which had secured the initial Heads of Agreement for Eleuthera’s French Leave Marina Village project in 2003, in curing title problems that brought the development to a four-year standstill and threatened its very survival.

The developer, though, alleged that Glinton, Sweeting & O’Brien took two months post-hiring to send a letter to then-Prime Minister Hubert Ingraham, asking him to resolve the problems by conveying the necessary real estate parcels from the Treasury to Governor’s Harbour.

And, in its 2012 complaint filed in the Florida courts, Governor’s Harbour claimed that Glinton, Sweeting & O’Brien resisted its urgings, and those of fellow Bahamian attorney, Valentine Grimes, to meet personally with Ministry of Finance representatives.

This, the developer claims, caused “several more months delay” - an allegation it repeated over ‘corrective conveyances’ that Glinton, Sweeting & O’Brien were asked to obtain.

However, the Bahamian law firm has now hit back, telling Tribune Business it achieved “precisely the results we were asked to obtain”.

Its statement to this newspaper implies that it adopted a cautious approach to negotiating with the then-Ingraham administration because its ‘leverage’ with the Government was non-existent.

“It is regrettable that the very minor disagreements as to approach or ‘style’ we had with Governor’s Harbour during our engagement were later exaggerated for the purpose of Governor’s Harbour’s Florida action against First American,” Glinton, Sweeting & O’Brien said.

“We stand unequivocally by the advice and the service we gave Governor’s Harbour’s. In fact, we’re proud of the way we represented the company and of the fact that we achieved precisely the results that we were instructed to obtain.”

Governor’s Harbour’s problems started after it decided to expand its project beyond the former Club Med property that it acquired in 2003. It acquired 13 land parcels - totalling 240 acres - from a company called Urania Nominee Holdings (UNHL) in August 2005, paying $10 million.

The developer was allegedly assured by First American and its agent that there were no title defects with this real estate. It took the ‘global financial crisis’ in 2008, which forced Governor’s Harbour to turn to real estate sales to finance its plans, for problems to emerge.

The issues were uncovered by realtor, Peter Christie, and the H. G. Christie real estate firm. After conducting its own research, Governor’s Harbour discovered that it lacked good title to the 240 acres acquired from UNHL.

These stemmed from UNHL’s prior ownership of three companies, Blue Ocean Investments & Developments (BIOD), Perfecto Properties and Hospital House.

In a 1995 corporate restructuring, these three subsidiaries were wound-up and their assets transferred to UNHL. However, BIOD’s unnamed liquidator erred by winding-up the company before its real estate assets were transferred to UNHL.

Because it was removed from the Companies Register on October 17, 1995, BIOD’s transfer of the land parcels to UNHL some two months later fell afoul of the Companies Act’s section 273.

This prevents non-existent companies from disposing of assets vested in them, and automatically vests such assets in the Treasurer (meaning the Bahamas government).

With the Treasury firmly established as legal owner, Glinton, Sweeting & O’Brien suggested there was nothing they could do to pressure the Government to convey the 240 acres to Governor’s Harbour - hence the need for a cautious, rather than ‘all guns blazing’, approach.

“By operation of law and due to errors made years earlier by the liquidator of three companies that were Governor’s Harbour’s predecessors in title, the titles had vested in the Treasurer of the Bahamas,” Glinton, Sweeting & O’Brien confirmed.

“The only means by which we might be able to have these titles vested in Governor’s Harbour was to make an application to the Minister of Finance pursuant to Section 274 of the Companies Act, asking that he exercise the unfettered discretion he enjoys under that section to direct the treasurer to convey the property to ‘any interested party’ subject to ‘such terms and conditions as the Minister… sees fit’.

“It is important to understand that Governor’s Harbour had no enforceable right whatsoever to have the titles conveyed to it, and we were in no position to demand or even insist that this be done, still less that it be done within any particular timeframe. Glinton, Sweeting & O’Brien was going to the Minister ‘hat in hand’ on behalf of Governor’s Harbour.”

With ‘no cards to play’, Glinton, Sweeting & O’Brien is arguing that a more aggressive negotiating stance could have resulted in zero co-operation from the Government.

And Tribune Business understands that relations between the then-Ingraham administration and Governor’s Harbour, whose principals were Edward Lauth and Robert Poole, were less than warm.

The FNM government took office harbouring suspicions about all investment deals negotiated by its PLP predecessor, which included the Governor’s Harbour project. And it is understood that the Ingraham administration was also unhappy with the developer’s lack of progress, and failure to meet timelines and conditions that were set in return for receiving Hotels Encouragement Act and other incentives.

“From the time we were first instructed in this matter until the end of our engagement, Glinton, Sweeting & O’Brien worked diligently and competently to obtain the results we had been asked to obtain,” the Bahamian law firm said.

“We obtained those results, and we obtained them within a timeframe that was more than reasonable in all the circumstances. It is true that we were urged on various occasions by Governor’s Harbour and Mr Grimes to press the staff at the PM’s office or the Ministry of Finance for meetings.

“In view of the nature of our applications and the prevailing circumstances, we specifically resisted this approach and only sought meetings when we felt it appropriate. In our professional opinion and judgment, ours was the better approach to the applications we were making.”

Still, a Florida jury found that First American Title Insurance Company breached the policy it provided to Governor’s Harbour “by failing to act diligently to cure the title defect”, a breach that resulted in the latter incurring $1.57 million in “out-of-pocket” damages.

The Palm Beach County jury, in a verdict obtained by Tribune Business, also found that problems with the title to its real estate cost Governor’s Harbour $1.48 million in lost real estate sales.

And it also found that First American Title Insurance should indemnify Governor’s Harbour for the $995,717 it paid out via promissory notes to settle with real estate purchasers once the title defects became known. All told, the developer won a $4 million verdict.

Governor’s Harbour, though, in its Florida court filings alleged that Glinton, Sweeting & O’Brien “declined to request personal meetings with government officials to press for resolution of the title defects” even after learning that the latter had “misplaced and ignored” its correspondence.

The developer alleged that it had to hire another Bahamian attorney, Gail Lockhart-Charles, to complete the cure for its title woes.

Its legal filing said Glinton, Sweeting & O’Brien told it on July 17, 2010, that the Investments Board had approved the issuance of a new permit for all the 2005 land acquisitions, contingent that it pay all due real property taxes form 2005-2010.

“Governor’s Harbour informed First American and Glinton, Sweeting & O’Brien that it was not obligated to pay real estate taxes because it had not owned the property. Rather, the property had been owned by the Government of the Bahamas,” the developer alleged.

Mrs Lockhart-Charles met with met with David Cates of the Ministry of Finance’s valuation office, and officials from the Attorney General’s Office and Prime Minister’s Office.

This ultimately resulted in success, with Governor’s Harbour obtaining “the express and binding agreement of the Bahamian government” that no real property taxes were due. All title defects were ultimately cured in 2011.

The French Leave project has now put these woes behind it.

Mr Lauth, subsequent to the court dispute, partnered with the Pennsylvania-based Shaner Hotel Group, which owns/operates more than 34 resort properties around the US and Italy, to bring his vision for French Leave to fruition, and their efforts are starting to pay off.

However, Governor’s Harbour lost both potential and concluded real estate sales as a result of the real estate title woes that plagued the project between 2008 and 2011.

“In addition to the [buyers] and the referenced additional investors who had agreed to accept conveyance of parcels from the UNHL property, Governor’s Harbour lost numerous other sales of individual parcels,” it alleged in its Florida court filings.

“Governor’s Harbour also lost millions of dollars expended to develop and market the entire project, which it would not have done had it known it did not have good and marketable or insurable title to a large portion of the property. Governor’s Harbour has also lost the anticipated profits from the project.”