The US government has criticised the Bahamas Bar Association for failing to pursue complaints about the conduct of member attorneys, disclosing that several of its citizens had suffered “significant losses” on flawed real estate deals.
The State Department’s annual investment climate statement on the Bahamas, released this week, said complaints submitted to the Bar’s Ethics Committee were “frequently unanswered”, raising questions about whether foreign investors enjoyed sufficient legal protection.
“The [Nassau] Embassy is aware of several complaints about local attorneys, primarily involving real estate transactions, which have resulted in significant losses to American investors,” the US report charged.
“Referrals to the Bahamas Bar Association and its Ethics Committee for appropriate disciplinary action in these matters often go unanswered.”
Concerns and complaints about the Bar’s self-regulatory and disciplinary procedures have surfaced at regular intervals, and usually stem from foreign real estate buyers and investors unhappy about some aspect of their purchase.
“Property disputes can be challenging, sometimes lasting several years in the Bahamian court system,” the US report warned.
“Some purchasers have reported problems obtaining clear title to property, either because the seller had no legal right to convey, or due to claims to ownership that arose after a purchase was made.
“Investors complain that these matters are difficult to resolve, and that, even after a court decision has been rendered in their favour, they face difficulty in collecting or enforcing the court judgments.”
The US report then zeroed in on another ‘ease of doing business’ weakness, namely the length of time taken by the Bahamian judicial system to resolve commercial and civil cases.
“Courts in the Bahamas face a persistent backlog of cases. Civil cases, on average, can take five years to resolve,” the investment climate statement said.
“Foreign investors have frequently complained that local defendants are able to delay payment on Bahamian civil judgments due to the lengthy judicial process, which often involves delays during multiple levels of appeal. In addition, enforcement or collection of court judgments can be difficult.”
While none of these concerns are new to informed observers, the timing of the US State Department’s report is this year more problematic for the Bahamas, given that it has just been placed under a ‘two-month credit rating downgrade review’ by Moody’s. The ‘ease of doing business’, and this nation’s attraction for foreign investors, will be key aspects in any Moody’s assessment.
Elsewhere, the US report warned its citizens not to rely on Chapter 11 bankruptcy laws to protect troubled Bahamas-based assets in the wake of court rulings over the $3.5 billion Baha Mar project.
“American investors should be aware that they may not be able to rely on the provisions of US Chapter 11 bankruptcy law to protect assets in the Bahamas,” the report said.
“In September 2015, a US Bankruptcy Court judge dismissed a bankruptcy case in the US involving the owner and developer of the stalled $3.5 billion Baha Mar resort complex in Nassau, citing a finding by a Bahamian Supreme Court judge that the project’s stakeholders would expect that insolvency proceedings would take place in the Bahamas.”
Justice Ian Winder last summer refused to recognise the Chapter 11 proceedings in the Bahamas, finding in favour of Baha Mar’s secured lender, the China Export-Import Bank, its contractor, China Construction (America), and the Government.
He ruled that the majority of Baha Mar’s companies had no connection to the US, and the state of Delaware, and that creditors would have expected the Bahamas to be the primary jurisdiction for resolving their claims, given that the project and its assets were domiciled here.
Whether the inability to obtain Chapter 11 bankruptcy protection will deter American investors eyeing the Bahamas is uncertain, but the US investment climate statement highlighted the structural weaknesses of this nation’s economy.
“The major challenges to investment in the country include the relatively high cost and uncertain reliability of electricity; high unemployment combined with a limited pool of skilled labour; cumbersome and sometimes opaque administrative requirement; and an escalating crime rate,” the report said.
“US and Bahamian companies alike report that the resolution of business disputes often takes years, and collection of amounts due can be difficult even after court judgments.
“Companies also report that the approval process for foreign direct investments and work permits can be cumbersome and time-consuming, and that often pending decisions linger for long periods making it difficult to make investment decisions,” the US State Department added.
“There is no timeline for approval, and in a few instances proposals have been pending for more than a year. The review by a political body also provides an opportunity for political influence to weigh in the analysis of a business proposal.
“The Government of the Commonwealth of the Bahamas asserts that the majority of foreign investment applications are processed quickly and without significant issues.”
Elsewhere, the US report expressed optimism over the decision to expand the Utilities Regulation and Competition Authority’s (URCA) mandate to regulation of the energy sector.
“This is a positive development, and suggests the medium-term potential for competition in the sector and the eventual approval of independent power producers,” the investment climate statement said.
“Exclusive rights for fixed periods to provide services have been granted by contract in some sectors. These legally approved private monopolies are being discontinued.”
It added, though, that the Government “has shown a preference” to hire private sector companies to manage state-owned enterprises, rather than “full-scale divestment or liberalisation” through the sale of equity interests via privatisation.
The US report, though, noted that most appointments to public corporation Boards were not subjected to scrutiny or vetting.
“Historically, there have been criticisms that these corporations have been used to employ party supporters and, with few exceptions, state-owned enterprises have not demonstrated sustained profitability,” it added.
The US report said the Government also had yet to implement the new regime to protect intellectual property rights. “The new laws are comprehensive but have not been implemented and still require the approval of supporting regulations,”it added.
“While these are vital to economic growth, the Government likely will face internal and external challenges to successfully implementing its plans to become more fully integrated into the global trading system.”
That is a reference to the Bahamas’ continuing bid, now going on for 15 years, to become a full World Trade Organisation (WTO) member.