The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has abandoned its bid to obtain $11.636m in VAT on the $128m sale of two cruise ships after the same tax claim was also dismissed by the Supreme Court.

The rejection of what would have been one of the single-largest VAT generating transactions seen in The Bahamas is detailed in a May 6, 2025, ruling by Justice Simone Fitzcharles that orders the VAT comptroller and Attorney General to pay $37,298 to cover costs incurred by the Bahamian law firm representing the secured lender for both Crystal Cruises vessels.

That firm, Alexiou, Knowles & Company, had urged the Supreme Court to order costs against the Government “on an indemnity basis” due to the latter’s conduct during the legal proceedings. In particular, it claimed that the authorities had sought to “stifle” the bid by DNB Bank, its client with mortgage security on both cruise ships, to object to and appeal the VAT demand to the Tax Appeal Commission.

The $128m vessel sale proceeds were held in escrow at CIBC Caribbean (Bahamas). Alexiou, Knowles & Company alleged that the Admiralty Marshall and Terry North, one of its attorneys and partner, who acted as joint signatories on the escrow account were on October 3, 2023, prevented from conducting “personal banking transactions” at CIBC after the bank was served with a notice from the VAT comptroller.

This would have meant a high-ranking government employee’s personal banking business was temporarily disrupted by his own employer with given that the Admiralty Marshall was acting Port Department controller, Senior Commander Berne Wright. As Admiralty Marshall, his duty as a Supreme Court officer was to take possession of the Crystal Symphony and Crystal Serenity and secure them until their sale.

Alexiou, Knowles and Company alleged that the banking disruption was “an attempt... to exert pressure on the parties” to release the claimed VAT to the Department of Inland Revenue. However, Justice Fitzcharles argued that “the evidence falls short of fully supporting such a conclusion” and she declined to award the law firm costs on an indemnity basis even though the VAT case was “apparently weak” and misguided.

For her fellow judge, Justice Petra Hanna-Adderley, in a February 9, 2024, verdict reaffirmed that VAT is not “chargeable on Judicial sales”. This means the tax cannot be applied to, and levied on, the proceeds from court-ordered sales and auctions such as the disposal of the two cruise ships. Thus the Government has no claim to $11.636m on the transaction.

The Crystal Symphony and Crystal Serenity fetched $25m and $103m, respectively, when sold under Supreme Court orders dated March 24, 2022. It was almost seven months before the Attorney General’s Office, on October 20, 2022, served the Admiralty Marshall with the $11.636m VAT demand.

DNB Bank, as secured lender, along with other creditors and the ships’ purchasers, swiftly filed an objection to the tax assessment given that it threatened to significantly reduce their recovery. The Supreme Court then ordered that the claimed tax liability initially be held in escrow pending its determination of whether VAT was due on the ships’ sale or not.

The court then ruled that no party could claim against the $128m sales proceeds unless it had been adjudged a creditor, and only DNB Bank had such status. This prompted the VAT comptroller to intervene when the bank sought Supreme Court permission to pay the Admiralty Marshall’s expenses from the proceeds - but not the VAT.

And, after receiving no response to their November 15, 2022, objection to the VAT assessment, DNB Bank and its fellow creditors moves to dispute the Government’s claim with an appeal to the Tax Appeal Commission. The VAT comptroller retaliated by seeking to strike-out the appeal on the basis that only the Admiralty Marshall could initiate these proceedings, but the application has yet to be heard.

“A disgruntled DNB Bank described its tax appeal as sitting ‘in limbo’,” Justice Fitzcharles wrote. The Attorney General then filed claims against the Admiralty Marshall and Alexiou, Knowles and Company on November 6, 2023, after the Supreme Court urged it to file separate actions of its own to prosecute the VAT comptroller’s tax claim on the Department of Inland Revenue’s behalf.

“Subsequently, in a February 9, 2024, ruling, Justice Hanna-Adderley ordered that the funds previously reserved for the VAT comptroller’s VAT claim be released from the joint account held in the names of the Admiralty Marshall and the firm [Alexiou, Knowles & Company], and paid to DNB Bank,” Justice Fitzcharles wrote.

“Justice Hanna-Adderley confirmed in her ruling, having considered the evidence and the law, that she was persuaded by ‘the overwhelming arguments and authorities that VAT is not a marshall’s expense nor is it chargeable on Judicial Sales’.”

The judge, in that ruling, found there was no law or precedent in The Bahamas or internationally in maritime law where a Marshall’s expenses of judicial sales proceeds are subject to VAT. She ordered that the $2.272m and $9.264m, being held from the sale of the Crystal Symphony and Crystal Serenity, respectively, be released as there was “no justification for withholding those sums” from DNB Bank.

And Justice Hanna-Adderley also found that the Department of Inland Revenue had “dragged its feet” over both the Tax Appeal Commission hearing and filing its Supreme Court actions.

Alexiou, Knowles & Company had viewed the Government’s claim as failing to disclose any prospects of success, and as “frivolous, vexatious, scandalous and/or an abuse of the process of the court”. The Attorney General and VAT comptroller ultimately applied to withdraw the action in its entirety, and permission to discontinue was given on September 9, 2024.

Then the Bahamian law firm, in its bid to obtain indemnity costs, argued that the Government’s VAT demand had been “woefully misguided and an utter waste of judicial resources” given that its case was based on the cruise ships’ sale being a ‘taxable supply of goods’ and thus subject to VAT. This was the argument rejected by Justice Hanna-Adderley.

And, besides threatening CIBC with “penalties” if the funds set aside to cover the now-rejected VAT claim were not handed over, Alexiou, Knowles & Company alleged that both the Admiralty Marshall and Mr North “could not make personal banking transactions at CIBC due to the bank being served with a notice from the VAT comptroller”.

The law firm’s inquiries with the Attorney General’s Office provoked no response, and it added: “This was an attempt by the VAT comptroller to exert pressure on the parties to release the funds to the claimants on the alleged basis that they are entitled to the same under the VAT legislation.” Alexiou, Knowles & Company sought a costs award of $61,342 plus disbursements of $990.

However, the Government defendants countered that if anyone acted “egregiously” in the case it was the law firm - not themselves. They alleged that despite being aware of the VAT Comptroller’s claim, Alexiou, Knowles & Company allowed a February 9, 2024, hearing to take place which “depleted the proceeds of the sale”.

And, using the law firm’s own language against it, they accused it of acting “in furtherance of an ulterior commercial purpose” while asserting that the VAT comptroller has a duty “to recoup VAT monies for the people of this great Commonwealth”. As a result, the Government defendants’ conduct was “in no way egregious, contumacious or unreasonable”.

Justice Fitzcharles rejected the Government’s argument that Alexiou, Knowles & Company had acted “in furtherance of an ulterior commercial purpose”, as it was aware of the February 9, 2024, hearing and DNB Bank’s objection to its $11.636m VAT demand. And she found it eventually seemed to accept its claim “was too speculative or thin.... to succeed”.

As for the Government’s alleged tactic “for exerting pressure to coerce” the release of the claimed by VAT by pressuring CIBC, and disrupting Mr North and the Admiralty Marshall’s ability to conduct personal transactions, Justice Fitzcharles said “any deliberate approach” of this nature would have been “heavy-handed and unjustifiable”.

However, she added that “the question that remains unanswered” is whether the freezing of their personal transactions was “deliberately engineered” by the Government “to force capitulation”. Instead, Justice Fitzcharles found the freezing appeared to have been carried out by CIBC “based upon its interpretation of the notice” received from the VAT comptroller on September 28, 2023, rather than any instruction from the tax authorities.

And, given the absence of “complete evidence”, the judge said it “falls short of supporting such a conclusion” that “undue commercial pressure” was being applied against the Admiralty Marshall and Alexiou, Knowles & Company. She declined to award costs on an indemnity basis, and instead cut the law firm’s claim by 40 percent.