Ceding jurisdiction for dispute settlement – a very costly decision!
Posted: 03/08/2007 - 12:13 PM
Author: Adele Ramos
Since 2004, the Government of Belize has had major legal trouble with some of the largest investments in the country involving foreign investors, and in most cases the settlement of the disputes has been taken outside national borders through a process of international arbitration. Most of these disputes involve allegations of fraud in multi-million-dollar transactions with the Government in power.
Over the past three years, five major foreign arbitration proceedings have been initiated against the Government. First, there was the dispute with CASCAL over Belize Water Services, which was to be settled in London. Then there were the string of legal disputes revolving around the sale and resale of shares in Belize Telecommunications Limited (now Belize Telemedia) – separate arbitration proceedings were lodged by Jeff Prosser’s Innovative Communications Corporation in Toronto, Canada, and by Carlisle Holdings in London. Thirdly, there was the dispute with Lufthansa Consulting over the Philip Goldson International Airport. Most recently, there is the London arbitration initiated by Carlisle (now BB Holdings) subsidiary, the Belize Bank, over the settlement of the debt for Universal Health Services.
To date, there has yet to be an arbitration award against the Government of Belize. Government has so far managed to settle the disputes it had with Cascal over BWS and Carlisle Holdings over BTL, and thus the arbitration proceedings were dropped.
In the case of Cascal, the Government agreed to give a refund on the sale after Cascal expressed displeasure with what it had gotten for its money. This dispute was resolved with the re-nationalization of BWS. Government repurchased the shares – part with financing it obtained from Taiwan and part with financing from Cascal itself.
Carlisle had taken the Government to arbitration to get back the 52% shareholding the company had surrendered in BTL. It was very costly for the Government to settle that dispute, and apart from reselling the shares to Carlisle, the Government agreed to a $17 million tax write-off to Carlisle’s affiliate bank – the Belize Bank.
Meanwhile, Prosser initiated arbitration to collect US$200 million in “damages” from the Government of Belize over the same BTL transaction. Prosser accused the Government of fraudulently inducing him to purchase the shares by making promises that were never fulfilled. We understand that that dispute is still unresolved.
In early 2005, Lufthansa Consulting, an American company, also initiated arbitration. Lufthansa claimed GOB prematurely ended an investment agreement the two had signed. They claimed US$33 million in damages against the Government of Belize. That dispute is also unresolved.
The unlucky “33” pops up again in an arbitration commenced in July against the Government of Belize. The Belize Bank maintains that the Government owes $33.5 million to the bank, after it entered into a loan agreement in March to settle a debt for a private hospital – Universal Health Services. However, the Government contends that there is no reason for arbitration here, because it does not dispute owing the money – even though there has been strong public opposition against the Government paying the debt.
A critical problem for the Government is that the Prime Minister signed certain financal agreements – including $45 million worth of loans – with the bank without getting the approval required from the National Assembly.
High ranking legal minds in Government tell us that with the Government conceding to the debt, the tribunal will most likely grant an award against the Government in favor of the Belize Bank. This would be a landmark ruling, since no public administration has found itself in such a situation before.
However, even if the arbitration rules against the Government, the Belize Bank would have to come to the local courts here to get the award enforced. This is where things could get complicated for the bank.
Under the Arbitration Act, Chapter 125, of the Laws of Belize, there are certain conditions that have to be satisfied before an award can be enforced.
For example, the award must have been made in pursuance of an agreement for arbitration that was valid under Belize law and the award itself must conform to national laws. The award must also become final for it to be enforced. Additionally, an award cannot be deemed final if any proceedings for the purpose of contesting the validity of the award are pending in the country in which it was made.
As we had reported in the headline article of our mid-week edition, Belize Bank takes UHS $33 mil matter to London court!!,there are two separate sets of legal proceedings regarding the UHS debt – the London arbitration and a Belize Supreme Court case, challenging the very validity of the agreement under which the parties have gone into arbitration.
The disadvantage to citizens of Belize of submitting a major dispute like this to foreign arbitration is that the proceedings are very much out of the public’s eye, and the entire proceedings can be held without the public being aware of what transpires along the way. For example, with the current Belize Bank tribunal, the public was only aware of the proceedings seven days after a partial award had already been issued against the Government of Belize.
Another major disadvantage is the ceding of jurisdiction over what is clearly an important national issue. The UHS-GOB-Belize Bank dispute has been treated as an international dispute by agreeing to international arbitration to settle differences. The Government has ceded jurisdiction on several nationally important transactions, and this is its fifth major arbitration in three years under such arbitration clauses. Additionally, two years ago the Government found itself embroiled in a string of costly lawsuits initiated by Jeffrey Prosser in a Miami court in relation to the sale of BTL.
As we had noted earlier, the enforcement of any arbitration award granted outside our borders is effected through the local courts. The governing legislation is not only rooted in colonial and pre-Independence law, but also stems from similar legislation in the United Kingdom.
The basis of enforcing these awards comes from Belize’s participation in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958).
Belize’s arbitration laws date back to 1926—well before Independence. At that time, Belize (then British Honduras) was a signatory to the Protocol on Arbitration Clauses (UN in Geneva). On May 26, 1931, the Convention on the Execution of Foreign Arbitral Awards (1927 – UN/League of Nations) became applicable to our territory.
Belize agreed to apply the UN Convention to its territory in 1980, and on February 24, 1981, it incorporated the convention into the Arbitration Act.
International arbitration is, evidently, the favored dispute settlement mechanism for investors operating in a global or international marketplace, and in fact, globalization is said to be the driving force behind the rise in international arbitration.
The question is: how many other undisclosed agreements has GOB signed wherein it has agreed to international arbitration for dispute settlement rather than having matters settled in local courts?
The Government does have a choice in the matter. For example, in the draft agreement to sell 8,255 acres of land in San Pedro to an American investor, the jurisdiction for the settlement of disputes is said to be the courts of Belize.
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