Different jurisdictions for separate Baha Mar agreements

Wed, Aug 5th 2015, 12:34 PM

As developer Baha Mar Ltd. wrestles with its financier Export-Import Bank of China (CEXIM) and its general contractor China Construction America (CCA) over the incomplete multi-resort development on Cable Beach – mediated by a supposedly impartial government of The Bahamas – a separate tussle has developed over which court system is best to see the next phase of the process through, whatever that may be.

Having filed for bankruptcy protection in Delaware, and immediately thereafter filing a lawsuit in London based in part on rulings from a dispute resolution board in New York, the developer has made it clear that its preference is to have the matter adjudicated outside The Bahamas. However, the government has made it equally clear that given the importance of the development to this jurisdiction, the Bahamian courts ought to be the venue in which the future of Baha Mar is decided.

With the increasing pitch of the vitriolic language coming from different quarters, the question of jurisdiction has assumed ever greater significance in the Baha Mar dispute. For example, the January 2011 debenture signed by Baha Mar Ltd. and others as chargors – and Citibank, NA, Bahamas Branch as onshore security agent – is governed by the laws of the Commonwealth of The Bahamas. That is, the Bahamian courts have exclusive jurisdiction to settle disputes arising out of or connected with that deed.

Section 29(1)(b) of the deed says, “The courts of The Bahamas are the most appropriate courts to settle any such dispute and the chargors waive objection to those courts on the grounds of inconvenient forum or otherwise in connection with proceedings arising out of this deed.”

Subsection (c) adds that secured finance parties may – to the extent allowed by law – “take proceedings in any other court or in concurrent proceedings in any number of jurisdictions.”

The “others” referred to in the title are: Baha Mar Land Holdings Ltd., Baha Mar Operating Company Ltd., BMP Three Ltd., Baha Mar Properties Ltd., BMP Golf Ltd., Cable Beach Resorts Ltd., Baha Mar Entertainment Ltd. and Baha Mar Enterprises Ltd.

Different jurisdictions

The designation of Bahamian law and the Bahamian courts has not always been the case in the Baha Mar development. In the 2005 agreement between Baha Mar Development Co. as the ‘developer’ and Scotiabank Bahamas Ltd. – which established a lock-box account – Section 17 deals with the governing law of the entire agreement.

That section reads, “This agreement shall each be deemed to be a contract made under and governed by the internal laws of the state of New York (including for such purpose sections 5-1401 and 5-1402 of the General Obligations laws of the state of New York). This Agreement constitutes the entire understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede any prior agreements, written or oral, with respect thereto.”

Those sections are critical to understanding the section in its larger context.

Section 5-1401 deals with what it calls “choice of law,” and allows that parties to any contract, agreement or undertaking over $250,000 may agree that the law of this state (New York) shall govern their rights and duties in whole or in part, whether or not that contract “bears a reasonable relation to this state.” However, the section does not apply to any contract, agreement or undertaking for labor or personal services, relating to any transaction for personal, family or household services.

Meanwhile, Section 5-1402 deals with the choice of forum, and allows any person to “maintain an action or proceeding against a foreign corporation, non-resident, or foreign state where the action or proceeding arises out of or relates to any contract, agreement or undertaking for which a choice of New York law has been made in whole or in part pursuant to section 5-1401 and which (a) is a contract, agreement or undertaking, contingent or otherwise, in consideration of, or relating to any obligation arising out of a transaction covering in the aggregate, not less than one million dollars, and (b) which contains a provision or provisions whereby such foreign corporation or non-resident agrees to submit to the jurisdiction of the courts of this state.”

Section 26 of the lock-box agreement states that any litigation arising out of the agreement “shall be brought and maintained exclusively in the courts of the state of New York... provided, however, that any suit seeking enforcement against any collateral or other property may be brought, at the Administrative Agent’s option, in the courts of any jurisdiction where such collateral or other property may be found.”

In January 2011 the parties signed a Security Agreement, Baha Mar Enterprises Ltd. being the guarantor to Citicorp International Ltd., which served as offshore security agent for the benefit of the secured finance parties.

Section 3.5 of that agreement deals with the receiver’s powers, and provides that the identity of the receiver – who would have all the rights and remedies of the offshore security agent – is in the “sole and unfettered” discretion of the offshore security agent (Citicorp). In addition to identity, Citicorp also has sole discretion over the replacement and remuneration of the liquidator.

Section 6.11 notes that the agreement is governed by the laws of British Columbia, and the federal laws of Canada.

Meanwhile, also in January 2011, the Insurance Company of The Bahamas signed an agreement with Baha Mar and Citicorp International on the assignment of reinsurance rights. In the section dealing with appointment of a receiver, either the ICB or Citicorp is permitted to appoint a receiver (Section 10).

The insurance agreement is governed by English law, according to section 20.

Section 20.2, “The courts of England have exclusive jurisdiction to settle any dispute, including a dispute relating to non-contractual obligations arising out of or in connection with this deed, including a dispute regarding the existence, validity or termination of this deed.”

A subclause added for the benefit of the group companies and secured finance parties only allows – to the extent of the law – group companies and secured finance parties to “take concurrent proceedings in any number of jurisdictions.”

The group companies are Baha Mar Ltd., Baha Mar Land Holdings Ltd., Baha Mar Operating Company Ltd., BMP Three Ltd., Baha Mar Properties Ltd., BMP Golf Ltd., Cable Beach Resorts Ltd., Baha Mar Entertainment Ltd., Baha Mar Enterprises Ltd. and Northshore Mainland Services Inc.

A stock pledge agreement signed in January 2011 between Baha Mar Operating Co. Ltd. and Citicorp Ltd., and likewise a deposit accounts pledge agreement between Citicorp and Baha Mar Ltd., Baha Mar Properties Ltd., BMP Three Ltd., Cable Beach Resorts Ltd. and Baha Mar Enterprises Ltd., are both governed by New York law. Both agreements also clear the way for Citicorp or any other secured finance party to bring proceedings in another jurisdiction, or in more than one jurisdiction.

Appeal

Meanwhile, it is not clear what stage the proceedings in London are at, and motions and orders continue to be requested and granted in the Delaware proceedings. Those motions and orders still have to be agreed by the Bahamian courts before they have any effect in The Bahamas, so the decision by Supreme Court Justice Ian Winder to grant leave to appeal his dismissal of the Delaware court’s orders is important in that it gives Baha Mar’s desires for the Delaware courts some hope.

Winder granted leave to appeal his decision on Tuesday.

Click here to read more at The Nassau Guardian

 Sponsored Ads