April 16, 2012
Developers behind Cotton Bay Estates Limited have come up short in a Supreme Court ruling that denies the validity of $11 million worth of performance bonds.
The ruling, filed on behalf of Judge Stephen G. Isaacs, sided with CIBC FirstCaribbean International Bank (Bahamas) and Penn's Renovation & Construction Company, claiming "the bonds are not valid and enforceable against the bank".
In a case stretching back years, the plaintiffs sought acknowledgment that the bonds were valid.
Ian Rutherford, a former corporate relationship manager with CIBC FirstCaribbean, allegedly signed and issued the bonds at the request of Edward Nathaniel Penn, the owner of the construction firm brought on by Cotton Bay Estates.
The bonds were executed between August and October 2005.
According to court documents, the developers claimed the bonds represented 100 percent of Penn's contracts, with the first $8 million bond for phase one of the development, and the remaining $3 million earmarked for phase two.
The decision by Judge Isaacs that the performance bonds were not valid partly hinged on the fact "the originals were never produced and only undated telefax copies are available".
"Without the original bonds having been produced or stamped, then the telefaxed copies cannot be submitted as evidence," the court document read. "The bank was not in possession of the originals and had no opportunity to stamp the bonds, nor can the bank be held responsible for the plaintiffs' failure to obtain the originals and stamp them."
Judge Isaacs not only ruled CIBC FirstCaribbean did not have to honor the bonds, but also refuted the developer's entitlement to any relief or damages.
While the exact impact of the decision is yet unclear, it nevertheless serves as another blow to the $300 million Eleuthera development.
Located five miles south off Rock Sound, Starwood Hotels & Resorts first signed an agreement with Eleuthera Properties Ltd. in 2005 to develop the massive project. Comprising more than 100 estate lots, a clubhouse, a private marina and an 18-hole golf course, it was heralded as one of the single-largest projects ever undertaken by a group of Bahamian investors.
The project was hit hard by internal strife and the onset of the financial crisis in 2008. In September 2007, Cotton Bay brought on a new project manager, John Elke, after removing Penn Construction.
In addition to asserting that the bonds were not original, CIBC FirstCaribbean further claimed they were not stamped as required by the Stamp Act, they were incomplete, they were not sealed by the bank, and the person who signed them did not have the authority to do so.
The developers refuted these claims, insisting the bonds were still valid and enforceable. If they were not valid or enforceable, the plaintiffs felt they should be rectified by the court,
according to court documents. They also made reference to a "collateral contract" on which they could enforce the bonds.
Judge Isaacs acknowledged many of the plaintiff's arguments, but in the end ruled many of the points would have to apply to original documents.
He also felt "the state of the bonds makes it impossible to construe their meaning and effect".
The court also challenged the assertion by developers that the bonds represented 100 percent of the contracts awarded to Penn.
It was estimated, according to the documents, that the bonds would not have exceeded 35 percent of the construction contract price.
Check out Cotton Bay website here
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