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Belize Bank arbitral award for UHS doubles to $70 million with interest

GeneralBelize Bank arbitral award for UHS doubles to $70 million with interest

BELIZE CITY, Tues. Apr. 4, 2017–With seemingly unending litigation wars sparked from a series of agreements which the Musa administration signed with private entities, it is hard to keep track of the numbers, and while the award figures are often quoted in lawsuits emanating from attempts to have the awards enforced in the USA, the amount of interest accrued and legal fees are not usually included in the reported figures.

When we reported on Friday on Belize’s loss in the US Court of Appeals for the D.C. Circuit, we reported on the original award figure handed down by the London Court of International Arbitration (LCIA) in 2013. At the time, the award was said to be BZ$36,895,509.46 in favor of Belize Bank, which had loaned $33.5 million to Universal Health Services (UHS), a private hospital which had received a government guarantee back in 2004.

However, in the recent decision handed down by the US Court of Appeals, the court notes that the tribunal’s order is also for 17% interest to be added on, compounded on a monthly basis from September 8, 2012, until the date of payment—which works out to over $70 million – more than twice the original debt assumed by the private hospital.

The hospital could not pay its debt, and so the bank went after the Government of Belize, which had agreed in a settlement deed in 2007 to pay the full amount of the debt, and more specifically “…all debts and liabilities, present or future, direct, absolute or contingent, matured or not owing by [UHS]”. Both agreements with the bank were contrary to Belize’s Finance and Audit (Reform) Act of 2005.

“Pursuant to a March 23, 2007 settlement agreement, Belize agreed to pay the debt in full. Shortly thereafter, the settlement agreement became public knowledge and a firestorm erupted—protesters, branding the deal corrupt, marched on the Belizean capital; and Belizean public interest groups, believing that Prime Minister Musa lacked the authority to financially bind Belize without the approval of the Belizean National Assembly, challenged the settlement agreement in the Belizean court. Responding to the pressure, Belize refused to make any payment pursuant to the settlement agreement with the Bank,” the D.C. Circuit Court of Appeals recounted.

The missing part of the story is that back in 2008, after the change of administration, it was revealed, after the Venezuelans called for an account of what Belize’s Government did with money it had received from that country, that the former Musa administration had taken US$10 million which was gifted by Venezuela for housing for the poor (and 10% allocated for sports) to pay the bankers. Since the payment violated the terms of the bilateral arrangement with Venezuela, the funds had to be returned to the Government.

Recently, the Barrow administration had issued a public statement saying that it will not pay any of these awards of the nature frowned upon by the Caribbean Court of Justice. In the face of attempts by the Michael Ashcroft group, which is now trying to have the UHS award enforced in US courts after Belize’s courts refused enforcement, the Government of Belize is also saying that there is nothing overseas (liquid assets owned by Belize’s government) to collect.

The UHS award is just one of four arbitral awards for which the Government of Belize is on the hook. There are two more awards related to the Ashcroft company and a fourth involving a botched airport concession. The country is also being sued by Glenn D. Godfrey for US$22 million for a telecoms network which was set up in 2002 by a company that soon afterwards went belly-up after a refusal by the Ashcroft group to grant interconnection, claiming that the Musa administration was not creating a level playing field.

Even while there was much controversy over the manner in which the telecommunications sector was being liberalized back in 2002, there was also outrage over the Musa administration’s decision to give the debt guarantee to the private hospital, then owned by 26 doctors, with Dr. Victor Lizarraga owning 60% majority. Lizarraga had denied receiving any disbursements under a loan from the Development Finance Corporation (DFC), and said that he ended up in the mess that he did because of delays by DFC in disbursing the $28 million that had been requested from the government corporation. Lizarraga said that UHS originally borrowed $17 million from the Belize Bank, and the figure ballooned because of accrued interest. The doctor said that the bank had insisted on a DFC guarantee before giving UHS the loan.

By way of legal background, we consulted papers from the Belize Supreme Court on the matter, in a decision handed down by Justice Minnet Hafiz in 2009. The document said that UHS owed the Belize Bank $17 million with interest for short-term bridge financing via an overdraft facility. This included interest. On 25th October 2002, this was converted into a loan with the Belize Bank. When UHS wanted more working capital in 2004, the loan was amended on 5th May 2004, when the Government gave the bank a guarantee. In 2007, the Government effectively assumed the debt through a loan note with the bank.

The court found that, “…the loan for $33 million dollars as evidenced by the Loan Note of 27th March 2007 entered into by the Minister of Finance is unlawful as being contrary to section 7 of the Finance and Audit (Reform) Act 2005 and therefore void.”

It added that, “…the decision by the Prime Minister to pay the $33 million dollar to Belize Bank for a private hospital is denying the potential Government Investment into the public health care system in which they work.”

The Court of Appeals, which recently refused a request from the Belize Bank to enforce the LCIA arbitral award in Belize, had denied the bank’s appeal in 2010, on the basis of illegality due to violations of the Finance and Audit (Reform) Act of 2005, which requires prior approval by the National Assembly for loans above the BZ$10 million threshold.

Amid controversy over Government’s agreement to back UHS, there was talk of integrating the private entity into the public healthcare system through a merger with the Karl Heusner Memorial Hospital, Belize’s national referral hospital, but that never materialized.

In fact, in 2008, the hospital, which remains in private hands, was renamed and rebranded as Belize Healthcare Partners Limited (BHPL). The hospital was bought by private interests led by Dr. Muthugounder Venugopal (Dr. Venny), through an arrangement with the then Government, the former owners and the Belize Bank.

The Belize Bank had threatened at the height of the standoff over the debt that in the event that Musa had committed fraud in entering into the agreements with the bank, when he knew he did not have National Assembly approval to do so, the bank would seek damages against the Government—in effect, taxpayers.

That battle has been ensuing in the US courts, as the bank tries to get the LCIA award enforced against Belize.

Belize lost its recent efforts to get the US Court of Appeal to overturn the lower court ruling, which it was challenging on the basis of conflict of interest of one of the arbitrators.

Belize contended in the US Court that the enforcement of the LCIA’s award violates United States public policy.

“We disagree,” the Court of Appeals said in denying the Government’s request, elaborating that “…enforcement of the LCIA arbitral award would not violate the United States’ most basic notions of morality and justice.”

It is not certain whether the Government would proceed to the US Supreme Court to challenge the lower court’s decision.

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