The Supreme Court case challenging a move by the Government of Belize to pay the $33.5 million debt for Universal Health Services (UHS) was put on hold for at least two months last week Friday, but the Belize Bank is moving full steam ahead to try to collect its money via an arbitration tribunal initiated earlier this month in the London Court of International Arbitration (LCIA).
Both cases have, effectively, evolved into a conflict of the state/people of Belize versus the private bank. On the one hand, the people are arguing before local courts that they should not be made to pay the debt; on the other hand, the bank – owned and controlled by British billionaire Michael Ashcroft – is arguing that the state/people must pay, even if the public officials who bound them to pay did not have authority to do so.
With the London tribunal now in effect and a stay now imposed on local proceedings, the UHS matter has been removed entirely out of Belize’s jurisdiction and control. Ashcroft gets “home turf advantage,” and there is no one defending national interests before the tribunal, because the Government of Belize has been ignoring the proceedings.
Under the very terms of the settlement deed whose legality is under dispute in the Supreme Court, the Belize Bank has proceeded to initiate arbitration proceedings. The bank applied on May 31, 2007, and the tribunal was formally appointed on July 4, 2007.
The bank is saying that even if Prime Minister Said Musa and Attorney General Francis Fonseca entered into the settlement deed and loan note for the debt using fraudulent misrepresentations that they had authority to do so, the bank is still entitled to its money. They would, in that event, sue the state/people of Belize for restitution.
The Government of Belize has told the LCIA that there is no dispute because it agrees with the bank that the money has to be paid. Since it stated that position to the LCIA on June 26, the Government has not responded to many LCIA correspondences and has failed to meet an extended deadline to nominate an arbitrator for the state.
The bank has paid the £50,000 (US$100,000) advance for the arbitration proceedings. It was only required to pay its £25,000 pounds so we assume that the additional £25,000 was paid for GOB.
The bank was also prompt in nominating its arbitrator – Hilary Heilbron, QC. Since the Government did not meet the extended deadline to name its nominee, the LCIA chose Zachary Douglas. Together, the two arbitrators picked Toby Landau as the third arbitrator and chairman of the tribunal.
Government’s position has been that it accepts that the debt needs to be paid, but that it will get a private sector buyer to take over the hospital and settle the debt.
On March 23, 2007, the Government entered into a share purchase agreement with UHS for 98% ownership in the hospital.
After fierce public opposition to the payment of the UHS debt, Prime Minister announced on May 24 that he was in the process of getting private sector investors to purchase UHS shares and that would have been done before September 23 – the original due date for the $33 million. But the bank is not waiting around for that to happen. It is demanding its money now because, it says, Government has not been paying the monthly interest due on the loan.
Despite the pending Supreme Court proceedings, the bank has maintained that it has every right to settle its $33.5 million claim against the Government via London arbitration, because clause 9 of the settlement deed, to which Prime Minister Said Musa and Attorney General Francis Fonseca penned their signatures, says so.
The bank said that the Government should have been paying interest on the debt since April 23. On May 2, it wrote demanding payment, and seven days later, on May 9, 2007, it wrote the Government declaring an “event of default” and proclaiming the entire principal – $33.5 million – due.
In the case before the Supreme Court, however, Solicitor General Edwin Flowers gave an undertaking around mid-May that the Government will not pay anything to the bank until the Supreme Court has determined the case before it.
After the Government gave the Supreme Court that undertaking, however, the bank sought to get its money via LCIA arbitration.
Even though the Government contends that there is nothing to arbitrate, in its written ruling of July 20, 2007, the London tribunal said that the fact that Government has not paid the bank means that there is “a live dispute.”
The tribunal went on to rule that under the terms of the settlement deed – the same deed being disputed in the Supreme Court – the tribunal has jurisdiction over all the matters that the bank has outlined in its application for a hearing, and that it has the power to grant what the bank is seeking.
The tribunal said: “it is clear that a failure to pay a debt even if the debt is not disputed is a dispute for the purposes of an arbitration clause… The Bank and the Government have contracted to resolve their disputes in arbitration rather than any national court…”
(We summarize the bank’s LCIA application in the accompanying table, which also highlights the requests being made by the Association of Concerned Belizeans and the other claimants in the Supreme Court.)
While the Supreme Court case has been stalled by a pending appeal by the Belize Bank in the local courts (See story, Justice Arana puts hold on UHS $33 million debt proceedings), the tribunal has granted the bank’s request for an expedited hearing, made on the grounds that the Supreme Court case may have an impact on arbitration proceedings.
With the latest turn of events, the tribunal will very likely make a final ruling well before the case before the local courts is resolved, since the Court of Appeal doesn’t meet again until October.
This morning we tried to get an update on the London tribunal from Solicitor General Edwin Flowers, but he told us that he does not know anything about it.
Flowers has been the officer writing to the LCIA on Government’s behalf, but we understand that since June, the Government has not responded to any of the communications from the court regarding the tribunal.
While the ACB is hoping for a win in the Court of Appeal, the Sol Gen Flowers told us today that the Court of Appeal is bound to find that the ACB used the wrong process to challenge the debt in the Supreme Court. This would mean that the ACB would either have to make a new application for a judicial review or drop the case altogether.
We note that the Belize Bank’s chairman, Philip Johnson, has filed a third affidavit with the Supreme Court, the purpose of which is clearly to apprise the court of the rapid progress the LCIA tribunal has made and the tribunal’s pronouncement that it does have jurisdiction over the Belize Bank’s claim. His affidavit had already been filed when Justice Michelle Arana decided to stay the proceedings in her court on Friday.
(The tribunal had intended to beat the July 27 Supreme Court date in making its ruling on the jurisdiction issue, and hence its ruling of July 20.)
Because the bank contends that the Government has already defaulted on the $33 million debt, it is now charging 17% default interest instead of the original 13% interest. The bank is asking the tribunal to order GOB (the state/people of Belize) to pay all the interest due on the debt, as well as any costs, damages or losses it may have incurred in trying to get its money—and that includes the cost of London arbitration as well as any cost it incurs in the pending Supreme Court action, including the cost of the London barrister it has flown in to fight its case.
The Belize Bank is represented in the arbitration tribunal proceedings by Allen & Overy LLP, a London, UK firm. The Attorney General is representing the Government.
Summary of legal proceedings on UHS debt
Belize Bank’s claim before London Court of International Arbitration tribunal
1. Bank says the March agreements are valid.
They seek a declaration from the tribunal that the March settlement agreement and March loan note ($33 million) were validly entered into by the Prime Minister and the Ministry of Finance on behalf of the Government of Belize.
2. The bank says that payments are overdue.
They seek a declaration that monthly interest payments due on the 23rd day of each month commencing on 23rd April 2007 were due and payable, that no payment was made on 23rd April 2007 and that accordingly pursuant to the Bank’s notice dated 9 May 2007, the principal amount and accrued interest became due and are payable.
The state/people must pay. Order them to!
1. Principal: They seek an order for the payment of BZ$33,545,820 representing the principal amount of the March Loan Note.
2. Interest: They seek an order for the payment of interest accrued and default interest at the contractual rate (17%) as specified in the March loan note.
3. Any other cost: An order that the Government of Belize indemnify the bank against all costs, expenses, losses, and damages howsoever incurred by the Bank, arising out of or in connection with any breach of the covenants, undertakings or warranties contained in the March settlement agreement.
In the alternative:
An order that the Government make restitution of the principal amount of the March loan note; and an order that the Government pay restitutionary damages including a sum equivalent to the amounts of outstanding interest due and unpaid under the terms of the March loan note.
In the alternative:
A declaration that the March Settlement Agreement and the March Loan Note are rescinded as a result of fraudulent/negligent misrepresentation; restitution of the principal amount of the loan note; damages for fraudulent/negligent misrepresentation including a sum equivalent to the amounts of the outstanding interest due and paid under the terms of the March loan note.
In any case:
Such other or further relief as the Arbitral Tribunal thinks just and/or appropriate; and costs.
ACB, trade unions, Senator Hulse and 1,657 petitioners before the Supreme Court of Belize
The ACB and the other claimants challenge the legality of the guarantee and March agreements:
The UHS guarantee:
1. They seek a declaration that the guarantee is unlawful and contrary to the Belize Constitution.
2. A declaration that the decision of PM Musa to pay the debt under the guarantee is unlawful.
3. A declaration that certain provisions of the Constitution and the Finance and Audit (Reform) Act of 2005 must be complied with before the guarantee is satisfied.
The March agreements:
4. A declaration that the settlement deed and loan note are unlawful and contrary to the Finance and Audit (Reform) Act.
5. A declaration that the additional loan facility of BZ$12 million of March 29 was also contrary to the Finance and Audit (Reform) Act.
Request for stop payment:
6. An injunction restraining the government from satisfying the guarantee. (This was not pursued because of the Government’s undertaking that the debt would not be paid until the court makes a decision on the case.)
The claimants are not going for any orders from the court.
The ACB got 1,777 signatures on a petition in support of its Supreme Court claim. The ACB presented 1,657 to the court, and all were accepted. Another 120 signatures were received in support of the claim.
The National Trade Union Congress of Belize is the umbrella organization of trade unions in Belize and represents at least 15,000 workers.
The original claim of the ACB did not include the settlement deed and the loan note, as these were done secretly by the Prime Minister and were not disclosed when the ACB first conceived its claim. The requests for declarations on the March agreements were added later.
The March agreements were only made public when the court ordered their disclosure in May. Likewise, the guarantee had been kept a secret and confidential agreement until the ACB requested disclosure and parliamentarians, including Senator Hulse and members of the Opposition, demanded disclosure.
To date, the share purchase agreement of March 23, 2007, has still not been disclosed.