Background to the Grand Bahama Port Authority Dispute

by Larry Smith

Grand Bahama was a wilderness to early visitors. An English circuit magistrate wrote in 1887 that the island's population of 700 "can barely exist."

In 1934, another visitor described the island as "a lost child of the colony...Travelling up Hawksbill Creek among the mangroves is a picturesque adventure, but getting ashore thereabouts has its difficulties."

That picture did not change much until August 1955, when the government leased 80 square miles on Grand Bahama to an American named Wallace Groves who had been running a lumber operation there. In return, Groves undertook to make Hawksbill Creek a deep-water port and carve a new township out of the pine barren.

That land grant was later increased to about 200 square miles and the tax concessions extended until 2054. Freeport was, you might say, the ultimate anchor project. And although the original idea was to establish an industrial centre, by the early 1960s the emphasis had switched to the familiar resort-residential model of development.

The Hawksbill Creek Agreement gave the Grand Bahama Port Authority the right to administer, plan and develop the new city, as well as to license persons and businesses to operate there. And licensees could bring in any workers they needed without consulting Nassau.

This led to a free-for-all, which helped propel Freeport's initial prosperity. But it also attracted organised crime elements, and later produced a racial and political backlash that caused the first PLP government to clamp down on both immigration and free-wheeling capitalism, defining the character of relations with the central government for decades to come.

The context of that time was described by Freeport's former town planner, Peter Barratt, in his book Grand Bahama:

"Throughout (this period) the financial climate of Freeport suffered. Some long-time residents discovered they could no longer obtain work permits; the largest plumbing company on the island went bankrupt, and in February 1970 the Freeport Savings & Loan Institution closed...the slump in business was followed by a certain amount of friction between labour and management, and a wave of petty larceny broke out. The situation was further aggravated by a recession in the United States which slowed the flow of tourists."

Although it was the first planned community in the Bahamas and benefitted from good infrastructure, efficient services, plenty of land, a lot of investment and the capacity to accommodate a population of half a million, Freeport has, by all accounts, remained in a perpetual economic slump.

Yet it is exactly what successive governments have tried to achieve in other Bahamian islands for decades - a development with critical mass that is able to draw some of the country's surplus manpower from New Providence, and that is capable of real local government.

But since the early 1970s, no-one has been able to put the pieces of Freeport back together again. Grand Bahama, with its population of 50,000, remains an enigma wrapped in a riddle.

Soon after Wallace Groves launched his enterprise in the mid-1950s, a British entrepeneur named Charles Hayward came to town. He had started out building motorcycle sidecars and parlayed that into an industrial empire known as the Firth Cleveland Group.

Hayward was persuaded to buy a 25 per cent share of the Port Authority for a million dollars, and his son - Sir Jack Hayward - settled in Freeport and became its biggest promoter. Meanwhile, a lawyer named Edward St George (a Maltese emigre to Britain who had been briefly posted as a magistrate here in the 1950s) returned to the Bahamas in 1967 and opened a small law practice.

A decade later he and Sir Jack took over management of the port, and in 1979 they bought out Groves for $42 million and then raised another $70 million to buy out remaining shareholders and take the company private.

This team led Grand Bahama for over two decades, ostensibly as equal partners, until St George's death in December 2004 at the age of 76. Sir Jack and Lady Henrietta St George then became non-executive co-chairpersons of the Port Authority, with Lady Henrietta occupying her late husband's office.

It seemed like the welcome dawn of a new era when former Central Bank governor Julian Francis was named co-chairman and CEO of the Port Authority in April, 2005. But he resigned a year later and Sir Jack, now in his 80s, replaced him with Hannes Babak, an Austrian investor who had set up a construction firm in Freeport in 1993.

This led to a dispute between the St George family and Hayward, and it was at this point that Sir Jack announced that he owned 75 per cent of the GBPA's holding company. Hayward also indicated that he wanted to sell his shares to Babak, which the St Georges opposed.

Relations between the Hayward and St George families broke down completely, with Sir Jack attempting to evict Lady Henrietta from her Port Authority office. That incident was followed soon after by legal proceedings, which are still working their way through the courts.

A decision on the ownership issue will determine the future direction of Freeport and Grand Bahama for years to come. In their legal presentations, Hayward's position is that he had an oral agreement to share dividends equally with St George until his death, while the St George's say that Hayward and Babak contrived the 75 per cent claim to gain control of the Port companies.

The fight has drawn plenty of attention in England too. According to the Daily Mail newspaper, "two of the richest and most distinguished British residents of the Bahamas are embroiled in an explosive multi-million-pound dispute...The unseemly row between Lady Henrietta St George, long-time friend of the Queen, and millionaire Sir Jack Hayward, owner of Wolverhampton Wanderers Football Club, has rocked the islands."

Sir Jack refused to withdraw his claim to majority ownership, and Babak refused to step aside, so the St George family brought a Supreme Court action to assert their right to half of the Port Group of Companies and to remove Babak from the picture. Receivers were appointed by the court to manage the Port while the litigation proceeds, and an injunction was issued to restrain Babak from acting as chairman in the meantime.

In just a few days, Justice Anita Allen will rule on the ownership and future of Freeport. But lawyers say the matter will likely not rest there. There will be appeals, and continuing litigation by the St George family seeking a court order forcing Sir Jack to sell his shares to them.

Meanwhile, Fred Smith - the lawyer for the St Georges - has threatened to sue the Port on behalf of licensees and landowners for "failing to act as a responsible municipal, administrative and development authority."

In a letter last week to the receivers, the Port Authority, the Grand Bahama Development Company and Lucaya Service Company, Smith said: "My clients do not want to fight. They simply want to work and live in a decent community, not a ghetto – which Freeport is fast becoming.

"Unless these issues are taken seriously my clients will be left with no alternative but to bring an action and to apply for the appointment of a receiver and manager of Lusco, and a receiver of GBPA, Devco, FCI and others in respect of service charges, license fees, harbour dues and charges, throughput fees and landing fees. Freeport is collapsing under the weight of neglect and incompetence."

Among other things, the letter calls for the Port to appoint a city manager, turn the Lucaya Services Company into a homeowners' association, improve Freeport's deteriorating infrastructure, regenerate the city's landscaping, halt clearing of the pine forest, and upgrade the airport and cruise port.

If legal action is initiated, this would bring the Chinese conglomerate Hutchinson Whampoah - which has invested half a billion dollars in Freeport and owns half of DevCo - directly into the fray.

Following his resignation in 2006, Julian Francis gave his prescription for the future of Freeport, calling for a separation between the GBPA's administrative and regulatory functions on one hand, and its business activities on the other.

"Freeport and Grand Bahama are critical for the Bahamas," Francis told a group of Rotarians earlier this year. "But, by and large, as a growing, developing environment for business, it is not working for a number of reasons. Not all of them have to do with the Port Authority; some have to do with the relationship with the government, which is another issue that needs to be worked out and addressed."

In short, Freeport is in the same circumstances as Nassau - where the PLP and FNM are catfighting over ownership while the city steadily declines. One can only imagine when and how it will all end.

Comments

[Leandra Esfakis]

Larry, thanks for the cheery article this morning. It brightened my day that you confirmed we will be victims of our own inertia, lack of foresight, lack of planning and lack of courage to make the right moves, in good time.

[Bob Knaus]

Fred Smith's suit asking the GBPA to hire a town manager and town planners is creative, but misses the larger point - where would they find a competent town manager willing to work in company town, not a real town?

Why a modern corporation would want to own and operate a company town is beyond my comprehension. Governing a town is a thankless task, and can never turn a profit. That's why (in the US) it's almost always done by an elected local government.

The notion that the Bahamas is not ready for elected local governments with their own tax and budget authority is also beyond my comprehension. I've worked with plenty of local governments in the US as a consultant. I think their elected officials and staff are, on average, no better and no worse that what you'd get from Bahamian local government.

Seems to me the new FNM government and the GBPA would both have a strong incentive to make Freeport a showcase for an independent, locally elected and financed municipal government.

[larry smith]

Apparently, running a company town is not entirely thankless in Freeport, or there wouldn't be all this fussing and fighting among the principals.

There's clearly a lot of greed involved.

But I agree with you that there needs to be transparency and some devolution of power to the licensees and citizens.

[C.Lowe]

A simple synopsis Larry, if somewhat sanitized.
The devil is in the details however, details that, in their personal squabble over the one time assets of the Port Authority have been unwittingly revealed by the feuding shareholders to largely apathetic Government and Licensees.
What if one were to ask, how did the assets of the Port Authority come to be in private hands in other non Bahamian holding companies, to be considered for personal profits?
We have asked and recieved no satisfactory answer as to the status of the seven and a half percent share purchased with public funds, or the revenue derived from the beneficial ownership thereof, or the proceeds from the sale thereof.
What of the Annual audits that were a requirement of public treasury purchase of shares?
Consider that when the government bought those shares, the Port had assets. It certainly no longer owns many of those assets.
Did the public treasury recieve its share of the special dividends?
Most notable however is our successive governments silence in this mockery.
Could there be some collusion involved?
These things should be discovered, and there is a licensee effort to do so, even if only for the sake of posterity.
Let the record show however, that these questions were asked.
Until the public shareholder squabble, and attendant feeding frenzy of the oportunistic wannabees, none had even heard of IDC Panama, IDC Cayman, Feduciary Management, Seashell etc etc.
" O what tangled web we weave,
when we practice to deceive"
may be most apropriate.
Perhaps now that we know the ownership is 50 / 50 % we know they are equally responsible or negligent.
Until then, the people of Freeport suffer, which is the greatest travesty.

[larry smith]

Yes, it was a simple synopsis. A backgrounder on the main dispute, which was still sub judice at the time.

However, as you point out, Justice Anita Allen ruled on August 30 that St George and Hayward were 50-50 owners of the Port's holding company.

On August 31 attorney Fred Smith filed for an injunction to restrain Hayward from selling his shares.

The questions you raise deserve an airing.

[Dan O'Connor]

Great article Larry. I am going to keep it on hand for a quick intro to the issue for my contacts in DC.

[John Hinchliffe]

Larry,
The late John Lambert of Freeport maintained to me that EPSt.G returned 'on spec' and that Lambert gave him his first 9 companies with St.G. as an Attorney-at-Law in the Kipling Building.Lambert was clear on this point...St.G. had no contact with Sir Charles Hayward at that time.[Nor is this point dealt clearly enough in the Obituary written by the daughter,Sarah St.G.of her father.In fact the 'many other lives of St.George' are glossed over.]
I believe I'm correct in thinking that the take-over of the GBPA from Groves was the subject of a Washington based enquiry...I wish I'd taken a copy now!
I recall St.G telling me with some forcefulnes,in 1987 I think, that "Jack and I are 50:50"...and this was a jolt to me as I'd been led to believe that they were roughly 85:15.After this St.George became generally, more assertive and one reason I left the Bahamas in 1988.
One little note...when I arrived at Freeport Harbour as the new Port Director in Nov.1980,the whole facility was run down unbelievably and I really wondered what I'd let myself in for...so from 144,000 pax pa. in 1980 to 750,000 in 1988.
Berthed in the corner of No.1 Basin though,was Vesco's yacht,spirited out of the Miami River....?
I'm sure this topic will expand....back in touch later then!

[P Barratt]

Why a modern corporation would want to own and operate a company town is beyond my comprehension. Governing a town is a thankless task, and can never turn a profit. That's why (in the US) it's almost always done by an elected local government.
Quite simply because this is a PRIVATE company with a stake in lots of things that make real money...and, most imortant, you are answerable to no-one!