Legal wrangle over Port Royal development escalates to Court of Appeal

A fight involving private investors, who are accusing the Government of breaching a nearly 30-year-old agreement for the development of Port Royal, including through a cruise port, is now at the Court of Appeal.

In a major decision last month, the Supreme Court permitted businessman Robert Stephens to file a derivative claim on behalf of the Port Royal Development Company Limited (PRDCL) against directors of the Urban Development Corporation (UDC) and the Government of Jamaica.

But the PRDCL has appealed the decision.

A derivative claim is a lawsuit brought by a shareholder on behalf of a company that has chosen not to pursue a particular action.

Stephens sought permission on behalf of fellow minority shareholders in PRDCL. They claimed that the Government has breached a variety of fiduciary functions concerning the PRDCL over the last two decades.

PRDCL was the result of a public-private partnership between private investors under the Pragma Development Company Limited and the Government of Jamaica to develop the historic Port Royal through the establishment of a cruise ship port, hotels, residential complexes and other amenities.

Pragma and the Government signed an agreement in October 1996 and further negotiations led to the creation, in 1997, of PRDCL in which the Government holds majority shareholdings.

One of the state entities that invested in the development plans, the UDC, gets to appoint a majority of the directors, exercise management services over plans, and act as the secretariat.

In 2018, Stephens disclosed that the Port Royal development plans cost US$5 million – with the Government putting up US$3.5 million and the private partners US$1.5 million.

A previous attempt by Stephens for permission to sue the State and its agencies over the agreement failed in 2021 on technical grounds.

In the new claim, filed in 2022, Stephens alleged that between 2002 and 2007, the UDC failed to convene meetings of PRDCL directors. He also said there was no decision taken to close the Port Royal Heritage Tourism Project, which was originally agreed.

A few meetings were held later, but he said that the change in political administrations in 2007, 2011 and 2016 have frustrated efforts to get the agreement implemented.

Stephens exhibited a series of letters written to government officials by him, other investors and groups such as the Private Sector Organisation of Jamaica between 2016 and 2020, requesting updates on the plans and a revamping of the PRDCL.

Sidelined and ignored

“To date, none of these requests have been actioned and the minority shareholders who have already invested greatly to offset the PRDCL’s project [have] been sidelined and ignored,” he said, noting the Government’s “disinterest” in undertaking the project.

He continued: “The failures of the majority shareholders to satisfy [their] obligations has caused irreparable damage to the growth/development and integrity of the PRDCL as it was restricted from engaging and/or implementing programmes geared at developing Port Royal.”

The UDC, through its chairman, Ransford Braham, KC, has rejected Stephens’ claims, and argued that there was no basis for a derivative claim to be allowed against the PRDCL.

He took issue with the assertion that the UDC engaged in the establishment of the new Port Royal cruise port without the participation of the PRDCL. A new port was opened by the Port Authority of Jamaica in January 2020.

Braham contended that the claims of breaches of fiduciary duties are built on “a view that the respondent (PRDCL) has or had an exclusive right to develop Port Royal and/or build a cruise ship pier”; in addition to the technical breaches of statutory obligation in filing annual returns with the Companies Office of Jamaica.

According to Braham, the PRDCL was “expressly incorporated for the sole purpose of effecting government policy for the development of Port Royal as a heritage tourism destination and overall attraction”.

“The records do not show, whether past or current, that the Government of Jamaica ever intended for the respondent (PRDCL) to be sole or exclusive vehicle for the implementation of that policy,” he said.

The PRDCL, Braham argued, “has never been in a position to, or had legal basis, to sue or take any action against the Government of Jamaica or any government agency (including the Port Authority) to enforce any exclusive right to develop Port Royal which would necessarily include a cruise ship pier”.

A derivative action “on that basis is doomed to fail”, he asserted.

And pointing to a letter he sent Stephens in 2018, Braham said the PRDCL “awaits the role and function which the current Government of Jamaica requires of the PRDCL, if any”.

Stephens shot back that he was never arguing that the PRDCL was to be the exclusive means by which the Government was to pursue the development of Port Royal.

He also said if the Government told the UDC that it was no longer interested in using the PRDCL to pursue the development of the township, “it had a legal obligation to convey this to all stakeholders … and the shareholders should have been compensated for their contributions/investments”.

Contrary to Braham’s arguments, Supreme Court Justice Cresencia Brown Beckford said there are issues in Stephens’ claim that merit a trial.

She contended that the UDC’s role “seems to have been misunderstood” by Stephens and the PRDCL.

“This commingling of the UDC as a shareholder, as the managing secretariat and having the majority of the directors has led to a lack of clarity on the responsibilities of each. It is, therefore, a live question of whether the directors appointed by the UDC have acted in the interests of the majority shareholder and the GOJ in conflict with the interests of the company,” the judge argued.

The case against the directors and/or the GOJ “is therefore neither frivolous nor vexatious or without merit”, she said.

Jamaica’s public-private partnership framework (PPP) also came in for scrutiny as, according to the judge, there is a need for clarity in light of the repeated requests by the minority shareholders and investors for updates from the PRDCL.

“When one considers that public-private partnerships are generally investment vehicles for private partners, the uncertainty of government action without the kind of safeguard founded on ordinary contract law would make such arrangements fragile and unattractive,” Brown Beckford said.

On those grounds, the judge said the facts “do not merely disclose an injury to the minority shareholders” but have implications for the PRDCL.

She said the “real injury” Stephens seeks to vindicate “is the injury to the company’s investment in the PPP and breach of its legitimate expectation to participate in the development of Port Royal and in particular the cruise ship port”.

“This is a real and distinct injury to the company. The party entitled to relief, if there is found to be any breach of contract, would be the PRDCL and not the shareholders.”

The UDC’s claim that its only mandate in relation to the PRDCL was to carry out directives of the Government “is subject to question”, the judge said in agreeing with the court’s finding in 2021 judgment.

In that ruling, Justice David Batts questioned whether the UDC was “in the invidious position of serving two masters” and whether the persons who control the respondent (PRDCL) have a duty to advocate for the role of the respondent. Is it not arguable that it is a breach of duty to sit back sublimely and passively awaiting government directives?”

The UDC became a shareholder in PRDCL on behalf of the Government based on its injection of venture capital into the company.

Justice Brown Beckford accepted that an arbitration clause in the decades-old agreement between the Government and PRDCL if triggered could oust the jurisdiction of the court in any subsequent lawsuit. It’s why she suggested that the parties pursue talks with a view to going to arbitration before the substantive claim is filed.

Only the parties to the contract can trigger the arbitration clause. Stephens and the minority shareholders he represents are not.

“It is my profound wish, out of consideration for the applicant and those on whose behalf he acts, who have displayed such patriotism for national development, that the directors of PRDCL would engage the Government of Jamaica with a view to commence arbitration proceedings.”

Justice Brown Beckford said her decision would not take effect for 60 days from March 18, when she handed it down, to allow time for the parties to talk.

The PRDCL, however, filed an appeal against the decision on April 2.

“We have filed notice and grounds of appeal on behalf of the Port Royal Development Company Limited because we are of the view that this was not an appropriate case for permission to be given to Stephens to file a derivative claim in the name of the company,” Patrick Foster, KC, told The Sunday Gleaner on Friday.

Foster, along with attorney Odeanie Kerr, argued the case on behalf of the PRDCL. They are instructed by Alexander Williams and Co, the company’s attorneys.

Stephens is represented by Asleigh Ximenes, instructed by Knight, Junor and Samuels.

The UDC did not respond to questions submitted on Thursday.

Meanwhile, Stephens said the minority shareholders “are very happy with the judge’s decision”. “From the outset, we believe this matter could have been settled without resorting to the court, so we are prepared to go to arbitration.”

“Surprisingly and sadly, the GOJ has indicated that they wish to further delay justice and drag the matter further through the courts as they have indicated they are appealing the decision,” he said.

jovan.johnson@gleznerjm.com