The Government of the Cayman Islands is engaged in a high stakes poker game over the Ritz stamp duty issue. What is at stake, or the “pot”, is the reputation of the Islands as a good and reliable place to do business.
In order to understand why, some background is necessary.
Background – Think of the Ritz property (144.9 Acres), stretching from the Caribbean Sea to the North Sound, as a rectangular piece of bread with a large raisin and several large black olives in it. Looking at the piece of bread, the Caribbean is on the left (west) and the North Sound (east) is on the right. The piece of bread has two grooves in it, running North and South. The groove closest to the Caribbean is West Bay Road and the other groove is the by-pass road. The large raisin has West Bay Road running through it; this is the hotel parcel (8.9 acres) on which sits the Ritz Hotel. The rest of the piece of bread is the resort parcel (136 Acres) and contains large black olives of varying sizes; the by-pass road runs through the resort parcel just to the east of the hotel parcel. The entire Ritz property is leased from the Crown. The lessee of the hotel parcel is Cesar Properties Ltd. The lessee of the common property of the resort parcel is a master strata corporation; the members of that master strata corporation are the large black olives on the Resort Parcel. Some of the large black olives are other strata corporations but the leasehold title to the two large black olives, which are not strata corporations, is also in the name of Cesar Properties Ltd.
The latter defaulted on the charge over the hotel parcel, the two large black olives located on the resort parcel, which are not strata corporations, and several strata lots within the other large black olives located on the resort parcel, which are strata corporations (collectively, the package). The chargee sold the leasehold title to the Package for US$177.5 million to RC Cayman Hotel Holdings Ltd. (the buyer) at a public auction; the government refuses to register the transfers for the package until the amount of stamp duty payable is resolved.
The issue – The stamp duty payment presumably submitted to the Government on the US$177.5 million, assuming a rate of 7.5 per cent, was roughly US$13.3 million. The government, according to some accounts, is saying that the value of the package is between US$468 to US$500 million. The stamp duty on US$ 500 million, assuming a rate of 7.5 per cent, is US$37.5 million.
Therefore, on the surface, US$24.2 million is at stake; however, what is really at stake is the reputation of the Cayman Islands. Discussion – The government is refusing to register the transfers for the package until the stamp duty issue is resolved; since it has this power, it seems to have the buyer in a difficult position. However, the buyer says that it cleared the US$177.5 as the fair market value for stamp duty purposes before the purchase at the public auction. Regardless of whether the buyer’s version is correct, the reputational damage to the Islands is the same.
If the buyer is correct, the government is going back on its word. If the buyer is not correct, the government’s proposition that the best evidence of market value is not what the package sold for at a properly advertised auction is dubious at best and raises the further issue of what other precautions should be taken in the future by a buyer at a public auction to protect against the stamp duty escalation risk, which all future buyers at a public auction will face. If the government wins the poker game, in my opinion, in addition to the damage to the reputation of the Islands as a good and reliable place to do business, money which could have been used by the buyer for improvements to the hotel parcel and the buildings on it will have to be paid to the government as additional stamp duty; there may be other unforeseen adverse consequences to the Islands. In the meantime, the government is refusing to cash a cheque for roughly US$13.3 million which, given current constraints, it could well use.