Playing high stakes poker

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.

Paul Simon


  1. The writer suggests that the Cayman government is putting the Cayman Island reputation at risk by refusing to accept what government view as an undervalued stamp duty.. I say it is about time developers stop using us as a soft target. Stamp duty is assessed on fair market value, we all pay the government’s assessed property value. For them to now reverse themselves would do more damage to their reputation as a governing body which is expected to apply an UN-biased rule of law. Fair market value is the rule, fair market value it should be. A request for an exception to the rule, approved by government is another matter..

  2. the government uses Market Value, the Market Value in this case is almost certainly the price paid at auction and this Market Value was agreed with the Valuation department of the government. To try and effectively black mail the purchaser into paying more tax will surely cause alarm bells to ring out to other international property companies wishing to invest here and as the writer correctly states will cause damage to the reputation of the island, which will lead to less investment and less future tax income. This approach is hugely short sighted.

  3. The answer to this sounds like it should be in the Valuation of the property prior to the sale, which I believe should have been done by a government authorized appraiser. Is there any info on when and if this was done and by whom, as well as what value was placed on the property.

    My take is that if the government agreed to a value of this property prior to the sale then that what duty should be paid on. From I recall this whole issue came about because of the 6 Million owed by the previous owners not being paid by the new owners so it sounds like there are doing this just to get back at them. And if that is the case then it’s wrong.

  4. The Law says stamp duty must be paid on the higher of the purchase price or the market value. I agree with the writer that govt. would be hard pressed to sustain an argument that the price obtained at a public auction which was well advertised was not the market value.

    Caymanian-on-guard seems to be missing the point. Govt. valuations are important to determine market value where there has been a private sale but not necessarily where there has been a public auction since the auction represents the market for the property.

  5. The phrase you’re looking for is Caveat Emptor, or let the buyer beware.

    When you buy ANYTHING at auction you as the buyer are the person responsible for the due diligence, You take the risks but you also reap the rewards.

    Auction prices are pennies on the dollar i.e. you are getting something way below retail. The government is well within its rights to demand duty on retail or market value and that is established custom and practice.

    There have been instances where properties have sold for a token price e.g. a dollar. Had that happened here would the government have got 8 cents or the stamp duty on the true market value?

    The only ones here who are playing high stakes poker are the new owners and if they get away with the bluff, they’ll laugh at the poor stupid cayman government all the way to the bank with their extra 25M.

    Don’t for a second believe that their lawyers haven’t warned them of the possibility of duty on the market value.
    Ask yourself why the offer was originally on the table for 213 but then went to 177.

    WOW thats a difference of about 38 million or a figure roughly the same as stamp duty on 500 million.

    Talk about a massive coincidence!

    I suspect the 6 million of deferred duty was factored in as well and that will be their next bluff…
    Though they should probably pay it and counter sue Mr Ryan.

    On a multi million dollar deal you have a legal team to warn you of all the pitfalls, so while I don’t blame them for trying it on. The time has come for them to fold, pay their dues and walk away from the table with their winnings.

    Hey, If I bought a 600,000 house for 177,000 I’d be beaming like the cheshire cat and the stamp duty would be paid so fast it’d make your head spin – get it registered before anyone changes their mind!

  6. sonic

    you are plain wrong. The price achieve at auction is Market Value as an auction satisfies all of the aspects under the definition of Market Value. You second guessing what happens in the real world is not helpful, go back to your daydreams…if you bought properties for pennies at auctions we would all buy there would we not?

  7. Sonic – the issue is how do you determine the market value. Auctions do not necessarily mean pennies on the dollar at all. Take for example, a work of art from one of the masters. If demand is high there is much competitive bidding and the price can be many times higher than the estimated value. Market value is the price at which an asset can trade in a competitive auction setting. It is all about demand and supply.

  8. Does anyone know what the true current market Value of this property is, was there a recent valuation previous to the sale ? When I brought my property in Cayman I was told that I had to get a new Valuation becuase the 1 year old one provided by the seller was to old. From what I read the number the CIG came up with is from a valuation done years ago…

Comments are closed.