Ritz buyers try to force property transfer

Unable to have a transfer of title registered since December 2012, buyers of The Ritz-Carlton, Grand Cayman have taken legal action against Cayman’s premier and minister of finance, the registrar of lands and the chief valuation officer. 

The legal action – which was titled “Application for Leave to Apply for Judicial Review” – was filed on Monday by Conyers, Dill & Pearman, the attorneys of RC Cayman Holdings Ltd. The application seeks orders of Mandamus to compel the transfer of the title to The Ritz-Carlton, Grand Cayman and adjoining properties purchased at a public auction on 31 October, 2012. 

Elements of the application suggest that the government has not only failed to do what it was required to do by law, but that it could be guilty of blackmail, corruption and a breach of Cayman’s Bill of Rights. 

The application claims that prior to the auction of the 56 parcels of property, the valuation of the properties for stamp duty purposes was “expressly agreed between Mr. Simon Watson of Charterland Ltd. and the Chief Valuation Officer at a meeting on 15 October as being a total of US$181,500,000, less the values of the chattels. This agreement was confirmed in writing on 16 October, 2012 and a deduction of US$6,129,350 for chattels was proposed as per a list then provided. The chattels list was checked and finally agreed upon by the Chief Valuation Officer on 31 October, 2012.” 

On 20 December, 2012, when the purchasers filed the transfer documents with the registrar of lands, it paid a sum of more than $9.56 million in stamp duty based on the previously agreed valuation, the application states. 

Since that time, however, even though the plaintiffs claim the government cashed its cheque, it hasn’t registered the property transfers.  

“The plaintiffs are entitled to the registration of the transfers and the registrar of lands has wrongfully and unlawfully failed to register the transfers whereby and order of Mandamus is required to compel her to do so,” the application states, adding that the registrar of lands has verbally suggested that the fault lies with the Valuation Office. 

The application also states that, further to the agreement with the chief valuation officer on 31 October, 2012, the chief valuation officer ought to have adjudicated stamp duty on the transfer and, pursuant to the Stamp Duty Law, was required to do so within 15 days of the presentation of the transfer documents. 

 

Claim of potential unlawful acts 

The application sets out a course of events which have occurred that it claims are potential unlawful acts. It states that during the time that companies associated with Ritz-Carlton developer Michael Ryan owned the Ritz properties, former Premier McKeeva Bush had “since entering office, permitted those companies not to pay monies owed to the government by way of deferred duty in the sum of CI$6M. The liability to pay such stamp duty is personal to the companies who incurred such liability and to whom such concessions was made”.  

Mr. Bush publicly stated on 22 November 2012 that “Government will continue to demand its due payment of the deferred stamp duty and will expect it to be paid before any consideration is given to any request for new licences, work permits or any other of the things that government does on a day-to-day basis in relation to the operation of the hotel,” the application states. 

“Such public statement was in simple terms a threat that unless the plaintiffs, as the new owners of the hotel, discharged a liability incurred by the previous owners of which the government had allowed Bush’s associate Ryan not to pay, they could expect that government would thwart them in the operation of the hotel.” 

The application accuses Mr. Ryan of either writing Mr. Bush’s speeches or that Mr. Bush conspired with Mr. Ryan in making speeches, which it claims were written on a computer at Stingray Construction, a company owned or controlled by Mr. Ryan. 

“The involvement of Ryan in the making of public statements by the premier on behalf of government was improper, showed that the government was biased in favour of Ryan who was engaged in legal proceedings with companies under common interest with the plaintiffs and is prima facie evidence of an apparently corrupt relationship between Ryan and the government,” the application states.  

The application claims “the government has threatened to act unlawfully towards the plaintiffs” in breach of two sections of the Cayman Islands Constitution Order 2009 (The Bill of Rights). 

“Such threats, if made directly to the plaintiffs would constitute blackmail contrary to section 259 of the Penal Code (2010 revision),” the application states. “The acts threatened would, if carried out, be an offence under section 17 of the Anti-Corruption Law (2008) revision. 

 

Independent valuation 

Less than a week after Mr. Bush’s public statement, on 28 November, Cayman’s financial secretary wrote a letter to the plaintiff’s attorneys stating the government intended to obtain an independent valuation for the Ritz properties that had been bought at the auction, the application states. 

“On 29 November 2012, the plaintiff’s attorneys replied pointing out that the value had been agreed and that government had no right to interfere and that if it did persist then an application would be made for judicial review.” 

The next day, Cayman’s solicitor general responded to the plaintiff’s attorneys by e-mail stating “our office is taking full instructions” and would get back to them with a full response. 

“No response has ever been received,” the application states. 

The plaintiff’s attorneys followed up with a letter to the current premier and minister of finance on 19 February 2013 asking when the property transfers would be registered, but no response was received, the application states, adding that on 25 February, it sent another letter to the current premier and minister of finance “putting her on notice that unless registration took place forthwith, proceedings would be issued without further notice”. 

No response was received to that letter, the application states. 

“It is to be inferred that the failure to register the transfers is in fulfilment of the government’s threats made of 22 November, 2012.” 

Remedies 

In addition to seeking an order of Mandamus to compel the chief valuation officer to adjudicate stamp duty in accordance with what had been previously agreed and seeking an order of Mandamus to compel the registrar of lands to register the transfers of the property, the action seeks an injunction to prevent the premier and minister of finance “from interfering with the Plaintiff’s peaceful enjoyment of their property and/or demanding US$6M which they are not entitled to as a prerequisite to administrative acts being carried out which are necessary for the operation of the hotel.” 

The US-based Five Mile Capital Partners LLC, which is associated with the buyers of the Ritz-Carlton properties, issued a news release about the legal action on Tuesday.  

“We have repeatedly written to the government and most recently on February 19 and February 25 to the current premier and minister of finance asking for the transfer to take place,” the press release quotes RC Cayman Property Holdings Ltd. Director Jim Glasgow as saying. “To date, we have not received the courtesy of a reply from the government.” 

The press release stated that the Ritz-Carlton buyers were forced to exercise the option of legal action when they were “unable to secure even an acknowledgement from the Office of the Premier and Minister of Finance.” 

“We are institutional investors in the Cayman Islands who purchased a prop
erty following the established rule of law,” Mr. Glasgow said. “We have followed the established and agreed process and simply want the government to do what it is legally bound to do.” 

Without getting the transfer finalised, Mr. Glasgow said it was extremely difficult to justify investing needed capital into the hotel “when there is so much uncertainty about what laws the government will or will not decide to follow”. 

“The government cashed our US$11.6 million check for transfer taxes on December 28, 2012 and is violating the law by not recording the deed,” Mr. Glasgow concluded. 

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18 COMMENTS

  1. As a buyer and owner of property in the Caymans this looks very bad to future buyers ! I always tell my friends how getting title to property in the Caymans is much easier process then the USA ! Maybe not !

  2. Government appears to have no understanding that it is damaging the reputation of Cayman by engaging in this fiasco. Foreign investors will take note that there is a political risk in investing in Cayman that the elected govt. may interfere with legal rights if it conflicts with their interpersonal relationships. All of that business of marketing for foreign investment may have been in vain. This one more step in making Cayman look like a banana republic but without the bananas.

  3. This does not look good at all, people are going to start feeling uncomfortable about buying property in Cayman. This is clearly a shakedown by the Cayman Islands government to get more money out of the buyers. I would not be surprised if they start overstating valuations for just about every property transfer in order to raise capital. This case in particular is just wrong, how can they agree to one number before the sale then change the number after it. So if I find a property and get it valued at 200K and buy it the government is allowed to say it should be valued at 400k after the sale. They clearly did this in order to allow the sale to go through with plans on sticking it to them after woods. I am not sure about who legally owes that 6 Mil, in my opinion it would be the new owners because the debt is part of the business not a personal debt, but that should be handled in court not by holding up the transfer for the property after they cashed the check so to speak.

  4. To all the previous commenters, I wish all of you would shut up with the hypocritical [expletive]. Everyone knows that the transactions between the so call sale of the Ritz carton was your typical vulture fund, about the property was valued at 181 mill but cost 250 mill to build, are you guys serious ? It about time the government stands up to these bandits. They owe taxes so pay up, all you expats ever do is come to Cayman criticizing my island like you had it much better back home, maybe you guys should go back home, where it was so much better. Buy property there and pay property taxes to the government, every year. Since you feel uncomfortable with buying property in Cayman. Do you think you could pull this one with Uncle Sam? As far as I see it all you guys do is come to Cayman and drains my economy like a bunch of blood sucking leeches and then complains about injustice, please Don’t like it, please leave. . If Cayman is so bad, why come here? If we as Caymanian don’t look out for our country and when you guys come off vacation (Workin in Cayman) island style and go back home it will be the Caymanians that have to clean up the mess and bring back our economy, they owe money to the government now pay up, simple

  5. Hyperion, how did you come to the conclusion that they owe taxes that they are refusing to pay? Why should the new owners be forced to pay others debts? You are sounding very hypocritical.

    It seems to me that the lenders would have been happy to sell this property to a third party for a much higher price and recoup all that they were owed if that were possible especially since in that case they would not have had any stamp duty to pay. But they had an auction and obviously it wasn’t.

  6. Hyperion, I am not even going to justify all your hateful anti-foreigner statements with a response. I do however have one question to ask you. You do realize that the Real Estate Market is down all over the world including Cayman. There are plenty of homes in Cayman that are now worth less then they cost to build because of the economy, the main point here is that the Governments own valuation officer agreed to the 181 Million dollar number prior to the sale and they followed all the rules. And now after the sale has completed Bush says the hotel is worth more than 450 Million Dollars that’s what the confusion is here. I personally believe the new owners now owe it because Taxes are usually attached to the property at lease in the US, but that should be sorted out in the courts. Bottom Line is the courts will decide the outcome of this now..

  7. NJ2Cay, that’s not how it works in Cayman. The debt to govt. is a personal debt owed by the person or entity that incurred it. Since the debt was supposed to be repaid over time Government could have taken the step of taking security over the property or obtaining a personal guarantee from Mr. Ryan but apparently did not do so. Instead it allowed him to stop paying back in June, 2009.

    Where a Cayman company is insolvent Cayman law says that secured creditors are entitled to enforce their security over the secured asset to have the debt owed to them repaid. Next comes taxes etc. owed to government and then any unsecured creditors’ claims.

  8. Thanks AndyJax, I appreciate the knowledge.. This just shows more reason to believe that the Cayman Islands Government is acting inappropriately, because everyone knows that this boils down to the 6 Million in back stamp duty and the CIG retaliating against the new owners for not picking up the tab that the previous owner should have paid. There was no mention of the new value until the new owners said they were not responsible for the previous owner tax debt, this was Bush’s comeback as a way to get them to pay more. And it is wrong and does not represent dependability on the side of the CIG.

  9. Most of these messes that end up costing the tax payer a pile of money in legal fees and damages are facilitated by civil servants who are never held to account. I am beginning to think that the only place on the planet that the I was only following orders defense works is in the Cayman Islands civil service. This nonsense has to stop.

  10. Forgive me for the obvious but was it not the government of the day that allowed the previous owners to avoid the duty.

    If anyone is to blame it is the individuals or the designing minds that chose to extend the duty vacation to the previous owners without secured collateral mortgages in place.

  11. This is a real dilema

    On the one hand Ritz claim the debt is a personal debt and is therefore mobile and tied to Mr Ryan (if the courts agree with them, Mr Ryan will have to repay it before Dragon Bay is registered)…

    On the converse side Duty is a function of the value of a physical object/material.

    The guys buying the Ritz got the assets and also the liabilities associated with the properties, and as such the duty paid / duty free status of the materials must be satisfactorily resolved before the property is registered.

    Mr Glasgow is well within his rights to remove and export all duty free/duty deferred materials from the property at which point the government must register the sale.

    If I buy a bottle of Whisky at Tortuga in Georgetown I pay a higher price than a cruise ship passenger who is buying it duty free for export. It is still the same bottle of Whisky BUT as I will drink it on Cayman, I must pay the Duty. It is not a personal debt of the Liquor store owner.

    The 6M of outstanding Duty was public knowledge at the time of sale.

    CIG is right to cash the cheque but should have sent a receipt received with thanks 6M Deferred Duty and 5.6M partial payment for stamp duty

    The real foul up is the valuation of the property.
    The government assessor has probably cost the government 34M in the difference in duty between auction price and market value.

    I bought a car at auction for 6,000 – the same car from a private sale would have been 8,000 and on a dealer forecourt 11,000.

    I wonder what value Mr Glasgow has insured his property for – is it the 181M he paid? I suspect a lot more!

    Now, where’s my bottle of LEGAL, DUTY PAID, Whisky

  12. @Sonic On what basis have you reached the conclusion that there has been a foul up in the valuation and that the govt. valuer has cost the government 34m in the difference in duty between auction price and market value? Where there has been a public auction it is very difficult to conclude that the price obtained is not the market value since that is the highest price that potential purchasers in an open market were willing to pay for the property. If it was the bargain basement price you believe then potential purchasers would have been lining up and would have bid the price higher. Market value is about demand and supply. I can estimate the value of my house at any figure I like but if no one is willing to purchase it for that figure then that is obviously not the market value.

    Your whiskey purchase scenario doesn’t really have anything to do with the issue so I am not sure why you brought it up.

    The law says that the debt is a personal debt and does not attach to the property (unless govt. takes a charge over it) so obviously govt. would not have any legal basis for demanding that the deferred duty owed by another entity be paid as a condition of transferring the property to the new owners.

    You should be aware that insurance valuations are based on replacement cost rather than market value which may be widely divergent.

    Government should have insisted that outstanding duty be paid when payment was stopped in June, 2009. Why are you not insisting that the person or entity who incurred the debt pay it since he still has business interests here?

    There is no dilemma really. Government just needs to follow the law.

  13. @AndyJax

    The Whisky is a familiar illustration that, in terms of Duty (and the 6M relates to Duty), goods can exist in a state where there is outstanding duty on it and that outstanding duty must be resolved at the time of transfer to a new owner. Be it whisky, Cigars or bricks and mortar. UK Customs and Exise can confiscate goods which have not had duty paid correctly and Cayman Law may be secondary to that.

    Using that model it might be argued that there is a lien against the property for the outstanding duty on 30 million of bricks, rebar and concrete.

  14. @Sonic There is no such thing as a lien over real property in Cayman. You either created a charge over the land or you didn’t, and seems that government didn’t. The law is clear that govt. taxes rank lower than the rights of secured creditors.