'Butch' drops lawsuits against state agencies

BY ALICIA DUNKLEY Observer senior reporter dunkleya@jamaicaobserver.com

Wednesday, February 02, 2011

THE Government yesterday announced that hotel mogul Gordon 'Butch' Stewart has agreed to drop all suits filed by his company Gorstew Limited against the three state agencies in 2005 for compensation for losses suffered over the Sandals Whitehouse hotel in Westmoreland.

"The chairman of Gorstew, the Honourable Gordon Butch Stewart, has confirmed to me that it will discontinue all claims against Ackendown Newtown Development Company Limited (ANDCo), the Urban Development Corporation (UDC) and the National Investment Bank of Jamaica (NIBJ)," Prime Minister Bruce Golding told Parliament while responding to questions posed by Opposition spokesman on tourism Dr Wykeham McNeill over the administration's recent decision to sell the hotel to Sandals Resorts International (SRI).

Sandals Whitehouse is the property for which the UDC in 2001 entered into a joint venture for construction with Stewart's holding company, Gorstew Limited, which also owns the Jamaica Observer.

Under that accord a tri-partite company, ANDCo, was formed with the UDC holding 37 per cent, the NIBJ 30 per cent and Gorstew 33 per cent. The joint venture agreement provided for a 20-year lease of the property upon completion of construction to Gorstew, which manages the hotel through its Sandals brand.

That construction should have run from July 2001 to December 2002 at an estimated cost of US$60 million. However, disputes, delays and massive cost overruns pushed the completion of the construction to 2005 and the costs escalated to US$117 million, an overrun of US$43.3 million.

Up to recently several disputes had remained unsettled as to the liability for the cost overruns, with Gorstew filing for compensation in the amount of US$28.8 million for losses it suffered as a result of the failure to complete and deliver the project on schedule and compensation for brand damage.

Yesterday, the prime minister, in addressing whether the Government would settle all outstanding disputes and claims before the completion of the sale to SRI maintained that the outstanding disputes and the sale of the hotel were "distinctly separate issues".

"Whether the Government sells or retains ownership of the property, the issue of cost overruns and Gorstew's claims for losses and brand damage will have to be determined," he said. "On the other hand, even if these issues are determined, the burden of ownership of the hotel on terms of the lease entered into in 2004 will result in recurring losses for the Government at least for the next 14 1/2 years."

Golding went on to point out that the 2001 Heads of Agreement indemnified Gorstew from any cost overruns except those from design changes it may have requested.

"Other than those cost overruns attributable to such design changes, Gorstew has nothing to lose in the outcome of the arbitrator's findings regarding responsibility for cost overruns. It is the government agencies that are more at risk," Golding said.

ANDCo, UDC and NIBJ had in turn filed defences and counter suits against Gorstew. However, the parties had agreed to a stay of the claims and the matters referred to arbitration in 2008. That ruling has, however, still not been issued and in 2009 the parties executed a Standstill Agreement with the arbitrator to suspend the proceedings to allow for a negotiated settlement to be reached. That, however, was unsuccessful.

Yesterday at the insistence of Opposition spokesman on finance Dr Omar Davies, Golding further committed to next week present to the House in writing the commitment by Stewart to drop the suits. He however insisted that Stewart's "word as his bond" was sufficient to allow for the announcement to be made yesterday.

The prime minister also disputed claims that the hotel "is being given away".

According to Golding, this was "not supported by rigorous financial analysis".

"The most recent appraisal conducted in 2009 estimated the replacement value of the hotel at US$105 million. However, it is impossible for the hotel to fetch that price since under the terms of the 2004 lease the net income to the owners is US$2.3 million per year (less the cost of insurance and equipment replacement)," Golding explained.

He said at a sale price of US$40 million the return on investment to a third-party investor would be 5 3/4 per cent, hardly an attractive investment prospect.

"Even at the most optimistic year-round average occupancy level of 85 per cent it is estimated that annual rental income would be US$4.5 million with a net income after insurance and equipment replacement of US$2.9 million yielding a best-case return on investment of 7 1/4 per cent," he added.

"I reiterate that the Government is determined to extricate itself from an arrangement that went terribly wrong and has cost the Jamaican taxpayers huge, inexplicable and unforgivable sums," Golding said.

Contractor General Greg Christie last month announced that a high-level team from his office had commenced the process of evaluating the documentation on the particulars of the negotiations for the sale of the hotel Gorstew, in which he claimed "its functionaries have allegedly been secretly engaged".

The administration has since said there was no mystique about its decision to begin sale talks with Gorstew, maintaining that the decision would bring "an acceptable closure to the sordid ordeal that has been a burden facing (his) Government since it took office" in 2007.

Do you feel buying into Facebook now is a good investment for the long-run?
	Yes
	No

View Results
Results published weekly in Sunday Finance

Username:
Password:

Teen killed for laughing at man who fell from bicycle

'Butch' drops lawsuits against state agencies