Property and Development
The owner of the former Hyatt Regency in Grand Cayman has been locked in a legal battle with an insurance company for more than eight years. From the initial Cayman Islands court filing, several skirmishes have broken out in various jurisdictions. Meanwhile, the hotel remains vacant.
Embassy Investments filed its original suit in Cayman court in June 2005, seeking payment for damages to the property from Hurricane Ivan in September 2004. Since then, Embassy attempted to seek punitive damages in Texas federal court before those proceedings were halted by a London court. A London arbitrator sided with insurer Houston Casualty Company, which has thus far been successful in its counterclaim against Embassy for libel and in its attempts to have the original 2005 claim dismissed.
Additionally, Embassy has submitted a claim for compensation from the Cayman Islands government for land taken during the extension of the Esterley Tibbetts Highway in 2006, and the property owner also claimed in court that FirstCaribbean International Bank owes it money in relation to wrongful charges.
As of January 2005, the Hyatt’s primary insurers had paid Embassy the full policy limit of US$10 million. At that point, excess insurers, responsible for US$40 million in coverage, took over investigation of losses. In June 2005, with no excess insurance claim settlements, Embassy filed suit in Cayman court against six co-insurers, including Houston Casualty, according to court documents. (Embassy’s total exposure was for about US$1.2 million.)
Five of the six co-insurers said they were avoiding the insurance policy due to material non-disclosures relating to the profitability of the hotel since 2002. A Cayman judge denied Embassy’s request for summary judgment, saying the case would need to be determined at trial in light of expert evidence.
An attempt at mediation between Embassy and its insurers failed in March 2006. Afterward, Embassy sent a written warning that it intended to pursue a claim against Houston Casualty under Texas law, which provides for triple damages if it is shown that an insurance company knowingly committed wrongdoings.
The excess insurers applied to Cayman’s Grand Court for an anti-suit injunction to prohibit Embassy from pursuing the proposed Texas proceedings. In late July, a “standstill agreement” was negotiated where the parties agreed not to file any new legal proceedings until Cayman legal actions are concluded.
After years of offers, counteroffers, disagreements and miscommunications, Embassy commenced proceedings against Houston Casualty in a Harris County, Texas, court in late July 2009, seeking “tens of millions” of dollars for triple damages, exemplary damages and substantial damages, and demanding a trial by jury.
Houston Casualty responded by giving notice to move the case to US federal court and successfully obtained an injunction against Embassy from Commercial Court in London. In December 2009, London arbitrator Stephen Males heard the grievances between Embassy and Houston Casualty.
During the arbitration hearing, Embassy claimed its business interruption losses amount to US$14 million per year, or US$42 million after accounting for triple damages. As of December 2009, Embassy calculated its total losses at US$70 million, or US$210 million with triple damages.
In January 2010, Males determined that Embassy’s Texas action violated the “standstill agreement” and exonerated Houston Casualty of committing wrongful acts or inequitable conduct. Eventually, Embassy was to pay Houston Casualty US$587,000 in costs awarded by the arbitrator.
Starting from January 2010, Embassy conducted a campaign designed to put pressure on Houston Casualty to accede to its demands, according to court documents. During that time, Embassy made statements alleging that Houston Casualty was refusing to pay an agreed-upon settlement, which did not exist. Those statements became the basis of a Houston Casualty counterclaim for libel.
In August 2010, Embassy’s Asif Bhatia wrote a letter to then-Premier McKeeva Bush, who had been urging the property owner to fix the hotel immediately.
“Hopefully the increasing public pressure on HCC (which is looking increasingly exposed) will result in them settling very soon due to the clear benefits of the greater openness and transparency which has resulted from a somewhat free and open press in Cayman,” Bhatia wrote.
In September 2010, Houston Casualty sought leave to introduce the counterclaim for libel. In December 2010, Cayman’s chief justice granted leave to introduce the counterclaim.
In March 2011, Houston Casualty applied for an order to strike out Embassy’s proceedings in Cayman on the grounds of intentional and contumelious default amounting to an abuse of process.
In May 2011, Cayman Grand Court Justice Anthony Quin delivered a default judgment on the libel counterclaim in favour of Houston Casualty, saying Embassy breached Grand Court rules by not filing a notice of intention to defend within deadlines. He ordered Embassy to pay damages and costs to Houston Casualty.
In January 2012, Justice Quin issued a composite ruling on two separate issues. On the one hand, he refused Embassy’s application to set aside his May 2011 judgment on the libel counterclaim. On the other, he agreed with Houston Casualty to strike out Embassy’s original 2005 claim in Cayman court.
Justice Quin wrote, “It is hard to imagine a more damaging allegation against an insurance company than to allege that it improperly reneged on its agreement to pay. I find the allegation, however often repeated, to be false.”
According to reasons published in late July 2013, the Cayman Court of Appeal upheld Justice Quin’s decision regarding the counterclaim for libel. An appeals hearing may take place in mid-November regarding an application to the UK’s Judicial Committee on the Privy Council, the final appellate court for Cayman.
Meanwhile, as of August 1, a Court of Appeal decision was pending regarding Justice Quin’s ruling to strike out Embassy’s original claim.
According to the January 2010 award from the London arbitrator Males, Bhatia had referred to himself as the “major ultimate beneficial owner” of Embassy, and also its senior vice president and an employee of the company. While the company’s board of directors was technically responsible for decisions, in practice the directors generally acted on Bhatia’s recommendations.
Bhatia is the son of UK hotelier Gulshan Bhatia, who owns the Waldorf Hilton London.
Males was highly critical of Asif Bhatia’s conduct in relation to the insurance claim for the Hyatt.
He said, “Unfortunately Mr. Bhatia, the only witness for Embassy, was neither truthful nor reliable. Despite his considerable personal charm, it became increasingly obvious during his evidence that Mr. Bhatia was prepared to make virtually any allegation, however fantastic, if he considered it in his interests to do so. Indeed, his evidence as a whole was so far divorced from reality that it is difficult to know where to begin.”
Males said, “Mr. Bhatia is obviously a highly intelligent, well educated and successful businessman. I have therefore considered carefully whether it is unfair to describe him as completely untruthful, and whether the manifest deficiencies in his evidence can be accounted for on the basis that he has somehow deluded himself after five years of living with this case into seeing a conspiracy against him wherever he looks. I have concluded, however, that this will not do. The true position is that, faced with the setback of the unsuccessful summary judgment application in the Cayman Islands, Mr. Bhatia decided to pursue the prospect of a very substantial award of damages in Texas, and is prepared to say whatever he needs to say to enhance that prospect.”
According to Justice Quin’s January 2012 ruling, Embassy sought to distance itself from Asif Bhatia and his comments, claiming that a “new regime” had taken over management of the dispute from Asif Bhatia.
Embassy claimed it is owned by its corporate director Basel CDS Ltd. as trustee of Diplomat Trust, of which Asif Bhatia is only one beneficiary. According to Justice Quin, Embassy “contends that relations between Basel and Mr. Bhatia finally broke down in January 2011, and it was then that the board of Embassy decided to take over the running of these proceedings.”
Justice Quin found that Asif Bhatia’s conduct was attributable to Embassy up until March 2011, and further, he had not seen any evidence showing that Asif Bhatia is no longer the “major ultimate beneficial owner” of Embassy.
According to Justice Quin’s May 2011 ruling, “Having reviewed the content of the emails there is a clear indication that Mr. Bhatia is purporting to speak with [Embassy] and his aim is to damage [Houston Casualty] in the eyes of important government figures in the United Kingdom, the Cayman Islands and Europe.”
In January 2013, Embassy reopened another issue when it filed a claim with the Cayman government seeking compensation for land taken during the 2006 Esterley Tibbetts Highway extension. The road, built while the Hyatt lay in ruins, cuts through the middle of property, dividing the 263-room inland hotel from the 53-room seaside resort, which operates as Grand Cayman Beach Suites.
Shortly after government declared its intent to take the land in the Cayman Islands Gazette in 2005, the Hyatt owner submitted its intent to claim compensation for the land.
Government gazetted that portion of the highway in late January 2012. Embassy submitted its actual claim for compensation just before the prescribed one-year deadline.
The Lands and Survey Department acts as the agent for the National Roads Authority to negotiate a compensation amount for private property taken to build a road. Landowners cannot fight the compulsory acquisition of their property, though they can argue over the amount of compensation.
If a landowner disagrees with the amount of compensation offered by the government, then the matter is sent to the three-member Roads Assessment Committee, comprising a magistrate and two justices of the peace. The committee’s decision can then be appealed to Grand Court.
In May 2013, Embassy issued a writ of summons against FirstCaribbean International Bank, alleging that the bank breached its credit agreement with Embassy and owes Embassy money for wrongful charges.
According to the statement of claim filed in Grand Court, as of July 28, 2006, Embassy and FCIB agreed that Embassy could borrow money at a rate of 5.7 percent, as long as the amount borrowed did not exceed the amount of money Embassy had on deposit with FCIB (at a deposit rate of 4.95 percent).
Embassy claims it made several large cash deposits, including US$15.09 million on or around July 28, 2006 and US$16.75 million on or around March 17, 2010.
Those two dates of deposit correspond to the timing of Embassy’s settlements with excess insurers (not Houston Casualty), according to court documents.
In the May 2013 filing, Embassy claims that FCIB breached the contract by charging it higher interest rates on loans, didn’t comply with written instructions and wrongfully charged overdraft fees, default interest and other fees.