Lawyers for the plaintiff, Citizens Bank Inc, and the Defendant, the Attorney General representing the State of Guyana, have lodged written submissions with Justice Roy in the Commercial Court in the case that involves US $21.4 million worth of bonds issued by the Government of Guyana to the creditors of Guymine when that state-owned company was restructured in 1992.
In the most important case to come before the new court since its inception, the lawyers for the Attorney General have argued that the court should take into account the condition on which debt relief was granted to the government by the Paris Club group of creditors.
The Attorney General said that whilst the bonds were originally held by Guymine’s external creditors, all but one bond have now been transferred to other local companies and individuals. Many of the bonds changed ownership several times, he said, often being exchanged at a price that represented a deep discount on the face value of the bonds. The Plaintiff is the current bondholder of 18 bonds.
The majority of the bonds, he said, were acquired by the Plaintiff from the original bond holders at a significant and substantial discount on the face value of the bonds. Indeed, the weighted average price paid for the bonds by the Plaintiff was 69.9%, representing a 30.1% discount on face value.
The Bonds, he said, carry an interest rate of 5 percent per annum, which is due on the 31st day of December each year. Interest has been paid to bondholders by the Government of Guyana annually, with the most recent payment being made on the 31st day of December, 2005. In total, over US $18 million has been paid in interest to the bondholders, of which the Plaintiff was received approximately US $5.7 million since its acquisition of the bonds from 2000 onwards.
Between 1989 and 2004, as a result of its inability to service debts, the Government of Guyana approached the Paris Club group of creditors on six occasions to discuss the terms of debt relief. Since then Guyana has benefited from a significant debt cancellation from the Paris Club group of creditors amounting to more than US $930 million. This represents a 90 percent reduction in the Net Present Value of eligible debt owed to Paris Club Creditors. The annual debt service has been reduced from around US $60 million to US $4 million.
The Attorney General said that a condition of relief from the Paris club creditors was that the Government of Guyana is required to seek comparable debt relief from all of its other creditors. He noted that Clause III, Paragraph 1 of the Paris Club Agreed Minute of January 14, 2004 states:
“Consequently, the Republic of Guyana commits not to accord any category of creditors – and in particular creditor countries not participating in the present Agreed Minute, commercial banks, suppliers and bondholders (in particular the former debt of GUYMINE) – a treatment more favourable than that accorded to the Participating Creditor Countries.”
Following upon the Agreed Minute, he said, Guyana has entered into bilateral agreements with each creditor, which implement the debt cancellations agreed upon in the Agreed Minute. These bilateral agreements require that Guyana seek to secure from creditors not participating in the Minute, reduction arrangements on terms comparable to those set forth in the minute.
In the agreement signed on the 24th day of June 2004 between Guyana and the United States of America, it is stated that:
“In particular, the United States may terminate all or part of this Agreement if the Participating Creditor Countries determine that Guyana has not met its obligations under the Minute, including those of comparable treatment. If the United States terminates all or part of this Agreement, all debts cancelled under this agreement shall be due and payable immediately.”
The Attorney General said that the government attempted to negotiate a mutually acceptable solution for repayment of the bonds with the plaintiff but this was not possible and the plaintiff had sued for the full amount of the bonds.
The government, he said, raised the following issues:
1. Whether an Order for immediate payment of the principal in this case would be contrary to public interest;
2. Whether public interest prevents strict compliance with the terms of a contract;
3. Whether as a result of serious public interest issues being raised by the Defendant, the court is compelled to balance the competing policy interests of enforcing a valid contract with the national and public interest of safeguarding the stability of the economy;
4. Whether the court has a discretion to create a formula of payment so that the country’s economy is not crippled; and
5. Whether payment of the face value of the bonds will result in the Plaintiff being unjustly enriched.
In response the plaintiff’s lawyers submitted that the bond is a legally binding obligation. Most bonds are contractual, they said, but in this case the origin of the bonds is the Guyana Mining Enterprise Limited (Restructuring and Transfer of Assets and Liabilities) Order 1992 No. 19 of 1992.
The Plaintiff’s lawyers noted that after negotiation between the Government and Guymine and the creditors broke down that order was passed and the bonds were issued.
Paragraph 6(5) of the order provided that a bond issued under Article 65 “.. shall mature twelve years and one day from the date of issuance but may be discharged by the Government in part or wholly at any time after the expiry of four years from the date of its issuance and prior to its maturity, if and to the extent to which it is not prepaid, and shall bear simple interest at the rate of five percent per annum, which interest shall be payable annually in arrears”.
The bonds in question were thus issued under legislative authority. Indeed, the lawyers noted, the initial holders had no choice, as their debts were transmuted by written law into twelve year Bonds by the exercise of statutory authority. And the legislation under which they were issued required full payment of the amounts secured by the bonds. The attempt by the Government to dishonour those bonds, on the other hand, had no statutory authority. It rested on an agreement between the Government and certain foreign creditors to which the plaintiffs were not a party, nor even consulted. Nor does the Government allege that it obtained Parliament’s approval much less a legislative mandate.
The plaintiffs’ lawyers submitted that the defence of public interest is not available and the plaintiffs cannot be affected by an agreement made by the government with third parties. They argued that the affidavit of defence did not disclose a triable issue and that judgment should be entered for the plaintiff.
The judge is expected to fix a date for decision in due course.
