Before the $7.2 million BVI Airways project collapsed, former Premier Dr. Orlando Smith had no reason to think that the lawyer who brokered
the deal wasn’t acting in the best interest of the government, he said on Monday during a hearing before the Commission of Inquiry. However, the COI presented evidence that cast doubt on that account.
The failed venture again took centre stage at COI hearings on Friday and Monday.
This time around, Dr. Smith and his financial secretary at the time, Neil Smith, responded in separate hearings to a variety of “potential criticisms” about the deal and how government made it.
The criticisms were based on evidence the COI had heard previously, to which the witnesses also had prepared written responses prior to the hearings.
2015 agreement
Government signed an agreement with BVI Airways, Castleton Holdings and
Colchester Aviation in December 2015, but after receiving $7.2 million in taxpayer funds, the airline failed to launch a commercial air service between the Virgin Islands and Miami by its October 2016 deadline.
Government terminated the contract in November 2017 amid public acrimony. In January 2020, the Office of the Auditor General produced a
blistering report suggesting that government officials disregarded Cabinet directives and experts’ warnings and forged ahead with the partnership without carrying out the necessary due diligence.
That report subsequently formed the foundation of much of the COI’s line of questioning about the deal.
Criticisms
On Monday, the COI began by suggesting that in awarding the contract to BVI Airways, Dr. Smith’s government demonstrated a “complete bypassing” of the tender process and made no effort to get competing proposals. COI Counsel Bilal Rawat noted that Dr. Smith had said in his written response to that criticism that a formal tender process was unnecessary because the deal “was neither for purchase of goods, nor of services.”
Though no competitive submissions were sought, Dr. Smith’s response added, other solutions were considered but determined to be unfeasible.
Another potential criticism suggested that government may have overlooked the partners’ possible lack of qualifications to run an airline.
“You say to the best of the government’s knowledge, the parties were respected and successful businessmen, and one had significant aircraft experience,” Mr. Rawat.
Dr. Smith agreed.
Feasibility study
Another potential criticism centred around a 2014 feasibility study by the United States-based Sixel Consulting Group. The firm, which was jointly commissioned by BVI Airways and the government, found
that the BVI Airways project might be feasible. The COI, however, questioned why government hadn’t commissioned its own study
instead of a joint one with the partners. But the witnesses said the study had been done for a separate deal in 2014 and not the 2015 project that ultimately was pursued.
“If a reputable company was suggested, which it was, we saw no reason why we should not engage it,” Dr. Smith said in his testimony.
BDO study
Government later commissioned another study from BDO, Dr. Smith said, though he added that it was completed for the 2014 project as well.
Although Dr. Smith acknowledged that the BDO report was more pessimistic about the BVI Airways project than the Sixel study, he wrote
that government “did adopt aspects of the advice from the BDO report for purposes of the 2015 project, such as limiting the exposure of government for the new project,” according to Mr. Rawat.
AG’s advice
The COI further criticised the potential conflict of interest posed by engaging Lester Hyman, the former United States legal counsel to the VI
who helped broker the deal. Mr. Hyman — who Dr. Smith previously told the COI he had considered “a friend” — is now being sued by the VI
government for at least $11 million in damages related to the failed deal.
Mr. Rawat also questioned why government took Mr. Hyman’s advice over that of the then-attorney general, who had expressed concerns about the BVI Airways deal. This decision, the counsel suggested, was “inconsistent with the principles of good governance.”
Reservations
Mr. Smith told the COI that he was aware of the AG’s reservations about the deal. He added that he didn’t necessarily favour Mr. Hyman’s opinion over the AG’s, explaining that Mr. Hyman’s advice was only “one of the opinions that was considered.”
Dr. Smith said he initially had no reason to think that Mr. Hyman wasn’t acting in the best interest of the government.
However, the commission noted that during recent arbitration between BVI Airways and the government, the arbitrator stated based on pieces of 2014 correspondence that Dr. Smith “could only have thought that Mr. Hyman was with the airline, not the government, or at most a go-between,” Mr. Rawat quoted.
‘A hope’
The COI’s next potential criticism suggested that government failed to adopt or even “properly consider” the amendments made by the attorney general in draft agreements that would have more strongly protected government’s interest in the venture.
However, Dr. Smith claimed in his written response that his government was acting in “good faith and expected the operator parties to do the
same.”
Finally, the COI suggested the criticism that Dr. Smith, as minister of finance, authorised the $7.2 million in payments without any guarantee of performance by BVI Airways and before the airline was authorised to fly.
But both the former premier and former financial secretary maintained that their priority was to implement an effective direct airlift between
the VI and Miami.
Because the territory had failed to secure a letter of credit required by the BVI Airways deal, they said they thought the payments would help move the process along.
However, Commissioner Sir Gary Hickinbottom suggested that in the absence of any written agreement, that was merely “a hope.”
‘An expectation’
Dr. Smith responded that it was “an expectation based on the agreement that we had before that they would provide service once we made the first contribution.”