Barnes Bay Development Ltd ((in Liquidation)) v Starwood Capital Group (Starwood Capital Group Global LP) et Al

• Jurisdiction: Anguilla
• Judge: ‘Henry JA’
• Judgment Date: 09 April 2025
• Judgment citation (vLex): [2025] ECSC J0409-3
• Court: Court of Appeal (Anguilla)
• Year: 2025
• Docket Number: AXAHCVAP2022/0004

Between:

Barnes Bay Development Limited (In Liquidation)

Appellant

and

[1] Starwood Capital Group (Starwood Capital Group Global LP)

[2] SOF-VIII Hotel II Anguilla Holdings LLC

[3] Bradford Korzen

[4] KOR Duo Investment Partners LP

[5] KOR Duo II LLC

Respondents/Cross-Appellants

Before:

The Hon. Mde. Vicki-Ann Ellis Justice of Appeal

The Hon. Mde. Esco Henry Justice of Appeal

The Hon. Mr. Gerard St. C. Farara KC Justice of Appeal [Ag.]

AXAHCVAP2022/0004

THE EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

(CIVIL DIVISION)

Interlocutory appeal — Strike out of claim—Amendment — Abuse of court process — Sale of property by auction — Breach of fiduciary duty — Equitable lien over the Property — Rescission or avoidance of the sale of the Property — Whether the learned trial judge erred in law by finding that any claim based on a critique of the suitability of the sale procedures sanctioned by the U.S. proceedings was an abuse of process and whether in arriving at that conclusion he erred in principle — Whether the learned judge erred in the exercise of his judicial discretion by striking out the a) claims against the fourth and fifth respondents; b) equitable lien claims; and/or c) rescission or avoidance of sale claims — Whether the learned judge erred by finding that there are serious issues to be tried on the claims for breach of fiduciary duty, dishonest assistance and conspiracy to injury since he made other findings that according to the respondents are inconsistent with such a determination — Whether the learned judge erred in law by allowing the claims for breach of fiduciary duty, dishonest assistance and conspiracy to injure by unlawful means to proceed to trial, notwithstanding the respondents' contentions that: a) on the facts, there was no injury or damage to the appellant company caused by the Chapter 11 Bankruptcy proceedings; and/or b) no steps had been taken to amend the — claim during the protracted period of eleven years since the occurrence of the events giving rise to the claim

The subject matter of this interlocutory appeal is a property situated at Barnes Bay, West End, Anguilla comprising some thirty-six acres of land on which sits a luxury resort formerly known as The Viceroy Anguilla Resort and Residences, now styled Four Seasons Resort and Residences Anguilla (“the Property”). Prior to July 2011, the Property was owned by Barnes Bay Development Limited (“the Company”) a company incorporated in Anguilla. On 27 ^th July 2011 the Property was sold by public auction pursuant to an order of the United States Bankruptcy Court for the District of Delaware approving Procedures for the auction and sale of the Debtors' Assets (‘Bids Procedure Order’) at the instance of the second respondent SOF-VIII Hotel II Anguilla Holdings LLC (“SOF”), to whom the Company was indebted for a sum in excess of US$350,000,000.00. The debt exceeded the Company's assets. Having acquired the outstanding loans on 13 ^th October 2010, SOF held security for its debt over all of the Company's assets including a first charge over the real property at Meads Bay, Anguilla. At that time Mr. Bradford Korzen was one of the Company's directors and had personally guaranteed the loan to the extent of US$150,000,000.00.

Pursuant to a commitment agreement dated 16 ^th March 2011, SOF agreed to provide ‘debtor in possession’ financing to the Company in anticipation of Bankruptcy proceedings under the United States Bankruptcy Code. It also entailed indemnification provisions for Mr. Korzen, the fourth and the fifth respondents. The Company's directors at that time were Mr. Korzen, a Mr. Victor Duva and a Mr. Jeff Smith.

The Company initiated Chapter 11 Bankruptcy Proceedings in the United States Bankruptcy Court and had placed itself in bankruptcy there pursuant to an order dated 17 ^th March 2011. It was subsequently placed in liquidation by the High Court in Anguilla in 2012 after a compulsory winding up petition was filed on 6 ^th October 2011 by one of its creditors, Mr. Jonathan Simon. Messrs. John Greenwood and Hadley Clinton were appointed its liquidators without opposition.

Following a series of proceedings in the US Bankruptcy Court that were initiated by the Company under directorship of a Board of which Mr. Korzen was a member, the US Court made an order approving the sale of the Property by auction and expressly permitted credit bidding by SOF. — The Property was sold — to SOF who was the sole bidder at the auction. On motion by SOF for relief from the automatic stay to register its title, an order was made lifting the stay and for the title to the Property to be transferred to SOF. Title was registered in the Land Registry on 22 ^nd September 2011. By letter dated 5 ^th October 2012, SOF's lawyer wrote to liquidator Mr. Hadley Chilton and submitted its claim for its outstanding secured debt of US$240,000,000.00 and unsecured debt of US$13,000,000.00 in the liquidation and PSA Creditor debt of US$19,000,000.00.

On 26 ^th July 2017, Barnes Bay Development Limited (In Liquidation) (“Barnes Bay”) sued Starwood Capital Group (“Starwood” or “the first respondent”), SOF, Bradford Korzen (“the third respondent”), Kor Duo Investment Partners II LP (“KDIP” or “the fourth respondent”) and Kor Duo II LLC (“Kor Duo II” or “the fifth respondent”) (collectively “the respondents”) seeking:

• a) Rescission, alternatively avoidance of the sale of the Property by the appellant to the second respondent.

• b) Further or alternatively, an account of profits or damages.

• c) Alternatively, an equitable lien over the Property.

• d) Such further and other relief as the Court thinks fit.

The kernel of the appellant's case is that the first and second respondents entered into the — commitment agreement for the purpose of influencing the third respondent Mr. Bradford Korzen and through him the Company's Board of Directors to agree the debtor in possession proposal which was designed to give substantial control of the Company's affairs to the first and second respondents with the ultimate objective of achieving a swift progression to an auction and sale of the Property to the second respondent and/or agree that it be sold to the second respondent. The appellant claimed that in the process Mr. Korzen committed a breach of fiduciary duty to the Company which was induced by or knowingly and dishonestly assisted by the other respondents.

The appellant — contended that in relation to the auction, the Company's board did not cause the Company to make any effort to market the Property to other prospective bidders and did not retain an investment banker or broker to attempt to solicit higher bids or better offers. The appellant alleged that it was entitled to rescission or avoidance of the sale of the Property to SOF because Mr. Korzen, by entering into the complained of arrangements between himself, Starwood and SOF had put himself in a position in which his personal interests conflicted with his duty to the appellant and by doing so, he had breached his fiduciary duty to the appellant. Additionally, the appellant claimed that Starwood and SOF had disregarded the fact that Mr. Korzen's entry into the arrangements constituted a breach of his fiduciary duty to the appellant. In those circumstances, the appellant asserted that the sale of the Property was voidable, and it elected to rescind the sale by bringing this claim.

In relation to its claim for an account of profits, the appellant grounded it in allegations that the other respondents had, by entering into the impugned arrangements, intentionally induced or knowingly and dishonestly assisted Mr. Korzen in his alleged breach of fiduciary duty. In the case of Starwood and SOF, the charge was that they had conspired to injure the appellant by unlawful means, by virtue of Mr. Korzen's alleged breach of fiduciary duty; that in Starwood's case, this came about by Starwood causing or permitting SOF to enter into the arrangements with Mr. Korzen. The claim for damages relates to any loss suffered by the appellant arising from the transfer of the Property to SOF.

As a further alternative, the appellant claimed an equitable lien over the Property in respect of approximately US$65,000,000.00 being money that it asserted it had expended to acquire and develop the Property, having received same from investors by way of returnable deposits on residences to be built on the Property. The appellant alleged that it held those funds on trust for the investors and was therefore entitled to an equitable lien over the Property of at least that amount, in exercise of its purported entitlement to assert the investors' beneficial interest in those monies.

By notice of application filed on 13 ^th February 2019, the respondents applied for among other orders, an order striking out the name of Starwood Capital Group as a defendant; leave to amend the claim form and statement of claim to change the first respondent's name in them to “Starwood Group Global LP” instead of “Starwood Capital Group”; orders striking out or staying the claim against them and striking out the claim against the first respondent on the ground that no entity with that name existed. They also sought an order to set aside service of the claim form on the fourth and fifth respondents.

By a written decision delivered on 19 ^th August 2022, the learned judge made orders striking out the claim against the fourth and fifth respondents; striking out paragraph 19 of the statement of claim by which the appellant claimed an equitable lien over the Property in the sum of US$65,000,000.00 and paragraph 3 in which such a lien was claimed; striking out paragraph 14 of the statement of claim where the appellant sought rescission or alternatively avoidance of the sale (“the strike out orders”). The learned judge also granted a declaration that it would be an abuse of the court's process for the appellant to contest the...