Barnes Bay Development Ltd ((in Liquidation)) v Starwood Capital Group (Starwood Capital Group)

• Jurisdiction: Anguilla
• Neutral Citation: AI 2025 CA 1
• Year: 2025
• Court: Court of Appeal (Anguilla)

Barnes Bay Development Limited (In Liquidation)

and

Starwood Capital Group (Starwood Capital Group)

Ellis, J.A.; Henry, J.A.; Farara, J.A. (Ag.)

AXAHCVAP2022/0004

Court of Appeal

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 27th 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 13th 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 16th 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 17th 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 6th 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 22nd September 2011. By letter dated 5th 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 26th 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 13th 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 19th 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 suitability of procedures approved by the United States Bankruptcy Court for the sale of the Property by auction and that a claim premised on such unsuitability would likewise be an abuse of process (“abuse of process orders”).

Being dissatisfied with the decision, the appellant on 6th September 2022 applied for leave to appeal. By order dated 14th October 2022, leave to appeal was granted. The appellant filed this interlocutory appeal on 4th November 2022 advancing several grounds of appeal against the learned judge's strike out and abuse of process orders.

In relation to the abuse of process orders, the appellant's grounds of appeal are that the learned judge erred in a) finding that it was unarguable that it (the Company) had not given informed consent to or had otherwise submitted and engaged in the US Bankruptcy Proceedings in a proper manner so as to preclude it (by virtue of the concept of abuse of process) from contending subsequently that the impugned sale was invalid under Anguillan law; b) finding that the Company's decision to enter the US Proceedings could not be shown to be invalid or ineffective; c) failing to consider that Mr. Korzen was one of two directors and that there were not three directors; and therefore he erred — in concluding that the presence of two other directors could remedy any defect in the decision to initiate the US Proceedings; d) failing to conclude that it was arguable that Mr. Korzen and his fellow directors did not disclose to the Board or the US Court the benefits they and their affiliates had received and failed to recuse themselves from company decisions in which they were conflicted; e) in that he was mistaken in failing to adequately consider why SOF would offer a series of benefits to Mr. Korzen and the other directors if it did not expect anything in return and by failing to infer that there was...