Barnes Bay Development Ltd ((in Liquidation)) v Starwood Capital Group
| Jurisdiction | Anguilla |
| Judge | Innocent, J. |
| Judgment Date | 20 July 2020 |
| Judgment citation (vLex) | [2020] ECSC J0720-3 |
| Court | High Court (Saint Christopher, Nevis And Anguilla) |
| Docket Number | CLAIM NO. AXAHCV 2017/0055 |
| Date | 20 July 2020 |
THE EASTERN CARIBBEAN SUPREME COURT
IN THE HIGH COURT OF JUSTICE
CLAIM NO. AXAHCV 2017/0055
Mr. William Hare instructed by Alex Richardson & Associates of Counsel for the Applicant
Mrs. Tana'ania Small-Davis with her Mr. D. Michael Bourne instructed by Sagis LP of Counsel for the Defendants/Applicants
Innocent, J. (Ag.): The claimant, Barnes Bay Development Limited (in liquidation) (‘Barnes Bay’), claims against the defendants, Starwood Capital Group (‘Starwood’), SOF-VIII-Hotel II Anguilla Holdings LLC (‘SOF’), Mr. Bradford Korzen (‘Mr. Korzen’), KOR DUO Investment Partners II LP (‘KOR DUO’) and KOR DUO II LLC (‘KOR DUO II’), referred to herein jointly as the ‘Defendants’, rescission and or avoidance of the sale of the property known as Four Seasons Resort & Residences Anguilla (the ‘Property’) previously known as The Viceroy Anguilla Resort & Residences (‘Viceroy’) by Starwood to SOF; in the alternative, damages or loss of profit; an equitable lien over the Property; interest and costs.
Barnes Bay is a company incorporated in Anguilla and was placed in liquidation by the High Court of Anguilla in 2012. Until on or about 27 th July 2011 Barnes Bay was the proprietor of the Property. Barnes Bay alleges that Starwood is the ultimate parent of SOF. On or about 27 th July 2011 the Property was sold to SOF at auction. Mr. Korzen was a director of Barnes Bay. KOR DUO and KOR DUO II, according to Barnes Bay, are companies associated with or controlled by Mr. Korzen.
By virtue of a loan and security agreement with Citigroup Global Markets Realty Corp, (‘Citigroup’), made on or about 13 th June 2006 (the ‘Original Loan Agreement’), subsequently amended and restated several times, including 30 th July 2008 and 17 th July 2009, was secured against the Property and other assets belonging to Barnes Bay.
On or about 13 th October 2010 Barnes Bay's outstanding obligation under the Original Loan Agreement, as restated and amended, were acquired by SOF. On or about 16 th March 2011 Barnes Bay entered into a commitment agreement (the Commitment Agreement') with SOF wherein SOF agreed to provide “debtor in possession” financing for the purpose of anticipated Bankruptcy proceedings under the United States Bankruptcy Code.
The negotiations respecting the Commitment Agreement, it is alleged, were conducted on behalf of SOF by Starwood and more particularly the Chief Executive Officer (‘CEO’) of Starwood Barry Sternlicth.
Barnes Bay alleges that Starwood and SOF, without its knowledge, the same not having been disclosed to it and to which Barnes Bay did not give its consent, entered into an arrangement wherein Starwood and SOF agreed to indemnify Mr. Korzen against what they described as a broad set of claims and causes of action, including proceedings by purchasers of units in the Property who had given deposits and other purchasers who had obtained judgments in relation to their deposits; agreed to provide similar indemnities to KOR DUO and KOR DUO II; agreed to procure Mr. Korzen's release from a US$150 million guarantee that he had given in relation to Barnes Bay's indebtedness to SOF; and agreed to what Barnes Bay describes as a lucrative compensation package to Mr. Korzen to continue managing the Property with a view to it being sold at auction.
Barnes Bay, in the present claim, alleges that these agreements were entered into by Starwood and/or SOF in order to induce Mr. Korzen and by extension the Board of Barnes Bay, to agree to and enter into the debtor in possession proposal, which proposal would inevitably give substantial control of Barnes Bay's affairs to Starwood and SOF and which was designed to achieve a swift progression to an auction of the Property to SOF and/or to agree to the sale of the Property to SOF.
Barnes Bay contends that its Board did not cause or encourage Barnes Bay to make any effort to market the Property to any other prospective bidders and failed to take any steps to secure a higher or better offer. The Property was sold at auction on 27 th July 2011 to SOF. SOF was the only bidder at the auction.
On the foregoing premises, Barnes Bay claims that Mr. Korzen's entry into the agreements with Starwood and SOF served as an inducement to procure Mr. Korzen's breach of his fiduciary duty to Barnes Bay, to the extent that he placed himself in a position where his duties to Barnes Bay and his personal interest in the sale of the Property conflicted and/or permitted him to obtain an undisclosed commission.
In the circumstances, Barnes Bay claims that it is entitled to rescission of the sale of the Property on the grounds that the sale is voidable on account of Mr. Korzen's entry into the agreement with Starwood and SOF placed him in a position where his interest conflicted with that of Barnes Bay, whereby he was in breach of his fiduciary duty to Barnes Bay, a conflict which Starwood and SOF chose to ignore while being cognizant of Mr. Korzen's duties owed to Barnes Bay.
Therefore, Barnes Bay claims, in addition to rescission of the sale, which it describes as a voidable sale, entitlement to an account of profits made by the defendants and each of them, as a result of Mr. Korzen's breach of his fiduciary duty to Barnes Bay and SOF's acquisition of the Property. In the alternative, Barnes Bay claims damages in the amount of any loss suffered as a result of the sale of the Property to SOF brought about by the inducements contained in the agreement between Mr. Korzen, Starwood and SOF.
Barnes Bay also claims that money used by Barnes Bay to acquire and develop the Property which amounted to approximately US$65 million was the proceeds held in trust for investors who had provided returnable deposits on residences to be built on the Property. Therefore, Barnes Bay claims that the investors held an equitable interest in the Property to the tune of their investment and that SOF acquired the Property subject to the investors' equitable interest. Barnes Bay contends that this is the case because SOF stood in a position otherwise than a bona fide purchaser and in light of the inference that SOF had notice of the investors' equitable interest in the Property.
Therefore, Barnes Bay claims that it stood in the position of trustee for the investors' deposits and is by virtue of this entitled to an equitable lien over the Property.
Barnes Bay claims interest on all sums that may be found owing to it in its own right or as trustee for the investors at common law or in equity.
The defendants dispute the court's jurisdiction to entertain the claim pursuant to Rules 7.7, 9.7 and 9.7A of the Eastern Caribbean Supreme Court Civil Procedure Rules (the ‘CPR’) and the court's inherent jurisdiction to protect its process from abuse.
By Notice of Application the defendants seek a declaration that the court has no jurisdiction to hear the claim or alternatively: that the court declines to exercise jurisdiction in the matter on the principle of forum non conveniens; that the court set aside service of the claim form and statement of claim on the defendants; ultimately that the claim be struck out as an abuse of process; that Starwood be struck out as a party to the proceedings; and alternatively, that the proceedings be stayed.
The defendants challenged the court's jurisdiction on the following grounds. Firstly, the defendants contend that the court has no jurisdiction to hear the claim since Barnes Bay had invoked the jurisdiction of the United States Bankruptcy Court for the District of Delaware and participated in Chapter 11 bankruptcy proceedings in that forum.
Secondly, that even if the domestic court were to find that it had such jurisdiction, it ought to decline to exercise such jurisdiction and defer the matter to the United States Bankruptcy Court.
Thirdly, the defendants further contend that the assumption of the debtor in possession financing and the sale of Barnes Bay's assets including the Property were made in the course of the bankruptcy proceedings. Therefore, the orders of the United States Bankruptcy Court were final.
Fourthly, the defendants also mount their challenge to the claim on the basis of what appears to be an abuse of process argument. The defendants contend that the claim is an “impermissible collateral attack” on the final orders of the United States Bankruptcy Court by the very same litigants and is therefore barred by the doctrine of res judicata.
Finally, the defendants contend that the present claim discloses no reasonable cause of action.
Prior to hearing of the application mentioned above, the court was alerted to a subsequent application filed by the defendants. This was an application by the defendants to strike out certain parts of the first affidavit of Mr. John Greenwood (‘Mr. Greenwood’) filed on 29 th April 2019 (‘Greenwood I’) in answer to the substantive application, pursuant to CPR 30.1, 30.3 and CPR 26.1.
The application was premised on the following grounds. Firstly, that Greenwood I, filed in opposition to the defendant's application to strike out the Barnes Bay's statement of claim and disputing the court's jurisdiction to hear the same, is in breach of CPR 30.3 to the extent that it contained statements of fact that were not within Mr. Greenwood's personal knowledge and contained matters of information and belief and did not identify the sources of such information and belief.
According to the defendants, many of the asserted facts contained in Greenwood I, and central to the issues arising in the claim, and purporting...
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