Hickox v Leeward Isles Resort Ltd

• Jurisdiction: Anguilla
• Court: High Court (Saint Christopher, Nevis And Anguilla)
• Judge: Saunders, J.
• Judgment Date: 27 April 2001
• Neutral Citation: AI 2001 HC 5
• Docket Number: 97 of 2998
• Date: 27 April 2001

High Court

Saunders, J.

97 of 2998

Hickox

and

Leeward Isles Resort Limited

Appearances:

Mr. C. Abel, Mr. S. Westmaas and Mr. P. Patterson for the plaintiff.

Mr. C. Henriques Q.C. with Ms. P. Webster for the defendant.

Partnership - Plaintiff one of the partners in a scheme for constructing a resort in Anguilla advanced sums totaling US $4 million to company — Preliminary inquiry — Determination by judge that case should go on for trial.

Saunders, J.

1 The island of Anguilla boasts several luxurious resorts and hotels. Cap Juluca (hereinafter referred to as “the resort”) is one of the finest. The resort sits on 179 acres of prime real estate located at Maunday's Bay. The site includes inland lagoons and two and a half acres of exquisite beach frontage. Cap Juluca's tranquil setting and superb amenities have masked the continuing legal battles fought, both in Anguilla and in the United States, among owners, investors and financiers. These proceedings represent another round in the disputes. It is by no means the final round. In fact, it is merely a preliminary round, albeit a round in which one side or the other can be dealt a severe blow.

2 A summary of the factual background would help to place the proceedings in their proper perspective. Most of what I now outline reflects common ground between the parties. To the extent that there is a departure from any agreed facts, then what is expressed here must be taken as positive findings of fact made by me.

3 Mr. Charles Hickox, the plaintiff, is a Financial Adviser from the United States. He visited Anguilla in 1983 where he met Mr. Robin Ricketts. The latter was then the Manager of the Mallihouana Hotel in Anguilla. Mr. Ricketts showed Mr. Hickox some beachfront lands at Maunday's Bay and tried to interest him in a project for the development of those lands. The site was a magnificent one. Mr. Hickox was interested. He was prepared to invest up to US$1 million if the conditions were right. Other investors were to be approached as well.

4 Mr. Ricketts came up with an investment plan but when Mr. Hickox saw that proposal he did not like it. He declined its terms. Several months later Mr. Ricketts returned to Mr. Hickox who then volunteered to draw up a term sheet setting out the relationship between potential investors and defining what the investors would be getting for their money.

5 Leeward Isles Resort Limited, the defendant, (hereafter referred to as “LIR”) is a company incorporated in Anguilla. LIR was at all material times, and currently still is, the leaseholder of the beachfront lands at Maunday's Bay that so impressed Mr. Hickox. At the time when Mr. Hickox became interested in those lands, the shares in LIR were substantially owned by a group of businessmen led by Mr. Dion Friedland. I shall call this group “the Friedland Group”. The conditions of the lease, held by LIR from the Anguilla Government, required LIR to develop the lands and to construct, in phases, extensive tourism related facilities thereon. The proposals of Mr. Ricketts and of Mr. Hickox therefore hinged on some relationship with LIR and the Friedland Group.

6 To this end, Mr. Hickox entered into an option agreement with the Friedland Group to acquire all the shares in LIR for the price of US$2.4 million. This specific option was never actually exercised by Mr. Hickox. It expired. Meanwhile Mr. Hickox and Mr. Ricketts tried to persuade other investors to join with them in developing the lands and realizing the project.

7 Eventually, four sets of investors, including Mr. Hickox, agreed to participate in the project proposal being advanced by Mr. Hickox and Mr. Ricketts. They agreed to form a limited Partnership, Cap Juluca Partners 1 (hereafter called “the Partnership”) under New York law. The Partnership's purpose was to take control of LIR, or of the lands leased by LIR, upon terms resembling those contained in the expired option agreement that had previously been entered into by Mr. Hickox with the Friedland Group. The Partnership was divided into eleven units. In an effort to attract investors to the project, Mr. Hickox's term sheet progressed to an Offering Memorandum referred to by the parties as a Private Placement Memorandum.

8 The Private Placement Memorandum (“PPM”) is dated 22nd December, 1986. In extensive detail it outlined, among other matters, the nature of the project, its proposed financial and accounting structure, the anticipated flow of funds, the possible tax implications and the accompanying risk factors.

9 On the 14th October, 1986, pursuant to a Stock Purchase Agreement, the Partnership purchased all the shares of LIR save one. That latter share was transferred to Mr. Hickox personally in order to comply with Anguilla law that required at least two shareholders in a local company. In consideration for relinquishing its shares in LIR, the Friedland Group was granted two of the eleven units in the Partnership. In further consideration of the sale of the shares, the Partnership also agreed to make to the Friedland Group, in installments, cash payments totaling US$1.4 million. A payment of US$500,000 was due on 14th October, 1988, a further payment of alike amount became due on 14th October, 1989 and the balance of US$400,000 with interest fell due on 14th October, 1990.

10 On the said 14th October, 1986, the members of the Friedland Group resigned as Directors of LIR and were replaced by Mr. Ricketts, as Managing Director, and Mr. Hickox. Mr. Ricketts also held the positions of General Partner of the Partnership and Managing Director of Maunday's Bay Management Company (“MBM”), a company specifically formed by the Partnership to manage the resort.

11 As security for the outstanding payments due to the Friedland Group, the Partnership and the Friedland Group entered into a further agreement (the “Pledge Agreement”) under which all the shares in LIR were pledged to a mutually agreed Pledge Agent. If the Partnership defaulted on any of the instalments due to the Friedland Group, the shares could come under the direct control of the Friedland Group and could thereafter be sold in order to pay off the outstanding indebtedness.

12 Having obtained control of LIR, the Partnership needed an infusion of funds in order to fulfill LIR's obligations under the lease from the Anguilla Government and realize its goal of constructing a world class resort. Despite the efforts of Mr. Ricketts and Mr. Hickox, it proved impossible to obtain bank financing for this purpose. The only funds the Partnership had to fall back on were the amounts respectively paid for the units that were sold to the limited partners.

13 Of the eleven units comprising the Partnership, eight were initially taken. Two went to the Friedland Group as I have indicated. The other six were sold, one each to Mr. Robert Sillerman, Mr. & Mrs. Robert Bean and Mr. Ronald Leeds, and three units to Mr. Hickox. Leaving aside the units taken by the Friedland Group, each unit represented a capital contribution of US$626,364.00. The partners did not actually pay cash for their respective units. Instead, each partner, as to his proportionate share, pledged his personal credit with a New York financial institution, the United States Trust Company (USTC), which in turn loaned to the Partnership the amount owed by that partner for his unit. The sum realized in this fashion fetched approximately US$3.5 million.

14 The sum of US$3.5 million could not construct a resort of the size and scale called for either by the lease or in the PPM. The remaining three Partnership units were accordingly offered for sale to the existing partners. A total of approximately US$5.1 million was realized from the sale of partnership units. But that sum too was insufficient to finance the total construction costs.

15 The partners decided, in the words of Mr. Hickox, to bootstrap. Ground breaking commenced on the site on 15th December 1986 but construction did not progress as anticipated. Work proceeded slower than was expected. By August, 1988, all the investors had to show for their US$5.1 million investment was 3 five-bedroom villas, a 40 seat restaurant, a tennis court, a sewage treatment plant, a 100 KVA generator and two rooms that had been patched together. They were appalled.

16 Urgent measures became necessary if the project were to be saved. The Partnership had already commenced the process of negotiating a loan from Barclays Bank in Anguilla but it would be some time before this loan arrangement could be finalised. In the mean time, Mr. Hickox had been using some of his own money on the project from time to time. Meetings were held in New York on August 23rd 1988. The bona fides of the Minutes representing some of these meetings were questioned by the defendant's counsel. The latter submit that the alleged LIR meetings either did not take place or did not decide as Mr. Hickox and the Minutes claim that they did. Mr. Hickox was vigorously cross-examined to this end. According to the purported Minutes the LIR directors and shareholders decided in August 1988 to authorise LIR to obtain from one or more of the partners a loan in the aggregate principal sum of $4,000,000 in order to finance construction at the resort. Each partner was to be responsible for taking up his pro rata share of this US$4 million loan package.

17 Mr. Hickox says that eventually it was decided by the members of LIR and or by the partners that he, the biggest investor, should be the first to take up his pro rata share. As it turned out, Mr. Hickox claims that he ended up picking up the entire US$4 million package. The other partners declined to take up their respective shares, Mr. Hickox also volunteered to personally oversee the construction of the resort.

18 Construction work proceeded at a more brisk pace after the August, 1988 meeting with the infusion of fresh funds...