Leeward Islands Resorts Ltd Appellant v Charles Hickox Respondent [ECSC]

• Jurisdiction: Anguilla
• Judge: JOSEPH-OLIVETTI, J.A. [AG.],EDWARDS, J.A.,Rita Joseph-Olivetti,Justice of Appeal [Ag.],Ola Mae Edwards,Justice of Appeal,Michael Gordon, QC
• Judgment Date: 22 March 2010
• Judgment citation (vLex): [2010] ECSC J0322-2
• Court: Court of Appeal (Anguilla)
• Date: 22 March 2010
• Docket Number: HCVAP 2008/003

[2010] ECSC J0322-2

IN THE COURT OF APPEAL

Before:

Hon. Mde. Ola Mae Edwards Justice of Appeal

Hon. Mr. Michael Gordon, QC Justice of Appeal [Ag.]

Hon. Mde. Rita Joseph-Olivetti Justice of Appeal [Ag.]

HCVAP 2008/003

Between:

Leeward Islands Resorts Limited

Appellant

and

Charles Hickox

Respondent

Appearances:

Mr. David Phillips, QC, Mr. David Fisher and Ms. Tara Ruan for the Appellant

Mr. Roald N.A. Henriques, QC, Mr. William Rodger and Ms. Tameka Davis for the Respondent

Civil Appeal — Commercial Law — res judicata by issue estoppel — whether clauses 3 and 5 of the Pledge Agreement operated as independent clauses or supplemented each other — whether the First and Second Transactions were authorized — whether the First and Second Transactions were ratified — whether the First and Second Transactions offended against the rule against self-dealing — whether Saunders J.'s decision on the pre-23 ^rd August, 1988 advances was binding — whether leave should have been granted to amend claim to plead restitution — rule 20.1 of the Civil Procedure Rules 2000 — whether court had discretion to grant restitutionary relief under section 19 of the Eastern Caribbean Supreme Court (Anguilla) Act c. E15 — whether party was entitled to compound interest — whether party was entitled to indemnity costs

The appellant, LIR, is a company incorporated in Anguilla. The respondent Mr. Hickox is a former director and shareholder of LIR. Mr. Hickox loaned monies to LIR sometime after 23 ^rd August 1988, ("the First Transaction") and in January, 1995 ("the Second Transaction") while he and Cap Juluca Partners (acting through Mr. Ricketts) were the directors and shareholders of LIR. In 1997, LIR's shares were sold to Mr. Friedland of the Friedland Group. In 1998, Mr. Hickox filed an action against LIR for monies due and owing to him in respect of the First and Second Transactions based on 2 Promissory Notes which formed part of the First and Second Transactions.

LIR challenged the validity of these Transactions on several alternative grounds, namely that: (1) the loan agreements and promissory notes constituting the First and Second Transactions varied substantially from the resolutions approving the loans; (2) CJP (a limited partnership formed by Mr. Hickox) was in breach of a Stock Purchase Agreement and Pledge Agreement previously concluded with the Friedland Group, and could not therefore have authorized or ratified the Transactions having lost its voting rights in accordance with clause 3 of the Pledge Agreement; (3) Mr. Hickox had made no formal disclosure of his interest in the loans to LIR and the Transactions offended against the rule against self-dealing in Articles 57 and 94 of LIR's Articles of Association.

Mr. Hickox countered that: (1) having regard to a Settlement Agreement which had been reached in 1996, Mr. Friedland was prevented from challenging the Hickox loans; (2) clause 3 had to be read in conjunction with Clause 5 of the Pledge Agreement with the effect that clear and unequivocal steps had to be taken to divest CJP of its voting rights; (3) the First and Second Transactions, which included a provision on compound interest, were authorized and ratified; and (4) Mr. Hickox was not in breach of the rule against self-dealing. Mr. Hickox also sought to amend his claim at the commencement of closing submissions to plead restitution as an alternative claim.

At the trial of preliminary issues Saunders J. (as he then was) in his judgment delivered on the 21st April 2001 made certain findings concerning some sums of money that Mr. Hickox alleged were advanced to LIR before 23 ^rd August 1988.

The learned judge at the trial of the substantive claim and counterclaim held, among other things, that the ruling by the mediator and the New York bankruptcy court that the Settlement Agreement did not prevent Mr. Friedland from challenging the Hickox loans was binding on Mr. Hickox; the pre-23 ^rd August advances were not recoverable and she was not precluded by the judgment of Saunders J. from determining that issue at trial; the First and Second Transactions varied substantially from the resolutions approving the loans; CJP had lost its voting rights in accordance with Clause 3 of the Pledge Agreement and could not therefore ratify the unauthorized Transactions in accordance with the Duomatic principle; and, in any event the Transactions were voidable at the option of LIR as Mr. Hickox had breached the rule against self-dealing.

The learned judge refused to allow Mr. Hickox to amend his claim to include restitution but nonetheless granted restitutionary relief under section 19 of the Eastern Caribbean Supreme Court (Anguilla) Act c. E15. LIR appealed against the learned judge's finding on restitution and Mr. Hickox cross-appealed on the remaining findings, as stated above. Mr. Hickox further claimed to be entitled to costs on an indemnity basis.

Held: allowing the appeal and cross-appeal, setting aside paragraphs 1, 3, 4 and 7 of the order, giving judgment for the respondent and directing that submissions on costs be filed:

Per Olivetti J.A. [Ag.]:

• 1. Mr. Hickox had, as a member of the CJP, adopted the Settlement Agreement. He also participated in the New York mediation and in the proceedings before the New York bankruptcy court. Applying the principles on res judicata by issue estoppel for foreign judgments enunciated in Carl Zeiss, Mr. Hickox was bound by the ruling of the mediator as confirmed by the New York bankruptcy court. This ground of appeal accordingly fails.

  Carl Zeiss Stiftung v Rayner and Keeler Ltd. (No. 2) [1967] 1 AC 853 , applied.

• 2. The court must seek to ascertain the parties' intentions having regard to the express words used in the context of the contract as a whole and to the factual matrix and accord a meaning which would make commercial sense to a reasonable commercial person.

  Dictum of Lord Steyn in Mannai Investments Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1997] 2 WLR 945 and dictum of Lord Hoffman in Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 WLR 896, applied.

• 3. Having regard to the factual matrix, to clause 3 of the Pledge Agreement and to the Pledge Agreement as a whole, the only commercially sensible construction is that clause 3 was not meant to operate automatically. Clause 3 is a declaration of CJP's rights to exercise the voting rights and rights to dividends, once it is not in default and clause 5 enables the innocent party (the Friedland Group) to assert and enforce its rights in the event of default by taking active, practical and unequivocal steps to divest CJP of the voting rights. On a reasonable construction, clauses 3 and 5 were not therefore meant to operate as independent clauses but were intended to supplement each other. The practical result of such construction is that there would be no mystery as to who is in control of LIR and no hiatus in LIR's affairs. The ruling of the learned judge on this issue is accordingly set aside.

• 4. With the exception of the compound interest provision which was authorized by reference to the words in clause 3 of the draft loan agreement, the First Transaction differed significantly from that which was approved at the meetings of the directors and shareholders on the 23 ^rd August, 1988. Neither Mr. Ricketts nor Mr. Hickox had authority to make these changes as resolution 2 cannot be construed as giving any officer of LIR authority to depart in such significant terms from the substance of the resolutions. The First Transaction, with the exception of the provision on compound interest, is accordingly voidable.

  Dictum of Cooper J. on compound interest in Consolidated Fertilizers Limited v Deputy Commissioner of Taxation [1992] FCA 224 (Federal Court of Australia), approved.

• 5. Having regard to the fact that Mr. Hickox and Mr. Ricketts both signed the First Transaction documents, they are deemed in law to know its contents. The fact that Mr. Hickox was unaware of the genesis of the First Transaction does not mean that he did not have the requisite knowledge of its provisions to consent to it. In all the circumstances, Mr. Ricketts and Mr. Hickox had knowledge of the changes and treated the First Loan Transaction as valid so that they can be deemed to have ratified the First Transaction.

  The Duomatic principle established in Re Duomatic Ltd. [1969] 2 Ch 365, applied.

• 6. The failure of the shareholders to raise any questions concerning the loans made by Mr. Hickox can be relied on to establish ratification in accordance with the doctrine of unanimous informal assent.

• 7. The shareholders were fully aware of the difficulties faced by LIR in constructing Cap Juluca resort; they authorized the directors to obtain loans from all of the members of CJP which included Mr. Hickox; they subsequently attended meetings at which the auditors' reports documenting the loans were tabled; they approved the reports and they were aware that construction was continuing. However, they asked no questions about the loans, neither did they object to them. These factors constitute exceptional circumstances from which it can be said categorically that the shareholders (always CJP acting through Mr. Ricketts and Mr. Hickox) had all requisite knowledge of the loans and their terms, and assented to them. The First Transaction though voidable initially for lack of authorization was thus ratified informally by the shareholders and is valid and binding on LIR.

• 8. The learned judge correctly found, based on all the evidence adduced, that the shareholders and director of LIR met and agreed to the terms of the Second Transaction at the meeting of 9 ^th January, 1995. This was sufficient for the court to conclude that there was informed consent for the purposes of applying the Duomatic principle in respect of the Second Transaction. Having regard to the interpretation of clause 3, the...