Prickly Bay Waterside Ltd v British American Insurance Company Ltd (Under Judicial Management)

• Jurisdiction: Grenada
• Judge: Webster JA
• Judgment Date: 31 October 2018
• Neutral Citation: GD 2018 CA 6
• Court: Court of Appeal (Grenada)
• Docket Number: GDAHCVAP2015/0026
• Date: 31 October 2018

EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Before:

The Hon. Mr. Davidson Kelvin Baptiste Justice of Appeal

The Hon. Mde. Gertel Thom Justice of Appeal

The Hon. Mr. Paul Webster Justice of Appeal [Ag.]

GDAHCVAP2015/0026

Between:

Prickly Bay Waterside Limited

Appellant

and

British American Insurance Company Limited (Under Judicial Management)

Respondent

Appearances:

Mr. Stephen Auld, QC, with him Mr. Ian Sandy and Ms. Claudette Joseph for the Appellant

Mr. Sydney Bennett, QC, with him Mr. James Bristol for the Respondent

Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 applied; Twinsectra Ltd v Yardley and others [2002] 2 AC 164 applied; Bieber v Teathers Ltd (in liquidation) [2012] EWHC 190 (Ch) applied; Bellis and others v Challinor and others [2015] EWCA Civ 59 applied; Henry v Hammond [1913] 2 KB 515 applied; Cooper v PRG Powerhouse Ltd (in creditors' voluntary liquidation) and others [2008] EWHC 498 (Ch) distinguished.

Civil Appeal — Principles governing establishment of a Quistclose trust — Whether the learned judge erred by not finding that a Quistclose or other similar trust existed

The appellant, Prickly Bay Waterside Ltd., (“Prickly Bay”) is a land development company operating in Grenada. Mr. Richard Lee is a director and majority shareholder of the company. Mrs. Rosa Lee is his wife. The respondent, British American Insurance Company Limited (“British American”), is an insurance company based in Trinidad and Tobago which is now under judicial management. Mr. Derick Steele (“Mr. Steele”) owned developed property at L'Ance Aux Epines in St. George, Grenada. In 2004, Prickly Bay commenced a commercial real estate development at L'Ance Aux Epines on property adjacent to Mr. Steele's properties. Disputes arose between Mr. Steele and the principals of Prickly Bay regarding the form of the development which resulted in the filing of a claim by Mr. Steele in the High Court for, inter alia, an injunction to stop the development. The injunction was refused by the High Court and the Court of Appeal, but on an application for special leave to appeal to the Privy Council, the Board granted a temporary injunction pending the trial of the action which was then scheduled to take place in the High Court in May 2007.

Before the trial, the parties entered into settlement discussions that resulted in a consent order dated 18 ^th May 2007. The consent order provided, inter alia, that Mr. Steele would sell the property at L'Ance Aux Epines to Prickly Bay for $2.5 million. The terms of the agreement of sale included a provision for Prickly Bay to provide Mr. Steele with an irrevocable guarantee from British American guaranteeing payment of the balance of the purchase price plus interest totaling $2,475,000 (“the fund”). The trigger for payment by British American was the failure of Prickly Bay to pay the balance of the purchase money at completion followed by a demand for payment by Mr. Steele. Mr. Steele agreed to accept a guarantee from British American. In order to cause British American to issue the guarantee, Mrs. Lee agreed to deposit the amount of the fund with the company. The guarantee was duly executed by British American and Mr. Steele. An annuity was also agreed between Mrs. Lee and British American. The annuity took the form of the payment of a premium in the amount of the balance of the purchase price to British American, who agreed to pay interest on the premium monthly for the two-year term of the policy and to repay the premium on maturity.

British American was concerned about repaying the fund twice, that is, to Mrs. Lee or Prickly Bay and then be called upon by Mr. Steele to pay him under the guarantee. To address its concern, British American prepared a conditional assignment of the annuity from Mrs. Lee to Mr. Steele. The assignment would only become effective on 19 ^th May 2009 if Mr. Steele did not receive the balance of the purchase price. The document was signed by Mrs. Lee in August 2007. All the documents, except the assignment, were signed by the parties as of 18 ^th May 2007 and if everything had gone to plan, completion would have taken place in May 2009. However, during this period, British American went into judicial management and the judicial manager took the position that British American could not pay out on the guarantee because the premium paid by Mrs. Lee was a part of British American's general assets available to its creditors in the judicial management and could not be paid out to one creditor, Mr. Steele.

Prickly Bay disagreed asserting that it was agreed by all the parties that Mrs. Lee would deposit $2,475,000 with British American for the sole purpose of paying the same to Mr. Steele upon completion of the sale on 18 ^th May 2009. Therefore, the fund was held on a Quistclose trust for the agreed purpose of paying Mr. Steele on completion, and it did not become a part of the general assets of British American.

Dissatisfied with the judicial manager's position, Mr. Steele filed an application in the court below seeking injunctive relief and the appointment of a receiver of the income and capital of Prickly Bay, and sequestration and contempt orders against the directors of Prickly Bay in respect of their non-compliance with the terms of the consent order. Prickly Bay responded by applying for orders that it had complied with the terms of the consent order by securing the guarantee from British American and that Mr. Steele should transfer title to the property to Prickly Bay. Before the judgment was delivered, Prickly Bay applied for an order to join British American as a defendant so that the issue of whether the fund was subject to a Quistclose trust could be properly ventilated. Based on the evidence and the written submissions of the parties, the learned judge found that Prickly Bay had not complied with the consent order in that it had failed to pay the balance of the purchase price and complete the purchase of the property. She dismissed Prickly Bay's application and granted Mr. Steele's application to the extent of ordering an injunction restraining Prickly Bay from dealing with its properties and appointed a receiver of the income and capital of Prickly Bay to obtain payment of the balance of the purchase price. The judge also ordered that upon payment of the balance of the purchase price, Mr. Steele should comply with the agreement by transferring the property to Prickly Bay. Critically, the judge also found that the fund was not impressed with a Quistclose trust.

Prickly Bay, dissatisfied with the judge's finding that the fund was not subject to a Quistclose trust, appealed to this Court. Prickly Bay argued that the judge was wrong to find that the guarantee and the surrounding circumstances demonstrated that there was no mutual understanding, express or implied, that the fund could not be used by British American during the two-year period, that the fund did not form part of its assets, and that in the absence of such intention a Quistclose trust had not been established.

Held:

dismissing the appeal; awarding costs to the respondent at the rate of two-thirds of the costs awarded in the lower court, that:

An objective assessment of the evidence in this case does not disclose an intention to create a trust. The parties were involved in a commercial transaction where Mr. Steele wanted a secure method of paying the balance of the purchase price for his property and British American was prepared to provide that service in the form of an irrevocable guarantee supported by an annuity policy. There was no objective evidence that the parties did not intend that British American would be able to intermingle the fund with its general assets and be free to dispose of the fund in the normal course of its business. As such, Prickly Bay had failed to establish that the fund was impressed with a Quistclose or similar trust and the learned judge did not err in so finding.

1 Webster JA [AG.]: This is an appeal against the decision of the learned trial judge contained in her written judgment dated 26 ^th August 2015 by which she found that the sum of $4,750,000.00 paid by Mrs. Rosa Lee to the respondent, British American Insurance Co. Ltd. (“British American”), on 18 ^th May 2007 which formed part of the general assets of British American, was not held by the company on a Quistclose trust.

Background

2 The appellant, Prickly Bay Waterside Ltd., (“Prickly Bay”) is a land development company operating in Grenada. Mr. Richard Lee is a director and majority shareholder of the company. His wife, Mrs. Rosa Lee, is a self-employed architect.

3 The claimant in the proceedings in the court below and a former respondent in this appeal is Mr. Derick Steele (“Mr. Steele”). He owned developed property at L'Ance Aux Epines in St. George, Grenada which is indirectly the subject of this appeal and which I will refer to it in this judgment as “the property”.

4 British American Insurance Company Limited (“British American”) is an insurance company based in Trinidad and Tobago that offered its insurance products throughout the Caribbean. It is now under judicial management.

5 In 2004, Prickly Bay commenced a commercial real estate development at L'Ance Aux Epines, on property adjacent to Mr. Steele's properties. Disputes arose between Mr. Steele and the principals of Prickly Bay regarding the form of the development. The dispute escalated resulting in the filing of a claim by Mr. Steele in the High Court 1 for, inter alia, an injunction to stop the development. The injunction was refused by the High Court and the Court of Appeal, but on an application for special leave to appeal to the Privy Council, the Board granted a temporary injunction pending the trial of the action which was then scheduled to take place in the High Court in May 2007.

6 Prior to the scheduled commencement of the trial, the parties entered...