Clacken (Lynne) and Another v Causwell (Michael) and Another

• Jurisdiction: Jamaica
• Judge: SMITH, J.A.: , HARRIS, J.A. , DUKHARAN, J.A. , HARRISON J.A. , HARRISON, J.A.
• Judgment Date: 27 November 2009
• Neutral Citation: JM 2009 CA 92
• Judgment citation (vLex): [2009] 10 JJC 0203
• Court: Court of Appeal (Jamaica)
• Date: 27 November 2009

IN THE COURT OF APPEAL

BEFORE:

THE HON. MR. JUSTICE SMITH, J.A THE HON. MRS. JUSTICE HARRIS, J.A THE HON. MR. JUSTICE DUKHARAN, J.A

BETWEEN:

LYNNE CLACKEN

1 ^ST APPELLANT

DWIGHT CLACKEN

2 ^ND APPELLANT

AND

MICHAEL CAUSWELL

1 ^ST RESPONDENT

AND

RICHARD CAUSWELL

2 ^ND RESPONDENT

Mr. B. St. Michael Hylton, Q.C., Miss Anna Gracie and Miss Kalaicia Clarke instructed by Rattray Patterson Rattray for the Appellants.

Mr. W. John Vassell, Q.C., Mrs. Julianne Mais-Cox and Miss Cindy Lightbourne instructed by Dunn Cox for the Respondents.

COMPANY LAW - Winding up - Petition to wind up company - Consent Order - Variation of Order

SMITH, J.A.:

1 This is an appeal from a judgment of Sykes, J dated 16 ^th October, 2008 in which he refused certain declarations sought by the appellants.

2 The appellants, Dwight and Lynne Clacken are the minority shareholders in Equipment Maintenance Limited (the company) and the respondents, Michael and Richard Causwell are the majority shareholders.

3 In 2001 the appellants filed a petition to wind up the company. In May 2002, a consent order bearing the approval of Anderson, J was entered into between the appellants and the respondents. The consent order provided that the respondents would purchase the appellant's shares in the company and that the said shares would be valued for that purpose.

4 At the date of the consent order the company owned various properties including a wholly owned subsidiary, Rodeo Holdings Limited, which also owned property. Prior to the consent order, one of the company's properties, 25 Balmoral Avenue, was leased with an option to purchase. The lessee exercised the option subsequent to the consent order.

5 Clause 7 of the consent order provides that:

"Pending the completion of the said valuation and purchase of shares and/or winding up of the Company as the case may be the respondents, Michael and Richard Causwell are hereby restrained whether by themselves, their servants and/or agents or otherwise, howsoever from removing, dissipating and/or otherwise disposing of the assets of the Company except in the ordinary course of business and from excluding the Petitioners from Directors and/or Shareholders meetings."

6 A dispute arose between the parties as to the interpretation of clause 7 of the consent order.

7 On 15th April, 2008 the appellants filed an amended Notice of Motion in the Supreme Court seeking:

• "1. A Declaration as to the meaning of the words "in the ordinary course of business" as appear in paragraph 7 of the Consent Order of the Hon. Mr. Justice Anderson dated 29 ^th May, 2002;

• 2. A Declaration as to whether the property located at 25 Balmoral Avenue, Kingston 10, in the parish of St. Andrew (hereinafter referred to as "the said property") and/or the monies received in respect of the sale of the said property falls (sic) within the judicial interpretation of "in the ordinary course of business";

• 3. A Declaration that the restraining order set out in paragraph 7 of the said Order applies to:

  • (a) The net proceeds of the sale of the said property;

    (b) The other real estate owned by Equipment Maintenance Limited and its subsidiaries as at May 29, 2002 and to the net proceeds of the sale of any of those properties;

• 4. An order that the net proceeds of the sale of any of the properties referred to in paragraph 3 above be paid into an interest bearing escrow account in the joint names of the Attorneys for the applicants Dwight and Lyn Clacken and the Respondents, Michael and Richard Causewell, on or before the 2 ^nd May, 2008;

• 5. Costs of this application to the Petitioners/Applicants to be agreed or taxed; and

• 6. Such further or other relief as this Honourable Court may deem fit."

8 The Motion was heard by Sykes, J who on October 1 6, 2008 made the following order:

• "1. The words "in the ordinary course of business" as appear in paragraph 7 of the Consent Order of Anderson, J dated May 29, 2002 mean business done in the usual flow of operations of the company.

• 2. The property located at 25 Balmoral Avenue, Kingston 10, in the parish of St. Andrew ("the said property") was sold by Equipment Maintenance Limited in the ordinary course of business and the company was free to use the monies received in respect of the sale of the said property as it saw fit in its ordinary course of business.

• 3. The restraining order set out in paragraph 7 of the said order does not apply to:

  • (a) The net proceeds of the sale of the said property;

    (b) The other real estate owned by Equipment Maintenance Limited or by its subsidiaries, or to the net proceeds of the sale of any of those properties.

• 4. The order sought in paragraph 4 of the application is refused.

• 5. Costs to the Respondents to be taxed if not agreed, with certificate for two counsel.

• 6. Leave to appeal granted."

The Appeal

9 Some six (6) grounds of appeal were filed. However, the primary issue before the court below concerned the interpretation of the words "ordinary course of business" in the context of clause 7 of the consent order. Before this Court, the learned trial judge's interpretation thereof was challenged mainly on the following three (3) interconnected grounds:

The Submissions in Outline

The Appellant's Case

• 1. The learned judge failed to consider the full "matrix of fact" available to the parties at the time of the consent order, or to give any or any sufficient weight to the fact that:

  • (i) the consent order provided that the company would be wound up if the sale of the shares did not take place as agreed;

    (ii) the parties envisaged that the valuation and sale of shares would have been carried out in 90 and 360 days respectively;

• 2. The learned judge erred in that he treated the term "ordinary course of business" as being determined by the powers of the company as set out in its memorandum of association and failed to have any or any sufficient regard to the fact that "ordinary course of business" is different from "course of business".

• 3. The learned judge erred in concluding that the interpretation contended for by the appellants would amount to a "sterilization" of the company's assets.

10 Mr. Hylton, Q.C. for the appellant submitted that the approach of the learned trial judge was incorrect. The authorities, he contended, indicate that the term "ordinary course of business" has the same meaning in law that it would have to a layman. In support of this contention he referred to Ashborder BV and Others v Green Gas Power Ltd. and Others (2004) EWHC 1517. He argued that when given such a meaning, the term "ordinary course of business" in the context of the consent order and the "matrix of fact" available to the parties at the relevant time would not involve the buying and selling of real estate owned by the company. Accordingly, he submitted, the injunction (clause 7) would apply to real estate owned by the company and therefore the respondents would be restrained from disposing of the company's real estate.

11 It is also the contention of Mr. Hylton that the injunction applies to the proceeds of sale of any of the company's properties sold since the date of the consent order. Mr. Hylton submitted that it would defeat the purpose of the injunction and the protection which must have been intended for the minority shareholders, if the respondents and the company could use the proceeds of sale, as they see fit, in the interest of the company. In this regard, he relied on dicta of Lord Millett in Richard Dale Agnew and Another v The Commissioner of Inland Revenue and Another P.C. Appeal No. 35 of 2000 delivered June 5, 2001, (2001) 2 AC 710.

12 Further, Mr. Hylton contended that the injunction applies to real estate owned by the company's wholly owned subsidiary Rodeo Holdings Limited. Learned Queen's Counsel for the appellant submitted that although the assets of its wholly owned subsidiary were technically not the company's assets, given the terms of the agreement and the purpose of the injunction, the parties must have intended the injunction to also apply to real estate owned by its wholly owned subsidiary. He referred to paragraph 9 of the consent order which, he said, specifically referred to Rodeo Holdings Limited and its properties and treated them in the same way that it treated the properties owned by the company.

13 Finally, Mr. Hylton submitted that whether or not the Court accepts his submissions (which I have summarized at paragraph 12), the receipt by the Company or the respondents of the proceeds of any sale by Rodeo Holdings Limited, whether by way of dividends or otherwise, would not represent funds received in the ordinary course of the company's business. Accordingly, the injunction would apply to such assets.

Submissions on behalf of the Respondents

14 Mr. Vassell, Q.C., for the respondents, submitted that the learned trial judge's decision was correct for the reasons given by the learned judge.

15 The purpose of clause 7, he submitted, was to ensure that the respondents did not, as directors of the company, procure the wanton or disadvantageous disposition or disposal of the assets of the company until the shares were valued and purchased. He agreed that the dissipation or removal of the assets would undermine the position of shareholders on winding up but added that the position on winding up is not necessarily undermined by disposition of real estate in the commercial interest of the company. The purpose of the clause, he said, "was not to sterilise the company's assets, which would threaten its continuity as a going concern, and involve a serious dereliction of fiduciary duty by the respondents and even the petitioner who remained a director of the company".

16 As regards the subsidiaries, Mr. Vasseli submitted that clause 7 of the order does not apply...