Earle Lewis and Another v Valley Slurry Seal Company and Others

• Jurisdiction: Jamaica
• Court: Supreme Court (Jamaica)
• Judge: Mangatal J:
• Judgment Date: 27 December 2013
• Docket Number: CLAIM NO. 2013 CD 00010
• Date: 27 December 2013

[2013] JMCC COMM. 21

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

IN THE COMMERCIAL DIVISION

CLAIM NO. 2013 CD 00010

In the Matter of Section 212 of the Companies Act

and

In the Matter of the Income Tax Act

and

In the Matter of Valley Slurry Seal Caribbean Limited (a Company)

Between

Earle Lewis

1st Applicant

and

Carol Lewis

2nd Applicant

and

Valley Slurry Seal Company

1st Respondent

and

Jeffrey Reed

2nd Respondent

and

Valley Slurry Seal Caribbean Limited

3rd Respondent

Mr. Ransford Braham Q.C. and Mrs. Yualande Christopher-Walker , instructed by Phillipson Partners, Attorneys-at-Law for the Applicants.

Mr. Harold Brady and Mr. Harold Malcolm , instructed by Brady & Co, Attorneys-at-Law for the Respondents.

COMPANY LAW — SECTION 212 OF THE COMPANIES ACT — APPLICATION FOR LEAVE TO BRING DERIVATIVE ACTION IN THE NAME AND ON BEHALF OF THE COMPANY — COMPANY AND NOT THE PROPOSED DEFENDANTS THE PROPER PARTY TO THE APPLICATION FOR LEAVE — REQUIRED TO RECEIVE NOTICE OF APPLICATION FOR LEAVE — WHETHER APPLICANTS ARE ‘COMPLAINANTS’— 3 CONDITIONS PRECEDENT — NOTICE TO DIRECTORS, GOOD FAITH, APPEARS TO BE IN THE INTERESTS OF THE COMPANY THAT ACTION BE BROUGHT-WHETHER FULFILLED

IN CHAMBERS

Mangatal J:

1 This application has had quite a checkered and contentious history, which includes a claim and applications that preceded this claim. When the application, which was filed on January 14 2013, first arose for hearing on the 21 ^st of February 2013, no one appeared for the applicants and thus it had to be adjourned.

2 On the 4 ^th of April 2013, an ex parte application to do with service arose for hearing, but was withdrawn by learned Queen's Counsel, Mr. Ransford Braham, lead Counsel who appeared for the applicants.

3 The application first commenced on the 20 ^th May 2013. By this date the applicants had also filed another application on the 13 ^th May 2013 and the Respondents had filed a notice of application, amended on May 15 2013, taking several points, including jurisdictional points. It was agreed with Counsel that logically, aspects of the Respondents' application would have to be dealt with first. I must express my gratitude to the Attorneys-at-Law on both sides. I appreciate the great amount of research that was done and it has certainly provided useful guidance for the Court.

4 The applicants are both directors of Valley Slurry Seal Caribbean Limited, along with Jeffrey Reed, who is managing director, and Ron Bolles, and Allan Berger. These three Directors reside in the United States. The shares in the Company Valley Slurry Seal Caribbean Limited are held, 60% by Valley Slurry Seal Co. (a California Corporation) and 40% by Earle Lewis.

5 For ease of understanding, I will first set out what is sought in the applicants' respective Notices of Application for Court Orders. The applicants Earle Lewis and Carol Lewis in the application filed January 14 2013, request the following Order and on the following grounds:

‘1. The Court's leave to allow the Applicants to bring a derivative action in the name and on behalf of Valley Slurry Seal Caribbean Limited (a company) for the purpose of prosecuting an action on the company's behalf against Valley Slurry Seal Company and Jeffrey Reed pursuant to Section 212 of the Companies Act.

The grounds on which the Applicants seek the Order are as follows:

• 1. The Applicants are qualified complainants to bring this Application under section 212(3) of the Companies Act 2004 as Directors and Shareholder of the company.

• 2. The 1 ^st Respondent is the majority shareholder of the company, and the 2 ^nd Respondent, its Managing Director.

• 3. That the Court's leave is required under section 212(1) of the Companies Act 2004 for a complainant to bring a derivative action in the name and on behalf of Valley Slurry Seal Caribbean Limited for the purpose of prosecuting an action on the company's behalf.

• 4. The Directors received reasonable notice from the complainants of their intention to apply to the court under section 212(1) of the Companies Act 2004.

• 5. The Respondents and Directors of Valley Slurry Seal Caribbean Limited are well aware of the complaint previously brought before this Honourable Court by Claim No. CD 2012 00110, which was struck out on the application of the Respondents for the 1 ^st Applicant's failure to seek the court's leave to file a derivative action.

• 6. The Respondents have wilfully disregarded their fiduciary duty to avoid conflicts of interest when conducting related party transactions with the company.

• 7. The 1 ^st Respondent breached its duty as shareholder in seeking to provide goods and services to the company at inflated mark ups whilst representing those pricings to be within market.

• 8. In committing the company to using the goods and services of the 1 ^st Respondent and his related companies at artificially inflated pricings, the 2 ^nd Respondent breached his fiduciary duty as Managing Director of the company by abusing his authority to misrepresent that the goods and services provided by his related companies were delivered to the company at market prices and bona fides.

• 9. The issues of the inflated expenses has been brought to the Respondents' attention by the independent auditor they appointed, whilst claiming that the company is indebted to the 1 ^st Respondent for Sixty Four Million, Two Hundred and Seventy Eight Thousand Two Hundred and Ten Dollars and Two Cents ($64,278,210.02) as at August 17, 2012.

• 10. The 1 ^st Respondent is also in breach of a Shareholders' Agreement prohibiting a shareholder of the company from having competing financial interests against it.

• 11. The Respondents' failure to properly allocate costs incurred to the ‘ management fee ’ of United States Twenty Five Thousand Dollars (US$25,000.00) deducted monthly from the company's accounts.

• 12. The 2 ^nd Respondent's breach of his fiduciary duty as Managing Director of the company to act with transparency or to employ appropriate accounting practices to properly account for the company's revenues.

• 13. The Respondents claim continuing ownership over the company's interest in the ‘leased’ macro pavers in the face of the auditor's findings that the Respondents and their related party companies are not entitled to claim an illicit benefit from a purported ‘operating lease’ where the company was at all material time paying for them on a capital lease basis.

• 14. The 1 ^st Respondent's Claim CD 00108 of 2012 intended to deprive the company of its lawful entitlement to macro pavers bearing Serial numbers 3BPZLOOX68F718449 and 3BPZLOOX48F718448 through similar related party transactions between the 1 ^st Respondent and the company at the instance of the 2 ^nd Respondent.

• 15. The Respondents' breach of their duty of care towards the company by removal of its main asset and primary means of employment.

• 16. Transfer of funds representing profits and tax liabilities from the company's account held at The Bank of Nova Scotia on or about September 6, 2012.

• 17. Deprivation of its lawful entitlement to profits derived from its business of constructing roads and buildings in Jamaica, in or about the sum of Seventy Million Dollars ($70,000,000.00) through related party transactions between the company and the 1 ^st Respondent at the instance of the 2 ^nd Respondent.

• 18. The Respondents' wilful disregard of the effect …. of their acts and breaches on the rights and interests of the 1 ^st Applicant as a shareholder of the company.’

6 The applicants' Notice of Application for Court Orders filed May 13 2013 sets out the following orders sought and grounds:

‘1. That personal service of the Notice of Application for Court Orders filed on the 14 ^th of January 2013 and the Affidavit of Earl Lewis sworn to and filed on the 14 ^th day of January 2013, Affidavit of Earl Lewis sworn to on the 3 ^rd of May 2013 and filed on the 3 ^rd of May 2013, be dispensed with;

2. That in the alternative methods employed to effect service of the abovementioned documents on the Respondents are effective and reasonable alternate methods of service and sufficiently gives the Respondents notice of the proceedings herein;

……

The grounds on which the Applicants seek the Orders are as follows:

• 1. Part 6.8(1) of the Civil Procedure Rules (Amended) permit this Honourable Court to dispense with service of a document if it is appropriate to do so;

• 2. That the Applicants have served the documents on the Respondents by means of fax, email and courier and the 2 ^nd Respondent has confirmed receipt of the said documents;

• 3. Part 6.4(1) of the Civil Procedure Rules (Amended) states the rule applicable to the service of documents for a pre-action court proceeding …;

• 4. That the 2 ^nd Respondent is evading service of the Court documents and alternate service is appropriate in these circumstances; and;

• 5. The 2 ^nd Respondent has acknowledged in writing, his receipt of these documents sent to the Respondents by courier, fax and also by email.’

7 The Respondents' Amended Notice of Application for Court Orders filed May 15 2013, sought the following relief and set out the following grounds:

‘1. A declaration that the court has no jurisdiction to try the claim;

2. Alternatively, a declaration that the court should not exercise its jurisdiction to try the claim;

3. Alternatively that the matter be struck out and referred to arbitration in accordance with the Shareholders Agreement.

4. An order that the court appoints one of the three suggested arbitrators, Mr. Justice Ian Forte, Ret'd, Mr. Justice Henderson Downer Ret'd, or Mr. Hugh Small Q.C. in the matter;

…….

The grounds on which the Respondents are seeking the orders/reliefs...