Epsilon Global Equities Ltd v Paul Hoo and Others

• Jurisdiction: Jamaica
• Judge: JONES, J.
• Judgment Date: 02 September 2011
• Judgment citation (vLex): [2011] 1 JJC 2101
• Court: Supreme Court (Jamaica)
• Date: 02 September 2011
• Docket Number: CLAIM NO. 2008 HCV 5916

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

IN THE CIVIL DIVISION

CLAIM NO. 2008 HCV 5916

BETWEEN

EPSILON GLOBAL EQUITIES LIMITED

CLAIMANT

AND

PAUL HOO

FIRST DEFENDANT

AND

IAN LEVY

SECOND DEFENDANT

AND

JANETTE STEWART (Administratrix of the estate of Peter Stewart, deceased)

THIRD DEFENDANT

AND

SUPREME VENTURES LIMITED

FOURTH DEFENDANT

AND

MARTYN VEIRA

FIFTH DEFENDANT

CONTRACT - Shares - Agreement for sale of shares - Specific performance - Time of the essence - Delay - Waiver

JONES, J

1 INTRODUCTION:

2 [1] It is said that relatives, friends and irrational strangers are the individuals who often make the important financial investment needed to enable an entrepreneur to start a new business. The amount of capital that can be raised from these sources varies wildly. Epsilon Global Equities Limited hereafter ‘the Claimant’ in this case, is not from this traditional group but is part of a global family of related entities that are engaged in sourcing, structuring, managing, and monitoring investments for a family of investment funds whose strategies are credit oriented. The strategy of the Epsilon Group is to make direct loans to high risk borrowers who do not qualify for, or are unable to obtain, business loans from commercial banks. They often seek a combination of loans together with equity participation in the business or businesses supporting such loans.

3 [2] In 2002, the Supreme Ventures Limited hereafter ‘the Fourth Defendant’ needed financing and engaged the Epsilon Group for that purpose. Paul Hoo, Ian Levy and Peter Stewart, hereafter ‘the Founding Shareholders’ negotiated with Mr. Paul ‘Gerry’ Mouttet a deal which included:

• i) A loan of US$29,500,000 to Atlantic Marketing Services Limited, and;

• ii) A loan of US$500,000 directly to the Fourth Defendant;

• iii) In return for these loans, Epsilon would get, amongst other things, 17% of the issued share capital of the Fourth Defendant under terms of a Forward Sale of Shares Agreement.

4 [3] The Founding Shareholders signed the 2002 Agreement and the Claimant, a special purpose vehicle, was specifically formed by the Epsilon Group to hold their 17% interest in the Fourth Defendant.

5 [4] In 2004, Paul Hoo hereafter ‘the First Defendant’ executed a 2004 Agreement, forwardly selling to the Claimant 15,510 previously issued shares in the Fourth Defendant, along with undated instruments of transfer.

6 [5] The Agreements provided for an Acquisition Date which occurred on June 2005. This was triggered by the repayment by the Fourth Defendant of the US$500,000 loan. The Claimant failed to surrender the Transfer of Shares documents for registration of its shares or tender the $1 per share on the Acquisition Date as required by the Agreements. The Claimant submitted the required documents three years later and demanded from all the Defendants that it be registered as proprietor of the Subscription Shares as subdivided, and from the Fourth Defendant, that the dividends declared in June and October 2008, be paid. None of the Defendants complied with the Claimant's request.

7 [6] Arising from this, the Claimant brought an action in this court seeking to enforce its rights under the two Forward Sale of Shares Agreements. Specifically, the Claimant seeks a declaration of its rights, to the forwardly sold shares of the Fourth Defendant under the Agreements, specific performance of the Agreements, and the payment by the First, Second and Third Defendants of the dividends declared and paid to these Defendants in respect of the shares.

8 ISSUES:

• i) Did full beneficial interest in the shares under the 2002 and 2004 Agreements pass to the Claimant at the time of signing?

• ii) Is time of the essence of the contract with the result that the failure of the Claimant to pay the $1 per share referred to in the 2002 and 2004 Agreements and to return the Instrument of Transfer operate to discharge the contract?

• iii) Did the Defendants, through the Option Agreement between St. George's Holdings Limited and the Fourth Defendant expressly or implicitly waive objection to any delay by the Claimants in taking the formal step, required for registration as owner of the shares under the 2002 and 2004 Agreements.

9 THE FORWARD SALE OF SHARES AGREEMENTS:

10 Summary of the 2002 Agreement

11 [7] The rights and obligations under the 2002 Agreement are as follows:

• a) The Fourth Defendant would pass a resolution increasing its authorized share capital by the issue of an additional 204,820 ordinary shares at par value of J$1.00 to rank pari passu in all respects with its existing ordinary shares.

• b) The shares, referred to in the 2002 Agreement as the ‘Subscription Shares’, would be subscribed for and be issued to the Founding Shareholders as follows:-

  (i) Paul Hoo	84,350 shares
  (ii) Peter Stewart	84,329 shares
  (iii) Ian Levy	36,141 shares

• c) The Founding Shareholders would transfer the said shares, representing 17% of the issued capital of the Fourth Defendant, to the Claimant at par upon the occurrence of the earliest of certain events referred to in the Agreement as the ‘Acquisition Date’. The events are as follows:

  ‘5.1 One month prior to the date of change of control of the Company (control shall have the same meaning as it set out in the definition for ‘Affiliate’)

  One month prior to the date of an initial offering of the share capital of the Company or its Affiliates to the public in Jamaica or elsewhere.

  One month prior to the date of completion of the sale of any portion of the shares which are held by the Founding Shareholders on the signing of this Agreement (i.e. any portion of 1,000,000 ordinary shares)

  The Maturity Date of the Loan which is the earlier of (i) the repayment of all principal and accrued interest of the Loan or (ii) August 31, 2005.’

• d) Pending the occurrence of the event constituting the Acquisition Date, each Founding Shareholder would execute and deliver to the Claimant undated Instruments of Transfer in prescribed form in respect of the Subscription Shares he agreed to sell together with Irrevocable Powers of Attorney entitling the Claimant to exercise voting rights in respect of the said shares, by itself or by proxy;

• e) The Fourth Defendant would, upon the issue of the share certificates, deliver them to the Claimant.

• f) Upon the occurrence of an event constituting the Acquisition Date, the Claimant would be entitled to date and deliver the previously executed Transfers to the Fourth Defendant for registration, which registration the Fourth Defendant would forthwith effect, in accordance with the Agreement and would pay the Founding Shareholders the price of J$1.00 per Subscription Share.

• g) The Founding Shareholders would pay all stamp duty and transfer taxes in respect of the Agreement and in respect of the transfer and registration of the Subscription Shares in favour of the Claimant.

• h) Pending registration of the Subscription Shares in favour of the Claimant, all dividends and distribution declared, paid, or made in respect of the shares would be paid by the Founding Shareholders to the Claimant for the Claimant's sole benefit.

• i) The Claimant was entitled to appoint two persons to the Board of Directors of the Fourth Defendant upon the issue of the Subscription Shares.

• j) The intent and effect of the Agreement was that the Claimant's 17% interest in the Fourth Defendant would be preserved and not diluted without the consent of the Claimant.

12 What Constitutes Performance under the 2002 Agreement?

13 [8] The Epsilon Group, through its investment funds disbursed US$30,000,000. There is no issue that the Fourth Defendant received US$500,000 that was intended for it. As to the US$29,500,000 loaned to Atlantic Marketing Services Limited, the Second Defendant admitted receipt of his share of it representing, he says, about 15%. The First Defendant has not admitted that the funds loaned to Atlantic Marketing Services Limited were to be for the benefit of the Founding Shareholders and he also denies receiving any share of those funds.

14 [9] In accordance with the 2002 Agreement, the Fourth Defendant passed the necessary resolution increasing its share capital by J$204,820.00, divided, into 204,820 ordinary shares of J$1.00 each. The Founding Shareholders applied to the Fourth Defendant and were issued the Subscription Shares. Each Founding Shareholder executed and conveyed to the Claimant the undated Instruments of Transfer for the number of shares he agreed to transfer to the Claimant, as well as the share certificates, and signed and dispatched the irrevocable powers of attorney to the Claimant.

15 [10] In May 2005, the Fourth Defendant:

• a) converted into a public company;

• b) increased its authorized share capital from 2,000,000 ordinary shares of J$1.00 each to 100,000,000 ordinary shares of J$1.00 each to rank pari passu with existing ordinary shares.

• c) converted its shares into shares without par value;

• d) subdivided its issued shares into 3,000,000,000 ordinary shares;

• e) converted its ordinary shares into ordinary stock units and resolved that stock certificates of equivalent value be issued; and,

• f) made a private placement of its shares of 500,715,405 ordinary shares which raised J$1,862,600,000.

16 [11] The effect of the capital reorganization was that the Claimant became entitled upon the occurrence of the Acquisition Date, under both the 2002 Agreement and the 2004 Agreement to the transfer and registration of the following shares/stock units:

Paul Hoo	175,313,564
Ian Levy	63,448,904
Estate Peter Stewart	152,821,778
391,584,242

17 What Constitutes Performance under the 2004 Agreement?

18 [12] On 27th February, 2004, the First Defendant executed the 2004 Agreement, thereby forwardly...