Goblin Hill Hotels Ltd v Thompson (John) & Thompson (Janet)
| Jurisdiction | Jamaica |
| Judge | SMITH, J.A.: , MORRISON, J.A: , DUKHARAN, J.A.: , SMITH, J.A: , SMITH, J.A. : , MORRISON, J.A. : |
| Judgment Date | 05 June 2009 |
| Neutral Citation | JM 2009 CA 44,JM 2008 CA 106 |
| Judgment citation (vLex) | [2008] 12 JJC 1902 |
| Court | Court of Appeal (Jamaica) |
| Date | 05 June 2009 |
COMPANY LAW - Interpretation - Construction of Articles of Association and Instrument of lease - Whether liability to pay assessments for maintenance of property to be shared by all shareholders - Whether such assessments can include costs attributable to the maintenance of the company as distinct from the property
I have read in draft the judgment of Morrison, J.A. I agree with his reasoning and conclusion. There is nothing further that I wish to add.
Introduction
This is an appeal from a judgment of Sykes J dated 16 February 2007 by which he made certain declarations and consequential orders in favour of the respondents.
The appellant is the registered proprietor of property known as Goblin Hill ("the property") in the parish of Portland, on which there are 28 vacation villas. The respondents are shareholders in and lessees of the appellant in respect of a villa numbered 16 ("villa 16").
This is how Sykes J described the litigation:
"This litigation arose because of assessments and special assessments levied by [the appellant] on its share holders/lease holders. Some of them declined to pay the assessments. One of those declining to pay the increased assessments was the [respondents]. [The appellant] responded by forfeiting the lease and shares. The [respondents] say that this is unlawful."
The case as originally filed also included claims against two directors and a mortgagee of the appellant, but these additional claims were decided by Sykes J against the respondents and there is no appeal from his judgment in this regard. However, the learned judge did make the declarations sought by the respondents that the assessments and special assessments made by the appellants for the years 1994 to 2001 were excessive, from which it followed that any excess amounts already paid by the respondents pursuant to those assessments should be refunded to them. As a further consequence, the appellant's counterclaim, for arrears in payment of the amounts assessed, a declaration that the shares and lease were legally forfeited and other consequential orders, was dismissed.
The basis of the judge's conclusion was that, on a proper construction of the relevant documents, liability to pay assessments was to be shared equally by all shareholders of the appellant, and not only by the smaller group ot shareholders who were also leaseholders, with the result that the assessments which individual share/leaseholders, including the respondents, had been called upon by the appellant to pay were excessive. The learned judge also found that the appellant had no power to levy assessments or to raise special assessments for the costs of maintenance of the company, such as filing fees at the companies' registry, legal fees and the like.
After judgment had been given, but before it had been perfected, the appellant applied to the judge for an order varying his judgment on the basis that, fresh calculations having been done in the light of the judgment, the respondents remained in arrears and therefore liable to forfeiture. The judge refused to grant this application, essentially on the ground that the question of forfeiture could only arise in a case in which there had been a refusal by a share/leaseholder to pay an assessment or special assessment which had been lawfully imposed and that this had not been done in the instant case.
The appeal is primarily concerned with the construction of the Articles of Association of the appellant company ("the articles") and the Instrument of Lease executed 2 August 1994 ("the lease") under which the respondents hold villa 16. Also relevant to this exercise is the Agreement for Sale of Options for Purchase of Shares and Grant of Leases ("the option agreement") which governed the original scheme of development of the property. It is the proper construction of these documents which will determine the remaining questions in the litigation, that is, whether liability to pay assessments for the maintenance of the property is to be shared by all shareholders, as the judge found, and whether such assessments can include costs attributable to the maintenance of the company as distinct from the property.
The background
In addition to detailed reference to the documents themselves, if is necessary to give some account of the history of the various arrangements between the parties. It is a long and in some respects complicated story, which I will endeavour to compress and simplify, hopefully without losing its essence, for the purposes of this judgment. In this regard, I have relied heavily on the appellant's Statement of Facts and Issues, as well as on the witness statement of Mrs Rosalie Goodman, a shareholder and director/secretary of the appellant company. These facts are all largely uncontested.
The appellant is a limited liability company incorporated under the Companies Act, 1965 with a nominal share capital of $54,000.00 made up of 30,600 class A ordinary shares, 15,300 class B ordinary shares and 8,100 class C ordinary shares, all of $1.00 each. In 1969 the Goblin Hill development was planned by the three original developers and the first directors of the appellant, Messrs Marvin Goodman, Douglas Graham and Anthony Alberga, as a number of second (vacation) homes on 11 1/2 acres of prime resort property in the San San estate, just outside of Port Antonio. 100 rooms in a combination of one and two bedroom villas were planned. It was anticipated by the developers that the development would be sold in phases. Accordingly, the shares were divided into classes A, B and C. The A shares were allocated to a certain number of villas which were to be the first set of villas constructed and sold and the B shares were allocated to the villas to be built in the second phase. The C shares, comprising 15% of the development, were designed as an incentive to the developers to remain active and interested in the project after selling off the shares. They were accordingly issued in proportion to built villas and entitled the developers to 15% of any net profit generated from the ensuing hotel operations. The developers as shareholders and directors were not to be compensated in any other way for the very active presence in the future operations of the project that it was expected they would maintain after selling off the units. Shareholders were to become entitled to participate in the earnings of the company only as from the date of completion of the villa units relating to the shares held by them.
For tax purposes the shares were initially held as share options in a Cayman company, San San Investments Ltd, until sold or distributed. At this time, Jamaica and Cayman had a joint taxation treaty. When share options were sold, shares were issued directly to the new purchasers by San San Investments Ltd with the signed agreement of the appellant, as the developer.
The A shares (options) comprising the first phase of the development of 33 villas were not all sold by 1972. Instead share options relating to the 28 villas actually built were sold and the shares issued, along with a proportionate number of C shares in the manner described in paragraph 9 above. The options for the unissued shares relating to the planned future development were due to expire in 1984 and were renewed until 1994, by which time it was assumed that the total development would have been completed. However, political and social conditions in Jamaica did not support the continued development during this period and the three developers decided to purchase the balance of share options at the price they were valued at in the appellant's audited accounts. The intention was that the developers would hold these shares jointly and severally until they were in a position to complete the development and sell the shares and the sale of the remaining options was duly reported in the company's accounts. The remaining A, B and C shares are therefore held by the three developers and any future sales will therefore involve the sale and transfer of the shares held by them to new parties. No villas additional to the original 28 have since been built.
In the late 1960s, at a time when tourism was thriving and expected to grow, the Hotel Incentives Act was passed in order to provide incentives to encourage the building of more hotel rooms. The Act provided the developers with an incentive to structure the Goblin Hill development as a hotel which would be eligible for the tax relief offered under the Act if it made a profit during the first 10 years of operation. During a period accordingly designated "the incentive period" it was agreed that for the first 20 years of its operation the hotel would be operated as a "first class resort hotel", with the villas as an integral part of the property and with restrictions on use of the villas by the shareholders, so as to maximize earnings. During this period income and expenditure were to be pooled and any profit distributed among the shareholders in proportion to the A and C shares issued for built villas. Losses would also be met by shareholders of built villas.
After the incentive period ended (which, it is common ground, was in 1989), the property was no longer operated as a hotel, shareholders would have unlimited use of their villas and income was no longer pooled. Shareholders would now have several options available to them, including not renting their villas, using them on a year-round basis if they...
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