Lascelles, De Mercado & Company Ltd v Financial Services Commission and Black Sand Acquisition Inc.

• Jurisdiction: Jamaica
• Judge: Mangatal J:
• Judgment Date: 30 November 2011
• Judgment citation (vLex): [2011] 11 JJC 3001
• Docket Number: CLAIM NO. 2011 HCV 05965
• Court: Supreme Court (Jamaica)
• Date: 30 November 2011

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

CLAIM NO. 2011 HCV 05965

In the matter of the Securities Act

In the matter of sections 25, 68 and 74 of the Securities Act and to all other powers thereunto enabling

BETWEEN

LASCELLES, de MERCADO & COMPANY LIMITED

APPELLANT/APPLICANT

AND

FINANCIAL SERVICES COMMISSION

1 ^ST RESPONDENT

AND

BLACK SAND ACQUISITION INC.

2 ^ND RESPONDENT

Mr. Allan Wood Q.C., Mr. Miguel Williams, and Mr. Gary Harris, instructed by Livingston, Alexander & Levy for the Appellant/Applicant.

Mrs. Symone Mayhew for the 1 ^st Respondent.

Mr. John Graham and Ms. Annaliesa Lindsay, instructed by John G. Graham & Company for the 2 ^nd Respondent.

Mr. Wentworth Graham, Chief Regulatory Officer, and Ms. Jónell Hermitt, watching proceedings for the Jamaica Stock Exchange.

SECURITIES ACT AND SECURITIES (TAKE-OVERS AND MERGERS) REGULATIONS, 1999 – RULES OF THE JAMAICA STOCK EXCHANGE – WHETHER RIGHT OF APPEAL OR JUDICIAL REVIEW-NATURE OF SECTION 25 PROCEEDINGS – TAKE-OVER BID CIRCULAR – DUTY TO TREAT WITH SAME STANDARD OF CARE AS PROSPECTUS – WHETHER SATISFACTORY PROOF THAT OFFEROR ABLE OR WILL BE ABLE TO IMPLEMENT THE OFFER IN FULL – TOM REGULATIONS 24, 16(1)(g), 14(3) – DUTIES OF PARTIES TO TAKEOVER TO PREVENT FALSE MARKET IN SHARES – WHETHER BONA FIDE OFFER – WHETHER ISSUE OF DISSATISFACTION BY DIRECTORS OF OFFEREE BOARD TO BE DEALT WITH IN DIRECTORS' CIRCULAR

Mangatal J

The Parties

1 The Appellant/Applicant Lascelles de Mercado & Co. Limited ‘LdM’ is a company duly incorporated under the Laws of Jamaica. LdM is a public limited company, quoted on the Jamaica Stock Exchange, ‘JSE’. All dealings in its stocks and shares are subject to the provisions of the Securities Act and Regulations and to the Rules of the JSE.

2 The 1 ^st Respondent the Financial Services Commission ‘the FSC’ is a body corporate established pursuant to the Financial Services Commission Act of 2001 ‘the FSC Act’. The FSC has responsibility for supervising and regulating prescribed financial institutions, and part of its mandate is to supervise and regulate the securities, insurance and private pension industries. The FSC has responsibility for the general administration of the Securities Act of 1993 ‘the Act’, and has the power to enforce the rules of the JSE whenever it considers it necessary to do so. The Act was amended in 2001 to substitute the FSC for its predecessor, the Securities Commission.

3 By virtue of section 76 of the Act, the FSC, with the approval of the Minister of Finance, has power to make regulations as did its predecessor, the Securities Commission. In 1999, the Securities (Take-Over and Mergers) Regulations ‘the TOM Regulations’ were passed. These regulations apply to take-overs, take-over bids, and mergers.

4 The 2 ^nd Respondent Black Sand Acquisition Inc ‘Black Sand’ was incorporated on or about July 15 2011 in Saint Lucia as an international business company. Black Sand describes itself as a special purpose vehicle, formed for the purpose of undertaking a takeover bid transaction in respect of sufficient ordinary and preference shares in LdM to provide Black Sand with no less than 90% of the issued and ordinary shares and 100% of the issued and outstanding preference shares of LdM.

THE PRESENT CLAIM

5 The present case concerns Black Sand's Take-Over Bid Circular ‘Bid Circular’ and certain decisions alleged by LdM to have been taken by the FSC in respect of this Bid Circular.

6 I wish at the outset to express my sincere appreciation to the Counsel and Attorneys-at-Law who appeared in this matter, for the level of preparation, and the assistance they have provided to the Court. Counsels' combined diligent efforts were not able to uncover any previous local decision concerning the relevant issues, and so the thoroughness of the research and depth of reasoning exhibited have been particularly elucidating and helpful.

THE BACKGROUND TO THE CLAIM

7 On or about the 28 ^th of July 2008, CL Financial Group of Companies, operating out of the Republic of Trinidad and Tobago, acquired approximately 86 percent of the ordinary shares in LdM, priced at US $9.45 per ordinary stock unit. Two companies holding the majority of the issued preference shares passed to CL Financial for nominal consideration under a separate transaction once the ordinary share purchase was completed. The share capital of LdM consists of 96,000,000 ordinary stock units, 50,000 15% preference stock units and 10,000 6% stock units. The total number of ordinary stock units under the control of CL Financial is 83,475,554 and of preference stock units, 58,288. CL Financial therefore controls approximately 92% of the voting rights in LdM.

8 Capital was raised in Trinidad and Tobago and in Jamaica through US fixed rate notes ‘Notes’ denominated in United States Dollars issued by CL Spirits Limited, a company incorporated under the laws of Saint Lucia. CL Spirits owns approximately 71 percent of the ordinary shares of LdM. All the shares held by the CL Financial Group of Companies, including the preference shares, were pledged as security for the Notes.

9 The principal due under the Notes was due to be repaid on the 23rd of July 2011, however, up until the date when the Affidavit of Jane George, Attorney-at–Law and Company Secretary of LdM, was filed on the 18 ^th of October 2011, CL Spirits had not made payment. Mrs. George further indicated that she was advised that CL Spirits had continued to negotiate with the holders of the Notes. She was further advised by Mr. Marlon Holder, Chief Executive of CL Financial Limited, that one course of action open to the noteholders was to foreclose and seize the underlying security.

10 A few days after the default by CL Spirits, an offer by Black Sand was announced. The chairman of Black Sand is the Honourable William McConnell. Mr. McConnell had been the Group Managing Director of LdM up until the 30 ^th of June 2011, having been so appointed from October 1994. Mr. McConnell was appointed a member of the Board of Directors of LdM in 1989. A press release stated that the offer would be formally launched on the 29 ^th of July 2011.

11 However, a Takeover Bid Circular ‘Bid Circular’ was not officially released until the 4 ^th of August 2011. Mrs. George in her Affidavit indicates that the price at which Black Sand had indicated its intention to purchase the ordinary shares was at a price significantly below that paid by the CL Financial Group of Companies in 2008.

12 By letters dated the 8 ^th of August 2011 Black Sand and the FSC were informed by Messrs. Livingston Alexander & Levy, Attorneys-at-Law for LdM, that they took the view that the Bid Circular did not comply with the TOM Regulations and the JSE Rules for a number of reasons. They specified in particular the following:

• a. Paragraphs 34 and 35 included inaccurate and misleading information in regard to Carreras shares held by LdM being posted as available on the JSE when they were not;

• b. The required proof that Black Sand had available funds to complete the transaction was not provided;

• c. There was insufficient evidence as to the ownership structure of Black Sand.

13 By letter dated the 11 ^th August 2011, Messrs. Livingston Alexander & Levy wrote to the FSC, amongst other matters, seeking confirmation that the Bid Circular was not compliant, and reiterating their view that the time period for the issuance of the Directors' Circular ought not to be computed until there was full compliance by Black Sand. Further, that in the event that the FSC did not share those views, LdM formally requested an extension of time for issuing the Directors' Circular.

14 The FSC responded to LdM's Attorneys by letter dated August 11 2011, indicating that they had areas of concern in relation to Black Sand's Bid Circular, and enclosing a copy of the FSC's letter to Black Sand outlining those concerns. The FSC also informed that they were sending a copy of the letter to the JSE so that they could note the FSC's concerns.

15 The FSC's letter to Black Sand, so far as relevant reads as follows:

Dear Mr. McConnell:

Takeover Bid Circular for (LdM)

We have received an amended copy of the take-over bid circular provided by Mr. Trevor Patterson on 5 August 2011. The document has been reviewed in accordance with the Securities (Take-Overs & Mergers) Regulations, 1999 and it is believed that the following requires further clarification:

(My emphasis).

• 1. Paragraph 34(c) of the Take-Over Bid indicates that a sum similar to 74,263,144 shares in Carreras Limited has been posted as available for sale on the JSE. A check with the JSE reveals that no such posting exists. If you are in possession of evidence to the contrary please provide same, barring this please ensure that this paragraph is removed from your final document.

• 2. Regulation 24-Appendix 1(g) provides some detail on the proposed financial arrangements for the offer. Upon further consultation with our Legal Services Department, we are of the view that evidence of the arrangement should be provided such as an independent confirmation of the commitment by way of a letter of intent from Macquarie Capital (USA) to satisfy this requirement…..

16 Mr. Gary Harris, Attorney-at-Law of Livingston Alexander & Levy, on the 12 ^th of August 2011 attended a meeting with members of the FSC and informed of the non-compliance by Black Sand, the need for compliance, and the possibility of insider trading by Black Sand and/or its principals and advisors under section 51 of the Act. By letter dated 17 ^th August 2011, Livingston Alexander & Levy also set out facts which LdM alleges support its allegation that there has been a breach of section 51 of the Act.

17 By letter dated 13 ^th September 2011 the FSC wrote to LdM indicating that it was in receipt of a letter dated September 12...