Palmyra Properties Ltd ((in Receivership)), Sanctuary Systems Ltd ((in Receivership)) and Kenneth Tomlinson v Jade Overseas Holdings Ltd
| Jurisdiction | Jamaica |
| Judge | Sinclair-Haynes JA |
| Judgment Date | 03 October 2017 |
| Neutral Citation | JM 2017 CA 59 |
| Docket Number | SUPREME COURT CIVIL APPEAL NO 65/2017 |
| Court | Court of Appeal (Jamaica) |
| Date | 03 October 2017 |
[2017] JMCA App 37
IN THE COURT OF APPEAL
Sinclair-Haynes, J.A.
SUPREME COURT CIVIL APPEAL NO 65/2017
APPLICATION NO 119/2017
(In Receivership)
and
(In Receivership)
and
Kwame Gordon instructed by Samuda and Johnson for the applicants
Kevin Williams and David Ellis instructed by Grant Stewart Phillips & Co for the respondent
Civil appeal - Application for a stay of execution — Whether the respondent would be able to compel the receiver to pay the proceeds of the summary judgment on the basis of the judge's findings — Realistic prospect of success — Whether the judge erred in law in finding that the Management Agreement was valid — Whether the judge failed to properly construe the Management Agreement — Whether the Management Agreement infringed the terms of the Facilities Agreement — Crystallization of Floating Charge — Hammond Suddard Solicitors v. Agrichem International Holdings Ltd [2001] EWCA Civ 2065 — Re Manurewa Transport Ltd [1971] NZLR 909 — Countrywide Banking Corporation Ltd v. Dean as Liquidator of CB Sizzlers Ltd (New Zealand) [1997] UKPC 57.
Palmyra Properties Limited (PPL), Sanctuary Systems Limited (SSL) and Kenneth Tomlinson (the Receiver) have applied for a stay of execution of Sykes J's decision granting a number of declarations sought by Jade Overseas Holdings Limited (Jade) pending their appeal of the said judgment. The application is however forcefully resisted by Jade.
A loan was granted to PPL and SSL. That loan was secured by debenture dated 23 April 2007 (2007 Debenture) by means of which a consortium of debenture holders imposed fixed and floating charges over SSL and PPL's assets. Clause 5(a) of the 2007 Debenture created a charge as continuing security “over all the undertakings and assets of [PPL and SSL], both present and future”. A Facility Agreement was entered into at the same time. A further loan was obtained and a Debenture (the 2009 Debenture) was created over the assets of SSL on 11 August 2009 in favour of one of the debenture holders. Both debentures were registered with the Companies Office of Jamaica.
SSL and PPL subsequently failed to honour their obligations to the debenture holders and were placed in receivership on 23 July 2011. On 30 April 2013, the 3 rd applicant was appointed receiver (the receiver) of SSL and PPL.
Allegations of fraud were levelled against a former director of PPL, SSL and other persons. It was alleged that they (the former director and others) had defrauded SSL and PPL. Summary judgment was consequently obtained against the directors on 13 January 2011 in the sum of US$2,270,000.00 in favour of SSL and PPL.
A settlement agreement was entered by the parties whereby the said judgment sum was to be divided among SSL, PPL and the receiver. By order of the court, the said sum is held in a joint account the names of the parties (PPL, SSL and the receiver).
At the heart of this application is the ownership of that summary judgment which the learned judge declared to belong to Jade by virtue of an assignment to Jade by SSL and PPL.
On 2 September 2013, Jade instituted proceedings against PPL and SSL in which it sought a number of declarations including a declaration that a Management Agreement which PPL and SSL entered into on 25 May 2009 with Jade, effected a valid equitable assignment to Jade.
According to Jade, the Management Agreement was in relation to the funding of litigation. The agreement was that Jade would provide the funds to enable PPL and SSL to pursue the claims against the former director and the others. Under that agreement, PPL and SSL assigned the proceeds of the judgment to Jade.
Jade contended that the Management Agreement also provided that even if there were no recoveries or awards within a 10 year period, PPL and SSL guaranteed that Jade would recover its costs and fees with its full assets. Jade sought an accounting and inquiries and payment of monies due to it. It also claimed damages for breach of trust and conversion.
For their part, PPL, SSL and the receiver averred that:
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(i) Funds received by the Receiver under the Settlement Agreement are for the Debenture Holders benefit.
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(ii) The Management Agreement triggered an event of automatic crystallization because it created a charge over all of the assets which were already the subject of fixed and floating charges under the 2007 Debenture.
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(iii) The debenture holders' consent was not sought before the Management Agreement was executed. In fact the Receiver was only made aware of the said agreement almost two years after the commencement of the receivership of PPL and SSL.
Sykes J acceded to Jade's request. In granting the declarations which Jade sought, the learned judge concluded inter alia that:
“[116] If [sic] follows from what the court has said that the proceeds of the summary judgment cannot be withheld from Jade. The assignment was good and effective to transfer any judgment and its proceeds to Jade from the time it was executed and took effect once the summary judgment was granted.
[117] Anyone, including SSL, PPL, the receiver and any person who received proceeds of the settlement arrived by the terms of which included the distribution of proceeds of the summary judgment hold those monies on constructive trust for Jade.
[118] The settlement agreement entered into between the receiver and the defendants in the summary judgment case cannot override the management agreement made in May 2009.” (Emphasis added)
PPL, SSL and the receiver, being displeased with the learned judge's decision, on 26 June 2017 filed notice of appeal and an application for a stay of execution pending the determination of the appeal.
The application for a stay of execution was heard by Sykes J who refused the stay and ordered the applicants to pay the costs of the application.
The following are the grounds of appeal:
“a. The learned trial judge erred in law in finding that the management agreement was valid in the circumstances where the management agreement created a charge in conflict with the provisions of a prior Debenture;
b. The learned trial judge erred in law and failed to properly construe the management agreement and in so doing found that it was no more than an agreement for litigation funding when in fact the management agreement created a charge over the assets of the 1 st and 2 nd Appellants;
c. The learned trial judge erred in law in finding that the management agreement was within the ordinary course of business of the 1 st and/ or 2 nd Appellant in circumstances where the management agreement contained provisions which were incongruous with the ordinary course of business;
d. The learned trial judge failed to apply the rules of equity which would have barred the Respondent from the equitable relief sought.
e. The learned trial judge erred in law in finding that the failure to seek the written consent of the debenture holders to enter into the management agreement was not a breach of the Debenture of 2007 and the failure to disclose this management agreement to the debenture holders was not a breach of the Debenture of 2009.”
Mr Kevin Williams, on Jade's behalf, opposes the applicants' application for a stay. Counsel posits that there was no order directing the applicants to make any payment to Jade. He contends that Sykes J's judgment in the circumstances was declaratory and therefore cannot be stayed.
Counsel referred the court to section 10 of the Judicature (Appellate Jurisdiction) Act and rule 2.14 of the Court of Appeal Rules 2002. He also directed the court's attention to the cases, Norman Washington Manley Bowen v Shahine Robinson and Neville Williams [2010] JMCA App 27, Dennis Atkinson v Development Bank of Jamaica Limited [2015] JMCA App 40 and Harold Miller v Ocean Breeze Hotel Limited and Carlene Miller [2016] JMCA App 1 in support of his contention that the Sykes J order was declaratory hence this court has no power to grant a stay.
Mr Kwame Gordon, on the applicants' behalf, acknowledged that stays are not granted in respect of declaratory judgments; he too referred the court to the case of Bowen v Robinson & Williams. Counsel however argued that although the learned judge did not expressly order the defendant “to act in a certain way”, implicit in his order that the receiver was to hold the proceeds of the summary judgment on constructive trust for Jade, is a requirement for the receiver to deliver up or pay over the said proceeds to Jade.
Mr Gordon also points out that the learned judge not only granted the declarations which Jade sought, he ruled that:
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(a) the proceeds of the Summary Judgment could not be withheld from Jade; and
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(b) the sums were held on constructive trust for the respondent.
Counsel argued that if the receiver fails to comply, the order may be enforced against him. In those circumstances, he submits, the judgment is not purely declaratory and therefore is capable of being the subject of an order for a stay. Counsel also pointed the court's attention to the submissions filed on behalf of Jade which supports counsel's contention that there is an executory element to the judge's order.
The submissions further state that the funds in issue are held in an escrow account at the First Global Bank Limited pursuant to Sykes J's order of 2014 which declared that Jade was legally entitled to the said funds and that the said funds are held in trust for Jade. FGB is therefore obliged to...
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