Jube Ltd et Al v Bahamas Development Bank
| Jurisdiction | Bahamas |
| Judge | Georges, C.J. |
| Judgment Date | 04 April 1986 |
| Court | Supreme Court (Bahamas) |
| Docket Number | Common Law Side No. 549 of 1984 |
| Date | 04 April 1986 |
Supreme Court
Georges, C.J.
Common Law Side No. 549 of 1984
Mr. Tennyson G. Wells for the plaintiffs.
Mr. Charles Mackey, Ms. Constance McDonald with him, for the defendant.
Company Law - Debenture — Whether defendant bank had ceased to be secured creditors of plaintiff company and had become shareholders
Archie Donaldson (Dr. Donaldson) is a specialist obstetrics and gynaecology. He is also a commercial breeder of race horses. The subject matter of this litigation does not, however, touch upon either of these demanding vocations. It concerns the manufacture in The Bahamas and the export to the competitive New York market of haute couture ladies' dresses.
Dr. Donaldson's mother was a seamstress and he grew up in an atmosphere which developed some familiarity with production at the level of the artisan craftsperson. His adult interest began when he invented a fabric which he was satisfied would help in the cure of arthritis if those suffering wore clothing made from it. Pursuing its commercial exploitation he made contact with a significant American distributor of outer garments. Discussions took place on the possible manufacture of clothing in The Bahamas. The possibility of employing some 10,000 people was mentioned.
To facilitate the venture it was thought sensible purchase an existing enterprise which enjoyed the available benefits for the encouragement of light industry. This led to an approach to Mrs. Helen Astarita who owned Bahamas Handprints Ltd. (Handprints) a company which manufactured handprinted shirts and dresses, table linen and ornamental hangings. In the end the projected joint venture could not be launched. The nature of the enterprise, Dr. Donaldson was told, was such that non-Bahamian participation would not be permitted. The American distributor departed.
The idea was, however, still there and Dr. Donaldson pursued it. With Mr. T. B. Donaldson as a partner he purchased Handprints for a sum of slightly over $500,000. Barclays Bank and Barfincor provided some $450,000.00 on the security of Handprints itself, its building and its assets, the building and assets of a company owned by Dr. Donaldson, his wife and his two sons Donaldson's Medical Clinic Ltd. (the Clinic) and a fixed deposit of $100,000 belonging to Mr. T. B. Donaldson. The purchase was in the name of Jubé; Ltd. (Jubé;) a company formed by Dr. Donaldson as the parent company of the venture.
The plan as implemented was that Jubé would own Jubé (USA) Ltd., an American subsidiary which would display, sell and deliver garments manufactured by Jubé and Handprints in The Bahamas. Jubé (USA) Ltd. was in due course incorporated and took over the business activities of Thérese Andreé, a designer resident in Washington who shared a New York office for sales and display purposes. Bob Feldman who worked for Therese Andre became sales manager for Jubé; (USA) Ltd.
Six Bahamian women with an employee of Dr. Donaldson, Patrice Miller, in charge, were despatched for an intensive three months of training in the operation of knitting machines. On their return to The Bahamas they became instructors training other women. Training took place in the Clinic. It was anticipated that in so far as the manufacture of garments needed processes other than knitting these could be carried out within the facilities of Handprints though the plan was to set up a “cut and sew” section which would eventually lead to the expansion of Handprints.
The expenses of setting up the New York office of Jubé (USA) Ltd., arranging contracts with the designers, training the Bahamian work force and forming Jubé were all, would appear, borne by Dr. Donaldson. As the venture moved from the stage of conception, planning and launching to that of being actually operational it was clear that additional funds would be needed. Investors had to be identified willing and able to subscribe capital.
The evidence is conflicting as to how the shares of Jubé were issued. In his evidence Dr. Donaldson stated that he owned all the shares in Jubé save those issued to the persons who incorporated the company. These would, I presume, have also been held in trust for him. The contemporary written records do not support this. A memorandum prepared by Coopers and Lybrand who carried out the feasibility study of the project for Dr. Donaldson proposed that the 5,000 shares of a nominal value of $1.00 per share should be issued at a premium of $200.00. The proposed shareholders then were T. B. Donaldson with a shareholding of 15% or 750 shares, Gary Christie and Bernadette Christie with a shareholding of 10% each or 500 shares each and Helen Astarita with a shareholding of 5% or 250 shares. There was to be a first call of $125 per share which would provide $210,000, T. B. Donaldson having already paid $10,000 and Gary Christie $30,000. Dr. Donaldson's first call would be $375,000 which would be satisfied from a sum of $462,551 due to him in respect of fixed assets purchased and development costs. The second call would be satisfied by a cash contribution though Jubé would have been indebted to him still in the sum of $87,551. This memorandum is undated.
At a meeting of the Board of Directors of Jubé on 14th February, 1983, however, shares were issued as follows:–
500 to Mr. Timothy Donaldson numbered 6-505
500 to Mr. Gary Christie numbered 506-1005
250 to Mrs. Audrey Rolle numbered 1006-1255 and
2995 to Dr. Donaldson numbered 1256-4250.
The shares were to be issued at a premium of $132.20 and on payment of that sum share certificates were to be issued.
In fact T. B. Donaldson never took up his shares. No shares were ever issued to Mrs. Rolle -- a matter which will be the subject of further comment. Mr. Ian Mitchell undertook to subscribe for 15% of the shares and Mrs. Bernadette Christie, Mr. Gary Christie's sister-in-law, undertook to subscribe for 10%.
A more detailed analysis of the evidence will in due course be taken but it suffices to state at this juncture that Jubé applied to the Bahamas Development Bank (the Bank) for a loan of $150,000 to buy machines for its factory. This was granted and disbursed by the end of July, 1983. Jubé then applied for a further loan of $750,000 which with the $150,000 already lent totalled $900,000. It was intended that Barclays Bank and Barfincor should be paid off from that loan. The remainder was to be used as working capital for Jubé. This loan was also granted on terms and conditions which will be discussed at greater length as they are the subject matter of some controversy.
Unhappily the splendid hopes of Jubé did not materialise. Tensions and disagreements developed among shareholders which could neither be skirted or solved. The cash flow situation deteriorated. The Bank, through its managing director, who had a seat on the Board of Jubé intervened. The extent and purpose of that intervention are matters of acute controversy.
Eventually in May 1984 the Bank decided to exercise powers which it claimed to have under various deeds comprising the security for the loan of $900,000 and advertised for sale the building housing Handprints and the assets of that company, the building housing the Clinic and the assets of that company and the assets of that company and the assets of Jubé.
Handprints and Jubé immediately filed suits and sought and obtained interlocutory injunctions restraining the sale. The Clinic was later added as a plaintiff and the action now to be determined took shape. In effect, therefore, the Bank seeks to enforce the debt while Jubé, Handprints and the Clinic claim that they are not, on a number of grounds, liable to pay and are indeed entitled to damages.
The principal contention on behalf of Jubé is that the Bank by reason of events which have taken place are now no longer secured creditors but have become shareholders of Jubé.
Before dealing with the detailed facts of the case it may be useful to make some general comments on the issue of the credibility of the witnesses. Mr. Wells urged that wherever there was a conflict between the evidence of Dr. Donaldson and Mr. Rolle I should accept the version given by Dr. Donaldson. There are not, in my view, that many direct conflicts and such as there are, are not of significance. Differences appear to me in the area of interpretation of the events which took place.
In support of his approach Mr. Wells stressed that Mr. Rolle had plainly been less than frank in two matters -- that of his knowledge that the Prime Minister's wife had been interested in the venture as a possible shareholder and that of his attempt to have shares issued to his wife without payment. In his evidence Dr. Donaldson stated that among the first persons who subscribed for shares was the wife of the Prime Minister who had suggested that he go to the Bank to seek backing for the project. He did go to see Mr. Rolle who stated that he wanted 5% of the shares which should be placed in his wife's name. Neither of these persons did have shares issued to them and the inference clearly conveyed was that they intended to have their shares without paying for them.
Mr. Rolle denied that he ever asked for shares for his wife. He said that on the approach for the loan Dr. Donaldson suggested that his wife could be given 5% of the shares. He had turned down the suggestion on the ground that if the Bank was to lend money to Jubé neither he nor his wife could be shareholders.
In the agreed bundle of documents -- General Correspondence Document 1 -- there is a letter dated 15 February 1983 from Dr. Donaldson to the Bank. It purports to be a proposal for a loan of $500,000 “towards the purchase and construction of a garment manufacturing plant”. It states that it has been copied to Lady Margaret Pindling, T. B....
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