Lockhart and Munroe (A Firm)(as Escrow Agents) v Mitsui Sumitomo Insurance (london Management) Ltd et Al

• Jurisdiction: Bahamas
• Judge: Turner, J.
• Judgment Date: 12 October 2010
• Court: Supreme Court (Bahamas)
• Docket Number: CLE/gen No. 814 of 2009
• Date: 12 October 2010

Supreme Court

Turner, J.

CLE/gen No. 814 of 2009

Lockhart and Munroe (a Firm) (as Escrow Agents)

and

Mitsui Sumitomo Insurance (london Management) Limited et al

Appearances:

Mr. Brian Moree QC and Mr. Oliver Liddell for Aero General Aviation Ltd. as assigned to Mountain Lake Development Corporation.

Ms. Simone Fitzcharles and Mr. Jason Hepburn for 1st thru 8th Interpleader plaintiffs.

Civil practice and procedure - Evidence Act — Burden of proof — Court called on to determine who should be the plaintiff and the defendant in a dispute related to an Escrow Agreement — Ruling that the intended vendors be the plaintiff and intended purchaser be the defendant.

Turner, J.

1 This is an action for Interpleader Relief brought by way of Originating Summons filed by the plaintiff Lockhart and Munroe (a firm) as Escrow Agents May 19, 2009, pursuant to the provisions of Order 17 of the Rules of the Supreme Court.

2 During a Case Management hearing in respect of the matter, the Court was requested to direct which of the claimants (referred to as (1) Interpleader plaintiffs and (2) Interpleader plaintiff in the Originating Summons) in respect of the subject matter in dispute (a deposit held in an Escrow Account at Scotia Bank (Bahamas) Ltd.) should be made the plaintiff and which should be made the Defendant, as per Order 17, rule 5(1)(b). This Ruling is in respect of that issue only.

3 The dispute the subject of this matter arose from an Asset Sale Agreement (the “ASA”) signed by the claimants 3 February 2009 in respect of the intended sale of the Emerald Bay Resort Hotel and other assets in Exuma, The Bahamas by (1) Interpleader plaintiffs as Vendors to (2) Interpleader plaintiff as Purchaser. Pursuant to this ASA, the claimants (the Vendor and Purchaser) and Lockhart and Munroe, as Escrow Agents, entered into an Escrow Agreement of the same date as the Asset Sale Agreement. By this Agreement, the Purchaser (AERO/MLDC) was to deposit certain sums of money (the “Funds”) with the Escrow Agent for disbursement pursuant to the ASA and in accordance with the provisions of paragraph 5 of the Escrow Agreement. Paragraphs 5 of the Escrow Agreement state:

5 “Disbursement of Funds. Disbursements of Funds by Escrow Agent pursuant to the Asset Sale Agreement shall be governed by the following provisions:

• (a) Payment to Vendors. Following Completion (as contemplated in the Asset Sale Agreement), Escrow Agent promptly shall pay the Funds to Vendors.

• (b) Purchaser Breach. If Purchaser breaches the Asset Sale Agreement, Vendors and Purchaser shall provide to Escrow Agent such notices as set forth in the Asset Sale Agreement, and Escrow Agent shall disburse the Funds as set forth therein.

• (c) Vendors' Breach. If the Vendors breach the Asset Sale Agreement, the Purchaser shall provide the Escrow Agent such notices as set forth in the Asset Sale Agreement and the Escrow Agent shall disburse the Funds as set forth therein.

• (d) Purchaser Termination.

  • (i) Following Escrow Agent's receipt of Purchaser's written termination of the Asset Sale Agreement in accordance with the Asset Sale Agreement (“Purchaser's Notice”), Escrow Agent forthwith shall provide a notice to Vendors of the receipt of the Purchaser's Notice together with a copy thereof. Similarly, following the Escrow Agent's receipt of Vendors' written termination of the Asset Sale Agreement in accordance with the Asset Sale Agreement (“Vendors Notice”) the Escrow Agent forthwith shall provide a notice to the Purchaser of the receipt of the Vendors' Notice together with a copy thereof. Any notice delivered by the Escrow Agent pursuant to the provisions of this paragraph is hereinafter referred to as an “Escrow Agent's Notice”.

  • (ii) If any party (the “objecting party”) objects to the disbursement of the Funds, the other party (the “non-objecting party”) within ten (10) days after the receipt of the Escrow Agent's Notice, the objecting party shall provide a notice to Escrow Agent containing the reason(s) for the objection (the “Objection”). Within five (5) business days after its receipt of the Objection, Escrow Agent shall provide a copy of the Objection to the non-objecting party and shall continue to hold the Funds in the Escrow Account until either (A) Escrow Agent receives instructions for payment in writing signed jointly by Purchaser and Vendors or (B) it is directed to make payment of the Funds by a court of competent jurisdiction in The Bahamas, at which time Escrow Agent shall make payment as instructed or ordered.

  • (iii) If the objecting party fails to provide the Objection to Escrow Agent within ten (10) days after its receipt of the Escrow Agent's Notice or consents in writing to the disbursement of the Funds to the non-objecting party, Escrow Agent promptly shall pay the Funds to the non-objecting party.

  • (iv) Dispute as to Amounts on Closing Statement. If there is a dispute between Vendors and Purchaser as to amounts on the Closing Statement, the disputed amount is to be paid to Escrow Agent in accordance with the Asset Sale Agreement. Vendors and Purchaser jointly shall provide Escrow Agent with a written notice as to how the funds are to be disbursed, and Escrow Agent shall disburse the Funds within a reasonable time as set forth therein.

  • (v) Disbursement of Funds. Notwithstanding any other provisions of this Paragraph 5, Escrow Agent shall not disburse any Funds until after the receipt by Escrow Agent of such Funds (subject to clearance). Any interest on the applicable Funds shall be paid on disbursement of the applicable Funds which shall be paid in accordance with the Asset Sale Agreement. Escrow Agent shall have no liability or any further responsibility to any party or person whomsoever for any disbursement of the Funds made by Escrow Agent in good faith unless such disbursement shall constitute a wilful breach of the duties and obligations of Escrow Agent under this Agreement or gross negligence on the part of Escrow Agent.”

4 Pursuant to clause 7 of the Asset Sale Agreement, the purchaser deposited, on the 13 February 2009 and the 4 March 2009, the total sum of three million dollars with the Escrow Agent. By letter dated 31 March 2009 from Mr. William Levinson (on behalf of AERO/MLDC) to Mr. Elliott Lockhart as Escrow Agent, Mr. Levinson states, in part:

“As you know, pursuant to section 71(a) and (b) of the ASA, you are holding, as Escrow agent thereunder, in escrow US$3,000,000 (exclusive of interest earned thereon)(the “Deposit” or “Funds”). Pursuant to section 3.1 of the ASA, the purchase of the Assets is conditional upon the approval of the Purchaser to own and operate the Assets (the “BIA Approval”) by The Bahamas Investment Authority (National economic Council) (the “BIA”). The BIA Approval must be delivered by March 31, 2009 under the ASA. Based upon information transmitted to MLDC by the BIA, the BIA Approval has not been delivered as required by the ASA. Therefore, the Condition has not been satisfied and the ASA has terminated by its terms. Accordingly, in accordance with the terms of (i) Section 3.7 of the ASA, the Deposit must be released to the Purchaser in accordance with subclause 7.1(d)(iii) of the ASA and (ii) the Escrow Agreement annexed to the ASA as Schedule 12, the Funds must be released to MLDC. You have instructions from Aero to return the Deposit or Funds (as defined under the Escrow Agreement), as the case may be, to MLDC.”

5 As can be seen from paragraph five of the Escrow agreement, this Notice constituted a Purchasers Notice and triggered an Escrow Agent's Notice to the Vendors.

6 In response, the Vendors, by letter dated 2 April 2009 from Mr. David Johnstone of counsel for the Vendors, wrote to the Escrow Agent in the following terms (in part):

“We write on behalf of our client, the Vendors, in reference to the captioned and in reference to the escrow agreement signed on February 3, 2009 by the parties to the ASA (the “Escrow Agreement”).

………

The Escrow Agent has advised us of their receipt of the Purchaser's Notice (the “Demand Letter”) pursuant to clause 5(d)(ii) of the Escrow Agreement. This letter constitutes our client's notice of Objection under clause 5(d)(ii) of the Escrow Agreement.

7 After setting out other matters, the letter concludes with the following:

“In the premises, on the instructions of our client, and pursuant to sub-clause 5(d)(ii) of the Escrow Agreement, we hereby formally object to the release of the Deposit to the Purchaser. The reason for our objection is that the Deposit is forfeit under sub-clause 3.6 of the ASA and as such, is now due to the Vendors.

Accordingly, please promptly remit the Deposit together with any accrued interest to the undersigned.

We reserve all rights in relation to this matter.

………”

8 In these circumstances, the terms of the Escrow Agreement, the already cited sub-clause 5(d)(ii), required:

“Within five (5) business days after its receipt of the Objection, Escrow Agent shall provide a copy of the Objection to the non-objecting party and shall continue to hold the Funds in the Escrow Account until either (A) Escrow Agent receives instructions for payment in writing signed jointly by Purchaser and Vendors or (B) it is directed to make payment of the Funds by a court of competent jurisdiction in The Bahamas, at which time Escrow Agent shall make payment as instructed or ordered.”

9 It is apparent that (A) above has not taken place and so the Escrow Agent instituted these proceedings in order to be able to be directed b a court of competent jurisdiction in The Bahamas.

10 The terms of the various provisions of the ASA cited in the Vendors and Purchasers respective letters (clauses 3 and 7.1) are as follows:

3. CONDITION PRECEDENT

3.1 The sale and purchase of the Assets is conditional upon the approval of The Bahamas Investment Authority (National Economic Council) for the...