Sterling Asset Management Ltd v Sunset Equities Ltd
| Jurisdiction | Bahamas |
| Judge | Madam Senior Justice Deborah Fraser |
| Judgment Date | 20 June 2023 |
| Docket Number | 2022/COM/com/00034 |
| Court | Supreme Court (Bahamas) |
IN THE MATTER of s. 68 of the International Business Companies Act
Her Ladyship The Honourable Madam Senior Justice Deborah Fraser
2022/COM/com/00034
COMMONWEALTH OF THE BAHAMAS
IN THE SUPREME COURT
COMMERCIAL DIVISION
Over-riding Objective — Rules 1.1 and 1.2 of the Supreme Court Civil Procedure Rules, 2022 — Dealing with cases justly and at proportionate cost — Request to cross-examine deponents — Affidavit Evidence — Rule 8.25 of the Supreme Court Civil Procedure Rules, 2022 — Discretionary power to direct witnesses to attend for cross-examination
Mr. Ramonne Gardiner with Mr. Wilfred P. Ferguson Jr. for the Claimant
Mrs. Gail Lockhart-Charles K.C. with Mr. Charles McKay for the Defendant
This is an application by Sunset Equities Ltd (“Sunset”) requesting cross-examination of deponents at trial.
In March of 2013, Sterling Asset Management Ltd (“Sterling”), through a series of credit facilities (“Credit Facilities”), loaned Sunset funds in the amount of USD$12,500,000. The funds were loaned to Sunset to assist it in the financing and purchase of “ 1.349 acres [and] 1.069 acres respectively situate at the South-Western junction of West Bay Street and the beachfront resort hotel formerly known as the Nassau Palm Resort” (“Property”). The Credit Facilities were also intended to cover the costs of redevelopment of the Property, which was branded as Marriott Courtyard Downtown Hotel (“Redevelopment Project”).
Under the Credit Facilities, Sterling became a shareholder of Sunset (a Shareholder's Agreement was subsequently executed by the parties). It is alleged by Sunset that, it sought to explore other financing opportunities to satisfy Sterling's loan and obtain funding elsewhere to complete construction and renovations for the Redevelopment Project. It is also alleged by Sunset that Mr. David Kosoy, (“Mr. Kosoy”) Chairman and Chief Executive Officer of Sterling, was informed of Sunset's intention to pay off its loans with Sterling and that Mr. Kosoy, as lender, had no objection to Sunset seeking financing from third parties to satisfy the loan.
Sunset further alleges that Mr. Kosoy sought to introduce a new obligation that Sunset would, in addition to paying off the loans, have to pay Sterling for the 15% equity, which it owned (by this time, Sterling claimed to be entitled to a further 5% equity in addition to the initial 10% that it received at the time that the Shareholder's Agreement was signed.). This, Sunset alleges, was the first time such a term was introduced. Sunset claims that Sterling did not provide terms that were better than terms Sunset received from third party lenders. In any event, the loan from Sterling to Sunset was ultimately satisfied.
It is also alleged by Sunset that, in July of 2016, Sterling put forward a commitment letter (“July 2016 Commitment”) requiring that $1,830,000 be deducted from a proposed $6,030,000 credit facility and be paid to Sterling to re-purchase its equity in Sunset that Sterling had received as a condition of its initial financing arrangement.
It is further alleged by Sunset that, in addition to insisting on a $1,830,000 claw back of the proposed loan proceeds for the repurchase of Sterling's equity in Sunset, Sterling also sought to make Sunset bound to it for future financing by making the July 2016 Loan Commitment conditional on the “ Agreement of the Borrower to provide the Lender and/or an affiliated company with the right of first offer and/or the right of first refusal to refinance the Project at any time”. Sunset claims that, at every turn, Sterling has attempted to prevent Sunset from seeking financing from any third parties and that Sterling is attempting to make Sunset subservient to it.
Prior to July of 2016, Sterling received monthly reports of operations of the hotel from Sunset. Sterling alleges that, since July of 2016, Sunset ceased providing Sterling with financial information relating to Sunset.
Sterling further alleges that it was also denied access to the books and records of Sunset and continues to be denied such access.
In addition, it is alleged by Sterling that Sunset has defaulted under the terms of a mortgage with SF IV BE LP (“Loan Agreement”). Sterling also asserts that Sunset's main asset, being the Courtyard Marriot Hotel, was recently sold under a power of sale and Sunset appears to be insolvent. Sterling further alleges that details of the sale were never provided to Sterling.
In accordance with the Loan Agreement entered between Sunset and SF IV BE LP, Sunset received $2,300,000.00, the proceeds of which have been allegedly allocated to all of its shareholders, save and except Sterling. Sterling also claims that no accounting of this transaction was ever provided to Sterling.
Sterling then commenced Winding Up proceedings by petition as against Sunset on the basis that Sunset was insolvent.
After a myriad of litigation, Sunset withdrew its petition for Winding Up. Following a ruling made by the Court of Appeal (SCCIVApp 152 of 2022) where it indicated that s. 68 of the International Business Companies Act, 2000 (“Act”) is the correct mechanism to seek inspection of books and records of Sunset, Sterling then made a request (pursuant to s. 68 of the Act) by letter dated 11 March 2022 to Sunset.
On 28 March 2022, Sunset denied the request on the basis that such request was not made in good faith or for a proper purpose. Page 3 of that letter states:
“ The record reflects that Sterling has acted in bad faith and has abused its dual position as shareholder and money lender…Sunset is aware that Sterling is seeking discovery of Sunset's books and records via S 68 in order to obtain information to support the filing of a further winding up petition against Sunset. This is not a proper purpose, as Sterling is contractually bound by the Shareholders Agreement not to present or cause to be presented any petition for the Winding up of the Company.”
By Originating Summons filed on 24 June 2022, Sterling seeks an order of the Court pursuant to s. 68 of the Act and its inherent jurisdiction for inspection of Sunset's books and records.
Both parties then filed several comprehensive affidavits advancing their respective cases for the action.
Prior to the substantive hearing of the matter, Sunset's counsel made a request to cross-examine the deponents of affidavits filed by Sterling. Sterling's counsel objected to this request.
The issue that the Court must decide is whether deponents of the affidavits ought to appear in court for cross-examination.
Sunset's counsel asserts that cross-examination is not only appropriate in the instance case, but is essential. Counsel submits that the issue before the Court is not straight forward and if cross-examination was not permitted, it would contravene the overriding objective of the Supreme Court Civil Procedure Rules, 2022 (“CPR”).
Sunset's counsel further asserts that the action concerns disclosure of Sunset's books and records, pursuant to section 68 of the Act and that this will require the Court to resolve conflicting evidence contained in the affidavits filed by the parties. Counsel maintains that, in order for the Court to provide a proper and fair evaluation of the evidence, cross-examination of the deponents is essential.
Counsel then cites s. 68 of the Act, which reads:
“ 68. (1) A member of a company may, in person or by attorney and in furtherance of a proper purpose, request in writing specifying the purposes, to inspect during normal business hours the Share Register of the company and the books, records, minutes and consents kept by the company and to make copies of extracts therefrom.
(2) For the purposes of subsection (1), a proper purpose is a purpose reasonably related to the member's interest as a member.
(3) If a request under subsection (1) is submitted by an attorney for a member, the request shall be accompanied by a power of attorney authorising the attorney to act for the member.
(4) If the company, by a resolution of directors, determines that it is not in the best interest of the company or of any other member of the company to comply with a request under subsection (1), the company may refuse the request.
(5) Upon refusal by the company of a request under subsection (1), the member may before the expiration of a period of 90 days of his receiving notice of the refusal, apply to the court for an order to allow the inspection.”
Counsel then asserts that the crux of the matter is determining whether or not such disclosure sought by Sterling is for a proper purpose. This, counsel submits, can only be determined on the particular facts of the case. Sunset's counsel relies on the case of Fruit Shippers Ltd. v Pembroke Company Ltd et al [1999] BS 1999 CA 31 (“ Fruit Shippers”) to support this assertion. The case discusses s. 66 of the former legislation – the International Business Companies Act, 1989. Section 68 of the Act mirrors s. 66 of the former legislation, thus making Fruit Shippers relevant to the instant case. In Fruit Shippers, Gonsalves-Sabola P opined:
“ 13. I have come to the conclusion that the disposition of this appeal does not require the court to make a definitive categorization of facts and circumstances which would constitute or not constitute “a proper purpose” within section 61(1) of the Act. I think that in the application of the section, the court ought to proceed on a case-by-case basis. What is being construed is relatively virgin legislation in The Bahamas, and authority on the precise parameters of the phrases in subsections (1) and (2) is lacking. Therefore, the court should restrict itself to the determination as to whether the particular facts of...
To continue reading
Request your trial