IN THE COURT OF APPEAL OF TURKS AND CAICOS ISLAND
ANDREW NEWLANDS APPELLANTS
STANDARD STAR INSURANCE
COMPANY LIMITED RESPONDENT
The Rt. Hon Edward Zacca - President
The Hon Ira D. Rowe - Justice of Appeal
The Hon Elliott D. Mottley - Justice of Appeal
Martin Green of McCollum & Newlands for the Appellants. Carlos Simons, QC of Miller Simons O’Sullivan for the Respondent.
August 2003; 30 January 2004
1. On 22 January 2003, the learned Chief Justice gave judgment against the first and second defendant in the following terms:
(i) a declaration that the plaintiff is entitled, subject only to an equity of redemption, to the shares referred to in the Statement of Claim in:
(1) Blue Tang;
(2) Freeman Properties;
(3) Coconut Grove;
(4) Cockburn IC;
(5) Landfall DC;
(7) Grand Turk Hotels; and
(ii) a declaration that the said equities of redemption are extinguished and that the First and Second Defendants are, respectively, foreclosed.
(iii) that there be an account of what profits the first and second defendant may have made on the relevant shares since the dates of their pledge to the plaintiff.
2. The defendants were given unconditional leave to defend in respect to paragraph 5 of the Statement of Claim and paragraph (e) of the Summons seeking an Order that "there be an inquiry as regards what by way of damages or compensation is due to the plaintiff as a consequence of the first and second defendants procuring of the liquidation of Ireena Enterprises plus the other share mentioned above.
3. The appellant appealed against the judgment on three grounds:-
(i) that the Chief Justice was wrong in law in holding that the “Letters of Notification" were effective to dispose of any beneficial interest which may have been held by the appellants;
(ii) that the Chief Justice was wrong in law in holding, In effect, that an equitable mortgage can arise in the absence of a contractual relationship between the parties;
(iii) there was no evidence to support the implicit findings of the Chief Justice that the Respondent has performed its forbearance agreement with Mr. Bodhanya.
4. In his judgment, the Chief Justice stated;
(i) the third defendant instructed the first and second defendants to pledge to the plaintiff certain assets held by them as or purportedly as assets of the Evian Settlement ("Evian assets"), namely interests in the share capital of certain other companies. The first and second defendants, as set out in more detail below, did pledge such assets accordingly.
(ii) the said pledges were either (1) security for the third defendant’s own obligation to satisfy the demand made of him or (2) security for the obligation of the first and second defendants as trustees of the Evian assets. If the latter, such obligation arose either (a) because the third defendant was entitled himself to deal with the Evian assets or (b) because the first and second defendants accepted his directions or request that they as trustees of the Evian assets should undertake to meet his obligation to satisfy the demand made of him. They did so undertake and the plaintiff gave considerations by forbearing to pursue the third defendant. The plaintiff will, if necessary for its claim (which the plaintiff says it is not), ask the Court to infer that the Evian Settlement had directly or indirectly received or received benefit from, the third defendant's aforesaid misappropriations.
(iii) the third defendant instructed the first and second defendants to order their nominees holding the pledged assets on their behalf to hold them, pending the plaintiff's notification of the release of the pledges, to the account of the Plaintiff. The first and second defendants, as set out in more detail below, gave notice of such assignments for their interests to their nominees accordingly.
5. Later he stated that he considered that he has to decide the summons against the factual background that the defendants signed the letter of notification in which the plaintiff relied and they signed them in their capacity as trustees of a valid trust in favour of unknown third party beneficiaries in respect of property held on terms of the trust. He indicated that he did not think that the expression 'pledge' as used in the letters should be construed as a terms of art. The Chief Justice adopted the approach that it was important to look at the document as a whole and to examine its true impact and effect rather than to concentrate on what name was given to the document. In adopting this approach, the Chief Justice was, in our view, correct.
6. Having examined the document he concluded that on the face of the transaction, the defendants intended to offer their beneficial interest in the shares as security for payment for the debt due by Mr. Bodhanya.
7. He accepted the submission of the respondent ‘that the letters constituted some form of equitable assignment of the transfer of the second defendant’s beneficial interest in the shares’. The Chief Justice held:
“In that respect a nominee shareholder holds as bare trustee for the real owner, that is the effect of S.3 of the Trust Ordinance. The real owner may himself transfer his interest to or settle it on another. No formality is required for this. A trust may come into being by means of an oral declaration or a written instrument: see Ibid S.7 but the principle is beyond doubt, see Grey v. I.R. Commissioner (1958) 2A11ER 428 at 434 C.A. per Lord Evershed MR, (1959) 3 A11 ER 603 at 608, HL per Lord Radcliffe.
8. The judge expressed the opinion that "the letter of notification to the nominee in each case was capable of creating a trust of the beneficial interest of the respective shares. By the delivering of the letters to the respondent, the equitable mortgagee was created in favour of the respondents in respect of the shares mentioned in each letter.
9. In our view, the Chief Justice reached the correct conclusion.
10. The appellants submitted that the respondents were seeking to enforce a forbearance agreement with Mr. Bodhanya. By suing Mr. Bodhanya, the respondent either repudiated that contract or elected to treat him as having done so. Counsel complained that the judge suggested that forbearance agreement may have contained a term limited to its operation. He suggested that in the absence of any evidence of the forbearance agreement this finding was not open to the judge.
11. Counsel for the respondent submitted that in the facts the respondent has refrained from suing Mr. Bodhanya, from the date of the pledges in October 1998 until instituting proceedings in May 2001 in Action No: CL 31/01 against Mr. Bodhanya.
12. The trial judge in the “forbearance on our side, had been met with the giving of security by the other”. He did not think that there was any reason to imply, into the terms of the security a condition that the respondent would forbear for ever. Since the reason for giving the security would be to secure the plaintiff in the event Mr. Bodhanya failed to make full repayment. He correctly concluded that the security would have been worthless if it was not open to the respondent to seek to realize the security.
13. It was for these reasons that we dismissed the appeal with costs to the respondent to be taxed or agreed.
ROWE, J. A.
MOTTLEY, J. A.