Court name
Court of Appeal of Turks and Caicos Islands
Case number
CL-AP 22 of 2016

Urban Development Ltd. v. AG TCI (CL-AP 22 of 2016) [2016] TCACA 2 (21 February 2016);

Law report citations
Media neutral citation
[2016] TCACA 2
Coram
Mottley, P
Forte, JA
Stollmeyer, JA

IN THE COURT OF APPEAL

TURKS AND CAICOS ISLANDS

CIVIL APPEAL No. 22 of 2016

BETWEEN:

URBAN DEVELOPMENT LTD

APPELLANT

AND

THE ATTORNEY GENERAL OF THE TURKS AND CAICOS ISLANDS

RESPONDENT

BEFORE:

The Honourable Mr. Justice Elliott Mottley,  President

The Honourable Mr. Justice Forte,   Justice of Appeal

The Honourable Mr. Justice Stollmeyer, Justice of Appeal

APPEARANCES:

Mr Martin Green for the Appellant

Mr David Phillips. Q.C. and Mr. Patrick Patterson for the Respondent

Date Heard: 12 & 13 September 2016

Date Delivered: 21 February, 2016

JUDGMENT

Stollmeyer J.A.

[1]           On 13 September 2016 we dismissed this appeal with costs to the Respondent to be taxed if not agreed. This is the written judgement.

[2]           The appeal is from the decision of Ramsey-Hale CJ of 18 January 2016 (entered 08 March 2016) granting summary judgment to the Respondent (UDL) for $1,368,000.00 with interest and costs to be taxed if not agreed.

[3]           The outcome of the appeal turns on the correct interpretation or construction of a term in the sale of a parcel of land by the Crown to UDL. That provision is in the form of a covenant entered into by UDL as follows:

"2. In transferring the property at the consideration mentioned above, the Crown has allowed the Transferee [UDL] a discount of ONE MILLION THREE HUNDRED AND SIXTY EIGHT THOUSAND US DOLLARS ($US1,368,000.00) hereinafter called "the Discounted Value") and the Transferee hereby covenants with the Crown to pay to the Crown immediately the Discounted Sum if within the period of ten years from the date hereof (a) less than 51% of the shares of the Transferee are owned or controlled by a "Belonger" (as that expression is defined in the Immigration Ordinance 1992 or any amending legislation) or Belongers Or (b) the Discounted Sum prorated to the amount of Property transferred if there is a transfer by way of sale or otherwise of the Property to any person who is not a "Belonger."

[4]           The Discounted Sum was $1,368,000.00. Ramsey-Hale CJ held that the shareholding in UDL was beneficially controlled and by owned by non-Belongers and that this triggered the obligation to repay the Discounted Sum. Further, she rejected the Appellant's contention that a company is controlled by its directors and that since the directors of UDL are Belongers there had been no breach of the covenant in question.

[5]           UDL's Grounds of Appeal can be distilled to say that the finding that UDL was controlled by its shareholders is contrary to law. That finding is also unsupported by the evidence and is unreasonable.

[6]           In short, the thrust of the appeal is that since the shares in UDL are held by Blue Resorts Developments Ltd (Blue Resorts) and the directors of Blue Resorts are all Belongers, then UDL is controlled by Belongers. Control of UDL is the governing factor and control is to be regarded separately from ownership. Once there is control of the company, the question of who owns the shareholding, legally or beneficially, is of no relevance.

[7]           On behalf of the Respondent, it was submitted that the issue to be decided is ownership or control of the shareholding of UDL, not control of the company UDL. Clearly, it is submitted, both ownership and control of the shares is in the hands of non-Belongers. That, it is further submitted, puts the matter beyond doubt: the shares are 100% held by non-Belongers and the covenant has been breached. Further, and in any event, the shareholding in UDL is ultimately controlled by non-Belongers

The Background

[8]           The Chief Justice sets out fully the evidence in her judgment and it is unnecessary to rehearse the facts here. It is enough to say that:

1.             the beneficial shareholding of UDL is ultimately 100% held by non-Belongers. This was conceded by Counsel on behalf of UDL during oral submissions at the hearing of the appeal. On that basis it is not necessary to examine the structure of its shareholding and who owns either the legal or beneficial interest in its issued shares. It also disposes of the ground of appeal that goes to the issue of the Chief Justice having erred in her findings of fact. Further, it removes the necessity to deal with the issue of whether the shares in UDL were, or are, held in trust as was raised in the Respondent's skeleton arguments;

2.             the sole shareholder of record of UDL is Blue Resorts. The Directors of Blue Resorts are Hibernian Directors Ltd and Sean O'Neill. It is common ground that they are the directors of both UDL and Blue Resorts and that they are Belongers;

3.             In February 2006 the Crown, the Turks and Caicos Government and UDL entered into a Development Agreement for a parcel of land which, among other terms, provided for the repayment by UDL of a Discounted Sum in accordance with Clause 2 and paragraph 3 of the Second Schedule to the Transfer instrument;

4.             the Transfer instrument was signed by the then Governor of the Turks and Caicos Islands on 02 May 2006, the day after UDL paid the consideration of US$1,367,000.00 for the parcel of land. The Transfer states that the Discounted Sum is US$1,368,000.00 and Clause 3 provides that the covenant to repay is to be a contractual term of the sale;

5.             previously, on 13 April 2006, the Directors of UDL approved the transfer of all the shares held by the Belongers to Blue Resorts. Blue Resorts had been incorporated on 05 October 2005 and its sole shareholder was then Hugh O'Neill. Its Directors were Hibernian Directors Ltd and Sean O'Neill, Hugh O'Neill's son. Hugh O'Neill is the sole shareholder of Hibernian Directors Ltd;

6.             on 11 April 2006 Hugh O'Neill had already paid US$6,800.000.00 to one of the Belongers as the purchase price for all of the shares in UDL held by the Belongers. That money was provided by non-Belongers.

[9]           In short, non-Belongers paid for the shares, and the transfer from the Belongers was approved prior to the Transfer instrument being signed on 02 May 2006. This may call into question the efficacy of the Transfer itself, but that is not an issue before this Court. Nor is the payment to the Belongers for their shares being more than four times what they had paid to the Crown for the parcel of land in question. Contrary to the submission on behalf of the Appellant, however, the fact that UDL was beneficially owned by non-Belongers at the time of the transfer does not create any "inherent uncertainty" as to the interpretation of Clause 2 of the Transfer.

Analysis

[10]         Clause 2 has to be read in conjunction with Clause 3 of the Transfer instrument:

"The liability arising under the covenants by the Transferee contained in Clause 2 and paragraph 3 of the Second Schedule shall form a contract between the Transferor and the Transferee and shall be enforceable as a debt in the Supreme Court"

Paragraph 3 of the Second Schedule to the Transfer provides:

"Within ten years of the date hereof, not to transfer by way of sale or otherwise the Property to any of the following persons without first notifying the Crown and repaying the Discounted Value………

1………

2 to a company (as defined in the Companies Ordinance) which is registered in the Turks and Caicos Islands and less than 51% of its shares are owned or controlled by a person who is not a Belonger or Belongers"

[11]         In my view, the wording of the relevant part of Clause 2 is clear. Perhaps expressed somewhat differently the effect of it is simply this: if at any time within ten years after the date of the Transfer, more than 51% of the shares in a transferee (in this case UDL) become either controlled or owned by a person or persons (including, for the sake of clarity, limited liability companies, partnerships or the like) who are not Belongers, then the covenant is breached and the obligation to pay the Discounted Sum arises immediately.

[12]         There is no ambiguity or need for clarification when the wording of the provision in the Transfer is examined, as suggested on behalf of UDL. Nor is there any need to apply the maxim of contra proferentem in deciding whether "control" relates to the shareholding in a company or to control of the company's affairs. It is pellucid that it is the shareholding. There can be no other interpretation.

[13]         While it may not be necessary to examine what intention underlay the provision, it is beyond doubt that the intention was, and is, that where land is sold to a Belonger with the benefit of a discounted price, then the Discounted Sum is to be paid to the Crown immediately on a disposition of whatever nature to a non-Belonger. No other intention can be read into the transaction.

[14]         Even if there were a need to examine the intention of the parties, the outcome would be no different. In interpreting a written contract a court is concerned to identify the intention of the parties by referring to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language of the contract tom mean" (per Lord Hoffman in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, para 14, referred to by Lord Neuberger in Arnold v Britton [2015] AC 1627 at para 14).

[15]         Applying the appropriate parts of the test at paragraphs 17 et seq of Arnold v Britton, it is evident "... what the parties meant through the eyes of a reasonable reader ...". The parties in this case were both aware of the circumstances surrounding the sale/purchase and this covenant was a standard provision in sales of this nature. It reflected the standing policy of the Government relating to sales of Crown land and was well known.

[16]         Having come to this conclusion, there is no need to deal with the Appellant's contention that control of UDL was in the hands of Belongers based on the directors all being Belongers. The Chief Justice dealt with this contention in detail but is sufficient to say here, first, that the covenant cannot properly be interpreted to say that "control" is control of UDL, the company. It is control of the shares.

[17]         Second, while shareholders may cede control of day to day operations to a manager - or a Managing Director, as is very often the case - and, similarly, leave matters of policy to a Board of Directors, the ultimate control of the both the directors (and through them the managers) resides with the shareholders. It was conceded on behalf of the Appellant during oral submissions that "at some point, yes, the directors must answer to the shareholders" so it cannot be that, as had been advanced previously in oral submissions, that because the shares [in UDL] are held by a company [Blue Resorts]; the company controls the shares; and the directors [of UDL] answer to no one.

[18]         It is not in dispute that Hibernian Directors Ltd and Sean O'Neill are nominee directors. Nominee directors, as the Chief Justice pointed out correctly in her judgment (at paragraphs 41-42), can (and in fact often do), take into account and act in the interests of those who appoint them without breaching their duty to the company. This reflects commercial reality. They cannot, in my view, ignore the appointors or their interests and they are always subject to removal by the shareholders.

Disposition

[19]         The findings and conclusions of Ramsey-Hale CJ were correct. It is clear (as was very properly conceded) that beneficial, if not legal, ownership of the all shareholding in the Appellant is held ultimately by non-Belongers, and that this triggers the contractual obligation to pay the Discounted Sum to the Crown. Not only do non-Belongers own the beneficial interest in the shares, they control the shares. That the directors of Blue Resorts/UDL are Belongers is of no moment. Even if the covenant were to be interpreted as the Appellant contends it would make no difference to the outcome.

[20]         In the circumstances the appeal was dismissed and the judgment below affirmed. There was no reason to award costs other than that they were to follow the event, as was properly conceded on behalf of the Appellant. The Appellant is therefore to pay the Respondent's costs of the appeal, to be taxed if not agreed.

Stollmeyer JA

I agree

Mottley P.

I agree

Forte JA