Court name
Court of Appeal of Turks and Caicos Islands
Case number
CL-AP 30 of 2016

Potts v. Holmes (CL-AP 30 of 2016) [2018] TCACA 14 (25 April 2018);

Law report citations
Media neutral citation
[2018] TCACA 14
Coram
Mottley, P
Stollmeyer, JA
Weekes, JA

IN THE COURT OF APPEAL

TURKS AND CAICOS ISLANDS

CIVIL DIVISION

CL-AP 30 OF 2016

BETWEEN

CRAIG K. POTTS APPELLANT

AND

ROSCOE L. HOLMES RESPONDENT

BEFORE:

The Honourable Mr. Justice Mottley,              President

The Honourable Mr. Justice Stollmeyer,         Justice of Appeal

The Honourable Mme Justice Weekes,           Justice of Appeal

APPEARANCES:

Mr. Conrad Griffiths QC for the Appellant

Mr. Chalmers Misick for the Respondent

22nd November & 01 December 2017; 25 April 2018

JUDGMENT

Stollmeyer, JA

[1]           On 01 December 2017 we allowed this appeal and set aside the orders of Ramsey-Hale, CJ, made 06 October 2016. We also ordered the Respondent to pay the Appellant's costs of the appeal and of the related proceedings below. This is the written judgment.

[2]           The appeal is against the Orders of Ramsey-Hale CJ made 06 October 2016, setting aside leave previously granted to the Appellant (Mr. Potts) to serve a Writ of Summons on the Respondent (Mr. Holmes) out of the jurisdiction.

Background

[3]           Mr. Potts and Mr. Holmes are American businessmen with business interests in the Turks and Caicos Islands. Mr. Potts owns and operates a business in Providenciales.

[4]           In late 2015, he received a letter from Mark J. Kallenbach of Minnesota, United States of America on behalf of Mr. Holmes. That letter lies at the basis of litigation that ensued. It refers to a Memorandum of Understanding ("MOU") dated April 9 2008 and calls on Mr Potts to perform his obligations under the MOU, including the making of certain payments and providing a range of information. It also threatens arbitration proceedings in Minnesota, USA and putting into receivership property owned by Mr Potts in TCI.

[5]           Mr. Potts' Attorney responded to the letter of 15 November 2015 asserting that the MOU was fraudulent and alleging that his signature was a forgery. He then issued a Writ of Summons in the Turks and Caicos Islands on 14 December 2015, together with a Statement of Claim, which can, as Mr. Griffith acknowledged in the course of the hearing before us, be described as a preemptive strike. The Writ sought a range of relief including:

“(i)          Damages arising from the Defendant's deceit in preparing a forged instrument, namely a Memorandum of Agreement made on 9th April, 2008, purporting to bear the Plaintiff's signature;

(ii)           ...;

(iii)         A declaration that the Plaintiff's purported signature on that Memorandum of Agreement is a forgery and/or that the Memorandum of Agreement is a fraudulent document created by the Defendant without the knowledge or consent of the Plaintiff;

(iv)          A declaration that in any event, the Memorandum of Agreement is not a binding agreement;

(v)           A declaration that in any event the Defendant is estopped from relying on the Memorandum of Agreement;

(vi)          An injunction restraining the Defendant whether by himself, his servants agents, or otherwise howsoever from representing to any third party, body or agency including without limitation the Gaming Commission of the Turks and Caicos Islands and any person within the Turks and Caicos Island that the Memorandum of Agreement is a genuine document which gives rise to a binding agreement and liabilities on the part of the Plaintiff. ”

[6]           Mr. Holmes being resident in the United States, Mr. Potts applied for and obtained from the Acting Registrar of the Supreme Court on 17 December 2015 an Order granting him leave to serve the Writ and the Statement of Claim on Mr. Holmes out of the jurisdiction under the provisions of Order 11 rule 1 (1)(b) of the Civil Rules 2000. The Writ and Statement of Claim were served subsequently.

[7]           Mr. Holmes then instituted proceedings in the District Court, First Judicial District, County of Scott, Minnesota, USA, on 1 March 2016 seeking a declaration as to the validity of a contract as evidenced by the MOU. He did not invoke the arbitration provision in the MOU, but no issue was raised as to this.

[8]           It is not necessary for the purposes of this appeal to dwell on the details of the Minnesota litigation. It is sufficient to say that Mr. Holmes claim was dismissed on an application made for dismissal made by Mr. Potts alleging that Mr. Holmes' claim was fraudulent or, alternatively, that the MOU was unenforceable because it lacked consideration and omitted material terms. The claim was dismissed on 08 March 2017, the Court holding that the MOU was not an enforceable contract.

[9]           In the meantime, as has been noted, the Chief Justice set aside on 06 October 2016 the leave previously granted by the Acting Registrar.

[10]         The grounds of appeal are extensive but can be summarised as being that the Chief Justice erred in law and in fact when concluding that leave to serve outside the jurisdiction should not have been granted and that the Court had no jurisdiction to hear the Writ of Summons.

[11]         The submissions before us were also extensive but those on behalf of Mr. Potts may, again, be summarised as follows:

(i)            The Chief Justice failed to address the nature of all the relief claimed in the Writ and in particular, a claim for a declaration which is a proper and recognised cause of action under the provisions of Order 15 rule 16 of the Civil Rules 2000. A declaration as to the invalidity of the MOU is a suitable case for a declaration and the Chief Justice overlooked this;

(ii)           An injunction as a further, or as a complementary relief to a declaration of unenforceability is a proper part of the substantive relief sought. No anti-suit injunction was sought, as the Chief Justice apprehended;

(iii)          It is wrong to say that Mr. Potts was unable to establish a claim for liability on a wrongdoing as a prerequisite to the grant of an injunction. A forged document, submits Mr Griffiths, entitles the party prima facie to a declaration that the document is a forgery and an injunction to prevent anything being done based upon the forged document is a proper remedy to seek.

[12]         Mr. Misick submitted on behalf of the Respondent, in essence, that the validity or enforceability of any contract under the MOU having been determined by the Minnesota Court effectively brought the litigation between the parties to finality and that it would be an abuse of the Court's process to allow this appeal to continue.

[13]         Mr. Griffiths acknowledged that the Minnesota dismissal of Mr. Holmes' claim to an enforceable contract effectively disposes of the substantive TCI litigation, where the principal remedy sought was a declaration that the MOU was not an enforceable contract. It can therefore be said that the issues of leave and service fall by the wayside since pursuing it would appear to be of little or no consequence, but the issue of the costs of both the appeal and the related proceedings below are a live issue and remain to be decided. Mr Griffiths also put forward that Mr Potts wants to have the comfort of a TCI court holding that he is not liable to Mr Holmes, particularly in view of the allegations of deceit and forgery, but that would not conduce an ongoing business relationship between the parties which I understand exists.

Analysis

[14]         Applications for leave to serve a Writ out of the jurisdiction fall under the provisions of Order 11 of the Civil Rules 2000, which is headed "Service of Process, etc., Out of the Jurisdiction"

[15]         Under the subheading "principal cases in which services of Writ out of the jurisdiction is permissible" (Order 11 r.1) it reads as follows:

1.(1) Service of a writ out of the jurisdiction is permissible with the leave of the court if in an action begun by the writ -

(a)           ...;

(b)           An injunction is sort ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of a failure to do or the doing of that thing);

(c)           ....;

(d)           the claim is brought to enforce, rescind, dissolve, annul or otherwise affect the contract, or to recover damages obtained by the relief in respect of a contract, deemed (in either case) a contract which...;

(e)           the claim is brought in respect of a breach permitted within the jurisdiction of a contract made within or out of the jurisdiction, and irrespective of the fact, if such be the case, that the breach preceded or accompanied by a breach committed out of the jurisdiction that rendered impossible the performance of so much of the contract as ought to have been performed within the jurisdiction;

(f)            the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction;

(g)           ....;

(h)           the claim is brought to construe, rectify, set aside or enforcing Ordinance, deed, will, contract, obligation or liability affecting land within the jurisdiction;

(i)            the claim is made for a debt secured or the movable property or is made to assert, declare or determine proprietary or possessory rights, or rights of security in or over movable property, or to obtain authority dispose of movable property, situate within the jurisdiction;

(j)            ..."

[16]         The remaining provisions of Order 11 r. 1 (1) are not relevant to the instant appeal.

[17]         The initial application for leave was grounded on any one or more of these five sub-rules, or "gateways" as they are often referred to, but on appeal Mr. Griffiths indicated that Mr Potts was not pursuing those under sub-rules 1.(1)(d) and 1.(1)(f), so that it is therefore only necessary to examine the application for leave under the provisions of sub-rules 1.(1)(b), 1.(1)(h), and 1.(1)(i).

[18]         It is important to note that the principal claim in the Writ centres on the enforceability of the MOU. Mr. Potts specifically seeks a declaration that in effect it is a nullity, or alternatively not a binding agreement, or in the further alternative that Mr. Holmes is estopped from relying upon it. These claims are separate from the claims in deceit and forgery which if proven could lead to an award of damages.

[19]         Since they form the basis of the proceedings, it is appropriate to set out the text of the letter and the MOU in full. First, the letter of 15 November 2015:

"In re: April 9, 2008 Memorandum of Understanding between Craig K. Potts and Roscoe Holmes.

Dear Mr. Potts,

I understand that you or associates of yours are operating a casino property that is the subject matter of the enclosed April 9, 2008 Memorandum of Understanding that you entered into with Roscoe Holmes ("MOU").

Within 10 days delivery of this letter to the above address, please provide to my office: all financial statements, which include but are limited to balance sheets, income statements, sources and uses of funds from the inception of the entity(s) that operate said casino operation to the present time; all tax returns and financial information filed with any governmental agency; and all Incorporation documents, shareholders' and officers' minutes, shareholders or owners register and gaming applications.

Within 10 days delivery of this letter to the above address, Mr. Holmes demands that his one half share of the revenues as contemplated by the MOU be paid to him in care of my office.

As courtesy to you, Mr. Holmes has given to you an opportunity to produce the above documents and the amount that is owed to him before filing a claim with the American Arbitration Association ("AAA") as provided for in the MOU. To avoid any misunderstanding, in the event that the foregoing business records together with payment of Mr. Holmes' share of the casino revenues are not received by my office within the above time frame; I will file an AAA claim on Mr. Holmes' behalf. I envision that the claim will contemplate a demand for an accounting, payment of all amounts of casino revenue due to him, that the property be placed in receivership pending resolution of the issues raised in the claim and for recovery of attorney fees and prosecution costs.

Govern yourself accordingly.

Very truly yours,

/s/Mark J. Kallenbach

Mark J. Kallenbach, Esq.

cc: client"

[20]         The MOU is as follows:

"MEMORANDUM OF UNDERSTANDING

This MEMORANDUM OF UNDERSTANDING ("MOU") is made and entered into this 9th day of April 2008. By and Between Craig K. Potts hereafter ("Potts") and-Roscoe L Holmes hereafter ("Holmes") jointly the ("Parties").

Whereas the Parties have agreed to enter into this binding Memorandum of Understanding in which Potts and Holmes agree to work jointly to build a suitable building for the purpose of operating a one hundred plus slot machine parlor/casino, in the Turks and Cacaos Island. The location shall be located on the land owned Potts on Airport Road at the roundabout in downtown, Proyo.

Potts agrees to finance the development and construction of the building on land he presently owns and will work with Holmes to seek a tenant(s} to occupy the building that will operate a slot parlor or casino. Potts and Holmes agree to create a corporation, which will enter into an agreement with that tenant which will give the tenant the right to enter into a joint venture agreement with both Potts and Holmes for the operation of the slot parlor. Potts agrees to share equally all revenue generated from any and all gaming or gaming related activities derived from this location with Holmes. This revenue split will continue for as long as any gaming or gaming related activity is taking place at this location.

Potts also grants the right to Holmes to negotiate and enter into an agreement on behalf of Potts and the new corporation to be created and equally owned by Potts and Holmes: for the purpose of leasing the building space to a qualified gaming operator.

The parties agree that a minimum monthly rent of $19,500 shall be paid to Potts as part of any lease agreement. The Parties also agree that this agreement shall survive any sale of the property and a will be a part of any purchase agreement or be brought out at a fair market value. In the event that Potts at some point decides to sell the property, then Holmes would be entitled to a cash payout in an amount equal to fifty percent (50%) of the fair market value of the business at the time of the sale.

SECTION 1 RECITALS

The above recitals above are true and correct and shall be incorporated into a definitive agreement.

SECTION 2: DEFINITIONS

'Jolnt Venture" "Machine Placement" and "Operating Agreement" means various business agreements between the Parties which incorporate the essential dements contained in this MOU along with any supporting documents and specifically stipulates the respective responsibilities, as well as costs to be assumed by the Parties, and distribution of the revenues of the project.

"Project" means the Gaming Operation along with the development and finding thereof.

"Property" means the real property owned by Potts located on Airport Hwy Roundabout on which the project will be situated.

"Gaming Operation" means the operation of a gaming establishment under the laws of the Turks & Cacaos or any other gaming regulatory agency or any other applicable laws, as well as, related non-gaming activities, which may include bingo, entertainment; amusement; sports, concession, and gaming support operations.

"Facility or Facilities" means a structure or structure located on the Property and any structure or structures to be constructed or acquired in the future.

SECTION 4- OBLIGATIONS OF PERFORMANCE

Both Parties hereby agree that they shall in good faith do all; that is necessary to bring about the swift completion and ongoing success of the development, construction, opening and operation in connection with this gaming project and that they shall in good faith promptly and completely fulfil all their obligations of performance hereunder and under any further agreements between the parties.

SECTION 5- ARBITRATION

Any controversy arising out of the terms of this MOU or its interpretation shall be settled in Minnesota in accordance with the rules of the American Arbitration Association and the judgment upon award may be entered in any court having jurisdiction thereof. In the event of a dispute the prevailing party shall be entitled to reasonable attorney fees and cost of collection if any.

SECTION 6- HEADINGS

Section headings are not to be considered a part of this Agreement and are not intended to be a full and accurate description of the contents hereof.

SECTION 7-WAIVER

Waiver by one party hereto of a breach of any provision of this Agreement by the other shall not operate or be construed as a continuing waiyer.

SECTION 8- MODIFICATIONS OR AMENDMENTS

No amendment, change or modification of this Agreement shall be valid unless in writing signed by the parties hereto.

SECTION 9 - ENTIRE UNDERSTANDING

This document and any exhibit attached constituted the entire understanding and agreement of the parties, and any and all prior agreement of the parties, end any and all prior agreements, understandings, and representations are herby terminated and canceled in their entirety and are of no further force and effect.

SECTION 1Q - UNENFORCEABILITY OF PROVISIONS

If any provision of this Agreement, or any portion thereof, is held to be invalid and unenforceable, then the remainder of this Agreement shall nevertheless remain in full force and effect

In Witness thereof the undersigned have executed this agreement as of the day and year first written above. The parties hereto agree that facsimile signatures shall be as effective as if originals.

By:______________ By:____________

Craig K Potts       Roscoe L Holmes"

[21]         It is to be noted that Mr. Kallenbach's letter of 15 November 2015 to Mr. Potts makes specific reference to "...the property being placed in receivership...’’ and the reference there to “property” is clearly linked to Section 2 in the MOU which sets out that "property" means the real property owned by Mr. Potts at the Airport Highway, Providenciales.

[22]         Also, the claim to an injunction would be a proper remedy to seek in the light of both the claims for declarations and the threat to property made by Mr Holmes. That is quite apart from restraining representations being made to anyone in TCI that the MOU was binding on Mr. Potts.

[23]         Further, it is apparent from a reading of the MOU that on its face, there is doubt, and grave doubt at that, whether it is an enforceable contract, but whether it is enforceable or not, it is clear that a threat was made relative to Mr. Potts' land in TCI (see volume 1 tab 13 page 105 of the Record) Further, the taking of steps to have a receiver appointed could only have an adverse effect on the business being operated by Mr. Potts. Similarly, representations being made by Mr Potts, or anyone on his behalf, within TCI that the MOU is an enforceable contract could almost certainly have a detrimental effect on the operations of the business.

[24]         Turning to the law, Conducive Inkjet Technology Ltd v Uni-Pixel Inc [2013] EWHC 2968 (Ch) and in particular, paragraphs [46] and [47] of that judgment, are of assistance when examining the burden on a litigant applying for leave to serve a writ out of the jurisdiction. At paragraph [46] Roth J points out that the test for service out involves three requirements, as set out by Lord Collins JSC delivering the advice of Privy Council in AK Investment CJSC v Kyrgyz Mobile Tel Ltd [2011] UKPC 7, [2011] 4 All ER 1027, [2012] 1 WLR 1804. At paragraph 71.Lord Collins said:

"71. On an application for permission to serve a foreign defendant (including an additional defendant to counterclaim) out of the jurisdiction, the claimant (or counterclaimant) has to satisfy three requirements: Seaconsar Far East Ltd. v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438, 453-457. First, the claimant must satisfy the court that in relation to the foreign defendant there is a serious issue to be tried on the merits, i.e. a substantial question of fact or law, or both. The current practice in England is that this is the same test as for summary judgment, namely whether there is a real (as opposed to a fanciful) prospect of success: e.g. Carvill America Inc v Camperdown UK Ltd [2005] EWCA Civ 645, [2005] 2 Lloyd's Rep 457, at [24]. Second, the claimant must satisfy the court that there is a good arguable case that the claim falls within one or more classes of case in which permission to serve out may be given. In this context “good arguable case” connotes that one side has a much better argument than the other: see Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547, 555-7 per Waller LJ, affd [2002] 1 AC 1; Bols Distilleries BV v Superior Yacht Services [2006] UKPC 45, [2007] 1 WLR 12, [26]-[28]. Third, the claimant must satisfy the court that in all the circumstances the Isle of Man is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction."

[25]         Roth J (at paragraph 47 of his judgment) also refers to paragraph 88 of Kyrgyz Mobile where Lord Collins said in relation to the question of forum:

"88. The principles governing the exercise of discretion set out by Lord Goff of Chieveley in Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460, at 475-484, are familiar, and it is only necessary to re-state these points: first, in both stay cases and in service out of the jurisdiction cases, the task of the court is to identify the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice; second, in service out of the jurisdiction cases the burden is on the claimant to persuade the court that England          is clearly the appropriate forum ..."

In the present case TCI can be read for "Isle of Man" and "England".

[26]         I turn now to the issue to be decided, namely whether this three-fold test has been satisfied.

[27]         When read together with the MOU, the Mark Kallenbach letter of 15 November can reasonably be said to lay claim to land within the Turks and Caicos Islands ("TCI"). The letter refers to ". a casino property." and the MOU defines "Property" as "…. real property owned by Potts [in Providenciales] on which the project will be situated." The "Project" is the "Gaming operation along with the development and finding [sic] thereof." The MOU also provides for the parties to work jointly to construct a suitable building on this land for the purpose of operating a casino, and for Mr Holmes to have the right to negotiate leasing out of the building space. He is also entitled to a payment if Mr Potts decides to sell the property.

[28]         Additionally, claim is laid to a 1/2 share in the business operated on the property and an accounting of that business.

[29]         Further, there is a threat to place the property and the business in receivership.

[30]         Mr Potts' response to all this is that the MOU is, in short, a nullity and that even if it is found to be valid, then it is unenforceable. On that basis he seeks a declaration that the MOU is not a binding agreement and an injunction restraining Mr Holmes from representing that the MOU is a "….. genuine document which gives rise to a binding agreement and liabilities on the part of …." Mr Potts.

[31]         It is clear that Mr Potts is seeking to protect his ownership of land, building and business in TCI. That lies at the heart of writ action and it is clearly a serious issue to be tried on its merits. There are substantial issues of both law and fact to be determined.

[32]         It is also clear that ownership of land within TCI is at stake, howsoever the claim may be worded, and the claim is to have a contract - the MOU - either declared a nullity or construed as to its terms and conditions.

[33]         The declaration sought and the issues it seeks to have determined are sufficient to bring the claim within the ambit of Order 11 r.1 (1)(h). Additionally, it is apparent from the evidence that there is a good arguable case to be tried.

[34]         As to the issue of forum non conveniens, the property and business are both within TCI; Mr Potts carries on business here and most, if not all, of the witnesses would be here; a receivership would necessarily be performed here; any enforcement of an arbitral award would have to be effected here. Additionally, although the MOU provides for arbitration in the United States, that of itself does not necessarily determine the applicable law. That is more likely to be the law of TCI.

[35]         Consequently, the Appellant has satisfied the test of there being sufficient presence and connection with TCI and that the case is suitable for trial here in the interests of all the parties and for the ends of justice. The TCI courts have the necessary jurisdiction.

[36]         The Appellant has therefore satisfied the requirements of Order 11 r.1(1) and r.(1)(h) in particular.

[37]         That being so, there is no need to examine whether the Appellant has satisfied the provisions of r1.(1)(b) or (i).

[38]         It is enough to say, however ,in relation to the issue of whether Mr Potts' claim falls within the ambit of r1.(1)(i), that it is clear that he seeks a declaration or determination of proprietary or possessory rights to the equipment used in the business i.e. moveable property. That, again, is a serious issue to be tried and on the evidence he has a good arguable case. He therefore satisfies the requirements of that sub-rule.

[39]         As to the claim for an injunction falling within r.1 (1)(b) in the terms sought, it can be regarded as part of the substantive claim for a declaration and the dispute as to ownership of the land and the business, although perhaps not worded as felicitously as it might be. The injunction would effectively restrain Mr Holmes from asserting his claims to anyone within TCI and consequently causing loss and damage to the business - and ultimately, Mr Potts. This claim might have sufficient merit to allow it to go forward, but on the evidence it is at this point no more than a plea of "timeo" because there is nothing to demonstrate any such representations having been made, or the probability of them being made. Consequently, this claim does not meet the requirement of possessing a good arguable case.

Disposition

[40]         For these reasons we allowed the appeal and ordered the Respondent to pay the Appellant's costs of the appeal and the related proceedings below.

Stollmeyer JA

I Agree

Mottley P

I Agree

Weekes JA