Court name
Supreme Court of Turks and Caicos Islands
Case number
CL 40 of 2022

Emerald Point Resort Ltd (By Stewart Howard Its Receiver) v The AG; Registrar of Lands (CL 40 of 2022) [2022] TCASC 18 (28 July 2022);

Media neutral citation
[2022] TCASC 18
Case summary:

This is a ruling on an originating motion, seeking clarification about whether a receiver appointed under a debenture as agent of a company with power to sell the company’s lands has the legal capacity to execute instruments transferring land owned by the company to the purchaser of such lands.

Headnote and holding:

A receiver appointed under a debenture as agent of a company with power to execute documents on the company’s behalf has the legal capacity to execute instruments transferring land owned by the company to the purchaser of such lands.

The decision as to who can execute documents on behalf of a company or indeed, who can exercise the powers of directors, is essentially contractual. The company’s shareholders can make that decision in its articles, or by a shareholders’ agreement, or by an agreement with a third party. [22]

The Companies Ordinance recognizes that a person other than a director can be vested with the powers usually exercised by directors when it defines a director as includinga person who, in relation to the company, occupies, or acts in the position of a director by whatever name called”. [23]

There is extensive, long-standing authority that a company may agree by a debenture that a receiver appointed pursuant to its provisions will have that status and those powers. [24] Village Cay Marina Ltd v Acland and others (Barclays Bank plc third party) (1996) 52 WIR 238; Re B Johnson & Co (Builders) Ltd [1955] Ch 634. considered.

IN THE SUPREME COURT OF                                                                Action No. CL 40/22

THE TURKS AND CAICOS ISLANDS

 

IN THE MATTER OF THE REGISTERED LAND ORDINANCE (“RLO”)

And

IN THE MATTER OF A DEBENTURE DATED SEPTEMBER 21ST, 2007 BETWEEN BRITISH CARIBBEAN BANK LTD., WPC LTD., EMERALD POINT LTD, SUNRISE + SUNSET LTD. AND EMERALD POINT RESORT LTD. (“THE DEBENTURE”)

And

IN THE MATTER OF A TRANSFER OF LAND OF PARCEL 60901/139, LEEWARD GOING THROUGH, PROVIDENCIALES, (THE “PROPERTY”) BY EMERALD POINT RESORT LTD. INVESTMENT REAL ESTATE PROVO LTD. DATED 21ST DECEMBER, 2021 (THE “TRANSFER”)

BETWEEN:

EMERALD POINT RESORT LTD.

(BY STEWART HOWARD ITS RECEIVER)

Applicant

-and-

(1) THE ATTORNEY GENERAL OF THE TURKS AND CAICOS ISLANDS

(2) THE REGISTRAR OF LANDS

Respondents

__________________________________

JUDGMENT

__________________________________

 

 

 

CORAM:                               The Hon. Mr. Justice B. St. Michael Hylton QC (Ag)

 

Appearances:                        Mr Ariel Misick QC for the plaintiff

Ms Clemar Hippolye for the respondents

 

Hearing Date:                        5 July 2022

Venue:                                    Court No. 5, Graceway Plaza, Providenciales

Date Delivered:                     28 July 2022

 

Background

 

  1. The basic facts in this matter are not in dispute.  In September 2007 Emerald Point Resort Limited (“the Company”) granted various security in favor of British Caribbean Bank Ltd (“the Bank”) to secure certain indebtedness. The security included a debenture, and by way of collateral security, a fixed charge over a property known as Parcel 60901/139, Leeward Going through Providenciales, (“the Property”).

 

  1. The Company defaulted on its indebtedness and the Bank appointed a receiver pursuant to the terms of the debenture. Relevant provisions of the debenture included:

 

    1. Clause 13.1 which provided that the Bank could appoint a receiver of the property charged under the debenture, on the occurrence of certain events of default;

 

    1. Clause 13.2, which provided that a receiver appointed under clause 13.1 would be the agent of the Company;
    2. Clause 13.3.12 which authorizes the receiver to “execute in the name of and on behalf of” the Company, any transfers or other instruments necessary to transfer the charged property;

 

    1. Clause 13.3.15 which gave the receiver power to affix the common seal of the Company pursuant to its Articles of Association, to any conveyance or transfer.

 

  1. The receiver appointed under the debenture (“the Receiver”) negotiated a sale of the Property, and on 21 December 2021 the Receiver executed a transfer to the purchaser (“the Transfer”), purportedly acting as agent of the Company.  The Receiver lodged the Transfer at the land registry along with the documents necessary to effect registration of the purchaser as registered proprietor.

 

  1. The Second Respondent, the Registrar of Lands (“the Registrar”) has declined to register the Transfer, taking the position that the debenture was not registered as a charge under the Land Registration Ordinance (“the RLO”) and that there is no provision in the RLO which authorizes the Transfer. The Registrar has taken a similar position in relation to other transactions.

 

  1. In the circumstances, the Company has filed a notice of originating motion, seeking a declaration that:

 

“a receiver appointed under a debenture as agent of a company with power to sell the company’s lands has the legal capacity to execute instruments transferring land owned by the company to the purchaser of such lands”.

 

  1. The originating motion sets out the following grounds:

 

    1. The Registrar of Lands has, in relation to two previous transactions, adopted the position that a company receiver appointed under a debenture, lacks legal capacity to transfer registered land because there is no express provision under the RLO authorizing a receiver to execute transfers of land.

 

    1. The Applicant, which is in receivership and has executed a transfer of land by its receiver, takes issue with the Registrar’s position.

 

    1. The Registrar’s position is one of general application to all receivers appointed under a debenture and a declaration is required to make a clear statement of the law as to the capacity of a receiver appointed under a debenture to sell and transfer land.

 

The Submissions and the Issue

 

  1. Counsel for the Company and for the Registrar filed written submissions and authorities and made oral submissions at the hearing of the motion. In response to a question from the court during oral submissions, counsel for the Registrar suggested, and counsel for the Company agreed, that in summary the issue was whether the RLO permitted the Registrar to register the Transfer.

 

  1. Neither counsel identified any previous decision of this Court considering this issue.

 

  1. Beyond that basic formulation however, there was no agreement on what, in the Court’s view, is the real issue in dispute. The Company’s submissions proceeded on the basis that the Transfer was by the Company, and the question was whether the Receiver could properly execute it on the Company’s behalf.

 

  1. On the other hand, the Registrar’s submissions proceeded on the basis that the Transfer was by the Receiver (or alternatively, by the Bank) and the issue was therefore whether the Receiver appointed under an unregistered debenture had a power of sale under the RLO.
  2. The Court must therefore first determine the nature of the transaction and the Transfer, and then decide whether the latter is executed in accordance with the provisions of the RLO.

 

The Transfer

 

  1. In the Court’s view, both in form and in substance, the Transfer is by the Company and not by the Receiver or the Bank. The evidence and the pleadings both support that conclusion. The Transfer recites that it is by the Company, and it is executed by the Receiver under the Company’s common seal as an authorised signatory of the Company.

 

  1. The Applicant in the notice of originating motion is the Company, not the Receiver or the Bank.

 

  1. The affidavit in support of the notice of originating motion cites and relies on clause 13 of the debenture, including the provisions referred to in paragraph [2] of this judgment. Significantly, it does not refer to or purport to rely on clause 4.1 which creates a charge in favour of the Bank, a charge which the Registrar points out is not registered under the RLO.

 

  1. Perhaps not surprisingly given their opposing views as to the nature of the transaction and the Transfer, the Registrar’s submissions focused on clause 4.1 and the status of the charge, while the Company’s submissions did not mention them at all.

 

  1. The RLO itself recognizes the difference between a transfer by a registered proprietor and a transfer by a chargee, and it provides different forms depending on the nature of the transfer. Schedule 3 to the RLO prescribes Form “R.L.1” for transfers of land by the registered proprietor, and prescribes Form “R.L.4” for transfers by a chargee in exercise of a power of sale. The Transfer was in Form “R.L.1” and not Form “R.L.4”.

 

  1. In the circumstances, there is no basis on which the Registrar or the Court could determine that the Transfer is by the Receiver or the Bank and not by the Company.

 

Can the Receiver sign on behalf of the Company?

 

  1. The question is therefore whether a receiver appointed pursuant to a debenture and not pursuant to the RLO can execute an instrument of transfer on behalf of the company in respect of which he or she has been appointed.

 

  1. The Registrar submitted, that the RLO creates a regime in which no dealing can be validly effected unless it accords with the provisions of the RLO. The Court agrees.

 

  1. In fact, section 37 provides that:
  1. No land, lease or charge shall be capable of being disposed of except in accordance with this Ordinance, and every attempt to dispose of such land, lease or charge otherwise than in accordance with this Ordinance shall be ineffectual to create, extinguish, transfer, vary or affect any estate, right or interest in the land, lease or charge.

 

  1. The consequence of unregistered dealing is thus not a lawful disposition of land binding in rem and take effect only to create a contractual relation between the parties to a transaction.

 

  1. Section 107 of the RLO then states:

 

    1. Subject to subsection (2) of section 120 of this Ordinance an instrument shall be deemed to have been executed only—
      1. by a natural person, if signed by him;

 

      1. by a corporation––
        1. if sealed with the common seal of the corporation, affixed thereto in the presence of and attested by its clerk, secretary or other permanent officer and by a member of the board of directors, council or other governing body of the corporation…

 

  1. The decision as to who can execute documents on behalf of a company or indeed, who can exercise the powers of directors, is essentially contractual. The company’s shareholders can make that decision in its articles, or by a shareholders’ agreement, or by an agreement with a third party.

 

  1. The Companies Ordinance recognizes that a person other than a director can be vested with the powers usually exercised by directors when it defines a director as includinga person who, in relation to the company, occupies, or acts in the position of a director by whatever name called”[1].

 

  1. There is extensive, long-standing authority that a company may agree by a debenture that a receiver appointed pursuant to its provisions will have that status and those powers.  The learned authors of one of the leading texts, Kerr and Hunter on Receivers and Administrators[2] put it this way:

 

On crystallisation, the powers of the company and its directors to deal with the property comprised in the appointment (both property subject to a floating charge and property subject to a fixed charge), except in accordance with the charge, are paralysed; for though, under debentures or a trust deed in the usual form, the receiver is agent for the company, the company's powers are delegated to the receiver so far as regards carrying on the business or collecting the assets; and frequently so as to enable the receiver as attorney to convey a legal estate.

 

  1. The Privy Council considered this issue in Village Cay Marina Ltd v Acland and others (Barclays Bank plc third party)[3], an appeal from the British Virgin Islands Court of Appeal. A company (“VCM”) granted a debenture in favour of a bank. VCM also granted the bank a specific charge over one of its properties.

 

  1. The bank appointed a receiver pursuant to the debenture, and the receiver executed leases on behalf of VCM. After the receiver was discharged VCM challenged the validity of the leases. In delivering the unanimous opinion of the Board, Lord Hoffman explained[4]:

 

In any event, the leases were not executed by virtue of any power conferred upon the bank by the fixed charge. It was VCM, not the bank or the receiver, which granted the leases. The function of the receiver was to be, as cl 10 says, ‘agent for the company’ in carrying on the company’s business. The receiver replaces the board as the person having authority to exercise the company’s powers and it was by virtue of that position that he authorised the company’s seal to be affixed to the underleases. So while it is true that the bank had an equitable fixed charge over the site, the only function of that charge which is relevant to the present proceedings is that it defined the property in respect of which the receiver could act as agent of the company.

 (my emphasis)

  1. The Registrar sought to distinguish this decision on the basis that in the British Virgin Islands the statutory definition of a mortgage extends to a charge, so a chargee is in the same position as an equitable mortgagee. That may or may not be correct, but it would not be a basis to distinguish Village Cay Marina. It is plain from Lord Hoffman’s analysis that the receiver’s actions and the outcome of the appeal were not based on the status of the bank’s charge. They were based on the terms of the debenture and the authority the debenture gave the receiver to sign the leases on behalf of VCM.

 

  1. The Registrar relied on Re B Johnson & Co (Builders) Ltd[5] in which the English Court of Appeal held that the primary duty of a receiver is to the debenture holder and not to the debtor company. The Registrar argued that this decision supports his submission that the Receiver in this case was acting as the agent for the Bank and not the Company.

 

  1. However, that submission conflates two separate issues. In Re B Johnson & Co the court was considering the duties of a receiver, not the powers of a receiver, which is the issue in the instant case.

 

  1. In Re B Johnson & Co after a receiver/manager was discharged the company’s chairman instituted misfeasance proceedings against him, contending that he did not act in the best interests of the company, and therefore breached his fiduciary duties to the company. That is the context in which Jenkins LJ observed that[6]:

 

The primary duty of the receiver is to the debenture holders and not to the company. He is receiver and manager of the property of the company for the debenture holders, not manager of the company. The company is entitled to any surplus of assets remaining after the debenture debt has been discharged, and is entitled to proper accounts. But the whole purpose of the receiver and manager's appointment would obviously be stultified if the company could claim that a receiver and manager owes it any duty comparable to the duty owed to a company by its own directors or managers.

 

  1. But the Court of Appeal also pointed out that the receiver is nonetheless, the agent of the company. Lord Evershed, MR explained[7]:

 

It has long been recognized and established that receivers and managers so appointed are, by the effect of the statute law, or of the terms of the debenture, or both, treated, while in possession of the company’s assets and exercising the various powers conferred upon them, as agents of the company, in order that they may be able to deal effectively with third parties.

 

  1. To the extent that this case is relevant, it supports the Company’s case, not the Registrar’s.

 

  1. In my view, Lord Hoffmann’s observations in Village Cay Marina apply to this case. The Receiver was duly authorised to sign the Transfer on behalf of the Company, and he validly did so.

 

  1. However, the declaration cannot be in the terms requested. The reason why the Transfer was validly signed is not because the Receiver had a power of sale (as the requested declaration may suggest). It is because the debenture gave him the power to execute such documents on the Company’s behalf.

 

  1. I would therefore make the following declarations:

 

    1. A receiver appointed under a debenture as agent of a company with power to execute documents on the company’s behalf has the legal capacity to execute instruments transferring land owned by the company to the purchaser of such lands.

 

    1. The transfer instrument dated 21 December 2021 in relation to Parcel 60901/139, Leeward Going through Providenciales, was validly executed.

 

The Registrar’s Request for Guidance

 

  1. In his written submissions, the Registrar stated:

“If the Court provides guidance that a chargee may proceed to enforce security in reliance on the unregistered debenture as opposed to the perfected security then the Registrar seeks confirmation from the court that the power may be exercised without the need for a court order confirming that the sale can be effected by way of private treaty as opposed to public auction as prescribed by section 75 RLO for sales by chargees exercising a power of sale under the RLO.”

 

  1. As this judgment indicates, no issue arises in this case as to a chargee enforcing security in reliance on an unregistered debenture. However, for completeness, I would observe that a company’s powers to dispose of its property while under the control of its directors are no different from those powers while it is under the control of a receiver. Section 75 of the RLO would not apply in either case.

 

Costs

 

  1. The day before the Company filed this action, the Registrar requested additional time to consider the issues, and suggested that the matter should best be considered by way of case stated from the Registrar pursuant to section 146 of the RLO. The Registrar contended then, and in submissions before this Court, that in the circumstances no adverse costs order should be made against him, regardless of the outcome.

 

  1. The Court notes that the Registrar wrote that letter more than 4 months after the Company lodged the Transfer, and after the Company’s attorneys-at-law had written multiple follow up letters. The Company’s decision to initiate these proceedings and not grant the Registrar additional time to consider the matter was therefore quite understandable.

 

  1. However, the Court also notes that both parties agreed that this is a matter of public interest, and that guidance from the court is needed. In fact, one of the grounds of the notice of originating motion is that:

 

“The Registrar’s position is one of general application to all receivers appointed under a debenture and a declaration is required to make a clear statement of the law as to the capacity of a receiver appointed under a debenture to sell and transfer land”.

 

  1. In all the circumstances, the Court will make no order as to the costs of the motion.

 

Disposition

 

  1. It is declared and ordered that:

 

    1. A receiver appointed under a debenture as agent of a company with power to execute documents on the company’s behalf has the legal capacity to execute instruments transferring land owned by the company to the purchaser of such lands.

 

    1. The transfer instrument dated 21 December 2021 in relation to Parcel 60901/139, Leeward Going through Providenciales, was validly executed.

 

    1. No order as to costs.

 

 

The Hon. Mr. Justice B. St. Michael Hylton QC

Acting Judge of the Supreme Court

28 July 2022

 

[1] CAP 16:02, Section (2).

[2] 19th Edition, 2009, at [20]-[24].

[3] (1996) 52 WIR 238.

[4] At page 265.

[5] [1955] Ch 634.

[6] At page 661, 662.

[7] At page 644