The EC$9.6 million high court judgment.
The decision was handed down by Justice Raulston Glasgow in a case that has split a Grenadian family following a matter involving monies owed to the Grenada Co-operative Bank Limited (GCBL) in a failed family business enterprise headed by the brother of a prominent Grenadian politician.
The case was brought by Phillip David and his wife against the now deceased father of her sister, and the bank where the business held some accounts.
Glasgow ruled that the David family business has to pay back the millions to the bank along with a cost of just over EC$175, 000.00 each to the winning parties in the matter.
David and his wife Sonia had set up a company known as Sunsystems Ltd to primarily trade in the importation, sale and rental of a luxury fleet of vehicles such as Volkswagen and Land Rover around 2003.
As a public service, THE NEW TODAY reproduces in full the Justice Raulston Glasgow judgment n the case:-
JUDGMENT
Background
[1] GLASGOW, J.: This claim involves an unfortunate state of events resulting from the breakdown in the relationship of banker and customer.
[2] The 1st claimant, Sun Systems Limited (“SSL”), is a limited liability company incorporated on the 24th November, 1997 in the state of Grenada. The 2nd and 3rd claimants, Phillip and Sonia David (collectively “the Davids”) are a married couple, and the sole shareholders and directors of SSL. SSL owned and operated a business which traded as ‘Sun Motors’. SSL’s principal business was the importation, sale, and rental of luxury branded vehicles such as Volkswagen and Land Rover in Grenada. In or around 2003, SSL approached Grenada Co – operative Bank for the purposes of opening accounts for the operations of the business of SSL.
[3] The 1st defendant, Grenada Co – operative Bank (“the Bank”) is a licensed banking institution established in 1932 in Grenada, and is Grenada’s only indigenous bank. In 2003, the Bank provided SSL with 4 accounts for the operations of its business.
[4] The 2nd defendant, Lewis & Renwick (“the Law Firm”) is one of the oldest law firms in Grenada, and at one point, the Law Firm was exclusively retained to do all of the Bank’s commercial and conveyancing work. The 3rd defendant, Mr. Cosmos St. Bernard was one of the senior partners of the Law Firm. He passed away on 4th October, 2021, prior to the commencement of the trial and his son, Mr. Trevor St. Bernard, was substituted as 3rd defendant.
CLAIMANTS’ STATEMENT OF CASE
[5] The claimants plead that they first approached the Bank in 2003, and within 30 minutes of meeting and without signing any formal contractual documentation governing the banking relationship, one of the Bank’s employees, a Mr. DeFreitas approved the Davids’ opening of 4 accounts at the Bank for SSL. These 4 accounts covered SSL’s Land Rover sales, Land Rover servicing and parts, Volkswagen sales and Volkswagen servicing and parts. The accounts opened for SSL were credit accounts on overdraft, with no fixed overdraft limits or interest rates provided by the Bank.
[6] The relationship between the Bank and the claimants continued in this manner, and the claimants claim that the Bank applied and capitalized interest on the overdrafts with no contractual reference point. By 2008, the claimants say that SSL had incurred significant indebtedness to the Bank. Sometime during 2008, the claimants claim that the Bank offered SSL a restructuring proposal. The claimants allege that this restructuring proposal would have the effect of converting the overdraft balance owed by SSL into a loan of $3.8 million and also provide SSL with approximately $1.2 million in working capital. The claimants explain that this proposal by the Bank was conditional on the Bank obtaining some form of security from SSL, as up to 2008, SSL’s overdraft facilities were being operated without any form of security.
[7] The Claimants claim that many discussions took place between the Davids’ and the Bank on the appropriate security to be offered after the proposal was made. The Claimants claim that the Davids wished to offer property situated at Maurice Bishop Highway, St. George’s as security, but the Bank indicated that they preferred property owned by the Davids situated at Point Saline, St. George’s. There was some back and forth between the parties on this point, culminating with the title deed for the Point Saline property being taken by the Davids to Mr. DeFreitas at the Bank, and lodged with him in April, 2009.
[8] Thereafter, the claimants state that the Bank offered restructured facilities formally to SSL by letter dated 6th April, 2009. This offer letter proposed a loan of $3.8 million dollars for a term of 15 years, and an ‘overdraft facility/letter of credit’ of $1.2 million dollars, and was conditional on “security being provided in the form of a fixed and floating charge over the assets of SSL of the property at Point Salines, St. George’s – recently conveyed” to the Bank. The claimants claim that they understood this offer letter to be on the same terms of the Bank’s proposal in 2008 and executed same.
[9] The claimants utilize the definition of restructured facilities in the Eastern Caribbean Central Bank’s (ECCB) Prudential Credit Guidelines, and the terms ‘overdraft and/or letters of credit’ as contained in the 2009 offer letter to support this assertion of their understanding of the proposal. The claimants’ case is that if working capital was not provided, SSL could not operate, and the restructured facilities would have been doomed to fail from the outset, as all that would have happened is that the Bank would have obtained security, while the Bank’s customer was misled.
[10] After execution of the offer letter of 30th April, 2009, SSL’s accounts at the Bank were credited, the claimants’ say, which cleared off the overdrafts owing on 3 of the 4 accounts. This left SSL with 1 overdraft account at the Bank with a balance of $1,292, 865.24. Sometime before receiving a letter from the Bank dated 22nd May, 2009, the claimants say that the Davids came to the realisation of the effect of the Bank’s restructuring, as the application of the loan had the effect of denying SSL the $1.2 million working capital as contemplated in the 2008 proposal and contained in the April 2009 offer letter.
[11] By the time the Davids realized the actual operation of the restructurings in May, 2009, the claimants say that SSL’s accounts had already been credited, but no security had been put in place by the Davids, outside of the title deed to the Point Saline property being lodged with Mr. DeFreitas at the Bank. The claimants explain that these security arrangements were not formalized until the Davids’ executed the mortgage documents on 29th July, 2009. The claimants allege that in this interim period, the property at Point Salines, which was owned personally by the Davids’, was transferred to SSL on 28th July, 2009, without the Davids’ knowledge. The claimants insist that they were completely unaware of this transaction (the Voluntary Conveyance).
[12] On 29th July, 2009, the Davids’ attended the Law Firm and Ms. Deborah St. Bernard, an attorney at the Law Firm provided them with what they refer to as “a lot of documents”. The claimants aver that Ms. St. Bernard said nothing about the documents, other than they were “okay to sign”, so they executed the documents. The claimants further claim that the Davids knew nothing about the Voluntary Conveyance, so they assume that the Davids must have signed the Voluntary Conveyance on that occasion, as the Law Firm never explained to the Davids what they were signing.
[13] The claimants indicate that they felt secure, as while it was widely known in Grenada that the Law Firm acted for the Bank, the Law Firm also acted for the Davids, so they assumed that the Law Firm was looking after their interest. The claimants also state that they knew Mr. Cosmos St. Bernard was a senior partner at the Firm and chairman of the Bank, but they did not know he was also a significant shareholder of the Bank. The claimants assert that had SSL been aware of Mr. St. Bernard’s interest in the Bank, the Davids would have acted differently by obtaining separate advice.
[14] The claimants contend that neither Ms. St. Bernard nor anyone else at the Law Firm advised the Davids to seek independent legal advice. Also, they say that the Bank and the Law Firm were aware that the Davids had no independent advice, given that they were relying on the Law Firm. The claimants’ case is that what occurred in 2009 was:
(1) SSL had passed a resolution approving an arrangement in 2008 which was to procure $1.2 million in working capital;
(2) An offer of restructuring was made in April 2009 that appeared to replicate the 2008 proposal;
(3) By 2009, there was no intention by the Bank to provide $1.2 million in working capital, but the claimants were unaware of this;
(4) The Davids attended the Law Firm to sign for the loan but were merely providing security to the Bank for a set of arrangements that were doomed to fail, and the Bank was aware of all of the above.
[15] The claimants further state that sometime in May, 2009, Mrs. David went to Mr. DeFreitas and informed him that he had effectively tied up SSL. They allege that Mr. DeFreitas said that if additional security was given to the Bank over the Maurice Bishop Highway property, then working capital would be provided, along with additional financing for SSL’s operations. The claimants complain that this meeting with Mr. DeFreitas marked a 2-year period where the Bank was slow in making payments on SSL’s account, causing the Davids to finance SSL’s business from other sources. Mr. DeFreitas passed away in 2010, and SSL’s accounts were then managed by Mr. Leon Moses.
[16] The claimants allege that they held several conversations with Mr. Moses about security proposals to be offered to the Bank, given that the Bank continued to offer support to SSL on overdraft. By 2011, SSL’s accounts were stressed and fluctuating beyond the limits agreed in 2009, due to the absence of working capital provided by the Bank in 2009, even though all loan payments were kept up to date. The Bank proposed another restructuring of SSL’s accounts in 2011.
[17] By letter dated 29th August, 2011, the claimants say that the Bank offered to subsume the first loan to SSL of $3, 656,000.00 and offered a further loan of $3, 639,000.00 for SSL’s operations, $500,000.00 for a floor loan, and $200,000.00 for a security bond, totalling the sum of $7, 995,000.00. In this offer letter, they say that the Bank requested security by a further charge over the Maurice Bishop Highway property owned by SSL, 9, 912 square feet of land situate at Grand Anse, St. George’s (Grand Anse property) owned by Mr. David personally, and 2 Acres 3 Roods and 13 Poles of land situate at Grand Anse Estates, St. George’s (Grand Anse Estates property) which was owned by Mr. David, Peter David, Patrick David and Paul David (the David brothers). In addition, personal guarantees were requested from each of the Davids in the sum of $7, 995,000.00.
[18] The claimants state that the Davids received a call from the Law Firm on 28th September, 2011, informing them that the loan documents were ready for signing, and the Davids attended the Law Firm to execute the documents. The claimants say that when the Davids got to the Law Firm, the only advice offered by Mr. Trevor St. Bernard, who worked at the Law Firm, was that they were signing for the loan, and the documents “were routine”. The claimants again complain that the Davids were not advised to seek separate representation.
[19] The claimants maintain that the Law Firm were the Davids’ lawyers, looked after their interest, and would have given the Davids any advice if it was required. With this knowledge, the claimants assert that the Davids signed the mortgage documents. The claimants further claim that the Davids had not agreed to provide personal guarantees, none were offered for their signature, and the Davids signed the mortgage, having been told by the Law Firm that it was just a mortgage. The claimants also say that it was not brought to the Davids’ attention that there was anything in the agreement which conferred personal liability, as the Davids were preoccupied with obtaining the financing offered, and believed that they were simply signing the loan.
[20] The claimants allege that contrary to the representations made by the Bank and the Law Firm in 2011, the mortgage executed in 2011 created personal liability, not only against the Davids but also Mr. David’s brothers, who were co – owners of the Grand Anse Estates property. They contend that the 2011 mortgage describes Mr. David in the capacity of surety, but it appeared that the Bank was attempting to create a principal debtor. The claimants further contend that neither the Bank nor the Law Firm advised the Davids to obtain independent legal advice, even though the Bank and the Law Firm were each aware that the Davids had no independent advice and were relying on the Law Firm for advice.
[21] The claimants further contend that the Davids did not wish to provide personal guarantees or enter into personal liability as principal debtor, and further that Mr. David never agreed to do so. They allege that the assurance by Mr. Trevor St. Bernard that the 2011 mortgage was just a mortgage was a false statement, which induced the Davids to enter into the security arrangements. The claimants allege that if the true position had been clear to the Davids that they were subjecting themselves to liability as principal debtors, they would not have signed the mortgage documents. The claimants state that the Davids’ main bank was Scotiabank, and the Davids would have refinanced their facilities elsewhere without incurring personal liability.
[22] The claimants’ case is that the 2011 mortgage was more than just a mortgage, and in the absence of any advice to the contrary, was entered into by the Davids based on a misrepresentation to its nature. They further claim that this misrepresentation by the Bank’s agents was not innocent, and accordingly the claimants’ claim to be entitled to both recission and damages. Further, the claimants allege that the Bank failed to give statements showing how their indebtedness had accrued to $3.6 million dollars, or how the $3.6 million dollars loaned in 2009 had been applied to SSL’s bank accounts, despite numerous requests in writing. The claimants say this caused the Davids to be unable to verify SSL’s account balances or form a view on any demands being made for repayment by the Bank.
[23] The claimants also ask the court to find that the Law Firm was for all practical purposes an arm of the Bank, which aided in the Bank’s misrepresentations to the Davids. They charge that the Law Firm and the Bank failed to disclose that Mr. Cosmos St. Bernard was the chairman and a significant shareholder of the Bank, and this failure also amounted to a breach of the ECCB Guidelines and the Banking Act, as Mr. Cosmos St. Bernard was required to disclose his beneficial interest in the Bank.
[24] The claimants acknowledge that the Law Firm acted as the Bank’s principal lawyers for several years, but they say that the Law Firm frequently acted on both sides of a transaction, and that it did do so in this case. It is on this basis that the claimants’ claim that the Law Firm was the agent of the Bank during the completion of the 2009 and 2011 transactions, and as such the Bank is also liable for the Law Firm’s misrepresentations. The claimants also allege that these factors constitute an obvious conflict of interest. The claimants say that given that the Bank was aware of the conflict of interest, the Bank is also liable for any incorrect advice given by its agents.
[25] The claimants also complain that further to the mortgage being procured by misrepresentation, they were technical defects therein. The claimants allege that the Grand Anse property was owned by South Winds Limited and not Mr. David personally, and South Winds Limited was not a party to the 2011 mortgage. They further allege that the Grand Anse Estates property was owned by the David brothers, who were also not parties to the 2011 mortgage. The claimants further charge that there was no Power of Attorney conferring authority upon the Davids to make the David brothers parties to the 2011 mortgage.
[26] The claimants claim that if the Davids’ signatures were effective to create security or personal liability over the Grand Anse Estates property, which the Davids deny, then the Bank and the Law Firm were aware that the Davids were acting beyond the scope of their actual authority, due to the lack of a Power of Attorney. The claimants claim that both the Bank and the Law Firm were aware of this, and the Bank and the Law Firm were guilty of knowingly assisting in procuring a breach of fiduciary duty, and breach of trust. The claimants say that the Grand Anse Estates property would have to be reconveyed to the David brothers, and the Bank would be prevented from relying on any personal liability, were it to arise. Lastly, the claimants charge that the absence of a Power of Attorney conferring authority on them to enter into the 2011 facility caused them to be unable to accept the terms of the Bank’s offer contained in their letter of 29th August, 2011.
[27] These circumstances led the claimants to bring this action against the Bank and the Law Firm, and the claimants collectively claim:
(1) against the Bank:
- An order for the taking of an account;
- A declaration that the 2009 and the 2011 facilities and Indentures are unenforceable;
iii. Further and/or alternatively recission of the 2009 and the 2011 facilities;
- Further and/or alternatively rescission of the 2009 and 2011 Indentures;
- An order for re-conveyance, so far as the same may be necessary of the properties comprising the security in the 2009 and 2011 Indentures;
- Further and/or alternatively damages for misrepresentation;
vii. Interest on damages;
viii. Costs.
(2) Against the Law Firm and Mr. Cosmos St. Bernard:
- Damages for breach of duty;
- Further and/or alternatively damages for misrepresentation;
iii. Further and/or alternatively damages arising from the unlawful means conspiracy between all three Defendants or any of them;
- Interest on damages, and
- Costs.
[28] The Davids also personally claim as against the Bank:
(1) Damages for breach of fiduciary duty;
(2) An account of profits;
(3) Interest; and
(4) Costs.
THE BANK’S FURTHER AMENDED DEFENCE & COUNTERCLAIM
FURTHER AMENDED DEFENCE
[29] The Bank strenuously opposes the claimants’ claim, and filed a Further Amended Defence and Counterclaim on 25th June, 2018. The Bank denies any implication that the Law Firm was its general agent over and above being the Bank’s legal counsel, but admit that Mr. Cosmos St. Bernard retired as the Bank’s chairman in 2010. The Bank admits that the claimants’ opened accounts in 2003 which provided very liberal financial facilities, but denies that the Bank made the 2008 proposal as claimed by the claimants. The Bank avers that it offered the claimants’ a restructuring proposal by offering a loan of $3.8 million, as at the time of the proposal, the claimants’ owed the Bank in excess of $5 million. The Bank avers that the proposal was to convert $3.8 million of the $5 million into a term loan, and the other $1.2 million was to be kept on overdraft, operating as a revolving loan, with a ceiling of $1.2 million.
[30] The Bank’s position is that this $1.2 million ceiling had already been reached by the time the proposal was finalized, as the claimants had already used the monies, and owed the Bank a total debt in excess of $5 million dollars. The Bank denies making any representation to the claimants that they would provide any additional money under the restructuring. The Bank argues that the claimants could not have reasonably believed that the offer letter in April 2009 constituted a promise or offer of additional money, as the claimants were well aware that their indebtedness was in excess of $5 million. The Bank further states that if additional monies were provided to the claimants as alleged, the existing indebtedness of the claimants to the Bank would have risen to nearly $6 million.
[31] The Bank says that their proposal/offer was clear on its terms in relation to the fact of the claimants’ indebtedness of $5 million. The Bank avers that it was for the claimants to adequately manage the $1.2 million overdraft facility, by reducing its balance, which would have allowed the claimants to use that overdraft to finance SSL’s affairs. The Bank relies on the fact that the claimants were mature, qualified and experienced businesspersons, with qualifications in accounting and financial management, based on the application for the registration of the business name ‘Sun Car Rentals’ dated 23rd May, 1997, wherein Mr. David is described as an ‘accountant/businessman’ and Mrs. David is described as an ‘engineer/financial manager’. On this basis, the Bank says that claimants ought to have understood that the $1.2 million dollar overdraft ceiling had been reached in 2009, and no additional money was being provided.
[32] The Bank also denies owing any special or fiduciary duties to the claimants, as the relationship between them was always that of banker and lender. The Bank says that it never purported to be a business advisor to the claimants, and was not required to advise the claimants to seek independent legal advice with regard to negotiating the loans or any of the transactions. The Bank also says that it did not owe the claimants any duty to secure the best or even a favourable deal for them, as it was entitled to look after its own interests and obtain security for the monies used by the claimants, which was in jeopardy, as best as the Bank could. The Bank refutes that it acted in breach of the ECCB guidelines or the Banking Act as alleged by the claimants, as all of its actions were guided by the Act and guidelines. The Bank avers that the Bank has since 2010, disclosed in its financial statements the shareholdings of its directors.
[33] The Bank further denies that the Law Firm acted for the claimants and the Bank, as the Law Firm acted only for the Bank, in its capacity and with the Bank’s authority as the Bank’s legal representatives. Further, the Bank submits that if attorneys from the Law Firm told the Davids that the mortgage documents were okay to sign or routine, which the Bank does not admit or deny due to lack of knowledge, the terms and conditions of the loans and the security to be obtained were already negotiated and finalized as between the Davids and the Bank. The Bank submits that these negotiations were concluded prior to the Davids attending the Law Firm to execute the security documents.
[34] The Bank further avers that the claimants’ claim is statute barred, as they entered into contractual relations with the Bank on 23rd April, 2009, more than 6 years before the claim was brought by the claimants. The Bank relies on the offer letter dated 6th April, 2009 and signed by the claimants on 23rd April, 2009 for this assertion, and further states that the Point Salines property was clearly identified in the offer letter as part of the property owned by SSL to be mortgaged to the Bank. Further, the Bank contends that the resolution of 19th October, 2008 authorized SSL to borrow the sum of $5 million, and the Bank’s loan provided SSL with that sum. The Bank also says that the claimants recognized the terms of the agreements and affirmed them by utilizing the Bank’s monies over the years, and therefore ought to be estopped from now seeking to set the transactions aside for misrepresentation.
[35] The Bank says that as early as 23rd April, 2009, the claimants were aware that the $1.2 million in the restructured facility represented an overdraft and not fresh working capital, or should have understood this as qualified and experienced business persons. The Bank further asserts that even if the Davids only became aware in May, 2009, which the Bank denies, the Davids were seized of the facts for more than 6 years before bringing the claim. The Bank denies freezing SSL’s facilities, averring that the history reflects that the Bank facilitated SSL’s business operations over the years, even after the April 2009 restructuring.
[36] In relation to the 2011 facilities, the Bank’s position is that they were prepared to more offer money to the claimants, but like any prudent banker, required additional security for fresh money. The Bank denies that the claimants did not agree to execute the 2011 security documents, submitting that the Davids’ executed the 29th August, 2011 offer letter on 2nd September, 2011. The Bank further says that if, which the Bank neither admits nor denies due to lack of knowledge, Mr. Trevor St. Bernard made the statements as alleged, the terms and conditions of the 2011 security were already negotiated and finalized as between the Bank and the claimants by that time.
[37] The Bank also denies the claimants’ claim that they lacked knowledge about the personal guarantees, as the letter of 29th August, 2011 made specific reference to personal guarantees, which they signed on 2nd September, 2011. The Bank refutes the charge that it was under any obligation during their negotiations with the Davids to advise them to obtain independent legal advice, and equally refuted the contention that it made any misrepresentations to the Davids. The Bank further denies that it failed to provide the claimants with proper accounting of their financial standing, as the claimants had been doing business with the Bank for over 10 years, and were always provided with regular updates of their financial standing with the Bank. The Bank also explains that the claimants were free at all times to reject the offers made by the Bank, but once the offers were accepted, they became binding on the claimants.
[38] The Bank denies that the Law Firm was a virtual arm of the Bank, and submits that the Bank is a commercial entity involved in banking, and the Law Firm had no actual, implied, ostensible or other authority to act on behalf of the Bank, outside of acting as the Bank’s legal representatives. The Bank says that it carries on its own negotiations to settle the terms of its commercial transactions, and merely contracts the legal services of the Law Firm to close transactions on its behalf. The Bank says that the Law Firm’s purpose was to put the already agreed contractual obligations into legal form to provide adequate security for the Bank.
[39] The Bank rejects the argument that the 2011 mortgage was procured through misrepresentation and charges that it was Mr. David who misrepresented to the Bank that he was the sole owner of the Grand Anse property, by delivering the original title deed for that property in his name. The Bank says these actions by Mr. David deceived the bank and buttressed his oral misrepresentation of sole ownership. In relation to the Grand Anse Estates property, the Bank says that Mr. David said that he was a part owner of an undivided quarter share of that property.
[40] The Bank alleges that Mr. David represented to them that he possessed a Power of Attorney authorizing him to mortgage the Grand Anse Estates property, and therefore denies knowing that the Davids did not have the authority to enter into the 2011 mortgage. The Bank relies on the Power of Attorney dated 29th December, 1999 granted by Peter David, Patrick David and Paul David to Mr. David to show the requisite authority. The Bank asserts that the issue of whether and to what extent the David brothers are liable is a matter of law to be determined by the Court, but denies that it has actual or other knowledge that the Davids were acting beyond the scope of their actual authority in relation to the 2011 transactions. They say that these matters raise issues of law to be determined by the court on legal and equitable principles of unjust enrichment.
TO BE CONTINUED