Pankhurst v Oasis Developments Ltd et Al; Connolly v Oasis Development et Al
| Jurisdiction | Turks and Caicos Islands |
| Judge | Martin, C.J. |
| Judgment Date | 01 October 2006 |
| Court | Supreme Court (Turks and Caicos) |
| Docket Number | Case No. 40/05; Case No. 41/05 |
| Date | 01 October 2006 |
Martin, C.J. (Ag.)
Case No. 40/05; Case No. 41/05
Supreme Court
Trust - Resulting trust — Whether money provided by the plaintiff in the first action was held on a resulting trust for the plaintiff's benefit since the money was not used for the purpose agreed.
Contract Law - Breach of contract — Whether the plaintiff was entitled to a refund of money or whether that money formed a part of an overall settlement of accounts between the plaintiff and first defendant in the first claim.
Company Law - Whether the company continued to trade when it was unable to pay its debts — Whether the company was unable to pay its debts as they fell due in the ordinary course of business — Whether the directors knew or ought to have known that the company was unable to pay its debts as they fell due in the ordinary course of business — Which of the directors should have been made a contributory — Amount of the contribution — Whether the Liquidator was bound by the debenture and chattel mortgage.
For Mr. Pankhurst: Mr. J Rutley
For Mr. Connolly: Mr. S Wilson
For Mr. & Mrs. Hurdle: Mr. G Chapman
For Mr. Been: Mr. J McKnight
Martin, C.J. (Ag.):
In June 2002 Mr. Pankhurst put money into a construction company, Oasis Developments Limited (“Oasis”). He made an unsecured loan of $500,000; and invested a further $250,000 on terms which are disputed.
Oasis is now in liquidation. Its directors were Richard Hurdle, Teresa Hurdle and Godfrey Been. The Liquidator Mr. Connolly accepts Mr. Pankhurst as an unsecured creditor. He accepts that position in respect of the $500,000 loan, which was originally claimed in this action but is no longer in dispute. In respect of the $250,000 he claims (“the investment claim”)
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(i) against Oasis and its directors that the sum of $250,000 was held on resulting trust for his benefit, because the money was not used for the purpose agreed. The Liquidator and the directors deny that any trust arises. In any event the directors deny any personal liability.
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(ii) alternatively, against Oasis only, for $250,000 damages for breach of the investment agreement; or the same sum as money had and received by Oasis to his use. Any breach of the investment agreement is denied.
In addition he claims, against Oasis only, the refund of $100,000 paid in advance for work never carried out (“the building claim”). Mr. Hurdle says that this claim was one of several compromised when he and others involved in Oasis sold their share in another business to Mr. Pankhurst.
Mr. Pankhurst brought these claims urgently when he believed, on information which he now accepts may have been incorrect, that Mr. and Mrs. Hurdle were about to sell up and leave the jurisdiction On the day of issue, 8 June 2005, he obtained Mareva injunctions against Oasis and the Hurdles. These were discharged on 17 and 21 June respectively. On the same day that this claim was issued, a winding up petition had been presented by another creditor.
The Liquidator's claims (CL 41/05)
That creditor was Johnston International Limited. Its petition to wind up Oasis was based on its failure to comply with a statutory demand. By a resolution of the board of directors dated 15 June 2005 Mr. Connolly was appointed Liquidator. On 16 June 2005 it was ordered that the voluntary winding up be continued subject to the supervision of the Court.
By an ordinary application made 13 December 2005 the Liquidator applied for various orders and directions. Those remaining, which I am required to determine are for
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(i) a declaration that Oasis continued to trade at a time (not later than 27 October 2004) when the directors knew or ought to have known that The Company was unable to pay its debts as they fell due, in the ordinary course of business; and if granted:
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(ii) a declaration that the directors are each liable to make contributions in such amount(s) as the Court may deem just under section 167(2) of the Companies Ordinance, [Set out at pars 49] with an order for payment; and:
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(iii) directions whether a debenture and a collateral chattel mortgage in favour of Mr. and Mrs. Hurdle dated 27 October 2004 create a valid and enforceable security on The Company's assets as a fixed charge.
Mr. Pankhurst's claims (CL 40/05)
Mr. Pankhurst is a successful businessman. He came to Providenciales in 2000. Oasis built a substantial house for him. He and Mr. Hurdle (and their wives) became close friends. Mr. Hurdle wanted to extend his construction business to include asphalt paving. He needed capital to get it started. After discussions, Mr. Pankhurst agreed to provide it. The total cost of equipment was around $1 million. The Hurdles had $250,000 to put in. Mr. Pankhurst contributed the rest. He agreed to advance $500,000 to Oasis on a term loan [326–335], and to invest $250,000 on the basis that he would receive one quarter of the profits of the asphalt division, after allowing 10% for equipment renewal and maintenance. The other 75% were to be shared between the Hurdles and Mr. Been. The term loan was to enable Oasis, or Mr. and Mrs. Hurdle, to meet their share of the overall cost. Mr. Been was to contribute land from which to operate.
Mr. Pankhurst says that he did not wish or intend to invest in the construction company, which was in effect a one man company dependent on Mr. Hurdle. He was interested only in the asphalt business, which he thought could be built up into a company that could later be sold off at a profit. He says that he specifically agreed with Mr. Hurdle that a new company would be set up to conduct that business, albeit under the umbrella of Oasis so that it could benefit from The Company's good reputation. The directors were to be himself, Mr. and Mrs. Hurdle, and Mr. Been. On his evidence:
“Shares would be issued reflecting our respective 25% interests in this new company, Oasis Asphalt. It would operate under the umbrella of (Oasis) for the purposes of promotion, sharing office space and benefiting from spin off business etc, and would be described as a “division of (Oasis) … it was not to be a subsidiary of it since the shareholders were the four of us and it would be run as an entirely separate company, maintaining separate books of account, profit and loss statements etc … dividends would be paid based on the performance of it, quite separate from (Oasis). As an accountant and experienced businessman, I appreciated that unless shares were issued and separate books maintained, there was no basis for formally declaring a dividend on my investment in (the new company).”
The loan had been recorded in a formal loan agreement. No formal record at all was made of the investment, and Mr. Pankhurst does not seem to have required one. On 5 June 2002 Mr. Pankhurst gave Mr. Hurdle a cheque for $50,000 to pay a deposit on the new equipment. As the new company had not been set up he made it payable to Oasis. He says that on 20 June 2002 Mr. Hurdle came to his office. They had a long discussion about the creation of a new company, confirming details already discussed and Mr. Hurdle gave him a letter [323], which he thought confirmed those terms.
The relevant part of that letter, after referring to the payment already made, reads:
“My understanding is that the balance of these funds will constitute your investment in our Hot Mix Asphalt Division. This will be run as a separate entity within Oasis and will produce interim and yearly accounts for the analysis and dispersement (sic) of profits as they accrue. In time, when the investment period is complete, the profits can be divided equally between the three existing Oasis directors and yourself, with ten per cent being allocated to an equipment renewal fund. There will be a number of fees which will be discussed in full at the appropriate time.”
Mr. Hurdle denies that it was ever intended to set up another company. He relies on the terms of that letter, in particular that
“This will be run as a separate entity within Oasis …”
Those words he says clearly mean that the asphalt division will be part of the original construction company. In my view it is far from clear what the letter means. It is capable of construction to agree with either interpretation. I am unable to draw any conclusions from it. I must look for other evidence of what was agreed. There is no other written record.
On 12 July 2002 Mr. Pankhurst paid another cheque for $200,000. He says that before doing so he enquired whether it should be made out to the new company, but Mr. Hurdle told him no, because the lawyers had not got around to dealing with the paperwork. That cheque was also paid to Oasis.
Mr. Hurdle said that they did not discuss setting up a new company at all. If a new company was to have been set up it could have been done within 7 days. He was adamant that there had never been any question of incorporating a second company.
Just before the trial started Mr. Pankhurst produced a document [480–519], which he explained had been misfiled and found when he dropped his “Insurance” file (filed next to his “Investments” file). When picking up the papers from the floor he found this document. It is entitled
“Draft for Discussion Purposes Only
Confidential to Oasis”
The document had been prepared by Mr. Hurdle. It sets out costs estimates and options for asphalt equipment. Mr. Pankhurst says that it formed the basis for a second discussion he had with Mr. Hurdle about his investment. It bears his hand written notes made in preparation for that meeting, as follows:
...Discuss with Richard
Costs?
Next steps
Electricity
Funding — min/max
Propane/diesel
Incorporation — who to do?
Water
Bank a/cs
Hydraulic fluid
Identity of key EEs
Water truck
EE contracts — Law Firms
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