Gypsy International Ltd and Beepat v Canadian Imperial Bank of Commerce
| Jurisdiction | Barbados |
| Judge | Burgess, J.A. |
| Judgment Date | 14 November 2014 |
| Neutral Citation | BB 2014 CA 16 |
| Docket Number | Civil Appeal No. 27 of 2012 |
| Court | Court of Appeal (Barbados) |
| Date | 14 November 2014 |
Court of Appeal
Gibson, C.J.; Burgess, J.A.; Goodridge, J.A.
Civil Appeal No. 27 of 2012
Sir Fenton Ramsahoye, S.C., in association with Mr. Alrick Scott for the First and Second appellants
Mr. Roger Forde, Q.C., in association with Mrs. Sherica, J. Mohammed-Cumberbatch for the respondent.
Company Law - Appeal — Enforcement of a demand debenture — Whether the appellate court could interfere with the decision of the high court — Whether the appointment of a receiver of the first Appellant was valid — Whether the Respondent was required to demand payment before validly appointing a receiver under a demand debenture — Whether the requirement for demand before appointment can be contractually excluded — Whether clause 10 of the debenture had the effect of excluding the requirement of a demand — Whether the first appellant was estopped from pleading the invalidity of the appointment of the receiver on the basis that it dealt with and treated with the receiver as validly appointed.
Damages - Assessment of damages in tort for trespass and conversion — Inadequate realization on assets by receiver — Loss of future profits as a result of the seizure and destruction of the business — Quantum.
The immediate concern of this appeal is the enforcement by the respondent, Canadian Imperial Bank of Commerce, (CIBC), of a demand debenture by the appointment of a receiver out of court (Mr. Grenville Phillips), over the assets of the first appellant, Gypsy International Ltd, (Gypsy). That appointment had dramatic consequences for Gypsy's property and business and for Mr. Royston Beepat (Beepat) who executed a guarantee in favour of CIBC on 24 November 1982.
On 10 April 1984, the date of the appointment, the assets of that company were seized by the receiver and were taken out of the company's control. The company's business of manufacturing jeans was halted and the employees of the company dismissed. The receiver remained in possession and control of the company until 30May 1988 when the receivership ceased. During this time also, in an effort to obtain payment in priority to other creditors, the receiver liquidated Gypsy's assets. However, according to CIBC, the amounts realised were insufficient to discharge Gypsy's obligations to CIBC.
Subsequent to the cessation of the receivership, Gypsy was never able to recommence business. This turn of events is hardly surprising for as the learned authors of Picarda, The Law Relating to Receivers, Managers and Administrators (3 rd edition) at p. 4 observe, “the receiver is often seen not as a company doctor but as the undertaker”. And so he was in this case.
It is quite apparent from the foregoing, then, that the appointment of a receiver by a financier by way of enforcing a demand debenture can have extremely drastic consequences for the financier, the corporate debtor and third parties such as other creditors and employees. For this reason, the matters at issue in this appeal, namely, the requirements for the valid appointment of a receiver under a demand debenture in Barbados, the liability of an appoint or for an invalid appointment, and the effect of an invalid appointment on the liability of a guarantor are no doubt of particular importance to financial lending institutions and businesses alike.
Gypsy was incorporated in Barbados on 14 June 1981. Beepat and his brother, Dennis Beepat, were its directors. Beepat was also Gypsy's managing director. Gypsy's business was the manufacture and sale of high quality jeans. Beepat testified that he and his brother each invested $550,000.00 into Gypsy as start-up capital.
Gypsy obtained loan facilities from CIBC, a bank incorporated in Canada with its office and main place of business at Trafalgar and Marhill Streets in the City of Bridgetown, and from the Barbados Development Bank. The facility with CIBC was a line of credit in the form of an overdraft facility, to the limit of $300,000; secured by a demand debenture charging the fixed and floating assets of Gypsy, and Trade Bills Discount to the extent of $800,000.00. The Trade Bills Discounted facility was guaranteed by the Central Bank of Barbados to the extent of $1,000,000.00. The Barbados Development Bank extended credit to Gypsy in the sum of $400,000.00. Its security was an assigned insurance policy with NEM (West Indies) Insurance Limited (NEM Insurance). This security ranked pari passu with CIBC's demand debenture.
Gypsy leased two units, totalling 1400 square feet of floor space from the Industrial Development Corporation at Six Roads Industrial Park, St. Philip. In addition, a mezzanine floor was added, creating greater floor area. The premises were prepared for a high quality manufacturing process. The evidence of Mr. Gregory DeGannes, Deputy Manager of CIBC and Beepat confirms that the plant was modern and well-equipped. The receiver himself admitted in his testimony that:
“It was a significant manufacturing business” and that “They were advanced in relation to general manufacturing business”.
Gypsy began production and sale of jeans in 1982. In the first year, its sales from jeans were in excess of $.25m. In the second year, its sales increased to $2.7m. It was showing spectacular progress and, according to Beepat, there were plans to expand sales in existing markets and to penetrate new ones.
On 25 March 1984, a fire occurred at Gypsy's premises. According to Beepat, he learnt of the fire from a news reporter who had called him to get his comment. In his words, he was “shocked” and immediately drove to the scene. Firemen were on the job at the premises. After the firemen were finished with their work, Beepat secured the premises. He observed that the fire was a minor one. [10] The next day Beepat met with Gypsy's staff. He assured them that the factory would restart the next week after a clean-up of the factory. Beepat next visited Mr. Sam Alleyne, Gypsy's insurance broker. Mr. Alleyne assured Beepat that he would send someone to assess the loss. Beepat also visited CIBC to assure it that Gypsy could and would restart operations almost immediately without any loss of capacity. On that same day the police took possession and control of the premises.
On 29 March 1984, four days after the fire, Beepat was arrested by the police at the airport after he had checked in for a flight to St. Lucia. His evidence is that he intended to travel to St. Lucia to visit and consult with his father who was himself a manufacturer and businessman and who was living there at the time. Charges were laid against Beepat but never pursued. After 37 or 38 appearances before the court, the charges were dismissed without any evidence being led.
On 10 April 1984, the police released the building to Gypsy. On that day, around 10:00 a.m., Mr. DeGannes and Mr. Grenville Phillips, appeared. Beepat was served with a notice, dated the said 10 April 1984, that Mr. Phillips was appointed receiver of Gypsy. Beepat remonstrated that Gypsy did not need a receiver and that the company could control its finances and repay the bank. Mr. DeGannes assured Beepat that the appointment was an interim measure intended to get the company restarted.
In fact, the receivership did not cease until 30 May 1988 and the company was never restarted. During this time, despite having power under clause 11 (b) of the debenture “to carry on manage or concur in carrying on and managing the business of the Company”, the receiver never sought to manage or continue the business which was showing such promise. The receiver sought merely to realise the security interest of CIBC in pursuance of the powers conferred on him under clause 11 (a) of the debenture. He took possession and sold Gypsy's stock, equipment and other assets, paid certain outgoings, collected some receivables and distributed the net income. At the end of this time, and despite the substantial assets of Gypsy, the receiver failed to pay off Gypsy's debts to CIBC.
Following the cessation of the receivership, CIBC alleged that Gypsy was indebted to it in the sum of $109,968.18 — being monies advanced under the debenture and interest thereon. By notice dated 22 June 1988, CIBC demanded from Beepat payment of the sums allegedly due by Gypsy to CIBC. The demand was made pursuant to a personal guarantee which Beepat gave to CIBC. It is worth underlining here that no demand was made on Gypsy up to this point or at any time thereafter.
On 16 August 1988, CIBC commenced an action against the appellants. In its statement of claim, CIBC claimed the sum of $109,969.18 and interest of $214,091.60 and continuing for breach of certain financial agreements including the demand debenture signed by Gypsy and the guarantee signed by Beepat respectively.
By an amended defence and counterclaim filed on 22 November 2002, the appellants denied liability and contended that CIBC, in breach of the debenture, wrongfully appointed a receiver of Gypsy and that as a result of the receiver's trespass, Gypsy suffered substantial loss and damage which exceeded any amount due by it to CIBC.
By an amended reply and defence to the appellant's counterclaim filed on 4 June 2003, and a further amended reply and defence to that counterclaim filed on 24 October 2003, the respondent joined issue with the appellants and contended that the receiver was validly appointed. According to the respondent, the appointment was made under clause 10 of the debenture between Gypsy and CIBC. The respondent also denied that the first appellant suffered the loss and damage as alleged.
The matter was heard before Chandler, J. at various dates between 5 December 2003 and 12 July 2010. Six witnesses gave evidence. Three of those...
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