E. Anthony Ross v Bank of Commerce (Saint Kitts Nevis) Trust and another (St. Christopher and Nevis)

This appeal is brought in an action which has now been on foot for almost 29 years. The only claim in the action appeared to be straightforward. It was for the recovery, with interest and costs, of the sum of US$410,000 loaned to the respondent, Bank of Commerce (St Kitts Nevis) Trust and Savings Association Ltd (“the Bank”), by two companies incorporated in Curacao, Alminton Company NV and Mill Valley Finance Construction Company NV (“the Companies”). The Companies are no longer in existence, although that important fact has received little attention for most of the course of the litigation. The Bank has now been in liquidation for nearly 27 years. That is one reason, but not the only reason, why this apparently straightforward claim has been unresolved for so long.

The other clue to the complicated and protracted course of the litigation is that the action was not brought by the Companies. It was commenced in 1983 by Mr E Anthony Ross, a Canadian lawyer who was at the time practising in Halifax, Nova Scotia. More recently he has been resident in St Lucia, and the Board was told that from October 2006 until September 2009 he was a management judge of the Eastern Caribbean Supreme Court.

In his statement of claim Mr Ross referred to a number of documents, of which the most important were (1) two certificates of deposit (each for US$205,000) issued by the Bank, one to each of the Companies, on 6 November 1981; (2) a security agreement (“the security agreement”) dated 6 November 1981 executed by the Bank in favour of Mr Dennis Byron; (3) an agreement under seal (“the 1982 deed”) dated 11 October 1982 (but actually completed on 18 November 1982) between Mr Byron and Mr Ross; and (4) a notice of assignment and formal demand (“the 1982 notice”) served on the Bank by Mr Ross on 19 November 1982. These are summarised and considered at paras 14 to 23 below. The Bank’s defence contained little more than bare denials, but it did expressly deny (on unspecified grounds) the validity of the 1982 deed. It also expressly denied that Mr Ross had any account with the Bank. It asserted that Mr James A Molans, a Miami attorney, had agreed to extend the period of the loans provided that they were secured by a deposit of title deeds, and that the period had been extended. Mr Byron was at that time a barrister practising in St Kitts and Anguilla; he has since had a distinguished judicial career, being knighted in 2000, and he is referred to in this advice by his title at the material time.

Directions for trial were given on 20 March 1984. There is then a gap in the official record of almost exactly seventeen years. It appears from the agreed statement of facts that on 9 May 1985 an order was made for the Bank’s compulsory winding up, but the record does not contain a copy of that order. The liquidator appointed by the order was Mr Walter B Simmonds, a local accountant.

The Board was told (but there is no evidence and no finding on this point) that the Bank had a serious deficiency of assets, but that at some stage in the liquidation further assets of substantial value were realised as a result of misfeasance proceedings. That may possibly be the reason for a renewal of interest in these proceedings. In any event, on 22 March 2001 Master Rawlins made an order adjourning Mr Ross’s proceedings for nearly four months “in order to facilitate any applications which may be made to take the matter forward.” The hearing was attended by counsel for the Bank, presumably instructed by the liquidator, but there is no indication that she objected that as a result of the liquidation the action had been stayed for nearly sixteen years under section 122 of the Companies Act (c335) as then in force. On 16 January 2004, on an application attended only by counsel for Mr Ross, Baptiste J granted a stay for a period not exceeding six months. Again, there is no indication that the judge adverted to the fact that the action was already automatically stayed. His order also gave Mr Ross leave to intervene in other proceedings (suit no 5 of 1985, presumably the liquidation proceedings) “for the purpose of obtaining current and future information and reports from the liquidator as to the status and proposed procedure for the winding up of [the Bank]”.

On 19 May 2006 Belle J gave Mr Ross leave to continue these proceedings. The Bank was represented by counsel, but there is no indication whether the application was opposed, or why the judge thought fit to deviate, especially after such extraordinary delays, from the normal practice and procedure in winding-up cases. On 17 November 2006 Belle J directed the liquidator to file and serve an affidavit within seven days. There is no sign that that order was ever complied with. No such affidavit is included in the record. On 1 December 2006 an application by Mr Ross for summary judgment was dismissed.

On 16 March 2007 Belle J made an elaborate order giving directions for trial. In consequence of this order witness statements were produced (for the plaintiff) from Mr Ross himself, from Sir Dennis Byron (who was then a permanent judge of the United Nations International Criminal Tribunal for Rwanda); from Mr Molans; and from Mr John Kelsick (a Montserrat barrister who witnessed the execution of the 1982 deed). Mr Simmonds put in a witness statement on behalf of the Bank. The trial took place before Belle J on 17 and 18 December 2007.

The pleadings, which had remained unamended for 24 years, gave no clear picture of the issues between the parties. But the main issues can be pieced together from the witness statements and the parties’ skeleton arguments.

The skeleton argument on behalf of Mr Ross stated that he was the assignee of Sir Dennis Byron as an agent and trustee of the Companies and/or of their attorney, Mr Molans. It noted the Bank’s challenge to the validity of the 1982 deed, which the skeleton argument described as “transferring all of the rights and privileges relating to the deposits from Sir Dennis Byron, as solicitor and agent of the Beneficiary Companies, to the Claimant”. Paragraph 24(c) of the skeleton argument set out part of the evidence relied on in the following terms:

“The testimony of Molans, the Claimant, Sir Dennis Byron and John Kelsick setting out the circumstances surrounding and the actual execution of the [1982 deed] (with Sir Dennis Byron as assignor, the Claimant as assignee and Kelsick as an attesting witness), assigning to the Claimant all of the rights and interests of the Beneficiary Companies in the Deposits. This was done with the knowledge and approval and in the presence of Molans and certified by the Beneficiary Companies, on the face of the Assignment, as having their approval and consent.”

The Board must point out that these passages exemplify two problematic elements in the way Mr Ross’s case has been presented in the course of the litigation. One is reliance on oral evidence as a means of construing commercial documents. The very important distinction between admissible evidence of the commercial matrix of fact, and inadmissible evidence of what the parties intended, seems to have been ignored. The other problem area is uncertainty as to the case that Mr Ross has been running. It seems to have been his case throughout that the Companies only had equitable interests in the two sums of US$205,000 deposited with the Bank. But there has been uncertainty about whether his case is that the 1982 deed operated as an assignment of the Companies’ beneficial interest in the deposits, or only as an assignment of Mr Byron’s rights and powers as a fiduciary agent. The two passages quoted from the skeleton argument are not easy to reconcile. From the plaintiff’s closing submissions as recorded in the judgment it is a matter of conjecture whether counsel was contending for anything more than a transfer of the fiduciary agency. The latter analysis is the one urged on the Board by Mr Finlay QC (who appeared for Mr Ross before the Board, but did not appear below).

The liquidator’s case as presented at trial had two limbs. One (reflected mainly in the liquidator’s witness statement) was that there was no proper record of the deposits in the Bank’s books, and that as liquidator he could admit to proof only claims that were properly documented. He did however exhibit to his witness statement two receipts dated 6 November 1981 for US$45,000 from each of the Companies and a ledger page stating a balance of US$410,000 (apparently due to the Bank of America, New York) as at December 1981.

The liquidator also exhibited to his witness statement a memorandum dated 17 July 1981 signed by Mr Eugene Walwyn, the President of the Bank, and sent by him to the Bank’s executives. It contained the following passage referring to Mr Molans:

“I have introduced Bank of Commerce to him through our Miami Office. His clients are Columbian Companies dealing in South America and getting their money out of Guatemala and El Salvador. He will only come to St Kitts when he has cash to deposit. We will have to meet him in St Maarten at short notice. The accounts to be opened are [names of five companies, including the Companies].”

The memorandum goes on to stress the need for “utmost secrecy to protect the customer”. This may go some way to explaining the arrangements made with the Bank by Mr Molans, Mr Byron and Mr Ross. They were (to say the least) lacking in transparency.

The skeleton argument on behalf of the liquidator repeated the lack of proper records, but also put forward the other limb of the liquidator’s case. This was that the creditors were the Companies, and they were not parties to the proceedings. Even if the deposits were made by Mr Molans as agent for the Companies, Mr Ross had no title to sue for them.

It is now necessary to refer in more detail to the essential documents on which Mr Ross relies. They do not fit easily together as a coherent scheme. The documents executed on 6 November 1981 were as follows:

(1)

There was a certificate of deposit in a standard printed form, numbered 958, issued by the Bank in favour of Mill Valley Finance Construction Company NV and recording the deposit of $205,000, maturing on 10 December 1981, at an annual rate of 10% until maturity.

(2)

There was a similar certificate, numbered 959, issued to Alminton Company NV.

(3)

The security agreement was entered into by the Bank (defined as the Debtor) in favour of Dennis Byron (referred to as Trustee and defined as the Secured Party). It was a typewritten document but it appears to have been (apart from the Bank being the debtor rather than the secured creditor) a standard-form document used by the Bank to secure bank lending when there was collateral in the form of shares, stock, bonds or similar property lodged with the Bank. The document was headed “Security Agreement: Secured Party in Possession” and it referred (inappropriately in the circumstances) to the Secured Party exercising its banker’s lien. It was not appropriate for an equitable mortgage of real property (there was no reference to letting, rents, rates, repairs or other such matters). It did not make any specific reference to any particular property as forming part of the collateral.

(4)

There were two letters dated 6 November 1981 written on behalf of the Bank, one to Mr Molans and the other to Mr Byron. Each was signed on behalf of Mr Walwyn by Mr R D H Lewis, a senior bank official. Each letter acknowledged receipt of the deposits (together with some other deposits not in issue) and each named the Companies as creditors. The letter to Mr Byron also stated “the Bank has given you an equitable mortgage on its premises at The Circus, Basseterre and The White House, St Peter’s to secure the said repayments.”

Copies of these two letters were not included in the record as originally prepared and certified, but copies of them (together with other documents that are in the original record) were admitted before the Board, without opposition, in order to enhance the record.

The record includes copies of two conveyances dated 23 June 1981 by which the properties mentioned above were conveyed to the Bank in consideration of the sums of US$198,000 and US$279,000 respectively. Mr Molans said in his witness statement that the title deeds were handed over by Mr Lewis on 6 November 1981. Sir Dennis Byron said in his witness statement that the deeds were delivered to him, and he appears to have advised (in a letter also dated 6 November 1981) that the Bank had a good title. The Board was told that both properties have been sold many years ago, apparently without any part of the proceeds of sale being used to extinguish or reduce the amount due in respect of the deposits. There is no evidence or finding as to how this happened. Sir Dennis Byron may have been in a position to explain but he was not asked about it in the course of his brief oral evidence.

Belle J accepted the evidence of Mr Ross and his witnesses as to the circumstances in which the 1982 deed was entered into. Mr Byron had been appointed as a judge and it was not appropriate for him to continue to act in connection with the security agreement. Belle J did not however make any finding about the sequence of events leading up to the 1982 deed being executed by Mr Byron and Mr Ross. The 1982 deed states that it was made “as of 11 October 1982”. Mr Molans and Mr Ross gave evidence that on 13 October 1982 they had a meeting with Mr Walwyn, presented the certificates of deposit, and asked for payment. Mr Walwyn said that the Bank could not pay at once, and asked for 90 days’ respite. He wrote a letter dated 13 October 1982 addressed to the Companies, and also to Mr Byron, recording this, and confirming that Mr Byron, as trustee for the Companies, had a valid equitable mortgage.

Although they were not named as parties, the 1982 deed was executed on behalf of the Companies by a company called Domi NV, described as the managing director of each of the Companies. This execution took place and was notarised on 11 November 1982. The evidence of Mr Molans and Mr Ross was that on 18 November 1982 they attended on Mr Byron at his judge’s chambers in Plymouth, Montserrat, and the agreement was executed as a deed by Mr Byron and Mr Ross in the presence of Mr Kelsick, who made an affidavit of due execution. On 19 November 1982 Mr Ross personally served the 1982 notice on the Bank.

The Board was not told who drafted the 1982 deed. Its terms are so unusual and obscure that they must be set out at length. After commencing as stated in para 16 above it continues as follows:

“WHEREAS the Transferor, acting in his capacity of Solicitor for James A. Molans (duly authorized agent and Attorney for ALMINTON COMPANY, N.V. and for MILL-VALLEY FINANCE CONSTRUCTION COMPANY, N.V.) did, by document under seal dated the 6th day of November, 1981, and entitled ‘SECURITY AGREEMENT: SECURED PARTY IN POSSESSION’, which document together with other related correspondence signed on the same date as part of the same transaction are attached hereto as Schedule ‘A’, become an equitable mortgagee of certain lands and premises and identified in Schedule ‘A’ attached hereto;

AND WHEREAS pursuant to the terms and conditions as expressed in the said ‘Security Agreement’, the security was held by the Transferor on trust from ALMINTON COMPANY, N.V. and for MILL-VALLEY FINANCE CONSTRUCTION COMPANY, N.V. jointly and severally;

NOW THIS AGREEMENT WITNESSETH THAT in consideration of the premises and other good and valuable consideration to the Transferor, receipt of which is hereby acknowledged, the Transferor, with the approval and consent of ALMINTON COMPANY, N.V. and MILL-VALLEY FINANCE CONSTRUCTION COMPANY, N.V. as represented by these presents, hereby sell, assign and transfer unto the Transferee and without restricting the generality of the aforementioned, any and all rights and/or privileges, current and/or contingent and the like, at law and/or in equity, to the Transferee, and that the documents referred to in the Schedule including the said memorandum have been handed to the said Transferee to the intent that the within-mentioned sums of Two Hundred and Five Thousand (US$205,000) United States Dollars and Two Hundred and Five Thousand (US$205,000) United States Dollars respectively as described in Schedule ‘A’ together with interest thereon and all related cost, fees and expenses and the securities therefore should be, and the same are transferred to the said Transferee.”

Schedule A consisted of the documents included in the bundle admitted before the Board in order to enhance the record (some of which were already in the record).

It will be apparent that there are two recitals, the main operative part (down to “to the said Transferee”) and then a further declaratory provision (from “to the intent that” to the end). It will also be apparent that the main operative part is devoid of any words identifying what “rights and privileges” are to be transferred. Taken literally and construed against the grantor, it would have the absurd result of vesting in Mr Ross the entirety of Mr Byron’s worldly goods. To avoid that absurdity, it is necessary to look at the recitals and the declaratory provision.

The first recital refers to the security agreement as having had the effect (together with other relevant documents) of making the Transferor an equitable mortgagee of the freehold premises mentioned above. As already noted, the security agreement does not itself identify any collateral at all, but with the related documents it does provide evidence of an equitable mortgage by way of deposit of deeds (which apart from a relatively modern English statute which does not apply in St Kitts, could be effected without any written instrument at all: United Bank of Kuwait Plc v Sahib [1997] Ch 107, 132). The second recital states that under the terms and conditions expressed in the security agreement the security (that is the freehold properties) were held by the Transferor on trust from (presumably “for”) the Companies “jointly and severally”. As just noted, the security agreement does not contain any such terms or conditions; and the expression “jointly and severally” is contradictory as a description of a property right (as opposed to an obligation).

Nevertheless the recitals, though badly expressed, work together to indicate that the subject-matter of the agreement is an equitable security by deposit of title deeds held by the Transferor for the benefit of the Companies. That is a strong argument for interpreting the main operative part of the deed as directed to the same subject-matter – that is, the security. In that context the final declaratory provision also must be taken as referring to the stated sums as what was secured by the equitable mortgage. The fact that the transfer is said to be made “with the approval and consent” of the Companies (not by them, though they executed the 1982 deed) points the same way. If the intention was to effect an assignment of the Companies’ legal and beneficial interests as creditors, there was a much simpler and more straightforward way of achieving that. There is no stated consideration for the transfer. The opening words of the operative part seem to be little more than a ritual incantation.

During the hearing Lord Phillips raised with Mr Finlay whether the final declaratory provision should, despite the ineptness of the rest of the language, be construed so as to operate as an assignment of the Companies’ full legal and beneficial interest as creditors. The principle “ut res magis valeat quam pereat” encourages courts to construe commercial documents so as to give them the fullest possible effect, even if they are defective in part. Mr Finlay did not directly accept the invitation to put forward that argument. He went no further than to say that it showed that the Companies were “on side” in confirming the assignment.

On an issue of construction the Board is not bound by counsel’s concession. But the whole thrust of Mr Finlay’s case was that Mr Ross is claiming as a trustee and agent, not as beneficial owner. The Bank’s insistence on secrecy, in order to protect their customers, seems to have dictated the unusual form of the transactions. Mr Hudson-Phillips QC, leading counsel for the Bank, also referred to the position of alien landowners as mortgagees under the Aliens Landholding Regulation Act as of possible relevance, but in the absence of any evidence or finding on that point the Board gives no weight to it. The principal submissions for the Bank were made with admirable conciseness by Mr Hudson-Phillips’ junior, Mr Roe.

At the end of the second day’s hearing Belle J announced that judgment would be given for Mr Ross for reasons to be delivered later. He gave his reasons in writing on 18 March 2008. The Board has already mentioned some of the points on which the judge made findings, and some of those on which he made no findings. The judge was critical of the case put forward on behalf of the liquidator. He observed in para 13 of his judgment:

“This case is largely about the force and effect of documents. For example the assignment of the agency, the deposit certificates, letters promising to pay the sums due on the certificates, whether the Companies ratified or passed resolutions approving the assignment of the agency or indeed approved the agency agreement in the first place. The Liquidator is focused on the form of these documents it seems and not on the substance of the entire course of dealings.”

The Board finds the judge’s own approach to have been flawed. He relied too much on Mr Ross and his witnesses for their view of the effects of a number of commercial documents, some of which were either inappropriate (as the security agreement was) or ill-drafted and obscure (as the 1982 deed was). The judge should have focused on the certificates of deposit as the essential documents evidencing loans in respect of which the Companies were creditors, both at law and in equity. The elaborate and awkward machinery adopted for the equitable mortgage did not operate to divest the Companies’ interests as creditors at law and in equity.

In ordering the liquidator to pay out the full sum claimed by Mr Ross, rather than directing that the liquidator should admit a proof in that sum, the judge seems to have fallen into a further fundamental error as to the way that a compulsory winding- up should be conducted. But, like the Court of Appeal, the Board finds it unnecessary to go further into that point.

The Court of Appeal allowed the Bank’s appeal in a judgment given by the Hon Michael Gordon QC JA (Ag), with which Rawlins CJ and George-Creque JA agreed. The essence of his judgment is in para 26:

“At its highest, as a result of the 1982 Agreement, the respondent stood in the shoes of Sir Dennis. Not only is there an absence of a perfect documentary trail to the ownership of the beneficial interest in the US$410,000, there is no documentary trail at all.”

He went on to point out that a fiduciary owner is not permitted to take the trust property for himself, even if the only beneficial owner has ceased to exist.

Before the Board Mr Finlay put the security agreement in the forefront of his argument. But as already indicated, the security agreement was a standard-form document pressed into service for a purpose for which it was ill-adapted, that is to provide written evidence of the security, the equitable mortgage by way of deposit of title deeds. The certificates of deposit of the two sums of US$205,000 were the essential documents evidencing the loans, and the Companies themselves were the creditors. Mr Finlay made clear, and the Board accepts, that Mr Ross is not seeking to claim the sum of US$410,000, with interest, for himself. Mr Finlay referred to the possibility of the Companies being restored to the register in Curacao. But it is four years since Mr Molans gave evidence that the Companies no longer exist, and there is no indication that any action whatsoever has been taken to attempt to restore them to the register.

The Board concurs in the analysis adopted by the Court of Appeal. As long as they continued in existence, the Companies were the Bank’s creditors both at law and in equity. The certificates of deposit are in evidence and there is no suggestion that they were endorsed in favour of any third party. The security agreement did no more than evidence the Bank’s entering into an equitable mortgage by deposit of the two title deeds with Mr Byron as security. The 1982 deed operated as a transfer of that security, and nothing more. As Gordon JA (Ag) put it, there was no documentary trail at all establishing Mr Ross’s claim to legal or beneficial ownership of the two sums of US$205,000 which the bank owed to the Companies.

For these reasons the Board will humbly advise Her Majesty that the appeal should be dismissed. Any submissions as to costs should be made in writing within 28 days.