IN THE SUPREME COURT OF BELIZE, A.D. 2005
CLAIM NO: 471 OF 2005
BETWEEN
CEDRIC FLOWERS
CLAIMANT
AND
RBTT TRUST LIMITED
DEFENDANT
Mr. A. Courtenay SC, with
Mrs. R. Magnus-Usher, and
Miss. V. Flowers, for the claimant.
Mr. C. Hamel-Smith SC, and
Mr. P. Zuniga SC, for the defendant.
AWICH
J.
4.10.2008.
1.
JUDGMENT
Notes: Receivership – remuneration of a receiver appointed, of company
assets charged by debenture; whether terms in the debenture regarding
remuneration of the receiver were adopted by the instrument
appointing the receiver or whether no manner of determining
remuneration was specified, and the remuneration would be
determined solely by the rule that remuneration must be fair and
reasonable. Considerations for a fair and reasonable remuneration.
The meaning of the clause, “such receiver shall be entitled to
remuneration appropriate to the work and responsibilities involved
-1-
upon the basis of charging from time to time adopted by such receiver
in accordance with the current practice of his firm”. The function and
duties of a receiver. A trustee under the trust deed and debenture
deed; appointment of the receiver made by the trustee for the benefit of
the “bond-holder”.
Bonds acknowledging the loans and binding the debtor company to
perform the loan obligations; whether sale of the bonds during the
receivership was sale of the charged assets for the purposes of
determining the remuneration of the receiver.
2
This case arose out of failure at commencement, of a much publicised
intended
business
of
a
company
known
as
International
Communications Limited (Intelco), incorporated in Belize.
The
company had raised loan capital of US$25,000,000.00 from or
through RBTT Merchant Bank Limited, a sister company to RBTT
Trust Limited, the defendant. The two were parts of a conglomerate
holding company. For the loan, Intelco issued fixed rate bonds to
RBTT Merchant Bank Limited, the original bond-holder, by a deed of
trust dated 24.3.2003. In the deed of trust, RBTT Trust Limited was
appointed trustee for the benefit of the “bond-holder” for the time
being. The same loan was then secured by a debenture that charged
the assets of the company with the loan, in accordance with the terms
of a deed of debenture of the same date. In the deed of debenture,
RBTT Trust Limited as the trustee of the bonds for the benefit of the
“bond-holder” was made the debenture-holder. I have used, and will
-2-
use the term “bond-holder” to refer to RBTT Trust Bank Limited,
because counsel for the parties in conducting their cases referred to
RBTT Merchant Bank Limited by that term; and it is convenient.
Strictly speaking, RBTT Merchant Bank must be a beneficiary of the
bonds held in trust by another entity, RBTT Trust Limited, the trustee.
3.
The assets of the company were stated as, goodwill, rights of the
company, land, communications equipment, plants and similar items.
The debenture charged both fixed charge and floating charge to them.
4.
Intelco was not a successful business. On 1.11.2004, the claimant,
Mr. Cedric Flowers, was appointed the receiver of the charged assets
of the company. His main mandate was to sell the charged assets so
that the proceeds would be applied to pay the loan principal sum,
interests and costs. The appointment was made by the defendant,
RBTT Trust Limited, acting as a trustee for the purposes of the bonds
and debenture.
5.
The evidence was that in the course of the receivership RBTT
Merchant
Bank
Limited,
“sold
-3-
the
bonds”,
to
Belize
Telecommunications Limited for US$26,266,049.38, representing the
principal sum and interests owed on the loan obtained by Intelco, and
which the assets were charged with.
When this claim was
commenced, Belize Telecommunications Limited was said to be the
“new bond- holder”, RBTT Trust limited remained the trustee, and
also the debenture-holder.
6.
The core facts upon which, Mr. Flowers, based his claim were the
following. On 1.11.2004, he was appointed under the terms of the
deed of debenture, a receiver of the charged assets of Intelco. He was
a professional certified public accountant practising in Belize City,
Belize. He had experience of several years of practice, and at least of
three company receivership works. The appointment was made by the
defendant, RBTT Trust Limited in its capacity as the trustee for the
“bond-holder”, at the time, RBTT Merchant Bank Limited. By a
letter dated 1.11.2004, RBTT Trust Limited undertook to pay
remuneration and costs to Mr. Flowers. He commenced his work
straightaway. On 14.1.2005, RBTT Trust Limited terminated his
appointment. It informed Mr. Flowers that the bonds securing the
loan had been sold by “the bond-holder”, and “the new bond-holder”
-4-
desired to terminate the receivership. The defendant did not disclose
to Mr. Flowers the identity of the “new bond-holder”. Mr. Flowers
demanded payment of his remuneration which he charged at 3.5% of
the price at which the bonds were transferred to the new beneficiary of
the bonds, and as the result Intelco was released from its loan
obligations. He also demanded reimbursement for costs incidental to
the receivership.
The total sum he demanded and claimed was
US$931,036.73, with interest. RBTT Trust Limited has not made any
payment, and has refused to pay. Mr. Flowers says, the refusal was a
breach of their agreement by which he was appointed a receiver, and
was wrongful. He filed this claim in court.
7.
The reason for appointing a receiver of the assets of Intelco were the
following. In the year 2004, Intelco became moribund; the reasons
were not important for this case; suffice it to state that Intelco had
several creditors; and it had come to the attention of the defendant that
some creditors were taking action about default by Intelco to pay
debts.
It was also stated in evidence that one of the debts was
guaranteed by the Government of Belize, and the Government was
paying about 90% of US$350,000.00 (i.e. US$315,000.00 equivalent
-5-
to about BZ $630,000.00) quarterly, to International Bank of Miami,
in the USA. The payment by the Government was for services to be
provided by Intelco, and which payment Intelco assigned to the
International Bank of Miami. It was stated further, that the payment
by the Government, “was a very sensitive issue for the Government”,
and that, “politically it could have major implications for the
Government”. It was in those circumstances that RBTT Trust Limited
appointed Mr. Flowers a receiver of the charged assets of Intelco in
accordance with the terms of the debenture deed of 24.3.2003.
8.
The defendant admitted that in its capacity as trustee for the bonds, it
appointed the claimant a receiver, and that it gave to the claimant
receiver, an undertaking to pay his remuneration and costs, in the
event payment was not obtained from Intelco, that is, from the sale of
the charged assets. However, the defendant contended that: (1) the
claimant failed to carry out his duty as a receiver or substantially; (2)
the claimant was to recover, “his payment from monies coming into
his hands as a receiver”, he did not sell any assets and did not received
any money into his hands; (3) the claimant was not entitled to rely on
the terms for remuneration stated in the deed of debenture, because he
-6-
was not a party to the debenture; (4) the claimant was appointed,
“without agreed fee structure, but on terms of reasonableness”, the
demand by the claimant was for an unreasonable sum; and (5) the
defendant was willing to pay reasonable remuneration which would
be based on a hourly rate of US$150.00 per hour, and to pay
reimbursement for costs of the receivership properly incurred.
9.
Determination
Right at the commencement of the trial, during crossexamination of
Mr. Flowers, it became apparent that most of the contentions of the
defendant were inconsistent with one another. For examples: (1) it
was inconsistent to contend that the claimant failed to perform his
duties, and also contend that the defendant was willing
to pay
reasonable remuneration based on a hourly rate of US$150 per hour;
and (2) to contend that there was no agreement that the manner of
determining the remuneration of the receiver would be the manner
provided for in the debenture, and also contend that the manner
adopted by the claimant in his practice (as required in the debenture)
was a hourly rate and not a percentage rate, and the defendant was
willing to pay remuneration based on hourly rate. The practical way
-7-
to deal with the defences was to regard some of them as alternative to
others. Because of that, the issues shifted from one to another. The
difficulty had presented itself when counsel presented the cases for
their clients.
It led to unnecessarily long trial and excessively
voluminous record of proceedings, some 509 pages.
10.
But there were also some common grounds between the parties.
After detailed and long crossexamination of Mr. Flowers for 3 days;
and of Mr. Stephen Bayne, the managing director, and the only
witness for the defendant, for one and one-half days, most of the
material facts became common facts. That was largely due to Mr.
Bayne eventually admitting most of the facts put to him by learned
counsel Mr. A. Courtenay SC, for the claimant. Mr. Flowers had
earlier been grilled in crossexamination about those facts, by learned
counsel Mr. C. H. Smith SC, for the defendant, but Mr. Flowers
maintained his basic account of facts.
It was apparent that Mr.
Flowers gave much more detailed instructions to his attorneys, than
RBTT Trust Limited gave to its attorneys.
-8-
11.
Mr. Bayne was in court when Mr. Flowers testified and was
crossexamined, so Mr. Bayne had the advantage of considering the
effect of the detailed crossexamination of Mr. Flowers. One of the
consequences was that Mr. Bayne commenced his testimony by
requesting court to grant permission for him to amend his written
witness statement by including admissions that: (1) “ the receiver did
take some steps in the course of the receivership”; and (2) “the
receiver incurred certain costs of minimal amounts”. The claimant
did not oppose the request of Mr. Bayne. Permission was granted and
the two new admissions or partial admissions were added as evidence
in the testimony of Mr. Bayne.
12.
Nevertheless, it appeared from the crossexamination by Mr. Smith,
that despite the above admissions by the defendant, it remained the
contention of the defendant that Mr. Flowers did not perform his
duties substantially. Mr. Flowers of course, claimed that he set about
his duty professionally and exercised due professional skill and
responsibility, and accomplished what was expected of a receiver up
until his appointment was terminated on 14.1.2005, by the defendant.
-9-
His answers to questions during crossexamination, outlined in much
detail what his duties were and what actions he took.
13.
So, what was the function, and what were the duties and
responsibilities of a receiver of a charged asset of a company; and
which Mr. Flowers claimed he properly discharged?
14.
The Companies Act Cap. 250, Laws of Belize, unlike the enactments
of some countries, does not define the term receiver, or set out the
function, of a receiver, so we have to take the common law definition,
and function of a receiver of asset, and apply it to company
receivership in Belize, with necessary adaptation. The oldest common
law general definition of a receiver which is regarded as accurate was
stated in the case of, Re Manchester and Milford Railway Co. Ex
parte Cambrian Railway Co. (1880) 14 Ch D 645, by Lord Jessel M.
R. as follows:
“A receiver is a term which was well known in the Court
of Chancery, as meaning a person, who received rents or
other income, paying ascertained outgoings, but also
- 10 -
who does not,… manage the property in the sense of
buying and selling or anything of the kind…”.
15.
So, the function of a receiver of a charged asset of a company is to
receive the income from the charged asset, and the proceeds of its
sale, pay the costs and liabilities connected with the charged asset, and
realise the security interest of the secured creditor, that is, pay off the
debt charged to the asset.
16.
The duties and responsibilities of a receiver arise necessarily from his
function to sell the charged asset, pay incidental costs and realise the
security interest of the creditor who appointed him or on whose behalf
he has been appointed. In the first place, a receiver must exercise his
power for the proper purpose and not abuse it– see Downsview
Nominees Ltd v First City Corp. Ltd [1993] AC 295. He is the agent
of the debtor company, not of the secured creditor, – see Gaskell v
Gosling [1896] AC 575. However, if the secured creditor gives
instruction to the receiver, the creditor may be liable for lack of duty
of care if it occurs – see, Standard chartered Bank v Walker [1982] 2
ALL ER 938. The receiver must act honestly and bona fide in
- 11 -
realising the asset so as to obtain the best price – see, ParkerTweedale v Dunbar Bank PLC. and Others [1991] Ch 12.CA.
He
must also act honestly and bona fide so as not to harm the interest of
the debtor company and the general creditors, except to the extent that
it is necessary for realising the security interest – see Tse Kwong Lam
v Wang Chit Sen and Others [1983] 3 ALL ER 54. He must avoid
conflict of interests. He must protect and preserve the asset while
proceeding to sell it. That may require him to secure and insure the
asset. So in this claim, if the claimant has proved that he carried out
the work assigned and observed his duties as a receiver, the defendant
must disprove that by proving its averment that the claimant did not
carry out its work substantially, or that he failed to live upto the above
legal duties when he set about carrying out his work.
17.
In this claim, the function, and therewith, the powers, duties and
responsibilities of this receiver were the usual common law ones, but
enlarged by those given to him by the contract of appointment, which
adopted by reference, the terms set out in the deed of debenture of
24.3.2003. The enlargements were specified in paragraph 7.01 (a) to
(j) of the deed. They were extremely wide and went far beyond those
- 12 -
of a receiver, and included the function and powers of, “a receiver and
manager”. The powers, duties and responsibilities included the
powers, duties and responsibilities to take possession of the assets,
develop, improve, repair, sell by public auction or private contract,
grant licence over or otherwise dispose or deal with the assets,
exercise the power of a landlord, appoint personnel to guard or protect
the assets, insure the assets, and sign documents, and do all acts as the
receiver may consider incidental or conducive to any of the above
matters or powers, or to the realisation of the trustee’s security.`
18.
Did Mr. Flowers perform his duties?
Mr. Flowers related the actions he took. He said that he hesitated to
accept the appointment because the circumstances of Intelco were,
“politically very sensitive”, and he was apprehensive about the
consequence of accepting the job, to his practice.
He started by
stating that he cleared his desk so that he would concentrate on the
receivership. He took steps to identify the charged assets, he made
inquiries in Belize about some assets and got answers about their
whereabouts. He mentioned that the auditor had a list of assets, but it
was not an accurate list.
He engaged Mr. Kimano Barrow, a
- 13 -
telecommunications engineer, to locate, identify and inspect some of
the assets; and he paid to Mr. Barrow BZ$1,995.00 for the services.
He also inquired and obtained information that the Public Utilities
Commission and some land-owners had large money claims against
Intelco which could cause difficulties in removing some assets. He
further, said that some of the assets were in the possession of Belize
Telecommunications Limited, and that he and Mr. Barrow met some
resistance from Belize Telecommunications Limited to their desire to
access and inspect the assets.
19.
The following, in particular, were matters that Mr. Flowers raised and
required response from the defendant about.
He requested
information regarding the identities of the assets and relevant
documents, he pointed out the practical need to take possession of,
and transport, store, secure and insure the assets that were in the
possession
of
Belize
Telecommunication
Limited
when
the
arrangement by which it was given possession of the assets by Intelco
would be discontinued. He raised the possible legal issues regarding
the discontinuance of the arrangement, and regarding land on which
telecommunications towers were erected.
- 14 -
He also informed the
defendant about an agreement by which payment owed by the
Government to Intelco was assigned to the International Bank of
Miami, and requested instruction about discontinuing it and the likely
consequences. He requested title documents for assets and copies of
contracts regarding them. Further, he asked the defendant to provide
money for costs incidental to the actions he would take.
He
enumerated many more actions he had taken and those that he sought
information and instruction from the defendant about. I need not
recount all the actions he took. Some details were in exhibits C(CF)
17 and C(CF)19.
20.
Mr. Flowers communicated with the defendant by letters and
telephone discussions including a tele-conference. In particular, he
dealt with Mr. Theron Quashie, the officer responsible for this
receivership, and Mrs. K. Singh, the manager in the Asset
Management Department of the defendant. He also had discussion
with Mr. Bayne himself.
21.
The defendant did not provide the information, the relevant
documents or the documents of title requested, and did not respond to
- 15 -
the questions raised and the instructions requested, although it wrote a
letter exhibit C(CF) 18, appreciating the contents of the letters of Mr.
Flowers, and sought more information about transactions and
agreements it might have not been aware of, that might affect the
interest of Intelco and the secured creditor.
22.
More directly to his effort to sell the assets, Mr. Flowers identified at
least
four
interested
and
potential
buyers,
namely,
Belize
Telecommunications Limited, Carlisle Group, Speednet and Ericsson
(Latin America); he had discussion with them.
He informed the
defendant about the expressions of interests, and specifically
requested that the defendant provide title documents for the purpose
of further negotiations with the potential buyers.
23.
All the letters that Mr. Flowers wrote about the actions he had taken
and proposed to take, and seeking documents, information and
instructions were exhibited. They were not denied by the defendant.
The telephone discussions including the tele-conference, were also not
denied. The more Mr. Flowers was crossexamined about actions he
took, the more he extended the list of actions and gave details.
- 16 -
24.
The defendant had no evidence to the contrary. Mr. Bayne had to
concede that they should have responded to the inquiries and the other
matters raised by Mr. Flowers. When pressed in crossexamination,
his exact words were: “we could have been more reasonable and
professional…, there could have been more frankness with Mr.
Flowers”. He explained that they did not respond or were not frank
because: “this was a short period of time in which a lot of different
circumstances occurred or were changing on the ground, we were
unsure virtually from moment to moment… and it was therefore
difficult for us to be able to respond as quickly and as
comprehensively… There were many issues surrounding this Intelco
matter, some political in nature, had political implications or fall out,
some had to do with contentions between the parties…” From the
above evidence the reasonable inference was that the defendant was
engaged in or was kept informed about the negotiation that led to the
sale of the bonds for which it was a trustee.
25.
Undoubtedly Mr. Flowers proved that he carried out his duties
diligently and with due professional skill, as far as was possible, given
- 17 -
that the defendant was either uncooperative, unwilling or negligent in
responding to the requests for information, title documents,
instructions and money for costs incidental. He also proved that he
was still carrying out his duties and desirous to proceed when on
13.1.2005, he called the defendant to press for its response and
instructions, and the defendant simply informed him that his
appointment had been terminated. The reason that the defendant gave
for the termination was that the bonds had been sold and, “the new,
bond-holder”, desired the receivership ended.
Mr. Flowers, the
receiver, was not involved in the sale of the bonds although he was the
one who informed the defendant about the interest of the buyer, Belize
Telecommunications Limited, to buy the assets of Intelco.
The
defendant had not discussed the intended termination of the
appointment with him. The termination was confirmed in the letter of
the defendant dated 14.1.2005, to Mr. Flowers. I have no hesitation in
concluding that the defendant either deliberately participated in, or
aided the sale of the bonds without the knowledge of Mr. Flowers so
as to deny him his remuneration. After all, the defendant was the
holder of the legal title to the bonds.
- 18 -
26.
It is my decision that by terminating the receivership, the defendant
breached the agreement by which the claimant was appointed a
receiver. The defendant first pleaded denial of breach, but amended
that by simply deleting the denial and pleading that it was, “willing to
pay reasonable charges in connection with the functions as a
receiver”. As the consequence of the breach, the claimant is entitled,
against the defendant, to damages for his losses, which are not remote,
arising from the breach.
27.
Damages (remuneration and reimbursement).
The next logical question for determination is the sum to be awarded
to Mr. Flowers as damages.
It is my view, that the appropriate
remuneration in the circumstances of this case, and costs properly
incurred, are to be regarded as the measure for damages.
28.
The contentions that the receiver was to obtain his remuneration and
costs only from monies coming into his hands from sale of the assets,
seemed to have been abandoned, and rightly so. It is true that the
receivership did not bring in any monies and therefore was not
beneficial to Intelco and the secured creditors. That, however, was not
- 19 -
because of any fault of the receiver. It is the law that court will not
deprive a receiver of his remuneration solely on the ground that the
receivership has not proved to be beneficial to the secured creditor or
the debtor company See – Mellor v Mellor and Others [1992] 4 All
ER 10. In the case, the receivership pursuant to an order of court
obtained by the claimant- father was discontinued by consent of the
father and the defendant-son who controlled the companies, upon
certain undertakings about the running of the companies having been
given by the son. It was held that the receiver was entitled to his
remuneration although the receivership had not been beneficial.
29.
Another reason was that the defendant in the present case, through its
witness, admitted the entire content of the letter of indemnity and
undertaking dated 1.11.2004, exhibit C(CF)10, issued by it to Mr.
Flowers. The content was an unconditional promise by the defendant
to pay the remuneration of the receiver and costs properly incurred,
except of course, for the fundamental condition that the receiver
would carry out his duties. The letter stated as follows:
- 20 -
“Dear Mr. Flowers:
Re: International Telecommunications Limited.
In consideration for your agreement to act as
receiver of the Charged Assets of the abovementioned company, pursuant to an appointment
to be made by us as Debenture Holder and
Trustee, we hereby undertake to pay or reimburse
you (as the case may require) so much of the
expenses properly incurred by you in the
performance of your duties as Receiver and so
much of your remuneration for so acting as you
are unable to recover from the monies coming
into your hands as Receiver”.
30.
It is usual that a receiver of charged assets of a financially troubled
business, or a liquidator in company winding up will look to the
person making the appointment or the applicant for the court winding
up order, for remuneration in the event, payment has not been
obtained out of the sale of the assets or the company. The instrument
- 21 -
of appointment, or a letter of undertaking, or the court order, will
usually provide for that.
31.
In any case, on the evidence for both parties, it was never an issue that
no monies came into the hands of Mr. Flowers; and it seemed to be
conceded eventually in the course of the long trial, that in the
circumstances of this case, Mr. Flowers was entitled to claim his
remuneration from RBTT Trust Limited. However, the manner of
charging the remuneration remained an issue. Whereas it was claimed
by Mr. Flowers that under the terms of his appointment he was
entitled to charge his remuneration on the basis of a percentage of the
value of the assets, “assigned”, it was contended by RBTT Trust
Limited that the manner of charging remuneration was not agreed and
so remuneration was to be charged, “on the basis of reasonableness”,
which in this case was said to be, charging for the hours spent on the
receivership work, the hourly basis.
The rate suggested was
US$150.00 per hour.
32.
The submission for the claim of Mr. Flowers was, that the instrument
of appointment in this receivership adopted the terms of appointment
- 22 -
and powers of the receiver, specified in the deed of debenture of
24.3.2003, in particular, the terms in paragraph 7.04 regarding the
remuneration and costs of the receiver. I accept that submission. The
meaning urged in the submission is the only one I can read from the
last part of the instrument of appointment.
33.
The details of paragraph 7.04 regarding remuneration, said to have
been adopted as a term of the appointment of Mr. Flowers are the
following:
“7.04. The Company hereby covenants with the Trustee
on demand to pay all costs charges and expenses
incurred by the Trustee or by any such receiver or which
it or he shall properly incur in or about the enforcement
preservation or attempted preservation of this security or
of the charged assets or any of them on a full indemnity
basis with interest at the default rate from the date of
payment by the Trustee or such receiver.
Any such
receiver shall be entitled to remuneration appropriate to
the work and responsibilities involved upon the basis of
- 23 -
charging from time to time adopted by such receiver in
accordance with the current practice of his firm”.
34.
The defendant does not contest the meaning of paragraph 7.04. Its
submission against applying paragraph 7.04 of the deed, in
determining the remuneration of Mr. Flowers, was that the terms of
the deed of debenture, including those in paragraph 7.04 did not apply
to the appointment of Mr. Flowers, because he was not a party to the
deed.
It was an ingenious submission by learned counsel.
Unfortunately for counsel, that effort was wiped out by an
unequivocal admission by the defendant’s witness, Mr. Bayne, on at
least two occasions in crossexamination, that RBTT Trust Limited and
Mr. Flowers adopted the terms of the deed of debenture, and
paragraph 7.04 in particular, by reference, into the instrument of
appointment. The first relevant passage in the crossexamination is as
follows:
“Q.
Now Mr. Bayne, can you take a look at the
instrument of appointment signed by –
…
- 24 -
Q.
You are familiar with this document?
A.
Yes, I am.
Q.
According to this document, Mr. Flowers was
appointed pursuant to the terms and subject to the
powers and provisions of the debenture, is that
correct?
A.
Yes, that is correct.
Q.
You know what that means?
A.
I think it means just what it says: the details of that
appointment will be contained in the debenture
document itself by reference.
Q.
It’s incorporated by reference?
A.
Yes.
Q.
Incorporated as you understand clause 7.04 as
well?
A.
That is correct.
…
Q.
And did Mr. Flowers accept this appointment on
the terms and subject to the powers and provisions
contained in the debenture?
- 25 -
A.
Yes, he did.
Q.
Mr. Bayne you will agree with me based on what
you just said that as between you, RBTT Trust, by
this instrument of appointment, incorporating
provisions of that debenture, and Mr. Flower’s
accepting that appointment there was an agreement
between RBTT Trust and Mr. Flowers, for him to
act as a receiver upon the terms and conditions
contained in the debenture, you agree with that?
A.
Yes, I agree.
Q.
And based on what you’ve said Mr. Bayne, you
will agree also that one of the terms of that
agreement between yourself and Mr. Flowers was
that he was to be remunerated on the basis of the
terms, the practice in his firm you agree?
A.
35.
Yes, I agree”.
I will take advantage of the flow of crossexamination from there, and
continue the quotation to show that the witness admitted
unequivocally, the liability of the defendant to pay the remuneration
- 26 -
of Mr. Flowers.
It confirmed my earlier decision based on
performance of obligation by Mr. Flowers. The crossexamination
continued as follows:
Q.
When you appointed Mr. Flowers a receiver, who
did you understand was responsible for his fees,
his costs ?
A.
My understanding was that in appointing the
receiver, we appointed him as agent for the
company who was responsible for his fees and
costs as outlined in the debenture documents.
Can you repeat that – “We appointed him”, that
Court.
is…
A.
Mr. Flowers.
Appointing him as agent…?
Court.
A.
Agent
for
the
company
INTELCO,
which
company was responsible for his fees and
expenses, and we further, understood that we had a
responsibility…
- 27 -
Q.
So you are saying that INTELCO was responsible
for paying Mr. Flowers his bill?
A.
Ultimately yes.
Q.
Can you tell His Lordship when you contacted
INTELCO to pay his bill; when did you do that?
A.
…
A.
The answer is I did not.
We did not contact
INTELCO to pay Mr. Flowers’ fees and expenses.
Q.
Why not?
A.
…
A:
At that time the company INTELCO was in
default, the ownership of the company was
unclear.
Q:
Are you telling the court that no attempt has been
made to collect the fees and expenses related to
this receivership from INTELCO?
A:
That is correct.
Q:
Since you did not do that, who is responsible for
the receiver’s fees and expenses?
A.
…
- 28 -
A.
Given INTELCO’S condition…
The person
responsible for settling of receiver’s fees would
have been the person appointing the receiver.
Q.
And that is a mystery to us, tell us who that is.
A.
RBTT Trust Limited.
…
Q.
… based on this letter you would be responsible to
meet the expenses and fees of the receiver even if
no monies came into his hands?
A.
I would agree.
Q:
You agree, and I want to be clear there is no
condition in this undertaking that RBTT Trust
Limited would only be responsible if he (Mr.
Flowers) sold the charged assets and received
money, no such conditions.
A.
Yes, there is no condition in this letter that RBTT
Trust Limited to meet the fees and expenses of the
receiver, if and only if he sold the charged assets
and received money”.
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36.
To bring his claim for the relief of damages within the terms in
paragraph 7.04, that is that: “any such receiver shall be entitled to
remuneration appropriate to the work and responsibilities involved
upon the basis of charging from time to time adopted by the receiver
in accordance with the current practice of his firm”, Mr. Flowers
presented evidence to prove that the practice adopted by him in his
firm was to charge for his remuneration, a percentage of the proceeds
of sale, or of the value of the assets sold or otherwise disposed of.
37.
The items of evidence he provided were charges he made in three
previous receivership works. In each of them his final charge was
calculated as a percentage of the receipts from sale or other manners
of transfer of assets. The question was raised as to why in one of the
receiverships, and in this receivership, Mr. Flowers issued several
bills based on hourly charge. In this receivership, the bills were for
November, December 2004, and January 2005. I was satisfied with
the explanation that, usually receivership work lasts a long time, and
the usual practice is to charge interim bills based on hourly rate, and
the interim bills are eventually deducted from the final bill which is
calculated on a percentage basis.
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38.
In this receivership, Mr. Flowers demanded 3.5%. of US$26,
266,049.38, the price paid by Belize Telecommunications Limited to
RBTT Merchant Bank Limited to have the bonds transferred to Belize
Telecommunications Limited.
By my calculation, the sum is
US$919,311.72, not US$931,036.73. claimed by Mr. Flowers. He
advised RBTT Trust Limited that the statutory law in Belize allowed
receivers to charge not more than 5%, unless parties had agreed; and
that he was, “flexible”, about the percentage he would charge. RBTT
Trust Limited did not reply. I concluded from the evidence that
RBTT Trust Limited chose not to engage in negotiation for the
receiver’s remuneration because, it was at that moment participating
in the sale of the bonds, or it had known of a parallel negotiation or
arrangement by which the bonds, and therefore the benefit of the
charge over the assets, would change hands without the knowledge of
the receiver, and RBTT Trust Limited desired that the assets no longer
be available to the receiver to sell. It would be an embarrassing
dishonesty for an ordinary person. I did not believe Mr. Bayne that
the defendant was not a party to the negotiations to sell the bonds
which it was a trustee of and held the legal titles to.
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39.
My decision is that Mr. Flowers was entitled, according to paragraph
7.04 of the deed of debenture, to charge by percentage of receipt of
income whether by sale, assignment or howsoever obtained, in this
receivership because that was the basis of charging from time to time
adopted by him in accordance with current practice in his firm.
40.
There is, however, one other requirement in paragraph 7.04 about
determining remuneration of the receiver, that I have to take into
consideration, namely, whether in the circumstances of this case, the
remuneration
based
US$26,266,049.38,
on
that
a
percentage
charge
is,
US$919,311.72,
is
of
3.5%
of
remuneration
“appropriate to the work and responsibilities involved”, in the work
done by Mr. Flowers.
That clause invites the court to consider
whether the sum determined on a percentage basis, fixed at 3.5% is a
reasonable sum, taking into account the nature and extent of the work
done, any risk in or arising from the work, the professional skill and
experience of the receiver, the time taken to do the work and others.
So the criteria of “reasonableness” urged by the defendant comes in.
41.
The submission for the defendant about the reasonableness of the fees
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was, of course, an alternative submission to the submission that the
parties did not agree on a manner to determine the remuneration of the
receiver. I restate it as follows. If the court decides that the term in
paragraph 7.04 applied, namely, that: “any such receiver shall be
entitled to remuneration appropriate to the work and responsibilities
involved, upon the basis of charging from time to time adopted by
such receiver in accordance with the current practice of his firm”,
then the case for Mr. Flowers and the submission by his counsel, did
not take into consideration that the remuneration must also be,
“appropriate to the work and responsibilities involved”. The work in
this receivership was very little, and so was the responsibility, counsel
for the defendant submitted. The work was only preliminary and was
done only in a short period of two and one half months, he continued.
Counsel then urged that in the circumstances, a reasonable fee would
be one based on the hours worked.
42.
The submission is correct that a fee must be, reasonable. The full
legal expression is, “fair and reasonable”. That rule applies to fees of
many professionals, including fees of attorneys – see Property and
Reversionary Investment Corporation Ltd v Secretary of State for
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the Environment [1975] 2 All ER 436, a case concerning
remuneration of an attorney for a conveyance work.
43.
The factors that are taken into account in determining a fair and
reasonable remuneration are many. They relate to the work, the value
of the asset or work, and the professional.
The work may be a
difficult one, or a tedious one, or a simple one, or may involve the risk
of losing other clients. The professional may be a very skilled and
experienced one, or an average one, or a beginner. Even reputation
counts. The case cited by Mr. Smith and Mr. Zuniga, Barbados
Sugar Industry Limited v Barbados National Bank and Others
(No1) 50 WIR 51, is to the point. In the case, the Court of appeal of
Barbados stated:
“Generally speaking courts have been reluctant to
award remuneration based solely upon the time
spent by the appointee in performing his duties.
They have preferred to award either a lump sum or
a commission upon the amount collected or
realised by the receiver”.
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An equally good guidance was given in the Canadian case, Belyea
and Fowler v Federal Business Development Bank, 46 Canadian
Bankruptcy 244. Compare Re Eastmond (1995) 50 WIR 76 and
Maltby v D.J. Freeman ]1978] 2All ER 913
concerning attorneys fees.
44.
The submission by Mr. Smith relied directly only on the time taken to
carry out the work, and presumably the hourly rate of US$150 took
into account the skill and experience of Mr. Flowers. The submission
did not take into account the general responsibility for the care and
conduct of the receivership, and the nature of the items of work
undertaken by Mr. Flowers. Even if the items of work done were at a
preliminary stage, the work has already disclosed complicated tasks
ahead.
Several side arrangements and contracts were disclosed.
Efforts to trace assets have already disclosed difficulties. Mr. Flowers
also said that the task was politically sensitive and he had hesitated
because of what it might do to his practice. I think the several factors
mentioned by Mr. Flowers should be taken together with the short
time he worked, to arrive at a fair and reasonable remuneration. It is
my view, that charging on a percentage basis takes into account all the
- 35 -
factors I have mentioned, and the period (hours) over which the work
was carried out. The hourly basis does not. Instead it brought in an
assessment based on quantum meruit, which is totally inappropriate in
the circumstances of this case.
45.
When Mr. Flowers proposed discussion of a percentage to be charged
he acted reasonably. Both parties would have considered a reasonable
percentage, taking into consideration the complexity or otherwise of
the work, the general responsibility for the receivership, the skill and
experience of Mr. Flowers, the comparatively short period over which
Mr. Flowers worked and the value of the assets in the receivership.
The defendant declined to discuss that. Mr. Flowers, thought that
3.5% was a fair and reasonable percentage rate in the circumstances.
In court in crossexamination, Mr. Bayne, witness for the defendant,
confirmed that the rate of 3.5% was not unreasonable for the type of
work. I cannot avoid comparing the fact that for merely arranging for
the loan to purchase the bonds, RBTT Merchant Bank charged 2%
and was paid US$525,328.98. The time taken to arrange the loan was
not disclosed in the evidence, but it was certainly shorter than the time
Mr. Flowers worked.
- 36 -
46.
While I accept that the estimate of a rate of 3.5% is not unreasonable,
I however, consider it to be fair and reasonable to take into
consideration that Mr. Flowers fixed the rate at 3.5% when
contemplating proceeding with his work to conclusion. He must have
contemplated the work to last for more than the two and one-half
months during which he worked. The evidence has shown that Mr.
Flowers would have met many difficult tasks in the course of his work
ahead had he proceeded to the end. He has been relieved of the
trouble although wrongfully. It is my view that some discounting of
the 3.5% rate is desirable to achieve a fair and reasonable
remuneration, given that the work was not completed, and ended in a
shorter time than expected.
47.
One cannot be absolutely accurate in making this type of estimation. I
think a more fair and reasonable rate in the circumstances is 3% of
US$26,266,049.38, the price at which the bonds were sold to Belize
Telecommunications Limited.
The sum I awarded for the
remuneration of Mr. Flowers computed at 3% is US$787,981.48. No
award is made for office expenses. That is the law. Pursuant to s: 166
of the Supreme Court of Judicature Act, Cap. 91, I award interest at
- 37 -
3% per annum on the judgment sum, from 3.2.2006, when the claim
was filed, until today Friday 10th October 2008, the date of judgment.
Interest at 6% per annum, is of course, chargeable on the judgment
sum, of US$787,981.48, from today until payment in full, in
accordance with s: 167 of the Act.
48.
Much was said about the fact that sale of the bonds was not sale of the
assets, so there were no proceeds of sale on which to charge a
percentage as remuneration. I do not see the merit in that argument.
The bonds were sold so that the secured debt about which a receiver
was appointed could be paid to the secured creditor, the beneficiary of
the bonds. As the result of the sale, the debt owed to the beneficiary
of the bonds was fully paid and the beneficiary ceased to have a
charge on the assets of Intelco; and the receivership ended.
Intelco
was relieved of its debt. The sale of the bonds was a stratagem aimed
at denying remuneration to Mr. Flowers.
49.
Judgment is entered for the claimant against the defendant for:
49.1 remuneration of US$787,981.48;
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49.2 interest at 3% per annum on US$787,981.48 from
3.2.2006 to 10.10.2008;
49.3 interest at 6% from 10.10.2008, until payment in full;
49.4 costs incurred in the receivership, BZ$1,950.00.
50.
I shall mention that it is the law that remuneration and costs of a
receiver is a charge on the charged assets to be sold.
51.
An order as to costs of these proceedings is adjourned (delayed) at the
request of the parties, to allow them to file a draft consent order if,
agreed.
52.
Permission is granted to parties to apply for an order as to costs.
53.
Delivered this Friday the 10th, October 2008,
At the Supreme Court of Belize
Belize City
Sam Lungole Awich
Judge
Supreme Court
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