H Ltd v B

• Jurisdiction: Cayman Islands
• Judge: (Smellie, J.)
• Judgment Date: 09 March 1995
• Court: Grand Court (Cayman Islands)
• Date: 09 March 1995

Grand Court

(Smellie, J.)

H LIMITED

and

B and F LIMITED

A. Jones and O. Watler for the plaintiff;

I. Croxford, Q.C. and Ms. C. Bridges for the defendants.

Cases cited:

(1) Cook-Bodden v. Kirkconnell, 1994–95 CILR 27.

(2) Henderson v. HendersonENR(1843), 3 Hare 100; 67 E.R. 313; [1843–60] All E.R. Rep. 378.

(3) Jelson (Estates) Ltd. v. Harvey, [1983] 1 W.L.R. 1401; [1984] 1 All E.R. 12, considered.

(4) Maas v. Pepper, [1905] A.C. 102, considered.

(5) Moorcock, TheELR(1884), 14 P.D. 64; [1886–90] All E.R. Rep. 530, applied.

(6) Mums Inc. v. Cayman Capital Trust Co., Court of Appeal, March 28th, 1990, unreported, dicta of Georges J.A. considered.

(7) Paradise Manor Ltd. v. Bank of Nova Scotia, 1984–85 CILR 437, dicta of Zacca, P. considered.

(8) Stephenson v. Garnett, [1898] 1 Q.B. 677, applied.

(9) Yat Tung Inv. Co. Ltd. v. Dao Heng Bank Ltd., [1975] A.C. 581, applied.

Legislation construed:

Registered Land Law (Revised) (Law 21 of 1971, revised 1976), s.3: The relevant terms of this section are set out at page 356, lines 34–37.

s.23: The relevant terms of this section are set out at page 357, lines 32–34.

s.37: The relevant terms of this section are set out at page 356, line 39 – page 357, line 4.

Estoppel-res judicata-issues available in previous proceedings-party cannot subsequently raise same or similar issues as those which could and should have been raised in earlier proceedings

Land Law-registration-mortgage-concept of legal or equitable mortgage unknown under Registered Land Law (Revised)

Contract-implied terms-guarantee-term providing right to redeem property by repayment of loan not to be implied into guarantee of loan containing option to purchase property on failure to discharge guarantee if contrary to intentions of parties and merely advantageous to one party-implied term must be necessary to make contract commercially efficacious

Courts-contempt of court-civil contempt-failure to comply with court order in earlier proceedings may justify striking out subsequent proceedings

The defendants applied to strike out the plaintiff”s writ and statement of claim.

The plaintiff company and its owner had defaulted in repaying a loan from a bank which had demanded repayment and was in a position to sell their property. They entered into an agreement with the first defendant whereby he agreed to guarantee the loan and give further security to the bank in return for certain fees. In addition, they gave the first defendant a promissory note for US$5m. and granted him an option to buy the property in the event that the plaintiff company and its owner failed to discharge the guarantee within 90 days, the promissory note to be cancelled should that option be exercised.

The plaintiff company and its owner failed to release the first defendant from his guarantee within 90 days and he chose to exercise the option. He was granted an order for specific performance of the agreement after the plaintiff company and its owner”s defence was struck out for failure to comply with an earlier order for discovery. They sought unsuccessfully to have the order set aside in proceedings which are noted at 1994–95 CILR N–2. Leave to appeal was refused, the court holding, inter alia, that the submission that the guarantee agreement was a form of secured lending arrangement or equitable mortgage and that the option to purchase operated as a clog on the equity of redemption, showed no arguable case on the merits. The plaintiff company did not appeal and the first defendant proceeded to comply with the order for specific performance, and subsequently transferred the title to the property to the second defendant.

The plaintiff then brought the present proceedings, arguing, inter alia, that the agreement created an equitable mortgage over the property, carrying with it a right of redemption and that the original agreement included an implied term that the plaintiff”s obligation to sell the property to the first defendant was subject to a right to redeem it by repaying the loan. The defendants applied to strike out the plaintiff”s writ and statement of claim.

They submitted that (a) the writ and statement of claim disclosed no reasonable cause of action; (b) it was scandalous, frivolous or vexatious; (c) it was an abuse of the process of the court; (d) the matters raised by the plaintiff were res judicata, since they had been determined, or could and should have been raised and determined, in the earlier proceedings; and (e) the plaintiff should in any case be denied relief as it was in contempt of court by failing to take any steps to comply with the earlier judgment order.

The plaintiff in reply submitted that since its argument that the original agreement included an implied term had not been discussed in the earlier proceedings and the court”s earlier rejection of its argument that the agreement was void did not preclude the agreement”s taking effect as a secured lending arrangement or equitable mortgage, the matters it had raised were not res judicata.

Held, striking out the plaintiff”s writ and statement of claim:

(1) Since the arguments advanced by the plaintiff were either the same or very similar to those found to be without merit in the earlier ruling, and since to the narrow extent to which they differed the new arguments could readily have been raised by way of alternative pleadings in the earlier cause, the matter was res judicata and the defendants were entitled to have the action struck out (page 351, lines 38–43;page 355, lines 5–25).

(2) In any event, the statement of claim disclosed no reasonable cause of action since (a) as a matter of construction, no mortgage arrangement could have arisen from the agreement between the parties, since there was

no conveyance or assignment of the title by the plaintiff to the first defendant; (b) moreover, the agreement could not operate as a mortgage because under the Registered Land Law (Revised) it was no longer possible to dispose of land by way of either legal or equitable mortgage; and (c) there was no arguable basis for the implied term since it was unnecessary to lend commercial efficacy to the contract and patently contrary to the express words of the agreement and it was not to be implied merely because it would prove advantageous to the plaintiff (page 356, lines 6–30;page 357, lines 26–41;page 358, lines 39–45;page 359, lines 28–41).

(3) In addition, the plaintiff had been prima facie in contempt of the earlier judgment when it filed its statement of claim in the present suit by failing to take any steps to comply with the order made in that judgment, and it arguably had remained in contempt by not obtaining a ruling that it had fully complied with its discovery obligations in the earlier proceedings. These considerations could also have served as a basis for striking out the plaintiff”s claim (page 360, lines 7–18).

SMELLIE, J.: On August 1st, 1994 the court granted the relief sought
on the defendants” summons of July 25th, 1994 in this action thereby
ordering that the plaintiff”s writ and statement of claim be struck out with
costs to the defendants. Brief reasons were read at that time with these full
5	written reasons reserved to a later date to be announced.
Background
This matter has a rather chequered history. Although now the subject of
a different suit, its subject-matter is the same as that in Cause 341 of 1993:
10	an agreement dated April 22nd, 1992, between the plaintiff company, the
principal of the plaintiff company H and the first defendant. That
agreement relates to very valuable real property known as ‘the Coral
Caymanian,’ located on the Seven Mile Beach, Grand Cayman.
In Cause 341 of 1993 the present first defendant, B, was then the
15	plaintiff and H and H Ltd. the defendants. By a ruling handed down on
November 23rd, 1993 in that suit, the defence (as amended) was ordered
to be struck out and liberty granted to the plaintiff to apply for final
judgment. That occurred on the eighth day of the trial then under way as a
result of the defendants” contumacious default in failing to meet their
20	discovery obligations.
Accordingly, on the plaintiff”s further application, final judgment was
entered by an order of November 25th, 1993. Written reasons were handed
down on December 20th, 1993. Judgment in favour of the plaintiff
included, among other things, a direction for the specific performance of
25	the agreement of April 22nd, 1992 which required that H Ltd. sell and
transfer to B all its assets (the Coral Caymanian) and that B pay to the
Bank of Nova Scotia the sum of US$3.4m. plus outstanding interest due
against the charge on the property. This payment by B came to represent
the purchase price referred to in the option to purchase exercisable by him,
30	pursuant to the agreement of April 22nd, 1992 which was ordered to be
specifically performed.
The judgment order of November 25th, 1993 also included directions
for payment by H and H Ltd. in favour of B of sums exceeding US$1.2m.
representing payments earlier made by B to the bank under his personal
35	guarantee and the charge and pursuant to the agreement of April 22nd,
1992. This was inclusive of interest and fees. B”s costs were also awarded.
Specific performance of the option to purchase was elected by B instead of
declaratory relief to enforce a promissory note obligation in the amount
of US$5m. which was alternatively available to him under the agreement
40	of April 22nd, 1992.
On April 29th, 1994 the defendants H and H Ltd. in Cause 341 of 1993
(H Ltd. being the plaintiffs here) filed an application to set aside the
judgment order of November 25th, 1993 and sought leave to file a re-
amended defence out of time in

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