RC Cayman Holdings LLC Plaintiff v Michael Ryan Defendant

• Jurisdiction: Cayman Islands
• Judge: The Honourable Sir Peter Cresswell
• Judgment Date: 30 October 2012
• Judgment citation (vLex): [2012] CIGC J1101-1
• Docket Number: FSD 98/2012 (PCJ)
• Court: Grand Court (Cayman Islands)
• Date: 30 October 2012

Between:

RC Cayman Holdings LLC

Plaintiff

and

Michael Ryan

Defendant

[2012] CIGC J1101-1

The Honourable Sir Peter Cresswell

FSD 98/2012 (PCJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

1. THE APPLICATION

1 The respondent (‘RCC’ or ‘the Lender’) be restrained from selling or attempting to sell those assets of Cesar Properties Ltd and/or Condoco Properties Ltd which are subject tothe respondent's charge insofar as those assets comprise registered land (‘Land Assets’) for an initial period of 28 days, or such other period as may be agreed in writing by the parties in order that:

• 1.1 The issue of whether adequate notice was given by the respondent pursuant to section 72 of the Registered Land Law (‘RLL’) so as to permit the respondent to exercise a power of sale over the Land Assets may be resolved by this Court by way of the preliminary issue trial in Cause No. FSD 58 of 2012; and

• 1.2 The Defendant and any other interested parties may fully investigate the circumstances surrounding the inclusion of Block and Parcel 12C 451/3 (‘Golf Course’) in the security being offered by the respondent for sale, including the recent transfer of title to said land to Cesar Properties Ltd.

2 THE EVIDENCE

The evidence before the Court is as follows:

(a)	First Affidavit of Michael Ryan;
(b)	Second Affidavit of Michael Ryan;
(c)	First Affidavit of Richard C. Schoenstein;
(d)	Second Affidavit of Jim Glasgow;
(e)	First Affidavit of Michael Lesser;
(g)	First Affidavit of Tania Dons;
(h)	Second Affidavit of Tania Dons;
(i)	First Affidavit of Paul Drake; and
(j)	First Affidavit of Scott Elphinstone.

3. THE BACKGROUND

There are two related actions — the Receivers' action — FSD 58 of 2012 and the Guarantee action-FSD 98 of2012.

The Receivers' action

The background to and issues in the Receivers' action are set out in my Ruling of 10 August.

The Plaintiffs in FSD 58 of 2012 were property owners of the Ritz-Carlton Grand Cayman Resort (‘the Resort’) and the Defendants provided a full range of services with a view to developing and then operating a world class luxury resort.

Mr. Ryan says that all of the Plaintiff and Defendant companies in FSD 58 are ultimately over 90 percent owned by him (RCC does not accept this without proof). The registered owner of the shares in Cesar Properties Ltd (‘Cesar Properties’) and Condoco Properties Ltd (‘Condoco Properties’) is RCC pursuant to a legal mortgage over their shares by way of security.

The Plaintiffs' and Defendants' accounts were managed on a consolidated basis. Until 2010, the accounts were audited on an annual basis by Ernst & Young.

As to the Resort, the hotel is owned by Cesar Properties. The unsold condominiums are owned by Condoco Properties, Cesar Properties, Cesar Hotelco (Cayman) Ltd (‘Hotelco’) and Condoco Grand Resort Ltd (‘CGCR’). Cesar Properties also owns the 14 unsold lots on which deckhouses are intended to be constructed. The golf course, the condominiums and deckhouses are part of a total of 7 strata plans within the Resort, registered under the Strata Titles Registration Law (2005 Revision).

The hotel, golf course and 24 of the condominiums are currently managed and operated by the Ritz-Carlton Hotel Company of the Cayman Islands Ltd. through various service agreements with one or more of the First to Fourth Plaintiffs in FSD 58 of 2012 (‘the Receivership Companies’) and, variously, the strata corporations in which the different properties fall. FSD 58 of 2012 does not directly concern those properties being managed and operated by the Ritz-Carlton Hotel Company of the Cayman Islands Ltd.

The Resort was developed by Mr. Ryan through companies controlled by him and directly or indirectly owned by the Fourth Defendant, I.R.R. Limited (‘I.R.R.’) which, subject to securitygranted over the Receivership Companies, the First to Fourth Plaintiffs, was the ultimate holding company of the group. I.R.R. is owned by entities controlled by Mr. Ryan and by The King's Foundation — Investment Cayman Ltd.

The Plaintiffs in FSD 58 of 2012 are all Cayman Islands registered companies. I.R.R. is the ultimate parent of all the Receivership Companies (the First to fourth Plaintiffs). Endless Service Ltd. (‘ESL’) is a wholly owned subsidiary of CGCR, the Third Plaintiff.

Mr. Ryan was a director of each of the Receivership Companies and ESL for several years until 12 March 2012, the date of the Receivers' appointment, when he resigned his appointment in each of them.

The Defendant companies, Orion Developers Ltd. (the Second Defendant), Deckhouses Construction Company Ltd. (the Third Defendant), Endless Service Management Ltd. (the Fifth Defendant), and Bluetip Watersports Ltd. (the Sixth Defendant), are owned and controlled by Mr. Ryan outside the I.R.R. umbrella. They are all Cayman Islands registered companies.

The Second Defendant Orion Developers Ltd (‘Orion’) performed and managed the operations and day-to-day activities of the Receivership Companies.

RC Cayman Holdings LLC (‘RCC’ or the ‘Lender’) is the assignee of a loan in the original principal amount of US$250,000,000 (the ‘Loan’) made by Column Financial Inc. to the Receivership Companies. The Loan was advanced pursuant to a Loan Agreement dated 16 April 2007.

The Loan is secured by (among other securities) (a) an Amended and Restated Debenture dated 10 January 2008 granting a fixed and floating charge over the assets and undertaking of the First Plaintiff, Hotelco (the ‘Debenture’), and (b) an Amended and Restated Collateral Debenture dated 10 January 2008 over the assets and undertakings of CGCR, Condoco Properties and Cesar Properties (the ‘Collateral Debenture’). The Debenture and the Collateral Debenture were assigned to the Lender by an Assignment of Amended and Restated Debenture and anAssignment of Amended and Restated Collateral Debenture respectively, both dated 30 June 2011.

The Lender appointed the Receivers over the Receivership Companies by two deeds of appointment dated 12 March 2012, one under the Debenture in respect of Hotelco and the other under the Collateral Debenture in respect of CGCR, Cesar Properties and Condoco Properties.

The Defendants deny that the Receivers' contractual appointments applied with respect to assets of the Receivership Companies insofar as the assets were comprised of registered land or leases of registered land, or the rents or profits therefrom, because it is said the Lender had (and still has) not served the notices required by the RLL, such that the Receivers had no power or authority with respect to land owned by the Receivership Companies or the rents or profits derived therefrom.

The intercompany relationships are shown in two charts — appended to my Ruling of 10 August.

It is alleged in the Re-Amended Statement of Claim that the Defendants are liable to the Plaintiffs in (among other) the following respects.

Firstly, it is alleged that assets belonging to the Plaintiffs have been sold in a transaction with no or illusory consideration. In response to this, the Defendants say that the market price was paid and that the consideration was then spent on the Resort's day-to-day operations in accordance with the contractual arrangements in place.

Secondly, it is alleged that the Defendants hold rental deposits received from tenants of condo properties at the Resort on trust for the Plaintiffs. The Defendants deny the deposits were held on trust for the Plaintiffs (or the relevant tenants) and say that when Orion was managing the rental programme, it would utilise the deposits to meet the expenses of the Resort. The Defendants claim that when the deposits were due to be repaid, the repayments were funded out of the current cash-flow. It is further claimed that this system only stopped when, the Receivers cancelled Orion's authority to continue managing the rental programme.

Thirdly, it is alleged that the Defendants owe the Plaintiffs commission in relation to condo rentals. The Defendants deny this. The Defendants say the commissions due to the relevant Plaintiffs have been accounted for and utilised to meet legitimate business expenses.

Fourthly, the Plaintiffs claim that a number of payments made by the Defendants were unexplained, or paid to affiliates of Mr. Ryan improperly. The Defendants say they have explained each transaction and contend that the expenses were legitimate business expenses of the Plaintiffs in respect of which payment was permitted pursuant to the agreements in place between the Plaintiffs, Mr. Ryan and Orion.

Fifthly, the Plaintiffs claim that they are entitled to exercise a set-off between sums due on the Defendants' counterclaims and sums they claim Mr. Ryan and Orion are liable to account for in respect of payments made to them out of the bank accounts of the Plaintiffs between 2005 and 2012 (for Mr. Ryan) and 2007 and 2012 (for Orion).

The First, Second and Sixth Defendants counterclaim for unpaid fees and expenses along with damages for the claimed wrongful termination of the development and operational agreements that were entered into.

The Guarantee Action

As to this action the Amended Statement of Claim sets out the Plaintiffs (RCC's) case as follows

The Plaintiff (RCC) is the current owner and holder of a mortgage loan in the original principal amount of $250,000,000.00 (the ‘Loan’) made by Column Financial, Inc. (‘Column’) to Cesar Properties, Condoco Properties (‘Current Borrowers’), Condoco GC and Cesar Hotel Co (‘Original Borrowers’) and advanced pursuant to the Loan Agreement dated April 16, 2007 between Column, as lender, and Current Borrowers and Original Borrowers, collectively as borrowers, as amended (the ‘Loan Agreement’).

Among other instruments executed and delivered in connection with the Loan Agreement was a Guarantee agreement dated 16 April 2007 (‘the Guarantee Agreement’) entered into between the Defendant and The Marvin...