The Judicial Committee of the Privy Council Decisions

Geosurvey Holdings Ltd v. BSI (Overseas) (Bahamas) (The Bahamas) [2007] UKPC 27 (25 April 2007)

Privy Council Appeal No 66 of 2005 Geosurvey Holdings Limited Appellant v. BSI (Overseas) (Bahamas) Limited Respondent FROM THE COURT OF APPEAL OF THE BAHAMAS

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REASONS FOR DECISION OF THE LORDS OF THE

JUDICIAL COMMITTEE OF THE PRIVY COUNCIL, OF THE

14^th February 2007, Delivered the 25^th April 2007

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Present at the hearing:-

Lord Hope of Craighead

Lord Rodger of Earlsferry

Lord Mance

Lord Neuberger of Abbotsbury

Sir Peter Gibson

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[Delivered by Lord Neuberger of Abbotsbury]

1. At the conclusion of the argument on this appeal, their Lordships announced that they would, for reasons to be given later, humbly advise Her Majesty that the appeal should be dismissed. These are their reasons.
2. This is an appeal from a decision of the Bahamas Court of Appeal, given on 28^th July 2005, dismissing an appeal brought by Geosurvey Holdings Ltd ("GHL") against a decision of Lyons J, handed down in the Supreme Court of the Bahamas on 30^th April 2004.
3. The issues before the judge were fairly wide ranging, and there were a number of issues before the Court of Appeal. However, only one point has been pursued by GHL on the appeal. It essentially amounts to this, that it was wrong of the judge to have determined an issue adversely to GHL, because that issue was not in dispute between the parties before him, and because GHL was unfairly deprived of the opportunity to develop argument or lead evidence in support of its case on the issue.
4. Given the fact that this is the only issue which needs to be resolved by the Board, the factual background, which is complex and fairly contentious, can be set out in relatively summary form.
5. In the 1970s, Dr Peter Gollmer set up and developed a business which he carried on through a number of companies, including Geosurvey International Ltd ("GIL") and Geosurvey GmbH ("GmbH"). These companies had contracts with various countries, including Tanzania. Owing, at least in part, to non-payment of debts due from Tanzania, the companies had got into financial difficulties by 1983. Dr Ibrahim Kamel agreed to provide financial assistance in return for obtaining an interest in the business. Accordingly, in late 1984, a number of new companies were established and a number of related agreements were entered into. The only new company of relevance for present purposes was GHL.
6. The agreements included a restructuring of Tanzania's liabilities, new banking arrangements with the respondent, BSI Overseas (Bahamas) Ltd ("BSI"), and a contract dated 31^st December 1984 ("the 1984 Agreement"), whereby GIL and GmbH agreed to transfer to GHL their respective entire undertakings, including certain "Overdue Accounts Receivable" (which included Tanzania's new restructured liabilities).
7. In order to facilitate the transfer of the Overdue Accounts Receivable, GIL, GmbH, GHL and BSI executed an escrow agreement ("the Escrow Agreement") on 15^th April 1985. In its preamble, the Escrow Agreement recited the facts that the 1984 Agreement required GIL to enter into the Escrow Agreement with BSI, and that BSI was "willing to serve as…escrow agent for compensation specified in a separate document", although no such separate document was ever executed.
8. By clause 1 of the Escrow Agreement, GIL and GmbH agreed to "transfer and assign to BSI as escrow agent under the terms hereof" all their rights in respect of the Overdue Accounts Receivable. Clause 2 was a confirmation by BSI that it had opened an escrow account in the names of GSH, GSI and GmbH "to which it will credit any proceeds of the collection of the Overdue Accounts Receivable by it". Clause 3 is not relevant for present purposes. Clause 4 set out to whom BSI was to pay the sums "credited by it to the escrow account". The remaining two clauses are not relevant.
9. As a consequence of the arrangements entered into in 1984, (a) the shares in GHL were directly or indirectly controlled as to 49% by Dr Gollmer and as to 51% by Dr Kamel, and (b) Dr Kamel was appointed chairman, financial controller and director of GHL, and Dr Gollmer was appointed a director.
10. After a few years, a dispute arose between Dr Kamel and Dr Gollmer. As a result, in October 1989, Dr Kamel was removed as chairman and financial controller of GHL, and, shortly after that, he was removed as a director. Dr Kamel then attempted to regain control of GHL, which he achieved some time in late 1993.
11. On 12^th July 1991, while Dr Gollmer was still in control of GHL, Callenders & Co, Bahamas lawyers, wrote to BSI enclosing "letters terminating the Escrow Agreement" from GHL, GIL and GmbH. These three letters ("the 1991 letters") were addressed to BSI and were in identical form; they each "formally notif[ied] BSI that we cancel [the] Escrow Agreement with immediate effect".
12. Meanwhile, on 7^th November 1990, BSI issued a writ against GHL and GIL seeking to recover commission under the Escrow Agreement. As there was no written agreement as to the basis of its commission, BSI pleaded that it was entitled to be paid at customary rates, and claimed commission for the years 1985-1990. By later amendments, it claimed commission down to 2003.
13. In its defence and counterclaim, GIL claimed various heads of relief, including a declaration that the Escrow Agreement had been cancelled as a result of the receipt by BSI of the three letters of 24^th May 1991 ("the 1991 letters"). That remained GIL's pleaded position until its counterclaim was dismissed on the first day of the trial.
14. GHL's defence and counterclaim (as initially amended in 1993) denied BSI's entitlement to compensation in light of the Banks and Trust Companies Regulation Amendment Act 1989 ("the 1989 Act"). GHL also contended that, as a result of the 1991 letters, the Escrow Agreement had ended. Among other heads of relief, GHL sought a declaration that the Escrow Agreement had been so terminated.
15. In June 2003, GHL substantially re-amended its defence and counterclaim, reflecting the change of control which had occurred since its initially amended version. The re-amendments included deletion of the contention that the 1991 letters had terminated the Escrow Agreement. Instead, GHL pleaded that the 1991 letters did not have that effect on the grounds that: (i) the Escrow Agreement could not be determined; (ii) two of the directors who signed the May 1991 letter from GHL were disqualified from acting because there was a penal investigation being conducted against them; (iii) the letter had been sent pursuant to an illegal arrangement between the directors who had agreed to dispose of GHL's assets for personal gain; (iv) BSI had acted in breach of its duty under the Escrow Agreement. GHL also sought a declaration that the Escrow Agreement remained in effect.
16. During the course of the trial, after BSI had called all its evidence, GHL served a final re-amended defence and counterclaim, seeking damages from BSI. BSI's alleged breaches of duty were relied on as justifying GHL's claim for damages. Ground (iv) was no longer relied on as a reason for the 1991 letters being ineffective. However, the other three grounds for alleging that those letters were ineffective were retained, as was the claim for a declaration that the Escrow Agreement remained in effect.
17. In its amended reply and defence served in answer, BSI denied the applicability of 1989 Act, admitted receipt of the1991 letters, made no admissions as to the determination of the Escrow Agreement (apparently on the basis of this was irrelevant to the issues between the parties), and denied the claims made against it for damages.
18. The case came on for hearing on 16^th February 2004. GIL did not appear, and Lyons J dismissed all GIL's counterclaims. However, GIL's Defence to BSI's claims was not, and indeed, could not have been, struck out. The hearing then proceeded between BSI and GHL, although BSI still had to make out its case against GIL. The judge heard evidence between 18^th February and 8^th March. On 1^st March, GHL served its final re-amended defence and counterclaim, to which BSI replied on 4^th March. Following completion of the evidence, there was an adjournment while the parties prepared extensive closing written submissions; there was then a short hearing to discuss those submissions. On 30^th April 2004, the judge handed down a full judgment.
19. Having dismissed all GHL's various heads of claim against BSI, the judgment turned to BSI's claim for commission against GHL and GIL. In view of the absence of the "separate document" as contemplated by the Escrow Agreement, the judge concluded that BSI was, as a matter of principle, entitled to be paid for acting as escrow agent at customary rates. However, he decided that BSI was disentitled from claiming such commission for two reasons: first, because the Escrow Agreement had been determined by the 1991 letters; secondly, because the 1989 Act prevented BSI from obtaining such commission.
20. GHL appealed the judge's decision, on a number of grounds. For present purposes, the relevant aspect of the Court of Appeal's decision dismissing the appeal was its determination that the judge was entitled to conclude that the 1991 letters had determined the Escrow Agreement. In that connection, the Court of Appeal held that the judge was "not bound by the view held by any of the parties in the proceedings", and went on to say that the 1991 letters were "signed by or on behalf of proper officers of GHL, GIL and GmbH" and that there was no evidence "that those officers who signed the letter[s] were not the proper officers entitled to sign the same".
21. The only point taken now before the Board on behalf of GHL is that it was either not open to the judge to find that the Escrow Agreement had been terminated as that had not been the position of GHL or BSI at the hearing, or that, during the course of the hearing, he unfairly led GHL to believe that he would not make such a finding and that it was unnecessary for GHL to call evidence to rebut such a finding.
22. Insofar as the issue was one of law, namely whether the Escrow Agreement was capable of determination on notice from GHL, GIL and GmbH, and if so, whether on their true construction the May 1991 letters effected such determination, their Lordships consider that it is clear that the appeal must fail.
23. It is plain that there was a claim in GHL's pleaded case in its final form, which inevitably required the judge to consider whether or not the Escrow Agreement was still in existence: even after the one party contending that it had determined, namely GIL, had ceased to be involved in the proceedings, GHL amended its pleading to seek, inter alia, a declaration that the Escrow Agreement was still subsisting. Furthermore, although GIL was no longer taking part in the proceedings, BSI had to make out its claim against GIL, which (at least in relation to the claims for commission after 1991) involved establishing that the Escrow Agreement had survived, despite GIL's pleaded contention that it had been determined by the 1991 letters. It was also at least arguably necessary for the judge to consider this issue in the light of BSI's claim for commission under the Escrow Agreement after 1991 against GHL. Accordingly, it was an issue before the judge, and he had to deal with it.
24. It is trite law that a judge cannot be bound by an agreement or common understanding between parties on an issue of law, including an issue of interpretation. In any event, it would seem that BSI was not so much agreeing that the Escrow Agreement still subsisted, but was not contesting the issue. Quite apart from this, the issues as to whether the Escrow Agreement was terminable, and if so, whether the 1991 letters were effective as a matter of construction, to determine it, were points which GHL could raise and argue before the Court of Appeal, as indeed GHL's counsel did. In that connection it seems to their Lordships that the judge and the Court of Appeal were plainly right in concluding that, as a matter of construction, the Escrow Agreement was capable of determination and the 1991 letters were effective to determine it. Indeed, the contrary was not, as their Lordships understood it, argued before the Board.
25. A closer examination of the closing submissions to the judge supports this conclusion. In its written closing submissions, prepared on 18^th March 2004, well after GIL's claims had been dismissed, GHL identified six "issues", the first of which was "whether the Escrow Agreement was lawfully terminated as alleged by GIL". These written submissions then went on to justify GHL's case that the Escrow Agreement was not determined by the 1991 letters. That case was based on the fact that there was disagreement between the shareholders of GHL, and that, at the time of the sending of the 1991 letters, it was unclear who had the controlling interest in that company. As the Court of Appeal pointed out, each of the 1991 letters appears to have been signed by persons who were directors of the companies on behalf of whom the letters were sent, so it is hard to see the relevance of disputes between shareholders.
26. During the oral submissions made on behalf of GHL, a somewhat different way of putting its case was advanced on behalf of GHL. It was suggested that unfair prejudice had been caused to GHL by the judge indicating that it was unnecessary for GHL to call any evidence to show that any of the 1991 letters had been sent as part of a plan to enable the directors of GHL to divert some of the company's assets to themselves, and that the 1991 letters were consequently ineffective. In their Lordships' view, there are two problems with that contention.
27. The first is that the judge did not say anything which can be said to have amounted to any sort of clear indication to the effect alleged by GHL. It is true that, on more than one occasion, he indicated that the evidence should be limited to that which was relevant to issues on the pleadings, and that he was concerned with resolving the issues between the parties before him. However, the question of whether or not the Escrow Agreement was continuing had been raised as, and remained, an issue on the pleadings; indeed as already mentioned, it remained an issue from GHL's perspective at the time of closing speeches. Further, the observations of the judge upon which GHL now relies were not directed to the issue of whether any of the 1991 letters were sent as a part of a dishonest scheme.
28. GHL also relied in argument before the Board on observations of the judge as to the entitlement of a witness to rely upon a document to refresh his memory, given that the document included reference to "secret agreements". In that connection, the judge said nothing to indicate that he would be refusing to hear evidence about such agreements. Even Counsel for BSI, who objected to the document being used, said to the judge that he accepted that the evidence of such agreements was "tangentially relevant".
29. There is a second problem for GHL's argument in this connection. Neither in his Notice of Appeal nor in his argument in the Court of Appeal, did Counsel appearing for GHL raise the contention that it was unfair of the judge to have found that the Escrow Agreement had been determined by the 1991 letters, because he had discouraged GHL from calling evidence to support the contention that those 1991 letters had been sent as part of a dishonest conspiracy. Given that it was not raised in the Court of Appeal, it seems to their Lordships that it is not an argument that GHL should now be entitled to raise before the Board. That is not to say that it would never be open to an appellant to raise before the Board an argument that had not been raised below. However, in this case it would be wrong if that new argument succeeded before the Board. It is a highly fact-sensitive issue upon which it would be inappropriate, and unfair on the respondent, for their Lordships to rule in favour of the appellant, in circumstances where the Court of Appeal had no opportunity to consider it. The strength of that conclusion is heavily reinforced by the fact that the counsel, who settled the Notice of Appeal and represented GHL in the Court of Appeal, was GHL's advocate before the judge. Given that he did not raise the point, it seems unlikely in the extreme that there could be anything in it in any event.
30. Finally, it is right to add that, at least as at present advised, their Lordships rather doubt whether any of the 1991 letters could have been rendered ineffective simply because they had been served by the directors as part of a conspiracy, unless it could have been shown that BSI, on whom the notices were served, was in some way aware of the conspiracy, and no such allegation against BSI was pleaded by GHL. However, that is not a point which was covered in argument, and it would therefore be inappropriate to express a concluded view on it.
31. In the event, therefore, their Lordships will humbly advise Her Majesty that this appeal should be dismissed, and that the appellant, GHL, should pay the costs of the respondent, BSI.