Lydia Caletti (as Sole Executrix and Trustee of The Estate of Lorenzo Caletti, Deceased) v Ralph Desilva

• Jurisdiction: Bermuda
• Judgment Date: 27 September 2017
• Date: 27 September 2017
• Docket Number: Civil Jurisdiction 2013 No 387
• Court: Supreme Court (Bermuda)

[2017] Bda LR 102

In The Supreme Court of Bermuda

Civil Jurisdiction 2013 No 387

Between:

Lydia Caletti (As Sole Executrix And Trustee Of The Estate Of Lorenzo Caletti, Deceased)

Plaintiff

and

Ralph Desilva

Defendant

and

Wakefield Quin Limted

Third Party

Mr B Adamson for the Plaintiff

Mr M Scott for the Defendant

Mr R Horseman for the Third Party

The following cases were referred to in the judgment:

R v Cripps, ex parte Muldoon [1984] 1 QB 686

Gohil v Gohil [2016] AC 849

White v Weston [1968] 2 QB 647

Apollon Metaxides v Swart [2015] UKPC 32

Wilding v Sanderson [1897] 2 Ch 534

Kennedy v Panama etc Royal Mail Co (1867) LR 2 QB 580

Holman v Johnson 1 Cowp 341

ParkingEye Ltd v Somerfield Stores Ltd [2013] QB 840

Les Laboratoires Servier v Apotex Inc [2015] AC 430

Patel v Mirza [2017] AC 467

E & C Well Drilling Services Ltd v Hayward [2011] Bda LR 1

Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900

Cassa di Rispario della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] 1 CLC 701

Pitt & Co Ltd v White [2014] Bda LR 16

Ex parte Whittaker; In re Shackleton (1874– 5) LR 10 Ch App 446

Abbar v Saudi Economic & Development Co [2013] EWHC 1414

Salt v Stratstone Specialist Ltd [2015] 2 CLC 269

Ting v Borrelli (as liquidator of Akai Holdings Ltd) [2007] Bda LR 73

Tibbs v Dick [1998] 2 FLR 1118

Harris v Manahan [1997] 1 FLR 205

Faircharm Investments Ltd v Citibank International plc [1988] Lloyd's Rep Bank 127

Canale v Holloway [2014] Bda LR 57

Application to set aside consent judgment — Whether jurisdiction — Whether promissory note was illegal — Whether justification for contract to be set aside

RULING of Hellman J

Introduction

1. The Defendant, Mr DeSilva, applies to set aside a consent judgment in favour of the late Lorenzo Caletti in the sum of $3,372,396.00 (“the Consent Judgment”). He says: (i) that the judgment was based on an illegal contract; and (ii) that it was obtained through misrepresentation or non-disclosure by Mr Caletti, or alternatively that he entered into it by mistake in that he did not appreciate that it could be enforced against his home.

2. The Plaintiff, Mrs Caletti, appears in her capacity as the executrix and trustee of the estate of her late husband, Mr Caletti. She resists the application to set aside, but applies under the slip rule at Order 20, rule 11 of the Rules of the Supreme Court (“RSC”) to amend the judgment sum to a lesser sum to take into account a payment received from Mr DeSilva after the consent order was signed by the parties but before it was entered by the Court; the amount of a promissory note issued to Mr Caletti by the purchaser in relation to the sale of one of Mr DeSilva's properties; and an error in the calculation of judgment interest.

Chronology

3. Mr DeSilva, is a Bermudian businessman. He holds shares in a local company known as Great Things Limited, which carries on business trading as “Great Things”. The business is based in premises on East Broadway in Pembroke which are owned by a company called Broadway Development Limited (“Broadway”). Mr DeSilva owns 50 per cent of the shares in both companies (“the Companies”) and his business partners Andrew and Carol Gracie (“Mr and Mrs Gracie”) own the other 50 per cent. Mrs Gracie is his sister and Mr Gracie is his brother-in-law.

4. In July 2006 Mr Gracie introduced Mr DeSilva to the original Plaintiff, Mr Caletti. He was a Canadian national who lived in Bermuda on a residency permit. Mr Caletti and Mr DeSilva became friends. Mr Caletti loaned Mr DeSilva US$ 3 million which Mr DeSilva used to buy as his home a property known as “Virginia Cottage”, 134 Somerset Main Road in Sandys Parish.

5. The loan was made pursuant to the terms of a promissory note dated 2nd October 2006 which was drawn up by Mr Caletti's lawyers and signed as a deed by Mr DeSilva (“the Promissory Note”). It included the following terms:

• “1) FOR VALUE RECEIVED (namely US$3,000,000.00) RALPH DESILVA of 134 Main Road, Sandy's (‘the Borrower’), HEREBY PROMISE to pay LORENZO CALETTI (‘the Lender’), the principal sum of Three Million US Dollars (US$3,000,000.00) (‘the Principal Sum’) on or before five years from the date hereof with interest thereon at an annual rate of 9% (US$270,000.00) until repayment with an option of an additional five year period for repayment at the interest rate to be agreed. In order to exercise this option written notice must be given by the Borrower to the Lender 90 days prior to expiring of the first five year period (that is 2nd August 2011) of the intention to extend the Promissory Note for an additional five year period. If notice is not given then the principal amount of the Promissory Note is due payable on the 2nd October 2011.

• 2) The interest will be paid in 60 equal monthly payments of US$22,500.00 for the duration of the life of this Note starting on the 2nd day of November 2006 and thereafter on the 2nd day of each month with the final payment due 2nd October 2011.

• 3) The Borrower shall NOT have the right to prepay the Principal Sum before expiry of 5 years from the date hereof in whole or in part without penalty or premium.

• 4) The Borrower undertakes that in the event of any default in the repayment of the Principal Sum or any interest payment thereon in accordance with the provisions hereof and at the request of the Lender and at the Borrower's own cost (subject nevertheless to the consent as necessary of the holder of any prior encumbrance) to execute in favour of the Lender or the nominee of the Lender a valid legal mortgage of the property of the Borrower situate at 134 Main Road, Sandy's Parish, a valid legal mortgage of the property of the Borrower situate at 18 St. Anne's Road, Southampton Parish SN01; a valid legal charge over the Borrower's 50% (fifty per cent) ownership of Broadway Development Ltd and a valid legal charge over the Borrower's 50% (fifty per cent) ownership of Great Things Ltd in such form and with such provisions and powers of sale leasing and appointing a receiver may in the case of each security be required by the Lender subject nevertheless to all prior existing encumbrances in respect thereof AND the Borrower hereby irrevocably appoints the Lender (and his nominee) his lawful attorney in his name and on his behalf to execute any such legal mortgage or charge as aforesaid and in the event of any sale by the mortgagee of the property or charge of the shares (as the case may be) or any part thereof under the statutory power of sale on that behalf to execute a conveyance of the legal estate in the properties or transfer of the shares (as the case may be) to the purchaser thereof.

• 5) The Borrower shall not carry out any transaction of any such nature in connection with the above properties or shares without the specific consent of the Lender.”

6. From 2006 to early 2012 or thereabouts Mr DeSilva made regular monthly interest payments of $22,500 to Mr Caletti. But he fell into financial difficulties and the payments stopped. He sold a motor boat for $120,000 in April 2012, and his property known as “Portside” at 18 St Anne's Road for $1,000,299 and paid the net proceeds of sale to Mr Caletti in part satisfaction of the loan. He gave evidence that Mr Caletti was intimately involved with both sales. On 29th October 2012, prior to selling “Portside”, Mr Caletti executed mortgage deeds on both that property and “Virginia Cottage” in favour of Mr Caletti.

7. Meanwhile, Mr DeSilva fell out with his business partners Mr and Mrs Gracie. In February 2013 he instructed Richard Horseman at the law firm Wakefield Quin Limited (“Wakefield Quin”) to assist him with the dispute. Wakefield Quin is the Third Party to this action. Mr Horseman knew Mr DeSilva and did not think it necessary to prepare a letter of engagement or seek a retainer. After this hearing I doubt that he will take that course again. He has produced his file notes of his initial meeting with Mr DeSilva on 4th February 2013. These record that Mr DeSilva had borrowed $3 million from Mr Caletti, signed a Promissory Note, and was paying interest only.

8. On 9 May 2013 Mr Horseman held a further meeting with Mr DeSilva. Mr DeSilva's wife and Mr Caletti were also present. Mr Caletti had become involved in the dispute, although it is not altogether clear to what extent he was seeking to help Mr DeSilva and to what extent he was seeking to further his own interests. Quite possibly he was seeking to do both. Mr Horseman's file note records that Mr DeSilva had been unable to make any payments on the loan since February 2013 and that the loan was secured by shares. Mr Caletti prepared and distributed a note of the meeting in which he styled himself as “Chairman of Board” of Great Things.

9. On 17 October 2013 at 11.43 am Mr Caletti sent Mr DeSilva an email (“the October Email”). It read:

“RALPH

TRIED TO REACH YOU BY PHONE

MAYBE BEST IF I PUT THIS IN WRITING

TO PROCEED WITH FORCING SALE OF GREAT THINGS AND BDWAY

AND TO PROTECT MY INTERSTS

WE ARE ISSUING

A WRIT OF SUMMONS

LORENZO CALETTI PLAINTIFF

RALPH DESILVA DEFENDANT

MY LAWYER BEN ADAMSON CDP

HAS CONTACTED HORSEMAN

TO SEE IF THIS CAN BE DONE BY CONSENT

THIS WOULD SAVE TIME AND MONEY

IF YOU AGREE

PLEASE CONTACT HORSEMAN BY PHONE AND GET HIM TO AGREE TO THE CONSENT

WE WILL THEN PROCEED TO TAKE YOUR SHARES IN THE COMPANY AND FORCE THE SALE

EITHER BY CONSENT OR THRU COURTS

HOPEFULLY WRIT WILL BE ISSUED NEXT WEEK

WILL KEEP YOU INFORMED AS THINGS PROCEED

HANG IN FOR A WHILE LONGER

I HOPE THAT THIS WILL BRING THIS LONG ORDEAL TO AN END

LORENZO”.

10. Mr DeSilva understood from the email that the writ was a device to put Mr Caletti in a position where he could force the sale of the Companies. The intention being that Mr DeSilva's share of the proceeds of sale would be used to pay off, or at least go towards paying off, his outstanding debt to Mr Caletti.

11. At 3.05 pm on 17th October 2013 Mr Horseman emailed Ben...