Paul and Teresa Rodrigues v Clearwater Development Ltd

• Jurisdiction: Bermuda
• Judge: Mussenden J
• Judgment Date: 05 July 2023
• Docket Number: CONSOLIDATED ACTIONS 2018 : No. 38 2018 : No. 66
• Court: Supreme Court (Bermuda)

IN THE MATTER OF CLEARWATER DEVELOPMENT LTD.

AND IN THE MATTER OF THE COMPANIES ACT 1981

BETWEEN:

Paul and Teresa Rodrigues (Trading as Rodrigues Pools)

Petitioners/Plaintiffs

and

Clearwater Development Ltd.

Respondent/Defendant

[2023] SC (Bda) 54 Civ. 5 July 2023

CONSOLIDATED ACTIONS

2017 : No. 467

2018 : No. 38

2018 : No. 66

In The Supreme Court of Bermuda

COMMERCIAL JURISDICTION

Appearances:

Grant Spurling of Chancery Legal Ltd, for the Petitioners/Plaintiffs

Richard Horseman of Wakefield Quin limited, for the Defendant/Respondent

RULING ON COSTS

Valuation, Offers to settle, Calderbank Letters, Refusal to accept offer being unreasonable and out of the norm, Application for costs on an indemnity basis

RULING of Mussenden J

Introduction

1 By a Summons dated 19 July 2022, the Respondent/Defendant Clearwater Development Ltd (“ CDL”) applied for its costs of the Petition matter. CDL has paid the Petitioners for its shares at the value determined by accounting expert Deloitte, namely $437,000 (the “ $437K Deloitte Valuation”) and the shares have been repurchased. Thus, CDL now applies for an order that the Petitioner pay CDL's costs in the Petition on an indemnity basis including all disbursements associated with the Petition including its accountancy fees in complying with the numerous requests for disclosure and its share of the Deloitte valuation costs.

2 CDL's application is supported by the Eighth Affidavit of John Bush (“ Bush 8”). Mr. Rodrigues filed an affidavit in reply on behalf of the Petitioners.

3 It will be necessary to make references to the Judgment dated 13 January 2021 that I issued in respect of the strike-out application in the Petition matter (the “ Judgment”).

Background

4 The Petitioners total investment in CDL amounted to $650,000 by 27 October 2016 1.

5 The Petitioners issued a Petition on 20 February 2018. On 3 October 2018 CDL offered to purchase 974 of their shares for $440,000 (the “ $440K CDL Offer”) in accordance with a Letter of Agreement and indicated it would entertain any reasonable offer to purchase the

remaining 609 shares. The Petitioners refused to accept the $440K CDL Offer. I note here that CDL argued that the $440K CDL Offer was already in excess of the Deloitte Valuation thus the Petitioners should be ordered to pay CDL's costs from the date of the offer of October 2018

6 CDL continued to make offers to settle. By an open letter dated 13 August 2019 CDL offered to purchase the Petitioners' shares for $800,000 (the “ $800K CDL Offer”), such offer remaining open until 30 August 2019. It was not accepted by the Petitioners. Justice Subair-Williams, in her Ruling of 6 September 2019 made reference to a repeated offer of $800,000 during the directions hearing of 14 August 2019. I note here that CDL argue that the Petitioner could have and should have accepted the $800K CDL Offer or alternatively moved straight to an independent valuation further arguing that substantial costs on both sides would have been saved if the Petitioner availed themselves of either offer.

7 By a Summons dated 1 October 2019, CDL applied to strike out the Petition on the basis that CDL had consented to the purchase of the Petitioners' shares at fair market value to be determined by an independent valuation.

8 On 5 November 2019, the Petitioners informed CDL that they were prepared to accept $1.3 million for the purchase of the shares on the basis that the Petition was wholly discontinued with no order as to costs (the “ $1.3M Rodrigues Offer”). The offer was open for 14 days. CDL did not accept that offer now arguing that that offer was devoid of reality and wholly unreasonable being three times the actual value of the shares.

9 On 21 January 2020, CDL offered to pay $750,000 for the Petitioners' shares (the “ $750K CDL Offer”). In a corresponding letter CDL highlighted that a recent KPMG audit (the “ Audited Accounts”) confirmed the Petitioners' shares were worth approximately $506,074.17 yet CDL was willing to pay a premium of $750,000 for the purchase of the shares. The Petitioners rejected that offer.

10 On 12 August 2020, the Petitioners offered to sell 974 shares for $481,331.65 (the “ $481K Rodrigues Offer”) but intended to retain the balance of the shares and continue on with the Petition. CDL argued that they were not interested to purchase a partial block of shares that left the litigation ongoing. Thus, they were justified to refuse such an offer.

11 On 24 November 2020, the Petitioners made an offer as follows: (a) the shares be purchased for $1 million (the “ $1M Rodrigues Offer”); (b) the sum be held in escrow pending the determination of the other litigation matter; (c) the parties use best efforts to reach a compromise on the other two matters; (d) the Petitioners agree a stay of the Petition while the other litigation matters are settled; (e) upon conclusion of the proceedings the funds will be released and the shares transferred; and (f) no order as to costs. CDL declined the offer, arguing that the Petitioners' shares were not worth $1million and no shareholder nor CDL would be willing to risk putting up $1 million for it to sit in escrow while the company faced other Court actions brought by the Petitioners.

12 At the start of the hearing of the strike-out application on 8 December 2020 the Court allowed some time for the parties to try to reach an agreement on the offers, but no agreement was reached 2.

13 CDL argues that the Petitioners failed to beat any of the CDL Offers.

14 In my Judgment, I found that the Petitioners were acting unreasonably in pressing for a trial of the Petition in light of the CDL Offers and the Petitioners conduct amounted to an abuse of process. I rejected the arguments of the Petitioners for a trial of the matter. Thus, I struck out the Petition after which the parties jointly instructed Deloitte to value the Petitioners' shares. In June 2022, Deloitte completed the $437K Deloitte Valuation.

CDL's Submissions

15 Mr. Horseman submitted that for the two years leading up to the strike-out application, CDL did all it possibly could to settle the Petition. The company made offers far in excess of the actual value of the shares in an effort to save legal costs and bring the expensive litigation to an end to no avail. However, the Petitioners refused many opportunities to end

the litigation, preferring instead to have a trial which was doomed to fail. Further, the conduct of the Petitioners was inexcusable having gained nothing as their stubbornness cost them over $350,000 being the amount offered in excess of the $437K Deloitte Valuation. In doing so, they caused CDL great financial harm and reputational damage by filing the Petition seeking a winding up order. Mr. Horseman argued that the Court cannot condone this type of conduct which was a complete and utter waste of scarce resources as well as CDL's limited resources

16 Therefore, CDL was requesting that the Petitioners pay all its costs from 3 October 2018 onwards when CDL first offered to purchase the Petitioners' shares at an amount in excess of the final valuation amount on an indemnity basis. The costs should include all legal costs through the valuation process including CDL's share of the valuation costs as well as moneys paid to its accountants to deal with the Petitioners' numerous disclosure requests.

17 Mr. Horseman also submitted that the Petitioners, despite having the benefit of the Audited Accounts, forced CDL and its accountants to embark on numerous roving inquiries to answer further disclosure questions. He poured scorn on the Petitioners' counsel's statements made during the hearing that “ We need to check to make sure every concrete block is accounted for.”

18 Mr. Horseman submitted that the Petitioners' conduct in continuing to pursue the Petition and refusing to accept the many offers to purchase their shares was out of the norm. They fought to take the matter to trial when all they could have hoped for was a purchase order. Thus, not only was it out of the norm, it was wholly and utterly unreasonable in the face of clearly generous offers in excess of what the shares were ultimately valued.

The Petitioners' Submissions

19 Mr. Spurling submitted that in the particular circumstance of this matter there should be no order for costs against either party, but if the Court took the view that CDL should be granted its costs then there should be a significant discount. The main reasons for this approach were as follows:

• a. The Petitioners repeatedly complained that CDL's Offers could not be properly considered as there had not been adequate disclosure and transparency of information to enable them to reach a decision on whether the offers were reasonable or not;

• b. No AGM had been convened nor audited accounts produced by CDL from its inception in September 2016 until September 2019 when the Audited Accounts were produced, only covering the period to 2018;

• c. The $440K CDL Offer and the $800K CDL Offer and later offers were the subject of debate and lengthy correspondence which were met by counter offers based upon the Petitioners' accountant's own assessment of limited and questionable data provided in spite of repeated request for more detail;

• d. The Petitioners were willing to agree a share valuation buy out but the lack of cooperation by CDL on disclosure and transparency made it impossible to consider the offers properly in the context of CDL's financial data;

• e. The Petitioners' fears that an independent valuer would be unable to obtain all the relevant information from CDL for the purpose of a valuation were well founded as it took almost 12 months for Deloitte to secure information, dates, and documents from them to enable them to conclude their final report;

• f. There were numerous and complex issues and although a full valuation was provided, there were numerous...