Verlin Crabbe Claimant v Kensley Wheatley Inter Island Traders Ltd Defendants

• Jurisdiction: British Virgin Islands
• Judgment Date: 30 May 2008
• Judgment citation (vLex): [2008] ECSC J0530-3
• Docket Number: CLAIM NO. 2007/0048
• Court: High Court (British Virgin Islands)
• Date: 30 May 2008

[2008] ECSC J0530-3

IN THE HIGH COURT OF JUSTICE

CLAIM NO. 2007/0048

Between:

Verlin Crabbe

Claimant

and

Kensley Wheatley Inter Island Traders Limited

Defendants

Appearances:

Mrs. Tana'ania Small-Davis of Farara Kerins for the Claimant

Mr. Malcolm Arthurs of O'Neal Webster for the Defendants

(Assessment of damages - Breach of contract for sale and purchase of business - misrepresentation of financial position of business -whether claimant entitled to all expenses flowing from the breach including loss of profit on the venture)

1 Joseph-Olivetti, J.: This is an application by the Claimant for the assessment of damages as against the second defendant, Inter Island Traders Limited, ("the Company") pursuant to a default judgment dated 5 ^th September 2007. This application was filed on 19 ^th October 2007.

2 The matter was scheduled for hearing on 26 ^th February 2008. However, it was adjourned as both Counsel had failed to comply with the order dated 13 ^th November in respect of the filing of submissions. I therefore ordered that the Claimant's submissions be filed and served by 29 ^th February and the Company's by 7 ^th March and that the parties rely on those. The submissions were received by me on 6 ^th and 12 ^th March. For completeness it is noted that an oral application by the Company to have a representative from S. S. Accounting and Consulting Services Ltd attend and be cross-examined was refused as being unreasonable having regard to the fact that this was supposed to be the final hearing of the matter and to the inexcusable delay that had occurred to date.

3 When the court embarked on considering the submissions preparatory to giving its judgment the court became concerned that although the claim was for breach of contract and on the face of the contract relied on by the Claimant the Company was not a party the Claimant had nonetheless obtained a default judgment against the Company pursuant to which we were being called upon to assess damages. It is noted that both the Company and the First Defendant, Mr. Wheatley (the managing director and sole shareholder of the Company) had been represented throughout by the same firm of solicitors. The Court therefore invited both counsel on 29 ^th April to address this issue. The Claimant was to file his further submissions on the 1 ^st May, (this was done on 2 ^nd May) the defendants on the 5 ^th May (this was done on 6 ^th May) and the Claimant's reply if any on the 8 ^th May. There was no reply.

Facts

4 Mr. Verlin Crabbe and Mr. Kensley Wheatley are both businessmen. Mr. Crabbe is the owner of Bolo's Department Store ("Bolos"), a well known department store in Road Town, Tortola, BVI and Mr. Wheatley is the sole shareholder of the Company which was doing business as Santo's Wholesale an equally well known retail, wholesale and distribution grocery business in Tortola. The men entered into a written agreement on 30 ^th October 2006 for the purchase of all the issued shares in the Company for the sum of $895,000.00. Pursuant to the terms of the agreement Mr. Crabbe on 30 ^th October 2006 paid the sum of $89,500 to Mr. Wheatley which represented a deposit of 10% deposit of the purchase price. The balance was contractually due to be paid by 2 installments -$450,000.00 two months from the date of the agreement or by 8 ^th December 2006 whichever was the sooner and $355,500.00 in January 2007. The Company was not a contracting party.

5 At the time of entering into the contract Mr. Wheatley represented to Mr. Crabbe that:-

• (a) the shares were free of all encumbrances;

• (b) the position of the Company as reflected in the balance sheet supplied by him gives a true and fair value of all the assets and liabilities of the Company and that since the date of the balance sheet there had been no material change in the financial or trading position of the Company;

• (c) the Company is in good standing;

• (d) except as disclosed in the balance sheet or otherwise by him in writing there are no guarantees, material undertakings, commitments on capital accounts or liabilities which have been made by or on behalf of the Company, nor were there any liens, charges, pledges or other forms of security or encumbrance or equity over on or affecting the whole or any part of the share capital, undertaking or assets of the Company;

• (e) All income and other tax returns have been timely filed and are accurate and that no income or other tax or other statutory obligation is owing;

• (f) Except as may have been disclosed to Mr. Crabbe in writing, there are no claims or potential claims against the Company and that he is not aware of any incident which could likely result in any claim or potential claim against the Company;

• (g) All books, records accounts and information supplied to Mr. Crabbe in connection with the acquisition of the shares are true and correct;

• (h) He will immediately disclose in writing any event or circumstance which may arise or become known to him after the date of the Agreement and prior to completion which is inconsistent with any of the warranties and representations which would constitute a breach of the warranties and representations and which is material to be known by Mr. Crabbe as purchaser of the shares and further that he will use his best endeavours at his own expense to prevent or remedy them.

6 On 1 ^st November 2006 Mr. Wheatley allowed Mr. Crabbe to take over and operate the Company's business pursuant to clause 2.2 of the agreement. It was also agreed that all receivables, payables, cash in hand and cash in the bank account of the Company existing before 1 ^st November would be the property of Mr. Wheatley and from 1 ^st November, 2006 would become the property of Mr. Crabbe. See clause 2.3.

7 Upon taking possession of the Company Mr. Crabbe discovered that Mr. Wheatley had seriously misrepresented the Company's financial position. Contrary to information provided by Mr. Wheatley, Mr. Crabbe discovered, inter alia, that the Company's accounts payable and the accounts receivable were misrepresented and that the Company owed statutory debts to the Government totaling $102,568.42 with penalties of $2,23.82 for company taxes for the years 1987–2004 and PAYE in the sum of $3,471.37. Further, the Company had a loan with First Bank with a balance of $420,212.74 secured by a lien on the shares of the Company. In addition, only half of the Company's insurance premium had bee paid and the business was considered to be under insured.

8 Mr. Wheatley also represented that the stock was valued at $632,854.00 but Mr. Crabbe took a detailed inventory which revealed that a substantial amount of the inventory had expired and had to be discarded and that the true value of the physical stock was $175,000.00. The cash in hand was $701.15 and cash in the Company's bank account was $1,703.84.

9 Prior to these discoveries and despite the fact that Mr. Wheatley did not provide him with the financial documents as he was obliged to do by Clause 6.1of the agreement, Mr. Crabbe in the first month of operation alleged that he made several payments on behalf of the Company to meet its debts and invested substantial monies in stocking the business and in improving the facilities.

10 In particular, Mr. Crabbe testified that he advanced a loan of $69,000.00 from his other business; he paid $12,623.00 to Paramount Distillers Inc using monies from Bolo's. In addition, he paid $2,852.00 to Tico, $42,675.00 to computerize the business, $5,180.00 for security cameras, $2,460 for management fees, $3,320 on a trip to Puerto Rico to purchase supplies, $104,282.91 for stock he purchased, $2,608.33 for stock he transferred from Bolo's Department Store to the Company, $11562.00 for insurance and $2,000 management fee to Mr. Wheatley. In December he advanced a further sum of $8,000.00 to the Company. He paid $7,452.00 for company taxes for 1987–1989 and $3,433.26 payroll taxes for 2005–2006.

11 Mr. Crabbe on 20 ^th December 2006 exercised his right to terminate the Agreement under clause 8.2 because of the aforesaid breaches. This was communicated to the Defendants' counsel by letter of same date. This notice was accepted and Mr. Crabbe gave up possession of the Business on 28 ^th December 2006.

12 Mr. Crabbe filed suit on 9 ^th March 2007 against both Defendants. He claimed against Mr. Wheatley the sum of $89,500 and damages for breach of contract and against the Company the sum of $944,651.50 and a mareva type injunction against both. It is apparent from the Statement of Claim that the claim against the Company related to the return of monies invested into the Company's business by the Claimant pursuant to the contract between he Claimant and Mr., Wheatley and for loss of profits.

13 The Defendants acknowledged service but failed to file and serve their defence and on 5 ^th September, 2007 judgment in default of defence was entered against the Company for damages to be assessed plus costs. On 18 ^th September judgment in default was entered against Mr. Wheatley in the sum of $89,500 plus interest of $2,157.80 and costs of $1,950.00. This judgment has been satisfied. (See para 2 of submissions filed 29 ^th February Mr. Crabbe). 1

14 In her further submissions in response to the court's concerns Mrs. Small–Davis appearing on behalf of the Claimant referred to another default judgment entered against Mr. Wheatley on the 27 ^th August 2007 for damages to be assessed and costs and submits that damages fall to be assessed against Mr. Wheatley pursuant to that judgment even though he has satisfied the other judgment against him.

Issues Arising

15 The primary issues for determination concern the quantum of damages and are:-

• (1) Whether Mr. Crabbe has established that he expended all the sums claimed pursuant to the contract.

• (2) Whether Mr. Crabbe is entitled to damages for loss of business opportunity.

16 In...