The Caribbean Court of Justice will hear a matter between a Barbados based jeans factory and a Canadian bank that dates as far back as the early 1980s when bell bottoms were still in style.
The case which comes up for hearing this week at the CCJ involves the Beepat brothers, Dennis and Royston, and the Canadian Imperial Bank of Commerce.
According to a Barbados Nation article from 2014, the rush by the bank to put Gypsy International in receivership had led to a Barbados $6 million award against CIBC.
“A lawsuit and countersuit between Canadian Imperial Bank of Commerce and the defunct jeans makers Gypsy International was settled by the Court of Appeal on Friday, with the court saying the decision was important to financial lending agencies and businesses.
The battle dates back to 1988, four years after the promising business was disrupted by a minor fire and fell into the hands of receivers. The court, led by Chief Justice Sir Marston Gibson, was asked to settle whether CIBC’s quick enforcement of a loan by appointing a receiver over Gypsy’s assets without demanding payment was legal.
Gypsy was started in June 1981 by Royston Beepat and he and his brother Dennis served as directors, having invested $500 000 each. It had an overdraft limit of $300 000 from CIBC secured by a demand debenture charging all assets of the company and trade bills discount to the extent of $800 000. The company also had credit of $400 000 from the Barbados Development Bank.
In 1982 its jeans sales were beyond $250 000 and by the next year reached $2.7 million but a “minor” fire in March 1984 halted production. Beepat met with staff and CIBC to assure all that operations would resume almost immediately.”
However as Barbados attorney Debbie A. P. Fraser, outlines in a review of the case “Shortly thereafter, CIBC appointed a receiver of Gypsy without serving a prior demand for payment on Gypsy. The receivership lasted for four (4) years. Gypsy never recommenced operations and eventually its assets were realised by the receiver. The sale proceeds were, however, not sufficient to pay off Gypsy’s debts to CIBC. Following the termination of the receivership, CIBC demanded payment of the sums allegedly due from Gypsy from Mr. Beepat who had personally guaranteed Gypsy’s debts. CIBC then filed suit against Gypsy and Mr. Beepat
The Barbados Court of Appeal was asked to consider: 1. Whether the appointment of the receiver was
valid; 2. Whether parties can agree in a debenture to exclude any requirement for making demand
before the appointment of a receiver; 3. Was Gypsy stopped from challenging the appointment of the receiver?; and 4. What damages would be applicable (if any). Findings of the CA The following are the main findings: 1. The CA found that service of demand was an essential prerequisite to the valid appointment of a receiver under a demand debenture. In addition, the Bankruptcy and Insolvency Act, 1 Cap. 303 of the laws of Barbados introduced a requirement for a secured creditor to send to a debtor company a notice of intention to enforce security; reflecting a wider principle which mandates service of demand before the appointment of a receiver. CIBC’s appointment of the receiver was therefore not valid. 2. Canadian cases clearly provide that demand must be made before the appointment of a receiver and this requirement overrides any terms of a security document that conflicts with the principle. The Companies Act, Cap. 308 of the laws of Barbados is based on Canadian legislation and in the circumstances the CA decided to follow the Canadian authorities. The CA decided that as a matter of law, the requirement for demand cannot be contractually excluded. CIBC was therefore required to serve notice of demand to Gypsy despite the provisions of the demand debenture. 3. CIBC argued that the appellants treated the appointment of the receiver as valid and could not subsequently seek to challenge it. The CA, however, held that CIBC could not use the fact that Gypsy did not initially challenge the receivership as a defence to Gypsy’s claim that the receivership was invalid. The CA supported the principle that a company is entitled to substantial damages for trespass to land and goods and other invasion of rights by an unauthorised receiver even though it was
making a loss in trading and there was little or no evidence on which an accurate estimate of pecuniary loss from the trespasses could be made.2 Even though it was not making a profit at the commencement of the receivership, Gypsy was awarded damages for loss of profits based on evidence which indicated that given
Gypsy’s trajectory, it would have made a profit if its business was not liquidated by the receiver.”