The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Too many Bahamian businesses are left “holding the bag” by companies that either have no assets or do not legally exist, a top QC warned yesterday.

Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business this had been reinforced by a recent Court of Appeal verdict he won on behalf of several Freeport condominium owners.

He successfully argued that the initial lawsuit over the Silver Point Condominium Apartments, which sparked his clients’ action, was a “nullity” because it was brought against a non-existent company that had been struck off the Companies Registry.

Arguing that the ruling had wider implications for the Bahamian private sector, Mr Smith said it showed the need for businesses to do proper due diligence on potential corporate partners and ensure they were legally incorporated, existing companies.

And, extending the argument, Mr Smith said companies also had to ensure they avoided entering into contracts and other commercial relationships with ‘mere’ shell entities.

If these firms, which had no real assets, defaulted on their obligations and it became necessary to sue for compensation, the well-known QC said obtaining a Supreme Court judgment would do little good because there was nothing to claim against.

“It establishes that lawsuits cannot be commenced and maintained against non-existent corporate entities,” Mr Smith said of the Silver Point verdict. “If the entity does not exist, then the action is a non-starter from the beginning; it’s stillborn.

“This issue is important for the business community when negotiating contracts to ensure that both parties are entities that exist, otherwise they risk losing the benefits of their contractual protection.”

The Callenders & Co attorney added that the Silver Point verdict, which overturned an earlier Supreme Court ruling by Justice Hartman Longley, “reaffirms” an earlier judgment that found the Freeport Licensees and Property Owners Association was unable to bring an action against the Grand Bahama Port Authority (GBPA) and the Government because it had not been formed into a legal entity.

“An additional important point for the business community is to ensure that, when entering into service contracts with operating companies, that the company does have assets,” Mr Smith told Tribune Business.

“So if they do not perform and cause damage to the other side, the innocent party has recourse against the other company’s assets as opposed to a shell company that leaves the innocent holding the bag.

“This happens often in the Bahamas, especially with International Business Companies (IBCs) or foreign companies that register to do business in the Bahamas, and with companies that have no assets,” Mr Smith added.

“They simply default, and if the innocent party gets a judgment they cannot execute it, and it’s a pyrrhic victory. A lot of people don’t appreciate that, believe they can proceed and, when they get the judgment, can’t enforce it. They then get frustrated with their attorney and the process.”

Mr Smith had been representing four Silver Point apartment owners, Johann Swart, William Taylor, Larry Biswanger and Scott Moncrieff, who were seeking to overturn two Supreme Court Consent Orders on the grounds that they conflicted with the complex’s Declaration of Condominium and the Law of Property and Conveyancing (Condominium) Act 1965.

The Consent Orders had resulted from a previous action brought by Apollon Metaxides, another Silver Point condo owner, on behalf of himself and six others. This had sought several declaratory reliefs, including one on whether doors and windows were common property.

But, in his action, Mr Metaxides had sued Silver Point Ltd, a company “which at the material time had been struck off the register of companies and replaced by Silver Point Condominium Apartments”. The latter thus became the corporate body for the condo complex.

As a result, Mr Smith argued that the original action giving rise to his clients’ case was a “nullity”, as it was “in effect brought against a non-existent entity”.

And, with no evidence of the Supreme Court having given the Metaxides action permission to add Silver Point Condominium Apartments as a defendant, the Court of Appeal said it had “no choice” but to find in favour of Mr Smith and his clients.

Referring to the ruling in the Freeport Licensees and Property Owners Association, which found that body could not bring its action because it did not exist, the Court of Appeal ruled: “In our opinion, it follows that the non-existence of a defendant must mean that there equally is no action.

“Every action requires a defendant in order to exist. While the submissions on the law relating to misnomers and amendments are correct on the face of it, you cannot amend what never existed.”