The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top Bahamian heart doctor has been given conditional leave to appeal to the Privy Council in his dispute with a local merchant bank over a margin loan.

The Court of Appeal granted Dr Conville Brown permission to take his case to the highest court in the Bahamian judicial system provided he lodges a $2,861 security to cover costs and send the necessary legal papers to the UK.

He is appealing a Court of Appeal ruling ordering him to pay almost $300,000 to RoyalFidelity Merchant Bank & Trust after losing his “negligent/fraudulent misrepresentation” claim against it.

The Court of Appeal had found Dr Brown “was in breach” of a near two decade-old agreement he made to borrow money from the Bahamas-based investment bank.

The loan, which was secured against the value of the stocks and securities in his brokerage account at RoyalFidelity, stipulated that the sum borrowed must never exceed 50 percent of these investments’ collective value otherwise it would fall into default.

These securities were valued at $329,751 when the loan was agreed on February 17, 2000, and RoyalFidelity agreed to advance a margin facility of $164,875 that was worth 50 percent of the collateral pledged.

However, the Bahamian stock market - and value of the securities in Dr Brown’s brokerage account - plummeted after the September 11, 2001, terror attacks and failed to recover. This placed the loan facility in default, and caused RoyalFidelity to make a “margin call” on October 4, 2002.

It warned the well-known cardiologist that his securities investments “had so declined in value” that he was now only eligible for a $98,111 margin loan, and had accumulated a $179,773 overdraft. Offsetting the two sums, Royal Fidelity told Dr Brown he either had to increase the amount of securities in the brokerage account or pay the $81,662 difference to bring the margin loan back into compliance with the 50 percent threshold.

While some of this sum was paid, RoyalFidelity initiated legal proceedings against Dr Brown after it failed to receive the full amount. The doctor accused the merchant bank of “deceiving him into entering” the margin loan deal by suggesting it was “a market maker, and would so manage his securities in his brokerage account that he would never have to provide any additional funds to secure his loan facility”.

This formed the basis of Dr Brown’s defence and counterclaim, whereby he alleged that RoyalFidelity induced him into the margin loan deal by allegedly promoting itself as a “market maker” able to buy and sell securities at will to keep his facility current.

Arguing that this claim was “made fraudulently” and “recklessly”, the doctor sought damages himself for purported negligence and fraudulent misrepresentation. But the Court of Appeal’s judgment, backing the earlier Supreme Court verdict, found that Dr Brown had not provided sufficient evidence to support his claims.

The Bahamas Heart Centre principal now faces having to repay some $86,113 in principal to RoyalFidelity, together with 14.25 percent interest on this sum for a period of 17 years and counting. The Court of Appeal ruled that the interest clock started running on October 4, 2002, when the investment bank first made its demand for payment to bring the margin loan deal back into compliance.

Tribune Business’s calculations showed the interest bill is currently almost two-and-a-half times’ the principal Dr Brown must pay. The annual interest cost at 14.25 percent is some $12,271, and multiplying that by the 17 years’ gives a cumulative figure of $209,609.

When added to the principal sum this takes RoyalFidelity’s total award to some $296,000, and the Court of Appeal’s finding that Dr Brown must pay the legal costs incurred by the investment bank before both itself and the Supreme Court will likely push the latter’s total compensation towards $400,000-$500,000. Unless, that is, the Privy Council overturns the verdict.