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Medical Associates triumphs in share dispute - Community Medical Services fights on through appeal

Published:Sunday | February 4, 2018 | 12:00 AMMcPherse Thompson
Medical Associates Hospital as seen in April 2013.

The Supreme Court has granted summary judgment to Medical Associates Limited in a claim brought by its management company to recover more than 400,000 shares that were tended to secure a loan to finance further developments at the Medical Associates Hospital.

Community Medical Services (CMS) which used to manage the medical facility, contended that the person who transferred the shares to Medical Associates Limited did not have the authority to do so and that it was still the legal and beneficial owner.

However, Justice Brian Skyes found that CMS had agreed to donate the shares and that they were properly transferred to Medical Associates.

The judge noted that all three litigants CMS, which was represented by attorney Donovan Malcolm; Medical Associates Limited, which was represented by Michael Hylton, QC, and Shanice Scott; and attorney Conrad George, who was represented by Jacqueline Samuels-Brown and Marcia Gracie Samuels sought summary judgment in their favour.

Malcolm told the Financial Gleaner that an appeal against Justice Sykes' judgment has been filed on behalf of CMS.

According to the written judgment, CMS was formed in December 1975 for the purpose of acquiring the whole or part of the shares of Medical Associates Limited and to manage and operate the medical facility. That was how it came to acquire 404,164 shares in Medical Associates Limited, which operates the hospital. CMS was also described as the regulatory authority for Medical Associates Limited.

The background to the case was that over time, it became apparent that new capital was needed to upgrade the plant if the hospital was to continue offering high-quality medical care. The board sought investors and found one in AIC (Barbados) Limited.

AIC and Medical Associates Limited entered into a heads of agreement in 2006 and a share subscription agreement in 2007.

The heads of agreement provided for two loans from AIC to Medical Associates Limited totalling $65 million, secured by promissory notes, 'which shall be convertible' into 1,050,000 fully paid-up ordinary shares of $61.88 each of Medical Associates Limited and issued to AIC, or its nominee, representing 67 per cent of the issued and fully paid-up share capital.

AIC was to get 404,000 shares in exchange for $25 million, which was to be paid to Medical Associates Limited, and a further 646,000 shares for the additional $40 million.

Another $110 million was to be provided to finance further developments at the hospital.

Court documents said that the agreement was signed by Dr Grace Haynes and Conrad George for Medical Associates Limited and by Wayne Chen for AIC.

Under the share subscription agreement, in respect of the 404,000 shares, Medical Associates Limited was to have a special resolution to amend its articles in order to buy back its shares held by CMS, or alternatively, CMS was to donate its shares to Medical Associates Limited.

By an August 2008 resolution, the board of CMS agreed to donate the shares to facilitate the loan transaction. CMS had indicated that it wanted to get out of the business of managing or regulating the hospital.

Justice Sykes noted that in September 2008, there was an aborted effort to transfer the shares. However, in September 2014, CMS's shares were transferred to Medical Associates Limited, with director Dr John Hall signing on behalf of the management company.

According to the judgment, Dr Haynes, who provided CMS's affidavit in support of its application for summary judgment, pointed out that there was a breach of the company's articles and therefore, the transfer of its shares has no legal affect. She also, said that Medical Associates Limited did not buy back the shares in accordance with its articles, and as such, the transfer was invalid.

However, Justice Sykes disagreed with CMS' arguments.

"The court is saying something more is needed other than a naked statement of breach of articles of association to invalidate the share transfer transaction," said Sykes, referencing Sections 4 to 6 of the Companies Act.

"That something more is not present in this case, which means that CMS has no real prospect of succeeding in the claim," he said.

The court accepted and agreed with Medical Associates Limited's submissions and granted it summary judgment.

Regarding Conrad George, who was named as the second defendant, Justice Sykes said the pleadings of CMS did not disclose any wrong doing.

"Even if they did, no remedy is being sought against him. This means that it is not necessary for him to be party to the case. Summary judgment is granted in his favour," the judge said.

mcpherse.thompson@gleanerjm.com