McPherse Thompson, Assistant Editor - Business
The Supreme Court has handed down judgment in favour of Kingston-based hardware supplier ARC Systems, which sued the firm Cajarox Investments and its major shareholder Harry Shields to recover a debt of J$11 million.
Cajarox traded as All Island Hardware in Mandeville, Manchester.
The case, heard by Justice Bryan Sykes in the Supreme Court on various dates between May and December last year, centred on rising unpaid invoices by Cajarox leading to a cut-off of supplies to the hardware store.
However, the outcome of the case largely turned on a conversation during which Shields, seeking to persuade ARC chairman Norman Horne to resume supplies to Cajarox, said he was one of the wealthiest persons in Jamaica and that "mi caan bruk fi 10 times mi lifetime."
Attorney-at-law Jeffrey Daley, who represented Shields, was unavailable for comment on whether the defendant would appeal, and he did not return calls. Shields himself was not reached for comment.
According to the judgment, ARC entered into a business relationship whereby it sold hardware products to Cajarox. At some point, Cajarox began experiencing liquidity problems and this affected its ability to pay for the goods in a timely manner.
breakdown in relations
Justice Sykes noted in his written judgment that the situation degenerated to such an extent that, at one point, ARC stopped supplying goods to Cajarox and the trading relationship only resumed after negotiations between the parties.
However, Cajarox's ability to pay proved to be short-lived, the judge said. It soon ran into difficulties and eventually FirstCaribbean International Bank appointed a receiver, who took control of the business on March 10, 2010.
ARC brought the claim against both Cajarox and Shields seeking to recover money for goods supplied.
ARC argued that Shields was jointly liable with Cajarox because it was agreed that goods would only be supplied to Cajarox if Shields assumed primary liability jointly with the Mandeville outfit.
On the other hand, Shields contended that no such agreement was made with him personally. His position was that if any agreement was made, it was between ARC and Cajarox and he was acting as a representative of the hardware firm and not in his personal capacity.
His lawyer submitted that if there was an agreement, then it was a guarantee governed by Section 4 of the Statute of Frauds.
This meant that Shields agreed to be liable only if the primary debtor, Cajarox, failed to meet its obligations. Section 4, according to Daley, requires that guarantees must be in writing and signed by Shields or his authorised agent. However, none of those requirements have been met and, therefore, the guarantee is unenforceable, the lawyer argued.
Shields brought a counterclaim against ARC asking that the claim be struck out on the grounds of being frivolous and vexatious.
Horne testified that Cajarox was one of his company's customers for at least 14 years, that there was a social relationship between Shields and himself, and that they would visit each other's homes for business and social reasons.
At some point, Cajarox's account with ARC was placed on hold because of the frequency of late payments. Horne said he met with Shields in December 2007 to discuss the account and the resumption of trading between the two entities.
It was made clear to Shields that ARC would be willing to sell goods to Cajarox on a prepayment or cash-on-delivery basis. Shields indicated how important credit was to Cajarox and, in order to have credit extended to it, said he would accept personal liability and purchase goods for Cajarox.
"Mr Shields' attempt to persuade Mr Horne of his personal creditworthiness knew no bounds," Justice Sykes said.
a promise of plenty
Horne said Shields indicated that he was one of the wealthiest persons in Jamaica with properties in several parishes as well as overseas, and was the owner of many expensive vehicles, trucks, forklifts, boats and beach cottages.
Said Justice Sykes: "Mr Horne stated that Mr Shields rounded off his presentation (with) these immortal words, 'Mi caan bruk fi 10 times mi lifetime.' Subsequent events have proved how incorrect Mr Shields was. He was declared bankrupt earlier this year. If these words were not enough to convince Mr Horne, Mr Shields added these reassuring words for good measure, 'As a matter of fact, I, Rocky [Shields], will give you a cheque with each order covering the amount of goods supplied post-dated for 30 days."
It was in that context, Horne said, that trading with Cajarox was resumed. However, within a few months, the problems arose again and Cajarox failed to pay for the goods supplied.
Post-dated cheques from Cajarox were not honoured by the bank and although Shields was so advised, no money was forthcoming from him or the hardware store.
Shields sought to say that he could not have made the arrangements Horne indicated because the company was taken over by creditors.
"The problem with this explanation is that the uncontradicted evidence is that the receiver took over in March 2010 and all the communication put before the court predated that receiver," Justice Sykes said.
"Until the receiver took over, Mr Shields was, in fact, the managing director and acted as such," the judge found.
Shields also said he was effectively removed from his managerial position by some or one of his creditors, but Justice Sykes said there was no other evidence adduced in support of that assertion.
"The removal of the management of a company is such a serious step that a court should be cautious to accept that that in fact occurred in the absence of supporting evidence," Justice Sykes said.
He added that it is almost inconceivable that a shareholder and managing director of a company could be removed in the manner suggested by Shields without some documented evidence.
Justice Sykes said it was common ground that Shields' name appears on invoices from ARC and that, among other things, was consistent with an agreement being struck between the parties.
"In the context of a business transaction where the seller is facing mounting unpaid invoices from the purchaser, it is only natural that the seller would wish some kind of assurance that outstanding and future bills would be paid before more goods were supplied," he said.
The court concluded that the words used by Shields in his negotiation with Horne provided the reasonable explanation for his name being placed on the invoices. This was the way that ARC chose to reflect the agreement, the judge said.
Having examined Section 4 of the Statute of Frauds, Justice Sykes concluded that Shields promised ARC to be jointly primarily liable, along with Cajarox, for the goods supplied.
"On this understanding, the agreement is not within the statute and is therefore enforceable," he said.
The judge entered judgment for ARC against Shields and Cajarox in the sum of J$11,021,754.51 at three per cent interest from the date the sum became due to the date of judgment.