Harre CJ
IN THE GRAND COURT OF THE CAYMAN ISLANDS
HOLDEN AT GEORGE TOWN, GRAND CAYMAN
CAUSE NO. 807/97
BETWEEN: Weststar T.V. Ltd. PLAINTIFF
AND: Coronado Ray Development Ltd. DEFENDANT
For the Plaintiff - Mr. Peter Broadhurst
For the Defendant - Mr. Diarmad Murray
Before Harre CJ
JUDGMENT
Both the plaintiff and the defendant are companies incorporated in the Cayman Islands, and these proceedings arise from a document which for convenience though not by way of finding I will call the promissory note. It is in the following terms -
“For value received Weststar T.V. Limited of P.O. Box 472, George Town, Grand Cayman B.W.I. (Weststar T.V.)” promises, subject to the next following paragraph, to pay to Coronado Del Rey Development Ltd. of P.O. Box 190, George Town, Grand Cayman B.W.I. (“the Company”), the sum of Three Hundred Thousand United States dollars (US$300,000.00) together with interest at the rate of ten percent (10%) per annum on 31st May, 1994.
If prior to 31st May, 1994, Weststar T.V. issues three hundred thousand (300,000) shares of one cent (US$0.01) each of any class at a premium of ninety-nine cents (US$0.99) each to West Interlink, Inc. of 8217 Hogseth Court, Fair Oaks, California 95628, United States of America, this will be deemed repayment of the principal sum evidenced by this Note and all interest accrued will be deemed to have been waived by the Company.”
The document is dated 25th February 1994 and executed under the seal of Weststar T.V. Ltd. (“Weststar T.V.”) by one Rodney Hansen (“Hansen”), Director and Dorothy Jayred, Secretary of the company. Hansen has deponed that Weststar T.V. Ltd. has
carried on business since its incorporation in the Cayman Islands in October 1992 solely as the operator of a cable television system in the Cayman Islands; and that West Interlink, a business style of a Nevada Corporation took over management responsibilities relating to Weststar T.V. Ltd. from a California corporation called Weststar Communications Inc. ("Weststar Communications") in February 1994.
The plaintiff claims to be entitled in law to the return of the promissory note on the ground that it paid over the full principal and accrued interest on 22nd July 1996, and to a declaration that the indebtedness secured by the note has been fully discharged.
The defendant has applied for these apparently simple proceedings to be stayed on the ground that California is the more appropriate forum to hear this dispute. An action there is already in existence.
The plaintiff, Weststar T.V., was incorporated in the Cayman Islands on 24th October 1992, having the same directors and officers as Weststar Communications. Weststar Communications, the Californian corporation, acted as the first operating and administrative manager of Weststar T.V.
Weststar Cayman L.P. ("Weststar Cayman") a Californian limited partnership raised funding through a private placement offering and became the holder of 60% of the shares in Weststar T.V., the other 40% being held by a company called V.M. Ltd.
It is the defendant’s case that in late 1993 and early 1994, Gary and Mary Beth Chumley ("the Chumleys"), the beneficial owners of the defendant ("Coronado") were offered through their US legal adviser, Craig Stalker, the purchase of 15.77% of Weststar Cayman’s 60% holding in Weststar T.V. for US$300,000 and this offer was accepted on 25th February 1994, their payment of US$334,500 being the cost of the purchase of the 300,000 shares of Class A stock, paid for by Coronado to Weststar T.V., and US$34,500 paid by the Chumleys as the cost of making a "net" investment.
It is common ground that at no stage have Coronado and/or the Chumleys been issued with these shares and that on 22nd July 1996, the Plaintiffs delivered the sum of US$377,719.00 by way of draft to the defendant which they claim represents the sum of US$300,000 plus 10% interest.
So the fundamental disagreement between the plaintiffs and the defendant (and the Chumleys) is as to the nature and terms of their agreement. The plaintiff contends the agreement evidenced by the Promissory Note was a loan with an option to deliver shares in place of repayment of the sum plus 10% and that having chosen not to exercise the option to deliver the shares, it has satisfied all its obligations under the Promissory Note. Coronado and the Chumleys allege that Coronado has not accepted the repayment of US$377,319 and that they remain entitled to the shares.
Proceedings have been commenced in the Superior Court of the State of California by the Chumleys and Coronado seeking, among other things, specific performance of
what they claim to be the share agreement. The claim was brought against several defendants, including Weststar T.V., the plaintiffs in the Cayman action.
To resolve the point before me it is necessary to consider the true nature of the Cayman and California proceedings and the relationship between them.
There has been much affidavit evidence about these, and the transaction which led to them. Much time was spend on the position of Coronado and the Chumleys in relation to the California action. The first amended complaint in which all are plaintiffs, was for specific performance, security fraud, legal malpractice and breach of fiduciary duty. The jurisdiction of the Superior Court over Weststar T.V. was contested. On 21st January 1997 the court granted, without prejudice, a motion to quash service of the summons on the ground of lack of personal jurisdiction over Weststar T.V.
I accept the affidavit evidence of Mr. John F. Mounier Jr. that in California orders without prejudice allow the affected party to seek relief, file a new amendment or seek a different decision because subsequent events have confirmed it. On 28th January 1998 the Sacramento Superior Court granted leave to file a Second Amended Complaint. That leave was given on the following ground -
"The proposed second amended complaint appears to state facts sufficient to constitute a cause of action against Weststar T.V. and clarifies Weststar T.V.'s relationship to the other defendants."
So Weststar T.V. is back in the California proceedings, having been brought back in following that determination that there is a cause of action against it in California. It does not lie well in its mouth to cite its absence from those proceedings from January 1997 by reason of an attempt to extricate itself from them which ultimately failed.
There is evidence that during the absence of Weststar T.V. the California action has been continuing since it began in October of 1996 and considerable work has been done and expense incurred. That is a factor which favours California.
I now consider the promissory note. The parties to it are two Cayman Island Companies, it was drawn and payable in the Cayman Islands in Cayman Islands currency and drafted by a Cayman Islands attorney. There is conflicting evidence about what occurred on the day on which it was prepared, but not in that regard.
There is likely to be an issue as to the legal effect of the document under Cayman Islands Law. That is a factor favouring the Cayman Islands as a forum. But it is inevitable that pleading and argument on that issue will bring in also the very matters which are already before the Court in California. This is not a simple action on the note. To the extent that it becomes significant - and it appears to have played no great part so far in the California proceedings - expert evidence as to the law of the Cayman Islands can be given. Another factor which I take into account in assessing the place of the note in the context of this dispute is that payment of principal and interest was only tendered on 22nd July 1996 - over two years after the date of payment set out in the document. The Cayman writ seeking a declaration and return of the note was dated 1st December 1997.
There is then the question of availability of witnesses to be considered. There is nothing in the evidence to indicate any reason why witnesses from the Cayman Islands would be unwilling to testify in California with regard to the preparation of the promissory note and its exchange for funds. On the other hand, it is self evident that Coronado would have great difficulty in eliciting evidence from third parties outside these Islands in the Cayman proceedings with regard to what it alleges to have been the true nature of the transaction between the parties. I regard that consideration as more important than the mere counting of heads, which in any event does not lead to a conclusion other than that evidentiary convenience favours California as a forum.
I conclude with a reference to the Articles of Association of Weststar T.V. and the arguments as to where its "management and control" lay. There is an agreement between Weststar T.V. Ltd., Weststar Communication (significantly described as "the Founders") and VM Ltd. ("The investors"). The agreement is dated 11th January 1993. I was taken interestingly to matters of company law and the relationship between this agreement and the Articles. I do not have to find for present purposes what that is. "Management and control" is a concept with many facets in company law. As in all cases, some powers lie with the directors, some with the shareholders.
But as I said at the outset of this judgment, the evidence which I have indicates that West Interlink took over management responsibilities from Weststar Communications in February 1994. Just what the Chumleys and/or Coronado would have been getting as consideration for the investment of $300,000 by virtue of an issue of 300,000 shares by Weststar T.V. to "West Interlink Inc. of 8217 Hogseth Court, Fair Oaks, California" as deemed repayment of that sum and on what authority that share issue
could be made by the company seems to be an issue inextricably entwined with the proceedings in California, where fraud is among the allegations made.
For those reasons I have concluded that this case can more suitably be tried in California for the interests of all parties and the ends of justice, including the advantages of efficiency, expedition and economy; and accordingly I order that this action, No. 807/97 be stayed.
G.E. Harre
Chief Justice
8th May 1998