The Tribune

• Claimed lender failed to get best Maratani X price

• But Appeal Court president: ‘Debt never in dispute’

• Broker activity ‘very slow’ as ‘afraid to bring clients’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A prominent Bahamian businessman and his son yesterday failed to escape paying the outstanding $2.763m balance on a defaulted loan that was secured on their high-end yacht.

Former liquor magnate, Garet ‘Tiger’ Finlayson, and his son, Mark, had earlier seen the Supreme Court reject arguments they were not liable to pay this sum because the lender, US-based Caterpillar Financial Services Corporation, had breached its duty to sell the Maratani X “for the best possible price reasonably obtainable”.

And the Court of Appeal yesterday unanimously upheld this verdict by ruling that the loan default, and the Finlaysons’ obligation to repay the debt, was “never in dispute” and that they had failed to prove Caterpillar recklessly sold the vessel at an “undervalue”.

Sir Michael Barnett, the court’s president, in a written ruling backed by his fellow appeal justices, Sir Brian Moree and Milton Evans, traced the dispute’s origins to the $9.68m construction loan that the Finlayson father-and-son duo obtained from Caterpillar on December 21, 2001, via their company, Kurc Ltd. The borrowing was secured on the Maratani X, with both men guaranteeing the debt’s repayment.

“Kurc defaulted on the loan. Whilst in Florida, the yacht was arrested at the instance of the respondent (Caterpillar),” Sir Michael wrote. “After the arrest of the yacht, the respondent obtained the permission of a US court to effect repairs to the vessel. Thereafter, the respondent sought to realise on its security. The appellants (the Finlaysons) also retained brokers to assist in selling the yacht.

“The yacht was finally sold by the respondent in December 2016 for the sum of $2.43m. At the time of the sale, the amount of principal owing on the debt was $4.207m. After applying the proceeds of sale to the debt, the balance due was $2.763m. The respondent sued the appellants for that balance due.”

Caterpillar’s statement of claim, which was reproduced by Sir Michael, alleged that it demanded repayment of all sums “due and owing” on the Maratani X loan on December 9, 2015, after the Finlaysons defaulted on the repayments earlier that year.

After the yacht was sold on December 28, 2016, the lender claimed that even after applying the proceeds to the outstanding loan balance it was still owed some $1.981m in principal; $18,077 in unpaid interest; and $764,657 for expenses incurred in trying to collect on the debt. This produced the $2.763m claim, with Caterpillar also alleging that interest was accruing at the rate of $296.34 per day.

The Finlaysons, in their defence, denied liability for the remaining loan balance. They alleged that Caterpillar had failed to effect repairs to increase the Maratani X’s value to potential buyers, and accused the financier of “intentionally or negligently” taking steps that resulted in the yacht “being sold for substantially less than its market value to achieve an unjust and unlawful gain”.

Justice Petra Hanna-Weekes Adderley, sitting in the Supreme Court, found the Maratani X’s sale was “not an undervalue” and ruled in Caterpillar’s favour. The Finlaysons appealed on the basis that the lender produced no evidence to justify the sales price as being reasonable, arguing that the $2.43m price “was unreasonable, reckless, negligent and prejudicial” to their interests.

Noting that no expert witnesses on yacht valuation were called by either side during the Supreme Court trial, Sir Michael said the judge had to rely on both parties’ documentary evidence and their respective witnesses. These were Robert Hughes, Caterpillar’s US east coast manager, and Mark Finlayson.

“The primary contention of the appellants is that the respondent failed to make the vessel seaworthy in order for it to undergo a sea trial. The appellants’ contention is that ‘the overwhelming evidence before the court was that a sea trial was necessary to secure a reasonable return on the sale of the vessel’,” the Court of Appeal president said of the Finlaysons’ argument.

“In my judgment, the flaw in the appellants’ argument is that it is premised on a duty of the respondent as mortgagee in the discharge of its duty to improve the property, if necessary, to obtain the best possible price at the time of the sale. In my judgment, there is no such duty. Whilst the respondent had the ability to invest in improving the property, its duty of care did not require it to do so.

“The state of the Maratani X at the time that the respondent took possession is not in dispute. The evidence was that Kurc was attempting to sell the vessel and had retained the broker, Bradford Marine, to find a buyer. The agent being used by Kurc and Bradford was Tucker Fallon.” The Finlaysons were thus attempting to sell the yacht to repay the loan balance on which they had defaulted some months before.

Tucker Fallon, in a March 3, 2016, e-mail to the Finlaysons warned that buyer activity was “very slow”. It said: “Much of the reason for that is that all of the major brokers in South Florida know that the boat has not run in years. One broker asked me how I was going to sell a boat that could not go for a sea trial.

“All the Fort Lauderdale brokers know about the boat and are afraid to bring a client to see the boat. The brokers do not want a buyer to find out that so many systems do not work, that the boat has not run. The brokers will be reluctant to even show the boat because they would be concerned that they could lose the client.”

Tucker Fallon suggested that these problems could be overcome if Caterpillar was persuaded to sort out Maratani X’s starting system, get its generators running and take the vessel for a test run at sea. While buyers would put up with numerous defects, it added that they needed to know the engines and generators worked.

Just over three weeks later, the Finlaysons agreed to surrender the yacht on March 29, 2016, and signed the necessary paperwork. “It is to be noted that there is nothing in the agreement which required the respondent to invest in improving the condition of the yacht, nor is there a covenant whereby the respondent agreed to do so,” Sir Michael wrote.

Tucker Fallon then wrote to Caterpillar on April 28, 2016, detailing a lengthy list of problems with the Maratani X that needed to be fixed as it had “not been used for years” and had no maintenance budget. It added: “The current asking price of the yacht is $6.5m and has been promoted as a ‘distress sale’.

“I have had numerous inquiries at this price and have had three written offers, one at $3.5m, one at $4.2m and one at $4.25m. All are subject to survey and sea trial.” The Finlaysons argued that Caterpillar had obtained a US court order requiring it to effect the necessary repairs, but Sir Michael said there was nothing that mandated the lender do so.

The Supreme Court found that the Finlaysons and Caterpillar had spent $1m and $700,000, respectively, on repairs but the Maratani X was still not ready to undergo a sea trial. And to make it ready, it said Caterpillar may have needed to invest a further $500,000 while incurring monthly costs of $25,000 to hold the vessel.

Without the Finlaysons providing expert witnesses to testify to the contrary, Sir Michael ruled that the Supreme Court was justified in relying upon a letter from Landon Gracey, Caterpillar’s customer service manager, to the lender’s managing director, Rob Coon.

The letter read: “According to our broker’s input, which he is basing upon offers received to date and upon discussions with other brokers, he thinks the boat is worth at best as-is, where-is around $3m. If we take the boat to sea trial, and If It passes, then it is estimated to be worth approximately $3.5k or more. A major consideration is if it doesn’t pass sea trial, it might entail costly repairs........

“Approximately 12 people have toured the boat as of November 9, 2016. We’ve received four offers in total, although only one in writing, ranging from $1m to $2m.”

Sir Michael concluded: “The issue raised in this case is a very narrow one. It is whether the respondent was in breach of its duty to the appellants to take reasonable care to sell the yacht for the best possible price reasonably obtainable... The respondent accepted a bid of $2.43m. The appellants have not shown on the evidence that this price is... outside the ambit of a vessel of the type and condition of Maratani X at the time of the sale.

“The debt was never in dispute. The appellants’ obligation to pay the debt was never in dispute. The sole issue was whether the respondent was in breach of its duty as a mortgagee to the appellants in realising its security. The burden was on the appellants to show that it was in breach of that duty. The judge found that the appellants did not prove that the respondent was in breach of that duty. We agree with the judge.”

The Court of Appeal also rejected the Finalysons’ argument that the loan agreements and guarantees could not be submitted as evidence because they were not stamped as required under the Stamp Act. Sir Michael found this had “no merit” as none of the agreements were made in The Bahamas or governed by Bahamian law.

The Finlaysons have been prominent figures in the Bahamian business community, having sold their interest in Commonwealth Brewery/Burns House (now 700 Island Wines and Spirits) to Heineken for $125m almost a decade ago. Other ventures they have been involved with, most notably the now-defunct City Markets supermarket chain and Solomon’s Mines, the luxury goods retailer, have been notably less successful.

The duo were represented by Bahamas Bar Association chairman, Khalil Parker KC, while Caterpillar’s lead attorney was Keith Major.