The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A PROMINENT QC has been blasted for failing to disclose his 'conflict of interest' over a real estate transaction involving a "sometime client" serving a 15-year prison sentence.

The Court of Appeal found Elliot Lockhart QC had failed to inform Clifford Dean, who had been convicted of "drug offences", that he was also the president, director and a beneficial owner of the company seeking to acquire the latter's real estate in a $250,000 deal. Mr Lockhart, who was acting for both vendor and purchaser, was also criticised by an earlier Supreme Court verdict over the same transaction, which found he committed "a breach of fiduciary duty" and violated the Bahamas Bar Association's Code of Professional Conduct for failing to disclose his 'conflict of interest'.

That verdict by then-justice Neville Adderley, which was not appealed, found in favour of Mr Dean's argument that Mr Lockhart be barred from representing the other party in the case due to his previous 'conflict of interest'. They were subsequently represented by Harvey Tynes QC at the Court of Appeal.

The deal in question also occurred in 1999-2000, when Mr Lockhart was the FNM MP for Exuma and Ragged Island, and Mr Dean one of his constituents.

The Court of Appeal, in its ruling, upheld the Supreme Court's verdict in favour of Mr Dean, which found he should not be required to complete the land deal because the sales agreement "was made in the circumstances of undue influence, breach of fiduciary duty and conflict of interest".

Outlining the background to the dispute, Appeal Justice Jon Isaacs, in a December 14, 2017, written ruling said: "The respondent [Mr Dean] was a close friend and sometime client of Mr Lockhart who in the late 1990s found himself in significant legal trouble.

"The respondent was eventually convicted for drug offences and incarcerated at Her Majesty's Prison, Fox Hill, to serve a term of 15 years commencing in 1997. Mr Lockhart described the respondent as an 'ardent supporter' of his who had supported him during his political career. While in prison, the respondent wished to appeal his conviction but encountered difficulties in meeting his legal expenses and certain other expenses, including a debt to one Cyril Rolle."

Mr Dean decided to meet his legal expenses and debts through selling Lot 111 in Georgetown, Exuma. While he possessed the property he did not have a Certificate of Title for it, and an earlier $300,000 deal had fallen through.

Justice Issacs noted that it was then that Mr Lockhart presented Mr Dean with a $250,000 offer by a company, DELK Ltd, to acquire the same property. This company was beneficially owned by Mr Lockhart, together with two brothers, Eugene and Don Smith, and their sister, Katherine Smith.

The sales agreement, the Court of Appeal found, was executed on January 14, 1999, with Mr Lockhart signing both as a witness to the Smiths' signature and as the property's purchaser.

"Mr Lockhart admitted at the [Supreme Court] hearing that he did not disclose to the respondent [Mr Dean] his interest in DELK at the time the purchase for the property was being negotiated, and it is debatable whether he disclosed the involvement of the appellants [Eugene and Don Smith]," Justice Isaacs noted.

The sales agreement called for a $26,000 deposit to be paid, with $12,000 handed over immediately and the $14,000 balance transferred at a later date. The sales agreement also noted that lot 111 was sold subject to an existing lease and, upon the deal's completion, the purchase price would be reduced by $1,000 per month.

DELK ultimately paid a $44,700 deposit, which was used to finance Mr Dean's appeal and settle the debt he owed to Cyril Rolle. Eugene and Don Smith took possession of lot 111 in September 2000, even though there was no provision in the sales agreement for them to do so.

The Court of Appeal noted that the relationship between Mr Lockhart and Mr Dean "seemingly began to disintegrate" at the same time, with the attorney telling his 'sometime' client: "For the record, let me say that when the issue of sale and purchase of this property was mentioned by you, at that time I expressed my reluctance to become involved.

"Today, I regret ever touching this matter. None the less, I shall see this transaction to conclusion."

The next significant development occurred when Mr Dean visited Mr Lockhart's office in February 2006 while on 'day release' from Fox Hill prison. "The respondent claims that it was at this meeting that he found out who the principals of DELK were; that the monies paid out on his behalf by Mr Lockhart had been provided by the appellants [the Smith brother]; and indicated to Mr Lockhart, who was at the time still representing both DELK and the respondent in the transaction, that as the contract was not fully executed some seven years post his signing of it he was no longer interested in selling the property," the Court of Appeal recorded.

Justice Isaacs noted that four months after that February encounter, DELK "assigned its rights" under the sales agreement to the Smith brothers for $10. This was done without reference to Mr Dean, who had retained Wells Legal & Corporate Services as his new attorneys to obtain "an accounting of rents paid" and the purchase price balance that was outstanding.

Mr Lockhart responded to these inquiries by sending a $205,300 cheque, representing the balance of the purchase price, but this was returned by Mr Dean who sought unsuccessfully to evict Eugene Smith in February 2007.

The Smith brothers subsequently launched a Supreme Court action to force Mr Dean's performance under the contract, while the latter counterclaimed on the grounds of Mr Lockhart's non-disclosure and assignment of the contract without his consent. He sought an Order to declare the sales agreement "null and void", and claimed lease/rental payments that were due to him.

Then-chief justice, Sir Michael Barnett, found in favour of Mr Dean and described the sales agreement as "a very bad deal for the defendant". He also ruled that the Smith brothers "cannot be allowed to benefit from such a transaction" due to the pivotal role played by Mr Lockhart and his non-disclosure.

The Smith brothers, in their appeal, argued that while Mr Dean may have a valid complaint against DELK Ltd, it was not a party to the action. They added that his complaint was really about alleged "improper conduct" by Mr Lockhart, and he was not claiming they had done anything wrong.

Justice Isaacs, delivering the Court of Appeal's verdict, said the then-chief justice's finding that the deal was "disadvantageous" to Mr Dean was "of no significant moment in the face of Mr Lockhart's non-disclosure".

"Contrary to the CJ's [chief justice's] opening remarks in his judgment, this case does not illustrate the dangers of an attorney representing both vendor and purchaser in a real estate transaction, and the dangers of an attorney engaging in a transaction with his own client. This case illustrates the failure of an attorney to conform with the principles associated with such transactions," Justice Isaacs wrote.

He then turned to then-justice Adderley's "rather critical findings" that debarred Mr Lockhart from representing the Smith brothers. That ruling, delivered on August 7, 2008, found: "The attorney [Mr Lockhart] had a fiduciary duty to disclose to the client his pecuniary interest in DELK, to obtain his consent to act for both parties, and afford him an opportunity to take independent advice.

"He did not do so based on the current state of the evidence. This was a breach of fiduciary duty, and the conflict of interest caused a beach of The Bahamas Bar Association Code of Professional Conduct. Prima facie the agreement is liable to be set aside."

While then-justice Adderley said Mr Lockhart became aware of his 'conflict of interest' in 2006, as shown by the 'assignment' to the Smith brothers, the Court of Appeal suggested

"his realisation of such conflict was apparent from as early as September 2000" based on his letter to Mr Dean while the latter was still in prison.

"It was not until [Mr Dean] retained new attorneys that the principals in DELK decided to bestir themselves into action," Justice Isaacs noted. "They had been content for seven years to allow the purchase price to be reduced pursuant to [the $1,000 monthly lease payment.

"Proffering $205,300 as the balance of the purchase price was nothing more than a cynical ploy to suggest the contract was still being observed. We hold a similar view, that is, it was a cynical ploy when DELK assigned its rights under the contract to the [Smith brothers].

"The assignment came after the respondent made enquiries of Mr Lockhart about an accounting for rents that was supposedly paid under the contract, and for the return of the respondent's original documents."

The Court of Appeal found that the Smith brothers' involvement with Mr Lockhart in devising the contract "disables their claim" for specific performance of the sales contract by Mr Dean.

"It must be noted that the appellants, as the purported financiers of the purchase through DELK and as principals in DELK, could have insisted that the company move under the terms of the contract to complete the sale," Justice Isaacs wrote. "They never did, but were content to allow the purchase price to dwindle as the months passed.

"There is a fundamental principle in equity expressed in the maxim: 'He who comes to equity must come with clean hands'. It can hardly be said that the appellants themselves have come with clean hands inasmuch as they were a part of DELK, their lawyer was a part of DELK and, until Justice Adderley's decision, was DELK's lawyer.

"It is recognised that DELK's corporate personality is separate from the appellants' personal capacity but, in the circumstances of this case, where equity was being invoked, the chief justice's decision not to order specific performance cannot be faulted."

However, the Court of Appeal ordered that Mr Dean repay the $44,700 deposit to the Smith brothers as the deal was never concluded.