The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Court of Appeal has rejected the Finlaysons' bid to use the COVID-19 pandemic to halt a US financier's pursuit over a multi-million dollar debt owed on a luxury yacht.

Attorneys for Garet 'Tiger' Finlayson, and his son, Mark, had argued their clients would be placed at a "disadvantage" if cross-examination of Caterpillar Financial Services Corporation's main witness was allowed to proceed via video link.

Judith Smith, representing the well-known father-and-son businessman duo, alleged this would occur because "there is a sensory dilution in video-conferencing" whereas Robert Hughes, Caterpillar's US east coast manager, had already appeared in the Supreme Court in Freeport to give his initial testimony.

That occurred when the trial, relating to a near-$10m loan that financed construction of Garet Finlayson's 147-foot Maratani X vessel, began in February 2020 just prior to the world locking down in response to the COVID-19 pandemic.

Miss Smith, on the Finlaysons' behalf, argued that the trial should be delayed until Mr Hughes could appear in person to be cross-examined, and urged that the Court of Appeal issue a stay of Justice Petra Hanna-Adderley's ruling that it proceed by video conference.

However, Appeal Court president, Sir Michael Barnett, in a unanimous verdict backed by his two fellow judges, said their arguments had little merit and it was "difficult to see" how the Finlaysons' case would be prejudiced if Miss Smith was forced to cross-examine Mr Hughes remotely.

The Court of Appeal verdict provided little detail on the background to the dispute between Caterpillar and the Finlaysons, other than to say the US financier had initiated legal action to recover "the balance of monies due and owing after it realised the security on a ship that was mortgaged to them".

It added that the Finlaysons were defending the claim on the basis that Caterpillar had "breached its fiduciary duty to them in the exercise of its powers". However, further research by Tribune Business - and documents obtained by this newspaper from the south Florida district federal courts - provide the specifics.

Caterpillar successfully persuaded the south Florida courts to seize the Maratani X in 2016, and ultimately sell it at auction via the US marshalls, to recover a $4.266m debt owed by the Finalysons after they defaulted on repaying a loan that was secured by a mortgage over the yacht.

Research by this newspaper shows a $6.5m price was sought at auction for the Maratani X, but the sales price is likely to have been much lower than both this and the alleged $4.266m debt given that Caterpillar is now seeking to recover the "balance" from the Finlaysons via the Bahamian courts.

Father and son both ended up guaranteeing repayment of the initial $9.68m loan, taken out by Kurc Ltd, an entity which listed Garet 'Tiger' Finlayson as its president, to finance the yacht's construction. Caterpillar now appears to be coming after both men in their personal capacities as guarantors.

The loan security, according to court documents seen by Tribune Business, was recorded in The Bahamas' Registry of Records as a mortgage on January 23, 2006. "On or about April 2006, Kurc Ltd and guarantors [the Finalysons] became indebted to Caterpillar in the principal sum of US$9.68m pursuant to the agreement, as amended, a master note and the guarantees," Caterpillar alleged.

The final repayment of principal was due on May 1, 2016, yet almost two months before Caterpillar had informed the Finlaysons that they were in default on the loan and demanded its settlement.

"As a result of the default, Caterpillar Financial has rightfully demanded full payment of the indebtedness secured by the vessel, and is thereby entitled to proceed with obtaining a judgment and to foreclose on the vessel," Caterpillar argued then.

"Through March 31, 2016, Kurc Ltd and the guarantors owe the principal amount of $4.209m plus accrued interest of $59,895, late fees of $5,236 and continuing per diem interest of $617.98, exclusive of additional costs, interest and attorney’s fees."

The Finlaysons seemingly did not contest the Florida court proceedings, thus paving the way for Caterpillar to seize the vessel and ultimately ensure its sale. A clue as to why it did not obtain the full auction sale price is provided by a Captain Timothy Hammer's report to the court, which detailed numerous mechanical defects including issues with the steering; bilge pump; fire and electrical systems; pumps; generator; engine start-ups; and grey and black water tanks.

Fast forward to the present, and the Finlaysons' objections to the trial involving Caterpillar's bid to enforce the personal guarantees proceeding amid COVID-19. Justice Hanna-Adderley, in the Supreme Court, noted Miss Smith's protestations that her clients would be placed at a disadvantage "because there is a different setting when a witness is giving evidence by video.

"He would be very comfortable in his home, whereas when in the witness stand and the person is cross-examining, she and the court are able to perceive him in real-time," the judge added of Miss Smith's arguments.

"In addition, she submitted that we (those observing) would not know his set up - whether he is going to be sitting down - when in court he would be standing up. There would be different conditions available to him than when he was in Freeport and had to come in person. Conditions should be equal, and he needs to be cross-examined the same way that he was led and that is in-person."

However, the Supreme Court, noting that Sir Brian Moree, the chief justice, had issued numerous COVID-19 protocols and directions to keep the courts operating, including the use of video conferencing as a tool to proceed with half-finished trials, dismissed Ms Smith's arguments as did the Court of Appeal thus allowing the case to proceed.

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.