* Bid to freeze Sterling assets thwarted by judge

* Nassau hotel owner fails to provide evidence

* Multiple disputes on $12.5m resort financing

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Supreme Court judge has rejected a Nassau hotel owner's bid to deploy a "nuclear weapon" against a prominent Bahamian investment house and resort/real estate developer.

Justice Ian Winder, in a November 4, 2020, ruling found that Sunset Equities, owner of the Courtyard by Marriott Nassau resort opposite Junkanoo Beach, had failed to provide sufficient evidence to justify imposing a "mareva injunction" that would have frozen Sterling Asset Management's assets and those of its chairman and chief executive, David Kosoy.

His verdict details the multiple Supreme Court actions triggered by a dispute stemming from Sterling's initial provision of up to $12.5m in financing to Sunset Equities and its president/majority shareholder, Yaron (Ron) Hershco.

This funding, released from March 2013 onwards, enabled Sunset Equities to acquire and overhaul the former Nassau Palm Resort on West Bay Street, transforming it into the now-Courtyard by Marriott. The financing deal also resulted in Sterling becoming a minority shareholder in Sunset Equities via a 10 percent equity stake, which later increased to 15 percent.

Justice Winder noted that the differences between the two sides were sparked in early 2016, when Sunset informed Sterling it planned to repay all outstanding sums due under the $12.5m credit facilities. The February 22, 2016, notification was given some 90 days before full repayment was due, but that deadline was missed.

"On June 25, 2016, Sterling wrote to Sunset indicating that the 90-day notice period had expired and the loan became due and payable," Justice Winder wrote. "Sterling indicated that a default rate of interest would be applied if the sum was not paid within seven days, and threatened to appoint a receiver over Sunset.

"On June 30, 2016, Sunset immediately wrote to Sterling indicating that it was not in default." To remedy the situation, the two sides executed a July 5, 2016, commitment letter for Sterling to lend Sunset Equities some $6.03m. However, the resort owner never executed or returned the loan documents.

"On September 23, 2016, Sterling sent a letter to Sunset which stated...that if they did not receive duly executed loan documents in accordance with the terms of their agreements, the new commitment letter would become null and void in seven days. Sterling says that the demand was without prejudice to any other remedies," Justice Winder said

"On September 28, 2016, Sunset wrote to Sterling indicating that it was not minded to proceed with the new borrowing, and requested the pay-out amount for its facilities. Sunset insisted that it was not in default of its existing loan commitments with Sterling."

Justice Winder's verdict discloses that the affair has triggered no less than four separate legal disputes. The first saw Sunset obtain a Supreme Court injunction to prevent Sterling and Mr Kosoy obtaining a receiver for the Courtyard by Marriott Nassau, with the two sides later agreeing - via a Consent Order - a mechanism whereby the sums owed to the lender were duly paid.

However, Sterling subsequently filed a separate action against Sunset Equities, Mr Herscho and Parris Jordan, another of the resort owner's shareholders, alleging they had breached the contract contained in the July 5, 2016, commitment letter.

Sterling and Mr Kosoy, who are arguably the most active investors in The Bahamas at present amid the COVID-19 pandemic, sought damages for "interest payments, loss of opportunity and the breach of the agreement to repurchase Sterling's shares in Sunset".

"The commitment letter, Sterling says, provided it with a right of first refusal on financing," Justice Winder added, noting its claim that Sunset Equities had breached this by entering into an alternative loan agreement on August 16, 2016, with a vehicle associated with a New York-based finance house, Stabilis Capital Management.

With this dispute unresolved, Justice Winder added that a third action involving Sterling's April 6, 2017, petition to have Sunset Equities wound-up on the basis of insolvency is now before the Court of Appeal after the Supreme Court struck it out on a technicality.

However, Justice Winder's ruling was concerned with a fourth lawsuit launched by Sunset Equities on March 5, 2020, in which it sought damages against Sterling and Mr Kosoy for "malicious presentation of a winding-up petition" and "conspiracy to injure by unlawful means".

Sunset demanded "special damages" of $4.75m as of May 2020, and a so-called "mareva injunction" or blanket freeze of Sterling and Mr Kosoy's assets to prevent them from being removed from The Bahamas.

The resort owner and Mr Hershco, in attempting to make their case, claimed that Sterling broke Sunset's shareholders' agreement which stipulated that the winding-up of the latter required the "unanimous prior written consent" of all owners. They also claimed that the winding-up petition was "prosecuted dishonestly" as Sterling and Mr Kosoy knew "there was no basis for asserting" the resort owner was insolvent.

Justice Winder, though, said the freezing injunction that Sunset was seeking is only granted in cases where the risk of assets being dissipated is "appropriately grave". It is unclear why the resort owner pursued this angle given that Sterling and Mr Kosoy are both headquartered in The Bahamas, with multi-million dollar investment projects in construction and development mode.

Besides the redevelopment of Paradise Island’s Hurricane Hole property into a high-end, mixed-use community featuring office, retail and residential components complete with an expanded marina targeted at mega yachts, Sterling is also readying for a $352.2m development on Matt Lowe’s Cay in the Abacos.

That property will be named Montage Cay and Marina, and converted into a high-end boutique resort via a partnership between Sterling and Montage, a "six-star hotel operator". Sterling has also financed and developed other real estate projects in The Bahamas, having helped fund the Thirty-Six development on Paradise Island among others.

Rejecting Sunset Equities' injunction bid, Justice Winder ruled: "Kosoy in his evidence provides, in my view, plausible explanations for Sterling's actions. Whether the explanations come up to proof at trial is not a matter for me at this stage.

"Some of those explanations, if true, may indeed amount to boorish conduct, sharp business practices and/or poor judgment, but that is an entirely different issue from dishonesty or want of probity. Whilst the allegations are made here of dishonest conduct, I am not satisfied that what is alleged demand that I infer a risk of dissipation so as to warrant the imposition of the nuclear weapon of a mareva injunction."

Noting Sterling's well-established presence in The Bahamas, its regulation by multiple laws and supervisory bodies, and reputation as a major investor, Justice Winder said Sunset Equities' evidence failed to meet "the required threshold".

"I am not satisfied that there exists the grave risk of dissipation of assets, which Sunset contends and must show," he added. "There has been an unexplainable delay in moving the application, and no real effort by Sunset to explain the cause of this delay. If the risk was real, one would have expected Sunset to have moved with greater alacrity.

"Sunset's direct evidence of a risk of dissipation [is] made up principally of a property search detailing Sterling's transactions and the receipt of disbursement payments from a third party. Sunset says that the property search shows satisfaction of mortgages, and the fact that the disbursements came from a third party in the Cayman Islands suggests something untoward.

"This evidence has not, in my view, met the required threshold. The evidence of Kosoy, which is not seriously contradicted by any real evidence, is that the property search identified by Sunset merely demonstrates that Sterling is a money lender and facilitates loans. I am not persuaded that the transactions identified, as having been engaged into by Sterling, arise other than in Sterling's ordinary business as a money lender."

The battle with Sterling is not the first time Sunset Equities and the Courtyard by Marriott have been embroiled in litigation. Tribune Business reported in 2017 how the resort's former operator, Donald J Urgo and Associates, sued Sunset Equities to recover $556,000 in allegedly unpaid fees amid claims of numerous contractual breaches.

And Mr Herscho, a New York, Brooklyn-based real estate developer, also appears to have a colourful track record based on Internet research conducted by this newspaper. He and his company, United Homes, have in the past attracted media and legal scrutiny over their practice of buying foreclosed homes often in poor condition, doing minor repairs and then selling them on for substantial profits.