Fri | Apr 12, 2024

Sandals heir apparent Adam Stewart disputes Butch’s alleged wishes

Executive Chairman raises doubts about legitimacy of late father’s last-minute memo giving US family major stake in hotel chain

Published:Sunday | February 25, 2024 | 12:11 AM
The late Gordon ‘Butch’ Stewart’s Jamaican and US families are now battling it out in the Bahamian courts over controlling interest of the regional Sandals chain of hotels.
In this file photo, Adam shares a moment with his father, Gordon ‘Butch’ Stewart.
In this 2017 file photo, Gordon ‘Butch’ Stewart and his common-law wife Cheryl (centre) are flanked by family members at The Gleaner’s Hospitality Jamaica Awards where he received the Pioneer Award for changing the face of the tourism industry.
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A disputed last “wish” made by late hotelier Gordon ‘Butch’ Stewart would strip his son and executive chairman, Adam Stewart, of significant say in the Sandals hotel chain.

According to Butch’s common-law widow Cheryl Hammersmith-Stewart, the wishes give the late mogul’s United States-based family, as a unit, the largest stake in the company, court documents seen by The Sunday Gleaner reveal.

Adam has raised serious doubts about what he called the “alleged wishes” of his dad.

The 42-year-old Sandals Resorts International is the leading all-inclusive hotel group in the Caribbean and is key to tourism-dependent economies in the region. In Jamaica, it is one of the largest private employers and foreign exchange earners.

According to court documents, Butch reportedly gave instructions just before his death that the shares of asset-holding companies in two Bahamian trusts be transferred into five newly established trusts for his family.

That means one trust for his US family (Cheryl and their three adult children – Gordon, Kelly and Sabrina); and one each for the Jamaican family members – Adam, his sister Jaime Stewart-McConnell and brothers Brian Jardim and Robert (Bobby) Stewart.

The claim is that the shares should be transferred on a proportional basis – the US family getting 42 per cent; Adam 16.67 per cent; Bobby 16.67 per cent; Jaime 16.66 per cent; and Brian eight per cent.

Along with that distribution, it was also disclosed that Butch allegedly wished for the US family to receive veto shares equal in the parent companies of the business and that the parent companies be the subject of a shareholders’ agreement which would give the US and Jamaican families “balanced representation on the boards”.

Bobby supports Cheryl's position in the cases. 

THE TWO BAHAMIAN TRUSTS

The arrangement would impact control of Sandals, the principal asset in the Coral Ridge Trust, one of the two Bahamian trusts. The other is the Hightree Trust. Most of the non-hotel businesses are dealt with in his will.

Butch Stewart established private company Cromwell Trust as trustee of the two trusts.

A trust is a legal entity through which a person gives another party, a trustee, rights to administer assets for a beneficiary.

Cromwell’s role in the hotel company is limited, as Butch gave all powers over Sandals to an advisory board, which is made up of Adam and Jaime. Adam also succeeded his father as enforcer of the trust, which means he has the power to appoint and remove directors.

The details surrounding Sandals’ potential ownership change have become public after The Bahamas Court of Appeal recently published a judgment it handed down in May 2023.

CHERYL FILES LAWSUIT

In September 2021, Cheryl filed a lawsuit for the removal of Cromwell Trust Company, on allegations that it was involved in conflicts of interest and may not implement Butch’s wishes.

The trustee applied to the Bahamian Supreme Court for an order that Cheryl’s claim be dealt with in private and the documents sealed, citing the publication of “sensitive information”. Cheryl withdrew initial support for the order.

In ruling against the privacy request in May 2022, the Supreme Court said the arguments were “extremely unconvincing”, adding that the constitutionally protected open justice principle “cannot be displaced merely to avoid publicising some information that they would prefer not to be publicised in the interest of their business”.

Adam, Jaime and Brian appealed to the Court of Appeal, which also ruled against them. They then went to the Privy Council, Bahamas’ final court, which dismissed an application to appeal last November. That cleared the way for the publication of the court documents.

The Court of Appeal’s judgment contains specific details as to the nature of the family dispute over the estate of Butch, who died on January 4, 2021. Previous Supreme Court rulings in the case were published on the court’s website on February 1.

‘VERY DETAILED INSTRUCTIONS’

Before proceeding with her substantive claim against the trust, which is still to be decided, Cheryl asked the court for a declaration that her claim did not engage a ‘no contest’ clause that Butch included in his trusts and will.

The ‘no contest’ provision gives the trustee the power to remove any beneficiary who challenges Butch’s wishes in court.

Adam argued that Cheryl’s claim did invoke the ‘no contest’ clause and is an “attack” on the structure of the trusts.

The court ruled that Cheryl’s lawsuit against Cromwell was not a claim that fell within the remit of the clause and which could disqualify her from being a beneficiary. It also said that the role of the advisory board in managing Sandals would not be affected.

According to The Bahamas Supreme Court judgment, Butch left “very detailed instructions” for how the trusts should be administered after his death, particularly that they were to be brought to an end “promptly” following his death.

The Court of Appeal said the judge’s reference to “detailed instructions” was “unfortunate” because the trusts are “fully discretionary”.

The original beneficiaries of the trusts when they were established in 2001 were Butch Stewart, Adam, Jaime and Bobby, and their future children. Bobby was removed in 2003.

In August 2018, Bobby was reinstated and Cheryl and her three children with Butch added. Brian was added in July 2021.

‘ONE DAY BEFORE MY FATHER PASSED AWAY’

Cheryl, the court said, is relying on a memorandum that Butch signed on January 3, 2021, a day before his death, in relation to how the assets under the trusts are to be distributed. The document was prepared by Butch’s personal attorney Trevor Patterson.

But Adam is disputing the assertions about his father’s “alleged wishes”, including the memorandum which he noted was “prepared (with the plaintiff’s [Cheryl’s] involvement) just one day before my father passed away”.

In the months before his death, Butch was dealing with a series of issues, including being “in and out of lucidity” during his battle with cancer, Adam said.

He contended that with his father’s passing, the plan shared by Patterson “cannot be implemented fully and if it were to be implemented, would, I believe, seriously harm the business and the value of Sandals”.

Adam further asserted that the reason his father set up the advisory board of just him and his sister Jaime “was because he was always clear that Sandals was to continue to be run by his successor – a member of the family, and that after his death, that member of the family should continue to be me”.

Adam, 43, was named Sandals CEO in 2006.

“It was never my father’s intention to benefit each member of his family equally and in 2001 when he set up the two trusts, he was most insistent that only Bobby, Jaime, and I would be beneficiaries of his trusts and he would provide for his US family out of life insurance,” Adam said in an affidavit.

Adam argued that even when the US family was added to the trust in 2018, “it was not his (Butch’s) intention that the US family would benefit equally with Jaime, Bobby and me”.

“I firmly believe that this claim brought by the plaintiff is the very thing which my father wanted to avoid by the introduction of the non-contest clause,” he said.

But Cheryl’s attorney argued instead that by introducing the ‘no contest’ clause, Butch was concerned that Adam and Jaime would be “unhappy” with their interest of 100 per cent being reduced, an issue the court said would be determined at trial.

TALKS TO SELL US FAMILY’S STAKE IN SANDALS

It has also come out in the court documents that the parties had engaged in talks for the sale of the US family’s promised 42 per cent stake in the Sandals Group.

According to Cheryl, she was contacted by Sandals’ attorney Ozzie Schindler on June 25, 2021, proposing a meeting to receive a presentation from an investment bank on a possible sale of the US family’s interest in Sandals to a “third party”.

In reported telephone conversations involving lawyers for the parties, Cheryl’s representative said she would attend on the condition that the family receives the Sandals shares or that the trustee provides a letter confirming that it would honour Butch’s wishes.

A series of correspondence followed between the parties from June 28, 2021 to July 6, 2021.

On July 7, 2021, Cheryl’s attorney reportedly spoke with Patterson, who reportedly indicated that the directors of the trustee “had all agreed to issue a letter confirming the US family’s status in relation to the 42 per cent, but indicated that the defendant’s (trustee) attorneys Higgs & Johnson had proposed a redraft of the letter that would have rendered it unacceptable to the plaintiff (Cheryl)”.

Negotiations reportedly broke down after the trustee’s lawyers later communicated to Cheryl that “its current position is that it is not prepared to take any action in relation to the shares in the Sandals Group until such time as it has reached a final determination as to how the shares will be distributed”.

 

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Cheryl: Butch promised US family US$100 million cash

 

Another issue that has emerged in the Stewart family saga involves US$100 million in cash that Cheryl Hammersmith-Stewart claims that late spouse Gordon ‘Butch’ Stewart had wished for the United States family to receive. The amount is purportedly to be paid from the Hightree Trust, one of two trusts Butch had set up.

That wish is said to be contained in a letter dated March 18, 2019.

In her claim filed in The Bahamian court, Cheryl said the trustee had indicated in a memorandum dated March 2021 that it “has taken the general view that all wishes of the chairman (Butch) should be duly considered and this particular wish is a fairly strong and positive one”.

But she said despite that, the trustee stated further in the memorandum that the financial position of the Sandals Group meant that Butch’s request could not be met.

According to her, the trustee said “cash held by the Coral Ridge Trust and Hightree Trust (some US$343 million) was distributed out of reserves at a time when the only material cash in the group were deposits on pre-bookings (aggregating in the region of US$350 million)” and represented current liabilities.

The trustee said “in spite of the substantial fixed assets held by the group ... if its current liabilities were to exceed its current assets, it would be legally insolvent...” and it would be “imprudent for the trustee to expose the group to the financial risk”.

The trustee reportedly proposed a situation involving a loan, in which US$30 million would be transferred to the US family and the other $70 million retained as a loan to the Sandals Group, according to Cheryl’s statement of claim cited by the courts.

The trustee, Cheryl said, proposed that the payment would be made on the basis that she “enters into an omnibus release, discharge and indemnity in respect of all gifts and payments made to her and her children under the trusts and will”.

Cheryl said the proposal meant she “would be forced to release any and all claims against the defendant (the trustee) in order to receive any part of the US$100 million that the founder wished the US family to receive”.

After sending a letter to the trustee accusing it of being “unfair and partial”, the trustee reportedly responded and resiled from its position to re-lend US$70 million to the Sandals Group and stated that “Cromwell has not determined how to proceed in relation to the proposed distribution of the US$100 million and is still considering its options”.

Butch had established private company Cromwell Trust as trustee of the two trusts. Cromwell reportedly admitted that the proposal was “infelicitously drafted”.

Tied to that issue is a claim from Cheryl that the trustee had “decided” to distribute US$52.5 million to the Jamaican family despite there reportedly being no wish for such a distribution by Butch.

She cited a response from the trustee which said: “Cromwell has not distributed US$52.5 million to the Jamaican family”.

‘LOST ALL TRUST AND CONFIDENCE’

Butch’s US and Jamaican families are also at odds over the meaning of the clause in his will, which says the US family is to receive “all other homes, apartments, or residential units outside Jamaica not mentioned [in the table of properties in the will] regardless of whether owned by companies falling within the Sandals and Beaches group or the ATL Group”.

Cheryl used the issue surrounding the US$100 million and Butch’s promised 42 per cent stake in Sandals, among other things, to claim that the trustee “is in no position” to make impartial decisions.

“The majority of the defendant’s (trustee) board of directors owe duties to loyalty to the Sandals Group and have a personal interest, including financial interest, in the success of the Sandals Group and in maintaining their good relations with Sandals Group,” she said, adding that relations between her and the trustee have broken down and “the plaintiff (Cheryl) has reasonably lost all trust and confidence in the defendant’s (Cromwell) ability to administer the trusts fairly and impartially.”

On the point of conflicts, the Bahamian Supreme Court said the court will be required to determine “whether any conflict of interest was authorised by the founder (Butch)”.

ADAM REJECTS ALLEGATIONS

Adam Stewart has strongly rejected the allegations against the trustee as “without foundation” and insisted that Sandals “is in very good financial health and has led the Caribbean tourism industry in the recovery from COVID-19”.

“Although the plaintiff (Cheryl) ran a marketing company and Sandals was the main client of that business, she had no relevant knowledge or experience of running a business of the size and stature of Sandals and was actively kept at arm’s length from Sandals by my father,” he said in his affidavit, which was also cited by the Bahamian courts.

He said the substantive claims by Cheryl “are disputed both in fact and in law and I do not believe that any proper grounds for the removal of Cromwell as trustee have been (or will be) established”.

According to him, Cheryl “has actively driven a wedge between us (Jamaican family) and all her children to distance and alienate them against us”. He also said Cheryl’s claim is less about the alleged bias by the trustee and “more about using her claim as an opportunity to further pursue the family dispute for her own interests…”

Adam said the allegations will be addressed in his defence against Cheryl’s claim for the removal of Cromwell as trustee, which is due to be tried in the Bahamian courts.

editorial@gleanerjm.com