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Privy Council ruling favours debt collector over real estate depositors
Avia Collinder, Business Reporter
The Privy Council has overturned a Court of Appeal decision that favoured Real Estate Board (REB) and investors in a failed development – a ruling that essentially reaffirmed Jamaica Redevelopment Foundation’s (JRF) rights as primary creditor.
The case originated in a dispute over four lots on which deposits were collected by New World Development Corporation Limited under prepayment contracts.
The shareholders in New World are Lascelles Poyser of Kingston and Margaret Poyser of Barbados, according to Companies Office documents.
JRF claimed the lots following a New World mortgage default, but learned later that the developer had lodged a charge against the properties in favour of the Real Estate Board.
JRF turned to Jamaica’s Supreme Court to reaffirm its primary claim over the property, and won the case heard by Justice Mangatal in 2011.
However, the Supreme Court’s decision was overturned by the Court of Appeal in July 2012.
The Privy Council judgment written by Lord Clarke and handed down on Wednesday, debated the meaning of Sections 26 and 31 of the Real Estate Developers Act 1987 and Section 70 of the Registration of Titles Act 1889 and concluded that, under the latter, the REB’s claim would be secondary to that of first mortgagee, the JRF.
It was agreed between the disputing parties, JRF and REB, that New World had registered the charge in favour of REB in contravention of the mortgage.
Attorney Sandra Minott-Phillips, QC, of the law firm Myers Fletcher & Gordon – who was one of three attorneys who argued JRF’s case in London – said on Wednesday that the ruling was a victory for creditors in Jamaica who otherwise might have stood to lose securities pledged against loans.
Now the threat has been averted, she said.
The Court of Appeal verdict “would have been a disaster for all creditor institutions in general. It would mean that a registered mortgagee would lose his priority. And you know, sometimes the value of the property can’t cover more than one mortgage. So if you lose your priority to a person registered after you, that can be disastrous to you,” Minott-Phillips said on Wednesday.
The arguments before a five-member panel at the Privy Council were made on March 12. JRF was also represented by Maurice Manning and Tavia Dunn, while REB was presented by Dr Lloyd Barnett, and Peter Knox, QC.
borrowed $14.8 million
The case dealt with transactions in the 1990s. Over time, New World had borrowed a total of $14.8 million from Horizon Merchant Bank and Horizon Building Society for reasons unrelated to the housing development, but used 24 acres of land as security.
Horizon subsequently failed, the mortgages were transferred to state-owned Finsac subsidiary Refin Trust Limited in 1999, and all the mortgages were later acquired by debt collector JRF.
Without discharging the mortgages, New World offered a number of lots for sale, and collected deposits from prospective purchasers.
In September 2006, JRF sent notices demanding payment of the loan. New World did not pay but subsequently, in February 2007, registered the charge in favour of the Real Estate Board against four of 40 lots and without mortgage holder JRF’s knowledge.
The debt collector tried to exercise its power of sale over the property in November 2007, but was blocked when the Registrar of Titles refused to register the transfer of title, claiming that REB’s charge took precedence and that board’s consent was required to complete the transaction.
REB was unwilling to remove the charge or consent to the transfer unless JRF agreed to compensate depositors under the prepayment contracts, according to the ruling.
JRF responded by filing suit.
The Privy Council reviewed key decisions of the Jamaican courts including whether or not the prepayment contracts were void and unenforceable and whether such contracts, which the parties agreed were illegal and in contravention of the Real Estate Developers Act, could be ranked in priority over JRF’s claim.
Minott-Phillips, in explaining the law lords’ decision that the REB charge could not remain first in ranking, said the decision turned on Section 70 of the Registration of Titles Act, which states that priority is determined by the date of registration of a charge.
“You look to how the charges are listed in the title to see how they are ranked. The one which is registered earliest has priority over the ones which are registered later. The JRF charge was entered into before the Real Estate Board’s charge. It ought to have been paid off before the prepayment contracts were entered into but was not, through no fault of JRF,” said the attorney.
The Jamaican Court of Appeal had ruled that “notwithstanding that JRF was blameless”, the wording of Section 31(5) of the Real Estate Developers Act gave priority to REB’s charge, said Minott-Phillips. But the Privy Council concluded that the interpretation of the section must be done within the context of the entire law.
“And, when you look at the act as a whole you see that one of the purposes of Section 26 was providing that first mortgages should be satisfied before pre-payment charges are entered into,” she said.
Barnett was said to be travelling abroad and unavailable for comment, while his assistant in Kingston said she would seek permission to provide email contact for Knox.
Emails to Barnett and head of the Real Estate Board, Sandra Watson, also went unanswered up to press time. Watson was said by her assistant to be in meetings on Thursday.
In another court case in the Supreme Court, involving the protection of depositors in another indebted property development, the Real Estate Board secured agreement that monies owed to depositors with prepayment contracts in the Palmyra condo complex would be repaid at the same rate as the debenture holders. The parties return to court on September 25 to determine the formula for compensation.