REB wins again on behalf of real estate depositors
Jamaica's final appellate court has reaffirmed that debt owed to depositors under the protection of the Real Estate Board of Jamaica (REB) take priority over the recovery of bank loans.
The case revolves around property taken over by JMMB Merchant Bank Limited - then known as Capital and Credit Merchant Bank - after real estate developer KES Development Limited defaulted on its loans.
The ruling of the London-based Privy Council in April reaffirms a decision first reached four years ago in the Supreme Court on June 8, 2011 by Justice Ingrid Mangatal, and upheld on appeal in July 2013, that REB-protected depositors took priority over JMMB's mortgage.
REB charges are intended to protect individual investors who make prepayments on units in real estate developments.
The result of this case follows a somewhat similar case in 2014, in which the local courts ruled that depositors on condominiums in the Palmyra resorts should be treated as a priority, ranking pari passu or equally with that of the banks that placed Palmyra in receivership for debts owed.
JMMB Merchant appealed the case on two grounds: that the bank's claims against property ranked in priority to REB's claim; and that REB's claim was void as it was not registered as prescribed by Section 93 of the Companies Act 2004.
The Privy Council, which dismissed the appeal on April 20, cited the Section 31 of the Real Estate (Dealers and Developers) Act of 1987 - REDDA - which states that states charges "shall rank in priority before all other mortgages or charges" and "shall be enforceable by the Board by sale of the said land by public auction or private treaty as the Board may consider expedient."
The section also says that where a mortgage or charge has been created in favour of an authorised financial institution, the charge shall rank pari passu with the mortgage or charge in favour of that financial institution.
REB sued JMMB Merchant after the bank attempted to sell lands belonging KES to recover loans of $146 million linked to a failed development.
KES Development applied in May 2005 to the REB for registration as developer for Mountain Valley, and in August of the same year, JMMB agreed to lend KES $146m, of which $120m was to finance four residential development projects, including Mountain Valley.
KES provided JMMB with a mortgage over several properties as security for the loan.
KES registered the charge for prepayments with the Registrar of Titles in September 2006, but particulars of the charge were not registered with the Registrar of Companies.
When the development failed and KES defaulted on its loan, JMMB took over and invested additional funds in Mountain Valley, but tried later to sell the land. KES went into liquidation in December 2008.
The REB turned to the court for a declaration that its charge ranked in priority to JMMB's claim, and won.
The Privy Council, in a judgment written by Lord Hodges, agreed with the conclusions reached by the Jamaican courts, although differing in its reason for dismissing the appeal.
The Jamaican court held that REB held a statutory charge, which did not need to be registered with the Registrar of Companies. REDDA created a new scheme for the regulation of real estate development, and if it had been intended that the charge in favour of the REB had to be registered with the registrar in order to be a valid security, Section 31 would have said so, the court held.
The Privy Council however sees REDDA as a "self-contained statutory scheme", which provided full protection for depositors.
There was no need for the charge in favour of REB to be registered in accordance with Section 93 of the Companies Act 2004 for creditors to obtain notice of the REB's charge, Lord Hodge wrote. Further, he added, REDDA imposed no obligation on a corporate developer to register the charge in favour of the REB at the Companies Office and no sanction for its failure to do so.