Sun | Jan 21, 2018

Court tosses lawsuit against JMB, receiver of Norwich development

Published:Friday | March 4, 2016 | 12:00 AMBarbara Gayle

The Supreme Court has thrown out a lawsuit filed by Construction Developers Association (CDA) against Jamaica Mortgage Bank (JMB) seeking $36 million for infrastructure work linked to a joint-venture project in Norwich, Portland.

More than 22 years ago, the Ministry of Water and Housing entered into a joint-venture agreement with private developer Renaissance Property Homes Limited to provide serviced lots for sale in Norwich.

State-owned Jamaica Mortgage Bank lent Renaissance $50 million to finance development, but the company later defaulted on the loan payments and was placed in receivership in 2002.

Jeremy Brown, who was appointed receiver by JMB, eventually determined that the project was not viable and was discontinued in April 2007.

Construction Developers filed a lawsuit in March 2015 contending that it was never paid for its services prior to the receivership. The company also claimed that it also had an agreement with Brown to continue working on the development under the contract with Renaissance.

CDA said the receiver failed to pay for the services and terminated the contract in January 2003, and sought compensation of $36 million plus interest from JMB and the receiver. Construction Developers argued that the receiver was liable for negligence for allowing it to continue work on the project when he knew that Renaissance was unable to pay. JMB was included in the suit on the basis that the receiver was acting as its servant or agent.

Attorney Kwame Gordon of the law firm Samuda & Johnson, who represented the defendants, JMB and Brown, filed an application for the claim to be struck out on the basis that the receiver would not be personally liable and was never the agent or servant of the debenture holder, JMB.

Justice David Batts, who heard the application in the Commercial Court, struck out the claim that was filed against JMB and Brown. However, the case against Renaissance, which was also named as defendant in the suit, will now continue.

"The significance of this ruling is that the court has affirmed the established legal principle that a receiver cannot be liable for a contract which predates his appointment, even if the receiver, upon his or her appointment, allows the performance of the contract to continue," said Gordon in a comment on the court's decision.

He said the court also reaffirmed the general rule that a receiver's main obligation is owed to the creditor who he acts on behalf of, and also that a debenture holder cannot be held liable for the acts or omissions of a receiver.

Justice Batts said in his ruling last month that there was no real prospect of the claim succeeding. He pointed out that an existing contract was continued by Construction Developers and that the firm knew or ought to have known that the receiver was acting under powers conveyed by a debenture.

The judge said it may be that he hoped that the project could be pursued to a successful conclusion, but that was not to be. "The fact that it failed and the claimant could not be paid cannot, for that reason, create a liability on the receiver or those appointing him," the judge said.

Legal costs were awarded to the defendants.