Wed | Aug 23, 2017

'Corporate veil' provides cover for UDC in tenant lawsuit

Published:Friday | February 17, 2017 | 2:00 AMMcPherse Thompson

The Court of Appeal has reversed a lower court ruling that held the Urban Development Corporation liable for goods stolen from a tenant at one of the state agency's buildings in downtown Kingston, operated by subsidiary Urban Maintenance Limited (UML).

The higher court accepted the agency's argument that it was a separate legal entity from its subsidiary.

Security for the building was provided by the landlord, but the lease contract signed by tenant Jacitar Jamaica Limited absolved the agency of liability in the event of property theft.

The appellate court indicated that the Supreme Court had not sufficiently weighed that clause in the contract when it ruled that UDC should compensate Jacitar, a fabric wholesaler, for the robbery of its goods.

The case dates back more than two decades. The attorney for Jacitar, Dr Randolph Williams, has indicated that his client may not appeal the current ruling handed down in January.

In the appellate judgment written by Justice Frank Williams, the court ordered that the $1.77 million placed in an escrow account pending the appeal be returned to UDC, along with the accrued interest.

In February 1990, Jacitar signed a five-year lease with UDC for commercial property at Ocean Boulevard, from where it operated a warehouse. The company paid $2,123 per month to UDC for maintenance and upkeep, including for the provision of 24-hour security. Around May 22-25 in 1993, fabric was stolen from the warehouse.

The following year, Jacitar sued the UDC for damages for breach of contract. It also claimed that Protection and Security Limited, the security company hired to protect the building, was negligent. Protection and Security did not file a defence against the lawsuit and a default judgment was issued against it.

In the Supreme Court trial, in which a decision was handed down in December 2010, UDC had denied breaching the contract and contended that if anyone was negligent, it would be Protection and Security. It argued that the security firm was not its agent, but an independent contractor.

The Supreme Court judge, while noting that the security services were not provided by the UDC itself, but was an arrangement between its subsidiary UML and Protection and Security, ruled that UDC was in breach of the contract with Jacitar. The state agency was ordered to pay the fabric trader $1.77 million in damages. Protection and Security was ordered to pay a similar sum for negligence.

The appeal court, which considered the case in October 2016, accepted the UDC's argument that UML was a 'distinct legal persona' separate from its parent.

"It seems to me that if the security company was a servant or agent of any entity, then that entity must have been UML, by which the security company was directly engaged, and not the appellant," said Justice Williams. He also noted that while some cases require the court to 'pierce' the corporate veil - often done for fraud cases - the Jacitar case did not warrant such action.

The appellate judge held that the contract that existed was between UML and the security firm, and that the Supreme Court had failed to consider the significance of the contract clause that the landlord was not liable for theft or removal of any property from the leased premises.

Jacitar's lawyer, Randolph Williams, said whether or not his client wanted to, the cost of appealing further to the United Kingdom Privy Council was prohibitive. He also noted that his client had issued no instruction regarding an appeal.

mcpherse.thompson@gleanerjm.com