Sat | Sep 23, 2017

Legal Scoop | The fall and rise of Reliance - US$ loan dispute involving Alexander House Ltd and the Reliance Group

Published:Sunday | October 9, 2016 | 10:00 AM
Shena Stubbs-Gibson
Mr Justice David Batts
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Another interesting judgment coming out of the Supreme Court recently by the seemingly indefatigable Mr Justice David Batts is the case of Alexander House Limited v Reliance Group Limited.

I remember as a little girl watching a hilarious British comedy: The Fall and Rise of Reginald Perrin, which focused on the triumphs and misadventures of the title character.

As I read the judgment and followed the meandering of the parties' fortunes, my mind went back to that point in my childhood when I would wait up for The Fall and Rise of Reginald Perrin to see what new fate would befall the erstwhile Mr Perrin.

Meandering fortunes aside, this latest judgment by Justice Batts is interesting and important because it explores the legality of the very frequent practice in Jamaica of every Tom, Dick and Harry buying, selling, or lending foreign exchange currency.

 

BACKGROUND

 

The ruling arose from an application by Alexander House Limited (the claimant) for the court to issue an unconditional injunction restraining the powers of sale of Reliance Group Limited (the defendant) over certain property owned by the claimant but mortgaged to the defendant.

Had the claimant succeeded with the application as worded, this would have meant that the defendant would have been restrained from selling the mortgaged property before a full trial of the matter but without the benefit of the claimant having to first make a payment into court - or otherwise - of the sum alleged to be owed (in this case more than US$700,000).

In a nutshell, the facts of the case are as follows:

- The claimant borrowed monies from the defendant in US dollars.

- The loan to the claimant was secured by a mortgage over property owned by the claimant.

- The claimant failed to repay the loan at all, or as agreed.

- Arising from the failure of the claimant to repay the loan, the defendant had signalled its intentions to sell the mortgaged property.

- Section 22A of the Bank of Jamaica Act (the act) forbids anyone other than an "authorised dealer" from carrying on the business of buying, selling, lending or borrow foreign currency.

- The defendant was not an authorised dealer of foreign exchange currency.

At the hearing before Justice Batts, senior counsel, Abe Dabdoub, who represented the claimant, contended that the loan contract, having been issued in US dollars, albeit the defendant not being an authorised dealer under the act, was illegal and, therefore, unenforceable, and as such, the claimant did not need to make a payment into court to obtain the injunction it sought.

Queen's counsel Patrick Foster, on the other hand, contended that the evidence in the case raised no arguable case of illegality and, therefore, no injunction should be granted.

 

REASONABLE PROSPECT

 

 

OF SUCCESS

 

While the issue before Justice Batts was an interim application only, which meant that it did not fall to him to make a final determination on the merits of the claimants claim, he, nevertheless, had to rule on whether the injunction being sought should be granted, and to this end, he had to determine whether the claimant's claim had a reasonable prospect of success at a trial.

Having considered the law and all the evidence before him, Justice Batts agreed with Dabdoub that the claimant's claim had a reasonable prospect of success.

The essence of the claimant's claim was that the defendant had loaned the funds in question to the claimant, not as a one-off transaction to a friend/associate, but as part of a business of lending foreign currency, and in so doing, had breached the Bank of Jamaica Act, which in turn meant that the loan to the claimant was illegal.

In arriving at the conclusion that the claimant had a reasonable prospect of success at trial, Justice Batts appeared to have weighed heavily evidence led by Dabdoub, which was admitted by the other side, that in addition to the claimant, the defendant had given foreign currency loans to six other named persons.

Less weight appeared to have been applied by the learned judge to evidence led on behalf of the defendant in the form of an affidavit sworn to by Gordon Tewani.

In his affidavit, Tewani denied that the defendant's company was in the business of lending foreign currency, rather, he infrequently assisted friends and associates with loans over the years, the instances being both infrequent and isolated.

In his affidavit, Tewani also sought to explain that four of the six persons named by the claimant were either friends or associates. Tewani's affidavit did not speak to the other two persons named by the claimant, however, and this omission may have hurt the defendant, as the claimant was able provide an affidavit from one of the two persons, who swore not only that he was not a friend of Tewani, but also that at all material times he had formed the view that Tewani was in the business of lending foreign currency.

Having arrived at the conclusion regarding prospects of success, and being satisfied with other key ingredients necessary to grant an injunction, Justice Batts, therefore, proceeded to grant the claimant's request for an injunction restraining the sale of the real estate in question.

 

PAYMENT INTO COURT

 

While Dabdoub was able to persuade the judge to the view that an injunction should be granted, it was the submissions of Foster, on the matter of paying the disputed sum into court, that the learned judge clearly found more convincing.

On the question of paying the disputed sum into court or otherwise, Dabdoub had essentially argued that the mortgage instrument was illegal and unenforceable and, therefore, not only should an injunction be granted, but it should be granted without any payment into court.

But Foster had argued that even if the loan contract was illegal, that did not necessarily mean it was unenforceable and, therefore, to preserve the defendant's position, if an injunction was deemed necessary, a payment into court should also be ordered.

While Justice Batts clearly grappled with Foster's submission in this regard, and did admit that the matter was not without difficulty, he proceeded to give Foster the nod over Dabdoub on this score.

His Lordship, therefore, ultimately ordered that the defendant be restrained from exercising its powers of sale over the mortgaged property, but only upon the payment by the claimant into court or into a joint interest-bearing account, the sum of US$747,908.51, on or before August 12, 2016,

Lesson to be learnt? Persons who buy, sell, loan, etc, foreign currency without being an authorised dealer under the Bank of Jamaica Act do so at the peril of their return on investment being obliterated for want of legality.

- Shena Stubbs is an attorney-at-law. Send feedback to: shena.stubbs@gleanerjm.com, Twitter:@shenastubbs