Businessman Winston Finzi and his company, Mahoe Bay Company Limited, scored a major victory last month when the Supreme Court ruled that they did not benefit from a US$2.5-million loan in 2003. Instead, half of the amount was used to purchase shares in a certain company unknown to the defendants, the court said.
JMMB Merchant Bank, the successor institution to Capital & Credit Merchant Bank (CCMB), which granted loans to the defendants, had brought the claim to recover outstanding loans and interest. The bank came under judicial fire from the court for its record-keeping process in relation to the case, leading to a call for legislative intervention in the handling of such matters. The outcome of the case is that the bank now has a substantial sum of money for the defendants.
Chief Justice Bryan Sykes, in handing down his decision, ruled that the defendants did not benefit from one of the five loans from CCMB. It was the court’s finding that the bank’s record keeping had been very poor but this was also the case for Mahoe’s record keeping.
“The record keeping of the bank in this case has been nothing short of appalling and leaves a great deal to be desired. How does a regulated institution fail to produce even a contract for sale of the land, any appraisal of the land, any document indicating the administrative expenses to be deducted from the gross proceeds of sale, any details in respect of some of the loans it claimed money was applied to and ask the court to accept its assertion that what it has produced is true?” the chief justice queried.
“This court believes that the time has come for legislative intervention to rein in the egregious conduct of lenders, and special focus should be placed on the exercise of the power of sale. There must now be minimum information provided by the lender to the borrower before the power of sale,” the chief justice advised. He also called for statutory obligation to keep records for a minimum period of time. He said, too, that there should be close examination of the monies clauses because “it seems to this court that the bank’s interpretation of these clauses is that it is free to do what it wants, when it wants, and when asked to account for the response, ‘Oh my! We don’t have the records, but take our word for it’.”
LACKS EVIDENCE
The accounting firm HLB Mair and Russell (HLB) was engaged by the parties in 2021 to conduct an examination to determine the level of indebtedness, if any, between the bank and the defendants and prepare a report. The report was subsequently submitted to the court and assisted the court in coming to its decision. The chief justice also added that the persistent statement in the report was the inadequacy of records from the bank.
“There was one loan that had a principal amount of US$2,493,696.01 before payment. The final column indicated that there was a balance of US$76,724.28. This loan will be the focus of analysis shortly. The court has isolated this loan because the evidence shows on a balance of probability that Mahoe never received this loan. Approximately 50 per cent was used to purchase shares in the name of Weststar, a company controlled by the then chairman of CCMB, Mr Ryland Campbell, without any evidence proving that Mahoe or Mr Finzi had authorised the use of funds to purchase shares in Weststar’s name,” the chief justice said.
The chief justice pointed out that in the previous decision, the evidence showed that the bank, or someone within the bank or a connected institution, diverted J$75 million to purchase 15 million CCMB shares for Ryland Campbell’s company, Weststar. He said a cheque in the sum of J$75 million, dated April 30, 2003, was made payable to Veritat Corporation.
“The face of the cheque, in the line labelled ‘pay to the order of’ has these words: ‘Veritat Corporation/CCMB Share Offer’. On the back of this cheque are the words,’For deposit to Capital & Credit share issue a/c no 101000893’.”
“To date, the bank has not indicated that what was stated on the cheque was an error,” the chief justice said.
In coming to his decision, the chief justice concluded that, on a balance of probabilities, the US$2,500,000 (April 2023) line of credit was not disbursed to Mahoe.
“The court lacks evidence to conclude that this loan was disbursed to Mahoe or used in accordance with Mahoe’s instructions. Therefore, the court concludes that Mahoe does not owe this loan to the bank. It is also evident that none of the money from the land bonds or money from the sale of land should have been used to pay off this line of credit.
“This loan was not among those sued for by the bank, but having regard to the use of the land bonds money and the defence to the claim, this loan came into focus. If the loan was not disbursed then there was nothing to pay back, and it necessarily follows that any money used by the bank to pay off the non-existent loan must necessarily be that of the owner of the money. The bank would now be a constructive trustee for these sums,and the court so finds. The land bond sums so applied are now declared to be held by the bank as a constructive trustee for Mahoe,” the chief justice ruled.
COMBINED INDEBTEDNESS
A loan in January 2008 for J$50 million and a loan in October 2009 for J$990,000 were dealt with together. Finzi agreed that he received the January loan but said it was repaid. The chief justice said there was no evidence of that, and so the court treats that loan as outstanding. The bank sold lands owned by the defendants and realised the gross sum of J$317,625,000. Finzi’s family home was also sold for J$50 million. The properties were sold in 2015 and by April 2015, the bank had a total pool of funds of J$367,625,000, the court found.,
The chief justice said the evidence suggested that the application of the proceeds of sale to loans began around July 7, 2015. The combined indebtedness under both loans was under J$130 million. The court, in using the HLB’s reports, remarked that had the bank paid off the loans in full, that would have left over J$200 million.
“What has become of the money? Where did it go? How was it used?” the chief justice asked.
The court found that the loans were outstanding in 2015, but the bank had more than sufficient funds in place to pay off the full indebtedness.
“The order of the court is that the full indebtedness on both loans is to be determined as at July 7, 2015, using HLB’s appendices to its report dated June 30, 2023, and filed in the Supreme Court on July 3, 2023. When that is determined, that indebtedness is to be deducted from the $367,625,000.
“There should also be a deduction of a reasonable cost of executing the power of sale. The court emphasises reasonable. The bank has not produced any evidence of this cost. The parties are to produce evidence on this aspect of the matter,” he said.
It cannot be right and just, the chief justice said, “that a creditor realises the security, has the money to clear the debt but delays paying off the debt, allows it to grow and thereby consuming the entire sum from the sale of the securities. This is yet another reason for the legislature to intervene and look more closely at all these monies clauses.”
The court ruled that the balance of the money after deductions spoken of be held under a constructive trust for either Mahoe or Finzi. The question of whether interest is payable on the balance is to be addressed by counsel in future submissions.
Attorneys-at-law Terri-Ann Guyah Tolan and Aisha Thomas, instructed by Guyah Tolan and Associates, who represented the defendants, had asked for legal costs on an indemnity basis and emphasised that given all that the bank knew, it was unreasonable for it to pursue the claim against the defendants.
The chief justice said: “Mrs Guyah Tolan has used strong language to describe the bank’s manner of pursuit of this litigation. The court will not adopt her language, but nonetheless, it is a matter of concern that approximately 50 per cent of a line of credit was used to purchase shares in the name of Weststar without any evidence that the defendants or any of them authorised the use of the money in that way. In stark and plain language, what happened under the line of credit was this: the bank used the money to finance the purchase of shares in the name of the chairman and charged the purchase price to a customer, taking advantage of the circumstances in which the customer was a friend of the chairman who knew that the customer was using the line of credit to purchase shares for the customer’s benefit. The bank has simply glossed over this matter and did not make any effort to address this matter other than to say that the bank does not deal in shares. The court has made findings in respect to this matter and thus has concluded that this loan was not in fact disbursed or used according to Mahoe’s instructions, and, therefore, no money from land bonds or, indeed, from any other source should have been used to discharge the loan.”BASIC OBLIGATION
The chief justice said the bank would have known from extensive and detailed correspondence between itself and Finzi’s lawyers concerning the April 2006 loan that the loan had been paid off.
Attorneys-at-law Kevin Powell and Timera Mason, instructed by Hylton Powell, submitted that the accountant had shown that sums were still outstanding on loans 2 and 3. The chief justice said that that was factually correct but said further that what HLB’s report revealed was that with respect to loans 2 and 3, the bank capitalised the interest and varied the interest rate but without any evidence that it was lawful so to do.
Powell argued that it was a normal mortgagor/mortgagee dispute. He also noted that in spite of the lack of full records, HLB still found that monies were owed under loans 2 and 3, therefore, costs should be awarded in the regular way, that is to say, costs follow the event, and where the honours were split, then the costs order should reflect that reality.
“All of what Mr Powell said is true except that what started out as a normal mortgagor/mortgagee dispute became something more. This was not just a dispute about numbers. It was about how the numbers were calculated (loans 2 and 3); it was about treating a loan as still existing when to the bank’s certain knowledge, it was paid off; it was about the use of part of a line of credit made available to Mahoe to purchase shares without any explanation of how this came about; it is about selling seven parcels of land to meet a debt that no longer existed because the bank applied the money it had received to another loan without any notice of any kind to the borrower; and it is about failing to meet even the basic obligation to explain what the net proceeds of sale were and then showing how the net proceeds were applied.
The chief justice invited the parties to make further written submissions on the issues and to file and exchange them no later than September 30. The registrar of the Commercial Division is to set a date for oral submissions if the parties think it is necessary, the chief justice said.
