JMMB Merchant Bank Ltd (Formerly Capital and Credit Merchant Bank Ltd) v The Real Estate Board (Jamaica)
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hodge |
| Judgment Date | 20 April 2015 |
| Neutral Citation | [2015] UKPC 16 |
| Date | 20 April 2015 |
| Docket Number | Appeal No 0067 of 2014 |
| Court | Privy Council |
[2015] UKPC 16
Privy Council
From the Court of Appeal of Jamaica
Lady Hale
Lord Sumption
Lord Carnwath
Lord Hughes
Lord Hodge
Appeal No 0067 of 2014
Appellant
Michael Hylton QC Kevin Powell Shanique Scott
(Instructed by Sheridans)
Respondent
Peter Knox QC Dr Lloyd Barnett
(Instructed by MA Law (Solicitors) LLP)
Heard on 14 January 2015
This appeal, from the Court of Appeal of Jamaica, is concerned with the interpretation of section 31 of the Real Estate (Dealers and Developers) Act 1987 ("REDDA"). The Board recently considered the section in Jamaican Redevelopment Foundation Inc v The Real Estate Board [2014] UKPC 28. In this appeal there are two issues, namely (i) whether a charge in favour of the Real Estate Board ("the REB") is valid only if it has been registered under section 93 of the Companies Act 2004; and (ii) to what extent (if at all) does a charge in favour of a regulated financial institution rank pari passu with the REB's charge.
REDDA (sections 4 and 5) established the REB to regulate and control the practice of real estate business, including the operation of development schemes. Part IV of the Act governs such development schemes. It requires a vendor of land in a development scheme, who wishes to enter into prepayment contracts with purchasers, to be registered with the REB as a developer (sections 26 and 35). Before a vendor may enter into a prepayment contract in relation to any land section 26 requires that the land is free from any mortgage or charge securing money or moneys' worth, except for a section 31(5) mortgage or charge in favour of an authorised financial institution. REDDA requires the vendor to forward copies of prepayment contracts to the REB (section 28) and for pre-payments to be placed in a trust account with an authorised financial institution and reported to the REB (section 29). It controls the use of the money in a trust account before completion of the contract of purchase, (a) by requiring the money to be held in trust for those legally entitled to it on completion or rescission of the contract (section 30), and (b) as an exclusive exception to that requirement, by allowing the vendor to withdraw sums from the trust account for the payment of taxes in relation to the contract of purchase and the partial reimbursement of the costs of materials supplied and work done in the construction of the building or works which are the subject of the contract (section 31(1) – (3)).
As this appeal is concerned with the meaning of section 31(3)(b) and (5) of REDDA, the Board sets out in full subsections (3)(b) to (7) which provide their immediate context:
"(3) Moneys so deposited in respect of a prepayment contract may be withdrawn from the account prior to the completion or rescission of the contract … subject to the undermentioned conditions … (b) the owner of the land on which the building or works is being constructed has executed and lodged with the Registrar of Titles a charge upon the land in accordance with subsection (4).
(4) The charge mentioned in paragraph (b) of sub-section (3) shall be a charge upon the land on which the building or works in question is being constructed in favour of the Board charging the land with the repayment of all amounts received by the vendor pursuant to the contract which shall become repayable by him upon breach by him of the contract.
(5) Such charge shall rank in priority before all other mortgages or charges on the said land except any charge created by statute thereon in respect of unpaid rates or taxes, 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:
Provided that where a mortgage or charge of the said land has been duly created in favour of an authorized financial institution to secure repayment of amounts advanced by that financial institution in connection with the construction of any buildings or works on the said land the charge created by this section shall rank pari passu in point of security with the mortgage or charge in favour of that authorized financial institution.
(6) For the purposes of subsection (5) a loan or advance by an authorized financial institution shall prima facie be taken to be made in connection with the construction of any building or works if it is expressed in the instrument creating the mortgage or charge securing the repayment of that loan or advance that the loan or advance was so made.
(7) A charge executed pursuant to this section shall be deemed to be a mortgage under the Registration of Titles Act and shall be enforceable accordingly but shall be exempt from registration fees under the Act, transfer tax under the Transfer Tax Act and stamp duty under the Stamp Duty Act."
Section 33 provides for the sale of the land by the REB if the vendor defaults in completing any prepayment contract of sale. If the REB is satisfied that that default itself or taken with other such defaults in the development scheme amounts to a failure of the scheme it can (a) require the financial institution to pay over such sums as remain in the trust account and (b) enforce the charge over the land by sale or otherwise. If the REB sells the land, it (a) divides the free proceeds between it and the authorised financial institution which has a pari passu mortgage or charge under section 31(5) and, thereafter, (b) distributes the aggregate of sums from the trust account and its share of the free proceeds among the purchasers rateably according to their prepayment contracts.
Section 44(3)(c) makes it an offence to withdraw money from the trust account in contravention of section 31, ie sums in excess of the stipulated maximum proportion of the sums certified as due under the construction contract and any sums withdrawn before the vendor has lodged the charge with the Registrar of Titles.
Section 93(1) of the Companies Act 2004 provides that every charge created by a company registered in the island shall be void as a security against the liquidator or any creditor of the company, unless prescribed details of the charge together with the original, or a certified copy of the instrument creating the charge (if any), are delivered to or received by the Registrar, before the commencement of the winding up of the company. Sub-section (2) regulates the ranking of charges: (a) a charge registered within 21 days of its creation ranks by reference to its date of creation and (b) a charge which is not registered within that 21-day period ranks by reference to the date of its registration.
The facts in this appeal were and are undisputed. KES Development Company Limited ("KES") carried on the business of construction and real estate development. On 16 May 2005 KES applied to the REB to be registered as a developer for the Mountain Valley Development ("the MVD"). Between December 2004 and June 2005 Zoe McHugh, the owner of the land on which the MVD was to be built ("the land"), and KES entered into prepayment contracts with persons who wished to own houses within the MVD. The deposits paid under the prepayment contracts were collected either by KES or by Jennifer Messado & Co, attorneys-at-law. The deposits were not paid into a trust account with an authorised financial institution in breach of section 29 of REDDA....
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