SR Projects Ltd v Rampersad, the Liquidator of the Hindu Credit Union Co-Operative Society on behalf of the Hindu Credit Union CoOperative Society Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Leggatt,Lord Lloyd-Jones,Lord Stephens,Lord Kitchin,Lady Arden |
| Judgment Date | 26 May 2022 |
| Neutral Citation | [2022] UKPC 24 |
| Court | Privy Council |
| Docket Number | Privy Council Appeal No 0036 of 2020 |
[2022] UKPC 24
Lord Lloyd-Jones
Lady Arden
Lord Kitchin
Lord Leggatt
Lord Stephens
Privy Council Appeal No 0036 of 2020
Privy Council
Appellant
Vernon Flynn QC
Laura Newton
(Instructed by Juris Chambers)
Respondent
Douglas Mendes SC
Dharmendra Punwasee
Rishi P A Dass
(Instructed by Duke Street Chambers (Trinidad))
(with whom Lord Lloyd-Jones and Lord Stephens agree)
The question on this appeal is whether a secured loan made to the Hindu Credit Union Co-operative Society Limited is enforceable by the lender. The credit union, represented by its liquidator, contends that it is not — either because the credit union had no legal power to receive any loan or deposit when its statutory maximum liability had been exceeded or because it acted unlawfully in doing so. In either case the consequence is said to be that the credit union has no contractual duty to repay the loan or to pay any interest on the loan and that the security given for the loan is likewise unenforceable. If this contention is correct, the lender is entitled to restitution of the sums advanced; but, as an unsecured creditor, it would only be likely to receive around 20 cents in the dollar in the liquidation.
The credit union is a co-operative society registered under the Co-Operative Societies Act (Chapter 81:03) 1971 and thus governed by the Co-Operative Societies Regulations made under the Act. It will be necessary to consider the statutory regime in more detail, but the basis of the liquidator's case is regulation 14, which provides as follows:
“(1) Every society shall, from time to time, fix at a general meeting the maximum liability it may incur in respect of loans or deposits whether from members or non-members.
(2) The maximum liability fixed under sub-regulation (1) shall be subject to the approval of the Commissioner, who may at any time reduce it.
(3) No society shall receive loans or deposits in excess of the maximum liability approved or fixed by the Commissioner.”
The references to “the Commissioner” are to the Commissioner for Co-operative Development who, pursuant to section 3 of the Act, has general powers of supervision of the affairs of co-operative societies registered under the Act.
In the courts below, the lender argued unsuccessfully that, on the facts and the proper interpretation of regulation 14, its loan was within the maximum liability approved by the Commissioner. That argument is renewed on this appeal but, for the reasons given below, the Board considers it to be without merit. The real issue concerns the legal consequence of the receipt by the credit union of a loan when the maximum liability had been exceeded. On the liquidator's application to the High Court, Charles J granted declarations that the loan and the security were “null, void and of no effect, being ultra vires the powers of the [credit union] and illegal”. The Court of Appeal (Rajkumar JA, with whom Smith and Moosai JJA agreed) dismissed the lender's appeal from that order. The lender now appeals to the Board.
The lender, S R Projects Ltd, is a company incorporated under the laws of Trinidad and Tobago which lent money to the credit union between October 2004 and January 2005. The total principal sum advanced was some US$2.8m (or TT$17.7m). The loan was secured — or so at least the lender thought — by a promissory note in the sum of US$1.5m and a deed of mortgage over certain property of the credit union. Apart from one capital repayment of US$256,000, the principal sum remains outstanding along with arrears of interest.
In October 2008 the Commissioner ordered that the credit union be wound up and appointed a liquidator. In 2010 a retired British judge, Sir Anthony Colman, was appointed to conduct a Commission of Enquiry into the failure of the credit union and of a separate group of companies. His report into the credit union dated 16 July 2014 describes how, from 2000 onwards, a shift occurred in its affairs from the core activities of a credit union — taking deposits and making loans to members — to investing in real estate and subsidiary companies, nearly all of which lost money. This led to decreasing liquidity and increased borrowing. The report attributed the collapse of the credit union to mismanagement, failures by the auditors, non-compliance with the regulatory regime and lack of proper supervision by the Commissioner.
The government intervened in July 2010 to protect depositors and shareholders of the credit union by establishing a grant relief payment scheme, under which repayments were made out of public funds in return for an assignment of rights. But this scheme did not extend to outside lenders. The present action, begun by the liquidator in 2015, is said to be one of many pieces of litigation which have arisen from the collapse of the credit union.
The first issue raised on this appeal is whether, when the loan was made, the maximum liability approved by the Commissioner under regulation 14 had already been exceeded.
The judge found that at all relevant times the maximum liability approved by the Commissioner under regulation 14 was TT$100m; that it applied to the aggregate of loans and deposits; and that, in October 2005, when the first advances were made by the lender and the security for the loan was given, deposits alone amounted to around TT$848m. The maximum liability had therefore been far exceeded.
The lender argues that, on the proper interpretation of regulation 14, it was possible to fix separate maximum liabilities for loans and deposits. The liquidator does not dispute this. His case is that it is not what actually happened. In fact, a single maximum liability of TT$100m covering both loans and deposits was fixed by the credit union at a special general meeting on 17 April 2004 and was approved by the Commissioner in a letter dated 25 June 2004. This was the applicable limit at all relevant times.
The minutes of the special general meeting record the Chairman, “after identifying the various financial investments of the [credit union] and given the growth of depositors”, saying that it was necessary for the credit union to have the approval of the Commissioner to increase its liability “by” (sic) TT$100m “to cover these deposits/shareholders fund[s]”. He added: “Also, this increase in liability is needed to cover borrowing and other credit facilities”. A motion was then moved that “the liability of the [credit union] be raised to 100m to facilitate the expansion of the organization”. The members present voted unanimously in favour of the motion.
By a letter dated 19 April 2004, the credit union informed the Commissioner of a correction to the minutes of the meeting such that the description of the motion passed should now read:
“A motion was moved … that the liability of the [credit union] be raised to One Hundred Million Dollars ($100,000,000) the liability increase shall be used to cover deposits and borrowing by non-members…”
The Board assumes that the word “by” is a typographical error and that the final words quoted above were meant to read “from non-members”.
In a further letter to the Commissioner dated 21 June 2004, the credit union referred to the special general meeting, stating that its purpose was “to seek approval to increase the borrowing liability of [the credit union] from $20,000,000.00 to $100,000,000.00” and that the 2,345 members who attended the meeting had unanimously approved the increase. The reasons for the increase were said to be “to cover liability resulting from an increase in members' deposits” of $45m and to incur debt in the purchase of printing and television equipment in amounts, respectively, of $5m and $30m. The credit union requested the approval of the Commissioner for “the above increase”.
By a letter dated 25 June 2004 in reply, the Commissioner informed the credit union that his approval “to incur the Maximum Liability in the sum of One Hundred Million Dollars ($100,000,000) is granted” in accordance with regulation 14(2). He went on to remind the credit union of the stipulation in regulation 14(3) that no society shall receive loans or deposits in excess of the maximum liability approved or fixed by the Commissioner.
Some aspects of these events raise unanswered questions. For example, the requested increase in the maximum liability of the credit union from $20m to $100m appears to have ignored the fact that the Commissioner had previously approved an increase in the maximum liability from $20m to $50m by a letter dated 10 September 2002. Another puzzling feature is that the minutes of the annual general meeting held in December 2002 record that a resolution was approved at that meeting to increase the maximum liability to $2 billion “in order to continue the [credit union's] operations” for the financial year to 30 September 2003 and “to allow the [credit union] to receive deposits and conduct normal business”. The following year, the minutes of the annual general meeting held in December 2003 record that a motion was approved that the maximum liability of the credit union be increased to $3 billion having regard to “the amount of deposits and investments coming into the credit union”. According to the minutes, the Commissioner was present at both these annual general meetings; but there is no evidence that his approval for either proposed increase in the maximum liability was sought or granted.
It is apparent from the audited accounts of the credit union for the years ended 30 September 2003 and 2004, and was found as a fact by the judge, that at the time when the...
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