The Caribbean Court of Justice (CCJ) yesterday dismissed an appeal by L.O.P. (LOP) Investments Limited challenging whether two Demerara Bank debentures could be used to confer a valid security interest in respect of land.
LOP was also ordered to pay the costs of the appeal for the respondents: Demerara Bank Limited, Garrett Ward and Ramon Gaskin.
The appeal was closely watched by the banking community here as it could have had consequences for debentures which entailed attachment to land.
Demerara Bank was issued two debentures by Essequibo rice company LOP to secure loans of $85M and $15M. When LOP defaulted the Bank appointed Ward as receiver and when he resigned Gaskin was named in his place.
LOP refused to cooperate with the receivers arguing that the debentures contravened the law relating to mortgages or could only be enforced by court foreclosure proceedings which were required for mortgages and the like.
LOP further contended that Ward and Gaskin had not been properly appointed and even if they had, they had no locus standi to interfere in the management of LOP’s property unless authorized by the court or LOP.
The respondents denied this claim and Demerara Bank and Gaskin sued. After hearing the case in December 2005, Justice Winston Moore ruled in March, 2006 that the two debentures issued in favour of Demerara Bank were good, valid and subsisting securities; the appointments of Ward and Gaskin as receivers were valid and receiver Gaskin was entitled to take possession of the charged LOP assets and to perform any duty assigned to the receiver under the debentures. LOP was further ordered to pay $350,000 damages to Gaskin for obstruction in the discharge of his duties.
LOP then appealed the case to the Guyana Court of Appeal (GCA) which repudiated the argument of counsel for LOP that the laws of Guyana required that any security provided for in a debenture should be passed before the Registrar of Deeds as in the case of a conventional mortgage for it to be valid and enforceable.
LOP then applied to the GCA for leave to appeal the case at the Trinidad-headquartered CCJ.
The GCA refused leave to appeal even though by the very nature of the case there was an appeal as of right under section 6 of the CCJ Act. LOP then applied directly to the CCJ for special to appeal and this matter of leave to appeal was the subject of a decision by the CCJ which found that the GCA was wrong in denying leave to appeal to LOP.
The CCJ then proceeded to hear the substantive arguments in the case. LOP challenged the debentures on the ground that the Civil Law of Guyana Act, Cap 6:01 when dealing with immovable property and mortgages preserved the traditional Roman-Dutch law and that since a debenture bore all the attributes of a mortgage then the law and practice applicable to its creation and attachment to security must be the Roman-Dutch law and practice for conventional mortgages. Such law required a mortgage to be advertised in the Official Gazette and then passed before the court in the person of the Registrar of Deeds.
This is then followed by a 13-day period of advertisement during which creditors could file a notice of opposition to the proposed mortgage or transport and then follow up by the issuance of legal proceedings. On default, LOP’s counsel pointed out that the mortgagee goes to court for foreclosure of the mortgagor’s interest and a sale is then conducted by officers of the court who utilize the proceeds to discharge the debt due to the mortgagee. This, LOP contended, was not catered for by debentures. LOP’s counsel further contended that a proviso under Section 3 (d) of the Civil Law of Guyana preserved pure Roman-Dutch law in relation to conventional mortgages. The Bank’s counsel differed and pointed to the law and practice on January 1, 1917 taking account of the 1913 ordinance which sets out a special regime for secured borrowings of companies that extend to debentures.
The court pointed out that under the adapted 1913 ordinance a debenture could be secured in one of two ways and that the Companies Act of 1991 asserts that “A debenture not secured by a separate mortgage or charge but which has been duly registered after a notice of the intended registration has been published in the Gazette and one local newspaper not less than seven days previous to the registration, shall be valid and shall rank as a mortgage notwithstanding that it has not been secured by any separate mortgage or charge”.
The court then asked how a default under a debenture not secured by a separate mortgage would lead to a realisation of security. It then referred to Section 92 (1) of the 1913 Ordinance wherein it was stated that “If anyone obtains an order for the appointment of a receiver or manager of the property of a company or appoints that receiver of manager under any powers contained in any instrument he shall within seven days from the date of the order or of the appointment under the powers contained in the instrument give notice of the fact to the registrar…” The CCJ said that this section provided safeguards. Pervasive too in the Companies Act, according to the CCJ, was extensive recognition that receivers or receiver-managers could be appointed privately under a debenture “whereupon they have broad powers to realize the security interests of the debenture holder(s)”. The CCJ added that the underlying philosophy of the Act was that in the pursuit of commercial practices, companies can enter into debentures which confer upon the lender whatever powers they consider appropriate.
It therefore upheld the rulings of Justice Moore and the GCA.
The judgment of the court was delivered by Justice David Hayton. Sanjeev Datadin and Derek Ali appeared for LOP while Vidyanand Persaud and Vidushi Persaud appeared for Demerara Bank.
