Financial Institutions Services Ltd v Negril Holdings et Al

• Jurisdiction: Jamaica
• Judge: Downer, J.A.,Harrison, J.A.,Langrin, J.A.
• Judgment Date: 22 March 2002
• Neutral Citation: JM 2002 CA 8
• Docket Number: Civil Appeal No. 103 of 1997
• Court: Court of Appeal (Jamaica)
• Date: 22 March 2002

Court of Appeal

Downer, J.A.; Harrison, J.A.; Langrin, J.A.

Civil Appeal No. 103 of 1997

Financial Institutions Services Limited

and

Negril Holdings et al

Appearances:

Donald Scharsmidt Q.C., Michael Hylton, Q.C. and Dave Garcia instructed by Myers, Fletcher and Gordon for the appellant Bank.

Hugh Small Q.C., Pamela Benka-Coker Q.C., Christopher Honeywell Helga McIntyre instructed by McDonald Millingen & Co. for the respondent companies.

Banking Law - Compound interest — Penal interest rates — Whether the trial judge had erred in finding that the appellant bank was not entitled to charge penal rates of interest — Finding that the Banking Act, the Bank of Jamaica Act, the common law and the contract between parties conferred a discretion upon the bankers as to the interest rates charged — Finding that by not terminating the contract the respondent companies had accepted the variations in the interest rates — Finding that penal rates of interest could be charged as long as they were not imposed retrospectively and were reasonable.

Banking Law - Bank/customer relationship — Whether the trial judge had erred in law in concluding that there was a special relationship between the appellant bank and respondent companies — Finding that there was no fiduciary relationship between the parties, merely an ordinary commercial banking relationship.

Downer, J.A.

(I)

INTRODUCTION

1 John Sinclair met Donovan Crawford in August 1984. Sinclair was a successful sub-contractor who made his money in England. As a sub-contractor he took over Roldogate Ltd., a plastering firm to which he was formerly employed. He also owned two night clubs and a small hotel. Crawford was a banker, and the dominant force in Century National Bank. They struck up a friendship and began to do the business of banking through the companies they controlled. Sinclair's vehicles were Negril Investment Company Ltd., which owned the land on which Negril Gardens Hotel was built and Negril Negril Holdings Ltd. which was incorporated for the expansion of the hotel. Montego Bay Investment Company came later and under its aegis in 1989, the Gloucestershire Hotel in Montego Bay was taken over and reconstructed. The dispute between the parties came for resolution before Ellis, J. the senior puisne judge in the court below and concerned the operation of the current and other accounts by the Bank with respect to the respondent companies.

2 Crawford gave no oral evidence. He is reputed to be living in Atlanta, Georgia, U.S.A. ever since his Bank failed. The evidence suggests that he was in Jamaica during the course of the trial. So as regards the special relationship claimed by Sinclair and his companies the learned judge below relied on Sinclair's evidence for the most part. In so doing, he seemed to ignore the independent advice available to the respondent companies firstly from Condel and Strachan who were both Chartered Accountants. There is no mention in his judgment that Sinclair was a director of a company incorporated in England. He also failed to give any weight to Crawford's written statement that Sinclair had done well out of the loans made to him and his companies. There were other issues which arose between the two companies and the bank and Ellis, J. decided in favour of the companies by granting most of the declarations sought. These twelve (12) declarations are to be found at pages 45-46 of Vol. 1 of the Record. They were embodied in an order at pages 6, 7 and 8 of Vol. 1 of the Record. This order ought not to be recognized. It was not signed by the Registrar of the court below. There are provisions in it which with respect to titles could not have been made by the learned judge in his minute of order. The appellant Bank was ordered to render an account and was also ordered to repay interest wrongly retained at the rate of 52% per annum. Also it was ordered that two unspecified Registered Titles be returned.

3 The Bank failed and was eventually merged with a number of other failed financial institutions. Financial Institutions Services Ltd. was the company incorporated by the government to manage the Blaise Financial Institutions and Century National Bank and its Merchant Bank which were the initial failures. These failures were widespread and involved commercial banks, merchant banks and insurance companies. Financial Institutions Services was substituted for Century National Bank Ltd. as the appellant by Order of this Court on 16th June, 1998. However, I shall refer to the appellant, as the “appellant Bank” and along with the respondent companies they are the parties on appeal. We were told by both sides that the outcome of this case was of great importance to the banking community in Jamaica.

4 The learned judge below accepted this and said at page 45 of Vol. 1 of the Record:

“This case is unique in many respects. As far as it lies in my experience, it is the first time in this jurisdiction, that a customer has forensically challenged a banker as to how that banker has operated that customer's accounts. The challenge to the operation of the accounts included questions inter alia as to the banker's competence to compound interest, to vary interest rates, to charge penal rates of interest on overdrafts and to claim under a mortgage, prior to any formal demand on the mortgagor.”

5 The way proceedings were conducted was somewhat unusual. The usual course where bank lending is secured by a mortgage is that the Bank takes the initiative to enforce the mortgage or responds with a counter-claim in which case the respondent companies would have to make a considerable deposit to prevent a sale by the Bank. The respondent companies however went the leisurely route of seeking declarations, instead of being made to answer a demand for payment in 1990. It is against this background that the observations of Ellis, J. ought to be considered. The respondents claim to have paid the amount claimed on the 30th day of September and there seems to be acknowledgement of it by V. Caple Williams an officer of the appellant Bank in the court below. The initial issue to be decided is whether there was a special relationship between the appellant Bank and the respondent companies.

(II)

WAS THERE A SPECIAL RELATIONSHIP IN LAW BETWEEN THE APPELLANT BANK AND THE RESPONDENT COMPANIES?

6 The endorsement on the writ in both instances envisages a special relationship and reads as follows at page 52 of Vol. 1 of the Record in respect of the plaintiff's claim against the defendant; for:

“1. An account of what is due and owing by the plaintiff to the defendant in respect of and arising out of the relationship between the plaintiff and the defendant as bank and customer as a consequence of accounts and loan transactions of the plaintiff with the defendant.”

7 Some relevant averments of the first respondent “Negril Negril” claiming a special relationship in law between the parties are to be found at pp. 53 - 54 of Vol. 1 of the Record:

• “5. Negril Investments Limited, the plaintiff in Suit No. C.L. N-089 of 1991 which was incorporated in 1984, was the registered owner of lands at Negril in the parish of Westmoreland on which it constructed a hotel known as Negril Gardens Hotel. This plaintiff was incorporated in 1986 to extend the size of the hotel owned by Negril Investments Limited by constructing additional rooms and facilities to be operated with the original hotel.

• 6. At the time when the plaintiff was incorporated, Negril Investments Limited, through its agent Sinclair developed a special relationship with the defendant which acted through its agent Crawford. This relationship involved to the knowledge of both parties that the plaintiff placed great reliance on and confidence in the ability of the defendant to conduct the financial affairs of Negril Holdings Limited and the said company had already established current accounts and demand loan accounts with the defendant.”

8 Be it noted that the special relationship averred, commenced after current accounts and demand loan accounts were in operation with the appellant Bank. As Sinclair put it at page 8 of Vol. 9 of the Record the first phase was completed thus: “Mr. B. did all the financing and I built the hotel. I signed on the document which Mr. B. negotiated with Mr. C.”

9 Bingham, being a director of Negril Investment Co. Ltd. was in a fiduciary relationship with the company and was performing his duties. There was no evidence to suggest that there was any special relationship at that period.

10 The allegations of a special relationship, set out in the Statement of Claim, were developed thus (at pages 60-61 of Vol. 1 of the Record):

• “32. The plaintiff further states, it developed complete confidence and trust in the defendant and accepted and relied on its advice and that as a direct consequence of the special relationship a system was instituted by which the plaintiff would routinely send cash from Negril to be lodged in its account in Kingston and arranged that the defendant would prepare lodgement advice slips and make lodgements on behalf of the plaintiff from time to time.

• 33. The plaintiff through Sinclair, enquired of the defendant of the state of its indebtedness and on several occasions Crawford represented to the plaintiff that its financial position was in good stead, that its debts to the defendant were being serviced and that it was properly performing its obligation under the various contracts.

• 34. The plaintiff accepted and relied on its advice as to the alleged healthy state of the plaintiff's account until in or about April 1990, when without any prior indication to that effect, the defendant informed the plaintiff that his accounts were badly in arrears.”

11 However widely the averments are drafted the evidence from Sinclair was that the special relationship commenced after Bingham left Negril Investment Company...