Hugh Scott and Elesa Scott v UGI Finance & Investments Ltd and Petros Investments Ltd

• Jurisdiction: Jamaica
• Judge: SYKES J
• Judgment Date: 04 November 2011
• Judgment citation (vLex): [2011] 11 JJC 0401
• Date: 04 November 2011
• Court: Supreme Court (Jamaica)
• Docket Number: CLAIM NO. 05348 OF 2009

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

CIVIL DIVISION

CLAIM NO. 05348 OF 2009

BETWEEN

HUGH SCOTT

FIRST CLAIMANT

AND

ELESA SCOTT

SECOND CLAIMANT

AND

UGI FINANCE & INVESTMENTS LIMITED

FIRST DEFENDANT

AND

PETROS INVESTMENTS LIMITED

SECOND DEFENDANT

IN CHAMBERS

Abraham Dabdoub instructed by Jacqueline Cummings of Archer, Cummings and Co for the claimants

Gordon Robinson instructed by Harold Brady of Harold Brady and Co for both defendants

Roderick Gordon instructed by Gordon McGrath for Leighton McKnight, Raymond Goulbourne and Paulette Latibbeaudiere (Interested Parties).

APPLICATION FOR SALE OF LAND UNDER PART 55 OF THE CIVIL PROCEDURE RULES - APPLICATION TO RESTRAIN MORTGAGEE FROM EXERCISING POWER OF SALE - APPLICATION TO RESTRAIN MORTGAGEE FROM USING PROCEEDS OF SALE TO LIQUIDATE DEBT - APPLICATION BY INTERESTED PARTIES TO INTERVENE

SYKES J

1 [1] Mr. Hugh Scott and Mrs. Elesa Scott (“the Scotts”) are not only spouses but also the only directors of and only shareholders in KES Development Company (“KES”) which is now in voluntary liquidation. KES, as the name suggests, is a development company. It makes houses and sells them on the open market. In 2005, KES sought to develop land at a property known as Barbican Heights. KES borrowed money from UGI Finance & Investments Limited (“UGI”) to undertake the development of the property which involved the making of houses that were to be sold to persons such as Mr. Leighton McKnight, Mr. Raymond Goulbourne and Mrs. Paulette Latibbeaudiere (the interested parties). The development has not gone as planned. It appears that the development is incomplete and there are many worried persons, including the interested parties, who signed contracts with KES to purchase houses in the development. The court sympathises with them but has to decide the case according to well established legal principles.

2 [2] The Scotts guaranteed the loan to KES and the guarantee was supported by a mortgage of land owned by the Scotts in their personal capacity. KES has defaulted on the loan. The liquidator has indicated that the company does not have sufficient assets to pay its debts including the loan. As is well known, this is the very purpose of taking security for a loan - to be able to recoup the debt without joining the queue of creditors. The secured creditor, subject to statute and contract, stands above unsecured creditors. UGI sold the loan and the mortgage granted by the Scotts over their property to Petros Investment Limited (“Petros”). Petros has taken steps to enforce the mortgage given in support of the guarantee. The property has now been sold at an auction held on September 28, 2011.

3 [3] Before the property was sold at auction, Petros applied under part 55 of the Civil Procedure Rules (“CPR”) for a court order to sell the property. The Scotts not only resisted this application but brought applications of their own. They asked for an injunction to prevent Petros from exercising its power of sale. Now that the property has been auctioned, the Scotts have amended their application and now ask for an order stopping Petros from using the proceeds of sale to settle the debt. The interested parties have brought an application seeking leave to intervene in the proceedings. These are the three applications before the court. The interested parties' application will be dealt with first.

Whether the interested parties should be allowed to intervene

4 [4] The court dismissed the application to intervene and also refused leave to appeal. Mr. Gordon submitted that the interested parties should be allowed to intervene because they have an interest in the property. That interest was said to be derived from the contract they had with KES. It was even being said, according to the written submissions, that they have an equitable interest in the property. It was conceded by Mr. Gordon that the interested parties do not have a contract with any of the defendants, neither is there any relationship governed by the law of torts and, needless to say, is there any relationship between the parties which would give rise to any liability in equity on the part of the defendants to any of the interested parties. With these concessions it is difficult to see why the interested parties should be allowed to intervene. Mr. Gordon suggested that they have an interest in the equity of redemption. The difficulty with this is that the interested parties are not the mortgagors and consequently it is not easy to see what legal or equitable interest they can have in the equity of redemption. They would necessarily have had to purchase all the Scotts' interest in the mortgaged property. The mortgagee would usually be notified and in order to protect himself the mortgagee would enter into a personal covenant with the mortgagors for the mortgagors to pay the mortgage. This is not the case here.

5 [5] According to Mr. Gordon, the interested parties' interest stems from the fact that they paid some JMD$20,000,000.00 directly to UGI in order to try and settle the indebtedness of KES. The circumstances that led up to this payment are these. In 2005 and 2006, the interested parties met the Scotts and had a number of meetings in relation to a residential development that was to take place on land known as Barbican Heights. The interested parties contracted with KES to make the houses already mentioned in paragraph one. In 2005 and 2006 various sums of money due under the contracts were paid over by the interested parties to KES. In 2006 KES took a loan of JMD$20,000,000.00 from UGI to finance the project. Other than a single payment of JMD$400,000.00, no other sum was paid on the loan. Incidentally, this JMD$400,000.00 is identical to the sum identified in the loan agreement as the commitment fee charged by UGI. Thus it can reasonably be said that KES did not make a single payment on the loan once it was disbursed in 2006 because there is no evidence that KES paid any other sum other than that which just happened to be the same as the commitment fee. This loan was secured by the personal guarantee of the Scotts and this guarantee was further secured by a mortgage over property owned by the Scotts in their personal capacity. It is this mortgage that Petros has enforced.

6 [6] By 2007, KES had fallen into serious arrears. Mr. Leighton McKnight and Mr. Raymond Goulbourne became concerned that they might lose their investments and came to the rescue of KES. The gentlemen say that they sought to “to purchase the Scotts' interest in the debt and mortgage' (see affidavit of Mr. McKnight dated February 3, 2010). There is another affidavit of Mr. McKnight that contains these words: “I along with other stakeholders have at all times been willing and able to redeem the mortgage' (affidavit dated July 7, 2010). However, as already noted neither of these gentlemen purchased the Scotts' interest in the property which would have enabled to say they were in a position to redeem the mortgage within the full legal meaning of that expression.

7 [7] The case rumbled on through the courts until February 22, 2010 when Evan Brown J (Ag) made a consent order in which it was agreed that the Scotts were to pay JMD$20,000,000.00 “on account of their indebtedness on or before Friday, February 26, 2010” to Brady and Co who was receiving the money on behalf of the mortgagee. A term of the...