Khiatani Jamaica Ltd v Sagicor Bank Jamaica Ltd

• Jurisdiction: Jamaica
• Judge: Sykes J
• Judgment Date: 09 December 2016
• Court: Supreme Court (Jamaica)
• Docket Number: CLAIM NO. 2015CD00032
• Date: 09 December 2016

[2016] JMCC COMM 34

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

COMMERCIAL DIVISION

CLAIM NO. 2015CD00032

Between:

Khiatani Jamaica Limited

First Claimant

and

Sunil Khiatani

Second Claimant

and

Sheila Khiatani

Third Claimant

and

Sagicor Bank Jamaica Limited

Defendant

Lord Anthony Gifford QC and Kimberlee Dobson instructed by Nelson-Brown, Guy and Francis for the claimants

Charles Piper QC and Petal Brown instructed by Charles E Piper and Associates for the defendant

CIVIL PROCEDURE — MORTGAGOR ALLEGING MORTGAGEE BREACHED DUTY WHEN EXERCISING POWER OF SALE — WHETHER PERMISSIBLE TO PLEAD THAT MORTGAGEE WAS NEGLIGENT — WHETHER TORT OF NEGLIGENCE APPLICABLE TO CLAIM — WHETHER PERMISSIBLE TO CLAIM DAMAGES FOR MENTAL DISTRESS

IN CHAMBERS

Sykes J

The claim

1 In this claim Mr and Mrs Khiatani, (‘the Khiatanis’) and their company, Khiatani Jamaica Ltd (‘KJL’), are of the view that they were hard done by by Sagicor Bank (‘Sagicor’). KJL borrowed money from Sagicor Bank previously known as RBTT Royal Bank (Jamaica) Limited. The Khiatanis guaranteed the loan. The security for the guarantee was the home of the Khiatanis. It is common ground that KJL defaulted on the loan which triggered the guarantee. The home was sold and it is alleged that Sagicor sold the home for much less that could be obtained had Sagicor acted properly.

2 KJL and the Khiatanis have brought a claim against Sagicor alleging negligence and breach of its duty to act in good faith when exercising the power of sale. There was also a claim for damages for mental distress. The claim therefore has both a common law action and a suit in equity. In short, this is the usual mortgagor/mortgagee dispute over the exercise of the mortgagee's power of sale.

3 When the matter came on for case management the court enquired why was there a common law action in negligence as well as a claim in equity having regard to the nature of the claim. The matter was adjourned to permit counsel for the claimants to make submissions in that regard. After hearing from Lord Gifford QC the court decided that the claim in negligence should not go forward and neither should the claim for damages for mental distress. These are the reasons for those decisions.

Brief history of mortgages

4 At common law and before the Torrens system of title by registration was introduced by the Registration of Titles Act (‘RTA’), the common way in which mortgages were granted was by way of an actual transfer of the legal estate by the mortgagor to the mortgagee. It was a contract by which the mortgagor promised to repay the sum borrowed by a certain date and if the money was repaid the land would be reconveyed to the mortgagor. Should he fail to repay by the date stated, then the common law regarded that as a breach of contract. One of the consequences was that the mortgagee need not reconvey the land.

5 From the thirteenth to the fifteenth century three methods of effecting a mortgage were used. The first was one in which the mortgagor granted the mortgagee a lease who would then take possession which enabled him to collect the rents and profits of the land were used to pay off the debt. The sum paid also included interest but the interest portion was not separately identified for fear of accusations of usury. The lease method enabled the mortgagee to secure interest without the risk of his soul burning in eternal damnation on account of his userous conduct. The second was to convey the land to the mortgagee for a term of years with a proviso that if the money was not repaid by the end of the term the mortgagee could keep the land in fee. The third was a conveyance to the mortgagee in fee on condition that if the debt was repaid by the date specified the mortgagor could re-enter the land. As time went on this third form became the dominant form. Litigation regarding mortgages in these very early times was done in common law courts. Those courts interpreted the mortgage contract strictly and once the due date came and the money was not repaid the mortgagor lost his land for ever and a day. There was no such thing as an equity of redemption. Equity as we think of it today was in its infancy.

6 Indeed, at the end of the thirteenth century there was no such thing as court of equity presided over by the Chancellor. The three courts in existence at that time were the King's Bench, the Court of Common Pleas and the Exchequer. The Chancellor at that time was more in the nature of very high ranking member of the King's Council than a judge. However, by dealing with petitions that were addressed the King the Chancellor gradually began to emerge as a person who was a ‘judge’ but was not yet recognised as such.

7 Depending on one's interpretation of the available information it could be said that that it was not until the fifteenth century that the Chancellor finally emerged as judge in his own right and even after he did, the development of the law relating to mortgages progressed incrementally. Even as late as the reign of James 1 (1603 – 1635), the early years of this first Stuart king of England revealed no language suggesting that the concept of an equity of redemption existed. This had to await the reign of Charles 1. Ashburner records in his Principles of Equity (1902) 47,

In the reign of Charles 1, the right to redeem in the absence of special circumstances is fully recognised.

8 In fact until the Chancellor became a full-fledged judicial officer concepts such as equity of redemption and clog on the equity of redemption could not develop. It was not until the time of Charles 1 (1625 to 1649) that it was finally established and accepted that a mortgagor ‘should be allowed to redeem his estate after the legal day of payment had gone by’ (Williams, Joshua, Principles of the law of Real Property, (1920), 600). Also the ‘main principles of equity in respect of the redemption of mortgages were settled in the reign of Charles 11 [1649 – 1685]’ (Williams, 600).

9 As Ashburner noted in his text Principles of Equity at page 259:

What, then, are the inevitable terms of the contract of mortgage? The contract was treated quite differently at law and in equity. To deal first with mortgages of land: At law, the mortgage of land was treated as having a conditional fee in the land, which became absolute on the expiration of the time limited by the contract for redemption. The mortgagee could take possession at any time after the conveyance, and, subject only to the contractual right of the mortgagor to redeem, he could exercise all the powers of an absolute owner. The contractual right of the mortgagor to redeem was right which could only be exercised in strict accordance with the terms of the mortgage contract. At law, the mortgagor who had made default had no longer any right to redeem. The mortgagor who remained in possession after the mortgagee's estate became absolute at law was sometimes described as ‘tenant at will; or ‘tenant by sufferance; of the mortgagee; but these expressions were merely analogical. … Courts of equity from an early time looked upon the mortgage from a different point of view. They regarded it as a mere security for the payment of money, and limited the rights of the mortgagee to such as were necessary for the purpose of protecting and enforcing his security. … In furtherance of this view, courts of equity, from the time of Charles 1, or even earlier, gave the mortgagor a larger right of redemption that was prescribed by his contract. They held that he could redeem, on equitable terms, after the expiration of the time fixed by the contract for redemption. They held further that the equitable right of redemption could only be put an end to in two ways, by the lapse of time or the operation of a Statute of Limitations, or secondly, by the decree of the court. As the courts of equity gave the mortgagee this enlarged right, they also held that the mortgagee might, at any time after the mortgagor's right had accrued, come into a court of equity and insist that the mortgagor should either exercise his right within a reasonable time to be determined by the court, or be forever precluded from exercising it. This was called the right to foreclose. (Emphasis added)

10 Ashburner adds at page 279:

In the seventeenth and eighteenth centuries the judges in equity, in their desire to protect the equitable right of redemption, indulged in figures and metaphors which have caused many perplexities to their more prosaic successors. Thus it was laid down that ‘once a mortgage, always a mortgage’ …

11 This was Ashburner in 1902. Before him there was Digby's An Introduction to The History of the Law of Real Property (1897) (5 ^th) at page 285:

In the time of Littleton a mortgage had become a species of estate upon condition. The land was conveyed, usually by feoffment, by the debtor to the creditor, subject to the condition that on repayment of the loan by a certain date by the feoffor (the debtor) might re-enter. On the failure to the feoffor to perform the condition, the law refused to regard the fact that the real nature of and intent of the transaction was that the land should be held by the feoffee merely as security for the debt, and insisted on the enforcing of the rules relating to estates upon condition in all their strictness, holding that the estate was thereupon vested absolutely in the feoffee.

In later times, when the jurisdiction of the Chancellor was firmly established, the rights and duties of the mortgagor and mortgagee recognised by Equity became wholly different from those recognised by Law. …. In Equity, however, the real nature of the transaction is regarded, and even after default is made, notwithstanding the terms of the instrument creating the mortgage, the mortgagee will be made to reconvey the land to the mortgagor on payment of the debt, interest, and costs. The right which remains in the...