Real Estate Board v Jennifer Messado & Company


[2013] JMCA Civ 29




The Hon Mr Justice Morrison JA

The Hon Miss Justice Phillips JA

The Hon Mrs Justice McIntosh JA



Capital & Credit Merchant Bank Limited
The Real Estate Board
The Real Estate Board
Jennifer Messado & Co

MORTGAGES - Charge - Whether the defendant's charge ranked in priority to the claimant's mortgage - Whether the defendant's charge was void in contravention of the Real Estate (Dealers and Developers) Act, s. 26(1)(a)

Morrison JA

The Real Estate Board (“the Board”) was established by section 4(1) of the Real Estate (Dealers and Developers) Act (“the Act”), which was enacted in 1987. By section 5 of the Act, the Board is responsible for the regulation and control of the practice of real estate business, the disposition of land in development schemes, as defined in the Act, and the operation of such schemes.


Section 2 of the Act defines “developer”, “development” and “development scheme” as follows:

‘“developer” means a person who carries on, whether in whole or in part, the business of development of land;

“development” means the carrying out of building, engineering, or other operations in, on, over or under any land, or the making of any material change in its use or in the use of any buildings or other land for the purpose of disposal of such land or any part thereof in a development scheme;

“development scheme” means a scheme or intended scheme for the development of land the sub-division or proposed sub-division of which is subject to the provisions of the Local Improvements Act or the Town and Country Planning Act;…’


Development schemes are specifically dealt with in Part IV of the Act, and these consolidated appeals, which are from a judgment of Mangatal J given on 8 June 2011,are primarily concerned with the interpretation and effect of the provisions of the Act, with particular reference to a development scheme located at Mountain Valley, Stony Hill, in the parish of St Andrew (“the Mountain Valley scheme”).


The appellant in the first appeal (SCCA No 87/2011) is Capital and Credit Merchant Bank Ltd (“CCMB”), which is a limited liability company incorporated under the Companies Act. It was at the material time an authorized financial institution within the meaning of the Act, engaged in the business of merchant and investment banking and the provision of loans to customers. The respondent to this appeal is the Board, which has also filed a counter-notice of appeal, by which it too challenges an aspect of the judgment of the learned trial judge. The Board is also the appellant in the second appeal (SCCA No 150/2011), to which the respondent is Jennifer Messado & Co (“JM & Co”), a firm of attorneys-at-law. Mrs Jennifer Messado (“Mrs Messado”) is the senior partner in JM & Co.

The relevant provisions of the Act in outline

Although it will in due course be necessary to make detailed reference to some of the provisions of the Act, it may be helpful at the outset, before setting out the relevant background to the appeals, to give a brief description of the regime created by the Act for the regulation of development schemes. The central concern of Part IV is the protection of purchasers under “prepayment contracts” in such schemes. A prepayment contract is any contract (or connected contract) under which, at the time it is entered into, moneys are payable by the purchaser to the vendor, in respect of obligations to befulfilled in the future by the vendor, relating to the construction of roads, buildings and works and the carrying out of engineering or other operations on any land.


No person may enter into a prepayment contract as a vendor of land under a development scheme unless that person is registered by the Board as a developer (section 26(1)(a)). If this is done, the purchaser may within a reasonable time withdraw from the contract and recover from the vendor any moneys paid to him under the contract, with interest. Breach of this provision may also expose the vendor to criminal sanctions (section 26(2)). Land in respect of which a prepayment contract is entered into must also be free from any mortgage or charge (other than a mortgage or charge in favour of an authorized financial institution securing repayment of moneys advanced by that institution in connection with the construction of any buildings or works on the land) (section 26(1)(b)).


Sections 29–31 of the Act are at the heart of the regime created by the Act. Moneys received by a vendor from a purchaser under a prepayment contract in a development scheme must without delay be paid by the vendor into a trust account maintained by him with an authorized financial institution (section 29(1)). Such moneys, together with any interest earned thereon, are required to be held in trust in the account until completion or rescission of the contract (section 30). They may not be sooner withdrawn, save (i) for payment by the vendor of stamp duty and transfer tax payable in respect of that contract, and (ii) in partial reimbursement of material and labour costs incurred in the construction of any building or works which is the subject ofthe contract (not to exceed 90% of the amount certified by a qualified and independent quantity surveyor or architect as being properly due, and unpaid, for work done and materials supplied in the course of the construction (section 31(3)(a)).


As a condition of such withdrawal, the owner of the land upon which the construction is taking place must have executed and lodged with the Registrar of Titles a charge on the land (deemed to be, and enforceable as, a mortgage) in favour of the Board to secure repayment by the vendor of all amounts received by him pursuant to the contract which may become payable by him on a breach of contract (section 31(4) — the form and the terms of the charge are prescribed by regulation 20 and set out in Form F of the schedule to the Real Estate (Dealers and Developers) Regulations, 1988). The Board's charge ranks in priority to all other mortgages and charges on the land, save any statutory charge thereon in respect of unpaid rates or taxes; however, a mortgage or charge created on the land in favour of an authorized financial institution to secure moneys advanced in connection with construction of any buildings or works thereon will rank pari passu in point of security with the charge created in favour of the Board (section 31(5)). A loan or advance made by an authorized financial institution will prima facie be taken as so connected if it is stated so to be in the instrument creating the mortgage or charge in favour of that institution (section 31(6)).


Finally, section 44 deals with offences and prescribes penalties, subsection (3) making it an offence for any person to (a) enter into a prepayment contract without having registered with the Board as a developer; (b) fail to pay any money received byhim as a vendor under a prepayment contract into a trust account; and (c) withdraw any moneys paid into a trust account otherwise than as permitted by section 31.

The facts

The summary of the unchallenged affidavit evidence which follows is substantially based, with gratitude, on Mangatal J's summary at paragraphs 1–22 of her admirable judgment in the court below.


The property on which the Mountain Valley scheme was to be undertaken (“the property”) was originally registered at Volume 733 Folio 75 and Volume 733 Folio 76 of the Register Book of Titles, but it is now registered at Volume 1389 Folio 338 and Volume 1389 Folio 436. Up to 1 May 2006, it was owned by Mrs Zoe McHugh (“Mrs McHugh”), but on that date it was transferred to KES Development Company Limited (“KES”), a limited liability company incorporated under the Companies Act and involved in the business of real estate development and construction.


On 20 May 2005, nearly a year before the transfer of the property by Mrs McHugh to it, KES applied to the Board for registration as a developer in respect of the Mountain Valley scheme. Evidence was given on behalf of the Board that the application was granted (see the affidavit of Sandra Watson, sworn to on 27 January 2010, para. 5), though the only documentary evidence of this appears to be a notation on the last page of the application itself (exhibit “ SW1 to Ms Watson's affidavit), under the rubric, ‘For the official use of the Real Estate Board’, which indicated that the application was considered by the Board on 21 June 2006 and a registration number‘DU/0635’ assigned. Mangatal J treated it as an undisputed fact that the application was granted on 21 June 2006.


Between February and June 2005, Mrs McHugh and KES each entered into a number of contracts with potential purchasers of units in the Mountain Valley scheme. In respect of each unit, the purchasers entered into two agreements, one with Mrs McHugh for the sale and purchase of a lot of land, part of the property (“the sale of land agreement”), and the other with KES, whereby KES undertook to build a town house on the lot in accordance with agreed specifications (“the construction agreement”). Both contracts were entered into at the same time and the sale of land agreements made completion conditional upon the completion of the town houses. Both the sale of land and the construction agreements named JM & Co as the attorneys-at-law having carriage of sale.


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