Strachan (Leymon Floyd) v Jamaica Redevelopment Foundation Inc.
| Jurisdiction | Jamaica |
| Judge | SYKES J. |
| Judgment Date | 10 October 2007 |
| Judgment citation (vLex) | [2007] 10 JJC 1601 |
| Court | Supreme Court (Jamaica) |
| Date | 10 October 2007 |
IN THE SUPREME COURT OF JUDICATURE OF JAMAICA
COMMERCIAL LAW - Debt - Agreement - Whether clauses impose penalty
Some years ago Mr. Strachan borrowed money from National Commercial Bank. The debt is now in the hands of Jamaican Redevelopment Foundation Incorporated ("JRF"). No issue is taken on the assignment of the debt to JRF. JRF is an efficient debt collector. JRF has an iron fist covered with a velvet glove. It enforces agreements that it makes with debtors. It may agree to accept a lower amount in satisfaction of the original debt but the conditions are stringent. JRF does not accept or tolerate excuses. It is not afraid to litigate to enforce its rights. Some might even say that JRF relishes and thrives on a legal challenge. This case is about one of those agreements. Mr. Strachan has taken up the challenge of trying to establish that two clauses in the agreement between him and JRF impose a penalty. JRF contends otherwise.
Mr. Strachan is in debt to the tune of some US$12,733,853.00. One adds to this interest and costs and regardless of the rate of interest, the sum owed is indeed significant. This figure was the agreed debt when he signed a document headed Agreement to Restructure Existing Debt . The other signatory is JRF. By this agreement JRF agreed to accept a much lesser sum (US$1,248,000.00) provided that Mr. Strachan adhered to the stringent conditions. In the agreement this lesser sum is called the restructured debt.
By his own admission, Mr. Strachan accepts that he was unable to make the payments in accordance with the terms of the agreement. JRF and Mr. Strachan amended the agreement by letter dated September 26, 2005. This sum was revised upward to US$2,000,000.00. The letter evidencing this revised figure is dated September 26, 2005, and reads:
Pursuant to our last meeting regarding the matter at caption, we advise that approval has been had to amend the terms and conditions of the Agreement to Restructure as follows:
(a) Restructured debt at US$2,000,000.00 less payments made since November 17, 2004, with interest accruing thereon at 12% from November 17, 2004 to September 30, 2005 (sic)
(b) The balance outstanding as at September 30, 2005 will be capitalized and interest accruing thereon at 12% (sic)
(c) Monthly payments of J$1,000,000.00 converted at the prevailing exchange rate, commencing October 1, 2005. Lump sum payment of J$5,000,000.00 to be made in December 2005 (sic)
(d) All remaining balance becomes due to full settlement no later than June 30, 2006 (sic)
Based on the foregoing, we look forward to receiving your first promised payment by October 3, 2005 (emphasis in original) In acknowledgment and your (sic) agreeing to the foregoing kindly sign and return to us the attached copy of this writing no later than October 3, 20005 (emphasis in original)
This agreement was signed by JRF and Mr. Strachan. The signature has a date. The date in numerals. The date is either October or November 22, 2005. The figure representing the month may be either "10" or "11". It does not matter which it is. What is important is that Mr. Strachan signed the letter and returned it thereby indicating acceptance of the proposed amendment.
This variation of the agreement was possible under clause 17 of the restructured agreement which provides that the agreement cannot be modified or amended except by an instrument in writing signed by both parties.
It was necessary to set out the letter above because Mr. Strachan at paragraph 11 in his affidavit dated September 26, 2006 made the startling assertion, that the September 26, 2005, was sent to him "arbitrarily purporting to amend the restructured agreement". Mr. Strachan omitted to mention the small but important fact that he signed the letter agreeing the variation.
It appears that Mr. Strachan is still behind in his payments and has difficulty meeting the conditions of the amended agreement. JRF has apparently threatened to sell the security for the loans. This prompted a payment of US$150,000.00 sometime in 2006. This, in turn, elicited a response from JRF by way of letter dated April 25, 2006. JRF does not indulge in unnecessary pleasantries. Mr. Strachan was told in quite blunt fashion that while JRF accepted his latest payment that fact must not be taken as an indication that JRF is relaxing its position or weakening its resolve to collect what is owed to it. He was told that if the full amount is not paid by June 30, 2006, JRF will exercise all remedies open to it. The full amount referred to in that letter was US$2,308,675.66. This letter has the signatures of JRF and Mr. Strachan.
Mr. Strachan in an effort to lighten his burden has raised the issue of whether two clauses in the restructuring debt agreement impose a penalty. The relevant clauses that are being challenged are clauses 13 and 14. Clause 13 reads in the relevant parts:
In the event of a breach or default of any representations, warranties or obligations under this Agreement (sic), including those set forth on the Schedule hereto which includes the failure to make any payments required by Item 8 (sic) of the Schedule hereto by the Borrower (sic) or the Guarantor, and this breach continues for a period of thirty (30) days (except for breached under Clauses (sic) 10, 11 (2) and 11 (3) hereof as to which there shall be no cure period and such breach shall be immediately deemed a default hereunder); provided, however, that such thirty (30) day grace period shall only be applicable two (2) times during any twelve month period following the date hereof, and if a breach or default (the "third default") occurs during any such twelve (12) month period and if during such twelve (12) month period Borrower has committed a breach or default as described herein two (2) previous times, no thirty (30) day cure period shall apply to such third Default (sic) or any subsequent default or breach occurring during such twelve (12) month period will constitute a default and JRF reserves the right to (i) enforce all terms, provisions and conditions of the Security; and (ii) exercise and pursue all of the rights, remedies and powers under the Security; and (iii) sue to recover the entire amount of the unpaid Original Debt (sic) plus fees and interest at a rate of thirty percent (30%) on Jamaican Dollar facilities or twenty percent (20%) on United States Dollar facilities, whichever is applicable, from the effective date stipulated in Clause 3 (2) subject to the Maximum Interest Rate (sic) defined below. JRF may elect to sue the Borrower and the Guarantor to recover the Original Debt less any installments pursuant to the provisions of Clause 3 (1) hereof and to employ any or all available remedies to recover the Original Debt. The "Maximum Interest Rate" shall mean ...
Clause 14 reads in the relevant parts:
This agreement shall remain in force until either the Original Debt or Restructured Debt is liquidated and JRF release and forever discharges both the Borrower and the Guarantor form their respective obligations or any claim which JRF may have against the Borrower and the Guarantor in respect of the Original Debt and Restructured Debt and JRF shall not release, waive, forever discharge or compromise the Original Debt until the terms of this Agreement have been fully performed and the Original Debt or Restructured Debt, as applicable, is fully paid. Any release or discharge given by JRF is expressly conditioned upon ...
Clause 13 is long but it does not require much to appreciate that it establishes the events that give rise to JRF enforcing the original debt. The failure to pay the restructured debt on the conditions set out in the agreement is a trigger event that activates clause 13. If there is a failure to pay in accordance with the agreed terms there is a thirty day period during which the debtor can make the payment without the trigger being activated. The debtor is allowed two such breaches in any twelve month period. A third breach in any twelve month period gives JRF the right to enforce the original debt.
Clause 14 makes it clear that until the original debt or the restructured debt is paid off in accordance with the agreed terms the agreement remains on foot.
Mr. Strachan launched his strike against JRF by way of fixed date claim form in which he asked for the following relief:
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(a) a declaration that Clauses 13 and 14 or portions thereof in the agreement to restructure existing debt dated the 11th day of March 2004 made between the claimant and the defendant be struck out, as the said clauses or portions thereof are penalty clauses and not a genuine pre-estimate of any loss suffered or likely to be suffered by the defendant.
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(b)an order that the defendant pays into court and/or into an interest bearing account in the joint names of the attorneys at law for both the claimant and the defendant the sum of US$932,055.00 until the determination of the claim herein.
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(c)an injunction restraining the defendant from removing from the jurisdiction the said sum of US$932,055.00 which is presently in the hands of the defendant.
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(d)an order that the defendant provides the claimant with an account of all funds due and owing to the claimant.
JRF responded with what has proven to be the mortal strike. It asked by notice of application for court orders dated March 28, 2007:
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1. that the claim be dismissed.
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2. that it be adjudged as follows:
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(a) judgment for the defendants on the claim;
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(b) costs of the claim to be paid by the claimant to...
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