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TRINIDAD AND TOBAGO
IN THE HIGH COURT OF JUSTICE
H.C.A. No. 3521 of 1994
BETWEEN
FIRST CITIZENS MERCHANT BANK
LIMITED and JAYMORE GARMENTS
(CARIBBEAN) LIMITED (in Receivership)
Plaintiffs
AND
ALEXANDRA INVESTMENTS LIMITED
Defendant
Before: The Hon. Justice Nolan Bereaux
Appearances: Mr. S. Jairam for the Plaintiffs
Mr. E. Prescott for the Defendant
JUDGMENT
The first plaintiff (“the Bank”) is a company duly incorporated under the
provisions of the Companies Ordinance Ch. 31 No. 1. By virtue of a vesting
order made in 1993 in respect of the assets and liabilities of the International
Industrial Merchant Bank of Trinidad and Tobago Limited (“the Merchant Bank”)
and by a special resolution dated 19th January, 1994, it became seised of all assets
of the Merchant Bank.
Page 1 of 59
The second plaintiff is a company duly incorporated under the provisions of the
Companies Ordinance with its registered office at Don Miguel Extension Road,
San Juan. At all material times it carried on the business of garment
manufacturers.
The defendant is a company duly incorporated under the provisions of the
Companies Ordinance with its registered office situate at No. 29A Edward Street,
Port of Spain.
At the outset of the trial of the action, there were certain facts agreed between
counsel as well as certain agreed issues. These are set out in my judgment.
However, because of the diversity of the issues involved and the detail in which
certain issues are pleaded, it is necessary that I refer in some detail to the claims
and pleadings of the parties concerned. The result is, however, to render the
judgment much longer than I would have preferred, and no doubt to add to the
tedium of reading it.
The writ of summons
The plaintiffs by their writ of summons filed 9th November, 1994 claim, inter
alia;
(1) A declaration that all the machinery, equipment, office furniture, fixtures
and fittings and all other assets as are covered or charged by a single
debenture made by the second plaintiff, dated the 14th February, 1989 and
registered on the 15th February, 1989 as No. 2287 of 1989 in favour of the
Bank to secure, inter alia, all monies and liabilities due from and incurred
by the second plaintiff to the Bank (default having been made by the
second plaintiff in the payment of the instalments in or about the year
1993), which are in the defendant’s possession either at Don Miguel
Extension Road, San Juan or elsewhere are the property of the Bank.
(2) A declaration that all the several chattels and things specifically described
in the schedule to a chattel mortgage dated the 29th January, 1991 and
Page 2 of 59
registered on the 30th January, 1991 as No. 1768 of 1991 granted by the
second plaintiff in favour of the Bank to secure, inter alia, the sum of
$150,000.00 (default having been made by the second plaintiff in payment
of the instalments in or about the year 1993) which are in the defendant’s
possession either at Don Miguel Extension Road aforesaid or elsewhere
are the property of the Bank.
(3) Further or alternatively, a declaration that the debenture or the said chattel
mortgage constitute a charge on the said assets or the chattels, in priority
to that of the defendant purportedly created by a document purporting to
be a deed of chattel mortgage dated the 16th day of May 1991 registered as
No. 10543 of 1991 and made purportedly between, inter alia, the second
plaintiff and the defendant.
(4) An injunction to restrain the defendant whether by its directors, officers,
auditors, proxies, nominees, servants or agents or otherwise howsoever
from doing the following:
(a) preventing the plaintiffs, their servants or agents from entering the
said premises situate at Don Miguel Road, aforesaid for the
purpose of taking an inventory of the said assets, the said chattels
and the Seepauls’ chattels stored, kept or detained thereat.
(b) destroying, defacing, tampering with, changing, altering, hiding,
removing, transferring, mortgaging, pledging or selling or
otherwise disposing of any or all of the said assets, the said chattel
and the Seepauls’ chattels which are either kept stored or detained
on the said premises situate at Don Miguel aforesaid or elsewhere
by the defendant.
(c) detaining or taking possession or control of the said assets, the said
chattels and the Seepauls’ chattels or any of the stock in trade,
property or other assets belonging to the second plaintiff over
which the Bank has a charge by virtue of the said debenture, and
the said chattel mortgage, and otherwise interfering with Osborne
Page 3 of 59
Kenny Haynes (or his successors, his servants or agents) as
receiver and manager of the second Plaintiff.
(5) An order for the delivery of the said assets, the said chattels and the
Seepauls’ chattels or their value and damages (including aggravated
damages) consequent upon the wrongful interference with the same by
their detention and damages for the wrongful conversion by the defendant
or of the same, being property of the Bank.
(6) Alternatively, damages including aggravated damages.
The claims sought at reliefs 3 and 6 were not pursued and were superseded by the
reliefs sought in the statement of claim.
The defendant counterclaims and seeks inter alia, the following reliefs:
1. A declaration that the charge first created by reason of the registration of a
mortgage bill of sale dated 30th September, 1986, and thereafter registered
under the Companies Ordinance constitutes a valid and subsisting charge
within the meaning of the Companies Ordinance and ranks in priority over
the plaintiff’s debenture.
2. A declaration that the appointment of the receiver/manager on the 20th
July 1994 was discharged by an amending agreement and is therefore
ineffective as against the defendant.
3. Damages, including damages for trespass.
4. Arrears of rent amounting to $103,394.45.
5. Storage charges amounting to $86,250.00.
Agreed Facts
The facts as agreed are as follows:
1. By a mortgage bill of sale dated 30th September 1986 and registered on 6th
October 1986, pursuant to the Bills of Sale Act, Ch. 82 No.32 as No.
17912 of 1986 (“the 1986 mortgage bill of sale”) one Joshua Kanhai and
one Samrajh Seepaul charged the several chattels and things described
Page 4 of 59
therein with payment to the defendant of the principal sum of $203,125.00
and interest thereon at 15% per annum.
2. By a deed of assignment dated 13th February 1989 and registered on 15th
February 1989 as No. 1874 of 1989, Joshua Kanhai and Samrajh Seepaul
assigned to the second plaintiff the said chattels for the purchase price of
$150,000.00.
3. By a single debenture made by the second plaintiff on 14th February 1989
and registered on 15th February 1989 under the Companies Ordinance as
No. 2287 of 1989, the second plaintiff charged;
(a) all machinery, equipment, office furniture, fixture and fittings
therein described, by way of fixed second charge with the payment
to the Bank’s predecessor the Merchant Bank and duly stamped to
cover $1,200,000.00.
(b) its goodwill and its entire undertaking including its uncalled capital
and receivables by way of a floating second charge with payment
of $200,000.00.
4. On 16th February 1989, the charge evidenced by the 1986 mortgage bill of
sale was registered (or purported to be re-registered) pursuant to the
Companies Ordinance and was so certified by the certificate of the
registrar of companies of even date.
5. On 16th February 1989, the registrar of the companies certified that the
debenture was registered pursuant to the Companies Ordinance.
6. On 5th October 1989, the registration of the 1986 mortgage bill of sale was
renewed pursuant to the Bills of Sale Act.
7. On 20th October 1989, the registrar of companies certified that a mortgage
bill of sale dated 4th October 1989, was registered pursuant to the
Companies Ordinance.
8. By a mortgage bill of sale (“the 1991 chattel mortgage”) dated 29th
January 1991, made between the second plaintiff and the Merchant Bank
and registered in the index of bills of sale on 30th January 1991 as No.
Page 5 of 59
1768 of 1991, the second plaintiff assigned to the Merchant Bank the
chattels therein described by way of security for the repayment of the sum
of $150,000.00 with interest at the rate of 14.75% per annum.
9. By certificate dated 1st February 1991, the registrar of companies certified
that the 1991 chattel mortgage was registered pursuant to the Companies
Ordinance. By a vesting order and other instruments the Bank is now
entitled to all the assets of the Merchant Bank including the debenture and
1991 chattel mortgage.
10. By a deed of lease made the 16th day of May 1991, the defendant demised
certain premises at Don Miguel Road, El Socorro to the second plaintiff
for a term of 5 years commencing 1st May 1991 at a rental of $5,000.00
per month. The deed of lease is registered as No. 8626 of 1991. Joshua
Kanhai and Samrajh Seepaul were sureties thereto for the payment of rent.
11. The second plaintiff at all material times kept machinery, equipment and
plant, furniture, fixtures and fittings on the premises.
12. The second plaintiff defaulted in payment of the monthly rental to the
defendant whereupon on or about 9th May 1994, the defendant exercised
its rights under the lease, forfeited the lease and seized the second
plaintiff’s goods, chattels and machinery situate on the demised premises
and secured the premises and the said goods and chattels therein or
thereon by locking the said premises.
13. No notice of levy or inventory was lodged with the magistrates’ court or
the Clerk of the Peace by the defendant or any person on its behalf.
14. By notice in writing dated 28th July 1994, the registrar of companies was
notified that Osborne Kenny Haynes had been appointed receiver and
manager of the second plaintiff on behalf of the Bank by way of an
agreement in that regard dated 20th July 1994.
15. The appointment of the receiver was amended by an agreement dated 13th
December 1994.
Page 6 of 59
16. By the amending agreement the parties sought to amend the condition
pursuant to which the appointment was made, by altering the event
initially relied on.
17. There was an exchange of correspondence between the Bank and the
defendant.
As to facts set out at paragraph 12, there is dispute between the parties on whether
or not a distraint took place both in fact and in law. Consequently, evidence was
led on behalf of the defendant by Mr Jesse Mahabir, chairman of the board of
directors of the defendant, as to what transpired on 9th May, 1994, and he was
cross-examined by Mr Jairam. The issue of fact was left to me.
I must add, however, that while facts have been agreed, I do not consider myself
bound by them and shall draw my own conclusions particularly from the
documentary evidence.
The statement of claim
The plaintiffs’ statement of claim provides inter alia:
1. that by the 1991 chattel mortgage, the second plaintiff assigned the several
chattels and things described in the schedule thereto to the Bank’s
predecessor in title by way of security for the repayment of the sum of
$150,000.00 with interest.
2. the 1986 mortgage bill of sale was re-registered once and in or about the
year 1991 it became void and of no effect for want of re-registration by
reason of the provisions of the Bills of Sale Act, Ch. 82 No.32 and in
particular section 17.
3. At the date of assignment, the second plaintiff acquired the said chattels,
subject to a charge or to an existing charge, that is, the 1986 mortgage bill
of sale and as a result of which the prescribed particulars relating to the
existing charge were registered by the second plaintiff on 16th February
1986 pursuant to section 81 of the Companies Ordinance.
Page 7 of 59
4. Condition 4(c) and (d) of the debenture, provided that the principal monies
secured by the debenture shall become immediately payable and the
security enforceable:
(i) if the company (i.e. the second plaintiff) ceases or threatens to
cease to carry on business. (condition (c))
(ii) if a receiver of the company’s undertaking or property or any part
thereof be appointed. (condition (d))
5. Condition 6 of the debenture provided that the lender may at any time
after the monies secured shall have become payable, appoint in writing, a
receiver and manager of the property charged and may from time to time
with the like concurrence remove any receiver and manager so appointed
and appoint another in his stead.
6. Condition 7 of the debenture provided that a receiver and manager shall be
the agent of the second plaintiff and shall have power:
(1) to take possession of and get in the said assets hereby
charged.
(2) to carry on or concur in carrying on the business of the
Company and for that purpose to borrow money secured on
the said assets charged in priority to the debenture or
otherwise.
(3) to sell or concur in selling any of the said assets hereby
charged.
(4) to make any arrangement or compromise which he shall
think expedient.
7. In or towards the end of 1993 or in the first quarter of 1994, the second
plaintiff ceased to carry on business and as a result the Bank’s floating
charge contained in the debenture became a fixed or specific charge by
crystallization. Further, as at the 31st May 1993, the second plaintiff’s
indebtedness to the Bank under the debenture and the 1991 chattel
mortgage was $2,395,477.71 which increased to $2,606,245.00 as at the
24th August 1994.
Page 8 of 59
8. (a) The second plaintiff, having made default in its repayment
obligations under both the debenture as well as the 1991 chattel
mortgage, together with the facts pleaded at paragraph 5 above, the
Bank became entitled to and duly appointed Osborne Kenny
Haynes as receiver and manager of the second plaintiff. By a
notice in writing dated the 28th July 1994, the Bank duly notified
the registrar that Mr Haynes was appointed receiver and manager
of the second plaintiff under the powers contained in the debenture
on the 20th July 1994.
(b) The said appointment was by an agreement in writing dated the
20th July 1994 as amended by an agreement in writing dated the
13th December 1994 both made between the Bank and Mr Haynes.
9. In or around May 1994, the defendant, through its servants or agents
forfeited its lease with the second plaintiff and wrongfully seized and
detained the assets on the premises (which are the goods of the Bank) and
continues to detain them.
10. By several letters from the plaintiffs and their attorneys-at-law, including
two letters both dated the 17th October 1994 from Messrs. De Nobriga,
Inniss & Company to the defendant, the plaintiffs requested that the
defendant deliver up the assets forthwith. By letter dated the 19th October
1994 from the defendant’s attorneys-at-law, Messrs. Hamel-Smith and
Company to Messrs. De Nobriga, Inniss & Company, the defendant
refused to deliver up the assets and asserted that:-
(a) the defendant is entitled in priority to the plaintiffs to have paid to
it the sum of $113,394.45 for arrears of rent;
(b) the defendant is entitled in priority to the plaintiffs to have paid to
it the sum of $76,463.55 being the amount due under the 1986
mortgage bill of sale;
(c) on the 16th February 1989, particulars of the 1986 mortgage bill of
sale were filed by the second plaintiff “as affecting property which
it had acquired subject to a charge”; and
Page 9 of 59
(d) “on the 16th February 1989 the registrar of companies issued a
certificate certifying that the 1986 mortgage bill of sale was
registered”.
11. Assuming that the registrar of companies has issued such a certificate, the
registrar of companies has acted without jurisdiction and in breach of the
provisions of the Companies Ordinance and the Bills of Sale Act and such
a certificate is null, void and of no effect. (Reliance is placed on sections
81 and 82 of the Bills of Sale Act and certain other pleaded facts in
paragraphs 10 and 12 of the statement of claim).
12. By virtue of the fixed charge in the debenture and by the crystallization of
the floating charge on the happening of the event provided for in
Condition 4 (c) of the debenture completed the assignment to the Bank of
the assets (either on the 14th February 1989 and/or towards the end of the
year 1993 and/or in the first quarter of the year 1994) which are the
subject of the charge with the consequence that the assets are no longer
“assets of” the second plaintiff over which distress for rent may be levied
by a landlord such as the defendant.
13. The said seizure of the assets by the defendant was not a distress at law as
it was illegal, null, void and of no effect and in breach of the provisions of
the Landlord and Tenant Ordinance Ch. 27 No.16 in that, inter alia:
(a) the defendant’s servant and/or agent who effected the seizure was
not a certificated bailiff;
(b) no notice of the place where the goods and chattels seized were
lodged or deposited was given to the second plaintiff by the
defendant or left at the said premises;
(c) no notice of levy or inventory was given to the second plaintiff or
lodged with the Magistrates’ Court or the Clerk of the Peace of St.
George West (the Port of Spain Magistrates’ Court) by either the
defendant or its principal, one Jesse Mahabir or by any certificated
bailiff acting on behalf of the defendant or at all;
Page 10 of 59
(d) generally, sections 8, 11, 18, 35, and 37 of the Landlord and
Tenant Ordinance Ch. 27 No.16 were contravened.
14. The defendant, its servants and agents were trespassing upon the said
plaintiffs’ property and in relation to the second plaintiff committed a
breach of the said covenant for quiet enjoyment.
The defence and counterclaim
By its re-amended defence and counterclaim the defendant intends, inter alia,
that:
1. At all material times, the second plaintiff was the sub-lessee (or tenant) of
the defendant under and by virtue of a deed of lease dated the 16th May
1991 and registered as No. 8626 of 1991.
2. The lease provided that if any rent were in arrears or unpaid for 15 days it
shall be lawful for the lessor to re-enter the demised premises and take
possession thereof. In or about May 1994, the defendant exercised its
rights under the lease for arrears of rent owed by the second plaintiff to the
defendant and forfeited the lease by locking the doors thereto and thereby
locking in the goods and chattels in the possession of the second plaintiff.
3. The debenture given by the second plaintiff to the Merchant Bank was
given with due notice to the Bank of subsisting and duly registered 1986
mortgage bill of sale.
4. On the 16th February, 1989, the second plaintiff duly registered the charge
evidenced by the 1986 mortgage bill of sale and particulars thereof as a
charge within the meaning of Sections 79 and 81 of the Companies
Ordinance and a certificate of registration in this regard was duly given
under the hand of the registrar pursuant to section 82(2) of the Companies
Ordinance dated the 16th of February, 1989, and on its true construction
and having regard to the provisions of the Companies Ordinance and in
particular section 82(2), the said certificate is conclusive.
5. The particulars of the company charge were re-registered under the
Companies Ordinance on the 20th October, 1989, and the registrar’s
Page 11 of 59
certificate in that regard was duly given under his hand pursuant to section
82(2) of the Companies Ordinance on the 20th October, 1989 which
certificate is conclusive.
6. In or about May of 1994, the defendant exercised its rights under the lease
for arrears of rent owed by the second plaintiff and forfeited the lease by
locking the doors thereto and thereby locking in the goods and chattels in
the possession of the second plaintiff on the demised premises.
7. On the 20th July, 1994, the Bank appointed Mr Osbourne Kenny Haynes
as receiver and manager of the second plaintiff on the ground that a
distress was levied on the second plaintiff. The said appointment was
effected by an agreement in writing dated the said 20th July, 1994 and
made between the Bank and the receiver. In this regard, the Bank, as
debenture holder, expressly relied on condition 4(a) of the debenture.
8. On the 13th December, 1994, the Bank purported to amend the agreement
to remove from it the ground of distress initially relied on in the agreement
and for its appointment of Osbourne Kenny Haynes as receiver/manager
and to substitute the ground that the company had ceased or threatened to
cease business, thereby rendering the appointment of the said
receiver/manager of no effect. In consequence, Mr Osbourne Kenny
Haynes and the Bank are trespassers on the demised premises and in
respect of the certain chattels.
9. The charge evidenced by the 1986 mortgage bill of sale having been
created before the debenture and being a live and subsisting charge duly
registered at the time of the execution and registration of the debenture, is
a first charge on certain chattels and ranks in priority to the said debenture.
10. In 1991 the 1986 mortgage bill of sale did not become void and of no
effect.
11. The crystallisation of the charge evidenced by the particulars of the
debenture never occurred but if it did, all of the rights of the plaintiff
flowing therefrom are subject to the defendant’s charge.
Page 12 of 59
12. On 20th July, 1994, no grounds existed to justify the purported
appointment of the receiver on the 20th July, 1994 and the amending
agreement did not and was not capable of saving the principal agreement.
13. Alternatively, the second plaintiff being in arrears of rent, the defendant
lawfully distrained on its assets as it was entitled to do under the lease and
incurred security and storage charges in the execution of the distraint
which are payable by the second plaintiff to the defendant. The registrar
of companies’ certificate duly issued on 16th February, 1989 under the
hand of the registrar is conclusive and that it is not open nor available to
the plaintiffs at this stage or in these proceedings to impugn the
conclusivity of the certificate.
14. The company charge and the 1986 mortgage bill of sale rank in priority to
the debenture and the assignment or any assignment by the second
plaintiff of its interest in the said chattels took effect subject thereto.
Further and in any event it is not a condition precedent to an effective
distraining by the landlord (including this defendant) that the defendant
should have any property in goods or chattels lying upon the demised
premises.
The reply
By their amended reply the plaintiffs contend inter alia,
(a) The registration of the charge under the Companies Ordinance on
the 16th February, 1989, was not within the meaning of Sections 79
and 81 of the Companies Ordinance and the issue of the registrar’s
certificate was invalid and ineffective, the same being ultra vires
the Companies Ordinance or the certificate was obtained by fraud
or by manifest error.
(b) The conclusive nature of the registrar’s certificate provided a
shield only against the statutory invalidation provisions of the
Companies Ordinance on the grounds of failure to register. It
conferred no positive benefit on the relevant charge if none existed
Page 13 of 59
and it did not validate or cure substantive deficiencies in a charge
where there was no charge or where the charge was invalid,
unenforceable or defective under the general law.
(c) The distress was illegal and contrary to the provisions of the
Landlord and Tenant Act Chapter 27 No. 16 and in particular
sections 8, 11, 18, 35 and 37.
(d) Alternatively, the defendant through its managing director, Jesse
Mahabir purporting to act under the colour of the authority granted
by the defendant and under the guise of a pretended distress for
rent alleged due from the second plaintiff to the defendant,
forfeited the said lease in or about May 1994 and thereafter
wrongfully entered the said premises and wrongfully seized and
took possession of and illegally and wrongfully impounded the
assets (being the assets covered by the debenture and the 1991
chattel mortgage) and wrongfully converted the same to its own
use and deprived the plaintiffs of them whereby the plaintiffs have
suffered loss and damage.
(e) There were grounds for the appointment of a receiver and manager
of the second plaintiff and these existed since the latter part of
1993 or early 1994.
Agreed documents
By agreement a total of thirty-four documents were admitted into evidence. I
shall list them all in the chronology in which they were admitted.
1. Vesting Order dated the 22nd October, 1993.
2. Certificate of Incorporation dated the 20th January, 1994.
3. Deed of Assignment No. 1874 of 1989 between Joshua Kanhai, Samrajh
Seepaul and Jaymore Garments (Caribbean) Limited dated the 15th
February, 1989.
Page 14 of 59
4. Debenture No. 2287 of 1989 between Jaymore Garments (Caribbean)
Limited and International Industrial Merchant Bank of Trinidad and
Tobago dated the 15th February, 1989.
5. Deed dated the 29th January, 1991 and registered as No. 1768 of 1991.
6. Mortgage Bill of Sale made by Joshua Kanhai and Samrajh Seepaul in
favour of the defendant dated the 30th September, 1986, registered as No.
17912 of 1986.
7. Particulars of a Mortgage or Charge subject to which property has been
acquired by a Company in the name of Jaymore Garments (Caribbean)
Limited dated the 16th February, 1989.
8. Deed of Lease No. 8626 of 1991 between Alexandra Investments Limited
and Jaymore Garments (Caribbean) Limited dated the 16th May, 1991.
9. Letter dated the 19th May, 1994 from Jaymore Garments Limited to First
Citizens Merchant Bank Limited.
10. Notice of Appointment of Receiver dated the 28th July, 1994.
11. Agreement made between the Bank and Osbourne Haynes dated the 20th
July, 1994.
12. Amended Agreement between the Bank and Osbourne Haynes dated 13th
December, 1994.
13. Letter dated the 29th August, 1994 from Alexandra Investments Limited to
First Citizens Bank Limited.
14. Letter dated the 12th October, 1994 from Alexandra Investments Limited
to First Citizens Bank Limited.
15. Letter dated the 13th October, 1994 from First Citizens Bank Limited to
Alexandra Investments Limited.
16. Letter dated the 17th October, 1994 from De Nobriga, Inniss & Co. to
Alexandra Investments Limited.
17. Letter dated the 17th October, 1994 from De Nobriga, Inniss & Co. to
Alexandra Investments Limited.
18. Letter dated the 17th October, 1994 from Alexandra Investments Limited
to First Citizens Bank Limited.
Page 15 of 59
19. Letter dated the 18th October, 1994 from De Nobriga, Inniss & Co. to
Alexandra Investments Limited.
20. Letter dated the 19th October, 1994 from M Hamel-Smith & Co to De
Nobriga Inniss & Co.
21. Letter dated 26th February, 1991 from Errol I Shim & Co. to Jaymore
Garments (Caribbean) Limited.
22. Stocktaking dated 23rd November, 1994 of Jaymore Garments Limited.
23. Certificate of Registration of a Mortgage or Charge dated the 30th
November, 1986.
24. Certificate of Registration of a Mortgage or Charge dated the 4th October,
1989.
25. Particulars of a Mortgage or Charge created by a Company registered in
the territory in the name of Jaymore Garments (Caribbean) Limited dated
the 18th October, 1989.
26. Particulars of a Mortgage or Charge created by a Company registered in
the territory in the name of Jaymore Garments (Caribbean) Limited dated
the 31st January, 1991.
27. Certificate of Mortgage or Charge dated the 16th May, 1991.
28. Search Instructions dated the 28th June, 1994.
29. Certificate of Registration of Mortgage or Charge dated the 16th February,
1989 (Debenture).
30. Certificate of Registration of Mortgage or Charge dated the 1st February,
1991 (Bill of Sale).
31. Letter dated 2nd August, 1994 from First Citizens Bank Limited to Mr
Jesse Mahabir.
32. Letter dated the 4th October, 1994 from First Citizens Bank Limited to Mr
Jessie Mahabir.
33. Valuation of Oliver Rosemin & Co. dated the 2nd September, 1997.
34. Deed of Chattel Mortgage dated 16th May, 1991 between Jaymore
Garments (Caribbean) Limited and Alexandra Investments Limited.
Page 16 of 59
Issues of Law
At the start of the trial both counsel agreed that four main issues of law fell for
decision before me. They are as follows:
1. Was the distress levied by the defendant (as landlord)
against the second plaintiff in May, 1994, upon premises
leased by the second plaintiff from the defendant, a
good distress at Law?
2. If the distraint was good, is the defendant (as landlord)
entitled to recover arrears of rent and security charges
and storage charges or any of them in priority to claims
of the Bank?
3. Can the defendant as mortgagee under the 1986
mortgage bill of sale, recover the unpaid balance of
money secured by the 1986 mortgage bill of sale, after
satisfaction of the claims for arrears of rent, security
and storage charges but before or in priority to the
claims of the Bank as mortgagee or chargee under the
1989 debenture and the 1991 chattel mortgage.
4. What is the effect in law of the appointment of the
receiver?
(a) by an agreement dated 20th July, 1994, on the
basis of a distress levied on 9th May, 1994, and
remaining unsatisfied.
(b) by an amended agreement dated 13th December,
1994, altering the basis of the appointment at (a)
above.
While these agreed issues do not bind me, I agree with both counsel that these are
the main issues to be decided in this case.
Page 17 of 59
Issue 1 - Was the distress valid
The legality of the distress is important to the outcome of the decision in this case
and affects the priority of the plaintiffs’ charges under the debenture and the 1991
chattel mortgage, for, if the distress is found to be valid, the defendant as
distrainor took the seized chattels in priority to any third party having a charge
over them. It is also important to the issue of automatic crystallisation which
itself turns on whether there was a threat of cessation of business by the second
plaintiff.
Evidence on behalf of the defendant
Mr Jesse Mahabir gave evidence on behalf of the defendant. He testified that he
was the chairman and governing director of the defendant and that he sometimes
acted as managing director. The other members of the board of directors were his
wife Gloria and his four daughters. The defendant owned property situate at Don
Miguel Road, San Juan. It demised the premises to the second plaintiff which
carried on the business of clothing manufacture at the premises. The second
plaintiff was in arrears of rent. He wrote the company on several occasions in
respect of the arrears of rent. In May, 1994 rent was still outstanding. It was early
May 1994. He visited the premises at Don Miguel Road. He spoke with Mr
Joshua Kanhai, one of the co-owners of the company, said Mr Mahabir.
“I told him (Kanhai) that I am here to collect the rent. He said
he was not in a position to pay the rent. I told him, I would have
to take over their machinery, the machinery in the factory. He
said, „before doing anything, here are the keys to the premises‟,
before I could do anything. I took the keys from him and I
locked the premises and left. The part of the premises that I
locked contained plant and machinery. There is the main door.
When that door is locked it closes the whole premises. There is a
gate on the premises. I locked the gate. On that day in question,
I acted as the chairman of the company, Alexandra Investments.
Page 18 of 59
Under cross-examination by Mr Jairam, Mr Mahabir stated that his wife Gloria
acted as managing director and that he would act as managing director only if she
were abroad. He added that he had been in business for over fifty years and that
he was involved in several other companies. He stated under cross-examination,
that he was very actively involved in his companies. But the details and
particulars of the manner and extent of that involvement were not proffered in his
evidence in chief or under cross-examination. He said he may have acted as
managing director during 1994. He was unsure that there were records available
of when, in 1994, he acted as managing director. When asked whether there was
any resolution passed requiring him to act as managing director, Mr Mahabir said,
“Perhaps we may not have a resolution for me to act, I am not
too sure that we have meetings to that effect.”
Under cross-examination by Mr Jairam, Mr Mahabir was reminded of the
contents of an affidavit to which he swore on the 25th November, 1994 in
interlocutory proceedings before Warner J. In that affidavit he described himself
as the managing director of Alexandra Investments Limited. At paragraph 6 of
that affidavit Mr Mahabir had deposed as follows:
By deed of lease made on 16th May, 1991 between the defendant
company and Jaymore with the said Joshua Kanhai and Samraj
Seepaul as sureties of the obligations of Jaymore, this defendant
leased to Jaymore for a term of five (5) years commencing the 1st
May, 1991, the premises (hereinafter called “the demised
premises”)…… Jaymore having defaulted in its payment of rent
under the lease, the defendant has exercised its right thereunder,
has forfeited the lease and seized Jaymore‟s goods, chattels and
machinery situate in the demised premises.
Page 19 of 59
When that paragraph was put to him by Mr Jairam, Mr Mahabir stated that he
stood by “the wording in the affidavit”. By that answer, I understood him to
mean the wording in paragraph 6 of the affidavit. He also admitted under cross-
examination that he was not a certified bailiff.
At the end of his cross-examination he was asked by the court what he understood
“forfeited” to mean as it is expressed in paragraph (6) of the affidavit. His answer
was;
“I understand it to be that I have taken the goods. I took the
goods by locking the door of the premises.”
I shall return to this response later.
The validity of the distraint in this case turns on two issues.
(a) Was the alleged seizure of the goods effected prior to the
alleged forfeiture? and if so,
(b) Was Mr Mahabir acting as the company when he carried
out the alleged distraint?
The first issue is a question of fact to be decided from my assessment of Mr
Mahabir’s evidence. The second is a mixed question of law and fact. If Mr
Mahabir was not acting as the company on the day of the purported distress, then
he no doubt was acting as bailiff and the issue will be whether he was required to
be certified as such.
That he is required to be certified is made clear by section 37 of the Landlord and
Tenant Act which provides,
(1) “No person shall act as a bailiff to levy any distress for
rent unless he shall be authorised to act as a bailiff by a
certificate in writing under the hand of a Magistrate
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and such certificate may be general, or apply to a
particular distress or distresses, and may be granted in
such manner as may be prescribed.
(2) Any such certificate may be cancelled or declared void
by a Magistrate, subject to the approval of a Judge of
the Supreme Court; and such cancellation or
declaration shall not be deemed to exempt such bailiff
from any other penalty or proceeding to which he may
be liable.
(3) If any person not holding a certificate under this section
shall levy a distress contrary to the provisions of this
Ordinance, the person so levying, and any person who
has authorised him so to levy, shall be deemed to have
committed a trespass, and shall, in addition, be liable,
on summary conviction, to a fine of forty-eight dollars.”
When were goods seized
Mr Prescott submitted that there was no illegality in the manner in which the
distress was carried out. Indeed, the failure to provide notice of an inventory was
an irregularity which did not vitiate the distress. With this submission I agree
entirely. In my judgment the failure to provide notice of an inventory does not
vitiate the distraint. At best, it may render the landlord liable for any items which
may be missing in the event that the arrears of rent are paid and the distrained
goods redeemed by the tenant. But in the circumstances of this case, the failure
so to provide calls into question whether there was ever a distress at all.
Mr Jairam submitted in reply that there was no distraint since the applicant had
forfeited the lease before any seizure of the items on the premises. The lease,
having been forfeited, it came to an end and there can be no legal distraint
thereafter. Paragraph 6 of Jesse Mahabir’s affidavit of 25th November, 1994
confirms this, he said. Moreover, submitted Mr Jairam, his answer to the court’s
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question on the meaning of “forfeiture” as used in the affidavit was at best
disingenuous and in fact betrayed his untruthfulness on the alleged distraint.
It seems to me that the lease was terminated before the distraint was effected. I
have come to this conclusion from my examination of the affidavit of Mr Mahabir
of November 25, 1994 and from his oral evidence under oath.
In his affidavit Mr Mahabir stated that the second plaintiff, having defaulted in its
payment of rent;
“the defendant had exercised its right thereunder, has forfeited
the lease and seized Jaymore‟s goods, chattels and machinery.”
This was very much the wording used in the defendant’s pleading. The defendant
in its pleading contends that the second plaintiff, being in arrears of rent, the
defendant “exercised its rights under the lease” and forfeited the lease.
I understood Mr Prescott’s submission to be that the distraint was the defendant’s
act of “exercising” its rights under the lease and that it was co-terminous with the
forfeiture. I do not accept this submission. I find the pleading to be little more
than creative writing intended to avoid the consequences of the forfeiture having
occurred prior to the seizure of the goods. It could not be sustained in the light of
Mr Mahabir’s evidence.
Mr Mahabir in answer to me said, he understood the word “forfeiture” to mean
that he had taken the goods by locking the premises.
I did not believe him nor did I accept his answer as truthful. Mr Mahabir by his
own evidence has been in business for over 40 years. In my judgment, he well
understood that forfeiture meant bringing the lease to an end. His answer and
indeed his evidence was intended to avoid the consequences of the forfeiture
having occurred before the seizure of the second plaintiff’s equipment. I find that
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when he arrived on the premises of the second plaintiff on 9th May, 1994, it was
with the intention of forfeiting the lease and not for the purpose of distraining on
the second plaintiff’s plant and machinery.
I am fortified in this view by the fact that no notice of levy or inventory was
lodged with the magistrate’s court or the Clerk of the Peace by the defendant or
any person on its behalf. While in my judgment it would not have vitiated a true
distress, the failure to lodge one is symptomatic of the fact that the purported
distress did not in fact occur.
Further, it is arguable that by the act of handing over the keys to Mr Mahabir, Mr
Kanhai surrendered the lease rather than any forfeiture having occurred, but Mr
Kanhai, in his letter to the Bank dated 19th May, 1994, (agreed document 9)
makes no mention of any distress or surrender having taken place. Rather, he
speaks of having been locked out of the premises. It is odd that a distress would
have been perpetrated against his goods and chattels and he would describe it as a
lock out. It seems to me that his account is consistent with my own conclusion
that the lease was forfeited and that no distress took place at all on the 9th May,
1994. The handing over of the keys was simply in compliance with the actions of
Mr Mahabir.
It was also argued, attractively, by Mr Prescott that Mr Mahabir, by stating he had
come to take over the machinery had constructively distrained on the plaintiffs’
goods. This was a submission I would have accepted if I were satisfied on the
evidence that this was Mr Mahabir’s intention on the day in question. But in light
of my findings on Mr Mahabir’s evidence, it is not necessary now to do so.
Whether Mr Mahabir was acting as the company
Because of my decision that the lease was terminated and that there was no
distraint by Mr Mahabir, it is also unnecessary for me to proceed to consider
whether Mr Mahabir was acting as the company when he purported to distrain.
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However, out of deference to the arguments of counsel, and in the event that I am
wrong, I shall do so.
Mr Prescott submitted that when Mr Mahabir went to the demised premises on 9th
May, 1994 he was the company. He was acting as the company. This was so, he
submitted, because Mr Mahabir was the directing mind and will of Alexandra
Investments Limited. He had considerable standing and status in the company.
Mr Prescott referred to article 6 of the company’s articles of association by which
the shares allotted to Mr Mahabir were deemed to be the founders’ shares and by
which he was entitled to as many votes as the holders of all other shares issued.
He was also entitled to one more vote than the aggregate of the other shareholders
present at any general meeting of the company where there is a vote by a show of
hands.
In my judgment, however, this means only that Mr Mahabir is guaranteed to have
his way in a general meeting but it does not allow him to assume managerial
powers except as provided by the articles of association. Mr Prescott also pointed
out that article 6 provided that during the life of Mr Mahabir no article was to be
amended without his prior approval.
Mr Prescott cited two other articles of association to demonstrate his point, article
87, by which Mr Mahabir and his wife were named the first directors, and article
101, by which Mr Mahabir was the governing director until his death or
resignation. That article also provides that:
“whilst he retains the said office, he shall have authority to
exercise all powers, authorities and discretions by there presents
expressed to be vested in the directors generally and all the other
directors, if any, for the time being of the company should be
under his control and shall be bound to conform to his
discretions in regard to the company‟s business.”
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This is quite an impressive provision which gives Mr Mahabir considerable
authority over the company in question and is expressed in such terms as to
suggest that those powers can be assumed independently of any delegation of the
powers of management by the board.
Sub-article (ii) of article 101 also provides that Mr Mahabir may from time to
time, while he holds the post of governing director and at any time, appoint any
other persons to be directors of the company and he may define, limit and restrict
their powers and may at any time remove any director and also at any time
convene a general meeting of the company.
Sub-article (iii) provides that Mr Mahabir may, by his will, appoint any person to
be governing director in his place and direct and determine what shall be the
powers, authorities and discretion of such governing director.
It is noteworthy, however, that the articles of association of the defendant
company provide for a governing director and for a managing director and that
article 102 provides for the appointment of the managing director by the directors
of the company.
Mr Prescott relied on H L Bolton (Engineering) Co Ltd v T J Graham &
Sons Ltd. (1956) 3 All E R 624, Lennard’s Carrying Co Ltd v Asiatic
Petroleum Co. Ltd (1914-15) All E R Rep 280 and Tesco Supermarkets Ltd v
Nattrass (1971) 2 All E R 127, to which I shall later refer.
He submitted that although Mr Mahabir acted as chairman of the company on 9th
May, 1994, in view of his powers under the articles, he was, at the time the very
embodiment of the company and he referred to the dicta of Lord Reid in Tesco
Supermarkets (supra) at pg 132 letter J. I shall refer to this decision shortly.
Mr Jairam in reply submitted that Mr Mahabir in his evidence stated that on the
day of the alleged distraint he was acting as chairman and not as managing
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director. As chairman his duty was limited to presiding over general meetings of
the company and of the board.
He added that management of the company was vested in the board of directors
and while Mr Mahabir had the last word at board meetings, management
remained vested in the board. He pointed to several articles which provided
evidence of this, articles 102 to 104 which make specific provision for a
managing director, a chairman and a governing director. It is clear he said, that
from the articles of association management of the company was vested in the
directors collectively. He cited several articles to buttress this submission. As a
consequence, he said, the distraint if in fact there was one, was illegal because on
the day in question Mr Mahabir was acting as chairman of the board and he was
not a licenced bailiff. He referred to the case of Hogarth v Jennings (1892)
1QB 907 and asked that the court should hold as a fact that the lease was forfeited
prior to any seizure of the second plaintiff’s plant and machinery and that Mr
Mahabir was acting as chairman of the board of directors on the day in question.
I understand Mr Prescott’s submission to be that the status and the powers of Mr
Mahabir under the articles of association are such that he is the embodiment of the
company itself notwithstanding the fact that on the day of the alleged distraint, he
was not acting as the managing director of the company but was chairman of the
board.
The immediate issue for me is whether Mr Mahabir acted as the company on 9th
May, 1994.
In Tesco Supermarkets Ltd v Nattrass (supra) Lord Reid at pg 131 (h)
described the functioning of a corporation in this way:
“A living person has a mind which can have knowledge or
intention or be negligent and he has hands to carry out his
intentions. A corporation has none of these. It must act through
living persons, though not always one or the same person. Then
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the person who acts is not speaking or acting for the company.
He is acting as the company and his mind which directs his act is
the mind of the company…… He is not acting as a servant,
representative agent or delegate. He is an embodiment of the
company or, one could say, he hears and speaks through the
persona of the company, within his appropriate sphere, and his
mind is the mind of the company……
It must be a question of law whether, once the facts have been
ascertained, a person, in doing particular things is to be regarded
as the company or merely as the company‟s servant or agent. In
that case any liability of the company can only be a statutory or
vicarious liability.
At pg. 132 letter G, he states
“Normally, the board of directors, the managing director and
perhaps other superior officers of a company carry out the
functions of management and speak and act as the company.
……… But the board of directors may delegate some part of
their functions of management giving to their delegates full
discretion to act independently of instructions from them. I see
no difficulty in holding that they have thereby put such a
delegate in their place so that within the scope of the delegation
he can act as the company.”
In H L Bolton Co. v T J Graham & Sons (1956) 3 All E R 624, Lord Denning
stated at pg 630 as follows:
“A company may in many ways be likened to a human body.
They have a brain and a nerve centre which control what they
do. They also have hands which hold the tools and act in
accordance with directions from the centre. Some of the people
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in the company are mere servants and agents who are nothing
more than hands to do the work and cannot be said to represent
the mind or will. Others are directors and managers who
represent the directing mind and will of the company and control
what they do. The state of mind of these managers is the state of
mind of the company and is treated by the law as such.”
In that case, one of the issues on appeal was whether any intention could be
attributed to the company in question in the absence of any formal meeting of the
board of directors. There was evidence that, with respect to the decision taken on
behalf of the company, instructions were given by three directors for plans to be
prepared and work done. Contracts were also executed. In doing these things the
directors frequently met informally but held no meeting of the board, did not pass
any resolution of the board, nor did they record their decisions in any minute.
The conduct of the company’s business was normally left to the directors
individually and the board of directors met only about once a year.
In his judgment Lord Denning stated at pg 630 letter H:
“So here, the intention of the landlord company can be derived
from the intention of their officers and agents. Whether their
intention is the company‟s intention depends on the nature of the
matter under consideration, the relative position of the officer or
agent and other relevant facts and circumstances of the case.
Approaching the matter that way, although there was no board
meeting, nevertheless, having regard to the standing of these
directors in control of the business of the company, having
regard to the other facts and circumstances which we know,
whereby plans had been prepared and much work done, it seems
to me that the judge was entitled to infer that the intention of the
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Landlord company was to occupy the holding for their own
purposes.”
Finally, the incisive and lucid dictum of Lord Diplock in Tesco Supermarkets
(supra) at pg 155 is particularly instructive. He states:
“My Lords, a corporation incorporated under the Companies Act
1948 owes its corporate personality and its powers to its
constitution, the memorandum and articles of association. The
obvious and the only place to look, to discover by what natural
persons its powers are exercisable, is in its constitution. The
articles of association, if they follow Table A, provide that the
business of the company shall be managed by the directors and
that they may „exercise all such powers of the company‟ as are
not required by the Act to be exercised in general meeting. Table
A also vests in the directors the right to entrust and confer on a
managing director any of the powers of the company which are
exercisable by them. So it may also be necessary to ascertain
whether the directors have taken any action under this provision
or any other similar provision providing for the co-ordinate
exercise of the powers of the company by executive directors or
by committees of directors and other persons, such as are
frequently included in the articles of association of companies in
which the regulations contained in Table A are modified or
excluded in whole or in part.
In my view, therefore, the question: what natural persons are to
be treated in law as being the company for the purpose of acts
done in the course of its business, including the taking of
precautions and the exercise of due diligence to avoid the
commission of a criminal offence, is to be found by identifying
those natural persons who by the memorandum and articles of
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association or as a result of action taken by the directors, or by
the company in general meeting pursuant to the articles, are
entrusted with the exercise of the powers of the company. This
test is in conformity with the classic statement of Viscount
Haldane L C in Lennard‟s Carrying Co. Ltd v Asiatic
Petroleum Co. Ltd. The relevant statute in that case, although
not a criminal statute, was in pari materia, for it provided for a
defence to a civil liability which excluded the concept, the
vicarious liability, of a principal for the physical acts and state of
mind of his agent.”
The principles I deduct from these authorities, are
(1) There are persons who by virtue of their powers and
functions and position may represent the will and mind of a
corporation.
(2) The intention of these corporations can be derived from the
intention of these persons or officers of the company.
Whether their intention is the company’s depends on the
nature of the matter under consideration, the relative
position of the officer and other relevant facts and
circumstances.
(3) It will generally be to the memorandum and articles of
association that one must look to discover by what natural
person its powers are exercisable, but such person may also
be authorised or directed by the shareholders in a general
meeting or the board of directors itself.
What emerges from these decisions as well is that the individual who is allegedly
the directing mind of the company in question, is usually entrusted with the
exercise of the powers of management of the company by the board of directors,
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or by the shareholders in general meeting or, by the express provision of the
memorandum and articles of association.
In Lennard’s Carrying Co Ltd v Asiatic Petroleum Co. Ltd (1914-15) All E
R Rep, the issue was whether the owner of a seagoing ship was liable for goods
damaged by fire on board. The appellant and owner of the ship was a limited
liability company. This ship was managed by another company, which latter
company was actively managed by a director who was also a director in the
appellant company. That director was registered in the ship’s register and was
designated as the person to whom the management of the vessel was instructed. It
was held that he was the directing mind and will of the company and that there
was a presumption that his action was the action of the company itself. The
director in question did not give evidence to rebut the prescription nor were the
memorandum and articles of association put into evidence.
In the case at bar, however, Mr Mahabir gave evidence and the defendant’s
articles of association were put into evidence.
It is correct that Mr Mahabir has extensive control over the board of directors by
the articles of association, but in my judgment, management of the company is
vested in the board of directors. It is the board of directors which has control of
the direction of the company itself. I refer to article 116 which provides:
The management of the business of the company shall be vested
in the directors and the directors may exercise all such powers
and do all such acts and things as the company is, by its articles
of association or otherwise authorised to exercise and do……”
While thus Mr Mahabir’s powers of control over the board may be unlimited, it is
the board of directors which has control and direction of the company and while
he may have his way at board meetings, he is still required to address the board of
directors before any decision affecting the company can be taken.
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As the decisions in Bolton and Lennard demonstrate, however, a high official of
a company may, either by express authority of the board of directors or implicitly
by course of dealing, in fact become the directing mind and will of the company.
The express authority no doubt arises out of a decision at a board meeting. In this
regard, articles 102 and 105 make clear provision for the appointment by the
board of a managing director, although the extent of such management powers
would turn on the powers delegated by the board.
But Mr Mahabir’s evidence was that he did not act as managing director on the
day of the distraint and he was extremely evasive under cross-examination as to
when in 1994 he did so act. It cannot be said therefore that when he purported to
distrain that he was acting under the express powers of management conferred
upon him by the board of directors.
The question is whether by his course of dealing with the company he did in fact
have control of management of the company, notwithstanding there was no
formal board resolution to that effect. Indeed, Mr Mahabir, in cross-examination
admitted that the company was not run in that way. There is evidence that
correspondence between the parties prior to litigation either came from Mr
Mahabir or was directed to him on behalf of the defendant. Mr Mahabir also
stated under cross-examination that he was actively involved in his companies.
I cannot, however, ignore Mr Mahabir’s own evidence in chief that on the day in
question he acted as chairman of the board of directors. That statement is
significant as much for what Mr Mahabir says as for what he does not. There was
no categorical statement from him that he managed the company in addition to his
chairmanship or that he assumed the powers of the directors under article 101, and
he was extremely evasive under cross-examination as to when he acted as
managing director.
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Further, there is no specific evidence of the manner or extent of his activities in
the defendant company. While Mr Mahabir has extensive powers of control
vested in him by the articles of association, he must demonstrate by evidence that
he has exercised those powers in such a manner and to such an extent as to satisfy
me that he controlled and managed the defendant company. He did not do so.
As chairman of the board of directors, Mr Mahabir’s powers were limited to
chairing board meetings and general meetings and he could not take it upon
himself to distrain for rent without the specific authority of the board of directors.
I find that Mr Mahabir, when he purported as chairman to distrain for rent, was
not the controlling mind of the company.
From the decided cases, it appears that except where there is special or statutory
authority, the actual authority of the legal owner of the premises is required to
distrain for rent. In the absence of such authority, any person purporting to
distrain for rent on behalf of the owner can justify as bailiff only. Mr Prescott had
sought to personify Mr Mahabir as the company itself, no doubt because it is the
company which is the owner of the premises.
In Hogarth v Jennings (supra), the defendant was the managing director of a
company which had leased its premises to the plaintiff. The defendant himself
entered the plaintiff’s premises and levied a distress for rent on the plaintiff’s
goods, without any authority other than the general authority which he might
derive from his position as managing director. The issue on appeal was whether
the defendant in the absence of specific authority from the company was acting as
bailiff within the meaning of section 7 of the Law of Distress Amendment Act
1888. By section 7 of that Act, anyone seeking to act as bailiff to levy any
distress for rent was required to be so certified in writing by a county court judge.
Fry L J at pg 909 stated,
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“The question remains, however, whether in this case the
defendant can justify distraining in any other capacity than as
bailiff. I do not think he can. I think that a bailiff for making a
distress means a person authorised and appointed for that
purpose. Assuming that the defendant had authority to distrain
from the company, I think that he had it as a bailiff.”
The defendant, not being a certified bailiff was not entitled to distrain and was
consequently a trespasser. As Fry L J explained, the decision was founded on the
general principle:
“that any person who is not the owner of the premises and has no
special or statutory authority such as I have mentioned, must
justify as bailiff of the owner.”
The decision in Hogarth suggests that even if Mr Mahabir was acting as
managing director, he would have required the specific authority of the
defendant company, that is to say, a resolution of the board.
Mr Prescott sought to argue that in this case, the distraint was exercised by the
true owner of the premises. But the true owner of the premises as the lease
indicates is the defendant company and not Mr Mahabir. Given that I have found
that he had no authority to act on behalf of the company nor was he the directing
mind of the company, he was not acting as the company but as bailiff of the
company for which he was required to be certified pursuant to section 37 of the
Act.
It was not disputed that Mr Mahabir was not a certified bailiff. He admitted as
much during cross-examination. Consequently, any distress, even if it had
occurred would necessarily have been illegal.
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Before concluding on this issue, the question does arise whether, if Mr Mahabir
was not the directing mind of the defendant company, he could have forfeited the
lease, but I have heard no argument on this issue and thus, I express no opinion on
it. However, it seems to me that even if that were so, no issue would arise on the
priority of the arrears of rent.
Issue 2 - Priority of the Bank’s debenture against the arrears of rent.
In view of my decision at issue 1, it is unnecessary for me to decide on whether
the arrears of rent can be claimed in priority to the first plaintiff’s claims under
the debenture and under the 1991 chattel mortgage. I thus proceed to the third
issue.
Issue 3 - Priority of the 1986 mortgage bill of sale in relation to the
debenture and the 1991 chattel mortgage.
The issue of the priority of the 1986 mortgage bill of sale turns on whether it was
required that it be re-registered under the Bills of Sale Act and on the
conclusiveness of the registrar’s certificate.
As I understood the argument from the plaintiff’s pleadings and from Mr Jairam’s
submissions, the plaintiff’s attack on the registrar’s certificate is this:
(i) There was no mortgage bill of sale created by the second
plaintiff on 16th February, 1989, in favour of the defendant
and none was produced to support the argument that it was.
(ii) To the extent that the registrar’s certificate purported to say
that there was such an instrument, it was issued without
jurisdiction and in breach of the provisions of the
Companies Ordinance, and was not conclusive of the
existence of the charge or of its terms.
Also pleaded in the plaintiff’s reply is that the certificate was obtained by fraud.
There are two such certificates set out in agreed documents 23 and 24. Both are
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in identical terms except as to the date on which they were issued. I shall refer
only to document 23. It states:
“I HEREBY CERTIFY that a Mortgage Bill of Sale dated the
30th day of September, 1986 and created by JAYMORE
GARMENTS (CARIBBEAN) Limited for securing the sum of
$203,125 due from the company to Alexandra Investments
Limited whose registered office is at 29A Edward Street, Port of
Spain was this day registered pursuant to section 79 of the
Companies Ordinance Ch. 31 No. 1”
It is not disputed by the defendant that the 1986 mortgage bill of sale was not re-
registered pursuant to the Bills of Sale Act after 5th October, 1989. However, the
defendant relies on two bases in support of its contention that the 1986 mortgage
bill of sale takes priority to the first plaintiff’s debenture and the 1991 chattel
mortgage. These are:
(a) because it is in conformity with the requirements of the
governing legislation.
(b) because the registrar’s certificate which speaks of its
existence as a company charge is conclusive of that fact.
Mr Prescott submitted that the policy which informs the law of registration is the
giving of notice to unsuspecting third parties. The policy is that an owner of
property must not treat with his property as the absolute owner, if in fact he is not
the absolute owner as would be the case where the property is subject to a charge.
Consequently, any charge over the chattels of an individual must be registered as
a bill of sale under the Bills of Sale Act. If the owner of the chattel is a company
then the charge should be registered under the Companies Ordinance.
I understand Mr Prescott’s submission to be this. The charge created in favour of
the defendant by the 1986 mortgage bill of sale was in fact created by Joshua
Kanhai and Samrajh Seepaul and it was quite rightly registered under the Bills of
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Sale Act. However, the chattels over which the charge was created were
subsequently acquired by the second plaintiff on 13th February, 1989. The second
plaintiff being a corporation and not an individual, was required to register the
charge under section 81 of the Companies Ordinance. This was in fact done on
16th February, 1989 and was certified as having been done by the Registrar of
Companies by his certificate of 16th February, 1989.
Unlike the Bills of Sale Act which requires re-registration after three years,
registration under the Companies Ordinance, he submitted, is once and for all and
requires no renewal. Thus, once the charge has been registered as a company
charge, it is immaterial whether the Bill of Sale registration survives or not,
because anyone dealing with the goods could have notice of the charge. The
charge continues to have validity by virtue of the existence of the instrument
which created the Bill of Sale. The non-registration under the Bills of Sale Act
does not invalidate the instrument but the registration. But as between debtor and
creditor, the charge is valid. Given that the charge is registered under the
Companies Ordinance, notice of the charge and of the instrument is given to
potential creditors by virtue of its registration under the Ordinance.
As to the conclusiveness of the registrar’s certificate, he submitted that the
certificate was evidence that the charge had been registered as a company charge
and it was conclusive of the fact. The certificate was evidence not of the extent of
the charge but of the fact that registration had been carried out.
Mr Jairam submitted that it is permissible to look behind the certificate to
discover the details of the charge created by the instrument. What is not
permissible is a challenge to the propriety of the registration. In order to discover
the terms and effect of a charge, one looks not to the register but to the document
which created the charge. The certificate of the registrar cannot give an
instrument an effect which it does not have. As such, registration under section
79 cannot validate an otherwise void instrument or confer on an indefeasibility,
Page 37 of 59
for, in order to be fully effective the charge must in all other respects be valid in
accordance with its terms as set out in the instrument.
To illustrate his point he directed the court to sections 79 and 82 and submitted
that the chattels which were the subject of the 1986 mortgage bill of sale were
acquired by the second plaintiff in 1989. Section 79, he submitted, refers to a
charge created by a company over its own property whereas section 81 refers to
property acquired by a company on which there is an already subsisting charge.
He argued that in this case, it was obvious the appropriate registration ought to
have been under section 81 and not under section 79.
My decision turns on the provisions of sections 79, 81 and 82 of the Companies
Ordinance.
Section 79 provides:
(1) “Every charge created after the commencement of this Ordinance by a
company registered in the colony and being a charge to which this
section applies shall, so far as any security on the company‟s property or
undertaking is conferred thereby, be void against the liquidator and any
creditor of the company, unless the prescribed particulars of the charge,
together with the instrument, if any, by which the charge is created or
evidenced, are delivered to or received by the Registrar for registration
in manner required by this Ordinance within twenty-one days after the
date of its creation, but without prejudice to any contract or obligation
for repayment of the money thereby secured, and when a charge
becomes void under this section the money secured thereby shall
immediately become payable.
By subsection (2)(c) a charge referred to in section 79(1) includes:
“A charge created or evidenced by an instrument which, if
executed by an individual would require registration as a bill of
sale.”
Page 38 of 59
Section 81 provides:
(1) Where after the commencement of this Ordinance a company…….
acquires any property which is subject to a charge of any such kind as
would, if it had been created by the company after the acquisition of the
property, have been required to be registered under this Part of this
Ordinance, the company shall cause the prescribed particulars of the
charge, together with a copy (certified in the prescribed manner to be a
correct copy) of the instrument, if any, by which the charge was created
or is evidenced, to be delivered to the Registrar for registration in
manner required by this Ordinance within twenty-one days after the date
on which the acquisition is completed.
Section 82(1) provides:
The registrar shall keep with respect to each company, a register in the
prescribed form of all the charges requiring registration under this Part of this
Ordinance, and shall, on payment of the prescribed fee, enter in the register
with respect to such charges the following particulars:
(a) in the case of a charge to the benefit of which the holders
of a series of debentures are entitled, such particulars as
are specified in subsection (7) of section 79.
(b) in the case of any other charge –
(i) if the charge is a charge created by the company,
the date of its creation, and if the charge was a
charge existing on property acquired by the
company, the date of the acquisition of the
property; and
(ii) the amount secured by the charge; and
(iii) short particulars of the property charged; and
(iv) the persons entitled to the charge.
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Section 82(2) provides:
“The Registrar shall give a certificate under his hand of the
registration of any charge registered in pursuance of this Part of
this ordinance, stating the amount thereby secured and the
certificate shall be conclusive evidence that the requirements of
this Part of the Ordinance as to registration have been complied
with.”
Under section 85, a court may extend the period of registration on the application
of the company or any interested person, on being satisfied that any omission to
register, or mis-statement in registering a charge within the time required, was
accidental, or due to inadvertence or some other sufficient cause, or that the
registration is not of a nature to prejudice the position of creditors or shareholders
of the company or that it is just and equitable to grant relief.
In my judgment, the conclusiveness of the registrar’s certificate is confined to the
fact that the requirements of registration under the statute have been complied
with. I agree with Mr Jairam that the certificate of the registrar cannot confer on
the instrument a validity it does not have. It is ultimately to the instrument that
one must resort in order to see what is actually charged. I have been referred to
several cases on the point; in my judgment they all illustrate that the registrar’s
certificate is conclusive only of the fact that the requirements of the statute as to
registration were complied with. But such conclusiveness cannot give legitimacy
to a document which is fraudulent, non-existent or otherwise invalid, nor can it
preclude an aggrieved creditor from challenging its validity on any of those bases.
At best what is precluded is any inquiry into the actions of the registrar. The
cases also indicate that it is to the instrument that the court must look to discover
the purport and effect of the charge.
In the case of In re Yolland, Husson & Birkett Limited, (1908) 1 Ch 152, the
issue was whether a court could go behind the registrar’s certificate to consider
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whether or not there was any mistake made by the registrar. It was held that the
certificate of the registrar of Joint Stock Companies under section 14 of the
Companies Act 1900 was conclusive evidence that all the requirements of the
section as to the registration of debentures have been complied with and where
such a certificate has been granted, the court will refuse to go into the question
whether such a requirement have in fact been complied with.
Cozens-Hardy M R at pg 156.states as follows:
“I approach s.14 of the Companies Act of 1900 as one is bound
to do, by considering what was the mischief which had to be
remedied.
It was that companies were allowed to issue debentures, charging
very frequently all their present and future assets, and there
might be no means of ascertaining, at all events for a
considerable time, whether any such debentures were issued; and
therefore, for the protection of the general creditors of the
company, or of persons desiring to trade with the company, it was
thought fit to require that there should be a register of mortgages
of that particular kind, not merely in the company‟s own books,
but kept by the registrar.”
He added at pg 158 that:
“the material thing for public purposes is not the name of the
particular debenture holder or any of those particulars which are
required in sub-s. 3, but it is to know what is the amount that is
authorised, what was the date of the resolution authorising it,
and what is the description of the property charged.”
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In that case, however, that was no challenge to the validity or existence of the
instrument itself. It was the certificate which was challenged because of an error
made by the registrar in the registration of certain debentures.
In National Provincial and Union Bank of England v Charnley (1924) 1KB
431, a company with the object of securing payment of its overdraft at a bank,
demised to the bank a leasehold factory with all the movable “plant used in or
about the premises”. The indenture was sent for registration under section 93 of
the Companies Act 1908. In the particulars required to be filed thereunder, the
instrument was described as a mortgage of the leasehold premises, no mention
was made of the chattels and the registrar entered the description of the
instrument in similar terms. The chattels were subsequently seized in execution
by the defendant of a judgment recovered by the defendant against the company.
The issue was whether the title of the bank was superior to that of the creditor.
The registrar’s certificate was expressed to be “conclusive evidence that the
requirements of the section as to registration have been complied with.” In
finding for the bank the court of appeal held inter alia that as the certificate
identified the instrument of charge and stated that the mortgage or charge thereby
created had been duly registered, it must be understood as certifying the due
registration of all charges created by the instrument, including that of the chattels
and it was conclusive evidence of the due registration of the chattels.
Bankes L J at pg 443 commented in the following terms:
“It is not disputed that the object of the legislature in requiring
delivery to the registrar of the instrument as well as the
particulars is to enable him to form an independent judgment in
reference to what he ought to put on the register before he in fact
registered it ……”
Page 42 of 59
He continued at pg 444
“I agree with the judgments in In re Yolland, Husson and
Birkett, to which we have been referred, as to the object of the
statute. I think the object is to protect the grantee of the charge,
and, as between him and the general body of creditors or
prospective creditors, the registrar is appointed as the tribunal to
decide what shall be put upon the register, and when it has been
put there his certificate to that effect is conclusive evidence that
all the requirements of the section have been complied with.”
He goes on however to say that:
“But when once the registrar has given his certificate that the
registration was complete, and that the mortgage or charge was
created by an instrument, identifying it, in my opinion you have
to go to the instrument to see what was actually charged, there
being nothing in the statute which says that when once
registration has taken place the register shall be the evidence of
the extent of the charge. All that the statute requires is
satisfaction on the part of the appointed official that the
preliminaries have been complied with, and, when once he
certifies that, the parties are entitled to ask the Court to say that
what it has to look at in order to determine their rights is the
instrument creating the mortgage or charge.”
In Re Mechanisations (Eaglescliffe) Ltd, (1966) 1 Ch 21, two charges were
registered pursuant to section 95 of the Companies Act 1948. In the particulars
supplied in respect of the first charge the amount secured was given as the
principal only. In the second charge, the particulars delivered for registration
referred to both principal and interest, but when registered no mention was made
of the interest and in both instances the registrar’s certificate was issued on that
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basis. Buckley L J held that the charges were valid securities for the full amount
due under them. The accuracy of the particulars delivered to the registrar was not
a condition of the validity of the charge as against a liquidator of or creditor and
the certificate of the registrar once delivered was conclusive that the necessary
preliminaries for registration were complied with and that the prescribed
particulars had been delivered to the registrar. To discover the exact terms of the
charge it was the instrument itself which had to be looked at.
At pg 35 he referred to section 98 (2) of the Companies Act 1948 (which is in
similar terms to our section 82(2)) and stated:
“The effect of section 98(2) appears to me to be that when the
registrar gives his certificate it is to be evidence in fact not only
that he, the registrar, has entered the particulars in the register
of charges, but also that the steps preliminary thereto have been
carried out, that is to say that the prescribed particulars have
been presented to him. If the prescribed particulars have been
presented to him, then it follows that the charge is not avoided,
and the effect of the certificate is to put it out of anybody‟s power
to say that the prescribed particulars have not been presented to
him and, therefore, where a certificate has been given the charge
cannot be void under section 95(1).
In order to discover the terms and effects of the charge (as was
pointed out in the passages, I have read from the judgments in
National Provincial and Union Bank of England v Charnley)
one must look at the document creating the charge and not at the
register. It is from the document that one will discover what
moneys are secured and what is the total amount secured by the
charge.
Page 44 of 59
It is perhaps just worth noticing that section 98(2) does not say
that the certificate shall be conclusive evidence that the amount
thereby stated to be secured by the charge is in fact the amount
secured by the charge; it is only conclusive evidence that the
requirements as to registration have been complied with; and
although no doubt the legislature contemplated that when
particulars are submitted to the registrar they will be accurate
and that when the registrar makes entries in the register he will
have checked the accuracy of such particulars against the
instrument which he has for that purpose, the legislature has not
made accuracy in that respect of a condition of the validity of the
charge. As was pointed out by Scrutton L J in the passage I read
from his judgment, this may in certain circumstances cause
hardship if there is any inaccuracy.”
Still, in neither of these cases was the existence or validity of the instrument in
issue. The decision of the Privy Council in Sun Tai Chung Credits Ltd v
Attorney General of Hong Kong (1988) LRC (Comm) 952, however, suggests
that a registrar’s certificate procured by fraud can be set aside. In that case it was
orally agreed between a company which subsequently went into liquidation and a
bank, the appellant’s predecessor in title, that the company would sub-mortgage
certain of its mortgaged properties to the bank.
Before any formal instrument could be executed the company went into
liquidation; however, the title deeds to the properties were deposited with the
bank on three separate dates and a charge by way of sub-mortgage was hereby
created. For the charges to be valid against the liquidator and any company
creditor section 80(1) of the governing Ordinance required that the “prescribed
particulars” of the charges be received by the registrar of companies for
registration within five weeks of their creation. Details of the charge, including
the date of creation were to be entered by the registrar on a register in the
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prescribed form. The registrar was unable to register any charge in favour of the
bank because the prescribed form supplied by the bank did not specify either the
date or the description of the mortgage, and the bank failed to amend the form
within the time limit prescribed by section 80.
As such, the registration was not certified as required by section 83 of the
Ordinance. The appellant, the assignee of the bank, applied to the High Court and
obtained an order that the charge be registered by the registrar. That decision was
reversed by the Court of Appeal. On appeal to the Privy Council, the Board by
majority decision held that there being no instrument which created the charge,
the company applying for registration must demonstrate the method of creation of
the particular charge, the date and the reason for the lack of instrument. The
failure of the bank to do so in the prescribed form entitled the registrar to refuse to
issue a certificate of registration.
The decision turned on the facts and circumstances of the case in question and on
the particular provisions of the statute including the five-week limitation for the
submission of particulars. But Lord Templeman who delivered the decision of
the majority stated at pg 756:
“When a charge is created by an instrument the date of the
instrument will be the date of the charge. Column 1 of Form IV
will describe and date the instrument and therefore the charge.
The original instrument must be supplied to the registrar who
will be in a position to check the date before effecting registration
and issuing a certificate. When a charge is evidenced by an
instrument and column IV gives the date of the instrument, the
registrar will be entitled to assume, unless column 1 of Form IV
or the original instrument indicates the contrary; that the charge
and the instrument are contemporaneous. If the charge was in
fact created outside the five-week time limit set by section 80, the
mortgagee would not be entitled to apply for registration. A
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mortgagee who knowingly applied for and obtained a certificate
under section 83, falsely affirming or implying in column 1 in
Form IV that his charge was created within the time limit would
be liable to have his certificate set aside by the court on the
grounds of fraud.
It is true that Lord Templeman’s dictum must be taken in the context of the
requirements of the statute in that case. But I do not accept that it must be
confined only to those facts. In my judgment, any certificate obtained by fraud
can be set aside by the court on grounds of fraud.
The plaintiff in this case contends inter alia that the registrar’s certificate was
obtained by fraud or manifest error on its face and Mr Jairam pointed out that no
instrument was produced by the defendant to support the statement in the
certificate that a charge was created in favour of the defendant under section 79.
It is true that no instrument has been produced to support any such charge having
been created. The instrument which has been put into evidence is a Bill of Sale
dated 30th September, 1986, between Joshua Kanhai and Samrajh Seepaul on the
one part and the defendant. The facts are that the chattels which were the subject
of that charge were acquired by the second plaintiff from Kanhai and Seepaul for
the sum of $150,000.00. Any registration of that charge under the Companies
Ordinance should have been pursuant to section 81. Both certificates, however,
speak of mortgage bills of sale created not by Kanhai and Seepaul, but by the
second plaintiff, and both refer to charges registered under section 79 of the
Ordinance.
In my judgment, in circumstances such as the present case where the validity of
the instrument is raised as a live issue, the court must look to the instrument itself.
Having examined the 1986 mortgage bill of sale and both the certificates of the
registrar (documents 23 & 24), I find as follows:
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(i) There was a mortgage bill of sale created by Kanhai and
Seepaul in favour of the defendant over certain chattels
owned by Kanhai and Seepaul.
(ii) These chattels were acquired by the second plaintiff and the
charge was wrongfully registered under section 79 of the
Companies Ordinance on 16th February, 1989. It should
have been registered under section 81. The registration
under section 79 was therefore void since section 79
applies to charges created by companies.
(iii) With respect to document 24, it refers to the creation of a
charge by the second plaintiff on the 4th October, 1989. No
instrument, be it bill of sale or otherwise has been produced
in support of it. The decisions to which I have referred
indicate that it is the instrument that I must look at to
decide the purport and effect of the charge itself. In this
case, given that it is pleaded that the certificate was
fraudulently obtained, the non-production of the instrument
which purportedly created the section 79 charge in favour
of the defendants leaves me no other choice but to infer that
none exists. As I have stated earlier, the certificate cannot
confer validity on a document which is non-existent,
fraudulent or otherwise invalid and it was incumbent on the
defendant to have produced it.
The consequence is that I find that there is no subsisting charge created or
registered under the Companies Ordinance and I must reject Mr Prescott’s
submissions on this aspect in their entirety.
However, it seems to me that even if the charge created by the 1986 mortgage bill
of sale were properly registered under section 81 of the Companies Ordinance, or
Page 48 of 59
can be deemed to have been so registered, the failure to register it pursuant to the
Bills of Sale Act, was fatal to the priority of the defendant’s charge.
Registration under section 81 of the Companies Ordinance of a charge existing by
virtue of a bill of sale when those assets which are subject to the charge are
acquired by a company does not change the character and nature of the instrument
which created the charge. That instrument continues to be a bill of sale and
continues to be governed by the requirements of the Bills of Sale Act.
Registration under section 81 merely provides notice to the company’s creditors
of the existence of the charge created by the Bill of Sale and puts them on notice
of its existence. But, it does not exclude the applicability of the provisions of the
Bills of Sale Act, section 17 of which requires that registration be renewed every
three years. It is that registration which maintains the priority of the charge and it
is the registration and not the instrument which becomes void if there is no
subsequent re-registration. This is made clear by the provision in section 18 of
the Act for the extending, by a judge of the high court, of the time for registration
where such failure was accidental or due to inadvertence.
The consequence of a failure to register is that any subsequent charge which is
registered in the interim would take in priority to the charge. Thus to the extent
that the 1986 mortgage bill of sale was not re-registered under the Bills of Sale
Act its registration became void with the consequence that it lost its priority over
the plaintiff’s debenture and the 1991 chattel mortgage. I thus find that the
plaintiff’s debenture and 1991 chattel mortgage take priority over the defendant’s
1986 mortgage bill of sale. I turn to Issue 4.
Issue 4
What was the effect in law of the appointment of the receiver:
(1) by an agreement dated 20th July, 1994 on the basis of a
distress levied on 9th May, 1994.
Page 49 of 59
(2) By an amended agreement dated 13th December, 1994,
altering the basis of the appointment.
The defendant in its counterclaim seeks a declaration that the appointment of the
receiver and manager on the 20th July, 1994 was discharged by the amending
agreement and that it is therefore ineffective against it.
Conditions 4 (a) and (c) of the debenture provide inter alia that the “principal
monies” secured under the debenture shall become due and payable and the
security enforceable:
(i) If a distress or execution was levied against any of the
property of the second plaintiff and was not satisfied within
14 days (Condition 4(a)).
(ii) If the second plaintiff ceased or threatened to cease to carry
on business (Condition 4(c))
Condition 6 of the debenture provides that the lender may at any time after the
principal becomes payable appoint in writing a receiver and manager of the
property of the second plaintiff which has been charged by virtue of the
debenture.
By notice in writing dated 28th July, 1994, the first plaintiff informed the registrar
of companies that Osborne Haynes had been appointed receiver and manager of
the property of the second plaintiff. The appointment was effected by an
agreement between the first plaintiff and the receiver dated 20th July, 1994, in
which it was stated that the Bank’s action was taken pursuant to clause 4(a) of the
debenture. The agreement was amended on 13th December, 1994, by which the
parties sought to rely not on the purported distress but on condition 4(c), that is to
say, that the second plaintiff ceased or threatened to cease to carry on business.
The defendant by its counter-claim contends that on the 20th July, 1994, no
grounds existed to justify the appointment of the receiver and the amending
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agreement was not capable of saving the principal agreement. As such, there was
no crystallisation of the charge.
The date on which Mr Mahabir purported to distrain was 9th May, 1994. If that
distress had in fact been legal, the Bank was entitled to appoint a receiver on 23rd
May, 1994. Any such crystallisation may have been subject to the defendant’s
right of distraint. It is no doubt for this reason that the Bank sought to rely on
condition 4(c).
The date on which the Bank alleges that the second plaintiff ceased to conduct
business is towards the end of January, 1994. Reliance is placed on document 9, a
letter dated 19th May, 1994 from Joshua Kanhai to the general manager of the
Bank, setting out the history of the second plaintiff’s operations and the efforts of
Mr Kanhai, its managing director, to save it from closure.
I shall quote it in full:
“19th May, 1994
The General Manager
First Citizens Merchant Bank Limited
45 Abercromby Street
PORT OF SPAIN
ATTENTION: MR CLINTON ECTOR
Dear Sir,
We refer to our letter dated November 17th
1993 which sought to highlight some plans we
had implemented in an effort to continue the
operations of the business with an intent to
making it viable. The contents of said
letter were discussed with Mr Tyrone Tang on
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November 18th 1993 and in particular the
company’s debt situation was of key
importance to us but of which Mr Tang made
no commitment on its resolution but however
promised to address this matter on our
behalf.
In the absence of the bank’s support, we
proceeded with our plans since we had
already made commitments on Xmas orders.
However, while we were able to produce a lot
more than expected, cash flow problems
became much more critical. To date, this
situation still has not changed, because
given the circumstances, we found it
impossible to be able to fund the production
of other ‘lines’ that we had planned for
Carnival and beyond. As a result the
factory has not been in operation since the
end of January, 1994.
These series of events have now led us to
the point where our ability to pay for
purchases and Recurrent Expenditure is
virtually hopeless and with the level of
debts owed to your institution times the
rate of interest being accrued, we are in a
critical situation.
Our landlord, Alexandra Investments Ltd,
wrote to us on April 28th 1994 and May 3rd
1994 advising us of arrears in rent for the
Page 52 of 59
premises outstanding from November 1993 to
present May 1994. This totals $34,540.88,
together with a Bill of Sale on machinery
due for $100,000.00. As a consequence of
non-payment, Alexandra Investments Ltd has
taken the necessary steps of locking us out
from the premises and is pursuing legal
action for recourse of the monies due to
them.
In lieu of this development, we are
respectfully advising First Citizens
Merchant Bank Ltd, through your good office
that the operations of Jaymore Garments
(Carib) Ltd is now officially halted and
wish to further advise that we are not in
any position financial or otherwise to deal
with the liabilities of the company and
especially since the assets are being
secured by charges by way of debentures
signed in favour of Merchant Bank and those
listed on the Mortgage Bill of Sale with
Alexandra Investments Ltd in their case.
Based on the above, we will be available to
meet with you to discuss the course of
action that will be necessary for the bank
to initiate under these circumstances.
We await your instructions.
Yours faithfully,
Page 53 of 59
JAYMORE GARMENTS (CARIB) LTD
JOSHUA KANHAI
MANAGING DIRECTOR
Mr Jairam points to a reference in that letter to the fact that the factory was not in
operation since January as evidence of the fact that the company had ceased to
operate or “threatened to cease” to operate. He pointed to Mr Mahabir’s
evidence that some of the cheques issued to him on behalf of the second plaintiff
were dishonoured as evidence that the company was in difficulty. I do not accept
this submission. The fact that the company may have ceased its factory
operations and may have been encountering difficulty does not mean that there
was necessarily a threat to cease to carry on business. The phrase “threatens to
cease to operate” in my view connotes not a difficulty in carrying on business but
the likelihood of a cessation of business in the immediate future which arises out
of some assertion or overt indication by those who manage the company. An
example would be notice to its creditors or customers of its intention to cease
operating at a particular date.
Mr Prescott submitted that the mere shutdown of a factory in January, 1994 does
not justify a conclusion that the company ceased its trading operations or ceased
to carry on business, or that there was threat to cease business. The result was
that the amending agreement which purported to change the basis of the
appointment of the receiver voided the appointment.
While I agree with Mr Prescott that the shutdown of the factory in January, 1994
cannot justify a conclusion that the second plaintiff had ceased its trading
operations or ceased to carry on business, I do not agree that it has vitiated the
appointment of the receiver as the defendant alleges.
The letter of 19th May, 1994 advised the Bank in quite unequivocal terms that “the
operations of Jaymore Garments (Carib) Limited [are] now officially halted”
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and advised further that the company was not in “any position financially or
otherwise to deal with the liabilities of the company.”
The issue is whether at the time of the appointment of the receiver there was in
fact a basis for which an appointment under clause 4 of the debenture. That is to
say, did any of the circumstances set out therein exist for the appointment of a
receiver. In my judgment there was a cessation of business by the second plaintiff
and this occurred on 9th May, 1999 when Mr Kanhai handed over the premises to
Mr Mahabir. The letter of 19th May, 1999 confirms the re-entry and the forfeiture
of the lease and merely informs the Bank of that fact. As such, at the time when
the receiver was appointed on 20th July, 1994, there existed a proper and sufficient
basis for his appointment.
The agreement by which the receiver was appointed governs only the relationship
between the Bank and the receiver. What governs the right of the Bank to appoint
the receiver is the debenture. One of the conditions of appointment is the
cessation of business by the second plaintiff. Once there was cessation of
business by the second plaintiff at the time of the receiver’s appointment,
condition 4(c) of the debenture was satisfied. That is an issue of fact for me and I
so find.
There was some argument on the issue of automatic crystallisation of the floating
charge created by the debenture. In light of my decision on the legality of the
distraint, I find it unnecessary to address it and shall confine my judgment to the
legality of the appointment of the receiver, but given that the debenture also
created a fixed second charge on the machinery, equipment, office furniture,
fixtures and fittings described in the schedule to it, that fixed second charge would
also have acquired priority by the non-registration of the 1986 mortgage bill of
sale under the Bills of Sale Act.
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Summary
In summary my findings are:
(1) The lease was terminated prior to the alleged distraint by the
handing over of the keys to the demised premises by Joshua
Kanhai to Jesse Mahabir. The consequence was that the lease
having been terminated, there could be no distraint, nor could such
a distraint be co-terminus with the forfeiture. Indeed, having heard
the evidence of Mr Mahabir, there was never in fact a distraint nor
did he intend any on the day in question.
(2) In any event, Mr Jesse Mahabir acted in his capacity as chairman
on 9th May, 1994 when he purported to distrain on the second
plaintiff’s goods and chattels. He was not the directing mind and
will of the company. As such, when he purported to distrain for
rent he was acting as a bailiff and was required to be certified as
such pursuant to section 37 of the Landlord and Tenant Act. The
fact that he was not certified would have rendered him a trespasser
and any distress, illegal.
(3) The 1986 mortgage bill of sale, while a valid instrument was
required to be re-registered every three years under the Bills of
Sale Act. By the failure to re-register it under the Bills of Sale Act
during 1989 or subsequently, it lost its priority to the plaintiffs’
debenture and the 1991 chattel mortgage. The registrar’s
certificate is conclusive of nothing more than the fact that the
requirements of the statute as to registration of the particulars of
the charge have been complied with. In the circumstances of this
case, where the validity of the certificate and the instrument have
been questioned, the court is entitled to look at the instrument
which creates the charge to satisfy itself as to its purport and effect.
(4) The appointment of the receiver was valid and binding. What
governs the right of the Bank to appoint the receiver is the
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debenture. One of the conditions for the appointment is the
cessation of business by the second plaintiff. Once there was a
cessation of business by the second plaintiff at the time of the
Receiver’s appointment, condition 4(c) of the debenture was
satisfied. By the time the receiver was appointed, the second
plaintiff had ceased operations and there existed a justifiable basis
for the appointment.
Order
The defendant’s counterclaim is dismissed with costs. There will be judgment for
the plaintiffs on their statement of claim. I shall grant the plaintiffs the following
reliefs set out in the statement of claim.
(1) a declaration that the assets charged by the debenture which are in
the defendant’s possession either at the premises at Don Miguel
Extension Road or elsewhere are the property of the Bank.
(2) a declaration that the several chattels and things or assets charged
by the 1991 chattel mortgage which are in the possession of the
defendant either at the said premises or elsewhere are the property
of the Bank.
(3) a declaration that the Bank being the holder of the debenture and
the 1991 chattel mortgage is entitled to a first charge upon all the
assets, the goodwill of the second plaintiff and its entire
undertaking including its uncalled capital for the time being and its
receivables both present and the debenture and the chattel
mortgage rank in priority to the 1986 mortgage bill of sale held by
the defendant and also the defendant’s chattel mortgage.
(4) a declaration that the debenture and the 1991 chattel mortgage
constitute a charge on the said assets and/or the said chattels in,
and ranks in priority to that of the defendant created by the 1986
mortgage bill of sale and the defendant’s chattel mortgage.
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(5) an inquiry of what the property comprised in and charged by the
debenture and the chattel mortgage consist and in whom the same
is vested or held.
(6) an injunction to restrain the defendant whether by its directors,
officers, auditors, proxies, nominees, servants or agents or
otherwise howsoever from doing the following, that is to say:-
(a) preventing the plaintiffs their servants and/or agents
from entering the said premises for the purpose of
taking an inventory of the said assets, the said
chattels stored, kept or detained thereat.
(b) destroying, defacing, tampering with, changing,
altering, hiding, removing, transferring, mortgaging,
pledging or selling or otherwise disposing of any or
all of the said assets, the said chattels which are
either kept or stored at or on or detained on the said
premises or elsewhere by the defendant or
otherwise or at all.
(c) Detaining or taking possessing or control of the said
assets, the said chattels and/or any of the stock-in-
trade, property or other assets belonging to the
second plaintiff over which the Bank has a charge
by virtue of the said debenture, the said chattel
mortgage and otherwise interfering with Osborne
Kenny Haynes or otherwise or at all.
(7) an order for the delivery up of the said assets, and that
damages consequent upon their wrongful detention by the
defendant, be assessed by a master in chambers.
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The defendant shall pay the plaintiffs’ costs on the action.
There shall be a stay of execution for six weeks.
Dated this 8th day of October, 1999
Nolan Bereaux
Judge
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