Derek Achong

A com­pa­ny has se­cured vic­to­ry in its long-stand­ing le­gal bat­tle over the va­lid­i­ty of a US$2.8 mil­lion (TT$17.7 mil­lion) loan it gave to the Hin­du Cred­it Union Co-op­er­a­tive So­ci­ety Lim­it­ed be­fore its col­lapse. 

De­liv­er­ing a ma­jor­i­ty judg­ment on Thurs­day, three out of five Law Lords of the Unit­ed King­dom-based Privy Coun­cil up­held SR Projects Lim­it­ed’s fi­nal ap­peal against HCU liq­uida­tor Ram­nath Dave Ram­per­sad. 

Lords Leg­gatt, Lloyd-Jones and Stephens agreed that al­though HCU act­ed un­law­ful­ly in en­ter­ing in­to the loan agree­ment with the com­pa­ny while be­ing in ex­cess of its max­i­mum li­a­bil­i­ty lim­it un­der the Co-op­er­a­tive So­ci­eties Act and Reg­u­la­tions, such il­le­gal­i­ty could not in­val­i­date the valid loan agree­ment.

How­ev­er, Lord Kitchin and La­dy Ar­den dis­agreed with their col­leagues in their dis­sent­ing judge­ment, as they sug­gest­ed that a High Court Judge and the Court of Ap­peal were cor­rect to in­val­i­date the agree­ment. 

Ac­cord­ing to the ev­i­dence in the case, the com­pa­ny lent HCU the mon­ey be­tween Oc­to­ber 2004 and Jan­u­ary 2005, based on the un­der­stand­ing that the loan was se­cured us­ing a US$1.5 mil­lion promis­so­ry note and a deed of mort­gage over sev­er­al HCU prop­er­ties. 

When HCU was placed in­to liq­ui­da­tion by the Com­mis­sion­er of Co-op­er­a­tive De­vel­op­ment in 2008, it had on­ly made a pay­ment of US$256,000 to­wards the loan. 

When the Gov­ern­ment bailed out HCU in 2010 by es­tab­lish­ing a grant re­lief pay­ment scheme for de­pos­i­tors and share­hold­ers, it did not ex­tend to out­side lenders such as the com­pa­ny. 


Ram­per­sad, who was ap­point­ed to liq­ui­date HCU’s as­sets, filed the law­suit to in­val­i­date the agree­ment. 

Af­ter the law­suit was up­held by the lo­cal courts, the com­pa­ny ap­pealed to the Privy Coun­cil, as the in­val­i­da­tion of the agree­ment meant that it would be con­sid­ered an un­se­cured cred­i­tor and could on­ly po­ten­tial­ly re­coup ap­prox­i­mate­ly 20 per cent of its in­vest­ment through liq­ui­da­tion. 

In de­cid­ing the case, Lord Leg­gatt ruled the lo­cal courts were cor­rect to dis­miss the com­pa­ny’s claim that HCU was not in breach of its max­i­mum li­a­bil­i­ty lim­it when it en­tered in­to the agree­ment.

He not­ed that at the time, the com­mis­sion­er had ap­proved a lim­it of $100 mil­lion and there was no ev­i­dence to sug­gest that sep­a­rate lim­its were ap­proved for loans and de­posits as con­tend­ed. 

He not­ed that the ev­i­dence point­ed to the fact that at the time of the agree­ment, HCU had far ex­ceed­ed its max­i­mum li­a­bil­i­ty, as de­posits alone amount­ed to $848 mil­lion. 

While Lord Leg­gatt and his col­leagues agreed HCU was in breach of the lim­it as re­quired un­der the leg­is­la­tion and reg­u­la­tions, they ruled that such did not au­to­mat­i­cal­ly quash the loan. 

“There is no pro­vi­sion of the Act or Reg­u­la­tions which states or im­plies that a breach of the Act or Reg­u­la­tions gen­er­al­ly, or of reg­u­la­tion 14(3) specif­i­cal­ly, is to have the ef­fect of mak­ing any con­tract which gives rise to a breach void or un­en­force­able,” he said. 

“Nor can it be in­ferred from the pur­pose of the leg­is­la­tion that this was its in­tend­ed ef­fect,” he added. 

Lord Leg­gatt al­so re­ject­ed sub­mis­sions from Ram­per­sad’s le­gal team that the fail­ure to in­val­i­date the agree­ment based on HCU’s il­le­gal con­duct would be con­trary to the pub­lic’s in­ter­est. He not­ed that the po­si­tion would have been dif­fer­ent if the com­pa­ny knew the HCU was act­ing in breach and still chose to en­ter in­to the agree­ment. 

“In sum, it can­not, in the Board’s opin­ion, be said that al­low­ing a lender to en­force a loan agree­ment made and se­cu­ri­ty ac­cept­ed by the lender in good faith with­out know­ing that the cred­it union was bor­row­ing in ex­cess of its le­gal lim­it would be harm­ful to the in­tegri­ty of the le­gal sys­tem,” he said. 

In their dis­sent­ing opin­ion, Lord Kitchin and La­dy Ar­den strong­ly dis­agreed with the po­si­tion tak­en by the ma­jor­i­ty. 

“In our judg­ment, the ap­proach tak­en by the Board is not cor­rect: it amounts to putting the cart be­fore the horse,” they said. 

They stat­ed that as HCU was on­ly em­pow­ered to bor­row based on con­for­mi­ty with the leg­is­la­tion and reg­u­la­tions, any deal signed in breach of it could not be con­sid­ered valid. They dis­agreed with their col­leagues that Par­lia­ment had to ex­press­ly ad­dress breach of the reg­u­la­tions, as they sug­gest­ed that gen­er­al law on ul­tra vires con­tracts could ap­ply. 

The court al­so not­ed that the de­ci­sions of the lo­cal courts would not have left the com­pa­ny with­out any re­dress but would di­rect­ly af­fect de­pos­i­tors.

“The gen­er­al law has nev­er been that an ul­tra vires lender has no pos­si­bil­i­ty of re­cov­er­ing any of his mon­ey,” they said.

They ex­pressed con­cern that the ap­proach tak­en by their col­leagues was in­con­sis­tent with the statu­to­ry pol­i­cy of the reg­u­la­tions, as it did not recog­nise “that the so­ci­ety ex­ists for mu­tu­al ben­e­fit and that the mem­bers are pro­tect­ed”.

“In­deed, if the Board is cor­rect, far from the mem­bers not get­ting any wind­fall, they are at risk of suf­fer­ing a sig­nif­i­cant detri­ment, as de­pos­i­tors, in that the ul­tra vires lender will, sub­ject to the rules ap­plic­a­ble to in­sol­ven­cy, be paid out in full ahead of them,” they said. 

The com­pa­ny was rep­re­sent­ed by Ver­non Fly­nn, QC and Lau­ra New­ton, while Dou­glas Mendes, SC, Dhar­men­dra Pun­wasee and Rishi Dass rep­re­sent­ed Ram­per­sad. 

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