JMMB Merchant Bank Limited v The Real Estate Board

Part IV of the Real Estate (Dealers and Developers) Act 1987 is a self-contained scheme protecting purchaser prepayments. A charge created under section 31(4) in favour of the Real Estate Board is valid without registration under section 93 of the Companies Act 2004, provided it has been executed and lodged with the Registrar of Titles.

Pari passu ranking for an authorised financial institution depends on the wording and purpose of its mortgage or charge. The security must secure advances connected with construction on the development land. A general charge covering other lending cannot qualify merely because some funds were used for construction. Whether the security must be plot-specific was left open.

The appeal concerned security over land forming part of a Jamaican residential development. KES entered into prepayment contracts and later granted JMMB a mortgage securing a loan for several projects and other credit facilities. KES subsequently granted the Real Estate Board a charge under the Real Estate (Dealers and Developers) Act 1987. The charge was registered with the Titles Registrar but not at the Companies Office.

After the development failed and KES entered liquidation, the Real Estate Board claimed priority. JMMB argued that the Board’s charge was void against it for want of registration under section 93 of the Companies Act 2004, and that its own mortgage ranked pari passu. Mangatal J upheld the Board’s charge and priority. The Court of Appeal of Jamaica dismissed JMMB’s appeal. The issues before the Board were the validity of the Board’s charge and the scope of the statutory pari passu exception.

Appeal dismissed. Lord Hodge delivered the judgment of the Board, which agreed with the conclusions of the Jamaican courts, although its reasoning differed in part.

1. Although the charge in favour of the Real Estate Board was not a statutory charge in the technical sense, it was created by the vendor executing and lodging the charge in accordance with section 31 of the Real Estate (Dealers and Developers) Act 1987. Part IV constituted a self-contained statutory scheme. Execution and lodging with the Registrar of Titles were the statutory preconditions to withdrawing prepayments before completion. The scheme imposed no requirement to register the charge at the Companies Office, and section 93 of the Companies Act 2004 did not invalidate it.
2. The statutory purpose supported that conclusion. The scheme kept purchaser prepayments and the land securing their repayment separate from the developer’s assets available to other creditors. Section 26 restricted prepayment contracts unless the land was free from other security, subject to the protected section 31(5) exception. Applying section 93 would also conflict with the ranking prescribed by section 31(5).
3. The proviso to section 31(5) conferred pari passu ranking on a mortgage or charge over the land whose terms secured repayment of advances made in connection with construction on that land. The court had to examine the wording of the security to identify its purpose. The ranking attached to the charge, not to portions of lending which could later be shown to have been used for construction. Section 31(6) reinforced this interpretation.
4. JMMB’s general mortgage secured lending for several projects and other credit facilities. It therefore did not satisfy the proviso’s purpose-specific requirement and did not obtain the exclusive pari passu ranking. The Board noted that Jamaican Redevelopment Foundation Inc v The Real Estate Board [2014] UKPC 28 showed that a different ranking could arise where a pre-existing mortgage was not discharged and purchasers did not withdraw. Whether an authorised financial institution’s security had to be plot-specific remained undecided.

The parties were invited to agree the form of order, including costs, or to make written submissions within 21 days.

• Privy Council: Appeal dismissed on 20 April 2015.
• Court of Appeal of Jamaica: Dismissed JMMB’s appeal on 19 July 2013.
• Supreme Court of Jamaica: Mangatal J held on 8 June 2011 that the Real Estate Board’s charge was valid and had priority over JMMB’s mortgage.