SR Projects Ltd v Rampersad, the Liquidator of the Hindu Credit Union Co-Operative Society on behalf of the Hindu Credit Union Co-Operative Society Ltd (Trinidad and Tobago)

A statutory limit on a co-operative society’s liabilities may be a prohibition on receiving further loans or deposits, rather than a limit on the society’s legal capacity. The statutory language and regulatory context determine whether a transaction is ultra vires or merely illegal. Where legislation does not make breach render a contract void or unenforceable, the court applies the modern public-interest and proportionality approach to illegality. A lender acting in good faith, without knowingly participating in the breach, will ordinarily retain contractual enforcement rights, including security, subject to insolvency rules.

SR Projects Ltd lent substantial sums to the Hindu Credit Union Co-Operative Society Ltd, secured by a mortgage and promissory note. The Commissioner-approved maximum liability under the Co-Operative Societies Act and the Regulations was TT$100m and had been exceeded by deposits when the loan was made.

On the liquidator’s application, Charles J declared the loan and security null, void and of no effect as ultra vires and illegal. The Court of Appeal of the Republic of Trinidad and Tobago dismissed SR Projects’ appeal. The central questions before the Privy Council were whether regulation 14(3) limited the HCU’s legal capacity to borrow and, if not, whether the loan and security were nevertheless void or unenforceable for illegality.

By a majority, Lord Leggatt, with Lord Lloyd-Jones and Lord Stephens agreeing, the appeal was allowed. Lord Kitchin and Lady Arden dissented and would have dismissed it.

1. The maximum liability objectively approved by the Commissioner was a single limit covering deposits and other borrowing. The HCU had exceeded that limit when the loan was received.
2. Strict ultra vires, illegality and lack of agency authority are distinct concepts. The Turquand rule protects a person dealing in good faith from defects in a company’s internal management, but it does not apply where the company itself lacks capacity.
3. The Co-Operative Societies Act regulates societies without defining the objects and powers of each individual society. Those objects and powers are found in the society’s bye-laws. Section 44(1) conferred permission to borrow, subject to the Regulations and bye-laws.
4. Regulation 14(3), read in its context, was a prohibition against receiving loans or deposits above the approved maximum, not a restriction on corporate capacity. The HCU therefore acted illegally but within its powers. Its power to borrow carried the incidental power to give security.
5. The legislation did not expressly or impliedly make contracts entered into in breach of regulation 14(3) void or unenforceable. The statutory purpose, the risk of injury to innocent depositors and lenders, and the availability of regulatory and criminal sanctions all opposed that construction.
6. Applying the approach in Patel v Mirza [2016] UKSC 42, enforcement would not harm the integrity of the legal system where the lender acted in good faith and did not knowingly participate in the breach. Subsequent insolvency could not alter the legal consequences. The loan agreement and security were enforceable, subject to insolvency rules.

The dissent considered regulation 14 to limit the HCU’s capacity, making excess borrowing ultra vires. It would have treated the lender as having an unsecured restitutionary claim, but no enforceable security.

• Privy Council: allowed SR Projects’ appeal and held that the loan agreement and security were enforceable, subject to insolvency rules.
• Court of Appeal of the Republic of Trinidad and Tobago: dismissed SR Projects’ appeal and upheld the declarations that the loan and security were void.
• High Court: Charles J declared the loan and security null, void and of no effect as ultra vires and illegal.