Security%20over%20property mortgages%20final by Jambar

The Exercise of the Mortgagee’s Power of Sale in Jamaica: The Procedural Steps, Legal Challenges and Practical Difficulties. By Roshene S Betton

“A mortgage is one of the most important interest in land.” It is form of security interest in land which will secure the amount of a loan made so the mortgagee who has confidence that he will be able to recover his money in the event that the mortgagor defaults in repayment of the loan. The power of sale of the secured property is one of the remedies available to the mortgagor in the event of the mortgagor’s default in payment of principal and interest of the loan or performance of a covenant in a deed. Sykes J (Ag) aptly in his description of a mortgagee states the potency of this remedy “The lawyers for mortgagee’s devised a stratagem to mitigate the great efforts of equity to reduce the mortgagee to creditor. Their nuclear weapon was the power of sale. This was inserted into mortgage deeds.”1 This paper will explore the procedural steps, including the legal challenges and the practical difficulties, involved in the mortgagee pursuing this remedy.

SECURITY OVER PROPERTY The primary purpose of taking security is to reduce the credit risk and obtain priority over other creditors in the event of bankruptcy or liquidation. Taking security ensures a secondary source of repayment should the borrower fails to repay the loan. Institutional lenders in Jamaica, requirement for taking securities is that, it gives them, the creditor, a certain measure of influence or control over the debtor assets and business and most importantly, as regulated entities, it is a part of the regime of risk weighting of capital for capital adequacy purposes under Basel II2.

Jamaica Youth Development Foundation v. Portfolio International Jamaica Ltd Claim No. 2004/HCV 2305. Commercial Banks, Merchant Banks and Building Societies are licenced under the Banking Services Act as deposit taking institutions which are supervised by the Bank of Jamaica; Credit Unions are regulated by the Department of 1 2

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The lenders security originates in a contract of loan, that is the borrower and the lender enters into a credit transaction for a specific sum of money (capital debt/principal) which is evidenced by a loan agreement, the borrower then gives to the lender a specific asset as security (real property) for the loan which is evidenced by an Instrument of Mortgage executed by the mortgagor who is the registered proprietor of land. This mortgage in favor of the mortgagee creates a proprietary entitlement which is enforceable not only against the borrower but also third parties. If the borrower defaults in payment of the loan (principal and interest) the lender can call the loan by realising the security to settle the indebtedness. The realization of the security or enforcing the security is by way of exercising the power of sale under the mortgage3. The enforcement involves the sale of the asset to satisfy the debt. This process is governed by statute and common law rules that must be strictly observed before a mortgagee can exercise the power of sale. The first approach of the mortgagee would be to invite the mortgagor to remedy the default by paying the arrears, this is usually done within one (1) to thirty (30) days, when the arrears reaches ninety days the mortgagee will elect to exercise the power of sale.

Even though a mortgagee has a right in law to enforce its security by the sale of the mortgaged property, before taking such action the mortgagee must ask itself certain pertinent questions: 1. Based on the state of the property and/or the indebtedness is it prudent to pursue a sale of the mortgaged property at this time? 2. Within the context of priority of mortgages and the loan-to-value ratio, is it beneficial to the mortgagee to sell the property?

Co-operatives and Friendly Societies however they are designated as specified financial institution under the Bank of Jamaica Act which empowers the Bank of Jamaica to exercise supervisory powers and oversight. 3 The other options or remedies available to a secured creditor are (1) suing on the debt (2) Appointment of a Receiver under the Registration of Titles act or the Mortgage Deed (3) Application for Possession of the Mortgaged Property (4) Foreclosure proceedings-this is an exercise of last resort.

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Bearing in mind that the mortgagee is not a real estate entity and will not pursue a sale if it stands to gain nothing from the sale. 3. Is it prudent to sell the property based on its ranking4 or position as a mortgagee (i.e. first, first as pari passu, second, second as pari passu)? 4. Is there a proper accounting of the debt? 5. Are you in compliance with the written policies (internal procedures) of the institution?

The law makes a distinction between the power of sale arising and the power becoming exercisable. The power arises as soon as the money secured becomes overdue but it is not exercisable until certain steps are observed. The selling mortgagee should observe the following procedural steps: STEP 1 QUESTION: HAS POWER OF SALE ARISEN? Peruse the following documents:

 Mortgage Deed to ascertain the due execution and registration of the mortgage instrument5, ascertain i are any breaches or the conditions of mortgage instrument or financial breach;

 Duplicate Certificate of Title to ascertain whether mortgage has been registered and the amount and if partial discharge of mortgage has been effected6;  Search Report7 from the Registrar of Titles at the National Land Agency-

A separate charge taken by a second or subsequent lender as a security for a new loan. Must ensure that there is sufficient equity on the property taking into account money’s owed to prior mortgagees. 5 Mortgage only takes effect as a security upon the registration as outlined in the RTA as provided for in s105. 6 Discharge can be effected as to the land mortgaged or the amount, the copy mortgage must correspond to the endorsement on the Duplicate Certificate of Title. 7 S144 of the Registration of Titles Act- This search Certificate shows the state of the register at the time of issuing the search certificate, but not informing the person applying for the search certificate as to what is upon the certificate of title; and such person shall be entitled to inspect the certificate of title, and shall be deemed to know all of which an inspection of the certificate would have informed him.

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Section 105 of the Registration of Titles Act (hereafter referred to as the RTA) provide that: A mortgage and charge under this Act shall, when registration hereinbefore provided, have effect as a security, but shall not operate as a transfer of the land thereby mortgaged or charged; and in case default be made in payment or the principal sum, interest or annuity secured, or any part thereof respectively, or in the performance or observance of any covenant expressed in any mortgage or charge, or hereby declared to be implied in any mortgage and such default be continued for one month, or for such other period of time as may therein for that purpose be expressly fixed, the mortgagee or annuitant, or his transferee, may give the mortgagor or grantor or his transferees notice in writing to pay the money owing on such mortgage or charge, or perform and observe the aforesaid covenants (as the case may be) by giving such notice to him or them, or by leaving the same on some conspicuous place on the mortgaged or charged land, or by sending the same through the post office by a registered letter directed to the then proprietor of the land at his address appearing in the Register Book. (Emphasis mine)

The fundamental principle under the Torrens title system is that title to land and to an interest in land depends

the registration of the instrument and not upon the execution of instruments between the parties. The effect o

of the RTA is that an Instrument of Mortgage must be registered to have effect as a security. This is in contr the common law title system where execution by the parties of a Deed of Conveyance passes any interest in land under the Torrens title system it is the registration of the instrument that passes the title or the interest.

The failure to register a mortgage under the RTA will not confer a legal interest on the mortgagee. In that in case the mortgagee only has an equitable mortgage.

The court of appeal case of Cowell Anthony Forbes v. Cowell Anthony Forbes, Millerâ&#x20AC;&#x2122;s Liquor Store (

Limited8 is illustrative of that point. Where it was argued that the failure to register the mortgage prevented i exercising powers of sale as prescribed by section 106 of the RTA.

Supreme Court Civil Appeal No. 102/2013 delivered 2016; [2016] JMCA Civ. 1

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However, the mortgagee can rely on the contractual power of sale as contained in the Instrument of Mortgage as stated by Brooks JA The clause does not depend on the registration of the instrument of mortgage in order for the terms of the ROTA to be effective. The clause imports into its provisions, the relevant provisions of section 106 of the ROTA. The reference to “powers, rights and remedies conferred on the Mortgagee by…any other statute or otherwise at all” supports that interpretation. Brooks J.A. ruled that the Respondent was given by clause (i) of the mortgage instrument, the right to sell the premises and call upon any of the provisions of the ROTA that could assist it in that regard. The power exists, by way of reference, in section 106. As Sykes J (Ag) reminds us in the case of Jamaica Youth Development Foundation v. Portfolio International Jamaica Ltd.9 in tracing the historical foundations of the law of mortgages “that the RTA did not intend to alter radically the law relating to mortgages. What it did was to regulate mortgages in the context of a system of registration of titles making such changes as was necessary.”

STEP 2 QUESTION: IS POWER of SALE EXERCISABLE?  Check mortgage accounts to see if mortgagor is in default of payment of principal or interest, what is the amount of arrears;  Check the Instrument of Mortgage to ascertain the number of days of default that make the power exercisable;  Ascertain the duration of the default i.e. the number of days in default of payment of principal and interest or the duration of the breach of condition under the mortgage.

Under s105 of the Registration of Titles Act:

Claim No. 2004/HCV 2305

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A mortgage and charge under this Act shall, when registration hereinbefore provided, have effect as a security, but shall not operate as a transfer of the land thereby mortgaged or charged; and in case default be made in payment or the principal sum, interest or annuity secured, or any part thereof respectively, or in the performance or observance of any covenant expressed in any mortgage or charge, or hereby declared to be implied in any mortgaged and such default be continued for one month, or for such other period of time as may therein for that purpose be expressly fixed, the mortgagee or annuitant, or his transferee, may give the mortgagor or grantor or his transferees notice in writing to pay the money owing on such mortgage or charge, or perform and observe the aforesaid covenants (as the case may be) by giving such notice to him or them, or by leaving the same on some conspicuous place on the mortgaged or charged land, or by sending the same through the post office by a registered letter directed to the then proprietor of the land at his address appearing in the Register Book. (Emphasis mine) Invariable the mortgage deed expressly empowers the mortgagee to sell the mortgaged property if the mortgagor defaults within a specified time. This was affirmed by Brooks J.A. in Cowell Anthony Forbes v. Cowell Anthony Forbes, Millerâ&#x20AC;&#x2122;s Liquor Store (Dist.) Limited10

STEP 3 QUESTION: SHOULD a DEMAND for REPAYMENT FOR NOTICE BE GIVEN TO THE MORTGAGOR? Section 105 of the Registration of Titles Act provide that: A mortgage and charge under this Act shall, when registration hereinbefore provided, have effect as a security, but shall not operate as a transfer of the land thereby mortgaged or charged; and in case default be made in payment or the principal sum, interest or annuity secured, or any part thereof respectively, or in the performance or observance of any covenant expressed in any mortgage or charge, or hereby declared to be implied in any mortgaged and such default be continued for one month, or for such 10

Supreme Court Civil Appeal No. 102/2013 delivered 2016; [2016] JMCA Civ. 1.

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other period of time as may therein for that purpose be expressly fixed, the mortgagee or annuitant, or his transferee, may give the mortgagor or grantor or his transferees notice in writing to pay the money owing on such mortgage or charge, or perform and observe the aforesaid covenants (as the case may be) by giving such notice to him or them, or by leaving the same on some conspicuous place on the mortgaged or charged land, or by sending the same through the post office by a registered letter directed to the then proprietor of the land at his address appearing in the Register Book. (Emphasis mine) The notice of intention to exercise the power of sale is not mandatory but directory under s105 of RTA11. Patterson J in the Supreme Court case of Zachariah Sharief v National Commercial Bank Jamaica Limited (1994) 31 JLR 304 opined: These provisions of the Act, in my view, are not mandatory, but are only directory. The general object and paramount importance of the provisions of s. 105 & 106 of the Act must be, in my mind, to ensure that the mortgagor is notified of the mortgagee's intention to exercise his power of sale, and to allow the mortgagor time to fore-stall the sale. The mortgagor must be presumed to know he is in arrears, and the notice in writing, it seems to me, is intended to remind him of his obligation and to call upon him to repay the money in accordance with the demand within the time mentioned therein. The manner of service of the notice is not of general importance, and it may be by any of the means set out in the Act or in the deed itself, and to my mind, it may be by some other means, provided that in such a case, it is clearly shown that the notice did come to the knowledge of the mortgagor. The date of the service of the notice of demand is important because it is from that date that time begins to run against the mortgagor for the exercise of the mortgagee's power of sale, for although the power of sale arises when the mortgagor defaults, that power is not exercisable before the time for payment specified in the notice has elapsed. In examining the clause in the Mortgage Deed, Patterson J was of the opinion that: the provisions in the Act to like effect are only directory, and this clause in the mortgage deed, in my judgment, is not mandatory. Although it requires the notice of demand to be addressed to the mortgagor at the address stated as "Mortgagor's Address" in the schedule to the deed, which is "2 Trevennion Road, Kingston 5", the fact that it was sent to the mortgagor at another address, does not vitiate the notice. I have stated earlier on in my judgment that 11

Per Patterson J in Sharief v. National Commercial Bank Jamaica Limited 31 JLR 304, 309

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I am satisfied that the demand notices did come to the hands of the plaintiff, and I hold that the notices were properly served. In the circumstances, I reject the plaintiff's contention that the defendant failed to notify him in the manner prescribed by the Registration of Titles Act because he was not notified at the address set out in the Register Book of Titles Given that the requirements under the RTA are procedural, a valid notice is not an essential prerequisite to a valid exercise of the power of sale. However, Cooke J.A. with whom Forte P and Smith JA agreed are of a different view. He stated that the statutory provisions were mandatory and that it was impossible to contract out of them12. The courts view is expressed in the case of Dianne Jobson v. Capital and Credit Merchant Bank Limited and Ronald Taylor and Ronald Taylor (Appointed by Order of the Court to represent Carmen Taylor13 [5] Sections 105 and 106 (supra) are complementary and must be construed together. They prescribe the ambit of the course which a mortgagee can take in respect of a defaulting mortgagor. Section 105 provides the circumstances in which the mortgagee “may give” to the mortgagor notice in writing to pay the money owing. Section 106 gives to the mortgagee the power of sale if having served a notice, one month elapses and the arrears are still outstanding. The court below was of the view that the words “may give” in section 105 were merely permissive. I do not agree. If this were correct, then that part of section 106 which deals with when the power of sale by a mortgagee becomes exercisable would have been quite unnecessary. It is my view that in construing both these sections the words “may give” in section 105 must be interpreted to mean “is entitled” if power of sale is contemplated. Accordingly the giving of a notice in writing if circumstances so warrant, is a mandatory obligation placed on a mortgagee before the power of sale becomes exercisable. [6] Clause 10 of the mortgage instrument sought to exclude the statutory provision obliging the mortgagee to give notice in writing to the mortgagor before the exercise of the power of sale. It was submitted on behalf of the 1st respondent that it was lawful for the parties to come to an agreement which was not in conformity with sections 105 and 106. Therefore, by agreement, Professor Kodliyne states that it is unclear whether the provisions as to the giving of notice is mandatory or merely directory. Page 242 FN 46 in Commonwealth Caribbean Property Law 2 nd Ed. Cavendish Publishing. 13 Supreme Court Civil Appeal Number 113/2002 delivered in 2005 12

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the appellant/mortgagor had waived any right to a written notice. This is not correct. This submission would render those parts of sections 105 and 106 which deal with the exercise of the power of sale by a mortgagee of no effect. The statutory requirement for notice is for the benefit of the mortgagor - a last chance to protect his equity of redemption. It is impermissible â&#x20AC;&#x153;to contract out ofâ&#x20AC;? the mandatory statutory provisions. The Privy Council in rejecting the judgment of the Court of Appeal observed that notice may be dispensed with in accordance with the mortgage deed. In construing the subject mortgage deed in the case, the Board reasoned that: [6] The bank did not comply with the notice provisions in these two sections. But the terms of clause 10 of the mortgage were clearly intended to modify the provisions of sections 105 and 106 by dispensing with the need for notice and by providing that simple non-payment for 30 days or any breach of covenant was to be an event of default which made the power exercisable. The issue is

whether it was open to the parties to modify the statutory requirements in this way.

[11] Their Lordships accept that there is substance in both of these arguments but do not regard them as conclusive. If, as Cooke JA thought, these provisions of the Act were intended to protect mortgagors as a class, one would naturally approach their construction on the assumption that clear language was needed to allow them to contract out of the statutory protection. But an alternative legislative purpose is that the object was to provide a simplified system of conveyancing which was cheaper and more secure than the old. One way in which these objects could be secured was by providing for standard statutory covenants and powers, thereby avoiding the need for them to be spelled out in each instrument, but subject to any modification agreed by the parties which did not prejudice the functioning of the system. The standard covenants and powers are likely to have been taken from those customarily used by conveyancers under the old system and will therefore have reflected what most parties thought gave fair protection to both sides. Such forms were by definition likely in most cases to be acceptable to the parties without modification and would therefore achieve the objective of simplifying the system. But that would not be inconsistent with allowing the parties freedom to vary the form if they wished to do so. Their Lordships in arriving at the decision that parties can contract out of the statutory period of notice relied on the New Zealand case of Public Trustee v Morrison (1894) 12 NZLR 423 New Zealand Page 9 of 38

Land Transfer Act 1870 were exactly the same as those afterwards enacted in Jamaica. In that case too, the mortgage provided that “upon default the mortgagee may sell at once without any notice or waiting any further period whatever”. The mortgagee had sold after a default without giving any notice and the sale was challenged by the personal representative of the mortgagor, whose counsel argued (at p. 424) that notice was required by section 59 of the Act (corresponding to section 105 of the Jamaican Act) and that the parties “cannot contract themselves out of the section” Denniston J said briefly (at p. 426) that he could “see nothing in the Act warranting this contention and the practice has certainly been to the contrary.” In their Lordships’ opinion, a narrow construction of the power of modification in section 128 of the Registration of Titles Act would not be consistent with the scheme and policy of the Act or other conveyancing legislation. If the legislature, as far back as 1888, intended for social reasons to give mortgagors a protection which they could not bargain away, it is difficult to see why mortgagors of registered land were favoured over mortgagors of unregistered land. If the legislature intended that a period of notice should be mandatory, it is difficult to see why that period could have been reduced by agreement to a mere scintilla temporis. In the circumstances their Lordships do not accept Lord Gifford’s submission that section 128 requires one to distinguish between those powers which are expressly stated to be implied in the registered instrument and those which the statute attaches as a consequence of the registration of the instrument. Such a distinction would not reflect any discernible legislative purpose. It is prudent for a mortgagee to embrace and adopt the observations of Patterson J in Sharief v National Commercial Bank Jamaica Ltd (1994) 31 JLR 304, 309: “The general object and paramount importance of the provisions of ss 105 and 106 of the Act must be, in my mind, to ensure that the mortgagor is notified of the mortgagee’s intention to exercise his power of sale, and to allow the mortgagor time to forestall the sale.” It is best practice for notice to be given to remind the mortgagor of the default in payment and the extent of the arrears. The purpose of the notice is to protect the mortgagors against a sale of their property without notice of the default and to give them an opportunity to remedy it.14

Mir Bros Projects Pty Ltd. V 1924 [1980] 2 NSWLR 907

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While the RTA does not specify the contents of the notice, it is advisable to 1. 2. 3. 4. 5.

Identify the default alleged; Particularize the indebtedness; State the steps mortgagor must adhere to rectify the default; The period of time to remedy the default; The mortgageeâ&#x20AC;&#x2122;s next course of action if the mortgagor fails, omit or neglects to remedy the default within the stipulated time;

See sample Notice on the next page.

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STATUTORY NOTICE UNDER THE THE REGISTRATION OF TITLES ACT, Cap. 340 MAIL TO:

AND TO:

ST. ANDREW

ST.ANDREW

Dear Sirs MEMBER: ACCOUNT NO: [ ] THE MORTGAGED PROPERTY:

[ ] ALL THAT parcel of land part [ ] registered at Volume [ ] Folio [ ] in the Register Book of Titles.

MORTGAGORS: MORTGAGEES: _________________________________________________________________ We act for [ ], the mortgagee on Title who instructs us that your mortgage account has now been in arrears for over [ ]months.

THEREFORE WITHOUT PREJUDICE to its rights under the Instrument of Mortgage dated the [ ] day of [ ] (The Mortgage Deed) registered in duplicate on […………..………] to secure the sum of […………………………………..] with interest, on our client’s behalf, we hereby DEMAND that you immediately pay to [ ] in the parish of St Andrew, the monies secured by the mortgage as follows: Present indebtedness particularized as follows:

PRINCIPAL : INTEREST : PENALTY : LEGAL FEES for NOTICE COST OF POSTAGE TOTAL :

MEMORANDUM OF MONIES OWING UNDER THE MORTGAGE ACCOUNT AS AT as at June [ ], 20[ ]

$ $ $ $ (inclusive OF GCT) $ $ =========

TAKE NOTE THAT the Principal, as stated above, is exclusive of any other debt outstanding and further interest from the [18 th ]day of [June], 2014. Daily Interest and late charges continues to accrue on the outstanding debt and therefore the accrued amount must be added to the Principal up to and including the date on which you make repayment. AND WE HEREBY GIVE YOU NOTICE that if your default in payment of [……………] continues for a further thirty (30) days after the service of this NOTICE,[ ], without further notice to you, will put up for sale the Mortgaged Property in exercise of the Powers of Sale contained in the said Mortgage Deed. PLEASE NOTE THE FOLLOWING: 1.

All payments in full satisfaction of this demand must be made either by MANAGER’S CHEQUE drawn in favour of [ ] OR CASH and delivered directly to [ ] located at [ ] in the parish of St. Andrew.

Payment of any sum less than the entire indebtedness particularized above (including principal, interest, arrears and costs) or failure to clear the indebtedness particularized above WILL NOT PREJUDICE [ ] RIGHT TO EXERCISE ITS POWER OF SALE.

All arrangements for payment must be entered into directly with the Manager, [ ] at its head office located at [ ].

[ ] will not be responsible for any loss, inconvenience or embarrassment caused by any payment being made in any manner, other than that stipulated above. DATED THIS

DAY OF

2014

________________________________ ATTORNEY-AT-LAW FOR AND ON BEHALF OF [FINANCIAL INSITITION]

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The industry practice is to give the mortgagor a reasonable amount of time for compliance , fourteen (14 days) is considered acceptable however some mortgagee may give less time, some may afford more time for compliance. ď&#x192;ź Ensure that written statutory notice has been given of the default or breach and mortgagee may give mortgagor written notice of arrears and intention to sell. ď&#x192;ź Notice is not invalid if demand is made for more than what is due or makes no reference to amount due. STEP 4 QUESTION: HOW IS SERVICE EFFECTED? Section 105 of the Registration of Titles Act provide that: A mortgage and charge under this Act shall, when registration hereinbefore provided, have effect as a security, but shall not operate as a transfer of the land thereby mortgaged or charged; and in case default be made in payment or the principal sum, interest or annuity secured, or any part thereof respectively, or in the performance or observance of any covenant expressed in any mortgage or charge, or hereby declared to be implied in any mortgaged and such default be continued for one month, or for such other period of time as may therein for that purpose be expressly fixed, the mortgagee or annuitant, or his transferee, may give the mortgagor or grantor or his transferees notice in writing to pay the money owing on such mortgage or charge, or perform and observe the aforesaid covenants (as the case may be) by giving such notice to him or them, or by leaving the same on some conspicuous place on the mortgaged or charged land, or by sending the same through the post office by a registered letter directed to the then proprietor of the land at his address appearing in the Register Book. (Emphasis mine) Under the RTA notice is deemed to have been properly given if made in one of three ways: (i) (ii) (iii)

personal service; leaving at a conspicuous place on the mortgaged property; or By registered letter addressed to the address of the mortgagor set out on the Title. Page 13 of 38

Despite the provisions of section 105 as to the modes of service being disjunctive and not conjunctive mortgagees out of an abundance of caution tends to utilize other modes of services including all the statutory modes to ensure that the notice is brought to the attention of the mortgagor. The test is proving that the Notice was in fact delivered. Therefore the mortgagee must ensure that they can substantiate by written evidence proof of actual service. Based on the reasoning of Patterson J, the manner of service is not important if it comes to the knowledge of the mortgagor15:

â&#x20AC;&#x153;I am satisfied that the plaintiff's correct mailing address in the U.S.A. is 1184 Nostrand Avenue, Brooklyn, N.Y. 11225, and that the address noted on the first card in red is not only incorrect but non-existent. As to how it came about that the incorrect address was noted on that card may not be a crucial consideration. What is of utmost importance in my view is whether or not the plaintiff received the correspondence and in particular the notice in writing as is required by S. 105 of the Registration of Titles Act, for only if he was notified in accordance with the Act and there is default in payment would the power of sale be exercisable. STEP 5 QUESTION: WHAT IS THE EFFECT of COMPLIANCE/NON-COMPLIANCE WITH THE NOTICE by the MORTGAGOR? If the mortgagor e complies with the notice by paying all the arrears or the outstanding mortgage debt power of sale ceases to be exercisable for that default. 106 If such default in payment, or the performance or observance of covenants, shall continue for one month after the service of such notice, or for such other period as may in 15

Zachariah Sharief V National Commercial Bank Jamaica Limited (1994) 31 JLR 304 -From the evidence, at least eight different letters were posted to the plaintiff between August 1988 and January, 1990, some by ordinary mail, others by registered mail, and none was returned to the defendant. I reject the evidence of the plaintiff that he did not receive any of those letters, and I find as a fact that he did receive all the letters sent to him. In particular, I find that on a balance of probabilities, the plaintiff received the registered letter with notice of demand written by the Assistant Manager of the defendant's bank and addressed to him at 1185 Nostrand Avenue on November 320, 1989 and also that a letter was posted to him at the same address by Deryck A.N. Russell, Attorney-at-Law on January 12, 1990.

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such mortgage or charge be for that purpose fixed, the mortgagee or annuitant, or his transferee, may sell the land mortgaged or charge or any part thereof either all together or in lots, by public auction or by private contract, and either at one or at several times and subject to such terms and conditions as may be deemed fit, and may buy in or vary or rescind any contract for sale, and resell in manner aforesaid, without being liable to the mortgagor or grantor for any loss occasioned thereby, and may make and sign such transfers and do such act and things as shall be necessary for effectuating any such sale, and no purchaser shall be bound to see or inquire whether such default as aforesaid shall have been made or have happened, or have been served, or otherwise into the propriety or regularity of any such sale; and the Registrar upon production of a transfer made in the professed exercise of the power of sale conferred by this Act or by the mortgage or charge shall not be concerned or required to make any of the inquires aforesaid; and any persons damnified by an unauthorized or improper or irregular exercise of the power shall have the remedy only in damages against the person exercising the power. If the Mortgagor does not comply by paying the secured debt then the mortgagee is vested with the right to sell the mortgaged property by public auction or provide treaty and will proceed to issue Notice of intention to sell the Mortgage Property. In practice it is recommended that that notice of intention to sell be given along with the Demand for repayment.

STEP 6 QUESTION: WHICH MODE OF SALE SHOULD THE MORTAGEE ADOPT-PRIVATE TREATY or PUBLIC AUCTION? Section 106 provides: If such default in payment, or the performance or observance of covenants, shall continue for one month after the service of such notice, or for such other period as may in such mortgage or charge be for that purpose fixed, the mortgagee or annuitant, or his transferee, may sell the land mortgaged or charge or any part thereof either all together or in lots, by public auction or by private contract, and either at one or at several times and Page 15 of 38

subject to such terms and conditions as may be deemed fit, and may buy in or vary or rescind any contract for sale, and resell in manner aforesaid, without being liable to the mortgagor or grantor for any loss occasioned thereby, and may make and sign such transfers and do such act and things as shall be necessary for effectuating any such sale, and no purchaser shall be bound to see or inquire whether such default as aforesaid shall have been made or have happened, or have been served, or otherwise into the propriety or regularity of any such sale; and the Registrar upon production of a transfer made in the professed exercise of the power of sale conferred by this Act or by the mortgage or charge shall not be concerned or required to make any of the inquires aforesaid; and any persons damnified by an unauthorized or improper or irregular exercise of the power shall have the remedy only in damages against the person exercising the power. ď&#x192;ź The Mortgagee must decide whether the land is to be sold by public auction or private treaty. However it is highly recommended that the sale first be attempted by public auction. Only when that fails should sale by private treaty be pursued. One noted Conveyancer has recommended that approach because it is important as it demonstrates transparency reasonableness and good intention to obtain the best price in the open market which are points that can affect an injunction application to restrain a mortgagee from exercising its power of sale.16 It is imperative that whichever mode of sale that is adopted it must be a true sale which must conform to the strictures of the mode. Bingham J.A. reminds us that â&#x20AC;&#x153;the exercise conducted by the auctioneer on the morning in question amounted to sale by way of a private treaty and not one by way of a public auction.â&#x20AC;?17

Alton Morgan, Mortgage Fundamentals and Realisation, Presentation to COK Sodality Co-operative Credit Union Limited Securities Administration Department on July 6, 2016. 17 International Trust and Merchant Bank Limited v. Gilbert Gardner Supreme Court Civil Appeal No. 111/2000. 16

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Undoubtedly, the timing of the sale is at the discretion of the mortgagee as shown Cuckmere Brick Co Ltd and another v Mutual Finance Ltd Mutual Finance Ltd v Cuckmere Brick Co Ltd and others18: Per Cross LJ. I shall first deal with the law applicable to this case. A mortgagee exercising a power of sale is in an ambiguous position. He is not a trustee of the power for the mortgagor for it was given him for his own benefit to enable him to obtain repayment of his loan. On the other hand, he is not in the position of an absolute owner selling his own property but must undoubtedly pay some regard to the interests of the mortgagor when he comes to exercise the power. Some points are clear. On the one hand, the mortgagee, when the power has arisen, can sell when he likes, even though the market is likely to improve if he holds his hand and the result of an immediate sale may be that instead of yielding a surplus for the mortgagor the purchase price is only sufficient to discharge the mortgage debt and the interest owing on it. (Emphasis mine) This view was also shared by Panton P19 [55] Having considered the facts of the instant case and the relevant law, I find that I am not in agreement with the conclusion of the learned trial judge. The only acceptable evidence as to value came from Mr Steer. His report speaks of the Government’s interest rate policy having had “a negative effect on investment and the economy in general and the real estate market in particular, especially with respect to commercial and industrial buildings”. Market conditions, he said, favoured a buyer with strength of cash. It was in that climate that the auction was held. The result was disastrous. There were no takers. The auctioneer had no respectable or acceptable bid. The property was then listed with dealers. After approximately a year’s wait, the bank sold the property to Cornwall’s tenant, Amalgamated. The simple fact which cannot be ignored is that there was no evidence of any other entity or individual that showed an interest in purchasing the property at a higher rate. [56] The bank could not have been expected to wait into eternity to recoup its losses (or, some of its losses) from its transactions with Cornwall. The bank, if it could have done so, would have preferred to sell at a price that would have seen full recovery of the outstanding amounts owed by Cornwall. There is [1971] 2 All ER 633 Cornwall Agencies Limited v. the Bank of Nova Scotia Jamaica Limited and Amalgamated (Distributors) Limited Court of Appeal [2016] JMCA Civ. 49. 18

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no evidence that Cornwall was even trying to get a buyer capable of paying the price that the learned judge felt the property should have been sold for. In the circumstances, there being no evidence of fraud or negligence, I am of the opinion that the learned judge erred in fixing liability on the bank. [57] In view of the absence of any evidence to support that which Cornwall has advanced in its grounds of appeal, and bearing in mind the proper interpretation to be given to the Cuckmere case, Cornwallâ&#x20AC;&#x;s appeal is without merit. So far as the bankâ&#x20AC;&#x;s counter appeal is concerned, it ought to be allowed as the bank has not been shown to have breached any of the principles that guide a mortgagee exercising a power of sale. STEP 7 QUESTION: WHAT MANNER SHOULD THE MORTGAGEE CONDUCT THE SALE?

The mortgagee must take into account several matters when exercising the power of sale. The mortgagee is guided by several principles as laid down by the English Court of Appeal in Cuckmere Brick Co. v. Mutual Finance Limited. In establishing the standard Salmon J opined: It is impossible to pretend that the state of the authorities on this branch of the law is entirely satisfactory. There are some dicta which suggest that unless a mortgagee acts in bad faith he is safe. His only obligation to the mortgagor is not to cheat him. There are other dicta which suggest that, in addition to the duty of acting in good faith, the mortgagee is under a duty to take reasonable care to obtain whatever is the true market value of the mortgaged property at the moment he chooses to sell it: compare, for example, Kennedy v de Trafford with Tomlin v Luce ((1889) 43 Ch.D 191 at 194). The proposition that the mortgagee owes both duties, in my judgment, represents the true view of the law. I accordingly conclude, both on principle and authority, that a mortgagee in exercising his power of sale does owe a duty to take reasonable precaution to obtain the true market value of the mortgaged property at the date on which he decides to sell it. No doubt in deciding whether he has fallen short of that duty, the facts

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must be looked at broadly and he will not be adjudged to be in default unless he is plainly on the wrong side of the line. The Cuckmere Brick standard has been embraced and adopted by our Jamaican courts in the court of appeal cases of Moses Dreckett v Rapid Vulcanizing Company Limited20 and International Trust and Merchant Bank Limited v. Gilbert Gardner21. The guiding principles are-: First, the mortgagee should ensure that the proposed sale is adequately advertised. The purpose of the adverting is to bring the property to the attention of those who might be interested in buying in an effort to engender competitive tendering.22 The advertisement should adequately describe the property and give important information to attract buyers. There is no prescribed form of advertisement but it is best practice to give a full detailed description of the property as to the layout, the number of rooms and the amenities. A number of case has shown that the failure to adequately advertise the property paying particular attention to the description of the mortgaged property is fatal to the mortgagee in discharging his obligation to obtain the proper price.

The most celebrated case of Cuckmere Brick Co Ltd and another v Mutual Finance Ltd patently demonstrates that fatal mistake:

Advertisements appeared in the national and local press, posters were published and particulars of sale sent to land developers all over the country advertising the sale of this building site comprising 2.65 acres with planning consent for the erection of 33 detached houses. The cover and the first seven pages of the particulars of sale prominently featured this planning consent. The last three pages of the particulars set out merely the conditions of sale, the memorandum and a plan of the site. Nowhere in any of the literature in connection with the sale was any mention made of the existence of the planning consent for 100 flats. The evidence shows that land which may be thought by developers to be suitable 20

(1988) 25 J.L.R 130 Supreme Court Civil Appeal No. 111/2000, delivered in 2004 Ibid

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for flat development is much more valuable with planning permission for flats than it would be with planning permission only for houses. The site in question, if developed for flats, would have provided 300 habitable rooms but if developed for houses only 132 habitable rooms. None of this was seriously challenged by the defendants. Whether a site may be attractive for flat development is of course a matter of opinion. In some cases this may be a difficult and nicely balanced question. If, however, it is or ought to be obvious that a site may well be attractive to flat developers and it has planning permission for flats it would clearly be most imprudent to advertise the site for sale without mentioning this planning permission. Our Jamaica cases are also illustrative in that regard: Joan Adams v. Workers Trust & Merchant Bank Limited23 In the instant case the defendant did not advertise the property before sale but chose to sell by treaty. Such failure to advertise, coupled with the fact that he misdirected himself to whether there was a binding agreement, leaves me to conclude that the defendant fell short of the standard of the duty of care owed to the plaintiff. I therefore hold that the defendant is liable for the loss suffered as a result of the sale for $395,000.00. By advertising, the property could have been exposed to prospective purchasers in the open market. International Trust and Merchant Bank Limited v. Gilbert Gardener24 The trial found as a fact and a matter of law “that the advertising the mortgaged property for sale at auction of February 1, 1996 the appellants insisting merely that the property “was a duplex dwelling house” without describing what the two buildings comprise of that was a material mis-description of the property which failed thereby to attract potential bidders to the auction sale.”

The trial judge observed; that while the property was advertised for sale by public auction it referred to as Nos: "13 and 13A Princess Alice Drive", apart from 23 24

(1992) 29 JLR 447. Supreme Court Civil Appeal No: 111/2000 delivered 2004.

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referring to the Volume and Folio numbers of the Registered Title, and a description of what was comprised thereon as being "a single dwelling house", no reference was made as to what Nos. 13 and 13A Princess Alice Drive consisted of. Being a proposed sale by way of a public auction a proper description of the property to be sold was essential as this was what would cause in potential bidders an arousal of interest and thus to attend the sale. The advertisement in the Daily Gleaner of Thursday, February 1, 1996 which forms part of the Record of Appeal (Exhibit 3) reads: "Today! Today! C.D. Alexander Auctions for Sale by Public Auction Thursday, February 1, 1996 at 10:30 a.m. at our offices UNDER POWERS OF SALE CONTAINED IN A MORTGAGE NOS: 13 & 13a PRINCESS ALICE DRIVE, HERMITAGE, ST ANDREW. All that parcel of land part of Copeland Corner, situated on Mona Road in the parish of St Andrew being the lot numbered SEVENTEEN on the plan. Part of HERMITAGE as comprised in Certificate of Title registered as Volume 1005 Folio 190 with a dwelling house thereon. The C.D. Alexander Realty Company Ltd. 168 Harbour Street, Kingston, Jamaica."

Cooke JA reasoning in Dianne Jobson v. Capital and Credit Merchant Bank Limited and Ronald Taylor and Ronald Taylor (Appointed by Order of the Court to represent Carmen Taylor)25 suggests that the usual practice was for the advertisement to be done at least two times.

However, the fact that the usual practice was not followed by the mortgagee does not automatically make the mortgagee negligent in the exercise of the power of sale. Even though the court found that the advertisement was inadequate, the selling price of the land was representative of the true market value26. ď&#x192;ź The mortgagee must retain for evidentiary purposes the tear sheet of due publication of the Advertisement as proof of advertisement.

Supreme Court Civil Appeal No. 113/2002 delivered 2005 Dianne Jobson v. Capital and Credit Merchant Bank Limited and Ronald Taylor and Ronald Taylor (Appointed by Order of the Court to represent Carmen Taylor) Supreme Court Civil Appeal No. 113/2002 delivered 2005 25

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The test as to whether the sale was properly advertised by an examination of the advertisement to determine its adequacy and that through the advertisement, the property obtained maximum exposure to obtain the proper price obtainable in the circumstances. .

Second, the mortgagee must take reasonable steps to ascertain the value of the property before selling. In practice it means that a prudent mortgagee will engage a reputable and competent valuer to assess the value of the property and prepare a valuation report containing the current market value and must be for the purposes of ascertaining the proper price. The valuation report is a formal presentation of the valuerâ&#x20AC;&#x2122;s opinion in written format which must set out the following content: a)

Identification and status of the valuer

Identification of the client and any other intended users

Purpose of the valuation

Identification of the asset or liability to be valued

Basis of value

Valuation date

Extent of investigation

Nature and source of the information relied upon

Assumptions and special assumptions

Restrictions and use, distribution or publication

Confirmation that that assignment has been undertaken in accordance with the standards

Valuation approach and reasoning

Amount of the valuation(s)

Date of the valuation report

Sykes J opined in Rudolph Daley and RBTT Bank and others27 â&#x20AC;&#x153;where the property is sold on private treaty, then it is prudent for the mortgagee to obtain a valuation report of the property at the time of the sale.â&#x20AC;?

Supreme Court C. L. 1195/D 162 Judgment delivered on January 30, 2007

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According to the Royal Institution of Chartered Surveyors, a valuation means the provision of a written opinion as to capital price or value, or rental price of value, on any given basis in respect of an interest in property, with or without associated information, assumptions or qualifications. However, it does not include a forecast of value.28 Valuation is simply a model to try to determine price. Value is the end result. It is the quantification of an understanding of the market; the legal impact; the physical constraints; the planning regime; the availability of finance; the demand for product and the general economy all influence the value of property.29 There are several methods of valuation used to arrive at the value of properties. The method(s) used will depend on the type of interest, type of property and the purpose of the valuation. There are four (4) established approaches to arriving at the estimate value of real estate, appraiser usually employs two30.

Salmon LJ observations about the nature of a valuation in Cuckmere Brick Co Ltd and another v Mutual Finance Ltd are very instructive: “The valuation of a plot of land depends on the knowledge, experience, expertise and ability of the valuer. Valuation is not an exact science. Equally careful and competent valuers may differ within fairly wide limits about the value of any piece of land. But …” However, the difference of opinion, which can occur between component valuers, should not vary much in times of stable market conditions, provided market information is available to all and is not under-reported. There should be little difference too between the valuation and subsequent sale price of properties – provided the sale took place within a short period of time after the valuation was undertaken. Both mortgagors and mortgagees must be cognizant of the purpose for which the valuation report is prepared before attempting to rely on it to determine the proper price31.

RICS Valuation – Professional Standards Ibid 30 1. Comparative 2. Income or Investment 3.Cost/Replacement 4. Residual (Development Method) Approach 31 See the case of Anthony Johnson, Arlene Johnson and Jamaica National Building Society [2017] JMSC Civ. 25 28 29

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Where a sale was below the valuation report price it was held not unreasonable nor at an undervalue32. Crossman J who quoted, with approval, dictum from Warner v Jacob 20 Ch D 220, at page 224: “...a mortgagee is, strictly speaking, not a trustee of the power of sale. It is a power given to him for his own benefit, to enable him the better to realize his debt. If he exercises it bona fide for that purpose, without corruption or collusion with the purchaser, the Court will not interfere even though the sale be very disadvantageous, unless indeed the price is so low as in itself to be evidence of fraud.” In Waring, the property was sold by the mortgagee for £186,000 although it had been previously put up for auction with a reserve price of £220,000. The attempt at auction was unsuccessful. Crossman J rejected the contention that it had been sold at a gross undervalue. Mortgagee cannot sell property to (1) himself (2) any officer of mortgagee or any attorney or other agent of the mortgagee participating in the sale. Where the valuation report was not done, then the mortgagee can be liable for not exercising their power of sale in good faith to obtain the best reasonable price. However, failure to use a valuation report does not amount to a breach of duty in an auction where the mortgagee did not participate and was not tainted with impropriety The practical difficulties arises where the mortgagee’s valuer cannot conduct a comprehensive inspection by viewing the inside of the mortgaged premises as no access is afforded by the mortgagor to obtain an internal inspection of the house. A valuation done by only an external inspection is restrictive. The mortgagors more often than not refuses to give access to the valuer to conduct an internal inspection of the premises to inform a valuation as at the date of the sale. Invariably they are never available to give unrestrictive access to the premises, even after written notification by the mortgagee.

Per Crossman J in Waring v. London and Manchester Assurance Company Limited and Others [1935] 1 Ch. 310 32

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 The mortgagee must have evidence that at the time of the sale it commissioned a valuation report to ascertain the proper price of the property at the time of the sale. Third, determining the selling price.

 Proper price,  true market value,  best price,  best reasonable price  Reasonable price. These concept are certainly not static which might explain the lack of statutory or judicial definition. Salmon LJ33 does not attached any distinction to the above terms. In his judgment he stated:

Given that the power of sale is for the benefit of the mortgagee and that he is entitled to choose the moment to sell which suits him, it would be strange indeed if he were under no legal obligation to take reasonable care to obtain what I call the true market value at the date of the sale. Some of the textbooks refer to the ‘proper price’, others to the ‘best price’. Vaisey J in Reliance Permanent Building Society v Harwood-Stamper ([1944] 2 All ER 75 at 76, 77, [1944] Ch 362 at 364, 365), seems to have attached great importance to the difference between these two descriptions of ‘price. My difficulty is that I cannot see any real difference between them. ‘Proper price’ is perhaps a little nebulous, and ‘the best price’ may suggest an exceptionally high price. That is why I prefer to call it ‘the true market value”34 I accordingly conclude, both on principle and authority, that a mortgagee in exercising his power of sale does owe a duty to take reasonable precaution to obtain the true market value of the mortgaged property at the date on which he decides to sell it.

Cuckmere Brick Co Ltd and another v Mutual Finance Ltd Mutual Finance Ltd v Cuckmere Brick Co Ltd and others 34 Cuckmere Brick Co Mutual Finance page 644 33

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However, Cross LJ in the same case was of the view that “…the sale must be a genuine sale by the mortgagee to an independent purchaser at a price honestly arrived at.” (Emphasis mine). Cairns LJ looked at it in this way. The issues in this appeal are: (1) Does the duty of a mortgagee to a mortgagor on the sale of the mortgaged property include a duty to take reasonable care to obtain a proper price or is it sufficient for the mortgagee to act honestly and without a reckless disregard of the interests of the mortgagor? I therefore consider that Tomlin v Luce is the stronger authority and I would hold that the present defendants had a duty to take reasonable care to obtain a proper price for the land in the interest of the mortgagors. After years of applying the Cuckmere definition of true market value Panton P in the Court of Appeal case of Cornwall Agencies Limited v. the Bank of Nova Scotia Jamaica Limited and Amalgamated (Distributors) Limited35, commented on the use of the various expressions: [54] On the basis of the expressions of the learned judges of appeal there is little wonder that the headnote of the Law Reports version of the judgments does not give pride of place to the “true market value” statement contained in the judgment of Salmon LJ. Instead, it highlights the mortgagee’s duty “to take reasonable care to obtain a proper price”. This reflects the position taken by Cross and Cairns LJJ. I am of the view that the All England Law Reports version of what was held does not fully capture the difference in the approach of the majority (Cross and Cairns LJJ). My view is not of recent origin. An examination of the judgment of this court in International Trust and Merchant Bank Ltd v Gardiner (above) confirms this. Bingham JA delivered the judgment of the court, in which I concurred. Pages 18 to 20 state the true legal position as reflected in the views I have earlier expressed. Panton P established the proper interpretation to be adopted of the Cuckmere case and ruled that the correct term is the “proper price at the time of the sale”(Emphasis added).

Supreme Court Civil Appeal No 11/2008 delivered October 2016

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Resultantly that means the price at which the property is sold between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties has each acted knowledgably, prudently and without compulsion. The only way to one can find out what a property will fetch in a market is by putting it up for sale and accepting the best serious offer.

Sale by Public Auction Public Auction is defined as a manner of selling or letting property by bids, usually the highest bidder by public competition.36 The nature of the auction is that the prices which the pubic are asked to pay are the highest which those who bid can be tempted to offer by the skill and tact of the auctioneer under the excitement of open competition. The auctioneer is the agent who sells the property by auction consistent with the instructions of the mortgagee. The mortgagee must:  Engage a qualified and reputable auctioneer to handle the sale;  Draft the Particulars and Conditions of Sale;  It is recommended but not obligatory to fix a reserve price37. The Auctioneer is entitled to accept the highest bid despite low bidding and poor attendance;  Send letter to auctioneer along with Particulars and Conditions of Sale and Valuation Report;  There is no prescribed form of advertisement but it is best practice to give a full detailed description of the property as to the layout, the number of rooms and the amenities;  Precise details of the date, time and location of the Auction;  Publication of advertisement. Mortgagee might be held responsible if the auctioneer misdescribes property or if sale is tainted by collusion or impropriety or was not properly advertised the duty will not be fulfilled.

36 37

Halsbury Laws 4th Edition Minimum forced sale figure from the valuation.

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Therefore the auctioneer must conduct an auction in a proper manner without any collusion or impropriety.

Cuckmere Brick Co Ltd and another v Mutual Finance Ltd Mutual Finance Ltd v Cuckmere Brick Co Ltd and others38 It is well settled that a mortgagee is not a trustee of the power of sale for the mortgagor. Once the power has accrued, the mortgagee is entitled to exercise it for his own purposes whenever he chooses to do so. It matters not that the moment may be unpropitious and that by waiting a higher price could be obtained. He has the right to realise his security by turning it into money when he likes. Nor, in my view, is there anything to prevent a mortgagee from accepting the best bid he can get at an auction, even though the auction is badly attended and the bidding exceptionally low. Providing none of those adverse factors is due to any fault of the mortgagee, he can do as he likes. If the mortgagee’s interests, as he sees them, conflict with those of the mortgagor, the mortgagee can give preference to his own interests, which of course he could not do were he a trustee of the power of sale for the mortgagor. Sale by Private Treaty The mortgagee must  Invite sealed bids (i.e. Offer);  Review each bid to ensure that it complies with the terms of the invitation;  Issue letter of acceptance of offer and outline terms and conditions of sale;  Request the payment of a sum in earnest of the contract that is usually tendered on the written acknowledgment of the acceptance of the offer  Prepare draft Agreement for Sale;  After negotiations of contract terms prepare engrossed Agreement for Sale;  Accept payment of deposit upon the delivery of the executed contract by the purchaser. When is the mortgagor’s equity of redemption extinguished and the purchaser obtains protection?

[1971] 2 All ER 633

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At the acceptance of an offer or at the time of execution of the contract or upon registration of the transfer? Section 106 provides: If such default in payment, or the performance or observance of covenants, shall continue for one month after the service of such notice, or for such other period as may in such mortgage or charge be for that purpose fixed, the mortgagee or annuitant, or his transferee, may sell the land mortgaged or charge or any part thereof either all together or in lots, by public auction or by private contract, and either at one or at several times and subject to such terms and conditions as may be deemed fit, and may buy in or vary or rescind any contract for sale, and resell in manner aforesaid, without being liable to the mortgagor or grantor for any loss occasioned thereby, and may make and sign such transfers and do such act and things as shall be necessary for effectuating any such sale, and no purchaser shall be bound to see or inquire whether such default as aforesaid shall have been made or have happened, or have been served, or otherwise into the propriety or regularity of any such sale; and the Registrar upon production of a transfer made in the professed exercise of the power of sale conferred by this Act or by the mortgage or charge shall not be concerned or required to take any of the inquires aforesaid; and any persons damnified by an unauthorized or improper or irregular exercise of the power shall have the remedy only in damages against the person exercising the power. (Emphasis added). In Cowell Anthony Forbes (Representative of Estate of Wilfred Emmanuel Forbes, deceased), Cowell Anthony Forbes v Miller’s Liquor Store (Dist) Limited Brooks JA explains that: [35] The term “equity of redemption” is a term belonging to what Australian lawyers term “the old system”, as distinct from the Torrens system of registration of titles to land. The old system included the relevant statute law, the common law and the relevant principles of equity as they affected interests in land. Under the common law, a mortgagee became the owner of the property. Equity, however, allowed the mortgagor, upon Page 29 of 38

repayment of all monies due under the mortgage, to redeem the property and regain ownership of it. The mortgagor was therefore said to have, an “equity of redemption”. Where the mortgagee sold the property, however, the mortgagor’s equity of redemption was extinguished. [36] Under the Torrens system of registration, the mortgagor remained the legal owner of the property. The term “equity of redemption”, therefore, has a different implication under the Torrens system. It speaks to the mortgagor’s right to have the encumbrance to his title, created by the mortgage, removed. Some principles of the old system do, however, apply to conveyancing practice under the Torrens system. An informative discourse on the differences between these systems of law with respect to mortgages, is set out in King Investment Solutions v Hussain [2005] NSWSC 1076 (27 October 2005) at paragraphs 45-82. The ROTA is modelled on the Torrens system of registration of titles to land.39 In Joan Adams V Workers Trust & Merchant Bank Limited40 Wesley James J (Ag): However, the preparation of an agreement for sale is not an acceptance of an offer and in any event the agreement for sale was not made until 20/6/89. It follows therefore that when the defendant on 10.1.89 advised the plaintiff's attorney that they could not consider the offer of $480,000.00 as they had already accepted a prior offer and then went on to state that that offer was accepted in writing on 2/12/88, the defendant made a statement which from the evidence did not represent the course of events nor indeed the legal position The defendant had therefore erroneously concluded that they were in a binding agreement and could not accept the offer of $480,000.00. But the mere fact that the defendant had misled itself as to the legal status of the agreement does not necessarily in my judgment render it liable in damages. In Cuckmere Brick Company v. Mutual Finance41 was held that a mortgagee was not a trustee of the power of sale for the mortgagor, and where there is a conflict of interest, he was entitled to give preference to his own over those [2016]JMCA Civ. 1 (1992) 29 JLR 447 41 [1971] 2 All E.R. 633 39

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of the mortgagor, in particular in deciding on the timing of the sale in exercising his power of sale, however, the mortgage was not merely under a duty to act in good faith, i.e. honestly and without reckless disregard for the mortgagor's interest, but also to take reasonable care to obtain whatever was the true market value of the mortgaged property at the moment he chose to sell. Was the defendant in breach of the duty of care owed to the plaintiff? In this regard and in attempting to answer the question posed, I do not find comfort in the words of Carberry, J.A., in the unreported case of Moses Dreckett v. Rapid Vulcanizing Company Limited S.C.C.A. No. 35/83 delivered on 25/3/88 when he said "the state of the law in this area, that is the mode of sale to be adopted by the mortgagee in selling the mortgaged property and his possible liability arising therefrom is not free from difficulty". An echo from previously decided cases. Is the purchaser a bona fide purchaser of the legal estate for value without notice? This is dependent on interpretation of s106 as expressed in Lloyd Sheckleford v. Mount Atlas Estate which Sykes J referred and relied on in JMMB Merchant Bank Limited v Winston Finzi and Mahoe Bay Company Limited (No. 2)42 : The court refers to the case of Lloyd Sheckleford v Mount Atlas Estate Ltd SCCA No 148/2000 (unreported) (delivered December 20, 2001). In that case the issue was whether the court could prevent the transfer from being registered in circumstances where the mortgagee had exercised his power sale and the purchaser was a bona fide purchaser for value who had paid in full. Forte P accepted the following submission from Mr Vassell QC: the effect of the amendment of section 106 of the Registration of Titles Act is that an injunction will not lie to restrain the completion of a sale of the mortgaged property to a bona fide purchaser for value on the basis of a complaint by the mortgagor as to the regularity or propriety of the sale. In so doing, the learned President rejected the submission of eminent counsel Dr Lloyd Barnett to the effect that a purchaser from mortgagee only secures the full protection of section 106 on registration of the transfer. [8] His Lordship observed. 42

[2015] JMCC Comm 11

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His Lordship observed at page 7 that section 106 not only gives the mortgagee the power to sell but is specific in protecting a bona fide purchaser from the consequences that may flow if the mortgagee exercised the power improperly or irregularly. Forte JA further observed on the same page that the purchaser from the mortgagee need not make any enquiries into whether the mortgagor had in fact defaulted or enquire whether there was any irregularity or impropriety in the exercise of the power of sale. [9] Importantly, his Lordship, in referring to the amendment to section 106 noted, at page 14, that the only remedy against the mortgagee is damages but not an injunction. Before the amendment it was possible to argue that injunctive relief was possible in the circumstances that arose in Mount Alas but such an argument is difficult to make in light of the amendment to the section. Sykes J in relying on the dicta of Forte J-: On this premise, it followed, according to the learned President, that a bona fide purchaser who entered into a contract for sale with mortgagee who exercised his power of sale was protected. When did the protection arise? The answer must be when the contract was executed by both parties. The payment of money is not a necessary precondition for there to be a valid contract between the mortgagee and the purchaser unless the contract specifically says that unless a certain sum is paid on execution then the contract is not valid. In the absence of a clause of this nature, non-payment of money does not put the contract at an end or prevent it coming into being. Non-payment or late payment, at best, is a breach of contract which gives rights to the mortgagee to terminate or sue for damages depending, of course, on the terms of the contract. The mortgagee may ignore the breach and press ahead with sale. Therefore when Forte JA said at page 7 that the mortgagee had exercised the power of sale and thereafter completed the sale by executing the transfer, his Lordship was not laying down a principle of law regarding when the protection arose. It was not being said that the law required payment in full along with execution of transfer before the protection arose. What was said was simply a narration of the facts of the case. [19] The question could not be phrased any other way because payment of the deposit is a matter of contract not statute law. Page 32 of 38

There may well be a delay between the execution of the agreement and the payment of the deposit. That delay does not mean that there was not a valid contract. The non-payment of the deposit, subject to the terms of the contract, may give certain rights to the vendor but that is all it does. It has nothing to do with contract formation which is what we are concerned with. [20] As noted earlier, JMMB was not told of this contract with Miss James. There is no evidence that the purchaser knew of this agreement between Mr Finzi and Miss James. The purchaser’s bona fides in this case, at this stage, is not up for question. The defendants in this case are not without a remedy. If JMMB went about this the wrong way then it is liable to the mortgagor in damages. Indeed, this is not a case where the defendants do not want to sell the property. The issue seems to be who should sell the property. In the view of this court, the facts are such that the mortgagee’s sale to the purchaser should stand and the injunction discharged. The mortgagee, may wish to in addition to the standard contract terms, include special conditions of sale namely:  Particulars of Sale would describes the subject matter in the following way “Under its power of sale contained in its Mortgage numbered [ ] duly registered on the Certificate of Title from the property identified below as premises from the mortgagors/registered proprietors, [ ].  Sale is under Powers of Sale “It is understood and agreed that the Vendor is selling the premises as mortgagee in exercise of the powers of sale conferred upon the Vendor, and all other powers thereunto enabling.”  Real Estate Commission Clause would read thus: “A brokerage fee of [4-5%] of the sale price amounting to [words and figures] plus GCT shall be payable by the vendor to [Real Estate Agent] on completion and the vendor hereby irrevocably authorise [attorney with carriage for sale] to pay this from the proceeds of sale.”

 Deposit Quantum – Ten Percent (10%) Contractual Deposit

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The general law imposes no obligation on a Purchaser to pay a deposit on entering into a contract to buy land. It is customary for 10% of purchase price become payable by the purchaser on the exchange of contracts. There is no obligation to pay a deposit in the absence of an express contractual provision such a term is invariably included in a contract to sell land. The nature of Deposit is security for completing of the purchase by the purchaser. . The deposit …“Ever since the decision in Howe v Smith, the nature of such a deposit has been settled in English law. Even in the absence of express contractual provision, it is an earnest for the performance of the contract: in the event of completion of the contract the deposit is applicable towards payment of the purchase price; in the event of the purchaser’s failure to complete in accordance with the terms of the contract, the deposit is forfeit, equity having no power to relieve against such forfeiture.” Per Lord Browne-Wilkinson Workers Bank Trust v. Dojap43 The deposit operates as part payment of the contractually agreed price and as a guarantee that the purchaser will complete the contract. Deposit in excess of the customary 10 per cent Deposits must be reasonable-10 per cent –“...In order to be reasonable a true deposit must be objectively operating as ‘earnest money’ and not as a penalty.” Per Lord Browne-Wilkinson Workers Bank Trust v. Dojap. A deposit that exceeds 10 per cent will be regarded as a penalty in the absence of special circumstances. It will be recoverable in full and the vendor will be left to his remedy in damages to recover the actual loss.

 Date for Completion -Although the parties are free to fix the time, most mortgagees will stipulate for a Ninety (90) day completion date.

 No Vacant Possession-the sale is made expressly subject to tenancies and squatters in the following terms-“ The Vendor shall not be responsible for removing any occupants, tenants or squatters from the said premises.”

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 Binding Effect: “It is a condition precedent to the coming into effect of this Agreement for Sale, that same shall first be signed by both the Vendor and the Purchaser, and the required initial payment (s) paid to the Vendor’s Attorneys-at-Law in immediately available funds.  “The said property is being sold “as is” at the date of this Agreement without reference to extent or conditions respectively, and if any error, misstatement, miscalculation or omission shall arise herein in the description of the property the same shall not annul the sale or entitle the Purchasers to be discharged from their obligation to complete the purchase of the property nor shall nay compensation be claimed or allowed in respect thereof, and all conditions and/or warranties expressed and/or implied (if any) for any particular purpose or otherwise are hereby excluded it being understood and agreed that the Purchaser is purchasing with full notice of the actual state and condition of the said property and shall take it as stands as at the date of this Agreement .” 

Protection of the mortgagee in the face of litigation: “ In the event that the Vendor is prevented from completing the sale of the aforesaid premises as a result of the commencement of litigation against it, and/or is otherwise unable to complete the sale of the aforesaid premises, then the Vendor shall be entitled to terminate this Agreement by giving Fifteen (15) days prior written notice to the Purchaser. In the event of cancellation pursuant to this sub-clause, all sums paid by the Purchaser shall be refunded without interest SAVE AND EXCEPT the amount stipulated in Special Condition[

]. The

Purchaser may elect to cancel the Agreement for Sale pursuant to this sub-clause in which event all sums paid by the Purchaser shall be refunded without interest SAVE AND EXCEPT the amount stipulated in Special Condition [ ].”

The statue protects the purchaser who buys from the mortgagee under an exercise of the power of sale as enshrined in section 106 of the RTA: If such default in payment, or the performance or observance of covenants, shall continue for one month after the service of such notice, or for such other period as may in such mortgage or charge be for that purpose fixed, the mortgagee or annuitant, or his transferee, may sell the land mortgaged or charge or any part thereof either all together or in lots, by public auction or by private contract, and either at one or at several times and subject to such terms and conditions as may be deemed fit, and may buy in or vary Page 35 of 38

or rescind any contract for sale, and resell in manner aforesaid, without being liable to the mortgagor or grantor for any loss occasioned thereby, and may make and sign such transfers and do such act and things as shall be necessary for effectuating any such sale, and no purchaser shall be bound to see or inquire whether such default as aforesaid shall have been made or have happened, or have been served, or otherwise into the propriety or regularity of any such sale; and the Registrar upon production of a transfer made in the professed exercise of the power of sale conferred by this Act or by the mortgage or charge shall not be concerned or required to make any of the inquires aforesaid; and any persons damnified by an unauthorized or improper or irregular exercise of the power shall have the remedy only in damages against the person exercising the power. The registered purchaser from the mortgagee obtains an indefeasible title unless the purchaser is guilty of fraud within the context of the Torrens Title system.

Application of proceeds of sale

The mortgagee is not a trustee for the power of sale but is trustee of the proceeds of sale. The mortgagee is obligated by law under s107 of the RTA to apply the proceeds of sale in a particular manner Section 107 provides: The purchase money arising from the sale of the mortgaged or charged shall be applied as followsIf the sale be by the mortgagee or his transfereeFirst, in payment of the expense of and incidental to such sale and consequent on such default; secondly in payment of the moneys which may be due or owing on a mortgagee, thirdly in payment of subsequent mortgage and of any money which may be due or owing in respect of any subsequent mortgages and of any money which may be due or owing in respect of any subsequent charge in the order of their respective priorities and the surplus if any shall be paid to the mortgagor: Page 36 of 38

Provided always that if the sale be made by a mortgagee or his transferees, and there is a subsequent charge, the purchase moneys, after there shall have been made thereout all proper prior payments, shall be deposited by him or them in the manner and names, and for the purposes, corresponding with those after mentioned. Expenses related to the sale

Agreement for Sale -One half (½) of cost for preparation. Attorney’s Costs 4% + GCT Stamp Duty 4%-One half (½) of cost Transfer Tax 5% of the consideration. Registration Fee (0.5% of purchase price) for the Instrument of Transfer TR1 Form (Collector of Taxes) Letters of Possession and Letters to Utility Companies Real Estate Commission Property Taxes Water Rates Maintenance Charges Miscellaneous Charges Administrative Charges

Payment of money due under the mortgage Payment to subsequent mortgage and money due for charge in the order of priority

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Surplus (if any) is paid to the mortgagors

Surplus is divided equally if they hold as joint tenants and if as tenants the proceeds are shared in the proportion that they hold the tenancy.

The surplus proceeds are held in trust for the mortgagor. If there is no surplus and the net proceeds of sale are insufficient to satisfy the debt then the mortgagee may sue the mortgagor to recover the deficiency balance. When the mortgagee sues to recover this balance he is in the position of an unsecured creditor and

would have to take the necessary steps to enforce his judgment debt. It is prudent for the mortgagor to exer remedy of power of sale concurrently with the suing on the debt if he anticipates that there will be a the net proceeds of sale will be insufficient to satisfy the outstanding debt.

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