Barbara Gayle, Staff Reporter

The United Kingdom Privy Council has barred a moneylending agency from selling a piece of Norbrook real estate, in a ruling that is expected to have far-reaching impact on financiers who breach the loan rate ceiling prescribed by the Minister of Finance.

The Privy Council recentlyinstructed Cornerstone Investments and Finance Company Limited to return to its owners, property in upscale Norbrook, St. Andrew used as security for a loan of US$90,000.

The law lords declared the transaction void and unenforceable, saying the interest was far in excess of the 25 per cent interest rate prescribed by the minister.

In the current case, the Privy Council said its calculations showed that the interest charges were just under 240 per cent.

Cornerstone has been ordered to cancel the mortgage on the title and return the property title to the appellants.

The appellants, Imorette Palmer (now deceased), Marcia Susan Gallimore and Margaret Alison Salter, had used the title for their house to secure a loan in February 1996 for Kenroy Salter.

Cornerstone later put the property up for sale by public auction, saying in a notice to the women that the loan had fallen into arrears.

Excessive rate

The women responded by filing an application in the Supreme Court in Kingston in May 1999, seeking declarations that the loan agreement was unenforceable by virtue of Section 8(1) and (2)of the Moneylending Act because the interest rate was excessive and full disclosures were not made.

Justice Basil Reid, now retired, ruled in their favour.

Cornerstone took the case to the Court of Appeal, comprising Justices Henderson Downer, Paul Harrison and Clarence Walker.

By majority decision in 2005, the Court of Appeal ruled in favour of Cornerstone. Justice Downer dissented.

The women then took their case to the Privy Council, where their attorneys John Graham and Annaliesa Lindsay argued that the loan transaction was subject to the Moneylending Act of Jamaica.

Cornerstone was represented by Hilary Phillips, QC, and attorneys-at-law Denise Kitson and Gordon Brown.

The documents stated that the loan amount was US$250,000, but the actual sum disbursed to Salter was US$90,000 at interest of 22 per cent.

The other US$160,000 related to a previous loan to Desmond Rankine that Salter was said to have guaranteed as a condition of his loan agreement with Cornerstone.

Agreement not set out

However, the agreement involving Rankine was never communicated to the appellants, nor was it set out in the loan documents to Salter and the appellants.

The Privy Council in relying on the definitions of 'principal' and 'interest' outlined in the Moneylending Act of Jamaica and accepting the submissions of the appellants' attorneys, concluded that the transaction in "this case" was not exempt but subject to the Moneylending Act.

It held that in keeping with the definition of 'principal', which was the amount actually lent to the borrower, the principal of the loan was in fact US$90,000 and not US$250,000 as stated in the loan documents.

The Privy Council also found that the 'interest' included the amount of US$160,000, which was the third party guarantee to Rankine.

As a consequence, while the interest rate noted in the loan documents was 22 per cent on US$250,000 - which was below the prescribed rate - when the US$160,000 was factored into the interest, the Privy Council found thatit amounted to a rate of interest just below 240 per cent.

The Privy Council said it agreed with the dissenting views of Justice Downer that "This is not a case in which it would be equitable to restore the liability of the ladies under their guarantee and mortgage and, therefore, conclude that it would not be equitable to exercise the section 8 (3) power to declare the transaction between Mr. Salter and Cornerstone to be enforceable".

barbara.gayle@gleanerjm.com