Property Matters: The Ethics Gap – part five

This article will examine the perennial issues of the ‘interlocking directorate‘ and the role of our professional institutions in maintaining standards.

The previous article examined the High Court ruling against valuers, Charles B. Lawrence & Associates, arising from the 2012 lawsuit of Intercommercial Bank Limited (IBL) for a negligent valuation of a property on San Fernando Bypass.

Lawrence valued the property for $15M and also made a defensive claim that the bank ought to have known that the property sold two months prior for $450,000. That claim of contributory negligence failed, unsurprisingly. It is literally unbelievable that any property could increase in value from $450,000 to $15.0M in two months.

The Court took expert witness evidence from two other valuers, Brent Augustus (for IBL) and Roy Gumansingh (for Charles B. Lawrence & Associates), who both gave opinions that the property was worth $15.0M in 2008, on the assumption of commercial use. The Lawrence Report assumed commercial use and that was found to be ‘wholly misleading‘. That Report also failed to properly point out the presence of occupiers/squatters on the site, which both Augustus and Gumansingh took account of. In any case, the best offer received for the property was $2.0M, two years after the Lawrence valuation.

The other lawsuit filed by IBL in this matter was against its attorneys, Lex Caribbean, for alleged negligence in checking the title for that property. The Statement of Case filed by IBL (CV 2013-00339) on 25 January 2013 alleged that, as a result of that negligence by Lex Caribbean, – “…the bank is now unable to sell the…property to recover the mortgage debt as a result of the defects in title…”. So, quite apart from the valuation issues seen in the previous article, there were substantive title issues in play.

That IBL claim against Lex Caribbean was for $4,976,688.21, plus interest and costs, to compensate for those losses due to the stated inability to sell. Apparent defects in title emerged after the original $3.0M loan was paid to the borrower and that loan was not serviced. Those defects were at the root of this lawsuit.

That lawsuit ended on 17 March 2014, with Lex Caribbean agreeing to pay IBL $2.4M, without any admission of liability, in full and final settlement of the claims including interest and costs. That settlement formed part of the defensive claims made by Charles B. Lawrence & Associates, as they sought to rely on the use of ‘full and final settlement‘ to extinguish the ongoing litigation against them (para 108 of the 2014 ruling).

There are three substantive points emerging in this case –

1. The Bank

   Intercommercial Bank Limited (IBL) is now known as JMMB Bank and was incorporated in T&T in 1997. Intercommercial Trust and Merchant Bank Limited (ITMBL) is a wholly-owned subsidiary of IBL, established in 2001 to handle sizable loans and investment funds.

   On 13 March 2008, Ms. Marjorie Nunez, Attorney-at-law, was appointed to the Board of Directors of both those companies, the parent company and its subsidiary. According to the filings at the Registrar General’s Department, Ms. Nunez continues to serve as a Director of both those companies as at the time of my writing.

2. Interlocking Directorships

   The law firm sued by IBL was Lex Caribbean, which was at one time was linked with both Ernst & Young (Chartered Accountants) and Terra Caribbean (Property and Real Estate Experts).

   

   The LinkedIn profile of Ms. Marjorie Nunez states that she was Managing Partner of Lex Caribbean between December 1998 and December 2016. Ms. Nunez now practices in the style of Nunez & Co. and was recently reported to be one of the legal advisers to Angostura Holdings in the ongoing imbroglio over various allegations against its Chairman. In that matter, Ms. Nunez was reportedly being ‘led’ by Douglas Mendez SC, current President of the Law Association.

   So what we have here is a bank suing a firm of attorneys for negligence, all the while the head of that firm is on the Board of Directors of the same bank. The lawsuit was settled and that attorney continues to serve on both those Boards of Directors.

   I am assuming that best practice was followed in this matter, in terms of governance and potential conflicts of interest. I am not in any way suggesting that good practice was breached in this case. Instead, I am interrogating what we consider to be good practice, which leads directly to the final issue.

3. The Professional Bodies

   In relation to the standards of our professional bodies, this case seems to me to echo with similar issues with the Eden Gardens matter. In that case I raised the clear issues with the then President of the Law Association and the head of its Disciplinary Committee. The reply from both those men of silk, for whom I have tremendous regard, was that no formal complaint had been received. I was also told that, since I had not been a client or party to the transaction, my complaint could not be examined, unless I obtained ‘special leave‘.

   I made the point that those rules and ways of seeing the world were never going to be ‘fit for purpose‘ in cases of complex fraud. After all, If everyone agrees with a fraudulent scheme, who is going to make a formal complaint? Far less if the rules are applied to effectively deny that sound professional standards are a Public Good.

   Of course that echoes with the High Court ruling in the Chanka Seeterram vs ICATT matter, in which the reputation of accountants was held to serve a public purpose. In that matter we also had the lingering question as to whether ICATT would have launched its investigation without a formal complaint from one of its senior members. ICATT’s rules allow it to investigate a matter of concern, but the trigger in that case seemed to have been the formal complaint.

In this case, one can easily imagine that Lex Caribbean, having settled the lawsuit by agreement with no admission of liability, would simply regard the matter as closed. In the case of Charles B. Lawrence & Associates, one could just as easily imagine them resisting any attempt to open disciplinary proceedings against them as an abuse of process involving double jeopardy and so on. After all, the matter is still before the Appeal Court. You see?

So how do we improve these professional standards, given these challenges? How is it done in more advanced jurisdictions? How can we avoid repeating the failures of the past?