(CMR) The Cayman Islands Court of Appeal (CICA) has dismissed an appeal filed by businessman Rogelio Antonio Hawkins against a Grand Court ruling that he was bound to the terms of a loan he received from Abarbanel Limited, despite the company not having the required licenses.
Hawkins, a Caymanian businessman, borrowed a total of US $407,000 in 2014 from Abarbanel Ltd because he was in default on loans given to him by two commercial banks, which were secured by charges against his home and a residential rental property consisting of several apartments but was unable to refinance the loans with a commercial bank.
He was told that Abarbanel made private loans and was offered a loan with a high interest rate on a “take it or leave it basis.” On 14 March 2014, Hawkins executed charges in favor of Abarbanel over his home and the residential rental property. Once those charges were registered, he received the loan, which was used to pay off what was due on the loans by the commercial banks.
However, Hawkins fell into arrears, and on 26 January 2018, Abarbanel gave him notice of its intention to enforce the charges to recover the sum it claimed was due. At some stage, it served him with an account claiming that, with accrued interest and other charges, he owed over US $875,000. Hawkins did not accept this and presented his own account.
In mid-September 2018, while the parties were negotiating, it was discovered that Abarbanel did not hold the licenses required by the Local Companies Control Act (2007 Revision) and the Trade and Business Licensing Act (2007 Revision) (TBLA) for it to carry on business in the Cayman Islands. An offer to pay Abarbanel about US $415,500 to settle the matter was made on behalf of Hawkins, failing which it was stated that proceedings would be commenced raising inter alia the illegality and unconscionability of the loan agreement.
This offer was rejected, and on 18 September 2018, Hawkins commenced these proceedings in the court. Pursuant to a consent order dated 28 September 2018, in October 2018, he paid Abarbanel US $376,036 advanced to him net of the interest reserved under the agreement and paid US $40,504.73 into court as and for interest, and Abarbanel discharged its charge over his home. The charge over Hawkins’ rental properties remains.
Following a trial on 23 and 24 November 2021, Chief Justice Margaret Ramsay-Hale dismissed Hawkins'claim that Abarbanel’s loan to him and the registered charge securing it were illegal, void ab initio, and unenforceable because Abarbanel did not have the licenses of companies carrying on a trade or business within these Islands are required to have by the TBLA and the LCCA unless exempt.
Chief Justice Ramsay Hale rejected Hawkins’s submission that the loan agreement was an unconscionable bargain: she rejected Abarbanel’s contention that it was not carrying on business in these Islands and was, therefore, not required to be licensed.
Abarbanel accepts the Judge’s finding that the six secured loans it made to various people between June 2012 and the end of 2014 amounted to the carrying on of business in the Cayman Islands and that it did require licenses.
In the third limb of her judgment, the judge held that the licensing provisions of the LCCA and TBLA do not prohibit the loan contract, and the contract is not unenforceable as a matter of common law. The purpose of the LCCA was to control the local level of participation in businesses and that of the TBLA was primarily to raise revenue. Neither prohibited contracts made in breach of the statutory licensing provisions. Accordingly, the security given for the loan was enforceable.
Hawkins then filed an appeal against the Order made by Justice Ramsay-hale on 29 December 2022.
The Court of Appeal ruled that the Judge did not err in her conclusion that the legislation does not expressly or impliedly prohibit contracts made in breach of the licensing provisions and that the loan agreement was not unenforceable as a matter of common law.
The Court therefore dismissed the appeal on those grounds and rejected the submissions based on lack of statutory capacity, the provisions of the RLA, the PCA, and the legislation governing
Special Economic Zones, and unjust enrichment.
The CICA judgment also concluded that the Trade and Business Licensing Act and the Local Companies Control Act do not expressly or impliedly prohibit contracts made in breach of their licensing requirements. The court also ruled that the loan agreement between the appellant borrower and the respondent lender is not unenforceable as a matter of common law.
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