Gulf Insurance Ltd v the Central Bank of Trinidad and Tobago
| Jurisdiction | Trinidad & Tobago |
| Judge | Hamel-Smith, J.A.,Nelson, J.A. |
| Judgment Date | 26 March 2002 |
| Neutral Citation | TT 2002 CA 35 |
| Docket Number | Civil Appeal No. 32 of 2000 |
| Court | Court of Appeal (Trinidad and Tobago) |
| Date | 26 March 2002 |
Court of Appeal
Hamel-Smith, J.A.; Nelson, J.A.; Kangaloo, J.A.
Civil Appeal No. 32 of 2000
Mr. Alvin Fitzpatrick S.C., Ms. Lesley-Ann Lucky-Samaroo and Mr. R. Harnanan appeared on behalf of the appellant.
Mr. C. A. Jacelon S.C. and Mr. David Patrick appeared on behalf of the respondent.
Judicial review - Whether decision of Central Bank to facilitate transfer of assets and undertaking of the Trinidad Coop. Bank Ltd. to First Citizens Bank Ltd. was ultra vires the Central Bank Act — Finding that the Bank acted properly in invoking s. 44(D)(3)© of the Act — Appeal dismissed and order of trial judge dismissing the claim for judicial review affirmed.
I have read the judgment of Nelson, J.A. in draft. I agree with it and have nothing to add.
R. Hamel-Smith,
Justice of Appeal.
The appellant and the respondent are dissatisfied with the judgment of Barnes, J. dated February 24, 2000. In that judgment the learned judge dismissed an application by the appellant, Gulf Insurance Limited (“Gulf'), for judicial review of certain decisions of the respondent Central Bank made on September 12, 1993.
Leave to apply for judicial review was granted on September 28, 1993 and the original notice of motion was filed on October 4, 1993 but was later amended on January 7, 1997. Hearing of the amended motion began in January 1997 and ended in January 2000.
The main issue on the appeal and cross-appeal is whether the decision of the Central Bank to facilitate the transfer of the assets and undertaking of the Trinidad Co-operative Bank Limited (“TCB”) to First Citizens Bank Limited (“FCB”) was ultra vires the Central Bank Act, Chap. 79:02 as amended by the Central Bank and Financial Institutions (Non-Banking) (Amendment) Act, 1986 (No.2) (“the Act”) and whether even if intra vires the Act such decision was ultra vires the powers of the Governor of the Central Bank as contained in the Act.
In order to appreciate how those issues arose one needs to examine the background to the impugned decisions.
The appellant, Gulf, is the holder of 64,978 shares in TCB. On February 21, 1986 the Central Bank assumed control of TCB by publishing in the Trinidad and Tobago Gazette (“the Gazette”) a notice under the hand of its Senior Legal Officer, Mrs. Lucille Mair.
On May 18, 1989 the Central Bank assumed control of the Workers' Bank of Trinidad and Tobago, a notice to that effect being issued in the Gazette by the Governor of the Central Bank. On the same date the Central Bank caused a new bank the Workers' Bank (1989) Ltd. (“the Workers' Bank”), to be incorporated. Using its powers under the Act, the Central Bank vested the assets and undertaking of the Workers' Bank of Trinidad and Tobago in the Workers' Bank: see the Gazette of May 18, 1989, Vol. 28 No. 123. On May 19, 1989 the Central Bank also assumed control of the Workers' Bank: see Gazette of May 19, 1989, Vol. 28 No. 124.
In 1992 the Central Bank became concerned about the National Commercial Bank Limited (“NCB”). NCB was experiencing severe liquidity problems. By letter dated July 3, 1992 the Governor of the Central Bank notified NCB as follows:-
“The findings and conclusions of the Inspector of the Banks in his Report of Examination of the National Commercial Bank… reveal that the financial condition of the Bank is such that the interests of depositors and other creditors are threatened and that the corporate policies and practices of the Bank are currently such that the Inspector has concluded that sound business practices are not being maintained.”
The letter called for certain remedial measures to be implemented.
The Central Bank had been providing in 1992 substantial liquidity support to both NCB and TCB. TCB was vulnerable: it had only three branches, and a narrow deposit base of a few large corporate customers. The withdrawal of one depositor was potentially dangerous for TCB.
Against that background the chief executive officers of TCB, NCB and the Workers' Bank began informal talks about the possibility of a merger of the three banks. These banks, which were entirely indigenous, had been competing against one another for a small segment of the market. It made good sense therefore for them to pool their efforts and resources.
The Central Bank gave its blessing to these talks, and on July 25, 1992 convened a meeting of the chief executive officers of the three banks. The three chief executive officers agreed in principle that a merger was desirable. This accord was reflected in a Memorandum of Understanding signed by all three executives and the Central Bank on July 27, 1992. The Memorandum established a Merger Committee and was to remain binding until September 30, 1992. This deadline was apparently extended on two occasions. The Central Bank announced the impending merger to the press.
The Merger Committee presented its report in January 1993. It analysed the three banks in the following terms:
“…the indigenous banks have been facing increasing pressure since 1986. As a result of their relatively late arrival into the market, the indigenous banks found difficulty in achieving the growth rates and profitability that would make them truly competitive with their older competitors. There was insufficient assessment of risk versus return, and loan recovery efforts were relatively weak. Further, the weaknesses in their asset portfolios were soon translated into liquidity and profitability problems…
It is clear, therefore, that the failure to achieve the required corrections in the indigenous banks may lead to stagnation or even ultimately to the failure of one or more of the banks, with the consequent weakening of the financial sector…”
Although the Boards of two of the three banks expressed reservations, they all accepted the principle of the merger. Since, however, the merger was dependent for its success on Central Bank and government funding the Central Bank decided to administer and facilitate the process of the merger. To this end it appointed a Merger Team to implement the merger and by letter dated March 8, 1993 informed the chairmen of each of the three banks of this fact.
The Central Bank engaged Ernst and Young (U.K.) to do an audit and due diligence exercise on each of the three banks. Ernst and Young eventually presented Draft Reports to the Central Bank in August 1993. These reports were called for and inspected by counsel for Gulf during cross-examination and are now evidence in this case.
On March 9, 1993 FCB was incorporated in anticipation of that company being used as the vehicle for the merger of the three banks. FCB obtained a banking licence on August 3, 1993.
On March 19, 1993 the General Manager of TCB wrote the Governor of the Central Bank in the following terms:
“March 31 represents the financial year end of the Bank, and if the Bank's reserve deficiency is not corrected by that time, it is possible that the audited financial statements of the Bank may contain disclosures which may be considered undesirable.
Attached is a projected balance sheet for the year ended March 31, 1993, together with extracts from the notes to the accounts which would accompany a balance sheet prepared under the existing scenario. The disclosures set out may attract a level of critical public comment from the financial community which Central Bank may find undesirable especially in the light of the work now undertaken towards the proposed merger…
You may be assured that we will continue to make strenuous efforts to meet our reserve requirements before the end of March…”
By letter dated September 9, 1993 the Chairman of TCB wrote the Governor of the Central Bank as follows:
“I write on behalf of the Board of Directors… to apprise you of their serious concerns arising from the protracted process of the intended merger…
Since the Central Bank announced its intention to facilitate a merger of the three institutions, the Board has always provided its full support to the Central Bank. Nonetheless, the Board is of the view that the manner in which the process has been handled thus far has had an adverse effect on the operations and image of the Trinidad Co-operative Bank Limited….
Customers' and depositors' confidence in this institution has been seriously eroded, and we have felt and continue to feel the effect in a very tangible fashion….”
In the meantime in early August 1993 the Central Bank received in draft the Ernst and Young audit and due diligence reports it had commissioned. The Executive Summary of the draft report on TCB highlighted the following matters:
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(1) Significant additional provisions for bad debts as at March 31, 1993 had to be made
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(2) “The accounts have been prepared on the basis that the Group is a going concern. However, the Group is currently unable to meet its deposit reserve requirement and is in fact reliant on additional funding from the Central Bank. In addition, the Group's liabilities exceed assets by some TT$88 million. Consequently, the going concern basis for the accounts is dependent on continuing support from the Central Bank.”
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(3) There were serious concerns about the quality of the loan book. The Bank had an excessive exposure to four borrowers, one of which was 300% of capital and another 120%.
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(4) The Group's liquidity was very bad. TCB was short of its deposit reserve for much of 1992/93 and was TT$70 million short as at the year end
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(5) Taking into account the additional loan provisions recommended TCB's liabilities would exceed assets by some TT$75 million. Without continuing Central Bank support, the Group would be unable to fund its book and would probably be unable to meet its obligations as they fell due.
The draft Report on NCB was in similar...
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