Family set to lose home over loan guarantee
A father and son will lose their home after they failed in a legal battle to avoid a $3.6 million debt after they guaranteed a loan for another man that defaulted.
The Supreme Court heard that Keith James and his son, Keimon Lawrence, signed on as guarantors for a loan from HSBC Bermuda to Alexander “Jerry” Ming and used their home as collateral.
However, Mr Ming failed to pay back the loan and the father and son were ordered to pay the bank $3,609,666 in 2017 and the bank was given permission to sell their house on Tribe Road No 6 in Warwick.
Mr James and Mr Lawrence asked the court to halt the sale and set aside the court orders because there was an “undue influence” on the guarantors and the bank had not taken reasonable steps to deal with that.
Chief Justice Narinder Hargun, in a November 15 judgment, found Mr James and Mr Lawrence had “no meritorious defence” to the bank’s claim under the guarantee.
The court heard that the guarantee dated back to 2008 when Mr Ming approached Mr James about acting as a guarantor so he could buy a business.
Mr James rejected the proposal at first, but Mr Ming offered to pay him $50,000 a year for eight years in exchange for his guarantee.
Mr James would use his property in Warwick as collateral under the terms of the deal, but the property was co-owned by him and Mr Lawrence.
Mr Lawrence, who would not have received any money from Mr Ming under the agreement, was said to be concerned about the plan and warned that Bermuda was heading into a recession, but Mr James convinced him that it was a sound business venture.
Mr Justice Hargun said in his judgment: “Mr Lawrence explained that his father expressed the view to him that Mr Ming was ‘flush with cash and appeared to be a good person to invest in’.”
The court heard a meeting was held with bank representatives, but the bank were not informed about the proposed payments from Mr Ming to Mr James.
The bank advised Mr Lawrence and Mr James to get independent legal advice before they agreed to be guarantors.
The bank also required an “opinion from a reputable attorney confirming that the terms of the guarantee have been explained to Mr James and Mr Lawrence”.
Mr Ming recommended the pair visit legal firm Peniston & Associates and Mr James, Mr Lawrence and Mr Ming met lawyer Llewellyn Peniston.
Mr Lawrence said that Mr Peniston warned them they could lose their property if the loan defaulted, but he did not say he and his father would he held liable for the balance of any debt.
The father and son signed on as guarantors in 2008, but in March 2016 they were informed Mr Ming was not making payments and they were liable for the outstanding balance of the loan.
The pair made payments totalling $134,000, but in 2017 the bank sought possession of their home.
Marc Daniels, who appeared for Mr James and Mr Lawrence, said that Mr James’s involvement could be considered a commercial arrangement due to the promised $50,000 payments, but the same could not be said for Mr Lawrence.
He argued the bank was on “constructive notice” about the “disadvantageous nature” of the deal and that, while the bank did take steps to protect Mr Lawrence, it did not go far enough.
Mr Daniels also argued the bank should have realised that the relationship of Mr James and Mr Lawrence, as father and son, meant there was a risk that Mr Lawrence may be subjected to undue influence on the part of Mr James and should have insisted they take advice independent of each other.
But Mr Justice Hargun found the bank was given no information about the proposed $50,000 payments to Mr James and had taken steps to protect the pair from undue influence from Mr Ming.
He added: “The bank was not aware that Mr Ming had in fact introduced Mr James and Mr Lawrence to Peniston & Associates or that Mr Ming attended the meetings with the lawyers from that firm.
“Likewise the alleged fact that Mr James and Mr Lawrence did not receive adequate advice from Peniston & Associates cannot affect the bank’s rights under the guarantee as the bank had no reason to believe that this was the case.”
The judge added: “Mr Lawrence himself accepted that he did not express any concerns with the representatives of the bank in relation to entering into the guarantee.
“In the circumstances there was no reason for the bank to be on notice or suspect that James was entering into the guarantee for commercial reasons while Mr Lawrence was doing so at the request of his father.”
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• To view the judge’s ruling, click on the PDF link under “Related Media”
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