Today’s Business Page contribution by Attorney-at-Law and Speaker of the National Assembly Ralph Ramkarran is particularly timely in view of the current debate on a Commercial Court, the prominence of the debenture under which Receivers are generally appointed and the view that existing legal procedures are out of sync with commercial realities.

Introduction
The Roman-Dutch Mortgage is the main form of security utilised by the commercial community in Guyana. It is the preferred instrument because of the high degree of security it provides for the lender (called the mortgagee). One feature that attracts support is the requirement that mortgages be advertised in the Official Gazette, where they can be seen by unsecured creditors of the borrower (called the mortgagor), among others, who can oppose the passing of the mortgage. The legal facility of an opposition prevents a borrower from surreptitiously encumbering immovable property which a previous creditor would otherwise believe that he/she has available to be levied upon after a judgement, in the event that the debt is not repaid.

Deceptively simple
The Roman-Dutch Mortgage is a deceptively simple document but with great legal complexity. It sets out the names and addresses of the parties, the amount of the loan, the terms of repayment, a description of the property mortgaged and a consent to judgement by the mortgagor/borrower in favour of the mortgagee/ lender, called a ‘condemnation.’ Despite the appearance of simplicity, our law reports going back for a hundred years are cluttered with decisions grappling with legal issues relating to the Roman- Dutch Mortgage. Only last year the Court of Appeal in the case of Dhanraj and others v NBIC considered an appeal and ruled that certain defences based on equitable principles were not available to a mortgagor/borrower.

Disincentive
The Roman-Dutch Mortgage originated during the period of Dutch colonialism many centuries ago and is the main survivor from that era in our legal system. It has served us well in the past but is now an anachronism despite the attachment, sentimental and otherwise, that we may still feel for it. The archaic and time consuming processes required for its creation and enforcement, which have been intensified over the years as a result of the vast expansion of business and commerce and the failure of our administrative systems to keep pace, act as a major disincentive to lending in Guyana. Consequently, our economic development is being greatly harmed by the failure to reform the laws relating to mortgages by making them more user friendly.

The process
The creation of a Roman-Dutch Mortgage takes about three months after the approval of the loan by a bank. Most of this time is spent awaiting the advertisement in the Official Gazette which takes about six weeks from the date of filing the papers in the Deeds Registry. Usually the borrower, in many cases a businessperson, cannot wait until the passing of the mortgage to access the funds. The bank is therefore forced to advance the loan, if it wants to remain competitive, before the mortgage comes into force.

During the three-month period the bank is completely exposed in terms of absence of security even though an Irrevocable Power of Attorney from the borrower to execute a mortgage may give a measure of comfort. In such a situation the bank is understandably reluctant to give credit to customers whose creditworthiness has not been established or to raise the threshold of credit to an existing customer.

Recovery procedure
The recovery procedure against a defaulting borrower is a nightmare for the commercial lending community whose fortitude deserves admiration.
The procedure is as follows:
* Filing the Writ
* Awaiting service on the Mortgagor
* Attending court and obtaining judgement
* Entering the Order of Court
* Requesting a Writ of Execution
* Filing Instructions to Levy
* Levying
* Advertising Execution Sales in the Official Gazette
* Attending Execution Sale
* Recovering Proceeds from Registry.

Delays
The completion period for the steps outlined above requires approximately one year. However, quite often events can conspire to extend this time by one or two additional years. For example, delays can be occasioned in the serving of the process, awaiting the entry of the Order of Court, obtaining a Writ of Execution or advertising in the Official Gazette or in a combination of some of these factors.

These delays are not the only ones that commercial lenders have to endure. Some borrowers advance frivolous defences to delay the proceedings and gain time. Most of those against whom judgement is given whether by consent or after trial, ask the court for time to pay.

General practice
Courts as a general practice do not place weight on arguments that the borrower has been in default for a long time or had already been given extensive time to pay by the lender, and proceed to award up to eighteen months to pay in the exercise of a judicial discretion which invariably rejects arguments by the lender that further time will not result in payment. In almost all cases the borrower does not pay during the extended period given by the court for the same reason that he/she had been in default in the first place.

Impact on economic growth
Courts are also unfamiliar with or do not to take into account the impact of granting stays of execution on commercial lending and the economy. They fail to take into account the effect of the Financial Institutions Act on non-performing and bad loans. The requirement for the banks to establish reserves for these loans, together with their inability to recover promptly, reduces the amount of funds available for lending, thereby reducing investment and economic growth and which also results in losses for these institutions. Also, courts grant with ease stays of execution sales after extended time and effort have been undertaken to reach the stage of judgement and levy. All of these stays of execution are eventually discharged without the borrower liquidating the debt, but not without causing further delays of another year or more.

Stays of execution of judgements and ex parte interim injunctions against receivers granted by the courts, largely unknown in the Caribbean, have reached alarming proportions. Assuming that courts are justified in granting them, if they are disposed of within a week or two as they should be, the delay would not be significant. However, more often than not, the hearing takes six months or more. In the case of the stay on an execution sale, the sale has to be re-advertised in the Official Gazette which takes an additional few months.

Commercial court
Aid donors have long been aware that an effective justice system is as important in attracting investment as law-based incentives, modern commercial legislation administered by an efficiently functioning judiciary, democracy and good governance. For this reason, donors have been paying special attention to the judiciary. The most recent development, according to press reports, is the proposal to establish a commercial court.

This is a welcome development, but a commercial court which is not imbued with an understanding of the role and importance of the commercial community in finance and investment, and cannot create a harmonious balance between its needs and any rights a defaulting borrower might have, will result in a failure of the court to fulfil its mandate. In other words, a commercial court which operates on the same principles that are now applied to commercial matters will have no impact and will be a waste of resources.

Reforms
Several steps are required to be taken to make the commercial court a success. Firstly, Judges have to be trained, but efforts must be made to ensure that the training has relevance to Guyana law and practice and Guyana conditions. Secondly, there must be wide-ranging law reform in the entire area of commercial law including bankruptcy protection which will bring relief to companies in difficulty. And thirdly, the Roman-Dutch Mortgage must be abolished.

As immediate first steps, three simple reforms will make a great deal of difference, namely:

* Amend the Deeds Registry Act to allow advertisement of mortgages and sales of execution in the newspapers or in the Official Gazette if the parties so elect. Advertisement in the newspapers should be at the cost of the parties.

* Pass legislation or amend the Rules of Court to allow stays of execution on mortgage judgements only in defined circumstances, such as fraud or substantial part payment.

* The courts must decline to grant stays of execution or time to pay, upon entering or after judgement, and leave it to the parties to negotiate terms.

Agenda
In order to complete the circle, however, a fourth reform is necessary but in relation to receivers, namely:

* Pass legislation or amend the Rules of Court to prohibit the granting of ex-parte interim injunctions to companies against receivers who have been appointed for the companies. The damage these injunctions can do is incalculable.

When these simple reforms are in place to give immediate relief to the lender, the total abolition of the Roman-Dutch Mortgage must be then placed on the agenda. It must be replaced by a mortgage whereby the property is conveyed in the name of the lender, and the borrower has an equity of redemption. Recovery proceedings are then effected by the taking of possession and sale of the property by the lender after the borrower is notified and afforded an opportunity to discharge his/her indebtedness within a specified period. These types of mortgages exist in the United Kingdom and in most, if not all, Caribbean countries.

Title
Alternatively, the reforms can provide that title remain in the borrower in order to enable him/her to more easily take additional mortgages or to re-finance with another lending institution. If this course is adopted the law must provide for the lender to take possession of and sell the property as described above as if the lender were the owner.

In order to retain the advantages of the opposition procedure in the Roman-Dutch Mortgage, the system that already exists in the Land Registry, where Certificates of Title are issued, can be applied to transport matters. The Land Registry Act provides for the entering of a caveat against a Certificate of Title. The person entering the caveat will be informed if a mortgage is executed and the creditor can then enter an opposition. The caveat will ensure that a borrower cannot encumber the property without the creditor having advance knowledge.

Unsecured transactions
On the other hand, where a person lends money or engages in unsecured financial activity with another, must it not be assumed that he/she is prepared to abide by the consequences of the debtor disposing of his/her property? Should not creditors take the responsibility for ensuring that their advances are secured? Nowhere in the region does the facility of an opposition exist, no doubt because an unsecured creditor is presumed to accept the risk of unsecured lending. Is it therefore not time to deem the opposition a blunt and equally archaic instrument?

Conclusion
These, of course, are broad principles on only one possible way forward for the reform of the Roman-Dutch Mortgage. There may be others. However, the Roman-Dutch Mortgage has outlived its usefulness. It evolved in a different era when the world operated at a different pace and the information age could not even be contemplated as a possibility. It has played an important role in our legal system and commercial development in the past, but it is now a fetter on commercial lending and an albatross around the neck of our banking system. Its cumbersome procedures are unsuited for current conditions where business and lending decisions are required to be made with despatch. Unless the Roman Dutch Mortgage is urgently consigned to history, our credit system and economy will continue to suffer and will not reach its full potential.

The Roman-Dutch Mortgage can no longer function as an effective or efficient commercial instrument.

Congratulations
Business Page extends its congratulations to Ms. Gitanjali Singh on her appointment as Editor of the Monthly Stabroek Business supplement. Her and her team’s first production published on Friday August 1, 2003 is a wonderful effort. From this beginning it is evident that Stabroek Business will serve to inform and challenge policymakers, the private sector and the Guyanese public.