A Supreme Court judge has denied a bid by HSBC Bank Bermuda Limited to take possession of a mortgaged commercial property and sell it to satisfy the mortgage debt.

Puisne Judge Larry Mussenden refused the bank’s application for summary judgment and ruled that for there to be a determination, the matter should go to trial.

The defendants are the Bull’s Head Car Care Centre Ltd., Sharthur Enterprises Ltd, Sharon Helene Evadne Riviere, Arthurton Riviere and Denise Riviere.

Their position is that the bank acted unconscionably and committed unfair acts by changing the interest rate for the relevant mortgage but not changing the repayment amount, such that there was a balance outstanding at the end of the mortgage.

The Bull’s Head Car Care Centre Ltd had a 2003 loan for $582,000 from the bank and an on-demand overdraft facility of $78,000.

A second 2003 loan was to Sharthur Enterprises for $450,000 to assist with the purchase of the property, but with a maturity date in 2029.

Part of the security for the first loan was a mortgage over the property, 53 Serpentine Road in the City of Hamilton. The loan was amended by facility letters in 2004 and 2013, but with stipulated requirements for the borrowers, including full payment by 2019.

The bank argued that by the maturity date of the first loan, more than $214,000 was owing on it and the defendants were in default on the second, with nearly $229,000 owing.

After several meetings between the two parties and what the bank called “significant and generous concessions in time and money to the defendants” in seeking a resolution, the bank was unconvinced they could afford the loan facilities. And that was why the institution sought possession of the mortgaged property.

The bank’s lawyer, John Hindess, of Marshall Diel & Myers Limited, submitted that although his client was entitled to seek repayment against all of the securities including various guarantees and the charge against the residential property at 93 St John’s Road, the bank was only seeking possession and power of sale over the commercial mortgaged property.

Acting for the defendants was Jaymo Durham, of Amicus Law Chambers Ltd, who said the repayment on the loan was by way of monthly instalments of $6,900 with a variable interest rate that would change automatically, without notice, whenever the base rate changed.

Further interest would be payable monthly in arrears by way of a standing order debit to the defendants’ mortgage account and the bank reserved the right to review the level of repayment, should interest rates rise.

Mr Durham submitted, however, that the clear consequences of the bank’s stated course of action in not applying the requisite amortisation schedule, which would have resulted in the loan being retired during the course of the term, was that the defendants were left in the end with a significant lump-sum payment they could never have foreseen.

The defendants were said to be current in their payments during the term of the mortgage but had failed to pay that balance at the end.

Mr Durham listed a number of defences and said his clients were unaware of the increased interest rate, and that the bank controlled what was deducted from the defendants’ account and applied to the loan.

Mr Justice Mussenden stated that the terms of the agreements included language that seemed to indicate that the monthly payment amount would be an amount that would “ensure” full repayment of the loans by the end of the term of the loans.

He wrote in his ruling: “At this stage, I find the use of those terms to be of some significance that will require a full analysis.

“This is the main thrust of the defendants’ argument, which will require a trial of the matter as to the proper construction of the agreements, further evidence and a thorough analysis.

“In my view, this line of defence amounts to a good defence to the claim on the merits and also demonstrates that there is a dispute as to the facts.”

He also thought the defendants could argue at trial that the first loan “was void for lack of certainty”.

HSBC Bermuda had made a final demand by letter of July 4, 2019 for payment of $470,794.26.

By application to the court, the bank sought summary judgment for the property.

But Mr Justice Mussenden wrote: “The defence is squarely aimed at the issues of an incorrect calculation of the amortisation rate, a lack of certainty in the loan agreements and denials that they were in breach or default in relation to the Bull’s Head loan.

“In my view, this gives rise to a good defence on the merits and is a dispute on the facts, which ought to be tried.”

In refusing the bank’s application, he contended that unless there was a filing within seven days to be heard on the subject of costs, “I direct that costs shall follow the event in favour of the defendants against the plaintiff on a standard basis, to be taxed by the registrar if not agreed.”