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Fiji Development Bank v Grace Trading Company Ltd [1999] FJHC 136; Hbc0466j.95s (24 May 1999)

IN THE HIGH COURT OF FIJI
(AT SUVA)
CIVIL JURISDICTION

ACTION NO. HBC 0466 OF 1995

BETWEEN:

FIJI DEVELOPMENT BANK
Plaintiff

AND

GRACE TRADING COMPANY LIMITED
First Defendant

AND

JOSAIA GUCAKE AND GRACE GUCAKE
Second Defendants

D. Sharma for the Plaintiff
G.P. Shankar for the Defendants

Date of Hearing
and Submissions: 13th June, 22nd July, 19th August and 18th November 1998
Date of Judgment: 24th May 1999

JUDGMENT

This action is related to Civil Action No. HBC 196 of 1995 and at one stage it was agreed that both actions be heard at the one time. They were originally fixed for hearing in September 1997 then re-fixed for December of that year but for various reasons including leave being granted to the Defendants to file an amended defence in 196 of 1995, they were re-fixed for hearing in Court on the 13th, 14th and 15th of July 1998. This date in turn had to be vacated due to a change of solicitors for the Fiji Development Bank and the cases were then re-fixed for hearing on the 4th, 5th and 6th of November 1998.

The Writ in 196 was issued on the 18th of April 1995 and claims that the Plaintiffs in that action who are the Defendants in Action No. 466 accepted an offer by the Fiji Government to set them up in the business of a retail store, the costs of which initially were to be advanced by the Fiji Development Bank. The Statement of Claim in 196 alleges that the Development Bank was to successfully train the Plaintiffs in the management and likely profitable operations of a retail store in Tacirua Heights, Suva.

The Statement of Claim also alleges that the First Plaintiff Josaia Gucake relied on the assurances, promises and undertakings made by the Defendant Bank as a result of which the First Plaintiff gave up his employment as a school teacher.

Unfortunately according to the Plaintiffs the training course given by the Bank was unsatisfactory for reasons which it is not necessary to mention now. The result, according to the Plaintiffs, was that the business which they eventually started failed to make any profit which the Plaintiffs allege was the fault of the Bank in failing to honour and implement the promises, assurances and undertakings which it had given the Plaintiffs but particularly to properly instruct and supervise them in the running of a retail business.

These allegations are denied by the Defendant which alleges that the First Plaintiff failed to take advantage of the assistance and training provided by the Defendant and is therefore the author and cause of any loss and damages which he and his wife allegedly suffered.

To provide initial capital for the business the Bank, the Plaintiff in Action 466, took a Mortgage on the property held by the First Plaintiff under a Native Lease and made an advance to Grace Trading Company Limited of which the Second Defendants are the present shareholders and directors. The sum of $280,125.00 was advanced to the First Defendant on or about the 27th of July 1991.

Under the Mortgage monthly instalment payments were to be $2,740.00. The Defendants fell into arrears as a result of which the Originating Summons in Action 466 of 1995 was issued on the 2nd of October that year.

It claimed delivery by the Defendants to the Plaintiff of vacant possession of the mortgaged land and an injunction restraining the Defendants from interfering with the improvements on the property in any way so as to reduce its value.

The Summons was supported by an affidavit of Salote Tabakanaca the Assistant Manager Legal of the Bank who deposed among other things that erected on the property is a double-storey building comprising a supermarket on the ground floor and a residential flat on the first floor.

The deponent continued that on the 26th of September 1994 the Bank issued a Demand under Mortgage against the First Defendant claiming as at that date arrears of $390,859.77 together with accruing interest.

Ms Tabakanaca quotes the following provisions of the Mortgage which are material to the proceedings:-

"6. THAT upon the power of sale becoming exercisable hereunder it shall be lawful for the Mortgagee at any time and from time to time without giving to the Mortgagor any notice to do all or any of the following :

(a) To enter upon and take possession and/or enter into receipt of the rents and profits of all or any of the said land and to manage the same and to pull down re-build alter and add to any then existing building or improvements thereon and to do all such things as the Mortgagee may deem necessary to manage and efficiently carry on the said land or to obtain income therefrom and for any such purposes to employ managers, workmen and others and otherwise to act in all respects as the Mortgagee in its absolute discretion may think fit."

Exercising its powers under the Mortgage the Bank then called tenders for the sale of the property. Several enquiries were received but Ms Tabakanaca says the prospective purchasers could not inspect the mortgaged property as there were interference and threats of violence from the Second Defendants whenever the prospective purchasers went to inspect the property.

This allegation is not denied by the Defendants nor is Ms Tabakanaca's further allegation that shortly before the date on which she swore her affidavit, the 25th of September 1995, the Second Defendants converted the ground floor of the mortgaged property into a student-type dormitory and have rented the same out to female students of the Fiji Institute of Further Education and are collecting rent from them. Such conduct on the part of the Defendants is contrary to Clauses 6 and 10 of the Mortgage. Clause 6(a) reads so far as relevant:

"That upon the power of sale becoming exercisable it shall be lawful for the Mortgagee at any time and from time to time without giving to the Mortgagor any notice to do all or any of the following:-

To enter upon and take possession and or enter into receipt of the rents and profits of the said land ..... and to do all such things as the Mortgagee may deem necessary to manage and efficiently carry on the said land or to obtain income there from."

Clause 10 reads:

"That the Mortgagor will not without the previous consent in writing of the Mortgagee transfer, convey, sublet, assign, surrender, mortgage charge or otherwise deal with or dispose of the said land or any part thereof."

Ms Tabakanaca then deposes that on 23rd August 1995 the Bank, through its then solicitors, caused a notice to be issued which was served on the First and Second Defendants. This was a letter informing the Defendants of the Bank's previous attempts to obtain vacant possession of the property from the Defendants and requiring them to give vacant possession of the property not later than 21st of August 1995.

Finally Ms Tabakanaca states that as at 31st August 1995 the First Defendant was indebted to the Bank in the sum of $428,295.44 together with interest at the rate of 8% per annum on the first $200,000.00 and 11% per annum on the sum of $144,053.60, the balance then owing of $84,241.84 was interest free.

In an Affidavit in Reply by Josaia Gucake sworn on the 4th of December 1995 no attempt is made to deny the amount then owing to the Plaintiff but instead Mr. Gucake repeats the allegations made in the Statement of Claim in 196 of 1995 and what I take to be a clear implication that persons who come under the Fijian Soft Loan Scheme ought to be given preferential treatment when it comes to loan default or mortgage realization actions.

A similar proposition was put to Scott J. in Civil Action No. HBC 60 of 1998 Joe Colati v. Fiji Development Bank. In his decision of 28th April 1998 Scott J. rejected the first proposition commenting that counsel did not even address him on it. I respectfully endorse Scott J.'s judgment on this question. There is simply no basis in law for such a proposition.

The law on the right of entry to property by a mortgagee whose mortgagor has defaulted in payments is well settled and I can do no better than cite the judgment of Fatiaki J. of 9th February 1995 in Civil Action 0331 of 1994 National Bank of Fiji v. Hussein where His Lordship refers to most of the relevant authorities on this question including Western Bank Ltd. v. Schindler (1977) Ch. 1 where on page 3 of his judgment he quotes part of the judgment of Goff L.J. at page 20 when he said:

"It has for a very long time been established law that a mortgagee has a proprietary right at common law as owner of the legal estate to go into possession of the mortgaged property. This right has been unequivocally recognised in a number of modern cases : see, for example Four Maids Ltd. v. Dudley Marshall (Properties Ltd. (1957) Ch. 317. ... It has nothing to do with default : See per Harman J. in the Four-Maids case where he said, at p.320 :

'The mortgagee may go into possession before the ink is dry on the mortgage unless there is something in the contract, express or by implication, whereby he has contracted out of that right.'"

On page 4 Fatiaki J. quotes part of judgment of Buckley L.J. in the same case on page 9.

"A legal mortgagee's right to possession is a common law right which is an incident to his estate in the land. It should not be lightly treated as abrogated or restricted. Although as a preliminary step to an exercise of the mortgagee's power of sale, so that the sale may be made with vacant possession, this is not its only value to the mortgagee. The mortgagee may wish to protect his security... He might wish to take possession for the purpose of carrying out repairs or to prevent waste."

That being the state of the law the remaining question is whether there are any circumstances which would justify my refusing to grant the relief sought by the Plaintiff.

I can find none but here must refer to the hearing before me in Chambers on the 18th of November 1998 when Mr. R. Naidu on instructions from G.P. Shankar & Co. appeared for the Plaintiffs in Action 196 and Mr. R. Patel for the Defendant. It was then agreed by the parties, and I so ordered, that I would give my judgment in 466 of 1995 before setting 196 down for trial. This followed the previous appearances before me in Chambers on 4th of November when Mr. D. Sharma who appeared for the Defendant and Mr. G.P. Lala appearing for the Plaintiffs stated that he would speak to Mr. Shankar and suggest to him that the Court ruling in HBC 466 would determine the result of Action 196. I must presume in view of what happened on the 18th of November that this was agreed by Mr. Shankar.

I see no reason why the Plaintiff should be frustrated any longer. The Defendants in 466 have been occupying the property without paying any rent or instalments for too long. If they still claim to have suffered any damage as a result of the Bank's action then they will be at liberty to pursue Action No. 196. I therefore order that the Defendants deliver vacant possession to the Plaintiff within 14 days of the date of delivery of this judgment of all that piece or parcel of land situated on the Island of Viti Levu in the district of Naitasiri and comprised and described in Native Lease No. 18533 being Stage 2, Lot 85 as shown on Lot 44 on S.O. 472 together with all improvements thereon. I further order that an injunction be issued restraining the Defendants, their servants or agents from interfering with the improvements on the said property in any way so as to deplete its value and that the Defendants pay the costs of this action.

JOHN E. BYRNE
J U D G E

Cases referred to in Judgment:-

Action No. HBC 60 of 1998 Joe Colate v. Fiji Development Bank - unreported decision of Scott J. of 28th April 1998.
Civil Action No. 0031 of 1994 National Bank of Fiji v. Hussein - unreported judgment of Fatiaki J. of 9th February 1995.

The following are some of the additional principal cases referred to in submissions:-

ASB Bank Ltd v. Harlick (1996) 1 NZLR 655.
Clark v. National Mutual Life Association of Australasia Ltd. (1966) NZLR 196.

HBC0466J.95S