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High Court of Fiji |
IN THE HIGH COURT OF FIJI
AT LABASA
CIVIL JURISDICTION
CIVIL ACTION NO. 28 OF 2002
Between:
ALI’S CIVIL ENGINEERING LIMITED
ALEBASOGA TROPIKBOARDS LMITED
Plaintiffs/Applicants
and
FIJI DEVELOPMENT BANK
1st Defendant/
1st Respondent
CHIRK YAM and ILAITIA BOILA
and PRICE WATERHOUSE COOPERS
2nd Defendants/
2nd Respondents
Mr. W. Archibald for the Plaintiffs
Mr. D. Sharma for the 1st Defendant
Mr. J. Apted for the 2nd Defendants
DECISION
The Court has three motions before it. They are interlocutory proceedings, separately filed by each of the parties to this action as follows:
(A) The plaintiffs’ application filed 25 April 2002
The plaintiffs seek the following relief and orders:-
(a) That the First Respondent cease exercising its rights as mortgagee under Deed of Debenture executed by the Second Applicant and dated 9th August 1993; and
(b) That the Second Respondents cease exercising their rights as receivers and managers under the deed of appointment executed by the First Respondent as mortgagee under the deed of debenture dated 9th August 1993 and accepted by themselves on 1st May 2001; and
(c) That the First and Second respondents deliver possession of the Second Applicant’s undertaking, property stock-in-trade, and book debts to the Second Applicant; and that
(d) The first Respondent be restrained from exercising all or any of its rights as mortgagee under the securities granted by the First and Second Plaintiffs to it
pending the trial of this action and further order or orders of this Honourable Court; and
The learned counsel for the plaintiffs, Mr. Wendell Archibald says in the motion that the grounds on which this application is made are:
Upon the further grounds-
(a) Appearing in the affidavit of BAHADUR ALI (father’s name Jamalud Din) sworn and filed herein; and
(b) Appearing in the statement of claim filed herein
(B) The first defendant’s application (the ‘Bank’) filed 13 May 2002
The second application is by the Bank dated 13 May 2002 to strike out the plaintiffs’ action on the following grounds:
(a) No prior consent obtained from Directors of Lands to institute the action.
(b) No prior consent was obtained from Second Defendants to institute the action and/or alternatively no indemnity has been offered by 2nd Plaintiff together with an offer to pay the amount owing under the First Defendant’s Debenture into Court.
(c) That the First Plaintiff has no locus to be party to the action.
This Application is made under Order 18 Rule 19(a) of the High Court Rules 1988.
The 1st Defendant will rely upon
(a) Section 13 of the Crown Lands Act, Cap 132
(b) The interlocutory Judgement of the High Court in Civil Action No. 183 of 2001 on the issue of locus; and
(c) The affidavit filed of Chirk Yam filed on behalf of the Second Defendant setting out further grounds of abuse of process.
(C) The second defendants’ application (as amended) (‘Receivers’) filed 10 May 2002
(a) AN ORDER under O.18 rl8(1)(a), (b) and (d) of the High Court Rules, 1998 and under the inherent jurisdiction of the Court that the Statement of Claim in this Action be wholly struck out as against the Second Defendants and that the action be dismissed against the Second Defendants, on the grounds that –
(i) it discloses no reasonable cause of action; or
(ii) it is scandalous, frivolous or vexatious; or
(iii) It is otherwise an abuse of the process of the court;
(b) further or in the alternative AN ORDER under O. 18 r18(a), (b) and (d) of the High Court Rules, 1988 and the inherent jurisdiction of the Court that various specific paragraphs of the Statement of Claim which refer to the Second Defendants be wholly struck out or at least reference to the Second Defendants in all (or alternatively any) of those paragraphs be struck out and the Plaintiffs’ claims against the Second Defendants be dismissed-
(c) further or in the alternative AN ORDER under o.18 r18(1)(a), (b) and (d) of the High Court Rules, 1988 and the inherent jurisdiction of the Court that paragraph 1 be wholly struck out and the following paragraphs or alternatively the references to ACEL in all (or alternatively any) of the paragraphs of the Statements of Claim be struck out which refer to ACEL and the ACEL’S claims against the Second Defendants be dismissed-
on the grounds that –
(i) they disclose no reasonable cause of action; or
(ii) they are scandalous, frivolous or vexations; or
(iii) they are otherwise an abuse of the process of the court;
(d) further or in the alternative AN ORDER under o.18 r18(1)(a), (b) and (d) of the High Court Rules 1988, and the inherent jurisdiction of the Court that paragraph 2 be wholly struck out and the paragraphs or alternatively the references to the Tropikboards in all (or alternatively any) of the paragraphs of the Statement of Claim be struck out and the Tropikboard’s claims against the Second Defendants be dismissed-
On the grounds that-
(i) they disclose no reasonable cause of action; or
(ii) they are scandalous, frivolous or vexatious; or
(iii) they are otherwise an abuse of the process of the court;
(e) further or in the alternative AN ORDER under o.15 r6(2)(a) of the High Court Rules 1988, that the Tropikboards should cease to be a party and be struck out of the action together with all references to it in the Statement of Claim and its claims dismissed;
(f) further or in the alternative AN ORDER under o.15 r6(2)(a) of the High Court Rules 1988, that the Tropikboards should cease to be a party and be struck out of the action together with all references to it in the Statement of Claim and its claims dismissed;
(g) further or in the alternative AN ORDER under o.18 r18 or o.15 r6 or the inherent jurisdiction of the Court that the action be stayed until ACEL and Tropikboards provide to the Second Defendants on behalf of the Second Plaintiff, a security for the costs of defending the action, to be assessed by the Court on an indemnity basis ad paid by a date to be ordered by the Court;
(h) further or in the alternative AN ORDER under o.15 r6(2)(a) of the High Court Rules 1988, the PricewaterhouseCoopers should cease to be a Defendant to the action; and
(i) AN ORDER that the ACEL and the directors and/or shareholders of the Tropikboards pay the Tropikboards and Second Defendants; cost of this application and all incidental costs hereto;
(j) Such further Order as this Honourable Court deems just.
Description of parties
The parties to this action are referred to as hereunder in these applications:
(a) Ali’s Civil Engineering Limited
which is the First Plaintiff- the First Applicant (ACEL)
(b) Valebasoga Tropikboards Limited
which is the Second Plaintiff- the Second Applicant (‘VTL’)
(c) Fiji Development Bank
which is the First Defendant- the First Respondent (‘the Bank’)
(d) Chirk Yam and Ilaitia Boila and Price Waterhouse Coopers
who are the Second Defendants - the second respondents (‘Receivers’)
The plaintiffs
The 2 Plaintiffs in this Action are registered companies, beneficially owned by Mr. Bahadur Ali and his wife Jaibul Nisha.
The first Plaintiff, (“ACEL”), is in the business of civil engineering.
The Second Plaintiff, (“Tropikboards”) carries out business at Labasa as sawmillers and plywood and veneer manufacturers. It is presently under the Receivership and Management of Mr. Chirk Yam and Mr. Ilatia Boila (“the Receivers”), two of three- named Second Defendants, who were appointed by the First Defendant (“FDB”).
ACEL is for all intents and purposes controlled by Mr. Ali, as was Tropikboards until the appointment of the Receivers.
The Defendants
The First Defendant
The First Defendant in this Action is the FDB, a statutory body, established by the Fiji Development Bank Act (Cap. 214). Its operations (including its dealings with the Plaintiffs which are the subject of this Action) are subject to and include powers given to it by the Act.
The Second Defendants
There are 3 named Second Defendants
The first 2 are Chirk Yam and Ilaitia Boila who were appointed as Receivers and Managers of Tropikboards by the FDB on 1 May 2001 and took possession of Tropikboards assets on 11 May 2001.
Both Mr. Yam and Mr. Boila are among the partners of the firm of Price Waterhouse Coopers (“PWC”).
PWC are the third- named of the Second Defendants to this Action. One of the alternative interlocutory orders sought by the Second Defendants is an application to have PWC struck out as a party and the claims against them dismissed.
Introduction
As ordered, all three counsels made helpful comprehensive written submissions. I must commend them for putting in so much hard work in the compilation and preparation of these submissions.
In support of the above motions, affidavits have been filed as well as affidavits in response by the respective parties. These affidavits together with annexures have become voluminous.
There have been a number of actions in the High Court involving the parties. In an earlier case (Civil Action No. 183 of 2001) factual background relating to this action are set out by me in an interlocutory application brought by the Receivers, the Bank and the Merchant Bank of Fiji against Bahadur Ali and his sons. Mr. Apted has also in his written submissions at pages 7 to 12 herein stated in considerable detail the background facts involving the parties.
Because of defaults in payments to the Bank, a demand was made under the debenture in question in this action. The receivers were appointed and they went into possession of the second plaintiff’s assets. Then there followed a series of actions in the High Courts of Fiji. This present action is the ninth action that has been filed in this Court arising out of the Receivership of the second plaintiff. A summary of these cases is outlined in Mr Apted’s said submission at pages 12 to 20 and I need not set them out in this decision as they are not altogether relevant to the issues before me.
History of this action (C.A. 28/02)
The route that this action has taken is as follows:-
(a) Writ of Summons was issued 25 April 2002
(b) 14 May 2002 orders were made for filing of affidavits in reply to plaintiffs’ application
(c) From 7 June to 23 July 2002 various orders were made in the three motions and applications heard. Final hearing was 22 July 2002.
(d) The decision was to be given on notice.
(e) Writ of Summons in C.A. No. 183/01 was filed against Bahadur Ali, and Niwaz Ali as Directors of Valebasoga Tropikboards Limited (VTL) by the plaintiffs in that action, namely, the Receivers, the Bank and Merchant Bank of Fiji
(f) C.A. 183/01 is not disposed yet.
(g) An interlocutory judgment was given by me in that case on 2 November 2001
(h) When another application was made in that case judgment in this action (28/02) was to be deferred as counsel consented because the parties were discussing settlement.
(i) It was not until settlement talks failed that counsel stated that I now write decision in 28/02 while 183/01 was to be held in abeyance pending my decision in 28/02.
Hence this decision although rather belated for the reasons given hereabove.
Events surrounding the case leading to the exercise by the Bank of its powers under the debenture
The background facts leading to the Bank exercising its powers under the debenture is well set out by Mr. Sharma in his written submissions at pages 6 to 8 as stated below:
On 28th May 1993, VTL was approved a loan of $3,070,750.00 by the Bank. A copy of the loan approval letter dated 28th May 1993 is exhibited to Ali’s Affidavit filed on 25th April 2002 as Annexure C.
To secure this loan, VTL agreed to give the following security:
(a) Registered 1st Mortgage over LD No. 4/9/3747 Lot 2 on Plan DP702 Nayaca Subdivision with improvements and buildings to be constructed thereon.
(b) Bill of Sale over machinery and plant, vehicles and logging plants;
(c) Debenture over VTL’s assets and undertakings including uncalled capital
(d) Registered 3rd Party 2nd Mortgage over CL 2994.
(e) Joint and Several Guarantees of Directors of VTL
(f) Guarantee by Acel
(g) Insurance over assets
This is fully stated on page 2 of the Loan Letter. The terms and conditions contained therein was unconditionally accepted by VTL and signed by Ali as one of the Directors.
All of the above securities were requested by the Bank for that one loan to VTL.
VTL:
Consent to mortgage Crown Lease No. 12023 was obtained from the
Director of Lands and which was endorsed on the mortgage document on 31st August 1993.
Subsequently, further loans were approved to VTL and on each occasion, the Director of Lands consent was applied for and obtained for the up- stamping of the mortgage over Crown Lease No. 12023. Such consent was endorsed on the 1st November 1994 when the loan was increased to $7,001,600.64 and on 15th June 1995 when the loan was increased to $8,524,190.06.
The Director of Lands was therefore fully aware of the Bank’s loans to VTL and whose consent was obtained for the first loan and further loans approved to VTL.
There have been numerous defaults by VTL in the payment of loan and the Bank had from time to time rescheduled the payment to assist VTL to pay off the loan.
Despite the Bank’s accommodation and consideration, VTL continued making defaults in payment of its monthly instalments to the Bank while at the same time paying all its other creditors.
The history of the account is fully stated in annexure L of Salote’s Affidavit filed on 21st May 2002.
Since VTL continued defaults in its repayments, the Bank issued Demand under Debenture on 7th March 2001 demanding the payment of the sum of $9,703,904.91 together with interest at the rate of 10.5% per annum 1st March 2001 until full payment.
VTL failed to pay the amount demanded as a result of which the Bank appointed the Receivers on 1st May 2001.
The Receivers took possession and management of VTL’s business with the consent and approval of the Bank.
Ali and his agents did not co-operate with the Receivers as a result of which the Receivers and the Bank instituted Suva High Court Action No. HBC 183 of 2001 and obtained Orders that Ali and others forthwith hand over possession and of VTL’s business and property to the Receivers and further restraining them from interfering in any way with the Receivers’ right and obligations to manage, control and operate the said business.
Despite such Orders, Ali and others have continued interfering and placing obstacles to the Receivers’ rights and obligations.
Ali has also filed several court actions against the Receivers and the Bank trying to remove the Receivers and claim damages from the Bank.
The present applications
The plaintiffs want the debenture in question declared null and void because of the alleged lack of consent to it by the Director of Lands whereas the defendants want the pleadings to be struck out.
The issue of the consent is an important matter for it goes to the heart of the action. Depending on Court’s determination on this aspect the rest of the issues in the applications could then be properly considered.
It is Mr. Apted’s submission though that Court deal first with the applications for striking out filed by the defendants because he says, that the plaintiffs’ whole entitlement to the interlocutory relief that they seek depends on the prior question of whether they have the standing to bring their action, and whether that action can otherwise be properly maintained.
He further says that the plaintiffs have no entitlement to interim or interlocutory relief unless they have an entitlement to the substantive relief they seek.
I have considered this submission, and in view of what I have stated above, I prefer to deal with the plaintiffs’ application first and then the other two for if I accepted Mr. Apted’s suggestion it would in my view with respect be putting the cart before the horse.
Plaintiffs’ submissions
On 25 April 2002 ACEL and VTL instituted the present action and also filed an application seeking the following interim relief: (a) a declaration that the Bank’s Deed of Debenture of 9 August 1993 is null and void, (b) a declaration that the appointment of the Receivers on 1st May 2001 is null and void, (c) an order that the receiver had been trespassing in VTL’s property and chattels from 1st May 2001 and (d) an order that the Receivers stop any further trespass and to immediately hand VTL’S property and chattels.
It is ACEL and VTL’S contention as stated in their affidavits filed in support of their application:
On injunction in his submission Mr. Archibald for the plaintiffs dealt with the principles applicable for the grant of interlocutory injunction as laid down in the well-known case of American Cyanamid Co. v. Ethicon Ltd [1975] AC 196 H.L.
Mr. Archibald submits that ACEL and VTL have the locus standi to bring this action. Counsel goes on to deal with what took place in Civil Action No. 183 of 2001. He says that in this case there is a serious question to be tried. He submits that the power of appointment by which the Receivers and Managers were appointed by the first respondent is bad because it was in the circumstances, beyond the power of the mortgagor company to lawfully create the charge contained in the deed.
Counsel submitted that, firstly, there was breach of duty on the part of the Bank by not granting funds to cover working capital to VTL needed or by allowing it extra time on the official “6 month moratorium” on payments. Secondly, he submits that had the Bank been committed to “acting in good faith” it would have served the notice required by section 33(2) of the Fiji Development Bank Act on VTL and stated why it considered necessary to take that step. Instead it simply chose to demand payment of all loan moneys and interest owing thereon.
The third breach counsel submits is that before taking a decision to appoint a receiver out of Court, it is to be expected that the Bank would check the documents so as to ensure that the document creating the charge was valid and that the power to appoint a receiver was properly exercisable. He says that the deed of Debenture dated 9 August 1993 was created over all freehold and leasehold property of the mortgagor. The Bank knew that Crown Lease No. 12023 held by its mortgagor the VTL was a “protected lease” because in July 1993 it took precaution of obtaining the consent of the Director of Lands to the Land Transfer Mortgage it subsequently registered at the Registrar of Titles Office as Mortgage No. 344611. The Bank was aware of the provisions of section 13 of the Crown Lands Act. He submits that if the Bank made an “honest mistake” of omission in 1993 by not obtaining the consent of the Director of Lands to the deed of debenture, the re-examination of the document which must have taken place between March 2001 and 1st May 2001 would surely have drawn its attention to the flaw in its power to appoint a receiver and manager under the deed of debenture.
On the issue of consent Mr. Archibald’s submission is as follows in his own words:
(i) That it is clear, on well established Fiji authorities, that a charge over Crown leasehold land which falls in the class of leases defined by section 13 of the Crown Lands Act is unlawful and also null and void unless it is made with the prior authority of the Director of Lands (see for instance Director of Lands v. Abdul Razak (unreported) Civil Appeal No. 10 of 1993, CA.
(ii) That although the deed of debenture may create a charge over other things which are not Crown leasehold, it is not exempt from the provisions of Section 13 of the Crown Lands Act for the reason that it purports to do the very thing which is prohibited by Section 13 of the Crown Lands Act.
(iii) If there is no charge a receiver cannot be appointed by the Bank: See Wylie v Carlyon [1992] 1 Ch. 51.
The counsel therefore asks whether the Bank could proceed to act on the debenture to appoint a receiver and manager and take over possession of the mortgagor’s leasehold property, assets and business? He says that a fiduciary duty was owed to its mortgagor which prevented it from doing so and by so acting it committed a breach of its fiduciary duty.
Mr. Archibald submitted that it was the Receivers’ duty to make sure that the necessary formalities are scrupulously observed and that the power to appoint them has become exercisable.
However, he says that Mr. Yam (Receiver) has stated in his affidavit sworn 18.5.01 in 183/01 in this connection that: “prior to accepting my appointment I satisfied myself that to the best of my knowledge there were grounds for the appointment. The appointment was valid, and since that time I have been acting in accordance with the appointment.”
Mr. Archibald submits that despite a search made by Mr. Yam it does not reveal that the debenture had not been endorsed with the consent of the Director of Lands but the Land Transfer mortgage had been.
In support of his argument on this issue Mr. Archibald submitted (in his own words):
A comparison of the operative clause of the Land Transfer mortgage and the operative clause of the deed of debenture would have shown that –
(i) The mortgage’s operative clause was “DOTH HEREBY MORTGAGE TO THE MORTGAGEE”; and
(ii) The operative clause of the Deed of Debenture was “HEREBY CHARGES with such payment all the undertaking and all the property stock-in-trade book and other debts whatsoever and wheresoever present and future including the uncalled capital of the company.”
The definition of the term “property” in section 2 of the Property Law Act includes – “all real and personal property and any estate or interest in real or personal property, and any debt, and any thing in action, and any other right or interest”
Clause 1 of the conditions endorsed on the deed of debenture makes it evidence that the charge which the deed purported to create operated over “all freehold and leasehold property” of the mortgagor.
Counsel finally submits that the appointment of receivers and managers was made for an entirely improper purpose and in breach of every equitable duty owed by the mortgagee and the receivers and managers to the plaintiffs in this action.
The Bank’s submissions on consent
On the question of consent, Mr. Sharma for the Bank argues that after borrowing huge sums of money from the Bank, VTL is now using technicalities in an attempt to declare the debenture null and void. He says that no Court will lend its aid to a man who founds his cause of action upon his own immoral or illegal act for under section 13, VTL as Lessee is obliged to obtain consent from the Director of Lands (if consent was deemed to be necessary).
Mr. Sharma argues that if VTL’s contention of illegality is upheld then VTL’s cause of action arises ex turpi causa, based on an alleged illegality to which it was the real culprit since it was VTL’s obligation to obtain such consent (if such consent was required at all).
Counsel has made a two - pronged attack on the plaintiffs by submitting that since the action centres around Crown Lease No. 12023 the plaintiffs should have obtained prior consent of the Director of Lands before instituting this action. In the absence of such consent this action should be struck off.
The second line of attack is that the debenture is not null and void because the Bank had already complied with s13 by taking a registered mortgage over the lease which mortgage had been duly consented to by the Director of Lands. Such consent does not have to be endorsed on the Deed of Debenture. Mr. Sharma submits that section 13 does not invalidate an instrument but it purports to invalidate a dealing.
The Receivers’ submission
Mr. Apted for the Receivers submits, inter alia, that the affidavit evidence of ACEL does not prove that the Director of Land’s consent was not obtained. He says that all it proves is that there is nothing on the Lands Department’s file to show that it was. Oral evidence is therefore necessary from those actually involved at that time before the threshold facts giving rise to a claim under section 13 can even begin to be considered.
Counsel argues that ‘it is the transactions or dealing listed in section 13, not the instruments recording them that are declared unlawful’ (Chandra Kant Pala v ANZ & Anor. FCA No. 50/91).
He argues that s13 does not include “charges” or “pledges” in the transactions declared to be null and void. He says that although a “mortgage” is declared to be null and void, a “charge” is not.
Consideration of the applications
(A) CONSENT OF DIRECTOR OF LANDS
The second plaintiff company (VTL) was incorporated on 7 April 1993. On 13 August 1993 it gave the Fiji Development Bank (the ‘Bank’) a Mortgage Debenture dated 9 August 1993 (particulars of which were duly registered with the Registrar of Companies on 16 August 1993 between the 2nd Plaintiff and the Bank) to secure a loan of $3,070,000.00 and further advances and other accommodation which were upstamped from time to time.
By paragraph 3 of the Debenture, the Company agreed that:
“The Company hereby charges with such payment all its undertaking and all its property, stock-in-trade, book and other debts whatsoever and wheresoever present and future including its uncalled capital with the benefit of the securities for the same.”
Because of default in payment after demand was made on 7 March 2001, the Receivers were appointed on 1 May 2003 of the whole of the undertaking, property and assets charged pursuant to the Debenture. In this regard item c(1) of the Deed of the Appointment of Receiver and Manager states as follows:
The relevant provisions of the Deed state –
The VTL gave a mortgage over Crown Lease LD 4/9/3747 over Lot 2 on Plan DO 702 at Nayaca, Labasa the leasehold property on which its operations were and are carried out.
Also, as the lease was a ‘protected lease’ the mortgage required the consent of the Director of Lands under section 13 of the Crown Lands Act, Cap. 132 which was duly given and the mortgage was registered on the title by the Registrar of Titles under the Land Transfer Act, Cap. 131.
The said section 13(1), inter alia, provides:
13. – (1) Whenever in any lease under this Act there has been inserted the following clause:-
“This lease is a protected lease under the provisions of the Crown Lands Act”
(hereinafter called a protected lease) it shall not be lawful for the lessee thereof to alienate or deal with the land comprised in the lease of any part thereof, whether by sale, transfer or sublease or in any other manner whatsoever, nor to mortgage, charge or pledge the same, without the written consent of the Director of Lands first had and obtained, nor, except at the suit or with the written consent of the Director of Lands, shall any such lease be dealt with by any court of law or under the process of any court of law, nor, without such consent as aforesaid, shall the Registrar of Titles register any caveat affecting such lease.
Any sale, transfer, sublease, assignment, mortgage or other alienation or dealing affected without such consent shall be null and void.
(2) ....
(3) ....
It was a condition of the loan that VTL will issue a debenture. So on 13 August 1993 Bahadur Ali executed a Deed of Debenture in favour of the Bank on behalf of VTL.
This debenture was registered with the Registrar of Companies in accordance with section 98 of the Companies Act Cap 247. The said s.98 (in so far as it is relevant) provides:
98. – (1) Subject to the provisions of this Part, every charge created after the fixed date by a company registered in Fiji and being a charge to which this section applies shall, so far as any security on the company’s property or undertaking is conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge, together with the original or a copy certified in the prescribed manner of the instrument, if any, by which the charge is created or evidenced, are delivered to or received by the registrar for registration within 42 days after the date of its creation, but without prejudice to any contract or obligation for repayment of the money thereby secured, and, when a charge becomes void under this section, the money secured thereby shall immediately become payable.
2. This section applies to the following charges:-
(a) a charge for the purpose of securing any issue of debentures;
(b) a charge on uncalled share capital of the company;
(c) a charge created or evidenced by an instrument which, if executed by an individual, would require registration as an instrument under the Bills of Sale Act; (Cap. 225.)
(d) a charge on real property, wherever situate, or any interest therein;
(e) a charge on book debts of the company;
(f) a floating charge on the undertaking or property of the company;
(g) a charge on calls made but not paid;
(h) a charge on a ship or any share in a ship;
(i) a charge on goodwill, on a patent or a licence under a patent, on a trade mark or on a copyright or a licence under a copyright.
For the present purpose the following terms of the Endorsed Conditions of the debenture is relevant:
The Charge hereby created shall operate as a fixed charge as regards all freehold and leasehold property buildings structures erections uncalled capital vehicles engines machinery plant tools equipment books of account vouchers and other documents relating in any way to the business transactions of the Company and shall operate as a floating security only as regards all other assets hereby charged BUT so that the Company shall not be at liberty to create any mortgage or charge in priority to or pari passu with this security.
There was no need to register the debenture against the title under the Land Transfer Act as there is no provision under that Act for such registration. It was, however, registered under s98 as required of companies under the Companies Act.
In this case there was a covenant in the debenture which created a fixed charge on the land. A fixed charge is neither operative nor effective unless it is acted upon and it is secured by the specific mortgage that is duly executed and registered against the land in question. Creating a fixed charge does not constitute an interest in the land. To make this charge effective the parties must register a mortgage against the land and this is what was done in this case. Here a Crown Lease was involved and therefore the Director’s consent had to be obtained under 13 and endorsed on the mortgage which satisfied the requirements of s13 in that the Director’s consent to the borrowing and charge over the land has been obtained.
In these circumstances s13 has been complied with without the need to have the consent endorsed on the debenture so long as the Mortgage is endorsed. As I said before, the charge was registered under s98(2)(d) of the Companies Act as required by law.
Talking of ‘debenture’, it is not registrable over land and so on its own it cannot operate to create an interest in land. I refer to s98(b) of the Companies Act which deals with ‘registration of charges’ which provides:
98(b) the holding of debentures entitling the holder to a charge on real property shall not, for the purposes of this section, be deemed to be an interest in real property (emphasis mine)
In the context of this case when one is dealing with a ‘debenture’ and the alleged need for the Director of Land’s consent, one has to have a clear understanding of what a ‘debenture’ is. This has been explained as follows in Fisher & Lightwood’s Law of Mortgage, Aust. Ed, at 211 thus:
The word ‘debenture’ is a very old one and appears to have derived from the Latin ‘debentur mihi’ (‘I am endebted’), with which acknowledgments of debt formerly commenced: Levy v Abercorris Slate and Slab Co [1887] UKLawRpCh 200; (1887) 37 Ch D 260 at 264. Thus the root meaning of debenture is ‘indebtedness’, and the word may be used in a very general sense in this way: see Lemon v Austin Friars Investment Trust Ltd [1926] Ch 1.
In commercial matters the term ‘debenture’ is nowadays usually associated with evidence of a loan made to a company. The memorandum of association and the powers conferred by the Corporations Law usually empower a company to raise money by borrowing: see [12.1] and Knights-bridge Estates Trust Ltd v Byrne [1940] AC 613; [1940] 2 All ER 401, H.L.
In this case, there is a ‘debenture deed’ and where such a deed contains a mortgage of specific property, as in this case, the debenture holder has a mortgagee’s powers of sale and foreclosure in respect thereof.
In these circumstances the Bank proceeded to appoint the Receivers pursuant to the provisions of the Debenture in question.
Here the mortgage has been registered to secure the borrowing under the debenture hence it is not a requirement to obtain the Director’s consent to the debenture since he had consented to the mortgage and was aware of the debenture which concerned the borrowing against the land. Therefore consenting to the dealing by the Director endorsing his consent on the mortgage was, in my view, a full compliance with the requirements of section 13.
It is interesting to note the provisions of s13, and I agree with Mr. Sharma with his arguments in this connection, namely, the nullity clause which reads: “Any sale, transfer, sublease, assignment, mortgage or other alienation or dealing ‘affected without such consent shall be null and void”, does not pertain to charges or pledges.
A charge or pledge is not an alienation or dealing in the land.
The borrowing under the debenture is secured by registering a mortgage over the land. This is what was done in this case. Hence there was no requirement under the Land Transfer Act to obtain the Director’s consent specifically to the debenture since he would have consented to the mortgage and was aware of the borrowing as evidenced by the upstamping of the documents with his consent.
Under s13 an interesting point arises and I agree with Mr. Sharma in his comments on this, that is, why have the words ‘charge or pledge’ which appear in earlier portion of s13 been left out in the paragraph dealing with nullity? The intention is clear in my view, as the legislature was aware of the provisions of the Land Transfer Act knowing that a charge such as debenture does not in itself create an interest in land and that such charges or pledges are normally secured by mortgages and it is the mortgage that requires the consent of the Director of Lands and not ‘charge’ or ‘pledge’.
I reject the plaintiffs’ submission that the absence of endorsement of the Director’s consent on the debenture (if one was required which I hold was not) makes the whole debenture null and void as that argument has no merit. It only purports to invalidate the dealing (if applicable here which it is not) in the land, as stated below by Court of Appeal in Chandra Kant Pala v ANZ Bank Saving Bank Ltd and Anor. FCA No. 50/91 at p13 (although it was dealing with a somewhat similar section in s12 of Native Land Trust Act Cap. 134):
We might add that in our opinion the wording of s.12 would not give it any destructive effect on documents that tried to effect a dealing that had no consent. It says nothing about the documents; ‘it renders the dealing null and void. It simply means that the document concerned does not operate to carry out the transaction it was intended to effect. As earlier mentioned, one can compare its terms with those of s.5 of the same Act, which refers not to the dealing, but to the instrument.
In view of what I have already stated hereabove on the ‘consent’ aspect of the case in this application, I reject outright the plaintiffs’ assertion that the Deed of Appointment is null and void because it was made without the consent of the Director of Lands.
There is no need to obtain the Director’s consent specifically on it as it is not a ‘dealing in land’. The Receivers and Managers are appointed merely to manage the assets and business of the second plaintiff (VTL). Consent will be necessary only if the VTL and Receivers wish to sell, transfer or alienate any Crown Land belonging to VTL.
(B) MANDATORY INJUNCTION APPLICATION
The plaintiffs are seeking mandatory interlocutory injunction in terms stated at the beginning of this decision.
An injunction is an equitable remedy and is discretionary.
It is noted that the injunction application is in exactly the same terms as that dealt with in the said 2001 judgment of this Court in 183/01. The application was refused. This application no doubt is an abuse of the process of the Court.
The plaintiffs in that action sought leave to appeal to a single judge of Court of Appeal against my orders firstly, the granting of injunctive relief on 2 May 2001 and also leave to appeal from my decision of 2 November 2001 refusing to revoke the appointment of VTL’s Receivers and to require them to hand over the management of VTL to Bahadur Ali and to dissolve my said order of 2 May 2001.
The applicants argued on the proposed appeal that the Debenture is ‘null and void’ because the ‘charge’ over the lease should have the prior written consent of the Director of Lands, and because such consent is not obtained, and the debenture endorsed, it is null and void, and subsequent appointment of Receivers under it is illegal as they interpret s13. The Court of Appeal noted that this argument was raised for the first time.
Upon the argument presented to J R Reddy JA by the Bank and the Receivers, the Court was of the view that there is merit in the submission. The submission was (as stated by Reddy JA at p.11 of the Decision:
The Receivers and the Bank say that they have not gone into possession of the lease. The receivers have gone into possession as agents of VTL, and VTL remains in possession. Furthermore, clause 2 of the Lease requires written consent of the Director to transfers, subletting, mortgaging, assigning or parting with possession and although the Director of Lands is empowered to by Section 13, to protect the lease from “charges” he has not done so. In my view, there is merit in the submission.
I agree with Mr. Apted that apart from the requirements for directors and shareholders of a company in receivership to give the Receivers an indemnity before suing in the company’s name, generally, as already noted, an additional rule applies to an injunction application brought against the debenture holder.
Also the special rule in the case of receivership and the exercise of mortgagee’s rights is that a Court will not grant an interlocutory application for an injunction to restrain a receiver and manager because this would deprive the mortgage debenture holder of the benefits of its security. Even in the exceptional case where such relief is granted, the Court usually protects the secured creditor by requiring the applicant to bring into Court an amount sufficient to meet the secured debt Re Broadtree Finance Pty Ltd; Deangrove Pty Ltd (Receivers and Managers Appointed) v Commonwealth Bank of Australia [2000] FCA 173 (6 March, 2001) and Scandi Pty Ltd v Heller Financial Services Ltd (unrep. Vic Sup Lt, Beach J 2 2 April 1998). In the latter case Beach J stated, and this hits the nail on the head:
“..... I consider the balance of convenience is not such as to justify the exercise of my discretion in the plaintiff’s favour. I say that for the following reasons. At the present time the plaintiff’s financial position is such that the amount it owes to its creditors exceeds the amount owed to it by its debtors. There is a risk therefore that if the Receiver is unable to take control of the plaintiff’s business, Heller will not recover the moneys to which it is entitled.
Further, the general rule is that a court will not interfere on an interlocutory basis to deprive a secured creditor of the benefits of its security except on terms that an equivalent safeguard is provided to it by the borrower bringing in an amount sufficient to meet what is claimed by the creditor, see Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 161 at p164-5 and Nicholas John Holdings Pty Ltd and others v ANZ Banking Group Ltd and others [1992] VicRp 98; (1992) 2 VR 715 at p 727. It is clear that the plaintiff cannot fulfil that requirement. Finally in this regard, it is my opinion that any undertaking given by the plaintiff as to damages is in this circumstances of this case worth very little by way of protection to Heller.
If contrary to the views I have formed in the matter, the plaintiff ultimately established that Heller was not entitled to appoint a Receiver, in my opinion it would be adequately compensated by an appropriate award of damages.”
The above passage is quite apt and fits this case. The debt to the Bank is nine million and if the management is handed back, the Bank will not get paid. Nothing short of payment into Court of the amount due will suffice in this case if injunction were to be granted.
The plaintiffs are seeking a mandatory injunction. An injunction is either prohibitory or mandatory. The former orders someone not to do something and the latter orders him to do something. Although a mandatory injunction can be granted at the interlocutory stage, but such an order will only be made in exceptional circumstances.
As stated below in the book Boundaries and Easements by Colin Sara at p391 certain requirements have to be fulfilled for a mandatory injunction, namely;
“The court will require evidence that severe problems will be caused to the applicant if the injunction is not granted and a high degree of assurance that at the trial it will appear that the injunction was rightly granted. This, therefore, is an exception to the general rule that the comparative strength of the parties’ cases is the last factor to be considered in granting or refusing an interlocutory injunction, but this does not mean that the court will be prepared to embark on a full assessment of the respective merits of the case. It will only be in a case where the merits seem clear that a mandatory injunction will be granted at the interlocutory stage. (emphasis mine)
There are no ‘special circumstances’ in this case whatsoever to warrant the grant of either a prohibitory or mandatory injunction.
The leading case which sets out the principles on which the court will grant or refuse an interlocutory injunction is American Cyanamid (supra) where Lord Diplock gave the judgment of the court. It was decided in that case that it is not necessary for the party claiming an interlocutory injunction to show that he has a strong prima facie case. All that is required to be shown is that “there is a serious question to be tried”, and in considering this aspect the guiding principle has been most succinctly stated by Lord Diplock in Cyanamid (supra) thus at 510f:
“...the governing principle is that the court should first consider whether if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appears to be at that stage. If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider, whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff’s undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason on this ground to refuse an interlocutory injunction”. (emphasis mine)
Conclusion
(i) The plaintiff’s motion
To conclude, having considered the plaintiffs’ motion for mandatory injunction, it is my considered view in the light of what I have stated hereabove that they are actually trying to have a second bite at the cherry because there is already in 183/01 an injunctive relief against them and they also did not succeed in getting the orders similar in nature to the ones in the present motion.
Be that as it may, in the exercise of my discretion, on the facts and circumstances of this case, and on the authorities, this case is most inappropriate for the grant of either a mandatory or a prohibitory injunction. Hence there is no need for the Court to ‘direct’ as prayed in items (a) to (d) of the plaintiffs’ motion.
The Bank and Receivers acted well within their powers under the debenture in question.
For the reasons already stated, the endorsement of the consent of the Director of Lands was not required on the Debenture as the Director was well aware of the borrowing against the land and had consented to the dealing by endorsing his consent to the mortgage and upstamping of this relevant document.
The second plaintiff (VTL) accepted the Debenture and acted on it for ten years; it agreed to the upstamping of the mortgage amount from time to time amassing a debt commencing with three million dollars to over nine million dollars today.
On the subject of delay in attacking the Debenture on which the parties for
10 years acted upon, it is interesting to note the observation of Reddy JA in Court of Appeal (sitting as a single Judge) in Bahadur Ali & Others v Ilaitia Boila & others (Civ. App. 30/02 – High Court Action No. 183/01). This is what the Court said:
“The Receivers were appointed on the 1st of May 2001, and soon thereafter went into possession of the assets of VTL. They are now running the affairs of the Company. More than a year has elapsed since, and they have conducted their duties on the basis of the ex parte injunction granted on the 2nd of May 2001. It will be prejudicial to them and to the Bank, to permit a challenge to that order on appeal at this late stage.
The delay in this case is substantial. No plausible or acceptable reasons have been given for the delay. The Directors failed to take the opportunity to ask Pathik J. to review the Order made on an ex parte application as they were clearly entitled to. There was no challenge to the appointment of the Receivers in the 6th of July 2001 application mounted by the Directors, indeed, it proceeded on the basis that the appointment was proper. Section 13 issue, is being raised for the first time and was not canvassed before Pathik J. (emphasis mine)
I do not find that there was any breach of the provisions of s13 of the Crown Lands Act, Cap. 132 which in clear terms specifically excludes ‘charge or pledge’ from the nullity clause at the end of that section.
For these reasons, the grounds on which the reliefs in the motion are sought have no basis at all. The motion will have to be dismissed.
(ii) Bank’s and Receivers’ applications
Having found and ruled as above on the plaintiff’s motion, I now consider the Bank’s application to strike out the plaintiffs’ action filed on 13 May 2002. It supports the Receivers’ application of 10 May 2002 to strike out pleadings and other orders.
For the Bank, Mr. Sharma raised a number of issues such as the locus of the plaintiffs casting doubt on that in the light of my decision of 2 November 2001 in Civil Action No. 183 of 2001. Therefore, he says that they should be struck out as a party per se. He says that the ‘locus’ issue is at the heart of this application yet again, as it was in 183/01. Further, he says that there is misrepresentation as highlighted in Salote’s affidavit ‘what Bahadur Ali has made about the shareholding of VTL’. Also, Mr. Sharma submits that VTL is party to illegality, as an alternative argument. He says that the plaintiffs should have obtained consent of the Director of Lands before instituting this action. Therefore this action should be struck off.
(iii) Findings
Most of the issues raised by the Bank and the Receivers in their respective applications are matters which should properly, in my view, be determined in the substantive action rather than on affidavit evidence alone.
Despite my decision in an interlocutory application in 183/01 on almost the very same issues they once again raise their ugly head in the present action. So why not finality be reached in the trial of the substantive action to avoid multiplicity of actions.
Therefore, with the view that I hold in the two applications, I do not propose to make any decision on the issues raised in them and I would rather that they be dealt with on the hearing of the substantive action. It is not for the Court to dictate to parties how they should frame their case. However, on an application being made the Court would consider striking out pleadings. The plaintiffs have by their pleadings disclosed a cause of action and they as aggrieved party wish to have their day in Court by the trial of the action. The issues raised in the applications to strike out are better dealt with in the trial of the action lest there be injustice by putting an abrupt end to their action in these interlocutory applications by the Bank and the Receivers.
However, I would on the affidavit evidence before me order that Price Waterhouse Coopers be removed as a party as I find that it is not involved in the actions of the Bank and the Receivers in this action.
Before I depart from these interlocutory applications, and before I make the orders herein I would take the liberty of putting certain matters before all the parties to this and other related actions involving VTL.
There are a multiplicity of actions. All of them are still pending after two years of Receivers being appointed. No finality has been reached in any of them to my knowledge.
The plaintiffs and all those associated with these cases seem to be going around in circles aimlessly. There is no sense of direction. The present objections to alleged absence of consent of the Director of Lands, will not solve the plaintiffs’ main problem. Their legal advisors should set a goal and frame legal actions accordingly so that the issues between the parties are decided once and for all. May be counsel will have to consolidate the actions and spell out the issues for Court’s determination.
I reiterate my advice to the plaintiffs which I gave on 2 November 2001 in 183/01 when I said:
“As a suggestion no doubt the better course for Ali would be to pay off the Bank and get out of the quagmire and take back the reins of the company or alternatively as I emphasized a few times before that Ali assist the Receivers in the running of the Mill as he has the know how and knows his customers well. This way the revenue will flow in and that will help towards reducing the Bank’s debt and in due course the whole business could be handed back to the Company.”
At the moment the way the mill is being operated, not enough is being paid to the Bank to reduce the debt to the mortgagee (the Bank). Again, not so long ago, in another action between the parties I suggested that VTL raise a couple of million dollars to pay and talk to the Bank. That would be an incentive for the Bank to consider its position and that would be better than getting peanuts, and at the same time it will help VTL get back on its feet so that the sawmill can get back to its normal operation with the expertise that Mr. Bahadur Ali possesses.
As I see it, there is still time to salvage the operations of the sawmill and prevent it going downhill any further and be ruined in due course.
One matter that has been of great concern to me while I was still in the process of writing the decision herein, and that is, that some ‘busybodies’ and ‘nosey parkers’ who have nothing to do with this case and other related cases have been interfering in my work as a Judge which amounts to contempt of court.
It was most improper for an ex heavyweight boxing champion of Fiji and also former politicians to approach me by telephone at odd hours of the day and also write to high-ranking bodies and people on cases involving the plaintiffs. Because I had an important duty to perform which could have serious consequences I dealt with these people politely and sent them away explaining, inter alia, that they should not approach me in the manner that they were trying to do. I have drawn Mr. Archibald’s and other counsels’ attention to this interference so that they do the right thing by controlling their respective clients. If the plaintiffs’ sawmill is not being looked after to their satisfaction it is no use blaming the Court for the alleged economic downfall in Labasa as has been done through a newspaper by some people for reasons best known to themselves. The Court is merely concerned with the issue before it and it will deliver its decision when it is ready. There should never be any interference with a Judge’s work when the matter is sub judice.
Despite all this I have not taken these happenings against any of the parties and have looked at the issues in this case in the light of the law. I would like to see Bahadur Ali get his Mill back but he needs to make the right move and needs expert advice.
Orders
The plaintiffs’ motion is dismissed with costs to the Bank and the Receivers in the sum of $1500.00 each to be paid within 14 days. The issues raised by the Bank and Receivers in their motions are to be dealt with in the trial of the substantive action. It is ordered that the name of Price Waterhouse Coopers be removed as a party to the action. The action to take its normal course hereafter.
D. Pathik
Judge
At Suva
30 October 2003
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