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NBF Asset Management Bank v Fatiaki [2004] FJHC 360; HBC0149.2002 (22 October 2004)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO.: HBC0149 OF 2002

BETWEEN:

NBF ASSET MANAGEMENT BANK
Plaintiff

AND:

JOHN VAIVO FATIAKI JNR & EMILY KAFOA FATIAKI
Defendant

Counsel: Mr. P. McDonnell – for Plaintiff
Mr. S. Valenitabua – for Defendant

Date of Hearing: 7th October, 2004
Date of Judgment: 22nd October, 2004

JUDGMENT

Introduction

The guarantor defendants successfully obtained an injunction restraining the bank plaintiff from selling and/or proceeding with the process of selling the defendant’s leasehold interest situated at Vuda Point. The subject land is formally described as Lease No. 248965, Lot 1, S01345. The interim injunction was granted by my brother Justice Singh on the 9^th of December, 2002. Leave was reserved to make relevant applications on 7 days notice.

The bank now seeks an order dissolving the customers injunction.

Factual Background

The plaintiff had advanced loans to the defendant John Vaivo Fatiaki secured by way of mortgage No. 32498 over the land of Vuda Point. This was a personnel advance.

Mr. Fatiaki and his wife Emily then obtained an interest in a company called A.P. Patel Limited. They asked the bank for additional money in 1993 to support the company’s undertaking. The bank agreed to the request and advanced further money to the Company secured by way of guarantee from the defendants and a mortgage over Mr. Fatiaki’s land at Vuda Point. This is known as Mortgage No. 335589.

There were subsequent advances to the struggling company secured under Mortgage 33589 and the guarantees. Finally there was a variation to the mortgage 33589 registered on the 9^th of August, 1996 by way of document numbered 400598.

That variation was made at the request of the defendants and summarized the terms and conditions of the advances made during the course of the customers dealings with the bank. This restructuring of accounts is summarized in the bank’s letter dated the 13^th of December, 1994. The letter is signed by both of the defendants and the Company seal of A.P. Patel Limited is affixed.

The company and the defendants continued to struggle financially. The bank again re-visited the facilities in March of 1996 and extended the arrangement. This loan arrangement was signed under seal by the company and its Managing Director, the defendant, Mr. John Fatiaki.

It became obvious to the bank by the end of 2001 that the defendants could not repay the various loans nor better secure them to the plaintiffs satisfaction. The loans were called up and mortgagee sale procedures commenced. In response the defendants applied to injunct the bank and prevent it from selling the Vuda Point property.

It is clear and I accept that the defendants have inadequate financial resources. They cannot service their loans secured by the mortgage. They will never be in a position to adequately compensate the plaintiff by any undertaking to meet any amount of damages. I note in any event that no such undertaking as to damages was ever given by the defendants when they sought their original injunction.

The defendants meet this application in a very technical way. They claim that there was never any offer and acceptance in respect on the original loan advance in 1993 of $215,000.00 secured by mortgage 33589.

They point to bank documents and say that the letter of offer was never countersigned by them. They say that without any agreement regarding the terms and conditions of the advance mortgage number 335589 was redundant and therefore void. Counsel relies on the decision of Entores Ltd v Miles Far East Corp [1955] EWCA Civ 3; [1955] 2 QB 327 and Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34. It is argued that as a mortgage is a conveyance of land it conveys legal title only in the event of a default of a mortgage and it is not a contract for an advance or a loan facility. It is argued that while the bank may have offered to advance a sum of $215,000.00 to the company secured by the defendants under guarantee and mortgage there was never any acceptance by them therefore the mortgage represents only a conveyance not an enforceable contract for a loan.

For very simple and practical reasons I completely reject that argument:

1. Offer and acceptance does not have to be contained in writing for a loan to be valid. It is clear from the affidavits supplied by the plaintiff that the initial advances of $215,000.00 were made at the request of the defendant. I note that the defendant rather tactfully remains silent on whether or not his company or he had the use these monies. That is a silence of convenience. I find as a matter of fact that the money was advanced. That the transaction was transparent. That the offer was made by the bank and accepted by the company and the defendants at the point of receipt of the funds. At that point clearly the company and the defendants had knowledge of the bank’s terms and conditions. By accepting the advance they accepted the bank’s offer and the loan contract was formed.
   
2. In any event any defect is cured by the subsequent advances that were made and properly acknowledged by the company and the defendants.
   

Accordingly, I find that mortgage 335589 is quite valid and an enforceable security instrument.

In the alternative the defendants argue that they have a right to question the guarantee.

It is claimed that the bank cannot look to the guarantors until it has exhausted its remedies against the company. I reject that view. The terms of the guarantee endorsed on the mortgage make it quite clear that it is an “on demand” facility. When demand for the payment is made by the bank, a guarantor must comply or in default loose his property to mortgagee sale.

Secondly, the defendants re-argue that mortgage 335389 is null and void and therefore there is no debt to be guaranteed. For the reasons earlier expressed I reject that argument. In particular the defendants subsequently executed quite clear and distinct loan documents when the company and their private lending affairs were restructured in 1994 and 1996.

Finally, the defendants argue that as the guarantee is not for a specific sum there is some uncertainty about the amount of money owing and therefore the guarantee should not be executed against them until that sum is certain. I reject that argument. The plaintiff bank crystallized its debt at the point of demand and the decision to pursue mortgagee sale proceedings. In any event the defendants have signed an “all indebtedness” bank guarantee. They are therefore liable to pay the total sum of principal and interest outstanding at the point demand is made. As such the case referred to by the defendants of ANZ Banking Group Limited v Frost Holdings Pty Limited [1989] VR 695 is quite distinguishable from the instant facts.

I have provided the parties with a measured response on the issue of facts as to sustain the interim injunction against the plaintiffs application the defendants must at a minimum establish a good arguable case. It will be clear from my findings that the defendant does not even come close to meeting the threshold for that standard.

This is a simple case of a customer obtaining advances for himself and his company secured by mortgage and guarantee and then falling into default.

I accept the submissions of counsel for the plaintiff that the defendants have not and cannot service their loans. They have made no repayments for many years. They have had the enjoyment of this property without meeting their obligations to the bank.

Decision

For the reasons expressed in my factual findings I find there is no serious question to be tried. There is little merit in the defendants case. I find that the issues raised by the defendants have no substance in fact or in law.

It follows that the balance of convenience (on a Cyanamid basis) falls to the bank. The continuation of the injunction in my view would amount to an ongoing breach of the loan contract. If the bank cannot realize the securities it will be exposed to an increasing risk of losing more money (cf. Rauzia Mohammed v ANZ Bank [1984] 13 FLR 136 at 141 and Vivrass Devt Ltd and Laucala Beach Holdings Limited v The FNPF and Ragg & Associates International Limited, Suva HCCA No. 277 at 2001).

Further in my view damages are an inadequate remedy as it is clear the defendant is struggling financially to such an extent that even if they were to give an undertaking they could not meet any award of damages and thereby not provide any adequate sum to meet further losses sustained by the bank.

Finally, I note that the issue of the defendants payment of the demanded sum into court has not been addressed. The basis upon which the original injunction was granted by consent was that the defendants raised with the bank the need for an exact calculation of the debt that was owing. I perceive that the injunction was granted to allow a short time within which the bank might respond.

The injunction was certainly never meant in my view to linger on for two years and have the effect of denying the bank access to its security to meet the debt. The standard principles on the restraint of mortgagee sales would apply. Accordingly even if I were to deny the plaintiffs application for dissolution I would in all likelihood vary the injunction and require the defendants to pay the full amount of some $600,000.00 owing into court pending a resolution of the substantive claim. The position is succinctly expressed by my brother Justice Gates in Terence Buckley & Others v Bruce Geoffrey Sutton & Others, Lautoka High Court Civil Action No. HBC0350 of 2001:

“......The Courts will not normally interfere with a mortgagee’s power of sale. If they do they will do so only in exceptional cases and will usually demand payment of all outstanding monies owed into Court....the requirement to pay outstanding, albeit disputed, sums owed into Court before an injunction will be granted, save in cases of mala fides or breach of duty of care, is so well entrenched as settled law, that it must be accepted until it is re-examined by an appellate Court.”

I record that no undertaking of damages has been filed. I am of the view that even if I were to vary this injunction and demand payment into Court of some $600,000.00 the defendants would be unable to meet that condition.

Conclusion

Accordingly, I grant the plaintiffs application in terms of the summons that:

1. The temporary injunction made by order of this honourable Court on the 1^st of November, 2002 and sealed on the 6^th of December, 2002 whereby the defendants restrained the plaintiff from selling or proceeding with the process of selling the property described as Lease No. 248965, Lot 1, S01345 situated at Vuda Point Road, off the Queens Road between Lautoka and Nadi is hereby dissolved.
   
2. Further the same order seeking to restrain the plaintiff from proceeding with the process of mortgagee sale in relation to the said property until final determination of the action is hereby dissolved.
   
3. Costs on the summons are fixed at $1,000.00 to be paid by the defendants to the plaintiff within 14 days of the date of this judgment in default interest on the costs to be calculated at 11% per annum on a per diem basis.
   

Gerard Winter
JUDGE

At Suva
22nd October, 2004