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Supreme and Auto Care Holdings Ltd v Jims Enterprises Ltd [2014] FJHC 659; HBC323.2013 (9 September 2014)

IN THE HIGH COURT OF FIJI AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. HBC 323 of 2013

BETWEEN:

SUPREME AND AUTO CARE HOLDINGS LIMITED
Plaintiff

AND:

JIMS ENTERPRISES LIMITED
1st Defendant

AND:

MERCHANT FINANCE & INVESTMENTS CO. LTD
2nd Defendant

AND:

DAIRY FOODS LIMITED
3rd Defendant

AND:

MUTUAL STAR INVESTMENTS LIMITED
4th Defendant

AND:

ARVIND KANT PATEL
5th Defendant

Counsel : Mr. R. Naidu for the Plaintiff
Mr. N. Lajendra for the 2nd Defendant
Mr. S. Sharma for the 3rd, 4th and 5th Defendants

Date of Hearing : 2nd July, 2014
Date of Judgment : 9th September, 2014

INTERLOCUTORY JUDGMENT

[1]. The plaintiff has filed an application for injunctive relief against four defendants.

[2]. The plaintiff first filed an application to injunct the second defendant the bank. Thereafter a second application against 3, 4, 5 defendants as buyers of the land. In the said application following reliefs were prayed.

• (1) An injunction restraining the Defendant itself and/or by its servants or agents from taking possession, selling, transferring, assigning and/or disposing of the property by way of mortgage sale and/or powers vested to it under the mortgage registration number 730423 against the property comprised in Certificate of Title No. 19755, being Lot 1 on Deposit Plan no. 4533 until further order of this Honourable Court.
  
• (2) Such further and/or other reliefs or Orders as this Honourable Court may deem just and expedient.
  

[3]. Background to the Case

This case is pertaining to a dispute between a seller (Jims Enterprises Limited), buyer (Supreme & Auto care Holdings Limited), a mortgagee (Merchant Finance & Investment Company Limited) and another potential buyer (Dairy Foods Limited/ Mutual Star Investments Limited) arising out of a contract for a sale of land.

Jims Enterprises Limited is the registered proprietor of the freehold property comprises in Certificate of Title No: 19755 situated at Lot 1, Ivitavaya Road, Laucala Beach Estate, Nasinu, Fiji, which is a vacant land having an area of 3 acres, 3 roods and 37.6 perch .

Merchant Finance is the registered mortgagee of the said land. Merchant Finance's case is that it has exercised its power of sale following default by the mortgagor Jims and Merchant Finance has now entered into an agreement to sell the said land to Mutual Star Investments Limited ("Mutual Star"). Merchant Finance has executed an instrument of transfer of the said land in favor of Mutual Star. Merchant Finance is unable to register the transfer of the said land to Mutual Star because a caveat has been placed by Supreme on Certificate of Title No. 19755which too has been challenged in another court case.

[4]. The plaintiffs application against the second defendant is based on the following grounds:

Merchant Finance interfered with the contract between Supreme and Jims and induced Jims to break its agreement with Supreme;

(1) Merchant Finance conspired and colluded with the Jims Dairy Foods, Mutual Star and Arvind Kant Patel to sell the said land to Dairy Foods and/or its nominee Mutual Star;

(2) Merchant Finance acted fraudulently by entering into an arrangement with Jims, Dairy Foods, Mutual Star and Arvind Kant Patel to sell the said land to Mutual Star under the pretext of a "mortgagee sale".

[5]. The injunctive relief sought against the 3,4,5 defendant are based on the following:

• (1) Dairy Foods, Mutual Star and Arvind Kant Patel interfered with the contract between Supreme and Jims and induced Jims to break its agreement with Supreme;
  
• (2) Dairy Foods, Mutual Star and Arvind Kant Patel conspired and colluded with Jims and Merchant Finance to sell the said land to Dairy Foods and/or its nominee Mutual Star.
  

[6]. It is also pertinent to note that there is no dispute pertaining to the following facts:

• (i) First defendant had mortgaged the land in question as security to the second defendant.
• (ii) The first defendant defaulted on the loan repayment and the outstanding amount of the mortgage as at the date of hearing is $2310359.
  
• (iii) The second defendant has issued two demand letters on 11.4.13 and 15.4.13 on the first defendant.
  
• (iv) The mortgagee has a statutory right in the event of default to exercise a mortgagee sale to recover the money.
  

[7]. The legal principles in granting injunctive relief was laid down in the case of American Cynamide Co –v- Ethicon Ltd [1975] UKHL 1; [1975] 1 ALL ER 504. However in this case the plaintiff is seeking injunctive relief against the second defendant a financial institution seeking to restrain them from exercising their mortgagee rights. The principles in granting such injunctive relief was laid down in the case of Inglis –vs- Commonwealth Trading Bank of Australia [1972] 126 CLR 161.

[8]. The 3, 4, 5 defendants plead that they are bone-fide purchasers' and the plaintiff is seeking an injunctive relief to prevent them from proceedings with the sale. Having this back ground in mind the court will now proceed to its determination.

Determination

[9]. The plaintiff's right to have injunctive relief against the second defendant. The court has considered all the affidavits filed, the case precedents cited, the written submissions tendered and the oral submission made. Due to the voluminous nature of the documents tendered, the court does not intend to reproduce the affidavits and contents in this judgment other than when it is essentially required. Having this too in mind this court observes.

[10]. As per the facts submitted the 1st defendant has mortgaged the land to the second defendant and the subsequent default in loan payment and the statutory right of a mortgagee is not disputed I will not venture into these facts at this stage. However the second defendant pleads that the injunction relief has to fail for the following reasons.

• (i) The second defendant in the purported mortgage sale of the land to the 3,4,5 defendant are exercising their statutory powers.
  
• (ii) The plaintiff being an outsider to the mortgage has no locus to injunct the second defendant from exercising the statutory authority.
  
• (iii) The plaintiff has failed to fulfill requirements to seek an injunction under the Inglis case law principles and the American Cynamide case law principles.
  

[11]. Let me now deal with the three main allegation of the plaintiff against second defendant and the subsequent material they submitted to establish the said grounds.

[12]. The plaintiff submits that when it entered into the sale and purchase agreement with 1st defendant to purchase the land for a sum of $1,750,000 on 28.3.12 it was notified to the second defendant and the consent obtained. The second defendant replying to this submitted that it was not a consent but the mortgagor had requested for the settlement sum to release the mortgagee and the second defendant had submitted the sum as $1676315.00 to be valid only until 30.4.12. The court has gone through the said documents referred to and finds the second defendant had not given consent but it has only quoted the sum that was outstanding to release the mortgage. It is also pertinent to note that the sum had a validity period as there was a interest accumulation on the mortgage. Further the second defendant had submitted that no settlement had been reached between the parties during the stipulated time. The second defendant further submitted the validity of the settlement sum and the letter was strictly limited to the stipulated time periods. In view of the fact that there is an accumulation of interest on the loan, court accepts this submission.

[13]. At this stage it's pertinent to note that in the transaction between the plaintiff and the first defendant regarding the sale and purchase agreement, the same law firm had acted for the buyer as well as for the seller at the same occasion. The court observed that most of the confusion and conflicts in the transactions has arisen as a result of this.

[14]. On 25.06.13 the solicitor firm had requested the second defendant to submit the settlement figure outstanding in the mortgage on behalf of the first defendant for them to discharge the mortgage. It was submitted that the second defendant had informed the solicitor that the outstanding amount of the mortgage at that time had been over $2,096,431.00. However they had informed that the second defendant was prepared to discharge the mortgage for a sum of $1,700,000.00 provided it was settled before 28.06.13. However the parties had failed to settle the said mortgage till the expiry of this validity date.

[15]. On 26.07.13 the first defendant had introduced a new purchaser to the second defendant for the purchase of the property for a sum of $2,100,000.00. The plaintiff submits that on 27.7.13 the solicitor on behalf of the buyer (plaintiff) had informed the second defendant that as per the transaction between the plaintiff and the first defendant they were going to settle the mortgage by paying the second defendant a sum of $1,603,668.37 and on 31.7.13, the plaintiffs solicitor had informed the second defendant about the readiness to affect settlement.

[16]. It is pertinent to note that as per the statement of accounts submitted with the supplementary affidavit of one Dineshwar lal (by this time) the mortgage outstanding had been nearly $2147535.

[17]. The plaintiff alleges that on 31.7.13 the second defendant had called for a meeting and also has responded to the plaintiff stating that due to the long time taken for settlement it had proceeded to affect a mortgagee sale and the first defendant had found a new purchaser. It is alleged that a meeting had been called and the second defendant had threatened the plaintiff to match the price of the new buyer. This was denied by the second defendant and court also observes that the allegation is not substantiated with independent corroborative evidence. It is alleged that after the meeting the second defendant had refused to discharge the mortgage for the plaintiff to effect settlement.

[18]. The second defendant submitted that the plaintiff had taken a long time to effect the original settlement and as the interest was accumulating it had given demand notice and then proceeded to mortgagee sale. It was this time the first defendant mortgagor had brought a new purchaser who had offered $2,100,000.00 for the property.

[19]. The second defendant being a commercial lending institution was interested in recovering the money lent and as per the evidence submitted the plaintiffs proposed settlement had taken a long time. Also as submitted it was not going to cover the entire settlement fee, leaving the second defendant to recover a large sum nearly $600,000.00 to recover as residual debt. The new purchaser's offer was going to reduce the residual debt to a sum of $47535. In the given circumstances the second defendant had refused to discharge the mortgage until settled and had decided to proceed with the mortgage sale which would make the residual recoverable debt very much lesser.

[20]. The plaintiff has failed to establish through independent corroborative evidence of any interference by the second defendant in the plaintiffs contract with the first defendant. The plaintiff has also failed to establish by independent corroborate evidence of any collusion or conspiracy of the second defendant and 3, 4, 5 defendant pertaining to the mortgagee sale. Nor has the plaintiff being successful in establishing any fraudulent activities on the part of the second defendant. In the face of the denial of the contents of the plaintiff's affidavit, and in view of the courts above stated findings I find that what is alleged by the plaintiff is only speculative allegation which are uncorroborated.

[21]. The defendant submits in any event the plaintiff application for injunctive relief has to fail due to the mortgagee's statutory right for a mortgagee sale. I find both parties in their submissions had not been at variance on this issue.

[22]. Mortgage's right under section 77 and 79 of the Property Law Act states:

Section 77 of the Property Law Act states:

"If default is made in payment of the mortgage money or any part thereof, or in the performance or observance of any covenant expressed in any mortgage or in this Act declared to be implied in any mortgage, and such default is continued for one month or for such period of time as in such mortgage for that purpose expressly fixed, the mortgagee may serve on the mortgagor notice in writing to pay the mortgage money or to perform and observe the covenants therein expressed or implied, as the case may be."

Section 79(1) of the Property Law Act states:

"If default in payment of the mortgage money or in the performance or observance of any covenant continues for one month after the service of the notice referred to in section 77, the mortgagee may sell or concur with any other person in selling the mortgaged property, or any part thereof, either subject to prior leases, mortgages and encumbrances or otherwise, and either together or in lots, by public auction or by private contract, or partly by the one and partly by the other of those methods of sale, and subject to such condition as to title or evidence of title, time or method of payment of the purchase money or otherwise as the mortgagee thinks fit, with power to vary any contract for sale and to buy in at any auction or to vary or rescind any contract for sale and to resell without being answerable for any loss occasioned thereby, with power to make such roads, streets and passages and grant such easements of right of way or drainage over the same as the circumstances of the case require and the mortgagee thinks fit, and may make and sign such transfers and do such acts and things as are necessary for effectuating any such sale."

[23]. As per the facts submitted to this court the second defendant had established the prerequisites it had taken in complying with S77 of the Property Law Act.

[24]. In giving a simple interpretation to this provision it is clear that after the laps of a month from the notice being given the mortgagee has the discretion to sell or concur with any other person in selling the mortgaged property. This can be done despite it being subject to prior leases, mortgages and encumbrances or otherwise. This right can be exercised by a mortgagee by public auction or by private contract, or partly by the one and partly by the other of those methods of sale,

[25]. As per S79(1) it appears that mortgagee has a wide power to vary any contract for sale and to buy in at any auction or to vary or rescind any contract for sale and to resell without being answerable for any loss occasioned thereby. And also to make and sign such transfers and do such acts and things as are necessary for effectuating any such sale. As per the submitted evidence the court is satisfied that the mortgagee has acted within the scope of this section.

[26]. However it is also observed that the court has held that there are certain instances where the court will intervene to stop a mortgagee sale. These principals were discussed in Inglish v Commonwealth Trading Bank of Australia (supra) where it was held:

"As a general rule an injunction will not be granted restraining a mortgagee from exercising powers conferred by a mortgage and, in particular a power of sale unless the amount of mortgage debt, if this is not in dispute, is paid or unless, if the amount is disputed, the amount claimed by the mortgagee is paid into court, and this rule will not be departed from merely because the mortgagor claims to be entitled to set off the amounts of damages claimed against the mortgagee. The rule, as it affects the exercise by a mortgagee of the power of sale, is stated in the following terms in Halsbury's Laws of England, 3rd ed., vol.27 p.301:

"The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained, however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagee swears to be due to him, unless, on the terms of the mortgage, the claim is excessive."

This has been adapted in Strategic Nominees Ltd v Galf Investment Fiji Limited & Others Civil Appeal No. ABU 0039 of 2009.

[27]. In this instance the court held that the court will only interfere with a mortgage sale if the amount claimed is paid. The second defendant sought permission without any objection by the parties to file a statement depicting the amount due on the mortgage before the hearing. This was allowed by the court. Before the commencement of the hearing the second defendant filed a supplementary affidavit containing a statement which depicts the amount due as $2,310, 359.00.

[28]. As per the Inglis case the party who has the right to injunct the mortgagee is the mortgagor. This court observes that in the case before me the mortgagor the first defendant had not made any application to deposit the amount due nor to injunct the second defendant.

[29] The second defendant in opposing the plaintiff's application heavily relied on Home Finance Company Ltd vs Philip Anthony Kmon HBC 279 of 2009. In this case the courts referred to Rauzia Zaweed Mohammed v Australia & New Zealand Banking Group Ltd [1984] 30FLR 136. Where it was held,

"The long line of authorities and what must be taken as well established rule that a court will not, except in exceptional case, restrain a mortgagee from exercising its power of sale conferred on him under a mortgage unless the mortgagor offers to pay all moneys claimed by the mortgagee into Court."

In this case the mortgagors are in no position to deposit moneys in court. It has been held as good principle that failure to make payment into court of the whole sum owed under the mortgage; a mortgagee will not be restrained from exercising its power of sale under the mortgage [Westpac Banking Corporation Limited v Adi Mahesh Prasad [1999] 45 FLR 1]

[30] The court observes that as per the case precedent cited in this case the mortgagor has failed to apply for an injunction to restrain the 2nd defendant from proceeding with the mortgagee sale nor has there been an attempt to deposit the sum outstanding on the mortgage. The plaintiff is not a party to the mortgage and nor has the plaintiff established any contractual relationship with the second defendant on the mortgage.

[31]. As per the memoriam of the land registry the mortgage has been registered in 2010 and the plaintiff has entered in to the alleged sale and purchase agreement in 2012. Accordingly the plaintiff should have been aware that the land he was to purchase was subject to a mortgage and the mortgagee had priority rights over him. The plaintiff had lodged a caveat only on 6.8.13. The encumbrance created by the plaintiff becomes a subsequent encumbrance to the rights of the second defendant. In such a situation the later rights holder cannot injunct the former who is the mortgagee from exercising the statutory right of the mortgagee and proceeding with the mortgagee sale. In Kerabee Park Pty Ltd v Daley Kerabee Park Pty Ltd v Karinya Investments Pty Ltd [1978] NSWLR 222 it was held:

"that a subsequent encumbrance, registered or unregistered, has no right to interfere in, or object to, a proper exercise by a mortgagee of the mortgagee's powers of sale and would have no ground on which to seek the intervention of the court, notwithstanding that registration of the transfer to the purchaser would discharge or defeat all mortgage interests in the land whether registered or not.

[32]. The plaintiff relied on Valebasoga Quarries Ltd and Ors v Credit Corporation (Fiji) Ltd HBC 200 of 2005 and Westpac Banking Corporation Ltd v Adi Mahesh Prasad ABU 0027 of 1997 and submitted that there are exceptions to the Inglis case. The plaintiff also cited Ram Dutt Prasad v ANZ Banking Group Ltd [1999] 45 FLR 101. I have considered all these cases. I find the plaintiff has failed to establish any exceptional circumstance to interfere with the mortgagee sale. The plaintiff has failed satisfy any fraud or lack of good faith in the acts of the second defendant pertaining to the plaintiffs alleged transaction with the first defendant, or in the subsequent mortgagee sale. For these reasons the second defendant's objection as to the maintainability of the plaintiff's injunction application against the second defendant succeeds.

[33] As per the affidavit evidence and submissions the plaintiff has failed to establish any interference of the second defendant pertaining to the agreement between the plaintiff and the first defendant.

[34] I have considered the submission of the plaintiff quoting Bullen & Leak and Jacobs Precedents of Pleadings; I am inclined to think the said elements are cited out of context in the present case before me. As in this instance circumstances are that of a subsequent encumbrance holder attempting to injunct priority rights holding the mortgagee from exercising his statutory rights. Also with the plaintiff failing to satisfy the court of any nexus between the second defendant and the 3, 4, 5 defendants to defeat the plaintiffs allege agreement with the 1st defendant this court is of the view that the plaintiff has failed to satisfy court of any exceptional circumstances.

[35] I also hold that in this instance a mere pleading of fraud or conspiracy without any independent supportive or corroborative evidence is insufficient for Court to grant injunctive relief. I find the 2nd defendant has sufficiently explained the sequence of events pertaining to the mortgage sale.

[36]. This court also has considered the outstanding amount on the mortgage and the amount the plaintiff had offered to pay as a settlement before the bank proceeded with exercising its statutory rights. It was submitted that the conditions and the amount the plaintiff had suggested for settlement would have exposed the second defendant to a huge residual debt to be recovered; In view of all these factors I think, the plaintiff has failed to satisfy this court that it can overcome the threshold of serious question to be tried in keeping with the American Cyanamid case.

[37]. When this court has determined this issue as to whether there is a serious question to be determined in the negative, I do not think there is a necessity to consider damages as an adequate remedy.

[38] It is also pertinent to note that the plaintiff in this application is attempting to injunct the second defendant mortgagee from exercising his statutory right of a mortgagee sale to recover its debt. The plaintiff is a complete stranger to the mortgage. As per the submitted documents from the Registrar of Titles the second defendants rights on registration has to be held in priority of the plaintiff. Accordingly I hold that the plaintiff has failed to pass this threshold.

[39] In my view the balance of convenience in this application is heavily infavour of the second defendant. Accordingly the plaintiff has failed to satisfy this court to obtain the injunction relief that it has prayed against the second defendant.

[40] Now I will proceed to determine the injunctive relief prayed against the 3, 4, 5 defendants. It was alleged that the first defendant in or around 26.7.2013 had entered in to a sale and purchase agreement with the 3, 4, 5 defendants. The plaintiff alleges that a director of the fourth defendant interfered with the first defendant to induce him to break the agreement with the plaintiff. This allegation has been denied by the defendants. The plaintiff submitted that a director of the fourth defendant had met him in November 2012 and the plaintiff had allegedly told him about the proposed sale of the land. However in the affidavits opposing the application the defendants had denied this allegation. As I had discussed earlier in this judgment, in the absence of any corroborative independent evidence this allegation will not suffice to obtain injunctive relief. Specially in view of the fact that the allegation of mid July conversation with the plaintiff had been denied by the defendants.

[41] This application for injunctive relief was only against 2, 3, 4 and 5 defendants. Thus the first defendant did not take part in this proceeding. The court did not have the opportunity to hear to the first defendant. Even though the injunctive relief was sought on the allegation that the 3, 4, 5 defendants had induced the first defendant to break the agreement with the plaintiff. Strangely the plaintiff decided to keep the first defendant out of this application

[42] The 3, 4, 5 defendant submitted that they had done a search of the title prior to the negotiations to purchase and had found that the only encumbrance registered and in force was the second defendants mortgage. The said title had been marked "A" and submitted before court. In the absence of any other encumbrances being registered the defendant's pleaded that they have acted as bone-fide purchasers in the negotiations to purchase the land.

[43] The plaintiff submitted annexure RKP43 in R.K Patel's affidavit. The said document was objected by the 3, 4 & 5th defendants stating that the plaintiff cannot plead double hear say evidence. In the said statement one S.K Khatri has stated that one Arvinda Kumar Patel too has stated that they too were interested in purchasing the subject property. In the said circumstances the plaintiff ought to have known that there were other interested parties and potential purchases to the property. If the plaintiff was going ahead with the sale and purchase agreement he should have acted as a prudent businessman and secured his interest by registering a caveat with the registrar of titles.

[44]. In view of the denial of knowledge by 3rd,4th & 5th respondents pertaining to the transaction between the plaintiff and the first defendant, the only other way to find whether a property had any encumbrance was to do a search of the title. The defendant's have satisfied court that they had done a search and found no other encumbrance other than the mortgage. As per the documents submitted the plaintiff had failed to register a caveat pertaining to the sale and purchase agreement. The 3, 4, 5 defendant submitted that after the title search was done, in the absence of any other encumbrance other than the mortgage to the second defendant, the 3, 4, 5 defendants had proceeded to register a caveat pursuant to their sale and purchase agreement pertaining to the questioned land. As per the annexure "E" the court observes that the plaintiff in fact had lodged a caveat pertaining to the land only on 6.8.13 subsequent to the 3, 4, 5 defendant lodging their caveat. At the argument stage the plaintiff's counsel too conceded on the issue of filing a late caveat on the title with the registrar. However by this time the 3, 4, 5 defendants had got priority over the plaintiff.

[45] In view of the denial of knowledge by the 3, 4, 5 defendant about the sale and purchase agreement between the plaintiff and the first defendant, and in view of the fact the plaintiff had failed to register a caveat to secure his alleged rights this court is inclined to accept that the 3rd, 4th & 5th defendants have acted as a prudent man would do before commencing negotiations to purchase the land in question.

[46] This court also finds for the reasons that are stated, that the plaintiff has failed to establish the knowledge, of plaintiff's transaction pertaining to the land with the first defendant in 3rd, 4th & 5th defendants. The plaintiff has failed to establish any evidence of interference, or collusion by the 3rd, 4th & 5th defendants to defeat the plaintiff's agreement with the first defendant, nor has the plaintiff established at this stage any conspiracy between 3, 4, 5 defendants and the 1st or the 2nd defendant to defeat the plaintiff's agreement. In view of these findings the plaintiff has failed to get over the first threshold to obtain injunctive relief namely a serious question to be tried with 3, 4, 5 defendants. Injunctions being a discretionary remedy of court, this court is of the view that if the plaintiff succeeds in his substantial cause damages would be an appropriate remedy for the plaintiff.

[47] In the absence of any material acceptable to the court to establish any conspiracy, fraud inducement to breach the agreement between the plaintiff and the first defendant by the 3, 4, 5 defendants, the court finds the balance of convenience in this instance is with the 3, 4, 5 defendants.

Conclusion

[i] For the above stated reasons the court finds that the plaintiff has failed to satisfy court to obtain the injunctive relief. Accordingly the application for injunction against 2, 3, 4, 5 defendants stands dismissed.

[ii] The 1st defendant was not a party to the application and didn't take part in these proceedings. I award a cost summarily assessed at $1500.00 each to 2, 3, 4, 5 defendants.

[iii] The cause to take its normal course.

...................................
Mayadunne Corea
JUDGE

09.09.2014