Hanif Industries Ltd v Westpac Banking Corporation [1992] FJHC 47; Hbc0007j.92b (6 October 1992)

IN THE HIGH COURT OF FIJI
At Labasa
Civil Jurisdiction

CIVIL ACTION NO. 7 OF 1992

Between:

1. HANIF INDUSTRIES LTD.
2. MOHAMMED HANIF s/o Munsaf
3. HALIMAN d/o Makdum
Plaintiffs

- and -

WESTPAC BANKING CORPORATION
Defendant

Mr. V. Parshuram for the Plaintiffs
Mr. A. Sen for the Defendant

JUDGMENT

On the 1st of April 1992 the Honourable Chief Justice granted ex parte an interim injunction restraining the defendant bank from exercising powers under a mortgage and several other securities which the plaintiff company and its directors had given to secure banking facilities provided by the defendant bank to the plaintiff company.

On the 10th of April the injunction was extended until further order and on the 7th of July the defendant bank sought by an inter partes motion, the dissolution of the injunction. On the 10th of July this Court heard the defendant bank's motion.

The plaintiffs' claim as summarised is that it had certain contractual arrangements with the defendant bank for the provision of banking facilities. These comprised 2 accounts, a 'Come and Go' Account (hereafter referred to as the 'C & G account') which was predominantly used by the plaintiff company to operate its business and a 'Term Loan' Account (hereafter referred to as the 'T.L. account') which as the name suggests was for a fixed term loan reduceable monthly by a transfer from the 'C & G' account.

The 'contractual arrangements' are said to be primarily contained in a letter written by the manager of the defendant bank on 30th September 1988 setting out various terms and conditions under which the bank was willing to grant overdraft facilities to the plaintiff company.

In particular, the bank agreed to an overdraft limit of $30,000 (subject to annual review) on the 'C & G' account and recorded that the 'T.L.' account would reduce at the rate of $2,500 per month. The letter also contained the following relevant 'disclaimer' which reads:

"The above arrangements as with all our assistance of this nature are during the pleasure of the bank."

The plaintiffs were also required to provide "security" for the loan facilities in the form of 2 registered mortgages and a debenture over the company's assets and land, and from the directors, unlimited joint and several guarantees.

It is common ground that the various security documents provided by the plaintiffs are "on demand" and that such a demand was made on the plaintiff company by letter dated 7th January 1992 and upon the directors by letters dated the 25th of March 1992.

Counsel for the plaintiffs however advanced two arguments in seeking to support the injunction, firstly, it was argued that the plaintiffs had not defaulted in any of their contractual arrangements with or obligations to the defendant Bank such as to amount to a "default" that would entitle the defendant bank to call up its securities; and, secondly, if there was a "default" on the plaintiffs part (which was denied) then that arose as a direct result of the defendant bank's actions which it is claimed was in breach of the 'contractual arrangements' made between them and which included the 'custom and practices' of the defendant bank in relation to the plaintiffs' accounts.

Counsel relied in particular on the wording of Section 77 of the Property Law Act (Cap.130) which empowers a mortgagee, where the mortgagor has defaulted under the mortgage for over a month, to serve on the mortgagor "... notice in writing to pay the mortgage money ..." (i.e. no default/no demand).

Section 78 provides however that:

"Where money secured by a mortgage is made payable on demand, a demand in writing pursuant to the provisions of the mortgage shall be deemed to be notice in writing to pay the money owing provided by Section 77, and no other notice shall be required to create the default in payment mentioned in Section 79." (Which in turn deals with a mortgagee's statutory power of sale.)

In this latter regard the relevant mortgage documents are before the Court and each expressly declares in Clause 1:

"1. THAT the Mortgagor will pay to the Bank on demand ... the moneys hereby secured ..." (my underlining)

It is noteworthy that a 'Section 78 mortgage' (if it can be so called) does not require a separate "default" over and above a failure to make payment upon a written demand before the mortgagee's power of sale becomes exerciseable.

In the circumstances the written demand made by the defendant bank upon the plaintiff company was all that was necessary before the statutory time period of a month began to run under Section 79 of the Property Law Act (Cap.130).

Clearly the plaintiffs' first ground cannot be supported having regard to the clear wording of the mortgage documents nor for that matter, by the provisions of Section 77 which is superseded by the more directly relevant provisions of Section 78.

The plaintiffs' second ground is a little more complicated in so far as it purports to rely on a "practice" allegedly adopted by the parties in the manner in which repayments were made into the 'T.L.' account.

These were by monthly transfers made by the defendant bank from the plaintiffs' 'C & G' account into its 'T.L.' account.

That being the established "practice" learned counsel for the plaintiffs submitted that the defendant bank could not unilaterally cease to make the transfers as it purported to do in February 1991. In so doing it is claimed the defendant bank caused the plaintiffs 'T.L.' account to fall into arrears as the 'usual' monthly repayments were no longer being made.

I confess that this argument is unsupportable on the documents disclosed or by any judicial authority.

Certainly none was cited to the Court by learned counsel for the plaintiffs.

As already pointed out the overdraft facilities provided in the defendant bank's letter of 30th September 1988 were clearly expressed to be "... during the pleasure of the Bank". Furthermore Clause 1 of the mortgage documents provides inter alia:

"1. THAT the Mortgager will pay to the Bank on demand the moneys hereby secured ... unless there is an agreement in writing to the contrary .. between the Mortgagor and the Debtor ..." (my emphasis)

No such agreement in writing has been produced to the Court to indicate that the monies lent were payable other than "on demand" nor was counsel able to point to any paragraph in the defendant bank's letter of 30th of September 1988 in which the bank contractually bound itself to make the monthly transfers from the plaintiffs' 'C & G' account to the 'T.L.' account irrespective of the 'Status' of the 'C & G' account.

The gist of counsel's submission however was that this was an implied term of the 'contractual arrangements' between the plaintiff company and the defendant bank and could not be determined at the bank's pleasure.

With respect such a term is unlikely to be implied in the face of express terms to the contrary nor in my considered view could it be considered reasonably necessary to give business efficacy to the transaction.

Indeed as learned counsel for the defendant bank correctly points out such an implied term would impose on the defendant bank all the perils of the transaction and emancipate the plaintiff company from all chances of failure. To put it bluntly the bank would in effect be placed in the wholly unreasonable position of having to refurbish the plaintiffs' loan from its own money.

In the foregoing I have dealt at length with the issues raised in the plaintiffs' submissions before the Court and am driven to the conclusion that the plaintiff has failed to establish a 'triable issue' in regard to the exercise by the defendant bank of its powers of sale under the various mortgages.

If I am wrong however then I would have no hesitation in holding that damages would be an adequate remedy for the plaintiff company in the unlikely event that it is shown that a permanent injunction should have been granted.

In the result there is no need for the Court to consider the well established principle that requires a mortgagor to tender or pay into Court the full amount of the mortgage principal and interest claimed as a condition which the Courts will normally impose upon any injunction to prevent the exercise of a power of sale.

The motion of the defendant bank is upheld and the injunction granted by the Court on the 1st of April 1992 is hereby dissolved with costs to the defendant to be taxed if not agreed.

(D.V. Fatiaki)
JUDGE

At Labasa,
6th October, 1992.

HBC0007J.92B