Fiji Development Bank v Lutunatabua [1993] FJHC 95; Hbc0014j.93s (18 October 1993)

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

ACTION NO. 14 OF 1993

BETWEEN:

FIJI DEVELOPMENT BANK
of 360 Victoria Parade, Suva
Plaintiff

AND:

(1) ERAMI BOSE LUTUNATABUA
of Villa 1132, Pacific Harbour Resort, Deuba
1st Defendant

(2) BOSE GOLF CART HIRE SERVICES LIMITED
a duly incorporated company having
its registered office at Suva in Fiji
2nd Defendant

(3) B & A HOLDINGS LIMITED
a duly incorporate company having its
registered office at Pacific Harbour
Resort, Deuba
3rd Defendant

(4) PACIFIC HARBOUR ENTERPRISES LIMITED
a limited liability company having
its registered office at Pacific
Harbour, Deuba.
4th Defendant

Mr. V. Kapadia: For the Plaintiff
Mr. G.P. Lala: For the 4th Defendant

Date of Hearing: 24th August 1993
Date of Interlocutory Judgment: 18th October 1993

INTERLOCUTORY JUDGMENT

The Plaintiff is Mortgagee under three registered Bills of Sale given respectively by the 1st Defendant on the 29th of May 1984 and registered on the 5th of June 1984, by a further Bill of Sale given by the 2nd Defendant on the 14th of November 1986 and registered on the 21st of November 1986, and by a third Bill of Sale given by the 3rd Defendant on the 16th of April 1987 and registered on the 22nd of April 1987.

At the present time there is an amount of $59,384.80 together with interest at 8% per annum from the 1st of March 1992 allegedly owing by the first three Defendants to the Plaintiff under the said Bills of Sale. The Bills are over the stock-in-trade of the first three Defendants which include golf sticks, balls, hats, T-shirts, shorts, shoes, golf trundler, golf bags, socks and specifically 12 Yamaha Golf Carts bearing various registration numbers and engine and chassis numbers which are set out in the Schedule to the second Bill of Sale executed on the 14th of November 1986.

On the 28th of July 1991 the 3rd Defendant entered into a Contract of Sale with the 4th Defendant for the purchase by the 4th Defendant of various golf equipment including carts, hats, shoes, clubs, trundlers, tees, balls, bag tags, golf cart spare parts and workshop plant and equipment for an agreed price of $45,000.00.

On the 10th of March 1992 because of the alleged default in payment of the amount owing to it by the 1st, 2nd and 3rd Defendants the Plaintiff gave notice to the 1st, 2nd and 3rd Defendants that it required them to pay immediately the amount of $59,384.80 together with interest at 8% per annum from 1st of March 1992 until the date of payment and on the same day the Plaintiff by notice in writing authorised one Josaia Cokotiono a Bailiff of this Court to seize the various golf equipment and golf carts I have mentioned.

Mr. Cokotiono was unsuccessful in his first attempt to seize the equipment and subsequently on the 16th of March 1992 the Solicitor for the 4th Defendant wrote to the Plaintiff advising that the 4th Defendant would resist any further attempts by the Plaintiff to seize the equipment.

On the 11th of June 1992 the Solicitor for the 4th Defendant wrote to the Solicitor for the Plaintiff stating that the 4th Defendant denied any liability to the Plaintiff in the matter. This apparently resulted in the issue of the Writ herein on the 18th of January 1993 and on a Notice of Motion for an Interlocutory Injunction issued by the Plaintiff against the Defendants on the same day.

The Motion came before me on the 12th of March 1993 and I granted the Plaintiff the three injunctions it sought against the Defendants. Although the Defendants had been served they did not appear on the hearing of the Motion. I made the following three orders against them:

(1) That all four Defendants be restrained from moving, transferring, disposing of, selling or dealing with chattels the subject of the Bills of Sale given by the 1st, 2nd and 3rd Defendants to the Plaintiff.

(2) That all four Defendants forthwith release all chattels the subject of the Bills of Sale given by the 1st, 2nd and 3rd Defendants.

(3) That the Plaintiff be empowered to take possession of all chattels the subject of the Bills of Sale.

(4) An order for costs against the Defendants.

Following this on the 29th of March 1993 the 4th Defendant issued a Motion seeking to set aside the order which I made on the 12th of March and restoring the goods, chattels and other property seized by the Plaintiff from the 4th Defendant and an Injunction restraining the Plaintiff from seizing the said goods or chattels until further order. The latter Motion came before me on the 24th of August 1993 by which time a Statement of Claim had been filed by the Plaintiff and a Statement of Defence by the 4th Defendant.

The affidavit in support of the Motion for an Injunction was sworn by Isireli Vuetibau a Loans Officer of the Plaintiff on the 29th of December 1992. Mr. Veutibau swore another affidavit on the 3rd of June 1993 in reply to the only affidavit filed on behalf of the 4th defendant.

In his first affidavit Mr. Vuetibau states that the 1st Defendant is a customer of the Plaintiff which had lent the sum of $30,000.00 to the 1st Defendant in May 1984. This advance was secured by the 1st Defendant giving a Bill of Sale to the Plaintiff No. 84/2115 registered on the 5th of June 1984 whereby the Plaintiff secured its advance by a charge over stock-in-trade and golf-related chattels owned by the 1st Defendant.

Subsequently on the 14th of November 1986 the Plaintiff at the request of the 2nd Defendant lent further moneys to the 1st Defendant which was secured by taking a Bill of Sale dated 14th November 1986 over Yamaha Golf Carts owned by the 2nd Defendant. This Bill of Sale was registered on the 21st of November 1986.

On the 16th of April 1987 at the request of the 3rd Defendant the Plaintiff lent further moneys to the 1st Defendant which advance was secured by a Bill of Sale dated 16th April 1987 securing simply stock-in-trade owned by the 3rd Defendant.

It is common ground that the 1st Defendant has been carrying on a business at the Pacific Harbour Resort in Deuba generally described as Bose's Golf Shop and Bose's Golf Cart Hire Services Limited which is owned and operated by the 1st Defendant and all chattels and stock-in-trade are owned by the 2nd and 3rd Defendants.

It is also common ground that the 3rd Defendant entered into a Sale and Purchase Agreement with the 4th Defendant whereby all the golfing equipment I have previously mentioned together with the business operated by the 1st Defendant were sold to the 4th Defendant.

On behalf of the 4th Defendant Mr. Takashi Ikebe the Manager of the 4th Defendant swore an affidavit on the 26th of March 1993. Mr. Ikebe deposes that because the 4th Defendant is the purchaser for value of the chattels possessed by the Plaintiff, it acted in good faith. Mr. Ikebe says that because the 4th Defendant purchased the property free from encumbrances and charges, no particulars of charge were registered under Section 100 of the Companies Act after the 4th Defendant acquired the property.

Mr. Ikebe claims that the first Bill of Sale dated the 29th of May 1984 is void and of no effect in that first it contains false statements namely that the 1st Defendant did not own or possess the goods or chattels, and he could not give a Bill of Sale on them. He also states that it is uncertain as to the identity of the goods and in any event is incapable of giving a lawful notice to a third party. Mr. Ikebe also claims that the 4th Defendant was under no obligation to the Plaintiff and had no actual notice of any valid charge held by the Plaintiff. He alleges that the second Bill of Sale of the 14th of November 1986 was not registered under the Bills of Sale Act, that the goods and chattels mentioned in it were not owned by the 2nd Defendant who therefore could not give a valid charge and Bill of Sale to the Plaintiff; in addition the purported document was no more than a floating charge which had not been crystallized and therefore gave no rights to the Plaintiff.

These statements by Mr. Ikebe are enlarged on by the submissions of the 4th Defendant's counsel which I shall discuss shortly together with the Plaintiff's submissions.

However the Affidavit in Reply sworn by Isireli Vuetibau on the 3rd of August 1993 is important because it exhibits Third-Party Insurance Policies issued by the National Insurance Company of Fiji Limited on all the Golf Carts mentioned in the Schedule to the second Bill of Sale. It also exhibits a copy letter dated 20th of August 1993 from the Department of Road Transport confirming that all the Golf Carts were registered with the Department of Road Transport at all material times in the name of Bose's Golf Cart Hire Services Limited.

At the hearing before me on the 24th of August 1993 counsel for the 4th Defendant tendered photocopy particulars of the Bill of Sale given by the 3rd Defendant to the Plaintiff and registered under Section 98 of the Companies Act. Counsel for the 4th Defendant informed me that the questions presently before the Court are these:

(1) What is the status of a Bill of Sale under the Companies Act when it is given by a limited liability company?

(2) If the answer to question (1) is a charge, whether proper notice must be given before any seizure of goods referred to in a Bill of Sale.

(3) Is crystallization necessary before a demand or seizure can be enforced?

I shall endeavour to answer these questions now when dealing with the submissions I have received.

It is first convenient to mention a submission made by counsel for the Plaintiff relating to the purported sale of the golf equipment by the 3rd Defendant to the 4th Defendant. Counsel submits that there is no evidence that the 3rd Defendant bought the 12 Golf Carts from the 2nd Defendant and therefore the 3rd Defendant had no right to sell the goods to the 4th Defendant because it had no title to them.

In answer to this submission the 4th Defendant replies that the Plaintiff with respect to the second Bill of Sale is estopped from denying that the 2nd Defendant had good title to the Golf Carts. Clause B of each Bill of Sale so far as material states that the Mortgagor being respectively the 1st Defendant, the 2nd Defendant and the 3rd Defendant in the equivalent Bill of Sale as beneficial owner thereby grants .... transfers, assigns and sets over to the Mortgagee (the Plaintiff) all the chattels, effects and property of the Mortgagor on or about the Pacific Harbour Resort, Deuba, Serua, described in the Schedule to each Bill of Sale. On the authority of cases such as Legione and Another v. Hateley [1983] HCA 11; (1983) 152 C.L.R. 406 and Waltons Stores (Interstate) Limited v. Maher and Another (1988) 164 C.L.R. 387 I hold that at least on the present material each of the 1st, 2nd and 3rd Defendants held itself out as the beneficial owner of the goods in question and that the Plaintiff relied on this assertion or holding-out when deciding to advance the moneys claimed to the 1st, 2nd and 3rd Defendants. Furthermore, in the Agreement for Sale and Purchase which the Plaintiff produces as evidence to support its application for an Injunction, the 1st recital states that the Vendor B & A Holdings Limited is the owner of the chattels described in the two Schedules in the Agreement. I am satisfied that these chattels are identical with those mentioned in the Schedules to the three Bills of Sale and I therefore hold that the Plaintiff is estopped from denying that the 3rd Defendant could, all other things being equal, pass a good title in the chattels to the 4th Defendant. For reasons which I shall give in a moment however, I consider that all other things are not equal on the evidence so far before me. I therefore reject this submission by the Plaintiff.

The first argument of the 4th Defendant is that the three Bills of Sale are not Bills of Sale at all but rather floating charges on the property of the 1st, 2nd and 3rd Defendants. It is claimed that the Bill of Sale granted by the 3rd Defendant was not one with respect to particular chattels and that therefore such a Bill of Sale in Fiji is treated as a charge and registered at the Companies Office and has effect as a deed only. Reliance is then placed on the statement of Lord Macnaghten in Governments Stock and Other Securities Investment Co. v. Manila Rly Co. [1896] UKLawRpAC 62; (1897) A.C. 81 at 86:

"A floating security is an equitable charge on the assets for the time being of a going concern. It attaches to the subject charged in the varying condition in which it happens to be from time to time. It is the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes. His right to intervene may of course be suspended by agreement. But if there is no agreement for suspension, he may exercise his right whenever he pleases after default."

In the later case of Illingworth v. Houldsworth [1904] UKLawRpAC 40; (1904) A.C. 355 at 358 Lord Macnaghten said this:

"I should have thought there was not much difficulty in defining what a floating charge is in contrast to what is called a specific charge. A specific charge, I think, is one that without more fastens on ascertained and definite property or property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp."

It is then submitted that because the floating charge did not crystallize until the Notice of Demand and authorisations to the Bailiff by the Plaintiff dated 10th of March 1992, the Plaintiff has made its claim too late: the 4th Defendant had already signed an Agreement for the purchase of the stock-in-trade on the 28th of July 1991.

Counsel for the Plaintiff however accepts the law as to floating charges propounded by Lord Macnaghten but submits that in this case the Bills of Sale are exactly that. He submits that where there is a Bill of Sale over a specific asset there can be no floating charge and that in this case the chattels the subject of the Bills of Sale are set out in each Bill. There can therefore be no question of crystallization. Counsel relies on Sections 98 and 100 of the Companies Act. Section 98(1) states so far as relevant that every charge created by a company registered in Fiji and being inter alia a charge "created or evidenced by an instrument which, if executed by an individual, would require registration under the Bills of Sale Act (Cap. 225)" shall be void against any creditor of the company unless the prescribed particulars of the charge, together with the original or a certified copy are registered by the Registrar within 42 days after the date of its creation. By sub-section 9 "charge includes mortgage".

By Section 100(1) where a company acquires any property which is subject to a charge of such a kind that it would have been required to be registered under Part IV of the Act, the company shall cause to be registered within 42 days after the date of its creation prescribed particulars of the charge.

A Bill of Sale is commonly described as a chattel mortgage and unless there is evidence to the contrary I can see no reason for not holding that the instruments in question here are Bills of Sale. They are so described in various parts of each document. Their title is "Bill of Sale". In addition each document contains a certificate signed by a Solicitor of this Court which says " and I certify that before his execution of the foregoing Bill of Sale I explained to him the effect thereof and satisfied myself that he appeared to understand the meaning of the same AND I FURTHER CERTIFY that the Bill of Sale was duly executed at upon the day of 198 ". This I assume is to comply with Section 9(1)(d) of the Bills of Sale Act which states that a Bill of Sale shall be attested by, among other persons, a Barrister and Solicitor of the High Court (formerly Supreme Court) of Fiji.

Additional to the above, in Section 3 of the Act the term "Bills of Sale" includes among other things assignments, other assurances of personal chattels or licences to take possession of personal chattels as security for any debt.

Section 2 of the Act states that the Act shall apply to every Bill of Sale whereby the holder or grantee has power either with or without notice, at any time to seize or take possession of any personal chattels comprised in such Bill of Sale.

At common law the term "bill of sale" is normally confined to describing instruments of transfer given in transactions where it is intended that the transferor shall remain in possession of the goods - see Johnson v. Diprose [1893] UKLawRpKQB 37; (1893) 1 Q.B. 512 at 515, C.A., per Lord Esher M.R.

Reading the Bills of Sale in the instant case I see nothing in them to indicate that they are anything other than the name they are called. For example Clause F(1)(i) states that it is agreed and declared that until default is made in payment any moneys secured or in performance of any of the covenants or agreements made by the Mortgagor in the Bill it shall be lawful for the Mortgagor to retain possession of the Mortgagor's chattels and to deal with them in the ordinary cause of trade or business. Clause (ii) states that the moneys secured by the Bill shall at the option of the Mortgagee and notwithstanding any delay to exercise such option immediately become payable without any demand or notice:

(a) If the Mortgagor makes default in the payment of moneys secured by the Bill, and

(g) If the Mortgagor fails to observe or perform any of the covenants contained or applied in the Bill.

Counsel for the 4th Defendant submitted that the Bill of Sale granted by the 3rd Defendant was not one with respect to particular chattels. At first glance this may seem correct because the Schedule to the third Bill simply describes "the item now owned" (presumably by the Mortgagor) as "stock-in-trade" situated at Pacific Harbour Resort, Deuba, Serua. However I have no doubt on the evidence before me that the 1st, 2nd and 3rd Defendants are related in the sense that the 2nd and 3rd are family companies owned by the 1st Defendant and that all three Bills of Sale relate to property owned by the 1st, 2nd and 3rd Defendants. The second and third Bills of Sale, namely those of 14th of November 1986 and 16th of April 1987 contain almost similar clauses Number 33. In the Bill of the 14th of November 1986 clause 33 so far as relevant states:

"This Bill of Sale is hereby expressed to be collateral to and secures the same moneys as:-

(i) a BILL OF SALE NO. 84/2115----------------------------- given by the said ERAMI BOSE LUTUNATABUA -------------- to the Fiji Development Bank on the 29th day of May, 1984 and a MORTGAGE NO. 236176 dated 21st March, 1986 given by Erami Bose Lutunatabua and Angeline Fisher Lutunatabua to the Mortgagee."

Clause 33 of the Bill of 16th of April 1987 as far as relevant states:

"This Bill of Sale is hereby expressed to be collateral to and secures the same moneys as:-

(i) a BILL OF SALE NO. 84/2115 ---------------------------- given by the said ERAMI BOSE LUTUNATABUA -------------- to the Fiji Development Bank on the 29th day of May, 1984, Mortgage No. 236176 dated the 21st March, 1986 given by Erami Bose Lutunatabua and Angeline Fisher Lutunatabua and also a Bill of Sale dated 14th November, 1986 given by Bose's Golf Cart Hire Services Limited to the Mortgagee."

I consider it a reasonable inference from this obvious similarity in the clauses that each Bill is intended to secure the same moneys as its predecessors, including the Bill of the 29th of May 1984 and that the term "stock-in-trade" in the last Bill is simply a shorthand way of describing the property mentioned in the Schedule to the first and second bills. Perhaps as a counsel of perfection it would have been better to set out in the Schedule to the third Bill a more detailed description of the property mortgaged but the law has to be practical and use common sense in interpreting documents. The important consideration is always what the instrument or document before the Court was intended to achieve or effect. I have no doubt that in this case the object was to effect a mortgage of the personal chattels owned by the 1st, 2nd and 3rd Defendants. I therefore reject this submission.

I turn now to the claim by the 4th Defendant that it was a bona fide purchaser of the goods and is thus entitled to possession of them. It appears from the present material that the 3rd Defendant did not disclose the existence of any of the Bills of Sale to the 4th Defendant before signing the Agreement for Sale and Purchase although I appreciate that discovery of documents may reveal correspondence or enquiries made by the 4th Defendant of the 3rd Defendant as to the existence of the Bills. At present however there is nothing to indicate that the 4th Defendant made any enquiries either at the Registry of Companies or the Transport Control Board before entering into the Agreement. If no such enquiries were made then this can only be considered negligence on the part of the 4th Defendant in not first ascertaining from either direct enquiry of the 3rd Defendant or by searches at the Registry of Companies and the Transport Control Board whether or not any of the goods proposed to be purchased were subject to any encumbrances. I have no doubt the ordinary prudent proposed purchaser of goods such as those purported to be sold here would make such enquiries.

If the 4th Defendant had done so the enquiries would have revealed the existence of the Bills of Sale and the Third-Party Insurance Policies. In my judgment any reasonable purchaser in the position of the 4th Defendant would have required his vendor to show him all documents relating to the ownership and insurance of the Golf Carts and enquired whether all or any of the goods proposed to be bought were the subject of Bills of Sale. When a vendor alleges title to goods the subject of a Contract of Sale it is fundamental that the intending purchaser makes his own independent enquiries as to whether in fact the vendor does have title to the goods. None of these fundamental precautionary steps appear to have been taken in the present case and if this be true, it can hardly be held against the Plaintiff.

For these reasons I am not satisfied that the order which I made on the 12th of March 1993 should be set aside or that the goods, chattels and other properties seized by the Plaintiff's agent from the 4th Defendant be restored to the 4th Defendant. However nor do I consider that the Plaintiff should be free to deal with these goods until all the issues in this litigation have been resolved after trial of the action.

To answer the three questions which counsel for the Defendant states require answer by the Court I say as to:

(1) The status of a Bill of Sale under the Companies Act when given by a limited liability company is equivalent to that of a Bill of Sale given under the Bills of Sale Act provided the document claimed to be a Bill of Sale evinces all the requirements of statute and the common law applicable to Bills of Sale.

(2) As I have held that the documents in question here are Bills of Sale and not floating charges it is strictly unnecessary to answer this question but in my judgment, based on the authorities I have mentioned, particularly the two judgments of Lord Macnaghten (supra) I say that a proper notice should be given before any seizure of goods covered by a floating charge.

(3) "Is crystallization necessary before a document or seizure can be enforced?"

My answer to this question, again strictly not necessary in view of what I have said, is "Yes".

There remains the question whether I should continue the Mandatory Injunction. I appreciate the force of the submission by counsel for the 4th Defendant that Mandatory Injunctions are only rarely granted at an interlocutory stage. However in this case I consider it vital that the status quo should be maintained and that the sooner this action is tried the better. I therefore order that Part 1 of my order of the 12th of March 1993 remain in force but that since the Plaintiff has now apparently seized the chattels in question it should be prevented from dealing with these chattels until at least after the trial of this action. I therefore direct that the Plaintiff do not take any action or make any dealing relating to any of the goods so seized until further order.

If the parties wish me to make orders as to the delivery of further pleadings or discovery of documents so as to ensure the early trial of the action I shall do so.

As to costs, in all the circumstances I consider that these should be in the cause and I so order.

JOHN E. BYRNE
J U D G E

HBC0014J.93S