NBF Asset Management Bank v Niumataiwalu [2000] FJHC 205; HBC0427J.98S (24 January 2000)

IN THE HIGH COURT OF FIJI AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. HBC 0427 OF 1998

BETWEEN:

NBF ASSET MANAGEMENT BANK
Plaintiff

AND:

GEORGE NIUMATAIWALU
1st Defendant

AND:

IANG NG
2nd Defendant

COUNSEL: Mr T. Seeto for Plaintiff
:Ms P. Narayan for Defendants

Hearing: 18th January 2000

Judgment: 24th January 2000

JUDGMENT

This is an Order 88 application for vacant possession of property at 116 Mead Road Suva, which is currently occupied by the 1st and 2nd Defendants. The application, made by summons dated 1st September 1998, is supported by the affidavit of Laisenia Takala sworn on 14th August 1998.

Order 88 Rule 3 of the High Court Rules 1988, provides that:

“(2) The affidavit must exhibit a true copy of the mortgage and the original mortgage .....

(3) Where the plaintiff claims delivery of possession the affidavit must show the circumstances under which the right of possession arises and, except where the Court in any case or class otherwise directs, the state of the account between the mortgagor and mortgagee with particulars of - ..........

(a) the amount of the advance;

(b) the amount of the periodic payments required to be made;

(c) the amount of any interest or instalments in arrears at the date of issue of the originating summons and at the date of the affidavit; and

(d) the amount remaining due under that mortgage.”

The affidavit of Laisenia Takala deposes that Sorovi Vula Fuakilau and Litia Niumataiwalu Fuakilau are the registered proprietors of 116 Mead Road, Suva. By mortgage, the property was charged to the Plaintiff. At the time of the swearing of the affidavit the amount due under the mortgage was $126,567.58. Additional personal loans were advanced to Sorovi Fuakilau and Litia Fuakilau between 25th August 1980 to 7th February 1995. At 31st August 1998 $24,210.00 was in arrears in respect of the personal loans.

The affidavit states that the 1st and 2nd Defendants reside on the property, that no tenancy had been created, that interest payable was $55.49 per day and that on 8th August 1998, due to default in payment, the Plaintiff advertised the property for sale.

The affidavit complies with the requirements of Order 88.

On 10th February 1999 the 1st Defendant filed an affidavit in reply on behalf of both Defendants. In that affidavit, he deposes that after the mortgagee sale of the property was advertised, he instructed his solicitors, Messrs. Sherani & Co. to put in a tender for the property for the sum of $107,000.00. He states that the Plaintiff accepted a tender in the sum of $90,000 “fraudulently.” Particulars of fraud are:

“(i) Accepting a tender for a lesser sum when higher tender was available;

(ii) Delaying the sale by accepting a lower tender of a person known to the Plaintiff and arranging vacant possession when this would not be necessary if the property was sold to me;

(iii) Accepting a lesser sum is fraudulent on the mortgagors as they would be responsible for the balance;

(iv) The Plaintiff is in breach of its duty to try and obtain the best possible price on a mortgagee sale;

(v) Insufficient number of advertisements were placed to achieve the highest possible price.”

The Plaintiff filed an affidavit in reply on 28th April 1999, sworn by Laisenia Takala. The affidavit denies all allegations of fraud and states that the tenders for the property closed on 29th May 1998, that the highest tender received was for $95,000, and that the 1st Defendant’s offer letter for $107,000 was submitted on the 1st of October 1998, five months after the tender had closed. Laisenia Takala states at paragraph 16(i) that the tender had closed and a tender accepted when the 1st Defendant had submitted his tender. The Plaintiff was therefore legally bound to proceed with the sale.

On the issue of advertisements, the property had been advertised on five occasions in the Fiji Times over a period of one month before 29th May 1998.

A further affidavit in reply was sworn by the 1st Defendant on 27th July 1999. In this affidavit, he states that the Bank of Hawaii had approved finance for the property on 1st May 1998, and that a formal offer was made on his behalf on 1st July 1998 by Messrs. Parshotam and Company, in the sum of $105,000. He states that when the Plaintiff made an offer to Tariq Aktar Ali on 9th July for $95,000.00, he knew of the 1st Defendant’s higher offer. Other attempts to persuade Mr Takala and the Plaintiff Bank, to accept the offer of $105,000.00 were unsuccessful.

Laisenia Takala’s final affidavit was filed on 6th September 1999. He confirms that the Plaintiff did receive a letter from the Bank of Hawaii on 1st May 1998, and a letter from the 1st Defendant on 7th May 1998, offering to discharge the mortgagor’s debt. He said that the Bank assessed the tenders received, and made a counter offer on 10th June 1998. The letter of offer (annexure B to the affidavit of Laisenia Takala) states that the Bank had approved refinancing of the property subject to the 1st Defendant’s acceptance (as holder of Power of Attorney) to repay the residual debt of approximately $9,733 over 5 years. Repayment was to be $226 per month and evidence of finance was to be provided within 7 days from the date of the letter.

The 1st Defendant was to accept the offer by signing and returning the original of the letter within 7 days. The Defendant did not respond.

The affidavit further states that the offer of $105,000 should have followed the normal tender process, and that it would have been improper for the Bank to accept tenders after the closing date.

Counsel for Plaintiff and Defendants, made written submissions. Mr T. Seeto for the Plaintiff submitted that Order 88 had been complied with, that the Bank had acted properly and honestly and that the mortgagee should not be restrained from exercising its powers of sale.

Ms. P. Narayan for the Defendants submitted that the mortgagee had a duty to the mortgagor to take reasonable precautions to obtain the true market value of the mortgaged property at the time of sale, and that the Plaintiff had failed in this regard in this matter.

She conceded that the Defendants had not complied with the formalities for the tender, but said that the 1st Defendant’s clear intentions should have been accepted by the Bank. Furthermore, she submitted that the Defendant had offered $10,000 more than the highest tender which made the mortgagor liable in contract for the difference. The sale, she submits, was conducted in bad faith and the Order 88 application should therefore be refused.

It is clear from the material before me, that there is no dispute that the property in question is subject to a mortgage, that the mortgagors are in default to the amount of $126,567.58, that the 1st Defendant (the brother of the 2nd mortgagor) and the 2nd Defendant are in possession of the property, and that the Plaintiff was entitled to advertise the property and call for tenders.

What is in dispute is whether the Plaintiff, in refusing to accept the 1st Defendant’s offers of $105,000, and $107,000, acted in breach of its duty to the mortgagors.

In Warner v. Jacob [1882] UKLawRpCh 61; 20 Ch. D220, Kay J said, at 224:

“.... a mortgage is strictly speaking not a trustee of the power of sale. It is a power given to him for his own benefit to enable him the better to realise his debt. If he exercises it bona fide for that purpose, without corruption or collusion with the purchase the Court will not interfere even though the sale be very disadvantageous, unless indeed the price is so low as in itself to be evidence of fraud.”

For the purpose of this action, the Plaintiff appears to accept that the 1st Defendant is in the position of the mortgagor, on the basis of a power of attorney granted to him.

The 1st Defendant therefore submits that the Plaintiff owed a duty to him (and therefore to the mortgagors) to obtain a proper price on sale of the property.

The English Court of Appeal in Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. (1971) Ch. 949 held that in exercising a power of sale, a mortgagee should take reasonable care to obtain the true market value of the mortgaged property. In New Zealand however, the Privy Council in Downsview Nominees v. First City Corp (1993) 2 WLR 86 declined to apply the tortious duty of care test to the equity of redemption of mortgages, preferring to ask whether the mortgagee had acted in good faith. Similarly in Parker-Tweedle v. Dunbar Bank (1990) 3 WLR 767 the English Court of Appeal preferred the test of good faith.

In that case, Nourse LJ said:

“It is both unnecessary and confusing for the duties owed by a mortgagee to the mortgagor and the surety, if there is one, to be expressed in terms of the tort of negligence. The authorities which were considered in the careful judgments of this court in Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. demonstrate that the duty owed by the mortgagee to the mortgagor was recognised by equity as arising out of the particular relationship between them....”

In Downsview Nominees (supra) Lord Templeman said:

“If a mortgagor exercises his power of sale in good faith for the purpose of protecting his security, he is not liable to the mortgagor even though he might have obtained a higher price, and even though the terms might be regarded as disadvantageous to the mortgagor. Cuckmere Brick Co. Ltd. v. Mutual Finance is Court of Appeal authority for the proposition that, if the mortgagee decides to sell, he must take reasonable care to obtain a proper price but is no authority for any wider proposition.”

The Defendants in this case allege fraud. In doing so, they allege not only that the Plaintiff acted in bad faith, but also that the Plaintiff failed to take reasonable care to obtain the best price on sale.

What is the evidence of fraud? The Defendants say that the Plaintiff knew of the Defendant’s wish to buy the property before tenders closed on 29th May 1998. The Plaintiff does not dispute this but says that the Defendants were given an offer which they chose not to accept. On the evidence particularly of the final affidavit of Laisenia Takala, I find that any delay caused prior to the closing of tenders, was caused by the Defendants. I also find that the 1st Defendant had the opportunity to purchase the property, but failed to take steps to redeem the mortgage.

The Defendants also say that the Plaintiff should have accepted the Defendants’ offer of $107,000 although the tender procedures had been closed.

It is clear that the Defendants’ second offer, was made after an offer had been accepted by the Plaintiff through the tender process. This has the effect of extinguishing the equity of redemption. Halsbury (Vol. 4 4th edition para 1132) states:

“The unconditional acceptance of a tender gives rise to a contract.”

In the circumstances, despite the existence of conditions in the acceptance letter, the Plaintiff could not have rescinded that contract in order to accept the Defendants’ offer of $107,000.

The Defendants also say that the Plaintiff failed to obtain a proper market price on the property. However, I do not consider the difference of $10,000 in the amount tendered and the amount offered by the Defendants, to be so marked that it is in itself, evidence of fraud.

In all the circumstances I consider that the Plaintiff gave the Defendants a fair opportunity to redeem the mortgage, that the Defendants failed to take that opportunity, that the Plaintiff then advertised the property on five occasions calling for tenders, accepted the highest tender, and refused on good grounds a further offer made by the Defendants well after the closing date for tenders. I find therefore that there is no evidence of fraud, collusion or bad faith on the part of the Plaintiff. Nor can I find any breach of duty towards the 1st Defendant acting for the mortgagors.

I therefore find no merit in the Defendants’ opposition to this application, and I order in terms of the Plaintiff’s summons.

The Defendants must pay the Plaintiff’s costs to be taxed if not agreed.

Nazhat Shameem
JUDGE

At Suva
24th January 2000