Maisuria v Australia and New Zealand Banking Group Ltd [2001] FJHC 229; HBC299.2001 (18 September 2001)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. 299 OF 2001

Between:

RAMESH BHAI MAISURIA s/o Paraghbhai

USHA BEN MAISURIA d/o Jagjuiwan Bhai
Plaintiffs

And

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
Defendant

Mr. D. Sharma for the Plaintiffs
Mr. H. Lateef and Mr. I. Razak for the Defendant

DECISION

On 3 July 2001 the plaintiffs made an ex parte application herein for an injunction restraining the defendant from selling or advertising the plaintiffs’ residential property CT.17240 at 34 Tuisawaqa Road, Namadi Heights, Tamavua, Suva (the ‘property’) under the defendant’s mortgage No. 425751. At the same time a Writ of Summons was issued herein. Interim injunction was granted returnable for 31 July 2001.

The injunction was opposed and in this regard Mukesh Madho, an officer with the defendant Bank filed an affidavit in reply to the first plaintiff’s affidavit for injunction.

Plaintiffs’ claim

The first plaintiff (P1) was employed by the Bank when he obtained a loan of $143,300.00 on 3 June 1997 from the Bank at a concessional interest rate. With that loan he built a residence on the property valued at in excess of $300,000.00. The plaintiff resigned as an employee of the Bank in January 1999.

In February 2000 the plaintiff’s loan was restructured and monthly instalment of $1800 was imposed at a rate of interest without consulting the plaintiff. The plaintiff did not then enjoy the concession that the employees of the defendant enjoyed.

Detailed facts in regard to the said loan are stated in the plaintiff’s affidavit. He says, inter alia, that the term of the credit was for 15 years and it was understood by the plaintiffs that they had a period of 15 years to repay the loan. They suffered great loss in their business known as Yoyo Footwear during the coup on 19 May 2000 and they were struggling to maintain their loan repayments to the defendant. The defendant was informed of their plight, and the plaintiffs requested for a waiver period for repayments until they go back on their feet. This was rejected. The defendant reacted by serving three Demand Notices on them calling up their housing loan for the whole debt which at that time stood at $149,652.92.

At the request of the defendant the arrears were paid up on 22 February 2001 in the sum of $17,000. In addition, further payment totalling $22032.10 was made on March 2001.

The plaintiffs intended to sell the property for $300,000.00 but the transaction fell through because of the prospective purchaser’s inability to complete the sale. An offer to $25,000.00 from FNPF was rejected by the defendant. At the moment the plaintiffs are not in default and monthly repayments are now upto date. The defendant still persisted in its intention to sell the property.

The learned counsel for the plaintiffs says that by insisting on selling the plaintiffs’ property, the defendant is in breach of the provisions of the Consumer Credit Act 1999. The plaintiffs informed the defendant of their hardship as required under section 66 of the said Act.

The plaintiffs further maintain that by its actions in persisting with the mortgagee’s sale the defendant has acted unconscionably and in breach of its very public assurance to customers that the defendant would work together with its customers to help them come out of the economic hardship caused by the events of 19 May 2000.

The plaintiff therefore prays in the Writ of Summons, inter alia, for a declaration that the defendant has acted unconscionably and in breach of the provisions of the said Act and for an Order that the enforcement proceedings taken by the defendant under its mortgage be postponed or stayed pursuant to section 86 of the said Act.

Defendant’s response

The defendant’s response to the plaintiff’s (P1's) affidavit is contained in the affidavit of Mukesh Madho, the Manager of Asset Management Unit of the Bank (defendant). He says, inter alia, that the plaintiff does not have the ability to repay and has defaulted on numerous occasions. He further states that the economic crisis which befell the country from 19 May 2000 is not the making of the defendant. The loan secured by the Mortgage was payable on demand.

The deponent agrees that the plaintiffs have updated their arrears only upon expiry of the Demand Notice. However, the plaintiffs have failed to meet the extension of time allowing them to clear the entire debt as agreed by the plaintiff and the defendant. He says that the payment of $7047 and $14985 were received on a ‘without prejudice’ basis as an interim measure, but the plaintiffs were to arrange refinance from Home Finance Company Limited. This did not eventuate. The defendant made it clear to the plaintiffs that it did not want to continue the banker/customer relationship with them any longer.

The application of the Consumer Credit Act has been raised by the plaintiffs. The defendant says that it is advised that the Act does not apply as the transactions predate the enforcement date i.e. 9 May 1999 of the Act and the loan and mortgage were finalised in 1997. It denies that it acted unconscionably in requiring the plaintiff to clear the debt and that no assurance was given by the defendant to the public and the plaintiff that it would not exercise its powers under the mortgage.

The defendant maintains it is entitled to exercise its powers under the mortgage to protect its interest. The plaintiff had previously defaulted the payments and had failed to clear the entire debt despite demand being made. The plaintiffs had been provided with opportunities to arrange a buyer for the property which they failed to do. The plaintiffs had also been requested to provide an adequate source for their repayments so that the defendant is convinced that they have the means to pay the debt. The defendant says that the financial statement provided by them showed that they did not have the ability to keep up with their repayments. Thus leaving the defendant no option but to exercise its powers under the Mortgage.

The issues

The issues for the Court’s determination are whether firstly, the enforcement action by the defendant be stayed or not pursuant to defendant’s power of sale under the mortgage in all the circumstances of this case and thereby extending the interim injunction granted and secondly, whether the Consumer Credit Act 1999 (the ‘Act’) applies to this case.

Consideration of the issue

In determining the issues before the Court, I have useful written submissions from both counsel. The facts and the circumstances in which the defendant came to exercise its power of sale under the mortgage herein have been stated hereabove in considerable detail and are also contained in the affidavits filed.

Mr. Sharma for the plaintiffs has raised the point that the Consumer Credit Act 1999 (assented to by the President on 19 March 1999) and which came into effect on 7 May 1999 (Legal Notice No. 42 of 1999) applies to this case and has a retrospective effect as far as this case is concerned

It is Mr. Sharma’s contention, firstly that the aftermath of the coup created a lot of difficulties for the plaintiffs and in the circumstances the defendant has acted unconcionably by taking advantage of the situation created by the coup. These events were beyond the plaintiffs’ control. Even when they had cleared the arrears the defendant insisted on calling up its mortgage. Secondly, Mr. Sharma says that the defendant is acting in breach of its duty of care to the plaintiffs in that the defendant is trying to force a mortgagee’s sale whilst having knowledge that the property market is in a slump. Thirdly, Mr. Sharma submits that the third cause of action is based on the Consumer Credit Act 1999 (hereinafter referred to as the ‘Act’) particularly sections 66, 67, 68 and 70 of the Act.

The plaintiffs obtained an ex parte order for injunction restraining the defendant from proceeding with further advertising and processing the mortgagee’s sale of the property and to stay enforcement proceedings under the mortgage.

There is no doubt that the plaintiffs have been in default under the mortgage in so far as repayments were concerned. As already stated they suffered badly in the aftermath of the coup. Be that as it may the fact remains that there is a mortgage as security and there is nothing to stop the mortgagee from exercising its power of sale. The mortgagors however state that in all the circumstances of this case the mortgagee should not be allowed to proceed to sale particularly now when they are uptodate with their payments and are now able to meet their future commitments under the mortgage.

The principles to be followed in considering the granting of injunctive relief are set out in the leading case of American Cyanamid Co. v. Ethicon Ltd [1975] UKHL 1; (1975) A.C. 396. The House of Lords there decided that in all cases, the Court must determine the matter on a balance of convenience, there being no rule that an applicant must establish a prima facie case. The extent of the court’s duty in considering an interlocutory injunction is to be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried.

Lord Diplock said at page 407:

"It is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to the facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial ...."

In Cyanamid (supra) at page 406 Lord Diplock further stated the object of the interlocutory injunction thus:

"... to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff’s need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff’s undertaking in damages if the uncertainty were resolved in the defendant’s favour at the trial. The court must weigh one need against another and determine where "the balance of convenience" lies". (emphasis mine)

A similar view was expressed by McCarthy P in Northern Drivers Union v Kuwau Island Ferries (1974) 2 NZLR 617 when he said:

"The purpose of an interim injunction is to preserve the status quo until the dispute has been disposed of on a full hearing. That being the position, it is not necessary that the Court should have to find a case which would entitle the applicant to relief in all events: It is quite sufficient if it finds one which shows that there is a substantial question to be investigated and that matters ought to be preserved in status quo until the essential dispute can be finally resolved:....." (ibid, 620).

"It is always a matter of discretion, and ... the Court will take into consideration the balance of convenience to the parties and the nature of the injury which the defendant, on the one hand, would suffer if the injunction was granted and should ultimately turn out to be right and that which the plaintiff, on the other hand, might sustain if the injunction was refused and he ultimately turn out to be right." (ibid 621).

On the affidavit evidence before me, and bearing in mind the above principles pertaining to the granting of injunctive relief, there does not appear to be any satisfactory and acceptable proposition as to how the plaintiffs intend to meet their commitments as far as payments are concerned. They do not say that they are prepared to deposit moneys alleged to be owing into Court. Payment into Court is in most cases ordered in a mortgagee’s sale situation Antech International Limited and Harish Mahendra Singh v Wespac Banking Corporation (Civil App. No. 29/66)] This view was expressed thus in Inglis v Commonwealth Trading Bank of Australia (1972) 126 C.L.R. 161 at 164 which was a case involving the exercise by a mortgage of its power of sale:

‘A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of power of sale given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid, or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into Court.

The rule, as it affects the exercise by a mortgagee of the power of sale, is stated in the following terms in Halsbury Laws of England 3rd Edition Volume 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 has commenced a redemption action, 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..."’

Walsh J goes on to say at 164-165 that:

In my opinion, the authorities which I have been able to examine establish that for the purposes of the application of the general rule to which I have referred, nothing short of actual payment is regarded as sufficient to extinguish a mortgage debt. If the debt has not been actually paid, the Court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefit of his security, except upon terms that an equivalent safeguard is provided to him, by means of the plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due.

The benefit of having a security for a debt would be greatly diminished if the fact that a debtor has raised claims for damages against the mortgagee were allowed to prevent any enforcement of the security until after the litigation of those claims had been completed.

In my opinion the fact that such claims have been brought provides no valid reason for the granting of an injunction to restrain, until they have been determined, the exercise by a mortgagee of the remedies given to him by the mortgage.

Barwick C.J. ibid at 168-169 expressed the same opinion in these words:

I have not heard anything, nor been referred to any authority, which causes me in the least to doubt the correctness of the refusal of Walsh J. to grant the interlocutory injunction sought by the appellant or the reasons which he gave for that refusal. I find no need to discuss the arguments offered, and the authorities referred to, by the appellant. Such of them as were relevant are sufficiently answered in his Honour’s reasons.

The case falls fairly, in my opinion, within the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument. Failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the respondent mortgagee’s right under the mortgage.

Although the plaintiffs allege that the present arrangements were agreed to between the parties, the defendant denies that that was so. In fact the defendant says that the mortgage was on demand and the plaintiffs have defaulted despite being given the opportunity to pay and to find a buyer for the property themselves.

There is no variation of the security document (the mortgage) thus leaving the defendant as mortgagee with its own rights under the mortgage in respect of the property.

In these circumstances how can the defendant be restrained from exercising its powers of sale. As was said by Megarry J in Shephard Homes Ltd v Sandham (1971) Ch 340 that the "Court must feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted" before the Court will interfere with the security document bearing in mind of course that at this stage "the court is not justified in embarking upon anything resembling a trial of the action upon conflicting affidavits in order to evaluate the strength of either party’s case pertaining to grant of interlocutory injunction (Footnote to the Supreme Court Practice 1979 29/1/11).

The mortgagee is intending to exercise a statutory power of sale and the plaintiffs have adduced no proper grounds why the Court should interfere with the exercise of such a power by granting an injunction. I am not convinced that there is a serious question to be tried.

As to "balance of convenience" the court should first consider whether if the plaintiffs succeed at the trial, they would be adequately compensated for in damages for any loss caused by the refusal to grant an interlocutory injunction. Here I consider that the appropriate remedy is not interlocutory injunction but an award of damages should the plaintiffs succeed and the defendant, being a Bank, is in a financial position to pay.

In Hubbard & Another v Vosper & Another (1972) 2 WLR 389, Lord Denning at p.396 gave some guidance on the principles for granting an injunction which I think is pertinent to bear in mind in this case when he said:

"In considering whether to grant an interlocutory injunction, the right course for a judge is to look at the whole case. He must have regard not only to the strength of the claim but also to the strength of the defence, and, then, decide what is best to be done. Sometimes it is best to grant an injunction so as to maintain the status quo until the trial. At other times, it is best not to impose a restraint upon the defendant but leave him free to go ahead. For instance, in Fraser v Evans [1969] 1 QB 349, although the plaintiff owned the copyright, we did not grant an injunction, because the defendant might have a defence of fair dealing. The remedy by interlocutory injunction is so useful that it should be kept flexible and discretionary. It must not be made the subject of strict rules."

This is a case of a mortgagee, and in the whole of the circumstances of this case I propose to give great weight to the following passage from the judgment of Megaw J at p.397 in Vosper (supra):

"One can really imagine a case in which the plaintiff appears to have a 75% chance of establishing his claim, but in which the damage to the defendant from the granting of the interlocutory injunction, if the 25% defence proved to be right, would be so great compared with the triviality of the damage to the plaintiff if he is refused the injunction, that an interlocutory injunction should be refused. To my mind, it is impossible and unworkable to lay down different standards in relation to different issues, which fall to be considered in an application for an interlocutory injunction. Each case must be decided on a basis of fairness, justice and common sense in relation to the whole issues of fact and law which are relevant to the particular case."

It is quite evident that the mortgagee is entitled to protect its own interests in obtaining repayment of the debt, and did not oblige the mortgagee, as suggested by the Plaintiffs, to postpone the sale or have its securities varied, inter alia, for the reasons advanced by them. It did not prevent the mortgagee from enforcing the security if there was default in payment and if market conditions were deteriorating and the value of the security was decreasing. However, a mortgagee owes a duty to act in good faith in determining whether to exercise the power of sale.

The plaintiffs have not laid a proper basis for their claims on which to have the interim injunction continue which they are seeking per interim Order.

Consumer Credit Act 1999

The plaintiffs rely heavily on the Consumer Credit Act stating that it applies to this case and that it has a retrospective effect.

The learned counsel for the plaintiffs dwelt at great length in his written submission on the Act’s applicability to this case. The counsel for the defendant disagreed with Mr. Sharma on his argument in this regard and stated that the Act does not apply in this case, and if it does it has no retrospective effect.

I consider this to be an issue which should be decided in the trial of the action; and in view of the Order which I propose to make I will not determine this legal issue which is of some far-reaching importance and it should be properly adjudicated upon.

Conclusion

Having analyzed the affidavit evidence before me and considering the submissions of counsel for the parties and applying the principles stated by Lord Diplock, I hold that damages as a remedy is sufficient in this case. There are no serious questions to be tried to grant an injunction restraining the defendant (D1) from exercising whatever powers it has under the mortgage deed.

In the circumstances of this case and having regard to the nature of the action that has been brought and the claims made in it, this is not a proper case for the grant and for the continuation of the interim injunction or to maintain the status quo until the trial of the action. The grounds advanced are against the principles the Courts have always acted upon and therefore the mortgagee cannot be prevented from exercising its powers under the mortgage. Without any proper variation of any of the covenants in the document no heed could be given to the arguments put forward by the plaintiffs for the purposes of this application. Much as the Court sympathizes with the dire straits in which the plaintiffs find themselves in, the court, in the light of established legal principles, in regard to the rights of mortgagee on the facts and circumstances of this case, is unable to come to the plaintiffs’ rescue. The plaintiffs overlook the terms and the covenants to which they found themselves engaged when they executed the security documents. The fact that this action is pending, on the facts and circumstances of this case, does not entitle the plaintiffs for the grant of an injunction as prayed.

For the above reasons particularly to decide on the rights of the mortgagee as to sale of the property and the applicability retrospectively or otherwise of the Consumer Credit Act to this case, I grant an injunction as prayed conditional upon the plaintiffs paying into Court for payment out to the defendant Bank if and when so ordered the sum of $100,000.00 within 21 days from the date hereof.

It is further ordered that the plaintiffs continue their monthly repayments to the defendant as they become due. Failure to deposit the moneys as ordered will mean that the injunction will stand dissolved. I award costs against the plaintiffs in the sum of $300.00 which is also to be paid within 21 days. The action is to take its normal course thereafter.

D. Pathik
Judge

At Suva
18 September 2001