Buckley v Sutton [2002] FJHC 302; HBC0350.2001L (8 July 2002)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

CIVIL ACTION NO. HBC 350 OF 2001

BETWEEN:

TERENCE R. BUCKLEY, YELLAPPA REDDY and
MICHAEL J AH KOY of Nadi, Auckland, New Zealand
and Suva respectively, Company Directors of ‘Westmall
Limited’
FIRST PLAINTIFFS

AND:

WESTMALL LIMITED a company incorporated in Fiji
Islands and having its registered office at Lautoka
(Receiver appointed)
SECONDPLAINTIFF

AND:

BRUCE GEOFFREY SUTTON and JOHN HAROLD
GAUKRODGER of KPMG, Chartered Accountants as
Receivers and Managers for ‘Westmall Limited’
FIRST DEFENDANTS

AND:

AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED a company incorporated in the
State of Victoria, Australia as bankers and registered in
Fiji as a foreign company
SECOND DEFENDANT

Date of Hearing: 3 October 2001
Date of Decision: 8 July 2002

Mr. Jai Ram Reddy with Mr. K. Muaror for the 1st and 2nd Plaintiffs
Mr. P. McDonnell for the 1st Defendants
Mr. S. Parshotam for the 2nd Defendant

DECISION

This case is concerned with whether a Court can grant, and the extent to which it can grant, injunctive relief against a creditor who calls in his “on demand” loan in order to permit a debtor time to raise a fresh loan or to make a more favourable sale.

The American discount warehouse company, Cost-U-Less Inc. occupied a Crown Lease near Nadi Airport, known as the Westmall Complex. The lease, CL90577 which eventually became CL13421 was held in the name of the 2nd Plaintiff and sub-let to Cost-U-Less for a term of 10 years. The 2nd Plaintiff obtained finance for this development from the Second Defendant bank, which took various securities including a first registered debenture mortgage over all of the assets and undertakings of the 2nd Plaintiff and unlimited guarantees from three of its directors, the 1st Plaintiffs. The Plaintiffs claim that after 3 years Cost-U-Less reneged on its agreement with the 2nd Plaintiff, and abandoned its sub-lease from the 1st of May 2001. As a result the 2nd Plaintiff was not thereafter in a position to meet its financial obligations to the 2nd Defendant, which then appointed the 1st Defendants as Receivers and Managers. The 1st Defendants were to advertise sale of the whole of the Westmall Complex on the 27th of October 2001.

The proposed sale precipitated these proceedings. A writ was issued on the 26th of October 2001 with a brief indorsement claiming inter alia an injunction to prevent such sale. An ex parte notice of motion was issued the same day. The papers seem to have been served on Solicitors for the 1st Defendants since they were present on the application that same day. Scott J. made an order for transfer of the matter to Lautoka High Court, as there was a related matter already filed there. The judge granted an interim injunction restraining sale till the matter could be heard in Lautoka.

The 1st and 2nd Plaintiffs filed in opposition the affidavit of Terence Rex Buckley, sworn and filed on 26th October 2001 in support of their application.

The 1st Defendants filed the affidavit of John Harold Gaukrodger sworn on 16th November 2001. He was a partner in the accounting firm of KPMG with the first named of the 1st Defendants, both being the appointed Receivers and Managers of the 2nd Plaintiff. He did not state that he was authorised by his partner to depose on behalf of the partner also, though this may have been an oversight. The 2nd Defendant filed in opposition the affidavit of Christopher Robin Griffiths sworn on 16th November 2001. Lastly Mr. Buckley for the 1st Plaintiffs deposed to an affidavit in reply sworn and filed on 30th November 2001.

None of the deponents gave sufficient details of their respective addresses as required by the Rules. They simply said “I, XYZ of Nadi, (or of Suva), Company Director make oath and say as follows:” All witnesses in a trial state their addresses in full after they are sworn, and before commencing upon their evidence. Deponents swearing affidavits are in no different a category to such witnesses. It is a fundamental requirement of our system of justice that an accused, or a litigant in a civil claim, should know who his accusers are so that he may mount his defence or challenge to what they say against him. The opposing side therefore is entitled to know the full identification and location of a witness, save in exceptional circumstances such as where the life of a witness is threatened or in similar dire circumstances. It is sufficient for professional witnesses, as here, simply to give their professional addresses. But proper details of such professional addresses should be provided. The rule is set out in Order 41 r. 1(4):

“Every affidavit must be expressed in the first person and, unless the Court otherwise directs, must state the place of residence of the deponent and his occupation or, if he has none, his description, and if he is, or is employed by, a party to the cause or matter in which the affidavit is sworn, the affidavit must state that fact.

In the case of a deponent who is giving evidence in a professional, business or other occupational capacity the affidavit may, instead of stating the deponent’s place of residence, state the address at which he works, the position he holds and the name of his firm or employer, if any.”

The ultimate sanction for breach of the rule is illustrated by Hyde v Hyde (1888) 59 LT 523. It is more important however to provide the necessary information in an affidavit as required by the rules, more so where the rules support a fundamental requirement of fairness.

The Evidence

In his first affidavit Mr. Buckley exhibited the letter of offer of finance from the 2nd Defendant of the 25th of September 1997. The facilities schedule attached to it stated that the term of the loan was to be:

“5 years with repayments and initially mortised over 15 years. After 5 years, loan is subject to renegotiation at that stage. Any extension is purely at the bank’s discretion”.

The purpose of the loan was “for development and construction of a commercial complex at Nadi”. All facilities were said to be “repayable on demand”. The Plaintiffs did not exhibit copies of the relevant security documents, nor in particular the debenture of the 21st of May 1998, or the demand notice from the bank of the 6th of June 2001. Mr. Griffiths for the Bank did however. By Clause 18 of the debenture, the monies secured were, at the option of the bank, immediately to become due and payable and the security created was to become immediately enforceable without the necessity for any demand or notice, upon the happening of any one of several events set out in paragraphs (a) to (r). Amongst the events was listed default in making payment under the debenture. Clause 45 provided for separate or concurrent pursuit of remedies under the securities.

The demand notice set out the bank’s demand for payment within 7 days of the outstanding balance of the loan. Details were provided of the balance, which was $1,803,995.91 as at 23rd of May 2001 with further details of interest, fees, accruing interest, other accounts and legal fees. Additionally the 2nd Plaintiff was given 3 weeks to pay or the 2nd Defendant would pursue winding up proceedings.

There was a problem with CL90577 in that initial searches suggested the title was unencumbered whereas later the Titles Office said it was encumbered. Eventually this was paid off, CL90577 surrendered, and CL13421 substituted in its place with the 2nd Defendant’s mortgage registered on the title. The mistake at the Titles Office does not affect the issue in this application. The Demand Notice was issued pursuant to the debenture mortgage and the guarantees.

Is there a serious issue to be tried?

The endorsement on the writ claims damages for breach of the Fair Trading Decree as well as seeking an injunction against the exercise of powers of sale on the mortgage or debenture. Mr. Buckley exhibited to his first affidavit a copy of the statement of claim in the related action against Cost-U-Less. This sought payment of damages equivalent to the remaining rent under the 10-year sub-lease which was running at the rate of $29,783.66 per month. The defence was also exhibited. In it Cost-U-Less denied entering into a lease but admitted executing a document called “Memorandum of Agreement”. It denied liability to make further payments and pleaded in the alternative that the purported lease was illegal since the agreement with a non-resident company lacked the prior written consent of the Minister of Lands in contravention of the Land Sales Act. Mr. Reddy said “the ministerial consent is in order”. He sought an injunction stating that there was a discretion in the court to allow a short period for the Plaintiffs to raise necessary monies. Besides the action, which he said stood an excellent chance of success to recover the remaining rent and to which there was no real defence, he said there were other lots for sale on the site which could raise further funds.

There was also an offer to purchase the site. A company wrote to express interest in September 2001, and wrote again in October 2001 stating it was “finalising release of funds to land owners” by the Ministry of Fijian Affairs. On the 15th of November 2001 there was a letter from the head of a tokatoka stating the original land owners would like to enter a conditional contract to purchase the site for $3 million which was to go unconditional once the Ministry had released funds held in trust to the tune of $11 million. Mr. McDonnell described this as a nebulous sales offer. He said the “arrangements have an air of uncertainty about them.”

There appears to be no serious issue for trial here. The Plaintiffs seek more time. But unless they can show that a cause of action arises from the Defendant’s
failure to allow more time for the raising of fresh funds, no question of a discretion arises for the court to exercise. The Plaintiffs carry the burden of establishing the need for injunctive relief: Westpac Banking Corporation Limited v Adi Mahen Prasad [1999] 45 Fiji LR 1 at p6D; Haddington Island Quarry Co Ltd v Huson [1911] AC 727.

The Adequacy of Damages

If the Plaintiffs eventually were to succeed with their case they could be adequately compensated in damages. There is a significant embarrassment meanwhile for the 3 guarantors in having to meet any shortfall from the sale of the site in repaying the bank loan, interest, and ancillary charges. But this could be met by the 2nd Defendant, a large and profitable regional bank, if the Plaintiffs do succeed.

Undertaking as to Damages

The Plaintiff company is the owner of the land in question. Nothing more is said of other assets, if it has any. Though the 3 guarantors, the first Plaintiffs, are joined in the undertaking contained in Mr. Buckley’s affidavit nothing is put before the court as to the guarantors’ individual financial positions to meet any adverse award of damages, which in a case of this dimension could be substantial. Although the undertaking is given in the affidavit, and said to be through counsel, it is not in a form which is easy for the court to weigh with any confidence.

Balance of Justice and Convenience

The developers of the site, the Plaintiffs, are exceptionally without fault. What they had not anticipated was that their tenant would renege on its agreement and thereby leave the Plaintiffs’ business to collapse. The Plaintiffs have not fallen into this catastrophic situation by over-trading, by mis-management, by the dishonesty of the senior staff or by reckless overspending. They have plans to achieve sales of other lots (one appears to be already sold) and to find a buyer for the main building and its site. All they need they say, is a little more time within which to conclude these sales at favourable prices. If that were to result the 2nd Plaintiff would be able to pay off its loan owed to the bank.

More importantly the guarantors would not be called on to pay what may be ruinous sums unnecessarily to make up the difference. The bank could afford to wait and to see if private sales could produce a better price. On the other hand the bank says there is a real chance that its costs may eventually become too great for the likely funds available from a delayed sale, delay here reducing the value of its securities: Rauzia Mohammed v A.N.Z. Bank [1984] 13 Fiji L.R.136 at p141.

Mortgagee Sales

This area of the law is well settled. Halsbury 4th Edition Vol.32 at paragraph 725 states:

“The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has begun 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 he claims to be due to him.”

The principle was enunciated in McLeod v Jones (1883) 24 Ch.289 at p299; and has been applied in Inglis v Commonwealth Trading Bank of Australia (1971-72) 126 CLR 161 and accepted in this jurisdiction in Rauzia Mohammed v A.N.Z. Bank (supra at p140.)

The courts will not normally interfere with a mortgagee’s power of sale. If they do they will only do so in exceptional cases and will usually demand payment of all outstanding monies owed into court. It must be said this Rule has little commercial reality behind it. Mortgagors are rarely if ever in a position to pay such sums into court. They struggle to keep their creditors at bay and if fortunate are able to re-schedule their loans or to find finance from an alternative lending institution: see comments of Walton J in Bank of Baroda v Panessar & Others [1986] 3 All ER 751 at p760b. The unlucky ones have no alternative but to come to court for an injunction. However the requirement to pay outstanding, albeit disputed, sums owed into court before an injunction will be granted, save in cases of mala fides or breach of duty of care, is so well entrenched as settled law, that it must be accepted until it is re-examined by an appellate court.

The Defendants Conduct

The 2nd Defendants’ financial assistance to the 2nd Plaintiff was granted on terms of repayment “on demand”. It is admitted the loan could not be serviced by the 2nd Plaintiff once Cost-U-Less failed to honour the agreement to pay rent. The 2nd Plaintiff fell into admitted default with the bank. It last made repayment for the loan on the 8th April 2001. It was a further 2 months or so before the bank issued a Demand Notice[14th of June 2001], and a further 2 months [14th August 2001] following further and continuing default before the bank appointed Receivers and Managers, and 2 more months before the Receivers decided to advertise. In the circumstances this could hardly be called precipitate on the part of the 2nd Defendants. In his second affidavit Mr. Buckley claims that the appointment of the Receivers and Managers was, having regard to all the circumstances, improper and/or invalid and/or unconscionable. In argument Mr. Reddy did not pursue this allegation.

On the day they were appointed, the Receivers through Mr. Sutton met Mr. Buckley. They met again on the 14th of September 2001 when Mr. Buckley said he would provide, within a week, details of prospective parties interested in purchasing the property either as a whole or in sub-divided lots. He did not provide such information. They met further on the 19th of October 2001 when amongst other things Mr. Buckley said negotiations were advanced with a party who would offer $3 million for the whole property. Substantial progress was expected by the 24th of October 2001 he said. Mr.
Sutton requested written evidence of all of this, but it was not made available to him. Later e-mail communications were forwarded to Mr. Sutton concerning the progress of negotiations but no confirmed sale was evidenced. Accordingly the Receivers decided not to allow further time but to advertise the property for sale.

There is little that could be said, if anything at all, pointing to any unlawfulness or any unfairness on the part of the Receivers. Generous time had been allowed to the Plaintiffs who unfortunately had not been able to clinch a firm purchaser by private means by the time of this application or indeed by the time of the hearing.

Monies “on demand” and the Court’s discretion

In conformity with the 2nd Defendant’s letter of offer of finance, the mortgage debenture stated that the mortgagor was to pay duly on demand from the bank [Clause 1]. When the Demand Notice was issued it allowed 7 days within which payment in full was to be made.

Mr. Reddy referred me to “The Law of Company Receiverships in New Zealand and Australia” by Blanchard and Gedye 2nd Edition and cited several authorities in support of his argument that the court had a discretion to allow a further short period, as in the instant case to permit the Plaintiffs to raise the monies demanded. The approach of other common law jurisdictions has varied only slightly, with the English courts adopting the strict view, the Canadian courts a more liberal view, and the Australian and New Zealand courts a position more or less in the middle.

“This position adopted by the English Courts to a requirement for payment “on demand” has been consistently rigorous. Though it is accepted that these words cannot mean that the debtor is bound to pay the money the very next instant, the debtor has only such time as is reasonable to enable the necessary money to be brought physically to the creditor from some convenient place.” (Blanchard p.73).

In R.A. Cripps Ltd v Wickenden [1973] 1 WLR 944 at p955 Goff J. said:

“The cases show that all the creditor has to do is to give the debtor time to get [the money] from some convenient place, not to negotiate a deal which he hopes will produce the money.” (Emphasis added.)

In Brighty v Norton (1862) 3 B & S at 312 Blackburn J. had said:

“I agree that a debtor who is required to pay money on demand, or at a stated time, must have it ready, and is not entitled to further time in order to go and look for it.”

In Toms v Wilson [1863] EngR 991; (1862) 4 B & S 442 at p453 Lord Cockburn C.J. had
said:

“The deed must receive a reasonable construction, and it could not have meant that the plaintiff was bound to pay the money in the very next instant of time after the demand, but he must have a reasonable time to get it from some convenient place. For instance, he might require time to get it from his desk, or to go across the street, or to his bankers for it.”

This was cited with approval by the Court of Exchequer in Wharlton v Kirkwood (1873) 29 LT 644, and by the Privy Counsel in Moore v Shelley (1883) 8 App Cas 285 at p292. In Wharlton, Branwell B. at p.646 doubted if time should be given for the debtor to go to his bank if it were some miles away. Walton J. in Bank of Baroda (supra at p760d ) said:

“There is no reason why he should not keep the money in Scotland but, if he does, he must then arrange for such mechanics of payment as are, under modern conditions, available for the transfer of the money to his creditor, and, as is well known in these days of telex, fax and other methods of communication and transfer of money, the time required for that is exceptionally short.”

Indeed the principles to be applied in these cases were carefully reviewed by Walton J. in the Baroda case. In Mister Broadloom Corporation (1968) Ltd v Bank of Montreal et al (1979) 101 DLR (3d) 713 at p723 Linden J. said:

“Thus, a reasonable time must always be allowed, but, in assessing what length of time is reasonable in a particular fact situation various factors must be analyzed: (1) the amount of the loan; (2) the risk to the creditor of losing his money or the security; (3) the length of the relationship between the debtor and the creditor; (4) the character and reputation of the debtor; (5) the potential ability to raise the money required in a short period; (6) the circumstances surrounding the demand for payment; and (7) any other relevant factors.”

On appeal to the Ontario Court of Appeal (4.DLR (4th) 74) it was held that for a creditor to make demand for payment of $1.5 million “now” and upon failure of the debtor to come up with a specific proposal for payment, to call in a Receiver within an hour was wrongful and made the creditor liable to the debtor in trespass and conversion.

Reasonable time for compliance with the demand was also further supported by the Supreme Court of Canada in Lister Ltd. v Dunlop Canada Ltd (1982) 135 DLR (3d). In that matter the creditor had not given notice as it should under the debenture. The position of on demand calls was reviewed at some length in ANZ Banking Group (NZ) Ltd. v Gibson [1986] 1 NZLR 556 and by the Privy Council in Downsview Nominees Ltd v. First City Corporation Ltd [1993] 2 WLR 86. Bunbury Foods Pty Ltd v National Bank of Australasia [1984] HCA 10; [1983-4] 153 CLR 491 set out the Australian position.

Conclusion

The position here is not really about monies on demand, or what constitutes reasonable notice. None of the usual challenges are brought against the actions of the bank or the Receivers. The monies are not in dispute. The challenge, if it is such, is to the denial of further indulgence to the Plaintiffs who seek to secure a private sale. The cases dealing with “on demand”calls allow hours or at most (in the Canadian and perhaps New Zealand cases) a few days only. They do not allow a few months. Because of the delay in the delivery of this judgment, the Plaintiffs have in fact gained several more months indulgence. I have not been informed by the parties that a private sale has been meanwhile secured pending judgment. In view of how the bank and their Receivers have handled this matter, no doubt recognising the blamelessness of the unlucky developers, this is not a case in which an interlocutory injunction exceptionally should now be granted restraining the Receivers till trial.

I therefore decline to grant the injunctive relief applied for. I order costs against the Plaintiffs which I assess summarily at $750.00 for each Defendant exclusive of disbursements which are to be taxed if not agreed.

A.H.C.T. GATES
JUDGE

Solicitors for the 1st and 2nd Plaintiffs : Muaror & Co, Suva
Solicitors for the 1st Defendants : Cromptons, Suva
Solicitors for the 2nd Defendant : Parshotam & Co, Suva