NBF Asset Management Bank v Radike [2004] FJHC 531; HBC039J.2001S (11 March 2004)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. HBC 039J OF 2001S

BETWEEN:

NBF ASSET MANAGEMENT BANK a body corporate duly constituted under
the National Bank of Fiji Restructuring
Act, 1996 and having its registered office
at Suva.
PLAINTIFF

AND:

ULAIYASI RADIKE of Lot 30, Narere
Sub-Division, Nasinu.
DEFENDANT

Counsel for the Plaintiff: T. Seeto: Legal Officer N.B.F.A.M.B.
Counsel for the Defendant: S. Valenitabua: VALENITABUA S.R. ESQ.

Date of Judgment: 11 March, 2004

JUDGMENT

The Plaintiff, by Originating Summons, is seeking under Order 88 application, the delivery of possession of land and premises owned and occupied by the Defendant. The property known and prescribed in Notice to Approval to Lease LD Ref. 4/16/6876 being Lot 30 on DSS 1160 Narere Sub-Division, Suva, is subject to a registered mortgage in favour of the Plaintiff. The mortgage secured a loan in the amount of $3,800.00 towards the purchase of the property together with all advances, charges interests and other banking accommodation made by the Plaintiff to the Defendant. The Plaintiff, who at the time of the loan, was an employee of the Defendant, was required to make a periodic payment of $70.00 per month.

The Defendant ceased to make any further repayments towards his loan, after he voluntarily left the employment of the Plaintiff under a redundancy scheme in September 1996. A Demand Notice was served on the Defendant through his postal box in Samabula on 30 December 1998, and later at the residence, which was accepted by the Defendant’s wife on his behalf, he being away overseas on 18 May 1999. As at 26 January 2001 at the date of the Summon, the Defendant was $5,638.48 in arrears.

The Plaintiff then proceeded to put the property on the market for sale between July 1999 and December 2000. A Notice to vacate was issued on 5 January 2001. As at 26 January 2001, at the date of the Plaintiff’s Summons, the Defendant was $5,638.48 in arrears of his payment.

Mortgagee’s Right to Possession

The general principle of law is that a legal mortgagee is the owner of the legal fee simple in the mortgaged property, subject only to the mortgagor’s right to redeem. This means that the mortgagee is entitled to possession quite independent of the default of the mortgagor upon the execution of the mortgage deed, unless provisions are made to the contrary (see: Four-Maids Ltd. v. Dudley Marshall (Properties) Ltd. {1957} Ch 317; Western Bank Ltd. v. Schindler {1977} Ch 1; and Williams and Glyn’s Bank Ltd. v. Roland {1981} AC 487. In a situation where a mortgage is intended to secure a principal sum, and repayments are by installments, the deed usually provides that the mortgagee will not be entitled to possession until default.

The mortgagee’s right to possession as recognised in case law was also fully explored by Fatiaki J (as he then was) in National Bank of Fiji v. Abdul Kadeer Kuddus Hussein CA No. 331 of 1994. In addition, section 75 of our own Property Law Act (Cap 130) provides:

"75. A mortgagee upon default in payment of the mortgage money or any part thereof, may enter into possession of the mortgaged land by receiving the rents and profits thereof or may distrain upon the occupier or tenant of the said land for the rent then due."

Mortgagee’s Power of Sale

The right to sell the mortgaged property, after the default by the mortgagor is in the first instance, derived from statutes. Under section 79 of the Property Law Act, the mortgagee is permitted to sell the property if default payment of the mortgage money continues after one (1) month of the service of the notice that is required to be given under section 77 of the same. Secondly, the powers to sell may be conferred upon the mortgagee by the terms of the mortgage instrument. Finally, the sale can be with the concurrence of the mortgagor.

Defendant’s Arguments

The Defendant first contends that the Plaintiff had been negligent in not seeing the arrangement of the transfer of his Fiji National Provident Fund (FNPF) to the Defendant to a successful conclusion to offset his outstanding loan. According to the Defendant, his relationship with the Plaintiff at the time of the processing of his loan application from FNPF was one of mortgagee and agent. The Plaintiff took on the role of the Defendant’s agent, when it volunteered to prepare the documentations for the Defendan’s FNPF loan. The Plaintiff, the Defendant argues, therefore owed a duty of care to ensure that his approved loan application to the FNPF, was successfully processed and transferred to the Plaintiff.

Second, the Defendant argues that the property, valued at $27,500.00 at the time of the sale, was grossly undervalued when it was sold at $6,000.00. The Plaintiff, according to the Defendant, was under a duty to take reasonable care to obtain the true value of the mortgaged property at the time of the sale. He failed and therefore, had not acted bona fide.

Finally the Defendant claims that the Demand Notice had not been received by him, or properly served as required by law. As such, the eviction notice that followed was of no legal effect.

Plaintiff’s Arguments

The Plaintiff submits that as mortgagee, it had fully complied with the requirements of the law to allow it to proceed with the mortgage action under Order 88 of the High Court Rules. The Defendant had defaulted in his payment of installments and the Plaintiff as mortgagee has the right for the delivery of possession and/or the sale of the mortgaged property. These rights are recognised as common law rights as well as under the statutes. In the absence of fraud, the mortgagee’s exercise of power of sale has rarely been interfered with by the Court.

The Plaintiff denies that it was the agent for the Defendant in the latter’s dealing with FNPF. While it had acted on the specific request of the Defendant, their relationship remained that of a banker-client throughout. Counsel referred to Paget on Banking (9th Ed.) to support the contention that "banks perform gratuitously for their customers many useful functions for which customers would elsewhere have specifically to pay." Facilitating the transfer of the Defendant’s money from FNPF was, according to the Defendant, merely one of these.

As to defective and/or non service of the Demand Notice the Plaintiff claimed to the contrary it was first sent to the post office box number that had been given by the Defendant. In addition and annexed to its affidavit of 29 November 2001, is a copy of the Demand Notice that was served on the property and received and acknowledged by the Defendant’s wife. Counsel referred to sections 128 and 129 of the Property Law Act which allows services of any notice under it, including a Demand Notice to be effected through registered letter or by leaving the same on the land the subject of the mortgage.

Court’s Consideration

At common law, a mortgagee’s right to possession of the mortgaged property arise on the execution of the mortgage. It is independent of default by the mortgagor. This is because, under common law, the legal mortgagee becomes the legal owner of the fee simple of the mortgaged land, subject only to the equity of redemption. The mortgagee in this situation becomes more than merely a holder of a charge over the property, and consequently has the capacity to deal with it as an owner.

This situation at common law is modified under our own statutes. Section 75 of the Property Law, cited above, allows the mortgagee to enter into possession of the mortgaged land only upon default of payment. This right to enter into possession is reflected in the provision of the mortgage instrument itself at paragraph 12 which states:

"12. THAT the Bank upon default in payment of any money hereby secured or any part thereof or any interest may –

(a) enter into possession of the mortgaged land by receiving the rents and profits therof;

(b) distrain upon the occupier or tenant of the said land for the rent then due; or

(c) bring an action of ejectment to recover the said land either before or after entering into the receipt of the rents and profits thereof or making any distress as aforesaid and either before or after any sale of such land affected under the power sale given or implied in this mortgage in the same manner in which the Bank might have made such entry or distress or brought such action if the principal sum was secured to the Bank by a conveyance of the legal estate in the mortgaged land.

(d) ... ... ... ..."

The essential facts of this case are not in dispute. The Plaintiff claims, and the Defendant concedes, that the latter owes money through default in repayment of installments of a loan, the subject of the mortgage.

The issue, which is central to all the arguments advanced by the Defendant is whether the Plaintiff had followed the proper procedures and acted legally in exercising its powers as a mortgagee.

First on whether the Plaintiff had acted as agent for the Defendant in the latter’s dealing with FNPF. Following the defaults in his installment payments, the Defendant sought and obtained the approval of from FNPF for a loan of $3755.00. Since the money was for the purpose of paying the balance of the Defendant’s housing loan from the Plaintiff, the Plaintiff had tried to facilitate the transfer of the money. The Defendant advances the argument that the Plaintiff, by gratuitously offering itself to assist in securing the transfer of the FNPF fund, it had created a legal relationship as that of an agent to the Defendant, and such it owed a duty of care in ensuring that all reasonable steps were taken to protect the Defendant’s interest.

I do not believe that such a relationship between the parties came into being. It is true that the Plaintiff had offered itself to be the point of contact for the Defendant in his dealing with the FNPF. However this was essentially for the convenience of the Defendant. In my view it amounted to no more than an extention of a banker-client relationship wherein the Plaintiff as a banker, gratuitously offered itself to assist one of its customers. But even if this Court were to find that there had been a special relationship created which imposed on the Plaintiff a duty of care, such care could not possibly extent to searching and trying to locate and find the Defendant after he failed to respond to both the Plaintiff’s letter of 29 September 1999. It surely is the duty of the Defendant quite apart from protecting his own interest, to enquire and find out the status of his application if no response was forthcoming. That he failed to answer the letters, was entirely his own fault. The Plaintiff, under the circumstances, had done all that was required of it following its despatch of the letter of 29 September.

The Defendant’s valuation of the mortgaged property at 30 October 2001 was $27,500.00. The Plaintiff had accepted a tender for the purchase of the property for the sum of $6,000.00. This was in June 2000. The Defendant argues that the mortgaged property was being sold at well below its true value.

In a mortgagee sale, the power to sell is given to the mortgagee to exercise first and foremost, for his own benefit to enable him to realise his debt (see: Warner v. Jacob (1882) 20 Ch D220 at 234; Farrar v. Farrar Ltd. (1888) 40 Ch D395 at 398). All that is required of the mortgagee is a duty to act bona fide in the conduct of the sale. As Lindley L.J. said in Farrar’s case at p.411, that if in the exercise of his power the mortgage "acts bona fide and takes reasonable precautions to obtain a proper price" the mortgagor has no redress even though more might have been obtained if the sale had been postponed. In Cuckmere Brick Co. v. Mutual Finance Ltd. [1971] Ch 949, Salmon L.J. added, at p.966:

"It is impossible to pretend that the state of the authorities on this branch of the law is entirely satisfactory. There are some dicta which suggest that unless a mortgagee acts in bad faith he is safe. His only obligation to the mortgagor is not to cheat him. There are other dicta which suggest that in addition to the duty of acting in good faith, the mortgagee is under a duty to take reasonable care to obtain whatever is the true market value of the mortgaged property at the moment he chooses to sell it ......

The proposition that the mortgagee owes both duties, in my judgment, represents the true view of the law."

Similar sentiments were expressed in Tse Kwang Cam v. Wong Chit Sen [1983] UKPC 28; [1983] 3 All ER 54 (Privy Council), Parker Tweedle v. Dumbar Bank [1990] 3 WLR 778; and China and South Sea Bank v. Tan Sam Gin {1990} 1 AC 536.

In my view the duty of the mortgagee to act bona fide includes good faith and reasonable care. While he is entitled to sell the mortgaged property at anytime, he must ensure that he is at the same time paying due regards to the interests of the mortgagor. For example, in Standard Chartered Bank Ltd. v. Walker {1982} 3 All ER 938, the Court held that there must be sufficient time allowed to permit proper advertisement to be made so that the best price obtainable can be obtained. It may also be necessary for the mortgagee to delay the sale if there are clear signs that the property market was improving rapidly and substantially as the Court held in Dimmick v. Pearce Investments Pty Ltd. (1980 43 FLR 235.

In this case, the Plaintiff had advertised the sale of the mortgaged property nine (9) times between July 1999 and December 2000. The property had been on the market for over 16 months and, according to the Plaintiff only one (1) offer had been received during this total period. It could hardly be claimed by the Defendant therefore that not sufficient time had been allowed to advertise the mortgaged property.

The offer of $6,000.00 was all that had been received, the offer having been made in May 2000. There was political turmoil during this period and it was to be expected that the property market would become depressed. The Plaintiff, like any other going concerns needed business to continue and having advertised extensively, decided to sell to the only bidder. It would be unreasonable under the circumstances in my view, to expect the Plaintiff to delay further the sale in the hope for an improved market to sell in.

The valuation given by the Defendant on the mortgaged property which the Plaintiff claims is "exorbitant," is dated 30 October 2001, almost a year later. This Court, cannot regard the figures given by the Defendant as the value of the property to be directly relevant to the consideration of the issue of bona fides of the Plaintiff at the time of the sale. In the Court’s view, the Plaintiff had exercise all reasonable care and had acted in good faith, when it sold the mortgaged property for the price of $6000.00. Under the circumstances above, there can be no arguments that the property was sold "undervalued".

The Defendant’s final argument is that the Demand Notice was not properly served in that, he was not personally served and that the whole process that ensued were rendered invalid as a result. This allegation is refuted on the facts by the Plaintiff stating that it had complied with the requirements of service of notice under section 128 of the Property Law Act. But even if the provisions had not been properly complied with, the Courts have favoured in Kadeer’s Case (supra) and much earlier in Prichard v. Wilson (141) ER 740 the view that failure to give notice prior to the sale by the mortgagee will not result in the setting aside of the sale on the ground of failure to give notice. The remedy for the aggrieved party lie in damages against the mortgagee which he would have to prove.

In the end this Court finds for the Plaintiff. Order is made for the immediate delivery of possession to the Plaintiff by the Defendant or any other person in possession of the mortgaged property.

Costs of $200.00 is awarded against the Defendant.

F. Jitoko
JUDGE

At Suva
11 March, 2004