Ali's Civil Engineering Ltd v Habib Bank Ltd [2007] FJHC 130; Civil Appeal No 94 OF 2006 (16 March 2007)

IN THE HIGH COURT OF FIJI

AT SUVA

CIVIL JURISDICTION

CIVIL ACTION NO. 94 OF 2006

BETWEEN

1. ALI'S CIVIL ENGINEERING LIMITED
2. VITIANA TIMBERS (FIJI) LIMITED
Plaintiffs

AND

1. HABIB BANK LIMITED
2. CHALLENGE ENGINEERING LIMITED
3. NATIONAL BANK OF FIJI t/a COLONIAL NATIONAL BANK
4. DIRECTOR OF LANDS AND SURVEYOR GENERAL
5. REGISTRAR OF TITLES
6. ATTORNEY GENERAL OF FIJI
Defendants

Dr. S. Sahu Khan for the Plaintiffs
Ms. B. Narayan for the 1^st Defendant
Mr. N. Lajendra for the 2^nd & 3^rd Defendants
Mr. Z. Khan for the 4^th, 5^th & 6^th Defendants

Date of Decision: 16.3.07

DECISION

This is an application by the plaintiffs seeking the following orders:

(a) an injunction against the defendants seeking to restrain them mainly from completing the mortgagee sale of the Land under Mortgage Number 8465 registered on 8 June 2004;

(b) the Defendants and/or their Servants/agents and workmen be restrained from interfering with the occupation and quite enjoyment of the Plaintiffs in respect of the lands and Property comprised in "Lot 1 SO 4379 State Foreshore containing an estimated area of 2.2938 hectares situated in the District of Naitasiri in the Island/Province of Naitasiri and being L. D. Ref Number 60/511 Together with all improvements and fixtures thereon";

(c) the Fourth Defendant do not grant any further consent to any dealings in respect of the land being Lot 1 SO 4379 State Foreshore containing an estimated area of 2.2938 hectares situated in the District of Naitasiri in the Island/Province of Naitasiri.

The application was supported by an affidavit. The defendants filed affidavits in reply.

On 9 March 2006 the Court granted interim injunction until further order of this Court.

At the time of applying for the injunction ex parte the plaintiffs filed a writ of summons as well claiming, inter alia, that:

(a) The First Defendant has no rights or interests as Mortgagee in respect of the land comprised in Ref Number LD 60/511 being Lot 1 SO 4379 containing 2.2938 hectares and situated at Nokonoko Road, Laucala Beach Estate in Suva; and

(b) The Variation of Mortgage registered as Number 8465 with the Registrar of Deeds on 8th June 2004 on which the First Defendant is relying on to exercise its powers of sale over the said Property is a forgery by the First Defendant and is fraudulent and therefore null and void;

(c) Damages (including special General, exemplary and punitive) against the 1^st and 4^th defendants in the sum of 12 million dollars.

The plaintiff's argument

The plaintiff's counsel has clearly set out in his written submission the background facts of the case and has stated the law for the Court's consideration in dealing with the application.

The plaintiffs' counsel's contention (as per his submission) is set out hereunder:

The Defendants are well aware that the real issue is whether all the Lands claimed by the First Defendant to be included in the purported mortgage is so.

The Plaintiffs say as we can be seen in the Affidavits that when the original mortgage was purportedly executed only one Lot as specified in the mortgage was included in the mortgage (see Annexure "A" to the affidavit of Bahadur Ali of 7^th March). Later another adjacent Lot was agreed to be granted by way of Lease in an approve notice to the First Plaintiff ("The Additional Lot").

However at the outset it is a very pertinent and relevant, nay absolutely paramount to note that at no time or stage that the Lessee (The First Plaintiff) ever execute any mortgage or variation of mortgage to include the said Additional Lot in the Original mortgage.

However, the First Defendant and/its agent and or Solicitors had the audacity and courage to Fraudulently and without the authority of the signatures of the original mortgage or to take a copy of the original Registration of the Original mortgage and make changes to the description of the Land to include the said additional Land in the Original document. Then register the fraudulently altered mortgage with the Registrar of Deeds and got a new mortgage number 8465.

This is the fundamental and basic issue that has to be determined by this Honourable Court after hearing full Viva Voce evidence. It cannot be determined by means of Affidavit alone. The opposition of the parties are diagonally opposite. Such situation has been repeatedly determined by Court.

With respect the Courts have repeatedly held that determining issues of fact or law is not the appropriate procedure so to do on affidavits alone. The Plaintiffs have not been given the opportunity to give Viva Voce evidence and/or to cross-examine the deponent of the Defendants' Affidavits in particular the fact adduced therein. The affidavits of both the plaintiffs and defendants clearly show that there are triable issues which must be determined by oral evidence and after cross-examination of the respective witnesses.

It has been held that making decision and trying a case on affidavit is not correct course, if the matter is decided in such a way then, with respect it would go against decision of Court such as Wenlock v Moloney (1965) 2 All ER 871, CA where it was held as the headnotes reads:-

"the appeal must be allowed, because the course taken by the master amounted to trial of the case in chambers, without discovery, oral evidence or cross-examination, and so was neither authorized by the rules nor a proper exercise of the inherent jurisdiction of the Court".

On page 873 ibid, Sellers, L. J. stated very appropriately:-

"There have been cases where affidavits have been used to show that an action was vexatious or an abuse of the process of the Court but not, as far as we have informed, or as I know, where it has involved the trial of the whole action when facts and issues had been raised and were in dispute. To try the issues in this way is to usurp the function of the trial judge".

The Plaintiffs have raised substantive matters of the clear fraud of the First Defendant and very significantly the first, second and the third Defendants clearly rely on that fraud for their purported rights.

Very significantly there was no application ever made by the First Plaintiff as the lessee for the Director on Lands consent to Mortgage the Lands comprised in the Additional Lot to the First Defendant.

The Purported mortgage which was registered on 8^th day of June 2004 was exactly the same original said mortgage which was registered in 1999 except there is an unauthorized and forged variation by adding the description of the Land to include the 2.2938 hectares of the additional Lot. Annexure "G" to the affidavit of Bahadur Ali sworn on 7^th March 2006 (the original affidavit is relevant and which is another affidavit filed in Action No. 516 of 2004 and is herein referred to as "The First Affidavit" and in which action. The First Plaintiff herein was First Defendant and the first Defendant herein was Plaintiff.

Dr. Sahu Khan vehemently argues, inter alia, as follows in his submission saying that there are triable issues:

The variation and registration of the mortgage on 8^th day of June 2004 which is Annexure "B" to the said affidavit is a forgery as the first Defendant never authorized the insertion of the therein made by inserting the variation namely adding "now known as Lot 1 SO 4379 State Foreshore" under the margin" description and adding "now 2.2938 has (estimated area)" under the margin Area" and in particular as stated above the original mortgage was executed by Bahadur Ali and his wife and which is Annexure "B" herein neither of them authorized or approved such variation and/or registration of the mortgage "B" to the said Affidavit.

The Defendant never authorized the plaintiff and/or its Solicitors to have the said purported variation to be made and/or to register the same and in any event the First Defendant never applied for the consent to the Director of Lands to have the said Mortgage to be extended to the land comprised in the Second Lease or in any event to have consent for a mortgage over the Third Lease.

Counsel submits that the D2 and D3 rely on their purported rights under a 'clear fraudulent transaction and/or dealing of the D1 in purporting to exercise its power of sale under an absolutely clearly proven forged document.'

Therefore he says that the D2 & D3 cannot rely on a fraud to substantiate their purported rights.

In short Dr. Sahu Khan submits that there is no mortgage at all validly in existence to enable D1 to exercise its power of sale. He said that it was a forged document and that the said purported mortgage over the whole of the land of Lot 1 S04379 was never consented to by the Director of Lands, the said purported mortgage was executed at the latest on 3 August 1999 when said Lot 1 S04379 was not in existence.

First Defendant's submission

The D1 has set out the position regarding the property in question very clearly and I think I ought to set it out in the words of counsel in her submission which is as follows:

The said property comprised in Lot 1 SO 4379 being L.D. Ref Number 60/511 has already been sold by the First Defendant under mortgagee sale to the Second Defendant;

The settlement of the said sale was effected on 20^th February 2006 and the Transfer document has been duly stamped and consented to by the Director of Lands;

The said sale or the Mortgage over the said Property is not fraudulent and the first time the Plaintiffs have ever raised these allegations pertaining to the mortgage security over the said Property was after the First Defendant had rejected the Plaintiffs proposal for payment of the outstanding debt after the First Defendant had proceeded to advertise for mortgage sale of the said Property;

The Plaintiffs through Mr. Bahadur Ali have always represented to the First Defendant that it has a valid mortgage security over the said Property and are therefore estopped from denying the same or challenging the validity of the said Mortgage security;

The Plaintiffs have been in default of their outstanding debt with the First Defendant since at least the year 2002 when the First Defendant had made its first formal demand through its solicitors for payment of the outstanding debt;

Mr. Bahadur Ali, the Managing Director of the Plaintiff Companies and deponent of the Plaintiffs' Affidavit in Support of the interim injunction sought was aware of the First Defendant's intention to sell the said Property since at least the year 2004 but took no steps to restrain the intended sale;

The First Defendant upon Mr. Bahadur Ali's request had allowed him the opportunity to sell the said Property as part of Mr. Ali's proposal towards settlement of the outstanding debt of the Plaintiff Companies but which he failed to do;

Mr. Bahadur Ali had specifically agreed to the sale of the said Property, to the Second Defendant for the price of $2.5 million for recovery of the outstanding debts.

The learned counsel for the D1 made comprehensive and helpful legal submissions herein.

Ms. Narayan says that the D1 will be prejudiced if the injunction sought by the plaintiffs is granted. She further submits that the plaintiffs have not provided any substantial reason for seeking an injunction.

Counsel submits that in all the circumstances of this case the interim injunction granted herein be dissolved.

Submission of 2^nd and 3^rd defendants

The learned counsel for the D2 and D3 submits that the central issue pertaining to these proceedings is the variation that was done to the mortgage document of D1.

The events leading to the amalgamation of the two lots concerned herein have been very clearly set out in the counsel's submission which is as follows:

As deposed by Mr. Bahadur Ali on behalf of the First and Second Plaintiffs in the Affidavit in Support, the First Plaintiff had in June 1994 bought a piece of land known as Lot 2 DSS 116 comprising an area of 3500 square meters and situated at Nokonoko Road, Laucala Beach Estate pursuant to an Approval Notice No. LD 60/511.

In 1996, Mr. Bahadur Ali on behalf of the First Plaintiff applied to the Director of Lands, the Fourth Defendant, for the lease of a vacant piece of land adjacent to the property bought in 1994.

That particular application was given a favourable consideration but subject to certain conditions.

However it was not until 7^th of January 2000 that the Director of Lands granted the lease and Mr. Bahadur Ali on behalf of the First Plaintiff accepted the terms and conditions of the lease.

Now if may I may refer your Lordship to Paragraph 10 of the Affidavit in Reply of Mr. Babu Lal which states that....

"On 3 April 2000, the two leases were amalgamated into one and there was one Approval Notice that was issued to cover the land area for both the leases.

So the initial lease of 1994 on which the First Defendant had Mortgage over and the 2^nd lease that was acquired by the First Plaintiff on 7 January 2000 was amalgamated by virtue of the Approval Notice issued by the Director of Lands on 3 April 2000. So effectively the two leases were joined into one and it was referred as only 1 Lot namely Lot 1 SO 4379 State Foreshore comprising the land area of the two leases (2.2938 hectors)".

The D2 in its affidavit of Suresh Bhai Patel, the Managing Director of D2 sworn 3 April 2006 stated that the D1 "advised us that the first plaintiff has agreed to sell the property for $2,500,000.00 (Two million five hundred thousand dollars). I believe that on 2^nd December 2005 the first plaintiff had written to the first defendant to this effect." A copy of this letter dated 29^th December 2005 is attached to Patel's affidavit.

The said letter states, inter alia, that "we are interested to sell our above property (presently mortgaged with Habib Bank Ltd) or 2.5 million Fiji Dollars to the interested parties. Once the sale is confirmed we would like the buyer to give us 12 months to use a part of the land at the negotiated rental basis, for at least $5,000.00 per month or so, from the date of signing of sale and purchase agreement. You are requested to ask the interested buyer to proceed with the sale and purchase agreement for the legal process for necessary transaction."

Thereupon being informed of the plaintiff's Wish the D2 agreed to purchase the property from D1. The necessary documents were prepared, settlement took place and the documents were lodged for registration.

The D2 says that it is suffering loss and damages as a result of the said order of 7 March 2006 and will continue to suffer enormous loss and damages if the order continues.

The D2 further states that the 'balance of convenience' favours that the said order be immediately removed and that plaintiff seek damages against D1 if D1 has in any way erred in exercising its powers under the mortgage.

The D2 is asking for the dissolution of the interim injunction.

(i) Consideration of the issues

I have stated hereabove in considerable detail the facts and circumstances surrounding the mortgagee's exercise of its power of sale under the mortgage.

The submissions of all counsel have also been briefly outlined and I have given due consideration to them. It is in the light of the facts in this case and the law that is applicable that the Court has to decide whether the interim injunction should continue until the determination of this action.

As already outlined hereabove the land in question was acquired with the consent of the Director of Lands. Also there is a mortgage which has been duly stamped.

All in all as there was a mortgage and the mortgagee (the first defendant) exercised its power of sale. The property was sold by D1 to D2. Settlement was completed and appropriate documents duly stamped were lodged for registration with the Registrar of Titles on 20 February 2006. The consent of the Director of Lands to the Transfer document and Mortgage are endorsed on the respective documents. On the date of settlement the D2 paid the sale price to the D1.

The position at the time of settlement on 20 February 2006 was that there was no High Court order or any other order in force which prevented the parties to the sale transaction from completing the sale. Hence the sale was completed. The D3 was a bona fide lender without any notice of either the P1's or P2's interest. If anything the P1 through Bahadur All had agreed to the sale of the property as stated hereabove.

It is noticed from the affidavit of Zahiruddin, assistant Vice-President and Credit Officer of D1 (sworn 21 March 2006) that there is material non-disclosure herein when the application for ex parte injunction was made. He said that Bahadur Ali in Action No. 35 of 2004 (mentioned in paragraph 37 (iii) of the Plaintiffs' Statement of Claim), made his first attempt to restrain the D1 from proceeding with mortgagee sale of the said property when D1 had initially started advertising the property for sale. There Winter J dismissed the application for injunction and the substantive matter is taking its normal course and D1 has filed its Statement of Defence and counterclaim to the said action.

Be that as it may, the stumbling block is Dr. Sahu Khan's contention regarding the alleged fraud which goes to the root of the matter and if proved could upset subsequent dealings with the land.

The plaintiffs are in an application of this nature required to give undertaking as to damages. In this regard all that has been said is that they are worth $10 million dollars without giving any supporting evidence. In a serious matter such as this involving millions of dollars what is this type of undertaking worth? This statement does not assist the Court at all.

An important fact to be noted in this case is that the property had already been sold, settlement had taken place and documents of transfer and mortgage had already been lodged for registration when the present action was instituted and application for injunction made.

It is evident that before this application the plaintiff had accepted the mortgage and had been in contact with D1 when repayment was in arrears. No question of fraud had ever been raised before now. So much water has gone under the bridge since the registration of the mortgage with the parties and the third parties relying on it.

The question that arises is what to do in such circumstances. It is not for me in this application for injunction to upset the apple cart by putting the parties back to their original position.

The issue to be determined is whether in all the circumstances, particularly when the property has been sold and moneys paid and new mortgages executed, interim injunction should continue or not or whether one should leave the parties to their remedy in damages in the face of the serious allegation of fraud.

The law

According to my understanding the principles governing the grant or refusal of interlocutory injunctions are more flexible these days than before. In an appropriate case greater weight is given to the "balance of convenience".

The difficulty in the present case is that on the one hand property has been sold and registration has been held up only because of the interim injunction herein and on the other hand there is this serious allegation of fraud which if proved could have drastic consequences affecting all the dealings.

No doubt an important part of the function of the interlocutory injunction is to maintain the 'status quo', so far as this can be done, pending the hearing of the substantive action.

It is the Court's function on an application for interlocutory injunction to make orders of such a nature as the circumstances call for pending the determination of the issues in the substantive hearing.

The general rules as stated by Walsh J in Inglis & Anor. v Commonwealth Trading Bank of Australia (1972) 126 C.L.R 161 at 164-165 is pertinent when he said:

"A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers 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 Halsburys' Laws of England 3^rd ed., vol.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 as the amount claimed into court, that is, the amount which the mortgagee swears to be due to him, unless, on the terms of the mortgage, the claim is excessive'." (emphasis mine)

Walsh J goes on to say:

"If the debt has not peen actually paid, the Court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefits 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 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."

The above statements of principle hit the nail on the head. I adopt those statements. This I would say is sufficient enough reason to grant injunction on terms in the circumstances of this case.

Application of law to facts of this case

The plaintiffs have raised many issues and they say that there are serious questions to be tried and the main one being the allegations of fraud but the defendants (D1, 2 & 3) refute this.

It is not for me in this application for the dissolution of the injunction to delve into the merits of the plaintiffs' claim on affidavit evidence. Because of the serious allegation of 'fraud' the issue herein cannot be decided without the trial of the action.

The issue in this application is whether the plaintiffs have shown such a case as to make it proper for the Court to preserve the status quo until a full trial.

In Henry Roach (Petroleum) Pty Ltd v Credit House (Vic.) Pty Ltd [1976] VicRp 26; [1976] V.R 309 at 318 Lush J stated:

"However, the making of allegations and even the production of extensive evidence do not of themselves establish that there is a serious question to be tried, nor does the fact that the case is argued."

Further, Lush J ibid at 319 expressed the view that:

"In my respectful opinion the speech of Lord Diplock in American Cyanamid case recognizes clearly that interlocutory injunction is a form of relief sought in a wide range of cases upon infinitely variable materials and in infinitely varying circumstances and that from case to case the relevant factors may have varying weight."

In the present case in all the circumstances of this case I am satisfied that there is here serious question to be tried for the purposes of grant or refusal of an injunction herein.

At p409 in American Cyanamid, Lord Diplock said:

"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."

Further, Lord Diplock in American Cyanamid Ltd v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 at 407 G-H said:

"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 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."

For these reasons the balance of convenience lies in favour of granting the injunction but on terms.

The factors to be borne in mind in considering whether to grant an interlocutory injunction has been succinctly stated as follows by the Fiji Court of Appeal in Chung Exports Ltd v Food Processors (Fiji) Ltd (Civil Appeal ABU0012 of 2003S - judgment 26.8.03).

"The court will consider whether there is a serious question to be tried, and if so, where lies the balance of convenience. The latter will require consideration of such factors as the relative strength of the plaintiffs' claim, whether damages will be an adequate remedy, whether the defendant is in a position to pay damages, and any other relevant factors. If the factors are reasonably balanced, if may be appropriate to maintain the status quo. In the end, the court is required to determine where the overall justice lies."

The balance of convenience must be considered after deciding whether there is a serious question to be tried. It was so held in the American Cyanamid case as follows:

"allowing the appeal, (1) that in all cases, including patent cases, the court must determine the matter on a balance of convenience, there being no rule that it could not do so unless first satisfied that, if the case went to trial on no other evidence than that available at the hearing of the application, the plaintiff would be entitled to a permanent injunction in the terms of the interlocutory injunction sought; where there was a doubt as to the parties' respective remedies in damages being adequate to compensate them for loss occasioned by any restraint imposed on them, it would be prudent to preserve the status quo (post, pp. 406C-F, 407G, 408F)

On 'balance of convenience' aspect the following matters are to be considered as stated in the American Cyanamid case (ibid p408-409):

"(a) First, the court must consider the adequacy of damages as a remedy for the loss the applicant will have sustained if finally successful at trial;

(b) Secondly, if damages would not provide an adequate remedy for the applicant in the event of the applicant succeeding at the trial, the court must then consider whether if the defendant were to succeed at trial it would be adequately compensated under the applicant's undertaking as to damages;

(c) Where there is doubt as to the adequacy of the respective remedies and damages available to either party or both, the question of balance of convenience or the risk of doing injustice arises;

(d) Where other factors are evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo;

(e) The unsuccessful party on an interim injunction application, if that party is ultimately successful at trial, may suffer some disadvantage for which damages may not provide full compensation. The comparative disadvantage to each party, which could not be compensated in damages, is relevant to the assessment of the balance of convenience;

(f) If the extent of uncompensatable disadvantage to each party would not differ widely, it may be appropriate to have regard to the relative strength of each party's case as revealed by the affidavit evidence;"

Conclusion

In the light of the facts herein I am satisfied that there is a serious question to be tried. In this regard the plaintiffs do not have to show by establishing a prima facie case that they will get a permanent injunction after trial. There is sufficient affidavit evidence before me to show that the claim is not frivolous, vexatious or hopeless (re Lord Cable (decd), Garrat v Waters [1976] 3 All ER 417). Without going into details I find that there is merit in Dr. Sahu Khan's argument about how other writings appear on the mortgage in relation to the property in question without the mortgagor's knowledge. These doubts can only be resolved at the trial of the action.

By refusing the injunction I find that the plaintiffs will suffer greater loss than the defendants. Damages will not be an adequate remedy.

The balance of convenience in this case lies with the plaintiffs. For the above reasons, it is ordered that the interim injunction continue until the determination of this action subject to the plaintiffs paying into Court the full amount owed by them under the mortgage within 14 days from the date of this decision and failure to do so will result in the injunction being dissolved without the need to come to Court. I further order costs against the defendants to be taxed unless agreed.

D. Pathik
Judge

At Suva
16 March 2007