Asset Management Bank v Rigamoto [2008] FJHC 375; HBC 132.2001 (31 October 2008)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

ACTION NO.: HBC 132 OF 2001

BETWEEN:

NBF ASSET MANAGEMENT BANK
Plaintiff

AND:

ROBERT McEWEN KASAVU RIGAMOTO
First Defendant

MARIETA MAKARITA RIGAMOTO
Second Defendant

VISANTI MAKRAVA
Third Defendant

RAJESH CHAND
Fourth Defendant

RANJIT PRASAD f/n Suruj Bali
Fifth Defendant

REGISTRAR OF TITLES
Sixth Defendant

Counsels: Ms R. Lal for Plaintiff
Ms P. Salele for 1^st and 2^nd Defendants
No Appearance for 3^rd, 4^th and 5^th Defendants
Ms N. Karan for 6^th Defendant

Date of Hearing: 1^st September, 2008
Date of Judgment: 31^st October, 2008

JUDGMENT

[1] The plaintiff a statutory body had taken over all rights and liabilities of the National Bank of Fiji under the National Bank of Fiji Restructing Act. The first and second defendants were customers of the plaintiff Bank. They had obtained certain advances from the Bank between the years 1991 to 1995. As security for the loan the two defendants gave among other securities a mortgage over their freehold land comprised in Certificate of Title 17821 having an area of 64 acres and 24 perches. It was agricultural land. The amount initially advanced and secured was $404, 589.97. Over period of time interest has built up. It was agreed by the parties in the pre-trial conference Minutes that the two defendants namely the Rigamotos never repaid the Bank and the debt is still outstanding and due.

[2] The third defendant was a Director and the Chief Manager of the plaintiff Bank at the material time. The Rigamotos knew the third defendant well. They were all from the island of Rotuma. The fourth and fifth defendants were farm hands who worked for the Rigamotos and mainly looked after the dairy cows and the milking business. They were paid wages at the rate of $7.00 per day. They ended up with having the land transferred to them without having paid a cent.

[3] There were four people who testified. They were Sala Bulavakarua who is a Bank Officer, Rajesh Chand the fourth defendant and the Rigamotos. The problem between the parties arose when the Rigamotos on 13^th June 1995 transferred Certificate of Title 17821 to the two farm hands. The consideration shown on the transfer is $420,000.00. The problem is compounded by the fact that usual conveyancing and banking practices in transfer of mortgaged land were not followed.

ISSUES:

[4] The issues in this case are as follows:

(a) whether the transfer of Certificate of Title 17821 from the Rigamotos to the two farm hands was done fraudulently;

(b) Is the plaintiff bound by the acts and decisions of the third defendant?

Issue (a) - Whether the transfer to the farm hands was fraudulently done:

[5] The plaintiff submits that the transfer was fraudulently done so the Rigamotos could escape from their debt to the Bank. Sala Bulavakarua told the court that there were no written instructions from the Bank to anyone to discharge the mortgage given by the Rigamotos and transfer the land to the two farm hands. She further told the court that there were no formal applications by the farm hands for a loan. They made no payments to the Bank and there was no transfer of Rigamoto's debt to the two farm hands. According to this witness the usual practice of the Bank is to give written instructions for transfers of mortgaged properties. She stated that the Bank only came to know of the transfer after it had been done.

[6] The Rigamoto's version was that the farm was not operating satisfactorily as they expected. Mr. Rigamoto told the court that he went and saw the Chief Manager and told him that they wanted to surrender the farm to the Bank. He further told the court that he was informed that the Bank had customers wanting to buy properties and that is how the arrangement for transfer of the farm came about.

[7] He says that all he knew was that he was asked to go to Messrs G.P. Lala and Associates solicitors. He did not even know that the land was going to be sold until he reached the lawyer's office, a remarkable story indeed of a person going to a solicitor's office without knowing the purpose of the visit.

[8] I believe Sala Bulavakarua that Bank procedure is to insist on written instructions. The agreed bundle of documents endorses her comments. Examples of these are a letter dated 7^th November 1994 expressing Bank's approval to increase an overdraft facility to $35,000.00. It gives terms of offer and there is signed acceptance of the terms by the Rigamotos; again on 3^rd February 1995 when temporary increase in overdraft facility was granted to the Rigamotos, there was a letter written to them. These letters show that the Bank put matters into writing even if the amounts were not large.

[9] She stated that there were no written instructions given to the solicitors to discharge existing mortgage and to prepare fresh mortgage in the name of the two farm hands. She states there is nothing in the records to show that the Bank offered to take any mortgage from these two farm hands. She stated that there was lack of paper trail. In practice there would be need for proposal, approval by loan sector and assessment report from loans department. The report would then be forwarded to the Manager of the Department and then to the General Manager. The normal practice is that the whole process is documented.

[10] Definitely, Messrs G.P. Lala & Associates, a firm of solicitors prepared a transfer from the Rigamotos to the two farm hands. It is document 20 in the agreed bundle. It is dated 8^th June 1995. Messrs G.P. Lala & Associates could not possibly have acted of their own initiative. Absent written instructions, it is very probable that the third defendant gave verbal instructions for transfer of the land in complete disregard of Bank's usual procedures. Simply because the instructions are verbal does not make them invalid. Confirmation of verbal instructions could be done later but may have been overlooked and surely ignored.

[11] However, what is of concern is how the Bank could even give instructions for transfer of land from the registered proprietor to the third party unless they both, namely the transferor and the transferee agree. Like any contract there must be common intention between the parties.

[12] There are two ways a mortgaged property can be disposed off - firstly by mortgagee's sale where the mortgagee need not take consent of the mortgagor/registered proprietor. Secondly by the mortgagor with the consent of the mortgagee with the sale proceeds being paid to the mortgagee in liquidation or part payment of the debt.

[13] The present was the latter of the above two methods but not quite on all fours with it. Surely the vendor and purchaser would need to work out a purchase price, terms of purchase and payments and items included in the sale. Usually these conditions would need to be finalized before the transfer is signed. Often in a sale this big, a sale and purchase agreement is executed in addition to the transfer. The first defendant told the court that he did not know that the land was going to be sold until he reached the lawyer's office. He also told the court that the purchasers did not ask him about costs and production on the farm, the type of questions which a potential buyer would ask and information he/she would like to know. He further told the court that he did not determine the purchase price. He drew blank answers to series of questions in cross examination as follows:

Q: How did you decide the purchase price?

A: I did not decide the purchase price. I only learnt of it at G. P. Lala's Office when G.P. Lala told us.

Q: Why would G.P. Lala determine the purchase price?

A: That is a good question.

Q: As a vendor should you not decide the price?

A: No, it never occurred to me.

Q: How were the purchase price funds going to be dispersed?

A: I really don't know.

Q: Then how could Lala explain you thoroughly if you cannot answer these questions?

A: That is as far as he [Lala] went.

Q: You do not seem to know much?

A: Silence.

[14] Marieta Rigamoto told the court that she did not sign the transfer the same day as Robert Rigamoto as she was away overseas. She also told the court that she did not know that the two farm hands were going to buy the land until Mr. G. P. Lala the solicitor told them.

[15] One of the farm hands Rajesh Chand also gave evidence. He stated that he earned $7.00 per day and that he did not buy the farm. He had no discussions to buy the farm. He told the court that the third defendant told them to run the farm that is to milk cows and sell the milk. He told the court that he went to G.P. Lala's Office to sign papers to run the business. They then went back to the farm and continued their daily routine of milking cows, taking their wages from sales and rest they spent on maintenance of vehicles etc.

Analysis:

[16] A defence of non est factum is not lightly allowed when a person of full age and capacity has signed a written document embodying contractual terms: Fiji Development Bank v. Ragona - [1977] FamCA 81; (1984) 30 FLR 151. The general rule is that a party of full age and understanding is bound by his/her signature to a document whether he/she reads or understands it or not: Hewitt and Another v. Habib Bank Ltd. - ABU 7 of 2004.

[17] There are some documents which were signed by the two farm hands. They had apparently signed a mortgage copy of which is not included in the agreed bundle; they signed a blank guarantee which has not been witnessed; and an undertaking dated 3^rd July 1995 well after the signing of the transfer. It is difficult to comprehend the need to take such an undertaking if a mortgage had already been obtained from the two persons. Further Marieta Rigamoto told the court that when she went to sign the transfer at the solicitor's office she saw a document listing out the items which they sold. She was talking of the undertaking. I am of the view that she saw no such undertaking. The transfer was registered by 13^th June 1995 so she must have signed the document before 13^th if not on 8^th June 1995. The undertaking came into existence on 3^rd July 1995 so there was no possibility of her having seen this document.

[18] One of the farm hands was earning $7.00 a day. Robert Rigamoto stated that their wages were $1.00 an hour. It is very unlikely that these two farm hands impecunious as they were would embark on a venture this big. Rajesh Chand stated all he knew was to milk cows. I accept his explanation that they were led to believe by Makrava that signing the documents meant that the two were going to run the farm. He never believed that he was signing a transfer. He was misled into believing that the document he was signing were something other than what they really were. This is different from the usual non est factum situation. The farm hands had been misinformed about the contents of the documents. Rajesh Chand had only been up to Form 3 and knew little English.

[19] The problem for the Bank is that there was no proposal from the two farm hands; they may have signed a mortgage but the bank advanced them no money. There was no banker customer relationship. They did not pay any money to the Bank despite the fact that they gave an undertaking. There is nothing to suggest that the undertaking was given in response to a request made by the Bank. This absence of payment by the farm hands further fortifies the view that they thought they were signing documents to run the farm. However, I also note the judgment by default had been entered against 3^rd, 4^th and 5^th defendants which would suggest they accept liability. But then this order on default judgment has from records not been served on these defendants nor was the fourth defendant cross examined about it.

[20] The Bank is in a remarkably awkward position. There is a mortgage in its favour. However it is given by persons who have no banker/customer relationship so the Bank cannot make a demand from them or proceed to mortgagee sale. A previous mortgage was discharged without the Bank having been paid. Therefore even the first and second defendants' debt to the Bank remains unpaid.

[21] The first and second defendants had run into unforeseen difficulties. They faced marketing problems which they could not solve. On 10^th May 1995 Robert Rigamoto wrote to the Chief Manager of National Bank of Fiji stating that he still could not get a buyer because of non-availability of security and contributions as a pre-requisite. He refers to discussions in March between Makrava and himself. He refers to farm not being viable. This letter is a clear indicator that the Rigamotos were caught in a losing venture and had desire to get out of it and they were seeking assistance from the third defendant of how to "go about release/takeover".

[22] The first and second defendants therefore found themselves in a dilemma. They were lumbered with a farm which was not generating enough income. There was a mortgage which needed to be paid off. The Rigamotos were unable to find a buyer and they were desperate. The two farm hands were not clients of the Bank so they were not from the pool of Bank's customers looking for properties to buy. Rajesh Chand struck me as a simple rustic person but not foolish. He would have known that with his income it would be foolhardy to venture into an enterprise this big. I am of the view having heard him testify in a convincing coherent way that he was not interested at all in buying the property and the only reason he signed various documents was because he believed that it would enable him to run the farm. The only persons who were going to gain from this were the Rigamotos as it would enable them to extricate themselves from a difficult situation. I find that they knew Makrava well and he was prepared to assist the first two defendants. The Rigamotos have by this device managed to get out of their huge debt to the Bank and which to this day remains unpaid as the two farm hands have not paid a cent of their debt.

[23] Mr. Makrava really had no financial interest in the loan made to the Rigamotos. From a common sense point of view the Rigamotos would be a far better security for the Bank than the two farm hands. At the end of the day the Banks prefer to recover their advances with interest without having to enforce their security. It ensures sound banker-customer business relationship. So independent of some other force, Makrava had no interest or incentive to transfer the land to some one else. That incentive could only come from the Rigamotos who were in a "dilemma" in their own word.

Issue (b) - Is the Plaintiff bound by the actions of the third defendant?

[24] The third defendant was the Chief Manager of the Bank. He was probably one of the highest officials if not the highest officer in the organization. He would be answerable to the Board. Ms Salele submitted that there was no evidence that Makrava was acting beyond the parameters of his duties or scope of his authority in giving instructions to the lawyers to discharge the mortgage.

[25] She submitted that the mortgagee sale was open to it and it did not resort to it so the Bank must take responsibility for consequences of its actions. Ms Salele relied on cases dealing with vicarious liability in negligence to support her submissions.

[26] I have already found that the initiator of the scheme to obtain release for the Rigamotos from their debts were the Rigamotos. However, the Rigamotos would also have known that the prospective purchasers did not have the means to either pay them or pay the Bank. They would have known that the undertaking given by the two was useless as later events of no payments showed.

[27] Ms Salele's submissions would be sound if the Rigamotos had been unaware of the authority and extent of powers of the third defendant and were strangers to the whole transaction. But I have found that the unseen hand of the Rigamotos was at work here to the bank's detriment. Makrava was acting for their good and not for the bank's benefit.

[28] Even if the mortgage is discharged, there is no correspondence from the Bank itself to suggest that the Rigamotos were being completely released of their personal obligations to pay the debt to the Bank.

[29] I conclude that the two farm hands did not know that they were signing a transfer of land but something else. Accordingly I declare the transfer and the consequential mortgage given by them as void. The transfer and the mortgage given by them ought to be cancelled by the Registrar of Titles. The debt of $1,528,336.69 is not seriously challenged. It is the amount shown on plaintiff's exhibit 1 being Bank statement. Accordingly I enter judgment against the first and second defendants jointly and severally in the sum of $1,528,336.69. The plaintiff is entitled to its costs from the first and second defendants. Counsels had conducted their case strictly according to issues and therefore I fix costs at $2,000.00.

Final Orders:

[30] I make the following orders:

(a) that the transfer number 379097 registered on 13^th June 1995 from the first and second defendants to the fourth and fifth defendants is declared void and is to be cancelled by the sixth defendant.

(b) that any mortgage given by the fourth and fifth defendants over Certificate of Title 17821 is declared void and is to be cancelled by the sixth defendant.

(c) that the first and second defendants be restored as registered proprietors against Certificate of title 17821.

(d) that the discharge of the mortgage number 312891 was invalid.

(e) that the mortgage number 312891 be restored against the Certificate of Title 17821.

(f) that there be judgment for the plaintiff against the first and second defendants in the sum of $1,528,336.69.

(g) I order the first and second defendants to pay costs to the plaintiff in the sum of $2,000.00.

(h) There is to be no order of costs against the other defendants.

[Jiten Singh]
JUDGE

At Suva
31^st October 2008