Matapo Ltd v Fiji National Provident Fund [2009] FJHC 360; HBC68.2009 (16 September 2009)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION HBC 68 OF 2009

BETWEEN:

MATAPO LIMITED
PLAINTIFF

AND:

FIJI NATIONAL PROVIDENT FUND
FIRST DEFENDANT

AND:

FIJI DEVELOPMENT BANK
SECOND DEFENDANT

Mr K Muaror with Mr D Chisholin for Plaintiff
Mr A K Narayan with Ms A Ali for First Defendant
Mr D Sharma for Second Defendant

JUDGMENT

The Court has before it four applications. The first application in time is now an inter partes application by the Plaintiff for four orders that in effect seek to achieve the same purpose. The plaintiff is seeking an interim injunction restraining the First Defendant from exercising its rights as a mortgagee by proceeding with the sale of land at Momi Bay. This application is dated 23 February 2009 and was filed on 24 February 2009.

The second application is a summons for possession dated 9 April 2009 filed by the First Defendant. The First Defendant seeks an order for vacant possession of Stage 1 of the Momi Bay Resort Development. The First Defendant also seeks delivery of approved scheme plans and architectural and engineering drawings and plans of the Momi Bay Development.

The third application is an ex parte Notice of Motion seeking an urgent hearing of the Plaintiff’s application for an interim injunction. The application is dated 3 August 2009 and was filed by the Plaintiff on 4 August 2009.

The fourth application is by Notice of Motion filed on 3 August 2009 by the First Defendant. The application is similar to the Plaintiff’s ex parte application.

Essentially the latter applications were aimed at obtaining a hearing date for the two substantive applications before 25 August 2009. The sale of the Momi Bay Development was scheduled for 25 August 2009. The affidavit material that was filed by the parties in respect of these four applications can only be described as voluminous.

The four applications were subsequently listed for hearing in the Labasa High Court on Friday 21 August 2009. At the hearing Counsel agreed that there was no requirement to formally rule on the third and fourth applications as the substantive applications were now before the Court as a matter of urgency. As a result the third and fourth applications are dismissed with no orders as to costs.

As the matter was urgent and with the concurrence of Counsel, a brief ruling was delivered on 21 August 2009 at the conclusion of the submissions presented by Counsel. In that Ruling I indicated that the Plaintiff’s application for an interim injunction was dismissed. The first Defendant’s application for possession of the land and improvements at Momi Bay was granted. The application for possession of plans and drawings as described in the application was adjourned to a date to be fixed. The reason was that Counsel had not adequately addressed the question.

I also indicated that a more detailed judgment with reasons would follow. It is appropriate to reproduce here the text of the Ruling (corrected) that was delivered on 21 August 2009.

"This is an application for an injunction to restrain the first defendant from conducting a mortgagee sale that is scheduled to be conducted on 25 August 2009.

The affidavit material before the Court is substantial. Counsel have presented oral submissions and handed up written submissions.

As a matter of urgency a Ruling is required by the parties immediately following the hearing. Detailed reasons will be published at a later date.

The principles that are to be applied by this Court in such an application are well known and need not be repeated at this point in time.

Having read the affidavit material and listened to the submissions presented by Counsel, I am satisfied that the Plaintiff’s Statement of Claim does raise serious issues or questions to be tried.

However, I am not satisfied that the balance of convenience falls in favour of the Plaintiff. There has been no substantive work carried out at the Momi Bay Resort Development site since December 2006. The work that had been carried out has lost some of its value. The Plaintiff has not submitted any sound proposal as to what will happen to the development in the event that the injunction were granted.

Given the Plaintiff’s present financial position it is most unlikely that it would be able to find the necessary finance to undertake the balance of the construction work.

Even if the letter dated 19 March 2008 from the second defendant to the Plaintiff was not effective to appoint the first defendant as agent, I am satisfied that it was sufficient to indicate that it was delegating its powers and rights under clause 23.1 of the Lending Agreement.

Accordingly, the application is dismissed.

On the summons for possession, an order will be made in relation to the land and improvements. The question of possession of the drawings and plans will be reserved until this Court hears further argument from Counsel.

Costs in respect of both applications will be in the cause."

The background may be stated briefly. The Plaintiff is the owner and developer of an integrated resort development known as the Momi Bay Resort. The first stage of this development comprised a five star hotel, a residential complex and a nine hole golf course.

Construction work commenced in about June 2004 and had effectively ceased in December 2006. The affidavit material indicates that the parties are not in agreement as to how much of Stage 1 had been completed as at December 2006. It does appear that some further work was carried out by the Plaintiff during the course of 2007 as funds became available.

It is acknowledged that the Plaintiff experienced difficulties in relation to the acquisition of land and in relation to payments alleged to be owing to the Fiji Islands Revenue and Customs Authority (FIRCA). The Defendants have maintained that these were matters that were entirely the responsibility of the Plaintiff.

In about November 2005 the parties entered into a Syndicated Loan Facility Agreement (the loan facility) whereby the Plaintiff secured funding in the sum of $56m from the First Defendant and $18m from the Second Defendant. Amongst other matters, the loan facility agreement provided a mortgage over the land in favour of the two lenders. The agreement also provided that the two lenders irrevocably appointed the second defendant (Fiji Development Bank or FDB) to act as their agent in respect of all matters pertaining to the loan facility agreement.

As at July 2007, an amount of about $70.5m had been disbursed by the lenders. The balance had not been drawn down.

The Plaintiff defaulted on the interest payment that was due and payable in September 2006. Interest payments have not been paid since that date.

The Plaintiff wrote to FDB (as the agent) by letter dated 28 March 2007 proposing a restructure of the loan facility. The proposed restructure, amongst other things, sought an increase of the loan facility by an additional $33m. Discussions subsequently occurred between the Plaintiff and FDB, but there is dispute as to both the substance, frequency and nature of those discussions.

By letter dated 21 June 2007, the Plaintiff again wrote to FDB as the agent proposing a further proposed restructure of the loan facility. The revised proposal sought, amongst other things, agreement to increase the loan facility by $15.25m to complete civil/infrastructure, residential and Golf Club House works. The Plaintiff was to source funding from off-shore to complete the balance of stage 1 of the development.

There followed further discussion over a period of time but again there is no agreement as to the substance of the negotiations.

By the end of 2007 it was apparent that the two lenders were not going to agree to any restructure.

By letter dated 14 January 2008, the Second Defendant advised the First Defendant that it agreed to the First Defendant’s proposal to takeover the Bank’s loan to the Plaintiff.

On 6 March 2008 demand notices were issued against the Plaintiff by the First Defendant.

By letters dated 19 March 2008 the Second Defendant advised the Plaintiff that FDB had resigned as facility agent and that the First Defendant had been appointed the new facility agent for the lenders.

On 20 January 2009 the First Defendant issued further demand notices that Counsel for the Plaintiff conceded did comply with the requirements of the Property Law Act Cap 130.

The Demand Notice dated 22 January 2009 from the First Defendant required the Plaintiff to pay $98,430,560 as being the amount owing under the mortgage. In addition, in an affidavit sworn on behalf of the Plaintiff by Philip Temo on 27 February 2009, the Plaintiff acknowledged having unsecured creditors in the sum of $39.5m (approx.)

The legal principles to be applied by this Court in an application such as the present are well established and well known. The first test is whether the Plaintiff’s Statement of Claim gives rise to a serious question or serious questions to be tried. It is accepted that the threshold for the Plaintiff to satisfy this test is that stated by Lord Diplock in American Cyanamid Co. –v- Ethicon Ltd [1975] UKHL 1; [1975] AC 396 @ Page 409:

"The Court no doubt must be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried."

In its Statement of Claim, the Plaintiff pleads four causes of action. First, it claims as against both Defendants breach of the facility agreement. Secondly, it claims that both Defendants are in breach of the Fair Trading Decree with particular reference to sections 54 and 55. Thirdly, it claims relief against the Defendants on the basis of equitable Estoppel. Finally, it claims relief against the First Defendant in respect of its alleged non compliance with the Property Law Act Cap 130.

It would appear that during the course of his submissions, Counsel for the Plaintiff conceded that the grounds for this last cause of action may not be sustainable.

However, having read the affidavits filed both supporting and opposing the application I am satisfied that there are serious questions to be tried which could in no way be described as frivolous or vexatious.
Although not expressly stated, it is implicit in the Ruling delivered on 21 August 2009 that I am satisfied that the Plaintiff will not suffer irreparable harm in the event that the interim injunction is not granted. In other words I am satisfied that damages would be an adequate remedy for the Plaintiff.

The damages that would flow from the losses arising out of the sale of the residential lots and the management rights to the hotel are able to be calculated, albeit with some assumptions needing to be made. The difficulty is not so great as to lead to the conclusion that the Plaintiff would suffer irreparable harm if the injunction were not granted.

However, if I am not correct in that conclusion, I am satisfied that the balance of convenience does not fall in favour of the Plaintiff. I accept that construction work, in a substantive sense, ceased in December 2006. I also accept that the condition of the development has deteriorated since that time. As an asset, the development has lost some of its value and is continuing to do so.

The affidavits filed by the Plaintiff do not address, in any detail, the issue as to what is going to happen to the development in the event that an injunction were granted. The Plaintiff’s affidavits suggest that it would continue with construction on the basis that funding would be made available by the existing loan facility lenders. However, it is apparent that the loan facility is not going to be increased by the lenders. The Plaintiff has not disclosed any other possible sources of funding to complete the construction work.

Given the Plaintiff’s present financial position, it is most unlikely that the Plaintiff could secure the necessary finance to complete stage 1 of the development. As previously noted. the Plaintiff owes the First Defendant about $98m and currently has unsecured creditors totalling about $39.5m.

The remaining question is of some significance as the First Defendant is required to act in accordance with the loan facility agreement in order to enforce its rights under the mortgage. The issue is whether the demand notice dated 22 January 2009 was issued by the First Defendant in accordance with the loan facility agreement.

Under the agreement the Second Defendant was the appointed agent for the lenders. This was an express term of the agreement between the lenders and the Plaintiff. The appointment was described in the agreement as irrevocable. It is accepted that one of the parties to the agreement (i.e. the lenders) could not unilaterally vary the agreement by, as between themselves, appointing the other to be the agent. The problem that this posed for the Defendants is set out in clause 27.1 of the agreement that states:

"Each lender acknowledges and agrees that the rights and remedies of the lenders under the transaction Documents are also vested in the Agent and a lender may not exercise those rights and remedies unless the agent has failed to exercise those rights and remedies within a reasonable time."

It was not disputed that the term "Transaction Documents" was defined so as to include the mortgage document pursuant to which the First Defendant had served its notice dated 22 January 2009.

By letters dated 19 March 2008 the Second Defendant purported to resign as agent and purported to appoint the First Defendant as agent. There was no agreement between the lenders and the Plaintiff to that effect.

However, clause 23.1 of the agreement does permit delegation by the Agent. That clause states:

"The Agent may employ agents and attorneys and may delegate any of its rights, powers, discretions or obligations in the capacity as agent of the lenders, as the case may be, on obtaining prior written consent of the majority of the lenders."

Although the Second Defendant’s letters dated 19 March 2008 may not have been effective for the purpose of appointing the First Defendant as Agent of the lenders, I am satisfied that the letter of appointment was effective in delegating the rights and powers of the Agent to the First Defendant.

It is apparent that, following receipt by it of the letters dated 19 March 2008, the Plaintiff exchanged correspondence with the First Defendant as the sole lender and at the very least as the delegated agent. This is the inference that can be drawn from the Plaintiff’s letter dated 16 April 2008 addressed to First Defendant and the First Defendant’s letter dated 19 May 2008 addressed to the Plaintiff.

It follows that the Notice dated 22 January 2009 was issued by the First Defendant as the delegated Agent for the purpose of exercising accrued rights under the mortgage documents.

As for the Summons for possession filed by the First Defendant, Counsel for the Plaintiff conceded that if the Plaintiff’s application for an interim injunction was not successful, then it would follow that the First Defendant’s application for possession would succeed, at least so far as the land and improvements are concerned.

Counsel did not address the Court in relation to the application for possession of drawings and plans. This issue is reserved until the Court has the opportunity to hear further argument from Counsel.

As a result, the following orders are made:

1. The Plaintiff’s application for an interim injunction is dismissed.

2. The First Defendant’s application for possession of the land and improvements is granted.

3. The question of possession of drawings and plans is adjourned to a date to be fixed upon application by the First Defendant.

4. Cost of these proceedings (i.e. the two substantive applications) are costs in the cause.

5. The two applications dated 3 August 2009 are dismissed with no orders as to costs.

W D Calanchini
JUDGE

16 September 2009
At Suva