Lagan v National Bank of Fiji [2011] FJHC 479; HBC313.2009 (29 August 2011)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CASE NUMBER: HBC 313 OF 2009

BETWEEN:

RAM LAGAN
1ST PLAINTIFF

AND:

JANKI DEVI
2ND PLAINTIFF

AND:

NATIONAL BANK OF FIJI T/A NBF ASSET MANAGEMENT BANK
DEFENDANT

Appearances: Mr R.J. Singh for the plaintiffs.
Ms. M. Rakai for the defendant.
Date / Place of Judgment: Monday, 29th August, 2011 at Suva.
Judgment of: The Hon. Justice Anjala Wati.

JUDGMENT

Catchwords
Leave to continue case against the bank - S.43 (2) of the Banking Act, 1995.
Legislation
The Banking Act, 1995
Cases/Texts
NBF Asset Management Bank v. Taveuni Estate Limited, Registrar of Titles and Attorney General of Fiji [unreported] Fiji High Court Case Number HBC 0543 of 2004.
The Cause

1. The plaintiffs have applied for leave under the provisions of s.43 of the Banking Act, 1995 to continue the substantive action which they had filed against the bank on the 18th day of September, 2009.
   
2. The application arose when the defendant filed its statement of defence stating that the action cannot continue against the bank pursuant to s.43 (1) (a) of the Banking Act.
   
3. The plaintiffs have also sought an injunction against the bank from exercising its powers of sale under the mortgage.
   
4. By consent, the court had ordered that the status quo in respect of the property be maintained. This order was made on the 11th day of February, 2010.
   
5. The application for injunction could not be proceeded with, as the court has to hear the application for leave first. If leave is granted, the plaintiffs can decide whether and how they wish to proceed with the case, and, if not, then the entire case against the bank is exterminated.
   
6. Neither counsel made any submissions on the aspect of the injunction.
   
7. The application for leave was opposed.
   

The Case Background

8. The property around which the case centres is contained in Certificate of Title Register Volume. 36 Folio 3580 described as "Waidalice" (part of) situated in the District of Tailevu on the island of Viti Levu comprising of 200 acres.
   
9. The 1st plaintiff is the registered proprietor of one third undivided share in the said property. The 2nd named defendant is the sister – in- law of the 1st plaintiff and the widow of his late brother Ram Narayan who was also the registered proprietor as to one third undivided share in the same property. The remaining one third undivided share was owned by the 1st plaintiff's another brother Mr. K.R. Latchan who died in 1998 after whose death his one third undivided share was administered by his wife Bijma Wati Latchan and the son Rohit Ram Latchan as administrators of the estate pursuant to letters of administration granted on the 15th day August, 1999.
   
10. The administrators of Mr. K. R. Latchan's estate granted mortgage to the National Bank of Fiji on the one third undivided share of the said property which mortgage was registered on the property on the 2nd day of September, 1992 and was given as a collateral security to secure advances made by the bank to a Company called Pacoil Fiji Limited, which was owned and operated by Mr. K. R. Latchan.
    
11. On the 18th day of September, 2009 the plaintiff filed a writ of summons against the bank seeking a declaration that the mortgage by the defendant of the CT 3580 is null and void for want of consent of the plaintiffs, an order that the said mortgage be cancelled from the CT 3580, general damages and costs of the action.
    
12. The basis of the substantive application is that the bank obtained mortgage of the one third undivided share in the said property without obtaining consent of the remaining two owners. The plaintiffs contend that the bank has advertised mortgagee sale in the Fiji Times of 11th June 2008 for sale of the one third undivided share of the said property. The plaintiffs say that their interest is adversely affected as their shares in the 200 acres were being lost through the mortgagee sale advertised by the bank. The bank has awarded the tender to someone outside the family and this was going to create problems for the future as an outsider now has control of an undivided 1/3 share. The plaintiffs say that the Bank should have obtained consent of the other two owners before before obtaining a mortgage on a property in which they have an undivided interest.
    
13. On the 7th day of October, 2009 a statement of defence was filed raising the issue of s. 43(1) (a) of the Banking Act.
    
14. The current application for leave and injunction was then filed on the 22nd day of January, 2010
    

Grounds/ Submissions In Support of Leave

15. On the facts, the plaintiffs counsel submitted that the property in question had been a family property since 1944. It had been used by the family for dairy farm purposes in the 1960's until 1980.
    
16. The 3 brothers had amongst themselves agreed to identify portions of the said property to belong to each of them although there was no legal subdivision. In accordance with this arrangement, an area of approximately 68 acres was identified and allocated to the 1st plaintiff for the purposes of farming, particularly, dairy farming. Since 1998, the 1st plaintiff had been utilising the said 68 acres for the purposes of dairy farming. The farm was registered with the Rewa Co-operative Dairy Company under the name Naikasakasa Waidalice and has been supplying milk and other dairy produce to the Rewa Co-operative Company.
    
17. Over the years, the 1st plaintiff made substantial improvements and developments on the property. The developments comprise of 3 milking sheds, residential dwelling, fencing, access road and other developments. In total, the 1st plaintiff has expended a sum in excess of $150,000 and continues to spend further sums of money as and when necessary. He has spent money from his own sources and the income derived form the farm is solely his. The balance of the property of 132 acres is similarly divided into identified portions of approximately 66 acres each to the other two brothers.
    
18. When the mortgage was given to the bank as collateral security for advances made to Pacoil Fiji Limted, a company owned by the brother Mr. K. R. Latchan, the bank did not obtain consent of the other two brothers. This was improper as they are the owners of the property and they hold undivided share in the property.
    
19. After receiving knowledge that the property was mortgaged, the 1st plaintiff's then solicitors wrote to the bank to sell the whole property and to divide the proceeds thereof to the owners. The bank did not respond and subsequently advertised for mortgagee sale without consulting the other two owners. The plaintiffs then wrote to the bank raising their opposition to the manner in which the bank had purported to sell the property. The bank was also advised that the property was valued in excess of $2.7 million dollars.
    
20. The 1st plaintiff's solicitors again wrote to the bank and informed it that he would match the highest price obtained via the tender and for the property to be sold to him but the bank informed that they had accepted the tender.
    
21. The bank's purported exercise of the powers of sale is wrongful, unlawful, and oppressive and carried out in bad faith because:-
    
    • The bank knew or ought to have known that its mortgage security in absence of consent from co-owners was of doubtful validity and therefore invalid and/or unenforceable.
      
    • The bank's purported sale of its one third interests in the said property is, incapable in law of precise identification and/or physical impossibility and consequently there is lack of certainty in the mortgage security.
      
    • The bank, is, in all the circumstances, not in a position to confer good legal title and ownership of its one third interest given that the said interest is an undivided interest in law.
      
    • That the purported sale of the said property by the bank amounts to conversion and/or unlawful interference with the legal rights of ownership of the plaintiffs.
      
    • The bank's action is thus unconscionable under the Fair Trading Decree.
      
22. On the law for granting leave, the plaintiff's counsel Mr. R. J. Singh submitted that the criteria for leave was well set out in the case of NBF Asset Management Bank v. Taveuni Estate Limited, Registrar of Titles and the Attorney General of Fiji [Unreported] Fiji High Court Case Number 0543 of 2004.
    
23. The plaintiffs counsel then stated, that pursuant to the above case:
    
    • (a) The plaintiffs have an arguable case as the court needs to fully and properly ventilate the processes adopted by the defendant bank in mortgaging the property, whether it was correct and whether the plaintiffs have suffered any loss as a result thereof.
      
    • (b) The issue raised in the case is a serious one as the same would declare the rights and interest of the parties in question.
      
    • (c) The issue cannot be resolved in the ordinary course of controllership as this is a legal issue and requires legal intervention. In any event, the leave of the controller was sought by the plaintiffs who refused to intervene and resolve the issues.
      
    • (d) There has been no delay in bringing the action against the bank.
      
    • (e) The grant of leave would allow both the parties to make substantive submissions on the legal issues of whether the defendants granting of mortgage was null and void and whether the subsequent exercise of the powers of mortgagee sale void as well or wrongful, unlawful and oppressive and carried out in bad faith
      

Grounds/ Submissions in Opposition to Leave

24. The defendant's counsel submitted that the bank has now accepted a tender and the plaintiff's have brought this action in breach of the requirement for leave and thus this action must be dismissed.
    
25. It was further submitted that the defendant bank is under controllership and the plaintiffs do not have a arguable case as the issue is regarding mortgage given by a third party. The third party is not complaining about the mortgage and the plaintiffs cannot challenge the issue.
    
26. It was also submitted that the continuation of the proceedings against the bank would result in a disruption to the controllership management as well as contrary to the objective of the Banking Act 1995 which is to promote interests of the soundness of the financial system and to minimize detriment to the interests of depositors and creditors of financial institutions.
    

The Law and the Determination

27. The defendant bank was placed under controllership on the 1st day of April, 2007. This was gazetted on 1st May, 2007. A declaration of a moratorium, as set out under s.43 of the Banking Act, 1995 freezes the rights of creditors in respect to contracts entered into or obligations incurred before the commencement of statutory management. Creditors thus cannot bring or continue actions against a bank, attempt to put the bank into liquidation or exercise rights under any security.
    
28. S.43 (a) of the Banking Act 1995 permits an action or proceeding to be commenced or continued against a licensed financial institution for the purpose of determining whether any right or liability exists if the leave of the controller or the High Court is first obtained.
    
29. The plaintiffs have applied leave of the High Court to continue with the action which they have already commenced. Before this application was made, the plaintiffs had written to the Controller asking for leave. The Controller wrote back and requested for submissions to show that the plaintiffs had an arguable case. The plaintiffs then enclosed all the affidavit material they had to establish the basis for the leave. After that, there was no response from the Controller. The plaintiffs then had to apply to the High Court.
    
30. The factors which determine the grant of leave cannot be listed exhaustively but I agree with the counsels that the case of NBF Asset Management Bank (supra) attempts to list some relevant factors that the court must take into account. I propose to adopt the factors. They are:-
    
    • (a) The strength of the applicant's case. It must be considered in light of the rights or liabilities which the proceeding or action is set to determine.
      
    • (b) The seriousness of the issue to be determined by an action or proceeding.
      
    • (c) Whether judicial determination of the issues in the action is necessary for the controllership and/or for the determination of the issue at large between the parties.
      
    • (d) Delay in commencing or continuing an action or proceeding.
      
    • (e) Whether the issue is likely to be resolved in the ordinary course of controllership.
      
    • (f) Whether the applicant's right to have a claim determined by an impartial tribunal is likely to be defeated at the conclusion of the controllership, especially if the institution is to be wound-up.
      
    • (g) Whether the litigation may impede the prompt and efficient execution of the Controller's statutory duty. This must be considered in conjunction with para (c) above.
      
31. The plaintiffs have a proprietary interest in the property which they seek to protect. They have an individual right on one third undivided share in the subject property. One of the one third undivided shares had been mortgaged and put on mortgagee sale. A tender has also been accepted for sale of one of the one third undivided shares. The plaintiffs say that they have a legal right on any one of the one third share of the property as their share is not divided and because the mortgagee sale has sold a one third of a portion of the land, their property right has been affected. The plaintiffs want the question of the validity of the mortgage and sale to be tried by the court. This question is not a hypothetical or unreal question and is a good arguable issue that must be tried based on the facts of the case and the law. The court has to hear the question on the facts and the law to decide whether the mortgage was property entered into and whether the sale was valid as a result thereof. The issue is grave, in that, if the bank is held liable for the wrongful transaction and sale, the plaintiffs will have a remedy at law which may also protect their existing interest in the property. This real legal question can only be resolved by the court and not by the controller for the vindication of the parties' rights and liabilities.
    
32. When the plaintiffs discovered the aspect of their property being mortgages without their consent, they started dealing with the bank for internal resolution of the issue before coming to court. The attempts to resolve the matter was futile and so the plaintiffs filed an action in court. I do not find any delay in commencement of the action.
    
33. Leave of the controller was also sought but the decision was not made by the controller. It would be highly prejudicial if leave is not granted by the court, for the court to try the issues arising in the action. The bank can submit its defence to counter the issues raised. The court can then determine the rights and liabilities of the parties, effectively. I can see no prejudice to the bank but prejudice to the plaintiffs as the doors of the court would be shut for them and they will not be able to get access to justice to have their claim tried out.
    

Orders

34. For the above reasons I grant leave pursuant to s. 43(2) of the Banking Act 1995 for the plaintiffs to continue their actions against the bank.
    
35. As previously ordered, the status quo in respect of the property to be maintained until further orders of the court.
    
36. I also order that the costs of this application be "costs in the cause".
    
37. I will give further directions in this matter upon hearing the parties.
    
38. Orders accordingly.
    

Anjala Wati
Judge

29th August, 2011
At Suva.

To:

1. Mr R.J. Singh, for the plaintiff;
2. Ms. M. Rakai, forthe defendant; and
3. File: HBC 313 of 2009.