Chouhan v Chouhan [2015] FJHC 392; HPP08.2011S (14 May 2015)

IN THE HIGH COURT OF FIJI AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. HPP 08 of 2011S

BETWEEN:

SURESH CHOUHAN & SANDEEP CHAUHAN
Plaintiffs

AND:

HASMUKHLAL CHOUHAN
1st Defendant

AND:

FIJI DEVELOPMENT BANK
2nd Defendant

Counsel : Mr. S. Parshotam for the Plaintiff.
: No Appearance for the first Defendant
: Mr. P. Sharma for the second Defendant

Date of Hearing : 28th July, 2014
Date of Judgment : 14th May 2015

JUDGMENT

[1] The plaintiffs had filed this case seeking the following orders:

1. That the First Defendant be removed as the Executor and Trustee of the Estate of Dali Chand (f/n Hiralal), the Deceased, under the Will of the said Deceased dated 13 December 1975 in the Grant of Probate dated 8 October 1976 (No. 14407).
   
2. That the sureties as required by Section 20 of the Succession, Probate and Administration Act be dispensed with.
   

100. The Letters of Administration (with Will annexed) in the estate of the said Deceased be granted to the Plaintiffs.
     

4. That the said Grant and the Records be noted to this effect.
   
5. For a declaration that the Mortgage being Mortgage No. 601138 and dated 11 December 2006 over the property comprised in Lease No. 26187 ("the said Property"), the property of the Estate of Dali Chand (f/n Hiralal) and registered in the name of the First Defendant as the sole surviving Executor and Trustee of the Estate of Dali Chand (f/n Hiralal) and given by the First Defendant in his capacity as aforesaid to the Second Defendant ("the said Mortgage") is void.
   
6. For an Order that the said Mortgage be set aside.
   
7. For an order that the Second Defendant discharge the said Mortgage and deliver up the Duplicate Mortgage and the said Discharge to the Plaintiffs or their solicitors.
   
8. For an Order that the Second Defendant deliver up the Duplicate Lease No. 26187 to the Plaintiffs or their solicitors.
   
9. That the First Defendant whether by himself, his servants or agents or otherwise howsoever be restrained and an injunction be granted restraining him from selling, assigning, mortgaging, leasing or otherwise dealing with the said Property.
   
10. That the Second Defendant whether by itself, its servants or agents or otherwise howsoever be restrained and injunction be granted restraining them from selling assigning or otherwise dealing with the said Property.
    
11. That the Second Defendant whether by itself, its servants or agents or otherwise howsoever be restrained and an injunction be granted restraining them from acting under the said Mortgage in any manner whatsoever.
    

50. An Order that the Defendants do pay the Plaintiffs the costs of and incidental to this action.
    

Background

[2] The plaintiffs are beneficiaries of the estate of Dali Chand. The first defendant is the present Executor and Trustee of the Estate of Dali Chand. The Testator had died on 21.12.1975.

[3] As per his Will the surviving wife and one of the sons have been appointed as Trustees and Executors of the estate. The said trustee had taken over the administration of the estate and in 2001 one of the Trustees namely Pravati Ben the wife of Dali Chand had died. Thereafter the sole Administrator of the Estate was the first defendant.

[4] The testator had a laundry business called Hiralal Laundry No. 1 which had filed papers for cessation on 22.4.92.

[5] Thereafter it is alleged that the trustee had commenced a new business called "Hiralal Laundry No. 1 Limited" and the trustees had mortgaged the said property to the second defendant.

[6] "Hiralal Laundry No. 1 Ltd" had failed to honour the mortgage and the second defendant had proceeded to go for a mortgage sale.

[7] The beneficiaries filed this action against the first defendant executor and the second defendant, and sought inter alia for removal of the first defendant as executor and for an injunction to restrain the second defendant from proceeding with the mortgagee sale challenging the validity of the mortgage on trust property.

[8] The plaintiff has been successful in obtaining an interim injunction restraining the second defendant from proceeding with the mortgagee sale.

[9] The plaintiffs' allege that the first defendant had mortgaged the estate property contrary to the provisions of the last Will and also that the second defendant had accepted the property in the estate of Dali Chand as security, contrary to the Law.

Hearing

[10] When the substantive matter was taken up for hearing the first defendant was not present and unrepresented. The solicitor for the plaintiff and second defendant submitted that reliefs A, B, C, D is against the first defendant and that he is not contesting this case. Also relief I against the first defendant is not contested.

[11] Both counsel were not at variance that relief E, F, G, H, J, K are against the second defendant and are contested.

[12] The first defendant's name was called but was not present nor represented despite NOAH being issued and served. I find the first defendant has not been present throughout the proceedings.

[13] The solicitor for the plaintiff informed court while making submissions that the first defendant is not contesting the matter and that he had executed a document giving consent to his removal. Document D. This document was not contested.

[14] At the hearing solicitors for both parties made submissions. The second defendant has filed his written submission. However the plaintiff after seeking time to file their Writ submissions has failed to file any during the stipulated time.

Determination

[15] As submitted the plaintiff has filed this case due to the mortgage of the trust property to the second defendant by the first defendant.

[16] It was not disputed by both counsel that the question the court has to answer is

[i] whether at the time of mortgaging the property the first defendant had authority to do it?

[ii] Has the bank taken trust property in compliance with the Trustee Act.

[17] Having this in mind now I will proceed with the determination. I have considered the affidavits tendered and oral submission made and written submission tendered.

[18] The parties were not at variance that the property mortgage was the estate of Dali Chand and the first defendant was the executor and trustee of the estate.

Plaintiffs Case

[19] Firstly the plaintiffs are seeking to remove the first defendant as Executor and Trustee of the estate of Dali Chand. This relief which is against the first defendant was uncontested. Secondly the plaintiff are seeking for a declaration that mortgage held by the second defendant over the lease comprised in lease no. 26187 the property of the said estate is void and of no effect and therefore an injunction.

[20] It was not contested that the trustees of the estate, Pravati Ben & Hasmukhlal Chauhan had obtained Probate on the Will of the estate. The Probate no. 14407 was marked "A".

[21] Pravati Ben had passed away in 2001 where by the first defendant became the sole trustee and executor.

[22] The estate had not been distributed up to the date of the hearing. The plaintiff submitted that the major Asset in the estate is Lease No. 26187 in which three commercial units and one residential unit is situated.

[23] The plaintiff's have submitted document "D" which is an affidavit by the first defendant. In the said affidavit the first defendant has sought to resign as executor and trustee of the estate of Dali Chand. The first defendant has further consented, to the plaintiffs in this case be granted letters of administration of the estate. The plaintiff has also submitted three other affidavits marked E, F, G by the other three heirs, consenting to the resignation of the first defendant as trustee and for the grant of letters of administration to the plaintiffs as the new trustee.

[24] The court has considered the affidavit and the fact that the first defendant had opted not to contest this case. Thus on the available evidence and as per what was submitted by counsel, I come to the conclusion that the relief prayed against the first defendant is not been contested.

[25] Now I will proceed to determine on the reliefs prayed against the second defendant.

[26] The plaintiff submits that on or about 11.12.06 the first defendant had mortgaged the property to the second defendant as security on behalf of a transaction pertaining to "Hiralal Laundry No. 1 Ltd". The plaintiff submits that Hiralal Laundry No. 1 Ltd was not a company coming within the estate of Dali Chand but an entity belonging to the first defendant. Therefore the first defendant as trustee could not mortgage the trust property in non compliance with the provisions of the Will. The first defendant had mortgaged the property to secure an advance to a third party. The plaintiff submits as per the provisions of the Will after the death of Parvati Ben the trustee should have distributed the estate among the beneficiaries, instead of distributing and without the consent of the beneficiaries the trustee has mortgaged the property to secure an advance to a third party. It was further submitted that as per the Trustee Ordinance the second defendant should have obtained a court order to accept the trust property as security but the second defendant has failed to do so, thus its submitted that the entire mortgage is void and of no effect.

The second defendant's case

[27] The second defendant submits that "Hiralal Laundry No. 1 Ltd" is a continuation of Hiralal Laundry No. 1 which is an entity within the estate and as the will authorizes mortgaging the property for continuation of the business, the first defendant had the right to mortgage, the estate property. Further, it was submitted there was no need to obtain a court order to mortgage the trust property. Interestingly this submission is not made by the first defendant but by the second defendant who is the mortgagor.

[28] The second defendant relies on clause 6(b) of the will and submits that the Will empowers the first defendant to mortgage the property. It is further submitted that Section 39 & 40 of the Trustees Act empowers the trustee to obtain mortgage over the trust property. The second defendant concedes that they had not obtained a court order in granting a mortgage over the trust property. Counsel for the second defendant submitted it was not necessary. Counsel submitted that if the trustees are changed the plaintiff should be prepared to take over and honour the debt, created by the first defendant under the mortgage.

[29] The second defendant further submitted that Hiralal Laundry No. 1 was established in 1944 and the mortgage was taken to raise money for the continuation of the said business. It appears to court that the plaintiff has come to this premise based on correspondence with one Jaylal & Co Accountants for the business of Hiralal Laundry (No. 1) from late 1980s. The second defendant submits that as per the said correspondence "Hiralal Laundry No.1 Ltd" is a continuation of the old business named in the estate namely Hiralal Laundry No. 1. This court will make its observation on this submission during the course of this judgment.

[30] In answering the question as per document C, I find that there is a transmission of death registered in the Registrar of Titles in favor of the trustee on 27.9.77. Thereafter several mortgages had taken place and cancelled. It was submitted that on 24.1.02 the trustee Parvati Ben's death has been registered. On 8.1.07 a mortgage in favour of the Fiji Development Bank has been registered. Strangely in the extract the signature of the Registrar of Title pertaining to this mortgage is missing (document C). However as per the extracts of the Registrar of Title, it's clear that after the transmission of death the property had been transferred to the executor and trustee. There is no evidence submitted to show that the property had been distributed as per the will of the Testator.

[31] The mortgage marked "H" too clearly shows that it has been mortgaged by the first defendant in the capacity of Executor and Trustee of the estate in '06'.

[32] The second defendant failed to submit any document to this court to show that the other trustees had consented to this mortgage. Both parties were not at variance that there was no court order obtained to mortgage the trust property.

[33] Clause 6(c) of the Will permits mortgage of the property for the efficient management conduct and control of the estate. The clause states:-

To raise on mortgage or other security of any part or parts of my real and/or personal property at such times and upon such terms as they may think fit such sums or sum of money as in the absolute discretion of my Trustees may be required for the proper and efficient management conduct and control of my estate and/or the carrying into effect of any of the provisions of this my will.

[34] It is evident that the estate property could be mortgaged by the trustee only for the purposes stipulated in clause 6(c).

[35] Let me now examine whether the mortgage was done for the said purposes.

The Will

[36] It was submitted that as per clause 6 (b) of the Will the trustees were empowered to carry on the Testator's business or to discontinue the same. As per 6(b) & 6(c) for the purpose of the business or for efficient management, conduct, control of the estate the trustee had the power to mortgage the property. Accordingly the trustees are empowered to mortgage the property only for the purposes that are stipulated in the Will. In essence the trustee could not mortgage the estate property as security for any third party.

[37] Now I will analyze as per plaintiffs submission whether "Hiralal Laundry No. 1 Ltd" is a continuation of the business Hiralal Laundry No. 1 in the Will or whether it is a different entity as claimed by the plaintiffs.

[38] As per "ST 1" Hiralal Laundry No. 1 has been originally registered in 1944. As per ST 2 the estate of Dali Chand had joined the company. It was submitted that in 1975 at the time of the death of Dali Chand he had been the sole operator of the business. After his death three new partners had been appointed namely the two trustees of Dali Chand and another son of Dali Chand. (Affidavit of Salote Tavainavesi).

[39] The plaintiffs brought to the attention of the court that document ST(5) which is a notice of cessation by a registered firm or individual under the Registration of Business names ordinance. As per the from 23.4.92. Hiralal Laundry No. 1 has ceased to operate.

[40] Thereafter under the Companies Act a new company named "Hiralal Laundry No. 1 Limited" had been created and registered. The three directors in this company are Pravati Ben, Hasmukh Lal Chouhan and Ram Kishore Chauhan. It was submitted that they were the same directors who were in Hiralal Laundry No 1. However with the filing of the notice of cessation Hiralal Laundry No. 1 business has ceased its existence.

[41] It was convincingly argued by the plaintiffs that the new company "Hiralal Laundry No. 1 Ltd" was not confined to the Laundry business but its objectives was far wider than Hiralal Laundry No. 1 that was part of the estate of Dali Chand, thus "Hiralal Laundry No. 1 Ltd" becomes a new legal entity with far wider and different objectives to the Laundry business named in Dali Chand's Will.

[42] The second defendant in his submission has conceded that on 1.1.1985 Trustees and Executors representing the Dali Chand's estate in Harilal Laundry No. 1 had retired the estate from the business entity (ST 4). Thereafter the remaining parties have rearranged their shares. As correctly submitted by counsel for the plaintiff with the incorporation of the new company Hiralal Laundry No. 1 Ltd, the new directors, Pravati Ben, Hasmukh Chouhan and Ram Kishore Chauhan have come in their personal capacity and not representing the Estate of Dali Chand, thus I decline to accept the second defendant's submission that Hiralal Laundry No. 1 Ltd is a continuation of the business reflected in the last Will. For the reasons stated above I conclude that with the notice of cessation "ST 5", the business, stated in the Will had legally come to an end.

[43] The second defendant submitted that property in lease number 26187 was transferred from Dali Chand's estate to Hiralal Laundry No. 1 Limited. However this was not substantiated by any documentary evidence. I also note that as per document "C" this transaction is not reflected in the memorandum. Further, after the property was transferred to the Trustee under a transmission of death there is no entry to state it has been taken out of the estate of Dali Chand, thus I conclude that property in lease number 26187 has not been removed from the estate of Dali Chand.

[44] The second defendant also submitted to court that on previous occasions the estate had been mortgaged to various banks by the trustee. However no evidence was submitted to court as to under what circumstance it had been done or as to whether provisions of the Trustees Act had been complied with. Without any evidence and as it is not a fact in issue before me it is sufficient to say venturing into these transactions are futile.

Applicability of Trustee Act

[45] Section 39 of Trustee Act states:-

39.- (1) Where a trustee is authorized by the instrument (if any) creating the trust or by or under the provisions of this or any other Act or by law to pay or apply capital money subject to the trust for any purpose or in any manner, he shall have and shall be deemed always to have had power to raise the money required by sale, conversion, calling in or mortgage of all or any part of the trust property for the time being in possession; and where a trustee, in the exercise of his powers in that behalf, purchases any property for the trust, he shall have and shall be deemed always to have had power to make the purchase on terms of deferred payment or on mortgage of that property.

(2) The provisions of this section shall apply notwithstanding anything to the contrary contained in the instrument (if any) creating the trust.

[46] The plaintiffs' submits that under the provision of the Trustee Act an order from the court is required for a legal valid mortgage over trust property. Especially in this case where the trust property is mortgaged to secure advances to a third party. The second defendant argued that under Section 39 of the Act a trustee has the power to mortgage the trust property.

[47] In Underhills Law Relating to Trusts And Trustees, 12th edition by R. T. Oerton these power of a trustee to mortgage trust property is stated:

With regard to mortgages, the general rule is, clearly, that apart from statute or authority in the settlement, trustees have no power to mortgage or pledge the trust property, however desirable it may be to raise money for the general purposes of the trust. Nor, apart from statute, does an express trust to sell impliedly confer on trustees any power to mortgage.

[48] In my view in this instance Section 39 of the Trustee Act has to be read with the provisions of the Will. The Will specifically states for what purpose the Trustee can be empower to mortgage the property. Section 39 of the Trustee Act will justify the mortgage of the trust property if it was empowered by the will. In my view the second defendant's attempt to convince this court that Hiralal Laundry No. 1 Ltd is within the estate of Dali Chand has been unsuccessful. Accordingly I conclude that when the Will does not authorize the mortgage pertaining to a business which is not within the estate property the second defendants' contention in justifying the mortgage of trust property fails.

[49] The plaintiffs submitted that upon the death of Pravati Ben the estate had to be administrated and the first defendant too becomes an executor and not a trustee. Under the circumstances the second defendant has failed to satisfy court that the mortgage entered by the first defendant was legally valid.

Conclusion

[50] The court had considered the provision of section 52 and 39 of the Trustees Act and also section 19 of the Succession, Probate and Administration Act. Also I have considered the fact that the first defendant did not contest the case and had submitted an affidavit resigning from being a trustee and executor.

[51] As submitted to court at the commencement of the hearing, reliefs A, B, C, D and I are not contested and the plaintiff has succeeded in convincing the court to obtain reliefs other than what is prayed for in relief B. Accordingly I grant orders pertaining to reliefs (A), (C), (D) and (I) in the favour of the plaintiffs. However the said award is subject to section 20 of the Succession, Probate and Administration Act.

[52] It was submitted to court that irrespective of the mortgage the second defendant still can recover the money lent. The plaintiffs' has been successful in obtaining interim relief against the second defendant from the High Court.

[53] The second defendant has submitted that the plaintiff has not taken any steps to get letters of administration and had question the locus standi of the plaintiffs. It is sufficient to state in reading the statement of claim the reply to that objection lies in the reliefs prayed for by the plaintiffs in this case. Therefore I disregard the said objection.

[54] For the reasons set out in this judgment the plaintiffs have been successful in convincing court to obtain orders pertaining to the reliefs prayed in the originating summons. Thus I hold that the plaintiff has been successful to satisfy the court to obtain:-

A declaration that the Mortgage being Mortgage No. 601138 and dated 11 December 2006 over the property comprised in Lease No. 26187 ("the said Property"), the property of the Estate of Dali Chand (f/n Hiralal) and registered in the name of the First Defendant as the sole surviving Executor and Trustee of the Estate of Dali Chand (f/n Hiralal) and given by the First Defendant in his capacity as aforesaid to the Second Defendant ("the said Mortgage") is void.

[55] Since I have held the mortgage to be void orders F, G, H, J, K which are arising over the mortgage are granted in favor of the plaintiffs.

[56] As per relief "I" the High Court has already granted an interim injunction in favour of the plaintiffs and the second defendant has failed to adduce any new facts to change the Judicial thinking. In my view when the court holds the mortgage to be void the rights of the second defendant over the mortgaged property becomes extinguished, thus the need to injunct the second defendant will not arise.

[57] As the plaintiffs had been successful in the application they are entitled to cost. However, I find both counsel failed to address court on the aspect of cost. I observe that even in the interlocutory judgment Hettiarachchi J had determined the cost to be reserved to be dealt at the hearing of the substantive matter.

[58] As I has stated earlier in the absence of any submissions pertaining to cost by both counsel Court award a cost of $ 4500 summarily assessed in favour of the plaintiffs.

..........................
Mayadunne Corea
JUDGE

14.5.2015