Home Finance Company Ltd v Nand [2022] FJHC 102; HBC153.2021 (1 March 2022)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

HBC. 153 of 2021

BETWEEN:

HOME FINANCE COMPANY LIMITED registered office at 371 Victoria Parade, Suva.

PLAINTIFF

AND:

RONAL RAKESH NAND aka RONALD RAKESH NAND t/a WESTWOOD SAWMILL having

its office located at Wairabetia, Lautoka.

FIRST DEFENDANT

AND:

RON’S WOOD SHAVING PTE LIMITED a limited liability company having its registered office

Wairabetia Road, Lautoka.

SECOND DEFENDANT

Appearances: Mr. R. Singh with Ms. Swamy for the Plaintiff

Mr. D. S. Naidu for the Defendants
Date of Hearing: 07 December 2021
Date of Ruling: 01 March 2022

R U L I N G

INTRODUCTION

1. On 19 July 2011, the first defendant, Ronal Rakesh Nand executed a General Lien as part of security for the sum of $4,334,480.00 (four million three hundred thirty-four thousand four hundred and eighty dollars) which he borrowed from the Home Finance Company Limited (“HFCL”).
   
2. Nand is a businessman. He has had various business undertakings running in Lautoka including a sawmill and a trucking business. It is uncontroverted between the parties that the purpose of the loan was predominantly for the purpose of his business.
   
3. Nand had agreed to a monthly repayment of $37,516.61 inclusive of interest. However, he began to default in his repayment. His struggles began in 2020 due to the adverse effects of the Covid-19 pandemic on his business. Prior to the onset of the pandemic, Nand was keeping up with his repayments.
   
4. HFCL did grant a repayment holiday to Nand from March 2020 to December 2020 on account of the COVID-19 pandemic. However, still, Nand was not able to make any repayment after December 2020.
   
5. On 20 April 2021, Patel & Sharma Lawyers issued a Demand Notice to Nand seeking repayment of the arrears failing which the entire debt of $3,576,499.65 shall become payable immediately.
   
6. When Nand failed to settle the arrears, HFCL then instructed Patel & Sharma to institute various recovery proceedings.
   
7. There are other recovery actions pending in this Court where HFC is seeking to realise its security over certain real properties which are specifically charged under a mortgage.
   
8. In this action now before me, HFC is seeking to enforce a General Lien.
   
9. At the time HFCL issued the Demand Notice to Nand, the following ten (10) vehicles were registered in Nand’s name. The said vehicles are, namely, FD 409, JU 677, CP 185, FW 785, HD 695, FE 514, JJ 420, HF 024, FX 923, and FJ 222. These vehicles are not specifically charged under any Bill of Sale.
   
10. However, at some point shortly after the issuance of the said Demand Notice, Chand would transfer all ten (10) vehicles to the second defendant, RWSPL. He (Nand) is the majority shareholder of RWSPL. The other shareholder is his spouse.
    

DOES THE GENERAL LIEN IN QUESTION CREATE A FLOATING CHARGE?

11. In re Bank of Credit and Commerce International S A (No 8) [1998] AC 214, 226 Lord Hoffmann, speaking of English law, said that a charge is a security interest created without any transfer of title or possession to the beneficiary.
    
12. The hallmark of a floating charge is that the borrower is free to deal with the business assets as usual until the charge crystalises.
    
13. In National Westminster Bank Plc v Spectrum [2005] UKHL 41; [2005] 3 WLR 58; [2005] 2 AC 680] – the House of Lords made it clear that the central feature which distinguished a floating charge from a fixed charge lay in the chargor’s (borrower’s) ability to control and manage the charged assets freely and without the chargee’s (lender’s) consent. At crystallisation, the floating charge transforms into a fixed charge. At that point, the chargor can no longer freely deal with any assets covered by the fixed charge.
    
14. Clause 8 of the Lien provides that:
    

“That if default shall be made by the Lienor in payment of the principle interest and other moneys hereby secured or any part thereof upon demand as aforesaid the Lienor doth hereby irrevocably authorize and empower HFC or any of the Officers of HFC but without any obligation to do immediately thereupon or at any time thereafter and notwithstanding any previous neglect or waiver of any right to sooner exercise any of the powers herein mentioned or any act of abandonment or waiver whatsoever by HFC and notwithstanding any acceptance by HFC of any money or interest or any negotiation between or on behalf of the Lienor and/or the Customer and HFC after the service of any such demand and notwithstanding the currency of any promissory note or bill of exchange or any other negotiable or other security or guarantee that now is or may at any time hereafter be held by HFC on account of any part of the moneys hereby secured all of which promissory notes bills of exchange and other negotiable or other securities and guarantees shall immediately on such demand as aforesaid and for the purpose of these presents be considered to become immediately due and payable and notwithstanding any other matter or thing whatsoever and without the necessity of any further consent or concurrence on the part of the Lienor and without the necessity of any notice being given to or expiration of time being allowed the Lienor to sell or otherwise realize the mortgaged securities or any part thereof and to receive the proceeds of any such sale or realization.”

15. The defendant’s position is that the General Lien did not include an express crystallization clause which would create a fixed charge over the assets of the first defendant.
    
16. HCFL’s position is that (i) the General Lien in question created a floating charge over all the assets of Nand at the time of execution and (ii) clause 8 does create an express crystallization clause by providing that upon the issuance of the Demand Notice, the General Lien crystalized and became a fixed charge over all assets and properties of Nand, including the ten vehicles in question.
    
17. Nand, therefore, was in breach of the General Lien when he transferred the ten vehicles to RWSPL after the Demand Notice because the General Lien had, at that point, become enforceable against all the assets and properties of Nand.
    
18. I agree with Mr. Singh’s submissions. In my view, clause 8 clearly provides that if the lienor (Nand) should default in payment of the principle, the interest or other monies secured or any part thereof, upon demand, Nand “doth hereby irrevocably authorizes and empowers HFC to sell or otherwise realize the mortgaged securities or any part thereof and to receive the proceeds of any such sale or realization.”
    

THE DEMAND NOTICE

19. Mr. Naidu questions the validity of the Demand Notice. The gist of his argument is that a floating charge cannot validly crystalize into a fixed charge unless there has been a prior valid Demand Notice.
    
20. In this instance, he argues that the Demand Notice is not valid because:
    
    • (i) it only talks about the payment of arrears and not the payment of the entire principal debt
    • (ii) it gives Nand an opportunity to go for refinance
    • (iii) it does not even mention the general lien
    • (iv) there was no Receiver appointed in this case, as normally happens at the crystalisation of a floating charge
      
21. I agree with the submission of Mr. Singh, which is well supported by authority, that the General Lien in this case is a floating charge as evident in the wording of Clause 8 and that the wording of the said clause is clear that the charge crystalises at the point of the demand notice at which point Nand “doth hereby irrevocably authorizes and empowers HFC to sell or otherwise realize the mortgaged securities or any part thereof and to receive the proceeds of any such sale or realization.”
    

NON-EST FACTUM?

22. The first defendant also raised the point that he did not receive any independent legal advice when signing the security instrument which effected the General Lien. He argues that he was not sufficiently advised of the contents, and the legal effect of, the clauses in the instrument which he executed. These arguments are contextualized against the allegation that Nand did not receive much formal education.
    
23. In Hewitt v Habib Bank Ltd [2004] FJCA 33; ABU0007.2004S (26 November 2004), the Fiji Court of Appeal said:
    

...it is settled law in Fiji that a defence of non est factum#160;will will not lightly be allowed when a person of a full age and capacity has signed a written document embodying contractual terms (Fiji Development Bank v. Raqona [1977] FamCA 81; (1984) 30 FLR 151). enerae is that a party of f of full age and understanding is bound by his/her signature to e to a document whether he/she reads or unands it or not. (See Gav. Lee [1971] A004, 1016, 116, 101, 1019) We see no reason to depart from this rule in this case and therefore the first ground of appeal fails.

24. I reject Mr. Naidu’s submission. Nand is an enterprising and seasoned businessman who had flourished in his business ventures and undertakings until he was derailed by the effects of the Covid-19 pandemic. He had the best legal advice in Fiji at his disposal and he had the money to pay for that. The security instruments in question were witnessed by a former prominent legal practitioner in Lautoka who, according to the jurat, had explained the document to Nand who appeared fully to understand it.
    

DO THE PROVISIONS OF THE CONSUMER CREDIT ACT 1999 APPLY

25. I agree with the plaintiff’s submissions on this point. Section 6 of the Act provides:
    

6.—(1) This Act applies to the provision of credit (and to the credit contract and related matters) if, when the credit contract is entered into, or, in the case of pre-contractual obligations is proposed to be entered into—

(a) the debtor is a natural person ordinarily resident in the Fiji Islands, or is a body corporate or unincorporate formed in and under the law of the Fiji Islands;

(b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes;

(c) a charge is or may be made for providing the credit; and

(d) the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider.

26. In Rakib v ANZ Banking Group Ltd [2008] FJHC 184; HBC277.2008 (2 September 2008), Mr. Justice Jiten Singh said:
    

[4] Mr. Lateef appeared for the Bank. He had no time to file any affidavit but he was ready to argue a preliminary point, that is, that the Consumer Credit Act did not apply to the mortgage in question. The Consumer Credit Act is presumed to apply to all credit contracts unless the creditor can show that it falls into one of the exempt categories: Section 11.

[5] There are five essential requirements:

(a) The debtor must be a natural person ordinarily resident in Fiji: Section 6(1)(a).

(b) More than half of the credit is provided for or intended to be provided for the purpose of personal, domestic or household purpose: Section 6(1)(b) and 6(5)(a).

(c) Charge is or may be made for providing the credit: Section 6(c).

(d) The credit is provided in the course of business of providing credit or incidentally to any other business of the credit provider: Section 6(d).

(e) That the contract limited credit period to less than sixty-two (62) days: Section 7(1).

The above five requirements are conjunctive so all must be met.

[6] Therefore the Act does not apply if one of the following factors is triggered. These are:

(a) If a person is not ordinarily resident in Fiji.

(b) More than half the borrowers or debtors purpose is for business or investment.

(c) No charge is or may be made for providing credit.

(d) The credit provider is not in the business of providing credit e.g. like one off transaction.

(e) If the contract limits the credit period to less than 62 days: Section 7(1).

[7] From the foregoing it can be seen that if a loan is used predominantly (more than half) for business or investment purpose, then the Act does not apply. So it would not apply to a mortgage whose purpose was to secure a loan to start or expand a business or to buy apartments or house predominantly for business of renting them out.

[8] The plaintiffs in their affidavit state that the rent was their only source of income and inoccupancy of the said property caused them to fail to keep up with payments. These points to investment being the purpose of loan and not personal, domestic or household purpose as required by Section 6. Consumer is defined in the Act as "a person who acquires goods or services for personal, domestic and household purpose".

[9] Mr. Lateef in view of the urgency of the matter handed me a loan letter dated 19th January 2006 sent by the Bank to the plaintiffs. It is signed by both of them. It states that the loan is for New Residential Investment Property. So Section 6(1)(b) is not satisfied.

27. In this case, it is clear from all the documentation before me that the loan facility in question was applied predominantly (more than half) for the purpose of Nand’s businesses and was not for personal, domestic or household purpose as required by section 6.
    
28. The word “consumer” is defined in the Act as "a person who acquiros goods or services for personal, domestic and household purpose".
    

BAD FAITH

29. Nand aand also alleges that HFCL acted in bad faith towards him in not taking into account the hardships which he (Nand) had encountered over the Covid-19 period and that HFCL continued to advance substantial amount of money to him without conducting due diligence to determine his ability to service the loan.
    
30. The evidence suggests that HFC had given Nand a payment holiday of several months. While the effects of COVID-19 on businesses all over the world cannot be ignored, it also cannot be ignored that security holders such as the HFC also risk a lot. These institutions earn money largely through loan payments and associated fees and interests which they charge. There is no suggestion in the submissions filed for and on behalf of Nand that HFC owes Nand a duty of care under contract or tort or equity to extend the payment holiday indefinitely until Nand is back on his feet again, or beyond the time already given.
    

NO COMPETING THIRD-PARTY INTEREST

31. There is no evidence before me to show that there is some other party (third party) who or which might have a bona fide interest over the vehicles in question, and which interest should take priority over HFC’s interest under the floating charge which has now crystalised.
    
32. The transfer of the vehicles to RWSPL (the 2^nd defendant), which happened after the Demand Notice (as I have said above at paragraph 10) was carried out rather underhandedly by Nand in order to insulate the said vehicles from HFC’s threatened recovery action under the General Lien.
    
33. The evidence highlighted by Mr. Singh, and which I accept, is that RWSPL was not a bona fide purchaser for value. Rather, it is a volunteer.
    
34. A “volunteer interest” is one which has not been created for valuable consideration. As a general rule, a volunteer interest will not prevail over a competing equitable interest created out of valuable consideration (see Hughman’s Solicitors v Central Stream Services Ltd – In Liquidation & Stephen Hunt [2012] EWHC 1222 (Ch); United Bank of Kuwait plc v Sahib [1997] Ch 107).
    
35. Furthermore, RWSPL is a “shelf” company owned by Nand. The company has not engaged in any trade or commercial activity since incorporation, as evident in the records extracted from the office of the Registrar of Companies. The only activity which it has ever engaged in is to receive the vehicles in question.
    

CONCLUSIONS

36. In the circumstances, I declare:
    
    • (a) that, the General Lien in question is a valid floating charge,
    • (b) that the said floating charge crystalized at the point of the Demand Notice (see date above),
    • (c) that upon the crystallization of the General Lien, the vehicles in question, namely, FD 409, JU 677, CP 185, FW 785, HD 695, FE 514, JJ 420, HF 024, FX 923, and FJ 222, became fixed. This means that Nand should not have dealt with them by transferring them to RWSPL.
    • (d) that accordingly, HFC is entitled to an Order to recover the said vehicles from RWSPL in order to realise its (HFC’s) security over the said vehicles.
    • (e) that, accordingly, I do so order that the said vehicles be released to HFC for the above purpose.
      
37. Considering the history of this case, I am of the view that the plaintiff is entitled to costs on a higher scale which I summarily assess at $2,500-00 (two thousand five hundred dollars only). This is to be settled within 14 days.
    

..................................

Anare Tuilevuka

JUDGE

Lautoka

01 March 2022