Gaint Whale Entertainment (Fiji) Ltd v Chand [2023] FJHC 706; HBC196.2023 (22 September 2023)

IN THE HIGH COURT OF FIJI AT SUVA
CIVIL JURISDICTION

Civil Action No. HBC 196 of 2023

BETWEEN : GAINT WHALE ENTERTAINMENT (FIJI) LIMITED a limited liability company having its registered office at 301 Princess Road, Tamavua.

Plaintiff

A N D : DEEPAK CHAND and BIMAL CHAND both of Lot 1, Donu Place, Namadi Heights, Tamavua, Solicitor and Businessman respectively.

1^st Defendant

A N D : HOME FINANCE COMPANY PTE LIMITED t/a HFC Bank, a licensed banking institution whose registered office is at 371 Victoria Parade, Suva.

2^nd Defendant

Counsel: Plaintiff: Ms. Rogers A
1^st Defendant: Mr Keteca I.K
2^nd Defendants: Mr. Lajendra N

Date of Hearing: 09.08.2023

Date of Judgment: 22.09.2023

JUDGMENT

INTRODUCTION

1. Plaintiff instituted this action by way of writ of summons against two Defendants. First Defendant was the previous owner of the property comprised in CT No 15119 being Lot 42 on DP 3904 (the Property), second Defendant was its previous mortgagee as well as present mortgagee. First Defendant had sold the property and the second Defendant had provided finance for purchase, through a fresh mortgage of the same property for $600,000 from which $224,912.25 paid to trust account of a law firm of first Defendant. Plaintiff is alleging fraud and misrepresentation through collusion of the two Defendants.
   
2. According to Plaintiff the Property, was overvalued and for that both Defendants had acted in collusion. There are serious questions on this transaction, on material provided.
   
3. Plaintiff had paid mortgage installments for nearly one year and had defaulted, with irregular payments. Second Defendant had proceeded with mortgagee sale and right of redemption become is not pragmatic. Right of redemption is practically redundant if the property was overvalued and mortgaged to overvalued price.
   
4. Plaintiff is seeking injunctive orders, to restrain second Defendant, who is the mortgagee, from taking any action regarding the Property. The causes of action pleaded are fraud, misrepresentation and or negligence.
   
5. Courts are reluctant to grant injunctive reliefs that restrict the rights of the mortgagees, but there is no such rule that a court cannot grant equitable relief in an appropriate circumstances or the power of the court to grant an injunctive relief in any way restricted by artificial preconditions, as contended by counsel for second Defendant.
   
6. Banks are an important part of economy, but they are liable even for actions for third parties in certain circumstances. (See Scott v ANZ Bank New Zealand Limited [2020] NZHC 906; [2020] 3 NZLR 145 (5 May 2020). Plaintiff is not alleging obligation of a Bank by actions of third party, customer, but relying on direct involvement through collusion for the fraud and misrepresentation, with a customer of the bank, who was also solicitor of Plaintiff.
   
7. Plaintiff is alleging negligence or breach of duty of care, too. It is trite law that mortgagor has an obligation to act in good faith and not to act recklessly.
   
8. In this action Plaintiff is making a serious and formidable claims against the mortgagee but they have a real prospect of success. According to statement of claim first Defendant had requested money from the Director of first Defendant and when he refused, a scheme of misrepresentation and fraud was committed by both defendants. Accordingly both had benefitted to the detriment of Plaintiff.
   
9. It states that the price of the Property was inflated more than its value in order to provide proceeds of the mortgage to first Defendant, as he was the previous owner and also held a mortgage for the Property to second Defendant.
   
10. First Defendant had not filed statement of defense despite the writ of summons and statement of claim and acknowledgment of service were served on them. First Defendant did not file affidavit in opposition.
    
11. Second Defendant filed acknowledgement of service, affidavit in opposition and also statement of Defense and denied the allegations made against the mortgagee. These are disputed facts which cannot be resolved by affidavits and there cannot be a mini trial.
    
12. Plaintiff is alleging that the mortgagee sale was to purchase the same property at lower price (including by the seller, first Defendant or an agent acting on him). If this is true they are serious allegations against second Defendant. While admitting the need to safeguard mortgagees’ rights, it should not be extended to prevent equitable relief against unconscionable conduct or fraudulent actions.
    
13. The Property was transferred to first Defendant on 16.9.2016 and second Defendant was the mortgagee for the said transaction. Nearly two years from that, on 4.5.2018 the Property was again transferred to Plaintiff and again second Defendant provided finance to the value of $600,000. From this amount $375,087.75 was for second Defendant and first Defendant had received $ 224,912.25.
    
14. At paragraph 22 of the statement of claim Plaintiff state that first Defendant had purchased the Property for $200,000 and the finance for that was provided by second Defendant, hence colluded with first Defendant and prepared a valuation report to inflate the value to obtain a loan of $600,000 to purchase the Property.
    
15. From the loan amount of $ 600,000 first Defendant had obtained $ 375,087.75 and the remaining $224,912.25 was paid to Trust Account of law firm of first named first Defendant. Allegations of misrepresentation, fraud, and duty of care have real prospect of success.
    

FACTS

16. According to statement of claim Plaintiff and first named first Defendant (herein after referred to only as first Defendant) had client solicitor relationship and was retained for Plaintiff’s legal work. So Plaintiff and its Director developed a trusted relationship based on client and solicitor confidentiality.
    
17. Plaintiff allege that first Defendant had asked for a personal loan in 2016, from the Director of Plaintiff and he had refused it on the basis that the financial affairs were handled by his wife and there were no funds, to be given.
    
18. Plaintiff further stated, this had resulted a scheme that was modeled to obtain money for first Defendant and also transfer of the Property that was already mortgaged to second Defendant. The said mortgage settled, by a loan from the same mortgagee through a loan to Plaintiff.
    
19. Again the Property was, mortgaged to second Defendant for substantially higher amount for second Defendant and first Defendant was also paid $224,912.25.
    
20. Plaintiff allege that first Defendant had told that he could arrange with second Defendant to finance the Property and rental value of over $8,000 p.m. This representation was believed due to the client solicitor relationship between the parties at that time.
    
21. Plaintiff allege that first and second Defendant had colluded to prepare a sale and purchase agreement for the Property on 23.11.2017 for an inflated value and this was the basis for the loan for $600,000.
    
22. Plaintiff further state, first and Second Defendant ‘caused to be prepared a valuation Report from Property Solutions for exaggerated and inflated sum’ on 12.3.2018 for nearly $ 600,000.’
    
23. According to Plaintiff, Second Defendant registered a mortgage for the Property when first Defendants purchased it on 16.9.2016 for a value of $200,000. So the valuation for the sum of $600,000 was inflated and first and Second Defendants were aware of this.
    
24. Plaintiff is claiming for the loss he incurred from the transaction of the property. According to Plaintiff the value of the Property was inflated by $400,000. He had also made improvements for the Property to the value of $300,000.
    
25. Plaintiffs’ claims are based on misrepresentation and fraud against both Defendants on the basis they had acted hand in glove, when all the circumstances considered.
    
26. Plaintiff’s claims for collusion of first and Second Defendants and also misrepresentation, fraud and or, negligence on the part of second Defendant are not frivolous. Considering the circumstances the balance of convenience lies with second Defendant, who is in a position to pay the loss to Plaintiff which can be quantified.
    

ANALYSIS

27. Plaintiff by way of ex parte summons sought injunctive relief against the mortgagee from taking action relating to the Property for the recovery of its loan. This was converted to inter partes.
    
28. Plaintiff’s claims in the statement of claim are based on misrepresentation, negligence based on duty of care, and fraud.
    
29. Plaintiff is claiming damages for a sum of $700,000 from Defendants for the loss from this dealing of the Property. Said sum consist of loss of $400,000 for inflating of the price and another $300,000 for the improvements to the Property after purchase, which will be lost in mortgagee sale.
    
30. Plaintiff allege that both Defendants acted in collusion to inflate the value the property for $600,000 knowing that the true value was around $200,000. He had trusted this value due to client solicitor relationship with first Defendant
    
31. Vendor of the Property had purchased the Property on 16.9.2016 by mortgage from second Defendant, for a value of $200,000. This fact was not denied by first Defendant. Second Defendant, though denied this fact had failed to state what was the valuation obtained for the same Property at that time.
    
32. In American Cyanamid Co (No 1) v Ethicon Ltd [1975] 1 All ER 504, [1977] FSR 593, [1975] UKHL 1, [1975] 2 WLR 316, [1975] AC 396 held,

“My Lords, when an application for an interlocutory injunction to restrain
a defendant from doing acts alleged to be in violation of the plaintiff's legal
right is made upon contested facts, the decision whether or not to grant an
interlocutory injunction has to be taken at a time when ex hypothesis the
existence of the right or the violation of it, or both, is uncertain and will
remain uncertain until final judgment is given in the action. It was to mitigate
the risk of injustice to the plaintiff during the period before that uncertainty
could be resolved that the practice arose of granting him relief by way of
interlocutory injunction”.

Further held,

“So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the inter-locutory relief that is sought.”(emphasis added)

33. Allegations against second Defendant remains uncertain till final judgment is given, but the court needs to mitigate the risk of any injustice to Plaintiff from the time of this application till final determination.
    
34. Accordingly, it is considered whether claims of Plaintiff have ‘any real prospect’ of success at trial and if so whether there should be permanent orders at the end of the hearing.
    
35. The consideration at this point is based on the evidence provided by the parties whether there are ‘serious questions to be tried’. The prospect of success is not distant or fanciful on all three claims, namely misrepresentation, fraud and breach of duty of care (negligence).
    

Misrepresentation

36. In UK High Court decision in Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 1785 (Comm) (11 July 2011) , considered the obligations of bank regarding underwriting of derivative instruments. Misrepresentation was considered in the said judgment and , held,

“Making a representation

215. A representation is a statement of fact made by the representor to the representee on which the representee is intended and entitled to rely as a positive assertion that the fact is true. In order to determine whether any and if so what representation was made by a statement requires (1) construing the statement in the context in which it was made, and (2) interpreting the statement objectively according to the impact it might be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee: see Raiffeisen, supra, at [81]; Kyle Bay Ltd v Underwriters Subscribing under Policy No. 01957/08/01 [2007] EWCA Civ 57; [2007] Lloyd's Rep IR 460, 466, at [30]–[33], per Neuberger LJ.

216. In order to be actionable a representation must be as to a matter of fact. A statement of opinion is therefore not in itself actionable. However, as stated in Clerk & Lindsell para 18-13:

"A statement of opinion is invariably regarded as incorporating an assertion that the maker does actually hold that opinion; hence the expression of an opinion not honestly entertained and intended to be acted upon amounts to fraud."

217. In addition, at least where the facts are not equally well known to both sides, a statement of opinion by one who knows the facts best may carry with it a further implication of fact, namely that the representor by expressing that opinion impliedly states that he believes that facts exist which reasonably justify it – see Clerk and Lindsell para 18-14, citing among other cases Smith v Land and House Property Corp [1884] UKLawRpCh 219; (1884) 28 Ch D 7, 15, per Bowen LJ, and Brown v Raphael [1958] Ch 636.

218. A statement as to the future may well imply a statement as to present intention: "that which is in form a promise may be in another aspect a representation" - Clerk & Lindsell, para 18-12, quoting Lord Herschell in Clydesdale Bank Ltd v Paton [1896] UKLawRpAC 30; [1896] AC 381, 394.

219. Silence by itself cannot found a claim in misrepresentation. But an express statement may impliedly represent something. For example, a statement which is literally true may nevertheless involve a misrepresentation because of matters which the representor omits to mention. The old cases about statements made in a company prospectus contain illustrations of this principle – for example, Oakes v Turquand [1867] UKLawRpHL 18; (1867) LR 2 HL 325, where Lord Chelmsford said (at 342-3):

"... it is said that everything that is stated in the prospectus is literally true, and so it is; but the objection to it is, not that it does not state the truth as far as it goes, but that it conceals most material facts with which the public ought to have been made acquainted, the very concealment of which gives to the truth which is told the character of falsehood."

220. In relation to implied representations the "court has to consider what a reasonable person would have inferred was being implicitly represented by the representor's words and conduct in their context": per Toulson J in IFE v Goldman Sachs [2006] EWHC 2887; [2007] 1 Lloyd's Rep 264 at para. 50. That involves considering whether a reasonable representee in the position and with the known characteristics of the actual representee would reasonably have understood that an implied representation was being made and being made substantially in the terms or to the effect alleged.

....

222. It is necessary for the statement relied on to have the character of a statement upon which the representee was intended, and entitled, to rely. In some cases, for example, the statement in question may have been accompanied by other statements by way of qualification or explanation which would indicate to a reasonable person that the putative representor was not assuming a responsibility for the accuracy or completeness of the statement or was saying that no reliance can be placed upon it. Thus the representor may qualify what might otherwise have been an outright statement of fact by saying that it is only a statement of belief, that it may not be accurate, that he has not verified its accuracy or completeness, or that it is not to be relied on: Raiffeisen, supra, at [86].

....

224. As further observed in Raiffeisen, at [87], the claimant must show that he in fact understood the statement in the sense (so far as material) which the court ascribes to it; and that, having that understanding, he relied on it. Analytically, this is probably not a separate requirement of a misrepresentation claim but rather is part of what the claimant needs to show in order to prove inducement.”(emphasis added)

37. Plaintiff is alleging that his knowledge about the transaction was limited due to several reasons the reasons given needs to be proved at trial, but at this moment taken ex hypothesis
    
38. The Director of Plaintiff had solicitor client relationship prior to this transaction, with first Defendant and had relied on his representation as its solicitor prior to this instance. There is no evidence that Plaintiff relied on a different solicitor, when the same solicitor acted as vendor of the Property, owned by him.
    
39. Before this dealing first Defendant had asked for money form Director of Plaintiff, which was refused and accordingly the alleged fraudulent transaction was made by Defendants to obtain a money to first Defendant.
    
40. The dealing was a result to his refusal to provide money to first Defendant, when requested. So he had come up with the suggestion of transfer of the Property and assurance of rental value of over $7000.
    
41. The valuation report filed ML1 to affidavit in reply is admitted fact and accordingly the estimated rental from the Property was $4,000 p.m.
    
42. Plaintiff’s position is that the Property was grossly overvalued for $600,000 by first and second Defendants, knowingly as the same was mortgaged to second Defendant by first Defendant when it was purchased for a sum of $200,000 nearly two years ago.
    
43. On the undisputed facts provided by second Defendant it is clear that second Defendant held the mortgage for the Property before it was transferred to Plaintiff with a fresh mortgage for substantially higher estimate of $600,000.
    
44. Plaintiff’s position is that both Defendants were aware of the price but they both acted in collusion and misrepresented Plaintiff to purchase the Property for $600,000 and by doing that both Defendants had gained substantially.
    
45. At this point it is not possible to state ‘what a reasonable person’ would have inferred from overall conduct of second Defendant. It is safe to state that the claim for misrepresentation is not frivolous and there are ‘serious questions to be tried’ on the allegation of misrepresentation by first and second Defendants.
    
46. The claim for misrepresentation can arise from anything stated or implied by second Defendant who allegedly acted in collusion with first Defendant. Plaintiff state that the valuation report was obtained through collusion of the two Defendants. So Plaintiff needs to prove that though he was made to believe the valuation report, Defendants never relied on it and made representation by that to induce him to obtain a loan of $600,000 for the purchase of the Property.
    
47. Defendants were aware of the market price of the Property in 2016 and if it was $ 200,000 how could it fetch a price of $600,000 in short time are issues that raise red flag. This is a factual issue that needs determination at hearing.
    
48. One cannot forget the dominant position of first and or second Defendants, as they were solicitor and mortgagee which is also a commercial bank. Plaintiff was not dealing in equal terms due to several factors and any inference regarding misrepresentation needs to be considered in such context. These are issues that cannot be decided abstract manner, but sufficient to state that these raise serious questions.
    
49. Loan Application (marked C) to the affidavit in opposition indicates that the Plaintiff was not customer of second Defendant and had no account with them, when the loan application was made.
    
50. At the same time the most important fact to financial institution, as to the creditworthiness of the mortgagor was not considered by second Defendant, on the evidence provided at this hearing.
    
51. In the loan application “source of funds” state “deposit proceeds from business”. What is the business and how much ‘proceeds’ not stated.
    
52. According to second Defendant the mortgage and loan were, done at arm’s length. If so how the creditworthiness of a non-customer evaluated, can be dealt at trial. The actions of the second Defendant needs further examination at trial with reference to misrepresentation. Further, allegations of collusion between the Defendants and conduct is required to be proved that such conduct amounts to misrepresentation to ‘reasonable person’.
    
53. Both Defendants were aware of the previous market price of the Property, in 2016 and whether it was concealed by both parties at the time of dealing, and the obligations of them as mortgagee and also solicitor/vendor are serious issues of law that needs determination at trial. Price of the Property two years ago not considered by valuer’s report.
    
54. Mortgagee is a commercial Bank, and obligations as to disclosure to Plaintiff and the first Defendant’s obligations in this transaction as vendor and also solicitor of Plaintiff are serious questions to be tied.
    
55. So the claim for misrepresentation contains serious questions of law to be determined.

Fraud

56. Statement of claim contains a claim for fraud, based on the facts relied on for the misrepresentation.
    
57. In Cassa Di Risparmio Della Repubblica Di San Marino Spa v Barclays Bank Ltd [2011] EWHC 484 (Comm) (09 March 2011) held,(Per Hamblem J)

“In a deceit case it is also necessary that the representor should understand that he is making the implied representation and that it had the misleading sense alleged. A person cannot make a fraudulent statement unless he is aware that he is making that statement. To establish liability in deceit it is necessary "to show that the representor intended his statement to be understood by the representee in the sense in which it was false" – per Morritt LJ in Goose v Wilson Sandford & Co. [2000] EWCA Civ 73; [2001] Lloyd's Rep PN 189 at para. 41. In other cases of misrepresentation this is not a requirement, but one would generally expect it to be reasonably apparent to both representor and representee that the implied representation alleged was being made.

58. In this instance Plaintiff is alleging collusion between vendor and second Defendant to value the property for $600,000 and relying on the said valuation and or representations made, Plaintiff obtained a loan from second Defendant from that $375,087.75 debited to second Defendant probably to settle the previous mortgage with them and $224,912.25 to first Defendant’s Trust Account.
    
59. Plaintiff is alleging that it was not issued the usual demand to pay the defaulted or arrears before call for the entire debt.
    
60. Letter of offer (annexed B1 by second Defendant) clause 7.2 A deals with defaults of loan payments and ‘Entire Debt when on Demand’ is dealt with in clause 7.2 C. There is no evidence of compliance of the said provisions by second Defendant.
    
61. These are issues that indicate collusion and serious irregularities on the part of second Defendant that needs to belt at trial through further evidence. There was mandatory requirement to give 30 day notice to clear arrears in terms of Schedule 3 of the Letter of Offer for the loan.
    
62. Why such a demand was not issued and its implications create a serious issues in the context of the allegation of fraud.
    
63. Cassa Di Risparmio Della Repubblica Di San Marino Spa v Barclays Bank Ltd [2011] EWHC 484 (Comm) (09 March 2011) dealt with the claim for fraud against a commercial Bank and held,(Per Hamblem J)

“Fraud’’

The classic statement of the mental element required to found a claim in deceit remains that of Lord Herschell in Derry v Peek:

"First, in order to sustain an action of deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement from being fraudulent, there must, I think, always be an honest belief in its truth."

As to recklessness, even if the party making the representation may have had no knowledge of its falsehood, he will still be responsible if he had no belief in its truth and made it, "not caring whether it was true or false" - See Clerk & Lindsell, para 18-21. As Lord Herschell put it Derry v Peek, supra, at 368 (and 361):

"Any person making such a statement must always be aware that the person to whom it is made will understand, if not that he who makes it knows, yet at least that he believes it to be true. And if he has no such belief he is as much guilty of fraud as if he had made any other representation which he knew to be false, or did not believe to be true."

It is not necessary that the maker of the statement was 'dishonest' as that word is used in the criminal law - Standard Chartered Bank v Pakistan National Shipping Corp (No. 2) [1999] EWCA Civ 3028; [2000] 1 Lloyd's Rep 218, 224. Nor is the defendant's motive in making the representation relevant: "If fraud be established it is immaterial that there was no intention to cheat or injure the person to whom the false statement was made." - Clerk & Lindsell, para 18-20, quoting Bradford Third Benefit Building Society v Borders [1941] 2 All ER 205, 211 per Viscount Maugham; and see also Derry v Peek, supra, at 409. What is required is dishonest knowledge, in the sense of an absence of belief in truth - The Kriti Palm, supra, para 257 (Rix LJ); and see also para 258, quoting Armstrong v Strain [1951] TLR 856, 871, per Devlin J ("When Judges say, therefore, that wickedness and dishonesty must be present, they are not requiring a new ingredient for the tort of deceit so much as describing the sort of knowledge that its necessary").

The ingredient of dishonesty (in the above sense) must not be watered down into something akin to negligence, however gross - The Kriti Palm, supra, para 256. However, the unreasonableness of the grounds of the belief, though not of itself supporting an action for deceit, will be evidence from which fraud may be inferred. As Lord Herschell pointed out in Derry v Peek, supra, at 376, there must be many cases:

"where the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince the court that it was not really entertained, and that the representation was a fraudulent one."

Where a serious allegation (such as deceit) is in issue, this does not mean the standard of proof is higher. However, the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established - The Kriti Palm, supra, para 259, quoting Lord Nicholls in re H (Minors) [1996] AC 563, 586.

An innocent employer may be vicariously liable for a deceit committed by an employee in the course of his employment, as for any other deliberate tort - Clerk & Lindsell, para 18-26; Lloyd v Grace, Smith & Co [1912] AC 716.

The innocent principal is liable where a fraudulent agent passes on a representation indirectly, for example through another (innocent) agent of the same principal - Clerk & Lindsell par 18-25, citing London County Properties v Berkeley Property Co [1936] 2 All ER 1039 (CA), as interpreted by the CA in Armstrong v Strain [1952] 1 KB 232.

E. Inducement

As analysed by Christopher Clarke J in Raiffeisen, supra, at [153]-[199], to establish inducement for the purpose of a claim under s.2(1) of the Misrepresentation Act, it is necessary to show that, but for the representation, the claimant would not have entered into the contract that he did.

In that case, Christopher Clarke J concluded that where a fraudulent misrepresentation has been made, the requirement is weaker: it is sufficient to show that the representation was a factor in the claimant's decision and that but for it he might have acted differently - Ibid at [196]-[199], referring to Barton v Armstrong [1976] AC 104 and Barton v County NatWest [1999] Lloyd's Rep 408; and see also Dadourian Group International v Simms [2009] EWCA Civ 169; [2009] 1 Lloyd's Rep 601, 618 at [99] + [101]. This conclusion was challenged by Barclays. It submitted that a fraudulent representation must cause a loss to create a cause of action and to do so it must cause the entry into the contract from which the loss is said to arise. It follows that it must induce the representee to enter into the contract and be a cause of him doing so. It is not necessary to resolve this issue but I propose to proceed on the basis that the approach of Christopher Clarke J is correct.”(emphasis added)

64. According to statement of claim for fraudulent conduct and collusion is alleged against both Defendants.
    
65. Plaintiff alleges that second Defendant had processed the loan for $600,000 without proper documentation or following usual procedure and allege that no explanation was made.
    
66. As stated earlier, there was no evidence of evaluation of creditworthiness of Plaintiff who was not a customer of second Defendant prior to application of loan and mortgage of the Property.
    
67. In the loan offer documentation the sole purpose of the loan was ‘Purchase of Property’. So the purpose of the loan was clear to the mortgagee for proper assessment.
    
68. Second Defendant was aware of the Property and its value two years ago as it was the mortgagee prior to Plaintiff’s purchase. Hence, should be aware of the price of the property.
    
69. Plaintiff also allege that he had done substantial improvements to the Property to the value of $300,000. Plaintiff also allege that the sale of the property was for the purchase of the same for undervalue. If so these are serious questions as to the conduct of commercial bank as mortgagee and also first Defendant.
    
70. If the value of the property undervalued and sold to an interested party, it will also substantiate the allegation of fraud and misrepresentation, but at the moment details of mortgagee sale or prospective buyer is not known. These facts are not substantiated and remained allegations as second Defendant refrained from providing details of the prospective buyer or price offered. There was no submission that such facts are confidential.
    
71. Obligations of the second Defendant towards mortgagor are based on statutory provisions and equity.
    
72. Scott v ANZ Bank New Zealand Limited [2020] NZHC 906; [2020] 3 NZLR 145 (5 May 2020) was a case where Bank never participated as a party to ‘Ponzi Scheme’ operated by a customer of the Bank. So the court in a strike out application by the Bank rejected the contention that held,

“I decline to strike out the claim. This is because:

(a) I am not satisfied the claim for dishonest assistance cannot succeed. Dishonest assistance does not require ANZ to have acted consciously dishonestly, in the sense of knowing it was acting dishonestly by assisting.”

73. In that case dishonest assistance was pleaded against ANZ Bank, but no such cause of action, but the expansion of rights of the commercial bank and its obligations towards customers as well as prospective customers.
    
74. So, the claim for fraud raised serious questions considering that second Defendant had not complied with notice for arrears in terms of clause 7.2 (c) of Loan Offer that was accepted. Second Defendant had provided a valuation report where mortgage sale value of the property was $532,000. Second Defendant had provided a loan of $600,000.
    

Duty of Care (Negligence) of second Defendant.

75. Plaintiff also claimed, negligence on the part of the second Defendant.
    
76. Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 1785 (Comm) (11 July 2011) Held,

“In considering whether a duty of care arises and, if so, its scope, recent case law has emphasized the importance of a pragmatic approach which concentrates on the exchanges and dealings between the parties considered in their context rather than the application of high level statements of principle. Attention should be concentrated on "the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole" – per Lord Bingham in Commissioners of Customs & Excise v Barclays Bank [2007] 1AC 181 at [8].

A convenient summary of the case law and the correct legal approach can be found in the first instance decision of JP Morgan Chase Bank v Springwell Navigation Corp - [2008] EWHC 1186 (Comm), per Gloster J at [48] – [52] and [55].

"48. ....The cases were most recently reviewed by the House of Lords in Commissioners of Customs & Excise v Barclays Bank [2006] UKHL 28; [2007] 1 AC 181(HL) a case which arose in a non-contractual setting (notice of a freezing order). The speeches in that case referred to the three tests which had been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort:

i) the assumption of responsibility test, coupled with reliance;

ii) the "three-fold-test" (whether the loss was reasonably foreseeable, whether the relationship between the parties was of sufficient proximity and whether in all the circumstances it is fair just and reasonable to impose such a duty); and

iii) the incremental test.

49 Ultimately, the conclusion of their Lordships was that there was no single common denominator, with all of the tests operating at a high level of abstraction. However, what each test emphasized was the need to take into account all the relevant facts in the overall determination. As Lord Bingham said:

"8. ... it seems to me that the outcomes (or majority outcomes) of the leading cases cited above are in every or almost every instance sensible and just, irrespective of the test applied to achieve that outcome. This is not to disparage the value of and need for a test of liability in tortious negligence, which any law of tort must propound if it is not to become a morass of single instances. But it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole".

50 Likewise, Lord Hoffmann also emphasized the need for a practical approach to the question whether a duty of care exists, and the evolution of "lower level principles" as a more useful guide than "high abstractions":

"35. There is a tendency, which has been remarked upon by many judges, for phrases like 'proximate', 'fair, just and reasonable' and 'assumption of responsibility' to be used as slogans rather than practical guides to whether a duty should exist or not. These phrases are often illuminating but discrimination is needed to identify the factual situations in which they provide useful guidance."

51 However, as was pointed out in Williams v Natural Life Health Foods Ltd [1998] UKHL 17; [1998] 1 WLR 830 (HL), whatever the formulation of the test, it requires an objective ascertainment of the relevant facts, the primary focus being on exchanges between the parties:

"The touchstone of liability is not the state of mind of the defendant. An objective test means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff. Obviously, the impact of what a defendant says or does must be judged in the light of the relevant contextual scene. Subject to this qualification the primary focus must be on exchanges (in which term I include statements and conduct) which cross the line between the defendant and the plaintiff".

52 As Mance J (as he then was) pointed out in Bankers Trust v PT Dharmala Sakti Sejahtera [1996] CLC 518 at 575-6, the ultimate decision whether to recognize a duty of care, and if so of what scope, is pragmatic."

....

55 In Bankers Trust International plc v PT Dharmala Sakti Sejahtera, a case having some similar features to the present, where allegations of misrepresentation, breach of contract and breach of duty of care were made against a bank in relation to derivative transactions, Mance J (as he then was) made the following comment :

"The relationship under examination is not the conventional banker-customer relationship, although that too many on occasions be affected by representations, undertakings or the assumption of an advisory role. The bank here was marketing to existing or prospective purchasers derivative products of its own devising which were both novel and complex. The analysis of the relationship is in the circumstances one of some delicacy."(Emphasis added)

77. At paragraph twenty seven of the statement of claim Plaintiff allege negligence on the part of second Defendant in this dealing. There was no evidence of assessment of source of funds for repayment in the evidence presented at this moment.
    
78. Plaintiff had in the loan application stated that proceeds from its business will be utilized for the repayment but no evidence of quantitative assessment of such statement prior to grant of the loan to non-customer of the second Defendant at that time.
    
79. In the circumstances the claims of the Plaintiff are not frivolous. Plaintiff allege that he relied on Defendants due to special relationships. Second Defendant was the previous mortgagee of the Property and had also obtained substantial part of the loan of $600,000 and again mortgaged the same property for a loan of $600,000. First defendant was its solicitor.
    
80. According to Plaintiff both Defendants had gained unreasonably through deception, and by overvaluation both had benefited. These are issues that Plaintiff needs to prove at trial, but suffice to state they are not frivolous considering circumstances of the cases.
    
81. The claims contained in the statement of claim are not ‘thin’ and has real prospect of success the next issue for the Court to consider is the balance of convenience.
    
82. Counsel for second Defendant contended that Court will not be able to grant an injunctive relieve unless the amount is deposited to Court. This may be the case in majority of the case against mortgagees, due to nature of such actions. This cannot exclude the equitable relief exercising discretion of the Court in fit and proper circumstances.
    
83. In majority of actions against the mortgage sale there is no dispute as to the validity of the mortgage. So no real prospect of success. The position of the Plaintiff is clearly distinguished from such cases.
    
84. I have already held that there is real likelihood of success for the claims based on fraud, misrepresentation and breach of duty of care regarding the circumstances in this action.
    
85. As misrepresentation and fraud goes to the crux of the loan agreement and mortgage instrument it would be inequitable to impose a condition so as to pay the entire debt as demanded by second defendant, it would be futile to ask a party to deposit an amount more than its value to issue a stay of mortgage sale.
    
86. As I have stated earlier there was no evidence of demand for arrears as required under loan agreement. The mortgage is claiming entire debt that was to be settled within thirty years, without thirty day ‘Demand Notice’ in terms of clause 7.2 of Loan Offer. So there is no amount to be deposited other than entire debt which was due in thirty years. This itself shows some kind of discriminatory conduct, in dealing with Plaintiff, and no explanation given for such deviation. It was an express conditions stated in the loan offer which I have quoted earlier.
    
87. In Nair v Australia and New Zealand Banking Group Ltd [2013] FJHC 575; Civil Action 200.2010 (1 November 2013) injunctive relief was granted against mortgagee by High Court, when there were no allegation as to fraud, or misrepresentation regarding the amount loaned and or the mortgage . The allegation in Nair (supra) was regarding mortgagee sale. The court granted a restraining order to restrain a sale of a property when sale and purchase agreement was already entered after a mortgagee sale. There was no order to deposit the amount claimed by the bank in that case.
    
88. Strategic Nominees Ltd (In Receivership) v Gulf Investments (Fiji) Ltd [2011] FJCA 23; ABU0039.2009 (10 March 2011), Court of Appeal considered the issue of granting an injunction against the mortgagee from proceeding with mortgagee sale. It that case after examining numerous authorities it was held,(Per Marshall J)
    

‘In these cases a common thread is that the business plan requiring a bank loan subject to security by way of mortgage has failed. The mortgagor defaults. In that situation there is little or no prospect of the monies due under the mortgage being paid into court. The mortgagor, in most cases does not have the means to bring all the monies owed to the mortgagee into court. The action which the mortgagor brings is a desperate attempt to buy time. Because the alleged set-off or counterclaim is set up as a thin and artificial claim there is minimal likelihood of success. Were the judge at first instance to apply the legal rules that were relevant, that first instance judge would not issue a quia timet interlocutory injunction restraining the use of the power of sale. The mortgagor and his associates are not likely to pursue their claim and incur costs. The gamble of setting up a thin and artificial claim in order to delay the day of reckoning has failed. The land is sold. The mortgagor discontinues his claim. That is how the rules of equity and common law are supposed to work.’

89. While accepting that in majority of the cases the claims against mortgagee are frivolous or ‘thin’ in order to avoid inevitable consequence of sale of the mortgaged property, the same broad brush approach cannot be applied without considering facts and circumstances.
    
90. Courts are not precluded from granting equitable relief such as injunction, against mortgagees and there is no inflexible rule as to deposit of money demanded by mortgagee is a prerequisite. They are not immune from civil litigation for any fraud and or misrepresentation and breach of duty of care. In such an instance, though rare, a court may grant an injunction when overall equity allows such a restraint including stay of a mortgagee sale.
    
91. Injunction is an equitable remedy, hence terms of the injection also needs to be equitable. The contention that Plaintiff needs to deposit total sum of the Debt, which was to be paid in thirty years, as demanded by second Defendant cannot be accepted. A court can decide terms of the injunction considering circumstances each case.
    
92. In the circumstances I reject the contention that Plaintiff, is required to pay to the court the total debt, demanded by second Defendant by its letter of 5.6.2023.
    
93. As I have stated earlier, second Defendant had failed to produce any demand for arrears of loan as required in terms of clause 7.2 C of the Letter of Offer or on what basis Clause 7.2 B for demand for ‘entire debt’ can be exercised without compliance with Clause 7.2 C.
    
94. American Cyanamid Co (No 1) v Ethicon Ltd [1975] 1 All ER 504, [1977] FSR 593, [1975] UKHL 1, [1975] 2 WLR 316, [1975] AC 396 held,
    

“As to that, the governing principle is that the court should first consider
whether if the plaintiff were to succeed at the trial in establishing his right
to a permanent injunction he would be adequately compensated by an award
of damages for the loss he would have sustained as a result of the defendant's
continuing to do what was sought to be enjoined between the time of the
application and the time of the trial. If damages in the measure recoverable
at common law would be adequate remedy and the defendant would be in
a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage.” (emphasis added)

95. When application of above to the case before me following factors considered;
    
    1. Plaintiff is a legal entity and the purchase of the Property was not for residential purpose.
       
    2. There was no evidence of ability of Plaintiff to pay any loss to second Defendant if mortgagee sale is restrained till final determination of this matter, though this is not determinative.
       
    100. Plaintiff had purchased the Property in 2018 and there was no evidence of generation of income from it and loss of that.
         
    4. Plaintiff’s claim is damages for $400,000 for the excess amount he paid or obtained loan and improvements amounting to $300,000 totaling to $700,000.
       
    5. Defendant being a commercial bank can easily pay any damages from this dealing.
       
96. It is clear from the above that damages from this dealing can be assessed in common law despite allowing mortgagee sale. Plaintiff’s maximum loss will be amount it had paid so far and total sum invested in it. If the property is sold to undervalued price it will further add to the conduct of parties and will not affect the damages claim of Plaintiff.
    
97. Even if I am wrong on the above, on the same factors discussed above, it is clear that balance of convenience lies with refusal to stay the mortgagee sale. Plaintiff had already assessed the amount it had invested in the property as $300,000. If second Defendant acts in bad faith in the sale of the property it will not help second Defendant at all and will further substantiate the allegations of fraud , misrepresentation and negligence and or ‘undervalue sale’. It will also be a loss to second Defendant.
    
98. If Plaintiff is able to establish its claims, any further loss from mortgagee sale such as sale of the Property to undervalued price, will be a loss to second Defendant. At the same time even if Plaintiff is unable to prove its claims, reduction of debt by properly conducted mortgagee sale will reduce the debt obligation. If the claims of the Plaintiff are proved damages can be recoverable from Defendants. By holding on to the Property, there is no gain to Plaintiff. So the overall equity in this case also lies with refusal of the injunction.
    

CONCLUSION

99. Plaintiffs’ claims against second Defendant are not frivolous and had raised serious question to be tried considering obligations of mortgagee and also vendor. They have real prospect of success on material provided at this moment and needs ‘detailed arguments and mature consideration’ at trial. The claim is purely a damage from the loss of the dealing to Plaintiff which is estimated at $700,000 and according to Plaintiff the purchase of the property was through a misrepresentation and or fraud which had benefited both Defendants acting in collusion. Plaintiff was lured to purchase the Property through some misrepresentation and fraud. The application for injunction is refused. Summons filed 3.7.2023 is struck off. Considering the circumstances of the case no cost granted.
    

FINAL ORDERS

1. Summons for injunction is refused.
2. No cost.
   

Dated at Suva this 22^nd day of September, 2023.

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

Justice Deepthi Amaratunga

High Court, Suva