Niranjans Autoport Ltd v Narayan [1992] FJLawRp 7; [1992] 38 FLR 12 (31 January 1992)

[1992] 38 FLR 12

HIGH COURT OF FIJI

Appellate Jurisdiction

NIRANJANS AUTOPORT LTD

v

TITUS ADIT NARAYAN

Fatiaki J

31 January 1992

Bill of Sale - early repayment of loan - whether harsh and unconscionable to require debtor to pay interest on, the loan for the entire contractual loan period - Bills of Sale Act (Cap. 225).

The Respondent had purchased a motor-car from the Appellant under a bill of sale. He was able to repay the loan well before the expiry of the repayment period. In the Magistrates Court it was held that he was no longer liable to pay interest on the repaid loan for the remainder of the repayment period. On appeal to the High Court it was HELD: absent a term in the contract entitling the borrower to a rebate the lender was entitled to interest on the loan for the duration of the whole repayment period.

Cases cited:

Bali Mohammed v Carpenters Limited Civil Appeal No. 74 of 1985
Biggs v Hoddinott [1898] 2 Ch.D. 307
Ex parte Ellis [1898] UKLawRpKQB 126; [1898] 2 QB 79
Forster v Clowser [1897] 2 QB 361
Knights Bridge Estates Trust v. Byrne [1876] UKLawRpCh 23; [1939] 1 Ch.D. 441
Mussen v Van Diemens Land Co. [1938] 1Ch.D. 253
Parkin v Thorold (1852) 96 RR 32
Santley v Wilde (1899) 2 Ch.D. 474

Appeal to the High Court from the Magistrates Court.

H. Lateef for the Appellant
V Parmanandam for the Respondent

Fatiaki J:

This is an appeal against the decision of the Suva Magistrates Court in which the appellant company was ordered to pay to the respondent a sum of $3,273.25 together with interest thereon of 13.5%.

The sum was the calculated rebate of interest paid by the respondent under a Bill of Sale granted to the appellant company to secure the balance purchase price of a new motor vehicle purchased by the respondent from the appellant company and which the Respondent paid-up in full some 17 months prior to the date agreed for final payment.

Why this occurred is not entirely clear but there is some evidence that the plaintiff (respondent) fell into arrears in his repayments and the defendant company (appellant) had made a demand through its bailiff for the seizure of the vehicle. Nothing is known about how far the defendant company (appellant) had progressed in its seizure of the vehicle but in any event the plaintiff had a right to redeem the vehicle pursuant to Clause 2 of the Bill of Sale upon "... paying the sum of $26,357.12 ..."

Against the decision the appellant company complains of the following errors on the part of the learned trial magistrate

"(a)... in allowing rebate on the Bill of Sale;

(b)... in the construction and interpretation of the Bill of Sale; and

(c)... in not adhering to a decision of The Fiji Court of Appeal."

This latter decision which was referred to the learned trial magistrate and forms part of the Magistrate's Court record is entitled Bali Mohammed v. Carpenters Limited Civil Appeal No. 74 of 1985.

The respective positions adopted by the parties in the trial remained unchanged on appeal and may be summarised as follows:

The plaintiff (respondent) claimed that he had settled the debt much earlier than anticipated under the Bill of Sale and was therefore entitled to a refund of interest whereas the defendant company (appellant) argued that the Bill of Sale was a contractual document which contained no provision for any rebate of interest for early repayment and in the absence of such a provision the plaintiff (respondent) was not legally entitled to claim or demand any.

The learned trial magistrate in dealing with this latter submission said:

"... I note that the Bill of Sale does not contain a clause saying the plaintiff is entitled to such a rebate - neither does the Bill of Sale specify or clarify that he is not eligible for it. In the absence of such a provision the Court is left to determine this issue in light of the circumstances surrounding each individual case."

The learned trial magistrate then went on to say:

"I find that it would be harsh and unconscionable on the plaintiff if the Court were to hold that the plaintiff is not entitled to the rebate. The defendant has nothing to lose. The Bill of Sale is heavily loaded in favour of the defendant. Not only is the interest calculated on the whole balance sum (instead of a more reasonable sliding scale) but the plaintiff is made to pay interest on a balance that does not exist when full payment is made in advance (as in this case)."

If I may say so this attitude of the learned trial magistrate appears to differ from that taken by the Fiji Court of Appeal in Bali Mohammed's case (op cit) where at p.5 the court observed of the absence of any provision for rebate of interest for early payment in the Bill of Sale there being discussed:

"There was no provision for rebate of, interest for early payment. In the absence of legislation requiring provision for rebates for early payment the lack of such a provision in loan transactions is quite common. There is no evidence from which we could conclude that such a lack of provision for rebate is harsh or unconscionable."

Learned counsel for the respondent in seeking to distinguish the case of Bali Mohammed characterised the above dictum of the Court of Appeal as obiter. Counsel emphasised that in Bali Mohammed's case the entire Bill of Sale was being challenged as being wholly illegal, unenforceable and void furthermore, the factual circumstances of the case were quite different from the present in that the grantor of the Bill of Sale had defaulted in his repayments and the company had seized and sold the motor vehicle and was suing for the shortfall owing under the Bill of Sale.

In other words in Bali Mohammed's case there was no question of an early repayment nor a claim for rebate of interest arising in such an event. The question before the Court of Appeal was an almost purely theoretical one.

In the circumstances it is not at all surprising that the Court of Appeal had no evidence before it upon which it could hold that the mere absence of such a provision in the Bill of Sale rendered the transaction per se harsh and unconscionable.

Indeed, the company's evidence on this aspect was that despite the absence of any provision in the Bill of Sale, in practice, interest would be adjusted on an early repayment. This conduct by the company was described by the learned trial judge in the case as "... treating a customer fairly (by) allowing a rebate of part of the additional sum for early payment ".

Notwithstanding the absence of legislation requiring provision in Bills of Sale for rebates of interest on early repayment, I do not understand the Court of Appeal in the above passage from Bali Mohammed's case to say that under no circumstances could a court interfere if it was satisfied that the terms and conditions of a particular transaction were harsh and unconscionable.

Suffice it to say that the specific problem encountered in this case did not fall to be considered by the Court of Appeal in Bali Mohammed's case albeit that the absence of any provision for a rebate of interest on early repayment is a feature common to both Bills of Sale.

There is nothing in the Bills of Sale Act Cap. 225 which might assist the Court in resolving the problem but by way of analogy: learned counsel for the appellant company submits that the court should adopt a position similar to that relating to mortgages of land as set out in Section 72(2) of the Property Law Act Cap. 130 which provides:

"A mortgagor is entitled to redeem the mortgaged property although the time for redemption appointed in the mortgage has not arrived; but in that case he shall pay to the mortgagee, in addition to any other moneys then due and owing under the mortgage, interest on the principal sum secured thereby for the unexpired portion of the term of the mortgage." (emphasis added).

In similar vein Halsburys Laws of England (4th edn) Vol.4 contains the following relevant passage about a grantor's right of redemption under a Bill of Sale

"751. Redemption. Quite independently of the statutory relief, the grantor has an equitable right to redeem at any time before sale or foreclosure. He cannot ordinarily redeem before the time agreed for payment, for the grantee has the right to keep his money outstanding for the stipulated period in order that he can earn the full agreed interest." (my underlining)

The authority cited for the above proposition is Ex.parte Ellis [1898] UKLawRpKQB 126; [1898] 2 QB 79 in which the following passage occurs in the judgment of A. L. Smith LJ. at p.81:

"I do not think that the Bill of Sale shall be given up where the grantee has seized for the purpose of maintaining and not of realising his security. It would be a great hardship on him if it were otherwise. He has a contract whereby, in consideration of his lending a sum of money for a certain time, the grantor agrees to pay interest at a certain rate for that period ... On the other hand if the grantee seizes the goods for the purpose of realising the security by sale of them, it is no hardship on him that on payment of the principal, interest up to date, and costs he should be ordered to give up the security."

From the foregoing it is clear that the circumstances under which a mortgagor or grantor sought to exercise his equity of redemption weighed heavily with the Courts. Equally the purpose and intention of the mortgagee or grantee in seeking to enforce his security was also an important factor to be considered before granting relief against forfeiture.

In the present case however in the absence of any clear evidence to the contrary it is reasonable to assume that the respondent in fully paying-up the amount owed under the Bill of Sale was exercising his undoubted `equity of redemption' within the terms of Clause 2 of the Bill of Sale.

Counsel for the respondent however in an attractive and eloquent argument urges that the learned trial magistrate's judgment should be sustained as a decision which accords with social justice and derives from the equitable discretion of the court to achieve fairness and do justice between litigants, and Counsel rhetorically asks: "why should a citizen pay interest on a sum he no longer owed?"

Lord Esher MR. in Forster v. Clowser [1897] 2 QB 361 asked and answered a similar question in the following manner when he said at p.365:

"The question then, is not what is equitable or legal, but what is just. If the Court exercises its discretion wrongly, that is a matter for appeal. Is it any injustice to the lender of the money to say that so long as the money is out of his pocket and not paid he should have interest for it, but that the interest should cease when the principal is paid with interest to the date of payment ? I cannot see anything unjust in such an order."

On the other hand, the argument of Counsel for the appellant receives support from the dissenting judgment of Rigby LJ. in the same decision where the learned justice said at p. 367:

"The arguments used in this case will apply equally to all cases of loans for a term of years at a fixed rate of interest. I do not think it can be said to the lender that he is just as well off and will get his money back if he is paid off at once, because that is not the bargain he has made."

Additionally, this court is mindful of the words of Romer J. (as he then was) in Biggs v. Hoddinott [1898] 2 Ch D 307 when he cautioned at p. 313:

"There is a great principle which I think ought to be adhered to by this Court, and by every Court where it can possibly do so; that is to say, that a man shall abide by his contracts, and that a man's contracts should be enforced as against him."

but even he acknowledged that:

"Undoubtedly there are certain principles of equity, especially those relating to mortgages and mortgagees, which have to a certain extent interfered with that general principle."

One such principle had been earlier canvassed by the Master of the Rolls in Parkin v. Thorold (1852) 96 RR 32 at p. S7 when he said of mortgages:

"The contract between the mortgagor and mortgagee is precise; if the money and interest is not repaid on the day twelve - month on which the mortgage is made; the estate is to be the property of the mortgagee : the contract is positive and unambiguous, but a court of equity will not permit that contract to be enforced, and will restrain the parties from enforcing it at law. It treats the substance of the contract to be a security for the repayment of money advanced, and that portion of the _contract which gives the estate to the mortgagee as mere form, and accordingly, in direct violation of the contract, it compels the mortgagee, so soon as he has been repaid his principal money and interest, and the costs he has been put to, to restore the estate; and this, although the parties have acted on the contract, and the mortgagee has taken possession on the day when default arose..." (my underlining)

I am satisfied that a Bill of Sale is a form of mortgage being "... an assignment of chattels as a security for the payment of a debt or the discharge of some other obligation for which it is given ... and (which) is redeemable on the payment or discharge of such debt or obligation, any provision to the contrary notwithstanding" [per Lindley MR. in Santley v. Wilde (1899) 2 Ch.D.474].

But that alone does not entitle this or any other court from refusing to enforce an arms-length contract voluntarily entered into between experienced businessmen.

In this case learned counsel for the respondent has not been able to point to any particular provision of the Bill of Sale which is void per se or harsh and unconscionable nor has it been demonstrated to this court that there was any clog or fetter on the plaintiff's (respondent) equity of redemption.

Instead it is claimed in the face of an expressly agreed term in the Bill of Sale, that it is somehow ex paste facto harsh and unconscionable for the defendant (appellant) to retain that part of the interest payment which purports to relate to the unexpired portion of the term of the Bill of Sale.

Needless to say the plaintiff, an experienced businessman, was desirous of purchasing a new motor vehicle from the defendant company but because he was unable to pay the full purchase price at the time the defendant company (appellant) and he agreed that the balance should be paid-off in instalments over a period of 4 years with interest being charged at the beginning for the entire term of the Bill of Sale.

That was the nature of the agreement entered into by the parties and which the plaintiff (respondent) at no stage of its existence challenged as being harsh and unconscionable. Indeed I would go so far as to say that the plaintiff (respondent) must have known or realised that before he could redeem the car he would have to pay the defendant the agreed sum of $26,357.12 together with the defendant's costs and expenses.

How can it now be said that because that event occurred (at the plaintiff's election) it is harsh and unconscionable for the defendant company to retain a portion of the interest which was an integral part of the sum agreed to be paid in the contract in such an event ?

Farwell J. in refusing to grant any relief to the plaintiff in Mussen v. Van Diemen's Land Co. [1875] UKLawRpCh 159; [1938] 1 Ch. D. 253 said at p.263:

"It is no ground for relieving a person from a contract which he himself has made to say that he has, through no fault of the defendant, found ... that it may turn out to be not a good bargain from his view point. Considerations of that sort are wholly irrelevant."

The mere fact that an agreement may with hindsight turn out to be not as good for one party as it might have been is no ground for invoking the assistance of equity.

Furthermore a decision of this court which seeks to superimpose a nebulous test of fairness on commercial contracts without reference to business realities would be an unwarranted interference with the freedom of businessmen to enter into agreements best suited to their interests. (See: Knights Bridge Estates Trust v. Byrne [1876] UKLawRpCh 23; [1939] 1 Ch.D. 441 at pp. 45S to 458 in particular.)

For instance, in the present case it would have prevented the plaintiff (respondent) from obtaining financial terms which for obvious reasons he himself considered at the time he signed the Bill of Sale to be most desirable and fair.

With all due respect to the learned trial magistrate this was not a case of an unreasonable clog on the plaintiff's equity of redemption nor was it a case of a mortgagee exercising his power of sale under the Bill of Sale which would have entitled him to interest only up to the time of sale or seizure.

There was and is nothing harsh or unconscionable in the terms and conditions of the Bill of Sale which was a normal commercial agreement voluntarily executed by both parties.

That is not to say that it might have been fairer (for the plaintiff) if interest had been calculated on a reducing balance or if express provision had been made in the Bill of Sale for a rebate of interest on early repayment of the principal sum, but in the absence of such a provision or any undue pressure in the making of the Bill of Sale, there is no reason why the court should interfere.

Indeed the plaintiff voluntarily elected to pay off the balance purchase price early, and if he is thereby relieved from paying the agreed interest, then contrary to what the learned trial magistrate thought, the defendant stood to lose out on that agreed interest.

Needless to say the defendant (appellant) would have been perfectly entitled to refuse to accept a lesser sum tendered to it and insisted upon a strict adherence to the terms of payment in the Bill of Sale in which case he would have received the full benefit of his bargain.

Accordingly the appeal succeeds and the decision of the learned trial magistrate is set aside with costs to the appellant.

(Appeal allowed.)