Vivrass Development Ltd v Fiji National Provident Fund [2001] FJLawRp 67; [2001] 1 FLR 260 (10 August 2001)

VIVRASS DEVELOPMENT LTD AND LAUCALA BEACH HOLDINGS LTD v FNPF, RAGG & ASSOCIATES INTERNATIONAL LTD

High Court Civil Jurisdiction

10-11 July, 10 August, 2001

HBC 27/01S

Injunction –– motion to dissolve injunction - injunction earlier granted restraining D1 from proceeding with mortgagee sale or advertising sale – injunction will frustrate civil action claiming order for specific performance of sale of properties to D1 – D1 wearing 2 hats of mortgagor and purchaser – whether affidavits raised triable issues – damages an adequate remedy

The Plaintiffs earlier instituted a civil Action against the Defendants seeking an order for specific performance that D1 purchase P1's property for $4.5 million and that D1 execute all necessary documents. D1 revised its offer downward to $3.134m. That action is being defended. D1 subsequently issued demands under mortgage on both Plaintiffs and had advertising 'mortgagee's sale' of the properties. D1 counsel submitted that the Plaintiffs failed to disclose that at the time of obtaining interim injunction it had already advertised the mortgagee sale of the two companies in a daily newspaper, that there was a winding up action by a bank. Together with the apparent worthless undertaking when the Plaintiffs were unable to pay their debts, D1 counsel submitted these were sufficient to dissolve the interim injunction. Counsel further submitted that proceeding with the mortgagee's sale was in the interests of the Plaintiffs to realize the best value from the security. Plaintiffs' counsel argued that non-disclosure alone was insufficient to avoid an injunction, which should be stopped as the mortgagor had become a purchaser, and it could not have it both ways. The Court examined the principles of injunction, and determined that this was a case where damages are an adequate remedy, that the Plaintiff had not made out a sufficient case why it should stop a mortgagee exercising its power under security documents.

Held – It cannot be so in law that D1 should be restrained from exercising its power of sale when there was sufficient justification for exercising it, when the same property is mortgaged to it, and in a sale and purchase agreement, albeit incomplete. The court will not grant an injunction which would have the effect of helping to break an enforceable security contract, absent any satisfactory and acceptable proposition about repayment, or whether they are prepared to deposit money into Court. The Plaintiff had not made out a sufficient case in support of its application.

Plaintiff's application for interim injunction restraining D1 from proceeding with mortgagee sale pending determination of action refused. D1's application to dissolve ex parte injunction granted.

Cases referred to in Decision

American Cyanamid Co. v Ethicon Ltd [1975] UKHL 1; (1975) AC 396
Antech International Limited and Harish Mahendra Singh and Westpac Banking Corporation ABU 29/96
Fraser v Evans [1969] 1 QB 349
Hubbard & Another v Vesper & Another (1972) 2 WLR 389
Inglis v Commonwealth Trading Bank of Australia (1972) 126 C.L.R 161
London City Agency (JCD) Ltd & Anor v Lee & Others (1969) 3 All ER 1376
Northern Drivers Union v Kuwau Island Ferries (1974) 2 NZLR 617
Shephard Homes Ltd v Sandham (1971) Ch. 340
Shop hard Homes Ltd v Sandham (1971) Ch. 340

Hemendra Nagin for the Plaintiffs
Neel Shivam for the First Defendant

10 August, 2001

DECISION

Pathik, J

This is the Plaintiffs' application for an Order for injunction 'that the First Defendant be restrained by itself and/or through its servants and/or agents and or howsoever from proceeding further with the Mortgagee Sale of the Plaintiffs' properties comprised in Certificates of Title. Nos. 24128 and 16219 or in any manner whatsoever interfering with or advertising the sale of the said properties until the hearing and determination of this action or until further Order' on the grounds set out in the affidavit in support. They say that on 19 June 2001 D1 advertised the Plaintiffs' properties for 'mortgagee's sale' and unless restrained it will proceed with the sale and thereby frustrate the action filed herein for specific performance and that the Plaintiffs will suffer irreparable loss and damage.

Background facts

At the time of applying for injunction the Plaintiffs instituted Civil Action No. 277 of 2001 against the Defendants seeking reliefs, inter alia, for an order for specific performance that D1 purchase the first Plaintiffs' property comprised in C.T. 24128 known as 'Vivrass Shopping Plaza' for the price of $4.5 million and D1 to execute all necessary documents in respect thereof.

The Writ of Summons contains the Plaintiffs' Statement of Claim. There the Plaintiffs allege that on 15 December 2000, D1 made an offer of $4.5 m to the first Plaintiff (P1) to purchase Vivrass Shopping Plaza for that sum subject, inter alia, to an independent valuation of the property to be commissioned by D1 which valuation to support a value in excess of $4.5m. On 14 February 2001 the Plaintiff (P1) accepted the offer of D1 to purchase the property at $4.5m. Then after a valuation by D2, D1 revised the purchase offer to $3,134.000.00 as 'the cost of deferred maintenance' would be $366,000.00 with which P1 does not agree.

The Plaintiff (P1) therefore says that the Defendants have conspired to defraud P1 by attempting to obtain the said property from P1 at a price much less than the valuation of the property.

On 17 May 2001 D1 issued Demands under Mortgage on both the Plaintiffs and is now advertising 'Mortgagee's Sale' of the properties of both the Plaintiffs. They say that both the Demands are bad in law.

Interim injunction
On 21 June 2001 on an application ex parte an interim injunction as prayed was granted returnable for 30 July 2001. However, on a Motion by D1 to dissolve injunction dated 3 July 2001, a date for hearing was set for 6 July 2001. On 6 July matter was adjourned to 10 July as Mr. Nagin wanted to file an Affidavit in Reply to the Defendant's affidavit in support of dissolution.

The motions were heard on 10 and 11 July 2001. At the hearing counsel for the respective parties made useful submissions.

Content of Affidavit (in support of dissolution of interim injunction) of Olota Tulumani Rokovunisei

The deponent is the Chief Executive and General Manager of D1 He states that P1 has been in default and in arrears of its obligations under its mortgage since at 8 July 1996. It was also unable to pay the insurance premium on the security given to D1. Despite indulgences extended to P1 nothing was done to remedy the defaults. Therefore a Notice of demand dated 17 May 2001 was given to P1 setting out the amount due under the mortgages. The interest continues to accrue.

The second Plaintiff (P2) is in a similar position as P1.

'Mortgagee's Sale' was advertised in the Fiji Times newspaper of 19 June 2001. The Dl wishes to exercise its right under its securities to sell the properties. It was prepared to proceed with the proposed sales, and to submit that no sufficient cause has been shown whereby it should be prevented from doing so.

As for 'undertaking as to damages' because of defaults and the amount which is owed to D1, it strongly suggests that the Plaintiffs are insolvent. Also advertisement to wind up the two companies (Plaintiffs) have appeared in the Fiji Times on 27 June 2001. There was non-disclosure of this fact at the time of obtaining interim injunction on 21 June 2001. The winding up Petition No. 73 of 2001 is against P2 claiming $1,516,389.81 and No. 76 of 2001 is against P1 for a similar amount pursuant to a cross-guarantee.

As far as P1 is concerned its argument is founded on an alleged agreement of Sale between P1 as vendor and D1 as purchaser. It is common ground that the parties entered into negotiation concerning such a sale. However, the purchase offer was subject to certain preconditions being fully satisfied. There is disagreement on this and is the subject-matter of this action.

The First Defendant says that it desires to proceed with the mortgagee's sale for it is in the interests of the Plaintiffs that the sale be permitted to proceed. It says that the Plaintiffs are not interested in saving the property and that it is going to be sold in any event; the only question is who to. It says that the Dl is at risk of suffering great loss and damages if it is not allowed to realize its security promptly.

As far as to the claim against P2 is concerned it is separate and distinct from claim against PI under the mortgage. There is no cause whatsoever shown in Narayan's affidavit for restraining D1 from exercising its rights under P2's mortgage.

Defendant's counsels submission

Mr. Shivam submits that the Plaintiff (P1) is not trying to protect or preserve the property but in actual fact it is trying to sell the property to Dl. Basically, he says what interest P1 has is of monetary value rather than proprietary value. Counsel said that usually the best remedy when it comes for 'specific performance' claim is by way of damages. The mortgagee can go ahead and sell independently of any sale and purchase agreement. Counsel said that the present debt is three million nine hundred and fifty thousand five hundred five dollars and interest accrues at $1377 a day on that sum. If there is a short fall between the selling price and the alleged price under the agreement then the difference is the damages which P1 can claim. If the Plaintiff wants an injunctive relief, the rule is that it put the money in Court. Mr. Shivam says that the undertaking is not worth anything in view of the alleged winding up by ANZ Bank. There was a material non-disclosure about 'winding up' when ex parte injunction was applied for. This in itself is sufficient to dissolve the interim injunction. The sale in this case was not finalized. There was no contract at all.

Counsel's submission for Plaintiffs
It is Mr. Nagin's submission that this is not the proper time to exercise the power of sale under the mortgages particularly in view of the pending general elections. He said he would ask that the sale be deferred till October and in the meantime $48,000 a month rent can go to D1.

Mr. Nagin argued that the mortgagee's power of sale really needs to be stopped because it has now changed its 'hat'. It has become a purchaser, and if it becomes a purchaser then it cannot have both ways.

Counsel submitted that applying the American Cyanamid principles, there is a serious question to be tried because there is an agreement which should be enforced.

Mr. Nagin says that in certain cases breach of contract will give rise to an injunction. He says that the Plaintiffs have pleaded fraud and conspiracy. Counsel referred the court to a number of cases and a text-book writer on injunctions.

As for non-disclosure of winding up notice, Mr. Nagin said that this is 'not a material non-disclosure'. That has nothing to do with FNPF (D1) and it is a separate issue altogether. This matter is already before the court but then counsel said that non-disclosure alone is insufficient to avoid the injunction. However, the Managing Director of the Plaintiff company is recovering from illness overseas and any omission in the affidavit filed by the property manager is inadvertent and not intentional.

As for undertaking as to damages Mr. Nagin said that it is given on behalf of the Plaintiff by the deponent to the affidavit.

Consideration of the application for injunction and to dissolve the interim injunction

I have already outlined hereabove the gist of Plaintiffs' and Defendants' arguments in this matter. I have for consideration the affidavits filed by both parties and the written and oral submission of both counsel.

As stated in London City Agency (JCD) Ltd & Anor v Lee & Others (1969) 3 All ER 1376:

"Just as a court will grant an interlocutory injunction on an ex parte application if a case of sufficient cogency is made, so also will the court on an ex parte application made on sufficiently cogent grounds discharge or vary an injunction granted ex parte."

In this case, the question that looms large is whether the interim injunction ought to continue or not on the facts in the exercise of court's discretion or whether the Plaintiffs should be left to their remedy in damages.

This is a case where D1 is wearing 'two hats' so to say, namely, one as a mortgagee and the other as the intended purchaser of 'Vivrass' under a sale and purchase agreement. The action for specific performance is being defended by D1.

As I see it the situation here is that there is nothing to prevent the mortgagee from exercising its power of sale under the mortgages in respect of P1 and P2's properties irrespective of whether there was an agreement for sale or not. Just because D1 happens to be the prospective purchaser of P1's property as well as a mortgagee, does that in any way interfere with D1's right under the mortgage? I would say 'No' on the facts and the situation prevailing here.

Looking at all the affidavit evidence in this case and after considering all the submissions made by both counsel it is abundantly clear that it is not P1's intention to preserve the property known as 'Vivrass'. P1 wants to sell but at a price alleged to have been agreed upon between P1 and Dl under the agreement. The question therefore arises is why is there the need for the injunction to continue?

Essentially the Plaintiffs (P1's) claim in this action is for 'specific performance that the D1 to purchase the P1's property comprised in CT 24128 known as 'Vivrass Shopping Plaza' for the price of $4.5m and D1 do execute all necessary documents in respect thereof.'

The principles to be followed in considering the granting of injunctive relief are set out in the leading case of American Cyanamid Co. v Ethicon Ltd [1975] UKHL 1; (1975) AC. 396. The House of Lords there decided that in all cases, the Court must determine the matter on a balance of convenience, there being no rule that an Applicant must establish a prima facie case. The extent of the court's duty in considering an interlocutory injunction is to be satisfied that the claim is "not frivolous or vexatious, in other words, that there is a serious question to be tried'.

Lord Diplock said at page 407:

"It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trials"

In Cyanamid (supra) at page 406 Lord Diplock further stated the object of the interlocutory injunction thus:

".. to protect the Plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the Plaintiffs need for such protection must be weighed against the corresponding need of the Defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the Plaintiffs undertaking in damages if the uncertainty were resolved in the Defendants favour at the trial. The court must weigh one need against another and determine where "the balance of convenience lies". (emphasis mine)

A similar view was expressed by McCarthy P in Northern Drivers Union v Kuwau Island Ferries (1974) 2 NZLR 617 when he said:

"The purpose of an interim injunction is to presence the status quo until the dispute has been disposed of on a full hearing. That being the position, it is not necessary that the Court should have to find a case which would entitle the Applicant to relief in all events: It is quite sufficient if it finds one which shows that there is a substantial question to be investigated and that matters ought to be presented in status quo until the essential dispute can be finally resolved:." (ibid, 620)

"It is always a matter of discretion, and...the Court will take into consideration the balance of convenience to the parties and the nature of the injury which the Defendant, on the one hand, would suffer if the injunction was granted and should ultimately turn out to be right and that which the Plaintiff, on the other hand, might sustain if the injunction was refused and he ultimately turn out to be right." (ibid 621).

I will consider the issue in the light of the principles stated above. The Defendant (D1) is being restrained as mortgagee from exercising its power of sale to sell the properties secured under the security documents. It is not disputed by the Plaintiff companies that they are substantially in arrears. There is no satisfactory and acceptable proposition as to how they propose to meet their commitments as far as payment is concerned. They do not say that they are prepared to deposit moneys alleged to be owing into Court. Payment into Court have been ordered in such a situation [Antech International Limited and Harish Mahendra Singh and Westpac Banking Corporation (Civ. App. No. 29/96)].

Also in Inglis v Commonwealth Trading Bank of Australia (1972) 126 C.L.R 161 at 164 a case involving the exercise by mortgagee of its power of sale, Walsh J said:

'A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of power of sale given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid, or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into Court.

The rule, as it affects the exercise by a mortgagee of the power of sale, is stated in the following terms in Halsbury Laws of England 3rd Edition Volume 27. p. 301:

"The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has commenced a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagee swears to be due to him...."'

Walsh J goes on to say at 164-165 that:

"In my opinion, the authorities which I have been able to examine establish that for the purposes, of the application of the general rule to which I have referred, nothing short of actual payment is regarded as sufficient to extinguish a mortgage debt If the debt has not been actually paid, the Court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefit of his security, except upon terms that an equivalent safeguard is provided to him, by means of the Plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due.

The benefit of having a security for a debt would be greatly diminished if the fact that a debtor has raised claims for damages against the mortgagee were allowed to prevent any enforcement of the security until after the litigation of those claims had been completed.

In my opinion the fact that such claims have been brought provides no valid reason for the granting of an injunction to restrain, until they have been determined, the exercise by a mortgagee of the remedies given to him by the mortgage."

Barwick C.J. ibid at 168-169 expressed the same opinion in these words:

"I have not heard anything, nor been referred to any authority, which causes me in the least to doubt the correctness of the refusal of Walsh J. to grant the interlocutory injunction sought by the Appellant or the reasons which he gave for that refusal. I find no need to discuss the arguments offered, and the authorities referred to, by the Appellant. Such of them as were relevant are sufficiently answered in his Honour's reasons.

The case falls fairly, in my opinion, within the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument. Failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the Respondent mortgagee's right under the mortgage."

Apart from the allegations in the Writ of Summons herein regarding the purchase by D1 of P1's property, there is no acceptable evidence in writing as between the parties of any variation of the security documents (the mortgages). The mortgagee (D1) has its own rights under the mortgage in respect of P1's property.

The question arises as to why D1 should be restrained from exercising its power of sale when there was sufficient justification for exercising it. Is it because the same property is involved in the mortgage and in the alleged agreement (although incomplete) for sale? The answer is that this cannot be so in law.

Here the security documents in respect of both the properties of the Plaintiffs are enforceable and the court will not grant an injunction which would have the effect of helping to break a contract if that contract was specifically enforceable. It will of course require a very strong argument and the "Court must feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted" (Megarry J in Shephard Homes Ltd v Sandham (1971) Ch 340) before the Court will interfere with those security documents bearing in mind of course that at this stage "the court is not justified in embarking upon anything resembling a trial of the action upon conflicting affidavits in order to evaluate the strength of either party's case" (Footnote to the Supreme Court Practice 1979 29/1/11) pertaining to grant of interlocutory injunction.

Here the Court is reluctant on an interlocutory application not to hold the Plaintiffs bound to the very words of their covenants in security documents in question in this action. There are no qualifications to the exercise of its powers in default of payment. It may well be that at the trial the Plaintiffs might be able to establish their contention that there was, inter alia, a completed contract, but I am not in this application judging the rights and wrongs of the case. All that I am saying is that at this stage, the Plaintiffs have not sufficiently established a case in support of application nor is it necessary for me to go into details the Plaintiffs' contention in view of the existence of the security documents in favour of D1.

Here the FNPF as mortgagee is intending to exercise a statutory power and the Plaintiffs have adduced no proper grounds why the Court should interfere with the exercise of such a power by granting an injunction. I am not convinced that there is a serious issue to be tried.

As to "balance of convenience" the court should first consider whether if the Plaintiffs succeed at the trial, they would be adequately compensated for in damages for any loss caused by the refusal to grant an interlocutory injunction.

In this case, having considered Mr. Shivam's submissions in this regard I consider that this is a case in which the appropriate remedy is not interlocutory injunction but an award of damages and the Defendant (D1) is definitely in a financial position to pay.

In Hubbard & Another v Vesper & Another (1972) 2 WLR 389, Lord Denning at p.396 gave some guidance on the principles for granting an injunction which I think is pertinent to bear in mind in this case when he said:

"In considering whether to grant an interlocutory injunction, the right course for a judge is to look at the whole case. He must have regard not only to the strength of the claim but also to the strength of the defence, and, then, decide what is best to be done. Sometimes it is best to grant an injunction so as to maintain the status quo until the trial. At other times, it is best not to impose a restraint upon the Defendant but leave him free to go ahead. For instance, in Fraser v Evans [1969] 1 QB 349, although the Plaintiff owned the copyright, we did not grant an injunction, because the Defendant might have a defence of fair dealing. The remedy by interlocutory injunction is so useful that it should be kept flexible and discretionary. It must not be made the subject of strict rules."

This is a case of a mortgagee, and in the whole of the circumstances of this case I propose to give great weight to the following passage from the judgment of Megaw J at p.397 in Vesper (supra):

"One can really imagine a case in which the Plaintiff appears to have a 75% chance of establishing his claim, but in which the damage to the Defendant from the granting of the interlocutory injunction, if the 25% defence proved to be right, would be so great compared with the triviality of the damage to the Plaintiff if he is refused the injunction, that an interlocutory injunction should be refused. To my mind, it is impossible and unworkable to lay down different standards in relation to different issues, which fall to be considered in an application for an interlocutory injunction. Each case must be decided on a basis of fairness, justice and common sense in relation to the whole issues of fact and law which are relevant to the particular case."

It is quite evident that the mortgagee is entitled to protect its own interests in obtaining repayment of the debt, and did not oblige the mortgagee, as suggested by the Plaintiffs, to postpone the sale or have its securities varied, inter alia, for the reasons advanced by them. It did not prevent the mortgagee from enforcing the security if there was default in payment and if market conditions were deteriorating and the value of the security was decreasing. However, a mortgagee owes a duty to act in good faith in determining whether to exercise the power of sale.

The Plaintiffs have not laid a proper basis for their claims on which to have the interim injunction continue which they are seeking per interim Order.

Conclusion

Having analyzed the affidavit evidence before me and considering the submissions of counsel for the parties and applying the principles stated by Lord Diplock, I hold that damages as a remedy is sufficient in this case. There are no serious questions to be tried to grant an injunction restraining the Defendant (D1) from exercising whatever powers it has under the mortgage deed.

In the circumstances of this case and having regard to the nature of the action has been brought and the claims made in it, this is not a proper case for the grant and for the continuation of the interim injunction or to maintain the status quo until the trial of the action. The grounds advanced are against the principles the Courts have always acted upon and therefore the mortgagee cannot be prevented from exercising its powers under the mortgages. Without any proper variation of any of the covenants in the documents no heed could be given to the arguments put forward by the Plaintiffs for the purposes of this application. Much as the Court sympathizes with the dire straits in which the Plaintiffs find themselves, the court, in the light of established legal principles, in regard to the rights of mortgagee on the facts and circumstances of this case, is unable to come to the Plaintiffs' rescue. The Plaintiffs overlook the terms and the covenants to which they found themselves engaged when they executed the security documents. The fact that this action is pending, on the facts and circumstances of this case, does not entitle the Plaintiffs for the grant of an injunction as prayed.

Having considered the aforesaid authorities I have come to the conclusion that there ought not to be an injunction from today until the trial as the Plaintiffs have no right to the continuance of the interim injunction they obtained. I ought in my view to discharge the injunction, and this I do with costs against the Plaintiffs in the sum of $750.00.

First Defendant's application granted.

Marie Chan