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COURT OF APPEAL OF FIJI ISLANDS
WESTPAC BANKING CORPORATION LTD
v
ADI MAHESH PRASAD
[COURT OF APPEAL, 1999
(Tikaram, Barker, Sheppard JJA) 8 January]
Civil
Jurisdiction
Land- mortgage- mortgagee sale- interlocutory relief to restrain- when
available and how to be applied for.
The High Court
granted a restraining order to a mortgagor who had applied ex parte for relief
against the mortgagee. The mortgagee
appealed. The Court of Appeal dismissed the
appeal but emphasised that applications for such relief should ordinarily not be
dealt
with ex parte and that restraining orders granted ex parte should only be
of very short duration. The Court also explained how the
grounds for relief
advanced by the mortgagor might affect the Court’s normal requirement that
there be a full payment in of
the sum in dispute.
Cases
cited:
American Cyanamid Co. v. Ethicon Ltd [1975] AC 396
Brutan Investments Pty Ltd v. Underwriting and Insurances Ltd
Clark v. Japan Machines (Australia) Pty Ltd (No.2) [1984] 1 Qd R 421
Cunningham v. National Australia Bank Ltd (1987) 15 FCR 495
Glandore Pty Ltd v. Elders Finance and Investment Co Ltd
[1984] FCA 407; (1984) 4 FCR 130
Graham v. Commonwealth Bank of Australia [1988] ATPR 49,753
Harvey v. McWatters (1948) 49 SR (NSW) 173
Inglis v. Commonwealth Trading Bank of Australia (1972) 126 CLR 161
Midland Montagu Australia Ltd v. O’Connor (1992) 109 FLR 285
Appeal against
interlocutory order made in the High Court.
C.B.
Young for the Appellant
M.A. Khan for the
Respondent
Judgment of the Court:
This is an
appeal from a judgment of the High Court (Sadal J) in which he refused to
dissolve an ex parte injunction granted by him against Westpac
Banking Corporation Limited (“the bank”). He restrained it from
exercising
its power of sale said to have arisen under a mortgage held over
property owned by the respondent, Mr Prasad. The respondent has
brought an
action against three defendants in the High Court, one of which is the bank. The
appeal is not concerned with the causes
of action brought by the respondent
against the defendants other than the bank. In brief it is said that it failed
to maintain the
payment of premiums due under a policy of insurance whereby the
building the subject of the respondent’s loan was insured against
fire.
The property was destroyed by fire and was not covered by insurance. In the
action against the bank the respondent seeks to
recover the sum of $60,000 being
the amount to which he would have been entitled under the policy had it been in
force. He seeks
to set off the amount owed by him to the bank under the mortgage
against this amount. The amount owing is approximately $40,000 so
that, if he
succeeds, he will be able to pay out the mortgage and will have a surplus
over.
The mortgage given by the respondent to the appellant was
executed on 11 April 1991 and registered with the Registrar of Titles on
18
April 1991. As the appellant submits, there is no complaint by the respondent
about any misunderstanding of the contents of the
mortgage. Clause 5 of the
mortgage provides that the mortgagor, ie the respondent, will
insure and keep insured such of the mortgaged premises as are of an insurable
nature against such risks
of loss or damage as the bank may from time to time
require for the full insurable value in some insurance office approved by the
bank and in the name of the bank. The clause contains the usual provisions about
punctual payment of premiums and of other sums necessary
for effecting and
keeping up the insurance. It includes an obligation on the part of the
respondent to hand to the bank every policy
and receipt relating to the property
and the policy is to be held by the bank as a further security for the payment
of the moneys
secured by the mortgage.
Clause 23 of the mortgage
provides that the bank shall be at liberty from time to time, without further
authority to debit and charge
the account of the mortgagor (the respondent) with
all costs, charges and expenses mentioned in the clause. The clause defines the
expression “costs, charges and expenses”. It includes any premiums
for insurance.
So far as it is relevant to the case made by the
respondent against the bank, the respondent’s re-amended statement of
claim
filed on 15 August 1995 alleges that at all material times the
relationship of banker and customer existed between the bank and the
respondent.
Paragraph 21 of the statement of claim refers to the mortgage about which there
is no issue. Paragraph 22 refers to clause
5 which we have earlier set out.
Paragraph 23 alleges that, on or about 28 June 1991, the respondent caused the
premises, the subject
of the mortgage, to be insured as required by clause 5 of
the mortgage. It is said that the policy had endorsed upon it the bank’s
interest as mortgagee. Paragraph 24 alleges that, by virtue of clauses 22 and 23
of the mortgage, the bank had the power vested in
it to pay insurance premiums
in respect of the policy. We have not referred to clause 22. It is a general
provision to the effect
that, if the respondent should make default in duly
performing or observing any covenant or agreement on the part of the respondent
contained or implied in the mortgage, it will be lawful for, but not obligatory
upon, the bank, without prejudice to any other right,
power or remedy under the
mortgage to do all things and pay all moneys necessary or expedient in the
opinion of the bank to make
good or attempt to make good such default to the
satisfaction of the bank. Clause 23 is a more specific provision
dealing, inter alia, with insurance.
Paragraph 25 of
the statement of claim alleges that the respondent had agreed with the bank
through the bank’s manager, Rakesh
Prasad (also known as Rakeshwar
Prasad), that during the currency of the mortgage, the bank would pay all
premiums in respect of
the renewal of the policy and debit the
respondent’s account in respect of such payments. Paragraph 26 alleges
that some time
in the month of June 1992 the insurance
company, ie The New India Assurance Company Limited, the first
defendant in the respondent’s action, sent a renewal notice dated 11
June
1992 to the bank requesting payment of the premium for the renewal of the
policy. Paragraph 27 alleges that the bank, in breach
of its agreement with the
respondent, failed to respond to the renewal notice referred to and failed to
pay the premium due in respect
of the renewal of the policy of insurance for the
period 28 June 1992 to 28 June 1993. In the alternative, paragraph 28 alleges
that,
in all the circumstances, the bank owed a duty of care to the respondent
to ensure the respondent’s premises remained fully
insured during the
currency of the mortgage.
Paragraph 29 alleges that, on or about 13
July 1992, the respondent’s house erected on the land the subject of the
mortgage
was destroyed by fire. The insurance company had denied liability on
the ground that the house was not covered by the policy because
it had not been
renewed. Paragraph 30 of the statement of claim alleges that, if the policy of
insurance was not renewed, such failure
to renew was the result of a breach by
the bank of its contractual obligations to the respondent and/or the result of
its negligence
and failure to use due care and skill as a
banker.
Appended to paragraph 30 are some particulars which
complain that the bank failed to pay the premium and was thus in breach of the
oral agreement the respondent had made with Mr Prasad. It is also alleged in the
particulars that the bank failed to inform the respondent
of the receipt of the
renewal notice and failed to exercise due care and diligence by not exercising
its rights under clauses 22
and 23 of the mortgage “when coupled with its
agreement with [the respondent] to renew the said policy of insurance during
the
currency of the said mortgage”. The particulars further allege that the
bank failed to inform the respondent that it would
not pay the premium for
renewal of the policy. As mentioned, the amount claimed against the bank is
$60,000 together with interest.
We have not found amongst the
papers any amended defence filed by the bank after service of the re-amended
statement of claim. It
had filed a statement of defence on 22 June 1994 in which
it said that the bank admitted paragraph 14 of the original statement of
claim.
That pleaded the mortgage and there is no issue about that matter. The balance
of the defence says that the bank denies paragraphs
15, 16, 17 and 18 of the
statement of claim and further says that it did not assume any obligation or
duty to pay the premium under
the policy. It further says that the respondent,
as the mortgagor, was obliged under the mortgage and the terms of the loan to
ensure
that the policy was in force.
Presumably it is the
bank’s intention to use the defence filed to the original statement of
claim as its defence to the re-amended
statement of claim. This is a permissible
course under the rules, but the paragraphing of the re-amended statement of
claim is very
different from the paragraphing of the original statement of
claim. Furthermore, more paragraphs are pleaded in the re-amended statement
of
claim than were pleaded in the original statement of claim. Apart, therefore,
from its general denials, the bank has not really
answered, unless an amended
defence has been omitted from the record, the re-amended statement of claim. We
do not think anything
turns on this because it is clear that the bank intends to
defend the action and denies the essential allegations made against
it.
On 18 October 1994, a summons was issued on behalf of the bank
seeking an order that the proceedings against the bank be struck out
on the
grounds that the action was frivolous or vexatious or an abuse of the process of
the Court. The application was supported
by an affidavit of one Chandra Kishor
sworn on 30 September 1994. He said that he was the assistant manager of the
bank’s branch
at Lautoka. He had read the amended writ of summons and
statement of claim. He asserted that the bank did not owe a duty to pay the
insurance premiums as claimed and had been informed by the respondent that
“he would hold off paying insurance as he was finalising
the sale of his
house”. He referred to the mortgage and particularly to clause 5
thereof.
On 16 January 1995, the respondent swore an affidavit
referring to Mr Kishor’s affidavit and asserting that the bank was obliged
to pay the insurance premiums due under the policy. The respondent also said
that he had made all arrangements with the bank’s
manager, Rakesh Kumar,
who had agreed that all insurance premiums would be paid by the bank as long as
the property remained mortgaged.
On 21 February 1995 Mr Rakeshwar Prasad swore
an affidavit in which he said that he was the manager of the bank’s branch
at
Nadi. He said that he had read the respondent’s affidavit sworn on 16
January 1995. He also said that, at the material time,
to his knowledge, there
was no one by the name of Rakesh Kumar employed by the bank as a manager, or in
any other capacity, in Lautoka
or elsewhere in Fiji. He said that, at the
material time, he was the manager of the bank’s Market Branch, which is
apparently
at Lautoka. He said that he did not make arrangements with the
respondent to the effect that the bank would pay the respondent’s
insurance premiums so long as the mortgage was held by the bank.
On
1 May 1995 the respondent swore a further affidavit in which he referred to his
earlier affidavit. He said that he had made all
the arrangements with Mr
Rakeshwar Prasad who was, at the time, the manager of the bank’s Market
branch, Lautoka, and who was
“commonly known as Rakeshwar
Prasad”.
The bank’s application to strike out the
proceedings was dealt with in a judgment of Lyons J delivered on 13 October
1995. The
bank’s summons along with a similar summons taken out on behalf
of the first defendant was dismissed.
On 18 December 1996, the
respondent filed an ex parte summons seeking an order
restraining the bank from exercising its power of sale or any other powers under
the mortgage and restraining
it also from selling or transferring the land the
subject of the mortgage. The application was supported by an affidavit sworn by
the respondent on 17 December 1996. He referred to the mortgage and to the
pleadings. He said that the bank, on 11 October 1996,
had demanded the payment
of the sum of $38,457.64 being the balance of the amount due to the bank under
the mortgage. The letter
said that, in default of payment, it would proceed to a
mortgagee’s sale pursuant to the powers vested in it under the mortgage.
He then referred to some correspondence and to the circumstances in which he and
his family were living. Apparently, although the
house was destroyed by fire,
they are living in makeshift accommodation erected on the land. He said that he
had no alternative accommodation
to which he could go if he were required to
leave. He gave an undertaking to abide by any order that the Court might make as
to damages.
The evidence in support of the application for an
injunction included a copy of an advertisement placed in the Fiji
Times on 7 December 1996. The advertisement advertised a
mortgagee’s sale of residential property. The property was the property
the subject of the mortgage. The sale was to be by tender made in writing.
Tenders were to be lodged by 23 December 1996.
The summons was
returnable on 19 December 1996. It was not served on the bank which was given no
notice of the application. The hearing
of the application for ex
parte relief was held in chambers. No reasons appear to have been given
for it. That course is not unusual provided the matter is
brought back into the
list within as short a time as possible after the making of such an order. The
terms of the order were that
the bank be restrained from exercising the power of
sale or any other powers under the mortgage and from selling or transferring
the
land in question. It was also ordered that the application be called on 31
January 1997, that is some six weeks after the making
of the order. The
respondent’s undertaking as to damages was accepted and noted in the
order. It would appear that, in making
the order, Sadal J relied on the
affidavit of the respondent sworn on 17 December 1996. It does not appear that
he was referred to
the earlier affidavits to which we have
referred.
It should be said at this point that this was not a case
for the making of an ex parte order. The application for the
injunction should have been made on notice to the bank. The application was
dealt with on 19
December, four days before tenders closed. Notice of the
application should have been required to be given even though it would have
had
to be short. Instead, the case proceeded ex parte so that the
bank was not served with notice of it and was not given any opportunity of
making any submissions in relation to
it. Authorities to be referred to show
that it is an extremely serious step to interfere with the exercise of a
mortgagee’s
power of sale. The authorities show that it is quite unusual
to grant an interlocutory injunction, let alone an ex
parte injunction, to restrain the power except in very special
circumstances. The original order should not have been made without
notice to
the bank. Indeed, there is, as we shall show in a moment, a real question
whether it should have been made at all.
Although subsequent events
have overtaken what occurred so that our criticism is no longer relevant to the
matters we need to decide,
we emphasise what we have said so that it may be
taken into account in future matters. We add that, if in any case, whether it be
a case involving a restraint on a mortgagee’s power of sale or a different
kind of case, the Court sees fit to grant an ex
parte injunction, the matter should be adjourned for no longer than a
day or so. A period of six weeks, which was the period in this
case, was far too
long. During the period of the adjournment, the defendant should be served with
notice of the order and copies
of the application and affidavits relied upon
before the judge who granted the relief. This will have to be done quickly and
expeditiously
and may afford both parties insufficient time properly to prepare
their cases as to whether the injunction should be continued. The
court may have
to consider granting a further adjournment to enable this to be done but at
least the defendant will have had an opportunity
of being heard. This enables
it, if it be so advised, to make any submissions as to why the injunction
granted ex parte should not be continued. When the matter comes
back into the list, it will not be for the defendant to establish why the
injunction
should be dissolved. It carries no onus. Instead, the plaintiff has
the task of persuading the court that the circumstances of the
case are such as
to require the injunction to be continued.
We return to our account
of the history of the matter. On 27 January 1997 there was taken out on behalf
of the respondent an inter
partes summons in which an order was sought that the
interim injunction granted on 19 December 1996 be extended until the final
determination
of the action or until further order. The Court dealt with the
matter on 31 January 1997. All parties were represented. It was ordered
and
directed that the interim injunction granted on 19 December 1996 be extended
until 28 February 1997.
On 17 February 1997 Mr Gurudayal Sharma
swore an affidavit which was filed on behalf of the bank. In the affidavit he
said that he
was the manager, Loans Management West, of the bank. He referred to
the mortgage, to the fact that the respondent was in arrears
with his payments
under the mortgage and said that the bank was exercising its power of sale
because of the respondent’s default.
The balance of the affidavit is
argumentative and we do not refer to it.
On 9 April 1997 the
respondent filed a further affidavit in which he referred to Mr Sharma’s
affidavit. Some of the history
of the matter is repeated in that affidavit and
there is reference to the judgment of Lyons J delivered on 13 October 1995
refusing
to strike out the case against the bank.
In the meantime
the matter had come into the list on 28 February 1997 and had been further
adjourned, this time to 11 April 1997 when
it was fixed for hearing. On 25 April
1997, Sadal J delivered a ruling. The ruling refers to the fact that the
application to be
deal with is an application for the dissolution of the
injunction granted ex parte on 19 December 1996. His Lordship
said that there was a dispute concerning a policy of insurance. He referred to
the respondent’s
allegation that there was a policy of insurance at the
time of the fire and that the bank was to pay the insurance premiums in respect
of the policy. The ruling continued:
“There are matters that need to be tested by presentation of evidence. Courts are reluctant to interfere with the rights of the mortgagee under the mortgage terms but here I feel there are matters that should be resolved at the trial.
In these circumstances I am not prepared to dissolve the injunction which is
to continue until the hearing and final determination
of this
action.”
The Court record does not disclose precisely what
was said before Sadal J. It does show that he was referred to the ruling made by
Lyons J on 13 October 1995. Lyons J said that the authorities suggested that the
Court should not make an order to strike out a proceeding
unless it was shown
that the statement of claim or the proceeding was unsustainable or was hopeless.
Otherwise, the order should
not be made. He said that it was more than obvious
that, whilst the respondent’s claim might not appear to be the strongest
and would certainly need some hard evidence to support it, the statement of
claim was far from one which could be described as unsustainable
or hopeless. He
added that the mere fact that a case appeared to be a weak one was not of itself
sufficient to justify the striking
out of the action. He also said that the
power to strike out should only be exercised in plain and obvious cases where no
reasonable
amendment could cure the alleged defect. He said that it was obvious
to him that there were matters of contest in the evidence that
would be led in
the matter and that the respondent must be given the opportunity to give
evidence before Court by way of a hearing.
He thought, accordingly, that the
application should be dismissed.
We do not consider that the
principles which apply in relation to an application to strike out proceedings
or a pleading are necessarily
the same as those which apply in relation to
whether or not an interlocutory injunction should be granted. Subject to some
special
considerations which apply in relation to an application to restrain the
exercise of a mortgagee’s power of sale, the principles
are those
propounded by the House of Lords in American Cyanamid Co v Ethicon
Ltd [1975] AC 396. The case is well known and we do
not refer to it in detail. It is enough to say that Lord Diplock who delivered
the judgment of the
House of Lords made it clear (at 407) that the Court must be
satisfied that the claim made by the plaintiff for the relief ultimately
sought
is not frivolous or vexatious; in other words, it should be satisfied that there
is a serious question to be tried. If there
is, the question becomes a matter of
the balance of convenience.
Here we are satisfied that there is a
serious question to be tried. We do not reach this conclusion in relation to
each of the matters
of defence raised by the respondent. It may be correct to
say that a number of them have no likely basis for success. But in two
respects,
we think the respondent has met the initial hurdle. Firstly, he relies on a
conversation he had with an officer of the
bank in which the officer is said to
have told him that the bank would thenceforth pay the premiums under the policy
and debit the
amount of them to the respondent’s account. The second basis
upon which the respondent may succeed - and we express no concluded
view about
this - is that he contends - and his evidence is to this effect - that the bank
received notice of the renewal of the
policy on payment of the premium. The
respondent claims that the bank did not communicate notice of the receipt of the
renewal to
him so that he knew nothing about it. Eventually the evidence may
show that this is unlikely because the renewal notices went either
to the
respondent or to both the respondent and the bank. But that is by the way at the
moment. All will depend upon the evidence
led at the trial.
So far
as the balance of convenience is concerned, there is no evidence from the bank
which suggests that it will suffer any irreparable
loss if the injunction is
allowed to continue until the hearing. It does not suggest that the value of the
property will decline
over that period, or that, upon its sale, it is unlikely
to recover less than it would recover if the sale were allowed to proceed
immediately. On the other hand, the respondent has given evidence that he will
be greatly inconvenienced if he is forced to vacate
the premises. He has said
that he has nowhere else to go and that he and his family would have no
accommodation if they could not
occupy the makeshift accommodation on the land
which is the subject of the mortgage. The balance of convenience is thus very
much
in the respondent’s favour.
Nevertheless, in a case of
this kind, the respondent faces another problem. It stems from considerations
such as are discussed by
the High Court of Australia in Inglis v
Commonwealth Trading Bank of Australia (1972) 126 CLR 161. The case is authority
for the proposition that, as a general rule, an injunction will not be granted
restraining a mortgagee
from exercising powers conferred by a mortgage and, in
particular, a power of sale, unless the amount of the mortgage debt, if this
is
not in dispute, is paid, or unless, if the amount is disputed, the amount
claimed by the mortgagee is paid into court. The rule
will not be departed from
merely because the mortgagor claims to be entitled to set off an amount of
damages claimed against the
mortgagee.
The judgment is a judgment
of Walsh J sitting at first instance. His judgment was upheld by the Full Court
of the High Court of Australia
which approved his reasons (126 CLR at 168-9).
The Full Court developed no separate reasons of its own.
In the
course of his judgment, Walsh J referred (at 166-7) to a number of English
authorities. It was upon the principles which he
derived from these that he
based his judgment. We do not find it necessary to discuss the various
authorities to which he referred
except to say that they plainly suggest the
conclusion to which he came.
In addition to these authorities,
Walsh J referred (at 164) to Halsbury’s Laws of
England 3rd ed, vol 27 at 301 where it is said that a 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, unless, on the
terms of the mortgage, the claim is excessive. Walsh J also
said (at 164-5)
that, if the debt had not actually been paid, the Court would 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 was provided to him by
means of the
plaintiff bringing in an amount sufficient to meet what was claimed
by the mortgagee to be due. He added that the benefit of having
a security for a
debt would be greatly diminished if the fact that a debtor had raised a claim
for damages against the mortgagee
were allowed to prevent any enforcement of the
security until after the litigation of those claims had been completed. Walsh J
thought
that the fact that such claims had been brought provided 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.
This matter had earlier been the subject of a decision by
Sugerman J (later President of the NSW Court of Appeal) of the NSW Supreme
Court
in Harvey v McWatters (1948) 49 SR (NSW) 173. Sugerman J said
that, where a mortgagor sought an interlocutory injunction to restrain his
mortgagee from selling, there was a distinction
with respect to the terms that
would be imposed as to payment into court between a case in which the power of
sale was admittedly
exercisable and the only dispute was as to the amount due or
the mode in which the mortgagee proposed to exercise the power, and
a case in
which the very matter in dispute was whether the power of sale was exercisable
at all.
Sugerman J said (at 176) that the real dispute in the case
before him was whether the power of sale was presently exercisable at all.
The
plaintiff’s claim was that she had already paid more than sufficient to
satisfy the instalments which had become due upon
the terms that it was to be
set-off in discharge of those instalments as they became due and that there was
therefore no default.
That claim was disputed and the amount was said by the
defendant to have been paid on another account. His Honour said that the real
nature of the dispute was not what amount was payable, there being an undisputed
default, but whether a case for the exercise of
the power of sale had arisen at
all. After referring to some additional authorities, Sugerman J decided that he
should require a
lesser payment into court than would have been required if the
ordinary rule had applied.
In Australia this problem has arisen
since the decision in Inglis. The matter was dealt with by Morling
J, sitting as a Judge of the Federal Court, in Glandore Pty Ltd v Elders
Finance and Investment Co Ltd [1984] FCA 407; (1984) 4 FCR 130. His Honour discussed (at
133) the decision in Inglis and referred also to some other
authorities including Harvey v McWatters. Morling J continued (at
135):
“Harvey v McWatters was cited with approval by Sheppard J in Brutan Investments Pty Ltd v Underwriting and Insurances Ltd (1981) 39 ACTR 47
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