Solomon Islands Consumers Co-operative Society Ltd v W H Grove and Sons Ltd [1997] SBCA 2; CA-CAC 3 of 1996 (15 April 1997)

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NATURE OF JURISDICTION:	Appeal from a judgment of The High Court of Solomon Islands (palmer J.)
COURT FILE NO:	Civil Appeal Case No. 3/96
DATE OF HEARING:	10 December 1996
DATE OF JUDGMENT:	15/04/97
THE COURT:	KAPI, P., McPherson J.A., Casey J.A.

PARTIES:	SOLOMON ISLANDS CONSUMERS CO-OPERATIVE SOCIETY LIMITED (IN LIQUIDATION)

	V

	W.H. GROVE AND SONS LIMITED
ADVOCATES:
Appellant:	Mr. Sullivan for the appellant
Respondent:	No appearance for the respondent
KEYWORDS:	Execution - Charging order - Order absolute in first instance - Liquidator appointed before sale - Whether order for sale rightly made - administration of Justice Act 1956, s.35 (U.K.); Land and Titles Act (cap. 93), s.160; Co-operative Societies ,Act (cap. 73), ss.35, 37.
EXTEMPORE/RESERVED:	Reserved
ALLOWED/DISMISSED:	Dismissed
PAGES:	12

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Date and Place of hearing: 10 December 1996, Honiara
Date of delivery of judgment: 15 April 1996, Honiara

On 24 October 1994 the plaintiff W.H. Grove and Sons Limited (which is the respondent to the appeal before this Court) obtained a judgment in New Zealand for NZ $296, 064.49 against Solomon Islands Consumer Co-operative Society Limited, which is the appellant on the record before us. The judgment was duly registered in the High Court of Solomon Islands on 17 August 1995 and the Foreign Judgments (Reciprocal Enforcement) Act 1988. On 20 September 1975, an order was made in the High Court that a Fixed Term estate in the name of the society in Parcel no. 191-034-35 comprising land at Kola’a Ridge, Honiara, stands charged to the extent of SBD 596,543.40 representing the local currency equivalent of the amount of the New Zealand judgment with interest and costs. On 10 October 1995 the plaintiff applied for an order under S.35 of the Administration of Justice Act 1956 (UK) for an order for sale of the fixed term estate. It is the ensuing order for sale of that interest made by Palmer J. on 9 January 1996 that is now the subject of this appeal.

In the meantime, however, a number of other events had taken place. On 18 October 1995 the Registrar of Co-operative Societies made an order for cancellation of registration of the society and on the following day he appointed Mr. Robert Mewebu to be the liquidator of the Society. The order for cancellation was made under s. 35(1) of the Co-operative Societies Act (cap.73), which is the Act under which the Society was incorporated. Under s.35(2) of that Act an order for cancellation of registration takes effect two months after it was made, which is referred to in s.37 as the date of dissolution. From the date the registration is cancelled and, by virtue of s.37, the society ceases to be a body corporate.

In the present case, the date of dissolution was 12 December 1995, which is therefore when the Society ceased to be a body corporate. That means that the Society ceased to exist before the order under appeal was made. Strictly speaking, therefore, the appeal instituted in the name of the Society on 2 February 1996 was not competent; but the Society had appeared by counsel to oppose the order for sale at the hearing of the application on 22 November 1995, which was before the Society ceased to exist. The liquidator has an obvious interest in pursuing the appeal; and, although the respondent plaintiff, who was the applicant in the court below, did not appear on the appeal, it can have no legitimate objection to the amendment proposed. The notice of appeal will therefore be amended by substituting the name of the liquidator for that of the appellant. Service of the amended notice of appeal is dispensed with.

Both in the court below and on appeal, it was submitted on behalf of the Society or its liquidator that, having regard to the dissolution of the Society, the plaintiff ought not to be entitled to retain the proceeds of enforcing the judgment against the Society, and that the discretion to make an order for sale should be exercised accordingly.

In the case of property subject to a charge s.160(1) of the Land and Titles Act (cap.93) provides that a charge may be enforced on application to the High Court “and not otherwise”. By s.160(2)(a) of that Act the Court is invested with jurisdiction to make an order “empowering the chargee ... to sell and transfer the interest charged, and providing for the manner in which the sale is to be effected and the proceeds of sale applied”. In conferring the jurisdiction so to order, s.160(2) uses the word “may”, and it may therefore be accepted that the court has a discretion in determining whether an order should be made at all, as well as the terms on which it is to be made. The question is, however, whether the discretion extends so far as to enable the court to deprive a creditor of the advantage resulting from having obtained a charging order in respect of the interest in land now sought to be sold.

If the Society had been a company registered and incorporated under the Companies Act (cap.66), the answer to the question might have been comparatively simple. Section 216 of that Act provides that an execution put in against the estate of the company after the commencement of a winding up is void. That restriction on execution is extended by s.304(1) of the Companies Act, which provides:

“(1) Where a creditor has issued execution against goods or immovable property of a company or has attached any debt due to the company, and the company is subsequently wound up, he shall not be entitled to retain the benefit of the execution or attachment against the liquidator in the winding up of the company unless he has completed the execution or attachment before the commencement of the winding up.”

Section 304(2) goes on to declare that for the purposes of s.304 an execution against goods is completed by seizure and sale, attachment of a debt by its receipt, and “an execution against immovable property ... by making the judgment a charge on the immovable property.

The operation of provisions like these in relation to a charging order obtained on the eve of winding up was considered by the House of Lords in Roberts Petroleum Ltd. v. Bernard Kenny Ltd [1983] 2 A.C. 192; [1983] 2 W.L.R. 305, to which Mr. Sullivan of counsel referred us. In that case a creditor succeeded in obtaining a charging order nisi on 23 March 1979 in respect of land of an insolvent company, which went into creditors’ voluntary winding up pursuant to a resolution passed on 2 April 1979. The question was whether winding up pursuant to a resolution passed on 2 April 1979. The question was whether after that date, which marked the commencement of winding up, the charging order should be made absolute. Their Lordships held that it should not. Lord Brightman, with whom the other learned Lords agreed, said that the effect of provisions in the Companies Act 1948 (U.K.) corresponding to ss.216 and 304 of the Companies Act of Solomon Islands and other provisions to which his Lordship referred, was to impose on the assets of the company a statutory scheme requiring that its assets be collected and applied pari passu among the unsecured creditors. The expression pari passu in this context means, of course, that each such creditor, unless preferred or deferred, shares rateably in the distribution of the corporate assets or the net proceeds of their realisation according to the amounts of the indebtedness of the company to each of them. To have allowed the creditor in that case to obtain a charging order absolute after winding up had commenced would, his Lordship considered ([1983] 2 W.L.R. at 316), to that extent have defeated the statutory scheme which was already “in full force and effect”, from 2 April 1979. That being so, there was a valid reason or “cause to the contrary” against making the charging order absolute.

There are several reasons why the decision in Robert Petroleum Ltd v. Bernard Kenny Ltd. [1983] 2 W.L.R. 305 has no application to the circumstances of the present case. The first is that by s.53 of the Co-operative Societies Act (cap.73) the provisions of the Companies Act do not apply to a “registered society”. The expression “registered society” means a co-operative society registered under the Co-operative Societies Act. Provisions such as s.304 of the Companies Act therefore had no application to the Society in this case. It is true that s.46(1) of the Bankruptcy Act 1994 contains provisions similar to those in s.304(1) of the Companies Act; but the Bankruptcy Act is concerned with insolvent individuals and not with corporations like the Society. There is in the Co-operative Societies Act nothing corresponding in effect to either of those provisions, so that there is no statutory restriction in any of the three enactments that operated to prevent the plaintiff from enforcing its judgment at the time and in the circumstances when it did.

The second reason for distinguishing the decision in Roberts Petroleum Ltd v. Bernard Kenny Ltd arises from a difference in the procedure for obtaining a charging order in England. Both there and in Solomon Islands the source of authority for making a charging order is, or at the time of the decision in Roberts in 1979 was, s.35 of the Administration of Justice Act 1956 (U.K.). Section 35(2) provides that an order under the section may be made either absolutely or subject to conditions.

In England in the case of an order under s.35 charging the land of a judgment debtor, 0.50, r.2 of the Rules of the Supreme Court, in the form in which they stood in 1979, provided that such an order, was in the first instance to be an order nisi or order to show cause specifying the time and place for further consideration of the matter “and imposing the charge until that time in any event”. Despite the words quoted, the House of Lords in Roberts held that, until the final charging order was made, the judgment creditor had at the commencement of the winding up only a “revocable order” or “defeasible charge”. The commencement of winding up before the order was made final or absolute had the consequence that the statutory scheme for rateable distribution intervened and so deprived the judgment creditor of its right to retain the benefit of the execution. See Roberts Petroleum Ltd. v. Bernard Kenny Ltd. [1983] 2 W.L.R. 305, at 312-313.

The procedure in Solomon Islands is different from that in England. At least that is so in the case of an interest in land under the Land and Titles Act. As we have seen, s.160(1) of that Act provides that a charge may be enforced upon application to the High Court; and by s.160(2)(a) that, upon any such application, the court may make an order empowering the chargee to sell the interest charged. There is no procedure corresponding to Eng. 0.50, r.2 of 1979 positively requiring that the charging order be, in the first instance, and order to show cause, following by an order absolute making the charging order final. Mr. Sullivan of counsel for the appellant submitted that in this jurisdiction a similar two-stage procedure was discernible in that, first, there was an order charging the land, and then only at a later stage an order for sale. But those two steps do not correspond to the two-stage process in England. In Solomon Islands an order of the High Court under s.160(2) is needed to sell the interest in the land that is charged; but that is something quite distinct from the process of charging the interest in question, which may be accomplished in one step, as it was in the present case by the order made on 20 September 1995.

The point is borne out by considering the nature of the interest acquired by an execution creditor in property of a judgment debtor on which execution is levied. It is well settled that ordinarily in the process of execution a stage is reached when the creditor acquires an interest in that property which is, or is analogous to, a security over or in respect of that property. In the case of a charging order the security interest arises at the time the order is made. Section 35(4) of the Administration of Justice Act 1956 (U.K.) provides that the charge imposed by order made under s.35(1) is to have “the like effect and ... be enforceable in the same manner as an equitable charge ...”. So in Roberts Petroleum Ltd v. Bernard Kenny Ltd. [1983] 2 W.L.R. 305, at 312, Lord Brightman said that, by the order nisi made in that case, “Roberts was converted immediately into a secured creditor”. The reason why the judgment creditor failed there was, as his Lordship said at 315, that the creditor had only “a revocable order for security” at the time when the statutory scheme came into existence. The security was revocable or defeasible because the initial order nisi to show cause might in the end be discharged or set aside.

The position of the respondent plaintiff in this instance is different. By virtue of the order made on 12 September 1995 it attained the status of a secured creditor not merely defeasibly but finally. The order made on that date was not an order nisi or to show cause but an order absolute. It may be conceded that the Society might perhaps have applied to set that order aside as having been made ex parte: cf Herman v. Glencross [1986] Fam. 81; but it has never sought to do so, and it is difficult to conceive of any basis on which the Society itself, as distinct from its liquidator, could have opposed the making of a charging order in the first place. The liquidator has, of course, an obvious interest in opposing the charging order; but he was not liquidator of the society on 12 September 1995 and, in any event, he has never applied to extend the time or appealing against the order, or otherwise attempted to challenge the making of the charging order on that date.

The ultimate difficulty confronting the liquidator is, however, that there is no provision in the Co-operative Society Act analogous to s.304 of the Companies Act nor any other provision of that kind such as is commonly found in insolvency legislation. It follows that, at least until the liquidator was appointed on 19 October 1995, there was nothing comparable to the statutory scheme for rateable division of assets that formed the basis of the decision of the House of Lords in Roberts Petroleum Ltd. v. Bernard Kenny Ltd. By the time the liquidator was appointed, the respondent plaintiff had already become a secured creditor by virtue of the charging order made on 12 September 1995. The intervention of the liquidation after the date could not and did not alter the state of affairs. It was only because in Roberts Petroleum the judgment creditor’s security interest was “defeasible” that the decision in that case went against it.

The position of the respondent plaintiff here is different. Having obtained a charging order that was final, and not merely defeasible, it attained the status of a secured creditor of the Society on 12 September 1995. As a second creditor by virtue of its charge, it stands outside the liquidation: see Re David Lloyd and Co. (1877) 6 Ch.D.339, at 344. To express it in another way, property or assets that are subject to a chargee at the time when the liquidation commences are not available for distribution to the unsecured creditors. “The assets which the liquidator is able to collect and distribute are ... necessarily those which are free from a charge”: see Roberts Petroleum Ltd v. Bernard Kenny Ltd [1983] 2 W.L.R. 305, at 315.

If, as may be expected, the liquidator in the course of time sells the subject interest in the land, he will be bound to recognise and give effect to the rights of those (of whom there appear to be several others besides the plaintiff) who hold charges over that land. It was, though rather faintly, suggested that the liquidator could by acting under s.39(1)( c) of the Co-operative Societies Act deprive the respondent plaintiff of its security. Section 39(1)(c) confers on the liquidator a power to “decide any question of priority which arises between creditors”. It would be astonishing if a provision in that form were to be taken as authorising the liquidator to impair the status of a creditor who, because of its security interest, stands outside the liquidation; but the liquidator has so far not attempted to make such a decision, and the question (which was not raised in the court below) may therefore safely be left until it arises.

Selling the land is not a step in the course of obtaining a charge or security interest under s.35 of the Administration of Justice Act. On the contrary, it is, as s.160(2) itself recognises, a step in the process of enforcing a charge that already exists. We were invited by counsel to act, as he said as a matter of “policy”, to extend the principle in Roberts Petroleum to the stage of enforcing the charge. However, far from giving effect to it, counsel’s invitation if acted upon would serve to undermine that principle. Once it is, in accordance with that decision, acknowledged that the respondent plaintiff acquired the status of a secured creditor before the liquidator was appointed or the Society ceased to exist, we are, in the absence of specific statutory provision on that behalf, not authorised by law to interfere with that status or with the rights incidental to it. The respondent was entitled to enforce its charge by obtaining an order for sale under s.160(2)(a) of the Land and Titles Act.

It might be better for all concerned if the respondent plaintiff were to wait for the land to be sold by the liquidation in an orderly manner before attempting itself to sell under the order for sale it has obtained; but that is not a consideration that operates to deprive the respondent of its prima facie right to an order for sale under that provision any more than it would if it had directly acquired its charge in consequence of agreement with the debtor. Section 35(4) of the Administration of Justice Act is explicit in stating that a charge imposed under s.35(1) is to have the like effect and to be enforceable in the same manner as an equitable charge “created by the debtor in writing ...”. Section 160(2)(a) admittedly confers a discretion; but it should not be read as authorising the court to direct that the proceeds of sale of the Fixed Term interest should be distributed in a way that disregards the fact that on 20 September 1995 the respondent plaintiff succeeded in securing its debt on the interest of the Society in the Fixed Term estate. We were not asked to postpone the sale to enable the liquidator to sell in due course of administration, but to set aside the order for sale altogether.

The order made on 9 January 1996 was correct, and the appeal should be dismissed with costs.

Court of Appeal of Solomon Islands

Solomon Islands Consumers Co-operative Society Ltd v W H Grove and Sons Ltd [1997] SBCA 2; CA-CAC 3 of 1996 (15 April 1997)