Development Bank of Solomon Islands v Ritaleven Investments Ltd [2003] SBHC 67; HC-CC 104 of 2002 (30 January 2003)

HIGH COURT OF SOLOMON ISLANDS

Civil Case Number 104 of 2002

DEVELOPMENT BANK OF SOLOMON ISLANDS

V.

RITALEVEN INVESTMENT LIMITED &
WARREN PAIA & LISE PAIA

High Court of Solomon Islands
(Palmer J.)

Hearing: 23^rd January 2003
Judgment: 30^th January 2003

G. Fa’aitoa for the Plaintiff
C. Ashley for the Defendants

Palmer J.: The Plaintiff filed a Specially Indorsed Writ of Summons with Statement of Claim on 11^th April 2002 seeking inter alia, orders for the repayment of the sum of $221,444-84 with interest, being loan moneys borrowed by the first Defendant pursuant to a loan agreement dated 6^th June 1990 secured by a charge over the first Defendants fixed-term estates in Parcel Numbers 192-010-162, 192-010-163 and 191-041-119 (hereinafter referred to as “the Properties”). The loan was also secured by a joint guarantee of the second and third Defendants. In the alternative, the Plaintiff sought orders for the sale of the Properties, which in reality was an application for enforcement of its charges over the said fixed-term estates registered under the Land and Titles Act (Cap. 133), although this was not expressly pleaded in the Statement of Claim. Plaintiff secured charges over the Properties on 22^nd November 1990 and subsequently had them registered under the Land and Titles Act.

The amount of the loan issued on 18^th June 1990 was $212,000-00. Part of the terms of the agreement included the repayment of the loan by monthly instalments of $3,260-00 over a period of ten and a half years at an interest rate of 14%. The charges registered over those properties also contained a condition that where the Chargor (first Defendant) defaults on making any payments that are due and is in arrears for a period of one month, all the moneys still owing at the time of default shall fall due and owing and the Chargee (the Plaintiff) may commence proceedings for the enforcement of its charges.

The first Defendant has defaulted on its payments. It is obvious that loan arrears started to accrue from as early as 1998. Numerous correspondences have been exchanged in an attempt to address the growing arrears of the first Defendant but to little avail. Despite demands made on numerous occasions, first Defendant had not complied. Letters of demand on 10^th April 2002 had also been made on the second and third Defendants calling on their guarantees to have the outstanding balance of the loan paid up, but to no avail. Plaintiff therefore comes to court to have its charges enforced.

By Summons filed 22^nd July 2002, Plaintiff sought orders inter alia for leave to enter judgment against the first, second and third Defendants (hereinafter referred to as “the Defendants”) for the moneys outstanding and for leave to effect sale of the fixed-term estates in the Properties. By orders filed 20^th August 2002, this court granted leave to enter judgment against the Defendants for the sum of $221,444-84 and leave to sell by tender the first Defendant’s fixed-term estates in Parcel Numbers 192-010-162 and 192-010-163. Part of the terms for the order of sale included an order that no tender was to be accepted without further leave of the Judge.

Tender notices were carried in the Solomon Star (“the Star”) on 28^th August, 30^th August and 2^nd September 2002. I quote:

“DBSI TENDER NOTICE

By an order of the High Court in Civil Case No. 104/02, tenders are invited for the purchase of Properties at Ranadi Industrial Estate, East of Honiara City.

Details:

Fixed Term Estate in Parcel no. 192-010-162 and 192-010-163

Description of property:

Concrete base building with large office and storage space. The area consists of approx. 0.1374 and 0.1190 hectares of land, which is idle for further development and is securely fenced.

Neither the highest nor any offer will necessarily be accepted.

Tenders should be sealed and marked “Tender 104/02” and addressed to: DBSI Managing Director, P O Box 911, Honiara. Please submit proof of available fund with tender.”

Four bids were received at close of tender date. These were:

1. Island Enterprises Ltd for $300,000-00;
2. Sol-Lube Distributors for $300,000-00;
3. Paul Maefiti for $300,000-00; and
4. Island Manufacturing for $265,000-00.
   

Paragraph 5 of the order of this court dated 20^th August 2002, made it quite clear that no tender was to be accepted without further leave of this court. Unfortunately, the Plaintiff failed to comply with this order and proceeded to accept the tender of one of the bidders, Sol-Lube Distributors (see affidavit of Ellison Gauwane filed 8^th October 2002). Plaintiff now comes to court to ask this court to endorse the contract of sale entered into with that bidder.

The reason why the requirement that the court’s approval be obtained before any tender is accepted is to ensure that the sale is conducted in a fair and just manner and that the Defendants are given opportunity to raise objections to any bid which the Plaintiff may recommend. In normal practice, where Plaintiff had been authorized to conduct sale of the properties by tender in the open market, Plaintiff would be required to consult with the Defendants about the bids that had been received before making application to the court for its approval. This makes good business sense and practice as it gives opportunity to parties to come to terms with the various bids and where possible come to agreement before seeking approval of the court.

On 19^th November 2002, this court ordered inter alia that the various bids received for the properties were to be made available to the Defendants for their perusal and consideration. It appears that prior to the purported acceptance of the tender of Sol-Lube Distributors, no attempt was made to communicate with the Defendants regarding the bids that had been received. This is unfortunate as Counsel for the Plaintiff is obliged to consult with Counsel for the Defendants regarding the tenders received. Where parties cannot agree, court will decide after hearing submissions. Normally, bids that come to court for sanction do so as a matter of formality. Unfortunately that is not the case here.

According to the affidavit evidence of Ellison Gauwane filed on 8th October 2002, he deposed that the bid offered by Sol-Lube Distributors was equal to the bid of two others in the sum of $300,000-00. He further deposed at paragraph 5 of his affidavit that the Plaintiff’s Tender Committee resolved to accept Sol-Lube’s bid. That would have been sufficient where there had been no objection to that bid by the first Defendant. Unfortunately due to the way this tender had been conducted, the first Defendant have expressed reservations tantamount to an objection and have provided reasons for this. In view of this, Plaintiff ought to have also provided explanation why the other two bids had been rejected in favour of Sol-Lube Distributors and also to indicate which of those two other bids may be considered by this court in the event the first bidder’s application was rejected.

Further, the affidavit of Ellison Gauwane did not disclose that the bid made by Sol-Lube Distributors was for only one of the properties, being the fixed-term estate in Parcel Number 192-010-163. At paragraph 7 of his affidavit nevertheless he deposed that the Plaintiff was prepared to make a sale for two of the properties. That with respect cannot be done. Plaintiff had no right to effect sale of two properties when only one had been tendered for. Further, Mike Wate deposed in his affidavit filed 10th December 2002 that it was decided later to award to Sol-Lube Distributors the property which he had not tendered for. Again this cannot be done without having to go through the tender process again or without proper consultation with the Defendants. It must be borne in mind that there were other bidders to the properties and therefore should be given equal opportunity for their bids to be considered especially where there were two other bids of the same amount. In my respectful view, proper explanation should be provided as to why the bids of the other two bidders for the same amount appear to have been rejected outright. Unfortunately I am not satisfied this had been done in this case.

I have also listened carefully to the objections raised by the Defendants as to why they say this court should not sanction the bid by Sol-Lube Distributors. The Defendants had called Lise Paia, (third Defendant) who gave evidence to the effect that Sol-Lube Distributors was the tenant of the property in Parcel Number 192-010-162 but unfortunately had not been faithful in the payment of his rental obligations and like themselves had also defaulted and was in arrears of more than six months rental to the tune of some $41,800-00. Mrs. Paia pointed out that part of the reason why they had not been able to service the first Defendant’s loan was due to the non-payment of the rental to their property by this bidder. She found it perturbing that this bidder who had defaulted on his rental obligations should be able to come up with $30,000-00 to pay up on a deposit to the Plaintiff as part of the so-called agreement for sale and purchase of the property in Parcel Number 192-010-162.

A second witness called to give evidence was Mrs. Joan Boso, managing director of Century Property. She gave evidence of enquiries she had received from a potential buyer of the property and for a sum possibly in the vicinity of $400,000-00. Unfortunately this new evidence is of little value to this court as it was not part of the tender documents. If that potential buyer was serious, he should have placed tender for the properties. I disregard her evidence.

I have been urged by Counsel for the Plaintiff to ignore the evidence of Mrs. Paia in that the rental arrears owed by Sol-Lube Distributors to the Defendants were not relevant to the proceedings before this court in that it was a matter between the Defendant and Sol-Lube Distributors alone and had nothing to do with the Plaintiff. Unfortunately, that evidence if true, may go to show that this bidder is one who has demonstrated that it is not capable of keeping up with its basic obligations to pay rental dues at the rate of $3,600-00 per month. Secondly, its non-payment of rent had directly affected the ability of the first Defendant to service its loan repayments. It is not in dispute that the rentals that Sol-Lube Distributors owed to the first Defendant were moneys, which ought to have been paid to the Plaintiff in any event. Those rental dues therefore were tied moneys that had been earmarked towards repayment of the first Defendant’s loan. By not paying its rental dues, Sol-Lube Distributors to a certain extent had contributed to prejudicing the first Defendant’s position and ability to repay on its loan. Plaintiff has been well aware of this. Had Sol-Lube Distributors faithfully paid its rent, the first Defendant may not have been required to sell, but even if there had been a sale, the amount of money outstanding would have been reduced by not less than $30,000-00. That is a lot of money in today’s economic climate. This court cannot simply ignore this fact on the grounds of irrelevance.

There is no dispute that the Plaintiff had been given leave by this court, to effect sale of the properties in parcel numbers 191-010-162 and 191-010-163 by tender in the open market. That however is not an absolute power, it is to be exercised with due regards to the Defendants interests. In this instance the parties are properly represented by Counsels and therefore it would have been but a matter of formality for learned Counsels to consult over the various bids received before making their recommendations to this court for approval. Any purported sale must be conducted in a manner that is fair and just to both parties. This is why there is supervision provided by the court regarding the final decision as to the tenders to be accepted.

I do note that the Plaintiff did attempt to mitigate its actions by including a clause in its sale agreement with Sol-Lube Distributors that the sale was subject to the order of this court. I have considered carefully the circumstances in which this tender had been conducted, but unfortunately for the reasons I have outlined above I am not satisfied this purported sale should be sanctioned.

In normal circumstances, the bid would then go to the next one in line. Unfortunately, I do not have sufficient information before me to consider the bids of others of equal value. Accordingly, the only proper order in my respectful view would be to direct that the properties be re-advertised for sale by tender in the open market. It should be made clear in the tender notice that the two properties are put out for tender as separate properties and that anyone wishing to tender must make clear which property or whether both properties together are being tendered for.

Those who have placed tenders, including Sol-Lube Distributors may re-tender. The re-tender however is to be conducted by Counsel for the Defendants at the costs of the Defendants. All tenders are to be sealed and only opened in the presence of both parties. The Defendants are to re-advertise in the Solomon Star within 7 days herewith on three consecutive days and tenders to close seven days thereafter. The approval of this court is to be obtained for the winning tender.

Costs in this application and of the tender normally should be borne by the Defendants and form part of the judgment sum. Unfortunately in view of the failure to successfully complete the tender process in this particular instance, costs are awarded to the Plaintiff but only on 50% basis. Costs of the re-tender however and related costs are to be borne by the Defendants.

Orders of the Court:

1. Refuse sale of fixed-term estates in Parcel Numbers 192-010-162 and 192-010-163 to Mr. Ronnie Kidoe.
   
2. Direct that the properties in Parcel Numbers 192-010-162 and 192-010-163 be re-tendered in the open market by the first Defendant (Counsel of the first Defendant to be responsible for this). Tenders to be by sealed envelope and to be opened only in the presence of the parties.
   
3. No tender is to be accepted without the approval of the court.
   
4. Notices for tender to be published in the Solomon Star newspaper on three consecutive days within 7 days (excluding weekends).
   
5. Tenders to close 7 days thereafter.
   
6. The matter to be re-listed for hearing 14 days thereafter.
   
7. Defendants shall bear only 50% of the costs of the Plaintiff in this application and of the tender process conducted by the Plaintiff.
   

THE COURT.