Development Bank of Solomon Islands v Ritaleven Investments Ltd [2003] SBHC 91; HC-CC 104 of 2002 (27 March 2003)

HIGH COURT OF SOLOMON ISLANDS

Civil Case Number 104 of 2002

DEVELOPMENT BANK OF SOLOMON ISLANDS

V.

RITALEVEN INVESTMENTS LIMITED, WARREN PAIA AND LISE PAIA

High Court of Solomon Islands
(Palmer J.)

Date of Hearing: 25th March 2003
Date of Judgement: 27th March 2003

G. Fa’aitoa for the Plaintiff
Mrs. Tongarutu for the Defendants
John Sullivan for the Third Party (R.M. Fraser & A.R. Fraser)

PALMER J.: The Plaintiff is the holder of charges duly registered under the Land and Titles Act (Cap. 133) over the First Defendant’s properties in the fixed-terms estates in parcel numbers 192-010-162, 192-010-163 and 191-041-119 for a loan disbursed in favour of the First Defendant on 18^th June 1990. The Second and Third Defendants also executed a guarantee in support of that loan. The First Defendant has defaulted on the loan repayments and despite demands being made has failed to clear the loan. The guarantees of the Second and Third Defendants too have been called up but they too have failed to deliver. This has obliged the Plaintiff to come to court to have its charges enforced.

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 (hereinafter referred to as “P/162”) and 192-010-163 (hereinafter referred to as “P/163”). The Plaintiff issued the first tender notices on 28^th August, 30^th August and 2^nd September 2002. The bid however which the Plaintiff had accepted and recommended for approval by this court was rejected on the grounds inter alia that the tender process had been improperly carried out and therefore defective (see judgment of this court delivered 30^th January 2003). This court re-ordered the tender process to be undertaken afresh. This time round however, the court directed that the tender be conducted by counsel for the Defendants, to be sealed and to be opened only in the presence of the parties.

Second tender

The tender notices for the second tender were advertised in the Solomon Star issues for 5^th February, 7^th February and 10^th February 2003. At close of tenders, which fell on Wednesday 12^th February 2003, the following bids were received:

P/162: 1. Century Property: $400,000-00

2. Island Enterprises Ltd: $200,000-00

P/163: 1. Island Enterprises Ltd: $100,000-00

2. Shadrach Fanega: $ 56,000-00

3. Richard and Ruth Kaukui: $ 40,000-00

4. Willie Quan: $ 20,000-00

P/162 and P/163 together: 1. Ronnie Kidoe: $300,000-00

2. Brent McRae: $186,000-00

On Thursday 13^th February 2003, the bids were opened in the presence of Mr. Ashley, counsel for the Defendants, Mr. Fa’aitoa, counsel for the Plaintiff and Mr. Wate, Director of Corporate Lending of the Plaintiff (hereinafter referred to as “the Parties”). It was not disputed that none of the Defendants attended in person when the bids were opened. It is clear however they were represented by their Counsel, Mr. Ashley.

It has sought to be suggested that somehow Mr. Ashley may have not been acting properly by having the tenders opened without the presence of his clients in person. Unfortunately I am not satisfied that this suggestion should be given any weight. At no time has it been suggested that Mr. Ashley was not acting in his legal capacity as representative of the Defendants in that meeting. At no time has it been suggested that his actions were fraudulent or improper. Mr. Ashley is a professional lawyer and must be deemed at all times to be fully cognizant of the duties and responsibilities placed upon him towards his client and to have acted consistent with those duties and responsibilities, unless the contrary is shown.

At that meeting, it was decided by the parties to reject the offer of Century Property for P/162 for $400,000-00. They also declined to consider the offer of Island Enterprises Ltd for the same property for a lesser sum of $200,000-00. Instead they opted to make a counter-offer to Ronnie Kidoe for P/162 for $300,000-00. For P/163, it was decided to accept the offer of Island Enterprises for $100,000-00.

Part of the orders of this court of 30^th January 2003 was for the matter to be brought before this court for sanction 14 days after close of tenders. Responsibility for this was also given by this court to the Defendants in its orders of 30^th January 2003. It was anticipated that in that period parties would have had the opportunity to consider the various bids and come to some sort of agreement or decision. Tenders had closed on 12^th February 2003 and so the 14 days period lapsed on 27^th February 2003. Defendants thus were obliged to come back to court for a hearing within that time period. They have not done that.

Instead by Notice of Change of Advocate filed 3^rd March 2003, the Defendants instructed ANT Legal Services to take over the case from A & A Legal Services. On 11^th March 2003, the Plaintiff filed summons for orders inter alia that P/162 be approved for sale to Ronnie Kidoe for the sum of $300,000-00. The application is supported by the affidavit of Mike Wate filed 11^th March 2003. The matter came for hearing before me on 25^th March 2003. Mrs. Tongarutu appeared for the Defendants. On same date Sol-Law filed application for joinder of a Third Party (Rodney Maurice Fraser and Allan Rodney Fraser) supported by the affidavit of Rodney Maurice Fraser. The Third Party Respondents claim an equitable interest over P/163 by virtue of an instrument of transfer dated 26^th August 1998. The Third Party claims they are owed money by the First Defendant from building works they had undertaken for the First Defendant on another separate building (hereinafter referred to as “the Ritaleven House”). The amount outstanding was approximately $63,837.30. It was then agreed by the parties to settle the debt by selling P/163 to the Third Party for $106, 429.78. The debt would be offset from the purchase price and the remainder of $44,592.48 would be paid in cash by the Third Party to the First Defendant. I am not sure if any cash payment has been made, the impression is that this has been done. On the basis of that agreement, the transfer instrument was executed. Unfortunately it could not be registered as the Plaintiff held a charge over P/163, which it was not willing to discharge unless its debt with the First Defendant was paid in full.

I gave leave on 25^th March 2003 for the Third Party to be joined and deferred hearing of the issues on P/163 to a later date pending determination of the issues over P/162.

The Century Property bid

Century Property purportedly put in a bid for a client that it had for P/162 for $400,000.00. Unfortunately, this was rejected by the Parties when they met on or about 13^th February 2003. In her submissions before this Court, Mrs. Tongarutu sought to discredit the rejection of that bid as unreasonable and unfair. She sought to extract from Mike Wate under cross-examination some sort of explanation that would shed doubt as to the rationality and reasonableness of the decision to award the tender over P/162 to Ronnie Kidoe for $300,000.00. She was highly critical of that decision in her submissions to the court.

Mr. Fa’aitoa on the other hand sought to argue that the decision to bypass Century Property’s bid was based on sound and credible reasons and commercial acumen. They were of the view it was vague in that the identity of the bidder was not disclosed. Secondly in any event, they were not obliged to accept the highest bid offered.

In his submissions, Mr. Fa’aitoa sought to highlight the fact that the involvement of Century Property in attempts to sell P/162 was not new. Learned Counsel referred to correspondences with A & A Legal Service dating back to 2^nd December 2002 (Exhibit “DCL-6” annexed to the affidavit of Mike Wate filed 10^th December 2002) in which it was intimated that there was a prospective buyer for the property for $400,000.00. In his letter of 4^th December 2002 (Exhibit “DCL-8” annexed to same affidavit of Mike Wate) Mr. Fa’aitoa explained the terms of any such purchase and requested disclosure of the prospective purchaser and the likely time frame in which terms of settlement may be concluded. It seems that no response or nothing further came out of that enquiry.

Mr. Fa’aitoa also highlighted the fact that they had given ample time to the Defendants to come up with a likely purchaser for their properties but that again little progress had been made. Problems and difficulties in keeping up with loan repayments and accumulating arrears went back as far as 1998. Since that time the Defendants have had time and been given time to attend the arrears in their loan. They have not come up with any satisfactory arrangements. Meanwhile interests and costs continue to accrue.

Was the decision to reject Century Property’s bid unreasonable, illogical or contrary to good business sense? In my respectful view, this question must be answered in the negative. First, I am satisfied the Parties were entitled to reject the bid of Century Property as vague.

It is interesting to note the manner in which the bid had been put:

“This letter serves to formally advise your office that the potential buyer we mentioned in court recently is still interested in purchasing the property (parcel no. 192-010-162) at the recommended market value of $400,000-00.

The buyer has only just returned to Honiara from overseas and has been very busy since his arrival that he does not think he will be able to place a tender bid in good time.

If no tender bid is received for the said property (parcel no. 192-010-162) by the close of business on 12 February 2003 or if the tenders received are not acceptable to all parties concerned, we propose that the High Court consider the potential buyer’s offer to purchase no. 192-010-162 at the open market value of $400,000-00.

At the time of writing of this letter we confirm that the buyer has the necessary funds in country to make outright purchase of parcel no. 192-010-162 immediately.”

Paragraph 1 of the purported offer is a mere expression of interest. Paragraph 2 seeks to explain why no tender was offered by the prospective mystery bidder. This prospective purchaser had no time to lodge a bid and yet had time to give clear instructions to Century Property to articulate in very clear terms the form in which its bid was to be made. Paragraph 3 is not an offer but a proposal put forward for consideration. Secondly, that proposal is conditional “If no tender bid is received for the said property...by the close of business on 12 February 2003 (does not apply), or if the tenders received are not acceptable to all parties concerned, (applies to this case) we propose that the High Court consider the potential buyer’s offer to purchase parcel no. 192-010-162 at the open market value of $400,000-00”. The second part clearly applies to the proposal put forward by Century Property. Where however the parties accept an offer, (the case here) then the proposal (not an offer) will no longer be relevant.

Respectfully, I could not agree more with the views of the Parties at that meeting that this “offer” was vague. It is conditional in its approach and non-committal in so far as any offers are being proposed. Bearing in mind that the proposed sale of the P/162 had reached its final stages, what must be uppermost in the minds of the parties apart from the question of getting the best price would have been the seriousness and genuineness of the bid and the capacity to pay. Bearing in mind the fact that this was not the first time for this prospective buyer to receive consideration, surely plain common sense must dictate that if any bid is to be seriously considered it must be made in very clear terms and contain satisfactory proof of funding. This “tender” did not contain any proof of funding apart from the assurances of Century Property that there were sufficient funds in the country. Bearing in mind the history of previous dealings that Century Property has had with the Plaintiff and failed to measure up, it would have been incumbent upon any reasonable entrepreneur to go to all lengths to provide the necessary evidence.

The Plaintiff is entitled to be sceptical of the assurances of Century Property. Failing to disclose the identity of the prospective purchaser in the “tender” did not help either. The inevitable conclusion I reach on this issue is that the rejection was reasonable, just and fair and not improper in the circumstances.

The disclosure at the eleventh hour of the identity of the intending purchaser did not seem to have any effect on the decision and view taken by the Bank to reject the “offer” of Century Property. Mr. Wate pointed out that they had had previous dealings with Mr. Small and in which it had been shown that but for his partner, he would not have been able to meet certain payments he had agreed to meet with the Plaintiff. Mr. Wate pointed out that the disclosure would not have altered the Plaintiff’s decision to reject Century Property’s bid.

Decision to make a counter-offer to Ronnie Kidoe

With the rejection of Century Property’s offer, the only other relevant offer for P/162 was that of Islands Enterprises for $200,000-00. The Parties however were of the view that instead of accepting the offer of $200,000-00, they proposed that a counter-offer be made to Ronnie Kidoe for P/162 only for the sum of $300,000-00.

The first question that must be asked is whether the Parties are entitled to do this. In my respectful view, this must be answered in the affirmative. In so doing however, is there justification for this. Has good cause being shown for taking this course of action?

Mr. Wate gave three reasons in his affidavit filed 11^th March 2003. First, it was the Plaintiff’s policy where possible to assist local businesses or businessmen. Mr. Kidoe was a local entrepreneur. Secondly, Mr. Kidoe had been in occupation of the said property for sometime. I note there had been grave concerns expressed regarding the tenancy of Mr. Kidoe on the said property by the Defendants and that he owed the First Defendant rental arrears totaling some $41,000.00 or so. There were grave concerns raised earlier that this was evidence that the said bidder may not have the necessary funds to meet the price of the tender offered. In his evidence before this court however, Mr. Wate went to great lengths to explain that as far as the Plaintiff was concerned they were satisfied Mr. Kidoe had the necessary funds in place to make good on his tender. He made mention of a meeting earlier held in which a financier accompanied by its legal representative had attended at the Office of the Plaintiff to give assurances of the availability of funds to support the first tender of Mr. Kidoe and that he was of the understanding Mr. Kidoe had the necessary funds in place. As to the issue of rental arrears owing to the First Defendant, that is a matter, which the First Defendant should have pursued separately as a civil suit with Mr. Kidoe rather than seeking to tie it in with the claim of the Plaintiff. If it was concerned about the illegal or wrongful occupation of P/162, it could have taken out an action to recover possession of P/162 in this court. The two are not linked apart from the suggestion sought to be impressed upon this court earlier, regarding the capacity of Mr. Kidoe to make good on his tender, but which I am now satisfied is not so; that there is evidence of funding readily available.

The third reason given but which I have indirectly covered above relates to the evidence of funding capacity to support the tender. I need not repeat what I have just said.

Again I fail to find any cause why this recommendation should not be sanctioned. I have listened carefully to submissions of Mrs. Tongarutu as to why this course of action should not be pursued, but cannot be satisfied that it is wrong, unreasonable or prejudicial to the interests of the First Defendant. To the contrary, I am satisfied that in the prevailing circumstances this was a proper, sound and reasonable approach to take. It is not that the First Defendant had not been given time to make a sale. In my respectful view, ample time had been given but that it had not been taken advantage of. To refuse approval in my respectful view would no longer work justice to this case and the parties but further delays, more uncertainties and apprehensions, not to mention the accumulating costs and wastage of time. Already as a result of the delays in expediting sale, the arrears have further accrued to $267,000-00. Balancing all the interests of the parties, I am satisfied approval should now be given for the proposed course of action recommended by the Parties and as reflected in the summons of the Plaintiff. I direct as follows:

(1) A counter-offer be made and served personally on Mr. Ronnie Kidoe for sale of P/162 within 7 days and where there is acceptance a sale and purchase agreement must be concluded within 14 days herewith.

(2) Any failures will result in the counter offer being nullified and the proposals of Century Property for the purchase of the property to be considered for acceptance.

(3) Where there is failure as well, then the matter should be brought back to court for further directions by the Plaintiff.

(4) The purported sale of P/163 is to be deferred for 14 days pending final outcome of the sale of P/162 to Ronnie Kidoe. In the event the sale is concluded with Mr. Kidoe the parties should seriously consider the Third Party claim especially with the view to having the charge of the Plaintiff over P/163 discharged for the purpose of facilitating the transfer of the said property to the Third Party. The matter is then to be re-listed for hearing or endorsement of any agreements that the parties in the meantime may have arrived at regarding the said property.

(5) The costs of the Plaintiff shall be added to the costs of the judgment.

Orders of the Court:

1. A counter-offer to be made and served personally on Mr. Ronnie Kidoe for sale of P/162 within 7 days and where there is acceptance a sale and purchase agreement to be concluded within 14 days herewith.
   
2. Where there is default, the counter-offer is to be nullified and the proposals of Century Property for the purchase of the property to be considered for acceptance.
   
3. Where there is failure as well, then the matter should be brought back to court by the Plaintiff for further directions.
   
4. The costs of the Plaintiff shall be added to the costs of the judgment.
   

The Court