Ha'amo Growers Co Ltd v Manako [2008] TOSC 12; CV 289-2002 (13 October 2008)

IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU’ALOFA REGISTRY

CV 289 of 2002

BETWEEN:

HA’AMO GROWERS CO. LTD
Plaintiff/Judgment Creditor

AND:

KALIOPASI MANAKO
Defendant/Judgment Debtor

AND:

TONGA DEVELOPMENT BANK
Interpleader

BEFORE THE HON. CHIEF JUSTICE FORD

Counsel: Mr Niu for the Plaintiff/Judgment Creditor and
Mrs Vaihu for the Tonga Development Bank

Dates of written submissions: 27 February; 28 April; 21 August; 22 September; 25 September 2008.

Date of Ruling: 13 October 2008

RULING

Background

[1] The delays in prosecuting this claim and in taking appropriate enforcement action are not something that anyone involved can be very satisfied about. The case has its origins in a judgment which, after a six day hearing, the plaintiff company obtained against the defendant on 30 July 2003 in the sum of $156,904.49. The defendant appealed the judgment to the Court of Appeal. When the appeal was called in July 2004, the defendant's counsel successfully sought an adjournment until the 2005 Appeal Session. In July 2005, however, the Court of Appeal struck out the appeal for want of prosecution.

[2] The present matter before the Court was initiated by the Chief Bailiff through a proceeding prescribed in Part IV of the Bailiff Act 2000 known as a bailiff's interpleader. How that came about was that on 12 September 2003 this Court issued a writ of distress on behalf of the plaintiff against the judgment debtor. On 17 October 2003 the bailiff filed a report itemising various goods that he had seized from the defendant pursuant to the writ of distress by way of a special seizure under section 8 of the Bailiff Act. On 12 May 2004 the Tonga Development Bank gave notice to the Chief Bailiff claiming title to the seized goods on the basis that they were security assets under a loan agreement the Bank had entered into with the defendant on 13 December 2002. The short point at issue in this proceeding is whether the goods seized by the bailiff are, as the Bank contends, protected from seizure by virtue of their being security assets for the Bank's loan.

The items in question

[3] The various items seized by the bailiff under the writ of distress were:

(1) 4 tractors, registration No.G465, G466, G467, G468;

(2) Van, registration No. L6187

(3) Van, registration No. L528;

(4) 1 disk blade,

(5) 1 trenching blade

(6) 1 weeding blade;

(7) 3 sofa chairs;

(8) 1 TV set;

(9) 1 video player;

(10) 1 wall unit;

(11) floor freezer;

(12) 1 gas stove;

(13) 1 dining table;

(14) 3 single beds;

(15) 2 double beds;

(16) 2 clothes cupboards.

[4] As indicated, the items were seized by way of "special seizure" under section 8 of the Bailiff Act which means that, although they had been seized by the Bailiff, they remained in the possession of the defendant. The relevant part of section 8 reads as follows:

"Where a Bailiff executing a writ of distress or distress warrant considers it impractical to remove any items seized, he may declare that the item or items have been specially seized and leave it in the place where it is being kept at the time of the execution of the writ or warrant."

[5] In its notice to the Chief Bailiff dated 12 May 2004, the Bank's legal officer stated:

"Please be informed that the items No.1 to No.16 have been registered in our Loan Agreement as security assets for Mr Manako's loan in this Bank." It would appear, however, from the documents produced that the only items included in the Loan Agreement were:

3 Ford tractors, registration No. G464, G465 and G466;

Toyota van, registered No. L528;

Mitsubishi van, registered No. L6187.

[6] The Bank also produced Certificates of Registration under the Traffic Regulations 1974 which showed that all of the vehicles listed in the previous paragraph as well as tractors registered No. G467 and G468 were officially registered in the joint names of the defendant and the Tonga Development Bank. (In this regard the certificate in respect of van L6187 is difficult to read and ownership in that case may be subject to proof). It has been held that registration carries a strong presumption of ownership and there was no evidence to the contrary in this case.

[7] In summary, therefore, it would seem that the two vans listed as items (2) and (3) in the bailiff's report and two of the tractors listed in item (1) were included in the Bank's Loan Agreement and the Bank was joint owner with the defendant of all the tractors and vans but the Bank held no interest in the other items seized.

The issues

[8] The principal submission advanced by Mrs Vaihu for the Bank was that the vehicles had been "pledged" to the Bank as security for its loan. Counsel submitted: "The pledging of security assets to the Bank creates an equitable mortgage in favour of the Bank and thus it (sic) is owned by the Bank until the defendant fully settles his debt with the Bank."

[9] Mrs Vaihu submitted that if the Court is minded to order the sale of the vehicles then the proceeds should be applied first towards the judgment debt of the Bank (the Bank obtained judgment on 3 June 2005 in the sum of $26,696.89) with any surplus then being paid out to the plaintiff.

[10] For the plaintiff, Mr Niu submitted:

"A pledge is a bailment of a chattel as security for payment of debt. For there to be a pledge, possession must be delivered to the pledge (sic). In this case, the vehicles ought to have been delivered to the Interpleader as pledge, to constitute a pledge. As there was no such delivery of the vehicles to the Interpleader, the pledge was incomplete and ineffective."

[11] Mr Niu submitted that all the vehicles seized by the bailiff should be sold and the proceeds divided 50-50 between the Bank and the plaintiff.

The Loan Agreement

[12] The relevant part of the Loan Agreement provides:

"THE BORROWERS

Security documents

6. a) To transfer all of the Borrower's right, title and interest in the Chattels ("the Chattels") more particularly described in the scheduled (sic) hereto ("the Scheduled") as security for the performance of this Agreement, and the Borrower hereby authorises the Bank to debit the Borrower's account for any costs and charges incurred by the Bank in connection with such said transfer of the Chattels to the Bank.

b) To preserve carefully the Chattels hereby transferred as security and the Borrower's further agrees that he will not give away, alienate or otherwise dispose of the Chattels until he has received from the Bank assigned (sic) memorandum stating that the terms of this Agreement have been performed at which time the Bank shall transfer all its right, title and interest in the Chattels to the Borrow at the Borrower's expense.

c) To keep the Chattels fully insured with an Insurance Company acceptable to the Bank and authorises the Bank to debit any Borrower's account in payment of such annual premium during the term of this Agreement.

d) That all legal matters required in implementing this Agreement and in perfecting documentation of the items of Security set down in the Scheduled will be performed to the Bank's satisfaction and at the cost of the Borrower's will reimburse the Bank for all expenses of the same whether or not the loan is availed of."

[13] Under a section dealing with "Default", the Agreement stated:

"AND without limiting or anyway derogating from the Borrower's liability to the Bank as aforesaid, the Bank shall be entitled to take action to obtain possession of the Chattels without further process of law and to sell the same in reduction of the amount owing by the Borrower and the Borrower undertakes to give up control of the said Chattels forthwith upon receipt of demand in writing by the Bank (such demand being in accordance with clause 8)."

[14] The initial loan on 13 December 2002 was for a total of $10,000 but further advances under "Supplementary Loan Agreements" were made as follows: 19 March 2003, $2200; 26 May 2003, $2000; 29 October 2003, $2000. The final Supplementary Loan Agreement recorded that the balance owing in December 2003 (with interest) would amount to $20,000 and that sum was to be paid in full sometime during that month.

[15] The original Loan Agreement did not purport to be a "pledge" and the word "pledge" does not appear anywhere in the document. The preamble to each of the Supplementary Loan Agreements, however, in reference to the original Loan Agreement dated 10 December 2002 states:

"The said Loan Agreement includes a pledge from the Borrower of various property and/or assets as security for the loan and the Borrower agreed to other terms and conditions, including events of the fault and rights of demand, as also recorded within the Loan Agreement."

Discussion

[16] As noted by Webster J. in 'Alatini v LDS Church & Muti [1990] Tonga LR 1 line 172, an agreement cannot be a pledge unless there has been actual or symbolic delivery of the item pledged. Halsbury, Vol 36 para 114 states the legal position as follows:

"A contract to pawn a chattel, even though money is advanced on the faith of it, is not sufficient in itself to pass any special property in the chattel to the pawnee. Delivery of the chattel pawned in consideration of the debt or advance is a necessary element in the making of a contract of pawn. This delivery may be actual, in the sense of physical delivery of the chattel, or constructive in the sense that, although the chattel is legally delivered, it does not actually pass from the hands of the pawnor to those of the pawnee."

[17] In the present case, there was no delivery of the secured chattels and so, despite the reference to a "pledge" in the Supplementary Loan Agreements, the original Loan Agreement did not constitute, nor did it purport to constitute, a contract to pawn the security items in question.

[18] The Loan Agreement in the present case constituted what is known as an equitable mortgage. An equitable mortgage is different from a legal mortgage in that it does not convey any legal estate or interest to the creditor over the property or items charged. The mortgagee under an equitable mortgage takes no legal estate in the property but he has a charge over the property which is enforceable against the borrower under the court's equitable jurisdiction by sale and sometimes by foreclosure. Under the heading Equitable Mortgages, the learned authors of Fisher & Lightwoods Law of Mortgages (10th edition) at page 12 state:

"Generally, the essence of any transaction by way of mortgage is that a debtor confers upon his creditor a proprietary interest in property of the debtor, or undertakes in a binding manner to do so, by the realisation or appropriation of which the creditor can procure the discharge of the debtor's liability to him, the proprietary interest is redeemable, or the obligation to create it is defeasible, in the event of the debtor discharging his liability. If there has been no legal transfer of a proprietary interest but merely a binding undertaking to confer certain interest, that obligation, if specifically enforceable, will confer a proprietary interest in the subject matter in equity. An equitable mortgage is a contract which operates as a security and is enforceable under the equitable jurisdiction of the court. The court carries it into effect either by giving the creditor immediately the appropriate remedies, or by compelling the debtor to execute a security in accordance with the contract. It is applicable to all property of which are legal mortgage can be made, even where statute provides, as, for example, in the case of ships, a particular method for passing the legal property therein."

[19] An equitable interest, even one earlier in point of time, does not prevail over a legal interest in the same property unless it can be said that the legal interest was defeated by conduct or prior notice of the pre-existing equitable interest. The legal position is governed by the maxim, "where the equities are equal, the law prevails." There has been no suggestion in the present case that the plaintiff had prior notice of the Bank's equitable mortgage. That being the case, when the plaintiff subsequently obtained judgment against the defendant and a legal interest in the properties seized, that interest prevailed over any equitable interest the Bank held in those same items.

[20] On the other hand, the plaintiff's legal interest in the items seized does not prevail over the corresponding legal interest which the Bank held in the tractors and vehicles in its capacity as joint proprietor. The position, therefore, is that the proceeds of sale of those particular items are to be dispersed on a 50/50 basis between the Bank and the plaintiff/judgment creditor and the proceeds of the remaining items are to be paid solely to the plaintiff/judgment creditor.

Remaining issue

[21] There is another matter which was not referred to in written submissions but the Court issued a Memorandum drawing the issue to counsel's attention and giving them the opportunity of presenting further supplementary submissions if they so desired. I shall make brief reference to it. The issue relates to section 12 of the Bailiff Act which reads as follows:

"Where any person claims title to any properties seized by a Bailiff under an order of any Court that person shall notify the Chief Bailiff or his office in writing within seven days of the seizure of the property setting out the following:-

(a) the nature of his entitlement;

(b) a list of the items claimed; and

(c) his address, which shall be his address for service."

(emphasis added)

[22] This is the provision in the Bailiff Act which allows a party, such as the Bank in the present case, claiming an interest in property seized by a Bailiff to intervene in the proceedings through the process known as a "Bailiffs' Interpleader". The court drew counsel's attention to the fact that the statutory provision required the Bank to give notice to the Chief Bailiff within seven days of the seizure whereas, as is evident from the chronology referred to above, notice was not given by the Bank until some seven months after the seizure.

[23] Neither counsel cited any authorities in support of their respective supplementary submissions. Counsel for the plaintiff candidly stated that he had not been aware of the provisions of section 12 and had therefore raised no objection but, having had the opportunity to consider the relevant statutory provision, he submitted that the Court had no authority to extend the seven-day time limit and, therefore, the Bank was out of time and its claim should be rejected. Counsel for the Bank submitted that its claim should be accepted because it had not been aware of the special seizure carried out by the Bailiff and it gave notice as soon as it did become aware that its security items had been seized.

[24] The point at issue involves an important consideration of one of the basic principles of statutory interpretation. Is Parliament to be taken to have prescribed a firm time limit, with no possibility for extension, such that failure to comply with it renders any subsequent action void - see Regina v Soneji and another [2005] UKHL 49.

[25] In District Court of Vilnius City v Barcys [2007] EWCA Civ 475; [2008] 1 All ER 733 it was held that the court did not have power to extend a seven-day time limit contained in section 28 (5) of the Extradition Act 2003 for giving notice of appeal. Latham LJ (p.736) said:

"[7] The effect of the failure to comply with a statutory time limit was most recently considered by the House of Lords in R v Soneji. Lord Steyn approved (at [21]) the conclusion of the Australian High Court in Project Blue Sky Inc v Australia and Broadcasting Authority [1998] HCA 28; (1998) 153 ALR 490, (1998) 194 CLR 355, which included the following sentence: "a better test for determining the issue of validity is to ask whether it was the purpose of the legislation that an act done in breach of the provision should be invalid.

[8] In other words, as later explained by Lord Steyn, the question is essentially one of statutory construction. In R v Soneji and many other cases that exercise has had to be carried out in the absence of any express provision in the statute in question which provided the answer."

[26] The Court in the District Court of Vilnius case was able to point to another section in the same Act which it held made it reasonably clear that the purpose of the legislation had been to set a seven-day time limit which could not be extended.

[27] In the Project Blue Sky case [91] the Court observed:

"The existence of the purpose is ascertained by reference to the language of the statute, its subject matter and objects, and the consequences for the parties of holding void every act done in breach of the condition."

[28] I acknowledge that I have not had the advantage of hearing argument in relation to these recent authorities but I cannot accept that the purpose of the seven-day time limit in section 12 of the Bailiff Act was to prescribe a firm time limit with no possibility for extension thus rendering void every act done in breach of that condition. The fact that the Bank had no knowledge of the Bailiff's seizure and there is no provision in the Bailiff Act that would require them to be possessed of such knowledge would, in the absence of evidence of real prejudice, make it quite unjust, in my view, to hold otherwise.

Conclusion

[29] For the reasons detailed above, it is ordered that (unless the parties are able to come to some other amicable agreement) the Chief Bailiff is to proceed with the sale of all the items included in the special seizure. After deduction of the Bailiff's reasonable costs, the proceeds of sale of the vehicles of which the Bank is a joint owner are to be divided equally between the plaintiff and the Bank. The proceeds of sale of the remaining items are to be paid to the plaintiff.

[30] Given the fact that to some extent both parties have been successful, I make no order as to costs.

NUKU'ALOFA: 13 OCTOBER 2008.

CHIEF JUSTICE