Brunet v Westpac Banking Corporation [2006] VUCA 11; CAC 03-06 (1 June 2006)

IN THE COURT OF APPEAL
OF THE REPUBLIC OF VANUATU
(Civil Appellate Jurisdiction)

Civil Appeal Case No. 03 of 2006.

BETWEEN:

PIERRE-JEAN MARIE BRUNET and CHRISTIANE MARIE BRUNET
Appellants

AND:

WESTPAC BANKING CORPORATION
Respondent

Coram: Hon. Justice John W. von Doussa
Hon. Justice Daniel V. Fatiaki
Hon. Justice Oliver A. Saksak
Hon. Justice Patrick I. Treston

Counsel: Mr. Robert Sugden for Appellants
Mr. Wade Roper for Respondent

Date of Hearing: 24 May 2006
Date of Decision: 01 June 2006

JUDGMENT

APPEAL

This is an appeal against the decisions in the Supreme Court in two proceedings CC237/04 and CC10/2006. The primary judge in Civil Case 10 of 2006 is said to have erred in his findings and orders of 20 February 2006 that the claims in that case were precluded by consent orders purportedly made in Civil Case No. 237 of 2004 on 30 August 2005. Further that the primary judge erred in law in Civil Case No.237 of 2004 when he made findings and orders of 27 February 2006 in failing to hold that when the consent orders of 30 August 2005 were made the Court was functus officio and that the orders were void as a nullity.

Effectively the two appeals are with respect to an urgent application in Civil Case No.10 of 2006 filed on 13 February 2006 seeking a stay of the Respondent's power of sale under orders of the Court made on 24 January 2005 and an application seeking to set aside the consent orders of 30 August 2005 in Civil Case No. 237 of 2005.

FACTS

In or about November 2000, the Appellants approached the Respondent to seek finance for the construction of a multistorey building on the water front at Port Vila, Vanuatu known as the Grand Hotel and Casino ("the Hotel"). On 22 February 2001, the Appellants and the Respondent executed a loan agreement providing for advances of VT364,000,000 by the Respondent to the Appellants. To secure the loan a number of mortgages over the property on which the Hotel was to be built and collateral mortgages over other titles were executed in favour of the Respondent.

In early June 2001, the Appellants sought additional advances from the Respondent increasing their indebtedness to VT477,000,000.

On or about 25 April 2003, the Appellants and Respondent agreed that the amount secured under the mortgages would be increased to VT807,000,000 together with interest. Variations of the mortgages recognizing this were executed. In April 2003 an agreement between the parties provided that all moneys outstanding under the mortgages would be repaid by the Appellants to the Respondent on or before 31 July 2003. An undertaking to this effect was executed by the Appellants in favour of the Respondent on or about April or May 2003.

The Appellants failed to comply with the April 2003 agreement in that the moneys were not repaid to the Respondent on or before 31 July 2003.

On or about 2 December 2003, the Appellants executed deeds and irrevocable powers of attorney in favour of the Respondent, and as a result the Respondent agreed to allow the Appellants additional time in which to locate a purchaser for the Hotel. The time expired on 1 March 2004 and letters of demand for interest then outstanding were served on the Appellants on 30 April 2004. Additional demands were served on 4 May 2004 for the outstanding interest and again on 10 May 2004 for the total amount outstanding.

In or about May 2004, the Respondent agreed to allow the Appellants an additional period to effect the voluntary sale of the Hotel until 26 May 2004 but that did not eventuate and the Respondent notified the Appellants that it would be issuing proceedings relying on the terms of the deed and the irrevocable powers of attorney provided to it. However, the Appellants attended at the Land Records office without the knowledge of the Respondent and unilaterally effected a revocation of the powers of attorney.

Shortly afterwards the Respondent filed Civil Case No. 237 of 2005 seeking orders for sale of the property and, as no steps were taken by the Appellants, the Respondent entered judgment against them in default of a defence on 24 January 2005 authorizing the sale of the Hotel. Various negotiations in relation to a sale to a Mr. Louis proceeded and the Appellants filed an application to set aside the default judgment. Various discussions between the Appellants and the Respondent as to surrendering the keys to the Hotel took place but arrangements were not adhered to by the Appellants and further time was allowed to the Appellants to effect a sale. However on 14 March 2005 one of the Appellants delivered keys to the Hotel to the Respondent to allow for the exercise of the Respondent's power of sale.

On 9 June 2005, the Appellants' application to set aside the judgment entered in default of a defence was heard and a decision was delivered by the primary judge on 11 August 2005 dismissing the application.

On 22 August 2005, a deed of settlement and release was entered between the parties whereunder the Appellants agreed to execute consent orders in favour of the Respondent foregoing any further right to raise any objection, appeal or application in opposition to the default judgment or in respect of any attempt by the Respondent to enforce the same. Those consent orders were executed by the Appellants and the Respondent, and orders accordingly were made by the Court on 30th August 2005 which in substance confirmed the order empowering the Respondent to sell the Hotel.

The deed required, among other things, that the Appellants would pay the Respondent the sum of VT100,000,000 on or before 1 September 2005. The Appellants failed to comply with that and the Respondent waived strict compliance with the terms of the deed and extended the time for payment until 9 September 2005. A portion of total of monies due were subsequently forwarded to the Respondent but were not accepted by it after their investigations were conducted. The Respondent then proceeded to a sale by way of tender.

On 8 February 2006 the Appellants commenced Civil Case No. 10 of 2006 seeking, among other things, orders restraining the Respondent from exercising its power of sale. On 13 February 2006, counsel for the Appellants filed an urgent ex parte application seeking an immediate interlocutory order to restrain the Respondent's exercise of the power of sale. The primary judge heard that application after notice to the Respondent on 16 February 2006 and delivered a judgment on 20 February 2006 dismissing the application on the ground that relief was precluded by the terms of the consent orders made or 30th August 2005.

Thereupon the Appellants made an application in Civil Case No. 237 of 2005 to set aside the consent orders of 30 August 2005 and the primary judge refused that application on 27 February 2006.

APPELLANTS' SUBMISSIONS

The Appellants in Civil Case No. 10 of 2006 argued that the Respondent in 2004 and 2005 had sought to interfere with and frustrate the exercise of the Appellants' rights to redeem the mortgage by disrupting the proposed sale of the Hotel to potential purchasers found by the Appellants and by refusing to accept payment of various sums of money offered to Respondent by the Appellants or on their behalf by third parties.

The Appellants argued that their equitable right to redeem the mortgage subsisted until the time that the mortgage property was sold to a third party or until a foreclosure order was made. They argued that any term in the mortgage or loan documentation which took away that right to redeem ought to be struck down as a clog on the equity of redemption and the mortgagor could not be permitted by the Court to agree with the mortgagee for this right to be taken away. It was submitted that those principles applied to Torrens titles.

Accordingly orders in Civil Case No. 237 of 2004 could not take away the right of redemption and that orders, even by consent, could not have that effect.

The Appellants submitted that the primary judge was functus officio when the consent orders were made. It was submitted that the Court should have held that the Respondent could not rely on the consent orders because they were invalid, and, further, there had been no breach of the deed because the Respondent had refused to accept monies from the ANZ Bank forwarded to it by a Mr. Copperwaite, who had expressed an interest in purchasing the Hotel.

The said Mr. Copperwaite had been accepted by the relevant authorities under the Vanuatu Foreign Investment Promotion Act No. 15 of 1998 as a foreign investor with Australian Federal Police clearance and had been granted residential status in Vanuatu on the basis of this proposed investment. In addition, his funds and the source of them had been investigated under the Financial Transactions Reporting Act No. 33 of 2000 and had been cleared by the Financial Investigations Unit. Despite this, the Appellants contended that the Respondent had obstructed Mr. Copperwaite from bringing his funds into Vanuatu to carry out the purchase of the Hotel and to assist the Appellants in clearing their indebtedness to the Respondent.

Submissions were made in detail by the Appellants setting out what they considered was the relevant background of the funds that Mr. Copperwaite endeavoured to bring into Vanuatu to complete his proposed purchase. Among the funds that Mr. Copperwaite proposed to use to complete his transaction were those solicited through the internet from a large number of prospective investors investing in small amounts to make up the whole of a proposed purchase price of A$22 million, which he had offered for the Hotel under an agreement dated 22 March 2005 through his Vanuatu registered international company Global Digital Transfers Inc.

The Appellants submitted that this Court should order that the proceedings should be stayed for 6 months to allow the Appellants further time to redeem their mortgages with the Respondent.

RESPONDENT'S SUBMISSIONS

The Respondent submitted that the Appellants were legally represented when executing both the settlement deed and the consent orders and that in any event, the Appellants in seeking equitable relief had not come before the Court with clean hands and that laches on the part of the Appellants prevented the grant of any relief.

It was submitted that for the Appellants to succeed in any application to stay or restrain the Respondent's power of sale they must first pay into Court sufficient moneys to cover their indebtedness to the Respondent. Reference were made to the principles in Inglis v Commonwealth Trading Respondent of Australia (1972) 126 CLR 161.

In addition the Respondent submitted that the argument touching upon a mortgagor's right of redemption was fundamentally flawed and that the Appellants' equity of redemption came to an end with the grant of the judgment particularly under the provisions of section 59(4) of the Land Leases Act [Cap. 163].

In relation to Civil Case No.237 of 2004, the Respondent argued that the Court had the power to make the consent orders under its inherent powers as set out in section 22 (1) of the Court's Act [Cap 122]. Further the overriding objectives of the Court under the Civil Procedure Rules No. 49 of 2002 as set out in Rules 1.2 and 1.4 made it clear that the Court's powers to uphold the proper administration of justice in Vanuatu allowed it to make the order even after judgment had been entered.

On a purely factual basis the Respondent submitted that the Appellants had never been in a position to make payments to the Respondent for the entire amount of their indebtedness under the deed or otherwise.

DECISION

In the Inglis case (above) his Honour Justice Walsh said:-

"A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid and unless, if the amount be disputed, the amount claimed by the mortgagee be paid into Court."

His Honour also cited in the decision an extract from Halsbury's Laws of England as follows:-

"The 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."

Under that principle we consider that the evidence adduced by the Appellants in the lower Court and the situation as placed before us in this Court falls far short of showing that the Appellants have ever had actual funds to satisfy the mortgages in full. Clearly the mortgage debt had never been paid and the amount claimed by the mortgagee has not been paid into Court. There is no evidence that the total funds required to pay all the indebtedness of the Appellants to the Respondent have ever been accumulated even outside Vanuatu in one lump sum that would enable this Court to be satisfied that the mortgages could be redeemed.

The fact that the Financial Investigation Unit cleared the funds sent by Mr. Copperwaite and entities associated with him on 20 June 2005 does not provide any protection to the Respondent in relation to funds then obtained. It certainly does not give the Respondent any measure of protection in relation to funds allegedly solicited over the internet subsequent to that clearance if the bank has reason to suspect that the funds have been obtained through fraud or are being used in breach of trust or fiduciary duty. The funds of hundreds of investors of small amounts solicited over the internet have not by any measure of means been accumulated into one account nor has there been any evidence adduced as to any trust deed in relation to the investments. Furthermore the funds appear to have been solicited on the basis of investment in a hotel property and not for use for the redemption of the mortgage commitments of the Appellants.

In our view the Respondent was perfectly entitled for its own protection to make its own value judgment as to source of funds remitted to it. It was entitled to reject them, but the plain fact of the matter is that there has never been offered to the Respondent the total amount of the mortgage indebtedness nor has there been any undertaking that funds sufficient to satisfy the mortgage indebtedness have been gathered together either in Vanuatu or elsewhere.

As to the argument that the consent orders made by the primary judge were without jurisdiction, we are of the view that the parties themselves can grant jurisdiction to the Court so long as the consent orders relate to the issue in question. We do not accept the Appellants' arguments that in these circumstances the consent orders were not validly made.

The Respondent has given the Appellants many opportunities to arrange a sale of the Hotel since the date of the original demand more than two years ago in May 2004 but in any event, in view of the lack of evidence that the Appellants ever had the funds to pay the mortgage indebtedness, we are of the view that the orders in the Supreme Court were validly made and the appeal is accordingly dismissed.

There is however, one argument of the Respondent which we cannot accept. Section 59 of the Land Leases Act [Cap. 163] provides as follows: -

"ENFORCEMENT OF MORTGAGES

(1) Except as provided in section 46 a mortgage shall be enforced upon application to the Court and not otherwise.

(2) Upon any such application, the Court may make an order -

• (a) empowering the mortgagee or any other specified person to sell and transfer the mortgaged lease, and providing for the manner in which the sale is to be effected and the proceeds of the sale applied;
  
• (b) empowering the mortgagee or any other specified person to enter on the land and act in all respects in the place and on behalf of the proprietor of the lease for a specified period and providing for the application of any moneys received by him while so acting; or
  
• (c) vesting the lease in the mortgagee or any person either absolutely or upon such terms as it thinks fit but such order shall, subject to subsection (5), not take effect until registration thereof.
  

(3) The Court shall, in exercising its jurisdiction under this section, take into consideration any action brought under section 58 and the results thereof.

(4) After the Court has made an order under paragraphs (a) or (c) of subsection (2) or while an order paragraph (b) of subsection (2) is in force, no action may be commenced or judgment obtained under section 58 in respect of the mortgage except with the leave of the Court and subject to such conditions (if any) as the Court may impose.

(5) Any order made by the Court under this section shall for the purposes of subsection (4) be effective from when it is made."

We do not accept the submissions of the Respondent that section 59 (4) can only be construed as forever severing any right of redemption.

Section 58 provides as follows:

"Any principal sum or interest due under a mortgage may, subject to the provisions of section 59 (4), be recovered by action in a competent Court".

The effect of s. 59 (4) is simply to prevent further action by the mortgagee against the mortgagor to recover the principal sum or interest due under the mortgage once an order for enforcement has been made under s.59 (2) (a) or (c), except with the leave of the Court. In our opinion s.59 (4) is not directed to a mortgagor's right of redemption and cannot bear the construction which the Respondent seeks to place on it. This construction, however, was merely an alternative argument advanced by the Respondent and the outcome of this appeal does not turn on it.

For the above reasons the appeal must be dismissed, and the Appellants must pay the costs of the Respondent.

Dated at PORT VILA on 01 June 2006

BY THE COURT

Hon. J. Von Doussa J.
Hon. D. Fatiaki J.
Hon. O. A. Saksak J.
Hon. P. I. Treston J.