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Fiji Development Bank v Komaisavi [2010] FJHC 113; HBC019.2010L (9 April 2010)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Civil Action No: HBC 19 of 2010L

BETWEEN:

FIJI DEVELOPMENT BANK
Plaintiff

AND:

RATU TEVITA RAIVALITA KOMAISAVI aka TEVITA KOMAISAVAI
Defendant

FINAL JUDGMENT

Judgment of: Inoke J.

Counsel Appearing: Mr. A. Patel on instructions of Lajendra Law for the Plaintiff
No Appearance for the Defendant after call

Solicitors: M/s Lajendra Law for the Plaintiff
No Representation

Date of Hearing: Judgment on Notice
Date of Judgment: 9 April 2010

INTRODUCTION

[1] This is an application by Originating Summons by the Plaintiff, (hereinafter "FDB" or the "bank"), as mortgagee, against its customer, the Defendant, for vacant possession of the Defendant’s property which was mortgaged to the bank as security for a loan.

CASE HISTORY

[2] The Originating Summons and the affidavit in support were filed on 9 February 2010. The Summons returnable on 25 March 2010.

[3] According to the affidavit of service that was filed, the Summons and the affidavit in support were served on the Defendant on 22 February 2010.

[4] For some unknown reason, the matter was called on 23 March 2010, two days earlier than noted on the Summons, and not surprisingly the Defendant did not appear. Counsel then appearing for the FDB asked for order in terms of the summons. I thought the application still had to be heard so I adjourned the matter to 25 March for hearing.

[5] On 25 March 2010, no one appeared other than the clerk for the solicitors for the FDB who instructed other Counsel to appear out of courtesy to the Court on behalf of the bank. Counsel handed up written submissions from FDB’s solicitors but as Counsel was not properly instructed to make oral submissions, I informed him that I would deliver judgment on notice. This is that judgment.

THE APPLICATION

[6] The Originating Summons seeks the following orders:

1. Delivery by the Defendant and/or his servants and/or agents to the Plaintiff of vacant possession of ALL THAT property comprised and described in Native Lease No. 25336 being Lot 91 aka Lot 17 on S.O. 1436 in the Island of Ba and District of Vitogo, having an area of 462sqm situated at Lot 9 Kaunitoni Street, Waiyavi Subdivision, Stage 4, Lautoka together with the improvements thereon.

2. An injunction restraining the Defendant and/or his servants and/or agents from interfering with the improvements on the said property in any way so as to deplete its value.

3. Such further or other relief as seems just and equitable to this Honourable Court.

4. Costs of this action.

[7] The application is pursuant to the Mortgagee Actions provisions of the High Court Rules 1988, Order 88.

[8] It is supported by the affidavit of FDB’s senior tender officer. The officer annexed to his affidavit certified copies of the Native Lease and the registered Mortgage. The affidavit also provided the amount of the advance, the monthly repayment and the repayment arrears and the total amount outstanding as at 6 May 2009. A demand for the arrears was served on the Defendant on 6 May 2009 and no response having been received by the Plaintiff, a further demand for the total amount outstanding was served on 27 July 2009. Again the Defendant did not respond so the Plaintiff advertised the mortgaged property for mortgagee sale but did not receive any tenders. The officer also says that he believes the Defendant may "remove and/or damage attachments which form part of the improvements to the said property thereby causing serious economic waste and severely depleting the value of the Bank’s Mortgage security".

THE LAW

[9] Order 88, r. 1 provides:

(1) This Order applies to any action (whether begun by writ or originating summons) by a mortgagee or by any other person having the right to foreclose or redeem any mortgage, being an action in which there is a claim for any of the following reliefs, namely –

(a)

.

.

(d) delivery of possession (whether before or after foreclosure or without foreclosure) to the mortgagee by the mortgagor or by any other person who is or is alleged to be in possession of the property.

(2) In this Order, "mortgage" includes a legal and an equitable mortgage and a legal and an equitable charge, and references to a mortgagor, a mortgagee and mortgaged property shall be construed accordingly.

(3) An action to which this Order applies is referred to in this Order as a mortgage action.

(4) These Rules apply to mortgage actions subject to the following provisions of this Order.

10. Order 88, r. 2 provides:

(1) Where in a mortgage action begun by originating summons, being an action in which the plaintiff is the mortgagee and claims delivery of possession or the payment of moneys secured by the mortgage or both, any defendant fails to acknowledge service of the originating summons, the following provisions of this rule shall apply, and any references in those provisions to the defendant shall be construed as references to any such defendant.

This rule shall not be taken as affecting Order 28, rule 4, in so far as it requires any document to be served on, or notice given to, a defendant who has acknowledged service of the originating summons in the action.

(2) Not less than 4 clear days before the day fixed for the first hearing of the originating summons the plaintiff must serve on the defendant a copy of the notice of appointment for the hearing and a copy of the affidavit in support of the summons.

(3) Where the plaintiff claims delivery of possession there must be indorsed on the outside fold of the copy of the affidavit serviced (sic) on the defendant a notice informing the defendant that the plaintiff intends at the hearing to apply for an order to the defendant to deliver up to the plaintiff possession of the mortgaged property and for such other relief (if any) claimed by the originating summons as the plaintiff intends to apply for at the hearing.

(4) Where the hearing is adjourned, then, subject to any directions given by the Court, the plaintiff must serve notice of the appointment for the adjourned hearing, together with a copy of any further affidavit intended to be used at that hearing, on the defendant not less than 2 clear days before the day fixed for the hearing.

A copy of any affidavit served under this paragraph must be indorsed in accordance with paragraph (3).

(5) Service under paragraph (2) or (4), and the manner in which it was effected, may be proved by a certificate signed by the plaintiff, if he sues in person, and otherwise by his barrister and solicitor. The certificate may be indorsed on the affidavit in support of the summons, or as the case may be, on any further affidavit intended to be used at an adjourned hearing.

[11] Order 88, r. 3 provides:

(1) The affidavit in support of the originating summons by which an action to which this rule applies is begun must comply with the following provisions of this rule.

This rule applies to a mortgage action begun by originating summons in which the plaintiff is the mortgagee and claims delivery of possession or payment of moneys secured by the mortgage or both.

(2) The affidavit must exhibit a true copy of the mortgage and the original mortgage ... must be produced at the hearing of the summons.

(3) Where the plaintiff claims deliver of possession the affidavit must show the circumstances under which the right to possession arises and, except where the Court in any case or class otherwise directs, the state of the account between the mortgagor and mortgagee with particulars of –

(a) the amount of the advance,

(b) the amount of the periodic payments required to be made,

(c) the amount of any interest or instalments in arrear at the date of issue of the originating summons and at the date of the affidavit, and

(d) the amount remaining due under the mortgage.

(4) Where the plaintiff claims delivery of possession, the affidavit must give particulars of every person who to the best of the plaintiffs knowledge is in possession of the mortgaged property.

[12] I interpret the phrase "the right to foreclose" in O 88, r 1(1) as applying to both a "mortgagee" and "any other person". I think this is evident from the use of the phrase "mortgagee claiming possession" in the other provisions of O. 88, for example, in r. (2)(1). If I am correct then a mortgagee cannot apply under this Order unless it has acquired "the right to foreclose". When does the mortgagee acquire that right?

[13] The right to foreclose is the right to be registered as the proprietor of the mortgaged property, subject to prior encumbrances. The mortgagee becomes so registered by application pursuant to Section 73 of the Land Transfer Act [Cap 13]. For completeness I set out the provisions dealing with foreclosure under the Act:

Application for foreclosure, how and when made

73.-(1) Whenever default has been made in payment of the mortgage money and such default continues for six months after the time for payment specified in the mortgage, the mortgagee may make application in writing to the Registrar for an order for foreclosure.

(2) The application referred to in subsection (1) shall state-

(a) that default has been made and has been continued for a period of not less that six months;

(b) that the land, or estate or interest therein, the subject of the mortgage has been offered for sale at public auction in compliance with the provisions of section 79 of the Property Law Act, by an auctioneer licensed under the provisions of the Business Licensing Act;

(Cap. 130. Cap. 204)

(c) that amount of the highest bid at the sale referred to in paragraph (b) was insufficient to satisfy the mortgage money together with the expenses of such sale;

(d) that notice in writing of the intention of the mortgagee to make application for foreclosure has been served on the mortgagor, and on every other person appearing by the register to have any right, estate or interest in the mortgaged land, or estate or interest therein, subsequent to the mortgage, by-

(i) being delivered to him personally; or

(ii) in the case of the mortgagor, by being left on the mortgaged land; or

(iii) being sent by registered post addressed to him at the address for service appearing in the register.

(3) Any application for foreclosure made under the provisions of this section shall be accompanied by a certificate of the auctioneer by whom the land, or estate or interest therein, was put up for sale, and by such other proof as the Registrar may require testifying to the correctness of the statements made in the application and such application shall be effected by a qualified witness.

Application to be advertised and Registrar to make order and register the mortgagee as proprietor

74. Upon an application being made in pursuance of the provisions of section 73 the Registrar may cause notice of such application to be published once in the Gazette and once in each of three successive weeks in at least one newspaper published and circulating in Fiji offering such land, or estate or interest therein, for private sale, which sale if effected the mortgagee shall be bound to complete failing which his application shall be deemed to be withdrawn, and shall appoint a time not less than one month from the date of the first of such advertisements upon or after which the Registrar shall issue to such applicant an order for foreclosure unless in the interval a sufficient sum has been obtained by the sale of such land, or estate or interest therein, to satisfy the principal and interest moneys secured and all expenses occasioned by such sale and proceedings, and every such order for foreclosure under the hand of the Registrar, when entered in the register, shall have the effect of vesting in the mortgagee the land, or estate or interest therein, mentioned in such order free from all right or equity of redemption on the part of the mortgagor or of any person claiming through or under him subsequently to the mortgage, and such mortgagee shall upon such entry being made be deemed a transferee of the mortgaged land, or estate or interest therein, and become the proprietor thereof and shall be entitled to be registered as proprietor of the same.

Foreclosure to be in full satisfaction of mortgage money

75.-(1) On the registration of the mortgagee as proprietor of any land, or estate or interest therein, under the provisions of section 74, the mortgagee shall be deemed to have taken such land, or estate or interest, in full satisfaction of the mortgage money, and his right or equity to bring any action or take other proceedings for the recovery of the mortgage money from the debtor, surety or other person shall be extinguished, and the right or equity of the mortgagor to redeem such land, or estate or interest, shall be extinguished.

(2) Nothing contained in this section shall be deemed to disentitle a mortgagee from obtaining foreclosure of any other property over which he holds security by way of mortgage for the same money or part thereof or to enforce all or any rights, powers and remedies expressed or implied in such mortgage, except the right to sue the mortgagor or any surety for the mortgagor either for the mortgage money or on any bill or note given as security for the mortgage money, as if this section had not been enacted.

[14] Section 79 of the Property Law Act [Cap 130] provides:

79. -(1) If default in payment of the mortgage money or in the performance or observance of any covenant continues for one month after the service of the notice referred to in section 77, the mortgagee may sell or concur with any other person in selling the mortgaged property, or any part thereof, either subject to prior leases, mortgages and encumbrances or otherwise, and either together or in lots, by public auction or by private contract, or partly by the one and partly by the other of those methods of sale, and subject to such condition as to title or evidence of title, time or method of payment of the purchase money or otherwise as the mortgagee thinks fit, with power to vary any contract for sale and to buy in at any auction or to vary or rescind any contract for sale and to resell without being answerable for any loss occasioned thereby, with power to make such roads, streets and passages and grant such easements of right of way or drainage over the same as the circumstances of the case require and the mortgagee thinks fit, and may make and sign such transfers and do such acts and things as are necessary for effectuating any such sale.

(2) No purchaser shall be bound to see or inquire whether default has been made or has happened, or has continued, or whether notice has been served, or otherwise into the propriety or regularity of any such sale.

(3) Where a transfer is made in purported exercise of the power of sale conferred by this Act, the title of the transferee shall not be impeachable on the ground that no cause had arisen to authorize the sale or that due notice was not given or that the power was otherwise improperly or irregularly exercised, but any person damnified by any unauthorised or improper or irregular exercise of the power shall have his remedy in damages against the person exercising the power.

[15] It seems to me that the right to foreclose arises only after the requirements of s 73 of the Land Transfer Act have been met, namely:

(a) Default has been made in payment of the mortgage money;

(b) It has continued for not less than 6 months;

(c) The land has been offered for sale at public auction in compliance with the provisions of s 79 of the Property Law Act;

(d) The amount of the highest bid at the sale was insufficient to satisfy the mortgage money together with the expenses of such sale;

(e) The mortgagee provides a certificate of the auctioneer by whom the land, or estate or interest therein, was put up for sale.

The Mortgage Provisions

[16] The Mortgage states that the total advanced to the Defendant was $26,952 on a "loan agreement" as defined in the Definitions and Interpretations in the General Conditions. The term "loan agreement" is defined as "any loan agreement, letter of offer or contract now or in the future providing for the provision of credit by FDB to the Defendant". The term "secured money" means all amounts that are or may become due owing or payable to FDB under a loan agreement.

[17] Under clause 4.2(a) of the Mortgage, the mortgagor promised to pay FDB the secured money and interest "at the times, place and in the manner required under any related agreement." Under Clause 6.1, if the mortgagor does not pay the whole or any part of the secured money when it is due, an "event of default" occurs. Several consequences follow when that happens: FDB may require the Defendant to immediately pay the secured money (cl. 6.2(a)); take or give up possession (as often as FDB may think necessary) of the property (cl. 6.2(b)); deal with the property as if FDB owns it to the extent permitted by law (such as selling it in any way and to any person as FDB thinks fit) (cl. 6.2(d)); and, exercise all other rights, powers and remedies that a mortgagee or owner has at law in relation to the property (cl. 6.2(f)). If FDB is entitled to take enforcement proceedings, it has complete discretion whether to sell the mortgaged property by public auction, private contract or tender (cl. 6.5(b)) or "to apply to change the title documents" (cl. 6.6(j)). Further, these provisions apply to an enlarge FDB’s power of sale under the Property Law Act. The period fixed for the default period under s 77 of the Act is one day.

[18] However, before FDB can exercise its rights under the various provisions of clause 6 of the Mortgage, it must give all relevant notices required under the law, the relevant period has elapsed, the money remains unpaid, and it has complied with all the requirements under the Consumer Credit laws and any other law that may be in force at that time (cl. 6(5)).

CONSIDERATION OF THE APPLICATION

[19] The affidavit states that the agreed advance was $23,391 on 7 July 2006, the monthly installment was $225, the repayment arrears were $674 as at May 2009 and the total then outstanding was $30,394.55. The letter of demand sent by FDB to the Defendant on 6 May 2009 stated those amounts were due as at 30 April 2009 and the repayment was $284 per month instead. The bank gave the Defendant 14 days to clear the arrears or make satisfactory arrangements otherwise it was left with little option by to proceed with recovery action. Having received no response from the Defendant, FDB sent a demand dated 15 July 2009 for the Defendant to pay the full amount owing to the bank as at 30 June 2009 and interest. The demand stated that if the Defendant did not pay within 30 days from the day he receives the notice, the "powers of sale and all other rights, powers and remedies conferred on the (FDB) will thereupon be exercisable without further notice." The demand notice was served on the Defendant on 27 July 2009 according to the affidavit of service that was filed.

[20] If I were to accept that the money was rightly due under the Mortgage on 28 August 2009 (30 days after receiving the demand notice), and hence default has occurred, then the 6 months period required under s 73 of the Land Transfer Act has now expired.

[21] However, the difficulty that I have is that no where in the documentation before me is it stated that the monthly repayments were due on a particular date and time. It is not possible for me to determine when a monthly repayment is due, and hence when an "event of default" has occurred to trigger off the bank’s right to demand the whole of the secured money then due. Further, even putting aside consideration of the Consumer Credit laws, it is not possible for me to decide whether the bank has complied with its other obligations under clause 6.5 of the Mortgage as a pre-condition to the exercise of its rights. Thus, in my judgment, the FDB has not met the first and second requirements of s 73 according to law, namely, that it has failed to prove that default has occurred and such default has continued for 6 months.

The Other Statutory Requirements

[22] It is also quite clear that the other requirements of s 73 of the Land Transfer Act have not been fully complied with. In particular, the requirement to sell by public auction. The purported sale in this case was by advertisement in the newspapers for tenders. The requirement in s 73(2)(b) that there be sale by public auction are quite specific and mandatory in my view. It is true that the FDB has the power under its Mortgage to sell as it pleases, but that must be subject to the Act that creates the right to foreclose and cannot override it.

[23] In addition, the affidavits do not comply with the requirements of O. 88, for example, there was no indorsement on the affidavit of the date of hearing and the original mortgage was not produced at the hearing. There were other irregularities such as no Acknowledgment of Service being filed or served on the Defendant. I do not think these are mere irregularities or failures to comply with the rules which this Court can and should ignore. The right to foreclose is a statutory right and the eviction of a mortgagor is a serious matter which the Court should be vigilant to ensure that the mortgagee complies strictly with what is required by the statute and the HCR.

[24] The end result is therefore the order for vacant possession is refused. Similarly, there is no basis for an injunction restraining the Defendant so that order is also refused.

COSTS

[25] I make no order as to costs as the Defendant has not appeared at any stage of the proceedings.

ORDERS

[26] The Orders are therefore as follows:

1. The Plaintiffs application by Originating Summons filed on 9 February 2010 is dismissed.

2. There is no order as to costs.

Sosefo Inoke
Judge