FML Resort Ltd v NBF Asset Management Bank [2011] FJHC 33; Civil Action 269.1999 (8 February 2011)

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FML RESORT LIMITED having its registered office at KPMG, 25 Victoria Parade, Suva.
1st Plaintiff

PAPAGENO RESORT (FIJI) LIMITED a limited liability company having its registered office at Suva.
3rd Defendant

Before: Master Anare Tuilevuka
Counsel: R. Patel Lawyers for the Plaintiff
Kohli & Singh for the Defendant

"Where a licensed financial institution is declared to be subject to controllership, no person shall –

"Notwithstanding subsection (1) of this section, an action or proceeding may be commenced or continued against a licensed financial institution for the purpose of determining whether any right or liability exists if the leave of the controller or the High Court is first obtained"

Re: Fiji Machinery Ltd & Ors v NBF Asset Management Bank & Ors Suva High court Civil Action No. 269/99

I refer to your letter dated 4 January 2008 ...... in which you seek leave for your client to continue with the above mentioned action.

We note that you are .... seeking leave of the Reserve Bank of Fiji to continue with this action pursuant to section 43(2) of the Banking Act 1995.

Please note that ..... any applicant for leave would need to show an arguable case and that there is a factual basis where the applicant may succeed.

We await receipt of your submission for leave. Kindly ensure that it contains full details as to all elements of your clients claim.

5. As a consequence of the above, I am advised by our solicitors that all pending litigation against the first Defendant became stayed.

6. I am advised by our solicitors that pending litigation could be continued either by leave of the Reserve Bank or by leave of the High Court.

7. I have tried in vain to get leave from the Reserve Bank but the Bank continues to ask for information and has raised issues which really ought to be properly ventilated in Court. Annexed and marked "B", "C", "D", "E", "F" and "G" are my explanation of correspondence to the Reserve Bank indicating my solicitors said request.

8. This case is about to be set down for trial and I verily believe that our claim raises triable issues.

*17.*	*The FML Group was then informed that their loan portfolio had been transferred to the 1st Defendant*
*18.*	On 15th May 1996 the FML Group's accountant Mr Gardiner Whiteside ["Whiteside"] wrote to the Minister of Finance with a proposal for repayment of the FML Group debt. The first Defendant's Chairman of the Board informed the FML Group to pay the sum of $1.1million in full settlement of the group debt. The 2nd plaintiff, on behalf of the FML Group then approached a number of lenders in order to refinance the total debt for 1.1million.
*19.*	The 2nd Plaintiff was unable to raise $1.1million but instead he put up a proposal for $800,000.00 through Fiji Development Bank. The FML Group intimated to the 1st Defendant that this was the best proposal in the circumstances. The 1st Defendant rejected this offer.
*20.*	*The 2nd Plaintiff, who was living on Malawai with his family and developing the Resort withdrew from the property when the 1st Defendant took over as mortgagee in possession on 2nd July 1997.*
*21.*	*In August 1997 the 1st Defendant advertised Malawai for sale under it's mortgage.*
*22.*	On 16th October 1997 the 2nd Plaintiff had a meeting with the then Minister for Finance James Ah Koy, Mr Robert Escudier [General Manager of the 1st Defendant] and Mr Lionel Yee [Chairman of the 1st Defendant's Board of Directors] in order to resolve the issue of refinance of the FML Group debt. The three aforementioned persons represented the 1st Defendant at the meeting. It was represented on behalf of the 1st Defendant by Mr James Michael Ah Koy at the meeting that: *[a.] the offer of $650,000 was the best offer in the circumstances; and* *[b.] the 2nd Plaintiff was organize his loan from FDB for $650,000 in order to proceed with the refinancing.*
*23.*	*The 2nd Plaintiff acted in reliance of the representations made at the meeting held on 16th October 1997 and Whiteside submitted all necessary information to FDB by 20th October 1997.*
*24.*	*The loan application was for an amount in excess of $500,000.00 so it had to go to the FDB Board of Directors for approval. The Board of Directors met once a month.*
*25.*	While FDB was processing the Plaintiffs loan application the 1st Defendant in breach of the representations made to the 2nd Plaintiff on 16th October 1997 and without any prior notice to the Plaintiffs approved an offer to sell Malawai on 19th November 1997 under its Mortgage to 3rd Defendant for $415,000.00 VIP. The offer was made on 27th November 1997 and accepted by the 3rd Defendants Solicitors on 28th November 1997.
	*FIRST CAUSE OF ACTION: BREACH OF SECTION 6 & 7 OF LAND SALES ACT CAP 137*
*26.*	*The sale to the 2nd Defendant was void and illegal in that contravened section 6 of the Land Sales Act Cap 137.* *PARTICULARS* *[a]. the 3rd Defendant was a company owned and controlled by non Fiji citizens.* *[b]. the 1st Defendant accepted the 3rd Defendant's Offer on 19th November 1997 and confirmed the same on 27th November 1997.* *[c]. the total land area exceed 1 acre.* [c]. no prior consent was obtained either by the 1st Defendant under section 7 of the Land Sales Act Cap 137 or by the 3rd Defendant under section 6 of the said Act at the same time the offer to purchase was accepted as at 19th November 1997 and confirmed the same on 27th November 1997. *[d]. the contract to purchase and to sell the land was made before prior consent was obtained from the Minister of Lands.*
*27.*	*The Plaintiffs seek a Declaration that the actions of the 1st and 3rd Defendants made the sale of the said lands to the 3rd Defendant illegal.*
	*SECOND CAUSE OF ACTION: MISREPRESENTATION*
*28.*	Further or in the alternative, the purported sale of Malawai was in done breach of the representations made to the 2nd Plaintiff by the 1st Defendant at the meeting held on 16th October 1997 whereby: *[a]. it was accepted and agreed by those present at the meeting that $650,000.00 was the best offer for the FML Group debt;* *[b]. the 2nd Plaintiff was to told to organize his loan with the FDB to facilitate the refinance.*
*29.*	The 1st Defendant sold Malawai without allowing the 2nd Plaintiff to finalise the FDB loan and the sale was affected without any prior notice or knowledge of the 1st and 2nd Plaintiff there by breaching the representations made at the meeting held on 16th October 1997.
*30.*	*AT the material time the 2nd Plaintiff was in a position to raise a loan of $650,000.00 and had at the time already secured funding of $300,000.00 from Colonial.*
*31.*	*Had the 2nd Plaintiff been informed by the 1st Defendant that there was a specific cut off period for him to secure the $650,000.00 he could have worked within the cut off period.*
*32.*	*As a consequence of this breach the 1st Plaintiff was unable to redeem Malawai and to develop its property as a Resort.*
*33.*	*The Plaintiff seeks general damages in the circumstances for the fact that:* *[a]. its lost Malawai* *[b]. The 2nd Plaintiff and his family lost their home and investment* *[c]. The 2nd Plaintiff and his family were unable to live and reside on the said property and develop the same as a Resort.*
	*Third cause of Action: Fraud*
*34.*	*FURTHER or in the alternative, the said purported sale of Malawai was fraudulent in the circumstances.* *PARTICULARS OF FRAUD* *[a]. the 1st Defendant knew at all material times that the 2nd Plaintiff was securing a loan of $650,000.00*
	*[b] the 2nd Plaintiff was directed by the 1st Defendant to get his loan and as such the 2nd Plaintiff relied on the representations made at the meeting held on 16th October 1997.* *[c] The 1st Defendant was estoped from accepting any offer tor Malawai without giving prior notice to the 2nd Plaintiff.* *[d[ The 1st Defendant acted dishonestly and in bad faith by purporting to sell Malawai without* *(I) Allowing the 1st and 2nd Plaintiff an opportunity to finalise the loan application with FDB* *[ii] Offering Malawai to an overseas buyer on 27th November 1997 without obtaining prior ministerial consent.* [e] By not informing the 2nd Plaintiff that it was going to accept the offer from the 3rd Defendant the 1st Defendant f failed to evaluate Whiteside's offer of $650,000.00 and failed to give the Plaintiff an opportunity to finalise their finance or apply for injunctions or other relief. *[f] The 1st Defendant failed to obtain any prior consent from the Minister of Lands under the Land Sales Act before accepting the offer from the 3rd Defendant on 27th November 1997* [g] The 1st Defendant failed to advertise Malawai for sale to indigenous buyers before selling the same since the purported purchaser was a foreign owned company and the land was over 1 acre in total.

[62] In considering an application for leave under the Act, it must be borne that:-

(a) The power to grant leave is restricted to an action or proceeding which has the purpose of determining whether a right or liability exists; Kraseman -v- DFC [1990] 3 NZLR 606 of 610 and see also S 43(2).

(b) Further the Act itself does not prescribe any criteria for the granting or otherwise of leave to commence or continue with an action or proceeding under S 43. However, a court in considering an application for leave must take in to account the general policy of the Act and that the right of a litigant to have his/her claim determined in a court of law. By virtue of s 43(1)(a) this latter right of a litigant is interfered with, "in a manner as being one which is at once dramatic and automatic"; Wilson -v- Auroro Group [1990] 1 NZLR 261.

(c) The onus is on the applicant to "establish a legal and factual foundation for the claim. In such a case, the Court is not only permitted to, but probably will be required "to review the evidence in order to ascertain whether there is a proper basis for the allegations" made; Batkin Holdings (supra).

(d) An application for leave to commence a proceeding against a financial institution under Controllership must be made by an Originating Summons; Re DFC New Zealand Ltd (in Stat man) [1996] 7 NZCLC 260953 at 260955 (per Barker J). On the other hand, where an action is already filed, leave nunc pro tunc to continue with the same is to be made by an ordinary interlocutory summons with supporting affidavit.

(e) Where the Controller vigorously opposes the grant of leave, s/he must comprehensively set out the reasons for it in an affidavit. Where a claim, to his/her mind is hopeless, it must accordingly be stated. However, when it becomes obvious that there is in extant a right or liability that needs to be resolved, the Controller must explain how s/he intends to deal with the matter without the need for an action or proceeding in court. Even if the matter is likely to be resolved during the course of the controllership, s/he must depose the same. Likewise, where a particular proceeding or action will or may become in impediment to the exercise of the statutory function, the onus is upon the Controller to disclose the same in detail. In doing so, the Controller in my view must pay regard to his/her statutory function, as well the resolution of meritorious issue pertaining to the subsisting rights or liabilities of a litigant.

[63] Since the Act gives the Controller and Court an unrestricted discretion, the statement of some criteria will provide valuable guide to the parties, Controller and Court in future. It will assist in maintaining consistency when considering such an application. In addition, the litigant or the Controller will be able to adduce relevant and cogent evidence in making or opposing an application. However, in the same vain I concur with the views of their Lordships in the cases cited above that:-

(a) the statutory discretion is unfettered and any criteria introduced by the court are not designed to fetter the discretion. It is for the purposes of maintaining consistency and offering some form of future guidance.

(b) the criteria do not necessarily apply uniformly to the facts of each and every case.

(c) by no means any statement or listing of criteria is intended to be exhaustive. However, some of the criteria will commonly apply in all cases.

[64] Having considered the authorities cited above, when taken together with the intent and purpose of our legislation, I propose to adopt the following criteria:-

(a) The strength of the applicant's case. It must be considered in light of the rights or liabilities which the proceeding or action is set to determine.

(b) The seriousness of the issue to be determined by an action or proceeding.

(c) Whether judicial determination of the issues in the action is necessary for the controllership and/or for the determination of the issue at large between the parties.

(e) Whether the issue is likely to be resolved in the ordinary course of controllership.

(f) Whether the applicant's right to have a claim determined by an impartial tribunal is likely to be defeated at the conclusion of the controllership, especially if the institution is to be wound-up.

(g) Whether the litigation may impede the prompt and efficient execution of the Controller's statutory duty. This must be considered in conjunction with para (c) above.

(h) Further, (which is relevant to the fact of this case but not considered by the Courts in New Zealand) is where there is a counterclaim, the court must pay heed to the statement of defence to the financial institution's claim. Where both the defence and counter-claim are so intertwined, leave merely becomes a formality. A cause of action in a counterclaim which is independent of the plaintiff's claim or the defence thereto, is to be treated in the same manner as a originating claim.

High Court of Fiji

FML Resort Ltd v NBF Asset Management Bank [2011] FJHC 33; Civil Action 269.1999 (8 February 2011)