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Magistrates Court of Fiji |
IN THE FIRST CLASS MAGISTRATES COURT AT NASINU
IN BANKRUPTCY
Bankruptcy Case No. 137/10
BETWEEN:
MOHAMMED MOBEEN ATIQ
[1st Judgment Debtor]
AND:
MOHAMMED ATIQ
[2nd Judgment Debtor]
FIJI DEVELOPMENT BANK
[Judgment Creditor]
1st Judgment Debtor is absent and unrepresented.
Mr. Sheik H. Shah for the 2nd Judgment Debtor
Mr. Mukesh Nand for the Judgment Creditor
Ruling on stay of bankruptcy petition
Background
1] The Judgment Creditor has filed bankruptcy notice against two judgment debtors on 11th August 2010. It was based on Nasinu civil case number 38 of 2009. In that case, default judgment granted against the defendants for sum of $34,062.34 together with interest at the rate of 11% per annum from 01-04-2009.
2] On the application Judgment creditor, as Judgment Debtor cannot be located, court allowed substituted service on 1st Judgment Debtor. It was published on 25th August 2010 on Fiji Sun news paper.
3] On Creditors petition; it was said;
4] On 17th November 2010 the Judgment Creditor filed affidavit verifying debt in respect of 2nd Judgment Debtor. Creditor’s notice served on 1st Judgment Debtor as substituted service which was published on 11th February 2011. Affidavit verifying debt is filed in respect of 1st Judgment Debtor on 30th June 2011.
5] The Judgment Creditor has mentioned to final judgment of Magistrate Court 38 of 2009 on 07th May 2009 has not been stayed. There seek receiving order.
6] On 27th June 2011, the 2nd Judgment Debtor filed Notice of motion and sought that creditors Petition filed in this case be set aside and Judgment Debtor be granted unconditional leave to defend this suit and default judgment entered against the Judgment debtors be stayed until final determination of this matter. This notice has been supported by affidavit of MOHAMMED MOBEEN ATIQ, 1st Judgment Debtor. But she was served by substituted service and unrepresented for this matter. Along with that affidavit, she attached A to D documents.
7] This application is made under sections 11, 97 and 105 of the Bankruptcy Act Cap 48. In that affidavit she admits that filing of statement of defence was delayed as she had to get relevant information of 2nd Judgment Debtor. The 1st Judgment Debtor trading as Grace General Plumbing and Builders has filed an action against Mohammed Kaiyum at Lautoka High Court Civil Action No. HBC 200 of 2010 for loss of damages arising from Mohammed Kaiyum’s unlawful actions. She said that although default judgment has already been entered in this case, she was complete disbelief. She said that this matter be stayed until the final determination of the matter. She further said that seized vehicle and items have been sold at very low price by the Judgment Creditor. The claim is still confusing and it does not agree with one another. To prove this “C” was marked it was calculated and issued on 15-09-2008, before default judgment was entered and has no value as bank says they claim interest on $24,000. She further says that the Judgment creditor ought to have exhausted all avenues to recover the debt from 1st Judgment Debtor but failed to do so. She said she has a valid defence. The draft defence was annexed as “D”.
8] It is to be noted that deponent of this affidavit is first judgment debtor. Second Judgment debtor has not filed any affidavit. But affidavit contains contrary averments such as paragraph 11.
9] For this affidavit, the Judgment Creditor has filed affidavit in reply by PAULA RAKAI. In that she said they gave ample time to file statement of defence, but Judgment Debtors failed. Then court granted judgment by default on 07-05-2010. They said that both Judgment deters were properly served. They further said the Lautoka High Court case is separate matter and separate loan has no relevance to this action. It was said that the judgment creditor has made every effort to canvass the market before item were sold and vehicle was not roadworthy and auction minutes was tendered as “P1”. As the loan funds have been exhausted the judgment debtors were not offered refinance by the bank (P2). They said that guarantee document has provisions whereby the credit provider can take action against the guarantor without first taking action against the debtor and even can enforce judgment against him when the credit provider has been unable to locate the debtor. The Judgment Creditor says the proposed defence is a sham and devoid any merits and Judgment Debtors are truly and justly indebted.
10] Issues are to be resolved here is;
Law
11] The judgment Debtors are seeking in terms of sections 11, 97 and 105 of the Bankruptcy Act Cap 48.
12] Section 11 of said Act deals with power to stay proceedings and it says;
“11.-(1) The court may, at any time after the presentation of a bankruptcy petition, stay any action, execution or other legal process against the property or person of the debtor, and any court in which proceedings are pending against a debtor may, on proof that a bankruptcy petition has been presented by or against the debtor, either stay the proceedings or allow them to continue on such terms as it may think just.
(2) Where the court makes an order staying any action or proceedings, or staying proceedings generally, the order may be served by sending a copy thereof, under the seal of the court, by post to the address for service of the plaintiff or other party prosecuting such proceeding.”
13] Section 97 of said Act discussed the general powers of the court under the Act. It says;
“97.-(1) Subject to the provisions of this Act, the court shall have full power to decide all questions of priorities, and all other questions whatsoever, whether of law or of fact, which may arise in any case of bankruptcy coming within its cognizance, or which the court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.
(2) Where default is made by a trustee, debtor or other person in obeying any order or direction given by the official receiver, the court may on the application of the official receiver order such defaulting trustee, debtor or person to comply with the order or directions so given; and the court may also, if it thinks fit upon any such application, make an immediate order for the committal of such defaulting trustee, debtor or person:
Provided that the power given by this subsection shall be deemed to be in addition to and not in substitution for any other right or remedy in respect of such default.”
14] Section 105 more precisely says about the stay of proceedings and it provides;
“The court may at any time, for sufficient reason, make an order staying the proceedings under a bankruptcy petition, either altogether or for a limited time, on such terms and subject to such conditions as the court may think just.”
15] Setting aside Bankruptcy Notice is a discretionary remedy. The Court may in its discretion set aside the Bankruptcy Notice, however in order to do so the Judgment Debtors must satisfy the Court in accordance to Section 3 (1) (g) of the Bankruptcy Act Cap 48 that “he has a counter-claim, set-off or cross-demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid, and which he could not set up in the action in which the judgment was obtained, or the proceedings in which the order was obtained”.
16] This is considered in the leading case of Hussein v Official Receiver [2010] FJHC 70; HBA0006j.2000s (26 May 2000) Her Ladyship Justice Shameem held that the Appellant’s Affidavit made in response to the Bankruptcy Notice was erroneous whereby it did not allege a counter-claim, a set-off or cross demand which exceeds the amount owed and hence the application for setting aside Bankruptcy Notice was dismissed.
17] The principles that guide a Court in the exercise of its unfretted discretion on an application such as the present is clearly set out in the following passages in FNPF v Shiri Datt [1988] 34 F.L.R. 67, 69 which was referred in the case of Fiji Development Bank v Isireli Cama [2001] FJHC 8; Hbc0260j.1999s (7 March 2001) and which reads as follows:
“the discretion is prescribed in wide terms limited only by justice of the case and although various ‘rules’ or ‘test’ have been formulated as prudent considerations in the determination of the justice of the case, none have been or can be elevated to the status of a rule of law or condition precedent to the exercise of the Courts unfettered discretion.
This judicially recognized ‘test’ may be conveniently listed as follows:
(a) Whether the Judgment Debtor has a substantial ground of Defence to the action;
(b) Whether the Judgment Debtor has a satisfactory explanation for his failure to enter an appearance to the Writ; and
(c) Whether the Plaintiff will suffer irreparable harm if the judgment is set aside”.
Determination
18] In line with the above law principles I now turn consider whether Judgment Debtors have meritorious defence? Meritorious defence to be considered is established in the leading case of Evans v Bartlam (1937) AC 473. Further to this a defence on the merits must be one with a reasonable chance of success: (Alphine Bulk Transport Co. Inch v Saudi Eagle Shipping Co. Inch (1986) and (Fiji Forest Industries Ltd v Timber Holdings Ltd & Ors (Suva HC CA No. 117/94s). The judgment debtors therefore must satisfy that they have meritorious defence.
19] In here the Judgment Debtors are denying liability of the debt of being owed to the Plaintiff, under paragraphs 6 of the draft Statement of Defence they say that the vehicle under the Bill of Sale dated 18th January 2007 and 2nd January 2007 was sold at a low price.
20] In their affidavit and submission the Plaintiff however submits that upon seizure of the said vehicle, the vehicle was inspected and the vehicle was seen to be in a poor condition and the estimated market value was held to be $2000.00. The vehicle was advertised three times in the dailies, however there was no offers made due to the dilapidated condition of the vehicle then the vehicle was placed on a private sale and the two officers were made of which the Plaintiff sold the vehicle to the highest offer. They further averred that the Bill of Sale dated 18th January 2007 and 2nd January 2007 refers following clauses:
Clause 6.0 which states that:
“if any event of default occurs, I am the (Mortgagor) in default under each agreement with FDB (the Plaintiff) and FDB may:
Clause 6.6 which provides that:
After FDB (the Plaintiff) is entitled to take enforcement proceedings, FDB shall have a complete discretion about selling the property in the following ways:
(a) sell it by public auction, private contract or tender
(b) sell it at any price and on any terms
Clause 6.8 which states that:
“if the proceeds from the sale of the property are not sufficient to repay the whole of the secured money, I (Mortgagor) shall remain liable to FDB for the balance. My liability continues even if the property has been released from this Bill of Sale and FDB may sure me to recover the amount outstanding.
21] In this case the Plaintiff says that it obtained a fair market value of the said vehicle. In respect of a Mortgagor being under a duty to obtain a fair market value when realizing property, the authority has been laid down in Linley J. J. in Farrar v Farrars Limted [1888] UKLawRpCh 209; (1888) 40 Ch D 395 where he said:
“That if in the exercise of his power the mortgagor acts bona fide and takes reasonable precautions to obtain a proper price the mortgagor has no redress even though more might have been obtained if the sale had been postponed”.
22] In English cases such as York Buildings Co v Mackenzie (1795) 3 Cr S & P 378, dictum of Kay J in Warner v Jacob (1882) 20 Ch D at 224, Farrar v Farrars Ltd [1888] UKLawRpCh 209; (1888) 40 Ch D 395, Kennedy v De Trafford [1895–9] All ER Rep 408, Hodson v Deans [1903] UKLawRpCh 121; [1903] 2 Ch 647 and dictum of Salmon LJ in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 2 All ER at 646 repeatedly applied;
“There was no inflexible rule that a mortgagee exercising his power of sale under a mortgage could not sell to a company in which he had an interest. However, the mortgagee and the company had to show that the sale was made in good faith and that the mortgagee had taken reasonable precautions to obtain the best price reasonably obtainable at the time, namely by taking expert advice as to the method of sale, the steps which ought reasonably to be taken to make the sale a success and the amount of the reserve. The mortgagee was not bound to postpone the sale in the hope of obtaining a better price or to adopt a piecemeal method of sale which could only be carried out over a substantial period or at some risk of loss, but sale by auction did not necessarily prove the validity of a transaction, since the price obtainable at an auction which produced only one bid might be less than the true market value”
23] As to what constitutes “reasonable precautions” Lindley L. J. put it in Kennedy v De Traffor [1897] UKLawRpAC 13; (1896) 1 Ch 762 thus:
“A mortgagor is not a trustee of a power of sale for the mortgagor at all his right is to look after himself first. But he is not at liberty to look after his own interest alone, and it is not a right or proper or legal for him either fraudulently or willfully or recklessly to sacrifice the property of the mortgagor”.
24] McHugh v Union Bank of Canada [1913] UKLawRpAC 7; [1913] AC 299, 311 Lord Justice Salmon articulated;
“It is well settled law that it is the duty of a mortgagee when realising the mortgaged property by sale to behave in conducting such realisation as a reasonable man would behave in the realisation of his own property, so that the mortgagor may receive credit for the fair value of the property sold”.
25] It is seen that Bank has published Auction notice in public news paper on 07th March 2009 and 14th March 2009 respectively. The vehicle was sold “as is where is” basis. The court notes that seizer’s report which was attached to P1 in the affidavit in reply. When this vehicle was seized he (Viliame Dautucawa), in that P1 said, “Today Friday (19-09-2008), I hired a tow truck from Rajen Towing Service and towed the KIJANG TOYOTA DK 544 from Narere to Wailekutu”. In 1st Judgment Debtor’s Affidavit says it was in running condition (Para 8). This report was made prior to this Bank Petition and there was no reason to concoct a story by the seizer. It is therefore seen that 1st Judgment Debtor’s affidavit contains false statements. In contrary, bank has behaved in conduction such realization as a reasonable man would behave in the realization of his own property.
26] I am of the view that the Bank (Judgment Creditor) took all reasonable care to sell at the proper market value at the time for it had called for public tenders and advertised the vehicle to obtain the best price. Further bank has taken that all reasonable care was taken and that it exercised its powers in good faith.
27] In paragraph 11 of the 1st Judgment Debtor’s Affidavit where the 1st Judgment Debtor states that the Judgment Creditor should have exhausted all avenues to recover the judgment debt from the 1st Judgment Debtor first. In plaintiff’s submissions says that the 2nd named Judgment Debtor signed the guarantor document before a qualified and authorized witnessing officer. This is not disputed by the 2nd Judgment Debtor. The relationship with 1st Judgment Debtor and 2nd Judgment debtor has not disclosed to this court and it is unknown. But 2nd Judgment debtor admits that he is the guarantor of 1st Judgment Debtor.
28] In Lep Air Services v. Rolloswin Ltd. [1973] AC 331, at pp. 346 – 349, Lord Diplock specifically discussed the guarantor’s liability on the failure to perform or breach of contract as follows;
“The legal consequence of this is that whenever the debtor has failed voluntarily to perform an obligation which is the subject of the guarantee, the creditor can recover from the guarantor as damages for breach of his contract of guarantee whatever sum the creditor could have recovered from the debtor himself as a consequence of the failure. The debtor’s liability to the creditor is also the measure of the guarantor’s.”
29] The 2nd Judgment Debtor has signed as a guarantor and he cannot go back and dispute his principal’s liability. As Kermode J noted in FDB v. Navitalai Raqona [1977] FamCA 81; (1984) 30 FLR 151 (at p.153):
"... The general rule is that a party of full age and understanding is normally bound by his signature to a document whether he reads or understands it or not."
30] In the case of Council of the Fiji Institute of Technology v Anania Cara and Jone Tawaketini and Aminiasi Tabuakula Civil Appeal No. HBC 0258R of 2002S Fiji High Court held that the 2nd and 3rd named Judgment Debtor affidavits does not disclose sufficient facts to show that they have defence on the merit. His Lordship Justice Jitoko noted that:
"The second and third Judgment Debtor 'affidavits', in the Court's view, do not disclose sufficient facts to show that they have defence on the merit. They knew, when they signed as Guarantors, the legal implication of their action. It could very well be that as it often the case in similar situations, the acceptance to guarantee is derived from motive of friendship for the principle debtor. In such a case, the question of anticipatory breach of the contract giving rise to the liability of the guarantor depends very much on the goodwill of the principal creditor. In this instance the principal debtor has decided to not adhere to the terms of his Bond to the detriment, unfortunately, of his guarantors, the second and third Judgment Debtor even worse, the former has not only breached his contract, he has decamped and gone to reside abroad, leaving the Guarantors to the mercy of the Creditor. The Guarantors have to face up their obligation under the guarantee. They pay damages to the Plaintiff".
31] The Judgment Debtors have mentioned pending case in Lautoka High Court. The Copy of that Writ is attached in their supporting affidavit. But I cannot see any nexuses between this case and that case. Parties are different and though there may be a claim for the Judgment Debtor for that case, court cannot stay this proceeding until the adjudication of Civil Case 455 of 2007 Lautoka High Court Case. I therefore hold that there is no meritorious defence in this case and that the Judgment Debtors are only trying to evade payment of monies which was lent to the Judgment Debtors. It is seem to me that Judgment Debtors are delaying tactics.
32] In Wearsmart Textiles Ltd v General Machinery Hire Ltd (1998) FJCA 25 his Lordship Sir Moti Tikaram held that there has to be a satisfactory explanation for the delay in filing the defence or making appearance.
"On the application to set aside a default judgment consideration is whether the Judgment Debtor has disclosed a defence on the merits and this transcends any reasons given by him for the delay in making the application even if the application given by him is false. The fact that he has told lies in seeking to explain the delay, however, may affect his credibility, and may therefore be relevant to the credibility of his defence and the way in which the Court should exercise its discretion."
33] The Judgment Debtor claims in his Affidavit that at the time of filing of the defence they were informed by the Registry that the matter was coming up for hearing on 23rd August 2010 where they could explain then the delay in filing the defence. And that on 23rd August 2010 the Judgment Debtor was notified judgment was entered against them on 7th May 2010. The Plaintiff submits that the Judgment Debtor has been granted by the Court to file defence from the first call date, 9th June 2009 and the Judgment Debtor continuously had the matter adjourned as they required time to file Defence which they failed to do so. The Plaintiff submits that the Judgment Debtor has not given any reason as to why there was no appearance on their part on 19th March 2010 nor have they given any reasons as to why they did not comply with the Order of the Court. It is noted that the Judgment Debtor were aware that judgment was entered against them however they failed to act accordingly in setting aside the judgment before it could be enforced. Furthermore the Judgment Debtor failed then to contest the Bankruptcy Notice and waited in the last minute, when receiving order is about to be granted, they made this application. The Judgment Debtors have not given any reasons on the delay of the application apart from the fact that the Judgment Debtors are still confused of the sum claimed by the Plaintiff. This is not acceptable version. As legal maxim says Lex Vigilantibus, non dormientibus, subvenit- Law assist only the wakeful, not the sleeping. The Judgment debtors have slept over their right until last minutes. I therefore hold that the Judgment Debtors have failed to establish a satisfactory explanation as to the non-appearance and the delay to file Defence.
34] The Plaintiff says that it will be prejudiced to them if the Bankruptcy/Judgment obtained is set aside for the reason being that the Plaintiff appeared on the hearing date and had the matter formally proved. If the judgment is set aside the Plaintiff's business will suffer loss as the monies lent out in good faith will continue to remain unpaid. They further say that the Judgment Debtors excuse for non appearance, delay and lack of knowledge are neither with merits or credibility. Therefore the Plaintiff submits that the application to set aside default judgment be dismissed with costs.
35] It is to be noted that unpaid debts are burden to the bank and its lawful business. In all in all, Banks are companies and companies generate the wealth and economy of the country. Therefore the court should stay proceedings for good reasons. In this instant application, I cannot see good reason for stay of proceedings of this case. 2nd Judgment Debtor's Notice of motion must be dismissed in the light of forgoing reasons.
36] I make following orders;
a) The 2nd Judgment Debtor's Notice of motion which was filed on 27th June 2011, is hereby dismissed
b) Receiving Orders are granted against the 1st and 2nd Judgment debtors.
c) There will be no cost in this application.
Orders accordingly,
On 12th October 2011, at Nasinu, Fiji Islands
Sumudu Premachandra
Resident Magistrate-Nasinu
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URL: http://www.paclii.org/fj/cases/FJMC/2011/109.html