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Korovulavula v Fiji Development Bank [1997] FJHC 197; Hbc0006D.96s (15 January 1997)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. 006 OF 1996

BETWEEN:

1. MANUNIVAVALAGI DALITUICAMA KOROVULAVULA
2. JEKKIS LIMITED
Plaintiffs

AND:

FIJI DEVELOPMENT BANK
Defendant

Mr. G.P. Shankar for the Plaintiffs
Mr. V. Kapadia for the Defendant

DECISION

This is a motion dated 13 March 1996 by the FIJI DEVELOPMENT BANK (hereafter referred to as the " FDB ") seeking an order that the ex parte injunction order made by this Court on 2 January 1996 and extended on 25 January 1996 be dissolved.

Background

The background to the case is that the Plaintiffs had filed a Writ of Summons on 2 of January 1996 together with an ex-parte motion seeking an injunction restraining the Defendant from seizing all the chattels of the Plaintiffs secured by a Debenture dated 28 December 1990, Bill of Sale dated 5 August 1987 and Mortgage No. 295078 dated 28th December 1990 or under any other securities held by the Defendant. There is an Affidavit of the first plaintiff also filed on the same day in support of the application for ex parte injunction.

Mr. Kapadia says that because of a "mix-up" in his diary he failed to appear on the return date and the ex parte order was extended in his absence until further order. The  FDB  had filed a Statement of Defence on 1 February 1996.

The Principal alleged cause of action by the Plaintiffs against the Defendant appear to be contained in paragraph 19 of the Amended Statement of Claim where they state that the Defendant had failed and/or neglected to safeguard and or advise the Plaintiffs against loss of income by "insuring such probability or remoteness" and as a result of such failure or negligence and dereliction of duty on the part of the Defendant the Plaintiffs have suffered consequent loss of income. This allegation is repeated in somewhat different form in paragraphs 21 & 22 of the Amended Statement of Claim which read as follows:

"That the Defendant was empowered by law to exercise certain functions and to insure the Second Plaintiff for possible consequential loss of income and thereby safeguarding its own loan which the Defendant failed and/or neglected to insure knowing well of the consequences for such failure or it ought to have known in its ordinary course of business that in the event of any adverse effect as a result of the cancellation or termination of the rice import licence or any reduction in the income from the bakery business, upon which the Plaintiffs largely relied to repay the debt, the Plaintiffs would suffer total loss and unable to repay the debt due and owing to the Defendant;

The Plaintiffs claim that the Defendant has been negligent in performing its statutory duty towards the Plaintiffs, its client, and therefore caused total loss to the Plaintiffs."

Defendant’s Submission

The defendant denies that there was any duty on its part to insure against any loss of income or any other loss as alleged by the Plaintiffs and further it denies that it was negligent in any manner in respect of the loans granted to the Plaintiffs.

The  FDB  further contends that no cause of action against it has been made out by the Plaintiffs and they have failed to disclose material evidence such as the number of loans made by the  FDB  to the second Plaintiff and that the loan for rice importation was only $24,000 made on or about 31 May 1988. The whole basis of the Plaintiffs' claim is based on the fact as set out by them is because of the cancellation or stopping of the issuance of rice import licences exclusively to Fijians, the second Plaintiff was unable to service the loans made by  FDB .

The  FDB  further states that the rice processing business was a very small part of the overall business of the second Plaintiff. It says that the First Plaintiff may have a grievance against the Ministry of Trade and Commerce for discontinuing the exclusive rice importation licence policy for indigenous Fijians in 1992. The  FDB  says that it was dealing with an experienced indigenous Fijian in this instance; and the second Plaintiff had sound advice from G. Lal & Company, chartered accountants.

The  FDB  says that it is under no obligation to give business advice to the Plaintiffs for loans. It says that:

It is certainly very far-fetched to claim that the Defendant was acting in conjunction with the Ministry for Trade and Commerce in this instance as far as rice importation licence is concerned. It is also very far-fetched to claim that the Defendant should insure against business losses as that is clearly not an insurable contingency in so far as Banks are concerned.

It is further submitted by  FDB  that the Plaintiffs had failed to disclose in their affidavits that they had taken out seven separate loans from the  FDB  for their various businesses. The second Plaintiff has been in continued arrears since 1993 and this is admitted by the first Plaintiff. Although the second Plaintiff varied an agreement by offering to pay 50% of the total debt balance, the  FDB  made it very clear that should the second Plaintiff fail to pay 50% of the debt on 31 October 1995 then the Bank would be obliged to take further recovery action on the amount. The  FDB  submits that no issue of estoppel can arise under the circumstances as the documents are very clear and incontrovertible; and that there is no valid agreement of any kind to pay the mortgage debt by monthly instalment. The F.D.B. says that the submission by the Plaintiffs in this regard is "plainly a red herring".

The  FDB  denies that it owes a duty of care to the second plaintiff as an indigenous business.

It denies that there are difficult questions of law calling for detailed argument and mature consideration. There are no disputed questions of fact.

It says that the change in Government policy relating to the importation licence has nothing to do with  FDB .

The  FDB  further submits that:

The first plaintiff being an experienced businessman, politician, civil servant and a member of Parliament was in a better position to foresee what Government policies are. We submit that no cause of action can arise against the Defendant in respect of such allegations and the Defendant will be making an Application in due course to dismiss the Writ on the grounds that there is no cause of action against the Defendant. In any event even if there were a breach of Statutory Duty (which is denied) the Plaintiffs would be adequately compensated in damages. See page 9 of Neumi Naqura vs NLTB Civil Action No. 375 of 1991.

Plaintiff’s submission

Mr. Shankar submits a number of matters for Court's consideration. He says, inter alia, that Court should take a serious view of  FDB 's non-appearance on the return date when an order extending the injunction was made. He says that there are serious issues to be tried; that there has been a valid agreement to pay the mortgage debt by monthly instalment and it is a serious matter for investigation by the court; that in the light of the agreement the  FDB  is estopped from "making attempt to wriggle out of it and to exercise its powers and this raises serious question for trial". Mr. Shankar says that the "defendant has effectively entered into a compromise with the Plaintiff and thereby it is estopped from exercising its powers, it waived strict compliance with mortgage for as long as the Plaintiff honours its part to pay instalments and it elected not to exercise its powers."

Consideration of the application to dissolve injunction

I have very carefully read all the affidavits filed in this matter and also the pleadings filed so far including the Amended Statement of Claim and the Statement of Defence. I have also considered the very lengthy submissions filed by both counsel. They were well-prepared and exhaustive. I have already outlined above both sides of the story and in the light of that let me now consider the issue before me.

One of the main allegations by the Plaintiffs is as contained in paragraph 18 of the Amended Statement of Claim, namely:

"The Defendant relying on the Ministry of Trade and Commerce's policy of indigenous Fijian participation in trade and commerce advanced substantial loan to the Second Plaintiff and the subsequent stoppage of the rice import licence has caused great loss to the Second Plaintiff and has defeated the Ministry of Trade and Commerce’s policy of successful Fijian entrepreneurship."

Among other things, the defendants in reply to the said paragraph 18 stated in paragraph 18 of the Statement of Defence thus:

In reply to the contents of paragraph 18 of the Amended Statement of Claim, the Defendant says that the Second Plaintiff's loan application was processed and approved based on the Defendant's lending guidelines and not upon reliance on the Ministry of Trade & Commerce's policy and further says that the amount lent and advanced to the Second Plaintiff for rice importation was $24,000.00. The Defendant had advanced further sum of $287,685.00 for the Second Plaintiff's bread business and for the purposes of acquiring a commercial building.

On the affidavit evidence before me I find, for the purposes of this application, that the  FDB  is well within its powers to apply as it has done to have the said order for interlocutory injunction dissolved as stated in the headnote to LONDON CITY AGENCY (JCD) LTD. AND ANOTHER v LEE AND OTHERS (1969) 3 AER 1376 (although the present application is inter partes):

"Just as a court will grant an interlocutory injunction on an ex parte application if a case of sufficient cogency is made, so also will the court on an ex parte application made on sufficiently cogent grounds discharge or vary an injunction granted ex parte."

In this case, on the material before me, the questions that loom large in my mind is whether in actual fact the interim injunction ought to continue or not on the facts in the exercise of court's discretion or whether the Plaintiffs should be left to their remedy in damages.

The principles to be followed in considering the granting of injunctive relief are set out in the leading case of AMERICAN CYANAMID CO. v ETHICON LTD (1975) A.C. 396. The House of Lords there decided that in all cases, the Court must determine the matter on a balance of convenience, there being no rule that an applicant must establish a prima facie case. The extent of the court's duty in considering an interlocutory injunction is to be satisfied that the claim is "not frivolous or vexatious", in other words, "that there is a serious question to be tried".

In CYANAMID (supra) at page 406 LORD DIPLOCK stated the object of the interlocutory injunction thus:

".... to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial. The court must weigh one need against another and determine where "the balance of convenience" lies".
(emphasis mine)

A similar view was expressed by McCARTHY P in NORTHERN DRIVERS UNION v KUWAU ISLAND FERRIES (1974) 2 NZLR 61 when he said:

"The purpose of an interim injunction is to preserve the status quo until the dispute has been disposed of on a full hearing. That being the position, it is not necessary that the Court should have to find a case which would entitle the applicant to relief in all events: it is quite sufficient if it finds one which shows that there is a substantial question to be investigated and that matters ought to be preserved in status quo until the essential dispute can be finally resolved ... "
(ibid, 620)

"It is always a matter of discretion, and ... the Court will take into consideration the balance of convenience to the parties and the nature of the injury which the defendant, on the one hand, would suffer if the injunction was granted ... and that which the plaintiff, on the other hand, might sustain if the injunction was refused ..." (ibid, 621).

The Plaintiffs are seeking to restrain the  FDB  as mortgagee from exercising its power of sale to properties secured under the security documents. There is no indication of how much they are in arrears of payment and whether up to the time of the hearing of this application they were making payments. The Plaintiffs have not said that they are prepared to deposit the moneys alleged to be owing into Court. In the Fiji Court of Appeal an appeal case of ANTECH INTERNATIONAL LIMITED and HARISH MAHENDRA SINGH and WESTPAC BANKING CORPORATION (Civ. App. No. 29/96 the Court, on an application for interim injunction to restrain the Bank from realising certain securities, granted an order for interim injunction subject to payment being made to the Bank of the total sum of amount claimed of $100,945.83 together with interest.

In INGLIS v COMMONWEALTH TRADING BANK OF AUSTRALIA (1972) A.L.R. 591 at 592 a case involving the exercise by mortgagee of its power of sale, WALSH J said:

"A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of power of sale given by a mortgage and in particular the exercise of a power 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, or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into Court.

The rule, as it affects the exercise by a mortgagee of the power of sale, is stated in the following terms in Halsbury Laws of England 3rd Edition Volume 27, p.301:

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........"

It is abundantly clear from the affidavit evidence that the  FDB 's loans were properly secured by means of various security documents. There is no acceptable evidence in writing as between the parties of any variation of the security documents along the lines, or in any other way, as suggested by the Plaintiffs. In this case the defendant's rights under the securities cannot be defeated by the general allegation of duty of care on the part of the defendant (SAMUEL KELLER (HOLDINGS) v MARTINS BANK 1971 C.L.Y. 7451). The security documents are enforceable and the court will not grant an injunction which would have the effect of helping to break a contract if that contract was specifically enforceable. It will of course require a very strong argument and the “Court must feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted” (Megarry J in Shephard Homes Ltd v Sandham (1971) Ch 340) before the Court will interfere with those security documents bearing in mind of course that at this stage "the court is not justified in embarking upon anything resembling a trial of the action upon conflicting affidavits in order to evaluate the strength of either party's case" (FOOTNOTE to SUPREME COURT PRACTICE 1979 29/1/11) pertaining to grant of interlocutory injunction.

Here the Court is reluctant on an interlocutory application not to hold the Plaintiffs bound to the very words of their covenants in security documents in question in this action. There are no qualifications to the exercise of its powers in default of payment. It may well be that at the trial the plaintiffs might be able to establish their contention that there was, inter alia, a duty of care, but I am not in this application judging the rights and wrongs of the case. All that I am saying is that at this stage, the Plaintiffs have not sufficiently established a case in support of their application nor is it necessary for me to go into details the Plaintiffs' contention in view of the existence of the security documents in favour of the  FDB .

Here the  FDB  as mortgagee is intending to exercise a statutory power and the Plaintiffs have adduced no proper grounds why the Court should interfere with the exercise of such a power by granting an injunction. I am not convinced that there is a serious issue to be tried.

Those who come to equity must come with clean hands. Here the Plaintiffs who are seeking interlocutory injunction to continue have not in the initial stages divulged clearly and fully their dealings with the  FDB  until such time as  FDB  replied to their Affidavit in application. Hence their approach up to that time has not been sufficiently clean. Adopting the following dictum of MEGARRY J in the case of HOUNSLOW LONDON BOROUGH COUNCIL v TWICKENHAM GARDEN DEVELOPMENTS [1971] Ch 233 the Plaintiff’s application to continue injunction ought to be dismissed:

"Equity will not assist a man to break his contract. Here, the borough is, in effect, saying to the court, 'You should grant an injunction to evict the contractor even if in so doing, you would be helping me to break my contract.' I do not think that equity is any more ready to help an applicant who says that it does not matter whether or not he is breaking his Contract than one who is avowedly doing so."

As to "balance of convenience" the court should first consider whether if the Plaintiffs succeed at the trial, they would be adequately compensated by damages for any loss caused by the refusal to grant an interlocutory injunction.

In this case, having considered Mr. Shankar's submissions in this regard I consider that this is a case in which the appropriate remedy is not interlocutory injunction but an award of damages and the defendant ( FDB ) would be in a financial position to pay them. Hence this is not a case for the grant of an interlocutory injunction however strong the Plaintiffs' case appears to be at this stage because the Plaintiffs have found themselves in a position which perhaps was unforeseen as a result more likely because of their dealings with FTIB but nothing to do with  FDB  resulting in their being unable to meet their commitments under the security documents.

For this supposed arrangement with FTIB why should  FDB  be responsible. This is not a sufficient ground for making an order sought which would not otherwise be permissible.

There is a very limited duty owed by a mortgagee to a mortgagor. As Mr. Kapadia has said, this is not a case where the  FDB  owed any duty of care to the Plaintiffs. This view is supported by the case of CHINA and SOUTH SEA BANK LIMITED v TAN (1989) 3 AER 839. There the claim by the mortgagee was against the surety under a guarantee for the debt of the mortgagor. A somewhat similar situation as in this case arose in TAN (supra). The guarantor argued that the bank ought to have known that the value of the shares was declining and owed him a duty of care to exercise the power of sale conferred by the mortgage before the shares became worthless.

In giving the advice of the Privy Council which was in favour of the mortgagee, LORD TEMPLEMAN at p. 842 said:

"The creditor is not obliged to do anything ... If the surety ... is worried that the mortgage securities may decline in value then the surety may request the creditor to sell and if the creditor remains idle then the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them. No creditor could carry on the business of lending if he could become liable to a mortgagee and to a surety or to either of them for a decline in the value of the mortgaged property."

This decision was applied by the Court of Appeal in New Zealand in WESTPAC SECURITIES LTD v DICKIE (1991) 1 NZLR 657 where HARDIE BOYS J said:

"The defendant could succeed in this case only if there are grounds for avoiding a guarantee ... it is clear from the Tan case that negligence towards a guarantor is not one - still less can a failure by the creditor to be prudent for its own sake."

Similarly in COUNTRYWIDE BANKING CORPORATION v ROBINSON (1991) 1 NZLR 75 at 77 COOKE P said:

"The important point is that it is for a mortgagee contemplating selling in the exercise of a power of sale to decide if and when he will sell ... the mortgagee [in this case] was entitled to delay."

It is quite evident that the mortgagee is entitled to protect its own interests in obtaining repayment of the debt, and did not oblige the mortgagee as suggested by the Plaintiffs to postpone the sale or have its securities varied, inter alia, for the reasons advanced by them. It did not prevent the mortgagee from enforcing the security if there was default in payment and if market conditions were deteriorating and the value of the security was decreasing. However, a mortgagee owes a duty to act in good faith in determining whether to exercise the power of sale.

I am therefore driven to the conclusion that the Plaintiffs have not laid the proper basis for their claim on which to have the interim injunction continue which they are seeking as per interim order which says "an injunction restraining the Defendant by itself or by its servants and or by its agents or otherwise from seizing all chattels of the Plaintiffs secured by a Debenture dated 28th December 1990, Bills of Sale dated 05 August 1987, No. 295078 dated 28th December 1990 or under any other security or securities held by the Defendant."

In HUBBARD v VOSPER (1972) 2 WLR 359, LORD DENNING at p.396 gave some guidance on the principles of granting an injunction which I think is pertinent to bear in mind in this case when he said:

"In considering whether to grant an interlocutory injunction, the right course for a judge is to look at the whole case. He must have regard not only to the strength of the claim but also to the strength of the defence, and, then, decide what is best to be done. Sometimes, it is best to grant an injunction so as to maintain the status quo until the trial. At other times, it is best not to impose a restraint upon the defendant but leave him free to go ahead. For instance in Fraser v Evans [1969] 1 QB 349, although the plaintiff owned the copyright, we did not grant an injunction because the defendant might have a defence of fair dealing. The remedy by interlocutory injunction is so useful that it should be kept flexible and discretionary. It must not be made the subject of strict rules."

This is a case of a mortgagee and in the whole of the circumstances of this case I propose to give great weight to the following passage from the judgment of MEGARRY J at p.397 in VOSPER (supra):

"One can really imagine a case in which the plaintiff appears to have a 75% chance of establishing his claim but in which the damage to the defendant from the granting of the interlocutory injunction, if the 25% defence proved to be right, would be so great compared with the triviality of the damage to the plaintiff if he is refused the injunction that an interlocutory injunction should be refused. To my mind, it is impossible and unworkable to lay down different standards in relation to different issues, which fall to be considered in an application for an interlocutory injunction. Each case must be decided on a basis of fairness, justice and common sense in relation to the whole issues of fact and law which are relevant to the particular case."

In these circumstances the balance o£ convenience must be exercised in favour of the  FDB  for it is the party which would be most affected by the continuation of the injunction.

Conclusion

Having analyzed the affidavit evidence before me in this case and applying the principles stated by LORD DIPLOCK, I am of the opinion that damages as a remedy is sufficient in this case. I do not find that there are any serious questions to be tried to grant an injunction.

On the facts and circumstances of this case, it is not a proper case for the grant and for the continuation of the interlocutory injunction or to maintain the status quo until the trial of the action. The grounds are not strong enough to prevent the exercise by the defendant ( FDB ) of its powers under the security documents and without any proper variation of any of the covenants in the documents any heed could be given to the arguments put forward by the Plaintiffs for the purposes of this application. It will open the floodgates if I were to accede to the continuance of the injunction in cases of this nature involving mortgagees. The Plaintiffs overlook the terms and the covenants to which they found themselves engaged when they executed the security documents.

Having considered the aforesaid authorities I have come to the conclusion that there ought not to be an injunction from today until the trial as the Plaintiffs have no right to the continuance of the interim injunction they obtained. I ought in my view to discharge the injunction, and this I do with costs against the Plaintiffs which are to be taxed unless agreed.

D. Pathik
Judge

At Suva
15 January 1997

HBC0006D.96S