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High Court of Solomon Islands |
HIGH COURT SOLOMON ISLANDS
Civil Case No. 153 of 2000
p class="MsoNoMsoNormal" align="center" style="text-align: center; margin-top: 1; margin-bottom: 1"> NATIONAL BANK OF SOLOMON ISLANDS LIMITED ITED
v
SOLOMON ISLANDS LIVESTOCK CORPORATION LIMITED,
SIR GEORGE GERIA DENNIS LEPPING
AND LADY MARGERET LEPPING
High Court of Solomon Islands
Before: F. O. Kabui, J
Civil Case No. 153 of 2000
Hearing: 31st January 2001
Judgment: 1st February 2001
B. Titiulu for the Plaintiff
J. Apaniai for the Defendants
JUDGMENT
(K J): By Summons filed on 17th January 2001, the Plaintiff applies for the following orders against the 2nd Defendants �
1. The Plaintiff have leave to accept the bid of $220,000 by Jean Gordon and Allen Gordon for the purchase of the Second Defendant's Fixed Term Estate in Parcel No. 191-014-88;
2 Registrar of the High Court of Solomon Islands be aube authorized to execute transfer documents on behalf of the Second Defendants relating to the transfer of the property in Fixed Term Estate in parcel no. 191-014-88 in the event the Second Defendants refuses or does not sign the transfer;
4. The Defendants pay the Plaintiffs cost of and in connection with this application.
These orders are a result of a judgment upon motion for judgment entered against the 2nd Defendants on 18th October 2000 for the sum of $500,000 plus 18% interest per annum thereon.
The Facts
The Plaintiff is the National Bank of Solomon Islands (the NBSI). By a Specially Indorsedorsed Writ of Summons filed on 12th May 2000, the NBSI claimed against the 2nd Defendants the sum of $512,183.69 as due and owing by the 2nd Defendants to the NBSI. The NBSI also claimed 18% interest per annum as from 14th February 1996 until payment. On 26th August 2000, the NBSI created an overdraft facility for the 1st Defendant being the Solomon Islands Livestock Corporation. The credit facility was in the sum of $300,000. The securities for the repayment of this credit facility were to be an Equitable Mortgage, an unlimited guarantee by the 2nd Defendants and a registered charge over the 2nd Defendants' Fixed - Term Estate in Parcel Number 191-014-88. On 12th September 1996, the 1st Defendant executed the Equitable Mortgage in favour of the NBSI. In support of the Equitable Mortgage, the 1st and 2nd Defendants executed written Guarantees in favour of the NBSI. The Equitable Mortgage and the Charge were duly registered as securities for the overdraft facility of $300,000. Having reached the maximum limit of the overdraft, the 1st Defendant failed to repay the overdraft. The 1st Defendant also ceased to carry on business without the consent of the NBSI. As at 14th February 2000, the 2nd Defendants and each of them were indebted to the NBSI for the sum of $512,183.69. Despite written demand for payment, the 1st and 2nd Defendants had failed, refused or neglected to pay the NBSI the sum of $512,183.69. The NBSI has therefore decided to recover its money by selling the Fixed - Term Estate in Parcel Number 191 � 014 - 88.
p class="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1"> The Law
class="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1"> Section 171 of tnd and Titles Act (Cap. 133) clearly allows the enforcementement of a charge by sale of the interest being the subject of the charge. In fact, leave to sell the 2nd Defendants� Fixed - Term Estate in Parcel Number 191 � 014 - 88 was already granted on 18th October 2000, the date of the judgment upon motion for judgment. What is in issue now is whether or not the Court should grant leave for the 2nd Defendants� Fixed - Term Estate in Parcel Number 191 � 014 - 88 to be sold to the highest bidder for the sum of $220,000. Counsel for the 2nd Defendants, Mr. Apaniai, argued that the tender process had not been done with due care so as to fetch a better price than $220,000. He pointed out that the highest bid of $220,000 was an under value estimate of the 2nd Defendants� property. In consequence, he urged me to reject the highest bid of $220,000 and to direct that the 2nd Defendants� property be readvertised. He also urged me to grant a period of 3 months to enable the 2nd Defendants� to organize finance to pay off the loan or pay part of it thus reducing it. In support of his argument, Counsel for the 2nd Defendants, Mr. Apaniai, cited some English authorities referred to at page 244 in Introduction To Land Law by Peter Butt, 1980. On this page, the learned author points out that there are two lines of authorities on the question of standard of care to be observed by the mortgagee in selling the mortgaged property. The first line of authority does say that the mortgagee is under an obligation to take reasonable care to obtain the true market value of the property at the date of the sale. In other words, care should be taken by the mortgagee to obtain a proper price for the property in the interest of the mortgagor. The second line of authority does say however that the mortgagee�s only duty is to act bona fide in the conduct of the sale of the property. There is however in both lines of authority, one common denominator. Acts of mala fide on the part of the mortgagee would fail to satisfy the test in both lines of authority. For example, acts of fraud or collusion or wilful or reckless conduct disregarding the interest of the mortgagor would be ground for setting aside sale of the mortgaged property. Counsel for the 2nd Defendants� Mr. Apaniai, urged me to adopt the first line of authority discussed by the learned author, Peter Butt above. The case representing the first authority cited by the learned author, Peter Butt is Cuckmere Brick Co. Ltd v Mutual Finance Ltd [1971] 2 A.E.R.633. Salmon J did acknowledge the difference of opinions on this point. At page 643, Salmon LJ said,
�Counsel for the defendants contends that the mortgagee's sole obligation to the mortgagor in relation to a sale is to act in good faith; there is no duty of care, and accordingly no question of negligence by the mortgagee in the conduct of the sale can arise. If this contention is correct it follows that, even on the facts found by the learned judge, the defendants should have succeeded. It is impossible to pretend that the state of the authorities on this branch of the law is entirely satisfactory. There are some dicta which suggest that unless a mortgagee acts in bad faith he is safe. His only obligation to the mortgagor is not to cheat him. There are other dicta which suggest that, in addition to the duty of acting in good faith, the mortgagee is under a duty to take reasonable care to obtain whatever is the true market value of the mortgaged property at the moment he chooses to sell it: ... The proposition that the mortgagee owes both duties, in my judgment, represents the true view of the law. ...�
Salmon LJ concluded at page 646
I accordingly conclude, both on principle and authority, that a mortgagee inee in exercising his power of sale does owe a duty to take reasonable precaution to obtain the true market value of the mortgaged property at the date on which he decides to sell it. No doubt in deciding whether he has fallen short of that duty, the facts must be looked at broadly and he will not be adjudged to be in default unless he is plainly on the wrong side of the line.�
Clearly, Salmon L. J�s conclusion on this point was that the combination of both views was the correct law. That is to say, the mortgagee owes the mortgagor the duty to take reasonable care in obtaining whatever is the true market value of the mortgaged property as well as the duty to act in good faith in that regard.
Cross, LJ and Cairns, LJ the view that the case of Tomlin v Luce [1889] 43 Ch. 191 was the correct law. That is to say, the mortgagee has a duty to take reasonable care to obtain a proper price for the mortgaged property. The second line of authority is represented by the case of Warner v Jacobs [1882] 20 Ch. D220. The head note to that case is in these terms
��If tgagee exercises his power of sale bona fide for the the purpose of realising his debt and without collusion with the purchaser, the court will not interfere even though the sale be very disadvantageous, unless the price is so low as in itself to be evidence of fraud. A mortgagee in exercising his power of sale is not (except as to the balance of the purchase - money after a sale) a trustee for the mortgagor even if the mortgage is in the form of a trust for sale.�
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The other case was Kennedy v De Trafford [1897] UKLawRpAC 13; [1897] AC 180. Again, the head note to that case is in these terms �The only obligation incumbent on a mortgagee selling under and in pursuance of a power of sale in his mortgage is that he should act in good faith. In determining whether the mortgagee�s conduct in that respect comes up to the required standard regard must be had to the circumstances of the particular case.�
Whilst the head note in Kennedy Trafford clearly reflects the same position as in the head note in the case of Warner v Jacobs above, the remarks of Herschell LJ at page 185 in Kennedy v De Trafford above is of some significance. There, Herschelle LJ said
�My b>Lords, I am myself disf disposed to think that if a mortgagee in exercising his power of sale exercises it in good faith, without any intention of dealing unfairly by his mortgagor, it would be very difficult indeed, if not impossible, to establish that he had been guilty of any breach of duty towards the mortgagor. Lindley L.J., in the Court below, says that "it is not right or proper or legal for him either fraudulently or wilfully or recklessly to sacrifice the property of the mortgagor." Well, I think that is all covered really by his exercising the power committed to him in good faith. It is very difficult to define exhaustively all that would be included in the words "good faith," but I think it would be unreasonable to require the mortgagee to do more than exercise his power of sale in that fashion. Of course, if he wilfully and recklessly deals with the property in such a manner that the interests of the mortgagor are sacrificed, I should say that he had not been exercising his power of sale in good faith.
My Lords, it is not necessary in this case to give an exhaustive definition of t of the duties of a mortgagee to a mortgagor, because it appears to me that, if you were to accept the definition of them for which the appellant contends, namely, that the mortgagee is bound to take reasonable precautions in the exercise of this power of sale, as well as to act in good faith, still in this case he did take reasonable precautions. ...�p clas class="MsoNormal" style="margin-top: 1; margin-bottom: 1"> Whilst it is true that Herschell LJ did not conclusively rule on the issue of t of the duty to take reasonable care on the part of the mortgagor, the term �take reasonable precautions� is in my view, the same as the term �take reasonable care�. To take care is to be cautious whilst to take precautions is to be preventive in advance of danger or committing a mistake. In fact, Herschell LJ did admit that the mortgagee did take reasonable precautions and therefore saw no need to rule on that point. This fact does confirm that the term �reasonable precautions� was used loosely by Herschell LJ to mean �reasonable care�. For myself, I would like to think that so long as there is evidence of honest dealing by the mortgagee, the sale of the mortgaged property is safe. This test seeks to eliminate fraudulent dealing or wilful or reckless conduct on the part of the mortgagee in disregard of the interest of the mortgagor. In cases where fraud, wilful or reckless conduct has not been committed by the mortgagee, reasonable duty of care is still expected in that in doing all things, the interest of the mortgagor is not forgotten. Beyond that, the mortgagee must be allowed to exercise the powers of sale of the mortgaged property.
The Evidence
p class="Mss="MsoNormal" style="margin-top: 1; margin-bottom: 1"> In this case, Stor for the NBSI (the mortgagee), Mr. Titiulu, carried out out the tendering process on behalf of the mortgagee. He is the in - house Solicitor for the mortgagee. On 2nd and 3rd November, 2000, Mr. Titiulu placed advertisements in the Solomon Star Newspaper (the Solomon Star) calling for bids from members of the public. The Tender Notice described Fixed - Term Estate in Parcel Number 191 � 014 - 88 as being a residence at Legakiki in Honiara plus detailed description of the features of the property. The Tender Notice stated that the closing date for the tender was Friday 24th November 2000 at 3pm in the afternoon. The 2nd Defendants took no objection to the fact that the Tender Notice was published in the Solomon Star for only two days being 2nd and 3rd November, 2000. There were four bids for the property. The highest bidder at the closing date of the tender offered $220,000 and was accepted by the mortgagee. Sanders O�Connor Co. Ltd, a firm of valuers in Honiara did the valuation of the property. The valuation was done on the instructions of the 2nd Defendants. The valuation was done in April, 2000. The price was put at $550,000. This price was described as the current market cost price of the property. By letter dated 8th November 2000, Mr. Titiulu wrote to A & H Lawyers enclosing for their information a copy of Notice of Tender of Parcel Number 191 � 014 - 88 and informing them that the tender would be closing at 3pm on Friday 24th November 2000.
Decision
This is a forced sale byurt Order. It can be an unpleasant business for the m mortgagor. This is one such case. However, there must be a balance. The mortgagee can sell the mortgaged property but regard must be had to the interest of the mortgagor. The mortgagee must conduct the sale openly and fairly to obtain a proper price. The proper price may not necessarily be the cost price or the best price because I think the market forces may drive the market price either upwards or downwards. The sale price would depend on these forces. However, as I have said, there must be a balance. If the sale price is higher than the mortgagor�s debt, the mortgagor is lucky in that he would get the difference. If however the position is otherwise, the mortgagor loses but at least part of the debt is gone. The balance therefore is to do with fairness on the part of the mortgagee towards the mortgagor in not throwing the mortgaged property at a throwaway price. It is a question of degree based upon the facts of each case. In this case, Mr. Titiulu did advertise the property for two days only and the 2nd Defendants� Solicitor, Mr. Apaniai, was aware of this and the terms of the Tender Notice itself. He never questioned it nor suggested wider publication or longer publication in the Solomon Star. Honiara is a small town with a comparatively small population. Solomon Star is well distributed within Honiara town as well as outside of Honiara. The costs of the Tender Notice in this case is added to the debt of the 2nd Defendants. Prolonged publication in Solomon Star would only add further cost to the 2nd Defendants. The cost of publication of the Tender Notice for two days was $1,291.50. Already by 31st January 2001, the debt had increased to $526,341.02 and continues to increase. Counsel for the mortgagee, Mr. Titiulu, told me that the mortgagee had lost money and must recover it. I find that the mortgagee did take reasonable care to get a proper price for the property. Solicitor for the mortgagee Mr. Titiulu carried out the tendering process in good faith in that he had not been guilty of fraud, or reckless or wilful disregard of the interests of the 2nd Defendants. He did take care in that he had given a copy of the Notice of Tender to A & H Lawyers, Solicitors, for the 2nd Defendants and told them of the closing date for the tender. Whilst the 2nd Defendants questioned the length of time the Tender Notice should be published and the fact that the Tender Notice should have been published in other Newspapers, they produced no evidence to show that the mortgagee had not acted in good faith nor taken reasonable care to obtain a proper price. In other words, they did not name which other Newspapers in town had wider circulation than the Solomon Star and certainly did not produce any evidence on the property market in Honiara and in Solomon Islands generally. All I know is that following the ethnic tension in Solomon Islands and the breakdown of law and order in Honiara, the property market is currently depressed. I take judicial notice of this fact. Most houses in Honiara are empty and are not being rented. There are no clients. The banks are not readily willing to grant loans to borrowers to buy houses except in perhaps a few cases. Today, all the commercial banks in Honiara have closed for business until further notice due to criminal activities in town yesterday. This is a raw fact known to everyone in Honiara and I take judicial notice of it. It is not the right atmosphere for investors generally. Whilst I accept and appreciate the fact that Parcel Number 191 � 014 - 88 is a prime site and could fetch a price of $550,000, this price tag is only an estimate for a good time. Right now most people are not selling unless they have to because they know the bargaining power at a time of a depressed property market such as is now in Honiara is virtually nil. They are sitting on their properties until the right time comes around the corner. This is however not to say that Parcel Number 191 � 014 - 88 cannot fetch a price above $220,000. Theoretically, it can. Practically, it may not because as I have said, this is a forced sale. It is taking place at the wrong time when the best of things do not favour Honiara and Solomon Islands at large. The property market in Honiara being also small. There is no evidence to persuade me that by postponing the sale of Parcel Number 191 � 014 - 88 would fetch a price better than $220,000. It is a possibility but one that is riddled with speculation. Buying time is not the answer. I conclude by the words of Isaacs J. in Pendlebury v The Colonial Mutual Life Assurance Society Limited (1911 - 12) [1912] HCA 9; 13 CLR 676 at 701 in these terms-
p class="MsoNoMsoNormal" style="margin-left: 36.0pt; margin-top: 1; margin-bottom: 1"> �Two extreme view be mentioned to be put aside. To say that so long asng as he exercises his power with the real object of getting his debt paid he is absolved, is too low a standard of responsibility, because that loses sight of his obligation to deal fairly with the mortgagor's residual property. On the other hand, to make him answerable for mere carelessness in realization, however anxious to act fairly by the mortgagor, is placing the standard too high, and would not only be cutting across principles, but would become a serious impediment to, and, by recoil, impose a heavy burden upon, needy borrowers. The mortgagee, when the permitted time arrives, is not bound to wait for his money, merely because the mortgagor might profit by delay. And as ex hypothesis he is engaged in a lawful endeavour to get back money which is overdue, he cannot be expected to further increase the advances of the mortgagor by expending further sums for his sole possible benefit, in the shape of a higher surplus price. A prudent owner might well risk considerable outlay in order to secure a possibly enhanced return. But the mortgagee is not called upon to do this, without express stipulation to that effect. He would get no advantage from the outlay beyond the amount of his debt, and he might end in increasing that.
But if a further outlay is in the circumstances reasonable, and apparently necessary and prudent to conserve the mortgagor�s interest, and to prevent his residual property being sacrificed, and if, having regard to what a cautious man would consider the total selling value of the property, it is manifestly safe, the mortgagee is, in my opinion, not justified in refusing to make or incur it merely because he can get enough for himself without it. It must, however, be safe; if it is not, the mortgagee would be taking risks for the benefit of the mortgagor which he is not called upon to do; if it is, he is merely using part of the mortgagor�s own property to preserve the rest. Neglect in such circumstances would be manifestly improvident and would afford cogent evidence upon which a tribunal would be at liberty to think, and probably would think, the neglect reckless or wilful.�
In this case, the mortgagee felt it would not gain anything by further delaying the sale. Since 11th October 2000 to 31st January 2001, the debt had increased from $500,000 to $526,341.02 and is continuing to increase. I do not think that Parcel Number 191 � 014 - 88 would sell for $550,000 under the present law and order conditions in Honiara. The mortgagee is very fearful that the debt may keep on increasing even beyond the current cost price of $550,000. I sympathize with the 2nd Defendants� plight in this case but my hands are tied in that I find no evidence to suggest that the mortgagee did not take reasonable care to obtain a proper price nor acted in bad faith to the detriment of the 2nd Defendants. Proper price in this case must necessarily mean the market price in the circumstances of the case. The market forces do determine the true market price. In my view, the highest bid of $220,000 is the market price determined by the market forces prevailing in the property market here. I must, in the result, grant the orders sought by the Plaintiff in its Summons filed on 17th January 2001. I order accordingly.
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F.O. i
Judge
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