IN THE HIGH COURT OF MALAWI
PRINCIPAL REGISTRY
CIVIL CAUSE NUMBER 3917 OF 2002
BETWEEN
FIRST MERCAHNT
BANK
PLAINTIFF
AND
ISHMAIL IBRAHIM
LORGAT
DEFENDANT
CORAM: D F MWAUNGULU (Judge)
Chagwamjira, a legal
practitioner, for the plaintiff
Kamkwasi,
a legal practitioner, for the defendant
Machila,
an official interpreter
Mwaungulu, J
ORDER
This is an application,
possible under Order …, rule … of the Rules of the Supreme Court (Part … of the
Civil Procedure Rules), by the defendant, Mr. Lorgat, for an interlocutory
injunction. It is important to state that this is the defendant’s application.
At some stage, Mr Chagwamnjira, appearing for the plaintiff, proceeded as if the
plaintiff, First Merchant Bank, applies to dissolve an injunction. The
defendant on 13th January, 2002 obtained ex parte an injunction essentially preventing the plaintiff, a
chargee, from exercising a power of sale under a charge on property Limbe West
KJ 23/63. Today’s hearing is inter partes.
This Court has to decide whether this injunction should continue. The question
resolves itself to deciding whether on the evidence this Court should grant the
defendant the interlocutory injunction he requests. On the face of it and on
this Court’s decisions Mr. Chagwamnjira cited, the defendant, whose application
this is, has a difficult problem in his hands. Mr. Kamkwasi, appearing for the
defendant, argues, however, and ingenuosly, I must say, that the defendant must have the
interlocutory relief, the plaintiff having waived the right to exercise the
power of sale by bringing this action in the first place. Mr. Chagwamnjira
argues there was no waiver and this Court should refuse the order on the
principles in the cases cited before this Court. This action arises in the
following circumstances.
The defendant, a businessman,
and the plaintiff, a bank, it so appears, had until this situation, long
business dealings. On 30th January 2002 the defendant applied for an
overdraft for an amount not exceeding K17, 610, 000. On 8th February,
2002, the defendant charged Limbe West KJ 23/63 for a loan of K14, 000, 000,
outstanding at the time. The defendant was in arrears on his payments. On 1st
August, 2002 the bank informed the defendant of the arrears, demanded immediate
payment and warned him the bank would exercise the power of sale.
On 7th September,
the bank took sued for arrears of K9, 528, 721.34. The defendant on 30th
September, 2002 filed a defense denying ever dealing with the bank or charging
the property. The plaintiff on 28th November, 2002 applied for
summary judgment under Order 14 of the Rules of the Supreme Court (Part 24 of
the Civil Procedure Rules). The Court has not determined the application. On 13th
January, 2003, the defendant obtained the ex
parte injunction mentioned earlier. This Court must determine whether the ex parte injunction should continue.
In this jurisdiction the law on
interlocutory injunctions develops along the House of Lords decision in American Cynamid Co. Ltd. v Ethicon Ltd [1975]
1 All E.R. 504, approved in this Court’s many decisions, including Mlotha v New Building Society Civil
Cause No. 2539 (unreported) Mr. Chagwamnjira cited.
Interfering with rights before trial may cause injustice to either party. One prevented from pursuing a certain course
of action may feel inconvenienced and delayed. She will feel injustice if,
after trial, it turns out she has the right.
Equally, if one pursues a certain course of action on an erroneous understanding
of some right, the other will feel injustice that the other was not prevented.
Justice is, in these circumstances, difficult to achieve and American
Cynamid Co. Ltd vs Ethicon Ltd nears balancing a situation susceptible to
injustice.
The defendant’s application fails on the
first two principles in American Cynamid Co. Ltd v Ethicon Ltd. The plaintiff must show first that the court
would give an injunction at the end of the trial and secondly that there is a
triable issue justifying the interim relief she seeks. The court will not grant
an interlocutory injunction if it would not grant a permanent injunction at the
trial. This is clear from Lord Diplock’s statement:
“As to that, the governing principle is that the court should first
consider whether, if the plaintiff were to succeed at the trial in establishing
his right to a permanent injunction, he would be adequately compensated by an
award of damages for the loss he would have sustained as a result of the
defendant’s continuing to do what was sought to be enjoined between the time of
the application and the time of the trial.”
The question is whether
at the end of the trial the court would prevent the bank exercising the power
of sale. The defendant has paid neither
to the plaintiff nor into court arrears the defendant now admits. Yet, a court
would only grant an injunction restraining the power of sale, where there is no
contract of sale in exercise of the power, if the chargor or mortgagor pays the
arrears to the chargee or mortgagee or into court. The cases of Trustees of the Estate of Isaac Leo Douglas
Kaunda v New Building Society, Lilongwe District Registry, Civil Cause No.
609 of 1999 (unreported), Mkhumbwe v
National Bank of Malawi, Civil Cause No. 2702 of 2000 (unreported) and Mlotha v New Building Society, can be
distinguished. that in all these cases the chargee or mortgagee exrcised the
power of sale and there were contracts of sale of the property with third
parties. The question is whether where there is no such sale in this matter
makes any difference.
Lord Justices Dancwert’s comments in Property and Bloodstock Ltd v Emerton [1967] 3 All E.R. 321. on a statement by
Crossman, J., in Waring v London and
Manchester Co. Ltd [1935] Ch.
310, I consider in a moment, suggests that lack of an agreement makes a
difference:
“The actual decision of CROSSMAN, J., in Lord Waring’s case (4)
was: (I) that a mortgagee’s exercise of has power under s. 101 (1) (I) of the
Law Property Act, 1925, to sell the mortgaged property by public auction or
private contract is binding on the mortgagor before completion unless it is
proved that he exercised it in bad faith; and (ii) that the fact that a
contract for sale was entered into at an undervalue is not by itself enough to
prove bad faith. Counsel for the
borrower contended in his initial argument that this case was wrongly decided
and that we should overrule it. The
decision has stood for thirty-two years without (so far as I know) any
criticism. This, I would suppose, is a
discouraging start for counsel’s arguments, but counsel is certainly entitled
to distinguish the case from the present one, because CROSSMAN, J., expressly
stated at the beginning of his judgment that the contract was (5) “an absolute
contract, not conditional in any way,” always supposing that the contract in
the present case is really a conditional contract, and that, if it is, the fact that it is subject to a
condition makes any difference, having regard to the express terms of s. 101
(1) (I) of the Law Property Act, 1925.”
Lord Justice
Dancwert’s suggests that the principle Crossman, J., lays in Waring v London and Manchester Co. Ltd would
not apply to a conditional contract. I do not think however that Dancwerts,
L.J., suggests that a court would, where there is no sale in fact, restrain by
injunction a chargee’s or mortgagee’s exercise of power of sale where the chargor
or mortgagor defaults and never pays arrears to the chargee or mortgagee or
into court. If it were so, the chargee or mortgagee may never easily or at all exercise
the power of sale for it is the default that triggers the power in the first
place.
In my judgment, a court, once there is default, should only restrain the
power where before any sale the mortgagor or charger pays the money to the
charger or mortgagor or into court. In Waring
v London and Manchester Co. Ltd Crossman, J., said:
“The contract is an absolute contract, not conditional in any way, and
the sale is expressed to be made by the company as mortgagee. If, before the date of the contract, the
plaintiff had tendered the principal with interest and costs, or had paid it
into Court proceedings, then, if the company had continued to take steps to
enter into a contract for sale, or had purported to do so, the plaintiff would,
in my opinion, have been entitled to an injunction restraining it from doing
so. After a contract has been entered
into, however, it is, in my judgement, perfectly clear (subject to what has
been said to me to-day) that the mortgagee (in the present case, the company)
can be restrained from completing only on the ground that he has not acted in
good faith and that the sale is therefore liable to be set aside.”
A chargor or
mortgagor has, therefore, up to the date of the contract in all other contracts
or at the fall of the hammer on an auction, to pay arrears and restrain the
mortgagor or charger from exercising the power of sale. If the mortgagor or
mortgagor does not pay before a contract of sale to the mortgagee or chargee or
into court, a court will not restrain by injunction the lawful exercise of the
power of sale. Crossman, J., states the reason for the rule:
“In my judgment, s. 101 of that Act, which gives to a mortgagee power to
sell the mortgaged property, is perfectly clear, and means that the mortgagee has
power to sell out and out, by private contract or by auction, and subsequently
to complete by conveyance; and the power to sell is, I think, a power by
selling to bind the mortgagor. If that
were not so, the extra-ordinary result would follow that every purchaser from a
mortgagee would, in effect, be getting a conditional contract liable at any
time to be set aside by the mortgagor’s coming in and paying the principal,
interest, and costs. Such a result
would make it impossible for a mortgagee, in the ordinary course of events, to
sell unless he was in a position to promise that completion should take place
immediately or on the day after the contract, and there would have to be a rush
for completion in order to defeat a possible claim by the mortgagor.”
Originally, Mr.
Lorgat’s defense was he never dealt with the bank at all and never charged the
property. He now concedes he is in arrears of up to K3, 000, 000. He has not
paid the bank or into court. He argues that the court should enter judgment for
this sum. This, he argues, is just because by taking this action, the bank has
waived its power of sale under the charge.
This is a nice argument. It does not
avail the chargor. I have extreme difficulty thinking a mortgagee or chargee or
mortgagee taking an action for principal and interest thereby loses remedies
under the charge or mortgage. In one instance the rule yields injustice: when
the principal and interest exceed the security’s value. The mortgagee or
chargee would only pursue the mortgaged property by execution. Yet, nothing
would prevent her first getting principal and interest from the mortgaged
property and sue and execute for the balance by other means. Moreover, a
mortgagee or chargee who sues for the principal and interest does not, as is
suggested for the defendant, thereby wave any remedies under the charge or
mortgage. The mortgagee or chargee can pursue remedies concurrently subject, of
course, only to agreement or statute. Consequently, a mortgagee can at the same
time take sue for payment on the charger’s covenant to pay the principal and
interest, possession of the mortgaged property and foreclosure: Lockhart v Hardy (1846) 9 Beav. 349; Palmer v Hendrie (1859) 27 Beav. 349,
351; and Barker v Smark (1841) 3 Beav 64, 65, per Lord Langdale, MR.
Moreover, the mortgagee can include all these claims in one action: Greenough v Littler (180 15 Ch. D. 93: and Farrer v Lacy, Hartland & Co. (1885) 31 Ch. D 42. The chargee,
therefore, does not waive the right to exercise her power of sale by commencing
an action to recover the principal and interest.
The defendant, therefore, is not
entitled to a permanent injunction at the end of the trial. On the facts there
is no triable issue entitling the defendant to an interlocutory injunction. I,
therefore, dismiss the application for interlocutory injunction and set aside
the ex parte injunction. The
plaintiff will have costs.
Made in Chambers this 28th Day of April 2003.
D. F. Mwaungulu
JUDGE
The court refuses
if damages are an adequate remedy for the interim losses. The court will not
grant an interlocutory injunction if on another principle it would not grant
the injunction at the trial.
There is a principle on which this court
would not have granted the injunction at the end of the trial. The judge granted the injunction because,
though there was a sale of the property, the sale was not consummated. It is
unclear what consummation was. It probably meant a conveyance. This position is
unsustainable in principle and on clear authority. An agreement to sale real
property immediately creates an equitable title to the purchaser. A bona fide
purchaser of property without notice of a defect in the title has an immediate
right at the conclusion of the agreement to sell. It is curious that a court
would grant an injunction, an equitable remedy, when it can also grant specific
performance, another equitable remedy, to a purchaser that can also be enforced
by an injunction against the mortgagee or chargee. As a matter of principle
courts have not granted injunctions after sale. They have done so before sale
when the chargeor or mortgagor pays. This sound principle accords with good
judgement.
The matter is however covered by
authorities. There is this Court’s decision in Mkhumbwe v National Bank.
The starting point is a passage in Halsbury Laws of England, 4th ed.
Butterworth, 1980, para. 725:
“The mortgagee will not be restrained from exercising his power of sale
because the amount due is in dispute, or because the mortgagee has begun a
redemption action, or because the mortgagee objects to the manner in which the
sale is arranged.”
The case cited is Anon, (1821) 6 Madd. 10. An
injunction to stop the sale on want of notice was refused by Leach, V-C. The
Vice Chancellor thought that the sale should not be stopped because “considering that if the ex parte
case was true, the Plaintiff might relieve himself by giving notice to the
purchaser.”
There are other decisions of later
import. There is a Queens Bench decision of Crossman, J., in Lord Waring v
London and Manchester Assurance Co Ltd, [1935] Ch 310 approved by the Court
of Appeal in Property and Bloodstock Ltd v Emerton, [1967] 3 All ER 321.Lord
Waring v London and Manchester Co. Ltd is four walls with this case.
A company entered as mortgagee into a
contract for the sale of mortgaged property.
The mortgagee gave many opportunities to pay money due under the mortgage. At the mortgagor’s request and
undertaking to put the property up for sale by auction, the company refused a
good purchase offer. When the mortgagor
put the property up for sale by auction (when the period within which he had
undertaken to do so was past) no acceptable bid was received. After a long
period during which he was to the company’s knowledge negotiating with a third
party for a fresh loan on the security of the mortgaged property, and during
which the company, to help him as much as possible, postponed selling, the
company ultimately contracted to sell the property for an amount less than that
it refused at his request and upon his undertaking.
On a motion by the mortgagor for an
injunction to restrain completion because there was no sale until conveyance
and that the contract had been entered bad faith at a gross undervalues, and
for leave to redeem the property upon paying into Court, as he claimed to be
able to do, the moneys due under the mortgage the court held, that a mortgagee’s exercise of
his power under s. 101, sub-s. 1, para.
(I), of the Law Property Act, 1925, to sell the mortgaged property by public
auction or private contract is binding on the mortgagor before completion
unless it is proved that the mortgagee exercised it in bad faith. Crossman, J.,
said:
“The contract is an absolute contract, not conditional in any way, and
the sale is expressed to be made by the company as mortgagee. If, before the date of the contract, the
plaintiff had tendered the principal with interest and costs, or had paid it
into Court proceedings, then, if the company had continued to take steps to
enter into a contract for sale, or had purported to do so, the plaintiff would,
in my opinion, have been entitled to an injunction restraining it from doing
so. After a contract has been entered
into, however, it is, in my judgement, perfectly clear (subject to what has been
said to me to-day) that the mortgagee (in the present case, the company) can be
restrained from completing only on the ground that he has not acted in good
faith and that the sale is therefore liable to be set aside.”
He expressed the
reason for the rule:
“In my judgement, s. 101 of that Act, which gives to a mortgagee power
to sell the mortgaged property, is perfectly clear, and means that the
mortgagee has power to sell out and out, by private contract or by auction, and
subsequently to complete by conveyance; and the power to sell is, I think, a
power by selling to bind the mortgagor.
If that were not so, the extra-ordinary result would follow that every
purchaser from a mortgagee would, in effect, be getting a conditional contract
liable at any time to be set aside by the mortgagor’s coming in and paying the
principal, interest, and costs. Such a
result would make it impossible for a mortgagee, in the ordinary course of
events, to sell unless he was in a position to promise that completion should
take place immediately or on the day after the contract, and there would have
to be a rush for completion in order to defeat a possible claim by the
mortgagor.”
In the Court of
Appeal in Property and Bloodstock Ltd v Emerton Dancwerts, L.J., Sachs
and Sellers L.J.J., agreeing, said:
“The actual decision of CROSSMAN, J., in Lord Waring’s case (4)
was: (I) that a mortgagee’s exercise of has power under s. 101 (1) (I) of the
Law Property Act, 1925, to sell the mortgaged property by public auction or
private contract is binding on the mortgagor before completion unless it is
proved that he exercised it in bad faith; and (ii) that the fact that a
contract for sale was entered into at an undervalue is not by itself enough to
prove bad faith. Counsel for the borrower
contended in his initial argument that this case was wrongly decided and that
we should overrule it. The decision has
stood for thirty-two years without (so far as I know) any criticism. This, I would suppose, is a discouraging
start for counsel’s arguments, but counsel is certainly entitled to distinguish
the case from the present one, because CROSSMAN, J., expressly stated at the
beginning of his judgement that the contract was (5) “an absolute contract, not
conditional in any way,” always supposing that the contract in the present case
is really a conditional contract, and that, if it is, the fact that it is subject to a condition makes any
difference, having regard to the express terms of s. 101 (1) (I) of the Law
Property Act, 1925.”
Section 71 (3) has the same effect as
section 101 of the Law of Property Act, 1925 in England. It has the same effect
as a conveyance to transfer the legal title to the purchaser. It is independent
from the power of the mortgagee or chargee to sell. Where there
is a an absolute contract to sell between the mortgagee and a purchaser the
court cannot stop the sale. Just as it cannot stop the chargee from placing the
transfer for the approval of the land registrar. As the authorities show once
there is a sale, the Court will not stop the sale, even if the chargeor tenders
the money and costs except of course where there is collusion or fraud.
Moreover, irregularities in the exercise of the power to sell the property only
affect a purchaser who has notice of the defects in the exercise of power.
In my judgement, the plaintiff failed to
raise a triable issue or, which is the same thing, to establish his right to an
injunction at the end of the trial. A court cannot restrain by injunction a
mortgagee’s or chargee’s sale if the mortgagee acted in good faith. Mr. Nyimba
cited Birmingham Citizens Permanent
Building Society v Count and Royal Trust of Canada v Markham. The
cases can be distinguished. They did not deal with a mortgagee or chargee who
sold the mortgaged or charged property. There the mortgagee or chargee claimed
possession of a dwelling house.
In both these cases the extensions are
based on statutory interventions in England and Wales. As Sir Pennycuick V. -C observed there was
section 36 of the Administration of Justice Act 1970, superseded by section 8
of the Administration of Justice Act 1973.
These statutes do not apply to us.
There is no similar provision in our Registered Land Act. The position before these statutes obtains
in this country. It is found in the
Vice Chancellor’s statement at 1419:
“I will endeavour to deal with the points raised by the notice of
appeal in the same order as they are there raised. I propose first to refer to the law as it stood before the
enactment of those Acts, it had been established by a series of decisions that
a mortgagee was entitled as of right to immediate possession of the mortgaged
premises, subject only to the possibility of an adjournment for a short time to
give the mortgagor an opportunity of paying off the mortgage.”
The Court of Appeal approved the
statement of the principle by Russell J in the case Mr. Nyimba cited Birmingham
Citizens Permanent Building Society vs Caunt, at page 912:
“Accordingly, in my judgment, where (as here) the legal mortgagee under
an instalment mortgagee under which by reason of default the whole money has
become payable, is entitled to possession, the court has no jurisdiction to
decline the order or to adjourn the hearing whether on terms of keeping up
payments or paying arrears, if the mortgagee cannot be persuaded to agree to
this course. To this the sole exception
is that the application may be adjourned for a short time to afford to the
mortgagor a chance of paying off the mortgagee in full or otherwise satisfying
him; but this should not be done if there is no reasonable prospect of this
occurring. When I say the sole
exception, I do not, of course, intend to exclude adjournments which in the
ordinary course of procedure may be desirable in circumstances such as temporary
inability of a party to attend, and so forth.”
This is the law in Malawi but only where
the mortgagee or chargee seeks possession of the premises. The principle does not apply where, like
here, the mortgagee or chargee exercises the power to sale. In the latter case the principles in Mkhumbwe
vs National Bank of Malawi apply. Moreover, while besides the power of sale
and appointment of a receiver a mortgagor has the right of foreclosure and
possession, the chargee does not have a right to possess the property. The court cannot, therefore, grant an
injunction where the mortgagee or chargee sells the mortgaged or charged
property in proper exercise of the power to sell under the mortgage or charge.
The decisions Mr. Nyimba relies on do not apply to this case where the
plaintiff seeks an injunction to prevent a sale that has actually taken place.
This injunction is equally unsustainable
on the other American Cyanamid Co. Ltd vs Ethicon Co. Ltd principles.
The court must consider whether damages are an adequate remedy for the
plaintiff if the injunction is wrongly refused. Here they are. The
society, which already sold the property will repay the balance. It is not suggested the society sold the
property under value. If it did, her
remedy is in damages. The other
consideration is whether the defendant can repay the damages if the injunction
is erroneously refused. The society can
pay from the purchase price or other resources. There is little to justify granting the injunction.
The court must still consider the
reverse side. This is whether damages would be adequate compensation to the
plaintiff if the court refuses the injunction.
It is the case. The court must
however still consider whether the plaintiff can pay the damages if an injunction
is erroneously granted. The defendant
here can recover from the purchase price.
I doubt whether, if damages
exceed the price the property fetched,
the plaintiff would pay the defendant.
With these conclusions, it is
unnecessary to consider the balance of convenience. If it is necessary, the
balance of convenience favours refusing the injunction. On the authorities referred to, the
society’s case is relativeIy stronger.
A court will not grant an interim injunction after sale of
property. Moreover, the arrears, with
these prohibitive inflationary interests, could escalate to where the value of
the property would be surpassed. That
will make it harder for the chargeor to pay.
I dissolve the injunction.
Made this 16th Day of February 2001
D F Mwaungulu
JUDGE