Paradise Manor Ltd v Bank of Nova Scotia

• Jurisdiction: Cayman Islands
• Judge: (Zacca, P., Kerr and Henry, JJ.A.)
• Judgment Date: 06 December 1985
• Court: Court of Appeal (Cayman Islands)
• Date: 06 December 1985

Court of Appeal

(Zacca, P., Kerr and Henry, JJ.A.)

PARADISE MANOR LIMITED (in liquidation), W.M. BECKER and M.L. BECKER

and

BANK OF NOVA SCOTIA

C. Adams for the first appellant;

R.D. Alberga, Q.C. and A.J. Foster for the second and third appellants;

C.B. Cohen, Q.C. and T. Shea for the respondent.

Cases cited:

(1) Cuckmere Brick Co. Ltd. v. Mutual Fin. Ltd., [1971] Ch. 949; [1971] 2 All E.R. 633; [1971] RVR 126; (1971), 115 Sol. Jo. 288; 22 P. & C.R. 624, distinguished.

(2) Kennedy v. De Trafford, [1897] A.C. 180; [1895–99] All E.R. Rep. 408; (1897), 76 L.T. 427; 66 L.J. Ch. 413; 45 W.R. 671.

(3) McHugh v. Union Bank of Canada, [1913] A.C. 299; (1913), 108 L.T. 273.

(4) Standard Chartered Bank Ltd. v. Walker, [1982] 1 W.L.R. 1410; [1982] 3 All E.R. 938; [1982] Com. L.R. 233; (1982), 126 Sol. Jo. 479; 264 E.G. 345; 79 L.S. Gaz. 1137.

(5) Tomlin v. LuceELRUNKUNKUNK (1889), 43 Ch. D. 191; 62 L.T. 18; 6 T.L.R. 103; 54 J.P. 486; 38 W.R. 323; sub nom. Tomline v. Luce, 59 L.J. Ch. 164.

(6) Tse Kwong Lam v. Wong Chit Sen, [1983] 1 W.L.R. 1349; [1983] 3 All E.R. 54; (1983), 127 Sol. Jo. 632; 80 L.S. Gaz. 2368, distinguished .

Legislation construed:

Registered Land Law (Revised) (Law 21 of 1971), s.2: The relevant terms of this section are set out at page 480, lines 7–10.

s.3: The relevant terms of this section are set out at page 446, lines 26–28.

s.37: The relevant terms of this section are set out at page 446, line 34 – page 447, line 7.

s.64: The relevant terms of this section are set out at page 447, line 40 – page 448, line 13.

s.72: The relevant terms of this section are set out at page 449, lines 18–34.

s.75(1): The relevant terms of this sub-section are set out at page 450, lines 9–17.

s.77: The relevant terms of this section are set out at page 449, line 41 – page 450, line 6.

s.105: The relevant terms of this section are set out at page 480, lines 2–6.

Mortgage-power of sale-conditions of exercise-no exercise of power of sale in respect of registered land without compliance with requirements of Registered Land Law (Revised)-purported exercise of power of sale conferred by unregistered debenture transfers no interest in registered land

Mortgage-power of sale-demand notice-written notice under Registered Land Law (Revised), s.64(2) required even if default in interest payments only-date for repayment need not be specified since, by operation of law, due three months after service

Mortgage-power of sale-demand notice-notice requirements under Registered Land Law (Revised), s.72 dispensed with, under s.77, when variation to s.72 negotiated by parties at arm”s length with legal advice and mortgagor aware of indebtedness and of mortgagee”s intention to sell

Mortgage-power of sale-mode of exercise-mortgagee”s interest in prospective purchaser company no bar to sale if level of offer price unaffected by mortgagee”s participation and no suspicion of bad faith

The respondent bank (‘the bank’) applied to the Grand Court for an order under the Registered Land Law (Revised), s.77 permitting the sale by private treaty of properties owned by the first appellant company (‘the company’) and charged to the bank as security for loans.

In 1980 the bank advanced loans to the company to finance the building of an hotel, apartments and a shopping complex. Repayment of the principal and interest was to be made on May 31st, 1981 and was secured by a debenture which contained collateral charges over the land on which the new development was to be built and over certain other lands. The collateral charges, registered under the Registered Land Law (Revised), provided that if the company should fail to discharge its liabilities under the terms of the debenture (i) the whole of the principal and interest should immediately become due and payable; (ii) ss. 72 and 75 of the Registered Land Law (Revised) should apply subject to modifications which stated, inter alia, that (a) the power of sale and appointing a receiver and any other remedies available to the bank should become

immediately exercisable without further notice; and (b) when the power of sale arose, the bank should have the right to sell the premises by private treaty as well as by public auction.

In May 1981, when the hotel was partially built, the company encountered financial difficulties and no payment was made by it or demanded by the bank. Later that year, at the request of the bank, the second and third appellants, the sole shareholders in the company, executed personal guarantees in respect of the company”s liability to the bank.

In May 1982 the company defaulted in the payment of interest and in July 1982 the bank made a written demand for repayment of the principal and interest and warned the company of its intention to proceed with the available remedies. A few days later the bank appointed a receiver under the terms of the debenture; the receiver took possession of the company”s assets and stopped all building work.

In October 1982 the bank made a written demand for payment of the sums guaranteed by the second and third appellants but they too defaulted and the bank decided to sell the lands charged in its favour by public auction. The sale was extensively advertised and several hotel chains were approached. In March 1983 the receiver obtained a valuation report which valued the hotel site and adjoining lands at US$14.42m. In the same month the public auction took place, attended by the second appellant and 119 other persons but no bids were forthcoming even when an opening bid of US$3m. was requested.

After some further unsuccessful attempts to interest potential buyers, the land was valued again, in October 1984, at US$7.6m. and in November 1984 the bank negotiated a sale by private treaty for US$7.5m. Under the proposed transaction the bank would provide part of the necessary finance and when 50% of its contribution had been repaid there would be a form of profit-sharing.

Having obtained leave under the Companies Law (cap. 22), s.98, the bank applied to the Grand Court for an order under the Registered Land Law (Revised), s.77 authorising the sale by private treaty and the second and third appellants were added as parties to the proceedings.

The appellants opposed the application submitting that (i) the bank could not properly apply for leave to sell the lands by private treaty (a variation of the power to sell by public auction under s.75) without first acquiring the power to sell by public auction; (ii) that power would arise only when the necessary notices had been issued under ss. 64 and 72 and the bank had as yet failed to comply with these mandatory provisions; (iii) the written demand for repayment made by the bank in July 1982 did not operate as a demand in writing within s.64(2) since it did not specify the date, three months later, on which the money should be repaid; and (iv) the bank had failed in its duty to obtain the best possible price for the land and its participation in the proposed transaction indicated that it had acted in its own interests in agreeing to a sale at an undervalue.

The bank submitted that (i) under the terms of the debenture it was entitled to sell the land without complying with the statutory provisions concerning notice; and (ii) it had made every effort to sell the land at the

best possible price but that since it had received only one genuine offer, the amount of that offer reflected the true market value of the land and it had not acted improperly in accepting it.

The Grand Court (Hull, J.) granted the order allowing the sale by private treaty holding that (i) the bank was not at liberty to sell the lands without complying with the provisions of the Registered Land Law (Revised)-a registered proprietor could not charge his registered title except in accordance with the provisions of that Law and the powers of variation conferred by s.77 related solely to powers exercisable under registered charges; (ii) the bank had, however, sufficiently complied with the statutory requirements since (a) no notice of demand under s.64(2) was necessary when there had been a default in the payment of interest because s.64(2) was designed only to determine the date on which the principal was to be repaid, and (b) although a notice under s.72 should normally specify separately the principal moneys and interest outstanding, the notice given in July 1982 which did not make this distinction was not invalid since the appellants knew how much principal had been advanced; (iii) even if no notice had been given under s.72, the terms of the application were sufficiently wide to allow the court to grant an order under the Registered Land Law (Revised), s.77 dispensing with the notice requirements of s.72 and such an order could properly be made since the parties themselves had agreed to variations of s.72, the appellants had had ample notice of the bank”s intention to exercise the power of sale and both parties had been legally advised; (iv) the proposed sale was not at an undervalue-the bank had made considerable efforts to obtain an attractive offer and although the agreed price was considerably lower than the original valuations it was in fact the only real evidence of the market value of the property.

On appeal the parties repeated their submissions in the court below.

Held, dismissing the appeal:

(1) The bank had no power to sell the land without complying with the provisions of the Registered Land Law (Revised). Under s.37 of the Law, no right of a proprietor in or over his land, lease or charge registered under the Law was capable of being affected except in accordance with the Law and the system of registration effected by it; and since, in the present case, the debenture was not in the prescribed form and was not registered under the Law, it could have effect only as a contract and could not by itself and independently of the Law confer any power affecting...