Supreme Court
Action No. 125 of 1981
7th April, 1982.
Alcantara, J

Mr. Bernard Q.A. Pitts, for the Plaintiff.
Mr. D.B. Courtenay, for the Defendant.

Mortgage of Property - Order of sale by mortgagee - Mortgagees power of sale - Section 68A(1) of the Law of Property Ordinance - Property sold at a grossly undervalued price to a company controlled by mortgagee - Court finding as a fact that no sale took place - Plaintiff entitled to principal and interest.

J U D G M E N T

Mr. Jeph William Dickson, the Plaintiff, lent $50,000 (U.S.) to the Defendant, Playa del Sol Limited, on a mortgage dated 29th April, 1972. The property mortgaged was in the region of 20,000 acres of land valued at $10 to $12 U.S. per acre.

The mortgage deed contained two things, a power of sale and a clause excluding Section 81 of the Law o f Property Ordinance.

Whereas before 1964 a mortgagee had to come to Court to obtain an order for sale by virtue of an amendment, Section 68A of the Law of Property, a mortgagee could do so without a court order. Section 68A(1) reads:

68A.-(1) Where, by virtue of subsection (3) of section sixty-eight of this Ordinance, the mortgagee deed provides that when the mortgage money has become due the mortgagee shall have a power without any order Court to sell or to concur with any other person in selling the mortgaged property, or any part thereof, either subject to prior charges or not, and either together or in lots, by public auction or by private contract, subject to such conditions respecting title, or evidence of title, or other matter, as the mortgagee thinks fit, with power to vary any contract for sale, and to buy in at an auction, or to rescind any contract for sale, and to resell without being answerable for any loss occasioned thereby, the mortgagee may exercise such power without applying to the Court for an order for the sale of the mortgaged property."

And -

"(4) Where the Registrar is satisfied that a transfer of registered land under this section vesting the freehold or leasehold in the purchaser of mortgaged property has been duly made in accordance with the provisions of this Ordinance, he shall give effect thereto and issue the necessary transfer certificate of title as if an application therefore together with all the necessary documents had been presented to him in accordance with the provisions of the General Registry Rules, 1954."

At the same time Section 81 of the Law of Property Ordinance was amended to include subsection (2) as follows:

"Section 81 (2) A mortgagee shall not exercise his power of sale under section 68A of this Ordinance unless and until -

(a) notice in writing requiring payment of the mortgage money has been served on the mortgagor or one or two or more mortgagors, and default has been made in payment of the money, or of part thereof, for three months after such service; or

(b) some interest or instalement of principal money due under the mortgage is in arrears and unpaid for fourteen days after the same became due; or

(c) there has been a breach of some covenant contained in the mortgage deed or of some provision of this Part of this Ordinance, and on the part of the mortgagor, or of some person concurring in making the mortgage, to be observed or performed, other than a covenant for payment of the mortgage money; and

(d) he has given least two months notice of his intention to exercise his power of sale by publication thereof in three issues of the Gazette and of one newspaper circulating in the country."

The mortgage deed purports to exclude the whole of Section 81, including subsection (2). The question which arises is whether you can contract out this subsection. My initial reaction is that you cannot. I am conscious that in Fisher & Lightwood's Law of Mortgage at p. 307 to somewhat similar provision under the Law of Property Act 1925, Section 103 says:

"These restrictions on the exercise of the statutory power may be, and commonly are, modified or exclude"

The author does not deal with the question of whether they are capable of being excluded nor does he quote any legal decision for his views. Counsel has referred me to Alliance Building Society v Shave (1952) 1 CH. at p. 586 in support of contracting out. That authority was not dealing with this specific issue. In fact Fisher & Lightwood published in 1969 does not refer to it as authority for contracting out.

On this point I derive some assistance from Maxwell on the Interpretation of Statutes for the quotation at p.378:

"Where in an act there is no express prohibition against contracting out of it, it is necessary to consider whether the act is one which is intended to deal with private rights only, or whether it is an act which is intended, as a matter of public policy, to have a more extensive operation."

Taking into account that the Courts of Equity have always mitigated the harshness of the common law, and the fact that originally a mortgagee had to come to Court to be able to sell the property mortgaged, I am opinion that the intention of the Legislature was to make Section 81 (2) mandatory and not capable of being contracted out. The whole purpose of advertising in three issues of the Gazette and in a newspaper is to bring to the attention of persons interested, i.e. second mortgagee etc., that a sale is going to take place.

This issue does not arise directly in this case as the sale was conducted in accordance with subsection (2) of Section 81, so I will not set a precedent.

It is not in dispute that the mortgagor, Playa del Sol Ltd., defaulted in its payments and that the Plaintiff purported to sell the mortgaged property pursuant to his power of sale under the mortgage deed.

There is some dispute as to whether the mortgagee refused an offer of repayment by the mortgagor, but nothing arises out of that because at no time did the mortgagor either deposit the money owing in Court or in a Bank in the name of the mortgagee. Before the mortgagor can apply to redeem his equity he has to tender the mount, not just offer it.

A sale took place sometime in April 1978. It is sufficient to say that the mortgagee sold the property to a company, EZE. Incorporated for whom the mortgagee himself acted, for $5000 U.S. A property worth at least $200,000 U.S. sold for $5000 U.S.! The evidence is such that there is no unanimity as to whether the sale was by auction or private treaty or whether any money passed between buyer and seller.

Although the property was sold and transferred, it has never been registered under Section 68A(4). I am not surprised. The Registrar would have been quite entitled to refuse registration.

The mortgagee is now applying to this court for an equitable remedy, a mandatory injunction, compelling the mortgagor to transfer the Certificate of title and asking for $232,325.75 U.S. as being principal and interest due up to date of sale.

The law on this aspect of the case is set out clearly in Snell on Equity, 27th Edition at p.398, where the case of Cuckmere Brick Co. Ltd.v Mutual Finance Ltd. (1971) CH 949 is quoted. It reads

"The sale must be a true sale. A purported sale by a motrgagee to himself, whether directly or though an agent, is no sale at all, and must be disregarded."

The relevant passage from the case cited is:

"A mortgagee is not a trustee for sale; the power is given to him for his own benefit, and if he exercises it bona fide, without corruption or collusion with purchaser, the court will not interfere even though the timing of the sale be very disadvantageous to the mortgagor."

And further on :

"He must take reasonable care to obtain the true market value of the property at the time he chooses to sell it."

There is another case on the point. Mr. Justice Joyce in the case of Hodson v Deans (1903) 647 at p.652, expresses himself in this manner:

"It is true that a mortgagee is not a trustee for sale in the ordinary sense. He has right of his own, but he is under certain obligations to the mortgagor, especially where the security is ample."

The judge's finding in that case are particularly illuminating and germane to the case now before me. He says:

"Upon the evidence in this case I find as a fact that the property was sold at an undervalue, not of itself so great as to invalidate the sale, but still at an undervalue………….. Fraudulent conspiracy amongst all the defendants has not been proved, but the result of the evidence has been to make me distrust all the persons who were mixed up in the sale. I think that the plaintiff has not been fairly and honestly dealt with………. Upon the admitted facts the case was one of grave suspicion, and that suspicion has not been lessened by what has transpired in the course of the trial. I do not think that everything has been fairly and bona fide, and the sale must be set aside."

This Court is not prepared to give the Plaintiff any assistance on the basis that 'he who comes to equity must come with clean hands'

I have no doubt that the sale was a sham. True it purported to be a sale conducted by a solicitor, but it is obvious that the market price for the property was not obtained. The Plaintiff blames his solicitor, and he might or might not be to blame, but this does not exonerate the Plaintiff. It is his responsibility to take reasonable care, and he cannot hide behind an agent, his solicitor. If he has been mislead or wrongly advised by his solicitor he might be able to take such steps against him as he may be advised.

The law on the matter is set out clearly in Snell on Equity and in Cuckmere Co. Ltd. v Mutual Finance Ltd.

I find as a fact that the property was sold at a grossly undervalued price and sold to a company which was managed or controlled by the mortgagee. It was no sale.

I find that the Plaintiff is nonetheless entitled to his principal and interest up to the time of sale, but no more. He is in fact not claiming more although the sum actually claimed appears to me to be grossly inflated. There is no need to order an account to be taken, as there is evidence to arrive at the appropriate figure. The mortgage was entered into on the 29th April, 1972, and the property was sold in April, 1978 (the exact date is not known). Let us say 6 years. I make the total interest $75,000 U.S. So the sum actually owed was $125,000 U.S. less whatever sum was paid. I make it $118,250. U.S. on rough estimate. The defendant himself admits it amount to $119,294.25 U.S.

On payment of that amount, not just an offer to pay, the Defendant would be entitled to his equity of redemption. I think the Defendant should be given a month as from today to make up his mind. If he defaults, the Plaintiff would be at liberty to once more exercise his power of sale, to apply to the court for an order of sale, or to foreclose, or to take any other legal remedy. Needless to say at the expiration of one month the interest would start to accrue once again.

In other words I am giving to the Defendant the declaration sought in their Counterclaim. I dismiss their claim for damages as I am not satisfied that there was ever a legal tender of the money due.

I give judgment for the Plaintiff in the sum of $119,294.25 U.S.

I would like to hear Counsel on the question of costs,

After hearing Counsel on both sides I order that each party should bear his own costs.

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