Rongo v Bank of the Cook Islands Holdings Corporation [2010] CKHC 60; Misc35.2005 (1 January 2010)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)

Misc. No: 35 /2005

IN THE MATTER of Equitable Estoppel and
Relief

AND

IN THE MATTER of an Ex-Parte Judgment
Order made by Mr. Justice
Nicholson on the 12 April
2005

BETWEEN :

TEARIKI RONGO of
Rarotonga, self employed,
First Judgment Debtor
First Applicant

AND:

JULIA RONGO of
Rarotonga, self employed,
Second Judgment Debtor
Second Applicant

AND:

BANK OF THE COOK
ISLANDS HOLDINGS
CORPORATION,
a statutory corporation established under the Bank
of Cook Islands Act 2003
The Respondent

Counsels:
Mr Norman George for First and Second Applicants
Mr Charles Little for Respondent
Date of Judgment:

JUDGMENT OF NICHOLSON J

Application.

1. Mr and Mrs Rongo have applied "for an Order based on Equitable Estoppel seeking relief by way of setting aside and dismissing a judgment debt for $35,114.53 ordered on 14 October 2005."
   
2. On 12 April 2005 I had entered judgment by default for that sum against the Applicants. They later applied under Section 221 of the Code of Civil Procedure 1981 for a rehearing. In a judgment of 14 October 2005 (New Zealand Time) I dismissed that Application.
   
3. The only way that a judgment can be quashed is by rehearing or a successful Appeal. I therefore consider that the current Application is in effect for an order prohibiting enforcement of the judgment upon the ground that the judgment creditor is estopped from enforcing the it.
   

Grounds

4. The grounds as pleaded in the Application are:
   
   • (a) After a rehearing application was filed in April 2005 where execution of an ex-parte judgment order made by Mr. Justice Nicholson on 12 April 2005, was stayed, an event took place which changed the position of the Applicants.
     
   • (b) On the 30th of September 2005; about two weeks before Mr. Justice Nicholson's judgment of 14 October 2005, they received advise from the Plaintiff Bank that their debt, being a business loan, the subject of litigation under consideration by his Honour Mr. Justice Nicholson was forgiven except for legal costs of $1,437.00.
     
   • (c) Acting on the information sent to them by the Plaintiff, the Applicant's position changed from indebtedness to one of being debt free.
     
   • (d) It is believed that this loan was one of many bad loans written off by the Plaintiff on the advice of the Minister of Finance during June – July 2005.
     
   • (e) The Applicant's position changed by operation of equitable estoppel, because they were advised that they were debt free, they did not feel obligated to respond to the Judgment of Debt Order which they felt became a source of embarrassment to the plaintiff by pre-empting a Judgment Order.
     
   • (f) By the operation of the doctrine of Equitable Estoppel, the Applicants are entitled to the relief of having a Judgment order dated 14 October 2005 set aside and dismissed.
     

Pertinent Facts

5. Mr. And Mrs. Rongo established and managed a business carried out through the vehicle of Are Printing Ltd. On 1 August 1996 the Company made a loan agreement with the Bank and Mr and Mrs Rongo bound themselves as personal guarantors for repayment of the loan to their Company.
   
6. When the Company did not out repay the outstanding loan debt it owed, the Bank issued proceedings against Mr And Mrs Rongo in respect of their liability as personal guarantors of the loan. Following non compliance with an Order requiring Mr and Mrs Rongo to file statements of defence, the Bank applied for judgment and on 6 April 2005 I entered judgment for $31,143.48 plus interest, costs and disbursements which were fixed by me on 12 April 2005 as $3,508.55, $350.00 and $112.50 respectively.
   
7. On 12 May 2005 Mr. and Mrs. Rongo applied for a re hearing. On 30 May 2005 I ordered that execution of the judgment be stayed pending resolution of the Application for rehearing. On 14 October 2005 I dismissed the Application for a re hearing and revoked the stay of execution of judgment.
   
8. In the affidavit which he filed in support of the Estoppel Application Mr Rongo said that during early 2005 a blitz was put on all those who owed money to the Bank and many people were taken to Court. Many complaints were then made to the then Minister of Finance Sir Geoffrey Henry to put some restraints on the Bank Board. He was one of those who complained.
   
9. On 30 September 2005 he received a statement from the Bank addressed to Are Printing Limited which said:
   

EFFECT. POSTED TRANSACTION DESCRIPTION DEBIT CREDIT BALANCE

30JUN05	Opening Account Balance			23,618.50-
19JUL05	WRITE OFF		23,000.00	618.50-
02AUG05	LEGAL FEE	818.50		1,437.00-
30SEP05	Closing Account Balance			1,437.00-

Mr Rongo said that he and his wife were both very excited and knew it must have been part of the move by the then Minister of Finance Sir Geoffrey Henry to write off old unserviceable loans. When the judgment of 14 October 2005 was delivered declining their Application for a rehearing they expected the Bank to quietly set it aside as their debts was written off. Presumably having being told by the Bank that the statement had been sent to him by mistake, in late November 2005 Mr Rongo went to see Mr Kevin Carr, Financial Secretary and Chairman of the Bank Board to ask him what was going on. He deposed that Mr Carr told him that many of the loans with the Bank were written off. Although Mr Carr did not confirm that the Rongo loan was one of them Mr Rongo assumed that it was, as it was granted by the Bank. Mr Rongo deposed that he and his wife are of the opinion that by sending them the "write off Bank Statement," the bank has forgiven their loan.

In response to the Estoppel Application the Bank filed an affidavit by Mr K. Moran Chief Executive Officer of the Bank. Mr Moran deposed that the statement relied upon by Mr and Mrs Rongo was sent by the Bank in error and should never have been forwarded. He explained that the statement eventuated because the amount was written off by the Bank for book keeping purposes solely. By that he meant that in any Bank there are certain loans which may be difficult to recover and as those loans are considered to be an asset to the Bank, wherever the prospects of recovery are dubious or unlikely that if the relevant loan is shown as the full amount of the advance on the balance sheet or profit and loss sheet then a false picture will arise. That is to say a loan is considered to be an asset and if for example a loan is represented on a balance sheet as being an asset of $50,000.00 and that loan is unlikely to be paid or there will be problems in recovering that loan then that $50,000.00 asset will provide a false picture. Accordingly it is the usual practice of Banks where it is likely to be difficult to recover a loan that the loan is adjusted solely for the purpose of providing an accurate reading in terms of the assets position on a balance sheet for the Bank. That is what happened here. Notwithstanding that the Bank wrote off part of the debt that was solely for book keeping purposes. Mr Moran deposed that the Bank would in no way write off the loan in reality, that is to say that it continued to reserve its right to pursue repayment of the debt. He said that if the Bank was going to write this loan off then the full amount of the judgment would have been written off and the account closed. However that is not the case and a residual balance was left to ensure that when the loan showed up on a balanced sheet that it was clear that it was a live debt and that the matter of recovery was ongoing. The statement was sent by the Bank by accident an oversight.

I accept the affidavit evidence of Mr Moran that the Bank has not forgiven the debt or any part of it and that the document sent to Are Printing Limited was an internal bank document not intended to be sent to anyone outside the Bank and that it was sent by
mistake.

Pertinent Law

"Estoppel by representation arises where one person ("the representor") has made a
representation to another person ("the representee") with the actual or presumptive intention and with the result of inducing the representee to alter his or her position detrimentally on the faith of that representation.... Where such a representation is made, the representor is estopped as against the representee from making or attempting to establish by evidence any avertment substantially at variance with the representor's former representation in any litigation which may afterwards take place between the representor and the representee" – Vol. 12 The Laws of New Zealand "Estoppel by Representation" para. 36.

"There is some authority for the proposition that to raise an estoppel the promise must have been intended to be binding by the promisor. For example, Brennan J in Waltons Stores (Interstate) Ltd v Maher held that for a promise to be binding it "must be intended by the promisor and understood by the promise to affect their legal relations".121 It is submitted, however, that the courts look at the reasonableness of the reliance from the promisee's point of view, rather than the promisor's subjective intentions, which are of secondary importance. For example, in Burbery Mortgage Finance & Savings Ltd v Hindsbank Holdings Ltd the Court of Appeal was concerned with what Burbery would have understood from his conversation with the receiver, rather that what the receiver may have intended. Cooke P specifically referred to "a reasonable man in Mr. Burbery's shoes". The intentions of the representor will, however, certainly be relevant to the unconscionability issue in some circumstances. – Butler (2003), Equity and Trusts in New Zealand, 16.2.4.

In order to establish estoppel by representation the representee must have altered his or her position detrimentally in acting upon the representation. Such an alteration of position may consist merely in the representee abstaining from some course of action which the representee would possibly have taken but for the representation. The fundamental purpose of the doctrine of estoppel is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. A representation made to a person after that party has altered his or her position cannot give rise to an estoppel, even though it might have done so if made earlier and acted upon. It is a sufficient alteration of position if the representee is induced by the representation to take no step to protect himself or herself to retrieve a position until, owing to the insolvency of some person against whom he or she has remedy or for any other reason, it is too late – Vol 12 The Laws of New Zealand "Estoppel by Representation" para. 49.

Decision.

The statement sent by mistake by the Bank in September last year was capable of being interpreted by Mr and Mrs Rongo as a representation by the Bank that it was forgiving payment by them of the amount of $23,000.00. Despite the fact which I accept that that statement was sent by the Bank by mistake nevertheless in the circumstances if Mr. And Mrs. Rongo had upon receiving that statement believed that it had reduced the amount owed by them to the Bank by $23,000.00 and had upon that basis altered their position detrimentally then I would have found that the Bank was estopped from enforcing $23,000.00 of its judgment. However the only action deposed to by Mr Rongo when he received the statement is that he and his wife were both very excited. There is no statement that they thereupon acted to their significant detriment because of the situation as they then believed it to be.

I accordingly find that an estoppel by representation has not been made out and I dismiss the Application.

Costs

As the Bank has been successful in defending this further Application it is entitled to costs for doing. If the Bank seeks such costs then its solicitor is to file and serve a further costs memorandum in addition to its rehearing costs memorandum dated 9.11.05, within 14 days of receipt of this judgment.

The solicitor for the unsuccessful Applicants can file and serve a costs memorandum in response to both memoranda within 14 days of receiving the Bank's further costs memorandum.

I will decide costs on the written documents.

_______________________
JUDGE

Editorial Note: Derived from the Court’s electronic records and believed to be correct and final.