Australia and New Zealand Banking Group Ltd v Kanaimawi [2001] FJHC 121; Hbc0217j.2000s (1 August 2001)

IN THE HIGH COURT OF FIJI
(AT SUVA)

CIVIL ACTION NO. HBC 217 of 2000S

Between:

AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED
Plaintiff

and

DOVI KANAIMAWI
RATU EPENISA CAKOBAU
TAITUSI TIKONAKIDA HANCOCK
RODNEY FONG
Defendants

S. Parshotam for the Plaintiff
D. Sharma for the Defendants

JUDGMENT

The first and third Defendants were directors of Suva Outrigger Canoe Limited (the Company).

The Company decided that it wished to promote an entertainment on Millennium eve, 31 December 1999. On 7 October the Company wrote to the Plaintiff (the Bank) seeking an overdraft facility for the event, a “Last Cannibal Fiji Millennium Feast” to be held on Nukulau Island. A copy of the letter is exhibit J to the affidavit filed by Haroon Ali on 1 August 2001. Attached to the letter was a financial summary which envisaged ticket sales amounting to F$1,012,000.

On 19 October 1999 the Bank replied. As appears from Exhibit A to the affidavit of Narend Kumar filed on 14 November 2000 the Bank, through its “Relationship Manager”, Mr. Peter May agreed to provide an overdraft of F$100,000 to the Company. The Bank’s offer was made subject to a number of conditions. One of these was a requirement set out in paragraph 3 of the letter that it be provided with:

“Unlimited guarantee from Directors Dovi Kanaimawi, Epenisa Cakobau, Taitusi Hancock and Rodney Fong”.

In November 1999 the Company decided on a different format for the event. Rather than hold a cannibal feast on Nukulau Island it was decided to stage a concert in Suva and to engage as the main attraction a well known singer Mr. George Veikoso.

By 2 December 1999 the Company’s balance with the Bank stood at -$93,237.58. By 6 December it had exceded the overdraft limit and stood at -$101,594.98 (see Exhibit C to Haroon Ali’s affidavit). Unfortunately however the unlimited guarantee required by the Bank had still not been provided. According to Haroon Ali (paragraph 11 of his affidavit) a guarantee was eventually drawn up on 21 December and was handed to the first Defendant.

On 23 December 1999 the guarantee was signed by all 4 Defendants. A copy of the guarantee bearing their signatures is Exhibit C to Mr. Kumar’s affidavit. As appears from the guarantee it was signed at the offices of Messrs Howards Solicitors, Suva and was witnessed by Mr. Miles Young, a barrister and solicitor who was not acting for the Bank. In addition to witnessing the signing of the guarantee Mr. Young also issued 4 certificates in standard form certifying that he had explained the nature and effect of the guarantee to each guarantor who had stated to Mr. Young:

“that he understood the general nature and effect of the documents and obligations and risks involved in signing these documents (and) that he (was) signing these documents freely, voluntarily and without pressure from the borrower or any other person.”

Each certificate was countersigned by a named Defendant.

Unfortunately the Last Cannibal Party was not as successful as had been hoped. According to paragraph 37 (e) of Mr. Kanaimawi’s affidavit filed on 30 January 2001 “only 200 people turned up at the event and total income generated was $8,000.”

On 1 February 2000 the Bank served a demand notice on the company and the 4 Defendants (Exhibit D to Mr. Kumar’s affidavit). According to the notice the Bank account then stood at -$98,473.45 plus bank charges and interest accruing at the rate of 18% per annum. The demand was not met.

On 3 May 00 the Bank commenced this action by writ. The total amount said to be owed to the Bank by the Defendants had by this time risen to $127,567.86 with interest accruing at the rate of 13.75% per annum.

On 5 June 00 a Defence was filed. Although the Defendants admit that the Company defaulted on its loan obligations to the Bank and that the Last Cannibal Party failed leaving debts in excess of $180,000.00 the Defendants denied liability under the guarantee.

On 9 June 00 Byrne J ordered that the Company be wound up.

On 14 November 00 the Bank issued a summons under the provisions of RHC O14 seeking summary Judgment for the amount claimed. The application was heard on 2 August 2001. In addition to the evidence contained in the 3 affidavits already referred to helpful written submissions was also filed by both counsel.

In his written submission Mr. Parshotam referred to a number of local cases where summary Judgment had been given against a guarantor. He suggested that on the undisputed facts of this case there was no defence to the claim.

Mr. Sharma advanced a number of different arguments in support of his submission that the matter should be allowed to go to trial.

First, he suggested that since the Defendants had in fact filed a Defence an application under Order 14 was no longer appropriate. That is incorrect. McLardy v. Slateum [1890] UKLawRpKQB 34; (1890) 24 QBD 504 is authority for the proposition that the filing of a Defence does not prevent summary Judgment being entered in a suitable case.

Secondly, it was said that by the time the guarantee was signed the overdraft facility had in fact been withdrawn. Examination of Exhibit C to Haroon Ali’s affidavit demonstrates that that was not in fact the case. On 23 December 2 cheques presented by the Company were indeed dishonoured since on 22 December the accounts stood at - $104,854.17. But a number of further withdrawals were permitted in January, the balance on one occasion reaching - $138,550.

Thirdly, it is argued that the guarantors only guaranteed repayment of advances made after the guarantee was signed and could therefore not be held liable to repay the $99,914.17 which had already been advanced by the Bank on the date of signing. In answer, Mr. Parshotam pointed out that the guarantee contains an alternative consideration namely forbearance on the part of the Bank immediately to demand and sue for payment of any moneys then owing by the Company to the Bank. It is well established that forbearance to sue for a past debt may constitute good consideration (see e.g. Colonial Bank of Australasia v. Kerr [1889] VicLawRp 111; (1889) 15 VLR 314). I am also of the view that paragraphs 9 (a) (I) and 13 of the letter of offer dated 19 October (Exhibit A to Mr. Kumar’s affidavit) had the effect of binding the guarantors from 5 November, the date the offer was accepted by their signatures.

Next, it was pointed out that although that the letter of offer required guarantees from the 4 Defendants as directors of the Company in fact the second and fourth Defendants did not hold these positions. Therefore it was suggested that they could not be bound. I disagree. In my view the requirement that the guarantors be directors was a requirement made by the Bank for its on protection. Clearly a lender would prefer to have the loan guaranteed by a director rather than by the tea lady. In fact the Company itself represented that all 4 Defendants were directors (see Exhibit A to Haroon Ali’s affidavit) and 3 of the Defendants signed the letter of offer as directors. There is no doubt as to the identity of the guarantors named in the guarantee. That the exact legal relationship between some of the guarantors and the Company may have been misstated does not in my opinion affect the validity of the guarantee.

As will be seen from paragraph 34 of Dovi Kanaimawi’s affidavit and paragraph 6 of the Defence the Defendants also aver that the guarantee was executed under duress. The Defendants say that they only signed because the Bank had threatened to discipline Mr. Peter May if he did not obtain the guarantee. This allegation is denied by the Bank. Even if however it is true I do not see how it helps the Defendants. It must be remembered that the Defendants, from the moment they signed the letter of offer on 5 November became bound to execute the guarantee. Furthermore, as already seen the certificates signed by the Defendants before Mr. Miles Young clearly state that the guarantee was being “freely and voluntarily signed and without pressure from the borrower or any other person”.

In paragraph 20 of his affidavit Mr. Dovi Kanaimawi suggests that the Defendants had “no idea or understanding” of the guarantee “since (it is) not in plain or simple language or language that lay person can understand”. As pointed out by Kermode J in FDB v. Navitalai Raqona [1977] FamCA 81; [1984] 30 FLR 151:

“the general rule is that a party of full age and understanding is normally bound by his signature to a document whether he reads or understand it or not.”

Taking into account the contents of the signed certificates issued by Mr. Miles Young this argument by the Defendants is in my view unsustainable.

The next argument advanced by Mr. Sharma arises from paragraph 15 of the Defence and paragraph 37 of Mr. Dovi Kanaimawi’s affidavit. Put briefly it is suggested that since the Bank advanced the money on the understanding that repayment would be generated by ticket sales repayment cannot be looked for elsewhere. I find nothing in the terms of the guarantee to support this line of reasoning. Lending would simply cease if a borrower’s liability to repay was extinguished by the failure of an investment to return profits. This submission appears to me to have no merit and I reject it.

Two further submissions were advanced arising out of the terms of the Indemnity Bailment and Guarantee Act (Chap 232).

First, it is said that under Section 12 of the Act the discharge of a principal debtor releases the sureties. I agree but there is nothing here to suggest that the principal debtor was ever discharged.

Secondly, it is said that Section 11 of the Act requires the consent of a surety to a variation of the Contract between the Bank and the Company. Again I agree but there is no evidence at all that the Contract was varied at any time. If in fact there were some variations of the interest rate as is suggested in Mr. Sharma’s written submissions then such variations appear to be covered by the “Facility Schedule” (Exhibit H to Mr. Ali’s affidavit) which was annexed to the letter of offer.

When I asked Mr. Sharma what evidence the Defendants would wish to place before the Court if given leave to defend he identified the duress argument, the withdrawal of the facility argument and a further allegation of bad publicity contained in paragraphs 19 and 37 (d) of Mr. Dovi Kanaimawi’s affidavit. I have already considered the first two of these arguments and rejected them. As to the allegation of bad publicity being generated by the Bank this is wholly unsubstantiated. What possible motive the Bank could have for imperilling its own investment was not explained. The fact is that the concert went ahead as planned but very few people attended and it was for this reason that the project was unsuccessful. The Defendants suggestion that the Bank was somehow responsible for the failure of the Last Cannibal Venture seems to me to be without any foundation.

In my opinion the Defendants have not raised any legal arguments capable of affording them a defence to the Plaintiff’s claim. Neither in my view have they raised any issues of fact on the outcome of which the Plaintiff’s claim may depend.

In my view there is plainly no defence to the Bank’s claim and accordingly there will be summary Judgment as prayed.

M.D. Scott
Judge

August 01