Low v NBF Asset Management Bank [2017] FJHC 83; HBC551.2006 (7 February 2017)

In the High Court of Fiji at Suva
Civil Jurisdiction

HBC Action No. 551 of 2006

Between

Michael Low & Roselyn Losa Low

Plaintiffs

And

NBF Asset Management Bank

Defendant

COUNSEL: Mr G. O’Driscoll for the plaintiffs
Mr K. Jamnadas for the defendant
Date of hearing : 11^th,12^th and 13^th October, 2016
Date of Judgment: 7^th February,2017

Judgment

1. The first and second plaintiffs had provided a third party mortgage to the defendant over their property,CT 19038 on account of loans and advances granted to Unique Marketing South Pacific Ltd,(the Principal debtor).The plaintiffs state that they were assured and their understanding during verbal discussions with the defendant was that their third party mortgage was limited to refinance the debtor’s outstanding term loan account with ANZ Bank. They claim that they are not liable for the additional advances granted to the Principal debtor by the defendant, without their consent. The plaintiffs seek a declaration that the defendant had limited their liability to a specific amount and owed them a duty of care to explain the terms and effects of a third party mortgage. They challenge the accounts and seek an order for the defendant to supply them with detailed statements of account of the Principal debtor.The defendant denies the claims and counterclaims for a sum of $746,851.14 together with interest and an order for sale of the property of the plaintiffs.
2. The statement of claim

1. The statement of claim recites that at the relevant time, the Principal debtor’s ANZ term loan account was $51,540.23 less interest rebate of $12,319.19, leaving a settlement figure of $ 39,221.04.
2. In November, 1992, the debtor’s account was reduced to $18,924.24 and thereafter the defendant alleges it advanced the sums of $ 207,000.00(disbursed on 3^rd December,1992) and $20,000.00 on 23^rd June,1995.

100. The defendant has paid itself a sum totaling $477,728.47 by loan repayments, mortgagee sales and redemption of the Principal Debtor’s fixed deposit.

4. The plaintiffs state that with an initial debt of $207,000.00 and total repayment of $477,728.47, the defendant is claiming $747,244.89, the bulk of which being interest over years of inactivity by the defendant which has prejudiced the plaintiff.
5. Five unexplained debts have been made by the defendant in the Principal debtor’s account no. 02 – 258608–2001–1. The account does not reflect a term deposit of $70,801.00 pre-paid.
6. Despite the plaintiffs making regular payments, the defendant in its statement of account records no transactions for the period 31^stDecember,1995, to 30^th July,1996.
7. On the term loan account, the defendant shows a repayment of $3,500.00 in the month of August, 1996, but no repayment of $3,500.00 for the month of September,1996.
8. The surrender value of Keyman Policies taken out on the life of the Directors of the debtor were assigned to the defendant, but are not reflected in the accounts.

3. The statement of defence
   1. The defendant, in its amended statement of defence state that the effect of the third party mortgage was explained to the plaintiffs by the witnessing Solicitor, particularly that the mortgage extended to the Principal debtors’ full indebtedness. The defendant acted in good faith and discharged its duty of care to the plaintiffs. The consent of the plaintiffs was not required for further advances, as that was covered by the mortgage. The unexplained debits were advances made to the Principal debtor
   2. The payments made by the plaintiffs towards the Principal debtors account were insufficient to cover the accrued debt. Any payments made by the Principal debtor or the plaintiffs were recorded in the statements of account, including the surrender of insurance policies. No complaints were made by the Principal debtor, which was sent statements of accounts regularly.
4. The plaintiffs’reply

The plaintiffs, in their reply to defence take issue with the defendant on its denials and deny liability for the sum counter-claimed. The Principal debtor’s account is inaccurate, incomplete and suspect.

The determination

5. I will first deal with the contentions of the plaintiffs on the third party mortgage.

The third party mortgage

6. PW1, (the first plaintiff, a Credit Controller) in evidence in chief said that the second plaintiff and he signed the third party mortgage on 23^rd November,1992, for a fixed amount. They signed all three pages of the mortgage. Their understanding was that the mortgage covered only the loan provided by ANZ to the Principal debtor.
7. The opening paragraph of the mortgage expressly provides that the mortgage was given in consideration of loans made by the National Bank of Fiji and reads as follows:

IN CONSIDERATION of any loans or advances now made by NATIONAL BANK OF FIJI..(which together with its successors and assigns..)to or for the said Mortgagor and/or UNIQUE MARKETING SOUTH PACIFIC LIMITED...(hereinafter called “the Customer”).at the request of the Mortgagor as the Mortgagor doth hereby admit or hereafter in the discretion of the Bank to be made or given by the Bank to or for the Customer and/or for other valuable consideration moving from the Bank to either the Mortgagor or the Customer AND IN CONSIDERATION of all other sum and sums of money now or which may hereafter become due or owing from the Customer to the Bank ..AND IN FURTHER CONSIDERATION of forbearance on the part of the Bank to immediately demand and site for payment of any moneys owing by the Customer to the Bank to the intent that this security shall cover all moneys due from time to time by the Customer to the Bank on any account whatsoever DOTH HEREBY COVENANT AND AGREE with the Bank (jointly and severally if more than one) as follows:

8. In my judgment, the phrase “of all other sum and sums of money now or which may hereafter become due or owing from the Customer to the Bank” covers all loans and advances granted by the defendant to the Principal debtor.
9. It follows that it was not necessary for the defendant to inform or obtain the consent of the plaintiffs, to grant further advances to the Principal debtor.
10. In cross-examination, PW1 admitted that the third party mortgage does not state that the security was for a fixed sum and covered any loans or advances.
    
11. PW1 also admitted that he and his brother had signed and acknowledged receipt of the defendant’s letter of 22 July,1992, addressed to the Managing Director of the Principal debtor titled “ADDITIONAL BANKING FACILITIES”, with the common seal of the Principal debtor company. PW1 was a Director of the Principal debtor company. The letter refers to the additional term loan of $ 207,000, in respect of which the statement of claim alleges the consent of the plaintiffs was not obtained.
12. The other cogent evidence that emerged in his evidence in chief was the defendant’s letter of 19^th October,1994, on the “RESTRUCTURE OF BANKING FACILITIES”. PW1 accepted that the letter does not provide that the security was for a fixed loan granted by ANZ Bank. This letter was addressed to the Directors of the Principal debtor company, the receipt of which was acknowledged by PW1 and his brother with the common seal. It provides that the term deposit of $70801.00 has been prepaid.
13. It transpired that his signature with the company seal was on a letter dated 23^rd June,1995, from the defendant too.
14. In re-examination, Mr O’Driscoll, counsel for the plaintiffs asked him whether he could recall, if the common seal was on the letters. He replied in the negative. This came up as something of an afterthought, as it was not raised in evidence in chief. In cross-examination, he unequivocally said that he signed the letters under the common seal.
15. The document titled“(Submission for consideration)”and the letter dated 28 May,1996, shown to PW1 in cross examination and produced by DW1,(Bogi Basilio, Project Officer, Reserve Bank of Fiji) provide that PW1 was actively involved in the repayment negotiations with the defendant: The letter of 28 May,1996, from the defendant was marked for the “Attn: Mr Michael Low”,(PW1) and advised that the repayment of $ 2000 per month was not acceptable.
16. Before I move to the next contention, I would note that PW1 admitted that the accounts of the Principal debtor company were signed by him.
17. The second contention was that the effect of the mortgage was not explained. PW1 said that he made it clear to DW2,(Mr Subash Parshotam),the solicitor who witnessed his signature that he signed the mortgage only for the loan from the ANZ Bank.
    
18. DW2, in evidence in chief said that he has explained and witnessed mortgage documents for the last 34 years. He recalled that his office prepared the mortgage in issue. He knew PW1, when he was the Credit Controller of Carpenters Fiji. The mortgage was not for a fixed sum. He said that he would have explained basic aspects of the mortgage, viz, that the document secures advances at large, at variable rates of interest and advances are payable on demand. He explains the gist of the document and when the mortgagors confirm that they are happy, he witnesses their signature. To the best of his recollection, PW1 was not in his office for less than 10 mts, as alleged.
19. I accept the evidence of DW2 that he would not have certified that he “read over and explained the contents and the Mortgagor appeared fully to understood the meaning and effect thereof”, if the plaintiffs had not understood its terms and effect. He gave evidence objectively and truthfully, as an independent solicitor who advised both parties, as was the accepted practice at that time.
20. I am satisfied that PW1, a Credit Controller with knowledge of commercial dealings and mortgages, as he admitted in cross-examination, would have competently understood the terms and effect of the mortgage document he executed. No evidence was given by the second plaintiff.
21. In concluding this part of my judgment, I would reproduce excerpts from the judgments in the following two cases.
22. In Fiji Development Bank v. Navitalai Ragona,(1984)30 FLR 151 as cited by Mr Jamnadas, counsel for the defendant in his closing submissions, Kermode J said:

...if the alleged agreement or arrangement was a verbal one made before or at the time the guarantee was execute the defendant would not be permitted to lead evidence to establish his defence.

Lord Morris in Bank of Australia v. Palmer [1897] UKLawRpAC 44; (1897) A.C. 540 at pg. 545 said:

“Parol testimony cannot be received to contradict, vary, add to or subtract from the terms of a written contract or the terms in which the parties have deliberately agreed to record any part of their contract.”

23. In Hewitt v Habib Bank Ltd,(ABU0007.2004 S) as referred to in Chandra v & Ors v Merchant Finance and Investment Co Ltd,(Action no.21 of 2012) and cited by Mr O’Driscoll, the judgment of the Court citing Fiji Development Bank v. Navitalai Ragona declared:

The general rule is that a party of full age and understanding is bound by his/her signature to a document whether he/she reads or understands it or not. (see Gallie v. Lee [1971] A.C. 1004, 1016, 1019) We see no reason to depart from this rule.(emphasis added)

Statement of accounts

24. PW1’s grievances in this regard, are threefold.
25. The first was that despite the plaintiffs making regular payments, the statements of account of the Principal debtor for the period 31^st December,1995, to 30^th July,1996, record no transactions.
26. PW1 did not establish that any payment was made during that period. It transpired that interest was not charged for that period, as stated in the defendant’s reply of 3^rd May,2006, to the solicitors for the plaintiffs. DW1 explained that with the restructuring of the National Bank of Fiji, interest was frozen during that period. That disposes of the first complaint.
27. The gravamen of the complaint was in respect of the following debits in the statements of account, viz:(i)$10,397.27 on 16^th December,1993;(ii)$11,260.02 on 10^th January,1994:(iii)$ 50,000.00 on 12^thMay,1994, and (iv) $12,795.25 on 28^th June, 1994, and (v) $ 72070.
28. PW1, in evidence in chief said that no explanation was given by the defendant for the debits enumerated in (i) to (iv), though requested by his solicitors by their letter of 20^th April, 2006.
29. In cross-examination, he said that he was unaware if the other Director of the Principal debtor company had queried those debits before April,2006. He said that when he did, he was told that the National Bank of Fiji was closed.
30. DW1 said that he was involved with this loan in the dept that overlooked the defendant’s affairs. In evidence in chief he said that with the restructure of the National Bank of Fiji, all the records prior to 1^st July,1996, were kept with the Colonial National Bank and cannot be found.
31. In my judgment, in view of the inability of the defendant to explain the debits in (i) to (iv) totalling to a sum of $84,452.54 must be discounted.
32. PW1, in in evidence in chief said that he was unaware as to the debit of$ 72070 in the statement of account of 26^th June, 1992, to 4^th January,1993. He pointed out a discrepancy in the account no given in that statement vis a vis the account no in the other statements of account. The defendant’s closing submissions at para 5.1 submits that no such debt exists in that particular account and the sum of $72,070.00 ought to be disregarded.
33. That unlocks an aggregate sum of $156,522.54 from the defendant’s counterclaim.
34. Finally, PW1 said that the defendant had not provide him with copies of the statements of account. The riposte of DW1 was that statements of account were only sent to the Principal debtor.
35. Lord Campbell in Hamilton v Watson,(1845)8 ER 1339 at pgs 1342-1343 explained the limited circumstances where a banker must disclose the accounts of a debtor to a surety, as follows:

....it would be indispensably necessary for the bankers to whom the security is given, to state how the account is being kept: whether the debtor was in the habit of overdrawing; whether he was punctual in his dealings; whether he performed his promises in an honorable manner;_ for all these things are extremely material for surety to know. But unless questions are particularly put by the surety to gain this information, I hold that it is quite unnecessary for the creditor to whom the surety ship is to be given to make any such disclosure; and I should think that this might be considered as the criterion whether the disclosure ought to be made voluntarily, namely, whether there is anything that might not naturally be expected to take place between the parties who are concerned in the transaction, that, is, whether there be a contract between the debtor and the creditor, to the effect that his position shall be different from that which the surety might naturally expect, and, if so, the surety is to see whether that is disclosed to him. But if there be nothing which might not naturally take place between these parties, then, if the surety would guard against particular perils, he must put the question, and he must gain the information which he requires.(emphasis added)

36. In the light of my findings, I do not find it necessary to make an order for the defendant to provide detailed statements of account.
37. I decline the reliefs claimed by the plaintiffs.
38. I turn to the counterclaim.
39. DW1 said that repayments were not made by the Principal debtor and interest continued to accrue as set out in the statements of account marked “PE 6”. As at 28 February,2006, a sum of $746,851.14 was due.
40. The plaintiffs did not lead any evidence on the resulting reduction in interest upon the deduction of the unexplained debits, which therefore does not fall for the consideration of the Court.
41. The defendant’s counterclaim partly succeeds. The defendant is entitled to judgment in the sum of $ $590,328.60(746,851.14 less 156,522.54) together with interest at 13.5 % from 6^th March,2006, until date of this judgment and post judgment interest thereafter.
    
42. Orders
    • (a) I decline the reliefs sought by the plaintiffs.
    • (b) The plaintiffs shall pay the defendant the sum of $590,328.60 together with interest at 13.5 % from 6^th March,2006, to-date and post judgment interest thereafter.
    • (c) The defendant is entitled to an order for sale of CT 19038.
    • (d) Each party shall bear their own costs .
      

A.L.B.Brito-Mutunayagam
Judge
7^th February, 2017