Ashley v Australia and New Zealand Banking Group Ltd [2016] SBCA 11; SICOA-CAC 6 of 2014 (22 April 2016)

IN THE SOLOMON ISLANDS COURT OF APPEAL

NATURE OF JURISDICTION:	Appeal from Judgment of the High Court of Solomon Islands (Faukona PJ)
COURT FILE NUMBER:	Civil Appeal Case No. 6 of 2014 (On Appeal from High Court Civil Case No. 482 of 2010)
DATE OF HEARING:	11 APRIL 2016
DATE OF JUDGMENT:	22 APRIL 2016
THE COURT:	Goldsbrough P Ward JA Hansen JA
PARTIES:	ASHLEY - v - AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
ADVOCATES: Appellant: Respondent:	In person Mr. A. Radclyffe
KEY WORDS:	Notice of interest rate change: default; penalty interest;
EX TEMPORE/RESERVED:	RESERVED
ALLOWED/DISMISSED	Allowed
PAGES	1- 4

JUDGMENT OF THE COURT

1. This is an appeal against judgment entered after a trial, which took place over two days in November and December 2013, judgment being delivered on 11 December 2013. It was ordered that the Appellant pay the Respondent bank SB$267,224.84 with interest until payment. The same order included a power of sale over Parcel No. 191 039 398 although that power of sale was not exercised given prior payment of the debt in full. The effect of this appeal, in 2016, is to determine how much, if anything, the Appellant is due to be refunded after he settled the entire judgment debt to avoid the sale of the property on 24 March 2014.
   
2. The sum of SB$267,224.84 was said to comprise SB$193,167.02, being the amount outstanding under the loan agreement as at the date of the claim, together with interest accrued from 24 November 2010 on the sum outstanding, that being the date of the claim.
   
3. The offer of a loan between the Respondent bank and the Appellant was accepted by the Appellant on 22 November 2004. The terms of the offer are set out in a document dated 16 November 2004 which can be found at pages 39 to 44 of the Appeal Book. The document set out the purpose of the loan, the conditions attaching to the loan and the variable interest rates to be applied. None of those items are remarkable. The loan offer and indeed the original claim was to both Mr and Mrs Ashley although during the proceedings at first instance Mrs Ashley ceased to be a party.
   
4. The loan facility was to be secured on two properties, one being a commercial property to be purchased under a power of mortgagee sale with the same loan facility and the other property an existing, mortgaged, family home at Vura.
   
5. Shortly after the facility was established, the pre-existing mortgage of the family home was extinguished, as envisaged by the agreement, but the registration of ownership and new charge in the joint names of the Appellant and his wife on the commercial property was problematic. The order for sale by the Court (made in other otherwise unrelated proceedings with different parties) specified a sale to only Mr. Charles and not to Mr. Charles and Mrs. Phyllis Ashley. As a result, registration of the Naha commercial property in joint names was not finalised by the Registrar of Titles as anticipated by all the parties to the loan agreement.
   
6. The loan 'facility' applied an interest rate of 5.90% per annum for the first 12 months and thereafter a variable interest rate over the remaining term of the loan beginning at 9.75%. The agreement provided for a 'penalty interest rate' being 5% per annum above the normal interest rate applicable in the event of any default in the terms and conditions (presumably default by the Appellants and not the Respondent bank although that is not clear from the agreement). There is also provision for variation of the interest rates 'to reflect its (the Respondent bank's) view of market conditions from time to time. In the same section, which is section 11 of the loan offer, the Respondent bank states: "If this occurs ANZ will notify you in writing no later than the day on which the charge takes effect."
   
7. It is an agreed fact that the Respondent bank varied the interest rate over the period of the loan from 9.75 to 13.25% on 26 November 2008, to 14% on 17 December 2008, to 16.5% on 13 November 2009, to 14.5% on 1 September 2010, to 19.5% on 29 October 2010, to 17.5% on 21 July 2011 and finally to 15.45% on 21 October 2011.
   
8. In making its initial calculation for interest on the loan at first instance as evidenced by an officer of the bank an error was made applying the first year interest rate. Instead of applying the correct (presumably discounted) rate of 5.75% the second year rate of 9.75% was applied. After trial but before judgment, the matter having been raised in cross examination, the Respondent bank filed an amended calculation reducing the total amount claimed as at the date of trial down to SB$267,224.84.
   
9. A further point made at first instance concerned notice of interest changes. On this appeal it is conceded by counsel for the Respondent that notice of interest change in writing was provided for in the loan agreement and that no evidence of interest change notification was led by the Respondent bank at trial or subsequently and that accordingly the application of any interest rate over and above 9.75% (save for the 5% penalty rate) was not recoverable. That resulted in the filing of a further amended calculation of interest, which document appears to show a decrease of SB$25,973.01 payable on the claim.
   
10. Whilst counsel for the Respondent submitted that the amended calculation dated 15 November 2013 included the 5% penalty rate and therefore the correct total claimed, the further amended calculation, omitting as it should the variable interest rate increases now shows instead the application of the 5% penalty as from 31 July 2009. It was this date that was chosen by the Respondent bank following the decision by the Appellant to make no further repayment during June 2009. It is the Respondent's position that under the loan agreement it was entitled to apply the default interest penalty at an earlier point but chose not to do so.
    
11. No direct comparison between the two documents bearing interest rate calculations is possible given that the earlier applies the variable interest rate and the latter a fixed interest rate but with the 5% penalty rate applied as from 31 July 2009. It does appear to this Court, however, that the Respondent bank had intended at first instance to seek both the variable interest rate and the 5% penalty rate but failed to do so given the earlier corrected calculation document. The effect of that further mistake appears to be that the Respondent sought less than it intended against the Appellant at first instance. Again, because of the way this material has been presented, exactly how much the difference was at first instance is not readily available.
    
12. The Appellant was contractually bound to pay the penalty interest rate as from the time of first default and there is material to show that default took place almost from the inception of the agreement. The first loan repayment was late by seven days, having been made on 17 January 2005. The second repayment was late by eighteen days, the third late by twenty-one days and the fourth by another eighteen days. Then between 28 April 2005 and 21 July 2005 no payment was made. Contractually, therefore, the Respondent bank was entitled to apply the penalty interest charge much earlier than it now does. It has now determined to apply the penalty rate as from 31 July 2009 and that decision is a matter within its competence.
    
13. The reasons given at first instance for what we choose in this judgment to call the "major" default, in June 2009, when all pretence of regular repayment ceased, are said to be twofold, the first being discovery by the Appellants that the commercial property had not been registered in their joint names and the second being a dispute about the outstanding balance of the loan. Neither of those issues constituted valid reasons for ceasing loan repayments as found by the trial judge and we agree with that finding.
    
14. Other, earlier, default is set out in the judgment at first instance and we agree with the learned trial judge that there is no doubt that default under the terms of the loan agreement was clearly established. As the learned judge said: - "there are no other words to describe it."
    
15. We do, however, disagree with the finding of the trial judge at paragraph 18 of his reasoning where he suggests that notification of the change of interest rate plays 'only a minor role' and has 'no contributing effect' on the total amount payable under the facility. Notification in writing of interest rate terms is required in order for the Respondent bank to comply with the terms of its own agreement. The manner in which this is effected is a matter for the bank but given that it failed to introduce any evidence in this case to show that it did indeed give notice in writing, it must be the case that it cannot recover more than the 9.75% p.a. rate specified in the loan offer and perhaps, if properly sought, the applicable penalty rate. To the extent that the calculation dated 15 November 2013 includes interest at any rate higher than 9.75% we consider that it should be reduced accordingly.
    
16. Regrettably it is not possible to ascertain from the claim, which was for SB$193,167.02, whether that amount included an amount for penalty interest and, if so, from what date. It seems clear that the corrected calculation of 15 November 2013 did not. We consider that the calculation provided to this Court after our request represents that which should be relied upon and merely regret that such a document was not available at first instance. Indeed, the Appellant conceded that in the event this Court did not accept his reason for stopping all payment to be valid reasons, that the latest calculation from the Respondent bank is an accurate calculation of the position.
    
17. In the event the appeal is allowed in part to reflect the decrease in interest payable to only the 9.75% rate for the second and subsequent years of the loan facility. The findings of the trial judge stand save and except for his finding in respect of notification of interest rates which we overturn for the reasons given. The Respondent bank is ordered to repay to the Appellant the sum of $25,973.01 from the date of payment by him to the Respondent until payment back to him with interest at the prescribed rate. We make no order as to costs on this appeal and confirm the order of the Court below that costs at first instance are to be paid by the Appellant.
    

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Goldsbrough P

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Ward, JA

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Hansen JA