Development Bank of Solomon Islands v Zalao [2017] SBCA 10; SICOA-CAC 10 of 2017 (13 October 2017)

IN THE SOLOMON ISLANDS COURT OF APPEAL

NATURE OF JURISDICTION:	Appeal from Judgment of The High Court of Solomon Islands (Brown J)
COURT FILE NUMBER:	Civil Appeal Case No.10 of 2017 (On Appeal from High Court Civil Case No. 474 & of 2016)
DATE OF HEARING:	11 October 2017
DATE OF JUDGMENT:	13 October 2017
THE COURT:	Goldsbrough P Ward JA Hansen JA
PARTIES:	DEVELOPMENT BANK OF SI –V- MALELI ZALAO
ADVOCATES: APPELLANT: RESPONDENT:	Mr. B. Upwe Mr. A. Rose
KEY WORDS:
EXTEMPORE/RESERVED:
ALLOWED/DISMISSED
PAGES	1- 4

JUDGMENT OF THE COURT

1. This is an appeal against the determination by Brown J of a preliminary question of law delivered on 16 March 2017.
   
2. The respondent obtained a loan of $100,000.00 from the Development Bank of Solomon Islands (DBSI) on 31 July 1995 to purchase a three ton truck for his business. The loan was to be paid back in three years and carried interest at 14%. The respondent started to pay off the loan satisfactorily until the ethnic tension started to devastate much of the country. The respondent reported that his truck was stolen at gunpoint by Malaita militants although the appellant bank appeared to maintain some doubts.
   
3. As the violence increasingly interfered with normal life in the country, the DBSI froze the respondent’s interest payments effective from September 2000 in order to enable the respondent to continue to pay off his loan.
   
4. The problems encountered by businesses during this disturbed time also affected the DBSI. On 10 June 2004 the High Court appointed the Central Bank of Solomon Islands as Court Appointed Manager to carry on the business of the DBSI. It was to have the powers of a liquidator under the Companies Act and the powers and functions of the Board and management of the DBSI from the date of the order. It was also ordered that the Court Appointed Manager was to take all reasonable, legal and prudent action to collect all non-performing loans and advances.
   
5. The interest was last debited to the respondent’s account in December 2000 and that remained the situation until 2009 when the appointed bank made, it would appear, a unilateral decision to resume interest payments and, more critically, to debit the respondent’s account with the interest the bank calculated had been frozen. No notice was given to the respondent that this was to happen but, on 28 February 2009, accrued interest of $171,435.06 was debited to the account.
   
6. A claim was filed by DBSI to recover the interest and, at a hearing in chambers on 9 February 2017, counsel agreed under Rule 12.11 that the answer to a preliminary question on the effect of the freeze would substantially settle the issues in the case.
   
7. The question was whether the Claimant (DBSI) had the right to and was justified in law, to reverse the frozen interest and charge the defendant (Zalao) without notice.
   
8. Brown J heard submissions on 16 March 2017 and gave his ruling the same day. He answered the question in the present respondent’s favour and dismissed the DBSI’s claim with costs.
   
9. The Bank appealed on three grounds which need not be set out but which challenged the learned judge’s conclusion that the frozen interest could not be claimed on the grounds (a) of force majeure, (b) due to the hardship it caused the respondent or (c), because it was waived. They require a consideration of the meaning of a freeze, the evidence, if any, of the intention of the DBSI and the propriety of re-applying the interest from the period of the freeze.
   

10. The learned judge dealt briefly with the history of the case including his findings or comments on the actual sums involved. Surprisingly perhaps, the figures calculated by the bank and those reached from calculation provided by the respondent’s witness show substantial differences. The judge alluded to the variation but it is not part of this appeal. There is little challenge to the facts as found by the judge and we accept his findings.

11. Brown J then continued:

“Mr Upwe has relied on the agreements and the effect of the approved Order of this Court between this Bank and the Central Bank when the Central Bank’s Court Appointed Manager took control of this Bank and by Order 8.6 [of 10 June 2004] exercised power of asset realisation and loan recovery.

One of the directives given [was] authority for compromise with borrowers. Clearly before the appointment of the Court Appointed Manager, the bank had waived recovery of the interest component under the agreement with these claimants. The Central Bank then was bound by that waiver, but as posed by the question, was the manager justified in law to reverse frozen interest without notice apparently reliant on his authority given by the Court Appointed powers.

There is no evidence that the Bank in December 2003 intended to re-introduce the accruing debit interest; the evidence is to the contrary. The Bank unilaterally debited the account in August 2009.

Mr Rose rather argues for the claimant’s equitable rights since the agreement for loans are silent when circumstances override commercial business dealings as force majeure may be said to have applied in the circumstance of the ‘tension years’. ...

... in the light of the Banks original action in freezing interest obligations, it would be unconscionable to reintroduce repayment of interest without notice and as happened when interest was frozen, without taking account of the circumstances of the claimants or bank customers.”

12. The term “freeze’ is not a term of art and so it is necessary to look, as the judge did, at the evidence in order to ascertain what was intended by the Bank. As the learned judge noted, whilst there was clear evidence that, when the DBSI imposed the freeze, it meant that the interest payments would not be payable or accumulate during the period of the freeze, there was no further evidence of its intentions when the freeze was called off. The first ‘notice’ the respondent had of those intentions was when the Court Appointed Managers simply directed that all accumulated interest on the respondent’s account should be debited to his account. There was no evidence of any prior notice of the change or of any attempt to ascertain from the previous management its the intentions nor was there evidence of any inquiry into the respondent’s financial situation following the violence and disruption of the previous years.
    

13. It is clear that the circumstances at the time of the troubles would fall within the definition of force majeure but counsel for the appellant points out that there is no such term included in the loan agreement. However, the evidence is that the DBSI imposed the freeze because it accepted the adverse effect of the troubles on businesses and was willing to suspend interest to alleviate the hardship.

14. The judge considered the effect of a freeze on interest payments and the effect of the removal of the freeze. That was a proper approach in the absence, referred to above, on any evidence of the DBSI’s intention at the time the decision was taken to order the freeze. He explained:

“Frozen of course means the Bank accepts it may not seek to recover that interest for the period of the freeze and it would be wholly inequitable were the Bank, for the very reason of the freeze, to presume to seek to recover the moneys frozen without any attempt to take account of the customers’ circumstances at the time of the reintroduction of the interest or the customer’s knowledge and consent. Frozen means the moneys cannot be used in relation to the accruing interest during the period of the frozen, waived insofar as later recovery is concerned unless the Bank can show variation of the original agreement by the customer to allow such debit in agreed circumstances. No such variation is in evidence.

But such was not the case; here the interest set out above the subject of the freeze is money foregone by the bank by its acceptance of the freeze until notice. No notice is apparent until service of the statement in August 2009.”

15. We agree with the learned judge’s reasons and conclusion. The appeal is dismissed with costs to be assessed if not agreed.
    

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Goldsbrough P

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Ward JA

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Hansen JA