National Bank of Solomon Islands Ltd v Attorney General [2002] SBHC 112; HC-CC 340 of 2001 (8 April 2002)

HIGH COURT OF SOLOMON ISLANDS

Civil Case No. HC-CC 340 of 2001

NATIONAL BANK OF SOLOMON ISLANDS, AUSTRALIAN AND NEW ZEALAND GROUP LIMITED, WESTPAC BANKING CORPORATION AND SOLOMON ISLANDS NATIONAL PROVIDENT FUND BOARD

–v-

ATTORNEY–GENERAL
(representing the Government of Solomon Islands)

HIGH COURT OF SOLOMON ISLANDS
(FRANK O. KABUI, J.)

Date of Hearing: 25^th March 2002
Date of Judgment: 08^th April 2002

Mr J. Sullivan for the Plaintiffs
Mr G.S. Deve for the Defendant

JUDGMENT

(Kabui, J): By a Specially Indorsed Writ of Summons and a Statement of Claim filed on 11^th December 2001, the Plaintiffs claim against the Defendant certain sums of money owed to the Plaintiffs and are still outstanding plus interest which includes penalty interest. Each Plaintiff also claims a declaration in its favour based upon its claim. The details of each claim by each Plaintiff are set out in the Statement of Claim and the Amended Statement of Claim filed on 15^th February 2002. By Notice of Motion filed on 7^th March 2002, the Plaintiffs sought a number of orders under Order 29, rule 14 or alternatively under Order 14 rule 1(a) of the High Court Civil Procedure Rules 1964 (the High Court Rules). At the hearing of this Summons, Counsel for the Defendant, Mr. Deve, sought leave of the Court to file the Defendant’s defence in Court. Counsel for the Plaintiffs, Mr. Sullivan, did not oppose the application and I granted leave accordingly. The defence contains admission of all the facts alleged in the Statement of Claim as amended by the Plaintiffs.

The Facts

The facts are not in dispute. The 1^st, 2^nd and 3^rd Plaintiffs are three commercial banks carrying on business in Honiara. The 4^th Plaintiff is the National Provident Fund “the NPF” a statutory corporation trustee set up under the National Provident Fund Act (Cap. 109). As at 15^th April 1999 the Plaintiffs were the holders of Treasury Bills issued by the Government under the provisions of the Government Loans and Securities Act (Cap. 119) then known as “Frozen Treasury Bills”. As at that date the 1^st Plaintiff held such Treasury Bills to the value of $91,040,000.00, the 2^nd Plaintiff to the value of $34,000,000.00, the 3^rd Plaintiff to the value of $24,800,000.00 and the 4^th Plaintiff to the value of $55,500,000.00. In April 1999, the Government defaulted in repayment in respect of all the said Treasury Bills. By agreement of all the parties, the Frozen Treasury Bills were converted into longer term Bonds. This conversion took the form of a restructure of the obligations between the Plaintiffs and the Government. This agreed restructure was called the “Domestic Debt Restructuring-Conversion Process of SIG Frozen Treasury Bill into longer term Bonds– 2 to 5 years effective 15^th April 1999” known as “the SIG Restructuring Proposal”. This Proposal was duly accepted by the Plaintiffs. The 1^st Plaintiff elected on or before 15^th April 1999 to convert the whole of its Frozen Treasury Bills to fixed rate Restructuring Bonds thus qualifying for both the early subscription bonus and the conversion bonus. The 2^nd Plaintiff did the same except that it converted its Frozen Treasury Bills to variable rate Restructuring Bonds thus qualifying for the early subscription bonus. The 3^rd Plaintiff did exactly the same as the 2^nd Plaintiff. The 4^th Plaintiff followed in the footstep of the 1^st Plaintiff as well. As a result of the actions taken by the Plaintiffs the Frozen Treasury Bills were cancelled on 15^th April 1999 and the Plaintiffs were, in lieu of the Frozen Treasury Bills, issued with Restructuring Bonds. The Central Bank of Solomon Islands as the Registrar of Government Securities, issued to each of the Plaintiffs Certificates for the Restructuring Bonds. The 1^st Plaintiff was issued with four sets of seven certificates each. The first set was for the aggregate sum of $10,870,000.00. The first set was to mature on 15^th April 2001, the second set to mature on 15^th April 2002 the third set to mature on 15^th April 2003 and the fourth set to mature on 15^th April 2004. The 2^nd Plaintiff was issued with four certificates for the sum of $11,100,000.00 each. The first was to mature on 15^th April 2001, the second to mature on 15^th April 2002, the third to mature on 15^th April 2003 and the fourth to mature on 15^th April 2004. The 3rd Plaintiff was issued with four certificates for the sum of $11,100,000.00 each. The first was to mature on 15^th April 2001, the second to mature on 15^th April 2002, the third to mature on 15^th April 2003 and the fourth to mature on 15^th April 2004. The 4^th Plaintiff was issued with five sets of two certificates each. The first set was for the aggregate sum of $10,870,000.00, the second set for the aggregate sum of $11,100,000.00, the third set for the aggregate sum of $11,100,000.00, the fourth set for the aggregate sum of $11,100,000.00 and the fifth set for the aggregate sum of $8,380,000.00. The first set was to mature on 15^th April 2001, the second to mature on 15^th April 2002, the third to mature on 15^th April 2003, the fourth to mature on 15^th April 2004.and the fifth to mature on 15^th April 2005. Each Restructuring Bond was to be repayable at Honiara at par on the maturity date. The principal and interest in respect of each Restructuring Bond are charged on and payable out of the Consolidated Fund. The interest rate for the variable rate Restructuring Bonds held by the 2^nd and 3^rd Plaintiffs was varied on 15^th October 1999, on 15^th April 2000 and 15^th October 2000 and continues to be varied after each 6 months in respect of the Restructuring Bonds yet to mature. New certificates were also issued to the 2^nd and 3^rd Plaintiffs for each variable rate Restructuring Bond at or shortly after each 6 monthly interest rate variation otherwise the term of issue is the same. The Restructuring Bonds issued on 15^th April 1999 to the 1^st Plaintiff and maturing on 15^th April 2001 amounted to $22,760,000.00. The Restructuring Bonds issued to the 2^nd Plaintiff on 15^th April 1999 and maturing on 15^th April 2001 amounted to $8,500,000.00. The Restructuring Bonds issued to the 3^rd Plaintiff on 15 April 1999 and maturing on 15^th April 2001 amounted to $6,200,000.00. The Restructuring Bonds issued to the 4^th Plaintiff and maturing on 15^th April 2001 amounted to $10,870,000.00. The sum of $25,500.00 being 0.15% per annum on $34,000,000.00 for 6 months in favour of the 2^nd Plaintiff remains outstanding against the Defendant. The sum of $18,600.00 being interest 0.15% per annum on $24,800,000.00 also remains outstanding in favour of the 3^rd Plaintiff.

The status of the Debts

As Mr. Sullivan said in his submission, the Plaintiffs were entitled to judgment with costs for the sums pleaded in the Amended Statement of Claim on the basis that the Defendant admitted all the facts alleged in the Amended Statement of Claim. The only issue outstanding, he said, was the status of the Plaintiffs’ debts. His argument was that the Bonds were issued by the Central Bank of Solomon Islands and registered as such under the provisions of the Government Loans and Securities Act (Cap. 119). He cited as an example Certificate No.0010323 in the name of the 1^st Plaintiff for the sum of $5,000,000.00 which says the Bonds are payable at Honiara, Solomon Islands, at par on 15^th April 2001 and that such Bonds and interest are charged on and payable out of the Consolidated Fund of Solomon Islands. He said that the wording of Certificate No. 0010323 was very clear in that regard in that not only that the Bonds and interests were charged to the Consolidated Fund but they were also to be paid out of that Fund. He cited section 105 of the Constitution which reads-

“(1) There shall be charged on the Consolidated Fund all debt charges for which the Government is liable.

(2) For the purposes of this section debt charges include interest, sinking fund charges, the repayment or amortisation of debt, and all expenditure in connection with the raising of loans on the security of the revenue of the Government or the Consolidated Fund and the services and redemption of debt thereby created.

(3) The Government shall not borrow money nor enter into a guarantee involving any financial liability except in accordance with such provisions as may be prescribed by Parliament”.

This section speaks for itself. However, Mr. Sullivan said that the effect of that section was that if there was an Act of Parliament authorizing the Government to borrow, that borrowing if done on the security of the revenue of the Government or the Consolidated Fund, would constitute a secured loan and thereby a debt charge was created in terms of subsection 2 of section 105 of the Constitution above. He also cited section 107 of the Constitution which he said charged the Consolidated Fund with the remuneration and allowances in respect of the holders of the offices of the Governor-General, any judge of the High Court or the Court of Appeal, Speaker, Ombudsman, Director of Public Prosecutions, Public Solicitor, Auditor-General, Commissioner of Police and member of any Commission established by this Constitution. He said the intention was to ensure that the salaries and allowances of these office holders would not be influenced by threats of salary cuts etc because remuneration and allowances were secured under the Constitution. He said sections 101, 102, 103 and 104 of the Constitution did not speak in the same terms as sections 105 and 107 because the intention was to give a specific and secured status to the obligations, which were constitutionally charged against the Consolidated Fund in sections 105 and 107 of the Constitution. Mr. Sullivan then went on to discuss the creation, nature and the term of Treasury Bills under the Government Loans and Securities Act. He said that the Bonds in this case were created under section 4(1)(b) of the Government Loans and Securities Act intended to have a security character as clearly stated in section 5 of that Act. This section states, “The principal moneys and interest represented by loans issued under the provisions of this Act are hereby charged upon and shall be payable out of the Consolidated Fund”. He therefore argued that there could be no doubt that the Restructuring Bonds did satisfy all the requirements of the Government Loans and Securities Act. That is to say that these borrowings were authorized by Parliament for the purposes of section 105 (3) of the Constitution and that they were loans raised on the security of the Consolidated Fund. He therefore said both the loans and interests were charged on the Consolidated Fund. Counsel for the Defendant did not refute the submissions made by Mr. Sullivan.

Debt Priority

The next point Mr. Sullivan discussed was the priority that should be given to the debts owing by the Government. On this point he cited National Provincial and Union Bank of England v. Charnley [1923] 1 K.B.431 for his argument that a secured creditor could assert the charge against the owner of the asset but also in priority to unsecured and execution creditors. He said he saw no reason why this principle should not be applied to the Consolidated Fund by reason of sections 105 and 107 of the Constitution and section 5 of the Government Loans and Securities Act. In this case he said that the Constitution did not specify any priority between various debt charges or between debt charges and other constitutional charges such as those charged under sections 105 and 107 of the Constitution. He therefore for that reason submitted that debt charges and other constitutional charges should rank pari passu with each other. On this point, Counsel for the Defendant said that no priority should be given to the payment of the debts in this case for to do so would be disastrous for the Government finances. Counsel asked me to be mindful of this in considering the submissions made by Mr. Sullivan on behalf of the Plaintiff. On the principle of the maxim, “equality is equity” or “equity delighted in equality”, I will accede to the position that other debt charges together with constitutional charges under sections 105 and 107 of the Constitution should rank pari passu (see Words and Phrases legally defined, Volume 3:K-Q, Third Edition 1989, by John B. Saunders at 425).

What is a charge?

According to Webster’s and Latham’s Johnson’s Dictionaries the word “charge” means the exercise of “custody or care” over a person or thing. It is a responsibility’. (see Words and Phrases legally defined, Volume 1: A-C, Third, Edition, 1988 by John B. Saunders at 244). In legal parlance, it means a liability in equity. In Burlinson v Hall [1884] UKLawRpKQB 324; (1884) 12 QBD 347, DC, Day J. at 350, said,

“A charge differs altogether from a mortgage. By a charge the title is not transferred, but the person creating the charge merely says that out of a particular fund he will discharge a particular debt. But a charge differs from an assignment. A charge on a debt confers rights on the person to whom the charge is given to have it enforced by assignment -not by action against the debtor, but by proceedings against the person who created the charge to assign the debt”.

In the case of Re Price, ex p Tinning (1931) 26 Tas. LR 158, CJ Nicholls at 160 said,

“The words “charge” and “lien” are often interchangeable. The quality of each... is that, so far as is necessary, it appropriates or sets aside some particular property, real or personal, by making a deduction from the absolute ownership of it in favour of someone who is given by law, or by agreement, will or otherwise, the right to resort to the property to satisfy or discharge some obligation. They add to the right in personam a limited right in rem”.

A charge in equity is therefore a right of the creditor to be paid out of the property of whatever description that is charged as security for a debt that is owing to the creditor without claiming absolute title or possession of such property. Yet another statement of the same effect was made in London County and Westminister Bank v Tompkins [1918] 1 K.B. 515. At page 528 Banks, L. J. said,

... “Another class of security which includes “equitable charges” and equitable assignments, where there is appropriation of property for the discharge of a debt or engagement without giving the creditor either an absolute or special property in the subject of the security. The transaction does not pass either an absolute or special property to the creditor or any right of possession, but only a right of realization by judicial process in the case of non-payment of the debt. And of this class “a charge” is where property is expressly or constructively made liable or specially appropriated to the discharge of a burden; no debt is implied, but a right of realization by judicial process is conferred“...

Applied in this case would mean the Government paying out of the Consolidated Fund the debts the Government owes to the Plaintiffs. In view of the fact that the Defendant did file his defence with the leave of the Court at the hearing unopposed by Mr. Sullivan, leave of the Court under Order 29, rule 14 of the High Court Rules is no longer necessary. I would instead apply Order 14 rule 1(a) of the High Court Rules. The affidavit filed by Mr. Marahare on 7^th March 2002 has satisfied Order 14, 1(a) above of the High Court Rules. In this regard the affidavit filed by Mr. Deve on 22^nd March 2002 discloses no defence that can be said to be a good defence. I therefore agree with the Motion filed by the Plaintiffs and grant it in the terms sought in that Motion. The Plaintiffs’ application is therefore granted.

F O. Kabui
Judge