Australia & New Zealand Banking Group v Kaukui [2013] SBHC 194; HCSI-CC 482 of 2012 (11 December 2013)

IN THE HIGH COURT OF SOLOMON ISLANDS.
(Faukona J.

Civil Case No. 482 of 2010.

BETWEEN:

AUSTRALIA AND NEW ZEALAND BANKING GROUP
Claimant

AND:

CHARLES KAUKUI & PHYLLIS MAY ASHLEY
Defendants.

Date of Hearing: 13th November, 2013 and 2nd December, 2013.
Date of Judgment: 11th December, 2013.

Mr A. Radcliff for the Claimant.
Mr C. Ashley in person for both Defendants.

JUDGMENT.

Faukona J: A claim (category A) was filed on 24th November 2010. The Claimant is seeking the balance of the loan (debt) and interest due to the Bank. The balance is $267, 224. 83, as at the end of 30th November, 2013. In addition is the interest at current rate of 15.45% per annum. The Claimant also seeks an order for the sale of the fixed term estate in PN: 191-039-398, currently own by the Defendants.

Brief facts:

2. On 22nd November, 2004, the Claimant provided a home loan approval to the Defendants in the sum of $295,000.00. Upon approval the Defendants were given a loan account number 4234117 by the Claimant.

3. Borrowing from Bank facility usually requires a written contract. In this case, there is no exception. There was a contract dated 16th November, 2004, of which the Defendants signed on 22nd November, 2004, thereby creating a conclusive contract.

4. Appropriate terms relevant to this case are; the term of repayment of $5,000.00 per month until the loan is clear in seven (7) years. Interest rate applicable is 5.9% per annum for the first twelve (12) months then variable rate at 9.75% over the remaining term of loan (30/10/11). Late payment fee of hundred dollars (100.00) is charged if loan repayment is not made seven (7) days after the loan due date. Penalty interest rate is charged in any default which attracts interest rate equivalent to five (5%) percent per annum above the normal interest rate applicable to the term loan facility from time to time. The Claimant do charges its index rate from time to time to reflect its view of market conditions.

Default in repayment of the loan:

5. The question is, are the Defendants default in repayment of their loan? The Claimant says yes. The Defendants argue and deny that they had not made any default at all. They had been faithful in repaying their loan continuously for fifty five (55) months from January, 2005 to July 2009.

6. The statement of account from the Defendant account number 423417 with the Claimant show that the amount of $295,000.00 loan was drawn on 10th December, 2004. The first repayment of $5,000.00 was done on 17th January, 2005. For the first year 2005, the Defendants had failed to make loan repayment for the months of March, May, June, September and December. However, the Defendants made repayments twice in the months of April and August. It would appear though the Defendants had made repayments for the first year, non-payments for those months had caused penalty interest charge in addition to 5.9% interest.

7. For the Second year 2006, there were no loan payments for the months of March, April, May, September and December. However, there were triple payments of $15,000.00 in June and October. Again the defaulted months had caused penalty interest charge in addition.

8. For 2007, there was no loan repayment for the months of June, August, September and December. However, there were 2 payments made in July. Again penalty interest rate is added to those months which nothing was paid

9. For 2008, there was no loan repayment for the months of March, April, May, August and November. However, the Defendants had paid double in January and triple in February and June 2008. For the missing months penalty interest rate was charged in addition.

10. For 2009, there was no loan repayment for the months of January, July-December. Total amount paid in refinancing the loan is $25,000.00 for the year. For 2010, only $10,000.00 was paid as loan repayment.

11. For the first 55 months the Defendants had paid $275,300. At that time loan outstanding was at $134,017.99 after 55 months of repayment. That figure reflected interest chargeable together with penalty interest charged for those months the Defendants defaulted to pay and fail to pay on time.

12. In this case, we are not talking about 55 months; we should be directing our minds to focus on 7 years the period allocated for the repayment of loan. Should the Defendants continue with the repayments they should have fully paid the loan by the end of 2011 or some more months into 2012. From my observations, the Defendants gave up making repayment as of July, 2009. Giving up payment is default, and there are no other words capable of being used to describe it. This case was filed on 24th November, 2010, after the Defendants had ceased servicing their loan from July 2009, which had been accumulated with interest.

13. I could not accept the submissions by the Defendants that they had been faithfully continuing repayment of their loan within the first four and half years. There were months they missed which attracted penalty interest charges of which accelerated the principle amount. Even if the Defendants did pay their loan every single month interest has to be paid inclusive.

14. From submissions Mr Ashley accepted out of his good conscience and reasoning, that they will pay more than $295,000.00. The fact that they only paid $275,300.00 meant they were defaulted. Their reason for not paying is because the Claimant refused the registration of its charge over the business property PN191-039-530 for the amount of $200,000.00 instead obtain registration over the Defendants' family home PN191-039-398 for the amount of $150,000.00.

15. I could not see any valid reason for ceased payment of the loan. In fact, the Defendants were not doing badly in their performance for the first 4½ years. If they continue paying, it is anticipated the loan will be repaid in full by the end of 7 years period. Giving up for no good reason is a hard price to pay. The loan has been accumulated back to $267, 224.83 which now become a tough ladder to climb.

Interest rates:

16. The truth about the interest rate chargeable for the first year of loan repayment has been agreed upon as 5.9%. The argument by Mr Ashley is that the Claimant fails to honour the interest rate stipulated in the loan agreement. He points out that after the first year, the interest rate for the rest of the period of repayment to 30/10/2011, is 9.75%. That is a misconception and misinterpretation of the term in regards to interest rate. Actually, the term stipulated that for the first year the interest rate is fixed at 5.9%, then variable rate at 9.75% over the remaining term of the loan (30/10/2011). Simply mean, that after the first year the interest rate will vary but commenced with 9.75%. It can increase more than 9.75% or decrease depends on the Bank's view of market conditions. The term is short and written in simple English with clarity and sufficient to absorb.

17. The right of the Claimant to vary interest rate from time to time is a decision the Bank determines and no one has any control over it. In this case, after the first year the Claimant increased its interest rate to 9.75% by 31st January, 2006. Another increase to 13.25% was made on 30th November 2008, and further increase to 14% on 31st December 2008. By 30th November 2009 another increase of 16.5% was made. Then on 30th September 2010 the interest rate reduced to 14.5%, and then increase again to 19.5% by 30th November, 2010. On 31st July 2011, the interest rate decreased to 17.5% and further decreased to 15.45% on 31st October 2011, which is still maintained until now.

18. In my respectable view, the increases and decreases are in harmony with what the term means as variable rates over the remaining term of the loan with the starting point as 9.75%. I do not seem to see any breach by the Claimants in respect to interest rates chargeable to this particular account. There is no such thing as irregularity, or fraud in any form noted. Notification in writing as stated in the term plays a minor role and has no contributing effect so as to declare a breach to this particular term. Whether in writing or notification through media, has the same conclusion that is information disseminated to public and borrowers as well.

Counter–Claim:

19. The Defendants enter counter-claim against the Claimant based on fraud committed by the Claimant for refusing or neglecting to pursue registration of its charge over business property PN 191-039-530 own by the Defendants.

20. Pursuant to paragraph 3 of the agreement, it was a condition of the loan agreement that the Claimant hold three securities given by the Defendants; letter of charge over term deposit of $100,000.00 and charges on PN 191-039-530 and PN 191-039-398.

21. It would appear the Claimant was unable to register the charge though demanded over the business property (PN 191-039-530) because the Registrar of Titles had rejected the application by letter dated 27th December, 2005, on the ground that there was a High Court order in CC No. 118 of 2002, which stated that the property be transferred in the name of Mr Ashley alone, and that had not been varied. Therefore, the property cannot be registered in the joint names of the Defendants. As a result, the charge could not be registered. Further, by a charge voluntarily signed by the Defendants on 23rd November, 2004, which the Defendants charged the family home to the Claimant to secure $150,000.00 plus interest and not $95,000.00 as alleged. Notably, there was neither an understanding nor on enforceable agreement that bound the Claimant. Likewise no fraud or actions gambled to prejudice or usurp the rights of the Defendants to their home property. That can only be done, should there be, premise on being defaulted to honour the legal obligations stipulated in the loan agreement.

22. In any event, where the Claimant is satisfied that the amount borrowed is well secured by value, the Claimant has the right to take the charge over a property it wish to do so. Similarly being selective does not amount to fraud. Lending money by a financial institution is a risky business. Careful assessments have to the made including calculating possibilities and foreseeability's. Furthermore, as part of the undertakings, banks cannot discharge a charge if the loan is not fully repaid. It falls back to the question, thought the Defendants had paid $275,300.00 in loan repayment, and the charge over their family home is $150,000.00 that cannot be discharged until the loan is fully repaid. It does not work the way the Defendants thought. If that should be, it gives the bank very high risk.

23. In this case, I do not seem to see any fraud committed by the Claimant in its dealing with the securities and varying of interest rates which are catered for under the facility schedule which empowered the Claimant to vary interest rate and to charge at high rate when a borrower defaults - see paragraph 10 of the agreement. In my humble view, the counter-claim does not disclose any valid claim that will attract orders in favour of the relief's sought.

Orders:

1. Judgment for the Clamant in the sum of $267,224.83 plus interest at agreed rate until payment in full has been made.

2. Order granted for the sale of the fixed term estate PN: 191-093-398.

3. Cost is paid to the Claimant.

The Court.