Development Bank of Solomon Islands v Zalao [2017] SBHC 18; HCSI-CC 474 of 2010 (16 March 2017)

IN THE HIGH COURT
OF SOLOMON ISLANDS
Civil Jurisdiction

BETWEEN: DEVELOPMENT BANK OF - Claimant
SOLOMON ISLANDS

AND: MALELI ZALAO - Defendant

Date of Hearing and Judgment: 16 March 2017

Mr. B. Upwe for claimant
Mr. A. Rose for defendant

Ruling on effect of Bank’s interest freeze following upon the “Tension” period in the Solomon Islands.

Brown J:

The interest freeze referred to in the question for this court, has been mentioned in a letter from the Development Bank dated 5 May 2004, (Court Book at 91) where the Bank’s Senior Loans officer has, while referring to the steps taken for the interest freeze, suggested minimum repayments of $ 200 per month to reduce the loan.

Again on the 3 January 2000 the Manager of the Guadalcanal Branch recommended an interest freeze for the defendants and on the 5 January 2001 the freeze was approved.

By bank statement, (Court Book 97, 98 & 99) it can be seen the bank has not debited the account with interest charges from the last debit, [31 December 2000] until, on the 28 February 2009 an amount of $ 171,435-06 was debited to the balance owing of $ 29,309-95 making a total due of $ 200,743-01.

Yet by reversal of interest on the 31 August 2010, an amount of $ 62,855-22 was credited to the account. Then again on the 31 August 2010, an amount of $ 32, 148-75 was debited for accrued interest.

Sometime then in February 2009, the Bank made a decision to commence debiting interest to this account, without, it is claimed notice to the claimants. The Bank relies on the original bank agreement to vary, apply on increase etc interest terms at its discretion.

The interest debited obviously was made up of interest frozen earlier

28 February 2009 Debit $ 171, 435-06
31 August 2010 Debit $ 32,148-75
$ 203,583-81
Less credit $ 62,855-22
Owing $ 140,728-59

An amount of $28,487-95 was paid the Bank on October 2012, being the balance owing according to the claimants calculations.
According to the Banks statement (Court Book 99) on the 5 November 2008 a balance due of $ 29,309-95 is shown.

I am not satisfied the claimants payment summary, (exhibit 6 at 95) has been shown to be wrong and accordingly that payment of $ 28,487-95 may be seen as meeting the due balance of the account, if interest is avoided.

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 exercised power of asset realisation and loan recovery.
One of the directives given authority for compromise with borrowers. Clearly before the appointment of the Court appointed Manager, the Bank had waived recovery of the interest component under its 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 claimants equitable rights since the agreement for loans are silent when circumstances override normal commercial business dealings as force majeure may be said to have applied in the circumstances of the “tension years. He refers me to an article on the Internet- “Financial hardship and debt advice from my Bank “Experiencing Financial Hardship; What can my Bank do?”

This is persuasive for 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..

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 circumstance at the time of the reintroduction of the interest or the customers knowledge and consent.

Frozen means the moneys cannot be used and in relation to the accruing interest during the period of the frozen, waived in so far as later recovery is concerned unless the Bank can show variation of the original agreement by the customer to allow such debit in agreed changed 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.

The question may answered, while in law, by terms of the agreement the interest moneys fall to be considered as having been waived, while in equity, in the circumstance as recounted and for reasons agreed by the Bank initially, to now seek recovery of the interest frozen is harsh and unconscionable and it is unreasonable to permit action for recovery.

The claim must fail and is dismissed
I award the defendant costs.

__________________
BROWN J