Credit Corporation (SI) Ltd v Chrisma Shipping and Logistics Ltd [2021] SBHC 137; HCSI-CC 222 of 2020 (15 October 2021)

HIGH COURT OF SOLOMON ISLANDS

Case name:	Credit Corp (SI) Ltd v Chrisma Shipping and Logistics Ltd
Citation:
Date of decision:	15 October 2021
Parties:	Credit Corporation (SI) Limited v Chrisma Shipping and Logistics Limited, Melva Simon
Date of hearing:	9 July 2021
Court file number(s):	222 of 2020
Jurisdiction:	Civil
Place of delivery:
Judge(s):	Keniapisia; PJ
On appeal from:
Order:	I will dismiss this claim. I will send parties back to the talking table. Parties need to talk about loan re-structure and interest calculation on loans. And can map out a new way forward. The contractual relationship is about mutual help and understanding. It is not about demanding interest on defaulted loans only. Mutual help and understanding means parties must sit down together to talk about issues and to explore ways out of the issues. Only when all options of help are exhausted then parties can come to court to recover dues and enforce securities or they can settle and not come to court. No order on cost.
Representation:	Mr. Radclyffe for Claimant Ms. Kofana for 1st and 2nd Defendant
Catchwords:
Words and phrases:
Legislation cited:
Cases cited:

IN THE HIGH COURT OF SOLOMON ISLANDS
CIVIL JURISDICTION

Civil Case No. 222 of 2020

BETWEEN
CREDIT CORPORATION (SI) LIMITED
Claimant

AND:

CHRISMA SHIPPING AND LOGISTICS LIMITED
1^st Defendant

AND:

MELVA SIMON
2^nd Defendant

Date of Hearing: 9 July 2021
Date of Decision: 15 October 2021

Mr. Radclyffe for Claimant
Ms. Kofana for 1^st and 2^nd Defendant

Keniapisia; PJ

RULING ON LOAN RECOVERY CLAIM

Introduction

1. By year 2017, Island Link Shipping Services (“Island Link”) owned by Clive Runimetu and Kitchener Pitisopa had a serviceable loan with the claimant bank. Currently Island Link has run into problems and no longer existed.
2. Mr Clive Runimetu, co-owner of Island Link and owner of 1^st defendant, wanted to take out a loan in May 2017 to pay off the outstanding Island Link loan arrears. Simultaneously to have start-up capital or capital for the 1^st defendant. To secure the loan, 2^nd defendant put up his/her house, a land in Gizo, as security (mortgage) for the loan. The loan that Mr Clive applied for was approved in May 2017. Claimant approved a loan facility for $700,000.00 on 23/05/2017. When the amount was paid out, 1^st defendant got $344,000.00. Claimant deducted the balance towards the repayment of loan arrears sitting in Island Link’s loan account in year 2017.
3. The 1^st defendant ran into problems. Island Link’s second ship operated by 1^st defendant had mechanical problems for 10 weeks. And could not make income for 1^st defendant. Yet 1^st defendant was paying loans for both Island Link and 1^st defendant. So 1^st defendant had defaulted on its loan repayment schedule. In year 2019, claimant wrote to 1^st defendant giving notice of demand on overdue loan repayments. That time (8/10/2019) the arrears were $69,062.23 (arrears for June, July, August and September 2019). Claimant was not satisfied with 1^st defendant’s service of its loan arrears. So by 18/05/2020 claimant filed this claim. That time the sum of $631,494.94 together with interests at the claimant’s contractual rate from 1^st May 2020 was outstanding. Claimant sought reliefs to recover this amount, to sell the mortgaged property and cost.

Defence - Loan arrears admitted

4. First defendant did not deny the claim in its defence. But it explained the reasons for its failure, in not paying up on schedule. First defendant was having problems making money from the ship (s) it operated due to high fuel cost; repair and maintenance cost; down turn in shipping revenue due to low freight charges; cut off in charter services by the government in routes Island Link’s second ship was operating and servicing of loans for 2 companies/ships. Defence also raised the dissatisfaction that claimant did not show good faith to re-structure loan repayment. First defendant had requested loan re-structure, because it was operating one ship under 1^st defendant, but was repaying loans for 2 companies/ships (1^st defendant’s loan and Island Link’s loan).

Defence - Double charging of interest – hence inflated incorrect loan balance?

5. The other defence was claimant was charging extra interest on chattel mortgage, which was confusing. And the confusing extra chattel mortgage interest charged had unreasonably inflated the normal interest charged on the loan arrears balance. First defendant disputed and said that the extra interest charged on chattel mortgage should not be added on top of the normal loan interests. So the amount showing as owing with interest was unreasonably inflated and incorrect, making the loan repayment more oppressive. The amount showing as at 1^st of May 2020 was therefore an inflated incorrect loan balance figure.

Defence - Is claimant duty bound to consider a re-structure?

6. First defendant was having great difficulties with finance. Income dropped because Island Link II ship, had mechanical problems in 2019. Contracts for routes with the government were terminated. Freight rates dropped due to heavy competition in the shipping sector. Fuel cost remain high. First defendant was servicing loans in respect of 2 companies/ships. First defendant was having finance issues in 2018. So Mr Clive wrote to Tony Langston - General Manager of claimant on 30/12/2018. Mr Clive was seeking a re-structure of the loans. Mr Clive was asking the bank to consider payments of loans for one ship only and not two ships because, one ship had already run ashore and wrecked in 2018. First defendant was begging for help. But help was not forthcoming. For on 8/10/2019, Tony gave notice of demand for overdue loan repayments. General Manager, Mr Tony signed the letter of demand.
7. In oral evidence, claimant’s policy is that the bank can consider re-structure to faithful clients only. Is this policy sensible? A client who is paying faithfully on his loan would not ask for re-structure or would want restructure for other positive purposes. Only a struggling client would want a re-structure. So was the bank under duty to consider re-structure? In the contract, we see no mention of such duty. But it would not be fatally out of order to say the contract was built around good faith, mutual help and mutual understanding considerations. Claimant bank wants to help the 1^st defendant capitalised to go into business (shipping). First defendant wants to help the bank stay in the lending business, through huge interest payment charged on loans. Without the loan capitalisation, the 1^st defendant will not be in business. Similarly, without the repayment of huge interest on loans, the bank will not be in business. Both need each other to stay in business.
8. So here the 1^st defendant was having financial issues. The bank knew or ought to know. The bank was writing to the defendant on 13/12/2018. The 1^st defendant was writing to the bank on 30/12/2018 (seeking re-structure). The written correspondences were taking place between the General Manager, Tony and Mr Clive (1^st Defendant’s owner). The General Manager, Tony Langston, was the same person who signed the contract with Clive on 23/5/2017, to take out the $700,000.00 loan facility initially. The bank knew about 1^st defendant’s financial issues. But was not lending a helping hand – not even willing to sit and talk with the 1^st defendant’s boss, or respond to Mr. Clive’s letter. The bank was more concerned about default on loans, not the reasons for the default. In the circumstances, the bank had a duty under the contract, to act in good faith necessitated by mutual help and mutual understanding considerations. That mutual help and understanding should have been considered. But none of that ever happened. In oral evidence, the bank’s policy was to help committed clients only, not defaulting clients. I find that the bank had a duty to help the client when the client was having difficulties. That help was absent here, because the bank did not even answer back on the letter calling for help. There were no accommodative attempts on re-structure talks. The contract is not only about receiving interest on loan. It is about helping the client to stay in business, because the client, staying in business, is good for the bank. The bank shut the door on loan re-structure talks and was more into loan default recovery.

Defence - No clarity on double charging of interest

9. And then the 1^st defendant was concerned about how the loan interest was calculated - in its defence (repeat and reaffirm paragraph 5). First defendant was of the view that the bank was charging inflated interest and hence the total repayable on the loan was higher than it should be at any given period of time. At trial, the bank’s witness was not able to explain how the interest was calculated, though he said, there is only one interest rate charged (not one for loan and another for chattel mortgage). However, the witness said, he did not know about the formula used to calculate the interest, because the system prepares the calculations from Papua New Guinea. The system is operated by man. And the bank was duty bound to explain how the system calculated interest so the client knows exactly that the interest charged was correct. This is crucial because defendant is disputing the accuracy of the interests that were charged. In the absence of proper explanation on how the system calculates interest, I am not satisfied, that the proper interest was charged on the loan balance at any particular point in time.

Conclusion and Orders

10. I will dismiss this claim. I will send parties back to the talking table. Parties need to talk about loan re-structure and interest calculation on loans. And can map out a new way forward. The contractual relationship is about mutual help and understanding. It is not about demanding interest on defaulted loans only. Mutual help and understanding means parties must sit down together to talk about issues and to explore ways out of the issues. Only when all options of help are exhausted then parties can come to court to recover dues and enforce securities or they can settle and not come to court. No order on cost.

THE COURT
JUSTICE JOHN A KENIAPISIA
PUISNE JUDGE