Fisi v Tonga Development Bank [2002] TOLawRp 9; [2002] Tonga LR 38 (12 March 2002)

IN THE SUPREME COURT OF TONGA
Supreme Court, Nuku'alofa

C 920/1998

Fisi anor

v

Tonga Development Bank anor

Ford J
28 November 2001, 20-22, 25, 26, 28 February, 11 March 2002; 12 March 2002

Insurance – discharge form – signed under undue influence – no effect
Insurance – calculation of stock figure – evidence taken into account

The plaintiffs, a married couple with eight children, resided in the village of Fatai. In 1994 they borrowed $8000 from the first defendant, the Tonga Development Bank, to build an extension to their house to accommodate a kava pounding workshop. $6000 of the loan money was spent on the purchase of a kava pounding machine and $2000 went towards the cost of building the workshop. As a condition of the Bank loan, the plaintiffs were required to take out insurance with the second defendant and they did so in the sum of $30,000 made up of $6000 for the workshop for kava pounding, $4000 for machinery, plant and tools of trade and $20,000 for the stock of kava. In the early hours of 25 March 1996 the plaintiffs' house, including the kava workshop which was under the same roof, was completely destroyed by fire. The plaintiffs claimed under the insurance policy and the following month the insurance company paid out $12,000. The plaintiffs issued proceedings in July 1998 and sought to recover the balance of $18,000 which they alleged should have been paid out under the policy. In its statement of defence the second defendant alleged that the $12,000 paid out under the insurance policy was an appropriate sum after making allowance for depreciation on the workshop and the machinery and taking into account the amount of kava stock on the premises at the time of the fire. The second defendant further alleged that on 9 April 1996 the plaintiffs signed a discharge form in which they agreed to a full and final settlement of their claim under the insurance policy in the sum of $12,000.

Held:

1. Duress and undue influence were not pleaded by the plaintiffs however, they were issues that clearly arose from the evidence and in those circumstances it was appropriate to have regard to them. The circumstances surrounding the signing of the discharge form in the present case were such as to give rise to the equitable doctrine of undue influence therefore the court was not prepared to hold that the discharge precluded them from pursuing this claim.

2. The failure to provide any insurance cover over the contents of the house may not have followed the usual Bank practice, but it was not established by the plaintiffs that in failing to do so the bank officer was negligent and, in any event, the evidence showed that the insurance cover had been renewed in 1995 and again in 1996 and on each occasion the plaintiffs had the opportunity to amend the policy to include the house contents if they had so desired but no steps were taken in this regard.

3. The final challenge by the plaintiffs related to the stock figure. The balance that the court found the plaintiffs were entitled to recover under this head was $2700 and judgment was accordingly entered against the second defendant in that sum. Interest was awarded at 10% on the sum of $2700 from 23 April 1996 down to the date of payment.

Case considered:

Prasad v Morris [1993] Tonga LR 69 (CA)

Counsel for plaintiff: Mr Veikoso
Counsel for defendents: Mr Vaihu

Judgment

Although the record shows that this case was heard over some eight sitting days, the reality is that several sittings were interrupted and shortened by the February storm and one additional sitting day was lost altogether. The court is grateful to counsel for their forbearance and co-operation during that period.

The plaintiffs reside in the village of Fatai. They are a married couple with eight children. In 1994 they borrowed $8000 from the first defendant, the Tonga Development Bank, to build an extension to their house to accommodate a kava pounding workshop. $6000 of the loan money was spent on the purchase of a kava pounding machine and $2000 went towards the cost of building the workshop.

As a condition of the Bank loan, the plaintiffs were required to take out insurance with the second defendant and they did so in the sum of $30,000 made up of $6000 for the workshop for kava pounding, $4000 for machinery, plant and tools of trade and $20,000 for the stock of kava.

In the early hours of Monday 25 March 1996 the plaintiffs' house, including the kava workshop which was under the same roof, was completely destroyed by fire. The plaintiffs made an immediate claim under the insurance policy and the following month the insurance company paid out $12,000. The plaintiffs issued the present proceedings in July 1998 seeking to recover the balance of $18,000 which they allege should have been paid out under the policy. It is unfortunate that the matter has taken so long to come to trial but the reason for the delay does not appear to lie in any way with the court.

In its statement of defence the second defendant alleges that the $12,000 paid out under the insurance policy was an appropriate sum after making allowance for depreciation on the workshop and the machinery and taking into account the amount of kava stock on the premises at the time of the fire. The statement of defence shows the breakdown of the $12,000 as follows:

Workshop building	$6000
Plant and machinery	$3200
Stock	$2800
	$12000

The second defendant goes further and alleges that on 9 April 1996 the plaintiffs signed a discharge form in which they agreed to a full and final settlement of their claim under the insurance policy in the said sum of $12,000.

That, then, is the background to the case.

On the first morning of the hearing, last November 2001, counsel for the plaintiffs made application to the court to dismiss the first defendant, the Tonga Development Bank, from the action. Leave was granted accordingly. The first witness then called for the plaintiffs was Mr Fisi. After he had been giving evidence for most of the morning it became apparent that he was still alleging some form of breach of contract or negligence on the part of the Tonga Development Bank even though at that stage the bank had been dismissed as a party.

Mr Fisi' evidence was disjointed in many respects but he appeared to be alleging that under the terms of his loan agreement with the Bank he was required to insure all the property secured to the Bank and he claimed that the property secured included the residential house and all of its contents but the Bank officer who completed the proposal form had simply included the kava workshop, the plant and machinery in the workshop and the stock of kava. No mention was made in the proposal to the house or its contents.

After a meeting in chambers with counsel it was agreed that the hearing would stand adjourned, the Tonga Development Bank would be rejoined as a party and the plaintiffs were given leave to file an amended statement of claim formulating their alleged causes of action with more precision.

When the amended statement of claim was then filed on 30 November 2001 it listed some 20 items of furniture and other chattels, totalling $6870 in value, said to have been the contents of the house at the time of the fire. It was alleged that the Bank officer who took out the insurance cover for the plaintiffs back in 1994 had been negligent in not including the house contents in the cover. It was further alleged that when the policy was renewed in February 1996, just over a month before the fire, the plaintiffs had given the same list of contents that appears in the amended statement of claim to the Tonga Development Bank officer who carried out the renewal, Mr Amipeliasi Tu'akoi, with specific instructions to include all of those contents in the insurance cover and Mr Tu'akoi had been negligent in failing to comply with that instruction. No other changes were made to the original statement of claim.

Mr Fisi told the court that the fire broke out in the ceiling of their home at about 3 a.m. on the morning of 25 March 1996 while he and his wife and eight children were asleep. He said that a fire engine arrived on the scene about 5 a.m. by which time the house was already destroyed. He said that the firemen dragged the roofing iron away from the ruins with hooks and then used high-pressure water hoses to extinguish what was still burning. The witness told the court that he duly reported the fire to the Bank and later that morning representatives from the Bank and the insurance company inspected the ruins.

Mr Fisi said that the insurance company representative was the claims supervisor, 'Inoke Kalaute. He said that 'Inoke took photographs of the scene and they had a discussion in which he (the witness) had explained how the water from the fire hoses had scattered the ashes from the burnt kava over the property. He said that nothing had been saved from the fire and his family was left simply with the night attire they had been wearing. Neighbours and the Church apparently helped out over the following days but the family had no money or clothing (apart from what had been given to them by friends) and the children were unable to go to school.

On 27 March 1996 a claim form was completed and signed by Mr Fisi. Mr Fisi said that the form had been filled in at the insurance office by 'Inoke before he arrived and all he had to do was sign. The claim form was in the English language but the witness told the court that he had left school at the age of 10 years and he could not understand English. He said that 'Inoke did not read any part of the contents out to him and he did not explain what it was that he was being asked to sign. When asked what he thought the document was, Mr Fisi replied that he believed he was signing the form so that the insurance company could send a cheque to the Bank.

Mr Fisi then said that on Friday 5 April he and his wife met with Mr Tokai Mangisi, the manager of National Pacific Insurance, and they were told to sign a form to, as he put it, "withdraw $11,000". He was asked by his counsel whether they agreed at that stage to settle their claim for $11,000 and he replied that they had not. They apparently signed the form, however, but it appears from the insurance company file which was produced by consent that the meeting most likely took place on 4 April and it was with 'Inoke rather than Tokai, although I accept that the couple probably did talk to Tokai also at some stage during the course of that meeting. It also appears that the figure discussed was $11,200.

Mr Fisi told the court how, over the course of the following weekend, he and his wife and a neighbour visited Tokai at his home at Fo'ui and presented him with a piglet and a basket of yam and he pleaded with Tokai to pay him out the full sum insured of $30,000. He said that Tokai thanked him for the gifts and told them that it was entirely up to him whether he would release all of the $30,000 or just part of it and he told them to come into his office on the Monday. Referring to this same meeting in their evidence later, Mrs Fisi and the neighbour said that Tokai had told them that they should not have brought him the food.

Mr Fisi said that on the Monday morning he and his wife went to see Tokai and they saw him take the form which they had signed the previous week for $11,000 out of his draw and throw it in the rubbish bin and he then told them that he would increase the payment to $12,000 and that when they signed a new discharge form he would give them a cheque for $1000 and the rest would be sent to the Tonga Development Bank.

Mr Fisi said that he did not understand the contents of the form he signed on Monday 8 April (the original form was not produced in evidence but no objection was taken). The date on the copy before the court appears to have been altered to read 9 April. The witness said that the form was not explained to him and he did not understand that it was a full discharge. He said that his understanding at the time was that $12,000 would be paid out immediately he and his wife signed the form and the rest would be given to them later. He said that after they signed, he was given a cheque for $1000 and $11,000 was sent to the Bank. He also said that after the Bank deducted what was owing under the mortgage he received "$1000 plus". Mr Fisi told the court that before he took the money he told 'Inoke that he was not satisfied with the amount the insurance company was paying out and he was going to see a lawyer. In fact, he saw a lawyer, Mr 'Etika, sometime later and on 6 May 1996 Mr 'Etika wrote to the insurance company accusing them of withholding $18,000 and threatening legal proceedings. In evidence, the insurance company denied ever receiving that letter.

The evidence Mr Fisi gave regarding the amounts paid by the insurance company was clearly wrong. Although both he and his wife were adamant that they had been paid a cheque for only $1000 after signing the form and that the insurance company had then forwarded $11,000 to the Bank, the cheque was produced and it was for $2000 and the records show that the Bank had been paid $10,000.

Apart from Mr and Mrs Fisi, evidence was also given for the plaintiffs by a neighbour, Mrs Nofokau'alu Mau, who had visited the couple's home on the evening before the fire. It was Mrs Mau who had accompanied the plaintiffs on the visit to Mr Tokai Mangisi's' home at Fo'ui, although she wrongly did not recall Mr Fisi being present on that occasion.

One particularly unsatisfactory aspect of the case was that the first defendant was unable to locate the Bank file relating to the plaintiffs' loan transaction and the loan agreement could not, therefore, be produced. A Bank witness said that a thorough search had been made for the file in storage but it could not be located.

Another unsatisfactory aspect of the defendants' case is that the first defendant did not call evidence from the insurance officer at the Bank who had completed the insurance proposal form for the plaintiffs back in 1994. Nor did the second defendant call evidence from its claims supervisor at the time of the fire, 'Inoke Kalaute, who it was said completed the insurance claim form on the plaintiffs behalf and attended them when they signed the discharge form dated 9 April 1996.

Counsel explained that both these officers were now in New Zealand but the court was given no indication as to whether any attempt had been made to have them called as witnesses or to have their evidence taken in some other way. Any party to litigation who does not produce key witnesses in the case runs a considerable risk of an adverse finding and litigants need to be aware of that. They should not, as it were, blithely proceed in the expectation that the court will take a sympathetic approach and favourably fill in the gaps.

One of the key issues to be resolved in this case is the claim by the second defendant in its statement of defence that the discharge form signed by the plaintiffs dated 9 April 1996 was a full and final discharge relieving the insurance company from any further liability in respect of the claim. The manager of the insurance company told the court that it was the claims supervisor, 'Inoke Kalaute, who attended the plaintiffs when they signed the discharge form. For their part, the plaintiffs' claim that 'Inoke never explained the form to them and they were unaware of its legal implications. There was no evidence from 'Inoke to rebut these allegations.

As it turns out, for reasons that I will touch upon later, I have very real reservations about the credibility of Mr Fisi on many aspects of his evidence. However, with one or two exceptions, notably, where she supported her husband's evidence about insuring the contents of the house, I believed what Mrs Fisi told the court, in particular her evidence in relation to the signing of the discharge form. Whether the form was signed on the 8th or 9th of April, the fact of the matter is that it was some two weeks after the fire and I accept that at that stage the family was desperate for some form of financial relief and she was equally desperate to see the children get back to school. All the family's possessions had been destroyed in the fire and they had nothing. The plaintiffs' situation was extreme.

Although duress and undue influence were not pleaded by the plaintiffs they are issues that clearly arose from the evidence and in those circumstances the Court of Appeal in Prasad v Morris [1993] Tonga LR 69, 73 made it clear that it is appropriate to have regard to them. I specifically gave counsel the opportunity to address me on those matters.

Halsbury (vol 9 para 298) in reference to the doctrine of undue influence, said:

"Undue influence may be defined, for this purpose, as the unconscientious use by one person of power possessed by him over another in order to induce the other to enter into a contract ... The power of the court to grant equitable relief on the ground of undue influence ... may be exercised in any case in which an unfair use has been made of influence possessed by one person over another."

I am satisfied, to the required standard of proof in civil proceedings, that the circumstances surrounding the signing of the discharge form in the present case were such as to give rise to the equitable doctrine of undue influence. The plaintiffs were absolutely desperate for financial relief for themselves and their family. The insurance company was in the powerful position of being able to dictate the terms and, in effect, say, "sign the form and you will be given some money". The evidence shows that as soon as the plaintiffs signed the document, they were given a cheque for $2000. I have no doubt that in the particular circumstances that prevailed at the time the couple signed the discharge form only under duress or undue influence and I am not prepared to hold that the discharge precludes them from pursuing this claim.

If it had been necessary, I would also have held that the common law defence of non est factum was available to the plaintiffs and I would have ruled that the discharge form was void for that reason as well. Whilst the general rule is that a person is estopped from denying their consent to a document which they have signed, the non est factum defence is available if the signatory was mistaken as to the nature of the document. In the present case, that is the unchallenged evidence before the court. Moreover, there are other factors which lend weight to the plaintiffs' evidence that they did not understand the true nature of the discharge form. The form itself, for one thing, is not headed up as a discharge form but it bears the heading in block letters: "PROPERTY DAMAGE" -- a totally unsatisfactory and misleading heading, I would have thought, to a document which the insurance company regards as a binding discharge and release form. The form, moreover, is signed by only one of the insured, namely Mr Fisi. Mrs Fisi's signature appears in a box as a witness to her husband's signature. She has not signed the discharge in her own right.

Having found that the so-called discharge form is void and is not a bar to the plaintiffs' claim, it is now necessary to examine the plaintiffs' case on the merits. First, in relation to the Tonga Development Bank, the plaintiffs allege that the Bank officer who completed the original insurance proposal on their behalf was negligent in failing to insure the contents of the dwellinghouse. The officer concerned was not called as a witness and is said to now be residing in New Zealand. Mr Hiva Tatila, a senior officer in the legal section of the Bank, did give evidence, however, and he very fairly conceded that normally when a loan is taken out with the Bank, security and insurance cover would be taken over the house and its contents and that is what he would have expected to happen in the present case. The cover appears to have been taken out, however, only over the kava workshop area. In all events, no challenge is made in the statement of claim to the cover in respect of the building. The cover was for $6000 for the building (whether it be just the workshop or the house and workshop) and $6000 was the amount that the insurance company paid out under this head.

Turning then to the failure to provide any insurance cover over the contents of the house, whilst I would accept that on the face of it the officer handling the matter back in 1994 may not have followed the usual Bank practice, it has not been established by the plaintiffs that in failing to do so in the particular circumstances of this case that he was negligent and, in any event, the evidence showed that the insurance cover had been renewed in 1995 and again in 1996 and on each occasion the plaintiffs had the opportunity to amend the policy to include the house contents if they had so desired but no steps were taken in this regard.

In relation to the most recent renewal which took place just over a month before the fire, Mr Fisi's evidence was that when the Bank officer, Mr Tuakoi, carried out the renewal he handed him a detailed list of all the contents of the house property with instructions that they be insured. The list was said to be the same as the list set out in the amended statement of claim which detailed 20 items of furnishings and other chattels such as Tongan mats, with the combined value of $6870.

I simply cannot accept Mr Fisi's evidence on these matters. Mr Tuakoi was called to give evidence for the first defendant and I found him to be a truthful witness. He told how he had visited the plaintiffs' home about a month before the fire to carry out the renewal of the insurance. He told the court that he asked Mr Fisi whether he wanted to renew the insurance and whether he agreed with the existing amounts of cover which he then read out to him from the renewal certificate he had with him and he said that Mr Fisi had responded in the affirmative. Mr Tuakoi told the court that at no stage had Mr Fisi mentioned insuring the house contents and he said that during his visit they remained out in the kava workshop area and he had not even entered the home. He said that if Mr Fisi had asked him to insure the house contents then there would have been no difficulty in amending the policy accordingly and he would have done so.

I also think it is significant that when the plaintiffs' lawyer wrote to the second defendant only a few weeks after the fire giving notice of the claim, he made no mention of any insurance cover over the contents of the house. Mr 'Etika said in the opening paragraph of his letter that: "They (the plaintiffs) were insured in your company ... for insurance of their kava bounding workshop at Fatai".

For these various reasons, I find against the plaintiffs under this head of their claim.

There was what I can only describe as a half-hearted challenge made by the plaintiffs to the reduction by the second defendant for depreciation on the plant and machinery but no objection of any substance was put forward and the challenge is rejected.

The final head of insurance cover challenged by the plaintiffs relates to the stock figure of $20,000. Mr Tuakoi said that when he visited the plaintiffs' property just over a month before the fire to renew their insurance cover he was concerned about the stock figure. In his estimation, based upon what Mr Fisi had told him, the kava stock on the premises on the day of his visit, namely 21 February 1996, was close to $10,000 but he said that Mr Fisi had told him that other stock was on the way and so on that basis Mr Tuakoi was prepared to allow the cover to stand at the $20,000 figure.

Mr Fisi's evidence was that, at the time of the policy renewal, the value of the kava stock in the workshop was $8000 to $10,000 which is consistent with Mr Tuakoi's figure. I found the rest of Mr Fisi's evidence relating to the stock figure to be confusing and totally unconvincing. He was asked in chief how much kava was in the workshop on the night of the fire and he simply responded, "more than $20,000 worth". He gave no indication of how he calculated that figure and he gave no evidence of any movements in kava stock on the premises since the day that the policy was renewed in February. In short, he seemed to be content simply to make the bland assertion that the kava stock on hand at the time of the fire was more than $20,000.

Earlier Mr Fisi had told the court that he and his wife and eight children were in the house at the time of the fire. That evidence turned out to be untrue. When Mrs Fisi gave evidence she told the court that one daughter was away at boarding school, another child had been fostered out and two others lived with her mother so that at the time of the fire only four children were living at home. This evidence was inconsequential of course in terms of the claim itself but it did nothing for Mr Fisi's credibility.

The second defendant's manager, Mr Takai Mangisi, told the court that the payout figure of $2800 for kava stock had been based mainly on what he had been told by Mr Fisi after the fire and on his own observations at the scene. He said that Mr Fisi had told him that there had been 500 $3 plastic bags of kava powder and some additional dry kava but he could see from his scene inspection that there had been nothing like $20,000 worth of kava on the premises at the time of the fire. Mr Mangisi did not seek to obtain particulars from Mrs Fisi as to her estimation of the kava stock.

I found Mrs Fisi's evidence in relation to the stock quantities on the premises on the night of the fire much more convincing than her husband's and what she said was supported to some extent by the evidence of the neighbour who had paid them a visit the evening before. Mrs Fisi kept the business book recording the sales and purchases of kava product but, unfortunately, the book was destroyed in the fire.

Mrs Fisi told the court that there were 800 $3 plastic bags of kava powder already made up which she was going to take up to her brother-in-law in Samoa for sale. In addition there were 8 full trays of kava powder still waiting to be bagged. Mrs Fisi explained that it had taken 8 to 10 trays to fill the 800 plastic bags that they had already made up. She said that there was also some unpounded dry kava stored in bags and the value of the contents of each bag would have been about $250. The witness was unable to tell the court how many such bags there were in the workshop. The neighbour had also noted bags of unpounded kava around the pounding machine but she was likewise unable to say how many bags there were. She estimated the value of the contents of each bag at around $100 but I found Mrs Fisi's figures more reliable. Although there may well have been more, I am prepared to accept, on the balance of probabilities, that there would have been at least 4 bags of unpounded kava on the premises.

In summary, although it is not possible to be precise, the plaintiffs have satisfied me to the required standard of proof in civil cases that the kava stock in the workshop on the night of the fire would not have been less than:

800, $3 plastic bags of kava powder	$2400
8 trays of kava powder (approx)	$2100
4 bags of unpounded kava @$250	$1000
	$5500

After making deduction for the $2800 already paid by the second defendant, the balance which I find the plaintiffs are entitled to recover under this head is $2700 and judgment is accordingly entered against the second defendant in that sum. Interest is claimed at 10% and interest is awarded at that rate on the sum of $2700 from 23 April 1996 down to the date of payment.

The plaintiffs are entitled to costs as against the second defendant to be agreed or taxed.

There was a claim for general damages of $5000 but the claim was not substantiated in any way and I do not award any sum under this head.

Although the plaintiffs have not succeeded in their claim against the first defendant, I am reluctant to allow full costs to the first defendant because I have no doubt that, notwithstanding my final conclusions, the hearing would have been shortened had the bank's loan file been available to the court. I allow the first defendant three-quarters of its costs entitlement upon taxation, failing earlier agreement as to costs between the parties.