Australia & New Zealand Banking Group Ltd v Dandin Group (Tonga) Ltd [2015] TOSC 26; CV204.2008 (7 August 2015)

IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU'ALOFA REGISTRY

CV 204 OF 2008

BETWEEN:

AUSTRALIA & NEW ZEALAND BANKING GROUP LTD
Plaintiff

AND:

1. DANDIN GROUP (TONGA) LIMITED
2. LISIATE TEULILO
Defendants

Counsel : Mrs. P. Tupou for the Plaintiff
S. Fili for the Defendants

JUDGMENT

[1] On about 10 April 2007 the bank offered certain facilities to the Defendants (Document P-24) which were accepted by them on 2 July.

[2] According to this letter of offer both Defendants had existing accounts with the bank. Dandin, account number 1133756, had an overdraft of $87,463 while the Second Defendant, Teulilo, had an account, number 1497147, a term loan with the amount owed then being $102,000.

[3] The principal purpose of the offer is stated to be: "restructure of existing facilities by transferring total overdraft plus accrued interest and fees to Term Loan". The whole sum then owed, $189,463.00 was to be repaid at the rate of $3630.00 per month. The interest rate on the advance was the variable ANZ Indicator Lending rate which then stood at 10.5% plus 4.5% ie. 15%. After taking legal advice Teulilo proposed that the commencement date for repayments be July 2007, not April 2007 as appears in the letter, and this was approved in May 2007 (P-47).

[4] It is not in issue that the Defendants did not comply with the repayments schedule and finally, on 14 October 2008 the bank issued a notice of demand amounting to $192,707.30 (P-64). This demand was not complied with and a further demand was made in November 2008 (P-66). Following non compliance, proceedings were commenced in December.

[5] In a re-amended Statement of Defence and Counterclaim filed on 26 June 2015 the Defendants explained why they should not be required to refund the sums advanced by the bank and why, on the contrary they were entitled to compensatory damages.

[6] Put very briefly, the Defendants' case was that their business had been destroyed by fire during the riots which took place on 16 November 2006, that despite making every effort to recover from this disaster they had been unable to do so because of the crushing terms of the agreement imposed upon them in April 2007 by the bank and because their reputation was blackened by the notification to the public of their defaulter status, thus further weakening their ability to trade their way back to profit and repayment of their debt. They did not concede that their indebtedness had been correctly calculated; the original agreements that led to the establishment of the first two accounts and the originals of the bank statements had not been provided to them.

[7] The only witness for the bank was Siosifa Halahingano whose brief of evidence was admitted as Exhibit 1. Halahingano referred to copies of the bank statements for the two accounts P10-23, to the agreement P24 as a result of which they were amalgamated and copies of diary entries and correspondence between the parties after the Defendant's fell into arrears, culminating in the issuance of the notices of demand.

[8] Halahingano was also referred to P.69 a copy of an email sent to Teulilo on 5 December 2008, a few days before the writ was issued. In paragraph 5 the bank's relieving lending manager stated:

"Your name will now be placed in the papers as a defaulter as well as the Company's".

Halahingano agreed that there was no provision in the agreement between the parties (in particular in paragraph 9) that default would be publicized. His explanation for publication was that it was part of the recovery process.

[9] Halahingano was asked why the original agreements which resulted in accounts 1133756 and 1497149 being established were not produced. He explained that as a consequence of the riots the bank's premises were destroyed and the hard copies of most of their documents, including these two agreements were lost. The copy of bank statements which had been produced P10-23 were downloaded from their back up computer system which fortunately had not been affected.

[10] In further evidence Halahingano explained that following the amalgamation of the two accounts, Government subsidies on loan interest repayments had been applied to the amalgamated account. These appear in the statements as "interest rate subsidies" the first in March 2008, the last in January 2010. He also told the Court that in January 2007 the bank had suspended interest payments for a period of 5 months as a way of assisting Dandin to recover from the disaster.

[11] Teulilo was the principal witness for the defence. He told the Court that after completing his secondary education he went on to obtain a diploma in electronics. He had begun working for an electronics company, Moore Electronics, in Nuku'alofa in 1987. When the Principal of that company emigrated to New Zealand Teulilo took the company over. In 1994 it changed its name to Dandin Group (Tonga) Ltd. He was and remains the sole director and shareholder. His copies of the articles of incorporation together with the copies of the returns filed by Dandin prior to the fire had been destroyed. Returns following the fire were not produced.

[12] In 2006 Dandin was operating from premises in the Tungi Arcade. In his opinion the business was operating well and profitably. As can be seen from P33-39 it held stock, all said to be owned by the Company, worth $785,170.00. None of this stock was insured; Teulilo had an unhappy experience with insurers and thought insurance was a waste of money.

When the Arcade was destroyed his entire stock was lost.

[13] Shortly after 16 November he went to the bank to tell them what had happened. He followed that visit with one or other of the letters P31 or P32 to which was attached the list of stock losses P33 to 39. This list was compiled from memory by one of his staff. The letters explained that Dandin's business was "completely destroyed" on 16 November but that:

"although we have lost our business, office, together with all our stocks and equipment we are still motivated to stay on in business regardless of all difficulties."

"I am more than happy to discuss with you on how we can clear our debt with your bank and may I ask if there would be a fixed appointment to meeting you in the future."

[14] On 11 April 2007 Teulilo went to the bank again. He did not dispute that P42, a diary note, was an accurate record of what transpired. According to the diary note, Teulilo told the lending officer that he was expecting to receive $200,000.00 from the Ministry of Education the following week. From this sum all arrears would be paid off. It was agreed that the balance from account 1133756 would be transferred to account 1497147.

[15] Mrs. Tupou referred Teulilo to pages P12 and 13. Teulilo was unable to point to any substantial payment into the account of the type promised on 11 April. The only credits which appear between the end of April 2007 and April 2008 are 7 payments of $3630.00 (the monthly repayment agreed) and 4 other payments of lesser sums. Teulilo conceded that while he had received some payment from the Ministry it was nowhere near the $200,000.00 promised; much the greatest part of the sum received had been owed to the suppliers. In other words, the expected gross receipts had been wrongly described as expected net profits.

[16] In September 2008 (P.63) similar assurances had been offered to the bank and a list of debtors totaling $88,000.00 had been supplied. Teulilo accepted that the impression gained by the bank that these were expected net receipts was also wrong. Dandin's trading position was in fact much less rosy than it was represented to be.

[17] After Mr. Fili closed his case both counsel asked to file written submissions and these were filed a few days later. I am grateful to counsel for the effort they put into preparing their very helpful submissions.

[18] Mr. Fili suggested that the bank's behaviour was unconscionable since it must have known that the terms of the April 2007 agreement could not be met first, because the Defendants' business had been destroyed and second, because of the prevailing circumstances including the Global Financial Crisis. In my opinion Mrs. Tupou's analysis of this claim is correct. The April 2007 agreement was entered into at the request of Teulilo who advised the bank that he was "still motivated to stay in business regardless of the difficulties". It was after this approach to the bank that the existing liabilities to the bank were restructured. Before reaching the April 2007 agreement Teulilo, who was by no means ignorant or poor, had sought independent legal advice. The rate of interest, 15% was not very much higher than the rates of interest which he had been paying before the agreement. I do not believe that repayments would have been substantially more regular had the rate of interest been between 12.5% and 14.1500%. In my opinion it is plain on the evidence that the reason the April 2007 agreement was breached was that Dandin was unable to trade with sufficient profitability. In Teulilo's own words: "default is due to income problem" (D.111) "we are all acquainted with our depressed economy, all business levels are badly affected by a number of inescapable factors" (P.50) "I have tried every corner of marketing but the well has dried up" (P.70)". The blame for this situation cannot be laid at the door of the bank.

[19] In paragraphs 1 – 5 of his submissions Mr. Fili again pointed out that neither the original agreements not the original bank statements had been produced. In my opinion however a satisfactory explanation for this was offered by the bank and I find no reason to doubt the accuracy of the copy computer generated statements produced. In all essential respects they are consistent with the April 2007 agreement and the subsequent diary entries. There is nothing to suggest that the accuracy of the statements was queried at any time before proceedings were issued.

[20] In paragraph 6 of his submissions Mr. Fili suggested that it was only the First Defendant which entered into the April 2007 agreement. I do not agree. Following the amalgamation of the debts then owing, the account which was closed was that of Dandin. The Second Plaintiff's account then became a joint account in the name of "Lisiate Teulilo/Dandin Group (Tonga) Limited". In my opinion both the Defendants are equally liable for breach of the agreement. As also pointed out by Mrs. Tupou there is nothing to suggest that section 189 of the Companies Act has not been complied with.

[21] In November 2007 Teulilo wrote to the bank (P-50):

"I write to thank you abundantly for your restless service and painstaking support that have sustained [Dandin] throughout the disheartened year 2007."

Hardly a complaint of unconscionable conduct.

[22] While I do not accept the Defendants' defences based on unconscionability, liability or quantum I am troubled by the bank's decision to advertise the Second Defendant's default, not just once, but at least seven times (see D 114 – 127). Teulilo's evidence was that additional notices had appeared in two other newspapers and that Dandin's default had also been advertised. I see no reason not to accept this evidence which is consistent with the bank's email referred to in paragraph 8 above.

[23] Mr. Fili submitted that these publications were defamatory and in breach of the bank's fiduciary duty to the Defendants. Teulilo told the Court that Dandin had lost substantial business as a result of the publications.

[24] The notices which were published contained the list of defaulters beneath the following preamble:

"Listed below are those urgently required to contact the branch of ANZ bank taking care of default loans, regarding loans long unsettled. Come to our office so that we could make arrangements of a way of settling your loan. Failing to do so ANZ would add on fees for our legal proceedings as additional costs and your securities and reputation would be harmed".

This translation was made by Teulilo (see D-111) and was accepted as being sufficiently accurate for present purposes.

[25] I was not told when the advertisements began appearing, however the first date of publication was, in all probability, after the email of 5 December 2008 while legal proceedings were commenced on 12 December. It is evident that the great majority of the advertisements appeared after legal proceedings had already been commenced.

[26] Beyond drawing Teulilo's attention to the advantages of combining the two accounts so as to maximise the amount of Government interest subsidy there is nothing to suggest that the bank's relationship with Teulilo was more than that of lender and borrower. I agree with Mrs. Tupou that in the circumstances of this case no fiduciary duty is involved, let alone a breach of that duty.

[27] Despite the wording of the preamble to the notices with its reference to reputation being harmed, I do not agree that the publications were defamatory. The Defendants were indeed, as I have found in default and therefore I agree with Mrs. Tupou that section 14 the Defamation Act (Cap 33) provides a complete defence.

[28] There remains the question of breach of contract. Mrs. Tupou submitted that there was nothing in the agreement between the bank and the Defendants prohibiting publication of loan default. Referring to Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 she submitted that the bank's own interests required disclosure and accordingly publication was permitted. I do not agree.

[29] In Tournier Bankes LJ explained that the contractual relationship between a banker and customer contained an implied duty of secrecy. That duty allowed of four qualifications, the third of which permitted disclosure "where the interest of the bank require disclosure" (473). I do not however interpret these words to mean that the duty of confidentiality can be avoided whenever the bank thinks that it would be advantageous to the bank to do so. Such an interpretation would render this qualification meaningless.

[30] Beyond Bankes LJ's own example of the qualification in operation (a bank issuing a writ claiming payment of an overdraft, stating in it the amount owed) the only other example I have been able to find reference to is Sutherland v Barclay's Bank Ltd (1938) 5 LDAB 163 in which the court found that the bank's disclosure had been with the customer's implied consent – not the case here.

[31] At Tournier p.486 Lord Atkin, after accepting that there was a duty of secrecy but that the difficult problem was to state its limits, said:

"I think it is safe to say that the obligation not to disclose information such as I have mentioned is subject to the qualification that the bank have the right to disclose such information when and to the extent to which it is reasonably necessary for the protection of the bank's interests either as against their customer or against third parties in respect of transactions of the bank for or with their customer or for protecting the bank or persons interested, or the public against fraud or crime".

[32] In the present case the bank had already moved to protect its interests by commencing legal proceedings before the great majority of these advertisements appeared. In my view the purpose of the advertisements was simply to attempt to shame the Defendants into repaying their debt. In my view the publication of these advertisements breached the contract between the Defendants and the bank.

[33] The final questions are whether this breach entitles the Defendants to damages and if so how are they to be calculated?

[34] A party who has breached a contract is liable to pay at least nominal damages, even if no loss has been caused (Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd [1938] HCA 66; (1936) 61 CLR 286). In the present case the Defendants say that the advertisements caused them to lose business which they would otherwise have obtained. In my view however it would not be right to award damages for loss of business which resulted from the Defendants' true financial situation being revealed, a situation which would in any event have been revealed by any potential investor carrying out due diligence, including inspection of any proceedings already pending in the Court.

[35] Teulilo also says that as a result of these advertisements he was caused distress. As a general rule damages for breach of contract are not awarded for distress (Baltic Shipping Co. v Dillon [1993] HCA 4; (1993) 176 CLR 344. There is one exception to this rule however which I find to be relevant: where the breach is of an express or implied promise "to provide pleasure entertainment or relaxation or to prevent molestation or vexation".

[36] As has been seen, the preamble to the advertised lists of defaulters predicted that the reputations of defaulters who failed to reach an accommodation with the bank would be harmed. As I find, the bank knew full well that vexation would be the result of publication but, despite protests (D-111) repeated the publication several more times. In my view suitable compensation for these breaches is TOP$7,500.00.

RESULT: 1. There will be judgment for the Plaintiff on the claim in the amount of $192,747.24 with interest at the rate of 15% from 22 December 2012 until judgment.

2. There will be judgment for the Defendants on the counterclaim in the amount of $7,500.00 with interest at the rate of 10% from 21 March 2013 until judgment.
   
3. I will hear counsel as to costs, if not agreed.
   

M. D. Scott
JUDGE
NUKU'ALOFA: 7 August 2015.