Development Bank of Vanuatu v Seagoe [1985] VULawRp 5; [1980-1994] Van LR 168 (14 June 1985)

[1980-1994] Van LR 168

IN THE SUPREME COURT OF
THE REPUBLIC OF VANUATU

CIVIL JURISDICTION

Civil Case No. 30 of 84

BETWEEN:

DEVELOPMENT BANK OF VANUATU
Plaintiff

AND:

ROSE-MARIE & GEOFFREY SEAGOE
Defendants

Coram: Justice Williams

Counsel: Mr Leder for plaintiff

JUDGMENT

[MORTGAGE - INDEPENDENCE - FRENCH LAW]

In 1979 the Caisse Centrale loaned 92,812 French francs to Mrs Rose-Marie Seagoe and her husband, Geoffrey Seagoe, who are now the defendants to this action.

At that time the territory was known as the New Hebrides and was under the joint administration of Britain and France.

The loan agreement bearing the number 79/528 is dated 5th February 1979 and is signed by the parties. Interest is payable at 6% per annum, but payment of interest and re-payment of the loan was deferred until 30th June 1984. Under Article 3 of the agreement interest is added to capital so that the borrowers repaid both capital and interest at the same time by paying 10,880 French francs and 46 c. each month. There were to be 10 such instalments.

There was no dispute between the parties as to the facts which reveal that the defendants were paid the loan to enable them to develop their land by cultivating cocoa. Neither party gave oral evidence before me. The area of land held by the defendants was 420 h.a. or thereabouts, and it was mortgaged to the Caisse Centrale as security for the loan along with 250 cattle.

Before the loan was due for re-payment, the territory became the independent Republic of Vanuatu. Thereafter the Vanuatu Development Bank was created and the plaintiff assigned the mortgage it held of the defendants' land and cattle to the Development Bank, on the 16th day of January 1982. The assignment was part of an agreement between the Caisse Centrale and the Vanuatu Development Bank whereby the former assigned to the latter 445 loans, amounting to 13,522,624.62 French francs.

The defendants do not deny that the loan has been transferred to the Vanuatu Development Bank but they do not wish to acknowledge its effectiveness. There is no doubt, on the admission of Mrs Seagoe, that Article 1690 of the Code Civil has been complied with.

Both defendants find it extremely difficult to adjust to the tremendous upheaval caused in their business life by the changes consequent upon the independence of the New Hebrides.

Under Chapter 12 of the Constitution the concept of the transferability of freehold land to non-indigenous people of Vanuatu was abolished.

Settlers holding freehold titles whilst remaining for the time being in possession of their land lost their right to ownership in perpetuity. The land reverted, via the existing Vanuatu Government, to the indigenous owners who are described in the Constitution as custom owners.

However, the Constitution, Article 75, makes provision for persons such as the defendants to be compensated should their interests be adversely affected by legislation enacted under Chapter 12. It is a provision of considerable moral significance casting as it does a duty on the Vanuatu Government to be fair and just to settlers as well as to the indigenous people.

Like many people caught up in changes of government consequent upon independence the defendants feel that the French Government, through its agent, Caisse Centrale, should bear the financial losses caused to them by changes in land ownership and in land tenure. They say that the money was loaned to them in order to develop land; the lender was in effect the French Government; the French Government has transferred the loan to the Vanuatu Government; the Vanuatu Government has by its Constitution deprived the defendants of their title to the land they wished to develop. They infer that the Vanuatu Government is grasping the benefit of the loan made to the defendants whilst demanding that the defendants repay the loan.

If the defendants' source of income, namely cultivation of the 420 of land is removed, from what source will they derive the income in order to repay the loan? They contend that the French Government should compensate them for the loss of their land, and they draw attention to promises allegedly made by France to compensate such persons for financial loss caused by the advent of independence. To date the French Government has not taken any steps to implement that promise.

Mrs Seagoe complains that the Vanuatu Government proposes to take away their 420 h.a. of land and replace it with a lease of 92 h.a. She says that the arrangement is most unfair because the 92 h.a. to be leased to the Seagoes is substantially undeveloped, and that the 330 h.a. being taken over by the Vanuatu Government is the land which has been developed by cocoa planting with the aid of the loan from the Caisse Centrale.

The moral problem is complex but the legal issues are clear although the application of the law may produce harsh consequences.

The Caisse Centrale loaned money to the defendants and it is now due for re-payment. The defendants did receive it and they must repay it as agreed to the Caisse Centrale or their assignee, in this case the plaintiff.

Although the object for which the money was loaned may have disappeared the obligation to repay does not disappear with it. In fact the money loaned may not have been used for the object for which it was borrowed, although this aspect is not material for the purposes of my decision it helps to demonstrate that the continued existence of the obligation to repay cannot depend on the continued existence of the object of the loan.

Accordingly, deprivation of the land for which the money was borrowed cannot terminate the obligation to repay the loan.

We are all subject to the law and we can all be adversely affected by changes in the law unless the legislature provides some relief from those adverse effects.

I must now ascertain what it is that the defendants have to pay.

The loan agreement is in French. I have marked a copy of it as Exhibit B, and an attached English translation as Exhibit B.B. Paragraph 3 of Exhibit B reveals that the loan does not become repayable until 30th June 1984, and the capital and interest are pre-calculated to enable payment of both in 10 equal instalments of 10,880.46 French francs.

By paragraph 8 of the loan agreement, Exhibit B, it is provided that extra - i.e. additional interest - shall be paid as default interest at 3½ % on any unpaid sum after a lapse of one month's delay in repayment.

The writ of summons alleges that the defendants, by not paying interest and some of the loan, are in breach of the loan agreement's provisions as set out in Article 18. Article 18 refers one to Articles 11 and 15 and Article 15 refers one to Article 13 and 14. However, Article 18 makes no reference to payment or to re-payment of principal or interest nor do Articles 11, 15 and 15. The writ of summons erroneously relies upon Article 18 as enabling them to determine the loan and call in capital or principal and interest for non-payment.

Article 9 enables the creditor to terminate the loan agreement and call in the loan in the event of the debtor's failure to pay any sum lawfully due after a demand has been made by registered post. Although the plaintiff quotes the wrong Article number, namely '18' instead of '9', he quotes lawful reasons which are in Article 9.

The writ claims that the loan was terminated because of the debtor's (borrower's) breaches of condition and that interest on the unpaid sum is payable at 6% until 31st December 1983 and thereafter at 9% by reason of Article 18. The fact that the plaintiff quotes number 18 instead of number 9 does not affect the validity of his writ which gives in writing the lawful reasons relied upon.

The amount claimed is VT1,740,996 plus interest at 9½% from 1st January 1984.

The defendants complain that if the Court decides in favour of the plaintiff, the sum claimed is inaccurate and has been incorrectly calculated. Their contentions are contained in the defence filed in the Supreme Court which also alleges that the loan is expressed in French francs and that a judgment for the plaintiffs, if they succeed, should be in French francs.

Mr Leder accepted that the loan having been negotiated in French francs, any sums found due following the plaintiff's rescision of the agreement should be in the same currency, i.e. French francs.

In my opinion, the loan was negotiated in French francs which was the natural thing to do in that the lender was a French Bank and the borrower was a French citizen. For convenience the loan was translated to Vatu and re-payment of the loan although calculated in French francs, was to be in Vatu, if the debtor so wished. However, when the loan agreement was purportedly rescinded by the plaintiff, the re-payment arrangements under Article 3 would be automatically cancelled and the entire loan would become due, only if the termination was lawful under the agreement.

The date on which the debt was assigned to the plaintiff is recorded as 1st January 1982 and the defendants do not dispute that date. But the debt transferred is shown as VTl,548,656, which no doubt represents the Vatu equivalent of the loan in 1979 plus any interest accruing thereon at 6% up to 1st January 1982. It was perhaps, in the circumstances, a misleading way of assessing the debt.

Mr Leder assures me that under French law as under English law, the assignee's rights are no different from those of the assignor. Accordingly, the amount of the debt assigned on 1st January 1982 should have been recorded in French francs, according to the agreement which is expressed in French francs.

Interest would accumulate at 6% from 5th February 1979 (date of the loan) to 30th December 1981 when it was assigned, i.e. 6 x 92,812.50 French francs per annum which is 5,558.75 French Francs per annum, which amounts to 15,778.11 French francs. The amount assigned to the plaintiff on 1st January 1982 would be 108,590.61 French francs. However, no payment was due from the defendants on the 1st January 1982 and the plaintiff may have been misled into believing that interest was payable forthwith.

When the plaintiff terminated the loan by letter to the defendants dated 13th December 1983, they expressed the amount which had been assigned to them as VTl,548,656 and claimed interest for 1982 at VT92,918, and the same amount of interest for 1983. The sums of VT92,918 are apparently calculated as interest at 6% on the sum of VTl,548,656, but this was not the sum loaned by the plaintiff. If the defendants' loan from the Caisse Centrale were converted to Vatu it would equate to about VTl,000,000 as at the time of the loan. 6% of VTl,000,000 is VT60,000, not VT92,918.

In any event, the loan is in French francs and the calculations must be in francs. Moreover, there is no indication as to whether the interest is to be compounded or calculated as simple interest. It is for the plaintiff to prove his case and if he contends that it is to be compound interest he should have adduced evidence to that effect. I think it would be unfair for me to assume that there is some implied agreement arising out of custom that compound interest will be paid. Therefore I propose to assess the interest payable as being 6% as simple interest on the sum actually loaned. It amounts to 5,568.75 francs per annum to the date on which the loan was purportedly terminated by the plaintiff, i.e. until 15th December 1983. For convenience of calculation I will regard it as 31st December 1983 which is two years from the date of the assignment. The amount of interest due on the 31st December 1983 would be 2 x 5,568.75 francs = 11,137.50 which when added to the sum assigned (108,590.61) amounts to 119,728.11 French francs.

The plaintiffs in their letter of 15th December 1983, claim default interest at a further 3½ % for the years 1982 and 1983 amounting to VT6,504 which, in addition to the other amounts, produces a total sum of VT1,740,996. The default interest is the additional 3½ % payable under Article 8 of the agreement when the debtors (defendants) default in paying any sum which has become overdue for one month.

Under the agreement, Article 3, re-payments are not to commence until 30th June 1984. Therefore it was not possible under the agreement for the plaintiffs to claim any payments prior to 30th June 1984. If a claim for re-payment is requested prior to the date on which it is due, the defendants are entitled to ignore it because it is not legally due.

I now revert to the plaintiffs' registered letter of 13th December 1983 alleging that the defendants have not paid the interest falling due "under loan No. 79/528 dated 5th February 1979." As I have said the interest would not normally fall due until 30th June 1984. Until it falls due, the defendants cannot be said to have defaulted. It follows that the plaintiffs were in error in claiming interest for 1982 and 1983 and then treating the non-payment as a default in payment of interest due.

I again draw attention to the loan agreement. The capital sum is 92,812.50 French francs. Article 3 provides that capital and interest shall be repaid in 10 instalments of 10,880.46 francs so the total re-payment would be 108,804.6 francs which is 16,000 francs more than the sum borrowed. Obviously the sum to be repaid includes interest thereby demonstrating that Article 3 means what it clearly says, namely that the principal and interest shall be repaid at the same time by way of instalments. It is a common form of arrangement in financing loans such as hire-purchase. The interest which would accumulate over a given period is pre-calculated so as to enable it to be paid in instalments along with the capital. Frequently the final instalment will be more or less than the others which is what is provided for in Article 3.

Article 3 says that the "pre-calculated" interest payments and capital re-payments shall commence on 30th June 1984. There is no provision for a separate accounting for interest year by year as is suggested in the plaintiffs' letter of demand dated 15th December 1983. It follows, as I have already stated, that the demand for interest made in the plaintiffs' letter of 15th December 1983 for interest accruing in 1982 and in 1983 is premature. The right to any re-payment did not arise until 30th June 1984.

The demand of 15th December 1983 also claims an additional 3½ % interest as default interest. However, under the loan agreement, default interest cannot be claimed until some legitimate payment is overdue for one month. Therefore the default interest could not arise on interest in 1982 or in 1983 because no payments were lawfully due in those years.

In my opinion, the whole of the demand made on 15th December 1983 is based on a complete misconception of the meaning of Article 3, to say nothing of other clauses in the loan agreement. The threat to treat the loan agreement as terminated for non-payment of interest is wholly ineffective being based on an improper demand for interest. Until the defendants are guilty of a breach of the agreement, the plaintiff cannot call in the loan. To date no lawful breach of the agreement has been alleged by the plaintiffs.

On 8th February 1984 a writ of summons was served on the defendants wrongfully demanding payment of money which was not due for re-payment. The writ is based on the plaintiffs' demand of 15th December 1983 which as pointed out is not only premature but wholly erroneous in content and in its interpretation of the loan agreement.

There is only one form of breach of agreement pleaded in the writ as justification for terminating the contract of loan, namely failure to pay interest. In fact as at 8th February 1984 it was impossible for such a breach to have occurred. No other kind of breach has been alleged and no evidence of any other kind of breach has been tendered. I find that at the date of the writ no right to payment of any kind had accrued to the plaintiff. The plaintiff's claim is dismissed with costs to the defendants.

Perhaps it is apposite to tender a few observations for the benefit of the defendants who are not represented and for that of the plaintiff who has misinterpreted the defendants' obligations under the loan agreement.

The first payment to become due was on 30th June 1984 for 10,880.46 French francs. No demands could be made by the plaintiffs until 1st August 1984, one month after the first instalment was due.

On 31st December 1984 the second instalment of 10,880.46 French francs became due.

The third instalment will become due on 30th June 1985.

One cannot at this stage say that the defendants are overdue on those payments because there could be no point in their tendering those instalments when the plaintiffs had erroneously purported to terminate the agreement and were demanding the whole amount of the loan plus interest at erroneous rates.

Until such time as the defendants know the attitude of the plaintiffs to this judgment there can be no point in their trying to tender the three instalments which will be due at the end of this month. The sum due on 30th June 1985 would be 3 x 10,880.46 French francs = 32,641.38 French francs.

If there is an appeal against my judgment the matter would have to remain in abeyance pending the outcome.

If the time limited for an appeal expires without an appeal being lodged then it will be appropriate for the plaintiffs to demand payment of the 32,641.38 French francs and on default after the lapse of one month to terminate the loan in the manner required by the agreement and demand the whole amount due, namely 10 x 10,880.46 French francs = 108,804.60 French francs. In the event of default, interest at 3½ % would in my view accrue as default interest on the sum unpaid.

It should be noted that the agreement specifies sums in French francs and the plaintiff is entitled to no more than the agreement permits. Accordingly, the demands should be made in French francs with the equivalent value in Vatu bracketed alongside and the official rate of exchange should be set out.

I would also draw attention to Article 20 of the agreement which specifies that all re-payments shall be made in Paris. The debtor is given the option, subject to the approval of the lender to pay at Port Vila. It seems that the defendants MAY have the right under the agreement to elect to make their re-payments in Paris or Port Vila as they wish and the plaintiffs MAY have no right to object. Of course it is a matter which was not in issue before me and I am not purporting to make any decision. I merely point it out so that the parties may give some consideration to this aspect of the agreement before rushing into any further litigation.

14 June 1985

MR JUSTICE J. WILLIAMS
JUDGE