Eteuati v National Provident Fund [2006] WSCA 9 (26 April 2006)

IN THE COURT OF APPEAL OF SAMOA
HELD AT APIA

BETWEEN

FUIMAONO POLOMA ETEUATI
of Motootua, Businessman.
Appellant/Plaintiff

AND

THE NATIONAL PROVIDENT FUND
a statutory corporation established under the National Provident Fund Act 1972.
Respondent/Defendant

Coram: The Honourable Justice Ellis
The Honourable Justice Gallen
The Honourable Justice Salmon

Hearing: 20 April 2006

Counsel: Mr. T Malifa for the Appellant
Mrs. R Drake for the Respondent

Judgment: 26 April 2006

JUDGMENT OF THE COURT

Introduction

[1]. Mr. Eteuati, the appellant appeals against the judgment of the Chief Justice dismissing his claim against the respondent (NPF) and ruling that $1,400,000 plus accrued interest being the sale price of the appellant’s Land mortgaged to NPF and which had been deposited in an interest bearing bank account should be paid to NPF.

The facts

[2]. The facts emerged from the documents exhibited at trial.

[3] The appellant, borrowed $475,000 from NPF in 1991 to finance the purchase of a property at Moto’otua and the erection of dwelling units thereon. The loan was drawn down in instalments commencing on 11 October 1991. The term of the loan was 15 years and interest at 14% (reducible to 12% for prompt payment) was to be paid quarterly with a first payment due on 31 March 1992.

[4] The appellant was unable to meet the initial instalments of interest and he wrote a letter dated 15 April 1992 to NPF requesting interest to be capitalized and a 6 months grace period. We set the letter out in full.

15 April, 1992

The chairman

Board of Directors

National Provident Fund

APIA

Sir,

I hereby submit with respect this application to your Board a review of our loan with the Fund.

You are maybe aware that our project was originally intended to be completed by the end of March 1992, such that the rental payments would be in line with our repayment schedule. However, due to shortage of funds we have been unable to meet the completion deadline. It is now envisaged that the five homes will not be fully completed and ready for occupation until the end of July 1992.

Because of this setback, I therefore humbly seek your Board’s approval of the following assistances:

1. the interim interest be capitalized;
2. that a grace period of 6 months from June be given before the first repayment to allow us time to fully complete the project and start yielding returns.
   

I sincerely hope your Board will give us these accommodations to realise a lifetime investment for my family.

Faafetai,

Elisapeta Eteuati

[5] This letter was not received by NPF until 9 July 1992. The Board agreed to the request and wrote to the appellant setting out the terms of its agreement. This letter we also set out in full.

20 July 1992

Afioga Fuimaono Poloma

MOTO’OTUA

Afioga e

Thank you for your letter of 15 April 1992 which was received by the Fund on 09 July 1992.

Your request for a further grace period of (6) months on repayments and to capitalize the Interim interest was presented to the Board at its meeting of 14 July 1992 and the Board agreed to capitalize:

(a) Interim Interest
(b) June 1992 Interest
(c) September 1992 Interest

The Board also approved the rescheduling of your repayments as under:

Loan Amount $475,000.00

Interim Interest - 24,266.64

------------

499,266.64

June Interest ($499,266.64 x 1 quarter x 12%) - 14,978.00

------------

514,244.64

September interest ($514,244.64 x 1 quarter x 12%) - 15,890.16

------------

529,671.98

December Interest ($529,671.98 x 12% x 1 quarter) - 15,890.16

------------

$545,562.14

Total Amount to be Rescheduled - $545,562.14

Term - Fifteen (15) years

Interest Rate - Fourteen (14%) per annum reducible

to 12% on prompt payment

Repayment - $19,712.27 per quarter from 31st March 1993.

Yours faithfully

Seuseu Tauati

MANAGER

We have underlined the last line as the appellant contends that interest ran from that date and no installment was due on 31 March 1993. Further the appellant maintains this variation terminated the deed of mortgage evidencing the original loan agreement and that he was not liable for further interest thereafter. We will set out his contentions later.

[6]. By September 1993 the appellant was in arrears with his interest payments up to 31 August 1993 in the sum of $33,541.31 and NPF issued a default notice. The statement of account as at 31 December 1993 shows total interest payable calculated from 31 December 1992 amounted to $73,610.27 and the appellant had made payments and credits totalling $48,214.64. These figures are based on the varied agreement represented by NPF’s letter of 20 July 1992.

[7]. NPF proceeded to a mortgage sale through the Court and the sale was to take place on 3 March 1994 at 2pm. By that time the appellant had paid a further $26,650 in interest but a further $12,115.09 had accrued. On 3 March the appellant applied ex parte to the Supreme Court for an interim injunction to prevent the sale proceeding. The Chief Justice granted the injunction in these terms:

THIS COURT HEREBY ORDERS that an interim injunction do issue against the abovenamed defendant to restrain it, its servants or agents or any of them until further order of this Honourable Court from exercising its power of sale under its mortgage against the property of the abovenamed plaintiff which is scheduled to take place on the 3rd day of March 1994 at 2.00pm at Court Room No. 2 AND HEREBY FURTHER ORDERS that the costs incidental to this application be reserved.

[8]. At this stage it is unnecessary to trace the complex history of the original proceedings issued in 1994 or the present proceedings in detail. What eventually happened is that the appellant sold the land for $1,400,000 and by agreement the sum was deposited in an interest bearing bank account for the parties pending resolution of the appellant’s claim. NPF calculates the amount owing under the mortgage as varied as at 6 July 2004 as $1,989,414.54. We asked Mr. Malifa, counsel for the appellant whether he accepted this calculation, and he has not challenged it. Following the judgment of the Chief Justice in August 2005 we were told NPF has uplifted the whole of the fund held in the bank.

The Appellant’s submission

[9]. Before us Mr. Malifa submitted that in the Supreme Court 'the fundamental issue' had been misunderstood and restated the issues.

'At trial, we submit the fundamental issues were (i) accepting there was a substantial variation in the Loan Agreement dated 26 September 1991, should not there be a Deed of Variation of Mortgage in order to properly effect all changes as rescheduled and restructured by the new Loan Agreement letter dated 20 July 1992? (ii) whether interest had continued to accrue to the loan when the Respondent sought to issue the mortgage sale and that was stopped by the interim injunction; (iii) did that interim injunction also stopped the amount of the loan at that time, that being the total of $575,715.27 made up of the Principle of $550,319.64 and interest then of $25,395.63; (iv) was this also the effect of the interim injunction to maintain the status quo at precisely those amounts, and (iv)given that the decision was outstanding since 1994 and interest was accruing during that time because of the delay in the Court decision, should the Respondent benefit substantially and become unjustly enriched from no fault of the Appellant? and (v) under the law, the equity of redemption should apply to protect the position of the Appellant.'

In brief the appellant claims that as a result of the variation of the loan agreement by the letter of 20 July 1992 the liability of the appellant is limited to the amount owning as the time of the interim injunction namely $575,715.27.

[10]. We suggested to Mr. Malifa that his submission lacked commercial reality as that amounted to an allegation that the appellant was entitled to the use of NPF funds for many years free of interest. However the matter proceeded and we now deal with the primary submission, as did the Chief Justice.

The effect of the variation

[11]. In dealing with the claim that the variation cancelled the Deed of Mortgage or had the effect of freezing liability the Chief Justice dealt comprehensively with the facts and the law in pages 22 through 27 of his judgment. We respectfully agree with his analysis and conclusions and for the purposes of the judgment we highlight the following.

In Tallerman E. Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93, 144. Taylor J in the High Court of Australia said:

'It is firmly established by a long line of cases...that the parties to an 'agreement may vary some of its terms by a subsequent agreement. 'They may, of course, rescind the earlier agreement altogether, and 'this maybe done either expressly or by implication, but the 'determining factor must always be the intention of the parties as 'disclosed by the later agreement.'

That proposition was not challenged before us. The Chief Justice reached the following conclusions (at page 26). He referred to the letters dated 19 April 1992 and 20 July 1992 already set out above and said:

'It is clear from the circumstances and terms of the request by the plaintiff and his wife that their request was prompted by difficulties in completing their project and meeting their loan repayments at the same time. The request was not prompted by any desire 'to bring the existing loan agreement to an end to replace it with a new loan.' The terms of the request do not manifest such an intention. The terms of the approval by NPF were clearly directed at the terms of the request and do not manifest any intention on the part of NPF of bringing the existing loan agreement to an end and replacing it with a new loan agreement constituted by the letter of request from the plaintiff’s wife on one hand and the approval of that request by NPF on the other. It would be quite surprising if NPF had such an intention the effect of which was to terminate the existing loan agreement thus releasing the plaintiff and his wife from all their obligations under that agreement except for their repayment obligation. It would have meant that the plaintiff and his wife were released from their mortgage obligations so that their loan of $475,000 would become unsecured. It would also have meant that the plaintiff and his wife were released, inter alia, from their obligations by insurance and charges on the mortgaged property. The terms of the approval by NPF do not manifest such an intention. The approval related only to the terms of the request from the plaintiff’s wife and nothing more.

I conclude therefore that the subsequent agreement made between the parties related only to the capitalization of interest and the granting of six months grace period to the plaintiff and his wife. On that basis the subsequent agreement effected 'only a variation of the existing loan agreement which continued to subsist in modified form.' The existing loan agreement was not terminated or wholly rescinded and replaced by the subsequent agreement. The provision of the loan agreement relating to the mortgaged security had therefore continued to be operative as a security for the loan.'

[12]. The Courts in New Zealand have held a variation of a mortgage to extinguish liability under the original agreement. The position is referred to in Hinde McMorland and Sim, Land Law (1979).

'In Nelson Diocesan Trust Board v Hamilton Land Transfer land had been transferred subject to a mortgage. Without the knowledge or consent of the original mortgagors, a memorandum of variation had been executed by the transferees and the mortgagee, renewing the term of the mortgage and increasing the rate of interest. The memorandum of variation had not been registered. The Court of Appeal decided that there had been a novation which released the original mortgagors from their covenant and that they were not liable to pay the mortgagee any money under the mortgage. This decision was applied by the Court of Appeal in Paterson v Irvine. Once again, Land Transfer land had been transferred subject to a mortgage and a memorandum of variation had been executed by the transferee and the mortgagee without the knowledge or concurrence of the original mortgagors. This time the memorandum had been duly registered and it merely increased the rate of interest; but the Court of Appeal held that these differences in the facts did not effectively distinguish the case from its earlier decision. MacGregor J, who delivered the judgment of the Court, said:

'We think that here, as in the Nelson case, the effect of the memorandum of increase was to create a new contract compounded of the original mortgage and the memorandum of increase itself. We think, also, that the original contract of mortgage has been discharged by means of the substituted contracts so created, which has, by necessary implication, superseded the original contract.'

The result of the appeal was that the memorandum of variation was held to have the effect of discharging not only the original mortgagor, but also a guarantor who had given collateral security.

We do not have a more recent edition of the text, but refer to the examples to highlight the differences between the present situation and that where the original security is discharged.

In our view the variations agreed to by NPF in July 1992 do not discharge the original mortgage.

It is of course plain that the new agreement simply modifies the old.

[13]. We therefore conclude that the original Deed of Mortgage remained in force at all material time varied as agreed. Further the analysis of interest due from time to time since monies were first advanced in 1991 make it plain that the reference in the letter of 20 July 1992 to 31 March 1993 was to the date the next instalment of interest fell due and not to the date from which interest would be calculated. It follows that interest continued to accrue as claimed by NPF. These conclusions deal with the first two matters raised by the appellant.

The effect of the interim injunction

[14]. The appellant submits that the interim injunction 'stopped' or crystallised the amount owing under the mortgage at $575,715.27 the amount then owing. We have set out the terms of the injunction above. We cannot see how its terms can have the suggested effect. The order does not refer to the status quo. It simply prevents the mortgagee sale proceeding. While that may be said to be part of the status quo the granting of the injunction cannot be interpreted as limiting liability as claimed by the appellant. The Chief Justice again dealt with the submission extensively. We agree with his conclusion that the appellant’s submission must fail. This disposes of the third matter raised.

Unjust enrichment

[15]. The fourth and fifth grounds claim that because of the delays since 1994 NPF has been unjustly enriched if it recovers the amount owing under the mortgage. The position is that the appellant has had the use of the monies advanced including unpaid interest until the sale of the property. Thereafter the money was in interest bearing deposit for the benefit of the party or parties entitled. We agree with Mr. Malifa and the authorities he cited that the whole issue must be looked 'at independently.' However, we have reached the same conclusion as the Chief Justice that this is not a case of unjust enrichment. It has always been an ordinary commercial transaction between parties at arms’ length. The length of time this matter has taken to resolve does not bear on this issue. While it means interest accumulated, the appellant always had the ability to sell the property and so terminate liability under the mortgage at least to the extent of the sale price.

Other matters

[15]. The appellant has raised several other matters in counsel’s submission recorded already. We have not referred to all of them as we consider they do not alter the conclusion we have reached.

[16]. One final matter requires our decision. This action was originally tried in the Supreme Court in May 1994. The decision was reserved and thereafter the Court file was mislaid and has never been found nor a decision delivered. On 8 January 2001 the manager of NPF wrote to the Prime Minister asking him to intervene in the disposal of the case. The Prime Minister then wrote to the Chief Justice on 10 January 2001 enclosing a copy of the letter from NPF. Both letters are written in Samoan. Counsel did not agree on some aspects of translation. In particular Mrs Drake submitted that the Prime Minister described the situation as 'quite serious' but Mr Malifa said the words used mean, 'appalling'. We have enquired from the Registrar as to the translation. It is likely that Mr Malifa is correct. Following this correspondence counsel were seen in Chambers and told of the missing file and the Chief Justice ordered a new hearing and counsel filed amended pleadings bringing the matter up to date. Mr. Malifa submits that this case was 'politicised' by NPF and the Prime Minister and this resulted in an unfair and prejudicial trial.

[17]. We are not called upon to make any decision as to the propriety of the correspondence, but we can say we are surprised to say the least, that counsel did not approach the Court about the matter years before the correspondence. By this we mean arranging to see the Chief Justice in chambers.

[18]. We have been able to review the record including the evidence. Beyond the fact that the Chief Justice found against the appellant we can see no substance in the allegation that the case was conducted to the disadvantage of the appellant. Indeed the Chief Justice was at pains to examine and deal with every aspect of the appellant’s case.

[19]. In granting leave to appeal in this case, which is as of right, the Chief Justice refused to allow the complaint regarding the correspondence to proceed to appeal. The appellant moves this Court for leave to argue it. To deal with this we have considered the merits of the allegation. We find that the allegation of prejudice from the correspondence must fail and accordingly leave is refused.

Decision

[20]. We therefore dismiss the appeal. The respondent will have costs which we fix at $1000 plus disbursements if any to be fixed by the Registrar.

Honourable Justice Ellis

Honourable Justice Gallen

Honourable Justice Salmon

Solicitors

Sogi Law for the Appellant

Drake & Co Law Firm for the Respondent