Laulu v Development Bank of Samoa [2009] WSSC 90 (18 September 2009)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN:

FIU MATAESE ELISARA LAULU
of Vaivase-uta, Company Director.
Plaintiff

AND:

DEVELOPMENT BANK OF SAMOA
a statutory corporate body established pursuant to the
Development Bank of Samoa Act 1974.
Defendant

Counsel: L T Malifa for plaintiff
S Leung Wai for defendant

Hearing: 21, 22 July 2009
Submissions by the defendant: 17 August 2009
Judgment: 18 September 2009

JUDGMENT OF SAPOLU CJ

Evidence

1. I will have to leave out the irrelevant evidence that came out during the trial and concentrate on the evidence that is relevant to the issues which were made important by counsel, especially counsel for the plaintiff, in this case.

2. Essentially, the plaintiff by letter dated 25 August 1999 made a loan application to the Development Bank of Samoa (the defendant) which is a statutory body established under the Development Bank Act 1974. The amount of the loan sought by the plaintiff was $400,000 and the purpose of the loan was to finance the costs of a bus operation the plaintiff wanted to establish.

3. As securities for the loan, the plaintiff offered, inter alia, his half acre of land at Vaivase-uta and his two half acre sections of land at Afiamalu. The plaintiff also provided a valuation report prepared by his own valuer on the values of the said lands.

4. The plaintiffs loan application was appraised and assessed by Ms Tagiilima, a senior loans officer of the defendant. Ms Tagiilima testified that when she assessed the values of the lands offered by the plaintiff as securities, she applied a 20% discounting factor to the values shown in the valuation report. She said this is the normal practice of the defendant. Mr Lima, the defendant’s general manager, also testified that not only is that the normal practice of the defendant, but it is also the normal practice of other banks in Samoa when lending out money on real property securities.

5. Ms Tagiilima, however, did not recall whether she told the plaintiff about the 20% discounting factor which was applied to the valuations of his lands.

6. After the plaintiffs loan application had been appraised and assessed, it was approved by the defendant’s board of directors on 15 October 1999. The plaintiff was informed by the defendant that his loan application had been approved by letter dated 21 October 1999.

7. Ms Tagiilima also testified that the usual requirement of a 35% contribution from the borrower to the costs of the project to be funded with a loan from the defendant was waived in the case of the plaintiff.

8. Pursuant to the approval of the plaintiffs loan application, a standard form loan agreement was executed between the plaintiff and the defendant on 22 October 1999. Under the loan agreement, the amount of the loan was $400,000, the purpose of the loan was to finance the establishment costs of a bus service operation by the plaintiff; the interest rate was 14% per annum reducible to 12% per annum which is the normal interest rate for a development loan; the monthly repayments were to be $8,000 commencing in April 2000 until the loan was repaid in full in March 2005; and the securities were a chattels mortgage over the two buses and double cab pick up vehicle to be purchased with the loan, a first mortgage over the plaintiffs half acre of land at Vaivase-uta and a first mortgage over the plaintiffs two half acres of land at Afiamalu. The said mortgages were duly executed by the plaintiff.

9. One of the conditions of the loan agreement, as provided in clause 2 thereof, is that if the plaintiff as borrower at any time fails to implement, carry out or perform any or all of the stipulations, duties and obligations imposed upon him under the agreement, then the defendant bank "may take any or all of the following steps". Essentially, these steps are: (a) decline to make any further portion of the loan available to the plaintiff; (b) demand, sue for and recover in any Court the outstanding balance of the loan together with accrued interest; (c) seize and take possession of any or all items of security and sell, dispose or otherwise deal with the same, (d) implement, carry out and perform the stipulations, duties and obligations imposed on the plaintiff under the agreement at the expense of the plaintiff; (e) enter into the business of the plaintiff and manage the same and assume all the powers of receiver and manager during the period of the default without any liability; or take any other action properly and legally open to the defendant for the repayment of the loan advances together with accrued interest.

10. After the execution of the loan agreement, the full amount of the loan was advanced to the plaintiff to enable him to buy the two buses and double cab pick up vehicle that he wanted for his bus service operation.

11. I should also mention here that according to the evidence of the defendant’s general manager, the defendant borrows funds from overseas lending institutions on set terms and on fixed interest rates and on-lends those funds to the private sector in Samoa for development purposes. The funds which were lent to the plaintiff were from funds borrowed by the defendant from the European Investment Bank (EIB) on set terms and on fixed interest rates and had to be repaid.

12. Within a year after the loan had been advanced and the plaintiff had started his bus service operation, the plaintiff was already falling into arrears with his monthly loan repayments due to difficulties set out by the plaintiff in his letter dated 18 October 2000 to the defendant’s general manager. By September 2000, those arrears had amounted to about $17,000 but were reduced to $11,325 at the end of October. In the same letter, the plaintiff requested that his monthly loan repayments be reduced from $8,000 to $6,000. The defendant’s general manager was concerned that the plaintiff was in arrears with his loan repayments so soon after his bus service operation had started. To assist the plaintiff, he recommended to the defendant’s board of directors a reduction in the plaintiffs monthly repayments to $6,000. This was approved by the defendant’s board of directors for a period of twelve months. The defendant’s board of directors also decided that the plaintiff was to pay up his arrears by the end of November 2000.

13. However, the plaintiffs bus service operation continued with its poor performance. By letters dated 7 November 2000 and 27 November 2000, the plaintiffs wife advised the defendant that the plaintiff was not able to pay up the loan arrears by the end of November 2000 and requested that those arrears be capitalised. The plaintiffs wife also mentioned in her letter the proposals the plaintiff had in mind for further repayment of the loan. One of those proposals was to sell the two buses purchased with the loan to another bus service operator. However, that proposed sale did not eventuate.

14. Then by letter dated 10 July 2002 the defendant advised the plaintiff that the outstanding balance of his loan was $402,329 and the arrears were $7,838. In the same letter the defendant requested the plaintiff to update his account within fourteen days. The plaintiff said that at that time he had paid $163,542 towards his loan.

15. Later on by letter dated 17 October 2002, the plaintiff wrote to the defendant’s general manager proposing new conditions for repayment of the outstanding balance of his loan. This letter followed a discussion on 4 October 2002 between the plaintiff and the defendant’s general manager regarding the loan.

16. The new conditions proposed by the plaintiff included requests for the defendant (a) to take the plaintiffs two quarter acres of land at Afiamalu at $50,000 per quarter acre, and (b) to reconsider the interest rate of 12% per annum charged on the loan as the plaintiff considered it to be high. The plaintiff also advised the defendant’s general manager in the same letter dated 17 October 2002 that he had found a new buyer who had agreed to buy his two buses at $105,000 a bus. The plaintiff then requested the defendant’s general manager to transfer a corresponding part of his loan to the new buyer.

17. On 18 October 2002, the plaintiff met with the defendant’s general manager again. During the discussion that they had, the defendant’s general manager advised the plaintiff that the new buyer will have to be assessed on the defendant’s standard lending policies and that the plaintiff should sell his Afiamalu properties himself and pay the proceeds to his loan.

18. As it turned out, the new buyer was not interested in buying both buses but only one. However, there was another client of the defendant bank with a good credit history who was interested in buying one of the two buses at the same price of $105,000. So the general manager supported the sale of one of the buses to that client and the transfer of a corresponding part of the plaintiffs loan to him.

19. By letter dated 29 October 2002, the defendant advised the plaintiff that it had received $105,000 from the new buyer for one of the buses and that it had been credited to the plaintiffs loan.

20. By letter dated 31 October 2002, the defendant advised the plaintiff that it has approved financing the purchase of the other bus by one of its clients and that the sum of $105,000 being the price of the bus will be credited to his loan. In the same letter, the defendant also advised the plaintiff that he should proceed with selling his Afiamalu properties himself and transfer all proceeds of the sale to his loan as that will be beneficial to him in realising the maximum possible price for his properties.

21. In a letter dated 5 November 2002, the plaintiff expressed disappointment that the defendant has rejected his request to take over his Afiamalu properties for $100,000. He said that the defendant had accepted $90,000 in 1999 as the total value for his Afiamalu properties so that his request in 2002 for the defendant to take over his Afiamalu properties for $100,000 was not unreasonable as the value of land appreciates rather depreciates.

22. At this point, it would be recalled that Ms Tagiilima, a senior loans officer of the defendant, had testified that when a person applies to the defendant bank for a loan and provides land as security, that person would also provide a valuation report on his land from a valuer. The defendant, not being a valuer but a lending institution, acts on that valuation report and applies a discounting factor of 20%. So it is not correct for the plaintiff to say that the defendant in 1999 had accepted $90,000 as the total value for his Afiamalu properties. That was the valuation provided by the plaintiffs valuer for the purposes of the plaintiffs loan application. The defendant, in accordance with its standard practice, then applied a discounting factor of 20% to the valuation given by the plaintiffs valuer. The plaintiffs loan application was then approved by the defendant’s board of directors and the full amount of the loan was released to the plaintiff.

23. It is irrelevant whether Ms Tagiilima informed the plaintiff of the discounting factor of 20%. Whether she did so or not, did not impact on the plantiffs loan application which was approved. Ms Tagiilima could not recall whether she had informed the plaintiff about the discounting factor but she testified that it is the defendant’s standard practice to tell a loan applicant about the discounting factor.

24. By letter dated 8 November 2002, the defendant explained its position on real estates to the plaintiff and reiterated that it is for the plaintiff to sell his Afiamalu properties and transfer the proceeds to his loan. In his evidence, the defendant’s general manager said that he was not supportive of the transfer of the plaintiffs Afiamalu properties to the defendant as he was not confident that the defendant could resell those properties at the total price of $100,000 required by the plaintiff. He also said the total price required by the plaintiff was too high given that there were other costs associated with the sale of land such as the costs of advertising, stamp duty and the commission of the real estate agent which will all be paid by the defendant if it accepted the transfer to it of the plaintiffs Afiamalu lands. Furthermore, the real price of the lands would be the price they are sold for on the market and it was uncertain whether that price would have been the same as the value by which the plaintiff wanted to transfer his lands to the defendant to further reduce his loan balance. The defendant’s general manager further said that it is not part of the defendant’s business to take in real properties from defaulting borrowers. What the defendant needs is cash flow for re-lending to other borrowers.

25. By letter dated 10 November 2002, the plaintiff expressed further disappointment at the defendant’s decision not to accept his request to transfer his Afiamalu properties to the defendant at the total value of $100,000 in reduction of his loan.

26. By letter dated 13 November 2002, the defendant’s general manager replied to the plaintiffs letter of 10 November 2002 saying that the advantage of the plaintiff selling his land is that he will get the price he wants at the minimal cost of advertisement. The general manager also made it clear in his letter that the defendant will not take the Afiamalu properties at the total value proposed by the plaintiff. This was because if the defendant were to accept the transfer to it of the plaintiffs Afiamalu properties and then resell those properties as its own, the defendants will have to meet legal fees, stamp duty, costs of advertisement and the commission for the real estate agent who will handle the sale. The general manager also pointed out in his letter that at that time the plaintiff was well in advance with his loan repayments following the payment to the loan of $210,000 from the sale of the two buses so that the powers which the defendant may exercise when the loan is in default have not arisen.

27. ON 19 November 2002, the plaintiff wrote to the Minister responsible for the defendant bank seeking his assistance. By letter of the same date, the Minister wrote to the general manager suggesting that the defendant considers favourably the offer by the plaintiff of his Afiamalu lands at $100,000. The defendant could still sell the lands later when the market is more vendors friendly. The Minister also acknowledged that while such an arrangement may not be normal banking practice, it does recognise the genuine effort by the plaintiff to meet his loan.

28. By letter of 19 November 2002, the defendant’s general manager advised the Minister that he had already explained to the plaintiff the situation with regard to his request for the defendant to accept the transfer to it of the plaintiffs lands at $100,000. The general manager also sent to the Minister a copy of the letter he had sent to the plaintiff explaining the defendant’s position.

29. By letter of 16 December 2002, the plaintiff again sought the assistance of the Minister and indicated that he was willing to transfer his Afiamalu properties to the defendant at the total value of $90,000 which he says was the valuation by which the defendant had accepted his lands in 1999 when it assessed his loan application. That letter by the plaintiff was copied to the defendant’s general manager.

30. By letter dated 24 December 2002, the defendant’s general manager advised the Minister that the defendant’s board of directors has reviewed the plaintiffs proposal and there is no change in its position. The general manager also said in his letter that the plaintiff wants to force the defendant to exercise its mortgagee rights but that is not appropriate as the loan at that time is not in default after payment of $210,000 from the sale of the two buses. Furthermore, the real value of any property is the price it is sold on the market, that is, the market value. The general manager further said in his letter that the defendant is willing to help the plaintiff advertise his lands for sale.

31. It appears from the evidence that there was then no further correspondence concerning this matter until the plaintiff again wrote to the defendant’s general manager on 9 February 2005. In that letter, the plaintiff said he had been trying unsuccessfully to sell his Afiamalu properties. He also said that he was waiting on a company which has shown interest in buying his Afiamalu properties. However, as it came out in the evidence during the trial, that company later did not want to buy the plaintiffs properties. The plaintiff also requested the defendant in the same letter to consider not charging interest on his loan as from November 2002 when his buses were sold and the proceeds of sale were credited to his loan. It also appears from the evidence that the plaintiff did not make anymore loan repayment since the sale of his buses in November 2002.

32. By letter dated 5 April 2005, the general manager responded to the plaintiff saying that the defendant’s board of directors has declined his request to cease interest on the loan as from November 2002 for the following reasons:

(a) the defendant bank is paying interest on funds it borrowed to finance projects like that of the plaintiffs;

(b) the funds lent to the plaintiff could have been invested elsewhere to generate a better return for the defendant; and

(c) the sale of the buses was a decision by the plaintiff himself and not a foreclosure action by the defendant

33. The general manager then went on to say in his letter 5 April 2005 that the defendant’s board of directors has decided to provide the plaintiffs loan some relief as follows:

(a) interest on the loan to cease as from 1 January 2005;

(b) the loan balance at 1 January 2005 stood at $245,278.18;

(c) the plaintiff is allowed 3 months to conclude the sale of his Afiamalu properties as well as his pick up vehicle to help reduce his loan;

(d) repayments to resume at the reduced rate of $2,500 per month from July 2005, after sale of the above assets, until full settlement of the loan, and

(e) normal bank fees will continue to be charged to the loan.

34. Counsel for the plaintiff then wrote to the defendant’s general manager on 15 April 2005 but that letter was not produced in evidence. The general manager replied to the plaintiffs counsel by letter dated 22 April 2005 pointing out that the defendant has already explained to the plaintiff why it could not take his Afiamalu properties in consideration of a reduction of his loan and that he has to sell his properties himself. The defendant is also not a real estate dealer, it needed case flow for its operation.

35. By letter dated 9 June 2005, counsel for the plaintiff wrote to the Minister. A copy of that letter was not produced. This letter made it necessary for the defendant’s general manager to write to the Minister by letter dated 27 June 2005 informing the Minister of the decision by the defendant’s board of directors which had already been conveyed to the plaintiff by letter dated 5 April 2005.

36. It appears to me that the plaintiff was still trying to force the defendant to accept his Afiamalu properties at his own price in reduction of his loan in spite of the continuing refusal of the defendant for the reasons already conveyed to him and in spite of the fact that up to that time the plaintiff himself could not find anyone who would buy his properties at his required price. I am of the clear view that this is plainly unreasonable.

37. As it appears from the evidence of the defendant’s legal manager, she received from counsel for the plaintiff a letter dated 3 August 2005 but a copy of that letter was also not produced in evidence. The defendant’s legal manager then replied by letter of the same date stating her opinion that sections 5, 6, 7 and 8 of the Development Board Act 1974 can not be interpreted as compelling the defendant to accept the plaintiffs proposal to accept his Afiamalu properties at $90,000 in part settlement of the loan. I fully agree with this opinion. The legal manager further states that if the plaintiff was confident his Afiamalu properties could be sold for $90,000 then he should have had no problems selling his properties at that amount or more. She then questions the plaintiffs insistence for the defendant to take his properties for $90,000 when he has not been able to sell his properties for that amount.

38. On 22 August 2005, the defendant’s legal manager met with the plaintiff to try and find a solution to this matter. They agreed at that meeting that the parties will work together to sell the Afiamalu properties at $100,000.

39. The Afiamalu properties were then advertised on the defendant’s website at $100,000 as well as in the list of properties for sale kept at the defendant’s premises. However, there was no expression of interest from anyone. The price of $100,000 was then removed from the advertisement and the defendant received an inquiry only from one person. When that person wanted to see the properties, he was taken there by the legal manager and other employees of the defendant. After walking inland from the main road along a foot tract for about 15 minutes and they still had not reached the plaintiffs properties, that person lost interest and wanted to return to the main road.

40. The defendant’s legal manager also testified that in September 2006 she instructed a valuer to conduct a valuation of the plaintiffs Afiamalu properties. The valuation report by that valuer shows the total value of the plaintiffs properties as $57,000 which is just about half the value the plaintiff wanted the defendant to accept his properties for in part settlement of his loan.

41. The legal manager also testified that in May 2007 she inspected the said properties with a surveyor and it took them over half an hour to get to the said properties from the main road and that it was difficult to access the properties as part of it could only be accessed through another family’s cattle farm. She further testified that in the past two years the defendant had advertised the said properties in a local newspaper as a tender but to date the defendant has not received any expression of interest from anyone.

42. The defendant’s assistant general manager for its finance, administration and property division was also called to testify for the defendant. He said that since 2002 the plaintiff had not made any payments to his loan. As of 30 June 2009 the outstanding balance of the loan was $256,999.32. Interest had ceased to accrue on the loan as from 1 January 2005 pursuant to the decision of the defendant’s board of directors conveyed to the plaintiff by letter dated 5 April 2005 but bank charges were still accumulating.

Provisions of the Development Bank Act 1974 which the plaintiff and his counsel claim the defendant has breached

43. At the commencement of the trial, I had to ask counsel for the plaintiff to clarify each of the seven causes of action pleaded in the statement of claim as I was finding it very difficult and at times impossible, as a matter of law, to understand the causes of action as pleaded in the statement of claim.

44. When I asked counsel for the plaintiff as to what is the first cause of action and whether it is in tort, contract or something else, he said it is breach of statute. I must say that there is no cause of action known in private law as "breach of statute". The statute referred to here is the Development Bank Act 1974.

45. When I further asked counsel for the plaintiff as to what provisions of the Development Bank Act 1974 have been breached, he said ss.3, 5 and 7. He then also mentioned s.6. All of this appears in p.3 of the transcript of the evidence of 21 July 2009.

46. Section 3(1) establishes the Development Bank of Samoa. Section 3(2) provides who are to be the directors of the Bank. Section 3(3) provides that the Bank is a body corporate with perpetual succession and a common seal and may acquire, hold, and dispose of real and personal property, and sue and be sued, and do and suffer all acts and things that bodies corporate may lawfully do and suffer.

47. Section 5(1) provides that the functions of the Bank shall be to promote the expansion of the economy of Samoa for the economic and social advancement of the people of Samoa by making loans and giving financial, technical, and advisory assistance in its discretion to any enterprise in Samoa. Section 5(2) provides that the Bank shall have such other functions as may from time to time be lawfully conferred on it.

48. Section 6(1) provides that in determining whether or not any loan or financial, technical, or advisory assistance shall be given to any enterprise, the Bank shall have regard to certain considerations. Those considerations are then set out in paras (a) to (d). Section 6(2) provides that in lending any money or giving any guarantee in respect of any enterprise, the Bank shall normally endeavour to obtain security for the repayment of the loan to the Bank or for indemnity of the Bank for any liability of the Bank under the guarantee.

49. Section 7 then provides that in exercising its functions and powers under any enactment, the Bank shall give effect to the general economic policy of the Government as communicated to the Bank from time to time in writing by the Minister.

50. As it will appear later in this judgment, the above provisions of the Development Bank Act 1974 are irrelevant, do not support the case for the plaintiff, and were not breached by the defendant.

The plaintiffs causes of action

51. As already mentioned, there are seven causes of action pleaded in the plaintiffs statement of claim.

(a) First cause of action

52. The first cause of action as explained by counsel for the plaintiff, is breach of statute, namely, the Development Act 1974. As already mentioned, there is no such cause of action known in private law.

53. The breaches of the Act which are pleaded in support of this first cause of action are as follows:

(a) the defendant did not make available to the plaintiff a copy of the loan agreement or copies of the deeds of mortgage for the plaintiff to know of his rights, duties, responsibilities and obligations;

(b) the defendant did not correctly and properly apply its functions for the "economic and social advancement of the people" to the plaintiffs loan;

(c) the defendant refused to accept the plaintiffs Afiamalu properties at $90,000 or $100,000 for final payment of the plaintiffs loan;

(d) the defendant failed to amend or vary the loan agreement and the deeds of mortgage on the plaintiffs lands; and

(e) alternatively the defendant failed to enter into a new loan agreement and new mortgage transactions to effect the settlement proposed in the plaintiffs letter of 17 October 2002 and accepted in the various letters of the defendant dated 29 October 2002, 31 October 2002, 13 November 2002 and the letter dated 19 November 2002 from the Minister to the defendant’s general manager.

54. There is no doubt in my mind that all the acts alleged by the plaintiff against the defendant did not breach ss.3, 5, 6 and 7 of the Act relied upon by counsel for the plaintiff or any other provision of the Act. There is nothing in the Act which provides that the defendant should have provided the plaintiff with a copy of the loan agreement or copies of the deeds of mortgage. According to the defendant’s general manager, if, in fact, the plaintiff was not provided copies of those documents, he could have asked for copies. And if the plaintiff had done so, he would have been given copies. But the plaintiff did not do so. He was probably too happy that his loan of $400,000 had been approved by the defendant and then released to him in full that he did not think of asking for copies of the loan agreement and deeds of mortgage. In any event, this had nothing to do with the plaintiff falling into arrears with his loan repayments or the failure of his project.

55. The second alleged breach of the statute, namely, that the defendant did not correctly and properly apply its functions for the "economic and social advancement of the people" to the plaintiffs loan seems to relate to s.5 of the Act. But s.5 provides that the functions of the Bank shall be to promote the expansion of the economy of Samoa for the economic and social advancement of the people of Samoa by making loans and giving financial, technical, and advisory assistance in its discretion to any enterprise in Samoa. And this was precisely what the defendant did. It gave the plaintiff a loan and financial assistance to establish a bus service operation. When the plaintiff had problems with repayment of his loan the defendant reduced the monthly loan repayments. When the plaintiff wanted to sell his two buses purchased with his loan for the purpose of reducing the loan balance, the defendant granted loans to two people to buy the plaintiffs buses. Subsequently, the defendant ceased charging interest to the plaintiffs loan as from 1 January 2005 and further reduced the monthly loan repayments.

56. However, the plaintiff insisted and put pressure on the defendant to take his Afiamalu properties at the price the plaintiff wanted even though the defendant had good reasons for refusing to do so. In my view, the plaintiff, given the circumstances, was patently unreasonable and the defendant was well justified in refusing to accept the plaintiffs Afiamalu properties at the price he wanted. I am also of the clear view the defendant did not breach s.5 of the Act.

57. The third alleged breach of statute, namely, the defendant’s refusal to accept the plaintiffs Afiamalu parties at $90,000 or $100,000, as required by the plaintiff, for final payment of his loan is not only incorrect but is without merit. It is incorrect because even if the defendant had agreed to take the Afiamalu properties at the plaintiffs price, that would not have paid off the outstanding balance on the plaintiffs loan. According to the evidence of the plaintiff himself, there would still have been an outstanding balance of about $80,000. It is without merit because not only was the defendant under no obligation under the Act or the loan agreement to accept the Afiamalu properties as the plaintiff insisted, but the defendant had good reasons for not doing so.

58. The fourth alleged breach of statute, namely, that the defendant failed to amend or vary the loan agreement and the deeds of mortgage obviously does not relate to any provision of the Act relied upon by counsel for the plaintiff and is without substance.

59. The fifth alleged breach of statute set out in para 53 (e) of this judgment does not relate to any of the provisions of the Act relied upon by counsel for the plaintiff. This alleged breach of statute is also not entirely correct having regard to the evidence. The plaintiffs letter of 17 October 2002 requested the defendant: (a) to accept the plaintiffs two quarter acres at Afiamalu at $50,000 per acre, (b) to reconsider the interest of 12% per annum on the loan, and (c) that the plaintiff had found a new buyer for his two buses at $105,000 a bus and to transfer a corresponding portion of his loan to the new buyer.

60. As already mentioned, the defendant had good reasons, which appear from the evidence, for refusing to accept the Afiamalu properties. Secondly, the defendant reconsidered the interest rate but did not reduce it as it is the normal interest rate on a development loan. Thirdly, the defendant did grant loans to two buyers to buy the plaintiffs buses and credited the sum of $210,000, the total price of the buses, to the plaintiffs loan. The fifth alleged breach of statute is totally without any substance in law.

61. As I have also already said, there is no cause of action in law known as "breach of statute" and counsel for the plaintiff did not cite any authority for such a cause of action. However, I have still decided to deal with the alleged breaches of ss.3, 5, 6, and 7 of the Act cited by counsel for the plaintiff to show that they are no breaches of the Act at all.

62. Finally, there is a specific tort called "breach of statutory duty" but that is quite a different thing from "breach of statute" which is not a tort.

(b) Second cause of action

63. At the commencement of the trial on 21 July 2009, I also asked counsel for the plaintiff as to what is the second cause of action. This was because it was not clear to me from the pleadings in the statement of claim what the second cause of action was about. From the reply given by counsel for the plaintiff, it appears that the second cause of action is "illegal contractual transaction" or "illegal contract". All of this is shown at p.4 of the transcript of the evidence of 21 July 2009.

64. I have to say that I am not aware of a cause of action known in law as "illegal contractual transaction "or "illegal contract". There is, of course, such a thing as an "illegal contract" in the law of contract. Butthat is not a cause of action.

65. It would seem that the relevant pleading to the plaintiffs second cause of action is paragraph 31 of the statement of claim. It is there alleged that when settlement was accepted by the defendant, it was the defendant’s responsibilities under the loan agreement and the law to take the plaintiffs Afiamalu properties as final payment of the loan. It is then further alleged in paragraph 31 that the defendant by not altering or varying the loan agreement and the deeds of mortgage on the Afiamalu properties to effect settlement, the transactions became illegal and unlawful and ceased to be operative. I have to say that I have had real difficulty in understanding this pleading. However, the plaintiff in his evidence emphasised that the gist of his case relates to the refusal by the defendant to accept his Afiamalu properties in reduction of his loan.

66. I must say that to allege in paragraph 31 of the statement of claim that "settlement" was accepted by the defendant is factually incorrect because it is clear from the evidence that the defendant never accepted "settlement" with or from the plaintiff.

67. To then say in paragraph 31 of the statement of claim that it was the responsibility of the defendant "under the loan agreement and the law" to take the plaintiffs Afiamalu properties as final payment of the loan is a serious misconception. I say that for these reasons. Firstly, because there was never any "settlement" accepted by the defendant, the allegation that it was therefore the responsibility of the defendant under the loan agreement and the law to take the plaintiffs Afiamalu properties does not follow. Secondly, what is said about the obligation of the defendant under the loan agreement to take the plaintiffs Afiamalu properties is also incorrect. It is clear from clause 2 of the loan agreement that should the plaintiff borrower at any time fail to implement, carry out and perform any or all of the stipulations, duties and obligations imposed upon him under the loan agreement, the defendant bank may take any or all of the six steps specified in clause 2. One of these six steps which the defendant may take is to seize and take possession of any or all of the items of security and sell, dispose or otherwise deal with the same. But that is only one of the steps that the defendant may take. The defendant’s manager had explained in his evidence why the defendant did not take that option. It was because the defendant did not accept the conditions upon which the plaintiff wanted the defendant to take his Afiamalu properties. The defendant’s general manager went to great length in his evidence to explain why the defendant did not want to take in the Afiamalu properties in reduction of the loan but for the plaintiff himself to his own properties and transfer the proceeds to reduce the outstanding balance of the loan. Thirdly, it is clear from the evidence by the plaintiff himself and the evidence for the defendant that even if the defendant had accepted the plaintiffs Afiamalu properties and be able to sell them at the price the plaintiff wanted, that would still not have paid off the loan in full. There would still have been a significant outstanding balance of about $80,000. Fourthly, the law upon which the plaintiff relies for saying that the plaintiff was under an obligation to take his Afiamalu properties is s.8(2) (d) and (e) of the Development Bank Act 1974. This is totally irrelevant. Section 8 provides the powers and functions of the defendant bank. One of these functions is provided in s.8(2) (d) which provides that the defendant may buy, lease or otherwise acquire, hold, manage, improve or develop any real and personal property. Section 8(2) (e) then provides, inter alia, that the defendant may sell any of its properties. This does not dictate what the defendant must do in the circumstances of its loan agreement with the plaintiff. What applies are the provisions of the loan agreement provided they do not contravene the Act. It was not alleged on behalf of the plaintiff that any provision of the loan agreement contravened the Act. What was alleged is that the refusal of the defendant to accept the plaintiffs Afiamalu properties as final payment of the loan and to alter or vary the loan agreement and deeds of mortgage made the transaction illegal, unlawful and inoperative. I can not see how this could have been so. I find no substance in the allegation or the second cause of action.

(c) Third cause of action

68. The third cause of action is violation of the plaintiffs liberty to contract. I am not aware of such a cause of action under Samoan law and counsel for the plaintiff cited no authority for it. Perhaps, I should also mention that of the fundamental rights provided under the Constitution, there is no mention of a fundamental right to freedom or liberty to contract so as to create a cause of action raised by counsel for the plaintiff.

69. I should also mention that as a matter of common sense, I can not see from the pleadings in relation to the third cause of action how they can sustain such a cause of action. The plaintiff in his evidence also never said that his freedom to contract was violated in any way. His complaint was directed at the refusal of the defendant to accept his Afiamalu properties at his price in reduction of his loan. I have already dealt with this and the reasons given by the defendant for not acceding to the plaintiffs repeated requests for the defendant to accept his Afiamalu properties in reduction of his loan.

70. There is also no substance in the third cause of action.

(d) Fourth cause of action

71. The plaintiffs fourth cause of action is also based on illegal contract on the ground of public policy. It also implies a breach of s.5 of the Act which provides for the functions of the defendant.

72. As I have already pointed out, "illegal contract" is not a cause of action. It is only a type of contract. Just as "contract" is not a cause of action, so is "illegal contract". As I have also already explained, there was no breach of s.5 by the defendant.

73. I find the pleadings in relation to the fourth cause of action very confusing and difficult to follow. However, I will try to explain what happened.

74. By October 2002, the plaintiff had already been in arrears for more than two years with his loan repayments from about September 2000 if not before. Following a discussion between the plaintiff and the defendant’s general manager on 4 October 2002, the plaintiff wrote to the general manager by letter dated 17 October 2002. In that letter, the plaintiff requested the defendant (a) to take the plaintiffs two quarter acres of land at Afiamalu at $50,000 per quarter acre in reduction of his loan, (b) to consider the interest rate of 12% per annum charged to the loan as the plaintiff thought it was too high, and (c) to transfer a portion of the plaintiffs loan to a new buyer who has agreed to purchase the plaintiffs two buses at $105,000 a bus.

75. As it turned out, the new buyer mentioned by the plaintiff was only interested in buying one of the two buses at $105,000. Subsequently, the defendant granted a loan to that new buyer to purchase one of the plaintiffs buses and another loan to a client of the defendant to purchase the other bus. An amount of $210,000 for the price of both buses was then credited to the plaintiffs loan.

76. By letter dated 31 October 2002, the defendant advised the plaintiff that he should proceed himself with selling his Afiamalu properties and transfer all proceeds of the sale to his loan as that will be beneficial to him in realising the maximum possible price for his properties. However, by letter dated 5 November 2002, the plaintiff expressed disappointment that the defendant has not accepted his request to take over his Afiamalu properties at $50,000 per quarter acre in reduction of his loan given that the defendant had accepted those properties in 1999 at the total value of $90,000.

77. By letter dated 8 November 2002, the defendant’s general manager explained the reasons why it should be for the plaintiff to sell his own properties. Those reasons have already been set out in para 24 of this judgment. By another letter dated 10 November 2002, the plaintiff again expressed disappointment that the defendant has not accepted his request to take over his Afiamalu properties at $100,000. By letter dated 13 November 2002, the defendant’s general manager again explained the defendant’s position and why the plaintiff should proceed to sell his properties himself. This appears from paras 25 and 26 of this judgment.

78. Then by letter dated 19 November 2002 and another letter dated 16 December 2002 the plaintiff sought the assistance of the Minister responsible for the defendant bank. The Minister wrote to the defendant’s general manager by letter dated 19 November 2002. What is noteworthy about that letter is that in it the Minister did acknowledge that the plaintiffs proposal may not be in accordance with normal banking practice. The defendant’s general manager by letter dated 19 November 2002 and again by letter dated 24 December 2002 advised the Minister of the defendant’s reasons for not acceding to the plaintiffs requests for the defendant to accept his Afiamalu properties at the total value of $100,000. All of this appears in paras 27 to 30 of this judgment.

79. It appears to me that the plaintiff, having failed in his project due to no fault of the defendant, wanted to force upon the defendant an arrangement which was not in accordance with the terms of the loan agreement in order to suit himself without any regard to the interests of the defendant. In other words, the plaintiff instead of following the terms of the loan agreement was in effect telling the defendant to waive the loan agreement but have leniency on him as his project had failed and he was having difficulties in paying off the loan in full. However, this completely overlooked the interests of the defendant as the other party to the loan agreement.

80. Then the plaintiff, after making no further loan repayments since about November 2002, wrote a letter dated 9 February 2005 informing the defendant’s general manager that he has not been able to find a buyer for this Afiamalu properties. In other words, if the defendant had accepted the plaintiffs Afiamalu properties in October to December 2002 at the total price of $100,000 in reduction of the loan, the defendant would not have been able to find a buyer for the plaintiffs Afiamalu properties at that price. That would have been a loss to the defendant.

81. Subsequently, the defendant advertised the plaintiffs Afiamalu properties for sale at $100,000 on its website and list of properties for sale kept in its premises but no one expressed any interest. The price of $100,000 was then removed from the advertisement and the defendant received only one inquiry. But the one person who made that inquiry subsequently lost interest and did not want to buy the plaintiffs properties. The defendant then hired a qualified valuer to value the plaintiffs properties and that valuer came up with a valation of $57,000 which was much less than the value of $100,000 the plaintiff had wanted the defendant to take his properties in reduction of his loan. Even though the plaintiff had later wanted the defendant to take his properties at $90,000, that was still well above the value of $57,000 assessed by the valuer hired by the defendant.

82. Apart from the non-acceptance by the defendant of the requests by the plaintiff to take his Afiamalu properties at his price in reduction of his loan, the other complaint by the plaintiff was against the refusal by the defendant of the plaintiffs request to cease charging interest to the loan as from November 2002. By letter dated 9 February 2005, the plaintiff requested the defendant not to change any more interest to his loan as from November 2002 when his buses were sold as he was having difficulties in selling his Afiamalu properties. By letter dated 5 April 2005, the defendant’s general manager replied to the plaintiff that the defendant’s board of directors declined his request. The reasons for that decision of the board of directors appear in para 32 of this judgment.

83. The defendant’s general manager also said in his letter of 5 April 2005 that the board of directors had decided, inter alia, to provide the plaintiffs loan some relief as follows:

(a) interest on the loan to cease as from 1 January 2005;

(b) repayments to resume at the reduced rate of $2,500 per month from July 2005, after sale of the plaintiffs assets, until full settlement of the loan; and

(c) normal bank fees will continue to be charge to the loan

84. In para 41 of the statement of claim, it is said those terms and conditions are unfair and oppressive and constitute an illegal contract and are against public policy. It is not pleaded in the statement of claim why those terms and conditions should constitute an illegal contract or are contrary to public policy. If anything, I am of the view that those conditions gave the plaintiff significant relief with his loan and are neither illegal nor contrary to public policy.

85. In the first place, the defendant, under the loan agreement, was under no obligation to stop the interest accruing on the loan until it was repaid in full. Secondly, for the defendant to reduce the monthly repayments from $8,000 as provided under the loan agreement to $6,000 in October 2000 and then to $2,500 in April 2005 was considerable relief to the plaintiff. That is obviously not being unfair or oppressive to the plaintiff.

86. I find the fourth cause of action to be without any merit.

(e) Fifth cause of action

87. The plaintiffs fifth cause of action relies on the same terms and conditions referred to in the fourth cause of action. It is then alleged that the same terms and conditions are inequitable, unjust and not for "the economic and social advancement of the people". It is not shown why it is alleged that those terms and conditions are inequitable, unjust and not for "the economic and social advancement of the people".

88. The reference to "the economic and social advancement of the people" echoes the words of s.5 of the Act. But s.5 relates to the functions of the defendant. Section 5 provides:

"(1) The functions of the Bank shall be to promote the expansion of the economy of Samoa for the economic and social advancement of the people of Samoa by making loans and giving financial, technical, and advisory assistance in its discretion to any enterprise in Samoa.

"(2) The Bank shall have such other functions as may from time to time be lawfully conferred on it". (emphasis mine)

89. I can not see how the terms and conditions alleged in relation to the fourth cause of action and repeated in relation to the fifth cause of action can be described as inequitable and unjust. I also can not see how the same can be described as not for "the economic and social advancement of the people" in terms of s.5 of the Act which I have set out.

90. The fifth cause of action is also without any substance.

(f) Sixth cause of action

91. The sixth cause of action is alleged violation of Article 15 of the Constitution. Article 15(1) provides for equality under the law and Article 15(2) prohibits any law or executive or administrative action of the State which, in its application, discriminates on certain specified grounds.

92. What is alleged here is that as the defendant has written off the loans of some borrowers as bad debts, the defendant should extend the same treatment to the plaintiffs loan. The plaintiffs pleadings, however, do not show which part of Article 15 has been violated by the defendant except for a general assertion that the defendant by not writing off the plaintiffs loan as it has done with some of the other loans has violated Article 15.

93. The defendant’s general manager in his evidence explained that there are times when the defendant, like any other bank, will be faced with a loan that has fallen into arrears. The defendant will then make every attempt to recover the loan. But there comes a time in some cases, when there is no hope of recovering any more of the loan. At that point in time, a recommendation will be made to the board of directors to write off the loan, that is to say, transfer the loan to the "write off portfolio".

94. Instances of where a loan will be recommended to be written off are where a borrower has died leaving an outstanding loan balance and the defendant knows there is no hope of recovering any more part of the outstanding balance and where all the securities for a loan have been exhausted but there is still an outstanding balance on the loan and there is no hope of recovering any more part of the outstanding balance. The plaintiffs loan does not fall within either category of "hopeless loans". This is because the plaintiff is still alive and the securities he had given for his loan have not been exhausted. The plaintiffs Afiamalu properties have still not been sold. The defendant’s general manager also said that the defendant still has a first mortgage over the plaintiffs half acre of land at Vaivase-uta and a chattels mortgage over the pick-up vehicle which the plaintiff had also purchased with the loan from the defendant. The defendant’s general manager then said that if the defendant were to write off the plaintiffs loan when there are still unrealised securities, that will be extending special favourable treatment to the plaintiff.

95. The sixth cause of action is also without merit.

(g) Seventh cause of action

96. The plaintiffs seventh and last cause of action is based on unjust enrichment. As I understand the plaintiffs seventh cause of action, it is alleging that the new terms and conditions set out in the letter dated 5 April 2005 from the defendant’s general manager to the plaintiff resulted in the defendant being unjustly enriched by, presumably, the interest still accruing on the loan. It is also alleged that the same terms and conditions were not for "the economic and social advancement of the people "which echoes s.5 of the Act. I do not need to deal with s. 5 again.

97. The new terms and conditions for the plaintiffs loan which were approved by the defendant’s board of directors and conveyed to the plaintiff by letter dated 5 April 2005 in response to the plaintiffs request in his letter dated 9 April 2005 have already been set out in paras 33 and 83 of this judgment. I need not set them out again.

98. Essentially, the plaintiffs project funded with his loan from the defendant failed. This was due to no fault of the defendant. The plaintiff then had difficulties in repaying his loan in full. This was also due to no fault of the defendant. The plaintiff then requested the defendant by letter dated 9 February 2009 to cease charging interest to his loan as from November 2002. There was no obligation on the defendant under the loan agreement to cease charging interest until the loan was repaid in full. However, the defendant’s board of directors without any obligation under the loan agreement to do so, decided to provide the plaintiffs loan some relief. These are the new terms and condition set out in the letter dated 5 April 2005 from the defendant’s general manager to the plaintiff and appear in paras 33 and 83 of this judgment. It is alleged by the plaintiff that as a result of those new terms and conditions the defendant became unjustly enriched. This cannot be so.

99. This Court has dealt with the cause of action for unjust enrichment on a number of occasions: see, for example, Elisara v Elisara [1994] WSSC 14; Public Trustee v Foketi Brown (1995) (unreported judgment delivered on 24 January 1995), Parker v Lo [2000] WSSC 6; Meredith v Manoo [2002] WSSC 51; Westpac Bank (Samoa) Ltd v A & V Ah Wa Ltd [2003] WSSC 40.

100. In Meredith v Manoo [2002] WSSC 51, this Court said:

"In Public Trustee v Foketi Brown (1995) (unreported judgment delivered on 24 January 1995) this Court referred to the formulation of a cause of action for unjust enrichment laid down in the Supreme Court of Canada by Dickson CJ in Rathwell v Rathwell [1978] 2 SCR 436; Pettkus v Becker [1980] 2 SCR 834 and Sorochan v Sorochan [1986] 2 SCR 38. Under that formulation the three requirements for a cause of action for unjust enrichment are: (a) an enrichment, (b) a corresponding deprivation, and (c) the absence of any juristic reason for the enrichment. When applied to the present case that would mean: (a) there was an enrichment to the third party, (b) that enrichment was at the expense of the defendants, and (c) the absence of any juristic reason for the enrichment. The English formulation of the requirements of the same cause of action as stated by Robert Goff J (as he then was) in BP Exploration Co (Libya) Ltd v Hunt (No2) [1979] 1 WLR 783 at 839 are: (a) a receipt by the defendant of a benefit, (b) at the plaintiffs expense, (c) in such circumstances that it would be unjust to allow the defendant to retain the benefit".

101. In Public Trustee v Foketi Brown (supra), this Court said:

"The function and purpose of the law of restitution is thus restoration; it is to disgorge from the defendant unjust benefits and ill-gotten gains and restore them to the plaintiff who has suffered a countervailing deprivation"

102. As I understand the complaint under the plaintiffs seventh cause of action, it is that the defendant by not ceasing to charge interest to the loan as from November 2002 as requested by the plaintiff but from 1 January 2005, had been unjustly enriched by the interest charged between November 2002 and 1 January 2005. There are two serious flaws in this complaint.

103. The first flaw relates to the first and second requirements of the cause of action for unjust enrichment. This is because the plaintiff never made any more loan repayments, whether of principal or interest, since November 2002. The defendant, therefore, has not been enriched in any way at the expense of the plaintiff between November 2002 and 1 January 2005. How can that be so when the plaintiff has made no more repayments to the loan after November 2002? The function and purpose of the law of restitution and its cause of action for unjust enrichment is to disgorge unjust benefits or ill-gotten gains made by one party at the expense of another party and restore them to the party at whose expense those unjust benefits or ill-gotten gains had been made. In this case, the defendant has not earned any benefit or made any gain whatsoever between November 2002 and 1 January 2005 because the plaintiff did not make any loan repayment by way of principal or interest during that period of time. There is, therefore, nothing to be disgorged from the defendant and restored to the plaintiff.

104. The second flaw in the plaintiffs complaint relates to the third requirement of the cause of action for unjust enrichment. Assuming that the plaintiff had continued to make loan repayments of principal and interest between November 2002 and 1 January 2005, the defendant had juristic reason in terms of the Canadian formulation of the cause of action for unjust enrichment for continuing to charge interest during that period of time. The juristic reason is the loan agreement which provides for the payment of interest by the plaintiff on the loan until it is repaid in full. If the plaintiff had continued to repay his loan and the defendant had earned a benefit or made a gain from the interest, such benefit or gain would not have been unjust or ill-gotten because the benefit or gain would have been derived from the loan agreement that was freely entered into by the plaintiff and the defendant.

105. In terms of the third requirement of the English formulation of the cause of action for unjust enrichment, it would not have been unjust to allow the defendant to retain any benefit or gain from any interest paid between November 2002 and 1 January 2005, for such benefit or gain would have been derived pursuant to the loan agreement freely executed between the plaintiff and the defendant.

106. The seventh cause of action is without any merit at all.

Submissions by counsel

107. I have to point out that only counsel for the defendant filed written submissions but not counsel for the plaintiff. This was notwithstanding that both counsel, when asked by the Court at the conclusion of the trial, requested time to file written submissions. This appears from p.69 of the transcript of the evidence of 22 July 2009.

108. Counsel for the plaintiff by letter dated 27 July 2009 advised the Court that he will not be filing written submissions for the reason stated in his letter which I do not accept. I do not propose to further prolong this judgment which is already quite lengthy by dealing with the letter from counsel for the plaintiff. But the relevant parts of the transcript of the evidence for 22 July 2009 are at pp 69-70.

109. I only wish to say that because of the absence of written submissions from counsel for the plaintiff, I have been uncertain about the issues or causes of action that the plaintiff and his counsel regard as important for their case. For that reason, I have written my judgment the way I have done by dealing with all the seven causes of action pleaded in the statement of claim. In doing so, it has not been possible to avoid some degree of repetition.

Defendant’s statement of claim

110. I have not dealt with the defendant’s statement of claim at this trial because when I asked both counsel as to which statement of claim they would proceed with, they agreed it was the plaintiffs statement of claim. In my view, it was also better to proceed with only one statement of claim at this trial because I was having real difficulties in understanding the plaintiffs causes of action. To also deal with the defendant’s statement of claim in the same trial would only have further complicated matters.

111. The defendant may still proceed with its statement of claim if it wishes to do so. But I hope this judgment will finally resolve matters between the parties.

Conclusions

For the foregoing reasons, I have come to these conclusions:

(a) all of the plaintiffs seven causes of action are dismissed; and

(b) counsel to file memorandum as to costs in 10 days.

CHIEF JUSTICE

Solicitors
Sogi Law for plaintiff
Lung Wai Law Firm for defendant