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Bank of Tonga v Beaton [2000] TOCA 8; CA 01 2000 (21 July 2000)

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

Appeal No. 1/2000
Case No. 1036/97

BETWEEN

BANK OF TONGA

Appellant
AND

GEOFFREY BRIAN BEATON

Respondent

Coram: Ward CJ
Tompkins J
Beaumont J

Counsel: Teimumu Tapueluelu for appellant
Vaha'i Foliaki for respondent

Date of Hearing: 13 July 2000
Date of Judgment: 21 July 2000

JUDGMENT OF THE COURT

The respondent was a long-term customer of the appellant. The appellant sued the respondent for an amount claimed to be owing in respect of two advances made by the appellant to the respondent. We refer to these two advances as the business loan account. and the overdraft account. The respondent counter-claimed for amounts claimed to be due to him, being debts claimed to have been incurred by a receiver appointed by the appellant.

Finnigan J found for the appellant on its claim in the sum of $10,959.68. He found for the respondent on his counterclaim in the sum of $21,299.17. Judgment was entered for the respondent for the balance in his favour of $10,339.49 with costs. The appellant has appealed against both the amount awarded to it, and the amount awarded to the respondent.

THE BUSINES LOAN ACCOUNT

The appellant claimed that $7,905.47 was due from the respondent in respect of a business loan that had been made on 13th November, 1988. The loan agreement of that date records an advance of $6,000. The balance of the claim is arrears of interest. The Judge found that the respondent's defence to this claim is that he had repaid the loan, a claim which the Judge upheld. He was mistaken. The respondent had claimed that he had repaid the overdraft loan, not the business loan. This mistake was acknowledged by counsel for the respondent in his submissions to this Court. The only issue in respect of this loan was whether, as the respondent contended, there had been an agreement between the appellant and the respondent that the appellant would cease charging the respondent interest on the amount outstanding. Because the Judge confused the two loans, he made no finding in respect of this claim by the respondent.

The loan agreement of 13th November, 1988, that evidenced the business loan, provided that the respondent would pay interest on the business loan at 10% per annum. The evidential burden therefore rested on the respondent to establish that the parties had agreed to vary this term in the loan agreement.

The respondent relied on discussions in June 1991. In his evidence he referred to a meeting with Mr Ramke, general manager of the appellant, when repayments of $400 per month were discussed. He did not say that interest was discussed at that meeting. He then referred to further discussions, at which he was not present, between his accountant Dianne Warner and officers of the respondent. He claims that it was at those discussions that the appellant agreed that the business loan would be an interest free account. Ms Warner did not give evidence. The respondent's hearsay evidence of what occurred at that meeting cannot establish the agreement upon which the respondent relies.

The appellant accepts that it, ceased charging interest on the respondent's term loan account in March 1991. This was because the respondent had defaulted in the payments of $400 per month to be paid in reduction of the principal sum. The appellant's evidence is that not accruing interest on a debt in default was an internal action it took, not because of any agreement with the respondent. In support, the appellant referred to a statement issued by The National Reserve Bank of Tonga concerning the identification and reporting of what the statement refers to as "impaired assets". The statement said that when a facility is classified as non accrual, that is in default, a bank should cease to recognise any interest earned but not yet received. That statement is dated November 1998, but the appellant says that it formalises normal banking practice. The non charging of interest to the account was in accordance with that practice.

Mr Langa'oi was, in June 1991 the assistant manager commercial business for the appellant. He has since died. He made a full record of a meeting on 19th June, 1991 between Ms Warner and the general manager of the appellant's Nuku'alofa branch at which he too was present. The respondent was not present. This was apparently the meeting to which the respondent deposes in that part of his evidence to which we have referred. The memorandum records that the respondent's accountant offered monthly repayments of $500 per month. It also recorded that interest on the loan account should now be charged and that the amount due from where interest payments ceased until that date was to be manually calculated. Interest on the overdraft account never ceased, so there was no need to modify it.

The respondent referred to a letter dated 21st March, 1991 from the appellant to him. It reads:

"Bank of Tonga hereby demands, payment in full of all monies due by you to the Bank.

The amount due by you to the Bank as at the date of this demand is forty-two thousand eight hundred and fifty three pa'anga and ninety two seniti ($42,853.92), and this sum carries debt excluding interest on your accounts.

Unless all monies due by you be paid to the bank before 3:00 pm on the 31st day of March 1991, the Bank will take such action as it maybe advised for recovery of the said monies."

The respondent relies on this letter as evidence of an agreement between him and the appellant not to charge interest. We do not consider this to be so. The meaning of the phrase "... this sum carries debt excluding interest on your accounts" is far from clear, but in the context of a letter demanding payment of all monies due, we do not consider that it supports the respondent's claim. We also note that this letter is three months before the discussions upon which the respondent relied.

There is a further aspect. These proceedings were commenced in November 1997. The first time the respondent claimed that appellant had agreed not to charge interest was when he filed his amended statement of defence on the morning of the hearing. Had there been such an agreement, it is likely that the respondent would have so asserted long before.

For these reasons we conclude that the respondent has failed to establish an agreement by the appellant not to charge interest on the term loan.

It remains to determine the amount due to the appellant in respect of the business loan. The appellant claims that the full amount of the loan including interest to 30 June 1997 of $7,905.47 is outstanding. But the evidence and findings suggest that there may have been some payments, in reduction. Counsel did not expressly refer to this aspect in their submissions. It is not the function of this court to examine the voluminous documentary material in an attempt to ascertain the correct position.

The appellant is claiming interest at 10%, being the rate stated in the loan agreement. But the agreement refers to that rate "...or such other rate as the bank may from time to time charge its other customers on a like account." We are not aware of any evidence that establishes what is the appropriate rate since 30 June 1997 for which judgment should be given.

THE OVERDRAFT ACCOUNT

In a support of its claim in respect of the overdraft account, the appellant relies on a loan agreement between the appellant and respondent dated 9th November, 1994. This agreement evidenced an advance of $2,675.50. The agreement records the purpose of the advance to be an increase to the existing overdraft debt of $18,686.43 to purchase new materials in respect of an order for sandals. It provides for interest on the balance outstanding at 11.75 %. The respondent claimed that he signed that loan agreement when it was partially blank. The Judge held that whether or not this was so, he was bound by the completed agreement.

The Judge found that the overdraft had been repaid out of the proceeds from the manufactured sandals. He said that the purchaser's payment was made to the appellant and it extinguished the whole loan. It seems clear that the Judge was in error in so holding.

In the course of 1996 and 1997 there were frequent interviews and much correspondence between the appellant and the respondent concerning both the term loan account and the overdraft account. The correspondence refers to the amounts outstanding in each. The respondent resisted liability to repay the overdraft, not on the ground that it had been repaid, but on the ground that the bank owed him an amount in excess of the amounts he owed the bank - this being a reference to the subject matter of his counterclaim, to which we later refer.

On 2nd October, 1997 the legal counsel for the appellant wrote to the respondent demanding payment of $19,352.48 due on the overdraft account and $7,822.54 due on the business term account. These were stated to be the amounts due to 30th June, 1997. In his reply dated 7th October, 1997 the respondent again denied liability on the grounds that the appellants indebtedness to him far outweighed any amount that might be owing to the appellant. He did not in that letter claim that the amount alleged to be due on the overdraft account had been repaid.

Paragraph 8 of the statement of claim pleaded that on 30th January, 1996 the loan account was in arrears and the appellant caused its solicitor to send a demand letter to the respondent demanding arrangements for payment of the overdue accounts, which may be a reference to the letter of 19th October, 1997. Paragraph 9 of the statement of claim alleged that no