IN THE HIGH COURT OF SOLOMON ISLANDS

(Faukona PJ)

CIVIL CASE NO. 148 of 2010

BETWEEN:

BANK SOUTH PACIFIC
Claimant

AND:

GIDEON ZOLOVEKE and PAMELA
ZOLOVEKE
First Defendant

AND:

GEESED INVESTMENT LIMITED
Second Defendant

Date of Hearing: 25th September 2014
Date of Ruling: 5th November 2014.

Mr A. Radclyffe for the Claimant 
Mr M. Pitakaka for the first and second Defendants.

RULING ON APPLICATIONS TO SET ASIDE DEFAULT JUDGMENT AND TO SET ASIDE ORDERS FOR SALE OF PROPERTIES.

Faukona J:  The Claimant is a bank, Bank South Pacific (BSP) and is suing the first and second Defendants for having failed to repay their loans and overdrafts to the Claimant as agreed. 

2.	The first Defendants are husband and wife. They own the second Defendant, a Company incorporated in Solomon Islands. The second Defendant trades as the National Express newspaper. It has loan accounts numbered 76296 and 77091 with the Claimant, and a commercial cheque account number 16000000 2084 in the name of National Express.

3.	On 13th August 2007, there was a loan agreement which the Claimant agreed to take over all of the Defendants’ existing loans and draft facilities with National Bank of Solomon Islands, including those previously with ANZ, and to provide new overdraft facilities for working capital. 

4.	To secure the loans and overdrafts the second Defendant entered into a first charge with the Claimant on 25th July 2007 as varied in 2008, whereby it charged its fixed term estate in PN 191-010-59 to the Claimant to secure the repayment of up to $2,190,000.00 together with interest thereon.  Another first charge was entered into with the Claimant on 29th October, 2007 as varied in 2008 whereby the first Defendants charged their fixed term estate in PN 191-039-500 to the Claimant to secure the repayment of up to $2,190,000.00 together with interest thereon. 

5.	By a Guarantee dated 25th July 2007 the first Defendants guaranteed repayment of all monies owing to the Claimant by the second Defendant.  The Defendants have failed to repay their loans and overdrafts as agreed, therefore letters of demand were sent to them on or about 2nd November 2009.

6.	The failure by the Defendants prompted no options but to file a claim.  On 26th April 2010 the Claimant file a claim for outstanding loans in the sum $2,339,917-27 with accruing interest at the Claimant’s prevailing rate from 23rd April 2010.  The Claimant also sought orders for the sale of PN 191-039-500 and PN 191-010-59 and direction as to sale of the said parcels.

7.	The Claim and response terms were served on the Defendants on 4th May 2010.  Since then there was no defence filed.  On 31st August 2010 the Claimant filed application for default judgment and an order for sale.  On 16th September 2010 a default judgment in the sum of $2,090,370-30 with interest accruing at 22% per annum was perfected together with order for sale of the parcels and costs.

8.	On 30th August 2013, the Claimant filed application for leave to sell the parcels and order to vacate the properties. On 10th October 2013 an order for leave was granted and that occupants to vacate the properties within twenty eight (28) days.

9.	On 17th February 2014, after almost three and half (3½) years the Defendants filed this application to set aside the default judgment perfected on 16th September 2010.  On 1st April 2014, the Defendants also field another application to set aside enforcement orders made on 18th November 2013 and to stay sale of the parcels pending ruling on both applications.  

Application to set aside default judgment:

10.	This application was made necessary pursuant to Rule 9.52. Rule 9.53 requires the Defendants to file certain required documents within three (3) months. Rule 9.54 provides specific standard to be satisfied by the Court before exercising its powers to determine and make orders by Rule 9.55. 

11.	Rule 9.54 requires the Defendants must show reasonable cause for the delay that they have a meritorious defence and that by setting aside the default judgment will not substantially prejudice another party.  Those should provide considerations for determination. 

Reasons for failing to file defence.
	
12.	Upon considering this issue I have at the back of my mind three months period alluded by Rule 9.53 (b) to file an application to set aside.  The Defendants had failed.  This application was filed almost 3½ years after the default judgment was perfected. Is three and half years delay, or unreasonable delay or inordinate delay or extra-ordinary delay. Literally from ordinary perception the application was filed late and of course it was a delay. 

Reasons for delay 

13.	The Defendants acknowledge the legal obligation required under Rule 9.54(a) to submit on convincing grounds reasons for the delay. They said Mr Zoloveke who deals with the case had amassed work commitments between 2009 and 2010. Secondly they blame the Claimant for not honouring verbal arrangement or agreement to withhold this legal action and allow them to complete their Ngossi resident at their own cost and rent it out. Thirdly that they were in the process of taking over partnership financed by ANZ Bank with the promise to refinance their loans with Bank of South Pacific. Premise on those reasons they offer less focus on the claim.

14.	Evidence clearly expose that the first Defendants in the middle of 2009 before letters of demand of 2nd November 2009 were issued, were negotiating a kind of understanding with the Claimant not to take legal actions. There may perhaps some kind of understanding materialised, an issue ought to be verified. They regard that as a verbal agreement.

15.	Prior to 20th May 2010, the First Defendants and their Solicitor were aware of the claim.  In fact it was exactly one month after the claim was filed did they knew that there was civil suit against them.  Global lawyers filed appearance on 20th May 2010 but no defence was filed until lapse of time. 

16.	It would appear from paragraphs 16, 18 and 19 of Mr. Zoloveke’s sworn statement that his Solicitor and himself knew of 16th September 2010, the date the default judgment application was heard.  Both could not able to appear, and Mr Zoloveke seemed to blame his Solicitor for not appearing.  At paragraph 20 Mr. Zoloveke admitted that on 7th September 2010 he met with his Solicitor regarding the pending application and on 13th September, 2010 met with Mr Osifelo and discussed about the pending hearing and update the progress of Ngossi house construction.  

17.	Despite having knowledge of the hearing date, they chose not to attend.  The major reason for non-appearance is that they were relying on what they term as verbal agreement with officers of the Claimant. That agreement has been referred to all throughout the entire defence case. This belief could have commenced since negotiations commensurate   around the middle of 2009.

18. 	From mid-2009 to the date of default judgment 16th September 2010 is more than a year, in fact fourteen (14) months to be précised.  From the date of default judgment to end of 2012 (see para 27 (a) of Zoloveke’s sworn statement) the Defendants still rely on the same verbal agreement.  By then the belief on the existence of such purported agreement stand for a prevailing period of 3 years.  Within that 3½ years there was nothing done by the Defendants.  That is contrary to Mr Zoloveke’s letter of 16th September 2010, (Exh.GZ1) addressed to General Manager of Claimant that the final phased completion of the premises will be within the next two months.  By end of December 2010, two months had elapsed the Ngossi house was never completed.

19.	Again on 4th November 2010 Mr Tagini in his letter (Exh. GZ23) to the Solicitor for the Claimant said the same resident will be completed in two months. As it seem the two months cycle will continue indefinitely. The resident was never completed.

20.	Very significant is the reliance on the same verbal agreement even by the end of 2012 they still belief on the effect of such agreement. That was 2 years and 3 months after the default judgment was granted.  No person in his right mind would think that a verbal agreement will supersede a formal and written agreement signed by the parties when the loans and overdraft facilities were accepted and approved. I guess that practical aspect of borrowing still remain the policy of any bank.

21.	It is quite difficult to accept such evidence on the balance; it is not a credible evidence at all.  I could infer with confidence that the Defendants are employing a delay tactic in order to buy time.  It seems to have some impact and effect and the Claimant seems to adopt a flexible approach in response. However, no-body could ever allow time to roll on for eternity; it must come to an end.  An end in this case means to allow civil processes to take its course. On the whole, I do not accept the Defendants reasons for failing to file defence.  

Meritorious defence:

22.	The Defendants perceived that they have meritorious defence. The composition of defence as highlighted is breach of verbal agreement or in the alterative a waiver by the Claimant of the Defendants default in loan repayment.

23.	It now become apparent that the entire Defendants’ case rests upon the purported verbal agreement made with Claimant employees, and had ignored or not realised that they had indulged in a commercial financial dealing by permitting themselves to be a party on one side and a Commercial Bank on the other.  Dealing in commercial business with a bank, in respect of loan and overdraft, require written contract. And in all banking system in the world when loans or overdrafts are approved parties are required to execute formal written contract.  In this case, there is no exception. 

24.	The problem encounter by the Defendants is an absolute misconception of the law of contract.  As simple as it is, is one principle in the law of contract that where a contract is in written form, oral evidence cannot be admitted to contradict, vary or add to the terms of the written contract.  The parole evidence rule dictates that when there is in existence a written contract, the parole evidence rule precludes the acceptance of oral statements to add, vary or contradict the written terms of the contact.  The underlying reason is that where parties reduced their contract into writing they have decided that whatever is important is included in the contract and whatever is not important is left out.  It would not be proper to allow parties later to bring oral evidence to contradict, add or vary the terms of the written contract.  I do not intend to venture into this branch of law but suffice to narrate the principle in brief.      

25.	I think the law is clear and simple. I have to reject and not to consider any reliance on the verbal agreement the Defendants adduce as evidence substituting the agreement they signed when the loans and overdrafts were approved. Because I understand Banks rely on written agreement and nothing less.

26.	The other point which may form part of the meritorious defence is charging of a new penalty rate.  The question is has the new penalty rate affected the entire amount claim.  I noted paragraph 2 of the draft defence that by December 2008 the Defendants’ arrears stood at $1,976,086.00.  That revelation prompted Mr. Zoloveke to commence negotiations with the Claimant with the view to agree on the best way to settle the arrears. By his action Mr. Zoloveke did agree to the amount, there was no denial, and nothing had implicated in the draft defence of any protest. When the claim was subsequently filed on 26th April 2010, one year and four months later the amount claimed increased to $2,339,917.27 which is quite reasonable considering interest chargeable etc.  To allege that the Claimant has claimed an amount that is more than what the Defendants owe at the time of filing the claim is a self-contradictory statement.  Further to that, Mr. Zoloveke had agreed to the amount in the default judgment ($2,090,370.30).  His letter of 16th September 2010, which he had affirmed taken cognisance of the judgment. That is a clear indication of his consent.    

27.	If the Defendants think, they have a meritorious defence they could have filed it in 2010.  They failed to do so by way deliberation. They totally ignore the procedures and think they could escape by a verbal agreement, an extra arrangement thinking it would assist them. I think the Defendants were misled or ignorant about the application of the law.  Having said that I am of the opinion that the Defendants do not have any meritorious defence at all.

Prejudicial to other party.

28.	On the issue of whether another party be substantially prejudiced upon setting aside of the judgment, I must say there is no evidence. The Court is not informed of another party be negatively affected or impacted by setting aside the judgment.  Neither there is evidence to suggest that should such be occurred that could not be rectified by a cost order.  The only party that will substantially prejudice will be the Claimant, which is now at the final stages of the procedures, before putting the matter to rest.  To set aside will enhance anxiety, loss and further delay, which may be rectified by cost order in the end but at a higher price.

29.	For the reasons I have outlined herein, it is prudent to refuse to grant orders to set aside the default judgment granted on 16th September 2010.

Application to set aside enforcement orders and orders for sale:

30.	This application is brought under Rules 7.3 and 17.55.  Under Rule 17.55 the Court may set aside an order at any time if, inter alia (c) the order was made in the absence of a party and (b) the order was obtained by fraud.  The emphasis on those two grounds by the Counsel representing the Defendants’ implies the Defendants’ case premise on those two grounds. 

31.	It is a non-issue that the orders were made in the absence of the Defendants.  However, there is requirement under the rules that a Defendant must appear in Court or alternatively a counsel representing them.  There is indication in the application filed on 30th August 2013 that it was addressed to the Defendants.  Whether they were served or not there is no evidence to affirm.  In any event should the Defendants fail to appear or their Counsel and upon proof of service the Court may proceed in their absence and make the necessary orders.

32.	Besides that, there seem to be a common practice that an application of this nature normally heard on ex-parte basis.  Hence, it is not a big and legal deal to investigate further as to the procedures to ascertain whether there is compliance with the Rules.  

33.	In any event, the Rules are silent about facts to consider in such a case; facts which are relevant to assist the Court consider the issue of setting aside an order.  What the Rule says is that the Court may set aside an order that was made in the absence of a party.  That power is of a general literature and in my view requires facts to be considered before exercising that discretionary power. I find there is nothing established to persuade me to set aside the orders on the ground of absence by the Defendants.

34.	A clear exposition of the Defendants’ case focus more on the issue of duty of mortgagee exercising power of sale of the mortgaged property.  There is allegation of fraud which may appear as an underlying fact in the duty of care owe though may not be in a direct sense.  However, in the absence of fraud, wilful and reckless conduct, reasonable duty of care is still expected. See National Bank Solomon Islands V Solomon Islands Livestock corporation Ltd and Others 

35.	What transpires is that the Defendants are wholly focussed on allegations that the conducts of the sale of both properties were improper or if not convoluted from acceptable and perceivable standard. The Counsel for the Defendants submits and makes reference to a number of case authorities to support their contention.

Ngossi property.

36.	By authority of the cases there is duty owed to the mortgagor by the mortgagee in respect of both properties. The cases emphasize duty to take care and take reasonable precaution to obtain true market value of the property. See Cuckmere Brick Company Limited & Ano V Mutual Finance Ltd.  To acquire such, the Claimant has a duty to act in good faith and take reasonable care in determining the sale.  The thrust of this case is that any act of mala fide on the part of Claimant would fail to satisfy the test of duty to care and take reasonable precaution.  
 
37.	Another point raised is that the Claimant had failed to notify the Defendants of the tender of the property and results; and failing to do up-to-date valuation, setting a ceiling for the tender, and rejected the proposed sale by a private treaty.  The flaw in that submission is that the Defendants are relying on Sewell v The Agriculture Bank of Western Australia which deals with public auction.  It has nothing to do with public tender.  There are two different means of disposing of or sale of property; sale by public tender or by public auction. There are also distinctive procedures to comply with. They are not the same and they operate differently.

38.	In my respectable view R17-55 (b) refer to fraud as ground to set aside where the order was obtained by fraud.  The Applicant must establish there was fraud in the making at the time when the orders were made.  Activities the Defendants alleged in submissions are activities done after the orders were made. They are part of the process of enforcement including sale of property; and they occur much, much later.  If fraud cannot be established even at the time the orders were made, it matters not; reasonable duty of care is still expected. So the issue of fraud as a ground to set aside carries a minimal status which may have no effect in the enforcement stage. Nevertheless, as it appears, the overriding principal of good faith and reasonable care practically arises in the enforcement stage; a stage that had bypassed the inception of the orders.  And so the ground of fraud limited to the time of grant of the orders left untouched and may appear almost redundant. If that is its status then what is the purpose for entrenching fraud as a ground to set aside in the Rules.  I for one cannot value and accept that as a guiding principal in law. 

Naha property.   

39.	Concerning Naha property the Defendant’s advance an argument base on the duty that the Claimant must not sell the property to itself. The Defendants rely on number of case laws. In the case of Martinson v Clowes the purchaser is a secretary of the mortgagee and Farrar V Farrar Limited, the mortgagor has a conflict of interest in selling to itself.  To do so is an act of bad faith. In Tse Kwong V Wong Chit Sen, the purchaser was a Company.  The purchase money was provided by the mortgagee to the Company as a credit facility.  

40.	I have read the cases Mr. Pitakaka refers to.  All of them concern public auction except for the National Bank of Solomon Islands case and the Sewell case. There can be doubt the principles pronounced by these cases are laws which currently apply and of course was adopted in National Bank of Solomon Islands case.  The fact is that there ought to be some knowledge of the processes in an auction and tender.  Though both are invitation to public offer, the manner and procedures to comply with are different.  At public auction those participate know the actual amount of offers and they bid in a competitive manner. In a public tender, the amounts offered are secret and are placed in sealed envelopes and only known to the tenderer.  The right to accept an offer in a public auction is clearly shown at the sound of a hammer. In public tender, it is not necessary that the highest tender be accepted. It would be a misconception to treat the features in these processes of public sale as the same; in fact they are different.  

41.	An invitation to public tender is a notice to the whole world inviting interested persons to submit offers for purchase of property.  Mrs Apusae, Financial Controller of Bank of South Pacific submitted her tender which is the highest and was accepted. Nothing can stop any other interested persons including Bank staff to submit offers. It was also open to the Defendants or the Fakaias to submit their offer. Perhaps the mischiefs which may seem bring about suspicion is because her offer was quite close to the ceiling price set by the Claimant.  In the Australia case of Sewell the land was sold to a servant in its employ by private sale, after unsuccessful attempt to sell by tender.  The Court held that the sale to the servant was made in good faith and not at an undervalue, therefore the sale was not wrong.

42.	In this case, it is not disputed that Mrs Apusae is a financial controller of Claimant.  However, there is no evidence to establish that she is part of bank authority or her being involved in selecting a winning tender. And her offer was not undervalue.  As such, I find there is honest dealing by the Claimant and hence the sale of mortgaged property is safe.  The test seeks to eliminate fraudulent dealing or wilful or reckless conduct of the property.  There is nothing of that nature being established.  There is no evidence of collusion, a tip of close amounts may prompt eye brow, but not to the extent that will raise abundant manifestation of error.   

43.	I find the Claimant did comply with the Rules and the procedures lay down in obtaining judgment and orders and had carried out according to Bank policy.  It has the right to sell the mortgaged properties and the sale was conducted openly and fairly to obtain a proper price, not forgetting the market forces may drive the market price either upwards or downwards. I find no evidence to suggest the Claimant did not take reasonable care to obtain proper price no acted in bad faith to the detriment of the Defendants.  Proper price in this case meant market price determine by market forces as true market price.  The highest bids of $1,200,000.00 and $755,000.00 are market price determine by market forces prevailing in the property market in Honiara at that time.  I therefore, refused to grant the orders the Defendants sought. 

Orders:

1.	Application seeking order to set aside default judgment of 16th September 2010 dismissed.

2.	Application seeking order to set side enforcement orders of 18th November 2013, dismissed.

3.	Order seeking stay of sales of PN 191-039-500 and PN 191-010-59 dismissed.

4. Enforcement orders of 18th November 2013 be renewed and extended for another one year. 

5.	Cost of application be payable to the Claimant.

The Court.