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Tonga Development Bank v Loumoli [2002] TOLawRp 23; [2002] Tonga LR 137 (13 June 2002)

IN THE SUPREME COURT OF TONGA
Supreme Court, Nuku'alofa

C 756/00

Tonga Development Bank

v

Loumoli anor

Ford J
3 June 2002; 13 June 2002

Creditors' remedies – application for order of committal for failure to comply with court order – should be last resort

The defendants were a married couple with 7 adult children. The husband was 63 and the wife 58. In April 1998 the defendants took out a loan of $2800 with the Bank for planting two kilos of squash seeds. The loan was not repaid and on 31 August 2000 a writ was issued claiming the amount then owing, including interest, which totalled $5646.47. No defence was filed and on 30 October 2000 judgment in default was entered against each defendant. The defendants were required to pay within one month the judgment debt of $5646.47 together with interest at 11%. If the debt was not settled in full within the period stipulated then the debtors were required to deliver to the Bank the security assets pledged by them for performance of the loan agreement. The plaintiff Bank made application for an order of committal against the defendants. It sought to have them imprisoned for failing to comply with the court order.

Held:

1. The court order did not specify a time in which the delivery order had to be complied with. Further, the order was not endorsed with a warning of committal.

2. An order for delivery of goods could not be enforced by way of committal unless the order was endorsed with a notice warning the judgment debtor that if the order was disobeyed then he may be liable to committal. Further, a committal order should only be sought where there was no alternative means of enforcing a judgment.

3. The first security asset listed as being pledged by the defendants was a tax allotment. It transpired that the defendant did not own any tax allotment. The affidavit filed on behalf of the plaintiff Bank in support of its application for judgment in default also contained the misleading statement that the Bank held security over the defendant's tax allotment. In turn, this led to the error being replicated in the formal court order. The Bank needed to be vigilant to ensure that its reputation was not compromised through such oversights in future.

4. The plaintiff failed in its application and the defendants were entitled to costs.

Cases considered:

Bank of Tonga v Malolo [2002] Tonga LR 92

Danchevsky v Danchevsky [1974] 3 All ER 934

Edgcombe, ex p Edgcombe, Re [1902] UKLawRpKQB 123; [1902] 2 KB 403

Statute considered:

Debtors Act 1869 (UK)

Rules considered:

Supreme Court Rules 1991

Counsel for plaintiff: Mrs Vaihu
Counsel for defendants: Mr Hola

Judgment

The plaintiff Bank has made application for an order of committal against the defendants. It seeks to have them imprisoned for failing to comply with a court order dated 30 October 2000.

The court order in question was a judgment in default of defence which followed a fairly standard format for such judgments. The defendants were required to pay within one month the judgment debt of $5646.47 together with interest at 11 %. If the debt was not settled in full within the period stipulated then the debtors were required to deliver to the Bank the security assets pledged by them for performance of the loan agreement. The security assets listed were described as:

"Mortgage over tax allotment of 'Alifeleti Loumoli situate at Teekiu. Toyota van registered No.J407 of 'Alifeleti Loumoli co-owned by the Tonga Development Bank.

Timber dwellinghouse of the borrowers situate at Te'ekiu together with all furniture therein."

The defendants are a married couple with 7 adult children. The husband is 63 years of age and the wife 58. Only two of the children still live in Tongatapu.

The court was told that Mr Loumoli does not keep in good health. He was unable to attend the court hearing. A medical certificate was produced in which the doctor certified that his patient was bedridden suffering from a back condition for which he was undergoing treatment. The couple have no regular income but they apparently carry out subsistence farming on part of an allotment they have the use of.

In April 1998 the defendants took out a loan of $2800 with the Bank for planting two kilos of squash seeds. The loan was not repaid and on 31 August 2000 a writ was issued claiming the amount then owing, including interest, which totalled $5646.47. No defence was filed and on 30 October 2000 judgment in default was entered against each defendant in the terms mentioned earlier.

The Bank's witness, Mr Hiva Tatila, told the court that following service of the judgment in default, the defendants made payments in reduction of the debt as follows:

22/12/00 $200

31/1/01 $100

22/2/01 $1000

Mr Tatila explained to the court that the $1000 payment had been the proceeds from the sale of the defendants' van which the Bank had seized. He also explained that in April 2001 the Bank had taken out a writ of distress but the bailiff reported on 6 July 2001 that "no goods were found." The furnishings in the defendants' house apparently belonged to their married daughter and a son.

The next development came in August 2001 when the Bank seized the defendants dwellinghouse at Te'ekiu and locked the doors warning the defendants not to re-enter. At the hearing, Mrs Loumoli told the court about that experience. She said that earlier when the Bank had repossessed their van there had been consultation. At the time the vehicle had been in T.M. Fifita's workshop awaiting arrival of a new starter motor from overseas but the defendants had agreed that the Bank could take possession of the van and sell it on account of the debt. The witness said that she and her husband had never received any advice subsequently from the Bank confirming the amount that the van had been sold for and so they assumed that the amount recovered must have been more than sufficient to cover the debt. She was not asked if she still held that belief after the visit from the bailiff but she indicated that she and her husband were surprised and upset when the Bank, without any prior warning, subsequently proceeded to evict them from their home.

Mrs Loumoli said that at the stage of the eviction, the house was also occupied by the couple's married daughter and her husband and 5 children. The daughter had been looking after her because she was ill at the time, After the house was locked up, the daughter and her family moved back to their own home in Nukunuku and for their part, the defendants went to live on a tax allotment but Mrs Loumoli explained that there were no proper living quarters on the tax allotment. Mrs Loumoli said that she and her husband were locked out of their home for several weeks.

In late September 2001 Mr Loumoli consulted a lawyer and an application was filed challenging the validity of the Bank's actions in evicting the couple from their home. On 5 October 2001 the court made an order requiring the Bank to return possession of the dwellinghouse to the defendants pending further order of the court.

That is, basically, the background to the present application.

Mr Hola was extremely critical of the way in which the Bank had handled the whole matter. He submitted, first of all, that the van was sold for well below its market value but no evidence was called in support of that submission. Counsel was entitled, however, to be critical of the failure of the Bank to account to the defendants following the sale of the van. As noted earlier, Mrs Loumoli's evidence was that, having heard nothing from the Bank, they assumed, wrongly as it turned out, that the proceeds of sale had been sufficient to cover the debt.

Mrs Vaihu accepted that the Bank should have notified the defendants of the sale price. She explained that it was the Bank's normal policy to give such notice but for some reason the practice was apparently not followed in the present case.

Mr Hola then criticised the high-handed way in which the Bank had seized possession of the dwellinghouse without any express authority from the court and without giving the occupants prior warning. Counsel indicated that the defendants were seeking $10,000 damages from the Bank over its actions in this regard but he accepted that such a claim could not be considered in the present proceedings and it would need to be pursued as a separate cause of action.

Finally, Mr Hola challenged the appropriateness of the Bank's application for a committal order and he posed the rhetorical question, if the order for imprisonment sought by the Bank was intended as a punishment for disobedience of a court order, in what respects had his clients disobeyed the order? As he put it, they had allowed the Bank to take the van and the Bank had seized the house. The defendants, counsel argued, could hardly be blamed, in the circumstances, from seeking legal advice which resulted in the court ordering the Bank to return possession to his clients.

Mrs Vaihu submitted that the situation was covered by Order 26 Rules 2 and 3 of the Supreme Court Rules. Those provisions state that an order for delivery of goods may be enforced by a writ of delivery or, if the person fails to obey a judgment or court order within the time specified by the court, by an order of committal and she responded to Mr Hola's allegations by saying that the Bank was authorised by those rules to seek the committal order in the present case for non-compliance with the order for delivery.

(emphasis added)

The difficulty with that submission is that the court order of 30 October did not specify a time in which the delivery order had to be complied with.

A further problem for the Bank is that under the rules, an order for delivery of goods cannot be enforced by way of committal unless the order is endorsed with a notice warning the judgment debtor that if the order is disobeyed then he may be liable to committal. The relevant provision is Order 26, Rule 3(2)(i)(c), which provides that the copy of the judgment or order served must be, "endorsed with a notice that if that person disobeys the judgment or order he may be liable to committal or other execution to compel him to obey it."
(emphasis added)

The Bank much later (28 January 2002) wrote a letter to the defendants reminding them of the terms of the court order. The letter went on to state:

"Remember that this is an Order of the court and imprisonment can be imposed if (sic) contempt."

Such a warning, in letter form, does not meet the requirements of the court rules. The warning must be endorsed on the court order itself.

Quite apart from these technicalities, as important as they are, there are even more fundamental objections to the plaintiff's committal application.

It is clear from the affidavit filed in support of the Bank's application that the committal order is sought not only because of the defendants' failure to comply with the order for delivery, but because of their failure to pay the judgment debt of $5646.47. The position in relation to enforcement of a judgment for a monetary sum by way of committal is that it would only be in very exceptional circumstances that such an order would be made by this Court. As Halsbury states, vol 9 para 59:

"The power to order committal for civil contempt is a power to be exercised with great care."

In relation to the power of the court to enforce the payment of a sum of money by way of committal order, the learned authors of Borrie & Lowe's "The Law of Contempt" 3rd edition (1996), 647, state:

"Although disobedience to a court order or judgment for payment of a sum of money amounts to contempt, the remedy of committal has not generally been available to enforce such orders since the Debtors Act 1869. The general object of that Act was to prevent the imprisonment of persons for the non-payment of ordinary judgment debts ...

Before the power can be exercised at all it must be shown that the debtor has or has had since the judgment was made, the means to pay the sum in default, and has refused or neglected, or refuses or neglects to pay the same. Such "means" must be proved to the satisfaction of the court and in such manner as the court thinks just, and for the purposes of such proof the debtor and any witnesses may be summoned."

Although those principles have been determined in relation to the United Kingdom's Debtors Act 1869, they have a more universal application and, save in exceptional circumstances, they are likely to be followed and applied by this court.

The position is summed up succinctly in another passage in the same text where, referring to the judgment of Vaughan Williams LJ in Re Edgcombe, ex p Edgcombe [1902] UKLawRpKQB 123; [1902] 2 KB 403, the learned authors (p 648) say:

"An order for committal could only be made when there is a contumacious debtor who has the means, or has had the means, to pay the debt, and his conduct is in the nature of a contempt."

Counsel for the plaintiff accepted that there was no evidence in the present case that the defendants had ever had the resources to pay off the judgment debt.

Turning now to the second ground of the application which is said to be the failure of the defendants to comply with the order for delivery; quite apart from non-compliance with the rules of court already referred to, the plaintiff faces a further difficulty in that it has been authoritatively held that a committal order should only be sought where there is no alternative means of enforcing a judgment:

"Whenever there is a reasonable alternative available instead of committal to prison, that alternative must be taken" per Denning MR Danchevsky v Danchevsky [1974] 3 All ER 934, at 937.

Borrie & Lowe state (p 585):

"... in practice an order for delivery of goods does not normally specify any time limit. The normal remedy is by writ of specific delivery or by writ of delivery ..."

In a recent Ruling given in this Court, Bank of Tonga v Malolo [2002] Tonga LR 92, it was noted that the practical problem with a writ of delivery in the Kingdom is that the prescribed form does not apply to houses and so, for the reasons more fully explained in that Ruling, the court concluded that the appropriate remedy for a creditor seeking to execute an order for delivery is by way of writ of possession.

A copy of the Ruling in question was made available by the court to counsel at the beginning of this hearing in the expectation that the plaintiff might wish to reconsider proceeding with the committal application but, after taking an adjournment to consider the position, counsel advised the court that the Bank wished to proceed because it saw the proceeding as something of a "test case".

There is another relevant matter which emerged for the first time in the course of the hearing. As noted above, the first security asset listed in the statement of claim, which was said to have been pledged by the defendants in performance of the loan agreement is described in the court documents as, "mortgage over tax allotment of Alifeleti Loumoli situate at Teekiu."

It transpires from the evidence that Mr Loumoli does not own any tax allotment. How this "asset" came to be included in the security assets is not something that was explored before me at the hearing but what did emerge, and it is of some concern, is that the Bank's legal section became aware sometime during 1999 that it did not hold any security over a tax allotment but, through "an oversight" the bank did not advise its legal counsel of the true position until sometime after the judgment in default was obtained in October 2000.

The failure of the plaintiff bank to disclose to its counsel the correct position right from the outset meant that the details of the security assets in the statement of claim were incorrect. More significantly, however, the affidavit filed on behalf of the Bank in support of its application for judgment in default also contained the misleading statement that the Bank held security over Mr Loumoli's tax allotment. In turn, this led to the error being replicated in the formal court order.

If the evidence before the court in relation to this aspect of the case is correct, then it would also seem that counsel for the plaintiff had been remiss in not taking immediate steps to inform the court of the true position as soon as it was drawn to her attention back in about November 2000.

The plaintiff Bank is a frequent litigant before this court and, in general, its case presentation is of a high standard. It needs to be vigilant, however, in ensuring that the reputation it has historically enjoyed is not compromised in any way through such careless oversights in the future.

The plaintiff has failed in its application and the defendants are entitled to costs to be agreed or taxed.

Earlier this year, the plaintiff Bank made an application for a writ of delivery of all the security assets included in the court's order for delivery dated 30 October 2000. The application was set down for hearing on 24 April 2002 but it was withdrawn on the morning of the hearing. At that time, counsel for the defendants made an application for costs but costs were formally reserved. I now make an order awarding costs to the defendants on that application, in an amount to be agreed or taxed.