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

C 658/2000

Tonga Development Bank

v

Tapavalu anor

Ward CJ 
17 June 2002; 30 August 2002 

Creditors' remedies – when limitation period started to run – defence failed 

On 19 May 1992 the bank made a loan to the defendants of $4,200. The defendants defaulted on payment and the bank made a claim for the repayment of the loan. The writ was filed on 3 August 2000 and the sum sought then stood at $6,176.99 with interest at 11.5% pa from 30 June 2000. Judgment in default of defence was entered against the first defendant on 19 February 2002. The second defendant pleaded several matters of defence but, at the hearing, the defence called no evidence and relied on the single ground of defence that the claim was outside the five-year limitation period under section 16(1) of the Supreme Court Act. 

Held: 

1. Section 16 stated that the period of limitation runs from the date on which liability was incurred. Default created an obligation on the borrower to repay but it only arose if the lender demanded payment. The lender demanded payment on 11 August 1995 and therefore the limitation period started to run from that date. 

2. The court gave judgment to the plaintiff against the second defendant for $6,176.99 and interest at 11.55pa from 30 June 2000 and costs. It further ordered that should the defendants fail to pay the sum in full within one month of judgment, they should deliver the timber dwelling house of the defendants at Ha'ateiho together with the furniture therein charged as security in the loan agreement. 

Case considered: 
TDB v 'Aukamea and others C 326/94 

Statute considered: 
Supreme Court Act (Cap 10) 

Counsel for plaintiff: Mrs Vaihu 
Counsel for second defendant: Mr Tu'utafaiva 

Judgment

This is a claim for the repayment of a loan of $4,200.00 made to the defendants jointly on 19 May 1992. The writ was filed on 3 August 2000 and the sum sought then stood at $6,176.99 with interest at 11.5% pa from 30 June 2000. 

Judgment in default of defence was entered against the first defendant on 19 February 2002 and this hearing was against the second defendant only. Several matters of defence were pleaded but, at the hearing, the defence called no evidence and rely on the single ground of defence that the claim is outside the five-year limitation period under section 16(1) of the Supreme Court Act. 

Section 16(1) provides: 

"It shall not be lawful to sue any person for debt or damages after the expiration of 5 years from the date on which such liability was incurred nor to sue for property which has been in the undisputed possession of any person for more than 5 years. But if any part of such liability or claim has been paid within such time or the claim or liability has been admitted in writing within such time the 5 years shall commence to run from the time of such payment or admission and if there be any deed or document between the parties covering a period of time the 5 years shall commence to run from the expiration of such period of time." 

The evidence called by the plaintiff established the following facts: 

1. 19 May 1992 – Loan agreement between TDB on the one hand and Tapavalu and Manu on the other for $4,200.00 signed. The Schedule to the agreement provided that the loan would attract interest at 11.5% pa and, "The first repayment shall be made in January 1993. A final repayment of the balance of loan and interest then owing to be made in January 1993". 

2. 5 February 1993 – Bank made loan amendment as no repayments had been made. 

3. 12 February 1993 – Letter from Bank to Tapavalu advising of the amendment. No copy to Manu. The new arrangement was to repay at $80.00 per month and a final repayment in January 1994. 

4. 4 June 1993 – Letter from Bank to Tapavalu advising arrears on the new scheme. No copy to Manu.  

5. 19 October 1993 – Letter from bank to both defendants requesting payment of 7 months arrears totaling $560.00. Signed by Manu as received and understood. 

6. 10 August 1994 – Letter from Bank to Tapavalu in Auckland. States the loan is in arrears by $4,061.39 and requesting "of you to render your assistance and make suggestion on how you intend to fully settle the debt". 

7. Payments of $80.00 made in July, August, September, October and December 1994. 

8. 4 February 1995 – Letter from Bank to Tapavalu demanding payment of the debt in full within 20 days or court action. Signed for Tapavalu as understood. 

9. 11 August 1995 – Letter from Bank to both defendants stating position of loan at 31 July 1995 and giving "final warning … in connection with the late payment of the loan as per the loan position appears above". Signed by Manu as received and understood. 

10. 21 November 1995 – Letter from lawyer for Bank to both defendants giving "last chance" to remedy situation before court proceedings. No evidence of receipt by either defendant. 

11. 26 May 1999 – Letter from Bank to both defendants demanding payment in full. Signed by Manu. 

12. 20 June 2000 – Letter from lawyer for Manu claiming Manu was only a guarantor but offering to pay loan back and asking for an arrangement and to freeze interest. 

13. 5 July 2000 – Letter from Bank to lawyer suggesting payment arrangements over two years. 

Since then there has been no payment. 

Section 16 makes it clear that the period of limitation runs from the date on which liability was incurred. In this case that would have been when the borrowers failed to repay the balance of loan and interest in January 1993. However, the loan agreement between the parties included the condition. 

"And in the event of the failure of the borrower to fulfil any obligation under the Agreement the balance of the loan owing together with interest becomes payable on demand. …" 

As was stated by Lewis J in TDB v 'Aukamea and others C 326/94, in a similar case, default creates an obligation on the borrower to repay but "it only arises if the lender elects to impose demand …". 

There is no doubt the Bank had requested payment of the arrears in order to repay the debt. By a letter dated 19 October 1993 it requested "the two of you to please pay in full the arrears". Similarly on 10 August 1994 the Bank had similarly written "I therefore request of you to render your assistance and make suggestion on how you intend to fully settle the debt. The Bank will be very happy to receive your assistance and make suggestion on how you intend in full to settle the debt." There is no evidence the second defendant received the first but he signed the second as received. However, I do not accept either of those amounted to a demand. 

The first demand was dated 4 February 1995 and was addressed to the first defendant only although the name of the second defendant has been added at some stage in manuscript. However, whilst there is a signature over the name of the first defendant purporting to sign "for" him there is no evidence that the second defendant was ever sent that demand. The first demand of him was made in the letter of 11 August 1995 which was addressed to both defendants and signed as understood by the second defendant. Although the wording does not demand payment in full in such terms, I am satisfied it is clear that is what is being stated and the letter goes on to threaten legal action. 

I am satisfied that the limitation period under section 16 started to run from that date in relation to the second defendant. By section 16, it was, therefore, not lawful to sue for that debt after 12 August 2000. 

In this case the writ was signed on 31 July 2000 and filed in the Court on 3 August 2000. That was within the limitation period and the defence fails. 

I give judgment to the plaintiff against the second defendant for $6,176.99 and interest at 11.55pa from 30 June 2000 and costs. I further order that, should the defendants fail to pay the sum in full within one month of this judgment, they shall deliver the timber dwelling house of the defendants at Ha'ateiho together with the furniture therein charged as security in the loan agreement.