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Tonga Development Bank v Helu [2001] TongaLawRp 59; [2001] Tonga LR 325 (10 December 2001)

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

C 870/2000

Tonga Development Bank

v

Helu

Ford J
19 September, 22 October 2001; 10 December 2001

Creditors’ remedies – whether defendant received portion of loan – plaintiff established its claim
Equity – burdensome contractual obligations – no relief

The Tongan Development Bank, as plaintiff, issued these proceedings in October 2000 seeking to recover a debt of $18,760.79 which was alleged to be the balance owing at that time by the three defendants under a loan agreement dated 24 November 1997. The first and third defendants took no steps to defend the action and on 23 July 2001 the plaintiff obtained judgment in default against each of them. The second defendant, however, filed a statement of defence. His defence was simply that he had no knowledge of the "existing balance" of $22,355. However, as the second defendant's case unfolded it became clear that he had known all about the existing balance owing under the previous loan agreements when he signed the new agreement in November 1997. Defence counsel then conceded that the existing balance of $22,355 was part of the November 1997 loan agreement and he then proceeded to raise two new points. First, he submitted that the second defendant had not received "a substantial part" of the new advance of $6087 under the November 1997 loan agreement and, secondly, he went on to ask the court to invoke its equitable jurisdiction in the matter so as to give a fair result to the defendant.

Held:

1. In relation to whether the second defendant received "a substantial part" of the $6087, the plaintiff's evidence was accepted and the Court was satisfied that, on the pleadings, the plaintiff established its claim on the balance of probabilities and that it was entitled to judgment.

2. In relation to the equitable jurisdiction, the Court held that equity would not provide relief against contractual obligations which may turn out to be unexpectedly burdensome to one of the parties. The second defendant's last-minute plea for equitable relief was refused.

3. The plaintiff succeeded in its claim and was entitled to judgment. The second defendant appears to have been reducing the debt since the proceedings were issued by automatic deductions from his salary. Counsel for the plaintiff was invited to file a memorandum showing the up-to-date position and judgment would then be entered accordingly. The plaintiff also sought interest on the judgment sum pursuant to the loan agreement at 12% since 8 September 2000. Interest would be awarded but, in the memorandum, counsel should indicate to the court the position regarding interest taking into account all payments made by the second defendant since 8 September 2000.

Case considered:

Export Credits Department v Universal Oil Products Co [1983] 1 WLR 399 (HL)

Counsel for plaintiff : Mrs Vaihu
Counsel for defendants : Mr Tu'utafaiva

Judgment

The Tongan Development Bank, as plaintiff, issued these proceedings in October 2000 seeking to recover a debt of $18,760.79 which was alleged to be the balance owing at that time by the three defendants under a loan agreement dated 24 November 1997. The total advance under the November 1997 loan agreement was $28,642. The amount was made up as follows:

Personal and family expenses: $6,087

Painting of dwellinghouse at Kolofo'ou: $100

Crop maintenance: $100

Plus existing balance: $22,355

total: $28,642

The first and third defendants took no steps to defend the action and on 23 July 2001 the plaintiff obtained judgment in default against each of them.

The second defendant, however, filed a statement of defence. His defence was simply that he had no knowledge of the "existing balance" of $22,355 which is shown in the breakdown above. The second defendant also said in his statement of defence that he had no knowledge of the third defendant's involvement in the loan but that issue was not pursued at the hearing.

The second defendant is 44 years of age, married with eight children. He is employed by the Tongan Communications Corporation. He told the court that the first defendant, a former magistrate, is his first cousin and the third defendant, who lives in Australia, is his father's younger brother.

Exactly how the three defendants came to be included in the one composite loan agreement was not explained to the court but there was no dispute that the second defendant had signed all the relevant loan documentation papers and there was no allegation of fraud, undue influence or duress.

The "existing balance" of $22,355 referred to in the November 1997 loan agreement was made up of the balance owing under two previous loan agreements between the plaintiff Bank and the first and second defendants which were dated 27 June and 20 December 1996 respectively. It was not clear from the evidence why the third defendant, who had not been a party to the earlier loan agreements, agreed to sign the November 1997 agreement thereby assuming liability for the outstanding balance owing under the two earlier advances which had been made to the other two defendants only but, in all events, the third defendant is not before the court and so the issue does not arise for consideration. In this proceeding the plaintiff seeks judgment against the second defendant pursuant to his signed acknowledgment in each of the loan agreements that the borrowers were jointly and severally liable.

Up until the conclusion of the plaintiff's case the second defendant's defence continued to be that he had no knowledge of the existing balance of $22,355 being included as part of the November 1997 loan agreement. Indeed, even at the stage when counsel opened the case for the defence he told the court that, "the second defendant's case is that he had no knowledge of the existing loan balance of $22,355". However, as the second defendant's case unfolded, and particularly in the course of his lengthy cross-examination, it became abundantly clear to the court that he had, in fact, known all about the existing balance owing under the previous loan agreements when he signed the new agreement in November 1997.

At that stage, it must have become equally obvious to defence counsel that the defence relied upon by his client simply could not be made out on the evidence. To his credit, he did not try to pursue the point in his written closing submissions. Instead, he conceded that the existing balance of $22,355 was part of the November 1997 loan agreement and he then proceeded to raise two new points. First, he submitted that the second defendant had not received "a substantial part" of the new advance of $6087 under the November 1997 loan agreement and, secondly, he went on to ask the court to invoke its equitable jurisdiction in the matter so as to give a fair result to the defendant.

In her submissions in reply, Mrs Vaihu for the plaintiff noted that the second defendant claimed to only have received a small portion of the $6087 advance but she referred the court to the evidence given by Ms Alisi Tu'inukuafe, who had worked in the plaintiff's loans department in 1997. Ms Tu'inukuafe told the court that the whole purpose of the November 1997 loan advance of $6087 was to finance the migration of the second defendant's family to the USA and she produced documentary evidence showing payments made direct by the Bank from the loan monies for expenses consistent with this purpose. The defendant, for his part, claimed to have made many of the payments himself but he was unable to produce any receipts.

I accept the plaintiff's evidence in relation to this aspect of the case and I am satisfied that, on the pleadings, the plaintiff has established its claim on the balance of probabilities and that it is entitled to judgment.

As I have indicated, however, in his closing submissions, counsel for the second defendant raised another new matter. He submitted that the court should grant relief to his client in its equitable jurisdiction by limiting the amount of his liability to $8000 only of the total debt and by releasing all of the security assets he had pledged under the loan agreement of a value in excess of that figure of $8000. Counsel submitted that such a result would be fair and just in all the circumstances. In support of his submission, counsel made reference to certain action allegedly taken by the Bank in relation to the third defendant's share of the debt.

The first point I make about the second defendant's plea to invoke the court's equitable jurisdiction is that it does not appear in the pleadings and no application was made at any stage for leave to amend the statement of defence. The submission raises new issues, including issues of fact, and even had leave been applied for, I would not have been prepared to allow the application at such a late stage in the case.

In any event, the late plea by the second defendant to invoke this Court's equitable jurisdiction seems to involve a fundamental misapprehension of the principles affecting equitable relief. As is stated in Halsbury, vol 16, para 1299:

"Jurisdiction in equity is exercised upon the principle that equity follows the law ... In matters coming before it which depend solely on legal rights ... equity applies the rules of law as the appropriate system; in such cases the rules of law are in fact binding in equity."

In other words, equity will not provide relief against contractual obligations which may turn out to be unexpectedly burdensome to one of the parties. As was said by the House of Lords in Export Credits Department v Universal Oil Products Co [1983] 1 WLR 399 at 403:

"But it is not and never has been for the courts to relieve a party from the consequences of what may in the event prove to be an onerous or possibly even a commercially imprudent bargain."

For these reasons, I am not prepared to entertain the second defendant's last-minute plea for equitable relief.

The plaintiff has succeeded in its claim and is entitled to judgment. The second defendant appears to have been reducing the debt since the proceedings were issued by automatic deductions from his salary. The amount owing back in June 2001 when application for judgment in default was made against the other two defendants was $17,273.04 and further payments appear to have been made since that time. Counsel for the plaintiff is, therefore, invited to file a memorandum showing the up-to-date position and judgment will then be entered accordingly. The plaintiff also seeks interest on the judgment sum pursuant to the loan agreement at 12% since 8 September 2000. Interest will be awarded but, in the memorandum, counsel should indicate to the court the position regarding interest taking into account all payments made by the second defendant since 8 September 2000.

The plaintiff is also entitled to costs to be agreed or taxed.