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Eteuati v National Provident Fund [2005] WSSC 14 (31 August 2005)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA


BETWEEN:


FUIMAONO POLOMA ETEUATI,
of Motootua, Businessman.
Plaintiff


AND


NATIONAL PROVIDENT FUND,
a statutory corporation established under the National Provident Fund Act 1972.
Defendant


Counsel: L T Malifa for plaintiff
R Drake for defendant


Hearing: 3,9,10 August 2005
Judgment: 31 August 2005


JUDGMENT OF SAPOLU CJ


Introduction


The plaintiff, a businessman, and his wife had obtained a term loan in 1991 from the defendant, the National Provident Fund which is a statutory body (hereinafter referred to as “NPF”). The loan was secured by a deed of mortgage over freehold land owned by the plaintiff and his wife. In 2003 the mortgage was discharged and the land was sold. The documentations effecting the discharge of the mortgage and the sale of the land were executed at the same time. By agreement between the parties, the proceeds of the sale were deposited in an interest bearing bank account pending determination by the Court of what proportion of the proceeds of sale each party was entitled to as the parties could not reach agreement on that issue. Thus the fundamental issue in these proceedings is how the proceeds from the sale of the mortgage land is to be divided between the parties. To resolve this issue, it is necessary to set out first the history to these proceedings.


History of proceedings

On 25 September 1991 the NPF board of directors approved the application by the plaintiff and his wife for a term loan of $475,000. The purpose of the loan was to refinance an existing bank loan by the plaintiffs and to construct three two-bedroom rental units on freehold land owned by the plaintiff and his wife at Motootua. The plaintiff and his wife were informed of the approval of their loan application by NPF by letter dated 26 September 1991. This letter sets out the terms and conditions of the loan approval. A loan agreement was subsequently executed by the parties.


The terms of the loan agreement insofar as material were that the amount of the loan was $475.00; the purpose of the loan was to refinance an existing bank loan by the plaintiff and his wife and to construct three two bedroom rental units on freehold land at Motootua owned by the plaintiff and his wife; the term of the loan was to be for 15 years; the rate of interest was to be 14% pa reducible to 12% pa on prompt repayment; repayments were to be $19,042.10 per quarter reducible to $17,163.16 per quarter on prompt payment and to commence three months after the date of the final loan disbursement; an interim interest was payable on the loan balances from the date of the first loan disbursement to the date of the final loan disbursement; and NPF was to have a first mortgage over the freehold land at Motootua together with the existing buildings and the buildings proposed to be constructed on the land.


Pursuant to the loan agreement, a deed of mortgage was executed on 4 October 1991 between the plaintiff and his wife as mortgagors and the NPF as mortgagee to secure repayment of the loan. The mortgage expressly incorporates into it the terms and conditions of the loan agreement. It also contains in clause 1(b) provision for the variation of interest payable and consequential adjustment to the periodical repayments.


In the same month of October 1991, the first loan disbursement was made by NPF to the plaintiff and his wife. The final loan disbursement was made in January 1992. In terms of the loan agreement which required that the first loan repayment was to be made three months after the date of the final loan disbursement, the first repayment was literally due either at the end of March 1992 or more likely to be sometime in April 1992. Neither party made any issue of what was the exact date the first loan repayment was due. Perhaps the point was not considered to be of any significance. I have decided to accept the explanation given in evidence by the NPF general manager that in terms of the loan agreement, the repayments were to be made on a quarterly basis. This means by the end of every three monthly interval so that the repayments were due by the 31 March, 30 June, 30 September and 31 December of every year during the term of the loan. This explanation is supported by clause 8 of the loan agreement which provides that repayments were to be “per quarter.” It is also reflected from the evidence in relation to the dealings of the parties with regard to repayments.


What happened was that when the first repayment was due, the plaintiff and his wife were not in position to meet it. The interim interest which accrued from the date of the first loan disbursement to the date of the final loan disbursement had not been paid. So by letter dated 15 April 1992, the plaintiff’s wife wrote to the NPF requesting that (a) the interim interest be capitalised and (b) a grace period of six months from June be granted before the first repayment was made to allow the plaintiff and his wife time to complete their project and start yielding returns. As it is shown from the evidence, this letter from the plaintiff’s wife was not received by NPF until 9 July 1992. There was no explanation for this. In the meantime, the plaintiff had made a first repayment of $6,000 in May 1992 and then a second repayment of $6,000 in June 1992. It is not clear whether these repayments related to the first loan repayment for the first quarter which was then outstanding, or to the loan repayment due for the second quarter which commenced on 1 April 1992 and ended on 30 June 1992.


After receiving on 9 July 1992 the aforesaid letter dated 15 April 1992, the board of directors of NPF met on 14 July 1992 and approved the request from the plaintiff’s wife. The terms of that approval were conveyed to the plaintiff by letter dated 20 July 1992. They show that the board of directors of NPF had approved (a) a grace period of six months for repayments, and (b) capitalisation of interim interest, the June 1992 interest, the September 1992 interest, and the December 1992 interest. The letter of approval shows the total amount of principal plus interest due and payable in December 1992 as $545,562.14; the term of the loan is shown as 15 years; and the rate of interest is shown as 14% pa reducible to 12% pa on prompt payment. The approval then provides “Repayment - $19,712.27 per quarter from 31st March 1993.” It is the interpretation of this last part of the approval given by NPF which is one of the main issues of contention raised during the trial by the plaintiff who is of the opinion that it means the first repayment under the terms of the approval was due on 30 June 1993, that is, three months “from 31st March 1993.” The NPF is of the opinion that it means the first repayment under the terms of the approval was due on 31 March 1993 which was the end of the first quarter for 1993. I will deal with this issue later.


I come now to what happened in 1993. On 9 March 1993, NPF sent a letter to the plaintiff as a friendly reminder that the amount of $20,093.68 was due for payment on his loan on 31 March 1993. This amount comprised of the first quarterly payment of $19,712.27 plus the insurance premium which has been paid by NPF. When there was no response from the plaintiff, NPF sent another letter dated 27 May 1993 to the plaintiff. In that letter NPF expressed concern at the absence of a response to its previous letter. It also advised the plaintiff to settle his arrears in full or make arrangements with NPF to do so otherwise recovery proceedings would be taken against him. When there was still no response from the plaintiff, NPF sent another letter dated 20 July 1993. In that letter NPF referred to the absence of a response to its two previous letters and advised the plaintiff that if his arrears were not paid in seven days, recovery proceedings would be taken without further notice. Under the terms of the approval of 14 July 1992 by the board of directors of NPF which was conveyed to the plaintiff by letter dated 20 July 1992, it is clear that by 20 July 1993 the plaintiff was in arrears with two quarterly repayments, one that was due on 31 March 1993 and the other one that was due on 30 June 1993. On 8 September, NPF instructed its solicitors to take action under the deed of mortgage which had been executed by the plaintiff and his wife on 4 October 1991 as security for the repayment of their loan.


On 14 September 1993 a default notice issued by NPF’s solicitors under s.92(1) of the Property Law Act 1952 (NZ) (which still applies in Samoa) was served on the plaintiff’s wife. On 15 September 1993 the same default notice was served on the plaintiff. The default notice on its face related to the sum of $33,5411.31 being arrears of payment due for the period between 31 March 1993 and 31 August 1993. The plaintiff and his wife were required until 20 October 1993 to pay up all the arrears; failing to do so NPF as mortgagee would exercise its power of sale under the deed of mortgage. Then by letter dated 13 October 1993, the plaintiff wrote to the then chairman of the board of directors of NPF explaining his inability to meet his loan repayments and seeking an extension of time until 31 December 1993 to pay up all his arrears. It would be relevant to set out this letter in full except for the last two sentences:


“13 October 1993

The Chairman

Board of Directors,

National Provident Fund,

Apia


Dear Sala,


I respectfully submit this correspondence to you as chairman of the National Provident Fund Board of Directors to seek relief from actions taken by NPF Management against my outstanding borrowing from the NPF.


Firstly, I do fully admit to being delinquent in repayments as stipulated in the loan agreement. I do not shirk from this commitment, however, I am confident that the Fund would exercise its legal option only as a last resort. Mr Chairman, all the revenues I have received from the project plus funds from my other activities have been reinvested in the project so that its full potential can be realised. I feel that it is economically diligent for me to achieve this objective not only to reap full financial benefits but also to justify the loan given to me by the Fund.


At present, the project is about 95% complete with the main homestead and swimming pool expected to be complete in 2 weeks time. Once complete, I am confident the project will have no trouble in servicing the loan with the Fund.


I am therefore appealing to you sir for an extension of up to the end of December 1993 to meet all my arrears and will from then on strive to upkeep my commitments ......”


Faafetai,


Fuimaono P.Eteuati.”


It appears from the purpose for which the loan was granted by NPF to the plaintiff that the plaintiff’s homestead and swimming pool were not included in that purpose.


By letter dated 14 November 1993, the plaintiff wrote to the then manager of NPF as a follow-up to his letter of 13 October 1993 to the then chairman of the board of directors of NPF. This letter of 14 November 1993 was copied to the chairman. It would be relevant to set out the text of this letter in full.


“14 November, 1993

The Manager,

NPF

Apia


Susuga Seuseu Tauati,


With due respect, I submit this note as a follow-up of a letter I sent to your Chairman and copied to your office on October 13th, 1993.


Again I am appealing to your Board to withhold the legal actions taken as I undertake to have all my arrears updated by December 31st, 1993.


The project is now 95% complete, however, I am refraining from completion until the arrears are paid in full.


I would also respectfully ask your office for an updated statement of my account for information.


Faafetai,


Fuimaono P. Eteuati


cc Chairman

NPF Board”


On 19 November 1993, the board of directors of NPF met and approved as follows: (a) legal action to be withheld until January 1994, (b) the borrowers to fully settle all outstanding arrears by 31 December 1993, and (c) failing to comply with (b) legal action to proceed immediately. The terms of this decision by the NPF board of directors was conveyed by letter dated 30 November 1993 addressed to its solicitors and copied to the plaintiff.


On 24 December 1993, the plaintiff made a repayment of $35,200 which more than covered the total amount of $33,541.31 shown in the default notice for the period between 31 March 1993 and 31 August 1993. Counsel for NPF said that the repayment made on 24 December 1993 did not cover all the outstanding arrears up to 31 December 1993 even though the default notice related only to the arrears between 31 March 19933 and 31 August 1993. It was not explained how that was so.


I come now to the events in 1994. On 21 January 1994, NPF made application to the Registrar of the Supreme Court to conduct a sale of the mortgaged property pursuant to the terms of the deed of mortgage. In the statutory declaration filed by the then manager of NPF in support of the application for sale, it is there stated that a default notice had been issued to the mortgagors pursuant to s.92(1) of the Property Law Act 1952 (NZ). It is further stated in the statutory declaration that the total amount of the arrears was $33,541.31 being outstanding principal and interest. These are the arrears stated in the default notice to be for the period between 31 March 1993 and 31 August 1993. The total outstanding amount on the loan in terms of principal and interest is shown as $575,715.27.


The application for sale of the mortgaged property by NPF was approved by the Registrar and was advertised in the local newspapers to take place on 3 March 1994. On 2 March 1994, the plaintiff filed a motion for an interim injunction to restrain the NPF, its servants, or agents, or any of them from exercising the power of sale under the mortgage. In the plaintiff’s supporting affidavit and statement of claim, it is there stated that the plaintiff had already paid the full amount of the arrears of $33,541.31 specified in the default notice when he made a repayment of $35,200 on 24 December 1993. It is further stated in the plaintiff’s supporting affidavit and statement of claim that the plaintiff had made two payments of $20,000 on 4 February 1994 and $6,500 on 15 February 1994 which covered the quarterly repayment of $19,712.27 for the period from 1 October 1993 to 31 December 1993 and part of the quarterly repayment for the period 1 January 1994 to 31 March 1994. So according to the plaintiff he was at the time of the proposed sale ahead in his repayments as the quarterly repayment for the period from 1 January 1994 to 31 March 1994 was not finally due until 31 March 1994 but the mortgagee sale was set to take place on 3 March 1994. In these circumstances, the Court granted the interim injunction sought by the plaintiff to restrain NPF, its servants, its agents, or any of them until further order of the Court from exercising the mortgagee power of sale under the mortgage. From this time onwards, the plaintiff has made no further loan repayment. Whether this was due to the plaintiff’s own understanding of the situation or on advice is not clear.


In 1994, the plaintiff’s statement of claim proceeded to a hearing. The principal allegations in the statement of claim were that the plaintiff had paid all the arrears specified in the default notice and the plaintiff was ahead in his repayments leaving only $5,000 to be paid by 31 March 1994. The principal remedy sought was an interim injunction to stop the mortgagee sale. At the conclusion of the hearing, the Court reserved its decision. Regrettably the case file later went missing and it has not been recovered. As a consequence, the Court was not able to deliver its decision. It now appears from the evidence before the Court, that as between the parties, the plaintiff took the position that the absence of a decision was a legitimate basis for him not to make any more loan repayments. It was also contended by and for the plaintiff that the effect of the default notice and the interim injunction granted in March 1994 were to stop any further interest accruing on the loan.


A second default notice dated 2 May 1994 was issued under the mortgage and served on the plaintiff and then a third default notice dated 10 January 2001 was again served on the plaintiff. Nothing followed from these default notices. Then in 2002, the plaintiff informed NPF that he had found a buyer for the mortgaged property. An attempt was made by the plaintiff to settle his debt with NPF but NPF did not accept the plaintiff’s terms of settlement. The mortgaged property was sold on 21 February 2003 at the price of $1,400,000 and the mortgage was discharged. It appears from the evidence of the general manager of NPF that the mortgaged property was sold without the three two-bedroom rental units financed with the loan from NPF and the other buildings which were on the land which all formed part of the mortgage security. NPF is not aware of what happened to those bedroom units and buildings.


As earlier mentioned, pursuant to an agreement executed by the parties on 21 February 2003 the sale price of the mortgaged property of $1,400,000 was deposited in an interest bearing bank account pending determination by the Court of each party’s share of entitlement to that money. The plaintiff’s contention is that the amount NPF is entitled to is limited to the amount of $575,715.27 specified in the 1993 default notice. What is really meant here is the amount of $575,715.27 for principal and interest which was outstanding at the time stated in the statutory declaration of 21 January 1994 by the then manager of NPF. This is the statutory declaration which was filed in support of NPF’s application of the same date to the Registrar of the Supreme Court for a mortgagee sale. The basis of the plaintiff’s contention is that the effect of the default notice of September 1993 and the interim injunction issued on 3 March 1994 was to freeze the interest from continuing to accrue on the loan. It follows that NPF is entitled only to the amount of the outstanding principal and accrued interest at the time the default notice and interim injunction were issued. Therefore, NPF would be unjustly enriched if it were to take the total amount of the sale price of the mortgaged property which has been deposited in an interest bearing bank account. The contention by NPF on the other hand is that the default notice of September 1993 and the interim injunction did not have the effect contended for by the plaintiff. Neither did the absence of a decision by the Court in the 1994 proceedings have such effect. The interest which was agreed to in the loan agreement continued to accrue in terms of that agreement so that the total balance on the loan as at 6 July 2004 stood at $1,989,414.54. The position taken by NPF during negotiations for settlement was that it would accept the full sale price of the mortgaged property deposited in the interest bearing bank account in full settlement of the loan and forgive any outstanding balance.


Effect of default notice


The default notice that was issued on behalf of NPF as mortgagee and served on the plaintiff and his wife as mortgagors on 14 and 15 September 1993 specified the nature of the default complained of as being arrears of payments due for the period between 31 March 1993 and 31 August 1993. The default notice required the mortgagors to remedy the default which comprised of arrears of principal and interest on or before 20 October 1993 which was more than four weeks from the date of service of the default notice. The default notice further specified that if the default complained of was not remedied by 20 October 1993 the mortgagee’s power of sale under the mortgage would become immediately exercisable. There is nothing in the default notice about the interest under the loan agreement or the deed of mortgage being frozen or stopped from continuing to accrue. The default notice was issued and served for the purpose of further reminding the plaintiff about his arrears on the loan and requiring him to pay up those arrears by a specified date otherwise the mortgagee’s power of sale under the mortgage would become immediately exercisable. There is nothing in the default notice to show that its purpose or effect was to freeze the interest accruing on the loan.


Even in law, a default notice does not have the effect contended for by the plaintiff unless, perhaps, there is provision in the notice that interest will stop accruing on the loan. The purpose of a default notice issued pursuant to a mortgage is explained in the New Zealand legal text Land Law (2004) by Hinde, McMorland and Sim vol 2 at para. 15.904 at pp 542-543 in these terms:


“The mortgagee has two remedies against the mortgaged land: to enter into possession and to sell the land under the power of sale. Neither of these remedies can be exercised until the requirements of s.92 of the Property Law Act 1952 as to notice to the mortgagor have been complied with. That section is designed to ameliorate the provisions in mortgages that give rise to a power of sale. The intention is that the mortgagor should have a final opportunity to remedy the default and be made aware by notice of his or her statutory right to do so.” (emphasis mine)


In Savill v Damesh Holdings Ltd (2004) (New Zealand Court of Appeal judgment delivered on 24 February 2004), McGrath J in delivering the judgment of the Court said at para [38]:


“The object of s.92 [of the Property Law Act 1952] is to ensure that mortgagors....are notified of a likely sale so as to be able take steps to protect their positions before it takes place.”


As the Property Law Act 1952 (NZ) still applies in Samoa, New Zealand authorities on the meaning and purpose of s.92 should be accepted. They clearly do not say that in law the purpose or effect of a default notice issued under s.92(1) of the Act is to stop or freeze the interest provided in a loan agreement or deed of mortgage so that it cannot continue to accrue on the loan.


For those reasons, I am not able to accept the plaintiff’s contention as to the effect of the default notice.


Interim injunction


As already mentioned, after the default notice was served on the plaintiff and his wife and the date specified in the notice to pay up the arrears had expired, the plaintiff made a substantial repayment which more than covered the amount of the arrears. Further repayments were made and the plaintiff claimed that at the date of the proposed sale he was ahead of schedule with his repayments. The plaintiff therefore moved for an interim injunction to restrain NPF, its servants, or agents from proceeding with the sale. The Court in the exercise of its discretion granted the injunction to restrain NPF, its servants, or agents, or any of them from proceeding with the sale. It is not necessary now to set out the reasons for which the injunction was granted.


An injunction is an equitable remedy which is discretionary. It may be issued in prohibitory or mandatory terms. A prohibitory injunction is an order by the Court directing the person to whom it is addressed to refrain from doing a specified act. It is a restraining order. A mandatory injunction is an order by the Court directing the person to whom it is addressed to do a specified act. Non-compliance with the terms of an injunction would constitute contempt of Court.


The interim injunction that was granted in this case pursuant to the motion by the plaintiff ordered NPF, its servants, or agents, or any of them to refrain from doing a specified act, namely, proceeding with the mortgagee sale until further order of the Court. It was a prohibitory interim injunction. Its effect was to stop the mortgagee sale until further order of the Court. NPF, its servants and agents complied with the injunction. There was nothing in the plaintiff’s motion or in the injunction about freezing the interest on the loan or prohibiting NPF from continuing to charge interest on the loan in terms of the loan agreement or deed of mortgage. I am therefore not able to accept the contention by and for the plaintiff that the effect of the interim injunction was to freeze the interest on the loan and to stop it from continuing to accrue.


It has been raised in the submissions for the plaintiff that the interim injunction which was issued preserved the status quo until final determination of the substantive action by the plaintiff. The implication here is that the preservation of the status quo included the freezing of the interest on the loan so that interest ceased to accrue until the determination of the plaintiff’s action. I do not accept this. The plaintiff’s motion for an interim injunction and the terms of the interim injunction that was granted made no mention of freezing or stopping the interest that was accruing on the loan until determination of the plaintiff’ substantive action which also sought an interim injunction. Secondly, the plaintiff’s motion sought an interim injunction to restrain NPF, its servants, or agents, or any of them from exercising NPF’s power of sale as mortgagee under the mortgage until further order of the Court and the interim injunction which was granted was granted on those terms. It was not an interlocutory injunction that was granted to restrain NPF, its servants, or agents, or any of them from exercising NPF’s mortgagee power of sale under the mortgage until determination of the plaintiff’s substantive proceeding. See the distinction between an interim injunction and an interlocutory injunction as explained in Equity Doctrines and Remedies (1984) 2nd ed. by Meagher, Gummow and Lehane at paras 2166 and 2180; Equity and Trusts in Australia and New Zealand (2000) 3rd ed. by Dal Pont and Chalmers at p.815.


The expression ‘status quo’ as used in the context of interim and interlocutory injunctions was explained by Lord Diplock in Garden Cottage Ltd v Milk Marketing Board [1984] AC 130 where His Lordship said at p.144:


“The history of the trading relations between the company and M. M. B., as I have outlined them, make it difficult to identify what was the relevant status quo which was said in American Cyanamid Co. v Ethicon Ltd [1975] UKHL 1; (1975) AC 396 it is a counsel of prudence to preserve when other factors are evenly balanced. The status quo is the existing state of affairs; but since states of affairs do not remain static this raises the query: existing when? In my opinion, the relevant status quo to which reference was made in American Cyanamide is the state of affairs existing during the period immediately preceding the issue of the writ claiming the permanent injunction or, if there be unreasonable delay between the issue of the writ and the motion for an interlocutory injunction, the period immediately preceding the motion.”


Those principles stated by Lord Diplock have been cited in Equity Doctrine and Remedies (1984) 2nd ed by Meagher, Gummow and Lehane at para 2166; Snell’s Equity (1990) 29th ed by Baker and Langan at p.662. These are the only editions of those two texts which are presently available to the Court.


What was said by Lord Diplock in Garden Cottage Ltd v Milk Marketing Board [1984] AC 130 at p.144 is equally applicable to a motion for an interim injunction as it is in this case. The question then is what was the status quo, that is, the existing state of affairs immediately preceding the plaintiff’s motion for an interim injunction. At the time the plaintiff’s motion dated 2 March 1994 was filed, his land at Motootua which was jointly owned with his wife still formed the mortgage security for their loan from NPF. The land was not sold. The interest on the loan was still accruing and nothing had happened to stop the interest from continuing to accrue. The repayments of $20,000 and $6,500 made by the plaintiff on 4 February 1994 and 15 February 1994 respectively for the quarterly repayment for the period from 1 October 1993 to 31 December 1993 and for part of the quarterly repayment for the period from 1 January 1994 to 31 March 1994 show that interest was still accruing on the loan at that time as those quarterly repayments comprised of parts of the principal plus accrued interest. The mortgagee sale by NPF which was scheduled for 3 March 1994 was effectively an act by NPF to alter the existing state of affairs at that time by selling the land which formed the mortgaged security. Nothing was said or done about the interest that was accruing on the loan. The interim injunction that was issued on 3 March 1994 stopped the mortgagee sale from proceeding. In effect, the interim injunction preserved the state of affairs which was existing immediately prior to the plaintiff’s motion. That is the status quo which the interim injunction preserved. But the status quo at that time not only shows that the plaintiff’s land was unsold and formed the mortgaged security but it also shows that interest was still accruing on the loan. So to say that the interim injunction preserved the status quo must mean that it preserved the plaintiff’s property from being sold. If the status quo is to be taken broadly to include the whole of the state of affairs existing immediately prior to the motion for interim injunction, then that must mean the injunction also preserved the continuing accrual of interest on the loan because interest was still accruing on the loan at that time. To say that the injunction stopped the interest from continuing to accrue would be tantamount to saying that the injunction changed the status quo relating to the accrual of interest. That would be inconsistent with the contention for the plaintiff that an interim injunction is supposed to preserve but not to change the status quo. So I am not able to accept the submission for the plaintiff.


It must also be pointed out that the equitable remedy of foreclosure is not available in Samoa with regard to mortgages of land. This is because of the Property Law Act 1952 (NZ) which is a New Zealand legislation that still applies in Samoa by virtue of s.7 of the Reprint of Statutes Act 1972. In Land Law (2004) by Hinde, McMorland and Sim the learned authors state in volume 2 at para 15.040 at p.506:


“In New Zealand the remedy of foreclosure has been abolished in relation to land. Section 89 of the Property Law Act 1952 provides. ‘A mortgagee shall not in any case be entitled to foreclose the equity of redemption to any land.’ A mortgagee of land can, however, acquire the fee simple of the mortgaged property by purchasing it at a sale by auction conducted by the Registrar of the High Court. The sale under conduct of the Registrar of the High Court is a special statutory procedure, peculiar to New Zealand, that is designed to provide a measure of protection for both the mortgagor and the mortgagee.”


The above passage would have to be applied with the necessary modifications to make it relevant to Samoa. The important point is that because of s.7 of the Reprint of Statutes Act 1972, the Property Law Act 1952 (NZ) which has abolished the remedy of foreclosure is still applicable in Samoa. It would therefore be inappropriate to refer to the remedy of foreclosure in proceedings relating to a mortgage of land as if that remedy still exists in Samoa because it has been abolished by s.89 of the Property Law Act 1952 (NZ).


Previous Court proceedings


Under r.196 of the Supreme Court (Civil Procedure Rules) 1980, a motion for an extraordinary remedy shall be accompanied by a supporting affidavit and statement of claim. An injunction being an extraordinary remedy in terms of Part XIX of the Rules, the plaintiff’s motion for an interim injunction was accompanied by a supporting affidavit and statement of claim. On a certain date after the interim injunction was granted on 3 March 1994, the plaintiff’s statement of claim proceeded to a hearing. The principal issue raised in the statement of claim was that the plaintiff was up to date and even ahead of his scheduled loan repayments and therefore NPF should be restrained by injunction from exercising its power of sale under the mortgage. As an interim injunction had already been granted to that effect, the proposed sale of the mortgaged property did not proceed and the plaintiff’s interest in the mortgaged property was preserved. At the conclusion of the substantive hearing that was held, the Court reserved its decision. For some unfortunate reason the case file went missing and has not been recovered. The position taken up by the plaintiff was that he was not liable to make any further loan repayments until the Court had delivered its decision on his claim. Presumably, the plaintiff was not aware of what had happened to the case file. NPF took a different view of the matter and was of the opinion that the plaintiff was still liable under the loan agreement and the deed of mortgage to continue with his loan repayments.


It must be pointed out that there was nothing in the statement of claim about wether or not the plaintiff was liable to continue making his loan repayments. There was also nothing in the statement of claim about whether or not interest ceased to accrue on the loan. These matters were not raised in the statement of claim and therefore were not in issue at the substantive hearing of the plaintiff’s action. The position taken by the plaintiff in this connexion was without a valid foundation. As I also understand counsel for the plaintiff, he did not strongly pursue this point.


Unjust enrichment


Unjust enrichment was pleaded by the plaintiff as a second cause of action. As I understand counsel for the plaintiff, what is meant by this cause of action is that interest ceased to accrue on the loan when the interim injunction was issued in 1994 so that the amount owing by the plaintiff and his wife on the loan was the amount of unpaid principal and accrued interest at the time the injunction was issued. It follows that if NPF is to take the whole of the proceeds of the sale of the mortgaged property which was sold on 21 February 2003, it would be unjustly enriched by the difference between the amount that was outstanding on the loan when the interim injunction was issued on 3 March 1994 and the price by which the mortgaged property was sold on 21 February 2003. The difference between the two amounts in monetary terms is in the vicinity of $900,000.


The basic flaw in this cause of action is that it is founded on the mistaken assumption that the interim injunction which was issued to stop the mortgagee sale also stopped the interest from continuing to accrue on the loan. I have already explained why this was not so. That means the interest still continued to accrue on the loan pursuant to the terms of the loan agreement from the date of the injunction to the date of the sale of the land. So it cannot be said that NPF would he unjustly enriched if it retains the total proceeds of the sale of the land because such retention would be pursuant to the terms of the loan agreement both parties had executed in 1991. This cause of action cannot succeed. In any event the land was sold in 2003 for $1,400,000 when the balance of the loan including accrued interest was more than $1,900,000 and NPF has agreed during negotiations for settlement to accept the total sale price in full settlement and forgive the rest of the loan balance which is still quite a substantial amount.


The general manager of NPF in his evidence also said that when the interim injunction was issued and the plaintiff stopped making any more loan repayments until the land was sold, the plaintiff had been earning income from the rent of the bedroom units which had been constructed with the loan from NPF. That income was not used to repay the loan. Furthermore, NPF’s mortgage security pursuant to the terms of the loan agreement and the deed of mortgage comprised not only of the land but the houses and buildings on the land. However, when the land was sold there were no houses or buildings on the land and he does not know what happened to them. He also said that if NPF’s entitlement to the proceeds of the sale of the land is limited to the amount that was outstanding on the loan at the time the injunction was granted in 1994 then the plaintiff would get about $900,000 plus the rent for the bedroom units constructed with the loan from NPF plus the value of the houses and buildings which had been on the land and formed part of the mortgage security. If that happens, according to the NPF general manager, NPF will lose out by a very substantial amount. So NPF stands to suffer quite a substantial loss if the contention by the plaintiff is accepted. With respect, I think the plaintiff should have been thankful that he got his injunction in 1994 to prevent his property from being sold. But he should, as he ought to have done, have used the opportunity given to him to continue to make his loan repayments while his interest in his land was being preserved. By not doing so, the outstanding balance of the loan continued to increase to where it is now due to accrued interest.


The cause of action in unjust enrichment cannot succeed.


Interpretation of contractual provision


As already mentioned, the plaintiff’s wife by letter dated 15 April 1992 requested NPF that (a) the interim interest which started to run from the date of the first loan disbursement to the date of the last loan disbursement be capitalised and (b) a grace period of six months from June be granted before the first repayment was made in order to allow the borrowers time to complete their project and for the project to start yielding returns. In the same letter, the plaintiff’s wife states that it was envisaged that the five rental units will not be fully completed and ready for occupation until the end of July 1992. This part of the letter clearly suggests that the borrowers project would not be completed until the end of July 1992. As also mentioned earlier, NPF did not receive this letter until 9 July 1992. At the meeting of the NPF board of directors on 14 July 1992, the NPF board decided to approve the request for capitalisation of interest. It also decided to approve the request for a further six months grace period. It also decided to capitalise the June interest, the September interest and December interest. In the context of the loan agreement, this clearly related to the interest due for the quarterly periods 1 April 1992 to 30 June 1992, 1 July 1992 to 30 September 1992, and 1 October 1992 to 31 December 1992. The terms of the approval by the NPF board of directors then provides: “Repayment - $19,712.27 per quarter from 31st March 1993.” This provision became the subject of conflicting interpretations between the plaintiff and the general manager of NPF during the trial. Before going further, I am of the opinion that the letter of request from the plaintiff’s wife and the approval of that request by the board of directors of NPF constituted a new agreement subsequent in time to the earlier loan agreement executed by the parties. I will return later to these two agreements when I come to the question of variation.


According to the interpretation by the plaintiff, the words “Repayment - $19,712.27 per quarter from 31st March 1993” in the approval by the NPF board of directors meant that the first quarterly repayment of $19,712.27 was due three months from 31 March 1993, that is, on 30 June 1993. The interpretation by the general manager of NPF is that the same words meant the first quarterly repayment was due on 31 March 1993 since the interpretation by the plaintiff would have the result of extending the grace period for twelve months to 30 June 1993 whereas NPF had only approved a grace period of six months as requested by the plaintiff’s wife. After careful consideration, I am of the respectful opinion that the interpretation by the general manager of NPF should be accepted.


The provision in dispute should not be interpreted in isolation but in the context of the new agreement comprised of the letter of request from the plaintiff’s wife and the terms of the approval by NPF. A grace period of six months from June was requested and that was approved. So that was what the parties agreed to. The month of June mentioned in the request must be June 1992 so that the six months grace period that was requested must have been from June 1992 to the end of December 1992. The first quarterly payment due after 31 December 1992 was due on 31 March 1993. To accept the interpretation given by the plaintiff would extend the grace period beyond six months to 30 June 1993 which would be contrary to the terms of the agreement between the parties. In other words, in the context of the agreement, the parties could not have intended the words in dispute to have the effect of extending the grace period beyond the six months that they have expressly and specifically agreed upon.


The point in issue here might have been material to the proceedings in 1994. But they are not really material to the present proceedings. I have referred to this point in deference to the plaintiff. The significance of this issue from the plaintiff’s position was to prevent the injunction being discharged as the plaintiff contended in 1994 that he was up to date and even ahead with his repayments. But the injunction was not discharged and so this issue is no longer of any significance.


I have decided against the principal grounds relied upon by and for the plaintiff. However, there was one important issue that only arose in the course of the trial and is covered in the submissions for the plaintiff that I need to deal with. I will deal with that issue now.


Variation or rescission of the whole loan agreement


An important issue that only came up in the course of the trial is whether the approval by NPF of the application by the plaintiff’s wife (one of the borrowers) for capitalisation of interest and a grace period of six months effected a variation of the existing loan agreement or a rescission of that whole agreement and the substitution in its place of a new loan agreement. In his final written submissions, counsel for the plaintiff contends that the approval by NPF of the application by the plaintiff’s wife constituted a fundamental change to the structure of the loan agreement that it was superseded by a new agreement. The original loan agreement was therefore no longer applicable or relevant. As the deed of mortgage was executed in relation only to the existing loan agreement and there is no provision in the new substituted agreement about a mortgage security, the deed of mortgage is therefore not applicable or relevant to the new substituted agreement. It follows, according to counsel for the plaintiff, that when the property which had been the subject of the mortgage was sold, the loan was no longer secured and therefore the proceeds of sale are entirely those of the plaintiff. In deference to counsel for the plaintiff and the importance of the issue he has raised particularly with regard to loans which become the subject of alterations after they have been disbursed by lending institutions, I have decided to deal with this issue. The question is whether, in a particular case, the parties to an earlier agreement intend by a subsequent agreement to vary some of the terms of their earlier agreement so that it continues to subsist subject to the alteration or whether the parties by their subsequent agreement intend to terminate their earlier agreement and replace it with their subsequent agreement. The intention of the parties which is the determining factor may be expressed or it may be inferred. Where the parties intention is to be inferred, the effect or extent of the alteration provides useful evidence of the parties intention.


The issue under discussion here has been the subject of consideration by the Australian Courts at the federal and state levels on a number of occasions. It is therefore necessary to refer to the Australian authorities. For the purposes of this case, it will be sufficient to refer to the leading decisions of the High Court of Australia. In the case of Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93 Kitto J said at p.125:


“[A]long line of authorities has committed the law to an acceptance of the doctrine that an agreement which deals with subsisting rights and obligations of the same parties under an earlier contract may vary that contract without terminating it, and that whether it effects a variation on the one hand or a discharge on the other is a question depending upon the intention of the parties as appearing from the new agreement. As Lord Hanworth observed in Royal Exchange Assurance v Hope [1928] Ch179 at p.191 a variation may be in strict logic a new contract, but the discharge of an old contract is a matter intention.”


Then in a passage often cited in subsequent Australian cases, Taylor J said at p.144:


“It is firmly established by a long line of cases commencing at least as early as Goss v Lord Nugent [1833] EngR 618; [1833] 5 B. & Ad. 58 and ending with cases such as Morris v Bacon & Co [1918] AC 1; and British and Beningtons Ltd v North Western Cachar Tea Co. Ltd [1923] AC 48.....that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.”


In the recent case of Commissioner of Taxation v Sarah Lee Household and Body Care (Australia Pty Ltd [2000] HCA 35; (2000) 201 CLR 520 the majority Gleeson CJ, Gaudron, McHugh and Hayne JJ said at pp.533-534:


“When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists.......


In Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93 Taylor said at .144:


“It is firmly established by a long line of cases....that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this maybe done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.”


That passage was cited with approval by Wilson and Dawson JJ in Dan v Barclays Australia Ltd (1983) 57 ALJR442 at 448-449; 46 ALR 437 at 448. It accords with principle and with authority for example, Morris v Bacon & Co [1918] AC1; British and Beningtons Ltd v North Western Cachar Tea Co. Ltd [1923] AC 48; United Dominions Corporation (Jamaica) Ltd v Shoucair (1969) 1 AC 340.”


The loan agreement which was executed by the parties in 1991 contains nine clauses. It is not necessary to refer to all of them. Clause 3 sets out the purpose of the loan; clause 4 sets out the amount of the loan as $475,000; clause 5 sets out the term of the loan as 15 years; clause 6 sets out the interest rate as 14% per annum reducible to 12% per annum on prompt payment; clause 7 which is the security provision provides for a first mortgage over the borrowers land at Motootua together with existing and proposed buildings thereon; clause 8 is the repayments provision; clause 9 which contains eleven sub-clauses provides in 9(2) for the review of interest rate and payment of interim interest on loan balances from the date of the first loan disbursement to the date of the final loan disbursement; clause 9(3) provides for restrictions on the sale, letting or lease of the mortgaged property; clause 9(4) provides for the payment of statutory charges and other charges on the mortgaged property; and clause 9(5) provides for the payment of insurance by the borrowers with NPF’s interest noted on the insurance policy.


The letter dated 19 April 1992 and signed by the plaintiff’s wife requested NPF (a) to capitalise the interim interests payable on the loan balances from the date of the first loan disbursement to the date of the final loan disbursement none of which had been paid and (b) to grant a grace period of six months as the borrowers were having difficulties in completing their project and meeting their loan repayments at the same time as they became due. As earlier mentioned, this letter dated 19 April 1992 was not received by NPF until 9 July 1992. At the meeting of NPF’s board of directors on 14 July 1992, the request by the plaintiff and his wife was approved and the terms of the approval were conveyed to the plaintiff by letter dated 20 July 1992. It may be concluded that the letter of request dated 19 April 1992 and signed by the plaintiff’s wife together with the letter dated 20 July 1992 conveying to the plaintiff the terms of NPF’s approval constituted a new agreement. The question then is whether by this subsequent agreement the parties intended to vary some of the terms of their earlier loan agreement so that it continued to subsist but subject to the alteration or whether the parties by their subsequent agreement intended to terminate their earlier agreement by rescinding the whole of it and replacing it with their subsequent agreement.


It is clear from the circumstances and terms of the request by the plaintiff and his wife that their request was prompted by difficulties in completing their project and meeting their loan repayments at the same time. The request was not prompted by any desire to bring the existing loan agreement to an end and to replace it with a new loan agreement. The terms of the request do not manifest such an intention. The terms of the approval by NPF were clearly directed at the terms of the request and do not manifest any intention on the part of NPF of bringing the existing loan agreement to an end and replacing it with a new loan agreement constituted by the letter of request from the plaintiff’s wife on one hand and the approval of that request by NPF on the other. It would be quite surprising if NPF had such an intention the effect of which was to terminate the existing loan agreement thus releasing the plaintiff and his wife from all their obligations under that agreement except for their repayment obligation. It would have meant that the plaintiff and his wife were released from their mortgage obligations so that their loan of $475,000 would become unsecured. It would also have meant that the plaintiff and his wife were released, inter alia, from their obligations to pay insurance and charges on the mortgaged property. The terms of the approval by NPF do not manifest such an intention. The approval related only to the terms of the request from the plaintiff’s wife and nothing more.


I conclude therefore that the subsequent agreement between the parties related only to the capitalisation of interest and the granting of a six months grace period to the plaintiff and his wife. On that basis the subsequent agreement effected only a variation of the existing loan agreement which continued to subsist in modified form. The existing loan agreement was not terminated or wholly rescinded and replaced by the subsequent agreement. The provision of the loan agreement relating to the mortgaged security had therefore continued to be operative as a security for the loan.


Conclusions


For all the foregoing reasons, I have reached the following conclusions:


(a) the plaintiff’s claim is dismissed;


(b) NPF is entitled to the full amount of $1,400,000 being the sale price of the mortgaged land which has been deposited in an interest bearing bank account plus accrued interest; and


(c) counsel to file submissions as to costs in 10 days if they cannot reach agreement as to costs.


CHIEF JUSTICE

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