Home | Databases | WorldLII | Search | Feedback Court of Appeal of Solomon Islands

Solgreen Enterprises Ltd v National Bank of Solomon Islands Ltd [2008] SBCA 11; CA-CAC 2 of 2008 (11 August 2008)

IN THE SOLOMON ISLANDS COURT OF APPEAL

Reasons for Judgment

[1] By specially endorsed writ issued 3 September 2007, the respondent bank sought judgment for $1,263,805.14 against all the appellants and other associated relief. The appellants entered an appearance on 29 October 2007, and then the respondent, pursuant to the Rules of Court, applied by summons of 6 November 2007 for summary judgment. That application was supported by an affidavit from the general manager of the bank to which was exhibited all documents supporting the bank's case.
[2] The facts relied on by the bank were as follows. As at 1 August 2005 the first appellant was indebted to the bank in the sum of $441,151.27 under a facility granted earlier. That facility of 19 April 2005 required the appellants to provide security but none in fact had been provided by 1 August 2005. By letter of offer dated 1 August 2005, which was accepted by the appellants, the bank offered the first appellant a new facility. That facility provided for an overdraft of up to $3.7 million (including the then indebtedness under the first facility) for working capital purposes and to meet a taxation liability claimed by the Commissioner of Inland Revenue. The indebtedness was repayable on demand. The second appellant was to provide a consent caveat over land it owned and other appellants were to give unlimited personal guarantees. Further securities were a first registered charge over the second appellant's land, a registered equitable charge over the first appellant's assets and undertaking and a registered equitable charge over the second appellant's assets and undertaking. Further conditions were that amendments to the facility could be made if a "material adverse change" occurred and the bank could terminate the facility if defined breaches by the appellants occurred. Interest was effectively fixed at 19.5 per cent per annum calculated on daily rests. The first appellant was to pay all fees and charges, including legal fees, incurred in relation to the facility. All security documents were executed by about 10 August 2005.
[3] The special endorsement then alleged that the appellants breached the terms of the facility in a number of respects. Particulars of breaches included the following. The first appellant ceased conducting the business of a fishing company. Distraint was levied by the Commissioner of Inland Revenue against the first appellant's fishing fleet. The aforesaid fleet suffered a total constructive loss during a cyclone in January 2006. The Commissioner of Inland Revenue claimed an interest in the land of the second appellant the subject of securities in favour of the bank and commenced proceedings seeking to enforce that right. That prevented the bank from registering its charge. Following intervention by the bank in their proceedings the claim of the Commission was withdrawn so the bank's charge was registered. The legal fees and charges incurred by the bank were debited to the account of the first appellant.
[4] It was then alleged that despite written demands the indebtedness was not repaid and the amount of $1,263,805.14 was due and payable as at 2 July 2007.
[5] The summons came before a judge of the High Court on 13 December 2007 at which time the appellants were represented by counsel. After some discussion between counsel for the various parties, counsel for the appellants informed the judge that his clients had no defence. In consequence summary judgment was granted as requested by the bank.
[6] On 17 January 2008 the appellants filed an application seeking an extension of time in which to appeal from the judgment of 13 December 2007. On 4 January 2008 they filed a further application seeking, inter alia, an order staying execution of the judgment of 13 December. Finally, on 6 February 2008 an application was filed seeking leave to extend time to file a notice of appeal.
[7] Those applications by the appellants were supported by an affidavit of Kazuo Nagasawa, one of the appellants filed 21 January 2008. A draft defence and counterclaim was exhibited to that affidavit, but the deponent did not verify the allegations of fact contained therein. The contents of that defence will be discussed later.
[8] The affidavit also exhibited a letter from the bank of 19 April 2005 which evidenced the first facility. Then the affidavit went on to assert that failure of conditions precedent to the second faculty was due not to any conduct on the part of the appellants but to the actions of the Registrar of Titles and the Commissioner of Inland Revenue.
[9] In that affidavit the deponent also referred to and relied on an earlier affidavit of his which had been filed on 11 December 2007. That affidavit was in response to the judgment summons but was not read by counsel for the defendant before the judge on 13 December 2007. In it he noted that he believed "the Defendants have a good defence in law against the Plaintiff's claim." He admitted the due execution of the security documents associated with the second facility. There was then reference to what was later referred to in the proceedings as the Tripartite Agreement between the appellants, the bank and the Commissioner of Inland Revenue of 17 August 2005. The affidavit then alleged the bank beached the Tripartite Agreement by failing to deliver a bank cheque in the sum of $1,320,733.00 to the Inland Revenue. It then claimed that the Commissioner's distraint of the appellants' fishing boats and equipment continued because of that breach by the bank and that in consequence they were prevented from conducting their fishing business. The affidavit also challenged the right of the bank to include in the calculation of the indebtedness the stamp duty totalling $111,350 paid on the security documents and other fees and charges.
[10] There was then a further affidavit from Kazuo Nagasawa filed 30 January 2008. The first exhibit was said to be the written instructions given to the then solicitor for the appellants on or about 26 October 2007. Of some relevance for present purposes is the assertion therein that it was the failure of the bank to pay the indebtedness of the first appellant to the Commissioner pursuant to the Tripartite Agreement that led to the Commission levelling distress on 23 August 2005. Those instructions also assert that the bank was aware that in about mid-2005 fishing was poor but was improving about the time the second facility was negotiated. The point is also made that the first appellant asked the Commissioner to move the fishing boats to safety because of the pending cyclone season but the Commissioner did not do so leading to the loss of the fleet. The other matters raised in those instructions, including the desire to counterclaim against the bank, do not appear to provide a basis for a defence against the bank's claim. The first appellant's claim against the Commissioner for the loss of the fishing fleet is irrelevant for present purposes.
[11] On 6 February 2008 Goldsbrough J dismissed the summons for leave to appeal filed 17 January 2005 and the motion of 24 January 2005 seeking a stay.
[12] On 8 February 2008 Kazuo Nagaswa and Mary Baura filed affidavits in support of the application for leave to extend time to file a notice of appeal. They afforded some explanation for the delay but said nothing about the defence of the appellants. On 17 June 2008 Goldsbrough J determined that application. In his reasons the learned judge concluded that it was "clear from the draft defence now filed and the affidavit material . . . that there is no viable defence to this claim." He also observed the appellants had no "prospect of success." He went on to say:

"Whilst the Bank acknowledges that no further actual advances were made it relies on the fact that it still finances the existing debt (now secured by the new arrangement), rolled over from the previous arrangement, such not having been repaid, and that further advances could not be made due to the failure of the appellants to meet the conditions precedent to further advances.

That the Bank did not make additional advances as it took the view that conditions precedent have not been complied with does not indicate that the remaining already advanced funds were not properly secured under the new arrangement, for the appellants already had the benefit, and continue to have the benefit of those funds until repayment."

[13] It is from that decision that this appeal is brought. In the notice it is alleged that the draft defence shows "an arguable defence on the merits." The critical matters disclosed by that draft defence are as follows:

(1) As at 1 August 2005 the appellants admit they owned the bank $441,151.27 under the earlier facility of 19 April 2005;
(2) It is alleged that it was agreed in August 2005 that unless the first appellant was able to access the second facility the parties would be bound by the first facility;
(3) The bank's first charge over the second appellant's land was to secure only $400,000 unless the first appellant had access to the second facility;
(4) The first appellant accepted the terms of the letter of offer of 1 August 2005 based on the matters alleged in (2) and (3);
(5) It was also alleged that it was agreed that if the bank exercised its right to withdraw the second facility the parties would be bound by the terms of the first facility;
(6) It was alleged the appellants signed the security documents on the basis of the matters alleged in (2), (3) and (5);
(7) It was then alleged that on the bank's refusal to allow the first appellant to access the second facility the parties were bound by the terms of the first facility;
(8) It was then alleged the unilateral decision of the bank to treat the Commissioner's actions as resulting in material breaches was "unfair, unjustified and unreasonable,"
(9) The appellants deny liability for "costs legal or otherwise in connection with the second facility" in particular costs incurred after 25 August 2005;
(10) Alleged that the appellants' liability is limited to monies owing under the first facility plus interest at 13.75 per cent per annum;
(11) The appellants' counterclaim against the bank on the basis that registering the first charge against the second appellant's land for an amount up to $3,705,000 was done in "bad faith".

[14] In a draft notice of appeal it was alleged that Goldsbrough J erred in concluding the appellants were bound by the terms of the second facility when that was conditional on the further loan being made. It also challenges the conclusions that the draft defence did not disclose a viable defence and that there was no prospect of successfully defending the claim.
[15] In written outline of argument counsel for the appellants emphasised, as was not disputed, that no further advance was made pursuant to the second facility. The amount claimed by the bank was the indebtedness from the first facility, costs and charges incurred by the bank pursuant to the second facility, and interest at the rate provided for in the second facility. Counsel conceded that at the hearing on 13 December 2007 then counsel for the appellants stated there was no defence. Essentially it was contended the appellants could not be held in breach of the second facility because no loan was made thereunder. The contention was that the agreement came to an end when the bank decided unilaterally not to make any further advance. That latter proposition was the only real point advanced by counsel for the appellants in oral submissions before this court. As counsel put it: "As the further advance was not made the second facility was terminated."
[16] Counsel for the bank submitted that Goldsbrough J was correct and that the leave should not be granted. The submission was made, correctly, that the onus on the appellants of showing a defence was no less than the onus on them when the application for summary judgment was heard on 13 December 2007.
[17] It was submitted that the bank was entitled to charge the appellants the legal costs in having the Commissioner's caveat removed so that its charge could be registered. Other legal costs, such as those associated with the Tripartite Agreement, were also chargeable to the first appellant's account. That was also the case with stamp duty; it had to be paid before the security documents were enforceable.
[18] Counsel for the bank submitted, again correctly, that there was good consideration for continuing the loan the subject of the first facility.
[19] In the circumstances one can say no more than that the submission that the second facility was "terminated" when no further advance was made is totally without foundation in law. That could only happen if there was prior agreement to that effect. The appellants appear to rely in that regard on what is summarised above as items (2), (3), (4) and (6) of the draft defence, though counsel did not specifically refer to such maters in oral argument. Essentially those allegations amount to saying there was a collateral oral agreement as to the circumstances in which the documents executed to give effect to the second facility would become legally binding.
[20] The instructions to the solicitor of 26 October 2007 do not appear to allege such an oral agreement. There is no mention of such an agreement in any of the affidavits of Kazuo Nagaswa. Clearly one would have expected that to be dealt with in the affidavit filed 11 December 2007 if in fact there had been such an oral agreement. Further in the affidavit of 21 January 2008 exhibiting the draft defence nothing was deposed to which would indicate the making of such an oral agreement. After this length of time no particulars have been sworn to as to when and where and between whom such an oral agreement was made.
[21] It is true the Tripartite Agreement resolving the issue of the Commissioner's caveat was executed on 17 August 2005 and no advance was made by the bank to enable the first appellant to satisfy its indebtedness to the Commissioner by 23 August when the Commissioner distrained on the fishing fleet. But most of the security documents were not registered until 25 August and the bank was clearly entitled to withhold making the advance until its securities were registered.
[22] In these circumstances it cannot be said that the bank was in breach of the facility on the Tripartite Agreement before the Commissioner levied distraint on the fishing fleet. The appellants' contention that the bank's conduct led to the Commissioner's distraint is without foundation. Nor can it be said that the breaches of the facility agreement which by the bank resulted from the conduct of the Commissioner and were not the responsibility of the appellants. As the bank was not obliged to advance further funds until the securities were registered the arguments of the appellants are without substance.
[23] For the reasons given above the appellants have not demonstrated they have a defence based on the proposition there was a collateral oral agreement that the second facility should be terminated if no advance thereunder was made. The fact that no further advance was made does not in the circumstances avail the appellants.
[24] In terms of the facility of August 2005 the bank was entitled to debit the first appellant's account with stamp duty, fees and charges and charge interest at the rate therein prescribed.
[25] Finally, there is no basis for the assertion in the draft defence that the bank's conduct was "unfair, unjustified and unreasonable." Nor is there any basis for asserting the registration of the charge over the second appellant's land was done in bad faith. No attempt to support these contentions was made before this court.
[26] Claim the appellants may have against the Commissioner with respect to the loss of the fishing fleet does not afford them a defence to the claim of the bank.
[27] The application for leave to extend time for appealing was rightly determined by Goldsbrough J and the appeal to this court should be dismissed with costs.

Sir Albert R. Palmer
Chief Justice
Vice-President of the Court of Appeal of SI.

Williams JA
Member of the Court of Appeal of SI.

Adams JA
Member of the Court of Appeal of SI.