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National Bank of Fiji v Kia-Ora Ventures Pty Ltd [1993] FJHC 119; Hbc0206j.91s (14 December 1993)

IN THE HIGH COURT OF FIJI
(AT SUVA)
CIVIL JURISDICTION

ACTION NO. 206 OF 1991

BETWEEN:

NATIONAL BANK OF FIJI
a banking body duly constituted under the
National Bank of Fiji Act
Plaintiff

AND

KIA-ORA VENTURES (PTY) LTD.
a limited liability company having its registered
office at 41 Gladstone Road, Suva, Fiji
1st Defendant

AND

1. RAYMOND DAVID PATON
of Suva, Fiji, Engineer
2. LOG NADAN
(f/n Veera Sami) of Korovuto, Ba, Fiji, Farmer
2nd Defendants

S. Parshotam: For the Plaintiff
V. Maharaj: For the Defendants

Dates of Hearing: 17th, 18th March, 3rd, 22nd June, 7th December 1993
Date of Judgment: 14th December 1993

JUDGMENT

INTRODUCTION

The Plaintiff has instituted these proceedings against the Defendants claiming the sum of $27,711.35 and interest thereon at the rate of 16 percent per annum from 1st of March 1991 until payment.

The Plaintiff's claim is based on a Bill of Sale dated 16th January 1990 made between the 1st Defendant as Grantor and the Plaintiff as Grantee whereby the 1st Defendant for a consideration of $9,500.00 advanced to it by the Plaintiff assigned its Toyota Corolla Motor-vehicle registered number AB584 upon the terms and conditions stated in the Bill of Sale as security for the payment of money owing at any time by the 1st Defendant to the Plaintiff. The 1st Defendant admits that it executed the Bill of Sale and the 2nd Defendants admit that they guaranteed payments of the amount due under the Bill of all sums lawfully drawn by the 2nd Defendants who were the only authorised agents of the 1st Defendant.

Paragraph (d) of the Instrument of Guarantee is in the following terms:

"All moneys whatsoever which the Bank shall lend pay or advance or become in any way whatsoever liable to lend pay or advance to for or on the credit or for the accommodation or otherwise on the account of the Debtor or to for or on account of any other person upon the order or request or under the authority of the Debtor."

The Defendants admit that the Plaintiff made certain advances and loans to the 1st Defendant and granted general banking accommodation to the 1st Defendant from time to time at agreed interest rates and bank charges which were to be debited to their accounts at agreed times. The Defendants aver however that the Plaintiff made certain unauthorised payments, purportedly authorised by the Defendants, to one of its officers and unlawfully and fraudulently debited the 1st Defendant's account with the Plaintiff.

The Defendants admit that as at 28th February 1991, they were and still are indebted to the Plaintiff in the sum of $27,711.35 together with interest accruing at the rate of 16 percent per annum but that they have a counter-claim against the Plaintiff for the sum of $87,500.00 which they seek to set-off against the Plaintiff's claim.

In their counter-claim the Defendants allege that it was agreed that all advances to the 1st Defendant would be drawn out by the 2nd Defendants as the only authorised agents of the 1st Defendant.

They allege that whilst the Plaintiff made certain advances to the 1st Defendant, it also made certain advances to one of its own employees out of the credit facilities provided for the use of the 1st Defendant without the authority of the Defendants. They further allege that the Plaintiff fraudulently or unlawfully debited the Defendants' account in respect of all moneys used by the Plaintiff's employee.

The Defendants also claim that because of the unlawful actions of the Plaintiff in allowing one of its employees to use the credit facilities of the Defendants the 1st Defendant company did not have sufficient funds to meet its orders overseas for the supply of sawn timber to the value of $87,500.00. Finally the Defendants allege that the Plaintiff at all material times knew or ought to have known the purpose for which the Defendants had obtained the credit facilities and that it was within the reasonable contemplation of the Plaintiff that if the agreed full credit facilities were not provided by the Plaintiff the 1st Defendant would suffer financial loss through its inability to meet its export commitments.

As to this latter allegation the Plaintiff says that if any payments were wrongfully debited to the 1st Defendant's account with the Plaintiff, which is denied, then the 1st Defendant ought to have raised the matter at or about the time the payments were debited and that consequently the Defendants are now estopped from alleging that the 1st Defendant did not have sufficient funds to meet its orders.

In a letter dated 25th January 1993 from the Plaintiff's solicitors to the Defendants' solicitors the Plaintiff alleges that at all relevant times, meaning the 12th of February and 7th of March 1990, a person named Joe Tavaiqia was an officer of the 1st Defendant as well and that he had authority (actual or ostensible) to draw sums from the 1st Defendant's account and that the Defendants were fully aware of this.

This is a reference to a gentleman who was the Plaintiff's former Manager at Nadi and the relevance of the two dates I have mentioned is this:

The Defendants allege that the Plaintiff through its Manager Tavaiqia, having agreed to provide overdraft facilities to the 1st Defendant for a specific purpose, namely to enable the 1st Defendant to purchase and export sawn timber to the 1st Defendant's customers overseas, compromised its position through its Manager, who, without any authority from the Defendants used the sum of $10,500.00 for an alleged payment for the sale of a car by Joe Tavaiqia to Raymond David Paton, the co-2nd Defendant.

In their letter of the 25th of January 1993 to the Defendants' solicitors the Plaintiff's solicitors say this:

"It appears from a perusal of our correspondence and the pleadings that there are two transactions in particular which your clients are claiming offends against the conduct of their accounts with our client. These are:

12 Feb 90: $1,000.00

Payment for repairs to Joe

Tavaiqia's vehicle.

7 Mar 90: $9,503.00

Payment to S & S Auto Sales

($8,500.00). Joe Tavaiqia

($1,000.00) and bank cheque

charges ($3.00)."

THE EVIDENCE

The evidence given before the Court consisted of:

(i) a bundle of documents tendered by both the Plaintiff and the Defendants by consent;

(ii) the testimony of Rajnish Lal on behalf of the Plaintiff;

(iii) the testimony of Raymond Paton (the First-named Second Defendant) on behalf of the Defendants.

Mr. Lal's initial testimony related to the TRANSACTION HISTORY REPORT (THR). He explained in some detail how the THR was to be read and the various terms that were used in the THR.

Mr. Lal testified that there were two accounts that were held by the Plaintiff in the name of the 1st Defendant; these were:

(i) A Loan Account; and

(ii) A Current Account.

He explained that the Loan Account contained items of a non-recurring nature where the Plaintiff granted an initial advance to its customer against which periodic repayments were made. He further explained that the account usually contained other loans that may be given by the Plaintiff to its customer. He further explained that at times when a balance in the same customer's Current Account became what he terms "hard core" (i.e. that part of the Current Account balance, which showed no movement), such balance was transferred to the Loan Account by a corresponding credit entry in the Current Account. He further explained that this was usually accompanied by renewed arrangements for repayment of the Loan.

In so far as the Current Account was concerned, Mr. Lal explained that this contained transactions of a recurring nature where deposits were lodged into the account and cheques drawn. He explained that it was from this account that payments to the Loan Account were made and that if there were insufficient funds in this account (or where any credit facilities provided by the Plaintiff were exhausted), no payments could be made against the Loan Account.

In providing an analysis of the THR, Mr. Lal testified that there were numerous cheques that were drawn by the 1st Defendant and which were dishonoured by the Plaintiff.

These appear in the THR with the narration "OCC".

The first of these appear in the THR on 2/4/90 in the sum of $1,123.00, then on 18/4/90, again in the same sum and thereafter on various dates and in diverse amounts.

Mr. Lal also testified that the THR also contains two (2) contra entries between the Loan Account and the Current Account. These are:

25/4/90: in the sum of $5,632.57; and

28/5/90: in the sum of $16,955.58.

Mr. Lal testified that the entry of $5,632.57 appeared as a debit entry in the Loan Account and as a credit entry in the Current Account and that the entry of $16,955.58 appeared as a credit entry in the Loan Account and a credit entry in the Current Account.

He explained that the entry of $5,632.57 was effected by the Plaintiff to remove the "hard core" element of the Current Account by transferring this sum into the Loan Account. He further explained that this did not in any way affect the 1st Defendant's indebtedness to the Plaintiff but allowed the Current Account to be operated on a "true" overdraft basis.

He also said that despite requests contained in three letters from the Plaintiff to the First-named Defendant dated 21st January, 6th February and 15th February 1991 that the First-named Defendant should specify the alleged unauthorised withdrawals from its account, the Bank received no response to any of these letters. Accordingly on the 5th of March 1991 the Bank issued a Demand Notice on the Defendant requiring payment of an amount of $27,254.95 and interest at sixteen percent per annum from that date.

In cross-examination Mr. Lal admitted that proper procedures had not been followed in opening the Loan Account the Plaintiff alleges the Defendants had with the Plaintiff. He stated that the practice before any Loan Account beyond $1,000.00 is opened is for the head office of the bank to first consider an application for such an account. He also said that applications for all loans on the sole security of a Bill of Sale must be referred to head office for approval irrespective of the amount. Here the loan was in excess of $1,000.00 and the Nadi Office of the bank did not seek approval from head office in this case.

He also said that it was only when these proceedings began that the Bank was informed by the First-named Defendant that it disputed the amount of $9,503.00.

For the Defendants the First-named Second Defendant only gave evidence.

Mr. Paton testified that he was desirous of setting up a timber exporting business and was introduced to the manager of the Defendant's Nadi Branch, a Joe Tavaiqia, some time in October-December 1989 by Log Nadan, the Second-named Second Defendant.

He testified that subsequent to discussions, Mr. Tavaiqia agreed to assist the 1st Defendant by making available certain banking loans and facilities.

He further testified that at that time he had a motor vehicle (a Land Rover) and another car which was getting very old. He further testified that Log Nadan suggested to him that the said Mr. Tavaiqia was selling cars and financing them through the bank and that he should approach him. He then went to Nadi to see Mr. Tavaiqia and discussed the possibility of purchasing a vehicle through finance from the Plaintiff.

He further testified that after discussions, Mr. Tavaiqia took him to the back of the Plaintiff bank's premises and showed him several cars; some of these cars had demonstration plates on them.

He further testified that he picked on a car and the price quoted to him was $8,500.00 - he felt that this was more than reasonable. In so far as payment was concerned, he testified that he had agreed with Mr. Tavaiqia that he would sell his other two vehicles and in the meanwhile pay off this loan at the rate of $100.00 per month. He then took the vehicle away.

He also stated that on the shipment of the Defendants' timber Mr. Paton would pay for the car immediately.

He further testified that he then had the vehicle registered in his personal name; the number AB584 was given to it.

He said that as far as he was concerned, a personal account in his name was to be opened at the bank with respect to the moneys being advanced by the Plaintiff for the purchase by him of this car. He testified that till to date no such account has been opened, that he has made no payments towards the loan that was supposed to have been given to him for the purchase of the car and that he still had possession and use of the car.

In cross-examination, he testified that he had been involved in a number of business ventures over the past years but that all of these had been wound up, either through liquidation or failures.

He admitted that Mr. Tavaiqia was a banker and not a financial adviser. He further admitted that the sale of motor vehicles was something a bank manager did not normally get involved in and found this peculiar.

He admitted that he had signed no documents for what he had described as a 'personal loan' and neither was any account opened with the Plaintiff under his personal name.

The following documents were then put to him:

P2: Bill of Sale dated 16 January 1990.

P3: Guarantee dated 16 January 1990.

and he admitted both these documents.

He admitted that the Bill of Sale was a charge created by the 1st Defendant (Kia-Ora Ventures Pty Ltd) to secure the sum of $9,500.00; he admitted that it was signed by the 1st Defendant under its seal and was not a charge given personally by him.

He further admitted that the guarantee was given by him in his personal capacity in support of unlimited debt of the 1st Defendant to the Plaintiff and that he understood that this meant that he would be personally liable for the debt of the 1st Defendant to the Plaintiff.

He had no response to the suggestion put to him that the Bill of Sale being executed by the 1st Defendant under its Common Seal and not by him personally meant that the car over which the Bill of Sale was given was owned by the 1st Defendant and not by him personally.

He also admitted that any banking advances made available to the Defendants were payable on demand and that interest on such advances was 16.0% per annum.

The series of written communications that was exchanged between the parties was also put to Mr. Paton in cross-examination all of which he admitted. These will be referred to further when I discuss some of the evidence.

The evidence before the Court is unsatisfactory in a number of respects. First for the Plaintiff I find it strange that only at the beginning of the trial and after a lapse of over two-and-a-half years since the opening of the Defendants' account did the Plaintiff admit for the first time that the $1,000.00 had been wrongly debited to the 1st Defendant's account.

Secondly Rajnish Lal in his evidence stated that the $1,000.00 debited in the alleged loan account of the 1st Defendant on 12/2/90 was actually the commission taken by Ratu Joe Tavaiqia for the sale of the car by Joe Tavaiqia to Mr. Paton (this of course is the car referred to in the Bill of Sale).

Thirdly in cross-examination Rajnish Lal was then shown two letters from the Plaintiff's solicitors dated 18th of June 1991 and the letter of the 25th of January 1993. In the former letter written to the Defendants' solicitors it is stated that $1,000.00 was debited to the Defendants' account and transferred to Joe Tavaiqia's account for repairs to the car whereas in the letter of 25th January 1993 it is stated that the $1,000.00 was payment for repairs to Joe Tavaiqia's vehicle.

Rajnish Lal was obviously surprised when confronted with these two contradictions of his evidence and could not explain the reason for the contradictions.

Fourthly Rajnish Lal also admitted in cross-examination that these amounts were not withdrawn by writing cheques but by the Plaintiff raising internal vouchers which he said was not unusual. However, when asked if he could produce the vouchers he stated that they had been given to the Plaintiff's solicitors who should still have them.

For the Defendants I consider most peculiar Mr. Paton's evidence that Mr. Tavaiqia had agreed to accept only $100.00 per month as repayments towards the alleged loan of $8,500.00 to Mr. Paton.

Such payments would not even cover the agreed interest of 16 percent per annum which is approximately $127.00.

Secondly, Mr. Paton's admission that even until the date of trial he had not seen any bank account in his personal name, he had made no payments towards what was supposed to be a personal loan account and that he still had the car in his possession.

I find it strange that he should testify that he kept questioning the bank "as to the unlawful debts" that appeared in the 1st Defendant's accounts but never raised the question of a personal bank account.

Thirdly I also find it very odd that despite the bank's requests for details of alleged unauthorised withdrawals the Defendants never offered any such details.

Undoubtedly Mr. Tavaiqia must have left much to be desired as an employee of the Plaintiff but, that said, it must not be allowed to divert the Court's attention from the evidence.

In my judgment the correspondence and communications that were exchanged between the Plaintiff and the Defendants indicate that the Plaintiff had made its position very clear in so far as the extent of any banking facilities it was making available to the 1st Defendant were concerned.

In exhibit 'P6' a letter from the First-named Defendant to the Plaintiff the First-named Defendant seeks confirmation that its bank overdraft limit was $20,000.00 the amount agreed by Joe Tavaiqia in Nadi on the 5th of April 1990.

The Plaintiff confirmed this in a letter dated 9th of May 1990 to Mr. Paton and listed again the securities held by it and the terms of repayments.

In a following letter dated 11th of June 1990 after the Defendants had requested an extension of overdraft to $30,000.00 the bank replied:

"In the meanwhile, we wish to advise that the bank has declined your request for an increased overdraft facility of $30,000.00 as requested, however, the bank is at present appraising the loan proposal of Native Timbers Limited."

From this I deduce that the Defendants could not have been in any doubt as to the state of their account and the amount of their overdraft; if they had been I cannot understand why they sought an increase to $30,000.00 of their overdraft.

Also in this letter it was clearly indicated that the amount owed by the 1st Defendant included a car loan provided to the 1st Defendant and in my judgment paragraph (d) of the Instrument of Guarantee quoted at the beginning of this judgment is sufficiently wide to include "any car loan".

The evidence leaves me in no doubt that a loan was given by the Plaintiff to the 1st Defendant for the purchase of a car for the amount of $9,500.00 and that the 1st Defendant was allowed to make payments from its Current Account having deposited an initial sum of $1,000.00 in the account.

It is true that the Current Account subsequently went into overdraft but this is always at the discretion of a Bank and is frequently done by way of accommodation by a Bank for a customer. The fact that certain cheques above the agreed limit were honoured by the Plaintiff does not of itself prove there was a prior arrangement.

THE BILL OF SALE

The Bill of Sale given by the 1st Defendant states that it is for an initial advance of $9,500.00 but secures "all further sums and interest ON DEMAND"

Paragraph 9 reads:

"The mortgagor i.e. the 1st Defendant hereby declares that it hath now good right and absolute authority to grant and assign the said chattels unto the mortgagee as aforesaid free from all encumbrances."

In my judgment it is clear from this who the owner of the vehicle was and who had received the loan, in both cases these being the 1st Defendant and NOT the First-named Second Defendant.

THE LAW

I find the law applicable in this case to be as follows:

A banker is obliged to let his customer overdraw only if he has agreed to do so or such agreement can be inferred from a course of business: Brooks & Co v. Blackburn Benefit Society (1883) 9 App Cas 857.

An overdraft is payable on demand. However, the right to repayment on demand should be exercised so as not unduly to prejudice the borrower's interests, for example, outstanding cheques drawn in the belief that the facility was available. There are clearly conflicting interests but, providing the banker is in possession of a document by which the customer agreed to pay on demand, the banker would normally be entitled to take any action necessary to safeguard his interests, even if it prejudiced those of his borrower: Paget's Law of Banking (9th ed) at p.115.

Williams & Glyn's Bank Ltd v. Barnes (1981) Com LR 205 (also Paget's) at p.401

"Where money is lent on overdraft by a bank and there is no agreed date for repayment and no special terms which require implication of further terms as to the date of repayment then it is clear to me that the overdraft is repayable on demand."

Discretion on the part of the Banker:

A customer may borrow from a banker by way of a loan or by way of overdraft. A loan is a matter of special arrangement. In the absence of agreement, express or implied from a course of business, a banker is not bound to allow his customer to overdraw: Cunliffe Brooks & Co v. Blackburn and District Benefit Building Society (1883) 9 App Cas 857.

Drawing a cheque where there are not funds sufficient to meet it amounts to a request for an overdraft: Cuthbert v. Robarts, Lubbock & Co. [1909] UKLawRpCh 65; (1909) 2 Ch 226, and it is up to the banker whether to honour this request or not.

Combination of accounts:

Unless precluded by agreement, express or implied from the course of business, the banker is entitled to combine accounts kept by the customer in his own right: National Westminster Bank Ltd v. Halesowen Presswork and Assemblies Ltd (1972) AC 785.

This case confirmed the following principles of law relating to combining accounts by a banker:

(i) the banker's right to combine accounts arises from a long accepted usage of business, and is therefore a common law right;

(ii) it is not, in any legal sense, a species of lien;

(iii) the banker may agree, whether expressly or by implication to waive this right, or in certain cases, as where one of the accounts is clearly a trust account, the right may never come into existence; and

(iv) the banker is entitled to exercise this right without giving notice to the customer, although the contract may provide that such a notice must be given.

[Taken from Law of Banking by Lord Chorley, 6th ed, p.220.]

It may be that the Plaintiff was prepared to assist the Defendants in promoting their business of exporting sawn timber but the question which the parties have agreed must be decided first by the Court is whether the sum of $9,500.00 was wrongly debited by the Plaintiff to the Defendants' account. The documentary evidence satisfies me that it was not.

Counsel for the Defendants accepts the law as I have just stated it but argues that the authorities I have mentioned are not relevant here since the Plaintiff has admitted that it did not follow proper procedures in opening the loan account.

In my judgment, even accepting that proper procedures were not followed, I consider that this does not affect the understanding of the Defendants of their position vis-à-vis the Plaintiff which I find they must have had.

I reject the submissions of the Defendants on the facts as I have found them that there was a sufficient relationship of proximity or neighbourhood, that, in the reasonable contemplation of the Plaintiff, any breach of assurance or undertaking on its part might be likely to cause damage to the Defendants. In my view therefore this case is different from Meates v. ATT General (1983) N.Z.L.R. p.308 (New Zealand Court of Appeal) on which the Defendants rely in their reply. For these reasons there will be judgment for the Plaintiff against the Defendants in the sum claimed by the Plaintiff together with costs to be taxed if not agreed.

JOHN E. BYRNE
J U D G E

HBC0206J.91S