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MBF Bank v Lutui [2025] TOSC 11; CV 42 of 2024 (3 March 2025)

IN THE SUPREME COURT OF TONGA

CIVIL JURISDICTION

NUKU'ALOFA REGISTRY

CV 42 of 2024

BETWEEN:

MBF BANK

- Plaintiff

AND:

[1] JULIANA JANIS FAATAUALOFA LUTUI

[2] JAMES BRUCE LUTUI

- Defendants

RULING
Application to Strike Out Plaintiff’s Claim by the Second Defendant

BEFORE: HON. LORD CHIEF JUSTICE BISHOP KC

To: Mrs F Vaihu for the Plaintiff
Mrs D Stephenson KC for the second Defendant
Hearing: 28 February 2025
Ruling: 3 March 2025

1. BACKGROUND

1. The Second defendant applies to strike out a statement of claim on the ground that it is statute barred. This application was made to the Court on 23 September 2025.
2. The Plaintiffs filed submissions in response which I have perused, and I heard submissions from both parties on 28 February 2025.
   2. AGREEED FACTS
3. The agreed facts are as follows;
   1. On the 18 September 2018, the plaintiff agreed to make a personal term loan to the first defendant. The amount was $36,200. The term was 2 ½ years and the interest rate 10.8% per annum. This was to be serviced by 30 weekly instalments of $1,533.
   2. The loan was secured by the borrowers’ personal assets, the assignment of his salary and a personal guarantee of the second defendant in the loan sum of $36,200.
   100. The first Defendant signed the loan agreement on the 10 September 2018. On the same day the second defendant signed a letter of guarantee of the loan, the material paragraph being paragraph 14;

Though as between myself and the Customer I am surety only for the Customer, yet as between myself and you I shall be deemed to be principal debtor for all the moneys, the payment of which is hereby guaranteed and accordingly shall not be discharged nor shall my liabilities be affected by any fact or circumstances or any act, thing, omission or meant whatsoever, whereby my liabilities would not have been discharged if I have been the principal debtor.”

4. The First Defendant began to make repayments of the loan but went into default in June 2019 when only half of the required repayment was made.
5. It follows therefore that as of the 1 July 2019 the loan was in default.

100. SUBMISSIONS FROM PARTIES

4. The Second Defendant submits that in light of the fact the first Defendant’s liability to pay the balance of the loan agreement was crystallised at the date of her default, the second defendant’s obligation to do so also crystallised by way of the guarantee simultaneously.

5. In other words, the second defendant was liable to make good the default as of 1 July 2019. These proceedings commenced on 22 August 2024, and it is submitted that accordingly and by virtue of the provisions of section 16 of the Supreme Court Act proceedings were time based, in other words the bank was about 6 weeks too late.
6. The plaintiffs submit that the second defendant’s liability did not accrue until the bank issued a demand letter on the 17 August 2023. They make the point that how can a party be held to make good a sum owing to a third-party of which at that time they had no knowledge.
7. In response, the Second Defendant relies inter alia on clause 14 of the letter of guarantee which it set out earlier in this judgement.
8. The effect of this clause means that between the second Defendant and the bank, the second Defendant is a principal debtor of the loan in that he further rendered himself, jointly and separately liable for the debt of the first defendant and accordingly the terms of the loan applied to him as if he had signed it under the terms of the loan.
9. The liability of the first defendant crystallised on the 1 July 2019 when the loan went into default and the second defendant submit that the 5-year limitation period prescribed by section 16(1) commenced on that date and therefore ended on the 1 July 2024.
10. These proceedings commenced on 22 August 2024 which is outside the limitation period according to the second Defendant.
    4. DISCUSSION
11. So, the question for decision is when did the liability first accrue? Was it on the 19 July 2019 as submitted by the second defendant or when demand was made for a payment on the 17 August 2023 as submitted by the plaintiff.
12. I have been referred to a number of authorities both emanating from England and Wales and also the Court of Appeal here in Tonga.
13. In MS fashion Limited v Bank of Credit Commerce International SA [1993] 3 All ER 769 Hoffman J as he then was held at page778:

“In fact, however, the directors are also liable to BCCI under the various instruments I have described, and which deem them to be principal debtors. This liability is in my judgement not contingent at all. It is either a joint and several liability with the companies or at any rate a several liability for the same debt. In MS Fashions and Impexbond the letters of charge made no mention of the need for any demand. In the case of the mortgage deed in MS Fashions and the charge on the deposit in High Street Fashions the obligation was to pay on demand in writing. However in the case of primary provision for demand is not regarding as creating a contingency...Thus in the case of a promissory note payable ‘on demand’, the debt arises immediately the noted is given and is not contingent on demand

In my judgement the ‘principal debtor’ clauses have the effect of creating principal liability for the purposes of the rule that the debt is not contingent upon demand”

14. In Tonga Development Bank Ltd v ‘Aukamea [ 1996] Tonga LR 59 it was held that the obligation arose when notice of default was made and accordingly in that case the matter was not time barred.
15. That rationale was followed in subsequent cases, including Tonga Development Bank v Tapavalu [ 2002] Tonga LR 261. The Court of Appeal of Tonga considered this issue in Manu v the Tonga Development Bank [2023] Tonga LR 261 and held at p16 “Accepting the Chief Justice’s finding that the letter of 11^th August, 1995 was an effect demand for the amount due, it was not a demand which created the liability to pay the amount the amount due. That liability already existed and had existed ever since the respondent had varied the terms of the loan on 5^th February, 1993 as a result of which payment of the amount due under the loan was to be made in January 1994, if the variation of 5 February were effective. If it were not the liability had crystallised in January 1993 and the whole amount had been since then.”
16. In another words, irrespective of the date which the Second Defendant became aware of his obligation that obligation arose at the inception of the loan so far as it affected him just as much as it has affected the initial borrower accordingly, the matter is time barred.
17. My attention has been drawn to section 16 all the Supreme Court Act, the material parts of which state, “it is not lawful to sue any person for debt for damages after the expiration of 5 years from the date on which such a liability has incurred.”
18. This makes plain that the starting point for the running of time is the date on which a liability is incurred not the date on which the party who incurred the liability is aware of it.
19. Here the liability occurred on the 1 July 2019 and accordingly the service of writ was out of time.
20. For the sake of completeness I merely add that it may be thought that this is harsh on the lender but whereas here the Bank is a commercial organisation intimately concerned with advancing monies and making loans, it is reasonably to be expected that they would have had in place mechanism for ensuring that proceedings to recover loans in default were prosecuted within the statutory limitation period. Of course, that is a matter for them and their commercial judgement.
    5. FINAL RESULT
21. For the reasons I have already given I hold that this claim is time barred and fails.
22. I adjourn the question of costs to be determined later unless parties come to an agreement.
    

HON. MALCOLM BISHOP KC

LORD CHIEF JUSTICE

NUKU’ALOFA

3 March 2025