The Bank of Nova Scotia v Paramount Appliances Ltd

• Jurisdiction: St Lucia
• Judge: St Rose-Albertini, J.
• Judgment Date: 16 April 2019
• Judgment citation (vLex): [2019] ECSC J0416-2
• Date: 16 April 2019
• Court: High Court (Saint Lucia)
• Docket Number: CLAIM NO. SLUHCV2015/0456

[2019] ECSC J0416-2

EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE

COMMERCIAL DIVISION

Before:

The Hon. Mde. Justice Cadie St Rose-Albertini High Court Judge

CLAIM NO. SLUHCV2015/0456

Between:

The Bank of Nova Scotia

Claimant

and

1. Paramount Appliances Limited

2. Malcolm Charles

3. Selma Anita Khodra-Charles

Defendants

Appearances:

Mr. Anwar Brice for the Claimant

Mr. Collin Foster for the Defendants

Undue Influence — Relationship of trust and confidence — Independent legal advice — Applicable interest rate

1 St Rose-Albertini, J. [Ag]: The claimant in these proceedings has brought an action against the defendants for recovery of sums loaned to the first defendant, of which the second and third defendants are guarantors. The defendants have defaulted on repayment of the loans, and despite demand for payment, the debts remain outstanding. The debts are also secured by hypothecary obligations with a first fixed charge over immovable property belonging to the second defendant and a floating charge over the movable assets of the first defendant.

2 The defendants deny owing the debts on the grounds that the loan agreements are unenforceable due to illegality and undue influence exerted upon them by the claimant, within the context of a relationship of trust and confidence reposed in the claimant. Additionally, the second and third defendants say that they were not permitted to fully review the loan documents before signing, and were not advised by the claimant of the need to obtain independent legal advice before committing themselves as guarantors. They assert that they were wrongly induced by the claimant to enter the loan transactions.

The Issues

3 The issues for the court's determination are:-

1. Whether the sums claimed are due and payable by the defendants?

2. Whether undue influence was exerted on the defendants by the claimant?

3. Whether the claimant was required to advise the defendants of the need to obtain independent legal advice?

4. Whether the interest rate from the date of the alleged breach of payment should be the statutory rate of 6% or 12% as stated in the commitment letters and hypothecary obligations which secured the loans?

Background

4 The Bank of Nova Scotia (“the bank”) is the claimant. It operates as a financial institution which is duly authorized under the laws of Saint Lucia to engage in banking business on the island. Its main branch is located at No. 6 William Peter Boulevard, Castries.

5 The first defendant, Paramount Appliances Limited (“the company”) is duly incorporated as Company No. 57 of 1989 under the Companies Act 1 and has its registered office at Westhall Street, Castries. 2 It is said that the company has ceased operations and closed all outlets on the island. The second and third defendants, Malcolm Charles (“Mr Charles”) and Selma Anita Khodra-Charles (“Mrs Charles”) respectively are husband and wife and the directors and controlling officers of the company.

6 At trial, Mr Andre Cherebin gave evidence on behalf of the bank. He joined the bank in Saint Lucia in 2000 having previously worked at branches in Barbados, Canada and the British Virgin Islands from 1965. He was the Senior Accounts Manager at the time that the loans were granted, and is now retired. Ms Mandy Alcindore who is currently the Business Banking Manager also testified. She joined the bank in 1993 and has held several positions leading up to the current one.

7 Mrs Charles was the sole witness who gave evidence on behalf of the defendants. She described herself as a businesswoman by profession and the managing director and secretary of the company. Mr Charles gave no evidence and did not attend trial.

The Claimant's Case

8 The bank's claim is for the balance due on two credit facilities advanced to the company and is premised on default in repayment of the loans. The balance due on each facility is particularized in the statement of claim as follows:-

“The sum of $167,192.14 together with interest on the principal balance of $134,954.23 at the rate of 12% per annum or $44.37 per day from 11th March 2014 until the date of payment with respect to Small Business Loan No. 163301022; and

The sum of $169,150.56 together with interest on the principal balance of $143,730.06 at the rate of 12% per annum or $47.25 per day from 11 ^th March 2014 until the date of payment, with respect to Small Business Loan No. 163301231.”

9 The loans are secured by (i) a Hypothecary Obligation Mortgage Debenture and Floating Charge, executed before a notary royal on 29 ^th September, 1995 and registered at the Land Registry on 16 ^th October, 1995 as Instrument No. 3916/95 3, (ii) an Additional Hypothecary Obligation Mortgage Debenture and Floating Charge executed before the same notary on 30 ^th May, 1996 registered at the Land Registry on 7 ^th June, 1996 as Instrument No. 2266/96 4 and (iii) an unlimited guarantee dated 27 ^th November, 2008 signed by Mr. and Mrs. Charles, for the borrowings of the company. 5 Further guarantees were also included in two Small Business Commitment Letters dated 30 ^th November, 2010 and 12 ^th March, 2012 respectively. 6

10 I refer to the hypothecary obligations collectively as ‘the hypothecs’. They were executed by the company as borrower and Mr Charles as surety. Together the hypothecs covered debts and liabilities up to the aggregate sum of $320,000.00.

11 It is not disputed that by letter dated 22 ^nd September, 2010 Mrs. Charles wrote to the bank to introduce the company's accounting consultant Mr. Andrew Chitolie, for the purpose of presenting a proposal to the bank, for credit facilities on behalf of the company. Her letter contained an attachment dated 21 ^st September, 2010 addressed to the bank's manager and signed by Mr. Chitolie. It outlined a proposal for a loan of approximately $250,000.00 at 9.5% interest, comprising $100,000.00 to be used for introducing a new product line of

solar powered appliances and expansion of the company's inventory. Reference was made to the conversion of an existing overdraft facility to a long term loan and consolidation of an existing loan. The proposal stated that security for the undertaking would be in accordance with that presently held by the bank. Included also were (i) the company's financial statements for 2010, (ii) cash flow projections for the new product line and (iii) an invoice from the supplier. The proposal ended with an appeal for a positive review and approval. The bank was also advised that a container of solar products was due to arrive in a few days, which was almost sold out from bookings and requests. 7

12 Acting on this proposal, the bank proceeded to approve a loan of $240,000.00 comprising a credit facility of $40,000.00 as working capital for the company and $200,000.00 was advanced as a term loan. The terms and conditions were set out in a commitment letter dated 30 ^th November, 2010. 8 The security for the facilities were (i) the hypothecs which were described as “Demand continuing fixed sum Mortgage Debenture stamped to cover advances up to a limit of $320,000.00 with a charge over the company's fixed and floating assets and a first fixed charge over 1.93 acres of land EV $1,597,349.00” and (ii) personal guarantees from Mr and Mrs Charles to cover the amounts borrowed. The interest rate was stipulated as 12% per annum and the monthly repayment was $3,333.33 plus interest, making a total of $5,305.93. The first payment was due on 15 ^th February, 2011 and thereafter on the 15 ^th day of every month, over 59 months. The letter was signed by the company and Mr. and Mrs. Charles as guarantors, on 30 ^th November, 2010.

13 One year later, by letter dated 22 ^nd September, 2011 Mrs. Charles wrote to the bank requesting an increased limit for the company's overdraft facility. She signed the letter as managing director of the company and stated as follows:-

“ In the run up to the reopening of the annual Cruise Ship Season (from October onwards) we wish to obtain an increase on our overdraft facility with you, in order to obtain the necessary inventory for the upcoming season.

As our facility currently stands at EC$40K, we would wish to obtain your approval for an increase to say EC$150K, situation permitting. Please advise soonest.”

14 Acting on this request, the bank approved an increase of the overdraft limit to $120,000.00. A new commitment letter was issued on the same terms and conditions contained in the earlier letter, save that the balance of the term loan at that time was stated as $156,671.00, repayable at the same monthly installment, over 47 months. The interest rate remained at 12%. This letter was dated 12 ^th March, 2012 and signed by the company and the Charles' on 12 ^th March, 2013.

15 Soon thereafter the defendants defaulted on repayment, demand was made, and the sums remained unpaid. Mr Cherebin testified that the sum of $167,192.14 claimed in respect of loan account no.163301022 relates to the term loan, and the sum of $169,150.56 claimed in respect of loan account no. 163301231 relates to the overdraft facility. He stated that the loans came within the scope of the hypothecs, as borrowing which was permitted from time to time up to the limit of $320,000.00. The credit facilities, in both instances, were below that limit. He explained that it was that bank's practice to continue lending against existing hypothecs up to the aggregate sum covered, and the mortgages referred to in the commitment letters are the hypothes executed in 1995 and 1996. He stated that it was not the bank's practice to capture the full particulars of a hypothec in a commitment letter and in all his years of banking this has never been done. In some instances the security would not be in place as yet and where it was already in place, the bank would briefly state the requirement.

16 Mr Cherebin denied that the bank had induced the defendants...