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Goi v First Investment Finance Ltd [2017] PGNC 353; N7059 (22 November 2017)

N7059


PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 1108 OF 2016


BETWEEN:
WAKE GOI
Plaintiff


AND
FIRST INVESTMENT FINANCE LIMITED
Defendant


Waigani: David, J
2017: 7, 10 & 22 November


CONTRACTS – commercial loan chattel mortgage – failure by plaintiff to pay monthly instalments in accordance with contract - mortgagee exercising power to repossess and deal with secured property – alleged breach of contract by defendant to terminate contract, repossess and sell secured property – failure to give notice of default - whether notice required in writing – right of redemption – clogs to right of redemption – contract breached.
Cases cited:
Papua New Guinea Cases


Credit Corporation (PNG) Limited v David Nelson (2011) N4368
Curtain Brothers (QLD) Pty Ltd & Kinhill Kramer Pty Ltd v The
Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705
Independent State of Papua New Guinea [1993] PNGLR 285
Golobadana No.35 Ltd v Bank of South Pacific Ltd (2002) N2309
Peter Kondowa v Reuben Elizah (2002) N2406
Philip Takori v Simon Yagari (2008) SC905
Philip Taudevin v Charles Theseira [1995] PNGLR 56
Rage Augerea v Bank of South Pacific Ltd (2007) SC 869
Steven Naki v AGC (Pacific) Ltd (2005) N2782


Overseas case:


Bank of New Zealand v Simpson [1900] UKLawRpAC 6; (1900) AC 182
Horsfall v Braye [1908] HCA 85; (1908) 7 CLR 629
Levison v Patent Steam Carpet Cleaning [1977] 3 All ER 498


Counsel:


Peter Hai Pato, for the Plaintiff
Mogara Geroro with Nathaniel Asimba, for the Defendant


JUDGMENT

22nd November, 2017

  1. DAVID, J: INTRODUCTION: This case is about an alleged breach of contract, a document known as the commercial loan chattel mortgage executed by the parties on 29 November 2012 (the contract). The plaintiff entered into the contract with the defendant, a licensed financial institution for the defendant to provide finance for the purchase of a brand new Toyota Coaster 26 seater bus coloured white lavender, engine number 14B-1867479, chassis number JTGFY418502014224 and bearing registration number P1181J (the bus). The plaintiff asserts that a few months later, the defendant breached the contract when it repossessed the bus without being issued with any default notice, sold it and lost business. He now sues for damages. This judgment addresses the question of whether the defendant is liable to pay any damages.

BRIEF BACKGROUND

  1. On 8 September 2016, the plaintiff filed a writ of summons. The statement of claim endorsed on the writ claimed that the plaintiff approached the defendant and requested it to provide finance to assist him with the purchase of the bus from Ela Motors, Goroka which was valued at K147,422.00 to conduct a PMV business and the defendant agreed to facilitate the plaintiff’s request by offering to provide funds totalling K73,040.01 which was conveyed to him through the defendant’s letter to him dated 16 November 2012. The plaintiff accepted the offer and on 29 November 2012 he and the defendant entered into the contract under which the defendant would provide to the plaintiff funds totalling K73,040.01 repayable by 18 monthly instalments of K5, 089.70 commencing on 29 December 2012 until the loan was fully repaid on 29 May 2014. As his equity contribution, the plaintiff paid K100,000.00 towards the purchase of the bus.
  2. The plaintiff received the bus from Ela Motors, Goroka on 27 November 2012, but did not operate it for the next six days because it was delivered without a spare tyre and a jack. The plaintiff commenced operations on 3 December 2012, but on the third day, whilst on a trip to Lae from Goroka at Kainantu encountered a mechanical problem and returned the bus to Ela Motors Service Department that afternoon to rectify the problem. As the bus would not operate at the time, the plaintiff requested the Sales & Service Manager, Ela Motors, Goroka to write to the defendant to vary the loan repayment schedule which he did on 11 December 2012. He also verbally requested Ms Imelda Samba and Rex Yanubagi, both employees of the defendant, to reschedule the loan repayment. Given no response was received from the defendant, the plaintiff took the defendant’s silence to mean that it accepted his request to reschedule the loan repayment. The bus was released to the plaintiff on 17 January 2013 and resumed operations the next day.
  3. The plaintiff did not pay the December 2012 instalment, but from January 2013 to June 2013, he paid a total of K30,726.83 and reduced the loan to K60,888.37. He had fallen into arrears by K4,911.67.
  4. Without giving any notice of repossession, the defendant got Goroka police to seize the bus which they did at a road block on 9 July 2013 effectively ceasing the plaintiff’s PMV operations. The plaintiff wrote to the defendant the next day followed by two more letters pleading with it to release the bus so that he could continue operations and repay the loan arrears, but all to no avail. Instead, the defendant, by a letter dated 12 July 2013 to the plaintiff, demanded him to pay K61,313.00 being the outstanding loan inclusive of interest within 14 days of that letter.
  5. The plaintiff claims that the defendant unlawfully terminated the contract when it breached Clause 11 of the contract by repossessing the bus and selling it:
    1. without giving him prior notice forewarning him of the loan arrears and demanding him to show cause why it should not repossess and dispose of the bus; and
    2. without according him the right of redemption.
  6. The plaintiff claims:
    1. K100,000.00 for loss of investment;
    2. K25,000.00 per month for loss of income for 8 years from July 2013 to 2021;
      1. General damages; and
    3. Interest at 8% pursuant to the Judicial Proceedings (Interest on Debts & Damages) Act.
  7. In the defendant’s amended defence filed on 25 October 2016, it admits giving monies to the plaintiff as a commercial loan the amount financed under the contract, but denies any liability for alleged breach of the contract and states that the plaintiff is not entitled to any monetary compensation and/or remedies whatsoever pleaded in his statement of claim.

EVIDENCE

  1. Two affidavits were tendered without objection, one for the plaintiff and one for the defendant. The plaintiff’s affidavit sworn and filed on 13 July 2017 was marked as Exhibit A whilst the affidavit of Michael O’Rourke sworn on 3 August 2017 and filed on 4 August 2017 was marked as Exhibit 1. The plaintiff also gave brief sworn oral evidence and was not cross-examined.

PLAINTIFF’S EVIDENCE

  1. He currently is the Member of Parliament for the Jimi Open Electorate in the Jiwaka Province.
  2. He approached the defendant to assist him purchase a new Toyota Coaster 26 seater bus coloured white lavender, engine number 14B-1867479, chassis number JTGFY418502014224 bearing registration number P1181J from Ela Motors, Goroka which was valued at K147,422.00 to operate a PMV business. True copies of the Certificate of Registration issued on 27 November 2012 and PMV Licence No.0376 dated 19 November 2012 are annexed to the plaintiff’s affidavit as annexures “WG2” and “WG3” respectively. By a letter of offer dated 16 November 2012, the defendant offered to assist him with K73,040.01. A true copy of the letter is annexed to the plaintiff’s affidavit as annexure “WG1”. The break-up of the advance was; the defendant’s contribution of K47,422.00 towards the purchase price of the bus; K24,613.01 for 18 months insurance cover through AON; K1,000.00 establishment fee; and K5.00 registration fee. He accepted the offer and on 29 November 2012 executed a commercial loan chattel mortgage with the defendant for the advance of K73,040.01 by the defendant. A true copy of the contract is annexed to the plaintiff’s affidavit as annexure “WG4”. He paid to the defendant K100,000.00 which was the balance of the purchase price of the bus by cheque No.000448 dated 10 October 2012 drawn in favour of the defendant from his personal account operated at the Bank South Pacific Limited, Goroka Branch. True copies of the cheque and receipt issued by the defendant are annexed to the plaintiff’s affidavit as annexures “WG5” and “WG6”.
  3. The bus was released to him on 27 November 2012. He did not operate the bus for the next 6 days because it was delivered without a spare tyre and a jack.
  4. The bus commenced operations on 3 December 2012. On the third day, 6 December 2012, whilst on a trip to Lae from Goroka at Kainantu, it encountered some mechanical problems and returned to Goroka. The bus was delivered to the Ela Motors Service Department that afternoon and booked for service.
  5. Ela Motors identified the problem as a manufacturing defect and had to order parts from Japan which they said would take about a month. He requested the Sales & Service Manager at Ela Motors Goroka to write to the defendant and request for a variation of the loan repayment schedule. Following that request, a sales representative namely, Daniel Leme wrote to the defendant on 11 December 2012 and the Service Manager also wrote another letter to the defendant on 15 June 2013. True copies of those letters are annexed to the plaintiff’s affidavit as annexures “WG7” and “WG8” respectively.
  6. He also verbally informed a Ms. Emilda Samba and a Rex Yanubagi, both employees of the defendant, to reschedule the loan repayment to January 2013. As no response was received from the defendant, he took its silence to mean that the defendant had accepted his request to reschedule the loan repayment.
  7. The bus was returned to the plaintiff after service on 17 January 2013. It resumed operations the next day on 18 January 2013 by making its first trip to Lae.
  8. He did not pay the December 2012 instalment as the bus was not operating. However, from January 2013 to July 2013, he made loan repayments totalling K30,369.40 which reduced the total loan inclusive of interest to K54,433.79 as is demonstrated by his statement of account. A true copy of the statement of account is annexed to the plaintiff’s affidavit as annexure “WG9”.
  9. Between December 2012 and July 2013, whilst attending to a criminal case instituted against him for allegedly committing the offence of misappropriation, he would visit the defendant’s office and kept them informed about his situation.
  10. However, without giving him any notice of repossession, the defendant engaged the Goroka police to seize the bus which they did at a road block on 9 July 2013 without providing him any reason and impounded it effectively causing his PMV business operations to cease.
  11. He wrote to the defendant the next day on 10 July 2013 and pleaded with it to release the bus to him so that he could continue his PMV business and repay the loan arrears which at the time was only a month in arrears. He wrote two more letters to the defendant on 11 July 2013 and 19 July 2013, pleading, inter alia, for the return of the bus and to reschedule repayment dates, but all to no avail. True copies of those letters are annexed to the plaintiff’s affidavit as annexure “WG10”.
  12. The defendant made it difficult for him to settle the loan arrears and have the bus returned to him by not giving him any chance to do that. Instead, the defendant, by its letter to him dated 12 July 2013, demanded that he settle the whole of the balance of the loan with interest totalling K61,313.00 within 14 days of that letter contrary to the terms of the contract: A true copy of that letter is annexed to the plaintiff’s affidavit as annexure “WG11”.
  13. The defendant breached the contract by repossessing the bus and selling it without; first, giving prior notice forewarning him about the loan arrears and demanding him to show cause why it should not repossess and dispose of the bus effectively terminating the contract; and second, accord him his right of redemption.
  14. It was an implied term of the contract that he, as the legal owner of the bus with an investment of K100,000.00, had the right to know the details of the sale of his bus especially the sale price.
  15. The contract provided for the imposition of default interest if repayment of any instalment were not done on time. The letter from the defendant to him dated 21 December 2012 confirmed that fact: A true copy of that letter is annexed to the plaintiff’s affidavit as annexure “WG12”.
  16. The bus would have operated for the next 8 years from July 2013 and he was deprived of the income it would have generated during that period had it not been repossessed and sold without disclosing the sale price. He therefore claims; K100,000:00 for loss of investment; loss of income estimated at K25,000.00 per month for 8 years commencing July 2013; damages for anxiety, mental depression and humiliation because the bus was repossessed purportedly following publication of his arrest and charge for misappropriating K13.1 million; and damages for daily suffering as the bus was the only source of income to sustain himself and his family.

DEFENDANT’S EVIDENCE

  1. Michael O’Rourke is a Financier. He occupies the position of the Assistant General Manager within the defendant’s corporate structure.
  2. The defendant is a licensed financial institution. It provides a variety of financial services to its clients for a fee which includes, inter alia, charging interest on all loans it gives to its clients.
  3. On 29 November 2012, the plaintiff and the defendant entered into the contract to finance the purchase of the bus. A true copy of the contract is annexed to his affidavit as annexure “A”.
  4. The amount financed under the contract was K73,040.01. Interest on the principal amount charged was 30% per annum. Default interest was 40% per annum. Under the contract, the amount financed was to be paid by 18 monthly instalments of K5,089.70.00 commencing on 29 December 2012 and to be fully repaid by 29 May 2014.
  5. The contract permits the defendant to do, inter alia, the following in the event the plaintiff was to default in the payment of its monthly instalments:
    1. to take possession or control of the bus (Clause 12(a));
    2. to manage, quietly enjoy and otherwise to deal with the bus(Clause 12(b)); and
    1. to vary, replace, rescind or terminate any agreement relating to the bus to which the defendant or the plaintiff is a party (Clause 12(c)).
  6. The defendant’s records show that the contract came into effect on 29 December 2012.
  7. According to the defendant’s records, the plaintiff defaulted by failing to pay the first instalment until after two months on 29 January 2013. He only paid sums of K5,089.70 on two occasions, K357.43 on one occasion, K5,090.00 on one occasion, K2,500.00 on five occasions and K2,600.00 on one occasion and nothing thereafter. That accords with the plaintiff’s Statement of Account kept by the defendant. A true copy of the Statement of Account is annexed to his affidavit as annexure “B”.
  8. By defaulting to pay K5,089.70 per month and failing to make repayments on time, the plaintiff was in breach of the contract and the defendant was entitled to exercise various measures provided for under the contract to secure full repayment of the amount financed.
  9. Despite evidence of the bus operating from 17 January 2013 onwards, for unknown reasons, the plaintiff paid less money required monthly to service his loan repayments.
  10. The plaintiff was fully aware that he was in default by not meeting his repayment obligations under the contract. Being a literate, he was fully aware of the consequences of defaulting under the contract. These consequences include, but not limited to, charging an interest on overdue accounts and or repossessing the bus.
  11. By a letter dated 21 December 2012, the defendant reminded the plaintiff about his obligations under the contract. A true copy of the letter is annexed to his affidavit as annexure “C”.
  12. The defendant’s records show that on 10 April 2013, the plaintiff met with the defendant’s Collections Officer, Mr Rex Yanubagi at the defendant’s Office at the Ela Beach Tower, Port Moresby. During this meeting, the plaintiff informed Mr Yanubagi that, he would pay K10,000.00 by 18 April 2013 to bring his account up to date. However, he did not make any payment by or before 18 April 2013.
  13. He clearly recalled issuing directions to Mr Yanubagi occasionally to make telephone calls to the plaintiff and to follow up with his outstanding loan repayments which he did and kept him consistently updated.
  14. Despite the defendant’s efforts to get the plaintiff to bring his arrears up to date, the plaintiff’s account kept falling into arrears due to him making little or no payment each month.
  15. On 4 July 2013, he issued an Authority to Repossess authorising the defendant’s agent, Mr Sanni A. Popna to repossess the bus which he did on or about 11 July 2013. At the time the bus was repossessed, the plaintiff’s account was in arrears by K10,001.07. A true copy of the Authority to Repossess is annexed to his affidavit as annexure “D”.
  16. Following the repossession of the bus, on 12 July 2013, he wrote to the plaintiff giving him an opportunity to fully repay his loan and have the bus returned to him. By that letter, the defendant required the plaintiff to pay out his loan account including repossession and storage fees which amounted to K61,313.0 within 14 days, i.e., by 26 July 2013 and in default termination of the contract and the bus would be disposed of by public tender. A true copy of the letter is annexed to his affidavit as annexure “E”. The plaintiff acknowledged receiving his letter in his letter of 19 July 2013 and indicated that he would inform him before 4:06 pm on 26 July 2013 whether or not to pay the outstanding loan. A true copy of the plaintiff’s letter is annexed to his affidavit as annexure “F”.
  17. He did not hear from the plaintiff before or on 26 July 2013 so he wrote to him again on 1 August 2013 and followed up with another letter on 9 August 2013 the plaintiff a further opportunity to fully repay his loan and have the bus returned to him. True copies of those letters are annexed to his affidavit as annexures “G” and “H”.
  18. By 2 August 2013, the balance of the loan repayment owing to the defendant and due for payment by the plaintiff to the defendant stood at K60,564.22 as shown by the Statement.
  19. He waited and received no replies to his letters from the plaintiff nor did the plaintiff take any further steps to rectify his defaults by repaying his loan. These opportunities were ignored by the Plaintiff.
  20. On 27 August 2013, after a lapse of one month and 15 days, the defendant decided to sell the bus by tender. It sold the bus to the highest bidder for K70,000.00 and all the sale proceeds were applied towards offsetting the plaintiff’s liabilities due and owing to the defendant under the contract.
  21. He strongly denies and refutes the plaintiff’s assertion that the defendant went outside of the terms of the contract and made it difficult for the bus to be returned to him. It was the plaintiff who made it difficult for himself by failing to repay the loan as required by the contract resulting in him defaulting. Consequently, the defendant took steps under the contract to secure repayment of the loan.
  22. He strongly denies and refutes the plaintiff’s assertion that it was an implied term of the contract to know the details of the sale because no such term exists in all the defendant’s contracts including the contract.

UNDISPUTED FACTS

  1. From the evidence before the Court and the Statement of Agreed and Disputed Facts and Legal Issues endorsed by the parties and filed on 18 August 2017 (the Statement of Facts and Legal Issues), I find that the following facts are not disputed:
    1. The defendant is a licensed financial institution.
    2. The plaintiff approached the defendant to assist him finance the purchase of the bus from Ela Motors, Goroka valued at K147,422.00 to conduct a PMV business and the defendant offered to assist the plaintiff with K73,040.01.
    3. On 29 November 2012, the plaintiff and the defendant executed the contract.
    4. Under the contract, the defendant loaned to the plaintiff K73,040.01 to assist him purchase the bus.
    5. Interest on the principal amount charged was 30% per annum.
    6. Default interest was 40% per annum.
    7. Under the contract, the amount financed was to be paid by 18 monthly instalments of K5,089.70.00 commencing on 29 December 2012 and to be fully repaid by 29 May 2014.
    8. The bus was a new Toyota Coaster 26 seater bus coloured white lavender, engine number 14B-1867479, chassis number JTGFY418502014224 and bearing registration number P1181J.
    9. The plaintiff defaulted in making his first monthly repayment of K5,089.70 which was due on 29 December 2012.
    10. The plaintiff made his first loan repayment under the contract on 29 January 2013.
    11. From 29 January 2013 to July 2013, he made loan repayments totalling K30,726.83. The plaintiff paid sums of K5,089.70 on two occasions, K357.43 on one occasion, K5,090.00 on another occasion, K2,500.00 on five occasions and K2,600.00 on one occasion.
    12. On 4 July 2013, the defendant issued an Authority to Repossess the bus.
    13. The bus was repossessed on 9 July 2013.
    14. On 12 July 2013, the defendant wrote to the plaintiff giving him an opportunity to fully repay the loan.
    15. On 27 August 2013, the defendant decided to sell the bus by tender and sold it for K70,000.00.

DISPUTED FACTS

  1. From the evidence before the Court and the Statement of Facts and Legal Issues, I find that the following facts are disputed:
    1. The bus was released to the plaintiff on 27 November 2012 and it did not operate for the next 6 days because it was delivered without a spare tyre and a jack.
    2. The bus commenced operations on 3 December 2012 and on the 3rd day, (5 December 2012) whilst on a trip to Lae from Goroka at Kainantu, encountered mechanical problems and returned to Goroka. The bus was delivered to Ela Motors Service Department that afternoon and booked for service.
    3. Ela Motors identified the problem as a manufacturing defect and had to order parts from Japan which they said would take about a month.
    4. The plaintiff requested the Sales & Service Manager at Ela Motors, Goroka to write to the defendant and request for a variation of the loan repayment schedule and the Manager did on 11 December 2012.
    5. The bus was returned to the plaintiff on 17 January 2013 after service.
    6. The bus resumed operations on 18 January 2013 by making its first run from Goroka to Lae.
    7. From January 2013 up to June 2013, the plaintiff made loan repayments totalling K30,726.83 and reduced the total loan including the principal and interest to K60,888.37 with arrears of K4,911.67.
    8. After the repossession of the bus, the plaintiff wrote to the defendant on 10 July 2013 and pleaded with it to release the bus for him to continue his PMV business and repay the loan arrears. He followed up by two other letters to the defendant.
    9. The plaintiff verbally informed a Ms. Emilda Samba and a Rex Yanubagi, both employees of the defendant, to reschedule the loan repayment to January 2013. No response was forthcoming so he took such silence to mean that the defendant accepted his request.
  2. The defendant engaged Goroka police to seize the bus which they did at a road block conducted on 9 July 2013 without providing any reason, effectively causing the plaintiff’s PMV business operations to cease.
    1. The defendant made it difficult for the plaintiff to ever have a chance of settling the arrears and take the bus back by demanding him to settle the full outstanding loan inclusive of interest, repossession and storage fees totalling K61,313.00 within 14 days by letter dated 12 July 2013.
  3. The defendant breached sub-clause 2(a) and Clause 11 of the contract by repossessing the bus and selling it:

ISSUE

  1. The main issue that I need to decide is whether or not the defendant breached the contract?

SUBMISSIONS

  1. The parties filed lengthy written submissions and amplified them in their oral submissions. I have summarized them or adopted certain aspects of the submissions where appropriate.

Plaintiff

  1. It was submitted by the plaintiff that the defendant’s exercise of its right as mortgagee which led to the repossession of the bus on 9 July 2013 and subsequent sale was in breach of Clause 11 of the contract for the following reasons.
  2. First, the plaintiff’s loan account was in arrears by only K5,089.70 which was the unpaid first instalment due under the contract on 29 December 2012. That instalment was not paid because the bus was booked into service with Ela Motors, Goroka for a major service caused by a manufacturing defect and did not operate from 5 December 2012 to 18 January 2013. In his evidence, he states that he informed the defendant of that fact.
  3. Second, the defendant failed to issue a notice to the plaintiff in accordance with Clause 11 before exercising its right as mortgagee to repossess the bus. Under Clause 11, the defendant was required to give a default notice and take steps to accelerate repayments of amounts due and payable to the defendant. Although Clause 12 of the contract gave the defendant the right to repossess and get in the secured property, that right would become enforceable only after the defendant issued a notice of default.
  4. Third, after repossession, the defendant gave notice of repossession and demanded the plaintiff to settle the loan account in full of the sum of K61,313.00 within only 14 days.
  5. In addition, it was submitted by the plaintiff that the defendant breached Clause 10 of the contract when it demanded full settlement of the loan account without first making a demand for payment of the loan arrears.
  6. Following repossession, the defendant unfairly clogged and unnecessarily fettered the plaintiff’s right to redeem the bus as mortgagor by devising impediments that ultimately denied the plaintiff’s right of redemption for the following reasons.
  7. First, unreasonably demanding the plaintiff to pay off the loan account in the sum of K61,313.00 within 14 days when he was in default of only one month’s instalment of K5.089.70 due on 29 December 2012.
  8. Second, the deadline to settle the entire loan account within 14 days was unreasonably short when the contract required the plaintiff to settle the loan account within 18 months.
  9. Third, demanding the plaintiff to pay off the entire loan account after the bus was repossessed and ceased generating income.
  10. Fourth, the loan amount the defendant demanded the plaintiff to settle was unreasonably, without justification and unfairly increased from K54,433.79 to K61,313.00 by charging interest on 1 August 2013 and 30 August 2013 and imposing other charges when the bus was already in the defendant’s possession.
  11. Fifth, instead of imposing the default interest of 40% per annum on the unpaid December 2012 instalment, the defendant opted to repossess the bus and sell it at a price that served only its interest. The defendant’s conduct was too harsh, unreasonable and unfair to the plaintiff given he had pleaded with the defendant to return the bus one day after it was repossessed and impounded by the police in Goroka.
  12. Sixth, apart from the unpaid December 2012 instalment, the defendant had no real reason for repossessing the bus and refusing to return the bus to the plaintiff to continue operating his PMV business. The real reason was that instead of complying with the terms of the contract which governed the relationship between the plaintiff and the defendant in so far as his loan account was concerned, the defendant became fearful that the plaintiff would not settle his loan account upon becoming aware through a report published in the Post Courier and The National on 3 July 2013 reporting that the plaintiff was arrested and charged for misappropriating district development funds of K13.1 million so took the action that it did completely ignoring the terms of the contract.
  13. Seventh, whilst the defendant had the right as mortgagee pursuant to the contract to sell the bus, it owed a duty to take reasonable care to sell it at a proper price given the plaintiff had provided equity contribution of K100,000.00 towards the purchase of the bus which he had used for about 7 months only compared with the outstanding loan amount which was only K54,433.79, but increased to K61,313.00 after the bus was repossessed. There was; no evidence before the Court that the defendant carried out a valuation of the bus before it was sold; no concrete and cogent evidence before the Court about the price at which the defendant sold the bus to determine whether it was sold at a fair, reasonable or market price; and no evidence to show whether there were any surplus funds after the sale proceeds were applied towards settling the plaintiff’s loan account.
  14. Eighth, given there was no evidence before the Court that the defendant carried out a valuation of the bus before selling it and there was no concrete and cogent evidence before the Court about the price at which the defendant sold the bus, it was unclear whether the defendant took into account the mortgagor’s interest when it chose to sell the bus at a price which it has not disclosed.

Defendant

  1. Mr Geroro of counsel for the defendant submitted that the contract is legally binding and enforceable. The defendant did not breach the contract on the basis that it repossessed and sold the bus in accordance with the terms of the contract.
  2. In addition, it was submitted that Clause 2(a) and Item 7 of the Schedule to the contract which fixed the amount for the monthly instalment to be paid and the period within which the loan was to be paid is a fundamental term of the contract because, the nature of the defendant’s business, its daily operations and profit making (the business objectives) revolves around lending monies to customers in a form of a loan and anticipating that its customers will repay their loans inclusive of interest over a period of time.
  3. It was also submitted that Item 7 of the Schedule to the contract aims to achieve the defendant’s business objectives by binding the plaintiff to the same. Counsel contended that under Clauses 12(a), (b) and (e) of the contract, in the event of the plaintiff defaulting to meet its repayment obligations under Item 7, the defendant was permitted to either; take possession or control of the bus; or manage, quietly enjoy and otherwise deal with the bus; or vary, replace, rescind or terminate any agreement relating to the bus to which the defendant or the plaintiff is a party.
  4. The defendant further submitted that according to the defendant’s records, between November 2012 and August 2013:
    1. the plaintiff defaulted by failing to make his first loan repayment which was due and payable on 29 December 2012 until after two months of the execution of the contract on 29 January 2013;
    2. the plaintiff paid K5,089.70 on two occasions which was in accordance with the contract;
    1. on one occasion, the plaintiff paid K357.43, a shortfall of K4,732.27 and was therefore in breach of the contract;
    1. on one occasion, the plaintiff paid K5,090.00;
    2. on five occasions, the plaintiff paid K2,500.00, a shortfall of K2,589.70 and they were therefore in breach of the contract; and
    3. on one occasion, the plaintiff only paid K2, 600.00 per month a shortfall of K2,489.70 and was therefore in breach of the contract; and
    4. nothing was paid thereafter.
  5. It was further submitted that, not only did the evidence show that the plaintiff defaulted in repaying the loan, the evidence also showed that the plaintiff was a persistent defaulter and was in continuous breach of the contract over a period of time. These persistent and continuous breaches of the contract amounted to a fundamental breach of the contract as it went to the root of the contract and such fundamental breach warranted termination of the contract. In support of that proposition, counsel referred the Court to the cases of Levison v Patent Steam Carpet Cleaning [1977] 3 All ER 498 per Denning MR and Philip Taudevin v Charles Theseira [1995] PNGLR 56 which I have considered.
  6. It was therefore submitted that by failing to; pay K5,089.70 per month; and to make repayments on time, the plaintiff was in fundamental breach of the contract therefore the defendant was entitled to terminate the contract and exercise various measures permitted by the contract to secure full repayment of the amount loaned plus interest and any related costs occasioned by the plaintiff’s persistent and continuous defaults.
  7. In addition, it was submitted that the evidence shows that most of the defaults in the loan repayments occurred after 17 January 2013 when the bus was operating. The defaults by the plaintiff were deliberate. Therefore, the Court should not accept the plaintiff’s assertion that he was unable to repay the loan because the bus was not operating.
  8. The defendant submitted that the plaintiff was fully aware of the consequences of defaulting under the contract. He was reminded of his loan repayment obligations under the contract by a letter addressed to him on 21 December 2012. It was submitted that there was also evidence that on 10 April 2013, the plaintiff met with the defendant’s Collections Officer, Mr Rex Yanubagi at the defendant’s Office in Port Moresby about his loan account and he even informed the defendant that he would pay K10,000.00 by 18 April 2013 to bring his account up to date. However, that did not eventuate.
  9. The defendant submitted that the plaintiff was given ample opportunities by the defendant, to fully repay the loan and have the bus returned to him. On 12 July 2013, Mr O’Rourke wrote a letter to the plaintiff presenting this opportunity. The plaintiff acknowledged receiving that letter when he replied to Mr O’Rourke’s letter of 12 July 2013 and in his reply indicated to the defendant that he would inform it of his position about payment of the outstanding loan by or before 4:06 pm on 26 July 2013. When the defendant did not hear from the plaintiff again, the defendant followed up with the plaintiff on two separate occasions by letters dated 1 August 2013 and 9 August 2013. It was submitted that not only was the plaintiff fully aware of his default in meeting his repayment obligations under the contract and the likelihood of the bus being repossessed, the plaintiff did nothing to rectify the defaults in order to secure the return of the bus.
  10. It was submitted that Clauses 12(a),(b) and (e) of the contract expressly confer on the defendant the right to repossess the bus and sell it to fully recover monies (including associated expenses incurred by the defendant) loaned to the plaintiff. This is a standard worldwide commercial practice exercised mainly by financial institutions and the defendant is one such institution. So there could not be a breach of the contract by the defendant for exercising that right lawfully.
  11. In addition, it was submitted that, Clause 2(c) of the contract expressly states that the liability of the plaintiff ceases when the principal amount financed is repaid, in full. So where the principal amount loaned is repaid in full, the defendant will have no right to repossess the bus and sell to a third party. In the present case, the defendant’s right to repossess and sell the bus was properly exercised because the plaintiff continuously defaulted in his loan repayments and the principal amount financed remained outstanding.

THE LAW

  1. Except in certain cases where the law will not recognise and enforce a contract, it is the general position at law that where the parties have entered into a written agreement such as a chattel mortgage as in the present case, it is legally binding and enforceable: Peter Kondowa v Reuben Elizah (2002) N2406; Fly River Provincial Government v Pioneer Health Services Ltd (2003) SC705; Steven Naki v AGC (Pacific) Ltd (2005) N2782; and Credit Corporation (PNG) Limited v David Nelson (2011) N4368. The parties’ relationship is one which is governed by contract law so they are bound by the terms of the contract.
  2. As to the question of enforcement of a chattel mortgage by mortgagees for alleged defaults by mortgagors, the Supreme Court decision in Rage Augerea v Bank South Pacific Ltd (2007) PGSC 12; SC869 and the National Court decision in Golobadana No.35 Ltd v Bank of South Pacific Limited (2002) N2309 set out a number of important and relevant factors or legal principles that need to be taken into account when determining whether a mortgagees action is lawful or not.
  3. In Rage Augerea v Bank South Pacific Ltd, the Supreme Court said:
    1. All banks have a duty to maintain and keep accurate records and accounts of their customers.
    2. A mortgagor has a right to redeem his or her property.
    1. The banks must not by their conduct create unreasonable impediments, clogs or fetters on a mortgagor’s right of redemption.
    1. The banks and its customers are usually not in an equal bargaining position at the time of signing a loan agreement and subsequent variations to the agreement so it must ensure that there is evidence of a fairly negotiated loan and mortgage.
    2. Agreements or contracts may be reviewed and considered unfair under the Fairness of Transactions Act 1993.
  4. In Golobadana No.35 Ltd v Bank of South Pacific Limited, his Honour Justice Kandakasi summarised the relevant legal principles in relation to a mortgagor’s right to redeem his or her property and these are restated below:

"(a) The right of a mortgagor to redeem his property is a fundamental characteristic of all mortgagees. "Redemption is of the very nature and essence of a mortgage, as mortgages are regarded in equity. It is inherent in the thing itself....

(b) Equity guards jealously the right of the mortgagor to redeem and whenever it is faced with the challenge "will not permit any devise or contrivance designed or calculate to prevent or impede redemption." This accord well with the age-old principle in the law of mortgages that "Once a mortgage always a mortgage:"...

(c) There are numerous authorities dealing with clogs or fetters on the equitable right of redemption. These authorities reveal a number of principles:

(i) Firstly, a mortgage cannot be made irredeemable, and equity will not permit any devise or contrivance being part of the mortgage transaction or contemporaneous with it calculated to prevent or impede redemption.... However, there is nothing preventing the mortgagor from giving to the mortgagee by a separate transaction and independent from the granting of the mortgage an option to purchase the property.... Of course, whether the grant of the option is part and partial of the mortgage transaction is to be determined as a matter of substance rather than form. As the mere separation of the documents will not of itself affect the existence of a "clog" on the equity of redemption...;

(ii) Secondly, the right to redeem cannot be rendered nugatory or illusory;

(iii) Thirdly, in the area of "collateral advantages," the authorities do allow for collateral advantages to be given by a mortgagor to a mortgagee in consideration for a loan to him or her. Such collaterals could be upheld only if they are "not either (1) unfair and unconscionable, or (2) in the nature of penalty clogging the equity of redemption or (3) inconsistent with or repugnant to the contractual and equitable right to redeem;

(iv) Finally, there are cases that could be classified as miscellaneous areas. In these areas some authorities have shown a reluctance to uphold a covenant that seeks to clog or unnecessarily fetter a mortgagor's right of redemption. These include covenants for a repayment of a greater amount than that advanced.... Similar positions have been taken in cases containing covenants requiring a payment of a higher rate of interest upon default which may be seen as a penalty.... Other cases have indicated a preparedness to strike down covenants in mortgages that seemed to impose unreasonable time periods for late redemption.... Furthermore, some authorities have indicated a preparedness to strike down covenants which seek to prevent a mortgagor from redeeming his property on the contractual date for repayment,... and as earlier noted after the contractual date for repayment.

(d) The right in a mortgagor to redeem exists until a contract of sale has been signed between a mortgagee and a third party in the case of a mortgagee exercising his right of sale'."

  1. The summary of those legal principles was endorsed by the Supreme Court in Rage Augerea v Bank South Pacific Ltd.

REASONS FOR DECISION


  1. There is no dispute that the contract is legally binding and governs the relationship of the parties according to the terms of the contract.
  2. Whilst I appreciate the defendant’s submission that a breach of a term fundamental to a contract will warrant termination of a contract, in the present case, the contract is not an ordinary one. It is a chattel mortgage. It provides security for the repayment of money lent by the defendant to the plaintiff on the one hand and its provisions recognise the plaintiff’s right as mortgagee to redeem the secured property, the bus on the other hand. The relevant legal principles in relation to a mortgagor’s right to redeem his or her property apply as a result.
  3. In the present case, the question of the fairness or not of the contract to invite the consideration of the Fairness of Transactions Act 1993 particularly as to the terms of the contract does not arise. The plaintiff’s complaint essentially is about the manner in which the defendant purportedly exercised its right as mortgagee in repossessing the bus and selling it. It is a disputed fact that the plaintiff claims that the defendant breached sub-clause 2(a) and Clause 11 of the contract when it unlawfully terminated the contract and proceeded to repossess the bus and sell it without it giving him prior notice or according him the right of redemption when exercising that power.
  4. In his submissions, the plaintiff did not advance any argument on sub-clause 2(a) so I consider the contention based on that abandoned.
  5. Did the defendant breach Clause 11 of the contract? That Clause relevantly states:

“If an event of default occurs under this Deed or any other agreement by the Customer the Company may at any time by notice to the Customer declare that:

  1. the secured money which is owing; and
  2. an amount equal to that part of the secured money which is contingently owing by the Customer to the Company, is immediately due and owing.
  1. the Company may;
    1. without notice combine, consolidate or merge any or all of the Customer’s and/or Guarantors accounts conducted with the Company and may set-off any moneys due to the Company under this Deed against them; even if those accounts and the moneys due are not in the same currency, are not held by the Customer in the capacity the Customer has entered into this Deed or are held by the Customer and or Guarantor jointly with any other persons. The Company may effect any currency conversion necessary or desirable for that purpose.
    2. accelerate the date upon which the Customer and/or Guarantors accounts or any of them fall due for repayment to or by the Customer to facilitate a set-off.
  1. the Company need not allow any set-off between the moneys due under this Deed to the Company and any credit balance of any account conducted with the Company whether by the Customer or any other person.
  2. the Company may exercise all rights capable of being conferred by the laws of Papua New Guinea.”
  1. Before I address this question, it is necessary that I make some findings of fact on the disputed facts I identified earlier on in order to appreciate events leading up to the defendant taking recovery action. Having considered the parties’ evidence, I make the following findings of fact on the basis that they really are not rebutted by the defendant’s evidence:
    1. The bus was released to the plaintiff on 27 November 2012 and it did not operate for the next 6 days because it was delivered without a spare tyre and a jack.
    2. The bus commenced operations on 3 December 2012 and on the 3rd day (5 December 2012), whilst on a trip to Lae from Goroka at Kainantu, encountered mechanical problems and returned to Goroka. The bus was delivered to Ela Motor Service Department that afternoon and booked for service.
      1. Ela Motors identified the problem as a manufacturing defect and had to order parts from Japan which they said would take about a month.
      2. The plaintiff requested the Sales & Service Manager at Ela Motors, Goroka to write to the defendant and request for a variation of the loan repayment schedule and the Manager did on 11 December 2012.
      3. The bus was returned to the plaintiff on 17 January 2013 after service.
      4. The bus resumed operations on 18 January 2013 by making its first run from Goroka to Lae.
      5. From January 2013 onwards, the plaintiff made loan repayments totalling K30,726.83 and reduced the total loan including the principal and interest by that amount.
    3. Goroka police seized the bus at a road block conducted on 9 July 2013 and impounded it effectively causing the plaintiff’s PMV business operations to cease.
      1. After the repossession of the bus, the plaintiff wrote to the defendant on 10 July 2013 and pleaded with it to release the bus for him to continue his PMV business and repay the loan arrears. He followed up by two other letters to the defendant dated 11 and 19 July 2013 respectively.
      2. At about the same time, the plaintiff verbally informed a Ms. Emilda Samba and a Rex Yanubagi, both employees of the defendant, to reschedule the loan repayment to January 2013, but no response was received from them.
  2. The plaintiff’s evidence that he received no response from Imelda Samba and Rex Yanubagi regarding his request to reschedule the loan repayment to January 2013 and their silence meant that they accepted his request cannot stand in light of the defendant’s letter of 21 December 2012 reminding him of his obligations under the contract. The terms of the contract remained unchanged as had been agreed to prior to and at execution.
  3. The plaintiff submits that the whole repossession exercise and subsequent sale of the bus was unlawful because the defendant failed to give a default notice and take steps to accelerate repayments of amounts due and payable contrary to Clause 11 of the contract. The defendant’s submission was that the plaintiff was well and truly aware of the consequences of defaulting under the contract, a letter of reminder was sent to him by letter of 21 December 2012 and there was evidence that the plaintiff met with the defendant’s Collection Officer, Rex Yanubagi at the defendant’s Office in Port Moresby and even advised the defendant that he would pay K10,000.00 by 18 April 2013 to bring his account up to date.
  4. For present purposes, I think only Clause 11(a), (b) and (e) would be relevant. The plaintiff has submitted that Clause 11(c)(ii) is also relevant, but I think that applies to the facilitation of a set-off. That is not the case in the present case. As to Clause 11(e) however, the parties have not referred me to any other laws of the country which may confer other rights on the defendant apart from the legal principles that I have alluded to above which mainly concern the mortgagor’s right of redemption.
  5. The term “notice” in Clause 11 is not defined in the contract. So what was the method of giving notice that the party agreed to under the contract in the event of a default occurring? It is settled law that generally, where parties have reduced their agreement into writing, the document should be allowed to speak for itself. No extrinsic evidence can be allowed to add to, subtract from or contradict the language of the written document: Curtain Brothers (QLD) Pty Ltd & Kinhill Kramer Pty Ltd v The Independent State of Papua New Guinea [1993] PNGLR 285. An exception to the general rule however is that any ambiguity in a written document or record may be resolved with the aid of extrinsic evidence, i.e., it is always available, not to contradict or vary the contract, but to apply it to facts, which the parties had in their minds and were negotiating about: Bank of New Zealand v Simpson [1900] UKLawRpAC 6; (1900) AC 182; Horsfall v Braye [1908] HCA 85; (1908) 7 CLR 629. No other evidence was adduced by any of the parties to shed light on this uncertainty. There are varying dictionary definitions of the word “notice” so they are of no assistance. Usually, the plain, ordinary or natural meaning of a word used by the parties to express a term will prevail unless the context warrants otherwise. In the present case, in the absence of a definition given to the word “notice” in the contract and the uncertainty in ascertaining the plain, ordinary or natural meaning of the word due to varying dictionary definitions, I am of the view that the context in which the word ” notice” is used refers to a notice to be given in writing.
  6. Given that, it is clear from the evidence that the defendant did not give a written notice to the plaintiff in accordance with Clause 11.
  7. The defendant’s argument that the plaintiff was fully aware that he was in default, that he was literate so understood the consequences of defaulting and that a letter of reminder dated 21 December 2012 had been given to him cannot stand in the face of its non-compliance with Clause 11. Compliance in my view was obligatory prior to taking any recovery measure permitted by the contract.
  8. Clause 10 of the contract is also relevant. It states:

(a) In the event of default in payment on the due date of any instalment or part thereof or the occurrence of any of the other defaults or events stated in Clause 9 hereof the whole of the balance of principal and stamp duty remaining unpaid together with interest on the principal amount accrued up to the making of a demand shall at the Company’s option become due and payable on demand.

(b) Such demand shall be deemed to be made when delivered or posted to the Customer to the address contained in Items 1 of the Schedule notwithstanding the demand is returned unclaimed or by the commencement or proceedings against the Customer seeking to recover the amount so payment on demand.

(c) On default in payment on the due date of any instalment or any sum payment under sub-Clause (a) above the amount in respect of which default is made or so much as shall from time to time remain unpaid shall bear simple interest at the rate stated in item 8 of the Schedule; such interest shall accrue and able recoverable from day to day; such interest shall be payable upon any judgment entered against the Customer by the Company.

(d) A statement in writing signed by a director secretary or officer of the Company stating the amount due or owing by the Customer to the Company or any other act matter or thing arising under this Deed as at any date or dates set out in that statement will be prima facie evidence of the facts so stated.

95. There is no evidence to show that the defendant gave a notice of demand to the plaintiff in accordance with Clause 10 before taking recovery action as well.

96. Thus, the defendant could not exercise powers it had under Clause 12 of the contract without it first complying with the requirements under Clauses 10 and 11. Clause 12 states:

“The Company may:

  1. take possession or control of and get in the secured property;
  2. manage, quietly enjoy and otherwise deal with the secured property;
  3. (i) exercise the rights of the Customer or perform its obligations in respect of the secured property and cause and permit any other persons to perform their obligations in respect of the secured property;

(ii) vary, replace or release any right or interest of the Customer or any other person;

(d) exchange any part of the secured property for any other property and, if there is a difference in value between the property exchanged, give or receive, as the case may be, any moneys or other consideration equal to the difference in value in order to give equal value for the exchange;

(e) vary, replace, rescind or terminate any agreement relating to the secured property to which it or the Customer is party.”

97. Correspondence by the plaintiff after repossession of the bus purportedly according the plaintiff his right of redemption could not cure its actions of non-compliance with Clauses 10 and 11 of the contract. The whole recovery process undertaken by the defendant to repossess the bus and subsequently selling the bus was flawed ab initio.

98. In addition, I would find that the following conduct or actions of the defendant amounted to clogs on the plaintiff’s equitable right of redemption:

  1. repossession of the bus without notice under Clauses 10 and 11 of the contract.
  2. recovery measure taken despite evidence showing that the plaintiff had paid K30,726.83 in reduction of the loan although not consistently with the agreed monthly instalment and more or less about a month in arrears.
  3. demanding payment of the outstanding loan with interest and additional charges in connection with recovery measure undertaken whilst the bus was repossessed and not generating income.
  4. the period given for the plaintiff to settle the entire loan within 14 days when the plaintiff had 18 months to settle it was unreasonably short.
  5. the loan amount the defendant demanded the plaintiff to settle was unreasonably, without justification and unfairly increased from K54,433.79 to K61,313.00 when the bus was already in the defendant’s possession and not generating income.
  6. recovery measure opted for instead of imposing default interest when the loan was more or less about a month in arrears.
  7. recovery measure opted for instead of exploring other ways permitted by the contract to settle the loan when the loan was more or less about a month in arrears.

99. In the result, I am satisfied that the plaintiff has proven on the balance of probabilities that the defendant breached the contract when taking recovery action by repossessing the bus and selling it and its action was unlawful ab initio. I therefore order judgment in favour of the plaintiff.


DEFENDANT’S SUBMISSION TO STRIKE OUT STATEMENT OF CLAIM

100. As to the defendant’s alternative argument advanced under Order 8 Rules 8 and 27 of the National Court Rules that the plaintiff’s statement of claim contains evidence and not facts or that it does not disclose a reasonable cause of action hence the pleadings are an embarrassment and an abuse of the process of the court’s process and should be struck out, it suffices to say that it is misconceived and I reject it. I am satisfied that the pleadings disclose a reasonable cause of action for breach of the contract. Lack of particulars or lack of better particulars is distinctively separate from a failure to disclose a reasonable cause of action or an action that is frivolous or vexatious: Philip Takori v Simon Yagari (2008) SC905. Although aspects of the pleadings in the statement of claim may be viewed as evidence as opposed to facts, generally, the basic facts and particulars are sufficiently pleaded to disclose a cause of action for breach of the contract. In any event, whilst the Court has an inherent power to protect and safeguard its processes from possible abuse, it should not allow a party to be driven from the judgment seat in a summary way without considering his right to be heard as that right cannot be lightly set aside: Philip Takori v Simon Yagari (2008) SC905. The National Court Rules are designed to enhance those rights and to ensure the prompt and fair disposal of matters coming before it and they are not an end in themselves, but a means to an end: Philip Takori v Simon Yagari (2008) SC905. For these brief reasons, I do not propose to have the plaintiff driven from the judgment seat.

ORDERS

101. The formal orders of the Court are:

  1. Judgment is entered in favour of the plaintiff for breaching the Commercial Loan Chattel Mortgage entered into between the plaintiff and the defendant on 29 November 2012.
  2. The matter shall be listed for directions hearing for purposes of progressing it to a hearing for assessment of damages.
  3. The defendant shall pay the plaintiff’s costs of the proceedings, if not agreed, to be taxed.

_________________________________________________________
Parker Legal: Lawyers for the plaintiff
Western Pacific Lawyers: Lawyers for the Defendant


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