N8136

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS. NO. 347 OF 2019

BETWEEN
FINANCE CORPORATION LIMITED trading as FINCORP
Plaintiff

AND
DANIEL YAPATI
Defendant

Waigani: Makail, J
2019: 8th & 29th November

CONTRACT LAW – Contract – Liability – Breach of contract – Chattel Mortgage Agreement – Default in repaying loan – Loan outstanding – Proof of – Liability proved 

CONTRACT LAW – Contract – Assessment of damages – Damages flowing from breach of contract – Claim of principal – Default interest – Charges – Proof of 

PRACTICE & PROCEDURE – Objection to competency of proceedings –Mode of proceedings – Proceedings commenced by originating summons – Appropriate mode of proceedings – National Court Rules – Order 4, rule 1, 2 & 3

Cases Cited:

Wake Goi v. First Investment Finance Limited (2017) N7059
Counsel:
Ms. M. Irakau, for Plaintiff 
Mr. L. Tangua, for Defendant

JUDGMENT
29th November, 2019
1.	MAKAIL, J:   By Originating Summons filed 20th May 2019, the plaintiff sues the defendant for breach of chattel mortgage agreement to recover a sum of K147,099.94 as outstanding balance for a loan and further, vacant possession of a land described as Allotment 24, Section 370, Hohola, National Capital District (“Property”). Consequent on the grant of the second relief, it seeks leave to issue a writ of possession and/or order to foreclose and sell the property.  
Objection to Competency
2.	Before embarking on addressing the main issues, it is necessary to deal with the defence’s objection to the competency of proceedings on the ground that the proceeding commenced by originating summons is incompetent.  The defendant argues that it should be dismissed because the plaintiff should have commenced proceedings by writ of summons.
3.	Ordinarily, where facts are in substantial dispute, the issues will be quite difficult to readily identify.  It is appropriate then to commence proceedings with pleadings to assist parties identify the facts and key issues.  The key issues then will drive the kind of evidence that will be led at trial. This is common in cases of breach of contract, tort and fraud and Order 4, Rules 1, 2 and 3 of the National Court Rules provides this option.  A proceeding commenced by writ of summons with a statement of claim endorsed to it may be the appropriate mode of proceedings.
4.	However, it is not necessary for the plaintiff to do that because, as will be seen shortly, there is unlikely to be substantial dispute of fact and in turn, it is unlikely that the key issues will be difficult to identify.  Moreover, the defendant has not been able to demonstrate how he has not been able to identify the facts and key issues for determination.  On the other hand, by the originating summons the plaintiff has been able to clearly put to the defendant that he has defaulted in repaying a loan, and is in breach of the agreement and it seeks to recover the outstanding sum from him.
5.	The objection will be dismissed for these reasons.
Evidence
6.	Turning to the substantive matter, the plaintiff relies on the following:
(a)	Affidavit of Adam Hughes sworn on 31st May 2019 and filed 3rd June 2019 – Exhibit 1.
(b)	Supplementary Affidavit of Adam Hughes sworn on 31st May 2019 and filed 3rd June 2019 – Exhibit 2.
(a)	Further Affidavit of Adam Hughes sworn on 23rd September 2019 and filed 24th September 2019 – Exhibit 3.
7.	The defendant relies on his affidavit sworn and filed 3rd June 2019 (Exhibit 4) and another affidavit sworn and filed 4th October 2019 (Exhibit 5).
Chattel Mortgage Agreement
8.	The undisputed facts as extracted by the parties from these affidavits are these, the plaintiff and the defendant entered into a chattel mortgage agreement (“Agreement”) in the sum of K155,000.00 on 21st September 2016.  The terms of the agreement were: 
•	The defendant shall repay a sum of K3,666.82 per month.
•	The repayment shall commence one month after draw down on 26th September 2016.
•	Term of five (5) years, expiring on 26th September 2021.
•	Total interest and charges payable were K65,009.07.
•	Total amount payable was K220,009.07.
9.	In exchange for the sum borrowed, the defendant agreed and gave as, security, the property described above, to the plaintiff.
10.	On 20th April 2018 the defendant defaulted by falling into arrears.  This was due to the defendant not being consistent and making irregular repayments.  On 30th October 2018 the plaintiff issued a statutory notice of default to the defendant.
Outstanding Sum	
11.	The contested facts are these, the plaintiff says that the outstanding sum is K143,144.60.  This sum includes accrued interest, default interests and default fees.  On the other hand, the defendants says that it has repaid K106,971.63 and should have a sum of K113,037.47 as outstanding and due for payment.
12.	Secondly, the defendant says that the plaintiff failed to give written notice to settle the debt one week after the default under Section 67(1) (a) of the Land Registration Act.
13.	Thirdly, he says that although the agreement was subject to review one year after the date of draw down and despite his repeated requests to review the repayment amount, the plaintiff failed to review it.
14.	Fourthly, repayment was done prior to the commencement date of repayment.  That is, the first payment was done on 18th October 2016 instead of 26th October 2016 which was the due date for the first repayment after the draw down.
15.	Fifthly, the plaintiff deducted interest in the sum of K313.18 in the grace period of one month.
16.	Finally, the plaintiff wrongfully deducted default interest and late charge fees from the sum repaid.
Enforceable Contract 
17.	There is no contest between the parties that the chattel mortgage agreement was valid and enforceable.  Thus, the parties’ relationship is governed by the agreement and bound by its terms: Wake Goi v. First Investment Finance Limited (2017) N7059.
Liability 
18.	The real issue is whether the defendant has defaulted in repaying the loan hence breached the agreement.  The Statement of Account described as “5/01/2018 Account Quotation” and tendered by Mr. Hughes as annexure “E” to his affidavit (Exhibit 1) shows that repayment of K3, 700.00 commenced on 30th September 2016.  Then from 23rd March 2017 onwards, repayment sum was less than K3,700.00.  For example, on 25th March 2017 a sum of K3,360.00 was repaid. Then repayment sum varied between K3,360.00 and K1,000.00 up until 25th March 2019.  This evidence proves that the defendant has not been consistent and making irregular payments.  As a result, he has fallen behind with his repayment obligation.
19.	Where the defendant has fallen behind in his repayment obligation, he will have defaulted and it will be the finding of the Court that he has breached the agreement and will be liable to pay damages to the plaintiff.  Judgment on liability will be entered against the defendant.
Quantum
20.	In contract law where there is a breach of contract, damages would ordinarily flow from the breach.  In this case, the next issue is how much is outstanding and due to the plaintiff under the agreement?  This question must be answered by reference to how the repayment works.  To better understand and appreciate how the repayment works, parties can be referred to the repayment schedule in annexure “E” to the affidavit of Adam Hughes – Exhibit 1.  This document is described as “5/01/2018 Account Quotation”.  
21.	It shows that the principal sum, repayment sum per month and interest charged per month amortized over five years.  What it means is that, if the defendant has been consistent and making regular payments between 21st October 2016 and 20th September 2021, the total sum of K220,009.07 inclusive of interest will have been settled.  However, it has not been the case.      
22.	Thus, according to the latest Statement of Account dated 26th September 2019 tendered by Mr. Hughes in his further affidavit – Exhibit 3, the defendant made two more payments of K10, 000.00 and K2, 000.00 on 24th June 2019 and 24th July 2019 respectively.  These payments brought the principal sum paid so far up to K113, 037.44.  This sum includes default interest commercial, late charges commercial and journal fees.
23.	The interest and default interest are provided under clauses 6.1, 6.2 and 6.3 of the agreement. Clause 6.1 allows the plaintiff to charge and claim interest on the principal, likewise clause 6.2 allows the plaintiff to charge and claim compound interest and interest on arrears in the event of default by the defendant.  Finally, clause 6.3 provides for how interest is calculated.  It states that interest accrues on a daily basis.  
24.	As to fees, clause 13 provides for the plaintiff to charge and claim costs and expenses in the event of default.  These provisions form the contractual basis for the plaintiff to claim interest, default interest and fees.
25.	However, before the mortgagee may exercise its power to foreclose, it must give notice of default to the mortgagor under Section 67(1) of the Land Registration Act.  There is evidence by Mr. Hughes in his affidavit – Exhibit 1 that the plaintiff had given the requisite notice to the defendant in December 2018 which showed that some K133,000.00 was outstanding.  It was then incumbent on the defendant to make payment to redeem the property and also avoid steps being taken by the plaintiff to exercise its power under the mortgage.
26.	The defendant’s failure to repay the loan resulted in a built up of the debt and led to the plaintiff instituting these proceedings to recover the outstanding sum.  Although the defendant says that he had asked for a review of the loan, he does not give details of what he had in mind and plans to do to repay the loan.  There is simply no information to enable the Court to give parties further opportunity to review the agreement.  On the other hand, it would appear that the plaintiff had given the defendant sufficient time since the first default on 25th March 2017 to repay the loan based on the agreed sum per month but it has not worked out well for both parties.
27.	The complaint by the defendant in relation to the early deduction for interest of K313.18 and first repayment done during the grace period overlooks the fact that funds had already been given to the defendant and that early repayment reduces the interest charged.  In any case, these payments have been captured in the schedule of account and have reduced the outstanding sum.
28.	What should be the real issue is the difference between K143,144.60 and the K139,748.38.  This is the sum of K3,396.22.  It is not captured in the account settlement statement in the further affidavit of Mr. Hughes – Exhibit 3.  What is it for?  It is unaccounted or there is no explanation by Mr. Hughes for it.  For this reason, there will be a judgment for K139,748.38 in favour of the plaintiff.  This is the sum due and outstanding.
Vacant Possession
29.	Vacant possession of a property is one of the common law remedies.  It is also a remedy available under statute, the Summary Ejectment Act.  In each case, it may be granted where it is established that there is clear and undisputed title.  
30.	The plaintiff does not have clear title to the property.  Its interest is limited to being a mortgagee pursuant to a registered mortgage where the property is being held as security for the advancement of funds to the defendant.  In the event of default by the defendant as the mortgagor, the plaintiff may exercise the right to foreclose on the property and sell it to recover the unpaid funds.    
31.	It is also doubted if it is open to the plaintiff to exercise its right of foreclosure on the property at the same time as seeking to recover the outstanding loan balance against the defendant.  Given that clauses AD (e), 9A and 9E of the agreement make provision for the mortgagor to take possession of the property and sell it, I am inclined to think that one must be sought at a time and the plaintiff must make an election.  
32.	Furthermore, where the defendant has defaulted in his loan repayment, it is doubted if it is necessary for the plaintiff as the mortgagee to seek aid of a Court order to foreclose on the property and sell it pursuant to the mortgage.  
33.	Finally, where the plaintiff elects to sue to recover the outstanding sum it is premature to pre-empt what the defendant might do to settle the debt now that there is a judgment against him. Where the judgment debt remains unpaid, the plaintiff has the option of enforcing the judgment by writ of levy on the property.  
34.	The order sought for vacant possession will be refused for these reasons. The further order sought to foreclose and sell the property is inconsequential.
Statutory Interest
35.	Finally, there will be no award of statutory interest under the Judicial Proceedings (Interests on Debts and Damages) Act 2015 because the plaintiff does not seek it in the originating summons or in submissions.  
Order
36.	The orders are:
	1.   Judgment on liability is entered against the defendant.
2.	Judgment in the sum of K139, 748.38 is entered in favour of the plaintiff forthwith.
3.	The order sought for vacant possession of the property is refused.
4.	The defendant shall pay the costs of the proceedings, to be taxed, if not agreed.	
________________________________________________________________In-house counsel:	Lawyers for Plaintiff
Tangua Lawyers:	Lawyers for Defendant