N10488

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 450 OF 2022

BETWEEN:
SAMSON PUAPONA PONDOPEA trading as PNG our Quick Finance
- Plaintiff-

AND:
KEN POGA
-Defendant-

Lae: Dowa J
2023:  18th September, 4th & 5th October

LIABILITY – Contract – Lending of money – Failure to repay sum borrowed –– Validity of and Enforceability of agreement-unstamped loan agreements

DAMAGES – Assessment of damages – Damages follow from breach – Claim for interest and penalty interest – Interest rate of 100%

INTEREST – Default interest – Not clearly expressed in contract – Uncertainty – Award of default interest reduced

Cases Cited:
Y. Rengle Trading Limited v. Kupiane Gold Resources Limited (2019) N8183
Kopyoto Trading Ltd v National Housing Corporation (2021) N8884
Putput Logging Pty Ltd v Philip Ambolis [1992] PNGLR 159
Waghi Security Service Pty Ltd v John Tembon [1994] PNGLR 138
Wamena Trading v Civil Aviation Authority (2006) N3058

Counsel:
L Vava, for the Plaintiff
M Karu, for the Defendant

JUDGMENT

05th October 2023

1.	DOWA J:	This is a judgment on both issues of liability and damages.

	Facts

2.	The Plaintiff is a small finance company.  Between 15th October 2018 and 30th January 2019, the Plaintiff and the defendant entered three loan agreements on the following terms:

Loan No. 1           15/10/2018

Loan Amount		:	K10,000.00
Interest			:	100%
Term			:	One month
Default Interest	:	50% per month

Loan No. 2           15/11/2018

Loan Amount		:	K10,000.00
Interest			:	100%
Term			:	One month
Default Interest	:	50% per month thereafter

Loan No. 3           15th-30th January 2019

Loan Amount		:	K 2,642.00
Interest			:	100%
Term			:	One month
Default Interest	:	50% per month thereafter

3.	The Defendant defaulted repaying the loan advance on the terms agreed. The principal loan and interest remain outstanding. According to the Plaintiff, the outstanding loan together with accrued interest stands at K 574,729.00 as of 15th October 2022. The Plaintiff has therefore instituted these proceedings seeking judgment of the outstanding loan and interest.

4.	The Defendant filed a Defence, whilst conceding taking a loan from the Plaintiff, disputes the penalty interest rate charged.

Proceedings

5.	The trial was conducted on 18th September 2023 where both parties tendered their respective affidavits and made submissions on 4th October 2023.  I reserved my ruling which I now deliver.

Issues

6.	The issues for consideration are:

a)	Whether the Defendant is liable to pay default interest at 50 % per month on the outstanding loan.
 
b)	How much is the Plaintiff entitled to in damages.

Plaintiffs Evidence

7.	The Plaintiff relies on the affidavit evidence of Samson Puapona Pondopea filed in the proceedings.  Briefly, his evidence is this:  On 15th October 2018, the Defendant entered into a loan agreement with the Plaintiff.  Under the terms of the agreement, the Defendant borrowed K10,00.00 to be repaid within one month with 100% interest totalling K 20,000.00. If the Defendant defaults, he would pay a further default interest of 50% on the outstanding balance.  The loan was due for repayment on 15th November 2018. The Plaintiff says, instead of repaying the loan, the Defendant took a second loan of K 10,000.00 on the same terms. Come December 2018, again the Defendant defaulted on the two loans. Between 15th January and 30th January 2019, the Defendant took a further loan advance of K 2,642.00 on the same terms. The outstanding loan with the agreed interest up to 30th January 2019 stood at K 45,284.00. The defendant made no payments, and the loan was attracting 50% interest per month. The default interest per month is K22,642.00. The Plaintiff says the loan and default interest amounted to K574,729.00 as at 15th October 2022, and seeks judgment in the proceedings. 

Defendants Evidence

8.	The Defendant relies on his own affidavit sworn 10th and filed 11th November 2022. The Defendant concedes borrowing K 22,600.00 from the Plaintiff to do maintenance to his property. At the time of borrowing the money, he did not know whether the Plaintiff was a registered money lender and did not know whether the interest rate was lawful. He was surprised to learn that the interest rate was high and negotiated with the Plaintiff for settlement at K 70,000.00. The Plaintiff agreed for settlement then but has now changed his mind to institute the current proceedings. The Defendant says the interest charged is high and exorbitant.

 	Submissions of Counsel

9.	Mr. Vava, counsel for the Plaintiff submits that the parties have expressly entered into an agreement which is enforceable in contract law. He says the terms are clear and the parties understood before executing the contract. The Defendant is bound by the terms. He failed to repay the principal loan with the agreed interest at 100%. This has attracted 50 % default interest per month and the Plaintiff is entitled to the full claim at least up to 15th October 2022.

10.	Mr. Karu, counsel for the Defendant submits that the Defendant is only liable to settle the principal loan and not the interest, especially the penalty interest for the following reasons:

i.	The terms are uncertain.
ii.	The interest rates are exorbitant and unfair.
iii.	The agreement is not stamped under the Stamp Duties Act and thus unenforceable.

Counsel submits further that parties have agreed for settlement at K70,000.00 in full and final settlement and the Plaintiff is estopped from making any claim beyond that amount.

	Reasons for Decision

11.	The Plaintiff runs a money lending business.  It seems, the parties have freely entered into loan agreements at an exorbitant interest rate.  The total principal sum lent for the three loans between 15th October 2018 and 30th January 2019 is K 22,642.00 with 100 % interest. The Plaintiff relies on two sets of documents forming part of the agreement. The first is a standardised loan agreement form. The second is also a standard statutory declaration executed by the parties. I have carefully studied the forms and the statutory declarations and note that the terms of the agreement are not crystal clear. I will start with what is clear and plain.  What is clear is the defendant took three loans totalling K22,642.00. The parties have agreed that the Defendant was to repay the loan with 100% interest. The total loan inclusive of interest is K 45,284.00.
 
12.	What is not clear is that there is no repayment term prescribed in both the Loan Agreement Form and the Statutory Declaration Form. The form is structured for periodical instalment repayments. For example, paragraph 2 of the loan agreement and paragraph 2 of the Statutory Declaration both state that “I (the defendant) agree to repay the gross loan of K 20 200.00 per monthly until the gross loan is repaid in full.” It does not state the period and amounts for the instalment repayment. If the parties intended for the loan and interest is to be paid within a month, this has not been captured in the agreement. This is important because if the borrower defaults at the due date, penalty interest would accrue from thereon. 

Despite this uncertainty, what is undisputed though, is the Defendant has not paid both the principal and interest (K 45,284.00). According to the Plaintiff this attracts penalty interest at 50% per month. Again, the agreement does not clearly provide for penalty rate at 50% on the loan amount per month. The loan agreement provides for default on instalment payments. This ambiguity lends credence to the Defendants assertion that the terms of the loan advance were not clear.

13.	The Plaintiff’s claim is that the Defendant defaulted in settling his loan within the month, on the due date.  This attracted interest at 50% per month which was accruing and added onto the principal outstanding.  When the Defendant defaulted, the outstanding sum was K 574,729.00 by 15th October 2022.  

14.	The Pleadings and evidence shows the Plaintiff is involved in Banking business.  There is no evidence that the Plaintiff is licensed to engage in money lending business. Under section 10 of the Banks and Financial Institution Act 2000, a person or company who carries on banking business must have a licence issued by the Central Bank, that is Bank of Papua New Guinea.  In the present case, there is no evidence of a licence being produced. 

15. 	Secondly, as per the submissions of Defence Counsel, the loan agreements relied on by the Plaintiff were not stamped pursuant to section 19 of the Stamp Duties Act and cannot be accepted as evidence for enforcement. Section 19 reads: 

“19. UNSTAMPED INSTRUMENTS PRODUCED IN EVIDENCE.
(1) Subject to this Act, an instrument shall not–
(a) be pleaded or given in evidence, except in criminal proceedings; or
(b) be admitted to be good, useful or available in law,
  unless it is duly stamped in accordance with the law in force at the time when–
(c) it was first executed; or
(d) it came into the country,

whichever is the later.”
16.	The law is settled that a failure to stamp an agreement does not affect its validity but renders it inadmissible or unenforceable in a court of law, until it is duly stamped. Refer: Putput Logging Pty Ltd v Philip Ambolis (1992) PNGLR159, Waghi Security Service Pty Ltd v John Tembon (1994) PNGLR 138 and Wamena Trading v Civil Aviation Authority (2006) N3058.

17.	In the present case, there is no doubt the agreement is not stamped. For the Court to enforce the terms of the agreement, it must be stamped. 

18.	Further, I note, the Plaintiff has charged interest at an exorbitant rate, well over and above the rates set out in Judicial Proceedings (Interest on Debts Damages) Act and the rates currently charged by commercial banks in Papua New Guinea. The standard interest rate currently charged by the commercial banks and financial institutions is between 10 and 35% per annum.   In the present case, the interest rate is charged at 50% per month.  It is not an annual rate.  There is doubt that the defendant was made aware that he would be liable to pay penalty interest at the rate of 50% per month on the outstanding loan. In my view, the rate is unreasonable and very oppressive. It amounts to an unjust enrichment on the part of the Plaintiff.

19.   In determining this matter, I have considered decisions in similar cases in Y.Rangle Trading Ltd v Kupiane Gold Resources Ltd (2019) N8183 and Kopyoto Investment Ltd v National Housing Corporation (2021) N8884 for comparison. In Kopyoto, the trial Judge rejected the claim for default interest due to uncertainty of the terms of the loan agreement, like the present case.

20.	In conclusion, I find the default interest accruing at 50% per month is far too high and unreasonable and should not be sanctioned by the Court. I will therefore reject the default interest rate and method claimed by the Plaintiff. That said, the Plaintiff should not be left without a remedy in so far as default interest is concerned as it is a commercial deal. In the alternative, I will allow default interest at the agreed rate of 50% per annum rather than per month on the principal loan of K 22,642.00 for the period of five (5) years (15th October 2018 to 15th October 2023) to do justice in the circumstances of this case. The annual interest is K 11,321.00 and for the last five (5) years, it amounts to K56,605.

21.	The total judgment shall be K101,889.00. For clarity post judgment interest shall accrue at 8%.

General Damages

22.	The Plaintiff’s claim for general damages is rejected because general damages is for pain and suffering. This is a normal business deal and is not an appropriate case for an award under this head of damages.

        Costs

23.	The Plaintiff is entitled to costs of the proceedings.

ORDERS

24.    The Court orders that:

1.	Judgment is entered for the Plaintiff in the sum of K101,889.00.
2.	Post Judgment interest shall accrue at the rate of 8%.
3.	The Defendant shall pay the cost of the proceedings to be taxed, if not agreed.
4.	Time be abridged.

________________________________________________________________
Luke Vava Lawyers: Lawyers for the Plaintiff			
Daniels & Associates Lawyers: Lawyers for the Defendant