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Veltro Ltd v Huang [2006] PGNC 197; N4608 (12 September 2006)

N4608

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO 478 OF 2006

VELTRO LIMITED
First Plaintiff

VICKY VAGIKAPI
Second Plaintiff

V

STEVEN LIU HUANG
First Defendant

HENRY GOREA
Second Defendant

JOHN DAKO
Third Defendant

Kimbe: Cannings J
2006: 21 July, 12 September

CONTRACTS – oral agreement – need for proof of existence of agreement – dispute as to existence of contract – need to precisely plead details in originating process.

PRACTICE AND PROCEDURE – pleading a cause of action – originating process must identify cause of action with sufficient particularity to enable court proceedings to be conducted efficiently.

The plaintiffs claimed that they entered into an agreement with the first defendant and gave him money to enable him to purchase sea cucumber for sale and export. They claimed that he did not return the money. Nor did he supply any sea cucumber. They filed an originating summons seeking the return of the money and claiming ownership of the sea cucumber that was in the possession of the first defendant. The agreement between the plaintiffs and the first defendant was not in writing and the plaintiffs presented no written evidence as to the transfer of the money to the first defendant.

Held:

(1) Though the originating process was vague and poorly pleaded, the cause of action is breach of contract.

(2) Therefore the plaintiffs bore the onus of establishing the existence of a contract between them and the first defendant.

(3) The standard of proof in civil proceedings is on the balance of probabilities. However, the plaintiffs were unable to meet that standard.

(4) There was no evidence of any written or oral agreement. There was no written record, memorandum or notes of any agreement. Nor was there any evidence to verify the central claim that money was given by the plaintiffs to the first defendant. The plaintiffs failed to prove their case and all claims for relief were refused.

(5) When a party invokes the jurisdiction of the National Court to enforce a commercial agreement the Court will expect to be presented with evidence showing the trappings of normal, legitimate business operations. In the circumstances, the almost total absence of business records and the involvement of an apparently unlicensed financial institution gave the appearance of illegitimate or irregular business; and the National Court should not allow its processes to be used to legitimate something that appears illegitimate.

Cases cited

The following cases are cited in the judgment:

Graham Mappa v PNG Electricity Commission [1995] PNGLR 170
Putput Logging Pty Ltd v Phillip Ambalis [1992] PNGLR 159
The State v Keboki Business Group Incorporated and Morobe Provinsel Gavman [1985] PNGLR 369

Terminology

Beche-de-mer is a large sea cucumber. A sea cucumber, or holothurian, is an echinoderm having a thick worm-like body with tentacles around the mouth. An echinoderm is a marine invertebrate (an animal lacking a backbone) of the phylum (species group) Echinodermata, which also includes starfishes, sea urchins, brittlestars and crinoids (Concise Oxford English Dictionary, Oxford University Press © 2004).

ORIGINATING SUMMONS

This was an application for enforcement of a contract.

Counsel

C A Rihatta, for the plaintiffs
S L Huang, the first defendant, in person

12 September, 2006

1. CANNINGS J: This is a case about beche-de-mer or sea cucumber, a sea animal that grows well in the waters of West New Britain. It is a valuable export commodity, eaten as a delicacy especially in China and Japan. The plaintiffs, based in Port Moresby, claim that they entered into an agreement with the first defendant, a businessman based in Kimbe, West New Britain, to help him buy sea cucumber from local operators and export it through Port Moresby to Asian markets. They say that they gave the first defendant K50,000.00 pursuant to the agreement but in return they have got nothing. No money and no sea cucumber. They want either or both and have come to the National Court to pursue their grievance.

2. The first plaintiff, Veltro Ltd, is a company incorporated under the Companies Act 1997, based in Port Moresby. Its main areas of business are claimed to be distributing stationery supplies to business houses and schools in Port Moresby and trading in sea products. The second plaintiff, Vicky Vagikapi, is a PNG citizen and is the principal shareholder and a director of the first plaintiff. The first defendant, Steven Liu Huang, is non-citizen, a Taiwanese national, involved in the fisheries and marine products industry in Kimbe. The second defendant, Henry Gorea, is a PNG citizen, and is the majority shareholder of PNG Corporate Ltd, a company that specialises in buying and exporting sea cucumber, trochus shells and shark fins, based in Kimbe. The third defendant, John Dako, is a resident of Kimbe and is said to be a 'supporter' of the first defendant. The main dispute is between the plaintiffs and the first defendant.

PROCEDURAL HISTORY

3. The plaintiffs filed an originating summons and supporting documents on 5 July 2006 by which the following relief is sought:

• an injunction restraining the defendants from selling, exporting or otherwise dealing with all the sea cucumber stored at Section 61, Allotment 21, Kimbe;
  
• a declaration that the sea cucumber bought by the first defendant is the property of the plaintiffs;
  
• an order that the defendants reimburse the money lent to them by the plaintiffs;
  
• an order that the defendants be restrained from moving any of the sea cucumber except by court order;
  
• a declaration that the first defendant had misrepresented the real state of affairs causing the plaintiffs to enter into financial arrangements that caused them losses.
  

4. On the same day, 5 July 2006, the plaintiff filed a notice of motion, seeking interim relief. I granted an injunction restraining the defendants from selling, exporting or otherwise dealing with the sea cucumber in their custody at Kimbe, and restraining its movement away from its then location until further orders of the court. That injunction has been in place until today.

PLAINTIFFS' EVIDENCE

5. The plaintiffs based their case on affidavit evidence. They tendered five affidavits, the contents of which are summarised in the table below.

TABLE 1: SUMMARY OF PLAINTIFFS' AFFIDAVITS

DEFENDANTS' EVIDENCE

6. The defendants did not present any evidence.

THE PLAINTIFFS' SUBMISSIONS

7. Mr Rihatta submitted that the evidence showed that the plaintiffs entered into an oral agreement with the first defendant to finance the purchase of sea cucumber in Kimbe and its transport to Port Moresby. On the strength of that agreement, the first plaintiff borrowed K100,000.00 from a financial institution, Secure Securities Holdings Ltd, repayable within six weeks with 30% interest. The first plaintiff gave K50,000.00 to the first defendant pursuant to their agreement. The first defendant has broken the agreement. No sea cucumber has been forthcoming and none of the money has been repaid. The court should grant remedies requiring the first defendant to repay the money advanced to him by the first plaintiff and declaring that the plaintiffs own the seven tonnes of sea cucumber at the centre of this dispute.

THE DEFENDANTS' SUBMISSIONS

8. Mr Huang, the first defendant, appearing in person, submitted that the court should refuse all relief claimed by the plaintiffs as there was no evidence that what they were saying was true. There was no evidence of the purported agreement between him and the plaintiffs and no evidence that he was advanced K50,000.00. The only thing that was true, he submitted, was that he provided the plaintiffs with K30,000.00 to secure the loan with Secure Securities Holdings Ltd.

WHAT IS THE CAUSE OF ACTION?

9. This is not a straightforward issue as the originating summons is poorly drafted and vague. However, based on what Mr Rihatta submitted, I am prepared to regard the cause of action as breach of contract. That being the case, the elements the plaintiffs have to prove are that:

• there was a contract between the plaintiffs and the first defendant;
  
• the terms of the contract required a sum of money to be given to the first defendant for the purchase and transport of sea cucumber;
  
• the first defendant breached the terms of the contract.
  

10. These are cumulative elements: the plaintiff has to prove all three. The plaintiffs' case goes nowhere unless they prove the first element, the existence of a contract. The standard of proof in civil proceedings is on the balance of probabilities. So the first issue to be determined is: has the plaintiff proved on the balance of probabilities the existence of a contract between them and the first defendant?

WAS THERE A CONTRACT?

11. A contract can be entered into orally or in writing or by a combination of those forms of agreement. Whatever form it takes it must be clearly identifiable. If a dispute over interpretation or application of the contract ends up in court or, as in this case, there is a dispute as to the existence of a contract, the party seeking to prove its existence must precisely plead the details of the contract in the originating process. Who are the parties to the contract? When did it come into existence? What form is it in? Where was it entered into? Why was it entered into? (See The State v Keboki Business Group Incorporated and Morobe Provinsel Gavman [1985] PNGLR 369, Supreme Court, Pratt J, Woods J, Cory J).

12. Having pleaded its existence, the party relying on the contract must come to court with evidence of its existence. If it is a written contract, it must be adduced in evidence. If it is oral, there must be evidence of the oral communication that gave rise to the agreement. In such cases, the who, when, what, where, why questions become extra critical. This is neither rocket science nor complex jurisprudence. It is common sense. It is the law. But none of these basic principles has been followed in this case.

13. The statement of facts in support of the originating summons alludes to the existence of a contract in these terms:

The first defendant had travelled to Port Moresby in June where he met and was accommodated by Mrs Vicky Vagikapi and Mr Raphael Kora.

During his stay he intimated to Vicky and Raphael that he was in search of finance to transfer at least 7 metric tons of sea cucumber from a warehouse in Kimbe to Port Moresby for sale and or export overseas to Singapore.

The first defendant also informed them that he was expecting a financier or finance from Singapore to assist in uplifting the sea products from Kimbe and or Port Moresby which ever was the most convenient, for export market.

In all conversations the first defendant assured them that at least 2 metric tons of sea products could be air freighted immediately to Port Moresby once funds were available to him.

In particular the first defendant required the total sum of K30,000.00 for the shipment of the sea products to Port Moresby, and the other bags of sea products were scattered around Kimbe and the Islands which needed to be collected, weighed and transported to Port Moresby.

It so happens that Vicky and Raphael have a business operation, running under the incorporated name of Veltro Ltd duly incorporated and registered on 13th February 2001, and amongst other business activities, distribute stationary supplies to business houses and schools in Port Moresby as well as trading in sea-products.

Because of the possible fast financial returns attainable from the marketing and export of sedentary sea products the two offered to negotiate a loan from a financial institution in Port Moresby and to buy and transport the described sea products from Kimbe to Port Moresby markets, and especially export overseas.

With plenty of urging by the first defendant Vicky and Raphael successfully negotiated a loan with Secure Securities Holdings Limited and advanced or obtained a fully drawn loan of one hundred thousand kina (K100,000.00) at 30% interest and to be fully repaid in six (6) weeks of the drawdown date.

The security advanced by Vicky was a Pajero motor vehicle valued at K90,000.00 and the first defendant offered K30,000.00 cash as collateral.

On the 20th day of June 2006, the first plaintiff company was given the full amount of K100,000.00 at 30% interest within six weeks, repayment condition.

On the 20th day of June 2006, the first defendant was given K50,000.00 cash.

The first defendant assured Vicky and Raphael on behalf of the Plaintiff that he would dispatch the two tones of sea products to Port Moresby upon his arrival and at any case within 10 days.

14. There is no mention of a written contract between the plaintiffs and the first defendant, so the contract being relied on must be oral. The 'what form? question is answered, as is the 'why'. But who, precisely, are the parties to the contract? When did it come into existence? Where was it entered into? The court is left guessing. That remains the case upon consideration of the evidence. None of the affidavits state with particularity who the parties to the purported contract are; where the contract was entered into; when it was entered into; or how agreement was reached. Was the agreement consummated in the first plaintiff's boardroom? Was it a handshake deal over a cup of tea at the Crowne Plaza? The court does not know.

15. The lack of detail in both the originating process and the evidence makes it very difficult for the plaintiffs to prove their case. They could have perhaps saved themselves if the evidence before the court showed how they gave effect to their side of the bargain, in particular the circumstances in which they advanced the first defendant K50,000.00. The statement in support of the originating summons says they gave him K50,000.00 cash. But, where? When? How? In what denominations? Where is the receipt? Where did the cash come from? Why such a large amount in cash? There is an allusion to the first defendant providing K30,000.00 in 'collateral' to facilitate the loan from Secure Securities Holdings Ltd. When, where and in what form was this money provided? Shouldn't it be set off against the K50,000.00? Did the first defendant get on a flight to Kimbe carrying K50,000.00 cash? The affidavits do not supply the answers to these questions.

16. There is evidence of a written loan agreement between the plaintiffs and Secure Securities Holdings Ltd, dated 20 June 2006. A copy is annexed to the second plaintiff's first affidavit. But it has few of the hallmarks of a proper, lawful agreement. The borrower is described on the front of the two-page argument as Veltro Ltd, yet the body of the agreement states that Vicky Vagikapi is the borrower; and further on it states that "Vicky Vagikapi, Raphael Kora and Lin Steven of Veltro Ltd" will repay the principal of K100,000.00 with 30% interest within six weeks of the date of the agreement. The agreement does not create any mortgage or give any other security to the lender. There is no evidence that stamp duty has been paid in accordance with the Stamp Duties Act Chapter No 117. It is therefore doubtful whether the loan agreement is properly in evidence, in light of Section 19(1) (unstamped instruments produced in evidence) of that Act, which states:

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.

17. There is no indication that the lender is a licensed financial institution under the Banks and Financial Institutions Act 2000. Nor are there any normal business records for the first plaintiff that evidence the decision to borrow the K100,000.00 or to advance money to the first defendant. There is no sign of any documented decision. No minutes of a board meeting. No correspondence with the first defendant. Nothing!

18. The plaintiffs claim that their business is at risk of failing as they have been required to repay the loan obtained from Secure Securities Holdings Ltd. But there is no document showing the state of the loan account, any repayments made or the amount of interest due. Also annexed to the first plaintiff's first affidavit is a document that looks something like a bank statement for Veltro Ltd, dated 3 July 2006 (that is interesting given that the affidavit is dated 2 July 2006). But there is no indication of the bank, branch or account number. It appears to describe transactions occurring on 20 June 2006, on which date the bank account (if that is what it is) had a credit balance of K159.19. That is followed by a cheque withdrawal of K70.00, making the balance K89.19; then a transfer into the account of K100,000.00. Perhaps this is the K100,000.00 said to have been borrowed from Secure Securities Holdings Ltd. But the description of this transaction is "Transfer Ref: Wilfred Kasi Loan Payment Transfer from 11542678". There is no mention of Secure Securities Holdings Ltd, though Wilfred Kasi is the name appearing on the loan agreement as its authorised agent. Then there is a cheque withdrawal for K60,000.00. Perhaps this was the source of the K50,000.00 cash said to have been given to the first defendant. Perhaps not. Again, the court is left to play a guessing game and that is not a proper way to conduct litigation.

19. There was no evidence of any written agreement. There was no written record, memorandum or notes of any agreement. Nor was there any evidence to verify what was deposed to in various affidavits, that money was given by the plaintiffs to the first defendant: no corporate records; no correspondence between the parties; no bank records evidencing the transfer of money between accounts; no cheques; no receipts. There was no evidence that the sea cucumber at the centre of this case was harvested and traded lawfully in accordance with the Fisheries Management Act 1998.

20. I conclude that the plaintiffs have not discharged the onus of proving on the balance of probabilities that they had any contract with the first defendant, let alone what its terms were. They have not proven that they gave the first defendant K50,000.00. They have not proven their case and they will not be granted any of the relief sought in the originating summons.

LEGITIMATE BUSINESS TRANSACTIONS

21. When a party invokes the jurisdiction of the National Court to enforce a commercial agreement the Court will expect to be presented with evidence showing the trappings of normal, legitimate business transactions and operations. The evidence should demonstrate compliance with the Income Tax Act 1959. Section 356 (taxpayer to keep records) requires companies carrying on business to maintain proper business records for at least seven years and makes it an offence not to do so. It states:

... a person carrying on a business shall keep in Papua New Guinea, in the English language, sufficient records of his income and expenditure to enable his assessable income and allowable deductions to be readily ascertained, and shall retain those records in Papua New Guinea for a period of at least seven years after the completion of the transactions, acts or operations to which they relate.

Penalty: A fine of not less than K500.00 and not exceeding K5,000.00.

22. As Woods J stated in the National Court in Graham Mappa v PNG Electricity Commission [1995] PNGLR 170:

... if you wish to establish matters like loss of profits from the operation of a modern business then it is necessary to comply with the modern law, for example, producing such records as are required by law. If you wish to have the advantages of a modern world of business, then you must comply with the modern matters like tax laws.

23. The courts will not as a matter of principle, enforce illegal contracts (Putput Logging Pty Ltd v Phillip Ambalis [1992] PNGLR 159, National Court, Sheehan J). When a case is presented like this one, everything becomes shrouded in suspicion. The almost total absence of business records, the involvement of an apparently unlicensed financial institution and the spectre of an unlicensed and illegal trade in sea cucumber around Kimbe give the appearance of illegitimate or irregular business. The National Court should not allow its processes to be used to legitimise something that appears illegitimate.

THE CONTEMPT ISSUE

24. Though the primary relief sought by the plaintiffs will be refused, allegations have been made that the first defendant defied the interim injunction issued during the course of the proceedings. The plaintiffs are at liberty to invoke the contempt provisions of the National Court Rules to remedy any contempt that has been committed.

COSTS

25. Normally the party that wins a case will get a costs order in its favour. The defendants have won the case but only the first defendant appeared – and he did not have a lawyer. There also remains the issue of contempt that the first defendant might have to answer to. This has been a bizarre case and none of the parties deserves a costs order.

INTEGRITY OF THE BUSINESS SECTOR

26. I have not concluded any findings about the legality of the business operations of the parties or others mentioned in the evidence. I have, however, gained some impressions and expressed concern about the legitimacy of the transactions involved. When a case like this comes before the court I feel obliged to bring it to the attention of the regulatory authorities whose statutory functions include preserving the integrity of the business sector in Papua New Guinea, reducing the black economy and minimising the risk of money laundering. I will forward copies of this judgment to the following officials:

• Commissioner General of Internal Revenue;
• Governor of the Bank of Papua New Guinea;
• Managing Director, National Fisheries Authority;
• Registrar of Companies; and
• Secretary, Department of Foreign Affairs and Immigration.
  

ORDER

27. The order of the court will be:

(1) all of the plaintiffs' claims for relief are refused;

(2) the parties bear their own costs;

(3) the interim injunction granted on 5 July 2006 is discharged.

_______________________________________________________

Q Legal Agency: Lawyers for the Plaintiffs
Lawyers for the defendants: No lawyers on the record