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Solomaya Finance Ltd v Kuri [2017] PGNC 365; N7057 (10 November 2017)

N7057

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS No.114 of 2016

BETWEEN:
SOLOMAYA FINANCE LIMITED
Plaintiff

AND:
LINDA KURI
Defendant

Waigani : David, J
2017 : 9 & 10 November

DAMAGES – breach of contract – loan agreement – assessment of damages following entry of default judgment – damages under loan agreement - general damages – post-judgment interest – costs of proceedings.

Cases cited:

Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182
Papua New Guinea Banking Corporation (PNGBC) v Tole [2002] PGSC 8; SC694
Rodao Holdings Limited v. Sogeram Development Corporation Limited (2007) N5485
William Mel v Coleman Pakalia (2005) SC790
Otto Benal Magiten v Bilding Tabai (2010) N3916

Counsel:

Alida Gubag with Dakan Doiwa, for the plaintiff

JUDGMENT

9 & 10 November, 2017

1. DAVID, J: INTRODUCTION: This is a decision after a trial on assessment of damages for breach of contract following the entry of default judgment in favour of the plaintiff on 7 December 2016. The plaintiff essentially claims from the defendant a total amount of K620,000.00 being the principal amount claimed of K300,000.00 plus interest of K300,000.00 and general damages of K20,000.00 plus further interest at the rate of 2% per annum on the post judgment amount until payment. By a writ of summons endorsed with a statement of claim filed on 17 February 2016, the plaintiff claims that pursuant to a loan agreement entered into between the parties dated 20 January 2015, the plaintiff lent to the defendant at her request a total amount of K300,000.00 covering six occasions spread over a period of about 6 months from 20 January 2015 to 5 June 2015 with substantial interest payable on each occasion over three fortnights which the defendant has failed to repay despite being demanded to settle.

2. Despite being served with a notice of trial giving notice of the date and time of trial on 25 October 2017, the defendant failed to appear at the trial so the plaintiff was granted leave to conduct the trial in the absence of the defendant: see Affidavit of Service of John Eka sworn and filed on 26 October 2017.

EVIDENCE

3. In order to substantiate its damages, the plaintiff relied on the Affidavit in Support of Yank Ruth sworn on 31 July 2016 and filed on 2 September 2017 (Exhibit “A”).

ISSUE

4. The main issue that I need to decide is what amount of damages is the plaintiff entitled to receive, if any?

LAW

5. Ms Gubag has made reference to a number of case authorities discussing the principles involved in assessing damages after the entry of default judgment or generally and I have considered them. Amongst them is the National Court decision of Rodao Holdings Ltd v Sogeram Development Corporation Ltd (2007) N5485 where Justice Cannings, after referring to decisions of the Supreme Court and National Court namely, Papua New Guinea Banking Corporation v Jeff Tole (2002) SC694, William Mel v Coleman Pakalia and Others (2005) SC790 and Coecon Ltd (Receiver/Manager Appointed) v National Fisheries Authority (2002) N2182 laid out the key principles in relation to the role of the trial judge when assessing damages. These are:

“14. ...The trial judge's role is:

• to make a cursory inquiry so as to be satisfied that the facts and the cause of action are pleaded with sufficient clarity; and
• if the facts and cause of action are reasonably clear, liability should be regarded as proven, ie the default judgment resolves all questions of liability in respect of the matters pleaded in the statement of claim;
• only if the facts or the cause of action pleaded do not make sense or would make an assessment of damages a futile exercise should the judge inquire further and revisit the issue of liability;
• the plaintiff has the burden of producing admissible and credible evidence of the alleged damages;
• any matter that has not been pleaded but is introduced at the trial is a matter on which the defendant can take an issue on liability.
  

General principles for assessment of damages

15. Other general principles to apply when the court is assessing damages can be summarised as follows:

• The plaintiff has the onus of proving his loss on the balance of probabilities. It is not sufficient to make assertions in a statement of claim and then expect the court to award what is claimed. The burden of proving a fact is upon the party alleging it, not the party who denies it. If an allegation forms an essential part of a person's case, that person has the onus of proving the allegation. (Yooken Paklin v The State (2001) N2212, National Court, Jalina J.)
• Corroboration of a claim is usually required and the corroboration must come from an independent source. (Albert Baine v The State (1995) N1335, National Court, Woods J; Kopung Brothers Business Group v Sakawar Kasieng [1997] PNGLR 331, National Court, Lenalia AJ.)
• The principles of proof and corroboration apply even when the defendant fails to present any evidence disputing the claim. (Peter Wanis v Fred Sikiot and The State (1995) N1350, National Court, Woods J.)
• The same principles apply after default judgment is entered and the trial is on assessment of damages – even when the trial is conducted ex parte. A person who obtains a default judgment is not entitled as of right to receive any damages. Injury or damage suffered must still be proved by credible evidence. (Yange Lagan and Others v The State (1995) N1369, National Court, Injia J.)
• If the evidence and pleadings are confusing, contradictory and inherently suspicious, the plaintiff will not discharge the onus of proving his losses on the balance of probabilities. It is conceivable that such a plaintiff will be awarded nothing. (Obed Lalip and Others v Fred Sikiot and The State (1996) N1457, National Court, Injia J.)
• Where default judgment is granted, for damages to be assessed on a given set of facts as pleaded in a statement of claim, the evidence must support the facts pleaded. No evidence will be allowed in support of facts that are not pleaded. (MVIT v Tabanto [1995] PNGLR 214, Supreme Court, Kapi DCJ, Hinchliffe J, Sevua J; Waima v MVIT [1992] PNGLR 254, National Court, Woods J; MVIT v Pupune [1993] PNGLR 370, Supreme Court, Kapi DCJ, Jalina J, Doherty J; Tabie Mathias Koim and 28 Others v The State and Others [1998] PNGLR 247, National Court, Injia J.)
• The court must be alert to vague claims, unsupported by corroborating evidence, as they might be false claims. The court must only uphold genuine claims. (Kolaip Palapi and Others v Sergeant Poko and Others (2001) N2274, National Court, Jalina J.)
  

Special principles regarding damages for breach of contract

16. When assessing damages for breach of contract special principles apply. These come from the leading common law case on damages for breach of contract, Hadley v Baxendale (1854) 9 Exch 341, the principles of which were explained in the other leading common law case Victoria Laundry v Newman [1949] 2 KB 528. Hadley v Baxendale has been considered in PNG in, for example, Tetley v The Administration (1971) No 647, pre-Independence Supreme Court, Frost SPJ and in the Coecon case. I consider that the principle of Hadley v Baxendale and the Victoria Laundry cases are appropriate to the circumstances of PNG, and therefore can be safely applied as part of the underlying law. The special principles are:

• The general principle that the purpose of an award of damages is to put the innocent party in the same position, as far as money can do, as if the guilty party had not committed a wrongful act, is qualified substantially when assessing damages for breach of contract.
• The qualification is that the innocent party only gets the amount of his actual losses that were reasonably foreseeable at the time the contract was formed.
• What is taken to have been reasonably foreseeable at the time the contract was formed depends on two things: (a) the sort of knowledge that any reasonable person would be expected to have; and (b) knowledge of special circumstances outside the ordinary course of things.”
  

6. I adopt the above summaries as reflecting the correct principles of law to be applied in assessing damages after the entry of default judgment or generally.

APPLICATION OF THE PRINCIPLES OF LAW TO FACTS

7. From the pleadings supported by the affidavit evidence of Yank Ruth, I am satisfied that there is no need to revisit the question of liability given the facts and cause of action are reasonably clear so liability should be regarded as proven upon the entry of default judgment on 7 December 2016.

8. So what amount of damages should I award? There are two types of remedies for which the defendant is liable upon the entry of default judgment; the first is to be considered under the loan agreement; and the second is for general damages.

DAMAGES UNDER THE LOAN AGREEMENT

9. The plaintiff is a company registered under the Companies Act and Yank Ruth is the sole director and shareholder of the company: annexure “A” of the Affidavit of Yank Ruth.

10. The plaintiff claims that it lent to the defendant upon her request a sum of K100,000.00 upon the defendant executing a Personal Loan Application Form dated 20 January 2015 which was to be repaid over a period of three fortnights with 100% interest. A copy of Personal Loan Application Form is annexed to the Affidavit of Yank Ruth as annexure “B”. The terms and conditions under which the plaintiff lent K100,000.00 to the defendant are contained in the Personal Loan Application Form which essentially constitutes the loan agreement. The terms and conditions set out in the loan agreement can be summarized thus:

• the borrower undertakes to repay the total amount in the Repayable period dates set out in the loan agreement.
• the borrower guarantees his/her loan repayment by surrendering bank cards and or filing bank standing orders.
• a late payment fee of K50.00 will apply for any default of repayment on the schedule dates.
• one-off payments of K100-K500.00 will be charged with interest at the rate of 30% per fortnight and interest will accumulate upon default.
  

11. Thereafter, the plaintiff claims that the defendant borrowed from it further monies totalling K200,000.00 on five different occasions on the same terms as the previous loan, details of which are tabulated below.

12. The plaintiff claims that the defendant has failed to repay any or any part of the amount borrowed of K300,000.00 including interest despite numerous requests to settle being given to her by the plaintiff: Annexure “E” of Yank Ruth’s affidavit.

13. Annexures “C” (copies of details of bank transactions) and “D” (copies of Bank South Pacific deposit butts) of Yank Ruth’s affidavit go to prove on the balance of probabilities that a total amount of K300,000.00 was lent to the defendant.

14. Clearly there was a loan agreement entered between the parties both documentary and orally because the loan agreement constituted by the Personal Loan Application Form only applied to the first loan of K100, 000.00 and the other five loans were made orally, but based on terms and conditions similar to the loan agreement constituted by the Personal Loan Application Form. The defendant breached the loan agreement when she did not make any repayment.

15. I therefore award in favour of the plaintiff the sum of K300, 000.00 for the principal amount claimed.

16. As to interest, in the statement of claim, the plaintiff at paragraph 3 claims 100% in relation to the loan for K100,000.00 whilst; at paragraph 7, it claims interest at 40% per fortnight for late repayment; and in the prayer for relief, the plaintiff claims interest at 22% per month from 15 June 2015 until judgment. In the loan agreement, the interest rate of 30% per fortnight appears to apply to one-off payments of K100.00 to K500.00. It seems that the pleadings are not supported by the evidence currently before the Court.

17. At the trial, Ms. Gubag handed up a copy of a statutory declaration declared by the defendant which she stated formed part of the loan agreement annexed as annexure “B” to Yank Ruth’s affidavit, but which was inadvertently omitted. There, the defendant declares, inter alia, that 30% interest on the principal amount will accumulate every fortnight based on the balance outstanding or the principal amount. A closer examination of the statutory declaration reveals that it was declared in Mt. Hagen on 17 December 2015. No explanation has been given why the date of execution postdates the dates when the loan agreement was executed or the dates when the subsequent loans were made. In the circumstances, I give no weight to the statutory declaration.

18. With the uncertainty as to which interest rate should apply, how then should I calculate interest? In this regard, I bear in mind the principle that if the evidence and pleadings are confusing, contradictory and inherently suspicious, the plaintiff will not discharge the onus of proving his losses on the balance of probabilities and may not be awarded anything.

19. In the present case however, the plaintiff claims in the alternative, interest at a flat rate of K300, 000.00. That in my view is not warranted for reasons I have alluded to earlier and those that follow below.

20. In order to assist in determining what interest rate to apply, at the trial, I raised with Ms. Gubag of counsel for the plaintiff the question whether the plaintiff is a licensed financial institution and the response I got from her was not convincing. The Banks and Financial Institution Act, inter alia, makes provision for the licensing and regulation of banks and licensed financial institutions in Papua New Guinea. If the plaintiff is a licensed financial institution, it can charge interest at rates it so desires. There is no evidence before the Court that the plaintiff is a licensed financial institution to be involved in the banking business particularly in lending monies to others. It is an offence under Section 7 of the Banks and Financial Institution Act for a person or body corporate to carry on a banking business if it is not an authorized institution unless exempted under Section 8 of the Banks and Financial Institution Act. An authorized institution is a bank or a licensed financial institution: section 3 of the Banks and Financial Institution Act. In the absence of any evidence to the contrary, the onus of which lies on the plaintiff, it may be carrying out an illegal operation. Therefore, the plaintiff having failed to produce evidence to demonstrate that it is a licensed financial institution, I will not apply any of the interest rates claimed by the plaintiff in calculating interest.

21. I will instead be guided by the provisions of the Judicial Proceedings (Interest on Debts and Damages) Act 2015 and will apply the rate of 8% yearly in calculating interest. I will award interest from 15 June 2015 until judgment as claimed in the prayer for relief. Interest on the amount of K300, 000.00 shall therefore be K58, 000.00.

GENERAL DAMAGES

22. The plaintiff has referred me to a number of case authorities by way of comparison which were considered by Justice Cannings in arriving at his assessment in Otto Benal Magiten v Bilding Tabai (2010) N3916. General damages awarded in Otto Benal Magiten v Bilding Tabai and other cases discussed in that case range from K2, 800.00 to K50, 000.00.

23. In the present case, the plaintiff has requested the Court to consider the hardships and inconveniences that it has suffered and endured as a result of the defendant’s breach of the loan agreement and these are:

1. it has suffered economic loss, hardship and inconveniences since 2015 upon the defendant’s breach;
2. it is a small business and the loss of K300,000.00 was a substantial one;
3. the defendant’s lack of interest to settle the debt amicably has cost the plaintiff time, money and effort;
4. it is based in Mt Hagen and it has incurred costs travelling to and from Mt Hagen to prosecute this claim since last year; and
5. the plaintiff has attempted to settle this matter outside of court on various occasions, but the defendant has shown no interest whatsoever in resolving the matter amicably.
   

24. It is submitted that an award of K20, 000.00 for general damages would be appropriate in the circumstances of this case which I accept and I so award. Judgment for K20, 000.00 for general damages is entered in favour of the plaintiff.

POST-JUDGMENT INTEREST

25. Post-judgment interest shall be at the rate of 8% yearly until payment.

COSTS OF THE PROCEEDINGS

26. Costs shall follow the event. The plaintiff’s costs shall be paid by the defendant on a party/party basis, to be taxed, if not agreed.

ORDERS

27. The formal orders of the Court are:

1. Damages payable by the defendant to the plaintiff for the principal amount claimed shall be K300, 000.00.
2. Interest to be paid by the defendant to the plaintiff on the judgment of K300, 000.00 shall be K58, 000.00.
3. General damages payable by the defendant to the plaintiff shall be K20, 000.00.
4. Post-judgment interest shall be calculated at 8% per annum until payment; and
5. Costs of these proceedings shall be paid by the defendant to the plaintiff on a party/party basis, to be taxed, if not agreed.
   

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Makap Lawyers: Lawyers for the Plaintiff