Naki v AGC (Pacific) Ltd [2005] PGNC 163; N2782 (4 February 2005)

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CONTRACTS – chattel mortgage agreement – plaintiff filled out application for finance – proposal to purchase truck – submitted application to defendant finance company through car dealer – conditional approval given – finance company gave plaintiff contract and other documents to sign – plaintiff signed documents – documents received by defendant – finance company failed to execute the contract form – officer of defendant gave approval for release of truck – plaintiff took possession of truck – defendant decided not to go ahead with finance – failure to communicate decision to plaintiff – plaintiff used truck – plaintiff paid loan repayments to defendant – accepted by defendant – defendant refused to provide finance – issues for determination – whether a contract was formed – elements of a contract: agreement, intention to create legal relations, consideration – whether agreement made – identification of offer and acceptance – tests to apply – whether an intention to create legal relations existed – whether the consideration element satisfied – identification of terms of contract – whether contract breached – whether the contract was voidable – whether the plaintiff had induced defendant to enter into contract by misrepresenting his financial position – whether the defendant’s officer who approved release of truck had actual authority to do so – breach of internal procedures within defendant finance company – consequences of breach of procedures – promissory estoppel – decision on liability.

Cases cited:
Maip Pty Ltd v Ambra Coffee Estates Pty Ltd [1995] PNGLR 25
Rainbow Holdings Pty Ltd v Central Province Forest Industries Pty Ltd [1983] PNGLR 34
Seafreight Pty Ltd v Bishop Shipping Services Pty Ltd [1976] PNGLR 22
The State v Keboki Business Group Inc and Morobe Provinsel Gavman [1985] PNGLR 369
Thiess Watkins (PNG) Ltd and Kumagai Gumi Company Ltd v Papua New Guinea Electricity Commission [1988-89] PNGLR 454

This is a case about an alleged breach of contract, a chattel mortgage agreement. The plaintiff, a businessman, says that he entered into the agreement with the defendant, a finance company. Finance was to be provided by the defendant for the purchase of a truck. The plaintiff says that after a few months, the finance company broke the contract. He lost the truck and lost business. He sues for damages. This judgment addresses the question of whether the finance company is liable to pay any damages.

The plaintiff claims that he entered into a chattel mortgage agreement with the defendant. Because of that agreement he was able to acquire a truck. He had already negotiated two lucrative transport contracts. His plan was to use the truck for those contracts. Things went well for a couple of months. He was making his monthly instalments to the defendant. Then, he says, things went bad. He was told that AGC had cancelled their deal. He had to surrender the truck. He lost a lot of money, he says. He wants to be compensated.

AGC says that they only gave conditional approval for the loan. The plaintiff did not meet the conditions. His credit check was unsatisfactory. Some monthly repayments were received from the plaintiff. But that money was returned to him. They cannot be responsible for what happened. Even if there was a contract between them and the plaintiff, he misled them by not telling them about an earlier loan with another finance company. So they were entitled to cancel the contract.

On 8 November 1999 Tamusio Lawyers of Kimbe filed a writ of summons on behalf of the plaintiff. The statement of claim attached to the writ claimed that the plaintiff and the defendant entered into a chattel mortgage agreement under which the defendant would provide finance for the purchase of an Isuzsu truck. The agreement operated for several months, during which time the plaintiff was making satisfactory repayments. Then the truck was repossessed, due to the chattel mortgage agreement being unlawfully cancelled. The plaintiff claims:

On 28 March 2000 Goiye Gileng, a lawyer with Westpac Bank, filed a defence. This highlighted that the agreement was conditional upon a satisfactory credit reference. The defendant denied cancelling the agreement.

On 27 July 2001 Tamusio Lawyers ceased to act for the plaintiff and M R Mugarenang of Morobe Provincial Government commenced acting for the plaintiff.

On 12 November 2002 M R Mugarenang ceased to act for the plaintiff and BT Gobu & Associates commenced acting for the plaintiff.

In June 2003 Allens Arthur Robinson Lawyers of Port Moresby commenced acting for the defendant.

Three witnesses gave oral evidence. Two for the plaintiff and one for the defendant. Eight pieces of documentary evidence were tendered.

In examination in chief the plaintiff stated that he is a small businessman running a PMV business, married with four children and living in Kimbe. He adopted an affidavit he swore on 18 December 2001. In early 1998 he was awarded two separate four-year contracts by Karato Limited, a landowner company at New Britain Palm Oil Ltd (NBPOL) estate. The contracts were for transporting oil palm seedlings and for pick-up and drop-off of NBPOL employees. The total value of the contracts exceeded K600,000.00.

He entered into an agreement with the defendant to finance the purchase of an Isuzu truck from Kimbe Kar Sales. He traded in his existing bus for K20,000.00 and paid an additional K8,620.00, leaving a balance of K29,819.65, to be financed by the defendant. He signed the original of the agreement, which was given to the defendant. They never gave him a copy of the executed agreement, though he requested it on numerous occasions. On 5 February 1999 AGC authorised Kimbe Kar Sales to release the vehicle. He took delivery of the vehicle on that day. Then immediately he started working on the two contracts.

He made payments totalling K4,000.00 from March 1999 to May 1999. In early June 1999 he went to Westpac Kimbe to make his next instalment. A bank officer, Mrs Pole Crompton, did not accept the instalment. She made a phone call to AGC in Kokopo, then told him the agreement was cancelled. She handed him another agreement to sign. But he refused to sign. Mrs Crompton told him that the agreement was cancelled as the defendant had forgotten to do a credit check on him prior to the release of the vehicle. In late June 1999 Kimbe Kar Sales repossessed the vehicle. Kimbe Kar Sales informed him that the defendant had cancelled the agreement and had not paid anything to them. AGC never informed him officially of the cancellation of the deal or the reasons for it.

The plaintiff was asked in cross-examination by Mr Mana, for the defendant, whether he had signed a chattel mortgage agreement in 1999 and read and understood the document. He replied, yes, although he did not speak or read English very well, someone from AGC took the time to go through and explain the document to him. AGC had helped him negotiate the deal with Kimbe Kar Sales for the purchase of the truck. The loan was to be repaid over a two-year period with monthly instalments.

At the time that he was negotiating with AGC, he already had a PMV truck. He had purchased it with a loan from Nambawan Finance Ltd. He had paid back that loan and then made the deal with AGC. He could not recall the date on which he obtained the loan from Nambawan Finance or when he paid it back.

He signed the chattel mortgage agreement with AGC on about 29 January 1999. On 5 February 1999 he picked up the truck. He paid K4,000.00 to AGC between March and May 1999. In March, he paid K2,000.00, in two instalments. In May, he paid another K2,000.00, again in two instalments. In April, there were heavy rains. No work was available from New Britain Palm Oil. So he couldn’t make any payments in April.

The contracts that he had negotiated through New Britain Palm Oil were not in writing.

In June 1999 the Westpac Manager at Kimbe told him that his deal with AGC was cancelled. Kimbe Kar Sales told him the same thing and he took the vehicle back to Kimbe Kar Sales.

In re-examination by Mr Takin, Mr Naki clarified that he had signed the chattel mortgage agreement on 29 January 1999. As far as he was concerned everything was finalised then. AGC had not repossessed the truck. They did not ask him to give it back. He voluntarily gave it back to Kimbe Kar Sales. He repeated that he had no outstanding loan with Nambawan Finance Ltd. AGC never raised any issue about anything outstanding with Nambawan Finance. AGC gave him the impression that everything was okay prior to the vehicle being released to him by Kimbe Kar Sales.

Mr Tobias stated in examination in chief that he is a salesman employed by Kimbe Shipping Agency. He has been with them for more than five years. Kimbe Kar Sales is under the umbrella of Kimbe Shipping Agency. He knows the plaintiff well. He remembers the plaintiff coming to see him in January 1999 with a plan to purchase a long wheelbase Isuzu truck. He gave him a quote. He prepared the documents for the plaintiff to facilitate financing of the purchase of the truck by AGC. Documents were forwarded to AGC Kokopo for approval.

After two weeks of waiting, written approval was forwarded to Kimbe Kar Sales. This stated that the plaintiff could now pay his deposit and provide his trade-in. An invoice was raised and forwarded to the AGC office in Kokopo. From there, lease documents were printed out, then sent back though Westpac Kimbe. He later told the plaintiff to go to Westpac Kimbe to sign the documents, which he did. Then the lease was returned to Kokopo for finalisation. Kimbe Kar Sales then received a release fax. That was on 5 February 1999. The plaintiff then took delivery of the vehicle.

After two months AGC advised that they would not honour the lease with the plaintiff. The truck was repossessed from the customer.

He and his sales manager, Johnny Yamashita, felt sorry for the plaintiff. The plaintiff tried to do the right thing. He had fulfilled all the requirements. He had provided the necessary paperwork such as bank statements for the last six months and details of the contracts with New Britain Palm Oil and cash flows. He lost all his money including his deposit, the Toyota Hi-Ace that he traded in and the comprehensive motor vehicle insurance that he had paid.

In cross-examination by Mr Mana, Mr Tobias said that he assisted the plaintiff put together the financing application. He was familiar with the requirements. He did almost everything for him, including preparing a cash flow. He is not related to him. But he knows him well.

He had done similar deals involving AGC before. He was aware of their requirements, which included comprehensively insuring the vehicle for the duration of the financing agreement, which in this case was 24 months. It was not the dealer’s job to assess the credit-worthiness of the customer. That was not part of the application. It had not been required before. AGC gave written approval in January 1999. There was a fax from Andrew Fangau, the AGC branch manager at Kokopo. It was subject to conditions, relating to the first rental, stamp duty and comprehensive insurance.

Mr Tobias confirmed that there was a release letter from AGC dated 5 February 1999. That resulted in the release of the vehicle to the plaintiff on that day.

Mr Mana asked Mr Tobias about a delivery docket. Wouldn’t the plaintiff have had to sign a docket when he picked up the vehicle? Mr Tobias did not answer that question clearly. He undertook to try to find a copy of such a document. It has not, however, been forthcoming.

Mr Tobias was asked how AGC had communicated their cancellation of the chattel mortgage agreement or the withdrawal of finance. He replied that the customer, Steven Naki, himself brought the vehicle in voluntarily. AGC did not communicate with Kimbe Kar Sales in writing. He was advised verbally on the telephone by a lady at AGC Kokopo called Marilyn. After Mr Naki returned the vehicle, he was not reimbursed any cash.

In re-examination by Mr Takin, Mr Tobias said that the plaintiff was a good customer. He had a good standing in the community and with the Westpac Bank. AGC had not raised any issue about credit references for the plaintiff.

Mrs Hau is an AGC officer. She stated in examination in chief that she has been employed there for 16 years. She has been involved in the business of financing chattels. She has been a lending officer for nine years.

She explained AGC’s procedures for processing finance applications. This starts with a pre-submission from the customer or the customer’s representative. An application is filled out by the customer or the representative, often a car dealer. An AGC officer will then assess it for serviceability and whether the customer has experience in conducting a loan with AGC. The customer’s income sources will be assessed, together with the customer’s ability to service the loan and any previous credit experience. The application is then sent to head office for conditional approval by the lending manager who will identify the requirements to be satisfied by the customer before the loan is approved.

The AGC officer will then advise the car dealer whether the deal will go ahead. If the go-ahead is given, AGC will ask the dealer to inform the customer that they will do a deal, subject to whatever conditions are listed on the approval list.

If and when those conditions are met, the dealer gives AGC an invoice. Then AGC draws up a chattel mortgage agreement. Then the customer is asked to sign up, preferably at an AGC office, but if there is none nearby, at a Westpac Bank branch. If the document is signed outside an AGC office the customer is asked not to date it. The document is then sent to the AGC office that initiated it and a compliance check is carried out there. An officer will check that the document has been filled in correctly and that all the conditions have been met.

The file is then sent to head office to be checked by the lending manager who has the final approval. If everything is okay he accepts the deed and pays the dealer for the balance of the invoice. After payment is made, the signed documents are registered with the courthouse as a chattel mortgage.

Mrs Hau was then asked questions about the plaintiff’s case. She was shown a number of documents, which became exhibits. The first document, in chronological order, was a vehicle quotation, addressed to Steven Naki. It was in relation to an Isuzu truck. The price quoted was K54,990.00. It was dated 30/12/98.

She identified as the "pre-submission" a facsimile transmission dated in January 1999 from Kimbe Kar Sales to AGC Finance, Kokopo. This enclosed a finance application form, apparently filled in by the plaintiff, and bank statements and other supporting documents, including cash flows and a reference letter from the Oil Palm Industry Association.

She identified a facsimile message from Andrew Fangau, AGC’s Kokopo branch manager, to Don Asbury, AGC’s lending manager, in Port Moresby. The message is dated 11/01/99. It is in relation to the plaintiff’s credit application and states:

Don, I will do more work on this proposal, however, we require a conditional approval due to competition with NFL [Nambawan Finance Ltd] who are stalling a reply to my request for a credit reference.

She identified a pro-forma document headed "credit check information", filled out by Mr Fangau. It was also dated 11/01/99. This was the lending officer’s assessment of the proposed transaction. This concluded that net finance of K30,000.00 be provided, subject to:

Mrs Hau explained that the reference to NFL indicated that the plaintiff had an existing Nambawan Finance Ltd loan account and that the vehicle he intended to trade-in may have been encumbered.

Mrs Hau identified a two-page facsimile message from Andrew Fangau, AGC Kokopo, to Greg Tobias of Kimbe Kar Sales. It was also dated 11/01/99. This was in relation to "conditional approval" of the plaintiff’s application for finance. Finance was approved subject to:

She identified the schedule to the standard chattel mortgage agreement that had been signed by the plaintiff, in the presence of Pole Crompton, a Westpac Bank officer, in Kimbe. It was undated.

She identified a document headed "ACKNOWLEDGMENT". She said that this is the document that is handed to customers before they sign up any agreement with AGC. This document was signed and initialled by the plaintiff and dated 29/01/99. It states, in so far as relevant:

A C K N O W L E D G E M E N T

I am the customer or director/s of the company referred to in the attached Mortgage/Lease document between AGC (PACIFIC) Ltd (AGC) and MR STEVEN NAKI dated 29/01/99.

I hereby acknowledge that a representative of AGC or Westpac explained to me the terms of the transaction. I acknowledge and understand the following:

(b) that I must make monthly payments to AGC in accordance with the attached document; and that if I fail or refuse to make payment on time or otherwise breach the agreement) AGC may exercise its rights including (but not limited to) taking possession of the goods.

She identified another document, also dated 29/01/99. This is headed "REQUEST TO REGISTER AN INTEREST". This standard document that is sent to AC Fox & Associates, to get them to register AGC’s interest on the chattel security register. This document is signed for and on behalf of AGC. It also contains a section at the bottom of the document entitled "Acknowledgment by Customer". Mrs Hau did not say so in her evidence, but it is apparent that the plaintiff signed this acknowledgement.

Attention: Mrs Karina Homer
Caesar – Chattel Security Register
AC Fox & Associates (PNG)

Fax: 320-0245 Date: 29/01/99

REQUEST TO REGISTER AN INTEREST

We have taken security over the goods as listed below and we request that our interest be noted on the Chattel Security Register as follows:

Trade Name: AGC (Pacific Limited) Registration No: ...................

Telephone: 321-4555 Engine No: 628598

Address: PO Box 11 Chassis No: 7100117
PORT MORESBY NCD
Chattel Type: VEHICLE

Contract Date: 29.01.99 Sub Type: LWB TRUCK

Encumbrance Type: ‘M" Make: ISUZU

Contract No: 5003 -049 Model: NPR58L

Expiry Date: ..................... Colour: WHITE

For and on behalf of AGC (Pacific) Limited: ...............[SIGNED]

Acknowledgement by Customer

I agree that by entering into a Lease/Chattel Mortgage Agreement, the goods as stated will be used as security and, such, will be recorded on the Chattel Security Register.

I understand that it is ILLEGAL to dispose of the goods in any way or to release the goods from my possession without paying out the above-mentioned contract with AGC (Pacific) Limited in full

Signed: [SIGNED S Naki] Signed: ..........................

She identified a document on Nambawan Finance Ltd letterhead. This was dated as being received on 11/02/98; though it is obvious that the date should have been 11/02/99. The contents of the document are illegible. But it bears a handwritten inscription, saying:

When questioned why the copies of many of the documents were difficult to read, Mrs Hau replied that the head office file on the matter had been lost. They only had copies. (She later explained in cross-examination, that some of the documents had been faxed and, with the passage of time, the faxed copies had faded considerably.)

Mrs Hau identified a handwritten document headed "File: CHATTEL MORTGAGE APPROVAL FOR STEVEN NAKI". This is a file-note prepared by Marilyn Wennal, an AGC officer in Kokopo.

As an Officer Staff member I had prepared Chattel Mortgage Agreements and relevant Documents required. Documents were sent via EMS to WPAC Kimbe. The client signed up 29/01/99 and Documents were sent back to AGC Kokopo 01/02/99. We received the documents here on 4/2/99. We believe the client got delivery of them on same day 29/1/99. And according to documents being received on 4/2 and next day was another Friday 5/2/99, the salesman from Kimbe Kar Sales called us asking for the Release Letter. Greg Tobias Sales Rep and Sales manger Johnny Yamashita at the time of this Deal.

Due to this Deal Salesman pushing to get OK Letter, Manager at the time Andrew Fangau signed his life away without one condition not put together. [sic] Later the next week 11/2/99, Mgr A Fangau, instructed me to get opinion from NFL and sure the opinion came back with rating not satisfactory. On the same day Andrew advised Deal Not to Proceed. Release Letter given without good or confirmation from NFL. Later the next month March – Our Client’s file as per Managers Advised Deal to be withdrawn. [sic]

During this period after he signed on 29/1/99, he paid us K3,000.00, K1,000.00 each on separate dates. 8/3, 22/3 & 3/5/99.

Due to this payment done by Client, the file is kept out as pending until April and then in May was instructed as discussion by New Manger and Lending Manager, New Sets of Agreement to be sent to Westpac. [sic]

New set of Document were sent on 28/5/99 but unfortunately, client refuse to sign. He said he doesn’t want to pay any rentals as per covering Letter to Westpac Bank.

The first set of Documents were being dated 29/1/99 as date of signing and there is no date for commencement yet.

Mrs Hau confirmed that the plaintiff had made four "upfront payments", totalling K4,000.00. They have all been refunded to him.

In cross-examination, Mrs Hau was asked whether the plaintiff owed anything to Nambawan Finance. She did not know. She had no documents to prove that he did. But he "would have" had money owing. The following questions, by Mr Takin, and answers, by Mrs Hau, are recorded in the transcript:

A: The deal was not in order and did not get executed by our officers in head office. The final decision is in the head office when they accept the agreement as a deed.

In re-examination, Mrs Hau confirmed the role of Andrew Fangau in the events. On 11 January 1999 he sought authority from Don Asbury to give conditional approval of Mr Naki’s transaction. Mr Fangau later gave conditional approval. Then it was him who wrote on the correspondence that came from Nambawan Finance Ltd, on 11 February 1999, that the deal was not to proceed.

Reference	Date	Description
A	18.12.00	Affidavit of Steven Naki, with the following annexures:
		No	Date	Description
		(a)	19.01.99	Kimbe Kar Sales vehicle invoice
		(b)	19.01.99	Kimbe Kar Sales cash receipt etc
		(c)	undated	AGC chattel mortgage
		(d)	05.02.99	AGC Pacific Ltd release letter
		(e)	08.03.99	Westpac Bank deposit slip K1,000.00 etc
		(f)	28.05.99	Letter: AGC/Jacob Okole (Manager, Kokopo) to Manager, Westpac Bank, Kimbe
		(g)	–	Letter: Kimbe Kar Sales/Manager AGC Pacific Ltd
		(h)	–	Letter: Mugarenang/Legal Officer Westpac Bank
B	29.01.99	Schedule etc
C	??.01.99	Fax: Kimbe Kar Sales/AGC Finance Ltd, Kokopo
D	11.01.99	Fax: Andrew Fangau/Don Asbury
E	11.01.99	Fax: AGC Kokopo/ Kimbe Kar Sales
F	11.02.99	Letter: AGC/Nambawan Finance Ltd
G	11.02.98[sic]	Letter: Nambawan Finance Ltd/[illegible]
H	Undated	Handwritten note headed "File: Chattel Mortgage Approval for Steven Naki", by Marilyn Wennal, Kokopo branch

On 30 December 1998 the plaintiff went to Kimbe Kar Sales to enquire about purchasing an Isuzu truck. He was quoted a total price of K54,990.00. He proposed to trade-in his Toyota Hiace 15-seater bus. He was offered a trade-in of K20,000.00.

On or about 5 January 1999 the plaintiff filled out an AGC Finance application form with the assistance of Greg Tobias of Kimbe Kar Sales. On the same day, Mr Tobias faxed the application form, with supporting documents, to AGC at Kokopo.

On 11 January 1999, the plaintiff’s finance application was processed within AGC. Andrew Fangau, the Kokopo branch manager, asked the lending manager in Port Moresby, Don Asbury, for conditional approval. Mr Asbury quickly gave conditional approval. Then, on the same day, 11 January 1999, Mr Fangau sent a fax to Kimbe Kar Sales, confirming that finance has been approved subject to certain conditions being met, including "good NFL credit report".

On 19 January 1999 the plaintiff paid an amount of cash to Kimbe Kar Sales as a deposit on the truck. On the same day Kimbe Kar Sales completed a vehicle invoice showing a total sale price for the truck of K54,990.00. After taking account of the trade-in, sales tax, on-road costs, and the cash deposit, the balance due was K29,819.65. Greg Tobias faxed that invoice to AGC at Kokopo the same day. So the proposed amount that AGC would be providing was approximately K30,000.00.

On 29 January 1999 the plaintiff attended the Westpac Bank in Kimbe and signed three documents in the presence of Westpac officer, Pole Crompton:

The first document is summarised below. The other two were dealt with in the summary of Mrs Hau’s evidence.

The chattel mortgage agreement consisted of four pages. The first three pages contained a heading, a preamble and 13 clauses. The fourth page contained a schedule and an execution section.

AGC (PACIFIC) LIMITED
CHATTEL MORTGAGE

THIS DEED is made the day of 19

BETWEEN: The person(s) or company described in Item 1 of the Schedule ("the Customer")

AND: AGC (PACIFIC LIMITED) a company duly incorporated in Papua New Guinea and having its registered office at PO Box 15, Port Moresby, National Capital District ("the Company")

WHEREAS:

The Customer has requested a loan from the Company equivalent to the amount financed as specified in Item 2 of the Schedule forming part of this Deed.
The amount financed has been requested for the purpose of enabling the Customer to provide for payment of the goods described in Item 3 of the Schedule purchased from the supplier named in Item 4 of the Schedule.

The company has agreed to advance the amount specified in Item 2 of the schedule by satisfying the Customer’s obligations to the said supplier of the goods and the insurer of them who is named in Item 5 of the Schedule in such manner as the company may agree with them.

Clause 2 dealt with some of the customer’s covenants including the obligation to make repayments of the amount financed and interest by instalments of the amount stated in item 7 in the schedule.

Clause 3 dealt with the security by which the customer absolutely assigned the goods to the company by way of mortgage etc.

Clause 5 dealt with further covenants of the customer, including the obligation to keep the goods in good order and repair.

Clause 6 stated that the customer covenants to provide the company with particulars of any event of default etc.

Clause 7 obliged the customer to promptly execute all documents and do all things that the company from time to time reasonably requires etc.

Clause 8 contained an irrevocable appointment of the company as the customer’s attorney with certain rights.

Clause 13 was an acknowledgement and consent clause, by which the customer acknowledged that commissions etc may have been paid to a dealer by the company.

ITEM 1	CUSTOMER’S NAME(S) ____STEVEN NAKI_______________
	ADDRESS: P O BOX 510, KIMBE, WNBP
ITEM 2	AMOUNT FINANCED:		Cash Price		K 54,990.00
			Total Deposit		K 26,691.35
			Sub-Total		K 28,298.65
			Miscellaneous Expenses		K 1,521.00
			Insurance
			Registration Fees		K 146.35
			Stamp Duty		K 34.00
			AMOUNT FINANCED		K 30,000.00
ITEM 3	DESCRIPTION OF GOODS: ONE (1) ONLY NEW ISUZU LWB TRUCK			ENGINE/ Model No	Serial No VIN No
				628598	7100117
	COLOUR: WHITE			NPR58L
ITEM 4	NAME OF SUPPLIER: KIMBE KAR SALES
	Address: P O BOX 9, KIMBE, WNB
ITEM 5	INSURER: SOUTHERN PACIFIC INSURANCE
	Address: P O BOX 226, KOKOPO, ENBP.
ITEM 6	INTEREST: K15,000.00
ITEM 7	INSTALMENTS: TWENTY-FOUR (24) Principal and Interest is payable at the times and in the amounts hereinafter provided. The sum of K1875.00 per month commencing .......up to and including ........
ITEM 8	DEFAULT INTEREST: 25.0 per centum per annum
ITEM 9	LOCATION OF GOODS: KAPORE, BLOCK # 393 SECTION: 08 KIMBE WNBP
ITEM 10	PLACE FOR PAYMENT:	AGC (PACIFIC) LIMITED LEVEL 1, ANG HAUS, HUNTER STREET PORT MORESBY, NCD

Soon after the plaintiff signed the documents, Mrs Crompton sent them to AGC Kokopo, who received them on 4 February 1999.

On 5 February 1999 AGC Kokopo sent a fax to Kimbe Kar Sales, authorising release of the truck to the plaintiff. The document was expressed to be from "Don Asbury Lending Manager Port Moresby". It was signed on his behalf by Andrew Fangau. The plaintiff signed an acknowledgment at the base of the document.

Release Letter

CLIENT MR STEVEN NAKI

UNIT 1 X NEW ISUZU LWB TRUCK
ENGINE NO 628598 CHASSIS NO 7100117
REGO NO TBA KAC-386 COLOUR WHITE

We confirm that all documentation for the above named have been signed and sealed to our satisfaction and that comprehensive insurance is in place. It is now OK to release the above unit.

..........[Signed by A Fangau, for]
Don Asbury – Lending Manager – PNG
_________________________________________________________________
Customer’s Delivery Acknowledgment

I STEVEN NAKI acknowledge that we have taken delivery of the above goods from the supplier today (date) 5-2-99 And also acknowledge that this will be my due date for all future payments to AGC (Pacific) Ltd. Please enter this date on my contract with AGC (Pacific) Ltd for the above goods.
[Signed]
_________________________________________________________________
Dealers please have your customers sign this acknowledgement when they collect the above goods then you fax back to AGC Port Moresby to enable us to complete the documents and process SETTLEMENT cheques on your behalf.

On that day, 5 February 1999, the plaintiff took delivery of the truck. Mr Mana asked me to find that the plaintiff took delivery on the day he signed the documents at Westpac Kimbe, 29 January 1999. There is a suggestion in Marilyn Wennal’s file-note that Kimbe Kar Sales was putting pressure on Andrew Fangau to approve the early release of the vehicle. But, though Greg Tobias was evasive when answering questions about the delivery docket, I cannot be satisfied that the plaintiff got the truck any earlier than 5 February 1999.

The plaintiff used the truck until he returned it to Kimbe Kar Sales in June 1999.

Though AGC gave approval on 11 January 1999, subject to a satisfactory credit check with Nambawan Finance Ltd, it was not until one month later, on 11 February 1999, that they formally requested a credit reference. Marilyn Wennal of AGC Kokopo did that. Nambawan Finance Limited replied in writing on the same day.

There was a handwritten inscription on the document from Nambawan, stating "deal not to proceed". That was written by Andrew Fangau.

It is impossible to say what Nambawan Finance Ltd said, as the document that was produced in evidence is illegible. On the one hand, it is possible to infer that NFL said either that Mr Naki had not paid out his Nambawan Finance Ltd loan or the manner in which he had conducted the loan was not satisfactory. On the other hand it is possible to infer that Mr Fangau wrote what he did because he realised that the transaction had proceeded too far, without following proper procedures. Mrs Hau could not say with certainty what the condition of the plaintiff’s loan was with Nambawan Finance Ltd. The plaintiff was adamant that he had paid off the loan, though he had no documents to support what he said. So I am unable to make any finding of fact on it.

It appears that at some time after 11 February 1999, somebody within AGC, probably Andrew Fangau, decided not to go ahead with the financing arrangement with the plaintiff. It is evident from an undated letter from Johnny Yamashita to AGC, that there were several telephone calls made by Kimbe Kar Sales to AGC, Kokopo, in the period after 11 February 1999, to try to clarify what was happening. But nothing was put in writing by AGC.

Despite the information received from Nambawan Finance Ltd and the handwritten inscription that the deal would not proceed, nothing to that effect was communicated to the plaintiff until almost four months later, when the plaintiff’s fifth loan repayment was rejected.

The plaintiff paid four amounts of K1,000.00 each to the credit of AGC by making deposits at Westpac Bank, Kimbe. That was done on 8 March, 22 March, 3 May and 25 May 1999.

At some time during this period (it is not known exactly when or why) Andrew Fangau left the employ of AGC and was replaced as branch manager at Kokopo by Jacob Okole.

On 28 May 1999, Jacob Okole wrote to Westpac Kimbe, attention Mrs Crompton, enclosing fresh documents for execution.

In early June 1999 the plaintiff went to Westpac Kimbe to make another instalment. But Mrs Crompton did not accept the payment. She told him that the agreement was cancelled. She asked him to sign another agreement. But he refused to sign.

Shortly afterwards the plaintiff returned the truck to Kimbe Kar Sales. AGC did not communicate with Kimbe Kar Sales in writing about the deal not going ahead. I accept Mr Tobias’s evidence in that regard. There was no contradictory evidence from AGC.

AGC did not execute the agreement at any stage and never made any payment to Kimbe Kar Sales pursuant to the mortgage chattel agreement. Mr Naki was not reimbursed any cash by Kimbe Kar Sales. But AGC refunded what he had paid to them, through Westpac, Kimbe. AGC never gave the plaintiff any written notice that the deal was off.

It is clear from Mrs Hau’s evidence that AGC’s internal procedures for processing chattel mortgage agreements were breached, in several respects:

The cause of action relied on by the plaintiff is breach of contract. So the major issues of law to address are:

Mr Takin submitted that the plaintiff and AGC entered into a contract when the plaintiff signed the chattel mortgage agreement on 29 January 1999. That agreement was not conditional on a satisfactory credit report. He submits that AGC admitted in their defence that there was a contract in place and are bound by that admission.

If the Court finds that AGC is not bound by its admission, the evidence nevertheless shows that there was a contract concluded. The facts are to be distinguished from those in cases such as Seafreight Pty Ltd v Bishop Shipping Services Pty Ltd [1976] PNGLR 22, where it was found that negotiations were still continuing and there was no contract. Here the negotiations had finished.

Mr Takin submitted that the contract was not made subject to a satisfactory credit rating. Even if it was, the defendant could produce no evidence that the plaintiff had an unsatisfactory credit rating with Nambawan Finance Ltd. The fact that AGC, in June 1999, was prepared to go ahead with the deal, with a newly executed agreement suggests that his credit rating was, in fact, satisfactory.

Mr Mana submitted that there was no contract between the plaintiff and AGC as AGC did not execute the mortgage document. If, however, the Court finds that there was a contract, there are two alternative arguments.

First, approval of the loan and therefore continuance of the contract was conditional upon the plaintiff satisfying the conditions which had been expressly set out in the conditional approval of 11 January 1999. Those conditions formed a fundamental part of the contract. But they were not satisfied. The plaintiff had an unsatisfactory credit reference from Nambawan Finance Ltd. Withdrawal of approval was communicated to the plaintiff, through Kimbe Kar Sales, shortly after 11 February 1999. The release letter signed by Andrew Fangau on 5 February 1999 was invalid as he had no authority to sign it. In any event, the evidence suggests that the truck was released by Kimbe Kar Sales on 29 January 1999, without authority from AGC.

Secondly, the contract was voidable at the option of AGC, as they were induced into the contract by the plaintiff’s misrepresentation about the conduct of his previous account with Nambawan Finance Ltd. The plaintiff should be estopped from denying the truth of his statement (made in the acknowledgment document he signed on 29 January 1999) that he had not withheld any information likely to affect the contract.

This case will be determined by application of the common law of contract. More precisely, by application of common law and equitable principles adopted as part of the underlying law of Papua New Guinea, under Schedule 2.2 (adoption of a common law) and developed under Schedules 2.3 (development etc of the underlying law) and 2.4 (judicial development of the underlying law) of the Constitution.

(1) Subject to this Part, the principles and rules that formed, immediately before Independence Day, the principles and rules of common law and equity in England are adopted, and shall be applied and enforced, as part of the underlying law, except if, and to the extent that—

(b) they are inapplicable or inappropriate to the circumstances of the country from time to time; or

(c) in their application to any particular matter they are inconsistent with custom as adopted by Part 1.

(2) Subject to Subsection (1)(a), (b) and (c), the principles and rules adopted under Subsection (1) include principles and rules relating to the Royal Prerogative, except insofar as they provide for—

(c) a power to do any other act, provision for the doing of which is made by a Constitutional Law or an Act of the Parliament.

(3) The principles and rules of common law and equity are adopted as provided by Subsections (1) and (2) notwithstanding any revision of them by any statute of England that does not apply in the country by virtue of Section Sch 2.6 (adoption of pre-Independence laws).

(4) In relation to any particular question before a court, the operation of Subsection (1)(b) shall be determined by reference, among other things, to the circumstances of the case, including the time and place of any relevant transaction, act or event..

(1) If in any particular matter before a court there appears to be no rule of law that is applicable and appropriate to the circumstances of the country, it is the duty of the National Judicial System, and in particular of the Supreme Court and the National Court, to formulate an appropriate rule as part of the underlying law having regard—

(a) in particular, to the National Goals and Directive Principles and the Basic Social Obligations; and

(d) to the legislation of, and to relevant decisions of the courts of, any country that in the opinion of the court has a legal system similar to that of Papua New Guinea; and

(e) to relevant decisions of courts exercising jurisdiction in or in respect of all or any part of the country at any time,

(2) If in any court other than the Supreme Court a question arises that would involve the performance of the duty imposed by Subsection (1), then, unless the question is trivial, vexatious or irrelevant—

(b) in the case of any other court (not being a village court)—the court shall,

refer the matter for decision to the Supreme Court, and take whatever other action (including the adjournment of proceedings) is appropriate.

In all cases, it is the duty of the National Judicial System, and especially of the Supreme Court and the National Court, to ensure that, with due regard to the need for consistency, the underlying law develops as a coherent system in a manner that is appropriate to the circumstances of the country from time to time, except insofar as it would not be proper to do so by judicial act.

There have been some formulations of rules of contract law and developments of the underlying law relating to contract law since Independence. But the general principles adopted at Independence remain in force. That was the general thrust of the text by D Roebuck, D K Srivistava and J Nonggorr, The Context of Contract in Papua New Guinea, University of Papua New Guinea Press, 1984. Though the text is 20 years old, the propositions it advanced are still valid. The Courts have, generally, not seen a great need to formulate new rules and develop the underlying law where contractual principles are involved.

Neither counsel submitted that the pre-Independence principles and rules of common law and equity of England, adopted under Schedule 2.2 of the Constitution, should not be applied and enforced in this case. I agree that they should be applied and enforced. The principles and rules relating to formation of contracts, breach of contract, avoidance of contract and other aspects of the law of contract raised by this case are not inconsistent with any Constitutional Law or statute. They are not inapplicable or inappropriate to the circumstances of the country. And they are not inconsistent with custom.

Mr Takin’s opening submission was that AGC conceded in their defence to the statement of claim, that there was a contract in existence, so they cannot be now heard to argue that there was no contract. The pleadings are closed, so this is a dead issue. This was a sensible argument, amply supported by basic principles of practice and procedure, and I do not consider that Mr Mana countered it effectively.

No application was made to amend the defence. Mr Mana argued that there was no contract and then proceeded to put a number of alternative propositions in the event that I found that there was, in fact, a contract. That was also a sensible approach. Like a good softballer, Mr Mana was covering his bases.

However I cannot see any reason to reject Mr Takin’s opening submission. The statement of claim pleaded that the plaintiff and the defendant entered into a chattel mortgage agreement in February 1999.

... the defendant admits entering a chattel mortgage agreement ... but says the agreement was subject to, among other conditions, a satisfactory credit reference on behalf of the plaintiff from Nambawan Finance Ltd. [Emphasis added.]

That is an effective concession on what I thought would have been a contentious and live issue. The concession is sufficient to resolve the issue. I will therefore find that there was a contract.

However, as considerable time was devoted in the trial to hearing evidence relevant to that issue and as the submissions of the parties also extensively addressed it, I will examine it in detail.

The underlying law of Papua New Guinea treats an arrangement between two or more parties as a contract when three essential elements exist:

(See generally A G Guest, Chitty on Contracts, 27th edition, Sweet & Maxwell, 1994, pp 89-90.)

To work out whether there is agreement between the parties the conventional test to apply is:

Putting it as Frost CJ did in Seafreight Pty Ltd v Bishop Shipping Services Pty Ltd [1976] PNGLR 22:

If the answer to all the above questions is yes, then the Court should give effect to the outward appearance of agreement and not be concerned with whether one of the parties might have some unexpressed qualification or reservation about what has been agreed on. (See generally Chitty on Contracts, supra, at pp 89-163.)

In the present case a significant event occurred on 29 January 1999 which gave the appearance that AGC was making an offer to the plaintiff to provide finance for the purchase of a truck. AGC gave the plaintiff, through Westpac Kimbe, three documents: a chattel mortgage agreement; a form relating to acknowledgment of liability and other matters; and an acknowledgement form stating that the truck would be used as security and recorded on a chattel security register. All these documents conveyed the impression that AGC intended to enter into a binding agreement with the plaintiff. The documents were given to the plaintiff to sign after a period of negotiation which had extended over several weeks. The plaintiff had filled out an application form. It was submitted through Kimbe Kar Sales to AGC. It was processed. Conditional approval was communicated to Kimbe Kar Sales. Then the plaintiff was asked to sign up.

What was the status of AGC’s actions at that stage? Had AGC made a firm offer, capable of immediate acceptance? Or only made an invitation to treat? An offer is defined in Chitty on Contracts, supra at pp 90-92, as an expression of willingness to contract made with the intention (actual or apparent) that it shall become binding on the person making it as soon as it is accepted by the person to whom it is addressed. An offer is distinguished from an invitation to treat, which is a preliminary communication made prior to a definite offer.

To a reasonable observer, what appears to have happened is that AGC made quite a firm and detailed invitation to the plaintiff subject, by implication, to only one thing: that once it was accepted by the plaintiff, it would be ratified in some way by AGC. It is in some respects misleading to label what AGC did as a mere invitation to treat. But, strictly speaking, I conclude that that is what it was.

What, then, is the status of what the plaintiff did when he signed the documents? If AGC had made an invitation to treat, certainly the plaintiff indicated clearly his intentions. The plaintiff made a very clear and unambiguous offer.

Was the plaintiff’s offer accepted? Yes, it was, when Andrew Fangau sent the release letter on 5 February 1999. The plaintiff was given authority to take possession of the truck.

Before drawing a conclusion on the agreement issue, there are two important submissions made by Mr Mana that need to be addressed. First, his submission that there was no contract because AGC did not execute the mortgage document. Secondly that Mr Fangau acted without authority in issuing the release letter. Both arguments are relevant to the element of agreement. If either argument is sustained, the apparent agreement might be nullified.

There is no rule of law that says that a document of this nature has to be signed by both parties before a contract comes into existence. Agreement of the parties can be inferred from their conduct. (The State v Keboki Business Group Inc and Morobe Provinsel Gavman [1985] PNGLR 369, Supreme Court, Pratt J, Woods J, Cory J.)

There is nothing in the three documents signed by the plaintiff to indicate that an agreement would not become effective until AGC executed the mortgage document.

Everything that happened in this case – culminating in the release letter of 5 February 1999 in which AGC stated amongst other things that "all documentation ... [has] been signed and sealed to our satisfaction" – supports the inference that final agreement was reached.

Mr Mana submitted that the apparent agreement was not real, and the apparent contract was not properly entered into, because the AGC officer who purported to agree to the contract on behalf of AGC, was not authorised to do so. Andrew Fangau, then the branch manager at Kokopo, signed the release letter without authority.

I accept that he signed the release letter without authority and that this was done in clear breach of AGC’s internal procedures. It was one of a number of instances in which AGC’s internal procedures broke down in this case. I listed them earlier. They do not paint a good picture of compliance with due diligence procedures within a financial institution.

However, I do not consider that the breach of AGC’s internal procedures has any bearing on the legal relationship between AGC and the plaintiff. Mr Fangau at that time was a branch manager. The negotiations with the plaintiff had been going on in his geographical domain and were within his control. A reasonable person with knowledge of the actions that he took and the documents that he signed would conclude that he had authority to do what he did. He certainly had apparent or ostensible authority. An agent can bind their principal by entering into a contract on behalf of the principal, if he or she acts within the scope of their apparent or ostensible authority – even if they lack actual authority. (Rainbow Holdings Pty Ltd v Central Province Forest Industries Pty Ltd [1983] PNGLR 34, Supreme Court, Pratt J, Bredmeyer J, McDermott J.) The same principles apply, with even more force, where a senior employee – a branch manager – acts within his apparent or ostensible authority on behalf of his employer and signs a document in the name of his superior officer.

I find that the fact that Mr Fangau acted without actual authority, in breach of standard procedures, is of no consequence. For the same reason, the other many breaches of AGC’s internal procedures which occurred in this case have no legal consequences.

I am satisfied that each party evinced a clear intention to create a legal relationship.

The plaintiff signed a chattel mortgage – a very formal, legal-looking document. He also signed an acknowledgement by which he stated that he acknowledged and understood that he was entering a lease mortgage transaction, that he must make monthly payments, that default interest is payable, that he has the financial ability to meet his obligations, that he believes that all the circumstances in the transactions are fair, that he was aware that he could take the document to a lawyer for advice and that all information given by him was true and correct. The other document he signed – the request to register an interest – included an acknowledgement and understanding that the truck would be used as security and recorded on the chattel security register and that it would be illegal for him to dispose of the truck without paying out the contract with AGC. This was not a loose or informal arrangement.

It was AGC who compiled all those documents and it was AGC who on 5 February 1999 indicated, under the name of the lending manager, Don Asbury, that all documentation had been signed and sealed to their satisfaction.

Every indication to an objective observer is that both parties intended to create legal relations.

This element of the law of contract requires that there be proof that a bargain was struck between the parties. The Courts will not enforce mere promises to do something.

In the present case there was real consideration exchanged between the parties. AGC was promising to provide finance for the purchase of the truck. In return the plaintiff was promising to repay the money provided for purchase of the truck, with interest, and providing a mortgage over the truck in favour of AGC.

I conclude that the parties consummated their arrangement as a contract on 5 February 1999.

Both parties then reinforced, by their conduct, the existence of the contract for several months afterwards.

The plaintiff made several repayments pursuant to the contract and they were accepted.

It was not until early June, when the plaintiff attempted to make his fifth repayment, that AGC did anything that could be regarded as a repudiation of the contract. Even then nothing was put in writing and the intention to withdraw from the contract, or deny its existence, was not effectively communicated to the plaintiff.

The concession that AGC made in their defence, where they admitted entering into a chattel mortgage agreement in February 1999, was therefore correctly made.

The terms of the contract were incorporated within the three documents that the plaintiff signed on 29 January 1999 at Kimbe and the release letter that Mr Fangau and the plaintiff signed on 5 February 1999. AGC became obliged to provide finance, through Kimbe Kar Sales, which would allow the plaintiff to acquire the Isuzu truck. The plaintiff was obliged to make repayments to AGC and to assign his interest in the truck to AGC, pending full repayment of the loan.

Mr Mana submitted that if the Court found that there was a contract, it should hold that the approval of the loan – and the whole contract – was nevertheless conditional upon the plaintiff satisfying the conditions set out in the conditional approval of 11 January 1999. In particular the condition that the plaintiff must have a satisfactory credit rating with Nambawan Finance Limited. However, the document containing the conditions of approval was in the form of a fax which was directed to Kimbe Kar Sales – not to the plaintiff. It was never expressed to the plaintiff that AGC’s offer to him was conditional on them being satisfied as to his having a good credit reference from Nambawan Finance Limited.

More importantly, none of the three documents which the plaintiff signed on 29 January 1999 or the release letter that he signed on 5 February 1999 indicated that the contract was conditional upon a good credit reference from Nambawan Finance Limited.

I conclude therefore that it was not part of the contract that AGC had to be satisfied of the plaintiff’s credit rating.

I find that AGC breached the contract by failing to provide finance to Kimbe Kar Sales for the purchase of the truck, as agreed, and by refusing to accept further repayments from the plaintiff in June 1999, thereby repudiating the contract.

WAS THE CONTRACT VOIDABLE AT THE OPTION OF THE DEFENDANT? WAS IT PROPERLY AVOIDED?

A contract is voidable – ie one of the parties can get out of the contract – if it can be proven that the other party has been guilty of a misrepresentation during the course of the negotiations that led to the contract. The precise effect of misrepresentation depends on whether it was innocent or fraudulent.

However to establish that a contract is voidable, the party seeking to avoid it must establish clearly that there was some misrepresentation of a material matter.

In the present case Mr Mana argued that the plaintiff misrepresented the manner in which he had conducted his previous loan with Nambawan Finance Limited. However I do not accept this submission for two reasons. First the Court was not presented with satisfactory evidence to establish that the plaintiff had not repaid fully his loan with Nambawan Finance Limited or that he had conducted his account with Nambawan Finance Limited in an unsatisfactory way. Mr Mana asked me to draw inferences from what was written by Mr Fangau on the correspondence that came from Nambawan Finance Limited. As I indicated earlier that was not sufficient. AGC raised this issue and bear the evidentiary burden of establishing the factual basis for it. They were unable to discharge that burden.

The second reason I reject the argument about misrepresentation is that there is no evidence that the plaintiff actually made a positive assertion that his Nambawan Finance Limited account had been fully paid.

Having failed to establish any misrepresentation, it is clear that the contract was not voidable by AGC on that ground.

The common law recognises that even though a contract has been entered into between the parties, it may not be enforceable for various reasons. A contract can be vitiated, for example, if the parties are not of full legal capacity, if requirements as to form have not been satisfied, if the contract has been entered into by mistake by the parties as to the identity or existence of the parties or of the subject matter of the contract or if the terms of the contract that were agreed to were so uncertain as to be incapable of enforcement.

It has not been contended by Mr Mana that any such vitiating factors applied in this case. So the contract could not be avoided for any reason.

I have already concluded that there was a contract in place and that the terms of the contract were breached and that the contract was not voidable and could not be avoided by AGC. It is therefore unnecessary to address the issue of whether the plaintiff can maintain a claim against AGC based on estoppel or statute.

However as the issue of estoppel was raised during the course of submissions, I would say that under the doctrine of promissory estoppel, AGC is estopped by its conduct from denying the existence of a contract. (See Maip Pty Ltd v Ambra Coffee Estates Pty Ltd [1995] PNGLR 25, National Court, Woods J; Thiess Watkins (PNG) Ltd and Kumagai Gumi Company Ltd v Papua New Guinea Electricity Commission [1988-89] PNGLR 454, National Court, Hinchliffe J.)

From 5 February 1999, when they approved release of the vehicle, through March and May 1999, when four repayments were accepted, to early June 1999, when they refused to accept a further instalment, AGC’s conduct reinforced the presumption that they were freely engaged in a contractual arrangement with the plaintiff. They made a clear representation, which the plaintiff acted upon to his detriment (by making the repayments). AGC is therefore estopped by its conduct from denying the existence of the contract.

A contract between AGC and the plaintiff was entered into on 5 February 1999. AGC breached the contract. AGC was obliged to provide finance to purchase the truck, which they did not do. The contract was not voidable. The plaintiff has established a cause of action for breach of contract against AGC, which is liable to the plaintiff for damages flowing from that breach.

Lawyers for the plaintiff : B T Gobu & Associates
Lawyers for the defendant : Allens Arthur Robinson

National Court of Papua New Guinea

Naki v AGC (Pacific) Ltd [2005] PGNC 163; N2782 (4 February 2005)