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Ocabae Finance v Kura [2011] PGNC 243; N4915 (17 April 2011)

N4915

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 743 OF 2010

BETWEEN:

OCABAE FINANCE
Plaintiff

AND:

DAVID KURA – Manager of Meloks Incorporated Land Group
First Defendant

AND:

DARIUS BOAS – Chairman of Meloks Incorporated Land Group
Second Defendant

AND:

NASON MAVAGA – Vice Chairman of Meloks Incorporated Land Group
Third Defendant

MELOKS INCORPORATED LAND GROUP
Fourth Defendant

Kimbe: Kawi, J
2010: 8th August
2011: 17th April

PRACTICE AND PROCEDURE – Application for default judgment – plaintiff a small money lender – Defendants borrowed money from the plaintiff – Defendants repaid the principal amount borrowed plus interests – plaintiff continued to charge penalty interests when principal amount paid late – No freedom to enter into agreement to borrow money – Penalty interests is aimed at punishing defendants and unjustly enriching the plaintiff- Charging Penalty Interests at a rate of 100% per day is harsh and oppressive in the circumstances.

Held

1. The 100% penalty interest repayment of K1,200.00 per day, to be paid by the defendants amounts to an unjust penalty imposed upon the defendants. It is intended to unnecessarily and unjustly enrich the plaintiff. This aspect of interest payment is therefore harsh and oppressive as the intention of imposing this penalty interests is meant to penalise an innocent borrower.
   
2. There was no freedom to enter into a legally binding Agreement to borrow money. The defendants did not have much choice in agreeing to borrow the monies from the plaintiff company. The defendants had no choice but to conform to the will of the plaintiff.
   

100. The Banks and Financial Institutions Act is aimed at governing the operations of Banks and Corporations who have been licenced to operate as licenced financial institutions. This legislation does not affect the operations of small money lenders like the plaintiff. A small money lender like the plaintiff does not need a licence from the Central Bank to operate its business.
     

4. In the exercise of my discretion application for default judgment is hereby refused with costs to the defendants.
   

Cases Cited:

There are no cases cited in this Judgement

Counsel

Ms Lorraine Roberts, a company representative for the plaintiff.
Mr G. Linge, for the Defendants

18th April, 2011

1. KAWI J: Brief facts: The plaintiff is in the business of lending small amounts of money to borrowers and charging very hefty interests over and above the kind of interest charged by commercial banks and other licensed financial institutions. On top of their normal hefty borrowing interests they also charge penalty interests at a rate of 100% per day to be paid if a borrower defaults in repaying the monies borrowed on time. The defendants borrowed K4000.00 and it was agreed between the parties that the defendants would pay an additional 100% penalty interests in the event that the defendants make late repayments. The defendants made late repayment of K6,400.00 which included a component for repayment of interests. This repayment was made two months after the date when they were required to repay the monies borrowed. This immediately attracted payment of the 100% penalty interests per day. The plaintiff instituted legal proceedings for the repayment of the accumulation of late penalty interest totalling K16,600.00. The defendants failed to file their Notice of Intention To Defend and a Statement of Defence within the prescribed time limit prescribed by the National Court Rules. The plaintiff then applied for default judgment.

NOTICE OF MOTION

2. The plaintiff Ocabae Finance instituted legal proceedings against the defendants to recover certain interests including penalty interests imposed against the defendants for not paying the amount of money borrowed on time.

3. Pursuant to the Writ of Summons the plaintiff applied for default Judgement against the defendants for failing to file their Notice of Intention to defend and statement of defence within the prescribed time limits. The defendants on their part state that they have repaid the principal amount of K4,000.00 which was borrowed and in addition some interests imposed as penalty interests were also paid. They produced evidence to show that they made a total payment of K6,400.00 to the plaintiff as repayment of the loan and interests including penalty interests. These payments were made on the 14th December 2010. From the K6,400.00 payment made by the defendant the amount of K5,200.00 represented the principal amount borrowed of K4,000.00 while the amount of K1,200.00 represented some penalty interests. A further penalty interests of 100% has allegedly accumulated and as of 24th June 2010, this penalty interest stands at K16,600.00. This is the amount claimed by the plaintiff and which formed the basis of the claim in the Writ of Summons.

4. In my view the payment of the amount of K5,200.00 made on the 14th December 2009 via Cheque No. 90 and a further amount of K1,200.00, also paid on the 14th December 2009, via Cheque No. 109, is sufficient payment of the principal amount borrowed and the interests charged. Further additional penalty interests payable of K1,200.00 per day in my view amounts to an imposition of an unjust penalty against the defendants. The court finds that this aspect of interest payment is unjust, harsh and therefore oppressive in the circumstances.

5. The additional final payment of K1,200.00 per day is intended to unnecessarily penalise the defendants and at the same time unjustly enrich the plaintiffs; who say that the defendants themselves agreed to and willingly accepted the imposition of the 100% repayment penalty interests. In my view an agreement which is intended to penalise the other party is most unfair and the court finds that there has been no freedom of the parties to enter into a legally binding Agreement to borrow money. I will therefore find that the defendants had no choice, but box themselves in to agreeing to the terms imposed by the plaintiff to borrow money. If any the contract in so far as it imposes additional daily penalty interests of 100% is just that: It is a contract which is intended to penalise the defendants and unjustly enrich the plaintiffs.

6. The defendants further argue that the plaintiff is not a licenced institution to operate as a financial institution as required by the Banks and Financial Institutions Act.

7. In my view the Banks and Financial Institutions Act is aimed at governing the operations of Banks and Corporations who have been licenced to operate as financial institutions. That legislation does not apply to small money lenders such as the plaintiff in these proceedings. That legislation only applies to and governs the activities and operations of banks and licenced financial institutions - See Sections 9 and 10. The plaintiff argues that they have been incorporated under the Companies Act and therefore can operate their small money lending business. The Banks and Financial Institutions Act makes it clear that the requirements of their legislation are in addition to and not in derogation of or substitution of the requirements of the Companies Act. I find that an institution like the plaintiff does not need a licence from the Central Bank to operate its business.

8. For these reasons, I will in the exercise of my discretion refuse the entry of default judgment against the defendants. I will further order the defendants to file their Notice of Intention To Defend this proceedings and their Defence to this action within fourteen days as at the date of this judgment.

ORDERS

9. The Orders of the Court are:

1. Application for entry of default judgement is refused
   
2. The defendants are ordered not to pay the penalty interests of K1,200.00 per day.
   

100. The defendants are granted leave to file in their Notice of intention to Defend and Statement of Defence within 14 days as from today, being the 18th of April 2011.
     

4. Costs of this application is awarded to the defendants to be paid by the plaintiffs.
   

____________________________________________________________

Ms Lorraine Roberts for the Plaintiff
First Defendant in person
Gerhard Linge & Associate Lawyers: Lawyers for the Second, Third and Fourth Defendants