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Finance Corporation Ltd v Independent State of Papua New Guinea [2014] PGNC 37; N5682 (4 February 2014)

N5682

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 1363 OF 2007

BETWEEN:

FINANCE CORPORATION
LIMITED
First Plaintiff

AND:

KINA FINANCE
LIMITED
Second Plaintiff

AND:

PNG HOME FINANCE
COMPANY LIMITED
Third Plaintiff

AND:

THE INDEPENDENT STATE
OF PAPUA NEW GUINEA
Defendant

Waigani: Hartshorn J
2014: February 17th,
: April 2nd

Application for specific performance

Cases cited:

Uma More v. The University of Papua New Guinea [1985] PNGLR 401
Yama Group of Companies Ltd v. PNG Power Ltd (2005) N2831

Counsel:

Mr. D. Wood and Mr. D. Onga, for the Plaintiffs

2nd April, 2014

1. HARTSHORN J: This hearing concerned the relief that should be granted to the plaintiffs after judgment had been entered against the defendant (State).

2. I allowed the hearing to proceed in the absence of representation of the State as I was satisfied that the lawyers for the State had been served with a sealed order of this court dated 6th December 2013 and that they had been notified in writing of the date and time of the hearing on two occasions.

3. The plaintiffs are incorporated companies. They are also licensed financial institutions under the Banking and Financial Institutions Act 2000 and are authorised by the Bank of Papua New Guinea to carry on business as lenders of finance.

4. The plaintiffs provide home and personal finance for a variety of purposes to amongst others, public servants. The loans are repaid by fortnightly salary deductions. This is performed pursuant to an agreement by the employer of the particular public servant the State, and the finance company, for the State to make the necessary salary deduction to the finance company, for consideration.

5. In July 2007 a Financial Instruction no. 3/2007 (Financial Instruction) was issued by the Secretary for the Department of Finance. The effect of it was to stop the repayment of loans from finance companies to public servants, by automatic salary deduction.

6. The plaintiffs commenced this proceeding against the State and sought specific performance of the salary deduction acknowledgements that they have with the State. Damages for breach of contract in lieu of or in addition to specific performance were also sought, together with interest and costs.

7. On 29th November 2007 interim injunctive orders were granted and they remain in force. In essence these orders restrain the implementation of the Financial Instruction. In March 2012, the State's defence was struck out and judgment was entered against the State with damages to be assessed.

8. The plaintiffs' no longer seek damages. This is because they have not suffered any loss by virtue of the interim injunctive orders that were granted. Rather, the plaintiffs' seek orders for specific performance of the State's obligations so that existing and future public servants' salary deductions in repayment of loans advanced by the plaintiffs to public servants, continues.

9. The plaintiffs' submit that they seek specific performance of the State's obligations as:

a) there are many unlicensed finance companies which currently operate in Papua New Guinea, which are not regulated by the Bank of Papua New Guinea. Many of the unlicensed finance companies charge borrowers excessively high interest rates, often as much as 20% to 50% per fortnight, which equates to 520% to 1560% per annum.

b) the plaintiffs have a stringent screening process and ensure that borrowers are only allowed to borrow amounts which can be serviced in terms of fortnightly repayments of principal and interest, which amount to less than 50% of their net fortnightly salary, in accordance with section 87 Employment Act.

c) the plaintiffs and other licensed financial institutions cannot operate effectively and provide loans unless there is a binding agreement with the employers of borrowers to deduct fortnightly loan instalments and to remit the loan instalments to the plaintiffs. If this does not occur, the plaintiffs would not lend the money and many employees of the State would obtain finance elsewhere. This could include borrowing money at extortionate interest rates from unlicensed operators.

d) if the State does not sign the 'Employer Acknowledgement', borrowers could default on their fortnightly repayments by directing their payroll supervisors not to make the agreed deductions from their salaries.

e) if the Financial Instruction was implemented, it would mean that the State would be in breach of its contractual obligations to the plaintiffs to deduct the fortnightly loan amounts. It would also mean that all borrowers would be in default of their loans, and the plaintiffs would have no option but to commence proceedings to recover each debt.

10. As to whether the plaintiffs are entitled to seek specific performance, the remedy is equitable and the relief sought is in the nature of a mandatory injunction. Counsel for the plaintiffs relied on the following authoritative passages:

"A perpetual injunction is granted after a final determination of the rights of the parties. It obviates the necessity of bringing action after action in respect of every infringement of the rights so determined." Halsbury's Laws of England, 4th edition, 1991 vol 24, para 803.

"Upon the plaintiff at the hearing establishing entitlement to relief and that an award of damages is not an appropriate alternative remedy the Court may order that the defendant be perpetually restrained. Such an order is a final determination between the parties." Neville, A. G & Ashe, A. W. Equity Proceedings with Precedents (New South Wales) ) Butterworths, 1981) para 103.

"Where a claimant has established that he has a right which has been infringed and that further infringement is threatened to a material extent, he is entitled to an injunction to restrain the threatened infringement upon the ordinary principles upon which the court acts in granting injunctions. If the claimant's right to relief rests mainly on damage which has not been actually suffered but is likely to accrue within a reasonable time, the court will take that into consideration and grant an injunction. Therefore, although the claimants legal right is not disputed, an injunction may be granted to restrain the commission of an apprehended or threatened act, on the ground that if the act is done it will violate the claimants legal right, if he can show strong probability that the apprehended mischief will in fact arise. However, no one can obtain a quia timet order by merely saying 'timeo'; he must aver and prove that what is going on is calculated to infringe his rights."

".... if the defendant claims and insists upon his right or gives distinct notice of his intention or threatens or intends to commit an act which, if committed, would, in the court's opinion, violate the claimant's right, an injunction will be granted."

"Where the court interferes by way of injunction to prevent an injury in respect of which there is a legal remedy, it does so upon either of two distinct grounds: first, that the injury is continuous and second, that it is irreparable. By continuous injury is meant injury which would necessitate the bringing of a series of actions in order to obtain the damages to which such continual annoyance would entitle a claimant. If it is a continuing injury the court will not refuse an injunction because the actual damage arising from it is slight." Halsbury's Laws of England, 4th edition, 1991 vol 24, para 826 and 827.

11. Counsel for the plaintiffs also made reference to Ume More v. The University of Papua New Guinea [1985] PNGLR 401, in which Pratt J at p14 stated:

"One element which requires greater significance in the case of a perpetual injunction is the availability of alternative remedies..."

"It is a basic premise of injunction law that the remedy would not be granted to restrain actionable wrongs for which damages are the proper remedy."

Pratt J relied upon material contained in Spry, and Equitable Remedies, Injunctions and Specific Performance (2nd ed, 1980 at 362):

"The need for equitable intervention does not arise unless it appears, not merely that damages are not an adequate remedy, but also that there is no other adequate remedy at law. It is not often, however, that the existence of a common law remedy other than damages is regarded in this sense, that is, as adequate so as to exclude the right to injunction which might otherwise have been obtained."

12. Counsel for the plaintiffs submitted that being financial lending companies, it is the paramount interest of the plaintiffs that they be able to recoup loan monies and continue to provide consumer loans to employees of the State as per the loan repayment arrangement of direct fortnightly deductions. Consequently, damages would not be an adequate remedy for the plaintiffs as they only seek the enforcement of the loan repayments arrangement by fortnightly deductions by the State. As existing loan agreements were entered into upon the State's agreement to perform fortnightly deductions, no other remedy, other than specific performance, is sought by the plaintiffs. Neither is there any other adequate remedy to compensate the plaintiffs for the breach of any of the current agreements.

13. Counsel for the plaintiffs relied further upon the following passage from Halsbury's Laws of England 4th edn, 1991) Vol 24, para 847 which states:

"Where the injury done to the claimant cannot be estimated and sufficiently compensated for by damages, or is so serious and material that the restoration of things to their former condition is the only method whereby justice can be adequately done, or where the injury complained of is in breach of an express agreement, the court will exercise its jurisdiction and grant a mandatory injunction, even though the expense and trouble of obeying the injunction will be far in excess of any sum which could reasonably awarded by way of damages."

14. In Yama Group of Companies Ltd v. PNG Power Ltd (2005) N2831, Lay J at pages 8 and 9 discussed in detail the guiding principles required for the issuing of mandatory injunctions and affirmed the principal held in Films Rover International Ltd v. Cannon Film Sales Ltd [1981] 1 WLR 760, per Hoffmann J. at p679 that:

"A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice...."

"Semantic arguments over whether the injunction as formulated can properly be classified as mandatory or prohibitory are barren. The question of substance is whether the granting of the injunction would carry that high risk of injustice which is normally associated with the grant of a mandatory injunction."

15. At page 10, Lay J affirmed the view held in Redland Bricks Ltd v Morris [1970] AC per Lord Upjohn at p665 that a mandatory injunction can:

"... only be granted where the plaintiff shows a very strong probability upon the facts that grave damage will accrue to him in the future."

16. At pages 13 to 15 Lay J again cited a passage from Redland Bricks (supra):

"The grant of a mandatory injunction is, of course, entirely discretionary and unlike a negative injunction can never be 'as of course'. Every case must depend essentially upon its own particular circumstances. Any general principles for its application can only be laid down in the most general terms:

1. A mandatory injunction can only be granted where the plaintiff shows a very strong probability upon the facts that grave damage will accrue to him in the future. As Lord Dunedin said in 1919 it is not sufficient to say 'timeo'. [Attorney-General for the Dominion of Canada v Ritchie Contracting and Supply Co [1919] AC 999, 1005 PC]. It is a jurisdiction to be exercised sparingly and with caution but in the proper case unhesitatingly.

2. Damages will not be a sufficient or adequate remedy if such damage does happen. This is only the application of a general principle of equity; it has nothing to do with Lord Cairns Act or Shelfer's case [1894] UKLawRpCh 212; [1895] 1 Ch 287.

3. Unlike the case where a negative injunction is granted to prevent the continuance or recurrance of a wrongful act the question of the cost to the defendant to do works to prevent or lessen the likelihood of a future apprehended wrong must be an element to be taken into account:

a) where the defendant has acted without regard to his neighbours rights, or has tried to steal a march on him or has tried to evade the jurisdiction of the court or, to sum it up, has acted wantonly and quite unreasonably in relation to his neighbour he may be ordered to repay his wanton and unreasonable acts by doing positive work to restore the status quo even if the expense to him is out of all proportion to the advantage and thereby accruing to the plaintiff. As illustrative of this see Woodhouse v Newry Navigation Co [1898] 1 IR 161;

b) but where the defendant has acted reasonably, though in the event wrongly, the cost of remedying by positive action his earlier activities is most important for two reasons. First, because no legal role has yet occurred (which he has not been recompensed at law and in equity) and, in spite of gloomy expert opinion, may never occur or possibly only upon a much smaller scale than anticipated. Secondly, because if ultimately heavy damage does occur the plaintiff is in no way prejudiced for he has his action at law and all his consequential remedies in equity.

So the amount to be expended under a mandatory order by the defendant must be balanced with these considerations in mind against the anticipated possible damage to the plaintiff and if, on such balance, it seems unreasonable to inflict such expenditure upon one who for this purpose is no more than a potential wrongdoer then the court must exercise its jurisdiction accordingly. Of course, the court does not have to order such works as upon the evidence before it will remedy the wrong but may think it proper to impose upon the defendant the obligation of doing certain works which may upon expert opinion merely lessen the likelihood of any further injury to the plaintiffs land. Sargant J pointed this out in effect in the celebrated 'Moving Mountain' case, Kennard v Cory Bros & Co Ltd [1922] 1 Ch 265 at the foot of 274 (his judgment was affirmed in the Court of Appeal [1922] 2 Ch 1):

4. If in the exercise of its discretion the court decides that it is a proper case to grant a mandatory injunction, then the court must be careful to see that the defendant knows exactly in fact what he has to do and this means not as a matter of law but as a matter of fact, so that in carrying out an order he can give his contractors the proper instructions.

This has been well settled for a long time and I regret that I cannot agree with Danckwerts LJ ([1967] 1 WLR 964 B), that the observations of Joyce J in Attorney-General v Staffordshire County Council [1904] UKLawRpCh 176; [1905] 1 Ch 336, 342 have not been followed in practice. My experience has been quite the opposite. There may be some cases where, to revert to the simple illustration I gave earlier, the defendant can be ordered 'to restore the right of way to its former condition'. This is so simple as to require no further elucidation in the court order. But in anything more complicated the court must in fairness to the defendant tell him what he has to do, though it may well be by reference to plans prepared by some surveyor, as pointed out by Sargant J in the passage in the 'Moving Mountain' case to which I have already referred. The principle is summed up by Maugham LJ, in Fishenden v Higgs & Hill Ltd (1935) 153 LT 128, 142:

"I should like to observe, in the first place, that I think a mandatory injunction, except in very exceptional circumstances, ought to be granted in search terms that the person against whom it is granted ought to know exactly what he has to do."

17. In summary, Lay J held the following at pages 15 to 17:

a) "A mandatory injunction should normally only be granted where a strong case that serious damage will occur to the applicant is made out: Shepherd Homes Ltd v Sandham; Redland Bricks Ltd v Morris; Attorney-General for the Dominion of Canada v Ritchie Contracting and Supply Co."

b) "the cost to the defendant of performing the mandatory acts should be weighed against the likely damage to the applicant; Redland Bricks Ltd v Morris."

c) "If the mandatory injunction is simply to restore some activity which has been previously performed by the defendant, rather than to embark upon some new activity, it will be more readily granted; Businessworld Computers Pty Ltd: And Australian Telecommunications commission."

d) "Ultimately in deciding whether or not to grant a mandatory injunction the overriding consideration is an exercise in deciding which course will do the least damage, or, to put it another way, the lower risk of injustice, if it turns out that the court has made the 'wrong' decision; Films Rover International Ltd v Cannon Film Sales Ltd; Robinson v National Airlines Commission."

e) "If an injunction is granted the order should specify exactly what it is the defendant has to do, leaving the defendant in no doubt as to what is required to comply with the order; Redland Bricks Ltd v Morris."

18. From a consideration of the evidence, I am satisfied that if the State does not honour its obligations under the terms of the agreements it has with the plaintiffs, the plaintiffs will suffer adversely as it is likely that many public servants who have loans from the plaintiffs will default on their loans, thousands of loans worth millions of kina would be in default and the State would be in default of the agreements it has with the plaintiffs. Further, the plaintiffs would cease to loan money to public servants and this would likely lead to many public servants resorting to borrowing money from unlicensed moneylenders at exorbitant interest rates.

19. As to the matters to be taken into account when considering whether to order a mandatory injunction, I respectfully adopt those set out by Lay J in Yama Group v. PNG Power (supra).

20. From the evidence, I am satisfied that the plaintiffs have made out a strong case that they will suffer serious damage if the orders they seek are not granted. The plaintiffs have outstanding debts of about K30 million representing loans to public servants. If repayments by automatic deduction cease their ability to recover that amount and to continue to provide future loans to public servants would be seriously compromised.

21. There is no evidence of the cost to the State in complying with the orders sought but in any event the State will continue to receive 5% of each instalment payment in consideration.

22. If the orders sought are granted, they will be restoring or continuing an activity which has been performed by the State and has continued to be performed as a consequence of the injunctive relief. It is not as though the State is being required to perform a new activity.

23. I am satisfied that if the orders sought are granted, they will do the least damage or are likely to cause the lower risk of injustice, if it turns out that this court has made the wrong decision.

24. I am further satisfied that the orders that are sought specify exactly what it is that the State has to do and the State should be in no doubt as to what is required to comply.

25. Given the above I am satisfied that the plaintiffs have satisfactorily made out that they are entitled to the relief that they seek.

Orders

26. The formal Orders of the Court are:

1. The defendant, whether by its officers, servants or agents shall give specific performance of each of the agreements that are contained in the plaintiffs' respective 'Irrevocable Salary/Wages Deduction' forms and 'Irrevocable Salary Deduction Authority' forms and 'Employer Acknowledgement' or any other similar loan deduction authorities, which relate to those loans between the plaintiffs and individual public servants, whereby the defendant by its officer the Secretary of the Department of Finance (or any other responsible person or entity) shall ensure:

a) that all existing computer codes in the Government's Payroll System (GPS) (or any other subsequent system or operation including the GoPNG Payroll System) operated by the Department of Finance in respect of Payment Variation Advices (PVA's) (or any other subsequent system or advice) for public servants currently having consumer loans from the plaintiffs shall be maintained in and not removed from the GPS (or any other subsequent system or operation);

b) that the Department of Finance (or any other responsible person or entity) and the GPS (or any other subsequent system or operation) shall continue to accept and give effect to any new PVA's (or any other subsequent system or advice) from public servants who obtain consumer loans from the plaintiffs and to permit the GPS supervisors to continue to sign Employer Acknowledgements in the plaintiffs' consumer loan application forms regarding deduction of loan repayment instalments and remittance of same to the plaintiffs.

2. The defendant, whether by its officers, servants or agents shall give specific performance of each of the agreements that are contained in the plaintiffs' respective 'Irrevocable Salary/Wages Deduction' forms and 'Irrevocable Salary Deduction Authority' forms and 'Employer Acknowledgement' or any other similar loan deduction authorities, which relate to those loans between the plaintiffs and individual public servants, whereby the defendant, including by its officer the Secretary of the Department of Finance, is permanently restrained from implementing, acting upon or giving effect to Items 7 and 8 of Financial Instruction No. 03/2007 issued by the Secretary of the Department of Finance on 19 July 2007 insofar as the instruction relates to the plaintiffs.

3. The defendant shall pay the plaintiffs' costs of and incidental to this proceeding.

4. The time for entry of these Orders is abridged to the date of settlement by the Registrar, which shall take place forthwith.
_____________________________________________________________

Ashurst Lawyers: Lawyers for the Plaintiffs
Office of the Solicitor General: Lawyers for the Defendant