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Kunai v Finance Corporation Ltd [2016] PGNC 363; N6581 (14 December 2016)

N6581

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS No. 1213 OF 2013

BETWEEN:

KOMIT KUNAI & SUNAIM KOMIT
Plaintiffs

AND:

FINANCE CORPORATON LIMITED
Defendant

Kokopo: Anis AJ

2016: 20 October, 1 & 14 December

DEED OF GUARANTEE AND INDEMNITY - guarantors to a lease for purchase of motor vehicle - breach of the lease agreement - vehicle repossessed and dispose off - guarantors claim breaches under various provisions of the Hire Purchase Act of 1966

PRACTICE & PROCEDURE - Capacity to sue - legal status of the plaintiffs - rights as guarantors discussed

Facts

The plaintiffs claimed to be former directors of a company. They also claimed to be joint guarantors to a lease agreement that had been entered into with the defendant where a vehicle was purchased and released to the company.

Held

1. The pleading, namely the statement of claim, was substantially defective and inconsistent with the material facts contained in the evidence of both parties.
   
2. I note the doctrine of privity of contract, which states that only the parties to a contract may sue for breach of contract or allege rights under it.
   

[Cases referred to: Beno Maoko v. Kevin Ling (2008) N3293; Albert Areng v. Gregory Babia (2005) N2895; The Papuan Club Inc. v Nusaum Holdings Ltd (No. 2)(2004) N2603]

3. The original debt (or the primary liability based upon which the guarantee was signed in the first place) must exist or continue to exist, for the guarantee or a guarantee agreement to remain valid.
   

(Case referred to: National Housing Commission v. Queensland Insurance (PNG) Ltd [1988-89] PNGLR 474)

4. The plaintiffs claim was baseless and was dismissed with costs.

Case cited

Beno Maoko v. Kevin Ling (2008) N3293
Albert Areng v. Gregory Babia (2005) N2895
The Papuan Club Inc. v Nusaum Holdings Ltd (No. 2)(2004) N2603
National Housing Commission v. Queensland Insurance (PNG) Ltd [1988-89] PNGLR 474

Counsel:

Mr G ToWaluta, for the Plaintiffs
Mr I. Minding, for the Defendant

JUDGMENT

14^th December, 2016

1. ANIS AJ: This is a claim for breach of various provisions under the Hire Purchase Agreement Act 1966 (HPA).

2. The trial was conducted on 20 October and 1st December 2016. I reserved my ruling to a date to be advised.

3. This is my ruling.

CLAIM

4. The plaintiffs are husband and wife. They own or used to own a company called Kabiu Guards and Security services Limited (KGSL). The company entered into a lease agreement with the defendant to purchase a vehicle, a Mazda BT50 Single Cab 4x4 at PNG Motors Limited. The lease agreement was signed between KGSL and the defendant on 5 October 2007 (lease agreement) and the vehicle was released to KGSL. KGSL however defaulted with its repayments under the lease and the defendant as the lessor repossessed and sold the vehicle.

5. The plaintiffs were guarantors to the lease agreement. They commenced this proceeding alleging various breaches committed by the defendant under the HPA.

6. The defendant denies any breach. It has filed a cross-claim but decided to abandon it during presentation of its submission on 1 December 2016.

ISSUES

7. In my opinion, the issues are as follows:

(i) Whether the pleading is substantially defective;

(ii) Whether the plaintiffs have standing to bring this proceeding;

(iii) Subject to the above, whether the defendant has breached the provisions of the HPA as alleged;

(iv) Whether the Court should grant all the relief sought by the plaintiffs in the statement of claim.

EVIDENCE

8. The parties have agreed to tender their evidence by consent without the benefit of cross-examination. The parties tendered their evidence on 20 October 2016. I set them out herein:

DEFECTIVE PLEADING

9. During the hearing on submissions, I drew the plaintiffs' counsel's attention to the statement of claim. Let me set out paragraphs 1, 4, 6 and 7 of the statement of claim herein:

1. The Plaintiff (jointly) are, husband and wife therefore, in union of each other, is the spouse who were the directors of Kabiu Guards Security Services Ltd and therefore, guarantors to the lease and Hire Purchase Agreement and residing at, Rabuana Ward in KOMBIU Local Level Government area within Rabaul District of East New Britain Province of Papua New Guinea; thereby can sue and be sued in that capacity.

.....

4. In or about the 5^th day of August 2007, the Plaintiff was minded to acquire a Mazda BT-50 Utility, 4X4 Wheel Drive, single-cab motor vehicle offered for sale by PNG Motors Limited (the supplier).

.....

6. Acting in reliance on the said representation(s) the Plaintiff agreed to transaction whereby the supplier sold the goods, to wit, a Mazda Bravo BT-50 single cab 4X4 wheel-drive utility red in colour; to the Defendant and the Plaintiff entered into a hire-purchase agreement and lease with the Defendant to take the goods on lease and hire-purchase, hence, with an option to purchase.
   
7. By a written agreement dated 5^th October, 2007, the Defendant let the goods on lease and hire-purchase to the Plaintiff. A copy of the Agreement will be provided in evidence and produce in court.
   

(Underling is mine)

10. The plaintiffs, as the evidence reveal, were guarantors of the lease agreement. The original lease agreement is marked as Annexure B2 to Exhibit P4. The parties to the lease were the defendant who was the lessor and KGSL who was the lessee. Evidence of the plaintiffs as guarantors is located at page 2 of the lease agreement.

11. This fact was confirmed at the trial by both counsel.

12. Now bearing in mind the said fact and at the same time looking at the above pleading, it is clear that the plaintiffs have wrongly pleaded themselves as parties to the lease agreement. The pleading appears to be substantially defective from the start. The defect is, in my opinion, incurable.

13. To further demonstrate this incurable problem in the pleading, let me point to the relief that are being sought. I read:

1. A declaration that the Plaintiff, jointly, has validly completely performed and honoured its obligation to pay complete instalments to Defendant under the lease and Hire-Purchase Agreement and therefore has the legal and equitable right to exercise its option to purchase pursuant to Sections 5, 17, 21, 22, 25, 27, 30 and 31 of the HPA Act 1966.
   
2. A declaration that Defendant its agent or employee and servant act and actions of reprocession of the goods is a breach of the intended value consideration which should transfer to them the lease and beneficial ownership thereby then provided, to pass-over to the bailee after he has completely paid fully for such motor vehicle constituting the agreed value consideration pursuant to Section 7(i) & (v); (d); (A), (B) (iii) (v), (vi) (ix).
   
3. A declaration that the Hire-Purchase Agreement terminated on the 24^th day of August, 2010 and that the Plaintiff was on that date release from all liability thereunder and otherwise the Honourable Court should make determination or Orders under Sections 37 and 43 of the HPA Act 1966.
   
4. Repayment of K147,956.48.
   

14. In my opinion, the relief sought therein cannot be granted by this Court without the Court breaking the law or fundamental principles of law. They are not achievable following due process or based on law because:

(i) as for the first relief, the plaintiffs are seeking a declaration therein as if it were they that have entered into the lease agreement with the defendant, which they were not;

(ii) as for the second relief, the plaintiffs are seeking a declaration therein again as if they were parties to the lease agreement with the defendant, which they were clearly not. They also want the vehicle's ownership to be transferred to them, which is not possible given that they were not privy to the lease agreement. And the vehicle had been sold;

(iii) as for the third relief, the plaintiffs are seeking declaration therein again as if they had been or were parties to the lease agreement with the defendant. They want orders from the Court for them to be released from any liabilities under the lease agreement. How can they seek such an order or declaration when they were not parties to the lease agreement in the first place? Also, because they were not parties to the lease agreement, except for the guarantee which the defendant to this day has not called on, they do not have any obligations under the lease agreement that would warrant such a declaration.

15. I therefore find in conclusion that the pleading, namely the statement of claim, is substantially defective. I also find the statement of claim to be inconsistent with the material facts contained in both evidence of the parties. I find that the evidence has shown that the plaintiffs were not privy to the lease agreement as they have alleged in their statement of claim.

16. I note the doctrine of privity of contract, which states that only the parties to a contract may sue for breach of contract or allege rights under it [see examples in cases: Beno Maoko v. Kevin Ling (2008) N3293; Albert Areng v. Gregory Babia (2005) N2895; The Papuan Club Inc. v Nusaum Holdings Ltd (No. 2)(2004) N2603] . The plaintiffs were not parties to the lease agreement. The only parties to the lease agreement were KGSL and the defendant. I note that I had pointed that out to counsel for the plaintiffs Mr Towaluta. Counsel submitted that as directors and guarantors, his clients can sue on behalf of the company or in the manner as had been pleaded. I asked counsel to support his submissions with the law and case authorities. Counsel provided no assistance in that regard.

GUARANTEE DISCHARGED BEFORE PROCEEDING FILED

17. The law governing a guarantor and a guarantee or promisor and promisee are separately defined and apply based on their principles. For example, Justice Bredmeyer in the case National Housing Commission v. Queensland Insurance (PNG) Ltd [1988-89] PNGLR 474 held and I read:

A contract of guarantee is a contract by which the guarantor agrees to answer for the debt, default or miscarriage of the debtor to a third person: see s 6 of the Statutes of Frauds and of Limitations (Ch No 333). Volume 20 of Halsbury's Laws of England (4th ed), par 101 at 49 defines a guarantee as:

"an accessory contract by which the promisor undertakes to be answerable to the promisee for the debt, default or miscarriage of another person, whose primary liability to the promisee must exist or be contemplated".

(Underlining is mine)

18. So the key words there as underlined which is relevant for this purpose is that the original debt (or the primary liability based upon which the guarantee was signed in the first place) must exist or continue to exist, for the guarantee remain valid. Well, this does not seem to be the case here. I refer to Exhibit D3. Mr Hughes deposes at paragraph 6 and I read:

6. Unfortunately Kombiu Guards and Securities Limited defaulted on twenty-eight (28) occasions. Consequently the Defendant was prompted to repossess the FinCorp financed vehicle in a step towards settling the loan account. The repossessing of the vehicle took place in July 2010 with total arrears of balance standing at K13,107.76.
   
7. On 29th July 2010, the Defendant successfully sold the vehicle to one Alois Kingsly. Proceeds from the sale of the vehicle was used to settle the outstanding loan balance of K13,107.76.
   

19. The defendant gave evidence that the primary debt has been settled. That is, the defendant has fully recouped its monies owed under the lease agreement that it had entered into with KGSL. Consequently and based on the principles of guarantee, the plaintiffs it seems were actually discharged from the guarantee as of 29 July 2010.

20. So what do I make of this interesting finding? Well, according to the statement of claim, the plaintiffs claim that there are guarantors to the lease agreement. This is now proven to be false. Let me expound on this. The plaintiff's writ of summons was filed on 30 October 2013, which meant that by the time the plaintiffs filed this Court proceeding, they had already been discharged for more than two (2) years as guarantors to the lease agreement.

21. I will say no more except to find that this claim is baseless.

SUMMARY

22. In relation to the first issue, Whether the pleading is substantially defective, my answer is this: "I find the pleading namely the statement of claim substantially defective. I also find evidence filed by both parties, which shows facts that are inconsistent to the pleaded facts. The main striking dissimilarity of course is the fact that the plaintiffs are not parties to the lease agreement which is contrary to what is pleaded in the statement of claim."

23. In relation to the second issue, Whether the plaintiffs have standing to bring this proceeding I would answer "no, the plaintiffs do not have standing to bring proceeding in this manner because they were never privy to the lease agreement. I also note that I have found that the plaintiffs' guarantee agreement had been discharged well over two years before this proceeding was filed. This has also left them with no standing to bring this proceeding in the first place as guarantors of the lease agreement."

24. The third and forth issues are unattainable or irrelevant because of my earlier findings on the first two (2) issues.

AND THE COURT ORDERS

I make the following orders:

1. The proceeding is dismissed forthwith.
   
2. Costs of the proceeding is awarded in favour of the defendant on a party/party basis, which shall be taxed if not agreed.
   
3. The time for entry of this judgment is abridged to the date of settlement by the Registrar of the National Court which shall take place forthwith.
   

The Court orders accordingly,

________________________________________________
Jackson Gah & Associates: Lawyers for the Plaintiffs
In-House Lawyer: Lawyers for the Defendant