N8884
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS. NO. 1775 OF 2019

BETWEEN
KOPYOTO INVESTMENT LTD t/as LODGE 10
Plaintiff

AND
NATIONAL HOUSING CORPORATION
Defendant

Waigani: Makail, J
2021:11th & 22nd June

LIABILITY – Contract – Lending of money – Failure to repay sum borrowed – Breach of – Authority to enter into contract – Validity of – Enforceability of – Part performance of contract – Liability entered against default party 

DAMAGES – Assessment of damages – Damages follow from breach – Claim for interest and penalty interest – Interest rate of 70% – Excessive rate of interest – Exorbitant sum for interest – Unconscionable conduct – Award of interest on a reduced rate of interest of 15% per month

INTEREST – Default interest – Not clearly expressed in contract – Uncertainty – Award of default interest refused

Cases Cited:

Y. Rengle Trading Limited v. Kupiane Gold Resources Limited (2019) N8183

Counsel:

Mr. R. Lains, for the Appellant
Mr. A. Luke, for the Respondent
JUDGMENT

22ndJune, 2021

1.	MAKAIL J: The Plaintiff sues the Defendant for breach of contract and seeks damages in the sum of K2,625,000.00. 

2.	It alleges that the Defendant failed to pay this sum as interest and default interest pursuant to a contract entered into between the parties on 5th July 2016.  It was agreed between the parties that the Defendant would borrow, and the Plaintiff would lend K250,000.00 (“Principal Sum”) to the Defendant to settle the Defendant’s salary bills.  

3.	It was a term of the contract that the Defendant will repay the principal sum by 29th July 2016 together with 70% interest.  In default, there will be a default interest of 8% per week.

4.	The Defendant repaid the principal sum on 27th July 2016.  That was two days prior to the repayment due date.  However, it did not pay interest of 70% on the principal sum which the Plaintiff alleges was K175,000.00.  The Plaintiff submits that the Defendant is liable for K175,000.00.

5.	Consequently, the Defendant is also liable to default interest of 8% per week of K14,000.00 from 29th July 2016 onwards in the total sum of K2,450,000.00, calculated as follows:

	(a)	21 weeks in 2016 at K14,000.00 per week is K294,000.00	
	(b)	52 weeks in 2017 at K14,000.00 per week is K728,000.00
	(c)	52 weeks in 2018 at K14,000.00 per week is K728,000.00
	(d)	50 weeks in 2019 at K14,000.00 per week is K700,000.00
									===========
Total 							K2,450,000.00
									===========

6.	As to liability, first, it is instructive to note that the Defendant failed to file a defence.  However, the Plaintiff neither obtained default judgment prior to trial nor applied for it at trial.  Consequently, liability of the Defendant is still open to debate.

7.	Secondly, the Defendant does not deny that it had entered into a contract with the Plaintiff to borrow K250,000.00 to settle its salary bills.  However, it submits that the contract is void and unenforceable because it is contrary to Section 25 of the National Housing Corporation Act 1990. (“NHC Act”).

8.	Section 25(1) defines an approved bank and approved institution as one that is approved by the Minister.  Section 25(2) authorises the Defendant to borrow money at interest from an approved bank or approved institution by way of mortgage, bank draft or otherwise.  

9.	Section 25(3) provides that the Minister may for and on behalf of the State guarantee to any person from whom the Defendant borrows money the repayment out of money lawfully available.

10.	It may be that the Plaintiff is not an approved bank or approved institution and that the Minister for Housing did not authorise the borrowing of money from the Plaintiff and consequently, the contract was contrary to Section 25 of the NHC Act, but it has been partly performed.  

11.	This is because the Defendant received K250,000.00 from the Plaintiff to settle its salary bills and repaid it before the due date.  Consequently, the Defendant benefited from the contract.  

12.	For this reason, there will be a judgment on liability against the Defendant.

13.	As to damages, a judgment on liability does not relieve the Plaintiff from the burden of proving its loss.  In this case, the dispute is in relation to the interest and default interest components of the contract.  

14.	The Plaintiff submits that the Defendant is bound by the contract and must pay interest of 70% on the principal sum which equates to K175,000.00.  

15.	However, while I accept that parties are bound by the contract, the Plaintiff does not explain if the rate of 70% is not excessive or over the rate of interest charged by commercial banks.  

16.	Secondly, if the applicable rate is used as a guide, the rate of 70% is over and above the rate of 2% per annum under Section 4 of the Judicial Proceedings (Interest on Debts and Damages) Act, 2015.  This is the applicable rate charged in the case of a judgment debt against the State.

17.	For these reasons, I am not satisfied that the rate of interest of 70% is not excessive.  On the other hand, an interest rate of 15% per month on the principal sum of K200,000.00 as applied in Y. Rengle Trading Limited v. Kupiane Gold Resources Limited (2019) N8183 may be considered as reasonable.  

18.	In that case, a comparative analysis of the interest rates charged by BSP Bank and that of the Plaintiff was made.  The bank charged interest at rate of 10% per annum for six years on its Interest Bearing Term Deposit accounts (“IBTD”).  The Court upheld the rate of 15% per month based on the parties’ agreement.

19.	By comparison, in this case, the rate of interest of 70% is not only above 15% per month applied in Y. Rengle case but is over and above 50%.  In my respectful view, it is excessive, exorbitant and constitutes a windfall.  A claim for an exorbitant sum constitutes an unconscionable conduct on the part of the Plaintiff and must be struck down by the Court.  

20.	An interest charged at the rate of 15% per month consistent with the Y. Rengle case is fair and reasonable and will be applied to assess the interest component in this case.  15% of K250,000.00 per month equates to K37,500.00. As the principal sum was paid within a month (July 2016), the sum due for interest for one month at a reduced interest rate is K37,500.00.  This sum is awarded.  

21.	As to default interest, the Plaintiff seems to assume that default interest applies as of right in the event of default in paying interest on the principal sum by 29th July 2016.  However, it is not expressed in the contract that the default interest of 8% per month is charged weekly on the interest in the event of default in paying the interest.

22.	Consequently, it is uncertain if parties had agreed that default interest is charged in addition to the interest where interest is unpaid and remains outstanding after 29th July 2016.  The sum sought for default interest is refused.

23.	There shall be a judgment on liability and the Plaintiff shall be awarded K37,500.00 for 15% interest.  The order sought for 8% interest per week in the total sum of K2,450,000.00 is refused.

24.	There is a further head of damages the Plaintiff seeks to be awarded.  It is special damages which comprises of costs of fuel of K1,500.00, printing, photocopying and postage costs of K700.00 and K1,000.00 for telephone costs.  He also seeks refund of K50.00 for National Court filing fee and K10,000.00 for legal fees.  Damages sought for all these claims are refused because they must be properly sought in the lawyer’s bill of costs and submitted for taxation before the Taxing Officer before certification for payment: see Order 22 of the National Court Rules which provides for the procedure to claim legal and associated costs.

25.	Finally, there shall be an award of interest at the rate of 2% per annum on the judgment sum of K37,500.00 from the date of issue of writ to the date of final settlement pursuant to Sections 4 and 6 of the Judicial Proceedings (Interests on Debts and Damages) Act, 2015.

26.	As to costs, as the Plaintiff did not establish the claim for default interest and claim for special damages, there shall be a further order that each party bear their own costs of the proceeding.
	
Judgment and orders accordingly.
___________________________________________________________________
Hardy & Stocks Lawyers:	Lawyers for the Plaintiff
NHC In-house Legal Counsel:	Lawyers for the Defendant