N11099
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS  802 OF 2005
WS 1211 OF 2005

BETWEEN:
ROGERS GAPPU YAYABU & PAULA IVARAMI YAYABU
Plaintiffs

AND:
RICHARD MARU – Managing Director
Rural Development Bank Limited
First Defendant

AND:
NATIONAL DEVELOPMENT BANK LIMITED
Second Defendant

Lae: Kangwia J.
2024:  08th & 14th November

CIVIL JURISDICTION – Damages - claim for breaches of loan agreement – stealing of fencing material - mortgage of title deed - arears not settled – exercise of mortgagee rights to sell property - residue of sale not paid to debtor – defendants only liable to pay for residue of sale and stolen material. 
  
Cases Cited: 

Papua New Guinean Cases
Michael Buno v the Independent State of Papua New Guinea (2004) N2696
Papua New Guinea Banking Corporation v Pala Aruai and Freeway Enterprises limited (2002) N2234
Credit Corporation (PNG) Ltd v David Nelson (2011) N4368
Pija Grannies v Rural Development Bank (2011) SC1327
Nationwide Microbank Ltd v Bossy Panel beating and workshop Ltd (2024) N10840
Motor Vehicle Insurance Limited v Tambo (2004) SC2604
Bank Papua New Guinea v Muteng Base [1992] PNGLR 271
PNGBC v Bara Amevo [1998] PNGLR 240
BSP v Public Curator (2003) N2320

Overseas Cases

Bonham Carter v Hyden Park Hotel (1948) 64 TLR 17
Oscar Chess Ltd v Williams [1957] 1 WLR 370

Counsel:

T. Dawidi, for the Plaintiffs
J. Nalawaku, for the Defendants

14th November 2024

1.      KANGWIA J:  This is a case in which the Plaintiffs commenced two proceedings against the Defendants. Under WS 1211 of 2005 the Plaintiffs claimed damages totalling K596,593.28 for breach of a loan agreement. 

2.      Under OS 802 of 2005 the following declarations were sought on a breach of mortgage agreement:

1.	The transfer of title to property known as Agricultural lease Portion 82 Milinch Onga Fourmil Markham by the Defendants to Opoati Trading Ltd is illegal and void.
2.	A declaration that the caveat filed on 9 August 2004 remains in force and effect.
3.	A declaration that the title to property described as Agricultural lease 82 Milinch Onga, Fourmil Markham is still vested in Rogers Yayabu and Paula Ivarami Yayabu. 

3.      In the process of the trial the proceedings were by consent consolidated for submissions to be presented together as they arose out of the same allegations.
 
4.       In the consolidated proceeding the Plaintiffs claim the following relieves.

a)	K377,036 for loss of business
b)	K17,757, 036 for stolen fencing materials
c)	K1,400 for steel illegally sold to Philip Ralda
d)	K200,000 value of the land
e)	Interest at 8% Per annum

5.      According to the affidavits of the Plaintiffs tendered into evidence by consent the background to the proceedings is that in 1991 the Plaintiffs mortgaged their title deed on property described as Portion 82, Onga Milinch, Fourmil Markham and obtained a loan of K23, 983 from the Defendants. They made a drawdown for K20,940 while K3,042.83 was still outstanding. 

6.      They allege that in the loan agreement the Defendants were to deliver breeding stock for the Plaintiff to raise but the Defendants instead arranged and purchased 45 steers and delivered them to the Plaintiffs property. The steers were raised by them and after 24 months the defendants arranged for the sale of the steers and handled all the proceeds.  

7.     They were then told that K12, 148.48 from the sale was for repayment of the loan. After the sale there was no more cattle to be sold to sustain the loan. Arrears on the loan built up to K33, 000.
 
8.    Their attempts to make drawdown of the outstanding K3,042.83 to purchase breeding cattle failed. Refinancing proposal to the value of K36,011. 98 dated 30 September 1997 was also ignored by the defendants.  

9.    It is further alleged that an ex-employee of the Defendants stole from the property, fencing material worth K17,757. 28 at the current value and failed to return them or deduct the loan when requested to do so. Because of the defendant’s failure in not purchasing breeding cattle as agreed and stealing of the fencing materials the Plaintiffs claim that they suffered loss in the sum of K377,036. 

10.     On the mortgagee sale of the property, it is alleged that the total value of the property was K200,000 when valued at K2,000 per hectare. However, it was lost through a forced mortgagee sale through what they allege is a fake mortgage agreement produced in Waigani. This happened after demands on the Plaintiffs for repayment from 1999 to 2003 were not met. 

11.      It is alleged that on 30 September the Defendants issued a notice of intention to sell the property unless the outstanding loan arrears of K33, 000 was paid within 14 days. The Plaintiffs did not meet the K33, 000 and instead sought refinancing. The Defendants did not respond to the refinancing proposal and advertised the property for sale. When the Defendants advertised the property for sale, the Plaintiffs obtained a restraining order, and a caveat was entered on the title deed. It is alleged that the Defendants sold the property to Opaoti Trading for K85,000 in breach of the caveat. 

12.     The allegations on cattle breed and stolen fencing materials are confirmed in the affidavit of one Dr. Keith Galgal who was then employed by the Defendants as livestock specialist. The affidavit is annexure “C” to the affidavit of Rogers Yayabu filed 22 September 2020.

13.     The main issue therefrom is whether the Defendants breached the terms of the loan and mortgage agreements. 

14.     The overarching consideration in a claim for damages is that the onus is on the Plaintiff s to prove the loss suffered.  The principle on the onus of proof is as what Lord Goddard in the case of Bonham Carter v Hyden Park Hotel (1948) 64 TLR 177 stated and applied in this country is this: “The Plaintiffs must understand that if they bring actions for damages, it is for them to prove their damages. 

It is not good enough to write down particulars and say, this is what I lost, I ask you to give me these damages. They have to prove it” 

15.     The onus of proof consideration is further affirmed in the case of Michael Buno v the Independent State of Papua New Guinea (2004) N2696 where the Court held that “The onus is on the Plaintiff to prove the loss on the balance of probabilities. It is not sufficient to make assertions in a statement of claim and then expect the Court to award what is claimed”. 

16.     In the present case Mr. Dawidi for the Plaintiffs relies on four affidavits of Rogers Yayabu, three affidavits of Paula Ivarami Yayabu, the affidavit of Lucas Bazo and the affidavit of Raga Kavana as supporting the claims and submits under five categories that the defendants were in breach of the loan and mortgage agreements. 

17.     On behalf of the Defendants Mr. Nalawaku without relying on any affidavit submits that the proceeding should be dismissed because the Plaintiffs have failed to produce in evidence the loan agreement which is the primary document creating the legal relationship between the parties when all other issues are secondary. When the primary document was missing the Court has nowhere to start in terms of analysing the basis of the Plaintiffs claim. What the Plaintiffs allege in their affidavits are rebutting affidavit evidence of the Defendants.
 
18.     The Plaintiffs have not responded to this issue and sought to rely on the affidavits and submissions already filed. 

19.      As the claims revolve around a loan agreement this issue shall be given first consideration. 

20.     According to the various affidavits which were tendered into evidence by consent, the proceedings have its genesis in a loan agreement between the Plaintiffs and the Defendants. Upon a perusal of all the affidavits sought to be relied on, none of them have annexed to it a copy of the loan agreement, and yet the affidavits consist of forceful arguments on alleged breaches of a loan agreement. It just doesn’t add up to be a case for proper determination on the alleged breaches. 

21.     The onus rests on the Plaintiffs to prove the alleged breaches of the loan agreement. Without producing the loan agreement any allegation of a breach of a loan agreement fades into insignificance. That is the position of the present proceedings. On that basis alone the proceedings should be dismissed as disclosing no cause of action. 

22.     However, it is a general rule of practice that a Plaintiff should not be denied the right to be heard unless a lack of a cause of action is demonstrated as to be so untenable that it cannot succeed or manifestly faulty not warranting argument. 

23.     The affidavits relied on by the Plaintiffs contain sufficient material from which an inference can be safely drawn that there was a loan agreement between the Plaintiffs and the Defendants. 

24.     First and foremost, there is evidence of a mortgagee sale of the Plaintiffs property. Even where no loan agreement is made available, common sense stands for the proposition that Mortgagee sales ride on the back of arrears in a loan agreement.

25.     Secondly, the Defendants have not denied any loan agreement with the Plaintiffs. 

26.    The Defendants have also provided no evidence contrary to a loan agreement. In the absence of any denial by the defendants of any loan agreement or evidence to the contrary the materials in the affidavits relied on by the Plaintiffs have sufficiently demonstrated a cause of action and the affidavits tendered into evidence by consent shall be the basis of any decision the Court makes.  

27.    In submission on behalf of the Plaintiffs Mr. Dawidi highlights five categories of breaches allegedly committed by the defendants and submits that because there has been substantial breaches of the loan agreement and the Mortgage arrangement the Plaintiff were entitled to the relieves sought.  The categories of alleged breaches shall be considered first. It will be followed by a consideration of whether the Plaintiffs are entitled to the relieves sought in the consolidated proceeding. 
   
1.	Improper sale of property

28.    Under this category of breach Mr. Dawidi submits that the property was wrongfully sold without adhering to contractual obligations when the Defendants sold the property at below market value. The case of Papua New Guinea Banking Corporation v Pala Aruai and Freeway Enterprises limited (2002) N2234 is cited as standing for fairness of a foreclosure sale.
 
29.     The defendants have made no submission under this category of breaches. 
  
30.     This claim has no merit and is rejected. The Plaintiffs have failed to disclose a valuation of the market value on the property to support their assertion that the property was sold at below market price. The claim is in my view speculative and without basis.

2.	Defective Mortgage agreement  

31.    Under this category of breach, it is submitted that the Defendants failed to execute the mortgage agreement when they failed to sign or witness the original mortgage agreement which affects the enforceability of the mortgage terms. The case of Credit Corporation (PNG) Ltd v David Nelson (2011) N4368 is relied on as standing for the proposition that a failure to properly execute a mortgage agreement affects the enforceability of the mortgage terms. 

32.    For the Defendants Mr Nalawaku submits that the issue of mortgage agreement not signed by an authorised officers was the Plaintiffs responsibility to see that it was done. 

33.     The claim on the lack of signatures of authorised officers on the mortgage agreement has no merit and is lacking in substance. The Plaintiffs sat on the unsigned copy of the mortgage agreement and did nothing to have it rectified when it was served on them or soon after. Annexed to the affidavit of Rogers Yayabu dated 22 September 2020 are two copies of the mortgage agreement. One is fully signed while the other has only the Plaintiffs signature. In the same affidavit it is stated that the unsigned Mortgage agreement was given to the Plaintiffs around December 1991. 

34.     There is no evidence in the affidavits that the Plaintiffs raise any issue with the unsigned mortgage agreement when it was served on them. It seems the Plaintiffs were not affected at all by the lack of the signatures on the mortgage agreement. It also seems the Defendants rectified the missing signatures after the unsigned mortgage agreement was given to the Plaintiffs.
 
35.     Even then, events have now overtaken the relevance of the signatures on the Mortgage agreement and this alleged breach cannot be sustained. 

3.	Non-Delivery of contracted goods

36.    Under this category of breach, it is submitted that the Defendants did not meet the intention of the loan agreement when they delivered weaner steers instead of the agreed upon cattle breeding herds. It is then submitted that the Defendants actions constituted a breach of contract for goods and services Pursuant to s 15 of the Goods Act 1951. The overseas case of Oscar Chess Ltd v Williams [1957] 1 WLR 370 and several others have been cited as standing for the proposition that when a contract specifies the nature of goods, deviation can be grounds for claiming damages and rescinding the contract if it impacts the buyer’s purposes.  In the present case it is submitted that the Defendants deviated from breeding stock when they delivered steers and are in breach of the agreement. 

37.     The Defendants have not responded to this issue apart from the earlier submission that the Loan agreement has not been produced to ascertain the alleged breach. 

38.     The argument that the Defendants breached the loan agreements when they delivered steers instead of the agreed breeding stock, lacks merit for several reasons.
 
39.     Foremost reason is that the Plaintiffs have failed to produce in evidence the loan agreement they rely on and yet speak forcefully in the affidavits about breaches of a loan agreement. In the absence of the loan agreement the Court is at pains to ascertain whether the Plaintiffs allegation of breaches have any merit at all. It leads to the suggestion that maybe the Plaintiffs are hiding something from the Court. The onus is always on the Party making the allegation to prove it. The failure to produce in evidence the loan agreement renders all alleged breaches of the loan agreement meritless and unenforceable.  

40.     Secondly, the unchallenged evidence in the affidavits is that the Plaintiffs accepted without objection the steers when they were delivered and looked after them. They had every opportunity to refuse the steers based on the loan agreement. There is no evidence that the Plaintiffs rejected or objected to the steers. Under those circumstances there was no breach committed by the Defendants when the Plaintiffs accepted the steers and allowed them to be raised and sold. 

41.     Thirdly the Goods Act does not come to the aid of the Plaintiffs. The Goods Act applies to goods and not stock.

4.	Failure to provide re-financing

42.    Under this category of breach, Mr Dawidi submits that the Defendants failed to act fairly when it did not provide any appropriate response to the proposed refinancing package. The cases of Pija Grannies v Rural Development Bank (2011) SC1327 and Nationwide Microbank Ltd v Bossy Panel beating and workshop Ltd (2024) N10840 as addressing issues related to duty of the bank to act fairly to the customer. 

43.     The defendants have not responded to this alleged breach. 

44.      This proposition also lacks merit because there can never be a breach when a refinancing proposal is refused or ignored unless the loan agreement provides for such arrangement. In the present situation the Plaintiffs did not go with clean hands to apply for refinancing. There is no evidence that they made any repayment on the first loan when it fell due. They breached the first approved loan agreement. 

45.     Without mitigating for build-up of arrears they instead blame the Defendants for causing them to default. Even then it is unclear whether refinancing was a part of the loan agreement because the loan agreement has not been produced. The conclusion therefrom is that the Defendants acted fairly when they approved the loan. Approval of the loan and allowing for drawdowns amounted to substantial compliance with the loan agreement. The Plaintiffs failed to reciprocate.  

5.	Inadequate response to settlement proposals.

46.     Under this alleged breach it is submitted that the refusal by the Defendants of what the Plaintiffs deemed inadequate offers made by the Defendants constituted lack of good faith and professional negligence in upholding contractual obligations. Therefore, the Plaintiff should be compensated for resulting damages. 

47.     The Defendants have not responded to this category of breach. 

48.     This issue needs no consideration. This argument is more self-serving consolation than a genuine case of a breach committed by the Defendants. 

49.     Having considered that all the alleged breaches have no merit it is prudent under the circumstances of the entire case to ascertain whether the Plaintiffs are entitled to the relieves claimed in the consolidated proceeding. 

50.     In the consolidated proceeding the Plaintiffs claim the following relieves.

a)	K377,036 for loss of business
b)	K17,757. 36 for stolen fencing materials
c)	K1,400 for steel illegally sold to Philip Ralda
d)	K200,000 value of the land
e)	Interest at 8% Per annum

51.    The relieves claimed shall be considered accordingly.

a.	Loss of business

52.      On the relief for loss of business there is no evidence of income or expenses from the Plaintiffs to support this claim. It is settled law that to sustain in a claim for loss of business the claimant must demonstrate actual loss with supporting evidence like invoices, tax returns, bank statements etc. (See Motor Vehicle Insurance Limited v Tambo (2004) SC2604). 

53.     In the present case the amount claimed is only a figure showing what could have been earned if the Defendants had delivered breeding cattle instead of steers. This claim is speculative and cannot be sustained.

b.	Stolen fencing materials

54.     On the claim for loss suffered through theft of fencing materials there is evidence that the fencing materials were stolen and not replaced, or its value repaid. There is also no evidence to the contrary on the loss of the fencing materials. This claim is sustained and the amount claimed shall be awarded.

c.	Steer illegally sold 

55.     On the claim for steer illegally sold to Philip Ralda there is no evidence to sustain this claim. No invoices or affidavit evidence of the transaction has been presented and this claim cannot be sustained.

d.	Value of land

56.     On the claim for the value of the land, the Plaintiffs proprietary interests in the property no longer existed when the property became subject to mortgagee rights and obligations under the loan agreement. 

57.     However, pursuant to s 65 of the Land Registration Act, the Plaintiffs as debtors are entitled to the residue of the expenses for the sale, payment of mortgage charges, payment of any creditor and other registered mortgagees in order of priority. 

58.     The requirement that must be satisfied before exercising the mortgagee rights are settled in this jurisdiction. 

1.	There must be an existing loan agreement.
2.	The identity of the mortgagor 
3.	The nature and extent of the default by the mortgagor
4.	Adherence to the procedures provided by the mortgage and or legislation for the exercise of the mortgagee rights.
5.	Compliance with its duty as mortgagee to act in good faith regarding the mortgagor’s interest and make reasonable effort to sell the property at market value.
6.	Adequate notice of the intention to take possession of the property and sell it not only to the mortgagor but other persons who may have an interest in the property. (See Bank Papua New Guinea v Muteng Base (1992) PNGLR 271; PNGBC v Bara Amevo (1998) PNGLR 240; BSP v Public Curator (2003) N2320).

59.     In the present case it is believed the Defendants met the requirements before exercising their mortgagee rights. However, there is no evidence of how the Defendants applied the K85,000 that was paid for the property. If the Defendants repaid the K33,000 arrears in the loan agreement from the K85,000 then the residue would be K52,000. 

60.     There is no evidence on what happened to the residue of K52,000. In the absence of any evidence on the residue amount it is appropriate under the circumstances of the present case to award K52,000 to the Plaintiffs as moneys owed by the Defendants on the sale of the property. 

e.	Interest

61.    On the claim for interest, it is discretionary. These proceedings could have been settled had parties been more accommodating instead of confronting each other. They have directly caused the proceedings to drag on this far. Be that as it may interest on the amounts awarded shall apply. Since the proceedings commenced before the amendments in the Judicial Proceedings (Interest on Debts and Damages) Act 2015 came into effect in respect of claims against the State the interest shall be 8 % per annum from the date the proceedings were commenced. 

62.    As to costs it is also an exercise of discretion. Since the Defendants are partially liable for damages, 50 % of the Plaintiffs costs shall be borne by the Defendants to be agreed if not taxed. 

63.    The formal orders are.

1.	Judgment shall be entered in favour of the Plaintiffs in the sum of K69, 57. 36 constituted of the value for stolen fencing materials and residue of mortgagee sale of the Plaintiffs property. 
2.	Interest shall be 8% per annum from the dated the proceeding were commenced.  
3.	The Defendants shall bear 50 % of the Plaintiffs costs to be agreed if not taxed. 
________________________________________________________________
Dawidi Lawyers: Lawyers for the Plaintiff
Namani & Associates: Lawyers for the Defence