SC2725 

PAPUA NEW GUINEA
[SUPREME COURT OF JUSTICE]

SCA NO. 9 OF 2023 (IECMS)

SEETO KUI (HOLDINGS) LIMITED T/a MAINLAND PLUMBING & HARDWARE
Appellant

V

MATHIAS HORN
Respondent

WAIGANI: DAVID J, PURDON-SULLY J, COATES J
27 MARCH 2025

GUARANTEE – Company signs contract for credit – manager signs personal guarantee – default in credit payments – company sued – Judgment against company principal plus interest – principal paid interest not paid – guarantor sued for interest – case below against guarantor dismissed as an abuse of process – decision below erred in law. 
 
LIMITATIONS OF ACTIONS – guarantor sued for interest payments pursuant to guarantee – claim that time ran from issue of invoice – court considers wording of guarantee as to time – guarantee in this case determined when time ran. 
 
Held 
 
1.	A guarantee is a separate contract from the principal contract for credit and a guarantor may be sued at the will of the creditor if not limited by the guarantee.
 
2.	In this particular case, the guarantee document, as a contract separate from the contract for credit, determined when time runs. 
  
Cases cited 
PNG Forest Products v State (1992) PNGLR 84
Romain v Scuba T V Ltd [1997] QB 887 
Bank of South Pacific v Leahy (2002) N2263 
Bradford Old Bank Limited v Sutcliffe [1918] to KB 833 

Counsel
Mr I Molloy with Mr J Kais for the appellant  
Mr E Asigau for the respondent  
 
REASONS FOR JUDGMENT

1.	BY THE COURT: The appellant, a company, seeks to overturn a decision of the National Court which dismissed its claim for interest payments owed under a guarantee, as being an abuse of the court’s process and time barred. 
 
2.	The amount of the claim was K187,951.16, the unpaid interest on loans totalling K137,675.75, the principal amount having been repaid. 
 
3.	If successful, the appellant seeks orders for K187,951.16 to be paid pursuant to the summary disposal powers of the Supreme Court, or the matter be remitted for hearing. 
 
4.	The respondent seeks that the appeal be dismissed. 
 
5.	The decision of the National Court was made on 2 December 2022, relying on O 12 r 40 (1) of the National Court Rules which addresses the abuse of process claim, and s 16 (1) of the Fraud and Limitations Act 1988, which allows a six-year period for bringing an action on contract from when the cause of the action arose. 
 
BACKGROUND 
 
6.	The background puts the appeal into context. 
 
7.	For clarity, when referring to proceedings in the court below, the appellant here was the plaintiff, and the respondent here was the defendant. 
 
8.	The appellant company and a company called Buka Metal Fabricators Limited (Buka Metal) reached an agreement on 13 February 2001 whereby the appellant would extend credit to Buka Metal for the sale of plumbing goods. At the same time the appellant and general manager of Buka Metal, the respondent in this appeal, reached agreement to guarantee Buka Metal’s payments. 
 
9.	There is no question before us as to the efficacy of the agreements between the parties. 
 
10.	The credit agreement worked for a number of years, but then Buka Metal defaulted on several payments in 2009 and 2010 with unpaid invoices totalling K137,675.75. 
 
11.	Proceedings were filed and on 18 May 2017 the appellant obtained judgment in default against Buka Metal for the principal plus interest in the National Court, in case number WS No 567 of 2016, Seeto Kui (Holdings) Ltd v Buka Metal Fabricators.  
 
12.	The default judgment’s principal amount, K137,675.75, was paid to the appellant by the respondent on 19 July 2017, although he was not a party in that case.  
 
13.	He did not pay the interest ordered by the court.  
 
14.	By Writ of Summons filed 13 May 2019, the appellant issued proceedings against Buka Metal as the first defendant and the respondent here, Mr Mathias Horn, as the second defendant. 
 
15.	An amended Writ of Summons was filed on 19 August 2019, naming only the respondent here as the defendant, the amended Statement of Claim indicating that the principal amount had been paid, the new claim being only for interest accrued, being K187,951.16. 
 
16.	The amended Statement of Claim recorded various invoices issued between 19 September 2009 and 15 January 2010 for goods on credit amounting to K137,674.75, that such amount had been paid, but court ordered interest remained unpaid.  
 
17.	The amended statement of claim set out a table of interest payments totalling K187,951.16, and of relevance, the calculations were not challenged before us.  
 
18.	The respondent did not file an Amended Defence, but in his defence entered to the original Writ, admitted signing a contract as guarantor for Buka Metal at the time the contract for credit was executed. 
 
19.	His defence to this proceeding was that the cause of action arose on or about 28 July 2010, the time calculated from a letter of demand issued, and so the claim was time barred, and that he ceased being general manager of the then first defendant, Buka Metal, in or about February 2010.  
 
20.	In relation to the Amended Writ, two Notices of Motion came before the court below. The plaintiff, the appellant here, filed a Notice of Motion on 13 November 2020 seeking to strike out the defence and for summary judgment in the sum of K187,951.16. The defendant, the respondent here, filed a Notice of Motion on 17 November 2020, seeking to have the proceeding dismissed for not disclosing a reasonable cause of action, for being frivolous and vexatious and for being an abuse of process. 
 
21.	The court below chose to deal with the respondent’s Notice of Motion first on the basis that if successful such would end proceedings. 
 
ABUSE OF PROCESS 
 
22.	The trial judge was aware of the proceedings in which the appellant had obtained default judgment against Buka Metal, and it is apparent that the proceeding had led him down the path to consider that the matter was an abuse of the court’s process. 
 
23.	Before reaching his decision, he correctly referred to relevant judgements explaining what “no reasonable cause of action” or an “abuse of process” was, and we have no need to record the cases he referred to.  
 
24.	He considered the very important issue whereby a plaintiff’s case should not be terminated prematurely unless it was untenable, referring to PNG Forest Products v State (1992) PNGLR 84-85. 
 
25.	In coming to his decision his Honour’s reasoning is contained in paragraphs 16 and 17 of the judgement: 
 
“16. Is the current proceeding against Mathias Horn an abusive process? The defendant, Mathias Horn, was not the principal debtor. He became liable as guarantor under the credit agreement when Buka Metal Fabricators defaulted. The defendant pleaded in his defence that he ceased employment with Buka Metal Fabricators Limited in 2010. The defendant   deposed to this fact in his affidavit as well. However, that is a matter for trial if the proceedings survive this application. For now, it is arguable that the plaintiff is entitled to institute these proceedings against the defendant for the personal guarantee he signed pursuant to section 6 of the Frauds and Limitation Act. Although the plaintiff acted on the guarantee in commencing proceedings against the defendant, the second court proceeding appears to be improper and abuse of the court process. The plaintiff chose to institute the first proceedings against Buka Metal Fabricators only and got judgement for the principal debt and interest at 18 percent to be calculated from 28 July 2010, the day the cause of action arose. The plaintiff got the principal judgement debt settled by July 2017. According to the affidavit of Divina Camo, the credit controller of the company, they learned that the judgement debtor, Buka Metal Fabricators ceased operations. After realising that it could not recover the interest component from Buka Metal Fabricators, the plaintiff commenced the current proceedings against Mathias Horn as guarantor on the interest component of the same debt.  17. I agree with the submissions of the defendant, that the present court proceedings by the plaintiff against Mathias Horn for interest on the principal debt amounts to an abuse of process as the plaintiff is instituting more than one proceeding concerning the same subject matter arising out of the same set of facts and seeking the same relief for which the court has already decided on in WS No 567 of 2016. There is already an order for the interest component of the claim against Buka Metal Fabricators Limited. The plaintiff did not explain what steps they took to execute the orders they obtained against Buka Metal Fabricators especially the interest component of the claim when they had the opportunity. The plaintiff failed to include Mathias Horn as a party in the first proceedings so that all issues between the parties could be resolved there and then and once and for all especially when the cause of action took place more than nine years at the time of commencement of these proceedings.” 
 
26.	In this appeal, this reasoning is said to be wrong in law as to what an abuse of process is in the circumstances where this guarantee has been given. 
 
TIME BAR 
 
27.	As to time in which to commence proceedings, without objection, and not sought in the Notice of Motion, was a decision that the matter was time barred. 

28.	His Honour found that the six-year time bar on contracts pursuant to s 16 of the Fraud and Limitation Act ran from 28 July 2010, being the date the cause of the action arose as measured from a letter of demand, and such lapsed on 28 July 2016. 
 
29.	He noted that the proceeding before him was filed on 13 May 2019 about three years after the deadline for filing the claim. 
 
30.	That is despite submissions being put that this particular guarantee document determined when time ran from, and time ran when a default notice was issued on 18 October 2016, so the proceeding was issued within time. 
 
GROUNDS OF APPEAL 
 
31.	There were several grounds of appeal. 
 
32.	The respondent’s case was that none of the grounds complied with requirements in two respects. 
 
33.	Firstly, it was said that only facts were being challenged, which required leave to appeal, rather than questions of law or mixed law and fact which may be appealed as of right. 
 
34.	Secondly, O 7 r 9(c) & 10 of the Supreme Court Rules specified that the appeal document needed to state, “briefly but specifically the grounds”. 
 
35.	The appellant then indicated that reliance would only be on grounds 3f and 3g. 
 
36.	Those two grounds claimed a failure by the court below, erring in both fact and law, by finding that the claim before it was the same proceeding as matter WS No 567 of 2016, and that the proceeding was not statute barred. 
 
37.	Apart from any factual issues, these grounds reveal questions of law – determining whether this proceeding is the same as proceeding WS No 567 of 2016 and determining the running of time. 
 
SUBMISSIONS AND ARGUMENT 
 
38.	As to the two agreements, and whether they were separate contracts in themselves, each able to be sued upon, and aware of the passage we have quoted from his Honour’s decision, counsel for the appellant pointed to a series of cases on the status of guarantees. 
 
39.	The authorities hold and particularise that a guarantee agreement is separate and distinct from the credit agreement upon which that guarantee agreement is based. 
 
40.	In Romain v Scuba T V Ltd [1997] QB 887 at page 894, Evan LJ stated: “They are undoubtedly separate obligations because they are owed by separate obligers, and their content cannot be for all purposes identical, if only because the liability of one is contingent upon default by the other.” 

41.	The common law courts have also held that there is no obligation on the creditor to sue the principal debtor and a guarantor in the same proceedings, just as there is no obligation to sue the principal debtor first and only then sue the guarantor if there is a failure to pay. Counsel referred to Donovan and Phillips, Modern Contract of Guarantee (Aus) [10.1600], [10,1625], [10,1710], [10,2400] Courtney Phillips and Donovan (UK) (2022). 
 
42.	In referring to the same volume, at [10.1625], the submission was that there was no requirement for a creditor to exhaust all remedies against the principal debtor before suing on a guarantee and that was in response to his Honour’s questioning as to what the respondent had done to retrieve the interest payments. 
 
43.	We were taken to Bullen & Leake & Jacobs Precedents and Pleadings 14th Edition, page 473, paragraphs 26-02, stating: “A contract of guarantee is a contract whereby the guarantor agrees that, upon default by the principal debtor of his obligations under the contract between the principal debtor and the creditor, the guarantor will perform those obligations for the creditor. A guarantee is therefore a secondary obligation and is dependent for its efficacy on the existence and enforceability of the primary obligation. Although the right to an indemnity can be implied or can arise by operation of law, the guarantee can be created only by means of a contract between the creditor and the guarantor. 
 
The right of action against a guarantor is dependent on a default by the principal debtor. The principal debtor’s liability may or may not depend on demand being made by a creditor but, in practice, a demand is virtually always necessary to activate the obligation of the guarantor to make good that default.” 
 
44.	Counsel for the respondent touched briefly on the gist of these authorities, but did not seriously challenge the law stated therein, or that the law was not that applied by the courts of Papua New Guinea. 
 
45.	His main argument went to the issue of two proceedings for the same debt being an abuse of process, which his Honour referred to as recorded above. 
 
46.	As to the abuse of process, the submission was to the effect that the appellant allowed six years to pass before commencing proceedings and these proceedings were nine years after the initial cause of action arose. 
 
47.	He pointed to the original proceedings against Buka Metal where the appellant had removed the respondent from the proceedings or not included him and had now come back to include him. 
 
48.	Having indicated that such may be an abuse, there was no further submission that an indemnity arose by not including the respondent in the first action, to base an abuse of process upon, as indicated in the passage above from Bullen and Leake when referring to a possible indemnity. 
 
49.	Without any basis whatsoever being put, which would have been logical, the authorities are against the position put here that an abuse of process has occurred. 

50.	But the argument as to an abuse of process was also blended with submissions on the time bar issue. 
 
51.	The respondent in his filed defence reproduced clause 1 of the guarantee document, which states: “Notice in writing of any default on the part of the Purchaser is to be given by the Vendor to the Guarantor(s) and within fourteen (14) days of its receipt, payment shall be made by the Guarantor(s) of all sums then due and owing under his guarantee.”  
 
52.	The defendant uses this clause in a claim that the appellant breached the conditions “under the Credit Application and Personal Guarantee” by not issuing a default notice until 18 October 2016, because it should have issued near to the time of default on or about 28 July 2010, the six year period running from then. This mixes the two contracts.  
 
53.	As to facts, a letter of demand was issued to Buka Metal on 12 July 2010, stating the outstanding debt was to be settled by 28 July 2010. 
 
54.	That is the date his Honour found time ran from, the period ending 28 July 2016. 
 
55.	It is apparent to us that his Honour found that the recovery of money owed was based on the credit contract, his confirmation stated at paragraph 24 of his judgment. 
 
56.	That does not address the separate contractual agreement of guarantee, which has its own terms and conditions. 
 
57.	Without having any part of an oral agreement put to us, and it is probably the case that the guarantee was part oral and part written, we only have the written guarantee. 
 
58.	Clause 1 is clear, notice of default has to be given and within 14 days of such notice, the amounts sought are to be paid. 
 
59.	The clause refers to a default notice, not a letter of demand, and counsel for the appellant cautioned against conflating a default notice with a letter of demand – the two being different documents regarding a debt and the two each having different legal consequences, despite what appears to be a common usage and interchangeability in the use of both terms. That is just poor use of language, but poor use of language does not change the legal effect. 
 
60.	A letter of demand goes to the principal debtor, a default notice goes to a guarantor. 
 
61.	The clause is in plain language. 
 
62.	The clause sets the date as to when time will run, such being 14 days from receipt of the default notice, again, a very different position than the date of a letter of demand to pay invoiced amounts. 
 
63.	As simple as the guarantee document is, it is still effective. 
 
64.	The respondent argued that the time must run from when the last invoice was issued, otherwise the default notice could be issued 20 or 30 years after for the debt. 
 
65.	Given the wording of clause 1, that would be the case, but we will say that while time does not eliminate the debt, issuing a default 20 or 30 years after it arose may well give grounds for a determination that an abuse of process was occurring. 
 
66.	It is clear then that the document is to be interpreted as stating when time will run, from when the default notice issued, and that left the respondent open to these proceedings which were filed in 2019. 
 
67.	Such reasoning is in line with the authorities. 
 
68.	In Bank of South Pacific v Leahy (2002) N2263, Davani J said: “In this case, the guarantor promises to pay on demand as is regular banking practice involving guarantees. Therefore, no right of action accrues against the guarantor until a demand for payment has been made…. In this case letters of demand were served by registered post on 20 December 1990. Therefore, time began to run immediately after 20 December 1990.” In that case, the demand is being used in the sense that it is a default notice, and again we point to common usage of terms which may confuse. 
 
69.	The appellant’s counsel submitted that Davani J referred to the English case Bradford Old Bank Limited v Sutcliffe [1918] to KB 833, where Pickford LJ said at page 840: “A cause of action accrues when all the facts exist which it is necessary to prove as part of the case”, meaning that there was no cause of action until the default was issued, the result being that the Limitations Act could not be applied to a time before the notice was issued. 
 
70.	Counsel for the appellant restated the position put before his Honour that the cause of action against the guarantor arose from 18 October 2016 when the appellant issued its default notice in accordance with clause 1 of the guarantee. 
 
71.	His Honour came to his decision based on duplicity of process, and we agree, that two or more actions on the same subject matter ought fail as an abuse of process. 
 
72.	However, the cases reveal that suing a guarantor is to sue upon a separate liability owed by the guarantor and such is not to be confused with the monies owed, the subject matter of the dispute, if the subject matter remains unsatisfied. 
 
73.	Further, the error made was the conclusion that there was only one opportunity the Appellant had to sue and since it did not take that opportunity, the new proceedings were an abuse, an error because of the separate liability the guarantor owed which was separate from the principal debtor. 
 
74.	On the time bar issue then, his Honour fell into error and the decision must be set aside. 
 
75.	We should be clear that this decision pertains only to this case and does not attempt to develop the law in relation to guarantee. It is conceivable that his Honour could have come to a decision that the matter was an abuse of process even after recognising that there were two separate causes of action. However, to do so on appeal his reasoning would have to be clear. 

SUMMARY JUDGMENT 
 
76.	On upholding the appeal, the court was asked to use its powers to consider making a summary judgment. 
 
77.	There are two sources of power for such a decision, the first being s 16 of the Supreme Court Act 1975 and the second being O 13 r 16 of the Supreme Court Rules.  
 
78.	Neither the Act nor the Rules indicate the considerations. 
 
79.	We think the considerations for determining matters in default of a hearing should be applied here, such as whether there is a serious question to be tried, whether matters need to be proved or whether there is a good defence.  
 
80.	Even a weak case should go to trial, however, in this case, the figures given were not challenged, so there is no question about them, they do not have to be proved and there is no good defence.  
 
81.	Earlier in this judgement we pointed to the fact that the table had been produced in the amended statement of claim as to the calculation of the interest owed and that no challenge was made to the figures. 
 
82.	Given the admissions of the respondent that he had signed the guarantee, that the guaranteed amounts remain unpaid, and that no defence other than what we have referred to here has been offered as to non-payment - there is no defence available to the claim for the interest payments in the filed documents. 
 
83.	To remit the matter, there must be some defence and as we say even a weak defence. 
 
84.	That does not exist in this case. 
 
85.	On that basis, given the powers under the Supreme Court Act and the Rules, we will order the respondent to pay the appellant the interest amount being K187,951.16. 
 	 
ORDERS 
 
1.	The appeal is upheld. 
 
2.	Pursuant to section 16 of the Supreme Court Act and Order 13 rule 16 of the Supreme Court Rules, the respondent pay the appellant the sum of K187,951.16. 
 
3.	The respondent shall pay the appellant’s costs as agreed or assessed. 
________________________________________________________________ 
Lawyers for the appellant: Huon Lawyers 
Lawyers for the respondent: Pacific Legal Group Lawyers