Wesram Finance v Upeke [2008] PGDC 168; DC5020 (18 July 2008)

DC5020
PAPUPA NEW GUINEA

[IN THE DISTRICT COURT OF JUSTICE]

Grade V Civil Jurisdiction

DC NO 843 OF 2008

WESRAM FINANCE

Complainant

-v-

RUDOLPH UPEKE

Defendant

PORT MORESBY: PUPAKA, PM

2008: 14^th JULY

Money lending services – Claim for principal and interest – Issue of how much owed – Interest rate – Interest compounded and rolled over every fortnight – Issue of whether parties were at arms length – Default penalty so called – Amount claimed over originally intended sum – Court to find the original intent – Application of Judicial Proceedings (Interest on Debts & Damages) Act.

Money lending services – Roll over and or compounding interest charges – Default in payment resulting in unintended and unfair outcomes – Presumption that parties are not at arms length – Principles of unjust enrichment and loan sharking discussed

Mr. Poponawa for the Complainant
The Defendant in person

18^th July 2008
PUPAKA: The complainant’s case as outlined by a Complaint and a Default Summons upon Complaint is that on 15^th February 2005 it loaned the defendant K2000.00 to be repaid with 100% interest. The complainant now says the defendant has defaulted in payment. Therefore it sues to recover the principal loan as well as the accrued interests and charges.

The Claim

On 15^th February the defendant applied for a loan of K2, 000.00 from the complainant. The defendant was advanced the loan to be repaid with 100 % interests. The rate of payment was agreed at K400.00 per fortnight, spread over ten (10) fortnights, commencing pay period ending (PPE) 3^rd March 2005. Since then there has been not one repayment to date. The complainant claims the defendant now owes it K9, 980.00 to the date of summons. It therefore sues for the recover of that amount plus costs of the proceedings.

Defence

The defendant denies he owes the money claimed, i.e., he denies that he owes the defendant K9, 980.00, or K7, 000.00. I have no idea where the figure K7, 000.00 is coming from but even if it is that sum and not K9, 980.00, the defendant nevertheless denies owing it to the complainant. The defendant does concede he would pay K2, 000.00, which is the initial loan, but he is adamant that he did not agree with the complainant to pay interests or charges or penalty fees and so he is not liable to pay any more, especially the larger sum claimed by the complainant in this proceeding.

Pivotal /Perplexing Issue

The defendant firmly denies liability but at the same time he concedes that he will pay K2, 000.00, which is the original loan he is said to have obtained from the complainant. The defendant says he will pay the K2, 000.00 only because the figure is “shown on the complainant’s claim list” against his (defendant’s name). He says he will be paying purely from the goodness of his heart or “with good heart” as he puts it. He does not say he is paying because he got the loan or because he owes anything to the complainant.

It has been said before that life is stranger than fiction and this man, like the reasonable fellow that he otherwise must be, is entitled to be taken and or considered seriously for saying he just wants to get the case of his face by paying something he does not owe.

Nevertheless the Court must judicially decide on the issues posed. Matters of the heart are best left there. The court’s business is about the facts, the evidence, and the law. The defendant’s assertions will have to be considered on its merits. The complainant’s claim cannot be just pushed aside as it would impinge upon his credibility. The Court is therefore obligated to assess all evidence disclosed by the facts and rule on the issues posed.

Findings on the Facts

The complainant’s case is otherwise clear and unambiguous. It is that the defendant applied for and borrowed K2, 000.00, to be repaid with 100% interests, which meant the total money repayable was K4, 000.00. By an agreed repayment schedule the defendant would pay K400.00 a fortnight for ten (10) fortnights or twenty (20) weeks. It is left unsaid but of course, if he could afford to do so, the defendant could pay the K4, 000.00 at any time within the specified 20 weeks. The repayment time schedule was just a suggested schedule, set mostly for the complainant’s convenience.

The defendant filed an affidavit dated 11^th July 2008 by which he questions how he could have possibly signed on the dotted line to pay K400.00 fortnightly when he his gross salary is only about K500.00 a fortnight. Therefore he tries to reason that he could not have signed to pay the level of interests charged (100%) and the applicable default charges as well, unless he were insane or suicidal or both, which of course he is not. It is interesting to note that the defendant does not unequivocally deny, or admit for that matter, that he borrowed the two grand.

However all I can say to this is that I do understand how anyone caught up in such a situation would feel, but it may not surprise people, especially this defendant, to know that there are plenty of seemingly ‘insane’ or ‘suicidal’ folks in the city. That fact is amply demonstrated by the large number of cases of exactly this type that flood the Port Moresby District Court. In fact currently these ‘market money’ cases account for over 70% of the Port Moresby District Court’s caseload. Needless to add, considering that this court’s total cases for any one year runs into the thousands of cases, 70% is huge. If one considers what seems to be a common fact, that interest rate charged or applied for these sorts of very short term loans – normally two weeks – is astronomical, one can imagine the frequency with which people mortgage their life for almost nil or no appreciable gain!

In any event, as is the case in all matters before the courts, the evidence will be assessed to decide just what happened between the parties. Whether the defendant put himself into this situation or he is unfairly, in fact unlawfully, sued can only be borne out by the evidence.

I must state at the outset that I am satisfied on the available evidence that the defendant borrowed K2, 000.00 from the complainant. Material evidence produced by the complainant, especially the paper works, put matters in no doubt. A Statutory Declaration dated 15^th February 2005; a Loan Application Form dated 15^th February 2005; and a loan recipients’ list that shows the defendant to have signed as loan recipient; all disclose the defendant’s signature and bits of personal details. The signature appears to be the one and same now used by the defendant in the documents he filed. Moreover the defendant does not expressly dispute borrowing the money.

In the circumstances I very much doubt that this defendant acknowledges liability, albeit only partly, purely out of charitable endeavors or from out of the reservoir of goodness that swells in his heart. I find he is obligated to pay monies that he was loaned upon his request plus accrued interests. I further find that he agreed to repay with a 100 % interests. I do also find that, had the defendant been regular with his payments, he would have paid a total sum of K4, 000.00 to the complainant. That was the crux of their agreement.

Consequently, where it not for the assertions of fortnightly rollovers, penalty charges or default etc, the complainant would have expected to receive K4, 000.00 from the defendant, which is very much the same amount the defendant agreed to pay. I repeat that this was the essence of their contract.

Ergo, were it not for other issues, I would grant the complainant judgment in the sum of K4, 000.00 and interests according to statute plus costs. However there are certain issues raised by the added claims. These are issues of contractual penalty and default charges that I must now discuss as well.

Penalty Charges

There was an extra, what I consider to be a penalty, provision applicable here. It was that if the defendant defaulted in any of the fortnightly payments he would be liable to pay an extra K200.00.

So presumably, if there was default in paying all ten (10) fortnightly installments, a total of K2000.00 would be levied. Therefore the maximum the defendant would have paid on the loan, under default conditions, would be a total of K6000.00; which is the sum of K4, 000.00 (principal plus 100% interests) and aggregate default fees of K2000.00.

Nevertheless I want to say this: I do not think the complainant was entitled to charge this so-called K200.00 “default fee”. The charge, seemingly unjustified due to the complete lack of discloser of what loses the complainant considered it would suffer as a result of defaults, may not be enforced, regardless of whether or not the charge is contested. The complainant is obligated to say what damages or losses it suffered due to the default in the periodic payments, such that it must now enforce this charge.

The complainant claims that he it is owed some K9, 980.00 plus as a result of default in payments. It considers that amount to be its ‘principal’ and interests together with the aggregate default fees. Considering that a maximum of K6, 000.00 only can be owed under default conditions, it is difficult to appreciate why more, K9, 980.00 in fact, is now claimed. The difficulty here is compounded when the complainant says it levied only K75.00 in default fees and not the full K200.00. In that case the defendant could only owe a maximum of K4, 750.00 under default conditions (i.e., where there are ascertained losses from the default), and not K6, 000.00.

So, as can be seen here, the exact math and mechanics of how a K2000.00 loan, even if lent at 100% interests, could be turned into K9, 980.00 is unclear at best.

Absurdity of compound interests & snowballing rollovers

In relation to the perplexing issue I have discussed above I also wish to repeat something that I have already said in other similar claims in market money cases in this jurisdiction: Even despite existence of clear contracts, unjustified interests charges and fortnightly rollovers are wrong and cannot be enforced at law.

As to how exactly a principal loan and accrued interest can be rolled over any number of times and compounded to achieve a snowballed figure is unclear, but it is certain that if the snowballing effect continues long enough it is possible for the final figure to be anything, perhaps millions!

However I have no desire to educate myself on the mechanics of the process as it does not really matter. I consider the practice to be unfair and one that is forbidden by accepted equitable principles. In my view, claims based on the practice (continuous rollover on a periodic basis creating a snowballing effect) or agreements to facilitate that sort of practice, are unenforceable. To sanction or allow someone to gain by this practice, even if there is a contract wherein the defendant agreed to be bound by the snowballing or compounding interest, is to judicially endorse unjust enrichment. Equity prohibits the undesirable and pernicious practice of unjust enrichment.

Unjust enrichment may occur where a party benefits or stands to so benefit under unmeritorious circumstances. For instance in the case of Simon Norum –v- Daniel Ikio & Ors (N1593) the National Court held that a contract, seemingly valid on the face of it but one which was really a contingency agreement, was wrong. In that case Justice Lenalia considered it to be wrong for lawyers to contract with clients to charge the latter fees based on a percentage of any claims recovered. His honor said it was wrong for lawyers to adhere to an unjustified assumption that the Lawyers Act give them the right to enter into contingency agreements so as to charge fees by percentages that are more than what is reasonable.

In the case of Tom Rangip –v- Roland Yeung & Or, which was a Kimbe District Court case, Chief Magistrate Manuhu (as he then was), in relation to a suit wherein the defendants unjustifiably claimed monies they really were not entitled to or had earned in any sense at all, said much the same thing.

In the instant case the contract between the complainant and the defendant, at least to the extent that it catered for and created a contingency agreement, was defective and unconscionable.

Situations or arrangements or deals like the current one are questionable activities. It borders on a fringe activity sometimes referred to as ‘loan sharking’. The courts should not and must not allow parties to profit needlessly; especially not without rendering adequate considerations on their part and must not in any way permit profiteering over and above the limits of foresight and logic or reason.

It matters little, and is of no significance really, that the defendant agreed to the exorbitant contractual terms. In equity there is a trite proposition that parties are presumed not to have negotiated at arms length if one party is the much weaker one for having no leverage and or bargaining power but was otherwise compelled to contract out of extreme need or lack of choice or under some sort of compulsion of one kind or other.

In this instance the defendant could have needed the money badly. He agreed to not only pay hefty interests in a short time but he also, presumably, agreed to be penalized if he defaulted in the ten (10) specific payments by no less than K200.00 a default. That was tough. Yet it just goes to show the lopsided bargaining positions of the parties at the time of contract.

However this is where equity steps in. The presumption in equity alluded to above dictates that no contract, entered into between an apparently weaker and an objectively stronger party, with the odds stacked up against the weaker party, is enforceable. Such a contract is presumed to be unconscionable.

Conclusion

For all the foregoing I consider the parties really intended, at the relevant times when their minds and thinking converged such as to found consensus ad idem, that the defendant would pay the complainant a maximum of K4, 000.00 without default, or K6, 000.00 where there was loss incurring default. Of course there has been default and but the complainant has simply failed to show actual losses suffered as a result of that default. In my view, the complainant cannot rely on the default per se to assert the charge. It must establish proof of losses as a result of the default. Without proof of quantifiable loses as a result of default, the charge becomes unlawful and therefore unenforceable. Therefore the complainant cannot assert the extra K200.00 (or K75.00) per default period.

Ergo I order that the defendant, Rudolf Upeke, pay to Wesram Finance Limited, the sum of K4, 000.00. There shall be interests paid on that at the statutory rate of 8% from the date of Summons to the date of payment. The complainant shall have his costs of this proceeding, the same to be taxed if not agreed to between the parties.

Moreover, now that an enforceable court order is granted and is in place, I further order that the interim order of this Court dated 8^th April 2008, for a partial freeze of the defendant’s bank account, namely BSP (Mendi Branch) Account Number 1000 909209, be lifted upon the service of this order.

_______________________________________________

Mirupasi Lawyers for the Complainant
The Defendant in person