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National Court of Papua New Guinea |
N2263
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS 1007 OF 1998
BANK OF SOUTH PACIFIC
AND:
JOHANNES LEAHY
AND:
RHONDA LEAHY
Waigani: Davani .J
2002: May 24
June 17
August 16
GUARANTEES – Nature of guaranties – continuing or not – whether executed as a Deed – Notices of Demand – when a right of action accrues – whether a continuing guarantee is a specialty.
PRACTISE AND PROCEDURE – When a cause of action accrues – whether a continuing guarantee is a specialty – A guarantee is a specialty when executed as a Deed – Statute of Frauds and Limitations Act of 1998 S. 16(1), (3)
Cases and Texts cited:
Bradford Oldbank Ltd v Sutcliffe [1980] 2 KB 833
Halsburys 4th Edition volume 20
Osbornes Concise Law Dictionary Sixth Edition by John Burke
Pagets Law of Banking Fifth Edition (1972)
Reeday Law Relating to Banking (1972)
Counsel:
W. Arua for the Plaintiff
16 August 2002
DAVANI J: The plaintiff by its Writ of Summons and Statement of Claim filed on 14th October 1998 seeks orders that the defendant pay to it the sum of K301,000.00 together with interest calculated at the rate of 29.50% per annum.
A. Undisputed facts
The two defendants were provided various loan facilities by the plaintiff bank for three companies that the first and second defendants were principals and directors of. These companies were the Kaugim Plantations Pty Ltd, Nebilyer Trading Pty Ltd and Nebilyer Tambul Management Pty Ltd.
The Writ of Summons and Statement of claim seeks orders for the repayment to the Plaintiff of K301,000.00. It claims that on or about October 1988, Nebilyer Tambul Management Pty Ltd applied for a financial advance of K430,032.00 by way of an instalment loan and also applied for overdraft facilities to the limit of K13,000.00 and later increased to the limit of K60,000.00. Paragraphs 4, 5, 6, 7, 8 and 9 of the Statement of Claim plead that the Defendants have defaulted under the Guarantee and that by December 1990, the sum of K62,864.00 plus interest and fees were outstanding. Also, the sum of K249,985.30 was outstanding on the instalment loan facility. The Plaintiff pleads that even after issue of letters of demand by registered post on 20th December 1990, the Defendants still failed or neglected to settle the debt.
The evidence before the court on the securities given by the bank for these loans are:
1. Nebilyer Tambul Management Pty Ltd
A letter was sent by the Plaintiff Bank to the Secretary, Nebilyer Tambul Management Pty Ltd dated 13th October 1988 which letter advised of the approval of an instalment loan of K273,000.00. An overdraft of K13,000.00 was later approved by the Plaintiff Bank, then increased to K60,000.00 on 23rd April 1990.
The security for this loan and overdraft comprised of;
2. Nebilyer Trading Co Pty Ltd
A letter was sent by the Plaintiff Bank to the Secretary Nebilyer Trading Co Pty Ltd dated 28th September 1988 which letter advised of the approval of an instalment loan of K100,000.00 and overdraft of K50,000.00.
The security for this loan and overdraft comprised of:
The defendants do not deny the existence of these loans and the securities. All that is disputed is that the secured properties sold by the Plaintiff exercising its rights as Mortgagee should have offset or discharged the existing debt. The Defendants say the Plaintiff Bank has not shown that this has occurred.
B. Background to case
The trial commenced on 24 May 2002. The court heard evidence from both counsel noting the Defendants’ contentions that all properties disposed of by mortgagee sales had not been applied towards reduction of existing loans. The court adjourned and issued certain directions to both counsel, more specifically plaintiff’s counsel, to produce certain documentation in court at the next appearance, prior to the making of submissions. These directions were that:
The matter proceeded to trial and was then adjourned to allow Counsel to make submissions on the form and nature of the Guarantees and s. 16(3) of the Statute of Frauds and Limitations Act of 1998. A brief ruling on the reasons for requesting these submissions was handed down.
a. Securities for loans
On 17th June 2002, counsel then made submission on documentation they had filed. In response to these directions, the plaintiff relied on the affidavit of Bevan Clark sworn and filed on 14 June 2002. The Plaintiff’s statements for the accounts of Nebilyer Tambul Management Pty Ltd were attached. These were;
These statements of account show the interest rates or interest accruing on the principle debt and the accrued debt itself, including interest, for the period 31 March 1998 to 31 May 2002. The only credit I noted in those two statements is one for the sum of K40,368.36 which was paid on 24 July 1998. There is no explanation from the plaintiff bank’s witnesses as to the nature of this credit.
Apart from this affidavit, the Plaintiff also filed the affidavit of Francis Asi sworn and filed on 3rd May 2002. To this affidavit was attached the Guaranties and letters from the Plaintiff bank to the Defendants, referred to earlier.
The question the Court asks is, if properties were sold to offset the debt, where is the evidence confirming that. The defendants submit that the secured properties could have been sold to offset the outstanding debt for Nebilyer Tambul Pty Ltd. However the bank submits that all proceeds of the mortgagee sales were applied towards the reduction of debt owing to Nebilyer Trading Pty Ltd. The Plaintiff bank submits that in so doing, it was exercising its rights under the Guarantee and Indemnity executed between Nebilyer Trading Co Pty Ltd and the Plaintiff Bank on 6th April 1989, referred to earlier.
The accounts for Nebilyer Properties Pty Ltd are not in evidence before me. However Bevan Clerk’s affidavit for the plaintiff sworn on 14th June 2002 show that certain properties held as securities by the Plaintiff bank for loans advanced to Nebilyer Trading Pty Ltd were sold and the proceeds applied towards reduction of Nebilyer Trading Pty Ltd’s loan accounts. These properties were;
- Business Lease Portion 51 Vol 89 Folio 201 Milinch Hagen Fourmil Ramu
- Residential Lease Allotment 5 Section 42 Mt Hagen;
- Residential Lease Allotment 8 Section 88 Boroko;
- Residential Lease Allotment 9 Section 21 Mt Hagen;
The securities for Nebilyer Trading Co Pty Ltd taken out by the Plaintiff Bank are set out in their letter to Nebilyer Trading Co Pty Ltd dated 28th September 1988 referred to earlier.
However, I note defendants submissions that the affidavit of Francis Asi for the plaintiff more specifically paragraph 12 contradicts that of Bevan Clark’s affidavit for the Plaintiff at paragraph 5. Bevan Clark’s affidavit refers to secured property sold as "Allotment "5", Section 42 Mount Hagen." Francis Asi’s affidavit at paragraph 12, refers to secured property "Allotment "6", Section 42 Mount Hagen." I do not know if these are typing errors, but annexure "BC3" of Bevan Clark’s affidavit refers to secured property "Allotment "6" Section 42 Mount Hagen." Annexure "BC3" is the copy of the Plaintiff Bank’s letter to the Secretary Nebilyer Trading Co Pty Ltd dated 28th September 1988, referred to earlier. Bevan Clark deposes that this property was sold and proceeds applied towards reduction of the loan account for Nebilyer Trading Co Pty Ltd. However, Francis Asi states at paragraph 12 of his affidavit that the said property was sold for K65,000.00 and proceeds applied towards the reduction of the loan account for Nebilyer Tambul Management Pty Ltd.
Francis Asi further deposes in his affidavit that these properties were sold between 1990 and 1993. The statements of account for Nebilyer Tambul Management Ltd attached to Bevan Clark’s affidavit do not show transactions for 1990 to 1993.
Because defendant’s counsel decided not to cross examine deponents Bevan Clark and Francis Asi (for the plaintiff), the court is in a difficult position in that it will have to accept the evidence as it is and form its own conclusions.
The defendants submit that the loan account should be reduced from K301,000.00 to a lesser amount because the bank in exercising its rights as Mortgagee and after conducting Mortgagee Sales, should then have applied proceeds of those sales towards reduction of the loan accounts.
It is apparent that the defendants have not exercised their right to Discovery of documents held by the Bank. Nor have they exercised the right to summon witnesses from the Bank who can give evidence on the conduct of Nebilyer Tambul Management Account. This does not assist the court in any way, nor does it assist their case. The court is left with unanswered questions as to the conduct of all Defendants loan accounts with the Plaintiff Bank.
b. Nature Of Guarantees
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. (see Bradford Oldbank Ltd vs Sutcliffe [1980] 2 KB 833 referred to by Reeday in the "Law Relating to Banking" (1972) page 299). In this case, letters of demand were served by registered post on 20th December 1990. Therefore, time began to run immediately after 20th December 1990. Although not pleaded by the Defendant in its Defence or raised in its submissions, the present claim before the court would be statute – barred if it were an ordinary contract by virtue of s. 16(1) of the Frauds and Limitations Act of 1988 (the ‘Act’). However s. 16(3) of the Act states that an action upon a "Specialty" shall not be brought after the expiration of twelve years. A Specialty Contract is a contract under seal or deed which must be written, sealed and delivered. Therefore for the contract of guarantee to be considered a contract under seal, it must be especially provided for in the document that it was intended to be executed as a deed.
On 5 July 2002, I adjourned to allow Counsel to make submissions on that aspect. My ruling is attached.
In this case, the guarantees read:
"By this deed – (my stress)
in consideration of the bank at the request of the guarantor making loans and advances or providing banking accommodation to the customer whether alone or jointly or in conjunction with any person and/or in consideration of the bank, at the request of the guarantor hereby made, for bearing to enforce immediate payment of the moneys (if any) now due and owing by the customer to the Bank the guarantor (jointly and severally if more than one) agrees with and guarantees to and indemnifies the Bank, and shall indemnity the bank as follows;
1. The guarantor will pay to the bank on demand.
(ii) If no sum appears in item 4 of the schedule or if the words "unlimited as to amount" (or words to light effect) appear therein, then the liability of the guarantor hereunder shall be unlimited as to amount."
....
THIS DEED SIGNED SEALED AND DELIVERED by the guarantor Johannes Leahy and Rhonda Leahy". (signed).
Section 16 of the Frauds and Limitations Act 1988 (the ‘Act’) states:
"16. LIMITATION OF ACTIONS IN CONTRACT, TORT, ETC.
(1) Subject to Sections 17 and 18, an action –
- (a) That is founded on simple contract or on tort, or.... shall not be sought after the expiration of six years commencing on the date on which the cause of action accrued.
(3) Subject to subsection 4, an action upon a speciality shall not be brought after the expiration of twelve years commencing on the date when the cause of action accrued".
A ‘Deed’ is defined in "Osborne’s Concise Law Dictionary" Sixth Edition by John Burke as: "A writing or instrument written on parchment or paper signed, sealed and delivered, to prove and testify the agreement of the parties in whose deed it is to the things contained in the Deed. A ‘Specialty’ is defined in the same dictionary as "A contract under seal. A specialty debt is one due under a deed". In this case, the guarantees or Deeds therefore are or is a "Specialty" because of the nature and the form of the guarantees.
Under s. 16 (3) of the Act, an action can be brought within twelve (12) years from when the cause of action arose. But, this is also dependent very much on the terms of the Guarantee. Halsburys 4th Edition, volume 20 states:
"The duration of the surety’s liability depends upon the terms of the guarantee. Some guarantees are intended to cover a single transaction only, while others, called ‘continuing guarantees’, are framed so as to apply to a series of credits and transactions. In the case of a single credit and transaction, the surety’s liability extends only to the one credit or transaction agreed upon, while in the case of a continuing guarantee, the liability endures until the credits and transactions contemplated by the parties, and covered by the guarantee, have been exhausted or until the guarantee itself has been revoked." (pg 89 – 90).
For this court to ascertain whether the guarantee is a continuing guarantee or not, "...the language of the guarantee must be examined in order to see whether it is capable of being construed so as to carry out that intention..." (pg. 90 Halsburys, supra).
In saying that and upon perusal of the two Guarantees before the court, I note they both state at paragraph 5;
"5. This Guarantee shall be a continuing guarantee..." (my stress)
In this case, the guarantors liability is limited, i.e. the limit of the surety’s liability is defined or limited as to amount, as mentioned above (re clause 3 (1) (a) (b) (c) (ii) of the Guarantees) "Pagets Law of Banking" fifth edition, 1972 at pg 606 discusses this: "It may be intended that the guarantor’s liability may be limited; if so, the limitations must be strictly defined. Where a fixed sum is inserted as the limit of the surety’s liability, it must be carefully stipulated whether the surety is surety for the whole debt, with the specified limitation to his total liability, or whether he is surety only for part of the debt..." In this case, the surety’s liability is for an amount not exceeding K301,000.00, and is limited as to amount. (See clause 3(i)(a)(b) (c) (ii) of the Guarantee and Indemnity executed by the Plaintiff and the Defendants on 13th July 1989).
Therefore because the guarantees are ‘continuing guarantees’, the bank can at any time make a demand for immediate repayment and no right of action accrues against the Defendant or customer until a demand for payment has been sent (see Reedays, "the Law Relating to Banking" supra).
Because of the continuing nature of the guarantees in question, it does make sense that it is a Deed, therefore a Specialty within the meaning of s. 16(3) of the Act.
Therefore notices of demand having been issued by the Plaintiff Bank on 20th December 1990, means that the time period of 12 years began to run on 20th December 1990. In this case, the Writ of Summons was filed on 14th October 1998 well within the expiration of the 12 year period which is due to expire on 20th December 2002.
The issue now is whether the plaintiff is entitled to its claim of K301,000.00. I note from the bank statements before me more particularly annexure "BC1" to Bevan Clark’s affidavit, that by 31 May 2002, Nebilyer Tambul Management Ltd’s account was in arrears of K958,644.96. So even if the K65,000.00 from the sale of the Mount Hagen property was applied towards reduction of that loan account between 1990 and 1993, (see paragraph 12 of Francis Asi’s affidavit of 3rd May 2002), the status of the account would not have changed in that as at 31 March 1998, the Plaintiff Bank’s Statement of Account shows that arrears had continued to accumulate inclusive of the interest, to K428,381.73, above the principal amount of K301,000.00. However, because the guarantee is limited as to amount, in this case K301,000.00, the Plaintiff Bank’s claim is limited to K301,000.00.
In relation to interest, the summons claims, 29.50% per annum as at the date of the filing of the writ on 14th October 1998. Paragraph 3 (i) (b) and (c) state that interest shall be calculated in the manner and at the rate or rates determined by the bank for the time being, compounded and turned into principal accordingly. (See also Clause 4 of Guarantee and Indemnity dated 13 July 1989 between the plaintiff the defendants and Nebilyer Tambul Management Pty Ltd as the customer.)
Interest claimed at 29.50% is on par with Nebilyer Tambul Management Ltd’s Statement of (loan) account and Transaction Report attached as annexures "BC1" and "BC2" to Bevan Clark’s affidavit. Those documents state respectively that as at 19th October 1998 and 31 October 1998, interest was assessed at 25.5000% per annum. The interest to be charged by the court should be the interest accruing as at the date of judgment. The court is inclined to accept the rate of interest charged as at 31 May 2002 shown on the Plaintiff Bank’s Transaction Report which is 18.2500% per annum.
In relation to costs, I have seen that the Defendant’s refusal to pay a portion or the whole of the debt has resulted in these proceedings being instituted.
The court’s formal orders are that:
_____________________________________________________________________
Lawyer for the Plaintiff: William Arua, Counsel, Bank of South Pacific Ltd
Lawyer for the Defendants: Nongorr & Associates
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS 1007 OF 1998
BANK OF SOUTH PACIFIC
AND:
JOHANNES LEAHY
AND:
RHONDA LEAHY
Waigani: Davani, J.
2002: May 24
June 17,
July 5
Counsel:
W. Arua for Plaintiff
T. Sirae for Defendants
5 July 2002
RULING
DAVANI J: The plaintiff by its Writ of Summons and Statement of Claim filed on 14th October 1998 seeks orders that the defendant pay to it the sum of K301,000.00 together with interest calculated at the rate of 29.50% per annum and in saying that, relies on certain securities including guarantees.
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. (see Bradford Oldbank Ltd vs Sutcliffe [1980] 2 KB 833 referred to by Reeday in the "Law Relating to Banking" (1972 page 299). In this case, letters of demand were served by registered post on 20th December 1990. Therefore, time began to run immediately after 20th December 1990. Although not pleaded by the Defendant in its Defence or raised in its submissions, the present claim before the court would be statute – barred if it were an ordinary contract by virtue of s. 16(1) of the Frauds and Limitations Act of 1988 (the ‘Act’).
Section 16 of the Frauds and Limitations Act 1988 (the ‘Act’) states:
"16. LIMITATION OF ACTIONS IN CONTRACT, TORT, ETC.
(2) Subject to Sections 17 and 18, an action –
- (b) That is founded on simple contract or on tort, or... shall not be sought after the expiration of six years commencing on the date on which the cause of action accrued.
(3) Subject to subsection 4, an action upon a specialty shall not be brought after the expiration of twelve years commencing on the date when the cause of action accrued".
This court cannot go on a frolic of its own to identify the other avenues available to it. In this case, both counsel have not assisted the court either in their pleadings or submissions on that aspect. Because the Defendant has not specifically pleaded s. 16(1) of the Act in its Defence, he is barred from raising it. The court can still proceed to considering the Plaintiff’s claim.
I assume the Plaintiff may have proceeded the way it has relying on s. 16(3) of the Act, that because the guarantee is a specialty, a claim can be made within 12 years from when the cause of action arose. I have not heard submissions on that aspect. I would like
to hear submissions and give counsel the opportunity to make those submissions. I invite counsel to make those submissions, more
specifically on the nature and the type of guarantees now before me and the effect of s. 16(3) of the Act. These submissions will
be filed as extracts and for counsel to talk to them, to be returnable before me on Wednesday at 9.30am. My decision will be handed
down on Friday at 1.30pm.
_____________________________________________________________________
Lawyer for the Plaintiffs: Bank of South Pacific
Lawyer for the Defendants: Nongorr & Associates
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