Pikip v Muriel [2011] PGNC 196; N4501 (4 October 2011)

N4501

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

CIA 197 OF 2010

BETWEEN:

JAMES KIMIN PIKIP & 1 OTHER
Appellants

AND:

JAMES MURIEL
First Respondent

JOE KUNDA NAUR AS PROVINCIAL ADMINISTRATOR
Second Respondent

DEPARTMENT OF SIMBU
Third Respondent

Kundiawa: Kangwia, AJ
2011: 26 September & 4 October

PRACTICE AND PROCEDURE – District Court Appeal

Cases Sites:

Putput Logging Pty Ltd v Philip Ambalis [1992] PNG LR 159
Post PNG Ltd v Yama Security Services Ltd [2000] Cairns –vs- Diarmid [1982] STC 226
Martha Limitopa & 1 Or. v The State [1988-1989] PNGLR 364

Counsel:

James Kimin Pikip, for the Appellants
No appearance, for the Respondents

4 October, 2011

1. KANGWIA AJ: This is an Appeal against the decision of the District Court at Kundiawa which awarded damages, Interest and Costs totalling K2, 740.80 against the Respondents to be paid by the 3rd Respondent on vicarious liability. The claim arose out of an alleged Money - Lending agreement for an amount of K378.00 which Mr. James Muriel borrowed from the appellants. The appellants appealed against the amount awarded as insufficient.
   

2. Appeals from the decisions of the District Court are guided by the provisions under Part XI of the District Courts Act and the relevant parts are as follows:

S 219 Appeals to National Court

(1) ... a person aggrieved by a Conviction, order or adjudication of a Court... may appeal to the National Court in accordance with this part.

3. In Putput logging Pty Ltd -v- Philip Ambalis [1992] PNGLR 159 the procedure for hearing of an appeal was stated to be as follows:

"All appeals from the district Court coming before the National Court are dealt with by way of hearing. Under such circumstances and with the same facts before this Court as were established in the lower Court, the parties' positions and the appeal remain to be reconsidered."

4. I perceive this to mean that I could hear the matter as if the matter was heard in the Court below and not be restricted to the grounds of appeal only.

5. The facts which were before the District Court seem to be these. Mr. James Kimin Pikip was the Managing Director of the Second Appellant. Mr. James Muriel was the Provincial Labour Officer in Simbu. Mr. Muriel was said to have borrowed K378.00 from the appellants. It was also alleged that the money was for office stationary and an airline ticket to Moresby for Mr. Muriel to present a building maintenance plan to his National Office. It was further claimed that Mr. Muriel would try to get this maintenance project for the appellants although the appellants played down on that issue as not part of the agreement.

6. It was claimed that the K378.00 was to be repaid at 100% interest per month from February 2006. In April 2009 when the proceedings were commenced in the District Court a calculation on the Statement of Claim showed K14, 564.000 as being the amount owed from the accrued interest at 100% per month. To Invoke the Jurisdiction of the District Court the appellants sued for K9, 000.00 plus the K378: 00 only and abandoned the excess.

7. The District Court made an ex parte decision when the Respondents did not appear. The learned Magistrate reasoned that to award the K9, 000: 00 claimed would be unjust enrichment for the appellants. He however found the respondents liable and awarded a sum of K2, 780: 00 inclusive of damages, interest and costs.

8. The grounds relied on are as follows:

1. There was miscarriage of Justice.

2. That the Magistrate misinterpreted the information contained

within the proceedings and gave a negative ruling.

3. That the Magistrate was not Consistent in his decision for

similar precedent Cases.

9. Two main grounds emerge from the grounds of appeal.

10. Ground 1 is wide in scope and may cover many aspects of the case which I will deal with later. First, I will deal with grounds 2 and 3 as they relate to the learned Magistrates conduct of the case before him.

11. Magistrates in the District Court exercise powers conferred on them by the District Courts Act. District Courts are Courts of Statute and what transpires there must be guided by the provisions of that Act. The jurisdictions to deal with cases before a Magistrate are found under S. 5 and S. 9 of the District Courts Act.

12. Magistrates are not bound by their previous decisions or other District Court decisions as precedents. Previous decisions of District Courts may be used as guides or as precedents at the sole discretion of the Magistrate. The exercise of Magistrates discretion depends solely on the circumstances of each case before them, even if one is exactly the same as an earlier case. They are not required to make the same decision on any subsequent Case.

13. There is in the District Court a general discretion to make orders or determinations in claims as the Justice of each case deems it fit. In this respect the learned Magistrate was quite entitled to form opinions and make determinations the way he did and I find no error on the part of the Magistrate in the conduct of the proceedings and the exercise of the powers given him by the District Courts Act. Grounds 2 and 3 have no basis and are therefore dismissed.

14. The first ground of appeal alleges a substantial miscarriage of justice. A number of issues arise for consideration under this ground and they will be briefly covered.

15. At the outset this case is quite intriguing in the sense that a substantial portion of the amount claimed (K9, 000:00) and (awarded K2780: 00) consist of interest which purportedly accrued at 100% per month. The principal sum allegedly borrowed was a mere K378.00.

16. The intriguing nature of this Case has caused the emergence of various issues pertinent to the success or failure of this appeal.

17. The first is the issue of the parties to this action. The agreement was made between the First Appellant and Mr. Muriel for him to borrow K378.00. The conditions express or implicit in the agreement were known between themselves only. There is no evidence of the 2nd and 3rd Respondents as being a party to the agreement or performing an act to enable the agreement to be made. The principle of law commonly known as the 'doctrine of privity of contract' is that as a general rule, a contract cannot confer a right or impose obligations arising under it on any person except the parties to it.

18. In Gandy v Gandy (1885) 30 Ch.D.57 it was observed that; "as a general rule a contract cannot be enforced except by a party to the contract; and either of two persons contracting together can sue the other if the other is guilty of a breach of or does not perform the obligation of that contract. But a third person- a person who is not a party to the contract cannot do so."

19. In the present case the 2nd and 3rd Respondents cannot be imposed an obligation to pay under the agreement to which they were not a party to. They would not be liable under the doctrine of privity of contract to pay the amount claimed as an ordinary debt or as a judgement debt.

20. The learned Magistrate fell into error in determining that the 2nd and 3rd respondents were liable under the agreement of the Appellants and Mr. Muriel.

21. Under S. 2 (2) (b) of the Claims by and Against the State Act it requires service providers to provide an authority to pre-commit before a claim for goods and services can be enforced in a Court. Without an authority to pre-commit the appellants cannot claim against the 2nd and 3rd respondents. There is no evidence that the 2nd and 3rd respondents gave any authority to the 1st respondent to pre-commit them for the K378. 00 obtained by Mr Muriel.

22. The second issue is derived from the Order of the District Court for vicarious liability to the Department of Simbu as the Third Respondent.

23. In order for a party to be vicariously liable one must act in the course of his employment or as agent. The question that arises is whether James Muriel was employed by the Department of Simbu for it to incur liability vicariously. 24. The facts do not disclose any nexus between Mr. Muriel and the 2nd and 3rd Respondents. There is no evidence that Mr. Muriel was employed by the Department of Simbu.

25. There is evidence to the contrary. Mr. Muriel was said to have gone to his national office in Port Moresby to submit a building maintenance plan which the Appellants wanted to be engaged in. On the basis of this evidence it is reasonable to infer that Mr. Muriel was not employed by the 2nd and 3rd Respondents. The plan would have been given to the 2nd and 3rd Respondents in Kundiawa had he been employed by them. Vicarious liability cannot arise under this circumstance and I find that the learned Magistrate erred in his determination for the third respondent to pay the amount ordered on vicarious liability.

26. Third is the issue of Notice to Claim under the Claims By and Against the State Act. The Department of Simbu is an organ of the State and as such, the compulsory requirements for Notice to be given within 6 months after the occurrence of the claim arose must be complied with. There is no evidence that the Appellants did that.

27. The Statement of Claim in item 10 pleads the time lapse to give notice under the Claims Act. In this regard the Appellants were statute barred from mounting a claim against the 2nd to 3rd Respondents. The appellants failed to institute proceedings earlier to satisfy the requirements under the Claims Act. The learned Magistrate erred in determining that the 2nd and 3rd respondents were liable when the proceedings against them were statute barred.

28. The main principle running through this case highlights the fact that, offer and its acceptance are consummated in a manner either explicitly or by implication, designed by the parties during their negotiations. Most of the negotiation occurred face to face between the First appellant and Mr. Muriel and the logical outcome seems to me to be that the K375.00 would be repaid with Interest of 100% if the appellants did not secure the contract.

29. The appellants had another ulterior motive to commit the money. They facilitated a trip for Mr. Muriel with a hope of securing a contract. When they did not get the contract the appellants resorted to a payback claim on the K378. 00 with 100% interest and not as a breach of contract as they allege. I am not convinced that it was in the contemplation of the parties that interest at 100% would still be paid some years later as accrued interest totalling K9, 000: 00. What can be reasonably inferred was in the contemplation of the parties was that Mr. Muriel would repay the K378. 00 with interest (a disguised penalty) if the contract was not secured for the appellants.

This is an example of a peculiar way of doing business where risk taken to invest is demanded as a debt owing when in fact it amounts to a failed risk. 30. The question that arises is whether the plaintiffs would have been K9, 000. 00 better with the K378.00 had the contract not been entered into. In other words, would the appellants have recovered K9, 000: 00 with the K378.00 within 4 years? I loathe thinking that it was possible. The onus was on the appellants to show how they could have made K9, 000: 00 within four years with K378: 00 to demonstrate the damages suffered as a result of the breach. They have not done that apart from claiming a breach. Damages cannot be allowed for lack of a foreseeable claim.

31. The law on damages is as stated in Post PNG Ltd –v- Yama Security Services Ltd (2000) (unreported and unnumbered judgement of 26 July 2001; SCA 80 of 2000) where the Supreme Court said;

"Damages in contract are awarded to compensate a party for loss or injury, not to penalise. Damages are awarded to put the injured party in the same position, as it would have been had the contract not been breached, and it is the duty of the Court to satisfy itself that a sum to be held over a party to enforce a contract. A Plaintiff claiming under a contractual provision for liquidated damages must show that the agreement represents a genuine pre estimate by the parties of the actual loss that will be occasioned if the contract terms are met. But if the provisions can be seen to be essentially a threat over a party to secure performance of the contract, the provision will be a penalty and Unenforceable".

Courts have long held that because the purpose of a penalty is to ensure compliance rather than to truly compensate, agreements for sums found to be penal will not be enforced and the party claiming damages will be properly and adequately compensated by an award of actual assessed loss. Further, if there were a provision in an agreement for a sum or sums payable on breach wholly out of proportion to the breach (sic) the Courts will hold such provision a penalty and cannot recover the sum stated in a contract if he has not in fact suffered loss."

32. In Martha Limitopa & Poti Hiringe v The State [1988-1989] PNGLR 364 the court affirmed further what a purpose for damages was when it said;

"It is clear that the purpose of damages is to compensate a person for the wrongful conduct, it is not intended to be a reward or penalty."

33. In the present case the claim of K9, 000: 00 was out of proportion to the breach of agreement to repay K378: 00 with 100% interest. Then the agreement becomes peculiar. It is peculiar in the sense that it is an indefinite agreement that can only come to an end at the pleasure of the appellant or whenever the other party decides to repay. In this case the agreement came to an end when the appellants decided to stop it when the amount reached K9, 000. 00. Agreements are supposed to be mutual and definitive in nature for it to be enforceable in the event of a breach. This agreement does not seem to be a mutual or definitive contract and therefore it is unenforceable.

34. The Courts have a duty to enquire into the matter and determine whether the provision in the agreement represented a genuine pre-estimate of the loss that would be suffered in the event of a breach as opposed to whether the sum designated is really a penalty to be imposed if the agreement is breached.

35. The District Court failed to do that. It instead determined that the K9, 000.00 claimed as interest could remain as interest liable to be paid as damages at the discretion of the Court and awarded K2, 000.00 there from. That was a wrong interpretation of the law as discussed above. In my view the K9, 000. 00 did not represent a genuine pre estimate of the loss that would be suffered in the event of the breach.

36. What was alleged to have accrued at 100% interest amounted to a penalty only to be paid when the respondent made the repayment? This meant that the appellants could not sue on the penalty, for to do so would amount to a punishment. It could only be paid by the respondent on the principal sum as per their agreement and not through the Court. If the defaulter does not pay the penalty, that could be the end of the matter because penalty is unenforceable.

37. Next is the issue of interest in a damages claim.
Interest is defined in the Oxford advanced learner dictionary as "The extra money that you pay back when you borrow money or that you receive when you invest money".

38. The Oxford Dictionary of Law Seventh edition define, interest as; "a charge made for borrowing a sum of money".

39. The Halsbury's Law of England defines it as, "the return or compensation for the use or retention by one person of a sum of money belonging to, or owed to another".

40. Interest is payable on a specified Contract as was in the contemplation of the parties when the agreement was entered into.
It is a well established principle of law that damages are those that, may reasonably be supposed to have been in the contemplation of the parties at the time when the contract was made as the probable result of its breach.

41. Did the appellants and Mr. James Muriel contemplate the repayment of K9, 000. 00 from the K378. 00 or whether the accrued interest of K9, 000-00 was payable as a breach of the contract? The answer to both questions is no. The agreement was a simple contract of lend and repay with a simple interest on the original amount invested. The interest cannot be said to have been in the contemplation of the two gentlemen who made the deal with the K378. 00 to surpass K9, 000: 00 as claimed.

42. In Cairns-v- MacDiarmid [1982] STC 226 it was held that; "excessive payment cannot be interest."

43. The K9, 000.00 claimed as interest in my view was excessive and unreasonable and did not come within the ambit of interest as described by the definitions alluded to earlier. The K9, 000.00 claimed as interest in my view was a disguised penalty which is unenforceable. Unenforceable in the sense that where a breach of Contract is shown to exist damages would naturally follow but punishment does not follow on the back of a breach of contract.

44. On the first ground of appeal on whether there was a Substantial Miscarriage of justice I find that there was a substantial miscarriage of justice in the application of the Law to the given facts. I uphold the appeal on this ground.

45. This was an unreasonable, outrageous and unenforceable claim. If the claim was genuine the plaintiffs erroneously waited four years to claim for a small debt of K378. 00. I can only conclude that it was deliberately allowed to accrue for the purpose of facilitating unjust enrichment and therefore damages claimed cannot be awarded.

46. Having said that, I also find that there was no dispute that an enforceable contract existed between the appellants and Mr. Muriel on the K378.00 lent and the repayment with 100% on the principal as a debt. When the Court seized of the matter the debt became a Judgement debt.

47. As is the usual case the application of interest falls on the Judgement debt under the Judicial Proceedings (Interest on Debts and Damages) Act which is usually granted at the discretion of the court. The appellants were entitled to mesne profits, that is, damages in respect of loss suffered by them during the period of disposition. In this case, in the absence of evidence of actual loss suffered, the normal measure of damages would be interest on the judgement debt under the Judicial Proceedings (Interest on Debts and Damages) Act. That in my view is the law on interest and not a percentage that accrues at the pleasure of one party.

48. In conclusion I must sound a warning to lenders as in this case that their interest as lenders would be more protected by some certain guarantees or security given by the borrower. These would include a guarantee from some authority either in writing or orally, post dated cheque pending payment of wages into an account or withholding a bank card or some valuable property pending repayment. These are necessary given that such agreements where money is lent to individuals on a "who you know basis" or "trust basis", can be a risky investment as can be seen here, not to mention the time and expenses incurred to recover it.

49. A lender should also be warned that penalty cannot operate as interest because punishment is not a remedy for a breach of contract. Remedy is in damages for loss actually suffered out of the breach and not for some speculative claims for damages not suffered.

50. In the present case the Appellant's claim in the District Court and in this appeal has no foundation in fact or law to award the K9, 000. 00 claimed. They are entitled in damages for the K378.00 arising out of the breach. They are not entitled to claim as damages the amount that was said to have accrued as interest, because it amounted to a penalty. On the judgement debt of K378. 00 they are also entitled to interest under the Judicial Proceedings (Interest on Debts and Damages) Act but that is subject to the discretion of the Court.

51. The formal orders are;

1. The District Court Orders of 19/12/2010 are quashed in its

entirety.

2. The 2nd and 3rd defendants are not liable.

3. Judgement is entered for the plaintiffs for the sum of K378.00

in the exercise of discretion only.

4. Interest of 8% per annum on the judgement debt is allowed

from date of judgement.

5. The judgement debt shall be paid by the First Respondent Mr.

James Muriel.

6. Each party shall bear their own costs.
__________________________________________________

James Pikip in person
No Appearance for the Respondents