Erotie v Dape Olu Kewa Incorporated Land Group [2011] PGNC 258; N4404 (30 September 2011)

N4404

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 612 OF 2007

BETWEEN:

MR. DAPE EROTIE – CHAIRMAN OF DAPE OLU KEWA INCORPORATED LAND GROUP
First Plaintiff

AND:

DAPE OLU KEWA INCORPORATED LAND GROUP
Second Plaintiff

AND:

BANK SOUTH PACIFIC LIMITED
Defendant

Waigani: Thompson, AJ
2011: 30 September

DAMAGES – assessment of damages following entry of default judgment - Plaintiff has burden of proving his damages by admissible and credible evidence - Plaintiff can only give evidence in support of the damages which have been pleaded in the Statement of claim – whether plaintiff's losses were caused by the negligent conduct of the defendant – whether defendant owes a duty of care to the first plaintiff - Plaintiffs have not produced evidence to prove on the balance of probabilities that further losses were sustained due to the Defendant's negligence - no further damages can be assessed to be payable to the Plaintiff –claim dismissed

Facts

The plaintiffs claimed damages against the defendant relating to unauthorised withdrawals from the account of the 2nd plaintiff and as a consequence, the inability of the 2nd plaintiff to pay an account to a 3rd party and distress to the first plaintiff.

Held

1. Where liability has been is established by default judgement the plaintiff still has the burden of proving his damages by admissible and credible evidence;

2. The defendant having fully repaid the total amount of the unauthorised withdrawals and interest no other damages were proven;

3. The evidence did not establish a debt due from the 2nd plaintiff to a 3rd party, but only a possible debt from a company of which the first plaintiff was a shareholder, to the 3rd party;

4. The first plaintiff was not a customer of the defendant; he was merely a signatory on the account of the 2nd plaintiff with the defendant;

5. It was not proven in fact that the first plaintiff had suffered any compensable distress, and as he was not a customer of the defendant, nor was it established in law that he would be entitled to recover for such distress if proven.

Cases Cited

Papua New Guinea Cases

Albert Baine v. The State (1995) N1335
Coecon Ltd v. National Fisheries Authority (2002) N2102
Harding v. Teperoi Timbers [1988] PNGLR 128
Hodson v. The State [1985] PNGLR 303
William Mel v. Coleman Pakalia & Ors (2005) SC790
Yanga Lagan v. The State (1995) N1369

Overseas Cases

Hobbs v. London and South Western Railway (1875) L.R. 10 Q.B. 122; (1875) ALL ER 458

Counsel:
Ms. J. Nandape, for the First & Second Plaintiffs
Mr. K. Kawat, for the Defendant

DECISION

30 September, 2011

1. THOMPSON AJ: The First Plaintiff was the Chairman of the Second Plaintiff, which was an Incorporated Land Group. The Second Plaintiff had an account with the Defendant Bank. In May – June 2006 four cheques totaling K222,000.00 were issued from the account with apparently forged signatures. The Plaintiffs notified the Defendant of the apparently fraudulent transactions in mid-July 2006. After failing to obtain the return of the monies, the Plaintiffs issued these proceedings in June 2007.

2. This is an application by the Plaintiff for damages to be assessed, following the entry of default judgment in October 2007.

3. Pursuant to the line of authorities from Coecon Ltd v. National Fisheries Authority (2002) N2102 to William Mel v. Coleman Pakalia & Ors (2005) SC790, after the entry of default judgment, the judge must look at the Statement of Claim to see if the facts and the cause of action have been pleaded with sufficient clarity. If they are clear, then the interlocutory judgment resolves the questions of liability in respect of the matters pleaded in the Statement of Claim, and the damages can proceed to be assessed. The Plaintiff then has the burden of proving his damages by admissible and credible evidence. The Plaintiff can only give evidence in support of the damages which have been pleaded in the Statement of claim.

4. I have therefore considered the Statement of Claim. The First Plaintiff did not need to be named in order to represent the Second Plaintiff. Under Section 11 of the Land Groups Incorporation Act, Incorporated Land Groups are corporations which can sue in their own name.

5. The facts and cause of action by the Second Plaintiff ("the ILG") against the Defendant are pleaded as a claim for negligence. The claim by the First Plaintiff is less clear. He has pleaded that he was the chairman of the ILG. There is one paragraph in which he claims damages for distress caused by the Defendant's unauthorized payments and subsequent delay in repaying the money to the ILG. He does not identify a cause of action which is based on those facts.

6. There is no pleading by either of the Plaintiffs that they entered into a contract with the Defendant or that the Defendant owed them a duty of care. The existence of a duty of care to the ILG can perhaps be inferred from the ILG's pleading of negligence by the defendant. Although the pleadings are not entirely satisfactory in relation to establishing causes of action, I am prepared to proceed on the basis that they sufficiently disclose an action for negligence by the ILG, and that this issue has been resolved by the interlocutory judgment.

7. I refer next to the claim for damages by the ILG. As the Defendant had already re-paid the monies to the ILG together with interest, the balance of the claim comprises a sum for accommodation and meals for three of the ILG's members, and the payment of a debt said to be due to a third party.

8. In relation to the out of pocket expenses, no invoices or receipts were produced. No particulars were provided of the dates on which the expenses were incurred, or the identity of accommodation providers. The expenses were said to be incurred by the three men in coming to Port Moresby from Gobe, in order to pursue their claim against the Defendant. There is no evidence that they travelled from Gobe, and the Plaintiffs said that they were not pursuing the claim for travel costs. The evidence was that the ILG's bank account was in Port Moresby, the First Plaintiff has a home and a family living in Port Moresby, and the letterhead of the ILG showed its only address as being in Port Moresby. No explanation was given by the First Plaintiff as to the basis on which he was claiming for accommodation and meals in Port Moresby at all.

9. I accept the evidence that it was necessary for the First Plaintiff and the two other ILG members to attend on the Bank and identify their signatures. However, there is no evidence that they incurred any particular expense in doing so. There is a long line of cases including Albert Baine v. The State (1995) N1335 and Yanga Lagan v. The State (1995) N1369 to say that it is not enough for a Plaintiff to just write down particulars and give them to the Court, and say this is what I lost, so give me this as damages. The Plaintiff is obliged to prove his damages in the usual way, by producing evidence, preferably from an independent source.

10. The Plaintiffs have not produced any evidence that the three ILG members had to travel to Port Moresby from Gobe or anywhere else, or that they had to rent accommodation or pay for meals. When they did attend at the Bank, it could not have taken more than a few hours to identify their signatures. There is no explanation offered for the period of two months stay in Port Moresby which is being claimed. There is no evidence that the other two members attended at the Bank on any other occasion, after the initial attendance.

11. If there had been evidence of their need to travel, and that they actually had travelled, to Port Moresby, I may have accepted the absence of supporting invoices and receipts for the accommodation and meals, and made an allowance for those notional expenses. However, there was no evidence of either the need for travel or of actual travel.

12. The Plaintiffs have simply written down some particulars, and given them to the Court, saying they want to be paid those amounts. In the absence of any corroborating evidence from an independent source, and indeed in the absence of any supporting evidence at all, the Plaintiffs have not established on the balance of probabilities that these expenses were incurred.

13. I refer next to the claim for payment to Baimuru Timber Ltd. Para 14 of the Statement of Claim refers to a figure of K78,393.60 plus VAT making a total of K86,232.96. Para 17 says that the Plaintiffs claim K100,660.09. In his Affidavit, the 1st Plaintiff refers to an invoice for K86,232.96. He annexes three documents – one invoice from Baimuru Trading Ltd for K86,232.96, and two letters of demand from a firm of lawyers for K100,660.09 said to be owing to PNG Tropical Wood Products Ltd. That is the only evidence produced in support of the alleged debt owing to the creditor. The amount of the alleged debt is not clear, and nor is the identity of the creditor.

14. The most obvious fact about the invoice and the letters, is that they are directed to a private company called Dapeolu Ltd, and not to the Plaintiffs.

15. The First Plaintiff has said that he is the shareholder of this private company, which was incorporated in 1996. He said that he held the shares in trust for the ILG. A company search shows that he is just one of three shareholders. The Plaintiffs produced no record of any declaration of trust, and there was no evidence of any trust deed. Section 69 of the Companies Act says that the entry of the name of a person in the register is prima facie evidence that legal title to the share vests in that person.

16. The company was incorporated in 1996, while the ILG was only incorporated in 2000. The First Plaintiff obviously could not have been holding any shares for the ILG after the company was set up, and he produced no evidence of any subsequent transfer or declaration of trust. I therefore cannot accept the First Plaintiff's statement that he holds his shares in trust for the ILG.

17. I am fortified in this conclusion by Section 13 of the Land Groups Incorporation Act, by which the powers of an ILG are very limited. An ILG only has powers relating to its land and land use, and the power to distribute land royalties and profits to the members. It does not have the power to invest in private businesses or companies unrelated to its land use. Prima facie, it could not have purchased shares in a private company.

18. The Plaintiffs produced no evidence of any relationship, legal or otherwise, between the private company Dapeolu Ltd and the ILG. As a consequence, the Plaintiffs did not establish any basis for the claim that the ILG was liable for the debt to Baimuru Trading Ltd.

19. In fact, the Plaintiffs produced no evidence that a debt was payable at all. They did not produce any contract or agreement. The 1st Plaintiff's evidence was that he had negotiated an arrangement in his capacity as the Managing Director of the private company. He did not say when this was done ie whether it was before or after misappropriation from the bank account. The invoice for the supply of timber to the private company was dated 9 August 2006, two months after the misappropriation. The Court does not know if the 1st Plaintiff and the private company entered into the arrangement before or after he had discovered the misappropriation in July 2006. If it was after, it could not be a loss which was attributable to the Defendant's negligence in May and June 2006.

20. The Plaintiffs have produced no evidence at all from Baimuru Trading Ltd or PNG Tropical Wood Products Ltd that they entered into a contract or agreement with the Second Plaintiff. The ILG has no connection with the private company, Dapeolu Ltd which incurred the debt by agreeing to purchase the timber.

21. The First Plaintiff said that on behalf of the private company, he entered into an arrangement for the supply for timber in consideration for payment of the price. It was always the company's intention to pay that purchase price. Even if it was accepted that the private company was going to pay it out of the ILG's money, the ILG would not then have had K222,000.00 in its bank account. It would only have K122,000.00 left in the account after payment. The ILG has already been fully repaid and yet it has not paid the timber supplier. It has therefore not suffered any actual loss.

22. There is no evidence to show that even if there was an agreement, it had not been fulfilled. There is no evidence of what happened to the timber at all. The 1st Plaintiff says that he "heard" that it was rotten, or had been stolen. This is just hearsay, and must be disregarded. The Plaintiff's failure to call evidence on what actually happened to the timber, is significant. For all the Court knows, it may have been taken delivery of, by the First Plaintiff's private company.

23. It seems unlikely that a timber company would deliver K100,000.00 worth of timber to the open air, not in covered or secured premises, not get paid, and then just leave it there to rot. The timber company is more likely to have taken the timber back and resold it, or enforced payment. The letters of demand from the timber company's lawyers were written in 2007, over four years ago. They may have since been paid.

24. Even if the debt had been incurred by the ILG, the only way in which it could be treated as a potential loss, would be if the timber was not received, and that this was caused by the Defendant's negligence. The Plaintiffs produced evidence that the timber company had supplied the timber. They did not produce evidence to show what happened after that. There was no evidence of the condition of the timber at all. There was therefore no evidence that it was missing or so completely damaged in a mere fifteen months, that it amounted to a total loss. There was no evidence that a fifteen months delay in payment due to the Bank's negligence, resulted in the total loss of the timber.

25. The ILG was repaid the K222,000.00 in November 2007. Despite this, it did not pay for the timber. The most reasonable inference to be drawn from this is that it did not pay because it did not have to pay. There was no debt. Any obligation to pay was by Dapeolu Ltd, and not by the ILG.

26. In summary, the ILG still has all its money, has not paid any out, and has no obligation to pay any money out. There was no debt incurred by the ILG. The ILG therefore has not sustained any consequential loss as a result of the Bank's negligence.

27. I refer next to the claim for general damages by the First Plaintiff. In para 18 of the Statement of Claim, he makes a very brief claim for damages for mental distress, anxiety and frustration as a result of the unauthorized payment of the money, and the Defendant's delay in repaying it to the ILG. No further particulars are pleaded.

28. In his Affidavit, the First Plaintiff says that he had sleepless nights and lost his appetite over the unauthorized withdrawal of the money. He also says that because he was the sole custodian of the cheque book and the compulsory signatory to the account, the ILG members would think that he took the money.

29. That is the extent of the evidence. There is no medical evidence. There is no evidence that the First Plaintiff sought medical or other treatment for his distress or anxiety.

30. In the absence of any medical evidence or corroborating evidence from any witness, the Court only has the First Plaintiff's own statements. The context to these statements is that the First Plaintiff says that he discovered in July 2006 that there had been unauthorized cheque withdrawals from the ILG's account in May and June 2006. He says that the cheques were scanned copies from the cheque book, with forged signatures. Although the first and largest withdrawal was made in May, he says he did not discover it until the bank statements arrived in July. This indicates that he had not made an arrangement for daily, weekly or fortnightly statements, and had only arranged for statements to be sent by post, rather than by facsimile or electronically.

31. He says that he is the sole custodian of the cheque book. He offers no explanation for how the cheques were able to be scanned. Despite his belief that the cheques were forged, he did not report it to the Police or the Fraud Squad. Neither he nor the ILG made any enquiries or carried out any investigations of their own, into the misappropriation. He did not engage any accountants or investigators. Contrary to his claim, he seems to have treated it fairly casually.

32. He says he went into the Bank in July, told them about the misappropriations, and at the Bank's request, produced the other two members to identify their signatures. His subsequent letter to the Bank dated 14 July 2006 shows that he was making the claim in a business-like manner. He took no follow up action until his letter of 17 November 2006, in which he said that the loss had caused him distress and anxiety, and he requested compensation for that.

33. He then engaged lawyers in December 2006, and after writing two letters, the lawyers issued the proceedings in June 2007. In August 2007, the Bank offered to repay the entire K222,000.00. The Plaintiffs refused to accept it, and proceeded to enter default judgment for K222,000.00 plus damages to be assessed, in October 2007. The bank paid the full amount of K222,000.00 in November 2007, and a further K3,000.00 for interest.

34. The time from discovery of the loss to the offer to repay it, was about thirteen months. That is the maximum period for which the First Plaintiff could claim to have suffered distress and anxiety.

35. The first issue is the cause of his alleged distress and anxiety. A contributing cause was the fact that he was the compulsory signatory and sole custodian of the cheque book and could not provide any explanation for how the cheques were scanned. This was not due to the Bank's negligence.

36. The action against the Bank was not for forged signatures and misappropriation of the ILG's money. It was for the Bank's negligence in failing to detect the forgery and misappropriation. It would be reasonable for the First Plaintiff to be upset at the Bank's negligence. However, he should have been more upset by the actual forgery and the misappropriation.

37. Did he experience the alleged distress and anxiety? The First Plaintiff was not sufficiently upset, disturbed or frustrated by either the Bank's negligence or the actual misappropriation, to report it to the Police or Fraud Squad or take any other steps at all to investigate it. Writing two letters in six months after the initial complaint, is not evidence of any particular distress or frustration. There was no evidence to support his claim of being pressured by other ILG members.

36. After legal proceedings were issued, the Bank offered to pay the entire amount. This would obviously have put his mind at rest and he would no longer have had to feel frustrated or anxious, because he was then assured of the ILG's loss being fully recovered. It was only his completely unrelated claim for the debt said to be owing by his private company to a timber supplier, which caused him to continue with the proceedings instead of accepting the Bank's offer.

37. Cases such as Hodson v. The State (1985) PNGLR 303 and Harding v. Teperoi Timbers (1988) PNGLR 128 say that a person can recover damages for distress, caused by breach of a contract of employment. This is because a contract of employment is a personal contract, and its breach can cause personal humiliation or distress. I have not been cited any cases showing an award of general damages to a person for breach of a commercial contract.

38. In this case, what was the relationship between the Bank and the First Plaintiff? It was the Second Plaintiff, which was the customer and which had entered into a commercial agreement with the Bank. There was no contractual relationship between the First Plaintiff and the Bank. The First Plaintiff has not pleaded that the Bank owed him any duty of care, and has not pleaded any basis for alleging that a duty of care was owed to him. At best, he has said that the Bank was negligent in its dealing with the Second Plaintiff, and as a result, he personally experienced distress and anxiety.

39. The First Plaintiff has referred to a number of cases on the foreseeability and remoteness of loss. In particular, he has referred to a statement in Harding v. Teperoi Timbers that "... where at a time of making the contract, it is within the contemplation of the contracting parties that a foreseeable result of a breach of the contract will be to cause distress ..." etc, then damages are recoverable.

40. Apart from the fact that Harding's case was for a personal contract of employment, it does not assist the First Plaintiff, because he and the Bank were not contracting parties. There is no pleading of a contract or a breach of a contract by any party.

41. Was the alleged distress and anxiety caused by the bank's negligence to the ILG? The First Plaintiff submits that it was reasonably foreseeable by the Defendant that negligence towards the Second Plaintiff would result in the First Plaintiff suffering loss. However, foreseeability is only relevant if there is a legal relationship between the parties. The Statement of Claim does not plead such as a relationship – either that there was a contract between the First Plaintiff and Defendant, or that the Defendant owed the First Plaintiff a duty of care. He was not a customer. He was merely one of three signatories on a customer's account. Although it was not pleaded, the Defendant owed a duty of care to its customer, to ensure that adequate procedures were put in place to protect the customer's account. I have not been made aware of any authorities which might extend this duty of care to non-customers.

42. I therefore find that the Statement of Claim has not sufficiently pleaded the facts and cause of action relied on by the First Plaintiff to claim damages from the Defendant.

43. However, if I am wrong, and the pleadings disclose a cause of action against the Defendant which includes foreseeable loss by the First Plaintiff, I find that the First Plaintiff has not produced any evidence which is sufficient to establish on the balance of probabilities that he actually suffered such loss. The Defendants' negligence in a commercial transaction with the ILG, is not the same as a Defendant wrongfully terminating a Plaintiff's employment or other personal action. It can be accepted that he felt upset and distressed, and lost some sleep and appetite over it (even disregarding that it was more due to the actual misappropriation rather than the Bank's failure to detect it). However, that is not sufficient for an entitlement to damages. As the Court of Appeal said in Hobbs v. London and South Western Railway (1875) L.R. 10 Q.B. 122; (1875) ALL ER 458, " ... for mere inconvenience, such as annoyance and loss of temper or vexation ... you can not recover damages."

44. The Second Plaintiff's loss was caused by the forgery and misappropriation, and by the Bank's negligent failure to detect it. The Second Plaintiff has been fully restored to the position it was in prior to the forgery and misappropriation, by payment of the full amount plus interest. The entire process took about fifteen months. That is not a long time. In fact, it is fairly efficient, and could not justify a complaint of undue frustration by the First Plaintiffs.

45. As a result of finding that the Plaintiffs have not produced evidence to prove on the balance of probabilities that further losses were sustained due to the Defendant's negligence, I assess no further damages as being payable to the Plaintiff.

46. Each party is to pay its own costs.

_______________________________________________________

J. Nandape Lawyers: Lawyer for the First & Second Plaintiffs
K. Kawat (BSP In-House Lawyer): Lawyer for the Defendant