N11105
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS (HR) NO 1 OF 2021

TOBBY PAUL APA & MARYANNE JOHN APA
Plaintiffs

V

ANNE ALAUNG
First Defendant

ADAM HUGHES
Second Defendant

PATRICK VARIP & MANU INDAVU
Third Defendants

FINANCE CORPORATION LIMITED
Fourth Defendant

Waigani: Cannings J
2024: 30th September, 1st, 29th November

CONTRACTS – MORTGAGES – commercial loan agreements – whether lender breached loan agreements by wrongly issuing arrears notices and sending reminders re late payments and demand notices to incorrect address of borrowers – whether lender obliged to afford borrowers opportunity to restructure loans before repossessing vehicles subject to chatted mortgages – whether lender liable for breach of contract. 

The plaintiffs and the fourth defendant entered into three chattel mortgage agreements under which the fourth defendant advanced loans to the plaintiffs to enable them to purchase two 25-seater buses and one eight-tonne truck. The fourth defendant eventually terminated each agreement, repossessed each vehicle, advertised it for sale,  sold it and applied the proceeds to each loan account. The plaintiffs commenced proceedings against the fourth defendant and three of its officers, claiming more than K7 million damages for breach of contract, negligence and breach of constitutional rights. The Court struck out the negligence and breach of constitutional rights claims in interlocutory proceedings, leaving breach of contract as the only cause of action for trial. The plaintiffs claimed that the fourth defendant breached each agreement by: (1) issuing wrong arrears notices and unnecessarily adding interest and other charges; (2) sending the arrears notices to an incorrect postal address; (3) failing to issue monthly statements; (4) prematurely terminating the agreement; (5) not proposing loan restructuring options; (6) repossessing each vehicle on the same day; and (7) not discharging its obligation to ascertain the current market value of the vehicle before selling it.      

Held:

(1)	The plaintiffs failed to prove that the arrears notices were wrongly issued or that interest and other charges were unnecessarily added to each account. 

(2)	The fourth defendant sent the arrears notices to an incorrect postal address and the plaintiffs proved a breach of contract in that respect.

(3)	The fourth defendant was not obliged to issue monthly statements to the plaintiffs.

(4)	The agreements were terminated in accordance with the terms of each agreement.

(5)	The fourth defendant was under no contractual obligation to propose loan restructuring options to the plaintiffs. 

(6)	The plaintiffs failed to prove that if the three vehicles were repossessed on the same day there was any breach of contract.

(7)	The fourth defendant was under no contractual obligation to ascertain the current market value of each vehicle before selling it.

(8)	In summary the plaintiffs proved only one of the contractual breaches alleged against the fourth defendant: that arrears notices were sent to an incorrect postal address. However, the allegation was not pleaded in the statement of claim and was inconsequential given that there was no pleading or evidence that the plaintiffs were unaware of the notices or their contents. The entire proceedings were dismissed. 

Case Cited

The following case is cited in the judgment:

ANZ Banking Group Ltd v Kila Wari (1990) N801

Counsel

F Baundo, for the Plaintiffs
J F Unua, for the Second and Fourth Defendants

29th November 2024  

1.      CANNINGS J: The plaintiffs, Tobby Paul Apa and Maryanne John Apa, and the fourth defendant, Finance Corporation Ltd trading as FinCorp , entered into three chattel mortgage/loan agreements in 2014 and 2015 under which FinCorp advanced loans to the plaintiffs to enable them to purchase two 25-seater buses and one eight-tonne truck, which they used in their public transportation business. 

2.     FinCorp eventually terminated each agreement in early 2017, repossessed each vehicle, advertised it for sale, sold it and applied the proceeds to each loan account. The plaintiffs commenced proceedings against FinCorp and three of its officers, claiming more than K7 million damages for breach of contract, negligence and breach of constitutional rights. The negligence and breach of constitutional rights claims were struck out in interlocutory proceedings, leaving breach of contract as the only cause of action for trial. 

3.      The plaintiffs claimed that FinCorp breached each agreement by: 

(1)	issuing wrong arrears notices and unnecessarily adding interest and other charges;
(2)	sending the arrears notices and other communications to an incorrect postal address;
(3)	failing to issue monthly statements to the plaintiffs;
(4)	prematurely terminating the agreement and repossessing each vehicle without justification; 
(5)	not proposing loan restructuring options to the plaintiffs; 
(6)	repossessing each vehicle on the same day; and
(7)	not discharging its obligation to ascertain the current market value of the vehicle before selling it.    

(1)	ISSUING WRONG ARREARS NOTICES AND UNNECESSARILY ADDING INTEREST AND OTHER CHARGES

4.     There is ample evidence to defeat this allegation. The plaintiffs were behind in their loan repayments, with specified instalments to be paid each month to Fincorp. They have failed to prove that the arrears notices were wrongly issued or that interest and other charges were unnecessarily added.

(2)	SENDING THE ARREARS NOTICES AND OTHER COMMUNICATIONS TO AN INCORRECT POSTAL ADDRESS

5.     This allegation has been proven. Each agreement specified an address for service of notices. The agreements for the two buses specified PO Box 131 Goroka. The notices were actually addressed to PO Box 932 Goroka. The agreement for the truck specified PO Box 1240 Goroka. The notices were actually addressed to PO Box 932 Goroka. The plaintiffs rely on the National Court case of ANZ Banking Group Ltd v Kila Wari (1990) N801 to argue that this is a material breach of contract, which nullifies the validity of all acts undertaken by FinCorp including repossession of the vehicles in purported reliance on the terms of the agreements.

6.     I reject the plaintiffs’ submission for these reasons. First, the allegation that notices were sent to an incorrect address was not pleaded in the statement of claim. Secondly, it is an inconsequential breach of contract as there was no pleading or evidence that the plaintiffs were in fact unaware of the arrears notices or their contents. Thirdly, the facts of this case are different to those in ANZ v Wari, where notices were returned unclaimed to the sender. In the present case, there is no evidence of the notices being returned to FinCorp. 

7.     In summary, there was a breach of contract committed by FinCorp by sending arrears and other notices to an incorrect postal address. However the breach was inconsequential as the plaintiffs have failed to plead or prove that they were unaware of the notices. 

(3)	FAILING TO ISSUE MONTHLY STATEMENTS TO THE PLAINTIFFS

8.     FinCorp was under no contractual obligation to issue monthly statements to the plaintiffs. There was no breach of contract in that regard.

(4)	PREMATURELY TERMINATING THE AGREEMENT AND REPOSSESSING EACH VEHICLE WITHOUT JUSTIFICATION

9.    Late payment of instalments was “an event of default” for the purposes of clause 9 of each agreement, which enabled Fincorp under clause 11 to at any time by notice to the plaintiffs declare “the secured money which is owing” and under clause 12(a) to “take possession or control of and get in the secured property”. 

10.    There was an event of default under each agreement, which triggered Fincorp’s rights to declare the secured amounts that were owing and to take possession of each vehicle. Fincorp did not act prematurely in terminating each agreement or without justification in repossessing each vehicle.

(5)	NOT PROPOSING LOAN RESTRUCTURING OPTIONS TO THE PLAINTIFFS

11.     FinCorp was under no contractual obligation to propose loan restructuring options to the plaintiffs but did in fact provide opportunities to the plaintiffs to make contact with Fincorp to discuss resolution of the problems they evidently had in making timely and accurate monthly repayments. The plaintiffs failed to take the opportunities given to them.

(6)	REPOSSESSING EACH VEHICLE ON THE SAME DAY

12.     The plaintiffs say that the three vehicles were repossessed on the same day, 19 January 2017. I am not convinced that that was in fact the case. However, for the sake of the argument, I presume that the vehicles were repossessed on the same day. There was no contractual prohibition against that. I am satisfied that Fincorp repossessed each vehicle in accordance with the agreement pertaining to it.

(7)	NOT DISCHARGING ITS OBLIGATION TO ASCERTAIN THE CURRENT MARKET VALUE OF THE VEHICLE BEFORE SELLING IT

13.     FinCorp was under no contractual obligation to ascertain the current market value of each vehicle before selling it. The plaintiffs failed to prove a breach of contract in that regard.

CONCLUSION

14.     The plaintiffs have proven only one of the contractual breaches alleged against FinCorp: that arrears notices were sent to an incorrect postal address. However, the breach of contract by FinCorp in that regard is inconsequential.  The plaintiffs’ case is misconceived. It was the plaintiffs who were in material breach of the agreements, not FinCorp. The proceedings will be dismissed. As to costs, I take into account that FinCorp sent the arrears notices and other communications to a wrong postal address and, having regard to the relative economic position of the parties, I will order the parties to bear their own costs. 

ORDER 

(1)	The entire proceedings are dismissed.

(2)	Subject to other costs orders made in the course of the proceedings, the parties shall bear their own costs of the proceedings.
________________________________________________________________
Gibson Bon Lawyers: Lawyers for the Plaintiffs 	
Gileng & Co Lawyers: Lawyers for the Second & Fourth Defendants