Wahgi Savings & Loan Society Ltd v Bank of South Pacific Ltd [1980] PGSC 4; SC185 (25 November 1980)

SC185

PAPUA NEW GUINEA
[SUPREME COURT OF JUSTICE]

Unreported Supreme Court Decisions
S.C.A. NO. 1 OF 1980

BETWEEN:

WAHGI SAVINGS AND LOAN SOCIETY LIMITED
APPELLANT

AND:

BANK OF SOUTH PACIFIC LIMITED
RESPONDENT
Waigani

Kearney DCJ Andrew Kapi JJ

31 March 1980
1 April 1980
25 November 1980

APPEAL - objection to competency on basis leave not sought to raise questions of fact - whether objection competent when taken late - leave not required to argue that inferences of fact not open, or on mixed questions of law and fact.

(Per Kapi J): basis of application of common law, considered.

(Per Kearney DCJ and Kapi J): underlying law - tortious liability for purely financial loss inflicted by negligent mis-statements, considered.

Cases Referred To

Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1963] UKHL 4; (1964) A.C. 465
SCM (United Kingdom) v. W. J. Whittall & Son Ltd. (1970) 3 All E.R. 245
Woods v. Martins Bank Ltd. (1959) 1 Q.B. 55
Morrison Steamship Ltd. v. Greystoke Castle (Cargo Owners) (1947) A.C. 265
Mutual Life and Citizens’ Assurance Co. Ltd. v. Evatt [1970] UKPC 1; (1971) A.C. 793
Brian John Lewis v. The Independent State of Papua New Guinea (Unreported) judgment No. SC178 of 29 August 1980
Hayes v. Federal Commissioner of Taxation [1956] HCA 21; 96 C.L.R. 47
British Launderers’ Research Association v. Central Middlesex Assessment Committee and Hendon Rating Authority (1949) 1 All E.R. 21
Dillingham Corporation of New Guinea Pty. Ltd. v. Constantino Alfredo Diaz (1975) P.N.G.L.R. 262
Edwards (Inspector of Taxes) v. Bairstow and Another [1955] UKHL 3; (1956) A.C. 14
Instrumatic Ltd. v. Supabrase Ltd. (1969) 1 W.L.R. 519
Lombardo v. Federal Commissioner of Taxation [1979] FCA 66; 28 A.L.R. 574
Patel v. Comptroller of Customs (1966) A.C. 356
Comptroller of Customs v. Western Lectric Co. Ltd. (1966) A.C. 367
Hopgood v. Brown [1955] EWCA Civ 7; (1955) 1 All E.R. 550
Booth v. Booth [1935] HCA 15; 53 C.L.R. 1
Murray v. Brown River Timber Company Limited (1964) P. & N.G.L.R. 167
The State v. Bisket Uranguae Pokia (Unreported) judgment No. N248 dated 20th June 1980
McInerny v. Lloyds Bank Limited (1974) 1 Lloyd’s Rep. 246
Esso Petroleum Co. Ltd. v. Mardon [1976] EWCA Civ 4; (1976) Q.B. 801
Argy Trading Development Co. Ltd. v. Lapid Developments Ltd. (1977) 3 All E.R. 785
Anns and Others v. Merton London Borough Council [1977] UKHL 4; (1978) A.C. 728
Howard Marine and Dredging Co. Ltd. v. A. Ogden & Sons (Excavations) Ltd. (1978) 2 W.L.R. 515

Order

That the appeal be allowed; that the judgment of the National Court herein of 7 January 1980 for the respondent (plaintiff) be set aside; that judgment be entered for the appellant (defendant).
KEARNEY DCJ: One Lela Leven obtained a loan of K10,000 from the respondent Bank. He ultimately repaid only part of that loan. Mr. Leven was later imprisoned. As a result, the Bank is out-of-pocket to the extent of K2831.52. It sued to recover that sum from the appellant Society, as damages for negligent mis-statements allegedly made by the Society in a letter to the Bank dated 30th March 1977, concerning the financial affairs of Lela Leven.

In January this year the learned trial Judge found for the Bank. The Society’s appeal from that decision was part-argued at the end of March; written submissions were received in May and July.

As a preliminary point, the Bank submitted that certain grounds as laid in the Notice of Appeal were incompetent, in that they:

a) involved only questions of fact;

b) could therefore only be argued if leave was granted by the Court - Section 14 (1) (c) of the Supreme Court Act 1975; but

c) the appellant had never applied for leave; and

d) it was now too late to apply for leave - Section 16 of the Supreme Court Act 1975.

The Society riposted that it was too late for the Bank to object to competency. It is true that the Bank failed to comply with Rule 23 of the Supreme Court Rules 1977. However, I think the better view is that failure to comply with Rule 23, and to take objection at a hearing, while it puts a respondent very much at risk as to costs - because, if successful, he has unnecessarily put the appellant to the expense of preparing for the hearing - does not go further than that. An objection to competency is really an objection to the jurisdiction of a Court to entertain the point, and objections to jurisdiction may be made at any time.

However, I consider that the grounds of appeal as laid and argued are competent. The Bank’s submission turned upon an inaccurate reformulation of the Society’s arguments. I do not consider that the Society’s grounds as argued involved questions of fact alone; and therefore leave was not required.

The letter of 30th March 1977, the surrounding facts, and the findings of the learned trial Judge are set out in the judgment of Andrew J.

The learned trial Judge found that the purported signature of the Society’s manager on the letter of 30th March 1977, was not in fact his signature. That was a crucial finding on the evidence placed before the Court, but His Honour gave it no weight on the basis that:

“...clerks often sign for superiors.”

There was no evidence before His Honour that such a practice obtained in this Society, or whether this Society employed any staff at all, Mr. McNamara was an auditor; Mr. Sullivan was the Managing Director of the Federation of Savings and Loan Societies. In the circumstances, it appears to me, with respect, that it was not open to infer that some unknown clerk of the Society had signed the letter for Mr. Simbil.

His Honour found in the alternative that the letter of 30th March 1977 and a letter of 22nd August 1977 (clearly signed by Mr. Simbil):

“...were clearly Society letters, whoever signed them. There is internal evidence in these letters which clearly indicates this.”

His Honour went on to set out this “internal evidence”; see the extract quoted in the judgment of Andrew J. at page 7, 8. And His Honour considered that:

“the overall picture is not puzzling at all. It is abundantly clear that the defendant knew what was going on.”

The evidence was documentary in nature and not in dispute. Primary facts not being in doubt, His Honour was in no better position that this Court to decide which inference should be drawn. But the determination of the proper inference to be drawn is a determination of fact, and cannot be attacked on this appeal (leave not having been sought), unless it is not supported by the evidence. The question of whether there is evidence to sustain the finding, is one of law.
The appellant contends that the inference was not open on the “internal evidence”, and in my opinion, with respect, that is correct. The letter of 30th March 1977, falsely purporting to be signed by the Society’s Manager, set out false information which was in the possession of the man who bore it to the Bank, Lela Leven. The letter of 22nd August 1977 was signed by the Society’s Manager, and falsely states the amount standing to the credit of Leven’s account with the Society. That letter was written long after the Bank had made its initial loan to Leven, on 14 June; as was the payment to the Bank by the Society of K3648.18 on 24th August. Mr. McNamara was the Society’s auditor and notes in his handwriting endorsed on various documents cannot found a conclusion that he was aware of the swindle perpetrated on the Bank.

It is of course apparent that the Society was “grossly negligent”, as His Honour found, in not finding out the true state of affairs after receiving communications from the Bank. The Society’s affairs appear to have been in shocking disorder, and it has suffered heavy loss in this matter - witness the letter of 22nd August and the payment to the Bank of K3648.18 on 24th August. But that is another matter.

In the result, in my opinion, there was no evidence before His Honour which warranted the conclusion that the Society had made the mis-statements to the Bank which induced it to make the loan to Leven. The onus lay on the Bank to establish that the Society made the mis-statements. It follows that in my opinion the appeal must be allowed, the judgment and verdict for the Bank quashed, and verdict and judgment entered for the Society.

It is unnecessary to go further to consider whether, assuming the mis-statements had been made by the Society, the Society could be liable to the Bank. In deference to the submissions made, I will however set out my opinion.

The question whether there can be recovery for pure financial loss consequent upon a negligent mis-statement, is to be found in the underlying law.

No material was put before the Court to suggest that there were any customary rules on the subject.

The next enquiry, then, under Schedule 2 of the Constitution, is as to the common law of England as at 16th September 1975.

The common law of England as at that date on the subject was in a state of some uncertainty. The landmark decision in 1963 in Hedley Byrne & Co. Ltd. v. Heller and Partners Ltd.^[1] changed the pre-existing common law that liability in negligence did not extend to pure financial loss. The old rule, logically unjustifiable, was probably based on a fear that to allow recovery for such loss outside a contractual relationship could “open the floodgates”. See the comments of Lord Denning M.R. in SCM (United Kingdom) v. W. J. Whittall & Son Ltd^[2]. Thus Lord Atkins’ “neighbour” principle was never applied in this sphere. But various inroads were made by various means, even before Hedley Byrne (supra); for example, by holding that a “fiduciary relationship” existed, as in Woods v. Martins Bank Ltd^[3] or by finding that a “joint venture” existed, as in Morrison Steamship Ltd. v. Greystoke Castle (Cargo Owners)^[4].

Hedley Byrne (supra) set the law on a sounder principle, by breaking the nexus between liability and the nature of the damage. It is to be noted that Hedley Byrne (supra) did not decide that foreseeability of economic loss, without more, gives rise to a duty of care. The question is, what “more” is required? Hedley Byrne (supra) looked to the nature of the relationship between the parties, and considered whether the various elements of that relationship led to a conclusion that the defendant assumed responsibility for what he wrote.

The application of the principle in Hedley Byrne (supra) as at Independence was still being worked out in England, in the case law.

In Mutual Life and Citizens’ Assurance Co. Ltd. v. Evatt^[5] a decision of the Privy Council on the common law of Australia and not of England, it was held that the defendant was not liable for negligent advice on investments which led to financial loss, because its business, that of insurance, did not involve the giving of advice on investments. To confine liability in that way is, I think, with respect, to place an undue emphasis on only one of many elements of a relationship. Evatt’s case (supra)^[6] is not an authority, for the purposes of Schedule 2.2.

It appears to me from the English case-law that, at Independence, the common law in England was that there could be recovery when pure financial loss was caused by negligent mis-statement, if such loss was foreseeable and the relationship was such that the proper conclusion was that the defendant assumed responsibility to the plaintiff for what he had said or written.

There was no material before us which bore on the matters referred to in Schedule 2.2 (1) (a), (b) or (c) of the Constitution, nor am I aware of any such exclusionary or modifying matters. I consider that the rule as I have stated it was adopted at Independence.

On the assumption that the letter of 30th March 1977 was the Society’s letter, the relationship arising thereout between the Society and the Bank involved the following elements:

(1) that the business transaction proposed was serious, involving the loan of a considerable sum, and a repayment by the Society, and the mis-statement was made in that business context;

(2) that the Society intended and must have known that if the Bank entered into a transaction proposed by the Society, its decision to do so would depend on what the Society stated to be the facts, and it would do so relying and acting on the accuracy of what the Society had stated as to Leven’s financial position;

(3) there being no real independent opportunity for the Bank to make its own evaluation, it was reasonable for the Bank to rely and count on the Society’s knowledge and capacity and that the Society would take reasonable care to state accurately the information which lay peculiarly within its own knowledge;

(4) that the Society would be advantaged in carrying out its own business, if it could persuade the Bank to make the bridging loan to Leven.

To my mind those elements sufficiently constitute a special relationship between the Bank and the Society in this matter, such as to impose upon the Society a duty to take reasonable care not to mislead the Bank in its decision-making on the proposed transaction.

It is clear that the Society would reasonably have foreseen that the Bank would suffer financial loss, if the Society’s statements about Leven were incorrect.

Accordingly, arising from the clear breach of its duty of care I consider that the Society would be liable to the Bank, for the direct financial loss sustained by the Bank as a result of its reliance on the false information supplied by the Society without reasonable care or competence, for the guidance of the Bank in its decision on the proposed business transaction with Leven.

ANDREW J: This is an appeal from a decision of the National Court given on 7th January 1980. The matter came before the court by way of writ of summons and the plaintiff’s claim was for damages for negligent mis-statements made by the defendant to the plaintiff concerning the financial affairs of one Lela Leven. The learned trial judge found that the defendant, the Wahgi Savings and Loan Society Limited, was guilty of negligence and he entered a verdict and judgment accordingly in the sum of K2,862.60.

The Society now appeals against the whole of the decision on some eleven grounds.

Briefly stated, the facts were as follows. One Lela Leven was a member of the Society and he approached the Bank of South Pacific Limited in Mount Hagen seeking a loan of K10,000.00 to be used in the erection of a house and tradestore. As collateral he produced an A.N.Z. passbook in credit approximately K1,700.00 and his Society passbook which purported to show K7,771.00, a total credit of close to nine and a half thousand kina. The learned trial judge found that the Society passbook was forged and was in credit only to a very small amount. The person, Leven, informed the Bank that he only wanted short term help as he said the Society would advance him the major amount he needed but was presently unable to accommodate him due to a shortage of liquid funds in its accounts. The loan was not granted at this point but Leven was asked to obtain a letter from the Society. He returned with a letter on the letterhead of the Society dated 30th March 1977. The trial judge found that this letter was a crucial piece of evidence. It became Exhibit “L” on the trial and has been referred to by that title in these proceedings. It reads:

“The Maneger, (sic)

Bank of South Pacific Ltd

P. O. Box 194,

MT. HAGEN

Dear Sir,

The bearer of this is Mr. Leva Leven a member of Wahgi Savings & Loan Society and he comes Enga Province.

He has applied to get a loan of ten thousand Kina (K10,000.00) with the Society and his application is satisfactory but unfortunately the Society is running out of money. But our headquter, (sic) Federation of Savings & Loan Society, will be giving out some money to our Society to meet Loans to members of the Society. This member has got the shares ballance (sic) of K7,771-00. So we told him to wait for a few weeks but he needs money quickly to do his project. So we ask you if you could give him the loan of K10,000-00 so that the Wahgi Society will repay the Bank in about two months time.

Your co-operation on the metter (sic) would be highly appreciated.

Yours faithfully

(signed)

Michael Simbil

(Manager)”

Thereafter monies were advanced by the Bank to Leven and ultimately the Bank lost K2,831.52 upon Leven defaulting which they claimed together with interest on the basis of these alleged negligent mis-statements, namely the evidence of the forged passbook and more particularly Exhibit “L”.

On these and other facts His Honour made findings that the Society was aware of and responsible for the contents of Exhibit “L”. As His Honour said:

“Only persons high in the society hierarchy as servants or members could have had the knowledge to write such letters, and they fit in with Mr. McNamara’s role in the whole affair, as one goes through other exhibits one sees signed or unsigned matter in his handwriting, which is unmistakeable, that makes it clear that he, and, of course, the society, knew very well what the situation was, and what it was putting up to the bank, or permitting to be represented. Witness the cheque given to the bank for K3,684.18. I very much suspect that Leven and Simbil put their heads together. Be that as it may, the society, with the full knowledge of the matter that it had, was grossly negligent in not appreciating that the balance in the passbook was palpably false, something that the society, with a minimal amount of work, could easily have ascertained. It would have taken a few seconds only to establish this. Also, I would imagine that a supposed credit of over seven and a half thousand kina, if not exceptional, would have excited some interest, it certainly warranted investigation ... It is perfectly clear that the society well knew that in it’s and Leven’s interests the bank was prepared to put up its money when satisfied that it was wise to do so. It must have been clear to the society that it was a serious exercise.”

The appellant’s first submission was that there was no evidence or insufficient evidence that the society made the representation upon which the respondent sued and it was argued that the learned trial judge misdirected himself and erred in law in finding that there was evidence upon which he, as a tribunal of fact, could find that the letter (Exhibit “L”) was a representation of the Society and that he wrongly failed to take proper account of evidence to the contrary.

The principles upon which an appellate court should interfere and substitute its own view of the facts for that of the trial judge have occasioned much controversy in the past. Those principles have been well summarised in the judgment of Miles, J. in Brian John Lewis v. The Independent State of Papua New Guinea^[7] at p.14. The trial judge had the advantage of hearing the witnesses and of observing their demeanour, an advantage which is denied to this court. Much must depend on the impression formed by a trial judge who has heard and seen the witnesses. However in the present case I think that the appellate court is not so disadvantaged. It was a case where the facts were not greatly in dispute and where they were there are findings of fact which are not now disputed. In these circumstances I think that the appellate court is in as good a position as the trial judge to decide on the proper inferences. Furthermore it was a case which also turned on the inferences to be drawn from documentary evidence. In my view this is a case in which the appellate court might legitimately substitute its conclusion for the judgment of the primary judge and indeed while having due regard to the judgment appealed from, is under a duty to make up its own mind as to the facts and inferences to be drawn from those facts.

That being so, I find that I am unable to agree with the conclusion of the trial judge.

There was a finding that the signature on Exhibit “L” was not that of the Society’s manager and the fact that the letter was on Society letterhead is not evidence of its origin: Patel v. Comptroller of Customs^[8] , Comptroller of Customs v. Western Lectric Co. Ltd.^[9]. There was a further finding in relation to Exhibit “L” that “clerks often sign for superiors” and in this way the letter was said to be a representation of the Society. With respect, I find that there was no evidence to this effect. Indeed there was no evidence at all as to the administrative practice within the Society which might have supported such a finding. There was a finding that: “Exhibits 1(a), 1(b) and 1(c) were clearly Society letters, whoever signed them. There is internal evidence in these letters which clearly indicates this”. In my opinion this is an inference which was not reasonably open. The “internal evidence” appears to be a reference to the sum of K7,771.00 which was a fictitious sum not found in the Society’s records at that time but only in the passbook which was found to be forged.

In my view there was insufficient evidence or no evidential basis to infer the involvement of the Society in this representation. The greater probability is that it was the person Leven who was instrumental in producing Exhibit “L”. It was he who approached the Bank seeking the loan. He produced the forged passbook and it was he who was requested to obtain the letter from the Society which he did, and it was he who defaulted.

I would therefore be disposed to uphold the appeal upon this ground. However the respondent raises two matters going to competency. First he submits that it gives rise solely to a question of fact and in the absence of the leave of this court, sought and granted within the time afforded, cannot now be pursued. Secondly, that the “forgery” as relied upon by the Society (Exhibit “L”) is a matter which must have been pleaded specifically by the Society in its defence, either in its initial defence or by way of subsequent amendment. It was further submitted that it was a matter which went to show that the plaintiff’s action was not maintainable and which if not raised in the pleadings would be likely to take the plaintiff by surprise or otherwise would raise issues of fact not arising out of the statement of claim.

The Supreme Court Act 1975, s.4(2) provides:

S4(2) “An appeal lies in any civil or criminal proceeding to the Supreme Court from a Judge of the National Court sitting on appeal:

(a) on a question of law; or

(b) on a question of mixed fact and law; or

(c) with the leave of the Supreme Court on a question of fact.”

In my view the Society’s principal submission did not simply raise the question of whether or not Exhibit “L” was a forgery but rather whether or not the learned trial judge had before him a correct evidential basis for inferring from the facts he found, proved that the letter constituted a representation made by the Society.

It is true that this ground raised the issue of the “forged” Exhibit “L” and it is clear enough that that was a question of fact. But the ground also raised for consideration the question of what constituted a representation. For present purposes I think it is sufficient to say that that raised the construction of a technical word and therefore a question of law. A similar situation arose in Hayes v. Federal Commissioner of Taxation^[10] where the taxpayer had to prove that what he received was not income and the board determined that he had failed in his proof. But that determination involved a consideration of what constitutes income, and that was a question of law.

I am satisfied that the ground of appeal raised a question of mixed fact and law and that the leave of this court is not therefore required.

The respondent’s submission that the “forgery” of Exhibit “L” should have been specially pleaded relied upon Order 22, Rule 14 of the Rules of Court:

“14. Each party must raise by his pleading all matters of fact which show that the claim of the opposite party is not maintainable, or that a transaction is either void or voidable in point of law; and all grounds of defence or reply, as the case may be, must be pleaded which, if not raised, would be likely to take the opposite party by surprise, or would raise issues of fact not arising out of the preceding pleadings, as, for instance, fraud, release, payment, performance, facts showing illegality either by statute or common law, or the ‘Statute of Frauds and Limitations of 1867’, or any other Statute of Limitations.”

I think the first point to note is that this matter was not raised during the hearing nor was an adjournment sought. The respondent was put to strict proof as to the alleged representation by the defence served. I accept the submission of counsel for the appellant that Order 22 Rule 14 is designed to prohibit the use without warning of a disqualifying legal argument which is why the Rule continues with examples of legal “surprise” points such as voidability, release, limitation and absence of writing, etc. In these circumstances I cannot see that the respondent was taken by surprise or was in any way prejudiced in the conduct of his case.

For all of these reasons and having given due weight to the conclusion reached by the learned trial judge I am unable to agree with it. The respondent concedes that if Exhibit “L” was not attributable to the Society as being its representation then the plaintiff’s action would not have been maintainable. In these circumstances I find it unnecessary to decide whether or not there was any special relationship between the parties and whether any representation amounted to a negligent mis-statement rendering the representation as actionable.

I would allow the appeal, set aside the judgment for the respondent and give judgment for the appellant.

KAPI J: This is an appeal from a decision of the National Court. The facts can be briefly described: A man identifying himself as Lela Leven, a member of the Wahgi Savings & Loan Society, approached the Bank of South Pacific Limited (hereinafter called the respondent) in Mount Hagen, Western Highlands Province, to seek a personal loan. He brought with him an A.N.Z. Bank passbook with a credit of about K1,700.00 and a Wahgi Savings & Loan Society passbook with a credit of about K7,000.00. Mr. Leven was seeking a loan of K10,000.00 from the Bank. Mr. Leven stated to the respondent that he had already had a loan of K2,000.00 from the Wahgi Savings & Loan Society Limited (hereinafter called the appellant) and that he was still paying it off.

On this representation, the respondent told Mr. Leven that he would not get a loan from the Bank until this debt was cleared with the appellant. However Mr. Leven then stated to the respondent that the appellant had approved his application for K10,000.00 despite the earlier loan of K2,000.00 which he had not yet paid off. He stated to the respondent that the appellant was in some financial difficulty and that it was not giving any loans. The respondent then advised Mr. Leven to get a letter from the appellant assuring the respondent that if the respondent loaned the money to him the appellant would reimburse the respondent when money became available. The respondent did not make any loan to Mr. Leven at this stage.

The respondent made no direct contact with the appellant at this stage. Several days later Mr. Leven returned to the respondent with a letter dated 30th March 1977 (Exhibit “L”) typed on Society letterhead supposedly signed by the manager of the appellant. It reads:

“The Maneger, (sic)

Bank of South Pacific Ltd

P. O. Box 194,

MT. HAGEN

Dear Sir,

The bearer of this is Mr. Leva Leven a member of Wahgi Savings & Loan Society and he comes Enga Province.

He has applied to get a loan of ten thousand Kina (K10,000.00) with the Society and his application is satisfactory but unfortunately the Society is running out of money. But our headquter (sic) Federation of Savings & Loan Society, will be giving out some money to our Society to meet Loans to members of the Society. This member has got the shares ballance (sic) of K7,771-00. So we told him to wait for a few weeks but he needs money quickly to do his project. So we ask you if you could give him the loan of K10,000-00 so that the Wahgi Society will repay the Bank in about two months time.

Your co-operation on the metter (sic) would be highly appreciated.

Yours faithfully

(signed)

Michael Simbil

(Manager)”

Upon receipt of the letter, the manager of the respondent then wrote to the manager of the appellant enclosing the Wahgi Society passbook No. 4708 with a credit of about K7,000.00 and an irrevocable order by Mr. Leven to forward those proceeds to the respondent. This letter was dated 20th May, 1977.

The respondent made the loan to Mr. Leven on 14th June 1977. There appears to have been no response from the appellant to the respondent’s letter. In about November 1977 the appellant informed the respondent that the entry that was made in Mr. Leven’s Society passbook was a forgery. In fact Mr. Leven had very little money with the Society. The respondent was unable to recover the money from Mr. Leven. The respondent issued a writ of summons for claim for damages arising out of negligent mis-statements by the appellant concerning Mr. Leven’s financial standing.

The trial judge gave judgment for the respondent.

This appeal raises three central issues. First, whether the statements or representations made in the letter dated 30th March 1977 (Exhibit “L”) were representations by the appellant. Secondly, whether the representations made (Exhibit “L”) in fact induced the respondent to make the loan. Thirdly, whether there was a duty of care owed by the appellant to the respondent in the circumstances of this case.

Before turning to these issues, it is convenient to deal first with the preliminary arguments raised by the respondent. Counsel for the respondent submits that the grounds of appeal raise questions of fact which require the leave of the court before they can be argued. He submits that the appellant has not sought leave and time to seek leave has now expired. He submits that the appellant is now precluded from arguing these grounds and that these grounds should be struck off the notice of appeal. He bases his submission on ss.4(2)(c), 14(1)(c) and 16 of the Supreme Court Act 1975. It is apparent from the nature of submissions made by the respondent that the third issue referred to above is a question of law.

In summary, the appellant submits that the grounds of appeal raise questions of law or mixed fact and law and he therefore submits that leave is not necessary. See ss. 4 and 14 of the Supreme Court Act 1975.

The issue raised by grounds 1-6 and 8 of the notice of appeal is whether the letter of 30th March 1977 (Exhibit “L”) was the representation of the appellant, its servants or agents. This issue was raised by the pleadings. Paragraph 4 of the respondent’s statement of claim stated that the appellant, through its employees and agents, made representation to the respondent in the letter dated 30th March 1977. The appellant denied this in its defence, (clause 3). At the trial the onus was on the respondent to prove that the letter was the representation of the appellant, its servants or agents. The appellant, in grounds 1-6 and 8, says that there is no evidence upon which the National Court could make a finding that the representations in Exhibit “L” were the representations of the appellant, its servants or agents.

What are questions of fact and law are difficult to determine. On this question Lord Denning said:

“On this point it is important to distinguish between primary facts and the conclusions from them. Primary facts are facts which are observed by witnesses and proved by oral testimony, or facts proved by the production of a thing itself, such as an original document. Their determination is essentially a question of fact for the tribunal of fact, and the only question of law that can arise on them is whether there was any evidence to support the finding. The conclusions from primary facts are, however, inferences deduced by a process of reasoning from them. If and in so far as those conclusions can as well be drawn by a layman (properly instructed on the law) as by a lawyer, they are conclusions of fact for the tribunal of fact and the only questions of law which can arise on them are whether there was a proper direction in point of law and whether the conclusion is one which could reasonably be drawn from the primary facts”. (Underlining mine.)

See British Launderers’ Research Association v. Central Middlesex Assessment Committee and Hendon Rating Authority^[11] at pp. 25 and 26. This same passage was referred to by the then Deputy Chief Justice, Prentice, in the case of Dillingham Corporation of New Guinea Pty. Ltd. v. Constantino Alfredo Diaz^[12] at p.270.

Where primary facts are found (which cannot be challenged on appeal except by leave of the court) the question of law is what is the proper conclusion to be drawn from those facts. It has been shown in decided cases that where inferences or conclusions are drawn from these primary facts which cannot reasonably be drawn, then this is an error of law. See Edwards (Inspector of Taxes) v. Bairstow and Another^[13]; Instrumatic Ltd. v. Supabrase Ltd.^[14]. I cannot see anything in the circumstances of this country that would render these principles inapplicable. I adopt them as part of the underlying law (Schedule 2:2 of the Constitution).

The test for the purposes of this case is whether there is evidence which is sufficiently capable of allowing a tribunal of fact to enter upon a consideration of whether the representations in Exhibit “L” are representations of the appellant, its servants or agents. Or, to put the test differently, whether there is evidence which would justify a tribunal of fact of ordinary reason and fairness in reaching the conclusion that Exhibit “L” was a representation by the appellant, its servants or agents.

The primary facts upon which this question is to be determined are all contained in the existence of the letter of 30th March, 1977, Exhibit “L”. Grounds 1-6 and 8 in the notice of appeal raise questions regarding the inference to be drawn from these primary facts. It is now necessary to consider the evidence on this question and see whether these grounds are “really involved or colourably involved”. See the judgment of Bowen, C.J. in Lombardo v. Federal Commissioner of Taxation^[15].

In reviewing the findings of the trial judge, I am in agreement with my brother Andrew that the facts were not greatly in dispute and this court is in as good a position as the trial judge to decide on proper inferences.

It appears from evidence that the letter dated 30th March 1977, Exhibit “L”, was produced to the respondent by Mr. Leven. There is no evidence that the letter actually came from the appellant. It is significant to state that the reliance placed by the respondent was on this letter, Exhibit “L”. This is the letter upon which they say they acted to their detriment. Up to the time the loan was given to Mr. Leven there is no evidence to suggest that Exhibit “L” came from the appellant. The first time the respondent had any direct dealing with the appellant on this loan was the respondent’s letter of 20th May 1977, addressed to the appellant. This letter was received by the appellant on 6th July 1977 after the loan had been made to Mr. Leven. Even if the appellant had responded straight away by saying that the passbook was forged, this would not have assisted the respondent because it had already granted the loan.

The trial judge came to the conclusion that the signature which appears on Exhibit “L” was similar to the signature which was forged on Mr. Leven’s passbook. This is far from showing that Exhibit “L” came from the appellant Society, its agents or servants. While this letter was typed on the appellant Society’s letterhead, this is not evidence that it came from the Society. See Patel v. Comptroller of Customs^[16] and Comptroller of Customs v. Western Lectric Co. Ltd^[17].

The respondent relied on s.30 of the Evidence Act. With respect I do not see how this is relevant. Exhibit “L” was not admitted as a memorandum of the appellant Society through one of its officers under this provision. The only basis of the admissibility of this document under the circumstances would be through the respondent who received it from Mr. Leven. The appellant does not dispute the admissibility of this document; however, the appellant does not admit or concede that this was their letter. Whether this letter was the representation of the appellant, its agents or servants, was the very issue raised in the defence in answer to the statement of claim. The onus was on the respondent to show that this letter came from the appellant Society.

The respondent further submits that the appellant is estopped from denying the truth of the representations in Exhibit “L” by virtue of its letter of 22nd August 1977, Exhibit “E”. The respondent relies on the common law principle of estoppel by representation. The principle is stated by Spencer Bower which is adopted by Sir Raymond Evershed, Master of the Rolls, in Hopgood v. Brown^[18] at p.559:

“... where one person (‘the representor’) has made a representation to another person (‘the representee’) in words, or by acts and conduct, or (being under a duty to the representee to speak or act) by silence or inaction, with the intention (actual or presumptive), and with the result, of inducing the representee on the faith of such representation to alter his position to his detriment, the representor, in any litigation which may afterwards take place between him and the representee, is estopped, as against the representee, from making, or attempting to establish by evidence, any averment substantially at variance with his former representation, if the representee at the proper time, and in the proper manner, objects thereto.”

I see nothing under Schedule 2:2 which might be said to be inconsistent with this principle. This is basically commonsense and I have no difficulty in adopting this principle as part of the underlying law. Applying this principle to the facts of this case, the representation on which the respondent relied at the trial is the letter of 30th March 1977, Exhibit “L”, and not the letter of 22nd August 1977, Exhibit “E”. By the time the letter of 22nd August 1977, Exhibit “E”, was received by the respondent the loan had already been granted to Mr. Leven. There is nothing in the evidence to suggest that the letter of 22nd August 1977, Exhibit “E”, induced a certain course of events. In relation to Exhibit “L” there is absolutely no evidence of the conduct or inaction of the appellant from which it could reasonably be inferred that the letter was from the appellant. On the facts of this case it is irrelevant what the appellant could have done after 14th June 1977 because the respondent had already acted to its detriment. There is no evidence of the conduct of the appellant up to 14th June 1977 from which the trial judge could consider the issue of estoppel by representation.

Secondly, the respondent did not properly plead or raise this issue at the time of the trial and this court cannot properly consider the issue now.

It appears from the trial judge’s reasons for judgment that the trial judge heavily relied on Exhibit “E” which he found to be signed by Mr. Simbil the manager of the appellant Society. He appears to have inferred from this finding that when Simbil wrote this letter, which makes reference to the balance in Leven’s Society passbook, from this he ought to have known of the existence of the contents of Exhibit “L”.

In my view His Honour was not entitled to come to this view on the basis of this letter because, at the outset of the trial, the respondent did not rely on Exhibit “E” in this manner. In the appellant’s solicitors’ letter dated 12th November 1979, paragraph 5 the solicitors for the respondent were asked: “In what manner is it alleged that the Defendant knew or ought to have known the plaintiff would rely upon the alleged representation.” In reply to this the solicitor for the respondent stated: “A letter dated 30th March, 1977 under the letterhead of the Defendant, Savings and Loan Society, addressed to the Manager, Mount Hagen Branch of the Plaintiff and signed by one Michael Simbil (Manager).” This meant that the respondent was going to rely on Exhibit “L” and prove that that was signed by Mr. Simbil.

His Honour found and the evidence was clear that the signature on Exhibit “L” was not Simbil’s. That is a finding which stands and the respondent failed to prove the allegation. The respondent cannot now rely on Exhibit “E”. I note that this letter was not objected to by the appellant’s counsel and this may have been due to the particulars relied on by the respondent in the letters referred to.

The trial judge found an alternative basis for coming to the view that Exhibit “L” was representation by the appellant. He came to the view that whoever signed Exhibits “L” and “E” they were signed by clerks of the Society as they often signed for supervisors. His Honour was not entitled to come to this conclusion as there was no evidence of that practice in the Society. There is no evidence that a clerk signed these letters. His Honour also went on to say that the contents of Exhibit “E” could only have been written by clerks of the Society. However, what His Honour overlooked was that Exhibit “E: only referred to the fictitious sum of K7,000.00 in the passbook which he found to be a forgery. The person who forged this could have written Exhibit “E:. His Honour also remarked in his judgment that it was possible that Leven may have planned this with the manager of the Society. Again there is no evidence upon which His Honour could have come to this conclusion. The difficulty with this issue is that neither Mr. Simbil nor Mr. Leven were called to give evidence.

There was no evidence from which a jury could have considered that Exhibit “L” was the representation of the Society, its agents or servants. His Honour wrongly directed himself on the respondent’s onus of proof. These, to my mind, are clear questions of law or, at least, mixed questions of law and fact, and I would allow the appeal on these grounds.

Having come to this conclusion it would not be necessary to consider the other questions. However, I feel that important questions of law have been argued in relation to the third issue raised on this appeal and I should express my views. The issue is whether the appellant owed a duty of care to the respondent in the circumstances of this case.

These important questions of law were argued on the basis that Exhibit “L” was the representation of the appellant and that this representation in fact induced the respondent to grant the loan to Mr. Leven. The immediate question that arises for consideration is, what is the law to be applied in these circumstances?

This is a common law action and so therefore one must turn to find out what the common law principles are.

Before going into what the common law is, the basis of the application of the common law should be considered. Under Schedule 2:2 of the Constitution the principles of common law and equity that applied in England immediately before Independence are adopted as part of the underlying law of Papua New Guinea. These principles apply notwithstanding any revision of them by any statute of England which does not apply in Papua New Guinea. See Schedule 2:2(3) of the Constitution. Schedule 2:2(3) of the Constitution in my view is an important provision because it removed the difficulties of construing what is the meaning of “common law” as was posed in the High Court of Australia in Booth v. Booth^[19] ; see detailed discussion of this case by R.S. O’Regan in “The Common Law in Papua New Guinea”. It appears that this provision of the Constitution adopts “common law” as confined to “unenacted” law, as distinct from any revision of them by statute law. This was the view adopted by Mann, C.J. in Murray v. Brown River Timber Company Limited^[20] when considering the Papuan legislation.

Statutory modification of the common law principles is not important in this case because much of the law on negligence is not affected by statute in England. I am aware of only The Misrepresentation Act 1967. This does not concern us in Papua New Guinea because this Act was not adopted under Schedule 2:6(1)(c) of the Constitution.

These principles shall apply except to the extent that they are either inconsistent with the constitutional law or statute, or they are inapplicable or inappropriate to the circumstances of the country and that they are inconsistent with custom as adopted under Part 1 of Schedule 2.

Where the common law principles are not inconsistent with the considerations set out under Schedule 2:2(1) (a), (b) and (c) of the Constitution the common law principles become part of the underlying law. However the courts in this country will develop their own principles when such common law principles have either become inapplicable or inappropriate, or inconsistent with the statute law, or constitutional law, or the custom. When the court undertakes to do this it shall be guided by the considerations set out under Schedule 2:3 of the Constitution regarding the development of the underlying law.

The principles of common law are fluid and progressive. They do not remain still for all time. Principles of law which were laid down by the judges in the 19th Century, which were suitable to the social conditions then, are no longer applicable in the changing circumstances of the 20th Century. This is the nature of common law and it will continue to develop in this sense in England. For our purposes in Papua New Guinea the Constitution froze the principles and rules of common law as at immediately before Independence, and any further progress of the common law after this date is not to be considered relevant. However, later developments in England may be of assistance when the court is faced with the situation where it has to develop its underlying law under Schedule 2:3 of the Constitution. The Constitution made this cut-off point so that the courts in this country can develop their own underlying law suitable to the needs of this country after this point. The courts in this country should take a firm view of strictly adhering to this cut-off point so as to develop the underlying law in appropriate cases.

There is something unsatisfactory about this in ascertaining what the common law principles are. This is because it takes time to have cases before the appellate courts in which the common law principles are developed or declared. It must also be borne in mind that the common law principles decided by the lower courts in England may not be declaratory of the common law until it reaches the highest court in England, the House of Lords. Any decisions by the lower courts regarding principles of common law must be viewed with this in mind. If after Independence, 1975, the House of Lords or any other competent court in England declares the decision of a lower court to be bad law, or not correctly deciding the common law principles, the courts here would follow the latter decision. In my view this is a correct application of the Constitution because I do not think that the Constitution intended that we should apply a wrong principle of common law if declared so by a competent court in England, even though the date on which it was declared so is after Independence. I held this view in a recent case, The State v. Bisket Uranguae Pokia^[21].

What then are the common law principles on negligent misstatements? It seems to me that the starting point is the case of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd^[22]. Before this case a person could only sue if there was fraud or if there was a contract between the parties. It did not matter whether the statement was negligent or not. This was all changed by Hedley Byrne. Hedley Byrne & Co. Ltd. were advertising agents who were about to enter into a contract with a customer. They wanted a banker’s reference as to the customer’s credit. Their own bankers passed on their request to a firm of merchant bankers. This firm reported that the customer was considered good for ordinary business arrangements. Relying on the report, the advertising agents gave the customer credit in the sum of seventeen thousand pounds. The customer was in fact very unsound. The advertising agents sued the merchant bankers for negligence in giving the report. The proposition in the case can be stated as in the headnote:

“If, in the ordinary course of business or professional affairs, a person seeks information or advice from another, who is not under contractual or fiduciary obligation to give the information or advice, in circumstances in which a reasonable man so asked would know that he was being trusted, or that his skill or judgment was being relied on, and the person asked chooses to give the information or advice without clearly so qualifying his answer as to show that he does not accept responsibility, then the person relying accepts a legal duty to exercise such care as the circumstances require in making his reply; and for a failure to exercise that care an action for negligence will lie if damage results”.

Lord Denning, in the case of McInerny v. Lloyds Bank Limited^[23] said:

“In order to make a person liable for a negligent misstatement, he must in some way or other have voluntarily undertaken to assume responsibility for the statements. Not responsible for it in the sense that he warrants its accuracy, but responsible in the sense that he must use due care in making it. That is the burden of Lord Devlin’s speech in Hedley Byrne v. Heller, (1964) A.C. at pp. 529 to 531; (1963) 1 Lloyd’s Rep. 485 at p.516. But “voluntary” in this context does not mean that he has consciously agreed to accept responsibility. It is sufficient if he has impliedly agreed. That is, if in all the circumstances a reasonable person would take it that he had agreed to accept responsibility. This implication, as Lord Devlin says, is like an implied term in a contract. It is implied or imposed by the law itself. It can be excluded by express words, such as by heading a letter “without responsibility”; but, unless so excluded, it is implied wherever the circumstances require it.

Since Hedley Byrne the Courts have gradually been formulating the circumstances in which the implication will be made. It certainly will be made when a professional man, like an accountant, a solicitor, or a banker, is employed to give skilled advice knowing that it will be passed on to one who will rely upon it, as in Candler v. Crane Christmas, (1951) 2 K.B. 164; and Hedley Byrne v. Heller, [1963] UKHL 4; (1964) A.C. 465; (1963) 1 Lloyd’s Rep. 485. But those are not the only circumstances. The implication is not confined to professional men doing skilled tasks. It has been found where ordinary men are doing quite mundane tasks. A good instance is the decision of Mr. Justice Cardozo in New York where a weighman was employed to weigh goods and certify the quantity, see Glanzer v. Shepperd, (1922) 23 N.Y. 236. Recent instances in this Court are the clerk in a Registry who makes a search for entries in the register and certifies the result, see Minister of Housing v. Sharp, (1970) 2 Q.B. 223; or a Council Inspector who inspects work and passes it as satisfactory, see Dutton v. Bognor Regis U.D.C., (1972) 1 Q.B. 373; (1972) 1 Lloyd’s Rep. 227. Each of those persons is under a duty to use care in making his statement. He owes this duty to those whom he knows, or ought to know, will rely on it, or will be injuriously affected by a mistake. Similarly, it seems to me that when one man makes a statement to another with the intention of inducing him to enter into a contract with him - or with someone else, on the faith of it, the maker must be regarded as accepting responsibility for the statement. It is not necessary that it should be made directly to the contracting party. It is sufficient that if the statement is made to a third person to be passed on to the contracting party, or in such circumstances that the maker knew or ought to know that it would or might be passed on to the contracting party and acted on by him. That is sufficient when the statement is made fraudulently, see Swift v. Winterbotham, (1873) L.R. 8 Q.B. 244, at pp. 252/3. Likewise, it is sufficient when it is made negligently.

On the other hand, the cases do show that there are circumstances when the party cannot be supposed to have accepted responsibility for the statement. Such as that put in Fisher v. Kelly, [1864] EngR 478; (1864) 17 C.B.N.S. 194, when a solicitor meets a friend in a railway train and casually gives him advice on a point of law. Similarly, Mutual Life Ltd. v. Evatt, (1971) A.C. 753; (1970) 2 Lloyd’s Rep. 441, when one of the officers of an insurance company gave advice to a policy-holder about investments. It was no part of the business of the insurance company to advise policy-holders on their investments; and there was nothing on the pleadings to warrant the implication that they had accepted any responsibility in the matter. In every case the circumstances must be examined to see whether the defendant must be regarded as accepting responsibility for the statement to the person who relied on it.” (Underlining mine.)

As far as Schedule 2:2 of the Constitution is concerned, I need not go into cases decided after 15th September 1975 in England. However there are two good reasons to see cases after this date:

(a) To see whether the principles stated in these cases are over-ruled, and

(b) To see if there are cases that follow the above principles and whether any assistance can be gained from their explanation of these principles. I do not say development of these principles.

It appears that cases following Independence adopt the principles stated above. It is not necessary to set them all out in detail. See Esso Petroleum Co. Ltd. v. Mardon^[24]; Argy Trading Development Co. Ltd. v. Lapid Developments Ltd.^[25]; Anns and Others v. Merton London Borough Council^[26]; Howard Marine and Dredging Co. Ltd. v. A Ogden & Sons (Excavations) Ltd.^[27]. These cases are consistent with principles in the cases before Independence.

It has not been argued in this case that the common law principles enunciated in these cases are inapplicable or inappropriate to the circumstances of the country. I consider that these principles are applicable in the circumstances of this country. I can do no better than adopt the trial judge’s remarks:

“I would observe that in a country like this the law as to negligent misstatements is properly applicable, for so much business is done by word of mouth, and very many people, lacking great education, must needs rely on representations made by experts such as lawyers and bankers, and so on.”

I adopt the common law principles as part of the underlying law of Papua New Guinea.

Turning now to the assumed facts, there was a duty of care owed by the appellant to the respondent. The appellant received a request from his customer, Mr. Leven. It appears from the request from Mr. Leven that this request was made in the interest of the customer, Mr. Leven, and the respondent Bank as far as the loan was concerned. It is also apparent from the circumstances that the appellant ought to have known that the respondent was seeking such a letter from the appellant before entering into a loan agreement with Mr. Leven. This is something that the appellant ought to have known because this would be the usual practice that the appellant Society would come across in making loans to customers. The appellant would have known, in the circumstances, that the respondent required this information from the Society before giving the loan to Mr. Leven. In giving the information contained in Exhibit “L”, such conduct seems to me to put the appellant in a position such that he must be regarded as accepting responsibility for what he said in the letter. The appellant would therefore be liable for the breach of its duty. It was made fraudulently because the customer, Mr. Leven, had very little money, or negligently because the appellant did not make a thorough check of its records regarding the credit of the customer, Mr. Leven. I consider that the appellant, in making representations that Mr. Leven was a member of the Society and had a share capital of about K7,000.00 was making representations in the normal course of its business. This is not in the sense that the appellant normally gives advice to banks for purposes of members’ applications for loans from those banks, but in the sense that it was during the course of its business to keep proper records of names of customers and the share capital owned by each of the members. They had this special knowledge. There is nothing skilful or complicated about checking the Society register to see if Mr. Leven was a member and had credit. This to me is no different from a clerk in a registry or a weighman.

As I find that the facts of this case come within the principles stated in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. (supra)^[28]. I find it unnecessary to consider the principles stated in Mutual Life and Citizens’ Assurance Co. Ltd. and Another v. Evatt.^[29]

I would allow the appeal for reasons I have expressed earlier in the judgment.

Solicitors for the Appellant: Gadens
Counsel: D. Letcher and P.A. Dempsey
Solicitors for the Respondent: Beresford Love & Company
Counsel: R.H.B. Wood and T.J. Glenn

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^[1] (1964) A.C. 465
^[2] (1970) 3 All E.R. 245 at p. 250
^[3] (1959) 1 Q.B. 55
^[4] (1947) A.C. 265
^[5] (1971) A.C. 793
^[6] (1971) A.C. 793
^[7] (Unreported) judgment No. SC178 of 29 August 1980
^[8] (1966) A.C. 356
^[9] (1966) A.C. 367
^[10] 96 C.L.R. 47
^[11] (1949) 1 All E.R. 21
^[12] (1975) P.N.G.L.R. 262
^[13] (1956) A.C. 14
^[14] (1969) 1 W.L.R. 519
^[15] 28 A.L.R. 574
^[16] (1966) A.C. 356
^[17] (1966) A.C. 367
^[18] (1955) 1 All E.R. 550
^[19] 53 C.L.R. 1
^[20] (1964) P.& N.G.L.R. 167
^[21] (Unreported) judgment No. N248 dated 20 June 1980
^[22] (1964) A.C. 465
^[23] (1974) 1 Lloyd’s Rep. 246 at p.253
^[24] (1976) Q.B. 801
^[25] (1977) 3 All E.R. 785
^[26] (1978) A.C. 728
^[27] (1978) 2 W.L.R. 515
^[28] (1964) A.C. 465
^[29] [1970] UKPC 1; (1971) A.C. 793