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Iangalio v National Development Bank Ltd [2016] PGSC 15; SC1499 (29 April 2016)

SC1499


PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]


SCA. NO. 8 OF 2015


BETWEEN


MASKET IANGALIO
Appellant


AND


NATIONAL DEVELOPMENT BANK LIMITED
Respondent


Waigani: Collier J, Higgins J, Polume-Kiele J
2016: 27th & 29th April


GUARANTEES – default judgment in respect of liability of guarantor – subsequent decision assessing damages – only damages judgment subject of appeal – appellant raised issues of novation and discharge of principal debt before trial judge – joint and several guarantors – evaluation of evidence by trial judge – whether trial judge had regard to evidence of appellant – whether trial judge properly weighed evidence of appellant – whether question of fact – whether creditor obliged to proceed against debtor and other guarantors – whether issues concerning novation and discharge of principal debt "live" issues before trial judge – adequacy of reasons of trial judge.


PNG Cases Cited:
Administration of the Territory of Papua and New Guinea .v Grant
[1965-66] PNGLR 311.
National Development Bank v Graham [2012] N4739
Opai Kunangel .v The State [1985] PNGLR 144
Tiensten v Independent State of PNG [2014] SC1468.


Overseas cases:
Chard .v Chard [1955] 3All ER 71 at page 76
China and South Sea Bank Ltd. v. Tan [1990] 1AC 536
Moschi .v Lep Air Service Ltd [1973] AC 331


Books cited:
Halsbury Laws of England
J O'Donovan & Phillips, The Modern Law of Contract
of Guarantee
(4th Edition)


Counsel:
Mr P Kuman, for the appellant
Mr I Shepherd, for the respondent


29th April, 2016


  1. THE COURT: This is an appeal from a decision of a National Court Judge of 8 December 2014 in which his Honour ordered the appellant to pay the respondent the sum of K297, 821.61 together with interest at 11% per annum on that sum from 29 January 2013, and costs. The proceeding, which had originally commenced by writ of summons and statement of claim filed by the respondent on 17 October 2007, concerned an application for recovery of an amount by the respondent from the appellant pursuant to a contract of guarantee between them dated 30 November 1989, referable to a contract of loan to a third party. On 5 November 2010 the respondent obtained default judgment against the appellant pursuant to writ of summons and statement of claim. The matter subsequently returned before the National Court for assessment and determination of damages payable by the appellant to the respondent consequential upon that default judgment. Accordingly – the decision of the primary Judge delivered on 8 December 2014 and to which this appeal relates concerns the assessment of damages payable only, not the liability of the appellant.

Hearing in the National Court


  1. The hearing of the proceeding so far as concerned assessment of damages was brief. The appellant and the respondent each tendered three affidavits as evidence. The respondent's affidavits were all sworn by Mr Solomon Kiage, a manager (asset management) with the respondent (two affidavits were sworn on 10 December 2012 and one on 25 February 2013). The appellant's affidavits were two affidavits sworn by the appellant (both on 14 December 2012) and an affidavit of Mr Chris Kandege sworn on 13 December 2012. Mr Kandege deposed that he was the managing director of MMK Transport Limited for whom the loan the subject of the proceeding was initially obtained.

Primary decision


  1. His Honour's decision was succinct and appears in the transcript of the proceeding of 8 December 2014:
    1. The plaintiff commenced this proceeding in October 2007 seeking judgment against the defendant as guarantor. The plaintiff relied upon a deed of guarantee executed by the defendant on 30 November 1989. Pursuant to the guarantee, the defendant was jointly and severally liable for the debts of the borrower, Gemini Holdings Limited. The plaintiff obtained default judgment against the defendant for damages to be assessed on 5 November 2010. I set out passages of authorities concerning assessment of damages.
    2. The defendant denies the claim and contends that (a) the loan has been fully repaid by Gemini Holdings Ltd; (b) the loan was novated to a third party, MMK Transport Ltd in 1999-2000; (c) the defendant overpaid the plaintiff by K100,000 on 2 December 2010.
    3. As is made clear from the authorities cited above, the question of liability has been determined and so the only issue for determination now is the claim for damages for breach of the guarantee that is the defendant's contingent liability. The plaintiff has the burden of producing admissible and credible evidence of those damages.
    4. The guarantee was for the principal of K250, 000 plus interest accrued at 11 per cent. The plaintiff's evidence is that the amount outstanding after payment of K100, 000 on 3 December 2010 by the defendant was K297, 821.61 as per annexure A to exhibit 3. A substantial proportion of that amount owing was interest. It is clear from the statement that most of the principal itself had been paid, but interest had not been paid and continues to accrue, and the plaintiff submits that judgment should be entered in favour of the plaintiff for K297, 821.61 together with interest at 11 per cent annum from 29 January 2013 and costs.
    5. The defendant contends that the plaintiff's evidence does not show or prove the damages claimed. In Mr Solomon Kiage's affidavit, exhibit 2, is annexed a statement showing that by or about November 2006, the balance outstanding was K84, 294, 27 and in December r2007, the balance was K64, 394.27. The statement further shows that the balance was paid when a payment of K100, 000 was made on 3 December 2010 and there was K41, 756.13 to the defendant's credit. The defendant submit there is not an adequate explanation as to why there is such a difference between the statements in Mr Kiage's earlier affidavit compared to the statement in his later affidavit.
    6. Further, as there are clear discrepancies in the records and statements of the loan account, the plaintiff has failed to provide clear and accurate evidence to prove that the debt remains outstanding and that the borrower has defaulted on its obligations under the loan.
    7. As to the evidence of Mr Kiage, counsel for the plaintiff submits that whilst there is an apparent discrepancy between the statements annexed to Mr Kiage's affidavits, it is the later statement which contains a detailed summary of the account from April 1998 to December 2010, and which shows the correct interest rate of 11 per cent which is to be preferred and which the court should accept. Further, Mr Kiage was not cross-examined on this issue and the defendant elected not to file any evidence to contradict, rebut or challenge the evidence contained in Mr Kiage's later affidavit.
    8. As to the contention of the defendant concerning the discrepancies in the two statements annexed to the affidavits of Mr Kiage, it is the case as submitted by the plaintiff that Mr Kiage was not cross-examined as to the discrepancies and the defendant has not filed any evidence to contradict or rebut the evidence in the later affidavit of Mr Kiage which includes the later bank statement.
    9. In the absence of any evidence to rebut Mr Kiage's later evidence, the court is entitled to make a presumption of fact that the latest statement contained in Mr Kiage's evidence represents the plaintiff's position. In this regard I refer to the case of Chard v Chard (otherwise Northcott) [1955] 3 All ER 71 at page 76, Halsbury's Laws of England, for which I give the citation, and Administration of the Territory of Papua and New Guinea [1965-66] PNGLR 311. I am satisfied for the above reasons that the evidence of Mr Kiage in exhibit 3 is to be preferred. The plaintiff has produced credible evidence of its damages and the defendant has not rebutted that evidence.

Notice of appeal


  1. The notice of appeal contains five grounds of appeal, each of which is particularised. For the moment placing those particulars to one side, the grounds of appeal are as follows:
    1. His Honour erred in law and fact when his Honour failed to take into account the evidence given by the Appellant that the entire debt was repaid fully and that the Respondent in fact was over paid.
    2. His Honour erred in law and fact by not considering oat [sic] failing to consider and take into account the submission by the Appellant that the debt, if any, was novated to a third party in 2000 and that the Respondent consented to the novation and did agree in principle that the debt, if any, was to be repaid by the third party.
    3. His Honour erred in law by giving undue weight to inconsistent evidence given by the Respondent in terms of the actual bank statement and records, which showed the outstanding debt at various dates to be completely contrary to the amount pleaded in the Statement of Claim.
    4. His Honour fell into error of law and fact when he awarded damages of K297, 821.61 with interest at 11 per cent when the guarantee given by the Appellant is only limited to K250, 000 and that such guarantee was given jointly and severally by the Appellant and three (3) other guarantors, which other guarantors the Defendant did not sue but pursued against the Appellant for the full amount of guarantee.
    5. His Honour fell into an error of law when he awarded damages in excess of the amount pleaded in the Statement of Claim.
  2. At the hearing of the appeal before us both parties were represented, and had filed submissions. Both Counsels also made oral submissions. The case of the appellant can be summarised as follows:
  3. The respondent submitted that the Court should dismiss the appeal, in essence because the grounds of appeal raised by the appellant either:

Consideration


  1. In our view the appeal can be dealt with swiftly. In short – the grounds of appeal raise no issues warranting disturbance of the decision of the primary Judge. The appeal should be dismissed.
  2. We have formed this view for the following reasons;
  3. First, as the respondent contends, and indeed as his Honour at first instance noted in the primary judgment, the appellant clearly seeks to agitate issues which are no longer live, and cannot be the subject of this appeal. His Honour made plain, and indeed it may be helpful to repeat, that:
  4. Second, the appellant complains that the primary Judge ignored the appellant's evidence in the affidavit of Mr Kandege (and the appellant's subsequent contention in written submissions in the National Court) that the contract of loan had been novated to a third party, MMK Transport Ltd. His Honour did not ignore this evidence. However his Honour explained that the issue of novation was one which went to liability of the appellant as guarantor. The issue of liability of the appellant had been determined – adversely to him – on 5 November 2010.
  5. Further, and in any event, we note that mere novation of a principal contract does not of itself discharge a guarantor from liability under the contract of guarantee. As explained in J O'Donovan and J Phillips The Modern Contract of Guarantee (4th edition) (Thompson Reuters, 2015) at [6.1300]

Novation of this kind takes place when the principal debtor, the creditor and a third party all agree that the third party shall be substituted as the new principal debtor. The consent of all parties must be obtained to the novation, which will be binding only if it is made with the appropriate contractual intention and if it is supported by consideration, which is usually the mutual release of existing obligations and the undertaking or fresh obligations. The effect of the novation is not to assign or transfer a liability but to extinguish the original contract and replace it by another. Thus, the original debtor is released and it follows that, as in the case of a simple release of the principal by the creditor, the guarantor is fully discharged by such an agreement.

(Footnotes omitted)


  1. The learned authors continue at [6.1350]

The law does not recognise an assignment of contractual liability without the consent of the obligee. Thus, if the principal purports to assign the obligations arising from the principal contract without seeking the consent of the creditor, it will be ineffective. The guarantor, however, should still remain liable, although the guarantor will be discharged if a third party (the purported assignee) discharges the principal obligation by payment to the creditor.

(footnotes omitted)


  1. In this case, the appellant now contends, after he has been found liable under the contract of guarantee in a default judgment which has not been appealed to this Court, that at some point he was discharged from liability as guarantor because of novation of the principal contract. A contention of this nature raises an important issue of substance, which could have been specifically pleaded, and which would have been relevant to the question of liability. Indeed a similar argument was successfully pleaded in National Development Bank Ltd v Graham [2012] N4739. It is not an issue which is relevant to the assessment of damages once liability is determined. We are not prepared to entertain this argument at this late stage, and consider it appropriate that his Honour similarly refused to do so.
  2. Third, the appellant complains that the respondent pursued only him, and failed to take action against co-guarantors or the debtor. It is a fundamental principle of law that a creditor is not obliged to exhaust its remedies against a debtor prior to commencing action against a guarantor: Moschi v Lep Air Services Ltd [1973] AC 331. Similarly, in circumstances where guarantors have undertaken joint and several liabilities – as was the case here – the creditor is not obliged to pursue the guarantors equally. Rather, the creditor can choose which guarantor it pursues, if it chooses to pursue any creditor at all: China and South Sea Bank Ltd v Tan [1989] UKPC 38; [1990] 1 AC 536.
  3. Fourth, the appellant complains, in essence, that the primary Judge either ignored his evidence or preferred the evidence of the respondent in respect of the repayment of the principal debt, the amounts outstanding at various times, and the actual indebtedness of the appellant under the guarantee. In our view this complaint is not sustainable.
  4. It is clear from the primary judgment that his Honour did not disregard evidence or submissions of the appellant. His Honour noted, for example
  5. His Honour also observed, however, that
  6. That his Honour elected to prefer the evidence of the respondent's witnesses, for reasons including currency of that evidence at the time of the hearing and presumably the status and credibility of bank statements as business records, is acceptable. A trial Judge cannot be criticised for evaluating evidence, choosing to accept some evidence, and choosing to reject other evidence. Indeed it is the task of the trial Judge to engage in that exact exercise. In the absence of capriciousness in preferring or rejecting evidence, a trial Judge cannot be criticised for forming a view as to the cogency or otherwise of evidence before the Court. In this case his Honour clearly preferred the evidence of the respondent (in particularly that of Mr Kiage) because it was more up to date than that of the appellant, and perhaps more authoritative as to its accuracy compared with the evidence of the appellant. In this respect we note, for example, the records attached to the affidavit of Mr Kiage sworn 25 February 2013. His Honour's approach to evaluation of the evidence was perfectly reasonable.
  7. Further, as this Court has found on numerous occasions, a complaint that a trial Judge has failed to give "proper" weight to the evidence – which usually follows a decision of the trial Judge to either discount or reject evidence of the complaining party – gives rise to a question of fact. Before a party can challenge factual findings the Supreme Court must grant leave: section 4(2)(c) of the Supreme Court Act 1986, Opai Kunangel v The State [1985] PNGLR 144, Tiensten v Independent State of Papua New Guinea [2014] SC1468. No leave has been granted in this case to raise questions of fact.
  8. Finally, the appellant complains that his Honour ordered payment of an amount which was not specifically pleaded. The answer to this complaint is that the order his Honour made was within the case pleaded by the respondent as plaintiff at first instance. This is because:
  9. While we have concerns as to the composition of the $250,000 for which the appellant is liable, we note again that the respondent has a default judgment against the appellant for unpaid debts of the debtor up to this amount. No appeal was filed to disturb that default judgment. Evidence was produce by the respondent to the National Court in this matter in the form of detailed bank statements to demonstrate that the amount ordered was owing, which evidence was accepted by his Honour. We are unable to find fault in the decision of the primary Judge, who dealt carefully and properly with the issues and material before him.
  10. Finally, we note the submission of Mr Kuman as to the apparent dissatisfaction of the appellant with the length of reasons of the trial Judge. While this is unfortunate, we see no reason to criticise his Honour. It cannot be said that his Honour gave no reasons for the decision, which may have given cause for appeal. Further, the reasons for judgment were succinct rather than inadequate. In a busy Court like the National Court, Judges cannot be the subject of criticism for accuracy linked with brevity.

Conclusion


  1. Overall we agree with the submissions of the respondent that the grounds of appeal raised by the appellant are, for the various reasons we have explained, incompetent. In our view the appropriate order is to dismiss the appeal with costs.

THE COURT ORDERS THAT:


  1. The appeal be dismissed
  2. The costs of the respondent of and incidental to the appeal be paid by the appellant, such costs to be taxed if not otherwise agreed.

________________________________________________________________
Kuman Lawyers : Lawyer for the appellant, instructed by Asher Chillion
Ashurst Lawyers : Lawyer for the respondent


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