First Investment Finance Ltd v Tambua [2023] PGSC 105; SC2450 (30 August 2023)

SC2450

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 36 OF 2019

BETWEEN
FIRST INVESTMENT FINANCE LIMITED
Appellant

AND:
DICKSON TAMBUA
Respondent

Waigani: Murray, Logan and Miviri JJ
2023: 25^th April, 30^th August

TRADE AND COMMERCE – Fairness of Transactions Act 1993 (FTA) – Loan and related Chattel Mortgage to part finance the purchase of a commuter bus – provision for interest to be charged at flat rate – meaning of flat rate interest – provision for lender to arrange comprehensive insurance – absence of explanation to borrowed by lender of meaning of flat rate or that the comprehensive insurance it had arranged carried a large deductible – whether transaction was not genuinely mutual or was manifestly unfair – FTA, s 5 – whether trial judge obliged to refer case to mediation after concluding transaction was not genuinely mutual or was manifestly unfair – FTA, s 7 – relationship between a conclusion that a transaction was not genuinely mutual or was manifestly unfair and remedies which may be ordered on a review by a court – FTA, s 8

The respondent borrowed half of the sale price of a commuter bus and half of the cost of the comprehensive insurance of the bus from the appellant. He provided the other halves of the sale price and the insurance premium from his own funds. The purpose of the purchase of the bus and related borrowing was so that the respondent could operate a highway bus service.

The loan was secured by a chattel mortgage over the bus, granted by the respondent in favour of the appellant. It was a feature of the transaction between the respondent and the appellant that the bus would be comprehensively insured and that the appellant would arrange that insurance. The amount of the premium was well over half of the sale price of the bus. The loan provided for interest at a flat rate. That rate was 24% if the loan was repaid by due payment of the loan instalments and 34% in the event of default.

The schedule to the loan and chattel mortgage agreement detailed the grossed up amount of each monthly instalment and the number of such instalments. Neither in that agreement nor otherwise did the appellant specify what flat rate interest meant. It was, however, possible by a process of mathematics to calculate, by reference to the principal amount of the loan and the total repayable by instalments what the provision for a 24% flat rate interest meant in terms of the effective rate of interest. Unbeknown to the respondent, the comprehensive insurance arranged by the appellant carried with it a K10,000 deductible per claim by the respondent. The appellant never informed the respondent of the existence of this deductible.

Over the course of the loan, the respondent was involved in two motor vehicle accidents while driving the bus. As a result of each accident, the bus required repairs. On each occasion, the respondent was unable to operate the bus for reward while it was being repaired. Upon making a claim on the insurer, the respondent found that the comprehensive insurance policy carried a deductible of K10,000 per claim. On each occasion, the cost of repairs was less than K10,000. The respondent paid for the repairs from his own savings. In combination, this plus the cash flow impact of the bus being unable to be operated for reward while being repaired led to the respondent defaulting on the required monthly instalments. His loan went into default and the default rate of interest was engaged. Eventually, the appellant repossessed the bus and sold it pursuant to its rights under the chattel mortgage. The sale proceeds were insufficient completely to pay off the respondent’s by then indebtedness to the appellant.

The respondent instituted proceedings in the National Court under the Fairness of Transactions Act 1993 (FTA) claiming that the transaction was not genuinely mutual or was manifestly unfair and seeking a resultant review of it by the court. After the proceedings were commenced and before trial, the court’s registry staff attempted to organise a mediation. Through no fault of the parties, this did not prove possible. Later, the parties consented to the proceedings being set down for trial.

At trial, the National Court noted that mediation had been unsuccessfully attempted and had jointly been set down for trial. The appellant raised no issue as to the jurisdiction of the court to proceed to trial. The court concluded that the transaction was not genuinely mutual or was manifestly unfair. The court cited the absence of explanation of flat rate interest and of the presence of a deductible. Although the court had cited the FTA, the reason it gave for this conclusion was that the transaction was “inequitable”.

In reviewing the transaction, the court decided that the appellant should refund to the respondent the amount he had contributed to the purchase of the bus (half of the sale price), the total amount of the insurance premium, the total of the repayments made by the respondent to the appellant and “all interest and charges associated with the agreement”, together with interest at 8% from varying dates. The court cited s 155(4) of the Constitution as the source of the power to grant this relief.

On the appeal, the appellant contended that the National Court had lacked jurisdiction to grant any relief, because the proceedings had not been the subject of a mediation as s 7 of the FTA was said to require. It also contended that the court had departed from the FTA in deciding that grounds to review the transaction existed. Finally, it contended that the relief granted was excessive and should have been sourced in the FTA, not s 155(4) of the Constitution.

HELD, allowing the appeal:

1. Not having raised the point at trial, the appellant was obliged to obtain leave to raise the issue as to jurisdiction on appeal but had neither sought nor obtained leave. The point was not a pure point of law, as it was possible that the respondent might have led evidence about whether mediation was either possible or ever likely to result in compromise. In any event, against the background of an unsuccessful attempt to arrange a mediation, the passing of many years after the commencement of the proceeding and the consent of each party to the setting of the case down for trial, the court was entitled to conclude that mediation had failed. Section 7 of the FTA does not require satisfaction that mediation fail for a particular reason. The National Court had jurisdiction to determine both whether there was occasion under the FTA to review the transaction and, if there was, to grant relief on that review at the trial.
   

Negiso Investments Ltd v PNGBC Ltd (2003) N2439 explained

2. The meaning of term “flat rate” interest requires specialist knowledge to understand. It refers to an interest rate applied to the initial principal sum over the whole term of the loan. If interest is charged on a “flat” rate, every payment of interest is calculated by reference to the initial principal sum without regard to the reduction in principal from time to time by virtue of repayments made throughout the term of the loan. Flat rate interest may be contrasted with a "reducible” interest rate. That is a rate applied to the reducing balance of the principal sum owing at each repayment date throughout the term of the loan. If interest is charged on a reducible rate, the interest paid in each instalment is assessed by reference to the principal outstanding from time to time, having regard to the total of any previous payments effecting a reduction to the principal. Interest charged by reference to this approach is sometimes described as interest charged on a “diminishing basis”.
   

W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo [2013] NSWSC 1063 and Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119 cited with approval

3. The mere adoption of a flat rate of interest did not, without more, mean that the transaction was not genuinely mutual or was manifestly unfair.
   

Bank of South Pacific v Tingke (2014) SC1355 followed

4. Although the appellant had not offered any explanation to the respondent as to the meaning of “flat rate” interest, it was possible, by reference to the detail concerning the number and amount of loan repayment instalments specified in the agreement to work out what it meant in terms of the effective rate of interest which would be paid if the loan had run its course in the ordinary way. The respondent had been prepared to take on the repayment obligation as so detailed. The FTA did not have the effect of making the appellant the respondent’s insurer for an imprudent commercial decision. However, in circumstances where no explanation of the term “flat rate” was offered to the respondent, he was unable to assess the nature of the risk he would assume if the default interest rate became payable. The absence of an explanation from the appellant that the comprehensive insurance cover arranged by the appellant, notwithstanding its sizeable premium, carried a deductible of K10,000 per claim also meant that the respondent was deprived of an ability to assess the risk he would thereby have to assume of self-insuring to that extent against a circumstance such as the bus being off the road for collision repairs with a resultant cash flow impact on his ability to meet his loan repayment obligations. Although the trial judge ought to have referred to s 5 of the FTA, the findings he made supported a conclusion under s 5 of the FTA that the transaction was not genuinely mutual or was manifestly unfair.
   
5. The source of power to grant relief on a review in respect of a transaction found to be not genuinely mutual or was manifestly unfair is s 8 of the FTA, not s 155(4) of the Constitution.
   
6. Relief granted under s 8 of the FTA must be responsive to the basis upon which a court has concluded that a transaction was not genuinely mutual or was manifestly unfair. The relief granted by the National Court was not so responsive.
   
7. Had the comprehensive insurance not carried a deductible per claim, as the respondent was entitled to assume in the absence of an explanation from the appellant, it was inherently likely that the loan transaction would have run its course without default because, with the benefit of full insurance cover and his own albeit limited remaining savings, the respondent would have continued to meet his repayment obligations.
   
8. In these circumstances, a remedy related to the findings as to a conclusion that the transaction was not genuinely mutual or was manifestly unfair would see the appellant retain in full the loan principal and interest which would have been repaid but no more than that. The appellant should therefore have to disgorge the default interest it received. The respondent would also have been left with a bus for which the best estimate of value was the amount received by the appellant when it was sold by it. That amount also should be disgorged by the appellant. Each sum should carry interest at 8% per annum from the time when the transaction would have ended in the ordinary way until the date of the judgment below.
   
9. Although the respondent had claimed loss of business and profits, he had led no evidence at trial as to what these might have been. At the end of the loan transaction in the ordinary way, he might have continued to operate the bus or he might have chosen, in light of his experience of two collisions and the cost of insurance just to sell the bus. In these circumstances, it was a sufficient response to leave him with the then value of the bus plus interest thereon. Remedies granted by the National Court set aside and in lieu orders made as indicated.
   
10. As the appellant had failed in respect of two of the three issues it had raised, there should be no order as to costs in respect of the appeal.
    

Cases Cited:
Papua New Guinean Cases

Der Kreek v Van Der Kreek [1979] PNGLR 185
Motor Vehicles Insurance (PNG) Trust v Pupune [1993] PGSC 12; [1993] PNGLR 370
Negiso Investments Ltd v PNGBC Ltd (2003) N2439
Kildi v Finance Corporation Ltd (trading as FINCORP) (2022) N9815
Augerea v The Bank South Pacific Ltd (2007) SC869
Bank of South Pacific v Tingke (2014) SC1355

Overseas Cases

W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo [2013] NSWSC 1063 and Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119

Legislation

Constitution, s 155(4)
Fairness of Transactions Act 1993, ss 1, 4, 5, 7 and 8

Counsel:

Mr I Shepherd, for the Appellant
Mr C.M Gagma, for the Respondent

30^th August 2023

1. BY THE COURT: In November 2005, the respondent, Mr Dickson Tambua, applied to the appellant, First Investment Finance Limited (First) for a loan. Mr Tambua wished to purchase and operate a commuter bus, otherwise termed a passenger motor vehicle (PMV), service along the Highlands Highway but had insufficient funds of his own to do this.
   
2. Mr Tambua was successful in his loan application. On 6 December 2005, he and First entered into a written agreement which had two essential features, one providing for the terms of a loan, the other providing for the terms of a chattel mortgage. The chattel mortgage was in respect of the bus and secured monies owed to First under the loan made pursuant to the agreement.
   
3. Using part of the funds borrowed from First and his own savings, Mr Tambua purchased a Toyota Hi-Ace 15 seater bus from Ela Motors for the sum of K62,000.
   
4. The interest rate specified in the agreement (at item 8 in the schedule) was 24% “FLAT”. The agreement also provided for a default interest rate of 34% “FLAT” (at item 9 in the schedule).
   
5. It was an agreed fact that the agreement between Mr Tambua and First was that the bus would be comprehensively insured. It was also admitted on the pleadings that the comprehensive insurance for the bus was organised by First. The loan agreement expressly contemplated that the other part of the funds loaned by First would be used to pay part of the premium for the comprehensive insurer cover. The other part of that premium was paid by Mr Tambua. The total premium was K11,018.05. Comprehensive insurance of the bus was self-evidently, an essential feature of the overall transaction between Mr Tambua and First.
   
6. The agreement recited (at item 2 of the Schedule) that the total loan amount of K36,509.03 was to be deployed as follows:
   

Cash price K62,000

Less deposit K31,000

Sub-total K31,000

Miscellaneous expenses [Blank]

Insurance K5,509.03

Registration [Blank]

Stamp Duty [Blank]

Amount financed K36,509.03

7. First was not the insurer. However, notwithstanding First’s requirement that the bus be comprehensively insured and its role as the arranger of that insurance, it never made known to Mr Tambua the terms on which the bus came to be insured. Notably, the signed copy of the agreement in evidence has “?” at item 5 in the schedule in respect of the policy number of the insurance apparently obtained from Mitsui Sumitomo.
   
8. Mr Tambua did not otherwise obtain a copy of the comprehensive insurance policy. It is common ground that the insurance policy provided for a K10,000 per claim deductible. Put another way, the insurer was only liable under the policy to meet that part of a specific claim which exceeded K10,000.
   
9. The loan agreement provided for 18 monthly payments of K2,758.45 per month by Mr Tambua to First, commencing on 6 January 2006, over its 18 month life, in all for a total repayment of K49,652.10 in the absence of any event of default. First’s Assistant Manager, Finance , Mr Michael O’Rourke, gave evidence at the trial that the 24% “Flat” interest rate for which the agreement provided was the equivalent of a 41.5% effective interest rate. There was no evidence at trial that Mr Tambua had ever been given information by First before signing the agreement as to what was meant by “FLAT” and what would be the effective interest rate.
   
10. That said, if one understood what was meant by “Flat”, it would doubtless have been possible to calculate this by a process of mathematics if sufficiently skilled and experienced. It was clear from Mr O’Rourke’s evidence that he did have such skills and experience. It was likewise clear from Mr Tambua’s evidence that he did not.
    
11. In February 2006, Mr Tambua had the misfortune to be involved in a highway accident while he was driving the bus. The bus was involved in another highway accident in May 2006 while he was driving it. Mr Tambua gave evidence that he was not at fault in either of these accidents. This was accepted by the trial judge. Neither it must be said was First at fault in respect of these accidents.
    
12. The cost of repairs to the bus in respect of each of these accidents was less than K10,000. Mr Tambua made a claim on the insurer in respect of these repair costs. The insurer rejected his claims, because each claimed repair cost was less than the deductible.
    
13. As he was entitled to do on the evidence, the primary judge found as follows. On each occasion, the repairs took time to complete, during which the bus was off the road. While off the road, Mr Tambua was unable to operate it for reward. This affected his cash flow. Further, he had to pay for the repairs himself from his savings. In combination, these had the effect that he failed to meet his monthly payment obligation. His loan went into default, triggering the default interest rate. Mr Tambua did make further repayments but never sufficient to clear the arrears resulting from his default. In December 2006, First repossessed and, in August 2007, sold the bus in the exercise of its right under the chattel mortgage aspect of the agreement. The bus realised K40,000 on the sale. That was insufficient to clear Mr Tambua’s by then arrears.
    
14. It is convenient to record at this point that First made complaint on the appeal that some of this evidence emerged in responses by Mr Tambua to questions from the bench which it alleged had taken it by surprise. But it raised no such objection before the primary judge. Reading the transcript of the trial, it is tolerably clear that the learned primary judge must have considered it necessary in the interests of justice to pose particular questions to Mr Tambua so as better to understand the circumstances relating to the transaction and his understanding of terms in the agreement. Of course a trial judge must be wary of entering the arena as an advocate but a trial judge must also ensure that evidence is understood and a witness for whom a courtroom is a strange environment is given a fair opportunity to relate his or her knowledge of events. Court craft for a judge in a developing country might on occasion require the adoption of a practice by a trial judge which a judge in a developed country might characterise as overly interventionist. Overarchingly, the trial judge was obliged by s 59 of the Constitution to ensure a procedurally fair trial. First had an opportunity cross-examine Mr Tambua in respect of the answers which he gave. It sought no adjournment before doing this. First did not contend either at the trial or on the appeal that there had been a violation of this overarching obligation by the trial judge. Instead, the complaint really was the meritless one that the answers which Mr Tambua gave, and which the primary judge accepted, did not help its case.
    
15. Mr Tambua considered that he had a claim for remedy against First on a review of the agreement under the Fairness of Transactions Act 1993 (FTA). He instituted proceedings in the National Court accordingly. There was never any issue in those proceedings that the loan and chattel mortgage for which the agreement provided and the procuring of the contemplated comprehensive insurance constituted a transaction to which the FTA applied.
    
16. In the result, Mr Tambua was successful in securing a remedy against First. It is necessary to set out the various components of the order made in his favour. The best way of doing that is to quote the explanation offered by the primary judge of those components under the heading “Remedy” in his reasons for judgement:
    

“Money paid by the plaintiff being his input of K31, 000, the interest and other expenses charged, all have to be repaid by the defendant. It follows that the defendant is to refund money as follow:

1. K31, 000 with interest at 8% yearly from 6 December 2005 of K32,653;
2. K11,018 with interest at 8% yearly from 6 December 2005 of K11,605;
3. K19, 558 with interest at 8% yearly from 10 November 2006 of K19, 166;
4. All interest and charges associated with the contract in the total sum of K19,118 with interest at 8% yearly from 1 August 2007 of K17, 589.

Item 1 is the amount the plaintiff put towards the purchase; item 2 is the premium charged for insurance, 6 December 2005 being the date of the contract. Item 3 is the total repayments made by the plaintiff, last on 10 November 2006. Item 4 refers to the date of sale of the bus.”

17. The intent of the primary judge in granting a remedy with these components appears to have been to restore to Mr Tambua all that he had outlaid from his own funds to purchase the bus and to pay the insurance premium, as well as that part of the premium he had paid for with borrowed funds, to relieve him of all interest payment obligations by requiring them to be refunded but to leave First with all of the proceeds of the sale of the bus.
    
18. First has appealed against the orders which gave effect to the remedies which the primary judge considered appropriate.
    
19. The grounds of appeal raise three broad subjects for consideration:
    
    • (a) The jurisdiction to grant any remedy under the FTA;
    • (b) Whether, assuming that there was jurisdiction under the FTA, the primary judge had departed in his reasoning from the terms of that Act in concluding that Mr Tambua was entitled to a remedy;
    • (c) In any event, whether the components of the remedy granted were either appropriate or adapted to the conduct of the parties or had any discernible foundation at all.
      
20. Before turning to these subjects, it is desirable to set out some extracts from the FTA.
    
21. The FTA offers an example of an Act which has an informative preamble. Parliament has described the Act as one, “relating to the effect of certain transactions, to ensure that they operate fairly without causing undue harm to, or imposing too great a burden on, any person, and in such a way that no person suffers unduly because he is economically weaker than, or is otherwise disadvantaged in relation to, another person”. These sentiments are taken up in s 1, which sets out the purposes of the FTA:
    
    1. PURPOSE OF ACT.
       

The purposes of this Act are to–

(a) ensure the overall fairness of any transaction which–

(i) is entered into between parties in circumstances where one party is for reasons of economic or other advantage predominant and the other is not able to exercise a free choice; or

(ii) for one reason or another, without attaching any evil design or bad faith, appears to be manifestly unfair or not to be genuinely mutual; and

(b) allow for the re-opening and review of any transaction irrespective of fault and validity, enforceability or effect of any agreement; and

(c) ensure the fair distribution and adjustment of rights, benefits, duties, advantages and disadvantages arising out of a transaction.

22. A core concept in the FTA is “fairness”, which is defined by s 4 as follows:
    
    4. FAIRNESS
    1. For the purposes of this Act, the concept of fairness relates to the principle of the just and equitable distribution to and among parties to a transaction of the rights, privileges, advantages, benefits and duties, obligations and disadvantages of the transaction in proportion and relative to a party’s standing in or contribution to the transaction, and according to business principles and practices appertaining to the particular transaction in question and the provisions of this Act shall be read liberally and applied accordingly.

(2) In accordance with the general tenor and purposes of this Act as stated in Section 1 and Subsection (1) of this section, but without departing drastically from the rule of law of right to contract, in determining the fairness or otherwise of a transaction, the circumstances of the parties existing before, at and after the entering into of the transaction shall be taken into account.

23. Section 5 of the FTA enables a party to a transaction to which the Act applies to apply for a review of that transaction but conditions the undertaking of a review upon a particular state of judicial satisfaction, as described in s 5(1):
    
    5. REVIEW OF TRANSACTIONS, GROUNDS, ETC.
       

(1) A transaction to which this Act applies may be reviewed by a court on the application of any party, if the Court is satisfied that the transaction was not genuinely mutual or was manifestly unfair to a party.

(2) Without limiting the generality of Subsection (1), unless the Court is satisfied that the transaction was entered into on an equal footing in all material respects, a transaction shall be deemed not to be genuinely mutual or manifestly unfair if a party to the transaction complaining unfairness shows–

(a) that he did not understand the transaction and no genuine effort was made to explain its terms to him prior to entering into the transaction; or

(b) that the other party was in such a predominant position (whether economically, socially, personally or otherwise), that an ordinary person with the background of the complainant was not likely to exercise a true freedom of choice in relation to the transaction; or

(c) that the other party had or should have had at the time of entering into the transaction or immediately thereafter information affecting the fairness of the transaction which was not disclosed to the complainant; or

(d) that he was mistaken in or had miscalculated the likely consequences of the transaction and the mistake or miscalculation was to such an extent adverse to his interests that he could not reasonably be held responsible for such consequences.

As can be seen, s 5(2) of the FTA provides, in a non-exhaustive way, for how, on particular proofs, a transaction shall be deemed not to be genuinely mutual or manifestly unfair.

24. Section 7 of the FTA manifests an intention by parliament that a controversy between the parties to a transaction to which the FTA applies should, if possible, be resolved by mediation rather than judicial determination. It provides:
    
    7. MEDIATION.
       

(1) In all proceedings under this Act, a Court shall in the first instance, attempt to arrive at an amicable settlement that conforms with the primary object of this Act and only after a mediated order has failed the Court may proceed to exercise its jurisdiction under Section 8.

(2) The Court may adjourn any proceedings for such time as it thinks fit if it is of the opinion that the parties are likely to reach a settlement.

(3) If the court consists of more members than one, one of the members may exercise the mediatory jurisdiction of the Court under Subsection (1).

(4) If a mediated settlement in accordance with Subsection (1) is arrived at, the Court shall include it in an order, which shall be enforceable in that Court or another Court of competent jurisdiction.

25. In the event that the Court has to exercise its jurisdiction, s 8 of the FTA sets out the relief which it may grant to a party:
    
    8. JUDICIAL ORDERS.
       

(1) If in the opinion of the Court, an attempt at a mediated settlement of any proceedings in accordance with Section 7 has failed or, in the case of an adjournment under Section 7(2), there is no real likelihood of such settlement being arrived at within a reasonable time, the Court shall proceed to review the matter and make such order between the parties as it thinks conforms with Section 4.

(2) Where a party has entered into a transaction in good faith and in reliance on the terms and conditions of the transaction has substantially altered his position and the Court, having regard to all possible implications in respect of the parties and any other persons, is of the opinion that it would be unjust or inequitable to grant relief by way of an order under Subsection (1), it may refuse to grant, wholly or in part, any relief applied for under this Act.

Jurisdiction

26. First submitted that the primary judge had erred by not confining his consideration to whether Mr Tambua had established that the transaction was genuinely mutual or was manifestly unfair to him. If so, it was submitted that the Court ought, by virtue of s 7, then to have required the parties to proceed to mediation and only then conducted a review to determine whether Mr Tambua was entitled to any remedy.
    
27. It must first be observed of this ground of challenge that it takes up a point not raised below. In the National Court, the parties, by their respective lawyers, signed and filed the usual practice statement in which the legal issues for determination were identified as:
    
    1. Whether or not in the circumstance the transaction between the parties was manifestly unfair to the Plaintiff within the meaning of section 4 of the Fairness of Transactions Act 1993.
    2. Whether or not the Plaintiff is entitled to the relief he claims by his writ of Summons.
       
28. First was differently represented in the National Court but the change in representation did not confer on its present lawyers a licence at large to raise new legal issues on the appeal.
    
29. Two lines of authority in relation to the ability of an appellant to raise on appeal an issue not raised below may be identified. One, for which Van Der Kreek v Van Der Kreek [1979] PNGLR 185 is a root authority, is that a new issue may not be raised unless the appellant seeks and obtains leave. The other, for which Motor Vehicles Insurance (PNG) Trust v Pupune [1993] PGSC 12; [1993] PNGLR 370might be regarded as a root authority, is that there are no circumstances in which a party may on appeal raise an issue not raised before the National Court.
    
30. Although he did not make reference to either line of authority, counsel for Mr Tambua did put in his written submissions that it was unfair to him for First to raise this issue.
    
31. If, truly, the National Court lacked jurisdiction to entertain a particular proceeding or to grant the relief granted to a party, it would, with all respect to those who have held that no new issue may be raised on an appeal, visit injustice on an appellant to shut out that party, now better advised, or perhaps advised for the first time, from raising on appeal that the proceeding was never one which the National Court could hear and determine or that an order was never one which could lawfully be made. Examples which come to mind of what would be such an injustice are if the National Court had granted a declaration purporting to determine the title to customary land (a subject not within its jurisdictional remit), had made an order which purported to order the winding up of a company which was incorporated in a foreign country, or, following the recent reform of national criminal law to abolish the death penalty, had ordered that a person convicted of wilful murder in respect of an offence committed after that reform, be sentenced to death. No amount of failing to raise an issue or even consent to the existence of jurisdiction in the National Court could confer any lawful authority on that court to make such orders.
    
32. In such circumstances, it would be distinctly odd, given the constitutionally assigned role of the Supreme Court as the final court of appeal (s 155(2) of the Constitution), charged with the dispensation of justice as the paramount consideration when interpreting the law (s 158(2) of the Constitution) for the Court to conclude that it lacked any authority to permit an appellant to raise on appeal an absence of lawful authority to make such an order, even though that point has not been taken in the National Court. Section 4 of the Supreme Court Act 1975, in conferring a right of appeal on particular bases from the National Court does not qualify either “question of law” or “question of mixed law and fact” to a question of law which was raised on the National Court. Given the constitutional considerations mentioned, there is no warrant for construing the text of s 4 of that act as if it did contain such a qualification.
    
33. In our view, the fact that it did not raise the issue below does not, of itself, preclude First from raising a jurisdictional issue. Rather, to raise that issue requires a grant of leave.
    
34. Conventionally, leave to raise a new issue is refused where the raising of the issue might occasion evidentiary embarrassment to the other party.
    
35. In this case, the primary judge noted that mediation had been ordered in 2017 with the venue, by consent, being Mt Hagen. His Honour also noted that later events showed that mediation at this venue had proved impractical. Thereafter, as his Honour also noted, the case had been sent to trial by consent. Against this background, especially with respect to a case instituted as long ago as May 2008, the primary judge was entitled, for the purposes of s 8 of the FTA to form the opinion that mediation had failed.
    
36. Whatever stricture is imposed by s 7 and 8(1) of the FTA on the undertaking of a review, it is not a mechanism for one party to postpone indefinitely the judicial resolution of a controversy. Further, the FTA falls to be administered in the context of finite resources for the conduct of mediations. Sub-section 8(1) does not require that the Court form the opinion that mediation has failed for a particular reason. Here, it was attempted and that did not prove practical. That was a failure. Prima facie, the consent to trial indicated that neither party saw any point in a further attempt at mediation. The particular reasons for this were not explored at trial. In the absence of any issue of the kind now sought to be raised by First, there was no reason why they should be. The issue is an exemplar of one which, if permitted to be raised, might prejudice Mr Tambua by depriving him of an opportunity to have led evidence at trial. It is not a pure point of law.
    
37. We would for these reasons refuse leave for First to raise a jurisdictional issue on the appeal.
    
38. We would add this. Relying on Negiso Investments Ltd v PNGBC Ltd (2003) N2439, First also submitted in relation to jurisdiction that, if the National Court had permissibly concluded that there was a transaction that could be reviewed, because the transaction was not genuinely mutual or was manifestly unfair, it was then and there obliged by s 7 of the FTA to adjourn the proceedings and refer them to mediation.
    
39. This affords Negiso Investments more weight than it can bear. Negiso Investments was the first case in which the FTA fell for judicial consideration. It is an important case for the observations made by Sevua J about the concept of fairness for the purposes of the FTA, about when a transaction will be not genuinely mutual or manifestly unfair and about the relief which might be granted on review. However, the context in which those observations were made and the adjournment ordered needs to be remembered. The proceedings in Negiso Investments were apparently instituted without there having been prior mediation. The defendant did not take the point that there had been no prior mediation (and thus that the Court lacked jurisdiction). Rather, the point taken was that the plaintiff was not entitled to a review, because he had not shown that the transaction was not genuinely mutual or was manifestly unfair. Upon concluding that the plaintiff had shown this, and noting that there had been no mediation, Sevua J ordered that there be a mediation before any consideration of what relief should be granted.
    
40. Negiso Investments thus occurred in unusual circumstances. In the ordinary course of events, as in the present case, immediately following the institution of proceedings in which a review under the FTA and the granting of consequential relief was claimed, a court would refer the proceedings to mediation and only list the case for trial after forming the opinion that mediation had failed or, after an adjournment of a mediation, that the parties were unlikely to reach a settlement. First’s submission, if correct, would mean that the trial process would be bifurcated with mediation as an intermediate step. Initially, and without any requirement for prior mediation, a case would proceed to trial for determination of whether the transaction was not genuinely mutual or was manifestly unfair. If the court concluded that it was, it would then have to be adjourned pending mediation. Only thereafter, if the court formed the opinion that mediation had failed or was unlikely to be successful, would a case proceed for determination on review as to what remedies, if any, ought to be granted to a plaintiff.
    
41. Such a result would be conducive to an expensive lawyers picnic, with much attendant delay. It would remove the question as to whether a transaction might be regarded as not genuinely mutual or manifestly unfair as a subject for the parties to take into account when deciding whether or not it was more prudent to compromise the proceedings than litigate them to finality. In relation to most civil litigation, the prospect that a claim might fail or, as the case may be, might succeed, each an aspect of litigation risk, can be powerfully conducive to a party avoiding that risk by compromise. The position for which First contended is so antithetical to the FTA’s emphasis on resolution by mediation of controversy if possible as to mean that it could only be accepted if compelled by clear statutory language. Read together, ss 7 and 8 of the FTA do not mandate such a procedure. Instead, they contemplate just what occurred here. That is that mediation will first occur before a court embarks upon considering whether the transaction is not genuinely mutual or manifestly unfair and, if so, what remedies to grant.
    
42. Another case relied upon by First was Kildi v Finance Corporation Ltd (trading as FINCORP) (2022) N9815. However, on analysis, Kildi merely exemplifies the orthodox position. In Kildi, Shepherd J observed, with respect accurately and unremarkably, that an attempt at a mediated outcome was an essential precondition to the exercise by the court of its review jurisdiction under the FTA. In that case, mediation had been attempted but the court was satisfied that it had failed (see [86]). Otherwise, apart from a pleadings issue, the issues in Kildi (see [58]) were the very same issues which fell for determination in the court below in this case namely, should the transaction be judicially declared to be unfair and unenforceable under the FTA and, if so, is the plaintiff entitled to any of the consequential relief he has claimed? Notably, Sheppard J did not hold that, if a declaration were made, it was necessary for the court to adjourn and order mediation.
    
43. In its submissions on the appeal, First sought to make something of the adequacy of the claim for relief in the statement of claim. This is more than it did at trial. Mr Tambua claimed a review of the transaction under the FTA and such other orders as the court thought fit. He also made various damages claims, none of which succeeded. In lieu of these, the court granted on review a remedy which has the components set out above. There is no injustice entailed in holding First to the way it chose to conduct the trial in the National Court. Further, the quibble about pleadings is not an issue going to jurisdiction to grant that remedy.
    

Not genuinely mutual or manifestly unfair?

44. First’s submissions acknowledged that the primary judge had at least initially adverted to the FTA and to a pertinent authority concerning that Act by which his Honour was bound namely, Bank of South Pacific v Tingke (2014) SC1355. It then pressed a submission premised on the proposition, “even if the Plaintiff’s [Mr Tambua’s] evidence is to be believed”. It is evident from the primary judge’s reasons that his evidence was believed, particularly as to an absence of understanding of what was meant by a flat rate of interest and his understanding that comprehensive insurance meant that the vehicle was fully insured for any loss. First neither sought much less was granted leave to appeal on an issue of fact such as these particular findings. Its further submission that Mr Tambua had made complaint about the transaction only when under financial pressure following the accidents was merely factually argumentative and impermissible in the absence of a grant of leave.
    
45. Although he evidently accepted that Mr Tambua had felt under pressure to sign the agreement in November 2005 (it was signed for First on 6 December) and had wanted to obtain legal advice, his Honour found, consistently with Tingke, that there was no obligation on the part of First to ensure that Mr Tambua sought and obtained independent legal advice and, in the absence of vitiating factors (for example, misrepresentation, non est factum, incapacity, mistake or unilateral variation by the other party) that a person who accepts an offer made in a written document by signing it is bound by all the terms, whether or not he has read them. All that we would add is that it should not be thought that a perception of pressure and absence of independent legal advice may never be relevant to considering whether a particular transaction was not genuinely mutual or was manifestly unfair in terms of s 5 of the FTA. Much might depend upon any evidence as to the standard of education and literacy of the person who signed the agreement.
    
46. We have given anxious consideration to whether First was correct in its submission that the reasoning of the primary judge entailed a departure the FTA. Read in isolation, that are passages in the reasons for judgement which provoke the thought that, although his Honour initially adverted to the FTA, he did not come to resolve it by reference to that Act.
    
47. His Honour expressly adverted to Tingke, which was a case which arose under the FTA, under the hearing “Fairness of Transactions Act” and then returned to that case so as to explain why it was that, on the facts, the present case was distinguishable.
    
48. Ultimately, his Honour summed up why he considered Tingke distinguishable with this conclusion:
    

“The Court finds on an objective view of the contract, for the reasonable Papua New Guinean” 24% flat rate did not mean 41.5% effective rate. Simply put, expressed as 41.5% such a person may say, ‘that means I repay the loan and almost half again – it is too much, I won’t borrow. The Court relies on s 155(4) of the Constitution and finds that it would be inequitable for the defendant to avail itself of the advantage which it obtained by imposing the flat interest rate and not informing the plaintiff of the restriction and terms of the insurance policy.”

49. It would, with respect, have been better if his Honour had expressly addressed the statutory criteria, rather than doing so indirectly via consideration of a case which had addressed those criteria. The reference to s 155(4) of the Constitution was misplaced. It was to s 5 of the FTA to which his Honour ought to have adverted and, if satisfied as to its engagement, to s 8. Any order made under s 8 on a review of a transaction must be one which the court considers conforms with s 4. And “equitable” is a criterion found in the s 4 definition of “fairness”. So it may be that the reference to “inequitable” in relation to whether Mr Tambua had established that occasion had arisen for the court to exercise its review jurisdiction was intended to indicate that occasion existed to grant relief on the review. If so, it was, with respect, infelicitous. It was to s 8 of the FTA to which his Honour ought to have adverted in deciding what consequential relief if any to grant.
    
50. True it is that in Augerea v The Bank South Pacific Ltd (2007) SC 869, at [25], the Court endorsed a view of the FTA that “It merely reinstated and reaffirmed the position at common law which has already been adopted and applied by the courts in our jurisdictions as in the case of Kora Gene v. Motor Vehicles Insurance (PNG) Trust. Applying those principles the Courts have already struck down agreements that were considered unfair because of inequality in the bargaining powers of the parties.” Perhaps, by his use of “inequitable”, his Honour meant nothing more than that this is the effect of the FTA. If so, the means chosen by his Honour is, with respect, rather cryptic.
    
51. The difficulty, however, for First is that the conclusions which his Honour reached as to what was “inequitable” are capable of engaging s 5(2)(a) of the FTA as to flat rate interest and s 5(2)(c) of that Act as to an absence of information about the deductible.
    
52. Further, the FTA does not make satisfaction of criteria in s 5(2) cumulative in order for its deeming effect to be engaged. Engendering the court’s satisfaction as to one is sufficient.
    
53. “Flat” as used in the agreement in relation to reference was not a word the meaning of which was clear in the absence of some specialist knowledge and experience in banking and finance.
    
54. In W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo [2013] NSWSC 1063, at 43 to 45 Sackar J offered this explanation of the difference between a “flat” and a reducible basis for charging interest:
    
    43. Perhaps it is appropriate, to avoid any potential confusion, to briefly and basically articulate the distinction between charging interest on a “flat” basis as opposed to a "reducible" basis.
    44. A “flat” interest rate is a rate applied to the initial principal sum over the whole term of the loan. If interest is charged on a “flat" rate , every payment of interest is calculated by reference to the initial principal sum without regard to the reduction in principal from time to time by virtue of repayments made throughout the term of the loan.
    45. A “reducible” interest rate is a rate applied to the reducing balance of the principal sum owing at each repayment date throughout the term of the loan. If interest is charged on a reducible rate, the interest paid in each instalment is assessed by reference to the principal outstanding from time to time, having regard to the total of any previous payments effecting a reduction to the principal. Interest charged by reference to this approach is sometimes described as interest charged on a “diminishing basis”.

This explanation was cited with approval on the subsequent appeal, qv Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119.

55. Tingke establishes that the adoption of a flat rate of interest for a loan is not, of itself, sufficient to prove that the transaction concerned was either not genuinely mutual or manifestly unfair. True it is that Mr Tambua was not given any explanation as to what was meant by a flat rate of interest or what in the case of this particular transaction that meant in terms of the effective rate of interest he would pay. But he was informed on the face of the agreement about what in practice the adoption of a 24% flat rate meant in terms of the amount he would repay each month, in the absence of default, in respect of the sum which he borrowed. He was informed what was the monthly payment amount and that this would be payable 18 times. The prospective financial commitment was to this extent exposed. The prospective total commitment was not stated. But it was readily ascertainable by simple multiplication (18 x K, 2758.45 + K49,652.10).
    
56. What was not exposed by an absence of explanation of what was meant by a“ flat” interest rate was what that might mean were the default interest rate of 34% “flat” to be triggered via the engagement of cl. 10 of the agreement.
    
57. Further, an absence of information as to a K10,000 deductible in the comprehensive insurance arranged by First deprived Mr Tambua of the knowledge that he would, to that extent, have to self-insure when assuming the risk of a crash in operating the bus. That was relevant to an assessment of whether, having regard to existing or prospective financial resources, he should enter into the transaction. First and Mr Tambua were hardly on an equal footing in entering into the transaction. The arrangement of comprehensive insurance was a material aspect of the transaction. The amount of the premium, relative to the sale price of the bus was over well over one sixth of the sale price. Provision for a deductible by the insured can be a way of reducing the amount of an insurance premium. However, for a premium of such a high proportion of the purchase price, and in the absence of information to the contrary, Mr Tambua was entitled to assume (and he did) that “comprehensive” meant the bus was fully covered in the event of a collision. As used in conjunction with “insurance”, the ordinary meaning of “comprehensive insurance” is “insurance that financially protects any other vehicles and people that are involved in a car accident with you, in addition to yourself” (Cambridge Dictionary). Black’s Law Dictionary (18^th Edition, p 954) offers a more general definition of the term, while recognising that it is commonly employed in the motor vehicle insurance industry, “Insurance that provides coverage against many kinds of losses that may also be insured separately”.
    
58. The point is that it is not a feature of the ordinary meaning of the term “comprehensive insurance” that it necessarily and invariably includes as a feature of such insurance that it will carry with it a deductible to be borne by an insured. Of course the amount of financial protection might be as stated in the terms of a particular policy. There is no necessary antipathy between the presence of provision for a deductible by the insured and an insurance policy which may aptly be characterised as “comprehensive”. However, it was always for First as the party charged with arranging the comprehensive insurance to make the presence of a deductible in the comprehensive policy it arranged known to Mr Tambua.
    
59. In short then, although, with respect, the reasoning of the primary judge is flawed, there was a basis on the findings of fact which he made which comfortably supports a conclusion, reached by reference to s 5 of the FTA, that the transaction was either not genuinely mutual or at least manifestly unfair.
    

Remedies

60. First made a pervasive challenge to the remedy which the primary judge awarded. The best way of detailing that is to extract the relevant grounds of appeal:

(c) The National Court erred in law and fact when entering judgment in favour of the Respondent in the sum of KB0,694.00 together with interest of K81,014.00 when the Respondent contributed only K36,509.03 and the Court should have ordered the refund of K36,509.03.

(d) The National Court erred in law and fact when it calculated the purchase price of the bus at K31,000.00 and comprehensive insurance payment of K11,018.00 which equals to K42,018.00 when the Respondent contributed K36,509.03.

(e) The National Court erred in law and fact when it awarded K11,018.00 in insurance refund with interest at 8% yearly from 6th December 2005 of K11,605.00.

(i) The Respondent had paid K 5,509.02 and the Appellant had assisted with KS,509.03 towards the insurance cost.

...

(g) The National Court erred in law and fact when the Court ordered the Appellant to pay the Respondent the sum of K19,558.00 together with interest of K17,589.00 from 1st August 2007 when the following evidence were before the Court:

1. the bus was sold for K40,000.00 on 21st August 2007, not 1st August 2007.
2. the Respondent still owed the Appellant the sum of K11,940.17 after the bus was sold off and the amount of K40,000.00 had been credited to the Respondent’s loan account.
3. the Court failed to explain the reason why the sum of K19,558.00 was calculated and why interest was calculated at 8% from 1st August 2007 when the bus was sold on 21st August 2007.

61. The FTA required the court to “make such order between the parties as it thinks conforms with section 4”. That was subject to the qualification found in s 8(2) of the FTA. The primary judge did not, as already mentioned, advert to s 8.
    
62. As to s 8, in this case, there could be no doubt that First entered into the agreement in good faith and in reliance on the terms and conditions onset out in the agreement. Likewise, there could be no doubt that First substantially altered its position in reliance on those terms and conditions. It loaned Mr Tambua K36, 509.03 on those terms.
    
63. An absence of reference to s 8 notwithstanding, if the components of the remedy could be seen reasonably to relate to the unfairness found, there would be no occasion to interfere with the order made carrying this remedy into effect. The primary judge did not expose the relationship leaving it to inference as to what that was. We have given earlier in these reasons what we take to be his Honour’s intention.
    
64. This transaction was one in which, had it proceeded to its intended conclusion without intervening default, First would,18 months later, have received from Mr Tambua a total of K49,652.10.
    
65. For his part, Mr Tambua would, 18 months later, have been left with title to the bus unencumbered by the chattel mortgage. As it happens, the fact that the bus was sold in August 2007 for K40,000 gives a reasonable indication of what its value would have been at the end of the contemplated 18 month period of the agreement. In entering into the agreement, Mr Tambua must be taken to have known that, to end up with unencumbered title to the bus in 18 months’ time, he would have initially to outlay K31,000 (being half of the purchase price) and K5,509.02 (being half of the comprehensive insurance premium) from his own funds. And he would have to operate the bus for reward and meet each monthly repayment. This was a commercial risk he was prepared to assume. In assuming that risk, he was comforted by a reasonable understanding of what comprehensive insurance meant.
    
66. The FTA does not exist to eliminate commercial risk. It did not in this case make First Mr Tambua’s insurer against any commercial misjudgement by hm. What the FTA did do was to require that the transaction be genuinely mutual and not manifestly unfair. As we have explained, each of those elements was satisfied in this case on the findings of fact made by the primary judge in light of s 5(2) of the FTA. Mr Tambua came to enter into the transaction without an understanding of what “flat interest” meant, especially in relation to the default rate and that he would have to self-insure for up to K10,000 in the event of any collision.
    
67. In these circumstances, relating the remedy to the unfairness does not yield an outcome with the components identified by the primary judge. It is inherently likely that, without the impact of a deductible, Mr Tambua would not have gone into default and the agreement would have run its ordinary course.
    
68. Instead what occurred is that First obtained the benefit of the sale price of the bus and the greater indebtedness triggered by the engagement of the default rate. Even with the sale of the bus, Mr Tambua was left with an indebtedness of K11,940.17.
    
69. A remedy which relates to the unfairness in this case would therefore adjust the rights of the parties to the agreement such that the agreement had effect as if there had been no default by Mr Tambua, with related, consequential orders.
    
70. Those consequential orders would not comprise the components of the remedy granted by the primary judge. Thinking, reasonably, that he had no deductible, Mr Tambua was always going to outlay half of the purchase price of the bus and insurance premium from his own funds and, pay each other half from the funds loaned to him by First. Given the relationship required by s 8 of the FTA, it was wrong in principle for any part of either to have formed a component of the remedy. Of course it would be different if the conclusion on the facts was that Mr Tambua would not have entered into the transaction at all. But that is not this case.
    
71. First also questioned in any event an absence of clarity as to how the component of K19,588 was derived. It is, with respect, indeed a challenge to ascertain that. His Honour refers in his reasons for judgement to payments of K,19,588. Regard to the statement in respect of the loan discloses annexed to Mr O’Rourke’s affidavit discloses that, in the result, Mr Tambua paid K19,498.45 towards interest owing under the agreement and two further sums, K5 in respect of registration fees and K55.51 in respect of stamp duty. Adding these to the total interest payment comes close to the figure derived by the primary judge. It is not productive further to explore the subject, because it was not appropriate to allow the figure of K19,588 or even the slightly lesser sum calculated as indicated.
    
72. Mr Tambua was always likely to have paid the stamp duty and registration fee. Further, he was always likely to have paid the interest component on the sum borrowed, in the event that the agreement had run its course without default. That interest component was K13,143.07 (K49,652.10, less K36,509.03). An effect of the unfairness was that he paid more interest than he otherwise would have. That amount was K6,355.38 (K19,498.45, less K13,143.07).
    
73. In lieu of the remedy granted by the primary judge, what is necessary to relate the absence of genuine mutuality and manifest unfairness of the transaction is therefore:
    
    • (a) An award of K40,000 (being the value of the bus to which Mr Tambua would have had clear title, as at the what would have been the end of the transaction;
    • (b) An award of K6,355.38, being the interest Mr Tambua paid over and above what he would have paid in any event but for the impact of the unfairness;
    • (c) An award of interest at 8% per annum on these sums, running from 1 August 2007, being about when the transaction would have concluded in the ordinary course to the date of judgement in the National Court namely 18 February 2019 (K40,000 plus K6,355.38 = K46,355.38. Interest at 8% per annum on K46,355.38 for 11.5 years = K42,646.95.

This yields a total judgement sum of K89,002.33.

74. For completeness, we record that we are aware that part of the relief claimed by Mr Tambua was loss of business and profits. In theory, if the loan had run its course in the ordinary way, Mr Tambua would have been left with a bus with which he might have continued to operate his business. However, although as instituted his claim had this aspect, it was never explored in evidence at trial. It is alternatively possible that Mr Tambua, having had the experience of two accidents and of the size of (what he thought was) a comprehensive premium might have decided just to sell the bus, rather than assume the risk of continuing to run the business. If he had adopted that course, he would on the best evidence available have received about K40,000 for the bus. Given the course adopted at trial, in terms of not evidencing a loss of business profits claim, it is not possible to quantify any amount in respect of this aspect of the claim. Indeed, whether Mr Tambua would have continued to operate the bus or just have sold it is speculative. The orders we propose to make recognise that at the very least he would have been left with a bus of a value of K40,000. The award of interest recognises that he has not had the use of his capital as represented by the value of the bus since August 2007.
    
75. As to costs, although First has succeeded in reducing the amount of the judgement awarded by the National Court, it failed in respect of two of the three major subjects of controversy in the case. Each of those subjects occupied a substantial part of oral and written submissions. In these circumstances, although I would not disturb the costs order made by the court below, I would make no order as to costs in respect of the appeal.
    

Orders

1. The appeal be allowed.
2. Save as to paragraph 2 thereof in respect of costs, the orders made by the National Court on 18 February 2019 be set aside.
3. In lieu thereof, it be ordered:
   
   • (a) Pursuant to s 8 of the Fairness of Transactions Act 1993 it is ordered that the transaction between the plaintiff (respondent to the appeal) and the defendant (appellant) represented by a loan and chattel mortgage agreement made on 6 December 2005 take effect as if there had been no event of default and had expired by effluxion of time after the plaintiff had made when due each of the monthly payments for which that agreement provided.
   • (b) There be judgement for the plaintiff against the defendant in the amount of K46,355.38, together with interest of K42,646.95, a total of K89,002.33.
   • (c) From the date of judgement (18 February 2019) the sum of K46,355.38 interest at the rate of 8% per annum be payable by the defendant to the plaintiff, pursuant to the Judicial Proceedings (Debts and Damages) Act with no interest under that Act being payable on the amount of interest awarded pursuant to paragraph (b) of this order.
4. There be no order as to costs in respect of the appeal.
   

________________________________________________________________
Ashurst PNG: Lawyers for the Appellant
Gagma Legal Services: Lawyers for the Respondent