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ANZ Banking Group v Kila Wari [1990] PGNC 4; N801 (16 February 1990)

Unreported National Court Decisions

N801

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

W.S 139 OF 89
AUSTRALIA AND NEW ZEALAND BANKING GROUP (PNG) LTD
V
KILA WARI

Waigani

Salika AJ
21 November 1989
16 February 1990

MORTGAGE - Improperly signed mortgage - Mortgagor in Arrears - Sale - Duty of Mortgagee - Standard of duty in exercising power of sale - Duty to take reasonable care to obtain price equal to market value - Allowing sale to go ahead despite very low offers - Whether mortgagee liable for its own negligence in failing to realise full market price.

DAMAGES - Property valuation - Exercise of power of sale by mortgagee - Mortgagee negligent in failing to realise market value at trial - value of property - Evidence of true market value at trial.

Cases Referred To

Cuckmuere Brick Company Limited v Mutual Finance Limited 1971 2 AII E R 633

Perry v Sidney Phillips & Son (1982 IWLR 1297)

Jarvis v Swan Tours [1972] EWCA Civ 8; 1973 QB 233

Legislation Referred To

Sections 67 & 68 of the Land Registration Act Chapter No. 191. Sections 5 of Interpretations Act Chapter No 3

Cur adv vult

SALIKA AJ: This is a summons by Australia and New Zealand Banking Group (PNG) Ltd (plaintiff) against Kila Wari (defendant).

The plaintiff alleges that it entento an agreement with defendant on or about the 20th August 1984 whereby it (plaintiff) was) was to advance K153,000.00 to the defendant for the purchase of Allotment 43 Section 51, Airvos Avenue, Port Moresby. The agreement was in the form of a registered mortgage Leasehold over the property executed on the 31st October 1984.

It was a term of the agreement that the defendant would repay the loan together with interest accrued thereon.

A further term of the agreement was that the moneys lent by the plaintiff to the defendant would bear interest at the bank overdraft rate from time to time. The rate being 17% per annum. The defendant made several repayments since 1984 and as of 26th January 1989, the outstanding balance was in the sum of K64,807,79. Interest accrued from 29th September 1988 to 26th January 1989 was in the sum of K3,591,95. Further interests are being accrued at the daily rate of K31.15.

The plaintiff alleges that as the defendant was in arrears a notice was served on him dated the 19th January 1987 informing him of his debt and demanding that he pay to the plaintiff the debt and interest, otherwise the plaintiff would exercise its rights and powers to sell the property under clause 15 of the Mortgage deed and S67 and S68 of the Land Registration Act. The plaintiff further alleges that a further notice of default was served on the defendant on the 5th of February 1987. On the 16th of February 1987 the plaintiff caused to advertise in the Post Courier a Tender for a Mortgage Sale of the property and the property was sold at a purchase price of K130,000.00.

Then on the 17th of March 1988 the plaintiff served a notice of demand on the defendant for the repayment of the loan and interest thereon but the defendant has refused or neglected to repay the same.

The plaintiff claims:

(a) ¤,807,78;

(b)&#1b) &#1nterest of K3,591,95;

(c) ҈& Interesterest at d at daily rate of K31.15 from 26nuary untiment ll is;

>

The suhe sum now clow claimedaimed is t is the bahe balance which is allegedly left owing by the defe to taintiving into account the amount received on the sale of the propertyperty and and all eall expensxpenses etc incidental thereto.

At the outset there is no dispute that an advance of K153,000.00 was granted to the defendant by the plaintiff to purchase Allotment 43 Section 51 Airvos Avenue Port Moresby. The defendant admits that it was a term of the agreement that he would repay the loan together with interest accrued thereon. The defendant also admits that he made several repayments. He agrees that the plaintiff on 16th of February 1987 caused to advertise in the Post Courier a Tender for Mortgage sale of Allotment 43 Section 51 Airvos Avenue Port Moresby. The defendant further agrees that the property was sold at a price of K130,000.00.

The defendant denies knowing that the interest on the loan would be at the bank over draft rate of 17% per annum. The defendant also denies he was in Arrears on the 19th January 1987. He further denies having received a notice of demand on the 19th January, 1987 and the notice of default on the 5th of February 1987. He also denies receiving a notice of demand on the 17th March 1988. The defendant denies owing anything to the plaintiff and has himself filed a cross claim for damages for loss of property and nervous shock against the Australia New Zealand Banking Group (PNG) Ltd. Mr Wari Cross claims that the Cross defendant improperly and illegally exercised a mortgagees power of sale in that it sold to a third party his house and land, such sale being in breach of the contract between him and the cross defendant. He further contends that the cross defendant by that sale was in breach of the implied conditions imposed by Sections 67 and 68 of the Land Registration Act Chapter No 191.

The Cross claimant also argues that the provisions of the Mortgage document are Ultra vires the Land Registration Act and are unreasonable. He further argues that the Cross defendant owed a duty of care to him as its customer and alleges negligence on the part of the cross defendant.

Liability is denied by both the defendant and the cross defendant.

The plaintiff/cross defendant did not call any oral evidence. It relies on documents which were tendered in evidence. The document it relies on largely is the Mortgage Deed itself executed on the 12th of November 1984. The plaintiff also relies on a Bank statement dated the 11th of May 1987, two letters written by the Banks manager dated 26th November 1986 and 5th January 1987 and affidavits of Jessuit Kamilius Konia and Aaron Lawson Barriage.

The plaintiff argued that there was a legal and a properly executed Mortgage Deed which provided among either things that the defendant or the mortgagee will on demand in writing pay the bank the amount or balance which shall for the time being be owing or unpaid. The plaintiff says the defendant fell into arrears in repayment of the loan in November 1986. On the 16th of February 1987 the plaintiff caused to advertise for sale by tender the property in the Post Courier as a result of the defendants attitude in not meeting with the mortgage requirements. The plaintiff says demand notices were served on the defendant. In all the plaintiff argues that all requirements under sections 67 and 68 of the Land Registration Act and the mortgage Deed itself where complied with.

The defendant says that in the first place the Mortgage Deed is invalid. The defendant gave evidence that the mortgage was executed towards the end of October 29th and 30th October 1984. The mortgage document in evidence was executed on the 12th of November 1984. He says that the Mortgage is further invalidated by the fact that the attesting witness who signed the document did not sign in the presence of the defendant and that the witness was not known to him. He argues that the Bank cannot now rely on the document for any purpose for that reason alone.

The defendants contention is that had the bank done everything properly it would have obtained a good price and he would owe no money to the bank. But he says the bank had done everything wrong. He argues that the mortgage is wrong, the notices are wrong, the sale was wrong and the bank had not acted with reasonable care towards its customer.

The only tested evidence in court is that of the defendant in relation to the attestation of the mortgage itself. In view of that I have to accept that evidence and accordingly find that the attestation was done improperly in that the attesting witness was not present at the time Mr Wari signed the document and was unknown to him. In relation to the date of execution although Mr Wari gave evidence that he signed at the end of October 1984, I note that an error has been initialled and one of the signatures is similar to that of Mr Kila. I am satisfied that the mortgage was executed on the 12th November 1984. I am not saying Mr Wari lied about the date rather because it is a long time ago when he signed. I think he is mistaken about the exact date of execution. The document speaks for itself.

Having found that the mortgage was improperly attested what is the effect of an improperly attested mortgage? Does it invalidate the whole document? No, I do no think an improper attestation invalidates the mortgage. Section 19 (3) of the Land Registration Act says that where an instrument lodged for registration is not properly attested the Registrar may register it if genuineness of signature is proved to his satisfaction. In this case the Registrar did register the instrument which indicates that he was satisfied of the genuineness of the signature and as such the attestation did not invalidate the instrument. I therefore find that the mortgage executed on the 12th of November 1984 is a valid mortgage document. I must also add that the validity of the mortgage was never questioned until the matter came to court. Would the defendant still say the document was invalid had he not defaulted. In any case there was part performance by the defendant to honour the agreement. In other words he waived through his actions the impropriety in the mortgage deed.

The next argument by the defendant was that the plaintiff improperly exercised its power of sale under sections 67 and 68 of the Land Registration Act.

Section 67 is in these terms:

“67 NoticDeff lt

(1)&#11) &#160re default is made:

(a) ـ&#1or a pr a peri onri one in pt of ecured money the creditor may give notice to the debt or writ written nten noticeotice to p to pay money then due or owing; or

(b) ټ&#in thervancevance ance of a of a covenant binding on the debtor by virtue of a provision expressed or implied in a mortgage and charg credmay give to the debtor written notice to observe the convene.

(2) < &; The notice referrederred to in subsection (1) may be given to the debtor:

(a) &##160;ers p; orn; or

(b) 0;; bthe notice tice on then the land subject to thto the more mortgagetgage or charge; or

(c) by leaving thice a usualast-known addresddress in the country of the debtor or othr other peer person claiming to be entitled to the secured land”.

Subse (1)(ans tf theor des in the payment ofnt of any any secursecured moed money fney for a period of one month then the creditor may give to the debtor written notice to pay the money then due or owing.

The plaintiff argues that the requirement for the notice under subsection (1)(a) is not obligatory but merely discretionary. In other words it argues that it need not give the debtor any notice under that provision. In this case the Bank did endeavour to give the defendant the notice. The notice is annexed as annexure “A” to the affidavit of Jessuit Kamilus Kona sworn on the 21st November 1989. That notice is dated the 19th January 1987. That notice however was addressed to P.O Box 5149 Boroko, whereas the box number on the mortgage document is P.O Box 1549 Boroko. Further more there is uncontested evidence of Mr Wari that he had in early 1986 advised the Bank of his change of address to P O Box 911 Hohola. Mr Wari also gave evidence that he did receive correspondence from the Bank at the Hohola address and that the Bank was aware of his change of address. The plaintiff did not call evidence to the contrary. I must therefore accept Mr Wari’s evidence on that aspect. In any case the notice that was posted by registered mail was returned unclaimed to the Bank. Mr Kona an employee of the Bank in his affidavit admits that fact. The Bank therefore was aware that Mr Wari had not been given or served the notice.

The plaintiff argues that the notice under S67 (1) (a) is not obligatory. It is also my view that the terms of Section 67 (1) (a) is discretionary in itself, however in most cases mortgage documents will themselves govern whether a written notice is obligatory or not. In this case clause 1 of the mortgage clearly required the demand notice to be in writing and the Bank did choose and in fact sent a written notice addressed to a wrong address and returned unserved.

The question of service then comes in. Section 5 of the Interpretation Act Chapter No 3 provides that:

“5. &##160;inganf Seof Service vice by post etc”

1. ҈& w60;e aere a statustatutory provision autho or res a ent to be served by post, (whether the expression served or “the ;the expreexpressionssion “gives” or “send&# or aher esion ison is used used), th), then unless the contrary intention appears the service shall be deemed to be effected by properly addressing, prepaying (except where under a law the document may be sent by post free of charge) then posting the document as a letter”

It is undisputed evidence that the notice was not properly addressed and was returned to the Bank. Clause 30 of the mortgage document provides for the mode of giving demand or notice and one of them is registered mail. The simple fact that the notice was wrongly addressed and then after posting it returned unclaimed to the sender is clear evidence that the notice was not served. I accordingly find that the notice dated 19th January 1987 under Section 67 (1) (a) of the Land Registration Act and Clause 1 of the Mortgage document was not served and I find that the Bank was aware of that fact.

Mr Kassman sought to rely on the fact that Mr Wari knew through the receipt of Bank Statement that he was in arrears. The Bank statement is not a notice of demand. It is merely information from the bank how much you spend and how much you receive and the balance. In other words it shows you the state of your account. The fact that Mr Wari knew of his arrears is not a demand in writing required under Clause 1 of the Mortgage. The bank had that duty to demand in writing from Mr Wari to pay up in accordance with clause 1 of the mortgage. It attempted to but did not serve it. I reject that argument by Mr Kassman.

The plaintiff also sought to rely on letters sent by the bank to the defendant dated 26 November 1986 and 5th January 1987, however those letters were also wrongly addressed. In all circumstances I find that there was no written notice consistent with Section 67(1) (a) of the Land Registration Act and clause 1 of the mortgage document.

It would follow then that all transactions that the Bank entered into were irregular after that. The Bank was in breach of the mortgage document. It therefore could not proceed to exercise its powers of sale.

The final matter was that the property was sold at an undervalue. In 1987, 4 days before the Bank accepted a tender a valuation was done of the property at the request of the Bank. Mr Veraga is a registered valuer of 13 years experience who practises on his own account as Veraga Valuation Centre Pty Ltd valued the property at K160,000.00. That valuation did not include a full inspection of the property. He would not agree on cross examination that the value of the property was below K160,000.00 as at May 1987.

The Bank records tendered to the Court as evidence indicated that the property was valued by the Bank at K182,000.00 in November of 1986. On 14th May 1987 (5 months later) it was valued by Mr Veraga at K160,000.00. That was not a full valuation. On 18th May 1987 (4 days later) the bank accepted the offer of K130,000.00.

The English case of Cuckmere Brick Company Limited and Anor v Mutual Finance Limited [1971] EWCA Civ 9; 1971 2 All E.R. 633 which is applicable in Papua New Guinea sets out that:

“In exercising the power of sale, however, the mortgagee was not merely under a duty to act in good faith, ie honestly and without disregard for the mortgagors interest, but also to take reasonable care to obtain whatever was the true market value of the mortgaged property at the moment he chose to sell it”.

In this case there is no direct evidence that the mortgagee did not act in good faith, however can it be said that the mortgagee took into account the mortgagors interest when he chose to sell the property at an under value? Can it also be said that the mortgagee took reasonable care to obtain the true market value of the property at the time it sold it? The evidence is that the property was valued at K160,000.00 at the minimum and may have been K182,000.00. The Bank sold it for K130,000.00 some K30,000.000 less through the tender process. Mr Wari gave evidence that when he saw the advertisement in the newspaper he rang the manager of the Bank and complained about it and made certain proposals. The Bank did not consider his proposals and went ahead to put the property on tender and sold it. The Bank did not call any oral evidence so Mr Wari’s oral and tested evidence stands alone on that aspect. Applying the principles of the English case here I think the Bank disregarded the mortgagees interest in view of the evidence before the court. I think the Bank should have at least taken note of the mortgagors proposals and considered them instead of turning a blind eye to them and going ahead and selling the property at an undervalue. That kind of approach would have been appropriate to the circumstances of Papua New Guinea in so far as solving disputes by consensus is concerned.

The tenders received for the property ranged from K71,000.00 to K102,000.00. The property was valued at K160,000.00 Mr Wari gave evidence that he rang the relieving manager of the Bank and pointed out to him that mortgage sales did not get good market prices. However his efforts to dissuade the Bank from selling the property did not eventuate and as a result the property was sold undervalue.

I find from this evidence that the Bank failed in its duty to take reasonable care in obtaining the true market value of the property. I take into account the fact that several bids were received; however clearly there were other options open under clause 15 of the Mortgage. The Bank could have rescinded the offers and withdrawn the tender and arrange something else. Whilst I am mindful of the fact that the Bank is not obliged to listen to the defendant, I think there was still room to get the defendant involved to get a good price which he was also agreeable to.

In Summarizing the plaintiff’s claim for damages it must fail because of the fact that it breached clause 1 of the Mortgage Document in not giving a demand notice in writing to the defendant. The defendant never received the demand notice. The letters and the Bank statement did not constitute a demand notice, therefore the Bank whilst it has power of sale under the Mortgage wrongly exercised it I also find that the Bank exercised little care to obtain a fair market price for the property. I accordingly dismiss its claim.

The defendant on the other hand has filed a cross claim against the plaintiff for damages for loss of the property and for loss of reputation and for the mental anguish and nervous shock he suffered. As I have found that the notice of 19th January 1987 was not served on the defendant the Banks actions after that were irregular and illegal. It has now deprived Mr Wari of the property. It follows then that Mr Wari has suffered damages and should be compensated for the wrongful acts of the Bank in, not only selling the property but selling it at an under value.

It is submitted that the value of the property by the Bank itself was over K180,000.00 whilst the private valuer Mr Veraga put the price at K160,000.00 with the qualification that his valuation at the time was not a formal one which meant that a full inspection of the property was not carried out. He further gave evidence that had he done a full inspection the value would have been higher. I am prepared to find that the value may have been more than K160,000.00 because Mr Wari gave evidence that he engaged a company to do improvements on the house and the driveway. Improvements cost him K20,000.00. That is probably why the Banks valuation is higher than Mr Veragas because Mr Dooley from the Bank may have done a full inspection of the property. Mr Veraga would not agree with Mr Kassman that the value of the property was under K160,000.00. Instead he said the value would be higher because of the improvements and refurnishings done to the property. I am, on that evidence prepared to put a price tag on the property at K180,000.00. This would mean the property was sold under value to the tune of K50,000.00. Of that K50,000.00 K30,000.00 would have offset the loan and K20,000 would have been surplus to be paid to Mr Wari.

In relation to the claim for damages for loss of reputation and mental anguish I find that there really is no evidence of loss of reputation. There is no evidence that because of the incident he lost the Chairmanship of PTC Board or lost business or lost his job or did not get loans from other Banks.

There is also no evidence that because of the incident his friends shunned him or avoided him. No independent evidence was called on that aspect.

There is no evidence that his reputation was affected at all. In relation to mental anguish that is a thing that is felt individually and I am sure Mr Wari was mentally affected by what happened. He gave evidence that he was “psychologically affected”. He however, went on to say that he did not break down because of the fact that he is a Christian. From Mr Wari’s own evidence I am satisfied that he did suffer mental anguish and was “psychologically affected”. I accept his evidence on that and find accordingly

I now turn to the question of damages. I have found that Mr Wari suffered damages for the illegal and irregular sale of his property and that he also suffered psychologically. What amount showed the court award to Mr Wari for the loss of the property? Mr Gunson submits that the court grant damages to Mr Wari in the following manner:

(a) “K40,000.00 for lost of the property in respect of its value”

(b) ټ K10,0000,000.00 for loss for nervous shock

(c)&##160;;ټ C/p>

In relation to damages for nervous shock he relies on Perry v Sidney Phillips and Son [1982] IWLR 1297 where the English Court of Appeal decided “that since the distress and discomfort suffered by the plaintiff, as a result of the defendants negligence in failing to report the serious defects in the conditions of the house and his anxiety as to when the repairs would be executed were reasonably foreseeable and since the plaintiffs conduct had been reasonable, the judge had rightly awarded him damages for vexation and discomfort”.

Mr Kassman argues that if the defendant has suffered any loss of reputation, nervous shock or mental anguish, it was his own doing. He submits that had Mr Wari not fallen into arrears this would not have happened. I do agree to an extent that Mr Wari’s problems came about as a result of his own doing however the fact that the Bank went about selling the property thus breaching the provision of Section 67 of the Land Registration Act and Clause 1 of the Mortgage compounded Mr Wari’s mental state. All his worry, anxiety and distress was a result of the Banks failure to comply, should in my view be compensated, not excessively but reasonably. Mr Wari did not deny the fact that he was in arrears. However that is a different matter. The Court here is concerned about how the Bank went about to try to make good the arrears. In doing so it breached the agreement and after it breached the agreement everything it did thereafter was illegal and therefore Mr Wari suffered mental anguish from illegal acts of the Bank. I am prepared to follow English decisions of Perry v. Sidney Phillips and Son (1982) IWLR 1297 and Jarvis v. Swans Tours [1972] EWCA Civ 8; (1973) QB 233 where the Court of Appeal held that plaintiff is entitled to be compensated for his disappointment and distress at the loss of entertainment for enjoyment which had been promised. In that case the plaintiff booked a 15 day Christmas winter sports holiday with the defendants. He did so on the faith of the defendants brochure. He paid the defendants charges. The holiday turned out to be a great disappointment for him. He sued for general damages for inconvenience and loss of benefit: The court in allowing his appeal further said that in a proper case including a contract for a holiday damages can be recovered for mental distress and vexation.

Lord Denning Mr had this to say on page 237 in Jarvis v Swans Tours: “It has often been said that on a breach of contract damages cannot be given for mental distress ..... I think those limitations are out of date. In a proper case damages for mental distress can be recovered in contract just as damages for shock can be recovered in tort”.

In this instant case there was a legal Mortgage agreement in existence. That agreement was binding on the parties. One of the parties broke the terms of the agreement and as a result of the breach by one of the parties the other party suffered mental anguish and I am prepared to award him damages under that head.

For loss of the property I award him K20,000.00 taking into account the fact that the property was valued at K160,000.00 without full inspection. The property was worth about K180,000.00 because Mr Wari spent about K20,000.00 to improve the place. Had the Bank sold the property at its true market value of K180,000.00 the Bank would have got its money of K160,000.00 owing back and the remainder of K20,000.00 would have been Mr Wari’s.

In relation to the mental distress I award him a sum of K500.00 because whilst he was psychologically affected he did not break down. He did not loose his reputation. I think the K500.00 is a reasonable sum in view of the fact that this has worried him for about two years.

In relation to costs I award costs to the defendant/cross claimant.

Lawyer for the Plaintiff: Blake Dawson Waldron (Philip Payne)

Lawyer for the Defendant: Kassman & Co. Lawyers