N2320

PAPUA NEW GUINEA

[In the National Court Justice]

OS. NO. 705 OF 2002

BETWEEN:

BANK OF SOUTH PACIFIC LIMITED
Plaintiff

AND:

THE PUBLIC CURATOR as administrator of the
Estate of the Late GENO IARI
First Defendant

AND:

PAUL WAGUN
Second Defendant

AND:

DAVID MEA
Third Defendant

AND:

LCB HOLDINGS LIMITED
Fourth Defendant

WAIGANI:	KANDAKASI, J.
2002: 	6th December
2003:	20th January

MORTGAGES – Mortgagor in default – Mortgagee exercising his right of possession a day before dead of mortgagor – Whether property subject of mortgage vested in the administration of the deceased (mortgagor’s) estate – Whether grant of letters of administration of the deceased’s estate defeats or takes precedent over a mortgagee’s rights under a mortgage – Administrator of deceased estate acquires no greater rights or interest than that which the deceased had prior to his death – Administration of the deceased’s estate subject to a mortgagee’s rights under the mortgage.

LAND LAW – Competing interests over State Lease – Land lord dying without will but after having given a registered mortgage to a bank mortgagee – Writ of levy of property issued against same property in execution of a judgement debt - Administrator of the deceased’s (mortgagor’s) estate claiming priority in possession and eventual sale of property – Registered mortgage takes priority over other claimants of interest in property including administrator of deceased estates – Rights of all other creditors of deceased estate are secondary to the power and or rights of the administrator of the deceased’s estate to realise the deceased’s estate and rateably distribute the proceeds to all creditors.

WILLS & PROBATE – Deceased dying without will – Property vested in Public Curator – Public Curator granted letters of administration – Duties of Administrator – Administrator under duty not to incur unnecessary expenditure to avoid a reduction in the net value of the deceased’s estate and its ability to meet all its debts – Instructing lawyers other than the Solicitor General and insisting upon exercising his powers over property secured by a mortgage exceeding the value of the property amounts to unnecessary expenditure and ought not to be permitted.

PRACTICE & PROCEDURE – Notice to occupier of property under Order 4 Rule 14 of the National Court Rules – The period stipulated in notice must be allowed to expire before proceedings can be issued to enforce such notice – Where a party does not take any serious objection to action taken to enforce such a notice, the Court may proceed to deal with the matter in the interest of avoiding costs and doing justice to all the parties.

Papua New Guinea Cases Cited:
PNGBC v. Jeff Tole (Unreported judgement of the Supreme Court delivered 27/09/02) SC694.
Golobadana No. 35 Ltd vs. Bank of South Pacific Limited (Unreported judgement delivered 11/11/02) N2309.
The State v. Zachary Gelu & Anor (Unreported and yet to be numbered judgement in WS. 1343 OF 2002, delivered 13/12/02).
PLAR No. 1 of 1980 [1980] PNGLR 326.
Jack Livinai Patterson v. National Capital District Commission (Unreported judgement delivered on 05/10/01) N2145.

Overseas Cases Cited:
Robert Reid & Co. v. The Minister of Public Works (1902) 2 SR(NSW) (L) 405. Partridge v. McIntosh & Sons Ltd. (1933) 49 CLR 453.
Barry v. Heider (1914) 19 CLR 197.
J. & H. Just (Holdings) Pty. Ltd.v. The Bank of New South Wales (1971) 125 CLR 546.

Counsel:
Mr. B. Mills for the Plaintiff
Mr. R. Saulep for the First and Second Defendants
Mr. S. K. Mulina for the Third and Fourth Defendants

20th January 2003

KANDAKASI, J:	By notice of motion filed on 22nd November 2002, the plaintiff (the Bank) is seeking orders requiring the defendants to give vacant possession and a writ of possession over a piece of land over which it has a registered mortgage. The land is described as Allotment 4, Section 8, Matirogo, National Capital District, in Volume 7 Folio 1617 (the property). The estimated value of this land is between K750,000.00 and K850,000.00 (defendant’s submissions).

At the same time, the plaintiff filed and served a Notice to Occupier under O.4 r.14 of the National Court Rules (NCRs). That requires the defendants to give vacant possession or vacate the property within 21 days prior to the date set for a hearing of the originating summons in this matter. The 21 days has not expired. The motion is in effect seeking orders in terms of the substantive relief.

The Bank has taken this action in its capacity as the only registered mortgagee over the property as a result of its mortgagor, a Mr. Geno Iari falling into arrears in excess of over K900,000.00. Mr. Geno Iari is now deceased but the default occurred prior to his death and is continuing. The defendants do not take any issue with the Bank being a registered mortgagee and its powers and rights pertaining to that. Their contention however is that, the Bank did not exercise his right of possession prior to the death of the deceased. They argue that following the death of the deceased, the property became vested in the first and second defendants (the Public Curator) under the Public Curator’s Act (Chp.81) as well as the Wills & Probate Administration Act (Chp.291) (WPAA), following the grant of letters of administration. They therefore argue that the Public Curator should be allowed to sell the property along with the deceased other assets and pay the deceased estate's creditors in their order of priority for registered creditors like the Bank and the others ratably. 

The third and fourth (LCB) defendants come into the scene because the Public Curator in a purported exercise of his powers has authorised the third defendant who is the Managing Director of the fourth Defendant to occupy part of the property (unit 2). LCB has a judgement by consent in the sum of K158, 247.77 against both the deceased’s estate and the Papua New Guinea Banking Corporation (the PNGBC). LCB has taken out a writ of levy of property over the land in pursuance of its judgement. It has then registered a caveat over the property.

PNBGC has since amalgamated with the Bank of South Pacific by reason of which it is the Bank. 

The defendants question the appropriateness of these proceedings without taking it any further. They do that in view of the fact that the 21 days stipulated in the Notice to Occupier has not yet expired and that substantive relief sought is being heard by motion. I suggested to their lawyers that the matter could either be adjourned to allow for the 21 days to expire or the hearing of the Banks application proceeds to minimize costs. They opted for the latter and I proceeded to deal with the matter fully on 6th December 2002 after adjourning for that purpose on 4th December 2002. This was in keeping with the principle that the Courts are there to do substantial justice and should any rule of practice step in the way of that, the Court does have power under O.1 r.7 to dispense with them. See PNGBC v. Jeff Tole (Unreported judgement of the Supreme Court delivered 27/09/02) SC694 for an example of an authority on point. 

Issues

A number of issues are presented in this case. These are as follows:

1.	Did the grant of letters of administration to the Public Curator vest any power of priority in him as against the Bank’s right as a registered mortgagee over the property, the subject of these proceedings?

2.	Whether it matters when the Bank exercised its power of possession?

3.	Subject to answers to the first two questions, is it fair and reasonable to allow the administrator to exercise its powers over the property in view of the only secured creditor’s interest far exceeding its value?

Evidence

The evidence for the Bank is in the affidavit of John Maddison sworn on 1st November 2002 and filed on 22nd November 2002. For the defendants is an affidavit by Paul Wagun sworn on 4th and filed on 5th December 2002 and an affidavit by David Mea sworn and filed on 5th December 2002.

Facts

From the above affidavit evidence, the facts are straightforward. On 14th January 1999, the deceased executed a mortgage in favour of the PNGBC and was registered under the reference S.20685 against the title to the property. There are expressed provisions in the mortgage itself that effectively binds, the mortgagors, heirs and his personal representatives or the administrators of his estate in the event of him dying prior to a redemption of the mortgage. 

Following the amalgamation of PNGBC and Bank of South Pacific it has become the latter. The Registrar of Companies issued a certificate to that effect on 9th April 2002.

All seem to have proceeded well between the Bank and the deceased, until 20th March 2002 when the deceased started to default under the mortgage. Through a number of notices of default served on the deceased prior to his death, the Bank gave notice of its desire to exercise its power of sale under the mortgage. An example of that is a letter dated 23rd November 2000, annexure "JM6" to Mr. Maddison’s affidavit. The deceased appears not to have corrected the default and as such Mr. Maddison says at paragraph 6 of his affidavit, the Bank took possession of the property before 13th November 2000. The next day the deceased died. Consequential on the death of the deceased, the Public Curator became the administrator of the deceased’s estate by grant of letters of administration on 20th March 2002 by this Court. 

A month later on 30th April 2002, the Public Curator in his capacity as administrator of the deceased’s estate authorised an occupation of part of the property (unit 2) by Mr. David Mea the managing director of LCB. The administrator did not inform nor did he seek the approval of the Bank over that arrangement. But later by letter dated 5th June 2002, the administrator informed the Bank’s authorized agent, DAC Developments Limited (DAC) that he failed or refused to recognise the authority of the Bank and its agent, DAC as being entitled to vacant possession of the property. On 7th June 2002, Mai Lawyers acting for and on behalf of Mr. David Mea and LCB informed the Bank and its agent, DAC that vacant possession of the premises would not be delivered to the Bank. The reason advanced was that they had an order, which was being enforced, against the property under a levy for property. Mr. Mea and LCB continue to be on the land up to this time without paying any rents. 

Meanwhile, the Bank has entered into negotiations for sale of the property in pursuance of its power of sale under the mortgage. As is usually the case with all contracts of sale, vacant possession is required. The Bank has requested vacant possession from the defendants and has failed to receive it. It has therefore come to this Court for the orders it seeks. 

The affidavit of Paul Wagun sworn on 4th and file on 5th December 2002 concerns only the capacity in which the deponent has acted and he is being sued. That has been deposed to in support of an application for him to be removed as a party to these proceedings. So that affidavit is of no assistance to this Court on the issues at hand. 

Mr. David Mea’s affidavit sworn and filed on 5th December 2002 confirms his occupancy of unit No. 2 on the authority of the Public Curator in pursuit of his company’s K158,247.77 judgement. He also confirms that a writ for levy of property was taken out but has not yet been executed. He has therefore had a caveat registered against the title under reference S.29848 without specifying when that was done. He then annexes a copy of the caveat, which is marked annexure "D." That appears to have been produced on 28th October 2002. There is no confirmation of that on the title itself, which could be confirmed by an appropriate title search. There is a copy of a title search also marked annexure "D" to Mr. Mea’s affidavit but that relates to a property described as allotment 17 section 63, Hohola, National Capital District and produced on 11th May 2001. I find therefore find that the caveat is not yet on the title to the property. 

Mr. Mea claims that the Public Curator should be allowed to deal with the property so all creditors including his company could have a share on the proceeds of the deceased’s estate rateably. If that is not done, he says, it might extinguish all or other rights of other claimants against the deceased’s estate who have a right over the deceased estate over which the Public Curator has an obligation to satisfy out of the deceased’s estate. That is as far as his evidence goes. There is no other evidence rebutting the evidence for the Bank.

Findings of Fact

In these circumstances, I find that the deceased gave a legal mortgage to the Bank. The mortgage binds the deceased heirs and personal representatives or the administrator of his estate in the event that he dies before redeeming his mortgaged property. The deceased did fall into arrears in 2000 and the Bank did proceeded to exercise his power of sale under the mortgage. In pursuance of that power, the Bank exercised its right of possession by or before 13th November 2002. There were submissions from the bar table that possession has not yet taken place and the death of the deceased preceded the Bank exercising his power of possession. There is no evidence supporting this, so as I said in the course of the arguments, this is not evidence before and I therefore reject it. 

I also find that after the Bank had taken possession, the Public Curator was vested with the power to administer the estate of the deceased. In a purported exercise of that power, he authorised Mr. David Mea to occupy part of the property on what appears to be rent-free arrangement. Consequently, no rents have been paid and there has been no accounting by the Public Curator to the Bank as the only registered mortgagee. 

From the exchange of correspondence between the Bank and the Public Curator’s office which are annexed to Mr. Maddision’s affidavit, I find that the Public Curator claimed that the Bank has failed to disclose details of its mortgage arrangement with the deceased through his office. By now however, I find that he is aware of the mortgage arrangements between the Bank and the deceased prior to the deceased death. I also find that he had reason to know about the mortgage, which could have been revealed by a simple title search with the Department of Lands.

The Relevant Law

A.	A Mortgagee’s Rights and Powers Under a Mortgage

Recently, in Golobadana No. 35 Ltd vs. Bank of South Pacific Limited (Unreported judgement delivered 11/11/02) N2309, I briefly considered the nature of mortgages in the context of a mortgagor’s right of redemption. In that context I noted at page 16 of the judgement that the whole nature of mortgages is a security for the repayment of monies lent and secured by a mortgage. Earlier on at page 15 of the judgement, I noted that the old position at common law enabled a mortgagee to take an absolute and indefeasible interest over the mortgage property upon failure of a mortgagor to pay on the date specified for payments due under the mortgage. This position changed however in equity which gave prominence to a mortgagor’s right to redeem his property which is a fundamental characteristic of all mortgagers. 

As I noted at page 16 of the judgement in the Golobadana case:

"This intervention therefore made it possible for a mortgagor to redeem after the due date for payment had passed. That right has become known as the ‘right to redeem.’ That has come about on the basis that once the mortgagee had been paid all principle and interest and being compensated for any loss suffered by reason of late payment, the lender had received all that he had bargained for and it would be against any good conscious for him to retain the property as well."

Also in the Golobadana case, I said at page 19 about the mortgagee’s right of possession that:

"… the law governing the exercise of that right is also clear. Previously, a mortgagee’s right of possession was not dependent upon prior default by the mortgagor. Therefore the mortgagee could go into possession ‘before the ink is dry on the mortgage unless there is something in the contract, express or by implication whereby he has contracted himself out of that.’ 4-Mates Ltd vs. Dudley Marshall (Properties) Ltd [1957] Ch. 317 at p.320. This has however all changed by legislation a replica of which is s.74 of our Land Registration (Chp. 191). The legislative change saw a removal of the mortgage’s right of immediate possession to make it dependent upon there being first a default in payment.

The law presently is as s.74 of the Land Registration Act states. That right may be exercised either by entering into occupation of the mortgage premises or taking over the control or management of the premises for the collection of rents and profits by the mortgagee. Noiyes vs. Pollock [1886] 32 Ch. D. 73."

As I noted in the Golobadana case, the nature of mortgages is accepted worldwide. A mortgage is a transaction in which an interest in a property is given as security for the repayment of money lent to the person giving the mortgage. The object here is to avoid the uncertainty or the risk of no repayment of the monies lent to a person who might subsequently be in no position to make any repayments of the monies previously lent. A number of factors either individually or in combination may contribute to a mortgagor’s inability to repay the monies lent. He might lose his job or if he is a businessman his business might go broke or bad health might visit him and even death in the case of a natural person. 

Mortgages are recognised under the Land Registration Act (Chp.191) (LRA) and Part VII sections 61-81 is devoted to that. These provisions give priority to registered mortgages as against unregistered mortgages or other unregistered interests. The Act is silent as to the kind of risk factors mortgages are intended to protect against. I am therefore of the view that in the absence of any specific legislation providing to the contrary, the kind of factors I have just mentioned is the kind of factors or risks mortgages are intended to protect. This is for the benefit of both a mortgagor and a mortgagee, in that the mortgagor obtains a loan and benefits from it and the mortgagee is guaranteed repayment in terms of the mortgage. This in turn helps business and individuals to develop in their undertakings and assets, which in turn helps economic growth for the whole country.

This is critically important for a young developing nation like Papua New Guinea for the advancement of our peoples through the assistance of the banking industry. One of the principle businesses for the banks is the lending of money to their clients in return for a mortgage over their client’s property or assets. Without this kind of business, there could be no economic and social advancement in the country. 

It is argued for the Public Curator that s.67 (1) of the WPAA removes the priority given to registered mortgages under the LRA, upon the death of a mortgagor and the appointment of an administrator of his estate as in this case. As this affects the true nature of mortgagors and their intended purposes as recognised under the LRA it calls for a close examination of the provisions relied upon.

Section 67 (1) states:

"67.	Priorities of debts.

(1)	Subject to Subsection (2) and to the Insolvency Act, in the administration of the estate of a deceased person no debt or liability of the person is entitled to a priority or preference by reason only of the fact that the debt or liability is secured by or arises under a bond, deed or other instrument under seal or is otherwise made or constituted a specialty debt, but all the creditors, both specialty and simple contract creditors, of the person stand in equal degree and shall be paid accordingly out of the assets, legal and equitable, of the deceased person, notwithstanding any law to the contrary.
(2)	Subsection (1) does not prejudice or affect any lien, charge or other security that a creditor holds or to which he is entitled for payment of his debt.
(3)	In the administration of the estate of a deceased person, debts of record, whether of record in his lifetime or obtained against his executor or administrator for debts incurred by the deceased, rank in the same degree as if they were specialty or simple contract debts.
(4)	A person who has obtained or obtains representation of a deceased person shall pay, in due course of administration, all the debts of the person rateably and proportionably and according to the priority required by law, and without preferring his own debt by reason of his having obtained the representation."

Without making any specific reference to any of the words used in s.67 (1) and (2), Mr. Saulep argues for the Public Curator that this provision imposes a duty upon the administrator of the deceased estate to treat all creditors equally. But that he submits is subject to subsection (2). He then merely states what subsection (2) states without elaborating on its meaning and effect. He goes on to submit that, s.67 (2) does not override the effect of s.51 (3) of the WPAA where an estate of a deceased is insolvent. In such a case, he submits the Act, must override any contractual arrangements.

Section 51 (3) provides:

"(3)	Where the estate of the deceased is known to be insolvent, the grant of representation in respect of the real and personal estate shall not be severed except as regards a trust estate."

Without the support of any case authority, Mr. Saulep argues that the object of s.51 (3) is to assist an administrator to administer an insolvent deceased’s estate with a view to satisfying the creditors of the deceased estate. The clear indication of this is that all assets, real and personal are taken into account in the distribution for the satisfaction of creditors. For this reason, real and personal properties of the deceased’s insolvent estate cannot be severed or dealt with separately. He then submits that the effect of s. 67(1) and (2) and s.51 (3) does not deny a secured creditor its status as a secured creditor. A secured creditor will still be entitled to be the first to receive payments from the administrator after he has sold all of the assets of the deceased. Other creditors will then be paid proportionally and rateably. He accepts that the right of a secured creditor is a right of first priority in payment. He does argue however that, this does not entitle the creditor a right of possession of a specific property of a deceased estate. 

Mr. Mulina for the third and fourth defendants endorses the arguments of Mr. Saulep without any improvement. The only other point he tried to labour on was his client’s inability to secure appropriate evidence to rebut that of the Banks. I refused to entertain that argument because, he has had sufficient time and he did not apply for an adjournment or make out a case for an adjournment.

Clear in the arguments for the defendants is their recognition of the Bank’s right as a secured creditor. As such, it stands first in priority to receive payments from the administrator of the deceased’s estate. The other unsecured creditors will look upon the administrator for a proportionate and rateable distribution or payment of what is owed to them from the balance of the proceeds remaining from the realisation of the deceased’s estate. 

Also the defendants take no serious issue on the question of whether the deceased estate is insolvent. The parties proceed on the basis that the deceased estate is insolvent. Hence the reference to s. 51(3) of the WPAA. The combined effects of s.67 (1) and (2) and s. 51(3) makes it necessary for us to consider the relevant provisions of the Insolvency Act 1951.

Section 105 of the Insolvency Act is relevant. It states:

"105.	Transfers subject to rights of redemption, mortgages, etc.

(1)	Where the insolvent has made a transfer, assurance, delivery, deposit or pledge of any deeds, writings, goods or chattels subject to a condition for redemption or redelivery on payment of money or otherwise at a future day that has not arrived at the date of presenting the petition, the trustee—
(a)	may, before the time appointed for the redemption has arrived, make payment or tender of money or other performance according to the condition, as fully as the insolvent could have done at the time so appointed; and
(b)	on the tender, payment or other performance is entitled—
(i)	to have and receive the deeds, writings, goods or chattels so transferred, assured, delivered, deposited or pledged; and
(ii)	to recover them from the person to whom they were transferred, assured, delivered, deposited or pledged or any other person in whose possession they may be and who has notice of the condition.
(2)	Where a debt or sum of money due to or by an insolvent is charged on any land by way of equitable mortgage, the Court may—
(a)	on the application of the trustee or equitable mortgagee; and
(b)	on notice to all parties interested,
make an order for the sale of the land.
(3)	With the leave of the Court, a mortgagee may bid at the sale of any mortgaged property."
							(Emphasis added).

It is settled law that the Courts must interpret and apply provisions of statutes in such a way to give effect to the intention of Parliament. As I recently said in The State v. Zachary Gelu & Anor (Unreported and yet to be numbered judgement in WS. 1343 OF 2002, delivered 13/12/02), unless Parliament makes itself plainly clear as to its intent, the Courts have a duty to adopt a fair large and liberal interpretation of words used in a statute to ascertain and give effect to Parliament’s intent. I said that on the basis of a large number of both Supreme and National Court judgements. The list starts with PLAR No. 1 of 1980 [1980] PNGLR 326 per Wilson J and ends with Jack Livinai Patterson v. National Capital District Commission (Unreported judgement delivered on 05/10/01) N2145, which is the latest authority on point.

So the question to ask is what is Parliament’s intention behind ss.51 (3) and 67 (1) and (2) of the WPAA and s.105 of the Insolvency Act? In other words, did Parliament intent to give priority to the administration of an insolvent deceased estate as against a registered mortgagee’s right to enforce its security following the death of a mortgagor? 

A plain reading of the words used in s. 67(1) seems to suggest that all creditors of a deceased estate stand on equal footing in the administration of a deceased estate. This applies to all creditors whether or not their interests are secured under "a bond, deed or other instrument under seal or is otherwise made or constituted a specialty debt". But these are subject to subsection (2) and the Insolvency Act. 

Subsection (2) seems to say plainly again that, what is stated in subsection (1) does "not prejudice or affect any lien, charge or other security that a creditor holds or to which he is entitled for payment of his debt."

Mortgages, bonds, deeds or other instruments under seal or is otherwise made or constituted a specialty debt have one thing in common. They are all forms of security for the repayment of monies lent or advanced and take the form of a charge on the assets of the borrower or recipient of the monies lent or advanced. Some of these get registered either as mortgages or bills of sales. These types of security fall into either of two broad categories, registered or unregistered securities. Those falling under the former stand first in priority going by the first in time to be paid when it comes to their enforcement as against unregistered ones. Those falling in the latter are still enforceable in equity going again by the first in time of their creation first. But as noted, if there is a registered one and there is a competition between that and one that is not registered, the registered takes priority. See Robert Reid & Co. v. The Minister of Public Works (1902) 2 SR(NSW) (L) 405 at 416 and Partridge v. McIntosh & Sons Ltd. (1933) 49 CLR 453 at 466, for discussions on the nature of interest a registered mortgage creates. See also Barry v. Heider (1914) 19 CLR 197 at 213, 216 and J. & H. Just (Holdings) Pty. Ltd.v. The Bank of New South Wales (1971) 125 CLR 546, as to the opposite of registered mortgages.

Section 67 (1) and (2) make no distinction between registered and unregistered securities. I am therefore of the view that they are clearly talking about securities generally. Hence it appears clear to me that Parliament did not intent to change the legal position for a registered, security, charge or lien which are normally referred to as legal mortgages or charges. Instead it decided to place all unregistered securities (equitable mortgages or charges) in the same standing regarding the satisfaction of their debts by the administrator of a deceased estate. If Parliament considered it necessary to treat registered securities in the same way it could have in my view used words like " registered or unregistered" or "whether registered or not" in s. 67 (1). Such words could have been used straight after the words "specialty and simple contract creditors" and before the words "of the person stand in equal degree." However, Parliament did not use such words. Consequently I am of the view that Parliament did not intent to change the legal position in relation to registered securities or charges.

I consider s. 105 (1), (2) and (3) of the Insolvency Act strengthens this view. Subsection (1) authorises a trustee to redeem "a transfer, assurance, delivery, deposit or pledge of any deeds, writings, goods or chattels subject to a condition for redemption or redelivery on payment of money" on "a future day that has not arrived at the date of presenting of a petition" for insolvency given or made by an insolvent. On payment of the redemption money, the trustee recovers the property the subject of the transfer, assurance or the pledge or as the case might be.

The next subsection (2) deals specifically with a "charged on any land by way of equitable mortgage". This provision authorises the trustee of an insolvent to apply to the Court on notice to those that might be affected to sell the land. Once again the focus here seem to be on unregistered mortgages which are better known as equitable mortgages because they are not legally recognised. Only equity, capable of doing what the law cannot, do recognizes them and enforces them subject to any legal mortgage that takes priority. This is understandable, because a legal mortgage can be enforced without the need for a Court order. 

Now viewing the provisions of ss.67 (1) and (2), 51(3) of the WPAA and s. 105 (1) and (2) of the Insolvency Act, together, the intention of Parliament appears clearly to be this. On the death of a person all his creditors other than those registered, stand on an equal footing for a repayment of their debts by the deceased estate. If the deceased estate is insolvent, but has assets which have security or charges against them, the administrator as a trustee of the insolvent estate must discharge the monies or the security against the assets to redeem them and to enable them to become part of the estate. If the charge or security is over land then it is a mortgage. If the mortgage is registered, the mortgagee would be at liberty to exercise its powers under the mortgage. If however, it is not a registered mortgage, it becomes an equitable mortgage, in which case s.105 (2) of the Insolvency Act would apply. That means in effect that the administrator of the deceased estate will have to go to Court with notice to the mortgagee and any other person that might be affected for leave to have the land sold. 

The above view is further strengthened when one considers the above provisions in the context of a deceased dying intestate as in this case. In such a case s.69 (1) and (2) (a) and (c) of the WPAA is relevant. These provisions read:

"69. Trust for sale on intestacy. 

(1)	In this section, "property" means every beneficial interest, including rights of entry and reverter, of the intestate in property that he could, if of full age and capacity, have disposed of by his will, otherwise than in right of a power of appointment.

(2)	On the death of a person intestate as to any property, the property shall be held by his personal representative
(a)	as to the real estate (including chattels real)—on trust to sell it; and
(b)	as to the personal estate—on trust to call in, sell and convert into money such part of it as does not consist of money,
with power to postpone the sale and conversion for such period as the personal representative, without being liable to account, thinks proper, and so that—
(c)	any reversionary interest shall not be sold until it falls into possession, unless the personal representative sees special reason for sale; and
(d)	unless required for purposes of administration owing to want of other assets, personal chattels shall not be sold except for some special reason."
(Emphasis supplied)

These provisions make it clear that, where a deceased dies intestate, his properties both real and personal become entrusted in the hands of the administrator of his estate. The ultimate aim here is to convert by sale all non-money properties into money for purposes of distribution under the WPAA. However where any of the property includes "an interest in reversionary interest" that cannot "be sold until it falls into possession" or "unless the personal representative sees special reason for sale." 

As we already noted, one of the principle features of mortgages is that they are only a security. The mortgagor has the right to redeem his property on the repayment of all that he was lent together with the agreed interest component. In other words, the property reverts back to the mortgagor upon a full repayment of monies lent with the agreed interest component. It follows therefore that, where a deceased dies intestate with a mortgage over all or any of its assets, the property the subject of the mortgage cannot be sold unless reversion has properly taken place or the administrator sees special reason to sell (s.69 (1) and (2)) the properties covered in the mortgage. But if the property in question is land which is the subject of an equitable mortgage, and the deceased estate is insolvent as in this case, the administrator can sell if he has first gone to the Court and obtained leave to do so (s.105 (2) Insolvency Act).

The total effect of all of the provisions mentioned above is very clear. Legal or registered securities including mortgages are left to take their normal consequence at law. When a debtor becomes insolvent or dies or is otherwise unable to meet his creditors demands, it means he or she is not in a position to meet the repayment schedules under a loan and or pay the balance of whatever is owed. The mortgagee will then be at liberty to enforce its security under the mortgage, without the need for a Court order for it to do so. 

Application of the Law to the Present Case

In the present case, the decease has died intestate. There is no evidence of the available funds if any to meet the demands against the deceased estate. The evidence discloses that the deceased estate has only two properties. One of that is the subject of these proceedings and has a legal mortgage against it. The estimated value of the two properties is put between K750,000.00 to K850,000.00 (per Mr. Saulep’s written submissions). The Bank is owed as at 12th November 2002, K901, 492.15 with interest accruing at K340.00 per day. The other known creditor is the fourth defendant in terms of the consent judgement for K158,247.77, most of which is yet to be satisfied. Clearly therefore, the deceased estate is insolvent within the meaning of s. 21(1) of the Insolvency Act. 

Given these, there can be no dispute that ss. 67 (1) and (2), 69 (1) and (2) of the WPAA and s.105 (1) and (2) of the Insolvency Act applies to all demands as against the deceased estate. Nevertheless, they do not apply to the Bank’s legal or registered mortgage, by reason of such mortgages not being covered by any of these provisions. Indeed, the mortgage itself binds the mortgagor’s (the deceased’s) heirs and the administrators of his estate in the event of his death.

Even if they did apply as against the Bank’s mortgage, the property secured by the mortgage could not be sold for the purposes of distribution under the WPAA by reason of s. 69 (1) and (2) of the same Act, unless the administrator sees a special reason to sell. There is no evidence before me of what if any special reason the administrator sees to sell before reversion or redemption takes place. Further, s.105 (1) would prevent the Public Curator from selling the property unless he is able to fully settle the Banks debt so as to redeem and repossess the property. There is no evidence of the Public Curator having paid or being in a position to pay the Bank all that is owed to it. 

If what is submitted for the defence was allowed to happen, then quite apart from that not being specifically provided for, two consequences would follow. First, the deceased’s estate would incur the expenses related to disposing off the assets. This would no doubt reduce the net value of the deceased’s estate after the realisation of his assets and therefore reduce the amount that would be available to distribute to the creditors of the deceased estate. The balance remaining will then be paid to the Bank first. Since the amounts owed to the Bank far exceeds the total of the value of the deceased estate, the net balance after allowing for the allowable deductions from the proceeds toward a realization of the deceased assets will all go to the Bank. Even then, the estate will still owe the Bank much more. Added to that will be the other unsecured creditors. 

It makes no economic sense for the Public Curator as administrator of the deceased estate therefore, to incur the expenses associated to realising the property the subject of these proceedings. I am of the firm view that an administrator of a deceased estate is in effect a trustee. As such he is under a duty or obligation if not required by any written law, it is inherent in the job itself to ensure that all unnecessary expenditure is avoided to save all income from the assets of the deceased to satisfy all the liabilities of the estate.

In this case, I am of the view that the Public Curator by his conduct has shown a readiness to incur expenses against the estate when they could easily be avoided. The clearest example of this is the fact that he has engaged private lawyers when he could engage the services of the Solicitor General. There is no evidence before me as to why the Solicitor General could not be engaged. The Public Curator has then take steps that are not strictly speaking available to him under the relevant legislative provisions as noted above, which will only mean further unnecessary expenditure against the deceased estate. Further the Public Curator has allowed LCB to occupy part of the property without any rent. This again does not improve on the deceased estate’s financial position but shuts out any prospect of raising any revenue. Furthermore, it has failed to account to the Bank when there exists clearly a legal mortgage in the Bank’s favour. I am therefore of the view that, it is not in the best interest of the deceased estate for the Public Curator to insist upon the property being brought under its administration.

Consequently, I would remain unmoved against the orders sought by the Bank even if the provision of the two Acts covered here did also include legal mortgages and properties having legal charges over them. This is to avoid the deceased estate’s net assets and therefore the net proceeds available for distribution being reduce. This is necessary both in fairness and in equity if not in law. 

This would leave the Public Curator to proceed as against the other properties of the deceased. However, I would direct and order in the exercise of the inherent powers vested in me by s. 155 (4) of the Constitution, that the Public Curator cease the engagement of private lawyers and use the free legal services available to him through the Solicitor General to minimize costs. At the same time, I would direct him not to incur any further unnecessary expenses in view of the fact that the total of the claims against the deceased estate far exceeds its value. If he is allowing early occupation or use of the other properties or assets of the deceased it must be of some tangible benefit to the estate in terms of rents or user fees.

Once the Public Curator is able to sell of the other properties and or assets of the deceased, he would be at liberty to distribute the proceeds in accordance with the requirements of the WPAA. Both the LCB, the only other known creditor and the Bank (for the balance of the monies due to it under its legal mortgage) are entitled to look unto the Public Curator to meet their claims ratably as is dictated by s. 67 (1) and (2) of the WPAA.

The second consequence that would follow from the defendant’s submission, is a removal of the rights of a legal mortgagee. The rights of a legal mortgagee are well settled and have been know and applied over large number of years. They have therefore, become well enshrined in the common law. A latest recognizance and application of some of these rights and the principles relative to them is the Golobadana case.

It is settled law that if Parliament wishes to depart from a well-known principle of common law, there must be specific and clear legislative expression of that. In the present case there is no clear legislation expression of an intention to change the normal consequence that should follow where a legal mortgagor is unable to meet his repayment schedule or fully repay his debt. As I indicated earlier, mortgages are a key business for the banking industry. It is the mortgages that encourage the banks to lend money to individuals, businesses and other organizations. If the right and ability of a legal mortgagee is to be rendered non existent or made secondary to the powers and duties of an administrator of a deceased estate with a legal mortgage, they would have a serious impact on the ability of the banks to lend money. This would particularly be the case for natural persons, who are already complaining about the existing requirements for the grant of a bank loan.

If Parliament intended to achieve that end, then this would be clearly mischievous against its own people. Certainly, Parliament could not have easily allowed for such a mischief. For Parliament exists not to do mischief to its people but to enact laws to remedy or avoid a mischief. That being the case, it is not reasonable to accept that Parliament intended to allow such mischief by inference. This Court is under a duty to interpret and apply the law as enacted by Parliament adopting a approach that avoids such mischief: see PLAR No. 1 of 1980 (supra) and the other cases that follow it.

For these reasons I reject the suggestion that legal mortgages come under the same treatment as other securities under s. 67 (1) and (2) of the WPAA and therefore, the powers of an administrator of a deceased estate takes priority.

This leaves us to deal with the remaining question of whether it matters when a mortgagee exercises his powers? On the basis of the above discussion the answer is simply no for a legal mortgage. However, if a mortgage is not registered and is therefore an equitable mortgage, it would, in my view, certainly matter when a mortgagee exercises his rights and or powers.

If an equitable mortgagee, has not yet exercise his powers under the mortgage prior to the death of his mortgagor, it would fall in the same category as other securities. The provisions of ss. 67(1) and (2), 69(1) and (2) of the WPAA and s.105 (1) and (2) of the Insolvency Act would apply. If however, such a mortgagee had exercised its powers under the mortgage prior to the demise of the deceased and before the grant of any letters of administration, the property the subject of the mortgage is not available as part of the deceased estate. However, the estate would be interested in any residual from the proceeds of a sale of the mortgaged property.

In the present case, if the mortgage was an equitable mortgage, it would not be available as part of the deceased estate. That is on my finding on the evidence before me that, the Bank had exercise its powers prior to the death of the deceased and prior to the grant of letters of administration in favour of the Public Curator. That was proceeded by the deceased defaulting under the mortgage prior to his death. Notices and or warnings of the mortgagee exercising its powers under the mortgage were also given prior to his demise. The Bank therefore, proceeded to exercise its power of sale for which purpose it requires vacant possession. The continued occupation of the property by the third and fourth defendants on the instructions of the Public Curator amounts to trespassing on the property, despite lawful request for them to vacate the premises.

Summary

In summary I answer each of the questions raised as follows:

1.	The relevant provisions of WPAA, ss. 67(1) and (2) and 69(1) and (2) and the Insolvency Act, s.105 (1) and (2) do not cover legal mortgages. Therefore, they preserve the parties’ powers and duties under such a mortgage. Hence, the grant of letters of administration in favour of the Public Curator in this case did not vest any power of priority over the Banks right as a legal mortgagee over the property.
 
2.	Since the Bank had a legal mortgage, it does not really matter when it exercised its power of possession and its other rights and powers as a mortgagee. If however, the Bank had an equitable mortgage it would have mattered as to when it exercised its powers. For if the Bank did not exercise its powers before the demise of the deceased and the grant of letters of administration, its security in the mortgage would have been on an equal footing with other unregistered securities. Consequently, the provisions of ss.67 (1) and (2) and 69 (1) and (2) of the WPAA and s. 105 (1) and (2) of the Insolvency Act would apply.

3.	The steps that the Public Curator has taken to date since his appointment show a case of failure in its duty to realize the deceased’s assets as best as he could without incurring unnecessary expenses and raise some income for the estate from the property. Given this and the fact that the debt due and owing to the Bank far exceeds the estate’s gross total, it would not be reasonable as against the estate and its creditors to allow the Public Curator to incur further unnecessary expenditure which will reduce the net value of the estate after a realization of the assets.

For these reasons, I make orders in terms of paragraphs 1, 2, 3, 4 and 7 of the Bank’s notice of motion filed on 22nd November 2002. I also order costs on a party party/party basis and not on an indemnity basis. The reason is, this is the first time such a case as come before the Courts in the country, and the issues considered here are being considered for the first time.
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Lawyers for the Plaintiff:				Blake Dawson Waldron Lawyers.
Lawyers for the First & Second Defendants:		Saulep Lawyers.
Lawyers for the third & Fourth Defendants:		Samuel K. Mulina & Co Lawyers.