N10840

PAPUA NEW GUINEA
[IN THE NATIONAL COURT JUSTICE]

WS NO.  580 OF 2019 (CC4)

BETWEEN:
NATIONWIDE MICROBANK LIMITED
Plaintiff

AND:
BOSSY PANELBEATING & WORKSHOP LIMITED
Defendant

Waigani:  David J
2024:	7th & 13th May & 7th June

MORTGAGES – claim by mortgagee for outstanding loan and possession of properties the subject of registered mortgages – mortgagor’s default - statutory rights for exercise of power of possession and sale of property the subject of a mortgage – considerations for enforcement of mortgage- mortgages not in evidence.

Cases Cited:
Negiso Investments Ltd v PNGBC (2003) N2439
Rage Augerea v Bank South Pacific Ltd [2007] 1 PNGLR 1
Stephen Asivo v Bank of South Pacific Ltd (2009) N3754
Pija Grannies Ltd v Rural Development Bank Ltd (2011) SC1327
Madang Cocoa Growers Export Co Ltd v National Development Bank Ltd (2011) N4291
Westpac Bank PNG Ltd v Sambeok (2014) N5810
Westpac Bank PNG Ltd v Kopia [2021] N8851

Treatise Cited:
HA Amankwah et al, Land Law in Papua New Guinea, LBC Information Services 2001

Counsel:
Sussie Gigmai, for the Plaintiff/Cross-Defendant
AD Lora, for the Defendant/Cross-Claimant

JUDGMENT

7th June 2024

1.	DAVID J:  INTRODUCTION: This is a decision of the Court after trial on both liability and quantum and consequential relief. The plaintiff/cross-defendant, Nationwide Microbank Limited (Nationwide) instituted these proceedings against the defendant/cross-claimant, Bossy Panelbeating & Workshop Limited (Bossy Panelbeating) by way of writ of summons endorsed with a statement of claim filed on 24 May 2019.  Nationwide claims that Bossy Panelbeating owes it moneys having failed to meet its loan repayment obligations under a vehicle Loan Contract entered into between itself and Bossy Panelbeating dated 31 October 2012 (the Loan Contract) secured by two registered mortgages.  Nationwide pleads; Mortgage No.S.62998 registered on 5 February 2013 which affects Allotment 108 Section 292 Hohola, Port Moresby NCD, State Lease Volume 19 Folio 149 (Allotment 108) and Mortgage No.S.57778 registered on 27 September 2011 which affects Allotment 109 Section 292 Hohola, Port Moresby, NCD, State Lease Volume 19 Folio 150 (Allotment 109).  

2.	It is averred that Bossy Panelbeating has defaulted in its loan repayment obligations under the Loan Contract and registered mortgages and has fallen into arrears. Nationwide has served on Bossy Panelbeating notices of demand and default for the amount due and owing under the Loan Contract and the registered mortgages to be fully settled, but Bossy Panelbeating has failed to meet them. 

3.	Nationwide claims the following relief:

1.	Judgment for damages against Bossy Panelbeating in the liquidated sum of K245,912.54 or an increased amount as at the date of judgment;
2.	Pursuant to Order 12 Rule 30 of the National Court Rules, an order that Bossy Panelbeating deliver up possession of Allotment 108 and Allotment 109 to Nationwide.
3.	Pursuant to Order 13 Rule 3(2) of the National Court Rules, leave be granted to Nationwide for the issue of a writ of possession for the possession of Allotment 108 and Allotment 109.
4.	In addition, and in the alternative, pursuant to Order 14 Rules 33 & 34 of the National Court Rules:

(a)	an order that Bossy Panelbeating deliver up possession of Allotment 108 and Allotment 109 to Nationwide;
(b)	an order that Allotment 108 and Allotment 109 be sold by Nationwide or its agent at market price; and
(c)	an order that Nationwide may apply the proceeds of the sale of Allotment 108 and Allotment 109 to satisfy Nationwide’s claim for damages, costs and interest owing at the time of sale with the balance, if any, to be paid to Bossy Panelbeating.
5.	Pursuant to the Loan Contract, an order that Bossy Panelbeating pay interest to Nationwide on the judgment for damages, from date of the writ of summons up to judgment and thereafter on the judgement debt at the rate of 25% per annum or as deemed fit by the Court.
6.	Costs of the proceedings.

4.	Bossy Panelbeating filed a Defence and an Amended Cross-Claim on 10 September 2019.

5.	In its Defence, Bossy Panelbeating admits signing the Loan Contract and registering mortgages in favour of Nationwide over Allotment 108 and Allotment 109, but denies liability, amongst others, as:

1.	It signed the Loan Contract without understanding it;
2.	It was not given an opportunity to go over the Loan Contract with its lawyer;
3.	It was not given an opportunity for a bank officer to go through the content of the Loan Contract with it; 
4.	It was not given an opportunity to look through the Loan Contract before signing even if the Loan Contract was to be withheld;
5.	It was verbally told by the then Loans Manager, Wayne Honeysett that the outstanding loan without any further interest charged would be paid over five consecutive years; 
6.	It has been making loan repayments from time to time “bit by bit” which was accepted by Nationwide despite service of Notice of Demand and Default Notice;
7.	Nationwide engaged in unconscionable conduct; and
8.	Had the repossessed bus been properly valued and sold by Nationwide at a price more than the outstanding loan at the material time, the sale proceeds would have fully settled the outstanding loan and it would also have received the balance, if any, of the sale proceeds.   

6.	In its cross-claim, Bossy Panelbeating avers that had Nationwide sold its repossessed bus which was at the value of more than K99,000.00 at the time of its repossession at a reasonable price or at market value than K24,000.00 it sold it for, all outstanding arrears would have been settled in full.  It claims general damages against Nationwide in negligence and in the alternative for unconscionable conduct on the part of Nationwide or its officer and in breach of trust reposed in Nationwide by Bossy Panelbeating as a customer plus costs of the cross-claim.  

7.	In its Reply and Defence to Amended Cross-Claim filed on 11 September 2019, Nationwide joined issued with the denials and adopted the admissions in Bossy Panel Beating’s defence.  Nationwide denies liability on the cross-claim.    

EVIDENCE 

8.	Nationwide relies on and reads the Affidavit of Donna Uma sworn and filed 4 July 2023 (Exhibit “P1”) who is  employed by Nationwide as Manager of Recoveries.

9.	Bossy Panelbeating did not call any evidence either to oppose Nationwide’s claim or to substantiate its cross-claim.

CROSS-CLAIM BY BOSSY PANELBEATING

10.	As I have alluded to above, Bossy Panelbeating did not call any evidence to substantiate its cross-claim.  Consequently, the cross-claim is dismissed.

ISSUES

11.	The main issues for my consideration in determining Nationwide’s claim are:

1.	Whether judgment should be entered for Nationwide in the sum of K245,912.54 or an increased amount as claimed in the statement of claim endorsed on the writ of summons?
2.	Whether Nationwide is entitled to a judgment and an order for vacant possession of Allotment 108 and Allotment 109 pursuant to Order 12 Rule 30 of the National Court Rules?
3.	If so, whether Nationwide should have leave to issue a writ of possession for enforcement of the judgment and order for vacant possession pursuant to Order 13 Rule 3(2) of the National Court Rules?
4.	In the alternative, whether the Court should order possession of Allotment 108 and Allotment 109 and order their sale by Nationwide or its agent at market price and apply the proceeds of sale to satisfying Nationwide’s claim and the remainder of the sale proceeds, if any, be paid to Bossy Panelbeating pursuant to Order 14 Rules 33 and 34 of the National Court Rules? 
5.	Whether Nationwide is entitled to an order that interest on the judgement debt be assessed at 25% per annum from the date on which the writ of summons was issued to the date of the judgment and the same rate be applied post-judgment?   

I will address issues; 1 and 5 together; and then 2, 3 and 4 together. 

RELEVANT LAW 

12.	A mortgage is security over land for the repayment of a debt or loan.  On registration of a mortgage, the land the subject of the mortgage becomes liable as security pursuant to s.26(1)(b) of the Land Registration Act.

13.	Where the mortgagor defaults in payment of the money owed or performance of other obligations in accordance with the parties agreement, there are a number of remedies available to the mortgagee to enforce performance and they include the right to; sue on personal covenant, enter into possession, appoint a receiver; sell the land; and enforce foreclosure:  HA Amankwah et al, Land Law in Papua New Guinea, LBC Information Services 2001 at [7.9]-[7.39].  

14.	In Westpac Bank PNG Ltd v Sambeok (2014) N5810 at [4], Cannings J held that a mortgagee which seeks to enforce the mortgage must prove its claim by first specifying the jurisdictional basis of the orders being sought and then substantiating the claim by providing evidence of the following:
1.	The existence of the loan agreement that gave rise to the mortgage.
2.	Identity of the mortgagors.
3.	The nature and extent of the default of the mortgagors.
4.	Adherence to the procedure provided by the mortgage and/or by legislation for it to exercise the power of possession and sale of the property.
5.	Compliance with its duty as mortgagee to act in good faith regarding the mortgagor's interests and make a reasonable effort to sell the property at market value.
6.	Adequate notice, of the intention to take possession of the property and sell it, and of the court proceedings, has been given to not only the mortgagors but other persons who may have a genuine interest in the property.

15.	It is an implied term of any loan agreement that banks have an overriding duty to be reasonable and fair to their customers in loan transactions, at least to those in a relatively weak economic position:  Negiso Investments Ltd v PNGBC (2003) N2439, Rage Augerea v Bank South Pacific Ltd (2007) 1 PNGLR 1, Stephen Asivo v Bank of South Pacific Ltd (2009) N3754, Pija Grannies Ltd v Rural Development Bank Ltd (2011) SC1327, Madang Cocoa Growers Export Co Ltd v National Development Bank Ltd (2011) N4291, Westpac Bank PNG Ltd v Sambeok (2014) N5810.

16.	These authorities also show that a bank must not impose charges and interest rates, on default, that amount to a serious penalty through which the bank tries to unjustly and unreasonably enrich itself.
17.	In Rage Augerea v Bank South Pacific Ltd (2007) 1 PNGLR 1 at 10 paragraph 16, the Supreme Court said:
“In our view, all banks have a duty to maintain and keep accurate records and accounts of their customers and keep the customers regularly and accurately informed of all activity and the status of their accounts on a monthly basis. This is necessary for the sake of transparency, avoiding surprises and to avoid mistakes or any anomalies of the kind identified in this case from being carried over and instead have them detected earlier on and rectified.  This is the least a bank can do given that, they alone have control over their charges and fees and the calculation of interests and application of them to a customer’s account.  A bank’s customer usually has no control over these things.  Where errors or anomalies appear, banks also have a duty to provide a satisfactory explanation for them and correct them without delay and at no costs and penalty against the customer unless the customer forced the error at the first place on the bank.”    
18.	In Rage Augerea v Bank South Pacific Ltd (2007) 1 PNGLR 1 at 14 and 15 paragraph 24, the Supreme Court said that when negotiating and entering into an agreement with a customer, banks have a duty to ensure that customers get independent legal advice. I set out paragraph 24 below:
“Further we do not consider that the Bank and the Augerea’s were in an equal bargaining position at the time of signing the initial loan agreement and the subsequent variations thereto up to even the date of the summary judgment against them.  There was a serious imbalance between the parties.  The Bank had its legal and experience loan or lending team working for it and advancing its cause whilst the Augereas were mere employees with no independent legal advice.  There is no evidence of the Bank requiring and in fact ensuring that the Augereas were legally represented or did have legal advice on the terms of the loan before accepting the loan from the Bank.  Even if they had legal advice, that would not have made any difference because reality of the situation was that the Augerea’s were in a no win position because the banks usually set the interest rates and terms of the loan and are usually not flexible.  A customer would therefore have no choice but to accept such terms.  If that was not the case, the burden was on the Bank to provide evidence of a fairly negotiated loan and mortgage, but it did not provide any such evidence. “ 	

19.	The Land Registration Act expressly grants a mortgagee the power of sale where the mortgagor defaults in payment of any secured money for a period of one month (or other stipulated period) or in the observance of any covenant expressed or implied in a mortgage.  This involves the service of a notice demanding payment or observance of covenant and the power of sale will arise where the default continues for a further month (or other stipulated period) from the date of the notice.

20.	Section 67 of the Land Registration Act relates to the giving of notice of default.  It states:
“NOTICE OF DEFAULT.
(1) Where default is made–
(a) 	for the period of one month in payment of any secured money the creditor may give to the debtor written notice to pay the money then due or owing; or
(b) 	in the observance of a covenant binding on the debtor by virtue of a provision expressed or implied in a mortgage or charge the creditor may give to the debtor written notice to observe the covenant.
(2) The notice referred to in Subsection (1) may be given to the debtor–
(a) 	in person; or
(b) 	by leaving the notice on the land subject to the mortgage or charge; or
(c)	 by leaving the notice at the usual or last-known address in the country of the debtor or other person claiming to be entitled to the secured land.”
21.	Section 68 of the Land Registration Act grants power to a mortgagee to sell land the subject of a mortgage.  It states:

“SALE OF PROPERTY BY MORTGAGEE, ETC.
(1) 	Subject to Section 72, where the default referred to–
(a) 	in Section 67(1)(a), continues for a further month from the date of the notice referred to in that subsection; or
(b) 	in Section 67(1)(b), continues for a month from the date of the notice referred to in that subsection,
the creditor may sell the land the subject of the mortgage or charge or a part of that land.
(2) 	For the purpose of effecting a sale under this section the creditor may execute any document.
(3) 	The land may be sold in the following ways:–
(a)	 altogether or in lots;
(b) 	by public auction or by private contract or partly by public auction and partly by private contract.
(4) 	The creditor may sell the land subject to any conditions of sale which he thinks fit.
(5) 	On a sale under this section the creditor may buy in and resell without being liable for loss occasioned by that purchase or resale.
(6) 	The purchase money arising from a sale under this section shall be applied–
(a) 	firstly, in payment of the expenses occasioned by the sale; and
(b) 	secondly, to the extent that money remains after the payment specified in Paragraph (a)–in payment of a registered mortgage or charge taking precedence to the mortgage or charge to which the power of sale was exercised and to which the sale was not subject; and
(c) 	thirdly, to the extent that money remains after the payment specified in Paragraph (b)–in payment of the creditor; and
(d) 	fourthly, to the extent that money remains after the payment specified in Paragraph (c)–in payment in order of priority, of registered mortgages or charges that are subsequent to the mortgage or charge in relation to which the power of sale was exercised; and
(e) 	finally, to the extent that money remains after the payment specified in Paragraph (d)–in payment to the debtor.

22.	Section 74 of the Land Registration Act provides for the basis of a mortgagee to enter and take possession of a mortgaged property.  It states:

" MORTGAGEE MAY ENTER AND TAKE POSSESSION, ETC.
(1) 	Where default is made in payment of any secured money, a creditor may -
(a) 	enter into possession of the mortgaged or charged land by receiving the rents and profits of the land; or
(b) 	distrain on the occupier or tenant of the land under the power to distrain conferred by Section 75; or
(c) 	bring an action of ejectment to obtain possession of the land.
(2) 	The creditor may bring an action under Subsection (1)(c) before or after exercising a remedy -
(a) 	referred to in this section; or
(b) 	conferred by Section 68.
(3) 	A creditor is entitled by action or other proceedings in the Court to foreclose the right of the debtor to redeem the mortgaged or charged land."

23.	In Westpac Bank PNG Ltd v Kopia [2021] N8851 Anis J observed:

“To proceed with foreclosure, a lender or a mortgagee is required to follow the process, namely, (i), issue letter(s) or notice(s) notifying the debtor of the arrears or unsettled debt (including final warning(s)) to settle the arrears of the loan amount, (ii), issue letter(s) or notice(s) to the debtor or mortgagor (letter of demand) requesting full payment of the loan sum and the arrears, which must be consistent with the requirements under s. 67 of the LRA, (iii), issue letter or notice re Mortgage Foreclosure Demand, as per the procedures set out under s. 68 and 74 of the LRA, and (iv), issue notice(s) to quit (vacate property) again as per the processes set out under ss 68 and 74 of the LRA.”

FINDINGS OF FACT 

24.	From the pleadings, Nationwide’s unrebutted evidence and submissions of counsel, I make the following findings of fact:

1.	Nationwide is a company duly incorporated under the laws of Papua New Guinea.
2.	Nationwide carries on business as a bank under the Banks and Financial Institutions Act 2000.
3.	Bossy Panelbeating is a company duly incorporated under the laws of Papua New Guinea.
4.	Nationwide and Bossy Panelbeating entered into the Loan Contract on 31 October 2012 ( annexure “DU1” to Exhibit “P1”).
5.	The loan obtained by Bossy Panelbeating under the Loan Contract, was for the purchase of a Toyota Coaster Bus (2012 model) from Ela Motors.
6.	The principal terms of the Loan Contract were:
(a)	The principal amount borrowed was K177, 000.00;
(b)	Interest was at a rate of 25 % per annum;
(c)	The period of repayment was 48 months;
(d)	The monthly instalment amount to be paid was K5, 900.00;
(e)	The date the loan was released was October 2012;
(f)	The date of the maturity of the loan was October 2016;
(g)	Bossy Panelbeating and its guarantors were responsible to ensure that the monthly payment of the principal and interest was paid on or before its due date;
(h)	Bossy Panelbeating’s guarantors agreed that if Bossy Panelbeating failed to complete the loan repayment, they were equally responsible and liable for immediately covering the delinquent amount due to Nationwide;
(i)	Any late payment would be charged with a K5.00 penalty fee per day until the delayed amount was paid;
(j)	Nationwide was at liberty to apply Bossy Panelbeating’s savings in accounts maintained by Nationwide against the overdue payments without notice during the term of the loan;
(k)	If any amount remained overdue, Nationwide had the right to collect the said outstanding overdue amount either by cash payment or outright surrender of assets  mortgaged by Bossy Panelbeating against the loan or through cash payments of the guarantors; and
(l)	If Bossy Panelbeating and its guarantors failed to fulfil the terms and conditions of the Loan Contract, Nationwide had the right to take legal action against Bossy Panelbeating and its guarantors and to require them to pay all associated legal fees plus costs of such action.
7.	In accordance with the Loan Contract, Bossy Panelbeating executed registered mortgages namely, S.62998 registered on 5 February 2013 affecting Allotment 108 (annexure “DU3” to Exhibit “P1”) and S.57778 registered on 27 September 2011 affecting Allotment 109 (annexure “DU2” to Exhibit “P1”) in favour of Nationwide.
8.	Bossy Panelbeating defaulted in its repayment loan obligations by failing to make the required monthly instalment payments and the loan account was in arrears by about 60 months as at the date of the issuing of these proceedings.
9.	Nationwide served on Bossy Panelbeating a Notice of Demand dated 17 August 2017 requiring Bossy Panelbeating to settle in full the sum of K189,000.04, the sum then due under the Loan Contract (annexure “DU4” to Exhibit “P1”).  Bossy Panelbeating failed to comply with the Notice of Demand.
10.	Nationwide served on Bossy Panelbeating a Notice of Default dated 8 January 2019, requiring Bossy Panelbeating to settle in full the sum of K181,277.45, the sum then due under the Loan Contract within 30 days from the date of the notice (annexure “DU5” to Exhibit “P1”).  Bossy Panelbeating failed to comply with the Notice of Default. 
11.	Bossy Panelbeating made the following sporadic and belated payments to Nationwide:
(a)	K100.00 on 21 January 2019;
(b)	K100.00 on 11 January 2019;
(c)	K150.00 on 18 January 2019;
(d)	K100.00 on 24 January 2019;
(e)	K90.00 on 8 February 2019; and
(f)	K170.00 on 11 February 2019.
12.	These payments were insufficient to settle the amount demanded in the Notice of Default.
13.	Bossy Panelbeating has failed to make any subsequent payments after 11 February 2019 and the loan account remains in default of the amount demanded in the Notice of Default.
14.	The amount now due and owing by Bossy Panelbeating on the Loan Contract, including interest, costs, expenses and ongoings, payable in accordance with the Loan Contract, as set out in Bossy Panelbeating’s Loan Settlement Statement dated 20 May 2019, is K245,912.54 (annexure “DU6” to Exhibit “P1”).
15.	Nationwide issued a Notice to Vacate to Bossy Panelbeating dated 22 March 2019 requiring Bossy Panelbeating to vacate Allotment 108 and Allotment 109 within 14 days of service of the notice (annexure “DU7” to Exhibit “P1”).

CLAIM FOR LIQUIDATED AMOUNT
Submissions 

25.	Ms. Gigmai for Nationwide submitted that as Nationwide’s claim is not contested by any rebuttal evidence from Bossy Panelbeating and that Nationwide’s claim is supported by the evidence of Donna Uma, judgment be entered in the sum sought in the prayer for relief number 1.
26.	Mr. Lora for Bossy Panelbeating conceded that Bossy Panelbeating has not provided any evidence to contest the entire claim.  However, he contended that it was up to the Court to determine whether Nationwide has substantiated its claim on the required standard. 

Consideration

27.	There is unrebutted evidence that Bossy Panelbeating borrowed the sum of K177,000.00 from Nationwide to purchase of a vehicle at an interest of 25% per annum pursuant to the Loan Contract.  There is uncontested evidence of default by Bossy Panelbeating in the repayment of the loan.   The sum claimed of K245,912.54 (judgment debt) has been substantiated on the balance of probabilities.  Interest at 25% shall apply from the date of issue of the writ of summons to the date of judgment and thereafter on the judgment debt. 

CLAIM FOR POSSESSION

Submissions

28.	Ms. Gimai for Nationwide submits that Nationwide holds two registered mortgages over Allotment 108 and Allotment 109 and is entitled to enforce the mortgages to recover its monies as Bossy Panelbeating has defaulted on its loan obligations under the Loan Contract and that it is exercising its power as mortgagee to take possession of Allotment 108 and Allotment 109 and sell them Nationwide having already issued relevant notices of Demand, Default and Notice to Vacate the properties on Bossy Panel Beating and in breach of its loan obligations, Bossy Panelbeating, has failed to pay the monthly instalments as and when they fell due resulting in the loan falling into arrears.  Ms. Gigmai contends that Nationwide intends to take possession of the properties and sell them at market value, the sale proceeds of which will settle the loan arrears of K245,912.54, offset interest and costs of these proceedings and the balance, if any, be paid to Bossy Panelbeating.

29.	Again Mr. Lora for Bossy Panelbeating conceded that Bossy Panelbeating has not provided any evidence to contest this aspect of Nationwide’s claim, but said it was up to the Court to determine whether Nationwide has substantiated its claim on the required standard. 

Consideration

30.	There is unrebutted evidence that Bossy Panel Beating executed two registered mortgages in favour of Nationwide, one over Allotment 108 and the other over Allotment 109.  However, these mortgages are not in evidence and their terms or covenants are not known. Issues of compliance with procedures including notice requirements under the mortgages and the Land Registration Act as to default and to vacate and deliver up possession cannot, in my view, be properly assessed in the absence of the mortgages. To my mind, the absence of this evidence is fatal.  In the result, Nationwide has failed to discharge its evidentiary burden of proof on the balance of probabilities.  In any event, in Ms. Gigmai’s submissions, she contended that prayer for relief numbers 2, 3 and 4 were sought in the alternative and dependent on the outcome of primary relief number 1 which I have determined in favour of Nationwide. I will refuse and dismiss prayer for relief numbers 2, 3 and 4.

COSTS

31.	Nationwide deserves an order for Bossy Panelbeating to bear its costs of and incidental to the proceedings including the cross-claim. 

ORDERS

32.	The orders of the Court are:

1.	Judgment is entered in favour of Nationwide Microbank Limited for the sum of K245,912.54.
2.	Interest shall be calculated at the rate of 25% per annum from the date of issue of the writ of summons to the date of judgment and thereafter on the judgment debt of K245,912.54.
3.	The relief sought in prayer for relief numbers 2, 3 and 4 are refused and dismissed.  
4.	The cross-claim by Bossy Panel Beating & Workshop Limited is dismissed.
5.	Bossy Panel Beating & Workshop Limited shall bear Nationwide Microbank Limited’s costs of and incidental to the proceedings including the cross-claim which shall, if not agreed, be taxed.
6.	Time is abridged.

Judgment and orders accordingly.
____________________________________________________________
Fiocco & Nutley: Lawyers for the Plaintiff/Cross-Defendant
Andano David Lora: Lawyers for the Defendant/Cross-Claimant