N11143
PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

OS. NO. 613 OF 2018

BETWEEN
NATIONAL DEVELOPMENT BANK LIMITED
Plaintiff/First Cross-Defendant

AND
THE SHERIFF OF PAPUA NEW GUINEA, OFFICE OF THE SHERIFF, NATIONAL AND SUPREME COURT OF PAPUA NEW GUINEA
First Defendant-Cross-Claimant

AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Defendant/Second Cross-Defendant

AND
KERRY LERO MAMAI
Third Defendant/Third Cross-Defendant)

AND
ERIC HAIARA & KURUBU IPARA in their capacity as ADMINISTRATORS of the Estate of PETER PEPENDO
Fourth Defendant/Fourth Cross-Defendant

AND
DICKSON INVESTMENT LIMITED
Fifth Defendant/Fifth Cross-Defendant

WAIGANI: MAKAIL J
2021: 19 AUGUST; 4 FEBRUARY 2025

MORTGAGE – Mortgage of property – Registered mortgagee – Secured creditor – Settlement of debt – Interest of registered mortgagee ranked higher in order of ranking than unsecured creditor

ENFORCEMENT OF COURT ORDER – Writ of levy – Power of Sherriff to enforce court order – Judgment debt – Judgment creditor – Unsecured creditor – Sherriff Act, 1973 – Section 3

Cases cited
AGC (Pacific) Limited v Registrar of Titles (2009) N3807
Bank of South Pacific Limited v The Public Curator of PNG, David Mea & Ors (2003) N2320

Counsel
Mr Clayton Joseph for the plaintiff/first cross-defendant 
Ms Moga Hane-Nou for the first defendant/cross-claimant
No appearances for the second, fourth & fifth defendants/cross-defendants 
Mr Gibson Bon for the third defendant/third cross-defendant 

JUDGMENT

1.	MAKAIL J:  The plaintiff commenced these originating summons proceedings in its amended form seeking the following relief:   

(a)	Pursuant to Section 155(4) of the Constitution and/or Order 12, rule 1 of the National Court Rules (“NCR”), a declaration that the Writ of Levy of Property filed on 4th September 2017 in National Court proceedings WS No 84 of 2017 in so far as it relates to State Lease Volume 81 Folio 125 in respect of the land known as Allotment 31, Section 117 Hohola, City of Port Moresby, National Capital District (“the Property”) is null and void and is unenforceable.

(b)	Pursuant to Section 155(4) of the Constitution and/or Order 12, rule 1 and/or Order 14, rule 10(1) of the NCR, a declaration that the Seizure Notice dated 3rd November 2017 issued by the first defendant in respect of the property is null and void and is unenforceable.

(c)	Pursuant to Order 12, rule 1 and/or Order 14, rule 10(1) of the NCR and/or Section 155(4) of the Constitution, a permanent injunction to restrain the first and second defendants and/or their officers, servants or agents from selling the property by public auction and/or from offering for sale and/or selling the property by private treaty to any person or entity or to a bidder.

(d)	Pursuant to Order 12, rule 1 and/or Order 14, rule 10(1) of the NCR and/or Section 155(4) of the Constitution, a permanent injunction to restrain the first and second defendants and/or their officers, servants or agents from accepting any offer made by any person or entity or to a bidder to purchase the property.

(e)	Costs on an indemnity basis or solicitor and client basis.

2.	The first defendant makes a crossclaim seeking the following relief:   

(1)	Pursuant to Section 155(4) of the Constitution and Orders 12 and 14 of the NCR, a declaration that pursuant to Sections 42, 55 and 66 of the Land Registration Act, there was no discharge of the Mortgage of the property, Allotment 31, Section 117, Hohola.

(2)	Pursuant to Section 155(4) of the Constitution and Orders 12 and 14 of the NCR, a declaration that the transfer of the property, Allotment 31, Section 117, Hohola from the Administrators of the Estate of Peter Pependo to Dickson Investment Ltd, was improper in that the Mortgage remained and still remains outstanding, or  

(3)	Alternatively, pursuant to Section 155(4) of the Constitution and Orders 12 and 14 of the NCR, a declaration that pursuant to Section 67 of the Wills, Probate and Administration Act, that the transfer of the property, Allotment 31, Section 117, Hohola by the Administrators of the Estate of Peter Pependo to Dickson Investment is contrary to the Wills, Probate and Administration Act.

(4)	Pursuant to Section 155(4) of the Constitution, an order that the Title be reverted to its original position prior to the transfer to the Administrators of the Estate of Peter Pependo.

(5)	Pursuant to Order 13, rule 3 of the NCR, the Writ of Levy issued against the Estate of Peter Pependo be renewed and enforced.

(6)	The plaintiff pays the costs of the delayed auction.

(7)	The plaintiff pays the costs of the proceedings.

Common Background Facts

3.	I have read the affidavit of Suzanne Unumba sworn and filed on 6th September 2018 (exhibit “A”), affidavit of search of Marere Ivaharia sworn and filed on 7th September 2018 (exhibit “B”), affidavit of Phillip Kaluwin sworn on 23rd September 2018 and filed on 4th October 2018 and affidavit of Phillip Kaluwin sworn and filed on 10th September 2018 (exhibit “D”) and accept the following as the common background facts:

•	the plaintiff is the registered mortgagee of the property.
•	the property was previously owned by the late Peter Pependo who acquired it in 1992. 
•	the late Peter Pependo died on 22nd July 2014.
•	the property was transmitted to his administrators Kurubu Ipara and Eric Haiara by transmission application which was registered on 23rd May 2018.
•	the late Peter Pependo was indebted to the plaintiff in the sum of K498,760.18.
•	by letter dated 19th April 2018, Dickson Pependo (the son of the late Peter Pependo) advised the plaintiff that the property was to be transferred to him by the Administrators and requested the plaintiff to transfer the mortgage to his company, Dickson Investment Limited (the fifth defendant).
•	with the consent of the plaintiff the mortgage from the deceased Peter Pependo was discharged on 21st May 2018 to enable the Administrators to transfer the property to the fifth defendant who signed a fresh mortgage on 16th May 2018 to secure the plaintiff's debt.
•	the plaintiff’s mortgage from the fifth defendant was registered on the Instrument of Transfer to the fifth defendant and entered on 23rd May 2018.
•	presently, the property is owned by the fifth defendant and the fifth defendant is indebted to the plaintiff in a sum in excess of K498,790.18 and the plaintiff is the registered first mortgagee.
•	on or about 21st May 2018 the plaintiff received a copy of a Writ of Levy of Property (“Writ of Levy”) issued by the first defendant on 14th September 2017 in National Court proceedings WS No 84 of 2017 and a copy of the Seizure Notice dated 3rd November 2017 by the first defendant.
•	on or about 23rd August 2018 and 28th August 2018 the first defendant by his Deputy Phillip Kaluwin published in the Post Courier newspaper and the National newspaper a notice which stated that the first defendant would be holding a public auction of the property on 11th September 2018.
•	from various correspondence and documents in the plaintiff's possession, they show that Kerry Lero Mamai (judgment creditor) obtained judgment in the sum of K900,000.00 against the Administrators in proceedings WS No 84 of 2017 on 3rd July 2017.
•	on 14th September 2017 the judgment creditor’s lawyers applied for a Writ of Levy and on or about 3rd November 2017, the first defendant issued the Seizure Notice.

Issues

4.	The first defendant submitted that the key issue is whether the discharge of the mortgage from the deceased Peter Pependo and transfer of the indebtedness to the fifth defendant was fraudulent.

5.	It relies on the judgment of the National Court in proceedings WS No 84 of 2017 of 3rd July 2017 wherein judgment was entered against the Administrators of the deceased Peter Pependo, Writ of Levy and Section 3 of the Sherriff Act 1973 and submitted that it has the authority to execute the Writ of Levy and take possession of the property including putting it up for sale by public auction and the proceeds from the sale will be used to satisfy the judgment debt.  

6.	Before the public auction sale was to take place, the fourth defendants transferred the interest of the deceased Peter Pependo to the fifth defendant with the consent of the plaintiff resulting in the judgment creditor Mr Kerry Lero Mamai missing out on any proceeds of sale of the property.

Law - Priority of Mortgagee

7.	The plaintiff submitted that the issue is not one of fraud but the priority of the registered interest of the plaintiff in the property.  I agree with the plaintiff.  Based on the common facts above, the deceased Peter Pependo was the registered proprietor or leaseholder of the property.  The property was subject to a mortgage registered to the plaintiff.  By virtue of the registered mortgage, the plaintiff’s interest in the property is described as a secured creditor and ranks higher than the interest of the judgment creditor who is described as an unsecured creditor and the Court will uphold the plaintiff’s interest as priority over the unsecured creditor’s interest.  The reason is simple, the plaintiff was the lender of substantial sum of money to the deceased Peter Pependo and must have the first right of refusal before any other creditors of the deceased.

8.	Even if the property formed part of the estate of the deceased Peter Pependo which is doubted because of a registered mortgage to the plaintiff as in the case of Bank of South Pacific Limited v The Public Curator of PNG, David Mea & Ors (2003) N2320, the consent of the plaintiff as the registered mortgagee will have to be obtained before the Administrators of the deceased’s estate  can sell it and any residual can be directed towards satisfying the judgment debt.  Otherwise, the plaintiff as the registered mortgagee will have exercised its rights and powers under the mortgage to take possession of the property and sell it to recoup the sum of money exceeding K498,790.00 as the outstanding loan balance.  This option was open to the plaintiff to take up.  If taken up, again as the registered mortgagee, the plaintiff’s interest in the property as a secured creditor ranks higher than the interest of the judgment creditor as an unsecured creditor and the Court will uphold the plaintiff’s interest.

9.	However, it chose to take up a third option by consenting to Dickson Pependo to take on the liability of his late father by transferring the interest in the property to Dickson’s company the fifth defendant.  The legal position remains unaltered after the interest was transferred to the fifth defendant and the mortgage to the plaintiff was transferred and entered in the Instrument of Transfer to the plaintiff.  As the registered mortgagee, the plaintiff’s interest in the property as a secured creditor ranks higher than the interest of the judgment creditor as an unsecured creditor and the Court will uphold the plaintiff’s interest.

10.	Proving fraud in this type of cases is quite difficult.  In the present case, I find that it is not a case of fraud being perpetrated against the judgment creditor by the plaintiff and the other defendants to put the property beyond the reach of the judgment creditor or had under-sold the property as in AGC (Pacific) Limited v Registrar of Titles (2009) N3807 but one of the registered mortgagee’s interests ranking higher than the judgment creditor in terms of settlement of the deceased’s debts.

11.	For these reasons, I am satisfied that the plaintiff has made out its case and except for costs, the orders sought in the originating summons and recited at [1] above, are granted.  On the other hand, I am not satisfied that the first defendant has made out its crossclaim and dismiss it.

Costs

12.	As to costs, the plaintiff submitted that it is entitled to costs on an indemnity basis or costs on solicitor and client basis because it had put the first defendant on notice that there is no defence to the action and that it should withdraw the notices for public auction sale of the property and allow the fifth defendant to settle the indebtedness of the deceased to the plaintiff under the new and current loan repayment arrangement.  

13.	While I agree with the plaintiff’s strong submissions for costs on a higher scale, I am not satisfied that the conduct of the first defendant was wilful or calculated to deprive the plaintiff of its interest in the property.  On the contrary, it was a case of the first defendant being confronted with a judgment (court order) and the obligation to comply with it under Section 3 of the Sherriff Act and choosing to obey it rather than risk being in contempt of court.  Unfortunately, by choosing to obey the court order, it has prejudiced the plaintiff’s interest in the property.  In the circumstances, I decline the plaintiff’s request and order that the first defendant pay the plaintiff’s costs of the proceedings on a party/party basis, to be taxed, if not agreed.

Order

14.	Judgment is entered as follows:

1.	Pursuant to Section 155(4) of the Constitution and/or Order 12, rule 1 of the National Court Rules (“NCR”), a declaration that the Writ of Levy of Property filed on 4th September 2017 in National Court proceedings WS No 84 of 2017 in so far as it relates to State Lease Volume 81 Folio 125 in respect of the land known as Allotment 31, Section 117 Hohola, City of Port Moresby, National Capital District (“the Property”) is null and void and is unenforceable.

2.	Pursuant to Section 155(4) of the Constitution and/or Order 12, rule 1 and/or Order 14, rule 10(1) of the NCR, a declaration that the Seizure Notice dated 3rd November 2017 issued by the first defendant in respect of the property is null and void and is unenforceable.

3.	Pursuant to Order 12, rule 1 and/or Order 14, rule 10(1) of the NCR and/or Section 155(4) of the Constitution, a permanent injunction to restrain the first and second defendants and/or their officers, servants or agents from selling the property by public auction and/or from offering for sale and/or selling the property by private treaty to any person or entity or to a bidder.

4.	Pursuant to Order 12, rule 1 and/or Order 14, rule 10(1) of the NCR and/or Section 155(4) of the Constitution, a permanent injunction to restrain the first and second defendants and/or their officers, servants or agents from accepting any offer made by any person or entity or to a bidder to purchase the property.

5.	The first defendant’s crossclaim is dismissed.

6.	The first defendant shall pay the plaintiff’s costs of the proceedings and crossclaim on a party/party basis, to be taxed, if not agreed.

Judgment and orders accordingly.
________________________________________________________________
Lawyers for plaintiff/first cross-defendant: Ashurst PNG Lawyers	
Lawyers for first defendant/cross-claimant: NJSS Inhouse Counsel
Lawyers for second defendant/second cross-defendant: Solicitor General
Lawyers for third defendant/third cross-defendant: Gibson Bon Lawyers