Bank of Papua New Guinea v Derick Sakatea Niso (2004) N2664

• Jurisdiction: Papua New Guinea
• Judge: Kandakasi J
• Judgment Date: 18 October 2004
• Citation: (2004) N2664
• Docket Number: OS No 762 of 2003
• Court: National Court
• Year: 2004
• Judgement Number: N2664

Full Title: OS No 762 of 2003; Bank of Papua New Guinea v Derick Sakatea Niso (2004) N2664

National Court: Kandakasi, J

Judgment Delivered: 18 October 2004

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

OS. NO. 762 OF 2003

BANK OF PAPUA NEW GUINEA

Plaintiff

AND:

DERICK SAKATEA NISO

Defendant

WAIGANI: KANDAKASI, J.

2004: 11th February

18th October

MORTGAGES – Construction of – Proper approach in construction of –Guidelines for construction of “all money” clause – Wide enough to cover all situations such as fraud, misappropriation and theft – Mortgagee’s power of sale – Exercise of - Fraud alleged – Denial of – Effect of denial on mortgagees power of sale – Dispute on amount of debt due and owing - Unless disputed amount brought into Court, cannot restrain mortgagee exercising its power of sale – ss. 2b (1) (b), 67-70, 72 Land Registration Act (Chp.191)

Facts

In exchange for certain financial advances by the plaintiff bank (“the Bank”), the defendant granted the bank a register mortgage over a particular real property. The mortgage had a wide “all moneys” clause. The defendant defaulted in his repayment obligations under the mortgage. The Bank served on the defendant a default notice for amounts due under the mortgage. Subsequently, the Bank issued a second default notice that superceded the earlier notice. The later notice substantially increase the debt allegedly due and owing to the Bank, on account of an alleged fraud committed against the Bank by the defendant, which the defendant denied or disputed. The defendant also argued that the “all moneys” clause was not wide enough to cover the alleged fraud.

Held

1 The following guidelines were considered relevant and appropriate to the circumstances of PNG for the construction of “all moneys” clause in mortgages and were therefore adopted:

(a). There is no principle of law that an “all money” clause should be read down merely because it is to be found in a document prepared by a bank. In particular there is no contra proferentem rule to be adopted: cf Hall v Westpac Banking Corporation (1987) 4 BPR 9578.

(b). A bank mortgage is traditionally drawn to cover a multitude of possible situations and intended to secure the bank as effectively as possible. In each case, the question is usually whether the situation falls within the contemplation of the clause as written.

(c). Notions of fairness, justice or reasonableness are matters relevant to questions which might arise under the Contracts Review Act, or in equity where unconscionability is suggested. They are not notions as such relevant to the question of construction.

(d). “An all” money clause is to be construed having regard to the context in which the mortgage came to be executed and by reference to the commercial purpose it was intended to serve. But otherwise the intention of the parties is to be ascertained from the language which they have used.

Adopted and applied In the Bankruptcy Estate of Murphy; Donnelly v. Commonwealth Bank of Australia Ltd (26/09/96) BC9604538.

2 Applying these principles to the present case, the “all money” clause is wide enough to cover such eventualities as fraud, theft and misappropriation so the alleged fraud is covered. The true nature of a mortgage is a security for the repayment of moneys advanced by a mortgagee with a mortgagor always retaining a right of redemption on fulfillment of all his repayment obligations.

3 A mortgagee’s power of sale is subject to default and notice of default requirements and a number of other encumbrances imposed in equity by the courts. These are the duty against the mortgagee to make a real sale and not to sell the property to itself, act in good faith and ascertain and sell at the true market value.

4 Generally, where circumstances justifying the exercise of a mortgagee’s power of sale exist, and the amount outstanding under the mortgage is not in dispute, the court will not restrain the mortgagee from exercising that right unless the mortgagor pays into court the mounts outstanding, and in the case of a dispute the whole of the amounts owing although the Court might fix a lesser amount in appropriate cases.

5 In the present case there is a dispute on the alleged debt due and owing on the basis of a denial of the allegation of fraud. However, that is insufficient to prevent the Bank from exercising its power of sale unless the amounts allegedly owing is brought into Court.

Papua New Guinean Cases Cited:

Golobadana No.35 Ltd v. Bank South Pacific Ltd (11/11/02) N2309.

Bank South Pacific Ltd v. The Public Curator & Ors (20/01/030 N2320.

ANZ Banking Group (PNG) Ltd v. Kila Wari (16/02/90) N801.

Westpac Bank (PNG) Ltd. v. Henderson and Henderson [1990] PNGLR 112.

Papua New Guinea Banking Corporation v. Pala Aruai and Freeway Enterprises Limited (28/06/02) N2234.

Tian Chen Limited v. The Tower Limited (20/01/03) N2319.

Papua New Guinea Forest Authority v. Concord Pacific Ltd (No 2) (12/09/03) N2465.

Fly River Provincial Government v Pioneer Health Services Ltd (24/03/03) SC705.

Overseas Cases Cited:

Farrar v. Farrar Ltd (1885) 40 Ch.D. 395.

Wynne v. Moore (1870) 1 A.J.R. 156.

Davey v. Durrant (1857) 1 De G. & J. 535; E.R. 830.

Belton v. Bass, Ratcliffe and Gretton Ltd. [1922] Ch. 499.

Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. [1971] Ch.949.

Warner v. Jacob (1882) 20 Ch. D. 220.

Cholmondeley v. Clinton (1820) 2 J. & W. 1 at 183; 37 E.R. 527.

Reliance Permanent Building Society v. Harwood-Stamper [1944] Ch. 362.

Inglis v. Commonwealth Trading Bank of Australia (1972) 126 C.L.R. 161.

Harvey v. McWatters (1948) 49 S.R. (N.S.W.) 173, at 176.

Forsyth v. Blundell (1973) 129 C. L.R. 47.

Henry Roach (Petroleum) Pty. Ltd. v. Credit House (Vic) Pty. Ltd. [1976] V.R. 309

Panebianco v. Bendigo Bank Ltd. & Anor (12/03/99) VSC 50, BC9901137.

In the Bankruptcy Estate of Murphy; Donnelly v. Commonwealth Bank of Australia Ltd (26/09/96) BC9604538.

Counsel:

A. Mana for the Plaintiff.

P. Sapu for the Defendants

18th October 2004

KANDAKASI, J.: By notice of motion filed on 16th December 2003, the plaintiff Bank (“the Bank”) seeks to evict the defendant from a property the subject of a registered mortgage in favour of the Bank. Prior to the filing of the motion, the Bank applied for summary judgment on 12th December 2003 before a different judge and judgment is pending. Meanwhile, the parties agreed to a hearing of the Bank’s application before me, which I did and reserved a decision to a later date. This is now the decision of the Court on that application.

The Relevant Facts

Most of the relevant facts are not in issue. They are set out in the affidavits of Mr. Allan Mana for the Bank sworn on 16th December 2003 and another affidavit by Mr. Peter Sapu sworn on 04th February 2004 for the defendant. From these affidavits it is clear that the defendant is the registered proprietor of a property known as Allotment 12, Section 13, Hohola, National Capital District and being the whole of the land contained in State Lease, Volume 6, folio 1422 (the property). By a memorandum of mortgage dated 15th September 1994, the defendant granted a mortgage over the property to the Bank, in return for certain funds by way of a loan to enable the defendant to purchase the property under the Banks then home ownership scheme. The Bank had the mortgage registered under the Land Registration Act on 25th September 1995.

In the year 2003, the defendant defaulted in the repayment of moneys due to the Bank under the loan arrangement. The Bank therefore issued a default notice for a sum of K12, 547.64 on 22nd July 2003 and had it personally served on the defendant on or about 24th July 2003. The defendant disputed the default notice by letter dated 25th July 2003 through his lawyers, Yapao Lawyers and admitted to a sum K8,000.00 or less owning to the Bank.

Subsequently, the Bank served on the defendant in the same way a fresh default notice dated 12th August 2003 claim a sum of K512, 547.64 due and owing to it. That superseded the earlier notice. This saw an increase by K500,000.00 on account of claims of amounts due under a different mortgage and a fraud committed against the Bank by the defendant. In taking that position, the Bank relied on clause 1 of the mortgage and a number of Australian cases, which supported the position it was taking. The clause in question reads in relevant parts as follows:

“In consideration of the Mortgagee agree to advance to the Mortgagor the Advances, the...