Negiso Investments Limited v PNGBC Limited (2003) N2439

• Jurisdiction: Papua New Guinea
• Judge: Sevua J
• Judgment Date: 26 June 2003
• Court: National Court
• Citation: (2003) N2439
• Year: 2003
• Judgement Number: N2439

Full Title: Negiso Investments Limited v PNGBC Limited (2003) N2439

National Court: Sevua J

Judgment Delivered: 26 June 2003

N2439

PAPUA NEW GUINEA

[National Court of Justice]

OS 163 of 2002

BETWEEN

NEGISO INVESTMENTS LIMITED

Plaintiff

AND

PNGBC LIMITED

Defendant

Waigani : Sevua, J

2002 : 10th April &

2003 : 26th June

EQUITY – Mortgage – Default in loan repayment – Auction of property – Delay in executing contract of sale – Occupation by purchaser pending sale of property – Mortgagor forced out of property before conclusion of sale – Sale not concluded and property offered for tender again – Mortgagor’s loan amount continued to attract interest.

MORTGAGE – Mortgagee’s exercise of power of sale – Duty of mortgagee – Transaction and or dealing by mortgagee (bank) – Whether dealing unfair to plaintiff mortgagor.

Fairness of Transaction Act 1993

Cases cited:

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

McHugh v. Union Bank of Canada [1913] AC 299 adopted and applied.

B. Andrew for Plaintiff

I. Shepherd for Defendant

26th June 2003

SEVUA, J: By originating summons, the plaintiff claims a declaration that the dealings of the defendant with the plaintiff in exercising its powers as mortgagee under securities taken, are not genuinely mutual and manifestly unfair to the plaintiff within the meanings of those terms as provided in Sections 4 and 5 of the Fairness of Transactions Act 1993 (the Act).

The factual circumstances of this case are particularized in the original summons, which I set out hereunder.

On 16th June 1999, the plaintiff obtained a loan in the sum of K600,000.00 from the defendant. By way of security, the defendant took registered mortgages over the plaintiff’s properties described as Section 15 Allotment 16, Lae, Morobe Province (Lae property) and Section 61 Allotment 6, Hohola, National Capital District (Port Moresby property). By February 2001 the plaintiff was in default. On or about 24th August 2001, the defendant exercising its power of sale under the mortgage, auctioned the Lae property and sold it to Motorist Discount Center Limited. Motorist Discount took possession of the property thereby dispossessing the plaintiff. The sale was not completed so the defendant advertised the property for sale again on 13th March 2002. The defendant did not inform the plaintiff that the sale of the property did not go through until 21st February 2002. In November 2001, the defendant exercising its power of sale, sold the Port Moresby property.

The plaintiff claims that by allowing Motorist Discount Centre to take possession of the Lae property when the plaintiff could have remained in possession until sale, and by not diligently pursuing completion of the sale or some other sale within a reasonable time, the defendant has acted unfairly and to the detriment of the plaintiff in the following circumstances :

(a) the proceeds of the sale of the Lae property would have been applied to the balance of the plaintiff’s loan account with the defendant.

(a) having been disposessed, the plaintiff was deprived of his income from the Lae property and the opportunity to apply that income to the reduction of his loan account with the defendant.

(a) notwithstanding that the defendant had taken possession of the Lae property, it continued to charge the plaintiff with penalty interest under the terms of the loan agreement

(a) in November 2001, the defendant exercised its power of sale of the Port Moresby property notwithstanding its unfair dealings with the plaintiff in respect of the Lae property.

The plaintiff also claims an order that the Court make a mediated order pursuant to Section 7 of the Act, however, in the event that a mediated settlement fails under Section 7, an order between the parties as the Court thinks conforms with Section 4 of the Act having proceeded to review the dealings between the parties in accordance with Section 8 of the Act. Finally, the plaintiff claims an order for costs against the defendant.

It should be noted that the hearing date, 10th April, was for OS 118 of 2002 between the same parties, however the parties had agreed to the terms of a consent order in that proceeding, which the Court sanctioned and therefore this matter was then brought up by consent as it involved the same parties and counsel.

At the hearing, the plaintiff sought to cross - examine the defendant’s witness, Wayne Thistlethwaite, who had sworn an affidavit in OS 113 of 2002, and the defendant had agreed to that course. The basis for that was because the plaintiff was seeking a review of the whole of the dealings of the defendant with the plaintiff in respect of the foreclosures undertaken by the defendant bank. In OS 118 of 2002, the plaintiff does not impeach the sale of the Port Moresby property as it understands that the debt must be extinquished. However, the plaintiff contends that the sale of the property must also be scrutinized. In the present proceedings, which relates to the property in Lae, the plaintiff seeks to review the manner of the exercise of the power of sale by the bank as mortgagee.

The evidence in relation to the primary facts is not in dispute except the evidence relating to the Lae property following the auction.

The defendant’s evidence is this. On 12th March 2002, Wayne Thistlewaite swore an affidavit. In that affidavit, he said since 17th March 2002, the Lae property had not yet been settled although it was “purportedly” sold for K425, 000.00 on 24th August 2001. The then purchaser, Motorist Discount had paid a 10% deposit of K42, 500.00, which had since been forfeited to the defendant because the sale was not completed. The contract between the defendant and Motorist Discount was subsequently terminated.

Mr Thistlewaite also said the property has been re-tendered and that more than K380, 000.00 had been offered and negotiations were proceeding. In respect of the sale to Motorist Discount, he said the defendant had never granted possession to the purchaser and did not give notice to the plaintiff to vacate the property.

It is the evidence of the defendant that the loan to the plaintiff was approved in June 1999, however, it was not drawn until August 1999. The first repayment fell due in September 1999 but the plaintiff did not make any payment. The state of the loan at the time of trial was close to K1.2m.

In cross examination, Mr Thistlewaite said he did not have a statement of account of the plaintiff’s loan account although he had one prepared about four weeks prior to trial. Although the plaintiff requested a statement of account, the defendant did not supply it but instead provided the loan balance. At the time the property was auctioned, the balance of the loan was approximately K1.1m, however, it had increased to K1.2m. The deposit of K42,500.00 paid by Motorist Discount had reduced the debt by that much. In addition to that, approximately K25,000.00 was taken out from the plaintiff’s Port Moresby account.

On 5th November 2001, Motorist Discount took out an advertisement in the Post Courier in respect of the Lae property indicating it had taken possession of the property. However, the defendant said it did not execute the contract until 9th December 2001. The deposit was paid on 27th August 2001 in terms of the auction. The defendant did not know that the plaintiff had vacated the property until February 2002. The defendant denied permitting Motorist Discount to take possession at the time the contract was executed except that Motorist Discount should insure the property. However, it appeared that despite that, Motorist Discount had already put its own security personnel at the property. The defendant denied telling the plaintiff to vacate the property, in fact, the defendant said, it informed the plaintiff to move back into the property when it discovered that the property had been vacated.

When asked why the defendant had from August to December 2001 failed to do anything, Mr Thistlewaite responded by saying that Ministerial approval took months and in addition the procedure had delayed the execution of the contract for nine months after the auction. He said when dealing with mortgaged properties, it takes months not weeks.

After the defendant’s evidence, counsel for the plaintiff, Mr Andrew, informed the Court that he wanted to call the principal of the plaintiff company to give evidence. Mr Shepperd for the defendant objected to this so the Court heard preliminary submissions at that stage, relating to questions of law raised by the Fairness of Transactions Act. The submissions covered the definition of “transaction” and the defendant’s exercise of its mortgagee’s power of sale.

Having heard counsels’ submissions, the Court overruled the defendant’s objection on the basis that the issues raised were issues of law and the Court was of the view that those issues would be addressed after all the evidence have been adduced. The Court then directed the plaintiff to call evidence in respect of OS 163 of 2002.

The plaintiff’s evidence...