Bank of Papua New Guinea v Basa [1992] PGNC 78; [1992] PNGLR 271; N1109 (21 July 1992)

N1109

PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

BANK OF PAPUA NEW GUINEA

V

MUTENG BASA

Waigani
Brown J

21 July 1992

MORTGAGES - Mortgagor's default - Claim to possession by mortgagee of registered mortgage - Statutory rights.

MORTGAGES - Interest rate - Penalty rate charged.

CONSTITUTION - Whether exercise of remedies by mortgagee is harsh and oppressive under s 41 Constitution.

Facts

The Bank of Papua New Guinea claimed vacant possession of property mortgaged by the defendant to secure repayment of its loan to the latter. The defendant was in arrears of the principal and interest for a substantial sum. He argued that the bank's exercise of its powers would affect adversely his livelihood, and such act is unfairly unreasonable, therefore, "harsh and oppressive" within the meaning of s 41 Constitution.

Held

1. The mortgagor's impecunious state does not preclude the mortgagee bank from exercising rights to possession found in the mortgage document and supported by the Land Registration Act Ch 191.

2. The contractual relationship of the parties does not impinge on constitutional rights, therefore s 41 has no application.

3. The loan agreement specified an interest rate of 3 percent and made no provision for the calculation of a higher penalty rate, there being no commencement date.

Cases Cited

Tarere v ANZ Banking Group [1988] PNGLR 201.

Counsel

K Kua, for the plaintiff.
A Marat, for the defendant.

21 July 1992

BROWN J: This is a claim by the bank, instituted by way of originating summons, for possession of real property belonging to the defendant, Muteng Basa, but mortgaged to the bank to secure the repayment of a loan given by the bank to Mr Basa to assist him with the property's purchase. The plaintiff pleads the mortgage No 64545, which affects the defendant's land at Hohola, more particularly described as State Lease Volume 29 Folio 7127, being Allotment 115 Section 231 Hohola, National Capital District.

That mortgage and the loan agreement are in evidence. The defendant obtained a staff loan at a concessional interest rate on the 26 May 1987 and met his repayments from salary until he resigned from his employment with the bank on 16 August 1990, when his repayment ceased. He was asked to refinance his housing loan through another institution but he has failed to do so. His arrears of principal and interest are now, on the Bank's calculation, some K34,665.00 and accruing with a current interest rate of 10% per annum (p.a.). The defendant relies on a defence which pleaded that the plaintiff bank, in exercising its powers to foreclose under the terms of the mortgage, did so unfairly, unreasonably, and without due regard to the defendant's livelihood and to his past services to the plaintiff bank.

This defence cannot stand. It is not available, as Mr Kua says, under s 41 of the Constitution since the contractual relationships of the parties do not impinge on a constitutional right. I agree with Mr Kua where he says the reasoning of Hinchliffe J in Tarere v ANZ Bank Group (PNG) Ltd [1988] PNGLR 201 is applicable in this case. The judge held that the provisions of s 41 of the Constitution relating to harsh or oppressive acts done under a valid law cannot be invoked in relation to the valid exercise of a mortgagee's power of sale deriving from the Land Registration Act, Ch 191. I find that the plaintiff is entitled to an order for ejectment under s 74(1)(c) of the Land Registration Act, having pleaded the right in the mortgage and proved to my satisfaction the default in payment giving rise to the circumstances envisaged by that section. On the face of the ledger in evidence, no credits have been made (apart from a reversal entry) to the staff housing account of the defendant since his cessation of employment on 16 August 1990, and in his own evidence he concedes this.

Dr Marat for the defendant has failed to address the effect of the loan and mortgage documents, but clearly they are contractual, binding both parties according to their tenor. I see no reason to depart from that basic premise. Clause 6 of the mortgage reads:

"If default be made by the mortgagor in repayment of any instalments of principal and/or interest at any time or in the performance or observance of any covenant herein expressed or implied then immediately thereupon or at any time thereafter all monies hereby secured or any instalment there or costs charges and expenses as aforesaid shall be at the option of the mortgagee forthwith due and payable."

The evidence of default is in the ledger. That is the best evidence. I find that the plaintiff has the right to possession on default and is, accordingly, entitled to an order in terms of the statute. Clause 7 of the mortgage provides:

"The powers of sale, entry, possession, distress and rejectment and all other powers conferred by the Land Registration Act, Chapter 191 or by any further amendment thereof may be exercised by the mortgagee at any time after the default in payment of the monies hereby secured..."

While Dr Marat has attempted to mount an argument on the basis of the unfortunate effect his cessation of employment had on his client, his subsequent employment and more recent unemployment has adversely affected the defendant's ability to both service the loan and seek refinance, and thus unilaterally he seeks to avoid the existing agreement with the bank in this fashion. This argument is not available to the defendant. He continues to be bound by the terms of the mortgage agreement notwithstanding a change in his personal circumstances. There is no suggestion that the agreement was harsh and unconsciousable at the time it was entered into, and so there is no need for me to speculate on the effect of such a state of affairs on this contract. The evidence is certainly to the contrary. The interest rate is 3%, clearly a preferred rate at the time the loan was taken out, and repayments were made by way of salary deductions from at least July 1987 until August 1990 without complaint. To say, after the money in the loan had passed to the benefit of the defendant for the purchase of his house property, that his impecunious state now gives rise to a defence to the bank's claim under contract in the absence of some contractual or tortuous basis, is demurrable. Mr Kua has taken the point, there is no defence apparent on the face of the pleadings.

The defendant's counterclaim for the sum of K3,642.89 plus interest at the rate of 6% from the 16 August 1990 is admitted by the plaintiff, but the bank seeks to set off that amount against its claim for the balance of the loan moneys still due and owing by the defendant. Those moneys are set out in the ledger in the sum of K34,665.00 with interest to 20 July 1992.

The circumstances giving rise to the claim for the payment of the balance of principal and interest due was, of course, the cessation of employment by the defendant. Such a claim for payment I find upon the basis of clause 3(a) of the loan agreement. But no evidence has been led as to the matters touched on in 2(b) of the loan agreement dealing with "such other factors as the lender may in its absolute discretion determine", much less the "prevailing overdraft rate charged from time to time by the PNGBC".

Further the schedule forming part of the agreement is silent as to the date of the first payment (Item 6). I, accordingly, find that penalty rate charged by the bank since 16 August 1990 at 10% is without foundation. The loan agreement makes no provision for calculation of the higher rate, there being no commencement date. Nor do I have evidence of the overdraft rate or "other factors" sufficient to support the rate of 10% p.a. claimed by the bank. The 3% rate specified in item 5 is accordingly for the term of the loan. The plaintiffs claim to a set off of the money it owes by the amount of a possessary lien is made out. It is clear the bank claims no title to the money if I have regard to its letter of 20 August 1990.

There shall, accordingly, be a verdict and judgment for the plaintiff in his counterclaim in the sum of K27,445.95 (the outstanding balance of the original loan and interest) together with the interest at the rate of 3% p.a. on the principal then outstanding on 16 August 1990 to date of judgment. There shall be a verdict and judgment for the defendant in his counterclaim by consent in the sum of K3,642.89 plus simple interest at the rate of 8% p.a. from 16 August 1990. I order that the defendant give vacant possession to the plaintiff of the subject property described in par 1 of the plaintiffs originating summons in terms of that prayer for relief. I order that the writ of ejectment shall issue at the expiration of 7 days from this date. I give either party liberty to apply. The plaintiff shall have its costs of the originating summons and the counterclaim to and including this hearing, excepting the costs awarded the plaintiff, of yesterday. Interest on the balance of the judgment debt in favour of the plaintiff, after set off, shall be at the rate of 8% p.a., that rate usually applied by this Court on judgments. I give the parties liberty to uplift the exhibits at the expiration of the appeal period.

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Lawyers for the plaintiff: Blake Dawson Waldron.
Lawyer for the defendant: Marat & Co.