Bank of Papua New Guinea v Niso [2004] PGNC 121; N2664 (18 October 2004)

N2664

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 Subsequently, the Bank issued a second default notice that superseded the earlier notice.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 fulfilment 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 [1888] UKLawRpCh 209; (1885) 40 Ch.D. 395.
Wynne v. Moore (1870) 1 A.J.R. 156.
Davey v. Durrant [1857] EngR 742; (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] UKLawRpCh 61; (1882) 20 Ch. D. 220.
Cholmondeley v. Clinton [1820] EngR 550; (1820) 2 J. & W. 1 at 183; [1820] EngR 550; 37 E.R. 527.
Reliance Permanent Building Society v. Harwood-Stamper [1944] Ch. 362.
Inglis v. Commonwealth Trading Bank of Australia (1972) 126 CLR 161.
Harvey v. McWatters [1948] NSWStRp 58; (1948) 49 S.R. (N.S.W.) 173, at 176.
Forsyth v. Blundell (1973) 129 CLR 47.
Henry Roach (Petroleum) Pty. Ltd. v. Credit House (Vic) Pty. Ltd. [1976] VicRp 26; [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 Mortgagor mortgages to the Mortgagee by way of second charge all the estate and interest of the Mortgagor as registered proprietor in the Mortgaged Premises for better securing to the Mortgagee the payment to the Mortgagee all moneys that may from time to time become due and owing to the Mortgagee by the Mortgage pursuant to the Home Ownership Deed including without limiting the generality of the foregoing, the Advances and any interest accrued thereon together any moneys paid by the Mortgagee under this Mortgage (all of which moneys liabilities and interest are called the ‘Moneys Hereby Secured’) "

(Emphasis supplied)

The bank argues that the phrase "all moneys that may from time to time become due and owing to the Mortgagee" is wide enough to cover both the moneys specifically secured and all others due and owing to the Bank at any time during the currency of the mortgage. The defendant in his response dated 28th August 2003, maintained his claim of owning K8, 000.00 and that the alleged fraud issue was the subject of investigation and separate criminal and civil proceedings against him. It was therefore premature for the Bank to include the amounts allegedly defrauded from the Bank.

The Bank did not accept the defendant response and proceeded to advertise the property for tender for mortgagee sale on 7th November 2003. In a bid to avoid the tender sale, the defendant through his lawyers, on 11th November 2003 wrote to the Bank asking for a specific response to his letter of 28th August 2003 and had that followed up by two other letters with the latest one on 17th November 2003. In the later letter, the defendant enclosed a bank cheque for K12, 547.64. The Bank was not clear as to what was the cheque for, whether in part payment of the debt or in purported full and final settlement. At the same time, the Bank indicated not moving from its default notice. By letter dated 9th December 2003, the defendant informed that the cheque was intended to be in final settlement of all moneys owing to the Bank. At the same time, he pointed out that the Australian cases the Bank was relying upon were cases where there was proven fraud where as in this case, it was only an allegation that was undergoing the normal process of the law either to establish or disprove it.

The bank decided to return the bank cheque and it did so. In so doing, it decided to proceed with the mortgagee sale. Consequential on that, the Bank issued these proceedings in order to obtain vacant possession to facilitate its mortgagee sale. The defendant opposes that application, arguing that the default is in dispute and that the alleged fraud is only an allegation not yet proven.

The Relevant Issues

Given the foregoing facts and arguments, there are two key issues for this Court to determine. These are:

1. Are terms of the mortgage wide enough to cover all other money’s due and owing by the defendant to the Bank?
   
2. If the answer to the first issue is "Yes", then do they include alleged frauds or claims of debt not yet proven?
   

The Relevant Law

An accepted principle in cases of mortgages is that, a mortgage is a security for the repayment of moneys advanced by a mortgagee. Legislative and other reforms in the law on mortgages have seen a better and improved position for mortgagors. This improvement in the law clarified and strengthened the true nature of mortgages, which is only a security for the moneys advanced. It therefore recognizes the right of a mortgagor to redeem his property upon completion of his repayment obligations under a mortgage. Consequently, the law enables and recognizes a mortgagee’s right to exercise the rights and powers given to it by a mortgage, exercisable only upon a default of its mortgagor in his or her repayment obligations. My judgments in Golobadana No.35 Ltd v. Bank South Pacific Ltd (11/11/02) N2309 and Bank South Pacific Ltd v. The Public Curator & Ors (20/01/030 N2320 are recent acknowledgments of that position in our jurisdiction.

In the first of the two cases, I discussed, amongst others, a mortgagor’s right of redemption in the context of a mortgagee’s right of possession. The relevant part of the judgment is at pp.15 -20. There I summed up the legal position as follows:

"In the case of a mortgagee exercising its right of possession, the law governing the exercise of that right is also clear. Previously, a mortgagee’s right of possession was not dependent upon prior default by the mortgagor. Therefore, the mortgagee could go into possession ‘before the ink is dry on the mortgage unless there is something in the contract, express or by implication whereby he has contracted himself out of that.’ Four—Mates Ltd v. Dudley Marshall (Properties) Ltd [1957] Ch. 317, at p. 320. This has however all changed by legislation a replica of which is s.74 of our Land Registration Act (Ch. p. 191). The legislative change saw a removal of a mortgagee’s right of immediate possession to make it dependent upon their being first a default in payment.

...

It should be apparent from all of the above, that in the event that a mortgagee exercises his right of possession, the law recognizes that the property remains in the mortgagor and inherent in that is the right of redemption.

The present case concerns, a mortgagors right or power of sale following default in repayment by a mortgagor. Neither of the Counsels was able to assist me on that point with any authority or submission on the relevant principles governing the exercise of the power of sale in a mortgagee. Notwithstanding that, I note that the law is also clear. As noted in the above two cases, equity permits a mortgagor to redeem his property even passed the contractual date of redemption but within certain limits. On such limit is the mortgagees power of sale.

Unlike, a mortgagee’s right of foreclosure, a mortgagee’s power of sale empowers, a mortgagee to sell the property the subject of the mortgage upon default by the mortgagor. Unless a mortgage clearly expresses the contrary intention, this right in a mortgagee is an implied right even in cases where there is no expressed provision in the mortgage document recognizing that right. Section 68 of the Land Registration Act (Chp. 191) (LRA) provides for that right. This would appear to be the case for all registered mortgages having regard to the provisions of s. 26 (1) (b) of the Land Registration Act which is a carry over from the Torrens Title system. In variably, however, nearly all mortgages expressly provide for this right and so therefore, it becomes a matter of contract.

The exercise of the power of sale is subject to notice requirements. Section 67 of the LRA stipulates that, where a mortgagor default in his payment of any money secured by a mortgage for a period of one month, the mortgagee may give to the mortgagor a written default notice to pay the money due and owing. The same goes for any non-observance on any of his covenants by a mortgagor but the notice is to require the mortgagor to observe the covenant. If the notice is not adhered to and the default continues for a month, the mortgagor is empowered by s. 68 (1) of the LRA to sell the property the subject of the mortgage and sign any instrument for that purpose. This is however, subject to the parties agreeing to a variation of the repayment schedule to as short as weekly intervals under s. 72 of the LRA. Where a sale is inevitable, it could be effected in number of ways including, a mortgagee tender sale (s. 68 (2)). Once sold, a mortgagor is empower to apply the proceeds to a satisfaction of the moneys owing to it subject to satisfying any prior registered interest (s.68 (6)). Sections 69 and 70 of the LRA specifically provide for the protection of a purchaser of a mortgagee sale against the mortgagor and all others.

In addition to these, the courts have developed in equity a number of encumbrances on a mortgagor’s power of sale. The first of this is a prohibition against a sale to itself although it can "buy in" at an auction to prevent a sale at an undervalue: Farrar v. Farrar Ltd [1888] UKLawRpCh 209; (1885) 40 Ch.D. 395 at 409 and Wynne v. Moore (1870) 1 A.J.R. 156 and s. 68 (5) of the LRA. The second is that, a mortgagee is empowered to sell so there must be a actual sale and not anything short of that, such as a gift: Davey v. Durrant [1857] EngR 742; (1857) 1 De G. & J. 535; E.R. 830. This does not prevent the mortgagee from advancing the required funds to another for purpose of the sale with provisions to buy back within a specified period if the purchaser decides to sell as long as there is a real sale: Belton v. Bass, Ratcliffe and Gretton Ltd. [1922] Ch. 499.

A third and final encumbrance the courts have decided to impose on a mortgagee exercising its power of sale is a duty of care. One line of authorities requires the mortgagee to ascertain and sell at "the true market value". A clear statement of that is in the case of Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. [1971] Ch.949, per Salmon L.J. at p. 966. Another line of authorities only requires a mortgagee to act bona fide in the conduct of the sale. A clear statement of that is in the case of Warner v. Jacob [1882] UKLawRpCh 61; (1882) 20 Ch. D. 220 at p. 224, per Kay J. Clearly, there is the common ground in both cases that, the mortgagee must act in good faith. They are thus distinguished only by the fact that the first line of authorities require the mortgagee to not act only in good faith but to also ascertain and sell at the market value: see Papua New Guinea Banking Corporation v Pala Aruai and Freeway Enterprises Limited (28/06/02) N2234 for more discussion on this.

At the same time the courts have made it clear as early as the 1800s that, the motive of a mortgagor exercising its power of sale is irrelevant. As such, the courts will not inquire into the motive for the exercise of that power: Belton v. Bass, Ratcliffe and Gretton Ltd. (supra). Similarly, the courts have made it clear that when a mortgagor exercises its power of sale, it is not doing so as a trustee of the mortgagor: Cholmondeley v. Clinton [1820] EngR 550; (1820) 2 J. & W. 1 at 183; [1820] EngR 550; 37 E.R. 527 at 593. The aim of the sale is to satisfy its own interest and as such, the mortgagee is entitled to think of itself: Reliance Permanent Building Society v. Harwood-Stamper [1944] Ch. 362, at 365.

The National Court in Papua New Guinea has followed the first line of authorities like that of Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. (supra). It first did that in ANZ Banking Group (PNG) Ltd v. Kila Wari (16/02/90) N801. Subsequently, the same Court followed the above case in Westpac Bank (PNG) Ltd. v. Henderson and Henderson [1990] PNGLR 112. These cases did not discuss the two different lines of authorities before accepting the line of authorities they decided to follow. I did that in my judgment in Papua New Guinea Banking Corporation v. Pala Aruai and Freeway Enterprises Limited (supra). There I said the duty to act with care entails a duty to act with regard and that duty is for the rights and interest of the other person is inherent in every right or power vested in a person. Accordingly, I held that, it was appropriate to adopt and apply the first line of authorities. I am not aware of any contrary view of the Supreme or the National Courts. Therefore, the duty of a mortgagor in Papua New Guinea when exercising its power of sale is to act in good faith, which includes a duty to ascertain the fair market value.

A proper understanding in terms of the principles discussed above and their application is necessary as that would assist in determining an application such as the one before this Court or an application for an injunction against a mortgagee exercising its power of sale. 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. However, if the mortgagor pays into court the mounts outstanding, it may grant an injunctive order: see Inglis v. Commonwealth Trading Bank of Australia (1972) 126 C.L.R. 161 at 164.

The case just cited provides the reason for that general principle in these terms at pp. 164 -165:

"... [T]he authorities ... establish that for the purposes of the application of the general rule to which I have referred, nothing short of actual payment is regarded as sufficient to extinguish a mortgage debt. If the debt has not been actually paid, the Court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefit of his security, except upon terms that an equivalent safeguard is provided to him, by means of the plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due.

The benefit of having a security for a debt would greatly be diminished if the fact that a debtor has raised claims for damages against the mortgagee were allowed to prevent any enforcement of the security until after the litigation of those claims had been completed.

For the same reasons where the amount owing is in dispute, the mortgagor has to pay into court the amount claimed by the mortgagee although in some cases the court may go behind what the mortgagee claims and require a lesser amount. This is possible in cases where it appears from the terms of the mortgage instrument that a lesser amount is due: Harvey v. McWatters [1948] NSWStRp 58; (1948) 49 S.R. (N.S.W.) 173, at 176.

The preponderance, of overseas cases, create doubts as to whether the general principle noted above would apply in a case where a mortgagor is seeking a restrain on the grounds of impropriety in the exercise of the power of sale: Forsyth v. Blundell [1973] HCA 20; (1973) 129 CLR 477, at p. 504 – 505 and Henry Roach (Petroleum) Pty. Ltd. v. Credit House (Vic) Pty. Ltd. [1976] VicRp 26; [1976] V.R. 309, at pp. 319 – 320. From the judgment in the first of these two cases, at pp 495 – 499, it is clear that the general rule would not apply where the purchaser has knowledge of the impropriety at the time of the contract and continues to have no notice of it up to the time of completion.

Present Case

In the present case, there appears to be a dispute on the actual amount of the debt, particularly, when the Bank adds to the amounts owing, the funds alleged defrauded from it by the defendant. As already noted, the Bank seeks to include the amounts allegedly defrauded from it by the defendant with the terms of Clause 1 of the mortgage instrument, especially within the meaning of the phrase "all moneys that may from time to time become due and owing to the Mortgagee".

In support of that argument, the Bank drew the Courts attention to two unreported judgments of two different Australian Courts. The first is a judgment of the Supreme Court of Victoria in Panebianco v. Bendigo Bank Ltd. & Anor (12/03/99) VSC 50, BC9901137, per Balmford J. The second one is a judgment of the Federal Court of Australia, General Division Bankruptcy District of New South Wales In the Bankruptcy Estate of Murphy; Donnelly v. Commonwealth Bank of Australia Ltd (26/09/96) BC9604538, per Hill J.

On the evidence before me, I find that the defendant does not dispute owing and therefore falling into arrears in the sum of K12, 547.64. This is apparent from the defendants’ preparedness to pay the full amount set out in the first of the two default notices served on him and forwarding a bank cheque in that amount under cover of his lawyers’ letter dated 17th November 2003 (annexure "F1" to Mr. Sapu’s affidavit). What the defendant is not prepared to accept however is the second default notice, which seeks to include the amounts he allegedly defrauded from the Bank. He says that allegation (as already noted) is the subject of both civil and criminal proceedings and until there is a positive finding against him, the Bank cannot include the amounts allegedly defrauded by him. This, the defendant says distinguishes his case from the cases the Bank relies on. He also submits that the cases relied on by the Bank a post independence cases. As such, they are not binding on this Court.

It seems to me therefore that, there is no serious dispute on a construction of the provisions of Clause 1 of the mortgage instrument. However, for clarity, the law needs stating since this is the first time both this and the Supreme Courts have come to deal with an "all money" clause in a mortgage.

In that regard, I note that the judgment in the Bankruptcy Estate of Murphy; Donnelly v. Commonwealth Bank of Australia Ltd (supra) carefully referred to some of the relevant cases on point in Australia, the United Kingdom and the United States. The Court then provided the following guidelines for the construction of an "all money" clause.

"1. 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.

2. A bank mortgage is traditionally drawn to cover a multitude of possible situations and intended to secure the bank as effectively as possible. The question is whether the situation falls within the contemplation of the clause as written.
3. Particularly, 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.
4. 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."
   

After stating these guidelines, the court turned to the issue before it and decided it in the following terms:

"The language of the mortgage is quite clear. It is drawn with great width and deliberate so, no doubt to ensure as far as is possible that any moneys owing to the bank are secured, howsoever the obligation may arise. It was no doubt not in contemplation by the Bank, and probably not by Ms Murphy at the time of entering into the mortgage, that she would steal money in the result come to be in a position where she was required to repay moneys to the Bank. But that can hardly be the test. The real question is whether the language of the mortgage is wide enough to encompass liability to the Bank arising as a result of theft or misappropriation. In my view, it is. The case is not one where the result of the a literal application of the language in the mortgage would be to yield absurdity. Nor is that case one where the clause to he construed ambiguous. To read down the extreme width of the present all money clause so that it would not apply beyond the initial banking transaction which is secured, would be to treat virtually the whole of paraA fo the Memorandum No.T340042 and likewise the separate Memorandum as being redundant. There is no principle of law or construction which permits such a course to be taken.

...

It follows that I would find that the Bank’s mortgage extended on its proper construction to include amounts which Ms. Murphy became obliged to repay to the Bank as a result of Ms Murphy forging the signature of customers and thus withdrawing moneys from their accounts, notwithstanding that the mortgage was originally entered into on the basis of providing security to the Bank for the advances made available to Ms. Murphy and her husband."

As might be apparent from the above quotation, the issue before the Court was whether an all money clause similar to the one in the present cases was wide enough to cover moneys stolen through forgery by Ms. Murphy. Ms Murphy was an employee of the plaintiff bank who gave the bank a joint mortgage with her husband in return for certain financial advances. Apart from the mortgage being a joint one, the facts in that case are similar to the case before me.

The second case of Panebianco v. Bendigo Bank Ltd. & Anor (supra) followed the judgment in the above case and arrived at a similar conclusion and or finding. In that case, it also involved a mortgage with an all money clause. At the time of the mortgage, the defendant employed the plaintiff’s husband as a manager. On his dismissal, he admitted to making a number of unauthorized transactions on customers’ accounts and admitted also to cheating on customers’ accounts. He was under police investigations with some charges already laid against him.

In the absence of any authority to the contrary, I find the judgment in the Bankruptcy Estate of Murphy; Donnelly v. Commonwealth Bank of Australia Ltd (supra) and the guidelines for the construction of an "all money" clause persuasive. I therefore accept them as sound and applicable to the circumstances in Papua New Guinea, which are similar to those in Australia, the United States and United Kingdom in terms of banking practice and mortgages generally. As in Australia and elsewhere, we have the Consumer Affairs Council to whom complaints of unfairness and the like could be address. Additionally, there is the Fairness of Transactions Act 1993, which gives a party to a transaction concerned with the fairness of the transaction to go to the Court for a review of the transaction. I note there is no evidence of the defendant utilizing either or both of these remedies open to him. Further, PNG does not exist in a vacuum but amongst a group of nations, where the conduct of businesses is similar with minor variations to meet local requirements. It would be most absurd of PNG to come up with a different construction and thereby face the risk of being rather odd, which might effectively discourage investment in the banking industry, and in particular, the vital function mortgages play in the banking industry, which industry is in turn vital for any economy.

Applying the above guidelines and the principles to the present case, I firstly find that there is no argument by or for the defendant correctly in my view, that, the contra proferentem applies as against the Bank. The reason for this view are as discussed in the Bankruptcy Estate of Murphy; Donnelly v. Commonwealth Bank of Australia Ltd (supra) and those just state above.

Secondly, I accept that the Banks traditionally draw up mortgage terms as widely as possible to cover a multitude of possible eventualities that might affect a repayment of the funds advanced. In that context, banks commonly use wide "all money" clause which is what the Bank used in the present case. We therefore need only to consider whether the alleged fraud in the present case falls within the contemplation of such a clause. The sum effect of the cases relied on by the Bank and discussed in the Bankruptcy Estate of Murphy; Donnelly v. Commonwealth Bank of Australia Ltd (supra) suggest that cases of misappropriation, fraud and theft of a mortgagees funds by a mortgagor fall with the ambit of "all money" clause such as Clause 1, in the present case. The allegation in the present case is one of substantial fraud by the defendant against the Bank. It would therefore appear to come within the ambit of Clause 1.

Nevertheless, going by the third and fourth guidelines the Court needs to determine whether a construction of the provisions of Clause 1 of mortgage covers the cases of possible fraud, such as the one alleged by the Bank. I already quoted the exact wording of Clause 1 in the earlier part of this judgment. The language used in my view is clear. It was drawn with great width and deliberately so as to ensure that there was no doubt as much as was possible that any moneys owing to the Bank are secured, howsoever the obligation may arise. Whilst it may not have been possible for the parties to contemplate the defendant committing a fraud against the Bank during the currency of the mortgage, it was possible for the parties to contemplate that there may arise situations such as that giving rise to debts due and owing to the Bank from the defendant. They could not possibly foresee exhaustively all situations and enumerate them all. They were however in a position to foresee the possibility of additional debts due and owing from the defendant to the Bank in future. Therefore, they agreed to the particular language used in the mortgage to cover the kind of situation that as allegedly arisen.

This construction accords well with the kind of construction given to similar clause in similar mortgages is similar situations to the present as noted in the foregoing. At the same time, it accords well with the basis on which a bank decides to advance moneys and a client the mortgagor agrees to borrow from the bank.

Giving a construction that is contrary to the above will destroy the purpose of the mortgage and the parties’ agreement enshrined therein. It is a well-accepted principle of contract law that, when there is a requirement for the Court to construct or give meaning to the agreement of parties, it must endeavour to give effect to the agreement of the parties and not destroy it. I summed up the law in Tian Chen Limited v. The Tower Limited (20/01/03) N2319 at pp. 20 – 21, after a review and consideration of some of the relevant authorities on the construction of contracts, in these terms:

"It is clear from these authorities that, it is the duty of the Court to uphold the agreement of the parties regardless of whatever difficulties there might be in the construction of their contract. In the exercise of that duty, the Courts must endeavour to uphold the agreement of the parties, particularly in commercial arrangements. This is because the Courts are not there to destroy the agreement of parties but to uphold them. This should readily be the case where the parties have not only agreed but have gone further into implementing their agreement resulting in expenses being incurred by either or both of the parties. In so doing, the Courts can and have ignored words or clause that are meaningless or superfluous following (Nicolene v. Simmonds (1953) 1 QB 543) and supply terms or words as appear reasonable and necessary in the circumstances to give effect to the parties agreement."

I cited with the agreement of Sheehan J (as he than was) these principles with approval and followed them in Papua New Guinea Forest Authority v Concord Pacific Ltd (No 2) (12/09/03) N2465. Earlier on in Fly River Provincial Government v Pioneer Health Services Ltd (24/03/03) SC705, the Court discussed and applied those principles.

The onus was on the defendant to establish a cause either, in terms of the requirements for notice of default or any of the encumbrances developed in equity by the Courts and meet the requirements as noted for restraining a mortgagee from exercising its right as mortgagee. This was necessary because a failure to grant the Bank’s application would effectively restrain the Bank from exercising its right and power as a mortgagee without the defendant asking for such an order. Proceeding on that basis, I note that, the defendant takes no issue on the service of the default notices on him. Similarly, he does not dispute that he is indebted to the Bank. His only dispute is in relation to the amount of his indebtedness particular in relation to the amounts the Bank seeks to include for a fraud allegedly committed against it by the defendant.

I accept the defendants submissions that, the cases, relied on by the Bank are cases in which the cases of fraud or misappropriation were admitted and or not in dispute. However, I reject his submission that they are therefore of no assistance at all. As noted above, these cases are of assistance in relation to the question of whether the Bank can include under Clause 1 of the mortgage the amounts allegedly defrauded. Based on the authorities in question, the short answer to that question is "Yes". The Bank could therefore proceed to exercise its power of sale in aid of which I note the Bank brought the application now before me.

The only way in which the defendant could prevent the Bank from exercising its power of sale is by bringing into Court the amounts in dispute. That is the clear import of the law on point as already outlined above. The defendant’s evidence and arguments do not cover this aspect in anyway. It follows therefore that, there is nothing to prevent this Court from granting the Banks application for an eviction of the defendant from the property the subject of the mortgage. Accordingly, I make orders in terms of paragraphs, 1, 2, 3 of the Banks notice of motion dated and filed on 16th December 2003. I also order costs to follow the event.

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Lawyers for the Plaintiff: Allens Arthur Robinson Lawyers

Lawyers for the Defendant: Yapao Lawyers