Torato v PNG Home Finance Ltd [2012] PGNC 4; N4583 (31 January 2012)

N4583

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 1173 OF 2009

BETWEEN:

ESTHER TORATO
Plaintiff

AND:

PNG HOME FINANCE LIMITED
First Defendant

AND:

JEFFREY YAKOPYA
Second Defendant

AND:

RAGA KAVANA, Registrar of Titles
Third Defendant

AND:

INDEPENDENT STATE OF PAPUA NEW GUINEA
Fourth Defendant

Waigani: Hartshorn, J.
2011: 13th September,
2012: 31st January

Sale of property by mortgagee – effective date of registration of mortgage – s. 27 Land Registration Act considered – notice requirements on mortgagee sale – obligations upon mortgagee when selling property – true market value

Facts:

The first defendant, PNG Home Finance Ltd sold a property owned by the plaintiff Ms. Esther Torato, by mortgagee sale to the second defendant Mr. Jeffery Yakopya. Ms. Torato alleges that the mortgagee sale was performed fraudulently by Home Finance as its mortgage was not registered, the requisite notice of the sale was not given and that Home Finance was negligent in selling the property for a sum below its market value. Further Ms. Torato alleges that Mr. Yakopya acted fraudulently in his purchase of the property.

Held:

1. Pursuant to s. 27 Land Registration Act, as the mortgage is registered, and was produced on 5th September 2007, the date of the mortgage's registration is deemed to be 5th September 2007. The mortgage was deemed to be registered at the time that the property was advertised for sale by Home Finance on 8th July 2009.

2. Home Finance has complied with the notice requirements under the Land Registration Act.

3. There is no satisfactory evidence indicating that Home Finance was negligent in its sale of the property or that it did not take reasonable care to obtain the true market value of the property at the moment it chose to sell the property.

Cases Cited:
Papua New Guinea cases

Nil

Overseas Cases

Cuckmere Brick Co Ltd v. Mutual Finance Ltd [1971] EWCA Civ 9; (1971) 2 All ER 633
Silven Properties Ltd v. Royal Bank of Scotland [2003] EWCA Civ 1409

Counsel:

Ms. M. Kokiva, for the Plaintiff
Mr. A. Chillion, for the First Defendant
Mr. N. K. Magela, for the Second Defendant

31st January, 2012

1. HARTSHORN, J: The first defendant, PNG Home Finance Ltd (Home Finance) sold a property owned by the plaintiff Ms. Esther Torato, by mortgagee sale to the second defendant Mr. Jeffery Yakopya.

2. Ms. Torato alleges that the mortgagee sale was performed fraudulently by Home Finance as its mortgage was not registered, the requisite notice of the sale was not given and that Home Finance was negligent in selling the property for a sum below its market value. Further, Ms. Torato alleges that Mr. Yakopya acted fraudulently in his purchase of the property.

Whether Home Finance acted fraudulently

3. Ms. Torato alleges that the mortgage to Home Finance from Ms. Torato pursuant to which Home Finance sold the property, was not registered on the State Lease for the property at the time that the property was advertised for sale by Home Finance on 8th July 2009. Therefore, Ms. Torato contends, Home Finance did not have the power to sell the property under the Land Registration Act (LRA) and misrepresented that it did have the power of sale to the public.

4. Home Finance submits that notwithstanding that its mortgage was not entered upon the State Lease until 3rd September 2009, it had been lodged for registration in August 2007. The delay in registration was caused by the Lands Department and not Home Finance. Confirmation that its mortgage had been lodged in 2007 is evidenced by the endorsement on the State Lease for the property (annexure "V" of Ms. Torato's affidavit) exhibit 2. The endorsement specifies that the mortgage was, "Produced 05/09/2007 at 9.24 am entered 07/08/2009."

5. Ms. Torato relies upon sections 17, 26, 33 and 63 of the LRA to support her argument that a mortgagee is not able to sell a property over which it has an unregistered mortgage. It is noteworthy that no reference is made to s. 27 LRA by Ms. Torato as s. 27 is concerned with amongst others, the status of an instrument when it is produced for registration. Section 27 LRA is as follows:

"27. Effective date of registration.

(1) An instrument, when registered, takes effect from the date when it was produced to the Registrar for registration which date shall be specified in the certificate of title or other instrument issued by the Registrar.

(2) The date of production of an instrument to the Registrar for the purpose of registration shall be deemed to be the date of registration of the instrument."

6. Pursuant to s. 27 LRA, as the mortgage is registered, and was produced on 5th September 2007, the date of the mortgage's registration is deemed to be 5th September 2007. The mortgage then, was deemed to be registered at the time that the property was advertised for sale by Home Finance on 8th July 2009. Consequently this allegation of Ms. Torato fails.

Whether the requisite notice of the sale was given

7. Ms. Torato alleges that the requisite notice under the LRA in respect of a property to be sold by a mortgagee, was not given by Home Finance.

8. Home Finance submits that:

a) a written notice of demand dated 26th May 2009 was sent to Ms. Torato by registered mail on 1st June 2009 to PO Box 4335 Boroko NCD. A copy of the registered mail receipt is in evidence, as is a copy of the default notice. The notice of demand gave Ms. Torato 14 days to pay the amount outstanding. The address is that specified for Ms. Torato in the mortgage, the Department of Lands mortgage form and the Floating Rate Loan Agreement (FLRA).

b) a second notice was sent to Ms. Torato dated 17th June 2009 by registered mail on 23rd June 2009 to the same address. A copy of the registered mail receipt and notice is in evidence. This notice gave Ms. Torato a further seven days to pay the amount outstanding.

c) on 10th July 2009 the property was advertised for sale by tender with tenders closing on 24th July 2009.

d) there is no evidence to suggest that the Post Office returned the registered letters as uncollected or unanswered.

9. Ms. Torato alleges in her statement of claim that Home Finance did not give her the 30 days notice or other expressed period of notice pursuant to s. 67 (1) and s. 73 LRA. As to this, s. 67 LRA does not require 30 days notice to be given to a debtor and s. 73 LRA permits the period specified in s. 68 (1) (a) or (b) to be extended or reduced. In this regard, I note that clause 3.12 of the mortgage reduces the period in s. 68 (1) to 24 hours.

10. Ms. Torato further submits that the requisite notices, if sent by registered post, should not have been, as there is no provision in the mortgage or LRA permitting this. As to the mortgage, clause 6.5 provides that any notice shall be given in accordance with the Agreement. The Agreement is defined in item 5 of the Schedule as the, "Agreement intended to bear even date herewith.". That I assume, is the FRLA which is dated the same date as the mortgage. There is no specific provision in the FRLA concerning how notice is to be given. This may be because the copy of the FRLA annexed to the affidavit of Ms. Torato could be incomplete. As to this, it is for the plaintiff to ensure that the requisite evidence to prove her case is before the court. In any event, there is no provision in the FRLA before the court that either allows or prohibits notice being given by registered mail. The address of the plaintiff in the FRLA and mortgage is the address to which Home Finance maintains the requisite notice was sent by registered mail.

11. As to the requirements of the LRA as to notice, s. 67(2) (c) LRA provides that a notice of default may be given to the debtor by leaving the notice at the usual or last known address in the country of the debtor. That provision does not exclude a post office box address as being an address to which a notice of default may be sent. No case authorities were relied upon or cited by Ms. Torato to the effect that s. 67 (2) (c) LRA should be interpreted as Ms. Torato would prefer. The fact that Home Finance sent the notices by registered mail, to my mind, is indicative of it attempting to ensure that the notices reached the address specified in the FRLA and mortgage specified for and agreed to by Ms. Torato.

12. I am satisfied that Home Finance has complied with the notice requirements under the LRA. A further submission by counsel for Ms. Torato is that notice should have been given after the mortgage was registered on 7th August 2009. I have already dealt with the registration issue. Ms. Torato has not shown that there are any additional notice requirements to be met. This submission has no substance and is without merit.

Whether Home Finance was negligent in selling the property for a sum below its market value

13. Ms. Torato alleges that Home Finance had a duty of care to obtain the true market value of the property at the time of sale and relies upon the English decision of Cuckmere Brick Co Ltd v. Mutual Finance Ltd [1971] EWCA Civ 9; (1971) 2 All ER 633 which has been cited with approval in numerous decisions of this court. Ms. Torato relied upon the following passage in Cuckmere (supra):

"In exercising the power of sale, however, the mortgagee was not merely under a duty to act in good faith, ie honestly and without disregard for the mortgagor's interest, but also to take reasonable care to obtain whatever was the true market value of the mortgaged property at the moment he chose to sell it."

14. Ms. Torato alleges that Home Finance did not act in good faith as its mortgage was not registered for two years and so it did not have the power to sell, it did not comply with the notice requirements, it refused to consider an amicable alternative to a sale, it did not withdraw the mortgagee sale and it refused to take reasonable care to obtain the true market value.

15. I have already considered the registration and notice issues. They have no merit.

16. As to Home Finance's refusal to consider an amicable alternative and to withdraw the mortgagee sale, the evidence is that when Ms. Torato's lawyer wrote demanding the withdrawal of the sale and requesting that there be negotiations, Home Finance extended the time by which Ms. Torato must pay her arrears under the mortgage loan, which at that stage was about K20,500.00, by one month. Ms. Torato failed to pay her arrears.

17. In regard to the nature of the duty referred to in Cuckmere (supra) concerning reasonable care being taken by the mortgagee to obtain the true market value, I have had recourse to the English Court of Appeal decision of Silven Properties Ltd v. Royal Bank of Scotland [2003] EWCA Civ 1409. Such decisions are persuasive in our jurisdiction. In Silvan (supra), a mortgagee's position is described as:

"A mortgagee "is not a trustee of the power of sale for the mortgagor". This time-honoured expression can be traced back at least as far as Sir George Jessel MR in Nash v Eads (1880) 25 Sol Jo 95. In default of provision to the contrary in the mortgage, the power is conferred upon the mortgagee by way of bargain by the mortgagor for his own benefit and he has an unfettered discretion to sell when he likes to achieve repayment of the debt which he is owed: see Cuckmere Brick Co v Mutual Finance Ltd [1971] Ch 949 ("Cuckmere") at 969G. A mortgagee is at all times free to consult his own interests alone whether and when to exercise his power of sale. The most recent authoritative restatement of this principle is to be found in Raja v Austin Gray [2002] EWCA Civ 1965 paragraph 95 per Peter Gibson LJ ("Raja"). The mortgagee's decision is not constrained by reason of the fact that the exercise or non-exercise of the power will not occasion loss or damage to the mortgagor: see China and South See Bank Ltd v. Tan Soon Gin [1989] UKPC 38; [1990] 1 AC 536. It does not matter that the time may be unpropitious and that by waiting a high price could be obtained: he is not bound to postpone in the hope of obtaining a better price: see Tse Kwong Lam v Wong Chit Sen [1983] UKPC 28; [1983] 1 WLR 1349 at 1355B."

Before Silvan (supra), in Cuckmere (supra), upon which Ms. Torato relies, Salmon LJ said:

"It is well settled that the mortgagee is not a trustee of the power of sale for the mortgagor. Once the power has accrued, the mortgagee is entitled to exercise it for his own purposes whenever he chooses to do so. It matters not that the moment maybe unpropitious and that by waiting a higher price could be obtained. He has the right to realise his security by turning it into money when he likes. Nor, in my view, is there anything to prevent a mortgagee from accepting the best bid he can get at an auction, even though the auction is badly attended and the bidding exceptionally low. Providing none of those adverse factors is due to any fault of the mortgagee, he can do as he likes. If the mortgagee's interests, as he sees them, conflict with those of the mortgagor, the mortgagee can give preference to his own interests, which of course he could not do were he trustee of the power of sale for the mortgagor."

18. As to obtaining the true market value, there is no evidence that Home Finance was negligent. There is no evidence to suggest that Home Finance did not advertise properly or that the bids that were received were in some way compromised. There is evidence of a purported valuation of the property in April 2009 for K1.2 million which Ms. Torato maintains is the true market value. However, it is one thing to have a valuation, the opinion of the person who conducts the valuation; it is another to be able to ascertain the true market value of a property. To determine the true market value at the time that the mortgagee chooses to sell the property, a mortgagee must subject the property to the market. This, Home Finance did by advertising the property for sale. Home Finance received 5 bids and sold to the highest bidder for K502,000.00. This is over K100,000.00 more than the valuation used by Home Finance in April 2007 when considering whether to make a loan to Ms. Torato. The amount received for the property was sufficient to pay Ms. Torato's debt to Home Finance and to leave a surplus of about K177,500.00.

19. I am not satisfied on the evidence that Home Finance was negligent in its sale of the property or that it did not take reasonable care to obtain the true market value of the property at the moment it chose to sell the property.

20. As to whether Ms. Torato was prevented from exercising her right of redemption, I have referred to the extension of time that Home Finance gave for Ms. Torato to pay the arrears owing. There is also no evidence of Ms. Torato offering to completely pay the debt she owed to Home Finance and any such offer being rejected. I am not satisfied that Ms. Torato was in some way prevented from exercising her right of redemption.
Mr. Yakopya

21. In regard to Ms. Torato's allegations against Mr. Yakopya, they concern the alleged non registration of Home Finance's mortgage and whether the market value of the property was greater than the price Mr. Yakopya paid. Even if Ms. Torato were to have a cause of action against Mr. Yakopya in respect of any of these allegations, I have already dealt with the mortgage registration and true market value issues. The allegations against Mr. Yakopya have no merit.

Orders

a) This proceeding is dismissed.
b) The plaintiff is to pay the first and second defendants' costs of and incidental to the proceeding.
___________________________________________________________

Martha & Associates: Lawyers for the Plaintiff
Warner Shand Lawyers: Lawyers for the First Defendant
Nikiuma Lawyers: Lawyers for the Second Defendant