Westpac Bank PNG Ltd v Sambeok [2014] PGNC 162; N5810 (4 November 2014)

N5810

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

OS NO 796 OF 2013

WESTPAC BANK PNG LIMITED
Plaintiff

V

JOHN SAMBEOK & EVELYN SAMBEOK
Defendants

Waigani: Cannings J
2014: 22, 24 October, 4 November

MORTGAGES – claim by mortgagee for possession of land secured by mortgage – alleged default of mortgagors – interests of persons in occupation of land – death of mortgagor.

The plaintiff bank commenced proceedings by originating summons against the occupiers of land over which it held a registered mortgage. The plaintiff claimed that it was entitled to take possession of the land and sell it, as the mortgagor company and its director (now deceased) had defaulted on the loan agreement that was secured by the mortgage. The plaintiff claimed that it had already entered into a contract for sale of the land to a third party and under that contract it was obliged to provide vacant possession. The defendants claimed that they were occupying the land with the permission of the Public Curator, the administrator of the estate of the deceased mortgagor, and that they had entered an agreement with the Public Curator to buy the land and paid a deposit for that purpose.

Held:

(1) A mortgagee who makes a claim for possession of property pursuant to a mortgage must substantiate its claim by proving the existence of the loan agreement under which the mortgage has been executed, the nature and extent of the default of the mortgagor, adherence to the procedure provided by the mortgage or by law for it to exercise the power of possession and sale of the property and compliance with its duty as mortgagee to act in good faith regarding the mortgagor's interests and make a reasonable effort to sell the property at market value.

(2) Here, the plaintiff failed to provide sufficient evidence of all of those matters: the loan agreement was not adduced in evidence, the identity of the mortgagors was unclear, there was no evidence of the nature and extent of the alleged default or any notice given to the mortgagors under the mortgage or the Land Registration Act; and there was no evidence that the plaintiff had acted in good faith and complied with its duties as mortgagee regarding the mortgagor's interests. Furthermore, there was uncertainty over the identity of the administrator of the deceased's mortgagor's estate, and there was no evidence that the plaintiff had given notice to that person of its proposed possession of the land.

(3) Furthermore the jurisdictional basis of the orders sought by the plaintiff was unclear and there were other inadequacies in the plaintiff's case which meant that the plaintiff had failed to prove its case.

(4) All relief sought by the plaintiff was refused and costs ordered against it but rather than dismissing the proceedings the Court ordered mediation of all issues in dispute.

Cases cited

The following cases are cited in the judgment:

Air Niugini v Elizabeth Talum [1992] PNGLR 296
Anego Company Ltd v Finance Corporation Ltd (2013) N5391
ANZ Banking Group (PNG) Ltd v Kila Wari (1990) N801
Bank of Papua New Guinea v Muteng Basa [1992] PNGLR 271
Bank South Pacific Ltd v Dennis Pundia (2012) N4747
Bank South Pacific Ltd v Public Curator (2003) N2320
David Nelson v Credit Corporation (PNG) Ltd (2011) N4368
Esther Torato v PNG Home Finance Ltd (2012) N4583
Golobadana No 35 Ltd v Bank of South Pacific Ltd (2002) N2309
Magiten v Moses, Anawon, Tovea and Rural Development Bank Ltd (2006) N5008
Max Umbu v Steamships Ltd (2004) N2738
Negiso Investments Ltd v PNGBC (2003) N2439
Pija Grannies Ltd v Rural Development Bank Ltd (2011) SC1327
PNGBC v Bara Amevo [1998] PNGLR 240
PNGBC v Pala Aruai (2002) N2234
Rage Augerea v Bank South Pacific Ltd (2007) SC869
Samuel Aiye Nema v Rural Development Bank Ltd (2012) N5317
Samuel Aiye Nema v Rural Development Bank Ltd (2013) SC1243
Walter Perdacher v PNGBC (1997) N1637
Westpac Bank PNG Ltd v Miai Suve Larelake (2008) N3247

ORIGINATING SUMMONS

The plaintiff, claiming mortgagee rights of possession, sought orders for possession of property against the defendants.

Counsel

A Warokra, for the plaintiff
W Mapiso, for the defendants

4th November, 2014

1. CANNINGS J: At the centre of this case is a residential property in Tokarara, Port Moresby: Section 140, Allotment 4. It is presently occupied by the defendants, John Sambeok and Evelyn Sambeok. The plaintiff, Westpac Bank PNG Ltd, applies by originating summons for orders for possession of the property.

2. The plaintiff says that it holds a registered mortgage over the property granted to it by the company to which it lent money to purchase the property, the registered proprietor, A & A Homes Ltd. The plaintiff says the mortgagor, A & A Homes Ltd, and its director, Jonathan Ninkama (deceased), defaulted on their loan obligations and that it is exercising its power as mortgagee to take possession of the property and sell it. It has already entered into a contract to sell it to a third party. The plaintiff says that the defendants have no right to stay on the property. Mrs Warokra, for the plaintiff, submitted that the plaintiff was exercising its mortgagee rights under Section 74 of the Land Registration Act Chapter No 191.

3. The defendants say that they have occupied the property since 2012 with the consent of the Public Curator, the administrator of the estate of the late Jonathan Ninkama. They say that the late Mr Ninkama was the sole director and shareholder of A & A Homes Ltd and that Mr Ninkama's widow agrees with their occupation of the property. They say that they have entered into an agreement with the Public Curator to purchase the property for K280,000.00 and have paid a 10% deposit and spent more than K200,000.00 improving the property on the understanding that title would be transferred to them. Mr Mapiso, for the defendants, submitted that the Court should refuse to grant the orders sought by the plaintiff, which was failing to recognise the defendants' equitable interest in the property and refusing to take a human approach to the problem.

TESTING A MORTGAGEE'S CLAIM FOR POSSESSION OF PROPERTY

4. There have been many cases in which mortgagees have made successful applications for the type of orders being sought by the plaintiff, eg Bank of Papua New Guinea v Muteng Basa [1992] PNGLR 271, PNGBC v Bara Amevo [1998] PNGLR 240, Bank South Pacific Ltd v Public Curator (2003) N2320, Max Umbu v Steamships Ltd (2004) N2738, Bank South Pacific Ltd v Dennis Pundia (2012) N4747, Samuel Aiye Nema v Rural Development Bank Ltd (2013) SC1243. These cases show that a mortgagee which seeks orders for possession of property pursuant to a mortgage must prove its claim by first specifying the jurisdictional basis of the orders being sought, and then providing evidence of the following:

1. The existence of the loan agreement that gave rise to the mortgage.
   
2. Identity of the mortgagors.
   
3. The nature and extent of the default of the mortgagors.
   
4. Adherence to the procedure provided by the mortgage and/or by legislation for it to exercise the power of possession and sale of the property.
   
5. Compliance with its duty as mortgagee to act in good faith regarding the mortgagor's interests and make a reasonable effort to sell the property at market value.
   
6. Adequate notice, of the intention to take possession of the property and sell it, and of the court proceedings, has been given to not only the mortgagors but other persons who may have a genuine interest in the property.
   

THIS CASE

5. I refuse to make the orders sought by the plaintiff for three reasons:

• it has failed to clarify the jurisdictional basis of the orders it seeks;
• it has failed to provide sufficient evidence in support of its application;
• there are other inadequacies in the plaintiff's case that make it inappropriate to grant the orders sought.
  

Jurisdictional matters

6. By the originating summons the plaintiff seeks five orders:

1. An order that the Defendants give vacant possession to the Plaintiff of land described and known as Allotment 4, Section 140, Hohola, National Capital District (the Property) being subject of State Lease Volume 42 Folio 77.
   
2. An order that the Defendants to give vacant possession of the Property to the Plaintiff within 14 days of the date of judgment.
   
3. An order that leave be granted for a Writ of Possession to be issued for the Property.
   
4. An order that the plaintiff's costs of the proceedings be paid by the Defendants on an indemnity basis.
   
5. Any other or further order as this Honourable Court deems appropriate.
   

7. Numbers 1, 2 and 3 run together and are the primary relief sought. Mrs Warokra submitted that these orders should be granted under Section 74 (mortgagee may enter and take possession, etc) of the Land Registration Act, which states:

(1) Where default is made in payment of any secured money, a creditor may—

(a) enter into possession of the mortgaged or charged land by receiving the rents and profits of the land; or

(b) distrain on the occupier or tenant of the land under the power to distrain conferred by Section 75; or

(c) bring an action of ejectment to obtain possession of the land.

(2) The creditor may bring an action under Subsection (1)(c) before or after exercising a remedy—

(a) referred to in this section; or

(b) conferred by Section 68.

(3) A creditor is entitled by action or other proceedings in the Court to foreclose the right of the debtor to redeem the mortgaged or charged land.

8. However, it has not been specified in the originating summons or in submissions which provisions of Section 74 are relied on as the jurisdictional basis for the orders sought. Presumably it is Section 74(1)(c) and these proceedings are best described as an action in ejectment. But the Court and the defendants have been left to sort that out themselves.

9. A similar situation pertains to the third order sought. The plaintiff seeks leave to issue a writ of possession, but the jurisdictional basis for the granting of leave or issuance of such a writ (which would appear to be Order 13, Rule 3 (possession of land) of the National Court Rules) has not been set out in the originating summons or adequately explained in submissions. In any event, a writ of possession is issued as a means of enforcement of a judgment for possession of land (Air Niugini v Elizabeth Talum [1992] PNGLR 296, Samuel Aiye Nema v Rural Development Bank Ltd (2012) N5317, Samuel Aiye Nema v Rural Development Bank Ltd (2013) SC1243). Here the plaintiff is being refused such a judgment, so leave to issue a writ of possession will also be refused.

Insufficient evidence

10. I make the following observations on the evidence adduced by the plaintiff:

1. The loan agreement has not been adduced in evidence.
   
2. The identity of the mortgagors is unclear: is it A & A Homes Ltd? Jonathan Ninkama? Both? Some other person(s)? Was Mr Ninkama or some other person(s) a guarantor of the mortgage?
   
3. There is no evidence of the nature and extent of the alleged default of the mortgagor(s).
   
4. There is no evidence of any default notice given to the mortgagors under the mortgage or under the Land Registration Act (eg under Section 67).
   
5. There is no evidence that the plaintiff acted in good faith and complied with its duties as mortgagee regarding the mortgagors' interests. The nature and extent of a mortgagee's duties to act honestly having regard to the mortgagors' interests and in particular to preserve the mortgagor's equity of redemption and take reasonable care, if selling the property, to obtain its true market value, have been outlined in numerous cases, eg ANZ Banking Group (PNG) Ltd v Kila Wari (1990) N801, Walter Perdacher v PNGBC (1997) N1637, Golobadana No 35 Ltd v Bank of South Pacific Ltd (2002) N2309, PNGBC v Pala Aruai (2002) N2234, Negiso Investments Ltd v PNGBC (2003) N2439, Westpac Bank PNG Ltd v Miai Suve Larelake (2008) N3247, Esther Torato v PNG Home Finance Ltd (2012) N4583, Anego Company Ltd v Finance Corporation Ltd (2013) N5391. Banks in Papua New Guinea are also subject to an overriding duty to be reasonable and fair in loan transactions (Rage Augerea v Bank South Pacific Ltd (2007) SC869, Pija Grannies Ltd v Rural Development Bank Ltd (2011) SC1327, Magiten v Moses, Anawon, Tovea and Rural Development Bank Ltd (2006) N5008, David Nelson v Credit Corporation (PNG) Ltd (2011) N4368). Here, there is a dearth of evidence on compliance with these duties. The plaintiff's Legal Unit Manager Jenny Lakoro was cross-examined as to whether the plaintiff had secured an independent valuation of the property or inspected the property before entering into the contract of sale. Her response, which was to say that bank officers tried to inspect the property but there was nobody home when they went there, is indicative of what appears to have been an overly casual approach by the plaintiff to the sale of this property, and indeed to these proceedings.
   
6. There is no evidence that the plaintiff has given notice of these proceedings to anyone other than the occupiers of the property. It is reasonably to be expected that the mortgagor(s) would have been joined as defendants and that, because one of those mortgagors (Jonathan Ninkama) is allegedly deceased, the administrator of his deceased estate would be joined as a defendant. It appears that the administrator is the Public Curator but there is no clear evidence of that either, indeed there seems to have been a dispute about who is the administrator of the deceased estate, as there are a number of references in the evidence to another person, the principal of Warner Shand Lawyers, Mr Michael Wilson, at one stage being the administrator.
   

Other inadequacies in the plaintiff's case

11. There is no direct evidence of the death of Mr Ninkama or his date of death or whether he left a will. There is a letter from the Public Curator annexed to an affidavit of the first defendant suggesting that Mr Ninkama died intestate (without leaving a will) on 9 February 2011. But it is reasonably to be expected that such evidence about someone who is alleged to be a defaulting debtor (though there is no firm evidence that he was in fact a mortgagor; perhaps he was a guarantor) would have been tendered by the plaintiff.

12. If Mr Ninkama's date of death was in fact 9 February 2011, it is interesting to note that according to the State Lease (granted to the National Housing Corporation on 30 August 2010), the following transactions were all registered on a date, 30 November 2011, which post-dated the date of death by nine months:

• transfer from NHC to Steven Mendai Kambu;
• transfer from Steven Mendai Kambu to A & A Homes Ltd;
• mortgage to Westpac Bank PNG Ltd.
  

13. Ms Lakoro gave evidence that the mortgage instrument annexed to her affidavit (exhibit P1) was lodged well before the date of registration, but she was unable to say what the date of lodgement was. This probably explains why the date of the mortgage is shown as 25 October 2010, but it remains curious that the date of production of the instrument is shown as 25 November 2011.

14. It is interesting to note that the sole mortgagor is shown as A & A Homes Ltd, which suggests that Mr Ninkama was a guarantor of the loan to A & A Homes Ltd. But really, the Court should not have to engage in speculation or educated guesswork on such matters.

15. Another curious aspect of this case is Ms Lakoro's evidence that, despite the defendants being in occupation of the property for a considerable period and uncertainty about the plaintiff's right to possess and sell it, the plaintiff entered into a contract for sale of the property to a third party for the sum of K350,000.00. A copy of the contract has been adduced in evidence but it is undated and Ms Lakoro was unable to provide the Court with the date of execution of the contract.

WHAT ORDERS SHOULD THE COURT MAKE?

16. The plaintiff has failed to prove that it has the right to possess, or sell, the property, so the relief it seeks in paragraphs 1, 2 and 3 of the originating summons is refused. The order for costs sought in paragraph 4 is presumptuous and is refused as the plaintiff's application is wholly unsuccessful. The orders sought by paragraph 5 will be granted but not in any way contended for by the plaintiff.

17. I have considered making an order for dismissal of the whole proceedings. However, that would leave unresolved the questions of who has the right to occupy and own the property. I have decided that mediation is a better option. Under Section 7B (power to order mediation etc) of the National Court Act the Court can order mediation at any stage of the proceedings, with or without the consent of the parties. I have had regard to the matters set out in Rule 5(3) of the ADR Rules. I consider that:

(a) mediation will not result in prejudice to the rights of either party;

(b) it is reasonably within the ability and power of the parties to comply with a mediation order;

(c) mediation will not entail substantial work for the parties;

(d) the nature of the relief sought lends itself to mediation;

(e) a mediation can be set up soon and this should be convenient to the parties;

(f) neither party has expressed opposition to the prospect of mediation;

(g) mediation has not yet been attempted and it should be attempted at least once before consideration is given for a further trial or dismissal of the proceedings;

(h) the parties do not necessarily lose the right to have any remaining areas of dispute tried in court; and

(i) it is in the interests of justice to attempt mediation as a method of resolving disputes such as this and it will provide the opportunity for those persons who are not parties but who have an interest in the property to have their voices heard.

18. I will refer all questions relating to possession and ownership of the property to mediation. I suggest that the following parties be invited by the Mediator to join the mediation: the Public Curator, A & A Homes Ltd and other persons who the Mediator considers has a genuine interest in the property or the outcome of the proceedings.

19. As to costs, the defendants have repelled the plaintiff's application, and they deserve an order for costs on a party-party basis.

ORDER

(1) The relief sought in the originating summons is refused.

(2) The question of appropriate orders and declarations that will determine these proceedings by addressing all remaining areas of dispute is pursuant to Section 7B of the National Court Act and Rule 5(2) of the ADR Rules referred to an accredited mediator, in accordance with the ADR Rules and a separate mediation order.

(3) For the avoidance of doubt the defendants are entitled to occupy the property on an interim basis until further order of the Court.

(4) The plaintiff shall pay the defendants' costs of the proceedings to date, on a party-party basis, which shall, if not agreed, be taxed.

(5) Time for entry of this order is abridged to the date of settlement by the Registrar, which shall take place forthwith.

__________________________________________________________________
Bradshaw Lawyers: Lawyers for the Plaintiff
Guardian Legal Services: Lawyers for the Defendants