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National Court of Papua New Guinea |
N8123
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NO. 1206 OF 2019
BETWEEN
VINCENT MIRUPASI
First Plaintiff
AND
COURTABELLE INVESTMENTS LIMITED t/as HOTEL HODAVA
Second Plaintiff
AND
AUSTRALIA AND NEW ZEALAND BANKING GROUP (PNG) LIMITED
First Defendant
AND
DELOITTE TOUCHE TOMATSU LIMITED trading as DELOITTE
Second Defendant
Waigani: Makail, J
2019: 13th & 18th November
PRACTICE & PROCEDURE – Application for interim injunction – Restraining of sale of property – Property given as security for loan – Outstanding loan – Right of mortgagee to sell property – Right of mortgagor to redeem property
PRACTICE & PROCEDURE – Application to retire or remove Receiver – Receiver appointed to sale property – Appropriate mode of proceedings – Companies Act, 1997 – Section 284
PRACTICE & PROCEDURE – Application to sanction or approve Receiver’s fees or bills and work – Appropriate mode of proceedings – Companies Act, 1997 – Section 283
Cases Cited:
Employer’s Federation of PNG v. PNG Waterside Workers Unions & Ors (1982) N393
Kumul Consolidated Holdings v. Kurkuramb Estates Limited (2017) N7429
Markscal Limited & Robert Needham v. MRDC, The State & Ors [1996] PNGLR 419
Ning’s Trading Pty Ltd v. ANZ Banking Group (PNG) Ltd (2001) N1700
Rage Augerea v. Bank South Pacific Ltd (2007) SC869
Rooney v. Forest Industries Council [1990] PNGLR 408
Vincent Mirupasi & Courtabelle Investments Limited v. ANZ Bank (2019) N7937
Counsel:
Mr. M. Pokia, for Plaintiffs
Mr. E. Andersen with Ms. M. Tusais, for Defendants
INTERLOCUTORY RULING
18th November, 2019
(a) An interim injunction to restrain the second defendant as Receiver/ Manager from taking steps to or towards selling the land described as Allotments 10, 11 and 12, Section 2, Hodava Avenue until further order.
(b) An order that the second defendant as Receiver/Manager be retired or removed as the Receiver/Manager of the second plaintiff as the circumstances no longer require his retention or continuation as the Receiver/Manager of the second plaintiff.
(c) An order that the second defendant’s fees or bills be sanctioned or approved by the Court before any payment or whatever
work or period the second defendant charges.
2. The orders sought are a result of the first defendant’s actions in exercising its right under a mortgage agreement to sell
the land and recoup an outstanding sum of money borrowed by the plaintiffs in October 2014. Located on the land is a hotel called
Hotel Hodava. One of the securities given to the first defendant by the plaintiffs in exchange for a loan of K11.1 million was a
mortgage over the land.
3. The first defendant claims that the plaintiffs have defaulted in repaying the sum borrowed and a sum of about K10 million is due and outstanding.
Interim Injunction
4. Parties have correctly identified the principles on interim injunctions and various National Court and Supreme Court cases which
applied those principles and it would be repetitious to restate them save to refer to them where applicable.
5. Secondly, the documentation produced by the parties was quite substantial comprising of bank records of the loan, sum outstanding and due, securities, tax liability, outstanding payments of employer/employee contributions to National Superannuation Fund (“Nasfund”) and valuation reports, to name a few. As for the plaintiffs, the documents comprised of bank documents and records including letters of offers by interested buyers of the hotel.
6. As the documentation is quite substantial, it will require a detailed consideration of facts and for the present application, it will be sufficient to refer to the facts that will be relevant to the issues raised between the parties.
Serious question to be tried
7. The issue of whether there is a serious question to be tried is one of fact and law because where there is a dispute in relation
to the facts, it requires the Court to consider the evidence and make a finding of fact. Similarly, a consideration of two differing
interpretations or views on a legal principle or law or application of the legal principle or law to the facts of a case gives rise
to a question of law for the Court’s decision. The question of whether there is a serious question to be tried is not always
easy and clear-cut but the more the arguments by parties it would not be difficult to find a much stronger case in favour of the
applicant on this question.
8. There is no question about the plaintiffs’ default on their loan repayment. However, there was much said between the parties in relation to first, the outstanding sum and second, the right of the plaintiffs as mortgagor to redeem the hotel and land.
Outstanding sum
9. As to the first issue, the plaintiffs argue that they do not owe about K10 million to the first defendant. They say the sum due
and owing is much less than that because they had repaid a sum of K4.1 million. The question of how much is due and outstanding
to the first defendant is a question of fact because it will require a detailed consideration of the evidence tendered by the parties.
A detailed consideration of the evidence will only be possible at trial and not by way of an interlocutory motion.
10. For example, there is no question that the plaintiffs are clear on the payments made to the first defendant since the drawdown in November 2014 to 19 February 2016. A sum of K4,110,000.00 was tendered to pay off the loan and they say that this sum was sufficient to significantly reduce the loan balance but amazingly, they still owe the first defendant quite a substantial sum. The defendants deny the plaintiffs’ claim by explaining that the sum repaid by the plaintiffs was less than K4,110,000.00 and out of this sum, K437,984.335 went towards reducing the loan balance, and not K3,972,015.65. This remaining balance was for interest and administration fees and they were well informed of this.
11. Another example is interest and administration fees. While the plaintiffs have accepted that they have agreed to pay interest and administration fees, they dispute the sum claimed. In addition, a second loan agreement was entered between the plaintiffs and first defendant purposely to fund the first plaintiff’s children’s school fees conditional upon the plaintiffs repaying the first defendant at a higher interest rate, increased payment and no further funding.
12. The plaintiffs contend that the conditions imposed by the first defendant moreover the high interest rate and administration fees amounted to not only unreasonable and unfair conduct by the first defendant such that their right to redeem the hotel and land has been fettered and clogged but also in breach of the first defendant’s statutory duty under Section 67(1) (Notice of default) and Section 68(1) (Sale of property by mortgagee, etc) of the Land Registration Act. That is, the notice given by the first defendant of the outstanding loan included unreasonable charges, fees and interest and should be declared invalid such that it should not be allowed to sell the hotel and land. Furthermore, they say that the first defendant’s conduct was in breach of or unfair, unjust and unreasonable within the meaning of Sections 4 and 5 of the Fairness of Transaction Act, 1993.
13. These claims were strongly refuted by the defendants who argued that they raise no serious issues for further consideration because there is no evidence that the plaintiffs were ‘forced’ to sign the agreement or accept the conditions of the second loan and that, they do not deny receiving the notice under Section 67(1) (supra) and should be estopped from denying it.
14. The questions that come to bear are the claim by the plaintiffs of being ‘forced’ to accept the conditions of the second loan, rate of default interest and rate of administration fees. How much are the rates of default interest and similarly, administration fees? In retrospect, are the plaintiffs estopped from disputing the interest and fees charged in the notice? The defendants attempted to answer these questions in their submissions with reference to the evidence but again, these are factual questions which must be answered after careful consideration of the evidence at trial.
Mortgagor’s right of Redemption
15. Following on from these considerations is the mortgagor’s equity of redemption. As a matter of clear law, a borrower has
an equity of redemption which can be exercised at any time until a contract of sale is entered into by the first defendant as mortgagee:
Ning’s Trading Pty Ltd v. ANZ Banking Group (PNG) Ltd (2001) N1700 and affirmed by the Supreme Court in Rage Augerea v. Bank South Pacific Ltd (2007) SC869.
16. The plaintiffs have that option to pursue. The first defendant has given the plaintiffs since 2017 to redeem the land. During that period that the plaintiffs gave names of two potential buyers to the defendants, first being Evangelical Lutheran Church of Papua New Guinea in September 2019 and second being Development Corporation Limited also in September 2019. There were some more potential buyers. For example, the plaintiffs also informed the defendants about holding talks with Shady Rest Hotel, Mineral Resources Development Corporation Limited (“MRDC”) and Governor of West Papua Province of Indonesia for possible sale. These talks have not progressed further and it is not known if anyone of them has agreed to buy the hotel and land.
17. However, they demonstrate that the plaintiffs have exercised the right of redemption and it is their plea to be given more time to do that rather than the defendants foreclosing on the hotel and land prematurely.
18. There is conflicting value of the selling price of the hotel and land. The plaintiffs have produced three valuation reports from Yagur (K19 million), LJ Hookers (K37 million) and Rubeem (K44 million) respectively. On the other hand, the first defendant has produced a valuation report from Northern Property giving a value of K12 million and a market analysis from Deloittes of the secured property which concluded that if properly managed, the business could be capable of generating EBITDA of between K0.5 million and K0.9 million per annum and supporting borrowings of K0.5 million to K0.8 million.
19. Three things need to be said about the valuation reports and market projection. First is that, the valuation reports are views or opinions of persons who may be considered as ‘experts’ in their field of expertise and are not conclusive and binding on the Court to accept. Second is that, they demonstrate that there is a huge difference between the values given by the respective valuers.
20. On the one hand, it could be successfully argued that realistically, Hotel Hodava cannot be elevated to the same level as Crown Plaza hotel, an iconic long-standing 4 star hotel set in an ideal location overlooking the Port Moresby CBD, Ela Beach, and Fairfax Harbour, which was sold in 2018 for K44 million. On the other hand, it could be successfully argued that the valuation of the plaintiffs was based on the ‘Direct Comparison’ and ‘Capitalisation’ methodologies as opposed to ‘market analysis’ by the defendants’ valuers and the plaintiffs’ valuation should be accepted. As for the market projection it is the sole view or opinion of one witness and subject to acceptance by the Court as constituting a realistic assessment of the value of the assets and the revenue that the hotel business may bring for the plaintiffs.
21. Finally, it is rare to find two valuation reports bearing a same value and it is not surprising that none of the valuation reports gave a same value for the hotel and land. Given the conflicting values, the Court must carefully examine the valuation reports and reach a decision on the true value of these assets. This can be appropriately done at the trial.
22. These considerations sufficiently demonstrate that there is a prima facie case of a serious question to be tried.
Balance of convenience
23. There is so much at stake between the parties. On the one hand there is the plaintiffs’ interest in the hotel and land for commercial and business investment reasons. It is open to argue that business investments made by a locally owned company such as the second plaintiff should be supported and encouraged to grow and be successful. They provide employment and income for those engaged in the hotelier industry.
24. On the other, the first defendant as the lender of so much millions of kina has lost and is losing millions of kina in investing in the second plaintiff’s commercial and business enterprise. It is an undesirable position any lender would want to be in at anytime. After all, a lender who lends money in good faith expects the borrower to reciprocate in good faith. When the borrower fails, the lender has every reason to be disappointed.
25. However, as a secured creditor, the first defendant has the preferential right over the unsecured creditors and no doubt will be given first priority when it comes to the second plaintiff settling its debts. Equally, where there is an opportunity for the second plaintiff to generate revenue and settle its debts, parties should make every effort to realise it. This may explain the plaintiffs’ stance since the conflict began up to this point.
26. For example, it is common ground between the parties that the hotel has become home for asylum seekers following the closure of the Manus Detention Centre and is generating some revenue from the exercise conducted by the Governments of PNG and Australia. It is said that 55 asylum seekers are currently residing at the hotel. The defendants say that the revenue is not enough for the second plaintiff to pay its debts and repay its loan. However, it is an indication of a slow increase in revenue and an opportunity for the parties to embrace and realise. They should be given that further opportunity to explore this option.
27. On the other hand, if the hotel is sold while the proceedings are on foot there will be financial loss to the plaintiffs especially where the value of the selling price is still unsettled. In a case where the selling price is unsettled, that there is slow increase in revenue to meet some of the debts and that the threat of losing the hotel is real, the balance of convenience must favour the plaintiff and grant of an injunction.
Damages as adequate remedy
28. The question of whether damages will be an adequate remedy for the plaintiffs’ loss is another consideration. It has been held in some cases such as Markscal Limited & Robert Needham v. MRDC, The State & Ors [1996] PNGLR 419 per Doherty J that not only must the Court be satisfied that damages will be an adequate remedy, but the defendant will be able to pay them. It may be the deciding factor in some cases such as the first application by the plaintiffs before Hartshorn J in Vincent Mirupasi & Courtabelle Investments Limited v. ANZ Bank (2019) N7937.
29. There is no doubt that the first plaintiff is not primarily a hotelier, but is the principal of a firm of lawyers with a long history of practice and a staff of nearly a dozen people in total.
30. The second plaintiff is simply a commercial enterprise seeking to maximize the value of its assets by selling at a high price. It is not denied that if the first defendant has committed some prior actionable wrong or ultimately breaches its duties to take reasonable steps to obtain a prior price then the first defendant is able to be sued. It is also not denied that the first defendant is a reputable commercial organisation capable of paying its damages.
31. Ordinarily these considerations would not favour a grant of an interlocutory injunction. However, because the hotel and land are assets of the second plaintiff and as acknowledged by the defendants that the second plaintiff is seeking to maximize the value of its assets by selling them at a high price, it is important that the true value of these assets must be properly ascertained. There is nothing un-toward by the second plaintiff’s taking this position but there is always the grim reality that there will not be a willing buyer to purchase these assets for the price the plaintiffs are looking at.
32. As pointed earlier, there is a huge disparity in the valuation of the assets and this is no trivial matter. The value must be properly ascertained before the sale can proceed and that can only be done at trial and to do that, the status quo must be maintained.
Tax Liability
33. Tax liability of the second plaintiff was another ground on which the defendants argued to demonstrate that the second plaintiff was indebted to the Internal Revenue Commission (“IRC”) and has come to Court with unclean hands. Furthermore, it demonstrates that the second plaintiff runs the risk of insolvent trading without receiver. They point to the evidence of outstanding Salary and Wages Tax (SWT) and Goods and Services Tax (GST) and their lodgement for assessment. The defendants claim that for SWT, K4,180,921.30 is outstanding and for GST, K13,493.16 is outstanding.
34. What the defendants have pointed out is one part of the second plaintiff’s tax obligations. The other is the actual assessable income which the second plaintiff is liable to pay to the IRC. It may be that after the assessment of the sum due as tax, the Commissioner General of IRC may issue a notice under Section 272 of the Income Tax Act to the second plaintiff as a tax payer to pay to the IRC. It is a long process but must be one of the considerations which demonstrate that there is a serious question to be tried.
35. The methodology for determining assessable income has been succinctly explained by Woods J in Rooney v. Forest Industries Council [1990] PNGLR 408 in this way:
“Further, as Barwick CJ considered, it is important to bear in mind that the wages, salary or earnings are not themselves taxed,
they simply form part of the assessable income from which the taxable income is derived, for example, after allowable deductions
are made. Whilst it may be possible after due assessment of income tax has been made to calculate how much each dollar of the assessable
income has borne tax, income tax cannot be said to be levied at any particular rate on each dollar which forms part of the assessable
income. We all know that in an ordinary salary or wage-earner situation, a stipulated amount is deducted periodically at the source
but the total of the sums deducted does not necessarily represent the amount of income tax payable. That is only truly calculable
when the income earner places his statement before the tax authorities. Barwick CJ refers to different examples (at 215) which show
that unless one becomes a tax agent or assessor and investigates the whole of a person's income one cannot determine what the liability
to tax is. All these go to the conclusion that the court cannot and should not have to make even the "roughest" estimate of tax liability.”
36. Unless and until the second plaintiff is advised by the IRC of its assessable income for each year, it may be argued that it is
premature to hold the second plaintiff down on a default of its tax liability and stop the second plaintiff from exercising its right
of redemption of the hotel and land.
37. In any case, the tax liability of the second plaintiff pointed out by the defendants is much more complex than what they have contemplated. One of the considerations is whether the defendants have the “locus standi” to raise the issue of tax liability in these proceedings and use it to oppose the injunction application. It could be argued that they do not. Conversely it could be argued that the IRC is the relevant statutory authority vested with regulatory and revenue collection powers to make that call.
38. As an extension to the first consideration, it will be quite interesting to find out in the mortgage agreement which provision confers on the defendants the right to rely on tax liability of the second plaintiff to foreclose on the hotel and land and stop the second plaintiff from exercising its right of redemption. A further issue for consideration is what the plaintiffs have argued all along and that is, should it be accepted by the Court that tax liability is an ongoing business obligation and should not be used to stop the second plaintiff from exercising its right of redemption?
39. Significantly, if tax liability was so contentious and adverse to the second plaintiff’s financial capacity to secure the loan, the question to ask is, why did the first defendant approve the loan in the first place? In retrospect, could it be successfully argued that in approving the loan, the first defendant had waived the second plaintiff’s tax liability and is estopped from relying on it to oppose the injunction application? Finally, while it could be inferred that the non-payment of tax by the second plaintiff was one of the reasons for the second plaintiff “maintaining an expensive lifestyle for the First Plaintiff” and the plaintiffs are guilty of coming to Court with unclean hands, it could be successfully argued otherwise.
40. These considerations go to show that this is not a clear-cut case of the plaintiffs coming to Court with unclean hands but rather a case requiring full consideration of these issues at trial.
Outstanding Payments of Contribution to National Superannuation Fund
41. A further ground relied upon by the first defendant to show that the second plaintiff is financially incapable of meeting its
debt and runs the risk of insolvent trading is its indebtedness to the Nasfund. It is estimated that a sum of K1,412,022.00 owed
for employer and employee contributions since 2013.
42. The reasons given in the case of tax liability equally apply to Nasfund debt. Briefly, it is doubted if the defendants have “locus standi” to oppose the application for interim injunction and further, the substantive proceedings on the ground that the plaintiffs have come to Court with unclean hands because they owe money to Nasfund. Or should the question be, is Nasfund the appropriate party to bring an action against the plaintiff for the debt? If so, is the sum claimed as due and payable correct? Another question is whether the sum claimed is accepted by the plaintiffs as due and payable? Furthermore, in a case where the plaintiffs have not contested the sum due and payable, the next question is whether they are estopped from denying the sum claimed?
43. Another significant question is whether there is a provision in the mortgage agreement for the first defendant to rely on to hold the Nasfund debt against the second plaintiff. Overall, as the plaintiffs have maintained all along, should the Nasfund debt be considered as part of an ongoing business obligation and should not be in the way of the second plaintiff’s right to redeem the hotel and land? Or is it open to infer that the non-payment of the Nasfund debt was one of the reasons “the Second Plaintiff’s business has been maintaining an expensive lifestyle for the First Plaintiff” as put by the defendants in their submissions and that the plaintiffs are guilty of coming to Court with unclean hands?
44. Finally, has it ever occurred to the first defendant during due diligence process that the second plaintiff was indebted to Nasfund and questions should have been asked as to the second plaintiff’s ability to secure and repay the loan? This question is posed when there were proceedings WS No. 1457 of 2013 by Nasfund against the second plaintiff in 2013 for outstanding contributions of K69,177.28 prior to the first defendant’s agreement to lend funds to the second plaintiff. It will need some explanation from the first defendant or perhaps Nasfund especially, when further information available has revealed that those proceedings were dismissed by the Court for want of prosecution on 13 November 2017 and nothing further was heard or done by Nasfund to pursue the debt/claim.
45. It is not for the Court to attempt to answer each and every one of these questions today but they go to show that this is not a clear-cut case of the plaintiffs coming to Court with unclean hands. Those considerations will be reserved for further determination at trial.
Other Creditors
46. The defendants have also relied on other creditors of the second plaintiff which they say are owed substantial sums of money by
the second plaintiff. It is said that a total of K287,92.70 is outstanding and due to these creditors. In addition, the plaintiffs
have admitted owning a sum of K1,044,345.58 to the National Gaming Control Board (“NGCB”). The defendants further claim that the second plaintiff owes a sum of K10,859.70 to Moniplus/Heduru for the second plaintiff’s
staff members.
47. For the reasons given at [37] to [39] above with necessary modifications, again these considerations show that this is not a clear-cut case of the plaintiffs coming to Court with unclean hands and should be denied an interlocutory injunction. On the contrary, they have raised issues that require further consideration at trial.
Bar to Proceedings
48. There is a final matter in relation to injunction to address. The defendants refer to an Asset Management Agreement (AMA) entered
between the plaintiffs and first defendant on 14 September 2018 which expressly records at clause 1.1 that the plaintiffs have no
claim and they agree not to bring any claim against the first defendant. Further, clause 7.2 states that AMA may be raised or pleaded
by the first defendant as a complete defence to the continuance or commencement of any proceedings or claim brought by the plaintiffs
against it.
49. Secondly, the plaintiffs agreed when discontinuing the first proceedings WS No. 529 of 2019 not to bring further proceedings to prevent or hinder the first defendant from taking enforcement action.
50. The short response to what the defendants are raising is that, they are in fact raising a defence to the substantive cause of action. There is no hard-and- fast rule on when this defence can be raised and determined. One could successfully argue that it can be raised at an interlocutory hearing and another could also successfully argue that it be heard at trial. In the former case, it should form the basis of a dismissal application rather than to oppose an injunction application. This is because it goes to the competency of the proceedings under Order 12, rule 40 of the National Court Rules.
51. Again, there is no hard-and-fast rule on this. It really depends on the attitude of the judge, time, availability of parties/counsel and preparedness of parties/counsel to name a few. Compare this case to Kumul Consolidated Holdings v. Kurkuramb Estates Limited (2017) N7429 per Hartshorn J where once a potential claimant has agreed not to bring a claim it is bound by that agreement and a claim brought in breach of that agreement is frivolous and vexatious and does not found a cause of action.
52. In this case since it was not a ground to dismiss the proceedings, the preferred option is to leave it open for further consideration at trial together with the other issues raised by the parties in these proceedings. The position taken is at the discretion of the Court and differs from the position taken by Kapi DCJ in Employer’s Federation of PNG v. PNG Waterside Workers Unions & Ors (1982) N393 where it was held that a claim found to be frivolous and vexatious is a bar to the grant of an interim injunction.
Injunction
53. The application for interim injunction will be granted to preserve the status quo until the determination of the substantive proceedings.
Consequent on that, nothing further will be undertaken by the second defendant as Receiver/Manager of the second plaintiff and it
would not be necessary to retire or remove the second defendant as the Receiver/Manager of the second plaintiff and further, sanction
or approve his costs and work undertaken to date.
Retirement or Removal of Receiver
54. In any event, the question of whether or not circumstances no longer justify a Receiver/Manager’s continuation under Section 284(3)(b) of the Companies Act, 1997 is a substantive one. It is so because it will require a consideration of all the work the Receiver/Manager had done to bring the company out of its debts or trade out of its insolvency. Where a question is substantive in nature, it is appropriate that it is raised by originating process rather than by way of an interlocutory motion/hearing.
55. It will be for those reasons that an order sought under Section 284(1)(a) of the Companies Act, 1997 should be appropriately sought by an action commenced by originating summons or miscellaneous proceedings. The order sought in the
present form is an abuse of process and will be refused.
Sanction or Approval of Receiver’s fees or bills and work
56. Similarly, the order sought in relation to the sanctioning or approval of the Receiver’s fees and work to be undertaken by the Receiver under Section 283 of the Companies Act, 1997 is a substantive one and for the reasons given at [54] and [55] above, an appropriate mode of proceedings to seek the order is by originating summons or miscellaneous proceedings. The order sought in the present form is an abuse of process and will be refused.
Order
57. The orders of the Court are:
3. Costs of the application shall be in the cause.
________________________________________________________________
Mirupasi Lawyers : Lawyers for the Plaintiffs
Dentons PNG Lawyers: Lawyers for the Defendants
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