Westpac Bank PNG Ltd v Kopia [2021] PGNC 80; N8851 (1 June 2021)

N8851

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 831 OF 2019

BETWEEN:
WESTPAC BANK – PNG - LIMITED
Plaintiff

V

JENNY KOPIA
First Defendant

AND:
RICHARD JAMES HART
Second Defendant

Waigani: Anis J
2021: 17^th May & 1^st June

REAL PROPERTY – alleged default on loan and mortgage agreements – commencement of foreclosure under contract and statute laws – clause 12 of mortgage, and section 74(1)(c) of the Land Registration Act Chapter No. 191 – Request for vacant possession – whether default has been established – whether processes required for default and enforcement of the terms of the mortgage (foreclosure) have been complied with – whether valid reasons provided in regard to the default(s) claim(s) - whether vacant possession of property should be permitted

Cases Cited:

Ning’s Trading Pty Ltd v. ANZ Banking Group (PNG) Ltd (1998) N1700
Papua New Guinea Banking Corporation v. Barra Amevo and Ors (1998) N1726
Westpac Bank PNG Ltd v. John Sambeok (2014) N5810

Counsel:

E. Noki, for the Plaintiff
B. Lakakit, for the Defendants

DECISION

1^st June, 2021

1. ANIS J: The trial for this matter was conducted on 17 May 2021. The hearing was contested. After close of submissions, I reserved my ruling to a date to be advised.

2. Parties have been notified of today’s sitting so I will rule on the matter.

BACKGROUND

3. This is an enforcement proceeding. The plaintiff is in the process of exercising its rights pursuant to a memorandum of mortgage dated 5 September 2011 (the mortgage) over a property described as State Lease, Allotment 18, Section 192, Hohola, NCD (the property). The mortgage was executed together with a loan agreement by the parties on or about the same time. It is a case where the defendants had applied jointly for a housing loan with the plaintiff, to purchase the property under their names as joint tenants. The plaintiff granted their loan application on 5 September 2011 (loan agreement) for a sum of K364,000.

4. The material terms of the loan agreement were (i), the plaintiff would advance the agreed loan amount, (ii), the defendants would give security for the loan by executing the mortgage over the property in favour of the plaintiff, (iii), the defendants would repay the loan on a monthly basis at a fixed sum of K3,628 for a total of 180 months, and (iv), an interest rate of 8.7% per annum would apply.

5. The parties proceeded on that basis in 2011 until allegation of default was raised by the plaintiff which led to filing of this proceeding. The plaintiff alleges that the defendants began defaulting in their loan repayments in October of 2017. The plaintiff claims it had given the relevant notices of default and is now in the process of enforcing its rights under the mortgage. As such, it is asking the Court to assist by ordering vacant possession, and where necessary, issue orders to evict the defendants off from the property. The plaintiff intends to sell the mortgaged property to recover its loan monies which it claims are outstanding pursuant to the loan agreement. It claims that as of 17 March 2020, the outstanding loan total was K302,065.33 and that it has since continued to accrue.

6. The defendants contest the originating summons. Their main challenge concerns defaults on their part to the loan agreement. They argue that they were not in default with their loan repayments, and as such, the originating summons should be refused.

EVIDENCE

7. Evidence were tendered by consent of the parties without the benefit of cross-examination. The plaintiff tendered a total of 2 affidavits. They were the affidavits of Jenny Lakoro filed on 13 November 2019 and 18 March 2021. They are marked as Exhibit P1 and Exhibit P2, respectively.

8. The defendants tendered 1 affidavit which was the affidavit of Jenny Kopia filed on 19 April 2021. It is marked as Exhibit D1.

ISSUE

9. The main issue is this, whether there was default(s) as alleged by the plaintiff against the defendants, in the monthly repayments of the loan as per the terms of the loan agreement that the plaintiff is entitled to foreclose, meaning, take possession of the mortgaged property and sell or deal with it.

SECTION 74

10. The terms of the loan agreement and the mortgage are express, and they are not disputed. I begin my observation with s. 74 of the Land Registration Act Chapter No. 191 (LRA). The provision reads:

74. Mortgagee may enter and take possession, etc.

(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.

11. Case law is settled on a mortgagee’s right under s. 74. Justice Woods in Ning’s Trading Pty Ltd v. ANZ Banking Group (PNG) Ltd (1998) N1700, stated as follows:

Under this Mortgage there is no transfer of title to the land in the mortgage which used to be the system in what is called in conveyancing circles the Old System Title, rather there is only a right to foreclose on the property if the mortgagor breaches the terms or conditions of the mortgage. Under the Land Registration Act Section 74 there is procedure for foreclosure which can thereby extinguish the right in a mortgagor to redeem and once it is noted on the Register then the right of a mortgagee to sell is clear and unencumbered.

12. Justice Sevua, in Papua New Guinea Banking Corporation v. Barra Amevo and Ors (1998) N1726, stated, and I quote:

By law, and under the terms of the mortgage, the plaintiff, as mortgagee, has the right to foreclosure because, the first defendant, as mortgagor, had defaulted in his obligations. Sections 68 and 74 of the Land Registration Act, Ch 191 confers a statutory right or power to the plaintiff mortgagee to sell the property or take possession. Clauses 4E(2) & (3), 15 and 16 of the mortgage confers rights to the plaintiff. There can be no dispute therefore, to the rights of the plaintiff mortgagee. The second defendant’s claim therefore cannot supercede the plaintiff’s legal rights. The plaintiff has pleaded the mortgage in its originating summons, the mortgage is in evidence before me and I am satisfied that the first defendant has defaulted in payment as envisaged in the mortgage. Accordingly, I find that the plaintiff is entitled to an order for possession under s.74(l)(c) of the Land Registration Act, Ch 191.

13. And in 2014, Justice Cannings, in Westpac Bank PNG Ltd v. John Sambeok (2014) N5810, held, and I quote:

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.

14. So to proceed with foreclosure, a lender or a mortgagee is required to follow the process, namely, (i), issue letter(s) or notice(s) notifying the debtor of the arrears or unsettled debt (including final warning(s)) to settle the arrears of the loan amount, (ii), issue letter(s) or notice(s) to the debtor or mortgagor (letter of demand) requesting full payment of the loan sum and the arrears, which must be consistent with the requirements under s. 67 of the LRA, (iii), issue letter or notice re Mortgage Foreclosure Demand, as per the procedures set out under s. 68 and 74 of the LRA, and (iv), issue notice(s) to quit (vacate property) again as per the processes set out under ss 68 and 74 of the LRA.

ALLEGED DEFAULT

15. So, did the defendants default in their loan repayments as alleged by the plaintiff? To answer that, I refer to the evidence adduced by the parties, and I remind myself that the standard and burden of proof to establish default is on a balance of probabilities and rests on the plaintiff.

16. Evidence of default, according to the plaintiff, are contained at paragraphs 11 to 19 of Exhibit P1. The evidence shows various warning letters including notices of default, foreclosure notice and notice to quit, that had been issued by the plaintiff to the defendants’ registered address. I observe that the plaintiff’s evidence appears solid or cogent. I also note that there is no evidence of any formal responses received to these demands by the plaintiff from the defendants.

17. Let me turn my attention to the defendants and see what they have to say in response to these default allegations made by the plaintiff. I refer to Exhibit D1. The first defendant starts off by complaining that the plaintiff has failed or neglected to furnish the loan statements to them to enable them to see or keep a record of how much they owe and were supposed to pay on a regular basis. I dismiss this argument. In my view, it has no relevance for establishing whether the defendants have defaulted or not. If that is to be regarded as an allegation by the defendants, it has to be pleaded and perhaps raised as a separate action at some point in time. The defendants are responding to this proceeding. As such, they are supposed to adduce evidence to show whether they dispute the default allegations, that is, to say why they were not in default at the material time(s) and state their reasons. I note that there are no express terms in the loan agreement or the mortgage that states that the defendants would not be or would be presumed not to be, in default in repaying their loan if or should the plaintiff fail to issue the loan account statements at all or on a regular basis. The second reason is this. The loan repayment schedule is express under the loan agreement on what is required per month. And I also note that it is in fact not difficult to obtain a loan statement from a bank or from the plaintiff. If there was an issue, the defendants ought to have checked with the plaintiff and requested for the statements in the usual way, or if not, access that online.

18. The next part of the evidence covers the first defendant’s calculations on what she says is or should be the correct repayment schedule. I note that the schedule, which was created by first defendant and marked as annexure C, is based on the bank statement of the loan account which is also annexed as annexure B. I observe that the statement may not be accurate as by that time, the defendants’ loan account had been referred by the plaintiff to its enforcement or recovery section. My observation is made based on a copy of a letter dated 25 February 2020 by the plaintiff to the defendants. The letter is annexed as part of annexure B to Exhibit D1. This was also addressed or confirmed by counsel for the plaintiff in her oral submissions to the Court.

19. My overall observation on the defendants’ evidence is this. Although they appear to have made loan repayments over the years since 2011, there is evidence of inconsistencies with their monthly instalments, as required under the terms of the loan agreement, that is, K3,628 per month. There are no provisions for advance repayments or payments that would be less, that may be carried over to the next month. According to the loan agreement (see page 1), the defendants may make more payments in a period, but for that to occur, separate arrangement must firstly be had with the plaintiff. There is no evidence of such arrangements made by the parties which were in place at the material time(s). The inconsistencies in the repayments had caused the plaintiff to recall the loan and to demand its full repayment with the threat to enforce or foreclose on the loan security, which is the property, under the terms of the loan agreement and mortgage. Evidence shows that opportunities had been given by the plaintiff to the defendants, to meet and discuss ways to possibly resolve the default or repayment issues. There is no evidence that suggests that the defendants had made any genuine attempt to meet with the plaintiff to try to resolve the matter. There was an email exchange between the second defendant and the plaintiff on 23 March 2020, which is annexed as annexure D to Exhibit D1. The second defendant had expressed concern over their inability to meet their loan obligations due to the pandemic. The second defendant had also suggested to the plaintiff if the loan arears could be added on and whether a new loan could be organized (re-financed). In my view, this evidence constitutes, amongst others, an admission by the defendants, that is, of the default and the arears that had accrued under the loan agreement at the material time.

20. Default therefore did not seem like a contested issue or matter, where based upon which, the plaintiff proceeded with the steps to foreclose on the property. The defendants, in my view, have provided little or no defence to the plaintiff’s claim of various defaults that they had committed in breach of the terms of the loan agreement.

21. There is a further consideration I must add. In my view, provision, or disclosure (in evidence) by the plaintiff or a mortgagee of its various notices of warnings and demands made to the correct address or addresses of the debtor or mortgagor, in this type of situation, constitute prima facie evidence of default. It is not, in my view, the role of the Court in this type of situation to make a detailed analysis or examination on the issue of default. There is a good reason or time for such consideration by the Court. If a debtor or a mortgagor takes issue with its loan account, warning letters, or notice of demand from its creditor or mortgagee, it should take actions without waiting for the matter to reach this stage where the mortgagee may come to the Court to seek enforcement orders. For example, it should meet with the mortgagee to discuss, or it may respond in writing giving its reasons against the alleged default claim or claims by the lender or mortgagee. But perhaps the best option by an aggrieved debtor or mortgagor, may be to file proceeding to challenge these warning or default notices. At that occasion, the Court may be better placed to hear any valid complaints of a mortgagor or debtor. If, however, nothing is done, and a debtor or mortgagor belatedly reacts with these claims (i.e., such as taking issues on the accuracy of the loan statements or questioning the arears that were said to be due in the issued warning or demand letters), they cannot be regarded as issues that are properly before the Court, like in this case, for determination. All that is required in this type of case, in my view, before the Court may grant vacant possession, is evidence of notices that had been forwarded to the registered address of a debtor or mortgagor, evidence that these notices have not been observed and that the arrears continue to accrue, and evidence of observance of the requirements under the provisions of the LRA. These, together with evidence of the loan and mortgage agreements, should be sufficient for a Court to grant the relief, vacant possession over a mortgaged property.

22. Failure by a debtor or mortgagor to respond to or participate meaningfully with its lender or mortgagee to try to resolve the arears or respond to the alleged default claim should, in my view, be a significant factor that must be weighed against (or be regarded as to the detriment of) the debtor or mortgagor when the matter reaches this stage, that is, when the lender or mortgagee comes to the Court to seek vacant possession of the mortgaged property.

FINDINGS

23. My findings are as follows. The plaintiff has established on the balance of probabilities evidence of default(s) in repayment of the loan agreement by the defendants. I find sufficient evidence adduced by the plaintiff that proves default. As for the defendants, I do not find their evidence reliable, that is, in terms of its accuracy in showing that they are or were not, in default now or at the material times as alleged by the plaintiff. There is also evidence of admission to the loan arears and defaults, by the defendants, and by that, I refer to the email dated 23 March 2020 from the second defendant to the plaintiff. I must add that there is further evidence of admission of default made by the first defendant. At paragraph 31 to Exhibit D1, Ms Kopia states, and I quote in part, The Covid 19 pandemic has substantially affected our business, but despite of this I manage to pay the loans and just that I have outstanding does not mean I have defaulted. (Underlining mine). The term used, that is, outstanding, is or happens to be the default sums or arrears (i.e., non-payment of various instalments) which had caused the plaintiff to take steps to foreclose on the property. Therefore, the defendants’ reference to the term outstanding in actual fact means or refers to their various default arrears that had accrued under the loan agreement. It appears that first defendant was perhaps attempting to twist the words or the meaning of the term default, when she used the word outstanding at paragraph 31 of her affidavit.

24. Once a default was established, the plaintiff had various options to pursue recovery of its debt. In this case, clause 12 of the mortgage was applicable. It states in part, and I quote:

12. If the Mortgagor shall make default in the payment of any of the money hereby secured of in the performance of observance of any covenant or agreement on the part of the Mortgagor herein contained or implied then immediately or at any time thereafter all the moneys hereby secured shall at the option of the Bank forthwith be due and payable and the Bank and the Bank’s attorney’ or attorneys shall (notwithstanding any omission, neglect or waiver of the right to exercise all or any of such powers on any former occasion) immediately be at liberty to exercise all or any of the powers of a mortgagee under the Land Registration Act Chapter 191 of the Revised Laws of Papua New Guinea and as between the Mortgagor, the Mortgagor’s executors administrators or assigns and the Registrar of Titles or his Deputy and all persons whomsoever dealing with or accepting Title under the mortgage it shall be lawful for and the Mortgagor does hereby authorize the Bank its successors assigns and attorney or attorneys to enter into possession and management of the mortgaged premises or any part thereof and to make any leases or sub-leasers thereof or of any part thereof either with or without the option to purchase and to exercise any of the powers of sale transfer distress ejectment foreclosure any every other powers vested in the Bank under the said Act in respect of the property hereby mortgaged and every part thereof. The period of time limited by Sub-section (1) of section 68 of the Land Registration Act Chapter 191 of the Revises Laws of Papua New Guinea as the period after the expiration of which it shall be lawful for the Bank to sell the mortgaged premises in the event of default by the Mortgagor is hereby shortened to three (3) days and IT IS HEREBY DECLARED that such shortening shall be deemed to be a modification of the power conferred by Section 73 of the aforesaid Act. Upon tender for registration of any instrument under the said Act duly executed by the Bank or the Bank’s attorney or attorneys it shall not be necessary for the Registrar of Titles or his Deputy to enquire whether any default has been made or continued or whether the power of sale or any other power that may have been exercised as aforesaid has arisen whatsoever.

25. Pursuant to the terms and conditions of the loan agreement, and the mortgage, the plaintiff was entitled to demand full payment of the balance of the loan that was outstanding as of 15 November 2018. In this case, it had done that. The full payment due then and demanded was K301,954.96. It had also issued the relevant notices as required under the mortgage. The defendants did not formally dispute these notices which had been sent to their registered postal address. These are contained in evidence namely Exhibit P1. The debts continued to increase to K302,065.33 as at 17 March 2020. Ms Lakoro of the plaintiff deposes that the said debt continues to accrue after that and beyond, under Exhibit P2.
SUMMARY

26. In summary, the plaintiff has established its case. I am inclined to and will grant the relief sought in the Originating Summons.

COST

27. An award of cost herein is discretionary. I will order cost to follow the event. I see no reason or exceptional circumstances where I should award cost differently. I will therefore order the defendants to pay the plaintiff’s cost of the proceeding on a party/party basis to be taxed if not agreed.

ORDERS OF THE COURT

28. I make the following orders:

(1) Pursuant to section 74(1)(c) of the Land Registration Act, Chapter No. 191, the Defendants and their agents, servants, family members and other occupants of the Property described as Allotment 18, Section 192, Hohola, National Capital District, subject of State Lease Volume 24, Folio 5979 (the Property), give vacant possession of the Property to the Plaintiff within 14 days.

(2) Any member of the Royal Papua New Guinea Constabulary be at liberty to enter onto the Property and evict the Defendants, their servants, associates, family members and any other person occupying the Property if the Defendants fail to give vacant possession of the Property within 14 days.

(3) The Defendants shall pay the Plaintiff’s cost of the proceeding on a party/party basis to be taxed if not agreed.

(4) Time for entry of these orders is abridged to the date and time of settlement of these orders by the Registrar which shall take place forthwith.

The Court orders accordingly
________________________________________________________________
Bradshaw Lawyers: Lawyers for the Plaintiff
Lakakit & Associates Lawyers: Lawyers for the Defendants