Australia New Zealand Bank v Mirupasi [2019] PGSC 110; SC1891 (20 December 2019)

SC1891

PAPUA NEW GUINEA
[IN THE SUPREMECOURT OF JUSTICE]

SCA NO.197OF 2019

BETWEEN:
AUSTRALIA NEW ZEALAND BANK
Appellant

AND:
VINCENT MIRUPASI
First Respondent

AND:
COURTEBELLE
Second Respondent

Waigani: Kandakasi DCJ
2019: 18^th & 20^th December

INJUNCTION – stay of Interim Injunctive orders - Whether the Bank’s application meets the requirements set out in the McHardy Case - no requirements for grant of a stay has been made out – application for grant of stay dismissed

Cases Cited:

McHardy v. Prosec Security and Communication Ltd [2000] PNGLR 279
Golobadana No 35 Ltd v. Bank of South Pacific Ltd (2002) N2309
Chief Collector of Taxes v. Bougainville Copper Ltd (2007) SC853
Behrouz Boochani v. The State (2017) SC1566
Rage Augerea v. The Bank South Pacific Ltd (2007) SC869
Anim Agai Motoi v. Nationwide Microbank Ltd (2016) N6177

Counsel:

E. Anderson and M. Tusais, for the Appellant
M. Pokia, for the Respondents

DECISION

20^th December, 2019

1. KANDAKASI DCJ: Before this Court is an application by the Australia New Zealand Bank (the Bank) for a stay of an interim injunctive order pending a hearing and determination of the substantive appeal against the decision granting the injunction. The injunction prevents the Bank from selling off the Hotel Hodava which is owned by Courtabelle, alleged for defaults in the repayment of a loan. Vincent Mirupasi is the main shareholder and managing director of Courtabelle.

Issue for Determination

2. In opposing the application, Courtabelle and Mirupasi argue that the requirements for a grant of a stay as laid down by the leading authority of McHardy v. Prosec Security and Communication Ltd [2000] PNGLR 279 has not been met. Hence, the issue for the Court to determine is, whether the Bank’s application meets the requirements set out in the McHardy case.

Factual Background

3. The parties entered into a loan and overdraft facilities agreements. Pursuant to those agreements, the Bank advanced to Courtabelle K11.1 million, with repayments fixed at K122, 500.00. The Bank claims, the Respondents defaulted in their repayments. That triggered the Bank’s right as mortgagee to appoint a liquidator and have the Hotel property sold. The Respondents filed National Court proceedings, WS 1206 of 2019 and sought by notice of motion filed on 21^st October 2019, an injunction against the sale of the Hotel and a retirement of the appointment of the liquidator as interim measures pending a hearing and determination of the substantive proceedings. By decision delivered on 18^th November 2019, the Court below granted the application for an injunction and refused the application for a retirement of the liquidator. The Bank appealed against the decision to grant the injunction application, while Courtabelle has recently filed an appeal against the refusal to retire the liquidator. The application before me concerns only the decision to grant the interim injunction. I will thus restrict myself to dealing only with that aspect.

4. The Court below took into account all the factors that must be taken into account before arriving at a decision whether or not to grant an interim injunction. The learned judge decided in favour of granting the injunction and reason that:

“...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 the threat of losing the hotel is real, the balance of convenience must favour the plaintiff and grant of injunction.”

Governing principles

5. The principles governing applications for stay of orders, judgments and or decisions of the Court below have been settled in the leading judgment of the Supreme Court in the McHardy case. These are:

· Whether leave to appeal is required and whether it has been obtained.
· Whether there has been any delay in making the application.
· Possible hardship, inconvenience or prejudice to either party.
· The nature of the judgment sought to be stayed.
· The financial ability of the applicant

· Preliminary assessment about whether the applicant has an arguable case on the proposed appeal;

· Whether on the face of the record of the judgment there may be indicated apparent error of law or procedure.
· The overall interest of justice.
· Balance of convenience.
· Whether damages would be sufficient remedy.

6. There is no issue between the parties that leave is not required and that there has been no delay in making the application for stay. The rest of the matters are in dispute. That is:

(i) Possible hardship, inconvenience or prejudice to either party.

7. Matters supporting hardship, inconvenience or prejudice can be of varying types, forms or character. The circumstances of each case, the quality and extent of one or a number of these situations will determine the grant or refusal of a stay application. In this case, the same arguments and facts that were presented before the learned trial Judge who considered all of the factors from page 8 to 9 of his honour judgment are repeated before in this Court.

8. In Golobadana No 35 Ltd v. Bank of South Pacific Ltd (2002) N2309, I reviewed all of the cases on the principles governing the grant or no grant of injunction and summed up the law in these terms:

“A reading of this authorities show consistency or agreement in all of the authorities that the grant of an injunctive relief is an equitable remedy and it is a discretionary matter. The authorities also agree that before there can be a grant of such a relief, the Court must be satisfied that there is a serious question to be determined on the substantive proceedings. This is to ensure that such a relief is granted only in cases where the Court is satisfied that there is a serious question of law or fact raised in the substantive claim. The authorities also agree that the balance of convenience must favour a grant or continuity of such a relief to maintain the status quo. Further, the authorities agree that, if damages could adequately compensate the applicant, then an injunctive order should not be granted.”

9. This summation of the law has been cited with approval and applied by the Supreme Court in its decision in Chief Collector of Taxes v. Bougainville Copper Ltd (2007) SC853, which has in turn been approved and applied in many subsequent decisions as in Behrouz Boochani v. The State (2017) SC1566 and many more.

10. The Golobadana case also concerned a mortgage and a management agreement between the plaintiff, a third party and the defendant bank which was the mortgagee. The third party had taken out an ex parte interim injunction and sought to have that extended on its return date. In that context, the Court discussed in some detail the true nature of mortgages and made the following points:

1. The right of a mortgagor to redeem his property is a fundamental characteristic of all mortgagees. Redemption is of the very nature and essence of a mortgage, as mortgages are regarded in equity. It is inherent in the thing itself;
   
2. Equity guards jealously the right of the mortgagor to redeem and whenever it is faced with the challenge “will not permit any devise or contrivance designed or calculate to prevent or impede redemption.” This accord well with the age-old principle in the law of mortgages that “Once a mortgage always a mortgage”;
   
3. There are numerous authorities dealing with clogs or fetters on the equitable right of redemption. These authorities reveal a number of principles:
   

(a) Firstly, a mortgage cannot be made irredeemable, and equity will not permit any devise or contrivance being part of the mortgage transaction or contemporaneous with it calculated to prevent or impede redemption. However, there is nothing preventing the mortgagor from giving to the mortgagee by a separate transaction and independent from the granting of the mortgage an option to purchase the property. Of course, whether the grant of the option is part and partial of the mortgage transaction is to be determined as a matter of substance rather than form. As the mere separation of the documents will not of itself affect the existence of a “clog” on the equity of redemption;

(b) Secondly, the right to redeem cannot be rendered nugatory or illusory;

(c) Thirdly, in the area of “collateral advantages,” the authorities do allow for collateral advantages to be given by a mortgagor to a mortgagee in consideration for a loan to him or her. Such collaterals could be upheld only if they are (1) unfair and unconscionable, or (2) in the nature of penalty clogging the equity of redemption or (3) inconsistent with or repugnant to the contractual and equitable right to redeem;

(d) Finally, there are cases that could be classified as miscellaneous areas. In these areas some authorities have shown a reluctance to uphold a covenant that seeks to clog or unnecessarily fetter a mortgagor's right of redemption. These include covenants for a repayment of a greater amount than that advanced.... Similar positions have been taken in cases containing covenants requiring a payment of a higher rate of interest upon default which may be seen as a penalty.... Other cases have indicated a preparedness to strike down covenants in mortgages that seemed to impose unreasonable time periods for late redemption.... Furthermore, some authorities have indicated a preparedness to strike down covenants which seek to prevent a mortgagor from redeeming his property on the contractual date for repayment, and as earlier noted after the contractual date for repayment.

(4) The right in a mortgagor to redeem exists until a contract of sale has been signed between a mortgagee and a third party in the case of a mortgagee exercising his right of sale.

11. These principles have been approved and applied by the Supreme Court in its decision in Rage Augerea v. The Bank South Pacific Ltd (2007) SC869. In so doing the Supreme Court reiterated that:

(1) All banks have a duty to maintain and keep accurate records and accounts of their customers;

(2) A mortgagor has a right to redeem his or her property;

(3) The banks must not by their conduct create unreasonable impediments, clogs or fetters on a mortgagor’s right of redemption;

(4) The banks and its customers are usually not in an equal bargaining position at the time of signing a loan agreement and subsequent variations to the agreement so it must ensure that there is evidence of a fairly negotiated loan and mortgage; and

(5) Loan and or mortgage agreements or contracts may be reviewed and considered unfair under the Fairness of Transactions Act 1993.

12. A string of other Supreme and National Court decisions has also adopted and applied these principles. An example of this is the decision of the National Court in Anim Agai Motoi v. Nationwide Microbank Ltd (2016) N6177, where his Honour Canning J., speaking on the need for banks and other financial institutions to be fair in dealing with their clients made mention of the relevant cases in the following terms:

“The overriding duty of fairness owed by a licensed financial institution to a customer in an inferior economic position has been applied and enforced in a string of National Court decisions including PNGBC v Pala Aruai (2002) N2234, Golobadana No 35 Ltd v Bank of South Pacific Ltd (2002) N2309, Bank of South Pacific Ltd v The Public Curator (2003) N2320, Negiso Investments Ltd v PNGBC (2003) N2439, Bank of PNG v Derick Sakatea Niso (2004) N2664, Stephen Asivo v Bank of South Pacific Ltd (2009) N3754, Credit Corporation (PNG) Ltd v David Nelson (2011) N4368 and Madang Cocoa Growers Export Co Ltd v National Development Bank Ltd (2012) N4682.”

13. I note that the learned trial judge in this case, did not make any reference to the decision in the Golobadana case and the many Supreme and National Courts judgements that have adopted and applied these principles. If his Honour adopted and applied these principles in addition to the principles governing grant or no grant of injunctions, his Honour would have appreciated the most critical and important principle in mortgages. That principle is a mortgagor’s right of redemption. However, the effect of his Honour’s decision to grant the injunction recognises and applies that principle.

15. The learned trial judge has carefully weighed the possible hardship, inconvenience or prejudice to all the parties and found the Respondents would possibly suffer hardship, inconvenience and or prejudice. Nothing has been presented before me that changes any of the factors the learned trial judge took into account before arriving at his decision. Granting the stay application will have the effect of lifting the injunction. That will give the Bank the opportunity to sell the property which will obviously affect the Respondents even before the issues raised in their substantive proceedings before the National Court is determined. I do note the Banks undertaking not to sell as a form of assurance to this Court and the Respondents that their right of redemption will be recognised and remain. If that is correct, it demonstrates no utility in the application of a stay.

The financial ability of the applicant

16. Turning then to the next factor of the parties’ financial ability there is no serious contest that the Bank is in a more superior financial position than the Respondents. This means the bank will be in a position to compensate the Respondents well if there were wrong in the actions they took and if the stay is granted and it proceeds to dispose of the property. This could be right. However, it is not that easy for Papua New Guineans to get into a successful business. Only a few have succeeded. It may not be easy to start all over again once the property or assets they have worked so hard to build are disposed by a bank action of the type taken by the Bank in this case. Hence, I find this factor does not favour the application for a stay.

Arguable case on the proposed appeal;

20. Restricting myself to what is appealed against and is before me, I am unable to come to a decision easily that there is an argument. This is especially the case, given the principles governing grant of injunctions and the principles applicable to a mortgage as I have discussed under the factor of possible hardship, inconvenience and prejudice.

Error on the face of the record of the judgment

21. The whole of the learned trial judge’s judgment was considered during the hearing of the application for stay. In the process it became clear that the learned trial judge may have made some fundamental errors especially in his decision on the Respondents application to retire the liquidation process. However, the same can not be said of his decision to grant the injunction. Again, what I said under the factor of possible hardship, inconvenience and prejudice applies here.

Other factors

22. The same can be said of the remaining factors of, the overall interest of justice, the balance of convenience and whether damages are adequate remedy.

Decision

23. Ultimately and for the foregoing reasons, I am not satisfied that the requirements for grant of a stay has been made out. Accordingly, I order a dismissal of the application with costs against the Appellant, with such costs to be agreed, if not taxed.
____________________________________________________________________
Denton Lawyers: Lawyers for the Appellant
Mirupasi Lawyers: Lawyers for the Respondents