SC2407
PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 68 OF 2023

BETWEEN
JOHN WESLEY GONJUAN
Appellant

AND
BANK OF SOUTH PACIFIC LIMITED
Respondent

Waigani: Salika CJ, Makail & Miviri JJ
2023: 14th & 21st June

SUPREME COURT – PRACTICE & PROCEDURE – Application for interim injunction – Restrain foreclosure of property – Serious issues to be tried – Issues of fact and law – Prejudice to parties’ rights – Right of mortgagor to redeem property – Balance of convenience – Interests of justice – Supreme Court Act – Section 5(b) 

MORTGAGOR & MORTGAGEE – Powers of mortgagee – Rights of mortgagee under mortgage – Right to foreclose on property given as security – Duty of mortgagee – Duty to exercise reasonable care – Duty to sell property at market value

Cases Cited:

Chief Collector of Taxes v. Bougainville Copper Limited (2007) SC853
ANZ Banking Group (PNG) Limited v. Kila Wari (1990) N801
Golobadana No 35 Ltd v. Bank of South Pacific Limited (formerly Papua New Guinea Banking Corporation) (2002) N2309

Counsel:

Mr. D. Dotaona, for Appellant
Mrs. J. Kare, for Respondent

RULING
21st June, 2023	

1.	BY THE COURT: This is an application under Section 5(b) of the Supreme Court Act and Section 155(4) of the Constitution for an interim injunction to restrain the respondent, its servants, employees, agents or howsoever otherwise, from:

(a)	taking any steps whatsoever to sell or transfer Allotment 10 Section 93, Hohola (Gordon) being the land contained in State Lease Volume 72 Folio 41; and

(b)	entering upon the property or taking any steps to dispossess the appellant of the property until the hearing and determination of the appeal.

2.	It will be observed that the appellant applied for an interim injunction in the National Court, and it was refused.  The written decision of the National Court has been placed before us.  The appellant has appealed that decision and pending hearing of the appeal, has applied for an interim injunction in this application. We now consider the application, afresh.

Brief Facts

3.	The uncontested facts are on 25th March 2008 the plaintiff and his wife bought a two-level property at Allotment 10 Section 93 Hohola (Gordons) (State Lease Volume 72 Folio 41) (“the property”).  The appellant has lived at the property since 2008.

4.	The appellant paid K45,000.00 of the 10% deposit of the purchase price and other transaction fees.  A loan was obtained of K405,000.00 from the respondent to pay for the balance of the purchase price.  On 3rd May 2008 he and his wife signed a loan agreement with the respondent and bought the property as joint tenants.

5.	The term of the loan is 25 years and will expire in 2033. The amortised sum is K700,000.00.  This sum includes interest at the rate of 8% per annum with variables.

6.	In June 2022 while the appellant was in East Sepik Province to contest the Wosera Gawi Open seat during the 2022 National General Elections, he received a Notice of Default by email dated 20th June 2022 from Julian Takin, the respondent’s recovery officer. 

7.	The Notice of Default stated that the appellant was in default of the loan as follows:

	(a)	Residential Property Investment Loan – K396,676.02.
	(b)	Personal Loan – K8,988.73.

8.	Further, it stated that after thirty days, the respondent is at liberty to sell or deal with the property in accordance with the Mortgage or by Law.   

9.	He responded and advised Mr Takin that he was out of Port Moresby and in the East Sepik Province for elections and on his return to Port Moresby, he would settle the arrears at the end of July 2022.

10.	In mid-August 2022 he returned to Port Moresby and met with Mr Takin.  The latter informed him that the respondent had decided to sell the property through a tender process and that the latter would constantly update him on the progress of the sale of the property. There was no indication if the respondent would delay the foreclosure of the property and review the repayment obligation to allow the appellant to repay and complete the loan. 

11.	To cut the long story short, after the property was advertised a number of times in the newspaper and total of six payments made between 22nd August 2022 and 01st January 2023 and added to his loan account, on 5th April 2023 the appellant received an email from Mr Takin who advised him that the respondent had secured a buyer to purchase the property for a sum of K670,000.00 and would need access to property next day.  Two weeks later the appellant was informed by emails to vacate the property or else the respondent would take steps to evict him and his family.

Principles of Interim Injunction

12.	We adopt the principles of interim injunction in Chief Collector of Taxes v. Bougainville Copper Limited (2007) SC853 where an interim injunction will be granted if:

(a)	there are serious issues to be tried,
(b)	balance of convenience favours the granting of an interim injunction,
(c)	damages would be an adequate remedy, and
(d)	does the interest of justice require the interim injunction to be granted?
(e)	has the applicant given an undertaking as to damages.

Serious question to be tried

13.	On the question of serious question to be tried, we observe that one of the grounds of appeal (Ground 3.3.2) is that the loan was either harsh and oppressive under Section 41 of the Constitution or that the appellant had paid in full the principal sum of K405,000.00 and has a further five years left in the term of the loan to complete the balance.  Furthermore, the respondent applied unreasonable penalty interest on the outstanding loan and the respondent unjustly enriched itself by charging penalty interest.

14.	Mr Dotaona of counsel for the appellant submits that these grounds raised serious questions of fact and law in relation to how the respondent construed and applied the loan agreement.  He submits that the respondent has erroneously applied the terms of the loan agreement because according to the appellant, he has repaid the principal sum as follows:

1.	Loan amount in 2008 (Principal) – K405,000.00.
2.	Total loan interest and fees to date – K667,539.89
3.	Total payment made to date – K588,990.70
4.	Difference between the total loan interest (Item 2) 
and total payment (Item 3) is K78,549.19
5.	Closing balance at 31st March 2023 
(per Bank Statement) is K466,870.72.
6.	The total loan including interest and fees (Item 2 and Item 5)
is K1,134,410.61.
7.	The difference between the total loan (Item 6) and loan amount (Principal) (Item 1) is K729,410.61.

15.	Mrs Kare of counsel for the respondent opposes this submission.  She relies on the affidavit of Moah Sevua filed 09th June 2023 which annexed a copy of his affidavit filed in the National Court and submits that based on Mr Sevua’s affidavit, the appellant was in clear default of the loan obligation because he defaulted in repaying the monthly repayment sum from February to August 2022, a period of seven months.  

16.	She refers to the Bank Statement which shows the opening loan balance of K758,568.92 on 25th July 2008.  She submits that this sum is the amortised value of the loan for 25 years.  By the time the appellant defaulted on 28th February 2022 the loan balance was K383,239.86.  By June 2022 when the respondent issued the Notice of Default, the loan balance was K396,676.02.  The appellant did not pay this sum and by August, respondent commenced the foreclosure process.

17.	Secondly, the appellant promised to pay, but did not.  Thirdly, the officers of the respondent reached out to him, but he did not make any strong commitment to repay the loan.  

18.	However, we note that the first officer from the respondent to contact the appellant was Mr Takin.  He contacted the appellant by email dated 5th April 2022 and informed the appellant that “I note no loan payment for month of February & March 2022.  Kindly advise.”  In a further email to the appellant dated 17th May 2022, he stated “We have not received any payment for month of February, March, April and May 2022.  Kindly advise.”

19.	On the same date the appellant sent an email to Mr Takin and informed him that “Payment for February and March was made.”  Mr Takin responded and advised the appellant that no payment was received and he should arrange payment at the earliest.  After almost a week, Mr Takin sent a further email to the appellant on 27th May 2022 that “This is a courtesy follow up regarding email below.  Kindly advise us to when you will make some payment.”  

20.	The question is, do these emails by Mr Takin constitute a Notice of Demand?  Clause 13.2 stipulates that the respondent may demand the appellant to pay.  A demand may be delivered personally to the appellant, or posted, or by facsimile.  A Notice will be considered a demand if it states the monthly repayment sum due and demand immediate payment. In ANZ Banking Group (PNG) Limited v. Kila Wari (1990) N801, the National Court (Salika AJ, as he then was, presiding) held that a Bank Statement is not a Notice of Demand.  

21.	Similarly, it is arguable that emails of 5th April, 17th May 27th May 2022 do not constitute a Notice of Demand. Indeed, as Mr Takin said, they are courtesy reminders to the appellant to pay the monthly repayment sum. In real time, a courtesy reminder lacks the cohesive force to compel an immediate response from the appellant.  This may explain why the appellant did not immediately make monthly repayments.  It follows that in the absence of a proper Notice of Demand, it is arguable that the respondent failed to demand payment for February to June 2022 from the appellant and cannot now complain that he has defaulted in the monthly repayments.    

22.	Where the appellant has failed to comply with the Notice of Demand, it is arguable that he has defaulted, and the next step is for the respondent to exercise its right by issuing a Notice of Default under clause 11(a), clause 12.1 and clause 13.2.  The Notice of Default will state the total outstanding loan as at date of issue of notice and intention to enforce the security by foreclosing on the property.  It is arguable that the respondent erroneously applied clauses 11(a), 12.1 and 13.2 when it failed to issue separate Notices of Demand for the months where the appellant defaulted to pay monthly repayment sum and issued a Notice of Default without giving the appellant an opportunity to pay the monthly repayment sum. 

23.	We are satisfied that there is a serious question of fact and law to be tried in relation to the construction and application of the terms of the loan agreement and whether the steps the respondent took to enforce its right under the loan agreement is harsh and oppressive under Section 41 of the Constitution.

24.	There is a further issue taken up by the appellant in this ground of appeal.  He says that he has not defaulted because he has repaid the principal loan.  If the respondent claims that the appellant has defaulted, the question is how did it arrive at the sum it says is outstanding?

25.	We refer to the terms of the loan agreement.  We note that there are two components to the repayment schedule of the loan agreement.  These are:

(a)	Principal repayment sum– Clause 7 and Item 9 is K3,470.00 per month. 

	(b)	Interest – Clause 6 and Item 7 is 8% per annum with variables.

26.	We further note that the way the respondent has structured the loan repayment is critical to the repayment schedule of the loan agreement.  In this case, we note that the appellant will pay the principal first and then pay the interest component.  The other option is for the appellant to pay both principal and interest by monthly repayment.

27.	According to the Bank Statement annexed to the appellant’s affidavit filed 30th May 2023, the balance brought forward on 16th March 2021 is K364,045.44 and the balance on 20th April 2023 is K474,147.00.  However, we note that based on the amortised sum of K758,568.92, from 25th July 2008 to 16th March 2021, the appellant paid K3,470.00 each month.  A sum between K1,000.00 and K3,300.00 was deducted as capitalisation each month.  We do not know if it is for repayment of the principal sum and interest, or only principal sum.

28.	The Bank Statement shows that on 16th March 2021, a sum of K364,045.44 was “CHARGE OFF” from a balance of K728,090.88 leaving a balance of K364,045.44.  We further note that from 31st March 2021 to 28th February 2022 the Bank Statement shows that “MONTHLY INTEREST CHARGE” between K3,765.13 and K4,000.00 was charged on the loan account.  The closing balance on 28th February 2022 is K383,239.36.  If this sum is the interest component, it is arguable that the appellant has paid the principal sum of K405,000.00 and what is outstanding is the interest component and supports the ground that the respondent has applied unreasonable penalty interest on the loan and has unjustly enriched itself.  We are satisfied that there is a serious question raised in relation to the correct loan balance.

29.	Finally, we note that it is not correct that the appellant denies owing the respondent money.  He is well aware that he owes the respondent but is not prepared to give up the property.  He has expressed his desire to continue repaying the loan, but except for the meeting with Mr Takin after he returned from the National General elections in mid-August 2022, the emails from Mr Takin to the appellant do not show that he or any other officers of the respondent invited the appellant to attend a meeting and/or offered alternative options to the appellant as to how the appellant could repay the loan.  

30.	Similarly, we note from Mr Sevua’s affidavit that he does not state that he invited the appellant to a meeting or by email, offered to him the option of reviewing the loan repayment and allow him to repay the loan, especially if the outstanding balance comprised of interest component.  In essence, the respondents’ evidence does not support Mrs Kare’s submissions that the officers of the respondent reached out to the appellant. 

31.	It may appear contrary to the terms of the loan agreement for the appellant to delay the respondent’s right to foreclose on the property and recover the balance of the outstanding loan once the property is sold.  However, the transaction history of loan repayment in the Bank Statement tells a different story.  There has been numerous instances between 31st March 2021 and 28th February 2022 where the respondent has failed to enforce the repayment schedule and acquiesced the appellant’s default by allowing him to repay outside the monthly due date.  For example, there were no repayments for March, April, May, and June 2021.  On 26th July 2021 the appellant paid a sum of K8,000.00. Then there was no payment for August 2021, but one payment of K8,000.00 on 6th September 2021.  The respondent took no issue at that time.  Fast forward to June 2022, the appellant’s default has now become a contentious issue.

32.	In our view, while we recognise that the respondent is operating a banking business and profit is its key objective, it has repeatedly acquiesced the appellant’s default to a point where it is arguably, connivance, in the corporate sense, and it is arguable that it should be estopped from reneging and unjustly enriching itself from this sort of conduct.  Such conduct supports the appellant’s claim that he has been treated unfairly and that he should be given a further opportunity to repay the loan.  We are satisfied that there is a serious issue to be tried in relation to the way the respondent has structured and enforced the loan repayment schedule.

Balance of convenience

33.	Mr Dotaona submits and emphasises that the appellant has been a long- term customer of the respondent since 2008 and has been living at the property for the last fifteen years.  If the respondent forecloses on the property, and sells it to a third party, the appellant and his family will have no place to live.  

34.	Mrs Kare submits that the Court should not over look the fact that the appellant has defaulted on his loan obligation and the respondent has rights under the mortgage to foreclose on the property, sell it and recover the outstanding loan from the proceeds of sale.  The foreclosure process has reached a stage where the respondent has signed a contract of sale with a third party on 28th March 2023 and by law, the appellant’s right as mortgagor to redeem the property has ceased: Golobadana No 35 Ltd v. Bank of South Pacific Limited (formerly Papua New Guinea Banking Corporation) (2002) N2309. 

35.	In our view, there is no question that there is so much at stake.  On the one hand, there is the appellant’s interest to consider and weigh up.  On the other is the interest of the respondent as a commercial entity as opposed to a charity, to be protected.   We accept that the respondent is and has lost money it makes from the loan.  However, the option of recovering the money is not all lost.  It is only temporary and may materialise if serious and meaningful steps are taken to identify how the loan can be repaid.

36.	We note that there has been no indication from the respondent and its officers, particularly Mr Takin and Mr Sevua if the respondent is open to negotiation and settlement.  Further, we note that the appellant did not make any strong financial commitment to repay the loan.  However, given that the appellant has a further ten years before the mortgage is discharged, we consider that there is still room for the parties to review the loan repayment schedule if they hold a meeting.  This factor sways against the respondent.

37.	Secondly, if the negotiation fails, the respondent has the option to complete the foreclosure process, sell the property and use the proceeds to settle the outstanding loan balance.  Thus, in so far as its loss is concerned, it is only temporary, and this factor operates against the respondent.

38.	Thirdly, we accept Mr Dotaona’s submissions that the appellant has been a long-term customer of the respondent since 2008 and has been living at the property for the last fifteen years.  If the respondent forecloses on the property, and sells it to a third party, the appellant and his family will have no place to live.  We also note that the necessity to look for alternative accommodation is quite a daunting task and can be stressful for the appellant and his family.

39.	Finally, we have been informed during the hearing and there is no dispute to this fact that the third party has withdrawn from the sale and purchase of the property and the respondent has gone back to the drawing board to seek other interested buyers.  It follows that the appellant’s right to redeem the property has been resorted and the respondent has a duty as a mortgagee to give the appellant an opportunity to redeem the property.  That opportunity will include holding a meeting to review the loan repayment schedule which we have outlined above.

40.	For these reasons, we are satisfied that the balance of convenience operates in favour of the appellant.

Damages as an adequate remedy

41.	On the face of it, damages would be an adequate remedy for the appellant.  However, if that were so, the Court would ignore the undisputed fact that the appellant has been a long-term customer of the respondent since 2008 and has been repaying the loan over the years.  He claims that he has paid the principal sum and what is outstanding is the interest component.  No damages are going to compensate him for the loss of the property.  

42.	On the other hand, the respondent has repeatedly acquiesced the appellant’s default of monthly repayment between March 2021 and February 2022, and it is arguable that it cannot now enforce its right of foreclosure on the property and assert that the appellant’s remedy is in damages.  It is an untenable proposition.  Furthermore, while the Court recognises the respondent’s right to foreclose on the property where there has been a default over a period of seven months, but with no Notice of Demand served on the appellant, and only a Notice of Default, the proposition that damages is an adequate remedy is untenable.

43.	As noted above, the circumstances have changed since the refusal of the application for interim injunction in the National Court because the third party to the sale and purchase of the property has withdrawn.  Neither has Mr Takin nor Mr Sevua assured the Court that the respondent will secure a best sale price for the property.  Furthermore, the appellant has offered to join and assist in finding a buyer for the property but has not received any response from Mr Takin and Mr Sevua.  

44.	It would be an understatement to say that a Banker exercising its power as a mortgagee has a duty to take reasonable care in obtaining the true market value of the property.  This statement of principle resonates well with the case of ANZ Bank v. Kila Wari (supra), a case that was decided almost thirty-three years ago but equally relevant today in the context of rights and duties of mortgagor and mortgagee.  

45.	In that case, Mr Wari defaulted on his loan repayment and the ANZ Bank foreclosed on a property which he put up as security for the loan.  Salika AJ (as he then was), found that Mr Wari made certain proposals to ANZ Bank when it advertised the property for sale by public tender, but it did not consider his proposals.  His Honour held that the ANZ Bank failed in its duty to take reasonable care in obtaining the true market value of the property and sold the property at an undervalued price of K130,000.00, which was about K30,000.00 less than K160,000.00 put up by a valuer.  In this case, the ability of the respondent to secure a market value for the property is uncertain at this stage and importantly, it is uncertain if the appellant will benefit from the residual value of the sale price.  

46.	For these reasons, we are not satisfied that damages are an adequate remedy for the appellant.

Interest of Justice

47.	Taking into account the matters we have canvassed above and the entire circumstances of the case, we are satisfied that the interest of justice favours the granting of the interim injunction.  Adopting the profound words of Section 5(b) of the Supreme Court Act, the grant of the interim injunction is “to prevent prejudice to the claims of the parties” and preserve the status quo until the appeal is heard and determined.

Undertaking as to Damages

48.	Finally, the appellant has given an undertaking as to damages by way of a notice filed 2nd June 2023.  It is arguable that given that he has defaulted on his loan repayment, he is not in a strong financial position to meet any order for damages and costs if the appeal is dismissed.  It is a proposition that is not without merit, but not determinative of the application.

Conclusion

49.	We are satisfied that the appellant has made out a case for grant of an interim injunction and grant the application until the hearing and determination of the appeal.

Order

50.	The terms of the final order are:

1.	An interim injunction to restrain the respondent, its servants, employees, agents or howsoever otherwise, from:	

(a)	taking any steps whatsoever to sell or transfer Allotment 10 Section 93, Hohola (Gordon) being the land contained in State Lease Volume 72 Folio 41; and

(b)	entering upon the property or taking any steps to dispossess the appellant of the property until the hearing and determination of the appeal.

	2.	Costs of the application shall be in the appeal.	

3.	Time for entry of these orders shall be abridged by the Registrar, to the date of settlement, which shall take place forthwith.

Ruling and orders accordingly.
________________________________________________________________
Dotaona Lawyers:		Lawyers for Appellant
BSP Legal Counsel:	Lawyers for Respondent