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Bank South Pacific Ltd v Onglo [2022] PGNC 87; N9463 (2 March 2022)

N9463

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 25 OF 2020 (COMM)(IECMS)

BETWEEN

BANK SOUTH PACIFIC LIMITED

Plaintiff

AND

WILLIAM GUMAYAGL ONGLO (SNR)

Defendant

Waigani: Tamade AJ

2021: 22^nd November

2022: 2^nd March

BANKS AND FINANCIAL INSTITUTIONS – borrowing of money through loan by defendant – defendant defaulted in repayment – plaintiff’s right to exercise possession of properties guaranteed and mortgaged under the loan agreement– defendant raises issue of the principle of novation – defendant argues plaintiff has not pleaded the defence of novation – Defendant can not invoke the guarantee and that he will remain liable under it until he receives a full written release from the Bank – principle of novation does not apply in this situation – judgment entered in favour of the plaintiff – defendant to give vacant possession of the land the subject of the mortgages – costs in favour of the plaintiff

Cases Cited

The following cases are cited and or considered in the judgment:

National Development Bank v Jamie Maxtone Graham (2012) PGNC 61; N4739

PNGBC v Tole [2002] PGSC 8; SC694

Kina Bank v Pruaitch (2020) N8502

Iangalio v National Development Bank (2016) SC1499

Counsel:

Mr Samuel Ahabh, for the Plaintiff

Mr Kevin Makeu, for the Defendant

2^nd March, 2022

1. TAMADE AJ: In 2018, Dekmog Limited, a company owned by Defendant was a borrower to the Plaintiff Bank pursuant to a letter of offer dated 11 January 2018 and the General Terms and Conditions for the Loan Facility (of five different facilities).

2. The Loan Facility Agreement provided amongst others that Defendant as a guarantor to the loan would provide mortgage over several of his properties and properties where his wife and he were registered proprietors over.

3. Defendant was a director to Dekmog Limited the Borrower and had executed the Loan Facility Agreement with the Bank. Defendant is a guarantor to the loan taken out by Dekmog Ltd guaranteeing the Borrower’s repayment in the sum of K8 300 000.00

4. The Borrower Dekmog Limited subsequently after the grant of the loan defaulted in its repayment obligations under the Loan Facility Agreement and the Bank issued default notices to the Defendant and his wife, Nancy Onglo as guarantors to the facilities. The Bank, therefore, demanded compliance as to the repayments failing which the Defendant and his wife should give vacant possession over the properties the subject of the mortgage which the Bank has an interest over.

5. Plaintiff is therefore before the Court claiming against Defendant as the guarantor to the Loan Facilities and for vacant possession over the properties the subject of the mortgages pursuant to the guarantees.

6. Defendant on the other hand takes issue with a Letter of Offer dated 11 January 2018 in which he signed and objects that it forms part of the Deed of Guarantee and the Indemnity dated 24 May 2016.

7. The issues for determination are therefore:

1. Whether the Plaintiff is entitled to claim against Defendant as a guarantor for the sum of K8.3 million?
2. Whether the Plaintiff is entitled to claim vacant possession over the properties the subject over the mortgage over the loan facilities?

100. Whether the execution of a letter of offer dated 11 January 2018 from the Bank forms part of the Deed of Guarantee and Indemnity over the same subject loan facility?
     

8. Defendant in this matter claims the defence of novation in their submissions at the trial of this matter. Defendant relies on the case of National Development Bank v Jamie Maxtone Graham (2012) PGNC 61; N4739 (27 July 2012), in which Justice Hartshorn said:

“The law as to novation was concisely set out by the New South Wales Court of Appeal in Tszyu v. Fightvision Pty Ltd & Anor; Fightvision Pty Ltd v. Onisforou & Ors [1999] NSWCA 323:

"Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made (Olsson v Dyson [1969] HCA 3; (1969) 120 CLR 365 at 388 per Windeyer J, which Bainton J referred to). Novation involves the extinguishment of one obligation and the creation of a substituted obligation in its place. Intention is crucial to show a novation; see, for example, Vickery v Woods [1952] HCA 7; (1952) 85 CLR 336 at 345 per Dixon J as his Honour then was. A novation may be express or implied from the circumstances."

9. The Plaintiff Bank however opposes the reliance on the principle of novation as Defendant has not pleaded the defence of novation in it’s Defence. The Defence filed on 2 August 2021 does not plead novation and a litigant is bound by his pleadings as in the case of PNGBC v Tole [2002] PGSC 8; SC694 (27 September 2002).

10. Defendant’s claims therefore that the execution of the new loan facility by way of letter dated 11 January 2018 extinguishes any rights and obligations between parties pertaining to the original loan facility under the principle of novation is therefore refused.

11. Defendant agrees with the Plaintiff bank that he did execute a Loan Facility with the bank on 24 May 2016 as a director and shareholder of Dekmog Limited and also agrees that he did execute a Deed of Guarantee together with his wife Nancy Onglo. Defendant however disagrees that the new letter of offer signed on 19 January 2018 for an additional loan of K600 000 and readjustment of previous loans is also covered in the initial Deed of Guarantee he signed in 2016 with his wife.

12. Defendant denies and states that the Bank never provided them with a new Deed of Guarantee for them to sign and therefore the Bank can not rely on the old Deed of Guarantee of 2016. Defendant in his submissions states that in the new letter of offer of 11 January 2018, there are now four new guarantors, the Defendant, Nancy Onglo, Dekmog Limited and Eda Light Gas Limited.

13. By looking at the Deed of Guarantee and Indemnity entered on 24 May 2016, ‘facilities’ is defined to mean “all loans or other financial accommodation provided to the Customer by the Bank provided at the Bank’s discretion”.

14. Clause 4 of the Deed also states that Defendant acknowledges that he can not revoke the guarantee and that he will remain liable under it until he receives a full written release from the Bank. I am of the view that the loan in the letter of offer dated 19 of January 2018 and or any other new adjustment of the initial loan to the benefit of Dekmog Limited is still tied to the Deed of Guarantee and Indemnity signed by Defendant in 2016 unless released from the Bank.

15. The Defendant’s assertions that a new Loan Offer would require a new Deed of Guarantee and Indemnity cannot be accepted as it is the banking business that the customer Dekmog Limited is already a customer having given to the Bank it’s securities as mortgages under the Guarantee pursuant to the Deed of Guarantee and Indemnity, the customer’s relationship as to it’s borrowing capacity is already tied to the guarantees given and is assessed and or adjusted (if additional funds are required) accordingly over the securities already tied to the Bank.

16. The Letter of Demand Under Guarantee dated 15 May 2019 from the Plaintiff Bank to Defendant and his wife Nancy Onglo refers to the Guarantee and Indemnity in favour of the Bank in respect to the accounts of Dekmog Limited dated 24 May 2016. Defendant’s assertions of not signing a new Deed of Indemnity is therefore misconceived. The Bank has not released Defendant from any guarantee given to the Bank.

17. In the case of Kina Bank v Pruaitch (2020) N8502, Justice Anis considered a Letter of Guarantee over an Overdraft Facility and stated that as the guarantee was given personally, the Plaintiff Bank was at liberty to enforce the guarantee. The Court also found that the mortgage was duly executed and binding on the parties and that the Plaintiff in those proceedings was entitled to enforce or foreclose on the property under the terms and conditions of the mortgage and the overdraft facility.

18. The Plaintiff also relies on the case of Iangalio v National Development Bank (2016) SC1499, the Supreme Court stated that;

“...in circumstances where guarantors have undertaken joint and several liabilities – as was the case here – the creditor is not obliged to pursue the guarantors equally. Rather, the creditor can choose which guarantor it pursues, if it chooses to pursue any creditor at all: China and South Sea Bank Ltd v Tan [1989] UKPC 38; [1990] 1 AC 536.”

19. The Deed of Guarantee and Indemnity given to the Plaintiff Bank by Defendant on 24 May 2016 subsumed the Loan Contract dated 11 June 2018 and names the Defendant and his wife Nancy Onglo as guarantors of the current facility in which the Plaintiff Bank is suing under. The loan of 11 January 2018 was therefore a continuation of the existing loan facility and is tied to the guarantee given by Defendant.

20. The Letter of Offer dated 11 January 2018 signed by Defendant refers to an Interlocking Deed of Guarantee and Indemnity given by Defendant, Nancy Onglo, Dekmog Limited and Eda Light Gas Limited and lists the various security agreements and registered mortgages in favour of the Plaintiff Bank.

21. The Plaintiff Bank is therefore entitled to pursue the Defendant and other guarantors each and severally under the Deed of Guarantee and Indemnity signed between the parties as stipulated in the Deed.

22. The agreement dated 11 January 2018 by Defendant and Plaintiff Bank has a clause which the Plaintiff Bank recommended to Defendant to seek independent legal and accounting advice and by signing the agreement, Defendant understood the implications of the agreement.

23. Defendant is a businessman with knowledge and or with the ability to get appropriate advice to conduct his business affairs including advice as to banking practices and legal interpretation of the agreement with the Plaintiff Bank. He has had a relationship with the Plaintiff Bank as far as this claim goes since 2016 and he was at liberty to ask for Bank Statements as and when he required them. Defendant cannot claim the Bank did not keep him abreast of his accounts, the onus was on him to request for statements as and when he required them.

24. The Plaintiff Bank has issued notices of default under section 67 of the Land Registration Act (Chapter 191) which states that:

67. NOTICE OF DEFAULT.

(1) Where default is made–

(a) for the period of one month in payment of any secured money the creditor may give to the debtor written notice to pay the money then due or owing; or
(b) in the observance of a covenant binding on the debtor by virtue of a provision expressed or implied in a mortgage or charge the creditor may give to the debtor written notice to observe the covenant.

(2) The notice referred to in Subsection (1) may be given to the debtor–

(a) in person; or
(b) by leaving the notice on the land subject to the mortgage or charge; or
(c) by leaving the notice at the usual or last-known address in the country of the debtor or other person claiming to be entitled to the secured land.

25. I am satisfied that Plaintiff Bank is entitled to claim against Defendant the sum of K8.3 million under the Deed of Guarantee and Indemnity dated 24 May 2016.

26. I am also satisfied that Plaintiff is entitled to claim vacant possession of the properties the subject of the mortgages in favour of the bank as follows:

1. Allotment 17 Section 69, Hohola, National Capital District in State Lease Volume 18, Folio 4453
2. Allotment 86 Section 25, Bomana, National Capital District, in State Lease Volume 20, Folio 193
   

27. I, therefore, make the following orders as per the relief sought in the Statement of Claim filed 23 June 2020 that:

1. Judgment is entered for Plaintiff in the sum of K8.3 Million as per the guarantee signed by Defendant;
   
2. Interest is charged in the judgment sum at the Plaintiff’s variable indicate lending rate of 11.2 percent per annum as at the date of the issuance of the Writ of Summons plus a margin of 2 percent per annum from February 2020 to date of entry of judgment;
   
3. The Defendant shall give vacant possession of the following land the subject of the mortgages in favour of the Plaintiff:
   
   1. Allotment 17 Section 69, Hohola National Capital District contained in State Lease Volume 18, Folio 4453 and
   2. Allotment 86, Section 25, Bomana, National Capital District contained in State Lease Volume 20 Folio 193
      
4. Should the Defendant fail to give vacant possession of the land described in paragraph 3 herein within 30 days from the date of this judgment, a writ of possession shall be issued to the Plaintiff with the assistance of the police to enter the subject properties and give vacant possession to the Plaintiff;
   
5. Defendant shall meet the Plaintiff’s party/party costs of these proceedings.
   

Orders accordingly.

BSP Limited-Inhouse Counsel: Lawyers for the Plaintiff

Suntin Lawyers: Lawyers for the Defendant’s