N933
PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

WINE

V

GIGLMAI

Kundiawa
Brunton J

23 July 1990
19 November 1990

LANDLORD AND TENANT - Rent - Recovery of - Under equitable lease - Lease for 12 months - Subject to Ministerial approval - No approval obtained - Benefit of possession - Estopped from denying title - Relevant principles - Land Act (Ch No 185), s 69(1).

EQUITY - Principles of - Appropriateness of to Underlying Law - Discussion - Equitable leases - Constitution, Sch 2.2.

Held (obiter):

Where a lease of State land was formally entered into for a period of 12 months subject to Ministerial approval under s 69(1)(c) of the Land Act (Ch No 185) and the tenant went into possession:

(a) the lack of Ministerial approval under s 69(1)(c) of the Land Act affected the lease at law only; it did not affect the lease in equity;
Walsh v Lonsdale (1882) 21 Ch D 9, considered.

(b) in equity, the parties to such a lease will be treated as parties to an agreement for lease with the same rights and obligations as parties to a legal lease;

(c) the District Court had jurisdiction to grant relief in respect of a claim for unpaid rent under an equitable lease;

(d) the benefit of possession, estopped the tenant from asserting that he held the land otherwise than as tenant;
Hatfield v Alford (1846) 1 Legge 330, considered.

(e) where a tenant who has enjoyed the benefit of undisturbed possession, goes out of possession and the landlord sues on the covenant for rent or for breach of the covenant to repair or to yield up in repair, the tenant is estopped from denying the landlord’s title;
Industrial Properties (Barton Hill) Ltd v Associated Electrical Industries Ltd [1977] QB 580, adopted.

(f) the courts should enforce equitable leases to the extent that they do not conflict with the public law contained in the Land Act.

Consideration of the appropriateness of equitable doctrines to the development of the Underlying Law under Schedule 2.2 to the Constitution.

Cases Cited

The following cases are cited in the judgment:

Harrison v Wells [1966] 3 All ER 524.
Hatfield v Alford (1846) 1 Legge 330.
Industrial Properties (Barton Hill) Ltd v Associated Electrical Industries Ltd [1977] QB 580; [1977] 2 All ER 293.
Luabar Logging Pty Ltd, Re [1988] PNGLR 124.
McCosker and King v Kuster [1967-68] P&NGLR 182.
Monroe v Kerry (1710) 1 Bro PC 67; 1 ER 421.
Ningiga v Koavea [1988-89] PNGLR 312.
Walsh v Lonsdale (1882) 21 Ch D 9.

Appeal:

This was an appeal from a decision of a District Court magistrate in which a tenant under a lease of State land was ordered to pay K1,500 and costs for unpaid rent.

Counsel:

I Kuamin, for the appellant.
The respondent in person.
Cur adv vult

19 November 1990

INTRODUCTION

BRUNTON J.: At one level this case is an appeal from the District Court, Kundiawa, involving two businessmen in the Simbu Province who made an agreement, one to rent a trade store to another. The tenant did not pay the rent, and the landlord sued.
The case was complicated because, when it got into the District Court, it was found that the landlord did not have a State lease in the first place, and it appeared that the lease was never approved by the Minister for Lands. The case is a matter of statute law, common law and equity.

At another level the case is about the plight of small businessmen in the provinces who depend upon the grace of a centralised bureaucracy in Waigani to service their applications for State land, and to grant or withhold approval in relation to land transactions. It is about the transactional costs to small business of a centralised system. It is about centralised State power, and decentralisation.

It is also about lower courts and lawyers who operate with no law library and few other facilities.

THE APPEAL

This is an appeal against a decision of the District Court, Kundiawa, in which the appellant was ordered to pay K1,500 and costs, for unpaid rent.

The grounds of the appeal were:

1. "That there was hardly no evidence of available to suggest that the Complainant was neither the registered owner of the land nor the building upon which he was collecting rents from" [sic].

2. "That the Magistrate had a substantial interest in the outcome of the case".

As to the second ground, there was no evidence on the face of the District Court record, nor was any affidavit evidence put before me. Mr Kuamin made a number of factual points from the bar table, but these were not evidence. There was nothing before me in admissible form to support this ground of appeal, and it is, accordingly, dismissed.
The first ground was more substantial.

THE LEASE

By a document entitled "Lease" and headed "Papua Real Property Act 1913 (As amended) New Guinea Lands Registration Act 1924 (as amended)" the parties to this appeal entered into a lease. The document recited in its relevant parts:

"[sic] Bill and Bernard Gigmai of PO Box 110 Kundiawa, Simbu Province, Papua New Guinea (hereinafter called the ‘leasors’ being registered as the proprietors of an estate in leasehold in the land hereinafter described subject however to such encumbrances liens and interests as are notified by memorandum underwritten or endorsed hereon do hereby lease unto Wal Wine of PO Box 17 Kerowagi, Simbu Province, Papua New Guinea (hereinafter called ‘the lessee’ all that piece or parcel of land more particularly described in the First schedule (which land and improvements) are hereinafter referred to as ‘the demised premises’ to hold the same for the term specified hereto yielding and paying therefore the annual rent set out in the said second schedule payable at the times, by the payments and: the manner set out in the said schedule subject to the following covenant conditions and restrictions namely:

1. The Lessee hereby covenants with the lessor

(a) That the lessee will pay the rent at the times and by the payments, herein appointed for the payment thereof to the lessor at such place as the lessor may from time to time by writing direct without any deductions whatsoever.

2. The lessor hereby covenants with the lessee:

(a) That the lessor will pay all rents payable under the provisions of the said Government lease and all council land rates payable by the lessors as and when the same shall become due and payable by the lessors as and when the same shall become due and payable and will duly and punctually observe perform and comply with the covenants conditions and provisions contained or implied in such lease and on the part of the lessee hereunder to be observed and performed in so far as the same are not by these presents made the obligation of the lessee hereunder ...

3. It is hereby agreed and declared by and between the lessor and the lessee as follows:

(d) That these presents have been entered into and executed subject to any approval which may be required under the provisions of the Land Act 1962 (as amended) and unless and until such approval is given these presents shall have no force and effect ...

The First Schedule Hereinbefore Referred to all that the buildings and improvements situated on a allotment 4 Section 8, Kerowagi, Simbu province.

The Second Schedule Hereinbefore Referred to The term of the lease is for one (1) year commencing on the Fifteenth day November 1988 and expiring on the Fifteenth day of November 1989.

The rental is K4,200 per annum payable calendar month for the first six months from the 15th day of November 1988 to the 15th day of May 1989 payable in lump sum in the sum of K1,800 on the 15th day of November 1988 and thereafter from the 13th day of June 1989 to the 15th day of November 1989 at the rate of K400 per calendar month."

THE DISTRICT COURT RECORD

By a complaint laid in the District Court, Kundiawa, Bill Giglmai sued Wal Wine for K1,500 unpaid rent, "for the months of July (K400), August K400, September K400 and October K300 total to K1500 all for 1989" [sic].

The District Court gave judgment in favour of Mr Giglmai and ordered Mr Wine to pay K1,500 plus costs.

The District Court record does not disclose whether any sworn testimony was taken from any of the parties. It would appear that two people addressed the court. They appear to be Mr Kuamin, a lawyer acting for Wal Wine, and Mr Bongere acting for Bill Giglmai.

The main issue argued by counsel was whether or not Mr Giglmai held a lease in the subject land from the State.

No evidence was taken about what rent had been paid, what rent was outstanding and what periods of time were involved. There do not appear to be any admissions on the court record made by counsel for Wal Wine. I do not know whether Mr Wine actually occupied allotment 4, section 8, Kerowagi, and for what periods of time, if any. These facts are not before me.

As there was no admissible evidence on which the magistrate could base his decision, and there are no admissions on the face of the record, I quash the decision of the District Court and send it back for a re-hearing before the Senior Resident Magistrate in Kundiawa. There are no facts on the face of the record upon which a decision could have been based.

THE LAW

For the guidance of the District Court I make the following observations.

There would appear to be a lease or lease agreement between the parties, evidenced by the written lease that during the period 15 November 1988 to 15 November 1989, Wal Wine would rent from Bill Giglmai the buildings and improvements at allotment 4, section 8, Kerowagi, and that in consideration for an annual rental of K4,200, to be paid in accordance with the terms of the second schedule of the lease, Wal Wine should have the undisturbed and unhindered occupancy of the premises.

If Wal Wine did in fact occupy the premises at allotment 4, section 8, Kerowagi, during the period 15 November 1988 to 15 November 1989; if he conducted a business on those premises, then he is bound by the terms of his agreement with Bill Giglmai, and he should pay the rent he promised to pay.

Bill Giglmai appears to have had possession of lot 4, section 8, Kerowagi, under the belief that he was the successor to the Simbu Cattlemen’s Association. Bill Giglmai may have thought he was the leaseholder from the State. His exact status at law is unclear, although he ended up being given a licence to occupy the land by the State, pending the issue of a State lease — see the letter from the Department of Lands and Physical Planning, Waigani, JE/008/004 of 6 March 1989, to Mr Giglmai.

What is clear is that Wal Wine entered into a lease with Mr Bill Giglmai to rent the premises of which Mr Giglmai was the apparent owner/occupier. If Mr Giglmai moved out, and Mr Wine moved into these premises — in accordance with the terms of an agreement — evidenced in the so called "Lease" — then Mr Wine is bound by that agreement.

COMPLIANCE WITH S 69 OF THE LAND ACT

Section 69 of the Land Act (Ch No 185) in part reads:

"69. Approval of certain dealings:

(1) Notwithstanding anything in any law, but subject to this section, a person shall not, without the approval of the Minister:

(a) transfer land; or

(b) give a mortgage or encumbrance of or over land; or

(c) grant a lease, easement, right, power or privilege of, over, in or in connexion with land.

(2) Until the approval referred to in Subsection (1) has been given, a transfer, mortgage, encumbrance, lease, easement, right power or privilege in or in connexion with land is of no effect.

(3) Nothing in Subsection (2) makes of no effect a contract or agreement made for the purpose of entering into a transaction referred to in Subsection (1) if the contract or agreement:

(a) is expressed to be subject to the approval of the Minister; or

(b) provides that, until that approval is given, the contract or agreement has no force or effect.

(4) Where the approval of the Minister is required to be given under this section, the transferee, mortgagor, encumbrancer, grantee or donee who seeks that approval must within 28 days of the execution of an instrument to which the requirement relates, cause:

(a) the instrument to be presented to the Department for endorsement with a certificate in the prescribed form to the effect that the approval has been given; and

(b) a duplicate or certified copy of that instrument to be filed in the Department.

(5) A person referred to in Subsection (4) who refuses or fails to comply with Subsection (4) is guilty of an offence.

Penalty: A fine not exceeding K40.00

Default Penalty: A fine not exceeding K10.00."

This section, as it applies to leases, deals with two things:

1. a lease (s 69(1)(c));

2. "a contract or agreement made for the purpose of entering into a transaction referred to in Subsection (1)" (namely a lease).

It distinguishes between a lease and a contract or agreement for a lease.

A lease which has not been approved is of no effect (s 69(2)).

But a contract or agreement for a lease is effective if it is expressed to be subject to the approval of the Minister, or if it provides that until the Minister approves it the contract has no force or effect.

Now, the agreement for the lease in this case was subject to the approval of the Minister and was of no force and effect until such approval was given.

However both parties appeared to proceed on the basis that approval had been given. The words "and unless and until such approval is given these presents shall have no force and effect" were ignored by mutual consent, which is evidenced by Wal Wine acting as if he was a lessee, and by Bill Giglmai acting as if he was a landlord.

The words "subject to any approval which may be required under the provisions of the Land Act 1962" have not been affected by the conduct of the parties. Their conduct is consistent with them believing approval had been granted, or would be granted.

There is then compliance in the contract or agreement for the lease with s 69(3)(a) of the Land Act — and it is not affected by s 69(2) of that Act.

SECTION 69, LAND ACT IS RESTRICTED IN ITS APPLICATION

Section 69 of the Land Act is not unlike s 41 of the Real Property Act 1900 (NSW). E A Francis in his text The Law and Practice Relating to Torrens Title in Australasia Vol I, Butterworths, Sydney, 1972 at 229 says:

"It is, of course abundantly clear (and it has been so held by the Courts on numerous occasions), that notwithstanding the generality of the words of these provisions [ie s 69 of the Land Act], they are restricted in their application to the passing or creation of an estate or interest at law, and that, in equity, an instrument which is unregistered is by no means devoid of all effect. As was said by Harvey J in Tietyens v Cox (1916) 17 SR (NSW) 48 at 54: ‘... the whole course of judicial interpretation of the Real Property Act has recognised the old law and practice of conveyancing as still applicable to equitable interests in land under the Act’."

This view has been followed in at least three reported decisions in Papua New Guinea McCosker and King v Kuster [1967-68] P&NGLR 182; Re Luabar Logging Pty Ltd [1988] PNGLR 124 at 126, per Bredmeyer J; and Ningiga v Koavea [1988-89] PNGLR 312.

LEASES AND AGREEMENTS FOR A LEASE

Because the lease was for a period of one year (see second schedule to the lease) the form of the lease was not subject to either the Land Registration Act 1981, s 49(1), or the Frauds and Limitations Act, s 3(2). Nevertheless the lease was in writing. As a lease it had no effect because Ministerial approval was lacking in accordance with s 69(1) of the Land Act. That section only affects the lease in law; it does not affect the lease in equity.

The law in Papua New Guinea, before Independence, was summarised by J A Griffin QC in Land Law: Notes and Materials, Faculty of Law, University of Papua New Guinea, 1970, at 75-76, in the following terms:

"Equitable Leases:

An agreement to let land may operate as an immediate demise and give to the lessee or tenant a legal estate in Land (see Doe d Phillip and Walters v Benjamin (1839) 9 Ad & E 644; 112 ER 1356 (KB) but if the agreement is intended to be merely an agreement for a lease, ie, an agreement that the proposed lessor will lease and the proposed lessee will take the land, it creates at common law only contractual and not property rights; and for failure by either party to carry out the agreement the other party has at common law only an action for damages. Again if the transaction between the parties is intended to operate as an actual lease, but it does not comply with formalities required by law, it can operate only as an agreement for a lease, with the consequences just indicated ...

In equity, however, an agreement for a lease, or an informal lease treated as an agreement for a lease, has a greater effect than at common law. In earlier times the Chancellor in his Court of Chancery, would give the remedy of damages for breach of specific performance, whereas the common law would give only the remedy of damages for breach of agreement ... Furthermore, a court of equity, applying the maxim that equity treats as done that which ought to be done, treats a party as having acquired the estate or rights which he ought to have acquired. Thus if L has agreed to lease land to T for five years, equity treats T as having acquired the five year estate in the land which he is entitled to obtain (by action for specific performance), and not as having merely a right of action for damages."

The leading case is Walsh v Lonsdale (1882) 21 Ch D 9 (CA) in which Jessel MR said (at 14):

"There is an agreement for a lease under which possession has been given. Now since the Judicature Act 1873 (UK) the possession is held under the agreement. There are not two estates as there were formerly, one estate at common law by reason of the payment of the rent from year to year, and an estate in equity under the agreement. There is only one Court, and the equity rules prevail in it. The tenant holds under an agreement for a lease. He holds, therefore, under the same terms in equity as if a lease had been granted, it being a case in which both parties admit that relief is capable of being given by specific performance."

In short, a court which has powers to hear actions in law and equity will treat the parties to an agreement for a lease as having the rights and obligations which they would have had if one of the parties had pursued the available remedies and obtained the legal lease.

Halsbury confirms this view, citing Walsh v Lonsdale (supra) in Halsbury’s Laws of England (4th ed), Vol 16, par 1306:

"Equity looks upon that as done which ought to be done or which is agreed to be done, but this maxim does not extend to things which might have been done; nor will equity apply it in favour of everybody, but only those who had a right to pray that the thing should be done."

And at par 1307:

"Where, for example, possession is held under an agreement for a lease, of which specific performance would be ordered, the parties are treated in equity as being in the same position with regard to their respective rights as if a lease had been granted. Similarly, money which would have been payable under a contract if the defendant had not wrongfully prevented anything from becoming due will be treated as a debt in equity, although it is not a debt at law."

THE JURISDICTION OF THE DISTRICT COURT

A District Court has jurisdiction in all personal actions at law or in equity where the amount of the claim or the amount or value of the subject matter of the claim does not exceed K4,000 for a magistrate grade III and K2,000 for a magistrate grade II: District Courts Act (Ch No 40), s 21. Under s 22 of the District Courts Act, a District Court may grant such relief, redress or remedy, or combination of remedies, and give the same effect to every ground of defence or counterclaim, whether equitable or legal as ought to have been granted in a similar case by the National Court and in as full and ample a manner. The District Court has wide powers, similar to the National Court, and subject only to statutory exclusions, to deal with civil claims.

ESTOPPEL: TENANTS ESTOPPED FROM DISPUTING LANDLORDS TITLE

But the matter does not end there. The common law has a well-established principle of estoppel that where tenants enter onto land, as tenants to a landlord, and have continued to enjoy the land, they are estopped from asserting that they have enjoyed or held the land otherwise than as tenants: see Hatfield v Alford (1846) 1 Legge 330; 23 Aust Digest (2nd ed), 110. This seems to me to be an eminently suitable rule of law for the conditions which exist in this country.

In this case, if Mr Wine has entered onto the land he would have appeared to have entered onto the land as a tenant. The lease agreement bears witness to that. The lease agreement shows that both parties recognised their relationships to be that of landlord and tenant. The tenant is estopped from now saying that he held the land otherwise than as a tenant. The effect of this is that as far as a claim for rent is concerned the tenant cannot dispute his landlord’s title.

The effect of the estoppel when it does apply is that the tenant cannot set up lack of title in the landlord to grant the lease as a defence to an action for breach of covenant or for rent due: see Monroe v Kerry (1710) 1 Bro Parl Cas 67 cited in H A Hill and J H Redman, Law of Landlord and Tenant (15th ed) at 13.

However it has been said that an estoppel applies only while the tenant is in possession. Once the tenancy has ended and the tenant is out of possession he is no longer estopped from establishing that the lessor has no right to grant the lease: see Harrison v Wells [1966] 3 All ER 524 at 527-528, per Harman LJ.

Salmon LJ in Harrison v Wells was most uneasy with this proposition of law. His Lordship said (at 530):

"The whole point, and the only point, which enables this defendant to succeed turns on the fact that he actually surrendered and went out of possession. It is perhaps difficult to see for this purpose what is the material difference between a tenant who remains over as a tenant on sufferance, and a tenant who goes out of possession. The first one has taken all the advantages under the lease; he has had all the consideration that the lease purported to confer on him. So has the second in respect of the period during which he enjoyed the tenancy. The first man would clearly be estopped from denying his apparent landlord’s title. Why not the second?

This rule of estoppel is founded, I think, on the well-known principle that one cannot approbate and reprobate. It is founded also on this consideration, that it would be unjust to allow the man who has taken full advantage of a lease to come forward and seek to evade his obligations under the lease by denying that the purported landlord was the landlord. I ask myself why should it make any difference that the tenant has gone out of possession if (as in this case) he has taken the whole of the consideration under the lease during the period in which he chose to remain in possession under the lease? I confess that I find it very difficult to discover any sensible answer to this question.

The rule relating to estoppel, although founded on broad principle, is nevertheless highly artificial and dependent entirely on precedent."

So, the English Court of Appeal declared this rule of common law to be law despite the fact that it was "highly artificial and dependent entirely on precedent". It allowed a tenant who had done??740 worth of damage to his landlord’s property to escape scot-free, despite the fact that Salmon LJ could find no "sensible" basis for the rule.

In my view, such a rule of law is inappropriate, (Constitution, Sch 2.2) to the circumstances of this country because it is not uncommon for people in Papua New Guinea to make promises in relation to registered land on the basis that their application to the Minister for Lands for approval of the lease will be granted. The administrative process within the Department of Lands, in the past has been notoriously slow, and in the context of the granting of State leases the concept of the "granted application" arose, for those applicants for leases who had their applications for a State lease approved, but who were never actually issued a document called a "State lease".

In the case of leases between private parties which are carved out of a State lease, the parties need to be assured that their mutual promises will be respected by the courts, until the administrative process within the Department of Lands and Physical Planning has functioned in accordance with the terms of the Land Act. The need for certainty should not be disturbed by importing "highly artificial" rules of English common law, which even the Court of Appeal have difficulty in regarding as "sensible".

It is comforting to note that after Independence, in 1977, the English Court of Appeal reversed its own decision in Harrison v Wells in the case of Industrial Properties (Barton Hill) Ltd v Associated Electrical Industries Ltd [1977] 2 All ER 293. The Court of Appeal, in Industrial Properties held that Harrison v Wells was wrongly decided per incuriam. Lord Denning MR in Industrial Properties corrected the law in the following terms (at 301):

"If a landlord lets a tenant into possession under a lease, then, so long as the tenant remains in possession undisturbed by any adverse claim — then the tenant cannot dispute the landlord’s title. Suppose the tenant (not having been disturbed) goes out of possession and the landlord sues the tenant on the covenant for rent [as Mr Giglmai did with Mr Wine] or for breach of covenant to repair or to yield up in repair. The tenant cannot say to the landlord: ‘You are not the true owner of the property.?’ "

This, in my view, correctly states the law in Papua New Guinea.

THE NEED TO DEVELOP THE LAW OR EQUITY IN PAPUA NEW GUINEA

In the introduction of this judgment I raised the issue of the transactional costs of the Land Act on rural development in Papua New Guinea. Although the Land Act was adopted by Parliament at Independence, and there have been some alterations to it, as a legislative model it is Australian and bureaucratically centralist in its form.

All State leases are issued from Waigani. All the ministerial approvals under s 69 of the Act have to come from Waigani. This is the law, and of course, as a matter of law the courts are bound by it. But this does not mean that the courts are powerless. "In interpreting the law the courts shall give paramount consideration to the dispensation of justice": Constitution, s 158(2). The word "law" in that provision includes the Underlying Law, which in turn includes those rules of the law of equity that have been received into law under the appropriate schedule to the Constitution.

The law of equity was always used by the courts to ameliorate the injustices of the harshness of common law or statute. It is therefore available to develop the Underlying Law and to ease those pressures on litigants that arise from the inefficiencies of centralist and unreformed statute law.

In the case of land administration there are good legal grounds for developing the law of equity to ensure that justice is done in particular cases. The Organic Law on Provincial Government (Ch No 1) says that land and land development is a concurrent legislative power shared, in accordance with the provisions of the Organic Law, between the National and Provincial Governments. Now, 15 years after Independence, there has been no substantial amendment to the Land Act which would move the nature of its power away from a centralist model, towards the decentralised goal which is envisaged in the Constitution, Pt VIA — "Provincial Government and Local Government", and in the Organic Law on Provincial Government. Neither does there appear to have been any substantial delegation of power to provinces in land matters under Pt VIII of the Organic Law.

Whether or not Parliament amends a statute is a matter for Parliament. Whether or not the executive delegates its statutory powers to the provinces is a matter for the executive. But if omissions by other parts of government, in particular cases before the courts, result in injustices, then the issue may fall within the jurisdiction of the courts. In these circumstances where unreformed statutes not only produce injustices, but tend to go against the spirit of the Constitution, then the courts should not be slow in providing appropriate remedies to do justice between the parties.

In this case a statute would appear to have invalidated an agreement between two businessmen. The agreement involved only a small sum of money: K4,200, but it still was subject to ministerial approval. The landlord appears to have thought he held a State lease, under the Land Act, when it appears he did not hold a lease, but may have been no more than an applicant to have a lease transferred into his name. These irregularities are not surprising when the land is in Kerowagi and the necessary approvals have to come from Port Moresby.

At law the relationship between Mr Giglmai and the State was irregular. It appears he was taking steps, or took steps to regularise it. The relationship between Mr Giglmai and Mr Wine was a private matter — it was only affected by public law to the extent of its non-compliance with the Land Act. In these circumstances, it is proper that the courts enforce the private agreements of the parties, to the extent that they do not conflict with public law (the Land Act). The courts can recognise the lease (otherwise unenforceable) as an equitable lease. Here the claim is liquidated — it is for rent only. That does not go to the legal title of the land. It does not affect the State’s title. If the State is aggrieved over any irregularity about the title it has separate remedies against Mr Giglmai, although on the papers before the District Court it appears that the State was prepared to grant a licence to Mr Giglmai, while his application for the transfer of the State lease from the Simbu Cattlemen’s Association, was under consideration by the Land Board.

The formal orders are:

Appeal upheld; matter to be remitted to the District Court Kundiawa, to be re-heard by the Senior Resident Magistrate. The parties are to bear their own costs

________________________________

Lawyer for the appellant: I Kuamin.
The respondent in person.