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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS 378 of 1999
BETWEEN:
THE PAPUA CLUB INC.
Plaintiff
NUSAUM HOLDINGS LIMITED
First Defendant
INVESTMENT CORPORATION OF
PAPUA NEW GUINEA
Second Defendant
THE REGISTRAR OF TITLES
Third Defendant
AND:
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Fourth Defendant
THE MINISTER FOR LANDS
Fifth Defendant
AND:
INVESTMENT CORPORATION OF PAPUA NEW GUINEA
Cross-Claimant
AND:
JIMMY MALADINA, BERNARD AVEY,
DAVID LIGHTFOOT, JOHN BEATTIE
& KELLY NARU trading as CARTER NEWELL LAWYERS
First Cross-Defendants
AND:
NUSAUM HOLDINGS LIMITED
Second Cross-Defendants
WAIGANI: GAVARA-NANU J.
2002: 12th, 13th 14th, 15th & 16th August
17th, 18th, 19th & 20th September
2004: 3rd September
STATE LEASES – Land Act, 1966, PARTS II AND X – ss.4, 57 (2), 59(9), 68, 69(1), 70, 71, 73, 74, 75, 76, 77, 78, 79 and 119 – Scheme of the Land Act for State Leases– Upon the expiration of a State Lease, the ownership of land reverts back to the State - A lessee or a sub-lessee of a State Lease has no perpetual rights and interests in leasehold land.
LANDLORD AND TENANT – Lease – Duration – Uncertainty – No lease is created when the term of the lease is uncertain – Requirements of a valid lease – Right of the landlord to determine a lease – A lease which fetters such right is against public policy and the scheme of the Land Act.
REAL PROPERTY – Land Registration Act, 1981, s.33 – Fraud – Registration of land – Registered proprietor’s title is indefeasible, unless such title is obtained through fraud or through serious or gross irregularities arising out of the breaches of the mandatory statutory procedures under the Land Act - In the latter cases, fraud is not the essential element to invalidate title – Fraud means actual fraud or fraud by the registered proprietor.
PRACTICE AND PROCEDURE – Pleadings – Fraud - fraud is a serious matter and therefore the plaintiff who alleges fraud must plead the particulars of fraud by setting out the facts upon which fraud is alleged – Fraud must be strictly proven.
LANDLORD AND TENANT – Lease – Merger - Unregistered Deed of Lease merging in the registered Sub-Lease – Deed being executory or preparatory agreement to the Sub-Lease – Deed being superseded by the Sub-Lease – Sub-Lease being the governing document - Doctrine of merger – Definition and the applicability of merger.
REAL PROPERTY – Sale of property – Allegations of unconscionable conducts against the vendor and the purchaser – No evidence of the plaintiff being at a disadvantage or at a special disadvantage – Parties dealing with each other on an equal footing – Conduct not unconscionable – Circumstances in which unconscionable conduct may arise.
LAWYERS – Lawyers’ Act, 1986 - Professional Conduct Rules, 1989, ss. 8, 9 and 10 – Ethics - Conflict of interest – ‘Chinese Wall’ arrangement – There is conflict of interest where a lawyer or a firm of lawyers acts for two clients who have conflicting and incompatible interests - Loyalty of the lawyers or the firm of lawyers being divided between the two clients – Breach of Professional Conduct Rules – Improper conduct resulting from technical breaches – No real prejudices being suffered by the clients – Clients acquiescing in the lawyers’ conduct - Such clients have no recourse to legal remedy against the lawyers or the firm.
Facts:
The plaintiff owned the land described as Section 3, Allotment 4, Douglas Street, Granville, Port Moresby, through its trustees who held the Crown Lease (State Lease) over the land, which was contained in Volume 5 Folio 1027, for a term of 66 years commencing on 29th June, 1939, and expiring on 20th December, 2005. The land was held in trust for the plaintiff until 1975, when the plaintiff was incorporated under the Associations Incorporation Act, 1966. Upon the incorporation of the plaintiff, the title in the land became vested in the plaintiff.
In 1977, the plaintiff and the second defendant entered into negotiations for the plaintiff to transfer the land to the second defendant so that the second defendant could construct a high rise building on the land. In the negotiations, it was agreed that part of the building would, upon its completion, be leased back to the plaintiff for its exclusive use as its ‘new premises’ (‘the Club premises’).
On 5th July, 1978, the plaintiff and the second defendant signed a Deed of Lease (‘the Deed’) which provided the basis for the second defendant to construct the high rise building as was previously agreed to between them. One significant feature about the Deed was that the plaintiff would pay K1.00 per annum in rent to the second defendant for the Club premises thus reflecting the special and mutual arrangement between them. The Deed was not registered.
Then on 29th August, 1978, the plaintiff and the second defendant signed a Sub-Lease for the plaintiff to lease the Club premises. The Sub-Lease was registered on 5th October, 1978.
The unregistered Deed and the registered Sub-Lease each provided for the term of the lease for the Club premises.
The part of the Deed which provided for the term of the lease for the Club premises is Clause 2 (ii) which is in these terms:
(ii) It will lease to the Club at a nominal rental of One Kina (K1.00) per annum the new premises for the term of the unexpired portion of the Crown Lease over the property and for such period of any extension renewal or substitution therefore of such Lease, provided that it shall be a condition of such Lease that the New Premises are to be used solely for the operation of the Papua Club and for no other purpose.
The part of the Sub-Lease which provided for the term of the lease for the Club premises is the Second Schedule which is in these terms:
SECOND SCHEDULE
For the unexpired term of the Crown Lease over the subject property being Crown Lease Volume 5 Folio 1027 less one day together with any additional period of any extension thereof or for any period of any alternating or substituted Lease or License over the subject property in favour of the Investment Corporation of Papua New Guinea or any nominee thereof over the said property.
On 29th May, 1984, the second defendant and the plaintiff signed another Sub-Lease for the area on the ninth floor of the building, which was occupied by the Pacific Architects Consortium (‘the architects’ area’). The Pacific Architects Consortium appears to have been the sub-tenant to the plaintiff under an arrangement between them.
In 1997, Fiocco Posman and Kua Lawyers (‘FPK Lawyers’) who were acting for the second defendant drafted a substituted Sub-Lease for the architects’ area on behalf of the second defendant and forwarded it to the Secretary for the plaintiff with a covering letter dated 26th November, 1997. The substituted Sub-Lease was the amendment to the original Sub-Lease that was signed on 29th May, 1984. Blake Dawson Waldron Lawyers (‘Blakes’) were acting for the plaintiff in respect of that Sub-Lease.
In the original Sub-Lease for the architects’ area, the Fourth Schedule provided for the term of the lease. In the substituted Sub-Lease, the Third Schedule provided for the term of the lease.
In a letter by Blakes dated 18th February, 1998, to FPK Lawyers, Blakes requested that the Third Schedule to the substituted Sub-Lease for the architects’ area be amended to include clauses which would safeguard and guarantee the plaintiff’s rights and interests in the architects’ area after 20th December, 2005. But that request was rejected by FPK Lawyers acting on instructions from the second defendant. Blakes were advised of the rejection by FPK Lawyers in a letter dated 4th May, 1998.
Mr. Philip Payne, a partner in Blakes and Mr. Richard Foster, also of Blakes, were acting for the plaintiff in respect of that Sub-Lease. In a letter dated 28th July, 1998, Mr. Payne and Mr. Peter Coumbis also of Blakes advised the plaintiff, inter alia, that the substituted Sub-Lease by its terms in the Third Schedule did not protect its interests after 20th December, 2005.
On 30th July, 1998, against the advice given by Blakes, the plaintiff signed the substituted Sub-Lease for the architects’ area without the amendments being made to the Third Schedule as advised and proposed by Blakes.
From 2nd July, 1998, Mr. Coumbis and Mr. David Hallahan also of Blakes, started acting for the first defendant in the purchase of the property from the second defendant. The contract of sale was executed on 24th July, 1998. Thus Blakes (the firm), through its lawyers was acting for both the plaintiff and the first defendant and thus was representing their respective interests in the same property. It is to be noted that Blakes was acting for the plaintiff in respect of the architects’ area well before the first defendant engaged its services through Mr.Hallahan and Mr.Coumbis on 2nd July, 1998.
The Second Schedule to the Sub-Lease for the Club premises is in similar terms as the Fourth Schedule to the original Sub-Lease for the architects’ area and the Third Schedule to the substitute Sub-Lease for the architects’ area. And Clause 2 (ii) of the Deed is generally in similar terms as these three Schedules.
However, there is a significant difference between the term of the lease under Clause 2 (ii) of the Deed and the term of the lease under the Second Schedule to the Sub-Lease for the Club premises. Under Clause 2 (ii) of the Deed, the term of the plaintiff’s lease for the Club premises is - "for the unexpired portion of the lease". In other words, under the Deed, the plaintiff has the right to lease and occupy the Club premises or the demised premises up to 20th December, 2005. Whereas under the Second Schedule to the Sub-Lease, the term of the plaintiff’s lease for the Club premises is - "for the unexpired portion of the State Lease, less one day". In other words, under the Sub-Lease, the plaintiff has the right to lease and occupy the Club premises effectively up to 19th December, 2005, the day before the State Lease expires. The terms of the lease under the Fourth Schedule to the original Sub-Lease for the architects’ area and the Third Schedule to the substituted Sub-Lease are also ‘less one day’ from the date of the expiry of the State Lease.
The difference in the terms of the lease under the Deed and the Sub-Lease for the Club premises is significantly relevant in determining the issue of merger between the Deed and the Sub-Lease.
Before purchasing the property from the second defendant, the first defendant was advised by its lawyers, that the plaintiff would not have any rights and interests in the property after 20th December, 2005, either under the Deed or the Sub-Lease. This of course is the principal point of contention, because the plaintiff has contended that the Deed and the Sub-Lease grant it the right to lease the demised premises in perpetuity and therefore, has the automatic right to renew its lease or to continue to have rights and interests in the property after 20th December, 2005. That also is the plaintiff’s primary claim in this action.
The plaintiff occupied the Club premises continuously and peacefully from about 1980 until 1998, when the second defendant sold the property to the first defendant.
The plaintiff claims that it has the right to renew its lease for the Club premises, including paying K1.00 per annum in rent after 20th December, 2005.
The plaintiff also claims that the second defendant held the State Lease Renewal and Compensation Rights in the property prior to it being sold to the first defendant, pursuant to the Land Act, 1966. The plaintiff claims that the second defendant held such rights in trust for it. Thus, with the property having been purchased by the first defendant, the plaintiff claims that the first defendant now holds its registered interests in the property subject to the rights and interests of the plaintiff. The plaintiff says that it will realize these rights when the current State Lease expires on 20th December, 2005.
The plaintiff further claims that the first defendant induced the second defendant to breach the contract between it (the second defendant) and the plaintiff, which presumably arose from the Deed and the Sub-Lease. The plaintiff also claims that the lawyers for the first defendant had conducted themselves fraudulently in acting for the first defendant in the purchase and transfer of the property from the second defendant to the first defendant. Thus, the plaintiff claims that the transfer of the State Lease having been done fraudulently, the first defendant’s title in the property is invalid.
In that regard, the plaintiff also claims that the conduct of the first and the second defendants were unconscionable.
The plaintiff further claims that the first defendant’s lawyers in acting for both the first defendant and the plaintiff who had conflicting and incompatible interests in the property, had a conflict of interest and had acted contrary to and in breach of the Professional Conduct Rules, 1989, and that such conduct amounted to fraud. The plaintiff claims that, such fraudulent conduct by the first defendant’s lawyers also rendered the first defendant’s title in the property invalid.
The plaintiff’s claim of conflict of interest against the first defendant’s lawyers arises from the lawyers acting for the first defendant in the purchase of the property and at the same time acting for the plaintiff in respect of the architects’ area, in which the plaintiff’s interest is to renew or to continue its lease after 20th December, 2005. The plaintiff claims that the lawyers who were also acting for it did not obtain its consent before acting for the first defendant.
In the alternative, the plaintiff claims damages against the second defendant for breach of contract and damages against the first defendant for inducing breach of contract by the second defendant and for knowingly receiving or purchasing the property which was being held in trust for the plaintiff by the second defendant.
Held:
(1) The Deed and the Sub-Lease for the Club premises by virtue of their respective terms in Clause 2 (ii) and the Second Schedule which purport to give the plaintiff, the right to renew its lease in perpetuity are void for uncertainty.
(2) Even if the Deed and the Sub-Lease were valid, the Deed had merged in the Sub-Lease, resulting in the Deed being superseded by the Sub-Lease. Consequently, the only document arising for determination is the Sub-Lease as the superior and governing document.
(3) Even assuming that the Deed did not merge in the Sub-Lease, both agreements are unenforceable as being against public policy in so far as Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease purport to give the plaintiff right to lease the property in perpetuity or to have rights and interests in the property after 20th December, 2005, as that would effectively amount to fettering the right of the first defendant as the lessor and the landlord to determine the lease.
The Deed and the Sub-Lease are also unenforceable as being against the scheme of the Land Act, which provides for the ownership of all leasehold land held under State Leases to terminate and to revert back to the State, upon the expiration of the Sate Leases.
(4) There was no fraud by the first defendant when acquiring the title over the property. Thus the first defendant has indefeasible title. Fraud, under s.33 of the Land Registration Act, 1981, means actual fraud or fraud by the registered proprietor. Thus the land once registered under the first defendant’s name conferred a title which is indefeasible, unless it can be shown that the title was acquired through fraud or through seriously and grossly irregular means. In the latter cases, fraud is not the essential factor. In such a case, the courts have broad equitable supervisory powers under s. 155(4) of the Constitution to invalidate such title even though no fraud is established.
Assets Company Ltd -v- Mere Roihi and Others [1905] A.C 170 and Conlan and Others –v- Registrar of Titles and Others [2001] WASC 201; (2001) 24 WAR 299, adopted and applied.
See also, Emas Estate Development Pty Ltd -v- John Mea and Others [1993] PNGLR 215; Steamships Trading Company Ltd
-v- Minister for Lands and Physical Planning and Others – N 1959 and Hi Lift Company -v- Miri Sata and Another N 2004, discussed and distinguished.
(5) Allegation of fraud is a very serious allegation thus, the particulars of fraud must be pleaded and fraud must be strictly proven by the plaintiff as required under Order 8 r 30 of the National Court Rules. In this case, the particulars of the alleged fraud not having been pleaded, the plaintiff’s claim of fraud against the defendants must fail.
William Maki -v- Michael Pundia and PNG Motors [1993] PNGLR 337, applied.
Claims of unconscionable conduct against the defendants.
(6) The conduct of the defendants and the lawyers for the first defendant in the purchase and transfer of the property from the second defendant to the first defendant were not unconscionable, as the plaintiff was not suffering from any disadvantage, let alone a special disadvantage. Their dealings were on an equal footing. In any case, this claim appears to be misconceived because it can only arise between the negotiating parties, like the defendants. The plaintiff was not a negotiating party at all.
Kora Gene -v- Motor Vehicles Insurance (PNG) Trust [1995] PNGLR 344, followed.
See also, Blomley -v- Ryan [1956] HCA 81; (1965) 99 CLR 362; Knupp -v- Bell (1968) D.L.R. Vol. 67 (2d.) 256; Lloyds Bank Ltd -v- Bundy [1974] 3 All ER 757, Hart -v- O’Conner [1985] UKPC 1; [1985] 2 All ER 880; [1985] AC 1000 and Commonwealth Bank of Australia -v- Amadio [1983] HCA 14; (1983) 151 CLR 447, adopted and applied.
(7) The second defendant did not hold the property in trust for the plaintiff prior to it being sold to the first defendant. Thus, there was no breach of trust by the defendants as a result of the first defendant purchasing the property. The relationship between the second defendant and the plaintiff was one of landlord and tenant or lessor and lessee. The second defendant was not the trustee for the plaintiff, nor was the plaintiff a beneficiary of a trust. Thus, the relationship between the second defendant and the plaintiff did not create trust obligations for the second defendant in favour of the plaintiff. The plaintiff has also failed to plead the particulars of the alleged breach of trust as required under Order 8 r 30 of the National Court Rules.
Claim of conflict of interest against the first defendant’s lawyers, and whether the conduct of the first defendant’s lawyers, which gave rise to such claim, amounted to fraud?
(8) There was a conflict of interest by the lawyers acting for the plaintiff and the first defendant within the meaning of s. 10 (1) and (5) of the Professional Conduct Rules. The conflict of interest arose when the lawyers acted for both the plaintiff and the first defendant, who had conflicting and incompatible interests in the property and whose consent were not obtained, which also resulted in the lawyers having divided loyalty between the two clients. But such conduct did not amount to fraud. The conduct was only technically improper because the plaintiff and the first defendant had acquiesced in the conduct of the lawyers. The "Chinese Wall" arrangement by the lawyers was not effective and was not honoured by the lawyers. However, the plaintiff and the first defendant can have no recourse to legal remedy against the lawyers as they suffered no real prejudices.
Fruehauf Finance Corporation Pty Ltd -v- Feez Ruthning (a firm) (1991) Qd. R 558, distinguished.
Blackwell -v- Barroile Pty Ltd (1994) 123 ALR 81 and Law Society of New South Wales -v- Harvey [1976] 2 NSWLR 154, adopted and applied.
(9) No cause of action can avail the plaintiff and the first defendant against their lawyers for their improper conduct which gave rise to a conflict of interest, for the reason that in the case of the plaintiff, it had acquiesced in the rejection by the second defendant, through its lawyers, of the amendments proposed by the plaintiff, through its lawyers, to the Third Schedule of the substituted Sub-Lease for the architects’ area, by going ahead and signing the substituted Sub-Lease without the amendments. The proposed amendments were to safeguard and guarantee the plaintiff’s rights and interests in the property after 20th December, 2005.
The Third Schedule to the substituted Sub-Lease for the architects’ area is in similar terms as the Second Schedule to the Sub-Lease for the Club premises and generally similar to Clause 2 (ii) of the Deed. The plaintiff was advised by its lawyers that the substituted Sub-Lease for the architects’ area in terms of the Third Schedule did not protect its interests in the property after 20th December, 2005. Thus, when it signed the substituted Sub-Lease without the amendments, the plaintiff was fully aware that it would have no rights and interests in the property after 20th December, 2005.
Thus, the Second Schedule to the Sub-Lease for the Club premises and Clause 2 (ii) of the Deed being similar or generally similar in terms as the Third Schedule to the substituted Sub-Lease for the architects’ area, the plaintiff cannot rely on the Sub-Lease for the Club premises and Clause 2 (ii) of the Deed to grant it the right to renew its lease in the property after 20th December, 2005, or to have rights and interests in the property after 20th December, 2005. The end result is that the plaintiff did not suffer any real prejudice from the conduct of its lawyers. It therefore, cannot have recourse to legal remedy against the lawyers.
Moreover, Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease for the Club premises, having been found to be void for uncertainty and that the Deed had merged in the Sub-Lease, no rights can arise for the plaintiff from them. Further, they are contrary to public policy and the scheme of the Land Act. The plaintiff therefore cannot derive any rights and interests in the property, either under the Deed or the Sub-Lease after 20th December, 2005.
In the case of the first defendant, it had also decided that it would not take any action against its lawyers after it learnt that its lawyers were also acting for the plaintiff in respect of the architects’ area. Thus, it also acquiesced in the conduct of its lawyers.
The end result is that the first defendant also did not suffer any real prejudice from the conduct of the lawyers. Therefore, it too cannot have recourse to legal remedy against the lawyers.
Cases cited:
Don Pullie Polye -v- Jimson Sauk Papaki – SC637.
Embda Limited Trading as Tribal Plumbers -v- Tropical Habitat Limited – N2067.
Emas Estate Development Pty Ltd -v- John Mea & Others [1993] PNGLR 215.
Gulf Provincial Government -v- Baimuru Trading Pty Ltd - N1794.
Hi Lift Company -v- Miri Sata & Another – N2004
In the Matter of Public Prosecutor’s Reference against Hon. Michael Nali MP- N2399.
Kora Gene -v- Motor Vehicles Insurance (PNG) Trust [1995] PNGLR 344.
Mudge -v- Secretary for Lands [1985] PNGLR 387.
Pacific Foam Pty Ltd -v- Zuric Pacific Insurance Pty Ltd – N1745.
Papua Club Inc. -v- Nusaum Holdings Limited and Others - N2273.
PNG Forest Products Pty Ltd and Inchcape Berhad. -v- The State and Jack Genia, Minister for Forests [1992] PNGLR 85.
Roselyne Cecil Kusa -v- Motor Vehicles Insurance (PNG) Trust- N2328.
Steamships Trading Company Ltd –v- Minister for Lands & Physical Planning & Others - N1959.
Tau Gumu -v- Papua New Guinea Banking Corporation – N2251.
The Administration of the Territory of Papua and New Guinea -v- Blasius Tirupia & Others. In Re. Vunapaladig and Japalik Land
[1971-72] PNGLR 229.
William Maki -v- Michael Pundia and PNG Motors [1993] PNGLR 337.
Other cases cited:
Allen -v- Flood [1897] UKLawRpAC 56; [1898] AC 1.
Ashburn Anstalt -v- Arnold [1988] EWCA Civ 14; [1988] 2 All ER 147; [1989] Ch.1.
Assets Company Ltd -v- Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176.
Bater -v- Bater [1950] 2 All ER 458.
Blackwell -v- Barroile Pty Ltd (1994) 123 ALR 81.
Breskvar -v- Wall (1971) 126 CLR 376.
Blomley -v- Ryan [1956] HCA 81; (1956) 99 CLR 362.
Buttler -v- Fairclough and Another [1917] HCA 9; (1917) 23 CLR 78.
Charles Clay & Sons Ltd -v- British Railways Board [1971] 1 All ER 1007; [1971] Ch 725.
Clifford Davis Management Ltd -v- WEA Records Ltd [1975] 1 All ER 237.
Commonwealth Bank of Australia -v- Amadio [1983] HCA 14; (1983) 151 CLR 447.
Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) and Others -v- Registrar of Titles and Others [2001] WASC 201; (2001) 24 WAR 299.
Egerton -v- Brownlow [1853] EngR 885; 10 ER 359.
Frazer -v- Walker [1967] AC 569.
Friedman -v- Barret, Ex parte Friedman (1962) Qd.R 498.
Fruehauf Finance Corporation Pty Limited -v- Feez Ruthning (a firm) (1991) Qd.R 558.
Griffiths -v- Ellis [1958] NZLR 840.
Hart -v- O’Conner [1985] UKPC 1; (1985) 2 All ER 880; (1985) AC 1000.
Hisset and Another -v- Reading Roofing Co. Ltd [1969] 1 WLR 1757; [1970] 1 All ER 122.
Horwood -v- Millar’s Timber & Trading Co. Ltd (1917) 1 KB 305.
Knight Sugar Co. Ltd -v- Alberta Pty & Irrigation Co. [1938] All ER 266.
Knupp -v- Bell (1968) D.L.R. Vol.67 (2nd Ed.) 256.
Lace -v- Chandler [1944] 1 KB 368; [1944] 1 All ER 305.
Law Society of NSW -v- Harvey (1976) 2 NSWLR 154.
Lawrence -v- Lord Norreys [1890] UKLawRpAC 14; (1890) 15 App. Cas. 210.
Leggott -v- Barett [1880] UKLawRpCh 229; (1880) 15 Ch.D 306.
Lindsay and Ziegler (1986) 60 ALJR 387.
Lloyds Bank Ltd -v- Bundy [1974] 3All ER 757.
Loke Yew -v- Port Swettenham Rubber Co. Ltd [1913] UKLawRpAC 11; [1913] AC. 491.
Miller -v- Minister for Pensions [1947] 2 All ER 372.
National West Minister Bank PLC -v- Morgan [1985] UKHL 2; [1985] AC 686.
Naylor, Benson & Co. Ltd -v- Krainische Industrie Gessellschaft [1918] 1 KB 331.
Neat Holdings Pty Ltd -v- Karajan Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170.
Neville -v- Dominion of Canada News Ltd (1915) 3 KB 556.
Palmer -v- Johnson [1884] UKLawRpKQB 92; (1884) 13 QBD 351.
Prudential Assurance Co. Ltd -v- London Residuary Body and Others [1991] UKHL 10; [1992] 3 All ER 504.
Quinn -v- Leathem [1901] AC 495.
Re Dellow’s Will Trusts [1964] 1 All ER 771.
Redmond -v- Permanent Trustee Company (NSW) Ltd [1916] HCA 47; (1916) 22 CLR 84.
Registrar of Titles (WA) -v- Frazon [1975] HCA 41; (1975) 132 CLR 611.
Richardson -v- Mellish [1824] EngR 715; 130 ER 294.
Scruttons -v- Midland Silicones Ltd [1961] UKHL 4; (1962) 2 WLR 186.
Sevenoaks -v- London Chatham [1879] UKLawRpCh 128; (1879) 11 Ch. D 625.
Svansio -v- McNamara [1956] HCA 55; (1956) 96 CLR 186.
Tanzone Pty Ltd -v- Westpac Banking Corporation [1999] NSWSC 478; [1999] ATPR 46-195.
Temperton -v- Russell [1893] UKLawRpKQB 64; [1893] 1 QB 715.
Templeton -v- Leviathan Pty Ltd [1921] HCA 55; (1921) 30 CLR 34.
Wenlock -v- Moloney and Others [1965] 1 WLR 1238.
Counsel:
J. Batch S.C. and B. Frizzel, for the plaintiff.
J. Griffin Q.C. and M.M. Varitimos, for the first defendant.
G. Egan and F. Waleilia, for the second defendant.
E. Anderson, for the first cross defendant.
GAVARA-NANU, J: The plaintiff under its original unincorporated name ‘the Papua Club’ owned the land described as Section 3, Allotment 4, Douglas Street, Granville, Port Moresby, through its trustees, called Basil Edward Fairfax-Ross, Eric Vivian Chrisp and others (hereinafter referred to as ‘the trustees’) who were the registered proprietors of the land. Such persons held the then Crown Lease over the land contained in Volume 5, Folio 1027, for a term of 66 years commencing on 29th June, 1939, and expiring on 20th December, 2005, (hereinafter referred to as "the State Lease").
The trustees held the title until 1975, when Papua Club was incorporated, under the Associations Incorporation Act, 1966, thus becoming ‘the Papua Club Inc’. (hereinafter referred to as ‘the plaintiff’).
Upon the incorporation of the plaintiff, the title in the land became vested in the plaintiff.
In 1977, the plaintiff entered into negotiations with the second defendant for the plaintiff to transfer the land to the second defendant, so that the second defendant could construct a high rise building on the land and upon its completion, a space in the building was to be sub-leased to the plaintiff for its exclusive use as its ‘new premises’ (hereinafter referred to as "the Club premises").
On 05th July, 1978, the plaintiff and the second defendant signed a Deed of Lease (hereinafter referred to as ‘the Deed’). In the Deed, the plaintiff agreed to transfer the land to the second defendant upon the conditions agreed upon between them in the Deed. The Deed also provided for the second defendant to construct a high rise building in accordance with their previous negotiations, and specifically provided for the construction of the Club premises for the plaintiff which was to be sub-leased to the plaintiff upon completion of the building. One significant feature about the Deed was that the plaintiff would pay K1.00 per annum in rent to the second defendant for the Club premises. The Deed was not registered.
After the construction of the building and following the transfer of the property from the plaintiff to the second defendant, the plaintiff and the second defendant signed a Sub-Lease for the Club premises on the ninth floor of the building on 29th August, 1978, with the second defendant as the lessor and the plaintiff as the lessee. The Sub-Lease was eventually registered on 5th October, 1978. The building eventually became known as "the Invesmen Haus".
The Deed and the Sub-Lease for the Club premises both provided for the terms of the lease for the Club premises by the plaintiff.
Under the Deed, Clause 2 (ii) provided for the term of the lease. For completeness and for ease of reference, Clause 2 (i) is also set out here with Clause 2 (ii):-
2. Investcorp covenants and agrees that: -
(i) It will construct on the property a development in accordance with the Plans ("the building") which have been made available to and have been inspected by the Club and such development shall provide for a roofed building area, concrete verandah and open space (called "New Premises");
(ii) It will lease to the Club at a nominal rental of One Kina (K1.00) per annum the new premises for the term of the unexpired portion of the Crown Lease over the property and for such period of any extension renewal or substitution therefor of such Lease, provided that it shall be a condition of such Lease that the New Premises are to be used solely for the operation of the Papua Club and for no other purpose. (my underlining).
Under the Sub-Lease, the Second Schedule provided for the term of the lease. The Second Schedule is also set out here for ease of reference:
SECOND SCHEDULE
For the unexpired term of the Crown Lease over the subject property being Crown Lease Volume 5 Folio 1027 less one day together with any additional period of any extension thereof or for any period of any alternating or substituted Lease or License over the subject property in favour of the Investment Corporation of Papua New Guinea or any nominee thereof over the said property. (my underlining).
It is important to note the difference in the terms provided for the plaintiff’s lease for the Club premises under Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease. The term of the lease under Clause 2 (ii) of the Deed is - "for the term of the unexpired portion of the State Lease". In other words, under the Deed, the plaintiff has the right to lease and occupy the demised premises up to 20th December, 2005. And the term of the lease under the Second Schedule to the Sub-Lease is - "for the unexpired term of the State Lease...less one day". In other words, under the Sub-Lease, the plaintiff has the right to lease and occupy the demised premises effectively up to 19th December, 2005, the day before the current State Lease expires.
The difference in the terms of the lease under the two agreements is significant to the issue of merger. I will therefore return to this point later when the issue of merger is addressed.
The ‘transfer’ of the State Lease from the plaintiff to the second defendant was produced for registration on 29th September, 1978, and was registered on 5th October, 1978.
The plaintiff occupied the Club premises continuously and peacefully from about 1980 until 1998, when the first defendant purchased the property.
Prior to the construction of the building (the Invesmen Haus), from about 1958 to 1979, the plaintiff was using an old colonial wooden house on the land and the whole house was used as "The Papua Club" club house. Thus, the plaintiff being the original owner of the land and the transfer of the ownership of the land to the second defendant being by mutual arrangement, the agreements between the plaintiff and the second defendant under the Deed and the Sub-Lease were of special nature. It appears that, it is on that basis that the plaintiff is claiming that it has the right to renew its lease for the demised premises in perpetuity. The claim of course has to be determined by reference to the relevant laws.
On 29th May, 1984, the second defendant and the plaintiff signed another Sub-Lease for the area on the ninth floor of the building which was occupied by Pacific Architects Consortium (hereinafter referred to as "the architects’ area"). The Pacific Architects Consortium appears to have been the sub-tenant to the plaintiff under an arrangement between them. Blakes Dawson Waldron Lawyers (hereinafter referred to as "Blakes") through its lawyers Mr. Philip Payne who is a partner in the firm and Mr. Richard Foster were acting for the plaintiff in respect of that Sub-Lease. The Fourth Schedule to that Sub-Lease provided for the term of the lease for the architects’ area. That Schedule is in these terms:
THE FOURTH SCHEDULE
Term: For the unexpired term of the State Lease over the subject property being State Lease Volume 5 Folio 1027, less one day together with any additional period of any extension thereof or for any period of any alternating or substituted lease or licence over the subject property in favour of the Investment Corporation of Papua New Guinea or any nominee thereof over the said property.
In 1997, Fiocco Posman and Kua Lawyers (hereinafter referred to as "the FPK Lawyers") who were acting for the second defendant drafted the substituted Sub-Lease for the architects’ area to amend the original Sub-Lease that was signed on 29th May, 1984. The substituted Sub-Lease was forwarded to the Secretary for the plaintiff with a covering letter dated 26th November, 1997.
In the substituted Sub-Lease, the Third Schedule provided for the term of the lease. That Schedule is in these terms:
THIRD SCHEDULE
Term: For the unexpired term less one day of the State Lease Volume 5 Folio 1027 Allotment 4 Section 3, Granville, together with any additional period of any extension thereof or for any period of any alternating or substituted lease or licence over the subject property in favour of Investment Corporation of Papua New Guinea or its nominee thereof over the said property.
In a letter dated 18th February, 1998, to FPK Lawyers, Blakes proposed amendments to the substituted Sub-Lease. The proposed amendments were aimed at safeguarding the rights and interests of the plaintiff in the architects’ area after 20th December, 2005. But the proposed amendments were rejected by FPK Lawyers acting on instructions from the second defendant. Blakes were advised of the rejection by FPK Lawyers in a letter dated 4th May, 1998.
It is to be noted that the Third Schedule to the substituted Sub-Lease for the architects’ area is in similar terms as the Second Schedule to the Sub-Lease for the Club premises and the Fourth Schedule to the original Sub-Lease for the architects’ area. Clause 2 (ii) of the Deed is generally in similar terms as these three Schedules.
The substituted Sub-Lease for the architects’ area was signed by the plaintiff on 30th July, 1998, against the advice given by Blakes through Mr. Payne and Mr. Peter Coumbis also of Blakes in the letter dated 28th July, 1998. (See: Exhibit ‘A18’]. In that letter, Blakes advised the plaintiff, inter alia, that the substituted Sub-Lease under its terms in the Third Schedule without the amendments did not protect its interests after 20th December, 2005.
Mr. Coumbis and Mr. David Hallahan also of Blakes, on the other hand, started acting for the first defendant from 2nd July, 1998, in the purchase of the property from the second defendant. It is to be noted that Blakes (the firm) was already acting for the plaintiff in respect of the Sub-Lease for the architects’ area well before the first defendant engaged its services through Mr. Coumbis and Mr. Hallahan on 2nd July, 1998.
In the contract of sale which was executed on 24th July, 1998, the second defendant agreed to sell the property to the first defendant and the first defendant agreed to purchase the property from the second defendant. The contract of sale was signed by the Directors of the two entities and bears their respective seals.
The ‘transfer’ of the State Lease from the second defendant to the first defendant was registered and settled on 31st July, 1998.
The plaintiff’s claims.
The plaintiff’s claims can be stated broadly as follows:-
The defendants’ defences.
The defendants’ defences to the plaintiff’s claims can also be stated broadly as follows: -
General comments.
This action is against five defendants. However, the claims are principally against the first and the second defendants. For that reason, so it seems, the third to fifth defendants made no appearances to defend the action. The first and the second defendants being the principal defendants have defended the action. The non appearances by the third to fifth defendants is therefore of no consequence.
The second defendant cross-claimed against Carter Newell Lawyers and the first defendant. However, those cross-claims were withdrawn by consent during trial, and as a result, the claims were dismissed. Thus, the issues raised in those cross-claims do not arise for determination.
Consequently, the only issues to be determined are those other than the cross claims which are made against the first and the second defendants (hereinafter referred to as ‘the defendants’), and their lawyers.
All of the plaintiff’s claims evolve around its primary claim that it has perpetual rights and interests in the demised premises, including the right to renew its lease after 20th December, 2005. In other words, the plaintiff claims that it has continuing rights and interests in the demised premises after 20th December, 2005. That also is the ultimate issue which must be determined, as it forms the basis of this action by the plaintiff. All the other issues are collateral to this primary claim.
This primary claim was raised and stressed by the plaintiff in its interlocutory application to further amend its Statement of Claim on 16th August, 2002, to which I made reference in my interlocutory ruling. See, Papua Club Inc. -v- Nusaum Holdings Limited and Others - N2273.
This primary claim by the plaintiff is of course founded upon Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease for the Club premises. The case therefore, turns principally on the interpretation of these provisions.
The defendants have denied all the claims by the plaintiff. More particularly the primary claim, that it has rights and interests in the property after 20th December, 2005, including the right to renew its lease.
Reasons for decision.
The questions or the issues to be determined in my opinion conveniently arise from the matters on which the defendants have taken issue. These can be couched as follows: -
It must be stressed that no issues arise for determination in respect of the plaintiff’s right to lease and occupy the demised premises under its current lease up to 20th December, 2005. The first defendant has agreed that the plaintiff does have such right under the terms of its current lease; and has indeed allowed the plaintiff to lease and occupy the demised premises up to 20th December, 2005, which includes paying K1.00 per annum in rent for the demised premises.
Thus, all the issues which need to be determined here relate only to the plaintiff’s primary claim that it has the right to renew its lease after 20th December, 2005, or that it has rights and interests in the property after 20th December, 2005.
The first defendant of course denies the plaintiff’s claim and argues that the Deed and the Sub-Lease do not give such right to the plaintiff. It has contended that, after 20th December, 2005, the plaintiff has to pay rent at a commercial rate like all the other lessees or tenants, if it still wants to lease and occupy the demised premises; in the event that the first defendant is granted a new lease.
In that regard, let me indicate at this juncture that, part of the first defendant’s defence is that, pursuant to the scheme of the Land Act, including Part X and s. 119, the ownership of the land will revert back to the State upon the expiration of the current State Lease on 20th December, 2005; and the first defendant has to apply for a new lease, if it still wants to own the property.
Moreover, it will be up to the Minister for Lands or the Land Board to issue a new lease to the successful applicant, because the land will be advertised on tender for all interested parties to apply as required under the Act. This means, even if the first defendant does apply for a new lease after 20th December, 2005, there is no guarantee that it will be granted a new lease, because the new lease may be granted to another applicant. The first defendant therefore contends that as a matter of law, the plaintiff cannot have any rights and interests in the property after 20th December, 2005.
The first defendant argued that all the existing rights and interests in the property including those currently enjoyed by it will, by law, cease on 20th December, 2005.
In the event that the first defendant is granted a new lease after 20th December, 2005, all the tenants who are currently leasing the property, including the plaintiff, who wish to continue with their tenancies will have to enter into fresh tenancy agreements with the first defendant with new terms and conditions.
As I said, all the claims by the plaintiff are founded upon Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease for the Club premises. Thus the two provisions have to be determined by reference to the established principles and the relevant provisions in the Land Act, which is the governing legislation, including s. 119 which relates to the expired State Leases.
Section 119 is fundamental to the plaintiff’s claims. It is therefore set out here in full:
119. Payment for improvements on expiration of lease.
(1) In this section –
"improvements" means improvements made, or in respect of which a payment has been made, by the outgoing lessee, that are suitable to the land and add to its leasing value, other than improvements in respect of which the lessee has received payment under this section;
"value" means the value on the day after the date of expiration of the lease.
(2) Where, after the expiration of the term of a State lease of land on which there are improvements, the lessee is granted -
(a) a further lease of the land; or
(b) a lease or part only, or that includes part only, of the land, the provisions of Section 84 do not apply in respect of the improvements in relation to the further lease, unless he has received payment for the improvements under this section.
(3) Subject to this section, where on the expiration of the term of a State lease of land on which there are improvements the lessee applies for and is not granted a further lease of the land, or is granted a further lease of part only, or that includes part only, of the land, the Minister shall, within six months after the expiration, pay to the outgoing lessee the value of the improvements on the land, or on the part of the land not included in the further lease, as the case may be.
(4) Where, within the period of six months referred to in Subsection (3), a State lease of the land or part of the land the subject of the expired lease is granted to a person other than the outgoing lessee, the Minister shall pay to the outgoing lessee, on or before the date of grant of the new lease, the value of the improvements on the land or that part of the land, as the case may be.
(5) Subject to Subsections (6) and (13), this Section does not entitle a lessee who does not apply for a further lease of the land the subject of his lease to payment for improvements on the land at the expiration of the lease, but he may remove such of the improvements as are severable on or before the expiration, doing as little damage as may reasonable be to the land.
(6) Where a lease is surrendered under this Act, the lessee may remove such of the improvements as are severable on or before the surrender, doing as little damage as may reasonably be to the land.
(7) If the outgoing lessee and the incoming lessee (if any) -
(a) agree as to –
(i) the amount to be paid for improvements for which the outgoing lessee is entitled to receive payment by the State or that he is entitled to remove under this section; and
(ii) the time and manner of payment; and
(b) notify the Minister in writing of their agreement before the date on which a lease is granted to the incoming lessee,
then –
(c) the amount payable in respect of the improvements under Section 84 is payable by the incoming lessee to the outgoing lessee; and
(d) the Minister ceases to be liable under this Section to pay the value of the improvements to the outgoing lessee; and
(e) Section 84 does not apply to or in relation to a lease that is forfeited under this Act.
(8) This Section does not apply to or in relation to a lease that is forfeited under this Act.
(9) Where, between –
(a) the date of the expiration of the term of a State lease of land on which there are improvements for which the outgoing lessee is entitled to receive payment or which he is entitled to remove under this section; and
(b) the date of the grant of a State lease of the land or a part of the land to the outgoing lessee or another person, the State derives revenue, part or all of which is directly attributed to those improvements on the land or that part of the land, the Minister shall pay to the lessee, from time to time as the Minister determines, the revenue or such part of the revenue as is directly attributable to the improvements, less the amount of any expenditure incurred by the State in maintenance and other costs in respect of the improvements.
(10) Without prejudice to any other remedies that are available, the Minister may deduct from moneys payable by him under this section –
(a) moneys due during the term of the lease and outstanding to the State in respect of the term, or in respect of the land the subject of the lease; and
(b) if the outgoing lessee has continued to occupy the land after the expiration of the term of the lease –
any occupation fee outstanding.
(11) The lessee of a special purposes lease or mission lease may remove, on or before the expiration of the lease, such of the improvements on the land the subject of the lease as are severable, doing as little damage as may reasonably be to the land, but otherwise is not entitled to payment under this Section in respect of the improvements.
(12) The amount to be paid under this Section shall be determined, and is recoverable, as nearly as may be in the same manner as compensation under Part IV.
(13) For the purposes of this section, where a lease expires and a further lease cannot be granted because the land the subject of the lease is reserved from lease or further lease under this Act -
(a) the lessee shall be deemed to have applied for and not to have been granted a further lease over the land; and
(b) the period of six months specified in Subsection (3) shall be deemed to expire at the end of the period of one month after the date of expiration of the lease.
The application and the effect of Part X and s.119 is discussed later in the judgment when the scheme of the Act, in respect of the expired State Leases is addressed in greater detail.
The plaintiff has also raised or made collateral issues or clams, such as, the first defendant having notice of the plaintiff’s interests in the property prior to its sale, irregularities in the rejection by the Registrar of Titles (hereinafter referred to as ‘the Registrar’) of the caveat lodged by the plaintiff’s lawyers, breach of the Professional Conduct Rules, resulting in a conflict of interest by the lawyers acting for the first defendant, the property being held in trust by the second defendant for the plaintiff prior to it being sold to the first defendant, the first defendant inducing the breach of contracts and so on. All these collateral issues or claims will be addressed when all four questions stated above are addressed. But, where necessary, they will be addressed separately.
The principal issues.
I will now address the principle issues arising from the four questions stated above.
1. Are the Deed and the Sub-Lease void for uncertainty?
The pertinent parts of Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease which the plaintiff says grant it the right to renew its lease in perpetuity or to continue to have rights and interests in the property after 20th December, 2005, have already been highlighted. There, the plaintiff also claims that it has perpetual rights and interests in any alternating or substituted leases, and licenses over the property. The defendants have however argued that the pertinent parts of Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease are uncertain in their terms and therefore render the Deed and the Sub-Lease void for uncertainty.
The pertinent parts of Clause 2 (ii) of the Deed are reproduced here for ease of reference:
‘...and for such period of any extension renewal or substitution therefore of such Lease...’
The pertinent parts of the Second Schedule to the Sub-Lease also for ease of reference are:
"...together with any additional period of any extension thereof or for any period of any alternating or substituted Lease or Licence over the subject property in favour of the Investment Corporation of Papua New Guinea or any nominee thereof over the said property".
The issue posed by this question and indeed by the other three questions, must of course be determined by reference to the relevant provisions in the Land Act, the Land Registration Act, and the established principles.
It should be noted that although the language in the pertinent parts of Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease above do not in their expressed terms give the plaintiff the right to lease and occupy the demised premises in perpetuity, or to have rights and interests in the property after 20th December, 2005, the plaintiff has argued that on their true and proper constructions, they give the plaintiff such rights.
In my opinion, the words – ‘alternating or substituted leases or licences’ in Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease, in the pertinent parts, create definite uncertainty as they suggest or envisage changes in the status and effect of the current State Lease prior to its expiration. In regard to the words – ‘any extension renewal’, and ‘any additional period of any extension thereof’ in the pertinent parts, in my opinion also create definite uncertainty because they purport to suggest unending rights and interests for the plaintiff in the demised premises or the property. In other words, these words purport to give the plaintiff the right to renew its lease or to have rights and interests in the property in perpetuity or without end or forever. In that regard, the words must render the Deed and the Sub-Lease void for uncertainty because a lease cannot be open ended. A lease must have a definite end.
The above uncertainties arise in the first instance, from the expressed words in Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease and in the second instance, from the purport of the words. In both instances, the two provisions stand to offend against the well established principle that a lease without a definite end or period is void for uncertainty. No lease can be created in such a case. A lease must have a definite beginning and a definite end. Thus, the term of a lease must be specified and definite.
I will address the plaintiff’s other claims of having reversionary and compensation rights in the property or the Sub-Lease later when I discuss public policy considerations and the scheme of the Land Act, as it relates to State Leases. But as to the claim by the plaintiff that it has the right to renew its lease after 20th December, 2005, I reiterate that it is first of all against the established principles.
A number of decided cases are cited here to illustrate that a term of a lease must be specified. It cannot be indefinite.
In Lace -v- Chandler [1944] 1 KB 368, Lord Greene M.R. in stating that a tenancy agreement or a lease must be certain and specific in its term, at 370, 371 and 372 said:
"...A term created by a leasehold tenancy agreement must be expressed either with certainty and specifically or by reference to something which can, at the time when the lease takes effect, be looked to as a certain ascertainment of what the term is meant to be. In the present case, when this tenancy agreement took effect, the term was completely uncertain. It was impossible to say how long the tenancy would last. Mr. Sturge in his argument has maintained that such a lease would be valid, and that, even if the term is uncertain at its beginning when the lease takes effect, the fact that at some future time it will be rendered certain is sufficient to make it a good lease. In my opinion that argument is not to be sustained.
I do not propose to go into the authorities on the matter, but in Foa’s "Landlord and Tenant" 6th ed., p. 115, the law is stated in this way, and in my view correctly: "The habendum in a lease must point out the period during which the enjoyment of the premises is to be had; so that the duration as well as the commencement of the term, must be stated. The certainty of a lease as to its continuance must be ascertainable either by the express limitation of the parties at the time the lease is made, or by reference to some collateral act, which may, with equal certainty, measure the continuance of it, otherwise it is void. ... In the present case, in my opinion, this agreement cannot take effect as a good tenancy for the duration of the war.
...Lastly, Mr. Sturge argued that the agreement could be construed as an agreement to grant a licence. In my opinion, it is impossible to construe it in that sense. The intention was to create a tenancy and nothing else. The law says that is bad as a tenancy. The court is not then justified in treating the contract as something different from what the parties intended, and regarding it merely as a contract for the granting of a licence. That would be setting up a new bargain which neither of the parties even intended to enter into. The relationship between the parties must be ascertained on the footing that the tenant was in occupation and was paying a weekly rent. Accordingly, it must be the relationship of weekly tenant and landlord and nothing else." (my underlining).
His Lordship was making observations on the term of a lease which was made for ‘the duration of the war’. For further reference, see also [1944] 1 All ER 305.
I find the principle in Lace -v- Chandler (supra) relevant to this case and I respectfully adopt it.
This principle is stated more succinctly in G.G. Cheshire’s -Modern Law of Real Property 11th Edition, at page 370:
"The Period must be Definite. Though a lease may be limited to endure for any specified number of years, however many, it cannot be limited in perpetuity. The term must be for a definite period in the sense that it must have a certain beginning and a certain ending." (my underlining).
Thus, the lease must be for a specific term or period. See also, Sevenoaks -v- London Chatham (1879) 11 Ch.D.625 at 635.
The principle in Lace -v- Chandler (supra) was reaffirmed by the House of Lords in Prudential Assurance Co. Ltd -v- London Residuary and Others [1991] UKHL 10; [1992] 3 All ER 504. That case involved the ownership of a piece of land before 1930, with a street frontage on which there were shop premises. In 1930, the London County Council (hereinafter referred to as ‘the LCC’) bought a strip of the land along the street frontage for future road widening and purported to lease it back to the plaintiffs’ predecessor under an agreement which provided under clause 6 that the tenancy would continue until the land was required for road widening by the LCC.
After 60 years, the road still had not been widened. Subsequently the LCC’s successor in title, the London Residuary Body (hereinafter referred to as ‘the LRB’) which was the first defendant, agreed to sell the land to the second to fourth defendants who were a company and two private individuals with no power to widen the road. The title was thus vested in the second to fourth defendants.
Prior to the sale, the LRB purported to terminate the lease by serving on the plaintiffs six months’ notice to quit. The plaintiffs sought declarations that the notice to quit was null and void because the tenancy could only be determined if the land was required for road widening purposes in accordance with clause 6 of the agreement. The defendants argued that clause 6 was void because it purported to create a lease for uncertain duration. The trial judge agreed. But the Court of Appeal reversed the trial judge’s decision, holding that the principle of certainty of duration expressed in Lance -v- Chandler (supra) did not apply to periodic tenancies. The decision was appealed to the House of Lord, where it was held that, a grant for an uncertain term or duration did not create a lease since it was beyond the power of a landlord to create a term which was uncertain.
Accordingly, the 1930 agreement did not create an estate in the land because it purported to grant a term of uncertain duration. However, because the tenant had leased the property pursuant to the agreement and had paid the yearly rent, he had become a tenant from year to year and thus the tenancy had become for a certain term, and that, each party had the power to determine the lease by six months’ notice. Further, that since the landlord had served such notice the plaintiffs’ tenancy was validly terminated. Lord Templeman with whom Griffiths, Goff of Chieveley, Browne – Wilkinson and Mustill LJJ concurred, delivered the judgment. His Lordship at 510 said:
"My Lords, I consider that the principle in Lace v Chandler [1944] 1 All ER 305, [1944] KB 368 reaffirming 500 years of judicial acceptance of the requirement that a term must be certain applies to all leases and tenancy agreements. A tenancy from year to year is saved from being uncertain because each party has power by notice to determine at the end of any year. The term continues until determined as if both parties made a new agreement at the end of each year for a new term for the ensuing year. A power for nobody to determine or for one party only to be able to determine is inconsistent with the concept of a term from year to year: See Doe d Warner v Browne [1807] EngR 124; (1807) 8 East 165, 103 ER 305 and Cheshire Lines Committee v Lewis & Co (1880) 50 LJQB 121. In Charles Clay & Sons Ltd v British Railways Board [1971] 1 All ER 1007, [1971] Ch 725 there was no ‘clearly expressed bargain that the term should continue until the crack of doom if the demised land was not required for the landlord’s undertaking or if the undertaking ceased to exist. In the present case there was no ‘clearly expressed bargain’ that the tenant shall be entitled to enjoy his ‘temporary structures’ in perpetuity if Walworth Road is never widened. In any event principle and precedent dictate that it is beyond the power of the landlord and the tenant to create a term which is uncertain.
A lease can be made for five years subject to the tenant’s right to determine if the war ends before the expiry of five years. A lease can be made from year to year subject to a fetter on the right of the landlord to determine the lease before the expiry of five years unless the war ends. Both leases are valid because they create a determinable certain term of five years. A lease might purport to be made for the duration of the war subject to the tenant’s right to determine before the end of the war. A lease might be made from year to year subject to a fetter on the right of the landlord to determine the lease before the war ends. Both leases would be invalid because each purported to create an uncertain term. A term must either be certain or uncertain. It cannot be partly certain because the tenant can determine it at any time and partly uncertain because the landlord cannot determine if for an uncertain period. If the landlord does not grant and the tenant does not take a certain term the grant does not create a lease."(my underlining).
Then at 511, his Lordship said:
"In the present case the Court of Appeal was bound by the decisions in Charles Clay & Sons Ltd -v- British Railways Board and the Ashburn case. In my opinion both those cases were wrongly decided. A grant for an uncertain term does not create a lease. A grant for an uncertain term which takes the form of a yearly tenancy which cannot be determined by the landlord does not create a lease. I would allow the appeal. The trial judge Millet J; reached the conclusion that the six months notice was a good notice. He was of course bound by the Court of Appeal decisions but managed to construe the memorandum of agreement so as to render cl. 6 ineffective in fettering the right of the landlord to serve a notice to quit after the landlord had ceased to be a road widening authority. In the circumstances this question of construction need not be considered. For the reasons which I have given the order made by Millet J must be restored ....." (my underlining).
In Charles Clay & Sons Ltd -v- British Railways Board [1971] 1 All ER 1007; [1971] Ch. 725, a lease for a period of six months was expressed to continue from half year to half year until determined. The lease agreement provided for the determination of the lease by three months’ written notice by either party, subject to a proviso that the landlords should not exercise that right unless they required the premises for specified purposes. The successors to the landlords served a six months’ written notice to quit under the Landlord and Tenant Act, 1954, although they did not require the premises for specified purposes. The Court of Appeal, upholding the trial judge’s decision, declared that the notice was invalid and of no effect because the landlords did not require the premises for specified purposes.
The ratio in Charles Clay & Sons Ltd -v- British Railways Board (supra), was extended further in Ashburn Anstalt -v- Arnold [1988] EWCA Civ 14; [1988] 2 All ER 147; [1989] Ch 1. In the latter case, in an agreement for the sale of land, the vendor reserved the right to remain at the property after sale as a licensee and to trade therefrom, without paying rent until it could be required by the purchaser to give possession on not less than three months’ notice in writing upon the purchaser certifying that it was ready at the expiration of such notice forthwith to proceed with the redevelopment of the property and the neighbouring property which involved, inter alia, the demolition of the property. The Court of Appeal held that the reservation there created a tenancy not from year to year but for a term which would continue until the purchaser certified that it was ready to develop the property. Thus it was held that the term was not uncertain because the vendor could either give three months’ notice or vacate the property without giving notice.
Lord Templeman in Prudential Assurance Co. Ltd -v- London Residuary Body and Others (supra) at 510, when referring to Ashburn Anstalt –v- Arnold (supra) said:
"...That case, if it is correct would make it unnecessary for a lease to be of a certain duration."
Then at 511, his Lordship in disagreeing with the decisions in Charles Clay & Sons Ltd -v- British Railways Board (supra) and Ashburn Anstalt -v- Arnold (supra) said:
"...The cumulative result of the two Court of Appeal authorities, Charles Clay & Sons Ltd -v- British Railways Board... and the Ashburn case, would therefore destroy the need for any term to be certain."
Both Charles Clay & Sons Ltd -v- British Railways Board (supra) and Ashburn Anstalt -v- Arnold (supra) were therefore overruled by the House of Lords in Prudential Assurance Co. Ltd -v- London Residuary and Others (supra).
In the earlier part of the judgment in Prudential Assurance Co. Ltd -v- London Residuary Body and Others (supra), Lord Templeman at 506 said:
"....The agreement purported to grant a term of uncertain duration which, if valid, now entitles the tenant to stay there forever and a day at the 1930 rent of £30; valuers acting for both parties have agreed that the annual current commercial rent exceeds £10,000.
A demise for years is a contract for the exclusive possession and profit of land for some determinate period. Such an estate is called a ‘term’. Thus Coke on - Littleton said (Co Litt (19tth edn, 1832) para 45b):
"Terminus" in the understanding of the law does not only signify the limits and limitation of time, but also the estate and interest that passes for that time’.
Blackstone in his Commentaries (2Bl Com (1st edn. 766) 143) said:
‘Every estate which must expire at a period certain and prefixed, by whatever words created, is an estate for years. And therefore this estate is frequently called a term, terminus, because it’s duration or continuance is bounded, limited and determined: for every such estate must have a certain beginning and certain end’.
In Say -v- Smith (1530) Plowd 269, 75 ER 410, a lease for a certain term purported to add a term which was uncertain; the lease was held valid only as to the certain term. Anthony Brown J is reported to have said (1 Plowd 269 at 272, 75 ER 410 at 415):
‘Every contract sufficient to make a lease for years ought to have certainty in three limitations, viz. in the commencement of the term, in the continuance of it, and in the end of it: so that all these ought to be known at the commencement of the lease, and words in a lease, which don’t make this appear, are but babble ...... And these three are in effect but one matter, shewing the certainty of the time for which the lessee shall have the land, and if any of these fail, it is not a good lease, for then there wants certainty". (my underlining).
The gist of his Lordship’s reasoning was that the landlord cannot bind himself from determining the lease. Thus a lease which purported to fetter the right of the landlord to determine the lease is not a valid lease and would not be a lease at all in law.
Thus by the principles enunciated in Lace -v- Chandler (supra) and Prudential Assurance Co. Ltd -v- London Residuary Body and Others (supra) a lease must be specific in its term with definite beginning and ending. In that regard, the pertinent parts of Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease as referred to above, clearly create uncertainty, because they do not specify the term of the lease, as they purport to give the plaintiff the right to lease the demised premises in perpetuity or without end or forever.
The pertinent parts of Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease therefore stand to offend against the following principles which emerge from Prudential Assurance Co. Ltd -v- London Residuary Body and Others (supra). Firstly, the term of a lease must be clearly and specifically expressed so that the beginning and the end of the lease are ascertainable. In that regard, the end of the lease cannot be left for some unspecified future event to define. Secondly, a lease cannot be limited in perpetuity or open ended such that the lessee is given the right to lease and occupy the property indefinitely or forever. Thirdly, a lease cannot fetter the right of the landlord from determining it.
In this regard, it is noted that the commencement dates for the terms of the leases provided in both the Deed and the Sub–Lease were not stated. Mr. Batch has conceded this point in respect of the Sub-Lease in his final address to the Court. (See: Transcript page 810). This is also a factor which would render the two lease agreements void for uncertainty. See, Lace -v- Chandler (supra) at 370 and Prudential Assurance Co. Ltd -v- London Residuary Body and Others (supra) at 506. From the Deed, the Court is left to assume that the Sub-Lease would have commenced from 19th June, 1978, because pursuant to Clause 1 of the Deed, that was the date by which the plaintiff was to have delivered a duly approved ‘Transfer’ in registrable form to the second defendant or if not by that date within a reasonable time thereafter. The question then is, was the ‘Transfer’ delivered on 19th June, 1978, and if it was not delivered on that date, was it delivered within a reasonable time thereafter? The Court is left to speculate.
Allied to the requirement that the duration of a lease must be specified is the requirement that the leased premises must be properly defined. In that regard, the defendants have also contended that the uncertainties also arise in the Deed and the Sub-Lease because the ‘New Premises’ which the second defendant was to deliver to the plaintiff was never defined.
Meggary and Thompson on – A Manual of The Law of Real Property 7th Edition, at page 308, in discussing the essentials for creating leases and tenancies say:
"No lease or tenancy can be created unless four conditions are satisfied. They are (a) that the premises are sufficiently defined; (b) that the tenant has the right to exclusive possession of the premises during the term; (c) that the requirements as to duration are satisfied; and (d) that the proper formalities have been observed".(my underlining).
And Duncan on – Commercial Leases 2nd Edition, at page 26, in discussing the significance of describing the demised premises with particularity says:
"Clearly, it is absolutely essential, that if a part of a building forms the demised premises, that part must be described with particularity and precision to eliminate totally any doubt concerning the boundaries of the tenancy". (my underlining).
Applying the law as stated by these learned authors, I find that the demised premises are not defined and the descriptions given to them in the Deed, if at all, are very scanty and insufficient. Clause 2 (i) of the Deed provided for the second defendant to construct a "development" in accordance with the "Plan" and that the Plans ("the building") were made available to the plaintiff and were inspected by the plaintiff. Clause 2 (i) further provided that the ‘development’ would provide for a roofed building area, concrete verandah and an open space to be called the "New Premises". Thus, the only reference to the demised premises in the Deed appears to be "the New Premises".
But nothing much can be made out of that, firstly, because as I said, the "new premises" are not defined and insufficient description is given to them, if at all, and the "Plans" according to Clause 2 (i) of the Deed is the building itself, not the demised premises. Secondly, even if the "Plans" did describe or refer to the demised premises, they have not been produced to the Court. The onus is on the plaintiff to produce them. It has failed to do so. Such omissions together with the failure to satisfy the requirement that the duration of the lease must be specific and definite, are material omissions which must render the Deed open for speculation and thus, uncertain.
As to the Sub-Lease, the purported descriptions of the demised premises in the First Schedule to the Sub-Lease as ‘the Plan’ which is annexed to the Sub-Lease; is the floor plan of Level 14, with "Papua Club" written over the shaded area. I do not consider that as a sufficient description of the demised premises. The specifications or the descriptions given do not satisfy the requirements stated by the learned authors, to constitute a sufficient description of the demised premises. The fundamental omission in that regard is the lack of description given to the physical or the material layout of the demised premises.
Moreover, the First Schedule to the Sub-Lease refers to the floor plan of ‘Level 14’, but there are only nine Levels in the building. So under the Sub-Lease, these uncertainties arise from the insufficient or the lack of description given to the demised premises.
For all these reasons, I find that the Deed and the Sub-Lease are void for uncertainty.
But assuming that the Deed and the Sub-Lease are valid and thus, are not void for uncertainty, the next question that arises is - Whether the Deed merged in the Sub-Lease? This leads me to the next question.
2. Did the Deed merge in the Sub-Lease?
The defendants have contended that even if the Deed and the Sub-Lease are not void for uncertainty, the Deed had merged in the Sub-Lease. Therefore the Sub-Lease had absorbed and superseded the Deed and thus the Deed no longer arises for determination. The only document left to be determined in support of the plaintiff’s claims is the Sub-Lease.
For the Deed to have merged in the Sub-Lease, it must be shown that the Deed was preparatory or preliminary or executory agreement to the Sub-Lease. In other words, the Deed was the matrix to what was provided in the Sub-Lease; and that it was made in anticipation of the Sub-Lease. Thus, the Sub-Lease was the enlargement of the Deed and the final embodiment of the two agreements.
It must also be shown that the Deed had similar intentions and purposes as the Sub-Lease. Thus, the Sub-Lease fulfilled or carried out and gave effect to the intentions and purposes of the Deed. So that, when the Deed merged in the Sub-Lease, the Deed was absorbed into the Sub-Lease; thus leaving the Sub-Lease to prevail as the dominant and the governing document or agreement.
These principles are well illustrated in the following cases: In Knight Sugar Co. Ltd -v- Alberta Pty & Irrigation Co. [1938] 1 All ER 266 at 269, Lord Russell in discussing the principles said:
"But it is well settled that, where parties enter into an executory agreement which is to be carried out by a deed afterwards to be executed, the real completed contract is to be found in the deed. The contract is merged in the deed. The most common instance, perhaps, of this merger is a contract for sale of land followed by conveyance on completion. All the provisions of the contract which the parties intend should be performed by the conveyance are merged in the conveyance, and all the rights of the purchaser in relation thereto are thereby satisfied".
See, also Svansio -v- McNamara [1956] HCA 55; (1956) 96 CLR 186 and Griffiths -v- Ellis [1958] NZLR 840.
In Hisset and Another -v- Reading Roofing Co. Ltd [1969] 1 WLR 1757, Stamp J, at 1763 stated the principles in this way:
"It is of course the law of England that if two parties to a simple contract embody its terms in a deed which they both execute, the simple contract is thereby discharged, just as a simple contract debt is merged in a judgment. You cannot have two agreements covering the same matters at the same time. Suppose, however, that there are matters dealt with in the contract which are not covered by the deed." (my underlining).
In the earlier case of Palmer -v- Johnson [1884] UKLawRpKQB 92; (1884) 13 QBD 351, Lord Bowen at 357 said:
"In the same way, when one is dealing with a deed by which the property has been conveyed, one must see if it covers the whole ground of the preliminary contract. One must construe the preliminary contract by itself, and see whether it was intended to go on to any, and what, extent after the formal deed had been executed." (my underlining).
In the much earlier case of Leggott -v- Barett [1880] UKLawRpCh 229; (1880) 15 Ch. D 306, Lord James at 309 said:
"I do not like going much into the case, because what I should say might perhaps be considered to mean that the injunction which is submitted to is too wide; but I cannot help saying that I think it is very important, according to my view of the law of contracts, both at Common Law and in Equity, that if parties have made executory contract which is to be carried out by a deed afterwards executed, the real completed contract between the parties is to be found in the deed, and that you have no right whatever to look at the contract, although it is recited in the deed, except for the purpose of construing the deed itself. You have no right to look at the contract either for the purpose of enlarging or diminishing or modifying the contract which is to be found in the deed itself". (my underlining).
Then at 311, Lord Brett said:
"I entirely agree with my Lord that where there is a preliminary contract in words which is afterwards reduced into writing, or where there is a preliminary contract in writing which is afterwards reduced into a deed, the rights of the parties are governed in the first case entirely by the writing, and in the second case entirely by the deed; and if there be any difference between the words and the written document in the first case, or between the written agreement and the deed in the other case, the rights of the parties are entirely governed by the superior document and by the governing part of that document. If there is any doubt about the construction of the governing words of that document, the recital may be looked at in order to determine what is the true construction; but if there is no doubt about the construction, the rights of the parties are governed entirely by the operative part of the writing or the deed. If, therefore, there had been any difference here between what was called the preliminary contract and the deed, I should have thought that it must have been the deed which governed..." (my underlining).
Then at 314, Lord Cotton said:
"If there is any difference between the agreement and the deed, the deed is that which the parties have though it right to adopt as effectively protecting the rights of the purchaser under the previous contract of purchase and sale, and if there were any difference, as the Lord Justice has said, the deed must decide the rights of the parties." (my underlining).
Applying these principles to the present case, there is no doubt in my mind that the Deed did merge in the Sub-Lease. The fundamental feature of that merger is that the Sub-Lease covered all the matters stipulated in the Deed. For instance, the K1.00 annual rent to be paid by the plaintiff for the demised premises, that the building was to be constructed according to the Plans, the obligations of the plaintiff as to electricity, sewerage, water, furniture, fittings, the delivery of the New Premises, partitioning in the New Premises, walls, City Council rates, fire, insurance, relationship with other tenants and so on. These were all stipulated in the Deed and were covered by the Sub-Lease.
Thus, the Sub-Lease clearly enlarged upon the matters that were stipulated in the Deed, for example, the provision of the New Premises (the Club premises). These to my mind, clearly indicate the merger between the Deed and the Sub-Lease, hence the superiority and the dominance of the Sub-Lease over the Deed.
Two other telling features of the merger can also be seen in the wordings of Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease. Firstly, the purpose and the intention of the two provisions are the same, viz. they purport to give the plaintiff the right to lease the property in perpetuity. Secondly, the Second Schedule to the Sub-Lease is the elaboration and the enlargement of the Deed, thus, the final embodiment of what was provided in Clause 2 (ii) of the Deed.
Additionally, one significant feature which to my mind clearly indicates merger is the material difference in the terms of the lease provided by the two agreements. Under Clause 2 (ii) of the Deed, the term of the lease is - "...for the term of the unexpired portion of the Crown Lease (State Lease)..." In other words, under the Deed, the plaintiff has the right to lease and occupy the demised premises up to 20th December, 2005, which is the day the current State Lease expires. But under the Second Schedule to the Sub-Lease, the term of the lease is - "For the unexpired term of the Crown Lease (State Lease)..., less one day..." In other words, under the Sub-Lease, the plaintiff has the right to effectively lease and occupy the demised premises up to 19th December, 2005, the day before the State Lease expires.
Thus, it is clear that the Sub-Lease makes a material qualification to the term of the lease provided under Clause 2 (ii) of the Deed. To my mind, this is clear evidence that the Sub-Lease is the superior and the governing or dominant agreement over the Deed and that the Deed had merged in the Sub-Lease.
But apart from the foregoing reasons, the merger between the Deed and the Sub-Lease is common ground because Mr. Batch acknowledged in his opening remarks to the Court that the Sub-Lease "flowed on" from the Deed. (See: Transcript page 6). That effectively means, the plaintiff has acknowledged and conceded that the Deed was the preliminary and preparatory agreement to the Sub-Lease, as indeed it was. This effectively renders the issue of merger a non issue.
It follows that if the Deed and the Sub-Lease were not void for uncertainty under the first question, the Deed can no longer arise for determination as it had merged in the Sub-Lease under this question. Thus, only the Sub-Lease would remain to be determined for the plaintiff’s claims.
This question raises two separate issues, first is the fraudulent conduct by the defendants and second is the unconscionable conduct by the defendants, in the sale and transfer of the property from the second defendant to the first defendant. It is therefore appropriate that each issue be addressed separately from the other.
I will address the issue of fraudulent conducts in three parts. Firstly, the grounds or the basis on which fraud is alleged or raised against the defendants. Secondly, the fraudulent conduct alleged against the defendants. Thirdly, the requirement to plead fraud.
(i) (a) Grounds or the basis on which fraud is alleged or raised against the defendants in the transfer of the property between them.
It is appropriate that observations be made firstly on the grounds upon which the plaintiff has alleged fraud against the defendants particularly the first defendant in the transfer of the property between them.
The plaintiff claims that the first defendant sought to deprive it of its interests in the property when it signed the contract of sale and subsequently purchased the property. The plaintiff claims that such conduct amounted to fraud under the Land Registration Act.
The plaintiff has also contended that the first defendant, having had notice or knowledge of the existing tenancies, covenants, conditions and reservations as noted on the title and in the Second Schedule to the Sub-Lease as well as clause 2 (b) of the contract of sale, which the plaintiff says also constituted covenants, conditions and reservations on the title; then ignored them because of its desire to obtain the title in the property, was fraudulent in its conduct.
The plaintiff also alleged fraud against the first defendant on the basis that the first defendant’s lawyers co-operated and assisted in the transfer of the property from the second defendant to the first defendant and in the removal of the caveat, thus preventing the caveat from being registered.
The plaintiff argued that these "strings" of illegal conduct by the first defendant and its lawyers together with other illegal conduct amounted to fraud by the first defendant.
These allegations by the plaintiff must of course be considered against the evidence adduced before the Court in order to determine whether the first defendant or Mrs. Salter or the lawyers for the first defendant for that matter did in fact conduct themselves fraudulently, bearing in mind the requirement that there must be actual fraud or fraud by the first defendant as the registered proprietor, for the allegations to succeed.
Mrs. Salter, being the Managing Director of the first defendant would bind the first defendant in any fraudulent conduct on her part. So was Mrs. Salter fraudulent in her conduct in the sale and transfer of the property from the second defendant to the first defendant? If Mrs. Salter’s conduct was fraudulent, then that would establish actual fraud against the first defendant, which would invalidate its title on the property.
Mrs. Salter told the Court that up to the time of signing the contract of sale on 24th July, 1998, she was not aware of the plaintiff’s claim of having rights and interests in the property after 20th December, 2005; until 27th July, 1998, when she received a copy of the Deed from her lawyer, Mr. Hallahan through fax. She said, she also became aware of the caveat through Mr. Hallahan sometime after she signed the contract of sale on 24th July, 1998. She said, the advice she received from her lawyer was that, the plaintiff would have no rights and interests in the property under the Deed after 20th December, 2005. As to the caveat, she said she was also advised by her lawyer that the Registrar had rejected the caveat and therefore, the transfer was in the clear for registration. She also said that, the settlement was done only after the Registrar refused to accept the caveat.
It is noted that the contract of sale was prepared by Carter Newell Lawyers who were acting for the second defendant at the material time.
The plaintiff also argued that the first defendant had notice of its interests in the property prior to the sale of the property. This argument is based on the diary notes made by the first defendant’s lawyer. (See: Exhibit ‘AA11’). The diary notes contain the telephone discussions between Mrs. Salter and Mr. Hallahan. According to the diary notes, Mrs. Salter was quoted as telling her lawyer that she "queried the Club’s arrangements". The plaintiff has argued that these words clearly showed that Mrs. Salter had notice of the plaintiff’s interests in the property prior to its sale. In this regard, it is to be noted that the plaintiff’s "interests" in this context must mean or refer to plaintiff’s interests after 20th December, 2005.
I have two comments to make regarding the diary notes. Firstly, the first defendant, through Mrs. Salter, specifically denied having any notice or knowledge of the plaintiff’s claim of having perpetual rights and interests in the property until 27th July, 1998, when a copy of the Deed was faxed to her by her lawyer. Relevant to this is that, that was also the day when the Deed was faxed to Mr. Hallahan for the first time by Mr. Applegate. Thus, it is clear that there was no way the first defendant could have had notice of the plaintiff’s interests or claims in the property prior to 27th July, 1998.
Thus, in the face of the strong and specific denial by the first defendant, the plaintiff needs more than the diary notes to prove and to establish that there was actual notice by the first defendant of its claim of having perpetual rights and interests in the property. It is insufficient for the plaintiff to claim constructive notice of its interests by the first defendant by reason of the diary notes.
Secondly, and more importantly, I find that the diary notes are inconclusive, in that, they are vague in so far as they refer to "Club’s arrangements". The word "arrangements" is far too remote in its ordinary meaning and effect to mean or to refer to the plaintiff’s rights and interests in the property after 20th December, 2005. Indeed, when Mr. Hallahan was questioned on this point by Mr. Batch, Mr. Hallahan said when Mrs. Salter inquired about the "Club’s arrangements" she was making general inquiries about the plaintiff’s tenancy arrangements as being one of the many tenants in the building, for purposes of possible reviews on those tenancies. (See: Transcript page 569). Mr. Hallahan also denied that the first defendant had notice of the plaintiff’s claims of having perpetual rights and interests in the property. (See: Transcript page 597).
It would in any case be quite absurd to suggest that the word "arrangements" meant the plaintiff’s perpetual rights and interests in the property or the right to renew its lease in the property after 20th December, 2005. That is the essence of the plaintiff’s argument which I do not agree with and which I reject.
The end result is that the words or the phrase "Club’s arrangements" as purportedly used by Mrs. Salter, cannot establish or prove that the first defendant had notice of the plaintiff’s claim of having the right to renew its lease after 20th December, 2005, or that it had rights and interests in the property after 20th December, 2005, prior to the sale of the property.
There is nothing else in the diary notes which can support the plaintiff’s claim.
It is quite clear from the evidence that the first defendant was a bona fide purchaser for value.
There is evidence that the first defendant’s lawyers were aware of the plaintiff’s claim of having the right to renew its lease in perpetuity as early as 6th January, 1998. (See: Exhibit ‘A7’). But that does not mean that the first defendant had notice. There is no evidence whatsoever that the first defendant had notice of the plaintiff’s claims.
In any case, the issue of notice by the first defendant of the plaintiff’s claims does not arise because as I said, the Deed and Sub-Lease in their true and proper constructions cannot create such right for the plaintiff in the property.
It is clear that the plaintiff’s claims amount to no more than a mere expectancy that it would have rights and interests in the property after 20th December, 2005. But a mere expectancy cannot confer rights and interests for the plaintiff in a thing which is not yet in existence. In any case, the issue of expectancy can only arise for consideration if this case was about trust. See, Redmond -v- Permanent Company (NSW) Ltd [1916] HCA 47; (1916) 22 CLR 84, see also Lindsay and Ziegler (1986) 60 ALJ 387 at paragraph 4070.
With the instant case not being about trust, it is pointless dwelling any further on this point. The question of whether the property, was subject of a trust, however is a relevant collateral issue and it will be addressed later.
Mr. Batch also strongly pressed and emphasized the point about the unusually quick settlement of the sale. In that regard, Mrs. Salter said she was not involved in the settlement. She said her staff arranged for the stamping of the sale documents at the Stamp Duties Office and one of her other staff attended the settlement. She said the quick settlement was to avoid any unnecessary hindrances or delays in the settlement process, such as by caveat or restraining orders being taken out by the plaintiff. She said the quick settlement was a prudent business decision made to protect the first defendant’s legitimate rights and interests in the property.
Mr. Hallahan also told the Court that the other reason for the quick settlement was to meet the requirements of the bank which financed the purchase of the property for the first defendant; and also to conveniently set the monthly rentals for all the tenants from the beginning of August, 1998.
Ms. Sariman who was one of the lawyers for the second defendant told the Court that she also wrote to the Registrar and advised him that the plaintiff’s interests in the property were protected by the registered Sub-Lease and therefore, there was no need for the caveat to be registered. She said it was following that advice that the Registrar refused to accept the caveat lodged by Gadens Lawyers (hereinafter referred to as ‘Gadens’) who were then acting for the plaintiff. The way was therefore clear for settlement.
Mrs. Salter told the Court that sometime after settlement; she became aware that Blakes had also been acting for the plaintiff in respect of the Sub -Lease for the architects’ area. She said she was not happy that her lawyers were also acting for the plaintiff in respect of the same property, but by then, it was too late for her to do anything so she decided to let the matter rest. (See: Transcript pages 533 - 541).
Mr. Hallahan confirmed that he advised the first defendant in a letter dated 27th July, 1998, that the two Sub-Leases, one in respect of the Club premises and the other in respect of the architects’ area, would not affect its interests in the property after 20th December, 2005. (See: Exhibit ‘AA5’). In other words, the plaintiff would not have the right to renew its lease after 20th December, 2005. Indeed in the second last paragraph of page 2 of the letter, Mr. Hallahan advised:
"In our opinion both sub-leases will not be binding Nusaum Holding beyond 20 December, 2005 when the term of the existing State Lease expires even though they purport to do so" (my underlining).
Mr. Hallahan said he did not have the plaintiff’s files on the demised premises. He said, he did not see the Deed until 27th July, 1998, when it was faxed to him by Mr. Applegate.
Mr. Hallahan also told the Court that Mr. Foster had advised Mr. Dutton who was then, the President of the plaintiff in a letter dated 18th February, 1998, that, the Deed did not protect the plaintiff’s interests after 20th December, 2005. (See: Exhibit ‘A9’).
Mr. Hallahan also submitted that by engaging Gadens, the plaintiff had effectively consented for Blakes to act for the first defendant or acquiesced in Blakes acting for the first defendant. Gadens were engaged by the plaintiff on 10th July, 1998. Mr. Hallahan said he first contacted Mr. Applegate on 27th July, 1998, after he received letters from Mr. Applegate. (See: Transcript page 734). He said, at that time, Mr. Applegate told him that the plaintiff would obtain restraining orders to stop the sale from proceeding.
Mr. Hallahan said, he tried his best to obtain copies of the Deed and the Sub-Lease for the Club premises from Mr. Dutton and the second defendant between 6th July, 1998 and 27th July, 1998, but his attempts were unsuccessful. Only a copy of the Deed was provided to him by Mr. Applegate on 27th July, 1998, through fax, but not the Sub-Lease. Mr. Hallahan was therefore only able to advice on the Deed. Mr. Dutton however told the Court that a copy of the Sub-Lease was given to Mr. Payne in early January, 1998, but that was denied by Mr. Payne.
In cross-examination, Mr. Griffin asked Mr. Dutton as to why the plaintiff had acquiesced in the second defendant’s refusal to amend the substituted Sub-Lease for the architects’ area, by going ahead and signing the substituted Sub-Lease without the proposed amendments. Mr. Dutton said the plaintiff signed the substituted Sub-Lease because it believed that its interests were sufficiently protected by the substituted Sub-Lease even without the proposed amendments. Mr. Dutton conceded that the plaintiff signed the substituted Sub-Lease against the advice given by both Blakes and Gadens.
There is indeed undisputed evidence that the plaintiff received legal advice to the effect that after 20th December, 2005, the Deed and the Sub-Lease would not protect its interests in the property.
It is noted that under cross-examination by Mr. Griffin, Mr. Dutton also conceded that the first defendant is accused of fraud because of the conduct of its lawyers, which the plaintiff contended were fraudulent. (See: Transcript page 164). That is the principal claim against the first defendant. (See: Transcript page 297). This is significant because it means the plaintiff has in effect conceded that there is no actual fraud or fraud by the first defendant.
It is also noted that Mr. Dutton also conceded that in respect of the substituted Sub-Lease for the architects’ area, the plaintiff did not believe that it had perpetual rights in the property. (See: Transcript page 167). In other words, the plaintiff did not believe that it would have any rights and interests in the property after 20th December, 2005, including the right to renew its lease.
Mr. Payne, who gave evidence for the first defendant, said he was a member of the plaintiff’s Committee from April to December, 1998. He told the Court that he did not see the Deed personally and his services for the plaintiff were only in respect of the architects’ area. He said it was Mr. Foster who had the actual carriage of that matter.
As noted, Mr. Hallahan and Mr. Coumbis acted for the first defendant in the purchase of the property. Mr. Payne said he played no part in that transaction. He told the Court that he was not aware that the first defendant had engaged Blakes until 13th July, 1998, when he returned from leave. He said he tried to contact Mr. Crosby who was then the President of the plaintiff but Mr. Crosby was also on leave so he could not speak to him until 20th July, 1998, after Mr. Crosby returned from leave. He said he told Mr. Crosby that Blakes had been engaged by the defendant in the purchase of the property. According to Mr. Payne, Mr. Crosby said – "not to worry" because the plaintiff had already engaged Gadens.
Mr. Payne said, because Mr. Hallahan and Mr. Coumbis were acting for the first defendant, it was agreed that there would not be any communication between Mr. Hallahan and Mr. Coumbis on one side and himself and Mr. Foster who were acting for the plaintiff in respect of the architects’ area, on the other side. He said at that stage he had only heard about the Deed. He denied that Blakes had received confidential documents from the plaintiff.
In this regard, it is noted that Blakes (the firm) had in its possession the Deed by 18th February, 1998. This is evidenced by the letter sent by Mr. Foster to the plaintiff through Mr. Dutton dated 18th February, 1998. In that letter, Mr. Foster advised the plaintiff that he had reviewed the original Deed entered into between the plaintiff and the second defendant in 1978, then went on to advise the plaintiff on the Deed. (See: Exhibit ’A9’).
However, there is no evidence that Mr. Payne had personal notice of the Deed.
Mr. Payne confirmed that Blakes had advised the plaintiff that if the property was sold, it would not have any rights and interests in the property after 20th December, 2005. That was when Blakes asked FPK Lawyers to amend the substituted Sub-Lease for the architects’ area to include clauses which would protect the plaintiff’s rights and interests in the property after 20th December, 2005. But FPK Lawyers refused that request.
Mr. Payne also confirmed that Blakes had advised the plaintiff against signing the substituted Sub-Lease for the architects’ area without the amendments it (Blakes) proposed, but the plaintiff ignored that advice and went ahead and signed the substituted Sub-Lease. He said Blakes even advised the plaintiff that it should lodge a caveat on its behalf in respect of the architects’ area, but that advice was also ignored by the plaintiff.
I have considered it necessary to discuss the evidence given by Mr. Hallahan and Mr. Payne as well as the other evidence touching on their conduct because they are relevant in determining the plaintiff’s claims of fraud against Blakes and the defendants; particularly the first defendant. The plaintiff relies upon such conduct as the grounds or the basis to allege fraud and to invalidate the first defendant’s title on the property.
The conduct of the first defendant’s lawyers may have been quite improper but such conduct cannot constitute fraud within the meaning of the Land Registration Act. I will return to this point later.
The Fourth Schedule to the original Sub-Lease for the architects’ area and the Third Schedule to the substituted Sub-Lease are in similar terms as the Second Schedule to the Sub-Lease for the Club premises and all three schedules are generally similar to Clause 2 (ii) of the Deed. In that regard, the plaintiff has seriously contradicted itself because on the one hand, it has conceded through Mr. Dutton that the substituted Sub-Lease for the architects’ area did not protect its interests after 20th December, 2005. (See: Transcript page167). On the other hand, it has contended that the Deed and the Sub-Lease for the Club premises do protect its interests. Yet, there is no difference between the Second Schedule to the Sub-Lease for the Club premises and Clause 2 (ii) of the Deed and the Third Schedule to the substituted Sub-Lease for the architects’ area. In that regard, the plaintiff’s claim of having the right to renew its lease after 20th December, 2005, does not appear genuine. This raises a serious question of whether the plaintiff has a cause of action.
This, together with the other concessions by Mr. Dutton under cross examination, make the plaintiff’s claims, in particular the primary claim frivolous and vexatious, thus rendering these proceedings as an abuse of process. In such a case, the Court has the duty to protect its processes from being abused. See, Gulf Provincial Government -v- Baimuru Trading Pty Ltd N1794, PNG Forest Products Pty Ltd and Inchcape Berhad -v- The State and Jack Genia, Minister for Forests [1992] PNGLR 85 and Wenlock -v- Moloney & Ors. [1985] 1 WLR 1235. This action is therefore liable to be dismissed under Order 12 r 40 of the National Court Rules.
Furthermore, the plaintiff through Mr. Applegate advised the first defendant that it was going to take out restraining orders and lodge a caveat to prevent the sale of the property but for reasons known only to the plaintiff, no such actions were taken. Again, this to my mind, seriously begs the question of whether the plaintiff is genuine in this action. In that regard, it is not without reason to suggest that, this action was an after thought by the plaintiff after it realized that it would lose all its rights in the property after 20th December, 2005, and the consequences that would flow from losing those rights.
As to the conduct of the first defendant and its lawyers in respect of the caveat, it is quite clear that they played no part in the withdrawal or the rejection of the caveat by the Registrar. The rejection of the caveat was made solely by the Registrar because it was his view that the plaintiff’s interests in the property were already protected by the registered Sub-Lease and that, it was not necessary to accept and register the caveat. Clearly, in those circumstances no blame can be placed on the first defendant or its lawyers for the rejection of the caveat by the Registrar. It is therefore plain that claim of fraud against the first defendant for the caveat not being registered has no basis at all.
As to settlement, although it may have been done in an unusually speedy fashion, it was not illegal or fraudulent or even irregular because the defendants were in the clear and free to settle. Such speedy settlements are not unusual, especially when there are no other prevailing interests. Indeed, there was no other prevailing interest at the time of settlement, such as a caveat or restraining orders which could operate against settlement. I am aware that the plaintiff did obtain restraining orders against the defendants but those orders were obtained after the settlement was concluded. Therefore, in that regard, nothing can be held against the defendants or their lawyers. There was also nothing seriously or grossly irregular about the settlement.
The plaintiff could have taken out the restraining orders well before the date of settlement because the evidence shows that the plaintiff was aware of the impending sale of the property as early as middle of July, 1998. But it waited until the day of settlement and by then, it was too late to stop the settlement. Again, it begs the question of whether the plaintiff is genuine in this action. In those circumstances, the settlement was proper and in order. The plaintiff has only itself to blame for not taking appropriate actions earlier to protect its interests in the property.
It has to be noted that Blakes’ attempt to negotiate amendments to the substituted Sub-Lease for the architects’ area, to include clauses which would protect the rights and interests of the plaintiff after 20th December, 2005, was in my view a clear indication of Blakes genuinely trying to assist the plaintiff in its cause. That is a factor which ought to have mitigating effect on any adverse claims against Blakes by the plaintiff.
(b) Were the defendants’ conducts fraudulent in transferring the property from the second defendant to the first defendant?
This question must be determined by reference to s.33 of the Land Registration Act, which relates to fraud and the established principles. Section 33 (1) enumerates nine exceptions by which a registered proprietor’s title on a property may be rendered invalid. Section 33 (1) (a) is the relevant sub-section.
Section 33 (1) (a) provides:
(a) In the case of fraud; and -
The defendants have argued that the claim of fraud against them, more particularly the first defendant, must fail because the plaintiff has failed to adduce evidence of actual fraud or fraud by the first defendant. They argued that ‘fraud’ under s. 33 (1) (a) of the Land Registration Act, means actual fraud, not constructive or equitable fraud.
The defendants argued that for this claim to succeed, the plaintiff must prove actual fraud against the first defendant, for the reason that the first defendant is the registered proprietor.
The word ‘fraud’ in s. 33 (1) (a) of the Land Registration Act, is not defined anywhere in the Act, but s.45 (1) makes it clear that fraud means more than constructive or equitable fraud. In this regard, it is noted that s. 146 (d) and (e) also provide for the ejectment of a registered proprietor from land if the title is obtained through fraud. Section 146 (4) makes it even more clear although not specifically expressed, that fraud in that section does not refer to fraud by the person from whom the registered proprietor acquired the title or the estate; rather, it is fraud by the registered proprietor himself or herself when acquiring title.
Thus, it is implicit from these provisions that "fraud" in s.33 (1) (a) means fraud committed by the registered proprietor or actual fraud. That is the only ground upon which a registered proprietor’s title can be rendered invalid.
Turning now to the authorities on this point, I find that the principle is quite neatly illustrated in Assets Company Ltd -v- Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176. The case discusses what may constitute or amount to fraud under the Torrens System. The relevance and the applicability of the Torrens System to this jurisdiction was quite clearly expressed by Kidu CJ., in Mudge -v- Secretary for Lands [1985] PNGLR 387, at 390:
"That third respondent has a State lease registered under the Land Registration Act (Chapter No. 191) and although the appellants have raised eight questions of law (including constitutional laws) the real question for determination by this Court is whether, apart from exceptions enumerated in the Land Registration Act, s.33, land once registered attracts the principle of indefeasibility of title. This Act and its fore runners – the Real Property Ordinance (Papua) and the Land Registration Ordinance (New Guinea )– are based on Australian Acts. They all reflect what is commonly known as the Torrens system of land registration. Under legislations based on this system (in Australia and New Zealand) it is settled law that, apart of exceptions mentioned in the relevant legislations, once land is registered under the Torrens system the owner acquires indefeasibility of title".(my underlining).
In Assets Company Ltd -v- Mere Roihi and Others (supra), members of a Maori community were the traditional owners of the land. A person by the name of Cooper fraudulently acquired the land from the indigenous community. Ownership of the land changed several times. The appellant company was the subsequent purchaser and the registered proprietor under the New Zealand Land Transfer Act 1870, which corresponds with the Land Registration Act. The respondents challenged the appellant company’s title on the basis, inter alia, that its registration as owner was procured by fraud.
The evidence showed that the agents of the appellant company took certain documents to the Registrar and had them registered, which according to their purport and effect clearly entitled and which the company’s agents also believed entitled the company to be registered as the owner of the land. There was no evidence or suggestion whatsoever of any fraudulent statement or misrepresentation made to the Registrar by the appellant company’s agents nor were there any evidence or suggestion of bribery, corruption or dishonesty offered or displayed by the appellant company’s agents in their dealing with the Registrar.
On appeal, the Privy Council held that fraud meant actual fraud by the registered proprietor, involving personal dishonesty. It did not mean constructive fraud.
Lord Lindley at 210 stated the ratio of the decision of the Privy Council:
"Passing now to the question of fraud, their Lordships are unable to agree with the Court of Appeal (New Zealand Court of Appeal). Sections 46, 119, 129 and 130 of the Land Transfer Act, 1870, and the corresponding sections of the Act of 1885 (namely, ss. 55, 56, 189 and 190) appear to their Lordships to shew that by fraud in these Acts is meant actual fraud, i.e., dishonesty of some sort, not what is called constructive or equitable fraud – an unfortunate expression and one very apt to mislead, but often used, for want of a better term, to denote transactions having consequences in equity similar to those which flow from fraud. Further, it appears to their Lordships that the fraud which must be proved in order to invalidate the title of a registered purchaser for value, whether he buys from a prior registered owner or from a person claiming under a title certified under the Native Lands Acts, must be brought home to the person whose registered title is impeached or to his agents. Fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents. The mere fact that he might have found out fraud if he had been more vigilant, and had made further inquiries which he omitted to make, does not of itself prove fraud on his part. But if it be shewn that his suspicions were aroused, and that he abstained from making inquiries for fear of learning the truth, the case is very different, and fraud maybe properly ascribed to him. A person who presents for registration a document which is forged or has been fraudulently or improperly obtained is not guilty of fraud if he honestly believes it to be a genuine document which can be properly acted upon".
These observations quite clearly accord with s. 146 (4) of the Land Registration Act.
In Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) and Others -v- Registrar of Titles and Others [2001] WASC 201; (2001) 24 WAR 299, Owen J at 328 stated the same principle in this way:
"The exception "in fraud cases" is limited to fraud by or on behalf of the party who obtains registration: see Breskvar (at 384). Put in a slightly different way, the fraud which must be proved in order to invalidate the title of a registered proprietor must be brought home to the person whose registered title is impeached or to his or her agents: see Assets Co. Ltd (at 210). It is a fraud for which the person who becomes registered can be said to be responsible: see Registrar of Titles (WA) –v- Franzon [1975] HCA 41; (1975) 132 CLR 611 at 618".
At 336 his Honour said:
"Nonetheless, indefeasibility is at the heart of the Torrens system. As was said in Franzon (at 620-621) "the protection of the registered proprietor is paramount". This was reiterated in a note in (1992) 66 ALJ 507 where the author said: "Public confidence in the Torrens system depends on the rock solid effect of registration." The principle of indefeasibility of title is well understood by lawyers and by the commercial community. In my view it must be given the utmost respect and should be applied according to its tenor".
It can be seen here that, his Honour followed Assets Co. Ltd -v- Mere Roihi and Others (supra) and Breskvar -v- Wall (1971) 126 CLR 376, and thus Frazer -v- Walker [1967] 1 AC 569. See, also Tanzone Pty Ltd -v- Westpac Banking Corporation [1999] NSWSC 478; [1999] ATPR 46-195. All these cases affirm the principle or the view that fraud means fraud committed in the act of acquiring the title by the registered proprietor or actual fraud.
It can therefore be deduced from these principles that once the land is registered, the owner attains indefeasibility of title which cannot be invalidated by any unregistered interests or mere irregularities except fraud by the registered proprietor or actual fraud.
As I said, it is in my opinion settled in this jurisdiction that fraud in s. 33 (1) (a) of the Land Registration Act, means actual fraud. Although that is not expressed in the section, it is implicit from the provisions of the Act, to which I adverted earlier. Same inference can be drawn from the decided cases. For instance, Mudge -v- Secretary for Lands and Others (supra) which adopted Frazer -v- Walker (supra) and Breskvar -v- Wall (supra). The two latter cases adopted the principle in Assets Company Ltd -v- Mere Roihi and Others (supra). See, also Friedman -v- Barret, Ex-parte Friedman [1962] QD.R 498 and Templeton -v- Leviatham Pty Ltd [1921] HCA 55; (1921) 30 CLR 34. In all these cases, it was held that fraud meant actual fraud. Similar approach was adopted in Butler -v- Fairclough and Another [1917] HCA 9; (1917) 23 CLR 78, where the High Court of Australia at 90 and 97, said that fraud meant actual fraud importing personal dishonesty or moral turpitude.
In Mudge -v- Secretary for Lands and Others (supra) the Supreme Court at 395 said:
"... The New Zealand approach resulted in an eventual appeal to the Privy Council in the celebrated case of Frazer -v- Walker [1967] 1 AC 569 and although their Lordships were not obliged by the facts before them to resolve the dispute between the Australian and New Zealand courts, they did go out of their way to support the principle that registration of a void instrument was, in the absence of fraud, " effective to vest and divest title and to protect the registered proprietor against adverse claims".
The decision in Mudge -v- Secretary for Lands and Others (supra) being the decision of the Supreme Court is binding on me. Needless to say that the principle in Assets Company Ltd -v- Mere Roihi (supra) which was adopted and applied in Mudge -v- Secretary for Lands and Others (supra) through Frazer -v- Walker (supra) and Breskvar -v- Wall (supra), is a sound and well established principle in this jurisdiction. I therefore have no difficulty in adopting and applying it in this case as a binding precedent. See, Roslyne Cecil Kusa -v- Motor Vehicles Insurance (PNG) Trust – N2328 and Scruttons -v- Midland Cilicones Ltd [1961] UKHL 4; [1962] 2 WLR 186 at 199. I also, with respect, adopt the observations made in Conlan and Others -v- Registrar of Titles and Others (supra) as principles applicable to indefeasibility of the registered proprietor’s title under the Land Registration Act.
In The Administration of the Territory of Papua New Guinea -v- Balius Tirupia and Others. In Re. Vunapaladig and Japalik Land [1971-72] PNGLR 229, the Supreme Court also held that in the absence of fraud, the registered proprietor’s title cannot be affected by actual or constructive notice of any claim, right, title or interest in the land acquired prior to its registration. There, the Supreme Court was in effect echoing s. 45 (1) of the Land Registration Act. Again, this case illustrates the principle that fraud must be by the registered proprietor or actual fraud, and not by someone from whom the title was acquired. The principle also echoes s.146 (4) of the Land Registration Act.
I am aware that in Emas Estate Development Pty Ltd -v- John Mea and Others [1993] PNGLR 215, the Supreme Court held that although there was no real evidence of fraud, the issuance of the title was so irregular and unlawful as it was issued in clear breach of the mandatory statutory procedures as set out in the Land Act, the registered proprietor’s title had to be declared invalid.
The principle in Emas Estate Development Pty Ltd -v- John Mea and Others (supra) was later applied in Steamships Trading Company Ltd -v- Minister for Lands and Physical Planning and Others - N 1959 and Hi Lift Company -v- Miri Sata and Another - N2004.
It is not necessary for me to go into any detailed discussion or exposition of the principle in Emas Estate Development Pty Ltd -v- John Mea and Others (supra) as applied in the two subsequent cases referred to above, because the circumstances in the instant case are quite different to the circumstances in those cases.
However, it suffices to say that I do not find the two judicial precedents in Emas Estate Development –v- John Mea and Others (supra) and Mudge -v- Secretary for Lands (supra) in any way conflicting. The effect of the principle in Emas Estate Development -v- John Mea and Others (supra) as applied in Steamships Trading Company Ltd -v- Minister for Lands and Physical Planning and Others (supra) and Hi Lift Company -v- Miri Sata and Another (supra) is that, if there are serious and gross or flagrant breaches of the mandatory statutory procedures as set out in the Land Act, in the issuance of a title, then such breaches would operate to vitiate the validity and the indefeasibility of the title, although fraud may not be involved . Thus, the title would be invalid just like the title which is obtained through fraud. Thus, it is clear from this that, Emas Estate Development -v- John Mea and Others (supra) has introduced a new and added ground on which a title may be invalidated. It is new in the sense that it is outside the exceptions enumerated in s. 33 of the Land Registration Act.
I am of the opinion that the principle applied in Emas Estate Development -v- John Mea and Others (supra) is a good and sound principle to be adopted and applied in this jurisdiction, where such breaches are very common and are done deliberately. It is a novel principle providing a judicial precedent which is relevant and significant in the development of the underlying law.
In that regard, it is to be noted that the courts in this jurisdiction have broad equitable supervisory powers given to them by s.155 (4) of the Constitution. Thus, the courts can, in the exercise of such powers, invalidate titles which are issued in gross and serious violation of the mandatory statutory procedures as set out in the Land Act. Section 9 of the Constitution states the supremacy of the Constitution over all other laws, including the statutes. Thus, the courts in the exercise of their inherent powers under s.155 (4) of the Constitution can correct any such anomalies, although they may fall outside of the exceptions stated in s. 33 of the Land Registration Act.
These observations are only academic because in this case, there is no suggestion of any gross or serious violation or breach of the mandatory statutory procedures under the Land Act, by the first defendant in acquiring the title.
It is therefore clear from the evidence that the plaintiff has not established or proven actual fraud against the first defendant, or its lawyers. It is also contrary to the established principles that the first defendant should be guilty of fraud committed by its lawyers. In any case, there is no evidence of fraud against the first defendant’s lawyers. The authorities establish that it must be fraud committed by the registered proprietor if the interests of the registered proprietor are to be impeached. In other words, there has to be actual fraud with personal dishonesty and moral turpitude established against the first defendant if the claim of fraud against it is to succeed. In this case there is no evidence at all of actual fraud or fraud by the first defendant. The first defendant’s title therefore remains valid and indefeasible.
(c) Requirement to plead fraud.
The plaintiff was also required to plead fraud in accordance with the requirements under Order 8 r.30 of the National Court Rules, if the claim of fraud is to succeed. That means the plaintiff had to plead and give particulars of fraud.
Order 8, r 30 is in these terms:
30. Fraud, etc.
A party pleading shall give particulars of any fraud, misrepresentation, breach of trust, wilful default or undue influence on which he relies.
The requirement to give or plead particulars of fraud is mandatory by virtue of the word ‘shall’ in that Rule.
This Rule was considered in William Maki -v- Michael Pundia and PNG Motors [1993] PNGLR 337, by Woods J. In that case, his Honour said that allegation of fraud is a serious matter and therefore the party alleging it must
plead the particulars of fraud and strictly adhere to the requirements of the Rule, which include strict proof of the alleged fraud.
At 338 and 339 his Honour said:
"An allegation of fraud is a very serious allegation, and the courts have required strict adherence to requirements for pleadings in such cases. Courts have never allowed general allegations of fraud. Courts have required that a person pleading fraud should set out facts, matters, and circumstances relied on to show that the party charged had or was actuated by a fraudulent intention. The acts alleged to be fraudulent must be stated fully and precisely with full particulars. It is not enough just to say that the person lied or swore a false affidavit. The facts, matters and circumstances which make such statements lies must be particularized. Also, this being a challenge to the procedures under the Land (Tenure Conversion) Act, the fault or fraud in those procedures should be particularized. In such a challenge to a certificate of title to land, the court has traditionally insisted on strict rules for the protection of persons who are in possession of land against attacks from persons who, hoping to find some blot on the title, bring actions against them without any reasonable cause. I’m not saying that this action may be (sic) being brought without reasonable cause, but if these rules which protect persons in possession of land from being wrongfully and improperly attacked work hardship on the plaintiffs, that is part of the general purpose of protecting property and persons from being improperly vexed. Surely, the rule is no such hardship. If the plaintiffs know anything, then they can and should plead it.
The amended statement of claim clearly does not plead any facts, matters or circumstances. It merely asserts that the first defendant fraudulently obtained title, without giving any details. However, the plaintiffs have filed a further document called particulars of fraud. Clauses 1 and 2 of those particulars take the allegation of fraud no further, merely alleging that the first defendant told lies without giving the facts and circumstances which may show that he has told lies. Clause 3 refers to the first defendant falsely procuring a statutory declaration. This is a serious allegation, but there are no facts supporting how, or when, or under what circumstances this was done and how this circumvented the procedures under the act under which the certificate of title was granted. An allegation of fraud like this requires more detail. Clause 4, in effect, merely states that the defendant told a lie. It provides no facts to support that allegation. Clause 5 does not really allege anything.
I am satisfied that in this allegation of fraud in the issue of a certificate of title following procedures laid down in an act are not sufficiently particularized to satisfy the requirements of Order 8 r 30. I order that the statement of claim and the particulars of fraud pleaded separately be struck out". (my underlining)
His Honour’s lucid exposition of the law and the principles adopted there are relevant to the instant case and I respectfully adopt them.
The essence of Woods J’s observations in William Maki -v- Michael Kundia and PNG Motors (supra) is that the party alleging fraud must plead the particulars of fraud for the reason that the allegation is a very serious one, which if proven would result in the registered proprietor’s title being rendered invalid. The particulars and facts to be pleaded or given are those which would establish and strictly prove actual fraud or fraud by the registered proprietor.
The same principle was applied in Neat Holdings Pty Ltd -v- Karajan Holdings Pty Ltd (1992) ALJR 170. There, the High Court of Australia said that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found".
At 171 the Court said:
"Thus authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found". Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, that on the balance of probabilities, a party to a civil litigation has been guilty of such conduct. As Dixon J commented in Bringshaw -v- Bringshaw:
"The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved..."
Similar observations were made by Lord Denning in Bater -v- Bater [1950] 2 All ER 458. His Lordship at 459 said:
"...A civil court when considering a charge of fraud will naturally require for itself a higher degree of probability than that which it would require when asking if negligence is established. It does not adopt so high a degree as a criminal court even when considering a charge of a criminal nature, but still it does require a degree of probability which is commensurate with the occasion."
Then in Re Dellow’s Will Trust (1964) 1 All ER 771 at 773, Ungoed-Thomas, J., in echoing the same principle while discussing the standard of proof required to prove an allegation of criminal nature in a civil claim said:
"...The gravity of the issue becomes part of the circumstances which the court has to take into consideration in deciding whether or not the burden of proof has been discharged. The more serious the allegation, the more urgent is the evidence required to overcome the unlikelihood of what is alleged and thus prove it".
See, also Miller -v- Minister for Pensions [1947] 2 All ER 372 at 373 and 374.
It was submitted for the first defendant that fraud has not been properly pleaded by the plaintiff because the Statement of Claim does not plead or give the particulars of fraud. It was therefore submitted that the plaintiff has failed to plead fraud as required under Order 8 r 30 of the National Court Rules. Thus the plaintiff’s claim of fraud against the defendants, particularly the first defendant and its lawyers should be dismissed.
In that regard, the plaintiff’s contention is that paragraphs 23A and 32 of the Statement of Claim plead the particulars of fraud against the defendants and their lawyers. Thus, it has argued that it has complied with the requirements of Order 8 r 30 of the National Court Rules.
It is therefore necessary to have a closer look at paragraphs 23A and 32 of the Statement of Claim in order to determine whether the plaintiff has complied with the requirements of Order 8 r 30 of the National Court Rules in pleading fraud.
In paragraph 32, the plaintiff makes reference to and relies upon paragraphs 19A to 19K and repeats paragraphs 21G to 21K and 23A, as pleading and providing the particulars of fraud.
The first defendant has denied fraud in its Defence as required under Order 8 r.14 of the National Court Rules.
Thus, the question now is - Did the plaintiff plead ‘fraud’ as required under Order 8 r 30 of the National Court Rules?
This requires a closer look at all the paragraphs the plaintiff relies upon to determine whether they satisfy the requirements of Order 8 r 30 of the National Court Rules.
Paragraphs 19A to 19K plead the conduct of Mr. Payne when he was a member of the plaintiff’s Committee from April to December, 1998, and his participation in the Committee’s meetings in that period, including the Committee’s deliberations on the Deed and the Sub-Lease. These paragraphs also plead the retainer between the plaintiff and Blakes and the advice given to the first defendant by Blakes. The paragraphs also make reference to and rely upon the affidavit of Mr. Dutton, sworn 28th February, 2000. The paragraphs claim that Blakes did not advice the plaintiff that it was acting for the first defendant and that Blakes failed to obtain the consent of the plaintiff before acting for the first defendant. Further, that Blakes failed to protect the plaintiff’s interests in the property.
I am immediately disposed to reject the claims of fraud made in these paragraphs against the first defendant on two grounds. Firstly, they relate to the conduct of the lawyers acting for the first defendant. There is nothing said against the first defendant. There is also no evidence that the first defendant was in any way connected to the conduct of its lawyers. In other words, there is no evidence that the first defendant had authorized such conduct or had knowledge of them. Therefore the matters pleaded in those paragraphs do not constitute actual fraud. Secondly, such conduct cannot constitute particulars of fraud against the first defendant. They do not even disclose fraud against the first defendant’s lawyers.
As to the claims of fraud made in paragraphs 21G to 21K against the first defendant, the particulars relied upon by the plaintiff relate to the conversations and letters between the first defendant’s lawyers and the second defendant’s lawyers regarding the caveat which was lodged by Gadens on behalf of the plaintiff. The details and the particulars of those telephone conversations were not pleaded. The plaintiff said there, that it would refer to them at the trial for their full terms and true meaning and effect. But no evidence was adduced at the trial by the plaintiff regarding those telephone conversations. The matters pleaded in those paragraphs do not even disclose actual fraud.
It is claimed in paragraph 21H that the first defendant demanded the Registrar to withdraw the caveat, but that is contrary to the evidence before the Court. The evidence as I adverted to earlier is that, it was the Registrar who decided not to register the caveat because it was his view, after receiving advice from Ms. Sariman, that the plaintiff’s interests were already protected by the registered Sub-Lease. The matters pleaded in those paragraphs do not disclose actual fraud or the particulars of actual fraud. They also do not disclose fraud against the first defendant’s lawyers.
The letter referred to in the particulars to paragraph 21H, which the plaintiff relies upon does not relate to the first defendant. Furthermore, although reference was made to the letter sent by the second defendant’s lawyers, the particulars of that letter were not pleaded. Again, although the plaintiff said that it would refer to the letter at the trial for its full terms and true meaning and effect, no evidence was adduced at the trial by the plaintiff regarding that letter nor was there any suggestion made as to how and why the first defendant is guilty of fraud because of that letter.
In paragraph 21I, the plaintiff makes reference to the demand allegedly made by the first defendant, as pleaded in paragraph 21H, regarding the withdrawal of the caveat. But as I have already said, there is no evidence of the first defendant demanding that the caveat be withdrawn. The paragraph also does not plead the particulars of the alleged demands. Again, the plaintiff refers to the letter dated 30th July, 1998, from the Registrar to the second defendant. It was pleaded that the letter would be referred to at the trial for its full terms and true meaning and effect. But no evidence was adduced at the trial to show as to how and why the first defendant is guilty of fraud because of that letter.
In paragraph 21J, the plaintiff says that between 30th July, 1998, and the trial of the action the defendants have not at all disclaimed the demands referred to in paragraph 21H for the withdrawal of the caveat. But there was nothing to disclaim because the withdrawal of the caveat was decided solely by the Registrar. Moreover, there were no such demands made by the first defendant. Paragraph 21K is the concluding paragraph of all the preceding paragraphs, therefore it does not progress the plaintiff’s case any further.
In paragraph 23A, the plaintiff claims that the first defendant in signing the contract of sale deprived the plaintiff of its rights and interests in the property. In the particulars to the paragraph, the plaintiff refers to and relies upon paragraphs 21G to 21K. I have already said that those paragraphs do not plead actual fraud or particulars of actual fraud.
As to the signing of the contract of sale by the first defendant on 24th July, 1998, it was done upon the advice given by its lawyers and furthermore, the first defendant was not aware of the plaintiff’s claims of having perpetual rights and interests in the property, until 27th July, 1998, when Mr. Hallahan faxed the Deed to Mrs. Salter. But nothing can be held against the first defendant on that because Mrs. Salter was advised by Mr. Hallahan that the plaintiff would have no rights and interests in the property after 20th December, 2005.
In paragraph 32, the plaintiff repeats paragraphs 19A to 19K, 21G to 21K and 23A, and pleads that, by reason of the matters pleaded in those paragraphs, the first defendant now holds its registered interests in the property subject to the interests of the plaintiff. This claim must fail because as I have already said, all those paragraphs do not plead actual fraud, let alone particulars of actual fraud. They also do not disclose fraud against the defendants’ lawyers.
It follows that the plaintiff has failed to plead fraud as required under Order 8 r 30 of the National Court Rules and in accordance with the principles applied in William Mak -v- Michael Pundia and PNG Motors (supra).
For all these reasons, the claim of fraud against the defendants in particular the first defendant, and its lawyers, must fail.
(ii) Were the defendants’ conducts unconscionable in transferring the property from the second defendant to the first defendant?
Unconscionable conduct or behaviour would arise when there is inequality in bargaining powers between two negotiating parties, characterized by one party being in a stronger and dominant position over the other party. Thus, the party in the weaker position would be at a disadvantage or at a special disadvantage to the stronger party. The weaker position may result from poverty, sickness, old age, gender, infirmity of mind or body, drunkenness, illiteracy, lack of education, lack of assistance and or explanation from the stronger or advantaged party when such assistance and or explanation is required or needed by the weaker party and so on. See, Blomley -v- Ryan [1956] HCA 81; (1956) 99 CLR 362 and Hart -v- O’Conner [1985] UKPC 1; [1985] All ER 880; (1985) AC 1000.
In such a situation, the conduct of the party in the stronger position would be unconscionable because he would exploit and take advantage of the weaker party for his own benefit, but to the detriment of the weaker party, thus resulting in the parties not negotiating on an equal footing.
This principle is illustrated in the following cases: In Kora Gene -v- Motor Vehicles Insurance (PNG) Trust [1995] PNGLR 344, the father whose daughter was killed in a motor vehicle accident in Goroka took out a claim against the Motor Vehicles Insurance (PNG) Trust, (hereinafter referred to as ‘the Trust’). The Trust denied liability on the basis that the plaintiff had signed a Deed of Release (hereinafter referred as ‘the Deed’) thereby discharging the Trust from all claims arising out of the death of the deceased. The Deed was challenged by the plaintiff in court. The effect of the Deed was that the plaintiff would receive K600.00 in solatium payment for the death of his child, pursuant to s. 29 of the Wrongs (Miscellaneous Provisions) Act, Chapter 297. The plaintiff accepted K600.00 as the full and final payment of his claims and signed the Deed to release the Trust from any further claims for the death of his daughter.
The Trust was aware that the plaintiff had a lawyer but instead of dealing through the lawyer, it approached the plaintiff directly and encouraged him to sign the Deed without consulting his lawyer. The trial judge, Woods J. noted that there was nothing in the evidence to show that the plaintiff fully understood the implications of signing the Deed.
His Honour held that while it was acceptable for the parties to talk without the lawyer, there was a particular circumstance in that case viz. the illiteracy of the plaintiff which required the Trust to speak to the plaintiff either in the presence of or through his lawyer so that the plaintiff could have the benefit of the advice of his lawyer to understand the contents of the Deed.
The parties there were obviously not on an equal footing during their negotiations. The plaintiff did not have the capacity to understand the consequences of signing the Deed. In that regard, the plaintiff was at a special disadvantage to the Trust. The Trust on the other hand was a sophisticated statutory body with the responsibility of dealing with motor vehicles insurance claims every day throughout Papua New Guinea. Therefore there was that inherent inequality in the parties and his Honour emphasized that in those circumstances, it was unconscionable for the Trust to negotiate directly with the plaintiff without ensuring that the plaintiff understood his legal rights.
His Honour said the Trust made no attempts to ensure that the plaintiff understood the contents of the Deed such as by advising the plaintiff to seek advice from his lawyer. The court therefore held that the conduct of the Trust was unconscionable and declared the Deed void.
At 348 his Honour said:
"Whilst parties can always talk between themselves without lawyers, in the circumstances of PNG and by virtue of the disparity of education and understanding between the plaintiff and the defendant, I must find that the parties here are not on an equal footing. The plaintiff here is at a great disadvantage. I must find it is unconscionable for a plaintiff of the nature and the sophistication of the Motor Vehicle Insurance Trust to negotiate directly with an illiterate villager without taking appropriate precautions to ensure that the villager understands his legal rights".
In Knupp -v- Bell (1968) D.L.R Vol.67 (2d.) 256, the plaintiff, an elderly woman, was suffering from an illness which severely affected her ability to negotiate. She was therefore openly vulnerable to negotiate the terms of a sales agreement. She owned a farm and was induced into selling it by her neighbour, the defendant, who wished to purchase it at a grossly inadequate price. The defendant knew the condition of the plaintiff and yet asked her to name a price suggesting either $35,000.00 or $40,000.00 or $45.00 per acre. The plaintiff in response stated that she would accept nothing more than $35.00 per acre. That should have immediately evoked concern from the defendant about the mental condition or capacity of the plaintiff to appreciate what she was agreeing to and should have insisted that she seek independent advice, but the defendant did not do that. The defendant agreed subsequently that he would have accepted $50.00 per acre. However realizing that there was something wrong with the plaintiff’s mental condition and that he would benefit from it, the defendant went ahead and negotiated with her and purchased the land for what was totally an inadequate consideration.
The legality of the contract was challenged in court and the court noted that the defendant had unconscionably used his position of power over the plaintiff by allowing her to enter into a contract which was blatantly balanced in his favour and without insisting that she seek independent advice before entering into the contract. The court therefore set the contract aside.
That case also illustrates the situation where the plaintiff was at a special disadvantage to the defendant and how the defendant exploited the vulnerability of the plaintiff to secure the agreement which was to his own benefit, but to the detriment of the plaintiff.
In Lloyds Bank Ltd -v- Bundy [1974] 3 All ER 757, an elderly father guaranteed his son’s business by mortgaging his own house which was his only significant asset. Initially the guarantee was provided through a mortgage for £6,000 however, the son’s business did not improve and the bank informed Mr. Bundy that it could only continue to support the son’s business if he increased the guarantee and the charge on the house to £11,000. However, Mr. Bundy’s house was valued at only £10,000. The son’s business continued to deteriorate and the bank stopped the overdraft facilities for the son and proceeded to enforce the charge and the guarantee against Mr. Bundy. The bank brought an action against Mr. Bundy for possession of his house.
The matter was finally considered by the Court of Appeal. The central issue was the legality of the agreement between Mr. Bundy and the bank. The agreement was set aside by the court, which by majority held that it was a case of undue influence. The court said that the relationship between Mr. Bundy and the bank was one of trust and confidence, thus the bank owed fiduciary duty to Mr. Bundy to ensure that he received independent advice before committing himself to the deal.
Lord Denning said the bank was unconscionable in its conduct and that the agreement was not negotiated on an equal footing between the parties because the bank had the advantage over Mr. Bundy. His Lordship, after discussing various instances in which unconscionable conduct would exist at 765 said:
"Gathering all together, I would suggest that through all these instances there runs a single thread. They rest on ‘inequality of bargaining power’. By virtue of it, the English law gives relief to one who, without independent advise, enters into a contract on terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other".
In determining whether there is an unconscionable conduct by a stronger or a dominant party, the English courts seem to adopt a more liberal approach, and apply the test of general disadvantage being suffered by the weaker party resulting from unequal bargaining powers or positions between the parties. See, also National West Minister Bank PLC -v- Morgan [1985] UKHL 2; [1985] AC 686; and Clifford Davis Management Ltd -v- WEA Records Ltd [1975] 1 All ER 237.
The Australian courts on the other hand seem to emphasize on or apply the test of special disadvantage being suffered by the weaker party. The leading case appears to be Commonwealth Bank of Australia -v- Amadio [1983] HCA 14; (1983) 151 CLR 447, where this point was emphasized. In that case, relief was granted to elderly Italian migrants with limited knowledge of English, who, without the assistance of independent advice executed a mortgage and a guarantee for their son’s debt to the bank in circumstances in which the bank knew that security would almost certainly be called upon in the near future. The High Court emphasized that relief may be given where the weaker party had a " special disadvantage " and the stronger party knew or ought to have known of that special disadvantage and the stronger party took unfair advantage of the weaker party’s special disadvantage. Mason J. (as he then was) expressed this point at 462:
"I qualify the word "disadvantage" by the adjective "special", in order to disavow any suggestion that the principle applies whenever there is some difference in bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party."
Applying these principles to the present case, I cannot see how the plaintiff was at a disadvantage, let alone at a special disadvantage. The reason being, it had received independent legal advice that its interests in the property were not protected either by the Deed or the Sub-lease after 20th December, 2005. Yet, it took no remedial actions. For instance, it knew full well that it needed to obtain restraining orders before settlement to restrain the sale of the property or to negotiate an agreement with the second defendant for its interests to be protected in the event of the property changing ownership, but it did not. The plaintiff was advised of these options but it ignored them.
The defendants were in no better or stronger position than the plaintiff in the whole transaction because they were all represented by lawyers and were given appropriate legal advice on their respective rights in the property. This was not the case of the defendants having an unfair advantage over the plaintiff. For instance, there were no undue influences or pressures which were brought to bear on the plaintiff by the defendants. The parties dealt with each other through their lawyers on an equal footing throughout the whole transaction. There is nothing which can suggest otherwise.
But be that as it may, I am of the opinion that the issue of unconscionable conduct does not really arise against the defendants because the plaintiff never negotiated or dealt directly with the defendants either on the sale of the property or in respect of the leases. The plaintiff and the defendants were represented by lawyers throughout their dealings. Thus, all the dealings were done by and between the lawyers. As discussed earlier, the unconscionable conduct can only arise or exist between two negotiating parties when there is an imbalance in negotiating powers between them.
It follows that the claim of unconscionable conduct against the defendants has no basis and must fail.
I have already made some observations on this issue under Question 1, when I discussed the issue of whether the Deed and the Sub-Lease are void for uncertainty. But the observations I will now make relate specifically to whether the plaintiff’s claim of having the right to renew its lease or that it has rights and interests in the property after 20th December, 2005, is against public policy and the scheme of the Land Act.
Firstly, I will discuss public policy considerations then secondly, I will discuss the scheme of the Land Act, as it relates to the State Leases.
(a) Is the claim by the plaintiff that it has the right to renew its lease or that it has rights and interests in the property after 20th December, 2005, against public policy?
The defendants have argued that the claim by the plaintiff that it has the right to renew its lease or that it has rights and interests in the property after 20th December, 2005, is against public policy.
What then is a public policy? Public policy is a very broad concept, thus it is incapable of a precise definition. This is reflected in Richardson -v- Mellish [1824] EngR 715; 130 ER 294, where Burrough J., described public policy as "a very unruly horse." His Honour at 303 said:
"...Public policy is a very unruly horse once you get astride it you never know where it will carry you."
In Egerton -v- Brownlow [1853] EngR 885; 10 ER 359, Parke B., at 408 described public policy as – "a vague and unsatisfactory term."
Thus, without attempting to give a precise definition to the term or phrase, for the purposes of the issue at hand, a ‘public policy’ may be broadly defined as - a policy or an idea or a norm or a principle or a custom or a practice - which prevails and applies in a community for the good and in the interest of the public. Thus, if anything is done against such policy or idea or norm or principle or custom or practice, such an act would be against the interest and the good of the public, and thus render the act illegal. See, also Public Prosecutor’s Reference against Hon. Michael Nali – N2399.
In Naylor, Benzon & Co. Ltd -v- Krainische Industrie Gesellschaft [1918] 1 KB 331, McCardie J., at 342 reflected the same broad principle or definition of ‘public policy’ in this way:
"The phrase "public policy" appears to mean the ideas which for the time being prevail in a community as to the conditions necessary to ensure its welfare; so that anything is treated as against public policy if it is generally regarded as injurious to the public interest...It is well settled that a contract is not enforceable if its enforcement would be opposed to public policy."
A number of cases illustrate this principle: In Neville -v- Dominion of Canada News Ltd (1915) 3 KB 556, it was held that a newspaper proprietor who entered into a contract, in which it was agreed that the newspaper would not publish any comments on the plaintiff’s fraudulent land developments was against public policy and was therefore illegal and unenforceable. The court held that the ordinary business of a newspaper was to comment upon fraudulent schemes, thus for a newspaper to limit its right to comment was –
"... a stipulation which was contrary to public policy and which cannot be enforced in a Court of law."
In Horwood -v- Millar’s Timber & Trading Co. Ltd [1917] 1 KB 305, an employee of the respondent company assigned his whole income to the respondent money lender company and further bound himself not to leave his job, move from his house or enter into other debts without the consent of the respondent company. The agreement arose from the employee borrowing money from the respondent company.
In describing the agreement as against public policy, Lord Cozens-Hardy MR, at 312 said:
"...Such a covenant would prevent the man from employing a doctor or a surgeon in the case of illness in his family, and would prevent him from raising money for the maintenance of his wife and children, or for the education of the latter. I think this is a deed which the law must recognize as bad on grounds of public policy of the most well established kind ...I have no hesitation in saying that in my view this is a deed which is contrary to public policy."
In Prudential Assurance Co. Ltd -v- London Residuary Body and Others (supra) Lord Templeman in reflecting on the principle of ‘public policy’ at 511 said:
"A grant for an uncertain term does not create a lease. A grant for an uncertain term which takes the form of a yearly tenancy which cannot be determined by the landlord does not create a lease. I would allow the appeal. The trial judge, Millet J, reached the conclusion that the six months’ notice was a good notice. He was of course bound by the Court of Appeal decisions but managed to construe the memorandum of agreement so as to render cl 6 ineffective in fettering the right of the landlord to serve a notice to quit after the landlord had ceased to be a road widening authority..." (my underlining).
The effect of his Lordship’s reasoning there was that clause 6 of the lease agreement was against public policy because it fettered the right of the landlord to determine the lease. In other words, clause 6 was not in the interest of the public because its effect generally was that, it would restrain or inhibit the proprietor or the landlord from determining the lease, say, for the purposes of transferring or alienating his estate or interests in the land. Thus, clause 6 was contrary to good and prudent commercial practices especially by the landlords and property owners. It was therefore injurious to the interest and the good of the commercial community or public. Thus, it was against public policy.
It is important to note that in that case the landlord had agreed to enter into a lease agreement which was uncertain. The lease was therefore invalid and unenforceable. The landlord had no power to create a lease which fettered his right to determine it, thus rendering the lease uncertain.
These public policy considerations are of course universal in their application.
Thus in applying these principles to the instant case, I am of the opinion that the Deed and the Sub-Lease would be against public policy if they gave the plaintiff the right to renew its lease or to have rights and interests in the property after 20th December, 2005, as that would amount to fettering the right of the first defendant as the registered proprietor and the landlord to determine the lease.
If the Deed and the Sub-Lease were to give the plaintiff the right to renew its lease or to have rights and interests in the property after 20th December, 2005, or in perpetuity as claimed by the plaintiff, it would be against the good and interest of the public because it would have adverse effect on the general commercial practices and dealings especially in the sale of properties. It would provide bad practice and precedent whereby the landlords would be made subject to the whims and wishes of the tenants because the tenants would have the power and the right to determine the leases to suit their own interests.
Thus, the right of the first defendant as the owner and landlord to sell its property or to lease it to another tenant would be fettered and taken away, as the plaintiff being the tenant would have the absolute right to renew its lease in perpetuity. The first defendant would thus be prevented forever from either selling the property or leasing it to another tenant. That would plainly be against public policy as it would impinge upon the accepted commercial practices; particularly in respect of the right to sell, transfer or to alienate land by property owners.
For all these reasons, I find that the claim by the plaintiff that it has the right to renew its lease or that it has rights and interests in the property after 20th December, 2005, is against public policy and must fail.
(b) Is the plaintiff’s claim that it has the right to renew its lease or that it has rights and interests in the property after 20th December, 2005, against the scheme of the Land Act?
The scheme of the Land Act, as it relates to the State Leases is that, when a State Lease expires, the ownership of the property reverts back to the State. Similarly, when the current State Lease expires on 20th December, 2005, the ownership of the property will revert back to the State. This point is conceded by the plaintiff. (See: Transcript pages 805 and 806). Thus, as a matter of law there is no right of renewal or reversion of the State Lease by or to the first defendant after 20th December, 2005.
Likewise, the rights and interests of the plaintiff in the property as a tenant will as a matter of law automatically terminate on 20th December, 2005, as the property will no longer be owned by the first defendant. The first defendant has to apply for a new lease if it wants to continue to own the property. But if it does not want to own the property after 20th December, 2005, and therefore, does not apply for a new lease or it applies for a new lease but a new lease is granted to another applicant, it will be compensated for the value of the improvements on the property. This right is accorded only to the first defendant as the property owner and as the outgoing lessee pursuant to s.119 of the Land Act.
Section 119 regulates payments for improvements on a property to the outgoing lessee. The section specifies as to when, how and to whom such payments should be made. The section specifically precludes tenants from having any right to claim compensation for the improvements. The plaintiff therefore has no right to claim compensation for the improvements on the property.
Under this scheme, if the first defendant is desirous to apply for a new lease, it will not be the only one which will apply, because other interested persons or entities are entitled to apply. The first defendant’s application for a new lease will therefore be considered together with other applications.
This means the first defendant like other applicants has to apply to the Land Board as provided under s.58 (9) and the Land Board will decide on which applicant should be granted the new lease as provided under s.57 (2). Under s.58 the Land Board will also determine who should be the second and third choice applicants for a new lease.
These effectively mean that the first defendant will not have the automatic right to be granted a new lease when the current State Lease expires on 20th December, 2005.
Part X of the Act provides for the granting of State Leases. Sections 68 and 69 provide for the available land to be advertised unless exempted by the Minister. Sections 70 and 71 provide for the mode of applying for a State Lease and how the Land Board is to consider such applications. Section 73 provides for the lease of land by tender. Sections 74 and 75 provide for the publication of the names of the successful applicants for the State Leases in the National Gazette and how the successful applicants are to be notified. Section 76 provides for the successful applicants to accept the terms and conditions of the leases. Sections 77, 78 and 79 provide for how the successful applicant may lose a lease and the procedure by which such lease may be granted to the second or the third choice applicants and so on.
This is an elaborate scheme which the first defendant as the outgoing lessee will be subject to after the current State Lease expires on 20th December, 2005.
These provisions have to be read together with s.119 because when the State Lease expires on 20th December, 2005, they will automatically come into operation.
Section 119 (2) (a) will become relevant if the first defendant is granted a new or a further lease.
At the expiration of the State Lease, the land will become available for leasing as provided under s.68 (1); unless the Minister in his discretion decides to exempt the land from being advertised on tender by reason of the first defendant applying for a new lease under s.69(2)(c).
Section 69 (2) (c) provides:-
(2) The Minister may exempt land from advertisement for application or tender–
(c) ---------where a lessee applies for a further lease; -
In my opinion the ‘lessee’ in this sub-section refers to the lessee mentioned in s.119 (2) (a) which provides:-
(2) Where, after the expiration of the term of a State lease of land on which there are improvements, the lessee is granted –
(a) a further lease of land;
The power given to the Minister by s. 69 (2) (c) is of course discretionary, thus the Minister can decide not to exempt the land from being advertised even if the first defendant does apply for a new lease; in which case, the land would become subject to the scheme of the provisions in the Land Act, as outlined above.
Even assuming that the first defendant does apply for a new lease and the Minister does exempt the land from being advertised as provided under s.69 (2) (c), the current State Lease will still expire on 20th December, 2005, as a matter of law and a new lease will be issued to the first defendant with new terms and conditions. That is quite clear from the plain reading of s.69 (2) (c) and that is the overall scheme of the provisions in the Land Act, to which I have adverted. Thus, even under this process, the ownership of the land will still revert back to the State upon the expiration of the current State Lease before the new or a further lease can be issued to the first defendant with new terms and conditions. This process cannot be dispensed with as it is imperative under the scheme.
This scheme is all aimed at the ownership of every State land reverting back to the State at the expiration of every State Lease.
This is made clear by s.4 which appears under PART II of the Act, which is headed - NATIONAL TITLE TO LAND.
Section 4 provides:-
(1) All land in the country other than customary land is the property of the State, subject to any estates, rights, titles or interests in force under any law.
(2) All estate, right, title and interest other than customary rights in land at any time held by a person are held under the State.
Thus, once the current State Lease expires on 20th December, 2005, the first defendant will no longer have title to the land, as the State will as a matter of law, automatically assume ownership over it. As I said, there cannot be any reversionary rights over the State Lease either to the first defendant or to the plaintiff. The scheme of the Act does not grant them such right.
In fact, every State Lease is owned by the State and the title or the lease held by every lessee over such land is so held subject to the State’s ownership over the land.
It is for this reason that under s. 83, the State continues to impose lease rentals on the State Lease holders. The lessees have to continue paying lease rentals to the State during the currency of the State Leases. In the event that the lessees fail to pay the lease rentals, the Minister has the power to either forfeit the State Leases under s.122 or impose non compliance fees under s.124.
Thus under this scheme, the State owns all land held by the lessees under the State Leases. The State Lease holders thus have titles over such land conditional upon the terms and conditions stated on those leases as provided under s.76.
Indeed the scheme is such that, even before the expiration of the State Leases, the State can reclaim or assume ownership over the land by forfeiture in the event of default by the lessees in complying with the terms and conditions stated on the State Leases.
The legislative intent is therefore very clear from this scheme that the State will remain owner of all leasehold land except customary land.
This is the character of all land held under the State Leases. The scheme therefore puts beyond doubt that no one can have perpetual ownership or right or interest over or in a State Lease.
Such being the scheme of the Land Act, I am of the firm opinion that the claim by the plaintiff that it has the right to renew its lease or that it has rights and interests in the property after 20th December, 2005, must fail.
In my opinion there is a misconception by the plaintiff that the Deed and the Sub-Lease grant it the right to continue leasing the demised premises as a matter of course on the terms of the current lease which includes paying K1.00 rent per annum, after 20th December, 2005. There is a further misconception by the plaintiff that the first defendant will be automatically granted a new lease after 20th December, 2005. These misconceptions are made obvious by the plaintiff’s claim that it has the right to lease the demised premises for a further 99 years from 2005 to 2104. (See: Transcript page 33). Such claim clearly runs contrary to the established principles and the scheme of the Land Act. It is also against public policy.
Principal collateral issues.
(i) Did the first defendant induce the second defendant to breach the contract between it (the second defendant) and the plaintiff?
The plaintiff has also claimed that the first defendant had induced the second defendant to breach the contract between it (the second defendant) and the plaintiff. This is a relevant collateral issue which must be specifically addressed. This claim is made as a result of the purchase of the property by the first defendant from the second defendant. For this claim, the Court is left to speculate because the plaintiff has not specified the contract which the second defendant was supposed to have breached and how the breach occurred. At best, the Court can only presume that, by this claim, the plaintiff is alleging that the second defendant was induced by the first defendant to sell the property to it (the first defendant), and in so doing, the second defendant was induced to breach the contract between it (the second defendant) and the plaintiff. Again, it is presumed that, the contract allegedly breached here arose either from the Deed or the Sub-Lease. But on the evidence before the Court, I find no such inducement by the first defendant. The decision to sell the property was made solely by the second defendant through its Board of Directors, which resulted in the property being put on the market through tender and the first defendant had to bid for the property.
The first defendant’s initial bid was K6.5 million, but it was rejected by the second defendant’s Board of Directors and it was only after the first defendant increased its bid to K 6.55 million that, the second defendant’s Board of Directors accepted the first defendant’s offer. Documentary evidence attests to this. Therefore, I can find no evidence at all, of the first defendant inducing the second defendant to sell the property and thereby caused the second defendant to breach the contract between it and the plaintiff.
But, even assuming that the claim by the plaintiff relates to the purchase of the property by the first defendant from the second defendant, the claim can only succeed if there was false and fraudulent misrepresentation by the first defendant to the second defendant, which induced the second defendant to sell the property to the first defendant. But there is no evidence of such fraudulent misrepresentation being made by the first defendant to the second defendant.
The typical situation where an inducement by false and fraudulent misrepresentation would arise is neatly illustrated by Loke Yew -v- Port Swettenham Rubber Co. Ltd [1913] UKLawRpAC 11; (1913) AC 491. In that case, one Haji Mohamed Eusope agreed to sell 322 acres of land to the respondents. There was common understanding between the parties that 58 acres of that land were held in trust by Haji Mohamed Eusope for the appellant. Haji Mohamed Eusope signed the instrument of transfer for all 322 acres upon the expressed assurance by the respondents that they would negotiate separately with the appellant regarding the 58 acres. But the respondents, after obtaining registration, reneged on their promise to Haji Mohamed Eusope and took out a court action to eject the appellant from the 58 acres he was occupying. The respondents argued that as registered proprietors they had indefeasible title to the land, free from all unregistered claims. The Federate Malay States Court of Appeal held in favour of the respondents. On Appeal to the Privy Council, that decision was reversed on the grounds that the respondents obtained registration through fraudulent misrepresentation.
Lord Moulton delivered the judgment of the Privy Council and at 505 his Lordship said: -
"It may be laid down as a principle of general application that where the rights of third parties do not intervene no person can better his position by doing that which is not honest to do, and in as much as the registration of this absolute transfer of the whole of the original grants was not an honest act under the circumstances it cannot better the position of the plaintiffs as against the defendant and they cannot rely on it as against him when seeking to enforce rights which formally belong to them only by reason of their own fraud."
In that case, the Privy Council found that the respondents induced Haji Mohamed Eusope to sign the instrument of transfer through false and fraudulent misrepresentation. Their conduct was deceitful and dishonest, thus they could not claim indefeasibility of title over the 58 acres of land.
The Privy Council also said that the respondents were trustees for the appellant in respect of the 58 acres of land. Lord Moulton expressed it in this way at 505 to 506:
"The plaintiff company (respondents), therefore are trustees for the defendant (appellant) for all the rights of which they thus had notice. These rights amounted to the rights of a freeholder subject to an annual payment to the owner of the head grant. Now, it is clear that a cestui que trust has the right to require a trustee who is a bare trustee for him of land to register that land in his name, seeing that he is the sole beneficial owner and that the trustee has no interest therein. The present action from this point of view is an action by a bare trustee of land to eject the beneficial owner who is and has for years been in possession of the land and is cultivating it."
It is plain that, there was fraudulent misrepresentation by the respondents, which induced Haji Mohamed Eusope to agree to transfer the 58 acres of land belonging to the appellant to them. It is also plain that, Haji Mohamed Eusope acted upon the fraudulent misrepresentation by the respondents to transfer the 58 acres of land to them.
In Pacific Foam Pty Ltd -v- Zuric Pacific Insurance Pty Ltd – N1745, the previous owner of the property promised the tenant, who was an employee of the defendant that, repairs would be done on the property before occupation. Upon that representation, the defendant signed a lease agreement with the previous owner and rented the property for its employee. The repairs were never done, despite requests by the defendant. Kapi DCJ, (as he then was), held that there was false and fraudulent misrepresentation by the owner, which induced the defendant to sign the lease agreement and rent the property. Again, in that case, there was deceit and dishonesty on the part of the owner.
In the present case, there clearly was no fraudulent misrepresentation at all by the first defendant to the second defendant. The sale of the property was a genuine commercial deal between the second defendant through its Board of Directors and the first defendant.
Inducing breach of a contract is an actionable wrong in tort for which the wronged party may claim damages. But for there to be an action for damages, the wrong doer must have interfered in the contractual relations between the contracting parties recognized by law. This principle was stated by Lord Macnaghten in Quinn -v- Leathen [1901] AC 495. At 510 his Lordship said:
"It is an actionable wrong to interfere with contractual relations recognized by law, if there be no justification for the interference."
The principle was stated in the much earlier case of Allen -v- Flood [1897] UKLawRpAC 56; [1898] AC 1 at 107:
"...he who wilfully induces another to do an unlawful act which, but for his persuasion, would or might never have been committed, is rightly held to be responsible for the wrong which he procured." (See also Temperton -v- Russle [1893] UKLawRpKQB 64; [1893] 1 QB 715).
The typical situation where such interference may occur is where a union leader in a strike action induces a worker to breach his contract with the employer by persuading the worker to stay away from work.
In such cases, there would be a clear case of interference in the contractual relations between the contracting parties viz. the employer and the employee.
In the instant case, it is patently clear that there was no such interference by the first defendant. The decision by the second defendant to sell the property was made independently by its Board of Directors. It was a decision made without any influence or inducement by anyone including the first defendant. Indeed the first defendant only came into the scene after the property was advertised on tender for sale. Furthermore, the first defendant was one of the many bidders for the property.
So, there clearly was no inducement by the first defendant on the second defendant to sell the property, which could give rise to breach of contract between the second defendant and the plaintiff. Thus, there was no interference by the first defendant for which the plaintiff can claim damages in tort against the first defendant.
The plaintiff has thus failed to prove this claim and it must fail.
(ii) Privity of contract.
The first defendant raised privity of contract as a defence against the plaintiff’s claim for damages for breach of contract. But I am of the opinion that the issue of privity of contract does not arise at all because the claim against the first defendant is - inducing the second defendant to breach the contract between it (the second defendant) and the plaintiff.
There is no claim of breach of contract by the first defendant. Indeed there could not be any such claim because the first defendant was not a party to any contract between the second defendant and the plaintiff. The issue is not whether the first defendant was in breach of a contract, but rather whether the first defendant did induce the second defendant to breach the contract between it (the second defendant) and the plaintiff.
The doctrine of privity of contract would of course arise as a defence had the plaintiff claimed that the first defendant had breached the contract. Indeed in such a case, the claim would have no basis, because the first defendant was not a party to any contract between the second defendant and the plaintiff arising either from the Deed or the Sub-Lease. The principle of privity of contract would apply as a defence against any claim for damages by the plaintiff against the first defendant for breach of contract by reason of the fundamental principle of contract law that, no one who is not a party to a contract can sue or be sued upon such a contract or take advantage of the stipulations and conditions contained in such a contract. See, Scruttons -v- Midland Silicones Ltd (supra).
The observations made here in respect of privity of contract are of course only academic because as I said earlier, the claim by the plaintiff against the first defendant is- inducing the second defendant to breach the contract between it (the second defendant) and the plaintiff. For that, I have already found that the first defendant did not induce the second defendant to sell the property to it.
The plaintiff’s claim is based on fraud and misrepresentation and therefore the plaintiff was required under Order 8 r 30 of the National Court Rules to plead or to give the particulars of fraud and misrepresentation by the first defendant which the plaintiff says resulted in the second defendant being induced to breach the contract between it (the second defendant) and the plaintiff. The plaintiff has failed to do so. The plaintiff has therefore again failed to satisfy the requirements of Order 8 r 30 of the National Court Rules.
The plaintiff has again failed to prove this claim. The end result is that this claim must also fail.
(iii) Conflict of interest.
The plaintiff has also claimed conflict of interest against Blakes. This is a fundamental collateral issue, which must be specifically addressed. The claim is made on the basis that Blakes (the firm) was acting for the plaintiff and the first defendant who both had conflicting and incompatible interests in the same property. The plaintiff claims that conflict of interest arose when Mr. Payne and Mr. Foster were acting for the plaintiff in respect of the Sub-Lease for the architects’ area and Mr. Hallahan and Mr. Coumbis were at the same time acting for the first defendant in the purchase of the property.
The plaintiff argued that in those circumstances, Blakes obviously had a conflict of interest because it was advising the first defendant that the plaintiff would have no rights and interests in the property after 20th December, 2005, and at the same time it was advising the plaintiff on how it could continue to have rights and interests in respect of the architects’ area, after 20th December, 2005.
It was also put strongly to Mr. Payne by Mr. Batch, under cross examination that, Blakes did not obtain the consent of the plaintiff before acting for the first defendant through Mr. Hallahan and Mr. Coumbis. The plaintiff said Blakes did not even give notice to it that it (Blakes) was also acting for the first defendant. The plaintiff says these gave rise to a conflict of interest in Blakes.
Mr. Batch argued strongly that by such conduct, Blakes had also breached the Professional Conduct Rules. It was submitted that by acting for the first defendant and the plaintiff simultaneously, Blakes’ commitment and loyalty was divided between the two clients. Mr. Batch submitted that these were serious breaches of the Professional Conduct Rules and they amounted to fraud.
Mr. Payne refuted the plaintiff’s claim and said that there was even an internal safety measure taken by Blakes to protect the plaintiff’s interests, whereby he and Mr. Foster agreed with Mr. Hallahan and Mr. Coumbis that there would be no communication between them, regarding the respective interests of the plaintiff and the first defendant in the property on which they were advising. There was therefore that Chinese Wall arrangement which according to Mr. Payne was effective and worked well to prevent any conflict of interest in Blakes.
Mr. Griffin submitted that the Chinese Wall arrangement had effectively prevented situations where Blakes could have conflict of interest. It was further submitted by Mr. Griffin that, in any case, there was nothing for the plaintiff that was of confidential nature which required protection by Blakes.
In support of these arguments, Mr. Griffin referred to Fruehauf Finance Corporation Pty Limited -v- Feez Ruthning (a firm) (1991) 1 Qd. R 558. In that case, the defendant, a firm of solicitors was retained by the plaintiff to act on its behalf in the conduct of a case. The retainer was carried out by the defendant entirely within one of a number of discrete ‘sections’ into which its practice was organized, with any confidential information imparted by the plaintiff being communicated only within the bounds of the section. Some months later, another section of the defendant firm without the knowledge of the previous retainer, accepted instructions to act on behalf of another client in a second action, which was brought against the plaintiff. Relevant to this second action was the confidential information which was previously imparted by the plaintiff to the defendant. The plaintiff sought injunctions against the defendant to restrain it from acting in the second action against the plaintiff, and from communicating the confidential information.
In dismissing the action, the court said that in determining whether a firm of solicitors should be restrained from acting in such cases, there must be balancing of various matters of public interest, including the rights of clients to seek and obtain legal advice without the apprehension of being thereby prejudiced; and the need for justice to be seen to be done, which may be undermined if lawyers are seen to readily change sides and the rights of clients to have their choice of solicitors, being unduly restricted simply because of their previous retainers.
At 570, Lee J., quoted from Cordery on - Solicitors, 7th Edition (1981), at page 71:
"Each case turns on its own facts, and, while the court may require from solicitors higher standard of conduct than from persons who are not its officers, yet the principle upon which it restrains a solicitor from acting against a former client is the prevention of abuse of the confidence reposed in the solicitor by his former client; accordingly, before an injunction can be obtained, the court must be convinced of the existence of such confidence and of the probability of its being abused."
On the same page, his Honour quoted from Finn on - Fiduciary Obligations (1977) at page 139:
"There is no rule of law, for example, that a solicitor who has acted in a particular matter for a client, cannot subsequently act in the same matter for his old client’s opponent. The courts will restrain a solicitor if he discharges himself for the purpose of acting for the opponent. But otherwise the courts will only restrain a solicitor from acting for the opponent or against a former client if he actually discloses the secrets of his former client or if in the circumstances of a particular case that ‘mischief is rightly anticipated."
Then at 571, his Honour said:
"I find that there has been no communication of confidential information within the defendant firm so as to give rise to a real risk of prejudice or mischief. I also find that there is no sufficient prospect of communication of any confidential information in the future so as to give rise to a real risk. There is no prospect of detriment to the plaintiff. Indeed, it has been shown on probabilities that no such prejudice could possibly occur. Any possible danger is negatived, to use the words of Buckley L. J. in Rakusen at p. 845.
...It follows therefore that the various matters of public interest are adequately served in the special circumstances of this case if the injunctions sought are refused, having regard to the undertakings number one to four above which will be a condition of the proposed order...There is no risk of breach of the duty of confidentiality between the defendant and the plaintiff as its former client. There is no risk that any confidential communication between the plaintiff and the defendant has or will become available to a third person...Also, the right of the defendant’s client (Westpac) to have the services of a solicitor of his choice is not necessarily restricted. ...The situation could well be otherwise if Westpac is forced to change solicitors in a complex piece of litigation at this stage.
This decision does not mean that circumstances could not exist where it would be inappropriate for a firm of solicitors, including a large firm, to act for an interest against a former client. Such cases are usually clear. The good sense and integrity of those concerned generally resolve any such question without the need for litigation. Such a firm would simply decline to act.
In the result, upon the giving of undertakings number one to four by the parties referred to therein, the orders sought are refused...." (my underlining).
Sections 8, 9 and 10 of the Profession Conduct Rules are relevant here. Sections 8 and 9 deal with diligence and confidentiality and section 10 deals with conflict of interest and enumerates the types of situations in which a lawyer may have a conflict of interest. The three sections were heavily relied upon by Mr. Batch when pressing the issue of conflict of interest against Blakes.
The breach of these sections by a lawyer would amount to improper conduct for which the lawyer may be penalized by the Lawyers’ Statutory Committee, if found guilty, as provided under Part V of the Lawyers’ Act, 1986.
The sections are significant to this case. Thus, it is appropriate that observations be made on each of the three sections.
Under s.8 a lawyer may be guilty of improper conduct if he does any of the following:-
Under s.9 the lawyer may be guilty of improper conduct if he does any of the following:-
The relevant parts of s.10, which provide for situations in which a lawyer may have a conflict of interest are - s.10 (1) (b), (5) (a), (b), (c) and (d) and (8) (a) and (b). These sub-sections are set out here for ease of reference:-
10. CONFLICT OF INTEREST.
(1) Subject to the duty of a lawyer to the court, a lawyer shall give undivided fidelity to his client’s interests, unaffected by-
(b) an interest of any other persons; or
(5) A lawyer or a firm of lawyers shall only represent or continue to represent two or more parties in any matters, other than litigation if -
(a) to do so is not likely to prejudice the interests of the client; and
(b) the client is fully informed of the nature and implications of the conflict; and
(c) the client voluntarily assents in writing to the lawyer or firm of lawyers acting or continuing to act; and
(d) in the case of any town in which there are two or more firms of lawyers practicing, the client has declined to place his instructions with another firm.
(8) Where –
- (a) a lawyer has represented a client; or
- (b) because of a lawyer’s association with a law firm he has had access to a client’s confidences, that lawyer shall not thereafter use such information against that client’s interest or for the benefits of any other person.
Serious breaches of these sections may amount to professional misconduct. Each case of course has to be determined on its own merits.
The cardinal ethical rule or principle is that a lawyer must fully and effectively represent his client’s interests. This is fundamental to the practice and the conduct of every lawyer acting for a client. Therefore, in situations where a lawyer represents more than one client, he must also be wary that such representation may not be possible if the interests of the clients actually or have the potential to clash. This ethical rule was stated by Davies and Lee JJ., in Blackwell -v- Barroile Pty Ltd (1994) 123 ALR 81, at 93 where their Honours in emphasizing on the duty of a lawyer to fully and effectively represent his client said:
"It is an ethical rule of long standing which goes to the core of the solicitor-client relationship, the maintenance and protection of which is a matter of public interest reflected in the doctrine of professional privilege. It is central to the preservation of public confidence and the administration of justice."
Black’s Law Dictionary 7th Edition, defines "conflict of interest", in this way:
"...A real or seeming incompatibility between the interests of two of lawyer’s clients, such that the lawyer is disqualified from representing both clients if the dual representation adversely affects either client or if the clients do not consent." (my underlining).
In Law Society of New South Wales -v- Harvey [1976] 2 NSWLR 154, Street CJ., reflected on this rule when his Honour emphasized on the need for a lawyer to give undivided fidelity to the client’s interests. His Honour at 170 said:
"There cannot be any doubt that the duty of a solicitor to his client is paramount, and that he must not prefer his or the interest of another to that of his client."
There, his Honour was echoing s.10 (1) of the Professional Conduct Rules.
Applying these principles to the instant case, the question is - Did the conduct of the first defendant’s lawyers (Blakes), amount to a conflict of interest? This question obviously has to be answered from the way Blakes’ lawyers conducted themselves in representing the interests of the plaintiff while at the same time representing the interests of the first defendant.
This requires a closer look at the evidence given by Mr. Payne and Mr. Hallahan as they relate to Blakes’ representation of the plaintiff and the first defendant on their respective interests.
In that regard, part of Mr. Hallahan’s evidence in chief is significant. Mr. Hallahan was asked this question:
Q. What occurred on Philip’s return?
This answer by Mr. Hallahan clearly shows that by 13th or 14th July, 1998, Mr. Payne was aware that Blakes had been acting for the first defendant and that, Mr. Payne had considered the matter and it was his considered view that Mr. Hallahan or Blakes (the firm) could continue to act for the first defendant in the purchase of the property. It is also implicit from this that Mr. Payne was aware of the issues that were involved in the matters on which Mr. Hallahan and Mr. Coumbis were representing and advising the first defendant.
In that regard, it is noted that the letter of advice sent by Blakes to the plaintiff through Mr. Crosby dated 28th July, 1998, was co-authored by Mr. Payne and Mr. Coumbis. (See: Exhibit ‘A18’). In the second paragraph of that letter, it was confirmed to Mr. Crosby that Blakes had been – "...appointed to act on behalf of the purchaser which is a company associated with the Monian Group of Companies ("Monian")", - and they advised Mr. Crosby that Mr. Dutton, the former President of the plaintiff had been made aware of it. In the same paragraph, Mr. Payne and Mr. Coumbis told Mr. Crosby: "We have disclosed to the latter ("Monian") that we had been acting on your behalf in relation to the Sub-Lease..." This is contrary to what Mrs. Salter told the Court. She categorically denied having any knowledge about Blakes acting for the plaintiff until after settlement. (See: Transcript pages 533 to 541).
In that same letter Mr. Payne and Mr. Coumbis advised the plaintiff of its rights in the architects’ area.
In an earlier letter dated 8th January, 1998, Blakes through Mr. Foster advised the plaintiff through Mr. Dutton, inter alia, as follows:-
"...Protection where Investment Corporation sells the property.
To ensure that the club is well protected against the possibility that Investment Corporation transfers a State Lease to another person, and the State Lease is subsequently terminated, Investment Corporation should be under a contractual obligation to the Club which prohibits it assigning the State Lease unless the assignee has entered into an agreement with the Club that contains an agreement to grant a sub-lease and an option the same as those to be given by Investment Corporation itself (described above)." (See: Exhibit ‘A8’)
In the letter of 28th July, 1998, Mr. Payne and Mr. Coumbis in paragraph 4.3 advised the plaintiff through Mr. Crosby that the plaintiff should instruct Blakes to lodge a caveat on the title to notify prospective purchasers of its (plaintiff’s) interests in the "within sub-lease" and to prevent any dealings which were inconsistent with those interests. The paragraph is significant. It is therefore reproduced here in full:-
4.3 "The Papua Club should instruct us to lodge a caveat on the title to notify prospective purchasers of its interest in the within sub-lease and prevent any dealings inconsistent with those interests. Such caveat should expressly exclude the proposed transfer of State Lease between IC and Monian and any mortgage in relation to it as the Papua Club does not have any legal rights to same. Alternatively or simultaneously, registration of the sub-lease should be prosecuted with all due haste to ensure lodgment prior to completion of the proposed sale to Monian."
It is noted that, that letter was sent after the contract of sale was executed by the defendants on 24th July, 1998. It is also noted that when Mr. Payne advised Mr. Crosby on 20th July, 1998, that Blakes had been engaged by the first defendant, by then, Blakes had in fact been acting for the first defendant for almost three weeks.
Also when Mr. Payne and Mr. Coumbis confirmed to Mr. Crosby in the letter of 28th July, 1998, that Blakes had been appointed to act for the purchaser (the first defendant), again what was not disclosed was that, by then, Blakes had in fact been acting for the first defendant for about a month and that advice was given only three days before settlement.
Mr. Payne told the Court that when he informed Mr. Crosby that the first defendant had engaged Blake’s in the purchase of the property, Mr. Crosby told him not to worry about it because the plaintiff had engaged Gadens. Thus, one may say that there was an implied consent by the plaintiff for Blakes to act for the first defendant.
However, it is to be noted that the advice by Mr. Payne to Mr. Crosby was really an after event, because as I said, by 20th July, 1998, Blakes had been acting for the first defendant for almost three weeks. Then, when Mr.Payne and Mr. Coumbis confirmed to Mr. Crosby in the letter of 28th July, 1998, that Blakes had been engaged by the first defendant, Blakes had been acting for the first defendant for about a month. So it is clear that Blakes did not obtain the consent of the plaintiff before it started acting for the first defendant on 2nd July, 1998.
Also as noted, Mrs. Salter also discovered some time after settlement on 31st July, 1998, that Blakes had also been acting for the plaintiff in respect of the Sub-Lease for the architects' area for which she was unhappy but because it was too late to do anything by then, she decided to let the matter rest.
It is clear from this that the first defendant’s consent was also not obtained by Blakes to act or to continue to act for the plaintiff in respect of the Sub-Lease for the architects' area.
Therefore there is no doubt in my mind that in those circumstances, Blakes had a conflict of interest, because whilst they were acting for the plaintiff to protect its rights and interests in the property after 20th December, 2005, they were at the same time acting for the first defendant, whose interest was to ensure that the plaintiff had no rights and interests in the property after 20th December, 2005. These were two conflicting and incompatible interests of the two opposing clients.
The conduct of Blakes was therefore in clear breach of s.10 (1) and (5) of the Professional Conduct Rules, which provide that a lawyer must have undivided fidelity to his client’s interests unaffected by the interests of others. Furthermore, a lawyer must only represent or continue to represent two or more parties in any matters, other than litigation, if to do so is not likely to prejudice the interests of the client; and that the client is fully informed of the nature and the implications of the conflict and the client voluntarily assents in writing to the lawyer or the firm to act or to continue to act for that other party. These provisions were clearly breached by Blakes, and their conduct was indeed likely to prejudice the interests of both the plaintiff and the first defendant. The plaintiff and the first defendant clearly did not voluntarily assent in writing for Blakes to continue to act for the other, as required under s.10(5) of the Professional Conduct Rules.
As noted, it may be argued that the plaintiff had indirectly assented verbally through Mr. Crosby for Blakes to act for the first defendant, but s.10 (5) says the assent must be in writing and voluntary. In this case, there was no voluntary assent given in writing by the plaintiff. Even if the plaintiff had given such assent, it was after the event, because as I said by then, Blakes had been acting for the first defendant for about three to four weeks.
In the case of the first defendant, it has been established that, it never gave its assent at all for Blakes to act for the plaintiff.
It may also be argued that there could not be any conflict of interest by Blakes, if the plaintiff has no interest in the property after 20th December, 2005. Such an argument cannot provide relief for Blakes because, the conflict of interest also arose when Blakes advised the second defendant through its lawyers that new clauses be included in the substituted Sub-Lease for the architects’ area to protect the plaintiff’s interests in the property after 20th December, 2005. That advice was not in the interest of the first defendant, because Blakes knew through Mr. Hallahan and Mr. Coumbis that the first defendant wanted to ensure that the plaintiff had no rights and interests in the property after 20th December, 2005, either under the Deed or the Sub-Lease. That indeed was the advice or the assurance Blakes gave to the first defendant through Mr. Hallahan and Mr. Coumbis.
One may further argue that there could not be any conflict of interest in Blakes because there were no confidential documents for Blakes to protect or safeguard either for the plaintiff or for the first defendant. Whilst that may be so, the fact that the lawyers themselves saw the need for the Chinese Wall arrangement, is to my mind a clear indication of their appreciation that they needed to keep matters in confidence, if not, protected for their respective clients. A factor in support of this point is that Mr. Dutton told the Court that the plaintiff’s confidential documents were given to Blakes. Although there is no evidence of any confidential documents being exchanged between Blakes and its two clients, in particular the plaintiff; that is a factor which under the Professional Conduct Rules could give rise to a conflict of interest in Blakes.
Fundamental to all these is that, when Blakes accepted instructions from the first defendant in the purchase of the property on 2nd July, 1998, it was against the interest of the plaintiff which was Blakes’ existing client at that time. That was a clear case of a conflict of interest. In that case, Blakes should have declined to act for the first defendant. See, Fruehauf Finance Corporation Pty Ltd -v- Feez Ruthning (a firm) (supra) at 571.
The related question that arises is - Did the conduct by Blakes amount to fraud so as to render the first defendant’s title on the property invalid?
I am of the firm opinion that although conduct by Blakes was improper in so far as the conduct was in breach of s.10 (1) and (5) of the Professional Conduct Rules; it did not amount to fraud for the reason that the breach was only technical. This is because, in the case of the plaintiff, although it did not consent in writing for Blakes to act for the first defendant, it acquiesced in Blakes’ conduct when it obtained the services of Gadens without informing Blakes. The plaintiff further acquiesced in Blakes’ conduct when Mr. Crosby subsequently consented verbally for Blakes to act for the first defendant after Mr. Payne informed Mr. Crosby that Blakes had been engaged by the first defendant. Although the consent or assent there was not given in accordance with s.10 (5) of the Professional Conduct Rules, in that, it was not given voluntarily and in writing, it clearly reflected the plaintiff’s whole attitude.
Furthermore, in my opinion, no real prejudice was suffered by the plaintiff from the overall effect of Blakes’ conduct because it had acquiesced in the refusal by the second defendant to amend the substituted Sub-Lease for the architects’ area by signing the substituted Sub-Lease without the amendments proposed by Blakes, which were to protect its interests in the property after 20th December, 2005. The plaintiff decided to sign the substituted Sub-Lease against the advice given by Blakes. The end result was that the plaintiff suffered no real prejudice.
In the case of the first defendant, although it never consented or assented for Blakes to act for the plaintiff, its interests were fully represented thus resulting in it being registered as the proprietor of the property. In that sense, it also did not suffer any real prejudice.
Furthermore, it had, through its Managing Director, decided not to take any action against Blakes, although it was unhappy after it found out sometime after settlement that Blakes (the firm) had been acting for the plaintiff while at the same acting for it in the purchase of the property.
In the circumstances, neither the plaintiff nor the first defendant had suffered real prejudice, which could provide possible grounds for complaints or actions against Blakes.
In any case, the first defendant’s title on the property cannot be affected by Blakes’ conduct for two obvious reasons, firstly, the conduct did not amount to fraud, and secondly, even if the conduct was fraudulent, it was not committed by the first defendant so as to constitute actual fraud.
The fact that Blakes had a conflict of interest does not necessarily mean its conduct was fraudulent. The conflict of interest arose when Blakes did not obtain the consent of its respective clients to act for the other. But the conflict was also only technical because as I said, both clients acquiesced in Blakes’ conduct.
It must also be remembered that any breach of the Professional Conduct Rules would only attract sanctions against the lawyer concerned and not the client. That is the purpose and the intention of the Rules as they are designed to govern the conduct of the lawyers in the discharge of their professional duties to their clients.
Thus, the first defendant’s title in the property cannot be invalidated by reason of the improper conduct of its lawyers unless the title was obtained through fraud and that the first defendant was responsible for or privy to such fraud. That of course was not the case here.
The first defendant’s title in the property thus remains unaffected and is indefeasible.
I find that the instant case is distinguishable from Fruehauf Finance Corporation Pty Limited -v- Feez Ruthning (a firm) (supra) where there was no conflict of interest in the lawyers and where there was effective Chinese Wall arrangement.
In this case the Chinese Wall arrangement was ineffective as the lawyers continued to advice the opposing parties on their respective interests in the property. This is also quite clearly evidenced by Mr. Coumbis, who was acting for the first defendant in the purchase of the property, had co-authored the letter of 28th July, 1998, with Mr. Payne where they advised the plaintiff on the Sub-Lease for the architects’ area on how its interests could be protected after 20th December, 2005.
Other collateral issues.
There are a couple of other collateral issues which need to be specifically addressed. Firstly, the claim by the plaintiff that prior to the sale of the property, the second defendant held the State Lease Renewal and Compensation rights in the property in trust for the plaintiff as the lessee. The plaintiff claims that such rights derived from the registered Sub-Lease and the Land Act. The plaintiff therefore claims that it now holds registered indefeasible legal interests in the property. The plaintiff further claims that, such rights and interests are the encumbrances over the State Lease as noted on the title and in clause 2 (b) of the contract of sale. The plaintiff also claims that as a result, the first defendant now holds its registered interests in the State Lease subject to the rights and interests of the plaintiff.
In the alternative, the plaintiff claims damages against the second defendant for breach of contract and for breach of trust. The plaintiff also claims damages against the first defendant for inducing the breach of contract by the second defendant and for knowingly receiving or purchasing the property which was held in trust for the plaintiff.
Secondly, the plaintiff claims that the first defendant was the nominee of the second defendant, as stipulated in the Second Schedule to the Sub-Lease and that the first defendant holds its registered interests in the property subject to the rights and interests of the plaintiff.
In regard to the first leg of this claim, I have already said that the scheme of the Land Act, does not confer State Lease renewal and compensation rights to the defendants; more particularly the first defendant over the State Lease. Thus, nothing further needs to be said on it. As to the second leg of the claim, it is based on the assumption that the second defendant held the property in trust for the plaintiff prior to the property being sold to the first defendant. So that when the property was sold to the first defendant, it was sold as a property held in trust by the second defendant for the plaintiff.
Thus the question that arises is - Did the second defendant hold the property in trust for the plaintiff prior to it being sold?
I am of the firm opinion that there was no trust relationship between the second defendant and the plaintiff prior to the sale of the property, because their relationship was one of landlord and tenant or lessor and lessee. The second defendant therefore could not hold the property in trust for the plaintiff.
The language of Clause 2 (ii) of the Deed and the Second Schedule to the Sub-Lease could not give rise to a trust between the second defendant and the plaintiff. To say that they did would be quite absurd and a fallacy because the relationship lacked the essential elements of a trust. That is, the second defendant was not a trustee who was bound to hold and administer the property for and on behalf of the plaintiff as the beneficiary or cestui que trust. The second defendant was the sole and the absolute owner of the property. In a trust, there is no absolute ownership over the property by the trustee. That was not the case here.
The plaintiff had no proprietary rights or interests in the property as would a beneficiary in a trust relationship. The plaintiff’s rights and interests in the property were merely those of a tenant or the lessee specifically given and defined by the lease agreements.
Chesire’s Modern Law of Real Property, 11th Edition by E.H.Burn, affirms this point in his definition of a ‘trust’ at page 350, where the learned author says:
"A trust arises where property is vested in a person, called the trustee, who is bound to hold and administer that property on behalf of another person called the beneficiary or ‘cestui que trust’, whether the obligation is created expressly, or by implication or by operation of law."
Of the three examples of a ‘trust’ given by the learned author, it may be argued that the relationship between the second defendant and the plaintiff was either an implied trust or a trust created by operation of law. But I am of the firm opinion that, none of such trusts could arise or exist because in regard to an implied trust, it could only arise either from the language of the parties or the circumstances from which the intentions of the parties to create such trust could be inferred. None of these factors existed in this case. In regard to creating a trust by operation of law, such trust could only be born out by the Deed and the Sub-Lease, but both agreements have been found to be invalid. In any case, they could not create such trust between the second defendant and the plaintiff because they were lease agreements between them. Thus none of the elements of a trust, as defined by the learned author existed in the two agreements.
The second defendant therefore did not hold the property in trust for the plaintiff prior to it being sold to the first defendant.
The next question that arises is - Was the first defendant a nominee of the second defendant as stipulated in the Second Schedule to the Sub-Lease?
I am of the firm opinion that this claim must also fail because the word ‘nominee’ in the Second Schedule to the Sub-Lease was in my opinion, used to refer to a servant or an employee or an agent of the second defendant. This would include a subsidiary of the second defendant. In other words, a ‘nominee’ there was used in the context of a person or an entity who would act for and on behalf of the second defendant to further and to promote the interests of the second defendant. Clearly, the first defendant being the purchaser of the property could not be one of them because its interests were completely different and opposite to those of the second defendant.
In this regard, it is noted that the word ‘nominee’ was also used in Clause 1 of the Deed when it provided for the ‘Memorandum of Transfer’ to be delivered to the Investment Corporation or its ‘nominee’ in a registrable form. This in my opinion confirms the view that the word ‘nominee’ in the Second Schedule to the Sub-Lease cannot mean or refer to the first defendant. The use of the word there can only mean an agent or a servant or a representative or a subsidiary of the second defendant.
The first defendant therefore was and is not a ‘nominee’ of the second defendant.
For these reasons, I will dismiss both claims as having no basis.
I have found that both the Deed and the Sub-Lease are void for uncertainty. But assuming that they are not void for uncertainty, only the Sub-Lease would remain to be determined because the Deed had merged in the Sub-Lease. But even assuming that the Deed did not merge in the Sub-Lease, the Deed and the Sub-Lease cannot give the plaintiff the right to renew its lease or to have rights and interests in the property after 20th December, 2005, as that would be against public policy and the scheme of the Land Act.
The effect of all these findings is that the plaintiff has failed to prove all its claims against the defendants.
Also for the reasons given, this action is not genuine and the proceedings are frivolous and vexatious and having no reasonable cause of action. Thus, the proceedings are an abuse of process. The primary reasons being, the concession by the plaintiff that the Sub-Leases for the architects’ area, which are similar to the Sub-Lease for the Club premises and the Deed, did not protect its interests in the property after 20th December, 2005; and furthermore, the claims or the allegations of fraud made against the first defendant are based on the conduct of its lawyers, which by law cannot constitute actual fraud or fraud by the first defendant, as the registered proprietor. In those circumstances, the Court has the power to dismiss the proceedings, pursuant to Order 12 r 40 of the National Court Rules. See, Gulf Provincial Government -v- Baimuru Trading Pty Ltd N1794; Embda Limited Trading as Tribal Plumbers -v- Tropical Habitat Limited N2067; Tau Gumu -v- Papua New Guinea Banking Corporation N2251 and Don Pullie Polye -v- Jimson Sauk Papaki SC637.
But apart from the power given under Order 12 r 40 of the National Court Rules, the Court also has the inherent power to dismiss the action where there is abuse of its processes. See, PNG Forest Products Pty Ltd & Or. -v- The State [1992] PNGLR 85 at 87; Wenlock -v- Moloney and Others [1965] 1WLR 1238 at 1243 and Lawrence -v- Lord Norreys [1890] UKLawRpAC 14; (1890) 15 App. Cas. 210.
It follows that all the claims in this action by the plaintiff against the defendants must be dismissed.
The Court therefore makes the following Orders:-
________________________________________________________________________
Lawyers for the plaintiff :Warner Shand Lawyers.
Lawyers for the first defendant :Maladina Lawyers.
Lawyers for the second defendant :Fiocco Posman & Kua Lawyers
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