N4706

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO 471 OF 2010

PAUL BERR
Plaintiff

V

ROBIN YANGO
Defendant

Madang: Cannings J
2011: 18 November,
2012: 9 March, 25 June

LAND – State Leases – principle of indefeasibility of title – exceptions under Land Registration Act – Section 33(1)(a): in the case of fraud – meaning of fraud.

The National Housing Corporation held a State Lease over a residential property and rented the property to the plaintiff, through a tenancy agreement, for 15 years, and then offered to 'sell' the property (ie transfer the lease) to him. The plaintiff paid the purchase price over a period of 12 years but the NHC did not transfer the lease to him, instead transferring it to the defendant, who had been occupying part of the property with the plaintiff's consent. The defendant became registered proprietor of the property, then sold it to a third party. The plaintiff claimed that the transfer to the defendant was a case of fraud and should be set aside and that the lease should be transferred to him (the plaintiff). A trial was held to determine the plaintiff's claims. The defendant argued as a preliminary issue that the proceedings should be summarily dismissed as the plaintiff had used an improper mode of commencement and failed to join necessary parties as defendants. As to the merits of the claims, the defendant relied on his status as registered proprietor and argued that the plaintiff had failed to prove fraud.

Held:

(1)	The plaintiff's failure to comply strictly with the National Court Rules was not a sufficient reason to dismiss the proceedings, given that the defendant had not taken the opportunity earlier to have the proceedings summarily dismissed. 

(2)	Under Papua New Guinea's Torrens Title system of land registration for alienated government land registration of a lease vests, subject to limited exceptions, an indefeasible (unforfeitable) title in the registered proprietor subject only to the exceptions in Section 33(1) of the Land Registration Act (Mudge v Secretary for Lands [1985] PNGLR 387). 

(3)	The only exception that could conceivably apply in this case is Section 33(1)(a): "in the case of fraud". 

(4)	"Fraud" means actual fraud or constructive fraud.

(5)	Constructive fraud exists where the circumstances of a transfer of title are so unsatisfactory, irregular or unlawful, it is tantamount to fraud, warranting the setting aside of registration of title. 

(6)	The plaintiff proved constructive fraud, given that at the time of the transfer to the defendant, the plaintiff had been the lawful tenant and occupier of the property for 30 years, had entered into an arrangement with the NHC to purchase the property and had paid the full purchase price and the transfer was registered without his knowledge or consent. It was appropriate as a matter of discretion to declare that this was a case of fraud. 

(7)	It was not appropriate to order that title be transferred to the plaintiff, given that the State Lease has evidently been transferred to a third party who was not a party to these proceedings. Accordingly the court ordered that any claim for consequential orders, including by persons who are not parties to the proceedings, shall be brought by notice of motion. 

Cases cited

The following cases are cited in the judgment:

Emas Estate Development Pty Ltd v John Mea & Ors [1993] PNGLR 215
Hi-Lift Company Pty Ltd v Miri Setae [2000] PNGLR 80
Koitachi Ltd v Walter Schnaubelt (2007) SC870
Lae Rental Homes Ltd v Viviso Seravo (2003) N2483
Mudge v Secretary for Lands [1985] PNGLR 387
NCDIC v Crusoe Pty Ltd [1993] PNGLR 139
Ramu Nickel Ltd v Temu (2007) N3252
Steamships Trading Co Ltd v Garamut Enterprises Ltd (2000) N1959
The Papua Club Inc v Nusaum Holdings Ltd (No 2) (2004) N2603
West New Britain Provincial Government v Pepi S Kimas (2009) N3834

Counsel

W Akuani, for the plaintiff
B W Meten, for the defendant

25 June, 2012 

1. CANNINGS J: This case concerns a residential property in Madang town, Section 144, Allotment 2, Tarangau St, Newtown. The National Housing Corporation on 2 November 2009 transferred the State Lease it held over the property to the defendant, Robin Yango, who later transferred it to another person, who is not a party to this case. 

2. The plaintiff, Paul Berr, is aggrieved by what has happened. He had occupied the property as a tenant of the NHC since 1979. He has commenced proceedings by originating summons claiming that the transfer to the defendant was a case of fraud and null and void and that the NHC should be ordered to transfer the lease to him. He says that in 1994 the NHC offered to sell the property (ie transfer the lease) to him and that by 2006 he had completed paying the purchase price and that the transfer to the defendant took place without his knowledge or consent. A trial has been held to determine the plaintiff's claims. The defendant argued as a preliminary issue that the proceedings should be summarily dismissed as the plaintiff had used an improper mode of commencement and failed to join necessary parties as defendants. As to the merits of the claim, the defendant relied on his status as registered proprietor and argued that the plaintiff had failed to prove fraud. There are three main issues:

1	Should the proceedings be summarily dismissed?

2	Has the plaintiff proven that this was a case of fraud?

3	What declarations or orders should be made?

1	SHOULD THE PROCEEDINGS BE SUMMARILY DISMISSED? 

3. Mr Meten, for the defendant, submitted that because the plaintiff bases his claim on an allegation of fraud and allegations of errors of law by public authorities such as the NHC and the Registrar of Titles he should have commenced the proceedings either by writ of summons under Order 4 or by an application for leave to seek judicial review under Order 16 of the National Court Rules.

4. It is correct that central to the plaintiff's claim is an allegation of fraud in the transfer from the NHC to the defendant. However it is constructive fraud rather than actual fraud on which the plaintiff relies and for that reason I consider that it was not necessary to commence the proceedings by writ of summons under Order 4, Rule 2(1)(b). Neither the NHC nor the Registrar of Titles has been joined as a party and thus it was not necessary to commence the proceedings under Order 16. Besides that, the question of whether the mode of commencement of the proceedings was proper is a preliminary procedural matter that should have been prosecuted much earlier. The defendant has allowed the proceedings to progress to trial and it would be unreasonable to dismiss the proceedings in these circumstances. There will be no order for summary dismissal. The plaintiff is entitled to have his application for relief, which he has brought by originating summons, determined on its merits.

2	HAS THE PLAINTIFF PROVEN THAT THIS WAS A CASE OF FRAUD?

5. Under Papua New Guinea's Torrens Title system of land registration for alienated government land, registration of a lease vests an indefeasible (unforfeitable) title in the registered proprietor subject only to the exceptions in Section 33(1) of the Land Registration Act (Mudge v Secretary for Lands [1985] PNGLR 387). The defendant became the registered proprietor of the lease on 2 November 2009, and then he appears to have transferred it to another person, Benjamin Kelimbua (who is not a party to these proceedings) on 8 December 2010. The question arises whether any of the exceptions in Section 33(1)(a) apply here, in such a way as to disturb the defendant's title and his capacity to transfer title to Mr Kelimbua. The only exception that might apply is Section 33(1)(a): in the case of fraud. I have addressed the meaning of "fraud" in a number of cases including West New Britain Provincial Government v Pepi S Kimas (2009) N3834. There are two schools of judicial thought. On the one hand, in Emas Estate Development Pty Ltd v John Mea & Ors [1993] PNGLR 215 the Supreme Court (Amet J and Salika J, Brown J dissenting) held that if the circumstances of a transfer of title are so unsatisfactory, irregular or unlawful, it is tantamount to fraud, warranting the setting aside of registration of title. This wide view of "fraud" – it includes irregularities that are tantamount to fraud and constructive fraud – has been followed in the National Court decisions of Sheehan J in Steamships Trading Company Ltd v Garamut Enterprises Ltd (2000) N1959, Sevua J in Hi-Lift Company Pty Ltd v Miri Setae [2000] PNGLR 80 and Injia DCJ in Ramu Nickel Ltd v Temu (2007) N3252. On the other hand, a narrower view of fraud was favoured by the Supreme Court (Gavara-Nanu J, Mogish J and Hartshorn J) in Koitachi Ltd v Walter Schnaubelt (2007) SC870. The Court adopted the view of fraud taken in the National Court decision of Gavara-Nanu J in The Papua Club Inc v Nusaum Holdings Ltd (No 2) (2004) N2603: "fraud" means fraud. 

6. Which of the two views of fraud should be applied in the present case? The wide view pioneered by the Supreme Court in Emas Estate and followed in Garamut, Hi-Lift and Ramu Nickel? Or the narrow view propounded by the Supreme Court in Koitachi? I consider, as I did in the West New Britain Provincial Government case, that the former view is preferable: if the circumstances of transfer of title are so unsatisfactory, irregular or unlawful, it is tantamount to fraud, warranting the setting side of registration of title. 

7. What were the circumstances of transfer here? The evidence shows that the plaintiff was the lawful tenant and occupier of the property from 1979 to 2009, a period of 30 years. After he and his family had lived there for 15 years the NHC offered to sell the property (ie transfer the lease) to him for the sum of K2,819.20. He accepted the offer and set about paying the purchase price in instalments. By June 2003 he had paid K1,731.40. There was still another K1,087.80 to pay. In the meantime, in 2000, the defendant had, with the plaintiff's consent, moved on to the property and occupied a makeshift structure in the back yard while the plaintiff lived in the main house. This was an informal arrangement between the plaintiff and the defendant, akin to a sub-lease, under which the defendant paid rent of K50.00 per fortnight. 

8. By mid-2006 the plaintiff had still not paid the balance of the purchase price, and the NHC gave him, on 19 June 2006, seven days notice to settle the "arrears", failing which he would be "forced out of the house" (the terminology used in a letter to the plaintiff from the NHC Managing Director). He then entered into an oral agreement with the defendant for the defendant to assist him pay the balance of the purchase price. The exact amount paid by the defendant to the plaintiff is not clear from the evidence. The plaintiff says it was K1,369.20, the defendant says K1,286.00. The discrepancy is not contentious. What is contentious is whether the provision of that money by the defendant was subject to the condition that the plaintiff would relinquish his right to purchase the property and transfer that right to the defendant; and whether the transfer of the State Lease from the NHC to the defendant, three years later in November 2009, took place with the knowledge and consent of the plaintiff. On these issues of fact, I accept the evidence of the plaintiff and make the following findings of fact: 

•	the plaintiff signed a document entitled 'statutory declaration' in June 2006 (used by the NHC to justify the transfer to the defendant) agreeing that 'Robin Yango upon settlement of the amount will take over the ownership of the property from myself" without knowing or understanding what he was signing; and no Commissioner for Oaths witnessed his signing of the declaration; 

•	the amount paid directly by the defendant to the NHC (as evidenced by receipts issued in the name of the defendant) relating to the transfer was only K303.00, which was for legal fees and land registration charges;

•	the plaintiff, not the defendant, was the person who paid to the NHC all of the purchase price for the property (as evidenced by receipts issued in the name of the plaintiff from 1994 to 2006);

•	the transfer of November 2009 took place without the plaintiff's knowledge or consent; 

•	the plaintiff did not at any time undertake or intend to relinquish or assign to the defendant his right to purchase the property. 

9. To sum up: the plaintiff had been the lawful tenant and occupier of the property for 30 years, he had entered into an arrangement with the NHC to purchase the property and had paid the full purchase price and the transfer to the defendant was registered without his knowledge or consent. This combination of circumstances renders the transfer to the defendant unsatisfactory and most irregular. I am persuaded by the submissions of Mr Akuani, for the plaintiff, that the transfer from the NHC to the defendant was a case of constructive fraud and that this was for the purposes of Section 33(1)(a) of the Land Registration Act a "case of fraud" and accordingly it is open to the court to invalidate that transfer. 

3	WHAT DECLARATIONS OR ORDERS SHOULD BE MADE?

10. I have little hesitation in exercising the discretion of the court in favour of the plaintiff in so far as he seeks a declaration that the transfer to the defendant was a case of fraud. A declaration is a discretionary, equitable remedy. I am satisfied that the plaintiff has been done an injustice and that it is in the interests of justice that a declaration as to fraud be granted. I am less certain as to what consequential declarations or orders should be made in light of the fact, it appears, that the defendant, a little over 12 months after acquiring title, sold the property (ie transferred the State Lease) to the third party, Mr Kelimbua. (Incidentally, the instrument of transfer shows that the consideration for the transfer was K100,000.00, which means that the defendant, having contributed no more than K1,369.20 to the purchase price in 2006, was making a handsome profit on his investment in less than five years.) I say this appears to be what happened as, although the instrument of transfer, showing that it has been registered, is in evidence (as an annexure to an affidavit by the defendant) the contract of sale from the defendant to Mr Kelimbua is not, and nor is a copy of the State Lease, showing that Mr Kelimbua is now the registered proprietor. 

11. Presuming that Mr Kelimbua is the registered proprietor, would it be appropriate or just to declare, as the plaintiff wants, that the transfer to Mr Kelimbua is a case of fraud and to order that the transfer to him be quashed? Or to declare that he has no legal interest in the property? Or to order that the State Lease be transferred to the plaintiff? The answer to all of these questions is no, the main reason being that Mr Kelimbua has not been joined as a party to these proceedings. It would be unfair to make declarations and orders that would inevitably affect his interests without giving him an opportunity to be heard. Even if he is not the registered proprietor, he would still have an interest in the proceedings and must be given an opportunity to be heard. Perhaps his interest in the property has been transferred or transmitted to another person, which would complicate this case even more. Another consideration that must be taken into account is the principle of indefeasibility of title. If Mr Kelimbua or some other person is now the registered proprietor would it be just, or lawful, to disturb that title if it has been acquired bona fide in a manner unconnected to the constructive fraud that has been found in the present case to have affected the transfer to the defendant. Insufficient evidence has been adduced in the proceedings to allow the court to determine these issues. For these reasons I decline to grant the primary relief sought by the plaintiff, which was the transfer of the State Lease to him.

12. The question of final determination of the proceedings must be adjourned so that all persons with an interest in the property are given the opportunity to be heard. As to who should occupy the property while final determination is pending, it is best to allow the person who presently occupies it by virtue of previous court orders to continue to do so, subject to the any contrary orders that the court might make by notice of motion brought by any person with an interest in the property. 

13. As to costs, the plaintiff has only partially succeeded in obtaining the relief sought in the originating summons so it is not appropriate that he have all its costs of the proceedings. In fact, in all the circumstances, it is in the interests of justice, as it may well aid the amicable resolution of remaining areas of dispute, to allow the parties to bear their own costs. 

14. Finally I suggest to the parties and those with an interest in the property that the fairest and most efficient way of bringing finality to all of these issues may be by mediation. The court has the power to order mediation, even if the parties are reluctant to go to mediation. 

DECLARATIONS AND ORDERS

(1)	It is declared that the transfer of Section 114, Allotment 2, Milinch of Kranket, Fourmil of Madang, town of Madang, ("the subject land") from the National Housing Corporation to the defendant, entered on 2 November 2009, is a case of fraud, and is liable, on application by a party to these proceedings, by further order of the court, to be declared null and void and to be quashed.

(2)	The persons who are authorised by court order to occupy the subject land may, until further order of the National Court, continue to do so. 

(3)	The plaintiff shall cause a copy of the judgment of the court and a sealed copy of this order to be served, by 2 July 2012, on: (a) the Registrar of Titles; (b) the Managing Director of the National Housing Corporation; (c) the National Housing Corporation, Madang Branch (d) Benjamin Kelimbua of PO Box 252, Madang; and (e) all persons occupying the subject land.

(4)	Any application by either party or any other person for consequential or ancillary relief shall be brought by notice of motion. 

(5)	The parties shall bear their own costs of the proceedings.

(6)	Time for entry of this order is abridged to the date of settlement by the Registrar, which shall take place forthwith. 

___________________________
William Akuani Lawyers: Lawyers for the Plaintiff
Meten Lawyers: Lawyers for the Defendant