N5859
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO 471 OF 2010

PAUL BERR
Plaintiff

V

ROBIN YANGO (No 2)
Defendant

Madang: Cannings J
2014: 18 November, 8 December,
2015: 11 February

LAND – State Leases – principle of indefeasibility of title – exceptions under Land Registration Act – Section 33(1)(a): in the case of fraud; Section 33(1)(b): encumbrances notified on the Register; Section 33(1)(i): unpaid rates, taxes etc – whether the title of registered proprietor should be quashed.

After obtaining a declaration that the transfer of land by the National Housing Corporation to the defendant was a case of fraud, the plaintiff by notice of motion applied for a declaration that the transfer of title by the defendant to a third party was also a case of fraud and null and void, and an order that the third party's title be cancelled and that title be issued to him. The plaintiff argued that he should be granted that relief as (1) the transfer to the third party was a case of constructive fraud and able to be set aside under Section 33(1)(a) of the Land Registration Act; (2) the third party had benefited from non-compliance with Section 33(1)(b) of the Land Registration Act, in that the "encumbrance" constituted by this court proceeding was not notified on the Register; (3) Section 33(1)(i) of the Land Registration Act, which makes the title of a registered proprietor subject to unpaid taxes, had not been complied with as there were rates and taxes relating to the land that were unpaid.

Held:

(1)	To prove that the transfer from the defendant to the third party was a case of constructive fraud, the plaintiff would need to prove that the circumstances of a transfer of title were so unsatisfactory, irregular or unlawful, as to be tantamount to fraud. However, at the date of transfer, although the third party knew of the court proceedings challenging the defendant's title, there was no court order or declaration in place affecting the defendant's title or preventing the transfer and no registered caveat stopping or otherwise affecting the transfer and the third party was a bona fide purchaser of the land and not involved in the constructive fraud that pertained to the transfer from the NHC to the defendant. Section 33(1)(a) of the Land Registration Act did not apply.

(2)	The court proceeding under which the plaintiff was challenging the defendant's title was capable of being notified on the Register, but it was not the obligation of the defendant or the third party to ensure that it was so notified. There was no breach of Section 33(1)(b) of the Land Registration Act.

(3)	The plaintiff failed to prove that rates and taxes relating to the land were not paid by the defendant or the third party, but even if he had proven that, it would have had no effect on the third party's title, other than being an encumbrance that was the responsibility of the third party to pay, under Section 33(1)(i) of the Land Registration Act.

(4)	All relief sought by the plaintiff was refused and the proceedings were dismissed.

Cases cited

The following cases are cited in the judgment:

Anego Company Ltd v Finance Corporation Ltd (2013) N5391
Elizabeth Kanari v Augustine Wiakar (2009) N3589
Emas Estate Development Pty Ltd v John Mea & Ors [1993] PNGLR 215
Hi-Lift Company Pty Ltd v Miri Setae [2000] PNGLR 80
Kapiura Trading Ltd v Bullen (2012) N4903
Lae Rental Homes Ltd v Viviso Seravo (2003) N2483
Mosoro v Kingswell Ltd (2011) N4450
Niugini Tablebirds Pty Ltd v Nasap (2000) N2018
Open Bay Timber Ltd v Minister for Lands & Physical Planning (2013) N5109
Papua Club Inc v Nusaum Holdings Ltd (2005) SC812
Paul Berr v Robin Yango (2012) N4706
Steamships Trading Co Ltd v Garamut Enterprises Ltd (2000) N1959
West New Britain Provincial Government v Pepi S Kimas (2009) N3834

NOTICE OF MOTION

This was an application by the plaintiff for declarations and orders regarding title to land held by a third party.

Counsel

W Akuani, for the plaintiff
B W Meten, for the third party, Mr B Kelimbua

11th February, 2015 

1. CANNINGS J: The plaintiff Paul Berr applies by notice of motion for declarations and orders concerning a residential property in Madang town, Section 144, Allotment 2, Tarangau St, Newtown. The registered proprietor of the property is Mr Benjamin Kelimbua. Mr Kelimbua is not formally a party to these proceedings, which were commenced by Mr Berr in 2010 against the defendant, Robin Yango. After commencement of the proceedings, Mr Yango sold the property to Mr Kelimbua. Mr Berr claims that he is a legitimate purchaser of the property and that he is the innocent party in the set of transactions that has seen the property in recent years transferred from the National Housing Corporation (NHC) to Mr Yango and from Mr Yango to Mr Kelimbua.

2. Earlier in these proceedings Mr Berr obtained a judgment declaring that the transfer from the NHC to Mr Yango was a case of fraud (Paul Berr v Robin Yango (2012) N4706). He now applies in accordance with the procedure set out in that judgment for similar relief in relation to the transfer from Mr Yango to Mr Kelimbua. Mr Kelimbua opposes the motion and has adduced evidence in support of his position, which is that he is the registered proprietor and has good title to the property.

3. Mr Berr had occupied the property, as a tenant of the NHC, from 1979 to 2009. In 1994 the NHC offered to sell him the property. He then commenced paying the purchase price by instalments, which he completed, with the assistance of Mr Yango, in 2006. He had allowed Mr Yango to move in and occupy a part of the property in 2000. Mr Berr was expecting to have the title transferred to him, however, without his knowledge or consent the title was transferred to Mr Yango on 2 November 2009.

4. On 24 August 2010 Mr Berr commenced proceedings against Mr Yango. A trial was conducted in the period from November 2011 to March 2012. Judgment was delivered on 25 June 2012: Paul Berr v Robin Yango (2012) N4706. In the meantime, Mr Yango had sold the property to Mr Kelimbua. A contract of sale was signed on 4 November 2010 and the transfer to Mr Kelimbua was registered on 14 December 2010.

NOTICE OF MOTION

5. Mr Berr's notice of motion was filed on 5 September 2014. He seeks:

•	a declaration that the transfer by Mr Yango to Mr Kelimbua was a case of fraud and is null and void;

•	an order that Mr Kelimbua's title be cancelled; and

•	an order that title in the property be issued to him (Mr Berr).

6. Counsel for Mr Berr, Mr Akuani, has submitted that he (Berr) should be granted that relief as:

(1)	the transfer to Mr Kelimbua was a case of constructive fraud and should be set aside under Section 33(1)(a) of the Land Registration Act;

(2)	Mr Kelimbua benefited from non-compliance with Section 33(1)(b) of the Land Registration Act, in that the "encumbrance" constituted by these court proceedings was not notified on the Register;

(3)	Section 33(1)(i) of the Land Registration Act, which makes the title of a registered proprietor subject to unpaid rates and taxes, had not been complied with.

1	CONSTRUCTIVE FRAUD: SECTION 33(1)(a) LAND REGISTRATION ACT

7. This argument is based on Section 33(1)(a) of the Land Registration Act, which states:

The registered proprietor of an estate or interest holds it absolutely free from all encumbrances except—

(a)	in the case of fraud. 

8. Mr Akuani submitted that in his acquisition of title Mr Kelimbua was guilty of the same sort of constructive fraud that featured in the transfer of the property from the NHC to Mr Yango. It is submitted that Mr Kelimbua knew, when he was negotiating with Mr Yango to purchase the property, that the property should have been transferred to Mr Berr and he knew that Mr Berr had commenced court proceedings challenging Mr Yango's title. Yet he went ahead with the purchase. He knowingly accepted a fraudulent title. It was not a clean title. The flow-on effect of the Court's declaration on 25 June 2012 that the transfer from the NHC to Mr Berr was a case of fraud, was that the transfer to Mr Kelimbua was also a case of fraud.

9. Mr Akuani submitted that another unsatisfactory aspect of the transfer to Mr Kelimbua was that there was no evidence that he paid the full purchase price of K100,000.00 under the contract of sale with Mr Yango. Only K60,000.00 was paid. The balance of K40,000.00 was not paid. As the contract provided that title would not be transferred without payment of the full purchase price, the transfer was defective.

10. I will deal with the last argument first. It is entirely without merit. Mr Berr was not a party to the contract between Mr Yango and Mr Kelimbua and it is none of his business whether the full purchase price has been paid. It has no effect on Mr Kelimbua's title. It is irrelevant to the question of whether constructive fraud was involved in the transfer to Mr Kelimbua.

11. As to the assertion that Mr Kelimbua knew of the court proceeding commenced by Mr Berr before he signed the contract of sale, I find that this is correct. The court proceeding was filed on 24 August 2010. Though Mr Kelimbua was not, and is still not, a party to the proceeding, it is reasonably to be expected that he would have known about it. This is affirmed by the fact that his lawyers, Meten Lawyers, who are acting for him in this case and represented him in the conveyance of the property to him in 2010, also acted for Mr Yango in the trial that resulted in the judgment of 25 June 2012. Meten Lawyers filed a notice of intention to defend on behalf of Mr Yango on 13 September 2010. His lawyers' knowledge of the legal challenge to Mr Yango's title can readily be imputed to Mr Kelimbua. I find as a fact that, at least from 13 September 2010, Mr Kelimbua knew about the court proceeding. He knew about it when he entered into the contract of sale of 4 November 2010 and when the transfer was registered on 14 December 2010.

12. Does that finding of fact advance the argument that Mr Kelimbua is guilty of constructive fraud? No. I uphold the submissions of Mr Meten for Mr Kelimbua that his client did nothing wrong, legally, morally, ethically or equitably, in negotiating for purchase of the property while knowing that a court proceeding had been commenced which challenged the vendor's title in the property. He took a risk in doing so. But that does not mean that he did anything wrong. There was no injunction or any other sort of court order in place preventing Mr Yango and Mr Kelimbua agreeing on sale of the property. There was no injunction against the transfer. There was no caveat lodged with and accepted by the Registrar of Titles under Part VIII (caveats) of the Land Registration Act which had the effect of forbidding registration of the transfer. The evidence is that Mr Kelimbua checked with the NHC, who notified him that the property had been sold to Mr Yango. I find that Mr Kelimbua was not a party to the constructive fraud that was involved in the transfer from the NHC to Mr Yango.

13. The argument about the flow-on effect of the Court's declaration as to constructive fraud on the transfer from the NHC to Mr Yango, deserves careful consideration. As I said in my judgment of 25 June 2012, "fraud" in Section 33(1)(a) should be regarded as including constructive fraud as well as actual fraud. This means that 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.

14. Once that test of fraud is applied, the argument becomes this: that the circumstances in which Mr Kelimbua obtained title are unsatisfactory and irregular as the person he obtained title from – Mr Yango – has been found by the Court to have been involved in a constructive fraud; Mr Yango's title was defective in that sense, therefore the title Mr Kelimbua acquired is equally defective.

15. I see the logic in that argument but ultimately, when the Court is asked to consider making a finding of constructive fraud and consider setting aside the registration of title, it must exercise a discretion and it must exercise the discretion judicially, not arbitrarily, and take into account principles of equity and fairness. At this point, I reiterate the observation made earlier: I cannot see that Mr Kelimbua has done anything wrong. He was not a party to the constructive fraud involving the NHC and Mr Yango. He did nothing wrong when he purchased the property from Mr Yango. He stands in the position of an innocent third party, a bona fide purchaser, for value. Courts strive to protect the interests of such persons (Papua Club Inc v Nusaum Holdings Ltd (2005) SC812, Niugini Tablebirds Pty Ltd v Nasap (2000) N2018, Anego Company Ltd v Finance Corporation Ltd (2013) N5391).

16. The common theme in the string of cases in which the titles of purchasers of properties have been set aside on the ground of constructive fraud is that the purchaser has been found guilty of participation, to some extent, directly or indirectly, expressly or by implication, in the fraud. The Court has been able, to put it in rather crude but useful terms, to identify a guilty party and an innocent party, and exercise its discretion in favour of the innocent party. See, for example, Emas Estate Development Pty Ltd v John Mea & Ors [1993] PNGLR 215, Hi-Lift Company Pty Ltd v Miri Setae [2000] PNGLR 80, Steamships Trading Co Ltd v Garamut Enterprises Ltd (2000) N1959, Lae Rental Homes Ltd v Viviso Seravo (2003) N2483, Elizabeth Kanari v Augustine Wiakar (2009) N3589, West New Britain Provincial Government v Pepi S Kimas (2009) N3834, Mosoro v Kingswell Ltd (2011) N4450, Kapiura Trading Ltd v Bullen (2012) N4903 and Open Bay Timber Ltd v Minister for Lands & Physical Planning (2013) N5109.

17. Here, I see two innocent parties: Mr Berr and Mr Kelimbua. Although Mr Kelimbua has been a beneficiary of a constructive fraud in that he has purchased the property from a person (Mr Yango) who obtained title in unsatisfactory and irregular circumstances, I find that the transfer from Mr Yango to Mr Kelimbua is not a "case of fraud". Therefore Mr Kelimbua's title should not be set aside under Section 33(1)(a). 

2	FAILURE TO NOTIFY "ENCUMBRANCE": SECTION 33(1)(b) LAND REGISTRATION ACT

18. This argument is based on Section 33(1)(b) of the Land Registration Act, which states:

The registered proprietor of an estate or interest holds it absolutely free from all encumbrances except …

(b)	the encumbrances notified by entry or memorial on the relevant folio of the Register.

19. Mr Akuani submits that the court proceeding commenced by Mr Berr – this proceeding, OS No 471 of 2010 – was an "encumbrance" on the title as it was a challenge to Mr Yango's title. He submits that both Mr Berr and Mr Kelimbua knew about the court proceeding and should have referred to it in the contract of sale and ensured that the existence of the court proceeding was notified on the relevant folio of the Register of certificates of title maintained by the Registrar of Titles under Section 9 of the Land Registration Act.

20. I agree that the court proceeding could be regarded as an "encumbrance" given the definition of that term in Section 2 (interpretation) of the Land Registration Act, which states:

In this Act, unless the contrary intention appears … "encumbrance" includes all prior estates, interests, rights, claims and demands which can or may be had, made or set up in, to, on, or in respect of, land.

21. I also agree, and have found as a fact, that both Mr Yango and Mr Kelimbua knew about the court proceeding when they executed the contract of sale and when the transfer from Mr Yango to Mr Kelimbua was executed. However, I find no merit in the argument that either of them were obliged to refer to the court proceeding in their contract of sale or to take steps to have the court proceeding notified on the folio of the Registrar. Nothing in Section 33(1)(b) imposes any such obligations. The persons who should have taken steps to have the court proceeding notified on the Registrar and lodged a caveat under Part VIII was Mr Berr or his lawyers. There was no breach by anyone of any obligation under Section 33(1)(b).

3	UNPAID RATES AND TAXES: SECTION 33(1)(i) LAND REGISTRATION ACT

22. This argument is based on Section 33(1)(i) of the Land Registration Act, which states:

The registered proprietor of an estate or interest holds it absolutely free from all encumbrances except … 

(i)	any unpaid rates, taxes, or other money which, without reference to registration under this Act, are expressly declared by a law to be a charge on land in favour of the State or of a department or officer of the State or of a public corporate body.

23. Mr Akuani submits that Section 33(1)(i) makes the title of a registered proprietor subject to unpaid rates and taxes, so that if they are not paid, the title is defective.

24. I see no sense in this argument. Section 33(1)(i) does not say that if rates or taxes relating to a property are unpaid, the title becomes defective. It simply says that certain types of rates and taxes relating to the land – those "which, without reference to registration under this Act, are expressly declared by a law to be a charge on land in favour of the State or of a department or officer of the State or of a public corporate body" – if unpaid, are an encumbrance on the title of the registered proprietor. Mr Akuani's submission, with respect, twists the meaning of the words in Section 33(1) in a way that is irrational and would lead to an absurd result. Besides that it has not been proven that there are in fact any rates or taxes that are unpaid in relation to the property. The argument about Section 33(1)(i) is irrelevant.

CONCLUSION

25. As all arguments of the plaintiff have been dismissed, all relief sought by him must be refused. The plaintiff is an innocent party but so also is the person whose title to the land he is trying to get set aside. Where there are two innocent parties involved in a dispute about ownership of land the person who is the registered proprietor should as a rule of thumb, in my view, be regarded as being in a stronger position. Who are the guilty parties? By 'guilty', I do not mean guilty in the criminal sense of having committed a criminal offence. I mean that on the face of it they might have a case to answer that they have dealt with the land in an improper or negligent way which has had the effect of defeating Mr Berr's interest in the property. My views have been made fairly clear on that question in both this judgment and the judgment of 25 June 2012. Perhaps Mr Berr should consider seeking relief against Mr Yango and/or the NHC, but if decides to embark on such a course of action it would seem that he would need to act quickly in order to comply with the limitation periods that might apply under the Frauds and Limitations Act.

26. On the question of costs I think it would add insult to injury if I were to order costs against Mr Berr. He has brought the whole proceeding, including this notice of motion, in good faith, and for good reason. Mr Kelimbua is also an innocent party so the fairest outcome is that they bear their own costs.

27. I see nothing to be gained in continuing the proceedings in their present form so they will now be dismissed and the file will be closed.

ORDER

(1)	All relief sought by the plaintiff by notice of motion filed on 5 September 2014 is refused.

(2)	The parties will bear their own costs.

(3)	The proceedings are dismissed and the file is closed.

(4)	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