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Hakon v Kopa Administration Services Ltd [2022] PGNC 330; N9829 (9 June 2022)

N9829


PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]


WS NO. 132 OF 2012


DAVID HAKON
Plaintiff


-V-


KOPA ADMINISTRATION SERVICES LIMITED
First Defendant


MARGARETH TINI PARUA trading as PARUA LAWYERS
Second Defendant


Waigani: Kariko, J
2022: 9th June


LAND – state lease – sale of – parties represented by same lawyer - purchaser owned by the lawyer – dispute over registration of title - settlement without consent of vendor – alleged breach of contract – alleged conduct of purchaser unconscionable – alleged conduct of lawyer unethical - whether title obtained by fraud


A law firm acting for both the vendor and purchaser settled the sale of a property allegedly without the authority of the vendor. The law firm owned the purchaser company. The vendor claimed a breach of contract. He also claimed the conduct of the lawyers was unethical, the settlement unconscionable, and the transfer of the title to the property, fraudulent.


Held:


(1) There was no breach of contract as alleged.
(2) The unconscionable conduct claimed under the Fairness of Transactions Act 1993 was refused because the jurisdiction under the Act is invoked by an application under s.5, which was not done in the present case.
(3) The evidence showed a finding that the law firm was conflicted at the time of settlement of the sale and acted unethically.
(4) The second defendant acting for the purchaser, which she owned, acted with deceit and dishonesty tantamount to fraud, in the settlement of the sale and transfer of title, when the vendor had not agreed to settlement and had effectively withdrawn instructions.
(5) The transfer of title is declared null and void, due to fraud.

Cases Cited:


Edward Manu trading as Manu and Associates Lawyers v Honiri Timber Resources Development Limited [2004] N2597
James Geama, Koim Kopun v OTML Shares In Success Ltd [2011] N4269
John Soto v Our Real Estate Ltd [2018] SC1701
Koitachi Ltd v Walter Schnaubelt [2007] SC870
Marsh v Hay [1981] PNGLR 392
Mudge and Mudge v Secretary for Lands [1985] PNGLR 387
Ningiga v Koavea [1988-89] PNGLR 312
Papua Club Inc v Nusaum Holdings Ltd (No.2) (2004) N2603
The National Council of Young Men’s Christian Association of PNG (Inc) v Firms Services Ltd [2017] SC1596


Legislation:


Fairness of Transactions Act 1993
Land Act 1996
Lawyers Act
Professional Conduct Rules
National Court Rules


Counsel:


Mr J Posi, for the Plaintiff
Mr L Okil, for the Defendants


TRIAL


This was a trial based on a dispute challenging the validity of the transfer of title to property (land).


9th June, 2022


  1. KARIKO, J: In this suit, the plaintiff challenges the registration of the transfer of his property described as Section 75 Allotment 2 Hohola, National Capital District contained in State Lease Volume 35 Folio 99 (the Property) to the first defendant Kopa Administration Services Limited (KASL), a management company owned by the legal firm Margareth Tini Parua trading as Parua Lawyers (Parua Lawyers), the second defendant. It is alleged that the purchaser breached the contract of sale, and the title to the Property was transferred through fraud, and unconscionable and unethical conduct on the part of the defendants.

PLAINTIFF’S CLAIMS


  1. The plaintiff first alleges breach of the contract of sale of the Property, and in particular:
  2. The plaintiff also alleges that the settlement of the sale and the subsequent registration of the transfer were unilateral actions of the defendants, done without his consent or authority, and was fraudulent.
  3. The Plaintiff further pleads that in the circumstances, the defendants’ actions in settling the sale amounted to unfair conduct pursuant to the Fairness of Transactions Act 1993, and unethical conduct by a lawyer.
  4. Based on the foregoing claims, the plaintiff seeks declaratory orders to invalidate the transfer of title to the Property to KASL, restore the title back to his name, and restrain the defendants from interfering with his possession and enjoyment of the Property.

DEFENCE CASE


  1. The defendants’ case is that:
  2. The defendants assert that the plaintiff’s only concern regarding the settlement statement was in respect of the amount of legal fees charged by Parua Lawyers. They say that the plaintiff was furnished with the relevant bills of costs earlier and he raised no objections about them then. Further, the proposed treatment of the legal fees on settlement was explained to the plaintiff who understood that, and he never objected to settlement proceeding on 2 December 2011. When neither the plaintiff nor his lawyer Mr Kikira attended settlement, it was assumed that settlement could proceed. In any case, the plaintiff had not withdrawn instructions from Parua Lawyers so that firm was entitled to act on his behalf at settlement.

EVIDENCE


  1. The parties called witnesses who had their affidavits tendered by consent and who were examined.
  2. The plaintiff and Hubert Kikira testified for the plaintiff, and had their respective affidavits tendered:
  3. For the defendants, Alice Kimbu, the lawyer who handled the sale of the Property, Ms Parua and First Constable Moses Gena were called, and their affidavits were received into evidence without objection:
  4. It is pointed out that Exhibit D3 covers eviction proceedings that followed settlement and the evidence is not considered relevant in this judgment.

UNDISPUTED FACTS


  1. The evidence disclosed the following as relevant undisputed facts.

PLAINTIFF’ EVIDENCE


  1. In respect of the issues on trial, the plaintiff’s evidence is that:

DEFENDANTS’ EVIDENCE


  1. In response, the defendants’ evidence is that completion of the sale within the time stipulated in clause 1(d) of the contract was not possible because:
  2. The defendants also presented evidence that to have these concerns attended to, the plaintiff agreed to engage Parua Lawyers on fees.
  3. The lawyers applied for and obtained a replacement title deed issued on 18th April 2011 and collected on 22 May 2011.
  4. The need to correct the Lands Department’s records was raised in letters to the Department dated 12th October and 26 November 2010. In a follow-up letter dated 27 April 2011, Parua Lawyers also included the question over the amount of land rent. Apart from these letters, the defendants say that Parua Lawyers also caused several telephone calls and attendances upon the plaintiff and at the Lands Department to resolve these natters. The two bills of costs issued to the plaintiff in respect of these work, show that the last work performed was on 22 July 2011.
  5. Parua Lawyers then issued their letter of 27 October 2011 to the plaintiff proposing settlement on the basis that the purchaser’s financier was ready to participate in the settlement (having now conducted their searches). When the plaintiff did not respond, the lawyers forwarded a settlement statement under cover of a letter dated 24 November 2011 (amended later the same day) and nominated 30 November 2011 as the date for settlement. In the amended letter, Parua Lawyers suggested the plaintiff seek independent legal advice as the purchaser is a “related organization”. The settlement date was later moved to 2 December 2011 and the plaintiff was made aware of this. On the date of settlement, Ms Parua was informed by the plaintiff that he had given instructions to Mr Kikira. When she managed to talk to Mr Kikira, he advised that the plaintiff was not agreeable to the settlement figures, and in particular, the legal fees charged. Settlement proceeded in the absence of the plaintiff and Mr Kikira. The replacement title deed was with Parua Lawyers with the authority of the plaintiff for its safe keeping after the original deed was stolen. Both Ms Parua and Ms Kimbu denied acting unfairly and unethically as alleged by the plaintiff. The plaintiff was kept informed of all developments and did not raise any issues with his lawyers, even regarding the legal costs, until after settlement was proposed.

CONSIDERATION


  1. These are my findings in respect of the issues on trial.

Completion


  1. While it is true that the parties to the sale were unable to comply with clause 1(d) of the contract, this was due to reasons affecting their respective positions. For the plaintiff, he had the Lands Department records to correct, the amount of outstanding land rent to resolve, and have his stolen title deed replaced. For the purchaser, its financier, ANZ, was not ready to settle.
  2. Pursuant to the contract of sale, if completion does not occur within the time prescribed by clause 1(d), either party to the sale is allowed to give notice to complete. Parua Lawyers letter to the plaintiff dated 24 November 2011 could be regarded as such a notice although it is not titled as one. The question is: was the plaintiff ready to settle at the time of that letter.
  3. While the replacement title deed was issued 7 months earlier, it is not clear when the matters of the Department records and the outstanding rent were resolved. At least in relation to the land rent, Parua Lawyers state in their letter of 28 October 2011 to the plaintiff that “the Lands Department has agreed to write off rental owed to them by NHC but their rental records have not been changed to reflect this.” The lawyers proposed therefore that the total arrears of K10,050 be deducted from the purchase price at settlement and the amount kept in Parua Lawyers Trust Account until the records are corrected. However, there is no independent evidence corroborating the supposed agreement of the Department. The various letters to the Lands Department and details in the two bills of costs do not offer any confirmation either. According to the second bill of costs, the last attendance by Parua Lawyers to the Lands Department happened on 22 July 2011 seemingly in relation to the rent reconciliation. There is no other evidence of further attendances to the Lands Department.
  4. If the Lands Department issues were sorted out in July 2011, why the wait of another 3 months before arranging for settlement. The answer of course is that ANZ was not ready. If the outstanding rent was yet to be reconciled, its treatment as proposed at settlement could just the same have been applied when the plaintiff was ready to settle – when it received the replacement title deed. The total amount could have then been deducted from the purchase price then and kept in the trust account until the reconciliation.
  5. It appears from the evidence that the plaintiff may have been in the position to settle the sale as early as May 2011 and as late as July 2011. At those times, the purchaser was not ready to settle because its financier was not ready. I note here that there is no evidence the plaintiff was made aware of the wait on ANZ before the letter of 28 October 2011. In my opinion, Parua Lawyers was placed in a conflict of interest, because of its relationship with the purchaser. There is no evidence that during this period, the plaintiff was made aware of his rights under clause 1(e) of the contract, and the conflict of interest faced by the lawyers.
  6. While I am not prepared to find there was a breach of clause 1(d) of the contract, I view the conduct of Parua Lawyers relevant to the issues of whether there was fraud. As I will explain later, I also consider unconscionable or unethical conduct has bearing on the question of fraud.

Ministerial approval


  1. The evidence is that the requisite approval under s.128 Lands Act 1996 for the transfer instrument was duly given, but the instrument was registered 4 days after the lapse of the period of validity of the approval as noted on the stamp endorsement.
  2. I accept the defendants’ submission that only the refusal of approval would render the contract of sale void. Otherwise, parties shall pursue the approval as obliged by the contract; Ningiga v Koavea [1988-89] PNGLR 312. In this case, the approval was not declined. While it would have been proper to have applied for a fresh approval, it is noted that the Land Act in fact does not prescribe a limit to the period of approval.
  3. I do not find a breach of the contract of sale for want of s. 128 approval.

Title deed


  1. It is true that in practice, the vendor usually hands over the title deed at settlement.
  2. The defendants say that the plaintiff had instructed Parua Lawyers as his lawyers to keep safe custody of replacement title deed as he did not want it stolen like the original was. Further, Parua Lawyers were still acting for the plaintiff at the time of settlement, so there was nothing fraudulent, unconscionable or unethical about not giving the title deed over to the plaintiff before settlement.
  3. It is obvious to me that Parua Lawyers realized while preparing for settlement that a possible conflict of interest had arisen. They had suggested therefore that the plaintiff seek independent legal advice.
  4. When before settlement, Parua Lawyers learnt that the plaintiff had engaged RMK Lawyers and when both the plaintiff and Mr Kikira advised that the plaintiff was not agreeable to the settlement statement, followed by their non-attendance at settlement, Parua Lawyers should have realized then that it was clearly conflicted.
  5. I reject the defendants’ contention that Parua Lawyers was still the lawyers for the plaintiff as he did not withdraw instructions. In her affidavit, Ms Parua, in discussing her communications with the plaintiff and Mr Kikira on the date of settlement (2 December 2011), refers to the plaintiff as Mr Kikra’s client and Mr Kikira as the plaintiff’s lawyer. Straight after settlement, Ms Parua wrote to the plaintiff referring to Mr Kikira as “your Lawyer”.
  6. As I earlier stated, Parua Lawyers was faced with a conflict of interest. The proper course to have taken then was to have settlement postponed, formally withdraw from representing the plaintiff, and have the plaintiff’s file released to him (subject to any lien). Settlement could then be pursued afresh.
  7. I conclude that Parua Lawyers improperly settled the sale of the Property. Was this conduct unfair, unethical, or fraudulent?

UNFAIR CONDUCT/UNETHICAL CONDUCT


  1. Did Parua Lawyers act unfairly or unethically?
  2. In relation to unfair or unconscionable conduct, the plaintiff relies on the Fairness of Transactions Act 1993. He pleads that:
  3. Before jurisdiction under this Act is invoked, there must be an application under s.5 for the Court to have a transaction reviewed for not being in accordance with s.4; James Geama, Koim Kopun v OTML Shares In Success Ltd (2011) N4269. The plaintiff has not properly pleaded such an application, so I refuse to entertain a claim purportedly made under the Act.
  4. In relation to the claim of unethical conduct, the plaintiff relies mainly on the particulars of fraud alleged, so I will address those allegations.

FRAUD


  1. Pursuant to the Land Registration Act, Ch.191, the registered proprietor of land has indefeasible title unless an exception under s.33(1) is established; Mudge and Mudge v Secretary for Lands [1985] PNGLR 387. One exception is fraud under s.33(1)(a) which means actual fraud committed by the proprietor; see Papua Club Inc v Nusaum Holdings Ltd (No.2) (2004) N2603; endorsed in Koitachi Ltd v Walter Schnaubelt (2007) SC 870, and more recently in John Soto v Our Real Estate Ltd (2018) SC1701.
  2. In relation to fraud under s.33, Justice Gavara-Nanu in Papua Club Inc (supra) after providing a thorough and instructive discussion on the subject including references to relevant overseas case authorities, observed that the cases “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 ”.
  3. The plaintiff alleges that the defendants acted fraudulently when:
  4. As I stressed in paragraph 34, when the plaintiff as the vendor did not agree to settlement as proposed by the first defendant as purchaser, settlement should not have taken place. Rather, Parua Lawyers should have withdrawn acting for the plaintiff, and pursued settlement afresh. And if after that the plaintiff continued to unreasonably resist settlement, the first defendant would have been justified in seeking specific performance.
  5. I reject the submission that the first defendant was entitled to proceed with settlement because the plaintiff had not formally withdrawn instructions from Parua Lawyers. Clearly, the first defendant had no instructions from the plaintiff to proceed with settlement. Parua Lawyers was also aware that the plaintiff had given instructions to RMK Lawyers who through Mr Kikira advised Ms Parua that the plaintiff was not agreeable to settlement. The plaintiff’s position was confirmed when neither he nor Mr Kikira attended settlement, and when the settlement cheques were delivered to the plaintiff, they were immediately returned through Mr Kikira. Yet, Parua Lawyers continued to have the transfer registered in favour of KASL, a company it owned.
  6. The costs charged by Parua Lawyers against the plaintiff appears to have been a major concern for the plaintiff. Under Section 62 Lawyers Act and Order 22 Rule 49 National Court Rules a lawyer’s bill of costs shall always be in taxable form. The lawyer must also advise his client that he can have his bill taxed. This has been fortified in many case authorities including Marsh v Hay [1981] PNGLR 392; Edward Manu trading as Manu and Associates Lawyers v Honiri Timber Resources Development Limited (2004) N2597. There is no evidence that the plaintiff was ever advised by Parua Lawyers that he was entitled to a bill of costs in taxable form, and that he could have the bill taxed. Even if I accept that the plaintiff did not raise objections to the bills earlier, that does not obviate the duty of Parua Lawyers to have the plaintiff informed him of his rights in respect of the bills.
  7. While it is not unusual for one lawyer or law firm to act for both parties to a conveyance, there is always the risk of conflict of interest arising in such transactions, and more so where the lawyer/law firm is related to one of the parties to the sale. There may even lead to conduct amounting to fraud, a situation recognized in The National Council of Young Men’s Christian Association of PNG (Inc) v Firms Services Ltd (2017) SC1596 where similar to the present case, a law firm acted for both parties to a sale of property in which the purchaser was a company owned by the law firm. The decision in that case however hinged on other issues relating to the treatment of pleadings, and not on the question of whether the transfer of title was fraudulent.
  8. Under s.8 Professional Conduct Rules, a lawyer may be guilty of improper conduct if, among others, he does not treat the client fairly and is negligent and dishonest when acting for the client.
  9. According to s.10(5)(a) Professional Conduct Rules, Parua Lawyers should have discontinued to act for the plaintiff when it became clear that the interest of the plaintiff was likely to be prejudiced, firstly by the delay caused by the purchaser’s financier, and later when settlement was proposed. Further, it is a fundamental duty of a lawyer to act on client’s instructions. The plaintiff did not agree to the proposed settlement on 2 December 2011, so it cannot be said that Parua Lawyers acted ethically that day.
  10. As Gavara-Nanu J observed in the Papua Club (supra):

“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..”


  1. In my view, Ms Parua acting for herself as the law firm and as the owner of the purchaser company, was keen to settle as in the best interest of the defendants. Even the rejection of the settlement cheques did not cause her (her firm and her company) to review whether they had acted properly in unilaterally settling the sale, and perhaps revisit settlement.
  2. I consider the conduct of the defendants represented by Ms Parua in the circumstances, amounted to dishonesty and deceit, tantamount to fraud. She knew the plaintiff did not agree to the proposed settlement. She knew that the plaintiff had engaged the assistance of another lawyer. The plaintiff nor his new lawyers attended settlement. The plaintiff had effectively withdrawn instructions. She knew that a conflict of interest had arisen, and that she could not fairly continue to represent the plaintiff, yet she persisted with settling the sale and immediately moved to register the transfer to the first defendant notwithstanding the plaintiff’s continued protest the settlement. Further, Parua Lawyers was not candid with the plaintiff, by failing to properly explain to him his rights under the contract in respect of completion, and his rights in relating to the bills of costs.
  3. For these reasons, I find that the transfer of the Property to the first defendant was a result of fraud.

ORDER

  1. The Orders of the Court are:

_____________________________________________________________

Rageau Manua Kikira Lawyers: Lawyers for Plaintiff

Parua Lawyers: Lawyers for Defendants

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