Pelis and Pelton Investments Pty Ltd v Tinsiew Tan and TST Holdings [1995] PGNC 12; N1307 (17 March 1995)

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WS 67 OF 1993
THOMAS PELIS & PELTON INVESTMENTS PTY LTD
v
TINSIEW TAN & TST HOLDINGS>

PROPERTY - Agreement to develop property to build town houses - Bank loan obtained - Loan to be reduced by rentals from the town houses - Rentals paid but not paid to reduce loan - Bank issues notices - Guarantors fail to meet demand of Bank - Bank forecloses - Bank sells to a guarantor - Title obtained through fraudulent means.

SALIKA J: The plaintiffs make a claim against the defendants by way of a Writ of Summons. The Statement of Claim pleads the following:

1. The First plaintiff at the material times was and is Managing Director of the Second plaintiff from about November 1989 and was the owner of the property described in the Leasehold Title Volume 38 Folio 9485 situated at Section 9 Allotment 4 Boroko, National Capital District.

2. The first plaintiff had acquired the title of the said property through a Government Housing Sales Scheme known as Morgan Scheme on or abut the 9th May 1985. The property was then valued at K15,000.00.

3. The second plaintiff is a company incorporated under the Companies Act (Chapter 146) and is capable of suing and being sued was its own Corporate name and style and had its registered office at Allotment 2 Section 143, Tokarara, National Capital District.

4. The first defendant was the Managing Director of the second plaintiff from about October 1987 to November 1989. He held 50% of the shares in the second plaintiff. He was at all the material times a director, shareholder and owner of the second defendant.

5. The second defendant is a company Incorporated under the companies Act and is capable of suing and being sued under its own corporate name and style.

6. On or about October, 1987 by implied terms the first plaintiff a Mr Peter Fong and First defendant all agreed to become Directors of the second plaintiff.

7. By way of a general meeting of the second plaintiff it was resolved that the first plaintiffs property described in 1 above be transferred and registered under the name of the second plaintiff and that the First plaintiffs house located on the property be demolished and town houses (flats) containing 8 units be erected on the property for the purpose of commercial renting for and on behalf of the second defendant.

8. It was further resolved at that meeting that the first Defendant be the Managing Director of the second plaintiff to negotiate a bank loan by way of a memorandum of a Mortgage over the property in order to construct the town houses.

9. It was further resolved that a bank loan be taken out under the name of the second plaintiff and that signatories to the bank account held in ANZ Bank at Waigani Branch be in the name of the three Directors with any two to sign for a cheque or for any withdrawals of funds for the construction of the town houses and for the general management of the second plaintiff.

10. It was further agreed at that meeting that when the town houses were completed all proceeds of the takings make from the rents would be paid into the account of the second plaintiff held at the same ANZ bank Waigani towards discharge of the bank Mortgage.

11. On or about the 13 November 1986 and thereafter the first Defendant negotiated a Mortgage loan of K530,000 and a further K50,000 with the ANZ Bank Waigani for the three directors of the second plaintiff. The guarantors were the First plaintiff, the first defendant and the second defendant.

12. The construction of the town houses was started by B&T Engineering but was completed by another construction company between August and September, 1987.

13. It was agreed that when all the 8 units were fully furnished the rent for each unit be K450 per week and K1,950 per month. The first tenants moved in or about November 1987.

14. The first defendant appointed Tamarua Real Estate as Managing Agents for the second plaintiff who had responsibility to collect and pay rentals on behalf of the second plaintiff.

15. The first defendant was responsible for collecting the monthly payments which were to be banked at the second plaintiffs bank account at the ANZ Bank, Waigani.

16. Between November 1987 and November 1989 the first defendant was the sole person who collected rental cheques for the 8 units from Tamarua Real estate on behalf of the second plaintiff.

17. On or about 24th February, 1988 the First Plaintiff caused to make enquires at the Office of Tamarua Real Estates regarding copies of documents relating to the collection of rents on behalf of the Second Plaintiff. The Tamarua Real estate advised him to contact his Managing Director the First Defendant to obtain necessary information and documents he required.

18. The First Plaintiff enquired with the First Defendant in respect of the monies from Tamarua Real Estate. The Defendant was not willing to advise him. The First Defendant became annoyed saying that he had provided the finance for the construction of the said town house and therefore was not accountable to him to provide the information on rent collection that he took from Tamarua Real Estate.

19. Further the First Defendant requested by the First Plaintiff and Mr Fong another Director to attend to Director’s meetings regarding management and rents collected by the First Defendant for the Second Plaintiff but the First Defendant did not respond to Notice of Meetings issued nor did he attend any meetings of the Directors at all.

20. On or about November 1989 the First Plaintiff caused to make enquires at the ANZ Bank, Waigani Branch into the status of the loan so far and to ascertain whether the First Defendant had made any payments from the rents collected from the Second Plaintiff.

21. The First Plaintiff discovered that the loan account had gone from initial loan of K580,000 to K600,000 with interest accruing. The First Plaintiff further discovered that the First Defendant had paid no monies at all for the reduction of the original loan taken out by mortgage. And by 22nd November, 1989 it had gone up to K728,712.25. The First Defendant only paid K28,000 for the Second Plaintiff.

22. On or about November, 1989 the First Defendant was dismissed as a Director for failing to attend the three (3) consecutive meetings and for not briefing the First Plaintiff and the Director Mr Fong on the loan repayments with ANZ Bank, Waigani Branch on behalf of the Second Plaintiff from the rents collected for the 8 units.

23. The First Plaintiff and Mr Fong decided that the First Plaintiff should take over the Management and collect rents to ensure that the payments were made to the said Bank with the view to reduce the loan.

24. The First Plaintiff had taken over from November, 1989. By that time it was almost impossible to discharge loan and interest which accrued from the non payments made byt he First Defendant in the previous twenty six (26) months from the rent taking. The First Plaintiff tried to reduce the loan for six (6) months but each time the bank interest was increasing higher and higher.

25. The ANZ Bank at Waigani then took over the property and advertised it for sale by public tender after the notice was served on the First Plaintiff and the First and Second Defendants.

26. The First Defendant who is the Director of the Second Defendant and who were both guarantors to the original mortgage loan of K530,000 and further K50,000 bidded to purchase the property on tender.

27. The First and Second Defendants paid ANZ Bank, Waigani the sum of K750,000 which was the amount of loan that was outstanding and owing by the First and Second Plaintiffs, and for which the First and Second Defendants were still guarantors and had the demised premises transferred by said bank to the Second Defendant. The property was registered under the name of the Second Defendant.

28. Between November, 1987 to November 1989 and at material times the First Defendant by collecting monthly rents on behalf of the First and Second Plaintiffs had failed to deposit the said rents into the second Plaintiff's Bank Account held at ANZ Bank at Waigani. The First Defendant had therefore breached an implied terms of oral agreement that all rents collected by the First Defendant must be paid into ANZ Bank, Waigani on behalf of the Second Plaintiff and for its Account.

29. The First Defendant was still shareholder holding fifty percent (50%) shares in the Second Plaintiff and the payment of K750,000 paid in ANZ Bank was in accordance with the memorandum of mortgage entered executed by both the First and Second Plaintiff, and the First and Second Defendant and the ANZ Bank and therefore the property in question should not have been transferred to the Second Defendant.

30. By paying the sum of K750,000 to ANZ Bank by the First And Second Defendants as guarantors they had therefore discharged the original mortgage loan taken out under security of the second plaintiff. The property was therefore still vested with the Second Plaintiff. Any future sales to the Frist Defendant or to the Second Defendant should have been negotiated by the First Defendant and First Plaintiff with one Mr Fong. The sale of the demised premises to the Second Defendant amounts to a breach of implied term of oral agreement that First and Second Defedants were guarantors.

31. The First Defendant had therefore intended and did commit serious breaches of the terms of contract either expressly or by implication amounting to misrepresentation and fraud.

a) That he had manifestly misrepresented and indirectly defrauded the First and Second Plaintiffs by agreeing to become a Director of the Second Plaintiff and executing the articles and memorandum of Association.

b) That by taking the fifty percent (50%) share he had by way of misrepresentation and fraud intended to possess the demised premises of the First Plaintiff and the Second Plaintiff and to convert it to his own use and to the use of the Second Defendant.

c) That the First Defendant had by way of fraud and misrepresentation promised the First and Second Plaintiff that he was providing the finance when in fact in the memorandum of mortgage the loan of K580,000 taken out with ANZ Bank, Waigani was made solely in the names of First and Second Plaintiffs.

d) That the First Defendant by way of misrepresentation and fraud agreed with the First and Second Plaintiffs that the First Defendant and Second Defendant were guarantors of Second Plaintiff in the mortgage loan of K580,000 plus bank interest taken out under the name of the Second Defendants.

e) That the First Defendant by misrepresentation and fraud agreed with the First and Second Plaintiffs that he himself (The First Defendant) and Second Defendant as guarantors to the K580,000 taken out by memorandum of morgage would be paid by himself and the Second Defendant from the Rent monies collected by the First Defendant for Second Plaintiff or in the event that the loan is not discharged.

f) That the First Defendant by way of misrepresentation and fraud had not deposited the monies from rents collected on behalf of the First and Second Plaintiffs in the Second Plaintiff's bank account at ANZ Bank, Waigani Branch for a period of twenty two (22) months.

g) That by not doing so the First Defendant by way of misrepresentation and fraud had intended to defraud the First plaintiff who was also a guarantor to the loan of K530,000 would not be able to discharge the loan and that the ANZ Bank Waigani would repossess it and it sell it by public tender.

h) That the First and Second Defendants had misrepresented to the First And Second Plaintiffs that as guarantors they would discharge the mortgage loan of K750,000. Instead the said loan of K750,000 was not paid and a new memorandum of morgage was obtained under the Second Defendant for the same amount in order to purchase the demised premises.

i) That the First Defendant had by fraud and misrepresentation to the Plaintiffs applied again under the name of the second defendant to buy the demised premises on tender from ANZ Bank, Waigani.

j) That the First Defendant by misrepresentation and fraud had registered caveat against the demised premises alleging that he held fifty percent (50%) of the shares and further that he had contributed K200,000 towards the financing of the town house under the name of Second Plaintiff, when the said First Defendant paid no monies or for the Second Plaintiff.

k) That the First Defendant had by way of fraud misrepresented the First and Second Plaintiffs to transfer the demised premises from the Second Plaintiff to the Second defendant by executing the Contract of Sale and transfer documents with the ANZ Bank, Waigani.

l) That the First Defendant by misrepresentation to the Registrar of Titles had fraudulently transferred the Title of the property registered under the name of the Second Plaintiff and had it registered under the name of the Second Defendant.

32. That the First Plaintiff and Second Plaintiff therefore had suffered substantial damages in the following:

a) Loss of property in a State Lease Volume 38 Folio 9485 situated at Section 9 Allotment 4, Boroko originally registered under First Plaintiffs own name.

b) The loss of original house owned by First Plaintiff which was demolished in order to erect a new townhouse consisting of 8 units for the Second Plaintiff.

c) The loss of property registered under the name of Second Plaintiff originally built at the value of K580,000 in 1987 and which value together with the land would value now at more than One Million Kina (K1,000,000) in 1993.

d) The First and Second Plaintiff have lost substantial amount of money by being deprived of by the First Defendant for moniew coming in rent from 1987 - 1993.

e) Loss of viable and commercial property containing a town house and 8 units, which should not have been lost had the First Defendant paid rents collected and banked them under the Second Plaintiff's account with ANZ Bank, Waigani.

f) Economic loss since 1987 and the loss of future economic loss, because the Second Plaintiff was not able to operate its business with loss of its rents income, which were collected by the First Defendant.

g) Loss of monies from 1987 to now and future loss of salaries because of repossession by ANZ Bank, Waigany by the defraud of the First Defendant in the lack of proper management and accountability of the Secon Plaintiff's rent monies, the First Plaintiff had been deprived of regular salaries from 1987 to 1993.

The Plaintiff called evidence in the form of the first plaintiff Mr Tom Pelis, Mr Peter Fong who was 25% shareholder of Pelton Investments and a director, Mr Lindsay Gideon Registrar of Titles, Mr Kila Kalo, property manager and accounts Clerk with Tamarua Real Estate and Mr Leslie Wungen an accountant. The defendants elected not to call evidence.

Mr Pelis the first plaintiff gave evidence that he was a public servant at the time he acquired title to the property in the leasehold as Volume 38 Folio 9485 situated at Section 9 Allotment 4, Vaivai Avenue, Boroko National Capital District. He had acquired title through a Government Housing Sale Scheme known as the Morgan Scheme. He gave evidence that after title to the property had transferred to him Mr Tin Tan and himself decided to build town houses over that property. Mr Pelis was introduced to Mr Tin Tan by Mr Fong in 1986 at Tokarara. It was at this introduction meeting at Tokarara that it was decided that as Mr Pelis had land Mr Tin Tan would provide finance to put up town houses on the property. Another meeting was organised with an accountant Mr Wong. At that meeting were Mr Wong, Mr Peter Fong, Mr Tin Tan and Mr Pelis. At the meeting, Mr Fong, Mr Tin Tan and Mr Pelis were appointed directors. Mr Tin Tan was also appointed Managing Director while Mr Fong was appointed Secretary. Share issue was also discussed at this meeting whereby it was agreed that Mr Tin Tan would hold 50% shares, Mr Fong 25% and Mr Pelis 25%. Earlier Mr Pelis had incorporated Pelton Investment with Mr Noah Tonobe as one of the Directors. However Mr Tonobe had left and so Mr Tin Tan and Mr Fong were appointed Directors of Pelton Investments.

It was agreed at the meeting that Mr Pelis would transfer the title to the property under his name to Pelton Investment. This was done. After that had been done Mr Pelis vacated the property and Mr Tin Tan engaged a construction firm B&T Engineering to do demolition and excavation work. New town houses were built on the property. They were completed in September 1987 and the first tenants moved into the flats in about October 1987.

In the meantime the Directors of Pelton agreed to secure a bank loan. Mr Tin Tan who was one of the Directors of Pelton negotiated a mortgage loan of K530,000 initially and later another K50,000 from ANZ Bank at Waigani. The first plaintiff, the first defendant and second defendant were to be the guarantors of the loan. Mr Pelis gave evidence that the additional K50,00 loan was not authorised by all the Directors.

Mr Pelis gave further evidence that since Mr Tin Tan was doing everything for Pelton he was to collect the rentals. Tenants were to pay K450.00 per week per unit. He said Tin Tan had organised with Tamarua Real Estate to manage the property, a fact that him and Mr Fong did not know until later. Mr Pelis alleged Mr Tin Tan collected rentals from Tamarua Real Estate but did not bank it in the Pelton Accounts. He said as a result of non payment of the rentals with Pelton accounts Pelton was not able to reduce the loan. In late 1989 Mr Pelis took over the management of Pelton. He tried to reduce the loan but the interest on the loan kept escalating and the principal loan was never reduced.

The bank then sent a letter of demand. The guarantors were not able to do anything and so the bank took possession under the mortgage agreement. The property was then put up for the sale on public tender and TST Holding the second defendant was the successful tenderer. TST Holdings paid K750,000 to the bank and became the new proprietor of the property.

When it became obvious that Pelton was not capable of discharging the loan Mr Pelis had tried to sell the property through a private sale but he could not sell the property because Mr Tin Tan had taken out a caveat on the property restricting the sale.

The plaintiffs also called Mr Lindsay Gideon the Registrar of Titles. He gave evidence that the registered proprietor of the property at Allotment 4 Section 9 Boroko was originally National Housing Corporation. Ownership was transferred to Thomas Pelis on the 21/9/86. It was subsequently transferred to Pelton Investments. Mr Gideon also gave evidence that there was a mortgage registered over the property. He also gave evidence of a caveat being lodged by Tin Tan on the 12/2/90. He also gave evidence of a further transfer of ownership of the property from ANZ Bank to TST Holdings on the 11 August 1992. TST executed another mortgage with the ANZ Bank on the 13/5/91. The Registrars file on the property is an exhibit before the court.

Mr Fong the other director of Pelton gave evidence and he supports the evidence of Pelis. He was the one who introduced Pelis to Mr Tin Tan in 1986. He was offered 25% share holding in Pelton by Tom Pelis. He agrees with the evidence of Mr Pelis concerning the property generally.

He gave evidence that the arrangement was that Mr Tin Tan would organise a bank loan and that Mr Tin Tan was to be the Manager while Mr Fong was to be the Secretary. He said he was aware of the first loan that was obtained but not of the second one. Mr Fong also gave evidence of the arrangement that the loan would be serviced by rentals from the 8 units. He said that first such payments were made on the 24/9/87. In relation to the rental payments Mr Fong said the arrangement was that Mr Tin Tan would appoint a real estate agent to manage the property and that the rentals would service the loan. He gave evidence that Mr Tin Tan was to collect the rentals. Mr Fong was of the view that the venture was not profitable because the rentals were not paid to reduce the loan. He further went on to say that the administration and management of the company was in the hands of Mr Tin Tan and Mr Tin Tan did not advise him and Mr Pelis (the other directors) of what was going on in the company.

Kila Kalo was the other witness called by the plaintiffs. He was the property manager and accounts clerk employed by Tamarua Real Estate. He was responsible for managing the properties entrusted to Tamarua Real Estate. He also managed the accounts of Tamarua Real Estate. He knows both Mr Pelis and Mr Tin Tan. He agreed that he looked after the property belonging to Pelton located on Vaivai Avenue at Boroko. He agreed that the first rental was made in either August or September of 1987. He said the arrangements for payment were made by Dr Tamarua and Mr Tin Tan.

He could not remember paying out any money out on behalf of Pelton to Mr Tin Tan. He however agreed that Mr Tin Tan would come to them to ask if tenants had paid their rentals. He also gave evidence that Mr Tin Tan did advise that he would collect rent for Pelton every month. The witness then said they never paid any money out on behalf of Pelton and suggested that Pelton's money could still be in the trust account of Tamarua Real Estate.

The only other witness called was Mr Les Wungen whose evidence was that he is an Accountant who had given some advise on the property.

The defendants exercised their rights not to call any evidence. They deny the allegations in the plaintiffs statement of claim and relied on their defence they filed in the proceedings.

The unchallenged findings of the court on factual matters as pleaded in the statement of claim are these:

I find that paragraphs 1 to 15 of the statement of claim have been made out without challenge. There is ample evidence adduced by the plaintiffs relating to allegations contained in those paragraphs.

Paragraph 16 is a claim which is disputed. The first defendant denies he collected rentals from Tamarua Real Estate. Evidence from Mr Pelis and Fong is that Mr Tin Tan appointed Tamarua Real Estate as the property Managers. Kila Kalo confirms that Tamarua Real Estate managed the property on behalf of Pelton Investments. Mr Tin Tan was the Managing Director of Pelton Investments. There is also evidence that Mr Tin Tan did go to Tamarua Real Estate and spoke to Dr Tamarua. Mr Pelis said he went to Tamarua Real Estate to make enquiries about rental payments and was told to go and see Mr Tin Tan. Kila Kalo gave evidence that the rental money may still be in the Tamarua Trust Account. Should I accept that from the witness?

Pelton Investment was in desperate need for the money. Notices of demand were sent by the ANZ Bank to Mr Tin Tan. TST and Mr Pelis as guarantors. This Evidence is contained in the Registrar of Titles File. Crown Lease 38/9485. One would have thought that Mr Tin Tan as Managing Director would have required Tamarua Real Estate to release the rental monies upon receipt of the notice of demand. In any case Pelton Investment was required to service its loan. Mr Tin Tan as Managing Director was by virtue of his position required to ensure that Pelton loan was serviced and reduced. For that reason he would have to collect the rental cheques from Tamarua Real Estate. If he did not then he was being negligent in his duties as Managing Director. Mr Pelis also gave evidence that after he had gone to Tamarua Real Estate about the rentals he was told to go and see Mr Tin Tan about it. He then went to see Mr Tin Tan but Mr Tin Tan was not there. He said it was difficult at the time to see him. He had left messages for Mr Tin Tan to call him but Mr Tin Tan never called him. There is also some evidence from Mr Kila Kalo that they had issued some cheques to Mr Tin Tan. Mr Kalo also gave evidence that Mr Tin Tan came to check if tenants had paid their rentals.

For Mr Kila Kalo to suggest that the rental monies belonging to Pelton Investment might still be with Tamarua Real Estate is in my view a remote possibility. From all the evidence before me I am of the view that the money is not there. I come to the view from inferences I draw. The inference I draw from all the evidence is that Mr Tin Tan collected the rentals on behalf of Pelton Investments and so I conclude on the balance of probabilities that he did collect the rentals. After all he was the managing Director of Pelton, he knew rentals for Pelton were going to Tamarua Real Estate and he did pay some money to the Pelton Account on a number of occasions. It could be reasonably inferred that he paid those amounts out from the rentals he received.

I point out at this stage that Mr Tin Tan is the only person who has any knowledge of the whereabouts of the rentals. Dr Tamarua the only other person who might have known is dead. Mr Tin Tan has elected not to give evidence. That evidence is crucial to his defence where he generally denies collecting the rentals. In criminal cases the Supreme Court held inter alia in the case of Paulus Pawa v The State (1981) PNGLR 478 that where an accused person fails to give evidence or call witnesses to support his case, any inferences to be drawn must be determined by common sense having in mind that failure to give evidence is not an admission of guilt but that it may strengthen the State case leaving it uncontradicted or unexplained on vital matters. Applying the principle in this civil case, while I agree that Kila Kalo’s evidence somewhat contradicts the plaintiffs allegations that Mr Tin Tan collected the rentals Mr Kalo’s evidence is suspect in that in my own assessment of his evidence he was really guessing when he said the rentals are still with Tamarua Real Estate. He did not know what went on between Dr Tamarua and Mr Tin Tan. He was evasive in answering questions about the rentals. I find that he did not tell the Court the truth about where the rental monies were.

I could not accept his evidence as the whole truth. The whole truth is only known to Mr Tin Tan. What happened to the rentals is a vital question in this case. The evidence that has been adduced in relation to who might have collected the rentals is substantially circumstantial. There are two possible explanations: either Mr Tin Tan collected them or they are still in the Tamarua Trust Account. I have discounted the latter possibility as being remote. Common sense dictates that the inference I draw must be that Mr Tin Tan collected the rentals.

In relation to paragraph 17 of the statement of claim there is some evidence that the first plaintiff did make inquiries at Tamarua Real Estate and so I find that has been made out.

Paragraph 18 of the claim has not been made out. The only evidence before the court is that on the occasions Mr Pelis went to see Mr Tin Tan, Mr Tin Tan was not available and that he was hard to get even though messages had been left for him to call Mr Pelis.

Paragraphs 19-27 in my view have been made out. There is adequate evidence from Mr Pelis and Mr Fong on the allegations contained in those respective paragraphs whic has not been contradicted by other evidence. I therefore find that those allegations have been made out.

The first part of paragraph 28 of the claim has been made out by virtue of my findings in relation to paragraph 16. I concluded that the first defendant had collected the rentals from Tamarua Real Estate. Evidence in relation to the second part of paragraph 28 from Mr Pelis and Mr Fong was that not all the monies were deposited into Pelton account to reduce its loan. Whether or not there was an oral agreement for Mr Tin Tan to pay the rentals to ANZ Bank Waigani on behalf of Pelton Investments is not vital. What is vital in my view is that Mr Tin Tan had the obligation and the duty as Managing Director of Pelton Investment to pay the rentals to the bank on behalf of Pelton Investments to reduce the loan. I find that paragraph 28 has been made out.

In relation to paragraphs 29 and the payment of K750,000 by the first and second defendants to the ANZ Bank this was done after the Bank had foreclosed and the Bank by then was exercising its powers under the mortgage to sell the property. Evidence is that Mr Tin Tan was still a shareholder and a guarantor. However the bank was entitled to do what it did, sell the property. The property was put on sale by public tender. The Plaintiffs argue that because Mr Tin Tan and TST Holdings were guarantors to the loan taken out by Pelton Investments from the ANZ Bank they should have stepped into the shoes of Pelton Investments and reduce or discharge the loan. I acknowledge and accept that Mr TinTan and TST Holdings were both guarantors but they elected not to step into the shoes of Pelton Investments. When all the guarantors failed to help Pelton Investment the Bank by virtue of the mortgage became the mortgagor in possession and title to the property passed to the bank and it was in my view duty bound to sell the property. By this time the obligations of the guarantors was extinguished. I am therefore of the view that the contentions raised in paragraphs 29 and 30 are not made out in the circumstances. As to the title of the property I am of the view that there was fraudulent misrepresentation by Mr Tin Tan to register a caveat. Because of that misrepresentation Mr Pelis could not do anything on behalf of Pelton Investment. I will discuss the fraudulent misrepresentation when I dela with paragraph 31 (j) of the claim.

In relation to paragraph 31 the plaintiffs alleges that there was fraud and misrepresentation by Mr Tin Tan in that while he was the Managing Director and shareholder of Pelton Investment he collected rentals payment from Tamarua Real Estate but that he never paid the rental monies to the Pelton Investment account held at the ANZ Bank Waigani. There is no direct evidence of fraud and misrepresentation in most of the allegation except the allegations contained in paragraph 31 (j). The only thing I say there is that as I have found hat he collected the rentals and that he did not deposit the rentals into the pelton account the only reasonable conclusion I come up with is that he misappropriated Pelton’s monies.

In paragraph 31 (j) the plaintiffs allege that the first defendant by misrepresentations and fraud had registered a caveat against the demised premises alleging that he held 50 percent of the share and further that he had contributed K200,000 towards the financing of the town houses under the name of the second plaintiff. The caveat was registered on the 7th February, 1990. The document is now an exhibit and speaks for itself.

Evidence on this aspect from Mr Pelis is that he asked the bank if he could sell the property. He said he had a potential interested buyer lined up and that negotiations were gong on but that the prospect of the private sale was discontinued because of the caveat registered by Mr Tin Tan.

In relation to the caveat itself and the reasons for taking out the caveat there is no evidence from Mr Pelis, Mr Fong or Mr Tin Tan about giving a personal loan of K200,000 to Pelton Investments. In my view that is a clear misrepresentation. The only evidence of money going to Pelton Investments account are the two loans of K530,000 and the K50,000 a total of K580,000. There is no evidence of Mr Tin Tan giving or lending K200,000 to Pelton Investment. I am satisfied in my own mind on the balance of probabilities that the misrepresentation was made for the purpose of securing the caveat and ultimately to stop Mr Pelis from selling the property.

I also note that in securing the caveat Mr Tin Tan had said that he had personally guaranteed the repayment of the Bank loan of K600,000. As events turned out that guarantee turned out to be nothing but Mr Tin Tan got his caveat.

On the evidence I am satisfied on the balance of probabilities that Mr Tin Tan in securing the caveat fraudulently misrepresented himself and effectively stopped Mr Pelis from negotiations to sell the property. By that stage the Bank had sent out its notices of demand to the guarantors. The guarantors did not respond favourably to the Bank and so a sale to discharge the loan was one option available. I also find on the evidence, that the relationship between Mr Pelis and Mr Tin Tan had gone sour by that point in time. They were not seeing each other eye to eye and yet both were directors of a Company which was in a serious financial dilemma. Perhaps Mr Tin Tan should have asked Mr Pelis what was going on. He instead took out a caveat whereby he misrepresented himself. He might have been entitled to take out a caveat but not for the reasons he presented. I consider this event to be the cause of Mr Pelis and Pelton Investment totally loosing out. It was from that point on that the Bank moved in as the Mortgagor in possession and exercised its power of sale.

As I have found on the evidence that Mr Tin Tan had fraudulently taken out a caveat it follows then that the subsequent sale to TST Holdings and the transfer of Title by the Bank must be affected. While I agree that the Bank had the right to sell the property to whoever was the highest bidder I also am mindful of the rights of Tom Pelis and Pelton Investments. The Plaintiffs might not have been in that position had Mr Tin Tan not fraudulently misrepresented himself and taken out a caveat. Had Mr Tin Tan told the truth, the caveat might not have been registered and Mr Pelis might have been able to sell the property. As it turned out a caveat was registered because of a fraudulent misrepresentation Mr Tin Tan had decided not to give evidence to help the court why he said those things to register a caveat.

In my view the whole transaction by the Bank selling the property is affected. The Registration of the property under the name of TST in my view is affected. I reiterate what I said in the case of EMAS Estate v MEA (1993) PNGLR 215 at page 228. In that case I said: “I agree, in principle, that where a title has been registered under ones name, it is not capable of being annulled, except where title has been acquired by fraud”.

In this case there is evidence of fraud which has not been contradicted. Had it not been for the fraud things might have been different. I therefore find that the title acquired by TST Holdings is not properly acquired and declare it null and void.

The title in the property in my view reverts to Pelton Investments. The Bank still has its right of foreclose. This ruling in effect restores the Status quo up to the time before the bank took possession of the property and before the caveat was registered by Mr Tin Tan.

In summary I have found that Mr Tin Tan did collect the rentals from Tamarua Real Estate and that he had failed to pay the rental monies to the Pelton Investments Account so as to reduce its loan. I find that as a result of the non payment by Mr Tin Tan, the loan account of Pelton escalated. There is no evidence of fraud on the part of Mr Tin Tan as to why he neglected to reduce the loan from the rental income. However I find that there was a fraudulent misrepresentation by Mr Tin Tan when he took out a caveat restricting the sale of the property by Mr Pelis.

As a result of that I am satisfied that the plaintiffs have suffered damages as contained in their particulars to claim of the statement of claim.

(a)	The amount of rent per unit per month at K1,950 each for 8 units for a period from September 1987 to November 1989 less K28,000.00	K377,600.00
(b)	The amount of rent per unit per month at K1,950 for 8 units from 30th April 1990 to date of judgement	K920,400.00
	Total	K1,298,000.00

National Court of Papua New Guinea

Pelis and Pelton Investments Pty Ltd v Tinsiew Tan and TST Holdings [1995] PGNC 12; N1307 (17 March 1995)