Gambu v Godowan Investment Ltd [2020] PGNC 220; N8493 (8 September 2020)

N8493

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 810 OF 2018

ANTON GAMBU
Plaintiff (& Cross-defendant)

V

GODOWAN INVESTMENT LIMITED
Defendant (& Cross-claimant)

Cannings J

Madang: 15 November 2018;
15 March, 16 July, 15 August, 2 September,
5 November, 21 November, 3 December 2019;
Waigani: 19 March, 24 June 2020,
Madang: 5 June, 8 September 2020

LAND – government land within urban area – registration of State Leases –whether fraud involved in granting of State Leases – meaning of “fraud” in Land Registration Act, s 33(1)– constructive fraud – Urban Development Leases – State Leases granted over allotments of land previously subject of Urban Development Leases –whether constructive fraud occurring in granting of Urban Development Leases results in finding of constructive fraud re granting of State Leases over same land.

In 1972 the plaintiff settled on an undeveloped area of government land in a town. He built houses and established small businesses on it. However, he had no instrument or title authorising his occupation. In 2004 the National Physical Planning Board granted him approval to undertake surveying and apply for rezoning of the land. In 2009 the defendant was granted five-year Urban Development Leases over the land. In 2014 it was granted 99-year State Leases over the land and became registered proprietor. In 2018 the plaintiff commenced proceedings against the defendant, pleading that the defendant had acquired the State Leases by constructive fraud, due to it being unlawfully granted the Urban Development Leases and its failure to comply with development conditions to which those leases were subject. The plaintiff sought declarations that the defendant’s Urban Development Leases were defective and an order that the defendant’s State Leases were therefore granted illegally and are void, and injunctions to restrain the defendant from reapplying for any interests in the land, and damages. The defendant denied all allegations of illegality and impropriety in it being granted the Urban Development Leases and the State Leases. It argued that it had an indefeasible interest in the land covered by the State Leases and that the plaintiff’s claims should be entirely dismissed. The defendant filed a cross-claim seeking a declaration that it is the registered proprietor of the State Leases and an order for removal of the plaintiff and others from the land.

Held:

(1) Under Papua New Guinea’s Torrens Title system of land registration, registration of a lease vests an indefeasible (un-forfeitable) title in the registered proprietor subject only to the exceptions in s 33(1) of the Land Registration Act Chapter 191. Most significantly s 33(1) (a): “in the case of fraud”. Fraud may be actual fraud or constructive fraud.

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

(3) The onus of proving fraud sufficient to disturb the registered proprietor’s title rests on the person alleging fraud, which must be discharged on the balance of probabilities.

(4) The plaintiff, who alleged constructive fraud, failed to prove that the circumstances in which the defendant was granted Urban Development Leases over the subject land were in any material way unsatisfactory, irregular or unlawful or that the defendant had failed materially to comply with development conditions to which the Urban Development Leases were subject or that there was any defect in those Leases; and further failed to prove that the State Leases were granted in any material way that was properly regarded as unsatisfactory, irregular or unlawful, let alone that any such unsatisfactory, irregular or unlawful circumstances (if such had been proven) were tantamount to fraud.

(5) All relief sought by the plaintiff was refused. The cross-claim was upheld. Declarations were granted that the defendant is registered proprietor, entitled to vacant possession, and orders were made for removal of the plaintiff from the land and for the plaintiff to pay the defendant’s costs.

Cases Cited

The following cases are cited in the judgment:

Awaincorp Ltd v Kas (2015) N5862
Emas Estate Development Pty Ltd v John Mea [1993] PNGLR 215
Eric Kiso v Bennie Otoa & Ken Wutnalom (2013) SC1222
Godowan Investments Ltd v Wambea, Jiajiale and Gambu (2018) N7263
Koitachi Ltd v Walter Schnaubelt (2007) SC870
Kol Toki v Moeka Morea (2016) SC1558
Lae Bottling Industries Ltd v Lae Rental Homes Ltd (2011) SC1120
Mamun Investment Ltd v Nixon Koi (2015) SC1409
Mark Lakani v Gabe Ikupu (2015) N6067
Mudge v Secretary for Lands [1985] PNGLR 387
PNG Deep Sea Fishing Ltd v Luke Critten (2010) SC1126
PNG Ready Mixed Concrete Pty Ltd v The State [1981] PNGLR 396
Sali Tagau v Vitus Kais (2018) SC1755
Simon Wama v Powes Parkop (2018) N7323
Tony Yagon for himself & on behalf of Settlers of Dylup Plantation v Nowra No 59 Ltd trading as Dylup Plantation (2008) N3375

STATEMENT OF CLAIM

This was a trial in which the plaintiff sought declarations and orders regarding government land that he occupied, which was the subject of State Leases held by the defendant.

Counsel

J Kolkia, for the Plaintiff & Cross-Defendant
G Pipike, for the Defendant & Cross-Claimant

8^th September, 2020

1. CANNINGS J: This case is about six allotments of government land in the Wagol area of Madang town, Section 173, Allotments 6, 7, 8, 9, 10 and 11. The plaintiff, Anton Gambu, has lived on the land and developed it and established businesses on it, over a period of more than 40 years. But he does not own it, and has no legal interest in it. The registered proprietor of the State Leases over those allotments is the defendant, Godowan Investment Ltd, (“Godowan”), a business arm of Madang Urban Local-level Government.

2. Mr Gambu claims that Godowan was fraudulently granted the State Leases in 2014, due to it being unlawfully or improperly granted Urban Development Leases over the land in 2009 and then not complying with development covenants, which resulted in the State Leases being granted unlawfully and/or improperly, contrary to the Land Act. He seeks declarations that all its titles are illegal and void, and an injunction that would restrain it from reapplying for any interest in the land.

3. Godowan filed a cross-claim, pleading that Mr Gambu is an illegal occupant and seeking a declaration that it is the registered proprietor of the six allotments and an order that Mr Gambu and other illegal occupants be removed from the land.

4. Godowan raises a preliminary argument that the proceedings are time-barred under the Frauds and Limitations Act 1988. If that argument fails, Godowan argues that it was granted the State Leases after following the correct procedures under the Land Act and that there was no constructive fraud surrounding it becoming the registered proprietor in 2014.

ISSUES

5. The following issues arise:

1 Are the proceedings time-barred?

2 Has Mr Gambu proven constructive fraud?

3 Has Godowan proven that Mr Gambu is an illegal occupier?

4 What declarations or orders should the Court make?

1. ARE THE PROCEEDINGS TIME-BARRED?
   

6. Mr Pipike, for the defendant, submitted that the proceedings are time-barred by s 16(1) (limitation of actions in contract, tort, etc) of the Frauds and Limitations Act, which states:

Subject to Sections 17 and 18, an action—

(a) that is founded on simple contract or on tort; or

(b) to enforce a recognisance; or

(c) to enforce an award, where the submission is not by an instrument under seal; or

(d) to recover any sum recoverable by virtue of any enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture,

shall not be brought after the expiration of six years commencing on the date on which the cause of action accrued.

7. Mr Pipike relied on s 16(1)(a) to argue that this is a case founded on the tort of fraud, therefore it had to be commenced within six years after the date on which the cause of action accrued. He argued that the tort of fraud was allegedly committed on or about 17 November 2009, when Godowan was granted the Urban Development Leases. The plaintiff had until 17 November 2015 to commence the proceedings. But these proceedings were not commenced until 10 July 2018, which exceeded the statutory time limit by more than two years.

8. I reject that submission for two reasons. First, this is not an action founded on the tort of fraud or any other form of action covered by s 16(1) of the Frauds and Limitations Act. Though in some cases (eg Sali Tagau v Vitus Kais (2018) SC1755 and Mark Lakani v Gabe Ikupu (2015) N6067) a challenge to a person’s title to government land has been regarded as an action founded on the tort of fraud, and therefore subject to the six-year limitation period, the present case should not be categorised in that way.

9. The plaintiffs’ amended statement of claim filed on 6 September 2019 does not plead the tort of fraud; and nor did it have to. A case of constructive fraud for the purposes of s 33(1) of the Land Registration Act is pleaded. There are many cases now applying the principle established by the Supreme Court in Emas Estate Development Pty Ltd v John Mea & Ors [1993] PNGLR 215 that a registered proprietor’s State Lease can be annulled in a case of constructive fraud and that proof of actual fraud is not necessary. These cases suggest that a pleading of constructive fraud is not the same thing as a pleading of the tort of fraud, and therefore the case is not caught by s 16(1) of the Frauds and Limitations Act.

10. The second reason the action is not time-barred is that it falls within s18 (claims for specific performance, etc) of the Frauds and Limitations Act, which states:

Section 16 does not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief.

11. Section 18 requires the Court to assess the nature of the primary relief sought by the plaintiff. If it is equitable relief, the proceedings are not subject to the time limitation in s 16. The primary remedies sought by the plaintiff is a declarations that the defendant obtained the State Leases by constructive or equitable fraud. The declarations are not sought on the basis of breach of contract or the tort of fraud or deceit or other common law action, but on an equitable cause of action. They are therefore equitable remedies (Mamun Investment Ltd v Nixon Koi (2015) SC1409). The proceedings are not time-barred.

2. HAS MR GAMBU PROVEN CONSTRUCTIVE FRAUD?
   

12. Mr Kolkia, for Mr Gambu, submitted that Godowan acquired the State Leases by constructive fraud, due to it being unlawfully granted the Urban Development Leases and its failure to comply with development conditions to which those leases were subject.

Facts

13. To assess this argument, I make the following findings of fact:

• Mr Gambu moved on to the land in 1972 and built residences and other buildings on it and established and ran business on it.
  
• The land has been at all relevant times government land.
  
• The State Leases granted to Godowan were the first State Leases over the land. Prior to that, it was vacant government land.
  
• In 2004 the National Physical Planning Board granted Mr Gambu approval to undertake surveying and apply for rezoning of the land.
  
• On 5 November 2009 Mr Gambu’s survey plan was registered by the Surveyor-General.
  
• On 17 November 2009 Godowan was granted two five-year Urban Development Leases over the subject land, then known as Portions 1225 (an area of 2.44 hectares) and 1226 (6.38 hectares). Those leases were back-dated to commence on 19 June 2008.
  
• On 8 October 2014 Godowan was granted 99-year State Leases over the land under s 92 of the Land Act, back-dated to commence on 30 May 2013.
  
• In 2017 Godowan commenced proceedings against two other occupants of the land, and Mr Gambu also became a defendant in those proceedings, OS No 103 of 2017. The case three of the six allotments (Section 173, Allotments 6, 7 and 8) that are the subject of the present proceedings. A trial was conducted. Godowan sought and was granted, on 11 May 2018, a declaration that it is the registered proprietor of those three allotments and an order requiring the occupants including Mr Gambu to vacate the land by 11 July 2018, failing which the Police were authorised to evict them (Godowan Investments Ltd v Wambea, Jiajiale and Gambu (2018) N7263).
  
• The present proceedings were commenced on 10 July 2018. The trial commenced on 15 November 2018 and was conducted on various dates until submissions were completed and judgment was reserved on 24 June 2020.
  
• Despite the order of 11 May 2018, Mr Gambu has remained in occupation of the land.
  

What does “fraud” mean?

14. Under Papua New Guinea’s Torrens Title system of land registration the general principle is that once a lease of land from the State is registered, an indefeasible title is conferred on the registered proprietor, subject only to the exceptions in s 33(1) (protection of registered proprietor) of the Land Registration Act, including s 33(1)(a), which states: “The registered proprietor of an estate or interest holds it absolutely free from all encumbrances except ... in the case of fraud” (Mudge v Secretary for Lands [1985] PNGLR 387).

15. “Fraud” means actual fraud or constructive fraud. Constructive fraud exists where the circumstances of the grant or transfer of title are so unsatisfactory, irregular or unlawful, it is tantamount to fraud, warranting the setting aside of registration of title. There is now a strong line of Supreme Court authority in support of the constructive fraud approach: Emas Estate Development Pty Ltd v John Mea [1993] PNGLR 215, PNG Deep Sea Fishing Ltd v Luke Critten (2010) SC1126, Lae Bottling Industries Ltd v Lae Rental Homes Ltd (2011) SC1120 and Kol Toki v Moeka Morea (2016) SC1588.

16. That line of authority is, in my view, binding on the National Court, more so than cases such as Koitachi Ltd v Walter Schnaubelt (2007) SC870 and Eric Kiso v Bennie Otoa & Ken Wutnalom (2013) SC1222, in which the Supreme Court has indicated that proof of actual fraud is necessary.

Plaintiff’s case

17. Mr Gambu claims that the State Leases granted to Godowan in 2014 are affected by constructive fraud, due to Godowan:

(a) being unlawfully or improperly granted Urban Development Leases over the land in 2009; and then

(b) not complying with development covenants.

18. It is argued that those two transgressions resulted in the State Leases being granted unlawfully and/or improperly, contrary to the requirements of the Land Act.

(a) Alleged illegalities or improprieties in granting the Urban Development Leases

19. It is argued that:

(i) One of the Urban Development Leases was granted over a non-existent Portion 1226, as Portion 1226 was described on the lease as being “an area of 6.38 hectares or thereabouts, as delineated on registered survey plan ... catalogue No 3/242”. However, that is not a survey plan for land in Madang town. Catalogue No 3/242 is for a portion of land in Wewak town, East Sepik Province.

(ii) The Urban Development Leases for Portions 1225 and 1226 were granted in the absence of a site inspection.

(iii) Godowan was granted the Urban Development Leases through a closed tender, which was facilitated on the false premise that Godowan had undertaken development on the land.

20. As to (i) and (ii), evidence has been adduced in support of each proposition, which appears credible. However, I am not persuaded that the irregularities are material. Neither the misdescription of a catalogue number nor the absence of a site inspection are matters disclosing non-compliance with the requirements of Division X.10 (urban development leases), consisting of ss 103 to 110, of the Land Act.

21. As to (iii), this is a more serious allegation. I find, based on the evidence in the affidavit of Titus Futrepa, Godowan’s managing director, exhibit D1, that Portions 1225 and 1226 were advertised as being available for Urban Development Leases by a tender notice in National Gazette No G194 of 23 December 2007. At the end of the notice was the following statement:

This advertisement only allows for Godowan Investment Limited and not open to the General Public due to infrastructure development done on the land by Godowan Investment Limited.

22. I find, based on the evidence presented by Mr Gambu, that in fact Godowan, though proposing infrastructure development on the land, had not, at that time, done any. The closed tender was therefore facilitated on a false premise. I find that this amounted to an irregularity in the tender. However, I am not persuaded that a closed tender conducted in such circumstances amounted to a breach of any particular provision of the Land Act.

23. In these circumstances Mr Gambu has failed to prove any material irregularity or illegality in the granting of the Urban Development Leases.

(b) Alleged failure by Godowan to comply with development conditions

24. It is argued that:

(i) The Urban Development Leases granted over Portions 1225 and 1226 were subject to a number of conditions.

(ii) Godowan did not fully comply with the conditions.

(iii) Despite lack of evidence that Godowan had complied fully with the development conditions, Godowan managed to get the Acting Chief Physical Planner to issue a UDL completion certificate on 13 January 2013, which falsely stated that Godowan had fully satisfied the conditions of the Urban Development Leases over Portions 1225 and 1226.

25. As to (i), it is correct that each Urban Development Lease was subject to a number of conditions, viz:

(a) Survey shall be at the Lessee’s expanse;

(b) Rent shall be paid at the rate of One Thousand One Hundred and Fifty (K1, 150.00) Kina which is one percent (1%) of the unimproved value of the land;

(c) A cadastral survey plan of the subdivision, conforming to the final proposal for the subdivision approval by the Physical Planning Board, and supporting documents shall be lodged for registration by the Surveyor General or his delegate within 6 months of approval by the Physical planning board;

• (d) Roads and associated drainage, culverting, shoulders and invert water reticulation and sewerage, shall be constructed in accordance with the specification prepared by an competent Engineer and submitted to and approved by the Department of Works or Urban Local Government engineer.
  

26. As to (ii), I find, based on the evidence presented by Mr Gambu, that in fact Godowan did not comply fully with those conditions. This was conceded by Mr Futrepa when he gave oral evidence; for example, he stated that Godowan’s attempts to complete a road and other infrastructural works were thwarted by the presence of settlers residing on the land. The failure to comply with all development conditions is properly regarded as an irregularity. However, I am not persuaded that by itself it amounted to a material irregularity.

27. As to (iii), it is correct that a UDL completion certificate was issued for each of Portions 1225 and 1226 in the following terms:

OFFICE OF THE CHIEF PHYSICAL PLANNER

REQUIREMENTS PRESCRIBED BY SECTION 110, LAND ACT, 1996

UDL COMPLETION CERTIFICATE

NO: 02/2013 – Mamose Region

TO: GODOWAN INVESTMENT LTD

PO BOX 444

MADANG 511

MADANG PROVINCE

In accordance with Section 110 of the Land Act, No. 455 of 1996; and in recognition of a Notice by the Holder of an Urban Development Lease of an intention to surrender all or any part of the Urban Development Lease Volume: 17 Folio: 100 in respect of land formerly described as Portion 1226, Milinch of Kranket Fourmil of Madang within the physical planning area of Madang, Madang Province.

I hereby CERTIFY that:

1. The development of all or any of that land, as described in the schedule to this Certificate, has been completed to the satisfaction of all parties to the agreement entered into under Section 81 of the Physical Planning Act 1989 and/or any other agreement as notified in the schedule; and
   
2. The land is suitable for the preparation of a new Lease or Leases in accordance with Covenants appended to the original Urban Development Lease.

GEORGE HAULA UME Date11 January 2013

A/Chief Physical Planner

28. However, it is not correct to say that the Acting Chief Physical Planner certified that Godowan had fully satisfied the conditions of the Urban Development Leases over Portions 1225 and 1226. He certified only that “the development of all or any of that land ... has been completed to the satisfaction of all parties to the agreement entered into under Section 81 of the Physical Planning Act 1989 and/or any other agreement as notified in the schedule” and “the land is suitable for the preparation of a new Lease”.

29. It is therefore not correct to assert that the certificate was false or that there was any impropriety involved in its issuance.

30. Nor is there sufficient evidence on which it can be found that the certificate was issued contrary to s 110 (surrender of land in the subdivision and grant of new leases) of the Land Act, which states:

(1) On the completion, to the satisfaction of the Chief Physical Planner or his delegate of development of all or any part of the land the subject of an urban development lease, the lessee may surrender all or part of the land and a new lease or new leases shall be granted over the developed portions of the land—

(a) in the name of the lessee; or

(b) at the direction of the lessee.

(2) The new lease or new leases shall contain the covenants and conditions specified under Sections 107(c) and 109(3).

(3) On the partial surrender of a lease in accordance with Subsection (1), the rent, covenants and conditions of the lease may be varied to such extent as the Minister, on the recommendation of the Departmental Head, thinks proper.

31. In these circumstances Mr Gambu has failed to prove any material irregularity or illegality arising from the failure of Godowan to comply with all development conditions to which the Urban Development Leases were subject.

Was Godowan granted the State Leases by constructive fraud?

32. No. Mr Gambu has not proven that the irregularities that preceded the granting of the State Leases were material.

33. The onus of proving constructive fraud sufficient to disturb a registered proprietor’s title rests on the person alleging fraud, which must be discharged on the balance of probabilities (Awaincorp Ltd v Kas (2015) N5862).

34. Mr Gambu, who alleged constructive fraud, has failed to prove that the circumstances in which Godowan was granted Urban Development Leases over Portions 1225 and 1226, were in any material way unsatisfactory, irregular or unlawful or that the irregularities that preceded the granting of the State Leases (arising from Godowan’s failure to comply with all development conditions) were material.

35. Mr Gambu has therefore failed to prove that the State Leases were granted in any material way that is properly regarded as unsatisfactory, irregular or unlawful, let alone that any such unsatisfactory, irregular or unlawful circumstances (if such had been proven) were tantamount to fraud. Mr Gambu has failed to prove his case, which means his proceedings will be dismissed. I now turn to the cross-claim.

3. HAS GODOWAN PROVEN THAT MR GAMBU IS AN ILLEGAL OCCUPIER?
   

36. There is ample evidence that Mr Gambu has no legal interest in the land. However, it is incontestable that he has had, by virtue of his long-term occupation of the land and steps that he has taken to formalise his occupation, an equitable interest in the land. That means he has a right to be given reasonable notice to leave (PNG Ready Mixed Concrete Pty Ltd v The State [1981] PNGLR 396, Tony Yagon for himself & on behalf of Settlers of Dylup Plantation v Nowra No 59 Ltd trading as Dylup Plantation (2008) N3375, Simon Wama v Powes Parkop (2018) N7323).

37. Mr Gambu was given reasonable notice to leave by the order of this Court of 11 May 2018 in OS No 103 of 2017, which has the effect of neutralising his equitable interest.

38. Though strictly speaking he is presently without an equitable interest in the land, and therefore an illegal occupier, he nonetheless needs to be treated with respect and should be given an extra period to vacate the land.

4. WHAT DECLARATIONS OR ORDERS SHOULD THE COURT MAKE?
   

39. The plaintiff’s proceedings must be entirely dismissed. The defendant’s cross-claim will be upheld. It will be granted the relief it seeks. Costs will follow the event.

ORDER

(1) Subject to this order, the plaintiff’s proceedings are dismissed and all relief sought by the plaintiff is refused.

(2) It is declared that the defendant is the registered proprietor of State Leases over the properties described as Section 173, Allotments 6, 7 8, 9, 10 and 11, Madang, Madang Province and is entitled to vacant possession of those properties (“the subject properties”) in accordance with this order.

(3) Any stay order or injunction granted in these or any other proceedings authorising the plaintiff’s occupation of the subject properties or restraining his eviction from the subject properties, is dissolved forthwith.

(4) The plaintiff and all other persons in occupation of the subject properties shall, unless the defendant gives its express consent otherwise, vacate the subject properties, having removed at their own expense all buildings and structures that they may have erected on the subject properties, together with all of their personal property and possessions, by 12 noon on 9 October 2020, failing which the defendant and the Police are authorised, from 12 noon on 9 October 2020, to take all reasonable steps necessary to remove the plaintiff and other persons in occupation of the subject properties, from the subject properties, including the use of reasonable force, and to destroy, demolish, dismantle, seize and/or remove any buildings, structures or personal property or possessions still on the subject properties, provided that such steps are taken under the supervision and control of the most senior member of the Police Force available at that time in the vicinity of the subject properties.

(5) The plaintiff shall pay the defendant’s costs of the proceedings, on a party-party basis, which shall, if not agreed, be taxed.

Judgment accordingly.
______________________________________________________________
Johnny Kolkia Lawyers: Lawyers for the Plaintiff & Cross-Defendant
GP Lawyers: Lawyers for the Defendant & Cross-Claimant: