Memafu v National Housing Corporation [2020] PGNC 453; N8736 (20 November 2020)

N8736

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 1771 OF 2019

BETWEEN:
MURPHY MEMAFU
First Plaintiff

AND:
AGNES MEMAFU
Second Plaintiff

AND:
NATIONAL HOUSING CORPORATION
First Defendant

AND:
MOREA SIAI
Second Defendant

AND:
ALE ANE as ACTING REGISRAR OF TITLES, DEPARTMENT OF LANDS AND PHYSICAL PLANNING
Third Defendant

Lae: Dowa AJ
2020: 06^th October & 20^th November

STATE LEASE – plaintiffs seeking orders that the state lease granted to the second defendant be declared null and void on the basis of fraud - whether decision to sell and transfer title of property improper, irregular and in breach of sections 37 and 38 of the National Housing Corporation Act and sections 10 and 11 of the Land Act - transactions done by the defendants to transfer title to the second defendants amounts to constructive fraud - decision to sell and transfer title of the property done in breach and defiance of the orders of the District Court which amounts to constructive fraud - transfer and registration of Title of property from the First Defendant to the Second Defendant is declared null and void and of no effect and is quashed - First Defendant shall proceed with the completion of the contract for sale between the First Defendant and the Plaintiff within three months
Cases Cited:

Mota v Camilus (2009) N3851
Pius Tikili v Home Base Real Estate Ltd (2017) SC1563
PNG Bible Church Inc v Carol Mandi (2018) SC 1724
Rosemary John v James Nomenda (2010) N3851
Toki v Helai (2016) SC1558
Vaki Vailala v NHC (2017) N6598

Counsel:

L. Vava, for the Plaintiff
M. Limu, for the First Defendant
J. Kusip, for the Second Defendant

DECISION

20^th November, 2020

1. DOWA AJ: The Plaintiffs are seeking declaratory orders that the transfer and registration of title over property described as Allotment 44 Section 35, Lae, State Lease Volume No. 25, Folio 44 from the First Defendant, National Housing Corporation to Morea Siai, the Second Defendant, be declared null and void on the basis of fraud.
   
2. I heard the matter on 14^th September 2020 and received submissions from counsel on 6^th October 2020. I reserved my decision which I now deliver.
   

Facts

3. The Plaintiffs are a married couple. They are tenants of a National Housing Corporation property described as allotment 44 Section 35 Lae, pursuant to a Tenancy Agreement entered between them and the First Defendant. On 18^th October 2018, the Plaintiffs executed a contract for sale to buy the said property, for the sum of K336,875.00. They paid a deposit of K34,687.50 on the property.
   
4. Whilst awaiting completion of the purchase, the Plaintiffs received a Notice to vacate on 9^th December 2019 from Morea Siai, the Second Defendant. The Second Defendant produced a title to the property, which the Plaintiffs did not know of at the material time. The Plaintiffs were told the title of the property was transferred from the first Defendant to the Second Defendant on 2^nd November 2017.
   
5. The Plaintiffs allege, they are long term tenants, and having entered a Tenancy Agreement with the First Defendant, on the property, they have a legitimate and equitable interest in the property. The Plaintiffs allege the transfer to and registration of Title in the name of the Second Defendant is fraudulent and is in violation of Sections 37 and 38 of the National Housing Corporation Act and is irregular.
   
6. The Plaintiffs are now seeking declaratory orders to nullify the sale and registration of the transfer of title.
   

Defence

7. The Second Defendant filed a Defence, pleading that he is the registered proprietor, having purchased the property from the First Defendant on or about March 2017 for a purchase price of K350,000.00.
   
8. The title was transferred from the First Defendant to the Second Defendant on 2^nd November 2017. The Second Defendant alleges he has an indefeasible title pursuant to section 33 of the Land Registration Act.
   

Issues

9. The issues for consideration are:
   
   1. Whether the transfer of title of property described as Allotment 44 Section 35 Lae from the First Defendant to the Second Defendant is fraudulent?
   2. If so, what shall be the consequential orders?
      

Evidence

10. The parties agreed to use affidavit evidence without cross-examination.

For the Plaintiff, the following Affidavits were tendered:

Affidavit of Agnes Memafu filed 12/03/2020

Affidavit of Murphy Memafu filed 12/03/2020

Affidavit of Agnes Memafu filed 31/08/2020

The Second Defendant, relies on his own affidavit, filed 9^th March 2020.The other parties especially the National Housing Corporation offered no evidence.

11. The summary of the Plaintiffs evidence is that they are existing tenants. Mr Memafu’s father, late Harry Ofae Memafu, moved onto the property in 1976 under a tenancy agreement with the National Housing Corporation. He made a request for outright purchase in 1994 which was pending until his death in 2007. After the passing, the Plaintiff, Murphy Memafu who was the continuing occupant, entered into a new tenancy agreement on 4^th December 2007. This Tenancy was again renewed on 20^th September 2013 in the joint names of the Plaintiffs, Agnes and Murphy as husband and wife. The Plaintiffs maintained their interest in purchasing the property since 2008 but the First Defendant was slow in responding until 22^nd June 2018. They have been faithful in paying up all the rentals. By letter dated 22^nd June 2018, the First Defendant offered to sell the properly to them at a purchase price of K336,875.00, with the requirement of 10% deposit. On 9^th July 2018, the Plaintiffs promptly paid the 10% deposit of K34,687.50. On 11^th October 2018, a contract for sale was signed between the Plaintiff and the First Defendant. Whilst pending settlement, the Plaintiffs received a Notice to vacate from the Second Defendant, attaching a copy of the Title. The Plaintiffs being taken by surprise commenced these proceedings.
    
12. The Plaintiffs gave evidence, they have been long time tenants having been legal tenants over 40 years and are not aware of the decision by the First Defendant to sell and transfer the property to the Second Defendant. They say, the Second Defendant is not an eligible person under sections 37 and 38 of the National Housing Corporation Act.
    
13. The Plaintiffs allege, that sometime in 2017, some officers of the first Defendant made moves to remove them from the property without considering their interest in buying the property. They applied to the District Court which issued restraining orders on 15^th June 2017. The orders were served on the National Housing Corporation. Despite the existence of the orders, the First Defendant proceeded with the Transfer.
    
14. Finally, the Plaintiff allege that, at the time when the First Defendant agreed to sell the property, the title to the property was not yet issued to the First Defendant. The title was issued to National Housing Corporation only on 30^th October 2017.
    

Morea Siai

15. Morea Siai, the Second Defendant, filed an Affidavit. He says he expressed an interest in the property in 2016. The First Defendant agreed to sell the property to him for K350,000.00. On 28^th March 2017 he paid K40,425.00 as deposit. He signed a contract for Sale and Transfer on 19^th April 2017. He paid the balance of K309,800.00 on or about 20^th April 2017. The transfer was registered on 2^nd November 2017.
    

National Housing Corporation

16. The First Defendant offered no evidence.
    

SUBMISSIONS OF COUNSEL

17. The Plaintiffs: The Memafus
    

Mr Vava, Counsel for the Plaintiffs submit that the transfer of title by the First Defendant to the Second Defendant was fraudulent. He submitted the First and Second Defendant committed constructive or equitable fraud.

18. Firstly, Mr Vava submits, the transfer was in breach of sections 37 and 38 of the National Housing Corporation Act. The Plaintiffs are the sitting tenants and they are qualified to purchase the property, and not the Second Defendant under the provisions of sections 37 and 38 of the National Housing Corporation Act.
    
19. Secondly, Mr Vava submits, the Sale and Transfer was improper and is in breach of sections 10 and 11 of the Land Act. That is, the First Defendant did not have a tittle on 19^th April 2017 when it executed the Transfer. The title was issued to the First Defendant on 30^th October 2017, which is six months after execution of the Contract for Sale and about two (2) days before the Transfer was registered in the name of the Second Defendant.
    
20. Thirdly, Mr Vava submits, the transfer was executed in direct breach of the District Court orders of 15^th June 2017. The orders of 15^th June 2017, restrained the First Defendant from dealing with the property, especially selling or transferring the property to any persons other than the Plaintiffs.
    
21. Mr Vava referred to a number of cases especially Toki v Helai (2016) SC1558, Vaki Vailala v NHC (2017) N6598 and Mota v Camilus (2009) N3851 in support of his submissions.
    

The Second Defendant: Morea Siai

22. Mr Kusip, counsel for the Second Defendant, submits that the First Defendant has an unfettered discretion to sell its properties to whoever it wishes under section 38(1) of the National Housing Corporation Act. The Plaintiffs have defaulted in their tenancy rentals and it was up to the First Defendant who had the right to sell and the Second Defendant has purchased the property in good faith. He is now the registered title holder and has an indefeasible title under section 33 of the Land Registration Act.
    

National Housing Corporation

23. Mr Limu, counsel for the First Respondent submitted, the Plaintiffs have defaulted in paying rents in time under the tenancy agreement. And therefore, the First Defendant has a discretion to sell the property to the other persons under sections 37 and 38 of the National Housing Corporation Act.
    

Reasons for Decision

24. I note, the Second Defendant has a title, and under Section 33 of the Land Registration Act, it is indefeasible except on grounds of fraud. Section 33 (1) reads:

s33. Protection of registered proprietor.

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

(a) in the case of fraud; and

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

(c) the estate or interest of a proprietor claiming the same land under a prior instrument of title; and

(d) in case of the omission or misdescription of any right-of-way or other easement created in or existing on the same land; and

(e) in case of the wrong description of the land or of its boundaries; and

(f) as to a tenancy from year to year or for a term not exceeding three years created either before or after the issue of the instrument of title of the registered proprietor; and

(g) as provided in Section 28; and

(h) a lease, licence or other authority granted by the Head of State or a Minister and in respect of which no provision for registration is made; and

(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.”

25. The Second Defendant’s title can only be set aside on the ground of fraud. The Plaintiffs are alleging that the sale and transfer of title from the First to the Second Defendant was improper and irregular, such that the title obtained by the Second Defendant is invalid and is bona fide in dispute. The Plaintiffs have pleaded constructive fraud. I am of the view that it is maintainable if they bring necessary evidence.
    
26. Fraud is defined in the head notes of the judgments in the case Vaki Vailala v NHC (2017) N6598 and Pius Tikili v Home Base Real Estate (2017) SC1563 to mean “actual fraud or constructive fraud. Constructive fraud exists where the circumstances of a transfer of title are so unsatisfactory, irregular or unlawful, it is tantamount to fraud, warranting the setting aside of registration of title.”
    
27. The law on constructive fraud is now settled in this jurisdiction. Refer to Pius Tikili v Home Base Real Estate Ltd (2017) SC1563, PNG Bible Church Inc v Carol Mandi (2018) SC1724 and Rosemary John v James Nomenda (2010) N3851, Toki v Helai (2016) SC1558, and Vaki Vailala v NHC (2017) N6598 and Mota v Camilus (2017) N6810.
    
28. In the Pius Tikili case, the Supreme Court had this to say at paragraph 23 concerning constructive fraud:

“His Honour, we consider, should have addressed the meaning of “fraud” in section 33(1)(a) of the Land Registration Act more rigorously. There is now a strong line of Supreme Court decisions that have substantially qualified the concept of indefeasibility of registered title set out in Mudge v Secretary for Lands (1985) PNGLR387.Cases such as Emas Estate Development Pty Ltd v John Mea (1993) PNGLR215,PNG Deep Sea Fishing Ltd v Luke Critten (2010) SC1126 and Lae Bottling Industries Ltd v Lae Rental Homes Ltd (2011) SC1120 support the proposition that in many situations it will not be appropriate to insist on proof of actual fraud before the National Court considers cancelling the registered proprietor’s title. It will be sufficient if constructive or equitable fraud is proven. Constructive fraud exists where the circumstances of a transfer of title are so unsatisfactory, irregular or unlawful, it is tantamount to fraud, warranting the setting aside of registration of title.”

29. The Tikili decision is further endorsed and supported by the Supreme Court in the most recent case of PNG Bible Church v Carol Mandi (supra) that a failure to follow the process under the Land Act and the National Housing Corporation Act can render all dealings invalid on the basis of constructive fraud.
    

Failure to Follow the process under sections 37 and 38 of the National Housing Corporation Act.

30. Did the First and Second Defendants follow due process under sections 37 and 38 of the National Housing Corporation Act in the transfer and registration of Title in the name of the Second Defendant. Sections 37 and 38 provide and I quote:
    

“37. Sale of dwellings.

Subject to this Division, the Corporation may sell a dwelling vested in it to—

(a) an eligible person; or

(b) an approved applicant; or

(c) a person who exercises the option offered to him under Section 38(1).

38. Options to purchase.

(1) After a tenancy agreement has been in force for two years between the Corporation and a tenant, the Corporation may, in its discretion, offer to—

(a) the tenant; or

(b) the spouse, widow or widower of the tenant; or

(c) the tenant and his spouse as joint tenants; or

(d) the tenant and his next of kin,

an option to purchase the dwelling the subject of the agreement at a purchase price specified in the option, subject to the conditions imposed by this Division.

(2) Where a tenant, under Division 1, of a dwelling becomes a purchaser under this section, either along or jointly with his spouse, he is entitled—

(a) as from the date on which his tenancy of the dwelling commenced; or

(b) if he has been a tenant of the Corporation in more than one dwelling without interruption and the Corporation so approves—from the date of first occupation of an earlier dwelling,

and subject to any terms specified in the option, to be credited in reduction of the sale price of the dwelling with an amount equal to that part of the economic rent that represents the repayment of the amount of the capital cost included in the amortization allowance in accordance with Section Sch.2.4.

(3) Where a tenant has not been credited with an amount in accordance with Subsection (2) and his spouse, widow or widower becomes a purchaser under this section, the spouse, widow or widower is entitled to be credited with the same allowance under Subsection (2) as the tenant would have been entitled to if he had purchased the dwelling.

(4) A contract of sale under this section may provide—

(a) for the outright purchase; or

(b) for the payment of the purchase price by instalments; or

(c) for the payment of the purchase price to be secured—

(i) by mortgage, in the prescribed form, over the property in respect of which the advance is made; or

(ii) by any other security approved by the Corporation”.

31. From evidence it is clear, the Plaintiffs are most qualified and eligible persons under section 37(1) of the National Housing Corporation Act. They have lived on the property over 40 years. They have entered into three different but consecutive tenancy agreements, first by their father in 1976, second by Murphy Memafu in 2007 and recently in 2013 in the joint names of Agnes and Murphy Memafu. There is evidence that they have paid all outstanding land rental under the tenancy agreement in the sum of K31,958.71. On 11^th October 2016, they have specifically written to the First Defendant again renewing their interest to purchase the property outright.

The First Defendant subsequently entered into a Sales Agreement with the Plaintiffs in 2018 for the outright purchase of the property.

32. I am of the view that the sale of the property by the First Defendant to the Second Defendant is irregular and in breach of sections 37 and 38 of the National Housing Corporation Act. There is no evidence showing the basis of how the Second Defendant became an eligible person or an approved applicant, under section 37(a) and(b) of the National Housing Corporation Act. Only the Minister can declare an approved applicant to qualify for outright purchases and there is no evidence of such approval. Section 37 is subject to other provisions of the Act, especially section 38. Section 38 provides for National Housing Corporation to make an offer to sitting tenants. In the present case, the Plaintiffs have shown their interest several years back which the first defendant failed to respond, until only recently in 2018.
33. I am not convinced by the First Defendant’s submissions that it decided to sell the property to other persons due to the Plaintiffs’ failure to pay up outstanding rental payments. I do not accept their submissions. Firstly, the First Defendant did not give evidence in the proceedings. Secondly, there is no evidence of any outstanding rents due and owing by the Plaintiffs. On the other hand, there is evidence provided by the Plaintiffs that all outstanding rents were settled, at least by June 2016 in the sum of K31,958.71. There is nothing outstanding.
34. The First Defendant has not provided any reason why they chose to sell the property to the Second Defendant without first advising or giving an opportunity to the Plaintiffs to purchase the property as current tenants. The Second Defendant did not enquire to establish if the property was vacant. There is no evidence of his enquiries of the property being vacant. At least by June 2017, the First and Second Defendants became aware of the District Court Orders yet they proceeded with the deal. The conduct of the First Defendant is improper and most irregular as it did not follow due process under sections 37 and 38 of the National Housing Corporation Act. The First Defendant does not have unfettered discretion to dispose properties under their custody without first following due process under sections 37 and 38 of the National Housing Corporation Act.
35. It is tantamount to fraud and I find constructive fraud is proved.

Irregularities under Sections 10 and 11 of the Land Act.

36. The second question I ask is, did the First Defendant have a registered State Lease when it executed a contract for sale and Transfer with the Second Defendant. From evidence provided, I find the First Defendant was not a registered title holder when it signed the Transfer in April 2017. This is obvious from the contract and Transfer documents that it does not have the Volume and Folio numbers. The First Defendant became registered proprietor on 30^th October 2017. The Transfer to the Second Defendant was registered on 2^nd November 2017, just three days after issuance of the State Lease. In my view, to execute a transfer without being registered as a title holder is improper and breaches sections 10 and 11 of the Land Act. Sections 10 and 11 reads as follows:
    
    10. REGISTRATION OF CERTIFICATES OF TITLE.

(1) A certificate of title is registered under and for the purposes of this Act as soon as it has been–

(a) marked with the volume and folio in which it is entered in the Register Book; and

(a) marked with the volume and folio in which it is entered in the Register; and

(b) signed, sealed and dated,

by the Registrar.

(2) One duplicate of a certificate of title shall, on registration, be delivered by the Registrar to the person entitled to it.

“11. CERTIFICATE OF TITLE TO BE EVIDENCE.

(1) The Registrar’s duplicate of a certificate of title, when registered–

(a) is evidence of the particulars it specifies; and

(b) is conclusive evidence, in relation to the land it describes, that the person named in the certificate of title–

(i) as seized of an estate in land; or

(ii) as taking or otherwise entitled to an estate or interest in the land,

is seized of, possessed or entitled to that estate or interest, as the case may be; and

(c) is conclusive evidence that the property comprised in the certificate of title is under this Act.

(2) The other duplicate of a certificate of title, when registered, is evidence of the particulars it specifies and of those particulars being entered in the Register.”

37. The First Defendant failed to follow due process. The practice of selling a property without being a registered proprietor is improper and amounts to constructive fraud as I find in the present case. Refer: to the case of Vailala v NHC (2017) N6598.
    

Defiance of Court Orders

38. There is a third reason why I consider the First Defendant’s conduct unlawful. The District Court made an order on 15^th June 2017, in the District Court proceedings: Murphy Memafu v Limu and National Housing Corporation, DC No. 228/2017, restraining the First Defendant from dealing with the property. I set out in full the terms of the orders:
    

“District Court Orders

1. The Complainant (Murphy Memafu) and his family shall continue to reside on the Property at Section 35, Allotment 44, Gurney Street, Eriku, Lae, Morobe Province.
   
2. The First and Second Defendants together with their servants, agents or representatives and their clients be restrained from conducting any form of dealings with the subject property described as Section 35, Allotment 44, Gurney Street, Eriku, Lae by way of allocation to another or other tenants.
   
3. The Defendants shall make an offer of sale giving first priority to the Complainant to purchase the property pursuant to Section 38 (1) of the National Housing Corporation Act 1990.
   
4. Defendants and their agents and servants are restrained from negotiating any form of sale arrangement with other persons or entities without according first opportunity to purchase the property to the Complainant.
   
5. Defendants to pay the complainant’s costs of proceedings.”
   
39. The order is still in force, and there is no evidence that it was set aside. In defiance of the orders, the First Defendant facilitated the transfer. Whilst the agreement for sale was signed on 19^th April 2017, the title to the property was not yet issued to the First Defendant until 30^th October 2017. The First Defendant had sufficient time to opt out of the deal with the Second Defendant. The First Defendant offered no explanation for defying the restraining orders. I find it is a deliberate breach and defiance of the orders of the District Court. Non-compliance of Court orders is a serious issue. The actions of the First Defendant are contemptuous and shows disrespect for the orders of court. In Toki v Hela (Supra), the Supreme Court held that the conduct of the Defendant amounted to constructive fraud, when it transferred title in direct breach of a Court order. I hold the same view.
    

Conclusion

40. In conclusion, I find the decision to sell and transfer title of property, described as Allotment 44, Section 35, Lae is improper, irregular and in breach of sections 37 and 38 of the National Housing Corporation Act. I also find, the decision by the First Defendant to sell and transfer title over the property to the Second Defendant is improper and irregular and failed to follow the process under Sections 10 and 11 of the Land Act. It amounts to constructive fraud.
    
41. Finally, I find the decision to sell and transfer title of the property was done in breach and defiance of the orders of the District Court which amounts to constructive fraud.
    
42. For the foregoing reasons, I am satisfied that the Plaintiff has established constructive fraud against the First and Second Defendants. I am inclined to grant the orders sought by the Plaintiffs.
43. In addition, it is open to me to make other orders under paragraph 5 of the relief clause. I am aware the Plaintiffs have entered into a contract for sale which is pending completion. In order to finalise this transaction between the parties, I am inclined to make additional orders for the completion of the transaction.
44. In respect of the Second Defendant’s dealings with the First Defendant, I will make no orders. It is up to the First and Second Defendants to resolve.

Orders

45. The orders of the Court:
    
    1. The transfer and registration of Title of property described as Section 35, Allotment 44, Lae, State Lease Volume 25, Folio 44, Morobe Province from the First Defendant to the Second Defendant is declared null and void and of no effect and is quashed.
    2. The Second Defendant, and any other person with possession or contact of the official copy of the State Lease over Section 35, Allotment 44, Lae, Morobe Province, shall within 14 days after the date of this Order return the said title to the Third Defendant.
    100. The Third Defendant shall amend and make such entries in the Register of State Leases and all other records of the State under his control to give effect to the cancellation of the interest of the Second Defendant in the State Lease over Section 35, Allotment 44, Lae, Morobe Province.
    4. The First Defendant shall proceed with the completion of the contract for sale between the First Defendant and the Plaintiff within three months from date of this order or such extended time to be agreed by the parties.
    5. The First and Second Defendants shall either jointly or severally pay the Plaintiffs’ cost of the proceedings to be taxed, if not agreed.
    6. The date for entry of these orders shall be settled by the Registrar which shall take place forthwith.

________________________________________________________________
Vava Lawyers: Lawyers for the Plaintiff
NHC Inhouse Lawyers: Lawyer for the First Defendant
Kusip Lawyers: Lawyer for the Second Defendant