Katu v National Housing Corporation [2020] PGNC 478; N8739 (4 December 2020)

N8739

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 1105 OF 2017

BETWEEN
ROSE KATU
Plaintiff

AND:
NATIONAL HOUSING CORPORATION
First Defendant

AND:
LIN MEI
Second Defendant

AND
OCEAN NIUGINI LIMITED
Third Defendant

AND:
BENJAMIN SAMSON
Fourth Defendant

Lae: Dowa AJ
2020: 20^th October & 04^th December

REAL PROPERTY – plaintiff seeking declaratory orders that the transfer and registration of title to land be declared null and void and of no effect, and other consequential orders – plaintiff a public servant and long term tenant of NHC property the subject of proceedings – plaintiff alleges she was not given opportunity pursuant to sections 37 and 38 of the National Housing Corporation Act - Whether transfer of title of property from the First Defendant to the Second Defendant is fraudulent – transfer done in breach of s37 and 38 NHC Act – first defendants actions amounted to constructive fraud - transfer and registration of Title of property from First Defendant to Second Defendant and subsequently to third Defendant declared null and void and of no effect and be quashed

Cases Cited:

Mota v Camilus (2009) N3851
Pius Tikili v Home Base Real Estate (2017) SC 1563
PNG Bible Church Inc v Carol Mandi (2018) SC1724
Toki v Helai (2016) SC1558
Vaki Vailala v NHC (2017) N6598

Counsel:

L. Vava, for the Plaintiff
M. Luma, for the First Defendant
G. Topa, for Second & Third Defendant

DECISION

04^th December, 2020

1. DOWA AJ: The Plaintiff is seeking declaratory orders that the transfer and registration of title from the National Housing Corporation, the First Defendant to the Second and third Defendants over a property described as Allotment 59 Section 3, Lae, Morobe Province, State Lease Volume 21 Folio 198, be declared null and void and of effect, and other consequential orders.
   

FACTS

2. The Plaintiff is a public servant, a psychiatric nurse, employed by the Department of Health. The Plaintiff alleges she is a long-time tenant of property described as allotment 59, section 3, Lae, Morobe Province.
   
3. The Plaintiff and her late husband Paul Katu, have been tenants and occupant of the said property since 1998 under a Tenancy Agreement with the National Housing Corporation, the First Defendant.
   
4. The Plaintiff maintained the property in good repairs and condition during the period of her stay.
   
5. The Plaintiff made requests to the First Defendant for the outright purchase of the property.
   
6. The Plaintiff alleges, despite her requests for the purchase, the First Defendant discretely sold the property to the Second Defendant without the knowledge of the Plaintiff.
   
7. The Plaintiff alleges, being a long-term tenant, and eligible person for the outright purchase, she was not given the opportunity pursuant to sections 37 and 38 of the National Housing Corporation Act.
   
8. The Plaintiff alleges the sale of the property to the Second Defendant by First Defendant was in breach of sections 37 and 38 of the National Housing Corporation Act, as the Second Defendant is not a qualified person.
   
9. The Plaintiff alleges the actions of the First and Second Defendants amount to fraud and therefore the transfer and registration of the property be declared null and void.
   

DEFENCE

10. The Second and Third Defendants filed a Defence, pleading that:
    

(1) the first Defendant has an unfettered discretion to sell the property to the Second Defendant.

(2) The Second Defendant purchased the property in good faith and has an indefeasible title by virtue of section 33 of the Land Registration Act.

11. The First Defendant filed a Defence, pleading it has an unfettered discretion to sell the property to whoever it desires. The First Defendant pleaded further that it had no obligation to notify or give priority to the Plaintiff before selling the property to third parties.
    

TRIAL

12. The trial was conducted by parties tendering their Affidavit evidence followed by written submissions. I reserved my ruling which I now deliver.
    

ISSUES

13. The issues for consideration are:
    
    1. Whether the transfer of title of property Allotment 59, Section 3, Lae, from the First Defendant to the Second Defendant is fraudulent; and

b) If so, what are the consequential orders

EVIDENCE

14. The Parties agree to use Affidavit evidence without cross-examination.

(1) For the Plaintiff, the following Affidavits were tendered.

(i) Affidavit of Rose Katu sworn 13/03/18, filed 16/03/18 – Exhibit P1

(ii) Affidavit of Rose Katu sworn 20/08/20, filed 30/08/20 – Exhibit P2

(2) For the Second and Third Defendants, the following affidavits were tendered without cross-examination:

(i) Affidavit of Lim Mei sworn 7/11/2017 filed 7/03/2018 – Exhibit D2

(ii) Affidavit of Lin Mei sworn 20/03/2018 filed 21/03/2018 – Exhibit D2

(iii) Affidavit of Lin Mei 15/09/2020 filed 18/09/2020 – Exhibit D3

(3) The First Defendant, National Housing Corporation offered no evidence.

PLAINTIFF’S CASE

15. The Plaintiff is a registered Psychiatric nurse at Angau Memorial Hospital. She has been a public servant for more than 45 years. She is the current tenant of the property, described as Allotment 59 Section 3, Lae, Morobe Province, through a Tenancy Agreement with the National Housing Corporation, the First Defendant. She has been a tenant with her late husband, Paul Katu, a policeman for more than 20 years.
    
16. The Plaintiff says she and her late husband kept up to date with all rental payments. In 1998 they expressed interest in purchasing the property. They have written four letters since. The First Defendant did not respond.
    
17. In January 2014, First Defendant wrote to the Plaintiff, to pay up outstanding rentals of K3,895.50 or face eviction. The Plaintiff says, the First Defendant was mistaken about the rental arears as there was nothing outstanding and the matter was resolved after reconciling the payments.
    
18. The Plaintiff says, unknown to her, the First Defendant arranged the Sale and Transfer of the property to the said Defendant sometime in December 2013. The transfer was registered in June 2014.
    
19. The Plaintiff alleges, she is the most eligible person who should have been offered the property, and not the Second Defendant.
    

LIN MEI FOR SECOND AND THIRD DEFENDANTS

20. Ms Lin Mei, the Second Defendant is a Chinese Businesswoman based in Lae. She owns several companies operating in Lae. She says she purchased the property from National Housing Corporation, the First Defendant for a purchase price of K350,000.00. The Contract for Sale and Transfer was executed on 6^th December 2013. The registration of transfer of title was entered on 20^th June 2014.
    
21. Lin Mei says, her company KC2 Ltd also bought a second property described as allotment 45, section 35, Lae, also from National Housing Corporation, for the purchase price of K350,000.00. The contract for Sale and Transfer was also executed in December 2013. The registration of transfer was also done on 24^th July 2014.
    
22. Lin Mei says in November 2013, the officers of National Housing Corporation, namely Joe Bulagi, and David Kaupa approached her to purchase a few properties from National Housing Corporation. They negotiated the price, and it was approved by the then Managing Director, John Dege, for the outright purchase of the properties.
    
23. On 2^nd December 2013, National Housing Corporation made an offer to sell the property to her for K350,000.00 which she accepted.
    
24. On 6^th December 2013, the Contract for Sales and Transfer was executed for the Sale. The transfer was registered with the Register of Titles on 20^th June 2014. Ms Mei says she transferred the property to the third Defendant a year later to settle some outstanding debts.
    

FIRST DEFENDANT – NATIONAL HOUSING CORPORATION

25. The First Defendant offered no evidence at the trial.
    

SUBMISSIONS OF COUNSEL

26. Mr Vava, Counsel for the Plaintiff submits 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.
    
27. Firstly, Mr Vava submits, the transfer was in breach of sections 37 and 38 of the National Housing Corporation Act. The Plaintiff is the sitting tenant and she is qualified to purchase the property, and not the Second Defendant under the provisions of sections 37 and 38 of the National Housing Corporation Act. Mr Vava submits that the Plaintiff was not given the opportunity to buy the property despite repeated requests.
    
28. 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 6^th December 2013 when it executed the Transfer. The title was issued to the First Defendant on 16^th June 2014, which is six months after execution of the Contract for Sale and about four (4) days before the Transfer was registered in the name of the Second Defendant.
    
29. 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.
    
30. Mr Limu, counsel for the First Defendant submitted, the Plaintiff has 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.
    
31. Ms Topa, counsel for the Second and Third Defendants, submits that the First Defendant has an unfettered discretion to sell its properties to whoever it wishes under section 37 of the National Housing Corporation Act. The Plaintiff has defaulted in her 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. She became the registered title holder and has an indefeasible title under section 33 of the Land Registration Act. And she has the right to sell the property to the Third Defendant in the normal course of business.
    

REASONS FOR DECISION

32. The Third Defendant is now the registered proprietor of the property the subject of these proceedings. I note the Second Defendant had the title when it transferred to the Third Defendant, 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.”

33. 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.”
    
34. 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.
    
35. In the Pius Tikili case, the Supreme Court has 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.”

36. 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.

37. 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”.

38. Under Section 37(a), an eligible person means a person declared under Section 3 of the Act to be eligible for assistance under part iv. Section 3 reads:
    

“DECLARATION OF ELIGIBLE PERSONS.

The Corporation may declare a person to be a person eligible for assistance under Part IV. by reason of– (a) his limited means; or (b) his present unsuitable housing; or (c) any other circumstances considered relevant by the Corporation.”

39. An approved person is a person approved by the Minister under Section 2 of the Act.
    
40. From evidence it is clear, the Plaintiff is the most qualified and eligible person under sections 37(a) and (c) and Section 38 of the National Housing Corporation Act. She and her late husband have lived on the property over twenty (20) years. They have entered into a tenancy agreement in 1998 in the joint names of Paul and Rose Katu. There is evidence that they have paid all outstanding land rental under the tenancy agreement. The initial rent was K23.00 which is now increased to K200 per fortnight. On 1^st December 1998, they have specifically written to the First Defendant showing their interest to purchase the property outright, under the Governments give away scheme. In 1998, the then Minister for Housing wrote back saying, there was a ban on the give- away scheme. At the relevant time, the Plaintiff and her late husband did a valuation on the property, which was assessed at K62,000 and they offered to pay. The Plaintiff and her late husband wrote a second letter to the First Defendant on 22^nd February 2011. And they wrote a third letter to the National Housing Corporation on 13^th May 2013 expressing their interest to buy the property. The Plaintiff’s husband passed away on 8^th December 2013. That is the same week when the National Housing Corporation sold the property to the Second Defendant. The Plaintiff wrote a fourth letter of interest on 13^th January 2014 to the First Defendant to purchase the property. The First Defendant did not respond to the Plaintiff’s request. Instead, about two days later, on 15^th January2014, the First Defendant wrote a warning letter to the Plaintiff to pay up outstanding rents or vacate the property.
41. 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 under Section 2 of the Act 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 Plaintiff has shown her interest several years back which the First Defendant failed to respond.
    
42. 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. The First Defendant says they gave final Notice to the Plaintiff to pay up outstanding rent. I note the Notice was issued by letter dated 15^th January 2014. In my view the notice was not genuine. It was designed to mislead the Plaintiff. This is because the property was already sold to the Second Defendant on 6^th December 2013. The letter was issued about a month later.
    43. The First Defendant did not inform the Plaintiff that they have sold the property to the Second Defendant. 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 Plaintiff and her late husband to purchase the property as current tenants.
    44. The Second Defendant, Lin Mei and her company KC2 Ltd bought two properties, from National Housing commission at the relevant time. Lin Mei says she purchased the properties to accommodate her national employees. Less than a year later, she sold or transferred both properties to her family company, Ocean Niugini Limited, the Third Defendant.
    45. The Second Defendant did not enquire to establish if the property was vacant. There is no evidence of her enquiries of the property being vacant. If the Second Defendant had done due search and enquiries she would have discovered that the Plaintiff was the occupant and would have noticed that the property was not vacant.
    46. 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. In opting to sell the property to Second Defendant who was a business woman with several companies was defeating the purpose of sections 3, 37 and 38 of the National Housing Corporation Act. The Second Defendant in her evidence said, she purchased the property to house her employees. The National Housing Corporation is set up to build, manage and provide affordable accommodation to the National workforce and to dispose of properties to eligible persons who lack the means to acquire properties at the competitive real estate market. The Second Defendant is not such a person sections 3,37 and 38 of the Act envisages when compared with the Plaintiff.
    47. For the fore going reasons, I find the actions of the First Defendant improper and contrary to both the express intention and the spirit of sections 3, 37 and 38 of the National Housing Corporation Act. It is tantamount to fraud and I find constructive fraud is proved.

IRREGULARITIES UNDER SECTIONS 10 AND 11 OF THE LAND ACT.

48. 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 December 2013. 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 16^th June 2014. The Transfer to the Second Defendant was registered on 20^th June 2014, just four 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.”
48. 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.

CONCLUSION

49. In conclusion, I find the decision to sell and transfer title of property, described as Allotment 59, Section 3, Lae is improper, irregular and in breach of sections 3, 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 is contrary to Sections 10 and 11 of the Land Act. It amounts to constructive fraud.
    
50. For the foregoing reasons, I am satisfied that the Plaintiff has established constructive fraud against the First and Second Defendants. As a consequence, the Third Defendant did not acquire a valid title for the purposes of Section 33 of the Land Registration Act. I am inclined to grant the orders sought by the Plaintiffs.
51. In addition, it is open to me to make other orders under paragraph 5 of the relief clause. I am aware the Plaintiff has shown interest in buying the property. In order to finalise this transaction between the parties, I am inclined to make additional orders for the First Defendant to make an offer to the Plaintiff to purchase the property, at a reasonable price, taking into account the valuation report provided by the Plaintiff.
52. In respect of the First Defendant’s dealings with the Second Defendant and the interests of the Third Defendants I will make no orders. It is up to the Defendant to resolve.
    

ORDERS

53. The orders of the Court:

1. The transfer and registration of Title of property described as Section 3, Allotment 59, Lae, Morobe Province, State lease Volume 21, Folio 198 from the First Defendant to the Second Defendant and subsequently to the third Defendant is declared null and void and of no effect and be quashed.
2. The Second and third Defendants, and any other person with possession or contact of the official copy of the State Lease over Section 3, Allotment 59, Lae, Morobe Province, shall within 14 days after the date of this Order return the said title to the Fourth Defendant.

100. The Fourth 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 and the Third Defendants in the State Lease over Section 3, Allotment 59, Lae, Morobe Province.

4. The First Defendant shall commence negotiations for sale of the property to the Plaintiff within three months from date of these orders or such further time to be agreed by the parties, taking into account the amount contained in the valuation report provided by the Plaintiff.
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: Lawyer for the Plaintiff
NHC Inhouse Lawyer: Lawyer for the First Defendant

Myles Legal Services: Lawyer for the Second & Third Defendant