N8269

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 342 OF 2009

YAWE RIYONG
Plaintiff

V

TERENCE JOHN SHELLEY,ADMINISTRATOR
OF THE ESTATE OF TERENCE JOHN SHELLEY (DECEASED), LATE OF GOROKA, EASTERN HIGHLANDS PROVINCE
First Defendant

NOWEK LIMITED
Second Defendant

Cannings J
Goroka : 2019;15 November
Waigani : 2019;28 November,
2020;16 April

CONTRACTS – oral agreement for provision of cash and property for business investment– whether agreement was an enforceable contract – determination of terms of contract – whether cause of action exists for breach of contract.

LAND – STATE LEASE OVER GOVERNMENT LAND – pleading of fraud against registered proprietor – principle of indefeasibility of title – exception in the case of fraud – whether plaintiff able to prove fraud warranting setting aside defendant’s title. 

In 1994, when the plaintiff (then a member of Parliament) and the first defendant’s father (now deceased)were good friends, they entered into an oral agreement under which the plaintiff would provide cash and other property to the deceased for investment in the deceased’s coffee business. The business was conducted by the second defendant, a company owned and controlled by the deceased’s wife.Over the next two years the plaintiff provided several hundred thousand Kina to the deceased. In 1997 the second defendant acquired the State Lease over the land on which the coffee business was conducted. During the mid-2000s the friendship between the plaintiff and the deceased soured. The plaintiff demanded repayment of his money. The deceased repaid some money, but not enough according to the plaintiff. In 2009the plaintiff commenced proceedings against the deceased and the second defendant, claiming damages and title to the land. The deceased died in 2017. The trial was conducted in 2019. The first defendant, who is the deceased’s son and administrator of his estate, replaced the deceased as the first defendant. The plaintiff pleaded two causes of action: (1) breach of contract (based on the alleged breach of the 1994 agreement, constituted by the deceased’s failure to repay in full, with interest, the amounts advanced to him and failure to transfer a 51% share in the second defendant to the plaintiff’s wife and failure to appoint her as a director); and (2) fraud (as to the acquisition of title in the land on which the coffee business was conducted, purchased with money provided by the plaintiff). The plaintiff sought relief in the form of a judgment debt of K2,052,000.00 (in respect of the alleged breach of contract) and an order divesting the second defendant of its title over the coffee business land and transferring title to the plaintiff (in respect of the alleged fraud). The defendants did not deny existence of the 1994 agreement but argued that it was not breached as the deceased repaid what had been advanced to him, and more. The defendants denied fraud in acquisition of the land. Three issues arose: (1) has the plaintiff proven a cause of action in breach of contract? (2) has the plaintiff proven that the second defendant obtained title to the land in a case of fraud? (3) what orders should the court make? 

Held:

(1)	The 1994 agreementwas an enforceable contract, the terms of which were that plaintiff would advance, as loans, various amounts of cash and property to the deceased, and in return the deceased would in addition to repaying the loans when required by the plaintiff, provide financial assistance to the plaintiff with his political campaigns and other personal expenses. The contract neither required any shares in the second defendant to be transferred to the plaintiff’s wife nor provided for her appointment as a director. The total amount advanced in cash and other property was K375,000.00. The amount repaid was K370,000.00. There was ostensibly a shortfall of K5,000.00 but that was more than offset by apparently unconditional cash advances of at least K248,362.60 from the deceased to the plaintiff to assist him with his political campaigns and school fees. The plaintiff failed to prove any breach of contract.

(2)	The second defendant purchased the coffee business land in 1997 and became registered proprietor of the State Lease. It acquired indefeasible title subject only to the exceptions provided in s 33 of the Land Registration Act, including in a case of fraud. The onus rested with the plaintiff to prove fraud, actual or constructive. He failed to prove either. 

(3)	The proceedings were wholly dismissed, with costs. 

Cases cited

The following cases are cited in the judgment:

Emas Estate Development Pty Ltd v John Mea [1993] PNGLR 215
Eric Kiso v Bennie Otoa & Ken Wutnalom (2013) SC1222
Falide v Registrar of Titles (2012) N4775
Koitachi Ltd v Walter Schnaubelt (2007) SC870
Kol Toki v Moeka Morea (2016) SC1588
Lae Bottling Industries Ltd v Lae Rental Homes Ltd (2011) SC1120
Muku v Yama (2019) N7948
PNG Deep Sea Fishing Ltd v Luke Critten (2010) SC1126
Riyong v Shelley and Nowek Ltd (2018) N7466
Riyong v Shelley and Nowek Ltd (2018) N7589
SC Ref No 4 of 1980 [1982] PNGLR 65
Shaw v Commonwealth of Australia [1963] PNGLR 119
Shelley and Nowek Limited v Riyong (2017) SC1567
Steven Naki v AGC (Pacific) Ltd (2005) N2782
Yarlett v New Guinea Motors Pty Ltd [1985] PNGLR 14

STATEMENT OF CLAIM

This was a trial on liability, the causes of action being breach of contract and fraud.

B M Koningi, for the Plaintiff
G Garo, for the first Defendant
I Molloy & C Joseph, for the Second Defendant

16th April,2020

1.	CANNINGS J: In April 1994, when the plaintiff Yawe Riyong (then a member of Parliament) and Terence John Shelley (now deceased), were good friends, they entered into an oral agreement. The plaintiff would provide cash and other property to the deceased for investment in the deceased’s coffee business on certain terms and conditions. The business was conducted by the second defendant, Nowek Ltd, a company owned and controlled by the deceased’s wife, and managed by the deceased. 

2.	Over the next two years the plaintiff provided several hundred thousand Kina to the deceased pursuant to the April 1994 agreement. In 1997 Nowek Ltd purchased from Livestock Development Corporation the land at Kamaliki, Goroka, Eastern Highlands Province, on which the coffee business was conducted, known as Portion 180. It still conducts business there.

3.	During the mid-2000s the friendship between the plaintiff and the deceased soured and the plaintiff demanded repayment of the money advanced under the April 1994 agreement. The deceased repaid some money, but not enough, according to the plaintiff. In 2009, the plaintiff commenced proceedings against the deceased and Nowek Ltd. The deceased died in December 2017. 

4.	After numerous interlocutory applications by both sides and numerous rulings by the National Court (eg Riyong v Shelley and Nowek Ltd (2018) N7466, Riyong v Shelley and Nowek Ltd (2018) N7589), some of which were appealed to the Supreme Court (eg Shelley and Nowek Limited v Riyong (2017) SC1567), a trial was conducted at Goroka in November 2019. 

5.	By that time the first defendant, who is one of the deceased’s sonsand administrator of his estate, had substituted the deceased as the first defendant. They have the same name, Terence John Shelley. 

6.	The trial was of an amended statement of claim filed on 19 May 2017, by which the plaintiff pleaded two causes of action: 

(1) breach of contract (based on the alleged breach of the April 1994 agreement, constituted by the deceased’s failure to repay in full, with interest, the amounts advanced to him and failure to transfer a 51% share in Nowek Ltd to the plaintiff’s wife and failure to appoint her as a director);  and

(2) fraud (as to the acquisition of title in the land on which the coffee business is conducted, purchased with money provided by the plaintiff). 

7.	The plaintiff sought relief in the form of:

•	a judgment debt of K2,052,000.00 (in respect of the breach of contract); and

•	an order divesting the second defendant of its title over the coffee business land and transferring title to the plaintiff (in respect of the fraud). 

8.	The defendants do not deny existence of the April 1994 agreement but argue that it was not breached as the deceased repaid what was advanced to him, and more. The defendants deny any fraud involved in acquisition of the Kamaliki land and rely on the principle of indefeasibility of title to defend Nowek Ltd’s title. Three issues arise: 

(1) has the plaintiff proven a cause of action in breach of contract? 

(2) has the plaintiff proven that Nowek Ltd obtained title to the coffee business land in a case of fraud? 

(3) what orders should the court make? 

1	HAS THE PLAINTIFF PROVEN A CAUSE OF ACTION IN BREACH OF CONTRACT?

9.	I find that the April 1994 agreement, though generally and vaguely expressed and having trappings of a mere gentlemen’s agreement, was sufficiently attended by the elements of a contract: agreement, consideration and an intention to createlegal relations(Steven Naki v AGC (Pacific) Ltd (2005) N2782). It was an oral contract between the plaintiff and the deceased. Nowek Ltd was not a party to the contract. The issues therefore become: 

(a)	how much money did the plaintiff provide to the deceased pursuant to the contract? 

(b)	what were the terms of the contract? 

(c)	were any of the terms breached by the deceased? 

10.	The plaintiff argues that:

•	he provided cash and property to the value of K483,000.00;

•	the terms of the contract were that the deceased would repay the principal in instalments as and when required by the plaintiff plus interest at a market rate (which he claims is 30%) and that 51% of the shares in Nowek Ltd would be transferred to the plaintiff’s wife who would be appointed a director of the company;

•	the deceased was slow in repaying and when some money was forthcoming it was paid to the plaintiff in the form of cheques drawn against accounts of Nowek Ltd, so in effect the deceased did not repay any of the money advanced to him, thereby committing a breach of contract, exacerbated by the deceased’s failure to take the necessary steps to get 51% of the shares in Nowek Ltd transferred to the plaintiff’s wife and arrange her appointment as a director of Nowek Ltd.

Evidence 

11.	The plaintiff relied on a detailed affidavit and gave oral evidence and was subject to cross-examination. However the bulk of his evidence was unsupported by direct documentary corroboration (highlighted by the April 1994 agreement being entirely oral). No other witness gave evidence in support of his case. The plaintiff’s wife, who was according to the plaintiffto have the dominant position in Nowek Ltd (being the majority shareholder and a director), gave no evidence. That was strange. It left the plaintiff’s evidence uncorroborated, and rather difficult to believe. 

12.	I find the defendants’ evidence to have more probative value. It included six affidavits by the deceased and a detailed affidavit by the deceased’s wife, Lyn Asaha Shelley. 

Findings 

13.	Having weighed the competing evidence and bearing in mind the underlying evidentiary principle that he who asserts (ie the plaintiff) must prove his case (Shaw v Commonwealth of Australia [1963] PNGLR 119, SC Ref No 4 of 1980[1982] PNGLR 65, Falide v Registrar of Titles (2012) N4775), I make the following findings of fact and law.

(a)	Amount provided by plaintiff to deceased

14.	I accept the evidence of the deceased’s wife (affidavit filed 30 September 2019, exhibit D9) that the total amount provided by the plaintiff in cash and other property to the deceased was K375,000.00, made up of the following components:

Cash given in 1994		K130,000.00
Cash given in 1995		K20,000.00
Hino dump truck			K90,000.00
Finance for land purchase	K70,000.00
Other cash advanced 		K65,000.00
Total					K375,000.00

(b)	Terms of contract

15.	I find no credible evidence to support the plaintiff’s claim that the money he provided to the deceased was intended to be his investment in Nowek Ltd. Or that it was part of the agreement that the deceased would arrange transfer of 51% of the shares in Nowek Ltd to the plaintiff’s wife. Or that the deceased would arrange for the plaintiff’s wife to become a director. 

16.	The cash and property provided to the deceased are properly regarded as advances made pursuant to a loan agreement. The terms of the agreement were that the plaintiff would advancevarious amounts of cash and property to the deceased for use in the coffee business. In return the deceased was obliged to repay the amounts advanced, as and when required by the plaintiff. In addition the deceased would provide financial assistance to the plaintiff with his political campaigns and assist him with other personal expenses as and when required by the plaintiff. 

17.	At the time of the agreement, April 1994, the plaintiff was the member for Chuave Open, having been elected for the first time in the 1992 general election. He was re-elected at the 1997 general election. He was a member of Parliament for two terms, from 1992 to 2002. His bid for re-election at the 2002 general election was unsuccessful. 

18.	There is clear evidence, not contested by the plaintiff, that the deceased (as particularised in the affidavit of the deceased’s wife, exhibit D9) contributed cash and property for the plaintiff’s 1992, 1997 and 2002 election campaigns, in the sum of K126,825.00. In addition the deceased, at the plaintiff’s request, paid various school fees in the sum of K121,537.60. 

19.	The plaintiff claims that the deceased was liable for interest on the principal amounts, and that because he took so long to pay anything back, interest should accrue at the rate of 30% per annum over a period of ten years. I find no credible evidence to support these claims. When the plaintiff first started demanding, in writing, that the deceased repay what had been provided to him, there was no mention of interest. It was only after many years that he started to demand interest in addition to the principal amounts advanced. It was certainly not an express term of the contract between the plaintiff and the deceased that interest was payable. 

20.	The plaintiff argues that it must be reasonably implied that interest would be payable. I disagree. A term will only be implied if: (1) it is reasonable and equitable; (2) it is necessary to give business efficacy to a contract; (3) it is so obvious, it goes without saying, that the term is part of the contract; (4) it is capable of clear expression; and (5) it does not contradict any express term of the contract (Yarlett v New Guinea Motors Pty Ltd [1985] PNGLR 14). I consider that at least conditions (2) and (3) are not met. The agreement between the plaintiff and the deceased was a casually formed gentleman’s agreement between friends. They didn’t talk about interest or put anything in writing about interest. A term requiring payment of interest cannot be implied. 

(c)Breach of contract

21.	I accept the evidence of the deceased’s wife (affidavit, exhibit D9) that in the period from April 2008 to May 2009, ten cheques in various amounts to a total value of K370,000.00 were drawn against an account of Nowek Ltd and paid to the plaintiff. These amounts were paid in respect of the debt due by the deceased to the plaintiff under the April 1994 agreement. 

22.	This is ostensibly a shortfall of K5,000.00, as the deceased had pursuant to that agreement been provided K375,000.00. I find that the K5,000.00 amount was more than offset by the deceased providing the plaintiff at least K248,362.60(K126,825.00 for political campaigns + K121,537.60 school fees). 

23.	I find that the deceased:

•	repaid to the plaintiff more than what the plaintiff had advanced to him;

•	was not liable to pay any interest to the plaintiff;

•	did not breach the contract by failing to arrange transfer of shares in Nowek Ltd to the plaintiff’s wife;

•	did not breach the contract by failing to arrange for the plaintiff’s wife to become a director of Nowek Ltd.

24.	It follows that the plaintiff has failed to establish a cause of action for breach of contract. 

2	HAS THE PLAINTIFF PROVEN THAT NOWEK LTD OBTAINED TITLE TO THE COFFEE BUSINESS LAND IN A CASE OF FRAUD?

25.	Nowek Ltd purchased the Kamaliki land in 1997 from the Livestock Development Corporation for the sum of K100,000.00. Nowek Ltd became registered proprietor of the State Lease on 27 August 1997. It is agreed that the plaintiff contributed K70,000.00 to enable purchase of the land by Nowek Ltd. That amount was a component of the total sum of K375,000.00 provided by the plaintiff to the deceased pursuant to the April 1994 agreement. 

26.	The plaintiff argues that Nowek Ltd obtained title by fraud and that it should be “divested” of its title and that title should be transferred to him, as pleaded in paragraphs 25 and 26 of the amended statement of claim:

25. The plaintiff says he is entitled to reclaim title to the Kamaliki land Portion 180, Milinch Goroka, Fourmil Karimui on basis of fraud or misrepresentation by the defendants.

PARTICULARS OF FRAUD/MISREPRESENTATION 

(a)	The first defendant led the plaintiff to believe that his wife had or would have 51% share in the second defendant or was or would be a director therein.

(b)	The first defendant led the plaintiff to believe that he was purchasing land for his family company.

(c)	The first defendant never intended to honour his agreement with the plaintiff to transfer 51% shares in the second defendant to the plaintiff’s wife and make her a director therein. 

(d)	The first defendant proceeded to register land in second defendant’s name that the plaintiff has paid for and never intended to give anything in return as agreed. 

26. The plaintiff claims divestment of title to Kamaliki Portion 180, Milinch Goroka, Fourmil Karimui. 

27.	That argument must be assessed in the context of the general principle 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”. 

“Fraud” means actual fraud or constructive fraud. Constructive fraud exists where the circumstances of 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. 

28.	That line of authority (as I have stated in many cases, most recently Muku v Yama (2019) N7948) is 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. 

29.	In the present case actual fraud has neither been pleaded nor proven. What about constructive fraud? The plaintiff’s argument is that he funded the land purchase in 1997 as part of the April 1994 agreement with the deceased, under which the deceased agreed to transfer 51% of the shares in Nowek Ltd to the plaintiff’s wife and to have her appointed a director. The deceased reneged on that agreement, and because funding of the land purchase was an integral part of the April 1994 agreement, the conclusion must be reached that Nowek Ltd acquired title as a result of the misrepresentation and fraud of the deceased. Thus the circumstances of transfer of title are so unsatisfactory, irregular or unlawful, it is tantamount to fraud, warranting the setting aside of registration of title to Nowek Ltd. 

30.	I reject the plaintiff’s argument. I have already found that it was not part of the April 1994 agreement that the plaintiff’s wife would acquire 51% of the shares in Nowek Ltd or that she would be appointed a director. There was no misrepresentation by the deceased. In any event the deceased was not at the material time a director or shareholder of Nowek Ltd. 

31.	It is accepted that the plaintiff provided the bulk of the funds (K70,000.00) for the purchase price (K100,000.00) of the land. The deceased repaid that money in 2008-2009 in accordance with the April 1994 agreement. The plaintiff has failed to prove that the transfer of the land in August 1997 was effected in circumstances that were unsatisfactory, irregular or unlawful. No case of fraud has been made out, which would warrant setting aside Nowek Ltd’s title, let alone transferring it to the plaintiff. 

3	WHAT ORDERS SHOULD THE COURT MAKE?

As the plaintiff has failed to establish either cause of action pleaded, the proceedings must be dismissed. I see no reason for costs not following the event. 

ORDER

(1)	The proceedings are wholly dismissed.

(2)	The plaintiff shall, subject to any other costs orders made in the proceedings, pay the defendants’ costs of the proceedings on a party-party basis which shall, if not agreed, be taxed. 

Judgment accordingly.
_____________________________________________________________
Koningi Lawyers : Lawyers for the Plaintiff
Dentons PNG Lawyers : Lawyers for the First Defendant
Ashurst PNG Lawyers : Lawyers for the Second Defendant