Mokepwesi v Kapera [2022] PGNC 203; N9658 (2 June 2022)

N9658

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 767 OF 2019

BETWEEN

CHRIS MOKEPWESI
First Plaintiff

AND
MONICA MOKEPWESI
Second Plaintiff

AND
THERESA KAPERA
First Defendant

AND
NEIL TEMO
Second Defendant

Waigani: Linge A J
2022: 11^th & 13^th May

LAND - contract of sale – allegation of fraud – whether “actual” or “constructive” fraud proved - discharge of mortgage

The plaintiffs were registered joint tenants of Residence Lease acquired from the National Housing Corporation. They resided continuously on the property since 1999. The property was mortgaged to PNG Banking Corporation, which was discharged, and a second mortgage registered in the name of Micro Bank Limited as security for a PMV loan the plaintiffs had obtained.

The plaintiffs defaulted on their PMV loan, and the first defendant offered to assist in her capacity as their daughter in law to which the plaintiffs agreed. She applied and obtained a loan from Fincorp under the staff housing assistance scheme of which she was entitled as an employee at the relevant time. The Micro Bank mortgage was discharged, and she registered the property to her name. The property was subsequently sold by the first defendant to the second defendant resulting in this cause of action by the plaintiffs alleging fraud in the sale of property to the first defendant and seeking inter alia order for revocation of the second defendant’s title.

Held:

1. Plaintiffs have not proven “actual” nor “constructive fraud” in the contract of sale and transfer between the plaintiffs and first defendant nor in relation to the registration of title.

2 No order for the revocation of the second defendant’s title.

Cases Cited:

Mudge v Secretary for Lands [1985] PNGLR 387
Yuku v Lukom Trading Ltd [2021] PGNC 321; N8000
Priscilla Muku v Emmanuel Diya Yama WS(HR) No. 11 of 2017; N7948
Cheng Jing v Southern City Group Limited & Sanamo Group Limited (2021) N9257
The Papua Club Inc. v Nusaun Holdings Limited No.2 (2004) N603
Koitachi Ltd v Walter Schnaubelt (2007) SC870
Emas Estate v Mea [1993] PNGLR 215.
National Council of Young Men Christian Association v Firms Services Ltd, [2017] PGSC 20; SC1596
Pius Tikili & ors v Home Base Real Estate Limited (2017) SC1563

Counsel:

Mr. Lenalia, for the Plaintiff.
Mr G. Akia, for the First Defendant.
Mr O. Mel, for Second Defendant

DECISION

2^nd June, 2022

1. LINGE A J: This is a ruling following a trial on a cause of action based on allegation of fraud by the plaintiffs against the first defendant. Parties tendered affidavits and hearing was held on the 11 May 2022. Plaintiffs, first defendant and second defendant were represented by Counsels and made submissions.
   

Background

2. On the 7 August 2018 the plaintiffs commenced proceeding OS No.530 of 2018 against the second defendant. That proceeding sought various declarations to nullify the second defendant’s ownership of the property the subject of the current proceeding.

3. On the 17 August 2018 the Court per Kariko J granted leave to the plaintiffs to covert the proceeding to pleadings in a Statement of Claim. The plaintiffs failed to convert the proceeding. Matter was placed on the Summary Determination list on 12 December 2018 and on 10 December 2019 that proceeding was summarily dismissed for want of prosecution.

Facts

4. The plaintiffs acquired the Residential Lease described as Allotment 49, Section 193, Hohola. National Capital District (hereinafter “the property”) from the National Housing Corporation (hereinafter “NHC”) and became registered proprietor as joint tenants on the 19 January 1995. They have been residing on the property continuously since 1999.

5. The property was mortgaged to then PNG Banking Corporation (hereinafter “PNGBC”) on the 27 December 1995. The mortgage was discharged in 2011. In 2012 the plaintiffs obtained a loan to purchase a truck for a Public Motor Vehicle (PMV) business and thus a second mortgage over the property was then registered in favour of the Micro Bank Limited (hereinafter “the Micro Bank”) on the 14 February 2012.

6. The Plaintiffs defaulted on their PMV loan, and the first defendant who was at the time in a relationship with Chris Mokepwesi (Jnr) the plaintiffs’ son, offered to assist the plaintiffs in securing financial assistance to refinance the PMV loan. She informed the plaintiffs that as a staff of Finance Corporation Limited (hereinafter “Fincorp”) she had access to a staff loan facility for housing.

7. An agreement was reached between the family whereby the first defendant would facilitate the loan from Fincorp, and all would collectively payback the loan. The agreement was based on trust and therefore none of the family members requested for a written and signed agreement.

8. The first defendant successfully obtained the Fincorp loan which was used to discharge the Micro Bank mortgage, and, on the 25 September 2017, she became the registered proprietor of the property. The property was subsequently sold by the first defendant to the second defendant who became the registered proprietor on the 28 August 2018.

9. The plaintiffs filed this proceeding on the 5 July 2019 alleging fraud in the sale of property to the first defendant and seeking inter alia a declaration that the said contract of sale was a by fraud and an order for revocation of the second defendant’s title.

Evidence
10. Plaintiffs rely on five (5) affidavits by Monica Mokepwesi, Documents Nos.39, 40, 41, 44 and 45. First defendant relies on affidavit of Theresa Kapera, Document No.24. Second defendant relies on affidavit by Neil Temo, Document No.8.

Submissions

Plaintiffs Submission

11. Mr. Lenalia for the plaintiffs submits that the sale of the property was never made known to the plaintiffs and so had not given consent to nor agreed for the sale of the property. That it was done fraudulently by the first defendant. Furthermore, at no time did the plaintiffs agree to transfer the property to the second defendant.

12. He submits that as the plaintiffs were in default of their PMV loan, they agreed to the offer of assistance by the first defendant which she was seeking from Fincorp through its housing assistance scheme for employees. It was agreed that the plaintiffs will assist with repayment of the Fincorp loan. However, unbeknown to the plaintiffs, the first defendant had the intention of defrauding the title from the plaintiffs to her personally by her actions. For example, the act of giving a single page document to the plaintiffs to sign without the full content of the document, not divulging its purpose and the obligation are acts of fraud or acts to defraud.

13. He further submits that even when the plaintiffs enquired as to why they were only given a single page document to sign, the first defendant responded that the plaintiffs’ signatures on the document was to enable her to facilitate the Fincorp loan. Plaintiffs were not aware that the first defendant’s conduct was leading towards facilitating the transfer of their property as they trusted her as their in-law.

14. Counsel also contends and submits that the first defendant was also told by an officer from the Department of Lands Fraud Squad during a meeting of all parties that her actions amounted to fraud.

15. In relation to the first defendant evidence that the plaintiffs read through the transfer instrument for a week and signed the transfer instrument on Sunday the 9 April 2017, Counsel submit that this is inaccurate as the plaintiffs did not keep the transfer instrument for a week. The first defendant took only the one-page document to the plaintiffs to sign on a Sunday 9 April 2017.

16. Similarly, while it is in evidence that the first defendant states that, on the 10 April 2017, she brought the signed Transfer Instrument to Mr. Wapi who signed as witness, Mr. Lenalia submits that the date on the Transfer Instruments is 9 April 2017 when the first defendant took the one-page document to the plaintiffs to sign which they did without Mr. Wapi’s presence.

17. On the subject of encumbrances, Counsel submits that the first defendant defrauded the Department of Lands & Physical Planning by saying that the property itself does not have any encumbrances attaching to it whereas the opposite is true. This confirms that the first defendant misled and gave false information to the Department of Lands.

18. Counsel submits that the consideration for the transfer in the sum of K170,000.00, was not received by the plaintiffs and no record of receipts sighted to confirm the payment.

19. Counsel further submits that the contract of sale was undated and has an undated stamp duty affixed with the words EXEMPT written in pen. Counsel submits this is inconsistent with the usual process where a Contract of Sale has a stamp duty duly affixed on it with date and identification numbers on the stamp duty.

Submission for First Defendant

20. Mr. Korua for the first defendant submits that plaintiffs were fully aware of the process of transfer of title as they had previous experience in the first transfer of same property to them from the NHC, the mortgage by the PNGBC on the 27 December 1995 and simultaneous discharge of the PNGBC mortgage on the 9 February 2012 at 9.24 am and registration of the second mortgage to Microbank for the PMV loan on the 9 February 2012 at 9.26 am respectively.

21. It is in evidence that it was the first time for the first defendant to be involved in conveyancing, and that the steps she undertook and explanation she gave to the plaintiffs in regard to the transactions was advised to her by her relevant officers including Mr. Wapi the inhouse lawyer for Fincorp.

22. Counsel thus submit that the first defendant was able to explain every step of the way including the purpose of the loan and effect of the Fincorp loan to the plaintiffs.

23. He submits that the plaintiffs had the opportunity to read through and engross the Instrument of Transfer and Contract of Sale before execution. That it is in evidence that the First defendant thoroughly explained the nature of document to the plaintiffs especially with Chris around and in his presence.

24. Counsel also submits based on evidence that after the transfer to Fincorp the plaintiffs were tenants on the property and first defendant the owner so there is an inference of knowing the circumstance.

25. Mr, Korua finally submits that the loan obtained by the first defendant was entirely used to discharge the Micro Bank mortgage in favour of the plaintiff and the sale to the second defendant was to release financial pressure and stress on the part of the first defendant. That it was only after the sale to the second defendant that the plaintiffs alleged fraud against the first defendant.

Submission for Second Defendant

26. Mr. Pilamb for the second defendant submits that the allegation of fraud by the plaintiffs relates to the transfer to the first defendant and that there is no allegation of impropriety against the transfer to the second defendant.

27. Counsel submits also that the proceeding amounts to a multiplicity of proceedings and should be dismissed in support of the submission by Counsel of the first defendant. He submits that the current proceeding contains the same sets of parties, facts, legal issues and relief sought in OS No. 539 of 2018 initiated by the plaintiffs which was still current when this proceeding was filed.

The Law

28. The allegation of fraud against the first defendant’s registration of title in her name is an attack on the Torrents System of land registration. The principle enshrined in the Torrens System is settled law in this jurisdiction. The principal recognizes that once a lease is registered, an indefeasible title is conferred on the registered proprietor. Put another way, a person who holds a registered title has an indefeasibility of title and the law recognises and protects that registered proprietor.

29. The relevance and applicability of this principle in this jurisdiction was succinctly put in perspective by Chief Justice Sir Buri Kidu in Mudge v Secretary for Lands [1985] PNGLR 387, wherein at p.390 he relevantly stated:

“The third respondent has a State lease registered under the Land Registration Act, chapter No.191 and although the appellants have raised eight questions of law (including constitutional laws) the real question for determination by this Court is whether, apart from exceptions enumerated in the Land Registration Act, s33. Land once registered attracts the principle of indefeasibility of title. This Act and its forerunners--the Real Property Ordinance (Papua) and the Land Registration Ordinance (NG)-are based on Australian Acts. They all reflect what is commonly known as the Torrents System of land registration. Under legislations based on this system ( in Australia and New Zealand) it is now settled law that, apart from exceptions mentioned in the relevant legislations, once land is registered under the Torrens system the owner of acquires indefeasibility of title.”

[underlining mine]

30. The Supreme Court held: “Registration of leases under the provisions of the Land Registration Act is effective to vest an indefeasible title in the registered proprietor subject only to the exceptions enumerated in s 33.”
31. The National Court has consistently applied the principle of indefeasibility of title. For example, see, Priscilla Muku v Emmanuel Diya Yama, WS (HR) No. 11 of 2017 N7948; Yuku v Lukom Trading Ltd (2021) PGNC321; N8000 (6 August 2021); Cheng Jing v Southern City Group Limited & Sanamo Group Limited (11 October 2021) N9257.

32. The exceptions to the notion of indefeasibility of title are enumerated in Section 33 (1) (a)-(i) inclusive of the Lands Registration Act. These exceptions include (a) in the case of fraud, (b) encumbrances notified by entry or memorial on the relevant folio of the Register, (c) interest of proprietor claiming the same land under a prior instrument of title etc.
33. Fraud as the basis for seeking annulment of a registered title is prevalent compared to the other exceptions enumerated in Section 33 of the Land Registration Act, Chapter 191. However, “fraud” even though a very serious indictment against the notion of indefeasibility of title, is not defined in the Land Registration Act, certainly not in the context of Section 33 (1) (a).

34. There are two (2) views at least in this jurisdiction; the narrow or actual fraud and the wider view or constructive fraud. In The Papua Club Inc. v Nusaun Holdings Limited No.2 (2004) N603 where His Honour Gavera Nanu canvassed “fraud” in s.33 (1) (a) of the Land Registration Act and noted that it is not defined. His Honour held that “fraud in s.33 (1) (a) of the Land Registration Act means fraud committed by the registered proprietor or actual fraud.”

He further stated:

“s.45 (1) makes it clear that fraud means more than constructive or equitable fraud... that fraud in that section does not refer to fraud by the person from whom the registered proprietor acquired the title or the estate; rather it is fraud by the registered proprietor himself or herself when acquiring title”

35. This narrow view was adopted in Koitachi Ltd v Walter Schnaubelt (2007) SC 870 where the Supreme Court noted that the evidence before it did not disclose any actual fraud by anyone including the Registrar. It concluded at p.28 that:

“In the absence of any evidence of actual fraud, pursuant to s,33(a) of the Land Registration Act, Koitachi as the registered proprietor of the property holds it absolutely free from all encumbrances apart from those listed in the exceptions in s.33 (1) (b) to (i).”

36. The wide view also referred to as constructive or equitable fraud, qualified the concept of indefeasibility is followed in Emas Estate v Mea [1993] PNGLR 215 where his Honour Amet CJ stated:

“Irregularities tantamount to fraud was (sic) sufficient to overturn a registered title”.

37. This view was elaborated on by the Supreme Court in National Council of Young Men Christian Association v Firms Services Ltd, (2017) PGSC 20; SC 1596 and Pius Tikili & ors v Home Base Real Estate Limited (2017) SC1563 wherein the Supreme Court stated:

“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.”

[my underlining]

38. Either constructions or views of fraud are equally applicable in this jurisdiction depending on the pleadings and facts or circumstances of each case.

39. Transfer of land is governed by Part V of the Land Registration (Act). Section 42 of the Act sets out the legal requirements for transfer and it includes execution of transfer instrument, consideration, and lodgement at the Registrar of Titles office and stamp duties.

40. In this case the allegations of fraud based on evidence and submissions may be summarised as follows:

(a) first defendant defrauded the title from the plaintiffs by causing transfer to her personally:

(b) first defendant giving of a single page document to the plaintiffs to sign without the full content of the document;

(c) not divulging its purpose;

(d) lack of permission by plaintiffs to the first defendant to acquire the property from them.

(e) first defendant breached trust as a family member when her intention to commit fraud came to the fore when she obtained the Fincorp.

41. It is trite that a person who alleges fraud has the onus to plead and prove fraud on the balance of probability sufficiently. Whether fraud is actual or constructive is dependent on the circumstances.

Consideration

The Contract of Sale

42. The evidence is that in mid-2017 the first defendant was handed the Contract of Sale by Fincorp to take to the plaintiffs to sign. She took it to the plaintiff’s residence and explained the document and its effect and left it with them for a week after which the plaintiff signed in front of her. The plaintiffs say they were given a one-page document to sign, and I presume they mean the “execution clause”.

43. The plaintiffs are reasonably educated persons, the first plaintiff a teacher and second plaintiff a clerk. And both had relevant experience in conveyancing having bought the property from the NHC in early 1995 as joint tenants and then mortgaged the property to PNGBC on the 27 December 1995.

44. As custodians of documents relating to the property, the plaintiffs were aware of transactions pertaining to their PNGBC mortgage for the original purchase of the property from NHC. They also would have been aware of the simultaneous discharge of the NHC mortgage on the 9 February 2012 at 9.24 am and the registration of the second mortgage by Microbank at 9.26 am also on the 9 February 2012.

45. Even if they were only given a one-page document or the execution clause they would no doubt have been aware and comprehend what the document was, in view of their education and experience in their previous conveyancing dealings.

46. As to the Fincorp loan, I find that the first defendant was entitled to obtain the loan as an employee not the plaintiffs. That all parties understood the purpose of the loan which was to refinance the plaintiffs’ PMV debt with Microbank and to discharge that mortgage upon the payment of K170,000.00.

47. The plaintiffs claim that the first defendant real intention was to defraud the plaintiffs and to place the title of property under her name. In the absence of evidence including unlawfulness or irregularity on the part of the first defendant, I accept the commercial reality that a loan creates a debt which must be secured by giving of security in return and in normal parlance, the mortgage over the property by Fincorp is an expected form of security. The Fincorp loan relieved the plaintiffs of their debt burden and created debt on the first defendant.

Instrument of Transfer

48. The Instrument of Transfer was signed two (2) weeks after the execution of contract when the first defendant took it to the plaintiffs. Mr. Wapi, in-house lawyer at Fincorp had already prefilled the Instrument the first defendant took it to the plaintiffs to sign. The Plaintiffs signed on the Sunday 9 April 2017, and first defendant took the Instrument to Fincorp office to be signed by Mr. Wapi on the next day being a Monday.

49. I accept that the dates on the Instrument of transfer confirms signing on Sunday 9 April 2017. Mr. Wapi signed on Monday and did not put the date of his signing but left it on the predated 9 April 2017. Mr. Wapi did not witness the execution of the instrument by the plaintiffs. He merely signed as a witness.

50. It is trite that in a written agreement or deed parties must sign for such to be binding on them. Whereas on the other hand a witness is not a legal prerequisite. It is useful and can be relied on in evidence in situation where one party may deny signing the agreement or deed. Neither party here deny signing the Contract of Sale nor the Instrument of Transfer.

51. Section 42 (5) of the Land Registration Act permits a transfer of land to be lodged for registration as a single sheet.

Conclusion

52. I find it intriguing that Chris Mokepwesi (Jnr), a former employee of BSP who was originally named in the proceeding had not filed any affidavit evidence to assist either way as to what transpired during and subsequent to the transfer to the first defendant and second defendant.

53. As regards the claim that the first defendant lied about there being no encumbrances on the property, this is immaterial as Section 33 (1) (b) of the Lands Registration Act provides for encumbrances as one of the exceptions. The section reads, “The registered proprietor of an estate or interest holds it absolutely free from all encumbrances except- ...(b) encumbrances notified by entry or memorial on the relevant folio of the Register.” [my underlining]

54. The Micro Bank mortgage noted on the memorial on the relevant folio of the Register would have been sighted by Fincorp as an encumbrance attached to the property, upon their doing due diligence check. This is normal in a land conveyancing dealing and as a lender, would have taken that factor into consideration of the Fincorp loan.

55. The claim made by the plaintiffs that the first defendant insisted that in order for her to obtain the loan, the property has to be under her name, is of no probative value either way. I accept that the first defendant obtained the loan on the 30 May 2017 and the title was then transferred to her on the 21 September 2017. I find as a fact that the Fincorp loan would not have been possible without any form of a security especially a mortgage on the property.

56. The fraud alleged by the plaintiffs pertains to the first defendant’s loan dealing with Fincorp, thus I would have thought that the latter would have been joined as a defendant in this proceeding.

57 There is no allegation of any fraud or impropriety against the second defendant and I consider him as an innocent buyer and he remains as the registered proprietor.

58. On the issue of multiplicity of proceedings considering the earlier filing of proceeding OS No. 539 of 2018, while there are similar sets of facts and legal issues, the parties are not the same and relief not identical to this proceeding.

59. In the end my conclusion on the claim before me is that the plaintiffs have not proven actual fraud nor constructive fraud where the circumstances of a transfer of title are so unsatisfactory, irregular, or unlawful to tantamount to fraud, warranting the setting aside of registration of title.

Order

60. Order of the Court:

1 I hereby dismiss the cause of action in its entirety.

2. Parties pay own costs.

3. Time is abridged to the date of the entry of judgment

Ordered Accordingly
_______________________________________________________________
Public Solicitor: Lawyers for the Plaintiff
Akia & Associates: Lawyers for the First Defendant
Mel & Hennry Lawyers: Lawyers for the Second Defendant