Koang No 47 Ltd v Monodo Merchants Ltd [2001] PGSC 9; SC675 (9 November 2001)

SC675

PAPUA NEW GUINEA

[IN THE SUPREME COURT OF JUSTICE]

SCA No. 32 of 1999

BETWEEN:

KOANG NO. 47 LIMITED
-Appellant-

AND:

MONODO MERCHANTS LIMITED
- First Respondent-

AND:

MELPA PROPERTIES LIMITED
- Second Respondent-

WAIGANI: AMET,CJ., INJIA, KANDAKASI, JJ.
2001: 19th and 23rd February
2001: 9th November

LAW OF CONTRACT – Two separate contracts for sale of same land – Earlier contract not validly terminated – Purchaser in second contract unsecured and not formalised but in continuous occupation and effecting substantial improvements with the acquiescence of the landlord/vendor – Purchaser in second contract caused landlord/vendor to purport to terminate first contract and enter into the second contract - Purchaser in first contract sued for and obtained order for specific performance – Unsecured tenant has no right to interfere with a landlords right to sell land unless curtailed by agreement

LAWYERS – Professional conduct – Failure of lawyer to turn up in Court on time – Keeping client and court waiting – Unsatisfactory explanation for failure – breach of professional conduct rules –Actions amounting to contempt of court – No penalty imposed but warned.

Facts

This is an appeal against a decision of the National Court which ordered specific performance of a contract for sale of land between the First and Second Respondent as purchaser and vendor respectively. The Appellant was an unsecured tenant in occupation of the subject land, which sought to restrain the Second Respondent from enforcing the contract. It did so after successful causing the Second Respondent to terminate its contract with the First Respondent and enter into a second contract with it.

Held

1. The Appellant as an unsecured tenant was not entitled to interfere with the landlord’s right to sell the land and therefore did not have any right to restrain the Respondents from performing their respective contractual obligations.
   
2. The Appellant’s interest was not secured and therefore its interest was not superior to the right of the First Respondent to purchase the property free of any encumbrances.
   
3. The equitable principle of first in time could not assist the Appellant because of its own conduct in failing to secure its interest and causing the Second Respondent to terminate its contract with the First Respondent which meant that it was not going to equity with clean hands.
   
4. The doctrine of privity of contract precluded the Appellant from taking any steps to prevent the Second Respondent from discharging its contractual obligations to the First Respondent.
   
5. The concept of equality under section 55 of the Constitution does not arise because the case involved private parties to a legitimate contract who were not charged with the duty to ensure fair distribution of land and in any case, the sale was by tender where the Appellant had the opportunity and did bid for a purchase of the property but for a lower price than that of the First Respondent.
   
6. The Appellant may have a cause of action against the Second Respondent subject to an examination of its or its shareholders own conduct but that has nothing to do with an enforcement of the contract between the Respondents.
   

Papua New Guinea Cases Cited
Ready Mixed Concrete Pty Ltd v. The Independent Sate of Papua New Guinea [1981] PNGLR 396
Jivetuo v. The Independent State of Papua New Guinea [1984] PNGLR 174
Bai v. Morobe Provincial Government [1992] PNGLR 150
Mudge v. Secretary for Lands & 2 Others [1985] PNGLR 390
Papua New Guinea Banking Corporation v. Brra Amevo & Bari & Others (26th May 1998) N1726

Other Cases Cited
Meye v. Electric Transmission Ltd. [ 1942] Ch. 290,
Wheeler v. Mercer [1956] UKHL 5; [1957] A.C. 416
Coggan v. Warwicker ([1852] EngR 514; 1852) 3 Car. & K. 40: 175 E. R. 454
Commonwealth Life (Amalgamated) Assurance Ltd. v. Anderson [1945] NSWStRp 31; (1945) 46 S.R. (N.S.W.) 47
Henderson v. Squire (1869) L.R. 4 Ex. 1709
Henderson v. Van Cooten [1922] W.N. (Eng.) 340
Lapin v. Abigail [1930] HCA 6; (1930) 44 C.L.R. 166
J & H. Just (Holdings) Pty. Ltd. v. The Bank of New South Wales ([1971] HCA 57; 1971) 125 C.L.R. 546
Butler v. Faircloth [1917] HCA 9; (1917) 23 C.L.R. 78
Courtenay v. Austin (1961) 78 W.N. (N.S.W.) 1082

Counsels
P. Mawa, for the Appellant
P. Kunai, for the First Respondent
P. Dowa, for the Second Respondent

9th of November 2001

AMET, CJ: I have read the draft judgement of my brother judges Injia and Kandakasi and I agree with them on both their reasoning and outcome of the appeal. I have nothing further to add.

INJIA, J: I agree with Justice Kandakasi that this appeal should be dismissed for reasons given by his Honour.

But I wish to add a few comments. First, I also agree with Kandakasi J. that the standard of ethical conduct of a good number of counsel appearing before this Court and the National Court has somewhat declined over the years. Such conduct as coming late to the Court or not attending Court at all without informing the Court, has become frequent. Whilst such conduct may constitute breach of professional ethical rules, they may as well constitute Contempt of Court and the Courts will not hesitate to cite lawyers for contempt: see Andrew Kwimberi v. The SC 545 (1998).

Secondly, in relation to the appeal itself, it is trite law that as the registered State leaseholder of a registered land, the registered leaseholder’s title is superior to the interest of any other person having or claiming to have any other form of secured or unsecured legal or equitable interest over the same land. A valid Contract for Sale of the land, per se, is a legal agreement, which is enforceable. Any interest in the land created by the legal contract is simply equitable and the equitable relief of specific performance is available to an aggrieved purchaser (or vendor) to the extent that an unwilling vendor may be required to honour its obligation under the contract, to do all that is necessary to complete the sale.

In the present case, there was a second Contract of Sale ("the Second Contract") of the same land executed between Melpa and Koang, whilst there was already in existence a Contract of Sale ("the first Contract") entered into between Melpa and Mondo in relation to the same land. It is trite law that a second contract for the sale of the same land cannot be validly entered into between the same vendor and a second purchaser when there is already in existence a valid first Contract of Sale between the vendor and the first purchaser.

In the National Court, Melpa sought to establish that it validly terminated the first Contract in order to make way for the second Contract to be validly entered into. Koang did not file any cross-claim against Melpa and/or Mondo seeking to invalidate the first Contract and seeking specific performance of its own second Contract. Instead, Koang joined Melpa in defending Mondo’s action. The trial judge found the first Contract was not validly terminated, that the first contract was still valid and therefore, the second Contract was invalid. The Court then ordered specific performance of the first Contract by Melpa.

In this appeal, there is no issue taken of the approach taken by the trial judge in determining the legal status of the two Contracts. Instead Koang proceeds on the basis that the two Contracts of Sale were both validly entered into and the trial judge erred in selecting the first contract and giving effect to it. Koang then advances arguments as to which of the two equal but competing equities, created by the two valid Contracts should take priority over the other. Accepting the general rule that the equity created first in time ranks in priority, Konag seeks to explore exceptions to this general rule in an effort to bring Koang’s case within the recognised category of exceptions. In that regard, Koang relies on the some improvements carried out on the land without objection or with the acquiescence of Melpa.

In my view, such of Koang’s position in this appeal is based on the fallacious assumption that the second Contract was validly entered into. I am not persuaded by Koang that the first Contract was validly terminated by Melpa thereby paving the way for the second Contract to be validly entered into. If Koang had erected substantial improvements with the acquiescence of Melpa and thereby acquired an equitable interest in the land which I presume is unsecured, then the deprivation of such interest is compensatory in damages only as against Melpa and this would be subject of separate action instituted by Koang. Mondo is not a party to any such dealings between Melpa and Koang and the completion of its Contract should not be hindered in any way by any complications created by the pre-contract relationship between Melpa and Koang. Melpa being the registered titleholder of the subject State leasehold land is entitled to dispose of its indefeasible title by sale to Mondo notwithstanding Koang’s unsecured equitable interest over the land.

For these reasons, I am not persuaded that the trial judge committed any error of law or fact. I would dismiss the appeal as well.

KANADAKASI, J: This is an appeal against a decision of the National Court in Mt. Hagen. The appeal was heard on the 19th of February 2001. On the 23rd of February 2001, we dismissed it and affirmed the judgment and orders of the National Court, the subject of the appeal. Full reasons for the decision was reserved for publication at a later time. This now constitutes my reasons for the decision.

Before proceeding any further, I deal first with the preliminary issue of the Appellants lawyer’s conduct before this Court on the 19th of February 2001.

Lawyers Conduct

This case was set for hearing at a call-over conducted in January 2001. The date was confirmed with the latest on Friday the 15th of February 2001. When the matter was called for hearing, the lawyers for both Respondents were present. These counsels travelled in from Mt. Hagen. However, Mr. Mawa who is based in Port Moresby, did not turn up. He called the Associate to the Chief Justice and the chairman of this court around 1.15pm and informed that he was running late. That information did not get to the Court until after the Court had commenced its sitting for the case. The court waited for Mr. Mawa to turn up. About 20 minutes later, he turned up. When the Court asked him to explain his late appearance, Mr. Mawa said he received confirmation of the date on the Friday the 15th of February 2001. He then went to work on his submission and was still working on the day of the hearing and he was running late.

Order 11 Rules 18 to 23 of the Supreme Court Rules require parties to prepare and file extract of arguments and list of authorities before the hearing of an appeal. In the case of list of authorities, they are required to be file and supplied to the judges constituting the court to hear the matter at least 48 hours before the date set for hearing (see O.11 r. 23). Unless the Court dispenses with these requirements, (O.11 r. 21) they are requirements of the court, which must be met. Mr. Mawa did not comply with these rules and there was no dispensation.

I do not consider the reason put forward by Mr. Mawa for turning up in Court late reasonable, when counsel for both Respondents travelled in from Mt. Hagen and attended court on time. They were informed in much the same way as Mr. Mawa was informed of the date and time for the hearing of this matter. Also, a representative of Mr. Mawa’s client was in Court in time. Mr. Mawa did not extend the courtesy of informing even his client that he would be running late.

It has now become too common for lawyers to unnecessarily delay court proceedings and make the Courts wait for them. The effect of that is an unacceptable level of a build up of a list of not yet reached cases. This is resulting in a build up of unnecessary costs and delays. It is also greatly contributing to denying other cases which could and are ready for hearing being allocated dates for hearing.

Lawyers are, apart from representing their client’s, officers of the Court. They should therefore, be at the convenience of the Court more than themselves. That means, if for whatever reason they are not ready in a matter that has been fixed for hearing, they should appear in Court on the date and time appointed and apply for an adjournment or a delay of the hearing. Then unless, the Court grants such an application, they should not on their own accord and without notice to the other counsel(s) involved, delay hearings. Indeed, s. 3 of the Professional Conduct Rules in relevant parts generally provide that:

It is the duty of a lawyer-

(a) not to engage in conduct (whether in pursuit of his profession or otherwise) which—

...

(iii) is unprofessional; or

(iv) is prejudicial to the administration of justice; or

(v) may otherwise bring the legal profession into disrepute; and

(b) to observe the ethics and etiquette of the legal profession; and

(c) to be competent in all his professional activities; and

...

(f) to comply with the Act and these Rules and the common law.

Then s. 15 (4) in particular provides concerning wastage of Court time that:

A lawyer shall-

(a) act with due courtesy to the Court before which he is appearing; and

(b) use his best endeavours to avoid unnecessary expenses and waste of the Court's time; and

(Emphasis supplied)

Similarly, s. 20 (1) provides regarding relations and or courtesy between lawyers that a "lawyer shall treat his professional colleagues with the utmost courtesy and fairness."

In this case, the counsels for the Respondent were present in court on the date and time fixed. Mr. Mawa did not extent to them the courtesy of informing them that he was coming late. A representative of Mr. Mawa’s client turned up on time, but did not know of the reasons for Mr. Mawa’s non appearance when the case was called for hearing. By his conduct, Mr. Mawa expected the Court to wait for him for more than 20 minutes. Prior to that, he failed to file and serve his client’s extract of arguments and list of authorities in accordance with the Rules of the Court.

I find what Mr. Mawa did amount to a breach of the clear requirements of the relevant provisions under ss. 3, 15 and 20 of the Professional Conduct Rules. His conduct therefore, amounted to unprofessional and neglectful conduct. It was also in my view, contemptuous of the Court. This kind of conduct is on the increase and it is about time now to put a stop to them with a view to helping the system of justice and in particular the prompt hearing and disposal of matters work effectively. Lawyers need to be told in the strongest terms possible that, they should not keep the Courts waiting unnecessarily. This is because, every time wasted leads to a case not being heard after listing it for hearing. That as I already said, unnecessarily wastes the Court’s time, build up of costs for the parties and unnecessarily takes up time that could have been used to deal other matters that are ready.

Since this is the first time Mr. Mawa has conducted in this way at least before me, I would only caution him and let him go. However, that has to be with a strong warning that, the next time he repeats his conduct either before the Supreme or the National Court, he will be dealt with most severely. Lawyers and parties need to be told in the strongest term possible that the Court does not have the luxury of time to continue to condone the unnecessary wastage of the Court’s time. They must ensure to be in Court no later than the time appointed for a hearing of their matters. A failure to do so may result in orders being made against them.

The Appeal

I now return to the substantive appeal.

This is an appeal against a decision of the National Court delivered in Wabag on the 10th of March 1999. The National Court ordered specific performance of a contract for the sale of a piece of land known as Section 90 Allotment 2, being Volume 7 Folio 224, Town of Mt Hagen, Western Highlands Province ("the property"). The contract was between the First Respondent ("Mondo") and the Second Respondent ("Melpa") as purchaser and vendor respectively.

The Parties

Mondo is a PNG local company. It initially carried on business out of a rented property in Port Moresby. It closed down its operations in Port Moresby to relocate to Mt. Hagen and operate out of the property it contracted to buy from Melpa. Melpa is owned by the Western Highlands Provincial Government and is the registered proprietor and vendor of the said land. The Appellant ("Koang") was an umbrella company formed by the unsecured and informal and individual tenants of the property, purposely to bid for a purchase of the property.

Chronology of Events

The relevant chronology of events and hence the facts are these. Prior to April 1997, certain individuals, which later formed Koang were permitted by Melpa or its proprietors to occupy the land. They then constructed improvements on the land, with the acquiescence of Melpa. However, there were no formal tenancy or lease arrangements entered into between Melpa and Koang or its proprietors.

In Early April 1997, Melpa advertised the property for sale by tender. On the 7th April 1997, Mondo tendered to purchase of the property at K250, 000.00. Around this time, the Koang also bided but for K150, 000.00. On the 22nd April 1997, Melpa accepted Mondo’s offer and informed Mondo that settlement would take place at the end of May. On the 29th April 1997, contract for sale of the property was executed between Melpa and Mondo. On the 1st May 1997, the contract between Melpa and Mondo and the transfer instrument were stamp dutied.

On an unspecified date in April 1997, Mondo closed down its operations in Port Moresby to relocate to Mt. Hagen at the property the subject of the contract.

On the 15th May 1997, following representations from Koang, Melpa requested Koang to match within 30 days the price tendered for and accepted from Mondo and executed a contract of sale to enable a termination of the contract with Mondo. Melpa also instructed its lawyers not to seek ministerial approval of the contract. At the same time, it notified Mondo that the contract between them was terminated.

On an unspecified date, Melpa entered into and executed a second contract of sale for the same property with Koang.

Between June and August 1997, Mondo instituted proceedings in the National Court at Mt. Hagen seeking specific performance of the contract. Then on the 11th August 1997, Mondo obtained interim orders restraining Melpa from engaging in any further dealings on the land. On its application, Koang was joined as a party without any objection from the Mondo on the 17th September 1998. The National Court heard the matter on the 2nd and 3rd February 1999, and the decision, the subject of this appeal, was delivered on 10 March 1999. The National Court found that Melpa was in breach of the contract when it purported to terminate its contract with Mondo and proceeded to execute the second contract with Koang.

The Arguments

The main contention for the Appellant is that, the National Court erred in finding that the first contract was not validly terminated, the first contract was still valid and that the second contract was invalid. It thus argues that the National Court erred in ordering specific performance of the first contract, which was an equitable remedy. This is so because it says, there is an equally competing equitable interest by reason of the two different contracts. It also argues that, although it did not have any secured and formalised tenancy agreement with Melpa, Melpa acquiesced its shareholders continued occupation and substantial improvements to the property before it entered into the contract with Mondo. Therefore, it has priority because of its interest being created first in time. It further argues that, the decision of the National Court did not observe the dictates of s.55 of the Constitution.

Mondo argues that, Koang as an entity did not have an interest in the property until it signed its contract with Melpa, which was after its own contract was executed and was purportedly terminated by Melpa. It also argues that, the doctrine of privity of contract precludes Koang from arguing against the grant of specific performance under the contract between Mondo and Melpa.

Melpa apologises for getting Koang and Mondo into this legal mess. Its only submission is that, in the event that the appeal is dismissed, Mondo and itself equally pay for Koang’s damages. Alternatively, it argues that, if the appeal is allowed, Koang and itself equally pay for Mondo’s damages. Effectively, therefore, Melpa is admitting liability to either party, that is Koang and Mondo.

The Issues

These arguments present a number of interrelated issues for determination. The issues are:

1. Whether Koang as an unsecured and not formalised tenant entitled to intervene in the contract for sale of land between Melpa as landlord and Mondo as purchaser and argue against specific performance of the contract?
   
2. Whether a third party who is a tenant of a property the subject of a contract of sale has any right either in law or in equity to argue against its specific performance?
   
3. Whether an equality of rights in equity arise where a person claiming in equity has caused a purported termination of an otherwise valid contract and enters into a second contract for the sale of the same property? and
   
4. Whether s.55 of the Constitution has any application in the context of an order for specific performance of a private contract.
   

Rights of Unsecured and Informal Tenants

There is no dispute that neither Koang nor its individual shareholders entered into any form of lease or tenancy agreement with the landlord of the property, Melpa. Neither Koang nor its shareholders paid any rents. They were technically unlawfully squatting on the property. They carried out substantial improvements and conducted business and benefited out of the property. All these were with the acquiescence of the landlord. No steps were taken by Koang or its shareholders to secure their interest, if any, in the property by registering the same with the Registrar of Titles prior to the contract of sale between Mondo and Melpa. They also failed to apply for any order or take such other steps to prevent Melpa from selling the property generally when the invitation for tender was put out and in particular the sale to Mondo. Instead they bided for a purchase of the property which was rejected because their bid was much lower to that tendered for by Mondo.

The law on landlord and tenant knows only a few well-defined tenancies. The closest the present case can be placed under is a tenancy at will. The learned authors of the book, Law of Real Property (4th ed., 1975) at p. 638, define a tenancy at will in terms of, "whenever a person occupies land as tenant (and not merely as servant or agent), with the consent of the owner, on the terms that either party may determine the tenancy at any time." Such tenancies are usually created by implication rather than by any expressed agreement. There are recognised instances in which this kind of tenancies can be created. They are commonly created in cases where a tenant "holds over" after a lease has expired and the tenant continues to occupy without paying any rent with the consent of the landlord: see for an example, Meye v. Electric Transmission Ltd. [1942] Ch. 290, at 292. Another more common case for the creation of this kind of tenancies is where a purchaser is allowed to take possession before a settlement of the contract for the sale of the subject land: see Wheeler v. Mercer [1956] UKHL 5; [1957] A.C. 416, at 425. Such tenancies are quite often created in cases where a landlord and a prospective tenant undertake negotiations to finalise and formalise a tenancy agreement and in the meantime the tenant is permitted to take possession: see for an example of this Coggan v. Warwicker [1852] EngR 514; (1852) 3 Car. & K. 40: 175 E. R. 454, at 455.

The most important feature about tenancies at will is that, such tenancies are determinable at the will of either party upon demand and without the need for any prior notice: see Commonwealth Life (Amalgamated) Assurance Ltd. v. Anderson [1945] NSWStRp 31; (1945) 46 S.R. (N.S.W.) 47, at 49. This makes all other types of recognised tenancies distinct from tenancies at will. All other tenancies are governed by lease agreements, if any and the period of payment or the way in which rents are calculated and paid. There is an implied, if not expressly provided for, term of very long history that, at the end of the agreed tenancy period the possession of the land will revert to the landlord. This not only requires the tenant to give up possession but also to ensure that, possession is restored to the landlord. A failure to do so entitles a landlord to sue for damages and recover rents he could have received and the costs of any repairs: see Henderson v. Squire (1869) L.R. 4 Ex.170; and Henderson v. Van Cooten [1922] W. N. (Eng.) 340.

A local authority is png Ready Mixed Concrete Pty Ltd v. The Independent Sate of Papua New Guinea [1981] PNGLR 396. There, the National Court held that a group of illegal squatters on State land had by virtue of their long occupation acquired an equitable interest. The Court therefore ordered that they be allowed to be in occupation for 12 months for some and 6 months for the others having regard to their period of occupation. The Court did not curtail the landlord’s right to take out eviction proceedings and evict the occupants if they did not voluntarily vacate the property by or before the end of the time granted to them by the court. That in effect recognised the principle that, squatters or tenants at will have no right or interest over and above the rights and or interest of the landlord.

Subsequent decisions of the National Court as in Jivetuo v. The Independent State of Papua New Guinea [1984] PNGLR 174 and Bai v. Morobe Provincial Government [1992] PNGLR 150, have continue to recognised the right of the State has a landlord to evict people who have for some time squatted on State land, subject to their limited right in equity to be given notice to vacate within a period that is reasonable and not harsh or oppressive. These again recognises the fact that, a landlord’s right and interest can not be extinguished or overridden by the limited equitable interest of a tenant at will or an illegal squatter. Accordingly, I am of the view that, Koang as an illegal squatter or a tenant at will has no right as a matter of law to intervene in a claim for specific performance of the contract between Mondo and Melpa. Its remedy, if any, may thus be in equity only against Melpa.

The law is clear on Koang’s argument that it has an equally competing equitable interest to that of Mondo because it was already in occupation of the property before the contract between Mondo and Melpa was signed by reason of which, its contract, signed after the one between Melpa and Mondo should take priority. The earlier relevant principle is "qui prior est tempore potior est jure – "he who is first in time has the strongest claim" applies. However, equity being concerned with fairness and good conscience does not apply this rule in the same rigid way as the courts of common law. Instead, equity is free to search for the "best equity": see Lapin v. Abigail [1930] HCA 6; (1930) 44 C.L.R. 166, at 185-186. Accordingly, an equitable interest later in time may take priority over an earlier equitable interest if the holder of the later interest can show that there are circumstances making it inequitable for the prior interest to prevail. This depends mainly on the conduct of the parties. If a person with a prior equitable interest engages in conduct, which leads to the holder of a later interest to acquire his interest in the belief that the earlier interest did not exist, the earlier interest will not prevail. Generally, notice of the earlier interest; by the later interest holder could render his interest less in priority to that of the earlier interest holder. Nevertheless, lack of notice of earlier interest and acquiring his interest for value cannot of itself give his interest priority over the earlier interest (taken from Peter Butt, Introduction to Land Law, (1980) p. 279).

Under the Torrens System of tile which we adopted, (see Mudge v. Secretary For Lands and 2 Others[1985] PNGLR at pp. 390-391 and 400, per Kidu CJ and Woods J) the position is similar but is dependent on legislation and principles of common law and equity in cases where there a no specific legislative provision. The relevant Act is The Land Registration Act (Chp. 191), particularly sections 17 and 28.

These sections in relevant parts read:

17. Status of unregistered instruments.
    

(1) Subject to Subsection (4), an instrument is not effective to pass or create an estate or interest until the instrument is registered in accordance with this Act.

(2) An instrument signed by a proprietor, purporting to pass an estate or interest for the registration of which provision is made in this Act shall, until registered, be deemed to confer on the person intended to take under the instrument a right to the registration of the estate or interest.

(3) The reference in Subsection (2) to—

(a) a proprietor; or

(b) a person intended to take under an instrument,

includes a reference to a person claiming through or under that proprietor or person, as the case may be.

(4) Subsection (1) does not apply to a lease for a term of three years or less.

28. Status of registered instrument.
    

(1) In this section-

"interest holder" means a purchaser of the reversion, lessee, mortgagee, chargee or encumbrancee;

"tenancy document" means—

(a) an unregistered lease; or

(b) an agreement for a lease; or

(c) a lease for a term not exceeding three years.

(2) A registered dealing with land is subject to a prior tenancy document where a tenant is in actual occupation under the document.

(3) No right or covenant contained in a tenancy document—

(a) to purchase the freehold the subject of that document; or

(b) for the renewal of the tenancy, the subject of that document,

is valid against a subsequent interest holder, unless the tenancy document is registered or protected by caveat.

(4) An instrument referred to in Subsection (2) imposes the same obligations on the persons signing it, and for the same period of time, as if it had been sealed and delivered.

(Emphasis supplied)

The clear import of the provisions of s. 17 of the Land Registration Act is that, an instrument purporting to create or pass an estate or interest in land does not do so until registered. Until registered, the instrument only creates a right to register the interest. Herein is the requirement to register one’s interest on a land if created by an instrument. The only exception to that are leases not exceeding 3 years.

Then s. 28 makes it clear that a registered dealing with land to which the Act applies (all state or alienated land) "is subject to a prior tenancy document where a tenant is in actual occupation under the document" but no "tenancy document is valid against a subsequent interest holder, unless the tenancy document is registered or protected by caveat".

As Koang and its shareholders did not have occupation of the property by virtue of a tenancy document and that such a document was not registered, the provisions of Land Registration Act can not be of any help to them. Recourse therefore, needs to be made to the old position according to the principles of equity. There is no argument between the parties that, the case before us has to be determined by reference to those principles.

The principle is that, if an unregistered interest holder under the Torrens Title system conducts in such a manner that amounts to not protecting his interest or going before the court of equity with unclean hands, his interest will not prevail over another competing interest holder over the same land. There is ample authority for the proposition that, a failure to lodge a caveat in addition to other factors, may constitute as a factor operating against the failing party when there are two equally competing interests: see for example J. & H. Just (Holdings) Pty. Ltd. v. The Bank of New South Wales [1971] HCA 57; (1971) 125 C.L.R. 546, at 554. Speaking in that context in Butler v. Fairclough [1917] HCA 9; (1917) 23 C.L.R. 78, Isaacs J. said at page 97, "the protection given by the Act to an unregistered and, perhaps, unregistrable transaction is coupled with the price of diligence in guarding others against loss arising through ignorance of the transaction."

From authorities such as J. & H. Just (Holdings) Pty. Ltd. v. The Bank of New South Wales (supra) at page 556 it is clear that, in considering the competing interests of unregistered interest holders, attention is first directed to the conduct of the holder of the interest first in time. If after examining his conduct there is nothing to amount to conduct detrimental to his interest, then should the attention be direct to the conduct of the second interest holder. The general rule however is that, if the second interest holder had notice of the first interest holders interest at the time it acquire his interest, he may not be permitted to prevail over the first interest holder: see Courtenay v. Austin (1961) 78 W.N. (N.S.W.) 1082, at 1097.

In the present case, Koang failed to register its interest on or against the title as a reasonable and prudent business entity would have in the particular circumstances of this case. The need to do so was called for more than not because of a number of factors that are apparent from the evidence and the submissions. Firstly, the property was advertised for sale by public tender. They were therefore, fully aware that their interest was at risk and it dawned on them to take all the steps that were legally available to them to protect their interests. They could have applied for appropriate court orders or otherwise register a caveat against the title, but they did not do that. Secondly, the shareholders of Koang were conducting modern businesses out of the property and as such it was incumbent upon them to secure their interests as part of their business. Yet they failed to take any step in that direction. Thirdly, they claimed to have incurred substantial expenses to bring improvements onto the property but they do not specify how much they made out of their continued occupation of the property without paying any rents to Melpa. I assume they did make money out of the property evidenced by their actions culminating in this action. This in my view gave additional reason to register or otherwise secure and protect their interests but they failed. Their failure to register their interest or take such steps to protect their interest before the contract between Mondo and Melpa was entered into, gave Melpa the right to sell and Mondo to buy the property without any regard for the limited equitable interest Koang and or its shareholders may have had in the property.

Further, Koang bided to purchase the property at K150, 000.00 in response to newspaper advertisements for tender for a purchase of the property. That course was taken without taking any step to protect its or that of its shareholders interest. In so doing in my view, it gave away the limited equitable interest it may have had especially as against Mondo as an in coming purchaser of the property. I am therefore of the view that, neither Koang nor its shareholders have any right as against Mondo either in law or in equity. Mondo was an innocent successful bidder for the property in response to an invitation to the public at large to tender for a purchase of the property. On the other hand, Koang and its shareholders were conducting business and were making money out of the property without paying any rents to Melpa and failed to secure or protect that interest.

On the basis of the above, the arguments advanced by Koang can not be sustained.

There are further reasons to reject Koangs arguments and claim. Firstly, after having failed to take any steps to protect its own and that of its shareholders interest as set out above, it caused Melpa to breach its contract with Mondo, which was validly entered into and was enforceable at the time of Koang’s successful interference to advance its own interest after sleeping on it for sometime. If it were not for Koang’s interference, the contract between Mondo and Melpa could not have been breached and necessitate the action for specific performance, which was correctly granted. Before equity can do what the law can not do, there is the well-settled principle in equity that that "he who comes to equity must come with clean hands". Koang and its shareholders have gone before the National Court and now this Court in equity without clean hands. They caused Melpa to breach its contract with Mondo and were than effectively asking the National Court and this Court on appeal to sanction it to benefit from its unlawful and inequitable conduct. Such conduct is unacceptable and can not be permitted.

Secondly, Koang was not a party to the contract between Mondo and Melpa. The doctrine of privity of contract thus operates against its interference at the instance of Koang. That principle of law is well established and applies in our jurisdiction. For a recent application of this principle see Papua New Guinea Banking Corporation v. Brra Amevo & Bari & Others (26th May 1998) N1726. Although, I note that the cause of action for Koang was not on the basis of the contract between Mondo and Melpa but in equity, to the extent that, Koang tried to prevent the specific performance of a contract it was not a party to. In so doing, it contravened the principle of privity of contract as well.

Thirdly, the primary defendant to the Mondo’s action, Melpa, accepted the National Court decision. The learned Counsel for Melpa affirmed that before this Court, which was consistent with no appeal against the National Court decision being filed by his client. The importance of this is that, the person who is required to comply with the National Court’s orders has accepted the decision of the National Court. I have already found that Koang and or its individual shareholders had no right either in law or in equity that was superior to or came first in terms of equitable priority. Consequently, I also find that they have no right now either in law or equity to prevent Mondo and Melpa from performing the rest of their contractual obligations.

Koang also raised the argument that, because it was already in occupation at the time Mondo acquiring its interest, Mondo had notice of its occupation of the property. Consequently, Mondo knew that it would be difficult for Melpa to deliver vacate possession. Hence, the contract between Mondo and Melpa may be difficult to enforce. In all conveyancing, title searches are invariably conducted to ascertain the status of the title. If no interest, other than that of the vendor has registered owner of the property is revealed through such a search, the purchaser is entitled to proceed with the transaction on the basis that it is going to acquire a clean title and or good title. I note that is what happened in this case.

It is also not unusual for properties to change hands with tenants. If a purchaser does not wish to take on the tenants, provision would be made in the contract of sale for the vendor to deliver vacate possession. If there are tenants on the property without a formal and registered tenancy document or agreement, they are often treated has tenants at will and that they will vacate the property before the settlement of the transaction. I note that is how Mondo took the case to be.

Whether or not vacate possession could in fact be given is a matter between Mondo and Melpa and has nothing to do with Koang. Koang therefore, has no right on the basis of the principle of privity of contract to raise it as a basis for it to advance its claim in equity as against Melpa. Initially, Melpa and if need be, Mondo will have the right to evict Koang and its shareholders, in the pursuance of their legal rights and obligations under their contract as vendor and purchase first up and thereafter as landlord for Mondo which have priority over any equitable interest. If Koang and its shareholders choose to remain on the property without Mondo’s acceptance and approval, that will be at its own risk in terms of costs and damages that may be forced upon Mondo and Melpa by their continued adverse possession of the property. The Court was neither referred to, nor am I aware of any authority that supports the arguments put forward for Koang and goes against the views just expressed.

The only other arguments for Koang were that, the learned trial judge erred in failing to take into account the fact that Mondo and its proprietors separately own other properties in the township of Mt. Hagen. It was argue, for Koang this was important because, unlike Mondo and its proprietors, itself and its shareholders do not own any land in the township of Mt. Hagen. Reliance was then placed on s. 55 of the Constitution. In my view, that provision has no application for three reasons. First, the action for specific performance was over a purely commercial undertaking by two private companies who were and are not involved in the business of distributing or granting land to all citizens. The Lands Department does that. Secondly, the provision is there to protect against discrimination on the basis of "race, tribe, place of origin, political opinion, colour, creed, religion or sex" which appear clearly from the opening words to that section in subsection 1. This case does not involve and concern any of these issues. Third, there is no evidence before the Court below and pointed out to this Court, that shows a case of discrimination for the purposes of s.55 of the Constitution. This argument has thus been raised without any factual or legal foundation. Accordingly, I reject this argument.

I further reject Koang’s arguments in terms of the order for specific performance having a potential of causing its individual shareholders hardships and therefore unfair on that basis. This is because, the order for specific performance is directed at Melpa because of its contractual obligations to Mondo. I also reject that argument because of my view and finding that, Koang is an unsecured tenant which has no right either in law or equity to prevent Mondo and Melpa from performing their contractual obligations. If there is any suffering or damage, it is Koang and its shareholders own doing for reasons already given.

In summary I answer all of the related questions set out at pages 11-12 above in the negative.

If at all, Koang and its individual shareholders may have a cause of action against Melpa to recover the value of the improvements brought upon the land with the acquiescence of Melpa. It could also have a claim for damages and a breach of the contract between itself and Melpa but subject to a closer examination of Koang’s own conduct. Melpa may in turn claim the unpaid rents and the benefits derived from the property by Koang and its shareholders as a set-off or cross claim. These are matters for them. It should not step in the way of a performance of the parties’ obligations in the contract between Melpa and Mondo. If I were to hold otherwise, it would give legitimacy to unsecured and illegal occupants of other peoples land stepping in the way of giving effect to contracts otherwise validly entered into between landlords as vendors and innocent in coming purchasers. I believe this ruling will have no adverse impact against the rights of landlords and legitimate tenants to contract away their respective rights in circumstances they consider appropriate. In such a case it will be a case of simply enforcing the contract.

For these reasons I was minded to dismiss the Appeal and affirm the National Court decision and orders. I therefore agreed to orders being made in those terms.
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Lawyer for the Appellant: Mawa Lawyers
Lawyer for the First Respondent: Kunai & Co. Lawyers
Lawyer for the Second Respondent: P.M.Dowa Lawyers