Koitachi Ltd v Zhang [2007] PGSC 11; SC870 (11 September 2007)

SC870

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCM 18 OF 2005

BETWEEN:

KOITACHI LIMITED
Appellant

AND:

WALTER SCHNAUBELT
First Respondent

AND:

JOHNSON ZHANG
Second Respondent

AND:

SJS ENTERPRISES LIMITED
Third Respondent

AND

RAGA KAVANA, REGISTER OF TITLES
Fourth Respondent

Waigani: Gavara-Nanu, J., Mogish, J., and Hartshorn, J.
2007: 28 February,
11 September

PRACTICE AND PROCEDURE - fresh evidence - Supreme Court Act s.6(1) - Originating Summons - judicial review - application to amend statement - requirement to make application - National Court Rules O16 r 6(1)
REAL PROPERTY –s.33 (1) Land Registration Act - definition of “fraud” - indefeasibility of title

Case cited

Papua New Guinean cases

The Administration of the Territory of Papua New Guinea -v- Balius Tirupia and Others In Re. Vunapaladig and Japalik Land [1971- 72] PNGLR 229
John Peng v. The State [1982] PNGLR 331,
Mudge -v- Secretary for Lands [1985] PNGLR 387
MVIT v. James Pupune [1993] PNGLR 370,
MVIT v. John Etape [1994] PNGLR 596,
Nancy Tambe v. Linda Tamsen (2004) N 2714,
Roslyne Cecil Kusa -v- Motor Vehicles Insurance (PNG) Trust –N2328,
Steamships Trading Co Ltd v. Garamut Enterprises Ltd (2002) N1959,
The Papua Club Inc. v. Nusaum Holdings Ltd. (No.2) (2004) N 2603

Overseas Cases

Assets Company Ltd -v- Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176,
Butler -v- Fairclough and Another [1917] HCA 9; (1917) 23 CLR 78,
Templeton -v- Leviatham Pty Ltd [1921] HCA 55; (1921) 30 CLR 34,
R. v. Medical Appeal Tribunal (North Midland Region) [1959] 2QB 408.
Friedman -v- Barret, Ex-parte Friedman [1962] QD.R 498,
Scruttons -v- Midland Cilicones Ltd [1961] UKHL 4; [1962] 2 WLR 186 at 199,
Frazer -v- Walker [1967] 1 AC 569,
Breskvar -v- Wall (1971) 126 CLR 376,
Registrar of Titles (WA) –v- Franzon (1975)132 CLR 611
Tanzone Pty Ltd -v- Westpac Banking Corporation [1999] NSWSC 478; [1999] ATPR 46-195,
Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) and Others -v- Registrar of Titles and Others [2001] WASC 201; (2001) 24 WAR 299,

Counsel

J. Nonggorr, for the Appellant
A. MacDonald, for the First Respondent

11 September, 2007

1. BY THE COURT: Introduction: Koitachi Ltd (Koitachi) and Mr. Walter Schnaubelt both contend that they purchased the property called Koitachi Haus from SJS Enterprises Ltd (SJS). SJS decided to proceed with the sale of the property to Koitachi. Mr. Schnaubelt lodged a caveat on the title to the property. The Registrar of Titles (Registrar) cancelled the caveat and registered the transfer of the property to Koitachi. Mr. Schnaubelt successfully applied to the National Court by way of judicial review for the registration of the transfer to Koitachi to be set aside and for his caveat to be reinstated. Koitachi appeals against that decision.

Fresh evidence

2. Koitachi applied to introduce fresh evidence under Order 6 (1)(a) Supreme Court Rules. This application was opposed by Mr. Schnaubelt. The appeal proceeded on the basis that the Court reserved its finding on the application. We now deliver our finding.

3. In an appeal to the Supreme Court, s. 6(1) of the Supreme Court Act allows fresh evidence to be called. Section 6(1) is as follows:

An appeal to the Supreme Court shall be by way of rehearing on the evidence given in the court the decision of which is appealed against, subject to the right of the Supreme Court—

(a) to allow fresh evidence to be adduced where it is satisfied that the justice of the case warrants it; and

(b) to draw inferences of fact.

4. In John Peng v. The State [1982] PNGLR 331, the Supreme Court favourably referred to the definition of “fresh evidence” in R. v. Medical Appeal Tribunal (North Midland Region)[1959] 2QB 408. That definition was, “evidence which the claimant was unable to produce before the decision was given, or which he could not reasonably be expected to have produced in the circumstances of the case.”

5. As to, “justice of the case warrants it”, in Peng's case (supra) the Supreme Court was of the opinion that if, “the evidence is “fresh” in the accepted judicial interpretation; that it is relevant, credible, admissible according to the rules of evidence and by it a reasonable man would be given cause to doubt, then a proper case exists where the court can exercise its discretion to admit it.”.

6. In this instance, the evidence concerned the status of SJS. The evidence was available at the date of trial but not when the proceedings were commenced. Koitachi contends that it was not aware of the evidence at the date of the trial. In our view, regardless of whether this evidence is “fresh” we find that it is not relevant as it does not relate to the issues before the trial judge or the various grounds of appeal before this Court for determination. Accordingly the application to introduce fresh evidence by Koitachi is refused.

Grounds of Appeal

7. The Grounds of Appeal are:

(a) The trial judge erred in law in holding that the Registrar’s decision to cancel the caveat lodged on the property – Allotment 6, Section 56, Hohola (“the Property”) by Mr. Schnaubelt was not for good or valid reasons/grounds and that the Registrar wrongly cancelled the said caveat when this was not a matter raised in the pleadings and evidence led on it.

(b) The trial judge erred in law in holding that the Registrar acted wrongly in cancelling the caveat lodged by Mr. Schnaubelt in that there was no finding made that Mr. Schnaubelt had an estate or interest in the Property.

(c) The trial judge erred in law in setting aside the registration of the Transfer from SJS to Koitachi (“the Transfer”) in that the registration of the Transfer was effective since the registration occurred after the caveat had been cancelled as the cancellation was voidable.

(d) The trial judge erred in fact and law in holding that Koitachi’s actions were unfair, unreasonable, deliberately or highly irregular and tantamount to fraud as there was no evidence to support a finding of fraud against Koitachi.

(e) The trial judge erred in fact and law in holding that the Registrars actions were unfair, unreasonable, deliberately or highly irregular and tantamount to fraud as there was no evidence to support a finding of fraud against the Registrar.

(f) The trial judge erred in fact and law in setting aside the registration of the Transfer when there was no evidence of fraud to vitiate the registration.

(g) The trial judge erred in law in setting aside the registration of the Transfer after ruling that the doctrine of indefeasibility did not apply when the doctrine is applicable in the circumstances of the case.

(h) Consequent upon the grounds pleaded in paragraphs (a) and (b), above, the trial judge erred in law in quashing the decision of the Registrar cancelling the caveat lodged on the Property by Mr. Schnaubelt.

(i) Consequent upon the grounds pleaded in paragraphs (c) - (g), above, the trial judge erred in law in setting aside the registration of the Transfer.

(j) The trial judge's decision and order setting aside the registration of the Transfer is harsh and oppressive in the circumstances and is unfair and not equitable as Koitachi stands to suffer the most.

Ground (a)

8. Koitachi contends that the pleadings of Mr. Schnaubelt do not challenge the reasons or grounds given by the Registrar for cancelling the caveat and that Mr. Schnaubelt did not apply to amend his pleadings but merely made reference to the lack of pleadings.

9. Mr. Schnaubelt responds that this contention was raised in the ‘pleadings’ and it was the subject of evidence and submissions. Further, if it was not raised in the ‘pleadings’ Koitachi is bound by its actions in allowing the evidence and submissions without objection.

10. The original proceedings were commenced by Originating Summons so there are no pleadings. Pursuant to O 8 r 1 National Court Rules, pleadings only arise in actions commenced by Writ and not in any other originating process; Steamships Trading Co Ltd v. Garamut Enterprises Ltd (2002) N1959. In judicial review proceedings however, the Originating Summons must be supported by a statement, “setting out ..., the relief sought and the grounds on which it is sought”; O 16 r 3(2) (a) and, “subject to sub-rule (2), no grounds shall be relied upon or any relief sought at the hearing except the grounds and relief set out in the statement.”; O 16 r 6(1). O 16 r 6(2) provides for the court on the hearing of the summons to allow the applicant to amend his statement.

11. There is no ground in the statement of Mr. Schnaubelt questioning the reasons given by the Registrar for cancelling the caveat. The grounds concern the lack of notice but not the reasons given by the Registrar for cancellation. Mr. Schnaubelt submits that if the matter was not pleaded, Koitachi is bound by its actions in allowing the evidence and submissions without objection. For this proposition Mr. Schnaubelt relies upon the Supreme Court decisions of MVIT v. James Pupune [1993] PNGLR 370, and MVIT v. John Etape [1994] PNGLR 596. In Pupune (supra) the court said: “It is clear from the authorities we have referred to that if a party allows an issue which is not litigated to be litigated fairly, he cannot on appeal hark back to the pleadings and argue that the issue was not pleaded.” Pupune (supra) and Etape (supra) concerned proceedings commenced by Writ where there were pleadings. They were not concerned with judicial review.

12. Injia DCJ recognized the special nature of judicial review proceedings in Nancy Tambe v. Linda Tamsen (2004) N 2714. In considering the question of the amendment of grounds in statements in support of applications for judicial review he remarked;

“there must be some special consideration given to the special nature of judicial review proceedings. Although application for judicial review is not an appeal, the principles on amendment of grounds of appeal should equally apply, with appropriate modification, to judicial review applications.”

“.... the application may be made at any stage of the proceedings before judgment. In relation to amendments seeking to add new grounds of review, O16 r 6(2) provides that such application be made at the time of the hearing. In the case where the proposed amendment is substantive in nature, the application must be made on notice.....”

13. It is evident that Injia DCJ is of the view that an application to amend grounds in a statement in judicial review proceedings must be made, given the special nature of judicial review. That this view is correct is borne out by a consideration of O16 r 6(1) and r 6(2).

14. In the present case, Counsel for Mr. Schnaubelt acknowledged to the trial judge that the exercise of the Registrar’s discretion under s. 89(1) is not pleaded as a ground for judicial review and that he thought that this was an oversight. He further acknowledges that his submissions concerning the Registrar’s discretion under s. 89(1) were made to cast a shadow and discredit the Registrar’s reasons for failing to give prior notice of intention to cancel the caveat. (In other words, his submissions were not made to support a separate ground concerning the exercise of the Registrar’s discretion under s. 89(1)). Counsel for Mr. Schnaubelt never made an application to the trial judge to amend the grounds in Mr. Schnaubelt’s statement to include a ground relating to the Registrar’s exercise of discretion under s. 89(1). Given that Counsel for Mr. Schnaubelt’s use of evidence concerning s. 89(1) was used merely to support his argument concerning s. 89(2), Counsel for Koitachi did not need to object.

15. In the circumstances therefore, for the trial judge to make the finding that he did concerning the Registrar’s reasons or grounds for cancelling the caveat pursuant to s.89(1), there should have been a ground in Mr. Schnaubelt's statement in support of his application for judicial review relating to the exercise of the Registrar’s discretion under s.89(1). There was not.

16. Mr. Schnaubelt did not apply to amend his statement to include such a ground and Mr. Schnaubelt did not argue about the exercise of the discretion under s. 89(1) as a separate ground, so there was no need for Koitachi to object.

17. The first ground of appeal is upheld.

Ground (b)

18. Given the finding on the first ground of appeal, it is not necessary for the Court to consider ground of appeal (b) as it is concerned with whether the Registrar correctly exercised his discretion as to s. 89(1) Land Registration Act.

Ground (c)

19. As to ground of appeal (c), given the finding of this Court on ground of appeal (a), the question whether the cancellation of the caveat was voidable does not arise. It is not necessary to consider ground of appeal (c).

Grounds (d), (e), (f) and (g)

20. These grounds of appeal are described by Counsel for Mr. Schnaubelt as being grounds that, “in various ways raise the argument that there was no evidence of conduct tantamount to fraud or that the Appellant is protected by the indefeasibility provisions of the Land Registration Act.”. Consequently, the Court considers these grounds of appeal together.

21. Section 33 Lands Registration Act relevantly is as follows:

33. 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) – (i)...........

(2) The operation of Subsection (1) is not affected by the existence in any other person of an estate or interest, whether derived by grant from the State or otherwise, which, but for this Act, might be held to be paramount or to have priority.

22. There is not a definition of “fraud” in the Lands Registration Act.Council for Mr. Schnaubelt cites the Supreme Court case of Emas Estates Development Pty Ltd. v. Mea [1993] PNGLR 215 in which Amet CJ. (as he then was) said, “irregularities tantamount to fraud was (sic) sufficient to overturn a registered title”, and Steamships Trading Company Ltd. v. Garamut Enterprises Ltd. (2002) N1959 in which Sheehan J. (as he then was) said, “section 33 only speaks of fraud and does not limit its meaning nor does it require that fraud be shown in a particular party”.

23. The Emas Estate case (supra) concerned an owner whose State lease was forfeited and then allocated and registered in the name of a third party company. In a majority decision, Amet CJ., one of the majority, was inter alia, of the view that the doctrine of indefeasibility should not be applied to that case. The Steamships case (supra) concerned a challenge to the issue of a State lease on the grounds that procedures in the Lands Act were not complied with. Both cases are distinguishable from this case on their facts.

24. The definition of “fraud” in s.33 (1)(a) Lands Registration Act and the doctrine of indefeasibility of title and its applicability in this jurisdiction were comprehensively considered by Gavara Nanu J. in The Papua Club Inc. v. Nusaum Holdings Ltd. (No.2) (2004) N 2603. We take the liberty of reproducing a large part of His Honour's judgment as it is particularly apposite to the present case:

“The word ‘fraud’ in s. 33 (1) (a) of the Land Registration Act, is not defined anywhere in the Act, but s.45 (1) makes it clear that fraud means more than constructive or equitable fraud. In this regard, it is noted that s. 146 (d) and (e) also provide for the ejectment of a registered proprietor from land if the title is obtained through fraud. Section 146 (4) makes it even more clear although not specifically expressed, 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.

Thus, it is implicit from these provisions that "fraud" in s.33 (1) (a) means fraud committed by the registered proprietor or actual fraud. That is the only ground upon which a registered proprietor’s title can be rendered invalid.

Turning now to the authorities on this point, I find that the principle is quite neatly illustrated in Assets Company Ltd -v- Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176. The case discusses what may constitute or amount to fraud under the Torrens System. The relevance and the applicability of the Torrens System to this jurisdiction was quite clearly expressed by Kidu CJ., in Mudge -v- Secretary for Lands [1985] PNGLR 387, at 390:

"That 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, s.33, land once registered attracts the principle of indefeasibility of title. This Act and its fore runners – the Real Property Ordinance (Papua) and the Land Registration Ordinance (New Guinea )– are based on Australian Acts. They all reflect what is commonly known as the Torrens system of land registration. Under legislations based on this system (in Australia and New Zealand) it is settled law that, apart of exceptions mentioned in the relevant legislations, once land is registered under the Torrens system the owner acquires indefeasibility of title".(my underlining).

In Assets Company Ltd -v- Mere Roihi and Others (supra), members of a Maori community were the traditional owners of the land. A person by the name of Cooper fraudulently acquired the land from the indigenous community. Ownership of the land changed several times. The appellant company was the subsequent purchaser and the registered proprietor under the New Zealand Land Transfer Act 1870, which corresponds with the Land Registration Act. The respondents challenged the appellant company’s title on the basis, inter alia, that its registration as owner was procured by fraud.

The evidence showed that the agents of the appellant company took certain documents to the Registrar and had them registered, which according to their purport and effect clearly entitled and which the company’s agents also believed entitled the company to be registered as the owner of the land. There was no evidence or suggestion whatsoever of any fraudulent statement or misrepresentation made to the Registrar by the appellant company’s agents nor were there any evidence or suggestion of bribery, corruption or dishonesty offered or displayed by the appellant company’s agents in their dealing with the Registrar.

On appeal, the Privy Council held that fraud meant actual fraud by the registered proprietor, involving personal dishonesty. It did not mean constructive fraud.

Lord Lindley at 210 stated the ratio of the decision of the Privy Council:

"Passing now to the question of fraud, their Lordships are unable to agree with the Court of Appeal (New Zealand Court of Appeal). Sections 46, 119, 129 and 130 of the Land Transfer Act, 1870, and the corresponding sections of the Act of 1885 (namely, ss. 55, 56, 189 and 190) appear to their Lordships to shew that by fraud in these Acts is meant actual fraud, i.e., dishonesty of some sort, not what is called constructive or equitable fraud – an unfortunate expression and one very apt to mislead, but often used, for want of a better term, to denote transactions having consequences in equity similar to those which flow from fraud. Further, it appears to their Lordships that the fraud which must be proved in order to invalidate the title of a registered purchaser for value, whether he buys from a prior registered owner or from a person claiming under a title certified under the Native Lands Acts, must be brought home to the person whose registered title is impeached or to his agents. Fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents. The mere fact that he might have found out fraud if he had been more vigilant, and had made further inquiries which he omitted to make, does not of itself prove fraud on his part. But if it be shewn that his suspicions were aroused, and that he abstained from making inquiries for fear of learning the truth, the case is very different, and fraud maybe properly ascribed to him. A person who presents for registration a document which is forged or has been fraudulently or improperly obtained is not guilty of fraud if he honestly believes it to be a genuine document which can be properly acted upon".

These observations quite clearly accord with s. 146 (4) of the Land Registration Act

In Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) and Others -v- Registrar of Titles and Others [2001] WASC 201; (2001) 24 WAR 299, Owen J at 328 stated the same principle in this way:

"The exception "in fraud cases" is limited to fraud by or on behalf of the party who obtains registration: see Breskvar (at 384). Put in a slightly different way, the fraud which must be proved in order to invalidate the title of a registered proprietor must be brought home to the person whose registered title is impeached or to his or her agents: see Assets Co. Ltd (at 210). It is a fraud for which the person who becomes registered can be said to be responsible: see Registrar of Titles (WA) –v- Franzon (1975)132 CLR 611 at 618".

At 336 his Honour said:

"Nonetheless, indefeasibility is at the heart of the Torrens system. As was said in Franzon (at 620-621) "the protection of the registered proprietor is paramount". This was reiterated in a note in (1992) 66 ALJ 507 where the author said: "Public confidence in the Torrens system depends on the rock solid effect of registration." The principle of indefeasibility of title is well understood by lawyers and by the commercial community. In my view it must be given the utmost respect and should be applied according to its tenor".

It can be seen here that, his Honour followed Assets Co. Ltd -v- Mere Roihi and Others (supra) and Breskvar -v- Wall (1971) 126 CLR 376, and thus Frazer -v- Walker [1967] 1 AC 569. See, also Tanzone Pty Ltd -v- Westpac Banking Corporation [1999] NSWSC 478; [1999] ATPR 46-195. All these cases affirm the principle or the view that fraud means fraud committed in the act of acquiring the title by the registered proprietor or actual fraud.

It can therefore be deduced from these principles that once the land is registered, the owner attains indefeasibility of title which cannot be invalidated by any unregistered interests or mere irregularities except fraud by the registered proprietor or actual fraud.

As I said, it is in my opinion settled in this jurisdiction that fraud in s. 33 (1) (a) of the Land Registration Act, means actual fraud. Although that is not expressed in the section, it is implicit from the provisions of the Act, to which I adverted earlier. Same inference can be drawn from the decided cases. For instance, Mudge -v- Secretary for Lands and Others (supra) which adopted Frazer -v- Walker (supra) and Breskvar -v- Wall (supra). The two latter cases adopted the principle in Assets Company Ltd -v- Mere Roihi and Others (supra). See, also Friedman -v- Barret, Ex-parte Friedman [1962] QD.R 498 and Templeton -v- Leviatham Pty Ltd [1921] HCA 55; (1921) 30 CLR 34. In all these cases, it was held that fraud meant actual fraud. Similar approach was adopted in Butler -v- Fairclough and Another (1917)23 CLR 78, where the High Court of Australia at 90 and 97, said that fraud meant actual fraud importing personal dishonesty or moral turpitude.

In Mudge -v- Secretary for Lands and Others (supra) the Supreme Court at 395 said:

"... The New Zealand approach resulted in an eventual appeal to the Privy Council in the celebrated case of Frazer -v- Walker [1967] 1 AC 569 and although their Lordships were not obliged by the facts before them to resolve the dispute between the Australian and New Zealand courts, they did go out of their way to support the principle that registration of a void instrument was, in the absence of fraud, " effective to vest and divest title and to protect the registered proprietor against adverse claims".

The decision in Mudge -v- Secretary for Lands and Others (supra) being the decision of the Supreme Court is binding on me. Needless to say that the principle in Assets Company Ltd -v- Mere Roihi (supra) which was adopted and applied in Mudge -v- Secretary for Lands and Others (supra) through Frazer -v- Walker (supra) and Breskvar -v- Wall (supra), is a sound and well established principle in this jurisdiction. I therefore have no difficulty in adopting and applying it in this case as a binding precedent. See, Roslyne Cecil Kusa -v- Motor Vehicles Insurance (PNG) Trust – N2328 and Scruttons -v- Midland Cilicones Ltd [1961] UKHL 4; [1962] 2 WLR 186 at 199. I also, with respect, adopt the observations made in Conlan and Others -v- Registrar of Titles and Others (supra) as principles applicable to indefeasibility of the registered proprietor’s title under the Land Registration Act.

In The Administration of the Territory of Papua New Guinea -v- Balius Tirupia and Others In Re. Vunapaladig and Japalik Land [1971-72] PNGLR 229, the Supreme Court also held that in the absence of fraud, the registered proprietor’s title cannot be affected by actual or constructive notice of any claim, right, title or interest in the land acquired prior to its registration. There, the Supreme Court was in effect echoing s. 45 (1) of the Land Registration Act. Again, this case illustrates the principle that fraud must be by the registered proprietor or actual fraud, and not by someone from whom the title was acquired. The principle also echoes s.146 (4) of the Land Registration Act."

25. This Court concurs with His Honour’s reasoning and conclusions and respectfully adopts them as our own.

26. In this instance there is no evidence of actual fraud by Koitachi or by SJS. The trial judge refers to "inferences" but not to any actual fraud. The evidence before the Court does not disclose any actual fraud by anyone. Counsel for Mr. Schnaubelt submitted that the behaviour of Koitachi and SJS gives rise to, "a reasonable inference that they took advantage" but conceded before us, that there was no evidence of actual fraud on behalf of Koitachi.

27. There was also no evidence of actual fraud by the Registrar. It is apparent that the trial judge assumed that there was fraud, but in our view there is no evidence upon which he could form that assumption.

28. In the absence of any evidence of actual fraud, pursuant to s.33(1) 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).

29. We accordingly uphold these grounds of appeal.

Other grounds of appeal

30. Given the above findings it is not necessary for us to consider any further grounds of appeal.

Orders

31. The appeal is upheld. The orders made by the trial judge on 14 October, 2005 and entered on 21 October, 2005 are set aside. The First Respondent is to pay the costs of the appeal.

__________________________________________

Nonggorr & Associates Lawyers: Lawyers for the Appellant
Posman Kua Aisi Lawyers: Lawyers for the First Respondent