Kiso v Otoa [2013] PGSC 3; SC1222 (1 March 2013)

SC1222

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA 95 OF 2011

BETWEEN:

ERIC KISO
Appellant

AND:

BENNIE OTOA
First Respondent

AND:

KEN WUTNALOM
Second Respondent

Waigani: Salika, DCJ; Manuhu, J; Logan, J
2013: 25 February

PROPERTY – Land titles system – Indefeasibility of an estate in land – Exceptions to indefeasibility – Whether any fraud committed by a third party purchaser for value without notice – Land Registration Act 1996

Cases Cited:

Papua New Guinea Cases

Koitachi Ltd v Zhang [2007] PGSC 11; SC870
Mudge and Mudge v Secretary for Lands, The State and Delta Developments Pty Ltd [1985] PNGLR 387; SC308
The Papua Club Inc. v. Nusaum Holdings Ltd. (No.2) [2004] PGNC 178; (2004) N 2603
The Papua Club Inc v Nasaum Holdings Ltd [2005] PGSC 15; SC812

Overseas cases:

Assets Company Ltd -v- Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176
Breskvar -v- Wall (1971) 126 CLR 376
Brigginshaw v Brigginshaw [1938] HCA 34; (1938) 60 CLR 336

Counsel:
Mr. E Kiso, (self-represented) for the Appellant
Mr. L Manua, for the Second Respondent

1. March, 2013
   

1. BY THE COURT: At the heart of this appeal is the application to the unfortunate circumstances of the appellant, Mr Eric Kiso of well-settled principles concerning the indefeasibility of title conferred on a registered proprietor under the Torrens system of title by registration found in the Land Registration Act 1981 and the limited exceptions to indefeasibility for which that Act provides.

2. The following chronology, as taken from the findings made by the learned primary judge and evidence which was uncontroverted before the court below, summarises the background facts in this appeal:

(a) In 1993, Mr Kiso made an oral agreement with one Bennie Otoa, the first respondent, for the sale by Mr Otoa to him of Mr Otoa’s interest (or, more accurately at that time, prospective interest) in land (the subject land) more particularly described as Allotment 12, Section 295, Hohola, National Capital District, being the whole of the land described in State Lease Volume 91, Folio 84 (the State Lease).

(b) The terms of that oral agreement were that the purchase price for Mr Otoa’s interest was K18,000, payable by an initial instalment of K6,000 with the balance payable when Mr Otoa procured a transfer to him from the National Housing Corporation (NHC) of the State Lease in respect of the subject land.

(c) That transfer of title was necessary because Mr Otoa was not then the registered proprietor of the State Lease. In 1993, the NHC was the registered proprietor. Mr Otoa had been a tenant of the NHC on the subject land and, so he informed Mr Kiso, had an expectation that the title would be transferred to him under an NHC scheme known as the “National Housing Corporation Give Away Scheme”.

(d) Later in 1993, Mr Kiso paid Mr Otoa the instalment of K6,000 and received from him the keys to the house on the subject land. He took possession of that property, paid various outstanding bills relating to it and, over the course of the next 13 years, made various improvements to it.

(e) In the meantime, shortly after receiving the instalment of K6,000 from Mr Kiso, Mr Otoa left Papua New Guinea to take up residence in his wife’s homeland, the Solomon Islands.

(f) The matters rested until 2006 when Mr Otoa returned to Papua New Guinea. He visited Mr Kiso at his workplace. Mr Kiso put it to Mr Otoa that the title needed to be regularised with the NHC before he left to return to the Solomon Islands. Mr Otoa told Mr Kiso he would do this. At the same time, they renegotiated the terms of purchase of the subject land. In the result, they came to sign a contract for the sale of the subject land for the sum of K31,000. That contract recorded that Mr Kiso had made a part payment of K6,000 with the balance of K25,000 being payable on completion of the contract. Completion was to occur within 14 days of Mr Kiso receiving notice from Mr Otoa of the due stamping of the contract. Messrs Kiso and Otoa also executed a related transfer of the State Lease. This was duly stamped.

(g) Messrs Kiso and Otoa came to fix 14 July 2006 at 10:00 am at the Waigani Registry as the date, time and place for completion of their contract. Mr Kiso attended at the appointed time and place; Mr Otoa did not.

(h) In light of this non-attendance, Mr Kiso instituted proceedings in the National Court against Mr Otoa that same day seeking specific performance of the contract or, alternatively, damages. On 17 July 2006, he secured orders from the National Court restraining Mr Otoa from dealing with the subject land pending the trial of the claim for specific performance.
(i) Mr Kiso also lodged with the Registrar of Titles a caveat forbidding dealings with the subject land. That caveat was produced to the Registrar of Titles on 21 July, 2006 at 9.06 am with that production being registered that same day. He likewise notified the Registrar of Titles of his institution of proceedings in the National Court.

(j) The titles register in respect of the State Lease records production of the transfer of title to Mr Otoa from the NHC on 4 July, 2006 at 9:02 am, with that transfer being entered on the titles register on 12 July 2006.

(k) The titles register also records that on 26 November 2008, Mr Otoa was issued with a replacement copy of the certificate of title in respect of the State Lease on the basis that the Registrar of Titles was satisfied that the original had been lost or destroyed (the replacement certificate). Mr Kiso’s caveat is not shown on this replacement certificate.

(l) A notice by the Registrar of Titles of his intention to issue the replacement certificate appeared in The National newspaper on 8 September 2008.

(m) On 7 November 2008, Mr Otoa entered into a contract with Mr Ken Wutnalom for the sale of the State Lease for the sum of K40,000. The titles register records that a related transfer of the State Lease to Mr Wutnalom was produced on 3 February 2009 at 10:56 am and entered on 6 March 2009.

(n) Completion of that contract of sale occurred on 17 December 2008.

3. By the time that the proceeding in the National Court came to trial in April 2011, Mr Wutnalom had been joined as a party. Mr Kiso sought relief only against Mr Otoa. His statement of claim made no allegations at all against Mr Wutnalom, much less fraud on his part.

4. Mr Otoa neither filed a defence to Mr Kiso’s claim nor appeared at trial. The primary judge ordered that Mr Kiso have judgment against Mr Otoa with damages to be assessed.
5. For his part, Mr Wutnalom cross-claimed against Mr Kiso seeking vacant possession of the subject land or, alternatively, damages. It was in his defence to this cross-claim that Mr Kiso alleged that title had passed to Mr Wutnalom because of fraud and a breach of the court’s restraining order. In respect of the cross-claim, his Honour concluded that Mr Kiso had neither proved fraud nor that Mr Wutnalom was aware of the restraining order.

6. Though put in various ways in the notice of appeal and his related submissions, Mr Kiso’s principal challenge on the appeal was against the conclusion of the primary judge that fraud was not proved.

7. Proof of fraud on the part of Mr Wutnalom was necessary for these reasons.

8. Section 36 of the Land Registration Act assimilates the position of the Register of State Leases and State Leases with, respectively, the Register and certificates of title to land. “The Register” (see s 9) is the progressively compiled register of certificates of title to land. Subject to presently immaterial exceptions, a State Lease, on registration, is subject to the provisions of the Land Registration Act, and may be dealt with for the same purposes and in the same manner, subject to the Land Act 1996, as if it had been granted by a registered proprietor and registered in the Register (s 36(2)). Thus, just as with a certificate of title (see s 11(1)), the Registrar’s duplicate on the Register of State Leases of a State Lease is conclusive evidence that the person registered has the proprietary interest in that State Lease. In this fashion, the Land Registration Act creates a system of title by registration which has come to be known as the “Torrens system” after its South Australian originator.

9. Section 33 of the Land Registration Act provides, materially:

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;
...

10. Further, s 146 of the Land Registration Act materially provides:

146. EJECTMENT AGAINST REGISTERED PROPRIETOR.

(1) Subject to Subsection (2), a certificate of title is an absolute bar and estoppel to an action of ejectment against the person named in the certificate of title as seised of or entitled to the land.

(2) Subsection (1) does not prevent an action of ejectment against a proprietor if the action is brought by–
...
(d) a person deprived of land by fraud against a person registered as proprietor through fraud; or
...
(3) This Act does not subject to an action for ejectment a purchaser ... acting in good faith and for valuable consideration.

11. “Fraud” has a long settled meaning for the purposes of the exception to the indefeasibility of an estate in land otherwise granted by the Land Registration Act to the person registered under a Torrens system of title by registration as the proprietor of that estate. That meaning was definitively expressed in respect of cognate New Zealand Torrens system legislation by the Judicial Committee of the Privy Council in Assets Company Ltd -v- Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176 at 210:

[F]raud 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 [sic] 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.

12. The “fraud” must be that of or on behalf of the person who obtains registration: Breskvar v Wall (1971) 126 CLR 376 at 384.

13. That these principles as to what amounts to fraud for the purposes of the fraud based exception to the indefeasibility of a registered proprietor’s interest in land apply to the system under the Land Registration Act in Papua New Guinea was recognised by Kidu CJ in Mudge v Secretary for Lands [1985] PNGLR 387, at 390; in Koitachi Ltd v Zhang [2007] PGSC 11; SC870 and also, notably, in The Papua Club Inc. v Nusaum Holdings Ltd. (No.2) (2004) N 2603, where there is a helpful review of relevant local and overseas authority by Gavara Nanu J (appeal on other grounds dismissed - Papua Club Inc v Nasaum Holdings Ltd [2005] PGSC 15; SC812). It is patent from his Honour's reasons for judgment that the learned primary judge recognised that "fraud" carried this meaning.

14. The onus of proving fraud lay upon Mr Kiso. Even though, because it was a civil proceeding, he was only obliged to do this on the balance of probabilities, the gravity of an allegation of fraud is such that the onus is not discharged by inexact proofs or indirect references: Brigginshaw v Brigginshaw [1938] HCA 34; (1938) 60 CLR 336 at 368-369 per Dixon J (as his Honour then was). Contrary to a misunderstanding which formed the basis of some of Mr Kiso's grounds of appeal, it was not for the National Court to investigate the fraud which he alleged in his defence to the cross-claim. The court's function was to adjudicate according to law the merits of the case pleaded by the parties on the evidence which they introduced. It was for Mr Kiso to investigate and then introduce evidence to prove the allegations which he made in his pleading. It was for Mr Kiso to prove fraud on the part of Mr Wutnalom in securing registration of his interest in the State Lease. It was insufficient for Mr Kiso to prove fraud on the part of Mr Otoa unless he further proved that Mr Wutnalom was a party to that fraud and thereby secured registration on the Register of State Leases. This Mr Kiso did not do, as the primary judge correctly concluded.

15. In pointing to the restraining order which he had obtained, Mr Kiso contended that Mr Wutnalom's conduct in securing registration was in breach of this order. That order did not bind Mr Wutnalom. It did bind Mr Otoa, assuming it could be proved that he was served with a copy of the National Court's order. Mr Kiso did not prove that Mr Wutnalom secured registration by being a party to a fraudulent breach of the court's order by Mr Otoa.

16. This is not to say that the proceedings which Mr Kiso so promptly issued against Mr Otoa and notified to the Registrar of Titles after the failed settlement were irrelevant. In the absence of the institution of those proceedings, the caveat which he lodged with the Registrar of Titles would have lapsed after three months: s 91(1) Land Registration Act. The steps which he took meant that his caveat did not lapse: s 91(2)(b) Land Registration Act.

17. The caveat should have prevented the registration of the interest of Mr Wutnalom in the State Lease. It did not because by 2008 it did not appear on the face of the replacement certificate or, seemingly, the register. Once again, Mr Kiso did not prove that this absence of the continued registration of his caveat was the result of "fraud" by or on behalf of Mr Wutnalom.

18. Mr Kiso's notice of appeal also raises as a basis of challenge an alleged procedural error on the part of the primary judge in permitting the evidence in chief at the trial to be introduced by affidavit. There was nothing unorthodox about the trial being conducted in this way.

19. For these reasons, which accord with those of the learned primary judge, Mr Kiso's appeal must fail. His Honour correctly concluded on the evidence that, in these proceedings, Mr Kiso was left with a remedy in damages as against Mr Otoa and that Mr Wutnalom was entitled to an order for possession of the land the subject of the State Lease.

20. We desire, though, to add the following.
21. It is difficult not to sympathise with Mr Kiso's predicament. However much Mr Kiso's initial, informal dealings with Mr Otoa (who was not then the registered proprietor) may have been imprudent, by the time in 2006 when his caveat was lodged and registered, Mr Otoa had become the registered proprietor. Yet the replacement certificate procured in 2008 by Mr Otoa from the Registrar of Titles does not show that caveat at all. That said, Mr Wutnalom was not at trial shown to be other than a person who had purchased his interest in the State Lease in good faith and for valuable consideration and who had not procured the registration of his interest by fraud.

22. Section 151 of the Land Registration Act provides for an action to recover damages for or by reason of loss or damage occasioned by an omission, mistake or misfeasance of the Registrar of Titles or a person in the office of the Registrar. It also provides for the Registrar to have prior notice of an intention to institute any such proceeding, doubtless so as to give the Registrar and the State time within which to decide whether there was indeed an error in administration and to pay compensation without the need for litigation. It will be for Mr Kiso to take his own advice as to whether or not he has any cause of action under this provision and whether to pursue any such claim.

23. The apparent omission of the caveat on the replacement certificate raises a wider public interest question. A system of title by registration brings with it many advantages to private and commercial dealings in land held under that system. Those advantages depend in very large measure on confidence in the integrity of the register and thus in those administering the register. How the caveat came to be omitted is therefore no mere private concern. It is the role of the Executive Government, not the judiciary, to determine whether and to what extent what this case has revealed about the register warrants investigation. It is, though, appropriate for the court to draw the matter to the attention of the Executive Government via the Attorney-General so as to enable such a decision to be made.

24. The same applies to the conduct of Mr Otoa. The case, being one involving judgment in default of appearance with damages to be assessed, it was neither necessary nor appropriate for the court to make any finding of fraud on his part. Such evidence as there was before the National Court concerning Mr Otoa's conduct may however also warrant investigation by officers of the Executive Government.
25. We therefore propose additionally to make an order directing the court's registrar to send a copy of the appeal book, these reasons for judgment and the order of this court to the Attorney-General for his consideration as to what investigatory action, if any, is warranted. Whether and to what extent any of the investigatory action mentioned is warranted is a matter for the value judgment of the Executive Government.

26. The appeal itself must be dismissed, with costs.

Orders:

(a) The appeal is dismissed.

(b) The appellant is to pay the second respondent's costs of and incidental to the appeal, to be taxed if not agreed.

(c) The registrar is to send a copy of the appeal book and the reasons for judgment and order of this court in this matter to the Attorney-General for his consideration of what investigatory action, if any, is warranted arising from the circumstances of this case.

____________________________________________________________

Eric Kiso in Person
Rageau Manua & Kikira Lawyers: Lawyer for the Respondent