National Council of Young Mens Christian Association of Papua New Guinea (Inc) v Firms Services Ltd [2017] PGSC 20; SC1596 (13 June 2017)

SC1596

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO. 156 of 2014

THE NATIONAL COUNCIL OF YOUNG MENS CHRISTIAN ASSOCIATION OF PAPUA NEW GUINEA (INC)
Appellant
v
FIRMS SERVICES LTD
Respondent

FLORENCE TOMANGANA
First cross-appellant

AND
DOTTI KERO
Second cross-appellant

AND
FRANCIS TOMANGANA
Third cross-appellant

AND
THE NATIONAL COUNCIL OF YOUNG MENS CHRISTIAN ASSOCIATION OF PAPUA NEW GUINEA (INC)
Fourth cross-appellant
v
FIRMS SERVICES LTD
Cross-respondent

Waigani: Gavara-Nanu, Kariko & Collier JJ
2017: 25 April & 13^th June

PRACTICE & PROCEDURE – discontinuance of proceedings against a party – striking out paragraphs in statement of claim – paragraphs not irrelevant to cause of action against remaining defendant – error in striking out paragraphs – appeal allowed

PRACTICE & PROCEDURE – pleading fraud – acts alleged to be fraudulent must be stated fully and precisely with full particulars

LAND LAW – meaning of section 33 (1)(a) of Land Registration Act – constructive fraud – not necessary to prove actual fraud

Cases cited:
Papua New Guinea Cases

Emas Estate v. Mea [1993] PNGLR 219
Koitachi Ltd v. Walter Schnaubelt (2007) SC870
Kittika v Kavana (2010) N4051
Leahy v Otri (2009) N3860
Mudge v. Secretary for Lands [1985] PNGLR 387
Papua Club Inc v Nasaum Holdings Ltd (2004) N2603
Rainbow Holdings Pty Ltd v Central Province Forest Industries Pty Ltd (Provisional Liquidator Appointed) [1983] PNGLR 34
Tikili v Home Base Real Estate Ltd (2017) SC1563
William Maki -v- Michael Pundia and PNG Motors [1993] PNGLR 337

Overseas cases cited

Assets Company Ltd .v. Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176
Bank of New Zealand Limited v Fiberi Pty Ltd (1994) 12 ACLC 48
Browne v Dunn (1893) 6 ER 67 (HL)
Butler v. Fairclough and Another [1917] HCA 9; (1917) 23 CLR 78
Conlan and Others v. Registrar of Titles and Others [2001] WASC 201; (2001) 24 WAR 299

Legislation

Order 2 rule 29 National Court Rules
Order 8 rule 30 National Court Rules
Section 33 (1)(a) Land Registration Act

Counsel:

Mr S Tedor, for the Appellants & Cross-Appellants
Mr L Manua, for the Respondent & Cross-Respondent

13^th June, 2017

1. GAVARA-NANU J: I have had the benefit of reading the judgment of Kariko and Collier JJ in its draft form and I respectfully concur with their conclusions and the final orders they proposed. The background facts of the case before the primary judge and the findings of the primary judge have been succinctly discussed by my two colleague judges and I have nothing further to add. I only wish to make some observations regarding the meaning of the term “fraud” in s. 33 (1) (a) of the Land Registration Act, Chapter No. 191 (‘LRA’ hereon).

2. I consider it incumbent on me to make these observations given that there are two competing views on the meaning of fraud both by the National Court and this Court. One has been regarded as the narrow view based on the decisions in Papua Club Inc. v. Nusaum Holdings Limited (2004) N2603 and Koitachi Ltd v. Walter Schnaubelt (2007) SC870. These cases said fraud in s. 33 (1) (a) of the LRA means actual fraud or fraud committed by the registered proprietor. The other has been regarded as the wider view based on the majority decision in Emas Estate v. Mea [1993] PNGLR 219, that fraud in s. 33 (1) (a) of the LRA also means equitable or constructive fraud.

3. It is important to appreciate that LRA reflects what is commonly known as the Torrens system of land registration. The Act is modelled on Australian Acts. Relevantly, both New Zealand and England have similar legislations having similar provisions as s. 33 (1) (a) of the LRA providing fraud as an exception to the indefeasibility of title. Under the Torrens system a registered proprietor holds an indefeasible title upon registration. This is the essence of the Torrens system and it constitutes a firmly established principle of land registration which the courts in all the above named jurisdictions including this jurisdiction have consistently affirmed: Mudge v. Secretary for Lands [1985] PNGLR 387. The principle therefore forms part of the underlying law. The principle therefore reflects a settled law in this jurisdiction that a registered proprietor acquires indefeasible title upon registration.

4. This law is reflected clearly in the heading under which s. 33 appears in LRA, viz; “Protection of the registered proprietor”. Section 33 reads:

33. Protection of the registered proprietor

(1) The proprietor of an estate or interest holds it absolutely free from all encumbrances except -
(a) in the case of fraud; and

5. This section lists nine exceptions, including fraud under which a title of a registered proprietor may be avoided. The clear legislative intent in this provision and the scheme of the LRA is to protect the interests of the registered proprietor. A long line of decided cases in all the jurisdictions including Papua New Guinea have consistently reiterated and affirmed this principle.

6. In giving effect to the clear legislative intent, the courts in all jurisdictions have stated that, fraud in s. 33 (1) (a) of the LRA and similar legislations in other jurisdiction, if relied upon to avoid the title of a registered proprietor must be strictly proved and must attach to the personal conduct, actions and or knowledge of the registered proprietor and or his agents. In other words fraud must be committed personally either by the registered proprietor or his agents. This would constitute actual fraud. It follows that any fraud committed by the previous owner of the property or any other third party or person, cannot operate to vitiate or invalidate the registered proprietor’s title if the registered proprietor or his agents played no part in such fraud or had no knowledge of it: Assets Company Ltd .v. Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176. Thus the courts in all jurisdictions have interpreted fraud under their respective legislations to mean actual fraud and not constructive or equitable fraud. I discussed the law quite in detail in Papua Club Inc. v. Nusaum Holdings Limited (supra) which this Court subsequently adopted with approval in Koitachi Ltdv Walter Schnaubelt (supra).

7. I remain unconvinced that fraud in s. 33 (1) (a) of LRA also means constructive or equitable fraud.

8. The issue of indefeasibility of the registered proprietor’s title that arose under the New Zealand legislation in Assets Company Ltd, was initially tried in New Zealand, it then went on appeal to the Privy Council. Lord Lindley in interpreting fraud said:

“....fraud in these Acts 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 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” (my underlining).

9. In Conlan and Others v. Registrar of Titles and Others [2001] WASC 201; (2001) 24 WAR 299 at 328 Owen J, in discussing the indefeasibility of title under Torrens system said:

“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] HCA 41; (1975) 132 CLR 611 at 618” (my underlining).

10. Then 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” (my underlining).
11. In Butler v. Fairclough and Another [1917] HCA 9; (1917) 23 CLR 78, the High Court of Australia said fraud meant actual fraud importing “personal dishonesty or moral turpitude”.

12. Based on the foregoing established principles I held in Papua Club Inc. that fraud in s. 33 (1) (a) of the LRA meant actual fraud and not constructive or equitable fraud.

13. Having regard to the foregoing principles, a title issued in breach of mandatory statutory requirements or procedures, such as those under the Land Act, 1996, in my view cannot amount to fraud in the context of s. 33 (1) (a) of the LRA. Such breaches in my view can only amount to irregularities because those irregularities would arise from or would be attached to or relate to the conduct of an officer or officers of the Department of Lands and Physical Planning and a title issued under such breaches would be issued irregularly. However, such irregularities may amount to actual fraud within the meaning of fraud under s. 33 (1) (a) of the LRA, if the registered proprietor or his agents were shown to have played some part in those irregularities or had knowledge of them.

14. It is of fundamental importance to reiterate and appreciate that for an alleged fraud to fall within s. 33 (1) (a) of the LRA, such fraud must attach or relate directly to the personal conduct and or the actions or knowledge of the registered proprietor and or his agents. In this regard, any breaches committed by the officers of the Department of Lands and Physical Planning in regard to mandatory procedures under the Land Act, which may lead to the issuance of a titles cannot be attached to or relate to the registered proprietor or his agents. For this reason, such breaches cannot amount to fraud within the context of fraud under s. 33 (1) (a) of the LRA or actual fraud. For the Court to say that such breaches amounted to fraud, whether actual, constructive or equitable fraud would amount to legislating and it would result in the Court importing into consideration a matter not envisaged by s. 33 (1) (a) of LRA.

15. It would be amiss of me not to comment on the majority decision in Emas Estate v. Mea [1993] PNGLR 219, from which the notion of constructive and equitable fraud in regard to land registration appears to have emanated. With the greatest of respect, I am of a firm view that it was a clear case of a title being issued irregularly because the title was issued in direct breach of the mandatory statutory procedures under the Land Act. Amet J (as he then was) who wrote the leading judgment for the majority described the forfeiture of the previous owner’s title as “highly irregular”. His honour said:

“ ...The manner in which the matter was handled subsequent to the forfeiture – the land exempted from public advertisement within a very short time of less than a week, a new lease issued whilst a legitimate aggrieved applicant had lodged an appeal which is still outstanding, and new lease signed not by the Minister but by a Departmental officer as delegate - are all, to my mind, less than satisfactory, highly irregular, and tantamount to fraud, such that the registration of the title should not be allowed to stand.

The issue in this case raise for consideration the principle of indefeasibility of title under the Torrens land registration system that hitherto has been applied in this jurisdiction. I do not believe that the system is necessarily appropriate in circumstances such as this, where an individual landowner is deprived of his title to land by irregular procedure on the part of officials and a Department of the State, to the advantage of the private corporation. I do not accept that quite clear irregularities and breaches of the statutory provision should remain indefeasible. I believe that although, those irregularities and illegalities might not amount strictly to fraud, they should, nevertheless, still be good grounds for invalidating subsequent registration, which should not be allowed to stand. To not to do so would be harsh and oppressive against the innocent individual lease holder, such as the first respondent.

For these reasons in the end result, I do not believe that the errors, irregularities, and illegalities and possible fraud on the part of the officers and the Department of Lands ought to prevail to deprive the first respondent” (my underlining).

16. His Honour said the title was wrongly and unlawfully forfeited thus depriving the owner of his property. He said the Minister and the Department erred in law – “thus the balance of convenience, equity, justice and fairness” demanded that the previous owner be reallocated his property. The majority decision never addressed and discussed fraud in the context of s. 33 (1) (a) of the LRA which is governing legislation regarding land registration. This omission by the majority is critical as it effectively left no legal basis at all for the majority to make findings of fraud against the registered proprietor. In fact the majority did not make any findings of fraud, if anything, fraud was used generally and speculatively to describe the highly irregular manner in which the previous owner’s title was forfeited. With respect, it was not a firm statement of the law.

17. In this case, I agree that the trial judge erred in striking out paragraph 12 (d) of the Statement of claim which generally pleaded fraud. Other paragraphs were struck out with no basis. The pleadings were further compounded by the appellant discontinuing the proceeding against the other defendants. In the circumstances, I agree that the matter should be remitted to the National Court and the appellant be allowed in the manner ordered by the Court to amend its pleadings and the matter retried.

18. KARIKO AND COLLIER JJ: Before the Court are an appeal and a cross-appeal from a decision of the National Court given on 7 November 2014 in proceedings O.S. 305 of 2010. In that decision the primary Judge dismissed the proceedings in their entirety, finding in favour of the respondent.

19. It is common ground between the parties that the success of the cross-appeal in this case stands or falls on the outcome of the substantive appeal. To that extent, we will focus in these reasons on the issues in the appeal before us.

Background

20. In summary, the appellant was the plaintiff in National Court proceedings O.S. No 305 of 2010. In those proceedings the appellant commenced action against the respondent and four other defendants in respect of an alleged fraudulent transfer of the appellant’s title in property described as Allotment 06, Section 104, State Lease Volume 79, Folio 118, Cormorant Street Lae (“the Lae property”) to the respondent. Relevantly, the defendants to the proceedings were:

• As first defendant: the respondent. It is not in dispute that the respondent is a company owned by the partners of the law firm Rageau, Manua & Kikira Lawyers, or that the firm acted as lawyers for both the appellant as vendor and the respondent as purchaser in the transaction whereby the respondent acquired the Lae property from the appellant.
• As second defendant: Ms Niumi Warkia, at material times the Treasurer of the appellant, and also the daughter of Mr Noah Warkia (the deceased former General Secretary of the appellant).
• As third defendant: Ms Rhonda Owane, the sister of Ms Niumi Warkia, and at material times the Acting Secretary of the appellant.
• As fourth defendant: Westpac (PNG) Limited
• As fifth defendant: the Registrar of Titles
  

21. Originally the appellant claimed, inter alia, that

• the respondent had purchased the Lae property for K750,000.00 in a secret transaction effected on 15 March 2010, pursuant to a contract of sale made on 5 March 2009,
• the transaction was effected without the knowledge of the Board of the appellant,
• the purchase price had been paid to a third party according to instructions of the second and third defendants and another party, and
• the second and third defendants had had no authority to authorise that sale on the appellant’s behalf.
  

22. Accordingly, the appellant claimed that the contract for sale of the Lae property was invalid and did not transfer any interests or title to the property to the respondent.

23. The respondent filed a defence to the appellant’s statement of claim, and at the same time filed a cross-claim against the current cross-appellants as tenants of the Lae property. In summary, the rationale for this cross-claim was that, as the rightful owner of the Lae property, the respondent was entitled to relief against these the current cross-appellants for their unlawful continuing occupation and sub-leasing of the Lae property.

24. During the course of litigation prior to the substantive hearing, the appellant discontinued proceedings against the fourth defendant. Subsequently when the matter came on for hearing before the primary Judge the appellant informed his Honour that it had also discontinued proceedings against the second, third and fifth defendants. His Honour granted leave to the appellant to discontinue the entire proceedings against the second, third and fourth defendants.
25. The trial proceeded on the basis that those defendants were no longer parties, with evidence tendered and lengthy submissions filed and made.

Decision of the primary Judge

16. Materially to the appeal before the Court, in noting in his judgment that the Court had granted leave to the appellant to discontinue proceedings against the second-fifth defendants, his Honour gave primary consideration to the question whether parts of the statement of claim should be struck out. His Honour observed:

[33] Next, Mr Manua submits that, if the Court accepts the submissions set out above, then the Court should or ought to strike out paragraphs 2,4,5,10, 11,12, 12a, 12b, 12c, 20 and 21 of the Statement of Claim which pleaded that plaintiff’s cause of action against the second, third and fourth defendants. He relies on the terms of Order 8 Rule 27 of the National Court Rules and urges the Court to exercise its discretion by striking out those parts of the pleadings following the plaintiff’s discontinuance of its proceedings against those defendants.

[34] Again Mr Tedor has made no submissions on this aspect. After reflecting on the discretionary power of the Court to order that the pleadings be struck out, his Honour continued:

[37] I am mindful of the principle that the power to strike out pleadings as disclosing no reasonable cause of action should be exercised only in plain and obvious cases. However, in this case as the plaintiff has discontinued the proceedings against the second, third and fourth defendants, it is a flow on or consequence of that discontinuance such that the relevant parts of the Statement of Claim which are directly or indirectly connected to those three defendants must as a consequence be struck out. In my view, the offending pleadings which are struck out are set out in paragraphs 2,4,5,10,11,12(a),12(b),12(c),12(d),21 and 20. These paragraphs are struck out.

(emphasis added)

27. His Honour then ordered that certain affidavit evidence be struck out, and turned to the question whether, as a result of the strike out, there remained a cause of action in fraud against the respondent on the pleadings (paragraphs [41], [60]). His Honour referred to submissions of the appellant as follows:

[43] I propose therefore to deal with issues 4, 5, 6 and 7. The issue I have posed can be dealt with together wish issue 4 and 5. In my view those issues are interrelated or overlap each other. This issue raised the issue of fraud.

[44] The parties have made extensive submissions on this issue. Mr Tedor for the plaintiff submits that the first defendant committed fraud with the second and third defendants and one other person in that the second and third defendants together with the cross-first defendant sold the plaintiff’s property in secret without the knowledge, approval or consent of the plaintiff. He submits that this is so because the second and third defendants after giving themselves positions which they did not hold with the plaintiff, they colluded to receive all the benefits and proceeds from the sale of the property from the first defendant and thereby deceiving the Chairman and Board of the plaintiff. It was submitted that these actions of the second and third defendants with the collusion of Ms Alison Wakia and her husband amounted to fraud in law.

[45] He further submitted that evidence from the first defendant shows that an amount of K714,377.39 was paid by the first defendant for the property to a company called Garden City Real Estate. He submits that this money was not paid to the plaintiff. He submits that after the proceeds were paid to Garden City Real Estate Company, there is no evidence of where the money was used. He submits that one of the perpetrators of the alleged fraud, a Alison Warkia Issac picked up the cheque but she has not come forward nor has she been called to give evidence to shed light on how the money was spent and by whom. Mr Tedor submits that as the second and third defendants and Alison Warkia Issac did not give evidence to explain where this monies when, this alone goes to create more suspicion which he submits supports the case of fraud I the sale that the plaintiff is maintaining against the second and third defendant and others and the first defendant. It is his submission on the basis of the evidence before the Court, the purchase and sale of the property to the first defendant by the second and third defendants amounted to fraud in law. In that regard he relied on the case of Onda Koi, Koim Rob, Onda Koim, Amuni Koim, So Koim, Paul Punda, Elias Kom, Robert Duma and Dr Kilt representing themselves and an association known as The Mount Hagen Young Men’s Christian Association of Papua New Guinea (Inc) v Nickson Koi and Mamon Investment Ltd.

28. His Honour then summarised submissions of the respondent, including that:

• an allegation of fraud is a very serious allegation, and particulars of fraud must be pleaded and strictly proven by the plaintiff in accordance with Order 8 rule 30 of the National Court Rules (at [46]);
• although “fraud” in section 33 (1)(a) of the Land Registration Act is not defined, section 45 (1) makes it clear that fraud means more than constructive or equitable fraud (at [47])
• the fact that the registered proprietor acquired a land from a fraudulent person or a forger does not necessarily mean that he or she acquired title through fraud – “fraud” in the Torrens System means actual fraud (at [51]).
  

29. His Honour noted that there was no dispute between the parties as to relevant principles to be applied. He said that it was necessary to consider whether the respondent had committed an act of fraud in acquiring the Lae property in light of his ruling striking out aspects of the statement of claim related to the second and third defendants, and the fact that the only remaining pleadings of relevance in the Statement of Claim were paragraphs 1,6,7,8,9,13,14,15,15(a)-15(i), 16, 16(a)-16(f),17,18, and 19. At [63] his Honour said:

[61] Paragraphs 1-9 inclusive of the Statement of Claim are descriptive paragraphs and in which the plaintiff sets out the nature of the parties in particular the plaintiff. These paragraphs do not plead any cause of action against the first defendant. In particular these paragraphs do not plead any particulars of fraud against the first defendant.

30. His Honour referred to paragraph 13 of the Statement of Claim, noting that it did not plead any fraud against the respondent, and that the appellant had not produced evidence of any irregularity of breach as alleged in the Statement of Claim. His Honour concluded:

[71] In summary then, as the plaintiff had discontinued the proceedings against the second, third and fourth defendants there is no cause of action based in fraud against the first defendant/cross claimant. The pleadings did not plead any fraud against the first defendant/cross –claimant.

[72] Further as the alleged fraud contained in those parts of the Statement of Claim have been struck out, the evidence relating to those aspects cannot be accepted as this would amount to receiving evidence on matters not pleaded in the Statement of Claim.

Notice of Appeal

31. The appellant filed a notice of appeal on 12 December 2014, relying on the following grounds of appeal:

1. The learned trial judge erred in law in dismissing the proceedings in its entirety for lack of any pleadings of fraud against the Respondent, Firm Services Ltd when paragraph 12 (d) of the Statement of Claim filed the 18^th October 2010 pleads fraud against the Respondent and a pleading that the learned trial judge struck out after wrongly finding it as a pleading against parties, Nuimie Warkia and Rhonda Owane, proceedings against whom had been discontinued earlier at the start of the trial of the matter on 6^th May 2014.
2. The learned trial judge erred in law in striking out paragraph 12(d) of the Statement of Claim which pleaded fraud not against the parties against whom proceedings were discontinued at the start of the trial but a pleading of fraud against the Respondent and in so doing committed a gross miscarriage of justice as against the Appellant.
3. The learned trial judge erred in law when deciding the case based on the premise that after striking out paragraphs 2, 4, 5, 10, 11, 12(a), 12(b), 12(c), 12(d), 20 and 21 of the Statement of Claim, the Court was left with no claims of fraud against the Respondent, a decision which was wrong and incorrect on the part of the learned trial judge, as the decision to dismiss the entire proceedings was done after he had struck out paragraph 12(d) of the Statement of Claim which is a statement containing particulars of fraud against no other but the Respondent, Firm Services Limited.
4. The learned trial judge erred in law in deciding to strike out paragraph 12(d) of the Statement of Claim, when the Lawyer for the Respondent did not submit nor ask for itr to be struck out in his submissions.
5. The learned trial judge erred in law in ruling that Mr Tedor, as Lawyer for the Appellant made no submission in response to the Respondents Lawyers submission or request to the Court to strike out paragraphs 2, 4, 5, 10, 11, 12, 12(a), 12(b), 12(c), 20 and 21 of the Statement of Claim when in oral submissions in reply to the Respondents Lawyers submission, Mr Tedor, the Lawyer for the Appellant drew the Courts attention to paragraph 12(d) of the Statement of Claim as a paragraph covering a claim of fraud against the Respondent; or alternatively, if such a submission was not made by Mr Tedor as the Court ruled, in law, for Mr Tedor to make such a submission in response, the for such a submission to be made was not there, because the Respondents Lawyer only made submissions or asked the Court to strike out paragraphs 2, 3, 5, 10, 11, 12, 12(a), 12(b), 12(c), 20 and 21 and said nothing about paragraph 12(d) of the Statement of Claim.
6. With the only pleadings of fraud against the Respondent as contained in paragraph 12(d) of the Statement of Claim struck out, the learned trial judge effectively removed himself from ever considering evidence of fraud against the Respondent, which on the evidence included:-
   1. Evidence that K714,377.39 that the Respondent paid for the property was paid by the Respondent to a company, Garden City Real Estate Limited not to the Appellant knowing Garden City Real Estate Limited was not the registered proprietor of the property and did so without question, so much so, that the conduct of the Respondent was but reckless and in the circumstances had an element of deception or dishonesty about it, in that the Respondent all along knew Garden City Real Estate Limited was not the registered proprietor pf the property but nevertheless still paid the money to Garden Real Estate Limited thereby tricking and depriving the Appellant of its property.
   2. Evidence that the Respondent had notice of the fraud before the sale was completed lies in paragraphs 9 to 10 of the Affidavit of Lionel Manua filed the 12^th July 2010, showing, Mr Manua, the Respondents Lawyer found out a caveat stopping the sale when he tried to lodge the title with the Registrar of Titles. The second notice is during the eviction proceedings in Complaint No 1062 of 2009 – Firm Services Limited v Florence ToMangana, Dotti Kero and Francis ToMangana, in which the same allegations of fraud were made against the Respondent before the sale was completed. The third notice is when the Respondent was asked to make payment of the money for the property to a company other than the Appellant, the registered owner of the property by people other than the duly appointed Board of the Plaintiff. All these notices constitute evidence which goes to show the Respondent had notice of the fraud, which in turn goes to show that the Respondent had notice of the defect in the title, which in turn show, the Respondent had notice or knowledge of the lack of authority of the Second and Third Defendants to sell the property to it.
   100. Evidence of payment of the money for the property by the Respondent to Garden City Real Estate Limited on instructions by people other than the duly appointed Board of the Plaintiff without any question why it was being paid to a company other than the Appellant, in spite of knowledge that the Appellant was the registered proprietor, is a conduct on the part of the Respondent which has elements of dishonesty and deceit, calculated to keep the sale secret from the Appellant and in so doing trick it out of its property.
   4. Evidence of payment of K714,377.14 to a company other than the Appellant by the Respondent in the circumstances was done to keep the sale under wrap to avoid detection or discovery by the Appellant.
7. The learned trial judge erred in law in finding the First, Second, Third and Fourth Cross-Appellants trespassers on the property as their stay on the property after the Cross-Respondent had acquired the title to the property was based on the authority of a competent court order made by the National Court on the 17^th June 2010, allowing them to remain on the property until the substantive matter is determined, which in this case was determined by the decision of the court dated 7^th November 2014.
8. To the extent that the First, Second, Third and Fourth Cross-Appellants, possession, occupation and management of the property in the period between 17^th June 2010 and the date of the decision on the 7^th November 2014 was with and under the authority of a court order, namely the Injunction dated the 17^th of June 2010, it amounted to an error of law for them to be held liable for the rents payable in that period.
9. The trial judge erred in law in ordering the First, Second, Third and Fourth Cross-Appellants jointly liable for rents due payable for the property in the period between 17^th June 2014 and the 7^th November 2014, in that:-
   1. The First and Second Cross-Appellants were then living on the property as rent paying tenants of the landlord, the Fourth Cross-Appellant who was responsible for obtaining the Injunction on the 17^th June 2010 and an order for which the Fourth Cross-Appellant is answerable ultimately, not the tenants.
   2. The Third Cross-Appellant was a non-paying tenant, living on the property with his wife, the First Cross-Defendant Appellant, a tenant of the Fourth Cross-Appellant the party who gave them the authority to remain on the property.
   100. It amounted to a gross-injustice to hold tenants living on a property as legal tenants of the Fourth Cross-Appellant whose authority to allow the tenancy of the First and Second Cross-Appellants to continue based on an injunction it obtained on the 17^th June 2014.
        

32. The appellant sought the following orders:

The Judgment appealed from be quashed and substituted by the following orders:-

1. The Respondent surrender, the title to the said land to the Appellant within fourteen (14) days of this order, who shall lodge it with the Registrar of Titles.
2. The Registrar of Titles upon receipt of the Title shall cancel entry No. 15762 on the Title, entered on the 23^rd March 2010, and thereafter return the Title to the Plaintiff.

100. The Respondent pay over to the Appellant rents paid to it or due payable on the property from the date of the Contract for Sale of the said property on the 5^th March 2009, up to the date of this order, inclusive of interests.

4. Such other orders the court sees fit to impose.
5. Costs of these proceedings.
   

Consideration

33. Both the appellant and the respondent were represented by lawyers at the hearing of the appeal and filed detailed written submissions.

34. The appellant argued, in summary, that:

• The most significant error of his Honour was striking out pleadings of fraud against the respondent in paragraph 12 (d) of the statement of claim. He was not asked to do this by either party.
• The trial Judge struck out paragraph 12 (d) in circumstances where there was compelling evidence of fraud against the respondent in relation to the transfer of the Lae property to it.
• It is not in dispute that the respondent paid K714,377.39 for the Lae property, or that the respondent paid the purchase money to a complete stranger, or that the second and third defendants were not Board members
  

35. In response the respondent submitted, in summary:

• The appellant did not plead or allege fraud against the respondent and did not plead particulars of fraud as mandatorily required and supported by case law
• The National Court has wide powers or discretion to control the conduct of proceedings before it, including striking out claims which do not disclose a reasonable cause of action. It was appropriate for his Honour to strike out pleadings of fact against the second and third defendants in the statement of claim.
• Evidence before the Court showed that the respondent purchased the property without any notice of fraud by the appellant’s representatives Ms Alison Warkia, Ms Niumi Warkia and Ms Rhonda Owane.
• The appellant did not cross-examine the respondent’s witnesses and therefore the rule in Browne v Dunn (1893) 6 ER 67 (HL) applied to their evidence.
  

36. In our view his Honour erred in striking out paragraph 12 (d) of the statement of claim, and subsequently dismissing the proceedings in their entirety against the remaining defendants on the basis that fraud was not pleaded against them.

37. The relief to which the appellants are entitled, however, is a separate question.

38. We have formed these views for the following reasons.

Paragraph 12 (d)

39. First, although we accept as uncontroversial the proposition that a trial Judge is entitled to strike out pleadings which are irrelevant (Order 2 rule 29 National Court Rules) we can identify no reason for his Honour’s deletion of paragraph 12 (d) of the statement of claim. This decision of his Honour not only effectively eliminated a key aspect of the appellant’s case against the respondent without the appellant being given the opportunity to be heard on the point – it resulted in his Honour finding that the appellant had no pleaded case in fraud against the respondent.

40. The decision of the primary Judge to strike out of paragraph 12 (d) did not appear to be inadvertent. At [33] of the primary judgment his Honour identified the paragraphs in the statement of claim in respect of which strike-out submissions were made, and at [37] listed them again but this time with the addition of paragraph 12 (d).

41. His Honour provided no comment as to why paragraph 12 (d) was included in that list when no submissions had been made by either party for its strike out.

Additional paragraphs

42. Secondly, we note that his Honour struck out additional paragraphs of the statement of claim, including paragraphs 10, 11 and 12 (a), (b) and (c) as irrelevant to the claim of the appellant of alleged fraud on the part of the respondent.

43. It is not clear to us why these paragraphs were irrelevant to the appellant’s cause of action. The material pleaded in these paragraphs went to the authority of Ms Niumi Warkia and Ms Rhonda Owane to sell the Lae property on the appellant’s behalf to the respondent, where the appellant’s case was that they had no such authority. Further, paragraphs 12 (a) and (b) pleaded the manner in which the relevant contract was entered. While Ms Warkia and Ms Owane ceased to be defendants to the primary proceedings, this did not mean that their role in the alleged fraud of the respondent could not be pleaded by the appellant, in circumstances where the appellant in paragraph 12 claimed their collusion with the respondent.

44. There is no rule of pleading which requires paragraphs of a statement of claim referring to conduct of individuals to be struck out simply because those individuals cease to be parties to the proceedings. If his Honour struck out paragraphs 10, 11 and 12 (a), (b) and (c) on that basis, he clearly erred. We consider this approach of his Honour particularly concerning in circumstances where paragraphs 10, 11 and 12 (a), (b) and (c) were material to a claim of fraud by the appellant against the respondent.

Pleading fraud, and what “fraud” means in this context

45. Third, we note that Order 8 rule 30 of the National Court Rules requires a claimant pleading fraud to give particulars of any fraud on which it relies.

46. The plain English definition of “fraud” in the Macquarie Dictionary is deceit, trickery, sharp practice, or breach of confidence, by which it is sought to gain some unfair or dishonest advantage. “Fraud” within the meaning of section 33(1)(a) of the Land Registration Act was recently considered by the Supreme Court in Tikili v Home Base Real Estate Ltd (2017) SC1563 at [23] where their Honours said:

There is now a strong line of Supreme Court decisions that have substantially qualified the concept of indefeasibility of registered title set out in Mudge v Secretary for Lands [1985] PNGLR 387. Cases such as Emas Estate Development Pty Ltd v John Mea [1993] PNGLR 215, PNG Deep Sea Fishing Ltd v Luke Critten (2010) SC1126 and Lae Bottling Industries Ltd v Lae Rental Homes Ltd (2011) SC1120 support the proposition 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.

47. In summary, in Tikili it appeared that the same land vested in the Public Curator was sold first to the appellants, and secondly to the first respondent, and a real question existed as to whether the first respondent was aware of irregularities in the sale to it. The Supreme Court found that there was sufficient evidence before the Court on which a finding of constructive fraud could reasonably have been made and the statement of claim was couched in sufficient terms to ground a finding of constructive fraud. The decision of the National Court in that case was quashed, and the matter remitted to the National Court for retrial.

48. While the authorities contemplate that fraud in land transactions may include constructive fraud, this does not derogate from the need to properly plead it. Woods J in William Maki -v- Michael Pundia and PNG Motors [1993] PNGLR 337 at 338-339 comprehensively summarised the position in respect of pleading fraud in the following terms:

An allegation of fraud is a very serious allegation, and the courts have required strict adherence to requirements for pleadings in such cases. Courts have never allowed general allegations of fraud. Courts have required that a person pleading fraud should set out facts, matters, and circumstances relied on to show that the party charged had or was actuated by a fraudulent intention. The acts alleged to be fraudulent must be stated fully and precisely with full particulars. It is not enough just to say that the person lied or swore a false affidavit. The facts, matters and circumstances which make such statements lies must be particularized. Also, this being a challenge to the procedures under the Land (Tenure Conversion) Act, the fault or fraud in those procedures should be particularized. In such a challenge to a certificate of title to land, the court has traditionally insisted on strict rules for the protection of persons who are in possession of land against attacks from persons who, hoping to find some blot on the title, bring actions against them without any reasonable cause. I’m not saying that this action may be being brought without reasonable cause, but if these rules which protect persons in possession of land from being wrongfully and improperly attacked work hardship on the plaintiffs, that is part of the general purpose of protecting property and persons from being improperly vexed. Surely, the rule is no such hardship. If the plaintiffs know anything, then they can and should plead it.

The amended statement of claim clearly does not plead any facts, matters or circumstances. It merely asserts that the first defendant fraudulently obtained title, without giving any details. However, the plaintiffs have filed a further document called particulars of fraud. Clauses 1 and 2 of those particulars take the allegation of fraud no further, merely alleging that the first defendant told lies without giving the facts and circumstances which may show that he has told lies. Clause 3 refers to the first defendant falsely procuring a statutory declaration. This is a serious allegation, but there are no facts supporting how, or when, or under what circumstances this was done and how this circumvented the procedures under the act under which the certificate of title was granted. An allegation of fraud like this requires more detail. Clause 4, in effect, merely states that the defendant told a lie. It provides no facts to support that allegation. Clause 5 does not really allege anything.

I am satisfied that in this allegation of fraud in the issue of a certificate of title following procedures laid down in an act are not sufficiently particularized to satisfy the requirements of Order 8 r 30. I order that the statement of claim and the particulars of fraud pleaded separately be struck out.

(see also Papua Club Inc v Nasaum Holdings Ltd (2004) N2603, Kittika v Kavana (2010) N4051, Leahy v Otri (2009) N3860).

49. It is instructive to examine paragraph 12 (d) with the stem of paragraph 12. It reads:

12. Allotment 06, Section 104, Lae – State Lease, Volume 79, Folio 118 (“the property”) is one of the Plaintiffs properties sold by the Second and Third Defendants to the First Defendant in secret and without the knowledge, approval and or authority of the Plaintiff. Therefore the sale is a fraud and or fraudulent within section 33 (1)(a) of the Land Registration Act, Chapter 191 and does not transfer any interest or title to the property to the First Defendant.

Particulars of Fraud

(a) ...

(b) ...

(c) ...

(d) The sum of K750,000.00 the First Defendant asserts it paid for the property has never been paid to the Plaintiff or that if it was ever paid, then it may have been paid to people other than the Plaintiff.

50. Thus constituted, paragraph 12 pleads that the respondent was party to a sale of the appellant’s property “in secret and without the knowledge, approval and or authority of the Plaintiff”, that the sale was a fraud, and that the purchase price of K750,000.00 for the Lae property was knowingly paid by the respondent to third parties.

51. Further, paragraphs 6, 7, 8 and 9 of the statement of claim, read with paragraphs 10, 11 and 12 as they existed prior to strike out, pleaded the role of Ms Niumi Warkia and Ms Rhonda Owane in the appellant and their collusion with the respondent.

52. An obvious, and possibly serious, omission from the statement of claim is a pleading as to the relationship of the respondent with the law firm representing the appellant and the respondent in the sale of the Lae property.
Certainly there is ample case law supporting the principle that a third party who has notice of an absence of actual authority on the part of officers of a company cannot take advantage of an unauthorised transaction with the company (see for example Rainbow Holdings Pty Ltd v Central Province Forest Industries Pty Ltd (Provisional Liquidator Appointed) [1983] PNGLR 34, Bank of New Zealand Limited v Fiberi Pty Ltd (1994) 12 ACLC 48). Such a transaction could involve fraudulent conduct on the part of the third party who was on notice, particularly as fraud can arise from unsatisfactory, irregular or unlawful circumstances surrounding the transfer of the relevant title. However despite this omission in the pleadings, there was uncontested evidence in the primary proceedings before his Honour, as there is before us, that the respondent is a company owned by partners of the law firm acting for both the appellant and the respondent, who had a close relationship with persons in the appellant allegedly involved in the transfer of the Lae property to the respondent. Further, there was uncontested evidence before his Honour that the proceeds of sale of the Lae property were paid by the respondent to a stranger to the contract between the appellant and the respondent (namely “Garden City Real Estate Trust Account”). Given the manner in which the trial was conducted before the primary Judge, it may have been open to his Honour to draw inferences of fraud (either actual or constructive) arising from that relationship, by reference to the pleadings as they stood. It does not appear that his Honour gave consideration to this issue – rather it is clear at [71]-[72] of the primary judgment that his Honour would not accept evidence relating to the alleged fraud as it “would amount to receiving evidence on matters not pleaded in the Statement of Claim”.

53. Furthermore we consider his Honour erred at [73] of the judgment in finding that:

... the plaintiff has not discharged the onus on the balance of probabilities in its evidence of fraud to defeat indefeasibility of the title vested in the first defendant/cross-claimant. The plaintiff/fourth defendant has not provided any evidence on actual fraud committed by the first defendant/cross-claimant... There is no evidence of any fraud being actually committed by the first defendant/cross-claimant.(emphasis added)

54. In approaching the proceedings on the basis that the appellants were required in any event to prove “actual fraud”, the reasoning of his Honour was clearly inconsistent with legal principles as to constructive fraud as set out in Tikili and cited earlier in this judgment. As is clear from such authorities as Tikili, the appellants were required to prove no such thing.

Conclusion

55. We consider that his Honour erred in striking out paragraph 12 (d) of the statement of claim of the appellant without inviting it to be heard on that issue. We also consider his Honour erred in his application of principles referable to fraud within the context of the Land Registration Act, and his striking out paragraphs in the statement of claim for reasons which appear unsupportable. This is sufficient in our view to warrant an order allowing the appeal and remitting the matter to the National Court for rehearing.

56. It follows therefore that the cross-appeals are also allowed.

57. We do not accept the invitation of the appellant to make findings in its favour on the issue of fraud. Our conclusion that the primary Judge erred in the conduct of the trial does not necessarily mean that the appellant has proven its claims of fraud. In light of events at the trial, we are unable to make the findings of fact sought by the appellant on the basis of either the evidence before the primary Judge or the material before this Court. We decline to make the orders sought in paragraphs (a), (b) and (c) under “Orders Sought” in the notice of appeal, on the basis that such orders are possibly premature pending the final determination of the rights of the parties. We also consider, however, that in the circumstances of the case it would be appropriate to require the appellant to amend its statement of claim, so as to remove irrelevant pleadings and to produce a pleading in properly drafted form for consideration by the National Court.

58. Costs should follow the event. Accordingly, the costs of the appellant of and incidental to the appeal should be paid by the respondent.

59. THE COURT ORDERS THAT

1. The appeal is allowed, the decision of the National Court of 7 November 2014 in proceeding O.S. No 305 of 2015 is quashed, and the matter is remitted to the National Court for rehearing.
2. The cross-appeals are allowed.
3. The appellant has leave to amend its statement of claim based on its discontinuance of proceedings against the initial second, third, fourth and fifth defendants.
4. The amended statement of claim shall be filed and served within 14 days of this Order.
5. Pleadings shall continue thereafter in accordance with the National Court Rules.
6. The costs of the appellant of the appeal are to be paid by the respondent, such costs to be taxed if not otherwise agreed.
7. Time is abridged.
   

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Sialis Tedor & Associates: Lawyers for the Appellant & Cross-appellants
Rageau Manua & Kikira: Lawyers for the Respondent & Cross-respondent