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Hi Tech Industies Ltd v Papua New Guinea Institute of International Affairs [2012] PGNC 3; N4585 (19 January 2012)

N4585

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

CIA 189 OF 2008

BETWEEN:

HI TECH INDUSTRIES LIMITED
Appellant

AND:

PAPUA NEW GUINEA INSTITUTE OF INTERNATIONAL AFFAIRS INC.
First Respondent

AND:

IVAN POMALEU,
Acting Registrar of Companies
Second Respondent

AND:

RAGA KAVANA,
Registrar of Titles
Third Respondent

Waigani: Hartshorn, J.
2011: 5th September,
2012: 19th January

An Appeal from a decision of the Registrar of Companies pursuant to s. 408 Companies Act - whether property of a deregistered company held in trust - whether Registrar of Companies entitled to deal with property of a deregistered company held in trust

Facts

This is an appeal from a decision of the Registrar of Companiesto transfer a property for K1.00 to the Papua New Guinea Institute of International Affairs Inc. The transfer was purportedly pursuant to the Registrar's powers under sections 372 and 373 Companies Act. Hi Tech Industries Ltd was granted leave to appeal the Registrar's decision on 3rd November 2008. The Institute and the Registrar oppose the appeal. The grounds of appeal are that the Registrar did not have authority to sell the Property to the Institute as he held it in trust for HiTech, that the Registrar did not comply with sections 372 and 373 Companies Act, that no notice was given to Hi Tech of the Registrar's intention to transfer the property to the Institute and that the Registrar did not exercise his statutory powers in a bone fide manner.

Held:

1. Longreach, prior to its deregistration, held the state lease to the Property on trust for Hitech.
2. The decision of the Registrar to purport to sell the Property to the Institute pursuant to sections 372 and 373 Companies Act was a breach of sections 373 and 374 and was wrong.

Cases Cited:

Papua New Guinea Cases

Mudge v. Secretary for Lands [1985] PNGLR 387
Emas Estate Development Pty Ltd v. Mea [1993] PNGLR 215
Papua Club Inc v. Nusaum Holdings Ltd (No. 2) (2004) N2603
Papua Club Inc v. Nusaum Holdings Ltd (2005) SC812
Dumal Dibiaso Incorporated Land Group v. Kola Kuma (2005) SC805
Koitachi Ltd v. Walter Schnaubelt (2007) SC870
Commissioner General of Internal Revenue v. Bougainville Copper Ltd [2008] SC920

Overseas Cases

Assets Company Ltd v. Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176
Austin Nichols & Co v. Stiching Lodestar [2007] NZSC 103
Crossco No. 4 Unlimited & Ors v. Jolan Ltd & Ors [2011] EWCA Civ 1619
Davidson v. Registrar of Companies [2010] NZHC 1497
Paragon Finance Plc v. D.B. Thakerar & Co (A Firm) [1998] EWCA Civ 1249

Counsel:

Mr. I. R. Shepherd, for the Appellant
Mr. R. J. Mann-Rai, for the First Respondent
Mr. M. Miningi, for the Second Respondent

19th January, 2012

1. HARTSHORN, J: This is an appeal from a decision of the Registrar of Companies, the second respondent (Registrar), to transfer a property for K1.00 to the Papua New Guinea Institute of International Affairs Inc., the first respondent (Institute). The transfer was purportedly pursuant to the Registrar's powers under sections 372 and 373 Companies Act. Hi Tech Industries Ltd, the appellant (HiTech) was granted leave to appeal the Registrar's decision on 3rd November 2008. The Institute and the Registrar oppose the appeal. The property in question is known as Allotment 12 Section 54 Hohola contained in State Lease Volume 13 Folio 56 (Property).

2. Hi Tech appeals on the grounds that the Registrar did not:

a) have authority to sell the Property to the Institute as he held it in trust for HiTech.

b) comply with sections 372 and 373 Companies Act when he sold the Property to the Institute as those provisions did not permit him to dispose of property that he holds on trust.

c) give notice to Hitech of his intention to transfer the Property to the Institute, contrary to the principles of natural justice.

d) exercise his statutory powers in a bona fide manner by not advertising the Property for sale either by public auction or tender, and his conduct was tantamount to fraud.

3. The Institute submits that, there is no evidence that the Property was held in trust for Hitech, either by Longreach Clothing Co Ltd the registered proprietor (Longreach) or the Registrar, the lease agreement between Hitech and Longreach was void and so there was no restriction on the Registrar selling the Property to the Institute. Further, the Registrar did comply with the Companies Act, was not obliged to give notice of his intention to sell the property to the Institute to Hitech, was not fraudulent in the transfer and that the Institute has an indefeasible title to the Property.

4. The Registrar submits that the Property was not held in trust and that the Registrar was not a trustee as alleged. The Registrar had the appropriate authority to deal with the property as he saw fit. The Registrar complied with sections 372, 373 and 374 Companies Act and there is no evidence of any trust. The Registrar dealt with the head lease only and not the sublease. The Registry acted in good faith in transferring the Property and he was not required to give notice to HiTech. Any interest that Hitech has is confined to the sublease.

5. The appeal is brought pursuant to s. 408 Companies Act, which is as follows:

"(1) A person who is aggrieved by an act or decision of the Registrar under this Act may appeal to the Court within one month after the date of notification of the act or decision, or within such further time as the Court may allow.

(2) On hearing the appeal, the Court may approve the Registrar's act or decision or may give such directions or make such determination in the matter as the Court thinks fit."

6. No decisions were referred to this court concerning an appeal under s. 408 Companies Act, but it is evident that the appeal falls into what the Supreme Court in Commissioner General of Internal Revenue v. Bougainville Copper Ltd [2008] SC920 described as the fourth category of appeal; that is, it is an appeal from the decision of an administrative or executive decision-making authority.

7. Here, no issue has been taken concerning the hearing of the appeal being either a rehearing or a hearing de novo and it has proceeded on the latter basis. Given the wording of s. 408 (2) Companies Act, this would appear to be the correct approach.

8. Specifically as to an appeal from an act or decision of the Registrar of Companies, s.408 Companies Act, apart from the time limit in s. 408 (1), is identical to s. 370 Companies Act 1993 of New Zealand. Indeed, it is from where s. 408 was sourced. Decisions of the New Zealand Courts are persuasive in this jurisdiction and decisions concerning s. 370 Companies Act 1993 of New Zealand are likely to be of assistance when applications are made to this court under s. 408 Companies Act.

9. In the New Zealand High Court decision of Davidson v. Registrar of Companies [2010] NZHC 1497, it was agreed by counsel that under s. 370, the Court hearing an appeal from an act or decision of the Registrar of Companies, must come to its own view of the merits, giving such weight to the decision or act appealed as the Court thinks fit. The New Zealand Supreme Court case of Austin Nichols & Co v. Stiching Lodestar [2007] NZSC 103 was cited in support. That case concerned an appeal from the Commissioner of Trade Marks. Such an appeal is similar to an appeal from the Registrar of Companies in that it is not limited by statute and so is a general appeal on fact and law. In such a case the appellant bears the onus of satisfying the appeal court that it should differ from the decision under appeal. It is only if the appellate court considers that the appealed decision is wrong that it is justified in interfering with it. It is on this basis that this appeal should be determined.

Grounds of appeal

Lack of authority - property held on trust for HiTech

10. Hitech contends that the Registrar lacked the necessary authority to sell the Property as he held the Property in trust for Hitech pursuant to s. 373 (3) Companies Act. This is because at the time of its' deregistration, Longreach held the Property in trust for Hitech.

11. Hitech contends that when Longreach's application pursuant to s. 71 Land Act Ch. 185 that applied at the time and which is now s. 130 Land Act, for approval to subdivide the land comprised in State Lease Volume 19 Folio 4524 was approved, the new state lease in respect of the Property that was granted, State Lease Volume 13 Folio 56, reserved the rights of Longreach and Hitech in respect of the Property, substantially in the same terms and of the same kind as those in the surrendered State Lease Volume 19 Folio 4524 and in the surrendered lease no. 70400 to Hitech. This is pursuant to s. 71 (7) Land Act Ch. 185, now s. 130 (7) Land Act. This, together with the content of the letters and documentation passing between Longreach, Hitech and the Department of Lands and Physical Planning in respect of the Property, created a constructive trust such that Longreach, prior to its deregistration, held the state lease to the Property on trust for Hitech.

Whether sublease between Longreach and Hitech was void for uncertainty

12. The Institute submits that the sublease between Longreach and Hitech did not create a trust relationship between them as amongst others, the sublease was void for uncertainty. Hitech submits that the sublease was not void and in any event the sublease was surrendered pursuant to s. 71 (5) Land Act Ch. 185 and a new state lease for the Property was to issue in the name of Hitech. This is evident from correspondence from Longreach to Hitech and from Day & Associates lawyers, to the Department of Lands and Physical Planning.

13. As to whether the sublease between Longreach and Hitech was void for uncertainty, the Institute submits that the start time and end point of the sublease are uncertain and therefore the sublease is void. Reliance is placed upon the National and Supreme Court decisions of Papua Club Inc v. Nusaum Holdings Ltd (No. 2) (2004) N2603 and Papua Club Inc v. Nusaum Holdings Ltd (2005) SC812. The provisions of the sublease in Nusaum (supra) concerning the start time and endpoints are similar to those in the sublease between Longreach and Hitech. I note that the Supreme Court in Nusaum (supra) differed with the trial judge in regard to the start time and considered that notwithstanding that the date of commencement was uncertain, this did not by itself render the sublease void.

14. As to the end part of the sublease, although the wording of clause 5 (c) and item 6 first schedule are similar to the endpoint provisions in the Nusaum sublease which was held to be uncertain rendering the sublease void, the intention of the parties in Nusaum (supra) was different to that of Longreach and Hitech. In Nusaum (supra) the intention was for the Papua Club Inc to remain on the premises indefinitely whilst paying a peppercorn rental pursuant to the sublease. Here, the intention was for Hitech to be given a clear title to the property initially referred to as Lot 4 Section 54 and then as Lot 12 Section 54. This is evidenced in the letter from Longreach to Hitech dated 28th March 1994 and was the reason for clause 7 of the sublease. Pursuant to clause 7, Longreach agrees to amongst others, promptly and diligently obtain approval for the subdivision and issuance of a new lease in favour of Hitech. The sublease was surrendered. Further, the existing mortgage was to be discharged in relation to Lot 4 Section 54. This also occurred. Given this, I am satisfied that the parties never intended that Hitech would remain on the property pursuant to the sublease indefinitely. The intention of the parties was different to the intention of the parties in Nusaum (supra). Consequently, I am not satisfied that the sublease was void for uncertainty as submitted by the Institute.

15. Consequently, the argument that there was no trust relationship between Longreach and Hitech because the sublease between them was void, as contended by the Institute cannot be sustained. Further, in any event, the sublease questioned by the Institute was surrendered and a new lease granted pursuant to the provisions of s. 71 (7) now s. 130 (7) Land Act. This preserved the rights of Longreach and Hitech in respect of the Property, pursuant to statute.

Whether property held in trust

16. The Institute and the Registrar submit that the Registrar did not hold the property on trust for the following reasons which I will now consider:

No evidence of a trust between Longreach and Hitech

17. The Institute submits that there is no evidence of a trust being established between Longreach and Hitech. The trust that Hitech contends exists, is a constructive trust. As to a constructive trust, the Supreme Court in Dumal Dibiaso Incorporated Land Group v. Kola Kuma (2005) SC805 said:

"A constructive trust is a trust raised by construction of law or arising by operation of law, as distinguished from express trust. They do not arise by agreement or from intention of the parties but by operation of the law. Blacks Law Dictionary 6th edition - Centennial Edition (1891 -1991) states, 'where the circumstances of a transaction are such that the person who takes the legal estate in property cannot also enjoy the beneficial interest without necessarily violating some established principles of equity, the court will raise a constructive trust, and fasten it upon the conscience of the legal owner, so as to convert him into a trustee for the parties who in equity are entitled to the beneficial enjoyment'.

18. In the English and Wales Court of Appeal decision, Paragon Finance Plc v. D.B. Thakerar & Co (A Firm) [1998] EWCA Civ 1249, Millett LJ said the following concerning constructive trusts:

"Regrettably, however, the expressions "constructive trust" and "constructive trustee" have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.

A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He did not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust. Well-known examples of such a constructive trust are McCormack v Grogan (1869) 4 App. Cas. 82 (a case of a secret trust) and Rochefoucald v Boustead [1896] UKLawRpCh 180; [1897] 1 Ch. 196 (where the defendant agreed to buy property for the plaintiff but the trust was imperfectly recorded). Pallant v Morgan [1953] Ch. 43 (where the defendant sought to keep for himself property which the plaintiff trusted him to buy for both parties) is another. In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property."

19. This passage was recently referred to by Etherton LJ in Crossco No. 4 Unlimited & Ors v. Jolan Ltd & Ors [2011] EWCA Civ 1619. The constructive trust upon which Hitech relies is of the first kind referred to above. I am satisfied that such a constructive trust existed between Longreach and Hitech by virtue of and as evidenced by the correspondence already referred to between Longreach, Hitech and the Department of Lands and Physical Planning, the provisions of the sublease that was surrendered and the new State Lease that issued. Specifically, Longreach, prior to its deregistration, held the state lease to the Property on trust for Hitech. I am further satisfied that an appropriation of the Property by Longreach to its own use, in breach of the rights of Hitech, would have been unconscionable.

Whether an instrument of trust is required

20. The Registrar contends that as there is no evidence of a trust deed or trust instrument, there is no evidence of a trust established between Longreach and Hitech. I have already determined that a constructive trust existed between Longreach and Hitech. A trust deed or instrument of trust is not required for a constructive trust to exist.

21. The Registrar also contends, if I understand correctly, that "trust" where it occurs in s.373 Companies Act refers to a trust created by an instrument. Further, the Registrar contends that the Trustee and Executors Act only applies to a trust created by an instrument.

22. As to the contention in respect of s. 373 Companies Act, the word "trust" is not defined in the Companies Act and no credible submissions were made as to why its definition should be restricted. As to the Trustee and Executors Act contention, it is presumed that this was made to provide guidance as to the definition of "trust" in s. 373 Companies Act. Reference was made by counsel for the Registrar to s. 2 Trustees and Executors Act which is as follows:

"2. Application

(1) Subject to Subsection (2), this Act, except as is otherwise expressly provided, applies to trusts created by instruments executed before or after the commencement date.

(2) Except as is otherwise specifically provided, this Act does not authorize a trustee-

(a) to do anything that he is in express terms forbidden to do; or

(b) to omit to do anything that he is in express terms directed to do,

by the instrument or instruments creating the trust, or to override the terms and provisions of the trust."

23. The Registrar submits that s. 2 is to be construed to mean that the Trustees and Executors Act, subject to exceptions, only applies to trusts created by instruments and so does not apply to constructive trusts. In my view, the purpose of s. 2 Trustees and Executors Act is to clarify that where a trust is created by an instrument, the Trustees and Executors Act applies to those trusts whether they were created by instruments executed before or after the Act's commencement date. Section 2 does not state that the Act does not apply to trusts not created by instruments. This interpretation is supported by the definition of "trust" in s. 1 Trustees and Executors Act which relevantly is:

"trust" includes-

(a) an implied or constructive trust; and......"

24. If the interpretation of s. 2 Trustees and Executors Act contended by the Registrar is correct, it would render the above definition of "trust" in s. 1 Trustees and Executors Act redundant.

25. For the above reasons, I am not satisfied that s. 2 Trustees and Executors Act assists the Registrar with his argument that "trust" should have the restricted meaning in s. 373 Companies Act, that he contends. Consequently I reject the above contentions of the Registrar.

26. Given that I have determined that Longreach, prior to its deregistration, held the state lease for the Property on trust for Hitech, the next issue is whether the Registrar was entitled to dispose of the Property pursuant to s. 373 Companies Act.

Whether the Registrar was entitled to sell the Property

27. Pursuant to s. 373 (1) Companies Act, the property of a company, vests in the Registrar with effect from the removal of the company from the register of companies. Section 373 (2) provides that the property of the company does not include property held by the company on trust for any other person. Section 373 (3) provides that where property vested in the Registrar was held by the company on trust the Registrar may continue to act as trustee or apply to the Court for the appointment of a new trustee. Section 373 (4) provides that the Registrar may sell or dispose or deal with any estate or interest in property of the company but not if that estate or interest is "merely held in trust".

28. As "property of the company" in s. 373 (2) does not include property held by the company on trust for any other person, and the Property held by Longreach for Hitech was "merely held in trust" for another person, the Registrar was not entitled to, and did not have the requisite authority to sell, dispose or otherwise deal with the Property. The decision of the Registrar to purport to sell the Property to the Institute pursuant to sections 372 and 373 Companies Act was a breach of sections 373 and 374. For the above reasons I am satisfied that the decision of the Registrar to purport to sell the Property to the Institute was wrong. Given this, it is not necessary to consider the other grounds of appeal.

29. As to the orders that should be granted, Hitech seeks amongst others, that the transfer of the Property to the Institute by the Registrar is null and void ab initio and that Hitech's name be inserted as the proprietor of State Lease Volume 13 Folio 56.

30. I am satisfied that such an order is able to be made as pursuant to s. 408 (2) Companies Act, on hearing an appeal such as this, this court may make such determination as it thinks fit. Further, the Registrar breached the provisions of the Companies Act by purportedly selling the title of a property, the title to which pursuant to statute, he was not entitled to sell.

31. The Institute contends that it has an indefeasible registered title to the Property pursuant to s. 33 Land Registration Act. The Institute concedes that such a title can be overturned where fraud is found to exist. Hitech contends that the actions of the Registrar in amongst others, selling the Property for K1.00 is tantamount to fraud. The Institute contends that there was no fraud and there was no evidence of fraud. The Institute also refers to what it describes as two differing views as to the level of fraud to be established for a title to be overturned. Reference is made to the line of Supreme Court decisions that have upheld the traditional approach that there must be actual fraud or fraud by the registered proprietor: Mudge v. Secretary for Lands [1985] PNGLR 387, Nusaum (supra), and Koitachi Ltd v. Walter Schnaubelt (2007) SC870. Reference is also made to the Supreme Court decision of Emas Estate Development Pty Ltd v. Mea [1993] PNGLR 215, where the majority held that "irregularities tantamount to fraud" were sufficient to overturn a registered title.

32. In Koitachi (supra), a decision with which I was concerned, the Court reproduced a part of the judgment of Lord Lindley in the Privy Council decision of Assets Company Ltd v. Mere Roihi and Others [1905] UKLawRpAC 11; [1905] AC 176. I reproduce the following:

"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, ....... 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 enquiries 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 enquiries for fear of learning the truth, the case is very different, and fraud may be properly ascribed to him."

33. Here, it is not disputed that the Registrar sold the Property to the Institute for K1.00. It is also not open to dispute, that the Property and the improvements thereon are of quite substantial value. The fact that the Registrar agreed to sell such a property for K1.00, when a far more substantial amount could have been obtained, to my mind, must have aroused suspicions in the mind of any reasonable thinking person. I am not satisfied with the explanation of the Registrar at the time, as to why he did not give notice of his intended sale to Hitech, why he did not advertise the Property for public tender or auction or why he sold the property for K1.00. I say at this juncture that the conduct of the Registrar at the time, in his dealing with the Property and the purported exercise of his powers under the Companies Act, to my mind, leaves a lot to be desired. I note the letter that was written on behalf of the Institute requesting the transfer to it of Longreach's assets, but there is no evidence of any inquiry on behalf of the Institute as to why Hitech, which was in possession, was not notified of the intended sale, why the Property was not advertised for public tender or auction and why the Institute, as opposed to any other body or person, should be the beneficiary of such a windfall. One would have thought that in such circumstances an inquiry would have been made as to these factors and why the Property was being sold to the Institute for such an unbelievably low purchase price. In the absence of evidence of any such inquiries being made on behalf of the Institute in the circumstances that exist, I am satisfied that, in the words of Lord Lindley, that fraud can be properly ascribed to the actions of the Institute or its agents.

34. Consequently for the above reasons and pursuant to s.408 (2) Companies Act, I am satisfied that the relief sought by Hitech should and is able to be granted.

Orders

a) the appellant's appeal is upheld.
b) the decision of the second respondent dated 11th March 2006 is null and void.
c) the transfer from the second respondent to the first respondent of the property known as Allotment 12 Section 54 Hohola is null and void ab initio.
d) the first respondent shall deliver up into the possession of the third respondent the lessee's copy of State Lease Volume 13 Folio 56 pursuant to section 160 of the Land Registration Act.
e) the third respondent shall cancel the name of the first respondent as the proprietor of State Lease Volume 13 Folio 56 on both the lessee's copy, the original State Lease and the Register Book and insert the name of the appellant on the lessee's copy, the original State Lease and the Register Book as the registered proprietor.
f) the first and second respondents shall pay the appellant's costs of the appeal.
________________________________________________________

Blake Dawson: Lawyers for the Appellant
Warner Shand lawyers: Lawyers for the First Respondent
Office of the Registrar of Companies: Lawyers for the Second Respondent