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Mount Hagen Local Level Government v Kimas [2012] PGNC 356; N6044 (14 August 2012)

N6044

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS (JR) NO 193 OF 2010

BETWEEN

MOUNT HAGEN LOCAL-LEVEL GOVERNMENT
Plaintiff

AND

PEPI KIMAS, SECRETARY, DEPARTMENT OF LANDS AND PHYSCIAL PLANNING
First Defendant

AND

DR PUKA TEMU, MINISTER FOR LANDS AND PHYSICAL PLANNING
Second Defendant

AND

LAND BOARD OF PAPUA NEW GUINEA
Third Defendant

AND

DEPARTMENT OF LANDS AND PHYSCIAL PLANNING
Fourth Defendant

AND

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Fifth Defendant

AND

OGHAMBE PEOPLE FOUNDATION INC
Sixth Defendant

Mount Hagen & Waigani: Makail, J
2012: 11th April & 2015: 14th August

JUDICIAL REVIEW – Forfeiture of State lease – Grounds of – Failure to comply with improvement covenant – Forfeiture process discussed – Duty to give notice to show cause – Exercise of power of forfeiture – Exercise of power not unfettered – Must be exercised based on proper and good reasons – Whether sufficient cause being shown – Section 122 – Land Act, 1996.

Facts

This is an application for judicial review of two decisions of the second defendant (the Minister for Lands and Physical Planning) concerning two portions of land described as portion 94 and portion 95 (consolidated) in Mt Hagen of Western Highlands Province and which the plaintiff claims is the registered proprietor. The first decision is to forfeit its lease granted over them on the ground of failure by the plaintiff to comply with the improvement covenant and the second is to grant an Agricultural lease over the same portions to the sixth defendant. The plaintiff as the aggrieved party alleges that the defendants failed to comply with the process of forfeiture under Section 122 of the Land Act, 1996 and also the process of obtaining title of a State lease under Sections 69 and 70 of the Land Act, 1996. It seeks orders to firstly declare the decisions null and void and secondly, certiorari to quash them. It seeks a further order that its title be restored.

Held:

1. As it is not disputed that the plaintiff received the notice to show cause as to why the lease should not be forfeited under Section 122 of the Land Act, 1996, the ground on failure to give notice to show cause is misconceived and is dismissed.

2. The ground on failure to pay rent is misconceived and is dismissed because it was not a ground for the notice to show cause under Section 122 of the Land Act, 1996.

3. The exercise of power to forfeit a lease is not unfettered because it has serious consequences on the registered proprietor's propriety interest in the property. It is for this reason that the Minister must have proper and good reasons to exercise the power of forfeiture.

4. In order for the Minister to arrive at a decision, there must be a report submitted to him by officers of the Department of Lands and Physical Planning in relation to the state of the lease. The report must contain sufficient information or details set out in Section 122(1) of the Land Act, 1996 to form the basis of a notice to show cause why the lease should not be forfeited.

5. In this case the plaintiff denied that it failed to comply with the improvement covenant and no report on the status of the lease was submitted to the Minister before he exercised his power to forfeit the lease. As a consequence, the Minister acted without proper basis and had ulterior motives to forfeit the lease.

6. The application for judicial review is upheld and the decisions of the second defendant to forfeit the plaintiff's lease over portions 94 and 95 and subsequently grant title to the sixth defendant are null and void and quashed: Yakananda Business Group Inc -v- Minister for Lands & Physical Planning and The State (2001) N2159 followed.

Cases cited:

John Mur -v- Les Kewa as President of Banz Club (2010) N4016
Yakananda Business Group Inc -v- Minister for Lands & Physical Planning and The State (2001) N2159

Other Reference & Texts:

Oxford Advanced Learners Dictionary, 8thed, (2010) London, Oxford University Press

Counsel:

Mr C Raurela, for Plaintiff
Ms V Yobone, for First - Fifth Defendants
Mr P H Pato, for Sixth Defendant

JUDGMENT

14th August, 2015

1. MAKAIL, J: This is an application for judicial review of two decisions of the second defendant (the Minister for Lands and Physical Planning) concerning two portions of land described as portion 94 and portion 95 (consolidated) in Mt Hagen of Western Highlands Province and which the plaintiff claims is the registered proprietor. They are:

1.1. decision to forfeit its lease granted over portion 94 and portion 95 dated 22nd April 2004 pursuant to Section 122 of the Land Act, 1996; and

1.2. decision to grant an Agricultural Lease over the same portions of land to the sixth defendant dated 12th November 2009 pursuant to Sections 65 of the Land Act, 1996.

2. The plaintiff as the aggrieved party alleges that the defendants failed to comply with the process of forfeiture under Section 122 of the Land Act, 1996 and also the process of obtaining title of a State lease under Sections 69 and 70 of the Land Act, 1996. It seeks orders to firstly declare the decisions null and void and secondly, certiorari to quash them. It seeks a further order that its title be restored.

Background Facts

3. It is not disputed the plaintiff is a Local-level Government established under the Organic Law on Provincial Governments and Local-level Governments. It was the registered proprietor of these portions of land until they were forfeited on 22nd April 2004 and reissued as Agricultural Lease to the sixth defendant. They are separated by a main road that runs in the direction of the suburb of Warakum. Before they were forfeited, the first defendant as a delegate of the second defendant issued to the plaintiff a notice to show cause why the lease should not be forfeited. The notice required the plaintiff to show cause within 28 days, failing which the lease would be forfeited. The plaintiff received the notice on 08th November 2002.

4. On the same date, the plaintiff's Council Manager Mr John Kagl responded. He said that there may have been an error in serving the notice on the plaintiff because the plaintiff had on portion 95, 5 executive residences and on portion 94, 18 low cost and executive houses and these portions of land were not vacant. Nothing further was heard from the first defendant. It was not informed of the result of the notice to show cause and its response nor was it served a notice of forfeiture. On 08th March 2010 it received a letter from the Acting Deputy Secretary of the fourth defendant dated 04th March 2010 informing that an Agricultural Lease had been granted over the same portions of land to the sixth defendant and that it must vacate them. It refused and officers of the fourth defendant threatened to vacate it from the property.

5. The plaintiff claims that after the first defendant received its response, he directed his officers to investigate the plaintiff's claim and if the plaintiff's claim was true, an apology was required from the officers. The officers did not carry out the inspection as directed. The plaintiff further claims that it has a mortgage with Bank of South Pacific Limited over these portions of land, a claim which the defendants strongly refute. It also claims that these portions of land had been valued by a private valuer and the total value inclusive of improvements is K1, 600,000.00. This claim is also denied by the defendants. They say that the valuation is for an entirely different property.

6. In response, the defendants claim that prior to the forfeiture of the lease, an officer of the fourth defendant Mr Paul Kelua inspected the portions of land and discovered that there were run-down houses on them and there was no development except a settlement.

Grounds of Review

7. As to forfeiture, the grounds pleaded in the amended statement in support can be summarised as follows:

7.1. Failure to give notice to show cause by the Minister;

7.2. Failure to notify the plaintiff of any outstanding rent.

7.3. Plaintiff's compliance with improvement covenant; and

7.4. Penalty of imposition of a fee rather than forfeiture should have been imposed.

8. The non-compliance with these procedural requirements constituted an error of law in the decision making process. A further and final ground is that the decision was unreasonable because the Minister failed to take into account that the plaintiff paid rent, put up improvements valued over K2 million and the subsequent grant of the Agricultural lease over the same portions of land to the sixth defendant located in the "heart" of the city of Mt Hagen where no agricultural activity could be undertaken by the sixth defendant.

Forfeiture

9. Section 122 of the Land Act 1996 sets out the grounds and procedure for forfeiture of State leases. It states:

"122. Forfeiture of State Lease.

(1) The Minister may, by notice in the National Gazette, forfeit a State lease —

(a) if rent on the lease remains due and unpaid for a period of six months; or

(b) if fees are not paid in accordance with this Act; or

(c) if the amount payable in respect of improvements is not paid in accordance with this Act; or

(d) if —

(i) a covenant or condition of the lease; or

(ii) a provision of this Act relating to the lease; or

(iii) a requirement of a notice under Section 91 relating to

the lease, is not complied with; or

(e) if the granting of the lease has been obtained, in the opinion of the Minister, wholly or partly as a result of statements that were, to the knowledge of the lessee, false or misleading.

(2) Before forfeiting a State lease under Subsection (1), the Minister —

(a) shall serve notice on the lessee calling on him to show cause, within a period specified in the notice, why the lease should not be forfeited on the ground or grounds specified in the notice; and

(b) may, whether or not cause has been shown in accordance with a notice under Paragraph (a), serve on the lessee a notice requiring him, within a period specified in the notice, to comply with the covenants or conditions of the lease or the provisions of this Act.

(3) The Minister shall not forfeit a lease under this Section unless —

(a) the lessee has failed to comply with a notice under Subsection (2) (a) or (b); or

(b) the lessee has failed to show good cause why the lease should not be forfeited.

(4) Copies of a notice of forfeiture and a notice under Subsection (2) (a) or (b) shall be served on all persons who, to the knowledge of the Departmental Head, have or claim to have a right, title, estate or interest in, to or in relation to the land, or such of them as can with reasonable diligence be ascertained and found.

(5) No acceptance of rent by the State waives a right to forfeit a lease under this Act.

(6) For the purposes of this Section the grant of an application for a State lease shall be deemed to be the grant of the lease."

10. According to Section 122, one of the grounds of forfeiture is where the rent on the lease remains due and unpaid for a period of six months and the other is where a covenant or condition of the lease is not complied with. Before forfeiting the lease, the Minister must serve a notice on the lessee calling him or it to show cause why the lease should not be forfeited. The notice must specify a time period for the lessee to respond and the grounds for the forfeiture. If the reason or reasons offered by the lessee are unsatisfactory, the Minister may forfeit the lease: Yakananda Business Group Inc -v- Minister for Lands & Physical Planning and The State (2001) N2159 and John Mur -v- Les Kewa as President of Banz Club (2010) N4016.

Failure to give notice to show cause

11. It is not disputed that the first defendant as delegate of the second defendant gave notice to the plaintiff to show cause why the lease should not be forfeited. This notice was served on the plaintiff on 08th November 2002. That being the case, this ground is misconceived and is dismissed.

Failure to notify plaintiff of any outstanding rent

12. Further, the notice clearly states that the plaintiff "........refused or neglected to comply with the improvement covenant or condition as stipulated in your lease." It would follow that the lease was forfeited because the plaintiff failed to comply with the improvement covenant or condition of the lease and not because of outstanding rent. For this reason, this ground is misconceived and is dismissed.

Plaintiff's compliance with improvement covenant

13. By the notice, the plaintiff had 28 days to respond. There is no dispute that Mr John Kagl the Council Manager of the plaintiff wrote to the first defendant informing him that there may have been an error by the defendants to issue the notice to show cause to the plaintiff because the plaintiff had on the land 5 executive residence and 18 low cost and executive houses and the land was not vacant.

14. The plaintiff's response caused the first defendant to direct his officers to investigate its claim. However, in my view, the further investigation, whether it occurred or not is irrelevant. Similarly, it is irrelevant if the investigation revealed that the plaintiff's response was true and an apology was required.

15. I consider that the exercise of power to forfeit a lease is not unfettered because it has serious consequences on the registered proprietor's propriety interest in the property. If it is a residential lease, a family's interest is at stake or if it is a commercial or business lease, a business interest is at stake. It is for this reason that the Minister must have proper and good reasons to exercise the power of forfeiture. I consider that in order for him to arrive at that decision, there must be a report submitted to him by officers of the Department of Lands and Physical Planning on the state of the lease. The report must contain sufficient information or details of matters set out in Section 122(1) of the Land Act, 1996 to form the basis of a notice to the lessee to show cause why the lease should not be forfeited. The information or details of matters are:

15.1. failure to pay rent for a period of six months;

15.2. failure to pay fees payable under the Act;

15.3. failure to pay amount payable for improvements;

15.4. failure to comply with a covenant or condition of the lease;

15.5. failure to comply with the provision of the Act relating to the lease;

15.6. failure to comply with a notice under Section 91 relating to the lease; and

15.7. if the lease was granted based on false or misleading information.

16. One of the common covenants of a lease is the requirement for the lessee to put up improvements up to a certain value. The lease will specify the value in monetary terms. The plain English definition of the word improvement is "the act of making something better; the process of becoming better; .......a change in something that makes it better; something that is better than it was before." Oxford Advanced Learners Dictionary, 8th ed, (2010) London, Oxford University Press at 783.

17. In the context of a State lease, where there is an improvement covenant, I interpret that to mean that the land which is the subject of the lease must change to be better. So what has the plaintiff done to make the land better than before? The evidence before me based on the letter of Mr Kagl dated 08th November 2002 is that there are low cost and executive houses on these portions of land. It is said that these houses have been on the land since the 1960s. They establish that the land is not vacant. On the face of the evidence (letter from Mr Kagl to the first defendant dated 08th November 2002) I am satisfied that the plaintiff has put up improvements on the land. If the defendants claim that there are no improvements, there is no evidence of the value of the improvement in the lease that the plaintiff must put up to comply with the improvement covenant.

18. I consider that where the forfeiture is based on failure to comply with the improvement covenant, the report to the Minister must specify if the land is vacant or if there are improvements on it, the value of the improvements. If the value of the improvement is less than the value fixed in the lease, it would be a case where the lessee would be in default of the improvement covenant. In that way, the Minister is able to determine whether the lessee has complied with the improvement covenant. If not, the Minister is entitled to issue a notice to show cause to the lessee.

19. In the present case, there is no evidence of a report of this nature before me. In the absence of such a report, I find that the Minister acted without proper basis to give notice to show cause to the plaintiff. Furthermore, the absence of such a report leaves open the inference that the Minister had ulterior motives to forfeit the lease.

20. With regards to the affidavit of Paul Kelua, Mr Kelua says that he inspected these portions of land in September 2002. Based on the inspection, he saw that there were run-down houses on them and there was no development except a settlement. I reject this affidavit because it was filed after the event. It is also no substitute for the report to the Minister before the notice to show cause was issued to the plaintiff.

21. The absence of a report leads me to conclude that the plaintiff is entitled to the reasons it has given to the Minister in the letter written by Mr Kagl dated 08th November 2002. That is, the portions of land had buildings for residential purposes on them and are not vacant. I find, therefore, that the Minister acted without proper basis to forfeit the plaintiff's lease.

22. The decision to forfeit must not stand. It is illegal and must be declared null and void, and quashed. In relation to the second decision, I consider that it would follow as a consequence of the first decision because the second lease should not have been granted to the sixth defendant given that the plaintiff had an existing lease over the same portions of land.

23. Going by the case of Yakananda Business Group Inc (supra), the effect of this finding means that the status quo of the portions of land reverts to the plaintiff, that is, the plaintiff's title to the land is not affected in any way. Because of the illegality and irregularity of the second defendant's action, the plaintiff's title to the land must be restored.

Conclusion

24. Accordingly, the plaintiff is entitled to the relief sought. Given this finding, it is not necessary to consider the last ground of review, that is, whether the Minister should have imposed a fee instead of forfeiture. It is also not necessary to consider the plaintiff's claim that after the first defendant received its response, he directed his officers to investigate the plaintiff's claim and if it was true, an apology was required from the officers. Similarly, the claim that the officers did not carry out the inspection as directed is irrelevant. Finally, it is not necessary to consider its claims that it has a mortgage with Bank of South Pacific Limited over these portions of land and these portions of land had been valued by a private valuer and the total value inclusive of improvements is K1, 600,000.00.

Order

25. The orders are:

1. The application for judicial review is upheld.

2. The decisions of the second defendant to forfeit the plaintiff's lease over portions 94 and 95 and subsequently grant an Agricultural Lease over the same portions to the sixth defendant are null and void and quashed.

3. The plaintiff's lease over portions 94 and 95 is restored forthwith.

4. The defendants shall pay the costs of the proceeding, to be taxed, if not agreed.

____________________________________________________________
Warner Shand Lawyers: Lawyers for Plaintiff
Greg Manda Lawyers: Lawyers for First - Fifth Defendants
N Tame Lawyers: Lawyers for Sixth Defendant