PacLII Home | Databases | WorldLII | Search | Feedback

Supreme Court of Papua New Guinea
You are here:  PacLII >> Databases >> Supreme Court of Papua New Guinea >> 2014 >> [2014] PGSC 78

Database Search | Name Search | Recent Decisions | Noteup | LawCite | Download | Help

Papua New Guinea Institute of International Affairs Inc v High Tech Industries Ltd [2014] PGSC 78; SC1577 (31 October 2014)

SC1577

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]


SCA Nos. 5 & 8 OF 2012


BETWEEN

PAPUA NEW GUINEA INSTITUTE OF INTERNATIONAL AFFAIRS INC

First appellant


AND
IVAN POMALEU – ACTING REGISTRAR OF COMPANIES
Second appellant


AND
HIGH TECH INDUSTRIES LIMITED
Respondent


Waigani: Injia CJ; Sawong & Kariko JJ
2013: 18 February
2014: 31st October


COMPANY LAW– Decision of the Registrar - Real property owned by de-registered company vested in Registrar – Property subject of a Sub lease agreement between deregistered company and another company (Sub lessee) - Whether property held under express or constructive trust by deregistered Company for the benefit of the Sub lessee – Property sold by Registrar to another company for K1.00 - Whether registered tile should be set aside for constructive fraud – Registered State Lease set aside and title transferred to Sub Lessee by Court order – Whether order is valid – Companies Act ,ss 373, 374 & 408


Facts:


Long reach Clothing Company Ltd (LRCC) as the registered leaseholder of State leasehold land (the property) entered into a Sub lease agreement with the respondent (HTIL) for the occupation and use of the property. The term of the lease covered the balance of the term of the head lease (less one day), for a rent at K1.00 per year. Subsequently, the State Lease was surrendered for subdivision purposes and a separate registered lease issued over a portion of the land to LRCC. The existing Sublease was “transposed” on the new State Lease. Thereafter, LRCC was deregistered by the second appellant (Registrar of Companies/ROC). By virtue of s 373 (1) of the Companies Act, all properties of LRCC were vested in the ROC. By virtue of s 373(2) & (4) of the Companies Act, the ROC was entitled to deal with those properties except “property held on trust” by LRCC for the benefit of another person. The ROC sold the property to the first appellant (PNGIA) for K1.00. Although no valuation on the property was done, there was evidence that the property (inclusive of improvements) was worth several millions of Kina. HTIL brought an action in the National Court challenging the validity of the sale and sought orders setting aside the sale and orders transferring the property to HTIL. The primary judge found that the property was the subject of an existing constructive trust, set aside the registered State lease on the basis of constructive fraud and ordered the ROC to transfer the property to HTIL. PNGIIA and ROC appealed the decision.


Held:


(1) Upon the deregistration of LRCC, the property situated on Allotment 1 Section 54 contained in registered State Lease Volume 13 Folio 56 (formerly Allotment 4-9, Section 54 HOHOLA, State Lease Volume 19 Folio 4524) owned by LRCC was vested in the ROC by virtue of s 373 (1) of the Companies Act. The primary judge did not err in reaching this conclusion..
(2) “Property held on trust” in s 373(2) and (4) of the Companies Act means all types of property held under any trust arrangements and includes State leasehold land held under an express trust or constructive trust. The primary judge did not err in reaching

the same conclusion.

(3) The leasehold property situated on Allotment 1 Section 54 HOHOLA contained in registered State Lease Volume 13 Folio 56 owned by LRCC, was capable of being held on constructive trust. The primary judge did not err in making this finding.
(4) The primary judge erred in finding that the property was in fact held on constructive trust.
(5) The primary judge erred in finding that the Sub lease agreement between LRCC and HTIL over the Crown Lease and transposed on the new State Lease was valid.
(6) The primary judge did not err in finding that the transfer of the property to PNGIIA by the ROC and the registration of the transfer by the Registrar of Titles (ROT) was vitiated by constructive fraud.
(7) The primary judge did not err in finding that the Court had wide discretionary jurisdiction given by s 408 of the Companies Act to make the orders he made the subject of the appeal.
(8) The primary judge did not err in the exercise of his discretion to set aside the ROC’s decision to transfer of title over the property to PNGIIA and the registration of the transfer by the ROT.
(9) The primary judge erred in ordering the transfer of the property to HTIL..
(10) This Court orders as follows:

Cases Cited:
PNG Cases Cited


Commissioner General of Internal Revenue v Bougainville Copper Limited (2008)
Dumal Dibiaso Incorporated Land Group v Kola Kuma (2005) SC805.
The Papua Club Inc v Nusaum Holdings Ltd (No.2) (2004) N2603


Overseas cases cited


Austin Nichols & Co. v Stitching Lodestar [2007] NZSC 103.
Davidson v Registrar of Companies [2010) NZHC 1497
Paragon Finance Plc v. D.B. Thakerar & Co (A Firm) [1998] EWCA Civ 1249


Text and Treatises cited


in Oxford Dictionary of Law , 2009, Oxford University Press, London, page 561,
Underhill’s Law of Trusts and Trustees (12th ed) R.T. Oerton, Butterworths, London, 1970, page 9-10.
Oxford Dictionary of Law , 2009, Oxford University Press, London, page 561.
Re Earnshaw-Wall [1894] UKLawRpCh 100; [1894] 3 Ch 156;
Morrison v Hope, 4 D.G. & S. 234;
Stroud’s Judicial Dictionary of Words and Phrases, Seventh Edition Thompson, Sweet & Maxwell, London, 2006.


Legislations cited:


Constitution, Sch 2.1
Underlying Law Act.
Frauds and Limitations Act 1998
Companies Act.
Land Registration Act.


Counsel:


R Manrai , for the Appellant
A Kuria , for the Respondent


31 October, 2013


  1. BY THE COURT: These two appeals arise from the decision of the primary judge (trial judge) sitting in the National Court given in proceedings CIA (COMM) No 189 of 2008 in which the Court allowed an appeal from a decision of the Registrar of Companies under s 408 of the Companies Act (the Act). In that decision the Registrar (ROC) sold a registered State Lease land owned by a de-registered company to another company pursuant to the powers vested in him by s 373 of the Companies Act. The primary judge quashed the decision and ordered that the property be transferred to the company with whom the de-registered company had a Sub lease agreement over the land prior to its de-registration.
  2. In SCA No 5 of 2012, the first appellant appeals from the decision of the primary judge to uphold the appeal and set aside the registered State Lease and order the ROC to transfer the property to the company that had the Sub lease. In SCA No 8 of 2014, the ROC appeal the same decision and also an interlocutory ruling that dismissed an application to dismiss the appeal.
  3. Sections 272, 373 and 374 deals with the property of deregistered companies. Section 373 (1), (2), (3), (4) and (5) is relevant to the issues raised in these appeals and it is in the following terms:

“373. Registrar as representative of defunct company.

(1) Property of a company that, immediately before the removal of a company from the register, had not been distributed or disclaimed, vests in the Registrar with effect from the removal of the company from the register.

(2) For the purposes of this Act, property of a company includes leasehold property and all other rights vested in or held on trust for the company, but does not include property held by the company on trust for any other person, or any money to which Section 364 applies.”

(3) Where property vested in the Registrar was held by the company on trust, the Registrar may—

(a) continue to act as trustee; or

(b) apply to the Court for the appointment of a new trustee.

(4) On proof to the satisfaction of the Registrar that there is vested in him by virtue of Subsection (1) any estate or interest in property, whether solely or together with any other person, of a beneficial nature and not merely held in trust, the Registrar may sell or otherwise dispose of, or deal with, the estate or interest or any part of it as he thinks fit.

(5) The Registrar may sell or otherwise dispose of, or deal with, property referred to in Subsection (1), either solely or in concurrence with any other person, by public auction, public tender or private contract and in such manner, for such consideration and on such terms and conditions as the Registrar thinks proper, with power to rescind any contract and resell or otherwise dispose of or deal with the property as the Registrar thinks expedient, and may make, execute, sign and give such contracts, instruments and documents as the Registrar thinks necessary.” (my emphasis)


  1. Section 408 governs appeals from the decisions of the ROC to the National Court and it provides:

“408. Appeals from Registrar's decisions.

(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.”


Facts


  1. For the purpose of setting the background circumstances of these appeals, an outline of the pertinent facts in brief is necessary. We have ascertained these facts from the evidence before the court below and the findings made by the trial judge.
  2. The property in question is described as Allotments 4-9 Section 54, HOHOLA, Port Moresby. In 1970, Longreach Clothing Co Ltd (LRCC) was granted a Crown Lease for business purposes for a term of 99 years, commencing 9th July 1970 and expiring 9th July 2069. On 25th February 1971, the Crown Lease was registered under Crown Lease Volume 19 Folio 2524). A photocopy of the Crown Lease contained in the Appeal Book does not show or bear the conditions of the Crown Lease.
  3. On 24th July 1989, LRCC and High Tech Industries Ltd (HTIL) entered into a Sub lease agreement over the property. The Sub-lease received Ministerial approval under the Land Act. On 3rd October 1990, the Sub lease was registered by the Registrar of Titles (ROT). The main terms and conditions of the Sub lease were as follows:
  4. On 15th October 1994, LRCC surrendered State Lease Volume 19 Volume 4524 for sub-division purposes. On 25th September 1995, a new State Lease was registered and issued to LRCC. What was formerly Allotment 4 – 9 Section 54 HOHOLA, Port Moresby, State Lease Volume 19 Folio 4524 was subdivided and a new State Lease was issued over a part of the land. The new description of the land is Allotment 12 Section 54 contained in registered State Lease Volume 13 Folio 56. The terms and conditions noted on the new State Lease title were the following:
(4) Existing Sub lease with HTIL: The following endorsement appears on the State Lease Title: “SL produced on 16 March 1990 at 2.pm; “”LEASE TO HIGH TECH INDUSTRIES transposed from parent State Lease Volume 19 Folio 4524”.
  1. On 19th December 1996, LRCC was de-registered by the ROC and its assets and property vested in the ROC pursuant to s 373 (1) of the Companies Act. Some 10 years after LRCC was deregistered, on 22nd March 2006, the ROC sold the property to PNG Institute of International Affairs Inc (PNGIIA) for a price of K1.00.
  2. HTIL and the ROC appealed that decision to the National Court. By virtue of s 408 of the Companies Act, an appeal lies from such decision of the ROC to the National Court. The primary judge found that the property was held by LRCC on constructive trust for the benefit of HTIL and as such, the property came within the exception in s 373 (2) & (4) of the Companies Act . The primary judge found that the transfer was vitiated by constructive fraud and set aside PNGIIA’s registered State Lease title. The primary judge also ordered the ROC to transfer the property to HTIL.
  3. The appellants appeal from that decision to this Court in two separate appeals which raise similar grounds of appeal. There are multiple grounds of appeal which raise various issues. It is unnecessary to reproduce those grounds because the issues that arise from those grounds and argued before us, adequately capture those grounds. We distil five main issues whose determination could decide the appeals. The issues stated in question form are as follows:

What is the meaning of “property”, “trust” and “property held on trust” in s 373 (2) & (4) Companies Act?


  1. There is no dispute between the parties that by virtue of s 373(1) of the Act, the property was vested in the ROC upon the deregistration of LRCC as from 19th December 1996.
  2. The expression “property held on trust” and the key words in the expression (“trust” and “property”) are not defined in the Act. The trial judge construed the expression liberally to include express trusts and constructive trusts.
  3. The appellants argue that the expression and the key words in that expression should be construed strictly in a way that permits express trusts only. In the case of real property, interests in land are normally created in writing. An express trust is created by a formal trust instrument or deed. The purpose of this expression is to permit express trusts created over real property to come within the exception in s 373(2) and (4) so that such properties are not available at the ROC’s disposal to be dealt with. The expression does not permit implied or constructive trust of the sort discussed by the Supreme Court in Dumal Dibiaso Incorporated Land Group v Kola Kuma (2005) SC805.
  4. The respondent argues that a constructive trust is inclusive in the term “trust” appearing in s 373 (2 & (4). “Trust” should not be restricted to an express trust constituted by a deed or by trust instrument but that the expression should be broadly read to include constructive trusts. A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable to the owner of the property to assert its beneficial interest in the property over that of the person.
  5. In our view, there is a gap in the written law in terms of the definition of the expression “property held on trust” appearing in s 373(2) and (4) of the Companies Act that remains to be filled by judicial construction of that expression and the key words contained in that expression. For the large part, principles of equity regarding dealing with property developed in England continue to have relevance in PNG and continue to govern property law in PNG. Indeed much of modern property law of this country is found in the common law and equity of England that are adopted as part of the underlying law in this country and continue to have relevance to this country. Some of that law has been codified in this country through various statutes and in other cases references such as those found in the provision under consideration in this case make mention only of terms and phrases developed in equity.
  6. That task of statutory construction falls to be performed by recourse to the underlying law. The common law and equity of England and the customary law of Papua New Guinea are the recognized sources of the underlying law: Constitution, Sch 2.1 and Underlying Law Act 2001. The real property in the case at hand is State leasehold land and customary land law is inapplicable. In the interpreting statutory provisions that govern personal or real property that originate from the English common law and equity, recourse to the principles of the English common law should be preferred. The principles of common law and equity as the main source of property law, subject to statutory codification in selected areas of real property law in Papua New Guinea, is well understood. Many statutes and subordinate enactments in PNG do provide for many types of trusts, express and constructive trusts included, and different forms of express trusts some of which are required to be registered. If Parliament intended to assign a specific meaning to the expression and words in the expression in question in this case, it would have expressly done so. In the absence of such restrictive definition of the expression, the ordinary meaning of that expression given in the principles of common law and equity should apply unless such meaning were ruled out by the test of appropriateness and applicability prescribed by the Constitution, Sch 2.1 and the Underlying Law Act.
  7. In equity, the expression is given wide or liberal meaning, that includes all types of property and in the case of real property, all types of interests in land that may be held on trust, express trusts and constructive trusts alike. The expression appearing in s 373 (2) and (4) is used in a generic sense and intended to be read and understood in that way.
  8. The ordinary meaning of “trust” in property law appears in Oxford Dictionary of Law , 2009, Oxford University Press, London, page 561, in the following terms:

“ An arrangement in which a settler transfers property to one or more trustees who will hold it for the benefit of one or more persons”.

  1. A trust arises either under statute or are created; intentionally by the act of the settler, in which case it is called an express trust; or by implication of a court of equity where the title to property is in one person, and the equitable right to the beneficial enjoyment of the trust property is in another person, in which case it is called a constructive trust: Underhill’s Law of Trusts and Trustees (12th ed) R.T. Oerton, Butterworths, London, 1970, page 9-10. “Trusts” is described as one of the most important contributions of equity to English jurisprudence: Oxford Dictionary of Law, 2009, Oxford University Press, London, page 561. “Property” is a generic and comprehensive term for all that a person has dominion over, personal or real, that is indicative of every possible interest which a party can have: Re Earnshaw-Wall [1894] UKLawRpCh 100; [1894] 3 Ch 156; Morrison v Hope, 4 D.G. & S. 234; Stroud’s Judicial Dictionary of Words and Phrases, Seventh Edition Thompson, Sweet & Maxwell, London, 2006. In equity, trusts can be created over all kinds of property, that is capable of ownership, real or personal, tangible or intangible, legal or equitable, at home or abroad, and whether in possession or action, remainder, reversion, or expectancy: Underhill’s Law of Trusts and Trustees, supra, at page 71-72. In our view, the expression is intended to be read broadly to permit all forms of trust, whether express or implied. A narrow or strict construction of the word “trust” which would only permit express trusts is inconsistent with the intention of s 373 (2) and (4) and the principles of law and equity imbedded in that statutory provision. We consider these definitions to be appropriate and applicable to the circumstances of Papua New Guinea.
  2. Support for this construction is found in s 2 of the Frauds and Limitations Act 1998. This provision was not considered by the primary judge because it was not cited by counsel. Counsel also did not refer us to his provision. We consider this provision to be particularly pertinent to the issue before us.
  3. Section 2 of the Frauds and Limitations Act 1988 provides:

“PART II.—TRANSACTIONS THAT MUST BE, OR BE EVIDENCED, IN WRITING.

Division 1.—Land Transactions.

2. Creation, etc., of interest in land.

(1) Subject to Subsection (2) and Section 5—

(a) no interest in land can be created or disposed of except—

(i) by writing signed—

by the person creating or disposing of the interest; or

by that person's agent lawfully authorized in writing for the purpose; or

(ii) by operation of law; or

(iii) by will; and

(b) a declaration of trust respecting any land or interest in land must be manifested and proved—

(i) by some writing signed by a person lawfully able to declare such trust; or

(ii) by that person's will; and

(c) a disposition of an equitable interest or trust subsisting at the time of the disposition must be—

(i) in writing signed—

by the person disposing of the equitable interest or the trust; or

by that person's agent lawfully authorized in writing for the purpose; or

(ii) by will.

(2) Nothing contained in Subsection (1) shall be construed as affecting the creation or operation of resulting, implied or constructive trusts, and that subsection shall be read and construed accordingly.” (Our emphasis)


  1. By virtue of Subsection (2), the creation or operation of a resulting, implied or constructive trust need not be in writing as required of express trusts declared or created under Subsection (1) (b).
  2. For the foregoing reasons, we are not convinced that the primary judge erred in construing the expression “property held on trust” appearing in s 373 (2) & (4) of the Companies Act to permit constructive trusts.

What is the meaning of “constructive trust”?


  1. The primary judge adopted the definition given by the Supreme Court in Dumal Dibiaso and also adopted principles from a number of English decisions, in the following passage of his judgment:

“17....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. Case. 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.”


  1. We consider the definition of constructive trust adopted by the trial judge in the passages from the cases referred to, to be appropriate to the circumstances of the case at hand. We do not consider the trial judge erred in that respect. We are satisfied that the definition of “trust” and “property” and “constructive trust” given by this court in Dumal Dibiaso and those by the primary judge are applicable and appropriate to the circumstances of the case and generally throughout PNG.
  2. These conclusions dispose of the arguments of the appellant that the primary judge erred in broadly construing the expression “property held on trust” appearing in s 373 (2) of the Companies Act to include constructive trusts. We find that the primary judge did not err in that respect.
  3. The question whether the property was in fact held under a constructive trust arrangement is a separate matter.

Was the property in fact held by the LRCC on trust for the benefit of HTIL such that the ROC was not entitled to deal with the property?


  1. There is no question that the real property the subject of the new State Lease was capable of being held under a constructive trust.
  2. The primary judge found that the constructive trust was created by reason of the existing Sub lease and subsequent approval given by HTIL to sub-divide the land and from various other correspondences exchanged between LRCC and HTIL. The primary judge found that the constructive trust of the type relied upon by HTIL was of the first kind referred to Paragon Finance Plc v. D.B. Thakerar & Co (A Firm) [1998] EWCA Civ 1249, Millett LJ (supra) and applied the principles to the facts of the case as follows:

“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.”


  1. The appellants argue that the ROC correctly exercised his power of sale given to him by s 373 (2) and (3) and the primary judge wrongly reversed his decision. They contend in the alternative that even if a constructive trust were permitted under s 373, a case for constructive trust was not made out on the facts. There was no evidence produced by HTIL to show that there was a clear expression of intention to transfer title of the new leasehold land. The fact that HTIL failed to pay land lease rent to the State over the land is clear indication that it did not acquire any legal or equitable interest over the land. For these reasons the appellants argue, the primary judge erred in finding that the property was held under a constructive trust.
  2. The respondent argues that there was undisputed evidence that LRCC held the property in trust and this finding made by the primary judge was based on interactions and correspondence exchanged between LRCC and HTIL. The trial judge did not err in his decision in this respect.
  3. The question whether the property was in fact the subject of a constructive trust within the meaning of s 373 (2) and (4) is one of the important and critical issues in these appeals. The trial judge gave brief reasons for his decision on this issue which appears in the passage we have quoted above, without a thorough analysis of the evidence produced by both parties at the trial. It is difficult from that passage to ascertain how those findings are supported by the evidence. The land was a State Leasehold. The State as the landlord retained an eminent interest over the land. Leasehold title over the land was vested in LRCC as the registered leaseholder during the term of the lease and to that extent, LRCC enjoyed the usual benefits of an indefeasible titleholder over the property. Pertinent questions then arise which require answers. What exactly was the nature of HTIL’s interest in the land held in trust by LRCC? Is it the registered sub-lease agreement under the former Crown Lease, or a lease agreement or an option to purchase under that Sub lease agreement; or an agreement between LRCC and HTIL for sale of the land? In the new State Lease title, what is meant by the notation on the new State Lease title: “SL produced on 16 March 1990 at 2.pm; ‘LEASE TO HIGH TECH INDUSTRIES transposed from parent State Lease Volume 19 Folio 4524’ ? If the Sub lease contained an option to purchase or an agreement to sell, what was the agreed selling price? Did that selling price reflect the prevailing market price for such property? If so, what, if any, were the improvements on the property and their value? The primary judge accepted the position of the parties that the property was of substantial value. Mr. Robert Seto in his affidavit placed the value of improvements at K2 million spent by HTIL. Was there any valuation done on those improvements carried out by HTIL? If the selling price were agreed between LRCC and HTIL, could it have been K1.00 which in fact was the annual rent under the Sub lease? If the property were sold at K1.00, would the land law in Papua New Guinea allow an option to purchase, or sale price of a property at such peppercorn price? Equity obviously would not permit such a sale as it would be completely unconscionable to sell a property of such substantial value for a peppercorn price.
  4. These and many more questions for which answers are begging must be answered from a thorough analysis of the evidence placed before the primary judge and findings of fact made from the evidence from reasonable conclusions could be made that there existed a constructive trust. It may also become necessary to call further evidence in a proper trial to determine some of those factual issues.
  5. In the circumstances, we are of the view that it was not safe for the primary judge to find that the property was in fact the subject of a constructive trust. We consider that the primary judge erred in that respect.

Whether the Sub lease was void for uncertainty or illegality


  1. One important issue before the primary judge was whether the Sub lease between LRCC and HTIL was void for illegality or uncertainty. The primary judge found that the Sub lease did not offend the rule against perpetual leases. The primary judge dealt with the evidence and found that the Sub lease was valid. The primary judge said:

“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.”


  1. The appellants’ arguments before us are similar to those made before the primary judge. The Sub lease was void for reasons of offending public policy, particularly because it offended the rule against perpetuity. The respondent made submissions along the lines of the findings and conclusions of the primary judge and submitted the trial judge did not err in that respect.
  2. In Nusaum Holdings Ltd, it was held that a sub-lease over a State Lease that had an indefinite period of start and end points was an occupation in perpetuity and was void for uncertainty in that the law in Papua New Guinea does not permit open-ended arrangements to be made in relation to dealings in real property. In the case before us, the start point and the end point were stipulated in the Sub-lease. We agree with the primary judge that the Sub lease in the present case can be distinguished on the facts from the Sub lease in Nusaum Holdings Ltd on that point.
  3. That being said, the true legal position of HTIL’s interest over the property under the Sub lease may support a case for perpetual lease which is prohibited. A Sub lease is what it is; it cannot be converted into the main lease by agreement between the leaseholder and a Sub lessee, by express agreement or by implication. A Sub lease is for a fixed term of a shorter lifespan than the life of the main lease. The term of the existing Sub lease on the Crown lease that was “interposed” in the new lease was the same, that is, “The balance of the Crown Lease Volume 19 Folio 4524 less one day”. The term of the Sub lease being for the entire balance of the State Lease, by some 80 years, which is a very long time indeed, on a pepper corn rent of K1.00 per annum, does that not defeat the purpose or essence of a Sub-lease and offend the rule against perpetuity? Technically, the Sub lease was 1 day short of the remaining period of the main lease so that the term of the Sub lease was made to look like a Sub lease and not the lease itself. In effect the Sub lease was for the whole of the remaining period of the main lease. If the term of a Sub lease were to be for the balance of the term of the main lease, would that offend the rule against perpetuity in that the Sub lease is for an indefinite period in terms of the term of the head lease? The real property law in Papua New Guinea may not allow such arrangements in real property dealings. Equity certainly may not allow such terms of Sub leases as being completely unconscionable. This point was not considered by the primary judge, even though it was raised by the evidence.
  4. An interest in the property by virtue of the Sub lease and any other interest in the property acquired by HTIL that are not catered for in the Sub lease would have to be proven by appropriate evidence. An example is an option to purchase the property.
  5. The Sub lease in this case was approved by the Minister for Lands and registered by the ROT. Questions arise whether those decisions were made in accordance with law. The rent and improvement conditions of the original State Lease were not considered at the trial. There is no information before us on those matters because the photocopy of the Crown lease is an obliterate copy and does not show those particulars as it should. In parties agreeing to pay a nominal rent of K1.00 per annum for the 80 years of the Sub-lease, such amount would fall far short of meeting HTIL’s lease rent obligations under the Crown Lease and the new State Lease implied into the Sub lease by law: see s 54 (4) of the Land Registration Act. These and other pertinent issues were not addressed at the trial.
  6. We are satisfied that the findings and conclusions reached by the primary judge on the issue were not safely reached in that important issues including those we have canvassed, which were open on the evidence before the court below, were not considered.

Whether the ROC was entitled to sell the property to PNGIIA


  1. The primary judge found that the ROC was not entitled to sell the property for two reasons. First, the property was the subject of a constructive trust. The primary judge said:

“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.”


  1. We have already found that as a matter of statutory construction, the property was subject to a constructive trust but whether a constructive trust did exist in fact is another thing and there are important issues of fact and law that remained unanswered and therefore it was not safe to make a finding to that effect.
  2. Secondly, the sale amounted to constructive fraud. The primary judge’s decision appears in the following passages of his written ruling:

“ 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.”


  1. The law is settled that constructive fraud is sufficient to overturn registered State Lease and the cases cited by the trial judge for this principle are amongst many decisions of the Courts in PNG and the common law and equity on that point. The parties in this appeal accept that those laws applied to the circumstances of this case.
  2. Counsel for the parties have made submissions before us similar to those made before the primary judge.
  3. The primary judge dealt with this issue at length and made findings of fact and reached conclusions that seem proper and open on the facts before him. The evidence is that the property was of substantial value worth in the millions of Kina. The fact that the ROC sold the property to a stranger company which did not have any business association with the registered leaseholder, without following due process for ascertaining the property’s market value, sold for a peppercorn price of K1.00, and sold 10 years after the property was vested in him, smacks of fraud and constructive fraud to say the least. The appellants and in particular the ROC in their affidavits explained away the processes followed in conducting enquiries in the period and selecting the buyer for the property. In our view, no amount of such paperwork explanation can displace the constructive fraud that is apparent on the face of the sale concluded between ROC and PNGIIA.
  4. For the foregoing reasons, we are of the view that the Court’s power to set aside the registered State Lease by reason of constructive fraud was available to be exercised and it was properly exercised in the circumstances by the primary judge.

Whether or not the primary judge erred in ordering the property to be transferred to HTIL.


  1. There are two parts to the decision of the primary judge with regard to the transfer of the property under challenge in these appeals. The first is the decision to set aside the registered State Lease which we have already dealt with.
  2. The second part of the decision is with regard to the primary judge’s decision to transfer the property to HTIL. We agree with the appellants that the circumstances under which the property was ordered to be transferred to HTIL were no better than those that existed under the Registrar’s transfer of the property to PNGIIA which the primary judge had struck down, in some very important respects. The property was to be transferred to HTIL under the terms of the subsisting Sub lease which was “interposed” on the State Lease title plus some other documents and exchanges between LRCC and HTIL. However, there remain some important questions that need answers. What were the exact terms of the agreement, if any, for the transfer of the property from LRCC to HTIL which the ROC would have to fulfill? Would the selling price still be that peppercorn sum of K1.00 which represents the annual rent under the Sub lease agreement? It is this rent, that it seems clear to us, formed the basis for the ROC to fix the selling price at K1.00 in his decision to transfer the property to PNGIIA. Were it necessary for the primary judge to impose a condition with regard to the process to be followed in fixing the selling price in order to avoid a repeat of the sale to PNGIIA? Should conditions be necessary to require a valuation to be done on the property in order to ascertain its market value and to fix a reasonable selling price? Should not the new purchaser, whoever it is, to whom the property is to be sold, pay a reasonable purchase price that reflects the market value of the property? Should not the ROC be required to follow proper public procurement processes to decide on the best purchaser that is prepared to pay the market price for the property? These and other similar issues are important matters that affect the validity of the transfer to HTIL that require full and proper consideration before a decision is made for HTIL to transfer the property to HTIL or anyone else for that matter. They remain to be considered in a trial proper.
  3. It is clear to us that the role and functions of the ROC were not fully discussed and understood in the case in the court below. The ROC is given very wide powers by s 373 and s 374 and other related provisions of the Act with regard to dealings with the property of de-registered companies. Those powers must be exercised responsibly and reasonably. For a start, the ROC is a trustee of the properties of deregistered companies that are vested in him by law. As to how he exercises those powers in a reasonable manner depends on the circumstances of each case. The end result is that there is a public duty on him to protect and preserve the property of deregistered companies and dispose of them following established procedures and practices designed to achieve fairness in transactions, transparency and accountability. There is duty on him to achieve a proper sale of the property with a reasonable return from the best buyer in the market and to ensure the distribution of the proceeds in accordance with law.
  4. By virtue of his public office, the ROC is a trustee for that purpose. He is under a duty to sell the property at a competitive market price. Equity is clear on the duties of such trustee. A passage from Underhill’s Law of Trusts and Trustees (12th ed) R.T. Oerton, Butterworth, London, 1970, page 373-374 captures the nature of this duty that has been developed by the courts of England in many cases which are cited under the footnotes to the passage. The learned author states:

“If trustees for sale, or those who act under their authority, fail in reasonable diligence in inviting competition, or if they contract to sell under circumstances of great improvidence or waste, they will be personally responsible.(o); and the onus of proving that they acted reasonably is upon them (p). It is, therefore, the duty of trustees for sale to inform themselves of the real value of the property and fix a reserve price, and for that purpose to employ, if necessary some experience person to value it (q). But if they perform this duty, they will not be responsible if the beneficiaries seek to impeach the sale as improvident®”:


  1. For these reasons, we find the primary judge erred in ordering the property be transferred to HTIL.

Whether the primary judge correctly exercised his powers under s408 of the Companies Act


  1. Section 408 governs appeals from the decisions of the ROC and it provides:

“408. Appeals from Registrar's decisions.

(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.”


  1. There is no contest on the wide discretionary powers of the National Court given by this provision to deal with such appeals and make decisions and issue such orders that the Court considers or thinks fit to make in the circumstances of the particular case before it.
  2. The primary judge considered the appeal to fall under the fourth category of appeal involving appeals from decisions of administrative or executive decision-making authority, described by the Supreme Court in Commissioner General of Internal Revenue v Bougainville Copper Limited (2008) SC920. Such appeals proceed by way of a rehearing or a hearing de novo. With regard to the exercise of appellate authority on an appeal from the ROC, in the absence of any case on point, the primary judge adopted the approach in Davidson v Registrar of Companies [2010) NZHC 1497 and Austin Nichols & Co. v Stitching Lodestar [2007] NZSC 103. The primary judge said:

“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.”


  1. The parties in this appeal take no issue with the approach adopted by the primary judge. We would think that the New Zealand approach accords with the wide discretionary powers given to the Court by s 408 of the Act and should be followed in appeals from decisions of the Registrar of Companies or any other administrative or executive decision-making authority.
  2. The appellants submit the primary judge exceeded his powers under s 408 by setting aside a registered State Lease and ordered the ROC and execute the sale of the property to the respondent. The respondent submits the Court had wide powers given him by s 408 to make any decision that it sees fit and those powers were exercised properly in this case.
  3. We have already responded to these submissions in the body of our deliberations on the other issues. We have concluded that the primary judge did have wide powers under s 408 and that those powers were exercised. We have found that the exercise of discretion with regard to a number of matters were proper and with others, the exercise of discretion were erroneous.

Conclusion


  1. In summary, we conclude as follows:

the same conclusion.

(3) The leasehold property situated on Allotment 1 Section 54 HOHOLA contained in registered State Lease Volume 13 Folio 56 owned by LRCC, was capable of being held under constructive trust. The primary judge did not err in making this finding.
(4) The primary judge erred in finding that the property was in fact held on constructive trust.
(5) The primary judge erred in finding that the Sub lease agreement between LRCC and HTIL over the Crown Lease and transposed on the new State Lease was valid.
(6) The primary judge did not err in finding that the transfer of the property to PNGIIA by the ROC and the registration of the transfer by the Registrar of Titles (ROT) was vitiated by constructive fraud.
(7) The primary judge did not err in finding that the Court did have wide discretionary jurisdiction given by s 408 of the Companies Act to make the orders he made the subject of the appeal.
(8) The primary judge did not err in the exercise of his discretion to set aside the ROC’s decision to transfer of title over the property to PNGIIA and the registration of the transfer by the ROT.
(9) The primary judge erred in ordering the transfer of the property to HTIL.
  1. In the light of the foregoing, we allow both appeals in part and order a re-trial on the matters referred to in paragraphs 61 (4), (5) and (9) hereof, before another judge.
  2. Having reached this conclusion, it is unnecessary to deal with the remaining issues including the appeal by the ROC with regard to the interlocutory ruling, which I consider to be of little or no significant outcome to the appeals.

Orders


  1. The Court orders as follows:

___________________________________________________________
Manrai Lawyers : Lawyer for the Appellant
Ashurst Lawyers : Lawyer for the Respondent

PacLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.paclii.org/pg/cases/PGSC/2014/78.html