Evangelical Lutheran Church of PNG v Gunar Gee [2017] N7635

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    Constructive fraud in the sale and purchase of the State Lease for a residential house in Madang. The transfer of the lease to a Frank and Marina Maru was quashed and the property restored to its rightful owners, the Lutheran Church.

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  • N7635
    PAPUA NEW GUINEA
    [IN THE NATIONAL COURT OF JUSTICE]

    WS NO 1220 OF 2017

    EVANGELICAL LUTHERAN CHURCH OF PAPUA NEW GUINEA
    Plaintiff

    V

    GUNAR GEE
    First Defendant

    S W REALTY LIMITED
    Second Defendant

    FRANK WAMAHEMBE MARU & MARINA MARU
    Third Defendant

    BENJAMIN SAMSON, ACTING REGISTRAR OF TITLES
    Fourth Defendant

    HARRIET KOKIVA, ACTING REGISTRAR OF COMPANIES
    Fifth Defendant

    THE INDEPENDENT STATE OF PAPUA NEW GUINEA
    Sixth Defendant

    Madang: Cannings J
    2018: 10 November, 8 December,
    2019: 11 January

    LAND – government land – State Leases – indefeasibility of title –
    meaning of “fraud” in Land Registration Act, Section 33(1)(a) – whether
    actual fraud must be proven – whether proof of constructive fraud is
    sufficient.

    COMPANIES – removal (deregistration) of company from company
    register – powers and functions of Registrar of Companies as

  • Page 2 of 19

  • representative of defunct company: Companies Act, Section 372 – property
    of company removed from register vests in Registrar: Companies Act,
    Section 373.

    TRUSTS – constructive trusts – whether property of defunct company held
    in trust for another corporation.

    REMEDIES – appropriate relief re title in a case of fraud – whether title
    should be declared null and void – whether property of defunct company
    held in constructive trust – whether property vested in Registrar of
    Companies – whether to order Registrar to transfer defunct company’s
    interest in property to another corporation.

    The plaintiff claimed that it had a beneficial interest in a State Lease over a
    residential property by virtue of a constructive trust between it and another
    company that had been the registered proprietor of the State Lease. The
    other company was removed from the register of companies and became
    defunct in 1996. The plaintiff claimed that when the other company became
    defunct its property vested in the Registrar of Companies under Section 373
    of the Companies Act, who was obliged in accordance with the constructive
    trust to transfer it to the plaintiff. Instead, the other company’s interest in the
    State Lease was transferred to the third defendants, who became the
    registered proprietors. The plaintiff claimed that the third defendants,
    assisted by the deliberate or negligent acts or omissions of other defendants,
    had acquired the State Lease in a case of fraud. The plaintiff sought
    declarations and orders that the transfer to the third defendants was null and
    void and that the State Lease vests in the Registrar of Companies who is
    required to transfer it to the plaintiff. Damages and other consequential relief
    were also sought. Only one of the defendants (not the third defendants) made
    submissions at the trial. It was argued that the plaintiff lacked standing so the
    proceedings should be summarily dismissed; and as to the merits, that there
    was no evidence of fraud, and the third defendants should remain as
    registered proprietors, and all the plaintiff’s claims for relief should be
    refused.

    Held:

    (1) The plaintiff had a sufficient and real interest in the subject of the
    proceedings. The proceedings were not summarily dismissed.

    (2) The plaintiff proved constructive fraud, as the State Lease was

  • Page 3 of 19

  • transferred to the third defendants by a defunct company, in
    circumstances that were peculiar, irregular and suspicious.

    (3) The defunct company, prior to its removal from the register of
    companies, held its interest in the State Lease in constructive trust for the
    plaintiff, and if it still existed would be equitably bound to transfer that
    interest to the plaintiff.

    (4) The State Lease did not vest in the Registrar of Companies under
    Section 373 of the Companies Act when the company became defunct.

    (5) However, the Registrar of Companies was authorised and obliged by
    Section 372 of the Companies Act to take steps to effect a transfer of the
    State Lease to the plaintiff.

    (6) The transfer of the State Lease to the third defendants was declared
    null and void and quashed. The Registrar of Companies was ordered,
    pursuant to Section 372 of the Companies Act, to do all things necessary
    to transfer the State Lease to the plaintiff. Other relief including damages
    sought by the plaintiff was refused.

    Cases cited

    The following cases are cited in the judgment:

    David Mota v Albert Camillus (2017) N6810
    Dumal Dibiaso ILG v Kola Kuma (2005) SC805
    Elizabeth Kanari v Augustine Wiakar (2009) N3589
    Emas Estate Development Pty Ltd v John Mea & Ors [1993] PNGLR 215
    Eric Kiso v Bennie Otoa & Ken Wutnalom (2013) SC1222
    Hi Tech Industries Ltd v PNG Institute of International Affairs Inc (2012)
    N4585
    Hi-Lift Company Pty Ltd v Miri Setae [2000] PNGLR 80
    Institute of International Affairs Inc v High Tech Industries Ltd (2014)
    SC1577
    Iravela v Samson (2018) N7212
    Kapiura Trading Ltd v Bullen (2012) N4903
    Koitachi Ltd v Walter Schnaubelt (2007) SC870
    Kol Toki v Moeka Morea (2016) SC1588
    Lae Bottling Industries Ltd v Lae Rental Homes Ltd (2011) SC1120
    Lae Rental Homes Ltd v Viviso Seravo (2003) N2483

  • Page 4 of 19

  • Mark Lakani v Gabe Ikupu (2015) N6067
    Mosoro v Kingswell Ltd (2011) N4450
    Mudge v Secretary for Lands [1985] PNGLR 387
    NCDIC v Crusoe Pty Ltd [1993] PNGLR 139
    Open Bay Timber Ltd v Minister for Lands & Physical Planning (2013)
    N5109
    PNG Bible Church Inc v Paul Wagun (2013) N5297
    PNG Deep Sea Fishing Ltd v Luke Critten (2010) SC1126
    Ramu Nickel Ltd v Temu (2007) N3252
    Rosemary John v James Nomenda (2010) N3851
    Ruth Don v Public Curator (2017) N6869
    Steamships Trading Company Ltd v Garamut Enterprises Ltd (2000) N1959
    Tagan v Nawara (2015) SC1443
    Tau Gumu v PNGBC (2002) N2251
    Vaki Vailala v National Housing Corporation (2017) N6598
    Vitus Kais v Sali Tagau (2016) N6159
    West New Britain Provincial Government v Kimas (2009) N3834
    Yakananda Business Group Inc v Minister for Lands (2001) N2159

    STATEMENT OF CLAIM

    This was an application for declarations and orders regarding a State Lease.

    Counsel

    S Gor & J Kihanges, for the Plaintiff
    Y Wadau, for the First Defendant
    S Maliaki, for the Fourth & Sixth Defendants

    11th January, 2019

    1. CANNINGS J: This case is about a residential property in Alamanda
    Street, Kalibobo in the town of Madang. The formal description of the
    property is Section 34, Allotment 17, Madang Town, Madang District. The
    third defendants, Frank Wamahembe Maru and Marina Maru, are the
    registered proprietors of the State Lease over the property, by virtue of a
    transfer registered on 23 August 2017.

    2. The plaintiff is the Evangelical Lutheran Church of Papua New Guinea
    (“the Church”), a corporation established by the Evangelical Lutheran

  • Page 5 of 19

  • Church of Papua New Guinea Act 1992.

    THE PLAINTIFF’S CLAIMS

    3. The Church maintains that it should be the registered proprietor of the
    State Lease over the property.

    4. The Church claims that it had a beneficial interest in the State Lease by
    virtue of a constructive trust between it and another company that was
    previously the registered proprietor of the State Lease: Lutheran Church
    (Madang) Ltd. That company acquired the State Lease through a transfer
    registered on 7 August 1978. But the company was removed from the
    register of companies and became defunct on 11 March 1996. It was never
    restored to the register. It was still defunct when on 23 August 2017 it
    transferred the State Lease to Mr and Mrs Maru.

    5. The Church claims that when Lutheran Church (Madang) Ltd became
    defunct, its property, including the State Lease, vested in the Registrar of
    Companies under Section 373 of the Companies Act and could only be
    disposed of by the Registrar of Companies under the Companies Act in
    accordance with the constructive trust in favour of the Church.

    6. Instead, Lutheran Church (Madang) Ltd’s interest in the State Lease
    was transferred to Mr and Mrs Maru who became the registered proprietors,
    the Church alleges, in a case of fraud. The Church claims that the fraudulent
    transfer to Mr and Mrs Maru was enabled by the deliberate or negligent acts
    or omissions of other defendants:

    • Gunar Gee, the first defendant, who held himself out as
    property manager of Lutheran Church (Madang) Ltd, and
    negotiated the sale of the property to Mr and Mrs Maru;

    • S W Realty Ltd, the second defendant, a real estate company
    that was also involved in the sale of the property to Mr and Mrs
    Maru;

    • Benjamin Samson, Acting Registrar of Titles, the fourth
    defendant, who registered the transfer of the State Lease to Mr and
    Mrs Maru;

    • Harriet Kokiva, Acting Registrar of Companies, the fifth

  • Page 6 of 19

  • defendant, in whom, the plaintiff claims, the State Lease should
    have been vested when Lutheran Church (Madang) Ltd became
    defunct.

    7. The Church seeks declarations and orders to the effect that:

    • the transfer to the third defendants is null and void;

    • the State Lease was held by Lutheran Church (Madang) Ltd in
    constructive trust for the Church;

    • the State Lease vests in the Registrar of Companies who is
    required to transfer it to the Church.

    8. The Church also seeks damages and other consequential relief. But the
    primary relief it seeks is an order that the State Lease be transferred to it.

    THE DEFENDANTS’ RESPONSES

    9. The Church filed the writ by which these proceedings were instituted
    (and the statement of claim endorsed on it), and served it on all defendants in
    November 2017. Only the first defendant (Mr Gee), the second defendant (S
    W Realty Ltd) and the third defendants (Mr and Mrs Maru) filed a notice of
    intention to defend. Only the third defendants filed a defence. The only
    evidence at the trial was given by the Church. Though counsel for the fourth
    defendant (the Registrar of Titles) and the sixth defendant (the State), Ms
    Maliaki, appeared at the evidence stage of the trial, only the first
    defendant’s counsel, Mr Wadau, made submissions at the trial.

    10. Mr Wadau submitted that the Church lacks standing to bring the
    proceedings, which should be summarily dismissed. Mr Wadau submitted
    that, if that submission is rejected, the Church’s claim to the State Lease
    should still be refused as the Church had no role in management or control
    of Lutheran Church (Madang) Ltd, which is an entirely separate entity.
    When Lutheran Church (Madang) Ltd became defunct its property vested in
    the Registrar of Companies. If anyone had good reason to be concerned
    about the transfer of the State Lease to Mr and Mrs Maru it would be the
    Registrar of Companies, not the Church. But the Registrar has displayed no
    interest in the proceedings and no interest in the property. And there is no
    evidence of any fraud. So the status quo should continue: the State Lease
    should remain with Mr and Mrs Maru and all the Church’s claims for

  • Page 7 of 19

  • damages should be refused.

    ISSUES

    11. The following issues arise:

    1. Should the proceedings be summarily dismissed?

    2. Did Mr and Mrs Maru become registered proprietors in a case
    of fraud?

    3. Did Lutheran Church (Madang) Ltd hold the State Lease in
    constructive trust for the Church?

    4. Did the State Lease vest in the Registrar of Companies when
    Lutheran Church (Madang) Ltd became defunct?

    5. Is the Registrar of Companies authorised or obliged to take any
    steps regarding the State Lease?

    6. What declarations and orders should the Court make?

    1 S H O U L D T H E P R O C E E D I N G S B E S U M M A R I LY
    DISMISSED?

    12. No. The Church has a legitimate interest in pursuing a claim to
    the property the subject of these proceedings in view of the evidence that it
    and its functionaries were instrumental in incorporation in 1977 of Lutheran
    Church (Madang) Ltd. That company remained the registered proprietor of
    the State Lease, despite being defunct since 11 March 1996, until the transfer
    to Mr and Mrs Maru on 23 August 2017. The Church has a sufficient and
    real interest in the subject of these proceedings. No good case has been made
    for summary dismissal.

    2 DID MR AND MRS MARU BECOME REGISTERED
    PROPRIETORS IN A CASE OF FRAUD?

    13. Under Papua New Guinea’s Torrens Title system of land registration
    for alienated government land, registration of a lease vests an indefeasible
    (unforfeitable) title in the registered proprietor subject only to the exceptions
    in Section 33(1) of the Land Registration Act. Most significantly Section

  • Page 8 of 19

  • 33(1)(a): “in the case of fraud” (Mudge v Secretary for Lands [1985]
    PNGLR 387).

    14. As to what “fraud” means, and whether it is confined to actual fraud or
    extends to constructive fraud, the preponderance of judicial opinion is that it
    can be either. There is now a strong line of Supreme Court authority in
    support of the constructive fraud approach: Emas Estate Development Pty
    Ltd v John Mea [1993] PNGLR 215, PNG Deep Sea Fishing Ltd v Luke
    Critten (2010) SC1126, Lae Bottling Industries Ltd v Lae Rental Homes Ltd
    (2011) SC1120 and Kol Toki v Moeka Morea (2016) SC1588.

    15. That line of authority is, in my view, binding on the National Court,
    more so than cases such as Koitachi Ltd v Walter Schnaubelt (2007) SC870
    and Eric Kiso v Bennie Otoa & Ken Wutnalom (2013) SC1222, in which the
    Supreme Court has indicated that proof of actual fraud is necessary.

    16. The constructive fraud approach has been applied in many National
    Court cases; for example: Steamships Trading Company Ltd v Garamut
    Enterprises Ltd (2000) N1959, Hi-Lift Company Pty Ltd v Miri Setae [2000]
    PNGLR 80, Yakananda Business Group Inc v Minister for Lands (2001)
    N2159, Lae Rental Homes Ltd v Viviso Seravo (2003) N2483, Ramu Nickel
    Ltd v Temu (2007) N3252, Elizabeth Kanari v Augustine Wiakar (2009)
    N3589, West New Britain Provincial Government v Kimas (2009) N3834,
    Rosemary John v James Nomenda (2010) N3851, Mosoro v Kingswell Ltd
    (2011) N4450, Kapiura Trading Ltd v Bullen (2012) N4903, Open Bay
    Timber Ltd v Minister for Lands & Physical Planning (2013) N5109, Vitus
    Kais v Sali Tagau (2016) N6159, Vaki Vailala v National Housing
    Corporation (2017) N6598, David Mota v Albert Camillus (2017) N6810,
    Ruth Don v Public Curator (2017) N6869

    17. There are still some Judges who cling to the notion that proof of actual
    fraud is necessary. Makail J in Tagan v Nawara (2015) SC1443 and Gavara-
    Nanu J in Iravela v Samson (2018) N7212 fall into that category. However I
    respectfully disagree with their Honours’ approach, which in my view is
    outdated and inappropriate to the circumstances of Papua New Guinea.

    I will apply the constructive fraud approach. The question is whether the
    transfer of the State Lease to Mr and Mrs Maru was a case of constructive
    fraud.

    18. Mr Wadau, for Mr Gee, submitted that there was no fraud involved as,

  • Page 9 of 19

  • though it was deregistered in 1996, Lutheran Church (Madang) Ltd still
    legitimately carried on business and Mr Gee, an employee of the company,
    still properly conducted business on its behalf. Mr Wadau provided no
    authority for these startling submissions. I see no sense in them and I reject
    them outright.

    19. I have concluded, after assessment of the evidence and submissions of
    counsel, that the question of whether this was a case of constructive fraud
    must be determined in the affirmative for the following reasons.

    • the transfer to Mr and Mrs Maru, as joint tenants, was
    registered based on a contract of sale between Lutheran Church
    (Madang) Ltd, as vendor, and Mr Maru (but, curiously, not Mrs
    Maru), as purchaser, dated 28 June 2017, and an instrument of
    transfer, dated “… June 2017”, which for some reason was
    stamped “EXEMPT/NIL” from stamp duty, the purchase price
    being K600,000.00;

    • the sale was negotiated by Mr Gee who held himself out in
    various documents during 2017 using a letterhead of Lutheran
    Church (Madang) Ltd as that company’s “Properties/Project
    Manager”;

    • the date of the contract of sale and the date of registration of the
    transfer were more than 21 years after Lutheran Church (Madang)
    Ltd was de-registered;

    • Lutheran Church (Madang) Ltd had not in the intervening
    period been restored to the register of companies;

    • there was no transfer of the State Lease (other than the
    contentious transfer to Mr and Mrs Maru) to any person after the
    transfer to Lutheran Church (Madang) Ltd on 7 August 1978;

    • the only person who potentially had proper and lawful authority
    to transfer the State Lease to Mr and Mrs Maru was the Registrar
    of Companies;

    • there is no evidence that the Registrar of Companies had any
    role in the transfer to Mr and Mrs Maru;

  • Page 10 of 19

  • 20. The only reasonable conclusion to draw from these peculiar, irregular
    and suspicious circumstances is that the transfer of the State Lease to Mr and
    Mrs Maru was unlawful and so unsatisfactory and irregular as to be
    tantamount to fraud. The transfer is properly regarded as permeated by
    constructive fraud. This is a “case of fraud” for the purposes of Section
    33(1)(a) of the Land Registration Act.

    3 DID LUTHERAN CHURCH (MADANG) LTD HOLD THE
    STATE LEASE IN CONSTRUCTIVE TRUST FOR THE
    CHURCH?

    21. As the Supreme Court explained in the leading case Dumal Dibiaso
    ILG v Kola Kuma (2005) SC805, a trust is a special arrangement or
    association based on a confidence that arises between one person (the
    trustee) for the benefit of another (the beneficiary or cestui que trust). A trust
    can be in the form of an instrument: an express trust. Or a trust can arise by
    operation of law: a constructive trust. The circumstances in which a
    constructive trust arises were explained by the Court by adopting the classic
    definition from Black’s Law Dictionary, in these terms:

    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.

    22. The Church argues that all the property of Lutheran Church (Madang)
    Ltd, including the property at the centre of this case, was held in constructive
    trust for the benefit of the Church. The opposing argument put by Mr Wadau
    on behalf of Mr Gee is that no constructive trust existed at any time. Mr
    Wadau points out that Lutheran Church (Madang) Ltd was at all times a
    separate and distinct legal entity from the Church; the Church was never a
    shareholder and had no power to appoint or nominate any directors; and
    under the company’s memorandum of association its objects were “to
    support and promote in Papua New Guinea and in particular, in Madang
    Province … the works, beliefs and articles of faith of the Evangelical
    Church of Papua New Guinea”, which reinforced its roles and functions as
    confined to Madang Province.

  • Page 11 of 19

  • 23. I reject the submissions of Mr Wadau. The proper inference to be
    drawn from the objects of establishment of Lutheran Church (Madang) Ltd
    is quite the opposite of that contended for by Mr Wadau. Though it had a
    separate legal status, Lutheran Church (Madang) Ltd was established and
    obliged as a matter of law and equity to conduct its affairs and business in
    such a way as to support and promote the works, beliefs and articles of faith
    of the Church. It was established to serve the Church and its members in
    Madang Province and act in the interests of the Church and its members in
    Madang Province. There is ample evidence to prove that Lutheran Church
    (Madang) Ltd was incorporated in 1977 by the Church. The only reasonable
    inference to be drawn from the special relationship between Lutheran
    Church (Madang) Ltd and the Church is that all property in which Lutheran
    Church (Madang) Ltd had a legal interest was held in constructive trust for
    the Church.

    24. I find that Lutheran Church (Madang) Ltd, at all times it was
    registered proprietor of the State Lease over Section 34, Allotment 17,
    Madang Town, Madang District, held it in constructive trust for the Church.

    4 DID THE STATE LEASE VEST IN THE REGISTRAR OF
    COMPANIES WHEN LUTHERAN CHURCH (MADANG) LTD
    BECAME DEFUNCT?

    25. The Church argues that it did, and that this occurred by operation of
    Section 373 (property of company removed from the register) of the
    Companies Act, in particular Sub-section (1).

    26. Section 373 states:

    (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

  • Page 12 of 19

  • 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.

    (6) The Registrar shall be remunerated by such commission,
    whether by way of percentage or otherwise, as may be
    prescribed in respect of the exercise of any powers conferred on
    him under this section.

    (7) The directors of the company immediately before the removal of
    the company from the register shall keep the company books
    and records, including accounting records for three years after
    the removal from the register, but this does not apply to any
    books and records, including accounting records required to be
    kept by a receiver or liquidator under this Act.

    (8) Where property is vested in the Registrar under this section, a
    person who would have been entitled to receive all or part of
    the property, or payment from the proceeds of its realisation, if
    it had been in the hands of the company immediately before the
    removal of the company from the register, or any other person
    claiming through that person, may, within six years of the

  • Page 13 of 19

  • removal of the company from the register, or such longer period
    as allowed by the Court, apply to the Court for an order—

    (a) vesting all or part of the property in that person; or
    (b) for payment to that person by the Registrar of an amount,
    not to include interest or damages, for the person’s
    interest or estate in the property, but the amount shall not
    be greater than a proportional amount, in accordance
    with the person’s interest or estate in the property,
    received by the Registrar under Subsection (4) or (5) less
    any commission payable under Subsection (6) and any
    other expenses.

    (9) On an application made under Subsection (8) the Court may—

    (a) decide any question concerning the value of the property,
    the entitlement of any applicant to the property or to the
    payment of an amount, and the apportionment of the
    property or compensation among two or more
    applicants; or
    (b) order that the hearing of two or more applications be
    consolidated; or
    (c) order that an application be treated as an application on
    behalf of all persons, or all members of a class of
    persons, with an interest in the property; or
    (d) make any ancillary orders.

    (10) All moneys that vest in the Registrar under this section, or that
    are the proceeds of realisation of property that so vests, less the
    costs and expenses of and incidental to the exercise of the
    power and in making payments authorised by this section, shall
    be paid into an account established by the Registrar for the
    purpose of holding moneys received by the Registrar under this
    section, and shall be forfeited to the Registrar 12 months after
    the date on which the moneys were paid into the account.

    (11) Compensation ordered to be paid under Subsection (8) shall be
    paid out of the account referred to in Subsection (10) without
    further appropriation.

    27. In contending that the State Lease vested in the Registrar of

  • Page 14 of 19

  • Companies, with effect from the date of removal of Lutheran Church
    (Madang) Ltd from the register, the Church relies on dicta of Hartshorn J in
    Hi Tech Industries Ltd v PNG Institute of International Affairs Inc (2012)
    N4585.

    28. It is at this point that I have encountered difficulty digesting the
    Church’s argument. Hartshorn J’s decision does not, in my view, support the
    argument of the Church. His Honour held that if a defunct company is the
    registered proprietor of a State Lease and holds that interest on constructive
    trust for another person, that interest is not under Section 373(1) vested in
    the Registrar of Companies from the date of removal of the company from
    the register of companies. And the Registrar is not authorised by Section
    373(4) to sell or otherwise dispose of that interest as he thinks fit.

    29. Hartshorn J explained that the property of a defunct company that is
    vested in the Registrar does not, by virtue of Section 373(2), include
    property held by the defunct company on trust for another person, including
    where it is held on constructive trust. His Honour stated:

    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”.

    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 [the defunct company] for Hitech [the beneficiary]
    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.

  • Page 15 of 19

  • 30. Hartshorn J’s interpretation of Section 373 was held, on appeal, to be
    correct in Institute of International Affairs Inc v High Tech Industries Ltd
    (2014) SC1577 (though his Honour’s final decision was overturned, the
    Supreme Court ruled that on this point of law his Honour did not err). I
    adopt Hartshorn J’s reasoning and find that, because Lutheran Church
    (Madang) Ltd held the State Lease on constructive trust for the Church, the
    State Lease did not vest in the Registrar of Companies when Lutheran
    Church (Madang) Ltd became defunct.

    5 IS THE REGISTRAR OF COMPANIES AUTHORISED OR
    OBLIGED TO TAKE ANY STEPS REGARDING THE STATE
    LEASE?

    31. Though the State Lease did not vest in the Registrar, I find that the
    Registrar was nevertheless authorised, and obliged, by Section 372
    (Registrar as representative of defunct company) of the Companies Act to
    step into the shoes of Lutheran Church (Madang) Ltd when it became
    defunct, as its representative, and do what was necessary to be done pursuant
    to the constructive trust.

    32. Section 372 states:

    (1) Where, after a company has been removed from the register, it
    is proved to the satisfaction of the Registrar—

    (a) that the company, if it still existed, would be legally or
    equitably bound to carry out, complete, or give effect to
    some dealing, transaction or matter; and
    (b) that, in order to carry out, complete or give effect to the
    dealing, transaction, or matter, some purely
    administrative act, not being of a discretionary kind,
    should have been done by or on behalf of the company,
    or if the company still existed should be done by or on
    behalf of the company,

    the Registrar may, as representing the company or its liquidator
    under the provisions of this section, do or cause to be done any
    such act.

    (2) The Registrar may execute or sign any relevant instrument or
    document adding a memorandum stating that he has done so

  • Page 16 of 19

  • under this section, and the execution or signature has the same
    force, validity and effect as if the company, if it still existed, had
    duly executed the instrument or document.

    33. A Section 372 situation arose in PNG Bible Church Inc v Paul Wagun
    (2013) N5297. The defunct company was a foreign company known as
    Evangelical Bible Mission, which was removed from the register of
    companies in 1965. It was restored to the register in 2009 in a move found
    by Poole J to be clearly unlawful. His Honour found that the defunct
    company held a number of properties in constructive trust for the plaintiff,
    PNG Bible Church Inc, which were (due to Section 373(2)) not vested in the
    Registrar of Companies, but which the Registrar was nevertheless obliged to
    deal with under Section 372. His Honour explained:

    Section 372 of the Companies Act makes the Registrar the
    representative of a defunct company and s 373 vests property of a
    defunct company in the Registrar but with the exception (see s 373(2))
    that, while the property may include leasehold property, it “does not
    include property held by the company on trust for any other person.”

    In the light of the evidence, I find that, since at least the Evangelical
    Bible Mission held the property on trust for the plaintiff, it does not
    vest in the Registrar because of section 373(2).

    Nonetheless, the Registrar still may act in this matter [under s 372] …

    In the circumstances of this case I find:

    1. The Evangelical Bible Mission, if it still existed, would be
    bound in equity to complete the transaction or matter as trustee
    of transferring the titles to the property to the Plaintiff, as the
    beneficiary absolutely entitled.

    2. The Registrar has power to carry out the transfer (which was
    not a discretionary matter, for the defunct company was obliged
    to make the transfers when called on to do so) which the
    company should have done by executing any relevant
    instruments to give effect to the transfer.

    34. I respectfully adopt the approach of Poole J in PNG Bible Church. I
    apply Section 372 to the present case, and find:

  • Page 17 of 19

  • • that Lutheran Church (Madang) Ltd, if it still existed, would be
    equitably bound, according to the terms of the constructive trust
    with the Church, to give effect to the matter of the State Lease by
    transferring it to the Church; and

    • that, in order to give effect to that matter, some purely
    administrative act, not being of a discretionary kind, if the
    company still existed should be done by the company, viz
    effecting the transfer of the State Lease to the Church.

    35. Therefore the Registrar of Companies may, representing the company
    pursuant to Section 372(1), effect the transfer of the State Lease to the
    Church.

    36. The Registrar may, under Section 372(2), execute or sign any relevant
    instrument adding a memorandum stating that he has done so under Section
    372.

    37. I consider that, having found that the Registrar is authorised to effect a
    transfer of the State Lease to the Church, that the Registrar should be
    ordered (so as to give effect to the constructive trust) to effect that transfer.

    6 WHAT DECLARATIONS AND ORDERS SHOULD THE
    COURT MAKE?

    38. In view of the finding of constructive fraud involved in the 2017
    transfer of the State Lease, it is open to the Court to take the very significant
    step of nullifying the title of the registered proprietors, Mr and Mrs Maru.

    39. Such a step is not to be taken lightly as there is the possibility that they
    were bona fide purchasers of the property, for value, without notice of the
    defect in title (arising from the fact that the vendor was a defunct company).
    However, after filing a defence, they took no further part in this case. They
    did not take the opportunity to appear at the trial and no evidence was
    presented or argument made on their behalf. So there is no evidence that
    they acted genuinely or were innocent participants in the fraud.

  • Page 18 of 19

  • 40. There is ample precedent for setting aside registration of a transaction
    that has been affected by fraud in the four Supreme Court decisions cited
    earlier (Emas Estate, PNG Deep Sea Fishing, Lae Bottling Industries, Toki)
    and in the numerous National Court decisions that have applied the
    constructive fraud approach. Having considered all the circumstances of the
    case and the submissions of counsel, I consider that it is the interests of
    justice that the title of Mr and Mrs Maru be nullified. In making that
    decision I am guided by Section 155(4) of the Constitution, which states:

    Both the Supreme Court and the National Court have an inherent
    power to make, in such circumstances as seem to them proper,
    orders in the nature of prerogative writs and such other orders as
    are necessary to do justice in the circumstances of a particular
    case. [Emphasis added.]

    41. I consider that it is also necessary to do justice in the circumstances of
    this particular case to make declarations and orders to give effect to the
    findings of the Court and in particular to order the Registrar of Companies to
    effect the transfer of the State Lease to the Church. The Church’s claim for
    damages has not been clearly articulated in the statement of claim and will
    be refused.

    42. As for costs, an order in favour of the successful party, the Church,
    would in normal circumstances be made. However, in the unusual
    circumstances of this case (multiple defendants with only three participating,
    but not fully, at the trial, and with the successful party being a substantial
    corporation with the ability to absorb costs, and a costs order could well
    prove to be a distraction and prolong the litigation and be difficult to
    enforce) it is appropriate that the parties bear their own costs.

    DECLARATIONS AND ORDERS

    (1) It is declared that the transfer to the third defendants of the State
    Lease over Section 34, Allotment 17, Madang Town, Madang District on
    or about 23 August 2017 is null and void and is quashed.

    (2) It is ordered that the fourth defendant shall, within 21 days after the
    date of service of this order, do all things necessary to restore Lutheran
    Church (Madang) Ltd as registered proprietor of the State Lease over
    Section 34, Allotment 17, Madang Town, Madang District.

  • Page 19 of 19

  • (3) It is declared that Lutheran Church (Madang) Ltd, prior to its removal
    from the register of companies, held its interest as registered proprietor of
    the State Lease over Section 34, Allotment 17, Madang Town, Madang
    District in constructive trust for the plaintiff, and that Lutheran Church
    (Madang) Ltd, if it still existed, would be equitably bound to transfer that
    interest to the plaintiff.

    (4) It is ordered that the fifth defendant shall, in accordance with these
    declarations and orders and pursuant to Section 372 of the Companies
    Act, within 21 days after the date of restoration of Lutheran Church
    (Madang) Ltd as registered proprietor of the State Lease over Section 34,
    Allotment 17, Madang Town, Madang District, do all things necessary to
    transfer for nominal consideration the interest of Lutheran Church
    (Madang) Ltd as registered proprietor of the State Lease over Section 34,
    Allotment 17, Madang Town, Madang District to the plaintiff.

    (5) Other relief including damages sought in the statement of claim is
    refused.

    (6) Subject to any specific costs orders made in the course of the
    proceedings, the parties shall bear their own costs of the proceedings.

    Judgment accordingly.
    ____________________________________________________________
    Fiocco & Nutley Lawyers: Lawyers for the Plaintiff
    Young Wadau Lawyers: Lawyers for the First Defendant
    Solicitor-General: Lawyer for the Fourth & Sixth Defendants