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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NO. 175 OF 2020 (COMM)
BETWEEN:
KING LEONG NGU for and on behalf of
GREEN INVESTMENT LIMITED
pursuant to Leave granted by the Court on 9th January 2020
Plaintiff
V
KING WONG NGU
First Defendant
AND
ASL SEAFOOD LIMITED
Second Defendant
Waigani: Anis J
2022: 15th July
2023: 30th June
BREACH OF LEASE/AGREEMENT– alleged debt recovery through derivative action– claim premised on commercial lease arrangement – preliminary matters – whether claim is recognizable under law – whether claim is sustainable premised on the pleadings and the evidence – considerations – s.2 – Frauds and Limitations Act 1988 – s.17 and 27 – Land Registration Act Chapter No. 191 – draft commercial lease – not signed or registered - whether the proceeding should be dismissed as unfounded
Cases Cited:
Leong King Ngu v Wong King Ngu and ASL Seafood Ltd (2020) N8422
PNG International Hotels Ltd v. Registrar of Titles (2012) N4618
Nae Ltd v Curtain Bross Ltd (2015) SC1620
Kerry Lerra trading as Hulu Hara Investments Ltd v. Philip Stagg, Valentine Kambori and The Independent State of Papua New Guinea (2006) N3050
Peterson Lyn v. Leslie Yaku (2017) SC1574
Leontin Ofoi v. Kris Bongare (2007) N3248
Makolkol Development Resources Ltd v. Gabriel Gogi (2017) N6877
Koang No. 47 Ltd v Monodo Merchants (2001) SC675
Counsel:
J Poya, for the Plaintiff
B Thomas, for the Defendants
JUDGMENT
30th June, 2023
1. ANIS J: This was a derivative action commenced by Leong King Ngu on behalf of Green Investment Ltd, that is, for debt recovery premised on breach of a commercial lease agreement or arrangement. Leave to commence this derivative proceeding was granted by Hartshorn J on 9 January 2020 in proceeding described as OS No. 42 of 2018.
2. I heard the final submissions on 15 July 2022 and reserved my ruling to a date to be advised.
3. This is my ruling.
BACKGROUND
4. I have set out the background of the matter in my earlier decision re Leong King Ngu v Wong King Ngu and ASL Seafood Ltd (2020) N8422. At [3], [4] and [5], I set it out as follows:
3. The plaintiff Leong King Ngu and the first defendant Wong King Ngu are brothers. Their other brother is Mr King Sing Ngu. The 3 are major shareholders of the company Green Investment Ltd (Green Investment). The plaintiff holds the majority share, that is, 55 shares or 55% of the shares in the company. The plaintiff has obtained leave from this Court in a separate proceeding, and now commences this proceeding as a derivative action for or on behalf of Green Investment against the defendants. Leave was granted in proceeding OS 42 of 2018 pursuant to section 143(a) of the Companies Act 1997.
4. The plaintiff’s complaint concerns 2 agreements which he claims were breached by the defendants. Firstly, he claims that in 2009, 30 shares or 30% of the shares of Green Investment were transferred to the first defendant without consideration or payment. He says the 30% shares were valued at K450,000. A material condition, which he claims was agreed to then, was that the first defendant would pay later whilst considering the relationship of the other Directors and Shareholders, as he states in his pleading. He claims that the first defendant has, to date, failed to pay the said money for acquiring the shares. His second claim is this. He says the defendants have been occupying the premises of Green Investment without paying rent for a period of time. He says the defendants owe Green Investment K2,772,000 in rental arrears from 2013 to 2020, and as such, he is suing to recover the arrears for Green Investment.
5. Part of the plaintiff’s claim was dismissed earlier in Leong King Ngu v Wong King Ngu and ASL Seafood Ltd (supra). The balance of the claim which is trialed herein concerns outstanding rentals arears totaling K2,772,000. The second claim is made premised on a purported lease agreement or arrangement which the plaintiff claims exist between Green Investment Ltd and the second defendant. I have briefly addressed that in my earlier decision where I refused to dismiss it with the first claim. At [18], [19], [20], [21] and [22] I stated:
CLAIM FOR OUTSTANDING RENTALS
18. I turn to the second claim. As stated, the plaintiff claims that the defendants have and continue to occupy the premises of Green Investment from December of 2013 to January of 2020 without paying any rent.
19. The defendants’ main argument is this. They submit that no cause of action that is known to law has been pleaded. The defendants argue that if the claim is for breach of agreement to pay rent, then that is not pleaded with detailed particulars in the writ. As such, they claim that the matter should be dismissed with costs. The plaintiff submits that his claim is sufficiently pleaded. Counsel submits that the defendants’ concern could be easily resolved through discovery or by requesting further and better particulars; that dismissing the claim cannot be an appropriate remedy to resolve the matter. The plaintiff submits that it is not a clear-cut case where the Court should exercise its discretion and summarily dismiss the proceeding; that the matter should be properly argued at trial.
20. The relevant pleadings disputed are contained at paragraphs 18 to 21 of the writ. They read, and I quote in part:
18. The First Defendant took over the Second Defendant, a company that specializes in buying and selling wet sea food products such as fish, prawn, lobsters and others.
19. The Second Defendant continue to occupy and conduct business within Portion 2965 for storage with containers, processing plant well set up and office space since April 2013 to this date without paying any rental fees.
20. The rental fees charged to the Second Defendant is K33,000.00 each month inclusive of GST commencing on 1st April 2013, the date ownership of the Second Defendant changed and total amount owed to this instant is in the sum of Two Million Seven Hundred Seventy Two Thousand Kina (K2,772,000.00) which the Second Defendant is liable.
......
21. The Second Defendant’s conduct of occupying the property without paying any rental is unacceptable commercial scenario for Green Investment Ltd and as such the Defendants are liable.
21. I uphold the plaintiff’s submission. The first reason is this. The leave Court has found substance to the plaintiff’s claim for outstanding rentals. The proceeding is filed based on that and both parties are, in my view, fully aware of this. The second reason is this. Evidence adduced by both parties herein shows that they are aware of their occupations on the premises that is in question. Both parties concede that the premises’ head lease is under the name of Green Investment as the sub-lessee. But they both have their arguments as to what the arrangements were for their set ups, occupations or continued use of the premises for their businesses. I note with interest that despite the lease agreement that Green Investment has with the National Airport Corporation (NAC), the defendants have adduced evidence which shows that they have been paying rent directly to NAC and not the plaintiff or Green Investment. So was there in fact arrangements in place as alleged by the defendants? And this. If the rents have been due since 2013, why wait until 2020 to sue for them? Does it mean that there is more to the story then a simple lease arrangement to pay rent which is still owing? All these to me can be properly addressed at the trial proper or otherwise through mediation. It is not something that is straight forward where the Court may consider and make a decision at an interlocutory stage such as this.
22. So with that I will say that if the defendants require further clarity to the pleadings, they should make the necessary request or application to the Court. To dismiss the matter summarily, in my view, would do injustice and prejudice the interests of the plaintiff.
6. The final orders I made in that earlier decision included the following:
7. In the Amended Statement of Claim [filed 7 December 2020] (ASoC), I refer to the material pleadings concerning the purported commercial lease agreement or arrangement, that is, at [16], [17], [18] and [19] and I re-state them herein:
“16. The First Defendant took over the Second Defendant, a company that specializes in buying and selling wet sea food products such as fish, prawn, lobsters, and other. The Second (sic)
......
EVIDENCE
8. Evidence of the parties were tendered by consent without objections or cross-examinations. The plaintiff tendered a total of 4 affidavits which were given exhibit numbers, that is, Exhibits P1 to P4. The defendants tendered a total of 2 affidavits which were marked as Exhibits D1 and D2.
PRELIMINARY ISSUES
9. The defendants raise 2 matters which I would categorize as preliminary matters or issues. I will address them separately. They first allege, as they had done so in the earlier proceeding, that they fail to understand the basis of the claim. They allege that the claim has not been properly pleaded with clarity on what the cause of action is. They say if the claim is made pursuant to a commercial lease agreement, then the lease agreement is not pleaded. If the agreement was partly written or oral, they claim that it was also not pleaded in the ASoC.
10. As such, they argue that the claim should be dismissed for this reason.
11. I note that the argument had been raised in Leong King Ngu v Wong King Ngu and ASL Seafood Ltd (supra). In addressing that, I was of the view that such deficiencies may be cured in discovery or through amendments and that to dismiss the claim in its entirety at that time would, amongst others, constitute a harsh punishment; I said that there were available processes where one may use to seek clarities regarding the pleadings or the deficiencies thereof (refer to [21] and [22] in my earlier decision). So, in summary, the issue was not determined on its merit but was acknowledged by the Court, and as stated, the Court had said that it was insufficient or unjust to dismiss the proceeding premised on insufficiency of the pleadings.
12. My earlier decision was made on 21 July 2020. I note that since then and to date, the pleading in the ASoC has not been improved but remains the same. It appears that plaintiff has not taken any real steps to address the complaints of the defendants. I must say at the outset that I also found it quite difficult at first to understand the premise of the plaintiff’s claim as pleaded. Being put on alert by the defendants of the deficiencies in the pleadings as earlier as 2020, in my view, should have caused the plaintiff to take remedial measures to address them. The plaintiff, it seems, has not done that.
13. I will address this issue now.
14. Upon considering in detail the ASoC, I must say that the only commercial lease agreement that is pleaded is called Contract of Sale and Purchase and Transfer of Lease Agreement (Assignment Agreement/AA). Paragraph 13 of the ASoC states:
“13. The Plaintiff had signed Contract of Sale and Purchase and Transfer of Lease Agreement on behalf of Green Investment Ltd with Ailan Seafoods Ltd and the National Airport Corporation.”
15. The AA was signed between Green Investment Ltd and Ailan Seafoods Ltd. Ailan Seafoods Ltd was the original sub-lessee to the original head lease which it had signed with the landlord National Airport Corporation (NAC/landlord). Now, the ASoC does not plead when the AA was signed. But evidence adduced of the AA and its existence, which is not contested, shows that it was signed on 23 January 2013, that is, at Annexure L to Exhibit P1. In the AA, it was agreed that for a consideration of K1.5 million, Ailan Seafoods Ltd would assign its interest as a sub-lessee in the head lease (i.e., the lease that it had had with NAC) over to the Green Investment Ltd. The arrangement required the consent of the landlord or NAC which, premised on the adduced evidence, was obtained before the AA was signed.
16. Undisputed adduced evidence also shows that after the AA was signed, a new head lease agreement was signed between Green Investment Ltd as the new sub-lessee, and NAC. NAC is and remains as the original lessee to the land in question, which is a state lease, which is described as Portion 2965, Aerodrome Business concessions Lease Volume 30 Folio 106 (Property). Various portion numbers had been given over the same land in the past, but Portion 2965 was the latest and is the current allocated number. The agreement is marked as annexure O to Exhibit P1. It is described as Commercial Lease (Head Lease/HL) and was signed on 1 October 2015 between Green Investment Ltd and NAC. The HL has a term of 10 years and will expire on 30 September 2025.
17. However, the HL is not pleaded anywhere in the AsoC. According to the ASoC, the plaintiff is making assertions premised only on the AA to say that the defendants owe it rental payments or damages that it had suffered because of non-payment of rents. I remind myself that the AA was signed between the outgoing sub-lessee who was Ailan Seafoods Ltd and the incoming lessee Green Investment Ltd. The defendants are not parties to the AA. It was obviously an assignment agreement between 2 sub-lessees.
18. I refer to [16], [17], [18] and [19] of the ASoC as stated above. These pleadings state that the defendants have occupied the Property without paying any rent since April of 2013. When I consider the plaintiff’s evidence, the relevant deposition on this matter may be found in Leong King Ngu’s affidavit, Exhibit P1. He deposes at [16] and [17] as follows:
“16. ASL Seafood Ltd since April 2013 had been and is currently leasing part of Portion 2965 being for storage (with containers), processing yard and office building to conduct its business of buying, selling and exporting wet sea food products to this date.
......
Annexed hereto marked with letter “Q” are copies of the letters and Draft Sub-lease Agreement.”
19. From observation, I note that Leong King Ngu’s deposition is almost the same or is very similar to the pleadings in the ASoC. In other words, his evidence does not assist this Court better understand the material facts, or of how it is that the defendants have come to conduct their businesses on the Property since April 2013. Also, I note that the relief is for purported outstanding rentals. So, the question then is, “Where is the lease agreement?” The plaintiff attaches a draft copy of a lease agreement in his evidence which he claimed was refused by the defendants. I also observe that the plaintiff further does not give any particulars whatsoever, whether in evidence or the ASoC, of what arrangements the parties had reached that had and has permitted the defendants to reside on the Property and conduct their businesses; what were the terms and conditions imposed if any? Did they enter into an oral agreement, or was it partly oral and partly written?
20. The law on pleadings in this jurisdiction is settled. A party must clearly plead the material facts or the cause of action. The pleadings must not be ambiguous. Gavara-Nanu J in PNG International Hotels Ltd v. Registrar of Titles (2012) N4618, stated in part at [28]:
“Pleadings as a general rule must be precise and clear so that the defendants are aware of the claims made against them: Jubilee Hambru N3193 and MVIL v Pupune [1993] PNGLR 370. This reason alone is sufficient for me to dismiss the claims for damages.”
21. Further, I also refer to the Supreme Court’s decision in Nae Ltd v Curtain Bross Ltd (2015) SC1620 which endorsed Kerry Lerra trading as Hulu Hara Investments Ltd v. Philip Stagg, Valentine Kambori and The Independent State of Papua New Guinea (2006) N3050. In Kerry Lerra, Kandakasi J (as he then was) summarized various principles of law including those on pleadings. I adopt the following at [13] (in part) and [14]:
“......
6. With regard to the issue of disclosing a reasonable cause of action or defence, the Court must be clear that there are two (2) parts to the phrase “cause of action”. First, it entails a right given by law such as an entitlement to reasonable damages for breach of human rights under s.58 of the Constitution, commonly referred to as the “form of action”. Secondly, it entails the pleadings disclosing all the necessary facts which give rise to the form of action.
7. The phrase “cause of action” could thus be defined in terms of a legal right or form of action known to law with:
“every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court. It does not comprise of every piece of evidence which is necessary to prove each fact, but every fact is necessary to be proved.”
8. A statement of claim or a defence (as the case may be) must therefore clearly plead the form of action by pleading the necessary legal elements or ingredients of the action and relevant and necessary facts (not the evidence) giving rise to the form of action. It follows therefore that, where a statement of claim or a defence is so ambiguous or lacking in particularity that it does not facilitate orderly and rational pleadings, which would enable the real issues to be identified, and instead leaves it to guess work, it should be struck out.
......
14. To these principles I had that, the pleadings must be so bad and or vague and is not a case of lack of particulars or a lack of better pleading which cannot be cured by a request and or orders for further and better particulars and or amendment respectively under O.8, rr. 36, 50 or 51 of the Rules. Lack of particulars or lack of better pleadings is distinctly separate from a failure to disclose a reasonable cause of action or an action that is frivolous, vexatious or harassment. As such, clear and separate consequences follow. There is provision under the rules for requesting and or orders for further and better particulars or better pleadings as opposed to a right in a defendant or an opposing party to apply for a dismissal straightaway. A party must be careful not to ask for and the Court must stop to ensure that it is not being asked to dismiss a claim because of lack of particulars or lack of proper pleading which can be cured by appropriate amendments to the pleadings. Regard must also be had to the fact that the Rules are not an end in themselves but a means to an end and by reason of which a strict compliance of the Rules can be dispensed in the interest of doing justice in accordance with O.1, r.7 of the Rules18 in appropriate cases.” [Underlining mine]
22. In the present matter, I note that the pleading or the ASoC appears to fail on both fronts of a duly constituted “cause of action”. The form of action is ambiguous and not identified (or pleaded) as well as the pleaded facts that support it. In the present matter, the plaintiff appears to try to plead that there is in existence a business lease arrangement of some sort between the parties.
23. The plaintiff attaches this draft commercial business lease agreement, which is contained at annexure Q to Exhibit P1 (the draft lease), and premised on that, asserts that the defendants were obliged to pay on the rates and terms as set out therein. However, it would appear that the fact of the matter is that there is no existing business lease agreement nor any form of business arrangement, that is pleaded in the ASoC that exists between Green Investment Ltd and the defendants. There is also nothing in the evidence of both parties that establishes or shows a binding agreement or arrangement between the parties where the plaintiff could point to and claim business rentals from as alleged.
24. There is also a further reason which may be regarded as the second preliminary issue that further proves fatal or detrimental to the plaintiff’s cause of action, which is this. The area in question is a portion of the Property which is subject to the HL between Green Investment Ltd and NAC. As such, it raises this query. If it is a sub-lease over land, then should it not be in writing?
25. I refer to the Frauds and Limitations Act 1988 (FLA). The legislation begins with this preamble, and I quote:
“Being an Act to make provisions with respect to—
(a) transactions that must be, or be evidenced, in writing; and
(b) the limitation period for the bringing of actions,
and for related purposes,”
[Underlining mine]
26. And s.2 states:
“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—
(a) by the person creating or disposing of the interest; or
(b) by that person's agent lawfully authorized in writing for the purpose; or
(ii) by operation of law; or
(iii) by will; and”
[Underlining mine]
27. The case law that addresses s.2 includes Peterson Lyn v. Leslie Yaku (2017) SC1574, Leontin Ofoi v. Kris Bongare (2007) N3248 and Makolkol Development Resources Ltd v. Gabriel Gogi (2017) N6877. I adopt what the Supreme Court said at [14] and [15] in Peter Lyn v Leslie Yaku (supra) as follows:
“14. The provisions of Section 2 are reinforced by Section 4 which goes further to state that no action shall be brought upon a contract for the sale or other disposition of land or an interest in land unless the contract, or some note or memorandum of the contract, upon which the action is brought is in writing and signed by the person against who the action is brought. In other words, Section 4 prohibits Lyn from commencing proceedings, as he did, to enforce the agreement to purchase the property from Yaku unless such agreement was reduced into writing and signed by Yaku. Lyn did not claim the agreement was reduced into writing and signed by Yaku. That being the case, Lyn was prohibited by Section 4 from commencing proceedings against Yaku as he did in the proceedings WS 466 of 2004. In Leontine Ofoi v Kris Bongere N3248, Injia DCJ (as he then was) discussed sections 2 and 4 and said "an action to enforce an oral agreement to transfer legal title to ... property ... would not be possible as an agreement to transfer interest in land is required by statute to be in writing. ... As there was no such written agreement, no action lies upon an oral agreement to transfer land." In Jacobs v Kwaindu [1991] PNGLR 366, Justice Los found a "letter from the purchaser to the bank was a sufficient note or memorandum for the purpose of s.4 ..." In this case, there was no written document whether agreement, letter or memorandum signed by the Yaku to come within section 4.
15. For the reasons discussed above, the primary judge did not err in finding that there was no reasonable cause of action disclosed in Lyn's claim for orders for specific performance of the agreement to compel Yaku to transfer title in the property to Lyn.”
28. I also draw my attention to ss.17 and 27 of the Land Registration Act Chapter No. 191 (LRA) which states:
“17. Status of unregistered instruments.
“(1) Subject to Subsection (4), an instrument is not effective to pass or create an estate or interest until the instrument is registered in accordance with this Act.
(2) An instrument signed by a proprietor, purporting to pass an estate or interest for the registration of which provision is made in this Act shall, until registered, be deemed to confer on the person intended to take under the instrument a right to the registration of the estate or interest.
(3) The reference in Subsection (2) to—
(a) a proprietor; or
(b) a person intended to take under an instrument,
includes a reference to a person claiming through or under that proprietor or person, as the case may be.
(4) Subsection (1) does not apply to a lease for a term of three years or less.”
......
27. Effective date of registration.
(1) An instrument, when registered, takes effect from the date when it was produced to the Registrar for registration which date shall be specified in the certificate of title or other instrument issued by the Registrar.
(2) The date of production of an instrument to the Registrar for the purpose of registration shall be deemed to be the date of registration of the instrument.”
[Underlining mine]
29. The Supreme Court in Koang No. 47 Ltd v Monodo Merchants (2001) SC675 addressed s.17 which I also adopt herein, where it said (un-numbered para):
“The clear import of the provisions of s. 17 of the Land Registration Act is that, an instrument purporting to create or pass an estate or interest in land does not do so until registered. Until registered, the instrument only creates a right to register the interest. Herein is the requirement to register one's interest on a land if created by an instrument. The only exception to that are leases not exceeding 3 years.”
30. When I consider the ASoC and the plaintiff’s evidence, particularly his evidence of the draft lease, I make the following observations. First, I note that the rental assessment charged as pleaded in the ASoC is premised on the rate that is stated in the draft lease which is K33,000 per month. Secondly, the draft lease was supposed to be for a period of 5 years which is more than 3 years. Thirdly, I note that the draft lease was not signed by the parties nor registered under the provisions of the LRA. Evidence adduced by the defendants shows that they had refused to sign the draft lease for various reasons. One of their reasons, which is supported by evidence [annexures E, F, G, H, and I to Exhibit D1] and which is not denied by the plaintiff, is that the defendants have been paying rents for the HL directly to NAC and not Green Investment Ltd.
31. My conclusion and findings in regard to the second preliminary issue is this. It appears that the plaintiff or Green Investment Ltd, is attempting to enforce this draft lease against the defendants by this proceeding. But it is clear from the evidence that the draft lease (i), was not signed by the parties, (ii), was not registered as a valid instrument under the relevant provisions of the LRA, and (iii), although it was in writing, it was not signed by the parties in accordance with provisions of the FLA.
SUMMARY
32. In summary, I uphold the 2 preliminary issues raised by the defendants. This proceeding will therefore be dismissed as frivolous, unfounded, and baseless.
COST
33. An order for cost in this instance is discretionary. I will order cost to follow the event to be assessed on a party/party basis and be taxed if not agreed.
ORDERS OF THE COURT
34. I make the following orders:
The Court orders accordingly
________________________________________________________________
Poya Legal Services: Lawyers for the Plaintiff
Nandape & Associate: Lawyers for the Defendants
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