Was the PNGDF Scammed out of K15.4m?

This is the second instalment of PNGi’s coverage of the Manu Manu scandal report (see Part I here). Produced by an Administrative Inquiry under the Chairmanship of John Griffin QC, it was recently leaked to the public.

Today we scrutinise a highly irregular Port Moresby land deal, which placed a number of high profile individuals under the inquiry spotlight.

This includes the former politicians, Tim Neville and Ben Micah, expatriate lawyer Greg Sheppard, a sitting Judge, Kenneth Frank, and three Department Secretaries, Messrs John Porti, Dairi Vele and Romilly Kila Pat.

The case centres on portion 698, a 30.6 hectare block of land abutting Port Moresby airport. According to the Administrative Inquiry report, ‘Defence needed a property in Port Moresby to house a long-range recon (reconnaissance) unit’.

Image: Portion 698 (Source: Rooney 2017 http://press-files.anu.edu.au/downloads/press/n2414/html/ch04.xhtml)

Somehow the holding company, Kitoro No.64 Ltd, learnt of Defence’s need for urban land in the capital.

Kitoro’s owner is former Milne Bay Governor, Tim Neville.

Documentation registering his ownership of the company was submitted on 21 March 2014 by the Australian lawyer Greg Sheppard, who most notably was at the centre of a SBS undercover sting back in 2015.

Kitoro wrote to the Defence Secretary, John Porti, on 12 August 2014.

Kitoro’s former company secretary, Douglas Ure, observed in the letter (Ure at this stage was no longer company secretary, but still appears to have acted for the company owned by Tim Neville):

I am aware that the National Executive Council under the O’Neill/Dion Government made a decision some two years ago to relocate sections within the Papua New Guinea Defence Force unit to help alleviate the current congestion and also to facilitate the natural expansion of the forces units.

In light of this need, Mr Ure offers Kitoro’s services:

The Company can currently offer I believe an extremely suitable portion of land that could be highly beneficial for the PNGDF’s requirements. The said land is currently located immediately adjacent to the existing Defence Force ATS Unit at the Jackson’s International Airport, Port Moresby

According to the Administrative Inquiry report Kitoro had purchased a state lease over the 30.6 hectare block of land, known as portion 698, back in 2009. The Lease is set to expire in 2033.

Annual rent for this land is set at K3 (yes K3! according to the Valuer General). On 28 October 2011, the Valuer General valued the land at K9 million.

In its letter to the Defence Secretary Kitoro No.64 declared it was prepared to sell the land for K14 million (excluding GST, K15.4 million in total).

This 12 August 2014 offer was apparently sent to the Defence Secretary, John Porti, out of the blue. At least that appears to be the claim.

Having received this unsolicited offer, it would be expected that the Secretary then carefully evaluates the land proposal and its suitability for the PNGDF’s operational needs and finances. Then a briefing paper and all relevant documentation would be produced for this proposed acquisition, so approval from the Defence Council and the NEC could be solicited, to ensure full compliance with the Public Finances (Management) Act 1995 (purchases above K10 million ordinarily require NEC approval).

It appears from the evidence presented in the Administrative Inquiry report that the Defence Secretary did not conduct the sort of due diligence which would ordinarily be expected following an unsolicited offer.

Instead the next day he wrote to the Lands Secretary, Romilly Kila Pat, suggesting portion 698 be compulsorily acquired for the long range recon unit (LRRU). He argued ‘major events such as the 2015 South Pacific Games and 2018 APEC requires LRRU to be close to the city where it can respond easily’.

In his evidence to the Administrative Inquiry the Defence Minister, Dr Fabian Pok, claims  he attended a meeting during this period at the Grand Papua Hotel to discuss the potential purchase with Kitoro’s owner, Tim Neville, and the then Minister for State Enterprises, Ben Micah. It is unclear why Micah was in attendance or what his particular interest was in the deal.

The Administrative Inquiry report states:

Dr Pok says that they asked him to sign papers relating to the sale and purchase of the land. However, he declined to do so. He said words to the effect that the NEC Decision was very straight forward in referring to land outside the National Capital District [for acquisition].

Despite the Ministerial rebuff, matters moved forward with astonishing speed. For anyone familiar with land administration, this is highly irregular.

The timeline is set out in a letter dated 19 September 2014, from Kitoro’s lawyer Greg Sheppard to Dairi Vele, the Treasury Secretary.

We are instructed that our client had reached agreement with the respective Departments of Lands, Treasury and Defence that the State would acquire and purchase our client’s Portion 698 at the agreed price of K14 (fourteen) million kina and that such payment would be made upon the acquisition of Portion 698. Kitoro instructs that on 5 September 2014 the Minister for Lands acquired Portion 698 by issuance of a Notice under section 12(1) of the Land Act 1996 [s12(1) requires a notice of acquisition be published in the National Gazette]. To date, our client has not been paid for the purchase of Portion 698.

Sheppard then warns the Treasury Secretary:

By this letter we write to respectfully request that your Office issue payment to our client for Portion 698 at the earliest. Failing a satisfactory and timely response, we are instructed to commence immediate Court proceedings against the State for breaching the terms and conditions for purchase of our client’s Portion 698.

The Administrative Inquiry, however, presents a series of factual claims that raise serious questions about the validity of a key statement contained in Mr Sheppard’s letter.

Image: The letter from Sheppard is reproduced in para 148 of the Inquiry Report.

Division 5 of the Land Act sets out the essential conditions for a lawful compulsory acquisition. It begins with the issue of a notice to treat authored by the Minister. Notice allows the existing owner to propose a price for acquiring the land.

The compulsory acquisition then needs to be gazetted. Section 12(1) clearly states the Minister must ‘by notice in the National Gazette, declare that the land, other than any interest in respect of which a notice to treat has been withdrawn, or any chattel, is acquired by compulsory process under this Act for a public purpose specified in the notice’.

Once the notice is gazetted the land becomes ‘vested in the state’.

Griffin QC in his report observes in respect of portion 698: ‘There is no evidence of a Notice to Treat under S13 of the Land Act, or the publication of a Notice for Compulsory Acquisition in the National Gazette in accordance with S 12(1) of the Land Act 1996’.

Griffin’s assertion clashes against a key statement presented in the Greg Sheppard letter demanding payment. Sheppard states ‘Kitoro instructs that on 5 September 2014 the Minister for Lands acquired Portion 698 by issuance of a Notice under section 12(1) of the Land Act 1996’.

If Griffin QC’s statement of fact is accurate, then it appears Tim Neville’s company has made a fraudulent statement to its legal counsel. Then, it appears, Mr Sheppard has relayed this fraudulent statement on behalf of his client. It is unclear whether Sheppard made an attempt or not to verify its accuracy.

Given the land had only been brought to the Defence Secretary’s attention three weeks before on 12 August 2014, any notion that the land was acquired on 5 September 2014 should have struck both the Treasury Secretary and Kitoro’s lawyer as unusual and in need of closer scrutiny.

So lets recap the deal so far, on 12 August Defence was apparently unaware of portion 698’s availability for acquisition, until an unsolicited letter was received from Kitoro. Then in the space of three weeks all administrative processes are supposedly navigated to acquire a K15.4 million block of land for the PNGDF recon unit, including compliance with the Land Act and Public Finance (Management) Act (though the Administrative Inquiry found no evidence of compliance).

The Treasury Secretary, rather than inquiring into this suspect scenario pressed for payment to Kitoro. In a letter to the Defence Secretary, Vele claims ‘I am advised by Secretary Kila Pat that the Department of Lands and Physical Planning has successfully compulsory acquired the land’.

If Griffin QC’s finding is accurate with respect to s12(1), and compulsory acquisition had not taken place, it would appear either the Lands Secretary or the Treasury Secretary have been a party to this falsehood used to demand payment for Kitoro.

In total Kitoro received K15.4 million, which encompassed the K14 million price + GST of K1.4 million.

In a move that echoes the behaviour condemned during the Commission of Inquiry into the Department of Finance, Vele argued this payment was necessary to avoid costly litigation by Young & Williams lawyers. Yet it would appear on grounds pointed to by Griffin QC, the state was quite entitled to eschew payment as s12(1) had not in fact been complied with.

Image: Letter from Treasury dated 10 September (note: the letter appears to reference correspondence from Young & Williams dated 19 September, 9 days after it was penned)

However, the controversy does not stop there. According to the Administrative Inquiry  the PNGDF did not actually obtain the state lease over portion 698, it was instead retained by Kitoro.

18 months after the K15.4 million had been paid, the Administrative Inquiry presents evidence that new management in the Defence Department became aware that their predecessors failed to obtain portion 698 which the public had paid the princely sum of  K15.4 million for.

This in itself raises serious questions. How could experienced public officials secure the payment price, but fail to secure the commodity being bought? Especially given that the Defence Secretary promoted the acquisition, in part, on the grounds of assuring the security at the 2015 South Pacific Games.

New Defence Department management set out their concerns in a letter to Greg Sheppard – dated 9 February 2016:

You have failed to comply with your end of this land sale contract to have the title transferred to us and only pushed consistently for payment to be made with our previous management who made it to your client who has made off with that money without completing the sale properly.

The letter also raises concerns over the integrity of the sale:

It is also surprising that the State Solicitor was never involved in the whole process to guide you along in the process involved in compulsory acquisition of land and hence no legal clearance is on file to support that sale.

Just under a month later on 3 March 2016, Greg Sheppard, sends a reply:

We confirm that we acted for Kitoro No. 64 Ltd in the conveyance transaction of the above portion of land. Our Mr. Kenneth Frank (now His Honour Justice Frank) had carriage of this matter and has since left the firm.

No reference is made in the Administrative Inquiry to Justice Frank and his role in the original transactions. The information contained in the report, only associates Greg Sheppard with the case.

Sheppard in his reply to the Defence Department observes:

We understand the severity of this transaction and will undertake to complete the conveyance process as timely and swiftly as possible. Please bear in mind that we will be dealing with the Lands Department and most lodgements can take a considerable amount of time to settle, in this instance the Registrar of Titles.

It is unclear why  the machinery of state suddenly slows down, given the rapid speed matters were processed in August-September 2014.

Image: Letter from Greg Sheppard 3 March 2016

The contents of the 2016 exchange is seemingly at odds with information contained in the Sheppard letter dated 19 September 2014, which indicated the land had in fact been acquired.

If this had occurred, as the 2014 letter suggests, the land would have become vested in the state.

Image: Section 12(1) Land Act 1996

When the Administrative Inquiry report was submitted on 7 October 2017, a further year and a half after Sheppard’s promise to complete, it is claimed nothing had been done: ‘So far as the Administrative Inquiry is aware, there still has been no transfer of the title from Kitoro No 64 Ltd to the State’.

In his concluding statement Griffin QC notes the land deal is plagued by illegality.

He observes it is unclear whether the land was acquired through compulsory acquisition or contract of sale. Griffin QC considers the first option:

Looked at in terms of compulsory acquisition, whilst Mr Romilly Kila Pat, the then Secretary for Lands executed on 5 September 2014 a Notice of Compulsory Acquisition, there is no evidence of a Notice to Treat under S13 of the Land Act, or the publication of a Notice for Compulsory Acquisition in the National Gazette in accordance with S 12(1) of the Land Act 1996.

Griffin QC then notes: ‘Looked at in terms of contract, the Administrative Inquiry has not been provided with any contract of sale and believes there was no such contract brought into existence’.

The acquisition of portion 698 is clearly a matter of public significance, in light of these apparent illegalities. Key questions now need answering. They include:

1. Did Tim Neville or other executives associated with Kitoro No.64 knowingly issue a false statement to their legal representative in order to wrongfully demand payment from the Department of Defence?
2. Did Greg Sheppard attempt to verify that the Land Act 1996, s12(1) had been complied with – especially in light of the unusually rapid time frame in which the alleged procedures had been enacted – before issuing a demand for K15.4 million?
3. Did Justice Kenneth Frank have carriage over this irregular land transaction? If the answer is yes, did he verity that the Land Act 1996 s12(1) had been complied with, before issuing a demand on behalf of his client for K15.4 million?
4. Why was the then State Enterprises Minister, Ben Micah, involved in this transaction between Kitoro and Defence?
5. Did the then Lands Secretary, Romilly Kila Pat, misinform Treasury Secretary, Dairi Vele, that the land had been successfully acquired under s12(1) of the Land Act?
6. Has title over portion 698 finally been signed over to the State?
7. Was the payment of K15.4 million to Kitoro lawful?
8. If it was not lawful, has steps been taken to recover this significant payment of public money?
9. Did Kitoro No. 64 personnel engage in fraudulent conduct when the company instructed its lawyer Greg Sheppard that their land was lawfully compulsorily acquired on 5 September 2014?
10. When it became explicitly apparent that potential fraud had been used to solicit the K15.4 million payment, did either party involved in the February-March 2016 exchange of correspondence report the matter to the police?
11. Are there potential breaches of the criminal law that require prosecution, relating to fraud and misappropriation?

Whatever the final answer is to these critical questions it appears yet again our armed forces have been short-changed by public officials and companies more worried about profit than the nation.