Incorporated Land Groups in Papua New Guinea [2003] MLJ 4; [2003-04] 29 MLJ 73 (1 January 2003)

In this paper, I use the description "customary corporations" to refer to those bodies corporate which are facilitated and given recognition by statute law (as opposed to being created by such statutes), but their bases and structure are derived from traditional Papua New Guinean (PNG) social institutions such as the clans or lineages. In other words, customary corporations are not creatures of statutory enactments but are merely legitimised through statutory enactments in the sense that legislation merely formalises and gives "recognition" to existing social organizations of the respective societies of PNG, and also give them certain statutory powers. Their dispute settlement process is left to customary practices. The well known "customary corporations" in Papua New Guinea now are business groups and land groups.

This paper begins by looking at the specific background to these two forms of customary corporations with a view to assessing the current roles which they play in the socio-economic life of the country. Particularly incorporated land groups (ILGs), have become very popular amongst "resource renters"[1] in forestry and the oil and gas projects where customary land holders on whose land these resources are found are now statutorily required to have themselves organised into ILGs before they can negotiate as "resource renters" with "resource project developers".

Contributors to a conference organised by the Department of Petroleum and Energy and Chevron in September 1998, in Port Moresby, pointed to abuses which have enveloped the ILG process. This is particularly so where the original ILGs split up and new ILGs are formed out of the original group for improper purposes. This development also featured in a contribution to the conference from the National Forest Authority, a user of the ILG process. They identified the abuses as arising from: (1) "the emergence of spurious ILGs" and (2) "the breakdown of customary values". These criticisms are expressed as follows:

"1. Emergence of Spurious ILGs.

... spurious ILGs have [emerged] in a number of existing FMA projects [partly] due to ... disagreements within the original ILGs. It is suggested that some were motivated by a desire to claim additional premium payments for themselves at the expense of others. A classical example is in one project area in which three (3) spurious ILGs were formed from one original ILG but the members [are] from the same family group.

Whilst Jimmy Weiner[3] is not as explicit as the National Forest Authority above, he also notes of the Foi and Fasu that in 1998, thirteen (13) new ILGs were incorporated out of the original body. The common reason cited by Weiner for the emergence of this trend appears to be the unsatisfactory or uneven distribution of royalty payments. Obviously then, all is not well, particularly at the ILG front.

It is suggested in this paper that there is an obvious reason for this: the misapplication of the ILG corporate vehicle – where ILGs are now solely used by ‘resource developers’ for landownership identification and resource distribution mechanisms; rather than as corporate vehicles through which the common social group’s owned land can be worked. I therefore begin by looking at the background to customary corporations: business groups and ILGs.

The creation of customary corporations (and co-operatives) was an innovative move taken at around independence, largely in response to the "Eight Points Plan" and the "National Goals and Directive Principles" to involve Papua New Guineans in business activities or the economic life of the country.[4] In particular, Goal No. 5 of the National Goals and Directive Principles says:

In fact, the Constitutional Planning Committee was explicit and succinct, when they recommended: "development should take place primarily through the use of Papua New Guinean forms of social, political and economic organizations".

Particularly, given the difficulties posed by the conventional corporations and partnership, both practical and legal, the administration around the time of independence had to find a convenient alternative for indigenous Papua New Guineans to engage in business and take part in the development process.[5] The Constitutional Planning Committee (CPC) was no doubt mindful of this hence their recommendation for Papua New Guinean forms of social, political and economic organizations to be utilised. This of course led to the promulgation of the Fifth National Goal and Directive Principle quoted above.

The vision was then translated into policy and legislation in 1974 by the enactment of the Business Groups Incorporation Act[6] and the Lands Groups Incorporation Act[7]. The original vision was however for a "general purpose corporation" to provide for the "incorporation of traditional groups with powers, inter alia, to hold group title and engage in business ventures".[8] Professor R.W. James records that the idea of the "general purpose corporations" had to be discarded because the draft bill "even without the regulations, ran into one hundred and fifteen sections. Its size was an indication that the ‘general purpose corporation’ had lost any claim to provide a ‘simple’ and ‘flexible’ structure for group ventures".[9] Of course the ‘general purpose corporation’ did not live to see the light of day but gave its breath to what was then called the Land (Recognised Groups) Bill – subsequently changed to its current form – Land Groups Incorporation Act; and the Business Groups Incorporation Act.[10]

The Land Groups Incorporation Act has its own peculiar history. Its origin can be best understood by looking at the work of the Commission of Inquiry into Land Matters (CILM) and the plantations redistribution scheme.

A Commission of Inquiry Into Land Matters (CILM) was appointed by the Papua New Guinea administration in 1973 to, amongst other things, investigate concerns over shortage of land and possible ways of registration of customary land.[11] The guiding principles by which the CILM approached its work were the Eight Aims which are now incorporated into the National Goals and Directive Principles (as cited above) and the belief that any system of land tenure it recommends must ‘build on a customary base’. Hence, the CILM recommended for legislation to provide for the registration of group titles – arguing that such titles should be ‘based on typical Papua New Guinean forms of organization so far as land rights are concerned"[12] so that group titles to land could be recognised. Of course the CILM did not recommend for the legitimisation of the corporate nature of the group that claims ownership over customary land as is the case now under the Land Groups Incorporation Act. The CILM wanted the issue of ownership to be ironed out first through registration of group title: only after the registration of group title, the group can be legitimised as the land owning customary group. It appears that the Land Groups Incorporation Act is now being used to reverse the process: to recognise the so called customary land owning group without the group having to show group title to the land that they are claiming to own!

The plantation re-distribution scheme of the early 1970 had a direct input on the Land Groups Incorporation Act. This Act is actually part of a package of legislation which were enacted to implement the plantation re-distribution scheme:

Coming thus far, the following must be noted. This package of legislation was primarily intended to redistribute plantation land, which were in fact alienated land – usually owned by expatriate planters. It therefore follows that, the Land Groups Act 1974 was originally intended to organise customary based social groups to hold, manage and deal in alienated land which they have acquired through the plantation redistribution scheme. I therefore venture on to suggest that the Act was never intended to give customary land owners recognition as owners of customary land. In other words, incorporation of a social group under the Land Groups Incorporation Act was never intended and indeed does not validate ownership of blocks of customary land. This of course directly contradicts the use to which the National Forest Authority makes of the ILG process – where it uses "the incorporated land group process to identify authentic landowning groups for the purpose of facilitating the FMA [Forestry Management Area] and further to distribute monetary benefits such as premium and royalty payouts".[17]

This background survey of the ILGs thus far reveals that ILGs were neither intended as vehicles for registered group title to customary land nor as vehicles for the adjudication and demarcation of boundaries of customary land. ILGs were however intended to be used as corporate vehicles to hold, manage and deal in land, mainly alienated land but redistributed to traditional landowners under the plantation redistribution scheme. The recommendation of the CILM – to register group titles to customary land is still in abeyance. The process of incorporated land groups (ILGs) should not now be used as a backdoor mechanism to secure group titles to customary land. Kathy Whimp is certainly right when she says that: "Almost quarter of a century after LGIA was passed, it is clear that [now], the Act serves a very different purpose".[18]

At about the same time as the Land Groups Incorporation Act and the other related legislation were enacted, the Business Groups Incorporation Act[19] was also enacted. This legislation provides for the "incorporation of customary groups for business and other economic purposes" and "the control and regulation of the conduct of business by such groups" (see preamble to the Act). The purpose of the legislation are set out in Section 1 of the Act as being to provide:

Kimuli, Amankwah and Mugambwa[20] made a valid point when they said that the underlying objective which the Act was tasked with "was to achieve a greater participation by ordinary Papua New Guineans in the national economy by establishing group enterprises" and sound management practices.[21] These same authors go on to make a significant, but these days a much overlooked point that the Business Groups Incorporation Act "was partly intended to supplement another Act:" the Land Groups Incorporation Act[22] – in the sense that the ILG as a corporate vehicle, has statutory limitations by the operation of Section 13(2) of the Act; where its powers and sphere of operation is restricted to the holding and dealing in land: both customary land and alienated land. It has no power or jurisdiction to conduct business outside of dealings in land. To that extent, business groups incorporated under the Business Groups Incorporations Act provides the corporate vehicle through which business activities outside of dealings in land can be carried on by indigenous Papua New Guineans. Accordingly, I therefore suggest that these two customary corporations can be and should be used together in today's customary landowner dealings with resource developers. What ever combination through which these corporate vehicles are to be used should be left to individual or specific resource projects and their specific circumstances. For example, in a consultancy project which Harricknen Lawyers undertook for the Madang Provincial Government regarding possible options for the organization of the customary land holders of the Krumbukari nickel deposit, to be developed by Highlands Pacific as Ramu Nickel mine, we were tasked to "investigate, assess and structure appropriate landowner companies taking into account the ILG exercise in the project area, pipeline area, limestone area and the wharf area" and recommend on a preferred option for customary land holders participation. Our recommended option was for ILGs to be initially incorporated after all the outstanding court disputes over ownership and boundaries of customary land were settled, and then to use those ILGs as shareholders and then form either a business group or a company incorporated under the Companies Act 1997. The Madang Provincial Government insisted that we proceed to incorporate the land groups as ILGs but we were simply not in a position to do so since land court cases were pending and disputes over boundaries remained unsettled. We felt that some of the customary land holders saw the ILG process as a way of legitimizing their ownership claims. Hence, we were reluctant to jump hastily into the incorporation process.

The first legislation to compulsorily require land holding social groups to organise themselves into ILGs to facilitate the "forestry resource acquisition" process is the Forestry Act 1991[23] (as amended). Since the forestry resource on customary land is owned by customary land holders via their respective or appropriate land holding social groups, the PNG Forest Authority (PNGFA) is required to secure timber rights from these customary land holders. These are the forestry resource owners in accordance with the process set out under Sections 54 to 66 of the Act. The PNGFA accesses the resource by entering into Forestry Management Agreements (FMAs) with customary land holders in their capacity as timber resources owners.

However for purposes of entering into a FMA with the PNGFA Section 57(1) of the Forestry Act 1991 (as amended) requires the customary land holders and timber resource owners to organise themselves into ILGs before they can enter into the negotiation process with the PNGFA.

The PNGFA uses the process to identify "authentic" customary land owners to the customary land upon which the timber resource is found. This is apparent from the requirement under the FMA for detailed maps demarcating land boundaries in order to clearly ascertain the timber resource within the FMA area. Clearly then, this becomes a de facto mechanism to demarcate boundaries of customary land which then effectively gives rise to ownership claims over the customary land concerned.

Since the inception of the FMA system under the Forestry Act 1991, a total of 32 FMAs have been concluded with a total of 1870 ILGs incorporated for that purpose. The number of FMAs and ILGs on a province by province basis is as follows:

Province	FMA	ILGs
Central	3	68
Gulf	7	643
Western	3	242
Northern (Oro)	1	74
Milne Bay	1	66
Morobe	2	95
Madang	1	131
East Sepik	1	130
West Sepik	5	244
West New Britain	7	202
East New Britain	1	24

Going by this Table, it is apparent that much of the Gulf Province has been carved out into seven (7) FMAs with a total of 643 ILGs. Make no mistake that these ILGs lay ownership claims to the various blocks of customary land with which they identify with. The same thing can also be said for the ILGs incorporated for other purposes throughout the country: they are making ownership claims as true ("authentic") customary land owners. If this is the scenario, then the ILG process is now being used as a form of group title registration to customary land!

The second resource development legislation to consider for the purpose of this paper is the new Oil and Gas Act 1998 (No. 49 of 1998). Although this legislation does not specifically require customary land holders to incorporate themselves into ILGs before they can participate in the development forum process and eventually become a party to the development agreement, Section 47 of the Act requires proper social mapping and land owners identification studies to be undertaken as a condition for issuance of a petroleum prospecting licence; petroleum retention licence; and petroleum development licence. Subsections (4) and (5) are interesting. They read as follows:

The actual implementation of Section 47 of the Oil and Gas Act 1998, particularly the sub sections quoted above, will be interesting. The Act does not state which legislation will be utilised to conduct the "land owner identification study" and how such a study will be conducted. The question then becomes: will the ILG process under the Land Groups Incorporation Act be used? If so, then I suggest that the ILG process is not one that is intended for that purpose at all. I further suggest that the ILG process should not be automatically embraced by all resource project developers: other viable existing corporate vehicles, such as the business groups and associations incorporated under the Association’s Incorporation Act (Ch. 142) are available.

Responding to the problems associated with splinter and spurious ILGs as presented above, in 2000, Oil Search Limited, the operator of the Kutubu petroleum project in the Southern Highlands Province, made a proposal to introduce a system of zone incorporated land groups (ZILGs). Essentially under this proposal, ZILGs were to be incorporated by ‘zoning in related clans’ or by bringing in clusters of related clans, and have a ZILG incorporated under the existing Land Groups Incorporation Act. For purposes of incorporation as a ZILG, the clusters of clans are required to be related to a main clan – known amongst the Foe, Fasu, Onabasulu and the Huli (Madanda), as "stock clan". In essence, therefore, the ZILGs would have to comprise of clans from a stock clan. The ZILG will then become an "umbrella ILG" under which the related clans will all be accommodated.

As alluded above, the main reason behind this proposal was to address the problems from proliferation of splinter ILGs amongst the Foe, Fasu, Onabasulu, and the Huli in the Kutubu, Moran and Mananda project areas. We have already referred to this development and suggested that the aim of the subdivisions was to reduce the number of people comprising an ILG, and then correspondingly increase and hence maximize, the royalty and compensation and such other benefits to the individuals concerned. In many instances, this then created disharmony and disputes amongst the various and usually competing customary land owners’ ILGs, and also between them and the company.

As a result of the proliferation of splinter ILGs, many customary land owners found themselves being members of more than one ILGs, as a strategy to maximize their gains from the royalties and compensation payments paid by the oil company. Quite correctly, such people were usually accused of ‘double dipping’ and benefiting over and above what they were fairly entitled to. This in turn caused friction and conflict amongst the kinsfolk. The proposal by Oil Search Limited to introduce ZILGs was therefore to address this problem of unfair distribution of benefits by grouping all the kinsfolk into a ZILG and then distribute royalties, compensation and other benefits through the ZILGs, thus enveloping in all the kinsfolk and installing a fairer distribution system; and ultimately nullify the proliferation of ILGs.

In announcing the ZILG concept, Professor Laurence Goldman and George Clapp[26] stated that there were also other benefits which the proposed system stood to offer from the point of view of resource developers. For instance, demarcation of individual ILG customary lands would not be necessary. Instead, resource developers would only need to conduct household surveys and record memberships within the agreed zone and do one zone demarcation for every zone concerned. No doubt by doing so, the ZILG would be a vehicle to incorporate a large social group based on kinship, but perhaps with varied levels and degrees of interest incorporating all levels of land use and tenureship. For example, in the Komo Basin, a "tene" had a different status from that of a "yamuwini" and a "walihaga / igiri / yango" where by a person with a "tene" status had customary land ownership rights but also had responsibility to make allowances for and share land use with a "yamuwini" who had usufructuary rights, and "walihaga / igiri / yanga" who had lesser rights to the "yamuwinis". The use of ZILGs would then provide a means of registering the various ‘interests’ of all these different categories of customary land holders and users and maintain the status quo of the constituent social groups and their existing customs over customary land ownership, custodianship, and use rights. By including all ‘residents’ of a zone into a ZILG, Oil Search Limited predicted that disputes over customary land ownership would be greatly reduced, since the ZILGs would envelope in all the various and competing interests and keep every one happy in the same house. This point is based on the premise that just because all different land owning clans are now housed under the umbrella of a ZILG, the members of the land owning clans ("tenes"), land use right holders ("yamuwinis"), and other lesser rights holders ("walihaga/igiri/yanga") would be happy and they will peacefully co-exist, without attempting to out do each other.

The ZILG could possibly be accommodated under the existing Land Group Incorporations Act since the purpose of the Act, inter alia, is to "recognize the corporate nature of customary groups" and to allow them to deal with their customary land. To give effect to this, Section 5 (3) (c) of the Act states that when an application is made by such a customary group for incorporation, the registration and incorporation must not be refused "simply because the group is made up of members of various groups, if the Registrar is satisfied that the group possesses common interests and coherence independently of the proposed recognition, and share or are prepared to share, common interests." For the proposed ZILGs to be successfully incorporated under the current legislation, it is necessary that the proposed ZILG must be a pre-existing and recognized coherent group before the recognition and incorporation is granted. That is to say that it must not be a group stringed together for convenience of any person or party, for reasons such as those associated with the distribution of royalties, compensation payments and other benefits.

Section 3 (6) of the Act must also be taken into serious consideration, when considering the incorporation of ZILGs under the current Act. This provision is in the following terms:

In view of the clear dictates of this provision, there are three significant matters for consideration by the Registrar of ILGs before granting recognition and consequently incorporation and corporate status. The first matter is to do with the ownership of customary land where it is clear from the dictates of Section 3 (6) (a) that the proposed group, in its pre-existing customary form, must own customary land. So if ZILGs are to be granted incorporation under the current Act, it is important that the Registrar must be satisfied that the proposed ZILG must, in its pre-existing form, own customary land. It is not enough for the proposed ZILG to be a pre-existing social group in the area concerned without attachment to or ownership of customary land. The second matter for consideration by the Registrar, is the legal question of whether the ZILGs would serve a significant purpose of the current Act – i.e. whether the proposed ZILG would be for working customary land. If the ZILGs are going to be used, merely for the distribution of compensation and royalties related payments and such other benefits, then clearly this is not a purpose envisaged under the Act and therefore, in my view, the ZILGs would fail to meet the requirements of Section 3(6) (b) and (c) of the Act. The third matter for consideration is whether there are other forms of corporate vehicles under which the proposed functions of the ZILGs could be efficiently carried out? Section 3 (6) (d) of the Act is clear that if there are other forms of corporate vehicles, then recognition of the proposed ZILGs should not be granted.

Quite apart from the above considerations, there is also a general requirement arising out of Section 1 of the Act which must be considered if ZILGs are going to be a reality. In setting out the purposes of the Act under s.1, it is stated inter alia, that, the incorporation of ILGs should give the group an opportunity to use the land better, and also in the process, "give greater certainty of title", and an improved dispute settlement mechanism. The issue then arises: would the incorporation of ZILGs achieve any of these purposes? In my view, under the current proposal, ZILGs are not intended to improve opportunities for the customary groups to work their land better, but are envisaged as a compensation and royalty payments distribution mechanism – a purpose distantly apart from working the land. Further more, it is clear to me that the proposed ZILGs would not improve "certainty of title", but instead, stand to "muddy up" the existing customary land ownership structures by giving an umbrella recognition, and at worst, a somewhat false sense of customary land tenureship, when in actual fact the ownership of customary may be with the various clans, each and severally, rather than the umbrella ZILG.

The customary corporations of ILGs and business groups were viewed at the period leading up to independence, and hence nationhood, as the appropriate corporate vehicles through which indigenous Papua New Guineans could be mobilized to actively participate in business and the economic life of the country. As mentioned in the preamble to the national Constitution under National Goals and Directive Principle No. 5, these customary corporations represented truly Papua New Guinean forms of social and economic organizations well grounded on truly indigenous and prevailing social structures and organizations.

The ILG was intended to provide a corporate vehicle for business and economic activities working or utilizing customary land whereas the business group has a much broader appeal and application – that of facilitating for indigenous Papua New Guineans to utilize and engage in broader business enterprise, and in all areas of business activities which the opportunities of a newly emerging nation presented.

Two decades later, with a boom in the forestry, mining and petroleum development projects situated on customary land, ILGs have now been extensively used to involve customary land owners. ILGs have become the most common and popular corporate vehicles to mobilize customary land owners and to do business with, and large, ILGs are now utilized as mediums for the distribution of royalties and the payment of compensation and other related benefits to the customary land owners. As seen above, ILGs were neither intended as general purpose corporations nor as royalties and compensation distribution mediums; but rather as corporate vehicles for customary land owners to collectively organize and work their customary land. It is little wonder therefore that we are now experiencing problems, particularly concerning the high incidences of "splinter" and "spurious" ILGs hence the response by Chevron to introduce ZILGs in order to incorporate related ILGs into one umbrella institution.

Particularly in the forestry sector, ILGs are now being used as a back door mechanism to secure some form of group title to the customary land concerned. Unfortunately, this is not an intended purpose of the legislation, and therefore such practice and activity are clearly outside the purview and ambit of the Land Groups Incorporation Act.

[∗] A paper prepared for the Australasian Law Teachers Association Conference ALTA 2001 July 1 – 4, 2001, University of the South Pacific, Emalus Campus, Port Vila, Vanuatu.

[**] LL.B (PNG), LL.M (Hons) (Auck), LL.M (Corporate Law) (Canb), Ph.D (W’gong) Lawyer.

[1] Filler C. (with Dubash and Kalit) 2000 The Thin Green Line: World Bank Leverage and Forest Policy Reform in Papua New Guinea, Port Moresby & Canberra: National Resource Institute and Australian National University (NRI Monograph No. 37) pp. 4-5.

[2] Registrar of Titles, 1998 “Administration of Land Groups Incorporation Act.” A paper given at the conference on Incorporated Land Groups, organized by the Department of Petroleum and Energy and chevron, Granville Motel, Port Moresby, 8-9 September, 1998; and Whimp K., 1998 “Some Issues of Law and Policy Relating to Landowner Organisations And Representation Mechanisms” (Paper given at the Granville Motel, Port Moresby Conference on ILGs as above).

[3] Wiener J., 1998 “The Incorporated Group: The Contemporary Work of Distribution in Kutubu Oil Project Area, Papua New Guinea” Canberra: Resource Management in Asia Pacific Project, RSPAS Australian National University.

[4] Goldring J., 1974 “Business and the Law in Papua New Guinea” (1974) 2 (2) Melanesian Law Journal 224.

[8] James R W., 1985 Land Law and Policy in Papua New Guinea Port Moresby: Law Reform Commission Monograph No.5 at p.43.

[16] Eaton P., 1980 “Melanesian Land Reform: The Plantation Acquisition Scheme” (1980) 8 Melanesian Law Journal 134.

[20] Kimuli M., Amankwah A., and Mugambwa J, 1989 Introduction to Law of Business Association in Papua New Guinea Hobart: Pacific Law Press.

[24] Editor’s note: s 47(5) has been repealed and replaced by Oil and Gas (Amendment) Act 2001 (No. 21 of 2001).

[26] Clapp G. and Laurence Goldman (Unpublished) “The Hides Zone ILG System, Progress Presentation”, 20 June, 2000.