Lee v Waikalou Developments Ltd [2002] FJHC 17; Hbc0294d.1995s (1 August 2002)

IN THE HIGH COURT OF FIJI
(AT SUVA)

CIVIL ACTION NO. HBC 294 OF 1995S

Between:

JOE EDWARD LEE
Applicant
(Caveator)

and

WAIKALOU DEVELOPMENTS LIMITED
Respondent
(Caveatee)

P.I. Knight for the Applicant
J.R. Flower for the Respondent

DECISION

These proceedings concern a caveat lodged by the Applicant under the provisions of Section 106 (a) of the Land Transfer Act (Cap 131 – the Act). Surprisingly, no copy of the caveat has ever been produced to the Court despite the voluminous papers filed by the parties since these proceedings were commenced over 7 years ago.

The following affidavits were filed:

(i) Vinod Singh, 17 May 1995;
(ii) Satendra Chand, 18 March 1996;
(iii) Joe Edward Lee, 17 April 1996;
(iv) Colin Sibary, 1 August 1996;
(v) Anthony Harold Cumberland Thomas Gates, 1 August 1996;
(vi) Joe Edward Lee, 5 August 1996;
(vii) Colin Sibary, 27 August 1996;
(viii) Vamarasi Faktaufon, 28 November 2001;
(ix) Vamarasi Faktaufon, 7 February 2002;
(x) Darrell E. Lee, 7 February 2002;
(xi) Darrell E. Lee, 26 March 2002;
(xii) Joe Edward Lee, 15 May 2002;
(xiii) Darrell E. Lee, 23 May 2002
(xiv) Vamarasi Faktaufon, 28 May 2002.

The dealings between Joe Edward Lee and Darrell E. Lee go back to at least 1984 or 1985 when they were first involved in the development and management of properties at Pacific Harbour owned by one Harold Wosepka, a convicted fraudster. Something of those dealings is described in my Judgment in Darrell E. Lee v. Joe Lee HBC 645 of 1998S, an appeal against which is now pending in the Fiji Court of Appeal. When these proceedings came back before me on the present summons I expressed some concern that I might not be the best person to bring an open mind to bear on the application however both Mr. Knight and Mr. Flower indicated there preference that I remain with the case and also expressed the view that the issues raised, though clearly related to the earlier action, were separate and distinct and fell to be decided on their own facts and the law applicable to them.

Although the caveat itself (complying presumably the requirements of Section 107) was not disclosed Exhibit DE3 to the tenth affidavit is a copy of the Section 109 notice sent by the Registrar of Titles to the Respondent caveatee on 3 April 1995.

According to paragraph 5 of the first affidavit the caveatee, following receipt of the Section 109 notice applied to the Registrar of Titles for removal of the caveat under the provisions of Section 110(1). The caveator thereupon commenced these proceedings by way of summons seeking extension of the caveat under the provision of Section 110(3).

On 16 June 1995 the matter came before Kepa J. Although there was no affidavit of service or other evidence that I can discern that the caveatee had been served with the summons as is required by Section 110(3) the Court heard the application. The caveator relied on the first affidavit herein and in particular on clause 5 on an agreement between the Applicant and Darrell Lee which was exhibited. This agreement records that the Applicant had agreed to sell his interest in a company which itself had an interest in the respondent to Darrell Lee for the sum of $US595,965.99. Clause 2 of the Agreement records that this sum was to be secured by a promissory note executed by Darrel Lee in favour of the Applicant. Furthermore, and importantly, clause 5 of the Agreement states that:

“the said Joe Edward Lee shall be entitled to and have the right to register a charge against CT’s 3904, 3906 and 7693 to protect his beneficial interest.”

The titles referred to are those of which the Respondent is and at all material time was the registered owner.

Kepa J ordered that the caveat be extended until further order of the Court.

On 18 March 1996 the Respondent filed a notice of motion to remove the caveat. So far as I can see the Act does not specifically provide for such an application to be made. The point is not wholly without significance since the wording of subsections 109 (2) and 110(3) following the words “ex parte” appearing in each subsection are not identical and have implications for the manner in which an application to remove is to be disposed of. In the absence of any other authority I am satisfied that an application to remove is an application made under the provisions of RHC O32 r 6. Given the general effect of a caveat I do not doubt that the onus of justifying its continuation must rest with the caveator and therefore the procedure generally to be followed upon an application to remove is that set out in Section 109(2). This section provides that the Court:

“... upon such evidence as the Court may require, may make such order ... as to the court seems just and where any question of right or title requires to be determined the proceedings shall be followed as nearly as may be in conformity with the rules of Court in relation to civil causes” (emphasis added)

As was stated by Fatiaki J in Narain v. Malley (1988) 34 FLR 119, 121:

“It is inappropriate for this Court at this stage to determine the rights of the parties to this action in a summary manner particularly when there are conflicting affidavits or where the question of a caveatable interest is distinctly arguable”.

The 18 March application was supported by the second affidavit in which Satendra Chand deposed first, that the 20 October 1994 deed had been superseded by an agreement dated 24 October 1994, secondly that the caveat was preventing implementation of the sale of the land envisaged in the 20 October agreement, from the proceeds of which the purchase price of US$595,965 was to be repaid and thirdly that the caveator had taken “no steps to prosecute the terms of the deed he is purporting to rely on”. This affidavit was met by an affidavit of the Applicant/Caveator in which he averred that the agreement dated 24 October was in fact signed prior to 20^th October and that the 20^th October agreement was in fact signed on 31^st October. The dates on which the agreement was signed are important not least because under clause 5 of the agreement dated 24 October 1994:

“All promissory notes from Darrell Lee to Joe Lee that are directly related to Waikalou and signed on behalf of himself or any company or other person are hereby void. The debt represented by any such promissory note is hereby cancelled in favour of this agreement.”

Presumably this clause was intended to extend to the debt secured by the promissory note referred to in clause 2 of the 20 October deed. The situation is however further complicated by the recital to the 24 October agreement which states:

“Joe Lee owns 60% and Darrell Lee owns 40% of a Vanuatu (sic) company Peninsula Investments Limited which owns 100% of the shares of a Fiji Company Waikalou Development Limited...”

How such a description of the ownership of the companies is consistent with the 20 October agreement is not at all clear.

Both Mr. M.B. Patel (who then represented the Respondent) and Mr. Knight filed written submissions for consideration on the hearing of the 18 March application. Mr. Patel cited observations of the Fiji Court of Appeal in Mohammed Ali v. Rohit Ambalal (ABU 42/95S – FCA Reps 96/91) in which the Court quoted with approval a passage from Francis: “Torrens Title in Australia” the effect of which was that a caveat prima facie valid will not be removed on summary application where the facts are involved and seriously disputed but that the caveat will however be removed unless the caveator take “prompt action” by appropriate proceedings to test the validity of the claim. This is consistent with the emphasised words quoted from Section 109 (2) of the Act and also with what was said by McCarthy P in Catchpole v. Burke [1974] 1 NZLR 620:

“Where there are doubts surrounding the right of the caveator .... the proper course is to extend the caveat until conflicting claims of the different parties are determined in actions brought for that purpose.”

Mr. Patel pointed out that no action of this kind had been commenced by the caveator. He also emphasised that the charge envisaged in clause 5 of the 20 October agreement had never in fact been registered.

In May 1996 the Respondent changed its solicitors. In June 1996 Mr. Anthony Gates filed a further written submission. He argued that the Applicant had no caveatable interest in the land. He also suggested that there had been material non disclosure, in particular noting that a copy of the caveat (No. 375218) had not been exhibited.

On 8 August 1996 a second motion this time for partial withdrawal of the caveat was filed together with supporting affidavits. The Respondent sought an order that the caveat be withdrawn to the extent that it extended to lots being subdivided from the land which the Respondent had managed to sell. The Applicant caveator in the 6^th affidavit agreed to provide partial withdrawals in exchange for 10% of the sale price for each lot.

On 13 September 1996 I declined to remove the caveat. Among other reasons I wrote:

“Whether or not the Applicant in fact has a valid equitable interest in the land is a matter to be argued fully at trial; no action has been commenced.”

On 23 September I declined to order partial withdrawals of the caveat. I wrote:

“In the present circumstances I do not think I would be justified in ordering a variation of the caveator’s statutory legal entitlement.”

Thereafter the matter rested, apart from a summons filed and withdrawn, until the present summons was filed on 28 November 2001. The Respondent caveatee now again seeks an order for the removal of the caveat.

As appears from the affidavit of Darrell Lee filed in support of the application, a number of transactions affecting the land took place subsequent to the 1996 application. Of these, the transaction which is advanced by the Respondent as being the most significant concerns a first mortgage over the land. This is a mortgage to the ANZ bank. No copy of it has been produced in this proceedings. So far as I can see it is first referred to in paragraph 10 of a written submission prepared by Mr. Anthony Gates and filed on 24 June 1996. It is there described as a mortgage prior to the caveat. The same mortgage is referred to in passing in Mr. Knight’s submissions dated 24 June 1996 and again in paragraph 12 of the fourth affidavit filed on 1 August 1996. It was also the subject of part of the summons filed in August 1996 and later withdrawn when the affidavit in support of that summons disclosed that the Bank was threatening to foreclose. The eighth affidavit exhibited copies of the relevant certificates of title and from examination of these it appears that the mortgage was granted to ANZ bank on 28 February 1995. How this apparent fact can be reconciled with the description of the mortgage as a prior mortgage is not clear.

In his affidavits filed in support of this application Mr. Darrell Lee deposed that he is now the owner of 100% of the shares in Peninsular Investment Limited and that he is also holder of 100% of the shares in the Respondent. He also deposes that on 28 November 1999 following agreement reached with the Bank the mortgage was transferred to him in person (see Exhibits DEL 4 to the 11^th affidavit and JEL 3 to the 12^th affidavit). This transfer, which of course resulted in Darrell Lee holding a mortgage over property owned by a company owned by himself was followed by the exercise, in circumstances and in the manner set out in paragraph 7 to 16 of the 11^th affidavit by Darrell Lee of his powers of sale under the mortgage. Exhibit DEL 14 to the 11^th affidavit is a copy of the transfer to one Giovanni Ernesto Mastronardi, in consideration of the payment of US$2million of the whole of the land in question owned by the Respondent by way of mortgagee sale.

Mr. Mastronardi is Darrell Lee’s son in law. No copy of a receipt or other evidence that US$2 million was actually paid by Mr. Mastronardi has been produced. Although Exhibit DEL 14 states “in consideration of the sum of $2,000,000 (two million dollars) this day paid” and “now therefore the mortgagee doth hereby in exercise of its power of sale in such mortgage transfer to the said Giovanni Ernesto Mastronardi all the estate and interest ... absolutely” Darrell Lee in paragraph 8 states that the purchase was “paid for by “promissory note” which provides that no payment is due until the caveat is lifted and clean title can be provided.”

Both Counsel filed detailed written submissions. They are on the file and need not now be rehearsed in any detail. In brief, Mr. Flower argued that the effect of the mortgagee sale was to bring the property within the provisions of Section 72 of the Act with the result that the property was to be transferred to Mr. Mastronardi free of encumbrance and in particular free of the caveat. He also argued that the property having been sold with the proceeds of sale “available for distribution in accordance with the agreement of the parties” the agreement was at an end. Therefore the caveat needed to be removed to allow the sale to take place.

Mr. Knight relied on Stewart v. District Land Registrar [1980] 2 NZLR 706 for the proposition that a caveat is not an encumbrance and that a mortgagee exercising his power of sale must deal with any caveat before a purchaser can be registered as the new owner. He also submitted that the effect of the October 1994 agreement was to allow the caveat to remain on the title until the whole debt has been repaid.

It may have become apparent from the foregoing that it is not altogether easy to find one’s way through the thicket of conflicting facts, legal and quasi – legal manoeuvring with which the affairs of Messrs Lee and Lee are characterised. It is obviously a pity that in 1995 and 1996 the Court’s attention was not drawn to the words of Barker J in Stewart (supra) who explained at 708, 5 that following an application to extend the caveat:

“Normally an order from this Court is granted keeping the caveat alive, on fairly stringent terms as to litigating the caveators claim, providing the caveator can show a prima facie case for his caveat (Catchpole v. Burke [1974] 1 NZLR 620)”.

Turning to the first submission made by Mr. Flower, in my opinion Section 72 does not operate to remove a caveat since a caveat is not itself an interest falling within the section. A caveat is a warning operating “as a notice to all the world that the registered proprietor’s title is subject to the equitable interest alleged in the caveat” (Butler v. Fairclough [1917] HCA 9; (1917) 23 CLR 78). A caveat does not itself constitute an estate or interest and does not operate to give a caveator better priority than he otherwise would enjoy. Section 72 is concerned with encumbrances which include claims (see Section 2 of the Act) but not notices of claims or, in other words, caveats. With respect, I adopt the reasoning of Barker J at 708, 25 in Stewart (supra).

As I see it, the resolution of this application depends on whether the caveator has established “ a prima facie case for his caveat” and it seems to me that the caveator faces very real difficulties in this regard. As pointed out as long ago as 1996 the caveator has done nothing to prosecute his claim. There is still no writ on the file. These current proceedings are no substitute for proceedings following “as nearly as may be in conformity with the rules of court in relation to civil causes” (section 109 (2)) where there are clear issues of fact to be resolved. To identify but one, if the agreement bearing the date 24 October in fact followed the agreement bearing the date 20 October then the debt giving rise to the caveat was apparently extinguished. But the Applicant says that the agreements were not actually concluded on the dates that they bear. Where the truth lies can only be discovered after hearing tested evidence not by reading reams of affidavits. The Applicant also faces the difficulty first, that the charge which the 20 October agreement gave him the right to register was never in fact registered. A caveat cannot on its own act as a substitute. Secondly, it is at the very least doubtful whether the debt owed by the Respondent was any more than a right to proceeds of sale arising ex contractu which would probably not give rise to a caveatable interest at all (see Guardian Trust and Executives Co of New New Zealand Ltd v. Hall [1938] NZLR 1020].

Bearing in mind that the original extension of the caveat in 1995 was obtained irregularly, that 7 years have elapsed without the Applicant taking any steps to prosecute his claim and that the existence of a caveatable interest is at best doubtful I have concluded that it would not be right to extend the caveat still further. To extend it even upon “stringent terms” would in Fiji’s circumstances be to extend it for in all probability a further two or three years. Despite the curious circumstances of these transactions I do not think that such a consequence can be justified. The Registrar of Titles is directed to remove the caveat forthwith.

M.D. Scott
Judge

August 2002