Nagan Ferroalloys (Fiji) Ltd v Nagan [2011] FJHC 126; HBC251.2008 (2 March 2011)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Civil Action No: HBC 251 of 2008
BETWEEN

NAGAN FERROALLOYS (FIJI) LIMITED a registered Company having its registered office at Ba, Fiji.
Plaintiff

AND

LEAH LOUISE NAGAN
of 11 Fisher Street, Felixstow 5070, Adelaide, South Australia, presently of Ba, Fiji, Company Director.
First Defendant

AND

ANAND ABEL RAO
father's name Abel Nagan of 11 Fisher Street, Felixstow 5070, Adelaide, South Australia, presently of Ba, Fiji, Factory Trainee.
Second Defendant

AND

NAGAN ENGINEERING (FIJI) LIMITED a limited liability company having its registered office at Ba, Fiji.

INTERLOCUTORY JUDGMENT

Judgment of : Ms. Dias Wickramasinghe J.

Counsel : Mr. V. M. Mishra for the Plaintiff
Mr. C.B. Young for the Defendants

Solicitors : Mishra Prakash & Associates for the Plaintiff
Young & Associates for the Defendant

Date of Hearing: : 18 February 2011 & 7 February 2011
Date of Judgment : 2 March 2011

INTRODUCTION

[1] On 12 March 2009, the 3rd Defendant lodged a Caveat on Certificate of Title No 12538, (hereinafter referred to as the property) with the Land Registry, which was registered on 13 March 2009 as No 716660. Upon request by the Plaintiff, the Registrar of Titles, by letter of 24 February 2010 requested the 3rd Defendant to withdraw the caveat, in terms of section 110(1) of the Land Transfer Act Cap. 131.

[2] The 3rd Defendant, Nagan Engineering (Fiji) Limited, by its Summons dated 8 March 2010, moves this court inter alia to extend the Caveat until the final determination or trial of this action. This court has extended the Caveat from time to time and finally up to 2 March 2011. The Plaintiff strongly objects to any further extension.

CASE HISTORY

[3] Distinct to the summons relating to the Caveat, the 3rd Defendant by its Summons dated 28 September 2009, also moves this court in terms of Order 4 Rule 1 of the High Court Rules to vacate the injunction granted by Justice Datt on 27 November 2008 and consolidate this action with HBC 106 of 2009. All applications were fixed for hearing simultaneously, but, on the date of the hearing, on the request of all counsel, I only heard submissions on the caveat application. This interlocutory judgment is therefore limited to the Caveat application.

[4] The Plaintiff in its Statement of Claim, submits that it is the registered proprietor of the property in issue, and the property had a building with 4 apartments with a storage area. The Plaintiff also submits that one of the apartments and the storage area was used by the 3rd Defendant. The 3rd defendant with the consent of the Plaintiff had erected a Water Cooling Tower in the property but had not paid any rent despite demands. Plaintiff further alleges that on 20th November 2008, the Defendants trespassed and took possession of the whole property including the machinery and equipment and moves this court for judgment for repossession, and various other restraining orders against the Defendants either jointly or severally.

[5] The Defendants in the Statement of Defence, admit that the Plaintiff is the registered proprietor of the property, but plead that at all material times the property was held in trust by the Plaintiff for the 3rd Defendant. The 1st Defendant and 3rd Defendant also counter sue the Plaintiff on two causes of action. Firstly, on the premise that the Plaintiff, breached its duty by permitting two of its Directors (Hemraj and Nirmala Devi Raj) to use the property for self-gain whilst holding the property in trust for the 3rd Defendant; Secondly, on the premise that Plaintiff beached its duty by allowing the one share holding in the Plaintiff's company held by Sashi Lata Chand to be transferred to Nirmala Devi Raj as that one share was held by Sashi Lata Chand in trust for the 1st Defendant.

[6] Mr. Mishra in his opening submissions gave a brief history of the relationship of the parties to this action as follows.

• (a) The Plaintiff's company has three shareholders, Neil Hem Raj, his wife Nirmala Devi and Leah Louise Nagan. Both Leah Louise Nagan and Neel Hem Raj are shareholders and directors common to both, plaintiff and defendant companies. Whilst, Neil Hem Raj and Leah Louise Nagan hold equal number of shares in the Plaintiff, Nirmala Devi has one share. All three shareholders are also Directors of the Plaintiff's company. Neil Hem Raj was also the former Managing Director of the 3rd Defendant Company and is the current Managing Director of the Plaintiff's company.
  
• (b) 1st Defendant is the mother of the 2nd Defendant.
  
• (c) The 3rd Defendant company has 5 shareholders viz Leah Louise Nagan, her two children; the 2nd Defendant, Anand Abel Rao (son) Jyotika Rebecca Rao (daughter),Estate of Mary Elisha and Neel Hem Raj. Whilst the first four directors hold, 90% of shares of the 3rd Defendant Company, the latter holds 10% of the shares. Both 1st, 2nd Defendants and Neel Hem Raj are also directors of the 3rd Defendant. Anand Abel Rao, the 2nd Defendant, subsequently replaced Tulsi Ram Khelawan who was one time director of the 3rd Defendant Company.
  
• (d) The transfer of the property in issue from 3rd Defendant to the Plaintiff was executed by Neel Hem Raj as the then Managing Director and shareholder of the 3rd Company along with Tulsi Ram Khelawan.
  
• (e) The Plaintiff and the 3rd Defendant have their businesses in lands adjacent to each other.
  

[7] Legal firm Mishra & Co as it was called then, (Now known as Messrs Mishra Prakash & Associates) had provided legal advice to the 3rd Defendant during the material times. An objection to the appearance of Mr. Mishra was therefore taken by the 3rd Defendant. Justice Datt by his judgment dated 27 November 2008 has already determined that there is no conflict of interest and permitted Mr. Mishra to continue in this case.

BRIEF HISTORY OF THE PROPERTY

[8] The property in issue, CT 12538 was first transferred to the 3rd Defendant company consequent to a court order on 9 February 1996. (Exhibit 'LLN 2' of affidavit of Leah Louise Nagan dated 8 March 2010). The Plaintiff on the payment of $30,000 had purchased the property from the 3rd Defendant on 23 November 1998. The 'transfer form' was signed by Tulsi Ram Khelawan and Neel Hem Raj who were directors of the 3rd Defendant at that time. The Transfer of Title dated 17 November 1998 was produced before this court marked Exhibit A to the affidavit of Tulsi Ram Khelawan dated 28 July 2010. The Certificate of Title does not contain any reference to a trust.

EVIDENCE SUPPORTING AND OPPOSING CAVEAT

[9] The Summons for extension of the Caveat was supported by the affidavit of Leah Louise Nagan dated 8 March 2010. A copy of the Caveat dated 13 March 2009 is attached as Annex F thereto. Opposing the Caveat Tulsi Ram Khelawan and Neil Hem Raj filed affidavits on 28 July 2010 and 14 April 2010 respectively. Mr. R. S. Prakash by his affidavit dated 11 August 2010 attached another undated, unattested affidavit of Neil Hem Raj, which is file of record but was not objected to by the Defendants. Up to date its original has not been filed in court. Although the Defendants have not objected to the unattested affidavit of Neil Hen Raj, I am displeased to accept it as affidavit evidence and struck out same, in terms of High Court Order 41 Rule 6.

[10] Leah Louise Nagan in her affidavit states that upon receiving legal advice from Messrs Mishra Prakash & Associates, the 3rd Defendant transferred the property in issue to the Plaintiff to hold it in trust for the 3rd Defendant. A copy of the legal advice was produced mark Exhibit 'LLN3' to her affidavit. She states that Fiji Development Bank had registered mortgages over all properties belonging to the 3rd Defendant except the property in issue. She further states she understood the legal advice to mean that the transfer of the property necessitated avoiding a claim by Fiji Development Bank in the event of a default. She also states that even after the transfer of the property to the Plaintiff, the 3rd Defendant continued using it as its own, constructed a Water Cooling Tower in 2001 for the sole use of the 3rd Defendant, never paid for the use and occupation of the property, and had items and machineries of the 3rd Defendant in the property in issue. She also states that the Plaintiff only demand rent for the property for the first time in this action.

[11] Opposing the extension of the Caveat, Neel Hem Raj, former Managing Director of 3rd Defendant and current shareholder and a director of the Plaintiff in his affidavit dated 14 April 2010, at paragraph 4, 5, and 6 admits that:

Paragraph 4

'The opinion was given as the First Defendant Mrs. Leah Louse Nagan feared that the Fiji Development Bank may ask for a charge over that property. That property had been transferred fraudulently by Vinod Nagan to others and legal proceedings had been taken to get that property back. The Fiji Development Bank had made overtures in respect of that property and was pressing for payment and the Third Defendant at that time was struggling'.

Paragraph 5

'The First Defendant feared that the Fiji Development Bank may exercise its mortgagee sale rights over the property of the Third Defendant and insist on a mortgage on Certificate of Title No 12538'.

Paragraph 6

'Further the First Defendant had said she wanted to reward me first my services and I was owed a lot of money. The statement that the First Defendant understood that Certificate of Title No 12538 would be held in trust is false and without any basis'.

[12] The Valuation Certificate attached to the affidavit of Tulsi Ram Khelawan at Exhibit B states that valuation was carried out for the purposes of assessing the market value of the property for inter-business transfer purpose.

[13] Following is an excerpt of the legal advice given by Mishra & Co in 1996, where 3rd Defendant alleges that the transfer of the property was based on a trust.

November 13, 1996

The Manager,

Nagan Engineering(Fiji) Limited,

P.O. Box 75,

BA, FIJI

Dear Sir,

RE: NAGAN FERROALLOYS(FIJI) LIMITED

Enclosed herein are the following documents:-

(a) Certificate of Incorporation,
(b) Memorandum of Articles of Association,
(c) Notice of Registered Office,
(d) Your Present Particulars of Directors and Secretaries.

Please note that as adviced many months earlier our strong advice is to open up a new account for the company forthwith. If it is at all possible, perhaps if the factory could be moved to the land which is not secured to Fiji Development Bank. You should register the company separately for Vat purposes. New parts of your factory operation and now should be put separately on the new company. In that way even Fiji Development Bank were to exercise their securities they will not be able to secure that part of operation which is on the unsecured title. Kindly also note that certain lease agreement could be made which we will have to discuss in person. You had stopped us acting further on Fiji Development Bank matters sometime back. Could you please let us know if you want us to proceed.

We take this opportunity of thanking you for your instructions. Our Sashi Lata Chand will transfer the share as requested. She accepts that she only holds the share in trust. Kindly note that if Mrs Leah Nagan wishes to become a shareholder, she may need to get certain approval from the Reserve Bank of Fiji etc.

LEGAL MATRIX

[14] The onus of proof is on the Caveator; the Defendants, to satisfy the Court on evidence that its claim to an interest raises a serious question to be tried and that balance of convenience would be in favour of the caveat being extended.

[15] Section 106 of the Land Transfer Act Cap 131, stipulates the grounds for a Caveat.

S 106. Any person-

(a) claiming to be entitled or to be beneficially interested in any land subject to the provisions of this Act, or any estate or interest therein, by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise howsoever; or

(b) Transferring any land subject to the provisions of this Act, or any estate or interest therein, to any other person to be held in trust,

may at any time lodge with the Registrar a caveat in the prescribed form, forbidding the registration of any person as transferee or proprietor of, and of any instrument affecting, such estate or interest either absolutely or unless such instrument be expressed to be subject to the claim of the caveator as may be required in such caveat

[16] Analysis of the aforesaid section clearly indicates that the trusts enumerated therein, do not have to be in writing, it can be expressed, implied or created otherwise howsoever. Further, section 106 (b) recognizes, that a land could be transferred to be held in trust by a third party.

[17] The 3rd Defendant justifies its interest in a Caveat in the property as follows.

"...claiming a beneficial interest pursuant to a trust imposed where justice and good conscience require it and pursuant to a counter-claim filed by the caveator as 3rd Defendant in Lautoka High Court Civil Action No. 251 of 2008 as per Statement of Defence and Counter-Claim filed therein...."

[18] The caveatable interests stated in the Caveat, sets out the two threshold grounds upon which the Defendants are claiming its right to an extension; firstly, on ground of justice and good conscience and secondly, on the pleadings set out in the counter claim.

[19] Let me therefore analyze whether these two grounds satisfy the threshold requirements stipulated in section 106 of the Land Transfer Act.

Trust imposed whenever justice and good conscience require it

[20] Mr. Young submits that the Plaintiff held the property in trust for the 3rd Defendant upon legal advice to avoid a probable demand by the Fiji Development Bank. 1st Defendant also alleges that the share of the Plaintiff's company was held in trust by Sashi Lata Chand. The legal advice in paragraph two confirms same on a plain reading of the advice; 'Our Sashi Lata Chand will transfer the share as requested. She accepts that she only holds the share in trust. Kindly note that if Mrs Leah Nagan wishes to become a shareholder, she may need to get certain approval from the Reserve Bank of Fiji etc'. Subsequent to the transfer, 3rd defendant continued to use the property for over 12 years without any payment until this action was initiated; in 2001 the 3rd Defendants constructed a Water Cooling Tower as it always used the property as their own. Mr. Young argues that the aforesaid events create a constructive trust between the parties which satisfy the threshold grounds stipulated in section 106 of the Land Transfer Act and cites in support Lord Denning in Eves v Eves [1975] EWCA Civ 3; [1975] 3 AllER 768 at 771 where it was held:

"a constructive trust of a new model, that is, 'a trust imposed whenever justice and good conscience require it....a liberal process, founded on large principle of equity, to be applied whether the legal owner cannot conscientiously keep the property for himself alone, but ought to allow another to have the property or a share in it..... an equitable remedy by which the court can enable an aggrieved party to obtain restitution. Thus on the merits of a case a man may be treated as holding his house on constructive trust as to some share of it for his wife or his resident mistress, or a purchaser may hold the purchased property on constructive trust for a contractual licensee."

[21] Mr. Mishra responds differently. He states that the constructive trust model discussed by Lord Denning in Eves-v-Eves on 'justice and good conscience' has been subject to judicial criticism as 'vague and uncertain', unsettled law and is unsuitable to Torrens system which requires registered interest against title to be stated with certainty. In support he cited Halsbury 4th Edition Vol. 48 at paragraph 585 where the above quote was discussed and drew the attention of the court to footnote 8 to that paragraph which states as follows:

"However, it seems that the law is not settled on this point, and other authorities hold the view that it is unsatisfactory to use the vague concept of justice and good conscience to create equitable proprietary interests under constructive trusts which can have far-reaching implications for purchases and for creditors under property law and under bankruptcy law: see e.g. Re Sharpe (a bankrupt), ex-parte the trustee of the bankrupt v Sharpe [1980] I All ER I98 at 201, 204, [1980] I WLR 219 at 223, 226, per Browne-Wilkinson J; and see also Underhill's Law of Trust and Trustees (13th Edn) 273, 319-323. In New Zealand, the new broad rule of Lord Denning MR for the imposition of a constructive trust has been criticized as "a supposed rule of equity which is not only vague in its outline but which must disqualify itself from acceptance as a valid principle of jurisprudence by its total uncertainty of application and result": see Carly v Farrelly [1975] I NZLR 356 at 367, per Mahon J (Auck. SC). See also Allen v Snyder [1977] 2 NSWLR 685 (N.S.W. CA); Re McKeown [1974] NI2

[22] Mr. Mishra also submits that, the Plaintiff paid full consideration for the property after valuation and the Defendant cannot thereafter plead non est factum. He also states that a single dissenting director i.e Leah Nagan cannot plead 'trust created on justice and good conscience' when the 3rd Defendant had accepted full consideration and the majority of the Board accepts the transfer is proper. He further submits that such a situation if at all is only subjected to the internal management rule of the Plaintiff's company and there is simply no room for or basis for a constructive trust to be implied or construed.

[23] The Defendants do not allege non est factum. In fact they accept the transfer of the property for valuable consideration but state that the transfer was a result of a legal advice received from their then lawyers to permit the Plaintiff to hold the property in trust.

[24] Neil Hem Raj, who is the current Managing Director of the Plaintiff's company, former Managing Director of the 3rd Defendant and a common shareholder and director of both the Plaintiff and 3rd Defendant companies admits receiving the legal advice. On a careful consideration of the affidavit, I find that the reasons stated therein relating to the transfer are akin to reasons given by Leah Louise Nagan in her affidavit. However, he alludes that her understanding of the trust is false and baseless. Neil Hem Raj however omitted the disclosure of the events that took place since receiving the legal advice until the transfer. May be the omission was intentional or an oversight. Nevertheless, in my mind what transpired after receiving the legal advice, is the most important evidence that would assist this court to determine the crux of the issue i.e whether there exists a trust between the parties. The omission has now left the court with untested affidavit evidence, which this court should accept, only with caution.

[25] As held in the cases of Wheeler v Baldwin [1934] HCA 58; [1935] 52 CLR 609 at 622; Miller v Minister of Mines and Attorney General [1963] AC 484 at 497 and Eng Mee Yong v Letchumanan [1980] AC 331 at 335 the purpose of a caveat is to protect a caveator by preserving the status quo until the court has had the opportunity of discovering the underlining rights of the parties. I agree with Mr. Young's submissions that the Court is not required to carry out a forensic investigation of the facts and decide on credibility but only to determine whether the evidence presented does raise a serious question to be tried as held in the case of Eng Mee Young v Letchumanan (supra).

[26] Mr. Young, in support of the extension of the Caveat also draws the attention of the court to several other cases. In Re Faulke's Caveat [1906] NZGazLawRp 228; (1906) 26 NZLR 392 at 393 where Stout CJ held:

"These must be viewed in the light of the approach now taken upon applications for interlocutory injunctions as noted above, and should perhaps be regarded as establishing a standard which will ordinarily be sufficient to justify refusal of an application for removal, rather than establishing what must be shown. At page 393 Stout CJ continued more consistently with the test now adopted by holding that: 'I cannot say that the claim is so baseless or frivolous that the caveator should be denied the right to be heard.

[27] In Kelly v Bentinck (1903) 22 NZLR 235 (CA) in which Williams J stated that in an ordinary case a caveat should not be removed, unless lodged frivolously. In Eng Mee Yong v Lechumanan [1980] AC 331 at 337 Lord Diplock having drawn the analogy between a caveat and interlocutory injunction noted there was no requirement that before an interlocutory injunction is granted the plaintiff should satisfy the Court that there is a 'probability' of prima face case that if the action goes to trial he or she will succeed."

[28] I have before me conflicting affidavit evidence, which are untested. The 3rd Defendant states that the transfer was done on legal advice. I find that the transfer was executed only in 1998, albeit the legal advice was given in 1996. The valuation report has a remark, which states that the transfer was carried out for the purpose of an inter-business transfer. It is admitted that even in 2001 a permanent structure was constructed by the 3rd Defendant for its sole use. I am unable to agree with Mr. Mishra's argument that the conduct of the parties would not amount to a constructive trust. I am also unable to accept his argument that 'constructive trust model' is unsuitable to Torrens system, which requires registered interest against title to be stated with certainty. Section 106 of the Land Transfer Act recognizes that trusts could be created either expressly, impliedly or by any other way. Section 106(b) recognizes trusts could be created to hold property even after transfer. In the absence of express provisions of a trust, the court would be required to apply equitable principles to ascertain the existence of a trust. I concur with the dicta in Eves-v Eves where Lord Denning held that 'liberal process, founded on large principle of equity, to be applied whether the legal owner cannot conscientiously keep the property for himself alone, but ought to allow another to have the property or a share in it...' I am inclined to agree with Mr. Young that if the transfer was in fact executed due to legal advice as alleged by the 3rd Defendant, then the court could make a determination that the Plaintiff could hold the property in trust for the 3rd Defendant. However as held by Phillips J in her ruling dated 5th October 2007 (unreported) in the case of Otago Farms Limited v Vomo Nominees Limited Civil Action No 27 of 2007 'it would be inappropriate for the court at interlocutory stage to determine the rights of the parties to the action in a summary manner particularly where there are conflicting affidavits or where the question of a caveatable interest is distinctly an arguable one'.

[29] On consideration of all the evidence before me, I am satisfied that the 3rd Defendant has a caveatable interest, there exists a serious question to be tried, and that balance of convenience would be in favour the caveat being extended.

ORDERS

1. I order the extension of the Caveat until the final determination of the case.
   
2. The cost of this application shall be costs in the cause.
   

............................................................
Ms. D. Dias Wickramasinghe
Judge