Gemstar Seafood Ltd v Bycroft [2002] SBCA 4; CA-CAC 11 of 2001 (15 February 2002)

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NATURE OF JURISDICTION	Appeal from Judgment of the High Court of Solomon Islands (Sir John Muria C.J.)
COURT FILE No	Civil Appeal No 11 of 2001 (On appeal from High Court Civil Case No 370 of 1999)
DATE OF HEARING	17th December 2001
DATE OF DELIVERY OF JUDGMENT	15th February 2002
THE COURT	Lord Slynn of Hadley P, McPherson JA, Williams JA
PARTIES	GEMSTAR SEAFOOD Ltd (appellant) V ROBIN BYCROFT (respondent)
Advocates:	Mr. Hamson QC and Ashley for appellant Mr. McGuire for respondent
Key Words:	Charge over land in Solomon Islands – charge not registered – enforceable in equity – Power of attorney – mortgage in equity - enforcement – Land and Titles Act section 112(2), 116, 117, 164, 170 and 171 – enforceable as charge pursuant to Act.
Ex tempore/reserved:	Reserve
Allowed/Dismissed:	Allowed
Pages:	1-7

LORD SLYNN OF HADLEY P, McPHERSON JA and WILLIAMS JA: The appellant (plaintiff at first instance) commenced an action seeking an order that the respondent (defendant at first instance) “withdraw the Solomon Star advertisement on or before 12 November 1999” and that he be restrained “from accepting any offer as a result of the said advertisement”. In addition an order was sought that the respondent was in breach of a Deed between the parties dated 15 July 1999 and also in breach of the Land and Titles Act. By his defence and, counterclaim the respondent disputed that the appellant was entitled to the orders it sought, and counterclaimed for the sum of AUD 410,000.00 as monies due and owing, acknowledged by the aforesaid Deed.

After a trial, the learned Chief Justice, for reasons which he published, made the following orders:

2. Judgment be entered for the defendant on his counterclaim in the sum of AUD 410,000.00;

3. In the event that the judgment sum or any part thereof shall remain unsatisfied the Defendant is entitled to enforce the said judgment under the provisions of the Deed of Acknowledgement of Debt and Forbearance;

The appellant appealed against that decision contending in the Notice of Appeal that the learned Chief Justice erred in dismissing its claim and also in giving judgment for the respondent on his counterclaim. When the appeal came on for hearing Mr. Hampson QC for the appellant abandoned any challenge to the judgment on the counterclaim. In consequence the judgment for AUD 410,000.00 in favour of the respondent must stand. However, serious questions were raised with respect to the judgment insofar as it dismissed the appellant’s claim.

The critical document is the Deed of Acknowledgment of Debt and Forbearance executed between the parties on 15 July 1999. It acknowledged that the appellant owed the respondent AUD 410,000.00 and provided that the respondent would undergo any debt which exceeded that sum. The deed also acknowledged that the respondent would “forbear for a period beginning from the date hereof until September 1999 .... from demanding payment of the Debt or otherwise exercising its rights to recover same”. The following are critical provisions for present purposes:

“ ‘Security Property’ means the Debtors Fixed Term Estate Property situated at Gizo, Western Province being Parcel No, 097-005-147 and 097 -005-93, ...

To ensure the better performance of the covenants herein contained the Debtor will on request and at the expense of the Debtor execute any ... Charge ... requested by Bycroft over such Security Property ......in order better to secure to Bycroft repayment of the principal interest and other monies payable under this Deed ...

The Debtor hereby authorises Bycroft as agent and attorney for the Debtor on and from 30 September, 1999 to sell the security property either by public tender or by auction or in the name of the Debtor and without further proof as to the quantum of the debt hereby secured to apply the nett proceeds ... as follows ...

As security for the payment of all monies payable hereunder, the Debtor hereby irrevocably appoints Bycroft the attorney of the Debtor to execute on behalf of the Debtor any instrument which the Debtor is required by this Deed to execute notwithstanding any request to the Debtor to execute any such instrument or the execution by the Debtor of any such instrument”.

The respondent lodged that Deed with the Registrar of Titles who) on 15 October 1999, registered the Power of Attorney contained therein pursuant to s 207(3) of the Land and Titles Act. It is sufficient to note that such registration in no way affected the legal character of the Deed; its only consequence was that the Registrar of Titles could accept for registration purposes any dealing with the land in question executed pursuant to the Power of Attorney.

It should also be noted that at the request of the respondent the appellant executed on 15 July 1999 in compliance with its obligations under the Deed a Charge in registrable form over the lands defined in the Deed as the “Security Property”. That Charge was duly stamped on 16 July 1999 and lodged for registration under the Land and Titles Act on 18 August 1999. On that date the appropriate registration fee was paid. However, for some unexplained reason the Charge has never been registered. To protect his interests with respect to that Charge the respondent lodged a caveat over the lands in question on 12 April 2000.

Though the matter is not essential to the resolution of the appeal, and bearing in mind that no submissions were heard from the Registrar of Titles, it should be observed that the system of land title registration can only operate properly and efficiently if dealings are promptly registered on the title. If there is some defect in the document lodged then there should be a clear ruling on it by the Registrar of Titles; the dealing should not be left merely unregistered for a period of in excess of 2 years. The courts cannot allow what is prima facie an unacceptable situation affecting as it does legal entitlements to land to continue. The remedy is to a large extent in the hands of the person lodging the document in question and the courts may have to consider exercising powers directing the Registrar of Titles to act according to law in handling such matters.

At 12 November 1999, as the judgment for AUD 410,000.00 demonstrates, the appellant was in default under the terms of the Deed. In consequence, in November 1999 the respondent advertised the “Security Property” for sale by public tender. It was that which precipitated the appellant commencing the action.

The contention of the appellant is that the Deed in law constitutes an equitable charge over the property in question and that, as it is not registered under the Land and Titles Act, the respondent cannot lawfully sell the land relying on the terms thereof.

There is ample authority that a power of attorney given to a creditor to sell property of the debtor and discharge a debt out of the proceeds of sale is in law an equitable charge. The earliest relevant authority appears to be re Cook; ex parte Hodgson [1821] G1 & J 12. There the debtor gave the creditor a written authority to sell certain property and apply the proceeds in satisfaction of the debt. The Vice-Chancellor (Sir John Leach) held that the authority constituted a mortgage in equity.

In Spooners v Sandilands [1842] EngR 327; [1842] 1 Y & CCC 390; 62 ER 939, a power of attorney was given by a surety to the creditor authorising the creditor to take possession of a rectory and glebe lands and to hold such possession and receive the profits therefrom until the debt was discharged. The Vice-Chancellor (Sir J L Knight Bruce) held that “the instrument in question amounts to a contract to charge the freehold hereditaments in question ... It is impossible to doubt that this was the intention of the parties, and I think this intention has been carried into effect, and that, therefore, there must be the usual account as in a foreclosure suit, where the mortgagee is in possession ...”. A similar issue arose in Abbott v Stratten [1846] Jo & Lat 603. There the debtor gave to the creditor a letter of attorney authorising the latter to receive the rents and profits of her estates and subsequently acknowledged that the letter of attorney was given for the repayment of the money borrowed. The Lord Chancellor (Lord Sugden) at 612, said that he had no doubt that there was a clear agreement to secure the money on the land and that in consequence there was an equitable mortgage.

A similar conclusion was reached by the Lord Chancellor and the Lord Justices of Appeal in re Parkinson’s Estate [1865] 13 LT 26. There the debtor executed a power of attorney to secure repayment of the debt, whereby he authorised the creditor “to sell, let, lease, mortgage or pledge” the properties in question and provided that the power of attorney should be irrevocable until the whole of the debt was satisfied. The Lord Chancellor is merely reported as saying: “This is undoubtedly an equitable mortgage; no question about it”.

Those authorities are cited in leading Australian text books on the law of mortgages in support of the proposition that a power of attorney to a creditor authorising him to repay himself out of the surplus proceeds of the sale of property constitutes an equitable charge (Sykes, The Law of Securities (2nd Ed) 113 and Fisher and Lightwood’s, Law of Mortgage (Aust. Ed) at 30).

It follows from those authorities that the Deed in question here created an equitable charge in favour of the respondent. The exercise of the power of sale so conferred would therefore constitute the enforcement of a charge. As already noted the Deed was not registered as a charge pursuant to the provisions of the Land and Titles Act; the registration as a Power of Attorney was irrelevant in that regard.

The critical provisions of the Land and Titles Act for present purposes are the Following:

“112(2) The owner of a perpetual estate may, subject to the provisions of this Act, dispose of it either in whole or in part ... in any manner he thinks fit;

(a) a disposition by way of security for the payment of money shall be made by way of a charge in accordance with the provisions of this Act;

116(1) Subject to the provisions of subsection (2), every instrument ..... charging ...... a registered interest in land shall be registered.

117(1) No registered interest in land shall be capable of being ..... disposed of except in accordance with this Act and every attempt to ..... dispose of such interest otherwise than in accordance with this Act shall be ineffectual to create ....... any such interest.

(2) Nothing in this section shall be construed as preventing any unregistered instrument from operating as a contract ... 163(1) An owner may, by an instrument in the prescribed .form, charge his estate ... to secure the payment of an existing ... debt ....

(2) The charge shall be completed by its registration as an encumbrance and the registration of the person in whose favour it is created as the chargee and by filing the instrument.

(3) A charge shall not operate as a transfer but shall have effect as a security only.

164(1) An owner of a registered interest may not create any security for the payment of money enforceable against that interest other than a charge under and in accordance with this Part.

(3) A security for the payment of money purporting to be enforceable against a registered interest, which is created otherwise than by way of charge, or a charge which is not registered, may give rise to a personal liability, but shall not be enforceable under this Part.

170 Any principal sum or interest due under a charge may, subject to the provisions of s 171(4) be recovered by action in any court.

171(1) A charge may be enforced upon application to the High Court, and not otherwise.

(a) empowering the chargee ... to sell and transfer the interest charged, and providing for the manner in which the sale is to be effected and the proceeds of the sale applied.”

The Privy Council in Rahman v Hassan [1917] AC 209, considered legislation in broadly similar form to that outlined above. The appeal was from the system of registration of titles in force in the Federated Malay State of Selangor. Section 4 of the Registration of Titles Regulation, 1891, relevantly provide:

“After the coming into operation of this Regulation, all land which is comprised in any grant ... shall be subject to this Regulation and shall not be capable of being ... charged ... except in accordance with the provisions of this Regulation, and every attempt to ... charge ... the same, except as aforesaid, shall be null and void and of none effect .....”.

“Whenever any land is intended to be charged or made security in favour of any person, the proprietor shall execute a charge in the form contained in Schedule E, which must be registered as hereinbefore provided”.

An agreement between the parties provided that, as security for a debt, land of which the debtor was registered as a owner should be transferred to the creditor, and that it should be a condition of the agreement that if the debtor repaid the debt within 6 months the land should be re-conveyed to him, otherwise the agreement should be void. A transfer of the land to the creditor in the form provided by the Regulation was executed upon the execution of the agreement and was duly registered. Relevantly the Privy Council said at 214-215:

“Now the agreement under discussion was not in the form of Schedule E, and therefore could not be and was not registered. It is therefore clear that it conferred no real right in the land, which remained after the transfer duly registered as the unburdened property of the defendant. But when that is said Section 4 has no further application. It does not profess to prohibit and strike at contracts in reference to land, provided that such contracts cannot be construed as attempting to ... charge ... the land itself. In other words, it is contracts or conveyances which, but for the section, might be held to create real rights in a party to the contract or conveyance which alone are struck at ... The agreement is valueless as a transfer or burdening instrument, but it is good as a contract”.

That reasoning applies to the situation here. The Deed, not being registered, is ineffectual to create a charge enforceable against the security property. Any attempt by the respondent to sell the land would amount to the enforcement of an equitable charge contrary to the provisions of the Act, particularly sections 164 and 171 thereof. Mr. McGuire, for the respondent, was unable to present to the court any argument to the contrary.

Before the respondent could exercise power of sale pursuant to the Power of Attorney contained in the Deed, that Deed would have to be registered; then the charge could only be enforced pursuant to s 171 of the Act. If the collateral charge lodged for registration was in fact registered then it could also be enforced pursuant to s 171 of the Act.

It should also be noted that the judgment for AUD 410,000.00 could be made the subject of a writ of execution; of course a sheriff’s sale would not infringe the quoted provisions of the Act.

It follows that the appeal must be allowed, but only to the extent that paras 1, 3 and 4 of the order of the learned Chief Justice be set aside. In lieu of paras 1 and 3 thereof the following declarations should be made:

(i) Declare that the defendant Robin Bycroft is not entitled to sell the “Security Property” defined in the Deed of Acknowledgement of Debt and Forbearance executed between the parties on 15 July 1999 unless and until the Deed is registered as a charge under the provisions of the Land and Titles Act, and is then only entitled to enforce the charge pursuant to the provisions of that Act;

(ii) Declare that the defendant Robin Bycroft is not lawfully entitled to accept any offer as a result of the advertisement which appeared in the Solomon Star in November 1999.

It follows that each party should have succeeded to some extent at trial. It is clear from the record that much of the time at trial was taken up with evidence relating to the indebtedness of the appellant to the respondent and the quantum of any such debt. That is an issue on which the respondent succeeded. We are of the view that in the interests of finality an order should now be made as to the disposition of the costs at trial without leaving the matter to be determined on taxation. Though it involves adopting what could be described as a broad brush approach ordering that the appellant recover one-third of its costs of and incidental to the trial and that the respondent recover two-thirds of his costs of and incidental to the trial fairly reflects the time taken at trial with respect to the issues on which each succeeded.

There is one further matter to be disposed of. The respondent was desirous of enforcing his monetary judgment and the appellant sought a stay of execution pending appeal. By the Notice of Appeal the appellant maintained its maximum liability was for AUD 100,000.00. On applications to the Registrar heard 6 September 2001 and 28 September 2001 orders were made that the appellant pay into Court SI$23,000.00 as security for the costs of the appeal, SI$7,000.00 as security for costs of preparation of the record, and SI$370,000.00 to abide any money judgment resulting from the appeal. On the basis of those payments an order was made staying execution pending the determination of the appeal.

There was a dispute between the parties as to the disposition of the SI$370,000.00 if the appellant was successful on the issues argued on the hearing of the appeal. As noted above the judgment for AUD 410,000.00 stands and in our view the SI$370,000.00 should be paid out to the respondent.

1. Allow the appeal to the extent of setting aside paras 1, 3 and 4of the judgment of the Court at first instance and in lieu thereof orders as follows:

(i) declare that the defendant Robin Bycroft is not entitled to sell without an order of the High Court the “Security Property” defined in the Deed of Acknowledgement of Debt and Forbearance executed between the parties on 15th July 1999 unless and until the Deed is registered as a Charge under the provision of the Land and Titles Act and is then only entitled to enforce the charge pursuant to the provisions of that Act;

(ii) declare that the defendant Robin Bycroft is not lawfully entitled to accept any offer as a result of the advertisement which appears in the Solomon Star in November 1999 without an order of the High Court;

(iii) order that the defendant pay to the plaintiff one-third of its taxed costs of and incidental to the trial of the action;

2. Order that the sum of SI$370,000.00 paid into Court by the appellant be paid out to the solicitors for the respondent in part satisfaction of the judgment in favour of the respondent for AUD 410,000.00.

3. Order that the respondent pay the appellant’s costs of and incidental to the appeal to be taxed.

Court of Appeal of Solomon Islands

Gemstar Seafood Ltd v Bycroft [2002] SBCA 4; CA-CAC 11 of 2001 (15 February 2002)