Hatanga Ltd v KCM Properties Ltd [2007] SBHC 10; HCSI-CC 134 of 2006 (4 April 2007)

IN THE HIGH COURT OF SOLOMON ISLANDS

CIVIL CASE NO: 134 OF 2006

BETWEEN:

HATANGA LIMITED
Plaintiff

AND:

KCM PROPERTIES LIMITED
First Defendant

AND:

NATIONAL BANK OF SOLOMON ISLANDS LIMITED
Second Defendant

AND:

REGISTRAR OF TITLES
Third Defendant

Date of Hearing: 21 and 26 March 2007
Date of Decision: 4 April 2007

Mr Radclyffe for plaintiff
Mr Lavery for first defendant
Mr Katahanas for second defendant

DECISION ON PRELIMINARY QUESTION
OF LAW APPLICATION

Cameron PJ

Introduction

1	The National Bank of Solomon Islands Ltd applies for certain points of law to be heard and determined as preliminary questions.
2	The case concerns the sale of land to KCM Properties Ltd. Hatanga Ltd, the original owner, says that the land was fraudulently sold to KCM. It asserts that one of Hatanga’s directors arranged the sale without its authority or knowledge, and that the signatures witnessing the company’s seal on the transfer are forgeries.
3	Hatanga seeks the return of the land to it. It does this by asking the Court to cancel the registration of KCM as the new owner. It also seeks the cancellation of a charge registered in favour of the Bank, which charge secures a loan obtained by the new owner.
4	The Bank’s position is that whether or not the sale was fraudulent, it has a valid charge over the land which cannot be removed by this Court. It seeks to have that question determined as a preliminary point of law.
5	It appears to be accepted by all parties that the Bank knew nothing of any fraud and acted in good faith throughout. I approach the matter on that basis.
Whether the Bank’s Charge Remains Valid Regardless
6	Section 229(2) of the Land and Titles Act prohibits the Court from rectifying a land register "so as to affect the title of an owner who is in possession and acquired the interest for valuable consideration", unless the owner is tainted by any fraud or mistake.
7	The Bank’s position is that as the holder of the charge it is "an owner who is in possession". It says that as it is not tainted by any fraud the Court has no power to order the removal of its charge.
8	It is accepted by all parties that there has been no default by KCM in making repayments under the loan. Therefore, circumstances which may have permitted the Bank to enter into possession have not yet arisen. In light of this, it is a little surprising that the Bank asserts that as a matter of law it is, nevertheless, "an owner who is in possession".
9	The Bank is of course perfectly entitled to maintain and argue that position, but it is a question of the appropriate time to hear that argument.
10	My main concern about the application is that the Court is being asked to decide a hypothetical question ahead of the trial.
11	The Bank’s response to this concern is that it is not hypothetical in the sense that if the question is determined now in the Bank’s favour, the Bank can drop out of the case and that will streamline the process.
12	However, it is only if a fraudulent sale is established that the question of what effect this may have on the Bank’s security will arise. If at trial no fraud is established, then necessarily the Bank’s security will remain intact. In other words, the question which the Bank wants the Court to answer now is in reality "if fraud is established, will the charge remain valid?"
13	If the Bank’s position is correct then that potentially would have far reaching effects for lending institutions and those who deal in land. To hear and determine that question without the factual foundation for it having yet arisen would be inappropriate, unless there were compelling reasons to do so.
14	The present case is quite different from Carl Zeiss Stiftung v Herbert Smith & Co. and Others [1968] 3WLR 281. In that case, there was an assertion from the plaintiffs in a passing off action that the legal costs of the defence were impressed with a trust in favour of the plaintiff and ought to be disgorged by the defendant’s solicitors. This assertion compromised the solicitor’s continuing role in the defence of the case, in that they could not be confident of retaining their fees while the matter remained unresolved. The Court of Appeal had no hesitation in accepting that the matter should be heard urgently as a preliminary point.
15	I see no need for urgency in having the Bank’s position looked at separately at this stage. It is continuing to receive repayments under its loan and has not been able to point to any prejudice in having to await a trial.
16	It is argued for the Bank that there may well be a saving of time and cost to all parties by the Court hearing and determining now the question posed. I am unconvinced that this will be the case.
17	The Bank argues that if it remains a party (which it necessarily will if I refuse this application) then the trial is likely to be longer than it might otherwise have been. He submits that the trial will be lengthy in any event, and that by hearing the question now there is the prospect of a much shorter trial.
18	I do not accept this. I consider the case to be a straightforward one of whether or not a fraud has occurred (signatures purporting to witness the company’s seal on the transfer have either been forged or not), who may have had knowledge of that, and what should be the appropriate orders as a result. Because the points are narrow, it is likely that the trial will be relatively short. In any event, I cannot see that it would be significantly lengthened by the Bank remaining a party.
19	If the Bank is concerned about the cost of having its counsel sit through a trial having as its main focus the question of whether a fraud has been committed as between two other parties, then there are steps which could be taken to alleviate that situation.
20	If the Bank is confident with its position that whether or not a fraud has been committed its charge remains intact in law then there would be nothing to prevent its counsel from applying at trial to be excused during the whole or part of the evidence. Counsel would then be able to return at the conclusion of the case to make submissions in support of the Bank’s argument.
Caveat
21	There is a further question which the Bank identifies as one which ought to be heard and determined now. That is whether a caveat lodged by the original owner Hatanga, and registered after the Bank’s charge, ought to be removed as disclosing no caveatable interest.
22	I find this assertion surprising too, given that the caveat was lodged by the original owner to protect its interests pending the determination by this Court as to whether or not the sale was fraudulent.
23	In any event, there is no suggestion by any party of any intended dealings with the land, so allowing the caveat to remain is not frustrating the intentions of any party.
Conclusion
24.	For these reasons I exercise my discretion in refusing the application. Costs are reserved.
By The Court