ANZ (Vanuatu) Ltd v Gougeon [1999] VUCA 15; Civil Appeal Case 06 of 1998 (8 October 1999)

IN THE COURT OF APPEAL
OF THE REPUBLIC OF VANUATU

Civil Jurisdiction

Civil Appeal Case No.6 of 1998

BETW>BETWEEN:

ANZ (VANUATU) LIMITED
Appellant

AND:

GRAZIELLA LAILLE GOUGEON
First Respondent

AND:

AIME CLAUDE MALERE
Second Respondent

AND:

REUBEN Q. TAMATA
Third Respondent

AND:

HONOURABLE JOE NATUMAN
Fourth Respondent

AND:

LEVI TAROSA
Fifth Respondent

AND:

THE GOVERNMENT
OF THE REPUBLIC OF VANUATU
Sixth Respondent

Coram: Acting Chief Justice Vincent Lunabek;
Mr. Justice J. Bruce Robertson;
Mr. Justice John von Doussa;
Mr. Justice Daniel Fatiaki.

Counsel: Mr. R.W. White S.C. and Mr. M. Hurley for the Appellant;
Ms. Susan Bothmann for the First Respondent.

Hearing: 28^th September 1999

CASE NOTE

JUDGMENT

This is an appeal from a decision delivered in the Supreme Court on the 25^th September 1998 by Mr. Justice Tompkins following a hearing the previous day.

The appeal is that of the ANZ BANK (Vanuatu) Ltd (the Bank). It relates to the Bank’s position in relation to the first respondent. The third respondent (who abides the decision of the Court) will need to put into effect the consequences of any Court orders.

There were Orders made against the second respondent (Mr. Malere) at the primary hearing in respect of which no appeal has been lodged.

In essence it is a case about the meaning and effect of parts of the Land Leases Act (CAP 163) and the determination of the priority of equitable interests of persons affected by fraudulent activity.

The factual circumstances as found by the trial judge are not in dispute. The first respondent (Madame Laille) acquired the lease-hold interest in the land in title 11/OD22/O37 on 11 March 1998.

Her interest was duly registered along with the necessary Ministerial Consent. Mme Laille resides in New Caledonia and she authorized Mr. Malere under a limited Power of Attorney to undertake all administrative steps and to sign all documents in order to acquire the property. There can be no question that it was anything but a specific Power of Attorney in respect of that acquisition and not otherwise. Mr. Malere at that time in 1988 and subsequently was renting the property from Mme Laille.

Without any authorization or approval from Mme Laille, in March 1995 a transfer of her interest to Mr. Malere was registered in the Land Record Office. It was signed by Mr. Malere both as attorney for Mme Laille and by Mr. Malere as purchaser. This transaction was a fraud. Mr. Malere executed the document on behalf of Mme Laille without her knowledge or authority. It was clearly contrary to the terms and conditions of his 1988 authority which was only in connection with the acquisition. The alleged price paid of 6 Million Vatu was never received by Mme Laille.

In October 1993, Mme Laille had received a letter from the Lands Department advising her that Mr. Malere had made application to transfer the property to himself and seeking confirmation that this was correct. She was also told that land rental had not been paid by Mr. Malere as he was obliged to under the renting arrangement. Mme Laille said she replied to this letter and advised that she had not sold the property and did not intend to do so. She said that she had not received any payment and noted that rental payments were in arrears. She also noted that the only authorization Mr. Malere had was for the sole purpose of her acquiring the property. Neither the letter to her nor the reply were produced at the trial.

There was available to the Court a letter written on behalf of the third respondent, the Director of Lands, in which the writer referred to the existence of what she called a power of attorney relating to the property and expressing her opinion that it was a general Power of Attorney. She enclosed a form to revoke it. Where the writer of that letter got the idea that it was a general power of attorney nobody knows and clearly she was wrong.

Mme Laille says that notwithstanding this clear misapprehension she completed the form of revocation before her lawyer. What became of it nobody knows because it certainly did not reach the Land Record Office.

The primary Judge found that Mme Laille when in Port-Vila in November 1994 had spoken to Mr. Malere and made it clear that she was not selling the property to him. She demanded the outstanding moneys which were owed to her for unpaid rent. Despite a promise to remedy the default by Mr. Malere no payment materialized.

Notwithstanding all of this Mme Laille received a letter dated 9 January 1995 from the Lands Department which said:-

"A Transfer of Lease subject to title 11/OD22/O37 owned by Mrs Graziella Laille epouse Gougeon in favour of Mr. Aime Claude Malere has been signed and is ready to be lodged for registration. Mr. Aime Claude Malere has used the Power of Attorney given to him by yourself, to sign the instrument of Transfer of Lease from your name in his favour.

You are given a period of 30 days as from the date of this letter, to confirm your confirmation relating to this transfer, particularly on your approval for Mr. Aime Claude Malere to use his Power of Attorney as representative."

Mme Laille on 31^st January 1995 called on the Consulate of Vanuatu in Noumea and completed another notice of revocation of authorization which was witnessed by the Consul and on her behalf he sent it to Vila probably on that very day. He said it was probably sent by fax to the Minister or the Director of Land. The original of the document was sent through normal diplomatic channels to the Ministry of Lands via Foreign Affairs. The Consul told Mme Laille he had spoken to the Minister and that no transfer would take place.

The Director of the Land Record Office said he never received any of these notifications and it appears clear that in the absence of any direct response from Mme Laille the registration of the transfer to the name of Mr. Malere was completed on 21^st March 1995, the Minister’s consent having previously been obtained.

In May 1995 Mr. Malere and his wife borrowed 26 Million Vatu from the Bank. Among the securities for that advance was the subject property. The Mortgage was duly signed on 30^th May 1995. There is no evidence that the Bank checked the register but it is common ground that if it had it would have found that Mr. Malere’s name was on the register. Although the Mortgage was in registrable form it was not registered.

The proceeding herein which were commenced in May 1996 boiled down to the fact that Mme Laille wanted the property registered back in her name whereas the Bank wanted its mortgage security to be registered. In the course of the appeal it became clear that the Bank was not actively opposing Mme Laille getting back on the register provided that the Bank’s mortgage interest was secured and her ownership of the property was subject to the mortgage.

The evidence available before the Court does not make clear exactly what position exists between Mr. Malere and the Bank today. We acknowledge that as a matter of pure law the Courts are required to determine the competing entitlements and if the Bank has other securities there are mechanisms for enforcing the Bank rights to recover any loss it has incurred. It could in some circumstances be required to account to Mr. Malere and indirectly also to Mme Laille.

We imagine it is probable that whatever the position, those other securities are insufficient to satisfy the money owing by Mr. Malere to the Bank especially as it will be linked with the interest which will have accumulated during the ensuing years. It is perhaps regrettable that this reality of the position did not receive greater attention. Particularly in a jurisdiction such as this, it is essential that litigants in Court cut to the heart of a dispute and ensure that in accordance with law the fundamental requirements contained in Article 47 of the Constitution are recognized and given effect. Principle and rights are at the core but finding practical, just and pragmatic solutions to human problems is the preferred route.

The problem in legal terms can be expressed in simple form. The person who is recorded on the register is Mr. Malere. There is no doubt that his registration was as a result of fraud. He has the only legal interest which is there. Accordingly it is clear that the provisions of section 100 of the Act must be exercised to rectify the record. The position of both Mme Laille as the person whose interest was defeated by reason of the fraud and the Bank which made an advance on the belief and understanding that Mr. Malere was lawfully on the register are each interests in equity.

The real question is which of the equities is to prevail?

In the course of argument on both sides we were provided with detailed and careful submissions based on the principles considered by the Privy Council in Frazer v. Walker (1967) AC 569 and various decisions in England, Australia and New Zealand on indefeasibility and as to the issue of priority between the holders of equitable rights or interests.

The Court will have regard to and seek assistance from principles which have developed in other jurisdictions, especially when they are the historical basis for the present legislation in this Republic. However as was noted in parallel circumstances by the Supreme Court of Papua New Guinea in Emas Estate PTY Ltd v. John Mea (1993) PNG LR 215 by Amet J (as he then was) in his judgment p. 219-

"The issue in this case raise for consideration the principle of indefeasibility of title under the Torrens land registration system that hitherto has been applied in this jurisdiction. I do not believe that the system is necessarily appropriate in circumstances such as this, where an individual land owner is deprived of his title to land by irregular procedure on the part of officials and a department of the State, to the advantage of a private corporation. I do not accept that quite clear irregularities and breaches of the statutory provision should remain indefeasible. I believe that, although those irregularities and illegalities might not amount strictly to fraud, they should, nevertheless, still be good grounds for invalidating subsequent registration, which should not be allowed to stand. To not do so would be harsh and oppressive against the innocent individual leaseholder, such as the first respondent.

I disagree with the further contention on the part of the appellant that damages are adequate remedy for the aggrieved first respondent. I do not believe this is a satisfactory remedy for the wrong done to the first respondent. It is not an easy task to pursue a claim for damages against the State which is quite costly. Similarly, I do not necessarily accept that, quite simply because the appellant, a private corporation, has incurred expenses and mortgaged the property, it would suffer greater prejudice and damage which a remedy of damages could not rectify, as against the first respondent doing the same."

And at p. 228 in the same case Salika J said:-

"I agree, in principle, that where a title has been registered under one’s name, it is not capable of being annulled, except where title has been acquired through fraud. I think other exceptions suitable for Papua New Guinea circumstances should be included such as:-

1. where title has been registered fraudulently
2. where title has been registered while a court or tribunal is deliberating on the subject land
3. where title has been registered under influence of position of power or money
4. where title has been registered under circumstances giving rise to possible breach of principles of natural justice.

I lay out these conditions because land is a very important commodity in this country. Government land is very scarce in this country, and people or corporations applying for lease of government land must be seen to be allocated such land without any fraud or outside influence, but simply on the merits."

Simply put by Mr. White the question in this case was whether the Bank’s interest under an unregistered mortgage awaiting registration had priority over Mme Laille’s right under section 100 of the Land Leases Act to apply to have the register rectified by cancelling the registration in the name of Mr. Malere.

Section 15 of Land Leases Act provides:

"The rights of a proprietor of a registered interest, whether acquired on first registration or subsequently for valuable consideration… shall be rights not liable to be defeated except as provided in this Act, and shall be held by the proprietor… free from all other interests and claims whatsoever, but subject-

(a) to the encumbrances and to the conditions and restrictions shown in the register;

(b) unless the contrary is expressed in the register, to such of the liabilities, rights and interests as are declared by this Act not to require registration and are subsisting."

Section 16 provides:-

"Every person who has acquired a registered interest by transfer without valuable consideration, shall hold it subject to any unregistered rights or interests subject to which the transferor held it and subject also to the provisions of any law relating to bankruptcy or the winding up of companies, but save as aforesaid, such transfer shall in all respects have the same effect as a transfer for valuable consideration."

The combined effect of those two sections is that, although the transfer to Mr. Malere was not for valuable consideration, the transfer to him was in all respects of the same effect as if it had been. As such, he holds the legal title on the said land.

Section 100 of the Act provides:-

(1) Subject to sub-section (2) the Court may order rectification of the register by directing that any registration be cancelled or amended where it is so empowered by this Act or where it is satisfied that any registration has been obtained, made or admitted by fraud or mistake.

(2) The register shall not be rectified so as to affect the title of a proprietor who is in possession and acquired the interest for valuable consideration, unless such proprietor had knowledge of the omission, fraud or mistake in consequence of which the rectification is sought, or caused such omission, fraud or mistake or substantially contributed to it by his act, neglect or default."

There really was no argument before us that although unlawfully and improperly achieved, Mr. Malere was on the register and, subject to rectification, the rights provided by the Act necessarily flowed from that registration.

Mr. White argued that the right which Mme Laille had was a ‘mere equity’ of the sort discussed as early as Philips v. Philips [1861] EngR 1044; (1861) 4 De GF & J 208 and in more recent cases. It is particularly submitted that the primary judge in this case misunderstood what was said by Kitto J in Latec Investments Ltd v. Hotel Terrigal Pty Ltd [1965] HCA 17; (1965) 113 CLR 265 on this aspect of the case.

Counsel argued before us that on a better consideration of the competing authorities Mme Laille should be treated as having a mere equity (i.e. personal right), whereas the Bank as the holder of an unregistered mortgage had an equitable interest or estate in the land which was of a higher status. Therefore the issue of priority between the two interests in equity did not arise. The contention was that the Bank’s interest was of a different quality than that of Mme. Laille which made it pre-eminent in law.

We have concluded that although principle and precedent are essential it is important not to lose sight of the factual situation. On the findings as made in the lower Court in the present case Mme Laille was entirely innocent in the fraudulent transfer initiated by Mr. Malere and quite wrongly put into effect by those responsible for keeping the Land Records.

Her prior dealing with Mr. Malere provided no proper vehicle for him to abuse the situation. Even when he tried to act wrongfully and illegally, if those responsible for the operation of the Land Register had properly interpreted what was presented to them, they would never have registered the transfer.

Further the primary Judge found that Mme Laille took all proper and necessary steps to protect her position. Therefore the argument advanced on appeal by Mr. White of her failing to take steps which would have prevented the fraud when she knew it was in contemplation cannot be sustained.

The lodging of a caution by Mme Laille under section 93(1)(a) is not an attractive argument. She was the registered holder of the lease hold interest. There was no document which enabled anyone else lawfully to transfer it away from her. She took steps consistent with her position as a non-resident and indirectly with Mr. Malere in respect of her situation. Although we accept that as a theoretical proposition, a registered proprietor of an interest in land may lodge a caution, we are of the view that the failure to do so here cannot be held against Mme Laille in the circumstances which existed.

We do not find the decision in Abigail v. Lapin [1934] UKPCHCA 1; (1934) 51 CLR 58 of assistance in determining this aspect. The problem which arose in that case was substantially of the making of the party which was disadvantaged. That party had given transfers in absolute form to the fraudulent party which enabled the fraud to occur. The fact that Mr. Malere, with a document which could not do what he purported to do with it, was able to achieve a fraud was only because of the error of the government official and is in a totally different category.

We are therefore of the view that the issue to be determined is which of the two rights in equity is to be given priority.

It is important to note that whether an interest is a mere equity or an equitable estate or interest in the property depends on the circumstances of the case as has been noted by the learned author of "The Principles of Equity" edited by Prof. Parkinson (1996) at 82:-

"The classification of an equitable right as an equitable interest or a mere equity only relates to that interest in that particular context. "

There is not some absolute, immutable and inflexible straight jacket which defines an equitable right for all cases in all circumstances.

In the overseas cases there are clear divergences of view as to how the right to rectify (of the type contained in our section 100) is to be categorized or classified. Blacklock v. JB Developments [1982] Ch 183 is an example of it being classified as a ‘mere equity’ although even in that case it was recognized that the equity of rectification may be classified according to the purpose it is to serve.

It is clear that in Breskvar v. Wall [1971] 126 CLR 376 the argument is certainly left open by Barwick CJ. It notes that the decision really turns on the nature of the particular context rather than on an absolute rule of classification.

The same point is emphasized in the following passage from the ‘Principles of Equity’ (cited above), at 81, which is pertinent to the facts of this case:

"A further reason for classifying certain equitable rights as "mere equities" is that their position in giving rise to an equitable interest in the property depends on the circumstances of the case. The right to set aside a transaction for fraud or undue influence may be characterised as an equitable interest only if it is the transferor of that property who is entitled to set the transfer aside. The transferor will be treated as having never parted with that property in equity, despite the transfer of the property at law. In this sense, the transferor’s equitable interest in the subject property subsists."

Ms Bothmann accepted that if her client’s interest was a lesser interest the general rule was that the equitable estate would take priority.

Equally both counsel, accepted that if the interests were of equal value or weight then that of Mme Laille being first in time would take priority.

At the heart of the appellant’s arguments before us was the fact the appellant had an interest which was complete and effective save merely for entry on the register where as that of Mme Laille required the specific intervention of the Court to exercise the power under section 100 and therefore was of a lesser quality.

We are not satisfied that equity is constrained by some immutable system of categorization or pigeon-holing. A number of decisions have recognized the importance of weighing the particular circumstances of individual cases.

Mme Laille lost her position on the register by reason of the fraudulent activities of Mr. Malere coupled with the wrongful actions of the Government Department responsible for maintaining the record. The Bank on the evidence had not searched the record. Without taking that precautionary step it was prepared to advance money to Mr. Malere and his wife on the basis of a variety of securities including this one. Had there been registration the position would have been different because the operation of the Act would have provided a different legal situation. The Bank’s interest therefore is also in equity.

We are not satisfied that the Bank’s so-called ‘advantageous’ position which was created by Mr. Malere, is, in the peculiar circumstances of this case, to be elevated above the equitable position of Mme Laille whose legal interest was fraudulently and improperly removed from the register.

We conclude that both Mme Laille and the Bank each has an interest in equity. The label to be put on each is of lesser importance than the factual reality. In this case we are unwilling to value the one above the other. Accordingly the general principle that the first in time will prevail must have application.

We are accordingly of the view that the primary judge was right to order that the register be rectified and the registration of the transfer of the land from Mme Laille to Mr. Malere should be cancelled.

In the course of the hearing in the Supreme Court the ANZ Bank had itself non suited on a claim for indemnity against the Government. It is free to pursue that right. On the present evidence it is clear that it was because of the incompetent behavior of officers of the Government that the transfer to Mr. Malere could be registered.

The first respondent is entitled to costs against the appellant. No other costs orders are necessary in the circumstances.

DATED AT PORT-VILA, this 8th DAY of OCTOBER, 1999

VINCENT LUNABEK, ACJ
J. BRUCERTSON, J
J JOHN von DOUSSA, J
DANIEL FATIAKI, J