Luthier v Kam [1984] VULawRp 14; [1980-1994] Van LR 116 (4 September 1984)

[1980-1994] Van LR 116

IN THE SUPREME COURT OF
THE REPUBLIC OF VANUATU

CIVIL JURISDICTION

Civil Case No. 98 of 1983

BETWEEN:

LOUIS LUTHIER
Plaintiff

AND:

GEORGE WONG KAM
Defendant

Coram: Chief Justice Cooke

Counsel: M de Preville for plaintiff
Mr M Newsom for defendant

JUDGMENT

[FRENCH LAW - RECEIVERS - application for attachment]

The Defendant in this case was in possession of premises belonging to the Plaintiff. On the 1st January 1983, the Defendant stopped paying the rent or he paid cheques to the Plaintiff allegedly for rent but the said cheques were worthless and returned by the bank.

The Plaintiff commenced proceedings against the Defendant on the 16th May 1983 and I gave Judgment for the Plaintiff on the 7th day of June 1983 for the sum of 1,368,880 VT, subject to any Order against the Defendant made by the Court prior to the 7th day of June 1983.

I note from the records of the Court that by a judgment of the 24th May 1983, Mr L.D. Barrett, R.G. Pauling and G.F. Phair, accountants of Coopers and Lybrand, were appointed Receivers and Managers by me to deal with the affairs of the Defendant. Since their appointment, the Receivers and Managers have not paid any rent owed by the Defendant to the Plaintiff.

Mr Newsom who appeared for the Defendant, agreed that the rent was owing but submitted that the claim of the Plaintiff must rank as an unsecured creditor and be paid pari passu with other unsecured creditors. Maître de Preville who appeared for the Plaintiff, relied on section 2102 of the French Civil Code which he contends still applies to this country by virtue of section 93 (2) of the Constitution. Section 2102 of the French Civil Code gives the Plaintiff a lien over the furniture, goods and moveable property inside the leased premises. Having a lien he does not, in my opinion, fall into the category of an unsecured creditor. He is secured under section 2102 of the French Civil Code to the extent of the value of the furniture, goods and moveable property inside the leased premises. The sum of 1,132,970 VT was received by the Receivers and Managers from the sale of furniture, goods and moveables in the leased premises.

The Plaintiff has now applied for the attachment of such sum. In my opinion, he is entitled to the said sum by virtue of the said section 2102 of the French Civil Code. I therefore Order that the said sum of 1,132,970 VT less auctioneers fees be paid to the Plaintiff by the Managers and Receivers.

FREDERICK G. COOKE
CHIEF JUSTICE

Editorial Note: A later and separate judgment was delivered in the following terms by Acting Judge Coakley on a separate application :

Coram : Acting Judge Coakley

Counsel: Mr G Vasaris for applicant
Mr P Coombe for respondents

CONSEQUENTIAL ORDERS

[MORTGAGES - REGISTRATION OF LAND]

The plaintiffs, who are the joint receivers and managers of the property of George Wong Kam and Annie Wong, seek declarations upon a summons taken out subsequent to a judgment of this court dated 4 May 1984. That judgment held that the second, third and fourth defendants had equitable interests in land and buildings contained in former certificate of title registered Number 120, of which the first defendant is the registered negotiator for the purposes of section 6 (1) of the Land Reform Regulation No. 31 of 1980; further, that the second, third and fourth defendants ranked pari passu in respect of their post - Independence loans pro rata to the amount of their outstanding loans.

As well as being the holder of a certificate of registered negotiator, the first defendant had also been issued with a document called an Approval Notice of Lease dated 2 September 1981 by the Port Vila Urban Land Corporation (abbreviated to and known as "Vulcan"). Since delivery of the judgment, it has been established that this document entitles the first defendant to the grant of a lease and excludes the payment of compensation in lieu thereof.

Mr. Vasaris, who appears on behalf of the applicants as well as for the second, third and fourth defendants, contends that the equitable interests which the second, third and fourth defendants have in the first defendant's land are, in fact, equitable mortgages, and are encumbrances within the meaning of this term as defined in the Land Reform Regulation and the Land Leases Act No. 4 of 1983. The definition in the Regulation is: " encumbrance includes a mortgage, a lease, a licence to use land for payment, a right of way or any customary or other rights over land not being rights of ownership of that land." In the Act there is a different definition which is more limited in its meaning, "encumbrance means a liability to which a registered lease is subject, and includes a sub-lease, mortgage, easement, restrictive agreement and a profit." Although Vulcan will at some future date grant a lease to the first defendant in accordance with an undertaking given to this effect, there is at the present time no lease in existence and therefore, in my opinion, the equitable interests referred to could not be encumbrances within the meaning of this term under the Act. There is a definition for "mortgage" in the Act which is: "mortgage means an interest in a registered lease given as security for the payment of money or money's worth, and includes a sub-mortgage and the instrument creating a mortgage." I think "mortgage" in this sense means a statutory legal mortgage, which is the only one contemplated under the Act.

The question, then, is: Can there be an equitable mortgage within the framework of the laws relating to land in Vanuatu? In English law an equitable mortgage is a contract for a mortgage where the legal estate does not vest in the mortgagee. A deposit of title deeds is the most common example, sometimes coupled with a written agreement to execute a mortgage if called upon to do so. Under section 50 (3) of the Land LeasesAct a statutory mortgage does not operate as a transfer of the mortgagor's interest in the land, but it is only effective as security for the monies advanced by the mortgagee. The mortgage is only completed by its registration in the Land Records office as an encumbrance, and where more than one mortgage is created by the proprietor of a registered lease, the mortgages rank according to the order in which they are presented for registration.

The provisions of the Alienated Land Act No. 12 of 1982 were intended to protect the rights of persons who had lent money on the security of alienated land. Under sections 13 and 14 thereof, they could apply to have their loans registered in a register of mortgages on presentation of the document charging the land as security for the loan. If an applicant was registered under section 15 he became a registered mortgagee, and in the circumstances outlined in section 16 (1) he became entitled to negotiate as a registered alienator with the custom owners for the lesser of either the amount due to him under the mortgage or the value of improvements. Such mortgages could not, in my view, be regarded as legal mortgages because this Act was earlier in time to the Land Leases Act, and it was only after the coming into operation of the latter Act that an alienator could hold a legal estate on the grant of a lease. It seems, therefore, that the mortgages which the 1982 Act intended to be capable of registration could only have been equitable mortgages, and consequently the concept of this type of mortgage is not incompatible with the laws of this country in so far as they relate to land.

Mr. Coombe, who appears for the first defendant, opposes the application on two grounds. First, he relies on the maxim, "Qui prior est tempore potior est jure," and cited Symmes v. Symonds [1907] 3 ER 222 in support. A commentary on this case appears in the English and Empire Digest, Vol. 35, p.318 at para. 2707 and reads, "Mortgages are not to be preferred to other real encumbrances but they shall all take place according to their priority and as they severally stand in order of time." This principle is retained in section 51(2) of the Land Leases Act, to which reference has already been made. Secondly, Mr. Coombe submits that the documentation in relation to the equitable interest of the second defendant, which is the Societe Anonyme Banque Indosuez Vanuatu, shows that French law was intended to govern the transaction; further, that as the doctrine of equity is foreign to French law, it would be impossible for this defendant to have an equitable mortgage.

The two points raised by Mr Coombe are not, in any opinion, tenable for these reasons. First, the judgment of this court is that all three banks which have made loans to the first defendant rank pari passu and that finding can only be upset on appeal. Secondly, French law has no application to these proceedings because Parliament has enacted its own laws with respect to land as provided by the Constitution of this country, and these laws must prevail. Moreover, as there has been a finding that the second defendant has an equitable interest I fail to see why this cannot be converted into an equitable mortgage if that is what this defendant actually possesses.

It is necessary to examine briefly how these defendants acquired their equitable interests. The second defendant entered into a Loan Agreement with the first defendant on 22 August 1977, and the first defendant gave an undertaking to grant a mortgage over his property. He deposited with this Bank as security the original certificate of title No. 1203, and at a later date deposited the original certificate of registered negotiator and the original approval notice of lease. The third defendant, Barclays Bank International Limited, held a Legal Charge and Deed for Further Security both dated 9 November 1982 and these documents were stamped to cover loans up to ten million vatu. The first defendant deposited with the third defendant photocopies of the certificate of registered negotiator and the approval notice of lease; he also gave an undertaking to deposit a substituted certificate of title having represented that the original certificate was lost. The fourth defendant, Australia and New Zealand Banking Group Limited, held a First Mortgage dated 19 November 1982 stamped to cover loans up to five million vatu, and the first defendant deposited as security a new certificate of title which had been issued by the Registrar of Land Titles.

The new certificate of title contained a cancelled authority dated 16 November 1982, which reads,

"After a declaration of loss made on 17th June 1982 published in the Official Gazette No. 21 dated of 5th July 1982, which arrived in Port-Vila on 5th July 1982, a new certificate of title 1203 is delivered." The Gazette Notice reads, "The Director of Land Records Office of VANUATU gives notice that after a declaration of loss made by Mr. WONG Georges Kam on the 1?th June 1982, the certificate of title No. 1203 is cancelled today and is no longer valid."

In view of the separate dealings between the first defendant of the one part and the third and fourth defendants of the other part, whereby the former was given loans of money on security being furnished, such transactions undoubtedly had all the characteristics of equitable mortgages. With regard to the Loan Agreement dated 22 August 1977 between the first defendant and the second defendant, the judgment of 4 May 1984 contains this passage, "However, under section 10 of Joint Regulation No. 3 of 1980, it was necessary to register the security otherwise the same was void ...... As that was the law which existed prior to Independence and applied to everyone in this country, in my opinion, the second Defendant cannot claim in respect of that loan, due to failure to register prior to Independence." The year 1980 is obviously an error for 1930, and the full title of the Regulation is the New Hebrides Land Registration Regulation No. 3 of 1930, which was repealed when the Land Reform Regulation was deemed to have come into operation on 31 July 1980.

The finding set out in the second part of the passage must be implemented in the orders sought by the plaintiffs though, with respect, I would have reached a different conclusion in respect of the rights of the second defendant. I express my own view with some diffidence and do so only because learned counsel for the parties, as well as the learned Attorney who has appeared as amicus curiae, have stressed the importance of the matter to the commercial community in the capital due to the absence of case authority in relation to land resulting from the constitutional changes brought about on Independence.

Section 10 of the 1930 Regulation provided that "Any transfer and any mortgage right or charge existing given or created over the land affected by the Certificate shall be void unless and until the same be registered and countersigned by the Registrar." There is no definition of "mortgage right or charge" but I do not think that these words applied in their general and broadest sense in any way limit the meaning of security, which is something given to make the enjoyment or enforcement of a right more secure or certain. (Jowitt's Dictionary of English Law, p.1604). Void means no more than that an agreement made between parties has no legal effect. As between the first and second defendants the terms of the agreement were contained in the Loan Agreement, which incorporated an undertaking to mortgage the Land, and as security the first defendant deposited the certificate of title. This accords with normal banking practice as stated in Ruoff and Roper on Registered Conveyancing, 3rd Edn. at p. 582, "Nevertheless, if, as is the case with most deposits in favour of a bank, there is a memorandum in which the depositor undertakes to execute a formal legal mortgage or a charge by way of legal mortgage and empowers the depositee to do so in case of the depositor's default, the enforcement is made easier."

Section 25 (1) of the Land Reform Regulation preserved the rights of mortgagees and other persons who had lent money with land given as security for repayment of the money lent by them prior to Independence. Section 25 (2) provides :"When an alienator enters into a lease of land with the custom owners or Government in accordance with sections 3 (1) or 13 any mortgages entered into by him at any time prior to the lease in respect of that land shall be deemed to have been made in respect of that lease and shall be construed with such adaptations as shall be necessary."

The legislature appears to have recognised two classes of lender where money had been lent with land given as security prior to Independence. First, the mortgagee who had registered his "mortgage right or charge" as required by section 10 of the 1930 Regulation; secondly, another person who had not done so. For myself, I can see no other explanation for the inclusion of the words "and other persons," which is wholly consistent with the doctrine of equitable mortgages. Furthermore, section 25 (2) makes no distinction between pre- and post-Independence loans, and the words, "....... any mortgages entered into ....... prior to the lease" can in law only mean equitable mortgages if created subsequent to Independence.

In my opinion, therefore, the security given by the first defendant to the second defendant was incapable of being registered under section 10 of the 1930 Regulation and the transaction had, like those made between the first defendant and the third and fourth defendants respectively, all the characteristics of an equitable mortgage.

The orders I make on the plaintiffs' summons are:

1. The equitable interests of the second, third and fourth defendants are "encumbrances" within the meaning of that term as defined in the Land Reform Regulation No.31 of 1980.
2. The second, third and fourth defendants are secured creditors and rank pari passu in respect of their post - Independence loans pro rata to the amount of such outstanding loans including principal and interest due as at the date of the receiving order to the exclusion of all unsecured creditors.
3. The second defendant is an unsecured creditor in respect of its pre-Independence loan and ranks pari passu with other unsecured creditors for all monies advanced by it to the first defendant prior to Independence.
4. Upon the issuance of a lease by Vulcan to the first defendant, the plaintiffs are at liberty to apply to the court for an order of sale of the property being the subject-matter of the lease.
5. Costs of the summons to the plaintiffs

4 September 1984

M.J.R. COAKLEY
AG. JUDGE