Inter-Pacific Investments Ltd v Sulis [2007] VUSC 6; Civil Case 72 of 2005 (22 March 2007)

IN THE SUPREME COURT
OF THE REPUBLIC OF VANUATU
(Civil Jurisdiction)

Civil Case No.72 of 2005

BETWEEN:

INTER-PACIFIC INVESTMENTS LIMITED
Claimant

AND:

CHRIS SULIS
First Defendant

AND:

GOVERNMENT OF VANUATU
Second Defendant

Coram: Justice C. N. Tuohy

Dates of Hearing: 15 & 16 February 2007
Date of Decision: 22 March 2007

Council: Mr. James Tari for Claimant
Mr. Rosewarne for First Defendant
Mr. Frederic Loughman for Second Defendant

RESERVED JUDGMENT

Introduction

1. This claim arises out of the registration by the First Defendant (Mr. Sulis) of cautions against 16 leasehold titles owned by the claimant (IPI), a property developer. At the time of registration, IPI had contracts to sell 9 of the titles. It claims that it suffered financial losses in connection with those contracts as a result of the cautions, in some cases arising from a delay in settlement, in others by virtue of cancellation of the contracts by the purchasers.
   
2. IPI has brought separate claims against each defendant. The claim against Mr. Sulis is made under s. 97(5) of the Land Leases Act which provides that any person lodging any caution or allowing any caution to remain without reasonable cause shall be liable to pay compensation to any person who has sustained damage or incurred costs or expenses thereby.
   
3. The claim against the Second Defendant (the Government) is at common law for damages for the negligence of its employee, the Director of Land Records, in registering the cautions in the first place and in not removing them when requested.
   

Facts

4. The land in question was previously owned by Mr. Sulis’ company, Mariner’s Cove Limited ("MCL"), which gave a mortgage over it to Westpac. Westpac transferred its interest under the mortgage to John Douglas and Robert Guthrie who obtained a Supreme Court order to sell the land pursuant to their rights under the mortgage.
   
5. In 2004, IPI purchased the land from Douglas and Guthrie and became the registered proprietor on 14 June 2004. IPI proceeded to subdivide the land into the 16 separate leasehold titles.
   
6. On 2 September 2005, Mr. Sulis lodged cautions over these 16 titles in his own name. They followed L.R. Form 19 but the part of the form which provides for a statement of the grounds of the claim and the nature of the interest claimed was left blank. On or about 5 September 2005, the cautions were registered.
   
7. More than 2 months later, on 24 November 2005, MCL issued a Supreme Court Claim CC No. 209 of 2005 against Douglas and Guthrie claiming that they had sold the land to IPI at an undervalue in breach of their duties as mortgagees and had failed to apply the proceeds of sale in accordance with the Court’s orders.
   
8. IPI was named as third defendant. The claim asserted that IPI had failed to pay the purchase price to Douglas and Guthrie. It stated that IPI had been joined in order that injunctive relief could be sought against it requiring it to pay into Court the proceeds of sale of the subdivided lots until the purchase price had been paid in full and a mandatory injunction to that effect was sought. No orders were sought in relation to the land itself.
   
9. Mr. Sulis said that he acted upon legal advice when he lodged the cautions. His purpose was to try to ensure that some of the proceeds of sales by IPI were paid into Court. He said that he acted in contemplation of bringing a proceeding against Douglas and Guthrie in which orders to that effect would be sought.
   
10. Between the lodging of the cautions and the issue of CC209 of 2005, Mr. Sulis had correspondence with the Director of Land Records. On 27 September 2005, the then Director of Land Records, Jean-Marc Pierre, wrote to him stating.
    

"We have carefully looked at your cautions and it seems you have not stated the type of interests you have over these lease titles for which you have lodged the cautions to protect. In other words, none of the interests specified under section 93 of the Land Leases Act CAP. 163 have been mentioned in your cautions.

We regret to inform you that your cautions are not in line with section 93 of the Act. As such, they will not be registered. Our action is in accordance with section 8 (c ) of the Act".

In fact, the cautions had already been registered on 5 September.

11. Mr. Sulis wrote back to the Director of Land Records by letter dated 15 October 2005 which stated:
    

"I acknowledge and accept your letter date 27 September 2005.

Could you please be advised that I wish to withdraw the cautions held over titles 12/0911/316 to 12/0911/331".

12. The copy of the letter annexed to Mr. Sulis’ sworn statement has on it a notation "Recieved" (sic) and an unidentified signature above the handwritten date "21/10/05". Mr. Sulis was not cross-examined about the sending of this letter by counsel for either IPI or the Government. The only evidence relating to it apart from his was that of Mr. Mangawai, who was at the time Acting Director of Lands. He said that he had not seen it.
    
13. Counsel for the Government asserted in his submissions that the Director of Land Records had not received the letter. However, there is no evidentiary basis for that assertion. The fact that Mr. Mangawai had not seen it does not establish that it was not received at the DLR’s office.
    
14. In Paragraph 11(ii) of his Defence filed on 2 May 2006 to the Amended Claim, Mr. Sulis clearly set out that he wrote to the Lands Records Office requesting that the cautions be removed (although the date there given for his letter was incorrect). His list of documents also correctly identified and described the letter. He was not challenged on the issue at all and no contradictory evidence was offered. In those circumstances, the court must and does accept that the letter was written and received in the DLR’s Office.
    
15. In any event, the letter was not acted upon and the cautions remained on the titles. Mr. Sulis did not realise this until he received a letter from Mr. Mangawai, who by then was Director of Lands Records, which indicated that Mr. Mangawai had concluded after receiving information that the cautions had been registered without justification and purporting in accordance with sections 7, 8 and 93 of the Act to cancel them. Copies of this letter were sent to all conceivably interested parties. The cautions were not, however, removed from the titles.
    
16. Mr. Pierre, by now Principal Lands Officer in the Department of Land Records, had been sent a copy of this letter. He took it upon himself to reply to Mr. Mangawai (also with copies to all its recipients ) stating that Mr. Mangawai had no power to simply declare a caution cancelled without going through the process in s. 97 (3) of the Act.
    
17. On 11 January 2006, Mr. Sulis’ solicitors wrote to Mr. Mangawai taking the same point and asserting that the cautions remained "on foot" and even threatening to hold Mr. Mangawai personally liable for damages if any third party attained an interest in any of the properties in priority to those of Mr. Sulis (without however explaining what interest Mr. Sulis did have in the properties). As if that was not enough, the solicitors also reserved their client’s, "rights and entitlements with respect to criminal prosecution of you and Mr. Kaltonga (principal of IPI) directly under s. 109 of the Act".
    
18. The next event was that on 23 and 24 February 2006, MCL also lodged cautions against all 16 titles. The cautions themselves are not in evidence so the interest claimed by MCL is not apparent.
    
19. Mr. Sulis’ evidence was that on 7 March 2006, he caused both the Sulis cautions and the MCL cautions to be withdrawn. His application(s) to withdraw the cautions are not in evidence but he did annex receipts dated 7 March 2006 for the fees payable in respect of 2 of the titles.
    
20. On 13 March 2006, the Chief Justice made consent orders in CC209 of 2005 including:
    

"3. The Claimant in Civil Case 209 of 2005 consent and undertake to withdraw all cautions lodged by itself, and/or its directors and shareholders against the Lease titles..... These cautions are hereby withdrawn."

21. For reasons unexplained in the evidence, it took till 30 March 2006 for all the cautions to finally be removed from the register despite two letters from Mr. Kaltonga to the Director of Land Records dated 7 and 24 March requesting and/or demanding their cancellation.
    
22. The above account of the material facts omits reference to what was happening with regard to IPI’s efforts to complete sales of the subdivided titles. That issue will be covered later in this judgment under the heading "Compensation or Damage".
    

Discussion

Claim against Mr. Sulis – Liability

22. Section 97 (5) of the Act provides:
    

Any person lodging any caution with the Director or allowing any caution to remain without reasonable cause shall be liable to pay such compensation as the Court thinks just to any person who sustains damage or who has incurred costs or expenses thereby..

23. The power to lodge a caution arises from s 93 (1) of the Act which provides:
    

Any person who –

(a) claims any interest in land under an unregistered instrument or otherwise;
(b) claims a benefit under a trust affecting a registered interest;
(c) claims a licence affecting a registered interest; or
(d) has presented a bankruptcy or winding up petition against the proprietor of a registered interest;

may lodge with the Director a caution in the prescribed form forbidding the registration of any person as transferee of, or any instrument affecting, that interest, either absolutely or conditionally.

24. Liability is predicated on the absence of reasonable cause. There are materially similar provisions in the legislation of New Zealand and of Australian states operating a Torrens system of land registration. In both countries there is considerable jurisprudence on the meaning of "without reasonable cause".
    
25. In Gordon –v- Treadwell Stacey Smith [1996] NZCA 110; [1996] 3 NZLR 281, the New Zealand Court of Appeal said (at p. 288):
    

The Courts have been cautious in imposing liability on caveators. The onus of proof is on the person seeking compensation. By way of defence it is not necessary to show that the caveator actually had a valid claim to an interest. The court said recently in Taylor –v- Couchman (Court of Appeal, Wellington, CA 172/95, 29 April 1996):

The exercise of that power [ to lodge a caveat] is not conditional on the caveator actually having the entitlement or interest. Rather the caveator must claim such an entitlement or interest.

All that (the New Zealand provisions) require, is that there shall be an honest belief based on reasonable grounds that the caveator has an interest."

26. The Australian courts have adopted the same test. In Bedford Properties Pty Ltd –v- Surgo Pty Ltd [1981] 1 NSWLR 106, at 108, Wootten J said:
    

I think the foundation for reasonable cause must be, not the actual possession of a caveatable interest but an honest belief based on reasonable grounds that the caveator has such an interest. That, of course, may not be enough.

27. The qualification that honest belief on reasonable grounds may not be enough refers to the possibility that a cautioner may be liable even if he had reasonable grounds if his caution is lodged for ulterior motives: see eg. Young –v Rydalmere Credits Pty Ltd [1964-65] NSWR 1001.
    
28. Mr. Rosewarne submitted that Mr. Sulis had an honest although mistaken belief that he was entitled to lodge a caveat, the mistake being that he personally had the right rather than MCL; and that MCL had an interest in the land capable of protection under s. 93 (1) (a). The interest now claimed is an interest in the proceeds of IPI’s sales.
    
29. I do not doubt that Mr. Sulis had an honest belief that he was entitled to lodge the caveat. There is no reason to disbelieve his evidence that he received advice from his solicitors to that effect. Indeed there is every reason to believe him in the light of his solicitors’ letter of 11 January 2006, in which his right to maintain the cautions was so vehemently asserted.
    
30. The existence of honest belief is a subjective question. The existence of reasonable grounds, on the other hand, is an objective one. Plainly there was never any basis for Mr. Sulis personally to lodge the cautions because the right which is now claimed, an interest in the proceeds of IPI’s sales, was MCL’s not Mr. Sulis’.
    
31. If the absence of grounds related solely to the identity of the legal person entitled to lodge the caution, then coupled with an honest belief, there might not be enough to establish an absence of reasonable cause. But the lack of grounds in this case arises from reasons more fundamental than that.
    
32. The problem is that Mr. Sulis omitted to state any claim at all under s. 93 (1) (a) in the cautions which he lodged. If he or his advisors had addressed the nature of his or MCL’s claim, as the prescribed form required, it ought to have been apparent that neither he nor MCL had a claim of any of the types set out in s. 93 (1).
    
33. The proceeding later filed by MCL did not claim any interest in the land itself either under an unregistered instrument or otherwise. It sought that the proceeds of IPI’s sales to subsequent purchasers be paid into Court, not because it claimed any existing interest in the land itself nor even because it asserted that it had any rights against the registered proprietor, IPI. Its claim was based solely on the orders made in the mortgagee’s sale proceedings requiring its mortgagees, Douglas and Guthrie, to pay the balance proceeds of their sale into Court. The remedy in respect of the proceeds of IPI’s sales which MCL sought was an injunction in the nature of a garnishee order. It never had any remaining interest in the land and no right to interfere with the way in which IPI dealt with it.
    
34. There were therefore no reasonable grounds for MCL to lodge a caution and even less for Mr. Sulis to do so. Therefore, however honest his belief in his entitlement to do so, he did so without reasonable cause in terms of s. 97 (5) and is liable to pay compensation.
    

Claim against the Government – Liability

35. In principle, there is no reason why the Director should not be personally liable (and his employer, the Government, vicariously liable) for negligence in the exercise of his statutory functions in relation to the registration or removal of cautions. The possibility of personal liability is impliedly recognised by s.9 of the Act which provides:
    

The Director shall not, nor shall any other officer of the Land Records Office, be liable to any action or proceedings for or in respect of any act or matter done or omitted to be done in good faith in the exercise or intended exercise of his powers under this Act or any order made thereunder.

36. Similar protective provisions are contained in the New Zealand and Australian legislation: see e.g. s. 243 Land Transfer Act (NZ).
    
37. Inexplicably, this section was not pleaded on behalf of the Government although counsel for the Government sought to rely upon it in his written submissions. No amendment to the Defence was sought. If a positive defence of this nature is to be relied upon, it should be pleaded: R 4.7 Civil Procedure Rules. Despite its obvious application, it would be unfair to allow the Government to rely upon it when it has not been pleaded. Therefore it is necessary to address the claim of negligence on its merits.
    
38. I consider that the Director did owe a duty of care towards the registered proprietor, IPI, when he registered these cautions and in removing them. It is obvious that if cautions are registered or allowed to remain, the registered proprietor may suffer financial loss through not being able to deal with his titles. In carrying out his functions, the Director and officers acting for him, are therefore bound to exercise reasonable care and diligence.
    
39. The duties of the Director when a caution is lodged are set out in s. 93 (2):
    

A note of every caution shall be entered on the register and the Director shall take such steps as he thinks fit to bring the caution to the notice of the registered proprietors of interests affected by it.

40. It is not the duty of the Director to consider or decide whether the claim made by the cautioner is well founded. The section requires that a note of every caution must be entered on the register. The succeeding sections set out the process under which a cautioner can be required to substantiate his claim if he wishes to maintain the caution, as Mr. Pierre pointed out in his letter of 30 December 2005.
    
41. However, the cautions lodged by Mr. Sulis were not in the prescribed form as they failed to specify the nature of the claim made by the cautioner. This is an essential part of the prescribed form because unless it is completed, the Director is unable to tell whether a claim of a type set out in s. 93 (1) is being made, and thus whether there is a right to lodge a caution.
    
43. This is not a case where there could have been some doubt as to what claim under s. 93 (1) was being made. The relevant part of the prescribed form was completely blank. It was obvious that no claim at all had been made as required by s. 93 and by the prescribed form.
    
44. One of the several strange aspects of this case is that Mr. Pierre, the Director of Land Records at the time, picked up this fatal omission, pointed it out to Mr. Sulis in his letter of 25 September 2005 and advised him, quite properly, that because of it, the cautions would not be registered. However, they already had been registered nearly 3 weeks previously. Furthermore they were not removed even though Mr. Pierre was obviously aware that they were not in registrable form.
    
45. There is also no explanation from the Land Records Office as to why Mr. Sulis’ request in his letter of 15 October 2005 to withdraw the cautions was not acted upon. Section 97 (1) states that the cautioner, or his legal representative, may at any time apply to withdraw the caution and it is implicit that the Director shall thereupon remove it.
    
46. There was further unexplained delay in finally removing the cautions after Mr. Sulis applied to withdraw them on 7 March and the Court ordered it on 13 March. It is essential to the proper functioning of a Torrens system that cautions are entered on and removed from the register immediately upon lodgement or withdrawal.
    
47. I am satisfied that in registering the cautions in the first place and allowing them to remain on the titles throughout, the Director’s performance did fall below the standard of reasonable care owed to the registered proprietor, IPI. In making that finding, the Court is well aware that two different persons held the office of Director during the relevant period, and that the day to day functions of the Land Records Office may well be performed by subordinate officers rather than by the Director personally. However, under the Act, it is the Director who is legally responsible to carry out the relevant functions. The Government is therefore vicariously liable for any loss suffered by IPI.
    

Compensation and Damages

48. The liability of Mr. Sulis is for compensation under s. 97 (5) while that of the Government is for common law damages. It is difficult to see that the different sources of liability make any practical difference to the task of assessment of IPI’s losses in this case. Whatever may be the basis for recovery, IPI must prove that it suffered losses as a result of the registration and/or continuation of these cautions.
    
49. The evidence of IPI in relation to loss is not impressive. It is contained in the sworn statement of Mr. Kaltonga dated 8 August 2006. The gist of it is that in respect of 9 of the 16 titles, there were agreements for sale and purchase in place that were due for settlement on 30 October 2005 but these could not be settled because of the cautions.
    
50. He deposed that during the relevant period IPI had loans of AUD$540,000 and AUD$310,000 on which interest was accruing. The statements annexed showed that in relation to the former, interest was accruing at a penalty rate of 20% per annum. In relation to the latter, no interest rate is shown in the statement but it has been calculated at 10%, the interest rate shown in the loan document (8% Of payment is on due date).
    
51. The two statements show that interest at those rates accrued on balances of AUD$574,178.30 and AUD$311,015.80 between 30 October 2005 and 31 March 2006 (calculated with one rest on 31 December) totalling AUD$48,783.93 and AUD$13082.16 respectively.
    
52. The interest statements were Mr. Kaltonga’s own documents amounting to nothing more than a simple arithmetical calculation. There were no statements or other documentation from the lenders supporting the figures given.
    
53. Mr. Kaltonga also deposed that he obtained a bank overdraft of VT10,000,000 to assist completion of work on the subdivided land and that interest accrued on it from when the cautions were lodged until they were removed at VT605,117. The only document annexed to support this is a letter from the bank stating that IPI’s account was charged "overdraft bank fees" of that amount from 30 September 2005 to 28 April 2006.
    
54. Mr. Kaltonga claims these three sums (AUD$48,783.93, AUD$13082.16 and VT605,117) presumably on the basis that if the 9 sales had settled on 30 October 2005, he would have been able to repay the loans in full and would not have incurred the interest or overdraft fees.
    
55. As well as that, he has claimed interest at 4.817% per annum on the balances due (purchase price less any deposit paid) under each of the 9 agreements from 30 October 2005 to 31 March 2006 totalling AUD$41.760.40. There is no explanation as to why an interest rate of 4.817% per annum was chosen but in cross-examination he said it was the amount he could have got from the bank.
    
56. In any event, it is obvious that IPI cannot have it both ways, that is to be reimbursed for interest it incurred on loans which would have been repaid from the proceeds of sales if they had settled on time; and to be paid additional interest on those same sale proceeds for the same period, when of course IPI would not have had the money if it had used it to repay the loans.
    
57. However the difficulties of proof are more fundamental than that. All that was provided in Mr. Kaltonga’s sworn statement were copies of the agreements for sale and purchase and a letter from the solicitors for 4 of the purchasers dated 21 December 2005 which indicate that in relation to two lots (4 and 5), the purchasers were ready to settle subject to confirmation of certain issues and in respect of the other 2 lots (3 and 10) querying whether various conditions had been met.
    
58. In cross-examination, it became evident that in fact 5 agreements (Lots 2,4,6,8 and 9) were cancelled and the lots resold in some cases (Lots 2,4,8 and 9) for prices which are unknown but which were acknowledged to be higher in some cases. Nor was there sufficient evidence to show that the existence of the cautions was the sole or primary reason for cancellation. Obviously cancellation of these legal agreements could only be in writing but IPI has provided to the court a copy of a cancellation letter in the case of only 2 lots which showed other reasons also relied on.
    
59. In respect of those where settlement was late, there is no evidence as to when settlement did in fact take place in each case and insufficient evidence in any case to satisfy the Court that apart from the cautions IPI was in fact ready to settle on 30 October 2005 (which date did not appear in any agreement) or indeed on any particular date.
    
60. It will be obvious from the above that the evidence provided by IPI is unsatisfactory and insufficient for the Court to decide what, if any, amount, should be paid by Mr. Sulis and/or the Government to compensate IPI. That is not to say that loss has not occurred. Apart from anything else, IPI must surely have incurred legal fees in trying to remove the caveats but these have never been claimed.
    
61. The foregoing discussion highlights also that in respect of loss each caution must be looked at separately. It may be that in relation to some lots, there has been no loss because of a resale at a higher price. If that is the case, it is a windfall for IPI. There is certainly no basis to set off any such windfall against losses suffered in respect of other cautions for the benefit of the defendants.
    

Conclusion

62. If the remedy of non-suit is available in Vanuatu, that would be the appropriate result. It would permit IPI to bring a further proceeding with proper proof of loss provided that it paid the defendant’s costs on this proceeding. However if that remedy is not available, then there must be judgment for the defendants.
    
63. There is no specific power to order a non-suit in the Civil Procedure Rules and the Court is not aware of any authority on the point which was not raised at trial. I intend to grant leave to counsel to file further submissions in writing within 14 days on this point, following which a final judgment will be delivered.
    

Dated AT PORT VILA on 22 March 2007

BY THE COURT

C.N. TUOHY

Judge