Fesolai v Boon [2016] WSSC 206 (22 December 2016)

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Case name:	Fesolai v Boon

Citation:	[2016] WSSC 206

Decision date:	22 December 2016

Parties:	TAVITA FESOLAI, of Siusega, and Auckland New Zealand, Banker. (Plaintiff) and PATRICK BOON, of Siusega, Company Director. (First Defendant) and ANZ BANK SAMOA LTD. (Second Defendant)

Hearing date(s):	-

File number(s):	CP 143/13

Jurisdiction:	Civil

Place of delivery:	Supreme Court of Samoa, Mulinuu

Judge(s):	Justice Nelson

On appeal from:

Order:	I have therefore reached the following conclusions: (1) On 11 October 2006 the plaintiff acquired an equitable interest in Parcel 3536 which interest he mortgaged to the second defendant; (2) said interest was sold by him to the first defendant sometime in 2011; (3) that oral contract for sale is enforceable ; (4) the first defendant cannot claim to be a purchaser for valuable consideration without notice, he is by law deemed to have constructive notice of the mortgage; (5) he takes title subject to the second defendants mortgage; (6) whatever defects existed in relation to the title of Parcel 3536, these were “cured” by the Registrar of Land issuing on 16 October 2014 a Computer Folio Certificate pursuant to the Land Titles Registration Act 2008, certifying the plaintiff as owner of Parcel 3536 subject to Mortgage 27336 thereon in favour of the second defendant. There will accordingly be judgment on the Counter Claim in favour of the first defendant as against the plaintiff and an order for specific performance of the contract of sale as follows: upon payment by the first defendant of the outstanding balance of NZ$302,096.32 the plaintiff is to transfer title over Parcels 3536 and 3537 of his land at Siusega. Each party having succeeded in some measure in this matter, there will be no order as to costs.

Representation:	M V Peteru for plaintiff R V Papalii for first defendant M G Latu for second defendant

Catchwords:	Mortgage – land registry – deed of mortgage – conveyance – equitable doctrine – bona-fide purchaser – caveat – legal ownership – legal estate

Words and phrases:

Legislation cited:	Land Titles Registration Act 2008 Land Transfer Act 1952

Cases cited:	ANZ Bank (Samoa) Ltd v Fatupaito [2001] WSSC 31 Toailoa Vaosa and Toleafoa Solomona Toailoa v Attorney al (unreportedorted decision of Wilson J 4/8/2000) Mer v ManooManoo [2002] WSSC 51
	Toailoa iloa Vaosa v Attorney (unreported judgdelivered on 04 August 2000 2000) Faataualofa v Faataualofa [2012] WSSC 37 Paina v Public Trustee [2001] WSSC 9 Carter v Ioane [2010] WSSC 14 Stowers v Stowers [2010] WSSC 36. Pilcher v Rawlins [1872] UKLawRpCh 13; (1872) LR 7 CH App 259, 268).
Summary of decision:

BETWEEN:

TAVITA FESOLAI, of Siusega, and Auckland New Zealand, Banker.
Plaintiff

Counsel:
M V Peteru for plaintiff
R V Papalii for first defendant
M G Latu for second defendant

[1] The plaintiff is the registered owner of Parcels 3535, 3536 and 3537 at Siusega. Houses have been erected on each parcel of land. By judgment dated 14 March 2016, the court dismissed the plaintiffs claim for rental arrears in respect of Parcels 3536 and 3537 upholding instead the first defendants argument that the arrangement between the parties was the first defendant would purchase those parcels and the houses thereon for the sum of NZ$200,000 each or a total price of NZ$400,000.

[2] Parcel 3535 is not involved in these proceedings. Parcel 3537 is unencumbered and originally so was Parcel 3536. However on or about 16^th October 2014 a mortgage in favour of the second defendant over Parcel 3536 was registered by the Registrar of Lands.

[3] The plaintiff accepts SAT$165,250.00 has been paid to him but its New Zealand dollar equivalent has yet to be determined as payments were made in Samoan currency spread out over a period of some two years. The plaintiff also acknowledges he holds a balance of NZ$3,475.11 of the first defendants Methodist contract monies.

[4] The first defendants answer to the plaintiffs claim was to counter claim seeking specific performance of the oral contract of sale; alternatively for an order voiding the contract and requiring a full refund of NZ$500,000 being monies he says were paid to the plaintiff pursuant to the contract and for other miscellaneous matters. The first defendant also claimed special damages of $80,000 for the cost of refurbishment to the plaintiffs houses and damages general and exemplary for ongoing commercial losses. These claims were not pursued at the hearing by counsel who focused on enforcement of the oral contract of sale. In this jurisdiction such contracts are not required to be in writing.

[5] I delayed issuing final judgment to give the parties their requested opportunity to try and amicably settle all matters. Unfortunately this has not eventuated and counsel have filed further submissions on the outstanding issues.

[6] There are essentially two remaining issues: quantifying the balance of the purchase price owed to the plaintiff and whether the transfer of title over Parcel 3536 is subject to the second defendants mortgage.

[7] As indicated in the judgment at paragraph 29 the court accepts SAT$165,250 was paid towards the purchase price. For conversion purposes I will apply the same “average” rate used by the plaintiff of NZ$1.00 to SAT$1.75: see paragraph 12 of the judgment. The monies paid convert to NZ$94,428.57 leaving a purchase balance of NZ$305,571.43. Less the credit held by the plaintiff leaves NZ$302,096.32. Once this balance is settled the first defendant would be entitled to a transfer of ownership of Parcels 3536 and 3537.

[8] The undisputed relevant evidence shows title to Parcels 3535 and 3536 was purported to be conveyed to the plaintiff by Deed of Conveyance Number 27332 dated 11 October 2006. Said Deed was according to its backing sheet registered in the Samoa Land Register on 14 December 2006 and a new title LR 48/137 was supposedly issued by the Land Registry Office. A Deed of Mortgage dated 11 October 2006 in respect of both parcels in favour of the second defendant was also executed. This was according to its backing sheet registered in the Samoa Land Register under Number 27336 on 14 December 2006. The new title LR 48/137 is shown on the mortgage backing sheet.

[9] For reasons that are not clear, the Land Registry Office actioned registration of Conveyance 27332 and Mortgage 27336 in respect of Parcel 3535 only. Parcel 3536 remained unencumbered on the face of it and still in the name of the original owners: see attachment ‘C’ to the affidavit of Rita Tugia-Enesa on behalf of the second defendant, a Computer Folio Certificate issued by the Registrar of Lands on 22 September 2014 showing Parcel 3536 to be still in the name of the original owners the Laulalas.

[10] When the parties became embroiled in this dispute and this came to light, the first defendant registered Caveat 41625 over Parcel 3536 claiming an equitable interest in the property by virtue of purchase monies paid to the plaintiff. Although this was a caveat against dealings, the second defendant having been alerted to the situation was able on or before 16 October 2014 to register the transfer of title and the mortgage over Parcel 3536. It is not known what authority the Land Registrar relied upon to effect registration. The Registrar has not been made a party to these proceedings.

[11] The question that arises is whether the first defendant takes subject to the second defendants mortgage. The answer is dependent upon whether the mortgage is valid, is enforceable and binds the plaintiff and any successors in title. There is no dispute the mortgage is a valid legal document. The issue is effect and enforceability given that it was unregistered at the time the property was agreed to be sold in 2011.

[12] The first defendant maintains he had no knowledge of the mortgage and therefore is not bound by it. The plaintiff never mentioned it and he did not check the title. At the time neither party was represented by legal counsel. He is accordingly a bona-fide purchaser for value without notice and is entitled to the protection of that equitable doctrine.

[13] The plaintiff accepts the mortgage was not disclosed or discussed. It was not required to be as he says this was a lease and not a purchase scenario. It appears he was unaware of the Land Registry failure to register the Conveyance and the Mortgage in respect of Parcel 3536.

[14] The second defendant says the mortgage was validly executed and binds the plaintiff and any purchasers. Its argument is two-fold: firstly the mortgage passed legal title to the mortgagee Bank with the plaintiff only retaining equitable ownership by virtue of his right of redemption. In support of this counsel cites Hinde, McMoreland and Sim (2004) Volume 2 paragraph 15.004:

At common law and also under the Deeds system a first mortgage was effected by a conveyance to the mortgagee of the mortgagor’s legal estate in the land as security for the repayment of the money lent. The legal ownership of the land thus passed to the mortgagee leaving the mortgagor with only the equitable ownership of the land. Under the Land Transfer system the situation is fundamentally different. Section 100 of the Land Transfer Act 1952 provides that:

A mortgage under this Act shall have effect as security, but shall not operate as a transfer of the estate or interest charged.

Therefore the mortgagor of the Land Transfer land remains the registered proprietor of the estate or interest in the land; the mortgage operates only as a security and gives the mortgagee merely a charge on the estate or interest in the land with (normally) a power of sale.”

[15] As well there is the judgment of this court in ANZ Bank (Samoa) Ltd v Fatupaito [2001] WSSC 31 where the Land Registrar had made a similar mistake and registered the mortgage over only one of two parcels mortgaged to the plaintiff. In that case Vaai, J held:

"It is not in dispute that Mr Pereira in 1991 executed a mortgage in favour of the Applicant over parcels 3693 and 3694. Both the original and the copy of the executed mortgage were presented to the Second third party as the Registrar for registration and the Registrar returned the registered original and kept the copy. Counsels agree that it is the Deeds Title System and not a Torrens Title System which exists in Samoa. It is a system of registration of title; it is not a system of title by registration: See

&#8p>‘Section 16 of the Land Registration Act is a far cry from the Legislatnactments which establish indefeasibility in other jurisdicisdictions. It merely operates to help ensure that instruments are registered and to that extent, it modifies the deed system. Without creating legal title to land, the section simply means that legal title to land cannot be affected by any instrument until and unless such instrument is registered. In other words, dealings with land so as affect title are conditional upon registration.’

It is also not in dispute that under the deeds system, a mortgage is a conveyance of land vesting legal ownership in the creditor with equitable ownership remaining in the debtor; so that in 1991 when Mr Pereira executed the mortgage of parcel 3693 and 3694 he conveyed legal title of both parcels to the Applicant. But the Respondent argues that following what Wilson J said in Toailoa Vaosa & Toleafoa Solomona Toailoa v Attorney General (supra) the Applicant’s mortgage was registered against parcel 3693 only so that legal title to parcel 3694 was not affected until the Respondent registered its mortgage against it and accordingly legal title passed to the Respondent upon registration of its mortgage in 1993. Respondent therefore relies in the wording of Sections 16 & 17 Land Registration Act 1992/1993 which read:

No instrument of title shall in any manner affect the legal title to land until and unless such instrument is registered in the Land Register in accordance with this Act.

The registration of an instrument shall be effected by the entry of a memorial thereof signed by the Registrar in the Land Register on application for registration being made in accordance with this Act.”

It must be remembered however that Section 16 does not create indefeasibility; it modifies the deed system but does not replace it. In other words registration does not give additional effectiveness or validity to a deed; so that when the Respondent registered its deed of mortgage over parcel 3694 in 1993 the equitable interest which they acquired through the mortgage remains an equitable interest and does not replace the legal interest mortgaged to the applicant in 1991. When Mr Pereira mortgaged parcel 3694 to the Respondent in 1993 the only interest he had in Parcel 3694 was an equity of redemption. He could not give a better title than he had. The obvious conclusion therefore is that the legal mortgage of the applicant over parcel 3694 ranks in priority to that of the Respondent and having reached that conclusion it logically follows that on the undisputed facts the Registrar is obliged to correct the Land Register pursuant to Section 30 Land Registration Act since he had before him in 1993 sufficient evidence to correct the error.”

[16] In reliance upon these principles the second defendant argues that when the plaintiff executed the mortgage in 2006, he transferred legal title over Parcel 3536 to the Bank. All the plaintiff retained was the equity of redemption which was what he sold to the first defendant. In the words of Vaai, J “he could not give a better title than he had.” The first defendant accordingly takes title subject to the second defendants mortgage; the mortgage and the legal title of the second defendant having now been “perfected” by registration of the relevant documentation by the Registrar in October 2014.

[17] The second argument is that alternatively, if the court finds the second defendants interest under the unregistered document is an equitable one only, the second defendants interest still operates to defeat that of the first defendant as it occurred first in time. The Banks interest was created in 2006 whereas the purchase agreement was entered into some 5 years later in 2011. The general rule is all things otherwise being equal in a contest between two equitable claimants, the first in time takes priority. In support counsel cites paragraph 9.005 of Hinde McMorland and Sim (supra) and the authorities discussed therein. For reasons that will become apparent I do not need to consider this argument.

[18] In my respectful view the pivotal issue is not registration of the mortgage but registration of Conveyance 27332 dated 11 October 2006. That document purported to convey legal title and ownership from the original owners to the plaintiff which he then on-sold to the first defendant in 2011.

[19] The undisputed evidence before the court is that as of 22 September 2014 the conveyance had not been registered against the title of Parcel 3536; and neither of course was the mortgage. The property was still in the name of the original owners until on or about 16 October 2014 when the Land Registrar “rectified” the situation.

[20] Attachment ‘C’ of the affidavit of Rita Tugia-Enesa attaches the Computer Folio Certificate issued by the Registrar of Land on 22 September 2014. By virtue of section 13(2) of the Land Titles Registration Act 2008 that is conclusive evidence that title remained with the original owners. Section 13(2) relevantly provides:

(2) Where a computer folio certificate is issued in respect of a folio of the Register it shall be received by all courts ....as evidence of the particulars recorded in that folio, and it is conclusively presumed that:

(a) the certificate contains all the information that was recorded in that folio at the time specified in the certificate; and

(c) a person recorded in the certificate as the registered proprietor of an estate or interest in the land to which the certificate relates was, at that time, the registered proprietor of that estate or interest.”

[21] Ipso facto, as at the date of the contract of sale in 2011, the plaintiff had not acquired title to Parcel 3536. He was therefore not in a position to convey legal title to the first defendant. The plaintiff cannot as observed by Vaai, J “give a better title than he had.” What he acquired in 2006 was accordingly at best an enforceable equitable interest in Parcel 3536 and this was all he could convey.

[22] It was argued by the second defendant that when the conveyance and mortgage were entered into in 2006 this country operated under a Deeds Titles System. This was a system of registration of title, not one of title by registration. According to this view title passed to the plaintiff upon execution of the Deed of Conveyance on 11 October 2006. The mortgage also took legal effect at that time notwithstanding the Registrars failure to register both documents.

[23] I respectfully do not agree. Prior to the Land Titles Registration Act 2008 introducing a Torrens-like system of title by registration the matter was governed by the Land Registration Act 1992/1993. Pursuant to section 16 thereof (cited above) no instrument of title “shall in any manner affect the legal title to land” until and unless such instrument was “registered in the Land Register” in accordance with the Act. A deed of conveyance and a deed of mortgage are “instruments of title”: section 2.

[24] Section 17 (also cited above) proscribes the mode of registration and provides registration is effected “by the entry of a memorial thereof signed by the Registrar in the Land Register on application for registration being made in accordance with this Act.” There is no dispute applications for registration of the conveyance and the mortgage as required by section 17 was made in compliance with section 19 of the Act. What is however absent in the material before the court is any record of the necessary memorial signed by the Registrar and entered into the Land Register.

[25] The words of the statute are plain enough. No instrument of title shall “in any manner” affect the “legal title to land until and unless such instrument is registered in the Land Register in accordance with this Act”: section 16 (emphasis mine). “Legal title” is defined in section 2 as being “as opposed to equitable title, estate or interests”. Registration in accordance with the Act is specifically provided for in section 17, viz by “entry of a memorial thereof signed by the Registrar in the Land Register.”

[26] In my respectful view these provisions modified the Deeds system of registration of title then applicable in Samoa by introducing a requirement that absent registration, legal title to land remained unaffected. Parliament clearly intended by the use of such clear and directive language that the Samoa Land Register existing since the Samoa Land Registration Order 1920 and continued by section 14 of the Land Registration Act, would become the determinant of title. Instruments affecting title which were unregistered would not affect “the legal title to land” until and unless they were registered. In this respect registration operated as notice to the world and the Samoa Land Register was something that could be safely relied upon by all.

[27] While my colleagues Wilson, J in Vaosa and Vaai, J in Fatupaito took a different view, mine accords with the interpretation taken by the Chief Justice in Meredith v Manoo [2002] WSSC 51 where he said:

“Registration of the deed of conveyance has, in terms of s.16, certainly affected the legal title to the land by vesting the legal title thereto in the plaintiffs.

Counsel referred to the case of Toailoa Vaosa v Attorney (unreported judgment delivered on 04 August 2000) where a contrary view of the effect of s.16 seems to have been taken. With due respect, I am of the view that s.16 is quite clear that no instrument of title, which includes a deed of conveyance, will affect the title to any land until and unless such instrument is registered. It is immaterial whether the system of land registration we have is labeled a deeds or a Torrens system of registration or a hybrid of those two systems as counsel for the plaintiffs at one stage of his submissions seems to suggest. What really matters are the clear words of s.16. The clear meaning conveyed by those words is that a deed of conveyance, being an instrument of title, will not affect the title to land unless and until it is registered. Section 16 cannot be any clearer. In that way the public and the legal profession can rely on the register as a public record of legal titles created by registration.........

I do not think that because a system of registration of titles to land is not a Torrens system of registration it then follows that it must therefore be a deeds system of registration of titles. As counsel for the plaintiff said at one stage of his submissions under questions from the Court, our system of land registration could be a hybrid of the other two systems of registration given the provisions of the Land Registration Act 1992/1993 and in particular s.16. I agree. Labels should not be regarded as decisive. It is the words of the Act that really matters.”

Further on in his judgment the Chief Justice deals at length with the policy and other reasons behind such an approach.

[28] This view was not altered by the courts decision in Faataualofa v Faataualofa [2012] WSSC 37. There, a totally different matter was at issue and it was argued that registration pursuant to s.16 could cure a prior defect in title. In rejecting this argument the Chief Justice highlighted two significant aspects: firstly under the Deeds Registration Act 1908 (New Zealand) which established the Deeds System in New Zealand, registration “was neither compulsory nor necessary in order to confer title.” Contrast this to the scheme of the Land Registration Act 1992/1993 continuing the Samoa Land Register and requiring by s.15 the inclusion therein of all the different kinds of land in the country. Contrast too the requirement to register all types of instruments and the clear words of s.16 making acquisition of legal title dependant on registration.

[29] Secondly, registration does not cure a defect in the title or a defect in the instrument purporting to convey title.

“A void instrument is still void. Registration in terms of s.16 was not intended to convert what is void into a valid instrument”: Sapolu, CJ in Faataualofa.

[30] In other words as a matter of interpretation we must import into s.16 the word “valid” so that it reads “No (valid) instrument of title shall in any manner etc.....” Section 16 must have been intended by Parliament to refer to valid instruments only.

[31] As to the mortgage this remained unregistered until on or before 16^thOctober 2014. Applying the earlier reasoning this did not affect legal title over Parcel 3536 until October 2014. Legal title could accordingly not pass from the mortgagor plaintiff to the first defendant until said registration. Even if it could the second defendant faces the insurmountable obstacle of the property not being in the name of the plaintiff until sometime in October 2014.

[32] It did however create an equitable interest in favour of the second defendant. An interest that has since been validated by registration. The question however remains whether a purchaser having no notice of such an interest legal or equitable should be held bound by it.

[33] The uncontested evidence is that in 2011, Parcel 3536 was still in the name of its original owners. This remained the position until October 2014. Meaning that even if the first defendant carried out a search of the title in 2011, no mortgage would have been discovered. The first defendant accordingly argues he is a bona-fide purchaser for value without notice of the mortgage and therefore should not be held bound by it.

[34] The equitable doctrine of bona-fide purchaser for value without notice is well established: Paina v Public Trustee [2001] WSSC 9, Meredith v Manoo [2002] WSSC 51, Carter v Ioane [2010] WSSC 14 and Stowers v Stowers [2010] WSSC 36. It is a recognised “absolute unqualified unanswerable defence” which allows a purchaser who satisfies its requirements to “depart in possession of that legal estate, that legal right, that legal advantage which he has obtained, whatever it may be” (per James, LJ in the leading case of Pilcher v Rawlins [1872] UKLawRpCh 13; (1872) LR 7 CH App 259, 268).

[35] Central to the doctrine is the requirement of notice. The authorities on the issue were usefully reviewed and discussed in Stowers v Stowers [2010] WSSC 36 paragraph 71 et seq. There it was noted that notice can be one of three types: actual, constructive or imputed. As the first defendant had no actual notice of the existence of the mortgage, it is constructive notice that needs to be considered; the third is not applicable to the facts of this matter.

[36] The learned authors of Equity and Trusts in Australia and New Zealand (2000) 2^nd ed by Dal Pont and Chalmers in a passage cited with approval in Stowers defined constructive notice as consisting of “that knowledge which would have come to a persons attention had he or she made the inquiries which a reasonably prudent person would have made in the circumstances.” A further passage approved and applied in Stowers goes on to elaborate:

“As constructive notice is the most relevant to this case. I refer to Equity Doctrines and Remedies (1984) 2^nd ed by Meagher, Gummow and Lehane where the learned authors state at para 854, p.244:

A person is deemed to have constructive notice of all matters (a) of which he would have received notice if he had made the investigations usually made in similar transactions, and (b) of which he would have received notice had he investigated a relevant fact which has come to his notice and into which a reasonable man ought to have inquired. It follows that all cases in which a person is said to have constructive notice of a fact or thing are cases in which he has failed to inquire, either sufficiently or at all. The criterion of whether a total failure to make inquiries will affect a person with constructive notice is whether he has neglected to do that which is usually done by men of business in similar circumstances, as a matter of prudence with a view to their own security. It covers not only the case where there has been a deliberate abstention from inquiry in order to avoid possible notice, but on the view expressed in Ashburner on Equity 2^nd ed pp61-2, all other cases in which, intentionally or otherwise, a person abstains from inquiry in circumstances where a reasonable man would inquire” (emphasis mine).

[37] The first defendant is an experienced businessman. This was not his first venture in Samoa, the evidence indicated he had undertaken contracts with the Accident Compensation Commission and Bluesky. He did not strike me as naive or ignorant. A reasonable and prudent businessman in his shoes would at the least have taken steps to verify the plaintiffs ownership of the properties being purchased. The purchase price was not an insignificant sum. No question he should have undertaken either personally or through an agent (not necessarily a legal counsel) checks on the title. He failed to do so until in dispute with the plaintiff.

[38] Had he done so numerous red flags would have been raised as half of the property purportedly conveyed by Conveyance 27332 was still registered to the original owners the Laulalas. Further inquiries would have led to the mortgage document indicating Parcel 3536 was under mortgage to the second defendant.

[39] The first defendant has “neglected to do that which is usually done by men of business in similar circumstances as a matter of prudence with a view to their own security.” He failed to take those steps a reasonable businessman in his position would have taken.

[40] In the circumstances he cannot claim to be a bona-fide purchaser for value without notice. Quare also whether he is indeed a “purchaser” as he has not met the full purchase price. His defence fails, he must take title subject to the second defendants mortgage.

(1) On 11 October 2006 the plaintiff acquired an equitable interest in Parcel 3536 which interest he mortgaged to the second defendant;

(4) the first defendant cannot claim to be a purchaser for valuable consideration without notice, he is by law deemed to have constructive notice of the mortgage;

(6) whatever defects existed in relation to the title of Parcel 3536, these were “cured” by the Registrar of Land issuing on 16 October 2014 a Computer Folio Certificate pursuant to the Land Titles Registration Act 2008, certifying the plaintiff as owner of Parcel 3536 subject to Mortgage 27336 thereon in favour of the second defendant.

[42] There will accordingly be judgment on the Counter Claim in favour of the first defendant as against the plaintiff and an order for specific performance of the contract of sale as follows: upon payment by the first defendant of the outstanding balance of NZ$302,096.32 the plaintiff is to transfer title over Parcels 3536 and 3537 of his land at Siusega.

[43] Each party having succeeded in some measure in this matter, there will be no order as to costs.

Supreme Court of Samoa

Fesolai v Boon [2016] WSSC 206 (22 December 2016)