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Prasad v Home Finance Company Ltd [2003] FJHC 322; HBC0116D.2002S (23 January 2003)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. HBC0116D OF 2002S

BETWEEN:

KAMPTA PRASAD a.k.a. VIR CHAND PRASAD
(f/n Bhagauti Prasad) t/a as Vir Construction and having its place of business
at Lot 2 Khalsa Road, Valelevu, Suva, General Contractor and Builders.
PLAINTIFF

AND:

HOME FINANCE COMPANY LIMITED
a company duly incorporated in Fiji and having
its registered office at FNPF Place, 350 Victoria
Parade, Suva, Fiji.
FIRST DEFENDANT

AND:

RAJENDRA SINGH
(f/n Mangal Singh) of Suva, Airline Pilot.
SECOND DEFENDANT

Counsel for the Plaintiff: Mrs S.S. Devan, Patel Sharma & Associates.
Counsel for the 1st Defendant: A. Tikaram, Messrs Tikaram & Associates.
Counsel for the 2nd Defendant: N/A

Date of Decision: 23/1/2003
Time of Decision: 9.30 A.M.

DECISION

The Second Defendant is the registered proprietor of a piece of land known as Lot 2 DP 1069 on C.T.6511, located at 22 Berry Road, Suva. In order to build a multi-flat Apartment Complex on the said property, the Second Defendant borrowed from the First Defendant a sum of $640,000 in March 2000, and a further $121,500.00 in May 2001. To secure these loans, the First Defendant held registered mortgages nos. 482719 and 482721 over the property. In addition, the Fiji National Provident Fund (FNPF) registered a charge on the property for the $62,920.00 equity contribution by the Second Defendant from the Fund.

The construction of the Apartment Complex was undertaken by the Plaintiff. The contract to build, between the Second Defendant and the Plaintiff, were through Building Agreements dated 12 January 2000 and 24 May 2001 respectively. On 12 June 2001, the Plaintiff obtained an unregistered mortgage over the property and subsequently lodged caveat No.497911 on the same.

The life of the Caveat was Aextended beyond twenty one (21) days and to remain in full force until the final hearing and determination of the substantive action or further Order of the Court,@ by ex-parte application heard by this Court on 22 March 2002. The Plaintiff=s Statement of Claim was subsequently filed on 29 April 2002, and duly acknowledged by the First Defendant. There being no acknowledgment filed by the Second Defendant, judgment in default was entered against him on 6 June 2002.

This is an application by the First Defendant to strike out the Plaintiff=s claim pursuant to O.18 r.18 and/or the removal of Caveat No. 497911. There are additional reliefs sought, and the Court will deal with them later.

The First Defendant=s application under O.18 r.18 is based on the grounds that the Plaintiff=s Claim:

(a) discloses no reasonable cause of action against the First Defendant;

(b) is scandalous, frivolous or vexatious; and

(c) is an abuse of the process of the Court.@

NO REASONABLE CAUSE OF ACTION

Under the first limb of O.18 r.18, the Court is empowered by summary process, Ato stay or dismiss an action or enter judgment against the Defendant, where the pleadings discloses no reasonable cause of action or defence....@ (Supreme Court Practice 1985 Vol. 1 p.303). The Court is not required to call for evidence when exercising its discretion. It is sufficient that the Court is satisfied that the Statement of Claim or defence is on the face of it Aobviously unsustainable@ (see Attorney-General of Duchy of Lancaster v. L & N.W. Ry. Co. [1892] UKLawRpCh 134; [1892] 3 Ch 274 CA).

On the other hand, what constitutes a reasonable cause of action or defence does not mean that the Court should delve into whether the claim or defence is likely to succeed. As Lord Pearson stated in Drummond Jackson v. British Medical Association [1970] 1 WLR 688, [1970] 1 ALL ER 1094 CA at P.1101:

ANo exact paraphrase can be given, but I think Areasonable cause of action@ means a cause of action with some chance success, when (as required by r.19 (2)) only the allegations in the pleading are considered.@

The Court=s view and many decisions on this matter is clear: ASo long as the statement of claim or the particulars (Davey v. Bentinct: [1892] UKLawRpKQB 216; (1893) 1 QB 185) disclose some cause of action, or raise some question fit to be decided by a Judge or a jury, the mere fact that the case is weak, and not likely to succeed is no ground for striking it out...@ (Supreme Court Practice 1985 Vol. 1 p.306). Thus in Moore v. Lawson (1915) 31 TLR 418, the English Court of Appeal, in allowing an appeal on the decision of the lower Court striking out a Statement of Claim upon the ground that it disclosed no reasonable cause of action, said that the Court should, only do so, Anot on the ground that it disclosed no cause of action, but on the ground that it disclosed no reasonable cause of actionA (per Lord Justice Swinfen Eady at p.419). The head note to the case states:

AOn an application to strike out a Statement of Claim in a libel action on the ground that it discloses no reasonable cause of action, the Court will not strike it out on the ground that the words are incapable of a defamatory meaning, but will leave the question whether they are capable of such a meaning to be dealt with by the Judge at the trial.@

It is apparent that the Courts have been reluctant to dismiss or strike out any claim or defence simply because it is weak or unlikely to succeed. Where, for example, a Statement of Claim disclosed no cause of action because some material averment had been omitted, the Court in striking out the pleading will not dismiss the action altogether but give plaintiff leave to amend (Steeds v. Steeds [1889] UKLawRpKQB 30; (1889) 22 QBD 537; Reid v. Hooley (1897) 13 TLR 398.) This reluctance of the Court to strike out and dismiss an action on the first available opportunity stems from the concern that Fletcher Moulton L J expressed in Dyson v. Attorney-General [1910] UKLawRpKQB 203; [1911] 1 KB 410 where he said (at p.419):

ADifference of law, just as differences of fact, are normally to be decided by trial after hearing in Court, and not to be refused a hearing in Court by an order of the judge in chambers. Nothing clearly indicates this to be the intention of the rule than the fact that the Plaintiff has no appeal as of right from the decision of the judge at chambers in case of such an order as this. So far as the rules are concerned an action may be stopped by this procedure without the question of its justifiability ever being brought before a Court. To my mind it is evident that our judicial system would never permit a plaintiff to be Adriven from the judgment seat@ in this way without the Court having considered his right to be heard, excepting in case where the cause of action was obviously and almost incontestably bad.@

It is therefore very clear that in both the exercise of its powers under O.18 r.18 and under its inherent jurisdiction, a Court may only strike out a Statement of Claim and dismiss the action if in the words of Lord Blackburn, in Metropolitan Bank v. Pooley (1885) 10 App. (As 210 at p.221, if and when@required by the very essence of justice to be done.@

APPLICANT=S/FIRST DEFENDANT=S ARGUMENTS

The First Defendant=s primary argument is that there exists no contractual relationship between itself and the Plaintiff. There certainly was one between the plaintiff and the Second Defendant manifested through the Building Agreements signed between them. There was one between the First and Second Defendants through the loan agreements the parties executed in March 2000 and May 2001 respectively. But while the Plaintiff was the ultimate and main beneficiary of the money paid by the 1st Defendant to the 2nd Defendant, there was no nexus or direct link between the Plaintiff and the 1st Defendant in all of these transactions. There being no privity of contract, there is therefore no contractual breach that can give rise to this proceedings.

The 1st Defendant also refers to the Building Agreements between the Second Defendant and the Plaintiff. They represent the contract for the construction of the apartment and payments to be made. Where the documents, as in the Agreement of 24 May 2001, make mention of the 1st Defendant, and payments to be made therefrom, these were, according to the 1st Defendant, agreements reached between the Plaintiff and the 2nd Defendant alone without the knowledge of 1st Defendant.

PLAINTIFF=S SUBMISSION

It is clear from the Statement of Claim filed by the Plaintiff, that while there may have not been a direct link between itself and the 1st Defendant at the initial stage of the construction of the apartments, there have nevertheless been direct communication, including a meeting, between them as payments and works fell behind schedule. There is some difference between the parties as to what exactly were agreed to at their meeting and clearly the dispute as to the facts remain to this day.

The Plaintiff contends that it only decided to continue to complete the construction of the apartments after being given assurance by the 1st Defendant that progressive payments will resume. Clearly if this was so, then a special, if not a fiduciary relationship existed between them, under which the 1st Defendant owed the Plaintiff a duty of care.

FINDING

The Court in considering whether the claim or defence disclosed no reasonable cause of action, is strictly confined to the pleadings before it. The affidavit evidence is inadmissible.

In this case the Plaintiff=s Statement of Claim does disclose some cause of action, and the Court, having carefully considered the arguments of the parties, including the considerable body of case law alluded to above, finds in favour of the Plaintiff.

OTHER GROUNDS

The 1st Defendant also relies on the other two (2) limbs of O.18 r.18 as grounds for the Plaintiff=s claim to be struck out or dismissed, namely:

(i) it is scandalous, frivolous or vexations; and

(ii) it is otherwise an abuse of the process of the Court.

Affidavits were filed by the parties, excepting the 2nd Defendant, in support. The Court however, having found that the Plaintiff=s claim disclosed a reasonable cause of action, does not deem it necessary to proceed to consider their merits or otherwise.

FIRST DEFENDANT=S ALTERNATIVE RELIEFS

The 1st Defendant has additionally sought alternative reliefs, including the dissolution of the Order of this Court made on 27 March 2002, extending the life of Caveat No. 497911. The removal of the Caveat had been the subject of a separate action (Civil Action No.109/02) which had subsequently been consolidated with this proceedings through Scott J=s Orders of 1st May 2002.

Caveat No. 497911 was registered against the 2nd Defendant=s property (C.T. 6511) on 18th July 2001 by the Plaintiff to protect his interest as a mortgage. The mortgage of 12 June 2001, remained unregistered.

There is no question of Plaintiff not having a caveatable interest in the 2nd Defendant=s property. Under s.106 of the Land Transfer Act (Cap. 131) the Plaintiff falls under the category (a) of the section which states:

A106. Any person -

(a) claiming to be entitled or to be beneficially interested in any land subject to the provision of this Act, or any estate or interest therein, by virtue of my unregistered agreement or other instrument or transmission, or any trust expressed or implied, or otherwise howsoever...@ (emphasis added)

CONSENT TO LODGING OF CAVEAT

The first issue is whether Consent should have been obtained from the holders of the prior encumbrances on the title, namely the 1st Defendant in respect of mortgages Nos. 482719 and 482721, and the Fiji National Provident Fund (FNPF), in respect of Charge No. 482720, before Caveat No. 497911 was lodged with the Registrar of Titles. Alternatively, whether the Registrar of Titles is under a legal obligation not to accept the Caveat without the consent of prior encumbrance holders.

According to the 1st Defendant=s Counsel, Athe Registrar of Titles ought not to have registered the Caveat in the first instance because the mortgagees consent was not obtained.@

Counsel have not referred to any authority to support his argument. I have however been referred to 3 recent decisions of Scott J in Joe Edward Lee v. Wai Kalou Developments Ltd. CA 294/95; Ram Dutt Prasad v. ANZ Banking Group Ltd. CA 121/99 and Om Chand v. Visama Rice Mills & Ors. CA 331/02. They constitute an attempt to interpret the law on Caveat together with a study on similar practices and authorities in other jurisdictions in Australia and New Zealand where the Torrens Land System operates. These decisions provide a useful guide to practitioners. However the issue on whether prior consent of earlier encumbrance holders are necessary, had not been addressed in any of these or other cases. This Court, nevertheless is able to derive some guidance from the New South Wales case of Barry v. Heider [1914] HCA 79; (1914) 19 CLR 197 in which Isaacs J defined the nature of the caveat while pronouncing that Acaveats are lodged, not registered@ (p.219). Francis= AThe Law and Practice Relating to Torrens Title in Australasia@ (Vo. 1) observed (at p.332) that a caveat Aunlike a dealing with land which derives its statutory effect from the act of registration, is so far as it may be effective at all, gains the effect from the mere act of lodgment at the Titles Office, and such effect as it comes into operation immediately.@ (emphasis added).

It would seem to me, given that we in Fiji also have the same system of land registration to that practiced in New Zealand and Australia, as well as similar legislations on registration, that Heider=s case also represents the law on caveat in Fiji. Certainly, one=s reading of Part XVII of our own Land Transfer Act dealing with Caveat, would tend to support this view. In the first place, the Act only speaks of Alodgment@ rather than Aregistration@ of caveats. There does not appear at all, under Part XVII of the Act to be any provision that affords the Registrar of Titles, an opportunity to scrutinise the document; nor does the Registrar appear to have any power to examine its validity.

All that the Registrar is required to do is to ensure that the caveat:

(i) has sufficient particulars, including the name and address of the caveator (s.107);
(ii) is signed and attested by qualified witness (s.107);
(iii) describes with Asufficient certainty@ the nature of the interest claimed and

how it is derived (s.107); and

(iv) contains a place or address within Fiji at which notices and proceedings relating
to the caveat maybe served (s.108 (1)).

Once all these requirements are met, the Registrar, is obliged to enter the caveat in accordance with section 108 (2) which states:

A(2) Every Caveat shall be entered in the register as of the day and hour of its receipt by the Registrar.@

The role of the Registrar of Titles at the lodging of a Caveat is distinct from his duties upon receipt of the document, to inform the registered proprietor of the estate or anyone with interest in the land affected by the Caveat. Under s.109 of the Act, the Registrar is required to give notice to those whose interests are affected, that a Caveat has been lodged. Thereafter, those whose interests may be adversely affected by the Caveat, are at liberty to seek the removal of the Caveat through various ways, including the Court=s intervention (see s.109 (2), s.100 of the Act).

It is very clear from all of the above, that the answer to the 1st Defendant=s submission namely, that prior consent should have been obtained from the registered mortgagee or charge holder before the lodgement of Caveat 497911, is in the negative. A Caveator is not required to obtain the prior approval of either the registered proprietor of the estate or anyone with interest in the

land, before lodging a Caveat with the Registrar. Conversely, the Registrar is obliged to accept the Caveat when lodged and is required to enter it in the register upon receipt, subject to the provisions of sections 107 and 108 (1).

APPLICATION TO DISSOLVE THE ORDER

In the alternative to strike out, the 1st Defendant is seeking the dissolution of this Court=s Order extending Caveat 497911, made on 27 March 2002.

The 1st Defendant argues that its mortgages nos. 482719 and 482721 and FNPF Charge No. 482720 ranks first in priority over Caveat 497911 which was lodged more than a year after the mortgages and the charge. Notwithstanding this the 1st Defendant states that the exercise of the mortgagees right to sell the property is being impeded by the existence of the caveat. As Counsel for the 1st Defendant points out, the Caveat was lodged to protect the Plaintiff=s interest created by virtue of an unregistered mortgage dated 12 June 2001, which the 2nd Defendant had granted over the same property. The unregistered, mortgage itself, having being obtained without the consent of the 1st Defendant and FNPF, would still, Counsel argues, rank below, and subject to the 1st Defendant=s mortgages and the FNPF charge.

There is no doubt that the 1st Defendant being the first registered mortgagee, holds sway over the 2nd Defendant=s property. The principle of immediate indefeasibility conferred on the 1st Defendant as bona fide registered mortgagee had been determined long ago in the Privy Council decision of Fraser v. Walker (1967) 1 AC 569, (1967) NZLR 1069. Together with the registration, the 1st Defendant as the first registered mortgagee derives all the benefits rights and interests conferred under law. This includes the statutory powers of sale in default of the payment of mortgage money, conferred on the mortgagee under s.79 of the Property Law Act (Cap.130).

The recognition of the priority of the first in time in registration of interests and the principle enunciated in Fraser v. Walker was not lost on the solicitors who had previously acted for the Plaintiff. In lodging the Caveat, they had entered on the document, the existence of Mortgages

No. 482719 and 482721 as well as Charge No. 482720. In so doing, the Plaintiff=s solicitors had conceded the subjugation of the later entry to the previously existing registered interests. And contrary to the arguments advanced by the Counsel for the 1st Defendant, the solicitors for the Plaintiff had acted well within his rights under the law, which permits unregistered interests to be protected by Caveat (see s.106 Land Transfer Act).

Counsel for the 1st Defendant submits that the Order extending the life of Caveat 497911, obtained by ex-parte proceedings, was Aalmost of a permanent nature without any order for inter parte hearing within a short time and without any order for service of documents on the Defendants.@ The Order, Counsel argues, was Aseriously, if not fatally, flawed.@

This argument is misconceived and does not appear to appreciate the nature of the application upon which the life of Caveat 497911 had been extended. A Caveat, by its very nature, is meant to act as a statutory injunction to prevent any alteration to a title under the Torrens register, until the rights of the parties have been decided in the ordinary way by the Courts. A Court, when dealing with an application to extend the life of a Caveat, is not expected to enter into the underlying legal issues, but will normally extend the Caveat, if necessary with conditions, until the rights of the parties can be decided (see: Ex-parte Muston [1903] NSWStRp 105; (1903) 3 SR (NSW) 663; Evandale Estates Pty Ltd. v. Keck [1963] VicRp 88; (1963) VR 647). The position is established and is clearly set out in Narain v. Malley (1988) 34 FLR 118 where Fatiaki J (as he then was) when dealing with extension of Caveat remarked, (at p.121):

AIn dealing with this application I am mindful that it is inappropriate for this Court at this stage to determine the rights of the parties to this action in a summary manner particularly where there are conflicting affidavits or where the question of a caveatable interest is a distinctly arguable one.@

Furthermore, while it may appear desirable, it is not a requirement for the Caveator to notify others with interests in an estate, of actions, including extensions of Caveat proceedings, that he has taken or taking to protect his interests.

The 1st Defendant has, available to itself, as indeed any others, including the registered proprietor, summary methods of removing a Caveat. This is what it intended to pursue in Civil Action No.109/02 and now consolidated with this present proceedings. It is in the nature of the scheme of things as envisaged under the Act that anyone claiming interest on the estate should not be impeded from lodging a Caveat to protect his interest. It is the responsibility of those whose interests are affected to remove the Caveat. It could very well be that the scheme is not the most efficacious in our commercially-orientated world, but until and unless amendments are made to the legislation, the Courts cannot decide otherwise. The Court does not find any grounds therefore to support the 1st Defendant=s contention on the nature of the Order of 22 March 2002.

There however remains the issue of the dissolution of the Order on the ground that the existence of the Caveat effectively prohibits the mortgagee from exercising its power of sale.

The 1st Defendant, as a registered mortgagee, is expressly provided by statute, with powers to sell the estate or the property comprised in the security, if there is default in payment of the mortgage money. These powers are provided under section 79 of the Property Law Act (Cap. 130). As the holder of the first registered mortgage, the 1st Defendant should be able to exercise its power of sale without the concurrence of the subsequent mortgagees including the Charge holder. The only proviso is that any surplus from the proceeds of sales will have to be accounted for to the others.

In respect of a Caveat, that had been lodged to protect an unregistered subsequent mortgage, it is totally reasonable to assume the Caveator cannot be in a more favoured or better position than the holders of prior registered encumbrances. As Scott J stated in John Edward Lee v. Wai Kalou Developments Limited (supra):

AA Caveat does not of itself constitute an estate or interest and does not operate to give a Caveator better priority than otherwise he would enjoy.@

Certainly, the legislations in all the Australian jurisdictions that have the Torrens system give recognition to this and generally provide that a transfer from a mortgagee exercising the power of sale is an exception to the prohibition against dealings contained in a Caveat (see Ram Dutt Prasad v. ANZ Banking Group (supra))/

As far as Fiji is concerned, the situation is governed by section 113 of the Land Transfer Act, which prohibits absolutely any registration or dealing so long as a Caveat remains on the title. This means that while a mortgagee may exercise his power of sale regardless of subsequent encumbrances, he will still ultimately need to have the Caveat removed before the registration of the transfer can be effected.

In considering whether to remove Caveat 497911 from CT 6511, the Court has to balance the rights of the mortgagee to sell against the Caveator=s interest and rights that the Court has yet to decide. The Court is mindful of the guiding principle governing the mortgagee=s statutory power to sell as reiterated by Kermode J in Rauzia Zaweed Mohammed v. ANZ Banking Group Limited (1984) 30 FLR 136, at p.140.

A.... the long line of authorities and what must now to be taken as well established rule that a Court will not except in an exceptional case restrain a mortgagee from exercising power of sale conferred on him under a mortgage unless the mortgagor offers to pay all moneys claimed by the mortgagee into Court.@

Counsel for the 1st Defendant, had also referred me to the Fiji Court of Appeal=s decision in Westpac Bank Corporation Limited v. Adi Mahesh Prasad (1999) 45 FLR 1 in which the Court emphasised that except in very special circumstances, it would be unusual to grant an ex-parte injunction restraining a mortgagee from the exercise of power of sale. However, this present proceedings involves the extension of a Caveat, which is quite different from an injunction.

The Plaintiff=s claim against the 1st Defendant which Caveat 497911 presently protects is yet to be decided by the Court. The 1st Defendant is a respectable financial institution that is well able to meet any liability in damage should the Plaintiff=s claim against it is proven. Any award of damages would be an adequate remedy. On the other hand, the 1st Defendant as the mortgagee and in exercise of its power of sale, has already entered into a sales and purchase agreement with an interested party for the purchase of the property. It would be wrong if the 1st Defendant as mortgagee were to be prevented any further from exercising its power of sale, given the circumstances I have outlined.

In the event, I order that the Order made on 22 March 2002 be and is hereby dissolved. The Registrar of Titles is directed to remove Caveat 497911 from CT 6511 forthwith.

The 1st Defendant is given 14 days to file its defence and thereafter the action to take its normal course.

Costs in the cause.

F. Jitoko
JUDGE

At Suva
23rd January 2003