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Naidu v Wati [2010] FJHC 136; Civil Action 001.2009 (21 April 2010)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Action No. 001 of 2009

BETWEEN:

NARAIN SAMMI NAIDU
(father’s name Chinsami Naidu)
c/o True Blue Hotel, Sigatoka.
PLAINTIFF

AND:

PUSHPA WATI
(father’s name Devi Prasad)
of Nadi.
DEFENDANT

AND:

ATTORNEY-GENERAL OF FIJI
as representative of the Director of Lands and the Registrar of Titles.
THIRD PARTY

Before: Master Anare Tuilevuka

Counsels: Cromptons for the Plaintiff
Sahu Khan & Sahu Khan for the Respondent

Date of Oral Ruling: 12th April 2010
Date of Written Reply: 21st April 2010

RULING

AGREED FACTS

[1] The defendant, Pushpa Wati (“Wati”) is the registered proprietor of Crown Lease Number 6677 (“land” or “CL 6677”). That lease is a protected lease under section 13 of the Crown Lands Act. It comprises 7 acres and 16 perches.

[2] As a protected lease, CL 6677 is regulated by section 13 of the State Lands Act (Cap 132) (see further paragraph 19 below).

[3] At some point in 2006, Wati started negotiating with one Narayan Sami Naidu (“Naidu” - the plaintiff). She was agreeing to sell to Naidu an acre (“Lot”) to be carved out from her seven-acre land. Naidu was willing to purchase the Lot. They had a common solicitor, Babu Singh & Associates of Nadi who drew up a sale and purchase agreement (“Agreement”).

[4] On the 6th day of February, 2006, Wati and Naidu signed the agreement which recorded the purchase price of $50,000.00. Immediately upon signing the Agreement, Naidu paid Wati the sum of $15,000. That payment was made to Wati’s son (Rakesh Chand) on Wati’s direction. Nevertheless, it is understood that the payment fulfilled Naidu’s obligation to pay a deposit under clause 1 (a).

[5] Meanwhile, the Agreement was signed without the Director of Lands’ consent on it. Naidu had every expectation though that Wati would obtain that consent in due course.

[6] Mr. Knight would highlight that clauses 1(a) and 10 (i) make the Agreement subject to the consent of the Director of Lands. Clause 7 expressly obligates Wati to “execute and perform all acts, deeds and things necessary to vest the said property unto ... [Naidu’s] name”. Mr. Knight says Wati can still obtain it now.

[7] Meanwhile, shortly after signing the Agreement, Naidu took various actions which raise some crucial issues in this case (see paragraphs 30 and 31 below).

[8] Firstly, he engaged someone to prepare a survey plan (“the plan”) and later had it registered. A copy of that plan is annexed to his Affidavit. The plan bears the number SO 5668 and marks out Lot 4. The plan appears to have been signed by the Director of Lands and the Director of Town and Country Planning. Naidu says he paid $1,696.75 to the Director of Lands for the premium, stamp duty, registration fee and drawing fee for the preparation of a lease for Lot 4.

[9] Secondly, Naidu got the Director of Lands to consent to a caveat on CL 6677 on 18th day of November 2008. That caveat has since been noted on CL6677 by the Registrar of Titles.

[10] Thirdly, towards the end of 2006, Naidu carried out some clearing work on Lot 4. According to him, he did this “to prepare for the development that [he was] proposing”. Notably, he had asked Wati and her sons for permission first before he entered the land. They agreed on the condition that Naidu pay $500.00 each to Wati’s two sons. Naidu did oblige to that condition. Copies of the relevant receipts are annexed to his Affidavit.

[11] Mr. Knight is on record to have suggested that the Director’s consent to the caveat, by implication, is consent to the Agreement. Doctor Sahu Khan, on the other hand, submits that the Director’s consent was wrong in law. The Director can only consent to a purchaser’s caveat if he has hitherto consented to a related sale and purchase agreement. Otherwise, says Dr. Sahu Khan, what will happen is a situation where no lawful agreement is in place to support the caveat. Both submissions merit further consideration which I do so below at paragraphs 40 to 51. The Registrar of Titles, he says, acted unlawfully when he registered the caveat.

[12] Doctor Sahu Khan then submits that, because the Agreement would entail carving out an acre off Wati’s seven-acre parcel, the consent of the Director of Town and Country Planning to subdivide should also have been obtained first. He also highlights that the consent of the Director of Lands to institute the proceedings herein has not been obtained.

THE APPLICATION BEFORE ME

[13] Before me is an application dated 28th January 2009 of Messrs Sahu Khan and Sahu Khan seeking the following orders:

(i) that caveat number 712307 registered by Naidu on Crown Lease Number 6677 be removed.

(ii) that Naidu’s writ of summons and statement of claim be dismissed as disclosing no cause of action and is frivolous and vexatious and/or without merits but that Wati’s counter claim against Naidu and the third party claim against the Director of Lands and the Registrar of Titles do continue.

(iii) an Order to restrain Naidu and/or his servants and agents from trespassing on the land comprised in Crown Lease Number 6677 and in particular Lot 4.

(iv) such further or other relief as to the Honourable Court deems just.

(v) that Naidu do pay costs to Wati on indemnity basis and/or on solicitor/client basis.

ISSUES

[14] I will consider first the issue whether the claim should be struck out as disclosing no cause of action or is frivolous or vexatious. Then I will consider the application for the removal of the caveat.

DOES NAIDU’S CLAIM DISCLOSE A REASONABLE CAUSE OF ACTION?

[15] Order 18 Rule 18(1) of the High Court Rules provides as follows:-

“The Court may at any stage of the proceedings order to be struck out or amended any pleading of the indorsement of any writ in the action, or anything in any pleading or in the indorsement, on the ground that –

(a) It discloses no reasonable cause of action or defence, as the case may be

[16] The jurisdiction to strike out is sparingly exercised and only in clear cases where the case is so clearly untenable that it cannot possibly succeed (Takaro Properties Ltd –v- Rowling [1978] 2 NZLR 314 at 317). In exercising this jurisdiction, the Court will assume as factually true all the allegations in the claim. If the facts as pleaded do raise a legal issue, then the courts will not strike out a pleading.

[17] The absence of the Director of Lands’ consent to the Agreement is at the heart of all the issues raised in the pleadings and affidavits. However, the statement of claim filed by Naidu makes no mention of it. This was only to surface in Wati’s defence. Be that as it is, Naidu readily concedes though in his affidavit that the Agreement was signed without the Director of Lands consent. To this day, that consent has neither been given nor refused as neither of the parties has sought it.

[18] So, is the Agreement null and void and of no effect because of the lack of any consent to it by the Director of Lands?

Section 13 of the State Lands Act (Cap 132)

Section 13 provides as follows:-

“Whenever in any lease under this Act there has been inserted the following clause:-

This lease is a protected lease under the provisions of the Crown Lands Act

(hereinafter called a protected lease) it shall not be lawful for the lessee thereof to alienate or deal with the land comprised in the lease of any part thereof, whether by sale, transfer or sublease or in any other manner whatsoever, nor to mortgage, charge or pledge the same, without the written consent of the Director of Lands first had and obtained, nor, except at the suit or the written consent of the Director of Lands, shall any such lease be dealt with by any Court of law or under the process of any Court of Law, nor, without such consent as aforesaid, shall the Registrar of Titles register any caveat affecting such a lease.

Any sale, transfer, sublease, assignment, mortgage or other alienation or dealing effected without such consent shall be null and void”

[20] It appears to be well settled in Fiji that section 13 is not necessarily infringed when two parties enter into a contract subject to the Director of Lands’ consent. Such a contract, if it remains unperformed pending the necessary consent, is “inchoate”[1] in that sense. However, it still binds whoever is so obligated under the contract to take all reasonable steps to obtain consent (see Fiji Supreme Court decision in Guiseppe Reggiero –v- Nabuyoski Kashiwa Civil Appeal No. CBV0005 of 1997S).

[21] Doctor Sahu Khan relies on Gonzalez v Akhtar & Ors[2] where the Supreme Court held that the formation of a contract for the sale of land to a non-resident without the prior written consent of the Minister under section 6(1) of the Land Sales Act (Cap 137) is prohibited by statute. However, Guiseppe Reggiero (supra) is distinguishable in my view from Gonzalez[3].

[22] The difference between the two cases is as follows. Guiseppe Reggiero concerned the interpretation of section 13 of the Land Transfer Act whilst Gonzalez concerned the interpretation of section 6 of the Land Sales Act.

[23] Section 13 has been interpreted to preclude merely the enforcement of a contract for the sale and purchase of a piece of state land without Director of Lands’ consent. The pendency of that consent, does not necessarily outlaw a contract already signed, as long as the parties have not implemented or performed the contract (see paragraphs 30 and 31 below).

[24] Section 6 on the other hand, has been interpreted literally to mean what it says, that is, without the Minister’s prior consent, no contract for the sale of land to a non-resident is to be allowed.

[25] The difference in approach between the interpretation that has been given to section 13 and that given to section 6 is made clear in paragraph 117 of Gonzalez (supra).

117 ........Legislation that prohibits the formation or performance of particular contracts must be distinguished from legislation that precludes the enforcement of specific contracts, or provides that they are invalid or void. Such contracts are not necessarily illegal, and the rules that apply to illegal contracts do not apply to them”

[26] To reiterate, an inchoate contract pending a section 13 consent still binds whoever the contract says is so obligated, to take all reasonable steps to obtain it. Otherwise, if consent is not obtained within a reasonable time, the party not in default may rescind the contract and recover any payment made under the contract (see also Mr. Justice Inoke’s application of this principle in Sheela Wati v Krishna Dalip Limar & FSC[4]).

Counsels’ submissions on section 13

[27] I have read clauses 1(a), 7 and 10(i) of the Agreement and agree with Mr. Knight’s submissions that it is incumbent on Wati to obtain the consent (see paragraph 7 above).

[28] That obligation, according to Mr. Knight, is an ongoing one. Accordingly, a plea of illegality by Wati should not be allowed if the illegality relied on results from her own wilful non-performance of her obligations and especially if allowing the plea of illegality will allow Wati to evade those obligations.

[29] Doctor Sahu Khan takes the issues further. He submits that the “illegality” in the whole deal has resulted from Naidu’s performance of the yet inchoate Agreement[5] rather than from Wati’s non-performance of her obligations.

[30] The principle that underlies Doctor Sahu Khan’s submissions is well supported in various authorities. It is law in Fiji that section 13 is infringed if, without the prior consent of the Director of Lands, action in performance of an agreement is taken. Such contrary action, coupled with the agreement itself, constitutes a “prohibited dealing” (see Guiseppe Reggiero[6]).

[31] However, actions taken in performance of an agreement must be distinguished from actions which are merely “preparatory to performance of the contract” or actions of “part performance” under “a binding but necessarily conditional contract”. Whilst the former will offend the policy of section 13, the latter do not necessarily have the same effect. This appears to be the view (see below) of the Supreme Court in Guiseppe Reggiero (supra) and on which Mr. Knight relies:

“In the history of this case the issue of illegality has been allowed undeserved prominence. There was no illegality in paying the 10 million yen, which would be recoverable if provisional registration was not obtained in reasonable time. If there was any illegality on the part of the vendor in using part of this sum to secure an extension of his option - and certainly we do not say that there was, the question not having been argued before us - the purchaser was not implicated in it. As we have already indicated, the parties are to be treated as having contemplated a legal course of proceeding, rather than an illegal. Such steps as were taken by the vendor, or on his instructions, towards obtaining the approval of the Director of Lands and planning and subdivisional approval were, so far as they went, part performance of the vendor’s obligations to take all reasonable steps to achieve a lawful transfer for the purposes of the development intended by the purchaser. None of them violated the policy of section 13(1) of the State Lands Act. There was no illegality which could prevent the purchaser from recovering his payment. The same applies to whatever clearing of the land the vendor had carried out, although, as the Court of Appeal said, there was no evidence of when any was done.”

The Court of Appeal reached the same result by saying that the vendor’s acts were preparatory to performance of the contract and not in implementation of it. They spoke of the agreement as still inoperative and inchoate. As already explained, we consider that the preferable analysis or mode of expression is that they were acts in part performance of the vendor’s obligations under a binding but necessarily conditional contract.

So – did Naidu act in performance of the Agreement such as to violate the policy of section 13?

[32] Doctor Sahu Khan argues that Naidu’s actions amount to a violation of section 13. He points to various instances recorded in Naidu’s own Affidavit. These I extract below.

Example: paragraph 12 of Naidu’s Affidavit for example deposes the following:

12. .... Towards the end of 2006, I wanted to do some work on the said land to prepare for the development that I was proposing on the said land. I asked the Defendant and her sons for permission to do so. They agreed on my paying $500-00 to each of the Defendant’s sons Vimal Chand and Rakesh Chand.....

Example: a further affidavit of Naidu sworn on 5th May 2009 deposes the following:

3. My statement in paragraph 1 of the said Statutory Declaration that “I have resided on the property since 14th August 1996” refers to my residence at 81, South Street, Granville, NSW 2142, Australia being my address in Australia referred to in the first sentence of the said Statutory Declaration.

4. I have never resided on the property situated in the District of Nadi as comprised in Crown Lease 6677 ......

5. .........................

6. I have not built a house on the property so there is nowhere on the property for me to live.

7. The only work I have done on the property is to put some fill onto the property with the approval of the Defendant as referred to in paragraph 12 of my earlier Affidavit

Example: see also paragraphs 8 to 12 above.

[33] Doctor Sahu Khan then submits that the above instances show that the Agreement purported to give Naidu a right to immediate possession. Hence, in conferring that right, the Agreement is contrary to the policy of section 13. He adds that the above instances show that Naidu has acted in performance of the Agreement without the Director’s consent.

[34] He also submits that Naidu’s act of paying $15,000 as part of the purchase price was in fact an implementation of the Agreement. I find it hard to accept this. The same principle of part-performance as applied by the Supreme Court in Guiseppe Reggiero –v- Nabuyoski Kashiwa (see paragraph 30 above)) may be applied in relation to deposits paid.

Comments

[35] To conclude, all I am being asked to do now is to assess whether Naidu’s claim is so clearly untenable that it cannot possibly succeed. Based on the above authorities, I find that Naidu has a reasonable cause of action. To avoid any doubt, though I have discussed various authorities, I have not made any substantive finding of fact. I have assumed as fact all that is pleaded in the statement of claim against the obviously established fact (though not raised in the claim) that the Director of Lands’ consent to the Agreement has, to date, not been sought. Naidu still bears the burden of proving his claim when the substantive matter is heard by Mr. Justice Inoke.

APPLICATION TO REMOVE THE CAVEAT

[36] In an application to remove a caveat, the appropriate factors to be considered were canvassed by the Fiji Court of Appeal in Bahadur Ali –v- Fiji Development Bank[7] as follows:

(i) whether there is a serious issue to be tried.

(ii) where the balance of convenience lies.

(iii) the overall justice of the case (adopting the approach in Klisser –v- Harvest Bakeries (1985) 2 NZLR 142)

[37] The above suggests that the validity or otherwise of a caveat may be postponed as an issue if the pleadings raise serious issues to be tried and if the balance of convenience so favours. This is the approach that Mr. Justice Singh for example took in Deans Signs Limited v Hemant Sharma & Registrar of Titles[8] when faced with an application for the removal of a purchaser’s caveat:

“At this stage of proceedings it is not appropriate for a Court to determine the respective rights of the parties summarily particularly where there are conflicting affidavits or where the caveatble interest is a distinctly arguable one – Narain v Malley – 34 FLR 118”

[38] So, whether Naidu’s caveat is sustainable, I will have to consider in terms of the Bahadur Ali test.

Whether there is a serious issue to be tried?

[39] The remedies which Naidu seeks in his statement of claim are as follows:

(i) specific performance of the Agreement.

(ii) damages in lieu of or in addition to specific performance.

(iii) a declaration that Naidu is entitled to a lien over the land for all payments made by him pursuant to the Agreement (together with interest thereon) and any damages or costs awarded in this action.

(iv) alternatively, damages for breach of contract

Specific Performance

[40] Generally, one who purchases land under a binding and unconditional contract of sale, of which she is entitled to obtain specific performance, is regarded as the owner of the land in equity. A legal estate will later vest in her upon payment in full of the purchase money and execution of a formal transfer document.

[41] In other words, a purchaser acquires an equitable interest in the land. She later acquires a legal estate upon the formal transfer to her of the land.

[42] Traditionally, the view is that unless a purchaser is entitled to specific performance of her contract of sale, she does not have an equitable interest in land. And her equitable interest is commensurate only with her ability to obtain specific performance. In Legione v Hateley [1983] HCA 11; (1993) 152 CLR 406 for example, Mason and Dean JJ in their joint judgment stated at p.446:

"In this Court it has been said that the purchaser’s equitable interest under a contract of sale is commensurate only with her ability to obtain specific performance (Brown v Heffer [1967] HCA 40; (1967) 116 CLR 344, at p.349).

[43] In Stern v McArthur [1998] HCA 51; (1988) 165 CLR 489, Deane and Dawson JJ in their joint judgment stated at para 2:

"As Dean J pointed out in Kern Corporation v Walter Reid Trading Pty Ltd [1987] HCA 20; (1987) 163 CLR 164, at p.191, it is not really possible with accuracy to go further than to say that the purchaser acquires an equitable interest in the land sold and to that extent the beneficial interest of the vendor in the land is diminished. The extent of the purchaser’s interest is to be measured by the protection which equity will afford to the purchaser. That is really what is meant when it is said that the purchaser’s interest exists only so long as the contract is specifically enforceable by him. Specific performance in this context does not mean specific performance in the strict or technical sense of requiring the contract to be performed in accordance with its terms. Rather it encompasses all of those remedies available to the purchaser in equity to protect the interest which he has acquired under the contract. In appropriate cases it will include other remedies, such as relief by way of injunction, as well as specific performance in the strict sense."

[44] Similarly, the New Zealand position is explained in Sale of Land (2000) 2nd ed by DW McMorland at page 299:

"In broad terms, the passing of the equitable estate to the purchaser depends upon the availability, at least at a theoretical level and without consideration of any defence which might be available to the vendor, of specific performance, or possibly of an injunction. There must be a contract, either directly for the sale of the land or for an option to purchase, such that the purchaser can take all of the necessary steps to obtain specific performance of that contract, the vendor cannot legally prevent those steps being taken, and the circumstances are such that, if the purchaser did take those steps, specific performance would not be unavailable for jurisdictional as opposed to discretionary reasons. It is the ultimate ability in equity to compel the vendor to transfer the estate or interest which gives the purchaser the equitable estate or interest."

[45] It is trite that specific performance can only be obtained if a vendor and a purchaser have entered into a binding contract. Usually, one of the many factors to be considered is whether damages are inadequate in lieu of specific performance. If not, then the court may order specific performance. Part-performance is usually also relevant, but does this include "part-performance" in the sense in paragraph 31 above?

[46] Doctor Sahu Khan submits that, as the Director of Lands’ consent has not been sought, there is no binding contract between Wati and Naidu. It follows then that Naidu, as yet, cannot rightly be said to be a "purchaser" in the sense contemplated by the above authorities. Hence, no equitable interest can be said to vest in him as yet. The inevitable final result, according to Doctor Sahu Khan, is that the remedy of specific performance is not available to Naidu.

[47] In Re CM Group Pty Ltd’s Caveat [1986] 1 Qd R 381, it was held that property did not pass in equity until the required municipal council approval was obtained. In Brown v Heffer (1967) 110 CLR 344, an interest in equity did not pass because the required consent of the Minister had not been obtained. Mr. Knight relies on Guiseppe Reggiero (supra).

"Provisions such as section 13(1) are not construed so as to prevent the making of a contract by the lessee to alienate subject to the written consent of the Director of Lands first had and obtained. When a contract is so made there are binding contractual obligations on the parties, or such of the parties as is appropriate, to take all reasonable steps to obtain the Director’s consent".

[48] Is the remedy of specific performance then available to make Wati at least obtain the Director’s consent as she is obliged to? [I leave this question open for full argument at trial if Mr. Knight wishes to pursue it.

Balance of Convenience

[49] Following from the above, I am convinced that Mr. Naidu has an arguable case. Nothing has been put before me to suggest that the balance of convenience should favour Wati.

Overall Justice of the Case

[50] I am convinced also that the overall justice of the case is in favour of extending the caveat until further orders of the Court when the same substantive issues I have raised above have been tested against the body of full trial evidence.

IS THE DIRECTOR’S CONSENT REQUIRED BEFORE PROCEEDINGS CAN BE INSTITUTED?

[51] I agree with Mr. Knight’s submission that consent is not required prior to the issue of proceedings as long as it is obtained before the Court deals with the lease (see Mohammed Rasul v Jeet Singh & Anor – 10 FLR 16; Deans Signs Limited v Hemant Sharma (supra)). In other words, consent can be obtained at any time before the Court delivers judgement.

CONCLUSION

[52] The approach I have taken throughout this ruling has been merely to highlight the serious issues raised by the pleadings. I have done this to make the point that the pleadings do raise some complex issues which merit a full trial of the evidence. It is not clear how far Mr. Knight will want to pursue specific performance which his client seeks in the statement of claim. He has an uphill battle but may wish to test it in light of Guiseppe Reggiero. In the end, his client may or may not simply end up being compensate in damages.

[53] I dismiss all the plaintiffs’ applications and adjourn the case to 26th April 2010 at 9.00 a.m for mention before me. I award costs in the sum of $250-00 in favour of the plaintiff to be paid in 14 days.

Mr. Anare Tuilevuka
MASTER

12th of April 2010
At Lautoka

^[1] See Chalmers v Pardoe [1963] 3 All E.R. 552 and Jai Kissun Singh v Sumintra (1970) 16 F.L.R. 165.

2. ^[2] See paragraph 117.
   
3. ^[3] See paragraph 117.
   

^[4] Civil Action No. HBC 78 of 2004L.
^[5] Whilst consent remains outstanding.
^[6] “We think these authorities show that the relevant section is infringed if, without the prior consent of the Director of Lands or the Board, as the case may be, action contrary to the policy of the section is taken in performance of an agreement” – as per Supreme Court of Fiji in Guiseppe Reggiero (supra) referring to Chalmers v Pardoe [1963] 3 All E.R. 552 and Jai Kissan Singh v Sumintra (1970) F.L.R. 165..
^[7] Court of Appeal Civil Appeal No. ABU 0057 of 2004S High Court Civil Action No. HBC 494 of 2003S.
^[8] Civil Action No. HBC 588 of 2005.