IN THE LAND COURT OF TONGA
NUKU'ALOFA REGISTRY

CASE NO: LA. 13/06

BETWEEN:

MBF BANK LTD
Plaintiff

AND:

[1] SOUTH PACIFIC SEA LAND AIR LTD
[2] WILLIAM AUGUST HOEFT
[3] KINGDOM OF TONGA IN RESPECT OF THE HON MINISTER OF LANDS
Defendants

Coram
BEFORE THE HON MR JUSTICE SHUSTER
LAND ASSESSOR MR MANGISI

FOR THE PLAINTIFF MRS F L VAIHU
FOR THE SECOND DEFENDANT MR K PIUKALA
FOR THE THIRD DEFENDANT MR S SISIFA

JUDGMENT 6TH OCTOBER 2010

JUDGMENT

BACKGROUND

1. The plaintiffs is a duly incorporated bank, operating in the Kingdom of Tonga with various branches situated throughout the Kingdom; including a branch at Neiafu, Vavau. From time to time the bank might grant loans or overdraft facilities to credit worthy individuals and companies, on terms and conditions which are agreed to, by the parties

2. The first defendant was an incorporated body, and during all material times the company operated as a vanilla grower, and, a processor of vanilla products. The company's head office and its operation were at all material times based in and around Neiafu, Vavau.

3. The second defendant is a business man and at all material times was employed to manage the business affairs of the first defendant company he resides in Neiafu Vavau

4. The third defendant was being sued, because of its statutory capacity, as the authority in charge of all land matters here in the Kingdom of Tonga. The Nuku'alofa Land Registry is open for inspection of land records in the Kingdom - such inspections may be carried out, during normal operating business hours by interested parties.

THE PLAINTIFF'S CLAIM IS AS FOLLOWS

•	Judgment - for specific performance, of the contract entered between the plaintiff and the first defendant - directing the second defendant on behalf of the first defendant, to execute the mortgage intended in the charge in escrow, dated 26th June 1997 over the land - in deed of leasehold land number 6054 and two other leasehold lands' pledged as security by the second defendant to the bank.

•	An order - directing the third defendant to register the mortgage intended in the charge in escrow, or, charging order over leasehold land, dated 26th June 1997, as per deed of leasehold, over land no.6054 and, the two other named parcels of land pledged as security.

•	Costs of and incidentals, to these proceedings to be paid by the first and the second defendants.

•	Any other order that this Honourable Court may deem just. 

THE EVIDENCE REVEALS5. 

5. The first defendants company's business, affairs were managed by the second defendant, who was one of the shareholders of the first defendant company, together with one other individual - a Mr. George Chen, who has since left the Kingdom of Tonga.

6. On or about 26th June 1997 the plaintiff granted the first defendant an overdraft facility, with the plaintiffs bank of $125,000.00:- a specific term in the agreement was that the overdraft sum was to be repayable, on, or before the 31st December 1997.

7. In accordance with established MBF bank practice, the first defendant's overdraft facility was repayable - on demand, and the loan facility was subject to an active interest rate, originally set at 14.5% per annum.

8. According to the evidence, the first defendants overdraft loan facility with the MBF plaintiff Bank, was to be guaranteed by the second defendant and a man - by the name of George Chen, who has since left the Kingdom of Tonga:- permanently.

9. As security for the overdraft loan facility, taken with the plaintiff bank the defendant agreed to put up as security for the bank - three leasehold parcels of land - in Vavau as collateral, in order to secure approval of the overdraft facility. However, according to the evidence - it was apparent those three parcels of land pledged as security for the loan, were not registered by the Land Office at the time the MBF overdraft facility was first authorized.

10. According to the evidence the relevant estate holder had given his full permission via an application form, and as evidenced in the second defendant's testimony, to secure the MBF loan, and this court accepts that evidence, that the estate holder approved the land as security.

11. The evidence clearly revealed that on or about 6th June 1997 the second defendant, together with Mr. George Chen, on behalf of the first defendant company, signed a charge in escrow over the leasehold land agreements with the plaintiff bank, which pledging as security - three identified parcels of leasehold land - as security for the MBF bank loan facility. The terms of that agreement are shown and are in evidence -as exhibit 3.

12. In due course the plaintiff bank, registered a mortgage debenture, and the plaintiff bank requested the second defendant sign and date the various documents, in accordance with their agreements.

13. According to the plaintiff the second defendant, refused numerous requests from the plaintiff's bank to attend the plaintiff's business premises, to affix his signature to those documents - as evidenced by the letter from Langoia Tulikihakau dated 09-03-2006 exhibit 17 @ page 117. The court accepts that evidence, that the second defendant delayed and he further delayed signing the plaintiff banks - security documents for the overdraft / loan facility.

14. In his testimony, the second defendant agreed, that he had been contacted on different occasions by various MBF bank officials. The second defendant told this court, by way of his explanation for his delay - and he offered bank officials that same explanation "that he was awaited advice from his colleague George Chan." The second defendant also told the plaintiff bank and this court - that his colleague George Chan could not be located.

15. On the 03-091997 one of the three leases pledged as security for the said loan - identified as lease no 6054 - was registered at the Land Office. The registration of that parcel of land under lease no 6054 was registered for a period of twenty-years expiring on the 03-09-2017 and is shown as exhibit 11. That said, and accepted, the land court concludes that the Minister of Land must have been properly satisfied - that all the relevant security documents were in order - to enable the Minister to effect registration of lease no 6054, and this court so concludes.

16. The plaintiff's witness testified, and the evidence also reveals, that the plaintiff bank tried without success to register its mortgage as per the charge in escrow over the two other parcels of leasehold land pledged as security - but these registrations were refused by the Ministry of Land - the third defendant.

17. According to the plaintiff - deeds of lease had been prepared, for the registration of the two remaining leases, which had been prepared but which have never been registered by the Minister - as evidenced by exhibits 12 - 13 and the testamentary evidence which the land court does accept.

18. The plaintiff bank claims the Minister of Land has to this date come up with no good reason, or, explanation for the non registration of the two outstanding parcels of land pledged as security by the second defendant.

19. According to the plaintiff bank, contact was made by officials of the plaintiff bank, to the Ministry of Land - asking the Ministry for an explanation why the bank's applications for the registration of the two remaining parcels of land - had never been effected. According to the evidence an explanation was proffered by officials from the Land Ministry - and was addressed to the plaintiff bank - that the Ministry of Lands was awaiting advice from officials at the Crown Law Office [Exhibits 15 &16]

20. On the 21-02-2005, the third defendant finally wrote to the plaintiff bank to the effect that it could not register the plaintiff's mortgage - using the charge in escrow. The Ministry said in that letter, that the matter should be referred to the Land Court - for a charging order.

21. Observation, this particular case was commenced in 2006 which is some ten years since the initial registration of the first lease over the land, number 6054 - in favour of the plaintiff bank. The other requests for registration - remain outstanding so it appears that this case has been significantly delayed - and for no good reason.

THE ORAL AND DOCUMENTARY EVIDENCE

22. Having heard and having seen all the evidence, it was patently apparent that the second defendant gave a virtual, if not a complete denial of nearly everything which the plaintiff bank had alleged, in their Statement of Claim. The plaintiff bank pointed out in their submissions, that the second defendant maintained his position of denial, right up to, and including - the day of trial and this court agrees he did just that despite contrary evidence.

23. The plaintiff pointed out in their closing submission that it was only during the second defendant's testimony and, only during his cross examination by the plaintiff bank's lawyer, that the second defendant finally admitted that he made and he received - the overdraft facility with the plaintiff bank.

24. The second defendant also testified and he finally admitted that he had effectively failed to co-operate with the plaintiff bank, in that he had failed to sign all necessary security documents to cover his company's loan facility - within a reasonable time, pledged as security to the plaintiff bank.

25. The plaintiff claims that the first and the second defendant still owe the plaintiff bank more than $200,000.00, that assertion remains, and, on hearing all the evidence in this case - the court accepts the finding of outstanding money owed to the plaintiff bank - as a fact.

26. I also have to say, that we found the second defendant was both an evasive and also an unreliable witness. He certainly did not help himself by denying this loan or, his explanation for delaying the signing of the bank's security documentation. That said, the question should perhaps then be this - Why then did the plaintiff bank advance the funds to the second defendant and his company? Why did the plaintiff bank, not wait until all the security documentation was in place, signed, sealed and registered, before advancing even one cent of the overdraft facility. The answer is obvious - to preserve customer goodwill and the bank in good faith provided the loan facility in order to assist the customer. The second defendant in our respectful view - abused the goodwill of the plaintiff bank, by not complying with the terms of the agreement. He delayed and he procrastinated and he caused the problems today.

27. The plaintiff bank, in their submission to this court - concedes that the third defendant is not a party - to the charge in escrow agreement, and they also concede that the third defendant is not bound by that agreement.

28. The plaintiff argued, that under the provision of the Land Act section 19 of the said Act - which states:- under his general powers, the Minister of Land at sub-section 10 - and I quote in full that subsection (10) it says "He shall approve mortgages and assignments thereof' " In this courts respectful view, the operative word to consider under section 19 (10 ) - is HE SHALL approve mortgages and assignments thereof. So one can ask why the delay?

29. The plaintiff argued, that there was nothing illegal in the making of the agreement between the parties, that is to say the plaintiff says the Minister of Land had nothing to lose if he were to register the mortgage. Indeed what if the Land Minister or, the senior officials in his department - were to consistently refuse to register mortgages over land or, delay registration of leases. Would the various banks trading here in the Kingdom of Tonga -still  continue to lend money to citizens or businesses, providing necessary capital to expand and rebuild - the economy, or not?

30. The plaintiff bank, argued forcefully that there was no justifiable reason given by the Minister of Land, or his officials, as to why just one - out of the three leases - pledged as security for this particular overdraft - was registered by the Minister of Lands. Why did the Minister not register - all three leases?

31. The plaintiff argued that justice in this matter, requires the Minister of Lands to register the other two leases, and as I have pointed out under the Land Act section 19 subsection (10) of the act uses the word - SHALL which is distinct from the word — MAY. In other words the use of the word SHALL - is a direction to do something. In this case it might be read and or interpreted that the word shall as it relates to the Minister - SHALL REGISTER the lease [if everything else is in order) and the bank argues it was.

32. Equity, in other words being fair to the parties, also means that the Minister of Lands [or his officials] must communicate with the parties and communicate - with the parties within a reasonable period of time. This court finds as a fact, that in this case, this has not occurred, and we also conclude that the Ministry of Lands has failed to supply a reasonable and or an adequate explanation to the plaintiff bank, or this court - as to why it would not [or could not] register the two leases pledged as security for the second defendants loan facility, with the plaintiffs bank, when the Minister, did in fact register - one such lease.

33. With respect, the Minister of Lands, as the representative of the Crown in all matters concerning the land of the Kingdom - should have registered the plaintiff's banks mortgage, perhaps even registered it - as a precautionary measure, without having to resort to someone - informing the plaintiff - to refer the matter to the Land Court to register a charging order with the attendant delay and expense. This court cites as an argument, the provision [in other jurisdictions] for the temporary registration of [a] a builder's lien or [b] a tradesman's lien [c] or a creditors lien - as a temporary caveat - recorded in the registry of land. This temporary registration of a lien is done in the UK / Canada and in many other jurisdictions. The temporary registration over the land, is effected in order to protect builders, tradesman or financial organizations, so they can obtain payment for work done on building, and, or to help recover bad debts from business entities.

34. This court has to conclude that in this instant case, there has been an inordinate, and an unexplained delay in the decision by the Land Registry to register a charge over the pledged security, and it is evident that there has been fault - on all side in this instant case.

35. In this courts view the plaintiff bank is at fault for not checking up on, and by not chasing the first and second defendant and, by not physically inspecting the Land Registry - records and chasing the Ministry and demanding answers. Though the land court also recognizes the loan was made by the plaintiff bank in Vavau, and the Land Registry is physically here in Nukualofa

36. The Ministry of Lands is at fault, in registering just one out of three leases, and more particularly the Ministry of Land is at fault for its inordinate delay in effectively NOT communicating with the plaintiff bank, and, communicating within a reasonable time frame and by - Not properly considering the plaintiff bank's claim for the registration of ALL its interest in the three parcels of land pledged as security

37. In our respectful view, this case was from day one, ripe for settlement by way of mediation - with the parties - and also the Ministry of Land. The court considers - that the inordinate delay in this case, can be apportioned to the parties equally.

CONCLUSION

HAVING HEARD ALL THE EVIDENCE AND HAVING HAD SIGHT OF ALL RELEVANT DOCUMENTS AND EXHIBITS.

ORDER

•	As has been requested by the plaintiff - the court enters judgment for specific performance of the contract, entered between the plaintiff and the first and second defendant.

•	The court directs the second defendant on behalf of the first defendant to execute the mortgage intended in the charge in escrow dated 26th June 1997 over the land in Deed of Leasehold Land Number 6054 and for the other two identified parcels of leasehold land which have previously been pledged by the second defendant as security for the loan facility

•	The court makes an order - directing the third defendant to register the mortgage and place a charging order over the leasehold land dated the 26th June 1997 as per deed of leasehold Land Number 6054 and also to place a charging order upon the two other identified leases as pledged by the second defendant back in 1997

•	Because in our view this case should have been mediated, to a proper settlement, and in view of the inordinate delay caused in this case by each of the parties - the court orders that each party to these proceedings bear its own costs.

SHUSTER J
JUDGE OF THE LAND COURT

Land Act cap 48

19 General Powers

(1) The Minister of Lands is the representative of the Crown in all matters concerning the land of the Kingdom.

(2) He shall grant allotments to Tongan subjects duly entitled thereto by law.

(3) He shall grant leases (including sub-leases) and permits with the consent of Cabinet; provided that the consent of His Majesty in Council is required where the period of lease exceeds 99 years or where the period of renewal of any lease added to any previous renewals and to the original period of the lease exceeds 99 years.

(4) He shall issue permits for foreigners to reside upon the premises of a Tongan subject.

(5) He shall act as Registrar-General of all land titles.

(6) He shall authorize all surveys and order the opening of all new roads, but shall not close any road except with the consent of the Cabinet.

(7) He shall collect the rents for all allotments on Crown Land, and all leases (including sub-leases) and permits; and where the land leased is part of any hereditary estate or an allotment shall pay the lease rent into the Treasury and shall issue a voucher in favour of the holder of the estate or allotment for that amount of rent less ten per centum thereof.

(8) He shall in every case where no application is made to the Court for the appointment of a Trustee or Trustees appoint one or more fit and proper persons to act with or without remuneration as trustee or trustees for any Tongan other than a noble or matapule who being entitled to land is under the age appointed by law for succeeding thereto.

(9) He shall require any trustee or trustees appointed in accordance with the preceding subsection to submit accounts of his or their trust estates and he may dismiss any trustee guilty of mismanagement, breach of trust or fraud in connection with the trust estate and he may appoint another trustee in his stead.

(10) He shall approve mortgages and assignments thereof.

(11) He shall have the power to compel any holder of land to grant an easement to the Crown and he shall approve all easements whether they involve the Crown as a party or not.