A commentary of the Federal Court’s judgement in He-Con Sdn Bhd v Bulyah binti Ishak & Anor[1]
A court exercising its discretion under its jurisdiction in equity will not contradict its jurisdiction in law to declare as void, that which is valid in law; we must pay particular attention to the difference between the remedy dispense by the court of law and the relief granted by the court in equity.
Taxonomy is classification, it changes nothing, but it promotes understanding. Without it there is only a chaos of unsorted information, what Thomas Wood, writing on the condition of English law in 1722, called ‘a heap of good learning’. Neglect of taxonomy leads to errors and confusion. In particular it makes it virtually impossible to control the tendency to contradiction inherent in the duality of law and equity.[2]
The dichotomy between law and equity
“But the two stream of jurisdiction thought it runs in the same channel, run side by side and do not mingle their waters”, page 23, Ashburner’s Principles of Equity 1902.
Commenting on the Judicature Act, 1873, Jessel, M.R states that the assimilation of the transaction of Equity business and Common Law business by different Courts of Judicature has been sometimes inaccurately called “the fusion of Law and Equity”; but it was not any fusion, or anything of the kind; it was the vesting in one tribunal the administration of Law and Equity in every cause, action, or dispute which should come before that tribunal, see Salt v Cooper (1880) 16 Ch. D. 544 at page 549.
F.W. Maitland[3], in his comment on the Judicature Act 1873 and 1875 – “In its 25th section … it ended with these words – ‘ Generally in all matters not hereinbefore particularly mentioned, in which there is any conflict or variance between the rules of equity and the rules of the common law with reference to the same matter, the rules of equity shall prevail. …
Let me take an instance or two in which something that may for one moment look like a conflict becomes no conflict at all when it is examined. Take the case of a trust. An examiner will sometimes be told that whereas the common law said that the trustee was the owner of the land, equity said that the cestui que trust was the owner. Well here in all conscience there seems to be conflict enough. Think what this would mean were it really true. There are two courts of co-ordinate jurisdiction—one says that A is the owner, the other says that B is the owner of Blackacre. That means civil war and utter anarchy. Of course the statement is an extremely crude one, it is a misleading and a dangerous statement—how misleading, how dangerous, we shall see when we come to examine the nature of equitable estates. Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust. There was no conflict here. Had there been a conflict here the clause of the Judicature Act which I have lately read would have abolished the whole law of trusts. Common law says that A is the owner, equity says that B is the owner, but equity is to prevail, therefore B is the owner and A has no right or duty of any sort or kind in or about the land. Of course the Judicature Act has not acted in this way; it has left the law of trusts just where it stood, because it found no conflict, no variance even, between the rules of the common law and the rules of equity”, at pages 17 and 18 ibid.
The ratio of the Federal Court
The Federal Court held – “Once that is established to be the case here, the first defendant was rendered a bare trustee. Once first defendant is a bare trustee, it could not in law pass any interest in the said property to the fourth defendant by way of creating a security for the charge over it in favour of the fourth defendant. It is void ab initio. (See, the Samuel Naik case [supra] as an analogy.)”, at para [76].
The ratio is that a bare trustee cannot pass title in law. Is that ratio applicable to all trustees in general or is it applicable only to bare trustee and if so, why and on what principle of law or equity?
Who is a bare trustee? He is a trustee whose sole duty is to obey any direction the beneficiary may give as how the trust property should be disposed by putting an end to the trust, in accordance with the rule in Saunders v Vautier (1841) Cr & Ph 240. The trust would come to an end when the trust property is conveyed to the trustee or on his instructions.
As explained above – “Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust”.
In all instance of trust (whether express, constructive or resulting trust) the legal interest is vested and in the Trustee, whereas the equitable interest remains with the cestui que trust. If a trustee cannot deal with or pass interest in law, then it is futile to create a trust. The very purpose of a trust is for the trustee to deal with the legal interest for and on behalf of the cestui que trust and the trustee shall be answerable to the cestui que trust as explained above.
Equity does not render void that which was correct and in accordance with the law[4]. Equity had not come to destroy the law, but to fulfil it. Every jot and every title of the law is to be obeyed – for equity follows the law.[5]
But having done that, something might need to be done, something that equity required. Equity acts on the person (or in personam) i.e. where a trustee threatens to do an act which is necessary a breach of trust the court of equity will restrain him (injunction) or where a trustee is under an obligation to do an act the court will compel him (specific performance).
The dichotomy between the remedy in law and the relief in equity, as dispensed by the two stream of jurisdiction must be observed.
The first and fourth defendants’ right in law
Every register document of title duly registered shall be conclusive evidence that title to the land described therein is vested in the person or body for the time being named therein as proprietor, sections 89 National Land Code, 1965 (NLC).
Title vest or divest upon registration[6] and the Registrar of Titles shall not be concerned whether the dealing is consistent with any trust by which the land is affected, see s 303 (d) NLC.[7] Similarly, anyone dealing with the registered proprietor shall not be required to look behind the title – ‘that would be to defeat the very purpose and object of the statute of registration’.[8]
“If the contract passes ownership, why be at the expense of a conveyance?
The Federal Court needs no reminder that the purpose of the law as provided by the NLC is to provide simplicity and certitude and that the court of equity shall exercise its jurisdiction in personam having implicitly quoted Lord Russel’s statement with approval –
“[95] … As was observed by Lord Russel of Killowen in Oh Hiam v. Tham Kong [1980]2 MLJ 159, PC (“Oh Hiam case”) that “the Torrens system is designed to provide simplicity and certitude in transfer of land which is amply achieved without depriving equity of the ability to exercise its jurisdiction in personam on grounds of conscience.” [underline by me]
Trust is a creature of the court of equity
Whereas the remedies afforded for the protection of legal rights may be either legal or equitable, the remedies for the protection of equitable rights are all equitable; hence the plaintiffs’ recourse for a breach of trust is solely to the court of equity.
“This discretion in some case follows the law implicitly in others assists it and advances the remedy ; in others again it relieves against the abuse or allays the rigour of it ; but in no case does it contradict or overturn the grounds or principles thereof, as has been sometimes ignorantly imputed to this Court”, see footnote 3 above.
The relief includes where the first defendant deals with trust property under such circumstances that it is a breach of trust, the court may allow the plaintiffs to follow the property into the hands of all subsequent owners except that of a bona fide purchaser for value. If the fourth defendant, had notice that the charge to him was made in breach of trust, the court may allow the plaintiff to treat the property charge, as still subject to the trust, and can recover it from the fourth defendant.
Or he can, if he prefers, make the trustee liable personally – as for a breach of trust.[9] In which event, the court may, inter-alia, allow the plaintiffs to trace the proceeds of the sale or mortgage of the property.
The court of equity may, under specific circumstances, order the first defendant to convey the title to the plaintiffs by way of specific performance, nevertheless, the title is now subjected to the charge to the fourth defendant. The fourth defendant’s right in the property (as chargee) is a legal right and unless he is not a bona fide purchaser for value; the court of equity has no reason to interfere with his legal interest[10].
The High Court, from which this appeal originated, dismissed the claim against the fourth defendant on the ground that the fourth defendant is a bona fide party who had taken all reasonable steps to verify the status of the property before approving the financing facilities. The High Court held that the fourth defendant is entitled to proceed with the auction of the property and that any amount remaining from the sale thereof is to be paid to the plaintiffs. The High Court’s order would result in the same outcome, where the first defendant is ordered to transfer the title to the plaintiffs subject to the charge made to the fourth defendant.
Nevertheless, the Federal Court’s statement at paragraph 88, that the charge by the trustee is void is at odd with the manner in which the court of equity assists and advance the plaintiffs remedy without contradicting the law and is at variance with its own view expressed in paragraph 95, above, in particular that the court of equity “exercise its jurisdiction in personam on ground of conscience”.
“[88] … It was a transaction that was vitiated by s 340(2) of NLC as it was based on an insufficient or otherwise, void instrument, as the first defendant could not pass any title or interest in respect of the said property to the fourth defendant.”
Section 340(3) of the NLC is a mere distraction because it is only relevant where the charge to the fourth defendant is effected via a void and insufficient instrument. A conveyance by the fully constituted owner could not be rendered void by the court of law, and the mere fact that the legal owner is a bare trustee does not incapacitate the legal owner.[11].
HENRY KANG FANG HAWE.
3rd November, 2020.
[1] This opinion on the judgment reported in [2020] 4 MLJ 662, [2020] 7 CLJ 271 and [2020] 5 AMR 645, is based on my personal understanding of the law of and an exercise in discovering the law; all constructive criticism are welcome and I shall stand corrected.
[2] Equity in the Modern Law: An Exercise in Taxonomy by Peter Birks, Regius Professor of Civil Law, All Soul College, Oxford. From the revised text of 4 lectures given for the UWA Law School (Perth. June 1996).
[3] LATE DOWNING PROFESSOR OF THE LAWS OF ENGLAND IN THE UNIVERSITY OF CAMBRIDGE in Equity and the form of action at Common law.
[4] And, as it is said in Rook’s case, (5 Rep: 99. 6.) that discretion is a science, not to act arbitrarily, according to men’s wills and private affections ; so the discretion, which is executed here, is to be governed by the rules of law and equity, which are not to oppose, but each in its turn to be subservient to the other. This discretion in some case follows the law implicitly in others assists it and advances the remedy ; in others again it relieves against the abuse or allays the rigour of it ; but in no case does it contradict or overturn the grounds or principles thereof, as has been sometimes ignorantly imputed to this Court. That is a discretionary power, which neither this nor any other Court, not even the highest, acting in a judicial capacity, is by the constitution entrusted with.” This description is full and judicious, and what ought to be deeply imprinted on the mind of every Judge. Sir Thomas Clarke in pronouncing his judgment in the case of Burgess v Wheate, (1 W. Black. R. 123,) has adopted this very language, and given it his full approbation.
[5] This maxim has two meanings – (a.) Equity is governed by the rules of law as to legal estates, rights, and interests. (b.) Equity is regulated by the analogy of such legal rights and interests, and the rules of law affecting the same, in regard to equitable estates, rights, and interests, where any such analogy clearly subsists, The Principles of Equity, EDMUND HENRY TURNER SNELL at page second edition at pages 13 – 14.
[6] S 206. Need for proper instrument of dealing duly registered. (1) Subject to the following provisions of this section- (a) every dealing under this Act shall be effected by an instrument complying with the requirements of sections 207 to 212; and (b) no instrument effecting any such dealing shall operate to transfer the title to any alienated land or, as the case may be, to create, transfer or otherwise affect any interest therein, until it has been registered under Part Eighteen.”
[7] S 303 (d) in the case of any dealing effected by a person or body who is registered as trustee or representative, or by the Official Assignee in his capacity as such, he shall not be concerned to enquire whether the dealing is consistent with the trusts by which the land or interest in question is affected or contrary to any prohibition or limitation in the instrument creating the trusts.
[8] see the then Federal Court judgment in TEH BEE v K MARUTHAMUTHU [1977] 2 MLJ 7, at page 12.
[9] “If a trustee sells trust property under such circumstances that the sale is a breach of trust, the cestui que trust has two alternative courses open to him. (1) He may adopt the sale as a sale made in the performance of the trust. In that case he has no rights against the purchaser and no right to an account against the trustee. His only right is to treat the proceeds of sale or the investments representing them as still subject to the trust. The trustee cannot set up his own breach of trust in answer to the claim of his cestui que trust (s). “A cestui que trust,” said Wigram, V.C., in Pinkett v. Wright (t), “may have a right to complain of an irregularity in the execution of a trust, and may repudiate an investment not authorised by the trust ; but the trustee who made the investment with trust money and for the purposes of the trust, cannot arbitrarily say that he will claim the investment as his own, and be a debtor personally to his cestui que trust for the breach of trust he has committed.” (2) The cestui que trust may, on the other hand, treat the sale as a breach of trust, and in this case he may have two rights. If the purchaser had notice that the sale to him was made in breach of trust, the cestui que trust can treat the property sold as still subject to the trust, and can recover it from the purchaser. Or he can, if he prefers, make the trustee who has sold liable personally — as for a breach of trust.”, pages 185 – 186 ibid.
[10] “I propose simply to apply myself to the case of a purchaser for valuable consideration, without notice, obtaining, upon the occasion of his purchase, and by means of his purchase deed, some legal estate, some legal right, some legal advantage; and, according to my view of the established law of this Court, such a purchaser’s plea of a purchase for valuable consideration without notice is an absolute, unqualified, unanswerable defence, and an unanswerable plea to the jurisdiction of this Court. Such a purchaser, when he has once put in that plea, may be interrogated and tested to any ,extent as to the valuable consideration which he has given in-order to shew the bona fades or mala fades of his purchase, and also the presence or the absence of notice; but when once he has gone through that ordeal, and has satisfied the terms of the plea of purchase for valuable consideration without notice, then, according to my judgment, this Court has no jurisdiction whatever to do anything more than to let him depart in possession of that legal estate, that legal right, that legal advantage which he has obtained, whatever it may be. In such a case a purchaser is entitled to hold that which, without breach of duty, he has had conveyed to him”, see Sir W.M. James, L.J. in the Chancery Appeal judgment of Pilcher v. Rawlins L.R. 7 Ch. 2 59, at page 268.
[11] “The execution of instruments by a person under some legal disability seems to refer to cases of personal disability, such as infancy or lunacy, but not mere inability to deal with the property by reason of some statute or contract. It is the want of genuineness in the instrument and not the absence of right to deal with the property that makes the registration inconclusive even though the person registered on the faith of the instrument have no notice of the invalidity. Thus, a convict’s transfer may be good, and the register conclusive in favour of a purchaser without notice. And a transfer by a lessee in the face of a covenant not to assign might result in the registered transferee having a conclusive title”, see Registration of Title to Land throughout the Empire, by James Edward Hogg at page 146.