Wednesday, 4 February 2009

Guy Lebon v. Aqua Salt Limited

Privy Council Appeal No 26 of 2007










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Delivered the 4th February 2009

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Present at the hearing:-

Lord Hoffmann

Lord Rodger of Earlsferry

Lord Walker of Gestingthorpe

Lord Mance

Sir Jonathan Parker

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[Delivered by Lord Hoffmann]

1. This appeal arises out of an action for possession of a dwelling house and garage standing on 15 perches of land at Les Salines, Roches Noires (“the house”). The transactions which gave rise to the dispute took place between 1980 and 1983 and the dispute itself goes back to 1984. The trial took place over a number of days between July 2000 and March 2002 and judgment was delivered on 6 June 2002, ordering the defendants to deliver up possession. An appeal to the Supreme Court was dismissed on 27 April 2006. The defendant appeals to the Privy Council.

2. Some of the facts are obscure, partly because of the deaths of two important participants in the relevant transactions and the fading of the memories of others and partly because some questions were not explored at the trial. What seems clear enough is that in November 1981 Mr Gujadhur Jingree agreed to sell the house to the first Defendant Mr Guy Lebon, who purchased as agent for his step-brother, the second defendant Mr Claude Bonnenfant. Mr Jingree’s testimony on the point was unavailable because he died some years before the trial, but Mr Lebon gave unchallenged evidence about the agreement and produced a document dated 28 November 1981, signed by Mr Jingree, acknowledging the receipt from “Guy Lebon de la part de Mr Claude Bonnefant” of Rs 55,000, “représentant la vente d’un terrain de 15 perches avec un maison en ciment…la Saline à Roches Noires. Le contrat sera fait a la fin de decembre 1983.”

3. Equally clear is that Mr Jingree did not have title to the land. However, the land on which the house stood was part of an old salt works covering 9 arpents and 35 perches (“the salt works”), owned at the time by a company called Black Rocks Ltd. Mr Lebon said at the trial that Mr Jingree had shown him a bordereau which he said evidenced an agreement by which he had agreed to buy the salt works. A document was produced purporting to be a sale or agreement for sale dated 27 November 1980 by which Black Rocks agreed to sell the salt works to Mr Jingree and his wife for Rs 250,000, of which Rs 50,000 had been paid. There was much dispute over the authenticity of this document (as to which the judge in the end made no finding) but there seems to be no doubt on two points; first, that, as the judge found, it did not pass title to Mr Jingree and secondly, that there must have been some contractual arrangement between Black Rocks and Mr Jingree, which has been variously characterised as an option to purchase or an uncompleted agreement. The existence of such an arrangement is supported by Mr Lebon’s unchallenged evidence that he lent Mr Jingree the Rs 50,000 to pay the first instalment of the price, raising the money by a loan from his bank guaranteed by Mr Jingree. The evidence is not altogether clear but it seems that Mr Jingree must have repaid the loan out of the proceeds of sale of the house.

4. Presumably the lengthy period which Mr Jingree’s agreement with Black Rocks allowed for completion was to enable Mr Jingree to raise the rest of the money to buy the salt works. He did so by finding three other investors: Mr Lim, Mr Toon and Mr Hart de Keating, who agreed to participate with him in the formation of a company to acquire the land. It was called Aqua Salt Co. Ltd (“Aqua”) and was incorporated on 15 December 1983 with a memorandum of association declaring that its main object was to produce salt. The share capital of Rs 500,000 was divided into 5,000 shares of Rs 100 each: one Promoter’s Share A (allotted to Mr Lim), three Promoters’ Shares B (allotted to Mr Toon, Mr Jingree and Mr Hart de Keating) and 4996 Ordinary Shares, allotted as to 1599 each to Mr Toon and Mr Hart de Keating and as to 899 each to Mr Lim and Mr Jingree. The Promoter’s Share A gave Mr Lim the right to be managing director and the Promoters’ Shares B gave each of the other three the right to a seat on the Board.

5. On 16 December 1983 Mr and Mrs Jingree executed a document by which they formally renounced their interest in the salt works, declaring that they would have no claim against Black Rocks or against Aqua, which was “due to purchase [the property] very shortly.” That suggests the previous existence of a contract of purchase or at any rate a right to buy of which the Jingrees were the beneficiaries. Completion of the sale by Black Rock to Aqua for Rs 250,000 in fact took place on 10 February 1984 by the execution of a notarised deed, which was subsequently registered.

6. It is not altogether clear what the other shareholders knew of Mr Jingree’s dealings with Mr Lebon or even the fact that he and his family were in occupation of the house. It appears from the pleadings in a case brought in the Mapou Magistrates’ Court against Mr Lim, the managing director of Aqua, that he was quick off the mark in taking possession of the land comprised in the sale of the salt works. Mr Lebon alleged that on 15 December 1983, two days after the formation of Aqua, Mr Lim put building materials on the right of way by which the occupants of the house obtained access to the main road. On 4 February 1984 he entered upon the land and threatened to demolish the garage which Mr Lebon was building. On 6 February 1984 Mr Lebon commenced his proceedings against Mr Lim personally, asking for an injunction to require him to remove the obstruction from the right of way and to restrain him from interfering with Mr Lebon’s quiet possession.

7. Mr Lim also died before the commencement of the trial, so his account of these events is lacking. It is suggested that Mr Lim must have learned of the sale by Mr Jingree to Mr Lebon from the process served upon him a few days before the execution of the deed of sale in favour of Aqua. But the plaint says nothing about such a sale. It appears to have been carefully drafted to assert no more than a possessory title.

8. It appears that Aqua retaliated by applying in the Supreme Court for a writ of habere facias possessionem in respect of the house, relying upon the title which it had acquired from Black Rocks. The affidavits sworn in these proceedings were produced at the trial but do not appear to have been made part of the record. Their Lordships are therefore obliged to piece together their contents as best they can from fragments which were read in court and went onto the transcript. Mr Lim swore the founding affidavit dated 20 March 1984; there was an affidavit in answer from Mr Lebon dated 23 May 1984 and a reply from Mr Lim dated 7 June 1984. Mr Lebon’s evidence appears to have been that Mr Jingree had purchased the salt works from Black Rocks, including the 15 perches on which the house was built, and then agreed to sell the 15 perches to Mr Bonnenfant on 28 November 1981. Mr Lim’s reply was to accept that Mr Jingree had agreed to buy the salt works but to aver that “the sale…was made under certain conditions viz (a) the sale was made under conditions suspensive (b) the authentic deed of purchase to be drawn up on payment.”

9. Rather oddly, Mr Lim’s affidavit in reply appears to have denied that the house had formed part of the salt works. It appears up to that point to have been assumed by everyone that it did; Mr Lebon had so asserted in his affidavit, attempting to establish a chain of title from Black Rocks through Mr Jingree. Quite why Mr Lim should have suggested that Mr Jingree had sold Mr Lebon some other piece of land with a concrete building must remain a mystery. Perhaps it reflects a garbled explanation he was given by Mr Jingree, who may have had some difficulty in explaining to the other investors for the first time that he had sold off the house. But there appears to their Lordships to be no doubt that the house and its 15 perches formed part of the salt works owned by Black Rock and sold to Aqua.

10. The judgment of Espitalier-Noel J in the habere facias possessionem proceedings, delivered on the 2 November 1984, is instructive because it is based on affidavits sworn at a time when the relevant events were fairly recent and all the participants were alive. He said:

“The evidence as it stands sufficiently reveals the following: In 1981, Gujadhur Jingree agreed to sell the fifteen perches together with the concrete building thereon existing to Claude Bonnenfant who paid the agreed purchase price of Rs 55,000 and occupied the property, either by himself or through the respondent, his proxy.

Gujadhur Jingree had himself previously purchased from Black Rocks Co Ltd the property of 9A35 perches…subject to the sale being perfected by an authentic deed of sale being drawn up on payment in full by Jingree of the purchase price.

This being the case, it is common ground that Bonnenfant could only acquire a valid title to the property … from Jingree on the latter perfecting his own purchase from Black Rocks Co Ltd.

This Jingree did not do. He renounced his purchase from Black Rocks Co Ltd on the 16th December 1983, three days after the applicant company (Aqua Salt Co Ltd) was formed of which he (Jingree) was a promoter, one of three (or four) shareholders, and a director and it was the company which, on the 10th February 1984, by notarial deed, purchased the 9A 35 from Black Rocks Co Ltd.

The defence raised by the respondent to the effect that the applicant company was well aware of Jingree’s commitment towards Bonnenfant and would have acted in fraudulent collusion with Jingree in purporting to purchase the property in its own name, seriously, I find, questions the genuineness itself of the applicant company’s title – a matter requiring canvassing in court.

The present application is accordingly refused with costs.”

11. Their Lordships consider that this judgment identifies the issue with economy and precision. Section 5 of the Transcription and Mortgage Act 1863 provides that ―

“…no right in immoveable property under a deed or judgment shall be maintained against a third party whose rights are secured by law over the immoveable property to which the deed or judgment applies, unless the deed or judgment has been transcribed.”

12. Even if they were deeds (which they do not appear to have been), neither the agreement between Black Rocks and Mr Jingree nor the agreement between Mr Jingree and Lebon were transcribed. In terms of the statute, therefore, they do not enable Mr Lebon to maintain any right against Aqua.

13. In English law, that may have been the end of the matter (see Midland Bank Trust Co Ltd v Green [1981] AC 513) but the law of Mauritius, like most systems based on civil law, provides an exception for cases in which the purchaser is in bad faith. The position is clearly explained by Caunhye J in the recent case of Soobramanien v Jogoo (15 February 2007). After setting out the effect of section 5 of the 1863 Act, he said:

“But that is not the end of the matter…Where the beneficiary of a promesse de vente has failed to transcribe the deed, he can still safeguard his rights if he can prove that the second purchaser knew at the time of his purchase that the land was already the subject matter of a sale agreement to another person. The following excerpt from Encyclopédie Dalloz Droit Civil [Vol VIII Vo Promesse de Vente] clearly explains the position:

171…Si le vendeur aliène l’immeuble au mepris de la promesse non publiée, et si le tiers acquéreur publie son acquisition, le bénéficiare du premier ‘compromis de vente’ se trouvera en principe évincé…

172 Cette dernière solution reçoit, cependant, exception au cas où le bénéficiare parvient à prouver que le deuxième acquéreur connaissait, au moment où il a acheté, l’existence de la vente initiale; il a été jugé en ce sens que l’acquisition d’un immeuble, en connaissance de sa vente antérieure, est constitutive d’une faute ne permettant pas à l’acheteur d’invoquer les règles de la publicité foncière.”

14. Hence the issue identified by Espitalier-Noel J, namely, whether, at the time it bought the salt works, Aqua had knowledge of the previous agreement to sell the house to Mr Lebon. The judge appears to have taken it for granted that Mr Lebon was the beneficiary of a promesse de vente and that seems to their Lordships correct. The case of Soobramanien, to which reference has already been made, shows that an agreement to sell is for these purposes a promesse de vente even though it provides (as in the agreement between Black Rocks and Mr Jingaree) that payment will be by instalments and that an authentic deed of sale will be executed only after the full price has been paid. The agreement between Mr Jingaree and Mr Lebon was undoubtedly a promesse de vente which obliged Mr Jingaree to get in the title from Black Rocks and transfer ownership to Mr Lebon or his principal Mr Bonnenfant. Their Lordships consider that Mr Lebon was thereby entitled to exercise whatever rights Mr Jingaree had against Black Rocks in respect of the 15 perches and to be treated as bénéficiare of the promesse de vente in respect of that land.

15. At the eventual trial of the action before Lam Shang Leen J, the issues on the pleadings were, first, whether Mr Lebon had acquired title to the land and secondly, whether, as alleged in the amended defence and counterclaim, Jingaree, as a director of Aqua, had “mala fide and de connivance” with Aqua renounced his rights to allow Aqua to purchase “irrespective of the defendant’s rights to the 15 perches…” The judge had no difficulty in finding that Mr Lebon had not acquired title. The document evidencing the sale by Black Rocks to Jingaree was probably not a deed and in any event had not been transcribed. The same was true of the sale by Jingaree to Mr Lebon. In this respect, the judge came to the same conclusion after a lengthy trial as Espitalier-Noel J had done on affidavit evidence eight years earlier.

16. The more difficult question was whether Aqua had known of the sale to Mr Lebon. For this purpose, it was necessary to decide, first, whose knowledge was attributable to Aqua and secondly, whether as a matter of fact, that person or those persons knew of the sale.

17. The judge found as a fact that no member of the Board, other than Mr Jingree himself, had known of the sale:

“I further find that the defence has failed to prove on a balance of probability that there was a conspiracy between Mr Gajadhur Jingree and the plaintiff company to deprive [Mr Bonnenfant] of 15 perches of the land belonging to Black Rocks Ltd. It is insufficient to say that Mr Gajadhur Jingree was a shareholder and founder member of plaintiff company to infer that the plaintiff company was therefore a party to a conspiracy to dispossess [Mr Bonnenfant] of land for which he had effected payment to Mr Gajadhur Jingree. Mr Hart de Keating was adamant that the plaintiff company through its representatives had in good faith purchased 9A35 perches of land from Black Rocks Ltd which was duly represented and I do not doubt his words.”

18. The Supreme Court affirmed these findings. Mr Birnbaum QC, who appeared for the appellants, invited the Board to hold that these concurrent findings of fact were wrong. Mr Hart de Keating should not have been believed. Their Lordships think that this is a hopeless submission. There is nothing in the transcript which appears to their Lordships to cast the slightest doubt on Mr Hart de Keating’s veracity. On the contrary, it supports the judge’s opinion that he was a reliable witness. Mr Birnbaum also said that the judge should have found that Mr Lim knew about the previous sale. Again, there is nothing in the evidence which would support such a finding.

19. The issue is therefore a very narrow one. The one person who undoubtedly had knowledge of the earlier sale was Jingree. Is his knowledge attributable to Acqa? Was Lam Shang Leen J right in saying that it was “insufficient to say that Mr Gajadhur Jingree was a shareholder and founder member of plaintiff company”? If that is right, then the appeal must fail. On the other hand, if Mr Jingree’s knowledge counted for this purpose as the knowledge of Aqua, then Aqua did not acquire the land in good faith and Mr Lebon’s promesse de vente is enforceable against it.

20. Their Lordships feel some difficulty about dealing with this question because it does not appear to have been raised in quite this form in any of the courts below, although the way in which Lam Shang Leen J formulated his reasons suggests that it had been submitted on behalf of Mr Lebon that it would be sufficient to say that Mr Jingree was a shareholder and founder member of Aqua. But the point was not argued before the Supreme Court or mentioned in the appellants’ printed case before the Board. In fact their Lordships regrettably feel bound to record that neither they nor the Supreme Court received from the respective counsel representing the appellant the assistance they were entitled to expect. In the appellant’s opening submissions to the Board, no reference was made to the Mauritian law protecting the beneficiary of a promesse de vente against a subsequent purchaser with knowledge of his contract. The authority to which their Lordships have referred was produced by counsel for the respondent. And at no stage has there been any discussion of what, in the case of a corporate purchaser, would count as the knowledge of the company.

21. After careful consideration, however, their Lordships have decided that they should decide the point. It is a point of law arising out of undisputed (or indisputable) evidence. There would be no prejudice to the respondent which cannot be compensated by an appropriate award of costs. On the other hand, to refuse to consider the matter could be an injustice to the appellants.

22. A corporate body can have knowledge only by the attribution of the knowledge of a natural person. The principles upon which one decides whose knowledge should count as the knowledge of a corporate body were discussed by the Privy Council in Meridian Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500. The Board said at p 507 that if a given rule of substantive law (such as the rule that a purchaser of land who knows of a prior sale will not take free of the rights of the first purchaser) applies to a company, the question of whose knowledge counts as that of the company will depend upon the interpretation and purpose of the substantive rule:

“given that [the substantive rule] was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy… [T]he rule of attribution is a matter of interpretation or construction of the relevant substantive rule...”

23. Thus, in the Meridian case itself, the substantive rule required a company to notify the Securities Commission when it knew that it was the holder of more than a certain number of shares. The Board decided that for the purposes of this rule, the persons whose knowledge should be attributed to the company were those who had authority to acquire the shares. Otherwise the policy of the rule would be defeated (p 511):

“Companies would be able to allow employees to acquire interests on their behalf which made them substantial security holders but would not have to report them until the board or someone else in senior management got to know about it. This would put a premium on the board paying as little attention as possible to what its investment managers were doing.”

24. An earlier example of the application of these principles is Al Ajou v Dollar Land Holdings Ltd [1994] 2 All ER 685, in which the knowledge of the chairman that money received by the company had been obtained by fraud was attributed to the company. More recently, in Jafari-Fini v Skillglass Ltd [2007] EWCA Civ 261, the question was whether information that a bribe had been paid to one of the parties had “come to the attention” of a company for the purposes of a provision in a financing agreement which required it to make full disclosure of all such information material to the agreement. It had in fact come to the attention of only one of the directors. In the Court of Appeal, Moore-Bick LJ said (at paragraph 98):

“The question in the present case is whether information which comes to the attention of one director, but which he has not shared with the rest of the board, is to be treated as information in the possession of the company. .. In general…I think that information relevant to the company's affairs that comes into the possession of one director, however that may occur, can properly be regarded as information in the possession of the company itself. In my view that presumption informs the present contract and points to the conclusion that information in the possession of [the director] relating to the bribe is to be regarded as information in the possession of [the company] itself.

25. The rule that a second purchaser with actual notice of the first purchase cannot rely upon the requirements of public notice by transcription or registration is based, as the Encyclopédie Dalloz puts it, upon the proposition that reliance on those requirements would be a “faute” on the part of the first purchaser. It would be inequitable for him to rely on them, because he already had all the information which transcription would have given him. It is therefore necessary to ask which rule of attribution would best serve the purpose of this rule. If one of the directors knows of the previous sale at the time of the purchase but omits to tell the other directors and allows the sale to go ahead, would it be equitable for the company to be able to rely on the lack of transcription to override the rights of the earlier purchaser?

26. Their Lordships consider on the facts of this case, the substantive rule requires the knowledge of Mr Jingree to be attributed to Aqua. There is no reason why the general principle formulated by Moore-Bick LJ should not apply. The formation of the company was the means by which Mr Jingree exploited the agreement he had made with Black Rocks three years earlier. If he had been able to raise the money himself and obtain title by authentic deed, he would undoubtedly have been bound by his agreement with Mr Lebon. In the event, the purchase was made by the company. But Mr Jingree was a promoter, director and substantial shareholder. It is true that he did not represent the company before the notary, but that was a mere formality. What matters is that the company purchased by virtue of the arrangements he had made with Black Rocks and that he was a director at the time of the purchase. It may have been a breach of his duty to the company and the other investors not to disclose that he had sold the house, but that should not give the company better rights against Mr Lebon than he alone would have had. In those circumstances, their Lordships consider that Mr Jingree’s knowledge should be attributed to Acqa, which was therefore bound by the sale to Mr Lebon.

27. Their Lordships will therefore allow the appeal and declare that Mr Bonnenfant is entitled as against Aqua to the execution of an authentic deed transferring ownership of the house and garage on the 15 perches sold to him pursuant to the 1981 contract with Mr Lebon. The parties have 14 days in which to make submissions in writing on costs.