In the Matter of the Land Registration Ordinance and a Memorial of Mortgage. Misc. Civ. Case 43-D-67; 31/10/69; Georges C.J.

In the Matter of the Land Registration Ordinance and a Memorial of Mortgage. Misc. Civ. Case 43-D-67; 31/10/69; Georges C.J.

A petition was presented to the Registrar of Titles to have a memorial of mortgage removed from the register of a title. The certificate of Title was in the name of the applicant, Mr. Karsan. The Registrar refused to act, on the ground that he might be found to have an interest in the matter if compensation should be sought from the Assurance fund if rectification was ordered. An advocate, Shah, had practiced in Dar es Salaam until 1965 when he absconded to India. He was, or appeared to be, a close friend of Mr. Karson and acted as his legal adviser. Mr. Karsan bought the suit property in 1964 and Mr. Shah acted for him. Karsan did not inspect the title deed. He paid the purchase price by installments. Thereafter he kept asking Shah for the Certificate of Title. Shah, after much delay, eventually gave him a document which Karsan did not inspect. The document was forgery. Shs then went to India, and later a Mr. Somji approached Karsan asking for interest on a mortgage which he held over the property. On investigation, Karsan discovered that a memorial of mortgage had been registered and his signature on the memorial had also been forged. It appeared that Shah through a third party had approached Somji to obtain a mortgage over the property. The third party told Somji that Shah was acting for Karsan. Somji agreed and later and the third party showed him the forged memorial of mortgage. Somji signed the mortgage and gave a cheque which, for a reason that remained obscure, was made out to Shah. Shah was later extradited from India, charged with forgery, pleaded guilty and sent to jail for 3 years. The Land Registration Ordinance Cap. 334 section 99 reads in part as follows:- “99(1) Subject to any express provisions of this Ordinance, the land register may be rectified pursuant to an order of the High Court or by the Registrar, subject to an appeal by the High Court, in any of the following cases: …. (d) where the High Court or the Registrar is satisfied that any memorial in the land register has been obtained by fraud: (2) The land register shall not be rectified so as to affect the title of an owner of an estate who is in possession:- (a) unless such owner is a party or privy or has caused or substantially contributed to the fraud, mistake or omission in consequence of which such rectification is sought; or (b) unless the immediate disposition to him was void ….; or (c) unless for any other reason, in any particular case it is considered that it would be unjust not to rectify the register against him.

            Held: (1) “The citation on p. 492 of Korr (op cit) dealing with the liability of a principal for the fraud of his agent when acting in the course of his employment [is relevant]. The principle is, however, applicable only where the agent is acting within the scope of his authority. Mr. Karsan had not authorized Shs to raise money on his behalf. Indeed he had not even entrusted the certificate of title to his hands for safe keeping. He had asked for his certificate of title after the purchase of the property had been completed and had been fooled with a forgery. Shah’s possession of the certificate from then on could be as better than the possession of a thief and it seems to me quite unrealistic to claim that Mr. Karsan could be responsible for Shah’s acts as his own. Much reliance was placed on the case of Lloyd v. Grace Smith and Co. [1912] A.C. 716….. the situations are so different that no paralled can be drawn the clerk was in the full employ of the principal and engaged in the particular tasks for which he was employed. Mr. Karsan never engaged the services of Shah in the transaction under review. He was not acting within the scope of his authority. He had not even been appointed an agent.” (2) “Leaving title deeds in the custody of advocates for safe keeping is a common custom. The fact that an advocate holds a title deed does not justify an inference that he is authorized to raise money on the security of the property. The possession of the title deed does not invest him with authority to pledge the property. If he does this he cannot be said to be acting within the acope of his authority. No one should be entitled to assume that an advocate is acting for a client in any matter merely because this advocate has previously acted for the client in other unrelated matters. An agency by estoppel cannot be held to have been created unless the alleged principal by words or conduct represents or permits it to be represented that another person has authority to act for him. Mr. Karsan made no such representation to Mr. Somji in relation to Shs. There had never even been any previous transaction between Mr. Somji and Mr. Karsan in which Shah had acted for Mr. Karsan …….. “All that [Mr. Somji] knew was that by general repute Shah and Mr. Karsan were great friends. This cannot be a basis for setting up a representation on which agency by estoppels can be held to exist ….. The principle is very clearly stated in Rimmer v. Webster [1902]2 Ch. 163 …….. it has been restated in the case of Mercantile Bank of India v. Central Bank of India where the following passage from Johnson v. Credit Lyonnais Co. 3 C.P.D. 36 was quoted with approval:- “The mere possession of the property of another without authority to deal with the thin …. Otherwise than for safe custody … will not, if the person so in possession takes upon himself to sell or pledge to a third party, divest the owner of his rights against a third party, however innocent in the transaction the latter may have been.” As I have already mentioned the case for Mr. Karsan is even stronger than this since Shah’s possession of the certificate of title was not that of a custodian appointed by the owner but was that of a person who by a trick had retained possession while leading the owner to believe that he had not. It was dishonest.” (3) “In any even I would hold that there is no obligation on a person purchasing a property to examine a certificate of title himself. He cans properly and without negligence leave to his advocate the task of ensuring that the document which he receives is a proper document effectively conveying to him the interest which he had purchased. There would be no need for advocates if clients had the still to scrutinize documents of title, note minor discrepancies and draw correct conclusions as to their importance … A client is expected to have some faith in the integrity of his advocate. He is not to be expected to treat him in the manner of an officer of police scrutinising the words and actions of a suspected offender. Business would be impossible on that basis. One engages an advocate because on lacks the necessary knowledge to handle a transaction or because the law insists that only an advocate can act in the matter … Since there was a fraud and since Mr. Karsan

did not cause or contribute to it in any way then he is entitled to have the register rectified.” (4) At the hearing of the action before me the Registrar General was represented by advocate who agreed on his behalf to be bound by any order the Court might think fit to make on the question of payment of compensation out of the assurance fund to any person who may have suffered loss as a result of the registration of any document which ought not to have been registered. The relevant provisions are section 100(1) & (4) of the Act. (The Chief Justice then quoted the section). On the evidence I have no cause to find the Registrar General in any way negligent. But negligence on the part of the Registrar General appears to me quite irrelevant in the scheme of the Ordinance. Compensation is not dependent on his negligence ….. [It was] further argued that Mr. Karsan had not suffered any loss “by reason of any rectification of the land register”. He had suffered loss because he had accepted a forged mortgage. This was quite independent of registration. The document which he had had placed on the register was a nullity in any event and the loss could not be said to have been caused by its removal. This argument was rejected by Kekewick J. in the court of first instance in Attorney-General v. Odell [1906] 2 Ch. 47 at p. 55. (The Chief Justice then quoted the passage). In the Court of Appeal this decision was reversed …… some of the reasoning of the members of the Court would indicate that they did not seem to accept the analysis by Kekewick J. quoted above. Vaughan Williams C. J. in particular at p. 75 held: - “The act of the register is a mere ministerial act in the performance of a ministerial duty. It confers on the transferee no estate or right which he had not before registration. The utmost it confers on him is the capacity to transfer, to a purchaser for valuable consideration unaware of any irregularity in the transaction. But it may be said that Mr. Odell has, by the rectification of the register, lost this capacity to transfer, because until the rectification by the erasure of his name from the register, he could have given a good title to a transferee of the charge for valuable consideration and that by erasure he has lost this; but I do not think that it is by erasure he has lost this capacity. He could not, in my judgment have exercised this power … after notice of the fact of the forgery and I think he could be restrained by injunction from so doing.” The argument, it would appear to me, are both strong. For my part the view expressed by Kekewick J. would appear to be a more reasonable construction of the Ordinance and I would not be prepared to hold that Mr. Somji has not suffered loss by reason of the rectification of the register merely because the document which was registered on his behalf was a forgery. I am much impressed by the view that until the forgery had been discovered there were rights that he could exercise. He was capable of passing a good title. Indeed the register could not have been rectified against a bonafide purchaser for value from Mr. Somji. In my judgment, however, Mr. Somji was negligent and his negligence contributed substantially to his loss. For that reason I would hold that he is not entitled to indemnification from the assurance fund. In Gibbs v. Nesser [1891] A.C. 248 Lord Watson stated as follows: - “In the opinion of their lordships the duty of ascertaining the identity of the principal for whom an agent professes to act with the person who stands on the register as proprietor and of seeing that they get a genuine deed executed by that principal rests with the mortgagees themselves and if they accept a forgery they must bear the consequences.” This appears to me to be sound business commonsense. It was extremely negligent on Mr. Somji’s part to have accepted the word of Kanji

Nanji that he was raising a loan for Mr. Karsan through Shah when he had spoken neither to Shah nor to Mr. Karsan. It is not placing an undue burden on mortgagees to specify that they should made enquiries to ensure applicants for loans are indeed the persons whom loan agents allege that they are. This involves far less astuteness than would be required on the part of clients if they were expected to scrutinize all documents handed to them by their legal advisers against the possibility that these documents might be forgeries.”  (5) Ordered that the Registrar General rectify the register by deleting the memorial of mortgage.