Abeyesundera v. Ceylon Exports, Ltd.
[In the Privy Council.]
1936 Present : Lord Blanesburgfi, Lord Maugham, and Lord Roche.ABEYESUNDERA v. CEYLON EXPORTS, LTD., et al.Registration—Fraud in obtaining prior registration—Meaning of words “ fraudand collusion ”—Sale of minor’s property by guardian—Purchase withknowledge of fraud—Purchaser a constructive trustee for minor—Registration of Documents Ordinance, No. 23 of 1927, s. 7—Trusts Ordinance, No. 9 of 1917, s. 118.
In Ceylon mere notice of- a prior unregistered instrument is not ofitself sufficient evidence of fraud so as to deprive a person registeringof the priority conferred by section 7 of the Registration of DocumentsOrdinance, No. 23 of 1927. The words “ fraud and collusion ” in thesection import serious moral blame.
A bought property from the guardian of a minor who, to A’s knowledge,refrained from registering the instrument creating title in favour of theminor in order to deprive the minor of the property.
A thereafter obtained a Crown grant for the property by concealing thefact that the beneficial owner of the village title was the minor.
Held, that A became a constructive trustee of the minor for theestate included in the Crown grant.
Section 118 of the Trust Ordinance, No. 9 of 1917, makes the Englishlaw applicable to trusts or obligations in the nature of a trust arising orresulting by implication or construction of law which has not been,provided for by the Ordinance.
118 Delivered by LORD MAUGHAM—Abeyesundera v. Ceylon Exports, Ltd,
_A. PPEAL from a judgment of the Supreme Court of Ceylon
July 9, 1936. Delivered by Lord Maugham—
This is an appeal from the decree of the Supreme Court of the Islandof Ceylon dated October 23, 1933, setting aside a decree of the DistrictJudge of Kurunegala dated April 29, 1932. The latter decree dismissedthe action wherein the original plaintiff was one John de Silva Rajapakseand the original defendant was the present appellant.
The original plaintiff instituted the action as long ago as November30, 1926, for a declaration that he was entitled under a deed of giftNo. 1,294 of September 21, 1908, executed in his favour when a minoraged five years by his father W. Benjamin Rajapakse (who was added asdefendant in the course of the proceedings but has not appeared beforethis Board), to a property called Raigamwatta consisting of six specifiedlots of land of the aggregate extent of about 250 acres. The problemsthat arise for decision in the proceedings are due to the circumstancethat the added defendant whom it will be convenient to call BenjaminRajapakse, nothwithstanding the deed of gift executed by him in 1908,purported by a deed of transfer No. 5,487 dated September 28, 1915,to convey the same estate to the appellant who thereupon entered intopossession of the estate and was still there when the proceedings werecommenced.
The claim of the appellant so far as it is based on the deed of transferfrom Benjamin Rajapakse depends upon the provisions of a RegistrationOrdinance, No. 14 of 1891. It has been replaced by an Ordinance No. 23of 1927 in practically identical terms but it is the Ordinance of 1891which was in force at the relevant period. Section 17 of OrdinanceNo. 14 of 1891 was in the following terms : —
“ Every deed, judgment, order or other instrument as aforesaidunless so registered, shall be deemed void as against all parties claimingan adverse interest thereto on valuable consideration, by virtue ofany subsequent deed, judgment, order, or other instrument whichshall have been duly registered as aforesaid. Provided, however,that fraud or collusion in obtaining such last mentioned deed, judg-ment, order, or other instrument, or in securing such prior registration,shall defeat that priority of the person claiming thereunder ; and thatnothing herein contained shall be deemed to give any greater effector different construction to any deed, judgment, order, or other instru-ment registered in pursuance hereof save the priority hereby conferredon it.”
It was contended that since the deed of gift of 1908 had not beenregistered at the time when the deed of transfer of 1915 was registered,namely, on October 1, 1915, the former was void as against the appellant.This conclusion would, no doubt, follow subject to the effect, if any,of the proviso that fraud or collusion in obtaining the transfer woulddefeat the priority of the person claiming under that document. Thequestion whether such fraud or collusion had been established was themain question in debate in Ceylon. Another question of some importance
> 35 A'. //. n. 417.
Delivered by LORD MAUGHAM—Abeyesundera v. Ceylon Exports, Ltd. 119
was also raised which will have to be the subject of separate consideration,but it seems best to dispose of the question of fraud or collusion beforeembarking on the other question. It should be mentioned here that theDistrict Judge arrived at a conclusion on the question of fact favourableto the appellant but that view was not taken in the Supreme Court.
Benjamin Rajapakse was a landed proprietor and planter who atdifferent times encountered much financial trouble. He was helpedby his brother in 1898. In 1901 he was insolvent with liabilities ofRs. 250,000 and he then settled with his creditors with the help of hisfather. In 1908 he again got into financial difficulty and it is admittedthat his father then agreed to pay or settle his debts if he transferredthe properties he then possessed to the children by his second marriage.Benjamin Rajapakse assented to this proposal, arid as a result the deedof gift already referred to was duly executed in favour of Benjamin’s sonJohn Rajapakse, the original plaintiff, then a child aged about fiveyears and nine months who was living with and under the care of hisfather. The deed of gift contains a declaration that the grant or giftto her son was received and accepted by his mother, the wife of BenjaminRajapakse. Having regard to this acceptance no question could beraised as to the validity of the deed, though it required registrationunder the Ordinance above referred to if it was to avoid the danger of asubsequent deed, judgment, order, or other instrument being registeredpurporting to confer an adverse interest on some other party. In factthe deed of gift was not registered until December 17, 1915. JohnRajapakse also conveyed by deed of gift another estate called Rawitato his two minor daughters and this deed also remained unregistered.After the execution of the deeds of gift the minor children including theoriginal plaintiff John Rajapakse continued to live with their parents up tothe year 1918. Benjamin Rajapakse remained in possession of the landand he proceeded to borrow money on the security of the Raigam estateand of the Rawita estate. As regards the Raigam estate there wasthis difficulty, that the deed of gift or a reference thereto was endorsedin the margin of the title deed relating to the Raigam estate ; but thisdifficulty did not deter Benjamin Rajapakse from his transactions withmoney lenders. The device used was of the simplest character; apiece of paper was pasted over the endorsement so as to conceal it andthus to conceal the existence of the unregistered deed of gift, but theevidence does not establish by whom, and at what date thi^. was done.It should here be mentioned that at one time it was alleged by BenjaminRajapakse that the agreement in 1908 by his father that he would payor settle the debts of his insolvent son, in return for which he was toassign his properties to his minor children, was never carried out by thefather, and that accordingly Benjamin Rajapakse was justified in regard-ing himself as being still the owner of the properties. This view foundfavour with the learned trial Judge, but not with the judges of the SupremeCourt. The matter depended upon inference, and no reliance was or couldhave been rested on the demeanour of Benjamin Rajapakse who, whencalled as a witness at the trial, gave three or four different accounts ofthe matter, accounts which it was impossible to reconcile one with theother. Dalton J., Acting Chief Justice, in his careful judgment elaborately
120 Delivered by LORD MAUGHAM—Abeyesundera v. Ceylon Exports, Ltd.
considers the evidence in relation to this matter and in the opinion of theirLordships nothing would be gained by repeating at length the reasonswhich he stated for coming to the conclusion that there is no groundfor holding that the promise made by the father of Benjamin Rajapaksewas not carried out. Their Lordships will only add that in addition to thepositive evidence of the notary who actually attested the deed of gift in1908, and saw some of the debts paid, strong ground for trusting hisrecollection in this matter is to be found in the circumstance that when.Benjamin Rajapakse was proposing to apply to the Court, with the objectof having the deed of gift declared invalid and the property mentioned init revested in him, he never suggested that the promise of the father hadnot been fulfilled and that the deed of gift had thus been obtained bya consideration which had failed. The suggested ground was of acompletely different character and one which clearly had nothing torecommend it. Their Lordships see no reason to doubt that theSupreme Court rightly came to the conclusion that there was no substancein the suggestion that the promise of the father was not duly carried out.
Benjamin Rajapakse seems to have made no attempt to sell Raigamtill the year 1915, but in that year his liabilities were such that he foundit necessary to endeavour to obtain a purchaser. As a result oneMudaliyar Wijewardene entered into negotiations with him for itspurchase. Benjamin Rajapakse’s title deeds were left with Mr. A.Alvis, the Proctor for the proposed purchaser, and it was then discoveredthat the strip of paper pasted on the deed conveying the property toBenjamin Rajapakse covered the endorsement in relation to the deed ofgift in favour of John Rajapakse. According to the evidence Mr. Alvisthen pointed out to Benjamin Rajapakse his duty to his son to have thedeed of gift registered. It seems clear that it was at this time thatBenjamin Rajapakse suggested that he might obtain the leave of thecourt for a retransfer of the property. Counsel’s opinion was takenon a statement of facts submitted by Mr. Alvis. The opinion was in thefollowing terms : —
“ In my opinion the donor W. B. Rajapakse is neither e;_ tiedto the property nor to have it retransferred to him. The Court willnot sanction such a retransfer. The payment of the mortgage giveshim no rights whatever. The deed of gift being unregistered asubsequent purchaser from the donor for value would get title if heregisters his deed but that does not mean that the donor has title ;that is a result which follows from the special provisions of theRegistration Ordinance.”
It will be noted that the final sentence in this brief opinion was in-accurate in that it made no reference to the proviso in section 17 of Ordi-nance No. 14 of 1891, and did not qualify the statement that a subsequentpurchaser from the vendor for value would get title if he registered hisdeed by remarking that fraud or collusion in obtaining such deed wouldnot defeat the priority under the deed of gift. Mr. Alvis pointed out toWijewardene the difficulties of the position and the prospect of litigation,and the latter declined to proceed with the matter unless BenjaminRajapakse could get the property revested in him.
Delivered by LORD MAUGHAM—Abeyesundera v. Ceylon Exports, Ltd. 121
The next step in the history is that the defendant (the present appellant)came forward as a possible purchaser, and took a deed of transfer of theestate from Benjamin Rajapakse, dated September 28, 1915, in considera-tion of the sum of Rs. 42,500. It is a singular feature of the case thatthe appellant was not called as a witness although there was a charge offraud and collusion against him, and although he was present and hiscounsel called evidence in answer to the plaintiffs’ claim. BenjaminRajapakse, who did give evidence) was, as their Lordships have alreadyindicated, a witness whose statements called for very careful scrutinybefore they could be accepted; but this fact seems to be no suffi-cient ground for the absence of the appellant from the witness box.It was not denied on behalf of the appellant before this Board, thatBenjamin Rajapakse had committed a fraud on his son by conveyingthe property to the appellant after having executed the deed of giftto the former in 1908. The contention on his behalf was that he had in1915 no knowledge of this fraud and owed no duty to John Rajapakseand was not in a fiduciary position as regards him. The Acting ChiefJustice, however, summarizes in very clear terms the state of knowledgeof the appellant when he obtained the conveyance in 1915.
“ He knew of the earlier conveyance, and it seems to me that on thefacts he was aware of a great deal more than the mere existence of aprior and unregistered conveyance. He knew the earlier conveyancewas to the minor son of his grantee, he knew an attempt had beenmade to conceal it and must have suspected that Rajapakse wasthe author of that attempt, he knew that conveyance was unregistered,he knew it was the duty of Rajapakse as father and guardian of his sonto have the earlier deed registered, he knew Counsel had advised thatRajapakse had no title to the property, and was not entitled to have itreconveyed to him, he knew Rajapakse was in the hands of. money-lenders who were pressing him, he knew Rajapakse was trying to sellthis property to others to raise moneyi he was told that if he took aconveyance litigation might result in view of the earlier deed, and itwas a dangerous thing to do, and he knew if Rajapakse registered thedeed to his son as he was told he should do, he (defendant) could noteven plead the benefit of the Registration Ordinance. Knowing allthis, although it probably did not require any persuasion he gotRajapakse during the course of the transaction to undertake not toregister the deed to the minor ; he pushed through the conveyance tohimself with great celerity, he showed no desire to want the advice ofMr. Alvis who nevertheless cautioned him as to the risk he was taking,he dispensed with searches, lent Rajapakse Rs. 40,000 on mortgagewhich in the circumstances put the latter in his power, and could onlyresult in the conveyance which to judge from his actions he seemedbent on obtaining.”
Counsel for the appellant was unable to challenge this statement, buthe placed great reliance on the opinion which has been set out andsuggested that the appellant acted upon the faith of it. It seems, how-ever, to their Lordships in the admitted circumstances of the case thatif the appellant desires to show that he had really been misled by theinaccuracy in the opinion above set forth he should certainly have given
122 Delivered by LORD MAUGHAM—Abeyesv.nd.era v. Ceylon Exports, Ljd.
evidence to that effect- In the view of their Lordships section IT ofOrdinance No. 14 of 1891 does not present any difficult question ofconstruction, though no doubt there may be difficulties of fact in deter-mining in a particular case whether fraud or collusion has been established.Section 16 of the Ordinance contains an elaborate statement of the deeds andother instruments which require registration and it should be observed thatthese include contracts or agreements for the future sale or purchase ortransfer of land and all kinds of accounts of mortgages or encumbrancesaffecting land, as well as of judgments or orders of court affecting land.Their Lordships see no reason for doubting the proposition that inCeylon mere notice of a prior unregistered instrument is not of itselfsufficient evidence of fraud so as to deprive a person registering of thepriority conferred by law. That has been the law in Ceylon since theyear 1877 and a number of authorities are cited in the judgments of theSupreme Court which illustrate the proposition. Nor do their Lordshipsthink that anything would be gained by attempting to define the words“ fraud or collusion ”, though it is probably a good wording rule to holdthat the words import serious moral blame, and that mere constructivefraud resulting from notice would not justify a finding of fraud orcollusion. It may not be improper to add that a question of honestyis not a matter of law, and such a question should present no difficulty topersons capable of appreciating the relevant facts although they may nothave had the advantages of a legal training. In the present caseBenjamin Rajapakse was endeavouring for his own benefit to deprive hisson of the property which he had transferred to him by the deed of gift in1908; the appellant was fully aware of what he was doing and for hisown purposes joined with him in the transaction. There could scarcelybe a plainer case of collusion, which must mean in this connectioncollusion to deprive the person entitled to the land under the priorinstrument of his lawful rights. The various authorities in Ceylon citedin the judgments of the Supreme Court contain some strong examplesjustifying this conclusion. In these circumstances their Lordshipsmust agree with the finding of the Supreme Court upon the subject offraud or collusion with the result that in the circumstances the transferof 1915 obtained no priority or benefit by reason of its prior registration.
The second question which was discussed on the present appeal dependsupon the special facts in relation to the Raigam estate. The land appearsto have been, as regards far the greater portion of it, forest, waste, orchena land situate in a district formerly comprised in the KandyanProvinces. Section 6 of Ordinance No. 12 of 1840 enacts in referenceto such lands as follows : —
“ All forest, waste, unoccupied, or uncultivated lands shall bepresumed to be the property of the Crown until the contrary thereofbe proved, and all chenas and other lands which can be only cultivatedafter intervals of several years shall, if the same be situate within thedistricts formerly comprised in the Kandyan Provinces (wherein nothombo registers have been heretofore established), be deemed tobelong to the Crown and not to be the property of any private personclaiming the same against the Crown, except upon proof only by suchpersons of a sannas or grant for the same, together with satisfactory
Dflivjeted by LORD MAUGHAM—Abeyesundera v. Ceylon Exports, Ltd. 123
evidence as to the limits and boundaries thereof, or of such customarytaxes, dues or services having been rendered within twenty years forthe same as have been rendered within such period for similar landsbeing the property of private proprietors in the same districts; andin all other districts in this Colony such chena and other landswhich' can only be cultivated after intervals of several years shallbe deemed to be forest or waste lands within the meaning of thisclause.”
The appellant has contended that the land must be presumed to beCrown land within the meaning of section 6 and accordingly that havingobtained, as he did, by purchase or grant from the Crown the land inquestion there is no room for the application of-any trust binding suchland and that the action therefore failed. In order to appreciate thispoint it is necessary to consider the circumstances under which theappellant obtained his grant from the Crown.
Benjamin Rajapakse began taking steps for the purpose of obtaininga grant from the Crown in relation to the Raigamwatta estate as earlyas the year 1913. He got Mr. Murray, a surveyor, who was called as awitness, to make what is called a C. Q. P. (certificate of quiet possession)plan of the estate and apparently of some other property. On April 24,1917, the plan and a tenement sheet made by Mr. Murray were sent to anofficial called the Settlement Officer at Colombo with a request that thecertificate of quiet possession should be issued to the defendant. TheSettlement Officer requested the solicitors for the defendant to set outthe defendant’s title ; and the title deeds which purported to show thetitle of Benjamin Rajapakse and the transfer from him to the defendantwere sent to the officer. It should here be stated that, notwithstandingthe terms of Ordinance No. 12 of 1840 and of certain subsequent Ordinancesa practice has grown up in the Island and still continues under whichpersons who are in possession of forest, waste, unoccupied, or uncultivatedlands deal with the same by deeds and other instruments as though theyhad a title of some kind to the lands, the title being well known in Ceylonas “ a village title ”. By letter dated June 1, 1917, the SettlementOfficer informed the solicitors for the defendant that he would net beentitled to a C. Q. P. for the land except a few acres of old garden, butthat if he were seeking a settlement of his dispute as to title with theCrown, the matter would come up in the ordinary course of businesswithin the next two years and the claim would then be inquired into.Such an inquiry took place in due course, both Benjamin Rajapakse andthe appellant being present. Benjamin Rajapakse gave evidence andwas questioned by the Settlement Officers ; and it is clear that the lattercame to a decision on the footing that Benjamin Rajapakse had trans-ferred his village title to the appellant by the transfer of 1915, and it isequally clear that the existence of the previous deeds of gift in favour ofBenjamin’s son was not mentioned to the Settlement Officer. Crowngrants, the dates of which are mentioned in the answer of the defendant,were issued to him in the years 1919-1922, and a final order under theWaste Lands Ordinance was published in the Ceylon Government Gazette.The Acting Chief Justice states the position as regards the settlement
124 Delivered by LORD MAUGHAM—Abeyesundera v. Ceylon Exports, Ltd.
inquiry and the way in which the Crown grants were obtained by theappellant in the following terms : —
“ It is clear, however, from the evidence that the purpose of thesettlement inquiry is to settle the land, subject to what the witnessessay as to the age of the plantations, upon the persons entitled theretounder the village title. In other words the Settlement Officer for thepurpose of deciding who is entitled to the grant recognizes the equitableinterests of the claimants as disclosed by their village titles, in practiceapplying the provisions of s. 8 of the Ordinance as regards possessionand payment. This I think I might well say is common knowledgeand was of course known to Benjamin Rajapakse, and there is not theleast reason to doubt it was known to the defendant. It is the recog-nized policy of the department in settlement matters. The factof the earlier conveyance was not disclosed to the Settlement Officerfor it is clear that had it been produced, any grant obtained by Raja-pakse must have been obtained on behalf of and for the benefit of hisson who had village title in his own name and possession throughhis father.”
In these circumstances is it possible for the appellant to claim to holdthe estate free from any claim by the respondents, the Ceylon Exports,Limited, who, it should be explained, were purchasers from the originalplaintiff and were substituted as plaintiffs in the course of the trial ?Section 118 of the Trust Ordinance, No. 9 of 1917; enacts as follows : —
“ All matters with reference to any trust, or with reference to anyobligation in the nature of a trust arising or resulting by the implica-tion or construction of law, for which no specific provision is madein this or any other Ordinance shall be determined by the principlesof equity for the time being in force in the High Court of Justice inEngland.”
Their Lordships are clearly of opinion that this section makes theEnglish law applicable to trusts or obligations in the nature of a trustarising or resulting by the implication or construction of law which hasnot been provided for by the Ordinance. There is no doubt that accordingto the law of Ceylon, as according to the law of England, a guardianstands in a fiduciary relation to his ward, and their Lordships can see noreason for doubting that Benjamin Rajapakse stood in such a fiduciaryrelation to his son John Rajapakse. It was his duty, of not at once toregister the deed of gift, at least to prevent the registration of anyinstrument by which a third party could destroy the interest of the son.The relevant facts were known to the appellant; and in the circumstancesthe appellant became a constructive trustee of the estate included inthe Crown grants since that estate was obtained by him on the strengthof the transfer of 1915 from a person in a fiduciary position and byconcealment of the fact that the beneficial owner of the village title wasthe minor John Rajapakse.
The attention of their Lordships has been called to the fact that thedecree of. the Supreme Court directs that the question of compensationfor improvements alleged to be due to the defendant and the questionof damages to the plaintiffs be dealt with in the District Court to whom
trkkuwa v. Fernando.
the matter was referred for further inquiry. This order and directionrequires some amendment since the appellant may be entitled to compensa-tion for improvements effected by him or by Benjamin Rajapakse afterthe date of the deed of gift, and to costs and expenses properly incurredby the appellant in obtaining or perfecting a title from the Crown to thelands included in the deed of gift, and also to monies paid by the appellantin discharge of a mortgage bond No. 170, and questions may also ariseas to the interest, if any, to be allowed to either party as well as thequestion of damages, if any, sustained by the substituted plaintiffs.The decree under appeal should be amended in those respects. Subjectto these amendments their Lordships are of opinion that the judgmentsof Dalton A.C.J. and Maartensz J. are correct for the reasons thereincontained ; and they will, therefore, humbly advise His Majesty thatthis appeal should be dismissed with costs.
ABEYESUNDERA v. CEYLON EXPORTS, LTD., et al