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 The Highland Towers Judgment -
 Civil Suit No. S5-21-174-1996

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The Plaintiffs' Claim

The plaintiffs' claim is for damages caused jointly and/or severally by the acts and/or omissions of the defendants, their servants and/or agents in causing and/or contributing to the collapse of Block 1 and thereby forcing the plaintiffs to evacuate and abandon Block 2 & 3.

The causes of action relied on by the plaintiffs against the defendants are: negligence, nuisance, the liability under Rylands v Fletcher; and breach of statutory duty.

During the course of the plaintiffs' submission, Mr. Navaratnam, the leading counsel for the plaintiffs, announced that the plaintiffs are abandoning the last cause of action - breached of statutory duty, leaving only negligence, nuisance and liability under Rylands v Fletcher.

At this stage I am of the view that it is pertinent to set out broadly the principles governing these causes of actions so that this Court will be focus when analyzing the allege liabilities of the defendants. An amplification of them will be undertaken when I examine each defendant's acts in detail.

Negligence

The liability of negligence as defined by Lord Atkin in case of Donoughue v Stevenson (1932) A.C. 562 is: that every man must take reasonable care to avoid acts or omissions which he can reasonably foresee would be likely to injure his neighbor, i.e. those persons who are so closely and directly affected by his act that he ought reasonably to have them in contemplation as being so affected when he is directing his mind to the acts or omissions which are called to question, and this results in damage to the neighbor. By this, suffice to say, at this stage, that the important elements for the plaintiffs to prove in this cause of action are: causation and foreseeability.

Nuisance

In general, nuisance is a condition or activity which unduly interferes with the use or enjoyment of one's land. There is public nuisance and private nuisance. In this case we are only concern with private nuisance which is often described as "unlawful interference with a person's use or enjoyment of land, or some right over, or in connection with it", and this takes three forms. The first: is encroachment on a neighbor's land. The second: is direct physical injury to the neighbor's land. And the third: is interference with the enjoyment of the neighbor's land - see Winfield & Jolowicz, on Tort, 15th edition @ 494.

But not all types of nuisance are actionable. Whether a nuisance is actionable depends on a variety of considerations: the character of the defendant's conduct, the act complained of, the effect of the complained act and such likes. And all these are to be balanced off against the conflicting interests of the parties; that of an occupier in using his land as he thinks fit with that of his neighbor for the quiet enjoyment of his land.

In deciding the defendant's conduct, the test is: reasonableness i.e. "according to the ordinary usage of mankind living in ...a particular society" - see Sedleigh-Denfield v O'Callaghan (1940) A.C.880 @ 903. This factor of "reasonableness" of the defendant's conduct is different from that in negligence. Here it signifies what is legally right between the parties taking account "all the circumstances of the particular case; the time and place of its commission, the seriousness of the harm, the manner of committing it, whether it was done maliciously or in the reasonable exercise of rights; and the effect of the commission, that is transitory or permanent, occasional or continuous; so that it is a question of fact whether or not a nuisance has been committed" - Winfield & Jelowicz on Tort, 15th edition @ 497-8.

Thus "if the defendant is a reasonable user, he would not be liable for consequent harm to his neighbor's enjoyment of his land; but if the user is not reasonable, the defendant will be liable, even though he may have exercised reasonable care and skill to avoid it." - Lord Goff in Cambridge Water Co Ltd v Eastern Counties Leather pls (1994) 1 All ER 53 @ 70.

Of late another factor is added to this test. It is expounded by the House of Lords in the same case of Cambridge Water CO Ltd. Lord Goff introduced it in this way:

"We are concern with the liability of a person where a nuisance has been created by one for whose action he is responsible. Here, as I have said, it is still the law that the fact that the defendant has taken all reasonable care will not of itself exonerate him from liability, the relevant control mechanism being founded within the principle of reasonable user. But it by no means follows that the defendant should be held liable for damage of a type which he could not reasonably foresee; and the development of the law of negligence in the last sixty years points strongly towards the requirement that such foreseeability should be a prerequisite of liability in damages for nuisance, as it is of liability in negligence. For if a plaintiff in ordinary circumstances only able to claim damages in respect of personal injuries where he can prove foreseeability on the part of the defendant, it is difficult to see why, in common justice, he should be in a stronger position to claim damages for interference with the enjoyment of his land where the defendant was unable to foresee such damage."

I find this added requirement reasonable and I have no reason for not adopting it as part of the common law of this country for this cause of action.

The Liability under Rylands v Fletcher

The rule expounded by Blackburn J. in the case of Rylands v Fletcher is: " that the person who for his own purpose brings onto his land and collects and keeps there anything to do with mischief if it escapes must keep it at his peril, and, if he does not do so, is prima facie answerable for all the damage which is the natural consequence of its escape." When such a situation is found to exist, then there is no necessity for the plaintiff to prove the negligent act of the defendant; this is a case of strict liability.

However this rule has undergone changes in recent years in the common law practicing countries. Starting with England, the House of Lords, in Cambridge Water CO LTD v Eastern Counties Leather pls (1994) 1 All ER 53 has added to this principle the necessity to prove that the defendant could have reasonably foresee the thing might, if escape, cause damage to the plaintiff. Then in Australia, in the case of Burnie Port Authority v General Jones Pty LTD 120 ALR 42, the High Court after describing this rule as having "all its difficulties, uncertainty, qualifications and exception" completely discarded it as an independent cause of action, and incorporated it into the law of negligence. I tend to favor this Australian approach since after the case of Cambridge Water CO the requirement of foreseeability has deprived this independent cause of action of its attractiveness. Since foreseeability is required to be proved, it might as well be absorbed into the liability of negligence.

Objection to the Locus Standi of Plaintiffs number 44-73

The Statement of Claim has described plaintiffs 44 to 73 as having assigned their rights and interest in their respective apartments in Highland Towers to various financial institutions for consideration of loans granted to them by these financial institutions. The names of these financial houses are disclosed in paragraph 2 of the Statement of Claim against the amount owed by each of these plaintiffs. As security for these loans, these plaintiffs have executed in favor of these institutions what we commonly called a "Loan Agreement cum Assignment". In it, these plaintiffs assigned to these institutions all their rights and interest in their apartments under the sale and purchase agreement they entered with the 1st defendant. This method of conveyancing was adopted for reason that no individual strata title was issued to the apartments (not even till today) to enable the financiers to create a legal charge over them. Seizing on this shortcoming all the defendants except Tropic argued that these 59 plaintiffs have no right to bring an action against the defendants since their rights have been assumed by the financial institutions.

To substantiate this contention section 4(3) of the Civil Law Act and the principle as laid down in the case of Leigh & Sillavan v Aliakmon Shipping (1986) 2 All ER 145 are highlighted.

Section 4(3) of the Civil Law Act reads as follows:

" Any absolute assignment, by writing, under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action, shall be, and be deemed to have been, effectual in law, subject to all equities which would have been entitled to priority over the right of the assignee under the law as it existed in the State before the date of the coming into force of this Act, to pass and transfer the legal right to the debt or chose in action, from the date of the notice, and all legal and other remedies for the same, and the power to give good discharge for the same, without the concurrence of the assignor (emphasis added).",

And the principle as expressed by Lord Brandon in Leigh & Sillavan v Aliakmon Shipping (supra) is:

" in order to enable a person to claim in negligence for loss caused to him by reason of loss or damage to property, he must have either the legal ownership of or a possessory title to the property concerned at the time when the loss or damage occurred, and it is not enough for him to have only had contractual rights in relation to such property which have been adversely affected by the loss or damage to it (emphasis added)".

In arguing against this objection, Mr. Navaratnam, insists that the assignments executed by his clients to the financial institutions are firstly: "not absolute", and secondly: "purporting to be by way of charge", thus falling outside the ambit of section 4(3) of the Civil Law Act.

By these assertions, the question that requires satisfaction, and which will decide the fate of the defendants' objections, is: whether the assignments in favor of the financial bodies are absolute (not purporting to be a way of charge)? If it is in the negative, then the objections of these defendants must fail.

As a guide to assist this Court in its determination of this issue two decisions, one from the then Supreme Court (Nouvau Mont Dor (M) Sdn Bhd v Faber Development Sdn Bhd (1984) MLJ 268), and the other of the Federal Court (Hipparion (M) Sdn Bhd v Chung khiaw Bank Ltd (1989)2 MLJ 149) confirming the approach of its predecessor, are relevant. In the case of Nouvau Mont Dor (M) Sdn Bhd v Faber Development Sdn Bhd (supra), Seah F.J. advises that: in deciding on such matter of, "whether or not the assignment is absolute one (not purporting to be by way of a legal charge only) within the meaning of section 4(3) of the Civil Law Act 1956 is to be gathered only from the four corners of the instrument itself". It must be recorded that in both these cases, the assignments by the borrowers to the banks for loans granted of this nature were ruled absolute (and not purporting to be by way of a legal charge only) rendering the assignors no legal right to bring an action in their own names.

Of late there seems to be substantial number of authorities distinguishing the finding made in Nouvau Mont Dor and Hipparion, though not the test they set. Particularly visible are the High Courts' decisions in Loh Hoon Loi & ors v Viewpoint Properties ( Sebab) Sdn Bhd (1995) 4 MLJ 804, Bank of Commence (M) Bhd v Mahajaya Property Sdn Bhd (1997) 3 MLJ 620 and Pak Ki Yau v Kumpulan Promista Sdn Bhd (1999) 6 MLJ 220. The two latter cases ruled that there was no absolute assignment in the document of assignments before them.

The various instruments of assignment created by these plaintiffs in favor of their respective financial institutions are tendered in Court. Though they are worded in various fashions, but common to all are the following features: (a) It is in consideration for loans granted by the financial institutions to these plaintiffs, as borrowers. (b) There are no individual documents of title issued to the apartments offered as securities for the loans to enable a legal charge to be created over them. (c) The assignments by these plaintiffs to the financial institutions are of the plaintiffs' rights and interest in the Sale and Purchase Agreements they entered with the 1st defendant, when they purchased their respective apartments. (d) There are covenants by these financial institutions, as assignors, to reassign the said apartments back to the plaintiffs in the event individual documents of title are issued, and if the loans are still then subsisting, to create registrable legal charges over the properties so secured. (e) And if individual documents of title were not issued when the loans are repaid the assignors would reassign back the rights and interest in the Sale & Purchase Agreements to the plaintiffs.

This type of arrangement is presently recognized as an "equitable mortgage" or even as a "equitable charge" by the Federal Court in the case of Chuah Eng Khong v Malayan Banking Bhd (1998) 3 AMR 2729. In fact Peh Swee Chin's FCJ in his judgement in the same case accepted such creation despite the existence in this country of the National Land Code which speaks only of a "charge" with the following statement:

"The Court of Appeal used the words "equitable mortgage" in relation to security transaction without restraint, and totally without inhibition in the face of the National Land Code. We support such usage."

With recognition by such high authority of such Loan Agreement cum Assignment to be an equitable charge, I see no reason why the word "charge" in section 4(3) of the Civil Law Act should not include equitable charge of this nature. For after all, is this equitable charge not specie of a charge? Thus when this instrument of assignment purports to be by way of a charge, the effects of section 4(3) of the Civil Law Act is no longer applicable.

Further, after perusing these Loan Agreement cum Assignments, I honestly, within the Four Corners of these documents cannot interpret them to be absolute assignments by these plaintiffs to the financial institutions. Though the word "absolute" appears in the documentation of these Loan Agreement cum Assignments, there are also other clauses to show that the rights and interest in the sale & purchase agreements so assigned have not been transferred to the assignors. This is explicitly revealed Clement Skinner JC (as he then was) in Pak Ki Yau's v Kumpulan Promista Sdn Bhd (supra). Though the clauses referred by Skinner JC in his judgment may not be exactly the same in wordings and in numerical order as those in the various Loan Agreement cum Assignments in our present case but they are present and practically alike. The following is his exposition of which I adopt in full for the consideration in this case.

" Clause 19 in particular permits or recognizes that the appellants (plaintiffs in our case) may execute or create a further or subsequent assignment, charge, mortgage or encumbrance over the said property or any part thereof, and to do so would not constitute an event of default; the only sanction such an event invites is that the bank is entitled to open a separate account and any money repaid by the appellants is paid into such new account and will not be treated as a repayment of the loan. In my view, a clause such as the above which allows the appellants to exercise rights over the said property as if he is still the owner thereof, must surely by strong indication mean that the parties did not intend the assignment to be absolute. In addition to the above, cll 15, 26 and 33 all recognized the appellants are entitled to have possession of and enjoy the said property except that the appellants are obliged to insure, maintain and upkeep the same. If the assignment was intended to be absolute so as to transfer all rights, title and interest in the said property, as contented for by the respondent, then the appellants' occupation and use of the said property would only be possible with the permission and licence of the respondent. Yet, there are no word in the loan cum assignment that indicates that the position of the appellants are that of a licensee."

With this, and the reason as expressed earlier, my answer to the question posed earlier is in the negative. This paves the way for these plaintiffs to pursue with their claims.

Besides the finding above, I am also of the view that by the principle of equity of redemption these plaintiffs are also able to maintain their right to sue. Though the defendants concerned have submitted to me that this equitable principle has no place in our system of land registration since 1917, as expressed in Haji Abdul Rahman v Md. Hassan (1917) 1 FMSLR 290 and approved by the FMS Court of Appeal in Wong See Leng v C. Saraswathy Ammal. (1954) 20 MLJ 141 which says:

" It seems to their Lordships that the learned judges have been too much swayed by the doctrines of English equity, and not paid sufficient attention to the fact that they were dealing with a totally different land law, namely a system of registration of title contained in a codifying enactment. The very phase 'equity of redemption ' is quite inapplicable in the circumstances."

I find that this attitude have changed by the decision of the Federal Court in Chuah Eng Khong v Malayan Banking Berhad (supra). There, Peh Swee Chin FCJ has categorically revived this principle with these:

"If it is an equitable mortgage, like a legal mortgage, the borrower has obtained a second right to redeem after the contractual date for redemption has expired, i.e. he has got equity of redemption for, in the eyes of equity, the lender is not the owner of the said land notwithstanding the said assignment, but the borrower is, but subject to mortgage, and the lender a mere "encumbrancer". The equity of redemption arises as soon as any document on a true construction is found to be a mortgage. The word "mortgage" may sound like sacrilege in view of the presence of the Code which does not use the word, especially to a legal man who specializes in "common law" but not to one who is familiar with "Chancery practice"; for the latter; despite the assignment, the borrower is still the owner of the land subject to the mortgage. "

The learned Judge then proceeds to determine as follows:

"Although there is a well-known distinction between a mortgage where a borrower's land is usually transferred or assigned subject to the equity of redemption and a charge where such land is not transferred or assigned at all but it gives the chargee rights over the land, a charge of land has always been regarded as a species of mortgage for most practical purposes, see "Law of Real Property" by Sir Robert Megarry (former Vice Chancellor of the Supreme Court of the United Kingdom) and HSR Wade, 5th Ed, at p 914.

The Court of Appeal used the words "equitable mortgage" in relation to security transaction without restrain, and totally without any inhibition in the face of the National Land Code. We support such usage.

Here the said loan agreement, on true construction, is an equitable charge, as there is no deposit of document of title..."

Since the Loan Agreement cum Assignment is an equitable mortgage the principle of the equity of redemption is back in force in this country; with it comes the right of these plaintiffs to proceed with their claims.



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