Manyara Estate Ltd and Others v. The National Development Credit Agency Court of Appeal Civ. App. 27-D-69; 13/10/69; Newbold P., Duffus, V-P., and Law J. A.

Manyara Estate Ltd and Others v. The National Development Credit Agency Court of Appeal Civ. App. 27-D-69; 13/10/69; Newbold P., Duffus, V-P., and Law J. A.

In 1960 the Land Bank of Tanganyika, a predecessor to the respondent, The National development Credit Agency (The Agency) advanced a loan of 126,000/- to the one Coulter, a farmer who held a right of occupancy over certain land. More loans were secured by mortgages on the land. In October 1964 Coulter’s right of occupancy was revoked by the President and by section 14 of the Land Ordinance (Cap.113) he became entitled to compensation for any “:unexhausted improvements” existing on the land. In this case, the value of these improvements was 123,940/-. Section 14 also provides that this compensation is to be paid to the President, acting on behalf of the expropriated occupier, by any subsequent holder of a right of occupancy. In June 1965 the Agency obtained judgment against Counter for the balance of the loans made in 1960. The four appellants in the case being other creditors of Coulter also obtained judgments against him. In November 1965, the Treasury, as a matter of policy, lent to the Agency some ₤ 120,020 to provide a fund for the payment of compensation for unexhausted improvements in respect of all revoked agricultural rights of occupancy, including Coulter’s. this sum was to be paid by the Agency on behalf of actual or potential new occupiers to the Commissioner of Lands, who was in turn to pay it to the former occupier, but, according to the agreement between the Treasury and the Agency, subject to deduction of debts owing by the former occupier to the Agency and to the Tanganyika Farmer’s Association. In this case, the issue was whether the Agency could claim to have its debt in respect of the loans paid out of the compensation money, held by the Commissioner of Lands on Coulter’s behalf, paid in priority to the sums due to the four appellants.

            Law J. A. summed up the arguments of the respondent Agency as being: “(a) That the Agency was entitled to recover the balance of its judgment debt, that is to say Shs. 123,940/-, from the Commissioner of Lands by virtue of the terms and conditions under which the money was made available by the Treasury to compensate former holders of rights of occupancy in respect of the value of unexhausted improvements on their revoked rights of occupancy. (b) That the Agency, by reason of its mortgages, had stepped into the shoes of Mr. Coulter and was entitled to receive from the President, or his representative the Commissioner, so much of the compensation as would satisfy its judgment debt by virtue of the security provided by the mortgages.

(c) That, if the moneys in the hands of the Commissioner represented moneys impressed wit a trust in favour of Mr. Coulter, the Agency by virtue of its mortgages was entitled to recoup its judgment debt from those moneys, on the application of the equitable doctrine of conversion, defined in Snell’s Principles of Equity (24^th Ed.) at p. 234 as follows ‘The effect of conversion is to turn realty into personality, or personality into realty.’”

Newbold P. generally agreed with this formulation of the issues in the case, but he saw two separate arguments involved in the third point as stated by law, J. A. Newbold P. stated that the respondent argued “that under an equitable doctrine the Agency can trace the money it lent to Coulter into the improvements and thus into the compensation”, and separately “that the charge created by the mortgage attaches to the compensation into which the right of occupancy has been converted”. However, the holding in the case will be related to the issues as stated by Law J. A.

            Held: (1) That the terms of the agreement between the Treasury and the Agency could not be impressed on the money in the hands of the Commissioner of Lands received by him, as representative of the President, from new occupiers on behalf of previous occupiers in payment of compensation Per Law J.A. (Newbold P. concurring): “The question is whether, under the arrangement agreed to by the Treasury, these intentions could be carried into effect, or whether the full amount representing compensation, when received by the commissioner, became money impressed with a trust in Mr. Coulter’s favour and thus attachable at the instance of Mr. Coulter’s judgment creditors at large ….. the Treasury advanced the compensation money to the agency impressed, in my view with a trust in its favour which remained effective until the object of the loan had been carried out. That object was to provide loans to the new occupiers of revoked rights of occupancy to enable them to discharge their statutory obligation of paying compensation for unexhausted improvements. When the Agency paid the amount of the loan to the Commissioner, this was in effect a payment on behalf of new occupier should apply the money to which he was legally entitled, and any trust in favour of the Treasury in relation to that money ceased to exist. For these reasons, I am of opinion that when the sum representing Mr. Coulter’s entitlement to compensation reached he hands of the Commissioner, it became money paid “on behalf of the previous occupier”, that is to say Mr. Coulter. It ceased to be impressed with any trust in favour of the Treasury, and was attachable by Mr. Coulter’s judgment creditors.” The Agency therefore it was held had no prior right to obtain payment of the debt owed to it by Mr. Coulter over any other creditor of Mr. Coulter who was also a decree holder.  (2) That the Agency’s position as mortgagee of the land did not entitle it to compensation for unexhausted improvements due to the mortgagor:

            Per Newbold P: (Law J. A. concurring and Duffus V-P dissenting “I do not accept that section 57 of the Land Registration Ordinance entitled the agency to related as if it had been the occupier of the land and thus receive the amount payable as compensation. All that section 57 does is to give to a mortgages the powers and remedies it would have had it the right of occupancy had been transferred by the mortgage to the mortgagee subject to the equitable right of redemption; and these powers and remedies are quite different from the right of the mortgagor to receive money for unexhausted improvements. Even if the mortgagee were to be regarded as a mortgagor so as to receive the money so due, that money would be received by the mortgagee qua mortgagor and not qua mortgagee; and the money so received would thus be liable to the claims of the creditors of the mortgagor and the mortgagee would have no priority”.

            Per Law J.A. “As to these matters, Mr. N.M. Patel argued that any security provided by the mortgages was secured on the land, and not on the improvements, and that this security was destroyed with the revocation of the right of occupancy. As to the learned judge’s decision that the compensation payable to Mr. Coulter represented a conversion of the security on the land into money, Mr. Patel submitted that what was converted into money was not the land, but the unexhausted improvements on the land, and that the mortgages were secured on the land, and not on the improvements. One has only to refer to the deeds of mortgage to appreciate the force of these arguments. The security in each case was the right of occupancy and nothing else, and when the right of occupancy was revoked, the security was destroyed. It seems strange that the forms of mortgage prescribed under the Land Registration Ordinance (Cap. 334) in respect of land held under rights of  occupancy do not provide for additional security in the event of the revocation of the right of occupancy, for instance by the inclusion of a covenant that in the event of the right of occupancy being revoked, the mortgage debt shall be secured additionally on any compensation payable to the mortgagor on such revocation in respect of unexhausted improvements. I find myself in agreement with Mr. Patel’s submission that the compensation payable on the revocation of a right of occupation in respect of unexhausted improvements cannot be regarded as a conversion or transmutation into money of he land itself.” See dissenting opinion of Duffus V-P. [1970] H.C.D. 268. (3) That neither the equitable doctrine of tracing nor he equitable doctrine of conversion had application in this case; per Newbold P. (Law J.A. concurring). “…… the equitable doctrine of tracing the assets arises only in certain special circumstances arising out of a fiduciary relationship, and those circumstances do not include the ordinary position of mortgagor and mortgagee. In any event, there is no evidence as to what was done with the money lent to Mr. Coulter and thus there is no ground whatsoever for considering that the money lent by the Agency can be traced to the money received by Mr. Coulter as compensation….. (It was argued that right of occupancy has been converted into the money received for un-exhausted improvements and that the charge over the right of occupancy has become a charge over the money into which the right of occupancy has been converted.) ….. I accept that there may be circumstances in which the charge is not destroyed by the mere transmutation of the subject matter of the charge; but that is a very different thing from saying that a charge continues to attach to something into which the subject matter of the charge; but that is a very different thing from saying that a charge continues to attach to something into which the subject matter of the charge has been transmuted. The equitable doctrine of conversion is very much more limited in its effect than the trial judge seems to imply. I find myself unable to agree with him that under English Law the doctrine applies to the circumstances of this case. For example, a charge over property which is insured does not, in the absence of any special statutory or contractual provision, become a chare over money payable under the policy of insurance on the destruction of the property. Moreover, the law of Tanganyika in relation to rights of occupancy is, as I have already said, so different from the law of England that equitable principles should be applied with the greatest caution. I consider that he charge created by the mortgage of a right of occupancy is a charge over the right to use and occupy public land. This is a purely usufructuary right; thus the charge ceases to exist when the subject matter of

The charge ceases to exist, as there are no res to which an action in rem can apply. As the charge ceases to exist when the right of occupancy is revoked it cannot continue to apply to anything. Finally, is I do not consider that the right of occupancy on revocation can be said to be transmuted into money payable for the unexhausted improvements as this money may vary from little or nothing to a very considerable amount and bears no relation to the right to use and occupy the land. Thus the doctrine in relation to transmutation could not in any event apply. Accordingly, the trial judge was wrong in holding that the charge created by the mortgage attached to the money in the hands of the Commissioner of Lands on behalf of Mr. Coulter.” (4) Appeals allowed.

            Judgment and order of the High Court of Tanzania (Biron. J.) set aside, and direction made that the money pad into court by the Commissioner of Lands be distributed rateably amongst the judgment debtors including the Agency.