Foote v Rolls (Further Interim Judgment) [1983] CKHC 12; HC Plaint 21.1982 (26 August 1983)

IN THE HIGH COURT OF THE COOK ISLAND
HELD AT RAROTONGA
CIVIL DIVISION

PLAINT No: 21/82

BETWEEN

ROBERT TAYLOR FOOTE
of Rarotonga, Retired
Plaintiff

AND

JOHN ELIZABETH ROLLS
of Rarotonga, Company Director
First Defendant

AND

HIBISCUS HOUSE LIMITED
A duly incorporated company having
its registered office at Rarotonga
Second Defendant

AND

KENNETH JOHN ROLLS
of Rarotonga, Company Director
Third Defendant

Counsel: Mr Macfadzien for Plaintiff
Mr V.A.K.T Ingram and
Mr Arnold for 1st, 2nd & 3rd Defendants.

Hearing: 19 August 1983
Decision: 26 August 1983

FURTHER INTERIM JUDGMENT OF SPEIGHT C.J

In the interim judgment which was delivered on the 9th of August 1983, five questions of topics were reserved for further submission by counsel. These are set out at page 18 of that document. I have now heard from the counsel and we can move a further step forward on most of the matters referred to there, although there are still little need for consultation between the parties on some items particularly those under topic (b).

I commence with question (a):-

I asked for further representations concerning the initial loan of $16,500 and its terms. In particular I was unsure whether it was part of the plaintiff's claim that there were terms attached to that such as a claim for conversion into U.S. Currency, or that some of the other benefits which Mr Foote was to received in lieu of interest (such as use of a car and similar matters) were claimed to be attached to that that part of his advances. Counsel has demonstrated to me quite clearly that there was no interest to flow in respect of $16,500 and in evidence it was clearly stated that there was no claim that the repayment would have U.S. currency conversion factor. Indeed it is of essence of the evidence given that the $16,500 was not contemplated at that stage as being repayable at all. It was in fact an advance purchase price for the shares which Mr Foote would eventually get in the company, and his later entitlement would flow from that shareholding. No further consideration need to be given in respect of the U.S. currency aspect on this item. However, Mr MacFadzien has advanced two matters which he claims was tied to that advance, just as much as to the other monies provided by Mr Foote. These relate to:

(i) the independent action taken by the Rental Car Company against Mr Foote for the Hire of a replacement vehicle in February/March 1982. In respect of these proceedings he has joined Hibiscus House as a third party claiming that the company is liable for that hiring. It was agreed during the course of various interlocutory hearings that all these matter, including also the claim by Mackay Electrical Company would be disposed of at the one hearing. As just mentioned, the hiring of the rental car did not take place until 1982 during the period when the company was carrying on business and, as I have ruled carrying on illegally. That being so, the Third Party claim made by Mr Foote, that this was a debt incurred by him as part of the on-going business falls under the ban of illegality and would be irrecoverable. Mr Macfadzien does not contest that point of view but endeavours to escape it by relating the free motor vehicle car entitlement to the initial arrangement thereby linking it to the advance of $16,500.

Mr Arnold's Reply is simple and in my view conclusive, viz., that the arrangement for the advance of $16,500 is evidenced by an acknowledgment of debt, interest free, payable on demand, which was entered into on or about 26 May 1981 at a meeting which was earlier in time than the meeting at which the advancement of working capital was arranged - that did not take place until a Sunday afternoon early in June. I am satisfied from an examination of the evidence that this submission is well founded. Consequently, the obligation incurred by Mr Foote for car hire falls under the illegality bar insofar the hire was during the period when the relationship between the parties had become illegal.

(ii) Similar determination applies in respect to a portion of the living allowances and other expenditures which were agreed to be paid by him. They fall for the recovery under para. (b) which we will with in a moment, provided they were expended or authorized prior to the 29th July. Those before and after the 29th July flowed not from the initial arrangement of late May touching the $16,500 but the arrangement of early June 1981 and will be irrecoverable insofar as they were incurred after the illegality date - but not before.

Question (a) therefore is dealt with by saying that the amount repayable to Mr Foote under this head is $16,500.

The next problem and the most difficult is that raised in question (b) the amount of "bits and pieces" money to which Mr Foote is entitled. In the composite Amended Statement of Defence, the defendants admitted that in addition to the $16,500, there was a due and owing by the company to sum of $11,106.78 but they claimed a set off against this of some $6,361.50. I will return to this latter item shortly.

It will be seen that in the Interim Judgment I had the misunderstood the nature of this admission in paras.6 Statement of Defence believing it to be a cross balance claimed to be owing against the $16,500. This misunderstanding, which can be found at page 14 of the interim Judgment, is clearly wrong. It is an additional sum which the Defendants admit that Mr Foote did advance to Hibiscus House Limited from time to time for expenditure by it. I have not examined the individual accounts, so I am unable to say in whose name the liability was incurred, but it seems almost certain that regardless of the name of the person ordering the goods it was a Hibiscus House Ltd Liability, in which case, judgment for such money as is repayable from these advances would be against the second defendant although I will listen to any further submissions which may be needed on this point once individual documents have been examined.

The amount too, obviously requires further exploration. The defendants acknowledged $11,106.78 but with no details and presumably they mean to say that this is for all the money advanced by Mr Foote in furtherance of the enterprise during the whole period. The Plaintiff's Consolidated Statement of Claim set the figure at $25,000 but with an estimate that it might be more. In evidence Mr Foote said it had exceeded that figure by many thousands. However, all those suggested figures were before the ruling that 29th July 1981 was a cut-off point for recoverability. Parties or their counsel must confer as to what liability arises before that date.

Different categories of advances were discussed by Mr Macfadzien and Mr Arnold. Mr MacFadzien divided matters into three categories. First - debts incurred prior to the date and which had been paid after. Secondly - debts incurred prior to that date and paid after. And a third category - amounts paid by Mr Foote prior to the date but made the subject of a subsequent agreement to reimburse him the principal item being travel expenses incurred by Mr Foote and Mrs Holzl in going to Hawaii, primarily for immigration qualification and incidentally to look at restaurant and shopping complexes. Mr Arnold agreed with the first two categories. He too spoke of incurring of the debt. In my view that is the proper test. Simple illustration is found by recognizing that the disqualification arises from the concept of "carrying on business" - everything prior to that date was preparatory.

Let it be supposed for a moment that the Directors of the company at the 29th July had changed their minds and decided not to open the doors. The question would then have been, and the question now is, "What debts had been incurred up to that moment?" If a particular liability, judged in Sale of Goods terms, had arisen, usually determined by date of delivery, then Mr Foote is entitled to be reimbursed for meeting that liability whether in the event he made the payment before or after the cut-off date. This formula will I hope enable all these items to be resolved. It is obvious from the summary sheet which Mr Macfadzien produced that considerable consultation has taken place. However, the figures which that sheet shows are not of much assistance to me and I invite further co-operation between counsel. One notes that Mr MacFadzien had a number of different categories from (a) to (h) according to the nature of the expenditure. My present view is that it is immaterial what the money was spent on; whether it was supplies for resale, equipment, transport cost, or the like. They were all expenses incurred by Mr Foote on behalf of the enterprise which as far as I can see was a company enterprise, not a partnership, and its expenses up to that date were legitimately incurred and met by him and can be claimed.

The third item in Mr MacFadzien's category was for monies paid, not in - pursuance of the agreement to carry on this venture, but preparatory to it - the item of course relates to a proportion of the cost of Mr Foote and Mrs Holzl's travels to Hawaii. These were all incurred and paid for prior to 29th July, indeed, prior to May. Now as at May, no enforceable agreement had been reached by the parties. Nor could this be regarded as part performance of any preliminary, oral agreement. The future plans were only in the exploratory stage, and Mr Foote's desire to secure his immigration position was related to his general intention to establish himself in Cook Islands affairs in one way or another. Unless made in pursuance of a firm agreement pre-contract expenses are generally speaking irrecoverable, unless they are accepted by a subsequent agreement. There was indeed, so I was told, such an acceptance but this was at a meeting which took place in September after the company had commenced to carry on business. They were adopted by the company as an expense of the business recognised for the first time. For that reason, the amounts incurred, though there is a moral claim for them are not recoverable at law.

While we are dealing with this category, mention should also be made of a claim which arose during the course of the hearing for monies expended at an earlier date for the purchase in the United States of a refrigerator and a stove and similar chattels. These items were apparently provided to the company and installed prior to 29th July and in the ordinary way, money for them would be recoverable, but one understands that these chattels are not being used. They are stored at the company premises and they must be returned to Mr Foote in whatever order they may now be. If they have suffered some deterioration during the process of carrying on business, that loss will fall on him, but the illegality concept would not prevent the recovery of chattels which have always been the property of one party even if they had been transferred to another in the course of an illegal business, provided those chattels can be recognised. Principles governing such matters have already been referred to on page 16 of the Interim Judgment where reference was made to the case of Amar Singh v Kulubya.

Item (c) in the Interim Judgment relates to a claim now made for reimbursement to be calculated in terms of the value of U.S. funds as against New Zealand funds at the present day, it being the plaintiff's contention that when he agreed to make the "bits and pieces" money available, which money was to be refunded in due course, he specified that he would require repayment to the same number of U.S. dollars as he had cashed in for the purpose of making the advances so that he was safeguarded in the event (as has transpired) that the New Zealand dollar fell in value as against the U.S. dollar. Now although, the defendants did not give evidence touching this alleged agreement, nevertheless, I am required to be satisfied on the balance of probabilities, that this arrangement was in fact entered into, and I am not so satisfied. Principally, I am unhappy about the way in which the claim was advanced at somewhat late stages of the proceedings. Initially, there were injunction proceedings in the course of which, various parties filed affidavits as to their financial transactions. No mention was made of this alleged liability in any of Mr Foote's affidavit. That is perhaps understandable because they were not at that stage talking in terms of a debt claim. But in the first Statement of Claim issued on the 25th March 1982, one of the allegations is for sums of money advanced claimed by way of a claim for repayment in the sum then set at $18,933. No mention is made there of any agreement for repayment in something other than local currency. On the 12th August 1982, Mr MacFadzien acting for Mr Foote, wrote to Mr Rolls letter No. 101. This related to a claim to be repaid for half the share capital viz., $500 in respect of a company in Hawaii, South Seas Enterprise Limited for which Mr Rolls had advanced the funds. Mr Macfadzien went in particularity to specify in that letter that the obligation to repay was in U.S. dollars and he provided a calculation of equivalent N.Z. currency as at that date.

However, some months later on 1st December 1982 in letter No. 117, W MacFadzien again wrote this time to Mr Roll's solicitor – and said that he would be filing an Amended Statement of Claim in which he will claim inter alia "Repayment of all monies advanced (totalling approximately $35,000)" still no mention of U.S. conversion rates. In due course, the Amended Statement of Claim was filed on the 7th February 1983 and although the relief claimed in para. 15 (c) is "the exchange losses suffered by the plaintiff in withdrawing sums of $16,500 and $20,000 from his United States bank account", there was no allegation in para. 9, where the terms of the agreement are set out, that the reimbursement for expenditure in any particular currency was agreed upon. Indeed, even in the final Consolidated Statement of Claim, issued on the 27th May 1983 just before the hearing, there was no specific allegation that this had been the agreement. Such a claim only emerged in the course of evidence from Mr Foote and indeed the details were less specific than one would have expected. The most important feature of all however is that in the Second Amended Statement of Claim and in the final Composite Amended Statement of Claim, the additional U.S. funds required by way of damages, were alleged to be due in respect of both the "bits and pieces money" and the $16,500. Yet it is clear from the evidence that Mr Foote specifically said that, that was not part of the agreement relating to the $16,500. It appears to me that this claim that it was agreed on in respect of the balance is an after thought and the absence of an earlier specific allegation makes me conclude that it has not been satisfactorily proved. I would like to say that I do not think that Mr Foote has deliberately attempted to mislead the court as to the arrangements originally made. I think it is a case of reconstruction in his mind. He believes that such a promise was made in relation to this repayment whereas it may have merely been a matter discussed at the time that he revealed that he was drawing on U.S. funds and bringing them to Rarotonga. I thought that Mr Foote was an honest man endeavouring to give a truthful account of the matters he recollected, but he is undoubtedly very angry over what he regards as shabby treatment, and I think that his indignation has in some instances influenced his recollection.

The next subject to be dealt with is para. (d) relating to the quantum of contras claimed by the defendants. In the question asked, I had assumed that these were unmet claims prior to 29 July. I am informed from the bar however, that the Claim for $6,361.50 is in respect of monies which have been paid out of the Company accounts in respect of expenditures on Mr Foote's behalf, such as laundry, petrol, payments to Piri Puruto, car repairs, airfares and the like, and that these payments from the company's bank account were all made after 31 July 1981. I have been at something of a disadvantage because Mr Foote's vigour in the course of giving evidence did not always make him the easiest witness to follow. His grasp of the matter is so comprehensive that he assumes others are as well acquainted with the developing events as he, and this difficulty has been compounded by the fact that the defendants did not give any evidence. I am therefore a little puzzled as to why there is no claim in respect of such things as laundry and petrol accounts prior to the end of July because undoubtedly Mr Foote would have been incurring such costs. It may be that those accounts were paid out of his personal bank account and will emerge as claims in the "bits and pieces" money, or alternatively they may have been paid from the company's account and for some reason have not been included in the itemised list which was produced as an exhibit. However, that may be, the only counterclaim is for this sum and, as has been pointed out, all these payments were made by a drawing from the company's account after the 29th July. Therefore, being items incurred in the carrying out of business, whether they were advanced on his behalf or otherwise, they are payments which had been made during the period of illegality and the loss must lie where it falls. As Mr MacFadzien correctly says, its a "sauce for the goose, sauce for the gander" argument and if Mr Foote cannot claim for money which he advanced to the company after the cut-off date, equally the defendants cannot claim from him, money expended by them in his interests during the same period. So that question (d) answers itself and the counterclaim bar $6,361.50 has failed.

The final matter para. (e) is for the small sum of U.S. $500 claimed by Mr Foote as having been expended on behalf of Mr & Mrs Rolls to give them entitlements, presumably as shareholders, in the Hawaiian company which was formed - South Seas Enterprises Limited. There is the uncontradicted evidence of Mr Foote and Mrs Holzl that that money was advanced by him for some benefits, particulars of which is not exactly clear to me, but they appear to have been as purchase of shareholding in the Hawiian company. It is said by them, and there is no evidence contradicting it, that expenditure was incurred and that the Rolls would have been entitled to claim the benefit of that payment, whatever it might be. But on the 8th February 1982 they wrote to the Secretary of the company, Mr Looper, in Honolulu saying that they had had "second thoughts" about being involved in the company that was formed in Hawaii, and that as they do not think it will trade, they think they would like to disassociate themselves from any involvement and ask that their resignation be accepted from the company. Whether that has taken place, we are unaware but if people say they have second thoughts, it indicates they had first thoughts and it is confirmatory evidence that they did have an interest in that company. It supports the claim made that an interest was purchased for them by Mr Foote and he is entitled to judgment for U.S. $500 or its equivalent in New Zealand currency as at the present date.

I think that these remarks finalise all of the issues with the exception of the "bits and pieces" money under para. (b) which will have to be the subject of negotiations and, one hopes, settlement between the parties. If however, there is still dispute as to those items, or if it is thought that I have misinterpreted the true situation in respect of the other four, the matter is still open and counsel may approach the Court again but there will be considerable reluctance on my part to vary any of the foregoing conclusions, tentative though they still are.

Speight C.J.