Marine Resources (Cook Islands) Ltd v Solicitor General [1983] CKHC 16; HC Plaint 2.1983 (8 December 1983)

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IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
CIVIL DIVISION
PLAINT NO. 2/83

MARINE RESOURCES (COOK ISLANDS) LIMITED,
a duly incorporated company having its registered office at Rarotonga
and carrying on business as, inter alia, Ship Owners, Trawlers,
Deep Sea Fishers, Fish salesmen and Wholesale and Retail Fish Merchants
Plaintiff

MICHAEL CRAWFORD MITCHELL
as THE SOLICITOR GENERAL
(sued on behalf of the Government of the Cook Islands)
Defendant

Dates of Hearing:
In Rarotonga: 22, 23, 24, 25, 26, 27, 29, 30, 31 August 1983, 1 Sept. 1983
In Auckland: 14, 15, 16, 17 November 1983
Date of Judgment: 8 December 1983

The Plaintiff sues the Cook Islands Government citing a variety of causes, alleging breach of contract, alternatively fraud and alternatively negligent mis-statement.

The first and main ground alleges that a contract was entered into whereby the Plaintiff company acquired certain fishing and associated rights within the areas of the Territorial Seas of the Cook Islands (the 12 mile zone) and that as a result of the refusal by the Cook Islands Government to implement the same the Plaintiff has been deprived with consequent loss of monies expended, and loss of expected profits to a total of approximately $1,737,000. The alternative grounds allege that by fraud or negligent misrepresentation the plaintiff was induced to enter into various works and incur various expenses and claims to be recouped. These losses being in tort not contract would not include anticipated loss of profit, and would quantify at approximately $333,000 - at least that is the inference to be taken from the final submissions by Plaintiff's counsel - although the pleadings originally asked for the higher amount appropriate to breach of contract, under all causes of action. The tort claims however were not strongly persisted with. The Defences raised either in pleadings or at trial are nothing if not comprehensive:

1. At the relevant times the Plaintiff company was not incorporated so any contract was void.

The Plaintiff company was incorporated in Rarotonga on 7th August 1981. Its share capital was 200,000 and this was eventually held as to 2/3 by Maritime Resources (N.Z.) Limited of which Mr & Mrs Gordon Stace were the principal shareholders; and as to 1/3 by the Cook Islands Development Bank (to be referred to as C.I.D.B.) Under the Development Investment Act 1977 a company, in which 1/3 of the shares or more are held by a foreigner enterprise, way not commence to carry on business in the Cook Islands, unless it holds a certificate of Registration under Section 29 of the Act. Because of the 2/3 shareholding by the New Zealand company such a certificate was given required and one was eventually given on 6 November 1981. The history of the matter however starts in 1980. In that year Mr Stace commenced investigations into the possibility of developing a fishing business in Cook Islands waters primarily for tuna fish of various varieties, but also for other species.

Local people have for generations fished within some limited distances of their islands by trolling from moving boats - of recent times small craft driven by outboard motor, and by stationary line fishing with multiple baited hooks into deep water - "long lining".

Japanese, Korean and Taiwanese vessels have also fished over recent years - by long lining on a much larger scale and from sizeable vessels and also by a process particularly adapted to surface fish and known as pole and line fishing - an arduous method requiring great skill and strength, using lures or live bait and a device similar to a large fishing rod.

An alternative and much more efficient method of deep sea fishing is by purse seining - whereby a very large net is extended at a selected depth between a ship and a powerful tender over a long distance - (upwards of half a mile) - and the bottom of the net is closed in the manner of a purse by drawing in a rope thus hopefully enclosing schools of fish, which are then winched on board in the net. This method is all encompassing, collecting most of the fish in the chosen area and depth, does not require bait (which is a big problem) and is substantially less dependent on the skill of the individual fisherman. But it requires great expertise in fish location, and net operation, and the vessel, with equipment, is vastly expensive one complete rig will cost many millions of dollars.

Some research has been done of recent years by various South Pacific Agencies with hired vessels; some returns (of questionable accuracy) have been received from the Japanese and Taiwanese, and the M.A.F. have spasmodic figures of the catches obtained by local fishermen. Attempts have been made to assess the quantity of fish available as a resource in Cook Islands waters. The information however is scanty - one description is that there is "a complete absence of reliable statistical information" - a phrase accepted by most of the expert witnesses who gave evidence - although Mr Paul Temm Q.C., who has acted for some years as special adviser to the Cook Islands Government said in one letter that "The Ministry has evidence of an untapped resource in our zone, from which it is estimated that up to 5,000 tonnes of skipjack can be harvested annually at a landed value of $U.S. 5 million."

Unfortunately no one has been able to locate the source of "evidence" and M.A.F. officials cannot support any particular figure. Indeed on 22 April 1981 Mr Julian Dashwood, Senior Fisheries officer noted (Document Exhibit 22) he could not give "any guide to a preliminary assessment of possible marine resources". I will deal later in this judgment with the evidence given by expert witnesses in this field who have widely differing views, and I anticipate by saying that suggestions of a plentiful commercial resource are not at all persuasive. However in 1980 Mr Stace became attracted to the possibilities of good fishing catches being obtained in the Northern group - particularly near Penrhyn and Rakahanga Islands. He corresponded with Cook Islands officials and visited the country. He had discussions with Mr Dashwood, Director of Fisheries and others in M.A.F., Mr Temm, already mentioned, and various parliamentary and departmental people. He formed a scheme to start a company which would own and operate a long line fishing/fish transporting ship. At that time the government had a plan (subsequently realised) to install a freezer in Penrhyn Island with a capacity to freeze and hold some tons of produce - this was to be funded by foreign aid of some sort either United Nations or New Zealand Government. A similar installation was also mooted for Rakahanga Island.

The plan was for Mr Stace's organisation to have manufactured a number of 18ft aluminium open boats powered by diesel engines - referred to as dories. These would be "made available" to shore based fishermen in the Northern group and it was anticipated that these people would find them more efficient and more economical than their existing petrol driven craft and would thus be able to catch substantial quantities of fish of various varieties, both by trolling and by long lining and these would be sold to the company and stored in the freezer(s).

At the same time the "mother ship" would be long lining and when its freezer was near to full it would call at the appropriate island, top up with fish from the shore-based freezer and then steam to Pago Pago and sell the cargo to fishery processing people there; the major hoped-for customer being the Star Kist Company which has a canning plant - dealing mainly with tuna. Although there are no definite figures, for there was no particular ship in view, it seems that it was anticipated that there would be more fish caught by the long line mother ship than by the shore-based people.

At the same time consideration was given to the needs of the domestic market in Rarotonga - said to need some several tons of fish per week. Palmerston Island has many fishermen and it was believed it had the ability to service this need, and given a shore freezer there Mr Stace's ambition was to acquire the use of the small Government vessel the "Ravakai", fit it up with ice storage facilities and ferry the Palmerston fish to Rarotonga where a shop would be established together with a fish-meal processing plant.

The reception to this scheme by the Cook Islands officials was encouraging, so Mr Stace's existing company, Maritime Services (N.Z.) Limited commissioned the construction of an experimental dory, and Mr Stace took up residence in Rarotonga in March 1981 and borrowed the "Ravakai" for several months for exploratory work - both at Palmerston and in the Northern Group. No evidence was given as to details of fish caught but the dory was apparently used experimentally during this time and then later was taken to Penrhyn. Thus far all expenses had been provided by Maritime Services (N.Z.) Limited and in May 1981 application was made to C.I.D.B. on behalf of a company to be formed for a loan of some $65,000 and an invitation that this would be secured by the Bank taking 1/3 of the shares in the new company - this did eventually occur.

Insofar as a contract is alleged, it is pleaded that it was formed partly, by written material - viz., by exchange of letters, partly by verbal communications and it is evidenced partly by conduct.

By far the most important document relied upon by plaintiff is a letter dated 4 June 1981 written by Mr Tylor solicitor on-behalf of the proposed company and placed before Cabinet on 9 June. Indeed in subsequent correspondences right through 1982 the arrangement allegedly in existence between the parties was referred to as "our agreement of 4 June 1981" and Mr Stace and other witnesses at, the hearing referred to it similarly. The letter reads:

Further to our discussions we set out below the proposals for the basis of an agreement between our above client Company and the Government of the Cook Islands. Because of the difficulties over the Ravakai and Palmerston Island, the proposals are divided into two parts. Whenever appropriate we have commented on any item.

A. The Company would undertake to develop Northern Group fisheries with an emphasis on export to Pago Pago by doing the following things:

1. TO supply a deep sea tuna longlining fishing vessel and gear together with a suitably qualified crew.

2. TO make available opportunities for Cook Islanders to be trained as deep sea fishermen.

7. TO supply dories and gear similar to the, prototype already demonstrated at a reasonable price on satisfactory terms for purchase by Northern Group fishermen.

Comment on items 6, 7 & 8: We consider it to be of vital importance to this industry developing, that especially the fuel, but also fishing equipment, motors and boats, be available to fishermen (including this Company) and onshore facilities (freezers etc) as cheap as possible. To this end, we would be asking for approval of exemptions from duty/levy/sales tax/use tax/ on these items when sold to commercial fishermen and operators. For our part, we are negotiating to have the diesel jet dories built and assembled in Rarotonga in an endeavour to keep the cost as low as possible.

We submit that these revenue concessions by Government would be more than adequately made up by the value of exports.

9. TO buy at a fair price the whole of the catch offered for sale by Northern Group fishermen.

10. TO supply adequate assistance for the proper maintenance of the dories and engines.

11. TO supervise and manage the operations of onshore freezing - facilities installed by Government in the Northern Group.

B. In return, our Company client would ask the Government of the Cook Islands to do the following:

1. TO grant the Company a licence to fish in the Northern Group within the 12 mile zone and if required, within the 200 mile zone.

Comment: It is not expected that this would include purse-seining as of right although the Company would want to discuss this method of fishing with Government.

2. TO restrict access by longline or purse-seining vessels, (other than those operated by the Company having a capacity of more than 5 tons green weight within the 12 mile zone in the Northern Group unless:

(a) the option of carrying out a similar type of operation is first given to the Company;

(b) it can be shown that the viability of the operations of the Company or the fishermen supplying it will not be adversely affected.

Comment: The interests of the Company are tied integrally with those of the local fishermen selling fish to the mother ship. This protection is sought, in the first instance, for them, as damage to their resource will also damage the Company.

3. TO grant to the Company the control of the onshore facilities (freezers etc.) to be managed by it, under a licence/lease arrangement.

C. The Company would undertake to develop the Southern Group fisheries, with an emphasis on satisfying the Rarotongan Market by doing the following things:

1. ESTABLISH proper facilities on Rarotonga for retailing, distribution and processing of fish and fish by-products.

Comment: (a) The Company has made provision for $36,000, for this part of the venture. Included in this would be a fish meal plant for animal feed. Depending on supply, there will also be potential for export of processed fish;

(b) With proper distribution and marketing as well as availability of processed fish, the Company is confident that it will be able to develop local sales of approximately 3 ton per week. The processing of fish is seen as essential to the substitution of imported fish.

2. ASSIST in the establishment of freezer facilities on Southern Group Islands which have the capacity to support a local fishing industry,

TO provide adequate onshore freezer facilities on Southern Group Islands which have the capacity (ability) to support a local fishing industry.

Comment: At this stage Fisheries have a project for construction of a 5 ton freezer in Palmerston. In our client Company's opinion the resource would support a larger unit and it would be prepared to enlarge this facility to say 10 ton. The other Islands seen as having potential for local dory operations because of their harbours, are Atiu (fishing in particular the Takutea ground) and Mangaia.

3. OPERATE a regular maintenance and pick-up service in Southern Group Islands which have freezer installation.

4. TO buy at a fair price the whole of the catch offered for sale by fishermen on those islands.

5. SUPPLY on a regular basis sufficient fish to meet the needs of the domestic market on Rarotonga.

Comment: If the output of Palmerston is increased to say 8 ton per month and at least 2 other Southern Group Islands are also producing then this should meet the demand for the Rarotongan market. There would then be no need to bring fish from the Northern Group down to Rarotonga, and these could be marketed in Pago Pago, giving a better return to the fishermen and increasing overall export earnings. Any excess production in the southern Group would be available for export in processed form.

7. TO supply dories and gear similar to prototype already demonstrated at a reasonable price on satisfactory term for purchase by fishermen.

8. TO supply adequate assistance for the proper maintenance of the dories and engines.

10. TO supervise and manage the operations of Onshore freezing facilities installed by Government.

D. In return our Company client would ask the Government of the Cook Islands to do the following:

1. TO grant to the Company the control of the freezing facilities to be managed by the Company, under a licence/lease arrangement.

2. TO charter/sell to the Company the Ravakai to operate as a pick-up and service vessel within the Southern Cook Islands.

Comment: We understand that some commitment has already been made to the Marsters family and Palmerston Island for the use of the Ravakai for the independent development of Palmerston fisheries. It would be quite impossible for our client Company to consider a major investment in a retail/distribution/processing establishment, with the possibility of irregular inconsistent and subsidised deliveries of fish from Palmerston being sold off the Ravakai. It would be impossible to establish a proper or stable marketing system with this background. If our proposals were approved we see the following advantages to the people in Palmerston:

(a) Larger freezer capacity - we would install additional freezing capacity which would allow persons on Palmerston to catch more fish;

In our client Company's opinion, the position of the Ravakai and Palmerston is fundamental to the development of fisheries in each of the Southern Group Islands.

E. Term of Agreement: It is proposed that the agreement run until 31st December 1985 in the first instance. Subject to satisfactory performance of its undertakings by the Company a further term of 2 years would then be available to it.

Comment: The initial term of 4 years is regarded as a minimum period for establishment. It is noted that the first year of operations would be taken with setting up the operations. The date suggested for the end of the 1st period, is chosen bearing in mind the delays in having freezer facilities installed in the North, together with hurricane season "downtime".

F. Interpretation of Agreement: It is proposed that any differences between the parties that arise from the agreement, be settled by arbitration.

We trust that these proposals will be in accord with Government's wishes. Our client Company is obviously anxious for an early decision and we understand that you will be discussing the matter with Cabinet tomorrow. To facilitate matters it may be useful for Mr Stace and the writer to be "on call" so that any further negotiations can be dealt with and referred back to Cabinet before you leave Rarotonga. We await your advice.

I write to inform you that the proposals submitted by you on behalf of Marine Resources (Cook Islands) Limited were discussed by Cabinet on Tuesday 9 June.

(a) in Clause B.2, the passage in brackets be altered to read: '(other than those operated by the Company or owned and operated by Cook Islanders)';

(b) by adding after B.3 and D.1 the following words 'provided that the Island Council and people of the respective island have the right to use these facilities except in competition';

(c) by adding after D.2 the following words 'provided that Government's right to use the Ravakai in emergency situations are not restricted';

(d) in Section E, the term of agreement be subject to a renewal period of 2 years instead of 4 years.

I trust that the above will enable you and your client Company to proceed with the implementation of your proposals.

There were some further discussions between Mr Stace, Mr Tylor, Mr Dashwood and Mr Temm but these did not make any material variation to the suggestions in the letters.

Mr Tylor said in evidence he had been expecting a more formal document to be prepared, and he and Mr Stace had a meeting with Mr Temm and (I think) Mr Dashwood on either the 14th or 15th July in Rarotonga, and pressed for such a document to be prepared. Mr Temm however replied that he had had some difficulty in getting Cabinet approval in the first place, that they could take his word for it that the Government would stick by the arrangement and that all that was needed was a written acceptance of the counter offer. Accordingly Mr Tylor wrote the following letter:

We refer to your letter of 16/6/81. The amendments set out in your letter are accepted by our above Company client.

Thereafter witnesses on both sides treated this exchange as the basis of their relationship although there are some uncertainties and ambiguities, which have since given rise to much debate.

The letter of 4 June commences "we set out the proposals for the basis of an agreement" and it leaves many matters ill defined or not defined.

What if agreement could not be reached by these third parties? Is this a condition precedent to the whole Northern Group scheme? There was evidence that the Penrhyn Island fishermen, although initially expressing approval of the boats, later became somewhat sceptical of them, particularly of their lack of speed, and evidence shows that they were likely - (short sighted though it might be) - to adhere to their more costly petrol driven outboards.

Indeed by 15 March 1982 the Fisheries officers had reported to Minister Ingram that the Islanders did not want the dories. Certainly they hoped for loans for their purchase never materialised, and it seems quite likely the whole arrangement would have collapsed on this point alone, with neither party incurring a liability at all - for the dories along with the freezer, were central to the operation. Dependence on the consent or approval of a third party, which does not materialise is fatal to the existence of a contract. Next the plaintiff was "to undertake deep sea fishing on a regular basis". There was little if any parole evidence as to what the parties agreed would be "regular". "To provide adequate onshore freezer facilities where necessary" - it was not long before the parties were at odds as to what this obligation involved.

Again: "to buy at a fair price the whole of the (Northern) catch". The catch would be owned by the fishermen - they were not parties - who would determine what was "fair". If no agreement could be reached there would be nothing the Government could do.

Next: "to restrict access by (other) long line or purse seine vessels". Whether the word 'restrict' meant limit or exclude could never be agreed on between the people who thereafter tried to decide how the option could be exercised.

It seems little wonder that Mr Tylor asked three times that a formal document be prepared, and equally it is significant that Mr Temm seems to have declined the request, not on the basis that the documents were of themselves sufficient, but because very understandably he did not wish to have to approach the Government again - from which it may be legitimate to infer that a further approach for more definition would require further debate and decision. He gave his word, which everyone would accept, that he would see that Cabinet stuck to its promise - but promise of what?

While these suggested uncertainties are being mentioned it is worth noting the difference of opinion which has existed between Mr Tylor and (2)(a) and (b) governing the circumstances under which other fishing vessels would be allowed in the 12 mile zone. They refer (a) to an option to the Plaintiff, and (b) to a test that local operations would not be affected by other vessels. Were these cumulative, or alternative conditions to allowing foreigners in? For reasons I discussed with counsel during the hearing I tentatively favour the cumulative view - but as Mr Grove submitted, it isn't a question of which is correct, but an indication, from the conflict of opinion, that the whole letter was of a general and somewhat tentative nature with no precise meeting of minds.

Now Mr Holmes Pressed for the conclusion that these uncertainties were subsequent matters capable of being ironed out - and shows for example that Mr Dashwood on 24 June had agreed to a charter rate of $250 per month for the Ravakai. But in the same letter that gentleman baulked at other suggestions concerning other terms for the vessel including a reduced manning scale and alterations in the Rules governing safety. So it will be seen that even before Mr Tylor's letter of acceptance (15 July) it had become apparent that the parties were in difficulty over charter terms on one of the most important aspects namely the Ravakai's safety, - for it has a reputation as an unstable vessel and impossible of insurance. Attempts to agree, in Mr Tylor's own words, when giving evidence, reached a stalemate particularly with regard to responsibility for life and property loss in case of a shipping casualty and it is common knowledge in the Cook Islands that the Ravakai had on an earlier occasion capsized with loss of life.

On 28th July Mr Stace, who was negotiating with C.I.D.B. for its participation as a shareholder noted in a letter to the General Manager that certain "fishing proposals were deferred pending a decision by Government as the future of the vessel", he noted in a letter to Mr Temm on 5th August that the Marine Board would not allow the vessel to be used in its dangerous condition.

Further, evidence has shown that unknown to Mr Stace until early August, the Government through one of its ministers had promised the use of the Ravakai as a fishing and/or fish carrying vessel to the Marsters family who are the inhabitants of Palmerston Island. They were proposing to enter this type of activity on their own account, so that on one view of the matter the Government had been somewhat less than frank in purporting to give the same rights to Mr Stace's people. Had no other even greater difficulties arisen, which I will deal with later the plaintiff would have been faced with the same problem as faced the purchaser/caveator in the case of Willetts v Ryan 1968 N.Z.L.R. 863 - a problem which has arisen many times in breach of contract actions. Were so many matters left undetermined for subsequent agreement that it was merely an agreement to enter into an agreement and hence unenforceable? If the case were to turn solely on this issue I would need to discuss the principles and the authorities at greater length, but in view of more powerful defences which in my view must prevail I content myself by saying that from the brief references to the evidence already cited, I am of the view, and for the reasons expounded in Willetts case that no firm contract was entered into between the parties.

However I move straight to one of the crucial points of the case. The Defence raised at trial the fact that although the Plaintiff company pleaded that this contract was entered into primarily on 14th or 15th July when Mr Tylor on behalf of Marine Resources (Cook Islands) Limited purported to accept the Government's counter proposal of 16th June, incorporating most of Mr Tylor's offer of 4th June, and although most officials thereafter and most witnesses at trial referred to "the agreement of June 1981" no such contract had arisen because the company was not incorporated until 7th August 1981.

I trust I am not doing Mr Holmes an injustice when, I say that this matter does not appear to have occurred to the Plaintiff or its advisers until it was raised by Mr Grove, when the Defence was embarked upon towards the end of the hearing. And in fairness it must be acknowledged that it was not specifically pleaded in so many words but it certainly was raised, albeit in general terms when the Statement of Defence said that the Defendant:

"denies that any agreement was concluded between the Plaintiff and the Defendant and denies the allegations contained in prayer 3 of the Statement of Claim..."

Now paragraph 3 of the Statement of Claim is a recital but in slightly different words of Mr Tylor's letter of 4th June 1981. For example: Clause A7 of that letter said that the company "would supply dories at a reasonable price" etc. Clause A(g) of the Statement of Claim said that the agreement was that the plaintiff would "facilitate the supply of dories". So too in the letter Mr Tylor had said "we would be asking for approval for exemptions from duty/levy/sales tax/use tax on (certain) items". In the Statement of Claim paragraph 3(3) it is alleged that the Government had agreed to approve these exemptions, which appears to ignore the subjunctive phraseology.

Putting these slight variations aside however this pleading is of a contract made by Plaintiff in June/July - apart from a reference to five letters between 13 August and 6th November, none of which have any new significance. In June and July the company did not legally exist and in my view this is fatal to the claim both in contract and in tort.

The law on the subject can I think be briefly states as follows. A company cannot sue or be sued on a contract purporting to be entered into by it or on its behalf by other persons prior to its incorporation. Kelner v Baxter [1866] UKLawRpCP 97; 1866 L.R. 2 CP 174. Equally a company which does not exist cannot be the victim of tortious behaviour.

After incorporation the company may by its actions in adopting the previous agreement, and in part performing it, be held to have entered into a new contract with the other party on the same terms as the earlier purported agreement. But this requires that the company after incorporation, shall have turned its mind to the question of entering into a new contract and have intended to create its own contract albeit in the same terms as previously recorded. Hence acts done under the erroneous belief that the preliminary agreement was binding on the company are not evidence of a new agreement. Northumberland Avenue Hotel Company Ltd [1886] UKLawRpCh 116; 1886 33 Ch. D. 16 (CA) Official Assignee of Motion v N.Z. Sero-vaccines Ltd [1935] NZGazLawRp 151; 1935 N.Z.L.R. 856. At no stage of the evidence was there any recognition by the Company that a new contractual arrangement was to be entered into, except that in late 1981 and in 1982 the Company appears, because of the difficulties it had encountered in giving effect to what it regarded as its June contractual rights, to have abandoned the Ravakai charter, and with it the Southern Group: and to have ceased attempts to supply dories, partly because of their non-acceptance in their then form, by the fishermen, and partly because of the lack of finance; and it attempted to rearrange its Northern operation, but without finality.

In October 1981 Mr Stace joined with M.A.F. officials in drawing up new "proposals" - which were substantially different from the June/July scheme (Doc. 110). These were never adopted, perhaps because of the justifiable anxiety on the part of the company about the possible intrusion of a Norwegian fishing company with which the Government had been negotiating. Had the original arrangement been a contract binding on the company it could legitimately be heard to protest that its delay from about October until early in 1982 (when the Government either clarified or further restricted the Norwegians rights) was not to be laid at its door. But that contract was void. It is clear that all the people on both sides continued to refer to our agreement of June 1981 - see documents DB142, DB42, No. 1181, No. 120, No. 146, No. 216. Just to quote from the last of these:- Mr Tylor writes in July 1982:-

There is no evidence of any new contract. Certainly not for the Southern group. That was abandoned because of the non availability of Ravakai, although sane tentative proposals for other means of operating there were discussed in Document 110 a suggested new agreement which never came into effect.

In the Northern group things were at a stand still because there were no dories, no agreement on control of Penrhyn freezer, the deferral of the Rakahanga freezer, and no mother ship. In document No. 195 Mr Tylor on 26/5/82 forwarded a draft agreement to Mr Temm "to replace that existing between the parties" - but it was never executed. It is clear that the parties continued throughout in the belief they were governed by the letters of June/July 1981. The Government became disenchanted with the company - I do not think fault should be apportioned. The company was having a difficult time trying to do business here - and it would not be the first to do so. The Government was minded to look more towards the new idea purse seining in the Exclusive Economic Zone (the 200 mile limit) and by now must have regarded the Marine Resources Company as a very small operation which seemed not to have the ability to perform.

With the Penrhyn freezer in commission in mid 1982 the fishermen there started to fill it, fishing from their own boats in their own style. The Government in default of any Plaintiff ship then contracted with the owner of the vessel "Maverick" to uplift the fish and bring it to Rarotonga. This was to happen in July/August. However, the company had by now, using money borrowed from C.I.D.B purchased an ex Taiwanese long liner in Pago Pago believing it to be suitable for its purpose. There can seldom have been a more ill advised purchase, and the subsequent misadventures of that unhappy vessel would be little more than a sorry joke but for the disastrous effect it had on the worthy Mr Stace's venture for he is indeed a genuine and hard working man who has seen all his plans to wrong for causes not always of his own making.

Sufficient to say Mr Stace protested to the Government about the "Maverick" being introduced to do work which he claimed was his company's entitlement. Accordingly the Government on 13 August agreed to withdraw the Maverick arrangement, invited the company to send its ship, now named the "Maritime Reefer", to Penrhyn to collect the cargo. It did make the trip from Pago Pago to Penrhyn, but either because it was initially unsuitable, or because its machinery broke dam, it was unable to perform and the Maverick charter had to be reinstated, to cope with the fish in the Penrhyn freezer. The description given by the refrigeration expert Mr Nasland showed that refrigeration was hopelessly inadequate and Mr Shepherd who sailed as engineer condemned the vessel as a derelict.

Since then the "Maritime Reefer" has remained forlornly in Avatiu harbour and this and other evidence has persuaded me that it was a hopeless purchase - quite unsuited for use in the way contemplated. The last described operation is the nearest one can come to any fresh contract, but even in that case it was made clear to the company that it was only being given this task as a trial trip, to see if it was capable of entering into any new arrangement.

When even this last chance went begging the Government advised the company in September that it would have no further dealings with it. Shortly afterwards the C.I.D.B. which held a debenture over the Company put it into receivership, and it is obvious that it is now insolvent.

1. The alleged contract, insofar as it relies on matters occurring before 7th August 1981 was void.

2. The five letters after that date, referred to in para. 3 of the Statement of Claim carried the matter no further.

3. There was no subsequent conduct thereafter indicating that a new contractual relationship was created. Indeed to the contrary the parties and their representatives held the mistaken belief that the original "contract" was in existence - the Plaintiff's people continued to believe that right up to the Court hearing.

4. There were tentative attempts to enter into variations of the original arrangement as shown in documents Nos. 110 of October 1981 and No. 195 of 29/5/82 but nothing came of these.

5. The one trip made by the "Maritime Reefer" in August 1982 did not affect the situation.

6. The allegations of fraud or negligent misstatement are in no better position because any representations on which these allegations were founded were prior to 7th August 1981. After that date, far from any new promises or representations being made, the interchanges between the Company and the Government were largely of claims that earlier promises had been broken.

Having said this much the matter could be concluded but I propose to say a word or two about two other defences illegality and about damages.

This matter arose very late in the hearing, but as has been said, the Court must take cognizance of it. Mr Mitchell discussed the Cook Islands Commercial Fishing Regulations 1951. (N.Z. Regulations 1951/2). The relevant portions are:

"Reg. 2 'Commercial fishing' means taking fish for the purposes of sale otherwise than for domestic consumption in any island of the Cook Islands.

'Domestic fishing' means taking fish for the purposes of sale for domestic consumption in any island of the Cook Islands."

"Reg. 4 No person (whether a Native or not) shall use any boat for commercial fishing within the territorial waters of the Cook Islands."

"Reg. 6(1) The Resident Commissioner may by writing under, his hand authorize-any person to engage in domestic fishing in the territorial waters of the Cook Islands."

"Reg. 7 Any person who commits a breach of these regulations is liable to a fine not exceeding Fifty pounds."

In the context of this case neither the Company nor the Penrhyn or other islanders could take fish for sale overseas, and even the islanders needed a permit to catch fish for sale for domestic consumption. So apart from shipping fish into the Rarotongan market, these Regulations, if in force, prohibit the entire operation under consideration, with a penal sanction.

I am satisfied from the legislation which Mr Mitchell traced that these Regulations were made under the "Peace order and good government" provisions of Section 53 of the Cook Islands Act 1915, and despite the repeal and replacement of that Section they have continued alive and in force by virtue of the combined effect of Section 50 of the Cook Islands Amendment Act 1957, Section 20A of the Acts Interpretation Act 1924 Section 96(3) of the Cook Islands Amendment Act 1957, and Article 77 of the Constitution. The Regulations therefore forbid the taking of fish in territorial waters (and the Plaintiff's claim is solely related to its loss of rights in territorial waters). The Plaintiff company could not long line or purse seine in the Territorial Sea nor sponsor the Islanders to do so and the small percentage of fish it would have obtained from the Palmerston people had it acted as their agent would not have made the operation worthwhile, even if that had not been abandoned before Mr Tylor's purported acceptance of 15 July 1981. Consequently the contract, the primary purpose of which was to commit acts contrary to a penal statutory provision, was unenforceable.

The fact that the Government was a party to this transaction does not affect the proposition that a contract to carry out an illegal purpose is void, see Howell v Falmouth Boat Construction Company 1951 AC 837. 1951 2 All E.R. 278. Nor can a Government bind itself by contract to future executive or legislative action. Rederiaktiebolaget Anglitrite v The King 1921 31 KB 500.

The way in which the claim has been made out, the totals of the same and the legal basis have varied from time to time. It was finally phrased by Mr Holmes under 4 heads:-

A. Loss of access and right to purse seine in Territorial Sea for 3yrs.

$1,074,647

B. Loss of Inshore fishing rights (long line and local)

$391,300

Adding A. and B.	$1,465,947 carried forward

	$1,465,947 (brought forward)

After tax	$1,404,373

This was calculated as follows:

Maritime Services Limited	$133,334

C.I.D.B.	$65,000

Debenture	$78,000

Creditors	$53,733

	$332,137

Less Expenses prior to August	$26,936
	$305,200

D. Receiver's costs	$27,541

One of the most bewildering items has been item B - the sum of $305,200. At one stage the sum was said to be made up of the costs of setting up the company including wages, travel, purchases and the cost of the "Maritime Reefer". This however was capitalised as a claimable sum as follows:

The supposed paid up value of the share capital	($199,501.)
The amount of the debenture and $78,000 debts	$53,000
Less certain amounts of expenditure incurred prior of 4 June 1981
	$26,936
Making approximately	$305,200

I had difficulty in analysing the way Mr Holmes presented this in his final claim as set out in Claim B, when he puts forward the major item of the alleged loss as the nominal value of the shares.

That is no measure, for the shares belong to the shareholders. Their value is represented by the extent of shareholders funds i.e. the value of the Company's assets, in this case its material assets - such as the "Maritime Reefer" and the dory, and its choses in action namely the potential value of its rights (if any) under its contracts. Now these last items are already separately claimed as a money loss to the extent of $1,404,373. It was the alleged ability and entitlement to earn such profit which was achieved by the expenditure of the establishment expenses which were capitalised by the share issue to the shareholders. If there is a claim, as there is, for the loss of these expected profits under the contract, it is duplication to claim the expenses (including debts) incurred in acquiring those contractual rights. As to the first items - the tangible assets - I could accept that if a breach of contract forced an otherwise viable company to sell its assets to pay its debts, or if a receiver sold them to pay a debenture holder that might be a claimable item. But that is not the case - the tangible assets are still in the name of the Company albeit in the hands of the receiver - but the evidence persuades me they are - and have been for some years - of little value. The "Maritime Reefer" is fit for little better than scrap and the one dory does not seem to have been heard of for years. This aspect of the damages claim has no foundation. Loss of purse seining rights (approximately $1,075,000) - at most these were claimed on the basis of a supposed option to have first claim on purse seining in the Territorial Sea. Now I heard evidence from two witness (sic) put forward as experts. Mr Campbell for the plaintiff and Dr Habib for the Defendant.

I do not think I need go into details of their evidence. Mr Campbell is primarily an economist with wide experience in negotiating or administering international agreements by Governments and fishing ventures - he has much experience in advising various organisations on economic development of fisheries resources. I thought him a knowledgeable man in his field and certainly a most pleasant personality. But the question here is not so much at the higher level at which Mr Campbell operates but on the practical questions:-

Could Marine Resources do it or would they have to let out their rights to a larger organisation - assuming they were permitted?

In the state of the current fisheries situation through the Pacific would Marine Resources find any takers?

Unfortunately I did not think this was Mr Campbell's field. Dr Habib on the other hand appeared to me to be a man perfectly qualified to answer all these questions. I have seldom listened to a more impressive expert witness.

His academic qualifications are in this field - an M. Sc and then a Ph. D in Marine biology.

He has had 10 years practical experience as a fisheries scientist, specialising in tuna fishing in the Pacific - he is a special adviser to a host of countries in this area and his list of published works is substantial. And he has fished this area extensively both in research and commercial ventures - and he has one other great advantage - ethnically he is basically a New Zealand Maori, and he has fished with and lived with many of the Pacific Islands' races and understands their methods and their life style.

If the Defendant had searched the world no better witness could have been found.

Put briefly his evidence which I found totally convincing, was that any rights that Marine Resources might have had for purse seining were worthless.

They are migratory and difficult to locate and a large number of enormously expensive vessels would be required to even hope to catch fish - if they are there.

The market is saturated and the prices are declining - and there are a number of existing tuna grounds which are more than meeting existing demand.

No known fisheries company would be likely to contract with Marine Resources (C.I.) Limited to do the purse seining on a share basis - and in his words "The Norwegians can't know anything I don't know." In my view he is unduly modest. I doubt if they know as much.

Finally, and perhaps fatally, it appears to me that Mr Campbell's forecast, on which the Plaintiff's figures are based, contemplated using the 200m. EEZ - when the most the Plaintiff Company could seine would be the Territorial Sea; that appears to me to be an over estimate of available area in excess of 100:1. (Northern and Southern Group (Inshore) $391,300).

Again we looked at conflicting evidence from Mr Campbell and Dr Habib, together with certain views by Mr Dashwood, who is also well qualified. First it must be noted that there is little available data on which to extrapolate what fish could be caught by the long liner and the locals. Mr Campbell was optimistic. Dr Habib was not.

It was unfortunate that in cross examination when Mr Campbell was challenged to justify figures of available fish he relied on statistics for the whole area (not just the Territorial Sea) which he took to represent tonnes of fish taken over past years, only to have to acknowledge that the figures were in kilogrammes - estimating a thousand fold error - it was an unfortunate slip, which like the gentleman he is, Mr Campbell immediately acknowledged with some grace. I am sure we all sympathised with him, no one more than Mr Grove. But simply put the evidence is just not there to support the projected figures. We also have a personal and human Problem, of whether the Penrhyn Islanders, who are as independently minded as many humans can be, are prepared to be projected into production units.

Then, as one recalls, the larger part of the catch was anticipated as coming from the mother ship, with the Penrhyn and Rakahangan freezers topping up. The evidence here was, and I have heard it elsewhere, that only an underpaid oriental will endure the hardship of long lining from a primitive vessel. I cannot see my Cook Islands friends being prepared to put up with the conditions that are endured, by Taiwanese and Japanese crews. The final factor is the up-to-date information that Dr Habib brought from Pago Pago - the selected market for this fish. Apart from the tuna canning Plant, the local market for other species has ceased and locals, whose costs would be lower than for fish shipped from the Cooks are being obliged to airfreight to Hawaii, and they have more of these species than they can handle.

Those are a primary charge on the company's assets. The company is insolvent and they will have to be met by the debenture holder, whose expressed ground for putting in the receiver had nothing to do with the Cook Islands Government. Those would not be recoverable. Any one of the four defences pleaded would be fatal to the plaintiff's case and in my view each of them has been made out.

It will be remembered that when the hearing of the case commenced Mr Grove raised the point that although the Directors had commenced the action in the name of the Company it was in Receivership and Mr Grove had a document signed by the receiver stating he did not authorise or support the action. Mr Holmes however had even later information where a contrary attitude had been adopted.

Mr Grove's point of view was understandable he was faced with lengthy litigation, which if unsuccessful would result in a large but barren order for costs against the plaintiff - Generally speaking Receivers have control of a company's affairs, including the right to bring an action. However in such cases the courts have sometimes allowed litigation to proceed provided the funds in the receivers' hands are protected in some way by the directors or shareholders who wish an action to be brought. Paramount Acceptance Company Limited v Souster 1981 2 N.Z.L.R. 38.

The difficulty here however was the large amount of costs which might be ordered if the plaintiff was successful. After consultation between all parties it appeared:-

1. The receiver believed the assets in his hands would not realize more than $12,000.

2. Maritime Services Limited was prepared to indemnify the Receiver to the extent of $12,000, with guarantees from Mr Stace backing the indemnity.

3. The Receiver was prepared to be liable to pay costs over $12,000 to the extent that his realisation of assets in his hands might exceed $12,000 - an event which he thought unlikely.

(b) such limited additional sums as the Receiver may realise in accordance with his undertaking in 3 above;

(c) An order against the company for costs in full, if the action failed, recognising that it would probably be valueless if it exceeded the sums in 2 and 3 above.

All these matters were spelled out in a Deed between the C.I.D.B., Maritime Services Limited, Mr Stace and the Receiver, a copy of which is on that the court file. The only order made here is that there will be judgment for the defendant against the Plaintiff Company together with costs on a claim for $1,737,000, it being clear that the liability of the receiver is only to the extent of the indemnity or the funds in his hands from realization of assets, and the balance will probably remain a barren judgment in favour of the Defendant.

High Court of the Cook Islands

Marine Resources (Cook Islands) Ltd v Solicitor General [1983] CKHC 16; HC Plaint 2.1983 (8 December 1983)