Hawaii Production Credit Association v Davies [1985] CKHC 6; Plaint No. 16.1985 (10 May 1985)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA

Plaint No. 16/85

BETWEEN

HAWAII PRODUCTION CREDIT ASSOCIATION
a Federally chartered instrumentality of the United States of America, having its registered office in Honolulu, Hawaii, United States of America and carrying on business as a Credit Company
Plaintiff

AND

ROGER WILLARD DAVIES and DOROTHY STACY DAVIES
presently care of the motor vessel "Cornucopia" within Cook Islands waters: Vessel Chatterers
Defendants

Hearing: 7 & 8 May 1985

Mr Templeton and Mr MacFadzien for plaintiff
Defendants in person

Judgment: 10 May 1985

JUDGMENT OF SPEIGHT C.J.

The Plaintiff in this case is an association incorporated in the United States under federal law having its office in Honolulu and it carries on business as a credit company. It claims to have advanced varying sums of money in excess of $150,000 to the two defendants who are the owners of a motor vessel called "Cornucopia" and that there are outstanding under the said loans and the ship's mortgage over the vessel securing the same sums in excess of $200,000. In the Statement of Claim issued, the Plaintiff seeks to invoke two separate jurisdictions and to achieve two separate remedies. First in the ordinary Civil jurisdiction of the High Court of the Cook Islands it claims the principal sum allegedly now fallen due together with outstanding interest and other charges totalling as at 8th May 1985 sum of $225,326.64 (including interest down to the present time). This is an action taken personally against the two defendants in respect of their alleged loan debt. The second jurisdiction invoked is that in Admiralty and the remedies sought are for:

1. An order in favour of the Plaintiff for possession of the vessel for the purpose of enabling the plaintiff to realise upon the security.

2. A declaration that the Plaintiff is entitled to sell the vessel.

3. Costs of the action.

As to the first matter, I have no doubt that the jurisdiction of our High Court extends to the entertaining claims of this nature, despite the fact that the debt was incurred abroad under a contract entered into under the laws of a foreign country. The only requirement to establish jurisdiction here is for the defendant or defendants to be resident even temporary within this jurisdiction. I am satisfied on the authority cited to me by Mr Templeton, counsel for the Plaintiff, namely the case of Colt Industries Incorporated v Sarlie 1966 1 WLR 440 that jurisdiction exists. I have been satisfied by the evidence given by Mr Ayres, President of the Plaintiff association that the particulars which he has supplied of monies owing are correct; that the mortgage entered into was a valid mortgage; that the defendants are in default and have been for substantial periods. Accordingly both the principal sum already advanced and the interest payments and other charges to date have now fallen due. Indeed although Mr & Mrs Davies have been present at the court on and off through the 2 days during which this mater was heard, and although they have attended along with the other party in Chambers to discuss the proceedings with me, and although they each from time to time were present while evidence was being given, principally the evidence of Mr Ayres, and although they saw the multiferous financial records being produced they did not avail themselves of any opportunity to question Mr Ayres on this evidence; nor as I understand it have they ever disputed that they are in serious default and that large sums of money are owing, albeit they have never brought themselves to the point of considering the mathematics of the calculations put forward. That being so there is no bar to the court giving judgment in favour of the Plaintiff for the amount claimed against the two defendants, together with costs to be fixed by the Registrar including witness expenses (with travel).

More complications however arise in respect of the second cause of action – that in Admiralty. The Defendants filed a Statement of Defence in which allegations that the Plaintiff was entitled to invoke the jurisdiction of this Court in Admiralty were denied. Accordingly I was obliged to be satisfied that that jurisdiction does exist in the High Court of the Cook Islands though it has not, to my knowledge, been previously exercised. Other grounds of defence relied upon, arguments based in estoppel – namely that compromises of the claim that had been reached with the Plaintiff, and the possibilities of the Defendants performing their obligations under those compromises were, so it was alleged, aborted by precipitate action on the part of the Plaintiff – principally by discrediting the Defendants with the Cook Islands Government, and by undue haste in issuing the present proceedings in breach of the arrangements reached. These can be discussed jointly.

Before discussing the nature of the evidence given, particularly on the last topic above mentioned, it is necessary to recite some of the negotiations and discussions which took place between counsel for the Plaintiff and Mr & Mrs Davies, in my chambers prior to and during adjournments in the course of the main hearing. Mr & Mrs Davies acknowledged that the mortgage over the ship was a valid one and was appropriately registered, and that they are in default. They admitted they were seriously in arrears with payments of instalments under the mortgage. Mr Davies claimed that he was in a position to trade his way out of his financial difficulty, and to that end he was endeavouring to arrange a settlement of his affairs with Mr Ayres, who was present at all times during these meetings. Apparently bona fide negotiations did take place, and I was advised both by Mr Davies and by Mr Ayres that they had agreed upon terms of settlement which would be acceptable to both sides. However Mr Davies had in the meantime given instructions to his Attorney in Hawaii to take whatever steps were necessary to protect his position there. At the end of the first day of hearing, namely the 7th of May, the case was part heard with evidence taken from Mr Ayres; but at the adjournment Mr Davies indicated that he was about to telephone his attorney in Hawaii to seek his advice and approval of the terms of settlement which he and Mr Ayres had apparently concluded. It should be mentioned that a local lawyer, Mr Arnold, had been giving some friendly but unofficial advice to Mr Davies but he had specifically declared himself not to be representing him in this matter because he was not prepared to take responsibility of advising Mr Davies of his rights under United States law, with which Mr Arnold is not familiar. It was therefore understood that overnight 7/8 of May Mr Davies would be in communication with his attorney in Honolulu with a view, it was hoped, to arming him with sufficient confidence to conclude the settlement. It was anticipated that, after/such taking advice a tentative settlement would be confirmed. On the morning of the 8th May the court commencement time was deliberately delayed for several hours to give Mr Davies additional opportunity to have telephone conversations with Honolulu. It then emerged that at sometime towards the end of the day, 7th May and after our court proceedings had already commenced but before Mr Davies had made contact with his attorney, a petition in bankruptcy had been filed on his behalf in the Court in Honolulu. As a result of the discussions which Mr Davies had then had with his attorney he was advised that under United States Bankruptcy laws, his powers of entering into compromised agreements were suspended. Consequently he could not perfect the intended settlement.

Some discussion took place between counsel and myself as to the appropriate method of then proceeding as it was common ground between Mr Davies and Mr Ayres that they would have liked to have concluded the settlement reached between them but this had been aborted by the filing of the Bankruptcy proceedings. Mr Davies indicated that he understood it was possible for the bankruptcy application to be annulled which would restore his negotiating powers to him and that he would attempt to have these steps put in train in Honolulu forthwith. Counsel for the Plaintiff however indicated that it was his understanding that these could be lengthy proceedings. Mr Ayres was now present in the Cook Islands but could not remain indefinitely; and I have commitments in other Pacific jurisdictions, and am due to leave Rarotonga on Saturday next. It was stated by Mr Ayres that the Plaintiff’s wish was for the vessel to be returned to Honolulu where a more appropriate court could finalise the liabilities between the parties and in particular so that the matter could be done in consultation with the Trustee in Bankruptcy. It was made clear that the Plaintiff wished to be entirely cooperative with the Trustee and observant of the restrictions which the United States Bankruptcy law might place upon its rights over the asset to which it claims security. Mr. & Mrs Davies then both expressed to me, in the presence of Mr Ayres, their concurrence with this plan, namely, that the best course in the interest of all parties was for the vessel to be returned to Honolulu. They would have been prepared to cooperate to that end but for the apparent restriction that the Bankruptcy step had placed upon their freedom of action.

It seemed to me that the best course in the interests of all was to allow the Plaintiff to proceed with its case to see whether it could establish a right to the vessel. Accordingly the court resumed on 8th May and further evidence was heard. In particular more detail on the financial transaction, as a result of which, as I have already said, I was quite satisfied the amount claimed had been proved as owing. Evidence was then given as to the issue of estoppel which Mr Davies' Statement of Defence had pleaded. In particular he had alleged that in January 1985 Mr Ayres had come to Rarotonga and as a result of discussions an agreement was reached that if the Davies could promptly obtain contracts with the Cook Islands Government for chartering the vessel on a long term basis principally for fishing purposes, there would be available sums in excess of $40,000 per annum and that the Davies would be able to make assignments of sums to that amount. This would cover the annual payment of instalments of $25,000 and insurance premiums which were being paid by the plaintiff company to sustain insurance cover. In the Statement of Defence, it was claimed that the Defendant had moved with all due speed in negotiation with the Government of the Cook Islands; that they obtained a trial charter and that $4,500 thereby earned had been paid to the Plaintiff quite early in 1985. It was further alleged that other charters were available from the Cook Islands Government and that the Defendants also had a taro export scheme. The plea of estoppel was based upon an allegation that they had been precluded from finalising these arrangements by the premature intervention by the Plaintiff in advising government of the Cook Islands and its public servants of the impecuniosity of the Defendants and of its intention to seize the vessel. These recitals were made in various alternative forms but they were answered in the evidence given by Mr Ayres and by two officials of the Cook Islands Government, Mr Dashwood and Mr Winnen. The evidence of Mr Ayres is that having made the arrangements with the Davies, he left the Cook Islands early January 1985 believing that the agreement would be carried out. In fact one short charter of some 3 weeks was entered into with the Cook Islands Government to travel from Rarotonga to the Northern group and return on a fishing exercise with trochus shells. The charter rate for that was NZ$5,000 per week and it had been undertaken that $1,500 per week of this would be paid to the Plaintiff - hence the recited figure of $4,500. Although a charter party was drawn up between the Davies and the Cook Islands Government and the voyage was made, only a small dribble of money was ever remitted to the Plaintiff. Sometime thereafter namely in early March, being concerned with the lack of funds forthcoming and being aware that this first trip was only a trial run, the Plaintiff communicated with the office of Ministry of Fisheries in Rarotonga to enquire whether there were other charters, particularly of a long term variety, capable of producing the sums which had been discussed in view. I also heard evidence from Mr Dashwood the Secretary of Marine Development at the Ministry of Agriculture and Fisheries, a well known and responsible Cook Islands public servant that there had then been and are now no prospect of worthwhile fishing revenue obtainable from the Cook Islands Government contracts or any long term, charters available. Similarly, there had been a claim in the Statement of Defence that the Plaintiffs conduct had precluded the Defendants from undertaking a "taro export scheme". I heard evidence from Mr Winnen already referred to. He is an agricultural planning officer seconded to the Cook Islands Government and he is thoroughly knowledgeable in agricultural prospects. He had had some discussion with Mr Davies when Mr Davies had enquired for information concerning the cost of taro production and trans-shipment, as he, Davies, assured Mr Winnen that he had access to markets for the sale of taro in Los Angeles. Far from there being any commit-ment by the Cook Islands Government to forward such a scheme Mr Winnen made it clear that this was merely a request for informa-tion from the Davies; that the scheme was one which was very much in the future, thought up entirely by Davies, and that the information which he had given in response to the inquiry was to the effect that it was not a viable economic proposition. Apparently nothing further was ever heard of this supposed scheme. In all these circumstances one cannot conclude that there was any pre-empting by the Plaintiff of lucrative fields of remuneration which might
otherwise have been available to the defendant. On the contrary for it appears that these promises in January 1985 which had, not for the first time, persuaded the Plaintiff to hold its hand from fore closing on its mortgage, had been as vain as previous ones had been. It was demonstrated to my satisfaction that the promises were empty ones and that there is no prospect of any worthwhile remuneration becoming available to meet the obligations under the mortgage. None of the defences have therefore been made out and I must only consider now whether or not this court has the power to grant the remedies.

The fact that the Court’s Admirably jurisdiction was challenged, was signalled in the Defendants’ Statement of Defence and as a consequence Mr Templeton, as responsible counsel, files a very lengthy memorandum to me dated 6^th May 1985 in which he set two alternative bases upon which it was claimed this court has such jurisdiction. I am satisfied under both heads. In the first place by section 615 of the Cooks Islands Act 1915, we have inherited the Law of England at that time between the Courts of Admirably and the Courts of Common Law; that debate need not be resolved, for whichever way it was, it is clear that the jurisdiction was brought down into the Cook Islands Law in the manner I have spoken of, and even at that date it is clear that the courts exercising Admirable jurisdiction were fully seized of the power to give possession of a ship in appropriate cases. There is alternative line of argument which I also accept, based upon the Colonial Courts of Admirably Act 1980 (Imperial) which constituted every court of law in a British possession having “original unlimited civil jurisdiction” as a Court of Admirably. There is no doubt by virtue of the 1915 Act the High Court of Cook Islands pursuant to the Constitution of 1965 and its amendments. Being thus satisfied I would be prepared to grant the remedy sought as to possession and power of sale but for the complication which had been introduced by the filling of a Bankruptcy petition in the Hawaiian Court. I am not familiar with the provisions of the Laws of the United States on this topic. From other jurisdictions, one is aware that the filling of Bankruptcy proceedings of this sort will have little effect upon a secured mortgage but out of an abundance of caution I am of the view an order should be made in this court only so far as is necessary to protect the security of the Plaintiff and to facilitate the removal of the vessel to the United States jurisdiction where difficulties, if they do exist, between the Defendant and the Plaintiff can be resolved in the way which ensures that the interests of all parties are adequately ascertained and safeguard in accordance with United States law. The Plaintiff through its President Mr Ayres has assured me that this company is in all respects willing and indeed obliged by law to conform to the restrictions which the Bankruptcy laws impose upon its present situation, and accordingly I propose to make the statement of Claim. In making these orders I say again that I have received from Mr Ayres his intimation that they suffice for the purposes of the Plaintiffs present action, and also it accords with the wish expressed to me by Mr & Mrs Davies that the interest of all parties would be best served by the return of the vessel forthwith to Hawaii. I am informed that the vessel will be treated as in the possession and under the control of the Plaintiff and its agents, but with Mr Davies sailing as master, with Mrs Davies also on board, and with appropriate representatives of the Plaintiff.

The formal orders are:

1. In the Civil Jurisdiction (Statement of Claim paras 1-10). Judgment against the Defendants jointly and severally in the sum of $(US)225,326.64 together with interest thereon at 10% until satisfaction, and witness and travelling expenses and costs to be fixed by the Registrar.

2. That Default having been proved, the Plaintiffs powers under preferred Ship's mortgage over the vessel "Cornucopia", other than those remedies set out hereunder under the Admiralty jurisdiction are suspended pending the determination of the Referee or other judicial officer adjudicating in Bankruptcy in the matter of the Conditional Bankruptcy filed by the Defendants, PROVIDED HOWEVER that in the event that the said conditional bankruptcies are hereafter withdrawn or discharged the Plaintiff shall, as far as the jurisdiction of this Court extends, be lawfully entitled or exercise all or any of the remedies pursuant to the said-preferred Ship's mortgage.

3. In the Admiralty Jurisdiction (Statement of Claim paras 11-13). That the Plaintiff is hereby granted all legal and proper possession of the vessel "Cornucopia" U.S. Official Registered No. 536-602 and all its fittings fixtures gear and equipment including the documents of title for the purposes of the plaintiff retaining possession for such period as may be necessary to realise on its security as provided by its said registered first preferred ships mortgage, subject however to the restriction on such realisation expressed in para 4 hereof.

4. That the order for possession is made on condition that this Court requires the said vessel to be returned. forthwith to the jurisdiction of the State of Hawaii in the United States of America and is made on the Plaintiffs undertaking to return the said vessel to the jurisdiction of the State of Hawaii and to abide with all lawful orders of the referee or such other judicial officer applicable in adjudicating bankruptcies in the said State of Hawaii in the matter of the conditional bankruptcy filed by the defendants AND if such conditional bankruptcy is withdrawn or discharged then the Order for lawful possession shall continue notwithstanding.

5. That the plaintiff, pursuant to this order for legal and proper possession made pursuant to these Admiralty proceedings shall have complete and lawful control over the said vessel "Cornucopia" U.S. Official Registered No..536-602 in such a manner as may be required to return it direct to the State of Hawaii in the United States of America as soon as practicable.

6. That pursuant to this order neither the Plaintiff nor the said vessel "Cornucopia" shall' be liable for the Defendants creditors within this jurisdiction unless sp.ch creditors are in a position to exercise a lawful maritime lien.

7. That the interim injunction affecting the said vessel "Cornucopia" and granted by this Court on the 2nd day of April 1985 pursuant to these proceedings shall upon the Plaintiff obtaining all consents from Government Departments necessary for the departure of the said vessel and its crew from the Cook Islands be deemed to be discharged.