Pacific Heritage Bank v Radke [1994] CKHC 9; 168.1994 (6 December 1994)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)
PLAINT NO. 168/94

BETWEEN

PACIFIC HERITAGE BANK
a company duly incorporated under the laws
of the State of California United States
carrying on business there and elsewhere as a bank
Plaintiff

AND

CHARLES E RADKE
of Longbeach California United States
First Defendant

AND

BLANDAR LIMITED PARTNERSHIP
a limited partnership established under the laws
of the State of Nevada
Second Defendant

AND

TRUST CORP LIMITED
an international company
incorporated under the provisions of the
International Companies Act 1980-81
as trustee of the Cudue International Trust
a trust registered pursuant to the provisions of the
International Trusts Act 1984
Third Defendant

Counsel: Mr Arnold for the Third Defendant.
Mr Manarangi for the Plaintiff.

Date of Judgment : 6^th December 1994.

JUDGMENT OF DILLON J

This Judgment concludes the Interim Judgment delivered on the 25^th November 1994. The terms of the Mareva Injunction granted on the 22^nd of October 1994 (New Zealand time) were set out in that Interim decision.

Briefly the Plaintiff acknowledges that the cause of action in these proceedings arose on the 15^th of October 1992 when the First Defendant transferred 96% of his interest in the Second Defendant (a limited partnership established under the laws of the State of Nevada) to the Third Defendant (an international company) acting as trustee for the Cudue International Trust (a Trust registered pursuant to the provisions of the International Trusts Act 1984).

For the purposes of this decision it is not necessary to transverse the facts and issues on which these proceedings are based. Suffice to say that as a result of the transfer of the 96% interest referred to above the First Defendant in a subsequent personal financial statement dated the 15^th of November 1992 declared that he was insolvent and without property to settle the plaintiff’s claim of $710,707.21 as calculated to the 4^th of September 1994 which claim is accruing interest at the rate of $270.55 per day from that date.

Section 13B(1) of the International Trusts Amendment Act 1989 was relied upon by Mr Manarangi to support his injunction application. This section provides as follows:

"13B. Fraud- (1) Where it is proven beyond reasonable doubt by a creditor that an international trust settled or established or property disposed to an international trust-

(a) Was so settled established or disposed by or on behalf of the settlor with principal intent to defraud that creditor of the settlor; and

(b) did at the time such settlement establishment or disposition took place render the settlor, insolvent or without property by which that creditor’s claim (if successful) could have been satisfied,

then such settlement establishment or disposition shall not be void or voidable and the international trust shall be liable to satisfy the creditor’s claim out of the property which but for the settlement established or dispotion (sic) would have been available to satisfy the creditor’s claim and such liability shall only be to the extent of the interest that the settlor had in the property prior to settlement establishment or disposition and any accumulation to the property (if any) subsequent thereto."

The affidavit of Mr Moreau in support of the Plaintiff’s application alleges that the disposition of the 15^th of October 1992 was intended to defraud the creditor, the Plaintiff. On the First Defendant’s own admission that disposition rendered him insolvent. The Plaintiff has therefore satisfied the requirements of Section 13B(1).

Mr Arnold however relies on Section 13B(4). That section provides as follows:

"(4) An international trust settled or established and a disposition of property to such trust shall not be fraudulent as against a creditor of a settlor if the settlement establishment or disposition of property took place before that creditor’s cause of action against the settlor accrued or had arisen."

The Plaintiff and the First Defendant negotiated the original arrangements on the 31^st of October 1991. The First Defendant defaulted under those arrangements on the 1^st of December 1992. Mr Arnold quite properly asks – "How can default on the 1^st of December 1992 create a cause of action which is dated the 15^th of October 1992 and which is the date relied on by the Plaintiff?" However the Plaintiff has issued separate proceedings relying on that cause of action arising from the 1^st December 1992 default. Those proceedings have been commenced in the Superior Court of the State of California for the County of Los Angeles. The Plaintiff in these proceedings is relying on the disposition of the 15^th October 1992 and not on the default of the 1^st December 1992 as referred to by Mr Arnold. Section 13B(4) has therefore no application.

Mr Arnold then refers to Section 13B(3). That section provides as follows:

"(3) An international trust settled or established and a disposition to such trust shall not be fraudulent as against a creditor of a settlor if-

(a) settled established or the disposition takes place after the expiration of 2 years from the date that creditor’s cause of action accrued; and

(b) the creditor fails to bring such action before the expiration of 1 year from the date such settlement establishment or disposition of property took place."

The requirements of subsection (3)(b) are in my view critical to the Plaintiff retaining the injunction which has been issued and to the application by the Third Party who has applied to strike out those proceedings. It is accepted that the "...disposition of property took place" on the 15^th of October 1992. This subsection applies if "the creditor fails to bring such action before the expiration of 1 year from the ... disposition of property ..."; that is, one year from the 15^th of October 1992 - that is, prior to the 15^th October 1993. However the Plaintiff did not commence proceedings in this Court until the 6^th of October 1994, almost 12 months later.

Mr Manarangi made detailed submissions on this issue. He put it this way-

"It is contended by the Third Defendant that subsections (3) and (4) amount to statutory limitations against proceedings where fraud is alleged.

In the case of subsection (3) this cannot be so. For the limitation in that subsection to be invoked the Plaintiff [must] fail to commence an action before the expiration of 1 year from the date [the] disposition took place. The word fails, in the submission of the Plaintiff, means "to neglect", "not remember" or "not choose" to act in a particular way. That is, it imports to the subsection not only that the Plaintiff has omitted to commence an action but has done so with the knowledge of the existence of the Cudue International Trust and the disposition complained of.

The Plaintiff did not become aware of the Trust or the disposition of 15 October 1992 until 17 January 1994 at a Special Interrogatories hearing."

I am unable to accept that the meaning of the word "fails" should be so interpreted in order to embrace the circumstances discovered by the Plaintiff on the 17^th January 1994, some three months outside the limitations imposed by subsection B(3). The proper approach in my view is simply to apply the basic canon of construction namely that words whenever possible be given their natural and ordinary meaning.

This default by the Plaintiff in failing to bring its proceedings within the time limits specifically provided for by Section 13B(3)(b) is in my opinion fatal. For that reason it is not necessary to consider the number of other interesting issues that were raised by both counsel.

The Mareva Injunction issued on the 25^th of November 1994 is therefore cancelled and discharged. The order for security for costs is accordingly cancelled. The question of costs is reserved.

DILLON J