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High Court of the Cook Islands |
IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)
PLAINT NO. 25/2010
BETWEEN
TEPAKI NOOAPII TEPAKI
Plaintiff
AND
RAROTONGA RESORTS MANAGEMENT LIMITED
First Defendant
AND
ROBIN EGGLETON
Second Defendant
AND
KIM EGGLETON
Third Defendant
AND
ANNE MARY BOYS
Fourth Defendant
AND
MICHAEL INNES JONES
Fifth Defendant
AND
STRATEGIC FINANCE LIMITED (In Receivership and Liquidation)
Sixth Defendant
AND
DAVID SOMERFIELD
Seventh Defendant
Hearing: 8 December 2010
Counsel: Plaintiff in person for First, Second, Third and Fourth Defendants
Judgment: December 2010
JUDGMENT OF GRICE J
(i) Application to strike out by First, Second, Third and Fourth Defendants
Tepaki Nooapii Tepaki, Arorangi, Rarotonga
Tim Arnold PC, Solicitors, Rarotonga
C Little, Little & Matysik PC, Maraerenga, Avarua, Rarotonga
Copy:
W Akel/BJ Upton, Simpson Grierson, Auckland, New Zealand
[1] Mr Tepaki is involved in various Hotel or Resort developments. His business interests have turned sour. He is facing financial ruin. This case concerns three of the developments. These are Lagoon Lodges Villas and Bungalows (Lagoon), Castaway Beach Villas (Castaway) and Manuia Beach Boutique Hotel (Manuia). These are owned by Tepaki 5 Holdings Limited (In Receivership) (T5H), Tepaki 6 Holdings Limited (In Receivership) (T6H), and Tepaki 7 Holdings Limited (T7H). Mr Tepaki is the maj shareholdeholder and director of the companies and the controlling mind behind the developments. A fourth Hotel, Manea Beach Villas acquired by Tepaki Holdings Limited (In receivership), is referred to in the claim but is apparently the subject of separate litigation, although it is referred to in the statement of claim.
[2] Lagoon, Castaway and Manuia resorts were structured as Unit Titles under the Unit Titles Act 2005. This involve appointmointment of a Body Corporate for each Hotel. Mr Tepaki e Chairman of the Bohe Bodies Corporate. Initially he appointed his own management entity, anuia Management Limited (Kia Manuia) as the leasehold mana manager for the Hotels. The leasehold manager was to manage the Unit Title leases on behalf of the owner. Mr Tepaki also appointed a management company, Kia Orana Management Limited (Kia Orana Management) as the Hotel Operator to operate the Resorts. This was later replaced by the First Defendant, Rarotonga Resorts Management Ld (RRM), with the agreementement of Mr Tepaki.
[3] Thirtyparty investors purchased interests in the separate Units and through the Unit Title structure had various rights to buy, sell and receive income proportionate to their interests. The Secondrd and Fourth Defendants arts are investors.
[4] On 20 May 2008 Mr Tepaki appointed the First Defendant, Rarotonga Resorts Management Limited (RRM) as a Hotel Operator replacing Kia Orana Management.
[5] The Sixth Defendant, Strategic Finance Limited (In Liquidation) (Strategic Finance), is a New Zealand finance company. It was put into receivership on 12 March 2010, and into liquidation on 26 July 2010. It called up its loans to T5H, T6H and T7H and placed them in Receivership on 19 August 2010. The Receiver is the Fifth Defendant, Michael Innes-Jones (Mr Innes-Jones).
The Plaintiff's approach
[6] Strategic Finance provided finance for the developments of all the Hotels. Mr Tepaki says the loans foronagoon and Castaway have been repaid. The balance loan for Manuia, he says, remains outstanding at approximately $4.4 million (151 of the statemeatement of claim).
[7] Paragraph 7 of the statement of claim reads:
That the Plaintiff also mean [sic] T5H, T6H and T7H where relevant in this proceeding.
[8] This apparently seeks to make Mr Tepaki's personal interest interchangeable with those of his companies who are not parties to the proceedings and present in receivership. For the causes of action disclosed by the statement of claim to survive, the causes of action in the claim must be those for which Mr Tepaki personally has a right to pursue. If a cause of action is disclosed in the proceedings and it accrues to the companies only the action cannot succeed.
[9] Mr Tepaki claims that he has personally lost millions of dollars as a result of Strategic Finance putting his companies into receivership. He also disputes his liability under a guarantee of the indebtedness by the companies to Strategic Finance. He disputes the amount that Strategic Finance says was owing on the loans, and he says the Receiver has wrongly been appointed because the moneys were not owing under the various security documents pursuant to which the Receiver was appointed. Mr Tepaki disputes the security arrangements which include cross-guarantees and securities between the companies. The present proceedings do not seek any remedies in relation to the appointment of the Receiver. Nor do they relate to the enforceability of the various guarantees and loans between Strategic Finance and Mr Tepaki.
[10] Strategic Finance claims the amount outstanding by virtue of various loans and guarantees and cross-securities to various Tepaki related entities for which T5H, T6H and T7H are liable amount to approximately $33 million.
[1e ReceiReceiver of Strategic Finance, John Howard Ross Fisk, swore an affidavit in this matter in which he deposed that the likely distribution to unsecured creditors in Strategic Finance is zpara 20 of the affidavfidavit of John Fisk dated 21 October ).
[12> [12] Strategic Finance held no securities over the management companies, including the First Defendant, RRM.
[13] The present application is an application brought byFirst, Second and Third Defd Defendants to strike out the Plaintiff's statement of claim on the grounds that:
Insofar as the First and Fourth Defendants are concerned no reasonable cause of action against them is disclosed in the proceedings.
Insofar as the Second Defendant is concerned:
(a) He was at all times a paid employee of the First Defendant; and
(b) No reasonable cause of action against him personally is disclosed in the proceedings.
Insofar as the Third Defendant is concerned, no reasonable cause of action against her personally is disclosed in the proceedings.
Approach of the Plaintiff
[14] The Plaintiff is self-represented. He was courteous to the Court and responsive to questions. No doubt he was genuine in his desire to assist, but was not able to properly articulate either in his documentation or oral submissions claims which corresponded with legal rules. The statement of claim is essentially a narrative containing allegations of fact, comment, and conjecture. The Plaintiff has thrown all the facts and allegations at the Court and asked that the Court investigate. There is no attempt to isolate causes of action or to relate the claim for damages of $66 millo the causes of action tion or causation.
[15] At the outset of his submissions Mr Tepndicated that he was purs pursuing a conspiracy and he wante Court to unravel it. In a related application to strike oike out brought by the other Defendants, he asked the Court to appoint an istrator to replace the Rece Receivers, and to take over and sort this out. In his submissions, which were wide ranging rather than focused on the application at hand, he isolated the following as demonstrating the conspiracy:
- RRM breached a contract (the Administration Agreement, which is referred to later) for the operation of the Hotels. The Operator failed and did not pay various amounts, including $1 million to Mr Tepaki, which lea $2.5  million increase in tednessdness to Strategic Finance. This in turn led ultimately to the receivership andloss substantial amount of money by Mr TepThe amount claimed in thin the statementement of t of claim totals $66.4 million or $66 mil(the amount varies betwebetween the words and the figures).
- Othvestors in the Hotel development, including the Second, Third and Fourth Defendanendants, ats, asked him for a transfer of the leasehold interest (held by Kia Manuia). Mr Tepaki refused to transfer this to them and he alleges their request as part of the conspiracy and demonstrates fraud.
- Mr Enoka, the Chief Executive of the original Hotel management company, Kia Orana Management, which had been established by Mr Tepaki, was involved the inhe investors conspiring to breach the original Kia Orana Management Agreement by transferring the management of the Hotels new company. This ultimately occurred when RRM took over the management of the Hotel pursupursuant to the Administration Agreement. This arrangement was agreed to by Mr Tepaki.
- RRM is trading while insolvent. Therefore its directors are personally liable. The Second and Third Defendants are directors of RRM.
- This is a conspiracy of immense proportions that only a Court hearing can unravel.
- He has suffered a great injustice for which someone is responsible. He is not sure whether it is the investors or the Receivers who are responsible for this injustice. He throws himself on the mercy of the Court with an expectation that the Court will sort it out.
[16] Mr Tepaki did not even pt to p to provide any assistance to the Court in isolating the relevant causes of action which he wishes to pursue.
[17] He emphasised both in his oral submissions and in his statement of claim that he wants the Court to investigate and do justice. In his statement of claim he says:
1. THAT the Plaintiff is not a lawyer and is forced to represent himself in the absence of lawyers able to act. The Plaintiff is likely to err on matters of Court protocol and begs the Court's tolerance and forgiveness in that event;
...
3. THAT the Plaintiff humbly begs the Court's examination of the facts and seeks the Court's justice! [sic]
[18] In his Notice of Opposition, at para 4puts the situation as:
:
4. It is not the Plaintiff's intention or his right to apportion blame and consequent share of redemption of losnd/or damages. It is consequently that all parties need to d to be party to this Court case for a proper investigation and discovery of the situation to be presented to the Court for resolution.
The application for striking out
[19] Mr Arnold in support of the application for striking out approached the matter as follows:
- An examination of the statement of claim and supporting material in an attempt to isolate possible causes of action.
- An argument that it should have been T5H, T6H and T7H who were the Plaintiffs if there were causes of action available rather than Mr Tepaki personally.
- In the case of the Second and Third Defendants they were merely dirs of RRM and are not personally liable.
- In the case of the Fourth Defendant, Anne Boys, a further investor, she was at best an unpaid employee of RRM, and accordingly it is RRM not her who should be the Defendant in any claim in relation to the hotel operations.
No cause of action
[20] The Defendants cited the recent decision of Tuake v Toeta & Anor.[1] The Judge adopted the New Zealand approach to applications to strike out proceedings on the basis that they disclosed no reasonable cause of action. He stated:
[5] Rule 131 of the Code of Civil Procedure of the High Court gives the Court power to strike out proceedings if they disclose no "reasonable cause of action".
[6] The body of law which governs applications to strike out is well settled.
[7] Applicants to strike out proceedings on the basis they disclose no reasonable cause of action must show the pleading is so clearly untenable, where as a matter of law or incontrovertible fact, that it cannot possibly succeed. The jurisdiction is exercised sparingly and only in clear cases where the Court can reach a settled conclusion. That applies even in complex cases. The hurdle to striking out proceedings is deliberately set high so as not to impinge on citizens' rights of access to the Court. Successful striking out proceedings are more often based on assertions that the claim is incapable of success as a matter of law rather than a matter of fact, because Courts, on striking out proceedings, do not and cannot embark on any consideration of disputed factual issues. Finally, if a proceeding can be satisfactorily amended, the Courts will almost always follow that course and give the party whose claim is under attack an opportunity to amend rather than the proceeding being struck out.[2]
[21] In that case part of the claim and counterclaim was outside the limitation period. The pleadings could be amended to exclude the items of the claim and counterclaim that offended. The other ground was that some of the claims advanced in the counterclaim appeared to have no legal basis. Williams J accepted tha claim might ight be amended as there possibly was a contract claim and claims in trust or equity law. The application for strikut was unsuccessful. A timetable Order was put in place to allow amendment of the pleadingsdings.
[22] Counsel for the Defendants urged me to take a more liberal approach to the threshold question. He referred me to English authority in which the Court weighed out the likely outcome of the case against the cost of a lengthy and expensive trial. The English Court of Appeal decision: Jameel (Yousef) v Dow Jones & Co. Inc.,[3] related to an application to strike out brought in defamation proceedings. The defamation had very limited publication. The Defendant applied to strike the claim out on the basis that the cost of the exercise would be out of all proportion to what was achieved.[4] The Court of Appeal noted two recent developments which rendered it more likely to entertain such an application. The first was the introduction of new civil procedure rules in which pursuit of the overriding objective requires a more flexible and proactive approach. Secondly, was the application of the Human Rights Act 1998 to defamation clairMr Akel argued that this morusrobust approach was particularly appropriate in the Cook Islands where there were scarce judicial and other resources.
[23ropose following the well established approach ouch outlined by Hugh Williams J in n Tuakeeta && Anor. The English cases cited are peculiar to defamation and the particular rules in force in that jurisdiction. It may be that one day the Cslands will follow that course but it is not appropriate tote to move in that direction today.
[24] In addition, counsel for the Defendants argued that the proceedings:
- were prolix and in part unintelligible;
- raised a relevant matter;
- asserted matters with no factual foundation;
- made broad allegations of fraud and illegality for which no particulars are provided; and
- advanced a claim against Strategic Finance which was pointless because there could be no recovery for unsecured creditors.
[25] In relation to Mr Innes Jones it was also submitted that the allegations were made contrary to r41 of the Code of Civil Procedure1981, which provides:
- Defendant interest in part of claim – It shall not be necessary that every Defendant to an action shall be interested as t the relief claimed, or as to every cause of action, but the Court may make any order that may appear just to prevent any Defendant from being embarrassed or put to expense by being required to attend any proceedings in which he has no interest.
[26] To summarise, the Court approaching strike out application must consider the following criteria:
- Assume pleaded facts are true: This is not to say that the truth of pleaded allegations should be accepted if they are entirely speculative and without foundation (Collier v Pankhurst.[5]) This is apposite in this case where counsel and Mr Tepaki provided substantial material.
- Causes of action are clearly untenable – they must be so clearly untenable they cannot possibly succeed.
- The jurisdiction will only be exercised sparingly in a case where the Court is satisfied it has the requisite – tape cuts off.
[27] In addition, some useful observations from McGechan[6] are:
- Affidavits are admissible only if matters to which they refer are incontrovertible facts.
- Challenges are not infrequently based on criticism of infelicitous pleadings not complying with the Rules rather than an assertion that the claim is clearly untenable. An opportunity to amend such pleadings will normally be given.
[28] In relation to the Court's jurisdiction to strike out for reasons other than their failure to disclose a reasonable cause of action, which includes prejudice caused by the proceedings, frivolous or vexatious allegations or claims and abuse of process generally. Summary in McGechan is also helpful.[7] The Applicant must show that the pleading in question not only prejudices, embarrasses or delays but carries overtones of impropriety. Subject to that the words are to be given a "liberal interpretation". Examples given in McGechan include:
- Unnecessarily prolix pleading: Hill v Hunt Davis;[8]
- Proceedings which are both scandalous and irrelevant: I note that in Van Der Kapp v A-G[9] Hammond J dealing with a "lay ant'sant's diatribe" stayed the proceedings to afford an opportunity for the claim to be repleaded on terms.
- The pleadpleading is purely evidential material.
- Unintelligible pleadings.
- Pleadings containing irrelevant material.
[29] No objection was taken to the affidavit evidence of either side. It is unusual to have such extensive evidence, and much of it was of no assistance at all.
Tape commences:
[30] The pleadings do not allege facts which would amount to a tortuous conspiracy, either an unlawful purpose conspiracy or an unlawful means conspiracy which I refer to in more detail below.
[31] At best in the confusion of the allegations it appears a cause of action based on breach of contract might be disclosed and possibly – tape cuts off – each hotel can engage an operator for that hotel (para 47).
[32] It is pleaded that RRM "through its lawyer and the Sixth Defendant" attempted to coerce the Plaintiff to assign the Unit Title leases held by KNN on behalf of owners to it;"
[33] The Plaintiff refused to do this (para 69). It is then alleged that the request "amounts to fraud!". The heading on this section of the pleading (paras 67 to 71) is headed "Conspiracy to hold owners' leases".
[34] The allegation of fraud has no basis other than a request which was turned down.
[35] The claim headed ""Conspiracy to hold owners' leases" must be struck out as disclosing no cause of action. In addition, it makes a serious allegation of fraud without any basis. The next allegation against the First Defendant is headed "Conspiracy by fellow owners". Paras 72 – 75 set out a claim which culminates at para 75 in an allegation as follows:
75. That fellow owners will not be part of this proceeding as they by and large are at distance from the collusion by the First and Sixth Defendants!
This also makes an allegation of fraud against "fellow owners" who are not named.
[36] This claim of collusion by the First and Sixth Defendants does not appear to disclose any cause of action against the First Defendant, and should be struck out.
[37] Under the heading "Hotel operation" the pleading is that RRM was contracted to operate Lagoon, Castaway and Manuia as one as provided by the agreement in relation to administration of income of Resorts signed by the parties in October 2008. (para 77 of the statement of claim). That agreement (the Administration Agreement) was exhibited to an affidavit filed in opposition to the application to strike out by Mr Tepaki. However, the affidavit was illegible. Counsel did refer to the Administration Agreement and Mr Arnold had managed cipher pher parts of it. It was clear that Mr Tepaki is a party to that agreement, albeit is only entitled to limited revenue riunder agreement.
[38] The allegations in relation to the Administration Agreement ment in general terms are:
- RRM failing to meet revenue forecast (paras 79 and 80);
- RRM mismanaging the operations (para 81);
- RRM failing to file proper operational and financial reports and filing taxes (paras 82 - 86);
- An allegation of fraud because the First Defendant did not pay the full amount of revenue entitlements under the Administration Agreement (paras 89 and 90).
- Failure to pay taxes.
- An allegation that a provision in the Administration Agreement that indemnifies RRM against operational loss is negated by acts of fraud on the part of RRM and is therefore not applicable.
[39] The facts pleaded do not give rise to, at best, a cause of action in breach of – tape cuts off - Paras 93, 94 and 95 allege RRM has breached the provisions of the Administration Agreement in the Body Corporate Rules.
[40] Mr Tepaki has no standingring ring a claim under the Body Corporate Rules. There is no attempt to explain what standing he might have. Therefore, any clabout Body Corporate Rules for the claim about breach of the Body Corporate Rules discloses oses no cause of action (paras 93 andas they relate to theo the Body Corporate Rules are struck out.
[41] In a heading "Particulars of charges" which providsummary in the statement of claim of the allegations against each Defendant under the headiheading "First Defendant" (paras 138-140) state:
138. THAT the First Defendant failed to perform and breached the Administration Agreement it signed by the BC and central to this proceeding.
139. THAT the First and Sixth Defendants conspired and colluded in the Sixth Defendant's conversion of the Plaintiff's assets;
140. THAT the First and Sixth Defendants colluded in arresting the BC operation and preventing the BC and owners from filing taxes.
[42] The allegations made in the statement of claim (paras 76 to 94) if pro pleaded died disclose a cause of action based on contract. There are no facts which give rise to allegations of fraud. Nor are any facts which would give rise to tortuous conspiracy as a cause of action.
[43] [43] However, bearing in mind the high threshold for strike out, I propose allowing the Defendant to attempt to amend the pleadings insofar as they relate to the claim against RRM based on a contractual cause of action.
[44] It is nearly impossible to pick through the present statement of claim, to identify the paragraphs which should remain. It will be for the Plaintiff replead the claim in that regard.
Second Defendant
[45] Robert Eggleton is the Second Defendant. He is described as a director and a decision-maker at Lagoon, Castaway and Manuia (para 10). It is alleged that he conspired with the Chief Executive of the original management company, Kia Orana Management (KOM) (para 55). Neither the Chief Executive nor KOM are parties to this proceeding. Para 55 does not disclose the nature of the conspiracy. The conspiracy is also alleged to involve other investors who are not parties to this claim.
[46] At para 57 the statement of claim refers to "conspiracy of immense proportion and laced with insider trading and collusions of embarrassing dynamics occurred". Again the conspirators involve the CEO of KOM as well as a director of Tepaki Group in New Zealand, the representative of investors at Lagoon and Castaway, the Second Defendant and the loans manager for the Sixth Defendant. The nature of the conspiracy appears in general terms the First Defendant as Hotel Operator taking over management from KOM. The First Defendant was appointed by an agreement to which the Plaintiff was a party. The facts do not disclose any tortuous conspiracy for an unlawful object or purpose or by unlawful means.
[47] The conspiracy against the Second Defendant seems to be based on the fact that he was copied in on emails to "keep him informed" (para 61.2). The summary of the charges against the Second Defendant is under "Particulars of charges" and reads as follows:
Second and Third Defendants
141. THAT the Second and Third Defendants are the directors and accomplices of the First Defendant.
[48] The statement of claim does not allege any facts which would base a recognised cause of action for conspiracy by unlawful purpose or unlawful means against the Second Defendant.
[49] There is no cause of action available to the Plaintiff against the Second Defendant as a director of the First Defendant. An allegation as an "accomplice" takes the matter no further.
[50] The claim against the Second Defendant is struck out as disclosing no cause of action.
Third Defendant
[51] This is a claim against Kim Eggleton, the wife of the Second Defendant. At para 11 she is described asotherother director of the First Defendant, RRM. The only other allegation against her appears to be at para 141, which is undersummary mary clause, headed "Particulars of charges". It is pleaded she is a director and accomplice of the First Defendant.
[52] There is no cause of action available against her as a director of RRM. The claim against the Third Defendant is therefore struck out.
Fourth Defendant
[53] The Fourth Defendant is Anne Boys. It is alleged she was appointed by the First Defendant (RRM) in May 2010 to take over as "decision-maker" at Lagoon, Castaway and Manuia (para 12).
[54] erence ence is made to her husband (para 24) as being an "owner"s dois does not take the claim against Mrs Boys any further
[55] Para 118 alleges that she ppointpointed by RRM to operate the hotels as ints interim operator and director's represene. The allegation is as fols follows:
118. THAT the First Defendant appointed the Fourth Defendant and business woman Anne Boys to operate the hotels as interim operator and director's representative.
118.1 That she too has no knowledge of how to operate a hotel in the Cook Islands and operates by experimentation as well;
118.2 That she filed operational reports that if anything revealed the inadequacies of the First Defendant as operator;
118.3 That she too resisted filing financial reports requested by the Plaintiff as BC Chairman and only provided financial information via the Sixth Defendant, continuing the First Defendant's train of denying owners financial information;
118.4 That she requested the Plaintiff provide written permission for her to communicate directly with the Sixth Defendant and its receiver and when refused, she communicated directly regardless.
[56] At best this allegation is that she does not know how to operate a hotel and that she colluded with the Sixth Defendant and fellow owners. It is unclear as to what that collusion entailed.
[57] At para 142, in the summareaded "Pad "Particulars of charges" the allegation is that she is "an accomplice" of the First Defendant.
[58] There is no cause of action apparent from the facts pleaded against Mrs Boys.
[59] The claim against the Fourth Defendant is struck out.
[60] I have therefore reached the conclusion that claims against the Second, and Fourth Defendants disclose no cause of action and should be struck out. In addition I on I find the claims in general terms unnecessary prolix, irrelevant and allegations of fraud are unsupported and scandalous. The pleadings in many respects are unintelligible.
[61] It is only the disclosure of a cause of action, assuming the facts pleaded are true, based on contract against the First Defendant that leads me to allow the statement of claim against the First Defendant to remain.
[62] The statement of claim needs to be radically amended. It is not for the Court to tell the Plaintiff how to do this. I propose following the same cause of action as Hammond J in Van Der Kap-G a/i> and stay the proceedings to afford an opportunity for claims to be repleaded by the Plaintiff. The timetable for that repleading is as follows.
General allegs
Costs
[67] As the First, Second, Third Defendants have been successful in the claim it is appropriate that costs be awarded in their favour. I seek submissions as to costs as follows:
- Submissions by each of the Defendants within three (3) days from the date of this Judgment;
- Submissions by the Plaintiff three (3) days after receipt of the submissions by each of the Defendants;
- Submissions in reply by each of the Defendants two (2) days after receipt of the submissions by the Plaintiff's submissions.
Grice J
[1] Tuake v Tuakana Toeta & Anor, HC Cook Islands, 13 September
, Plt No 11/2 11/2010, Hugh Williams J.
[2] Marshall Features Ltd (In LiMarshall [1992] 1 NZLR 316.
[3] Jameel meel (Yousef) v Dow Jones & Co. Inc.[4] At p 970, para 69.
[7] At Hr 186.06.
[8] Hill v Hunt Davis (1884) 26 CHD 470.
[9] Van Der Kapp v A-G (1996) 10 PRNZ 162, Hammond J.
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