Mitchell v Caffery [2012] CKLC 1; App644.2010 (27 February 2012)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(LAND DIVISION)
APPLICATION 644/10

IN THE MATTER of Section 21 (1) (g) of the Land (Facilitation of Dealings) Act 1970

AND

IN THE MATTER of an Application for Orders for payment to the incorporated owners of THE PROPRIETORS OF AREPAKII INCORPORATED

BETWEEN

KEU MITCHELL in her own right and for and on behalf of KOROITI PATU and TAI PATU of Rarotonga

Applicants

AND

JOSEPH CAFFERY, MAARA BROWN, CHARLENE THOMSON, MII HENRY KATUKE and TEKURA TURITOA, being the members of The Committee of Management of THE PROPRIETORS OF AREPAKII INCORPORATED

Respondents

Date: 27 February 2012

Counsel: Mr Little for the Applicants
Mr George for the Respondents

DECISION OF HIS HONOUR JUSTICE WILSON ISAAC

Background

[1] This is an application for Orders for the payment of revenue held by the Proprietors of Arepakii Incorporation to Mrs Keu Mitchell (Keu) and Koroiti Patu in terms of Section 21(1)(g) Land (Facilitation of Dealings) Act 1970.

[2] The application was completed on 17 December 2010 after the Committee of Management in or about July 2010 paid the share of the residue of proceeds from the rentals from the Cook Islands Trading Corporation to all the owners of the Incorporation, except the applicants.

[3] It is now acknowledged by the applicant that the dividends due and owing to Koroiti Patu have been paid however an order is still sought from the Court for the payment of dividends due to Keu.

[4] It was also acknowledged by Counsel for the Incorporation that dividends are held in Keu's name and they are her dividends but at the discretion of the Incorporation these dividends are being held pending the outcome of complaints made to the police regarding allegations of misappropriation of Incorporations funds by Keu.

[5] On 18 January 2011, Judge Savage in a telephone conference directed the Incorporation to 'put up or shut up' in terms of disclosing evidence as to Keu's involvement in the alleged misappropriation.

[6] On 22 February 2011, Judge Hingston adjourned the application pending the outcome of the police investigation.

[7] On 22 February 2012, the matter came before me and the Incorporation and requested an adjournment based on the impending police investigation which was opposed by the applicant.

[8] To advance the issue and to clearly understand the status of the police investigation I requested Inspector John Hosking who is in charge of the investigation to provide a status report to the Court.

[9] Inspector Hosking appeared and advised the Court that the complaint had been sent to the New Zealand police and the Serious Fraud Office for assistance. He confirmed that the allegations were primarily against Keu's daughter Makiroa Mitchell-John and that in his investigation he had found no basis for the allegations against Keu Mitchell. Inspector Hosking could give no indication as to when the investigation would be concluded by the New Zealand police and Serious Fraud Office.

[10] On the basis of this status report I refused an application for an adjournment sought by the Incorporation to await the police investigation and heard the application on 23 February 2012.

Discussion

[11] The real issue in this case is whether the Incorporation has a discretion to withhold payment of dividends due and owing to Keu on suspicion of misappropriation of funds of the Incorporation.

[12] The answer to this issue raises a question concerning the interpretation of Section 21(1)(g) Land (Facilitation of Dealings) Act 1970.

[13] As this matter was not adequately dealt with by Counsel in Court I gave each Counsel the opportunity to file written submissions on whether or not s 21(1)(g) Land (Facilitation of Dealings) Act 1970 provides a discretion to an incorporation to pay a dividend to some owners and not others.

The Law

[14] Section 21 states:

21 Application of revenue of body corporate –

(1) The revenues derived from its operations by any body corporate may be applied:

(a) In furtherance of the objects of the body corporate or otherwise in defraying the cost of the administration of the affairs of the body corporate;

(b) In payment of all rates, taxes, and other assessments and outgoings payable in respect of the land or other property of the body corporate;

(c) In repayment of any moneys borrowed by the body corporate, and the payment of interest thereon;

(d) In the making of investments or loans as provided in subsection (2) hereof;

(e) In setting aside reserves for contingencies or for capital expenditure or for expansion in accordance with the objects of the body corporate or in retaining in an accumulated profit account any portion of the profits which the committee of management thinks it prudent to distribute to incorporated owners;

(f) In payment for any purpose authorised by resolution passed at a general meeting of owners;

(g) In payment of the residue from time to time to the incorporated owners in accordance with their several shares or in payment to such other person as may be entitled thereto.

(2) A body corporate, if expressly authorised so to do by resolution passed at a general meeting of owners, and with the approval of the Court in each case, may invest any moneys belonging to it in Cook Islands Government securities or in debentures issued by any local authority or public body; or may invest any moneys by way of loan secured by a mortgage of any real or personal property (either with or without collateral security).

(3) No loan shall be granted under this section to any person who is a member of the committee of management or one of the incorporated owners.

(4) Before any revenues of a body corporate are applied for any of the purposes authorised by paragraph (f) or paragraph (g) of subsection (1) of this section, it shall be the duty of the committee of management of the body corporate to determine the total amount which may, at the date of the determination, be made available for any such purposes after adequate and prudent provision has been made for payment of the amounts authorised to be paid under paragraphs (a) to (e) of that subsection and the total payments under the said paragraphs (f) and (g) shall not exceed the total amount determined by the committee of management as aforesaid.

[15] Mr Little for the applicant submits that it appears that the revenues derived from the operation of the body corporate may be applied to the list of items set out in s 21(1)(a) to (g).

[16] In relation to s 21(1)(g) he submits no discretion applies as he says that subsection makes it clear that the residue after applying payments in terms of paragraphs 21(a) to (f) is paid out to the incorporated owners in accordance with several shares.

[17] He further states that if payment is discretionary then the Incorporation exercised its discretion unreasonably by withholding funds due to Keu.

[18] Mr George for the Incorporation considers that the use of the word 'may' in the introduction to s 21(1) and again in s 21(1)(g) in relation to "such other persons as may be entitled" gives the Incorporation a discretion for prudent management of the Incorporation.

[19] He also submits that s 21 should be read as a whole and not just s 21(1)(g) to give full effect of the law and power given to the Incorporation.

[20] I agree with Mr George that s 21 should be read as a whole.

[21] s 21(2)(4) sets out the process that the Incorporation has to adopt before it's revenues are applied.

[22] This section clearly directs the Incorporation to firstly determine the total amount which may be available for the purposes set out in s 21(1)(f) and (g) but only after adequate and prudent provision has been made for payments set out in (a) to (e).

[23] Therefore, once the Incorporation has satisfied s 21(2)(4) and has determined that there is residue left over after making provision for s 21(1)(a) to (e) it may apply that residue in accordance with s 21(1)(f) or 21(1)(g).

[24] So when the Incorporation has got to this stage and made a resolution to apply the residue in terms of s 21(1)(g) to the incorporated owners in their several shares in my view it has no discretion to treat owners differently.

[25] The only discretion the Incorporation has in terms of s 21(1)(g) is not to make a payment at all or to consider payment to "other persons", that is not owners, as may be entitled.

[26] In sum, I consider that once the Incorporation has resolved to pay the residue to the incorporated owners, all the incorporated owners must be paid in accordance with the shareholding that there is no discretion available to the Incorporation to determine which shareholders it should pay and from which shareholders it should withhold payment.

[27] If my interpretation of s 21(1)(g) is incorrect then I want to examine the reasonableness of the Incorporation's position and whether it is fair and reasonable to withhold the payment of Keu's dividend.

[28] Much of the evidence I heard from the Incorporation was centred around the alleged influential Keu had over her daughter Makiroa as Chairperson of the Incorporation and effectively directing Makiroa to make the payments.

[29] I do not consider there is anything to be gained by traversing the payments made by the Incorporation.

[30] What is important and acknowledged by the Chairperson of the Incorporation are the following:

• (a) The Incorporation has no documentary evidence to implicate Keu in any alleged misappropriation. The complaint is based on a feeling and belief of Keu's influence over Makiroa.
  
• (b) The complaint was only made with the police concerning Keu after Judge Savage had directed the Incorporation 'to put up or shut up'.
  
• (c) All payments made by the Incorporation were made following a resolution of the Committee of Management and all cheques had to be signed by members of the Committee.
  
• (d) Keu was not and at any material time has not been a member of the Committee of Management and therefore had no authority to sign the Incorporation's cheques.
  

[31] Having regard to the above acknowledgements I consider it unreasonable that Keu is not paid her entitlement.

[32] She was not a member of the Incorporation and had no authority to resolve to make payments. Furthermore she had no authority to sign the Incorporation's cheques. These powers are held by the Committee of Management of the Incorporation.

[33] As a result of the above findings, I make an Order for payment to Keu Mitchell in terms of s 21(1)(g) Land (Facilitation of Dealings) Act 1970.

[34] I note in accordance with Judge Savage's direction of 10th October 2011 that $6,500 was paid to the Justice Department by the Incorporation pending the outcome of this case.

[35] That money are dividends due to Keu and should now be paid immediately to her.

[36] I also note Mr Little proposes to seek costs and interest and I invite him to now file submissions in relation to these two matters within fourteen days and for Mr George to respond within fourteen days.

[37] Upon receipt of these submissions the file is to be referred to me for a decision.

[38] A copy of this decision is to be sent to all parties.

Justice W Isaac

Editorial Note: Derived from the Court’s electronic records and believed to be correct and final.