Tong v Kayuken Pacific Ltd [1989] SBHC 5; HC-CC 044 of 1989 (1 January 1989)

HIGH COURT OF SOLOMON ISLANDS

Civil Case No. 44 of 1989

TONG

-v-

KAYUKEN PACIFIC LIMITED and KHOO

High Court of Solomon Islands
(Ward C.J.)

Hearing:
Judgment:

J. Corrin for the Plaintiff
G. Young for the Defendants

WARD CJ: The plaintiff in this action claims the return of money paid in two major transactions with the defendants in August 1987. One was the purchase of the shares in a company, Cape Esperance Ltd and the other the purchase of a logging camp that had been established by the defendants on the land covered by a logging licence possessed by Cape Esperance Ltd (hereafter, the Company).

In general terms, the plaintiff's case is that both those agreements were to be read together and they were both entered into by the plaintiff in reliance on a warranty in the first agreement that the persons named in the schedule to the agreement were the only shareholders in the Company.

That warranty was added because there had been, for some time, problems amongst the shareholders and officers of the Company and, indeed, a short time after the agreements were signed, there was a High Court action filed and an interim injunction obtained. Judgment in that case was delivered on 19th October 1988 and showed that the shareholders were not as named in the agreements.

The defendants raise a number of matters. Generally they claim that the first agreement for the share purchase was not performed by the plaintiff because, although he paid the sum of US$3,500 into the account of the Company, the shareholders were not paid and he subsequently withdrew that sum from the Company's account for his private expenses.

In relation to the second agreement, by a very late amendment to their pleadings, the defence claim lack of privity because the log camp was purchased by the Company and the plaintiff did not advance the money for the purchase of the camp. They also claim that a sum of US$293,000 was paid for the logging camp and the camp was transferred to the Company. Although the High Court ruled that the shareholders were different from those named in the schedule, the defendants claim that the plaintiff agreed to vary the shareholders agreement in accordance with that judgment and that agreement was performed thus estopping the plaintiff relying on the warranties in the original agreement.

I shall not recite all the evidence in the case which has ranged widely over the events of 1987 and 1988. I shall simply state the facts as I find them proved on the balance of probabilities and in accordance with the burden of proof on the parties. I consider the plaintiff bears the burden of proving the two agreements and the warranties and all matters relating to the performance of these agreements. The burden is on the defendants to prove the agreement to vary the share purchase agreement.

I find as follows:

The first defendant, of which the second defendant is a director, had been logging that area of Guadalcanal under a subcontract with the Company and under the Company's logging licence but, having acquired considerable interests in logging in Malaita, was keen to limit its operations to that island.

In February 1987 an agreement was signed between the Company, the defendants and another company, Dalsol, for the purchase of the shares in the Company and the logging camp.

That was all one agreement and, because of threats of trouble by Mrs Dettke and Mr Buchanan, both shareholders or ex-shareholders in the company and representatives of the landowners, a warranty was included that the shareholding was as stated. A term was also included to cover possible interruption to logging resulting from trouble between the landowners and Kayuken.

That agreement could never be executed because Dalsol failed to obtain Foreign Investment Division approval. However, by that time, $150,000 US had been paid to the defendants and that sum became repayable to Dalsol. One of the major figures in Dalsol was Mr Hashimodo and, although he had failed to obtain FID approval, he still wanted to obtain the logs and the second defendant still wanted to proceed with the sale if possible.

As a result, the plaintiff, a Solomon Islander and a partner of Hashimodo in another company, Taisol, was approached as he would not need FID approval. Hashimodo was willing to provide finance for this venture because he had commitments to supply logs abroad and was anxious to fulfil them.

In August 1987 a meeting took place in the office of Mr Stiegler, a partner in Coopers and Lybrand, at which the earlier agreement was cancelled and it was agreed the money paid should be refunded. I accept this meeting was on the 4th August.

At the same time, the two agreements relevant to this case were drawn up. The share purchase agreement, Ex.4, was between the plaintiff, the first and second defendants, the Company and three named shareholders in the Company, Vataragini, Kurilau and Bennett. It included the following clauses -

"1. Cape Esperance and Kong Ming Khoo warrant that the holders of $1 ordinary shares in Cape Esperance are:

No. of $1 ordinary

shares held

Moses Vataragini 600

Vincent Kurilau 400

Hugh Bennett 400

Sagalu Exim Limited 60

S. O'Young 40

1,500

The shareholders guarantee that all shares are unencumbered and that they are held in their own right and not in trust.

2. Cape Esperance and Kong Ming Khoo warrant that the shareholders in clause 1 above are the only shareholders of Cape Esperance, and that no other party has any shares, options or interests in the share capital of Cape Esperance"
   

The second defendant signed that agreement in his own right and also as director both of the Company and the first defendant.

At the same time, the agreement for Kayuken to sell the log camp to the Company, was signed by the Company and the first and second defendants. The price was stated to be US$296,000 to be paid as $150,000 upon the signing of the agreement and $146,500 within 14 days.

Clause 6 of that agreement reads -

"At any date subsequent to the date of this agreement, should the holder of the $1 ordinary shares in Cape Esperance be held by the High Court of Solomon Islands to be other than as set out in Appendix B to this agreement, Kayuken agrees to refund to Sunny Wunsan Tong (who has advanced monies to Cape Esperance to enable Cape Esperance to purchase the said buildings) the total amount (296,000 US) paid under this agreement, such amount to be reduced by US $15.00 per cubic metre of logs that have been exported, and the proceeds received since the date of this agreement."

Appendix B lists the five shareholders set out above and concludes -

"The shareholdings of Moses Vataragini, Vincent Kurilau and Hugh Bennett are prior to the proposed transfers of these shares to Sunny Wunsan Tong".

The High Court decision in October 1988 ruled that the shareholders were not as there stated.

The purchase price was to be raised in two parts. It was agreed that the sum already paid by Dalsol in the earlier agreement and still held by Kayuken was to be the first payment. The parties and Mr Hashimodo went to the Hong Kong and Shanghai Bank and agreed this should be achieved by a notional transfer of that sum from Kayuken to Dalsol who would then advance it to Tong and thence it would be paid to Kayuken. The balance was to be advanced to Tong by a Chinese company , Chong Sing, with which he has links.

At the same time these agreements were signed, declarations (Ex.13) signed by the three shareholders that they were holding these shares on trust for Sunny Tong were prepared and later given to the plaintiff.

The plaintiff was due to leave for Hong Kong to collect the money from Chong Sing and, before he left, a mandate for the Company account at the Hong Kong and Shanghai Bank was completed, on 6th August, to allow cheques to be drawn against any two of three signatories, Tong, Khoo and a Mr Hu. Hu's name was later deleted and the requirement changed to one signature by Tong on his return from Hong Kong. Very few of these documents are dated but that document is dated 6.8.87 and refers to a meeting of the Company on 5.8.87.

Evidence was given that a Company meeting was held on 4th August 1987 at which the plaintiff was appointed a director, although it appears there was not in fact any such meeting but a series of discussions between Khoo and the three shareholders, and a meeting took place on 5th August attended by Khoo and Tong at which the share transfers were tabled and the three shareholders resigned as directors. I am not satisfied that meeting was properly held either but I am satisfied the plaintiff and the second defendant accepted that the plaintiff was thereafter a director of the Company and that the shareholders and the second defendant had taken the necessary steps to perform the share purchase agreement. The latter was the meeting referred to in the mandate to open a bank account.

The plaintiff then left for Hong Kong to arrange finance for the second payment but, before he left, he signed a cheque on the Company account payable to Kayuken Pacific. He instructed Mr Hu to hold it until he was advised the funds were in the account and I am satisfied that, on or before 8th September 1987, the plaintiff arranged for SI$300,000 to be paid into the Company account by his personal cheque. Mr Hu then dated the Company cheque 7th September, completed it for the sum of $293,000 and countersigned it. That sum was then, on 8th September, paid to Kayuken.

All the documents dealt with prior to the departure of Mr Tong for Hong Kong were given to him on his return to Solomon Islands by Mr Khoo and he signed the agreement, Ex. 4, at that time.

I also accept that the plaintiff took little active part in the discussions of these transactions, relying on the second defendant to prepare any necessary documentation with Stiegler. I equally accept that the plaintiff paid the money into the Company account on the advice of Mr Khoo and that he believed that his position was protected by the wording of clause 6 of the log camp agreement.

In the envelope of documents was also a receipt, Ex. 10, from the first defendant addressed to the Manager of the Company for US$296,500 as full and final settlement of the purchase of the log camp. That was signed by the second defendant on behalf of the first. At that time, the second defendant was still apparently Chairman of the Company and I attach some significance to the fact he delivered that receipt to Mr Tong. Also in the envelope was Ex. 14, an acknowledgment addressed to Mr Tong of his payment of SI$300,00 to the company and signed by Khoo and Vataragini.

Considerable time was taken in trying to establish how much the plaintiff knew of the problems with the Company and the interim injunction that had been ordered. After the meeting on 4th August 1987, Stiegler wrote a letter, Ex. 22, warning of the need to obtain legal advice on the true state of the Company and referring to the injunction. I am satisfied the plaintiff saw that letter at least on his return from Hong Kong.

Despite Mr Stiegler's timely advice, the matter proceeded. In October the plaintiff was appointed Managing Director in the meeting already referred to and the minutes are Ex. 19.

From about that time onwards, various cheques were drawn on the Company account by the plaintiff, effectively draining the account. Considerable cross-examination was directed at showing that a sum at least equal to the amount paid to the Company for the share purchase was taken out by the plaintiff for his own private purchases. I have examined all that evidence and I am satisfied, subject to what I say below, that these were Company transactions As a result I find that the plaintiff did pay in sufficient money for the share purchase and intended the money to be so used. I also accept that money was not, in fact, paid to the shareholders.

During 1988, attempts were made to have Khoo and Tong committed for contempt for alleged breaches of the terms of the injunction. The court has had a number of affidavits filed in those proceedings exhibited for this case. I do not go into them in detail but I have read and considered them carefully. In a number of material matters, those of Mr Khoo differ from his case now. I also find that the plaintiff misrepresented the position when he claimed he was not informed of the court proceedings as I have already found. There had been a meeting in the Jade Garden Restaurant prior to this in which I accept the plaintiff was told about the court proceedings although I am not satisfied he was told the details of the injunction.

By the time the High Court case was due for hearing, Mr Buchanan, one of the parties in the case, had been indicating that he would be likely to cause some difficulty and an approach was made to try and effect an out of court compromise of the case. It was not successful but I accept it caused the plaintiff considerable misgivings so that he supported any attempt to settle the matter. However, the second defendant was confident of winning the case and no compromise was reached.

Later, there was a meeting between Khoo, the plaintiff and a lawyer, Mr Kama, in Mr Kama's office. I do not accept any agreement was reached at that meeting. It appears the terms of the proposed agreement were based on a settlement that had, by then, been reached between counsel for Khoo and Buchanan. I am not satisfied the evidence shows any agreement was reached although Mr Khoo may well have felt it likely such a course would be agreed to by the plaintiff.

Once judgment had been given, correspondence occurred between the second defendant, Hashimodo and the plaintiff. It is exhibited and again I do not go through it in detail. Mr Khoo was there proposing a new share deal in view of Mr Buchanan's success in the case. The defence claims that the plaintiff agreed to that alternative. On the balance of probabilities, I am satisfied the plaintiff was told of such a deal but did not agree to it at any stage. It is also right to say that I do not find the references to misrepresentations by Mr Khoo are made out in the evidence. In that correspondence there is still talk of terms of settlement despite Mr Khoo's evidence that it had already been agreed.

Written submissions were submitted by both counsel, and I have considered them.

I deal first with the share purchase agreement. This agreement was subject to a condition subsequent that shareholdings were as stipulated. I find that the sum for the purchase of those shares as agreed was paid by Tong to the Company account and that money was all paid into that account on the advice of the second defendant. The shareholding was not as warranted by the defendants and they are liable for the sum of US$3500 advanced on the basis of that warranty.

The log camp agreement is more difficult. I find as a fact that it was part of a "package deal" as testified by the plaintiff. The agreements were drafted together and it was clearly accepted by all parties that the purchase of the log camp was dependent on and pointless unless the plaintiff acquired the control of the Company.

The defendants by an eleventh hour amendment to their pleadings now argue lack of privity by the plaintiff. It is clear he did not sign the agreement. Equally, the condition subsequent in paragraph 6 has not been fulfilled and so the money is repayable by Kayuken.

Miss Corrin urges that if the case is viewed as a whole, the Company was contracting for the benefit of the plaintiff and, as such, was a constructive trustee. In such cases there is authority for the proposition that, if the trustee fails to sue, the beneficiary may do so. If so, the trustee should have been joined. However, this matter was raised at the last minute. I allowed the amendment but I do not feel it would be right to hold against the plaintiff that he did not join the Company as a party. On the facts of this case the Company would have nothing to add or contest and there is doubt as to the constitution of the Company at that time.

I feel this is a case where a trust does arise and the plaintiff has the right to sue. Having said that, it is necessary to consider the agreement itself.

The second defendant signed for himself and as director of both the Company and the first defendant. I accept on the evidence that he felt he was right to sign as a director for the Company but he was also aware of the dispute over the Company and its shares. When this Court gave judgment in the consolidated cases 206/87 and 69/87, it ruled that all meetings of the Company after the first of April 1986 and every resolution passed at such meeting is void and of no effect. I am satisfied that the second defendant and Moses Vataragini were not able to make such an agreement on behalf of the Company and the agreement is, therefore, void.

That means that the plaintiff is entitled to restitution of the sums paid under the agreement. It is accepted that the money was provided by him; the first payment in that he paid the sum he had acquired from Dalsol and the second which he deposited into the Company account. He made both those payments in clear reliance on the fact that the Company was entering into a valid agreement to buy the log camp. The evidence shows that the second defendant and, indeed, everyone involved realised the plaintiff was, in fact, buying the camp. He acted on the apparent validity of the second defendant's authority to his detriment. The first defendant must pay that sum.

The final claim is for damages and comprises special damages of SI$55,000 paid to the Company and approximately SI$60,000 owed to Taisol for two bulldozers delivered to the site.

As far as the first part is concerned, on balance the evidence satisfies me that these sums were paid into the Company account by the plaintiff with the exception of $11,000 of the $15000 payment on November 10th which I believe came from the sale of car, registration 7626, and the $4003 paid in January 19th as refund of a bank draft. I am not satisfied the sum that he was repaying was a Company expenditure. Apart from that, I am satisfied that the transactions recorded in the accounts, Ex. 23, were Company expenditure.

The bulldozers have clearly been delivered to the camp but, on the evidence before me, I am not satisfied the basis of the transaction has been proved. The burden is on the plaintiff and he has failed.

The claim for general damages is based on the plaintiff's evidence of his embarrassment and loss of reputation. I am not satisfied this has been demonstrated enough to found a claim for such damage and I make no order.

Finally the question of interest. The plaintiff submits that the defendant company has had the use of this money since September 1987. It has, according to Mr Khoo, used that money. Had it borrowed it commercially, it would have paid interest at a high rate. Miss Corrin in her submissions suggests a rate of at least 18.5% but I have no evidence of that. However, I feel interest should be paid and I order interest on the sum for the log camp @ 15% from the date it was received by the first defendant to the date of this judgment and on the remainder from the High Court decision in October 1988.

Therefore, in summary, I give judgment to the plaintiff against the first and second defendants for the sum of SI$7000 under the share purchase agreement, against the first defendant for the sum of SI$593,000 under the log camp agreement and against both defendants for SI$40,000 special damages. All to have interest paid at 15%.

Costs to the plaintiff.

(F.G.R. Ward)
CHIEF JUSTICE