IN THE SUPREME COURT<
OF THE REPUBLIC OF VANUATU
(Civil Jurisdiction)
Civil Case No.22 of 2000
BETWEEN:
ERAKOR ISLAMITED
Plaintiff
LYNN CHRISTINE ELDER AND
TIMOTHY ROBINS
Defendants
JUDGMENT
“Any person
lodging any caution with the Director or allowing any caution to remain
without reasonable cause shall be
liable to pay such compensation as the
Court thinks just to any person who sustains damage or who has incurred
costs
or expenses thereby.”
The tiff, Erakor Island
Limited (EIL), (now known as Gemma Limited) sues the two defendanendants for such
compensation.
In November 1999 the plaintiff company owned the lease over
Erakor Island and the business assets of the holiday resort situated
on that
Island. The shareholders (excluding a possible minority third shareholder)
in EIL were Mr. and Mrs. Nicholas.
In about October 1999, the
defendants agreed to purchase the shareholdings of Mr. and Mrs. Nicholas for
A$ 1.5 million
and thereby take control of EIL. A number of problems arose
soon afterwards whereby Mr. and Mrs. Nicholas considered the contract
as
ended whereas the defendants considered it valid and enforceable.
On 16 November 1999 the
endants entered a caution against the plaintiffs’ lease over Erakor
Island. That caut caution was
removed on 1st or 6 June 2000, after
this Court found it had been lodged and allowed to remain without reasonable
cause.
The coation claimed is set
out in the statement of case dated and filed on 21st sup> March 2001.
A defence dated 30 March 2001 was filed on 2nd April. I have
heard evidence from Mrs. Nicholas and the accountant Mark Stafford. I have
heard evidence in response from
the defendant Timothy Thies and Leon Lalie.
Documents have been tendered. Oral argument and written submissions have
been received.
The plaintiff puts its claim in
either of two ways. F because of the caution the plaintiff could not
sell sell or otherwise
deal with the lease. The operation of the resort on the
island, the subject of the lease was the sole business activity of
the
plaintiff. For the period 6th May to 28 (21) November 2000 there
was a net loss of Vatu 7, 273, 773. The plaintiff says an alternative sale,
of US$
850,000 for the lease, was entered into by the plaintiff on or about
25 July 2000 with Troy Neel, an American baseball player,
living in Japan.
The money was paid on or about 28 November 2000, and the plaintiff ceased to
be the registered proprietor
of the lease.
Second, the plaintiff argues
that, but for the caution, it could reasonable have expected to have entered
into that contract
on or about 1 January 2000 and received the money on or
about 6 May 2000. Hence, as a result of the wrongfully lodged caution
the
plaintiff had to suffer the operating losses for the period 6 May to 28
November.
ass="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1">
The plaintiff says in the
alternative the defendant should pay 10 % interest for the loss of use of
the US$ 850,000 from
6 May to 28 November, a sum of US$47,841.53.
The defendants resisted the
claim under a number of heas set out in their defence. First, the
defendants sats say that
a valid transfer of the lease could not be made in
November 1999 nor for a considerable time before or after that. Section
36
Land Leases Act required the consent of the lessors for a transfer of this
lease and by reason of various difficulties, that was not possible.
Indeed,
they aver the eventual transfer itself was invalid for these reasons. The
plaintiff and defendants knew of these
problems.
Second, a times Mr. and
Mrs. Nicholas indicated they wanted to sell their controlling shares ires in EIL,
and not EIL
sell the lease. This had, they understood, tax advantages, and
also avoided the problem of a lease transfer. At no stage, as
far as the
defendants were concerned, was a lease transfer contemplated.
The defendants in their defence
and in argumeated that at all times the plaintiff’s business was
r represented as being
a profitable one, and the figures that turned it into a
loss-making one were an accounting fiction. Further, if the second
approach
of the plaintiff was adopted, the evidence did not take into account sale
costs, did not shew how the figure
10 % was arrived at for interest, what it
had been intended to do with the US$850,000, and why no account was made for
the actual profits of the period in question.
The defendants counsel at a
number of interlocutory hearings has made complaint that full disclosure,
and particularly
of vital documents, was not forth coming. Objections were
taken to important points of the evidence on that basis.
Throughout the evidence and
questioning there lurked the suggestion that the Nicholas’s avoided the
contract with the
defendants for A$1,500,000 when the apparently more
lucrative offer for US$1,500,000 was received from Troy Neel. That was
denied by Mrs. Nicholas. It was no part of the hearing at this stage of the
case. I approach this case purely on the
basis of assessing what, if any,
compensation is payable to the plaintiff in respect of any damage or costs
or expenses
incurred as a result of the lodging of this caution.
It must be remembered that this
is a claim by the lperson, the company Erakor Island Limited, and not
by by its shareholders.
The defence have sought to
argue thatnly a share transfer was contemplated up till and for some some
time after the lodging
of the caution then the lodging itself cannot have
caused any loss. The shareholders were always free to sell their shares.
Indeed, it is pertinent to note that Troy Neels’s offer, dated November 1,
1999 at its head, is for the shares of EIL.
Whether or not it was
nably forseeable that a caution wrongfully lodged against dealings with
the lease woue would cause
damage, costs or expense to the shareholders is not a
matter I need decide. The plain fact is that there is no claim by the
shareholders, the Nicholas’s.
lass="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1">
Further, nowhere on the
documents or in the evidence can I find when it is asserted the plaintiff
decided to transfer
the lease, or indeed make a sale of its business assets.
Paragraphs 6, 7 and 8 of the
plaintiffs spec endorsed Writ of Summons filed on 8th March
h
2000, claiming removal of the caution, refer to a sale of shares to the
defendants by the Nicholas’s, that
the agreement did not provide for the
Nicholas’s to dispose of any interest in the lease to the defendants and
averring,
therefore, that the defendants did not have any cautionable or
other interest in the lease.
The plaintiff’s tender bundle
document 11 has a “Purchase Offer and Agreement” attached. The date at the
head is “ March
10, 2000 and it is apparently signed by Troy Neel on the
same day. It was an offer to purchase “one hundred per cent (100%)
of the
shares of” EIL. By that time the caution had been lodged for nearly four
months.
Document 14 states “ The Neels
have agreed to a purchase of the lease and assets, providing there is no
additional costs
(over purchasing the company, EIL; hence VAT (if any) must
be paid by vendor as well as the cost of purchaser establishing
a Vanuatu
Company.” The email was from Karen Jeffrey, selling agent, and was dated 11
June 2000.
Tore at some stage between
10 March and 11 June the Neel offer changed from a proposedposed purchase of the
shares to
one of the lease and assets.
The case was heard on 28 April
before the then Acting Chief Justice. The caution was removed on 1st
or 6th June. The agreement by the plaintiff to sell its business
assets is dated 25 July 2000. Business assets was defined to exclude
the
lease. According to the “ Introduction” there was a separate agreement to
sell and purchase the lease, of the same
date.
Mrs. Nicholas in her affidavit
of 25 June 2001 and evidence ad the statement of case wase was correct, to
the best of
her information and belief.
Paragraph 6 of the statement of
se says Troy Neel approached “the plaintiff with a request uest to enter
negotiations for
Neel to purchase the lease from the plaintiff”. The
plaintiff’s tender document 5 attaching the offer shows it was an offer
to
purchase “one hundred percent (100%) of the shares of Erakor Island Ltd,”
not the lease.
When asked about this she
replied, “We have alconsidered the lease to be part of the shares… I
didn didn’t draw up the
statement of case. The lawyers did. I relied on them to
get the factual allegations correct”.
There is no other evidence
before me from which I can find when the e was made from the Nicholacholas’s
selling the shares
to the plaintiff deciding on a leaansfer. It would
appear that that was taking place in late May or early June, the very
time
when the caution was removed. Accordingly I find thintiff has failed to
shew the lodging of the caution tion and
its existence caused any loss to Erakor
Island Limited. In those circumstances the matter could rest there.
However, I will consider the
plaintiffs’ claim for lost profits be 6 May and 21 or 28 Novembevember 2000.
The evidence of Mrs. Nicholas
does not assist. She agreed she signed the requireounts documents as a
director, but
says she relied upon the accountant.
The resort was advertised
throughout aterial time as claiming “net profits of over US$ 15,000 pe00 per
month,” (see Mrs.
Nicholas evidence together with defence tender document
1). The audited accounts for 1998 shewed a profit of Vatu 4,158,732.
I do
not have a method of arriving at the accounts for the year 1999. However, at
September 1999 a profit was apparently
being represented, (see defence
document 19)
class="MsoNoMsoNormal" style="margin-top: 1; margin-bgin-bottom: 1">
Mr. Stafford in his affidavit
of 10 May 2001 agreed he had supplied the figures for paragraph 19 of the
statement of case.
These shew for the period of 6 May to 28 November the
plaintiff suffered a net loss of Vt7,273,773. There was a “Net Profit
per
Management Accounts” of Vatu 13,076,604. After deduction of depreciation
there was a profit of Vt. 8,961,187.
What turned this profit into
the net loss was Vt 16,234,961 interest deducted in respectoans
/advances from srom shareholders
totalling Vt222,355,000 at 13 % per annum for
205 days. Such loan/advances had appeared previously in the accounts. The
1998 accounts refer to a similar sum for shareholders loans being
transferred to reserves. However, it was only when the
accounts for the year
in which compensation is sought under section 97(5) that an interest figure
for this “loan” is
applied.
When Mr. Stafford was asked in
cross-examination about this he ded it as a correct accountcounting
practice. He had taken
over the accounts in March 1999. He stated that the
figure of 13 % was not to be found in any document, but was the prevailing
rate at the time.
No documents were put before
he Court concerning this item in the accounts nor how the interest figure
was to be a be arrived
at nor why interest had previously not been put down as a
journal entry whereas for the time in question it had. It is pertinent
to
note that in Defence Document 19 Mr. Stafford distinguished between a loan
from Mr. Nicholas (Vt. 4,983,000) and this
large sum provided by the
Nicholas’s , which was entitled ‘Equity contribution’.
In my judgment, therefore, it
is wrong, when dining compensation to include interest for this period
when it had
not been entered before and turned a profit into a loss. Without
that figure Mr. Stafford’s own figures shew a profit for the
period in
question. I cannot find any loss for which compensation can be awarded.
The plaintiff’s alternative
claim is for 10 % interest on US$ 850,000 for the d from 6 May to 28
No November.
It is pertinent to note that
no claim is made fss loss of interest on the aid for the business
assets,-presumably
US$ 650,000 to bring the total up to US$1,500,000, as
originally offered forshares. If the caution precluded a sale of the
lease ease it must have done the same for a sale of the business assets. The one
being realistically inseparable from
the other.
There is no evidence to shew to
what use the US$ 850,000 was or was intended to be put. put. There is no
evidence as to
how the figure of 10% is arrived at, other than being “the
usual figure given in a judgment sum”.
There is no copy of the
agreement for the transfer of the lease before the coThe copy of the
agreement for the sale
of the business assets is presented without several
pages. There is no supporting documentation of the type that was referred
to
in paragraph (i) of Mr. Sugden’s request for disclosure of 6 June 2001, for
example resolutions of the company to
sell its lease.
The plaintiff urges the Court
to accept the peril evidence supplied by Mrs. Nicholas and the
documentuments.
The nearest to any kind of
documentary support is fou the plaintiff’s documents 3 and 4, the
transfer of t of the lease
to “ Erakor Island Resort Ltd, formerly known as
Pussycat Enterprises Ltd”.
I am not satisfied on the
evidence it has been shown the plaintiff agreed on 25 July to transfer the
lease to Troy Neel.
There is little more than a
signature purporting to be that of Troy Neel as a directorrakor Island
Resort Lort Ltd on
the lease transfer of 21 November. I do not find that it has
been proved the defendants lodging of the caution caused any damage
or the
incurring of costs or expenses by the plaintiff.
I found the evidencMrs.
Nicholas was little more than saying she relied on others, lawyers and
acc accountants. Her averment
the statement of case was “correct” was a hollow
adoption of the evidence and documents of others. This was particularly so
when she stated Neel started by entering negotiations to buy a lease when it
was clear from the document cited this was
not so. I was concerned that a
woman who is a director of a company, has signed returns as correct and been
in business
for many years should state that “ we have always considered the
lease to be part of the shares”. It is difficult to accept
she would not
have known when the change was made from a sale of shares to the sale of the
assets and lease, and that
that occurred when proceedings were well advanced
for the removal of the caution and compensation.
ass="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1">
Mr. Stafford in ffidavit
of 14 August 2000 attached a document commencing, “We have been requested toed to
prepare a determination
of the extent of the loss suffered by the
shareholders of EIR (Mr. and Mrs. Nicholas) as a result of the unlawful
caution”.
The period covered was that when the caution was in place.
“Paragraph 11 of his affidavit of 23rd November 2000 referring to
his earlier affidavit states “ In fact although I have referred to the
shareholders of the
plaintiff company all the costs referred to therein will
be borne by the plaintiff company itself. My reference to “the shareholders”
is in fact interchangeable with “the company”. In my opinion, in the context
of my affidavit of 14 August 2000, they
are one and the same”.
This is an extraordinary
statement for an accountant to make, particularly an experience. It
also has the effe effect
of blurring the change over from a sale of shares to a
sale of the lease and assets.
Further, in the schedule of
loss attached to the earlier affidavit, claim is made for loss of interest
on the sum that
was to have been paid by the defendants and for the
operating loss of the company over the same period. Counsel in the statement
of case and argument put these in the alternative.
In his affidavit of 10th
May 2001 Mr. Sta then supplied figures for the period 6 May to 28
Nov November. This rendered the original schedule
of loss nugatory. His “Brief
of Evidence” supplied to the Court for the hearing concerning the removal of
the Caution,
at paragraph 7, referred to in evidence in this hearing, speaks
of “(a) the plaintiff’s interest costs of Vt…………….per month
on its credit
facility of ……………” No figures were inserted in the brief at those two
points. The sum of Vt 222,355,972
appears in the attached accounts as “M+D
Nicholas Equity Contrib”. In the accounts attached to his affidavit of 10
May
2001 a similar sum is referred to as “shareholders advances”.
It is not until the statement
of case, using the figures that tafford accepts he suppliedplied, that an
interest figure
for the sum of Vatu 222,355,000 is introduced into the
accounting figures. That is a matter for concern.
lass="MsoNoMsoNormal" style="margin-top: 1; margin-bottom: 1">
The plaintiff’s case was
characterized not so much by the documents that tendered, but by those
that were clearly
pertinent and were not, e.g. the agreement to sell the
lease, the minutes or other documents of the plaintiff setting out when
a
sale of assets and the lease was resolved upon. Mr. Sugden has persistently
sought discovery of such pertinent documents,
and objected to admissibility
of evidence in the absence of such supporting documents, a further example
being the rate
and interest payment in respect of the “shareholders loans”.
In view of my findings I need
not rule on this.
Where the evidence of Mr. Thies
differs on material issues frot of other witnesses I acce accept that of Mr.
Thies. It
was clear that he felt he had been the victim of activities that
were not scrupulously honest. I pass no comment on that. However,
in the
context of this hearing, as mentioned above, there were several features
which gave rise to concern.
In the circumstances I need not
go further and consider vidence of Leon Lalie and the argument
suggesting theg the lease
couldn’t be validly transferred in any event.
I dismiss claim.
DATED AT PORT VILA this 20th
Day ly 2001.
>
>
p class="Mss="MsoNormaNormal" align="center" style="text-align: center; margin-top: 1; margin-bottom: 1">
R.J. COVENTRY
lass="MsoNormal" align="cen="center" style="text-align: center; margin-top: 1; margin-bottom: 1">
Judge
PacLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.paclii.org/vu/cases/VUSC/2001/76.html
