Keil v Drake [1995] WSCA 5; 02 1995 (18 August 1995)

IN THE COURT OF APPEAL OF WESTERN SAMOA
HELD AT APIA

C.A. 2/95

BETWEEN:

WILHELM VICTOR ALBERT KEIL
Company Director of Vaigaga
Appellant

AND:

MURRAY ROY DRAKE
Solicitor of Apia
Respondent

Coram: The Rt Hon. Sir Robin Cooke, President
The Rt Hon. Sir Maurice Casey
The Rt Hon. Sir Gordon Bisson

Hearing: 10 August 1995

Counsel: L.S. Kamu for Appellant
P.F. Meredith for Respondent
Katalaina M. Sapolu for Michael Lee

Judgment: 18 August 1995

JUDGMENT OF THE COURT DELIVERED BY SIR GORDON BISSON

This is an appeal by the plaintiff, Wilhelm Victor Albert Keil, from an order made by Puni J. on 13 December 1994 that Michael Chee Kwong Lee of New York, U.S.A., Company Director be joined as a co-defendant. On the making of this order the defendant, Murray Roy Drake, applied to have his name struck out as a defendant in the proceeding. This application was refused. The defendant has cross-appealed.

The two applications were made orally and the order made under R.32 of the Supreme Court (Civil Procedure Rules) 1980 which provides:

"32. Order joining parties - The Court may at any stage of the proceedings, either upon or without the application of either party, and on such terms as appear to the Court to be just, order that the name of any party improperly joined, whether a plaintiff or a defendant be struck out, and that the name of any person who ought to have been joined or whose presence before the Court may be necessary to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the action, be added, whether as plaintiff or defendant provided however that no person shall be added as a plaintiff without his own consent."

The plaintiff entered into a contract, recorded by facsimile, with Mr Lee to purchase the latter's 100,000 shares in Lotto Samoa Games Limited for $US400,000. A share transfer, duly executed by Mr Lee, all relevant Share Certificates and Mr Lee's resignation as Governing Director were to be held in escrow by Mr Drake, the vendor's solicitor, until settlement on or before 22 October 1993. The purchase money was duly paid and by letter dated 7 October 1993, Mr Drake wrote to Mr Keil's solicitors,

"We confirm full and final settlement of this matter and acknowledge receipt of settlement funds of USD$300,000.00 (the balance).

Accordingly we deliver herewith:

(a) original facsimile copy of Mr Lee's resignation as Governing Director and a Director of Lotto Samoa.

(b) original facsimile copy of Share Transfer from Mr Lee to Mr Keil.

Mr Lee is travelling to Western Samoa and expects to be here next Sunday. He will be bringing with him the Share Certificates for delivery to Mr Keil. He shall also arrange on his arrival to have executed original Share Purchase Agreement, original Share Transfer and original Resignation.

We also confirm that the settlement fund of USD$400,000 will be held by us in our Trust Account until all original documentation is properly executed.

A further letter from Mr Drake followed on 25 October 1993,

"Please find enclosed herewith both original and counterpart of the Share Purchase Agreement duly executed by Mr Lee.

Could you please arrange in accordance with the terms of the faxed agreement already signed for Mr Keil to execute the same and have the Common Seal of the Company affixed and return the same to us as soon as possible.

We confirm we are now holding original signed Share Transfer and Resignation of Mr Lee together with Share Certificates 1-5 for 100,000 shares and these will be forwarded to you on receipt of our signed copy of the Agreement."

At that stage one would have expected the signing by Mr Keil of the original and counterpart agreement in terms of the facsimile agreement and the handing over of the documents by Mr Drake to Mr Keil's solicitors to have followed as a matter of course, but two problems arose which have given rise to this litigation.

After the dates of the two letters recorded above, Mr Lee arrived in Western Samoa on 29 October 1993 to be greeted with an assessment of $270,000 for Capital Gains tax. Mr Drake wrote to Mr Keil's solicitors on 30 October 1993 that the obligation to pay this tax rested with Mr Keil pursuant to the facsimile contract which provided that the "purchaser shall pay any taxes incurred arising from this agreement".

The second problem arose in consequence of the first. Mr Keil's solicitors on 9 December 1993 returned to Mr Drake the agreement sent to them by Mr Drake on 25 October 1993, signed by Mr Keil but with the sub-paragraph that the purchaser pay any taxes deleted. Although this agreement was in the same terms as the facsimile contract the solicitors for Mr Keil said in their letter,

"As you are well aware, it was never the intention either expressed or implied that our client would be responsible for any capital gains which is clearly the responsibility accompanying the benefit that your client has received from the sale of the shares in the Lotto Samoa Games Ltd."

Mr Drake replied on 1 February 19941, referring to Mr Keil's unilateral action in amending the contract after substantial performance, and said,

"Your contention that it was never intended that your client Mr Keil be responsible for capital gains tax, arising from our client's sale of his shares is totally unacceptable. To the contrary it was the express reason why our client agreed to reduce the sale price from USD$500,000.00 to USD$400,000.00. The contract was concluded and performed and moneys paid based on the executed facsimile copies of the agreement.

As a result of your actions we now need to re-examine our position and in the absence of reimbursement from your client the appropriate proceedings seeking redress will be issued.

We had indicated to you we would forward the share transfer certificates and resignation as Governing Director. However as you have destroyed the very contract upon which such agreement was based we believe in law we no longer can perform a contract now cancelled by your counter offer."

With that background to the dispute between Mr Keil and Mr Lee we turn to the pleadings.

On 18 October 1994 Mr Keil commenced proceedings against Mr Drake seeking certain declarations that Mr Drake as "escrow agent" was under a duty to release to Mr Keil the Share Transfer and Share Certificates and seeking an order that he do so.

Mr Drake did not file a statement of defence but on 30 November 1994 swore an affidavit exhibiting copy contracts and letters already referred to. In his affidavit, Mr Drake deposed,

"22. THAT on receipt of a summons herein I immediately sought instructions from Lee.

23. THAT despite indicating a desire to counterclaim against the Plaintiff Lee has not issued any instructions and has indicating an unwillingness to pay any fees incurred by us in defending this matter.

24. THAT accordingly I do not propose to offer any defence to the within proceedings and will abide by the decision of this Honourable Court.

25. THAT notwithstanding this I believe the Plaintiff's action is misconceived and ought properly to be filed against Lee directly."

Mr Drake's attitude as expressed in those paragraphs of his affidavit prompted Mr Lee to instruct Miss Sapolu to appear before Puni J. on 13 December 1994 and to apply for Mr Lee to be joined as a co-defendant with the intention of Mr Lee filing a counter-claim against Mr Keil for recovery of the amount which he had had to pay for capital gains tax in order for him to leave the country. Miss Sapolu has submitted in this Court that if the documents were to be released by Mr Drake to Mr Keil as sought by the plaintiff, Mr Lee's position would be prejudiced. She further submitted that the Court can only effectually and completely adjudicate upon and settle all questions involved in the claim against Mr Drake with the inclusion of Mr Lee as a party.

Mr Kamu for Mr Keil has submitted that the cause of action pleaded against Mr Drake, namely that the documents he held in escrow should be handed over to Mr Keil, the purchase money having been paid in full, does not involve Mr Lee. He further submitted that the dispute over liability for the payment of capital gains tax is entirely independent of the issue before the Court as pleaded by Mr Keil.

Mr Kamu also argued that a defendant should not be added when the plaintiff makes no claim against him and he contended that the plaintiff should be free to choose his defendant.

There are no doubt cases in which the Court has accepted such argument as applicable in the particular circumstances. But the wording of Rule 32 gives the Court a wide discretion not only to join a defendant who "ought to have been joined" but also one "whose presence before the Court may be necessary to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the action".

The question raised by the plaintiff in this case is whether Mr Drake should hand over the documents to him. In view of the dispute that has arisen that question cannot be resolved by the Court without hearing from Mr Lee. This is therefore a case in which the discretion of the Court should be exercised in favour of Mr Lee being joined as a co-defendant.

Mr Meredith as counsel for Mr Drake submitted that Mr Drake was justified in withholding the documents from Mr Keil in view of Mr Keil's failure to sign the original agreement and counterpart in terms of the signed facsimile agreement. There is support for this submission in para. 12 of the facsimile agreement which provides that the facsimile agreement is subject to the original agreement and counterpart being "executed and exchanged within 30 days of the date of the facsimile execution". This has not been carried out by Mr Keil. Mr Meredith accordingly contended that the action as brought by Mr Keil against Mr Drake, relying on the facsimile agreement, was misconceived, and should have been brought against Mr Lee. He therefore did not support the plaintiff's appeal but argued for Mr Drake's cross-appeal to be allowed. Mr Drake has agreed to abide the decision of the Court. He should remain a defendant as the outcome of the case may require some order being made against or in favour of him.

A serious dispute has arisen between Mr Keil and Mr Lee in which Mr Lee has alleged a default by the purchaser in meeting a term of the contract/ that he pay "any taxes incurred arising from this agreement." Mr Drake in his letter of 30 October 1993 to Mr Keil's solicitors said,

"Mr Keil is in default under the agreement and accordingly we advise that pursuant to clause 3 of the agreement if such default continues for seven (7) days our client intends to rescind the contract forfeit all moneys paid and resume control of the company."

In the light of that intimation by Mr Drake of a possible step by Mr Lee, we fail to see how Mr Drake's responsibility as the person holding certain documents in escrow can be determined until the dispute over an alleged breach of contract by Mr Keil has been resolved.

While other procedural routes, such as interpleader or third party proceedings may have been open, these were not pursued. We are satisfied that the course taken will enable any question or issue involved in the action properly to be determined as between Mr Keil, Mr Drake and Mr Lee, or as between any one or other of them.

For these reasons both appeal and cross-appeal are dismissed. Subject to Miss Sapolu undertaking to accept service on behalf of Mr Lee, the order of Puni J. that he be joined as a co-defendant will stand with the following consequential orders.

1. The plaintiff is to file and serve an amended statement of claim citing Mr Lee as a co-defendant within 14 days of the delivery of this judgment.

2. A statement of defence and counter-claim, if any, is to be filed and served by each defendant within 21 days of being served with the amended statement of claim.

3. A statement of defence to any counter-claim is to be filed and served within 14 days of being served therewith

Mr Lee will have costs of $500 each against the appellant and respondent together with any disbursements as approved by the Registrar.

Solicitors:

Kamu & Peteru, Apia, for Appellant
Drake & Co., Apia, for Respondent
K.M.Sapolu, Apia, for Michael Lee