McNeely v Lemoasina Corporation Ltd [2019] WSCA 12 (19 September 2019)

IN THE COURT OF APPEAL OF SAMOA
McNeely & Ors v Lemoasina Corporation Limited & Ors [2019] WSCA 12

Case name:	McNeely & Ors v Lemoasina Corporation Limited & Ors
Citation:	[2019] WSCA 12
Decision date:	19 September 2019
Parties:	AIGAGA VAAI MCNEELY; LUMEPA VAAI YOUNG; INEI VAAI FAALE; LEATA VAAI SASAGI; FOILAGI VAAI MASOE; and NANU VAAI SCHMIDT (Appellants) and LEMOASINA CORPORATION LIMITED (First Respondent); JONATHAN AARON KOLONE VAAI; JULIUS VAALEPA VAAI; SINA MARY THERESA VAAI; CECELIA SALANETA VAAI-BARTLEY; and FOTU MARINA VAAI HOGLUND (Second Respondents); and THE ESTATE OF ASIATA DR SALEIMOA VAAI (Third Respondent).
Hearing date(s):	16 & 17 September 2019
File number(s):	CA21/19
Jurisdiction:	CIVIL
Place of delivery:	Court of Appeal of Samoa, Mulinuu
Judge(s):	Honourable Justice Fisher Honourable Justice Harrison Honourable Justice Clarke
On appeal from:	Supreme Court of Samoa, Mulinuu
Order:	The appeal is allowed. The appellants are to pay the costs of the respondents in the sum of $5,000.
Representation:	J Fuimaono-Sapolu for the Appellants H. Hoglund for the First and Second Respondents
Catchwords:	appeal against striking out of proceedings in Supreme Court -
Words and phrases:
Legislation cited:	Limitation Act 1975 ss. 6; 19(1); 26; 26(1)(d);
	Supreme Court (Civil Procedure) Rules 1980 r. 70.
Cases cited:
Summary of decision:

CA 21/19

IN THE COURT OF APPEAL OF SAMOA
HELD AT MULINUU

BETWEEN:

AIGAGA VAAI MCNEELY of Vailima, Apia, Samoa, retired; LUMEPA VAAI YOUNG of Vaisigano, Apia, Samoa, retired; INEI VAAI FAALE, married woman, Vaivase, Apia, Samoa; LEATA VAAI SASAGI married woman, Whangarei, New Zealand; FOILAGI VAAI MASOE. married woman, Asau, Savaii, Samoa; and NANU VAAI SCHMIDT, married woman, Auckland, New Zealand
Appellants

AND:

LEMOASINA CORPORATION LIMITED, A duly incorporated company having its registered offices at Vaai Lawyers, Fonofou Street, Fugalei, Vaimauga Sisifo, Samoa
First Respondent

AND

JONATHAN AARON KOLONE VAAI of Siusega, Faleata Sisifo; JULIUS VAALEPA VAAI of Siusega, Faleata Sisifo; SINA MARY THERESA VAAI of Siusega, Faleata Sisifo; CECELIA SALANETA VAAI-BARTLEY of Siusega, Faleata Sisifo; FOTU MARINA VAAI HOGLUND of Siusega, Faleata Sisifo, all company directors of Lemoasina Corporation Limited.
Second Respondents

AND

THE ESTATE OF ASIATA DR SALEIMOA VAAI, Apia, Samoa
Third Respondent

Court: Honourable Justice Fisher
Honourable Justice Harrison
Honourable Justice Clarke

Hearing: 16 and 17 September 2019

Counsel: J Fuimaono-Sapolu for appellants
H. Hoglund for the First and Second Respondents

Judgment: 19 September 2019

JUDGMENT OF THE COURT

Introduction

1. The appellants appeal against the striking out of their proceedings in the Supreme Court. We agree with the Supreme Court Judge that the appellants’ amended statement of claim failed to disclose a viable cause of action. However, we have gone on to recognise the possibility that a radically different statement of claim might still be viable.

The amended statement of claim

2. The appellants issued the current proceedings in 2017.
3. We have had considerable difficulty in following the appellants’ amended statement of claim in its present form. Our guess is that the appellants were alleging the following:
   • (a) The appellants are six sisters who had eight brothers one of whom was Asiata Dr Saleimoa Vaai (“Asiata”) now deceased.
   • (b) The six appellants had a minority shareholding, and their eight brothers a majority shareholding, in a family company called Vaisala Co Limited (“VCL”).
   • (c) VCL had two parcels of land, one at Fugalei and one at Magiagi.
   • (d) By the fraudulent actions of their late brother, Asiata, VCL conveyed the Fugalei land to another company, Lemoasina Corporation Limited (“LCL”) in which the shareholders and directors were Asiata and the second respondents.
   • (e) VCL also conveyed the Magiagi land to the managing director of VCL, Papu Vailupe Vaai (why this is included in the amended statement of claim is unclear given that no allegations are made in relation to this land and Papu Vailupe Vaai has not been made a party to the proceedings).
   • (f) Asiata was also a director and shareholder of another company, Saleimoa Plantation Ltd (“SPL”).
   • (g) SPL purchased 1020 acres at Saleimoa using (i) funds in which their late father had the sole beneficial interest (and which presumably now forms part of the estate of the father) and (ii) finance raised using the Fugalei land as security without the authority of the appellants.
   • (h) Without their knowledge Asiata gifted to the appellants 5 acres each of the Saleimoa land, presumably as compensation for the loss of their shares in VCL.
   • (i) VCL has since been wound up and Asiata and Fotu Vaai have died.
4. The amended statement of claim goes on to state the legal causes of action relied upon:
   • [42] THAT the following are the causes of action in summary:
   • a. THAT the First Defendant became the registered proprietor of the Fugalei Land due to the fraud and breaches of the Companies Act, and therefore the First Defendant has benefited by way of unjust enrichment.
   • b. THAT the Second Defendants, being directors of the First Defendant, have also benefitted from the fraudulent conveyance and breaches of the Companies Act thus they too have benefitted by way of unjust enrichment.
   • c. THAT the Third defendant conducted fraudulent conveyance whilst he was the director of VCL
   • d. THAT the Third defendant breached his statutory duties pursuant to the relevant provisions of the Companies Act; and
   • e. THAT the Third defendant’s conduct resulted in unjust enrichment aforementioned to all defendants
5. The amended statement of claim then sets out the remedies sought:
   • [43] An Order for an interim injunction to stop any further transactions or transfers for the land (in four lots) in Fugalei, whilst Court proceedings for this matter are progressing.
   • [44] An Order to ensure the equitable outcome for the plaintiffs as follows:
   • a. That the Magiagi land remain with PAPU VAILUPE VAAI.
   • b. That the Saleimoa land remains with the second defendant, being the estate of ASIATA DR SALEIMOA VAAI, with the exception of the gift of acreage to the plaintiffs.
   • c. That the plaintiffs retain the 5 acres given to each of them, from the Saleimoa land, by the late Asiata on behalf of SPL, as compensation for Asiata’s misuse of VCL’s assets (the Fugalei land, mortgaged to three different financial institutions) for the benefit and development of SPL.
   • f. [numbering sic] That LCL be removed as the registered proprietor of the Fugalei land due to the fraudulent conveyance.
   • g. That given VCL no longer exists, the plaintiffs are to be the registered proprietors of the Fugalei land and that any sale of the Fugalei land, such proceeds are to be distributed by the plaintiffs to include only the natural children of the late VAAI KOLONE and FOTU VAAI (the late mother and father of the plaintiffs and the late Asiata).

h. Or an alternative order which the Court deems fit, in the interests of the beneficiaries, namely the plaintiffs, who have suffered loss due to the fraudulent conveyance and misuse of trust by the late Asiata with his directorship-roles for three different companies being in conflict of each other.

[45] Damages in the amount of $120,000.00 tala, given the emotional stress this has caused on the plaintiffs since 2008 and also to ensure that those in positions of trust such as the late Asiata (who was a lawyer) should not breach their professional obligations (thus such damages would also be exemplary damages).
[46] Solicitor’s fees of $1,000.00 tala

Supreme Court Judgment

6. The respondents included among their defences the contention that the appellants’ action was statute-barred under the Limitation Act 1975. It was not disputed that the Fugalei land had been conveyed in 2006, that the appellants learned of the conveyance in 2008 and that they did not issue their proceedings until 2017. The Respondents applied to strike out the proceedings on grounds which included the Limitation Act.
7. In the Supreme Court the appellants resisted the Limitation Act defence on essentially three grounds.
8. First, the appellants contended that the proper mode of dealing with the limitation defence was to have the defence tried as a preliminary issue, as distinct from a ground for striking out the proceedings. Justice Tuatagaloa held that striking out was the correct procedure. We agree.
9. Secondly, the appellants argued that the effect of s 26(1)(d) of the Limitation Act was that the period of limitation did not begin to run until the plaintiffs discovered the fraud. The Judge accepted that s 26 potentially applied, but pointed out that the appellants had learned of the alleged fraud in 2008. That gave them 6 years from 2008 in which to issue proceedings. They did not issue proceedings for another 9 years. We agree that that is the effect of s 26.
10. Thirdly, the appellants argued that pursuant to s 19(1) of the Limitation Act, no limitation applied to an action by a beneficiary under a trust, being an action for any fraud or fraudulent breach of the trust to which the trustee was a party or to recover trust property still in the possession of the trustee. The Judge pointed out that no trust had been pleaded in the statement of claim. We agree.
11. As the appellants did not appear to have any answer to the limitation defence, the Judge struck out their proceedings.

The Appeal

12. In this Court Ms Sapolu did not attempt to pursue any of the causes of action spelled out in para 42 of the amended statement of claim. She relied solely on fraudulent breach of trust. For that purpose, she advanced essentially four grounds of appeal.
13. The first ground was that breach of trust had been pleaded. Having perused the amended statement of claim carefully we are satisfied that it was not. The word “trust” is used once in the body of the statement of claim in the context of criticising the conduct of Asiata but no attempt has been made to set out the ingredients of a trust. The word “trust” is also found once in the prayer for relief (sub-para [44](h)) but again only in the course of criticising Asiata’s conduct. The causes of action are expressly set out in para [42] of the amended statement of claim. They do not include breach of trust. This ground fails.
14. The second ground was that s 6 of the Limitation Act could not apply because this was a claim in equity. We agree that s 6 does not apply to a claim based on breach of trust. However, that was never the issue. This ground fails.
15. The third ground was that the appellants had the benefit of a caveat which had been left unchallenged by the respondents. Ms Sapolu submitted that “the appellants’ legal and/or equitable proprietary interest is supported by a Caveat lodged on the Fugalei land”. However, the submission appears to perpetuate a popular fallacy as to the effect of a caveat. A caveat does not create or add to the caveator’s interest in the land. It merely freezes the register to prevent dealings in the land until the caveator’s substantive rights, if any, are established in proceedings for that purpose. A caveat also constitutes notice to any parties dealing with the land that there may be an unregistered equitable interest which could take priority over freshly created equitable interests. But in and of itself, a caveat adds nothing to the substantive rights, if any, of the caveator. Those rights must be established by other means. This ground fails.
16. The fourth ground of appeal was that the Supreme Court ought to have exercised its own power to enquire into whether an administrator had been appointed in Asiata’s estate. This submission was advanced to meet criticism of the way in which the appellants had purported to identify the third respondent. “The Estate of Asiata Dr Saleimoa Vaai” is not an entity recognisable in law. In that context only the administrator of the estate (whether executor, executrix or the administrator of an intestate estate) can be made a party to legal proceedings. The notion that the Supreme Court should set off in a search to find out whether there is such an administrator in this case reveals a misunderstanding of the role of counsel. It is not for judges or court staff to fill a gap in a party’s pleadings. That is the job of the lawyer engaged by the plaintiffs. This ground fails.
17. If one were to stop at that point the appeal would have to be dismissed and the proceedings struck out. However, we have gone on to consider whether, if the appellants’ case were properly presented, it might still be viable.

Rescuing the appellants’ case

18. The principles applicable to strike out applications can be summarised as follows:
    • (a) The Court derives its jurisdiction to strike out all or part of a statement of claim or counterclaim from either r 70 of the Supreme (Civil Proceduocedure) Rules 1980, or its inherent jurisdictionboor both. In either case a ground for striking out is that the pleading discloses no arguable cause of action.
    • (b) The pleading should be struck out if t if the Court is satisfied that even on the most favourable interpretation of the facts pleaded or available, the plaintiff could not succeed in law.
    • (c) For this purpose, the facts asserted in the pleading may be supplemented by affidavit so long as the material relied upon is incontrovertible. The Court will not attempt to resolve genuinely disputed issues of fact or consider evidence inconsistent with the pleading.
    • (d) The same applies to any other incontrovertible source of fact such as an independently recorded transcript of court proceedings.
    • (e) The jurisdiction is to be exercised sparingly, and only in clear cases where the Court is satisfied that it has both the material and the assistance from the parties required for a definite conclusion. A claim should be struck out only if it is so clearly untenable that it could not possibly succeed.
    • (f) It follows that the jurisdiction should not be exercised if the pleading could be sustained by appropriate amendment or if there remains the realistic possibility that at trial evidence could emerge to rectify a seeming gap or flaw in the plaintiff’s case.

(g) However, where the claim depends on a question of law capable of decision on the material before it, the Court should not shrink from determining the question even if extensive argument may be required.^[1]

19. Of those principles, the important one for present purposes is principle (f). In general, proceedings should not be struck out if it appears that, with adequate amendments to the pleading, a viable cause of action could emerge.
20. Based on the limited information available to us we cannot rule out the possibility that there are in fact two viable causes of action. First, there may be an action for breach of trust arising from the transfer of the Fugalei land from VCL to LCL. We have not tried to ascertain whether former shareholders have their own claim in circumstances where the company to whom duties were owed has been wound up. Certainly no submissions were presented in support of such a principle. The most obvious claimant would be VCL. That company might be restored to the Companies Office register for the purpose of bringing proceedings in its name.
21. Secondly we cannot rule out the possibility that the administrator of the estate of the parties’ father has a claim against the Fugalei land based on a resulting trust. That is a possible interpretation of the appellants’ allegation that funds used to purchase the Fugalei land ultimately emanated from the father in circumstances where, to the knowledge of Asiata, the father intended to retain the beneficial interest. The appellants pleaded that the father advanced the funds to Asiata to buy two properties in Auckland, the subsequent sale of which provided the funds used to buy the Fugalei land. If a resulting trust survived those transactions, the respondents could be required to restore the beneficial interest to the father’s estate. We would not want to raise false hopes in this regard. Such a claim should be pursued only if, after closely examining the facts and the law, it appeared to have a realistic prospect of success.

Would limitation be an obstacle to proceedings based on breach of trust?

22. There would be no point in introducing breach of trust causes of action if they would be statute-barred under the Limitation Act. The relevant sections are ss 19 and 26. They provide:
    • 19. Limitation of actions in respect of trust property – (1) No period of limitation prescribed by this Act applies to an action by a beneficiary under a trust, being an action:
    • (a) for any fraud or fraudulent breach of trust to which the trustee was a party or privy; or
    • (b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his or her use.
    • (2) Subject to subsection (1), an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, is not to be brought after the expiration of 6 years from the date on which the right of action accrued: PROVIDED THAT the right of action is taken not to have accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.
    • ...
    • 26. Postponement of limitation period in case of fraud or mistake – Where, in the case of any action for which a period of limitation is prescribed by this Act, either
    • (a) the action is based upon the fraud of the defendant or the
    • defendant’s agent or any person through whom he or she claims or his or her agent
    • ...
    • the period of limitation does not begin to run until the plaintiff has discovered the fraud...or could with reasonable diligence have discovered it...”
23. For a claim based on fraud, s 26 limits the time in which to commence proceedings to six years from the date of discovery of the fraud. Section 19 imposes no such time limit where the fraud also amounts to a breach of trust. The difference between the two sections is critical in the present case. It appears from the existing pleadings that the appellants learned of the fraud nine years before they issued proceedings. Section 26 poses an obstacle. Section 19 does not. Counsel were unable to locate any authorities on the relationship between ss 19 and 26.
24. We have concluded that in circumstances where fraud amounts to a breach of trust, s 19 takes priority over s 26. Section 26 applies only where “a period of limitation is prescribed by this Act”. Thus in an action based on the tort of deceit, s 6 prescribes a period of limitation of six years. The effect of s 26 is to extend the prescribed period to six years after discovery of the fraud. But s 26 could have no application to s 19. Section 19 does not concern an “action for which a period of limitation is prescribed by this Act”. Section 19 imposes no time limit at all. Consequently, it is beyond the reach of s 26.
25. Section 19 applies to any action by the beneficiary of a trust based on either fraud on the part of the trustee or the recovery of trust property or proceeds thereof from a trustee. So long as the appellants are in a position to plead an action that falls within s 19, their claim will not be statute-barred under the Limitation Act.

Other problems in the amended statement of claim

26. It is for the appellants to decide whether they can and will amend their existing pleading to introduce one or more causes of action which are not statute-barred. Any such action would continue in the Supreme Court.
27. The standard of drafting and legal analysis in the existing amended statement of claim is unacceptable. To conserve further judicial time it may be helpful if we set out some of the requirements that would need to be addressed if the proceedings are to continue:
    • (a) Research whether former shareholders of a defunct company have the standing to pursue a cause of action formerly enjoyed by that company.
    • (b) If there is no such standing, restore VCL to the companies register.
    • (c) If VCL is reinstated, consider whether the company as a whole agrees to sue or whether minority shareholders need to pursue a derivative action.
    • (d) Investigate whether the circumstances in which VCL was wound up could give rise to a cause of action that is not statute-barred.
    • (e) Identify or appoint an administrator in Asiata’s estate to be joined as a defendant.
    • (f) Ascertain whether the assets in Asiata’s estate have been distributed and, if so, whether they are traceable.
    • (g) Research whether there is a realistic prospect of success in a resulting trust claim brought on behalf of the estate of appellants’ father. If there is, ascertain whether the administrator of the estate should be joined as a plaintiff in order to pursue a resulting trust claim.
    • (h) Divide the statement of claim into (i) an introductory account of the relevant facts in strictly chronological order followed by (ii) the first cause of action identifying the elements of that cause of action, and the prayers for relief sought in respect of that cause of action, followed by (iii) the second cause of action, if any, treated in the same way.
    • (i) If a constructive or resulting trust is alleged, state in the pleaded description of the cause of action the trustee, the beneficiary or beneficiaries, the trust property, the breach or failure to restore legal title, and the remedies sought.
    • (j) Remove the existing parts of the statement of claim that represent mere sources of information as opposed to the facts alleged.
    • (k) Remove the existing account of attempts to resolve the dispute.
    • (l) Remove the existing offers to settle in the prayers for relief and instead identify the remedies that could legally stem from the cause of action in each case.

Result

28. The appeal is allowed. The existing proceedings are reinstated on the condition that the appellants join the appropriate parties and file a second amended statement demonstrating viable causes of action.
29. Ms Sapolu, or senior counsel if instructed, is to give careful consideration to the many technical matters we have raised before continuing further in the Supreme Court.
30. The necessity for the strike out proceedings in the Supreme Court, and for this appeal, is solely attributable to the appellants’ deficient pleading. Had we confined the appeal to the appellants’ amended statement of claim the appeal would have been dismissed. In the unusual circumstances of this case the appellants are to pay the costs of the respondents in the sum of $5,000.
    

HONOURABLE JUSTICE FISHER
HONOURABLE JUSTICE HARRISON
HONOURABLE JUSTICE CLARKE

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^[1] Sapolu v Saaga [2018] WSCA 9