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Abe v Azim [2010] FJHC 34; HBC144.2006L (22 January 2010)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Civil Action No. HBC 144/2006L

BETWEEN:

TSUGIO ABE and EN-TOUT-CAS (FIJI) LIMITED
Plaintiffs

AND:

MOHAMMED AZIM f/n Mohammed Khalil
Defendant

Before: Master Anare Tuilevuka
Counsel: Mr. P. Knight for the Plaintiffs
: Mr. D. Gordon for the Defendant

Date of Hearing: 29th October, 2009
Date of Decision: 22nd January, 2010

RULING
(Assessment of Damages, Conversion)

BACKGROUND

(1) There is little at issue about the facts in this case. The plaintiff ("Abe") visited Fiji in 2001. He became interested in purchasing land in Fiji.

(2) Whilst in Fiji, a certain piece of Crown land in Malolo outside Nadi caught Abe’s fancy. He wanted to purchase the land. The legal description of the land is CL Lot 1 on DP 8888 known as Qeledradra situated in the Province of Nadroga/Navosa in Malomalo, 1.009ha ("the land").

(3) At some point, Abe was introduced to the defendant ("Azim"). Azim speaks the Japanese language. He is a translator by profession. He left a good impression with Abe. And Abe eventually asked Azim to help him purchase the land. Azim asked Abe to give him power of attorney so he can arrange for the purchase on Abe’s behalf in his absence. Abe obliged – then he returned to Japan.

(4) In due course, Abe sent FJ $112,000 to Azim. That sum was sent for Azim to purchase the land in question and also to construct three cottages on the land.

(5) Azim received the money. He then purchased the land – but in his own name in 2001. This was contrary to Abe’s instructions that the land be purchased and registered under his (Abe’s) name. Azim also built three cottages on the land. Subsequently, Azim sold the land to Capricorn International Hotel in Nadi for approximately FJD$510,000.

HISTORY OF PROCEEDINGS

(6) Abe’s writ of summons and statement of claim were issued on 31st May 2006. Abe seeks following relief in his Statement of Claim:

(a) an accounting for the sums received by the Defendant from the Plaintiffs.

(b) damages for conversion.

(c) judgement for the sum of F$500,000-00 or alternatively for the sum received by the Defendant for the sale of the property.

(d) costs on a full indemnity basis

(e) such other relief as the Court deems just

(7) Azim filed a Statement of Defence on the 11th of July 2006. He does not dispute receiving five payments totalling F$112,500 from Abe between 18th September 2001 to 5th January 2004. He also does not dispute receiving a total of 16,285,000Yen from Abe in twenty payments between 16th March 2002 to 12th March 2005. However, he pleads that Abe had agreed with him to rent the land in question and that the money he received was Abe’s advance rent payment for an initial period of three years. Obviously, for good reason, that argument was to be rejected by Connors J (see paragraph 9 below).

(8) On 02nd August 2006, Abe’s Solicitors filed a Motion seeking the following Orders:

(a) for final judgement in this action against the Defendant for the amount claimed in the Statement (my emphasis)

(b) further or alternatively for interlocutory judgement in this action for damages for conversion as pleaded in the Statement of Claim, to be assessed and indemnity costs" (my emphasis)

(9) On 2nd February 2007, Mr. Justice Connors delivered his ruling at the High Court at Lautoka. In paragraphs 14 and 15 of the ruling, Connors J records the following:

[14] Relying upon the authorities to which I have referred and taking account of the affidavits that have been filed by the plaintiffs and the defendant in this matter, I am satisfied that it is in fact appropriate that there be summary judgement for the plaintiff in this matter [my emphasis]

[15] In light of the material contained in the plaintiffs affidavits, I am further of the opinion it is appropriate for there to be final judgement and accordingly I make an order in terms of paragraph (b) of the summons of the 2nd August 2006" [my emphasis]

(10) The Orders dated 12th February 2007 sealed by Abe’s solicitors is worded as follows:

1. "That judgement be entered for the Plaintiffs for damages for conversion to be assessed and indemnity costs"

2. That the matter be adjourned to 9th March 2007 in Chambers for mention"

(11) On 20th February 2007, Abe’s solicitors filed an ex-parte application seeking various orders to restrain Azim from selling, encumbering, transferring, disposing or in any way deal with the land or any other asset or property (real or personal) owned by Azim. Order in Terms was granted on 21st February 2007.

(12) Immediately thereafter, Azim filed an application to the Fiji Court of Appeal seeking leave to appeal out of time Connors J’s summary judgement. The Court of Appeal dismissed the application on 27th May 2008 and ruled that Connors J had exercised his discretion correctly. On 3rd November 2008, Abe then filed an application for assessment of damages. Thereafter the case was adjourned several times and was finally heard before me on 29th October 2009.

(13) Only Abe gave evidence at the hearing. He merely reiterated the undisputed facts as outlined in paragraphs (1) to (6) above. Mr. Gordon did not call any witness. His cross-examination of Abe, though brief, highlighted some core issues involved. Mr. Gordon asked Abe how much exactly he had sent to Azim. Abe responded that he could not recall the exact figure but it was over FJ$112,500 and over 60,000,000Yen sent as cash transfers. Mr. Gordon the referred Abe to exhibit TA2 of his (Abe’s) Affidavit. TA2 is the transfer document showing that Azim did purchase the land for F$26,000 only. Abe said he did not know Azim had bought the land for only $26,000.

(14) Mr. Knight chose not to re-examine Abe.

TORT OF CONVERSION - SCOPE

(15) In conversion, the focus of the law is on the intentional dealing with goods by one. That dealing must be seriously inconsistent with the possession or right to immediate possession of another person (Law of Torts in the South Pacific Stephen Offei, Institute of Justice and Applied Studies, University of the South Pacific, 1997 page 234).

(16) Cleasby J robustly stated the scope of the tort at page 639 in Fowler v Hollins (1872) LR 7 QB 616 as follows:

"...liability ...is founded upon ...[the] salutary rule for the protection of property, namely, that persons deal with the property in chattels or exercise acts of ownership over them at their peril."

(17) Mr. Gordon, throughout his submissions and supported by good authorities, highlighted that money and land cannot be the subject matter of conversion. Mr. Knight argues that the scope of the tort is wider than Mr. Gordon believes.

(18) There appears to be a long standing tension in England on whether the scope of conversion should be extended to include intangibles. This resurfaced in the House of Lords case of OBG Limited and others (Appellants) v. Allan and others (Respondents), [2007] UKHL 21 where the Appellate Committee consisted of Lord Nicholls of Birkenhead, Lord Walker of Gestingthorpe, Barroness Hale of Richmond, Lord Brown of Eaton-Under-Heywood and Lord Hoffman. Notably the majority (Lords Walker, Brown and Hoffman) were against extending the scope of the tort.

(19) Lord Nicholls’s pro-extension view (supported by Barroness Hale) is noteworthy:

222. .....The tort of conversion provides a remedy in damages for the misappropriation of chattels, but not for the misappropriation of intangibles. Conversion applies to choses in possession, not choses in action, to use the historic labels (my emphasis).

223. There can be no better place to start consideration of this subject than to remember Sir John Salmond's famous words:

'Forms of action are dead, but their ghosts still haunt the precincts of the law. In their life they were powers of evil, and even in death they have not wholly ceased from troubling. In earlier days they filled the law with formalism and fiction, confusion and complexity, and though most of the mischief which they did has been buried with them, some portion of it remains inherent in the law of the present day. Thus if we open a book on the law of torts, howsoever modern and rationalized, we can still hear the echoes of the old controversies ... and we are still called upon to observe distinctions and subtleties that have no substance or justification in them, but are nothing more than an evil inheritance from the days when forms of action and of pleading held the legal system in their clutches.

In no branch of the law is this more obvious than in that which relates to the different classes of wrongs which may be committed with respect to chattels. In particular the law of trover and conversion is a region still darkened with the mists of legal formalism, through which no man will find his way by the light of nature ...'

Salmond was writing in the Law Quarterly Review at the beginning of the last century: 'Observations on Trover and Conversion', (1905) 81 LQR 43. But his observations still have a ring of truth in this area of the law.

224. The cause of action .... was founded on a fiction. The standardised plea was that the plaintiff possessed certain goods, that he casually lost them, that the defendant found them, and that the defendant did not return them but instead 'converted them to his own use'. The defendant was not permitted to deny the losing and finding, and so the only issues were the plaintiffs right to possession and the conversion itself. In due course this became the standard remedy for the unauthorised assumption of the powers of the true owner. Any chattel could be lost and found, and so it could be converted. But land could not be lost and found, nor could intangible property. And so originally the rule was that intangibles could not be converted (my emphasis).

225. With the expansion of commerce and the increase in dealings with intangible property this rule, described by Professor Prosser as a 'hoary limitation', had to be relaxed. The law provided, in respect of the misappropriation of intangibles, no remedy equivalent to that provided by conversion for the misappropriation of tangibles. So the courts resorted to another legal fiction. They held that in appropriate cases a document embodying or recording a debt or obligation should be treated as having the same value as the debt or obligation.

226. As would be expected, the reach of this useful tool gradually expanded. Now it is not confined to documents of title and negotiable instruments. It includes insurance policies, guarantees, share certificates and much else. In Clerk & Lindsell the principle is said to extend to 'any document which is specially prepared in the ordinary course of business as evidence of a debt or obligation': Clerk & Lindsell on Torts, 19th edition, (2006), para 17-35 (my emphasis).

227. In the past some unconvincing efforts were made to justify this extension as a particular application of the ordinary principles of damages. Now it is openly recognised that this extension involves a legal fiction: see, for instance, Pill LJ and Potter LJ in Smith v Lloyds TSB Group plc [2000] EWCA Civ 240; [2001] QB 541, 551, 557, and Mance LJ in the present case [2005] EWCA Civ 106; [2005] QB 762, 784, para 76.

228. Legal fictions, of their nature, conceal what is going on. They are a pretence. They represent an unacknowledged departure from existing principle. By resorting to the fiction of equating the value of a document as a chattel or piece of paper with the value of the rights embodied or recorded on it the courts concealed the reality. The reality is that English law does sometimes provide a remedy for the misappropriation, or conversion, of intangible rights. To that extent the tort of conversion has already jumped the gap between tangibles and intangibles. It did so a long time ago (my emphasis).

229. This prompts a further question: why should this extension of the tort of conversion be confined to cases where the intangible rights are specially recorded in a document? I would like to think that, as a mature legal system, English law has outgrown the need for legal fictions. There was a time when John Doe and Richard Roe were popular characters. They had to be parties to some forms of action. When they were in their prime their names appeared again and again in the law reports. English law has moved on. John Doe and Richard Roe are no more. So here, if there is to be a limit to the types of intangibles which attract a remedy in conversion, this limit should be capable of being articulated and justified openly, not by reference to fiction piled upon fiction.

230. Rationally the dividing line cannot be the existence or not of a piece of paper. The existence of a document is essentially irrelevant. Intangible rights can be misappropriated even if they are not recorded in a document. In principle an intangible right not recorded in writing may merit protection just as much as a right which is recorded in this way.

231. In practice misappropriation is more likely to occur with a right embodied in a document such as a cheque which passes through several hands in the ordinary course of business. But that is no reason for withholding protection in other cases. This is especially so today when information is increasingly stored and communicated, and transactions are effected, by electronic means.

232. The better approach today is to discard the fictional significance of a piece of paper. Instead one should seek to identify the common characteristic of the intangible rights in respect of whose misappropriation English law, as a matter of reality, already provides the remedy of conversion. The common characteristic, it seems to me, is that the rights protected in this way are contractual rights. No principled reason is apparent for attempting, for this purpose, to distinguish between different kinds of contractual rights.

233. The time has surely come to recognise this and, additionally, to recognise that the tort of conversion applies to contractual rights irrespective of whether they are embodied or recorded in writing. I would so hold. This would be a modest but principled extension of the scope of the tort of conversion. It would rid the law of an artificial limitation derived from the limited scope of an enabling legal fiction.

234. This step would not run counter to any legislation. Parliament has not enacted any general relieving provision from strict liability for conversion. Parliament has enacted specific relieving provision in respect of particular types of dealings with goods, for instance, the Factors Acts, and particular types of dealings with intangibles, for instance, the Cheques Act. Abolishing the need for a piece of paper would not cut across any legislative scheme.

235. The receivers placed reliance on the Torts (Interference with Goods) Act 1977. This Act excludes 'things in action' from the scope of 'conversion of goods' as defined in that Act. This definition accords with the existing law by seemingly embracing the fiction that pieces of paper are deemed to be worth the value of the rights embodied or recorded in them. But Parliament cannot be taken to have intended to preclude the courts from developing the common law tort of conversion if this becomes necessary to achieve justice.

236. The receivers also drew attention to section 234(3) of the Insolvency Act 1986. This provision protects administrative receivers and liquidators, in the absence of negligence, from liability if they seize or dispose of property which is not the property of the company. 'Property' includes things in action: section 436. In Welsh Development Agency v Export Finance Co Ltd [1992] BCLC 148 the Court of Appeal held that 'property' in section 234(3) does not include intangibles because they cannot be 'seized'. So, the argument runs, this is a legislative recognition that protection was not needed in respect of intangibles. I do not agree. The difficulty I have with this submission lies in the Court of Appeal's restrictive interpretation of 'property'. Contrary to the decision of the Court of Appeal, I see no reason to suppose Parliament intended to exclude the wrongful disposal of contractual rights from the scope of this relieving provision.

237. Whether the law on conversion should extend beyond contractual rights and embrace other forms of intangibles is not a matter to be pursued on this occasion. This further step has been taken elsewhere in some parts of the common law world. But other forms of intangible rights, such as intellectual property, raise problems of their own. These problems are best considered when they arise.

238. Accordingly I would hold that in the present case the receivers committed the tort of conversion by their wrongful misappropriation of OBG's debts and OBG's contractual rights against North West Water and other contractors.

239. Mr Mitchell QC submitted that the tort of conversion should not be extended. OBG has a good remedy, which it has chosen not to pursue, against the other parties to OBG's contracts. By accepting that the receivers gave a good discharge to OBG's debtors and contractors despite the invalidity of the receivers' appointment, OBG accepted that the receivers acted as OBG's agents. OBG's remedy against the receivers lay, not in conversion, but in suing the receivers for breach of their fiduciary duties.

240. I cannot accept this. OBG acting by its liquidators could hardly be expected to pursue the company's debtors and contractors for non-payment, on the ground that the receivers were not able to give them a good receipt. That would be utterly unreasonable. OBG's failure to take this course cannot be treated as a waiver of the receivers' torts. OBG cannot thereby be taken to have accepted that the receivers were acting as agents of the company. In the case of North West Water OBG joined in the settlement document. But, here again, as already noted, the judge rejected the suggested defences of estoppel, acquiescence and waiver.

241. I would allow this appeal and restore the order of Judge Maddocks

(20) Notably, a good part of the opposition by the majority had to do with the fact that in England, any extension of the scope of the tort had to involve amending the Torts (Interference With Goods) Act 1977. It was felt therefore that extending the scope of the tort was rightfully a matter for Parliament. The majority also expressed some misgivings on principle.

(21) Fiji has no equivalent of the English Torts (Interference With Goods) Act 1977. For us, any development in this area of the law will have to be a matter of judicial innovation. I shall let the matter rest there.

(22) As for this case, suffice it to say that judgement for conversion has already been entered by the High Court and upheld by the Court of Appeal. Whether or not the tort should be extended to monies or land is a non issue. Against that, and from where I sit now, Abe’s claim can only be taken as clearly proven and likewise, Azim’s liability.

WHERE THE ACT OF CONVERSION LAY IN THIS CASE?

(23) As Mr. Gordon highlights, the judgement entered in this case was only on conversion. There was no judgement entered on any other claim.

(24) Further, Mr. Gordon points out that the judgement entered is silent on where Azim’s act of conversion lay.

(25) Mr. Gordon then (rather deftly I must say), submits that as monies cannot be the subject matter of conversion, this Court must not award any damages. If the Court is minded otherwise, then any award must be limited to the single act of conversion which, he argues, occurred when Azim purchased the land for $26,000-00 in his own name.

(26) Mr. Knight submits that Azim actually committed four acts of conversion in this case. The first was when he purchased the property in his own name and thereby acquired it for his own use. The second was when he built the three cottages to his own use by claiming ownership of them. The third was when he had the lease title issued in his name. The fourth was when he had the proceeds of sale to his own use by refusing to pay them to Abe.

(27) In paragraph 5.3 of his submissions, Mr. Knight emphasises that in receiving the funds and in obtaining title to the property, Azim was essentially placed in a fiduciary position and acting as Abe’s trustee.

(28) I accept Mr. Knight’s analysis.

FIDUCIARY

(29) A fiduciary relationship will arise generally where one party is reasonably entitled to repose and does in fact repose trust and confidence in the other. The reposed confidence and trust may either be general or be applicable for a particular transaction (as per Casey J in Day v Mead ([1987] 2 NZLR 443; see also Estate Realties Ltd v Wignall [1981] 3 NZLR 482).

(30)If a fiduciary to whom trust and confidence is reposed acquires property for his principal, he may be regarded as a trustee of that property.

(31) Generally, a fiduciary who makes a profit in breach of his fiduciary duty is accountable to his principal for it. The weight of authority suggests that the profit is held by the fiduciary as constructive trustee (see Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46; [1966] 3 All ER 721).

(32) Where a fiduciary makes a profit in breach of his fiduciary duty, a crucial question that may arise is whether he or she may mix the principal’s property with his own. This is not at issue in this case as counsels made no related submission.

(33) Nevertheless, Azim’s conduct in the circumstances of this case was both subjectively and objectively dishonest.

(34) In the New Zealand case of Zhong v Wang [2006] NZCA 242 (5 September 2006), the Court of Appeal appeared to be willing to apply a constructive trust out of a relationship of principal/agent in circumstances similar to the one before me now - subject to evidentiary proof in the pending substantive matter in the Court below.

(35) Zhong had paid over $1 million in August, September and October 2001 from Japan to Wang in New Zealand. The monies were to be invested in Yini International Ltd ("Yini"), a company registered in New Zealand of which Wang had controlling interest. The purpose of that investment was to enable Zhong to qualify as an "investor" and thereby obtain residence in New Zealand. Eventually, Zhong was granted residence in November 2001. Meanwhile, in April and May 2002 which was some five or six months after residence was granted, Wang started acquiring various properties around Auckland, New Zealand ("Wang properties").

(36) Zhong became suspicious. He wanted his money back. He caveated the Wang properties. He alleged Wang acquired them for his own benefit using his (Zhong’s) money. Zhong said he and Wang had an oral understanding that the money would be refunded to him (Zhong) in full after two years without interest. But Wang’s evidence was that the money was paid in consideration for Yini shares issued to Zhong and that Zhong was not entitled to it as he was an investor. This was essentially one of the main substantive issues pending in the Court below.

(37) The Court of Appeal however had to assess whether Zhong had a caveatble interest in the Wang properties whilst the substantive proceedings were pending in the High Court.

(38) The Court accepted at the outset that a caveator may claim an interest in land as beneficiary under a constructive or resulting trust. It then rejected that there was an arguable case on resulting trust or on a Quistclose type trust. It held however that the established facts make out "a reasonably arguable case to support a constructive trust" which was enough to sustain a caveat.

[93] There is no doubt that the relationship of agent and principal gives rise to a fiduciary obligation. We adopt what was said by Mason J inital Products Ltd v Univ United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 (HCA) at 96-97:

The accepted firy relationships are sometimes referred to as relationships of trust and confidence or conf confidential relations (cf Boardman v Phipps [[1967] 2 AC 46 at 127; ...]) viz trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of", and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility ...[my emphasis].

[94] In Attorney-General for Hong Kong v Reid [1994] 1 NZLR 1 (PC) the long standing authority of Lister & Co v Stubbs [1890] UKLawRpCh 73; (1890) 45 Ch D 1 (CA) was overruled, with the consequence that the existence of a relationship of debtor and creditor as between parties did not prevent a relationship of trustee and beneficiary from co-existing with it.

[95] In delivering the advice of the Privy Council, Lord Templeman (at 7-8) discuLisd Lister & Co v Stubbs. His Lordship referred to Lindley LJ’s observation, (Lister, at 15) about the relationship between Lister & Co (as employer) and Stubbs (as an employee)had betrayed his trust and and received a bribe. Lindley LJ sait the relationship: