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Fund Management Ltd v Commercial Factors Ltd [2014] TOCA 1; AC 6 of 2011 (9 April 2014)

IN THE COURT OF APPEAL OF TONGA
CIVIL JURISDICTION
AC 6 of 2011

NUKU'ALOFA REGISTRY [CV115 of 2010]

BETWEEN :

FUND MANAGEMENT LIMITED AND

TOURIST SERVICES HA'APAI LTD

Appellants

AND:

COMMERCIAL FACTORS LTD
First Respondent

AND:

CHRISTINE UTA'ATU
Second Respondent

Coram : Salmon J

Blanchard J

Ward J

Counsel : Mr L. Niu SC for the Appellants
Dr R. E Harrison QC, SC for the First Respondent
Mr R Stephenson for the Second Respondent

Date of Hearing : 1 April 2014

Date of Judgment : 9 April 2014

JUDGMENT OF THE COURT

[1] This matter has a long and complicated history but in order to deal with the issues before this Court on the present occasion an abbreviated account can be given.

[2] In 1998, a Dr Wang successively gave certain guarantees to the appellants Fund Management Ltd and Tourist Services Ha'apai Ltd jointly (FM/TSH) and to the first respondent Commercial Factors Ltd (CFL). To provide each of these creditors with some security Dr Wang authorized them to caveat his interests in leasehold land. These included Lease 5404. A hotel has been erected on the land comprised in this lease.

[3] Both FM/TSH and CFL lodged caveats in respect of the lease.

[4] When default was made by Dr Wang, FM/TSH obtained an order from the Land Court in 2004 for the sale by tender of the leasehold interest, but no sale was achieved and FM/TSH took no further steps by way of marketing the property.

[5] Dr Wang had also failed to meet his obligations to CSL. In 2010 there were discussions between representatives of FM/TSH and CFL about whether CSL might be able to join with FM/TSH in utilising the 2004 order for sale so that both could receive what was owed to them. In the end, however, CFL decided to proceed alone. It issued proceedings against the estate of Dr Wang, who had died shortly beforehand, seeking summary judgment and the appointment of a receiver to enforce the judgment, in particular by selling Lease 5404.

[6] FM/TSH complains that it continued to believe that CFL was co-operating with it and that the proceeds of any sale would be shared. It says it was unaware of the receivership application until after the second respondent, Ms 'Uta'atu, had been appointed as receiver by the Supreme Court.

[7] Judgment was entered for CFL on 8 March 2011 in an amount, including interest, of approximately TOP$8,500,000 and the receiver was appointed to enforce the judgment. The receiver proceeded to advertise the hotel, including the leasehold interest, for sale by tender. The only tender received was from CFL which agreed to pay an amount equal to the debt owing to it by Dr Wang on the basis that the price would be set off against that debt. The sale and purchase agreement between the receiver and CFL provided for the contingency that CFL might have to pay something to FM/TSH. In that case it would be credited with the amount it paid FM/TSH and the balance of the price of the hotel would be satisfied by set-off.

[8] Having entered into the agreement, the receiver applied to the Land Court for the removal of FM/TSH's caveat. She successfully argued that FM/TSH did not have a caveatable interest in Lease 5404. Over the opposition of FM/TSH, on 20 August 2011 the Land Court directed that the caveat be removed. CFL withdrew its own caveat and the Minister of Lands removed the FM/TSH caveat from the register. On 20 August 2011 the Minister approved the transfer of the lease to CFL.

[9] On the same day, FM/TSH appealed against the Land Court's decision of 20 August but it neither served a copy of its notice of appeal on CFL nor applied for a stay preventing the transfer of the lease from going ahead. The sale was settled on 12 September 2011 and the price was satisfied entirely by set-off. No money was paid to the receiver. The transfer of the lease was registered immediately.

[10] It was only on 16 September 2011 that the notice of appeal against the removal of the caveat was served on the receiver, who appears to have been unaware of it until then.

[11] Meanwhile Dr Wang's estate had appealed against the order appointing the receiver. FM/TSH was granted leave to intervene in that appeal in order to argue that the Supreme Court lacked the power to make such an order.

[12] The appeals against the removal of the caveat by the Land Court and the order of the Supreme Court appointing the receiver were heard at the same time and on 16 December 2011 the Court of Appeal delivered judgment in both: The Executor(s) (or Alternatively the Administrator) of Dr Sam Lin Wang (a.k.a Sam Lin Wong) Deceased and Helen Chen Wang (a.k.a Helen Chen Wong) v Commercial Factors Ltd) Appeal No AC 6 of 2011; Fund Management Ltd and Tourist Services Ha'apai Ltd v Christine Uta'atu as Court – Appointed Receiver for and on behalf of Commercial Factors Ltd Appeal No 16 of 2010. It held that the order appointing the receiver was validly made. It also concluded that the caveat should not have been removed because FM/TSH had had a caveatable interest. But it did not direct restoration of the caveat to the register because it had been informed of the registration of the transfer of the lease pursuant to the sale of the hotel. In fact FM/TSH had not sought the setting aside of the sale and still does not do so. It wishes instead to take advantage of the sale and seeks a share of the amount which CFL agreed to pay.

[13] In effect, although Mr Niu did not put the matter in this way either at the earlier Court of Appeal hearing or before us, FM/TSH seems to be asserting that CFL was not entitled to set off the whole of the price and must account to the receiver in cash for a part of the price equivalent to Dr Wang's debt to FM/TSH, so that she can in turn pay it over to FM/TSH and that CFL was not entitled to raise a set-off to the extent of FM/TSH's claim, of which it was aware. Such an argument would seem to depend upon FM/TSH's ability to establish either an equitable interest in the lease or the proceeds of its sale, which interest has priority over any such interest of CFL, or alternatively that CFL's course of conduct towards FM/TSH prior to the transfer of the lease gave rise to a right on the part of FM/TSH to claim a share of the sum payable by CFL. Mr Niu was inclined to