HIGH COURT OF SOLOMON ISLANDS

CIVIL CASE NO. 301 of 1993 and 119 of 1993

IN THE MATTER OF: TAISOL INVESTMENT CORPORATION (S.I.) LIMITED
AND
THE COMPANIES ACT (CAP. 66)

HIGH COURT OF SOLOMON ISLANDS
(PALMER J.)

Hearing: 30/9/93, 8/4-12/4/94
Judgement:

....................for Plaintiff
....................for Defendant

PALMER J: There are two separate cases raising two separate claims which have been heard together. Civil Case no. 301 of 1993 is an application under section 111 of the Companies Act (Cap. 66), for rectification of the register of members of Taisol Investment Corporation (S.I.) Ltd. The application was made by that Company, and Robert Victor Emery and John Sullivan, in their capacity as Co-Administrators of the estate of Sunny Wun San Tong (deceased). Civil Case no. 119 of 1993 is a claim for fraudulent misrepresentation by the Co-Administrators of the Estate of Sunny Wun San Tong (deceased) and Taisol Investment Corporation (S.I.) Ltd., against Toshio Hashimoto and David Hayward as first and second defendants respectively.

I will deal with the rectification issue first. The facts on this issue, essentially are not in dispute. It is not in dispute that as at the 2nd of February, 1991, Toshio Hashimoto held 80% of the shares in Taisol, whilst sunny Tong held the remaining 20%; amounting to 50,000 ordinary shares. The date of the 2nd of February, 1991 is significant in that it was the day Sunny Tong was murdered.

On the 14th of February, 1991, Hayward signed a share transfer in his favour as the transferee for Sunny Tong's shares, for the consideration of $5,000.00. The document bears the Solomon Islands Stamp Duty date of the 13 March, 1991, despite the fact that the document was not executed by the transferor; Sunny Tong (deceased). The subsequent actions of the Respondents are premised on the assumption that that transfer was valid. On the 22nd of February, 1991, Sullivan and Emery were appointed Co-Administrators of the estate of Sunny Tong (deceased).

The first issue for this court to consider is whether there had been any valid dealing in the shares of Sunny Tong (deceased), and thereby a valid transfer being effected. In order to answer that, the question as to the state of Taisol's Register of Members as at the 2nd of February, 1991, must first be addressed.

It is trite law that upon the death of Sunny Tong, all of his real and personal property vested according to law as upon intestacy. Sunny Tong made no will. The applicable law in Solomon Islands in respect of Sunny Tong's property therefore, is that contained in:

'The British Solomon Islands and Gilbert and Ellice Islands (Probate and Administration) Order in Council, 1914' (herein-after referred to as the Probate and Administration Order, 1914). Paragraph (7) of the Probate and Administration Order, 1914, states very clearly,: "From the death of a person subject to the jurisdiction of the Court, having at the time of his death his fixed place of abode in the jurisdiction of the Court, intestate, until administration granted, his personal property in the jurisdiction of the Court shall be vested in the Chief Justice." (emphasis added).

There has been no challenge or dispute to the application of the above provision. As on the 2nd of February, 1991, therefore, on the death of Sunny Tong, his shares in Taisol vested in the Chief Justice of the High Court of Solomon Islands. As to the question whether there had been any valid dealing of Sunny Tong's share, prior to his death, on the 2nd of February, 1991, no evidence has been adduced to that effect.

On the 14th February, 1991, nevertheless, there was a purported dealing of the deceased’s shares.

According to the submissions of Mr. Molloy, of Counsel for the Respondents, Hashimoto met with Mr. Morris, of Coopers and Lybrand after Sunny Tong's death, to discuss about the shares of the deceased. He was then advised by Mr Morris that the deceased's shares could be transferred to anyone he wished to nominate (Exhibit A30). Accordingly, on the 14th of February, 1991, there was a purported meeting of the Directors of Taisol, consisting of Toshio Hashimoto as the Chairman, and David Hayward and H. Takei as members, to consider moving a resolution to have the deceased's shares transferred to David Hayward. The minutes of that purported meeting (Exhibit A16) showed that the resolution was duly endorsed.

On or about the same day, a share transfer certificate was executed by David Hayward as the "transferee", (see Exhibit A15). The space in the certificate for the "transferor" to sign, however remained unexecuted, obviously, Sunny Tong having already been killed prior to that. There has also been no evidence produced to indicate who the Defendants intended to have that document signed as the transferor. And what is also surprising is that that document should be stamped when there is a glaring legal defect on its face.

The question to consider therefore is, whether there had been, a valid dealing by Hashimoto and David Hayward of those shares on that date?

First, the advice given by Mr. Morris of Coopers and Lybrand. That advice was based, as shown in the letter of the 14th March, 1991 (Exhibit A30), on Regulation 4 of the Articles of Association of Taisol. Regulation 4 reads:

“All shares shall be under the control of the Director who may issue allot place under option or otherwise dispose of the same to such persons for such consideration on such terms and conditions and either at a premium or at par or subject to the provisions of the Act at a discount and at such times and generally in such manner as they think fit”.

As has been correctly submitted in subparagraph 7.10(b) of the submissions of the Plaintiffs, there is no power in Regulation 4 above to effect a transfer in the manner done by Hashimoto and Hayward. It merely confers the power to control the issue and allotment of shares; not the transfer of issued shares. To give Regulation 4 any other meaning would not only produce an absurdity but would also mean that the directors could do what they want with the shares of a deceased shareholder without reference to his personal representative or the beneficiaries of his estate. This with respect would be contrary to the accepted attributes of shares.

In “Gower’s Principles of Modern Company Law” Fourth Edition at page 400, the learned Author stated:

“While it may be doubtful whether the rights which a share confers on its holder can be classified as “proprietary” in the usual sense, one thing at least is clear: the share itself is an object of dominion, i.e. of rights in rem and not so to regard it would be barren and academic in the extreme. For all practical purposes shares are recognised in law, as well as in fact, as objects of property which are bought, sold, mortgaged and bequeathed. They are indeed the typical items of property of the modern commercial era and particularly suited to its demands because of their exceptional liquidity. To deny that they are ‘owned’ would be as unreal as to deny, on the basis of feudal theory, that land is owned - far more unreal because the owner’s dominion over his shares is likely to be considered less fettered than that over his land”.

In another Company Law text, “Introduction to Company Law” 9th edition by J F Northey, at page 238, the above comments are reiterated:

“Shares are personal property transferable in the manner provided in the articles......”.

And in Halsbury’s Laws of England, Fourth Edition at paragraph 415,:

“The shares or other interest of any member in a company are personal estate transferable in the manner provided by its articles ......”.

If the interpretation of Regulation 4 by Wayne Morris, Hashimoto and Hayward are given approval by this Court then it would be utterly contrary to the very nature and attribute of shares as personal property.

Regulation 6 of the Articles says something about the Company restricting the right to the transfer of its shares, but does not say anything about ownership of those shares.

I am satisfied accordingly that the advice given by Wayne Morris and relied upon by Hashimoto and Hayward as being without any legal basis.

Further, the purported execution of that Transfer Certificate was a nullity, in that it was not executed by the Transferor or any person in whom his property had vested. Also in Regulation 7 of the Articles it expressly states that the transfer instrument “shall be signed both by the transferor and transferee ......”. This was never complied with and accordingly, the transfer instrument would have been void for that reason.

The Plaintiffs also rightly pointed out at subparagraphs 7.10(e) and (f) of their submissions, that pursuant to sections 73 and 74 of the Companies Act, no proper instrument of transfer had been executed and no transfer made by the deceased member’s personal representative.

Taking all the above factors into account I am satisfied there was not way the purported transfer of the shares on the 14th of February, 1991 by Hashimoto and Hayward, could ever be regarded as valid or lawful.

By operation of law therefore, on the death of Sunny Tong on the 2nd of February, 1991, his shares vested in the Chief Justice of this Honourable Court. On the same token, on the 14th of February 1991, those shares could only have been sold, transferred and disposed of, on the advice and consent of the Honourable Chief Justice. There has been no scintilla of evidence, or suggestion put, or challenge made, that the purported transfer of Sunny Tong's shares had been authorised by the Honourable Chief Justice. In the affidavit of Michael William Lodge, the former Registrar of this Court, and ex officio, the Official Administrator of Unrepresented Estates, during that period of the 2nd February, 1991 to the 22nd of February, 1991, he stated emphatically at paragraphs (4) and (5) of his affidavit that, at no time had he been approached by any person with a request to have the shares of Sunny Tong (deceased) transferred to any person, or that he ever executed or agreed to execute any transfer of the shares held by the deceased in Taisol, to any other party.

The evidence thus as to the state of those shares on the 2nd of February, 1991 and the 14th of February, 1991 is clear and unequivocal. They vested on the Chief Justice, and by grant of Letters of Administration on the 22nd of February, 1991, vested on the Co-Administrators.

In its defence, the Respondents do not seek to challenge directly the submissions of law of the Applicants. Rather, they sought to concentrate on the point that rectification is a discretionary remedy, and to argue that the discretion should not be exercised in favour of rectification.

The first issue of defence raised, is that on the standing of the Co-Administrators to sue, (see paragraph 7.1 of the submissions of the Respondents/Defendants). It is argued that because Emery and Sullivan are no longer shareholders in Taisol, that therefore they have no right to make a claim.

With respect, this submission fails to take cognisance of the requirements of section III of the Companies Act, as to who is entitled to apply for rectification. Subsection III(i) refers to:".... the person aggrieved, or any member of the company, or the company", who may apply to the Court for rectification of the register. Three categories of persons are identified who may apply. The one that is of interest is the category of 'the person aggrieved'.

The term 'person aggrieved' was considered in the case of Ealing Borough Council v. Jones (1959) 1 All ER 286 at 289, by Donovan J.;

“If one came to the expression "person aggrieved by the decision" without reference to judicial authority one would say that the words meant no more than a person who had the decision given against him; but the courts have decided that the words mean more than that and have held that the word "aggrieved" is not synonymous in this context with the word "dissatisfied". The word "aggrieved" connotes some legal grievance, for example, a deprivation of something, an adverse effect on the title to something, ...."

Also in the case of AG of the Gambia v. N'Jie (1961) 2 All ER 504 at 511, PC, Lord Denning delivering the judgment of the Privy Council stated,

'The words "persons aggrieved" are of wide import and should not be subject to a restrictive interpretation. They do not include, of course, a mere busy body who is interfering in things which do not concern him; but they do include a person who has a genuine grievance because an order has been made which prejudicially affects his interests'.

The Co-Administrators cannot be regarded as mere busy bodies or being merely dissatisfied. They are persons who clearly in my view have some legal grievance against Hayward and Hashimoto. They have been deprived of their rightful title to the shares of Sunny Tong (deceased) in their capacity as the personal representatives of the deceased. They have a genuine grievance against Hayward and Hashimoto, because there has been a purported dealing with Sunny Tong's shares, which had prejudicially affected the interest of the deceased's estate, which Emery and Sullivan obviously had an interest, in their capacity as Co-Administrators of the estate.

The fact that they are no longer shareholders in view of the Deed of Discharge, with respect is immaterial. They qualify as 'persons aggrieved' who were entitled to have the records set straight as from the 2nd February, 1991 to the 30th of July, 1993.

The terms of the Deed of Discharge too in my view should be understood in its proper context.

At paragraph (B) of the Recital to that Deed the Administrators made it quite clear that in their view no title to Sunny Tong’s shares passed under the Kayuken Agreement (see Exhibit A1) and that ownership vested in the estate of Sunny Wun San Tong (deceased).

At paragraph (C), the Administrators agreed to enter into a compromise and settlement with Kayuken Pacific Limited (Kayuken) in the terms set out in that Deed of Discharge.

Paragraph (D) of the Recital then states, and this is important:

“The Company (Taisol) agreed to permit the Administrators to bring any claims they may have against Toshio Hashimoto and David Hayward arising out of or connected with the agreement referred to in recital (A) by way of an action in the name of the Company on the terms and conditions herein contained”.

At Clause 3 of the Agreement, the Administrators agreed to release Kayuken from any further liability, but subject to the proviso that “...... nothing in this agreement is to be construed as releasing any claims that the Administrators may have against Toshio Hashimoto or David Hayward”.

The right of standing to sue of the Administrators therefore has been adequately catered for in that Deed of Discharge.

What is important to understand and appreciate about the right to sue of the Administrators is that it is independent from that Deed of Discharge. The Administrators could have opted to have their claims pursued separately as against Hashimoto and Hayward and not enter into any Deed of Discharge. There would have been then no issue arising about the standing of the Administrators. The decision to enter into a compromise and settlement with Kayuken is a matter between them, and has nothing to do with Hashimoto and Hayward. Hashimoto and Hayward therefore cannot competently raise the issues of compromise and settlement in this case.

But even if this should fail, the application for rectification has also been brought by Taisol on its own behalf. In that capacity, there is no question or doubt as to the right of standing of the Company.

By virtue of Clause 5(A) of the deed of Discharge, the Administrators were given authority to sue in the name of Taisol;

“The Company (Taisol) agrees to permit the Administrators to bring, if so advised, in the name of the Company an action against Toshio Hashimoto and David Hayward in respect or connected with any interest which the Estate of Sunny Wun San Tong has or may have had in the subject matter of the agreement referred to in recital (A)”.

The Defendants however have countered by seeking to argue that that Deed of Discharge saviours of maintenance and champerty, and therefore illegal, and should not be given effect to by the Court.

In “Winfield and Jolowicz on Tort” 9th Edition, at page 498, maintenance and champerty are defined as follows:

“Maintenance means the improper stirring up of litigation by giving aid to one party to bring or defend a claim without just cause or excuse while champerty is the particular form of maintenance which exists when the person maintaining the litigation is to be rewarded out of its proceeds”.
(emphasis added).

In “Anson’s Law of Contract” 25th Edition at page 354, maintenance is defined as:

“...... when a man maintains a suit or quarrel to the disturbance or hindrance of a right. A person is guilty of maintenance if he supports litigation in which he had no legitimate concern without just cause or excuse”. (emphasis added)

In “Chitty on Contracts” General Principles 26th Edition at paragraph 1169, the learned author states:

“The mischief directed against is wanton and officious inter meddling with the disputes of others in which the defendant has no interest whatever and where the assistance he renders to one or the other party is without justification or excuse”.

The common theme to be found in the definitions of ‘maintenance’ given in the texts quoted is that, the action being instigated or defended has been done without just cause or excuse, or that the maintenance had no legitimate concern or interest in the litigation.

In Mastell -v- Consegtt Iron [1955] Ch. 363, cited by the Plaintiffs, at page 399-400, Jenkins L.J. said:

“In the present state of the authorities, the right view appears to be that the crime of maintenance is committed whenever a third party aids the prosecution or defence of an action in the absence of circumstances sufficing in law to justify the giving of such aid, whatever the motive or purpose of the person giving such aid may have been, the element of impropriety or officious intermeddling being supplied by the fact of interference in the suit by giving aid to one party or the other, coupled with the absence of legal justification for so doing; while on the other hand, the giving of such aid will not be criminal if it is justifiable in law by reference to one of the specific exceptions, the existence of which I have already noticed, or if the person giving the aid has such an interest in the action as can be held in law sufficient to justify him in giving it”.

What would therefore be considered as a legitimate interest or sufficient interest?

In the case of Brownton -v- Edward Moore Imbucon Limited [1985] 3 All ER 499, also referred to by the Plaintiffs, Lloyd L.J. made the following statements at page 509:

“(i)	Maintenance is justified, inter alia, if the maintainer has a genuine commercial interest in the result of the litigation.

(ii)	There is no difference between the interest required to justify maintenance of an action and the interest required to justify the taking of a share in the proceeds, or the interest required to support an out and out assignment.

(iii)	A bare right to litigate, the assignment of which is still prohibited, is a cause of action, whether in tort or in contract, in the outcome of which the assignee has no genuine commercial interest.

(iv)	In judging whether the assignee has a genuine commercial interest for the purposes of (i) to (iii) above, you must look at the transaction as a whole.

(v)	If an assignee has a genuine commercial interest in enforcing the cause of action it is not fatal that the assignee may make a profit out of the assignment”.

In Trendtex Trading v. Credit Suisse (1980) 1 Q.B. 629, 668, Oliver L.J. held that maintenance would be justifiable ”wherever the maintainer has a genuine pre-existing financial interest in maintaining the solvency of the person whose action he maintains”. This view was implicitly endorsed in the House of Lords; see (1982) A.C. 679, 703. There, Lord Roskill was prepared to hold that a genuine commercial interest was sufficient to enable an assignee of a cause of action to enforce it:

“But it is today true to say that in English law an assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment .....” (page 703).

Do the Administrators have a ‘genuine commercial interest’ in the enforcement of Taisol’s claim against Hashimoto and Hayward? Is there sufficiency of interest such that it would justify the assignment as agreed upon under the terms of the Deed of discharge? With respect, the answer in my view must be in the affirmative. The Administrator’s claim is made qua Taisol’s shareholders.

In that capacity they clearly have a separate independent action which could be pursued against Hashimoto and Hayward for rectification, and via the Company (Taisol) under the fraud action.

The appearance of ‘maintenance’ and ‘champerty’ have come about through the existence of the Deed of Discharge. The claim of the Administrators however, did not arise or originate from that Deed of Discharge. Their claim was already in existence and their intentions made known, even before the Deed of Discharge was executed. Accordingly, I am not satisfied that the Deed of Discharge can be condemned as savouring of maintenance or champerty.

Equally, I am not satisfied that the actions of commencing and prosecuting the claims on behalf of Taisol were done under an illegal contract.

Another argument that has been raised by the Defendants is that Taisol should not be permitted to found a claim based on its own accountant's incorrect advice. However, as correctly put in paragraph 6.1 of the submissions in reply of the Applicants, the fact that Mr Morris gave incorrect advice is no defence to their fiduciary duties owed to the company, inclusive of the interests of the members, (see Halsbury's Laws of England, Fourth Edition, Vol. 7(1) para. 612). It is not open in my view to Hashimoto and Hayward, qua directors of Taisol, to plead ignorance of the law and to be absolved from their duties as directors on the basis of incorrect advice given by Mr Morris. The evidence too is scanty as to whether Mr Morris did actually give the advice as claimed by Hashimoto and Hayward.

Another issue that has been raised as to why the discretion should not be exercised in favour of a rectification is that there had been a settlement between the parties whereby the rights of the Co-Administrators had been compromised. On that basis, it is claimed the dispute therefore comes to an end.

The Respondents base their submissions on what they say was a 'previous agreement' entered into between Hashimoto and Hayward, and the Co-Administrators. At paragraph 2.1 and 2.2 of their submissions in reply, filed on the 9th of January, 1995, they say that such an agreement was to be inferred from the conduct of the parties.

At paragraphs 2.19 - 2.23 of the first submissions of the Defendants/Respondents, they described what the conduct of the parties were. In brief, it was the payment of the consideration for the deceased's shares, of SBD54,000.00 by Hashimoto, from the retention fund held by Coopers and Lybrand. The question for consideration then is, whether an agreement, can be inferred from the conduct of the parties? In "Anson's Law of Contract" 25th Edition, by A.G. Guest at pages 23-24, the learned author states:

" .... that conduct may take the place of written or spoken words either in the offer or in the acceptance. An agreement may also be inferred from conduct alone; the intention of the parties is a matter of inference from their conduct, and the inference is more or less easily drawn according to the circumstances of the case."

An agreement therefore may be inferred from the conduct of the parties where there is an absence of written or spoken words, or when there is an ambiguity, and the intentions of the parties are questioned at the trial.

The circumstances surrounding this case however, which the Respondents sought to rely on, are not altogether devoid of written or spoken words.

Perhaps the crucial piece of evidence relied on by the defendants/Respondents is the payment of the consideration for the Administrator’s shares under the Deed of Discharge, from the Retention Fund held by Coopers and Lybrand in favour of Hashimoto. Mr Molloy submits that the Administrators must have known and intended that the consideration for those shares be paid by Hashimoto. He submits at paragraph 2.19 of the submissions of the Defendant that the Administrators knew that Kayuken, the purchaser, would refer their claim to Hashimoto. By bringing pressure to bear they extracted their demand from Hashimoto. Emery then went to Coopers and Lybrand and collected a cheque from the retention fund. Sullivan and Emery, therefore must have known the fact that the payment was being met by Hashimoto. Also the receipt for the payment to Sullivan and Emery was endorsed as being from “T. Hashimoto, C/- Coopers & Lybrand” (Exhibit B53).

It was argued accordingly, that in those circumstances Sullivan and Emery had acknowledged Hashimoto’s existence and relationship to the transaction and the part that he played, and that thereby an agreement can be inferred as between them.

The crucial question therefore is whether such an inference is clear and unambiguous and justifiable in the circumstances.

To get a complete picture the starting point must be from the date the discovery was first made by the Co-Respondents as to the purported transfer of the shares by Hayward to Kayuken. There is undisputed evidence that the Co-Administrators first became aware of the purported sale some time in November of 1992. Shortly thereafter, a letter was written to Mr Wong the Managing Director of Golden Springs International (SI) Limited, in which he was put on notice as to the interests of the Co- Administrators over Sunny Tong's shares in Taisol. The letter (Exhibit B4) was dated the 19th of November, 1992 and read:

“We were appointed to administer the estate of the deceased by the High Court of Solomon Islands on 22nd February 1991 and a copy of our Letters of Administration is attached. We understand you have recently acquired, either directly or indirectly a substantial, if not a majority position, in the abovenamed companies. (one of which was Taisol). By virtue of our appointment the legal title to 5000 shares in TIC (20% of the issued capital) ...... vests in us. My Co-Administrator is in Honiara until Saturday 21st November next, and it would appear to be in your interest to discuss the matter of our minority positions with us before he departs”.

The letter was signed by R.V. Emery.

That letter was dated 20th November, 1992 and marked Exhibit A46.

“I refer to your earlier discussions with Mr. Sullivan and me.

We were appointed by the High Court of Solomon Islands to administer the estate of the deceased on 22nd February 1992.

Amongst the assets of the estate we identified 50,000 shares in TIC (20% of the issued capital) and 100 shares in TFA (8% of the issued capital before allowing our indirect interest through TIC) and the legal title in these shares clearly vests in us, as administrators of the estate.

We understand that there is a purported transfer of our shares in TIC (we are not yet aware of the precise position with regard to TFA) which forms part of a larger transaction which involved Golden Springs International (SI) Limited as purchaser and Toshio Hashimoto as vendor.

We further understand that you are holding approximately SBD1,000,l000 in escrow as a retention in this transaction.

We write to put you on notice that we have clear legal title to the shares in TIC and TFA referred to above and have not agreed, or been party to any transfer of them and that (while reserving our rights against all parties in respect of any larger sum) we require you to retain at least SBD 750,000 of the funds referred to above pending settlement of this matter. In the event that this amount is not so retained the Administrators reserve their rights against your firm in respect of such retention moneys in addition to any other rights we may have.

We also wish to reiterate our request for a meeting with you and Mr Wang of GSI, on a without prejudice basis, before Mr Sullivan leaves Honiara tomorrow, 21st November”

On the 20th of November, 1992, a letter was also sent to Mr Bowman of Coopers & Lybrand, putting them on notice as well of the interests of the Co-Administrators over Sunny Tong's shares.

Both letters referred to a proposed meeting with Mr Wong and Mr Bowman on the 21st of November, 1992. Whether a meeting did take place on the 21st of November, 1992 is not clear. What is clear though is that discussions did take place between Kayuken and the Co-Administrators.

As a result of those discussions some sort of agreement was reached between Kayuken and the Co-Administrators.

On the 5th of April, 1993, Astills (a firm of lawyers from Australia acting for Kayuken) wrote a “without prejudice” letter to Hashimoto (part of Exhibit A2). That letter reads:

“We advise that the executors for Mr Tong’s Estate have now agreed to accept the sum of US17,241.00 in full and final satisfaction of their claim. We have been advised by our client, Mr Robert Wong, that you have now accepted that compromise and accordingly, have now instructed Coopers & Lybrand to pay that sum to the Administrators on 22 April 1993 using the funds from the retention account. We have instructed Coopers and Lybrand to then remit the balance of the fund to you in accordance with your instructions to them.

Please note that one compromise with the Administrators is only between our client and them and does not, in any way, attempt to compromise any dispute that there may be between yourself and the Administrators”.

If paragraph (1) of the above letter is looked at in isolation, then I would agree with Mr Mollohy’s submission that an inference possibly could be drawn which links Hashimoto up as a party to the compromise agreement reached between Kayuken and the Administrators. The existence and express terms of paragraph (2) however, dispose of the possibility of any such inference being drawn. The terms of paragraph (2) place in context the contents of paragraph (1). That the agreement for the payment of USD17,241.00 was a deal struck up between Kayuken and the Administrators. It did not include Hashimoto. Kayuken however, have a right to claim that expense or payment from Hashimoto. This appears to be fairly obvious and not in issue. In fact, Hashimoto seems to have accepted this without raising any objection. Hashimoto consented to have the sum of USD17,241.00 paid from the retention fund held in his favour with Coopers & Lybrand. He could equally have refused to have that consideration paid from the retention fund. That however, would not have made any difference it seems to the Agreement between Kayuken and the Administrators for the payment of that consideration.

By consenting to have the consideration paid from the retention funds without raising any objection Hashimoto was acknowledging in my view that Kayuken would have had a right of action against him for that amount. That however, was a matter between Kayuken and Hashimoto. There is no evidence to show that the Administrators were ever formally informed by Kayuken or by Hashimoto of their arrangement, and that the Administrator’s consent was ever sought.

It is true that the Administrators knew or should have known that Kayuken would have referred any such claims to Hashimoto. Any person in the Administrator’s position in my view would have known.

But the question whether Kayuken did make a claim against Hashimoto or not in my view is immaterial to the compromise or settlement made between Kayuken and the Administrators. Unless Hashimoto can point to some further conduct or action on the part of the Administrators, which showed that they had entered into a compromise or agreement with him, it is my view that no inference can be drawn from the conduct referred to in the submissions of Mr Molloy.

The evidence of Mr Sullivan and Emery is quite clear that had any compromise or settlement been sought with Hashimoto, they would have given a flat refusal.

One other point needs to be highlighted. This is that the payment of the SBD54,000.00 plus AUD1,000.00 costs from the retention fund held in Coopers & Lybrand was effected on the 22nd of April, 1993, some 17 days after the letter of the 5th April, 1993 was written to Hashimoto. Hashimoto therefore knew, or must have known that the payment of the consideration could not have been made with an intention to enter into a contractually binding agreement to compromise any claims that Emery and Sullivan might have in respect of Taisol. The consensus ad idem is missing. It is immaterial that Hashimoto may have entertained any ideas about a compromise to be reached with the Co-Administrators. By the terms of that letter of the 5th of April, 1993, it was made very clear to Hashimoto that the fact that the moneys were paid from the retention fund will not compromise any dispute between him and the Administrators.

The terms of that letter is totally consistent with the terms of the 'undertaking' (see Exh. B8) of the 22nd April, 1993, and the Deed of Discharge executed on the 30th of July 1993 (see Exh. A5, recitals (B), (C), and clauses 1, 2 and 3). The evidence adduced, does not in my view permit the construction of an agreement to be inferred from the conduct of the parties whereby their rights have been compromised.

At paragraph 3.5 and 8.3 of the submissions of the Respondents, it was also claimed that Hashimoto and Hayward were able to complete the Kayuken Agreement, only after the consideration had been paid by Hashimoto. Unfortunately, this overlooks the simple fact, that there had been a purported sale and transfer of the shares on the 15th of September, 1992. But for the claim of the Co-Administrators, the Kayuken Agreement would have been deemed completed on or about the 15th of September, 1992. It is incorrect therefore to say that the Kayuken Agreement was completed only after the payment of the consideration by Hashimoto. The Kayuken Agreement is a separate agreement made between Toshio Hashimoto, David Hayward and Dorio Development Company Limited of the one part, and Kayuken Pacific Limited of the other. The negotiated settlement on the other hand was made between the Co-Administrators and Kayuken. The express terms of which have been meticulously articulated in the Deed of Discharge executed on the 30th of July 1993. The negotiated settlement arose from the subsequent claim of the Administrators arising from the Kayuken Agreement, and which in turn originated from the purported transfer of the shares of Sunny Tong by Hashimoto and Hayward. There is no evidence to support the view that the negotiated settlement was entered into, to complete or more accurately, to validate the Kayuken Agreement. The negotiated settlement, if anything, was aimed at dealing with any possible claims as between the Administrators and Kayuken, to the exclusion of Hashimoto and Hayward. And the rationale it seems for taking that approach was that the Administrators decided to give the benefit of any doubt to Kayuken, that they were an innocent bona fide purchaser of those shares for value. I am not satisfied accordingly, that the submissions of the Respondents as raised in paragraphs 3.5 and 8.3 have been made out.

Attempts too have been made to separate the negotiations stage from the actual terms of the Deed of discharge. No satisfactory challenge or dispute however, has been raised to convince me that that approach is justifiable. The evidence adduced showed clearly that the terms of the Deed of Discharge were in total agreement with what was written or said in the negotiations stage. The Deed of Discharge has also never been challenged or disputed, as reflecting correctly what was said in the negotiations stage.

Finally, at paragraph 3.6 of the submissions of the Respondent, reference was made to the case of Callisher v. Bischoffsheim (1870) 5 L.R.Q.B. 449 at page 451 per Cockburn C.J., which is authority for the view that the forbearance to sue in respect of a disputed claim where an agreement to compromise had been made, will suffice as a good consideration. Unfortunately, even if there was such an agreement, I am not satisfied that there is evidence of a forbearance to sue, (see Ex. B4, A46, letter of 5th April 1993 - part of Ex A2, and Ex. A5). The question then arises, has there been a forbearance?

For the same reasons given above, I am also not satisfied that there has been an abandonment of any claim against Hashimoto on payment of the consideration. Rather, the opposite is true.

Other issue raised against the exercise of the discretion to order rectification relates to knowledge, waiver, and estoppel, (see para 8.0 of the Respondents' submissions).

The submissions raised in paragraph 8.1 have already been dealt with under the heading 'standing to sue' and therefore need not be repeated. They equally apply here.

At paragraph 8.2, the issue about knowledge was raised. The Respondents relied on a meeting held between Emery and Hashimoto in July of 1991, in which it was claimed that Emery had been informed by Hashimoto about the sale of Tong's shares in Taisol to Hayward (see Exhibit B6).

Despite this communication, it was alleged that nothing was done to challenge the transfer until late 1992.

The details of that meeting had been recorded in note form by Emery, (see Exhibit B6). At paragraph 2, his notes read:

"TH (Toshio Hashimoto) said Sunny Tong had 'sold' his 20% of Taisol's shares to David Hayward".

In his evidence under oath, Emery does not dispute that he had been so informed by Hashimoto, but explained that at that time he was sceptical of the sale. He says that he believed he did check Taisol's register, after, to find out if Tong's name was still on the register.

There is undisputed evidence that on the 8th of March, 1991, prior to the above-mentioned meeting the Co-Administrators did carry out an inspection of Taisol's register of members. The records showed that Sunny Tong's name was on the register at that time. Also in the evidence of Mr Wayne Morris of Coopers & Lybrand, he stated that he believed that the statutory register was not amended until possibly as late as August of 1992. This supports Emery's evidence that no transfer or alteration had been noticed in the register when an inspection was carried out, he believed, in July of 1991, or shortly thereafter. But even if no inspection had been carried out, it would not have mattered because the register would have remained unaffected until August of 1992.

It is important to appreciate that prior to that July meeting of 1991, there was a meeting of the Directors' of Taisol, on the 14th of February, 1991, in which it was resolved that due to the death of Sunny Tong, that his shares be transferred to David Hayward (Exhibit A16). On the same date a purported transfer of those shares was effected (Exhibit A15). On the 22nd of February, 1991, Sullivan and Emery were appointed as Administrators of Sunny Tong’s Estate. In March of 1991, there was another meeting between the Administrators and Hashimoto and Hayward. What is significant about the July 1991 meeting is that despite mentioning to Emery that Sunny Tong had 'sold' his 20% of Taisol's shares, to David Hayward, no further details were disclosed by Hashimoto. Was this a mere oversight, or was it deliberately withheld? Surely Hashimoto must have known by then that Emery and Sullivan had been appointed as the Co-Administrators of the estate of Sunny Tong (deceased), and therefore would have had an interest over those shares, or be interested to know at least what had become of them, especially when the purported transfer had been effected after the death of Sunny Tong.

It is also not clear what was meant by the expression that "Sunny Tong had 'sold' his 20% of Taisol's shares to David Hayward". Did that statement refer to any sale done prior to his death, or did it refer to the purported transfer of the 14th February, 1991? On its face, it could much more easily be accepted to refer to some sale or attempt to sale made prior to Sunny Tong’s death. If it was to refer to the 14th February 1991 transfer, then the Administrators would have been justifiably perplexed and sceptical about that statement. It is also significant to note that at paragraph 4 of Exhibit B6, it was recorded in Emery's notes that the 'sale' of Tong's shares to an Indonesian Company had not proceeded. This would seem to indicate that the reference to a 'sale' made in paragraph 2 of the same exhibit, was being qualified by paragraph 4. I am not satisfied that what was said in that July meeting was sufficient to put the administrators on notice as to the purported sale and transfer of the shares on the 14th February, 1991.

The evidence adduced and the submissions made rather, support the version of Emery as to his scepticism of the 'sale', and the actions he took thereafter to ascertain if any transfer or alteration on the share register of Taisol had been effected to that date, and why having so satisfied himself, he took no further action. I am satisfied Emery's actions and that of Sullivans were justifiable in the circumstances.

The other issue raised is that of acquiescence. At para. 8.3 of the Respondents submission it is argued:

“When Emery and Sullivan discovered that the shares in Taisol were being transferred (to Kayuken) they did not take any action to restrain the sale. Instead, they "negotiated" a settlement of their "claim". They allowed the sale to proceed (and were paid out of the proceeds of sale). They permitted all the shares in Taisol to be transferred to Kayuken pursuant to transfers from Hashimoto and Hayward. Having acquiesced in (and profited from) this transaction, they should not be permitted to impugn it".

In 'Equitable Remedies' by Spry, Third Edition at pages 178-181, the learned author sets out a number of conditions which must be fulfilled for the doctrine of acquiescence to come into operation. The one that is of relevance is:

".... that there must be an express or implied representation that the plaintiff will not rely on the legal rights in question in the material respect. The representation must be sufficiently clear, that is, it must be one which is reasonably understood in the material sense by the defendant, or which is intended by the plaintiff to be so understood and is in fact so understood".

In the case of Weldon v. Dicks (1878) 10 Ch. D 247 at 262 per Malins V-C:

"there can only be acquiescence where there is knowledge. This Court never binds parties by acquiescence where there is no knowledge".

Also in Bell v. Alfred Franks & Bartlett Co. Ltd [1980] 1 All ER 356 at 360, CA per Shaw LJ:

"what is meant by acquiescence? It may involve no more than a merely passive attitude, doing nothing at all. It requires as an essential factor that there was knowledge of what was acquiesced in".

The allegation raised in paragraph 8.3 is that when the Co-Administrators discovered that the shares in Taisol were being transferred to Kayuken, they did not take any action to restrain the sale. Rather, they allowed it to proceed and to be completed under a compromise referred to earlier in this judgment.

It appears to me that this submission has been misconceived. The Co-Administrators only became aware of that purported sale and transfer in November of 1992, some three months after the Kayuken Agreement had been executed (see Exhibit A1), and some two months after the share transfer documents had been executed, in September of 1992 (see Exhibit A17). I have already dealt with the issue of knowledge raised concerning the meeting of July 1991 and accordingly that is not applicable under this issue.

The above could hardly amount to any form of acquiescence. There is no evidence to suggest that the Administrators ever represented to Hashimoto or Hayward that they would not rely on their legal rights to Sunny Tong’s shares.

The argument tendered by the Respondents that the Co-Administrators had allowed the sale (referring to the Kayuken Agreement) to proceed under the 'negotiated' settlement is also misconceived. That “negotiated" settlement was made directly with Kayuken (see Exhibits B4, A46, A47, A48, letter of 5th April, 1993 from Astills to Hashimoto - part of Exh. A2, B8 and A5). The evidence as adduced and submissions made, showed unequivocally that the sale and transfer of Sunny Tong's share was being concluded between the Co-Administrators and Kayuken. It is therefore misleading, incorrect and wrong, to say that the Co-Administrators 'permitted all the shares in Taisol to be transferred to Kayuken pursuant to transfers from Hashimoto and Hayward'. There had indeed been a transfer of Hashimoto's shares in Taisol to Kayuken in August/September of 1992. That is none of the Co-Administrators concern. Their interest had always been made known to be over Sunny Tong's shares, and it was over those shares alone, which formed the subject matter of the negotiations and settlement with Kayuken. The issues raised here are similar to the issues already raised and dealt with in the various defence addressed earlier and what I have said apply equally here.

I am not satisfied accordingly that the defence of acquiescence had been made out.

Another issue raised is that of estoppel, (see para. 8.4). The rule in 'promissory estoppel' states:

"where by his words or conduct one party to a transaction makes to the other a promise or assurance which intended to affect the legal relations between them and the other party acts upon it, altering his position to his detriment, the party making the promise or assurance will not be permitted to act inconsistently with it". (see Snell's Principles of Equity, 26th Edition at p.627). 

In 'Anson's Law of Contracts' 25th Edition, at page 114, the learned author sets out three requirements of promissory estoppel:

"In the first place, the promise must be clear and unequivocal. No estoppel can arise if the language of the promise is indefinite or imprecise.

Secondly, it must be inequitable for the promisor to go back on his promise and insist on his strict legal rights. 

Thirdly, it has been said that the promisee must had 'altered his position' in reliance on the promise made to him”.

The learned author in 'Chitty on Contracts, General Principles', 26th Edition, Vol 1, at paragraph 210 also reiterated similar requirements of such a doctrine as follows:

"For the equitable doctrine to operate there must be a legal relationship giving rise to certain rights and duties between the parties, a promise or representation by one party that he will not enforce against the other his strict legal rights arising out of that relationship, an intention on the part of the former party that the latter will rely on the representation, and such reliance by the latter party".

An important point to note about the operation of that equitable doctrine is that there must be an existing legal relationship between the parties. Is there an existing legal relationship between Hashimoto and the Co-Administrators?

The answer to this question has already been dealt with to some extent, earlier on in this judgment, when the question of whether there was a 'previous agreement' to be inferred from the conduct of the parties, was addressed. The conclusion reached was that there was none. On this basis alone, the issue of estoppel fails.

Nevertheless, for arguments sake, we will consider the next requirement of whether a promise or representation had been made by word or conduct.

On this issue of a promise or representation, the learned author in 'Chitty on Contracts' (ibid), at paragraph 212, pointed out, that the promise or representation must be "clear or unequivocal, or precise and unambiguous".

What was then the promise or representation made by the Co-Administrators to Hashimoto?

There is no direct submission on this point. The only indication given in paragraph 8.4 of the Respondent's submissions and para. 2.2 of their submissions in reply, again, is that this was to be inferred from the conduct of the parties. I have already dealt with this issue in detail and therefore do not need to repeat the reasons and conclusion reached.

Sufficient to point out, that whatever promise or representation sought to be relied upon, is too vague and imprecise, and secondly, the evidence as adduced and already discussed, do not support the application and operation of that equitable doctrine. The submissions on the issue of estoppel therefore must also be dismissed. Finally, the submissions on 'waiver' "Chitty on Contracts" (ibid) at paragraph 1704, highlights the similarity between 'waiver' and 'estoppel':

"Both waiver and estoppel would appear to require that the party seeking to rely on it (i.e. the party in default) must show a clear and unequivocal representations by words or conduct, by the other party that he will not exercise his strict legal right to treat the contract as repudiated and that he has himself acted in reliance on that representation, if not to his detriment at least in manner which would render it inequitable for the other party now to exercise that right'.

Also see the discussions of the subject in 'Anson's Law of Contract' (ibid) at pages 488-492. 'Black's Law Dictionary' Sixth Edition, defined it as ‘Waiver’ as:

'The intentional or voluntary relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right, or when one dispenses with the performance of something he is entitled to exact or when one in possession of any right, whether conferred by law or by contract, with full knowledge of the material facts, does or forbears to do something the doing of which or the failure of forbearance to do which is inconsistent with the right, or his intention to rely upon it.'

From the evidence adduced before this Court, can it be inferred from the conduct of the parties (Hashimoto, Hayward and the Co-Administrators) that there has been a relinquishment of the rights of the Co-Administrators to the shares, or a forbearance to take action against Hashimoto and Hayward from completing the sale of the shares under the Kayuken Agreement?

Much has been said about the conduct of the parties, and whether any inferences can be drawn from that. The reasons and conclusions given earlier on, are equally applicable here, and therefore it is not necessary to repeat them. The evidence as adduced clearly showed in my view that there was no voluntary or intentional relinquishment of the Administrators rights to the shares of Sunny Tong (deceased), or that by their conduct they have relinquished such right. If there was any such inference, it would have been disposed off by the express terms of the Deed of Discharge. Equally, I am not satisfied that there had been forbearance on the part of the Administrators to do that which was inconsistent with their rights. The evidence adduced showed clearly, that from the moment they became aware of the purported dealings in Sunny Tong’s shares and purported transfers thereafter, in November of 1992, they consistently maintained and asserted their rights to those shares and any possible claims that they might have against Hashimoto and Hayward.

I am not satisfied that the defence of waiver had also been made out.

Taking all the above factors into account I am not satisfied that the submissions against the exercise of the discretion in favour of rectification have been made out.

Accordingly I am satisfied that the orders sought for in the originating summons filed on the 26th of August, 1993, in civil case 301 of 1993 should be granted, and I do make those orders, with the exception of the question of costs which is to be addressed at the end of this judgment.

FRAUD ACTION IN CIVIL CASE 119/93

There are three main issues for determination before this Court as follows:

(i)	fraudulent misrepresentation;
(ii)	fraudulent concealment; and
(iii)	breach of fiduciary duties.

The first and second issues relate primarily to the events of a meeting held on the 25th of March 1991, between Emery and Sullivan of the one part, and Hashimoto and Hayward of the other part. The third issue relates more to the terms of an agreement of sale between Taisol Investment Corporation (SI) Ltd (“Taisol”) and Waibona Sawmilling and Logging Company Ltd (“Waibona”), and Toshio Hashimoto, executed on the 19th of February, 1991.

Emery and Sullivan are the Co-Administrators in the Estate of Sunny Tong (deceased), and by virtue of this Court’s ruling in Civil case 301 of 1993, they own 20% of the shares in Taisol, in their capacity as Administrators of Sunny Tong’s (deceased) Estate.

Taisol is one of the many logging companies operating in Solomon Islands. It operates an account with the Westpac Banking Corporation, which had an overdraft limit of SBD245,000.00. This was secured by a registered equitable mortgage in favour of the bank over inter alia, all the property and assets of Taisol (exhibit A20), and a personal guarantee executed by Sunny Tong in favour of the bank, of up to SBD210,000.00 (exhibit A21). As at the date of their appointment, on the 22nd of February, 1991, this guarantee was one of the potential liabilities to the Estate. The Administrators naturally were concerned to have this potential liability extinguished as soon as possible.

By the 25th of February, 1991, the Taisol account at Westpac had exceeded its overdraft limit to SBD286,000.00, and was subsequently closed.

On or about the 27th of February, 1991, Allan Taylor met with Hashimoto. Exhibit “A27” is Taylor’s diary note of that meeting. Taylor’s concern primarily was to have Taisol’s debt liquidated. One of the matters discussed in that meeting was the proposed sale of Taisol’s logging equipment to Waibona. However, in order for that sale to be effected, Westpac’s consent to release its equitable mortgage needed to be obtained. In turn, as a requirement to effect that release, Taylor requested that the Administrator’s be made aware of the proposed sale, and that their consent be obtained in writing. There were two reasons why this request was made. First, because of their interest as owners of 20% of the shares in Taisol as the personal representatives of Sunny Tong (deceased), and secondly, because of the guarantee made by Sunny Tong.

A meeting accordingly was arranged by Hashimoto with the Administrators, for the 25th of March, 1991. It is the contents of that meeting, that is what was said and not said, that forms the core issue in this dispute.

The Classic statement of Law on the definition of fraudulent misrepresentation is as set out in the case of Derry v. Peek (1889) 14 App. Cas. 337. In the judgment of Lord Herschell at page 374, he sets out three requirements in which fraud may be established:

“fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”.

Applying this classic definition to the facts of this case, the first question that can be asked is, what are the false representations claimed to have been made by the Defendants in that meeting of the 25th March 1991? Emery and Sullivan say at paragraph 12(a) & (b) of their Statement of Claim that Hashimoto and Hayward stated that

“(a) upon the receipt of the consideration from Waibona, those funds would be applied to extinguish Taisol’s indebtedness to Westpac (the consideration from Waibona is the purchase price of the logging equipment), and (b) the proposed sale of equipment to Waibona was an arm’s length transaction..”

The Administrators relied substantially on their own evidence in Court plus on the evidence of Alan Taylor. They also relied on the terms of the Waibona Agreement executed on the 19th of February, 1991, which they contended, showed clearly that the proceeds were to be used otherwise than to settle the Company’s debt with Westpac.

Allan Taylor’s evidence is important, even though it related to a meeting held previously between him and Hashimoto on the 27th of February, 1991, in that what was discussed in that meeting was supposed to be the same as what was also discussed in the meeting of the 25th March, 1991.

The first matter to deal with therefore is to determine what was said between Allan Taylor and Hashimoto in that meeting of the 27th February, 1991.

Evidence of Allan Taylor:

In his evidence under Oath, Allan Taylor stated that he was informed for the first time at that meeting, of Hashimoto’s intention to sell Taisol’s logging equipment to Waibona. He stated that his main concern at that meeting was to see how Taisol’s debt could be liquidated. So when he was asked by Hashimoto to release the equitable mortgage over Taisol’s assets, he pointed out that he would agree to that only if the proceeds would go towards paying off Westpac’s debt. At page 2 of his diary notes, third sentence, he recorded the following:

“Clearance of Taisol debts to clear from sale”. (Exhibit A27).

Under cross-examination, he was asked about the use of the word “Taisol debts”. It was put to him by Mr. Molloy that that reference meant debts of Taisol in general. His answer however was very clear; that what was discussed at that meeting related to the Company’s debts with the bank.

Hashimoto’s evidence in contrast is conflicting. On one hand, he conceded that the diary notes of Allan Taylor of that meeting were accurate, but on the other hand, what he said contradicted what was recorded in those notes.

For instance, he denied initially, every saying that the Waibona proceeds would be committed to the repayment of the Company’s debts with the bank, but under cross-examination concedes that it is possible that he may have said so.

He also initially said (which was denied by Allan Taylor) that he did give a copy of the Waibona Agreement to the bank, but then added that he couldn’t be sure if it was on the 27th of February, 1991, or at an earlier date, or later. He also said that he couldn’t be sure if it was given to Allan Taylor or to Wayne Thomas (another officer of the bank).

Allan Tahylor’s diary note in contrast, showed at page two, last paragraph, that it was most unlikely that a copy of the Waibona Agreement had been presented to Allan Taylor in that meeting. Under the sub-heading ‘DECISION’, the following, inter alia was noted:

“Agreed to release EMA subject to:-

- 	Receipt of Waibona proceeds
-	Evidence of intent to sell Taisol 
(this will be superficial as no documents have been signed)”.

The above-mentioned paragraph in my view can only be logically construed, and this is firmly supported by the oral evidence of Allan Taylor, as showing that no details of the Waibona Agreement was disclosed to Allan Taylor in that meeting of the 27th February, 1991, despite the fact that the contents of that meeting revolved around the subject of the sale of Taisol’s logging equipment to Waibona.

With respect to Hashimoto’s evidence, I find them to be vague and uncertain, and evasive. Allan Taylor’s evidence on the other hand is clear and precise.

Also, I am more inclined to accept Allan Taylor’s evidence and version as to what took place in that meeting as more accurate, on the basis that they stand to reason. Allan Taylor was the Manager of Westpac Bank at that time. His primary concern therefore would be the liquidation of Taisol’s debt with the Bank. Taisol’s debts with other creditors obviously would be of little significance to him. His concern naturally would be to ensure that the sale proceeds would first be applied to the payment of Taisol’s debt with the bank.

In weighing Hashimoto’s evidence as against Allan Taylor’s, I prefer Allan Taylor’s evidence for the reasons given above.

I am satisfied that in the meeting of the 27th February, 1991, Hashimoto told Taylor that the Waibona proceeds would be used to pay off Taisol’s debts with Westpac. I am also satisfied that the Waibona agreement was not disclosed to Allan Taylor. I am satisfied too that Taylor was aware of the Administrators concern over Sunny Tong’s guarantee to the bank and that they held 20% of the shares in Taisol, for and on behalf of Sunny Tong’s (deceased) Estate. Taylor was also not aware in that meeting, about any transfers that had been done to Sunny Tong’s shares.

The next matter to consider is to determine what was actually said or represented in that meeting of the 25th March, 1991 between Hashimoto and Hayward, and Sullivan and Emery.

Sullivan and Emery’s version of that meeting on the 25th March, 1991, was that they had been called by Hashimoto and told that Westpac Banking Corporation needed their consent for the release of the bank’s charge over Taisol’s logging equipment so that a sale of Taisol’s logging equipment could be made. Sullivan’s reply was to spell out in full to Hashimoto what their concern was over the Estate’s liability to the bank, by virtue of the bank guarantee. He pointed out that for any consent to be given, would be dependent on the condition that the proceeds of sale of those logging equipment, be first applied to Taisol’s debt with the bank. In response to this, Sullivan said that Hashimoto acknowledged that Westpac Banking Corporation needed to be paid. Sullivan also stated that when he asked Hashimoto specifically about the proceeds of sale, he replied that it would be used to pay Westpac Banking Corporation and other Trade Creditors.

Sullivan pointed out as well that he was not aware of the Waibona Agreement at that time. Under cross-examination, he conceded that there was an agreement for sale, but was not shown a copy of any agreement. He did not see any agreement and does not remember asking for one. He stated that he had no reason to doubt the truth of what he was told. In other words, he trusted Hashimoto, and what he had been told. Sullivan says that had he been shown a copy of the Waibona Agreement, it would have been inconceivable for him to consent to the release of the charge.

Under pressing cross-examination from Mr Molloy, Sullvian remained firm and unshaken as to what he told Hashimoto.

Emery’s evidence about what transpired in that meeting is similar to Sullivan’s. He stated that the reason for giving his consent was that he was told by Hashimoto that the proceeds of sale would go towards repayment of the Company’s debt with the bank. He reiterated what Sullivan said, that their concern as administrator’s was to have the Estate’s liability to the bank in respect of the bank guarantee extinguished. Under cross-examination, Emery remained firm that the basis for the consent was that the proceeds would go to settle the bank debt, and that the letter of the 25/3/91 to the bank, as amended, (Exhibit A42) was couched in those terms.

In support of this, is also Allan Taylor’s evidence as to the addition made to that letter of the 25th March, 1991, (Exhibit A42) at his request. His evidence is clear and unequivocal. He stated that the additions were requested by him to reflect the bank’s concern that the proceeds be used to repay the Company’s obligations to the bank.

Hashimoto’s version of what transpired in that meeting in contrast, is slightly different. He says that he requested two consents from the Administrators in that meeting; one was for the sale of the Tavioa Ridge House and the other for the logging equipment. He said that he told the Administrators that the sale of the logging equipment was to Waibona for $1.8m over a term of 2 years with an interest rate of 12% on the reducing balance. He denied saying that the proceeds will go to reduce the contingent liability to Westpac Banking Corporation.

He also says that the Administrators did not impose any condition. All that he said was that the proceeds will reduce the debt of the Company. His concern, he says, was to repay the Bank of Tokyo for advances that his company, Van Yu Trading Company Ltd had obtained in favour of Taisol in anticipation of log shipments. The Westpac debt in turn was to be repaid from the Tavioa Ridge House.

Under cross-examination, he denied that Sullivan had said that the Estate had a liability to Westpac Banking Corporation and that the Administrators could only consent if proceeds would go to extinguish the Westpac debt. When asked if he ever used the word “Westpac Banking Corporation” during that meeting, he said no. Later, he said at least once, when he mentioned the consent required by the bank. When asked if he was aware that the bank was a secured creditor and that secured creditors were paid first, he said, yes. When asked if John Sullivan knew about that fact, he said yes because the Administrators had approached the bank about that guarantee prior to that meeting. When it was put to him that J. Sullivan would have mentioned that fact in the meeting, he replied no.

It was also put to him at the same time that Allan Taylor did tell him that the proceeds of Waibona would go to clear the Westpac debt. His answer was that, that would be done if there was any balance left over. It was again put to him that Westpac Banking Corporation was first in line and that John Sullivan would have said so in the meeting. It was at this point that Hashimoto raised the issue about the proceeds of the Tavioa Ridge House having already been committed to pay off that debt. 

Mr Brandis then referred Hashimoto to Exhibit “A62”, being his answers, to a request for further and better particulars by the Plaintiffs at paragraph 6(b)(iii). Mr Brandis pointed out to Hashimoto that no mention was made in his answers about having mentioned the sale of the Tavioa Ridge House to the Administrators in that meeting. Hashimoto then said yes but argued that they knew about the sale of the Tavioa Ridge House for the sum of $260,000.00 anyway, and that it would go to pay the debts of Taisol with the bank. He then pointed out that he did not say this to the Administrators in that meeting, but some time before. When it was put to him that the Administrators had never discussed that subject prior to the 25/3/91, he said that he did not know. It was then put to him that in June of 1991, some three months after, he had left a message for John Sullivan about the sale of that house. He then replied that he was confused. The question was then put to him again that on or before the 25th of March, 1991, he had never spoken to the Administrators about the sale of the Tavioa Ridge House to the Administrators. His answer was: “Maybe I did not”. Later on, he conceded that may be his recollection was not perfect.

I have considered the evidence of Hashimoto very carefully, but found them to be uncertain and evasive. He has been shaken in cross-examination and his answers and explanations at certain crucial parts of his evidence do not correspond. I am not satisfied that he was telling all the truth about what was discussed in that meeting. When it suited him, he would answer in a certain way, but when things got tough, he would either plead ignorance, uncertainty, or lack of clarity in recall.

I find on the other hand the evidence of John Sullivan, Robert Victor Emery and Allan Taylor clear and concise. They were unshaken in cross-examination, gave clear explanations and reasons when answering questions, and were sure and confident about what they had said in the meetings with Hashimoto. I accept their versions of what was said in those meetings.

The second part of the alleged misrepresentation claim relates to the assertion by the Administrators that they were told by Hashimoto that the proposed sale of the logging equipment to Waibona was an arm’s length transaction.

Sullivan’s evidence on this was that, he had asked Hashimoto if it was an arms length sale, i.e. a sale to an independent Company. Hashimoto’s answer was, yes.

Under cross-examination, Sullivan repeated that Hashimoto told him that the sale was at arms length.

Hashimoto’s evidence on the other hand was that he was asked if it was a fair deal, on which he replied that it was a straight deal. He stated that he did not understand what was meant by the word “arms length”. He pointed out that as far as he was concerned, it was an agreement in the interest of Taisol.

I have considered the evidence of Sullivan and Hashimoto carefully as to the use of the term “an arms length sale” and whether there has been a false representation on the part of Hashimoto. The evidence adduced on behalf of the Plaintiffs on this point however, has not been convincing. It is very probable that Hashimoto was indeed mistaken about the use of the terms “arms length” or “fair deal” and therefore did not fully comprehend what was actually intended to be conveyed by John Sullivan in the use of those terms. I am not satisfied to the required standard that Hashimoto had represented to Sullivan and Emery that the sale was at “arms length”.

Having so determined the issues of evidence, we turn again to the questions of law, whether the alleged misrepresentation amounted to fraudulent misrepresentation. On this point, the first question to consider is, whether the statement by Hashimoto that “upon the receipt of the consideration from Waibona, those funds would be applied to extinguish Taisol’s indebtedness to Westpac”, a false representation? But before that question could be considered, we would need to decide first of all, whether a “representation” had indeed been made in the legal sense.

The learned author in “Chitty on Contracts General Principles” No. 1. 26th Edition at paragraph 14, gave the following definition:

“The traditional rule is that a representation must be a statement of fact, past or present, as distinct from a statement of opinion, or of intention, or of law. A mere statement of opinion, which proves to have been unfounded, will not be treated as misrepresentation, nor will a simple statement of intention which is not put into effect, for as a general rule these cannot be regarded as representations of fact, except in so far as they show that the opinion or intention is held by the person expressing it. However, in certain circumstances a statement of opinion or of intention may be regarded as a statement of fact, and therefore as a ground for avoiding a contract if the statement is false. Thus, if it can be proved that the person who expressed the opinion did not hold it, or could not, as a reasonable man having his knowledge of the facts, honestly have held it, the statement may be regarded as a statement of fact”.

The representation made by Hashimoto, at first glance could be interpreted as a statement of intention; “upon receipt of the consideration ... those funds would be applied to extinguish Taisol’s indebtedness to Westpac”. However, when considered in the light of the Waibona agreement, the above statement becomes capable of being regarded in my view as a statement of fact. It is pertinent therefore at this point to consider the question of whether that statement was false, because if it was false, then it follows that Hashimoto could not as a reasonable man, having knowledge of the terms of the Waibona Agreement, honestly have been serious, genuine or truthful about that statement of intention, and vice versa.

In order to answer the question just posed, the relevant terms of the Waibona Agreement would need to must first be analysed in some detail.

First, it is not in dispute that the Waibona Agreement was executed on the 19th of February, 1991, some five weeks prior to that meeting of the 25/3/91. This is the first crucial factor. The second crucial factor relates to the parties; who were Taisol, Waibona and Hashimoto.

The relevant clauses are Clause 4 and 8. Clause 4 reads:

“The consideration will be repaid within two years and interest of 12% P.A. to be charged on the reducing balance”.

And Clause 8:

“Taisol and Hashimoto agree that the said consideration owed by Waibona to Taisol, consequent to Waibona purchasing the said equipment, shall be assigned by Taisol to Hashimoto. In consideration of this assignment, Hashimoto agrees that an amount equal to the said consideration shall be debited to his shareholder loan account with Taisol and shall be deemed to be a partial repayment of the amount owing by Taisol to Hashimoto.”

The Administrators argue that the effect of Clause 4 and 8 as read together, are inconsistent with and contrary to what was “represented” in that meeting of the 25/3/91. In that respect, they say it was false.

The crucial term in my view is contained in Clause 8, which states:

“Taisol and Hashimoto agree that the said consideration owed by Waibona to Taisol, consequent to Waibona purchasing the said equipment, shall be assigned by Taisol to Hashimoto. In consideration of this assignment, Hashimoto agrees that an amount equal to the said consideration shall be debited to his shareholder loan account with Taisol and shall be deemed to be a partial repayment of the amount owing by Taisol to Hashimoto”.

The Administrators say that the clear effect of Clause 8 would be to have Taisol divested of the sale proceeds in favour of Hashimoto.

One of the arguments raised in defence is that Clause 8 is not inconsistent with what Hashimoto had represented to the administrators on the 25th of March, 1991. Mr Molloy submits that the fact that Clause 8 states that there would be an assignment of the consideration does not necessarily mean that Hashimoto would not arrange to ahve Taisol’s debt with Westpac paid off.

He submits that what Hashimoto represented to the Administrators on the 25th of March, 1991 is not necessarily inconsistent with what Clause 8 says. On being assigned the consideration, Hashimoto could easily have arranged to have Taisol’s debt with Westpac paid off first, despite the absence of any express term to that effect. In any event, the key element of dishonest intent he says is missing.

To a certain extent, Mr Molloy’s submissions do have substance. Unfortunately, it places too much emphasis on the subjective mind and personality of Hashimoto. In the absence of an express term in the Waibona Agreement, as to the payment of the Westpac debt, it is my view that the representation made by Hashimoto on the 25th of March, 1991 is capable of being construed as false.

That falsity is made more acute by the express term in the latter half of Clause 8, which states:

“...... that an amount equal to the said consideration shall be debited to his Hashimoto) shareholder loan account with Taisol and shall be deemed to be a partial repayment of the amount owing by Taisol to Hashimoto”.

The above term in my view would clinch the payment of the consideration in favour of Hashimoto as against any other creditors. It would leave little room for Hashimoto’s representation of the 25th March, 1991 to be accommodated.

By the terms of Clause 8, Taisol’s link and control over the consideration would have been completely severed, and there would have no guarantee whatsoever that what Hasimoto represented on the 25th March, 1991 would have been honoured.

Further, Clause 13 of the Waibona Agreement expressly provided that:

“This Agreement shall not be modified, altered, supplemented or amended in any way nor will any covenant or default be waived except as may be agreed by the parties in writing”.

There has been no evidence of any agreement in writing between the parties, to amend, modify, alter or supplement, the Waibona Agreement in the terms of the representation made to the Administrators on the 25th of March, 1991.

It is my view therefore that the statement of intention, made on the 25th of March, 1991, was false, and thereby capable of amounting to a statement of fact for purposes of establishing, whether or not there had been fraudulent misrepresentation.

On the question of dishonest intent, the standard to be applied is whether Hashimoto could not as a reasonable man having his knowledge of the facts, honestly have held that statement of intention made on the 25th of March, 1991.

If the terms of the Waibona Agreement are brought to focus, in particular Clauses 4 and 8, and contrast them with Hashimoto’s representation, it is a bit difficult to accept that a reasonable man in the shoes of Hashimoto would have held such statement of intention in all honesty and sincerity. Hashimoto’s interest and primary concern as expressly stated by him in court, is to have his shareholder’s loan account and debts, owed by Taisol, paid off as soon as possible. To that extent there is clearly a conflict of interest as between himself (being one of the parties in the agreement), Taisol and Waibona. In those circumstances, it is plainly improper and unfair to say that, despite the terms of the Waibona Agreement, Hashimoto nevertheless did honestly believed in what he had said to the Administrators. If he had honestly believed in what he had represented, then one would have expected a full and frank disclosure of the terms of the Waibona agreement and an explanation provided to clarify the conflicting terms in Clause 4 and 8.

Under Clauses 4 and 8, Hashimoto knew that the consideration from Waibona would be assigned to him and to be applied to his shareholder loan account. It therefore could not and would not be applied to the Westpac debt despite what he had said to the administrators. Further, as earlier indicated, there was no evidence of any agreement in writing under Clause 13 in the terms of that representation. It is therefore not reasonable in the circumstances that Hashimoto would have honestly held that statement of intention. I am satisfied accordingly, that in those circumstances there was a statement of fact and that it amounted to a false representation.

This then lead to the next crucial question; whether that false representation was made knowingly?

In order to answer this question properly, we would need to consider Hashimoto’s position in some detail.

First, Hashimoto was not only the majority shareholder in both Taisol and Waibona, but also a director in both companies. This must mean that he was the controlling mind in both companies.

Secondly, the Waibona Agreement was made not only between Taisol and Waibona, but also with Hashimoto in his personal capacity. It would not be too difficult therefore to appreciate that Hashimoto would have had a great deal of interest in the way that Agreement had been drawn up. That would also mean that his interest in the finished product would not in anyway be lessened. It follows therefore that Hashimoto must have been fully aware and conversant with all the terms of the Waibona agreement and their effects. How could it be otherwise, when he stood to gain most of all from that Waibona Agreement?

Further, it is important to note that no evidence has been adduced to say that the terms of the Waibona Agreement did not reflect correctly and accurately, the wishes and intentions of the parties, or that it had been entered into by mistake.

Mr Molloy on the other hand submits, that there was no dishonest intent on the part of the defendants. he says that the defendants honestly believed that they were the owners of all the shares in Taisol and that therefore their actions were not done with any intention to mislead Sullivan and Emery.

But even if that is so, I am not satisfied that that is easily reconcilable with the fact that the terms of the Waibona Agreement are inconsistent with Hashimoto’s representation on the 25th of March, 1991. It is my firm view that Hashimoto knew that he was making a false representation to the Administrators in that meeting.

But if not, then the other requirement would need to be considered; whether that false representation was made “recklessly, careless whether it be true or false”, or “without belief in its truth”.

On this point, Hashimoto knew that Taisol had a debt with Westpac. He also knew that Westpac held a registered equitable mortgage over the assets of Taisol, and that thereby Westpac was a secured creditor. He also acknowledged in his evidence under oath that secured creditors get paid first. He knew from his meeting with Allan Taylor on the 27th of February, 1991, that he had to get a consent in writing from the administrators before the bank would release its charge. He knew that by virtue of the Waibona agreement, in particular Clauses 4 and 8, consideration from Waibona would be assigned to Hashimoto and that the payments could be delayed by as much as 2 years. Despite all this knowledge and understanding, he falsely represented that upon receipt of the consideration, it would be applied to extinguish Taisol’s debt with Westpac. That, if not done knowingly, in my view was done recklessly, careless whether it be true or false. Had he not been reckless about what he had said, he would also have provided a full and frank disclosure of the terms of the Waibona Agreement, with added explanations on the contradictory terms. I am not satisfied that the omission to disclose the terms of the Waibona agreement was a mere oversight. The references to the sale of the logging equipment to Waibona for $1.8 million (S.I.), would have been sufficient to jog the memory of any reasonable man about the existence of the Waibona Agreement.

I am satisfied that the claim of fraudulent misrepresentation had been established to the required standard.

This brings me to consider the next issue, that of fraudulent concealment. The Administrators allege that there was concealment of the following matters:

(a)	the existence of the Waibona Agreement; and
(b)	the terms of the Waibona Agreement.

They argue, that Hashimoto and Hayward knew that the consideration payable under the Waibona Agreement would be assigned to Hashimoto and not to Westpac. By concealing the existence and terms of the Waibona Agreement, they allege that it amounted to fraud.

The decisions of the house of Lords in two cases, Oakes -v- Turquand (1867) LR 2 HL 325, and Peek -v- Gurney (1873) LR 6 HL 377, were relied on by the Plaintiffs. In the former, Lord Chelmsford L.C. said at page 342-3:

“It is said that everything which is stated in the prospectus is literally true, and so it is. But the objection to it is, not that it does not state the truth as far as it goes, but that it conceals most material facts with which the public ought to have been made acquainted, the very concealment of which gives to the truth which is told the character of falsehood”.

And in the latter, Lord Cairns said at page 403:

“Mere non-disclosure of material facts, however morally censurable ....... would in my opinion form no ground for an action in the nature of an action for misrepresentation. There must in my opinion, be some act of misstatement of facts, or all events, such a partial and fragmentary statement of fact as that the withholding of that which is not stated makes that which is stated absolutely false”.

Also Cheshire and Fifoot’s “Law of Contract” (11th English Edition: 1986) was relied on, at page 261-2:

“Silence upon some of the relevant factors may obviously distort a positive assertion. A party to a contract may be legally justified in remaining silent about some material fact, but if he ventures to make a representation upon the matter it must be a full and frank statement, and not such a partial and fragmentary account that what is withheld makes that which is said absolutely false. A half truth may be in fact false because of what it leaves unsaid, and, although what a man actually says may be true in every detail, he is guilty of misrepresentation unless he tells the whole truth”.

Has there been a misstatement of facts or such a partial and fragmentary statement of fact? Hashimoto represented to the Administrators the following:

(i)	that Taisol would sell its logging equipment to Waibona;
(ii)	that the purchase price would be around $1.8 million;
(iii)	that the consideration from Waibona would be used to pay Taisol’s debt with Westpac and other financial creditors.

What was not revealed was the existence of the Waibona Agreement and its terms. Had the Waibona Agreement been disclosed in toto, it would have made the representation in paragraph (iii) above absolutely false; if not, partially false.

The Administrators were of the view that the consideration would be paid as soon as possible, but not as long as 2 years.

As soon as it was paid, they expected that the Westpac debt would also be cleared straight-away. Had the above fact been disclosed, they said that they would not have consented to the release of the mortgage.

I am satisfied that in this particular case, there has not been mere silence, but rather a representation as to what will be done with the consideration from Waibona. There has been therefore a clear misstatement of fact by Hashimoto that the consideration will be applied in a certain way. And yet, he had not disclosed fully and frankly the existence of the Waibona Agreement and its terms. Had he done so, it would have made what he had stated, absolutely false.

I am satisfied, in those circumstances, that the claim of fraudulent concealment had also been established.

The third crucial issue raised in this raised relates to the equitable duty of disclosure of fiduciaries. This has been raised in conjunction with Hashimoto and Hayward’s relationship to Taisol as directors. The Administrators claim that as Hashimoto and Hayward were directors of Taisol, that they occupied a position to which fiduciary duties attached; and in dealing with the Administrators for the purpose of securing their consent to a course of action proposed on behalf of Taisol, their conduct was governed by those fiduciary duties.

The first question to consider under this subject is, to whom those fiduciary duties are owed? Most texts and case authorities on this subject are unanimously agreed that the fiduciary duties of directors are owed to the Company and to the Company alone (see “Principles of Company Law” 5th Edition, Haj Ford at paragraph 1503; “Gower’s Principles of Modern Company Law” 4th Edition, L.C.B. Gower at page 573; Halsbury’s Laws of England, 4th Edition Vol.7(1), para. 612, “Introduction to Company Law”, 9th Edition, J.F. Northey, page 178).

However, it is also recognised in some of those texts that a fiduciary relationship may exist as between directors and shareholders. In “Gower’s Principles of Modern Company Law” supra. at page 573, the learned author stated:

“Here it suffices to emphasise that, in general, the directors owe no duties to individual members as such ......

This, however, does not mean that directors can never stand in a fiduciary relationship to the members; they well may if they are authorised by the latter to negotiate on their behalf with, for example, a potential take-over bidder. But far less than the establishment of an agency relationship may suffice, particularly, as a recent important New Zealand decision illustrates (Coleman v. Myers [1977] 2 N.Z.L.R. 225) in the case of a family company, ‘depending upon all the surrounding circumstances and the nature of the responsibility which in a real and practical sense the director has assumed towards the shareholder”.

Does Hashimoto and Hayward owe a fiduciary relationship to the Administrators, qua Taisol’s shareholders? In so far as the question whether Hashimoto and Hayward were authorised by the Administrators to negotiate for the sale of Taisol’s logging equipment is concerned, the answer in my view would be, NO.

The question however, as to the nature of the responsibility which the directors may have assumed, towards the shareholder in a real and practical sense is not so clear-cut.

What is the nature of the responsibility which Hashimoto and Hayward had assumed (if any) towards the Administrators? First, I think they were in a position of trust and confidence. There is evidence to show that the Administrators relied on Hashimoto and Hayward for information and advice, as well as relying on what was being said as correct and true. Hashimoto and Hayward therefore were in a position of a confidential relationship towards the Administrators in seeking to obtain their consent for the release of the equitable mortgage over Taisol’s assets.

The submission raised that they had acted innocently under the honest belief that they held all the shares in Taisol cannot be sustained in view of the way I had already ruled in the application in Civil Case 301/93. The directors could not be excused from their duties as imposed by law. The fact that they may have been mistaken and misled by the “advice” of Wayne Morris of Coopers and Lybrand did not exculpate them from finding out for themselves what the law was as to the administration of deceased’s estates intestate. One would have expected them in those circumstances to seek legal advice, rather than seeking the advice of an Accountant, who may or may not have known what the law was in those circumstances. The old adage “ignorance of the law is no defence” is as much applicable here.

The statements of Lord Parmoor in the Privy Council case of Demerara Bauxite Co -v- Hubbard [1923] AC 673, at 681-682 as cited by the Plaintiffs is also directly applicable to the circumstances of this case:

The principle has long been established that, in the absence of competent independent advice, a transaction of the character involved in this appeal, between persons in the relationship of Solicitor and client, or in a confidential relationship of similar character, cannot be upheld, unless the person claiming to enforce the contract can prove, affirmatively, that the person standing in such a confidential position has disclosed, without reservation, all the information in his possession, and can further show that the transaction was, in itself, a fair one, having regard to all the circumstances”.

In the circumstances of this case, there is evidence of a fiduciary duty owed towards the Administrators qua Taisol’s shareholders. But even if it should be found otherwise, it is clear law, that the directors of a company owe a fiduciary duty towards the Company. In that capacity, there is a clear duty to a frank and full disclosure owed to the Company, where the Company is about to enter into a transaction which may involve a conflict of interest with the duties of the directors.

The conflict of interest, claimed by the Administrators relates to the signing of the Waibona Agreement in which Hashimoto, is not only the majority shareholder in Taisol and Waibona but also the beneficiary of the consideration under the Waibona Agreement. In those circumstances it was crucial that full disclosure should have been made to the Company (i.e. shareholders of Taisol).

A number of case authorities have been cited in support of this claim, which is based on the equitable principle as succinctly described by the learned author in “Gower’s Principles of Modern Company Law” (supra) at page 583:

"As fiduciaries, directors must not place themselves in a position in which there is a conflict between their duties to the company and their personal interests. Good faith must not only be done but must manifestly be seen to be done, and the law will not allow a fiduciary to place himself in a situation in which his judgment is likely to be biased and then to escape liability by denying that in fact it was biased”.

That equitable principle can be traced back to the early statement of Lord Cranworth L.C. in Aberdeen Railway Co. v. Blaikie Bros. (1854) 1 Macg. 461 in which his lordship said:

“A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.

So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into ......”

The leading English case is Regal (Hastings) v. Gulliver [1942], reported as a note in [1967] 2 AC 134 at page 137, per judgment of Viscount Sankey:

The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect”.

The learned Author in “Gower’s Principles of Modern Company Law” (supra) also made the following comments in respect of that equitable principle:

“Later cases have added little to the general principle thus enunciated. It applies not only to contracts directly with the directors but also to those in which they are in any way interested, whether because they benefit personally however indirectly, or because they are subject to a conflicting duty”.

In those circumstances where there is a conflict of interest and duty, the law imposes a duty on the directors to make a full and frank disclosure to all the members of the Company.

In “Gower’s Principles of Modern Company Law” (supra.), at page 585, the learned Author also stated:

“Disclosure to themselves (directors) is ineffective even if the interested directors refrain from attending and voting leaving an independent quorum to decide, for the Company has a right to the unbiased voice and advice of every director. Hence, in the absence of express provision in the company’s articles, the only effective step is to make full disclosure to the members of the company and to have the contract entered into or ratified by the company and to have the contract entered into or ratified by the company in general meeting”. (emphasis added).

Also in the text “Introduction to Company Law” (supra.), at page 179:

“The Courts have stated on numerous occasions that the directors occupy a fiduciary position and must, therefore exercise their powers in good faith and for the benefit of the company as a whole, e.g. the directors must disclose their interests in any property being purchased by the company......”.

I would add here that the duty of disclosure is not limited only to purchases by the company, but in pari materia should also include sales of the property of the company, in which a director may have an interest in.

In “Halsbury’s Laws of England” (supra), the learned author also stated:

“In order that the director may retain a profit which he has made on a contract with the company, it is not enough that he should reveal the existence of his interest without specifying exactly what it is. No ratification may take place in the absence of full disclosure, but if full disclosure is contained in the notice convening the meeting, the company may by ordinary resolution confirm the contract. It is unnecessary to hold a meeting if all the shareholders acquiesce”.

Has there been a full and frank disclosure by Hashimoto and Hayward to the shareholders of the company? The answer in my view must be NO. Hashimoto and Hayward were aware of the existence of the Waibona Agreement and its terms, but not the Administrators. There is also no evidence of a shareholder’s meeting having been called by the directors (i.e. Hashimoto and Hayward) to discuss the details of the Waibona Agreement. The minute book of the company (Taisol) contains no record of such a meeting.

Has there been a breach of fiduciary duty by Hashimoto and Hayward? The evidence adduced showed clearly that there has indeed been a breach.

The administrators were not aware of the existence of the Waibona agreement, nor its terms, and also were not aware of Hashimoto’s relationship to Waibona as one of its directors, as well as being the majority shareholder.

What are then the consequences of such a breach?

In Furs Limited v. Tomkies [1935-36] 54 CLR 583, a case also cited by the Plaintiffs, Rich, Dixon and Evatt JJ. said:

“In our opinion the decision of this appeal is governed by the inflexible rule that, except under the authority of a provision in the articles of association, no director shall obtain for himself a profit by means of a transaction in which he is concerned on behalf of the company unless all the material facts are disclosed to the shareholders and by resolution a general meeting approves of his doing so, or all the shareholders acquiesce. An undisclosed profit which a director so derives from the execution of his fiduciary duties belongs in equity to the company. It is no answer to the application of the rule that the profit is of a kind which the company could not itself have obtained, or that no loss is caused to the company by the gain of the director. It is a principle resting upon the impossibility of allowing the conflict of duty and interest which is involved in the pursuit of private advantage in the course of dealing in a fiduciary capacity with the affairs of the company” (emphasis added)..

In the leading English case earlier cited, Regal (Hastings) v. Gulliver (supra) per judgment of Lord Porter at page 158, he stated:

“The legal position may, I think, be broadly stated by saying that one occupying a position of trust must not make a profit which he can acquire only by use of his fiduciary position or, if he does, he must account for the profit so made”.

Per judgment of Lord Russell at page 144-145:

“The rule of equity which insist on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides, or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of profit from the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well intentioned, cannot escape the risk of being called upon to account”.

And per judgment of Lord McMillan at page 153:

We must take it that they entered into the transaction lawfully, in good faith and indeed avowedly in the interests of the company. However, that does not absolve them from accountability for any profit which they made, if it was by reason and in virtue of their fiduciary office as directors that they enter into the transaction”.

(See also Phipps v. Boardman [1967] 2 AC 46 per judgment of Lord Hodson at page 105, Queensland Mines Ltd v. Hudson [1978] 52 ALJR 399 (Privy Council) at page 400-401, Attorney General for Hong Kong v. Reid [1993] 3 WLR 1143 at page 1146, and also see the Australian cases referred to by the Plaintiffs: Hospital Products Limited v. United States surgical Corporation [1984] 156 CLR 441, and Chan v. Zacharia [1983-84] 154 CLR 178 at 199).

The case authorities cited above clearly establish the general principle of law that directors involved in such transactions where there is a conflict of interest and duty must account for profits gained.

In this particular case it is obvious that Hashimoto and Hayward must account for such profits as obtained from the Waibona Agreement. What was that profit (if any)?

In the submissions of Mr Molloy of Counsel for the Defendants, he pointed out however, in paragraph 5.2-5.5 of his affidavit that the claim for overpayment of moneys in breach of Hashimoto’s fiduciary duty as a director to Taisol had been abandoned. In other words, it meant that the Plaintiffs conceded that no consideration was paid or passed under the Waibona Agreement.

However, the Plaintiffs do not concede that no profits were received by Hashimoto as a consequence of the Waibona Agreement. Their main contention is that as a result of the Waibona Agreement, title to Taisol’s plant and equipment were transferred to Waibona. This they say increased Waibona’s value and in turn increased Hashimoto’s interest. Taisol’s logging equipment and plant however, they argue must be held in trust by Waibona for Taisol. The subsequent actions therefore of Hashimoto and Hayward via the sale of Taisol and Waibona’s shares and logging equipment and plant to Kayuken Pacific Limited, they say must be accounted for, including any profits obtained by Hashimoto.

I am satisfied that Hashimoto’s profit (if any) under the Kayuken agreement would be traceable and accountable to Taisol. The reason is obvious. But for the consent of the Administrators, Westpac Bank would not have released its charge over Taisol’s assets, and thus enabling the Waibona Agreement to be concluded. This paved the way for the ownership over Taisol’s plant and equipment to be transferred to Waibona, and which in turn was sold together with its shares to Kayuken Pacific Limited.

One of the defences raised against the claim of the Administrators is based on the submission that there is a discretion which the court has in deciding whether to grant the relief sought or not, bearing in mind that the reliefs sought are equitable in nature.

The first point raised in support of this submission is the claim that the plaintiffs suffered no loss. This will be addressed under the heading ‘remedy’. The second point raised is that the defendants did not obtain any profit.

The submissions of the Defendants on this point concentrated on the view that the shares of Taisol were worthless. Unfortunately, the evidence adduced against this view by the Plaintiffs did not support that view. In the letter of Jennifer C Corrin on behalf of Hashimoto, Sunny Tong, Taisol, and Waibona, dated the 28th January, 1991 (Exhibit A79), it was indicated that the value of 60% of Taisol was USD 690,000.

In another letter from Hashimoto to Ekky Budijono, dated 23 April 1992, (Exhibit A80), Taisol was offered for sale at a price of USD380,000.

Also in a letter from Hashimoto dated the 24th March 1992 to Shugo Noda & Co., Ltd. (Exhibit A81), Taisol was offered at a price of USD500,000.00.

Finally, the Kayuken Agreement would indicate that there was a value placed on Taisol’s shares. It would be important therefore to ascertain what the value of those shares were and in turn the total value attributable to Taisol under the Kayuken Agreement.

In paragraph A to the Recital, reference was made to Schedule 1 and Schedule 2 in which the various shares in Taisol and Waibona were listed together with their shareholdings and value. The total number of shares in Taisol was 250,000 at $1.00 per share. For Waibona, 40,000 shares at $1.00 per share as well. What is not shown under the Agreement was whether those shares were to be treated on an equal basis or differently, and if so, what their different values are under the Agreement.

Clause 1(b) of the Agreement states that the consideration for all those shares shall be USD100,000. With no clear indication as to the value to be attributed to those shares, it seems only logical and reasonable that all the shares should be treated on an equal basis.

The value of Taisol’s shares accordingly is as follows:

250,000 x USD100,00	= USD86,207
290,000

The next item of value that we know of which belonged to Taisol and which in my view can be ascertained with some accuracy, is the list of logging equipment which were transferred under the Waibona Agreement, plus a number of other equipment transferred at a later date.

In Schedule 3 to the Kayuken Agreement, items 1 to 21 appear to be exactly the same items of equipment listed in Appendix A to the Waibona Agreement. The value of all those equipment as recorded in the Waibona Agreement was SBD1,800,000. Under the Kayuken agreement, no separate valuation has been given of each of those items. No evidence too has been adduced apart from the submissions of Mr Molloy in paragraph 9.2.3. of the Defendant’s submissions that the plant and equipment had been substantially improved at the expense of Waibona. I also take note of the fact that the Kayuken Agreement was executed some 18 months after the Waibona Agreement, and that it is possible that the plant and equipment could have undergone improvements as submitted by Mr Molloy. Equally, it could also have suffered from depreciation and therefore the value reduced. In the absence of clear evidence either way, I am prepared to accept the value attributed to the value of the plant and equipment as given in the Waibona Agreement, as also applicable to the value of those same items under the Kayuken agreement.

Items 22, 23, & 24 in Schedule 3 of the Kayuken Agreement are valued respectively as, SBD35,000.00, 30,000.00, and 10,000.00 (see page 8 of the Minute Book of Waibona). The total value of the identifiable plant and equipment from Taisol therefore is SBD1,875,000.00 (i.e. 35,000 + 30,000 + 10,000 + 1,800,000). When converted to US Dollars at the exchange rate of 0.3382, this gives USD634,125.00. That part of the purchase price therefore, that would be directly attributable it seems to Taisol, would be USD720,332. (USD86,207 + USD634,125). From the oral evidence adduced in court and the documentary evidence made available, this would be about right.

Under the Kayuken agreement, the following sums of money were paid to Hashimoto:

CLAUSE IN KAYUKEN		AMOUNT		AMOUNT
AGREEMENT			SBD			USD

1(f)(i) 								 120,000.00
2(e)(i)								 100,000.00
2(e)(ii)					301,770.65		 98,618.65
 324,430.21
 680,000.00
1,323,048.86

The amounts of SBD301,770.65 and SBD1,070,020.50 were payments made to Hashimoto from the Retention Fund (see Exhibit B60 and A87 and the evidence of Wayne Morris and Hashimoto). Also the conversion rates applied were the rates as adopted by the Plaintiffs and adduced in evidence before this Court; that is, 0.3268 and 0.3032.

In order to calculate Hashimoto’s gross profit, other liabilities not included in the Kayuken Agreement would have to be deducted. What were those other liabilities that have been proven on evidence before this Court?

In the Statement of Defence, and Further and Better Particulars of Amended Defence and Counter-claim (Ex. A62), it was pleaded that Taisol owed Hashimoto, as per his shareholder loan account, SBD1,047,139; and Hashimoto’s Company, Van Yu Trading Limited; USD449,491. There are therefore two liabilities which should be deducted from the total amount received by Hashimoto.

As per the shareholder’s loan account, the figure pleaded is the same as the amount recorded in the 1990 Financial Statements of Taisol (see Exhibit B12). In the evidence adduced before this Court there is none which shows that the loan account had increased. Rather, the opposite is true.

There is evidence which showed that in June of 1992, Taisol’s property in parcel number 191-009-20 (known as the Tavioa Ridge house) was sold to Markwarth Shipping Company Limited for $240,000.00. The amount of $114,989.21 was paid to Westpac on 29.6.92, and the balance was supposed to be paid to Hashimoto (see Exhibit A39 p.41/1 entry for 29.6.92). Hashimoto therefore should have received on or about the 29.6.92, the amount of SBD125,010.79.

In cross-examination, Hashimoto conceded that the balance was paid to him. However, later on in cross-examination he stated that he could not recall to whom the proceeds were paid to.

Under re-examination, it was suggested that the balance may have gone to Integrated Forest Industries (SI) Limited, as Hashimoto alleges that they were the owner of the house, and that they had not been paid. However, there is clear evidence in the transfer instrument (Exhibit A95) at paragraph (1), in which it was expressly acknowledged that the Transferor, Integrated Forest Industries (SI) Ltd, had received from Taisol the sum of SBD150,000.00 for the consideration of that property.

Apart from Hashimoto’s claim, no evidence has been adduced to prove otherwise that that acknowledgment in the transfer instrument had not correctly recorded the transaction as between Integrated Forest Industries (SI) Ltd and Taisol. I am not satisfied accordingly that the balance was paid other than to Hashimoto.

Further, no evidence has been led as to why that payment was made to Hashimoto. That payment therefore should be off-set with the amount of money that was owing to Hashimoto in his shareholder’s loan account. This would bring the balance of the shareholder’s loan account to SBD922,129.00 (SBD1,047,139 - SBD125,010). At the conversion rate of 0.3382, it comes to USD311,864. This amount therefore should be deducted from the total amount of money received by Hashimoto under the Kayuken agreement.

The other amount accepted as owing to Hashimoto are the advances made to Taisol through Hashimoto’s company; Van Yu Trading Company Limited. In the Further and Better Particulars of Amended Defence and counterclaim (Exhibit A62), this was recorded as USD449,491. The amount shown in the Financial Statements (Exhibit B12), however, was SBD1,425,274.

Those advances were made by way of a documentary letter of credit from the issuing bank (in this case the Bank of Tokyo) at the request of Van Yu in favour of Taisol, as the recipient or the beneficiary. Taisol then draws on its bank (in this case the Westpac Bank/Hong Kong Shanghai Bank) an amount equal to that letter of credit. Westpac in turn draws on the Bank of Tokyo, who in turn debits Van Yu’s account and charges interest until repayment from the shipment of logs.

Under cross-examination, it was ascertained that only one red clause letter of credit could be linked with a corresponding debit to Van Yu’s bank account (see Exhibits 57 and 58). This was letter of credit no. 680LCM6Y26535, issued on 8.12.88 for USD100,000.00. The corresponding debit on 7.3.90 with accrued interest was USD114,507.28. The only amount therefore that has been verified on the evidence as owing to Van Yu is USD114,507.28.

Mr Brandis submits that the Court should accept only that amount as having been verified on the evidence before this Court. I have considered this submission carefully, however, the evidence against accepting that submission as conclusive, with respect is stronger.

Although the statements of The Bank of Tokyo Ltd as filed under Exhibit B58 do not correspond with the majority of the red clause letters of credit shown in Exhibit B57, the evidence is fairly clear that as late as April of 1992, Van Yu Trading was being charged with interest on advances issued between 1988 and 1990 and together with the principals amounting to some USD571,035.18. This figure is consistent with the amounts recorded in the 1990 Financial Statements of some SBD1,425,274; which when converted to US Dollars at 0.3382 comes to USD482,027. It is also consistent with the amount listed in the List of Creditors (Exhibit A88), dated September 1992, in which it is shown that the red clause letters of credit were valued at SBD1,044,949.15, together with a separate entry for Van Yu Trading at SBD298,892.73. At the conversion rate of 0.3382, the total amount owing to Van Yu Trading Ltd would be USD454,487.

Comparing all the above figures together with the pleaded debt of USD449,401, it is my view that the figure which best shows the correct amount is USD454,487. I note that this is also the alternative amount recognised by the Plaintiffs as owing to Van Yu.

The combined amount of money to be attributed as owing to Hashimoto therefore is:

Shareholders Loan Account		311,864
Advance Log sales			454,487
USD.	766,351

To obtain Hashimoto’s gross profit, the above amount of USD766,351 is to be deducted from USD1,323,048; which comes to USD556,697.

Remedy Claimed:

The primary relief claimed is an account of profits. If that was granted, the amount of USD556,697 would have been due and payable to Taisol.

Since the 12th of August 1992 (date of the Kayuken Agreement) and the 30th of July, 1993 (date of the Deed of Discharge) however, the original shareholders in Taisol, whose interests are being adjudicated upon in this case, have been replaced. Hashimoto sold his shares to Kayuken under the Kayuken Agreement, whilst the Administrators had their shares transferred in the terms set out in the Deed of Discharge (Exhibit A5). Any orders for the tracing of funds and payment to Taisol in that case would not do justice to the parties if the remedy by way of an account is granted. The Administrators would not receive any benefit. Only Taisol would. The new owners of Taisol however, have made it crystal clear that they prefer to take a passive role in these proceedings, in view of the way things have eventually turned out to their satisfaction in the end.

In those circumstances, the appropriate remedy in my view is for an order for equitable compensation in favour of the Administrators.

The question then arises, how is this to be assessed?

The remedy of equitable compensation, is similar to the contractual remedy of restitutio in integrum. It seeks to place the plaintiff in the position as if no breach had occurred. Primarily therefore, its objective is to compensate the plaintiff for the loss incurred as a result of the breach. This was the view expressed by McLelland J. in the case, cited by Mr Molloy at paragraph 9.2.7 of his submission; United States Surgical Corporation v. Hospital Products International Pty Ltd [1982] 2 N.S.W.L.R. 766. At page 816, the learned judge stated:

“The nature and extent of this remedy has been discussed by I.E. Davidson in an illuminating article entitled “The Equitable Remedy of Compensation” in 13 Melbourne University Law Review 349. This remedy differs from an account of profits in that the loss to the plaintiff rather than a gain to the defendant is the measure of relief. The principles of assessment of equitable compensation do not necessarily coincide with those applicable to common law damages”.

In another case cited in support by Mr Molloy; the case of Nocton v. Lord Ashburton [1914] A.C. 932 per judgment of Lord Haldane L.C., the learned law lord made some general remarks about that remedy:

“Courts of Equity had jurisdiction to direct accounts to be taken, and in proper cases to order the solicitor to replace property improperly acquired from the client, or to make compensation if he had lost it by acting in breach of a duty which arose out of his confidential relationship to the man who had trusted him”

His Lordship continued:

“The conclusion at which I have arrived is that this action ought properly to have been treated as one in which the Plaintiff had made out a claim for compensation either for loss arising from misrepresentation made in breach of fiduciary duty, or for breach of contract to exercise due care and skill”.

In the company law text book “Gower’s Principles of Modern Company Law” Fourth Edition, by L.C.B. Gower at page 607, the learned author also made similar comments as to the applicability of that equitable remedy:

“Compensation is the equivalent equitable remedy granted against a trustee or other fiduciary to compel restitution for the loss suffered by his breach of fiduciary duty”.

The authorities cited thus far seem to support expressly, the submission by the Defendants that the remedy of compensation is to be assessed in accordance with the loss suffered from the breach of that fiduciary duty.

There is however, a group of authorities referred to by the Plaintiffs in their submissions in reply, which seem to broaden the definition of ‘equitable compensation’ to include the calculation of losses by reference to the defaulting fiduciary’s gain.

In the text “The Law of Restitution” Third Edition by Lord Goff of Chieveley and Gareth Jones, at page 672, under the sub-heading ‘Remedies - damages’, the learned authors stated:

“It now appears that the appropriate measure of damages is the sum which puts the confider in the same position ‘as he would have been if he had not sustained the wrong’, (quoting Lord Wilberforce in General Tire and Rubber Co. v. Firestone Tyre and Rubber Co. Ltd. [1975] 1 W.L.R. 819, 824). Depending on the position of the particular plaintiff, that loss may be calculated in a number of different ways. The appropriate measure may be: the confider’s lost profits; .....”.

In Fraser Edmiston Pty Ltd -v- AGT (Qld) Pty Ltd [1988] 2 Qd R 1, one of the cases cited by the Plaintiffs, Williams J., sitting in the Supreme Court of Queensland, (who is also a member of the Court of Appeal of Solomon Islands) assessed equitable compensation in the case of breach of fiduciary duty between two parties proposing to enter into partnership, where one proposed partner took the lease of the proposed partnership premises for his own exclusive benefit, by reference to the defaulting fiduciary’s profits.

In another case referred to, Dempster -v- Mallina Holdings Ltd (1994) 15 ACSR 1, the Full Court of the Supreme Court of Western Australia also held that the measure for equitable compensation was not the measure of damages in contract or in tort but “it may be appropriate in some cases to compensate by reference to the fiduciary’s gain” (per Rowland J. at page 48).

In Hill -v- Rose [1990] VR 129, per Tadgell J. at page 143, his Honour said:

The remedy, like any equitable remedy, is necessarily to be fashioned to meet the needs of the case. The method of calculation of monetary compensation will vary according to the nature of the fiduciary obligation whose breach is to be redressed. It might be appropriate to compensate the plaintiff’s loss by reference to the defendant’s gain, as in Mckenzie v. McDonald. Compensation may be awarded, however, in an appropriate case whether or not the defendant has made any direct pecuniary gain”.

In McKenzie v. McDonald [1927] VLR 134, the defendant had obtained by his abuse of the plaintiff’s confidence an advantage calculated at £595. The learned judge Dixon A-J, concluded that the plaintiff was worse off by that sum and accordingly decreed that compensation be paid to the plaintiff in that sum.

In Reading v. R. [1949] 2 All ER 68, per judgment of Asquith LJ in the Court of Appeal, the plaintiff was a sergeant in the British Army. In 1943 and 1944 while on active service in Egypt he had consented on several occasions to accompany civilian lorries transporting illicit spirits. He always wore military uniform, and so inspection of the lorries by the police was avoided. He received in return for this, £20,000. Some of this money was seized by the military authorities. The plaintiff sought to have the amount seized returned to him.

In his judgment, the learned law lord referred to that amount of money as the secret profit obtained by the defendant in breach of his fiduciary duty to the Crown. The learned law lord said:

“The plaintiff, whether actually harmed or scatheless, is conclusively presumed not only to have been damnified, but due to have been damnified to an extent measured by the amount of the secret profit received by the Defendant”.

Also in the text by Meagher, Gummow & Lehane, “Equity: Doctrines & Remedies” 3rd Edition at paragraph 2304 referred to in the submissions of Mr Molloy, the following passage is recorded as cited by the plaintiffs in their submissions in reply:

“The monetary sum awarded to the plaintiff [as equitable compensation] is normally computed by reference to the profit which has been made by the defendant ....”.

Finally, the recent case referred to by the Plaintiffs; Warman International Limited and Another -v- Brian Dwyer and Others, in the High Court of Australia, judgment delivered on the 23rd of March, 1995. That case dealt with the question whether an account of profits should be awarded in favour of a successful plaintiff in an action for breach of fiduciary duty and, if so, the basis on which such an account should be taken in all the circumstances of the particular case.

At page 9 of their judgment, their lordships made the following comments concerning the remedy of account:

“The remedy is ancient and notoriously difficult in practice and it gives rise to a liability, even in a case of a fiduciary, which is personal. In the context of patent infringement, the purpose of ordering an account is not to punish the defendant, but to prevent the defendant’s unjust enrichment. But the liability of a fiduciary to account differs from that of an infringer in an intellectual property case. It has been suggested that the liability of the fiduciary to account for a profit made in breach of the fiduciary duty should be determined by reference to the concept of unjust enrichment, namely, whether the profit is made at the expense of the person to whom the fiduciary duty is owed, and to the honesty and bona fides of the fiduciary. But the authorities in Australia and England deny that the liability of a fiduciary to account depends upon detriment to the plaintiff or the dishonesty and lack of bona fides of the fiduciary. Gibbs J. in Consul Development Pty. Ltd. v. DPC estates Pty. Ltd. stated:

“Where the rule applies, the liability of the person in a fiduciary position does not depend on the fact that the person to whom the duty is owed has suffered injury or loss”.

A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves “at a level higher than that trodden by the crowd”. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage”.

As to the remedy of equitable compensation, their lordships only made a passing comment. At bottom of page 11 and top of page 12 they said:

“Of course, if the loss suffered by the plaintiff exceeds the profits made by the fiduciary, the plaintiff may elect to have a compensatory remedy against the fiduciary. That election will bind the plaintiff”.

Although their lordship’s comment seem to give general support to the proposition that equitable compensation is to be calculated in accordance with the loss suffered by the plaintiff, it is my view that it should not be so restrictively construed.

It should not be conclusively read as saying that where no loss is shown or incurred by the Plaintiff, that therefore he is deprived of the remedy of equitable compensation. Obviously, in those circumstances where the remedy of an account is available, he would logically apply for it. However, it could happen, and this is one of those few instances, in which the remedy for an account would be inappropriate. And yet at the same time, the Plaintiff may not necessarily have suffered a detriment or a loss. In such circumstances, should the Plaintiff be deprived of the remedy of equitable compensation, even if he makes an election for it. It is my view that the Plaintiff should be able to apply for equitable compensation, calculated with reference to the profits obtained by the Defendant, and in that respect it could be regarded as the loss to the Plaintiff.

If it was inequitable for the Defendant to keep the profits obtained through the breach of fiduciary duty, then I see no legal impediment to having the compensation justifiably due to the Plaintiffs, calculated with reference to the profits gained by the fiduciary.

The ambit within which the term “losses” is defined in my view needs to be extended. On one hand, it refers to the actual losses or detriment suffered by the Plaintiff, as distinct from the profits obtained as a result of the breach of the fiduciary duty. On the other hand, it could also be defined (and this is the extension referred to above), to include the loss incurred as a result of being deprived, of the profits obtained by the Defendant in breach of the fiduciary duty. This, in my view would appear to be the definition recognised in the various cases referred to earlier in this judgment; Fraser Edmiston Pty, Ltd -v- AGT (Qld) Pty Ltd [1987] 2Qd R 1; Dempster -v-Mallina Holdings Ltd [1994] 15 ACSR 1; Hill -v- Rose [1990] VR 129; McKensie -v- McDonald [1927] VLR 134, and Reading -v- R[1949] 2 All ER 68.

The crucial words in Warman’s case (supra), applicable to the circumstances of this case are:

“It is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts”.

Had the fiduciary relationship not been breached and the sale proceeded with under the Kayuken Agreement, Taisol would not have been deprived of a share of the profits as received by Hashimoto. The Administrators in turn would not have been deprived of a portion of that profit qua shareholders in Taisol.

It is that share in the profits which the Administrators would have received, which in my view should be the value of the equitable compensation due to them.

In order to calculate this, the gross profits obtained by Hashimoto, would have to be multiplied by that part of the purchase price which is attributable to Taisol (USD720,331.90), divided by the full purchase price (USD1,750,000), and further multiplied by 20% (being the percentage shareholding of the Administrators in Taisol):

556,697 x 720,331.90 x 20%
     1,750,000

= USD 45,829

The sum to be awarded to the Administrators for equitable compensation accordingly is USD45,829 and I so ORDER.

The submissions raised in paragraph 9.5 of the submissions on behalf of the Defendant, and paragraph 9 of the submissions in reply, are misconceived. There is no unjust enrichment on the part of the Plaintiffs. The award for equitable damages was made pursuant to the findings of this Court that the Defendants had breached their fiduciary duties, and in lieu of an order for tracing of funds and an account for profit.

As to the question whether due credit should be given to the Defendants for any work done and moneys expended in the maintenance, improvement and safeguarding of the plant and equipment, it is my view that there is little or no evidence to support that suggestion. Even if there had been, it is my view that the manner in which I had based the values of the plant and equipment on the original values placed under the Waibona Agreement would have been a sufficient concession in favour of the Defendants.

The next head of damages claimed by the Plaintiffs is the ‘out of pocket expenses’ incurred as a result of the fraudulent misrepresentation of the Defendants. The amounts claimed are as follows:
Emery			:	SBD43,137.50
Sullivan		:	AUD35,697.50
SBD. 2,618.00

These amounts have been proven by Sullivan and Emery in their evidence before this Court and in accordance with Exhibits A49 and A94. I am satisfied they are due and payable as damages for fraudulent misrepresentation.

Apart from the above award of damages, no other award for damages is granted save for the claim for interest which is awarded at the rate of 5% with effect from the date of judgment until payment of the sums due.

On the question of costs, the cost of both actions are to be borne by the Defendants.

Finally, in view of the rectification action ordered in the former action, Taisol would have to refund the sum of SBD5,000.00 to David Hayward, and I so ORDER. I am aware that under the Deed of Discharge, the Administrators have undertaken to indemnify Taisol for any cost or liability that may subsequently arise. That is a matter for them to sort out and I need say no more.

A.R. PALMER
JUDGE