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Emery v Hashimoto [1995] SBHC 114; [1995] 2 LRC 674 (26 May 1995)

[1995] 2 LRC 674

HIGH COURT OF SOLOMON ISLANDS

EMERY AND ANOTHER

v

HASHIMOTO AND ANOTHER

High Court
Palmer J
30 September 1993, 8-12
April 1994, 26 May 1995

(1) Company law - Shares - Articles of association - Purported transfer of shares - Validity - Company enjoying power to control issue and allotment - Whether power extending to effecting transfer of shares already issued - Shares passing on death of shareholder to personal representatives - Shares vesting in Chief Justice pending grant of administration - Probate and Administration Order in Council 1914 - Companies Act, ss 73, 74.

(2) Company law - Shares - Register - Action for rectification - Standing of applicants - Personal representatives of deceased shareholder - Not shareholders in company - Whether having standing to bring action for rectification - Whether ‘persons aggrieved’ - Personal representatives executing deed of discharge in favour of assignee - Whether personal representatives' right to sue independent of deed - Defendants not party to deed - Whether defendants entitled to raise compromise and settlement - Whether consideration for forbearance to sue.

(3) Company law - Shares - Register - Action for rectification - Defences - Exercise of discretion - Allegation of maintenance and champerty - Assignment - Company's right of action assigned to personal representatives - Personal representatives also claiming as shareholders - Whether personal representatives having genuine commercial interest in enforcement of claim against defendants.

(4) Company law - Shares - Register - Action for rectification - Defences - Exercise of discretion - Acquiescence - Personal representatives not becoming aware of transaction until after completion - Whether acquiescing in transaction.

(5) Company law - Shares - Register – Action for rectification - Defences - Exercise of discretion - Promissory estoppel - Requirement of pre-existing legal relationship between the parties - Whether such relationship existing between personal representatives and defendants - Whether settlement constituting clear and unequivocal representation not to sue.

(6) Contract - Fraud - Fraudulent misrepresentation - Fraudulent concealment - False representation - Whether knowingly made - Controlling director of company requesting shareholders to agree sale of company's assets to another company controlled by him - Shareholders consenting provided proceeds of sale used to pay off company's overdraft - Controlling director giving necessary assurance although knowing that proceeds would be paid into his own account - Whether fraud established.

(7) Company law - Directors' duties - Breach - Remedies - Whether directors owed fiduciary duty to shareholders - Duty of disclosure - Scope of duty - Account for profits - Assessment - Equitable compensation - Measure of damages - Whether calculated by reference to fiduciary's profits.

The deceased held 20% of the shares in a logging company operating in the Solomon Islands and was a guarantor of the company's bank overdraft to the extent of $SI210,000. The overdraft was also secured by a registered equitable mortgage over the company's property and assets in favour of the bank. The other 80% of the shares in the company were held by the first defendant. On 2 February 1991 the deceased died intestate. Under para 7 of the Solomon Islands Probate and Administration Order 1914 his personal property vested in the Chief justice until administration was granted. On 14 February the deceased's shares were transferred to the second defendant by resolution of the directors who, on professional advice, purportedly acted pursuant to the company's power under art 4 of the company's articles of association which provided that all shares in the company were under the control of the directors who were empowered to issue, allot or otherwise dispose of the shares in such manner as they thought fit. The purported transfer was not signed by the deceased as was required by art 7 of the company's articles. On 19 February the company entered into an agreement with W Ltd, another company controlled by the first defendant for the sale of the company's logging equipment for $SI1.5m to be paid over two years with interest at 12% pa. Under the terms of the agreement the proceeds of sale were to be assigned by the company to the first defendant and debited to his shareholder loan account. On 22 February the plaintiffs were appointed administrators of the deceased's estate. On 27 February the first defendant requested the bank to release its mortgage to enable the sale to W Ltd to proceed but the bank required the proceeds of the sale to be used to clear the company's debts and that the first defendant obtain the written consent of the administrators before it would agree to release its mortgage. At a meeting with the administrators on 25 March the first defendant assured them that the sale to W Ltd was at arm's length and that the proceeds of the sale would be applied to reduce the company's indebtedness to the bank. On that basis the administrators agreed to the sale. Neither the bank nor the administrators were made aware at the time of the terms of the agreement with W Ltd. W Ltd later sold its assets to another company, K Ltd, and the administrators made a claim against K Ltd that title to the deceased's shares in the company had not passed to K Ltd because title was vested in the administrators. By a deed of discharge executed on 30 July 1993 that claim was compromised by the payment of $US 17,241 to the administrators by K Ltd who, with the consent of the first defendant, instructed their accountants to pay that sum out of purchase moneys held in a retention fund in favour of the first defendant. The deed of discharge released K Ltd from any further liability but expressly reserved the administrators' right to proceed against the defendants. The administrators brought an action for fraudulent misrepresentation, fraudulent concealment and breach of fiduciary duty against the defendants in which they claimed an account of profits. In order to found that action they applied to the court for rectification of the company's register by striking out the name of the second defendant as the holder of the shares formerly held by the deceased and substituting the administrators as the holders of those shares. The defendants opposed the application on the grounds that even if the transfer of the deceased's shares to the second defendant on 14 February 1991 was not valid the court should as a matter of discretion refuse relief because the administrators, having compromised their claim against K Ltd to whom the shares had been sold were no longer shareholders in the company, that deed of b discharge was illegal under the rule against maintenance and champerty because under the deed the company gave the administrators authority to bring an action in the name of the company, that it was to be inferred from the conduct of the parties, including the fact that the payment of the money to settle the administrators' claim against K Ltd had come from the retention fund held in the first defendant's favour, that the deed of discharge settled all claims made by the C administrators including those against the defendants, that the administrators' failure to restrain the transfer of the shares to K Ltd as soon as they were aware of that sale and their willingness instead to negotiate a settlement with K Ltd amounted to acquiescence in the sale to K Ltd and that the administrators' actions in negotiating the settlement with K Ltd gave rise to an estoppel or waiver of the administrators' rights against the defendants.

HELD: Rectification ordered and equitable compensation granted.

(1) The company's power under art 4 of the articles of association to control the issue and allotment of shares did not extend to effecting a transfer of issued shares, which by their nature had the attributes of personal property and were e therefore transferable to the personal representative or estate of a deceased shareholder in the manner provided by the articles. Therefore the purported transfer of the deceased's shares to the second defendant on 14 February 1991 was invalid. Furthermore, 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 as required by art 7 and no proper instrument of transfer had been executed and no transfer made by the deceased member's personal representative as required by ss 73 and 74 of the Companies Act. It followed that on the death of the deceased the shares vested in the Chief Justice in terms of Probate and Administration Order in Council 1914 until vesting in the administrators on the grant of the letters of administration (see pp 682, 683, post).

(2) The administrators were entitled to bring the action for rectification of the register notwithstanding that they were no longer shareholders in the company following the compromise of their claim against K Ltd, since their legal grievance against the defendants by virtue of being deprived of their rightful title to the deceased's shares and their duty to protect the interests of the deceased's estate meant that they were 'persons aggrieved' within s 111(1) of the Companies Act who were entitled to apply to the court for rectification of the register. Furthermore, the administrators' right to sue was both independent of the deed of discharge executed in favour of K Ltd and protected by the terms of the deed, and the defendants, who were neither a party nor privy to the deed, could not competently raise the issues of compromise and settlement. On the evidence, the administrators had made it clear throughout that their compromise of their claim against K Ltd in the deed of discharge was on the basis that K Ltd was an innocent bona fide purchaser of the shares and did not affect their claim against the defendants and there was no other evidence from which it could be inferred that the administrators intended that the deed should compromise their claim against the defendants, The payment of the money to settle the administrators' claim against K Ltd from the retention fund held in the first defendant's favour was not consideration in return for a forbearance to sue or an abandonment of any claim against the defendants on the part of the administrators (see pp 684-685, 690, 691, post).

(3) The administrators had a genuine commercial interest in the enforcement of the company's claim against the defendants sufficient to justify the assignment of the company's right of action to them since their claim was made as shareholders of the company. That commercial interest meant that the administrators' legitimate or sufficient interest in the litigation was such that the doctrine of maintenance and champerty did not apply to any assignment in the deed of discharge by the company to the administrators of the company's right to sue the defendants and therefore was not an obstacle to the exercise of judicial discretion to grant rectification of the register (see pp 685, 686-687, post).

(4) Since the administrators had not become aware of the sale of the company's assets to K Ltd until after that sale had been concluded they could not be said to have acquiesced in the sale so as to prevent the exercise of judicial discretion to grant rectification of the register (see pp 690-691, 693, post). Dicta of Malins V-C in Weldon v Dicks [1878] UKLawRpCh 302; (1878) 10 Ch D 247 at 262 and of Shaw LJ in Bell v Alfred Franks & Bartlett Co Ltd [1980] 1 All ER 356 at 360 applied.

(5) For the equitable doctrine of promissory estoppel to operate there had to be an existing legal relationship between the parties and since there was no existing legal relationship between the first defendant and the administrators the defendants could not rely on the doctrine of estoppel as a defence. In any event a clear and unequivocal representation not to sue could not be inferred from the administrators' conduct in negotiating the settlement with K Ltd, which did not amount to a waiver of the administrators' rights against the defendants. Therefore this did not present an obstacle to the exercise of judicial discretion to grant rectification of the register (see pp 694-695, 696, post).

(6) On the evidence, the first defendant had made a false representation to the administrators that the funds from the sale to W Ltd would be applied to reduce the company's indebtedness to the bank. Furthermore, that representation had been made knowing it to be false and therefore the claim of fraudulent misrepresentation was made out. The concealment of the existence and terms of the agreement to sell to W Ltd also amounted to a fraudulent concealment (see pp 703, 704, 705, 706, post).

(7) The defendant directors owed a fiduciary duty directly to the administrators arising out of their position of trust and confidence because of the administrators' reliance on the defendants for information and advice, as well as their reliance on what was being said as being correct and true. The defendants were therefore in a confidential relationship towards the administrators in seeking to obtain their consent for the release of the equitable mortgage over the company's assets. Furthermore, the defendants, as directors of the company, owed a fiduciary duty to the administrators as shareholders of the company arising out of their duty of full and frank disclosure to the company and its members about the sale to W Ltd, because of the conflict of interest between the first defendant's position as a director of the company and his position as a director of, and the recipient of the proceeds of the sale to, W Ltd. In the absence of full and frank disclosure of the details of the sale to W Ltd the defendants were in breach of their fiduciary duty and were required to account for any profits gained. The first defendant's profit of $US556, 697 under the agreement with K Ltd was traceable and accountable to the company but since that would not benefit the administrators the appropriate remedy was an order for equitable compensation in favour of the administrators. That compensation was to be assessed not only by reference to any loss suffered by them from the breach of the fiduciary duty but also by reference to the defaulting fiduciary's gain, since the administrators had been deprived of that gain and, furthermore, it would be C inequitable that the fast defendant should be allowed to keep the profits obtained through his breach of fiduciary duty. The administrators' share (as 20% shareholders) of the company's share of the profits made by the first defendant was $US45,829 and they were entitled to an order for equitable compensation for that amount (see pp 680 - 681, 707, 709, 710, 711, 715-716, 719, post). Dicta of Lord Cranworth LC in Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 at 471, of Lord Parmoor in Demerara Bauxite Co v Hubbard [1923] AC 673 at 681-682 and of Viscount Sankey in Regal (Hastings) Ltd v Gulliver [1942] UKHL 1; [1942] 1 All ER 378 at 381 applied.
[Editors' note: Paragraph 7 of the Probate and Administration Order in Council 1914 is set out at p 681, post.

Section 73 of the Companies Act, so far as material, provides: '... nothing shall prejudice any power of the company to register as shareholder ... any person to whom the right to any shares in ... the company has been transmitted by operation of law.'

Section 74 of the Companies Act, so far as material, provides: 'A transfer of the share or other interest of deceased member of a company made by his personal representative shall, although the personal representative is not himself a member of the company, be as valid as if he had been such a member at the time of the execution of the instrument of transfer.']

Cases referred to in judgment
A-G for Hong Kong v Reid [1993] 3 LRC 548[1993] UKPC 2; , [1994] 1 All ER 1, [1994] 1 AC 324, [1993] 3 WLR 1143, HK PC
A-G of the Gambia v N’Jie [196112 All ER 504, [1961] AC 617, [1961] 2 WLR 845, Gam PC
Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461, [1843-60] All ER Rep 249, UK HL
Bell v Alfred Franks & Bartlett Co Ltd [1980] 1 All ER 356, [1980] 1 WLR 340, UK CA Boardman v Phipps [1966] UKHL 2; [1966] 3 All ER 721, [1967] 2 AC 46, [1966] 3 WLR 1009, UK HL
Brownton v Edward Moore Imbucon Ltd [1985] 3 All ER 499, UK CA
Callisher v Bischoffsheim (1870) 5 LR QB 449
Chan v Zacharia [1984] HCA 36; [1985] LRC (Comm) 709, (1984) 154 CLR 178, Aus HC
Coleman v Myers [1976] NZHC 5; [1977] 2 NZLR 225
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 3 73[1975] HCA 8; , (1975) 5 ALR 231, British Guiana
Demerara Bauxite Co v Hubbard [1923] AC 673, British Guiana PC
Dempster v Mallina Holdings Ltd (1994) 15 ACSR 1, W Aus SC
Derry v Peek (1889) 14 App Cas 337, 58 LJ Ch 864, UK HL
Ealing BC v Jones [1959] 1 All ER 286, [1959] 1 QB 384, [1959] 2 WLR 194, UK DC
Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd Rep 1, Qd SC
Furs Ltd v Tomkies [1936] HCA 3; (1935) 54 CLR 583, Aus HC
General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1975] 2 All ER 173, [1975] 1 WLR 819, UK HL
Hill v Rose [1990] VicRp 13; [1990] VR 129
Hospital Products Limited v United States Surgical Corp [1985] LRC (Comm) 411, (1984) 156 CLR 441, Aus HC; rvsg sub nom United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSW LR 766, NSW CA
Martell v Consett Iron [1955] 1 All ER 481, [1955] Ch 363, [1955] 2 WLR 463, UK CA
McKenzie v McDonald [1926] VicLawRp 74; [1927] VLR 134
Nocton v Lord Ashburton [1914] UKLawRpAC 31; [1914] AC 932, [1914-15] All ER Rep 45, UK HL
Oakes v Turquand [1867] UKLawRpHL 18; (1867) LR 2 HL 325, UK HL
Peek v Gurney [1873] UKLawRpHL 19; (1873) LR 6 HL 377, UK HL
Queensland Mines Ltd v Hudson (1978) 52 ALJR 399, Aus PC
Reading v A-G [1949] 2 All ER 68, UK CA; affd [1951] UKHL 1; [1951] 1 All ER 617, [1951] AC 507, UK HL
Regal (Hastings) Ltd v Gulliver [1942] UKHL 1; [1942] 1 All ER 378, [1967] 2 AC 134, UK HL
Trendtex Trading Corp v Credit Suisse [1980] 3 All ER 721, [1980] QB 629, [1980] 3 WLR 367, CA; affd [1981] 3 All ER 520, [1982] AC 679, [1981] 3 All ER 766, UK HL
Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, (1995) 128 ALR 201, (1995) 69 ALJR 362, Aus HC
Weldon v Dicks [1878] UKLawRpCh 302; (1878) 10 Ch D 247

Legislation referred to in judgment
Companies Act, ss 73, 74, 111
British Solomon Islands and Gilbert and Ellice Islands (Probate and Administration) Order in Council 1914, para 7

Other sources referred to in judgment
7(1) Halsbury’s Laws of England (4th edn) paras 415, 612, 626
Anson’s Law of Contract (25th edn, 1979) pp 23-24, 114, 354, 488-492
Black’s Law Dictionary (6th edn, 1990)
Cheshire and Fifoot’s Law of Contract (11th edn, 1986) pp 261-262
Chitty on Contracts (26th edn, 1989) paras 14, 210, 212, 1169, 1704
Davidson, I E ‘The Equitable Remedy of Compensation’ [1982] MelbULawRw 4; 13 Melb Univ L Rev 349
Ford Principles of Company Law (5th edn) para 1503
Goff and Jones The Law of Restitution (3rd edn, 1986) p 672
Gower’s Principles of Modern Company Law (4th edn, 1979) pp 400, 573, 583, 585, 607
Meagher Gummow and Lehane Equity: Doctrines & Remedies (3rd edn, 1992) para 2304
Northey, J F Introduction to Company Law (4th edn, 1987) pp 178, 179, 238
Snell’s Principles of Equity (26th edn) p 627
Spry Equitable Remedies (3rd edn, 1984) pp 178-181
Winfield and Jolowicz on Tort (9th edn, 1971) p 498

Application and action
The plaintiffs, Robert Victor Emery and John Sullivan, the co-administrators of the estate of Sunny Wun San Tong deceased, and Taisol Investment Corp (SI) Ltd (the company) applied to the court under s 111 of the Companies Act for rectification of the register of members of the company and brought an action against the defendants, Toshio Hashimoto and David Hayward, alleging fraudulent misrepresentation by the defendants and seeking an account of profits made under an agreement of sale of the company's assets to Waibona Sawmilling and Logging Company Ltd executed on 19 February 1991. The facts are set out in the judgment.

G Brandis and T Kama for the plaintiffs.
I Molloy for the defendants.

26 May 1995. The following judgment was delivered.

PALMER J. There are two separate cases raising two separate claims which have been heard together. The first case is an application under s 111 of the Companies Act for rectification of the register of members of Taisol Investment Corp (SI) 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. The second case is a claim for fraudulent misrepresentation by the co-administrators of the estate of Sunny Wun San Tong deceased and Taisol Investment Corp (SI) Ltd against Toshio Hashimoto and David Hayward as first and second defendants respectively.

The rectification issue

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 2 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 2 February 1991 is significant in that it was the day Sunny Tong was murdered.

On 14 February 1991 Hayward signed a share transfer in his favour as the transferee for Sunny Tong's shares, for the consideration of $5,000. The document bears the Solomon Islands stamp duty date of 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 22 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 2 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 the 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 (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.' (My emphasis.)

There has been no challenge or dispute to the application of the above provision. As on 2 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 2 February 1991, no evidence has been adduced to that affect.

On 14 February 1991, nevertheless, there was a purported dealing of the deceased's shares. According to the submissions of Mr Molloy, counsel for the respondents, Hashimoto met with Mr Wayne Morris of Coopers & 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. Accordingly, on 14 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 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'. 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 Messrs Coopers & Lybrand. That advice was based, as shown in the letter of 14 March 1991, on art 4 of the articles of association of Taisol. Article 4 reads:

‘All shares shall be under the control of the Directors 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 sub-para 7.10(b) of the submissions of the plaintiff's, there is no power in art 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 art 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 (4th edn) p 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 by J F Northey Introduction to Company Law (9th edn) p 238, the above comments are reiterated:

'Shares are personal property transferable in the manner provided in the articles ...'

And 7(1) Halsbury's Laws of England (4th edn) para 415 states:

'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 art 4 by Mr Morris, Mr Hashimoto and Mr Hayward are given approval by this court, then it would be utterly contrary to the very nature and attribute of shares as personal property.

In the articles of association of Taisol, apart from art 6, which says something about the company restricting the right to the transfer of its shares, there is no other article which says anything about ownership of those shares.

I am satisfied accordingly that the advice given by Mr Morris and relied upon by Mr Hashimoto and Mr Hayward, as having no legal basis whatsoever.

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. Article 7 of the articles 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 also been void for that reason.

The plaintiffs also rightly pointed out at sub-paras 7.10(e) and (f) of their submissions that pursuant to ss 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 that there was no way that the purported transfer of the shares on 14 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 2 February 1991 his shares vested in the Chief Justice of this court. By the same token, on 14 February 1991 those shares could only have been sold, transferred and disposed of on the advice and consent of the 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 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 2 February 1991 to 22 of February 1991, stated emphatically at paras (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 2 February 1991 and 14 February 1991 is clear and unequivocal. They vested on the Chief Justice and by grant of letters of administration on 22 February 1991 vested on the co-administrators.

In their 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. 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 9 s 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 Ealing BC v Jones [1959] 1 All ER 286 at 289, [1959] 1 QB 384 at 392 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 A-G of the Gambia v N’Jie [1961] 2 All ER 504 at 511, [1961] AC 617 at 634 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 busybody 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 busybodies 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. Also, they are persons under duty to take such measures as are appropriate to protect the interests of the estate. In that regard they have a genuine grievance against Hayward and Hashimoto, for the purported dealing in Sunny Tong's shares, which had prejudicially affected the interests of the deceased's 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 2 February 1991 to 30 July 1993.

The terms of the deed of discharge too in my view should be understood in its proper context.

At para (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, and that ownership vested in the estate of Sunny Wun San Tong deceased.

At para (C) the administrators agreed to enter into a compromise and settlement with Kayuken Pacific Ltd (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 cl 13 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 chosen to have their claims pursued separately as against Hashimoto and Hayward rather than entering into any deed of discharge. There would then have been no issue arising about the standing of the administrators. The decision to enter into a compromise and settlement with Kayuken is a matter between themselves, and has nothing to do with Hashimoto and Hayward. Hashimoto and Hayward therefore in my view cannot competently raise the issues of compromise and settlement in this case as they were neither a party nor privy to it.

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. In turn by virtue of cl 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 savours of maintenance and champerty, and therefore illegal, and should not be given effect to by the court.

In Winfield and Jolowicz on Tort (9th edn) p 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.' (My emphasis.)

In Anson’s Law of Contract (25th edn) p 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 has no legitimate concern without just cause or excuse.' (My emphasis.)

In Chitty on Contracts (26th edn) para 1169 (General Principles) the learned author states:

'The mischief directed against is wanton and officious intermeddling 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 maintainer had no legitimate concern or interest in the litigation.

In Martell v Consett Iron [1955] 1 All ER 481 at 488-489, [1955] Ch 363 at 399-400, cited by the plaintiffs, Jenkins LJ 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 such aid has such an interest in the action as can be held in law sufficient to justify him in giving it.' (My emphasis.)

What would therefore be considered as a legitimate interest or sufficient interest? In the case of Brownton v Edward Moore Imbucon Ltd [1985] 3 All ER 499 at 509, also referred to by the plaintiffs, Lloyd LJ made the following statements:

'(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.' (My emphasis.)

In Trendtex Trading Corp v Credit Suisse [1980] 3 All ER 721 at 753, [1980] QB 629 at 668 Oliver LJ 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. 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 ([1981] 3 All ER 520 at 531, [1982] AC 679 at 703):

'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...'

The authorities cited above show that a 'genuine commercial interest' will suffice as a legitimate or sufficient interest.

Do the administrators have a 'genuine commercial interest' in the enforcement of Taisol's claim against Hashimoto and Hayward? And is it sufficient to 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 administrators' 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 existed prior to that deed of discharge 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. No evidence of illegality has been submitted.

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 para 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 7(1) Halsbury’s Laws of England (4th edn) 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 question as to whether Mr Morris did actually place himself in such a position whereby the advice that was alleged to have been given was in fact given and was such that the defendants were entitled to rely on it in my view, had not been satisfactorily addressed to the point where I am satisfied that the defendants can be absolved from any liability.

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 paras 2.1 and 2.2 of their submissions in reply, filed on 9 January 1995, they say that such an agreement was to be inferred from the conduct of the parties.

At paras 2.19 to 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 $SI54,000 by Hashimoto, from the retention fund held by Coopers & 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 edn) pp 23-24 by A G Guest, 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 respondents /defendants is the payment of the consideration for the administrators' shares under the deed of discharge, from the retention fund held by Coopers & Lybrand in favour of Hashimoto. Mr Molloy submits that the administrators must have known and intended that the consideration of those shares be paid by Hashimoto. He submits at para 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 & 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'.

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-administrators 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 1992. Shortly thereafter a letter was written by Mr Wong the managing director of Golden Springs International (SI) Ltd, in which he was put on notice as to the interests of the co-administrators over Sunny Tong's shares in Taisol. The letter was dated 19 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 above named companies [one of which was Taisol]. By virtue of our appointment the legal title to 50,000 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.'

That letter was signed by R V Emery.

On 20 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. That letter was dated 20 November 1992:

'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 $SI1,000,000 in escrow as a retention in this transaction. We write to put you on notice that we have dear 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 $S1750,000 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 Wong of GSI, on a without prejudice basis, before Mr Sullivan leaves Honiara tomorrow, 21st November.'

Both letters referred to a proposed meeting with Mr Wong and Mr Bowman on 21 November 1992. Whether a meeting did take place on 21 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 5 April 1993 Astills (a firm of lawyers from Australia acting for Kayuken) wrote a ‘without prejudice’ letter to Hashimoto. That letter reads:

'We advise that the executors of 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 & Lybrand to then remit the balance of the fund to you in accordance with your instructions to them. Please note that the 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 para (1) of the above letter is looked at in isolation, then I would agree with Mr Molloy'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 para (2) however, dispose of the possibility of any such inference being drawn. The terms of para (2) place in context the contents of para (1): that the agreement for the payment of $US17,241 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 $US17,241 paid from the retention fund held in his favour with Coopers & Lybrand. He could equally have refused to have that consideration paid from b 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 fund 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 administrators' 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 administrators' 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 Mr Emery is quite dear, 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 f $S154,000 plus $Aus1,000 costs from the retention fund held in Coopers & Lybrand was effected on 22 April 1993, some 17 days after the letter of 5 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 9 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 5 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 are totally consistent with the terms of the 'undertaking' of 22 April 1993, and the deed of discharge executed on 30 July 1993 (see recitals (B), (C), and dl 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 paras 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 15 September 1992. But for the claim of the co - administrators, the Kayuken agreement would have been deemed completed on or about 15 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 Co Ltd of the one part, and Kayuken Pacific Ltd 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 30 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 paras 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.
f
Finally, at para 3.6 of the submissions of the respondent, reference was made to the case of Callisher v Bischoffsheim (1870) 5 LR QB 449 at 451 per Cockburn C), which is authority for the view that the forbearance to sue in respect of a disputed claim where an agreement to compromise has been made, will suffice as a good consideration. Unfortunately, even if there was such an agreement, I 9 am not satisfied that there is evidence of a forbearance to sue.

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 issues 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 para 8.1 have already been dealt with under the heading 'standing to sue' and therefore need not be repeated. They equally apply here.

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

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. At para 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 8 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 Morris of Coopers & Lybrand, he stated that he believed that the statutory register was not amended until possibly as late as August 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 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 1992.

It is important to appreciate that prior to that July meeting of 1991, there was a meeting of the directors' of Taisol, on 14 February 1991, in which it was resolved that due to the death of Sunny Tong, that his shares be transferred to David Hayward. On the same date a purported transfer of those shares was effected. On 22 February 1991 Sullivan and Emery were appointed as administrators of Sunny Tong's estate. In March 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 14 February 1991? On its face, it could easily be accepted to refer to some sale or attempted sale made prior to Sunny Tong's death. If it was to refer to the 14 February 1991 transfer, then the administrators would have been justifiably perplexed and sceptical about that statement. It is also significant to note that 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' was being qualified. 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 14 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 Sullivan 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 C 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 Spry Equitable Remedies (3rd edn) pp 178 - 181 the learned author sets out a d 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 dear, that is, it must be one which e 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 Weldon v Dicks [1878] UKLawRpCh 302; (1878) 10 Ch D 247 at 262 Malins V-C stated:

'... 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 [198011 All ER 356 at 360, [198011 WLR 340 at 346-347 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 para 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 1992, some three months after the Kayuken agreement had been executed, and some two months after the share transfer documents had been executed, in September 1992. 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. The evidence as adduced and submissions made, showed unequivocally that the sale and transfer of Sunny Tong's shares were 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 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 defences 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. The rule in 'promissory estoppel' is stated in Snell's Principles of Equity (26th edn) p 627 as follows:

'... 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.'

In Anson’s Law of Contracts (25th edn) p 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 have "altered his position" in reliance on the promise made to him.'

The learned author in Chitty on Contracts (26th edn) vol 1, para 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 argument's sake, I 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 para 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 para 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 conclusions 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, does 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'. The learned author in Chitty on Contracts para 1704 highlights the similarity between 'waiver' and 'estoppel' as follows:

'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 dear and unequivocal representation 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.'

See also the discussions of the subject in Anson’s Law of Contract (25th edn, 1979) pp 488-492. Black’s Latin Dictionary (6th edn) defined '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 dearly 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 of 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 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 therefore 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 26 August 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. Those orders are: (1) That the registrar of members of Taisol Investment Corp (SI) Ltd be rectified by: (a) striking out therefrom the name of David Hayward as the holder of 50,000 shares in the company (being shares identified by certificate Nos 1, 3 to 20,001 inclusive, and 220,001 to 250,000); (b) inserting in lieu thereof the names of John Sullivan and Robert Victor Emery (in their capacity as co-administrators of the estate of Sunny Wun San Tong deceased) as the holders of those shares; (2) That the company, by its secretary or other proper officer, give effect to para 1 of this order by making those alterations in the register, and noting thereon that those alterations are made pursuant to an order of this honourable court; (3) That the purported transfer of the subject shares by David Hayward to Kayuken Pacific Ltd on or about 15 September 1992 is void and of no effect; (4) That notice of these orders be served on the Registrar of Companies.

The fraud action

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 25 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 Corp (SI) Ltd and Waibona Sawmilling and Logging Company Ltd (Waibona), and Toshio Hashimoto, executed on 19 February 1991.

Emery and Sullivan are the co-administrators in the estate of Sunny Tong deceased, and by virtue of this court's ruling 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 the Solomon Islands. It operates an account with the Westpac Banking Corp, which had an overdraft limit of $SI245,000. This was secured by a registered equitable mortgage in favour of the bank over, inter alia, all the property and assets of Taisol and a personal guarantee executed by Sunny Tong, in favour of the bank, of up to $SI210,000. As at the date of their appointment, on 22 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 25 February 1991 the Taisol account at Westpac had exceeded its overdraft limit to $SI286,000 and was subsequently closed.

On or about 27 February 1991 Allan Taylor (the manager of Westpac bank) met with Hashimoto. Taylor made a 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 administrators 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 25 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 he sets out three requirements in which fraud may be established (at 374):

'... 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 25 March 1991? Emery and Sullivan say at para 12(a) and (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 the evidence of Allan Taylor. They also relied on the terms of the Waibona agreement executed on 19 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 27 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 25 March 1991.

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

The 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. In his diary notes he recorded the following: 'Clearance of Taisol debts to clear from sale.' He explained in his evidence under oath that this referred to the clearance of Taisol's debt with the bank, and not Taisol's debts in general.

Under cross-examination he was asked about the use of the words '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, ever 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 27 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 Taylor's diary note in contrast showed 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 27 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 it 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 27 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 their claim of 20% of the shares in Taisol, for and on behalf of Sunny Tong's estate.

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

Sullivan and Emery's version of that meeting on 25 March 1991 was that they had been called by Hashimoto and told that Westpac Banking Corp 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 e consent to be given would be dependent on the condition that the proceeds of sale of the logging equipment be first applied to Taisol's debt with the bank. In response to this, Sullivan said that Hashimoto acknowledged that Westpac Banking Corp 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 Corp 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, Sullivan 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 h 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 administrators 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 25 March 1991 to the bank, as amended, was couched in those terms.

In support of this is also Allan Taylor's evidence as to the addition made to that letter of 25 March 1991 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 b 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 two years with an interest rate of 12% on the reducing balance. He denied saying that the proceeds would go to reduce the contingent liability to Westpac Banking Corp.

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 Co 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 Corp and that the administrators could only consent if proceeds would go to extinguish the Westpac debt. When asked if he ever used the words 'Westpac Banking Corp' 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 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 Corp was first in line and that 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 his answers to a request for further and better particulars by the plaintiffs at para 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 $26,000 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 2.5 March 1991, 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 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 25 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 it 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 Sullivan, Emery and Taylor clear and precise. 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, to 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 plaintiff's 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 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, I 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' is 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 (26th edn) para 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 need to be analysed in some detail.

First, it is not in dispute that the Waibona agreement was executed on 19 February 1991, some five weeks prior to that meeting of 25 March 1991. This is the first crucial factor. The second crucial factor relates to the parties; namely, Taisol, Waibona and Hashimoto.

The relevant clauses are cll 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 d 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 cll 4 and 8 as read together are inconsistent with and contrary to what was 'represented' in that meeting of the 25 March 1991. In that respect, they say it was false.

The crucial term in my view is contained in cl 8.

The administrators say that the dear effect of d 8 would be to have Taisol divested of the sale proceeds in favour of Hashimoto.

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

He submits that what Hashimoto represented to the administrators on 25 March 1991 is not necessarily inconsistent with what cl 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 25 March 1991 is capable of being construed as false.

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

'... that an amount equal to the said consideration shall be debited to his d [Hashimoto's] 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 25 March 1991 to be accommodated.

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

Further, cl 13 of the Waibona agreement expressly provided:

'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 25 March 1991.

It is my view therefore that the statement of intention made on 25 March 1991 was false, and thereby capable of amounting to a statement of fact for the 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 25 March 1991.

If the terms of the Waibona agreement are brought to focus, in particular d14 and 8, and contrasted 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 dearly a conflict of interest as between himself (being one of the parties in the agreement), Taisol and Waibona. In those circumstances, it is quite difficult to hold and accept that Hashimoto 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 cll 4 and 8.

Under cll 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 d 13 in the terms of that representation. It is therefore not reasonable in the circumstances that C Hashimoto would have honestly held that statement of intention. I am satisfied accordingly, that there was a statement of fact and that it amounted to a false representation.

This then leads to the next crucial question: whether that false representation was made knowingly?

In order to answer this question properly, we 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 any way 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 the 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 25 March 1991. It is my firm view that Hashimoto knew that he was making a false representation to the administrators in that meeting, or that he did not believe in its truth. But if not, then it was made 'recklessly, careless whether it be true or false'.

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 27 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 cll 4 and 8, consideration from Waibona would be assigned to Hashimoto and that the payments could be delayed by as much as two 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 $SI1.8m (SI), 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 has 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] UKLawRpHL 18; (1867) LR 2 HL 325 and Peek v Gurney [1873] UKLawRpHL 19; (1873) LR 6 HL 377, were relied on by the plaintiffs. In the former case Lord Chelmsford LC said ((1867) [1867] UKLawRpHL 18; LR 2 HL 325 at 342-343):

'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 case Lord Cairns said ((1873) [1873] UKLawRpHL 19; LR 6 HL 377 at 403):

'Mere non-disclosure of material facts, however morally censurable E 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 edn, 1986) pp 261-262 was relied on:

'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 b 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 $1.8m; (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 para (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 with a delay of as much as two 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. In that respect, it was imperative that the existence of the Waibona agreement and its terms ought to have been disclosed as they also impinge upon the question as to what will be done with the consideration from Waibona. He did not do this, and I think it is clear why that is so, because had he done so, it would have made what he had stated absolutely false or giving it the character of falsehood.

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

The third crucial issue raised in this case relates to the equitable duty of disclosure of fiduciaries. This has been raised in conjunction with Hashimoto and Hayward's relationship to Taisoi 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 Ford Principles of Company Law (5th edn) para 1503; Gower's Principles of Modern Company Law (4th edn, 1979) p 573; 7(1) Halsbury's Laws of England (4th edn) para 612; J F Northey Introduction to Company Law (4th edn, 1987) p 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 p 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 [1976] NZHC 5; [1977] 2 NZLR 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.'

Do Hashimoto and Hayward owe a fiduciary relationship to the administrators qua Taisol 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 dear 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. They surely must have applied their minds as to the question why the consent of the administrators was required. At least, they knew that Sullivan and Emery were the court - appointed personal representatives of the estate of Sunny Tong deceased. That should have rung a bell in their minds as to what they had purported to do concerning Sunny Tong's shares in Taisol.

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 rectification application. 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 & 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 statement of Lord Parmoor in the Privy Counsel case of Demerara Bauxite Co v Hubbard [1923] AC 673 at 681-682 as cited by the plaintiffs ate 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 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 of 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 was not only a director 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) by Hashimoto and Hayward.

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 p 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 LC in Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 at 471, [1843-60] All ER Rep 249 at 252:

'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) Ltd v Gulliver [1942] 1 All ER .378 at 381, [1967] 2 AC 134 at 137 per the 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 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 p 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.' (My emphasis.)

Also in Northey Introduction to Company Law p 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 7(1) Halsbury's Laws of England (4th edn) para 626 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 (ie 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 shows 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 Ltd v Tomkies [1936] HCA 3; (1935) 54 CLR 583, a case also cited by the plaintiffs, Rich, Dixon and Evatt JJ said (at 592):

'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.' (My emphasis.)

In the leading English case earlier cited, Regal (Hastings) v Gulliver [1942] UKHL 1; [1942] 1 All ER 378 at 395, [1967] 2 AC 134 at 158 Lord Porter said:

'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.'

Lord Russell in his judgment said ([1942] 1 All ER 378 at 386, [1967] 2 AC 134 at 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 Lord MacMillan in his judgment said ([1942] 1 All ER 378 at 391, [1967] 2 AC 134 at 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 Boardman v Phipps [1966] UKHL 2; [1966] 3 All ER 721 at 744[1966] UKHL 2; , [1967] 2 AC 46 at 105 per Lord Hodson; Queensland Mines Ltd v Hudson (1978) 52 ALJR 399 at 400-401; A-G for Hong Kong v Reid [1993] 3 LRC 548 at 551[1993] UKPC 2; , [1994] 1 AC 324 at 330-331, and also see the Australian cases referred to by the plaintiffs: Hospital Products Limited v United States Surgical Corp [1985] LRC (Comm) 411, (1984) 156 CLR 441 and Chan v Zacharia [1984] HCA 36; [1985] LRC (Comm) 709 at 726[1984] HCA 36; , (1984) 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 counsel for the defendants, he pointed out, however, 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 was 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. 9 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 Ltd, 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 h the consent of the administrators, Westpac Bank would not have released its charge over Taisol's assets, 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, which in turn was sold together with its shares to Kayuken Pacific Ltd.

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 a 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 in detail 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 b 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 28 January 1.991, it was indicated that the value of 60% of Taisol was $US690,000. In another letter from Hashimoto to Ekky Budijono, dated 23 April 1992, Taisol was offered for sale at a price of $US380,000. Also in a letter from Hashimoto C dated 24 March 1992 to Shugo Noda & Co Ltd, Taisol was offered at a price of $US500,000.

Finally, the Kayuken agreement showed dearly that there was a value placed on Taisol's shares. It would be important therefore to ascertain what the value of those shares was and in turn the total value attributable to Taisol under the Kayuken agreement.

In para (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 per share. For Waibona, 40,000 shares at $1 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 were under the agreement.

Clause 1(b) of the agreement states that the consideration for all those shares shall be $US 100,000. 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 $US100 = $US86,207

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 was transferred under the Waibona agreement, plus a number of other pieces of 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 that equipment as recorded in the Waibona agreement was $SI1,800,000. 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 para 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, and 24 in Schedule 3 of the Kayuken agreement are valued respectively as, $S135,000, 30,000 and 10,000. The total value of the identifiable plant and equipment from Taisol therefore is $SI1,875,000 (i.e. 35,000 + 30,000 + 10,000 + 1,800,000). When converted to US dollars at the exchange rate of 03382, this gives $US634,125. That part of the purchase price therefore, that would be directly attributable it seems to Taisol, would be $US720,332 (ie $US86,207 + $US634,125). From the oral evidence adduced in court and the documentary evidence made available, this would be about right.

I have considered the various methods of calculation for that part of the purchase price attributable to Taisol raised by the plaintiffs, but I am not satisfied that they reflect accurately the portion to be attributed to Taisol.

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

The amounts of $S1301,770 - 65 and $SI1,070,020.50 were payments made to Hashimoto from the retention fund. Also the conversion rates applied were the rates as adopted by the plaintiffs and adduced in evidence before this court; that is, 03268 and 03032.

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 counterclaim, it was pleaded that Taisol owed Hashimoto, as per his shareholder loan account, $SI1,047,139; and Hashimoto's company, Van Yu Trading Ltd, $US449,491. There are therefore two liabilities which should be deducted from the total amount received by Hashimoto. However, the amounts are in dispute.

As per the shareholder's loan account, the figure pleaded is the same as the amount recorded in the 1990 financial statements of Taisol. 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 No 191 - 009 - 20 (known as the Tavioa Ridge house) was sold to Markwarth Shipping Co Ltd for $240,000. The amount of $114,989.21 was paid to Westpac on 29 June 1992, and the balance was supposed to be paid to Hashimoto. Hashimoto therefore should have received on or about the 29 June 1992 the amount of $SI125,01,079,

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) Ltd, 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 at para (1), in which it was expressly acknowledged that the transferor, Integrated Forest Industries (SI) Ltd, had received from Taisol the sum of $SI150,000 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 $SI922,129 ($SI1,047,139 - $S1125,010). At the conversion rate of 03382, it comes to $US311,864. 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 is the advances made to Taisol through Hashimoto's company; Van Yu Trading Co Ltd. In the further and better particulars of amended defence and counterclaim this was recorded as $US449,491. The amount shown in the financial statements, however, was $SI1,425,274.

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 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. 'This was letter of credit No 680LCM6Y26535, issued on 8 December 1988 for $US100,000. The corresponding debit on 7 March 1990 with accrued interest was $US114,507-28. The only amount therefore that has been verified on the evidence as owing to Van Yu is $US114,507-28.

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 do not correspond with the majority of the red clause letters of credit, the evidence is fairly clear that as late as April 1992, Van Yu Trading was being charged with interest on advances issued between 1988 and 1990 and together with the principal amounting to some $US571,035-18. This figure is consistent with the amounts recorded in the 1990 financial statements of some $SI1,425,274, which when converted to US dollars at 03382 comes to $US482,027. It is also consistent with the amount listed in the list of creditors dated September 1992, in which it is shown that the red clause letters of credit were valued at $SI1,044,949-15, together with a separate entry for Van Yu Trading at $S1298,892 - 73. At the conversion rate of 03382, the total amount owing to Van Yu Trading Ltd would be $US454,487.

Comparing all the above figures together with the pleaded debt of $US449,401, it is my view that the figure which best shows the correct amount is $US454,487. 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

Adavance Logs Sales 454,487

$US 766,351

To obtain Hashimoto's gross profit, the above amount of $US766,351 is to be deducted from $US1,323,048; which comes to $US556,697.

The remedy claimed

The primary relief claimed is an account of profits. If that was granted, the amount of $US229,146 would have been due and payable to Taisol. This is obtained by multiplying $US556,697 with the value attributable to Taisol and dividing it by the total consideration of $US1,750,000 i.e.

$US556,697 x 720,332 = $US229,146.

1,750,000

Since 12 August 1992 (the date of the Kayuken agreement) and 30 July 1993 (the 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. 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 United States Surgical Corp v Hospital Products International Pty Ltd [1982] 2 NSW LR 766, cited by Mr Molloy at para 9.2.7 of his submission. The learned judge stated (at 816):

'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 [1982] MelbULawRw 4; 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, Nocton v Lord Ashburton [1914] UKLawRpAC 31; [1914] AC 932 at 956-957[1914] UKLawRpAC 31; , [1914-15] All ER Rep 45 at 54 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 The had lost it by acting in breach of a duty which arose out of his confidential relationship to the man who had trusted him.' (My emphasis.)

Lord Haldane continued ([1914] AC 932 at 958[1914] UKLawRpAC 31; , [1914-15] All ER Rep 45 at 54-55):

'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 textbook Gower's Principles of Modern Company Law p 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 Goff and Jones The Law of Restitution (3rd edn, 1986) p 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] 2 All ER 173 at 177, [1975] 1 WLR 819 at 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 one of the cases cited by the plaintiffs, Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd Rep 1, Williams J (who is also a member of the Court of Appeal of the Solomon Islands), sitting in the Supreme Court of Queensland, 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' (see 15 ACSR 1 at 48 per Rowland J).

In Hill v Rose [1990] VicRp 13; [1990] VR 129 at 143 Tadgell J 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 ([1927] VLR 134). Compensation may be awarded, however, in an appropriate case whether or not the defendant has made any direct pecuniary gain.'

In McKenzie v McDonald [1926] VicLawRp 74; [1927] VLR 134, the defendant had obtained by his abuse of the plaintiff's confidence an advantage calculated at £595. The learned judge, Dixon 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 A-G [1949] 2 All ER 68 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 Asquith LJ in the Court of Appeal referred to that amount of money as the secret profit obtained by the defendant in breach of his fiduciary duty to the Crown. Asquith LJ said ([1949] 2 All ER 68 at 71):

'The plaintiff, whether actually harmed or scatheless, is conclusively presumed not only to have been damnified, but 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 and Lehane Equity: Doctrines & Remedies (3rd edn, 1992) para 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 Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, (1995) 128 ALR 201 in the High Court of Australia, judgment delivered on 23 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.

In their judgment, their Honours 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.' (See [1995] HCA 18; (1995) 128 ALR 201 at 208-209.)

As to the remedy of equitable compensation, their Honours only made a passing comment. Later they said ((1995) [1995] HCA 18; 128 ALR 201 at 210):

'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 Honours' comments seem to give general support to the proposition that equitable compensation is to be calculated in accordance with b 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 o£ 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 due 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. f 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 [1988] 2 Qd Rep 1, Dempster v Mallina Holdings Ltd ( 1994) 15 ACSR 1, Hill v Rose [1990] VicRp 13; [1990] VR 129, McKenzie v McDonald [1926] VicLawRp 74; [1927] VLR 134 and Reading v A-G [1949] 2 All ER 68.

The crucial words in Warman International Ltd v Dwyer ((1995) [1995] HCA 18; 128 ALR 201 at 210) 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 ($US720,331 - 90), divided by the full purchase price ($US1,750,000), and further multiplied by 20% (being the percentage shareholding of the administrators in Taisol):

556,697 x 720,331.90 x 20% = $US45,829

1,750,000

The sum to be awarded to the administrators for equitable compensation accordingly is $US45,829 and I so order.

The submissions raised in para 9.5 of the submissions on behalf of the defendant and para 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: $SI 43,137.50

Sullivan: $Aus35,69750 $SI 2,618.00

These amounts have been proven by Sullivan and Emery in their evidence before this court. I am satisfied they are due and payable as damages for fraudulent misrepresentation and I so order.
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 respondents / defendants.

Finally, in view of the rectification action ordered in the former action, Taisol would have to refund the sum of $S15,000 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.