IN THE COURT OF APPEAL OF TONGA
NUKU'ALOFA REGISTRY

APPEAL NO. 3/00

BETWEEN

MAXAM GOLD BANK LIMITED
CHRISTOPHER ANTONE THOMAS PEDRAS
Appellants

-V-

LAIDLAW HOLDINGS LIMITED
Respondent

Coram:
Burchett J Tompkins J Beaumont J

Counsel:
Mr Laki Niu for appellants
Ms V. Helu for respondent

Date of hearing: 11 July 2000; 17 July 2000.
Date of judgment: 21 July 2000.

JUDGMENT OF THE COURT

INTRODUCTION

In order to understand the issues that arise in this appeal, it will be necessary to explain the history of the litigation and the legislative context.

By application dated 6 April 2000, Laidlaw Holdings Limited ["Laidlaw Holdings"] applied to the Supreme Court for a determination of shareholding in Maxam Gold Bank Limited ["the company"] pursuant to ss.91 and 183 of the Companies Act 1995 ["the Act"].

Section 91 empowers the Court, by a summary procedure, to order rectification of the share register of a company. By s.91(1) of the Act it is relevantly provided that if the name of a person is wrongly omitted from the share register, the person aggrieved may apply to the Court for rectification of the register. The Court may order rectification [s.91(2)] ; and may decide (a) any question relating to the entitlement of a person, who is a party to the application, to have his name entered in the register ; and (b) any question necessary or expedient to be decided for rectification [s.91(3)].

Section 183 empowers the Court, upon the application of a prejudiced shareholder, or of any other entitled person, if the Court considers it just and equitable to do so, to make such order as it thinks fit, including an order for rectification of the company's records.

Laidlaw Holdings' application relevantly sought the following orders:

"1. That Laidlaw Holdings Limited is the holder of all of the shares in Maxam Gold Bank Limited (the Company).

2. That David Corbett, the secretary of the Company, shall forthwith register the said Laidlaw Holdings Limited as the holder of all the shares in the Company.

3. That Mr Christopher Pedras, his servants, agents and/or employees, are restrained from claiming any entitlement or interest in the Company and, shall refrain from making any public statement or advertisement in respect of the said company and further, those persons are prohibited from entering into any contractual arrangements and/or dealings on behalf of the company..."

In support of its application, Laidlaw Holdings relied upon an affidavit sworn by Mr Laidlaw on 5 April 2000. Mr Laidlaw said:

"4. I was informed [by my legal advisors] that it appeared from a search at the Companies Office that the company had originally been incorporated with a Mrs Fuiva Kavaliku and Mr Giovanni Kavaliku as directors, and with Mrs Kavaliku as the sole shareholder... ."

Section 15 of the Act relevantly provides that any person may apply for registration of a company. The application for registration of the company was lodged pursuant to s.16 of the Act, which relevantly provides as follows:

•	The application shall [inter alia] be signed by the applicant, and accompanied by a document signed by every person named as a director (s.16(1) (b) and (c)).

•	The application shall also be accompanied by a document signed by every person named as a shareholder, containing his or her consent to being a shareholder and to taking the class and number of shares specified in the document (s.16(1) (e)).

•	The application shall state, inter alia, the full name and address of (a) the applicant (b) every director and (c) every shareholder and the number of shares to be issued to every shareholder.

The form of application in the present case stated that Mrs Kavaliku was the applicant and that Mr and Mrs Kavaliku were the directors of the proposed company. Mrs Kavaliku was shown as the sole shareholder, with the number of her shares shown as "100%" [sic]. The application was signed by Mrs Kavaliku and dated 6 July 1999.

Mr Laidlaw's affidavit went on:

"5. I was further informed by my legal advisors that there were on the file some irregular forms purporting to show changes in directors of the company, and sales of shares to one Christopher Pedras. I was informed that it appeared that Mr Pedras had never in fact owned any shares in the company, and that accordingly he had no right to transfer Mrs Kavaliku's shares to himself as he had purported to do.

6. My legal advisors' opinion was that the company at that point had no directors (Mrs Fuiva Kavaliku and Mr Giovanni Kavaliku having resigned or been removed in July 1999), and that all the shares in the company were still legally the property of Mrs Kavaliku.

7. I was informed that the incorporation document (annexure 'B'.) was in fact incorrectly completed in that instead of a number of shares in the company, the figure of '100%'was inserted. I was advised that the only sensible interpretation of that was that there were 100 shares in the company, and that they remained Mrs Kavaliku's to dispose of as she wished.

8. At that point I instructed my legal advisors to incorporate Laidlaw Holdings Limited. At the same time, I began discussions with Mr Hemaloto 'Alatini, who was a shareholder and director of a company he believed to be related to Maxam. Mr 'Alatini had also been indirectly involved in the incorporation of Maxam, and in procuring the consents of Mrs Fuiva Kavaliku and Mr Giovanni Kavaliku to act as directors of the company.

9. By that stage I was aware that Mr 'Alatini had become uneasy about Maxam, Mr Christopher Pedras, and the related company Private Client Services Limited (PCS). I became aware that Mr 'Alatini wished to purchase the shares in Maxam from Mrs Kavaliku so as to protect her from any possible liability for uncalled capital. I offered to buy them from him through my company, Laidlaw Holdings.

10. On or about 23 March 2000 I believe that Mrs Fuiva Kavaliku signed a share transfer evidencing the sale of her 100 shares in , Maxam to Mr 'Alatini.

11. On about 29 March 2000 I instructed my lawyers to prepare share transfers from Mr 'Alatini to Laidlaw Holdings Limited which had by then been incorporated. On 29 March 2000 Mr 'Alatini signed a transfer of 100 ordinary shares in Maxam from him to Laidlaw Holdings..."

Mr Laidlaw's affidavit next referred to a letter to the company dated 29 March 2000 (written by his solicitors, Garrett and Associates, on behalf of Laidlaw Holdings, Mr 'Alatini and Mrs Kavaliku) forwarding the share transfers previously mentioned for registration ; and to a reply to Garretts from the company dated 30 March 2000 refuting Laidlaw Holdings' entitlement to the shares.

Mr Laidlaw went on to say that he had seen a letter to his solicitors from the Company Registration Unit dated 31 March 2000. The letter stated:

"Re: 'Maxam Gold Bank Limited' and 'Private Client Services Limited'

Your letter of March 27, instant, refers.

We hereby confirmed the completion on requirements relating to the resignations of Mrs Fuiva Kavaliku and Giovanni Kavaliku, from being directors of Maxam Gold Bank Limited, and, the resignation of Mrs Fuiva Kavaliku from her directorship at the Private Client Services Limited. The above shortfalls, (together with others), were however voiced out, (verbally), to the company, at the time of the submission of the Resolutions', for completion.

You should also take note that Mrs Fuiva Kavaliku, under Resolution 1 of July 13, 1999, had transferred all 'corporate stock' she owned in Maxam Gold Bank Limited, to Christopher A. T. Pedras. That transfer can be regarded as incomplete should the requirements of Section 85 are not fulfilled.

The shortfalls on other matters such as 'newly appointed directors', (to submit Forms 11 & 12), and, 'change of company secretary', (to submit Forms 13 & 14), pursuant respectively to Sections 151 and 164 are yet to be attended to by the company." [Sic.]

Section 85 of the Act deals with transfer of shares. Relevantly it provides as follows:

•	Subject to the constitution of the company, shares in a company may be transferred by entry of the name of the transferee on the share register (s.85 (1)).

•	For the purpose of transferring shares, a form of transfer signed by the present holder of the shares shall be delivered to the Company (s.85(2)).

•	On receipt of a form of transfer in accordance with s.85, the company shall forthwith enter the name of the transferee on the share register, unless the Act or the company's Constitution expressly permits the board to refuse, and certain procedures are followed by the Board (s.85(4)).

Company constitution is dealt with by Part V of the Act. By s.32, in the absence of modification or exclusion [and there was none here], the provisions of the "standard constitution" in Schedule 1 are deemed to be included in the constitution of the company (s.32(3)).

By cl .9 of the standard constitution it is provided (in accordance with s.45 of the Act) that the company shall forthwith after the registration of the company issue to any person named in the application for registration as a shareholder, the number of shares specified in the application.

Transfer of shares is relevantly dealt with by cl. 26 in terms similar to the provisions of s.85. There is no relevant power in the board here to refuse registration.

In opposing the application made at first instance, the company relied upon an affidavit sworn by Christopher Antone Thomas Pedras on 12 April 2000. [Mr Pedras was not joined as a party at that stage, but has been joined as an appellant in this appeal.]

In his affidavit, Mr Pedras claimed that he was the company's "Sole Director and Shareholder."

In reply to Mr Laidlaw's affidavit, Mr Pedras said:

"4. The information on which the statement in paragraph 4 of the affidavit is based which states 'that it appeared that the company had originally been incorporated with a Mrs. Fuiva Kavaliku and Mr. Giovanni Kavaliku as directors' is true however on or about 9 July 1999 per company resolution named the following as directors of the company, Chairman of the board of Directors, Christopher A.T. Pedras, Fuiva Kavaliku, William 'Alatini, Robert McCulley, Thomas D. Willis and Charles D. Clark. See attachment 'A' Resolution of Maxam Gold Bank Ltd dated 9 July 1999. See attachment 'B' pages 1 through 6 inclusive, Consent to act as Directors.

Further, the claim that Mrs. Fuiva Kavaliku was the sole shareholder is true but fails to show the Court that on 13 July 1999 per a company resolution the said Kavaliku transferred 'all corporate stock and all other such rights of ownership and management to Mr. Christopher A.T. Pedras and further removed herself from any position with the company. This resolution was signed by Mrs. Kavaliku, verified by the corporate secretary, Miss Luisa Fukofuka and executed by a Commissioner for Oaths, Miss Lepaola Bloomfield and filed with the Registrar of Companies. See attachment 'C' company resolution dated 13 July 1999.Therefore as of that date 13 July, 1999 Mr. Pedras was the holder of all the shares originally held by Mrs. Kavaliku."

The "resolution" referred to as "attachment A" purported to state, inter alia, the following:

"Resolved, that this resolution has been agreed upon by the Board of Directors of Maxam Gold Bank Ltd, as of this date specified: July 09, 1999.

The Corporation has set into record this resolution and all other agreements, documents that are connected therewith be, and the same hereby are, approved on the terms and conditions as [set] forth therein ;

Resolution Number 1:

As of the date specific, July 10, 1999, the Board of Directors for Maxam Gold Bank Ltd., have adopted the following persons and parties as their Board of Directors, pursuant to this date specific, July 10, 1999. This Board of Directors shall remain in full force until such time as replaced by vote of the Board Members in a 2/3 percentage of its members...."

The "resolution" was dated 13 July 1999 at 4:30 p.m. It states that Mr. Pedras was Chairman of the Board of Directors. Mrs Kavaliku signed it as a director with the date 10 July 1999 beside her signature. Mr. William 'Alatini also signed as a director with the date 10 July 1999 beside his signature. The other nominated directors, including Mr. Pedras as Chairman, signed in a similar fashion.

"Attachment B" to Mr. Pedras' affidavit consisted, with one exception, of consents by the persons named in para. 4 of the affidavit to be directors. The exception is that one of the forms nominated Mr. William 'Alatini. This was changed, so as to nominate Hemaloto 'Alatini. It appears that Mr Hemaloto 'Alatini signed the consent form.

The "resolution" referred to in "Attachment C" to the affidavit purported to state, inter alia, the following:

"Resolved, that this resolution has been agreed upon by the Board of Directors of Maxam Gold Bank Ltd as of this date specified: July 09, 1999.

This Corporation has set into record this resolution and all other agreements, documents that are connected therewith be, and the same hereby are, approved on the terms and conditions as [set] forth therein;

Resolution Number 1:

As of the date Specific July 13, 1999, I, Fuiva Kavaliku, as Chairman of the Board of Directors and First Director of Maxam Gold Bank Ltd. Hereby and without recourse fully authorize the transfer of all corporate stock and all other such rights of ownership and management to Mr. Christopher A.T. Pedras, as such, remove myself from any position with Maxam Gold Bank Ltd., unless so appointed by the board of Directors. [Emphasis added.]

Resolution Number 2:

As of date specific July 13, 1999, I, Fuiva Kavaliku, as Chairman of the Board of Directors and First Director of Maxam Gold Bank Ltd. Hereby and without recourse fully and unconditionally remove Mr. Giovanni Kavaliku, as a Director of the Maxam Gold Bank Ltd...."

The resolution was dated 13 July 1999 at 4:30 p.m. It was signed by Mr Pedras, Mrs Kavaliku and Mr Giovanni Kavaliku.

The affidavit continues:

"5. As far as the company is aware there were no irregular forms purporting to show changes in the directors of the company as alleged in paragraph 5 of the affidavit. Attachment 'B' were filed with the Registrar of Companies office and there has never been any notice from the Registrar of Companies office that there was anything wrong or irregular with the forms filed. The allegation that there were a sales of shares to Mr. Pedras is clearly false. There were never any sale of the shares. It was decided by all of those forming the company including Mrs. Kavaliku and I that 100% of the shares of the company would be held by Mrs. Kavaliku until such time that the company was fully certified and registered. She never gave or transferred any consideration for those shares. When the company was registered and at some time when I was in town the shares would be transferred to me because I would be infusing capital with which the company could be operated. In other words I would be giving and transferring valuable consideration for those shares.

The allegation that I transferred Mrs. Kavaliku's shares to myself is preposterous. The shares were transferred to me per a valid company resolution which was agreed to by Mrs. Kavaliku. She signed the resolution which was attested to by a Commissioner for Oaths. It is conceded that a share transfer form has not been filed and the transfer has not been recorded in the share register but those requirements were to be completed before the annual general meeting in June. It was not anticipated at that time there would be a dispute regarding the transfer.

Further, the letter of the Registrar of Companies dated 31 March 2000 that the said resolution dated 13 July 1999 could be regarded as incomplete if the requirements of section 85 are not fulfilled does not invalidate the transfer of the shares from Mrs. Kavaliku to Mr. Pedras but only that the requirements of the Act are incomplete which the principals of the company had every intent of fulfilling before the annual general meeting in June 2000."

The affidavit proceeded:

"6. ... Further the claim that all the shares in the company was still legally the property of Mrs. Kavaliku ignores the fact that the company resolved to transfer those shares to Mr. Pedras and ignores the fact that Mrs. Kavaliku transferred those shares willingly and pursuant to a previous agreement.

7. Clearly from the document filed with the Registrar's Office incorporation documents are incomplete but from the minutes of a Board of Directors meeting held on 23 July, 1999 at 5:30 p.m. the topic of shares of stock were discussed and the Mr. Pedras was to hold 90% of the stock and Mr. 'Alatini 5% and Mrs. Fuiva Kavaliku 5%. See attachment 'D'. Whatever the breakdown of the shares were at the time of registration it was certain that 90% of those shares were to go to Mr. Pedras. The claim that the shares were Mrs. Kavaliku's to dispose of as she wished runs counter to the evidence presented above which are supported by the documents filed with the Registrar's Office.

8. I have no information that would lead me to conclude that the first part of paragraph 8 of the affidavit is incorrect except that at this time 'Mr. Alatini was not a shareholder of Maxam. Mr 'Alatini was involved in the incorporation of Maxam and in obtaining the consents of Mrs. Kavaliku and Giovanni Kavaliku to act as directors of the company. This was of course to their advantage because they were to be paid monthly director's fees which they were always willing to accept and which was always paid."

The "discussion" referred to in the meeting of 23 July was recorded in the attached minutes as follows:

"8. Shares of stock

Motion 8.1 by the Chairman that the shares of stock be as follows:

Pedras, CA 90%

'Alatini, W 5%

Kavaliku, F 5%

At no time will stock be assigned, given or sold unless a resolution is passed by the principals.

Motion seconded by 'Alatini, W and carried by the Board of Directors."

The matter came before the primary Judge on 11 and 13 April 2000. On 1 May 2000, his Honour ordered, for the reasons we will mention, that the company rectify its share register by entering the transfers of 100 shares from Mrs. Fuiva Kavaliku to Hemaloto 'Alatini on 23 March 2000, and from Hemaloto 'Alatini to Laidlaw Holdings Ltd on 29 March 2000.

The company appealed from this order.

When the appeal was called on for hearing on 11 July 2000, we were informed that Laidlaw Holdings had withdrawn its instructions to its solicitors. We then adjourned the hearing to 17 July 2000 and directed the company to inform Mr Pedras and Mrs Kavaliku of these appellate proceedings in case either of them wished to be joined as a party. Mr Pedras did indicate that wish and, as has been said, we ordered that he be joined as an additional appellant. Mrs. Kavaliku, through a letter written by her solicitor, indicated that she did not wish to be joined.

The reasons of the primary Judge

His Honour noted that although it would appear that there had not been proper compliance with the Act, s.18 provides that the certificate of incorporation is conclusive in this regard.

Referring to the figure "100%" in the column for the number of shares, his Honour said that it must be assumed that this had been taken by the Registrar to mean 100 shares.

The primary Judge referred to the execution of the transfer to Mr Hemaloto 'Alatini for $1, and to the transfer by him for $10.00 on 23 and 29 March 2000 respectively. His Honour then noted the company's refusal to register these transfers as the basis for the application to the Supreme Court.

Turning to the company's evidence, the Judge said:

"The company has produced evidence claiming that the shares were transferred by Fuiva Kavaliku to Christopher Pedras. It has produced a copy of a resolution passed on 9 July 1999, that, as of 13 July 1999, she authorised the 'transfer of all corporate stock and all other rights of ownership and management to Mr Christopher A.T. Pedras'.

Christopher Pedras has filed an affidavit exhibiting a number of resolutions of the directors at a meeting apparently held on 9 July 1999 and the minutes of a meeting of the Board of Directors on 23 July 1999.

It would be reasonable to describe those documents as remarkable. They are frequently incomprehensible and, in a number of critical aspects, appear to be mutually contradictory. They also reveal an ignorance of the Act and even of its correct name and failure to comply with many of its provisions. However, I do not consider I have sufficient evidence upon which to reach any final conclusion about their contents at this stage and neither do I need to do so.

Mr Foliaki for Maxam does not deny that the company has failed to comply with many mandatory requirements of the Act. The method of suggested transfer of the shares disclosed in the resolutions of the company is not, in itself, in accordance with the Act. In particular, he admits there has never been any attempt to register the suggested transfer of the shares from Fuiva Kavaliku to Christopher Pedras.

The requirements of the Act should have been complied with and, in the absence of any such registration following a suggested transfer nine months previously, the court can only conclude that the shares were not transferred in the manner claimed by Christopher Pedras. The evidence on Form 1 is that the shares at the time of registration and incorporation of the company were all held by Fuiva Kavaliku and there is no proper evidence of that having changed."

Noting the summary jurisdiction conferred by s.91(3) of the Act, his Honour said:

"I am satisfied that the statement on Form 1 that the number of shares held by Fuiva Kavaliku as the sole shareholder is 100% means that there are 100 shares, all held by her. I am equally satisfied that she was entitled to transfer those shares to Hemaloto 'Alatini and he was subsequently entitled to transfer the shares to Laidlaw."

As has been said, the Judge ordered rectification of the register accordingly, with costs.

Conclusions on the appeal

The law with respect to transfers of shares prior to registration is stated in Palmer's Company Law, 24th Ed. [1987], Vol 1 (at 613):

"A transfer is incomplete until registered. Pending registration, the transferee has only an equitable right to the shares transferred to him. He (or she) does not become the legal owner until his (or her) name is entered on the register in respect of these shares."

It follows that, until registration occurs (and it has not), none of the parties, including Mr Pedras, had any legal ownership of any of the shares. Any interest held by any of them was equitable only.

As has been seen, the equitable interest claimed by Mr Pedras was not clearly articulated before the primary Judge, with the consequence that his Honour was unable to express a concluded view on that question. Although an application under s.91 is a summary procedure, so that the bringing of a counter-claim was not strictly necessary, the affidavit evidence of Mr Pedras was argumentative and the documentation relied upon departed from orthodoxy in some respects, as his Honour noted. Nonetheless, in our view, it did establish, prima facie, an equitable claim to at least 90% of the issued shares. This claim appears to be based upon a real consideration. Whether it should be classified as a claim for specific performance of a promise made on or before 9 July 1999 by Mrs. Kavaliku to transfer to him 100% of the shares, (later, on 23 July 2000, reduced to 90%) ; or as a claim for a declaration that Mrs Kavaliku held the shares (or 90% of them) upon an express, resulting or constructive trust, does not matter for present purposes. On any view, Mr Pedras demonstrated a prima facie equitable claim to at least 90% of the shares.

Significantly, Mr Pedras's prima facie equitable interest was prior in time to any equitable interest created by the transfers executed in March 2000. The rule in equity is that, prima facie, the prior equitable title will prevail. Thus in Ireland v Gray (1902) 1 Ch. 522, a husband had mortgaged shares of which he was a trustee for his wife ; and before the mortgagee had become the registered holder of the shares, the wife took proceedings claiming that her equitable interest prevailed over that of the mortgagee, a claim that the court upheld (see Palmer, ibid). In our opinion, for similar reasons, Mr Pedras' equitable interest, if conclusively established, and subject to anything being shown which would postpone his rights, would prevail over those claimed by Laidlaw Holdings. It must follow that Laidlaw Holdings has failed to show an immediate entitlement to be registered under the summary procedure in s.91. In other words, where a prima facie reason for opposing such a summary order is shown, it is inappropriate to give summary relief. Instead, as complex litigation, the matter should now proceed as a contentious action in the ordinary way.

It follows, in our view, that Laidlaw Holdings' application should have been dismissed as an inappropriate attempt to invoke a summary jurisdiction. The parties, if so advised, must seek final relief in fresh proceedings. To this extent, the appeal will be allowed.

The notice of appeal seeks, in addition, that the Court of Appeal make a number of other orders, including orders that the Board of Directors issue 1,800 shares to Mr Pedras and 5 shares each to Mrs Kavaliku and Mr Viliami 'Alatini; and an order declaring that nominated persons are the directors of the company. We decline to make these orders. We propose to order, as has been said, that Laidlaw Holdings' application be dismissed. If the company or Mr Pedras wish to seek relief in respect of these other matters, this should be pursued in fresh, properly constituted, proceedings.

Costs

In the exceptional circumstances of the case, there should be no order for costs at first instance, or on the appeal.

Orders

We make the following orders:

1. Appeal allowed in part.

2. Set aside the orders made at first instance; in lieu thereof, order that the application be dismissed, with no order as to costs.

3. Make no order for the costs of the appeal.

Burchett J, Tompkins J, Beaumont J