IN THE COURT OF APPEAL OF THE COOK ISLANDS
CA NO. 1/84

BETWEEN

MARINE RESOURCES (COOK ISLANDS) LIMITED
Appellant

AND

MICHAEL CRAWFORD MITCHELL AS THE SOLICITOR-GENERAL
Respondent

Coram: O'Regan J (Presiding)
Casey J
Dillon J

Counsel: Holmes for Appellant
Grove and Mitchell for Respondent

Hearing: 16, 17, 18, & 19 September 1985
Judgment: 11th March 1986

JUDGMENT OF THE COURT DELIVERED BY CASEY J

Introduction

By proceedings commenced in the High Court of the Cook Islands in December 1982 the Appellant claimed damages totalling $NZ 1,710,075 alleging breaches of contract by the Cook Islands Government in relation to a fishing venture. There were alternative allegations of fraud and negligent misrepresentation with an additional claim for exemplary damages. The hearing before Speight CJ in Rarotonga and Auckland occupied 14 days between 22 September and 17 November 1983 and in a reserved judgment delivered on 8 December 1983 he found for the Respondent, noting that the tort claims were "not strongly persisted with". The Respondent's pleading consisted basically of a general denial, especially of any concluded contract between the parties. But at the hearing the Judge had to deal with two further matters not specifically raised in the Statement of Defence - the non-incorporation of the Appellant company at the time of the alleged contract, and illegality. The Appellant (whom we call "Marine Resources") alleged that the agreement was partly oral, partly written and partly by conduct extending over several months in 1981 and principally involving on its side Mr Stace, a New Zealand accountant and company director who was the promoter of the scheme and of Marine Resources; and Mr Tylor, a partner in the legal firm of Short & Tylor of Rarotonga who acted for him and the Company, of which Mr Stace in due course became Managing Director. On the Government side there was Mr Dashwood, an officer of the Ministry of Agriculture and Fisheries; Mr Paul Temm QC of Auckland (who acted as a special adviser to the Government on this matter) and other departmental officers and Ministers. Mr Stace had been engaged in fishing ventures in New Zealand through a company called Maritime Services (N.Z.) Limited and had discussions with Government representatives anxious to develop a fishing industry among Island residents engaged at a subsistence level only. It was also anxious to exploit the territorial waters and the large exclusive economic zone around the Islands and had received encouragement and some assistance from United Nations and New Zealand aid agencies. The background was concisely summarised by the Chief Justice and we do not need to repeat it.

In early June of 1981 these discussions reached a stage when it was thought a firm proposal could be put to the Government. Messrs Temm and Tylor co-operated in the preparation of a letter which was sent by the latter to Mr Temm on 4 June 1981 for submission to Cabinet, setting out proposals which were accepted with minor modifications. His Honour rightly held this exchange formed the only basis of any contract between the parties and that is now accepted by the Appellant.

The three letters are:

"4 June, 1981.

Mr Paul Temm Q.C.,
Special Advisor to Cook Islands Government,
RAROTONGA.

Dear Sir,

re: MARINE RESOURCES (COOK ISLANDS) LIMITED

Further to our discussions we set out below the proposals for the basis of an agreement between our above client Company and the Government of the Cook Islands. Because of the difficulties over the Ravakai and Palmerston Island, the proposals are divided into two parts. Whenever appropriate we have commented on any item.

A. The Company would undertake to develop Northern Group fisheries with an emphasis on export to Pago Pago by doing the following things:

1. TO supply a deep sea tuna long-lining fishing vessel and gear together with a suitably qualified crew.

2. TO make available opportunities for Cook Islanders to be trained as deep sea fishermen.

3. TO undertake deep sea fishing on a regular basis.

4. TO provide adequate on-shore freezer facilities where necessary.

5. TO provide incidental surveillance of other fishing vessels while at sea.

6. TO supply fuel as is available from Pago Pago to commercial fishermen.

7. TO supply dories and gear similar to the prototype already demonstrated at a reasonable price on satisfactory terms for purchase by Northern Group fishermen.

8. TO supply adequate fishing gear replacements.

Comment on items 6, 7 & 8: We consider it to be of vital importance to this industry developing, that especially the fuel, but also fishing equipment, motors and boats, be available to fishermen (including this Company) and onshore facilities (freezers etc) as cheap as possible. To this end, we would be asking for approval of exemptions from duty/levy/sales tax/use tax/ on these items when sold to commercial fishermen and operators. For our part, we are negotiating to have the diesel jet dories built and assembled in Rarotonga in an endeavour to keep the cost as low as possible.

We submit that these revenue concessions by Government would be more than adequately made up by the value of exports.

9. TO buy at a fair price the whole of the catch offered for sale by Northern Group fishermen.

10. TO supply adequate assistance for the proper maintenance of the dories and engines.

11. TO supervise and manage the operations of onshore freezing facilities installed by Government in the Northern Group.

B. In return, our Company client would ask the Government of the Cook Islands to do the following:

1. TO grant the Company a licence to fish in the Northern Group within the 12 mile zone and if required, within the 200 mile zone.

Comment: it is not expected that this would include purse - seining as of right although the Company would want to discuss this method of fishing with Government.

2. TO restrict access by longline or purse seining vessels, (other than those operated by the company having a capacity of more than 5 tons green weight) within the 12 mile zone in the Northern Group unless:

(a) the option of carrying out a similar type of operation is first given to the Company;

(b) it can be shown that the viability of the operations of the company or the fishermen supplying it will not be adversely affected.

Comment: The interests of the Company are tied integrally with those of the local fishermen selling fish to the mother ship. This protection is sought, in the first instance, for them, as damage to their resource will also damage the Company.

3. TO grant to the Company the control of the onshore facilities (freezers etc.) to be managed by it, under a licence/lease arrangement.

C. The Company would undertake to develop the Southern Group fisheries, with an emphasis on satisfying the Rarotongan Market by doing the following things:

1. ESTABLISH proper facilities on Rarotonga for retailing, distribution and processing of fish and fish by-products.

Comment: (a) The Company has made provision for $36,000 for this part of the venture. Included in this would be a fish meal plant for animal feed. Depending on supply, there will also be potential for export of processed fish;

(b) With proper distribution and marketing as well as availability of processed fish, the Company is confident that it will be able to develop local sales of approximately 3 ton per week. The processing of fish is seen as essential to the substitution of imported fish.

2. ASSIST in the establishment of freezer facilities on Southern Group Islands which have the capacity to support a local fishing industry,

or

TO provide adequate onshore freezer facilities on Southern Group islands which have the capacity (ability) to support a local fishing industry.

Comment: At this stage Fisheries have a project document for construction of a 5 ton freezer in Palmerston. In our client Company's opinion the resource would support a larger unit and it would be prepared to enlarge this facility to say 10 ton. The other Islands seen as having potential for local dory operations because of their harbours, are Atiu (fishing in particular the Takutea ground) and Mangaia.

3. OPERATE a regular maintenance and pick-up service in Southern Group Islands which have freezer installation.

4. TO buy at a fair price the whole of the catch offered for sale by fishermen on those islands.

5. SUPPLY on a regular basis sufficient fish to meet the needs of the domestic market on Rarotonga.

Comment: If the output of Palmerston is increased to say 8 ton per month and at least 2 other Southern Group Islands are also producing then this should meet the demand for the Rarotongan market. There would then be no need to bring fish from the Northern Group down to Rarotonga, and these could be marketed in Pago Pago, giving a better return to the fishermen and increasing overall export earnings. Any excess production in the Southern Group would be available for export in processed form.

6. TO supply fuel as available from Pago Pago to Palmerston Island.

7. TO supply dories and gear similar to prototype already demonstrated at a reasonable price on satisfactory terms for purchase by fishermen.

8. TO supply adequate assistance for the proper maintenance of the dories and engines.

9. TO supply adequate fishing gear replacements.

10. TO supervise and manage the operations of onshore freezing facilities installed by Government.

D. In return our Company client would ask the Government of the Cook Islands to do the following:

1. TO grant to the Company the control of the freezing facilities to be managed by the company, under a licence/lease arrangement.

2. TO charter/sell to the Company the Ravakai to operate as a pick-up and service vessel within the Southern Cook Islands.

Comment: We understand that some commitment has already been made to the Marsters family and Palmerston Island for the use of the Ravakai for the independent development of Palmerston fisheries. It would be quite impossible for our client Company to consider a major investment in a retail/distribution/ processing establishment, with the possibility of irregular inconsistent and subsidised deliveries of fish from Palmerston being sold off the Ravakai. It would be impossible to establish a proper or stable marketing system with this background. If our proposals were approved we see the following advantages to the people in Palmerston:

(a) Larger freezer capacity - we would install additional freezing capacity which would allow persons on Palmerston to catch more fish;

(b) Duty free fuel ex Pago Pago;

(c) Supply, assistance and maintenance of dories, fishing gear;

(d) Regular pick-up-service by both Ravakai and larger vessel;

(e) Independent control of freezer facilities in Palmerston.

In our client Company's opinion, the position of the Ravakai and Palmerston is fundamental to the development of fisheries in each of the Southern Group Islands.

E. Term of Agreement: it is proposed that the agreement run until 31st December 1985 in the first instance. Subject to satisfactory performance of its undertakings by the Company a further term of 2 years would then be available to it.

Comment: The initial term of 4 years is regarded as a minimum period for establishment. It is noted that the first year of operations would be taken with setting up the operations. The date suggested for the end of the 1st period, is chosen bearing in mind the delays in having freezer facilities installed in the North, together with hurricane season "downtime".

F. Interpretation of Agreement: It is proposed that any differences between the parties that arise from the agreement, be settled by arbitration.

We trust that these proposals will be in accord with Government's wishes. Our client Company is obviously anxious for an early decision and we understand that you will be discussing the matter with cabinet tomorrow. To facilitate matters it may be useful for Mr Stace and the writer to be "on call" so that any further negotiations can be dealt with and referred back to Cabinet before you leave Rarotonga.

We await your advice.

Yours faithfully,

SHORT & TYLOR
per:
signed by (R.W. Tylor)"

On 16 June Mr Dashwood wrote to Mr Tylor as follows:-

"Mr Reuben Tylor,
Short & Tylor,
Barristers & Solicitors,
P.O. Box 39,
RAROTONGA.

Dear Sir,

RE: MARINE RESOURCES (COOK ISLANDS) LIMITED

I write to inform you that the proposals submitted by you on behalf of Marine Resources (Cook Islands) Limited were discussed by Cabinet on Tuesday 9 June.

Your proposals were approved by Cabinet subject to the following amendments:

(a) in Clause B.2, the passage in brackets be altered to read: (other than those operated by the Company or owned and operated by Cook Islanders);

(b) by adding after B.3 and D.1 the following words 'provided that the Island Council and people of the respective island have the right to use these facilities except in competition;'

(c) by adding after D.2 the following words 'provided that Governments right to use the Ravakai in emergency situations are not restricted;'

(d) in Section E, the term of agreement be subject to a renewal period of 2 years instead of 4 years.

I trust that the above will enable you and your client Company to proceed with the implementation of your proposals.

I remain,
Yours sincerely,

(signed)
(J. Dashwood)
Chief Fisheries Officer"

Mr Tylor replied:

"15 July, 1981.

Mr J. Dashwood,
Chief Fisheries Officer,
Ministry of Agriculture & Fisheries,
RAROTONGA.

Dear Sir,

re: MARINE RESOURCES COOK ISLANDS LTD

We refer to your letter of 16/6/81. The amendments set out in your letter are accepted by our above Company client.

Yours faithfully,

SHORT & TYLOR
per:
(signed)
(R.W. Tylor)"

Was There A Contract?

Pointing to the introductory words of the 4 June letter - "We set out below the proposals for the basis of an agreement between our above client Company and the Government of the Cook Islands" - and to the obvious intention that many matters were left for future agreement, the Chief Justice rightly concluded that this exchange left a number of important points still defined or not defined at all. We accept his assessment of page 12:-

"It seems little wonder that Mr Tylor asked three times that a formal document be prepared, and equally it is significant that Mr Temm seems to have declined the request, not on the basis that the documents were of themselves sufficient, but because very understandably he did not wish to have to approach the Government again - from which it may be legitimate to infer that a further approach for more definition would require further debate and decision. He gave his word, which everyone would accept, that he would see that Cabinet stuck to its promise - but promise of what?"

Mr Holmes made a valiant effort to overcome these problems. We accept his submission that the necessity for the Company to negotiate reasonable prices with local fishermen for the dories and catch with local fishermen would not make any agreement conditional, and respectfully disagree with the Chief Justice on that point, insofar as he appears to indicate otherwise. But we cannot accept Mr Holmes' proposition that the option to lease or licence the proposed freezers to the Company leaves nothing more to be resolved than minor questions of detail; the same comments apply to the proposal for the charter/sale of the ship Ravakai. Indeed, problems had arisen about this vessel even before Cabinet's letter of approval was received, with Mr Dashwood clearly indicating that it would be unwise to press for a sale - a recognition of the problems both sides knew were likely with the Marsters family on Palmerston Island, to whom it had been promised.

While the Arbitration provision at the end of the letter could be broadly construed, it cannot have been intended as a substitute for the consensus of the parties in matters of fundamental importance, most of which are simply sketched in outline. They include the provision of opportunity and assistance to local fishermen, the undertaking of deep sea fishing "on a regular basis" and the control, supervision and management of onshore fishing facilities. Speight CJ felt that there was only an "agreement to enter into an agreement", and applying Willetts v Ryan (1968) NZLR 863 he held there was no concluded contract.

We accept his conclusion generally for the reasons he set out, without necessarily agreeing with them all. However, we can see a more basic objection stemming from this correspondence. The vital letter of 4 June was carefully prepared by two experienced lawyers. Mr Tylor at least knew that the Company he was claiming to represent was not then incorporated. The matters set out and now alleged to be in the form of offers accepted by the Government were expressed to be no more than proposals for the basis of an agreement, and Cabinet (through Mr Dashwood) simply approved "the proposals."

We can see no reason why the plain and unambiguous meaning of these words should not prevail. These letters clearly dealt with broad policy and the steps to be taken to carry it out. They comprised a blue print for an ongoing relationship to be implemented by specific contracts appropriate to the particular subject matter. Mr Tylor's pressure for a formal contract reflects a similar view on his part, but Mr Temm was under no illusion about the difficulty of attempting to pin Cabinet down to any detailed terms. Indeed, subsequent events demonstrated the impossibility of producing anything like a workable contract at that early stage, when major questions such as the attitude of the Islanders themselves to the project and the position about the freezers and other matters were largely unknown or unresolved.

Mr Temm's response to Mr Tylor's request was clearly an assurance they could trust the Government, but he was in no position to bind it or the Cabinet. This was a very different situation from an exchange of correspondence between two business people in an orthodox commercial environment. In that situation the Courts usually have little difficulty in spelling out an intention to enter into binding legal relations from sometimes very sketchy correspondence or discussions, a result based on the presumed expectations of people dealing in their mutual business interest. But here much wider interests were involved, including Government policy towards groups of Island people whose views had also to be consulted, as well as the exploitation of what might be a very valuable fishery resource. In these circumstances one can see good reasons for its unwillingness to enter into any formal and binding commitments at that stage, and justifies a reluctance by the Court to read into this correspondence contractual intentions with the same facility as in the case of a purely commercial transaction between private individuals or trading corporations. We are therefore of the opinion that the Chief Justice was correct in holding that the correspondence of June and July 1981 did not constitute an enforceable contract.

Pre-Incorporation Rights

Having reached this conclusion it is not necessary to consider what Speight CJ regarded as the crucial problem faced by the Appellant - namely, that a Company cannot sue or be sued on a contract purporting to be entered into by it, or on its behalf by other persons, prior to its incorporation. However, we think it appropriate to express our views in response to the full argument presented by Counsel. At p. 15 of his judgment he said:

"After incorporation the company may by its actions in adopting the previous agreement, and in part performing it, be held to have entered into a new contract with the other party on the same terms as the earlier purported agreement. But this required that the company after incorporation, shall have turned its mind to the question of entering into a new contract and have intended to create its own contract albeit in the same terms as previously recorded. Hence acts done under the erroneous belief that the preliminary agreement was binding on the company are not evidence of a new agreement. Northumberland Avenue Hotel Company Ltd (1886) 33 Ch. D. 16 (CA); Official Assignee of Motion v N.Z. Sero-vaccines Ltd (1935) N.Z.L.R. 856."

As he said, at no stage was there any recognition by Marine Resources that a new contractual arrangement was to be entered into. He pointed out that in late 1981 and in 1982 it appeared to have abandoned the Ravakai charter and with it the involvement of the Southern group of islands, and to have ceased the attempts to supply dories and attempted to rearrange its Northern operation, but without finality. Mr Holmes disputed the accuracy of some of these observations and in particular pointed to passages in the evidence which emphasised the Company still maintained its right to the ship and its intention to operate in the Southern group. We think the Chief Justice's comments related to the discussions Mr Stace held about October 1981 with MAF officials which were directed towards a post-incorporation agreement accepting the realities of the current situation. There is certainly evidence indicating that the thrust of the intended shipping involvement was changing from a fishing operation towards a cargo service, no doubt as a result of the possibility of withdrawal by the existing carriers, Silk & Boyd Ltd.

The references in the judgment to the new "proposals" of October 1981 (never adopted) supported his conclusion that there was no evidence of any new contract. Indeed, he emphasised that the people on both sides continued to refer to "our agreement of June 1981". This was also echoed by Mr Tylor on 26 May 1982 when he sent a draft agreement to Mr Temm "to replace that existing between the parties", but this was never executed. The Chief Justice concluded that the Government had become disenchanted with the Appellant and was increasingly attracted towards the very much larger opportunities offered by purse-seining in the exclusive economic zone of 200 miles; consequently it looked on Marine Resources, plans as a very small operation which they did not seem to have the ability to perform.

A further problem faced by the Appellant is that nobody is identified in this critical correspondence of 1981 as a trustee or agent contracting for the benefit of or on behalf of the intended Company. The letter of 4 June from Short & Tylor was written for the Company as their client, and from that description the solicitors' firm could not be regarded as assuming the obligations of contracting independently for its benefit. Nor is there any suggestion in this correspondence or the evidence that either Mr Stace or his New Zealand Company were putting themselves forward in either of these capacities. This circumstance adds further weight to our view of the preliminary nature of the proposals agreed to.

Although there was never any written agreement between the Government and the Company after its incorporation on 7 August 1981, there were certainly continuing discussions with Officials and Ministers in which (as the Chief Justice noted above) the parties believed that they were dealing in accordance with the arrangements agreed to in June. A figure of $250 per month had been put forward by Mr Dashwood as the charter rate for the Ravakai and there were negotiations about a formal charter agreement, but these were never concluded because of the inability to resolve questions of liability for loss of life and loss of the ship, having regard to its unfortunate history, poor stability and the fact that it was uninsurable. We are satisfied that while Mr Dashwood was competent to negotiate these matters, the final decision rested with the minister or Cabinet, and that Mr Stace was well aware of this. With hindsight it may be suspected that the Government was not anxious to dispose of the Ravakai because of the prior commitment to the Palmerston Islanders, and when Minister Ingram came on the scene, it became very obvious that he had no intention of letting the Company have this vessel. Eventually it was chartered to the Marsters family, seemingly without any difficulties about the problems which dogged the negotiations with the Company, and as a result the whole Southern proposal put forward in the letter of 4 June became unworkable.

There were also discussions about the freezers to be installed in Rakahanga and Penrhyn Islands. These were part of the onshore facilities contemplated in the letter of 4 June 1981, and the Company saw it as essential that these be established and operated under its control. An attempt was made by Mr Mitchell in conjunction with Mr Tylor to draw up a lease or licence, but again this got nowhere. In the new proposals put forward in October 1981 the Government clearly contemplated that it would be responsible for the upkeep and operation of these units, which were being supplied by overseas aid.

Another area of conflict in which the parties clearly recognised the June proposals concerned the agreement between the Respondent and the Norwegian Hareide group for purse-seining, regarded by the Company as a serious threat to the viability of its operation. In their dealings and discussions over para B.2 of the letter, the Government considered sub-clauses (a) and (b) were alternatives, whereas the Company regarded them as cumulative in their effect. We are satisfied that the latter interpretation was correct. If that letter had been binding as a contract, the Appellant would have been entitled to an option to carry out a similar operation to that authorised by the agreement with the Norwegian group. On the face of it, the correspondence seemed to give them an unlimited right to purse-seine within the 12-mile zone. There was an argument about whether this was so, but this action by the Government resulted in the Cook Islands Development Bank placing a "hold" on its plans to finance Island fishermen into the purchase of the reputedly more efficient dories designed by the Company, and on its general financial support of the latter.

The stand-off between the parties lasted for some months until the intervention of Minister Ingram in February 1982, and the dispatch of a letter to the Norwegians, after which the Bank was satisfied that they had been given only an exploratory right within the 12-mile zone. This was also accepted by the Appellant, although with obvious misgivings. Thereafter the Bank was prepared to resume its co-operation, and the Appellant elected to proceed with its plans for the Northern fishery. The major part of the Company's claim (approximately $NZ 1,075,000) Was based on the loss of the profits it expected to make from purse-seining had it been granted the option it claimed to be entitled to in terms of para B.2 of the 4 June letter. Mr Holmes did not accept there was any agreement or understanding with the Norwegians that their activities in the 12 mile-zone were limited to exploration only. On the other hand, Mr Temm maintained that this restriction was known and accepted from the beginning. The Chief Justice made no finding on this disputed matter when considering questions of contract; in view of his conclusion that there was no contract between the Appellant and Respondent, none was necessary.

A more cogent reason for putting this dispute aside - applicable to both the claims in contract and in negligence was his conclusion that any rights Marine Resources might have had for purse-seining were worthless. As we point out later, this is a conclusion we are not justified in disturbing; we content ourselves now with the observation that it would be quite improper for us to hold that the account by Mr Temm and Minister Ingram of the circumstances giving rise to the letter clarifying the position with the Norwegians was untrue. In spite of Mr Holmes' submissions from which this suggestion might be inferred, Mr Tylor was obviously prepared to accept as genuine the explanation given to the Company in the letter from the Minister of Agriculture and Fisheries of 18 February 1982 - see the former's telex to Mr Stace of 19 February (document 160). As he pointed out, there appeared to be no practical consequences from what might have been a technical breach of the agreement, and in his opinion the way was then clear for the Company to go ahead and commence business. We agree with this assessment. If the option as claimed had been triggered by the dealings with the Norwegians, the Company would have been entitled to no more than the right to mount an exploratory exercise within the 12-mile zone and this, of course, would have been of no commercial value to it.

The Norwegian episode and the Ravakai and the freezers are examples of matters raised between the parties after incorporation, which might be regarded as leading to the conclusion they had reached a fresh agreement based on the terms of the original proposals. We understood that Mr Holmes was in effect making this submission when he claimed there had been part performance of the contract by the Government, and he referred us to the comments of Kay J in Howard v Patent Ivory Manufacturing Co. (1888) 38 Ch. D. 156, 163 in which that Judge was able to distinguish and by-pass the difficulties raised in Re Northumberland Avenue Hotel Co. on the facts.

However, what clearly emerges from the account of the discussions or negotiations between the Company and the various Government agencies on some important subjects was their inability to agree. With the Ravakai, the Government flatly refused to proceed with the proposals in the June letter, while it was prepared to deal with the freezers in a way very different from that originally contemplated. These matters clearly demonstrate that it was neither accepting, nor holding itself out as bound, by the contents of the letter in a way which would enable the Court to infer a new contract incorporating them in their entirety.

On the contrary, the Government appears to have acted on the view which we have reached - namely, that those contents were nothing more than proposals setting out a framework within which the parties would negotiate agreements on specific subjects. Certainly that was Minister Ingram's view in relation to the Ravakai; he appears not to have been at the Cabinet meeting which considered Short & Tylor's letter and was surprised to be told that it formed the basis of the agreement relating to that vessel. He said in evidence that he did not regard it in that light at all, and thought that Mr Tylor was talking about a charter or sale contract which might have been negotiated while he was away.

Furthermore, because of these substantial areas of disagreement, we cannot spell out of the parties', conduct and discussions after 7 August 1981 anything in the nature of an estoppel which now prevents the Respondent from denying that a contract was entered into incorporating the terms of the June letter. It would have to be shown that they both accepted, as an assumed convention, that these terms in their entirety were binding as a contract. We must emphasise that the Appellant did not put forward its case in the Court below, or before us, on the basis that separate contracts were negotiated or accepted as existing in relation to individual activities to be conducted within the framework of the proposals set out in the letter of 4 June. Its case was one of all or nothing; that letter and the accepting correspondence constituted a single contract containing all those terms.

Still on the question of the pre-incorporation contract, there remains Mr Holmes' submission that the problem can be avoided by invoking the law of trusts, by analogy to benefits held in trust for unborn children. He referred us to an article by P.D. McKenzie on "The Legal Status of the Unborn Company" (1973) 5 NZULR 211. Even if we were prepared to accept this proposition - and the author concedes there is a strong line of authority to the contrary - we think Mr Grove's criticism has not been answered. As he says, it is fundamental that the agreement should have been made with a trustee for the Company yet to come into existence, and that later there be formal acceptance by that Company of the benefits. We have already said that the correspondence alleged to constitute the agreement in this case does not establish any other person either as agent or as trustee for the unborn Company.

We cannot accept Mr Holmes' proposition that Mr Tylor was really writing on behalf of Maritime Services NZ Ltd, which was Mr Stace's Company under cover of which he conducted the negotiations. When he wrote the all-important letter of 4 June, Mr Tylor said nothing at all about acting for that Company or for Mr Stace; the only client on whose behalf the letter was written was the proposed Company. And the use of that name was not simply another way of referring to Mr Stace or Maritime Services NZ Limited. All concerned were aware of the Government's insistence that any company formed for this purpose must have a substantial Cook Islands shareholding and in fact this was achieved by the Cook Islands Development Bank taking up one-third of the shares on incorporation. This factor also points against any intention by the Government to contract with a trustee having the power to hold the benefit of the contract at large for any future company he might care to nominate. That would have been the situation if the theory of a trust for an unborn company had been applicable to these circumstances. We therefore find ourselves in agreement with the chief Justice, and the claims based on breach of contract as pleaded and put forward here and in the Court below must fail.

Negligence Mis-statement 

This was the only ground in tort prosecuted in the appeal, and we have mentioned the remark by the Chief Justice that it was not strongly persisted in before him. Mr Holmes told us that his submissions below were prepared without reference to the New Zealand Court of Appeal decision in Meates v Attorney-General (1983) NZLR 308, delivered on 17 October 1983, so that the Chief Justice did not apparently have the benefit of submissions on its effect. The claim for negligent mis-statement was made in an amended Statement of Claim in which the misrepresentations particularised in the contractual claim were simply incorporated, and these were added to by further amendments. Damages of $305,700 were claimed in respect of this head of action, although the Appellant also sought $1,404,373 being the purse-seining loss of profits to which we have already referred. Mr Holmes conceded that this latter figure could not be included in a claim based on tort, in which the damages are limited to the actual loss sustained as a result of the conduct complained of.

At page 15 of the Judgment Speight CJ held that a company which does not exist cannot be the victim of tortious behaviour. This followed a discussion of the contractual rights of such a company. Further on, at p. 18, he pointed out that the representations on which the allegations of negligence were based had been made prior to the date of incorporation - 7 August 1981. With respect, we think this is an oversimplification of the position. Fundamental to the tort of negligence is the concept of forseeability of damage, and the fact that before incorporation the non-existence of the Company precluded a "meeting of minds" in the contractual sense does not prevent that Company, when formed, from being in the contemplation of a defendant as likely to suffer damage if he is careless. Negligent conduct does not necessarily have to be directed at a specific victim in order to give rise to liability. This was clearly spelt out in Hedley Byrne & Co. Ltd v Heller & Partners (1964) AC 465. The earlier case of Swift v Winterbotham (1873) LR 8 QB 244 recognised the well-established principle that it is not necessary for a false representation to be made to the Plaintiff directly, but it will be sufficient if it is made to a third person to be communicated to him. The Court adopted the observation by Pollock C.B. in Bedford v Bagshaw (1859) 29 LJ EXCH. 59, 65:

"There must always be evidence that the person charged with the false statement and the fraudulent conduct had in his contemplation the individual making the complaint, or at all events that the individual making the complaint must have been one of those whom he ought to have been aware he was injuring or might injure by what he was doing".

In Mt Gambier Co-operative Milling Society Ltd v Williams (1921) SASR 185, false representations about a business were made by its vendors to promoters of a company prior to incorporation, which was in the contemplation of the parties. After incorporation the Company purchased the business and sought rescission and damages. On the basis that the information was transmitted to it by the promoters, the representations were regarded as having been made to the Company. A similar conclusion was reached in Leslie Leithead v Barber (1965) NSW SR 172, where a company was held entitled to sue for misrepresentations made to its promoters before incorporation.

In the present case we are satisfied that it was clearly within the contemplation of all parties to discussions before incorporation that a Company would be formed by Mr Stace to carry out the project, and that it was to have a Cook islands shareholding. We are also satisfied that the relevant officers of the Government knew that the Company, when formed, would be made aware of its representations, would act upon them and would be likely to suffer damage if they proved to be wrong. Consequently the Plaintiff Company was within the area of risk as a person or body likely to be affected by the carelessness of the Government's representatives. To adapt the views of the three members of the Court of Appeal of New Zealand in Meates v Attorney General (1983) NZLR 308, at pp 334 and 378, the Government and the Plaintiff were acting together in a major development project for the Cook Islands forming a "practical alliance", resulting in the relationship of proximity or neighbourhood (Anns v Merton London Borough Council (1978) AC 728) giving rise to a duty on the former to be careful in its "predictions of official help or the advice given or the statements made" to the Company. (Ibid p. 334) Similarly we can find here no considerations which ought to negative, reduce or limit the duty or the damages.

We agree with Cooke J at p. 379 that a mere promise or assurance of future action does not necessarily give rise to liability, but we accept his proposition that:

"And if the speaker in authority has indicated that certain assistance or other benefits will follow, he will be bound to do what is reasonably within his power, consistently with his other responsibilities, to bring about that result. This is not an absolute duty or a guarantee, which belongs to the realm of contract. It depends simply on what a reasonable man would regard as his duty to his neighbour".

We also adopt his conclusion at p. 380:

"The duty was not confined to the making of statements which could strictly be categorised as information, opinion or advice. It extended here, as I see the operation of the Anns principle, to taking reasonable steps to carry out as far as reasonable possibly any assurances given to the shareholders, even although they had not crystallised into precisely defined contractual obligations. This is to do no more than apply the test of reasonableness in the circumstances of the particular relationship."

This echoes the comment by the other two members of the Court (Woodhouse P and Ongley J) at p. 335:

"The second submission of counsel for the respondent is that the Hedley Byrne principle has never been extended to undertakings or assurances in respect of future action. And the answer in our opinion is that although a promise may fall short of a contractual commitment nonetheless if it is provided by somebody who intends it to be acted upon and who is in an exclusive position to give effect to it, let alone the central Government, then surely it is likely to be received as a far more powerful piece of information than mere opinion whether supplied by a man in a professional capacity or by some other person sufficiently equipped and interested enough in the subject-matter to express a serious view upon it...We think that far from relieving those concerned in such a case from the exercise of due care if anything the duty is reinforced."

We have no difficulty in applying this assessment to the relationship between the Cook Islands Government and its officers and the Plaintiff Company in respect of representations made whether before or after incorporation. As to the former class, it is essential for the Plaintiff to establish that they were made in the knowledge that the prospective Company would accept an act upon them and that in fact the Company did so and suffered loss. We see a difference between the situation of a company existing at the time any careless statements were made, and one that comes into being afterwards at a time when the falsity (for want of a better term) had been discovered or the Government's intention to resile from or ignore them had become manifest. In those circumstances there may well have been a breach of a duty of care owed to the Company's promoters for which they might have been entitled to sue individually; but we cannot see how - the Company could have a claim based on expectations which were known by those concerned with it to be spent before it was incorporated.

The original and amended statements of claim contained numerous examples of false or negligent representations alleged to have been made on behalf of the Government and we think it is quite impracticable to take each one out of its context and consider it individually as pleaded. Realistically, the Appellant's complaints of negligence can be grouped under a number of broad topics which we now move on to consider. The first is the situation of the Ravakai. There is no doubt that the interest of the Marsters family in operating this vessel made it one of the "sensitive" issues for negotiation referred to by Mr Temm in his letter of 29 June 1981 to Mr Stace. This was known to the latter and Mr Tylor explained that by reason of this uncertainty the original proposal was put to Cabinet in two parts, to ensure that if the Southern project (based on the Ravakai) were rejected, the Northern scheme could still go ahead. But Cabinet approved the proposal to charter or sell the Ravakai as a pick-up and service vessel within the Southern Islands, notwithstanding the reference to the commitment to the Marsters family in Mr Tylor's letter of 4 June and his emphasis on the critical importance of the Ravakai.

As we have noted, problems arose about this vessel immediately, not the least being its reputation for instability and the fact that it could not be insured. This is borne out in letters between Mr Stace and Mr Dashwood later in June, matters referred to in Mr Tylor's letter of 29 October 1981 to Minister Ingram, the Minister of Trade, Labour, Industries and Commerce. In it the Company indicated it was prepared to take over the vessel "as is" either by charter or purchase and hoped to resolve the differences with the Marsters family. By them Minister Ingram had stepped firmly on to the stage and from the evidence of subsequent dealings we infer that he was resolved to fulfil political promises made to the Palmerston Islanders and to let them have the Ravakai, which was duly chartered to the Marsters family and operated by them. The insurance and other problems, which seemed such a barrier to agreement with Marine Resources, do not appear to have presented any obstacle to that transaction.

Implicit in Cabinet's approval of the proposal to charter or sell the Ravakai is the representation that the Government was prepared to co-operate with the Appellant Company after its formation in order to bring this about. Notwithstanding the earlier difficulties in trying to settle the terms of the charter, the Company was still clearly relying on the active support it expected from the Government when Mr Tylor wrote the letter of 29 October 1981, which could have given it at least the use of the ship. However, Minister Ingram's reply of 26 November pointed to the difficulties about insurance as the reason why it became impossible to carry out the Southern project with the Ravakai; he added that the Government intended to make the best use of the vessel, but not in the way contemplated in the letter of 4 June 1981.

With respect, we see the Minister's intervention as a breach of the duty on the Government (undertaken by Cabinet) to take reasonable steps to carry out as far as reasonably possible the assurances of co-operation and support in dealing with the Ravakai and in developing the proposals for the Southern Fishery in accordance with the 4 June letter which it had accepted. As a result of his decision, Marine Resources had no alternative to abandoning this part of the project and with it the retail fish outlet and fish meal processing plant which it had planned for Rarotonga. However, there is no evidence demonstrating any actual loss suffered by it as a result of this development. Before Cabinet's acceptance of the proposals, the promoters were fully aware of the problems with the Palmerston Island people and, as prudent business people, were not disposed to spend any money or incur obligations in this area until they had been resolved. Without their co-operation the Southern Fishery plans may not have been viable at all. Accordingly, although we think the Government was at fault over the Ravakai, the Company has not proved damage of the kind recoverable in tort.

The next general area of complaint involved the on-shore freezer facilities on Penrhyn and Rakahanga Islands. In the 4 June letter the Company undertook to provide adequate on-shore freezer facilities where necessary for the Northern Group, and to supervise and manage the operation of those installed by the Government, which was to grant control to it under a licence/lease arrangement. The only two facilities in contemplation at the time were freezers on the two Islands to be installed under foreign aid, and there were substantial delays for which we would find it difficult to hold the Government responsible. Eventually the unit on Penrhyn Island started to operate in late June 1982, and in a Memorandum to Directors of 19 July Mr Stace expressed his disappointment at the very low catches and the lack of response by the fishermen to the "price at freezer door" scheme. From the tenor of this document he appears to have concluded that the project was not going to be viable as presently constituted, and that additional capital and financial assistance would be needed to tide them over until fishing tonnages at Penrhyn reached an acceptable level to make the operations of the mother ship economic.

Apart from the delay in commissioning, the real burden of complaint over the freezer was the change of attitude by the Government to the original plan that the Company would have sole control over the facility and the catch. As it operated at Penrhyn Island, the Government ran the freezer, bought the catch and sold it to the Company. This followed a report of 23 April 1982 prepared by Mr Dashwood (apparently at Mr Stace's request) analysing the costs "in order that Government breaks even and Marine Resources Limited can operate on a fair profit". Mr Grove pointed out that notwithstanding this report. Mr Stace was still proceeding on the assumption that the Company would get control of the freezers, because he wrote to Mr Mitchell on 4 May 1982 asking that a formal lease or simple agreement be entered into to, give the company effective control of each of the on-shore facilities for a nominal consideration. Indeed, shortly afterwards the latter started to draft the appropriate document at Mr Tylor's request, but it was never completed. Obvious matters like staffing and maintenance standards and costs etc. would need to be settled before this could be done.

By the time the Penrhyn freezer opened, the Government was in full control, but Mr Grove submitted that, notwithstanding the April report by Mr Dashwood, the matter continued to remain open and it was the Company's inability to organise satisfactory servicing and collection arrangements which made it necessary for the Government to take this step. Clearly it had resolved on this at an early stage, at least until it was satisfied that Marine Resources could carry out its part of the arrangements. Minister Ingram said as much in his Memorandum to Mr McDonnell of the Fisheries Department of 19 March 1982 and added that the Government had to take this position because it would cause political difficulties to give the Company the freezers before the people had seen them operate. He ended his note with the cryptic direction "present a positive attitude, please, while reserving the position."

We are not prepared to hold that the Government was guilty of any breach of the duty of care it may have owed to the Company in relation to the freezers, having regard to the political situation with the Islanders and their expectations. It seems that they wanted a certain amount of storage space for their own frozen food as well as for the commercial catch, and the minister appeared to have exercised a prudent judgment towards ensuring their co-operation by not handing over total control immediately to the Company. Furthermore, by this stage there were very real doubts about its ability to handle the fish in accordance with the original proposals. This brings us to the problems over the mother ship.

Messrs Stace and Tylor were anxious to get early decisions to their applications for tax and duty concessions; it was also necessary for the Company to obtain registration with the Development Investment Council in order to carry on business. Although application for this was made in March 1981, it was not until 6 November that the Certificate was issued, in spite of pressure from Mr Stace. It transpired that the application had been overlooked for some months in Mr Ingram's office and quite clearly the Government must bear responsibility for that delay. However, we cannot say on the evidence whether it can be criticised for the time taken to approve exemption from customs and import duties etc.

The Company complains that until Development Investment approval was granted by Cabinet, no decision could be taken to purchase a mother ship, and this is fully understandable. Accordingly it lost the opportunity to bid on two that were available at that time and which it says would have been suitable. The Company's problems were further compounded by the knowledge of the Government's dealing with the Norwegian group towards the end of 1981, to which we have already referred and which led to the Cook Islands Development Bank effectively withdrawing the financial support on which the Company depended until that position could be clarified. We believe Messrs Stace and Tylor had every reason to be concerned about the Government's conduct on this aspect, which we regard on the evidence as being quite inconsistent with the duty of care it owed to preserve and foster the Company's interest in the joint proposals they had undertaken. It was not until the Wellington meeting with Minister Ingram in February 1982 that the position was resolved by the letter of clarification restricting the in-shore fishing to experimental only, and as we have already related, this was acceptable and the Company's arbitration proceedings were dropped.

Notwithstanding these problems, the Minister saw fit to lay the blame for the delays at the Company's door and put a time limit of 31 March 1982 for it to produce some tangible progress. It was against this background that the Company purchased a derelict long-line fishing vessel at Pago Pago, sold under a writ of arrest for $13,000. At p. 17 of his Judgment the Chief Justice describes the transaction in these terms:

"There can seldom have been a more ill advised purchase, and the subsequent misadventures of that unhappy vessel would be little more than a sorry joke but for the disastrous effect it had on the worthy Mr Stace's venture - for he is indeed a genuine and hard working man who has seen all his plans to wrong for causes not always of his own making."

In spite of Mr Holmes' attempts to persuade us that these comments were ill founded and in fact the Maritime Reefer (as the ship was named) would have been capable of doing the job with the necessary repairs and renovation, we are satisfied that they were amply supported by the evidence.

The valuation certificate of $250,000 obtained from Pago Pago was nothing more than evidence that such a Certificate had been issued and can hardly be treated seriously in view of the previous history of the vessel as a derelict and the price paid for it by the Company. Its refrigeration system was hopelessly inadequate, demonstrated by the fact that it broke down on arrival at Penrhyn to collect the first load of fish. As a result the Government brought the arrangements to an end; the Bank put in a Receiver and eventually sold the vessel to the Government which made an attempt to restore it, but we understand it was eventually abandoned.

We have already noted that over this period the Company seems to have contemplated a change of direction in the activities of the mother ship. Originally it was to engage in long-line fishing for tuna, calling at Penrhyn and Rakahanga to pick up the local fishermen's catches from the freezers and then sailing to Pago Pago to dispose of the fish to the American canneries. On its return trip it would bring back fuel and other appropriate stores for the industry. But latterly more emphasis seems to have been placed on the ship's possibilities as an Island trader and Minister Ingram expressed doubts as to whether it would carry out fishing of any consequence. The evidence suggests that it was hardly suitable for general cargo work.

We mention these matters to illustrate the changing pattern of the association between the Company and the Government; there were other factors involved as well, which make it difficult for the Chief Justice to apportion blame completely on one side or another for the failure of the enterprise. However, we are in no doubt that the delays in Minister Ingram's office in granting approvals and the ambivalent dealings with the Norwegians contributed to the Company's problems. One has only to contrast the dispatch with which the latter's business was accomplished with the way the Appellant's affairs were treated by the Government and its Agencies.

Notwithstanding this finding of fault on the latter's part, we are unable to give the Appellant any relief. We are faced with a fundamental problem by the Chief Justice's findings over damages. There was a large volume of expert evidence about the fishing resources of the territorial sea, as a result of which he found that any rights Marine Resources might have had for purse-seining in that area were worthless. He accepted the evidence of Dr Habib to this effect, called for the Government, in preference to that of Mr Campbell who was the Appellant's expert. Mr Holmes tried to persuade us that he was not justified in this preference, but we cannot agree. Even on a reading of the record, it is impossible not to be totally impressed by the former's qualifications and experience, and his approach to the problem. Although the purse-seining rights are irrelevant to claim tort, the Chief Justice went on to consider the evidence of, what fish would have been available to be caught by the mother vessel long-lining and by the local fishermen. He said Mr Campbell was optimistic but Dr Habib was not. After pointing out a gross statistical error made by the former, he concluded that the evidence was just not there to support the Company's projected figures. He then went on to express a view at p. 24 of his judgment which is crucial to the Company's claim for damages:

"We also have a personal and human problem, of whether the Penrhyn Islanders, who are as independently minded as many humans can be, are prepared to be projected into production units.

Then, as one recalls, the larger part of the catch was anticipated as coming from the mother ship, with the Penrhyn and Rakahangan freezers topping up. The evidence here was, and I have heard it elsewhere, that only an underpaid Oriental will endure the hardship of long lining from a primitive vessel. I cannot see my Cook Islands friends being prepared to put up with the conditions that are endured by Taiwanese and Japanese crews. The final factor is the up-to-date information that Dr Habib brought from Pago Pago the selected market for this - fish. Apart from the tuna canning plant, the local market for other species has ceased and locals, whose costs would be lower than for fish shipped from the Cooks are being obliged to airfreight to Hawaii, and they have more of these species than they can handle."

In effect he has found that the Company's proposals for an established local fishing industry in the Cook Islands were unlikely to succeed because of the lack of any reliable data on appropriate resources, and because of the human element. He obviously felt that like so many other well intentioned plans for developing countries, this was destined to be only another still-born project. In this part of his judgment the Chief Justice is obviously expressing an opinion based on his background knowledge of the work habits and personalities of Cook Island people and this, of course, must be respected. However there is cogent evidence to support his views in the chequered history of the dories.

Mr Stace clearly went to some pains to produce a small fishing boat suitable for use in the project and the prototype dory was of aluminium construction powered by a diesel jet and fitted with an ice box which was essential for the catch in tropical conditions. Its general design was obviously well suited for its purpose, and on its demonstration in the Northern Group Mr Friberg (the Chief Fisheries Officer for the area) reported an enthusiastic reception and returned with over 30 application forms for finance from the Development Bank as an indication of committed interest. However, he pointed out that the Islanders regarded the boats as too slow and in his report suggested its speed should be increased. He said it was represented as doing between 8.5 and 9 knots, whereas they wanted 10 knots but he thought they might be satisfied with the lower speed. But the best they could get out of it was just over 6 knots at 100% capacity. This was not satisfactory and he reported accordingly in his memorandum of 10 July 1981 to Mr Dashwood, pointing out the enthusiastic reception the boats would get with a more powerful engine.

Efforts were made to increase the speed but without success and in his evidence Mr Friberg said that eventually very few people wanted to buy the boats because they were too slow. They were used for other purposes besides fishing, but even in that activity they would have difficulty in keeping up with schools. Mr Holmes was critical of this witness and certainly his evidence was contradictory in parts and belied the enthusiastic tenor of his first report. But the Chief justice was entitled to assess his credibility and reliability in the witness box. We note his criticism about speed was echoed in a report referred to by the Cook Island Development Bank, and the chief Justice noted at p. 12 of his decision that by 15 March 1982 the Fisheries officers had reported to Minister Ingram that the Islanders did not want the dories. He accepted the evidence to this effect and that they were likely to adhere to their more costly petrol-driven outboards.

Mr Stace made it quite clear that the provision of diesel-powered dories with their much lower fuel costs was central to the whole operation of the Northern Group; the very high costs of petrol made any commercial fishing on the scale proposed quite uneconomic. This was borne out by the lack of interest the fishermen showed at a freezer price of 70c a pound during the initial operation of the plant at Penrhyn Island. As the Chief Justice remarked at p. 12, "It seems quite likely the whole arrangement would have collapsed at this point alone." We agree; Mr Dashwood's projection of costs for the Penrhyn Island freezer (which he said was prepared at Mr Stace's request) demonstrates the relatively narrow margins in which Marine Resources profit would be derived, and it strikes us as a far more realistic projection than those produced by Mr Stace and presented to the Bank. He was critical of the high wages bills involved in the Government running of the freezers but it is difficult to see in practical terms how occasional visits from the mother ship's engineer could provide for the adequate maintenance and operation of these units. And adding to these economic difficulties was the problem of selling the catch in a glutted market.

We see no reason to disagree with the view formed by the Chief Justice on the viability of this enterprise and we think the Company must accept on the evidence that had the Northern proposals been carried through unaffected by any breach of a duty of care on the Government's part, much the same kind of losses would have been incurred. The latter was responsible for delay and uncertainty, but we think the effects of this were overtaken by what we (and the Chief Justice) regard as the decisive factors on the collapse. They were the Islander's refusal to accept the dories because of their slowness, and the "hopeless purchase" of the Maritime Reefer (Judgment p. 18) in mid 1982. Even then something might have been salvaged if the ship had been suitable. The result is that the Appellant cannot isolate and point to damage for which the Government can be held liable. In view of this conclusion we find it unnecessary to consider the Appellant's challenge to the finding of the chief justice on illegality which was raised at a late stage during the trial. The appeal is dismissed, but having regard to the Government's dealings with the Appellant criticised in this judgment we are not disposed to award the Respondent costs.

CASEY J