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Fukofuka v Peacock [2001] TOLawRp 15; [2001] Tonga LR 86 (17 May 2001)

IN THE SUPREME COURT OF TONGA
Supreme Court, Nuku'alofa

C 784/00

Fukofuka

v

Peacock

Ford J
19, 20, 22 February, 2 March, 14 May 2001; 17 May 2001

Practice and procedure – no case to answer submission - upheld
Company law – effect of not reregistering company on legal status of company – still able to litigate
Contract law – once possession and title pass to purchaser vendor has no right to repossession

The case concerned the ownership of a D155A model Komatsu bulldozer, serial number 15682, registered as H1364. Nippon submitted that it was the owner. The defendants, the shareholders and directors in a company called Vaokakala Holdings Co Limited ("Vaokakala"), claimed that the machine was the asset of a partnership between Gateway and Vaokakala. On 1 October 1991 there was a written sales agreement between Nippon and Gateway regarding the sale of the bulldozer. It was unclear whether Gateway made any payments in accordance with the agreement. In August 1999 a partnership agreement was entered into between Gateway and Vaokakala where the bulldozer was listed as an asset of the partnership. The last witness called by the plaintiff was the Assistant Registrar of companies. He gave evidence that the plaintiff company had never reregistered under the 1995 Companies Act. At the end of his evidence, counsel for the defendant made a "no case" submission on the grounds that the plaintiff was no longer a legal entity and therefore was unable to continue with the case.

Held:

1. Although the plaintiff had never reregistered under the new Act it had not, according to the evidence before the Court, ever been removed from the old register and in that situation the Act contained a mechanism which could conceivably allow the plaintiff to proceed with this litigation should steps be taken to remove it from the old register. Therefore the Court did not uphold the no case submission on that particular point.

2. If a purchaser defaulted on making payment of the balance of the purchase price after possession and title have passed to the purchaser then the vendor could sue for recovery of the debt but a vendor was not entitled to re-possess the subject matter of the sale. The plaintiff failed to satisfy the Court at the end of its case that it was the owner as pleaded in the statement of claim.

3. The Court upheld the 'no case' submission on grounds that differed from those advanced by the defendant. In the interests of justice and the efficient disposition of this litigation it was right and proper that the Court should stop the case without having to require the defendants to call their evidence thus prolonging what could only be an inevitable outcome. The plaintiff's case could not get any better; it could not succeed.

Case considered:

Rasomen v Shell Co of Aust [1997] 75 FCR 216

Statutes considered:

Companies Act 1912

Companies Act 1995

Counsel for plaintiff: Mr Foliaki
Counsel for defendant: Mr Tu'utafaiva

Judgment

In the late 1980s a Japanese company, Tokai Kogyo Co Limited, carried out a multi-million dollar government contract restructuring the Nuku'alofa foreshore along the entire length of Vuna road. One of its sub-contractors on the job was a Tongan company called Gateway Enterprises Limited.

As the contract neared completion date, the Japanese company had to make a decision as to what to do with the surplus equipment and machinery which then totalled some 28 units value at about $500,000. Instead of taking all the equipment back to Japan, Tokai Kogyo decided to transfer it to a new company that it would establish in Tonga. The new company was called Nippon Tonga Enterprises Limited ("Nippon"). It was registered under the Companies Act 1912. There were three shareholders: Tokai Kogyo and Gateway each held 40% of the shares and another entity called the Lavaka Estate held the remaining 20%.

In November 1989 the 28 items of plant and machinery previously owned by Tokai Kogyo were sold to Nippon at a price considerably below the estimated half million dollar market value. The purchase price under the written agreement was to be paid by Nippon in instalments over a five-year period.

The present case concerns one piece of equipment only out of the 28 items included in the sale agreement. The item in question is a D155A model Komatsu bulldozer, serial number 15682, registered as H1364. The issue the Court has to determine is the ownership of the bulldozer at the present time.

Nippon says that it is the owner. The defendants, who are the shareholders and directors in a company called Vaokakala Holdings Co Limited, ("Vaokakala") claim that the machine is the asset of a partnership between Gateway and Vaokakala.

The proceeding before the court is part of the "fallout" from the failed Gateway/Vaokakala partnership. There is another action before the Court scheduled to go to trial later in the year in which, as I understand it, issues relating to the partnership and its operations will need to be determined. Nothing in this judgment is intended to encroach into any of the issues that will need to be resolved at that hearing. I suspect, for example, that there will be a challenge as to whether, in fact, a partnership even existed between Gateway and Vaokakala. In this judgment, I refer to the relationship as a "partnership" simply for convenience because it was the term used in evidence but it has not been necessary for me to decide whether or not that description accurately reflects the legal association between the two companies. That question will need to be decided in the context of the other hearing.

The plaintiff's case concluded on 14 May. It had run for some five days over a three-month period. The delays resulted from circumstances beyond the control of the Court.

The last witness called by the plaintiff on 14 May was a Mr Lusio Lausi'i who is the Assistant Registrar of companies. He gave evidence that the plaintiff company had never reregistered under the 1995 Companies Act. At the end of his evidence, counsel for the defendant made a "no case" submission on the grounds that the plaintiff was no longer a legal entity and therefore was unable to continue with the case.

As the submission was based on legal issues which required no examination of the evidence, I heard the submission without putting the defendant to an election as to whether he would be calling evidence. Such a course is a recognised exception to the settled rule of practice that when counsel for the plaintiff closes his case and counsel for the defendant wishes to submit that there should then and there be judgment for the defendant, counsel for the defendant must elect to call no evidence.

In support of his application, counsel for the defendant noted that the tenth schedule to the Companies Act provides that every existing company had to apply for reregistration under the new Act by 31 January 2001 and failure to make application for reregistration was evidence that the company had ceased to carry on business.

Section 400 of the 1995 Act provides that on the removal of the last company from the old register in accordance with either clause 3(3) or 5(1) of the tenth schedule, the Companies Act 1912 was automatically repealed. The evidence from the Assistant Registrar was that the last company was removed from the register on 1 February 2001 but he must have been referring to removal only in accordance with clause 3(3) of the tenth schedule because there is no way that he could have complied with the requirements of clause 5(1). Clause 3(3) relates to the removal from the old register of companies reregistering under the new Act. Clause 5(3) provides for a more elaborate system of removal on notice of those companies that failed to reregister by 31 January.

Counsel for the defendant also relied on section 333 of the 1995 Act which provides that any property owned by the company immediately before the removal of a company from the Tongan register automatically vested in the Crown with effect from the removal of the company from the register. He submitted that this provision shows that the legislature very clearly intended that any company not reregistering automatically ceased to exist as a legal entity.

Although, on the face of it, there appears to be some force in the defendant's submissions in relation to the effect of failure to reregister under the new Company's Act, clause 5(1) of the tenth schedule to the Act, which requires the Registrar to remove from the old register every company that has not reregistered by 31 January 2001, must be read subject to the subclauses that follow.

Subclause 5(2) provides that Part XVII of the Companies Act shall apply with such modification as may be necessary to the removal of companies from the old register.

Part XVII sets out the procedures that the Registrar of Companies is required to go through before a company can be removed from the new register and, by virtue of clause 5(2) of the tenth schedule, that same procedure applies with any necessary modifications to the removal of a company from the old register.

The procedure includes the Registrar having to give formal notice to the company of his intention to remove the company from the old register and then a period of time is allowed in which the company can lodge an objection on certain specified grounds and those grounds include the fact that the company is a party to legal proceedings or that it would not be just or equitable to remove the company from the register and, on application, the Court could make an order pursuant to section 332(2) of the Act that the company is not to be removed from the register. Clause 5(4) of the tenth schedule provides that upon the making of a Court order under section 332(2), the Registrar is required to register the company on the new register.

In the present case the Assistant Registrar of Companies was unable to confirm that any notice of intention to remove the plaintiff company from the old register had been given in accordance with the Act. Based on the evidence before the Court, therefore, the plaintiff company, Nippon, continues to exist on the old register.

Section 400(2) of the Companies Act provides that the repeal of the old 1912 Companies Act will not affect legal proceedings to determine rights and privileges acquired under that Act and any such proceedings may be "instituted, continued or enforced".

In other words, the position appears to be that although the plaintiff has never reregistered under the new Act it has not, according to the evidence before the Court, ever been removed from the old register and in that situation the Act does contain a mechanism which could conceivably allow the plaintiff to proceed with this litigation should steps be taken now to remove it from the old register.

In all the circumstances, I am not prepared to uphold the no case submission on this particular point.

That, however, is not an end to the matter. I have now heard all the plaintiff's evidence and the position is that if the Court at the conclusion of the plaintiff's case concludes as part of its overall consideration of a no case submission, that no case has been established at law then, it should stop the case at that point even though the defendant has not been required to make an election to call no evidence. A similar approach was approved by the Australian Federal Court in Rasomen v Shell Co of Aust [1997] 75 FCR 216.

In considering the evidence before the Court, I propose to follow the approach of the Federal Court in the Rasomen case where it said at page 228:

"... the function to be performed by a trial judge sitting without a jury who has decided to entertain a no case submission is no different from that which has to be performed by a judge who has heard all the evidence of the parties in the ordinary way and who has to give final judgment. In both cases, the judge must make findings of fact, after assessing the quality of the evidence."

The principal witness for the plaintiff was Uiliami Fukofuka who has been managing director of Nippon since the company was established in about September 1989. He told how Nippon had been established by the Japanese firm Tokai Kogyo to take over all the machinery and plant left behind in Tonga after completion of the foreshore contract. He then described how on 1 October 1991 Nippon sold the bulldozer pursuant to a written "sales agreement" to Gateway for $25,000. The provisions in that agreement relating to the terms of payment are important and I set them out in full:

"3. Terms of payment.

(i) $5000, which had been paid previously on September 1990 by Gateway to NTE. (Nippon)

(ii) Payment of the balance be made on an instalment basis with an interest of six (6) per cent per annum.

(iii) Payment shall be made every month and each payment shall be $400 until the full balance of $21,200 is paid.

(iv) Payment shall be made direct to the office of NTE at Poutaha.

4. Arrears.

In case of any arrears in payment, it shall be settled in an amicable manner between the two parties."

Mr Fukofuka said that the written Sales Agreement put in place something that had been verbally agreed back in about August 1990 between Nippon and Gateway.

Gateway was formed as a family company by Mr Uiliami Fukofuka's older brother, Paula, back in the early 1970s. It had been involved in a number of different business ventures over the years and had traded successfully but it began to experience major cash flow problems because of its involvement in the foreshore project. As Paula explained it in evidence, Gateway had a quarry and it expected to obtain the sub-contract supplying rocks for the foreshore job. In anticipation, the company borrowed heavily from the Bank and purchased a grader, excavator, tractor, loader and trucks. Unfortunately for Gateway, the Japanese company, Tokai Kogyo, entered into a special arrangement with the government for the supply of rocks for the foreshore embankment and Gateway ended up with only the sub-contract for looking after labour, transport and food for the workers. From that point in time, it appears that Gateway's debts continued to mount.

From here on, for convenience and ease of reference, I will refer to the Fukofuka brothers by their first names - Uiliami (Nippon) and Paula (Gateway).

In his evidence, Uiliami confirmed that Gateway paid Nippon the $5000 deposit for the bulldozer but he was unable to say whether any of the monthly instalments had been paid. Uiliami was pressed in cross-examination as to why he could not tell the Court whether monthly payments had been made by Gateway and, as I understand it, his explanation was threefold. First, he was able to confirm that money had been paid in respect of a bulldozer but he said that the money could have been hire charges for another machine - not the bulldozer involved in this case. Secondly, Gateway, for some reason which was not altogether clear from the evidence, had a debt to Nippon for a considerably larger sum than the $20,000 figure and Uiliami could not be sure from his records whether payments that had been made were instalments on account of the purchase price of the bulldozer or payments on account of the debt generally. Finally, Uiliami explained that Nippon had moved office and a number of records had disappeared.

These explanations are consistent with the overall impression the Court formed about Nippon, namely, that it had never been a well run company. The Court was told by Uiliami that the last shareholders meeting was back in 1994 and no formal statements or accounts have been prepared since then. The last annual return was filed in the Companies Office in 1990. At the present time, the company has no staff but Uiliami said that it does have people available who could be called upon if necessary. It apparently shares part of a very small office. As has been noted, it has not reregistered under the new Companies Act.

I have departed from the narrative but my observations about the plaintiff company, Nippon, help understand some of the subsequent events.

The evidence was that Gateway, in fact, had had possession of the bulldozer for some considerable time prior to the signing of the Sales Agreement on 1 October 1991. Paula in his evidence said that Gateway took over the machine after Tokai Kogyo completed the foreshore contract. For some time prior to the signing of the Sales Agreement, Gateway had been actively trying to sell the machine to a potential buyer in New Zealand. The idea was that from the proceeds of sale, $20,000 would be paid to Nippon being the balance of the purchase price and the surplus would assist Gateway with its cash-flow problems. The deal with the New Zealand company fell through but the evidence shows that Gateway continued to have the machine on the market after the signing of the written agreement. Paula said, and I accept his evidence in this regard, that the written agreement dated 1 October 1991 was drawn up so that Gateway would have documentary evidence to show a potential purchaser that it had title to the bulldozer.

What then happened to the bulldozer between 1991 and 1999 was not altogether clear from the evidence but it appears that Gateway continued to use the machine at its quarry at Longoteme. It may have hired it out from time to time. In about the middle of 1999, Paula entered into an agreement with his nephew, Simote 'Uhila, the second defendant, who had recently returned from the USA. Simote had earth moving equipment of his own and Paula said that the arrangement they agreed to was that Simote would come with his equipment and Paula would have the Gateway equipment and they would work together at the quarry, take off the expenses and share what was left. Simote had as a business adviser, the first defendant, Gavin Peacock, and the two of them set about forming a company called Vaokakala Holdings Ltd.

On 23 August 1999, Paula, on behalf of Gateway and Simote on behalf of Vaokakala (which at that stage was still to be formed) signed a "Partnership Agreement" to operate the quarry business. The shareholding in the partnership was stated to be Gateway 50 percent and Vaokakala 50%. In his evidence before me, Paula said that he never entered into a partnership and the so-called "Partnership Agreement" was a document prepared by Gavin Peacock for the Bank because the Bank wanted a document drawn up before it would open an account for the business venture. For the purposes of the present proceeding, it is not necessary for me to determine whether or not Gateway and Vaokakala formed a partnership in the legal sense but I suspect that that will be one of the central issues to be determined in the other civil action between Gateway and Vaokakala which is to be heard later in the year. For ease of reference, however, I will continue to refer to the association as a partnership.

The written partnership agreement contained a schedule setting out a list of "all opening partnership assets contributed". One of the assets included in the list is:

"One D.8. Bulldozer."

In evidence it was explained that the D series of bulldozers relates to Caterpillar models and a D.8 is a large Caterpillar bulldozer. Neither Gateway nor Vaokakala owned a D.8 but the assets did include a D.4 and a D.6 which were included in the list. I am satisfied, however, that the reference to the D.8 machine in the schedule to the partnership agreement was intended to be a reference to the Komatsu bulldozer which is the subject of this proceeding and Paula accepted that that was his understanding. Uiliami's evidence was different. Although he was not a party to the partnership agreement, he had been called in to chair meetings of the partnership when major problems started to develop between Paula on one hand and Simote and Gavin Peacock on the other. Uiliami says that in that capacity he had seen the schedule to the partnership agreement and he had noted the reference to the D.8 bulldozer but it did not concern him although he said that if the reference had been to a Komatsu bulldozer he would have immediately reacted because, as he put it, Gateway had not paid off the balance owing on the bulldozer and so he would have "re-possessed" it on behalf of Nippon. Because of the conclusions I have reached, it is not necessary for me to finally resolve this issue one way or the other. I think it is significant that Paula says that in about April 2000 he had a serious disagreement with his brother and walked out of a meeting because Uiliami said that he wanted the bulldozer returned but Paula thought the machine belonged to Gateway even though the company had not paid the full purchase price.

At the present time the bulldozer is still being used in quarry work. The defendants say that it is being used by their company Vaokakala and they say that they are entitled to use the machine because Vaokakala's partner, Gateway, obtained much more out of the partnership by way of partnership profits and sale of partnership assets than the value of Vaokakala's use of the bulldozer. These are all matters in dispute which will need to be resolved in the other civil proceeding before the court.

Having then outlined the history of the rather sad saga of bulldozer H1364, I now turn to the ownership question and it seems to me to be a matter which can be determined relatively simply on the law. The key document, in my view, is the Sales Agreement dated 1 October 1991 between Nippon and Gateway. Under that agreement the bulldozer was sold by Nippon and title passed to Gateway. Possession had already passed over a year earlier.

The law in such situation is clear. If a purchaser defaults on making payment of the balance of the purchase price after possession and title have passed to the purchaser then the vendor can sue for recovery of the debt but a vendor is not entitled to re-possess the subject matter of the sale.

After referring to various authorities on the subject, the learned authors of Benjamin's Sale of Goods, p1247, states:

"... the assumption behind these cases is that, once the seller has lost both his possession and his right of stoppage in transit, and has transferred the property in the goods to the buyer, he has no remedy against the goods themselves, and his only remedy is a claim for the price or for damages under the contract."

The text then goes on to refer to the following passage from Benjamin, Sale of Personal Property (8th ed.) p.829:

"Whenever the property has passed and the goods have reached the actual possession of the buyer, the seller's sole remedy is by personal action. He stands in the position of any other creditor to whom the buyer may owe a debt; all special remedies in his favour qua seller are gone."

The property in goods passes under a contract of sale where the terms of the contract show a clear intention that it will pass or, as Halsbury, vol 41, para 706, puts it:

"The intention of the parties, as shown by the terms of the contract, the conduct of the parties and the circumstances of the case, determine the time when the property in the goods is to be transferred."

In the present case, there was no retention of title clause and there was nothing in the written contract of 1 October 1991 stating that the passing of title was dependent on payment of the purchase price. On the contrary, the agreement had a specific provision saying that, "in the case of any arrears in payment, it shall be settled in an amicable manner between the two parties".

As I have said, the evidence satisfies me well beyond the balance of probabilities that title to the bulldozer passed to Gateway with the signing of the 1 October 1991 agreement. Paula in his evidence quite frankly acknowledged that. Thereafter Nippon had no right of re-possession. Its remedy was confined to an action for debt.

Paula was asked in his evidence in chief who did he think the bulldozer belonged to in June 2000 and he replied:

"To my knowledge, I was not able to pay (the balance owing) for the bulldozer and so I wanted Nippon to take back the bulldozer."

If, at that stage, only Nippon and Gateway had been involved then the type of compromise reached between the two brothers would not have caused any controversy and arguably the arrangement may have been consistent with the provision in the contract relating to settlement of any arrears "in an amicable manner". The problem in this case, however, is that by June 2000 it was not simply a dispute between the companies operated by the two brothers - a third party had become involved through the partnership arrangement, namely, Vaokakala, and that company was claiming an entitlement to the bulldozer. It was no longer possible, therefore, for the two brothers to turn a blind eye to the legal position and reach an arrangement or compromise that may have suited them but failed to have any regard to the Vaokakala claim.

This Court is being asked through the plaintiff's pleadings to examine and rule upon the legal position. My finding is that since October 1991 the legal owner of the bulldozer has been Gateway. In other words, the plaintiff in the present case has failed to satisfy me at the end of its case that it is the owner as it has pleaded in the statement of claim. What my finding will mean in terms of the partnership dispute between Gateway and Vaokakala is something that will need to be resolved in the other proceeding before the Court. In the present case, I uphold the 'no case' submission on grounds that differ from those advanced by the defendant but none the less follow inexorably from the evidence before the Court. In the interests of justice and the efficient disposition of this litigation it is right and proper in my judgment that I should stop the case at this stage without having to require the defendants to call their evidence thus prolonging what can only be an inevitable outcome. The plaintiff's case cannot get any better; it cannot succeed.

I hold that there is no case for the defendants to answer. They are entitled to costs to be agreed or taxed.