A civil claim brought by the Associate Minister of Cabinet and Prime Minister, Peseta Vaifou Tevaga against former Cabinet Minister, La’aulilemalietoa Polataivao Schmidt and others, in relation to a dispute about a nonu company, has been dismissed. The decision was delivered by Supreme Court Justice, Tafaoimalo Leilani Tuala-Warren. Peseta was represented by defence Counsel, Leulua’iali’i Olinda Woodroffe, while the defendants were represented by Semi Leung Wai. The following is Justice Tafaoimalo’s ruling: 

 

The Legal Proceedings 

1. On 7 October 2015 the Plaintiffs filed:

(a) Statement of Claim (“SOC”) dated 6 October 2015;

(b) Motion to the Court or a Judge(ex parte) seeking an order granting leave under section 97 of the Companies Act 2001 (the “Act”) for Peseta Vaifou Tevaga’ena (“Peseta”) to bring proceedings in the name of and on behalf of Local Partners and Associates (“LPA”). The Motion was served on the defendants, Apulu Lance Polu (“Polu”), Martin Schwalger (“Schwalger”), Laauli Leuatea Schmidt (“Laauli”) and Maota o Samoa, all Respondents having opposed the motion heard before Vaai J; and (c) An undertaking as to damages; 

 

2. It is alleged in the SOC that Peseta is a director and a 50% shareholder of LPA. LPA is the Second Plaintiff and Third Defendant. Peseta is also a director and shareholder of Aldan Civil Engineering Construction Company Limited (“Aldan”). 

 

3. The SOC further pleads that Polu and Schwalger are directors and shareholders of LPA. 

 

4. The causes of action pleaded by the Plaintiffs against the Defendants can be summarised as follows; 

 

• First cause of action - by Peseta against all defendants - leave to bring proceedings in the name of and on behalf of LPA. 

• Second cause of action brought by Peseta and LPA against Polu, Schwalger, Laauli and LPA for breach of directors duties owed to Peseta as shareholder pursuant to ss99 and 100 of the Act (as a personal action by a shareholder against a company and directors). It is pleaded that Peseta is a prejudiced shareholder pursuant to s102 of the Act. 

• Third cause of action brought by Peseta and LPA against Polu, Schwalger, Laauli and LPA for breach of duties owed by these Defendants to Peseta and LPA by barring or preventing Peseta from any participation in the decisions or activities of the LPA, or from entering LPA premises. 

• Fourth cause of action-brought by LPA against Laauli (conversion/detinue) for taking and having in his possession property of the plaintiff, including nonu juice and vehicles. 

• Fifth cause of action brought-by Aldan against Polu, Schwalger, Laauli and LPA for breach of contract by putting and continuing to put the secured land at risk. 

• Sixth cause of action brought by LPA against Maota o Samoa for conversion of vehicles and funds belonging to LPA. 

 

5. In response, the only material matters admitted by the defendants are that Peseta is a director and shareholder of Aldan, LPA has its registered office at Vaimauga Sisifo, that Polu and Schwalger are directors and shareholders of LPA, LPA was incorporated on 25 October 2012 and LPA adopted the Model Rules for Private Company. 

 

6. The defendants further plead that: 

 

• loan payments are up to date (para 2.18, 2.19, 2.20, 2.21 and 2.22 SOD); 

• Aldan had agreed to provide security for the NPF loan (para 2.22); 

• Peseta is not a shareholder or a director of LPA; 

• There was never a meeting of shareholders and/or directors of 29 May 2013; 

• Polu and Schwalger never agreed to any share transfers nor did they execute any shares transfer for the purported transfer of their 15,000 shares in LPA to Peseta 

• There are no causes of action disclosed in the Plaintiff’s proceedings; 

• the legal proceedings brought by the Plaintiffs are not tenable under law because 

LPA is the second plaintiff and Third Defendant with the consequence that LPA is suing itself and defending against itself in these proceedings; 

• Peseta does not have the requisite legal standing under sections 92 and 93 of the Act to commence these proceedings or to bring any derivative action on behalf of  LPA; 

• Clause 12 of the Rules of LPA (“the Rules”) sets out procedures for the transfer of shares and they also were not complied with; 

• Clause 43 of the Rules sets out procedures for the appointment of a director and they were not complied with; 

• Polu and Schwalger continue to hold 65% of the shares in LPA and they therefore are the majority shareholders; and 

• Polu and Schwalger are two of the three directors of LPA and are the majority directors. 

 

7. The defendants’ case is that Polu and Schwalger have the requisite corporate authority and mandate to discontinue these proceedings and seek that the claim be struck out or dismissed. 

 

8. The Motion to the Court or a Judge (ex parte) seeking an order granting leave under s 97 of the Act for Peseta to bring proceedings in the name of LPA was granted on 21 December 2015 by Justice Lesatele R Vaai. Justice Vaai appointed Tagaloa Faafouina of Su’a ma Pauga & Associates as the Court appointed interim manager to be responsible for the daily administration and financial affairs of LPA. He further ordered that Polu, Schwalger, Laauli and Maota o Samoa, their servants and agents were prohibited from; 

 

1. Accepting, receiving, directing or controlling any payments by the customers of LPA; 

2. Directing, managing or controlling the bank accounts and financial affairs of LPA; 

3. Directing, managing, controlling or influencing the daily running and activities of LPA unless their advice or assistance is requested by the Court appointed interim manager; 

4. Retaining, dealing or controlling any assets of LPA and from receiving any payments or benefits due for the hiring and use of the assets of LPA. 

 

9. Vaai J made further orders that: 

 

• the Court appointed interim manager may engage others to assist him and will no doubt seek the assistance of the plaintiff and of the defendants, particularly the defendant Polu who was actively involved in the marketing of the nonu juice overseas; 

• The first defendants to supply within 14 days to the interim manager the financial statements of LPA since incorporation in 2013 and supply all other information which the interm manager will request, particularly the information relating to payments of the products sold and hire of property; 

• The first and second defendants to return forthwith to the premises of LPA, all property of LPA in their possession or control, and shall also at a time and place determined by the interim manager, deliver all the keys to the premises and property of LPA; 

 

• Neither the plaintiff, nor the first and second defendants were allowed to enter the premises of LPA unless prior permission is given or their assistance is sought by the interim manager. 

 

10. This matter then proceeded to hearing before me. 

 

Brief Factual Background 

11. It is common ground that Local Partners Limited (“LP”) was incorporated on 25 October 2012 following discussions between Peseta and Laauli. The original shareholders in LP were 50% Schwalger and 50% Danny Schwenke (“Schwenke”). The original directors of LP were Schwalger and Schwenke. 

 

12. Schwalger is Laauli’s nephew and Schwenke is Peseta’s son. At the time, as they remain now, both Peseta and Laauli were Members of Parliament. For this reason, they made the decision not be shareholders in LP. 

 

13. During a meeting of the Board on 21 January 2013, the name LP was changed to Local Partners and Associates (LPA). Polu became a shareholder and director of LPA. The shareholdings became 32.5% (32,500 shares) held by Polu, 32.5% (32,500 shares) held by Schwalger and 35% (35,000 shares) held by Schwenke. Polu became the third director with Schwalger and Schwenke. 

 

14. LPA was formed to enable the selling and exporting of nonu juice belonging to Pure Pacifika, a group of companies which had been selling nonu juice in Samoa and had gone into receivership. LPA put in a bid for the purchase of the assets of Pure Pacifika and was successful in its bid. LPA needed to secure finance and approached Samoa National Provident Fund (“SNPF”) for financing. One of the assets used to secure the $1.8 million loan with SNPF was land belonging to Aldan, a company in which Peseta is a shareholder and director. A loan of $1.8 million was approved by SNPF with repayments of SAT$24,000.00 per month. Assets used to secure the loan were the former assets of Pure Pacifika acquired by LPA, which included land at Vaitele, trucks, plant, equipment, nonu juice, and personal guarantees from Polu and Schwalger. LPA took over the Pure Pacifika land at Vaitele. 

 

15. The relationship between Peseta and the defendants Polu, Schwalger and Laauli started to deteriorate shortly after LPA started actual operations in 2013. 

 

16. Key to these proceedings is the assertion by Peseta that at a meeting of shareholders and directors of LPA held on 29 May 2013, it was resolved to change the shareholding in LPA to 50% Peseta and 50% Polu and Schwalger jointly. Peseta says Polu, Schwalger, Schwenke, Laauli and himself were present at the meeting. He further says that it was agreed that Peseta would replace Schwenke as a director of LPA. Peseta then subsequently caused the companies registry records at the Ministry of Commerce, Industry and Labour (“MCIL”) to be amended on 16 September 2015 to 50,000 shares held by Polu and Schwalger, and 50 000 shares held by Schwenke. The MCIL records on 13 October 2015 show the shareholding in LPA as 50,000 shares held by Peseta and 50,000 shares held by Polu and Schwalger. 

 

The Issues 

17. Much of these proceedings therefore involve two key issues, namely: 

1. (i)  whether Peseta is a director and shareholder of LPA; and 

2. (ii)  The validity and effect (if any) of the purported Notice of Resolution by Board 

of Directors dated 13 June 2013 (the “Notice”). 

 

18. I will deal with these two issues first and then turn to address the various causes of action pleaded by the Plaintiffs. 

 

19. Peseta’s various causes of action are largely based on the assertion that he is a director and shareholder in LPA. In addition to his own viva voce evidence, he places significant reliance on the Notice. The Notice is therefore key to determining these proceedings. The Notice states as follows; 

“We give notice of resolution of a meeting of the Board of Directors held on 29th May 2013 as follows;

 

1. That the Board accepts the resignation of Leiataua Danny Schwenke Company Director who is replaced by Peseta Vaifou Tevagaena.

2. That the shareholding of the company is to be reallocated as follows; MARTIN SCHWALGER-50% or 500,000 shares

 

PESETA VAIFOU TEVAGA’ENA-50% or 500 000 shares

 

That the said shareholding is noted in the Share Registry of the company.” 

 

20. The Notice is purported to be signed by Schwalger and Peseta. The date on the Notice is 13 June 2013. Schwalger’s signature has the date 14 June 2013 below it. 

 

21. The Notice is not itself a written resolution of the company but is a record dated 13 June 2013 of resolutions purportedly made at a meeting of directors alleged to have occurred on 29 May 2013. 

 

22. There is a material mistake in the Notice which is worth mentioning before I proceed to address the issues. It reallocates 500,000 shares to Peseta and 500 000 shares to Polu and Schwalger. The total shares in LPA are 100 000 as evidenced by MCIL records of LPA dated 1 October 2015. 

 

23. The Plaintiffs contend that Peseta’s appointment as a director and a shareholder has been determined by the granting of leave to Peseta to bring proceedings in the name of LPA as well as the findings in the criminal proceedings brought against Peseta that were dismissed. The defendants submit that these remain live issues in dispute to be determined in these proceedings. 

 

The Relevant Law - Directors and Shareholders

 

24. The Notice relied on by the Plaintiffs to underpin much of their proceedings therefore purportedly: 

 

1. (a)  accepts the resignation of Schwenke as director; 

2. (b)  appoints Peseta as a company director; and 

3. (c)  gives effect to a reallocation of shares to 50% or 500,000 shares to Schwalger and 

 

Polu and 50% or 500,000 shares to Peseta, from previously 32.5% (32,500) Polu, 32.5% (32,500) Schwalger and 35% (35,000) Schwenke. 

 

25. The relevant statutory provisions for the appointment and termination of a directorship is set out in sections 86 and 87 of the Act. These relevantly provide: 

 

“86. Appointment of directors – (1) A person named as a director in an application for registration, holds office as a director from the date of registration ... until that person ceases to hold office as a director in accordance with this Act. (2) All subsequent directors of a company may, unless the rules of the company provide otherwise, be appointed by ordinary resolution. 

(3) The appointment of a person as a director is not effective until that person has consented in writing to act as a director of the company. 

 

87. Director ceasing to hold office – (1) The office of director of a company is vacated if the person holding that office: 

(a) resigns in accordance with subsection (2); or 

(b) is removed from office in accordance with subsection (4) or the rules of the company; or 

(c) becomes disqualified from being a director under section 85(2); or (d) dies; or

(e) otherwise vacates office in accordance with the rules of the company. 

 

(2) A director of a company may resign by signing a written notice of resignation and delivering it to the registered office of the company. (3) Subject to subsections (5) and (6), the notice is effective when it is received at that address or at a later time specified in the notice. (4) Subject to the company’s rules, a director may be removed by ordinary resolution. 

 

26. LPA has adopted the Model Rules for Private Company in Schedule 2 of the Act (“Model Rules”). Pursuant to Rule 3, these Rules have effect and may be enforced as if they constituted a contract between the company and its shareholders and between the company and each director. The shareholders and directors of the Company have the rights, powers, duties and obligations set out in these rules. 

 

27. To pass a resolution of directors, what is required under Rule 58 of the Model Rules is agreement to the resolution by all directors present without dissent, or if a majority of the votes cast on it are in favour of it. Rule 57 provides that a quorum for a meeting of directors is a majority of directors. 

 

28. In relation to the transfer of shares, the Act relevantly provides as follows: 

 

38. Transfer of shares – (1) Subject to any limitation or restriction on the transfer of shares in the rules, a share in a company is transferable. (2) A share is transferred by entry in the share register in accordance with section 40. 

 

40. Company to maintain share register – (1) A company must maintain a share register that records the shares issued by the company and states: 

(a) the names, alphabetically arranged, and the last known address of each person who is, or has within the last 7 years been, a shareholder; and 

(b) the number of shares of each class held by each shareholder within the last 7 years; and 

(c) the date of any issue of shares to, repurchase or redemption of shares from, or transfer of shares by or to, each shareholder within the last 7 years, and in relation to the transfer, the name of the person to or from whom the shares were transferred. 

(2) The share register must be kept: 

(a) in a form permitted under section 118; and 

(b) at the registered office of the company, or any other place or places permitted under section 119. (3) The share register of the company may be maintained by an agent on behalf of the company. 

 

(4) If a company fails to comply with the requirements of this section:

(a) the company commits an offence and is liable on conviction to a fine not exceeding 50 penalty units; and 

(b) every director of the company commits an offence and is liable on conviction to a fine not exceeding 50 penalty units. 

 

41. Share register as evidence of legal title – (1) Subject to section 42, the entry of the name of a person in the share register as holder of a share is evidence that legal title to 

the share vests in that person. (2) A company must treat the registered holder of a share as the only person entitled to: 

(a) exercise the right to vote attaching to the share; and 

 (b) receive notices; and

(c) receive a distribution in respect of the share; and

(d) exercise the other rights and powers attaching to the share.” 

 

29. The Model Rules of LPA stipulate how shares are to be transferred. Rule 21 provides: 

 

“21. Transfer of shares – (1) If shares are to be transferred, a form of transfer signed by the holder or by his or her agent or attorney must be delivered to the company. (2) The personal representative of a deceased shareholder may transfer a share even though the personal representative is not a shareholder at the time of transfer. (3) Subject to clause 12 and sub-clause (4), the company must immediately on receipt of a properly executed share transfer enter the name of the transferee in the share register as holder of the shares transferred. (4) The directors may resolve to refuse to register a transfer of a share within 30 working days of receipt of the transfer, if any amount payable to the company by the shareholder is due but unpaid. (5) If the directors resolve to refuse to register a transfer for this reason, they must give notice of the refusal to the shareholder within 5 working days of the date of the resolution.” 

30. The Model Rules adopted by LPA also provides for Pre-Emptive Rights in relation to the sale or otherwise disposal of shares. Rule 12 provides as follows; 

12. Restriction on selling shares – (1) A shareholder is not entitled to sell or otherwise dispose of his or her shares in the company without first offering to sell them to the other holders of shares of the same class under the procedure set out in clauses 13 to 20, unless all the other shareholders agree otherwise. 

(2) Any share transfer delivered to the company by a shareholder who has not complied with sub-clause (1) is of no effect, and the transfer must not be entered on the share register. 

31. Essentially this means that a shareholder is not entitled to sell or otherwise dispose of his or her shares in the company without first offering to sell them to the other holders of shares of the same class under the procedure set out in Rules 12 to 20 of the Model Rules, unless all the other shareholders agree otherwise (Rule 12(1) Model Rules). 

32. Fisher J asserted that [that] the purpose underlying pre-emptive rights is to protect existing shareholders from involuntarily having to work with new shareholders of whom they might not approve. He also noted that, for private companies, shareholders have a relationship akin to partnership and that pre-emptive rights allow them to maintain agreeable business relationships. (Ord v Calan Healthcare Properties Ltd [2004]2 NZLR 122). 

33. Any share transfer delivered to the company by a shareholder who has not complied with offering shares to other shareholders is of no effect and the transfer must not be entered on the share register (Rule 12(2) Model Rules). 

34. Section 42 of the Act gives the Court the power to rectify the share register if the name of a person is wrongly entered in, or omitted from, the share register. Section 42 provides; 

42. Power of court to rectify share register – (1) If the name of a person is wrongly entered in, or omitted from, the share register of a company, the person aggrieved, or a shareholder, may apply to the Court for rectification of the share register, or compensation for loss sustained, or both. 

35. In Eichelbaum v Joint Action Funding Ltd [2015] NZHC 2163 Thomas J used Paterson J’s explanation n Nicholls v Parkview Projects (1999) 8 NZCLC 262,016 (HC) of the Court’s discretionary power to rectify, in the context of an application for summary judgment. Paterson J explained that the Court; 

has a discretionary power to rectify. The power to rectify should not be exercised in this case unless this Court is satisfied that it is putting right a wrong. In an application for rectification, the Court does take into account all the circumstances of the case and considers what equity the applicant has to support the application. It would, in my view, be very difficult to order rectification in a summary judgment application where there is a dispute between the parties. 

Evidence – Directorship and Share Transfer 

36. Peseta’s evidence is that he is a director and shareholder of LPA by virtue of owning the property used by LPA as security, by the fact he is signing the cheques and because he holds 50% of the shares. 

37. In terms of the shares, Peseta said that Schwenke gave his shares to him. He concedes that there were no transfer forms signed and Schwenke’s shares were not offered to Polu and Schwalger. 

38. According to Peseta, the process followed to change shares to 50% himself and 50% to Polu and Schwalger was that he checked with MCIL and shares had been changed. His evidence is that during a board meeting with Schwenke, Laauli, Polu, Schwalger and himself that took place in May 2013, the shareholding was changed to 50% himself and 50% to the others because he was the only one with a contribution. His evidence is that he said to them that he would be 50% shareholder because he owns the land. He told them he would sign the cheques with one of them. 

39. Laauli says there was no meeting held to change the shareholding as alleged by Peseta, or to appoint Peseta as a director. He says that when he was given a copy of the Notice, he asked Schwalger if he signed it. Schwalger denied signing it so they made a complaint to Police about the Notice. 

40. Schwalger holds 32.5% of the shareholding in LPA. He is a director of LPA. He is Laauli’s nephew. He denies signing the Notice. He says there was no meeting in which Schwenke gave his shares to Peseta. He also said Schwenke was never available to attend any meetings. Polu was in charge of all the paperwork. He also said he was never offered Schwenke’s shares nor did he sign any share transfer of his shares. 

41. Polu is managing director of LPA and holds 32.5% of the shares in LPA. He says he was not offered any shares belonging to Schwenke nor did he transfer his shares or sign any transfer of shares to Peseta. His evidence is that there was no meeting whereby Peseta was appointed as a director of LPA nor was Peseta given any shares. He found out in October 2015 that MCIL had changed the shareholding in their records to 50% Peseta and 50% Polu and Schwalger. He wrote to the MCIL lawyer to complain and the lawyer responded saying that they would wait for a decision from the Court. 

Plaintiffs’ Submissions 

42. The Plaintiffs rely on the judgment of Tuatagaloa J in a criminal case against Peseta in which she found that the Notice of Resolution purporting to change the shareholding to make Peseta a 50% shareholder was not a false document under s193 Crimes Act 2013. Further, the Plaintiffs rely on the order of Vaai J authorising Peseta to sue on behalf of LPA as establishing his directorship and shareholding. 

43. The Plaintiffs further submit that Peseta is a director and 50% shareholder on the basis that, amongst others things; 

1. the Registrar of Companies was satisfied by the documentation presented by Peseta which proved that he was a director who holds 50% of the shares of LPA; 

2. The E-registry still shows Peseta as director and 50% shareholder; and 

3. If there was an error, s42 of the Act provides that the company may apply to the Court for an order to rectify the Register. The Defendants claim that Peseta is not a director and not a shareholder, yet in the past 3 years they have not sought such an order. 

Defendants’ Submissions 

44. The defendants submit that Peseta is neither a director nor a shareholder of LPA and therefore does not have the requisite legal standing to seek an order under section 97 of the Act for leave to bring proceedings in the name and on behalf of the company. 

45. The defendants’ submissions can be summarised as follows; 

1. No written resignation by Schwenke as a director; 

2. No ordinary resolution of shareholders to appoint Peseta as a director; and 

3. Breach of Rules 12-17 which deal with pre-emptive rights. 

46. Several cases are included in the submissions which deal with pre-emptive rights as follows; 

a. Curtis v JJ Curtis and Co Ltd [1984] 2 NZLR 267;

 b. RJ Nicoholls and Ors v Parkview Projects Limited and Anor (1999) 8 NZCLC

262 016; and

c. Bital Holdings Limited v Middleditch(1993) 6 NZCLC 68 442.

47. Counsel also relies on Company and Securities Law in New Zealand 2nd Edition John Farrar, Susan Watson, General Editors, Thomson Brookers at para 25.5 which provides; Pre-emptive rights in favour of existing shareholders are a common restriction on the transfer of shares. The constitution may provide, for example that no transfer will be valid unless the seller first offers to existing shareholders, and only then (if no member is willing to purchase) to outsiders. If a pre-emptive rights provision is not complied with the transferee will not be entitled to be entered on the share register.

Findings As to Directorship and Shareholding 

48. Peseta’s appointment as a director purportedly follows the resignation of Schwenke as a director. In order to resign, section 87(2) of the Act provides that a director may resign by signing a written notice of resignation and delivering it to the registered office of the company. A copy of the purported letter of resignation was never tendered into evidence. Secondly, despite his importance to the factual matters at issue in these proceedings on various matters, Schwenke was never called to give evidence. I am simply far from satisfied that Schwenke resigned as alleged. 

49. In terms of Peseta’s purported appointment as a director of LPA, that appointment must be by way of ordinary resolution of the company’s shareholders. In order to be an effective appointment, he must also consent to his appointment in writing. 

50. The Notice that Peseta relies on in terms of his appointment as a director clearly states that the resolutions were made at a meeting of directors of LPA on 29 May 2013. That does not constitute an ordinary resolution of the company and therefore any such purported appointment is invalid. 

51. Even if such an appointment was validly made by way of ordinary resolution, such an appointment is only effective once he has consented in writing to that appointment. There was no evidence before this Court of Peseta’s written consent. 

52. Finally, and perhaps most importantly, I simply do not accept Peseta’s evidence that a meeting occurred on the 29th May 2013 at all credible, nor he as a witness credible or convincing.

Peseta’s evidence was that Schwenke, Laauli, Polu, Schwalger and he were present at that meeting yet of the 4 witnesses present at that meeting who gave evidence, three of them (Laauli, Polu, Schwalger) said no such meeting took place. I found their evidence consistent and reliable in contrast to Peseta.

53. I find that Peseta is not a director of LPA. 

54. Clear in his own evidence was Peseta’s claimed extensive experience in matters of business and commerce. He is a director and shareholder in Aldan, a senior member of the government and would be well familiar in respect of matters of corporate governance, appointments of directors and the transfer of shares.

I find it utterly unbelievable that a person with his extensive business and corporate experience and knowledge would proceed in such a haphazard manner in respect of his appointment as a director to LPA and the transfer of 50% shareholding to him. As he would be well aware, a share transfer is necessary and he gave no credible explanation as to why they did not follow the statutory requirements for the appointment of him as a director or the transfer to him of the shares. 

55. In terms of the purported share transfer to Peseta, Peseta claims that the shares were ‘given’ to him by Schwenke. There is no deed of gift, no transfer and no document to support the so called gift.

Perhaps most strikingly, there was also no Schwenke to confirm that indeed, he did give to Peseta the shares that he claims were given to him. We have only Peseta’s word and the purported Notice, a Notice that Schwalger says he did not sign. It is hearsay and in which I place little weight. I am satisfied that no such meeting occurred, as was her Honour Tuatagaloa J in the criminal proceedings in which Peseta places much weight.(see: Police v Peseta Vaifou Tevaga[2016] WSSC 192(28 October 2016) 

56. Due to my finding that there was no meeting, it follows that the record of the meeting as purportedly contained in the Notice is false on its face. It does not matter that it has the signatures of Schwalger and Peseta, the fact remains that the meeting that purports to have taken place and during which the resolutions as recorded in the Notice were made, did not take place. 

57. Even had a meeting taken place and the shares transferred pursuant to a Share Transfer, the pre-emptive rights of the other shareholders were breached. 

58. Under the Model Rules, existing shareholders must first be offered Schwenke’s shares. There is no evidence of the shares alleged to be given to Peseta by Schwenke being offered to Polu and Schwalger. 

59. The shares should never have been accepted by the Directors for registration in the share register. Peseta cannot be a registered shareholder until the pre-emptive rights have been exercised. If he has been wrongfully entered in the company’s share register, the Court has the power to correct the register pursuant to section 42 of the Act. 

60. These proceedings have been pre-occupied with the Companies Register and electronic records held at MCIL. In these entire proceedings, none of the parties tendered LPA’s share register that is maintained pursuant to section 40 of the Act and held at the registered office of the company or as may otherwise be permitted by section 119 of the Act. As section 41 of the Act provides “the entry of the name of a person in the share register as holder of a share is evidence that legal title to the share vests in that person.” 

61. The record held at MCIL is not evidence that legal title to the share vests in that person recorded at MCIL. The Registrar of Companies must keep a register of companies which records or stores information electronically or by other means and permits the information recorded or stored to be readily inspected or produced in usable form( s325 of the Act). The Companies Register is purely a record which can be inspected by any person on payment of prescribed fees, not evidence of legal title in the shares. 

62. It is the entry of the name in the company’s share register that is evidence of legal title vesting in that person. In the absence of the share register required to be maintained by the company, this simply further raises serious doubts in my mind that Peseta is even registered as a shareholder in LPA. 

63. Thus, a fundamental flaw in the Plaintiff’s case is that they did not produce the share register to support their claim that Peseta is a shareholder. This is despite the Notice stating ‘That the said shareholding is noted in the Share Registry of the Company”. There is no evidence that his name is on the share register and no evidence of the alleged transfer from Schwenke to Peseta on the share register. Peseta’s evidence is that Schwenke gave him all his 35% shares. He gave no evidence as to how he acquired the other 15% of shares to make up his 50% shareholding except to say that he is entitled to 50% by virtue of his land being used a security. 

64. There is no evidence whatsoever that the legal process under the Act was followed for the transfer of 50% shares from Schwenke to Peseta despite the record at the Companies Register which may show a transfer of shares. 

65. There is no evidence before me in relation to form/forms of transfer of shares duly signed and delivered to the company by any of the shareholders, including Schwenke. Peseta concedes that no transfer form was signed. 

66. In the absence of the share register and given the breach of pre-emptive rights which has taken place, the transfer of 50% shares to Peseta as alleged is of no effect. If this transfer was registered in the share register, this purported share transfer has been wrongly entered. The share register must be rectified to reflect the undisputed shareholding at the time of the alleged meeting, which is 35% (35 000 shares) held by Schwenke, 32.5% (32 500 shares) held by Polu and 32.5% (32 500 shares) held by Schwalger. 

67. I find that Peseta is not a shareholder of LPA. 

68. Accordingly, I find on the evidence before this Court that Peseta is not a director nor shareholder in LPA. 

The Leave to Bring Proceedings and Criminal Trial 

69. The Plaintiffs say that because of the findings in the criminal trial against Peseta and the leave granted by Vaai J, those proceedings establish that Peseta is a director and shareholder. 

70. Leave to bring proceedings in the name of the company is dealt with in sections 92-98 of the Act. Applications for leave to bring proceedings may be brought by a director of a company (s93(a)) or a shareholder or shareholders representing not less than 10% of the voting rights of all shareholders entitled to vote on a resolution to amend the rules of the company (s 93(b)). Matters which the Court must consider in determining whether to grant leave are contained in section 94. Section 95 deals with when leave may be granted. However before those matters are considered, the first hurdle is to satisfy the Court that either a director or a shareholder/s representing not less than 10% of the voting rights is applying for leave. 

71. In Vrij v Boyle [199 5] 3 NZLR 763 at p 765, Fisher J in dealing with an application under section 165 (equivalent to our Act ss 92, 94 and 95) said that 

“it is not for me to conduct an interim trial on the merits. The appropriate test is that which would be exercised by a prudent business person in the conduct of his or her own affairs when deciding whether to bring a claim”. 

72. Essentially at the stage of the leave application, a definitive determination of the issues is not required (per Wild J in Hedley v Albany Power Centre Ltd (in liquidation) [2005] 2 NZLR 196). 

73. After the benefit of detailed and full consideration and assessment of the evidence, I find that leave as granted by the Court (per Vaai J) cannot be sustained, as Peseta is neither a director nor shareholder representing not less than 10% of the voting rights for the reasons that I have outlined above. 

74. In relation to the criminal charges that were brought against Peseta, Peseta relies on the Court decision in that case to also support his contention that he is a director and 50% shareholder of LPA. The Plaintiffs submit that the claims by the defendants as to fraud have been considered by the Supreme Court and rejected. They submit the Supreme Court found that the Resolution appointing Peseta as director and 50% shareholder was not a forged document and not a false document under s193 Crimes Act 2013. This, they submit, confirms the resolution that Peseta is a 50% shareholder and director of LPA and there has been no official formal challenge by the defendants. 

75. The defendants however submit that Peseta was charged with one count of forgery under section 194(2) and using a forged document under section 195(1)(b) of the Crimes Act 2013. They submit that the issues raised by the defendants (whether Peseta is a shareholder or director, and whether Rules 12 to 17 and Rule 21 had been complied with) were not raised nor determined at the criminal trial. They submit that these are civil proceedings and the Court is not bound by the decision in the criminal case. 

76. I find that the evidence and findings in the criminal proceedings relating to charges that were ultimately dismissed against Peseta for forgery have no bearing in these proceedings. These proceedings are not so much concerned with the Notice as it is with the making of those resolutions at an alleged meeting. It follows on from my finding that there was no meeting and no compliance with the Act when removing or appointing directors and changing shareholding, that any appointment as a director or transfer of shares purportedly effected by the Notice has no legal effect and does not effect Peseta’s appointment as director or the transfer of the shares. 

 

Effect of These Findings: 

77. As I have found that Peseta is neither a director nor a shareholder in LPA and that leave to bring these proceedings on behalf of LPA is unsustainable, I turn to the various causes of action. 

First Cause of Action by Peseta against all defendants - leave to bring proceedings in the name of and on behalf of LPA. 

78. First, this pleading is not a cause of action but an application for leave to bring proceedings in the name of LPA. Leave was granted by Vaai J. 

79. Secondly, I have determined in these substantive proceedings with the benefit of all the evidence, Peseta is not a director or a shareholder. That is patently clear on the evidence. He does not satisfy the requirements of the Act set out in sections 92 – 98 and accordingly, he has no standing to continue these proceedings on behalf of LPA. 

80. The powers of the Court in section 97 specify that the Court may at any time, make any order that it thinks fit in relation to proceedings brought or intervened in with leave of the Court. 

81. I make an order which I find appropriate in relation to these proceedings brought with leave of the Court, that all causes of action brought by Peseta in the name of and on behalf of LPA as second plantiff are dismissed. 

Second Cause of Action by Peseta and LPA against Polu, Schwalger, Laauli and LPA for breach of directors duties owed to Peseta as shareholder pursuant to ss99 and 100 of the Act (as a personal action by a shareholder against a company and directors). It is pleaded that Peseta is a prejudiced shareholder pursuant to s102 of the Act. 

82. The derivative action in this cause of action by Peseta on behalf of LPA fails for the reasons I have set out in the Findings as to Directorship and Shareholding and in the first cause of action. 

83. However, Peseta also brings personal actions as a shareholder in this cause of action. 

84. Peseta’s evidence to support this cause of action is that not long after LPA was formed, Laauli took cars and other assets of LPA to his home and his son Schwenke was not being asked to sign LPA cheques when his son owned the land used as security.

Peseta then requested to sign the cheques as it was his asset securing the loan. This was accepted by the Board of LPA and he and either one of the other two directors of LPA were made signatories. In 2014 and 2015 Peseta says he was forbidden from entering LPA premises and no more company money was being deposited into the company account for which he was a signatory.

This was the Westpac account. Peseta has a Mitsubishi pajero in his possession which is an asset of LPA. He claims that LPA is now doing well and he still has not received any money yet his land is still being used by the company as security. He says one of the reasons why he gave his land as security was because he was confident that a Chinese person had placed orders for nonu juice and he knew there was ample nonu juice to supply this order to China. 

85. When it was put to Peseta that he could not be found to sign cheques, and that he kept avoiding Laauli and Polu, he replied that there was no need for cheques to be signed as the company had just started and all they had to do was to wait for orders and supply these from the nonu juice already inside the factory. 

86. Personal actions by shareholders against the company and against directors are provided for in sections 99 and 100 of the Act. 

87. A shareholder may bring an action against the company for breach of a duty owed by the company to him or her as shareholder ( s 99(1)). 

88. A shareholder or former shareholder may bring an action against a director for breach of a duty owed to him or her as a shareholder (s100(1)). 

89. As I have found, Peseta is not a shareholder or former shareholder in LPA. He therefore cannot bring a personal action against LPA or any director of LPA pursuant to ss99 and 100. 

90. Section 102 of the Act allows a shareholder or former shareholder of a company to apply to the Court for an order under subsection (2) if the shareholder considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity. 

91. In the same token, because Peseta is not a shareholder or former shareholder of LPA, he is not a prejudiced shareholder. 

92. This cause of action must fail on the above mentioned basis. 

93. In any event, even if Peseta was a shareholder, this action will fail on the basis of the evidence. 

94. I accept Laauli’s evidence that when LPA started receiving orders, Peseta rang him unhappy that his son Schwenke was not signing the cheques. Peseta also had issues with Polu.

They had a meeting in which Polu prepared a mini financial statement which showed that Eddie Wilson (owner of Wilex), was taking awhile to pay for his order. As time progressed Peseta started to suspect Polu about the payment of this order.

Peseta approached Eddie Wilson asking about the payment. Peseta wanted Polu out of the company but Laauli advised him that Polu is running the company and he and Peseta are not directors or shareholders. Peseta wanted to change the shareholding.

Laauli told him that he could not be involved as he is a Member of Parliament. Peseta wanted to be the primary signatory of the company’s bank account. Polu and Schwalger agreed to make him primary signatory to appease his anger and concern about someone misappropriating the company funds.

As primary signatory, Peseta’s signature was required to cash cheques. From June to September 2013, operations were stuck as Peseta refused to sign cheques and proved elusive. 

95. I also accept Polu’s evidence that he agreed for Peseta to be the primary signatory for LPA’s Westpac account because of Peseta’s complaints about his son being left out of the management of LPA.

However, once Peseta became the main signatory, matters became difficult. Peseta’s distrust of Polu led to Peseta going to Eddie Wilson and asking for invoices. Eddie Wilson made the first order of nonu juice and it took a while to get the full payment. It was hard to run the company in that environment. 

96. Peseta cannot now claim any breach of duty on the part of the directors. The directors allowed him to be primary signatory of the LPA account and he in turn refused to sign the cheques needed to run LPA.

Because of my findings of fact, it follows that I do not find that LPA or Polu and Schwalger breached any duties to Peseta. I do not find that the directors Polu and Schwlager did anything oppressive, unfairly discriminatory or unfairly prejudicial to Peseta. His personal dislike and distrust of Polu led to him being obstructive. Peseta by his own actions refused to be involved in LPA, and was obstructive when it came to signing cheques needed by LPA for its operations. 

Third cause of action brought by Peseta and LPA against Polu, Schwalger, Laauli and LPA for breach of duties owed by these Defendants to Peseta and LPA by barring or preventing Peseta from any participation in the decisions or activities of the LPA, or from entering LPA premises. 

97. Peseta says he has been denied millions of tala made by LPA when he was the only one with a contribution by way of his land. 

98. In respect of LPA, Peseta has no standing to continue these proceedings in the name of LPA as he is neither a director nor shareholder in LPA, nor does he satisfy sections 92-98 of the Act. 

99. Peseta is neither a former or current shareholder of LPA and therefore cannot bring a personal action against the company or against directors for any breach of duty as no duty is owed to him by either the directors or the company. 

100. In any event, when put to Polu that they forbid Peseta from LPA premises, I accept Polu’s evidence that Peseta was always free to come and go from LPA premises. The only time that Polu thought it would no longer be appropriate for Peseta to enter LPA premises was after Peseta served them with an injunction.

Peseta asked SNPF for all the keys to the LPA trucks and to the property. Peseta even changed the locks so that Polu was locked out of the premises of the company. 

101. I also accept Laauli’s evidence that he tried numerous times to call and text Peseta for a chance to talk. Peseta came to the LPA premises on White Sunday holiday in 2015, took photos of the premises and gave the foreman the Notice.

Laauli says that there have been many attempts from their side at reconciliation. Even the Prime Minister requested that they reconcile. However Peseta wanted an apology from Polu and $300,000 to pay his lawyer. 

102. I find Peseta acted improperly by bringing LPA to a stage whereby operations could not continue. He did this by refusing to sign cheques needed to operate LPA. He came across as primarily motivated by money. Whilst this is not necessarily a bad motive, it resulted in bringing LPA to a standstill.

His actions in dealing with LPA and its directors were to get the most out of the company and if he was not benefitting from LPA, he would find a way to control LPA. I am not satisfied that he has come to Court with clean hands. This caused the directors Polu and Schwalger to find ways to ensure the survival of LPA. The sales were beginning to increase despite Peseta’s obstructive actions.

When LPA first became operational in 2013 the sales were $92, 039. In 2014, the sales were $313,531.48, in 2015 sales were $2,845,218.45 and after the proceedings were filed at the end of 2015, the expected sales dropped according to the progress report of the Court appointed manager dated 4 April 2016 to $87,750.

Despite allegations that there were errors of judgment in the management of LPA or poor business management, the Plaintiffs have not satisfied me that there was an element of underhandedness or bad faith on the part of Polu and Schwalger.

According to the evidence which I accept, Peseta by his own actions refused to participate in LPA despite being asked several times by Laauli. I found Laauli to be credible, forthcoming and genuine in giving his evidence. I found Polu and Schwalger to be the same. It came across very clearly in Polu’s evidence that he tried very hard to make LPA work despite the challenges posed by Peseta. 

103. Peseta’s action against Laauli is pursuant to s73. Section 73(1) provides that a person (principal) in accordance with whose directions or instructions a director is required or is accustomed to act is liable under sections 65 to 71 to the same extent as that director, unless the principal shows that the director was not in fact acting in accordance with the principal’s directions or instructions in acting or failing to act in the manner giving rise to liability on the part of the director. 

104. Firstly any action on the basis of s 73 fails on the basis that Peseta is not a shareholder and cannot bring an action against a director, deemed or otherwise, of LPA. 

105. Secondly, liability has not been established against directors Polu and Schwalger under ss 65 to 71 in order for liability to attach to Laauli under section 73. 

106. Finally, as Laauli made clear, and I accept, he acted in an advisory role once matters with Peseta started to deteriorate. Polu and Schwalger handled all the correspondence. Both Polu and Schwalger did not come across as dependent on Laauli for instuctions or directions. Polu in particular came across as decisive and intelligent. I accept Laauli’s evidence that he did not want to compromise his role as a Parliamentarian which was the reason he was not a shareholder or director of LPA. He was the Speaker of the Legislative Assembly when negotiations for nonu started and was Minister of Agriculture and Fisheries at the time of the hearing. 

Fourth cause of action-by LPA against Laauli(conversion/detinue) for taking and having in his possession property of the plaintiff, including nonu juice and vehicles. 

107. Similarly, Peseta has no standing to continue these proceedings in the name of LPA as he is neither a director nor shareholder in LPA nor does he satisfy sections 92-98 of the Act. Accordingly, this cause of action cannot be sustained. 

108. It follows that the action in conversion and detinue against Laauli fails as Peseta has no standing to bring these actions. 

109. In any event, I accept the evidence of Polu and Schwalger that the involvement of Laauli and Maota o Samoa in the hireage of trucks, and Heather, Tuitui and others in cashing and collecting cash payments were sanctioned by Polu as managing director and Schwalger as director of LPA, according to what they believed to be in the best interests of LPA. Maota o Samoa is Laauli’s family company. 

110. In relation to the hireage of trucks, I accept Laauli and Polu’s evidence. Polu’s evidence is that they willingly let their trucks be used by Vailima Breweries under Maota o Samoa’s contract to get some money for the company as the trucks were standing idle. 

111. Laauli’s evidence is that Maota o Samoa had a contract with Vailima Breweries for the use of one of its trucks to deliver their product. Vailima Breweries wanted to use the trucks at LPA premises so Polu agreed for LPA trucks to be used as an extra source of income for LPA. Money for this use of trucks came under Maota o Samoa as that was the party to the contract. Laauli says he took out expenses like petrol and gave the balance to Polu. This is how LPA survived in 2014 as Peseta was making matters difficult and LPA could not operate as Peseta was refusing to sign cheques. The money paid to LPA for trucks hireage is evidenced in the financial statement. LPA made $214, 000 from the hireage of trucks in 2014. With this income, LPA was able to pay the workers and utilities. By the end of 2014, Vailima Breweries ended the contract saying that there was too much dissent within LPA with Peseta visiting Vailima Breweries numerous times. Laauli says Peseta rang him and expressed his anger at this hireage of trucks. Peseta’s former lawyer then wrote to LPA demanding the return of the trucks and the keys to the lawyer’s office by 4pm that day. Polu wrote to the lawyer that 65% of the shareholders had made that decision. That was the end of that matter. 

112. I also accept the evidence of Mrs Ala Lima Meleisea, a chartered accountant who has been working and practising accounting for 10 years. She has been looking after her father’s practice since March 2017. Her father was the late Pala Lima who prepared the financial statements for LPA. She says that revenue from truck hireage to Vailima Breweries is recorded in the 2013 financial statement as $13,200 and in the 2014 financial statement as $204,000. Mrs Ala Meleisea displayed extensive knowledge of accounting matters and came across as forthright and frank. I found her to be credible and her evidence solid. 

113. I accept that the options available to Polu and Schwalger in relation to the trucks were either to let LPA trucks stand idly or earn much needed income from them by letting Vailima Breweries use LPA trucks to distribute their products. This was against a background of difficult times with Peseta not signing cheques so that LPA could operate. The directors of LPA had just started operations and yet obstacles were presented by Peseta in the form of approaching those who ordered nonu juice, approaching Vailima Breweries, not signing the cheques and being evasive. Despite those difficulties, the directors Polu and Schwalger continued to make loan repayments and sales increased as reflected in the financial statements from 2013-2015. This was a business which had just started and the potential was huge. The directors Polu and Schwalger to their credit continued to find ways to keep the company operational until the filing of proceedings by Peseta and the appointment of an interim manager by the Court. 

114. Peseta’s issue is that LPA’s bank account with Westpac does not reflect any of the payments made for nonu juice. He went through bank statements and pinpointed people who have no involvement in LPA but were given amounts of cash to handle. They are Heather who is Laauli’s wife and Tuitui who works for Maota o Samoa. 

115. I accept that the assistance of Laauli, his wife Heather, Polu’s wife, Laauli’s daughter and Laauli’s workers such as Tuitui, was sanctioned by Polu and Schwalger as they trusted these people and needed assistance. 

116. In relation to people who appear on bank statements to cash cheques from the Bank, Polu’s evidence is that he trusts these people to cash the cheques, collect cash payments and bring the cash to the office. He says it does not mean the cash is used by those people. The cash is for the operation of the company. These people include Heather and Tuitui. He needed help in particular on Fridays when workers needed to be paid. 

117. Heather’s evidence is that in 2013 she was called upon by Polu and Schwalger to assist with payroll and overseeing the collecting of the nonu fruit as LPA had few office staff. At the time, Heather had a catering business, supermarket and a petrol station. On one occasion, she was asked by Polu and Schwalger to help count the cash payment from Gary Vui of $345,000. This amount was lodged in Samoa Commercial Bank. On another occasion, she counted a payment from Gary Vui of $348,000 inside the National Bank. She took the money to Polu at LPA office. Polu counted and recorded this cash in the cash sales book and it was locked in the office. 

118. Heather’s evidence is that she has never used any of this cash she uplifted on behalf of Polu and Schwalger for personal use. She was always instructed by Polu and Schwalger to either count and uplift cash payments or cash cheques which Polu always signed to be cashed at the bank as the workers were paid in cash. She says she merely assisted the company as the company had very few employees when it started out. She did not receive a weekly pay but had been given some money from Laauli which he received from the directors. 

119. I accept Heather’s evidence. At the time, she was a business woman in her own right, running several businesses. She assisted LPA because of Laauli’s closeness to Polu and Schwalger. She came across as sincere and convincing. I found her evidence to be reliable and solid. 

120. Again this was a company just starting out. It is not inconceivable that the directors would ask for assistance from close associates and family. Laauli and Polu both spoke about their close friendship. 

121. I find that a reasonable person in the position of Polu and Schwalger, given their responsibilities having just secured a substantial loan of $1.8 million and facing the challenges from Peseta would have exercised the same care, diligence and skill. The company was starting out. It had to build its reputation and credibility within both local and overseas markets. The directors made a commercial decision to adopt a trading name for the purposes of marketability. They had to open another bank account as Peseta had control of the company’s bank account and would not sign. They accepted cash payments given the requests by clients Gary Vui and Jessie Shi who both gave evidence that they wanted to pay by cash. LPA also needed cash when collecting the nonu fruit. Polu and Schwalger used family and friends initially to collect payments and to cash cheques. Schwalger was a mechanic and maintained the vehicles of LPA. Essentially Polu was running the day to day operations of LPA. His decisions resulted in increasing sales for LPA. 

122. I accept that when LPA started out, Polu ocassionally called on Lauuli’s wife and workers to help him, in particular on a Friday when workers needed to be paid. I accept that Laauli stored barrels of nonu juice in his warehouse instead of the nonu juice being left in the sun. 

123. I accept Laauli’s evidence that Polu was in charge of all the accounts. When LPA bid for the company in New Zealand, the main person dealing with the bid documents was Polu. Their accountant was Laauli’s father-in-law who had been Laauli’s father’s accountant for over 30 years, a fact Peseta never took issue with at the time. Laauli says Polu kept all the records which were then used by the accountant to compile financial statements for 2013, 2014 and 2015. Peseta lodged a criminal complaint about stealing LPA money and all the company records at the accountant’s office were seized by Police. The accountant passed away in early 2017. 

124. What is clear is despite Peseta’s actions, sales increased for LPA under the management of Polu from 2013-2015 and fell again in 2016 after the commencement of proceedings by Peseta which resulted in the appointment of a court appointed interim manager. The Court appointed manager Tagaloa, to his credit, had to work within the parameters he was given by the Court against a backdrop of bad relations amongst those involved in LPA. 

Sixth cause of action brought by LPA against Maota o Samoa for conversion of vehicles and funds belonging to LPA 

125. Peseta relies on the same evidence that LPA trucks were being used by Vailima Breweries and the cheques for this use given to Maota o Samoa. I have dealt with the hireage of trucks and funds received from that hireage in the fourth cause of action. 

126. This derivative action fails for the aforesaid reasons. 

127. The torts of conversion and detinue are concerned primarily with the interference with 

the property of another and wrongful retention of possession of a chattel. The property belongs to LPA. This is not an action brought by the shareholders or directors of LPA. Therefore this cause of action fails. Peseta has no standing to continue these proceedings in the name of LPA as he is neither a director nor shareholder in LPA, nor does he satisfy sections 92-98 of the Act. Accordingly, this cause of action cannot be sustained. 

Fifth cause of action-by Aldan against Polu, Schwalger, Laauli and LPA for breach of contract by putting and continuing to put the secured land at risk. 

128. I have left the fifth cause of action to be dealt with last as it is an action which is brought by the third plaintiff Aldan against the first, second and third defendants for breach of contract by putting and continuing to put the secured land at risk. 

129. Aldan is a company in which Peseta is a director and 50% shareholder. 

 

Evidence 

130. Peseta’s evidence is that to secure the loan of $1.8 million from SNPF, he used Aldan land at Vaitele as one of the securities. LPA land and assets were also used. He does not deny that his company’s overdraft of $103,000.00 was paid off from the loan proceeds. The bid for the assets of company Pure Pacifika companies was $1.5 million and the loan was increased to $1.8 million, partly to cover the payment of the overdraft. 

131. In relation to Peseta’s land, Polu says that Peseta offered the land as security. After 2013, matters got worse. LPA started defaulting on the loan payments. However as of 16 December 2016, there were no arrears to the loan repayments as confirmed by letter from SNPF Manager Legal of same date (ALP1 of Affidavit of Polu dated 19 December 2016). 

132. Laauli says that Peseta offered his land as security provided they would pay off his overdraft with National Bank of Samoa as the land was securing his overdraft. Approximately $103,000 of the loan proceeds was paid to clear Peseta’s overdraft. 

133. Because of the friction with Peseta, Laauli says that the company started to suffer. The Managing Director Polu was in turmoil and this affected his ability to find orders for the juice. Their only concern became paying the loan with SNPF of approximately $24,000 per month. Because of Peseta investigating and questioning the local companies that placed orders with the company, those companies became wary and stopped ordering. Peseta had informed those companies that there was a ‘big’ lawsuit pending against LPA. Arrears for the SNPF loan were starting to accumulate so the company had to find another way to survive. Laauli wrote to the then General Manager of SNPF that he would guarantee the balance of the arrears because he was worried he had promised his constituency that there would be a nonu farm within their village to supply LPA with nonu fruit. This nonu farm would provide the people of his constituency with a stable income. The idea of the trading name then arose at a meeting between Polu, Schwalger and Laauli in order to keep the company operational. As the company was targeting the Chinese market, where words such as ‘delights’ were more readily acceptable and marketable than ‘Local Partners and Associates’, the name ‘Samoa Nonu Delights’ was created. LPA was still the legal entity. LPA could not operate as Peseta the primary signatory of the cheque account was being obstructive and uncooperative. The other outcome of the meeting was to open a bank account with Samoa Commercial Bank (“SCB”). Laauli became the advisor to LPA as a way forward. 

134. Laauli’s evidence is that SNPF became aware of the deteriorating state of affairs within LPA between Peseta and others, so SNPF called a meeting in which Peseta, Schwenke, Laauli, Polu, Schwalger and General Manager of SNPF were in attendance. Peseta expressed concern about his land. Laauli, Polu and Schwalger agreed to find a replacement asset. Peseta had decided to withdraw from the company. This meeting was held on 3 April 2014. 

135. Polu confirms that there was a meeting held at SNPF during which Peseta said that he and his son Schwenke wanted to withdraw from the company. The agreement with SNPF is that the other directors would provide a replacement asset for security and Peseta’s land would be released. 

136. Peseta’s evidence in relation to his land is that it was agreed at a meeting with the former General Manager of SNPF that his land would be released provided another asset was given as substitute. Laauli and Polu were given two weeks to find a replacement asset, however they never came up with one. Peseta says he no longer wishes for his land to be released until Court proceedings are concluded as LPA is now receiving millions and he has not received any of this money. 

137. Heather’s evidence was that one of the cash payments she uplifted from the bank of $200,000 was the first payment for the nonu farm, which was 27 acres at Aleisa for the growing of nonu fruit to ensure the quality of the fruit which cannot be guaranteed when fruit is picked from different villages around Samoa. The farm was also for ease of pickup. She paid the money into an account called Nonu Farm. The farm is valued at $800,000. The other purpose of the farm was to replace Peseta’s land as security. The farm was from the Schmidt family. 

138. The 2015 financial statement shows the nonu farm valued at $800,000. The Agreement for Sale and Purchase of leasehold interest in government lease No 613L is the purchase of a leasehold by LPA for the sum of $800,000. The valuation report shows that 27 acres was valued at $820,000 on 18 May 2015. The valuation report shows that 12,000 nonu trees have been planted. 

139. Avalisa Viali Fautuaalii is the current Chief Executive Officer (“CEO”) of the Ministry of Revenue (“MOR”). Her evidence is that there are 3 business licences for LPA for 2013. Two of these are signed by the former CEO and one by herself. One of the business licences signed by the former CEO is a scanned copy with the words “trading as Samoa Nonu Delights”. She does not know who added ‘Samoa Nonu Delights’ after the words ‘trading as:-‘ to the 2013 business licence as it is a different font from that used on their system. She says the first time the trading name appeared on the business licence was in 2016. She says that trading names are added for companies when they inform MOR. Even with trading names, she says the legal name is the company name. She admits that in the business renewal forms submitted by Polu to MOR in 2014 and 2015, the trading name of Samoa Nonu Delights is on those forms. This is also the evidence of Assistant CEO Tuitui Faasili in relation to the business licence renewal forms for 2014 and 2015 containing the trading name Samoa Nonu Delights. Avalisa’s evidence is that usually MOR requires minutes of meetings to confirm trading names before they add the trading name to the business licence of a company. 

140. Peseta says that one of his issues is with the trading name. He says the trading name is illegal as the directors and shareholders did not agree to use the trading name. 

141. Naomi Magasiva works at Samoa Commerical Bank as a new accounts officer and is responsible for opening up new accounts. She opened a cheque account for Samoa Nonu Delights in 2014. The two signatories were Laauli and Polu. To open a new account, a business licence and copies of identification are needed. She says Polu brought in a copy of the business licence that expired in 2014. She confirmed that companies can and have used trading names on their bank accounts. 

142. Polu says that on 10 October 2013, he and Schwalger resolved to use the trading name Samoa Nonu Delights to promote nonu before he wrote to SCB to open an account. 

143. Mrs Meleisea explains that the compilation of financial statements are done using source records from clients, such as bank statements, receipts, or any forms or records they have where they recorded every transaction carried out by the company or the client. There can be different journals such as cash receipt journals, sales journals, and purchases journals. When receipts are not issued, transactions can be recorded in cash journals. This is common for companies that choose to operate with cash. Accountants use working papers in compiling financial statements and her father’s working papers in relation to LPA were seized by Police. 

144. In 2013, it was put to Mrs Meleisea that the amount alleged by the Plaintiffs to be embezzled is $40,905. She explains that the sales in 2013 are $92,000. Therefore $40,905 has been factored into 2013 financial statement. Similarly in 2014, the amount alleged to be embezzled is $65,447. The total sales for 2014 is $313,000 which means that it is way more than the amount claimed to be embezzled of approximately $65,000 and therefore this amount has been accounted for in 2014 accounts. In 2015 the amount claimed to be embezzled is close to $1.3 million. The total sales for 2015 is $2.8 million therefore the amount of $1.3 million has been accounted for in the financial statement. 

145. In 2015 when orders were starting to roll in, Laauli says that Peseta then commenced court proceedings. One of these orders was Gary Vui who wanted to pay cash as he was desperate for nonu juice. LPA required cash to pay for the suppliers of the nonu fruit to make more nonu juice. The fruit was collected from planters around Savaii. Some are paid $2, $3, $6 or $12 and it is not feasible to pay them cheques. Once the first two big orders came in 2015, Laauli rang Peseta to come and talk about his land. Peseta did not come. He instead got an injunction and the orders could not be fulfilled and the nonu farmers who supply the nonu fruit could not be paid. Prior to these court proceedings, Samoa had secured a big part of the overseas market for the supply of nonu juice. This is because Laauli and Polu took personal trips overseas to try to find markets for nonu juice to reinvigorate the company. 

 

Plaintiff’s submissions 

146. The Plaintiffs submit as follows and I have inserted their submissions verbatim below; 

a. It is submitted that the offer of Aldan’s real property as security for SNPF loan (breach of implied contract); 

i. It is submitted that the defendants claim that the property of Aldan was ‘freely offered’ by Peseta as security for the SNPF loan. The defendants claim that Peseta was willing to risk his interest in a property worth over WST$1 million for no return, no fee, no position in the company, no shares and most significantly, no say in the running of LPA. This statement is a lie. This statement is false, misleading and contrary to the evidence before the Court. The evidence before the Court, is that Polu was not involved nor present at the initial discussions between Peseta and Laauli, of how LPA was to be funded. Polu’s evidence is based on hearsay, and is false. Without the loan from SNPF secured on Aldan’s property, the LPA nonu business would not have started. No defendant put any money in to start LPA nonu business, except Peseta, a 50% shareholder and director of LPA; 

ii. Peseta is an astute businessman who would not put at risk such an asset for no return and without any say in how LPA was run. It is submitted that no businessman would make such an evidently imprudent decision, and that such decision would have been in breach of Peseta’s duties owed Aldan. Accordingly it is submitted that the defendants claim that the security was freely offered with nothing in return is implausible and false. It is contrary to proper business contractual and legal arrangements under the Act. Other than the bare statement by Apulu, there is no proof being offered to support this statement. 

 

Defendant’s submissions 

147. The Defendants make the following submissions in reply; 

a. The parties to the mortgage are Aldan and SNPF. Aldan had entered freely into the mortgage and therefore bound by the terms of the mortgage contract which includes the term to repay the mortgage. If there is a default by Aldan as mortgagor then the NPF as mortgagee can exercise its remedies as mortgagee which includes the right to exercise power of sale. This is a written contract. 

2. Polu, Schwalger, Laauli and LPA are not parties to the Aldan mortgage. Since they are not parties, the doctrine of privity of contract applies and they are not bound accordingly. 

3. The defendants submit there must be an agreement by all parties, an intention to be bound contractually, certainty, essentiality and consideration which are all lacking in these circumstances. The first, second and third defendants dispute that there was ever such a contract as alleged by Peseta. The only express and written contract where Aldan is a party is the Aldan mortgage. 

4. Terms may be implied in a written contract because of custom, statute or by Judges to reinforce the language of parties. There must be a written contract on which terms may be implied. Peseta is attempting to imply terms from an implied contract. This is not the doctrine of implied terms and goes against the fundamental of requirement of certainty of contracts. 

5. Polu deposed that the SNPF loan payments are current and all arrears cleared. Peseta has agreed to his land being released and Laauli’s land be substituted. 

6. However, Peseta despite stating his concerns and although aware that Polu had requested SNPF to release the land owned by Aldan had still instructed his solicitors to write to NPF not to do so. 

7. It is submitted that this cause of action is untenable. 

 

Discussion 

148. Firstly what must be made clear is that the land in issue is land belonging to Aldan Company Limited of which Peseta is one of 4 directors and a 50% shareholder. The arguments advanced therefore that the land is his land, is not technically correct. 

149. Peseta claims that the defendants breached a contract. There is no contract, written or oral between Aldan and the defendants which is before me and from which I can ascertain its terms with any certainty. 

150. There was no evidence that Peseta as director of Aldan unwillingly offered his land as security. The only evidence before me from Peseta himself, Polu and Laauli is that Peseta gave it willingly provided his overdraft was paid. Even when the possibility came up for the security to be replaced, he did not want the land to be released. The defendants on the other hand, took active steps to find a replacement security. The agreement for sale and purchase of the nonu farm and the valuation report shows real progress in finding a replacement security. 

151. The leasehold documents and the valuation report add credence to Heather’s evidence about the purpose of the leasehold being for a nonu farm to grow the nonu and to replace Peseta’s land. Before the acquisition of Nonu Farm, the nonu was collected from around Samoa. 

152. In any event, Polu and Schwalger have operated LPA in a way that loan payments have been maintained, despite the challenges of a legal battle and the Court appointment of an interim manager. In December 2016, there were no arrears to the SNPF loan. The arrears have accumulated this year with the management of LPA being out of the hands of its directors. 

153. LPA sales were increasing as evident in its financial statements from 2013 to 2015. The noticeable drop was the expected sales for 2016, after these court proceedings commenced. Any attempts by the defendants at reconciliation were thwarted by Peseta. I accept the evidence of Laauli and Polu that Peseta would not consider reconciliation. Peseta cannot now put the blame on the defendants. His part to play in continuing to cause and sustain the division between himself and the defendants is not insignificant. Peseta had derived some benefit from LPA in having his overdraft paid off and in the cash payments which I accept he received from LPA of at least $20,000 according to Polu. 

154. It is evident that Peseta’s agreement to use Aldan land is conditional on how it benefits him. He used it for the loan initially to clear his overdraft, he then agreed for it to be released for a replacement asset. He is now saying that he does not want it released until Court proceedings have been determined as LPA is receiving millions and he is not receiving any part of that money. 

155. The directors Polu and Schwalger are entitled to make decisions that they consider to be in the best interests of the company. Polu and Schwalger sanctioned the use of the trading name Samoa Nonu Delights, the opening of the bank account with Samoa Commercial Bank, the accepting of cash payments and the purchase of the leasehold for a nonu farm, all by way of resolutions passed at meetings of shareholders, (Polu and Schwalger holding 65% of the shares), in an effort to keep LPA operational and to attract revenue to maintain loan repayments. 

156. The fact that Polu submitted the trading name in the business licence renewal forms in 2014 and 2015 to MOR shows that Polu and Schwalger were upfront about the use of the trading name ‘Samoa Nonu Delights’. 

 

Conclusion 

157. I do not find any breach of contract as there was no contract or agreement between Aldan and the defendants with certain terms before me. This cause of action fails. 

158. In any event, loan payments were current as of December 2016. This is due largely to the fact that Polu and Schwalger found ways for LPA to continue to operate. They created a trading name, opened another bank account, accepted cash payments and purchased a leasehold for a nonu farm. 

 

Observations 

159. I faced real difficulties in deciphering the pleadings by the Plaintiffs and the Plaintiffs’ submissions in relation to each cause of action. 

160. Counsel for the Plaintiffs filed a Memorandum Seeking Delivery of Judgment on 8 November 2017. The delay has been in no small part due to the state of the Plaintiff’s pleadings, submissions and conduct of proceedings. 

161. Several procedural matters concerned me. Section 83(1) Evidence Act 2015 provides that a party may not offer further evidence after closing that party’s case, except with permission of the Judge. Section 83(2) provides that in civil proceedings, a Judge may not grant permission if any unfairness caused to any other party by the granting of permission cannot be remedied by an adjournment or an award of costs, or both. The Plaintiff during closing submissions sought to tender an affidavit by a chartered accountant. The defendants strongly objected to this. I reserved the admissibility of this affidavit until this decision. 

162. I have made the decision to not allow this affidavit to be submitted at such a late stage, or to allow the chartered accountant for the Plaintiffs to be called. All the evidence from both sides had been called. This practice should not be encouraged or condoned. The practice I am referring to is the late identification of witnesses by the plaintiff whom they wish to call, after hearing witnesses for the defence, particularly in this case where this could have been avoided by an order for discovery which is provided for in Rule 86 of the Supreme Court (Civil Procedure) Rules 1980. An application to the Court is not necessary. However there was no discovery conducted in this case. This led to applications by the Plaintiff to introduce more evidence and seek disclosure of documents after closing their case and well into the defendants’ case. I did grant the disclosure of documents pursuant to Rule 92 of the Supreme Court (Civil Procedure) Rules 1980, but I commented on the lack of discovery several times during the hearing. 

163. In addition, during closing submissions, a breach of section 50 was alleged by the plaintiffs. Section 50 deals with shareholder approval of major transactions. I will not deal with this matter as it was not pleaded in the SOC. Counsel for the Plaintiffs submitted that this arose out of the evidence and they were taken by surprise. Again discovery would have avoided this situation. 

164. Quite separate from the SOC, in the closing submissions, the relief sought by the Plaintiffs was different in some significant respects from the relief sought in the SOC. My orders below cover all prayers for relief. 

 

Court Orders 

165. For the avoidance of doubt, my orders are; 

1. All causes of action in the SOC are dismissed; 

2. Any change therefore to the share register made on the basis of the Notice must be rectified accordingly under section 42 of the Act, if it has been changed, to reflect the directors and shareholders as follows; 

The directors of LPA are Leiataua Danny Schwenke of Vaitele, Martin J. Schwalger of Aleisa and Apulu Lance Polu of Saleimoa.

The shareholders are Leiataua Danny Schwenke with 35% (35,000 shares), Martin J. Schwalger with 32.5% (32,500 shares) and Apulu Lance Polu with 32.5% (32 500 shares); 

3. All interim orders and injunctions granted by the Court in favour of the Plaintiffs are discharged immediately; 

4. The Court appointed manager is discharged and the management and regulation of LPA is put back in the hands of Polu, Schwalger and Schwenke; and 

5. Having defended this case successfully, Counsel for the Defendants is invited to file and serve a memorandum as to costs within 21 days of the release of this decision. Counsel for the Plaintiffs may respond to that memorandum within a further 14 days. 

 

Addendum 

166. Aldan’s land is still subject to the mortgage with SNPF. In moving forward, the parties need to either negotiate a replacement asset or agree to work together in this business venture beneficial to Samoa. 

__________________ 

TUALA-WARREN J