Money World New Zealand 2000 Ltd v KVB Kunlun New Zealand Ltd HC Auckland CIV 2003-404-2542

[2005] NZHC 1092

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2003-404-2542

BETWEEN  MONEY WORLD NEW ZEALAND 2000

LTD

Plaintiff

AND  KVB KUNLUN NEW ZEALAND LTD Defendant

AND  RESERVE BANK OF FIJI Third Party

Hearing:         16, 17, 18 & 19 May 2005

Appearances: PL Rice & F Carlyon for Plaintiff

CP Browne for Defendant

RM Crotty & FJ Cuncannon for Third Party

Judgment:      11 August 2005

RESERVED DECISION OF LAURENSON J.

In accordance with r 540(4) I direct the Registrar to endorse this judgment with the delivery time of 1pm on Thursday 11 August 2005.

Solicitors:

Grove Darlow & Partners, Auckland

Wilson Harle, Auckland

Russell McVeagh, Auckland

MONEY WORLD NEW ZEALAND 2000 LTD V KVB KUNLUN NEW ZEALAND LTD HC AK CIV 2003-

404-2542 [11 August 2005]

Introduction

[1]      The  plaintiff  (“MWNZ”)  is  a  duly  incorporated  company  carrying  on business at Auckland as a foreign exchange dealer specialising in exotic currencies including the Fijian dollar.

[2]      The defendant (“KVB”) is a duly incorporated company also carrying on business at Auckland as a foreign exchange dealer.

[3]      On  9  May  2003  MWNZ  and  KVB  entered  into  a  foreign  exchange transaction whereby KVB agreed to convert Fijian $360,000 into NZ$324,971.32 which was to be paid to MWNZ on 13 May 2003.   The Fijian dollars were in the form of 180,000 FJ$2 commemorative notes.

[4]      On the same day KVB entered into a contract with the National Bank of New Zealand Ltd (“NBNZ”) to exchange the FJ$2 notes into the equivalent New Zealand currency to enable it to carry out the transaction.

[5]      Before completing the transaction with MWNZ, KVB contacted the third party, the Reserve Bank of Fiji (“RBF”), which advised that it was not bound to, and would not, accept or honour the Fijian notes.

[6]      KVB then cancelled the transaction with MWNZ, but  retained the Fijian notes.

[7]      MWNZ then issued proceedings relying on:

[a]      the Sale of Goods Act 1908 (“SOG”) to recover the New Zealand price of the notes plus general damages of $50,000 for loss of good will and opportunity to make future profits; and alternatively

[b]      the Contractual Remedies Act 1979 (“CRA”) whereunder it sought to recover damages in the same amount  and the general damages of

$50,000.

[8]      KVB denied liability alleging:

[a]      MWNZ  breached  an  essential  implied  term namely,  by  impliedly representing that the Fijian notes would be honoured by RBF.

[b]      If the transaction was governed by the SOG, then it was a sale by description in which case there had been a breach of the  implied condition as to merchantable quality.

[c]      The transaction was governed by the CRA and it had fulfilled its obligations by later offering to return the Fijian notes to MWNZ.

[9]       KVB also counterclaimed against MWNZ alleging that:

[a]      MWNZ  was  guilty of  misleading  and  deceptive  conduct  in  trade pursuant to the Fair Trading Act 1986 (‘FTA”) by failing to disclose that RBF would not honour the notes; and

[b]      it had suffered losses arising from having to reverse the agreement with NBNZ and for the cost of storing and insuring the notes.

[10]     KVB also issued third party proceedings seeking indemnity from RBF for any liability to MWNZ alleging:

[a]      Deceit, in that RBF had lacked honest belief in the advice given to KVB and, knowing that it was false, had acted with reckless indifference as to whether it was true or false.

[b]       The advice was given negligently and in breach of a duty of care to

KVB and had caused KVB to cancel the transaction with MWNZ.

[c]      The advice given amounted to misleading and deceptive conduct for the purposes of the FTA.

[11]     RBF denied liability to KVB alleging:

[a]       It made no representation that the Fijian notes were not legal tender.

[b]       The advice given was true, and was honestly believed to be true, and it was not made recklessly or carelessly.

[c]       Any losses suffered by KVB were self-inflicted.

[d]      KVB’s position was  irrational  in that  it  could not  expect  to  both refuse to make payment to MWNZ and retain the Fijian notes.

Factual background

[12]     MWNZ is associated with, but not directly related to, a Singapore Company, Money World Asia Pte Ltd (“MWA”) which also deals in foreign exchange. Both companies are owned by a Singapore business man, Mr Andy Lim.

[13]     There are two aspects to the operations conducted by Mr Lim through his companies. First, a numismatic business, which he described as a “hobby business” personal to him and secondly, a foreign exchange business which deals with foreign exchange matters for clients who wish to transfer funds from one country to another. The numismatic  business  is concerned with encouraging and  profiting  from the dealings in exotic currencies which attract the attention of collectors and dealers in this area.

[14]     In 1999 RBF decided to issue FJ$2,000 and FJ$2 notes to commemorate the

2000 millennium.

[15]     On 28 June 1999, RBF entered into an agreement with MWA to supply and market:

[a]       2,000 FJ$2,000 notes to be supplied by 1 December 1999. [b]           1,000,000 FJ$2 notes to be supplied in three tranches.

•    300,000 (face value FJ$600,000) by 29 October 1999.

•    300,000 (face value FJ$600,000) by 30 November 1999.

•    400,000 (face value FJ$800,000) by 30 March 2000.

The purchase prices were supported by a guarantee from a Singapore bank.

[16]     The notes issued were to be legal tender for their face value. However, in the case of the FJ$2 notes MWA was required to pay a premium above face value of

10% for the first tranche, 7½% for the second and 5% for the third. The same notes were then on-sold to wholesale dealers for prices ranging between 25% and 50% above face value. The wholesalers in turn on-sold for prices up to $10.00 per note.

[17]     MWA took delivery of the FJ$2,000 notes and the first two tranches totalling

600,000 of the FJ$2 notes.

[18]     The  commemorative  issue  was  not  a success  with  the  result  that  MWA sought to return some notes to RBF, which refused. RBF then called up the bank guarantee. MWA then obtained an injunction in the High Court of Singapore on 2

February 2000 to prevent this.

[19]     The position for MWA worsened after the Speight coup in Fiji which caused a lack of confidence in the numismatic value of the commemorative issue.  The position was reached where MWA, having only been able to sell 100 of the FJ$2,000 notes, and less than 50,000 of the FJ$2 notes, was required to repurchase substantial quantities from dealers to whom MWA had on-sold notes. The repurchases were done at either face value, or FJ$2.20 being the original cost to MWA.

[20]     In August 2000 MWA commenced negotiations with RBF. On 5 October

2000 agreement was reached whereby RBF accepted the return of the remaining

1,900 FJ$2,000 notes and, all the 300,000 FJ$2 notes which had comprised the second tranche.

[21]     Clause 13 of the settlement agreement provided:

MWA shall not whether by its servant or agents or in any way whatsoever whether directly or indirectly seek redemption from RBF of any $2,000 note or $2 note over which it retains any control after the execution of this deed.

[22]     This meant that MWA was left with all the unsold or repurchased Fijian $2 notes which it had received and paid for as part of the first tranche.

[23]     In September 2002 MWNZ sought to redeem some of these notes, but RBF refused. Proceedings were issued by MWNZ in the High Court of Fiji. These proceedings have not been resolved. Subsequently, MWA decided to resell the notes to dealers in the United States of America, or Europe and to put them into circulation through the Australian and New Zealand banking systems. Apparently, there was no market for Fijian or other Pacific currencies in Singapore.

[24]     Between 4 and 30 April 2003, MWNZ made nine separate deposits of Fijian dollars totalling FJ$102,000 with NBNZ.

[25]     On 29 or 30 April 2003, an employee of MWA, Ms Goh, who was working with MWNZ in New Zealand, rang NBNZ to enquire if the bank would take FJ$380,000  which  had  come  from a  customer.  She  was  asked  to  give  warning beforehand. The Bank was concerned about this transaction and made enquiries from its own Financial Crime & Securities Department.

[26]     On 7 May 2003, Ms Goh rang NBNZ to advise that the money would be arriving the next day.

[27]     On 8 May 2003, NBNZ advised MWNZ it would not accept the deposit. Despite this, at about 1.30 pm, MWNZ attempted to deposit some four or five bags of Fijian $2 notes. At 1.45 pm a further seven bags were received, six of which contained  Fijian  $2  notes.  NBNZ  held  these  bags  but  did  not  process  the transactions.

[28]     On 9 May 2003, Mr Lim sent an email at 8.15 am (Singapore time), followed by a phone call to NBNZ. He apologised for the deposit of the Fijian $2 notes along with the other currencies, and then said:

As for the Fijian dollars they are from Ghim Lee Holdings a major garment manufacturer in Fiji with 5000 workers and it is intended to be TT over to Fiji next week to meet their weekly payroll requirements.

[29]     NBNZ confirmed that it would not handle the transaction. It did not wish to be drawn further as to why, beyond indicating that costs were an issue and the Bank was still reviewing its position. The refusal was confirmed on 13 May 2003. On 21

May 2003 the bank terminated MWNZ’s account.

[30]     After  the  NBNZ had  rejected the  deposit  on  9  May 2003,  MWNZ  then endeavoured to effect the same transaction through KVB. The following events took place:

[a]      Ms  Goh  telephoned  Mr  Wong,  who  was  the  senior  manager  for

KVB’s Asian Division.

[b]     They  agreed  that  KVB  would  purchase  FJ$360,000  for NZ$324,971.32. Of this amount, NZ$270,537.26 was to be paid via bank transfer into MWNZ’s account   with the     NBNZ,     so   that MWNZ   could   convert     the     New Zealand currency into Fijian dollars for transmission to a client of MWA in Fiji. The remaining NZ$54,434.06 was to  be paid  in  cash.  The  transaction was to  be completed on Tuesday 13 May 2003.

[I digress at this point to note that, in the normal course, the following would have occurred:

(a)      The Fijian notes would be sent to American Express (“Amex”) in Sydney for verification of the amount received. They would then be distributed by Amex to markets throughout the world.

(b)      Once the amount had been verified physically by Amex, the following electronic transactions would have occurred:

(i)        Amex would credit the Fijian dollars to KVB’s account with NBNZ as Fijian dollars.

(ii)       Credit from there to KVB’s NBNZ’s account in New

Zealand dollars.

(iii)     Credit from there to MWNZ’s NBNZ’s account in New

Zealand dollars.

(iv)     Credit from there to MWA’s account in Fiji in Fijian dollars.

(v)      Credit from there to MWA’s Fijian client, Ghim Li.]

[c]      The FJ$360,000 was in FJ$2 notes.  These were brought to MWNZ’s offices in ten boxes at about 2pm, where they were counted. Counting was completed by 5pm.  The  boxes were repacked and sealed  for repatriation to Sydney. Armourguard personnel arrived to collect the boxes.

[d]      During the course of the counting exercise, Mr Crowle, KVB’s chief operating  officer,  learned  of  the  transaction.  He  thought  it  was unusual that KVB was being involved in a transaction relating to a large quantity of low face value notes in a currency that KVB did not usually deal in and, had no facilities to exchange. Furthermore, the notes had been presented late on a Friday afternoon, which meant that they could not be transferred to Amex in Sydney until the following Friday.  This would have been after the transaction was to be settled. Furthermore, the transaction was with a party with whom KVB had had no previous dealings.

[e]      Mr Crowle’s first impression was that the notes may have been either counterfeit or stolen. The fact that they had been shipped from Singapore for exchange suggested to him the notes were not able to be exchanged in Singapore or Fiji.

[f]       Because  of  these  concerns  he  rang  Mr  Whiteside,  RBF’s  chief manager of financial institutions to explain the situation and for confirmation that the notes were legal tender.

[g]      On  learning  that  the  notes  had  been  presented  by  MWNZ,  Mr Whiteside said he could not confirm anything on the phone, because there was a dispute over the notes. He requested Mr Crowle to send him an email to which he would respond.

[h]      Mr Crowle then instructed Mr Wong to arrange for Armourguard to collect and hold the notes while he made further inquiries and, not to tell MWNZ.

[i]       That evening Mr Crowle sent an email to RBF informing it that the notes had been received in the course of a currency transaction and that before performing the contract with KVB he needed to know if the notes were legal tender. He sought guidance about what to do.

[31]     On Monday 12 May 2003 the following occurred:

[a]      Mr Lim rang Mr Crowle and later sent an email with a copy of a Fijian Government Gazette Notice No. 1593 dated 13 August 1999, which referred to the notes as forming “part of the legal currency of Fiji  and  shall  be in  addition  to  the  notes  and  coins  currently  in circulation”.

[b]      Mr  Crowle  was   not   satisfied.   He  spoke  to  the  Police   Fraud Investigation Unit (“FRI”) because the transaction was reportable under the Financial Transactions Reporting Act 1996 (“FTRA”). He was instructed to hold the notes until further investigations were completed by the unit.

[c]      The contract to sell the Fiji notes to NBNZ was reversed by a contract to repurchase those notes at a cost of $2,636.20.

[32]     On Tuesday 13 May 2003:

[a]      The FRI advised that the notes were the subject of a commercial dispute and it had no further interest in the transaction.

[b]      Mr Whiteside advised in an email that there was litigation between RBF and MWNZ regarding the notes, and RBF did not regard itself bound to accept them.

[c]      Mr  Crowle  concluded  the  response  was  equivocal,  there  was  a possibility the notes were not legal tender and that, at any rate, KVB could expect to have problems in redeeming them.

[d]      Mr  Li,  managing  director of MWNZ wrote  demanding  that  KVB complete the transaction. Mr Crowle advised him by telephone that KVB  was  cancelling  the  agreement  because  RBF  had  failed  to confirm the notes were legal tender and had said it would not honour them.

[33]     On Wednesday 15 May 2003:

[a]       KVB confirmed in writing that the agreement was cancelled.

[b]      KVB’s  solicitors  received  a  facsimile  from  MWNZ’s  solicitors advising that MWA treated KVB’s cancellation as a repudiation and requesting that the notes be returned to MWA.

[34]     On Thursday 16 May 2003:

[a]      KVB’s  solicitors  advised  MWNZ’s  solicitors  that  KVB  intended holding the notes pending resolution of the dispute.

[b]       MWNZ commenced the present proceeding. [35]       On Friday 17 May 2003:

[a]       RBF was asked by KVB to explain why it would not accept the notes and why MWNZ would have had them shipped to New Zealand.

[b]       Mr Whiteside replied that he could not elaborate further and that the matter was in the hands of RBF’s legal counsel.

[36]     On Thursday 21 May 2003 the FRI sent an email to all major banks in New

Zealand including KVB advising them not to accept or convert the notes.

[37]     On 25 June 2003 KVB was advised by the ANZ Bank in Fiji that it would exchange the notes. KVB would, however, have to pay the airfreight and insurance costs and a 0.9% fee on the face value of the notes. KVB did not accept this proposal because, at that stage, it still considered that the disposal of the notes should be determined by the outcome of the court proceeding.

[38]     Later in the course of settlement discussions, KVB learned that RBF had no objection to the notes being returned to MWNZ and, that if KVB did so, it would not be in breach of an undertaking given earlier to the court to ensure the safekeeping of the notes. KVB therefore decided that it would return the notes to MWNZ to save storage and insurance costs. Armourguard were instructed to deliver the notes to MWNZ.

[39]     Shortly  afterwards,  MWNZ’s  solicitors  advised  that  MWNZ  no  longer wanted the notes back. When they were in fact delivered to MWNZ the staff there refused to accept the notes.

[40]     The next day, 15 December 2004, the notes were delivered by members of KVB to MWNZ and left in its foyer. Later the same day, the notes were returned to KVB and left in its reception area. At that point MWNZ arranged to have the notes collected and stored by Chubb Protective Service. It has incurred costs as a result.

First cause of action

[41]     MWA pleaded as a first cause of action that the agreement reached on 9 May

2003 was governed by the SOG because the Fijian notes, not being currency in New

Zealand, were a commodity rather than money.  KVB had breached the agreement because it had not completed the transaction by paying over NZ$324,971.32. Therefore, MWNZ was entitled pursuant to s50 of the SOG to recover that amount, this being the price for the 360,000 Fijian dollars.

[42]     MWNZ further alleged that, by reason of KVB’s failure to deliver the New Zealand dollars, it had been unable to use those monies to meet an obligation to a Fijian customer, Ghim Li. It therefore sought damages against KVB pursuant to s51 of the SOG for $50,000, this being the estimated loss naturally resulting  in the normal course of events from MWNZ’s breach namely, a loss of goodwill and the opportunity to make profits from the particular transaction with Ghim Li, and in the future.

[43]     MWNZ submitted that, given the transaction was governed by the SOG, the issue to be determined was whether the transaction amounted to a sale by description pursuant to s15 and, if so, had there been a breach by MWNZ of the condition implied by s16(b) of the Act as to merchantable quality. In this regard it submitted that there had been no such breach.

[44]     Finally, it was alleged that by virtue of s15(d) of the CRA, the cancellation provisions of that Act do not apply to contracts for the sale of goods.

[45]     MWNZ and RBF both submitted that the SOG did not apply, because: [a]     the agreement was an exchange and not a sale; and

[b]       the definition of goods in s2(1) of the Act does not include money.

Section 2(1) states that goods includes “all chattels personal other than money”.

[46]     MWNZ submitted that the notes were not money, because:

[a]      Relying on Marrache v Ashton [1943] AC 311, the notes were not legal tender or currency in New Zealand because, being foreign currency, they were a commodity which could be bought and sold.

[b]      Unlike money, the price, or rate of exchange of the notes was a matter of negotiation.

[c]      Relying on Moss v Hancock [1899] 2 QB 111 and, Morris v Ritchie [1934]  NZLR  Supplement  196,  the  notes  were  collectors’  items having a greater value than their face denomination.

[47]     The issue as to whether reference to the word “money” in s2(1) of the SOG does, or  does not,  include  foreign  currency  exchange  transactions  has  not  been previously decided. In order to address this I consider there are two basic issues for a start:

[a]      What is money?

[b]      Why is money excluded from the definition of goods in s2(1)?

What is money?

[48]     In Moss v Hancock (supra) the respondent’s servant was convicted of stealing his £5 gold piece, which had been presented to the respondent by the Goldsmiths’ Company in the Jubilee Year 1887, the year of the coin’s date. It had been kept in a cabinet and had never been in circulation. The thief took the coin to the appellant who was a second-hand dealer who exchanged it for five sovereigns, the equivalent value of the coin. The coin was located in the appellant’s possession. The respondent was successful in obtaining an order for the restitution of the particular coin. That order was upheld on appeal.

[49]     The  issue  was  whether  the  particular  coin  could  be  recovered  by  the respondent as the true owner even though it had been exchanged for five different coins which, in total, were of equivalent value. Darling J held (at 115):

It has been quaintly said that ‘the reason why money cannot be followed is because it has no ear-mark’; but this is not true. The true reason is upon account of the currency of it; it cannot be recovered after it has passed in currency. So, in the case of money stolen the true owner cannot recover it, after it has been paid away fairly and honestly upon a valuable and bona fide consideration; but before money has passed in currency, an action may be

brought for the money itself.” Now, here it is plain that the mere fact that the stolen gold piece was money would not render it unfit for the application to it of an order for restitution. The true question seems to me to be whether by the manner of dealing with it which the thief adopted the gold piece passed in currency. The exchanging of a coin for other coins is not conclusive proof that the exchanging was that of dealing with current coin on both sides. Many coins, which yet have not been formally withdrawn from currency, have a price far beyond their denominated value, by reason of their antiquity or  rarity,  or  for  their  beauty of design or  execution (though this  last  is perhaps merely to say again by reason of the coins being struck in another age and mint than ours). Money as currency, and not as medals, seems to me to have been well defined by Mr. Walker in “Money, Trade, and Industry” (1)  as  “that  which  passes  freely  from  hand  to  hand  throughout  the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to other sin discharge of debts or payment for commodities.” Bearing in mind all the foregoing considerations, and applying them to the facts stated for us by the magistrates, I ask myself was this gold piece passed on in its character as coin of currency, or was it rather the subject of a sale as an article of virtue. We are permitted to draw inferences from the facts stated to us; and besides it was stated in the course of the argument that this piece was of somewhat greater value than that of its denomination, and so was worth more than the five pieces given in exchange for it, though each of those was a fifth of the nominal value of this gold piece. Upon the facts stated I come to the conclusion that this gold piece never passed in currency, though it was the subject of a sale (as a medal might have been) to a dealer in old or curious things;  and  that,  therefore,  the  magistrates  acted  within  their  powers  in making an order for its restitution. (My emphasis)

[50]     This decision makes it clear that, one of the essential features of money, is that it cannot be recovered in specie by a true owner if the particular money has passed  into  currency,  that  is  to  say,  into  general circulation  or  use.  In  Moss  v Hancock it was recoverable because the only transaction in which the coin had been used did not amount to it being used in currency.  It was purchased as an object by the second-hand dealer in its own right, rather than simply being exchanged for its equivalent face value.

[51]     The  proposition  that  money  can,  in  some  circumstances,  have  a  value different from its face value is well illustrated in Morris v Ritchie (supra).   In that case the appellant had appealed against his conviction for unlawfully carrying on the business of a gold coin dealer without a licence. The first ground of appeal was that, as sovereigns were still legal tender in New Zealand, and were therefore part of the currency, they could not be purchased or sold but  could only be exchanged  for

currency in a different form. This ground of appeal failed because, as stated by

Ostler J (at 197):

In  view  of  these  facts  in  my  opinion,  the  giving  of  thirty  shillings  in exchange for a gold sovereign is a purchase of that sovereign. It is taken by the purchaser not as a current coin of the realm, but as a piece of gold of standard fineness, and it is bought as gold for the purpose of making a profit on the gold.

Why is money excluded by Section 2(1) of the Sale of Goods Act 1908?

[52]     Section 3(1) of the SOG defines sale and agreement to sell as:

3     Sale and agreement to sell- (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called “the price”.

[53]     If money was regarded as being goods for the purposes of the Act, then this would require a transfer of property in money for a money consideration. There are two possibilities:

[a]      if the transaction was simply an exchange of equivalent value there would  be  no  consideration  for  it  and  hence,  there  would  be  no contract; or

[b]      if the money received was to be repaid later with or without interest, then any such transaction could be encompassed within, for example, a mortgage. However, s60(3) of the Act says:

(3)     The provisions of this Act relating to contracts of sale do not apply to any transaction in the form of a contract of sale  which  is  intended  to  operate  by  way  of  mortgage, pledge, charge, or other security.

[54]     On either basis there is a clear reason why money should be excluded from the definition of goods. The learned author of Atiyah, Sale of Goods, 9th  edition, Pitman Publishing, London, 1995, sums up the position very succinctly as follows (at p8):

Sale and Exchange

The fact that the consideration must be in money, and that the term “goods” is defined by Section 61 so as to exclude money, serves to distinguish a sale from a contract of barter or exchange in the ordinary case.

[55]     A further reason can be gleaned by reference to s26(1) SOG, which states:

26     Revesting of property in stolen goods on conviction of offender- (1) Where goods have been stolen and the offender is prosecuted to conviction, the property in the goods so stolen revests in the person who was the owner of   the   goods,   or   his   personal   representative,   notwithstanding   any intermediate  dealing  with  them,  whether  by  sale  in  market  overt  or otherwise.

[56]     In my view it follows that, if money was goods for the purposes of the SOG, and if money supplied as goods was stolen, then the owner of that money could have it revested in him or her despite the intermediate dealing which would necessarily involve the money (the goods) having been introduced into currency i.e. the intermediate sale. This is quite contrary to the basic rule that, once introduced into currency, money cannot be recovered by the owner. This would therefore create a direct conflict with the provisions of s26(1).

[57]     Finally, if one considers the remedies provided under the SOG it becomes apparent that the application of these in some cases would be entirely inappropriate if one was to accept that money was goods. For example, if an unpaid seller of the money (the goods) was not paid, then it would be quite unrealistic to accept that, if he had retained the goods, pending receipt of the price, that his right to hold those monies was dependent on an unpaid seller’s lien (s42).

[58]     I therefore consider there is a rational basis for money being excluded from the definition of goods for the purposes of the SOG. It also follows that it is clear that  a transfer  of separate  amounts  of  money of equivalent  value  between  two persons in New Zealand cannot be governed by the SOG. Such a transaction can only be an exchange.

[59]     The question remains as to whether the position is any different if one of the separate amounts of money involved in the exchange is in a foreign currency. In Marrache v Ashton (supra) the parties, who were both resident  in Gibraltar, had

entered into a mortgage in Gibraltar on a property situated there. The mortgage required repayment in Pesetas which, although this currency was legal tender  in Spain, was not currency in Gibraltar, though it circulated there in considerable numbers.  Lord  MacMillan  held  (at  317):  “Consequently,  these  notes  must  be regarded in Gibraltar as commodities”.

[60]     The  issue  became whether  the repayment  which was sought  in Gibraltar currency should be assessed on the basis of the price for Pesetas on the Gibraltar market, or at the lower value obtainable at the Spanish Custom House on the border. As counsel for the defendant submitted in this case, this decision does not assist in determining whether a current exchange contract is a sale of goods or, a contract of exchange (which is analogous to barter).

[61]     In my view, it is necessary to reconsider what is involved in an exchange of money. In the case of a foreign exchange transaction there is once again the transfer of separate amounts of money of equivalent value between two persons. I can see no reason why the factors, which I have identified to explain why s2(1) does not include money in the definition of goods, are not applicable when the transaction happens to involve a foreign currency.

[62]     In a foreign exchange transaction there is, however, one additional factor which I consider to be finally determinative of the position. It relates back to the definition of a contract of sale namely (s3(1)):

A contract whereby the seller transfers or agrees to transfer the property and goods to the buyer for a money consideration, called “the price”.

[63]     In the case of a foreign exchange transaction there is a money consideration involved namely, the fee or rate charged by the dealer supplying the currency which is sought by the other. This being the case, the transaction is a contract for exchange of two monetary amounts of equivalent value, albeit  in different currencies. The money consideration for that contract is not one or other of the two separate amounts of currency, but the fee charged by the dealer who is asked to provide the particular currency.   The fee charged is for the service provided, not the currency which is exchanged.

[64]     Counsel for the plaintiff in this case argued that there was a further factor to be taken into account namely, that unlike money, the price or rate of exchange of the notes was a matter for negotiation. The position is, as I understand it, is that rates of exchange will differ between dealers and that  those rates can be the subject  of negotiation. Once settled, however, that is the agreed rate of exchange. It becomes the best equivalent value of one currency to be exchanged for a specified amount of another currency. My conclusion is therefore, that this factor does not affect the fundamental nature of the transaction namely, an exchange as opposed to a sale of goods.

[65]     I  therefore  find  that,  in  the  present  case,  the  mere  fact  that  the  foreign exchange agreement made on 9 May 2003 involved an exchange of Fijian dollars for New Zealand dollars, does not bring that agreement within the SOG.

[66]     That is, however, not the final answer as to whether the SOG may or may not govern the transaction. MWNZ has contended that the Fijian commemorative notes in this case were akin to the £5 gold coin in Moss v Hancock, or the gold sovereigns referred to in Morris v Ritchie. In other words, they were items which had a collector’s value which exceeded their face value. Accordingly, they were objects or commodities in their own right and not merely money. This being the case, Fijian dollars could be regarded as commodities or goods, and hence, not excluded by s2(1) SOG.

[67]     This contention can, in my view, be disposed of very briefly as follows:

[a]     It was originally intended by both MWA and RBF that the commemorative notes would have a value beyond their denominated value. It was for this reason that the FJ$2 notes were sold by RBF to MWA at a premium above face value, and also why the latter was able to on-sell some of these at an even greater premium. Both these sets of transactions therefore involved the sale of the notes at a value above face value because it was hoped they would have a particular intrinsic value to collectors. This being the case, it could not be said

that the notes were simply passed into currency rather, they were sold as objects having an added value to collectors.

[b]       It became clear, however, that despite the best hopes of RBF and

MWA, the notes were not capable of obtaining that enhanced value. [c]       RBF agreed to take back the second tranche of 300,000 FJ$2 notes.

[d]      The   evidence   was   that   there   was   simply  no   market   for   the commemorative notes at an enhanced price. It was for this reason that MWNZ on behalf of MWA sold $102,000 worth of FJ$2 notes to NBNZ at face value on 8 April 2003, and then endeavoured to exchange a further $360,000 worth at face value to KVB on 9 May

2003.

[68]     It is clear that on 9 May 2003 MWNZ was not seeking to transfer the notes in question as anything other than Fijian currency and at their face value. It follows that there can be no question that the notes were being sold as collectors’ items. The intention was quite clearly in each case to introduce them into currency. It follows from  this  finding  that  the  agreement  was  simply  an  attempted  exchange  of currencies; it was not a sale of goods.

[69]     I  therefore  find  that  the  agreement  is  not  governed  by  the  SOG  and accordingly, the plaintiff’s first cause of action fails.

Alternative cause of action – Contractual Remedies Act 1979

[70]     MWA has alleged under this head that:

[a]      KVB purported to cancel the agreement  made on 9 May 2003 by letter dated 15 May 2003.

[b]      MWA accepted KVB’s repudiation by letter dated 15 May 2003 and sought the return of the Fijian notes.

[d]      MWA therefore seeks damages for: NZ$324,971.32, interest, general damages of NZ$50,000 and costs.

[71]     KVB had admitted that the agreement was governed by the CRA and hence, it was entitled to cancel the agreement pursuant to s7. Furthermore, it was entitled to retain the notes pursuant to s8(3)(a) until the final disposition of these was resolved by the Court under s9. So far as KVB’s own losses are concerned, it is counterclaiming for these relying on the torts of deceit and negligent misstatement, and finally relying on the FTA. Also relying on this Act, it has sought indemnity from RBF.

[72]     RBF has denied liability under any head and has submitted that MWNZ was guilty of misleading and deceptive conduct under the FTA.

[73]     In this case, there is no doubt that MWNZ and KVB entered into a contract to exchange the 180,000 FJ$2 notes at their face value for the equivalent New Zealand currency. The simple issue is whether that agreement  should be enforced by an award of damages following its cancellation or whether it should be set aside on the ground that MWNZ had breached an essential implied term or because it had been procured by misleading and deceptive conduct.

[74]     Counsel  for  KVB  submitted  that,  whichever  of  the  two  defences  is considered, there is an underlying key question namely, in all the circumstances, was the plaintiff, MWNZ, wrong to deliver these particular notes to the defendant KVB in the course of an ordinary currency exchange transaction.

[75]     The defences raised by KVB relating to the transaction are essentially that MWNZ had knowledge about the notes which it should have, but did not, reveal to KVB at the time of the transaction. It is therefore necessary for a start to determine what  knowledge MWNZ did have at that time. In my  view,  the answer  to this question can be gleaned from an examination of two matters:

[b]       Who was the legal owner of the notes at the time of the transaction on

9 May 2003?

[76]     As  to  the  relationship  between  the  two  companies,  Mr  Lim  said  in  his prepared brief of evidence:

5After  completion  of  my  bond  with  the  Singapore  government  I moved into private enterprise and established several businesses including Money World Asia Pte Limited (“Money World Asia”) a Singapore company  dealing  in  foreign  exchange and  the  sale  of numismatic notes.

6Money World Asia has since expanded into a group of companies throughout  the  Asia/Pacific  region.  The Money  World Group  of companies now has offices in Singapore, China, Hong Kong, Malaysia, Australia and New Zealand.

9The Plaintiff, Money World New Zealand 2000 Limited (“Money World NZ”), was incorporated in September 1999 and carried on business   in   Auckland   as   a   dealer   in   foreign   exchange   and numismatic notes.

10       I am its sole shareholder and one of its two directors.

11Money World NZ is not related directly to Money World Asia but I am a shareholder in the parent company that owns Money World Asia.

12Money World NZ sometimes acts as agent for Money World Asia in the sale of numismatic notes.

[77]     From this evidence, which was not disputed, it  is clear that  MWNZ was effectively under the control of Mr Lim.

[78]     As to the legal ownership of the notes on 9 May 2003, Mr Lim’s evidence at various points appeared to encompass a number of possibilities:

[a]       MWNZ owned the notes in its own right; or

[b]       It was selling the notes on behalf of a customer, Ghim Li; or

[c]      It was acting as agent of MWA either for MWA in its own right or on behalf of Ghim Li.

[79]     I should say at the outset that, the determination of who  in fact  was the owner, is clouded somewhat because the name “Money World” is used at various points rather than particularising whether that referred to MWA or MWNZ.

[80]     There are, however, some facts which are quite clear namely:

[a]     Originally  it  was  MWA  which  agreed  to  purchase  the commemorative notes from RBF under the agreement dated 28 June

1999 (doc. 23).

[b]      It was MWA which obtained the interim injunction against RBF in the High Court of Singapore on 2 February 2000 (doc. 96), and later entered into the settlement agreement with RBF on 5 October 2000 (doc.113).

[c]      However, it was MWNZ which sought to redeem the notes with RBF and,   following   the   latter’s   refusal  to   do   so,   commenced   the proceeding in the High Court of Fiji in 2002 (doc.139). In the context of the present discussion it is noteworthy, I think, that RBF pleaded at paragraph (4) in its amended statement of defence and counterclaim dated 24 January 2003:

It admits paragraph 4 but says that the Plaintiff has such notes  as  the  servant  or  agent  of  the  Plaintiff’s  parent company Moneyworld Asia Pte Ltd of 120 Cantoment Road, Singapore, (“the Plaintiff’s Parent”) who by deed made the

5th   day  of  October  2000,  (“the  Deed  of  Compromise”) agreed to not whether by its servants or agents or in any way whatsoever whether directly or indirectly seek redemption

from the Defendant of any of such notes.

[81]     Referring to the settlement deed, Mr Lim said:

40Of the $2 commemorative notes Money World  Asia  returned all such notes in its possession except a few hundred.

41       I mention this to dispel any suggestion that the FJ$360,000 worth of

$2 notes sold to KVB in May 2002 were notes retained by Money

World Asia in October 2000 when the Settlement Deed was concluded. Had we been in possession of those notes at the time we would have returned them to RBF when we had the opportunity. Instead, as mentioned earlier, the FJ$360,000 in $2 notes sold to KVB came into the possession of the Money World Group after the Settlement Deed as a result of the numismatic community losing confidence in the Fijian numismatic issue.

[82]     This  evidence  does  not  accord  with  the   information  contained   in  a confidential file note dated 21 August 2000 (doc. 111) made by an official of RBF following a discussion with Mr Lim at an early stage of the settlement negotiations; which led to the settlement deed. This note recorded, inter alia:

He informed me that he had sold 100 pieces of the $2000 commemorative note  and  less  than  50,000  pieces  of  the  $2  commemorative  note.  He mentioned that he has the first and second tranches of the second commemorative note and would like to return the unsold portion of the first tranche as well. That means we will have to pay him.

Later in his evidence Mr Lim said he wished to add the words “in Fiji” after the reference to the $2 notes (at p38 line 22).

[83]     Earlier in his evidence, Mr Lim said in cross-examination by Mr Crotty (at p36 line 6):

And when you signed the settlement agreement with the Reserve Bank Fiji

300,000 of those $2 notes were delivered to De La Rue the Reserve Banks printers that’s correct…yes.

And those notes that were delivered to De La Rue were treated by the parties as being the second tranche of notes that had been delivered…yes.

And (at line 25):

Is   your   evidence   that   Money   World   sold   these   notes   only   to wholesalers…yes  we  are  primarily  dealing  with  around  50  wholesalers around the world and very seldom do we deal with consumers but that’s not to say we do not deal with any consumers at all but primarily we deal with about 50 distributors in the world of which about 10 are mega players.

FTC.- My question was, these notes (commemorative notes) who were they sold to…to the wholesalers.

To about 50 wholesalers…primarily yes.

FTC.- Are you  saying that  the commemorative notes  were sold only  to wholesalers   or   that  some   were  sold  to  other   persons…primarily   to wholesalers but we also sell to retailers as well. (p37 line 6).

FTC.- Is it your evidence that most of the notes that were returned to you were returned  to  you  at  money  shows  or  by  the  wholesaler  or  retailer delivering them to you in Singapore…yes. (p37 line 27).

FTC.- Im not clear who took back those notes from collectors and dealers. Was  it  Money World  Asia  or  Money  World  NZ…  primarily  it  will  be Money World Asia. (p45 line 23).

Were only dealing with $2 notes…yes just exchanged as physical foreign exchange.

What value did those foreign exchange operators take those commemorative notes for… $2 when they return to me.

No, my question is, what did they pay for them when they first took delivery from you… paid anything from $2.50 to around $3.

And they would have been purchased from… Money World Asia.

And when they were delivered back or sold back, they came back at face value…some came back as face value, some because of our existing relationship with them I took back at the price that I sold to them.

Were any of those notes sold by Money World NZ to collectors and dealers…yes.

FTC.- What did they sell them for… for NZ dealers will be closer to $3. (p46 line 1).

And what were they bought back for… face value.

The $2 commemorative notes that were purchased by Money World Asia, what did they pay the Fiji Reserve Bank for them… $2.20.

Am I correct in thinking that any commemorative notes sold by Money World NZ would first of all have been purchased from Money World Asia…yes.

At what price… $2.20.

FTC.- Come now to Money World NZ, it bought back commemorative notes it sold to collectors and dealers… very little in NZ.

Did   Money   World   NZ   which   is   a   separate   company   sell   back commemorative notes to Money World Asia… yes but it will be at the same price that they purchased. (p46 line 20).

[84]     The  position  is  even  more  confused  if  reference  is  made  to  Mr  Lim’s evidence in chief (p7 line 15):

Part of that relates to fact, whether you had the notes all the time or whether you later bought them back from collectors and dealers… don’t understand your line of question. To talk about clause 13 happy to answer your question.

FTC.- In your argument with the Reserve Bank of Fiji the critical question is you  were  holding  and  never  held  and  never  held  them  or  whether  you acquired them back or sold them to collectors and dealers… yes if I had those notes back in September October 2000 I had the opportunity to return them to the Reserve Bank there was nothing then to stop me from returning the $2 notes and there was no compelling reason for me to want to hold on to them either. So based on your question if I were to keep it for two more years and them to seek redemption from the Reserve Bank it does not make any commercial sense.

[85]     Mr Lim was then asked about the notes which MWNZ had endeavoured to redeem with RBF. RBF’s refusal to do so had led to the issuing of proceedings in Fiji. In relation to this transaction, he said (p7 line 15):

Move or the attempt to move currency in Fiji that happened in September

2002…yes.

And Money World NZ asked to redeem the notes in Fiji…yes.

The amount of currency was $486,800 which is 243,000 notes correct…

yes.

That’s out of the total first tranche of 300,000 that hadnt gone back already to  the  Reserve  Bank  correct…  that’s  on  the  assumption  that  from  the Reserve Bank no other notes were actually sold.

Where  were  the  notes  Money  World  NZ  were  asking  to  redeem… Singapore.

Were those money World Asia notes and Money World NZ acting as agents to Money World Asia…yes.

Money World NZ was required by the Reserve Bank Fiji to complete a form that’s page 118 of the big bundle.   Does that form indicate that Money World NZ is the owner of the notes…yes.

Having purchased them direct from the Reserve Bank Fiji…yes that’s what is written.

In para 5 it was redeeming them because it had lost interest in the hobby…

that’s what is written.

As you said in your evidence the Reserve Bank refused to redeem the notes on  this  application  and  when  that  happened its correct that Money World

then said we are acting on behalf of collectors and dealers who have sold the notes back to us Money World NZ… I don’t follow your question.

Turn to page 135 of the bundle, is that the letter rejecting the request to redeem notes… that’s what is written there.

On the next page 136, theres a letter from Money World NZ back to the Reserve Bank and in para 2 does it say that theyre being redeemed on behalf of collectors and dealers. that’s what is written.

But in fact it was as agent for Money World Asia… depending on how define agent what do you mean by agent.

FTC.- I think Mr Browne is  referring to your  company incorporated in

Singapore.

That Money World NZ is seeking redemption on behalf of Money World Asia as its agent… I can confirm that the notes were physically resident in Singapore but I am not sure the way accounts were being passed whether Money World NZ actually paid Money World Asia for those notes. Mr Browne is trying to establish ownership of the notes.

FTC.-  Tell us who owned them. If the form says Money Word NZ owned them then this must be so.

XD Mr Browne: And there are no documents at all in either company which would shed any light on this… not that I know of.

So that’s why you cant answer who owned the notes you have no record… Money World NZ.

Can  you  show  me  where Money  World  NZ  has  discovered  documents relating to its acquisition of those notes… there were none already answered it.

Where did Money World NZ buy the notes… from Money World Asia.

And not from collectors or dealers… Money World Asia bought from collectors and dealers and Money World Asia is also a dealer in its own right.

When you say in your brief in para 50 that Money World NZ was acting on its own behalf and as agent for Money World Asia, you now say its acting solely on its own behalf…no I said some of the notes were from Money World Asia and some of the notes were from NZ.

Roughly how many…Ive no idea and I own both companies 100% and don’t know why I need to make such a distinction.

FTC.- Money World Asia would have its own set of accounts…yes. Money World NZ has its own set of accounts… yes.

Are there ledgers which show the transfer of money between the two companies… yes but it will not show whether for a particular day those transactions refer to Fiji , NZ, Australia, UK, or other countries.

So if Money World Asia has purchased back notes from collectors  and dealers in Singapore and it transfers that money to Money World NZ are you saying there will be a record of a transfer…yes.

But you cant say what the transferred amount is made of…yes.

[86]     Mr Lim’s evidence as to the involvement of the customer Ghim Li, is equally equivocal.  He said (p18 line 8):

Go back to page 4 your email of 9 May, you say there in your email that the Fijian currency that Money World was presenting came from Ghim Li Holdings… yes.

And they wanted the funds remitted…yes. Was that true…yes.

How had Ghim Li Holdings  come to purchase such a  large quantity  of commemorative notes… Ghim Li Holdings purchased Fiji notes.

Were the notes that you were presenting notes that came from them, from Ghim Li… theres no differentiation between Fiji notes. Ghim Li Holdings wanted Fiji dollars for the weekly payroll and they pay us in US dollars and we have several options we can from NZ convert US dollars and Fiji dollars to Fiji or, we can take physical Fiji dollars in our possession, put it into the bank and send them money to Fiji.

Is that what was happening here, you were depositing Money World owned currency to remit Fijian dollars to Fiji… that’s right.

So the notes went from Ghim Li you just wanted to pay some Fijian money to Ghim Li…yes.

FTC.- Why couldn’t the money simply have gone from Singapore to Fiji… two reasons, one a security reason there are major security problems in Fiji so if you were to freight the notes to Fiji high risk the notes could be lost in transit secondly the ANZ require 1% conversion and ANZ invited put in a

1% fee for conversion. Commercially it is cheaper to have the notes sent to

New Zealand.

[87]     The email referred to in this evidence was included in the supplementary bundle of documents (doc. 4) which I have previously referred to. It referred to the following:

As  for  the  F$  they  are  from  Ghim  Li  Holdings,  a  major  garment manufacturer in Fiji with 5000 workers and it is intended to be TT over to Fiji next  week to  meet  their  weekly payroll requirements.  You  may be aware that Ghim Li is a regular client of ours and they have been using our services for the past 2 years. In view of this, I would appreciate yr urgent consideration of the cash handling fee required so that we can seek their consent and proceed with the TT of the F$ over on Monday or Tuesday.

[88]     The statement in this email that the money had come from Ghim Li is not assisted by an answer given by Ms Goh to MWNZ on 29 April when she was asked

“where that sort of money was coming from?”. She is recorded as having said (p55 line 4):

Miss Goh go to the small bundle of documents at page 8 of that bundle the reference again to the 19 May meeting, that file note records discussion of those  funds  being  purchased  from  Ghim  Li  Holdings.  Are  you  able  to confirm whether those $2 notes did in fact come from Ghim Li Holdings… I will not be able to confirm because the Singapore office was dealing with Ghim Li.

[89]     Mr Lim was asked about the same matter. He said (p42 line 20):

And we also talked about Ghim Li Holdings and you said they were the largest garment manufacturer in Fiji… yes.

And you’ve said in your evidence that Ghim Li purchased about 1 million dollars Fiji in Fijian currency from Money World per month… yes.

Can I ask you to turn to the smaller bundle page SB004, and at the bottom of that page theres an email from you to Ross Currie and if you look at the second paragraph you are saying that the FJ$ that were deposited with the National Bank are from Ghim Li Holdings, that’s correct isnt it… yes for Ghim Li Holdings.

The email says from… the word should be for.

So is it now your evidence that the FJ$ were for Ghim Li Holdings… yes. (My emphasis)

Findings to this point

[90]     At this point, I consider it is possible to reach a number of conclusions as to who was the owner of the notes in question at the time of the transaction on 9 May

2003 namely:

[a]      Those notes were originally acquired as part of the first tranche of

300,000 FJ$2 notes by MWA.

[b]      The notes included in the second tranche were all returned by MWA

to RBF pursuant to the settlement deed dated 5 October 2000.

[c]      The first tranche was either entirely sold by MWA to wholesalers

(including  possibly  MWNZ)  and  in  respect  of  which  there  is  no

evidence at all, or, more likely, retained unsold by MWA except as to “less than 50,000 pieces” as noted (doc. 111). When the discussion which is the subject of this document took place, Mr Lim hoped he would be able to return all the unsold notes. In that event, the settlement deed meant that he retained these and that he would, according to RBF’s understanding, sell them as numismatic notes. This being the case, I can see no reason why Mr Lim would have had any reason to not state the position correctly when he said he had only sold less than 50,000 of the FJ$2 notes.

[d]      Some   unknown  quantity  of  notes   was   returned   to   MWA  by wholesalers (including possibly MWNZ)  after the settlement  deed was completed.

[e]      Because of the terms of clause 13 of the settlement  deed, MWA caused  MWNZ  to  approach  RBF  to  redeem  the  notes  owned  by MWA from the first tranche.

[f]       That approach by MWNZ to RBF was done by it as MWA’s agent, which it did not disclose to RBF.

[g]      The statement by MWNZ (doc. 118) that it had purchased the notes direct from RBF was not correct.

[h]      Similarly, the statement in the letter from MWNZ’s solicitor to RBF (doc. 139) namely, “Our client in these circumstances is not a servant or agent of Money World Asia PTE Limited” was also not correct.

[i]       The assurance given by Mr Lim to NBNZ that the money was from Ghim Li was not true. These assurances were given to NBNZ to give the bank comfort in case it became aware of the MWNZ dispute with RBF. There is no evidence to prove any sale of notes by either MWA or MWNZ to Ghim Li. There is the further unsettling fact that Ms Goh had some authority in relation to the affairs of Ghim Li. The later

attempt by Mr Lim to say that the reference “from” was meant to be “for” in his email is inconsistent with the circumstances giving rise to that email. A memorandum prepared by Ms McIntyre (SB 10) makes it clear that the bank’s concern was to find out where the money was coming from, not who it was for.

[91]     In summary, I find:

[a]       The notes delivered to KVB on 9 May 2003 were notes originally included in the first tranche.

[b]       They were as such the subject of a dispute with RBF. [c]       They were the property of MWA.

[d]      MWNZ was acting as agent for MWA and did not disclose this fact. [e]       The notes were not the property of Ghim Li.

[92]     On the basis of these findings I also find that, on 9 May 2003, MWNZ had the following knowledge in relation to the notes:

[a]       They were the property of MWA.

[b]       MWNZ was acting as MWA’s agent in attempting to dispose of them by introducing them into circulation through the banking system.

[c]       It knew that the particular notes were the subject of a dispute with

RBF.

[d]      That dispute related to whether or not RBF was required to honour the notes.

[e]       Pursuant to clause 13 of the deed of settlement, MWA had agreed it:

… shall not whether by its servants or agents or in any way whatsoever whether directly or indirectly seek redemption from RBF of any FJ$2000 note or FJ$2 note over which it pertains any control after the execution of this deed.

Was it wrong for MWNZ to proceed with the transaction  without disclosing the above matters to KVB on 9 May 2003?

[93]     Essentially, there was a dispute in existence between MWNZ and RBF in relation to those notes. In my view, the transaction was an attempt by MWA, through its agent MWNZ, to indirectly seek redemption of the FJ$2 notes over which it, MWA, retained control directly or indirectly after the execution of the deed. The intention was to introduce those notes into circulation as legal tender as part of the currency of Fiji. More specifically, the intent was to create a situation where RBF would be forced to accept ultimate liability to redeem those notes just  as it  did subsequently in relation to the notes which had been accepted by the NBNZ, which were later cleared through the Bank of America (“BOA”).

[94]     According to Mr Whiteside, Chief Manager of Financial Institutions for the RBF, when RBF was faced with enquiries from the BOA it agreed that the notes in question would be allowed into circulation (p112). As at the 9 May 2003, however, it is clear that NBNZ had a real concern that the BOA, as its clearing bank, could well seek recourse from NBNZ for the notes which it had accepted in the period 4 to 30

April 2003 from MWNZ. Certainly, MWNZ had no way of knowing as at 9 May

2003 what the outcome of that transaction would be.

[95]     All that MWNZ knew at that point was that the dispute over the particular notes had not been resolved and that certainly, so far as MWNZ and MWA were concerned, RBF would not redeem those notes.

[96]     Mr Lim’s perception of this situation was apparently, that he recognised the difficulty but, because he  considered RBF had no right to refuse to honour the notes,

it was acceptable for him to use them as currency within the banking system. He said in evidence on this point (p29 line 15):

Mr Lim you have looked thru the documents in the small bundle…yes.

And you are aware that queries in this case were made of the Reserve Bank Fiji by KVB, National Bank, Reserve Bank NZ and Bank of America is that correct…yes.

None of them asked whether the notes were counterfeit did they… no. What they wanted to know was will the notes be honoured, correct… yes.

Because in a practical sense that’s the question that the person taking the currency wants to know isnt it… yes.

Because  if  you  take  currency  that  none  will  exchange  with  you  its worthless… and the exchange process is done by the commercial banks and not the Reserve Bank.

And the commercial banks wont exchange the money if the Reserve Bank wont assure them its safe to trade… no in the case of Bank of America even though Reserve Bank did not provide a clear answer to them they traded the notes with ANZ Bank.

Would you agree that in this area of commerce which relies on trust as you say, its not acceptable to present notes for exchange which you have reason to believe the issuing bank will not honour… yes.

And I have no reason to believe that the issuing bank will have any right or not to honour and I have no reason to want to force valueless notes to KVB and jeopardise my reputation with 6 offices in the world and be blamed for giving valueless notes to another  fellow foreign  exchange company.  We have as much at stake as KVB because reputation is all we have in this business.

[97]     In relation to this evidence, I was concerned that Mr Lim’s answer did not really address the question. His reply indicated to me that his justification was not the fact that RBF had refused to honour the notes, but rather, his perception of the bank’s right to do so. I therefore addressed this to him (p30 line 34):

Mr Lim you said earlier referring to page 28 of the notes of evidence at line

33, you were asked this question.  Would you  agree that  in this  area  of

commerce which relies on trust as you say, its not acceptable to represent notes for exchange which you have reason to believe the issuing bank will not honour, your answer was yes, and I have no reason to believe that the issuing bank will have any right not to honour and I have no reason to want to  force valueless  notes  to  KVB  and  jeopardise  my  reputation  etc.  My question to you is this – you might not have thought the Fiji Reserve Bank had any right to argue about whether they would meet the notes, putting that aside, did you have any reason to believe regardless of what their rights might be that they might nevertheless object to meeting to honouring the notes… no your honour and my reason is this, central bank are all governed loosely by the IMF and the World Bank and any unilateral action by a

central bank to dishonour notes that they issue will have very very damaging repercussions on that country.

Despite that, did you have any reason to believe that in this particular case, the Fiji Reserve Bank might never the less raise problems as to whether it would honour the notes… no your honour and my belief is based that Fiji is actually part of the Commonwealth country and they do have a good corporate governance in terms of their monetary policy and they publish an annual  report  and  it  will  be  inconceivable  for  Fiji  which  I  think  most countries will regard as the Queen of the South Pacific, would do anything to harm their own reputation in this regard.

[98]     The issue as to whether in the circumstances MWNZ was wrong to deliver the notes to KVB without revealing the existence of the dispute with RBF remains to be determined by reference to KVB’s defences under the CRA and FTA.

Contractual Remedies Act 1979

[99]     Section 7 of the CRA states:

7     Cancellation of contract

(1)      Except as otherwise expressly provided in this Act, this section shall have effect in place of the rules of the common law and of equity governing the circumstances in which a party to a contract may rescind it, or treat it as discharged, for misrepresentation or repudiation or breach.

(2)     Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does not intend to perform his obligations under it or, as the case may be, to complete such performance.

(3)      Subject to this Act, but without prejudice to subsection (2) of this section, a party to a contract may cancel it if—

(a)      He has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to that contract; or

(b)      A [term] in the contract is broken by another party to that contract; or

(c)       It is clear that a [term] in the contract will be broken by

another party to that contract.

(4)      Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if,— (a)         The parties have expressly or impliedly agreed that the truth of

the representation or, as the case may require, the performance of the

[term] is essential to him; or

(b)     The effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—

(i)     Substantially to reduce the benefit of the contract to the cancelling party; or

(ii)      Substantially to increase the burden of the cancelling party under the contract; or

(iii)     In relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.

(5)        A party shall not be entitled to cancel the contract  if, with full knowledge of the repudiation or misrepresentation or breach, he has affirmed the contract.

(6)      A party who has substantially the same interest under the contract as the party whose act constitutes the repudiation, misrepresentation, or breach may cancel the contract only with the leave of the Court.

(7)     The Court may, in its discretion, on application made for the purpose, grant leave under subsection (6) of this section, subject to such terms and conditions as the Court thinks fit, if it is satisfied that the granting of such leave is in the interests of justice.

[100]   KVB has submitted that it  was entitled to  cancel the transaction because pursuant to s7(3)(a) it had been induced to enter into the contract by a misrepresentation made by MWNZ namely, an implied representation that what was presented as currency by MWNZ would be ultimately accepted and honoured by the issuing bank RBF. Furthermore, it was impliedly agreed that the truth of the implied representation was essential to KVB (s7(4)(a)).

[101]   When Mr Crowle’s suspicious were first aroused he thought for a start that the notes were possibly counterfeit or stolen. He said in para (15) of his prepared brief:

Because of my concerns about the exchangeability of the Notes, I rang the RBF that afternoon to find out if the Notes were able to be exchanged for value. When the status of currency is in doubt, it is normal practice in the banking industry to seek confirmation from the issuing bank. I spoke to Barry Whiteside, a senior manager at RBF, later in the afternoon of Friday 9

May 2003. I explained to him that  large quantity of Y2K commemorative FJD2.00 notes had been delivered to KVB for exchange and that, before exchanging the Notes, I wanted to confirm that they were legal tender. Mr Whiteside asked whether the Notes had come from MoneyWorld. When I said that they had, he said he would not confirm anything on the phone because there was a dispute over the Notes. He asked me to send him an email to which he would respond.

[102]   As requested, Mr Crowle then sent the following email (doc. 158) on 9 May

2003:

Further to our telephone conversation today. I confirm that we received a total of FJD360,000 from MoneyWorld today in $2.00 notes market Y2K.

We have held up payment pending advice from yourselves to whether this is legal tender of which we would receive full value.

You   indicated  that   the  Reserve  Bank   of   Fiji   was   in  dispute  with

MoneyWorld over this particular issue of currency?

Please advise urgently what we should do.

[103]   On 12 May 2003, Mr Lim, who had become aware of the dispute, telephoned Mr Crowle, who told him he was awaiting a response from RBF and that he was reporting the matter to the Police. Mr Lim then sent two emails. The first referred to an RBF press release dated 22 September 1999 describing the notes (doc. 161). The second confirmed:

… that the notes were gazetted as legal tender in the 3rd or 4th Quarter Report of the Reserve Bank of Fiji Report bank in 1999.

[104]   On 13 May 2003, RBF sent the following reply (doc. 166):

I apologise for the delay in getting back to you. Please note that the Reserve Bank of Fiji has a Court Case pending in Fiji with regards to the said $2 notes with MoneyWorld New Zealand 2000 Limited. The Reserve Bank of Fiji does not regard itself bound to accept these notes.

[105]   This email did not answer directly whether or not the notes were legal tender. Mr Crowle took the failure of RBF to confirm the authenticity of the currency (the thing he had specifically asked for) to mean that it may well not have been legal tender and that, at any rate, KVB would expect to have problems redeeming it. For these reasons he telephoned Mr Derek Li, the Managing Director of MWNZ and told him that KVB was cancelling the agreement because RBF had failed to confirm that the notes were legal tender and had said it would not honour the notes. The cancellation was confirmed by letter dated 15 May 2003 (doc. 173) which said:

I acknowledge receipt of your letter of 13 May 2003 referring to a money exchange transaction whereby commemorative notes with an apparent face value of FJD  360,000  were deposited  with  us  late on  9  May  2003  for exchange for New Zealand currency on 13 May 2003. As we advised in a telephone conversation earlier that day, we have been unable to confirm that the notes deposited are legal tender. The Reserve Bank of Fiji has advised that MoneyWorld New Zealand 2000 Limited and the Reserve Bank of Fiji are parties  in a  court  case in Fiji concerning  the notes  in  question,  the existence   of   which  you   did  not   disclose  to  us   on  presentation  or

subsequently, and that the Reserve Bank does not regard the notes as legal tender.

It is obviously an essential term of a currency exchange transaction that the notes to be exchanged are legal tender which the issuing bank will honour. That  is  not  the  case  with  the  notes  which  you  deposited  with  us. Accordingly, I confirm the telephone advice given to you on 13 May 2003 that the contract is cancelled.

[106]   At the point when Mr Crowle verbally cancelled the agreement on 13 May

2003, there can be no doubt but that the notes were legal tender. This is confirmed, first,  by  the  Gazette  Notice  (doc.1)  and  secondly,  by  reference  to  later  events namely, when the RBF did confirm that the notes sent by NBNZ to the BOA would be met.

[107]   The bank was not, however, prepared to confirm to Mr Crowle that the notes were legal tender. More importantly, it told KVB there was a dispute regarding the notes and, “the reserve bank of Fiji does not regard it bound to accept these notes”.

[108]   In my view, the question as to whether the notes were in fact legal tender or not is not the real issue.  The key issue was the information given to Mr Crowle that the bank did not regard itself bound to honour the notes. KVB then knew that it was in the position whereby it was being required to exchange NZ$324,971.32, which it had purchased from NBNZ in exchange for FJ$2 notes of equivalent value, which might be valueless i.e. they would not be honoured by the issuing bank RBF.

[109]   MWA’s first submission was that, delivery of notes for sale or exchange, does not by itself imply any representation, let alone a representation concerning the response of a third party.

[110]   I disagree, for the following reasons:

[a]      I refer to the definition of “money” referred to in para [49] (supra).

[b]       The  reason  why  money  can  be  so  freely  exchanged  for  value  is because those utilising it know that it will retain its face value.

[c]      The reason why it will retain that value is because the bank which issued it will honour payment on demand.

[d]      In the present  case,  the  RBF  obtained  the  approval of the  Prime Minister and the Minister of Finance of Fiji pursuant to s31 of the Reserve Bank of Fiji Act, not to take into account in assessing the total demand liabilities of the RBF for the purposes of the said section the notes and coins which formed the commemorative issue in 1999.

[e]      The result was that the notes did not form part of the RBF demand liabilities. I am not clear from the evidence just how the bank did intend to account for those notes in respect of which the authorisation under s31 applied. However, the position after the RBF decided to make the notes circulation notes is quite clear. Mr Whiteside said in his evidence (p109, line 20):

Not sure if you’ve answered my question. If you were to take them back from commercial banks you would have to account for the face value in your accounts. But by allowing them to remain in general circulation you don’t need to until those notes are ultimately destroyed… no when we took the decision to make these notes circulation notes that was in 11

July  2002,  we  added  them  to  our   demand  liabilities. Therefore now when they are returned to  the bank  by  a commercial bank they get face value. The notes come to the bank in bricks of 1,000 and they are all mixed so we cannot tell whether we have the commemorative note or a normal

$2 note so they treat it as circulation notes.

[111]   I am quite clear from this evidence that it is indeed the case that notes issued by a bank and introduced into circulation as currency do form part of that bank’s demand liability and accordingly, the bank will honour a note on demand.

[112]   It follows that, any person using or exchanging a bank note will assume, as will the other party, that the currency received can be accepted with the sure and certain knowledge that ultimately, that currency will retain its face value because, all else failing, the issuing bank will redeem its face value on demand. That assumption is  fundamental.  It  is  necessarily an  implied  essential term or  stipulation  of any transaction  involving  money.  If there  is  any  doubt,  then  the  money  is  at  least

potentially valueless.  Whether or not the particular money is, or is not, legal tender is another matter.  The RBF in this case openly said it did not regard itself bound to accept the notes proffered by MWNZ to KVB. Whether it was entitled to or not is beside the point.

[113]   In the present case, MWNZ knew that the RBF had refused to redeem the notes previously. Therefore, it must have known that KVB could be faced with the possibility that at some point, it could be called upon to account for the face value of those notes if at  some point, for example when Amex took delivery,  it  became known that the issuing bank, RBF, did not consider itself bound to honour those notes.

[114]   KVB was entitled to assume when it took delivery of those notes that they were currency in the full sense i.e. not only were they legal tender, more importantly, they would be honoured by RBF.

[115]   MWNZ knew full well that, any person accepting those notes as currency, would have that expectation. Despite this, it made no disclosure of the dispute with RBF. Mr Lim spoke of the trust which is an essential element of foreign exchange transactions. I find it difficult to imagine any greater breach of trust than that which is evidenced in this case. Certainly, Mr Currie, the officer from NBNZ who was subpoenaed by RBF to give evidence, had no doubt as to the correct position. He said (at p128 line 17):

Your file note in page 7 of the bundle in the first para at the top of the page indicates that National Bank got information that the Reserve Bank of Fiji had refused to redeem the particular  notes  when Money  World NZ  had presented them is that correct… correct.

Is that something that Mr Lim told you or anyone else from Money World… no I received that information from Mr Parkes from the banks Fraud & Securities Dept.

Did anyone from Money World in their dealings with you ever reveal that to you… no.

Your file note also indicates that there was litigation in Fiji about the notes, did anyone from Money World ever reveal that to you… no.

You  were  asked  about  your  concerns  regarding  misleading  information being provided to you by Money World, what is your view of the propriety

of  Money  World  in  its  relationship  with  you  of  not  revealing  that information when presenting these notes… in retrospect now knowing that information that very material that information in withholding that from the bank really is endeavouring in my view to mislead the bank into completing the transaction.

[116]   MWNZ’s second submission was that, in any event, Mr Lim’s evidence was that  he had  no  reason to  believe other  than that  the notes  would  be  ultimately honoured and accepted by RBF.

[117]   Mr Lim may well have had this view. He may well be correct. Certainly the notes which were successfully passed through the NBNZ and then, the BOA, were ultimately accepted by RBF in July 2003. Whether the particular notes proffered to KVB will achieve the status of currency still remains to be determined by the High Court of Singapore.

[118]   So  far  as  the  notes  passed  to  NBNZ  between  4  and  30  April  2003  are concerned, as at 9 May 2003 the NBNZ had a real concern that they might have to meet recourse in respect of those notes from the BOA.  In  my  view,  the fact that Mr Lim says he had no reason to believe that ultimately, the notes would not be honoured and accepted by RBF, is irrelevant. As at 9 May 2003 he knew very well that KVB might face real difficulties if it accepted those notes, and for exactly the same reasons which concerned NBNZ at the same time.

[119]   For the above reasons, I find that by proffering those notes to KVB on 9 May

2003, MWNZ, having the knowledge it did, impliedly breached a fundamental and essential term or stipulation implied by the very nature of the transaction namely, that the notes would not be redeemed by RBF the issuing bank.

[120]   Furthermore, I find that in continuing to press KVB to go ahead with the transaction on 10 May 2003, MWNZ, through Mr Lim, quite expressly misrepresented the position that the notes would be readily redeemable namely, by confirming they were legal tender without disclosing RBF would not redeem them.

[121]   It follows from the above finding that, the plaintiff’s cause of action based on the CRA must fail, and for the reason that the defendant was entitled to cancel that transaction. I will return later to the issue of relief.

Counterclaim by KVB

[122]   KVB has counterclaimed against NWNZ for the losses it incurred as a result of the cancellation of the transaction with MWNZ on 9 May 2003. Two losses were alleged to have arisen.

[123]   The first arose when KVB reversed a transaction entered into with NBNZ on

9 May 2003. Under this transaction KVB had agreed with NBNZ to exchange the

FJ$360,000 it, KVB, was to receive from MWNZ for NZ$324,971.32.

[124]   On 12 May 2003, KVB cancelled this transaction when it became apparent that the transaction with MWNZ would not be going ahead. In order to do so, KVB was required to repurchase the same FJ$360,000, which it had agreed to exchange with NBNZ. In the period 9 to 12 May 2003 there was a change in the exchange rate such that KVB was required to pay an additional NZ$2,636.20 to repurchase the same Fijian currency.

[125]   The second loss arose from storage and insurance charges for 180,000 FJ$2 notes incurred, and still being incurred, by KVB from 9 May 2003. Those charges are:

[a]       NZ$15,095.36 for the period from 12 May 2003 to  19 December

2003.

[b]       NZ$5,100 for the period 22 December 2003 to 15 December 2004. [c]         NZ$49 per day for the period after 16 December 2004.

There is no dispute as to the quantum of these claims.

[126]   KVB has counterclaimed pursuant to s9 of the FTA which states:

9    Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive

or is likely to mislead or deceive.

[127]   There  is  no  dispute that  MWNZ was engaging  in anything  other  than  a foreign exchange transaction, which was its business and accordingly, it was in trade when the transaction with KVB was undertaken.

[128]   The issue to be determined is whether MWNZ engaged in conduct in the course of that transaction, which was misleading or deceptive or likely to mislead or deceive.

[129]   KVB submitted that, the central conduct complained of, was the delivery to

KVB of the notes under a foreign exchange contract when:

[i]        the issuing bank had refused to redeem the same notes when MWNZ

attempted redemption in September 2002; and

[ii]      the status of the notes and, in particular, the obligation to  redeem them, was the subject of an unsolved dispute before the High Court of Fiji (in which MWNZ was no longer pursuing its case);

without MWNZ revealing either of those facts to KVB.

[130]   For the reasons which I have already mentioned I consider, the notes which were proffered to KVB, were the property of MWA, and had been included within the first tranche purchased by MWA from RBF. MWNZ argued that, the notes were not subject to the settlement deed with RBF, because they had not been within the control of MWA at the time of signing that deed. Rather, the notes had been returned to MWA after the deed was signed.  Given the complete absence of any records, and Mr Lim’s statement to RBF that he had sold less than $50,000 prior to signing the deed,  I  have,  as  I  have  said,   real  difficulty  in  accepting   this   submission. Issues as to whether the notes were, or were not, within the compass of the deed are matters which call for findings of fact in the interpretation of clause 13 of the deed. Those issues are the subject of the Fijian proceeding.

[131]   For  the  purposes  of this  case  it  is  not  necessary  to  decide  those  issues because, whatever may be the answer to them, MWNZ knew that RBF was rightly or wrongly refusing to redeem the notes.  It had refused MWNZ’s approach and it had defended the proceeding brought by MWNZ to resolve the position.

[132]   Similarly, the fact that Mr Lim considered that, because the notes were legal tender, and hence RBF as the issuing bank could not legally refuse to redeem them, is equally beside the point. The fact of the matter was that he knew the bank had refused to do so at the point when the notes were proffered to KVB.

[133]   Similarly, the fact that, RBF, later in July 2003, decided to honour the notes previously exchanged through the NBNZ is also irrelevant, even though it confirmed Mr Lim’s view. What is relevant, is the fact that he did not know that this would occur at the time the notes were proffered to KVB.

[134]   The key conclusion is that, as at 9 May 2003, Mr Lim, and hence MWNZ, knew that there was a dispute regarding the notes namely, whether they would be honoured by RBF. That situation meant that, any person who accepted those notes, could be faced with a problem in ultimately being able to secure value for those notes from the issuing bank. Mr Lim was quite prepared to allow that eventuality to occur by not revealing the existence of the dispute.

[135]   I have no doubt that, any person who was asked to accept those notes, and who had been advised of this dispute, would have refused to accept them. This is borne out by the evidence of Mr Currie, which I have previously referred to (para [115]).

[136]   There is no dispute that KVB was not informed of the dispute by either Mr

Lim, or MWNZ, when the notes were proffered to it.

[137]   MWNZ has submitted first, that its unsuccessful earlier attempt to redeem the notes directly with RBF was entirely distinct from, and therefore, irrelevant, to the subsequent  negotiations  of the  notes  with  KVB  and,  in  any  event,  there  is  no

obligation on a vendor to disclose previous unsuccessful attempts to sell or exchange goods.

[138]   Similarly, the litigation was concerned with whether MWA was entitled to redeem the notes from RBF, and that was quite different from whether it was entitled to sell the notes to others. Again, it was submitted that there is no authority for the proposition that a vendor must disclose to a purchaser litigation that does not affect the status of the goods in the hands of the purchaser.

[139]   For the reasons which I  have already referred to, I  disagree.  The earlier attempt to redeem, and the proceeding in Fiji, were both relevant to the notes in question in this case from the moment when RBF, having learned that the notes had come from MWNZ, then said it did not regard itself bound to honour them.

[140]   So far as the submission that there was no obligation on MWNZ to disclose these facts, I also disagree.

[141]   In Mills v United Building Society [1988] 2 NZLR 392, Casey J held on appeal (at 413):

Whether any particular conduct by a vendor is misleading or deceptive, or is likely to mislead or deceive, is essentially a question of fact. As the High Court of Australia recognised in Parkdale Custom Built Furniture Pty Ltd v Puxu  Pty  Ltd  (1982) 149 CLR 191, the test is objective; that some consumers have been misled is not conclusive. The character of the market reasonably likely to be affected by the conduct must also be taken into account.

[142]   In Unilever (NZ) Ltd v Cerebos Greggs Ltd (1994) TCLR 187 (CA), Gault J

said (at 192):

What  must  be shown  are  misrepresentations  by  words  or  conduct  or  a combination of words and conduct: [Taco Co of Australia Inc v Taco Bell Pty  Ltd  (1982) 42 ALR 177, 202; ATPR 40-303, 43,751]. In trade description cases the focus is upon what is said and done rather than what is not said or done. The legal obligation is to avoid falsehood, it is not an obligation to provide compendious explanations. Of course silence in particular circumstances can amount to a misrepresentation as can literal truth but in each case only when as a result there is affirmatively conveyed another meaning that is false.

[143]   In Heiber v  Barfoot  & Thompson  Ltd  (1996)  7  TCLR  301,  Kerr  J  also considered whether silence could amount to misleading or deceptive conduct for the purposes of s9 of the FTA. He referred to Unilever (supra) and concluded that, the statement referred to above, was in the context of that case obiter. He then went on to consider a number of Australian authorities relating to s52 of the Australian Trade Practices Act, this being the equivalent to s9 of the FTA.

[144]   Kerr J referred in particular to Demagogue Pty Ltd v Ramensky (1992) 102

ALR 608, a decision of the Federal Court of Australia in which Gummow J agreed with the remarks of French J in Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 at 53,195 namely:

The cases in which silence may be so characterised are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist.

[145]   Kerr J concluded (at 313):

Bearing in mind the Australian authorities, I consider whether or not silence of itself or with other factors creates misleading or deceptive conduct, must be looked at having regard to all the facts present in a particular dispute. If the Australian test of reasonable expectation is applied, which in my view it should be, whether that is looked at from the appellant’s point of view or objectively, the information known to the respondent should have been given the appellant. By failing to give the appellant the information known to the respondent,  in  my  view  the  latter  engaged  in  misleading  or  deceptive conduct as defined by s9. Whether as a fact on its own or as one of the circumstances of the case, the silence by the respondent created a breach of s9, it being difficult to know why the information was not  given to the appellant.

[146]   In Tuiara v Frost & Sutcliffe [2003] 2 NZLR 833 Baragwanath J said at [91]:

I accept the statement of principle in Hieber v Barfoot & Thompson Ltd (1996) 5 NZBLC 104,179 at p 104,186 citing Australian authority – that the test is of reasonable expectation of disclosure

[147]   There is also a useful discussion in Guthrie v Taylor Parris Group Cossey Ltd (2002) 10 TCLR 367 where Priestley J said at  [31] that  it  is “undoubtedly correct”  that  silence  or  non-disclosure  can  in  some  circumstances  constitute

misleading or deceptive conduct. His Honour referred to Phyllis Gale Ltd v Ellicott

(1997) 8 TCLR 57 at 65. He went on to say at [32]:

In my judgment it would be wrong to approach the issue of whether an alleged failure to disclose information constitutes misleading or deceptive conduct in a mechanical or formulaic way. Whether or not an omission to disclose information crosses  the boundary into  misleading and  deceptive conduct  must  ultimately depend on the circumstances  of  each  particular situation.

[148]   With respect, I endorse that approach. The comments in Unilever must be seen in the light of subsequent, more recent decisions of this Court and the Court of Appeal. See for example Neumegen v Neumegen & Co [1998] 3 NZLR 310, 317; Bonz Group Pty Ltd v Cooke (1996) 7 TCLR 206 and those High Court authorities cited above.  I note that the Court of Appeal in Bonz said that in some circumstances: (at 210):

such as those involving silence in the face of an inference, there may be misapprehension without any misrepresentation.

[149]   However,   here,   the   inference   that   the   currency  was   acceptable   and redeemable was so powerful and inherent in the transaction that there can be no question of a mere misapprehension without misrepresentation. In this respect the comment of Elias J (as she then was) in Des Forges v Wright [1996] 2 NZLR 758 at

765 is apposite:

Even  in  arm’s-length  commercial  dealings,  suppression  of  information known to have a significant impact upon the transaction between the parties may amount to misleading or deceptive conduct.

[150]   I note also the comment by the Hon Justice French in ‘The law of torts and part V of the Trade Practices Act’ in P D Finn (ed), Essays on Torts, Sydney, Law Book Co, 1989, 183 at 187 that:

Where silence gives or is likely to give rise to erroneous inferences it is misleading or deceptive or likely to mislead or deceive.

[151]   A failure to disclose was also discussed in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 68 ALR 77 where it was held that silence may be relied on in order to show a breach of the equivalent to s 9 when the circumstances give rise to an obligation to disclose relevant facts.

[152]   Finally, it is pertinent at this point to recall that engaging in conduct is very widely defined in the FTA in s 2(2) in the following way, so as to include omissions:

In this Act, a reference to engaging in conduct shall be read as a reference to doing or refusing to do an act, and includes,—

(a)    omitting to do an act; or

(b)     making it known that an act will or, as the case may be, will not be done.

[153]   Whichever of the two tests referred to above is adopted (Unilever or that of Kerr J in Heiber) I am satisfied that, the failure to inform KVB of, particularly, the proceeding in Fiji, amounted to misleading and deceptive conduct. Referring first, to the Unilever test, KVB in this case was presented with Fijian $2 notes. Assuming these for a start to be currency in the full sense of that word, it arranged with NBNZ to exchange those notes for the equivalent New Zealand currency. In the ordinary course, the mere fact that those notes were proffered as part of a foreign exchange transaction by another foreign exchange dealer, necessarily implied that they could be accepted as currency within the full definition of that word, which I have referred to earlier. Fundamental to the notion of currency is the knowledge that, all else failing, those notes would be redeemed by RBF at face value. In this case, that was not so.

[154]   This being the case, I find that to tender those notes was misleading and deceptive. KVB was misled and deceived in the sense that, when the notes were tendered to it, the nature of the transaction involving as it did, a foreign exchange transaction with another foreign exchange dealer, necessarily meant that the notes were currency in the full sense. The failure to disclose the background meant that the necessary element was false.

[155]   If one applies the test suggested by Kerr J, the position is even clearer. KVB were entitled to assume that the notes tendered were a currency in the full sense i.e. that the issuing bank would, in the last resort, redeem them at face value. MWNZ knew this would not necessarily be the case. It failed to disclose this fact. It therefore acted in a misleading and deceptive manner. In the context of a foreign exchange transaction, which I accept involves an additional essential element of trust, KVB

were entitled to this knowledge. The failure to disclose in these circumstances was both misleading and deceptive. It was also, in my view, arguably inexcusable.

[156]   I therefore find that KVB is entitled to succeed on its counterclaim. I will refer to the issue of relief shortly.

Third party claim by KVB

[157]   Having found in favour of KVB on both the claim against it and on its own counterclaim the question as to whether it is entitled to indemnity by RBF does not arise, but it must nevertheless be referred to in order to determine the issue of costs. I therefore set out my views in relation to this section of the proceeding.

[158]   KVB alleged:

[a]      That if it had been found liable to MWNZ, then it was entitled to be indemnified by RBF because, when it cancelled the transaction with MWNZ, it had relied on advice given to it by RBF in the email dated

13 May 2003 namely:

(i)        There was current litigation in Fiji between MWNZ and RBF

in relation to the commemorative notes; and

(ii)       RBF was not bound to, and would not, accept or honour the commemorative notes.

[b]      That this advice in the circumstances of the inquiry namely, whether the notes were legal tender  or not, impliedly represented that  the commemorative notes were not legal tender and hence, KVB would be legally justified in refusing to honour them if exchanged and, the implied representation constituted part of the advice given.

[c]      The notes were at all material times legal tender.

[d]      RBF was not justified in rejecting the notes if received in the course of a currency transaction, nor was it justified in advising any party which inquired, that the notes were not legal tender.

[e]      Accordingly,  the  advice  given  was   deceitful;  or   negligent;  or misleading and deceitful.

[159]   RBF has admitted that the advice was given, but:

[a]      It was not impliedly or otherwise represented that the notes were not legal tender rather, the status of the notes as legal tender had been publicly gazetted by RBF.

[b]      The advice was true, and honestly believed to be true, and RBF had been neither reckless nor careless in giving the advice.

[c]      The statements were not made in trade and were not, in any event, misleading or deceptive.

Conclusion

[160]   I  have  concluded  that,  had  it  been  necessary  to  consider  the  claim  for indemnity, KVB would not have succeeded on any of its three causes of action.

[161]   As I have already found, the issue as to whether or not the notes were legal tender  is  irrelevant  to  the  issues  raised  between  MWNZ  and  KVB.  What  was relevant was that RBF had said that it would not accept or honour the notes.

[162]   RBF never said that the notes were not legal tender. It could not because, the notes were gazetted as legal tender. The bank’s position was, that the particular notes comprised in the transaction between MWNZ and KVB, would not be accepted or honoured because the particular notes were the subject of current litigation in Fiji.

[163]   The bank considered that the particular notes must have formed part of the first  tranche  of 300,000  FJ$2  notes  which  were  not  accepted  back  by  RBF  in

accordance with the settlement deed dated 5 October 2000. The deed recited that RBF had accepted back 300,000 of the total of 600,000 FJ$2 notes i.e. those comprised in the second tranche, and 1,900 of the 2,000 FJ$2,000 notes.

[164]   So far as the remaining 300,000 FJ$2 notes and 100 FJ$2,000 notes were concerned, some had been on-sold by MWA. Some were retained by MWA or were subject to an obligation by MWA to repurchase or resume back from dealers. It was these notes which were the subject of the agreement contained in clause 13 of the settlement deed.

[165]   RBF  apparently  refused  to  take  back  any  notes  which  were  within  the definition in clause 13 because it wished to encourage MWA to continue sales of these as collectors’ items.

[166]   One of the matters in dispute in the litigation between RBF and MWA is whether the FJ$2 notes which it, and MWNZ, endeavoured to have redeemed by RBF, were in fact within the definition provided in clause 13.

[167]   Another matter for dispute will be whether, in any event, RBF could refuse to redeem the notes at face value despite the terms of the settlement deed and because they were legal tender.

[168]   As I have already found, the answers to these issues are irrelevant to the present proceedings. This is because, very simply, whether RBF is right or wrong, it decided it would not honour notes which it decided MWA or its agent MWNZ were endeavouring directly, or indirectly, to have RBF redeem in contravention of the deed of settlement.

[169]   The bank’s stance was adopted solely in relation to those notes and not the commemorative issue generally. This is made clear by Mr Whiteside’s first query when he was approached  by Mr Crowle as to  who had presented the notes for exchange. When Mr Whiteside learnt it was “Money World” he then declined to confirm anything on the phone because there was a dispute over the notes. He

requested Mr Crowle to send him an email to which he would respond. He did so on

13 May 2003, by email.

[170]   I find that RBF’s stance in relation to the matter arose solely because it considered that the particular notes were the subject of the dispute with MWA.

[171]   I imagine, but do not have to decide the issue, that Mr Whiteside did not wish to confirm that the notes were legal tender (even though, in my view, they undoubtedly were) because, by so doing, he might have thought that with this assurance, Mr Crowle would proceed with the transaction. Instead he revealed the fact of the dispute and the bank’s attitude to the money in question.

[172]   I consider that, in giving this advice, Mr Whiteside did all that was necessary to put KVB on guard. The advice given made it clear that, if KVB accepted the notes as part of an exchange transaction, it faced the prospect that it could face trouble in having the notes negotiated.

[173]   KVB has alleged that this advice impliedly represented that the notes were not legal tender and that RBF would be legally justified in refusing to honour them if exchanged. In other words, KVB interpreted the advice to mean that, because RBF had said it would not honour them, this meant that the notes might not be legal tender. It acted accordingly by cancelling the transaction with MWNZ.

[174]   That conclusion was, as I see it, not unreasonable in the circumstances. In fact, that conclusion was wrong. The correct position was that the notes were legal tender, but the reason for RBF not advising that it would not honour them was because  of  the  pre-existing  dispute  as  to  whether  it  was  bound  to  honour  the particular notes. The short point is, as I have said, that in giving the advice it did, RBF made it clear to KVB that it would face difficulties if it accepted the notes.

[175]   In the circumstances, I see nothing deceitful about the advice. RBF stated quite clearly the position namely, that there was current litigation regarding the notes and it would not honour them. Both statements were true and I can see no reason why it could be said that RBF did not honestly believe them to be true. Whether RBF

was, or was not, ultimately entitled to refuse to honour the notes was a matter which still had to be determined by the High Court of Fiji. In the meantime it was entitled, in my view, to adopt the stance it did providing it made its position clear in relation to those notes. This it did, when giving the advice to KVB.

[176]   Similarly, and for the same reasons, I cannot see that RBF was in breach of any duty of care to KVB. The advice given made it clear to KVB that it could not expect the notes to be redeemed by the bank. That was all that KVB needed to know.

[177]   So far as any claim under the FTA is concerned, RBF submitted that, when giving the advice, it was not in trade because, when supplying the advice, it was exercising a function as a regulator i.e. of the public finances of Fiji pursuant to the Reserve  Bank  of Fiji  Act  1983, as opposed to  being  engaged  in an activity of commerce.

[178]   Section 2 of the FTA defines “trade” as:

“trade” means any trade, business, industry, profession, occupation, activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.

[179]   In my view, RBF was acting in an activity of commerce in relation to the commemorative notes. The issue of these notes went beyond simply providing currency. The bank had obtained a special premium for these notes from MWA. It had obtained an exemption such that the value of the notes was not to be included in the bank’s demand liabilities. Furthermore, the payment for the notes was treated as income in the bank’s accounts as “numismatics” against  which there was to  be debited costs such as printing, transportation and the like, and legal fees. These factors  all  indicate  that  RBF  regarded  the  numismatic  notes  as  “goods”.  Mr Whiteside said (at p108):  “[they were] seen as a one off income which would be noted as an extraordinary event for us, we don’t issue numismatic notes like this every day”.

[180]   Stated  briefly,  it  was  a  commercial  venture  outside  the  bank’s  normal statutory regulatory function. So far as this issue was concerned, the bank was in trade.

[181]   RBF noted that, the only reason why KVB had been able to found a claim for indemnity, was because the email containing the advice had been received in New Zealand.  That  advice,  it  was  submitted,  was  given  in  the  course of the  bank’s regulatory function. I do not accept this submission because the advice related to events which in turn related to an activity which arose from the bank’s activity and commerce namely, the particular numismatic issue.

[182]   RBF further submitted that, KVB had in fact decided to cancel the contract with MWNZ, before it received the email advice and hence, there was a lack of causation between the advice and the cancellation. In my view, the bank had already signalled a concern to Mr Crowle on 9 May 2003, when Mr Whiteside said he would not confirm anything on the phone and,  most  importantly,  because there was a dispute over the notes. Mr Crowle was put on guard at that point. The email later provided the detail.

[183]   The issue remains whether the advice was misleading or deceptive. This is to be determined as a matter of fact in the particular circumstances. My conclusion is that it was not. Mr Crowle wanted to know if the notes could be safely accepted in the course of a foreign exchange transaction. He based his query on the issue of legal tender. The bank did not answer the question in those terms. It did, however, answer Mr Crowle’s question by making it quite clear KVB would be taking a risk if it accepted the notes. That was all Mr Crowle needed to know.

Relief

[184]   I have found that KVB was entitled to rescind the contract pursuant to both the CRA and FTA, and that had KVB not been successful it would not have been entitled to be indemnified by RBF.

[185]   Counsel  for  KVB  and  RBF  both  submitted  that,  when  considering  the question of relief to be provided, this could be fairly and justly resolved by resorting to the provisions of s43 of the FTA. I agree.

[186]   At the present time,  KVB  is  in possession of the notes and  is  incurring storage and insurance costs in relation to them. I have found that KVB was entitled to cancel the transaction on 9 May 2003. KVB seeks an order declaring that the transaction was void from the outset and that it be entitled to recover its costs.

[187]   So far as the latter is concerned, MWNZ has submitted that, KVB is not entitled to recover the storage and insurance costs because, following cancellation, KVB should have returned the notes to MWNZ. KVB’s response is that, in the circumstances, it was more appropriate to retain the notes to enable the Court to decide what should happen to them and, more importantly, that it considered it was under an obligation to retain the notes to ensure that MWNZ did not attempt to foist them on some other unsuspecting person. At a later point, KVB undertook to the Court that it would retain the notes for safekeeping pending resolution of the dispute. Later on again, when it became apparent that the ANZ Bank in Fiji would accept the notes  it  endeavoured  to  return them to  MWNZ  on  15  December  2004.  It  was unsuccessful because, MWNZ refused to accept them, saying it no longer wanted the notes.

[188]   Also to be considered are three further factors:

[a]      The background of uncertainty relating to the issues to be determined by the proceeding in the High Court of Fiji.

[b]      The behaviour of Mr Lim and MWNZ, which was misleading and deceptive.

[c]      MWNZ has not had access to the notes to enable it to possibly sell them to collectors or to derive any interest on them as currency at face value.

[189]   Having considered all these circumstances, I have concluded:

[a]      KVB was entitled to retain the notes pending final resolution of the position  by the  Court.  It  had  incurred  a  loss  when  reversing  the

associated transaction with NBNZ. More importantly, as a foreign exchange dealer it was entitled to consider the integrity of the foreign exchange market by holding the notes until a court, be it  in New Zealand or Fiji, had determined the negotiability of those notes.

[b]      When the issue of negotiability of the notes was apparently resolved and the ANZ Bank in Fiji indicated it would accept same, MWNZ declined to accept them.

[c]      If  MWA  and/or  MWNZ  have  suffered  losses  as  a  result  of  the retention of the notes, then, as I see it, that issue can still fall to be determined by the proceedings in the High Court of Fiji.

[190]   Taking all the above matters into  account, I have decided that, relief,  as between KVB and MWNZ, should be resolved by the following orders:

[a]      Judgment to be entered in favour of KVB on both MWNZ’s claim, and KVB’s counterclaim, including:

[i]       An order pursuant to s43(2)(a) of the FTA declaring that the transaction on 9 May 2003 was void ab initio.

[ii]      Orders pursuant to s43(2)(d) of the FTA directing MWNZ to:

[a]       pay  to  KVB  $2,636.20  being  the  loss  pleaded  in respect of reversing the transaction with NBNZ; and

[b]        the costs as pleaded for storing and insuring the notes.

[iii]     An order pursuant to s9(2)(a) of the CRA directing KVB to return the notes to MWNZ.

[iv]      An order pursuant to s9(2)(b) of the CRA directing MWNZ to pay to KVB the costs (if any) involved in returning the notes to MWNZ.

[b]      Interest on $2,636.20 at 7.5 per cent from 9 May 2003.

[c]      Interest on one-half of the total storage and insurance costs at 7.5 per cent from 9 May 2003.

[d]      Costs and disbursements and witnesses’ expenses. Costs are to be calculated on the 2B basis.   Disbursements and witnesses’ expenses are to be fixed if necessary by the Registrar.

[191]   RBF is entitled to judgment and costs on KVB’s third party claim. I leave open for further submissions by all parties the issues as to whether judgment should be entered against KVB or MWNZ, and by whom RBF’s costs should be paid. I note in respect to the issue of RBF’s costs that, my view, at the present stage, in finding that the third party claim was not made out given my findings in relation to the principal claim, does not necessarily determine the issue as to whether the third party proceedings may not nevertheless have been justified.

[192]   The parties are to file memoranda in relation to these points by 5 pm on

Monday 22 August 2005.