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Kempf v Toberua Island Ltd [1994] FJHC 41; Hbc0301d.91s (26 April 1994)

IN THE HIGH COURT OF FIJI
At Suva
Civil Jurisdiction

CIVIL ACTION NO. HBC0301 OF 1991

Between:

H. PETER KEMPF
Plaintiff

- and -

TOBERUA ISLAND LIMITED
1st Defendant
MICHAEL DENNIS
2nd Defendant

Mr. J. Howard for Plaintiff
Mr. P. Knight for Defendant

RULING

On the 20th of June 1991 Jayaratne J. granted an ex parte mareva injunction against the defendants restraining "each and every one of them ... from removing from the jurisdiction disposing of or dealing with the assets of or any shares in the 1st defendant company pending the determination of the plaintiff's claim".

Since then the action has had a somewhat varied and chequered history including the entry of default judgment; a stay of execution; a summons for security for costs and culminating in the filing of an amended Statement of Claim on the 30th of January 1992 in which the first defendant company was deleted as a defendant in the proceedings. The injunction however has not been amended to reflect this 'change' in the parties nor has any complaint been made in that regard despite numerous opportunities to do so. I propose however where appropriate to maintain the numbering of the defendants.

On the 8th of March 1993 the 2nd and sole remaining defendant issued an inter partes summons seeking the dissolution of the injunction owing to negotiations being undertaken with a commercial bank for the transfer of the account of the former 1st defendant Toberua Island Limited.

If I may say so it is not entirely clear why? it is considered such a venture is prohibited by the terms of the injunction unless it can be argued that it involves a "dealing with the assets" of Toberua Island Limited. Certainly no argument was addressed to the court in that regard and in so far as it may be necessary to determine the issue I am firmly in agreement with the submission of learned counsel for the defendant that with the deletion of Toberua Island Limited as a party to the action the injunction strictly no longer bound the company.

In so holding I am of course mindful of a long line of authoritative decisions that have consistently held that a shareholder in a company has no right to or any legal or equitable interest in the property and assets of the company per: Martin B. in Watson v. Spratley 102 R.R. 541, 552 and Lord Buckmaster M.R. in Macaura v. Northern Assurance Co. [1925] A.C. 619, 626.

That may not necessarily resolve the issue however because the defendant on his own admissions is not only the sole beneficial owner of all the issued shares in Toberua Island Limited but also its managing director. The term "alter-ego" comes easily to mind. In the circumstances the defendant cannot be criticised in erring on the side of caution by seeking the dissolution of the injunction before undertaking the proposed banking venture.

Learned counsel for the plaintiff company submits however that there is no evidence of any actual 'inconvenience' caused to the 2nd defendant by the continuation of the injunction nor has any 'material change in circumstances' been clearly demonstrated. I cannot agree that either factor is critical to a first application for dissolution of an ex parte interim injunction or indeed in the exercise of the court's undoubted discretion whether or not to continue the same.

The submission if I may say so also ignores the ex parte nature of the original grant and seeks to shift the onus onto the defendant to justify dissolution whereas the primary obligation in my view lies with the plaintiff to justify its continuation at any time that the defendant chooses to raise the issue. In this regard nothing has been said about any 'material change' in the plaintiff's circumstances.

The principles which guide a court in exercising its discretion whether or not to grant on injunction were clarified in the judgment of Diplock L.J. in the leading
case of American Cyanimid Co. v. Thicon Ltd. [1975] UKHL 1; [1975] 1 ALL E.R. 504, 509, 510 and 511. At p.509 his lordship said:

"The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial. The court must weigh one need against another and determine where 'the balance of convenience' lies."

Then at p.510 his lordship discussed the 'threshold question' when he said:

"The court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.

It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial ...

So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.

As to that, the governing principle is that the court should first consider whether if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage. If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff's undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason on this ground to refuse an interlocutory injunction."

and finally at p.511:

"It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises."

I propose to deal briefly with the 'threshold question' which may be conveniently answered by a brief examination of the plaintiff's Statement of Claim (as amended) and the amended Statement of Defence and the opposing affidavits filed by the parties.

In this regard the plaintiff's claim is for the 'specific performance' of an 'agreement' between the plaintiff and the 2nd defendant made partly in writing, partly orally, partly by written agreement and partly by conduct over a period of several years whereby the defendant allegedly agreed to transfer 5% of his shareholding in the 1st defendant company to the plaintiff. The extent of the correspondence sought to be relied upon by the plaintiff spans 11 years between April 1980 and April 1991 and the specific 'written agreements' referred to, of which there are 7 enumerated, covers the period 28th May 1980 to 21st May 1986 (a period of 6 years).

The amended Statement of Defence on the other hand denies and disputes the existence of any such 'agreement' between the parties and alternatively avers that the agreement (if any) is statute barred in terms of Section 4 of the Limitation Act (Cap. 35) in so far as the plaintiff's 'cause of action' did not accrue within 6 years of the 19th of June 1991 when the plaintiff's Writ was first issued.

This latter issue is based on the assumption that the agreement under which the plaintiff is claiming is a (single) "written agreement" dated the 28th day of May 1980 and nothing else. In my view however having regard to nature of the plaintiff's claim as particularised, such an assumption takes an unduly restricted approach in the matter and cannot be supported at this preliminary stage.

There is not the slightest doubt in my mind that the question of the existence of an agreement (if any) between the parties and its terms and conditions cannot be determined on the basis of the opposing assertions in their respective affidavits. That is undoubtedly a matter that can only be settled at a trial.

I turn next to the question of whether or not damages are or would be an adequate remedy for the parties and more particularly the plaintiff. In this regard learned counsel for the defendant writes in his written submissions at p.3:

"The Plaintiff has claimed damages as a alternative remedy in his Statement of Claim and would clearly be satisfied with an award of damages representing the value of the shares in the event that he is successful. In fact, it is submitted, an award of damages would be more beneficial to the plaintiff if he succeeded, as a five percent shareholding in a private company would be difficult to realise."

In rejecting a somewhat similar submission in Duncuft v. Albrecht [1841] 56 R.R. 46 Shadwell V.C. said at p.48:

"Now I agree that it has been long since decided that you cannot have a bill for the specific performance of an agreement to transfer a certain quantity of stock. But, in my opinion there is not any sort of analogy between a quantity of 3 percents or any other stock of that description (which is always to be had by any person who chooses to apply for it in the market) and a certain number of railway shares of a particular description; which railway shares are limited in number, and which, ... are not always to be had in the market."

I am satisfied having regard to the private nature and principal business of Toberua Island Limited and the shareholdings therein that the above observations of Shadwell V.C. are equally applicable in this case.

In opposing the dissolution however and without addressing precisely the question of the 'adequacy' of damages as a remedy, learned counsel for the plaintiff doubted the ability of the defendant to meet an award of damages in the event of the plaintiff obtaining the alternative remedy sought in its Statement of Claim.

In this submission however learned counsel for the plaintiff appears with all due respect, to be blowing both 'hot and cold'. On the one hand the plaintiff seeks specific performance of an alleged agreement to transfer a certain percentage of shares in the 1st defendant company presumably because the shares are thought to be a rare and valuable item and, on the other hand, the legal and beneficial owner of the greater proportion of those same shares is considered unable to meet an award of damages.

To the suggestion that the negotiations for the transfer of the 1st defendant company's accounts represents a 'sinister' omen I need only refer to the observations of Sir Robert Megarry V.C. in Vernon Company v. Universal Pulp Containers Ltd. [1980] F.S.R. 179 when he said:

"If the defendants are in a precarious financial state, the grant of an injunction against them to restrain them from carrying on the activity which they hope will restore them to prosperity may of itself drive them into insolvency and liquidation, and so leave the plaintiff in undisputed possession of the field. Accordingly, I think the court has to be astute to prevent this sort of unfairness if this can be done without injury to the plaintiff."

In all the circumstances I am satisfied that the 'balance of convenience' in this case clearly lies in the submission of learned counsel for the defendant: "... that the injunction should be restricted at the very most to the defendant disposing of no more than 95% of his shareholding in Toberua Island Limited" of which he is indisputably the sole beneficial owner.

Accordingly the injunction is to continue until further order in the following varied form:

"That the defendant his servants and agents and every one of them be restrained until further order from disposing of, dealing with or encumbering 5% of the issued shares held by him his servants or agents in Toberua Island Limited."

(D.V. Fatiaki)
JUDGE

At Suva,
26th April, 1994.

HBC0301D.91S