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Pacific Harbour International Hotel v Buttula [1995] FJHC 35; Hbc0399j.93s (10 February 1995)

IN THE HIGH COURT OF FIJI
At Suva
Civil Jurisdiction

CIVIL ACTION NO. 0399 OF 1993

Between:

PACIFIC HARBOUR INTERNATIONAL HOTEL
Plaintiff

- and -

OTTO BUTTULA
Defendant

- and -

ENDEAVOUR FISHING ENTERPRISES (FIJI) LTD.
Claimant

Mr. V. Kapadia for Plaintiff
Mr. R. Gopal for Claimant

JUDGMENT

On the 19th of July 1993 the plaintiff hotel issued a Writ against the defendant claiming a sum of $18,138.56 being the amount due and owing for accommodation and other charges incurred by the defendant. The Writ was served on the defendant on 4th August 1993 and thereafter in the absence of an appearance, default judgment was entered against the defendant on the 3rd of September 1993.

On the 13th of December 1993 a Writ of Fifa was issued against the defendant and after several visits by a Sheriff's Officer and the taking of an inventory, the Fifa was eventually executed on the 24th of August 1994 and numerous items were seized by the Sheriff's Officer from the defendant's Villa 109 at Pacific Harbour, Deuba and stored at the premises of the plaintiff hotel.

on the 16th of September 1994 the defendant as a director of Endeavour Fishing Enterprises (Fiji) Ltd. (hereafter referred to as 'the claimant company') issued a notice to the Sheriff of Fiji claiming several of the items taken by the Sheriff's Officer in execution of the Fifa.

A week later on the 23rd of September 1994 the claimant company obtained an ex-parte injunction restraining the plaintiff hotel and the Sheriff of Fiji "... from auctioning and/or disposing of any of the chattels of the claimant until further order of the Court." The claimant company also issued an interpleader summons claiming the following particular items:

"1. 5 Ice making machines

2. 1 Direction finder

3. 1 Juro compass

4. 1 Compass (small)

5. 1 Sharp brand Computer with Key Board Display

6. 1 Radio Telephone

7. 1 Alder Marine Fax machine

8. 1 only Shipcom Shipboard Communication Centre

9. Some Company documentations."

Although objection was taken as to the 'locus' of the claimant company in issuing an interpleader summons, the objection was over-ruled on the basis of Fenwick v. Laycock [1841] EngR 851; (1841) 2 Q.B. 108 the headnote of which reads:

"Where the goods of a defendant, who alleges that he holds them solely as trustee, are taken in execution, the defendant, in his character as trustee, may, in general, dispute the seizure; and the Sheriff, in such case, is entitled to the benefit of an interpleader rule."

Three (3) weeks later on the 13th of October 1994 the plaintiff hotel sought inter-partes the dissolution of the injunction. After hearing counsels however I was firmly of the view that the injunction should remain until such time as the Court was able to determine the ownership of the items claimed in the interpleader summons of Endeavour Fishing Enterprises (Fiji) Ltd. and disputed by the plaintiff hotel.

The trial of the issue was conducted over 2 days and the claimant company called three (3) witnesses: Otto Buttula, the above-named defendant, who is a shareholder and director of the claimant company; David Harold Martin a partner of a local ship surveying firm Billet, Wright and Associates Ltd. and Ted Cavu, an engineer who worked on board the claimant company's fishing vessel "Endeavour". The plaintiff hotel also called three (3) witness: Hari Narayan the accountant of the plaintiff hotel; Hemendra Nagin the solicitor instructed in the action; and Sitiveni Bale the Sheriff's Officer who executed the Fifa at the defendant's Villa.

The claimant company's case may be shortly summarised. The fishing vessel "Endeavour" was purchased in 1989 from the Admiralty Marshall and converted into a long-liner fishing vessel. At the time of its purchase the vessel had installed on board numerous communication and navigational equipment and aids including items 2 to 8 (above). Then in the first quarter of 1990 the claimant company purchased and installed in the vessel six (6) ice-making machines which it purchased from Australia.

After its re-fit the vessel was surveyed on the 18th of April 1990 by Billett, Wright and Associates for the purpose of obtaining a certificate of sea worthiness and to ascertain the vessel's market value. The vessel began commercial operations in mid-1991 and ceased in late 1991 and since then has been anchored in Suva Harbour.

In July 1994 after an ice-making machine was stolen off the "Endeavour" and in the absence of a permanent watchman numerous valuable items (including items 1 to 8) were removed from the vessel and taken to the defendant's Villa at Pacific Harbour for 'safe-keeping'.

Learned counsel for the plaintiff hotel in disputing the claimant company's ownership of the items claimed highlighted the equivocal manner in which the documents evidencing the sale of the ice-making machines (i.e. Exs. 1 & 2) were recorded, and the apparent failure of the defendant to mention the claimant company by name, to any of the persons with whom he had come into contact with at the time of the seizure of the equipment.

As to the documentary evidence, I accept that they are, on their face, 'equivocal' in so far as they are addressed to the defendant by his personal name, however, I am satisfied having regard to their nature, quantity and price and the evidence of the claimant company's witnesses, that all the equipment listed in the claimant company's interpleader summons (i.e. items 1 to 8) were part of the equipment installed in the fishing vessel "Endeavour" and are legally the property of Endeavour Fishing Enterprise (Fiji) Ltd.

The absence of the items on the Sheriff Officer's first and second visits to the defendant's villa on 27.1.94 and 11.2.94 and their presence on 24.8.94 lends credence to the evidence of the defendant and Ted Cavu as to the previous location of the equipment and their ownership by the claimant company nor, given the absence of any cross-examination, is there any reason to doubt the evidence and report (Ex.4) of David Harold Martin which I accept in its entirety.

As for the defendant's failure to mention the claimant company's name I am satisfied that nothing turns on that especially as I am more than satisfied that the defendant had made it quite clear to the Sheriff's Officer at the relevant time that some of the items being seized but more specifically, the ice-making machines, did not belong to him and were off a fishing vessel.

I turn next to consider the submission of learned counsel for the plaintiff hotel that this is a case in which the Court ought to 'lift the veil of incorporation' and in doing so the Court would discover that the claimant company was a 'mere facade' for the defendant who was the sole person in actual and effective control of all its operations.

In support of this counsel points to the defendant as being the sole 'source of funds' for the purchase of the fishing vessel and the ice-making machines; the absence of any supporting company records or corporate structure independent of the defendant; and the rather indifferent treatment by the defendant and the passive nature of the joint-shareholder's participation in the claimant company's affairs.

In this regard whilst I accept that the evidence relating to the incorporation, records and trading activities of the claimant company could have been more fully presented, I confess that the submission of learned counsel for the plaintiff hotel does not fit into the classic instances where the Court has gone behind the 'corporate veil'.

As learned counsel for the defendant succinctly writes:

"Normally a veil is lifted to go back and look behind the corporate personality to make the shareholder's liable for the cause of the Company. In this case the plaintiffs are arguing that the veil should be lifted so that the company can be made liable for the acts of one of the shareholders."

That submission however rather over-simplifies the matter and is not accurate. The submission for the plaintiff hotel is that the separate identity of the claimant company is being fraudulently used by the defendant to avoid having to pay for his personal debt. In particular the 'corporate veil' is being used so as to enable the defendant to falsely deny personal ownership of the disputed items taken in execution by the sheriff's officer and thereby to defeat and frustrate the plaintiff hotels attempts to enforce its judgment debt against him.

In other words if the Court lifted the 'corporate veil' it would find that the defendant personally owned the equipment seized and therefore such equipment may be availed of by the plaintiff hotel in its efforts to obtain payment of the defendant's personal debt.

Having concluded on the evidence that the items in fact and in law are owned by the claimant company, ought this Court to go behind the 'corporate veil' and conclude that such ownership is tantamount to being that of the defendant? In my considered opinion the circumstances of this case are insufficient for this Court to take such an exceptional step and depart from or disregard the principle that a company is an independent corporate entity quite distinct from its shareholders and capable of acquiring and owning property in its own name.

In this regard I would respectfully adopt the statement of principle of the learned editors of Palmer's Company Law (Vol.1) 24th edn. where it states at para. 18-22:

"Generally speaking; the Courts are more inclined, in appropriate circumstances to 'lift the veil' of corporateness where questions of control are in issue than where a question of ownership arises."

Then after referring to the Courts considerable discretion to do justice in individual cases the passage continues:

"But it should be emphasised that the rule in Saloman's Case is still the principle and the instances of piercing the veil are the exceptions ..."

In the decision of the Privy Council in Lee v. Lees Air Farming Ltd. (1961) A.C. 12 which might be considered a "high water mark" in this area the Privy Council in upholding the principle enunciated in Saloman's case:

"Held: (the deceased's) position as sole governing director did not make it impossible for him to be a servant of the company in the capacity of chief pilot, for he and the company were separate and distinct legal entities which could enter, and had entered into a valid contractual relationship, which was not invalidated by the circumstances that the deceased was sole governing director in whom was vested the full government and control of the company and also the controlling shareholder."

Accordingly I have no hesitation in rejecting counsel for the plaintiff hotel's submission that this Court should lift the 'corporate veil' in this case. The items enumerated in the claimant company's interpleader summons namely, items 1 to 8, being legally the property of the claimant company, must therefore be returned forthwith to the claimant company or its lawful representative.

(D.V. Fatiaki)
JUDGE

At Suva,
10th February, 1995.

HBC0399J.93S