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Pozzati v Fumera [2000] TOLawRp 39; [2000] Tonga LR 408 (21 November 2000)

IN THE SUPREME COURT OF TONGA

Pozzati

v

Fumera

Supreme Court, Nuku'alofa
Ford J
C 558/96

4 October – 3 November 2000; 21 November 2000

Creditors' remedies — writ of distress — ranked according to time of delivery of original

Creditors' remedies — bailiffs — duties do not extend to seizure of company shares

On 16 June 1997, the plaintiff (judgment creditor) obtained judgment against the defendants (the judgment debtors). The judgment debtors appealed and the Court of Appeal dismissed the appeal but made some minor amendments to the Orders and awarded the judgment creditor interest and costs. After taxation of costs, the amount judgment was entered for against the judgment debtors was $140,814.63. The judgment creditor made considerable efforts to obtain execution of the judgment and included various garnishee orders and writs of distress. The judgment creditor alleged that the first judgment debtor in particular was deliberately trying to evade distress. The judgment creditor was focused on executing judgment against two particular identified assets: a van which was seized by the bailiffs in October 1999; and the shares of the judgment debtors in the Oasis Company Limited.

Held:

1. The Court ruled that the new writ of distress issued by the Court on 18 November 1999 was to rank according to the time of delivery of the original writ, namely, 5 August 1999. As the van was jointly owned by the first judgment debtor and the Oasis company at that point in time, the seizure was not invalidated.

2. The Court ordered that the van was to be sold by auction in accordance with the direction contained in the original writ of distress. The proceeds of sale were to be paid to the Registrar of the Supreme Court pending further order in relation to dispersal of the funds.

3. The duties and functions of bailiffs do not extend to the seizure of company shares.

4. The judgment creditor was successful in his application to have the seized van sold by the bailiff and so was entitled to costs on that part of the application. Even though the judgment creditor did not succeed in his application for orders to have the bailiffs seize and sell the judgment debtors' shares in the Oasis company there was no award of costs in favour of the judgment debtors in the interests of the overall justice of the case.

5. The bailiff's costs were a first charge on the proceeds from the sale of the van.

Cases considered:

Advanced Exports NZ Ltd v Sione Tupouniua (A No 749/94, Ward CJ)

Robinson v Jenkins [1890] UKLawRpKQB 16; (1890) 24 QBD 275 (CA)

Statutes considered:

Bailiffs Act 2000

Charging Orders Act 1979 (UK)

Judgments Act 1838 (UK)

Magistrates' Courts Act (Cap 11)

Rules considered:

Supreme Court Rules 1991

Counsel for plaintiff: Mr Foliaki
Counsel for defendants: Mr Tu'utafaiva
Counsel for the bailiffs: Mr Bloomfield

Judgment

On 16 June 1997, the plaintiff ("judgment creditor") obtained judgment from Lewis J in this Court against the defendants ("the judgment debtors"). The judgment debtors appealed and the Court of Appeal delivered its judgment on 7 August 1998 dismissing the appeal but making some minor amendments to the Orders that had been made in the Supreme Court and awarded the judgment creditor interest and costs. After taxation of costs, the amount judgment was entered for against the judgment debtors was $140,814.63.

A memorandum dated 27 July 2000 filed by counsel for the judgment creditor shows the very considerable efforts the judgment creditor has made to obtain execution of the judgment. These efforts include various garnishee orders and writs of distress. The judgment creditor alleges, with some justification I believe, that the first judgment debtor in particular, has been deliberately trying to evade distress.

At this point, the judgment creditor is focused on executing judgment against two particular identified assets -- (1) a motor vehicle (the "van") which was seized by the bailiffs in October 1999 and (2) the shares of the judgment debtors in the Oasis Company Limited. I will deal with each in turn.

The Van

Pursuant to a writ of distress dated 5 August 1999, the bailiff on 5 October 1999 seized a van, registered No. L4466, and it has apparently been kept at the Longolongo police compound since that date. At the date of seizure the van was registered in the joint names of Luigi Fumera, the first judgment debtor, and the Oasis Company Ltd.

The writ of distress had commanded the bailiff to seize the property of the first judgment debtor, Luigi Fumera. The error in naming the first judgment debtor only in the writ and omitting the name of the second judgment debtor, Simonetta Maccio, was the result of an oversight on the part of the Court. The omission was not caused by any fault on the part of the solicitors acting for the judgment creditor. There is a long line of authority at common law, however, which provides that where a judgment is against two or more persons jointly then the writ of distress must issue against them jointly otherwise it is irregular. That, then, was the position in this case. The van had been seized by the bailiff under an irregular writ.

On the 21st October 1999 the judgment creditor's solicitors wrote to the registrar pointing out the irregularity in the writ of distress and asking for the matter to be rectified. A copy of the letter was sent to the solicitor acting for the judgment debtors.

On 26 October 1999 Finnigan J, acting in response to the solicitors letter, ordered a new writ of distress to be issued showing the name of both judgment debtors and his Honour directed the bailiffs to continue holding the vehicle that had been seized. A new writ complying with this direction was issued on 18 November 1999.

It appears that what had happened in the meantime, however, was that on 2 November 1999 ownership of the van was transferred into the name of the Oasis company only. On 25 November 1999 the bailiff received notice from the solicitor acting for the Oasis company (who is the same solicitor acting for the judgment debtors) claiming sole ownership of the van. He asked the bailiff to either return the van to the company or initiate interpleader proceedings. On the same day, the bailiff's solicitor issued a notice of claim form in the usual format acknowledging the claim to ownership by the Oasis company.

On 29 November the solicitors acting for the judgment creditor filed formal notice disputing the claim to ownership by the Oasis company. The judgment creditor claimed that the transfer of ownership on 2 November to the Oasis company showed that the first judgment debtor, Fumera, had "tried deliberately and unlawfully to evade distress by getting his name off the ownership registration of the van." The judgment creditor went on to draw the Court's attention to the fact that the judgment debtors were the majority shareholders in the Oasis company.

That, then, is the relevant background relating to the van. As I have noted, it had been seized under an irregular writ.

At common law an irregularity of this nature did not nullify the proceedings nor any step taken in the proceedings. An application could have been made by anyone claiming an interest in the van at any time after seizure to have the writ of execution set aside as being irregular because it did not name both judgment debtors and any such application would have been considered and dealt with on its merits. In saying that, however, it does not necessarily follow that in this particular case an application by the Oasis company to set the execution aside would have been granted. The Court may well have elected to waive the irregularity and set the matter right by simple amendment. Such course was open to it (Halsbury, 4th ed, vol 17, 460).

In any event, no application was made by the judgment debtors or the Oasis company to set the execution aside. Instead, the bailiff's return was duly filed and on 26 October 1999 when Finnigan J ordered rectification of the writ he specifically directed the bailiffs to continue holding the seized vehicle.

His Honour ordered a new writ to be issued naming both judgment debtors. He could have simply ordered an amendment to the original writ of distress. Halsbury states:

"If there is a defect or error in any writ, endorsement or return the court may allow it to be amended upon such terms as may be just. As a general rule an amendment should be allowed if it can be made without injustice." Vol 17, para 425.

In a note to the same paragraph, Halsbury referred to an 1833 decision with the comment "(where the application was for a new writ, although this is not now the practice)".

In the present case, instead of amending the original writ, a new writ was issued. Nevertheless, in all the circumstances of this case, it is clear to me that the justice of the case required the Court to amend the writ in such a way that the judgment creditor would suffer no prejudice as result of the Court oversight in issuing an irregular writ in the first place.

For that reason, I rule that the new writ of distress issued by the Court on 18 November 1999 shall rank according to the time of delivery of the original writ, namely, 5 August 1999. As at that point in time, the van was jointly owned by the first judgment debtor and the Oasis company but joint ownership of the property does not invalidate the seizure. Thus, Halsbury says:

"Where goods belong to the judgment debtor jointly or in common with some other person, they may be seized under a fieri facias unless the co-owner has become solely entitled by survival upon the death of the debtor before delivery of the writ." – vol 17, para 482.

I understand that the van is still in the bailiff's custody at the police compound where it has been held since seizure in October 1999. It is exposed to the elements and is deteriorating. I now order that it be sold by auction in accordance with the direction contained in the original writ of distress. The proceeds of sale are to be paid to the Registrar of the Supreme Court pending further order in relation to dispersal of the funds.

The Shares

On 13 May 1999, the judgment creditor filed an application for orders that the bailiff and the judgment creditor seize and dispose of the judgment debtors' shares in the Oasis company and for a writ of distress. A company search filed with the application showed that the Oasis company had 350,000 shares of T$1.00 each allotted as follows:

The application was served on the judgment debtors' counsel on the same day.

No action was taken in response to the application. On 21 October 1999 the solicitors acting for the judgment creditor wrote to the Court Registrar saying that they wished to have the Judgment enforced by seizing and selling the company shares. Finnigan J made a file Minute on 26 October that the solicitors for the judgment creditor were "to advise the Court how the bailiffs might seize the company shares". It is not clear from the Court file whether that particular Minute was ever conveyed to the judgment creditor's solicitors. In a formal Notice filed on 1 December 1999, the solicitors for the judgment creditor asked for a fixture so that the issues regarding the shares could be heard together with the interpleader proceedings relating to the van.

On 6 March 2000, following a Chambers hearing, Finnigan J ordered counsel acting for the bailiff to file an expanded interpleader proceeding including the claimed shares. That step was taken on 22 March and 19 May was set as the hearing date for the interpleader action. It appears from the Court file that on 19 May, counsel attended before his Honour and the matter was adjourned until 25 July. For reasons which are not obvious from the Court file, but no doubt are related to Justice Finnigan's retirement, that fixture did not proceed.

I saw counsel in Chambers on 7 September and again on 25 October and made timetable orders for submissions to be filed and for submissions in response and a reply. The timetable I had prescribed was adhered to.

The brief point at issue is whether the bailiff can, pursuant to a writ of distress, seize the judgment debtors' shares in the Oasis Company Limited.

Counsel for the judgment debtors says that all the judgment creditor can do to enforce judgment is to apply for a writ of distress and once the writ is issued it is the bailiff who "takes it on from there". He argues that the bailiff does not have power to seize and sell shares in a company pursuant to a writ of distress.

Counsel for the judgment creditor argues that the writ of distress commands the bailiff to seize the "property" of the judgment debtors and therefore he can seize the judgment debtors' shares "as their personal property". He also says that the Court has authority under Order 26 Rule 7(3) of the Supreme Court Rules to make orders and give directions to seize and sell the judgment debtors' property, including the company shares.

A writ of distress commands the bailiff to seize the debtor's "property" (with stated exceptions). Order 26 Rule 7(2) states that a writ of distress shall be executed in the same manner as is prescribed in the Magistrates' Courts Act for the execution of distress warrants. Section 54 of the Magistrates' Courts Act which used the terminology "goods" rather than "property" set out the manner in which warrants of distress were to be executed but that provision has now been repealed by the Bailiffs Act 2000. The new Act does not contain any particular procedures for executing writs of distress apart from in the case of a special seizure pursuant to section 8. In general, apart from complying with the provisions of the Act itself and any specific directions from the court, a bailiff carrying out execution under the new Act will be expected to comply with recognised common law principles.

Shares in a company are choses in action. The learned authors of Lipton & Herzberg's Company Law, 5th ed, p 177 state:

"Shares are personal property ... Being of an intangible nature, they are regarded as choses in action. This means that ownership of shares confers certain rights on shareholders which are enforceable by law. Although shares are intangible property or choses in action, the law treats them as property in the usual sense. They may be bought and sold, bequeathed and given as security. A share is a bundle of rights and obligations which are determined by the law and the company's memorandum and articles of association."

Although company shares have property characteristics, as choses in action they are not seizable at common law by writs of fieri facias (Halsbury 4th ed, vol 17, para 468, note 1). The writ of fieri facias is the common law equivalent of a writ of distress. It commands the sheriff to seize in execution of the debt "the goods, chattels and other property" of the judgment debtor.

An exception to the common law principle that choses in action were not seizable came with section 12 of the Judgments Act 1838 (UK) under which the Sheriff was empowered to seize money or banknotes, cheques, bills of exchange, promissory notes, bonds, specialties or other securities for money belonging to the judgment debtor but, from my research, it does not appear that this statutory exception has ever been extended to authorise the seizure under fieri facias of company shares.

So although the command to a bailiff in the writ to seize "goods" or "property" of the judgment debtor may appear to be comprehensive, it has long been recognised that, apart from the exception just referred to, choses in action cannot be seized under such a writ.

Pennington's Company Law 4th ed, p 744, referring to the situation in the company liquidation context, says:

"For the purpose of these provisions goods include all chattels personal, including chattels which cannot be seized and sold under a writ of fieri facias. In such cases execution is levied by the court appointing a receiver or making a charging or garnishee order, and the sheriff has no part to play. It would appear therefore that, despite the width of the definition of goods, the statutory duty imposed on the sheriff to account to the (creditor) does not apply in such cases. This interpretation does not make the statutory definition of goods meaningless, because in addition to tangible things, certain choses in action, such as bank notes and negotiable instruments can be seized under a fieri facias, and the sheriff may therefore be accountable to the (creditor) for them or the proceeds of realising them."

The judgment creditor in the present case places reliance on Robinson v Jenkins [1890] UKLawRpKQB 16; (1890) 24 QBD 275 (CA) at 279. There, the Court of Appeal accepted that shares in a company were choses in action but went on to hold that a chose in action may be the subject of an interpleader under the Interpleader Act (UK) which applied to disputes involving any "debt, money, goods or chattels". The Court held that the shares in dispute were "chattels". Robinson v Jenkins, however, was not a case involving seizure pursuant to a writ of fieri facias. It was a situation where two persons were claiming the right to the same shares which were held by the defendant (a stockbroker) who had no interest in the shares. The Court held that given that particular situation, it was appropriate for the defendant to be granted relief by way of interpleader. The case is not authority which over-rides the comment in Halsbury noted above that choses in action are not seizable by writ at common law.

On this aspect of the case, therefore, I find against the judgment creditor. I do not believe that the duties and functions of the bailiff do extend to the seizure of company shares.

In my view, the appropriate procedure to be followed when a judgment creditor seeks to enforce a judgment against a judgment debtor's shares in a company is to seek a charging order under section 1 of the Charging Orders Act 1979 (UK) in accordance with Order 26 Rule 11 of the Supreme Court Rules. In appropriate circumstances the application could include an application for the appointment of a receiver pursuant to order 26 rule 10.
Charging orders may be imposed on the security of any stock of any registered company, (Halsbury 4th ed, Vol 17, para 556).

"A person who has obtained judgment against a shareholder for an ascertained sum of money may levy execution on his shares registered in the company's register of members by obtaining an order of the court charging the shares with payment of the judgment debt." Pennington's Company Law, 4th ed, 348.

The charging order procedure provided for in Order 26 Rule 11 was recently followed and applied by this Court in Advanced Exports NZ Ltd v Sione Tupouniua (A No 749/94) where Lewis ACJ made an Order charging the judgment debtor's shares in a company called Prince Hotel Ltd.

In the present case, the judgment creditor, having been successful in his application to have the seized van sold by the bailiff, is entitled to costs on that part of the application. Costs are to be agreed or taxed. Even though the judgment creditor has not succeeded in his application for orders to have the bailiffs seize and sell the judgment debtors' shares in the Oasis company, I am not disposed, in the interests of the overall justice of the case, to make any award of costs in favour of the judgment debtors.

Counsel for the Bailiff has filed submissions on costs. He argues that the Bailiff's actions in seizing the van under the original irregular writ were carried out in good faith and his reasonable costs in the matter should be a first charge on the subject matter. I agree and hereby make a direction to that effect.