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Latchan v Lagan [1994] FJHC 21; Hbc0438j.93s (28 February 1994)

IN THE HIGH COURT OF FIJI
CIVIL JURISDICTION

CIVIL ACTION NO. HBC0438J.93S

Between:

BIJMA WATI LATCHAN
d/o Shiu Prasad,
ROHIT RAM LATCHAN
s/o Khurbur Ram Latchan and
DHRESH LATCHAN
s/o Khurbur Ram Latchan
Plaintiffs

- and -

RAM LAGAN
s/o Khurbur Sirdar
First Defendant

- and -

RAM NARAYAN
s/o Khurbur Sirdar
Second Defendant

Mr. G.P. Shankar for the Plaintiffs
Mr. R. Smith for the Defendants

INTERLOCUTORY JUDGMENT

In this matter the Plaintiffs are applying for an interim injunction pending the determination of the substantive action begun by Writ of Summons dated 13 August 1993.

They are praying for an Order "restraining the defendants their servants or agents from operating bus service on the routes, time and trips awarded to the Plaintiffs by Korovulavula and detailed in paragraph 14(a) of the Statement of Claim, such award having been accepted by the parties in writing or from interfering on their own behalf or on behalf of K R Latchan Brothers Limited in respect of the operation of buses by Plaintiffs as set out in paragraph 14(a) of the Statement of Claim.

This application came before me ex parte on 22 October, 1993 and I made the order sought as hereabove but ordered that the inter partes motion be returnable on 4 November, 1993. The hearing concluded on 29 November, 1993 when the parties stated that they rely on papers filed. The said interim injunction was extended from time to time. I reserved my judgment to be given on notice and I proceeded on leave.

On the hearing of this application there were the following affidavits and submissions:-

For the Plaintiff

(a) Affidavit of ROHIT RAM LATCHAN in Support of Application sworn 6 September 1993

(b) Affidavit of ROHIT RAM LATCHAN sworn 3 November, 1993

(c) Affidavit of ROHIT RAM LATCHAN sworn 26 November, 1993

(d) Plaintiffs' submission filed 6 October 1993

(e) Submission on Shareholders Rights filed 19 October, 1993

(f) Plaintiffs' submissions dated 3 November, 1993

(g) Plaintiffs' submissions dated 26 November, 1993

(h) Reply to Defendants' submissions dated 3 December 1993

For the Defendants

(a) Affidavit of Ram Lagan (the first defendant) in Opposition sworn 29 September, 1993.

(b) Affidavit of Ram Narayan (the second defendant) sworn 5 October, 1993.

(c) Affidavit of Pravesh Prakash Sharma for defendants sworn 18 October, 1993

(d) Affidavit of Pravesh Prakash Sharma for defendants sworn 29 October, 1993

(e) Affidavit of Ram Lagan sworn 10 November 1993

(f) Defendants' submissions filed 11 November, 1993

PLAINTIFFS' ARGUMENT AND SUBMISSIONS

The said ROHIT RAM LATCHAN (hereafter referred to as 'ROHIT') has filed an Affidavit in Support of application for injunction on behalf of himself and the other two Plaintiffs.

On 13 August 1993 a Writ of Summons was issued by the Plaintiffs against the Defendants praying, inter alia, for an injunction restraining the defendants their servants or agents from operating buses on Plaintiffs' trips time and routes as stated in paragraph 14 of the Statement of Claim. The Plaintiffs are also seeking an order requiring the defendants to do perform and perfect all acts deeds and things necessary to fully implement and give effect to the compromise of 10 May, 1993

The PlainPlaintiffs are shareholders of the company K.R. Latchan Brothers Limited (hereafter referred to as "Latchan Ltd").

Originalere were three directors and 3 shareholders, namely, Ram Kuam Kuar (deceased), K.R. Latchan (deceased) and Ram Lagan (First Defendant - D1).

The Plaintiffs are beneficially entitled to the shares and interests of K.R. Latchan.

The Second Defendant (D2) Ram Narayan is a beneficiary in respect of shares of Ram Kuar.

The D1 appointed Rohit as a director but a third director has not been appointed.

Because of unhappy differences between the parties they referred the disputes to M.D. Korovulavula for arbitration.

By a letter dated 10 May, 1993 the parties agreed by signing the letter that, inter alia, they agree to be bound by and to observe and perform the Manu Korovulavula Arbitration (hereafter referred to as the 'Award').

The decision of the Arbitration was that each of the three shareholders operate the bus trips specified by him separately and each to pay one third of debts of Latchan Ltd.

The Plaintiffs complain that D2 arbitrarily and unlawfully selected the routes and trips and he began to operate them which is not in accordance with the Award referred to in paragraph 14 of the Statement of Claim.

They further complain that the Defendants are operating on routes, trips and times the Plaintiffs are entitled to operate in Suva/Nausori areas and that their activities are arbitrary, unlawful and in breach of the agreement.

The Plaintiffs set out the trips that were part of the Award and at the moment are operated by the defendants (vide b.2 of Affidavit of Rohit sworn 6.9.93).

The Plaintiffs say that they are suffering loss and damages as a result of the flagrant disregard of the agreement on the part of the defendants.

The Plaintiffs say that the compromise signed at the late Mr. Parmanandam's Office was sincerely done to bring to an end all court proceedings pending before the Court with respect to K.R. Latchan Brothers Limited; that the Plaintiffs have relied on it sincerely, acted on it, and are ready able and willing to do everything else to implement it.

The Plaintiffs further complain about the defendants are not operating certain trips and the dilapidated condition in which some of the buses are.

They say that the defendants accepted the Award and operated buses but later changed their minds.

The Plaintiffs say that buses now in operation and in defendants' control are worth about $75,000.00; and the ones in the Plaintiffs' control are worth $115,000.00; and the total debt owed to Fiji Development Bank is $399,974.51.

They say that further to the compromise they made payments in June and October 1993 totalling $7400.00.

According to the Plaintiffs there has been "no reduction of the capital of the company but assets i.e. buses, have been divided, with routes and liabilities in 3 equal shares so that each member runs his route efficiently manages and controls it, and pays his share of debt but the buses and Road Service Licence are in the name of K.R. Latchan Brothers Limited." The division is subject to obligation to pay his share of debt by each member. This arrangement does not constitute reduction of capital of the Company. They say each shareholder had independent legal advice from their respective lawyers. The Plaintiffs say that they "relied on this compromise; acted upon it to our detriment, and could not be so easily tossed nor the defendants could wriggle out of it."

It is the Plaintiffs' assertion that in this case damages is not an adequate remedy. They say that the debts have accumulated because of interest on debt; the buses are in poor condition; the defendants have put 4 buses out of road and they are in a shocking and unroadworthy condition. They say that whereas they are making payments but the defendants are not. They say that the mode of payment by the Plaintiffs is acceptable to the Fiji Development Bank.

DEFENDANTS' ARGUMENT AND SUBMISSION

The First Defendant RAM LAGAN (referred to as D1) says he is a director of K.R. Latchan Brothers Limited and is the only surviving personal guarantor of Latchan Ltd's seriously endangered indebtedness of approximately $400,000.00 to the Fiji Development Bank (herein referred to as "the Bank").

He denies the contents of ROHIT'S affidavit of 3 September, 1993 except what he (D1) deposes in his affidavit. He traces the history of Latchan Ltd.

He said that there was an informal "arbitration" by Mr. Manu Korovulavula and an award was made in May 1989 but it was rejected and was replaced by what he calls "the modified Korovulavula Arbiration". The modification was accepted immediately and put into practice for about two years when difficulties arose because some were unable to meet their obligation in regard to payment to the Bank. Certain discussions took place between the Defendants and ROHIT in an attempt to get the business going again, but it failed and the Bank was not prepared to take a debenture.

In May 1993 the defendants as majority of directors took control of the buses and resumed management of Latchan Ltd. The Plaintiffs were not happy so they met at late Parmanandam's Office on 10 May 1993. At the meeting, agreement was reached (albeit conditional upon FDB and Transport Control Board granting consent) which was incorporated in a memorandum dated 10 May, 1993.

The defendants say that none of the lawyers told them that the agreement was ultra vires and illegal.

They say that the Bank gave no unconditional consent to the agreement and will give none. There is no way that Latchan Ltd can lawfully distribute its buses since most are under bill of sale to the Bank. The result of that is that there is no way the Transport Control Board could ever consent to the agreement. They say that the whole arrangement has failed and was anyway illegal and ultra vires.

They state that no meetings have been held and no resolutions of either the members or the directors of Latchan Ltd have been passed since the agreement; and no attempts have been made to legalise the situation.

The defendants say that Latchan Ltd can run its own business if it had possession of its own assets. They are asking that the company Latchan Ltd be returned to a proper legal basis, and any dispute between its members be left for resolution under action 438/93 (which is this action) in which damages if proved would be the appropriate relief.

The defendants say that Latchan Ltd's liability by way of secured loans has increased from $31,006.00 in 1986 to $391,383.61 as at 4 October, 1993. They further say that the Bank had never agreed to any apportionment of assets and liabilities of Latchan Ltd between its members.

The D2 in his affidavit sworn 5 October, 1993 says that he was given only one serviceable bus worth $25,000 and the one-third share of his liability to the Bank is about $130,000.00. He argues that the Bank will not advance this sum on a $25,000.00 bus and this fact has been communicated by the Bank to the parties.

In his affidavit of 10 November, 1993 D1 replies to Rohit's affidavits. It is a very lengthy and detailed reply and I have noted the contents thereof in so far as they are relevant to the application before me.

THE ISSUE

The Plaintiffs having been granted an interim injunction on an ex parte motion in September, 1993 by Kepa J. and extended from time to time since then, the issue is whether the injunction should continue until the trial of the action now that the motion has been heard inter partes.

Before I proceed to deal with the issue before me, I would like to express my indebtedness to counsel on both sides for their learned and exhaustive arguments and for the assistance I have derived from the industry and ability with which those arguments have been presented.

THE LAW

This is an application by the Plaintiffs seeking interlocutory injunctive relief against the defendants, further to the compromise of 10 May, 1993 signed by the Plaintiffs and the defendants, restraining them from operating bus service awarded to the Plaintiffs under the Award and detailed in paragraph 14(a) of the Statement of Claim.

I have to decide whether in the circumstances of this case it is proper for me to grant an injunction in the exercise of the court's discretion or whether the Plaintiffs should be left to their remedy in damages. In a situation such as this the court should be guided by, and apply the principles laid down in AMERICAN CYANAMID CO v ETHICON LTD [1975] UKHL 1; 1975 AC 396.

The House of Lords there decided that in all cases, the Court must determine the matter on a balance of convenience, there being no rule that an applicant must establish a prima facie case. The extent of the court's duty in considering an interlocutory injunction is to be satisfied that the claim is "not frivolous or vexatious;" in other words, "that there is a serious question to be tried".

In CYANAMID (supra) at page 406 Lord Diplock stated the object of the interlocutory injunction as follows:

".... 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".

A similar view was expressed by McCARTHY P while delivering the judgment of the Court of Appeal in NORTHERN DRIVERS UNION v KAWAU ISLAND FERRIES LTD (1974) 2 NZLR 61 when he said:

"The purpose of an interim injunction is to preserve the status quo until the dispute has been disposed of on a full hearing. That being the position, it is not necessary that the Court should have to find a case which would entitle the applicant to relief in all events: it is quite sufficient if it finds one which shows that there is a substantial question to be investigated and that matters ought to be preserved in status quo until the essential dispute can be finally resolved ..." (ibid, 620)

"It is always a matter of discretion, and ... the Court will take into consideration the balance of convenience to the parties and the nature of the injury which the defendant, on the one hand, would suffer if the injunction was granted ... and that which the plaintiff, on the other hand, might sustain if the injunction was refused ..." (ibid, 621).

A very useful summary of the principles stated in the Cyanamid case were considered by the Court of Appeal in FELLOWES & SON v FISHER (1976) QB 122 and has been summarized by BROWNE L.J. It will not be out of place to set it out hereunder and which is as follows:

"Lord Diplock then laid down a series of principles on which the discretion should be exercised:

"1 As to that [i.e. the balance of convenience] the governing principle is that the court should first consider whether if the plaintiff succeeds at the trial, he would be adequately compensated by damages for any loss caused by the refusal to grant an interlocutory injunction.

If damages ... 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.

2 If, on the other hand damages would not be an adequate remedy, the court should then consider whether, if the injunction were granted, the defendant would be adequately compensated under the plaintiff's undertaking as to damages.

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.

3 It is where there is doubt as to the adequacy of the respective remedies in damages ... that the question of balance of convenience arises. It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight, to be attached to them. These will vary from case to case.

4 Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo.

5 The extent to which the disadvantages to each party would be incapable of being compensated in damages in the event of his succeeding at the trial is always a significant factor in assessing where the balance of convenience lies.

6. If the extent of the uncompensatable disadvantage to each party would not differ widely, it may not be improper to take into account in tipping the balance the relative strength of each party's case as revealed by the affidavit evidence adduced on the hearing of the application. This, however, should be done only when it is apparent on the facts disclosed by evidence as to which there is no credible dispute that the strength of one party's case is disproportionate to that of the other party.

7... in addition to [the factors] to which I have referred, there may be many other special factors to be taken into consideration in the particular circumstances of individual cases" ([1975] 2 All ER 829, 840-841).

DEALING WITH THE ISSUE

Briefly, as can be gathered from what I have stated hereabove that the three directors of Latchan Ltd (about one of whom there is some doubt whether he has actually been appointed or not) had entered into a compromise on 10 May 1993 which was signed by them and their respective counsel.

Since entering into the compromise they acted on it or on the modified form of it for a while, but the defendants say that they did not accept the award. Thereafter differences arose between them when the defendants, as alleged by the Plaintiffs, were not adhering to the Award resulting in the present action (Civil Action 438/93).

The Road Service Licences are in the name of K.R. Latchan Brothers Limited (Latchan Ltd) and Bill of Sale in respect of some of the buses the subject matter of the compromise are in favour of the Bank.

The compromise was subject to the consent of the Fiji Development Bank (the Bank) and the Transport Control Board (TCB).

For the Plaintiffs to obtain the relief sought at this stage, they have to establish that there is a case of a serious, or sufficient merit for the Court to consider before the relief sought is granted. In this context LORD DIPLOCK in CYANAMID (supra) at 407 said:-

"The use of such expressions as 'a probability', 'a prima facie case', or 'a strong prima facie case' in the context of the exercise of a discretionary power to grant an interlocutory injunction leads to confusion as to the object sought to be achieved by this form of temporary relief. 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".

And in SLAYTER WALKER SUPERANNUATION PTY LTD v GREAT BOULDER GOLD MINES LTD [1979] VicRp 13; (1979) VR 107 at 110 LUSH J said:-

"The weight to be given to the various considerations shown by the authorities to be relevant will vary from case to case. All the authorities say in one way or another that the plaintiff must show that he has a chance of success before he will be granted an interlocutory injunction.

The authorities refer to the use of the injunction for the purpose of maintaining the status quo, or establishing or maintaining a state of affairs which is on the balance of convenience appropriate to be maintained until the trial. They refer to avoiding irreparable harm to the plaintiff.

There will be situations in which the plaintiff cannot expect to be granted an injunction unless he can show that he can prove positively the existence of his rights and the infringement of them. There will be other situations in which, though the plaintiffs proof of his rights or the infringement of them is not strong, an injunction may be granted because to withhold it would do the plaintiff irreparable harm while to grant it would not greatly injure the defendant. The possible variety of situations is unlimited."

The Court has to assess and weigh the relevant strength of the parties' case to determine whether the application should succeed. The 'balance of convenience' is examined to decide what status quo is to be maintained and in whose favour the discretion should be exercised.

It is clear that most of buses the subject matter of the compromise belong to K.R. Latchan Buses Ltd ('Latchan Ltd'); that these buses are secured under Bills of Sale to the Bank which debt as at 4 October 1993 stood at about $400,000.00; the Road Service Licences in respect of those buses are in the name of Latchan Ltd.

It is also evident from the affidavit that neither the Bank nor the Transport Control Board have consented to the compromise as required under the said compromise; but the Bank has been accepting payments from whoever makes them.

This compromise has not been converted into a resolution of Latchan Ltd. but instead the three shareholders an/or directors as they are called agreed to operate as under the compromise. This in effect means that each one was running his own business as bus operators and each was to pay the Latchan Ltd debt to Bank in the amounts decided upon.

The question arises as to what effect this has on the operation of the Latchan Ltd. The Defendants complain that this amounts to reduction of capital which the parties are not empowered to do. They have made a very comprehensive submission in this regard. They forcefully argue that Latchan Ltd has a massive capital deficiency. Hence anything Latchan Ltd distributes in an unlawful distribution of capital. The fact that it is a family company or that it is the successor to a partnership, they say makes no difference and they refer to TREVOR v WHITWORTH 1887 AC 409 Vol 12 at 434 where LORD MACNAGHTEN said:

"It was said that the company was a family company but a family company, whatever the expression means, does not limit its trading to the family circle. If it takes the benefit of the Act, it is bound by the Act as much as any other company. It can have no special privilege or immunity."

Whether in fact the compromise tantamounts to a reduction of capital is very much an issue for determination in the trial of the action. On this subject LORD WATSON in TREVOR (supra) at 423 said:-

"One of the main objects contemplated by the legislature, in restricting the power of limited companies to reduce the amount of their capital as set forth in the memorandum, is to protect the interests of the outside public who may become their creditors.

In my opinion the effect of these statutory restrictions is to protect every transaction between a company and a shareholder, by means of which the money already paid to the company in respect of his shares is returned to him, unless the Court has sanctioned the transaction."

No doubt the memorandum of the company is, as it were, its charter, and defines its powers. The company has no powers other than those which are expressly conferred upon it by the memorandum or are incidental to the objects therein defined or enumerated. (HALS 4th Ed. Vol 7 para. 86 p.57)

As far as dealing with assets of the company are concerned the company has the power to do with its property all such acts as an ordinary person can do. The company's funds and assets cannot be employed for purposes which do not come within the objects specified in its memorandum of association or objects incidental thereto (Hals. 4th Ed. Vol 7 para.207 p.116).

Mr. Shankar argues that the compromise is legal and well within the powers of the company. Apart from disputing the defendants' assertion that what they have done is a reduction in capital, he says there have been no changes in the status of the company with the buses and Road Service Licences still in the name of Latchan Ltd and each director/shareholder has undertaken to pay the liability of the company. In these circumstances he says that there has neither been any breach of the Traffic Act nor have the shareholders gone outside the powers vested in them under the memorandum of association. He says that the compromise by the shareholders/directors is perfectly lawful, valid and binding.

Mr. Shankar has thoroughly canvassed in his written submissions shareholders' rights and the effect of compromise entered into by them in this case.

These arguments point to the fact that there are serious issues to be tried. The evidence available to the Court at this stage is incomplete and has not been tested by oral cross-examination. This is not a trial of the issues between the parties.

There is no doubt that the parties have been at loggerhead for some considerable time and instances of these have been fully set out in the detailed affidavits from both sides. They have been at each other's throats and they make no bones about it as can be seen from their lengthy affidavits.

There is an issue for trial before the Court in this action; it certainly is not a frivolous or vexatious action. There is a serious question to be tried by the Court. The question is, whether in the circumstances of this case an injunction should be granted or not until the trial of the action. Under Order 29/1/11 of the Supreme Court Practice 1979 Vol 1 it states:

"The grant of an interlocutory injunction is a remedy that is both temporary and discretionary, and in exercising its discretion whether or not to grant such an injunction, the Court is not justified in embarking upon anything resembling a trial of the action upon conflicting affidavits in order to evaluate the strength of either party's case."

What the chances of success are for the Plaintiff in the trial it is for the Court to decide in the trial. The issues of whether it was proper for the parties to enter into the compromise vis à vis Latchan Ltd will no doubt be one of the main issues, for Mr. Smith for the defendants violently argued and maintains very vigorously that the whole compromise is illegal.

In arriving at a decision in this matter I cannot lose sight of the fact that Latchan Ltd exists as a Company; there is nothing to suggest that the shareholders/directors intend to wind it up although at first sight because of the terms of the compromise they seem to be splitting it up by sharing the assets, namely, the buses, and operating them in terms of the compromise; and also to be borne in mind is that no consent to this 'sharing' arrangement has been given by the Bank and there is no variation in the bus service licences in that the licences continue to be in the name of Latchan Ltd.

In short, this appears to be an internal administrative arrangement between the parties as to how the Latchan Ltd's business are to be operated without in any way altering the character of the Company.

I point to these factors and make my observations on them because the defendants are now saying that they "undertake to the Court that pending further order of the court we will run the company properly and honestly, will pay all funds received into a Company bank account ........." (affidavit of D1 sworn 29.9.93)

If I understand the defendants correctly, in a nutshell, they along with the Plaintiffs want to operate the buses as they operated before the compromise and to properly account for the proceeds of the business. If the parties can get together and work out a solution so much the better.

After analyzing the affidavit evidence before me and applying the principles stated by Lord Diplock, I am of the view that damages as a remedy is insufficient to determine the matter.

I now come to the balance of convenience. Here I am guided by what OOR L.J. said in HUBBARD v PITT (1976) 1975, 3 AER 1, namely, ".... if the relevant factors were evenly balanced ...." it was appropriate:

" .... to grant an interlocutory injunction which would maintain the status quo; that being in the context of this case the situation which existed prior to the commencement, very shortly before the issue of the writ, of the activities complained of" (ibid 20)

In this context I consider that para 7 of the summary of Lord Diplock's statement referred to hereabove is to be noted and is relevant particularly in the circumstances of this case and the entering by the parties into the compromise and subsequent events. It is unnecessary for me to say anymore than what I have already stated in this regard or to refer to the detailed submission which have been made.

Bearing in mind the facts of this case, I consider this to be a proper case to exercise the Court's discretion in favour of the Plaintiffs by granting them the injunctive relief sought by them and to maintain the status quo. The Plaintiffs have established that there is a serious question to be tried. The defendants' conduct as can be deduced from the affidavits filed give rise, it seems to me, to a seriously apprehended wrong to the plaintiffs' rights which attracts the need for injunctive protection. A case has been made out on the material before me that damages are not an adequate remedy. The balance of convenience, in my view, is clearly in favour of maintaining the status quo.

Accordingly, and for the reasons given hereabove, interim injunction is granted to the Plaintiffs as prayed.

There will therefore be an order granting an interim injunction restraining the defendants their servants or agents from operating bus service on the routes, time and trips awarded to the Plaintiffs by Mr. Manu Korovulavula under an award made by him as more particularly set out in paragraph 14(a) of the Statement of Claim filed in this action such award having been accepted by the parties in writing OR from interfering on their own behalf or on behalf of K R LATCHAN BROTHERS LIMITED in respect of the operation of buses by Plaintiffs as set out in paragraph 14(a) of the Statement of Claim.

The costs are to be costs in the cause.

Before I conclude the defendants had by Summons dated 25 November 1993 sought an order that the inter partes injunction proceedings be heard forthwith OR an order for an early trial of this action.

An early date will be fixed for the trial of this action I would like counsel to see me in this regard in my Chambers at some convenient time.

D. Pathik
Acting Puisne Judge

At Suva
28.2.94

HBC0438J.93S