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JP Bajpai & Company Ltd v Murphy [1996] FJHC 101; Hbc0591d.95s (13 February 1996)

IN THE HIGH COURT OF FIJI
At Suva
Civil Jurisdiction

CIVIL ACTION NO. 0591 OF 1995

Between:

1. J.P. BAJPAI & COMPANY LTD.
2. BAJPAI & COMPANY LTD.
3. CENTRE LINK MARKETING LTD.
4. BAJPAI SUPERMARKET LTD.
Plaintiffs

- and -

1. BRIAN MURPHY
2. THE NATIONAL BANK OF FIJI
Defendants

Mr. J. Flower for the Directors of the
Plaintiff Companies
Mr. R. Naidu and Mr. A. Gates for 1st Defendant
Mr. T. Seeto for 2nd Defendant

REASONS FOR DECISION

On the 13th of February this Court dismissed an application by the directors of the plaintiff companies for an interim injunction to restrain the first defendant (for 21 days) "... from exercising any of his powers and/or performing any of his functions and/or from doing or omitting to do anything howsoever as a Receiver appointed by the second defendant bank to effect the disposal of the assets of the plaintiff companies including in particular their real estate and balance of stock and chattels".

There is a relevant history to the present application which may be canvassed very briefly. The second defendant bank is the principal secured creditor of the plaintiff companies. On or about the 20th of December 1995 the second defendant bank appointed the first defendant to act as Receiver for the first and second plaintiff companies pursuant to a Debenture.

Almost immediately after the Receiver's appointment directors of the plaintiff companies filed a motion seeking against him an injunction in terms similar to that being sought in the present applications. No Writ of Summons or Statement of Claim was filed at the time and was adversely commented upon by counsel appearing for the defendants.

At the time however counsel appearing for the directors intimated that steps were being taken to put together a 'Scheme of Arrangement' which if successful would be formalised by the directors seeking orders under Section 208 Companies Act 1983 and that as this was not an 'option' previously canvassed by the defendants in the interest of continuing the operation of the plaintiff companies and its unsecured creditors, the court should temporarily order the maintenance of the status quo.

Suffice it to say that the application was withdrawn upon the defendants undertaking for a fortnight up till 5th January 1996, not to enter into any sale and purchase agreement or dispose of the real property assets owned by the plaintiff companies.

On 2nd January 1996 an informal meeting was held by the directors of the plaintiff companies attended by a large number of creditor's representatives some of whom had already filed winding-up petitions against one or other of the plaintiff companies. Broadly it was agreed to give the directors of the plaintiff companies time to pursue its proposed 'Scheme of Arrangement'.

On 17th January 1996 advertisements were placed by the Receiver in the Fiji Times newspaper seeking "Expressions of Interest" from persons desiring to purchase various real estate properties, commercial premises and retail stock, plant and equipment belonging to the plaintiff companies. The advertisements were again repeated on the 31st of January 1996 and expired on the 2nd and 9th February respectively. As for the response to the advertisements the Receiver has deposed that:

"The expressions of interest (received) were encouraging and it is likely that a sale will be negotiated within a matter of weeks. In the event that a sale is restrained now it is likely that the parties interested may look to alternative investments and therefore even a short delay may impact upon my ability to sell the assets. In the event of loss or damage arising from the grant of an injunction I will have no effective recourse to cover such loss or damage as Receiver and Manager."

The newspaper advertisements, prompted the director's solicitors to file the present application on 7th February 1996 and the matter was fully argued before me on the 13th February and was refused for reasons which I now provide.

The single affidavit filed in support of the application briefly outlines the ownership and financial status of the plaintiff companies and the various steps being taken to put together a 'Scheme of Arrangement' and for which: "... the plaintiffs have (received) a strong expressions of interest from entities discussions with whom are progressing satisfactorily ...".

The identity of the 'entities' and the content and nature of the 'discussions' are not disclosed however although they are expected to '... crystallise during the week ending 23rd February 1996'.

In particular the affidavit complains that before the period of 14 days given the directors' from 3.1.96 to complete the required financial statement had elapsed, the above-mentioned newspaper advertisements were published. Furthermore and despite written requests, the Receiver's 'letter of appointment' was not supplied to the plaintiff's solicitors.

That the Court has the necessary power to restrain a Receiver appointed by a debenture holder cannot be doubted. Equally the right to an interlocutory injunction cannot exist in isolation, but is always incidental to and dependant on the enforcement of a substantive right which usually although not invariably takes the shape of a cause of action (per Diplock L.J. in The Siskina (1979) A.C. 210, 256).

In this latter regard and in the absence of either an endorsed Writ or Statement of Claim, the Court was constrained to adjourn the hearing of the application to enable counsel for the directors to lodge a Statement of Claim in order that all parties might better understand the nature of the legal or equitable right(s) which the director's claimed was being breached or threatened by the Receiver in seeking

"Expressions of Interest" to purchase the plaintiff company's property.

The Statement of Claim which is filed and dated 13th February 1996 makes very interesting reading. It questions for the first time the legality of the second defendant bank's debentures and raises serious allegations of 'undue influence' on the part of the defendant bank in procuring the execution of the debentures. Not a single mention is made of the provisions of Section 208 of the Companies Act 1983 or of the directors' proposed 'Scheme of Arrangement' which it is claimed in the affidavit would be rendered futile in the event of an injunction not being granted.

I cannot help noticing also that no specific allegation of bad faith or fraud has been made against the Receiver in the discharge of his functions and duties, indeed, counsel stressed that no suggestion of dishonesty or reckless behaviour was being made against the Receiver only that he should stay his hand until such time as it became clear that the directors' efforts to put in place a 'Scheme of Arrangement' was not feasible.

The affidavit in support of the application for the injunction on the other hand, no-where doubts the validity of the defendant bank's debentures nor is there deposed any facts from which it might be reasonably inferred that undue pressure was brought to bear upon the directors of the plaintiff companies at the time they executed the debentures in 1991. Indeed if anything the tenor of the affidavit and counsel's submissions was to the effect that the injunction was being sought to facilitate the directors in their attempt to put in place a 'Scheme of Arrangement'.

Given the above I was not at all satisfied that the directors had any real 'cause of action' against the Receiver. Furthermore given the absence of any deposed facts and the apparent 'inconsistency' in the claim and the application I have some doubt about the sincerity and substance of the Statement of Claim filed which struck me as being somewhat of an afterthought.

It has been said that to entitle a party to an interlocutory injunction the Court should be satisfied that there is a serious question to be tried at the hearing, and that on the facts before it there is a probability that the plaintiff is entitled to relief (per Cotton L.J. in Preston v. Luck (1884) 27 Ch.D. 506.

On both counts the directors had failed to satisfy the Court and accordingly the application was refused.

(D.V. Fatiaki)
JUDGE

At Suva,
13th February, 1996.

HBC0591D.95S