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Qu Ruchun v Zang Ai Dong [2002] FJHC 303; HBC0463R.2001S (11 July 2002)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. HBC0463R.2001S

BETWEEN:

QU RUCHUN
YUN KUN
HANS ENTERPRISES LTD.
Plaintiffs

AND:

ZANG AI DONG, QU RU JUAN,
ZHANG MIAN DE, HUANG RUO XIN,
HAO WEI HUANG, CHAN JUAN HUANG
FIJI ISLANDS TRADE & INVESTMENT
BOARD, REGISTRAR OF COMPANIES,
ATTORNEY-GENERAL OF FIJI.
Defendants

Counsel for the Plaintiffs: Fa & Co.
Counsel for 1st, 2nd, 3rd, 4th
5th and 6th Defendants: Jamnadas, Clarke & Assoc.
Counsel for 7th, 8th and
9th Defendants: No Appearance

Date of Ruling: 11.7.02

RULING

In a Summons filed on 11 March 2002, the Plaintiffs seek a grant of an injunction to restrain the 1st, 2nd, 3rd, 4th, 5th and 6th defendants from conducting the business operations of a company, Hans Enterprises Limited, of which all the parties lay claim to have interests in, until the determination of the action or as the Court further orders.

The first and second plaintiffs are Chinese nationals who came to Fiji and joined the second defendant, also a Chinese national, in a business venture. The venture Hans Enterprises Limited is a going concern, whose line of business is in the production of soy sauce with major distribution networks throughout Fiji. The Company is included as the third plaintiff in this proceedings although strongly objected to by the defendants.

In the affidavit in support of the Summons sworn by the first plaintiff on both her and the second plaintiff’s behalf, she stated that they, together with the second defendant, bought the company with the payment of twenty five thousand US dollars (US425, 000.00). The money said the affidavit, was paid to and receipted by the first defendant “for 100% of the shares in the 3rd plaintiff “i.e. the Company. The receipt of the money by the second defendant stated, according to the official translations provided by the Fiji Chinese Culture and Service Centre, as follows:

“I received money from you Bo Hua for the sum of $US$25,000.00. This money is from Yu Kun, Qu Ru Chun and Qu Ru Juan. This money is to buy shares in Han’s Enterprise Limited. I give this receipt as proof.

Received from Zhang Ai Dong

21 September 1999.”

According to the affidavit, the US$25,000.00 purchase of shares of the Company by the first and second plaintiffs and the second defendant meant that all the three individuals held equal shares in the capital of the Company.

In the meantime and unbeknown to the plaintiffs, the first defendant, a Fiji national, converted first 20% of the shareholding capacity in the Company to himself and later on the balance of the shares of the Company to the 3rd, 4th, 5th and 6th defendants, all of whom are Chinese nationals. These transfers of shares, according to the plaintiffs were done without their consent and resulted in, not only the issuance of work and resident permits to them but the cancellation of the first plaintiff’s work permit as well.

In addition and as a consequence of these unlawful actions, the plaintiffs affidavit alleges, they have lost control of the Company including its bank account, which now have passed onto the defendants. Also, the plaintiffs claim, they had expended time and money in the business including inventing their very own special brand of soy sauce, which all in all had increased the productivity and profits of the Company.

As of now, the first and second plaintiffs have been totally excluded from the operations of the Company and are not permitted to enter its premises.

In her affidavit in reply on behalf of the first to sixth defendants, the second defendants who is the sister to the first defendant, contradicted the alleged facts as outlined in the plaintiffs’ affidavit. First, the second defendant stated that the first plaintiff did not contribute or invest any money whatsoever in the Company. Whatever money paid, including the US$25,000.00 paid by the first and second plaintiffs for shares in the Company, was given by the second defendant to the plaintiffs’ for them to pay the first defendant and thus make it appear to the Fiji authorities that money for the business was being contributed to from outside sources and specifically from Chinese resident and work permit applicants. The receipt of the money is confirmed and acknowledged in a receipt annexed to the affidavit.

According to both affidavits, the first defendant, the only Fiji national in this proceedings, had encouraged the Chinese individuals named either as plaintiffs or defendants, to come to Fiji and offered them his shares in the Company as enticement.

As to the US$25,000.00 paid by the first and second plaintiffs for shares in the Company, the second defendant said that it was a very clear understanding between the sisters, at the time when the money was being handed over, that not only was the money, the property of the second defendant, but that the shares purchased from it belonged to her the second defendant. Furthermore, it was clearly agreed, that the second defendant was to be the Managing Director of the Company.

In reply to the plaintiffs’ claim that the payment of US$25,000.00 resulted in the acquisition of all the shares in the Company, the second defendant stated that the plaintiffs were aware all the time that the first defendant only held 20% of the shares, while the remaining 80% was held by her, the second defendant.

The defendants’ affidavit also confirmed that contrary to the plaintiffs’ assurances, the Fiji Trade and Investment Board (FTIB) requirements of cash and kind equity contributions, and shareholders advance, were never met. The necessary FTIB approvals, therefore has yet to be given.

According to the second defendant, her relationship with her sister, the first plaintiff soon began to deteriorate. First the first plaintiff brought in her husband and another son under tourist visas, but with the intention of employing them in the Company. Then the newly arrived husband made clear his intention of wanting to taken over the Company’s operations. These were done through intimidation and even death threats. The husband and son were illegally employed by the Company until the Fiji authorities caught up with them and revoked their permits including the first plaintiff’s work permit.

Again, according to the second defendant, as a result of souring relations with her sister and family she decided to offer them i.e. first and second plaintiffs, her shares in the Company for US$37,000.00. They refused. As a result, these shares were eventually taken up, with the consent of FTIB, by other Chinese nationals.

As to the plaintiffs' allegations regarding the control of the Company’s bank account, the second defendant replied that the first and second plaintiffs, together with another were signatories to the account, but after some abuse, and following a meeting between the parties the second defendant became the controlling signatory to the account.

The first and second plaintiffs, according to the second defendant, have not invested any life savings or monies in the Company. Nor have they invented their own brand of soy sauce now marketed by the Company, which they claimed in their affidavit. They could not possibly under the circumstances be entitled to any proceeds or profits of the Company.

In her affidavit in response, the first plaintiff conceded that the US$25,000.00 paid for shares in the Company, was in fact money provided by the second defendant. Nevertheless, it was according to the first plaintiff specifically agreed between the two plaintiffs and the second defendant, that while the latter will provide the funds for the purchase of shares in the Company, the first and second plaintiffs were to provide and purchase the raw materials. Copies of Bill of Lading were annexed to the affidavit showing what appears to be a cargo of both solid and liquid soy as well as molasses. As far as the first plaintiff was concerned her contribution of raw materials amounted in total to approximately F$90,770.00, which would have been enough to meet the FTIB requirements of equity contribution and shareholders’ advance.

There are numerous allegations against the second defendant that are contained in the first plaintiff’s affidavit in response. All the three affidavits filed in support or against the injunction application contain conflicting versions of events that are now the subject of this Court action. What however is certain is that when the smoke cleared, the first and second plaintiffs were no longer working for the Company, their working visas have been cancelled and are awaiting deportation, whilst the second defendant has assumed the sole responsibility of running and managing the Company together with new shareholders/partners, they also being Chinese nationals.

The Court is now being asked that the first to sixth defendants be restrained by way of an injunction:

“From conducting and operating the business operations of Hans Enterprises Limited, the third plaintiff in any manner or form whatsoever until the final determination of this matter or until such further order of this Honourable Court...”

At the hearing of the plaintiff’s Summons on 19 April, I had ordered that the parties filed skeleton legal submissions, which were done on 22 May and 7 June respectively, with my ruling on Notice.

THE LAW ON INJUNCTION

The principles governing interim relief are set out in American Cyanamid Co. v. Ethicon Ltd [1975] UKHL 1; [1975] AC 396. Lord Diplock’s pronouncement of the principles to govern interlocutory injunctions is now recognised authority in this area. Clive Lewis in his book : “Judicial Remedies in Public Law” (Sweet & Maxwell, 2nd Edition 2000) p. 243, para. 8 - 025 says of the American Cyanamid principles as follows :

“They are intended to avoid courts determining disputes of fact or difficult questions of law at the interlocutory stage of an action. Broadly a plaintiff no longer needs to establish a prima facie case. He need only establish that a serious issue arises, or that the claim is not frivolous or vexations or that the application discloses a reasonable prospect of success. Thereafter, the governing consideration is the balance of convenience : this involves assessing whether the plaintiff could be adequately compensated by damages if refused an injunction; or whether the defendant could be

The legal submissions by both Counsel recognise the authority of the law on interlocutory injunction as laid down by Lord Diplock in the American Cyanamid case (supra). In addition the Fiji Courts have applied these principles in Pacific Timber Developments Ltd. vs Consolidated Agriculture Fiji Litd. HBC 118/94) and most recently in Shameem J’s judgment in Ramendra Charan vs. NLTB & Mataqali Vusatoranikuka & Yavusa Nailagalaba (HBC 91/2000).

APPLYING THE LAW

Applying the Cyanamid principles to this case, it is plain that there are serious issues to be tried and the claim is neither frivolous nor vexations. The factual details that backgrounds these issues, are adequately covered in the Plaintiff’s submission.

The next stage is to consider whether the first and second plaintiffs would be adequately compensated by an award of damages if the injunction application is refused. The governing principle is clear and that is if the damages to be recovered is adequate,”no interlocutory injunction should normally be granted however strong the plaintiffs claim appears to be at the interlocutory stage.”
(White Book the Supreme Court Practice 1985 Ed. p.454).

The plaintiffs’ submit that damages will be an inadequate remedy and that if injunction is not granted, their business will be lost forever.

The defendants position is that that to grant the injunction would result in the complete shut-down of the business. Also, according to their affidavit, all the six defendants are financially capable to pay for any damages likely to be awarded by the Court. In addition the wrong alleged by the plaintiffs’ that is, the illegal transfer of their shares in the Company, is not irreparable. It is something that can be made good, by consequent, sale and/or transfer, if the Court so ruled.

I now turn to consider whether the defendants could be adequately compensated in damages if the injunction were granted. Quite clearly, the grant of injunction will have some negative impact on the operations of the Company. The plaintiffs are asking for the first to sixth defendants all current shareholders of the Company to be restrained from operating the business operations; this include the second defendant who is also the Company’s Managing Director. The business appears to be thriving albeit under clouds of allegations of illegal transfer of shares as well as illegal workers.

The balance of convenience principle as enunciated in the American Cyanamid case (supra) allow the Court to weigh the need of one party against the other and to consider whether more harm will be done by granting or refusing the injunction.

It is true that the plaintiffs have been dispossessed of shares in the Company that they claim rightfully belong to them. But should they succeed in their action against the defendants, then they have a very good chance of not only getting back their lost shares but more.

On the other hand the defendants are not confined necessarily to the parties directly implicated in the share transactions. As the Counsel for the defendant submitted, the third to sixth defendants to whom the shares had been sold were not privy to any share allocations and money transaction that occurred earlier on. Their interests would be adversely affected should the injunction be granted.

As I have already stated, in considering whether to grant the relief sought, the governing consideration is the balance of convenience. Donaldson MR in Francome V. Mirror Group of Newspapers (1984) 1 WLR 892 at 898 said:

“We can and must disregard fanciful claims by either party. Subject to that, we must contemplate the possibility that either party may succeed and must do our best to ensure that nothing occurs pending the trial which will prejudice his rights.”

It would seem to me that in the circumstances of the present case, the balance of convenience lies with the defendants. For to allow the injunction sought by the first and second plaintiffs would severely disadvantaged the defendants much more so than the refusal of it would the plaintiffs. At any rate, the business the Company is involved in appears to be a thriving going concern and it would seem perfectly sensible to me that it is in the interest of all the parties both the plaintiffs and as well as the defendants that the success of the Company is protected. Such success cannot be guaranteed if the management and the daily operations of the Company were disrupted by the Court’s intervention at this stage.

There is also the matter of the plaintiffs’ undertaking as to damages. The general principle that will guide the Court is as stated by Byrne J in David Gilmore, Fiji Water LLC, Natural Waters of Viti Limited vs. Janusz Kubs (Unreported HBC No. 0655/1998). The Court must ensure that the Defendant is not left without a remedy for damages suffered should the interlocutory order made found wanting at the end. Counsel for the defendants has also referred me to two very useful Australian Court’s decision : National Australia Bank Limited & Ors vs. Bond Brewing Holders Ltd. [1991] VicRp 31; (1991) 1 VR 386 AND Air Express Limited vs. Ansett Transport Industries (Operation) Pty Limited [1981] HCA 75; (1981) 146 CLR 249, both of which underlined the importance of the imposition of adequate safeguard by way of undertaking as to damages, when the Court makes an order at the interlocutory stage and before the final determination of the rights of the parties.

In the present case, while the plaintiffs have made an undertaking as to damages to this Court, they have yet to show that they do have the financial capabilities and indeed the ability to pay for damages. This is especially important given the fact that the third to sixth defendants who, as I had earlier stated are not directly implicated in the allegations, will necessarily be affected by the grant of the relief sought.

Taking everything into consideration, I see no alternative but to refuse the plaintiffs’ application for injunction.

Costs are in the cause.

F. JITOKO
JUDGE

At Suva
11th July 2002