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High Court of Fiji |
IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION
ACTION NO. HBE0023R OF 2003S
BETWEEN:
EASTERN EXPRESS LIMITED
(In Receivership) a limited liability company
having its registered office in and carrying
on business in Labasa.
PLAINTIFF
AND:
CREDIT CORPORATION (FIJI) LIMITED
having its registered office at Credit House,
14 Gordon Street, Suva.
1st DEFENDANT
AND:
G. LAL & CO. (a firm of Chartered Accountants)
and/or NALIN PATEL,
Receivers appointed by the 1st Defendant.
2nd DEFENDANT
Counsel for the Plaintiff: G.P. Shankar, G.P. Shankar & Co.
Counsel for the Defendants: V. Kapadia, Sherani & Co.
Date of Ruling: 17 August, 2003
Time of Ruling: 9.30 a.m.
RULING
On 16 May 2003, the Plaintiff filed a Writ of Summons and Summons for Interlocutory Injunction against the Defendants. The injunction application was supported by the affidavits of one Vinay Vilash Chand purportedly in his capacity as a Director of the Plaintiff. The Plaintiff is a Company in the business as bus operators, cartage contractors and taxi operators. It is also a Company in receivership in favour of the 1st Defendant acting pursuant to the powers under a debenture granted to the Plaintiff by the 1st Defendant on 29 December 1999. The 2nd Defendants are the appointed Receivers and Managers.
In its Summons seeking interlocutory relief, the Plaintiff is seeking orders for production by the Defendants of all the Plaintiff’s accounts with the 1st Defendant together with related books, vouchers, receipts and records. It also seeks an injunction restraining the Defendants from selling or transferring any of the Plaintiff’s Road Route Permits. Lastly, it seeks an injunction to prevent the Defendants from taking possession and control of the Plaintiff’s business and assets.
The facts of this case can be gleaned from another earlier case CA 26.2001 where the Plaintiff had unsuccessfully tried to thwart the efforts of the 1st Defendant and another Creditor, in a Winding Up proceedings. The Plaintiff in March 1998 approached the 1st Defendant to finance the purchase of a fleet of buses. According to the 1st Defendant’s affidavits, the Plaintiff raised the amount of $360,000.00 under one account and a further $350,000.00 on 31 March, in another account. Both were 60- months account requiring $9,000.00 and $8,750.00 respective repayments monthly. On 30 December 1999 both accounts were rebated, rewritten and consolidated into a single account with a total of $709,514.18 balance and requiring a monthly repayments of $18,798.00. Securities were taken by the 1st Defendant in the form of a debenture on 29 December 1999 followed by a Bill of Sale on 20 January 2000. Finally the two (2) Directors of the Company gave their personal guarantees to the 1st Defendant for all the money lent to the Plaintiff. Plaintiff’s default in repayments had resulted in an accumulation of arrears of over $200,000.00 and which finally led to the 1st Defendant, appointing Receivers.
In the proceedings of CA 26.2001, following the Court’s ruling (per Fatiaki J as her then was) of 7 August 2001, dissolving the Plaintiff’s injunction which had temporarily restrained the 1st Defendant from Winding Up the Company and also from taking possession of the Plaintiff’s assets, there has been little movement by the Plaintiff in progressing its Writ further. It remains to respond to the 1st Defendant’s Counterclaim. However, on 19 June 2003, it filed a summons seeking leave to discontinue the action in favour of these present proceedings. In support, the Plaintiff intended to rely on an affidavit by Vinay Vijay Chand which it had filed in this action. A quick perusal of the document reveals nothing to add to or support the summons. It must be presumed therefore that the Plaintiff relies under O.21 of the High Court Rules and the inherent powers of the Court. I will revert to this matter later but it is sufficient at this stage to note that the CA.26/01 proceedings is still alive and pending.
In this present proceedings, the Plaintiff’s Summons of 16 May is opposed by the Defendant. They have in addition filed their own Summons to Strike Out the Plaintiff’s Claim under O.18 r.18(1) (d) of the High Court Rules. This was filed on 29 May. Counsel by consent agreed that the matter be transferred to Suva together with CA.26/01. The Court made the Order of transfer while granting leave for the Plaintiff 14 days to file its affidavits in reply to the Defendants affidavits in support of its motion to Strike Out, and for the Defendants to response 7 days thereafter. The matter was adjourned to 23 June 2003 in Suva before this Court.
At the 23rd June mention date, the Plaintiff had still to comply with the Order for filing of affidavits, although it had gratuitously without leave, filed on the 19th June, Submissions. On the same day, as noted above, the Plaintiff filed Notice of Discontinuance in respect of CA.26/01. The Court then ordered the Plaintiff to file its affidavits within 14 days and the matter adjourned to 21 July 2003. The Plaintiff filed its affidavit on 4 July. It did not attempt to address the matters and issues raised by the Defendants’ affidavit deposed by one Uday Raj Sen of 29 May. Instead it only attempted to address the single issue of whether Vinay Vilash Chand is and remains a director of the Plaintiff Company.
On 11 July without leave, an additional affidavit was filed by the Plaintiff deposed by the same Vinay Chand. Again it made no attempts to reply to the Defendants’ affidavits but instead alleged that the Defendants had acted unlawfully in the registration of the Company charge. Mr Chand also alleged in the affidavit, that the Defendants were arranging for the sale of the Plaintiff’s Road Service Licences. Annexed to the affidavit is an amended Writ and Statement of Claim. Also on 11 July the Plaintiff filed the affidavit of one Pradeep Chand, of Brisbane Australia, contending that he is and remains, a Director of the Plaintiff Company.
On 21 July this Court granted leave of 28 days to the Defendants to file affidavits in response to many of the documents filed by the Plaintiff. Still, on 22 July, the Plaintiff, again filed, without leave, additional submissions together with its Summons for leave to amend its Writ and Statement of Claim.
Finally on 30 July, the Plaintiff filed another Summons seeking from the Court:
“(a) AN order that application for transfer of Plaintiff’s Road Route Service Licence [Road Permit] Nos.: 12/23/10, 12/23/7, 12/23/50, 12/23/20, 12/25/51 and 12/25/54 now pending before Land Transport Authority be stayed and/or;
(b) INJUNCTION restraining the Defendants and others from proceeding to hear the application for Road Route Service Licence (Road Permit) Nos.: 12/23/10, 12/23/7, 12/23/50, 12/23/20, 12/25/51 and 12/25/54 hear and/or determined and the status quo be maintained.”
This latest Summons seeking injunctive relief and stay is precipitated by the action of the Defendants, and specifically the 2nd Respondent, in advertising for the sale of the Plaintiff’s Road Service Licence.
The application for the said transfer comes before the Land Transport Authority possibly on the 19th of July 2003. This date of possible hearing of the application before the Authority is confirmed by the Counsel for the Defendants.
APPOINTMENT OF RECEIVERS AND MANAGERS
The 2nd Defendants were appointed as Receivers and Managers of the Plaintiff on 28 November 2002. The appointment was made under the powers contained in the debenture the Plaintiff granted to the 1st Defendant on 29 December 1999. In accordance with the requirement of S.352 (1) (a) of the Companies Act (Cap. 247) a Notice of the appointment was sent to the Plaintiff.
In a letter addressed to Ram Bali Prasad, one of the Directors of the Plaintiff, also dated 28 November 2002, the 2nd Defendants as Receivers and Managers, set out in very clear details the legal consequence of their appointment. At paragraph 29 the letter, they state:
“The effect of our appointment on your position as a Director is to suspend your powers of management. This means that you have no authority to deal with the Company’s business assets, including the Road Route Permits, except to the extent that any authority is specifically delegated to you by us. In no circumstances with the following powers be delegated and all transactions must now be approved by us or our authorised representatives:
The receivership does not affect your statutory duties as a Director. These include processing share transfers, submitting statutory returns and ensuring that the Company complies with various Government regulations.....”
THE RIGHT OF THE PLAINTIFF TO BRING ACTION
The Plaintiff Company is in receivership. Its day to day affairs is run by Receivers and Managers appointed pursuant to Part VII of the Act. To what extent are the officers and members of a Company permitted to pursue its business?
In Ilaitia Boila and Chirk Yam as Receivers and Managers for Valebasoga Tropikboards Ltd. & Ors. v. Bahadur Ali & Ors. CA.183/2001, Pathik J examined in great details the rights duties and obligations of officers and members of a Company: vis a vis the Legal responsibilities of Receivers and managers. The Court relied on the Federal Court of Australia’s decision of Deangrove Pty Ltd (Rec. & Mgrs Aptd) v. Commonwealth Bank of Australia (2001) FCA 173 (6 March 2001) for the authority that in receivership, a Director of a Company could not bring an action except in the Company’s name, and at any rate, leave from the Receivers and Managers was necessary; or leave of Court should the Receivers and Managers refuse leave. In Ilaitia Boila’s case, the Court decided that the directors of the company in receivership did not have the locus standii to proceed without the Receivers. This does not necessarily mean however, that the directors are prevented from exercising their ordinary or normal functions. For while the Deangrove decision maybe based on Australian legislation and reflects common law principles governing companies, the law still recognise that the Company’s own organs do still exist and may be conducted still by its directors. Sackville J stated in Deangrove (at para 30)
“The general principle, at least so far as the usual form of debenture or charge is concerned, is that the appointment of receivers does not entirely displace the powers and authority of the directors.”
The Court then referred to Hawkesbury Development Co. Ltd. v. Landmark Finances Pty Ltd. (1969) of 2 WN (NSW) 199, where Street J expounded the principle as follows:
“Receivership and management may well dominate a company’s affairs in its dealings and relations with the outside world. But it does not permeate the company’s internal domestic structure. That structure continues to exist not withstanding that the directors no longer have authority to exercise their ordinary business – management functions. A valid receivership and management will ordinary supersede, but not destroy, the company’s own organs through which its conducts its affairs. The capacity of those organs to function bears a direct inverse relationship to the validity, and scope of the receivership and management.”
The English Court’s decision of Newhart Developments Ltd. v. Co-operative Commercial Bank Ltd. (1978) 1 QB 814, also referred to in Dangrove gives further perspective to the principle. Shaw LJ said, (at p.819):
“One has got to see what the function of the receiver is. It is not, of course, to Wind Up the Company. It is perhaps interesting to note in passing that when a liquidator is appointed, certainly in a Winding Up by the Court, the powers of the directors immediately cease by statutory provision. There is no such provision in relation to the appointment of a receiver, whose duty it is to protect the interests or mortgagee or debenture holders, as the case may be. In so far as it is requisite and necessary for him, in the course of his dealing with the assets of the company, bringing them in and realising them and so on; to bring actions as well, he is empowered to do so by the debenture trust deed in the name of the Company. That makes it possible for him to institute such proceedings without exposing himself to the risk of liability for costs if those proceedings should fail. But the provisions in the debenture trust deed giving him that power is an enabling provision which invests him with the capacity to bring an action in the name of the Company. It does not divest the directors of the Company, of instituting proceedings in a situation where so doing does not in any way impinge prejudicially upon the position of the debenture holders by threatening or imperilling the assets which are subject to the charge.”
It is clear from the authorities cited, that while the directors of a Company may no longer have the authority to run the Company and make, what Street J in Hawkesbury Development (supra) termed as “business management functions”, they are still empowered to deal with the Company’s other business. What constitutes such residual duties that repose on the directors is a question of fact. Owen J in Re Geneva Finance Ltd; Quigley v. Cook (1992) 7WAR 496 summed it up as follows: (at pp.510 – 511).
“It is a question of fact to be decided in each case whether the purported exercise of power by directors is detrimental to the functions of the receiver. If it is, the directors must defer to the receiver. If it is not, it does not offend the principle which Newhart enunciates.”
COURT’S CONSIDERATION
In these proceedings, there does not appear to be any doubt in the minds of all the parties, that when the Receivers and Managers were appointed and moved in, they assumed full responsibility for the operation of the Company. The Receivers and Managers letter to the Company of 28 November 2002, spelt out very clearly the extent of the powers vested in them while at the same time recognising the existence of residual powers that remain in the hands of the directors.
The proceedings however is being brought in the name of the Company by Vinay Vilash Chand, who deposes that he is a director of the Company. Yet, a search conducted at the Company’s office by the Defendant and annexed to the affidavit of 29th May 2003 of Uday Raj Sen, show, that at its last annual filing of return in 1982, the Directors of the Company were numbered only two, namely Ram Bali Prasad and Shadu Prasad. Nowhere does the name of Vinay Vilash Chand appear as a director of the Company.
Furthermore, according to the affidavits of Nalin Patel of 10 August 2003, when he was appointed as Receiver, Vinay Chand represented himself only as a manager of the Company a position he continued in with the approval of the Receivers until 16 December 2002.
There also appears generally to be some confusion in the documentations of the officers of the Company. In CA.26/01 involving the same Company in Winding Up proceedings Fatiaki J (as he then was) referred to certain documentations that seemed to suggest that Vinay Chand was one of three (3) directors of the Company; although the Court ruled in that Case that the authority of the Company had in fact been obtained for any of its officers to act on its behalf. Yet in this case, two affidavits filed by the Plaintiff of even date 11 July 2003 appear to be in conflict. The first by Vinay Chand and Ram Bali Prasad depose that they are the remaining two directors of the Company and that the third Director, Sadhu Prasad, is no longer a Director and his name should have been removed from the file in the Registry of Companies. The second affidavit sworn by the said Sadhu Prasad of Queensland, Australia, states however that he remains, along with Vinay Chand and Ram Bali Prasad, as directors of the Company.
The confusion in the Company’s affairs including the name of its office holders, is due in no small part to the seemingly chaotic state of its books and administration. The Receivers and Managers have catalogued in their affidavits the failures of the Company to comply with almost all the laws affecting Companies, employers and town ratepayers. The Company’s records in almost every department still needed up-dating. Is it of any wonder therefore that the identities of the Directors themselves and intended changes thereto, would have been lost in the jumble of office administration? At any rate, the Defendants have correctly pointed out that Vinay Chand has not produced any documentary evidence to confirm his appointment as a Director of the Company.
The question of whether Vinay Chand was a Director of the Plaintiff Company, Counsel agree, is the “threshold issue” upon which all the proceedings before this Court rely upon. Whether he is a Director of the Company and therefore possess the legal capacity to bring these proceedings, depends the success of the Plaintiff’s case.
On the evidence submitted to it, the Court cannot go beyond the Company’s Annual Return of 1982. Under the circumstances, this Court finds that Vinay Chand is not a Director of the Company. As such he does not have any authority either of himself or pursuant to an approval from the Company to bring these proceedings.
But even if the Court were to find on the evidence that Vinay Chand is a Director of the Company, (which it does not) the Court must still be satisfied that proceedings he is instituting falls within the exception provided for in Newhart Developments Ltd. (supra), which would not require the sanction of the Receivers. To do so, Vinay Chand must show that the reliefs sought both in its Writ and Summons of 16 May 2002, as well as his Summons of 30 June 2003, do not “impinge prejudicially” upon the position of the Defendants by threatening the assets which are subject to the debenture. On the facts before it, the Court is satisfied that Vijay Chand’s Writ and Summons to restrain the Defendants from selling the Company’s Road Route Permits and and/or possession and control of the Company’s assets, are proceedings that are likely to threaten or endanger the assets of the Company, which are the subject of the debenture. Under the circumstances, the directors of the Company will be required to first seek leave from the Receivers and Managers before initiating these proceedings.
Having decided that Vinay Chand is not a Director of the Company nor does he have the locus standii to initiate any proceedings on
behalf of the Plaintiff Company, this Court need not proceed further and deal with the substance of the Writ and Summons filed on
16 May, 2003.
There is however a matter of the proceedings in CA.26/01 which the Court had referred to above and which remains to be dealt with. It is appropriate under the circumstances that the file
be referred back to Labasa where it should be listed and dealt with in the normal way.
Finally, this Court is minded to remind Counsel that the filing of affidavits and submissions can only be done with leave of the Court. It is not the prerogative of Counsel to file submissions and/or affidavits whenever and wherever he pleases. It is for the Court to decide whether it would be appropriate for additional documents to be filed and will make its ruling or order accordingly. In these proceedings, Counsel for the Plaintiff has filed submissions and affidavits without regards to the procedures. Insofar as those that had not been authorised by the Court, it has merely ignored it or refused to consider them. The Court cannot be placed in a position where parties are free to file any documents on any matters willy nilly, without order, in the hope that the Court will extract from the plethora of arguments or legal authorities submitted, those that favour their cause.
As far as the present applications are concerned the Court finds as follows:
In the result, the Court has no alternative but to dismiss the Plaintiff’s Summons of 16 May and 30 July 2003. The Defendant’s application to Strike Out of 29 May 2003 succeeds.
The Court further orders that Civil Action No.26/2001 be returned to the Labasa High Court Registry for listing as normal.
The Court awards costs of $300 to the 1st and 2nd Defendants against Vinay Chand to be paid within 14 days.
F. Jitoko
JUDGE
At Suva
17 August 2003
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