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Lodhia's Marketing Ltd v Carpenters Shipping [2010] FJHC 423; HBF007.2009L (14 September 2010)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Companies Action No: HBF 7 of 2009L

BETWEEN:

LODHIA'S MARKETING LIMITED
Applicant

AND:

CARPENTERS SHIPPING
Respondent

INTERLOCUTORY JUDGMENT

Judgment of: Inoke J.

Counsel Appearing: Ms V. Patel for the Applicant
Mr. Suresh Maharaj for the Respondent

Solicitors: Vasantika Patel for the Applicant
Messrs Suresh Maharaj & Ass. for the Respondent

Date of Hearing: 26 April 2010
Date of Judgment: 14 September 2010

INTRODUCTION

[1] This is an application to dissolve an injunction granted by the Suva Division of this Court ex parte on 8 May 2007 restricting the directors of the company, Lodhia's Marketing Limited ("Lodhias"), from leaving Fiji until final determination of the substantive action or unless they paid into Court the sum of $125,000.

[2] The origin of this action was a Winding Up Petition filed in the Suva High Court in action HBC 25 of 2007S by one of the company's creditors. Carpenters Shipping, a subsidiary of Carpenters Fiji Limited ("Carpenters"), and others joined in and supported the Petition. Whilst the decision was pending, Carpenters filed a Motion on 2 May 2007 seeking certain declarations and orders against the directors of Lodhias pursuant to sections 324 and 325 of the Companies Act. Those provisions seek to make directors personally liable for the company's debts if they "fraudulently" allow the company to trade. I use that term loosely because it is not necessary to define it precisely for the purposes of this application. That is the substantive action that remains to be determined.

[3] An order to wind up the company was finally made on 29 June 2007.

THE MOTION OF 2 MAY 2007

[4] The Motion was filed pursuant to O 29 r 1 of the High Court Rules 1988. It sought the following orders:

• (1) A declaration under s.324 of the Companies Act 1983 that the said JAYANT LODHIA (father's name Hargovind Mavji Lodhia) and CHANDAR KANT LODHIA (father's name Hargovind Mavji Lodhia) both of Nadi being directors of LODHIAS MARKETING LIMITED were knowingly a party to the carrying on of the business of the said LODHIAS MARKETING LIMITED with intent to defraud Creditors of LODHIAS MARKETING LIMITED and for other fraudulent purposes, and that they are severally and jointly responsible without any limitation of liability for the debt of LODHIAS MARKETING LIMITED owing to CARPENTERS SHIPPING amounting to $118,399.93 (One Hundred and Eighteen Thousand Three Hundred and Ninety Nine Dollars Ninety Three Cents) together with interest at the rate of 18% from 1st of March, 2007 to the date of payment.
  
• (2) An order for the payment to CARPENTERS SHIPPING by the said Jayant Lodhia and Chandar Kant Lodhia of the said sum of $118,399.93 (One Hundred and Eighteen Thousand Three Hundred and Ninety Nine Dollars Ninety Three Cents) together with interest at the rate of 18% from 1st March, 2007 to the date of payment.
  

[5] The affidavit in support of the Motion was sworn by the Financial Controller of Carpenters Shipping on 2 May 2007. He said Lodhias engaged Carpenters to clear cargo sent to the company from overseas at seaports in Fiji. The company had a 30 day credit account. That account accumulated a debt of $118,399.93 as at 28 February 2007. Requests for payment were not met and eventually a "Winding Up Demand" was served on the company on 29 March 2007. Still no payment eventuated. Carpenters then became aware of the Winding Up Petition already filed in the Suva High Court against Lodhias and joined in support.

[6] Through their own investigations, Carpenters became aware that Lodhia's was selling five of its properties at prices which it alleges to be below market value and to only one purchaser. They suspect there was collusion between Lodhias and the purchaser. Carpenters further allege that the directors of Lodhias knowingly allowed the company to trade at a time when they knew the company was in a weak financial position and "knowingly" carried on business "to defraud" the company's creditors "and for other fraudulent purposes". Carpenters representatives met with one of the Directors of Lodhias and were not satisfied with his explanations and assurances for payment of the debt. The director refused to disclose what properties he owned in Australia and refused to give a personal guarantee for payment of the debt.

[7] The Motion was heard ex-parte on 8 May 2007 and this Court granted interim injunctions restraining the company's two Directors from leaving Fiji unless they paid into Court $125,000.

[8] One of the Directors of the company swore an affidavit in reply on 11 July 2007 in which he opposed Carpenters' application. By this time an order to wind up the company had already been made. He said he admits the debt owed to Carpenters. The companies have been dealing with each other from 2005 until April 2007, although Lodhia's predecessor had been dealing with Carpenters for over 10 years. He explained that the properties were sold to meet the company's debts with its bank. The bank obtained its own valuations and the sale prices were more or less in line with these valuations. The prices were negotiated and agreed and approved by the bank. The company had to sell because the bank made it very clear to the directors that if they did not sell the bank would act on its securities which included mortgagee sale of the five properties. There was no collusion with the purchaser.

[9] He also denied trading fraudulently. The largest debts, which were relatively small in comparison to the Carpenters debt, were incurred in October and November 2006. At that time the company was still trading actively, albeit with some difficulty, as were most other businesses in Fiji. The situation was exacerbated by the coup in 2006. He denied any form of reckless or fraudulent trading.

[10] Carpenters filed an affidavit in response. Its Financial Controller took exception to the Director not giving his full residential address in Fiji and Australia but I think nothing turns on that. What is useful is his explanation of the history of this case. A Winding Up Petition was filed in this Court in HBF 13 of 2007 on 18 March 2007, first called on 13 April 2007. It was adjourned to 18 May 2007 to allow the company to present a scheme of settlement. No scheme was presented so the matter was further adjourned for mention on 22 June 2007. In the meantime, on 17 May 2007, the directors of the company, in Winding Up Action HBF 25 of 2007S in Suva, obtained an order from the Master for a creditors' meeting at the offices of the company's external accountants. On 30 March 2007, the directors obtained an order ex parte from Pathik J for the sale of the five properties.

WHAT HAS HAPPENED AFTER THE INTERIM INJUNCTIONS OF 8 MAY 2007

[11] Further affidavits were filed by both parties in the Suva action and further applications, including an application by Carpenters solicitors in Suva for leave to administer interrogatories, were made to progress it further.

[12] On 17 September 2007, the directors of the company filed an application in the Suva action to dissolve the interim injunctions of 8 May 2007. On 21 September 2007, the parties by consent varied the interim injunctions to allow the directors to leave for Australia on their undertaking to return to Fiji by 21 December 2007. Several similar applications were made and granted between then and now. Carpenters became substituted as the Petitioner in the Suva action and an order to transfer the file to this Court was eventually made on 12 March 2009. The Registry of this Court has given it action number HBF 7 of 2009L.

[13] The matter has pretty much lain dormant, only coming to life when the directors needed to travel to Australia for medical treatment, returning to Fiji after each treatment, and they file an application for variation of the 8 May 2007 injunctions.

SUBMISSIONS

[14] I am very grateful for counsels written submissions.

[15] Ms Patel, counsel for the company directors, submitted that Carpenters Motion is not a criminal proceeding that could support a restraining order. The injunctions have no legal or statutory basis. In any event, she says Carpenters application under ss 324 and 325 of the Companies Act, that is to say, the substantive action, lacks substance.

[16] Mr Maharaj, counsel for the Petitioner Carpenters, referred me to the Cyanamid principles and submitted that I should not dissolve the injunctions because the Lodhias have no assets in Fiji, one of them is an Australian Citizen and the other a Permanent Resident Visa holder, they will depart for Australia and never return, enforcement of a judgment in Australia would be a costly affair, Carpenters has been adversely affected and stand to suffer more and the Lodhias had one of their consignments released and sold but did not pay a single cent to Carpenters.

SHOULD THE 8 MAY 2007 INJUNCTIONS REMAIN?

[17] There is a fundamental flaw in the Petitioner's argument. Its case is based on the premise that the directors personally owe the debt. The injunctions can only remain if the directors are liable for the company's debt. For the Petitioner to prove that it must prove that it's substantive action has merit.

[18] I agree with Ms Patel that the Petitioner's case of fraudulent trading is very weak. The "suspicious" sales of the company's five properties have been fully explained and with the knowledge of the bank. I accept the director's affidavit evidence as decisive. I have grave doubts that the Petitioner can prove at trial that there was fraudulent trading making the directors personally liable for the company's debts.

[19] In my opinion, there are no serious issues to be tried. Even if there were, the balance of convenience clearly lay in favour of the directors.

[20] Further, this is not an appropriate case for the grant of an injunction, in my respectful opinion. This is a classic case where damages are an adequate remedy.

[21] The Petitioner has not seen fit to progress its claim of fraudulent trading expeditiously and cannot use its tardiness as a means to prolong an injunction, even if such an injunction was warranted.

[22] For these reasons, the interim injunctions of 8 May 2007 should be dissolved forthwith and any securities paid or provided thereunder are to be similarly released to the persons who paid or provided them.

COSTS

[23] The directors sat on their application to lift the injunctions. The Petitioner sat on its substantive action. I do not think either of them deserves an award of costs so I order accordingly.

ORDERS

[24] The Orders are as follows:

1. The interim orders made on 8 May 2007 against the directors of Lodhia's Marketing Limited, namely, Jayant Lodhia and Chandar Kant Lodhia, restraining them from leaving Fiji or, alternatively, to pay $125,000 into Court, are dissolved forthwith.
   
2. Any securities paid or provided pursuant to the said orders or any variations thereof are to be released forthwith to the persons who paid or provided such securities.
   

100. There is no order as to costs.
     

Sosefo Inoke
Judge