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Kriz (Corporation) Fiji Ltd v Reddy [2011] FJHC 616; HBC58.2011 (4 October 2011)

IN THE HIGH COURT OF FIJI AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. HBC 58 of 2011

BETWEEN:

KRIZ CORPORATION (FIJI) LIMITED
a limited liability company duly incorporated in Fiji and having its registered office at 47 Auckland Street, Vatuwaqa, Suva, Fiji Islands.
FIRST PLAINTIFF

AND:

NILESH KRISHNA KUMAR CHETTY
(F/N Krishna Murthy Chetty) of 22 Yohann, Bay View Heights,
Suva, Company Director.
SECOND PLAINTIFF

AND:

KAVINESH NARENDRA REDDY a.k.a
KAVINESH NARENDRA REDDY a.k.a
KEVI N REDDY
(F/N Narendra Reddy) of Nadi, Company Director.
FIRST DEFENDANT

AND:

DAVENDRA DUTT SHARMA
(F/N Deo Dutt) of Nadi, Businessman.
SECOND DEFENDANT

AND:

TECRAFT ENGINEERING (FIJI) LIMITED
a limited liability company duly incorporated In Fiji and having its registered office at Jaswant Munesh & Associates, 59 Vunavou Street, Nadi Town, Nadi.
THIRD DEFENDANT

BEFORE : Master Deepthi Amaratunga

COUNSEL : Ms. Devan R.S.S for Neel Shivam Lawyers

Mr. Maopa E. for Babu Singh & Associate.

Date of Hearing: 1st September, 2011

Date of Ruling: 4th October, 2011.

RULING

1. INTRODUCTION
   

The Plaintiff filed this action for the recovery of money for two cheques drawn against the Company, Air Pro Services Limited after the said company was 'sold' to the Plaintiffs. It was sold, in pursuant to a 'share sale agreement' and the full sale value had been paid by the Plaintiffs in terms of the said 'share sale agreement', and in spite of that, the said two cheques were in fact drawn from the Air Pro Services Limited 's account after the said sale of shares to the Plaintiff, but before the banks were informed of the change of ownership and the change of authorization, clearly indicating dishonesty on the part of the disbursement of money after the company was sold to Plaintiff. The said money was later paid to the solicitor's account by a cheque and it was also dishonoured and the present claim is based on the said amount of money. No explanation was given in the affidavit in support or in the proposed statement of defence for such 'asset striping' behavior and clearly there are no merits in the proposed defence and the default judgment should not be vacated under the circumstances. The proposed statement of defence state that the Plaintiff has breached the 'share sale agreement', but the Defendant was unable to mention what was the breach, and clearly it is a 'sham' defence in order to further delay the legitimate dues to the Plaintiff and would amount to abuse of process as well. There are no materials to support the 'alleged breach' and they are raising it for the first time in this transaction in the statement of defence and this is clearly an after thought and there is no merit in the said defence.

2. FACTS
   

1. The Defendants seek by way of a summons to set aside a default judgment entered against them in this action on the 17 May 2011. The Defendants further seek a stay on the execution of the default judgment. The Defendants through Kavinesh Reddy have filed and served an Affidavit in Support which essentially contains the grounds of their summons for vacation of the default judgment. The plaintiff has filed and served an Affidavit of Nilesh Chetty in opposition to the Application annexing relevant documentary proof.
   
2. The Plaintiff has filed an extensive affidavit in opposition annexing the relevant materials including the 'share sale agreement' including the evidence of payment of cheques for the agreed amount, for the full sale value for the said sale of the company Air Pro Services Limited, but the Defendant has not made an effort to reply the said affidavit in opposition, indicating that evidence contained in affidavit in opposition being unopposed.
   
3. On the 26 May 2010, the Plaintiffs entered into a share sale agreement with the first and second Defendants to purchase 100% shares in the company known as Air Pro Services Limited for a purchase price of FJ$80,000.00
   
4. The settlement of share acquisition was effected on 26 of May 2010, whereby the first and second Defendants were paid a total sum of $80,000.00 by way of cash cheques in the sum of $64,000.00 and $16,000.00 in return for signed transfer of shares.
   
5. The first and second Defendants on the 7 of June 2006 withdrew a total sum of $37,662.29 from Air Pro Services Limited bank account held at Westbank Banking Corporation Limited.
   
6. Till 7th of June 2006, the new owners did not inform the bank of the change of authorization, and this has resulted the said cheques being honoured by the Bank. On 7 June 2010 a sum of $29,000.00 was transferred from Air Pro Services Limited's bank account to the third Defendant company's bank account and a sum of $8,662.29 was transferred from Air Pro Services Limited's bank account to bank account no. 9801786147.
   
7. First and Second named Defendants were shareholders of the Air Pro Services Limited and first Defendant is a director and shareholder of the third Defendant Company and the said payment of $ 29,000 was made in favour of the 3rd Defendant and these were admitted facts in the proposed statement of Defence.
   
8. After various demands, the Defendants on the 10 June 2010 wrote out two cheques which were deposited into the trust account of Messrs. Patel & Sharma to reimburse the monies that were transferred however upon presentation, the cheques were dishonoured.
   

100. LAW AND ANALYSIS
     

9. The law relating to setting aside of the default judgment is well settled in Fiji. In Fiji Court of Appeal in Wearsmart Textilts Ltd v General Machinary Hire Ltd [1998] FJCA 26 the grounds for setting aside of the default judgment was adopted in the case of Coral Sun Ltd v Whippy [2009] FJHC 254 where the rules were summarized as follows:
   

'10. A defendant applying to set aside a default judgment must satisfy the following in order to succeed:

1. Meritorious defendant which has real prospect of success and carry some degree of conviction. It must have a realistic as opposed to a fanciful prospect of success. A supporting affidavit disclosing the condescending particulars of a meritorious defence is mandatory; Wearsmart Textilts Ltd v General Machinary Hire Ltd [1998] FJCA 26;
   
2. Some explanation as to why the default judgment was allowed; Evans and Bartlam [1937] 2 All ER 646:
   
   1. Some explanation for the delay in making an application to set aside Pankaj Bamola & Anor v Moran Ali Court of Appeal Civil Appeal No 50/90.
      
   2. That the Plaintiff will not be prejudiced that may be cause to the Plaintiff as a consequence of setting aside the default judgment Shrir Dutt V FNPF (1988) 34 FLR 67.'
      

10. The meaning of "defence on the merits" was explained by Sir Roger Ormond in Alpine Bulk Transport Co. Saudi Shipping Co. Inc (1986) 2 Lioyd's Rep, 221. His Lordship explained that the defence put forward by the Defendant must be one with a reasonable chance of success.
    
11. The Defendant's only argument in the statement of defence is that the Plaintiffs failed to fulfill all the conditions of the share sale agreement, however the proposed statement of defence does not provide any particulars whatsoever of 'those' conditions which the Defendants allege have not been fulfilled.
    
12. The Defendants further allege that the Plaintiffs breached the agreement, however no particulars of breach are set out in paragraph 4 of the proposed defence. It is also strange that no correspondence of such breach was presented and this is clearly an afterthought to delay this proceedings.
    
13. It is evident from annexure E of the Plaintiffs' affidavit in opposition, that the first Defendant undertook to return the sum of $37,560.00 which was deposited into the trust account of Patel & Sharma. This is clear admission of the Plaintiffs' claim by the 1st Defendant. The said letter from Patel & Sharma Barristers & Solicitors, Nandi is quoted below for reference:
    

"10th June, 2010

Messrs Neil Shivam Lawyers

Barrister and Solicitors

Suva.

Dear Sir

Re: Air Pro Services Limited

We act as solicitors for Kavinesh Narendra Reddy and also refer to your Mr. Shivam and our Mr. Singh telephone conversation of even date.

Please not that our client has deposited the sum of $ 37,560.00 into our trust account today for the meantime. Enclosed please find copy of the cheque and our trust Account receipt.

We are currently getting full instructions from our client and will revert to you by Tuesday (PS/06/2010) on the disbursement of the funds the above company.

Thank you

Yours Faithfully

Patel and Sharma."

14. I have quoted the letter in full to show that there was no issue of any breach of condition in the 'share sale agreement' and the Defendants have agreed to deposit the full value of the money withdrawn from the Air Pro Services Limited after it was sold to the Plaintiff and clearly the 'unspecified' breach of the conditions on the said share sale agreement is nothing but a fiction to delay the legitimate dues to the Plaintiffs and to further frustrate the receipt of the same.
    
15. The Plaintiffs submitted that the Defendants have no Defence let alone a meritorious one. Dealing with the discretionary powers of the Courts under English Order 13r.9 sub-rule 14 the Supreme Court Practice 1997 (the White Book) (Vil.1 p.145) cites the Court of Appeal's Judgment in Alpine Bulk Transport Inc. – v – Saudi Eagle (1986)2 Lloyds Rep. 221 as authority for following prepositions
    
    • (a) It is not sufficient to show a merely "arguable" defence that would justify leave to defend under Order b14; it must both have "a real prospect of success' and "carry some degree of conviction". Thus the Court must form a Provisional view of the probable outcome of the action.
      
    • (b) If proceedings are deliberately ignored this conduct, although not amounting to an estoppel at law, must be considered "in justice" before exercising the Court's discretion to set aside."
      
16. The Fiji Court of Appeal in the case of Wearsmart Textiles Limited v General Machinery Hire Limited & Anr, Civil Appeal No. ABU30/97, at page 11, stated with approval from the Supreme Court practice, Vol 1 at page 143 that:
    

"it is an (almost) inflexible rule that there must be an Affidavit of merits, i.e. an Affidavit stating facts and showing a defence on the merit."

17. It has to be noted that the Defendants were unable to point out any breach of the 'share sale and purchase agreement' even at the hearing of this application and there are no correspondence between the parties regarding any breach by the Defendants.
    
18. It is pertinent to note that clause 4.6 of the said 'share sale agreement' specifically obliged the vendor (Defendants) to inform the Plaintiff any matter that would have an impact on the share value. It states as follows:-
    

'4.6 The Vendors undertake that they will disclose forthwith in writing to the Purchaser any matter of thing which may arise or become known to them after the date hereof and prior to completion which is inconsistent with any or the warranties, representations, undertakings or agreements contained in this Agreement which is sufficiently material as to be likely to affect the judgment of the Purchaser as to the value of the Shares.'

19. The price paid for the acquisition 100% of the Company is $80,000 and any disbursement of to the value of $37,662.29 from the company accounts after the sale of the said company is going to affect the share value and it is likely to affect the judgment of the purchaser as to the value of the shares. So, it is clear that if there was any breach it was done by the Defendants and not by the Plaintiff.
    
20. The Defendants explanation as to why he did not respond to the writ is unsupported by any letters from the law firms that the first Defendant dealt with and cannot be accepted.
    
21. No explanation given for the delay in this application, as the default judgment was served on the 1st Defendants and the 3rd Defendant on 25th May, 2011 and this summons to set aside the default was filed on 29th June, 2011.
    

4. PREJUDICE TO THE PLAINTIFF
   

22. The Plaintiff has obtained a default judgment, due to no fault of them and the default judgment is a regular one. Plaintiff has been deprived of the money, that were disbursed dishonestly by 1st and 2nd Defendants and one cheque has been written to the 3rd Defendant.
    
23. The said amount that was dishonestly disbursed from the already 'sold' company, was to be reimbursed to the Plaintiff and the said amount was deposited to the then solicitors namely Patel & Sharma Lawyers of Nandi, but again that said deposited cheques were also dishonoured, indicating clear an unequivocal untrustworthy acts on the part of 1st and Defendant. So, the behavior of the 1st and 2nd Defendants would certainly further frustrate the Plaintiff regarding the recovery of this money that was long overdue to the Plaintiff.
    

5. NOT REPLYING TO THE AFFIDAVIT IN OPPOSITION BY THE DEFENDANTS
   

24. The Defendants did not file an affidavit in reply to the affidavit in opposition, which contained some vital materials and serious allegations against the Defendants that would show that the actions of the Defendants and behavior of them are untrustworthy, but no affidavit in reply was filed. It also shows that the Defendants were unable to reply to the facts contained in the affidavit in opposition or they do not want to reply or conveniently, did not reply in order to obtain an undue advantage of not replying to the facts alleged on the affidavit in opposition as the acts involved are of serious nature. In the circumstances, the averments contained in the affidavit in opposition can be accepted as true and correct.
    

6. CONCLUSION
   

25. There is no merit in the proposed statement of defence and this proposed defence can be clearly indicated as a method to delay the repayment of money that was obtained dishonestly from the already 'sold' Company, only because the Plaintiff delayed in notifying the Bank of the change of authorization after the said 'sale of shares' of the company. The Plaintiff would have trusted the Defendants, who sold the said company Air Pro Services Limited to the Plaintiff company and would have expected to act ethically, till the other formalities in the change of ownership is registered and finalized. The 1st and 2nd Defendants have completely disregarded the said trust and has transferred money in the said already sold Air Pro Services Limited and it is clear that Defendants do not have a defence and the statement of defence that is proposed, is a 'sham' one and it is only another method to delay the money that was siphoned out of already sold company, by the Defendants. If this default judgment is vacated the Plaintiff will seriously prejudiced and there would be further delay in the recovery of money that was siphoned out after it was 'sold' but before the banks were informed of the change of hands of the company Air Pro Services Limited.
    
26. The application to vacate the Default Judgment is not granted and struck off the Plaintiff is also granted a cost of $1,000.00 as the cost of this application assessed summarily.
    

7. THE FINAL ORDERS
   

1. The Summons of the Defendants to set aside the default judgment is stuck off.
2. The Plaintiff is granted a cost of $1,000 as the cost of this application assessed summarily to be paid within 21 days.
   

Dated at Suva this 4th day of October, 2011.

.................................................
Mr. Deepthi Amaratunga
Master of the High Court
Suva