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Umaria v Kantharia [2011] FJHC 649; HBC263.2010 (13 October 2011)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

Civil Action No. HBC 263 of 2010

BETWEEN :

JAYANTI UMARIA
(f/n Narotam Kanji Umaria), Retired,
CHANDRA KANT UMARIA
(f/n Narotam Kanji Umaria),
Special Administrator of Suva City Council and Lami Town Council, Shareholders of Umaria Holdings Limited respectively.
PLAINTIFF

AND:

PUSHPA KANTHARIA
(f/n Narotam Kanji Umaria) of 195 Toorak Road,
Suva in the Republic of Fiji Islands.
DEFENDANT

BEFORE : Master Deepthi Amaratunga

COUNSELS : Mr. Nandan. S for the Plaintiff

Mr. Naidu R.K for the Defendant

Date of Hearing: 20th June, 2011

Date of Ruling : 13th October, 2011

RULING

1. INTRODUCTON
   

1. The Plaintiffs filed this action against the Defendant by way of a writ of summons with an endorsement of claim and also sought injunctive relief to remain in the premises in issue and to prevent the Defendant from taking any action to evict the Plaintiffs. After the acknowledgement of service the Plaintiffs did not file the statement of claim within the stipulated time, and the Defendant filed an affidavit seeking dismissal of the action and the Plaintiff withdrew the action and gave an undertaking to pay arrears of rent and to continue paying rent and issue of cost was reserved and if parties do not agree they were at liberty to file an application for cost. Neither arrears nor rent for the occupation were being paid by the Plaintiffs in violation of the undertaking given to the court in this matter. The Defendant applied for indemnity cost after their request for the cost was not consented by the Plaintiff. Plaintiff have been tenants of Umaria Holding Ltd and they are a minority shareholders and the Defendant is a Director of the said company. Plaintiffs suddenly stopped payment of rent to Umaria Holding Ltd and filed this action to restrain the Defendant, who is a Director from proceeding with eviction or with distress proceeding to recover arrears of rent. Plaintiff withdrew the action even without filing a statement of claim against the Defendant and assured the court that they would pay the rent as they had been doing, but failed to honour the said assurance given to court. Now the 2nd named Plaintiff in his affidavit in opposition to this summons for indemnity cost state that they have sued the Defendant wrongly, but blames the solicitor who appeared for them at time, but at the same time admits that they would be liable for their solicitor's actions.
   

2. LAW AND ANALYSIS
   

2. The defendant seeks to recover costs from the plaintiffs she incurred in defending this action. The award of costs is discretionary. The court has the jurisdiction to award such costs in terms of High Court Rules of 1988 and the provision relating to cost has been fully repealed in 1988 and the relevant provision is Order 62 of High Court Rules. The 2nd named Plaintiff has admitted that suing of Defendant is wrong. No reason was given except attributing it to their previous lawyers, but again admits that they would be responsible for the actions of their lawyer.
   
3. The defendant is seeking costs on an indemnity basis. Order 62 rule 26(1) replaced by Order 62 rule 15(1) and (2) of the High Court (Amendment) Rules 1988 permits the Court to award indemnity costs. Such awards would be made only in exceptional circumstances: Bartlett v Barclays Bank Trust Co Ltd(No. 2) [1980] 1 ch. 515 at p. 547 where Brightman LJ said he did not know the reason why a successful party could not be indemnified for the inevitable costs of litigation. In Police Service Commission v Beniamino Naiveli, Civil Appeal No. ABU 0052/95 the Fiji Court of Appeal confirmed that indemnity costs may be awarded under Order 62 r 26 (1) in appropriate cases.(prior to amendment of the Order 62 in 1998). The meaning of "indemnity costs" and its applicability and availability has been discussed in Police Service Commission v Beniamino Naiveli, Civil Appeal No. ABU 0052/95 by the Fiji Court of Appeal and in page 2 of the said decision of Sir Maurice Casey J, it was held
   

"the first question relates to the meaning of indemnity costs" a term commonly used in the past in England to indicate a more generous award then the usual party and party costs provided for in the English equivalent of 0.62, 5. 25 of the Fiji High Court Rules, the latter being defined therein as those costs "necessary or proper" for the attainment of justice or for enforcing or defending the party's rights.

Until it was recognized in the amendment to the English Order 62 in 1986, a separate category of "indemnity costs" was not mentioned in either the former English rules or the present Fiji rules based on them. In EMI Records v. Wallace [1982] 2 ALL ER 980 Sir Robert Megarry V-C undertook a detailed review of the use of that expression and conclude that it was equivalent to award of "solicitor and own client costs" in 0.62, r. 29 (described in its Fiji equivalent 0.62, r. 26 as "costs payable to a barrister and solicitor by his own client"), but excluding paras (2) and (3) thereof. It would result in all costs being allowed "except insofar as they are of an unreasonable amount or have been unreasonably incurred."

4. The Court of Appeal further observed at p.6 and 7
   

".....neither considerations of hardship to the successful party nor the over optimism of an unsuccessful opponent would by themselves justify an award beyond party and party costs. But additional costs may be called for if there has been reprehensible conduct by the party liable – see the examples discussed in Thomson v. Swan Hunter and Wigham Richardson Ltd (1954) 2 ALL ER 859 and Bowen-Jones v. Bowen-Jones (1986) 3 ALL ER 163."

5. It is to be noted that the said Court of Appeal judgment was decided prior to the present amendment to Order 62 in 1998 where the old Order 62 was fully repealed. So the law relating to the cost was fully repealed and new provisions were introduced from 1998 through the principles relating to the award of the indemnity cost did not undergo a complete overhaul in 1998.
   
6. It is noteworthy that the presently the Order 62 rule 15 deals with the indemnity cost and Order 62 rule 15 (2) states as follows
   

'(2) On a taxation to which this rule applies costs shall be taxed on the indemnity basis but shall be presumed-

(a) To have been reasonably incurred if they were incurred with the express or implied approval of the client, and

(b) To have been reasonable in amount if their amount was expressly or impliedly approved by the client, and

(c) To have been unreasonably incurred if in the circumstances of the case they were of an unusual nature unless the solicitor satisfies the taxing officer that prior to their being incurred he informed his client that they might not be allowed on a taxation of costs inter parties.'

7. In Dilar Shah v FIRCA HBJ No 42 of 2001Master Udit in Taxation of interim indemnity cost decision delivered on 11th May, 2006 stated as follows:-
   

'[31] Costs are for the most part an allowance made to a successful party recoverable from a losing party. The guiding principle still stands as pronounced in Donal Campbell & co. Limited v Pollak [1927] AC 732, which is that the 'general discretion as to costs is absolute and unfettered except that it must be exercised judiciously, not arbitrary or capriciously and except that it must be exercised on grounds unconnected with litigation'. In Oshalack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, at page 89 Gordon and Gummow JJ in awarding solicitor – client or indemnity costs pertinently said;

'The result is more fully or adequately to compensate the successful party to the disadvantages of what otherwise would have been the position of the unsuccessful party in the absence of delinquency.

[32] However, it needs to be stressed that indemnity costs are not penal but merely compensatory; Wills v Redbridge Health Authority(1996) 1 WLR 1228 at 1232.'

Further held,

'[34] Mr. Chandra's submission relating to a 'higher scale costs' is obviously misconceived. It may be applicable in assessing costs on standard basis under O.62 rule 12(1). There exists a material distinction as to standard and indemnity basis of taxation. Lord Woolf in Petrotrade Incorporated v Texaco Ltd [2002] 1 WLR 2002 succinctly identified the same as follows:-

"An order for indemnity costs does not enable a claimant to receive more costs than he has incurred. Its practical effect is to avoid his costs being assessed at a lesser figure. When assessing costs on the standard basis the court will only allow costs "which are proportionate to the matters in issue" and (will) "resolve any doubt which it may have as to whether costs were reasonably incurred or reasonably proportionate in amount in favour of the paying party" On the other hand, where the costs are assessed on an indemnity basis, the issue of proportionality does not have to be considered.'

8. In Taylor v. Santos &Ors [1999] SASC 430 the Supreme Court of South Australia (at an interlocutory stage) considered the relevant principles applicable to the exercises of the discretion to award indemnity costs. At paragraph 9 the Court stated:
   

"Solicitor and client costs may be awarded where a party should have known it had no chance of success [Fountain Selected Meat (Sales) Pty Ltd v. International Produce Merchants Pty Ltd (2988) 81 ALR 397]. Such costs have also been awarded in cases where the trial judge indicated that –

(a) The case was misconceived;
(b) The plaintiff had lost on virtually every issue;
(c) The relief claimed in the summons was defective;
(d) The difficulties in the Plaintiff's claim had been pointed out prior to trial;
(e) The party's case was falsely and deliberately concocted;
(f) The party prevaricated in the witness box to prolong litigation;
(g) Fragmentary and unconvincing evidence was adduced by a party with a lack of substance in its case and like grounds;
(h) There was re-litigation of issues already determined.

The case does not necessarily have to be 'hopeless' in order to attract for solicitor and client costs; it will be sufficient if the party persists with the proceedings without apparent regard to significant deficiencies in the evidence to be called....."

100. ANALYSIS
     

9. The Plaintiff brought this action against the Defendant on an endorsement of claim which stated as follows
   
   1. 'An Order restraining the Defendant, her servants, agent or bailiff from executing distress of rent against the Plaintiffs until the determination of the High Court pending action.
      
   2. An Order restraining the Defendant, her servant, agent or bailiff from threatening the Plaintiffs and their respective families to vacate the premises at 337 Waimanu Road, Suva Fiji.
      
   3. An Order restraining the Defendant, her servant, agent or bailiff from using any force to enter the Plaintiffs premises at 337 Waimanu Road, Suva, Fiji until the High Court determines action pending against the Defendant and shareholders of Umaria Holdings Ltd.
      
   4. Costs to be borne by the Defendant.'(emphasis is added)
      
10. The intention of the Plaintiff was to restrain the Defendant from executing distress of rent against the Plaintiff and to restrain 'the Defendant,.... From using any force to enter the Plaintiff's premises at 337 Waimanu Road, Suva Fiji until the High Court determines action pending against the Defendant and shareholders of Umaria Holding Ltd.'
    
11. No statement of claim was filed in that action and it is clear that Defendant was only a Director and the said property in issue is owned by Umaria Holding Ltd where the Plaintiffs themselves are minority shareholders. While admitting that Defendant her husband and her son having 32,225 shares and all the other shareholders including the Plaintiffs, having 14,306 shares the argument put forward in paragraph 9 of the affidavit in reply filed on 23rd September,2010 of the 2nd named Plaintiff is totally misconceived idea and it is contrary to accepted Company Law principles. The minority shareholder can bring a derivative action against the company, but he cannot rely on the unissued share capital of the company to create any right to bring an action. The 2nd named Plaintiff in affidavit in opposition to the summons for indemnity cost admits that he sued wrong party. So, suing of Defendant is admittedly a wrong and misconceived thing. Since it is admitted by the 2nd named Plaintiff, by virtue of that admission in the affidavit in opposition, the Plaintiff should be granted indemnity cost as a party cannot bring an unnecessary party to court and expect to incur cost to that party and ask that party to bear those costs, unless there is a good explanation that can justify such behavior.
    
12. The Plaintiff is a tenant of the Umaria Holding Ltd. And his shareholding in the company does not give him any right to stay in the property without paying any rent and cannot prevent distress being executed if he fails to pay rent to the company. This is a thing that Plaintiff would have known since he obtained legal services from a legal practitioner. The Plaintiffs being shareholders of the Company should know the existence of the company and its distinct legal personality, as they are also shareholders of the company who were even aware of the finer details of the company including the clauses relating to shares in the memorandum of association etc.
    
13. Since the property is owned by the Umaria Holding Ltd the action should have been a derivative action, if there was any suppression by the majority shareholders and any minority shareholder can institute action in limited circumstances.
    

In AMERASEKERE v MITSUI AND COMPANY LTD., AND OTHERS 1993 (1) SLR 22the Supreme Court of Sri Lanka accepted the principle of derivative action by a minority shareholder and Justice A.R.B Amarasinghe in his judgment (with Hon G.P.S. de Silva CJ and Hon K.M.Kulatunga J agreeing with it) held

'I am unable to agree with Mr. Amerasinghe's submission that the fact that the plaintiff had not adopted a particular form in bringing the action was a sufficient ground for rejecting the plaint and the prayer for the injunction. The usual form of action is merely a matter of procedure in order to give a remedy for a wrong that would otherwise escape redress. (Per Lord Davey in Burland v Earle (24); Wallersteiner v Moir (supra) per Lord Denning, MR, at p. 858). Indeed, the use of what was described in Prudential v Newman Industries(25) as the "time-honoured formula" for the purpose of bringing a derivative action, namely, "AB (a minority shareholder) on behalf of himself and all other shareholders of the Company vs. The wrongdoing Directors and the Company", might even be misleading, for as Gower (quoted with approval by Lord Denning in Wallersteiner (ibid) points out, what really occurs is that the plaintiff shareholder is not acting as a representative of the other shareholders but as a representative of the company. The basis of the plaintiff's claim is that he has been compelled to bring this action as a minority shareholder, albeit holding what the first and second defendants in their written submissions to this Court at paragraph 6.04 described as "only 0.15% of the issued share capital as at 31st March 1990",. because in the circumstances of the case, the directors, including the Government's representatives on the Board, will not assist or are helpless to intervene, especially in view of the powers given by the.....'

14. So, it is clear that in a derivative action a minority shareholder can institute action and even can obtain an injunctive relief against suppression of their rights, but this had not been done by the Plaintiffs and their intention was clear and that were to remain in the property without paying rent, which they were able to do under the cover of this action even without a claim being filed against the Defendant, and this can amount to abuse of process, too.
    
15. The claim against the Defendant cannot be ascertained through the endorsement, and without the claim the anticipated statement of claim could not have been foreseen and a substantive affidavit in opposition was filed annexing no less than 23 documents and the nature of the action was clearly a complex one which would have been a derivative action, but without a statement of claim the Defendant could not speculate the intended statement of claim and cause of action, but the Plaintiffs withdrew the action, while assuring the court that they would pay rent, which they have not done up to date according to the affidavit in reply dated 2nd May, 2011 clearly indicating the disregard to the undertaking given to the Judge on 22nd October, 2010 . The minutes of the said undertaking is recorded reads as follows
    

'At this moment Mr. Prasad informs that the Plaintiffs would give an undertaking to pay the arrears of rent and would continue to pay the rent.'

16. This is a clear violation of that undertaking and not only any arrears of rent, but also continuously the rents are being defaulted by the Plaintiffs. It is also clear the distress and eviction proceedings got disrupted due to this action, though no injunction was granted.
    
17. It is also clear that this action was instituted even without a statement of claim, by filing an endorsement, for injunctive relief, to prevent the eviction proceedings and to restrain distress proceedings to recover the unpaid rents. Though an injunction was not granted, for obvious reasons, the Plaintiff has incurred unnecessary expenditure and hardship to the Defendant and the in the guise of this action the Plaintiffs were able to remain in the premises without even paying rent as promised before the Judge.
    
18. The 2nd named Plaintiff in his affidavit in opposition at paragraph 7 put the blame fairly and squarely on the previous solicitor and I would like to quote the full paragraph below
    

[7] That as to paragraph 6, neither I nor Chandar Kant Umaria instructed Diven Prasad Lawyers to agree that we will pay rent or to withdraw the matter. I do, however, understand that Mr. Prasad acted on our behalf and we are bound by what he undertook in Court. I am advised by Diven Prasad Lawyers that the reason that the matter was withdrawn was that my solicitors had mistakenly, instructed the action against the managing director of Umaria holding Limited rather than Umaria Holding Limited itself and that as soon as they realized their mistake they withdrew the action.

19. The 2nd named Plaintiff in his affidavit in reply filed on 23rd September, 2010 at paragraph 9 stated as follows, and this indicates the position that they had taken as plaintiffs in this action to seek injunctive relief against the Defendant.
    

'[9] that in response to paragraph 13 of Pushpa's affidavit I am advised that total shareholdings capital is $250,000.00 divided into 250,000 shares and therefore the Defendant holds 12, 415 shares her son has 4,504 shares and her husband 1,000 shares which makes them 17,919 shares in total out of 32,225 shares leaving 14,306 shares which all the remaining shareholders hold. This means 1/10 share from 250,000 is 25,000 shares therefore the Defendants also don't have the right to hold meetings but to call for a Special General meeting and unallocated shares to be discussed and either forfeited or options for the remaining shareholders to buy unallocated shares but this have to by way of special resolutions as per the provision in the Articles of Association articles 22, 23, to 50 which deals with shares. However I am advised that the Defendant cannot take 1/10 of 32,225 as the total shares and an unallocated share is yet to be decided.'

20. This clearly shows the conflicting positions taken by the Plaintiffs in this action .They knew that they are suing the Defendant and not the Company on which they are all shareholders. The Plaintiffs had tried to justify their action of suing the Defendant by stating the Defendant's share ownership is 1/10, which is totally a misconceived concept. The Plaintiff has accepted that Defendant, her husband and the son are majority shareholders of the Company and has stated that in the affidavit in reply filed for the injunctive relief application. In the affidavit in opposition to present application for indemnity cost, filed by the 2nd named Plaintiff stated that they have sued the Defendant wrongly and blames the lawyer who appeared for them at that time. The above explanation cannot be accepted and a party cannot be unnecessarily dragged in to court, to find out that it had been done wrongly, without a valid and acceptable explanation as in this case where the Plaintiffs and Defendant are all shareholders of the same company Umaria Holdings Ltd. In the circumstance the indemnity cost should be the least, that a court can grant to such a victim as it is nothing but an award of actual cost incurred to the Defendant disregarding all other hardships including the waste of time and other resources for defending this case unnecessarily as admitted by the 2nd named Plaintiff in his affidavit in opposition filed on 12th April, 2011.
    
21. It is evident that Plaintiff has disregarded violated the principles of Company Law in filing action against the present Defendant, who is a Director to court. This is more so when the Plaintiff has admittedly stopped payment of rent to the landlord Company namely the Umaria Holding Ltd where the Defendant is a Director. They also admit that they have sued the Defendant wrongly
    
22. This action against a Director of a company is totally misconceived and the Plaintiffs cannot stop paying rent which they had paid to the company earlier and file an action against a Director of Company seeking restraining orders to evict them from the premises owned by the Company. So, from the beginning this case was a 'hopeless' one and that may be the reason for failing to file a statement of claim by the Plaintiff and withdrawing the action and assuring to pay rent to the company, which they have not paid according to the affidavit in reply by the Defendant. This again shows the behavior of the Plaintiffs who gave an undertaking to the court to pay the rent, but decided otherwise after withdrawing this action. So, filing of this action is clearly to prevent or to threaten the Defendant from preceding with the eviction and or to stop proceeding with distress of rent action .In the circumstances the award of indemnity cost is justified.
    
23. The main purpose behind the power to award a gross sum instead of taxed costs is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation. This proposition is supported by Leary v Leary [1987] 1 WLR 72 at 76 per Purchas LJ and Dymocks Franhise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd [1999] 3 NZLR 239 at 245 per Hammond J expressing the concern that taxation is "an arduous and expensive matter, which causes almost as much difficulty as the litigation itself."
    
24. In South Pacific Recording Ltd v Yates (supra) the Court of Appeal explained the approach favoured by the New Zealand Court (at p. 14):
    

"In practice in recent years the scale is often by-passed by Judges, particularly in commercial cases in both the High Court and Court of Appeal. Both Courts are tending more and more to award a lump sum to represent a reasonable contribution to the costs of the successful party. That figure can be higher than usual where the conduct of the unsuccessful party has been unreasonable."

The Court further observed:

"It should be borne in mind that in today's situation, where time means money, the taxation of costs is a cumbersome, time consuming and costly procedure for both practitioners and offers of the Court. Taxation of costs in New Zealand has become very rare because of the broad approach to which we have referred. Orders which result in a taxation are rarely cost efficient bearing in mind the potential for recourse to a Judge from a taxation officer's decision."

25. The costs actually incurred by the defendant in this case is $4,111.25 including vat and disbursements this is clearly not unreasonable amount considering the work that was attended and the complex nature of the action in the absence of any statement of claim against the Defendant. A detailed invoice has been submitted and the Defendant has already paid in terms of the said invoice, thus indicting clear acceptance of the invoice by the Defendant. The invoice issued by Naidu Law to the defendant is attached to the Defendant's affidavit in support of the application which is annexure PK 7. The plaintiffs have not challenged the items in the defendants invoice by way of affidavit evidence in his affidavit in opposition. The defendants invoice is very comprehensive with a breakdown of costs charged on an hourly basis. These costs are reasonable under the circumstances of the case. The defendant seeks an order that the plaintiffs pay the defendant $4,111.50 as indemnity costs as it was the actual cost to the lawyer in defending this case. The defendant also seeks costs of this application in the sum of $500.00.
    

4. CONCLUSION
   

26. The Defendant is awarded indemnity cost of $4,111,25 as per the invoice. The Defendant is also granted a cost of $ 500 as cost of this application assessed summarily. The Plaintiffs are jointly and severally liable for the said $4,611.25 as indemnity cost for the Defendant in this action. The said cost should be paid within 21 days.
    

5. FINAL ORDERS
   

27. The Plaintiffs are ordered to pay the Defendant $4,111.25 as indemnity cost of this action within 21 days.
    
28. The Plaintiffs are also ordered to pay a cost of $500 as cost for this application assessed summarily.
    

Dated at Suva this 13th day of October, 2011.

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