Seng Mi Commercial Company v John Y Singh & Company Ltd (Judgment 1) [1997] FJHC 32; Hbc0018j2.97s (6 March 1997)

Fiji Islands - Seng Mi Commercial Company v John Y Singh Company Ltd (Judgment 1) - Pacific Law Materials

IN THE HIGH COURT OF FIJI

AT SUVA

CIVIL JURISDICTION

CIVIL ACTION NO. 0018 OF 1997

BETWEEN:

SENG MI COMMERCIAL COMPANY
Plaintiff

AND:

1. JOHN Y. SINGH & COMPANY LIMITED
2. JOHN YOGENDRA SINGH
Defendants

Mr. D. Sharma for the Plaintiff
Mr. H.ef for the Defendants

JUDGMENT

On the 17th January 1997 this Court granted ex-parte against the defendants a Mareva injunction and also issued a Writ Ne Exeat Regno against the second defendant preventing him from leaving the Court's jurisdiction. The facts of the case may be briefly outlined for present purposes.

The plaintiff company is a Korean company which entered into an agreement with the 1st defendant company to purchase trochus shell blank buttons for the Korean market at an agreed price of $US97,825.70. It is common ground that the plaintiff company paid the purchase price to the 1st defendant company through a Letter of Credit redeemed at the 1st defendant company's account at the A.N.Z. Bank, Marks Street Branch in Suva. It is also common ground that the container which was sent by the 1st defendant company in fulfilment of the plaintiff company's order arrived in Pusan, South Korea and when opened was found to be empty.

In its Statement of Claim the plaintiff company amongst other things:

'Alleged that the defendants acted fraudulently in stripping the Plaintiffs container and sending an empty container to the Plaintiff.' [para: 12(h)]

and further that:

'Without the second defendant the Plaintiff's claim against the first defendant would be futile as the company is only a shell company.' (para. 16)

and the plaintiff company seeks to recover the full purchase price paid, a Mareva injunction and an order restraining the second defendant from leaving Fiji.

In its affidavit dated 16th January 1997 in support of the injunctive relief, the plaintiff company's local authorised agent deposed inter alia:

'The second defendant is the principal shareholder of the first defendant and was the person who was engaged in all material dealings with the plaintiff.' (para. 4)

'(that) The defendants had tried to blame the shipping agents. However the Shipping Agents records confirms the deliberate fraud that was perpetrated by the Defendants in this matter.' (para. 16)

and further:

'That the second defendant and his family are planning to migrate to United States and that they are likely to go at any moment.' (para.17)

The factual background of the case is that the plaintiff company claims to be the victim of a fraud which it infers was master-minded by the second defendant. It has placed before the Court affidavit evidence which constitutes 'a good arguable case' that a fraud has been committed, though, whether such a fraud may hereafter be proved depends upon the effect of the evidence given at the trial of the action.

Based on the above circumstances this Court granted the plaintiff company a Mareva injunction limited to the sum of $US98,000 and issued a Writ Ne Exeat Regno conditional upon the 2nd defendant surrendering his passport and any other travel documents and air tickets that he might have to the High Court.

In this latter regard it is common ground that pursuant to the Court's order the second defendant was stopped by immigration officials from leaving the country on the 18th of January 1997 i.e. the day following the issue of the Writ ne exeat.

On 24th January 1997 the defendants issued an inter partes motion seeking the dissolution of the Mareva injunction and the discharge of the Writ Ne Exeat Regno.

The affidavit of the second defendant in support of the motion if I may say so, lacked simple commercial transaction details, was evasive and sought to deny any responsibility or any knowledge of, or indeed, any inclination to find out how a full container that was despatched by the defendant company to local shippers in fulfilment of the plaintiff company's order arrived 'empty' in Pusan, South Korea. He does not deny however that payment has been received by the 1st defendant company or that 'he was the person engaged in all material dealings with the plaintiff.' [See: paras 4 and 8]

In this regard in the Ninemia Corp. v. Trave Schiffahrts (1984) 1 ALL E.R. 398 Mustill J. relevantly observed at p.409:

"The judge who hears the proceedings inter partes must decide on all the evidence laid before him. The evidence adduced by the defendant will normally be looked at for the purposes of deciding whether it is enough to displace any inferences (of danger of dissipation) which might otherwise be drawn from the plaintiff's evidence. But I see no reason in principle why, if the defendant's evidence raises more questions than it answers, and does so in a manner which tends to enhance rather than allay any justifiable apprehension concerning dissipation of assets, the Court should be obliged to leave this out of account."

Mr. Lateef for the defendants in moving the motion prefaced his submissions by stating that he did not propose to address 'the merits' of the plaintiff company's claim, in particular, the very serious allegations of fraudulent dealings made against the defendants. He made 5 submissions which may be summarised as follows:

(1) Counsel doubted the authority of Mr. Cheong Chang Han to act for the plaintiff company or give an undertaking in damages on its behalf;

(2) There was no evidence that the defendants' assets were being dissipated or transferred out of the courts jurisdiction or being otherwise dealt with so as to render them 'judgment-free';

(3) There is no evidence that the first defendant company is being wound up or will cease operations in the absence of the second defendant;

(4) The effect of the court's Mareva order was improperly to provide security for any money judgment the plaintiff company might obtain or recover against the defendants;

(5) The plaintiff company has no 'cause of action' or claim against the second defendant and accordingly the Writ ne exeat regno was improperly issued against him.

In essence defence counsel questions the correctness on principle, of the Court granting the 'Mareva injunction' and the Writ ne exeat in the absence of sufficient supporting evidence or proper grounds for the same.

I can deal briefly with counsel's fifth submission concerning the issuance of the Writ ne exeat regno in the absence of a 'cause of action'. In this regard Megarry J. laid down in Felton v. Callis (1968) 3 ALL E.R. 673, basing himself on Section 6 of the Debtors Act 1869 (U.K.), four (4) conditions or requirements which had to be first satisfied before the Writ could be issued. These are:

'(i) The action is one in which the defendant would formerly have been liable to arrest at law, (ii) A good cause of action for at least £50 is established, (iii) There is 'probable cause' for believing that the defendant is 'about to quit' England unless he is arrested, (iv) The absence of the defendant from England will materially prejudice the plaintiff in the prosecution of his action.'

Section 6 of our Debtors Act (Cap. 32) however, is far less stringent in its requirements than its U.K. counterpart. It merely requires the Court to be satisfied that the defendant in any action for the recovery of a sum exceeding $10 is 'about to abscond', which, according to the Shorter Oxford Dictionary, means 'to hide oneself; to go away hurriedly and secretly'.

In the present case the plaintiff company's Writ seeks to recover almost $US98,000 from the defendants including the second defendant who, it is averred, is 'the principal shareholder of the First Defendant and was the person who was engaged in all material dealings with the Plaintiff', and, given the 1st defendant's corporate structure, the plaintiff company says that he was undoubtedly the 'brains' behind the defendant company which was a 'mere facade' or 'mask' behind which the second defendant was hiding and which counsel urges the Court should pierce. [See: Littlewoods Mail Order Stores v. I.R.C. (1969) 1 W.L.R. 1241 per Lord Denning M.R. at p.1254]

In light of the plaintiff company's affidavit evidence and the urgency of the application, I was satisfied that the plaintiff company had an arguable claim against the second defendant, and further, that the presence of the second defendant in the country was 'necessary' for the service of the plaintiff's claim upon him, and further, to prevent him from absconding.

If I should be wrong however in the issuance of the Writ ne exeat then there is no doubt in my mind that this Court has the necessary power and jurisdiction to issue an injunction restraining the second defendant from leaving the country and requiring him to deliver up his passport on the ground that they are necessary and reasonable orders which are ancillary to the due performance of the Court's function of protecting the plaintiff's rights to a Mareva injunction pending the hearing of the action. [See: Bayer A.C. v. Winter and Others (1986) 1 ALL E.R. 733]

That this Court has the necessary jurisdiction and power to grant both the Mareva Injunction together with the Writ Ne Exeat cannot now be doubted. (See: W.B.C. v. Satish Chandra Civil Action No. 356 of 1991; Merchant Bank of Fiji Ltd. v. Girdhar Lal Raniga and Anor. Civil Action No. 210 of 1993; Robert Rogers v. Pacific Hotels & Development Ltd. Civil Action No. 1132 of 1985; Leslie Redvers Martin v. B.N.Z. and F.D.B. Civil Appeal No. 73 of 1984; Girdhar Lal Raniga v. Merchant Bank of Fiji Civil Appeal No. 31 of 1993 and Al Nahkel for Contracting and Trading Ltd. v. Lowe (1986) 1 ALL E.R. 729) in which it was

"Held: The court had jurisdiction to issue a writ ne exeat regno in support of a Mareva injunction in order to prevent a defendant from leaving the jurisdiction with assets in order to frustrate a lawful claim before the Court."

However it is not so much the Court's jurisdiction which is in doubt, rather counsel raises the established parameters within which the particular jurisdiction is exercised and in particular, counsel drew the Court's attention to the decision of the High Court of Australia in Jackson v. Sterling Industries Ltd. [1987] HCA 23; (1987) 162 C.L.R. 612 where the Court:

"Held: When an order for the preservation of assets goes beyond simply restraining the defendant from disposing of specific assets until after judgment it must be framed so as to come within the limits set by the purpose for which it can properly be intended to serve. That purpose is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him, but to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the Court by depriving a plaintiff of the fruits of any judgment obtained in the action."

It was also held in that case:

"per incuriam (1) as a general proposition, it should now be accepted ... that a Mareva injunction can be granted if the circumstances are such that there is a danger of the defendant absconding, or a danger of his assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that a successful plaintiff will not be able to have his judgment satisfied."

The order that was set aside in that case however, differed fundamentally from that which this Court granted ex-parte in so far as it actually required the defendant: 'to provide security in the sum of $3,000,000 ...'. No such requirement is imposed in this instance.

Needless to say I cannot accept that the Court's orders offended any of the parameters set out in the above case. The traditional or accepted form of a Mareva order was described by Robert Goff J. in A. v. C. (1981) 1 Q.B. 956 at p.959 as being:

"... in a very wide form; it restrains the defendant from removing from the jurisdiction or otherwise disposing of or dealing with any of his assets within the jurisdiction ... save as in so far as such assets do not exceed in value the sum of the plaintiff's claim."

Nor in my view, and contrary to defence counsel's submissions, does the Court's order have the 'improper effect' of granting or securing to the plaintiff company, a fund against which it may enforce any judgment it may eventually obtain. Quite plainly it does not.

Nevertheless it is of assistance to recall the observations of Ackner L.J. in Bekhor Ltd. v. Bilton [1981] EWCA Civ 8; (1981) 1 Q.B. 923 when he said of a Mareva injunction at p.941:

'It provides a limited exception to the general rule that the court will not normally grant an injunction to restrain a defendant from parting with his assets so that they may be preserved in case the plaintiff's claim succeeds.'

and later at p.942:

'... The Mareva plaintiff, who has satisfied the guidelines ... and in particular who has provided adequate grounds for believing that there is a risk of the defendant's assets being removed before the judgment or award is satisfied, is in a privileged position ...'

In Chartered Bank v. Daklouche (1980) 1 ALL E.R. 205 where 'fraud' had been pleaded as a 'cause of action' against the defendant husband alleging inter alia that he was part of a conspiracy to defraud his creditors, Lord Denning M.R. in extending the Mareva injunction in that case against both husband and wife said at p.208:

"It is very easy to transfer money from one bank to another at a moment's notice."

and later at p.210 the learned Master of Rolls said:

"The law should be that there is jurisdiction to grant a Mareva injunction, even though the defendant may be served here. If he makes a fleeting visit, or if there is a danger that he may abscond or that the assets or moneys may disappear ... a Mareva injunction can be granted."

Eveleigh L.J. for his part in supporting the 'cause of action' endorsed a passage in Kerr on Fraud and Mistake (7th edn.) where the learned author wrote:

"Civil courts have an original and inherent jurisdiction to relieve against every species of fraud not being relief of a penal nature ... Deeds, obligations, contracts ... may be the instruments to which parties resort to cover fraud, ... but none of such devices (and here I would include a sham company) or instruments will be permitted by a Court of Equity to obstruct the requirements of justice."

(See also: TSB Private Bank International S.A. v. Chabra (1992) 1 W.L.R. 231)

There is no merit in defence counsels submissions (4) and (5) which are accordingly dismissed.

As for submissions (2) & (3), Lord Denning M.R. said in Third Chandris Shipping Corp. v. Unimarine (1979) 2 ALL E.R. 972 at 985:

"The plaintiff should give some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied ... No one should wish any reputable foreign company to be plagued with a Mareva injunction ... But there are some foreign companies whose structure invites comment ..."

In the same case at p.987 Lawton L.J. said:

"... an affidavit in support of a Mareva injunction should give enough particulars of the plaintiff's case to enable the Court to assess its strength and should set out what enquiries have been made about the defendant's business and what information has been revealed including that relating to its size, origins, business domicile, the location of its known assets and the circumstances in which the dispute has arisen."

In this latter regard counsel for the plaintiff company forcefully submitted that upon the second defendant's own admission the first defendant company 'has always run the business on overdraft facilities and has no funds to transfer out'. Counsel then highlighted the apparent 'speed' with which, within a fortnight of the plaintiff company's payment of almost $US98,000 cash into the defendant company's bank account, the money appears to have vanished into thin air.

A search of the Companies Office also reveals that the first defendant company is a private 'family' company with two (2) paid up dollar shares held by the second defendant and his wife and in which the second defendant's three (3) sons and a daughter are employees and directors.

In light of the foregoing counsel for the plaintiff company submits with some force that the second defendant is not a mere shareholder of the 1st defendant company, he is in effect its managing director and the father and husband of the family members that comprise the employees of the 1st defendant company and therefore the defendant company may be described as an 'alter-ego' of the second defendant.

The second defendant for his part produced a Financial Statement of the 1st defendant company for the year ending 30 June 1996 and an opinion from his bankers, but, as counsel for plaintiff company points out, the accounts are unaudited and cannot be said to present a 'true and fair view' of the company's financial position, and the bank's opinion is expressly couched in terms denying 'responsibility on the part of the bank or its officers'.

Furthermore and despite the seemingly sound trading position that the 1st defendant company's accounts appears to present, plaintiff's counsel submits there is no denying the second defendant's sworn admission that the company 'has always run the business on overdraft facilities' and 'all (of the defendants assets) are secured by various securities to the Bank'.

In considering this aspect of the 'Mareva equation', I have also been much assisted by the observations of the Court of Appeal (N.S.W.) in Patterson v. B.T.R. Engineering (Aust.) Ltd. (1989) 18 N.S.W.L.R. 319 where the Court Held:

"(2) It would be undesirable to endeavour to formulate a precise definition of the standard of proof required to establish the existence of (a danger that by reason of the defendant absconding, the plaintiff, if he succeeds, will not be able to have his judgment satisfied); however it is not appropriate to use the test that the Court only intervenes if there is more than a usual likelihood of such a danger.

(3) Evidence which is relevant to establish a prima facie case may be considered in determining whether there is a danger of the type required.

(4) Accordingly, where a prima facie case has been established that a defendant fraudulently misappropriated a large sum of money, that evidence could be relied upon to infer that if such sum was still under the control of the defendant, he would not preserve it for the plaintiff should he be successful in the action."

In particular, Gleeson C.J. said in his judgment at p.325:

"The present is not a case in which a plaintiff who claims simply to be an unsecured creditor seeks to prevent a dissipation of assets which have no connection with the claim in question. This is a case in which the plaintiff claims that the defendant, making use of a corporation controlled by him, fraudulently misappropriated a large sum of money which, if it is still under the control of the appellant, would be quite likely to constitute, directly or indirectly, the bulk of his assets."

I am more than satisfied that similar observations may be made in this case against the defendants including the second defendant and accordingly the application to dissolve the injunction is refused with costs to the plaintiff.

D.V. Fatiaki
JUDGE

At Suva,
6th March, 1997.

Hbc0018j2.97s