Gilmour v Kubs [1999] FJHC 108; Hbc0655d.98s (13 September 1999)

Fiji Islands - Gilmour v Kubs - Pacific Law Materials

IN THE HIGH COURT OF FIJI

AT SUVA

CIVIL JURISDICTION

CIVIL ACTION NO. HBC0655 OF 1998

BETWEEN:

:

DAVID GILMOUR
First Plaintiff

FIJI WATER, LLC
Second Plaintiff

Third Plaintiff

AND:

JANUSZ KUBS
Defendant

W. Clarke for taintiaintiffs
Dr. M.S. Sahu Khan for the Defendant

Date of Hearing: 30th August 1999
Date of Interlocutory Judgment: 13th September 1999

INTERLOCUTORY JUDGMENT

This action was begun by a Writ issued on the 21st of December 1998 in which the Plaintiff was named as the present Third Plaintiff and the present Defendant as the Defendant.

The Writ bore an Indorsement of Claim in which paragraphs 1 and 2 sought two declarations:

(1) That the Defendant is in breach of his contract with the Plaintiff, entered into on the 27th of October, 1997 whereby the Defendant sold his shares in the Plaintiff to a Mr. David Gilmour, who now appears in the amended Writ of Summons filed on the 3rd of September 1999 as the First Plaintiff.

(2) A declaration that the Defendant is in breach of his said contract whereby the Defendant undertook not to:

(a) at any time disclose for any purpose any information concerning the business, accounts or finance of the Plaintiff;

(b) until 31st December 1999 directly or indirectly either alone or jointly with carry on or be engaged or concerned or interested in any business which competes with the principal activities of the Plaintiff.

And undertook to not:

(a) at any time disclose for any purpose any information concerning the business, accounts or finance of the Plaintiff as well as any of its customers' or clients' transactions or affairs which may or may have come to his knowledge;

(b) until 31st December 1999 directly or indirectly either alone or jointly with carry on or be engaged or concerned or interested in any business which competes with the principal activities of the Plaintiff.

Paragraph 3 of the Indorsement claims an injunction to restrain the Defendant from doing certain things:

(a) to restrain the Defendant or his agent, whether by himself or together with another from taking part or assisting either directly or indirectly in any activity which is the same, equivalent or similar or is likely to be any thereof with the principal activity of the Plaintiff, namely the natural spring mineral water or beverage business and any other activity ancillary thereto;

(b) to restrain the Defendant from disclosing to any third party any information relating to, dealing with, having regard to or touching on the principal business of the Plaintiff namely, the natural spring mineral water or beverage business and any activity or information ancillary thereto;

(c) to restrain the Defendant, his representative or his agent, whether by himself or together with another from having any further contact with any person, company, business or agent thereof whose business or activity either principally or in effect has or is likely to have any bearing on or connection to any part of the manufacture, distribution, raw material supply, planning, treatment, employment, infrastructural process or construction of the Plaintiff's principal business, namely the natural spring mineral water or beverage business;

(d) to restrain the Defendant, his representative or his agent whether by himself or together with another from having any further contact with any director, shareholder, officer or agent or representative thereof of Magic Mountain Springs (Fiji) Ltd.;

(e) to restrain the Defendant, his representative or his agent, whether by himself or together with another from having any further contact with any director, shareholder, officer or agent or representative thereof of any company or person(s) who is, is likely to be or planning to be engaged in the same or similar business activity as the Plaintiff, namely the natural spring mineral water or beverage business.

On the 21st of December the Plaintiff also issued an inter partes Notice of Motion for orders in the terms of paragraph 3 of the Indorsement of Claim. This Notice of Motion was returnable on the 21st of January 1998 and was supported by an affidavit of Dharmesh Harilal who is the Plaintiff-Applicant's Financial Controller.

The affidavit deposed that the Defendant (Respondent) was a shareholder and Manager of a company called "Nature's Best Products Company" (NBPC) in 1993. This company specialised in the bottling and sale of natural mineral water under the name "Nature's Best". The company was incorporated in Fiji in May 1993. The affidavit then deposes the following:

(i) That Mr. David Gilmour, First Plaintiff who was the President and majority shareholder of Natural Waters of Viti Ltd. invested in NBPC through a company, Pacific Resources Holdings Ltd which became a majority shareholder thereof.

(ii) Pacific Resources Holdings Ltd changed its name to Wakaya Group Holdings Ltd.

(iii) Mr. Gilmour and the Defendant (Respondent) recognised the fact that NBPC was unlikely to be a commercially viable business. They therefore decided that they should relocate and form another company.

(iv) That to further their plans, Mr. Gilmour and the Defendant changed the name of NBPC to that which is now under the amended Writ the Third Plaintiff.

The Third Plaintiff's principal business was stated to be the extraction, bottling, distribution and sale of natural mineral spring water (i.e. the same business as that of NBPC).

(v) At all material times the Defendant (Respondent) was a shareholder and employee of the Third Plaintiff.

(vi) That in the course of the Defendant's employment he was required to explore and locate a suitable site from which to draw and extract natural mineral water for the Third Plaintiff's business.

This exploration and employment made the Defendant privy to certain specialised secret information and knowledge as to the location of high quality sites from which to draw and extract natural mineral water.

Considerable cost was incurred by the Third Plaintiff in travel, identification of sites, geological surveys, and testing of water quality at those sites.

(vii) After several sites were identified it was decided that the plant would be established in Tavua and the land leased from the Yaqara Pastoral Company. The Ministry of Lands approved the lease of the land at which it now operates its factory to the Third Plaintiff.

(viii) The Defendant in his capacity as Managing Director of the Third Plaintiff applied by letter dated 26th April 1996 to the Rakiraki Provincial Council for registration of the water source.

(ix) That in September 1997, relations broke down between the Defendant and other shareholders and staff of the Third Plaintiff, as a result of which it was decided that the Defendant and his wife sell their shares to Mr. David Gilmour. A copy of the sale and purchase agreement is annexed to Mr. Harilal's affidavit and I shall have to refer to this shortly.

(x) That as part of the sale and purchase agreement, the Defendant and his wife, Mama O'Henre undertook to not:

(a) at any time disclose for any purpose any information concerning the business, accounts or finance of the Third Plaintiff;

(b) until 31st December 1999 directly or indirectly either alone or jointly with carry on or be engaged or concerned or interested in any business which competes with the principal activities of the Applicant (Third Plaintiff).

A further agreement was made between the Defendant and the Second Plaintiff, wrongly described in the affidavit as the Third Plaintiff, by which for consideration of $F100,000.00 the Defendant was retained by Fiji Water, LLC as a consultant. The Defendant undertook not to make similar disclosures to those previously mentioned. Mr. Harilal deposes that the Defendant was paid the $100,000.00 due to him under the consultancy agreement. He then deposes the following:

(i) that the Third Plaintiff came into possession of an Offering Memorandum shortly before the date of the affidavit which shows that the Defendant was working with a company called Magic Mountain Springs (Fiji) Ltd;

(ii) the proposed site at which Magic Mountain was to establish its plant is in the same valley as the Third Plaintiff's plant and is an area which was also surveyed by the Third Plaintiff when it was seeking a suitable site.

Mr. Harilal believes that the Defendant is responsible for the decision to set up the proposed plant as to his knowledge none of the members or officers of the company are familiar and experienced in the mineral water industry and would have been privy to the fact that there is a supply of mineral water there.

Mr. Harilal also alleges that the Defendant was negotiating with a company, Nissei ASB Pte Ltd which was a company with which the Third Plaintiff developed its bottle design and acquired its moulds and machinery for bottle production, for acquisition of the same.

The deponent then alleges that the Defendant's conduct was in breach of his agreement with the Third Plaintiff and his actions are causing serious loss to the Third Plaintiff as its trade secrets and experience are being disclosed and used by the Defendant.

The inter partes Notice of Motion was not served on the Defendant because the Third Plaintiff could not find him in Fiji. An affidavit sworn by Rohit Narayan on the 22nd of January 1999 stated his belief that the Defendant was in New Zealand.

On the 22nd of January the Third Plaintiff issued an ex parte Notice of Motion relying on the affidavit of Rohit Narayan injuncting the Defendant temporarily from engaging in any conduct which, broadly speaking was likely to jeopardise the business of the Third Plaintiff. Particulars of the actual orders sought appear in the Notice of Motion but the Third Plaintiff also sought an order for substituted service on the Defendant of the ex parte Notice of Motion. I granted an order in terms of the Motion.

With that history I now come to the Summons presently before me which was issued on the 18th of February 1999 by the Defendant seeking an order that the interim injunction of the 22nd of January be dissolved.

The Summons was supported by an affidavit of Mama O'Henre who alleges that David Gilmour now the First Plaintiff used undue influence to persuade the Defendant to sell his shares in the Third Plaintiff. No details of this are given. The rest of the affidavit is generally a denial of the allegations made on behalf of the Third Plaintiff.

Dr. Sahu Khan who appeared for the Defendant on the application to dissolve the injunction argued two principal grounds and some other subsidiary grounds which I shall discuss briefly later. The two principal grounds were non-disclosure of material facts by the Third Plaintiff when obtaining the injunction and failure to give an undertaking in damages. As to the first he said that the allegation in the Indorsement of Claim that the Defendant was in breach of his contract with the Plaintiff was false in that the contract was not with the Third Plaintiff but with David Gilmour now the First Plaintiff. The Third Plaintiff concedes this but says that is insufficient reason for dissolving the injunction. Secondly he said that in the first Statement of Claim which was filed on the 18th of June 1999 David Gilmour is said to be the sole shareholder and director of the Third Plaintiff. Therefore it is said that company is operating illegally and therefore the allegation amounts to critical non-disclosure. Reliance is placed on Section 4 of the Companies Act Cap. 247 which states that any incorporated company must contain at least two shareholders.

I can dispose of that allegation immediately by saying that in paragraph 4 of the affidavit of Dharmesh Harilal he deposes that David Gilmour was a majority shareholder of the Third Plaintiff. In any event the Third Plaintiff was duly registered on 26th of February 1996 and the Certificate of Registration was annexed to Mr. Harilal's affidavit. Therefore there is no merit in this submission.

The next submission is more interesting in that it is true for reasons which have so far not been disclosed to the Court that the agreement of the 27th of October 1997 was certainly with Mr. David Gilmour and not with the Third Plaintiff. This is not disputed by the Third Plaintiff but in my judgment that is not the end of the matter for the Defendant. Clause 7.1.1 and 7.1.2 of the agreement read as follows:

"7.1.1 at any time after completion disclose to any person or himself or herself use for any purpose (and shall use his or her best endeavours to prevent the publication or disclosure of) any information concerning the business, accounts or finances of the Company or any of the Company's intellectual property rights, or any of the clients or customers transactions or affairs which have or may have come to his or her notice;

7.1.2 for the period from the Completion Date until 31st December 1999 without the Purchaser's prior written consent either alone or jointly with or as manager, agent or consultant or employee of any person, directly or indirectly carry on or be engaged or concerned or interested in any business which competes with the principal activities of the Company."

Clause 8.1 provides:

"In further consideration for the Purchaser's obligations under this Agreement each of the Vendors agrees for a period of 13 months after the Completion Date to provide assistance to the Company in connection with the operation and smooth running of the business of the Company wherever that should arise and to travel to the factory in Yaqara promptly at their own expense provided that if more than 5 journeys are required during this period of 13 months (but not otherwise) then the Company shall pay to the Vendors their reasonable travelling expenses."

I therefore deduce from this agreement that although it is not made in its terms with the Third Plaintiff its clear purpose is to protect the Third Plaintiff against any disclosure of information relating to the company of which the Defendant was privy and to assist the Third Plaintiff by using the Defendant's skills as Managing Director in the operations of the company for a period of 13 months.

The question of non-disclosure of material facts was considered by Fatiaki J. in Civil Action No. 0057 of 1997 Shipbuilding (Fiji) Limited v. Murphy and Another in an unreported judgment dated the 10th of April 1997. His Lordship cited two cases in the English Court of Appeal which follow each other in [1988] 3 ALL E.R., the first being Brink's-MAT Ltd v. Elcombe and Others p.188 and the second immediately following, Dormeuil Frères v. Nicolian International (Textiles) Ltd.

On p.199 of his judgment in the latter case Browne-Wilkinson V-C said:

"....if, in the circumstances existing when the matter comes before the Court inter partes justice requires an order continuing the ex parte injunction or the grant of a fresh injunction, such an order can be made notwithstanding the earlier failure to make such disclosure. Moreover, there is authority that, contrary to the law as it was originally laid down, there is no absolute right to have an ex parte order obtained without due disclosure set aside: There is a discretion in the Court whether to do so or not."

His Lordship then referred to the previous decision in Brink's MAT Ltd. the Headnote to which reads in part:

"Whether a fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issue to be decided by the judge on the application. The fact that the non-disclosure was innocent, in the sense that it was not known to the applicant or that its relevance was not perceived, is an important, but not decisive, consideration in deciding whether to order an immediate discharge. However the Court has a discretion notwithstanding proof of material non-disclosure which justifies the immediate discharge of an ex parte order to continue the order or to make a new order on terms."

In Brink's MAT Ltd. v. Elcombe Slade LJ said at pp. 193-194:

"The rule that an ex parte injunction will be discharged if it was obtained without full disclosure has a twofold purpose. It will deprive the wrongdoer of an advantage improperly obtained: see R. v. Kensington Income Tax Commissioners, ex parte Princess Edmond de Polignac (1917) 1 KB 486 at 509. But it also serves as a deterrent to ensure that persons who make ex parte applications realise that they have this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty. Nevertheless, this judge-made rule cannot be allowed itself to become an instrument of injustice. It is for this reason that there must be a discretion in the court to continue the injunction, or to grant a fresh injunction in its place, notwithstanding that there may have been non-disclosure when the original ex parte injunction was obtained."

Applying these two cases in the circumstances of the present case I do not consider the failure of the Third Plaintiff to disclose that there was no contract between the Defendant and itself is fatal to the continuation of the injunction. Obviously the contract was intended primarily to protect the Third Plaintiff although in so doing it would also protect David Gilmour the principal stockholder. It may well be that when the application was made to me in December 1998 and January 1999 the relevance of this was not perceived but in my judgment it is not fatal to the continuation of the injunction. I therefore reject the Defendant's first submission. I turn now to two subsidiary arguments addressed to me by Dr. Sahu Khan the first that there was no undertaking in damages given by the Third Plaintiff when obtaining the injunction and the second that the agreement is in any event contrary to the Fair Trading Decree 1992.

The requirement of an undertaking as to damages from a Plaintiff seeking interlocutory intervention is for the purpose of safeguarding the Defendant from being without remedy for damage suffered as a result from an interlocutory order which subsequently might be held ought not to have been made. A useful discussion of the principles to be applied is to be found in the Victorian Full Court decision in National Australia Bank Ltd. and Others v. Bond Brewing Holdings Ltd. in [1991] VicRp 31; (1991) 1 VR 386 at pp. 574 to 588. At pp. 576-578 Kaye J. cites several cases of which I shall mention only two. The first is Air Express Ltd. v. Ansett Transport Industries (Operations) Pty. Ltd. [1981] HCA 75; (1981) 146 CLR 249. Gibbs J. at p.311 made the following statement:

"The object of requiring a plaintiff who seeks an interlocutory injunction to enter into an undertaking of this kind is to attempt to ensure that a defendant will receive compensation for any loss which he suffers by reason of the grant of the injunction if it appears in the event that the plaintiff was not entitled to obtain it. The insistence upon the giving of an undertaking is a very important, if not an essential, means of preventing injustice from being done by the court when it makes an order at an interlocutory stage, before the rights of the parties have been finally determined. The court has a discretion not to enforce such an undertaking, but unless the defendant has been guilty of conduct that would render it inequitable to enforce the undertaking it would seem just, speaking generally, that a plaintiff who has failed on the merits should recompense the defendant for the damage that he has suffered as the result of the making of the interlocutory order. However, it is perfectly clear, and it appears from the words of the undertaking themselves, that the only damages to which a defendant is entitled are those which he has sustained by reason of the grant of the injunction."

Stephen J., at pp. 318-19, after observing the undertaking is given to the court and not to the party injured, stated:

"A claimant under an undertaking cannot complain of any breach of contract nor of any breach of duty, tortious or otherwise, owed to him, nor, of course, of any breach of the undertaking. What occurs when such an undertaking is extracted from a plaintiff is that the court, as a condition of its grant of interim or interlocutory injunctive relief, has ensured that, should it turn out that that relief should never have been granted, it will have the power, so far as monetary compensation allows, to make good the harm which the grant has done to the defendant. The court acquires powers to do justice between the parties which it would not otherwise possess. As North J. said in Attorney-General v. Albany Hotel Co. [1896] UKLawRpCh 148; (1896) 2 Ch. 696, at p.699: `If it should subsequently appear that such an order had been improvidently made, it is difficult to see how, in the absence of such an undertaking, the defendant could recover from the plaintiff the damages which were really sustained by him by reason of the improper order of the Court.'"

However there is nothing in the cases so far as I can ascertain which says the undertaking must be given at the time the injunction is granted. In my judgment it can be given at any time before judgment is pronounced.

During argument counsel for the Plaintiffs gave such an undertaking and I accept it. In any event there is nothing before me to suggest that the Defendant has suffered any damage to date as a result of the injunction. Indeed counsel for the Plaintiffs submitted that the Defendant had received $686,000.00 from the Third Plaintiff as a result of the two agreements and it may well be in my view that that would be the most, if any damage, he has suffered. Of course at this stage I make no final determination of this because the matter is in its early stages. I therefore reject this submission.

The last submission of Dr. Sahu Khan on which I comment only briefly, because it seemed to me he did not press it with any great enthusiasm, is that the Third-named Plaintiff failed to draw to my attention Sections 27 and 29 of the Fair Trading Decree 1992. Section 27 prohibits contracts affecting competition and Section 29 makes unenforceable covenants affecting competition. It was submitted by Dr. Sahu Khan that the first agreement here of the 27th of October 1997 is such a contract. I can not agree. In Civil Action No. HBC0047 of 1997 Pickering and Another v. Murphy and Others in my unreported judgment of 28th November 1997 at p. 14 I said that I agreed with a statement from counsel for one of the Defendants that the whole thrust of the Fair Trading Decree is to protect the public and not a private contractual arrangement. I understand that my brother Fatiaki agrees with this view. Of course if I were to accede to this submission it would naturally mean that the Defendant is liable to refund the money which he has received under the agreement and I doubt whether he would wish that.

For these reasons I dismiss the Summons for Dissolution of Injunction and order that costs be in the cause.

JOHN E. BYRNE
JUDGE

Cases referred to in interlocutory judgment:

National Australia Bank Ltd. and Others v. Bond Brewing Holdings Ltd. [1991] VicRp 31; (1991) 1 VR 386.

Pickering and Another v. Murphy and Another HBC0047 of 1997 - unreported judgment of Byrne J. of 28th November 1997.

Civil Action No. HBC0057 of 1997 Shipbuilding (Fiji) Limited v. Murphy and Another - unreported judgment of Fatiaki J. dated 10th April 1997.

The following additional cases were referred to in argument:

Civil Appeal No. 66/84 Rauzia Mohammed v. ANZ Banking Group - unreported judgment of Court of Appeal dated 20th July 1985.

Rex v. Kensington Income Tax Commissioners (1917) 1 KB 486.

Bank of Baroda v. Akhil Chaudary Civil Action No. 50 of 1986.

Ghana Prasad and Another v. Prasad and Others Civil Appeal No. 1 of 1987 - unreported judgment of Court of Appeal dated 18th July 1988.

K.R. Latchan Brothers Ltd. v. Nausori Daily Transport Ltd. Civil Appeal No. 77 of 1984.

Hbc0655d.98s