John Beater Enterprises Pty Ltd v Ho [1999] FJHC 119; Hbc0249r.99s (12 November 1999)

Fiji Islands - John Beater Enterprises Pty Ltd v Ho - Pacific Law Materials

IN THE HIGH COURT OF FIJI

AT SUVA

CIVIL JURISDICTION

CIVIL ACTION NO. 0249 OF 1999

BETWEEN:

:

JOHN BEATER ENTERPRISES PTY LTD
Plaintiff

AND:

IGN=CENTER>1. ANTHONY HO
2. WILLIAM HO
Defendants

Mr. U. Rat. Ratuvili for the Plaintiff
Mr. S. Samuels for the Defendants

REASONS FOR DECISION

This is an application to set aside a default jud entered against the defendant's on 25th June 1999. /b>. The original Writ was issued out of the High Court on 19th May 1999 and was personally served on the defendants on 24th May 1999. An appearance was entered for the defendants on 28th May 1999 and, on 22nd June 1999, a notice of change of solicitors was filed by the defendant's present solicitors.

In the absence of a defence, default judgment was sealed and copies of the default judgment were served on the defendants on 30th June 1999. On 8th July 1999 the present application was filed. It is supported by an affidavit and includes a proposed Statement of Defence and counterclaim.

Having regard to the correspondence that passed between the defendants former and present solicitors and the plaintiff's solicitors, I am more than satisfied that there has been no unreasonable or inexcusable delay on the defendants part in filing the present application, and no criticism can be made on that score.

During the course however of his opening submissions defence counsel made much of plaintiff counsel's failure to respond to defence counsel's written requests for an extension of time within which to file a Statement of Defence and to a rule of practice and ethics which counsel says was in two High Court judgments neither of which was provided to the Court.

In this regard given the plaintiff company's affidavit of service that the claim was personally served on both defendants on the 24th of May 1999, the default judgment in my view, was regularly entered. As for the 'so-called' rule of practice I would merely draw counsel's attention to the recent observations of the Fiji Court of Appeal in Wearsmart Textiles Ltd. v. General Machinery Hire Ltd. and Anor. Civil Appeal No. 30 of 1997 (loose leaf) at p.14.

In brief, the plaintiff's claim is that in October 1994 it sold its hotel businesses in two (2) hotels namely, the Kings Hotel, Nabua and the Kings Hotel, Suva, to a company Ho Investments Limited of which the defendants

are directors. The purchase price was just short of 1 million dollars and was payable in three (3) main instalments, the latter two (2) being payable in turn, in monthly instalments. In order to secure the purchase price Ho Investments Ltd granted a Charge over the businesses to the plaintiff company. The defendants were also required pursuant to Clause 18.1, of the Sale & Purchase Agreement as directors of Ho Investments, to provide personal guarantees, the subject matter of the present action.

It appears that the hotel businesses traded successfully for about eighteen (18) months before problems set in and it began defaulting in its monthly payments of the purchase price to the plaintiff company, as well as, its monthly rentals to the owner of the Kings Hotel, Suva premises.

As a result of the latter 'default' the landlord issued a Distress For Rent Notice dated 9th October 1996 and a walking possession agreement was signed by the 1st defendant allowing the business to continue at the Suva premises. As for the former 'default' the plaintiff company acting pursuant to its Charge appointed a manager to attempt to trade the hotel businesses out of its financial difficulties. The Deed of Appointment is dated the 30th September 1996. Suffice it to say that negotiations between the plaintiff company's appointed Manager and the Suva Kings Hotel landlord were unsuccessful in keeping the hotel open and it was effectively closed up by the landlord.

With the above background in mind I turn then to consider the defendants' Statement of Defence and Counterclaim which counsel submits raises the following 'triable issues' namely:

(1) estoppel arising out of the plaintiff's election to pursue its Charge presumably in preference to the defendants' guarantee;

(2) The amount of the debt owed by the defendants under the guarantee; and

(3) The existence of a counterclaim by the defendants against the plaintiff company arising out of its re-taking the hotels.

As to issue (1) above, no authority was cited in support of counsel's submissions but in any event Clauses 10 and 11 of the Deed of Guarantee make it crystal clear to my mind that the submission is without a legal or contractual foundation (See also: FDB v. Inoke Moto and Others and NBF v. Abdul Kadeer Hussain [1995] 41 FLR 12 at pp. 236 and 12 respectively).

As to issue (2) counsel submits that since the 15th of October 1996 the plaintiff company has been in possession of both hotels and has traded profitably without accounting in any way, shape, or form for the profits made to the defendants and accordingly the amount of the debt is disputed.

In my view this submission is misconceived both in fact and in law in so far as the defendants seek albeit as directors, to raise a claim on behalf of Ho Investments Limited. I say this for two (2) reasons.

Firstly, the plaintiff company's appointed manager was physically unable to obtain possession and control of the Suva hotel premises owing to the actions of the landlord on the 15th October 1996 (See: The affidavit of John Morrison dated 13th October 1999).

Secondly, Ho Investments Limited was wound up pursuant to a court order dated 25th January 1997 and the Official Receiver as liquidator confirms in his report dated 4th June 1997 that Ho Investment Limited's failure to meet its rental payments for the Suva premises 'precipitated a chain of events which saw the closure of the Suva hotel from about 15th October 1996 and the eventual destruction of all its assets located on those premises'.

Needless to say in the absence of any physical possession and control of the Suva Hotel premises it is difficult to fathom how ? the plaintiff company could make a trading profit, let alone, account for any to the defendants. The mere paper appointment of a manager is plainly not enough.

What's more plaintiff's counsel submits that after the demand was served on the defendants in March 1999 they have never queried or disputed the amount of the claim, nor have they sought particulars of it, but in any event, counsel submits that the plaintiff's claim is fully supported in its 'proof of debt' submitted to and accepted by the Official Receiver during the course of the liquidation of Ho Investments Ltd.

The third and final ground is a counterclaim pleaded in the defendant's proposed Statement of Defence at paras. 18, 19 & 20 wherein the defendant's claim that the plaintiff company illegally wound-up Ho Investments Ltd. and obtained possession of the Suva Hotel premises and thereafter traded improperly without accounting to them for the profits made. The defendants also claim damages for 'loss of professional reputation and credibility' in their capacity as accountants (not it should be pointed out, as directors of Ho Investments Ltd.).

As to the first counterclaim, given my acceptance of the fact of the closure of the Kings Hotel Suva premises there is no basis whatsoever to support the defendant's claim on that score, and, as for the latter counterclaim, again, given that it was the landlord of the Suva premises not the plaintiff company, who literally shut the business down, I cannot accept that the plaintiff company can be held civilly liable for any adverse perceptions that might arise therefrom.

Furthermore given that Ho Investments Limited was the entity directly involved in the purchase and operation of the hotel businesses albeit under the directorship of the defendants, it's being wound-up pursuant to well-established legal means cannot in my considered view give rise to a claim for damages for loss of professional reputation on the part of its directors.

The winding-up of companies is a frequent occurrence but never before have I heard that the directors of such companies have a personal claim for damages arising therefrom not in their capacity as directors but in some other professional capacity such as is claimed by the defendants. In my view, to allow the defendants to pursue such a counterclaim would unjustifiably sanction a novel 'head of claim' unknown to the law and which runs contrary to the doctrine of 'Saloman v. Saloman'.

For the foregoing reasons I found no merit in the defendants proposed defence or counterclaim and accordingly the application was dismissed with costs.

D.V. Fatiaki
JUDGE

At Suva,
12th November, 1999.

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