MI Motors International v Tyre Power (Fiji) Ltd [2002] FJHC 263; HBC0383D.2002S (19 November 2002)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

ACTION NO. HBC0383D OF 2002S

BETWEEN:

M.I. MOTORS INTERNATIONAL
a limited liability company having its registered office at
437 Leland Avenue, San Francisco, California,
United States of America.
PLAINTIFF

AND:

TYRE POWER (FIJI) LIMITED
a limited liability company having it=s registered office at
Unit 12, Top Floor Kasabia Building, 68 Suva Street, Suva.
FIRST DEFENDANT

AND:

FLEET SERVE (FIJI) LIMITED
formerly known as TYRE POWER (FIJI) LIMITED
a limited liability company having its registered
office at 374 Grantham Road, Raiwaqa, Suva.
SECOND DEFENDANT

AND:

JAGDISHWAR REDDY
father=s name Yenkat Reddy of 374 Grantham Road,
Raiwaqa, Suva, Company Director.
THIRD DEFENDANT

AND:

SASHI KALA
father=s name Jagnath of 374 Grantham Road, Raiwaqa, Suva,
Company Director.
FOURTH DEFENDANT

Counsel for the Plaintiff: G. O=Driscoll for Messrs Iqbal Khan & Associates
Counsel for the Defendants: S. Lateef, Lateef & Lateef

Date of Decision: 19.11.02
Time of Decision: 9.30 a.m.

DECISION

On 24 September, 2002 the Plaintiff obtained from this Court a Mareva Injunction restraining the defendants from dealing in any way whatsoever with their assets, whether jointly or individually owned, for up to the value of $US34,506.58. This amount represents the total value of two (2) AJeep Cherokee@ motor vehicles which, the plaintiff sold to the 1st defendant Company but for which no money has been paid by the said defendant, to the plaintiff. The plaintiff is a US Company with its registered office in San Francisco, California United States of America.

On 3 October 2002 the terms of the injunction was varied to allow the 2nd defendant to pay out salaries and wages of its employees.

The Court, on 8 October 2002 heard Counsel for both parties on the defendants= motion to dissolve the injunction.

Very briefly, the facts are these. The third defendant on behalf of the 1st defendant, ordered and obtained from the plaintiff two (2) American AJeep Cherokee@ vehicles. The order was valued at US$34,506.58. The delivery was made in August 1996. Since then, the plaintiff has been trying but in vain, to extract payment from the defendants. A Winding-Up petition notice was finally served on the defendants in August 1999 and remains to be heard, at the time of this hearing.

The 3rd defendant does not deny that the 1st defendant had received the two vehicles in 1996. Counsel for the defendants confirmed that both vehicles have in fact been sold. There had originally been some disagreement as to the amount (US$46,321.18 claimed in the Winding-Up Petition compared to US$34,506.58 shown in the Bill of Lading) but in his affidavit in support of the injunction application, the plaintiff acknowledged that the amount of debt which after negotiations between the parties, had been agreed at US$34,506.58.

In his affidavit in support of the Motion to dissolve the injunction, the 3rd defendant who is a director of both the 1st and 2nd defendants, says that the debt is one that is owed by the 1st defendant Company only. And while he remained the majority shareholder in the 1st defendant, another person, a Anishwar Reddy, was the majority shareholder in the 2nd defendant. The legal position, according to Counsel for the defendant, is that while the directors of the 1st and 2nd defendant Companies, may be the same, they nevertheless remain as separate legal entities. There is no nexus between the two companies which would enable the plaintiff to include the 2nd defendant as a party to the proceedings. While they share the same premises as work place or office facility, their registered offices are separate.

On the other hand, the plaintiff claims that the nexus between the 1st defendant Company and the 2nd defendant Company is very strong that the Court should consider them one and the same. For example, the directors in both companies are identical although their share-holding capacities differ from one to the other. Further, the two Companies operate their businesses from the same premises. Both deal in the general business of car and other vehicles and provisions, services and maintenance of the same.

The plaintiff also points to two additional features of the relationship of the 1st and 2nd defendants that make their relationship different from others. First, is the fact that one of the ACherokee Jeep@ vehicles the subject matter of this proceedings, had been sold, and presumably, still in possession of Anishwar Reddy, the majority shareholder in the 2nd defendant Company. Secondly, the plaintiff annexed (Annex KY11) to his affidavit, a page from the Fiji Telephone Directory 200. Under the entry ATyre Power Fiji Ltd.@ (the 1st defendant,) also appears, in bracket, the words: ASee Fleet Serve Fiji@, (the 2nd defendant). All of these the plaintiff argues, tend to show that the 1st and 2nd defendants are one and same entity. The only difference, according to the Counsel for the Applicant, is that the 1st defendant did not change its name to that of the 2nd defendant but instead incorporate a new Company altogether. But according to the plaintiff, such action was solely motivated by the 1st and 3rd defendants attempt to use the Corporate Veil to avoid its creditors.

The law on corporate entity principle is well settled since Salomon vs. Salomon [1897] AC 22 H.L. supra p.63, which states that the Courts will not treat a company as the Aalias agent, trustee or nominee@ of its members.

However, the Courts have granted exceptions to the veil of incorporation in cases where the legislature has specifically permitted it to be so, and in instances where the strict application of the Salomon=s principle would result in injustice and inconvenience.

Clearly, in the Court=s view, there is a serious issue of law raised by the plaintiff on whether the Corporate Veil is being used by the defendants to avoid their creditors.

Counsel for the defendants further argues that the plaintiff had already begun Winding-Up proceedings against the 1st defendant. This according to the defendants, and the fact that the matter had not been disclosed to the Court, amounted to the abuse of the process of the Court (O.18 r.18).

The plaintiff Counsel on the other hand, contends that the Winding-Up Petition against the 1st defendant, which was, specifically referred in the plaintiff=s supporting affidavit, does not exclude the present proceedings, especially if it appears to the plaintiff that the assets of the 1st defendant are being dissipated.

The defendants argue that the plaintiff has no evidence to show any fraud committed by the 1st defendant in the course of the Winding-Up proceedings, although the plaintiff intimated in the course of his Counsel=s argument, that possible offences may have been committed by the 1st defendant=s officers under sections 225, 313 and 319 (1) (e), (h) and (m) of the Companies Act (Cap. 247).

The defendant has also raised the issue of the inclusion in the plaintiff=s affidavit of Awithout prejudice@ communication between the parties in the course of negotiations. Legal authority is well settled as summarised in Field vs Commissioner for Railways (NSW) [1957] HCA 92; (1955) 99 CLR 285. The High Court of Australia stated (p.292):

AAs a matter of policy the law has long excluded from evidence admissions by words or conduct made by parties in the course of negotiations to settle litigation. The purpose is to enable parties engaged in an attempt to compromise litigation to communicate with one another freely and without the embarrassment which the liability of their communications to be put in evidence subsequently might impose upon them. The law relieves them of this embarrassment so that their negotiations to avoid litigation or to settle it may go on unhampered.@

In the present circumstances, the exchange of communication by letters between the solicitors of the parties bearing Awithout prejudice@ stamps did not relate directly to any attempts at settlement. They consisted mainly of general denial of liability although the letter of 1 July 2002 from the defendant=s solicitors, did mention a payment scheme of sort.

The test to exclude these correspondence is whether the contents of the letters are reasonably incidental to the negotiations to a settlement. In my view, the contents fell outside the area of protection and was properly included in the plaintiff=s affidavit. In any case, the objection by the defendants would certainly appear nugatory given that there is already admission of the debt owed to the plaintiff by the 1st defendant.

Mareva injunction is a creation of the English Courts following the case of AMareva Compania Naviera SA vs International Bulk Carriers SA The Mareva [1975] 2 Lloyd=s Rep. 509. The decision stated the defendant is restraint by himself or by his agents or servants from removing from the jurisdiction or otherwise disposing of or dealing with those of his assets that will or may be necessary to meet the plaintiff=s pending claim. Since then, the concept has extended its scope from purely commercial cases to all other cases in the High Court AWhere the plaintiffs and the defendants are comparably placed@ (per Lord Hailsham in Siskina v Distos Compania Naviera SA [1979] AC 210 AT 261). It has now become a remedy of general application, available against both foreign as well as domestic defendants and especially in situations where the plaintiff has shown a very strong or indisputable claim against the debtor coupled with the plaintiff establishing a reasonable ground for belief that the defendant will otherwise attempt to frustrate satisfaction of judgment.

Given its far-reaching implications, the Court=s have, in dealing with its application, always approached it with extreme care. In this regard, the guidelines suggested by Mustill J in Third Chandris Corporation vs Unimarine S.A. (1979) QB 64 (as set out in the Supreme Court Practice (White Book) 1985 Vol.1 p.457) are factors that the Court needs to satisfy itself before considering whether to grant the relief sought.

There is an additional consideration of the Mareva that Lord Diplock alluded to in the Siskina (supra). At p.256 his Lordship said:

AA right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It depends on there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the Court. The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action. It is granted to preserve the status quo pending the ascertainment by the Court of the rights of the parties and the grant to the plaintiff of the relief to which his cause of action entitles him, which may or may not include a final injunction.@

Kerr L J advanced a stage further in his pronouncement in Z Ltd vs A-Z and AA - LL [1982] 1 All ER 556 when he added (at p.572):

AIt follows that in my view Mareva injunctions should be granted, but granted only, when it appears to the Court that there is a combination of two circumstances. First when it appears likely that the plaintiff will receive judgment against the defendant for a certain or approximate sum. Second, when there are also reasons to believe that the defendant has assets within the jurisdiction to meet the judgment in whole or in part, but may well take steps designed to ensure that these are no longer available or traceable when judgment is given against him.@

In the present case there can be no doubt, on the evidence before the Court, that there exists a strong and Agood arguable case@ for the plaintiff=s pecuniary claim for debt or damages.

Finally, while the plaintiff has in its affidavit made the usual undertaking as to damages, the fact remains that it is located out of jurisdiction. Under the circumstances, it is only appropriate that the Court will, in addition to the undertakings already made, require payment of security.

The defendant=s motion to dissolve the injunction is dismissed.

The plaintiff is ordered to pay $3,500 into Court within 14 days as security and file its Statement of Claim within the same days.

The costs to be in the cause.

F. Jitoko
JUDGE

At Suva
19 November 2002