WR Carpenter (SP) Ltd v Fijian Holdings Ltd [2003] FJHC 289; HBC00311R.2003S (7 August 2003)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

ACTION NO. HBC0311R OF 2003S

BETWEEN:

W.R. CARPENTER (S.P.) LIMITED
PLAINTIFF

AND:

FIJIAN HOLDINGS LIMITED
1ST DEFENDANT

TAUBMANS PAINTS
2ND DEFENDANT

Counsel for the Plaintiff: Ms L. Vaurasi
Counsel or the 1st Defendant: A. R. Matebalavu: Esesimarm & Co.
Counsel for the 2nd Defendant: R. Prasad: R. Patel & Co.

Date of Ruling: 7th August 2003

RULING

On 31 July 2003, the Plaintiff filed an ex-parte application seeking an injunction to restrain the 1^st Defendant from selling or otherwise disposing of 56,000 shares in the 2^nd Defendant which the Plaintiff had sold to the 1^st Defendant in December 1999. In the alternative, the Plaintiff prays as follows:

“(b) ..... an injunction restraining the Defendant and/or their servants and/or agents from disposing of, transferring of or dealing with or gifting the income received from the sale of their 56,000 shares in Taubmans Paints Fiji Limited acquired from the Plaintiff Company on the 30^th of December 1999 until payment of the sum of $166,251.00 to the Plaintiff.

(c) ...... that the Defendant and/or their servants be directed to pay out to the Plaintiff, not later than 3 days from the date of -conclusion of the sale of their 56,000 shares in Taubmans Paints Fiji Limited acquired from the Plaintiff Company on the 30^th of December 1999 to any third party, the proceeds of the sale in the sum of $166,250.00.”

The Court ordered on 1^st August, 2003 that the Plaintiff’s Motion be made inter-partes and for the Plaintiff to serve the documents on the Defendants by 11.00 a.m. on the same day abridging time of service in the process, and for hearing at 2.30 p.m. in the afternoon.

When the matter was called, the Defendants’ Counsel asked for time to respond. Counsel for the Plaintiff referred to the affidavits in support, citing the very real possibility of the shares being sold by the 1^st Defendant within days. She asked that the Court make an Order for an interim injunction restraining 1^st Defendant from selling or otherwise disposing of the shares pending the hearing of the matter. Following oral submissions by Counsel the Court ordered that the hearing of the Plaintiff’s motion be adjourned to Tuesday 5^th August and that the 1^st Defendant file its affidavits in reply prior to the hearing. At the 5^th August hearing, upon submission by the Plaintiff, the matter was adjourned to the following day, to allow the Plaintiff to file its response to the 1^st Defendant’s affidavits. At the same time, the parties agreed to file submissions before the hearing.

There is no argument as to the factual outline of this case. In 1999, the Plaintiff owned eighty thousand (80,000) ordinary shares in the 2^nd Defendant Company. In December of that year, the Plaintiff decided to sell its 80,000 shares. It sold 24,000 to AK30 Nobel Industries Limited of Australia, and the balance of 54,000, it sold to Fijian Holdings Limited, the 1^st Defendant.

In respect of the Plaintiff’s shares sold to the 1^st Defendant, the parties entered into two (2) Agreements. The first agreement was the Sale and Purchase Agreement dated 30 December 1999 which at paragraph 1 of the same stipulates as follows:

“1. The Purchase price for the said 56,000 shares shall be the sum of $1,846,250.00 [ONE MILLION EIGHT HUNDRED FORTY SIX THOUSAND TWO HUNDRED FIFTY DOLLARS] to be paid as follows:

[a] The sum of $1,540,000.00 [ONE MILLION FIVE HUNDRED AND FORTY THOUSAND DOLLARS] shall be paid by a bank cheque on the date of settlement.

[b] The balance sum of $306,250.00 [THREE HUNDRED SIX THOUSAND AND TWO HUNDRED AND FIFTY DOLLARS] shall be paid immediately. The Purchaser receives dividends on those shares by Taubman Paints Fiji Limited. It is agreed between the parties that the Vendor shall have a lieu on all dividends declared until the said sum of $306,250.00 [THREE HUNDRED SIX THOUSAND AND TWO HUNDRED AND FIFTY DOLLARS] is paid in full.”

The second Agreement is an Assignment and Authority to Receive Dividend bestowed on the Plaintiff by the 1^st Defendant was made early in 2000. Paragraph B of the Assignment states:

“B. FHL hereby provides an irrevocable lieu and irrevocably assigns all dividends totalling $306,250.00 [THREE HUNDRED SIX THOUSAND TWO HUNDRED AND FIFTY DOLLARS] to be paid to them for their shares in TAUBMANS to W.R.C. till the same is fully paid.”

In the two years immediately following the sale (2000, 2001) there were dividends declared by the 2^nd Defendant and resulted in the payment of $140,000 to the Plaintiff in accordance with paragraph 1 [b] and paragraph B of the Sale and Purchase Agreement and Assignment respectively.

On 3^rd July 2003, the 1^st Defendant informed the Plaintiff of its intention to sell the 56,000 shares in the 2^nd Defendant. According to the Chief Executive of the 1^st Defendant’s letter to the Plaintiff of 3 July 2003, the decision to sell had been made by the Board following what can generally be called as poor returns from its investment in the 2^nd Defendant. The 1^st Defendant also confirmed that it had not received any dividend for the year 2002. In spite of the Plaintiff’s insistence that the 1^st Defendant abide by the terms of the Agreement of 30 December 1999, the latter has made it clear that it was at liberty to sell or dispose of the shares.

At the hearing Counsel informed that the 2^nd Defendant has in fact declared dividend payments for the year ending 2002 in the amount of $105,000.00. Such amount has been paid across to the 1^st Defendant.

PLAINTIFF’S SUBMISSION

The essence of the Plaintiff’s argument is that the terms of the Sale and Purchase Agreement and the Assignment and Authority to Receive Dividend entered into by the parties, prohibits either the 1^st or the 2^nd Defendants from disposing of the shares until and unless the $306,250.00 is fully paid to the Plaintiff. In its view, the sum of $306,250.00 constituted an essential part of the consideration of the Contract to sell the shares. This sum represents in effect the balance of the consideration. The 1^st Defendant may only sell the shares after the balance has been paid in full. The terms of the Agreement made it clear that both the parties agree that the balance of the purchase price will be realised through dividend payments from the shares. It was the only method devised and agreed to by the parties for payment of the balance of the purchase price. The two separate methods for payment of the $1,846,250.00 for the 56,000 shares furthermore, as set out in paragraph 1 of the Agreement, had been arrived at and adopted, according to the Plaintiff, after the 1^st Defendant had persuaded the Plaintiff that such methods were conducive to the 1^st Defendant’s accounting requirements. And finally, the Plaintiff submits that in agreeing to the two methods of payment, the 1^st Defendant had clearly acknowledged the Plaintiff’s concession to deferment of payment of the balance of the sale of shares proceeds to later.

DEFENDANT’S SUBMISSION

The 1^st Defendant’s position is simple. Neither the Agreement nor the Assignment referred to by the Plaintiff, prohibited itself from disposing of the 56,000 shares. The payment of $306,250.00 was conditional upon the shares continuing to bear dividends. Such were the cases in the years 2000 and 2001 which resulted in the payment of $140,000.00. Counsel concedes that the 2^nd Defendant has just declared the year 2002 dividend of $105,000.00. This amount has been paid to the 1^st Defendant.

Further, 1^st Defendant contends that such payments was not only conditional upon the 2^nd Defendant continuing to declare dividends but also and only as long as the shares were held by the 1^st Defendant; and given the 1^st Defendant’s interpretation that the Agreement did not oblige itself to hold on to the shares until the payment of $306,250.00 had been fully realised, there was no legal basis, according to its submission, upon which the Plaintiff could claim the balance of the amount to be paid from the dividends, if any, declared by the 2^nd Defendant. As such, the 1^st Defendant denies that it is indebted to the Plaintiff.

LAW ON INTERIM INJUNCTION

The principles governing interim relief is well settled since American Cyanamid Co. v. Ethicon Ltd. (1975) 1 All ER 396. Essentially the principles enunciated by Lord Diplock therein are intended to avoid the Court determining disputes of fact or difficult questions of law at the interlocutory stage of an action. So long as the Plaintiff can establish that there was a serious issue to be tried, that the claim is not frivolous or vexatious or that the application discloses a reasonable chance of success, then the only remaining factor to be considered by the Court is the balance of convenience.

The balance of convenience is measured in terms of whether the parties could be compensated in damages if the injunction were or were not granted. In other words, whether the Plaintiff could be adequately compensated by damages if the injunction it seeks is refused, or whether the Defendant could be adequately compensated in damages if the injunction was granted. In situations where other factors being considered appear to be evenly balanced as between the parties, the Courts have favoured preserving the status quo until the rights of the parties have been determined in the action.

COURT’S CONSIDERATION

The affidavits of the parties and submissions of Counsel show very clearly that there exists a very serious difference as to the interpretation to be accorded to the terms of the Agreement of sale of the 56,000 shares as well as the application of the lieu under the Assignment. In the end this Court agrees that the differences amount to a serious question that needs to be tried. It is not for the Court at this stage to make a determination on the issue, but it is sufficient for the Plaintiff in support of its application for the interim relief, to show that a serious issue has arisen. There is certainly no question of the claim falling under the categories of being frivolous or vexations.

Having decided that there is a serious question to be tried, the Court needs only to address the balance of convenience before deciding whether to grant the relief sought or not.

The Plaintiff says that the balance of the purchase price of the 56,000 shares, that is, $306,250.00, was to be fully paid from the dividends derived from the shares in the 2^nd Defendant now owned by the 1^st Defendant. Contrary to the claim made by the 1^st Defendant, it was never contemplated by the parties, at the time of the sale of the shares, that such shares were going to be disposed of by the 1^st Defendant, before the balance of the purchase price had been paid across to the Plaintiff. And at any rate, selling or disposing of the shares would undermine the contractual obligation of the 1^st Defendant to fulfil the condition of the Agreement. At the end it would result in the Defendant escaping from its legal obligations to pay for the full value of 56,000 shares transferred to it by the Plaintiff and at the same time takes away the Plaintiff’s rights to enforce the terms of the Agreement against the 1^st Defendant. Therefore, the Plaintiff argues, an interim injunction would protect the status quo while the rights of the parties are being determined.

The 1^st Defendant’s position, arising from the legal interpretation it had placed in the Agreement, is that the imposition of a Court’s restraint to its ability and perceived legal right to sell the shares as and when it pleases, would result in losses which the Plaintiff, notwithstanding its undertaking as to damages, cannot adequately compensate. Especially, according to the 1^st Defendant, in the market conditions that exists today, it should be free to deal in its shares whenever and however it pleases.

As to the question of damages, the 1^st Defendant argues that the Plaintiff’s loss is already quantified and for which the 1^st Defendant is capable financially to meet. On the other hand, the 1^st Defendant claims that it stands to incur losses that have yet to be known, if it is restrained by the imposition of an injunction. Presumably the losses that the 1^st Plaintiff envisages is the loss of profit it may make from the sale of its 56,000 shares. If this is the case, then it appears to this Court that the amount of damages would be the difference between the purchase price of the shares from the Plaintiff and the sale price should the 1^st Defendant sell tomorrow at a price higher than the former. At the end of day, it is the difference in the two which would constitute damages to the 1^st Defendant and for which the Plaintiff has made an undertaking to pay. The Court is more than satisfied that the Plaintiff is capable of meeting such damages.

It is quite clear to the Court having read the affidavits and the submissions of learned Counsel, that the factors to be considered in balancing the convenience to grant or not the relief sought by the Plaintiff, including the relevance of damages, are evenly balanced. It is, in the spirit of the American Cyanamid principles, that under the circumstances of this case this Court would be well advised to act to preserve the status quo. And so it shall.

Finally there is the matter of the 2002 dividends which Counsel for the 2^nd Defendant confirms has been paid across to the 1^st Defendant and which its counsel acknowledges receiving. The 1^st Defendant, according to the Plaintiff, has already indicated that it is in the process of paying it to the Plaintiff, in accordance with the terms of the Agreement. It has not been requested no I believe necessary, for this Court to make any orders as to payment of the dividends to the Plaintiff.

In the result, therefore the Court orders as follows:

(1) An injunction restraining the 1^st Defendant from selling or otherwise disposing of its 56,000 shares in the 2^nd Defendant and originally owned by the Plaintiff, until the determination of the action.

(2) That the Plaintiff file its Statement of Claim within 14 days hereof and served on the Defendants.

Costs in the cause.

F. Jitoko
JUDGE

At Suva
7^th August 2003