Lee v Schnuerle [2005] FJHC 117; HBC0233d.2004s (20 May 2005)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. 233 OF 2004

Between:

DARRELL EUGENE LEE
Plaintiff

and

CAROLYN SCHNUERLE
Defendant

Mr. A. Tikaram for the Plaintiff
Mr. P. McDonnell for the Defendant

DECISION

By motion dated 25 June 2004 Darrell Eugene Lee (the ‘plaintiff’) seeks the following orders:

(a) an interim injunction until further order, restraining the Defendant from acting as Director and/or holding herself out as a Director of Estate Management Services Limited [hereinafter referred to as “EMSL”] pending the resolution of this matter.

(b) an interim injunction restraining the Defendant from exercising any function as Director and/or Secretary of EMSL.

The grounds on which relief are sought are as follows:

1. That the Plaintiff as shareholder and director in EMSL is entitled together with one Joe Lee [hereinafter referred to as “JL”], the other shareholder and director to name a third director in EMSL pursuant to an Agreement dated 24th/25th December 1990.
   
2. That no such agreement was made between the Plaintiff and JL for the appointment of the Defendant as a third director in EMSL.
   
3. That innocent third parties have been dealing in good faith with the Defendant and may feel harmed when it is determined that the Defendant’s appointment as a director in EMSL was invalid.
   
4. That the Defendant’s continued position and actions as a director of EMSL has strong possibility of compromising and/or harming the Plaintiff’s investment in EMSL.
   
5. Despite notice by the Plaintiff, the Defendant has refused to and continues to act in the position of director in EMSL to the Plaintiff’s detriment.
   

Background

A writ of summons herein was filed on 23 June 2004. In it the plaintiff has claimed, inter alia, the removal of the defendant as a Director of Estate Management (the ‘EMSL’)

A Statement of Defence was filed by the defendant on 21 July 2004.

There is before me a number of affidavits from both parties as follows:

(a) an affidavit in support of the plaintiff sworn 14 June 2004
(b) an affidavit of Joseph Lee in opposition to the motion inter partes sworn 1 July 2004 and 5 August 2004
(c) an affidavit of defendant sworn 14 July 2004
(d) an affidavit in reply of the plaintiff sworn 12 August 2004
(e) a further affidavit of defendant in reply sworn 25 August 2004.

The last of the submissions were filed in September 2004 and then subsequently because of heavy commitment and being away on leave till end of February 2005 it was not possible to deal with this application any earlier.

The plaintiff is a 40% shareholder of EMSL as well as Director according to Court of Appeal’s judgment of 29 November 2002.

A third Director was to be appointed in EMSL and that person would have to be agreed upon between the plaintiff and Josephe Lee (JL).

The appointment of the defendant as Director did not take place in the manner required and the plaintiff therefore seeks to have her restrained from acting as a Director of EMSL until the determination of the action.

Consideration of the issue

In this case the plaintiff is a 40% shareholder in EMSL with Joe Lee (‘JL’) holding 60% shares in accordance with the Agreement dated 24 December 1990 between them (the ‘1990 agreement’). This shareholding was confirmed by the Court of Appeal in its judgment dated 29 November 2002. The Court of Appeal ordered that the plaintiff be registered as 40% shareholder and a Director of EMSL.

The plaintiff says that without his approval JL ‘wrongfully appointed his sister, the Defendant a director of EMSL’. Are the actions of JL a violation of the Appeal Court’s decision?

The plaintiff feels that unless the defendant is stopped from holding herself out and in fact “illegally acting as director of EMSL” his shareholding and his directorship is being compromised by the fact that JL does not reside in Fiji. He said that he believes that the defendant as a non-resident, although defendant says otherwise, should not be allowed to work in Fiji let alone a directorship in a Fiji registered company.

According to JL the plaintiff has not registered his stock as required by law and there is only a 40% shareholder and a director.

In her affidavit the defendant states, inter alia, that at a proper meeting of the EMSL she was appointed a Director at which meeting the plaintiff was present. He (the plaintiff) wanted his sister appointed a Director. She says that she is resident of Fiji. She says that ‘the Company and I am quite prepared to consider my resignation and the appointment of another person as a director provided that Darrel E. Lee proposes a candidate as director whose appointment is in the best interests of all the shareholders.’

The defendant maintains that her appointment was validly made by the majority shareholder. At that time on 19 October 1999 the status of the Agreement between JL and the plaintiff had not been ruled upon by the Court of Appeal. The subsequent decision of the Court of Appeal has validated the Agreement.

The defendant says that the parties have subsequently attempted to resolve the issue but to date no new or replacement director for the defendant has been appointed and the defendant who has not resigned remains a director and all acts done by her as a director since her appointment are valid.

Conclusion

The plaintiff has filed a Writ of Summons in this action but has not filed a Statement of Claim although the defendant has filed a Statement of Defence on the Endorsement of Claim. Without a Statement of Claim it is not possible to say what exactly the plaintiff’s claim is to which the defendant can properly and fully file a Statement of Defence.

Be that as it may, this is a case where it seems that the plaintiff, a minority shareholder in EMSL, a limited liability Company and a Director in that Company, is intending to remove the defendant as a Director of EMSL on the ground that her appointment has not been validly made.

The other Director in the Company is Joseph E. Lee of U.S.A.

The position is this that at present both the plaintiff and JL are from USA but the defendant who is the sister of JL was formerly of USA but now resides in Fiji.

The Court of Appeal has held that the plaintiff is the holder of 40% of shareholding in the Company. As per Court Order a third Director was to be appointed to be agreed upon between the plaintiff and JL.

The third Director is yet to be appointed. The defendant has agreed to give up her Directorship once that is done in accordance with the Order of the Court. So it is a matter for the plaintiff and defendant to agree upon the appointment.

A question that arises in my mind is whether the plaintiff as a Director of the Company and as minority shareholder can bring an action to remove a Director or should it not be the Company itself which should bring an action against the existing Director or agree upon a Director as ordered by the Court.

The defendant was appointed a Director before the Court of Appeal judgment. The Court directed as to what the plaintiff and JL should do. But this direction has not been complied with; once this is done it should solve the problem of directorship.

The question then arises whether the plaintiff could rightly proceed against the defendant on his own as a Director and as a shareholder.

It is not my province at this stage to delve into the merits of the case in an application for injunction.

There are some authorities which state what a shareholder cannot do.

In Re a Caveat [1931] SAStRp 61; [1931] S.A.S.R. 502 it has been stated that a shareholder has no capacity to lodge a caveat against any interest in land of the company, in which he holds the shares. By analogy this principle could apply to the case before me.

In considering the application for injunction and not going into the merits of the case, whether on the principles and law applicable to company law vis a vis the rights of a shareholder and of a minority shareholder, an injunction could be granted. In this context certain observations of Griffith C.J. in Miles (Plaintiff/applicant) and The Sydney Meat-preserving Company (Limited) and Others [Defendants/Respondents] [1912] HCA 87; 1913 16 C.L.R. 50 are pertinent to be borne in mind where it was held (at p57):

“...that the shareholder was not entitled to an injunction to restrain the company and the directors from carrying on the business of the company otherwise than with a view to earning profits for distribution among all the members.”

In Miles (supra) in which the plaintiff/appellant was a director and a holder of a substantial number of shares in the company and who applied for an injunction, His Lordship at p.635 said:

“...Moreover, the Court has no jurisdiction to control the decision of a majority of shareholders as to dividing or retaining profits. It is, of course, immaterial whether the minority is large or small.”

In the present case it appears that it is a case of internal management with which the Court may not have authority to interfere. And as His Lordship said (ibid at 66) that the “law allows the members of a company to adopt what policy they please to guide them in carrying on its operations”.

With those observations I will conclude in this context as was said in Miles by His Lordship (supra 66-67) that the “appropriate remedy in that case is to present a petition to wind up the company on the ground that is just and equitable that it should be wound up. When such a petition is presented, it will be time enough to deal with it.”

On the observation that I have made and on the facts and circumstances of this case, I will find it difficult to grant an injunction as prayed.

If an injunction were granted it will no doubt prevent the company from operating its business at all.

Also in an application for injunction the crucial point is that there is no undertaking as to damages. This is fatal to the plaintiff’s application.

It is also to be noted that the company is not a party to the action and an order on an application of a single director of a company for an injunction cannot be made which would directly or indirectly affect the company without making it a party to the action. What course of action is open to the plaintiff it is not for the Court to advise upon.

For these reasons I hold that this application for injunction is not appropriate on the facts and circumstances of this case.

The application is therefore refused with costs against the plaintiff in the sum of $400.00 to be paid within 28 days.

D. Pathik
Judge

At Suva
20 May 2005