Attorney General of Fiji v Autodirect and Equipment Ltd [2007] FJHC 139; HBC445.2004 (28 November 2007)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO.: HBC 445 OF 2004

BETWEEN:

THE ATTORNEY-GENERAL OF FIJI
Plaintiff

AND:

AUTODIRECT AND EQUIPMENT LIMITED
First Defendnat

NAVIN PRASAD
Second Defendant

PETER PRASAD
Third Defendnat

Counsels: Ms M. Rakuita for Plaintiff
No Appearance for First Defendant
Ms V. Lal for Second Defendant
Ms P. Wong with Mr. N. Sivam for Third Defendant

Date of Hearing: 1st November 2007
Date of Submission: 19th November 2007
Date of Judgment: 28th November 2007

JUDGMENT

The first defendant is a limited liability company. The second and third defendants were its directors. In October 2002, the Public Works Department sought tenders for the delivery of a generator for the Vice President’s Office. The plaintiff alleges that the second defendant acting on behalf of the defendants made an offer to supply a generator for $33,000.00 VAT inclusive. This offer was accepted and on 26th February 2003, the plaintiff paid $33,000.00 to the defendants. The generator was never supplied. The defendants would not even refund the money to the State. The State therefore through the Attorney General brought this action against the company and its directors. The directors had siphoned off all the moneys standing to the credit of the company in its Bank account so the Company was just a shell. The default judgment was entered against the company and it was wound up.

The directors are blaming each other and each alleges the other ought to pay the State. The third defendant further says that the company is a separate entity from its directors and the State has no cause of action against the directors personally. It also asserts that the State has no locus to bring the action because the company has been wound up and that only the Official Receiver can bring this action on behalf of the company to recover the moneys from the directors. The second defendant says that he had been removed as a director in January 2003 and therefore he is not liable.

Locus:

At the time when the writ of summons was filed, the first defendant company was not wound up. Winding up followed much later after judgment was entered against it. The State clearly had the right to sue a company which was still in existence even though the extent of its assets was not known. It was the State which in trying to execute the judgment wound the company up. The State is not trying to recover money on behalf of the company; it is suing the company. There is no reason why the Official Receiver should take action against the directors.

Lifting the Corporate Veil:

The two directors it appears had some differences because the third defendant believed that the second defendant was stealing money from the accounts. He removed the second defendant as director on or about 20th January 2003. Later, on 28th February 2003, the two directors entered into an agreement under which the third defendant agreed to pay $10,000.00 to the second defendant for some form of settlement and give him $5,000.00 loan. However, this sum was not paid by the third defendant but was paid from the company’s account at Australia & New Zealand Bank being by cheque 001056 dated 28th February 2003. When questioned by Ms Rakuita, the third defendant stated he gave $15,000.00 to the second defendant and the balance of $18,000.00 was transferred to Amlesh Din’s account. So the $33,000.00 was split between the two directors. The $33,000.00 was deposited into company’s account and got withdrawn again. They knew the purpose why the State paid this sum.

The third defendant also admitted that he transferred further $80,000.00 from the company’s account into the account of his cousin one Amlesh Din. This fact was unknown to the State but was revealed by the second defendant and then admitted in cross examination by the third defendant. I find the third defendant’s explanation that he transferred this sum because he feared the second defendant would withdraw extremely naive and unconvincing. Firstly, the second defendant had been removed as signatory to the account in January so how could he withdraw the money. If he really wanted to transfer the money, why could he not open another account in the company’s name, and deposit the money there. I am of the view this was a deliberate attempt to hide this sum from the reach of its creditors. The third defendant is a businessman and is more likely than not to understand that an account in the name of the company could be garnished so he withdrew and deposited the money into an account of a family.

Ms Rakuita submitted that the corporate veil should be lifted in this case. Since Salomon v. Salomon & Company Ltd. 1897 A.C. 22 the complete separation of a company and its members has not been doubted. However there are cases where courts have to a very small extent allowed the veil to be uplifted but in general it is opaque and impassable. In compelling circumstances courts have ignored the separate personality of the company under the force of some conflicting principle or policy. Fraud and improper conduct are such exceptions. The basic issue is one of fairness.

In this case two directors and shareholders receive $33,000.00 for a generator. They divide the proceeds and refuse to supply the generator saying "you should seek remedy from the company" knowing well the company has nothing. This surely is a very, very sharp and devious practice. This is proper case where conduct of directors cannot be ignored. Now they blame each other but how was the State to know of their mutual arrangement. They must both be held responsible.

Restitution:

Where a sum of money has been paid pursuant to a contract and there has been, as is the case here, total failure of consideration, then the principles of unjust enrichment dictate that the person who paid is entitled to have his money back: Fibroska Spolka Akeyjna v. Fairburn Lawson Umbe Barbow [1942] UKHL 4; (1943) A.C. 32.

Accordingly I enter judgment against the second and third defendants jointly and severally in the sum of $33,000.00. Interest has been claimed and it should be awarded. The defendants had the use of the money and the State has been deprived of its benefit. I allow interest at eight percent from the date of the issue of the writ till today. I also order costs summarily fixed in the sum of $2,500.00.

Final Order:

Judgment is entered jointly and severally against the second and third defendants in the sum of $33,000.00 together with interest at eight percent per annum from the date of the issue of the writ till today that is $8,255.00. I also order costs summarily fixed in the sum of $2,500.00.

[Jiten Singh]
JUDGE

At Suva
28th November 2007