Sea Joy Enterprises Group Ltd v Fantasy Company Ltd [2011] FJHC 810; HBC92.2011L (5 August 2011)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

Civil Action No: HBC 92 of 2011L

BETWEEN:

SEA JOY ENTERPRISES GROUP LIMITED
Plaintiff

AND:

THE FANTASY COMPANY LIMITED
Defendant

INTERLOCUTORY JUDGMENT

Judgment of: Inoke J.

Counsel Appearing: Mr I Roche (Plaintiff)
Mr S Maharaj (Defendant)

Solicitors: Ian Roche & Assocs (Plaintiff)
Suresh Maharaj & Assocs (Defendant)

Dates of Hearing: 27 July 2011

Date of Judgment: 5 August 2011

INTRODUCTION

[1] This is the plaintiff’s application for a Mareva injunction. It was filed ex-parte on 15 June 2011. I heard the application ex-parte on that day and granted interim orders because of the urgency of the matter. The application came back for inter-partes hearing on 27 July 2011.

[2] The defendant also filed a cross application on 6 July 2011 for dissolution of the interim injunction and security for costs to be paid by the plaintiff.

[3] This is my judgment after hearing both applications.

THE BACKGROUND

[4] The plaintiff’s Writ and Statement of Claim were filed on 15 June 2011. The ex-parte application and affidavit in support were filed on the same day also. The defendant filed an affidavit in reply and the plaintiff also filed a further affidavit in response to that affidavit. All affidavits were sworn by the directors of the companies.

[5] The background of the case from those documents is as follows. The defendant agreed to sell to the plaintiff land for development as a hotel and resort project (the “Project”). Because the plaintiff is a non resident company (incorporated in Hong Kong) and the land being purchased is more than an acre, the prior consent of the Minister for Lands was required for the agreement to be binding. So the parties entered into a preliminary agreement (the “Land Sales Act Agreement”) which they signed on 27 September 2010 and which provided that within 14 days of the Minister giving his consent, the parties shall sign an agreement of the type and form attached to the Land Sales Act Agreement. The plaintiff’s solicitors sent the application for the Minister’s consent under cover of their letter dated 21 October 2010.

[6] The Minister granted consent on 25 November 2010 which was subject to certain conditions including completion of the transfer of the property within 3 months from the date of consent and completion of the proposed development within two years from the date of transfer. The consent was given to last for 3 months only which could be renewed for a further 6 months on application. There was no subsequent renewal after the initial three months.

[7] The parties have not produced a copy of the final agreement that was supposed to be signed after the grant of Ministerial consent despite defendant counsel’s assurance that it had been signed. No copy has been produced by the time this judgment was written so I can safely assume that none was signed. I shall refer to this agreement, which, as I have said, was attached to the Land Sales Act Agreement, as the “Contract”.

[8] The Contract provided under clause 3.2 payment of two lots of deposits of 10% as follows:

The Purchaser shall pay to the Vendor the sum of FJD$8,775,000 ... inclusive of Value Added Tax in the following manner:-

(a) A deposit and part payment of FJD$877,500 ... shall be paid within 7 days of the execution of this Agreement and shall be deemed part payment towards the purchase price payable by the Purchaser and shall be paid into the Trust Account of the Vendor’s solicitors Messrs Suresh Maharaj & Associates, who shall hold it as stakeholders until it is released to the Vendor for use by the Vendor to complete the works required to be done by it pursuant to this Agreement and for no other purpose.

(b) A further sum of FJD$877,500 ... shall be paid into the Vendor’s solicitors Messrs Suresh Maharaj & Associates Trust Account within 14 days of receipt of the Certificate from the civil engineers stating that 50% of the works specified in clause 27.6 of the Agreement have been completed. The said monies are to be utilised by the Vendor to discharge any mortgage or encumbrances on the said Lease and in the completion of the works.

(c) The balance sum of FJD$7,020,00 ... inclusive of VAT shall be payable by way of a Bank Cheque within 14 days of a certificate being issued by the civil engineers stating that all works are satisfactorily completed (the date of settlement) which monies are to be paid to the Trust Account of Messrs Suresh Maharaj & Associates upon the Vendor simultaneously handing over to the Purchaser’s solicitors Messrs Sherani & Co, a registered 99 year State Lease together with a stamped registrable transfer of the said property in the name of the Purchaser or its nominee. Settlement shall take place at the Titles Office in Suva, Fiji.

[9] Clause 27.6 of the Contract provides that the agreement was conditional and subject to the vendor carrying out and completing within 8 months of the date of execution of the agreement to the satisfaction of the civil engineers the works designed by the consultants Wood & Jepsen. The clause then lists the various works to be done.

[10] The civil engineers to certify the works are the engineers appointed by the plaintiff.

[11] The first deposit, paid on 8 December 2010, according to the defendant’s managing director, Mr Abbas Ali, was used to fund the works as provided for under the clause and which he notified the plaintiff’s representative in February 2011 to be 50% complete. A series of emails and letters passed between Mr Abbas Ali, and the plaintiff’s representative in China with regards to completion of 50% of the works and the release of the second deposit. The plaintiff’s representative wanted drawings and other information to enable them to ascertain whether the works had been completed but Mr Ali considered them unnecessary and only a delaying tactic and in the end Mr Ali terminated the Contract for the defendant’s failure to pay the second deposit, effective from 23 March 2011. He then informed the plaintiff’s representative that the matter would be handled by his solicitors from then on. The plaintiff’s representative wrote back on 1 April 2011 saying that they were in the process of appointing engineers to certify and were awaiting the engineering information and did not agree that they were in breach. On 8 April 2011, the plaintiff’s engineer wrote to Mr Abbas Ali saying that judging from the photographs that were emailed on 1 April 2011, he did not believe that the works were 50% complete and reiterated their earlier requests for engineering information because without them the engineer could not certify. On 13 April 2011, Mr Abbas Ali wrote to the Ministry of Lands requesting that consent for the Project be withdrawn as the plaintiff had not complied with the terms of the Contract.

[12] On 14 April 2011 the defendant’s solicitors send to the plaintiff’s local solicitors, Sherani & Co, notice of default pursuant to clause 13 of the Contract for failing to pay the second deposit despite demands being served on their solicitors on 8 February, 23 February and 15 March 2011. The notice also stated that the plaintiff was given 21 days to comply with clause 3.2(b) failing which the Contract would be regarded as rescinded pursuant to clause 13.1(b) and the first deposit of $877,500 forfeited as liquidated damages. The plaintiff responded by letter dated 4 May 2011 refuting the defendant’s allegations in the notice and requested the defendant to provide certain information pursuant to clauses 11 and 16 of the Contract failing which the defendant would be in breach. On 12 May 2011, the plaintiff’s current solicitors wrote to the defendant’s solicitors stating that the defendant, by its conduct, had evinced an intention not to be bound by the Contract amounting to repudiation which the plaintiff accepted and demanded return of the deposit.

[13] On 15 June 2011, the plaintiff filed these proceedings. The orders sought by the plaintiff are declarations that the defendant had repudiated the Contract, or, alternatively, that the Contract was illegal and void for lack of prior Ministerial consent, an order for repayment of the deposit and damages for breach of contract. In support of its application for interim Mareva injunctions, the plaintiff says Mr Abbas Ali had said that: “If you go to court to get the deposit back, I can tell you that I have no money. The deposit has been used to carry out works according to the contract”. The plaintiff also alleged that Mr Ali had also said that his company was selling the Project to another Chinese investor.

[14] Mr Abbas Ali makes no specific denial of the allegations. He insists that his company had completed the works as required under the Contract and that it was the plaintiff’s fault for not appointing an engineer to certify the works and therefore in breach which entitled his company to forfeit the deposit which it now has.

[15] According to him, the land is mortgaged to Merchant Finance Limited to secure a loan to the company of $870,977.30 which was restructured on 15 December 2010 and to lapse on 31 December 2011.

THE APPLICATIONS

[16] The plaintiff’s application was for, so far as relevant for this application, an order in the form of a Mareva injunction restraining the defendant from removing or disposing its assets including the land the subject of this dispute up to the value of $1m both within and outside Fiji until further order.

[17] The defendant’s cross application is for discharge of the ex-parte orders that I made on 15 June 2011 and for security for costs of $1m.

THE LAW

[18] The law for the grant of a Mareva injunction is set out in Fiji Islands Revenue and Customs Authority v Interval Holidays (Fiji) Ltd [2004] FJHC 246; HBC0075.2004 (17 September 2004) by Winter J as follows:

The Legal Test

The legal test for the grant of mareva injunctions is conveniently set out in the head note to Bank of New Zealand v Hawkins [1989] NZHC 198; [1989] 1 PR NZ 451, a decision of Justice Gault:

“1. An applicant for a mareva injunction must show that:

(a) It has a good arguable case on its substantive claim. This threshold requirement is more onerous than that normally applied in the case of interlocutory injunctions of a serious question to be determined.

(b) There are assets of the defendant within the jurisdiction to which orders can apply. Providing the plaintiff produces evidence of some assets, if the defendant is not forthcoming by way of disclosure of his assets in ...(Fiji)... the court may infer that this requirement is met.

(c) There is a real risk that the defendant will dissipate or dispose of assets so as to render himself “judgment proof”. Mere assertion of belief that the defendant might dissipate his assets unsupported by solid ground justifying that belief is insufficient. On the other hand, affirmative proof of likelihood of dissipation or of an nefarious attempt is not necessary.”

In addition, Gault J noted (at p.452):

“Finally, against the need to protect the plaintiff so as to ensure any judgment is not rendered barren there must be balanced any prejudice or hardship to the defendant and to third parties. Generally this is a requirement that consideration must be given to the requirement for overall justice in the circumstances.”

It is important to bear in mind Gault J’s observation that the flexibility of the remedy must be preserved (page 454) where justice in a particular case so requires slavish adherence to these criteria is not necessary. The New Zealand Court of Appeal in Shaw v Narain [1992] 2 NZLR 544 confirmed this reasoning.

CONSIDERATION OF THE APPLICATION FOR MAREVA INJUNCTION

[19] I am satisfied that the defendant has assets in Fiji and from the animosity that Mr Abbas Ali now has towards the plaintiff which is abundantly clear from the language used by him in the correspondence leading up to this case and in his affidavit I think he has every intention of carrying out his threat to sell the Project to another investor and refuse to repay the deposit. In this regard, I also refer to the above judgment as to the required proof which I am satisfied has been met:

This requirement may seem well nigh impossible to meet. It almost requires a plaintiff to be able to produce evidence as to the state of mind of the defendant, or proof that an attempt will be made to move assets or money. The courts have traditionally recognized the difficulty of this aspect. Some comfort can be obtained from Third Chandras Shipping Corp v Unimarine SA [1979] 1 QB 645 at page 671 where Lord Justice Lawton said:

"The mere fact that a defendant having assets within the jurisdiction of the ... court is a foreigner or a foreign corporation cannot in my judgment by itself justify the granting of a mareva injunction. There must be facts from which the commercial court, like a prudent sensible commercial man, can properly infer a danger of default ... For a commercial man, when assessing risks, there is no commercial equivalent of the criminal records office or Ruff's guide to the turf."

The latter reference for those unaccustomed to Ruff's guide is a gentleman's manual to horse and dog racing.

In circumstances where a plaintiff's claim results from alleged dishonest activity committed by a defendant or a related party such as a director then the threshold for establishing a defendant's likely disposition or disposal of assets is never too high

[20] The plaintiff's application therefore will succeed if his main claim is an arguable case, "that is a case which is more than barely capable of serious argument and yet not necessarily one which the judge believes to have a better than 50% chance of success": per Winter J in Interval Holidays (supra).

[21] I think the plaintiff was quite entitled to ask for the engineering and other information to enable it to certify as required by the Contract. Without such information, irrespective of whether an engineer was appointed or not, certification would not have been possible. I think Mr Abbas Ali's assertion that the provision of such information was no concern of his under the Contract cannot be correct because the works are to be carried out by his company and its engineers and consultants and they were the only ones who would have access to the information. I think the plaintiff has a more than 50% arguable case that it was not in breach of the Contract. That is all I need to be satisfied of for the purposes of this application and wish to make no more comment on the other aspects of this case.

[22] Finally, I need to consider the overall justice of the case. If the defendant is correct in its assertion that it has completed 50% of the works as required by the Contract, which work is paid for from the plaintiff's first deposit, then the defendant would be getting a windfall gain if it sells the Project to someone else and makes itself "judgment proof". Also, the sale of the Project to someone else may also defeat any claims which the plaintiff may have in respect of the land in question. On the other hand, Mr Abbas Ali has said in his affidavit that if the second deposit was not paid he would have to obtain further finance, which suggests that he could, to finish off the works and obtain a 99 year lease which would be worth considerably more.

[23] Taking all these factors into account, I think the ex-parte injunctions should continue until further order or the defendant pays the deposit sum into Court. I note that the plaintiff's claim is for damages for breach of contract which could be considerably more so this sum is by no means a full indemnity for whatever judgment which the plaintiff may get at the end of the day.

CONSIDERATION OF THE APPLICATION FOR SECURITY FOR COSTS

[24] Having come to the conclusions that I have, I think security for costs is not appropriate. Also, the amount sought for costs is exorbitant. I do not think it is possible to assess what a reasonable amount would be at this stage. In the circumstances I decline to order security for costs.

COSTS

[25] I think this application has been brought about by the defendant being unreasonable. I therefore order that it pays costs which I assess based on the affidavits and submissions filed and the times taken up in Court as $1,500.

ORDERS

[26] I therefore order as follows:

• (a) The interim injunctions granted on 15 June 2011 shall continue until further order or the defendant pays into Court the sum of FJD$877,500, which sum shall be held in Court until further order.
  
• (b) The defendant shall pay the plaintiff's costs of $1,500 within 28 days.
  

Sosefo Inoke
Judge