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High Court of Fiji |
IN THE HIGH COURT OF FIJI
(WESTERN DIVISION) AT LAUTOKA
Civil Action No. HBC 9 of 2015
BETWEEN :
BLUELIGHT VILLAGE HOTEL LIMITED a limited liability company having its registered office at Pandeji Village, Nadi Back Road, Nadi, Fiji
FIRST PLAINTIFF
AND:
RINA DEVI KUMAR and SUNIL KUMAR, of Nadi Back Road, Nadi
SECOND PLAINTIFFS
AND:
CHANDRA BHAN PANDE of Nadi back Road, Nadi, Business
DEFENDANT
Counsel :Mr R Singh with Ms A Swamy for plaintiffs/applicants
Mr Anil J Singh for defendant/respondent
Date of Hearing : 09 June 2015
Date of Ruling : 01December 2015
RULING
Introduction
[01] This is an application for interim injunction.
[02] By an amended inter partes summons dated 20th January 2015 and filed 21st January 2015 the plaintiffs (hereafter may be sometime referred to as 'the applicants') seek the following orders:
[03] The application is made pursuant to Order 29 of the High Court Rule 1988, as amended ('the HCR').
[04] The applicants filed two affidavits in support of the application namely, (i) affidavit of Rina Devi Kumar, (the 1st named second plaintiff) and (ii) affidavit in reply of Rena Devi Kumar.
[05] The defendant (hereafter may be sometime referred to as 'the respondent') filed an affidavit of Sanjay Kumar in response plus supplementary affidavit of Chandra BhanPande (defendant) sworn on 10 March 2015.
[06] At hearing, both the parties orally argued the matter and they also filed their respective written submissions. Initially, the applicants filed their written submissions. The respondent filed his submissions thereafter. In addition the applicants also filed submissions in reply to the respondent's submissions.
Background
[07] The statement of claim states that: the first plaintiff is the registered leasee of the land comprised in Crown Lease Number 14577 being land known as lot 33 SO 4370 Part of Navo comprising an area of 1.3779 ha less 1242 msq as per partial surrendered lease 705822 ('the property). 2nd Plaintiffs are the directors and sole shareholders of the first Plaintiff, Bluelight Village Hotel Ltd.
[08] The property has on it a substantial building from which the first Plaintiff operates a hotel under the name and style of "San Bruno Hotel". The second Plaintiffs together with the Defendant entered into a sale and purchase agreement on 4 May 2011 for the purchase of the property together with all improvements therein and related business of a hotel being run from thereon from the Defendant in the sum of $2,000,000.00. After the purchase of the property, the same was transferred to the second plaintiffs and the defendant obtained a mortgage to secure the repayments to the defendant.
[09]The second Plaintiffs incorporated the first Plaintiff on the 3 April 2013 and obtained a loan and paid off the defendant the debt owed by the second plaintiff and the property was transferred to the first plaintiff. The second Plaintiffs are the sole Directors and Shareholders of the first Plaintiff and relied on the terms and conditions of the agreement entered into between the defendant and the 2nd plaintiffs.In that agreement the defendant had undertaken at clause 18 as follows:
"The vendor agrees not to purchase, construct, participate in any hotel, motel, backpacking lodge type of business within a 3 mile radius of the said Property with the intention of conducting similar or same type of business as that of the said hotel business." (Hereinafter referred to as the restraint of trade)
[10] Restraint of trade offered and accepted by the plaintiffs was an essential term of the sale and purchase agreement for the purchase of the property and the Plaintiffs places reliance on the same when they entered in the agreement to purchase the property and when the entire purchase sum cleared and paid to the defendant.
[11] The statement of claim alleges that in breach of restraint of trade clause the defendant has allowed his agents or servants to operate a hotel/motel from the defendant's Lease through his agents and servants under the style of Mayas Magnuson Hotel from the lands comprised in Crown Lease Number 14558 Lot 3 on SO 4370 and Crown Lease 14559 Lot 4 on SO 4370. (Hereinafter may be referred to as 'the defendant's leases'). The Defendants leases are located within the 3 mileradius of the property and the hotel business operating under the style of Mayas Magnuson Hotel('MMH').
[12] The plaintiffs claim against the defendant includes an injunction restraining the defendant from operating or supervising and managing a hotel, motel, backpacking lodge within a 3 mile radius of the land, an order the that the defendant forthwith close and cease to operate any hotel, motel, backpacking lodge on the land and general damages for breach of restraint of trade clause.
Defence
[13] The defendant has a bit different story. He states that: He agreed to sell San Bruno Hotel('SBH') with real estate being Crown Lease No. 14577 constituting an area of 1.3779 with the hotel built on it, to the 2nd plaintiffs. The sale price was $2,000,000.00 pursuant to Sale and Purchase Agreement dated 4 May 2011. The vendor agreed to finance the sale and the 2nd plaintiffs paid $200,000.00 deposit and secured the vendors agreement and to pay $1,800,000.00 over 20 years with a 6% interest per annum. The 2nd plaintiffs were to pay $12,895.76 per month commencing 3 months from settlement. The 2nd plaintiffs defaulted in their re-payment. They, the defendant states, entered into a different scheme with the elderly defendant to avoid payments. The 2nd plaintiffs entered into lease back agreement from 1 October 2011 until December 2012, whereby they offered to pay $6,000.00 per month, rental. The 2nd plaintiffs then from January 2013, informed the defendant that they will pay $12,000.00 as loan repayment. This agreement continued until March 2014.
[14] In April 2014, the 2nd plaintiffs made a second offer whereby they agreed to sell the property to the first plaintiff, that the sale was to be financed by the Bank of Baroda.
[15] The defendant out of goodness of his heart reduced the debt by $400,000.00. The 2nd plaintiffs then sold the property to the first plaintiff. The hotel San Bruno came to an end and the first plaintiff's business name and operation changed to Bluelight Village Hotel ('BVH'). The 2nd plaintiffs had repudiated the original agreement which was really the sale of San Bruno Hotel real estate and business.
Relevant Law & Principles
[16] An application for interim injunctionmay be made by any party to an action before or after the trial of the action pursuant to Order 29, rule 1 of the H C R which provides that:
'1.-(1) An application for the grant of an injunction may be made by any party to a cause or matter before or after the trial of the cause or matter, whether or not a claim for the injunction was included in that party's writ, originating summons, counterclaim or third party notice, as the case may be.'
[17] The governing principles applicable when considering an application for interim injunction were laid down in the leading case of American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; (1975) AC. 396 as follows:
(1) is there a serious question /issue to be tried?;
(2) are damages an adequate remedy?;
(3) if not, where does balance of convenience lie.
[18] The above principles apply in Fiji as well. Fiji High Court applied these principles in cases such as Vivrass Development Ltd vs Fiji National Provident Fund, High Court Civil Action.: 27 of 2001SandDigicel (Fiji) Ltd v Fiji Rugby Union, Civil Action No.: HBC 30 OF 2014S.
Determination
[19]The applicants apply for interim injunction. In the substantive action they had sought permanent injunction against the defendant. The applicants as plaintiffs are entitled to apply for interim injunction before or after trial of the action, see O.29, r.1. In this instance the applicants apply for such injunction before the trial.
Serious question to be tried
[20] It seems to me that both parties are likely to raise serious issues at the trial.
[21] Lord Diplock in American Cyanamid case (supra) said at page 510:
"It is no part of the court's function at his stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial"
[22] Before dealing with the likely issues at the trial proper, I must consider a preliminary issue raised by the plaintiffs.
[23] The defendant filed affidavit of Sanjay Kumar in response to the plaintiffs' affidavit in support. The defendant did not swear the affidavit by himself. He has sworn it through an agent or a third party. Sanjay is not a party to this proceeding. He states that he has been authorised by the defendant to swear the affidavit on his (defendant's) behalf. The authority was not annexed to the affidavit.
[24] In their written submission, the plaintiffs have taken a preliminary issue that the affidavit in response filed on behalf of the defendant should be struck out as the deponent does not possess necessary authority to swear an affidavit on behalf of the defendant.
[25] The preliminary point raised by the plaintiffs has, in my view, no merit. The preliminary objection regarding affidavit has been taken at hearing, after responding to it. The preliminary objection in respect of the defendant's affidavit has been taken at the hearing of the application and after responding to it. The plaintiffs have filed an affidavit in reply to the defendant's affidavit in response. The plaintiffs did not file any application to strike out that affidavit before responding to it. The plaintiff should have filed an application to strike out that affidavit before filing a reply to it. The objection to the affidavit sworn by an agent of the defendant has been taken at late stage of the proceedings, i.e. at the hearing. There was no application to strike that affidavit. In the circumstance, I reject the preliminary objection raised in respect of the defendant's affidavit sworn by Sanjay Kumar, an agent of the defendant.
[26] Interestingly, the defendant has filed a supplementary affidavit (sworn by himself). The supplementary affidavit has been filed without objection. The plaintiffs opted not to file an affidavit in reply to the defendant's supplementary affidavit. What the defendant has deposed in his supplementary affidavit is relevant to these proceedings. I will reproduce certain paragraphs of that affidavit for convenience:
'...
4. The Second Plaintiffs were aware of my ownership of the properties situated at Nadi Back Road and known as Pandeji Village.
5. I commenced construction of my building now known as Mayas Magnuson Hotels little after July, 2010 and seven ground floor units were completed before 4th May, 2011.
...'
[27]The defendant raises issues whether the plaintiff scan obtain an injunction upon reliance of Restraint of Trade clause when the same is unreasonable between the parties and unreasonable having regards to the public interest.
[28]Mr A J Singh on behalf of the defendant argues that the 2nd plaintiffs have sold the property to the 1st plaintiff (BVHL) which has changed the name of the business; by this the 2nd plaintiffs end any goodwill in the San Bruno Hotel themselves.
[29] The plaintiffs seek interlocutory injunction against the defendant to restrain him from operating a hotel business. The plaintiffs rely on cl. 18 of the Sale & Purchase Agreement the defendant entered into with the 2nd plaintiffs to sell the real estate together with the hotel run under the name and style of SBH. Cl. 18 of the agreement reads:
"The vendor agrees not to purchase, construct, participate in any hotel, motel, backpacking lodge type of business within a 3 mile radius of the said Property with the intention of conducting similar or same type of business as that of the said hotel business." (Hereinafter referred to as the restraint of trade)
[30] Essentially, cl 18 prohibits the defendant from operating a hotel business within a 3 mile radius of the property purchased by the 2nd plaintiffs.
[31] It will be noted that the 1st plaintiff was not privy to the sale & purchase agreement. Therefore, the 1st plaintiff, in my view, could not rely on cl. 18 as it was not a party to the agreement.
[32] The 2nd plaintiffs had sold the property to the 1st plaintiff company. The 1st plaintiff company has changed the name of the hotel (SBH) as BVH. The 1st plaintiff is operating entirely a new hotel, not the hotel that the defendant sold to the 2nd plaintiffs. Since the name of the past hotel has been changed, the plaintiffs are not entitled to claim the same goodwill that the past hotel had earned.
[33] It was contended on behalf of the defendant that, in Fiji the Commerce Commission Decree 2010 prohibits a Restraint of Trade, the object of which is to stifle competition. Reading the plaintiffs affidavit, the court will have no doubt that the plaintiff is seeking to shut down the defendants business, so that the plaintiffs have no competition. The defendant relies on section 60 (1) (b) of the Commerce Commission Decree which stipulates that:
'60. - (1) If a provision of a contract
(a) is an exclusionary provision; or
(b) has the purpose, or has or is likely to have the effect, of substantially lessening competition, that provision is unenforceable in so far as it confers rights or benefits or imposes duties or obligations on a person.' (Emphasis provided).
[34] Cl. 18 of the contract entered into between the defendant and the 2ndplaintiffs is a Restraint of Trade which imposes obligations on the defendant that he should not do hotel business within a three mile radius of the property sold. It also confers rights and benefits on the 2nd plaintiffs.
[35]MrA J Singh submits that such a clause is unenforceable in the interest of the parties and injurious to the public for the following reasons:
a. The clause in the sale and purchase agreement is for an unlimited Period and over 4 years has elapsed, since the Agreement.
b. The Second Plaintiffs breached the contract by failing to make payment as agreed.
c. The second plaintiffs enticed the elderly defendant to suspend payment as per the contract and agree to accept $6,000.00 per month rental (lease back) in lieu of payment of $12,895.76 per month. This deceitful act was clearly a repudiation of the sale and purchase agreement dated 4th May, 2011.
d. In January 2013 the second plaintiffs abandoned their lease back scheme and started paying $12,000 on the loan account, there were in arrears.
e. The second plaintiffs made a business decision and decided to sell the real Estate and business to the first plaintiff.
f. The second plaintiffs began operating the Defendants building as a hotel. This was the first time that the premises were let and it was the second plaintiffs who began to operate it as a hotel site.
g. The second plaintiffs did this from June 2013 to April 2014. The proceeds from letting out hotel rooms was shared on 60/40 basis.
h. Members of the public knew that there were rooms used in the Defendant's premises, and to shut it down will be injurious to the public.
i. The second plaintiff also supervised the upstairs of the Defendants building. It is humbly submitted that Clause 18 of the May 2011 Sale and purchase Agreement is unreasonable between the parties and as it is a hotel which members of the public have and continue to enjoy it closure will be injurious to the public.
j. In April 2014 the Second Plaintiffs use of the Defendant's premises was terminated. The Defendant subsequently demanded payment of the arrears and as a results the Plaintiffs in July 2014 for the first time raised clause 18, in a letter from Neel Shivam lawyers dated on 11th July 2014 being Annexure SK 7 to the Affidavit of Sanjay Kumar dated 31st January, 2105.
[36] The plaintiff will fail if he cannot show that he has 'any real prospect of succeeding in his claim for a permanent injunction at the trial'
[37] In this case, There is an issue of law that whether cl.18 is enforceable as it offends section 60 (1) (b) of the Commerce Commission Decree.
[38] Where issues are of law the court does frequently resolve them at the interlocutory stage; and the court will not, save in very special circumstances, refuse to determine a question of law if substantial hardship to one of the parties may result from that refusal, see City of Bradford Metropolitan Council v Brown (1986) 84 LGR 731.
[39] In Oxy Electrical Ltd v Zainuddin [1991]1WLR 115, the plaintiffs had a seriously arguable case for a perpetual injunction restraining building in breach of a restrictive covenant, and Hoffmann J refused to force them to apply for an interlocutory injunction.
[40] The clause-18 which the plaintiffs rely on, has the purpose of substantially lessening competition, and therefore that clause clearly contravenes section 60 (1) (b). As a result, it (cl.18) is unenforceable by virtue of section 60.
Inadequacy of Damages (to either side)
[41] Lord Diplock in American Cyanamid case (supra) stated that:
'The court should go on to consider whether ... if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of trial. If damages ... would be an adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appear to be at that stage' (at 408B-C).
[42] If on the other hand, damages would not adequately compensate the plaintiff for the temporary damage, and he is in a financial position to give a satisfactory undertaking as to damages, and an award of damages pursuant to that undertaking would adequately compensate the defendant in the event of the defendant succeeding at trial, an interlocutory injunction may be granted. If the plaintiff is not in a financial position to honour his undertaking as to damages, and appreciable damage to the defendant is likely, an injunction will usually be refused: Morning Star Co-operative Society Ltd v Express Newspapers Ltd [1979] FSR 113.
[43] The plaintiffs seek an order directing the defendant to close or stop his hotel business. Appreciable damage to defendant is likely, if his business were closed.
[44] The undertaking as to damages given by the plaintiffs is not satisfactory. In para 28 of affidavit in support the 1st named 2nd plaintiff gives undertaking as to damages in this way:
'...
28. That we give the usual undertaking as to damages and attach the first plaintiff's accounts and tax returns as Exhibit 11.
...'
[45] Mere statement that the plaintiffs give the usual undertaking as to damages attaching the plaintiff's accounts and tax returns is insufficient and not satisfactory. The plaintiffs must proffer sufficient evidence of his ability to satisfy the undertaking. When giving undertaking, the plaintiffs must say what their assets are today; see Natural Waters of Viti Ltd v Crystal Clear Mineral Water (Fiji) Ltd [2004] FJCA 59.
[46] In contrast, the defendant has given a cross undertaking as to damages. He has property in Fiji. He also undertakes not to interfere with the plaintiffs' business.
[47] The court will not issue interlocutory injunction, however strong the plaintiff's claim appear to be at that stage, if damages would be an adequate remedy and the defendant would be in a position to pay them.
[48] In my opinion, in this case damages would be an appropriate remedy and the defendant is in a position to pay them. This follows that the court will not issue interim injunction.
Balance of Convenience
[49] Lord Diplock in American Cyanamid case (supra) also stated that:
'It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises' (at 408E).
[50] The third stage of balance of convenience will inevitably involve some disadvantage to one or the other side which damages cannot compensate. In this case I have already found that damages would adequately compensate the plaintiffs if they succeed at trial. Therefore there is no need to consider the third stage-the balance of convenience.
Conclusion
[51]The plaintiffs, in my view, fail to show that they have any real prospect of succeeding in their claim for a permanent injunction at the trial. The plaintiffs also fails to proffer adequate undertaking as to damages. The plaintiffs are not in a financial position to honour their undertaking as to damages, and an appreciable damage to the defendant is likely as the plaintiffs attempt to close the defendant's business. I would therefore refuse to issue the interim injunction sought. I would order the plaintiffs to pay costs of $1000.00 which is summarily assessed to the defendant in 28 days of the date of this ruling.
Final outcome
[52] The following are the final outcome of this ruling:
M H Mohamed Ajmeer
JUDGE
At Lautoka
01stDecember 2015
Solicitors:
For plaintiffs: Messrs Patel & Sharma, Barristers & Solicitors
For defendant: Messrs Anil J Singh Lawyers, Barristers & Solicitors
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