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Bank of Baroda v National (MBF) Finance Fiji Ltd [2016] FJHC 221; HBC191.1998 (8 April 2016)

IN THE HIGH COURT OF FIJI
WESTERN DIVISION AT LAUTOKA
CIVIL JURISDICTION


Civil Action No. HBC No 191 of 1998


BETWEEN:


BANK OF BARODA
PLAINTIFF


AND:


NATIONAL (MBF) FINANCE FIJI LIMITED
DEFENDANT


AND:


SUN INSURANCE COMPANY LIMITED
APPLICANT


RULING

BACKGROUND

  1. At the outset, let me just point out that Sun Insurance Company Limited (“SICL”) used to be known as NMBF Insurance (Fiji) Company Limited (my emphasis). In this ruling, because the change of name is not so material, all references to SICL include the time when it was known by its former name.
  2. This is my ruling on SICL’’s[1] application to set aside a charging order nisi and absolute which were granted by Mr Justice Finnigan on 03 March 2006 and 12 May 2006 respectively.
  3. The charging orders were made on account of a money judgement handed down by Mr Justice John Connors in August 2005 in the sum of $774,423.66. The judgement was in favour of the Bank of Baroda (“Baroda”) and against the National (MBF) Finance Fiji Limited (“NMBFL”) (my emphasis).
  4. The assets being charged are some 999,994 shares in SICL.
  5. The latest searches in December 2005 at the Office of the Registrar of Companies (“Companies Office”) by Baroda’s solicitors prior to their application for charging orders nisi showed that the shares were “owned” by NMBFL.

HOW JUDGEMENT WAS ENTERED?

  1. The background to Connors J’s judgment is a story of how SICL was hard done by. Sometime in 1995-1996, NMBFL had seized some assets of a company called Bubble Up Investments Limited (“BUIL”) pursuant to some securities it held. BUIL tried to stop NMBFL and filed proceedings[2] accordingly. However, it was not successful.
  2. Rather, as it turned out, it was NMBFL that succeeded in a cross-application[3] to restrain BUIL from interfering with NMBFL’s purported right to enforce its securities.
  3. Apparently, at the time, Baroda held a debenture and several bills of sale[4] over the same assets. These were granted by BUIL as security for certain monies loaned from Baroda. These securities, in fact, constituted a first charge. There is every indication in the evidence, as the FCA had observed, that NMBFL knew that Baroda had a first charge over the assets.
  4. Baroda also held a personal guarantee from a director who had absconded to Canada and was practically out of reach for enforcement purposes.
  5. One wonders if BUIL ever disclosed Baroda’s securities to the Court and why Baroda was not joined as a party at the earliest.
    1. By the time Baroda came to, NMBFL had already seized the assets, and a BUIL-appeal was already afoot at the FCA. Still hopeful, Baroda quickly filed an application to be joined as a party at the FCA. Byrne J (sitting as a single FCA judge) would grant order in terms. On 22 June 1998, Baroda filed its own separate claim against NMBFL[5] in the High Court. This was the same action upon which Connors J would later enter judgement[6] for Baroda. In due course, charging orders nisi and absolute would follow on 03 March and on 12 May, 2006 respectively.

SICL’s APPLICATION TO SET ASIDE CHARGING ORDERS

  1. SICL’s application is made pursuant to Order 50 Rule 7 of the High Court Rules 1988.That provision gives this Court a discretion to discharge or vary a charging order absolute.
Discharge, etc. of charging order (O.50, r.7)
7. The Court, on the application of the judgment debtor or any other person interested in the securities to which an order under rule 2 relates, may at any time, whether before or after the order is made absolute, discharge or vary the order on such terms (if any) as to costs as it thinks just.
  1. SICL’s main contention is that the charging order nisi was made absolute without any opportunity to it (SICL) to show cause against it. This happened because SICL was never served a notice of the show cause order by Baroda. Instead, Baroda only served SICL a sealed copy of the charging order absolute.

SHOW-CAUSE ORDER SHOULD BE SERVED

  1. Order 50 Rule 4(2)(b) requires that if a charging order nisi is made on “other stock”[8]of a company, then, as soon as practicable after the order nisi is made, a notice of the order nisi, together with a copy of it, must both be served on the “company concerned”.
4.-(2) Notice of the making of the order to show cause, with a copy of that order, must as soon as practicable after the making of the order be served-
(a) ......
(b) where the order relates to other stock, on the company concerned.
  1. In my view, and I say this also to address the preliminary issues raised concerning SICL’s locus, Order 50 Rule 4(2)(b) recognises that all “companies concerned” are interested parties in a show-cause hearing[9] and deserve to be put on notice that their issued shares, or a part of them, maybe subjected to a charging order absolute, and later, a sale-order, to satisfy the judgement debt of the shareholder. The tone of Order 50 Rule 4(2) (b) makes service mandatory, and thus, can only add further strength to the above.
  2. Mr Mishra submits that all that Order 50 Rule 4(2) (b) requires is that the order to show cause be served “as soon as practicable after the making of the order”. He argues that service may be permissible even after the making of the order absolute, if it is “practicable” in the particular circumstances of the case.
  3. In this regard, Mr Mishra points out that his firm had gone through great difficulties locating the registered office of SICL. Information they had obtained initially from the Company’s Office was not up to date because SICL, for many years, had neglected to lodge its Annual Returns and Notice of Situation of Registered Office. Even then, the SICL files had been missing at the Companies Office and were only located after the charging orders had been made absolute. His firm was only able to serve SICL properly after the order nisi had been made absolute.
  4. Yet, even before the charging order absolute, the firm had actually served the order at various addresses which, previously, were SICL’s registered office.
  5. In my view, because the order to show cause will normally have a returnable date, logically, the two reference points from which to assess what is “as soon as practicable” are, firstly, the date of the making of the order nisi, and secondly, the returnable date for the hearing of the summons (or motion) to show cause. These are to be assessed both in terms of the logistics of service as well as the right of the company concerned to be heard at the show-cause hearing. If Mr Mishra had difficulty serving SICL, he could have sought an order for substituted service.
  6. On the other point raised by Mr Mishra, I accept that Salomon v Salomon[1896] UKHL 1, [1897] AC 22 lays down inter alia that a company is a separate legal person distinct from its members and is not an agent or trustee for its shareholders. However, in the absence of any specific case authority, I find it hard to accept that if SICL were served a notice of the show-cause order, and were thereafter to be present at the show-cause-hearing, SICL would there and then, be a company litigating on its own shares against the principle in Salomon v Salomon.

ALLEGATIONS BY SICL

  1. Both counsel had spent a considerable time arguing on whether or not the charging order should be set aside on account of Baroda’s failure to comply with Order 50 Rule 4(2)(b).
  2. If I may say so now, the breach of natural justice that occasioned that failure can be remedied. The ideal remedy in my view is one that will not necessarily compromise the enforcement proceedings that Baroda has set in motion. In my view, what willeventually determine this matter are some key allegations of fact by SICL which, if substantiated, may render the charging order absolute completely unenforceable.
  3. SICL alleges two facts which are highly material. It argues that, had Baroda served it (SICL)a notice of the show cause order, SICL would have appeared at the show-cause hearing and ensured that these facts were brought to the attention of Finnigan J.
  4. SICL is adamant that the learned judge would certainly have refused to make the charging orders absolute on account of these facts.
  5. The alleged facts are:
  6. Each of the alleged facts would appear to be strong enough ground to refuse to make absolute a charging order nisi. That said, facts would be strong enough ground also to set aside the charging orders absolute in this case. The evidentiary basis for these allegations are contained in an affidavit of one Bruce Sutton and also of one Dewan Chand Maharaj.

Bruce Sutton Affidavit

  1. Bruce Sutton’s affidavit was sworn on 03 October 2006.Sutton is a chartered Accountant with the firm of KPMG in Suva. He deposes that all the shares of NMBFL held in SICL were purchased by VNFL on 20 October 1999. Subsequently, VNFL transferred the shares held in its name to the current shareholders, namely:
Name
No. of Shares Held
1. Rocklyn Limited
283,300
2.Deven P.Sharma
200,000
3.Padam Raj Lala
50,000
4.Dewan Chand Maharaj
200,000
5.Sun Investment Limited
100
6.Sushil Chand Maharaj
50,000
7.Dewan Holdings Limited
33,300
8. Jancourt Limited
133,300
Total No. of Allotted Shares
1,000,000 shares

Dewan Chand Maharaj Affidavit

  1. Dewan Chand Maharaj’s affidavit was sworn on 21 July 2006. Maharaj begins by setting out the original shareholding structure of SICL[10]. He confirms that NMBFL and the other original shareholders had sold their shares to VNFL.
  2. Maharaj annexes to his affidavit a photocopy of an Agreement For Sale And Purchase of Shares dated 25 August 1999 between VNFL (as purchaser) and all those original shareholders of SICL (see footnote 9) as vendors. This copy of the agreement appears to bear a (smudged) stamp of Commissioner of Stamp Duties.
  3. Maharaj exhibits various copies of Share Certificates, Standard Transfer Forms, and Deeds. These documents all bear an April 1999 date. They all tend to confirm that the shares which once vested in the original shareholders[11] (as shown by the share certificates) had been transferred to VNFL (as shown by the Standard Transfer Form).

Reserve Bank of Fiji - Regulatory Approval

  1. Also annexed to Maharaj’s affidavit is a letter dated 22 February 2000 from the Reserve Bank of Fiji to one Padam Lala, Chairman of, NMBF Insurance (Fiji) Limited (which later changed its name to SICL). This letter states:
    1. The above letter would have been written because, under sections 153 and 154(3) and 154(4) of the Insurance Act 1998, no controlling interest in an insurer incorporated in Fiji can be disposed of, or acquired, except under a scheme approved by the RBF[12]. In the original shareholding structure of SICL (see footnote 9), the 999,994 shares that stood in the name of NMBFL constituted more than 99.9% of the total issued shares of the company.
    2. Taken together with the Standard Transfer Forms, the RBF approval (if substantiated)is added strength to SICL’s case that the 999,994 shares that NMBFL held in SICL were indeed transferred to VNFL long before even Connors J’s money judgement was entered in 2005.

NMBFL UNDER RECEIVERSHIP

  1. The fact of NMBFL being under receivership is mentioned in paragraph 14 of an affidavit dated 21 September 2006 of one Ajay Kumar. This affidavit was filed for Baroda. Kumar annexes and marks “D” a Notice of Appointment of Receiver and Manager issued to the Registrar of Companies by the NBF Asset Management Bank pursuant to a Debenture.

NBF ASSET MANAGEMENT gives you notice that on the 30th day of November 2001 it appointed VISHNU DEO (father’s name Sukh Deo) Chartered Accountant, 157 Vitogo Parade, Lautoka, to act as RECEIVER AND MANAGER of NATIONAL MBf FINANCE (FIJI) LIMITED in pursuance of their powers contained in a Debenture dated 24th day of August 1995.

DATED this 30th day of November 2001.

  1. What has become of NMBFL since the above Notice, is not clear to me.
  2. The House of Lords in Roberts Petroleum v Bernard Kenny [1983] 1 All ER 564 is authority that the liquidation of a company in the period after the order nisi was a sufficient reason for refusing to make the order absolute.
  3. While there is a difference between a company under “receivership” and a company under “liquidation”, in Fiji, the Courts appear to embrace the English approach in Roberts Petroleum which treats a Charging Order as having the effect of making a judgement creditor a secured creditor. This point was canvassed by Madam Justice Shameem in Public Employees Union v Leweniqila [2001] FJHC 78; Hbc0393y.1999s (11 October 2001) as well as Madam Justice Wati in Pat Consulting Ltd v Matapo Ltd [2012] FJHC 1278; HBC237.2009 (8 August 2012).
  4. How the interest of Baroda (as a secured creditor in terms of Roberts Petroleum)would have fared against NBF Asset Management's interests in terms of the Debenture dated 24 August 1995, could not have arisen in this case because the purported receivership of NMBFL begansome four years before the Connors J-judgement was even handed down in 2005.
  5. On the same token, whether the said receivership really did happen, I do not yet know.

APPROACHING THE ISSUES

  1. There are two competing interests. First is Baroda's entitlement to the fruits of its litigation and in securing the shares in question for execution. Second is the seriousness of the allegations in the Sutton and Maharaj affidavits, which, if substantiated, would mean that the charging orders on the shares are no longer sustainable.
  2. As a starting point, I say that, a successful litigant is entitled to the fruits of its litigation. Accordingly, a judgement creditor is entitled to enforce a lawfully obtained money judgement against a judgement debtor by all or any of the means of execution prescribed by the High Court Rules(see Roberts Petroleum Ltd v Bernard Kenny Ltd (in liquidation) [1981] EWCA Civ 10; [1982] ALL ER 685 -692 at 690).
  3. However, having said that, a creditor cannot recover from his debtor any more than the debtor really has (as per Collins J in Cooper v Griffin [1891] UKLawRpKQB 190; [1892] 1 Q.B. 740 – 753 at 746.)
  4. In Fiji, a charging order may only be imposed on "any interest to which the judgement debtor is beneficially entitled"
  5. The "securities to which this rule applies" includes any stock of any company registered under any enactment, as provided under Order 50 Rule 2(3):
  6. Order 50 Rule 2(4) defines "stock" to include shares, debentures and debenture stock.
  7. At the time of the show-cause hearing, the issue that was before Finnigan J was whether NMBFL had a beneficial interest in the 999,994 shares[13].The burden, then, was on Baroda.
  8. Baroda's case was structured and presented as follows:
  9. In argument, Baroda's solicitors kept to the various provisions of Order 50 to show that the 999,994 shares in question were owned by NMBFL and weresecurities which may be charged to secure the judgement debt.On that basis, Finnigan J would have granted the charging order absolute.

THE 1998 ANNUAL RETURN

  1. Both counsel accept that the 1998 Annual Return was the last such document on file at the Companies Office when Baroda's solicitors were searching. It is also common ground that the records kept in the Companies Office were not up to date. As a result,the change in the ownership of the shares would elude Baroda's solicitors in 2005 and 2006 when they were searching for current information on NMBFL and SICL at the Office of the Registrar of Companies.
  2. In his submissions, Mr Mishra goes to great lengths to argue that the directors and the secretary of SICL had engaged in misleading and deceptive conduct contrary to the provisions of the Fair Trading Decree[14]. These submissions were made only to argue the point that Baroda was entitled to rely on the 1998 Annual Return.
  3. I agree that Baroda was entitled to rely on the 1998 Annual Return at the pre- order nisi stage and even at the show-cause hearing stage[15]. After all, in law, a legal owner is, generally, presumed also to be the beneficial owner of any interest. Hence, the 1998 Annual Return would provide a strong presumption that NMBFL was both the legal and beneficial owner of the shares on the date the charging order nisi and the charging order absolute were registered.
  4. However, the presumption is rebuttable because beneficial and legal ownership do not always coincide (see Cooper v Griffin (supra), Howard &Anor v Sadler [1892] UKLawRpKQB 188; [1893] 1 QB, 1 to 5).
  5. Where the shares being charged stand in the company's share register in the name of the judgement debtor, the onus would be on the judgement debtor to adduce clear evidence showing that, even though he or it be the legal owner of the shares, the beneficial interest lies with another for whom the judgement debtor holds the shares on trust.
  6. Blue, MF - "Nominee Shareholding in Australia" [1975] AdelLawRw 5; (1975) 5(2) Adelaide Law Review 188 offers a description which is equally apt for Fiji:
A nominee shareholder is a person who holds shares in his own name on behalf of another person-the beneficiary-who has the effective ownership and control of the shares. Thus, the nominee is owner in name only. He is the registered legal owner, holding the shares on trust for the beneficiary, who has an equitable interest.

HAS SICL REBUTTED THE PRESUMPTION?

  1. In this case, the evidence adduced by and on behalf of SICL in Sutton's and Maharaj's affidavits (see above) appear to confirm that NMBFL no longer has any beneficial interest in the shares. If this is to be substantiated, then under Order 50 Rule 2(1), the charging orders in question in this case may no longer be sustainable.
  2. Having said that, I understand that the Fiji Court of Appeal in Sun Insurance Company Ltd v Bank of Baroda [2009] FJCA 51; ABU0071.2006S (3 April 2009) had ordered that:
  3. The above orders were meant to remain in force still. However, the material in the Sutton and Maharaj affidavits suggest rather strongly that, at the time the orders were made, the shares in question had long been transferred to VNFL and, of course, that VNFL has since "on-sold" the shares to others.
  4. Notably, the ownership of the 999,994 shares in question is more "fragmented"now than it ever was. These shares all once vested in NMBFL, the judgement debtor. Then, they were sold to VNFL which later "carved these up" into several little shareholdings and then on-sold each to various persons. Whether or not, individually, these various persons were bona fide purchasers for value in all those dealings, I am in no position to determine conclusively at this time. Whether these transactions were orchestrated to abuse or frustrate the Court's process in respect of Baroda's enforcement proceedings, is imaginable. But whether or not they are provable, is another story. Ultimately, these questions will need to be asked to determine whether or not the charging orders can be maintained over what is essentially now their shares.
  5. While such questions linger, this court would be well advised to adopt an approach which preserves the integrity and the efficacy of the enforcement and execution proceedings in the meantime.
  6. In CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 391, though decided on slightly different issues, the Australian High Court said:
The counterpart of a court's power to prevent its processes being abused is its power to protect the integrity of those processes once set in motion.
  1. Applying the above, the High Court of Australia again in Cardile v Led Builders Pty Ltd [1999] HCA 18; 198 CLR 380; 162 ALR 294; 73 ALJR 657(6 May 1999), though concerned with a mareva injunction, said the following words which are equally apt in this case:
The integrity of those processes extends to preserving the efficacy of the execution which would lie against the actual or prospective judgement debtor.

CONCLUSION

  1. I have a discretion under Order 50 Rule 7. However, I am not inclined to exercise that discretion in favour of setting aside or discharging the charging orders in this case simply on account of Baroda's failure to comply with Order 50 Rule 4(2) (b). The breach of natural justice which occasioned Baroda's failure to serve SICL a notice of the show-cause order, was unfortunate, but is remediable.
  2. The bigger picture is this: that Baroda was hard done by so to speak, and has obtained a lawful money- judgement of this court which it has a right to enforce against NMBFL, the judgement creditor, by all or any of the means of execution prescribed by the High Court Rules.
  3. Flowing from that, it should expect of this court an approach which protects the integrity of any enforcement process it sets in motion.
  4. I accept that the allegations of fact raised by Sutton and Maharaj are serious and may (or may not) eventually render the charging orders unenforceable in any event. I accept also that the current injunctive orders by the FCA may or may not eventually prove to be redundant as I have said in paragraphs 55 to 58 above. However, there are still some lingering questions to be settled, the answers to which will resolve this case one way or another.
  5. I think the best course to take in this case is to adjourn the matter to another date for further directions. Accordingly, this case is adjourned to Thursday 21 April 2016 at 10.30 a.m. for further directions, particularly in light of the evidence in the Sutton and Maharaj affidavits. Surprisingly, these evidence did not quite take centre stage at the original hearing before me.
  6. Meanwhile, I order that the following orders of the FCA are to continue:
  7. I also order, pursuant to my powers under Order 15 Rule 6(2) (b) (i) and (ii), that the Reserve Bank of Fiji be added as a party. Baroda's solicitors are to serve the Reserve Bank of Fiji a copy of this ruling within seven days.
  8. Parties to bear their own costs.

Anare Tuilevuka
JUDGE

08 April 2016.

[1] SICLused to be known as NMBF Insurance (Fiji) Company Limited.
[2]Lautoka High Court Civil Action No. 417 of 1996/L (see Byrne J’s ruling in Bubble Up Investments Ltd v National MBF Finance Ltd [1999] FJCA 38; Abu0021d.98s .


[3]beforeMr. Justice Sadal.
[4]Baroda’s securities, in fact, constituted a first charge. This was observed byMr. Justice Byrne in Bubble Up Investments Ltd v National MBF Finance Ltd [1999] FJCA 38; Abu0021d.98s.
[5]As observed by Connors J in Bank of Baroda v National MBf Finance Ltd [2005] FJHC 574; HBC0191.1998L (17 August 2005).


[8]Order 50 Rule 2(4) defines “stock” to include shares, debentures and debenture stock. It is clear between the parties that a “company concerned” in terms of Order 50 Rule 4(2) (b) refers to a company such as SICL which has allotted or issued out shares which are being charged on account of the judgement debt of a shareholder.


[9]In BanqueNationale de Paris plc v Montman Ltd &Ors [2000] 1 BCLC , the Chancery Division had to consider whether or not an unsecured creditor had locus to apply to set aside a charging order in terms of the English Charging Order Act 1979. The Act, under section 3(5), gave a right to apply to “a judgement debtor or any person interested in any property to which the order relates”, which, notably is somewhat similar Order50 Rule 7 of the HCR 1988.
The Court said:
Where the Charging Orders Act 1979 referred to “the debtor or any person interested in any person interested in any property to which the order relates”, the statute was looking at a person who could be said to have some form of interest in the property which was either a proprietary interest of an interest akin thereto, in the sense that they were a person who at least had some interest such that their legal rights or liabilities in the property within s 3(5) of the 1979 Act. Since the setting aside of its mortgage, Edict did not have even a contingent interest in the property. It was a mere unsecured creditor with a right to due administration of Shapland’s assets by the liquidator.

[10]The original shareholding was as follows:

  • Name
  • No. of Shares Held
  1. NMBFL
  • 999,994
  • 2. Lionel Ding Sun li>
  • 1
  • 3. Francis Chung
  • 1
  • 4. AkuilaSavu
  • 1
  • 5. Kenneth John Clemens
  • 1
  • 6. PriyarajLakmalMunasinghe
  • 1
  • 7. Daniel Elisha
  • 1
  • Total No. of Allotted Shares
  • 1,000,000 shares

[11]See footnote 3 above.

(3) A person who has a controlling interest in an insurer incorporated in the Fiji Islands must not transfer the controlling interest through sale or otherwise to another person except under a scheme approved by the Reserve Bank under this Part.


(4) No person may acquire at any time a controlling interest in an insurer incorporated in the Fiji Islands except under a scheme approved by the Reserve Bank under this Part.


[13]As per the Affidavit of Vinod Chandra Vithal sworn on 12 December 2005.
[14]Mr Mishra submits:

We also refer to our Fair Trading Decree 1992 Section 54(1) and (2) under the heading of Misleading or Deceptive Conduct which provides as follows:-

“(1) A person shall not, in trade or commerce engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2) Nothing is this Division shall be taken as limiting by implication the generality of subsection (1).”

Here the Plaintiff relied on the information from a search of the Companies Office which constitutes a representation to the public. It obtained a charge on the subject shares from the High Court according to the shareholding information existing at the Companies Office. Directors and the Secretary of a company must ensure that Returns are lodged yearly. To neglect to do so is an offence which is punishable by criminal charges and fines.

The Chargee cannot take advantage of its own wrong or a situation which it itself has created by not lodging its Annual Returns on time. We refer to Justice Philips decision when she granted stay of execution said as follows:

“However the Annual Returns of the 2nd defendant for the years 2001 to 2005 showing the changes of share ownership were not filed until 2 February 2006. Mr Maharaj’s submission that the filing of Annual Returns “was only an administrative process” is wholly misconceived.”

Our Fair Trading Decree also provides that a person engaged in commerce or trade cannot engage in conduct which is misleading or deceptive or conduct which is likely to mislead or deceive (Section 54(1)). Here this is exactly what has happened. Furthermore as directors and/or shareholders the companies officers themselves are under duty to show registration.

We also refer to New Zealand Shipping Company Limited v Societies Des Ateliers Et Chantiers De France H.L (E) 1918 A.C. Page 6, 7 and 9 where the principle that no man can take advantage of his own wrong is put succinctly as follows by the Privy Council:-

“(Page 6) It is a principle of law that no one can in such case take advantage of the existence of a state of things which he himself produced......”

This is yet another strong legal impediment against the Chargee being able to set aside the order absolute. We submit that this application be dismissed with indemnity costs.
[15]However, whether or not the directors and secretary of SICL had engaged in misleading and deceptive conduct, I leave open.

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