Chand v Singh [2021] FJHC 380; HBC197.2021 (14 December 2021)

IN THE HIGH COURT OF FIJI AT SUVA

CIVIL JURISDICTION

Civil Action No. HBC 197 of 2021

BETWEEN

KAMAL CHAND of Nasau, Nadi, Joiner.

PLAINTIFF

AND

KHEM SINGH of 20 Johnson Street, Toorak, Suva, Fiji. Businessman.

DEFENDANT

Counsel : Mr. Lagonilakeba V. and Mr. Arun M. for the Plaintiff.

Mr. Singh K. with Ms. Lal K. for the Defendant

Date of hearing : 24^th November 2021

Date of Ruling : 14^th December 2021

RULING

(On the Application for Injunction)

[1] The plaintiff in these proceedings filed the writ of summons seeking the following orders:

(1) A declaration that the that the defendant holds 50% shares in Rajdhani on trust for the plaintiff;
(2) An account or inquiry as to the statement of accounts of Rajdhani;
(3) General Damages;
(4) Special damages;
(5) Costs on a Solicitor / Client indemnity basis;
(6) Any other orders this Honourable Court deems just and equitable in the circumstances.

[2] The plaintiffs on 28^th September 2021 filed a Notice of Motion pursuant to Order 29 rule 1(1) and rule 2(1) of the High Court Rules and the inherent jurisdiction of the court seeking the following orders:

1. That the defendant be restrained from selling and/or transferring and/or disposing 50% shares of Rajdhani Multi Cuisine Restaurant Pte Ltd until final determination of this matter.
2. Any further orders this Honourable Court seems just and equitable.

[3] The plaintiff and the defendant formed a private limited liability company named Kanishka Foods Pte Ltd and operated a wine and dine restaurant under the name Yellow Chili at 53, Carnarvon Street, Suva.. In or around April 2021 the defendant formed new company named Rajdhani Multicuisine Restaurant Pte Ltd, opened a restaurant at the same premises, named Rajdhani.

[4] The plaintiff states that the defendant offered to buy his shares and had various discussions but it remains unsolved. The plaintiff’s position is that the defendant has used plaintiff’s investment in Kanishka Foods Pte Ltd to improve the property at 53, Carnarvon Street. The defendant’s position is that the plaintiff has not yet paid for his 50% shares and he only invested $28896.71 as an advancement to the business.

[5] The injunction sought by the plaintiff is to restrain the defendant from selling his 50% shares of Rajdhani Multi Cuisine Restaurant Pte Ltd.

[6] In American Cyanamid Co. v Ethicon Ltd [1975] UKHL 1; [1975] 2 W.L.R. 316, [1975] A.C. 396 this case Lord Diplock laid down certain guidelines for the courts to consider in deciding whether to grant or refuse an interim injunction which are still regarded as the leading source of the law on interim injunctions. They are:

(i) Whether there is a serious question to be tried at the hearing of the substantive matter;
(ii) Whether the party seeking an injunction will suffer irreparable harm if the injunction is denied, that is whether he could be adequately compensated by an award of damages as a result of the defendant continuing to do what was sought to be enjoined; and
(iii) In whose favour the balance of convenience lie if the injunction is granted or refused.

Lord Diplock in his judgment at page 408 also said;

... it would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. These will vary from case to case.

Kerr LJ in Cambridge Nutrition Ltd v BBC [1990] 3 All ER 523 at 534 said:

It is important to bear in mind that the American Cyanamid case contains no principle of universal application. The only such principle is the statutory power of the court to grant injunctions when it is just and convenient to do so. The American Cyanamid case is no more than a set of useful guidelines which apply in many cases. It must never be used as a rule of thumb, let alone as a straitjacket .... The American Cyanamid case provides an authoritative and most helpful approach to cases where the function of the court in relation to the grant or refusal of interim injunctions is to hold the balance as justly as possible in situations where the substantial issues between the parties can only be resolved by a trial.

[7] Before considering the guidelines set out in above decisions the court has to consider whether the plaintiff has a cause of action to sue the defendant in person. I paragraph 5 of the statement of claim the plaintiff states in detail his contribution towards the improvement of Kanishka Foods Pte Ltd of which he is holding 50% of shares. When questioned by the court, the learned counsel informed court that Kanishka Foods Pte Ltd is still in existence.

[8] A company being a separate legal entity, its rights and duties are separate from the rights and duties of its directors and shareholders. This means the liability of shareholders are limited as the personal assets of the owners cannot be touched to pay the debts of the company. This protection is called “the corporate veil”. This fundamental principle of law was established by the House of Lords in Salomon v Salomon & Co Ltd [1897] AC 22 / [1896] UKHC 1.

[9] The defendant may be the sole director of the company but he and the company have two different personalities. It is not the director who sells the shares but the company itself. On the other hand the plaintiff’s investment was in Kanishka Foods Pte Ltd. There is no evidence whatsoever to say that the defendant invested plaintiff’s money into Rajdhani Multi Cuisine Restaurant Pte Ltd. Even if it so he has to recover that money from the company and not from the director.

[10] As a legal entity, separate and distinct from its shareholders, the company must be treated like any other independent person with rights and liabilities appropriate to itself. It is the company which conducts business, it is the company which enters into contracts and incurs debts. The company can own property and its property is not the property of its main shareholder (not even if he owns all the shares), who cannot insure it but who can be charged with stealing from the company. The company can employ people and can employ its controlling shareholder. The company has perpetual existence and succession and this continuity is important and convenient. The membership may be constantly changing but the entity continues until steps are taken to bring it to an end through winding up. Equally, the company can sue and be sued in its own name and this is advantageous to third parties who do not have to concern themselves with identifying who are the shareholders at any given moment. Most important of all, the debts are the debts of the company and not of the shareholders whose only obligation in a company limited by shares is to contribute to the company’s assets such amount, if any, unpaid on the shares held by them. Ultimately, it is the company which may go into insolvency. (Lee v Lee Air Farming Ltd [1961] AC12).

[11] There is nothing on record to say that these two companies are subsidiaries. Even if it is so one company cannot be held responsible for the debts of the other.

[12] The parent company and the subsidiary company are separate legal entities and each company is entitled to expect that the court will apply the Salomon Principle in the ordinary way and respect the separate identity of each company in the group. This is so even if the subsidiary company has a small paid-up capital and a board of directors all or most of whom are also directors or executives of the parent company. {Adams v Cape industries plc [1990] BCLC 479 at 520; Re Polly Peck International plc (No. 3) [1996] BCLC 428 at 441}.

[13] From the above it appears that the plaintiff’s action is misconceived in law.

[14] The plaintiff claims special and general damages a substantive reliefs. As I stated above the plaintiff has quantified special damages in paragraph 5 of the statement of claim and it amounts to $62,059.16. Therefore the court is of the view that damages would be an adequate remedy.

ORDERS

1. The orders sought in the Notice of Motion filed on 28^th September 2021 are refused.
2. Costs of this application will be costs in the cause.
   

Lyone Seneviratne

JUDGE

14^th December 2021