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Fiji Law Reports |
STEVEN PRADEEP SINGH v MARTIN MINING & TUNNELLING INCORPORATED & MARTIN MINING (FIJI) LIMITED
High Court Civil Jurisdiction
| 22-23 April 1998, 27 February, 2001 | HBC 0261J/97L |
Contract – part performance - whether valid shareholder agreement for formation of company – company incorporation - whether Plaintiff's equity intended to be included in shareholder agreement – counterclaim of misrepresentation –D1's subscription to memorandum of association invalid without ministerial consent – whether Plaintiff discharged burden of proof - Exchange Control Act s10(2)
Evidence – parole evidence rule – whether implied or other terms allowed in a company formation agreement - construction against the maker of a document – rectification – D1's omission of Plaintiff's equity not central to his business plans at the time – whether D1 relied on Plaintiff's promise of equity for expending monies sought in counterclaim
The Plaintiff and D1 executed a company formation agreement, which intended the incorporation of a company limited by shares having an authorised share capital of $250,000.00 divided into 250,000 shares of $1.00 each; the name of the entity to be D2; that D1 would subscribe 50% shares and the Plaintiff 49% on the Plaintiff contributing $400,000 in equity; the parties would use their best endeavours to procure an assignment of a contract D1 had with another mining company to D2, and to draw up a contract of employment for the Plaintiff. D1, being foreign, required Fiji Trade and Investment Board approval, and Reserve Bank of Fiji approval, which were granted. The Plaintiff and D1 fell out over the Plaintiff's contribution. The Plaintiff brought an action against D1 for loss of employment, breach of agreement, general damages and costs, alternatively a derivative action for indemnity costs and order on behalf of D2 that D1 assign benefit of contract to D2, and a further alternative action for assessment of damages for breach and default by D1 in failing to seek the transfer and assignment of a contract between D1 and Emperor Gold Mining Company Limited to D2 for its absolute benefit. He relied on part performance of the contract. D1 pleaded he relied on Plaintiff's representation about the Plaintiff's $400,000.00 equity and was induced to execute the company formation agreement. He claimed it was an implied term the parties were to be honest in their dealings, hence, as a result, the company formation agreement was unenforceable because of breach of the Exchange Control Act, the Plaintiff's misrepresentation, breach of a fundamental term to provide equity, breach of implied term (i.e. honesty) and recission by D1. He sought rectification on the basis that the company formation agreement failed to contain all the terms, especially in respect of the Plaintiff's equity contribution. The Court applied the parol evidence rule and refused rectification. The Court found that D1 failed to obtain ministerial approval for subscription to D2's memorandum of association and never became a shareholder in D2. It also found that the Plaintiff had not discharged the burden of proving his damages or actual loss and his action must fail. The Court found that the ends of justice are met, as the Plaintiff would have had a windfall for a $49 investment. The Court did not find merit in D1's counterclaim on misrepresentation and did not believe that D1 expended monies claimed in reliance on a promise that the Plaintiff would put in $400,000 equity when it was obvious the Plaintiff did not have the means, and the parties were seeking banking accommodation. The Court concluded this was a tale of two would-be business partners whose reciprocal conduct was deserving of each other.
Held–(1) The First Defendant's subscription to a memorandum of association of the Second Defendant was clearly invalid and unenforceable for breach of statutory provision of the Exchange Control Act section 10(2). It never became a shareholder. The Plaintiff's subscription was therefore invalid. The Plaintiff's action must fail, as he has not proved his damages or actual loss as was his burden to discharge.
(2) The company formation agreement and shareholder's agreement was properly concluded and contained all the terms of agreement between the parties. It is trite law that the parol evidence rule proscribes recourse to external considerations for interpretation of a signed contract. No exceptions exist to deviate from this rule, and to imply other terms, especially when the document was drafted on the maker's instructions, and used as the basis for the incorporation of the Second Defendant. The First Defendant's omission of the Plaintiff's equity in the company formation agreement, because it was not central to his plans at that time, cannot form the basis of an order for rectification.
First Defendant's claim for rectification of the terms of a company formation agreement denied. Plaintiff's action in substantive and alternative form dismissed. Defendant's counterclaim dismissed.
Cases referred in Judgment
Chettiar v Chettiar [1962] 1 All ER 494
Goss v Nugent 1833-53 Ad 53
Re Transatlantic Life Assurance Company Ltd [1979] 3 All ER 352
Abhay K. Singh and Vipul M. Mishra for the Plaintiff
Bhupendra C. Patel and Chen B. Young for the Defendants
| 27 February, 2001 | JUDGMENT |
Madraiwiwi, J
The Plaintiff Steven Singh has instituted proceedings against Martin Mining & Tunnelling Incorporated the First Defendant seeking
damages for loss of employment at $60,000.00 per year, damages for breach of agreement in the sum of $1,520,632.00, general damages
and costs. The Plaintiff relies on a company formation agreement dated 29 June 1997 which the Plaintiff by its authorised attorney
Mr Angus Charles Martin and First Defendant executed in which it was agreed inter alia that:
1. The parties shall forthwith procure the incorporation of a company limited by shares under the Companies Act and having an authorised share capital of $250,000.00 divided into 250,000 shares of $1.00 each.
2. The company shall be called MARTIN MINING (FIJI) LIMITED.
In the alternative the Plaintiff seeks an order that he is entitled to institute a derivative action on behalf of the Second Defendant against the First Defendant, an order for indemnity for costs for instituting and prosecuting the action, an order that the First Defendant take immediate steps to seek a transfer and or assignment of the contract dated 30 December 1996 between the First Defendant and Emperor Gold Mining Company Limited to the Second Defendant for its absolute benefit. Alternatively, the Plaintiff seeks an order for assessment of damages for the breach and for default by the First Defendant in failing to seek the transfer and assignment of the said contract as aforesaid, such other order as the court deems just to transfer and assign the said contract to the Second Defendant, damages and costs.
In its amended statement of defence, the First Defendant claims that the shares in the Second Defendant have not been properly subscribed and paid for by the Plaintiff. The proposed shareholders agreement annexed to the company formation agreement was in draft and intended to be finalised by the parties. If the said agreement is in final form (which is not admitted) such agreement is affected by mistake in not reflecting the parties' intentions about the shareholders' advances particularly in relation to the $400,000.00 equity to be given by the Plaintiff. It was as the result of such misrepresentation that the First Defendant Mr Angus Martin was induced to execute the company formation agreement. It was an implied term the parties were to be honest in their dealings. The company formation agreement is unenforceable because of breach of the Exchange Control Act Cap 211, misrepresentation by the Plaintiff, breach of a fundamental term to provide the said equity, breach of implied term (i.e. honesty) and recission by the First Defendant on 5 August 1997.
The Plaintiff and the chief executive of the First Defendant, Mr Angus Martin first met in April 1997. The latter was interested in establishing a joint venture in Fiji to provide mining and tunnelling services and had signed a contract with Emperor Gold Mining Company Limited dated 30 December 1996 to provide the same. The First Defendant sought to raise funds locally both for the local venture and to assist its operations in Canada hence the need for a local partner. In the course of purchasing a vehicle from the Plaintiff who was then in the business of selling motor vehicles, the latter expressed an interest in the proposal. In late May 1997 the parties met Mr J Lal of J Lal and Company, a firm of chartered accountants, to discuss the proposed business venture. Discussions continued intermittently until late June 1996 when Mr Martin returned to Fiji. The parties visited Messrs A..K. Narayan and a company formation agreement and shareholders' agreement was drawn up on Mr Martin's instructions. They included the terms set out above. The joint venture also required Fiji Trade and Investment Board approval as well as Reserve Bank of Fiji approval as the First Defendant was a foreign company. Approval in principle by the latter was given on 1 July 1997 and the former on 22 July 1997. Mr Martin and the Plaintiff subsequently fell out over allegations by the latter that Mr Singh had failed to provide the equity he had supposedly promised.
Mr Martin has since alleged that the company formation agreement did not contain all the terms of the agreement and has sought rectification of the document. It only makes reference to incorporation of a company limited by shares having an authorised share capital of $250,000.00 divided into 250,000.00 shares of $1.00 each. Much of the extensive evidence given by the Plaintiff and Mr Martin centered on this issue. It is the First Defendant's contention that the requirement Steven Singh contribute $400,000.00 to the joint venture was crucial to the company formation agreement. It is trite law that the parol evidence rule proscribes recourse to external considerations when a signed contractual document is being interpreted. Learned counsel for the First Defendant have made strenuous efforts to incline the court to make an exception in present circumstances.
It is not persuaded. Irrespective of what transpired between the parties on 28 May 1996 at the offices of J. Lal & Company and the discussions that followed subsequently at the Waterfront Hotel, the decisive element is the signing of the company formation agreement by the parties on 29 June 1996. That and related documents were drawn up on Mr Martin's instructions. His contention that the solicitors failed to incorporate all the terms and that the documents were drafts does not bear close scrutiny. Both parties signed the same and they were used as the basis for the incorporation of the Second Defendant on 2 July 1996. Besides, Mr Martin was a businessman with vast experience in mining. The court cannot believe that he would have omitted such an allegedly pivotal consideration by design. It is satisfied in considering all the circumstances of the case including the evidence of Mr Jay Lal the accountant, that the $400,000.00 equity share by the Plaintiff was intended to be incorporated in the company formation agreement. The court respectfully adopts the principle annunciated by Lord Denman in the leading case of Goss v Nugent 1833-53 Ad 53 at 64 in these terms:
"If there is a contract which has been reduced into writing, verbal evidence is not allowed to be given of what passed between the parties, either before the written instrument was made, or during the time that it was in a state of preparation, so as to add to or subtract from, or in any manner to vary or qualify the written contract."
The court does not believe that Mr Martin thought the Plaintiff could personally raise the amount required. This is because at various stages of their relationship, the parties hoped to raise the required capital from different sources such as Westpac, Bank of Hawaii and the Fiji Development Bank using the First Defendant's equipment as security. It is only when it became apparent that these overtures were unsuccessful that Mr Martin sought to pursue the $400,000.00 equity participation by the Plaintiff. Moreover it was clear the Plaintiff was not flush with funds as evidenced by the fact that Mr Martin had to provide funds for trips to Australia as well as operating expenses as reflected in his counterclaim.
The court therefore finds that the company formation agreement and shareholder's agreement dated 29 June 1996 was properly concluded and contains all the terms of agreement between the parties and there will be no order for rectification of its terms as sought by the First Defendant.
The Plaintiff has relied on several factors to allege the contract has been part performed by the Defendants. Accordingly they cannot resile from that position and must accept the consequences thereof. Specific reference is made to the balance sheet prepared by Messrs Jay Lal & Associates on 4 July 1997 (Exhibit P4) for presentation to the Bank of Hawaii for the purposes of raising loan funds. This bears the signature of Mr Angus Martin. Then there is a letter by the Second Defendant signed by Mr Martin as President dated 5 July 1997 (Exhibit P11) in which it tenders for a mining contract with Mount Kasi Mines. A letter dated 8 July 1997 (Exhibit P12) seeking a visa for the Plaintiff and asserting he is employed by the Second Defendant. The Plaintiff also relies on the Articles of Association and Memorandum of Association of the Second Defendant (Exhibits P7, P7A). The conclusion that suggests itself is that having been incorporated on 2 July 1997, the Second Defendant was apparently functioning as a business entity. It appeared to possess considerable assets (Exhibit P4) and was actively engaged in business ventures.
Such activities as were conducted on behalf of the Second Defendant were performed largely prior to its incorporation. They are consequently of no account. The balance sheet upon which the Plaintiff has placed great store is a projection. The Second Defendant was incorporated on 2 July 1997, it is clear from the figures that what was presented was a best possible scenario of a company's anticipated performance. Even if it were no so, the court is of opinion that the company function formation agreement is invalid for breach of a statutory provision. The Plaintiff in seeking to dispose of this argument submitted that the First Defendant was seeking to take advantage of such conduct and urged the court not to lend it comfort Chettiar v Chettiar [1962] 1 All ER 494. However, it matters not that section 10(2) of the Exchange Control Act Cap.211 coincidentally aids the First Defendant. In as much it is the law of the land, the court is obliged to give effect to it irrespective of clause 11.07 of the company formation agreement which states:
11.07 "If any provision of this agreement shall be or become illegal or unenforceable in whole or in part, the remaining provisions shall nevertheless be valid, binding and subsisting."
Section 10(2) of the Exchange Control Act provides:
"The subscription of the memorandum of association of a company to be formed under the Companies Act, by a person resident outside Fiji, or by a nominee for another person so resident, shall, unless he subscribes the memorandum with the permission of the Minister, be invalid in so far as it would, on registration of the memorandum, have the effect of making him a member or shareholder in the company, so, however, that this provision shall not render invalid the incorporation of the company; and, if, by virtue of this subsection, the number of the subscribers of the memorandum who, on its registration, become members of the company is less than the minimum number required to subscribe the memorandum, the provisions of the said Act relating to the carrying on of business of a company the number of whose members is reduced below the legal minimum shall apply to the company as if the number of its members had been so reduced."
Although the provision appears to preserve the incorporation of the Second Defendant, the fact that the First Defendant has failed to fulfill the stipulated requirements (i.e. obtain ministerial approval) means it never became a shareholder in the Second Defendant. Section 4 and the fourth schedule to the Exchange Control Act were also relied upon by the Plaintiff to validate the company formation agreement. However, the court adopts the approach taken by Slade J in Re Transatlantic Life Assurance Company Ltd [1979] 3 All ER 352 at 355 where His Lordship was considering the effect of an identical provision in the English Act as follows:
"This subsection therefore expressly provides for the invalidity of the subscription to this extent and in these circumstances."
That being the case, the Plaintiff cannot enforce the provisions of the company formation agreement against the First Defendant. Its subscription to the memorandum of association of the Second Defendant was clearly invalid. It follows that the Plaintiff's alternative cause of action must also fail for the same reason. In coming to this conclusion the court is satisfied that the ends of justice have been met. The success of the Plaintiff would have meant a windfall for him on the basis of an investment of $49.00 for he has not proved his damages or actual loss as was his burden to discharge.
The First Defendant has counterclaimed against the Plaintiff alleging misrepresentation on his part and claiming the amount of $20,250. This consists of travel and hotel expenses of $16,550 (Exhibit D13(a) (b) and (c) for $2500 paid to the Plaintiff on 25 June 1997, air fare to Australia to obtain the Plaintiff's Australian visa ($700) and pocket expenses of $500.00 for the Australia trip. The First Defendant alleges that it was induced to expend these monies on the strength of the Plaintiff's commitment to provide $400,000.00 equity in the proposed joint venture. While the court accepts that this issue was raised throughout the parties negotiations, it does not believe that the First Defendant by Mr Angus Martin expended those monies in reliance on that promise. He was a canny businessman. It was apparent that the Plaintiff did not have that kind of money and his claim to be able to raise that money was more a matter of bravado and wishful thinking rather than fact. Mr Martin forebore to include it in the company formation agreement because it was not then central to his plans. Only when it appeared to him that the raising of capital from whatever source was becoming an issue did he move against the Plaintiff. This is a tale of two would-be business partners whose reciprocal conduct was deserving of each other.
The court therefore holds the company formation agreement was properly concluded but unenforceable. The Plaintiff's suit in its substantive form and in the alternative is accordingly dismissed. There being no misrepresentation on the part of the Plaintiff, the counterclaim is also dismissed. There will be no order as to costs.
It is nearly three years since this matter was heard and judgment rendered. The parties have made justified complaints to the Fiji Law Society. What can the court say other than to admit its fallibility in relation to the inordinate delay in determining the matter? Small comfort though it is to the parties, the court can only apologise for its considerable failings in this regard. Perhaps it is now appropriate for the relevant authorities to give some consideration to setting time limits on the delivery of judgments and for appropriate sanctions to be considered where they are exceeded. This may sound like a pious utterance but it is no less true for being that.
Action dismissed.
Marie Chan
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