South Pacific Acquatic Inc v Information Technology Services (Fiji) Ltd [2001] FijiLawRp 113; [2001] 1 FLR 474 (5 December 2001)

SOUTH PACIFIC AQUATIC INC v INFORMATION TECHNOLOGY SERVICES (FIJI) LIMITED AND APOLOSI KALOUMAIRA

High Court Civil Jurisdiction

27 November, 5 December, 2001

HBC 0411/01S

Dissolution of stay order - dispute over rental for lease of vessel – non disclosure- court's duty to examine the entire matter afresh on application to extend, dissolve or discharge injunction – counterclaim equitable set off – serious triable issues - damages an adequate remedy – sufficiency of Plaintiff's undertaking – Plaintiff unagble to deposit Defendant's counter-claim into Court – preservation of status quo

Following a dispute as to charter rental for a vessel, and an unsuccessful effort at re-taking possession, the Plaintiff applied ex parte 4 days later and obtained an order requiring the Defendant to deliver the vessel John G to the Plaintiff immediately. The indorsed Writ of Summons sought damages for trespass and conversion of the vessel by the Defendants. The Defendants sought and obtained an ex parte stay order 3 days later on the grounds of material non-disclosure. The Defendant company's Statement of Defence claimed it had overpaid rent for 7½ months and counterclaimed for liquidated damages for various alleged breaches of the lease agreement by the Plaintiff, and to an Arceneaux debt indemnity of the Plaintiff. Upon the Plaintiff's ex parte application to dissolve the stay order, the Court ordered the matter to be heard inter-partes. The Court found the Plaintiff had not disclosed Arceneaux debt indemnity, or that the vessel was seized by the Admiralty Marshal for 5 weeks resulting in the consent order, after it had been chartered to the Defendant company. The Court pointed out that Plaintiff's counsel's submissions of a reduced debt diminished the nature of the legal debt the Defendant had taken on, forced the Court to determine the issues in dispute between the parties and failed to take into account the Defendant company's much larger set-off and counter-claim. The Court set about determining the matter afresh and decided there were serious triable issues. The Court found the Plaintiff's inability to meet an undertaking or to pay the Defendant's counterclaim into Court, that damages are an adequate remedy in all the circumstances, the balance of convenience in preserving the status quo by allowing the Defendant company to operate the vessel for fishing purposes favoured the dissolution of the earlier ex parte injunction.

Held–(1) Upon an inter-partes application to extend, dissolve, or discharge an ex-parte injunction the Court has a duty to examine the entire matter afresh upon all of the affidavits and submissions placed before it and may, in exercising its discretion afresh, dissolve, vary, suspend or extend the ex-parte injunction and may even grant a fresh injunction as in its discretion appears just. An application for injunction inter-partes, on which serious issues arise, which forces a Court to determine the heart of the dispute between parties will be refused.

(2) A claim to an equitable set-off should not be hemmed-in by common law rules requiring notice before the set-off may be properly asserted, but must arise and be interdependent under the claim itself.

Application to dissolve stay order refused. Earlier ex parte injunction to deliver up the 'John G' dissolved. Plaintiff to file and serve a proper Statement of Claim within 7 days.

[Note: subsequently, a Statement of Claim was filed on 11 December 2001. A motion to set aside judgment in default filed on 29 February 2002 has never been heard. On 17 January, 2006 Plaintiff counsel advised the Court the matter has been settled. On 29 March 2006, the action was struck out.]

Cases referred to in Judgment

Bank of Mellat v Nikpour [1985] FSR 87
Brinks –Mat Ltd v Elcombe [1983] 3 All ER 188
British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [979] 2 All ER 1063
Compagnia Sud Americana v Ship Mair BV ('The Teno') [1977] 2 Lloyd's Rep. 297
Dormeil Freres v Nicolian Ltd [1988] 3 All ER 197
Federal Commerce and Navigation Ltd v Molena Alpha Inc [1978] 3 All ER 1066
Grant v NZMC Ltd [1989] 1 NZLR 8
R v Kensington Income Tax Commissioners [1917] 1 KB 486

'The Nanfri' [1978] 3 All ER 1066

Feizal Haniff for the Plaintiff
Kitione Vuataki for the Defendants

5 December, 2001

JUDGMENT

Fatiaki, J

This is an application to dissolve a stay order granted by the Court on the Defendant company's ex-parte application dated 16th October 2001.
 
The case concerns a vessel the JOHN 'G' which had been chartered to the Defendant company by the Plaintiff company in August 2000 on a monthly rental of $6000.
 
Over time a dispute arose between the parties over rental payments and other matters culminating in a letter dated October 7, 2001 from the Plaintiff company purported to terminate the lease agreement because inter alia '... as of today, you are $60,000 (US$30,000) in arrears.'
 
The letter was followed the very next day 8th October 2001, by an unsuccessful attempt by the managing director of the Plaintiff company to take possession of the vessel pursuant to Clause 6 of the lease agreement which reads:

'If the rent reserved by this lease is unpaid for a period of more than twenty-eight (28) days the lessor or his agent shall take possession of the vessel whereupon the term shall absolutely cease and determine.'
 
It is noteworthy that the Plaintiff company's termination letter does not clearly identify any component of the accumulated arrears as being 'unpaid for a period of more than twenty eight (28) days' nor does the letter give the Defendant company any time or warning within which to make payment of the arrears claimed failing which repossession of the vessel would take place.
 
Be that as it may on 12th October 2001 the Plaintiff company applied ex-parte and obtained an order requiring the Defendant company to 'deliver the vessel John 'G' to the Plaintiff forthwith'. The indorsed Writ of Summons which founded the application sought damages for trespass and conversion of the vessel by the Defendants. All papers were ordered to be served within 24 hours.
 
Three (3) days later on 15th October the Defendant company entered an appearance by counsel and the very next day sought a stay of the above mandatory order which was granted ex-parte on the court's preliminary acceptance that material non-disclosure(s) had occurred on the part of the Plaintiff company in obtaining the original ex-parte order for the return of the vessel. The ex-parte stay order was served on the Plaintiff's solicitor on 18th October.
 
The Defendant company in its Statement of Defence had denied being in arrears of rental payments and averred that 'it had overpaid rent for 7½ (seven and half) months'. It further counterclaimed for liquidated damages for various alleged breaches of the lease agreement by the Plaintiff company and also, in respect of a separate agreement relating to what might be conveniently described, in short-form, as the 'Arceneaux debt', wherein the Plaintiff company's managing director agreed to:

'(1) ... indemnify (the Defendant company) for making payments on behalf of my debt to Steven Arceneaux (High Court Case HBG 3 of 2001) and;

(2) ITS (Fiji) Ltd. is authorised to deduct from the amount owing to me from the charter of the vessel John G to compensate ITS (Fiji) Ltd. for payments made on my behalf.'
 
On the face of it this latter agreement which was subsequently reduced into a consent order of the Court in Admiralty Action No. HBG 3 OF 2001, rendered the Defendant company solely liable for the whole of the 'Arceneaux debt' and granted it the right to 'set-off' against the rental payments under the lease, any payments made by the Plaintiff company in discharging the debt.
 
Such an agreement if I may say so, has the potential to considerably and materially affect or impact on the question of rental arrears under the original lease of the 'John G' yet was never disclosed by the Plaintiff company which later claimed, through its managing director, that '...(it) was anyway insignificant'.
 
In this latter regard it is also not disclosed by the Plaintiff company that, as a direct result of the Court proceedings to recover the 'Arceneaux debt', the vessel was seized by the Admiralty Marshall in March 2001 i.e. after it had been leased to the Defendant company, and was detained for approximately five (5) weeks until after the above-mentioned consent order was filed in Court, and pursuant to which the Defendant company:

'... undertakes to pay (Steven Arceneaux's) debt of US$10,500 (US Ten Thousand and Five Hundred Dollars) plus costs of $4,000 (Four Thousand Dollars) with an initial payment of $5,000 (Five Thousand Dollars) and monthly payments of $1,500 (One Thousand and Five Hundred Dollars) thereafter';
 
The principle requiring full and frank disclosure in ex-parte applications has recently been enunciated and reaffirmed in Bank of Mellat v Nikpour (1985) FSR 87 where Donaldson, L.J. said:

"This principle that no injunction obtained ex parte shall stand if it has been obtained in circumstances in which there was a breach of the duty to make the fullest and frankest disclosure is of great antiquity. Indeed, it is so well enshrined in the law that it is difficult to find authority for the proposition; we all know it; it is trite law. But happily we have been referred to a dictum of Lord Justice Warrington in the case of R. v Kensington Income Tax Commissioners, ex p. Princess Edmond de Polignac [1917] 1 KB 486 at p.509. He said: 'It is perfectly well settled that a person who makes an ex parte application to the court - that is to say, in the absence of the person who will be affected by that which the court is asked to do - is under an obligation to the court to make the fullest possible disclosure of all material facts within his knowledge, and if he does not make that fullest possible disclosure, then he cannot obtain any advantage from the proceedings, and he will be deprived of any advantage he may have already obtained by means of the order which has thus wrongly been obtained by him'."
 
Furthermore, Lord Cozens-Hardy M.R. in dealing with the consequences of non-disclosure in ex-parte applications aptly summed it up when he said in R. v Kensington Income Tax Commissioners (op.cit) at p.505:

"... the court ought not to go into the merits of the case, but simply say, 'we will not listen to your application because of what you have done'."
 
In my view however, upon an application inter-partes to extend, dissolve, or discharge an ex-parte injunction the Court has the opportunity and the duty to examine the entire matter afresh upon the basis of all of the affidavits and submissions placed before it at the inter- partes hearing and may, in exercising its discretion afresh in the matter, dissolve, vary, suspend or extend the ex-parte injunction and may even grant a fresh injunction as in its discretion appears just.
 
In this regard I am fortified by the observations of Browne-Wilkinson V.C. in Dormeil Freres v Nicolian Ltd. [1988] 3 All ER 197 where the learned Vice Chancellor said at p.199:

'... if, in the circumstances existing when the matter comes before the Court inter partes justice requires an order continuing the ex parte injunction or the grant of a fresh injunction, such an order can be made notwithstanding the earlier failure to make such disclosure. Moreover, there is authority that, contrary to the law as it was originally laid down, there is no absolute right to have an ex parte order obtained without due disclosure set aside: There is a discretion in the Court whether to do so or not.'
 
In considering this aspect of the present case I am also guided by the head-note to Brinks-MAT Ltd v Elcombe [1983] 3 All ER 188 which contains the following relevant passage dealing with non-disclosure in ex- parte applications:

 'Whether a fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issue to be decided by the judge on the application. The fact that the non-disclosure was innocent, in the sense that it was not known to the Applicant or that its relevance was not perceived, is an important, but not decisive, consideration in deciding whether to order an immediate discharge. However the Court has a discretion notwithstanding proof of material non-disclosure which justifies the immediate discharge of an ex parte order to continue the order or to make a new order on terms.'
 
Ralph Gibson LJ in his judgment at pp.192/193 (ibid) enumerated no less than seven (7) relevant 'principles' of which it is only necessary for present purposes to refer to the second which reads:

'(ii) the material facts are those which it is material for the judge to know in dealing with the application as made; materiality is to be decided by the Court and not by the assessment of the Applicant or his legal advisors.'
 
In light of the above I reject in limine the claim by the managing director of the Plaintiff company that the agreement and/or the subsequent Court order were either 'insignificant' or immaterial for this court to know. Indeed, it is impossible to calculate the arrears of rental (if any) owing to the Plaintiff company under the lease of the vessel without fully accounting for any 'payments made ... to Steven Arceneaux' which the Defendant company was specifically 'authorised to deduct from the amount owing ... from the charter of the vessel John G.'
 
Be that as it may on 1st November the Plaintiff company responded with an ex-parte application for the dissolution of the stay order. By then it had become abundantly clear to the Court that no further ex-parte applications ought to be entertained in the matter and the Plaintiff's summons was ordered inter-partes.
 
At the inter-partes hearing Plaintiff's counsel while reluctantly conceding that there had been a non-disclosure on the Plaintiff company's part, nevertheless, valiantly sought to support the managing director's 'insignificant' description by way of a detailed analysis of the various payments that had been deposed in the affidavits and producing a substantially reduced arrears figure of $46,000 at the end of October 2001 after taking into account all individual payments made by the Defendant company towards the 'Arceneaux debt'.
 
Three (3) observations may be made regarding this submission which is also rejected. Firstly, the calculation diminishes the nature of the legal liability that the Defendant company has taken on in relation to the 'Arceneaux debt' by only allowing deductions for individual payments made therefor as opposed to the entire debt; Secondly, the submission requires the Court on an interlocutory application with opposing affidavits, to finally determine the very question which is in dispute between the parties namely, the lawfulness of the purported exercise by the Plaintiff company of its powers to repossess the vessel under Clause 6 of the lease agreement; and Thirdly, the submission ignores the counterclaim or equitable set-off pleaded in the Statement of Defence which is more specifically evidenced in the affidavit of the 2nd Defendant who is principal shareholder and director of the Defendant company and which exceeds, in amount, the rental arrears calculated by counsel.
 
In support of this latter claim to set-off against the rental claimed the repair expenses incurred by the Defendant company, defence counsel referred to para. 417 of Vol.42 of Halsbury's Laws of England (4th ed) which reads:

'In answer to a claim for rent, a tenant has an ancient common law right to set up by way of defence any sum of money actually expended by him on repairs which the landlord, in breach of covenant, has failed to carry out ....'
 
Counsel for the Plaintiff company forcefully submits however, that even assuming that the lessor was liable to carry out such repairs, nevertheless equitable set-off is not available to the Defendant as lessee of the vessel, insofar as no notice requesting or requiring the alleged repairs was ever given to the Plaintiff company as lessor.
 
I cannot agree that a claim to an equitable set-off which by its nature attracts the court's conscience, should be hemmed-in by common law rules requiring notice before the set-off may be properly asserted.
 
The distinction between the 'ancient common law right' of a tenant to set-off repairs against rental, and, an equitable set-off of a cross-claim as recognised by the courts of equity is clarified and made plain in the scholarly judgment of Forbes J in British Anzani (Felixstowe) Ltd. v International Marine Management (UK) Ltd. [1979] 2 All ER 1063 where the learned judge said at p.1074:

'I am satisfied that it is proper in principle to allow that a cross-claim could be effective as an equitable set off against a claim for rent .... The important qualification is that the equity must impeach the title to the legal demand, or in other words go to the very foundation of the landlord's claim. This seems to me to involve consideration of the proposition that the tenant's cross-claim must at least arise under the lease itself, or directly from the relationship of landlord and tenant created by the lease.'
 
His lordship then considered (ibid at p.1075/76) the difficult question of how 'closely connected' or related ought the claim and cross-claim to be before an equitable set-off would be permitted and in concluding that the guiding principle is: 'What is obviously fair or manifestly unjust' his lordship firmly rejected 'the insidious promptings of generations of common lawyers that there is something special about rent.'
 
I respectfully adopt as an accurate formulation of the principle of equitable set-off, the observations of Somers J in Grant v NZ MC Ltd. [1989] 1 NZLR 8 where his lordship in delivering the judgment of the Court of Appeal said, at pp.12/13:

'The principle is we think, clear. The Defendant may set-off a cross-claim which so affects the Plaintiff's claim that it would be unjust to allow the Plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the Defendant's claim calls into question or impeaches the Plaintiff's demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.'
 
The right to an equitable set-off in a time charter of a vessel was firmly recognised in Federal Commerce and Navigation Ltd v Molena Alpha Inc 'The Nanfri' [1978] 3 All ER 1066 where Lord Denning M.R. said at p.1080:

'In my opinion therefore in a time charter, if the shipowner wrongly and in breach of contract deprives the charterer for a time of the use of the vessel, the charterer can deduct a sum equivalent to the hire for the time so lost.'
 
(See also: per Parker LJ in Compagnia Sud Americana v Ship Mair BV ('The Teno') [1977] 2 Lloyds Rep 297.) So much then for the question of set-off.
 
I am satisfied that the Plaintiff company's non-disclosure of the 'Arceneaux debt' agreement and subsequent consent order was not 'innocent in the sense that it was not known to the Applicant', nor do I accept that either non-disclosed fact was 'insignificant' or immaterial in the Court's assessment. This alone would justify the summary dismissal of the Plaintiff's ex-parte injunction under the 'law as it was originally laid down', however, in deference to counsel's submissions and the later authorities referred to above, I turn to consider afresh whether or not to extend the injunction or grant a new order.
 
In this latter regard there is not the slightest doubt in my mind that the competing affidavits of the parties and the submissions of counsels raises serious triable issues in the case, including, whether or not the Plaintiff company is entitled to invoke Clause 6 of the lease agreement? and whether or not the Defendant company is entitled to set-off against the rental, the cost of the repairs carried out to the vessel and, if so, by how much?
 
Plaintiff's counsel then submits that damages are not an adequate remedy because the Defendant company is in arrears of rental and the vessel which represents the Plaintiff's only asset is being used for fishing purposes in the high seas and is uninsured. To a suggestion that the Plaintiff company pay into court the amount of the Defendant's counterclaim counsel was unable to accede.
 
For its part the 2nd Defendant deposes that the vessel ought to remain in the Defendant company's custody and possession because that was a term of the consent order voluntarily entered into by the managing director and owner of the vessel and in terms of which the Defendant company undertook to repay a substantial debt which in turn was 'to be sourced and financed from the operation and utilisation of the John G for fishing purposes' and there is a balance of $17,000 owing on the undertaking.
 
Furthermore, the right of the Plaintiff company to determine the lease for rental arrears is the very matter in dispute between the parties and finally, any undertaking by the Plaintiff company to compensate the Defendant company in the event that the vessel ought not to have been returned to the Plaintiff company, must be viewed as suspect given its earlier inability to meet the 'Arceneaux debt'.
 
I have carefully considered the affidavit materials and competing submissions and am firmly of the view that damages are an adequate remedy for the Plaintiff company in all the circumstances. Needless to say the Plaintiff company was content to charter the vessel in the first place to the Defendant company 'to be used for the purposes of fishing' and unlike the Defendant company, rental is due and payable to the Plaintiff company whether or not the vessel is in its possession and custody.
 
If I should be wrong however in concluding that damages are an adequate remedy for the Plaintiff company, then there is no doubt in my mind that the balance of convenience strongly favours the Defendant company in the maintenance of the existing status quo.
 
It cannot be ignored that the 'locus contractus' of the 'Arceneaux debt' was Hawaii and proceedings to recover it was taken in Fiji because presumably the vessel was taken out of the jurisdiction by the Plaintiff company without payment of the debt.
 
In the result the Plaintiff company's inter-partes summons to dissolve the stay order and to recover the vessel is dismissed. Furthermore and for the sake of completeness the ex-parte injunction granted to the Plaintiff company on 12th October is dissolved forthwith with costs of $800 summarily fixed.
 
By way of further directions the Plaintiff company is ordered within seven (7) days to file and serve a proper Statement of Claim, failing which, the action stands dismissed.

Application dismissed.

Marie Chan