Totorea v Grainger Corporation (Vanuatu) Ltd [1995] SBHC 113; HC-CC 074 of 1995 (29 November 1995)

HIGH COURT OF SOLOMON ISLANDS

Civil Case No. 74 of 1995

JOSEPH RODI TOTOREA

-V-

GRAINGER CORPORATION (VANUATU) LTD
INTERNATIONAL CASINO SERVICES LTD
ANDY AYAMISEBA
VINCE CONTE
SEAN GULLY

High Court of Solomon Islands
(Palmer J)

Hearing: 27 November 1995
Judgment: 29 November 1995

F. Waleilia for Plaintiff
J.C. Corrin for Defendants

PALMER J: The plaintiff applies by summons filed on 2 June 1995 for Orders inter alia:

"That a Receiver be appointed to deal with and manage the operations and assets of the Honiara Gaming Club with power to:

(a) receive and pay monies and or deal with other properties of the Honiara Gaming Club and to account for the monies or other properties of the Honiara Gaming Club until final judgment or further order;

(b) employ and appoint any person to carry on the management and operation of the said business until further order;

(c) investigate and report to this Court on all matters affecting the business operations of the Honiara Gaming Club;

(d) apply to this Court for further or other orders as the circumstances may require."

A preliminary application in law however has been raised by Counsel for the Defendants seeking the orders sought for the appointment of a receiver set aside. Several grounds have been raised in support of that application. These are:

(i) that this is not an appropriate case for such an appointment, and

(ii) that the plaintiff has misconceived the powers which a Receiver/Manager may exercise.

The Law

Order 53 Rule 6(1) of The High Court (Civil Procedure) Rules, sets out the powers of the Court to appoint a receiver.

"The Court may ... appoint a receiver by an interlocutory order in all cases in which it appears to the Court to be just or convenient so to do."

Ms Corrin makes the submission that there is nothing in this case which makes it just and convenient for the appointment of a Receiver or Receiver/Manager on the following grounds:

(i) The business in which the parties were involved, Honiara Gaming Club, has ceased to operate;

(ii) The Plaintiff no longer has a gaming licence;

(iii) There are no business premises, the lease having terminated;

(iv) There is certain equipment in storage, and a modest amount of cash (about $20,000.00) held in the Solicitor’s Trust Account;

(v) The Plaintiff has not pointed to any rents, receipts or profits which the "business" is likely to receive; and

(vi) That in any event, he has not shown that the same cannot be received and properly dealt with without the appointment of a Receiver.

The first comment that must be made with respect to the submissions of Ms Corrin is that the issues raised in substance must necessarily draw the Court’s attention to address issues of fact. For instance, the first ground raised that this is not an appropriate case addressed issues of fact. The fact that the business has ceased to operate is a factual issue. A further issue which may be relevant is, why has the business ceased to operate? A similar question can be applied to address why the Plaintiff no longer has a gaming licence. The submissions pertaining to the equipment and a modest amount of cash are also issues of fact. It appears that the equipment of that business is in dispute and that the Plaintiff alleges that other equipment are being used by the Defendants in the new Casino business that they have set up.

The modest amount of cash of around $20,000.00 is strongly disputed by the plaintiff at this stage and would appear to be the major cause for the application for the appointment of a receiver. Mr Waleilia has repeated several times that the major asset of the business is the money proceeds and that it is alleged by the plaintiff that those money proceeds have been diverted to other accounts in breach of the Court’s Orders. This is with respect a very serious allegation and must be addressed somehow.

The concern of the Plaintiff as I perceive it to be is that if his allegation is not addressed now, then he faces the risk of not being able to trace those moneys and recover them if at the end of the day he wins his case and it is found that those moneys are part of his damages and the Defendants are not able to pay up.

He therefore seeks the appointment of a receiver now to address this allegation by giving that receiver powers of investigation so that the allegation can be addressed.

With respect, that order sought as correctly submitted by Ms Corrin has been misconceived. There is a clear distinction between the powers of a receiver and a receiver/manager. The former collects and receives funds or other property, for purposes of safeguarding them for the benefit of those entitled at the end of the day (see Kerr on Receivers, 15th Ed. p.5, Yorston, Fortescue and Turner on "Australian Commercial Law", 18 Edition p.708).

The latter not only receives property and funds but also manages the property, in the sense of buying and selling, or carrying out its normal operations with the view to trade. (See "Australian Commercial Law" (ibid) p. 709).

Only the former has been sought in the summons of the Plaintiff and accordingly it would not be proper to permit powers of investigation to be granted.

It is my view that the allegations raised, are separate issues which preferably should be addressed separately by this Court, and not in conjunction with the question of appointment of a receiver. If it is proven that funds or moneys have been diverted to other accounts by the Defendants in breach of this Court’s Orders, then that can be an actionable contempt. At the same time the Court can order that such moneys be attached, and if a receiver has been appointed then the receiver can collect those moneys and have them receipted.

On the other hand, having carefully considered Ms Corrin’s submissions, I am not satisfied that the preliminary application in law can be granted. Rather, the state of affairs as presented in the submissions of Ms Corrin favour in my respectful view the very opposite of what has been sought. The very fact that the business has closed down and no longer operating would warrant the appointment of a receiver to collect all the assets of the business, including equipment and all proceeds of the business into his safe custody for preservation pending determination of the parties' rights.

Having said that, it is my view that some further thought should be applied to the question as to whether a receiver should be appointed, bearing in mind the question of costs.

A possible alternative approach is simply to press on with the directions already issued in the 27th November and have the substantive issues determined once and for all during trial. If final judgment should go in favour of the Plaintiff then those allegations may be addressed under the head of damages if the Defendants are not able to come up with the award of damages made against them. The possible risk faced by the Plaintiff if he takes this course of action is that if the defendants are not able to pay up on his claim, then it is possible that all those funds may have been dissipated beyond the Court’s reach. I do bear in mind however, Ms Corrin’s submissions that there is no evidence to show that her clients will be leaving the jurisdiction and removing all their assets, and that they will not be able to pay up on the Plaintiffs claim for damages (bearing in mind that the Plaintiff’s claim amounts to some $12 million).

Having considered the submission of learned Counsels, I am not satisfied that the application for dismissal of the orders sought for appointment of a receiver by Counsel for the defendants should be granted. However, the orders sought in paragraphs 1(b) and (c) in my view are inappropriate and accordingly should be set aside.

I have considered the facts of the case, Queensland Independent Wholesalers Ltd -v- Gubbay [1984] SILR 72, however, it does not assist this case much. In the above case, the Court found evidence establishing a prima facie case of liability against Mr. Gubbay in the sum of $294,670.66. There is no prima facie case of liability here. Rather there is a claim of monies being diverted, yet to be established on evidence. Only when that has been proven then it may become necessary for a receiver to collect and receipt those funds, if already appointed.

OBSERVATIONS

From the submissions made to date, I find that there are grounds for the appointment of a receiver. However, if a receiver is to be appointed then this powers must be confined to the powers of collecting and receiving the monies and property of the Honiara Gaming Club and such powers as are necessary for the payment of monies where needed. Such powers would also include the power to deal with those properties in such way or manner as to safe guard the interests of the parties pending litigation and for an account of those monies and property. An Order to that effect can be made if agreed upon by the parties.

On the question of an undertaking for damages or security on the appointment of a receiver, it is my respectful view that that is not necessary in the circumstances of this case. However, the question of remuneration of such receiver if appointed would be a relevant matter for the Plaintiff to consider.

As to the proceedings relating to the allegations made by the Plaintiff, that can be dealt with as a separate matter, or if the Plaintiff decides to abandon that, then the matter can simply proceed as already directed by this Court.

ORDERS OF THE COURT

1. The application by Counsel for the Defendants on a preliminary point of law for dismissal of the Plaintiff’s application for appointment of a receiver is dismissed, but subject to the dismissal of paragraphs 1(b) and (c) of the orders sought in the summons filed on 2 June 1995.
   

2. Costs in the cause.

A. R. PALMER
JUDGE