International Comtrade and Shipping Ltd v Russell Islands Plantation Estates Ltd [2002] SBHC 103; HC-CC 338 of 2001 (15 February 2002)

HIGH COURT OF SOLOMON ISLANDS

Civil Case No. 338 of 2001

INTERNATIONAL COMTRADE AND SHIPPING LIMITED

-v-

RUSSELL ISLANDS PLANTATION ESTATES LIMITED
(in Provisional Liquidation)

WAYNE FREDERICK MORRIS
(in his capacity as Provisional Liquidator of
RUSSELL ISLANDS PLANTATION ESTATES LIMITED

AND

COMMODITIES EXPORT MARKETING AUTHORITY

(FRANK O. KABUI, J.)

Date of Hearing: 13^th February 2002
Date of Ruling: 15^th February 2002

Mr C. Ashley for the Applicant
Mr J. Sullivan for the Respondent

RULING

(Kabui, J): This is an application by Summons filed by the Plaintiff/Applicant on 31^st December 2001 seeking the following orders-

1. That leave, pursuant to section 219 of the Companies Act be granted to the Plaintiff/Applicant to commence proceedings against the 2^nd Defendant/Respondent in the High Court Civil Case No. 338 of 2001; and
   
2. That pursuant to section 232 (3) of the Companies Act, the 2^nd Defendant shall, within seven (7) days, state whether it admits or rejects the Plaintiff's proof of debt; and
   
3. The costs be in the cause;
   
4. Any further or other order the Court deems fit to make.
   

At the hearing of the Summons, Counsel for the Applicant, Mr Ashley, decided to abandon paragraph 2 of the Applicant's Summons. The reason being that leave of the Court was not necessary to pursue the order sought in that paragraph. Also, Mr Sullivan said that the Provisional Liquidator had admitted the bulk of the debt for voting purposes and was awaiting further response from the Plaintiff on some outstanding matters. Counsel however maintained the position that leave was necessary under section 219 of the Companies Act (Cap. 175) in the case of paragraph 1 of the Applicant's Summons. That is to say, leave was necessary to proceed with the Writ of Summons and Statement of Claim filed by the Applicant on 10^th December 2001.

The Facts

Under an Agreement signed on 16^th March 2001 by the Plaintiff and the 1^st Defendant, the Plaintiff was to have exclusive right to buy all copra, coconut oil, copra meal and cocoa from the 1^st Defendant at a price based upon world market price. In addition, the Plaintiff would assist the 1^st Defendant with cash by pre-purchase of copra stock as and when required by the 1^st Defendant. This would also include providing funds with which the 1^st Defendant would purchase copra from local copra producers through the 3^rd Defendant thus having the effect of increasing the production of copra for the benefit of both parties. The Plaintiff provided such fund between 1^st January 2000 to 13^th September 2000 in the sum of $US 1,198,618.21. The sum of US $64,000 had also been paid by the Plaintiff to the 1^st Defendant for which the 1^st Defendant invoiced 400 metric tonnes of copra. The Provisional Liquidator then took control of the 1^st Defendant as from 7^th September 2001. The Plaintiff now claims that copra produced after 7^th September 2001 was its property by reason of the terms of the Agreement signed on 16^th March 2001.

The Law

Section 219 of the Companies Act states "When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose". This is the law. But what does it mean in practice? I mean, in what circumstances would the Court grant leave? The rationale of section 219 above is a policy to protect the assets of the Company or the bankrupt for that matter from being diminished to the detriment of all the creditors. In re David Lloyed & Co. [1877] UKLawRpCh 247; (1877) 6 Ch. D. 339, a mortgagee was allowed to persue his claim against a Company despite a winding-up order against that Company. The reason being that as a mortgagee, he had a right to realize his security quite independently of the distribution of assets of the Company amongst the creditors. At page 344, James L.J. said:

"These sections in the Companies Act, and the corresponding legislation with regard to bankrupts, enabling the Court to interfere with actions, were intended, not for the purpose of harassing, or impeding, or injuring third persons, but for the purpose of preserving the limited assets of the company or bankrupt in the best way for distribution among all the persons who have claims upon them. There being only a small fund or a limited fund to be divided among a great number of persons, it would be monstrous that one or more of them should be harassing the company with actions and incurring costs which would increase the claims against the company and diminish the assets which ought to be divided among all the creditors. But that has really nothing to do with the case of a man who for the present purpose is to be considered as entirely outside the company, who is merely seeking to enforce a claim, not against the company, but to his own property".

Again, at page 345, Cotton, L.J. said:

"The 87^th section of the Companies Act stays all actions against the company after the winding-up order is made, unless the Court gives leave that they should go on. That is a very useful provision, because then, of necessity, the question comes before the Court, whether, under the circumstances, the action should be allowed to proceed "

This is an example of one category of cases where leave can be granted under section 219 of the Companies Act. Section 87 of the Companies Act, 1862 being considered in the above case is the equivalent of section 219 of our Companies Act in exactly the same terms.

The other category of cases that may arise under section 219 concerns cases where the Court is required to consider the question of expedience and convenience (see The Law of Company Liquidation by B.H. McPherson, 2^nd Edition 1980 at 159-160). The Court does exercise its discretion in these cases depending upon the facts of the case before the Court (see Thames Plate Glass Company v Land and Sea Telegraph Construction Company [1871] UKLawRpCh 72; (1870-71) 6 L.R. Ch. App. 643).

This Case

In this case, the affidavit sworn and filed by Mr Whiteside on 10^th December 2001 says nothing about why leave should be granted. Counsel for the Applicant, Mr Ashley, urged me to grant leave but did not tell me why I should do so in terms of the intention of section 219 of the Companies Act. I mean he did not say why the Plaintiff's claim should not be treated as a creditor's debt and should be pursued in a separate court action. Counsel for the 1^st Defendant, Mr Sullivan, however said that the Plaintiff's action was premature because the validity of the Agreement upon which the Plaintiff based its claim was being questioned by the 1^st Defendant in Civil Case No. 278 of 2001. The 1^st Defendant has filed an Originating Summons dated 15^th October 2001 seeking a number of declarations in its favour. This Originating Summons is due to be heard by the High Court at 9:30 am on 14^th March 2002 only about a month away from today. If the 1^st Defendant succeeds, there will be no cause of action for the Plaintiff to take up in Court. If, on the other hand, the 1^st Defendant fails, the Plaintiff will have the chance to seek leave of the Court. These points were made by Mr Sullivan in argument in favour of the 1^st Defendant. I must agree with Mr Sullivan because it is not tactically wise for the Plaintiff to launch an action based upon a cause of action that is already being challenged in Court. By granting leave, the 1^st Defendant will be forced to enter an appearance and may file a defence, which will incur cost, but pointless at the moment in view of the pending action brought by the 1^st Defendant questioning the very root of the Plaintiff's cause of action. This was the final point made by Mr Sullivan. I agree with him. I will no grant leave. It is not convenient that the Plaintiff should pursue a claim in a parallel fashion with the 1^st Defendant's action already pending upon issues the determination of which is critical to the success of the Plaintiff's claim. Apart from that, it may be said that the Plaintiff's sole concern is the ownership of the copra allegedly sold by the 1^st Defendant to the Third Defendant. On this basis, it may be argued that the Plaintiff does have propriety rights over the copra sold and therefore should recover its loss (see In re David Lloyd's case cited above). Whilst this argument can be made, its success would obviously depend upon the outcome of Civil Case No. 178 of 2001. The Plaintiff should await the outcome of Civil Case No. 178 above. One of the relief sought by the Plaintiff is a permanent injunction against the Defendants, their servants, agents or any person claiming under them restraining them from removing the copra stock from any shed used for storing the same at Yandina or anywhere else in Solomon Islands until further order of the Court. This relief if granted, said Mr Sullivan, would defeat the terms of the Court Order of 7^th September 2001 by which Mr Morris became the Provisional Liquidator in Petiti ion No. 243 of 2001. It is therefore expedient that the status of the Agreement of 16^th March 2001 be determined first before anything else can be considered by the Plaintiff. On balance, the Plaintiff's application must be refused with costs. The application is therefore refused.

F.O. Kabui
Judge