Markwarth v Jackson [2007] SBHC 27; HCSI-CC 13 of 2007 (26 March 2007)

IN THE HIGH COURT OF SOLOMON ISLANDS

CIVIL CASE NO. 13 OF 2007
(Civil Jurisdiction 4185781)

BETWEEN:

KURT MARKWARTH
1st Plaintiff

AND:

SOLOMON SCRAP METAL LIMITED
2nd Plaintiff

AND:

COLIN JACKSON
Defendant

Date of Hearing: 19 and 22 March 2007
Date of Decision: 26 March 2007

Mr Nori for first and second Plaintiffs
Ms Bird for the Defendant

DECISION ON INTERIM INJUNCTION APPLICATION

Cameron PJ

Introduction

1	This case concerns the fate of two container loads of scrap metal.
2	The scrap metal was and may still be owned by Solomon Scrap Metal Limited.
3	There are two directors of that company, Mr Markwarth and Mr Jackson, who are equal owners. They have fallen out.
4	Mr Markwarth maintains that Mr Jackson wrongfully seized the containers and their contents from the company premises in December 2006.
5	In January 2007 Mr Markwarth obtained orders from this Court securing the containers and their contents. This was without notice to Mr Jackson.
6	Mr Jackson now asks for those orders to be discharged. He claims that prior to the making of those orders he, as a director of the company, sold the scrap metal contents to a Mr Stanley. He says that ownership of the scrap metal passed to Mr Stanley at that time, and that fact ought now be recognized by this Court discharging those earlier orders and allowing Mr Stanley possession of the scrap metal.
7	Mr Jackson says that he received and still retains the global sum of SBD$150,000.00 for the sale of the contents of those two containers plus the contents of one further container of the company’s scrap metal. He says that the funds belong to the company and can now be secured in a trust account in its name pending a final resolution of the dispute.
8	Mr Markwarth, on the other hand, argues that ownership in the containers has not passed because:
	(a)	Mr Jackson had no authority to bind the company to the sale without the consent of Mr Markwarth.
	(b)	any purported sale was unlawful and therefore invalid because the company only had permission from the Solomon Islands Government to export scrap metal and not to sell it in this country (Mr Stanley is a local).
	(c)	the purported sale was for a gross undervalue, not at arms-length, and was not genuine. In short, it was a sham.
Preliminary Issues
9	It was contended for Mr Jackson that the Court had no jurisdiction to make the orders on 24 January 2007 without prior notice to him.
10.	I consider this Court did have jurisdiction to make the orders on 24 January 2007 on an ex parte basis. Each of the substantive orders constituted an "injunction" within the meaning of Order 53 Rule 7 of the High Court Rules, and therefore is expressly permitted to be made on an ex parte basis by the wording of that rule. In any event, I propose to make fresh orders to replace the existing ones.
11.	Mr Jackson also argues that he was not served with the proceedings following the making of the ex parte orders. Mr Jackson acknowledges, though (his affidavit 8 February 2007, para 11(a)), that on 29 January 2007 he received the proceedings, and in any event has now filed detailed affidavits contesting the matter (which I consider constitutes a waiver of any defective service).
12.	For Mr Jackson it was also argued that Mr Lomo’s affidavit should be struck out because he had no personal knowledge of the matters he covers. However, I place no reliance on his affidavit, so it is not necessary for me to consider that matter.
Serious Questions to be Tried
13.	I consider that there is a serious question to be tried as to whether Mr Jackson had authority to sell the contents of the containers acting alone and without the permission of Mr Markwarth. I have read the memorandum and articles of association of the company. The effect of these is to give the directors (plural) the power to sell in the name of the company, but on their face they do not sanction a sale by one director without the consent of the other.
14.	The fact that Mr Jackson apparently had a casting vote as he was also the company secretary does not assist him either, given the absence of any evidence of a meeting and vote on whether the container contents should be sold.
15.	There is the possibility that even without actual authority Mr Jackson was able to transfer property in the company’s goods, provided Mr Stanley as purchaser had no notice of his lack of authority (the doctrine of ostensible authority). I cannot determine that question simply on the papers, particularly as there is evidence to suggest that Mr Stanley may have been acting in concert with Mr Jackson in destroying company fixtures at its premises behind Mr Markwarth’s back and at about the time of the alleged sale. The question of Mr Jackson’s role and what he knew or ought to have known about the rift between directors may have a bearing on whether ownership was transferred, and can only be answered in the context of a trial.
16.	I also consider that if the company was prohibited by the Solomon Islands Government from selling scrap metal within this country (as appears to be the case), there is a real issue as to whether the purported sale was invalid.
17.	There is also a real question as to whether the sale was genuine or a sham. It is significant that there was no evidence from Mr Stanley corroborating Mr Jackson’s contention that a sale had taken place. Also, no invoices relating to any sale have been produced. Further, there is some evidence from Mr Markwarth suggesting that on the export market the contents of the two containers are worth significantly in excess of the price Mr Jackson says he achieved. If true, that is another indicator that the alleged sale may be a sham.
18.	These are all matters which can only be determined with a trial.
Balance of Convenience
19.	As there are serious questions to be resolved as to the alleged sale, the Court is concerned to preserve the state of affairs as it existed prior to that purported sale.
20.	This points to the necessity of preserving the asset the subject of the sale, the scrap metal.
21.	Not to do so would be to expose the company to a potentially significant loss (as there is evidence that the scrap metal may be worth considerably more than the funds said to represent the sale proceeds). Any loss of that type is likely to be recovered from Mr Jackson personally. That is, an award of damages would not be an adequate remedy.
22.	It would be an inconsistent approach to make orders having the effect of freezing the funds said to be the sale proceeds. To do so would be to deprive Mr Stanley at this stage of both the scrap metal and the money it is said he paid for it.
Orders
23.	I make the following orders, which I consider accord with the overall justice of the case:
	(a)	An order discharging the ex parte orders made by this Court on 24 January 2007 (as varied on 21 February 2007), except the order as to costs.
	(b)	An order that the two containers TTNU219505 and TTNU2693345 and their contents including the scrap metal remain stored at the Central Police Station, Mendana Avenue, Honiara, until the trial or further order of this Court.
	(c)	Costs be reserved.
Adding Third Party
24	Mr Nori applied for Stephen John Stanley of East Kola Ridge, Honiara, to be joined as a second defendant. The application is appropriate, and the Court orders that he be added as a second defendant (Order 17, rule 4). The first and second plaintiffs are directed:
	(a)	To file and serve on all parties an amended writ of summons and a second amended statement of claim incorporating all causes of action against the second defendant within 14 days of this date of this order, along with a copy of these orders and all other Court documentation.
	(b)	Leave is granted to any party to apply for any further directions that are considered necessary.
	(c)	The proceedings are to be listed for a directions conference following the expiry of the time for filing any statements of defence.
	(d)	Costs be reserved.
By The Court