Moore v Solomon Soaps Ltd [2009] SBHC 24; HCSI-CC 589 of 2005 (10 July 2009)

HIGH COURT OF SOLOMON ISLANDS
CIVIL JURISDICTION

Civil Case No. 589 of 2005

BETWEEN:

JEFFREY CHARLES DEACON MOORE (MR MOORE)
1st Claimant

AND:

DEVELOPMENT BANK OF SOLOMON ISLANDS (DBSI)
2nd Claimant

AND:

SOLOMON SOAPS LIMITED (SSL)
1st Defendant

AND:

MARY IRO (MRS MARY IRO)
2nd Defendant

AND:

MELANESIAN TRADERS LIMITED (MTL)
3rd Defendant

(Mwanesalua, J.)

Date of Hearing: 28 May and 22 June 2009
Date of Judgment: 10 July 2009

Mr A Radclyffe for Mr Moore and DBSI
Mr P Tagini for SSL, Mrs Mary Iro and MTL

JUDGMENT

1 Parties

Mr Moore is a businessman and have shares in companies in Solomon Islands. DBSI is a body corporate created by Law. Solomon Soaps Limited (SSL) and Melanesian Traders Limited (MTL) are both incorporated in Solomon Islands. Mrs Mary Iro is a director of both SSL and MTL.

2 Background

DBSI was a shareholder in SSL since 31 October 1983. On 21st February 2005, it signed a sale of shares agreement with Mr Moore to sell its shares in SSL to him. The price of the shares was $300,000.00. On 14 March, DBSI and Mr Moore signed a share transfer in respect of the shares and he received the share certificate for the shares on the same day. He then lodged the completed transfer with SSL’s Secretary and was duly registered. Mrs Mary Iro and MTL refused to recognize this share transfer. As a result, Mr Moore and DBSI have come to Court to seek the following relief against SSL, Mrs Mary Iro and MTL:

(a) a declaration that Mr Moore is the owner of 97,001 shares in SSL;

(b) a declaration that Mr Moore is a director of SSL;

(c) a declaration that Mrs Mary Iro is in breach of her fiduciary duty as a director by refusing to recover the debts due to SSL;

(d) an order restraining SSL, Mrs Mary Iro and MTL from selling or otherwise disposing of any of SSL’s capital asserts or from borrowing money without Mr Moore’s consent in writing until further order of the Court;

(e) such further or other orders as the Court may think fit;

(f) Costs.

3 Facts not in dispute.

SSL was incorporated on 14 Mach 1975. It has a nominal and issued share capital of $345,000.00. The shareholders in SSL prior to 14 March 2005 were MTL and DBSI. MTL held $247,999 ordinary shares while DBSI held 97,001 ordinary shares. The directors then were Mrs Mary Iro representing MTL and Mr Wilson Suhara representing DBSI. Mr Suhara resigned as director on or about 14 March 2005 but Mrs Mary Iro is still a director. SSL is owed approximately $2,500.000.00 by way of an unsecured loan by Solomon Motors Limited (SML), a company owned by MTL, the majority shareholder in SSL. Further, SSL is also owed money by other creditors associated with MTL and SML totaling approximately $845,000.00. Corporate Planners Limited (CPL) is the company secretary for SSL. The present directors of MTL are Mrs Mary Iro, Mr Sam Iro and Ms Virginia Day. The High Court of Solomon Islands appointed Central Bank of Solomon Islands to manage DBSI in June 2004.

4 Matters in dispute

SSL, Mrs Mary Iro and MTL question the legality of: DBSI’s sale of its share to Mr Moore; DBSI’s transfer of its shares to Moore. Mr Moore’s appointment as director and chairman of SSL; the negotiation and the execution of a contract between SSL and Solomon Tropical Products Limited by Mr Moore; and the meeting of SSL on 20 June 2005.

5 DBSI’s Sale of its Shares to Mr Moore

DBSI raised its intention to sell its shares in SSL with SSL directly on 19 October 2001[1]. On 21 January 2005 Mr Moore made an offer to DBSI for the purchase of those shares if any debt owing to it by SSL were written off[2]. DBSI signed a sale of shares agreement with Mr Moore on 21 February 2005 for a price of $300,000.00. Mr Moore paid a deposit of $30,000.00 on signing this contract and the balance of $270, 000, and 00 is to be paid within 14 days after the share transfer has been registered in SSL’s share register[3]. DBSI decided to sell its shares to Mr Moore because of the high level of indebtness from related entities to SSL[4]. This fact is well known to SSL, Mrs Mary Iro, Mr Sam Iro and Ms Day. This was a private sale by DBSI to Mr Moore, not through an offer made to the public. DBSI has power to make that sale under Section 6 of the Development Bank of Solomon Islands Act (Cap. 50). But SSL, Mrs Mary Iro and MTL say that such sale of shares to Mr Moore was not authorized by the directors of SSL. They say that such sale can only be made by the directors under Article 2 of SSL’s Articles of Association.

Article 2 is in the following terms

"2. The following rule shall be added to rule 10 of Part 1 of Table A:

10A. Subject to provisions of Rule 44A of these rules, the shares shall be under the control of the directors, who may allot or otherwise dispose of the same to such persons on such terms and conditions and at such times as the directors may think fit."

6 Rule 10

Rule 10 referred above, prohibits SSL from giving financial assistance to persons wishing to purchase shares in SSL itself, although it may engage in the transactions mentioned in Section 53 (a), (b) and (c) of the Companies Act (Cap. 175). There is a dispute here about the meaning and application of Rule 10A in this case. Mr Moore and DBSI contend that it merely applies to shares which have yet to be allotted or disposed of after incorporation, whilst on the other hand, SSL, Mrs Mary Iro and MTL say that it applies to both unalloted and issued shares. In other words, SSL, Mrs Mary Iro and MTL say that this is one of the measures adopted as a right of pre-emption to restrict the transfer or sale of shares in SSL. If this contention is correct, then there should be use of clear words to that effect in that provision. This clarity would be necessary because (1) shares, being personal property, are prima facie transferable and (2) members cannot avoid them and that they would be strictly construed when disputes arise regarding their sale and transfer to non members of the company.

7 The Court has carefully considered Rule 10A and decide that it merely applies to shares not already allotted or disposed of, as submitted by Mr Moore and DBSI. Rule 10A only gives the power to the directors to issue and allot shares of SSL after incorporation and not the transfer or sale of issued shares. A slightly more detailed article in similar language in Taisol Investment Corporation (SI) Limited was construed in the same way as done here[5].

8 Transfer of the Shares to Mr Moore

DBSI’s shares in SSL were fully paid shares of a single class. The share transfer was signed by DBSI as the transferor and Mr Moore as the transferee on 14 March 2005. Mr Moore then stamped it and paid $12,000.00 stamp duty on it on 21 March 2005. He then lodged the same with the certificate on the shares with CPL for registration. He paid a registration fee of $0.25 to SSL as required. Mrs Mary Iro as the director of SSL neither declined, refused, nor suspended registration of the transfer. As a result the share transfer was duly registered in the share register of SSL. The transfer was lost with other documents of SSL in a fire in April 2006. The shares were transferred to Mr Moore’s name as shown in the Annual Return made up to 31 March 2005 which Mrs Mary Iro signed as director of SSL

9 Rule 3 of Part II of Table A

Mrs Mary Iro and MTL contend that they rejected the transfer form and the issuance of the share certificate signed by DBSI and Mr Moore on the bases of this article which is in these terms:

"3. The directors may, in their absolute discretion and without assigning any reason therefor, decline to register any transfer of any share, whether or not it is a fully paid share."

But if their contention were to succeed, they must adduce evidence to show that the directors of SSL have in fact convened a meeting to consider the registration of the transfer, and that in the exercise of their discretion given to them by this rule have not passed it[6]. This power of refusal to register must be exercised in order to be effective. There is no evidence here to show that this power has been exercised by the directors of SSL. This rule and those in Rules 1 to 3 in Part 1 of Table A not deleted do not apply in this case.

10 Right of Pre-emption in SSL

In his evidence, Mr Sam Iro explained that in .the case of MTL, there was .an understanding there as to right of pre-emption. Mrs Mary Iro and MTL therefore submit that this same understanding exists in SSL even though SSL does not have any right of pre-emption provision in its articles. The Court will reject this contention. Rights of pre-emption cannot be based on understanding alone. They must be certain and clearly set in the articles. This is because pre-emption provisions vary in detail, particularly the sale procedure and the class of members who would be eligible to purchase the shares.

11 Mr Moore, Director of SSL

Mr Moore told Mr Sam Iro on 22 February 2005 that he wanted to get involved in SSL. On 2 March 2005 Mr Moore had a meeting with Ms Day in Brisbane. He told her that he wanted to be a director of SSL. She responded favourably to that idea and passed the information to Mr Sam Iro and Mrs Mary Iro afterwards. Ms Day then asked Mr Moore to confirm to her if he wanted to be a director of SSL on 10 March 2005. On 11 March, Mr Moore confirmed to Ms Day that he wanted to be director of SSL. This was followed by a meeting which Mr Sam Iro, Mrs Mary Iro and Mr Moore held in Goh and Partners’ Office on 20 June 2005 where Mr Moore was appointed director of SSL. This meeting was attended by two staff members of Goh and Partners. Mr Moore himself confirmed that and supported by the Minutes of that meeting. The Court, however, notes that Mrs Mary Iro was the only director of SSL present in the meeting and that there was no formal notice of it to members. Nevertheless, such meeting, appointment of Mr Moore as director of SSL and chairman of that meeting would be valid pursuant to Rule 105 of Part 1 of Table A.

12 Solomon Tropical Products Ltd Contract

SSL, Mrs Mary Iro and MTL question the legality of this agreement in their defence. But they have not produced its copy to the Court for perusal nor made any submissions on it, or cited relevant authority to enable the Court to determine the validity of this Agreement. However, in passing, it is enough to state that Rule 105, referred to above, may have bearing on this Agreement.

13 Breach of Fiduciary Duty

There is evidence in Exhibit I of huge debts owed to SSL by SML and other business entities well known to Mrs Mary Iro, Mr Sam Iro and Ms Day. The financial difficulties faced by SSL were not merely due to this country’s economic down turn but by these debts as well. The parties to this case have not provided details on the current status of the debts and loans obtained from SSL. In law the business of SSL is managed by its directors. It is clear that the debts existed during the period when DBSI had shares in SSL. Because of this the fiduciary duty to recover such debts also fell upon its directors in SSL to recover the debts and not merely the director representing MTL.

14 Conclusion

The transfer of shares to Mr Moore was completed when the shares were registered in his name in SSL. The shares were validly sold and transferred to Mr Moore by DBSI. He now owns them. Mr Moore has been validly appointed as a director of SSL during the meeting of 20 June 2005. SSL, Mrs Mary Iro and MTL must not sell or dispose off any capital assets of SSL without the written consent of Mr Moore. [Declaration (c) is refused.]

15 ORDERS:

1. Declarations sought in paragraphs (a), (b), and (c) of the claim are granted.

2. Declaration sought in paragraph (d) is refused.

3. SSL, Mrs Mary Iro and MTL to pay Mr Moore’s costs.

F Mwanesalua J

THE COURT

---

^[1] Letter SAL to DBSI 2/11/011.28
^[2] Letter Moore to DBSI 21/1/05 1.36
^[3] Sale of Shares Agreement 21/2/051.58.64
^[4]Letter DBSI to SSL 6/9/05 1.66
^[5] Civil Case No. 301 of 1983 and 119 of 1993.
^[6] Re Coalpot China Co. [1895] 2 ch; Re Bell Bros {1891) 65LT. 245 and Re Smith and Fawcett Ltd [1942] ch 304