Primary Produce Exports Ltd v Lauti [1995] TOLawRp 4; [1995] Tonga LR 162 (14 November 1995)

[1995] Tonga LR 162

IN THE SUPREME COURT OF TONGA

PRIMARY PRODUCE EXPORTS LTD

V

LAUTI & ORS

Supreme Court, Nuku'alofa
C928/95

Lewis J

9, 10, 11-13, 14 November 1995

Injunctions - interim - discharge - Mareva injunctions - principles

Practice and procedure - interim injunctions - discharge - Mareva injunctions

This was an application to discharge an interim injunction granted urgently. It involved contracts in relation to the supply of squash seeds, fertilizers and chemical, the growing of squash and the sale and export of squash, and allegations of a prima facie breach of contractual relationships.

Held:

1. All injunctions are subject to important legal safeguards designed to defeat overt and inordinate disadvantage by the sometimes cataclysmic effects of interim injunctive orders upon their subject, whose guilt of any unacceptable behaviour may be non-existent or impossible to establish. There is no rigid formula.
   
2. A court must be satisfied by the applicant for an injunction that there exists a serious question to be tried; where the balance of convenience lies; and where overall justice lies.
   
3. As to balance of convenience it may be better expressed as the balance of the risk of doing an injustice; and matters which may be looked at include whether damages would be a sufficient remedy, the relevant circumstances of the parties and the prevailing circumstances of the public interest.
   
4. Mareva injunctions are subject to even more stringent considerations. It operates in personam against a defendant and not in rem against their assets. It confers no property right. It turns on the probability of a potential judgment debtor dissipating assets before trial in order to have the advantage over a potential judgment creditor who would seek to execute against assets.
   
5. The prerequisites to a Mareva injunction are to demonstrate a good arguable case, that the defendant has appropriate assets in the jurisdiction, and that there is a real risk of dissipation of assets with an intent to deprive the judgment creditor of execution. The Court should weigh the risks in the same way that a prudent commercial operator would weigh them.
   
6. A plaintiff has a duty to disclose all material facts and to act with the utmost good faith in making disclosure of possible defences to the court. A Mareva injunction will only be granted against assets prima facie belonging to a third party if there are shown good reasons for supposing that those assets are the defendants. Such an injunction should not interfere with a third party's freedom to trade, even when there is an undertaking to indemnify for loss.
   
7. The interim injunctions should be discharged and no absolute injunctive orders, as sought, should be made as
   

(a) given the uncertainty of the selling price and of the contract; and the effects on the contracts of the provisions of s 16 Land Act (proscribing the selling of growing crops and thus the contracts void by reason of illegality) there was no serious question to be tried;

(b) the balance of convenience or the balance of the risk of doing an injustice was in favour of refusing to impose injunctions;

(c) in any event damages would be an adequate remedy if the plaintiff ultimately succeeded.

Cases considered: Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396

Klissers Farmhouse Bakeries v Harvest Bakeries [1985] 2 NZLR 140

Cayne v Global Natural Resources [1984] 1 All ER 225

Finnegan v NZ Rugby Football Union [1985] 2 NZLR 181

The Mareva [1980] 1 All ER 213

Third Chandris Corp v Unimarine [1979] 2 All ER 872

Wilsons Cement v Gatx-Fuller [1985] 2 NZLR 11

Barclay-Johnson v Yuill [1980] 3 All ER 190

Rocket Cargo (NZ) Ltd v Chipperfield Enterprises [1988] NZHC 140; (1988) 2 PRNZ 566

Brink's Mat v Elcombe [1988] 3 All ER 178

SCF Finance v Masri [1985] 2 All ER 747

Statutes considered: Land Act s 16

Regulations considered: Supreme Court Rules, O22

(UK) Practice Direction on Mareva injunctions [1994] 4 All ER 52

Counsel for plaintiff: Mr Edwards
Counsel for defendants: Mr Waalkens

JUDGMENT

Given the urgent nature of the proceedings and their importance, rulings were made extempore and without published or prepared reasons in this matter Counsel were invited to apply if reasons were to be sought. Counsel have so applied and I now give reasons for the lifting of the injunctive orders imposed.

When injunctive orders are imposed by a Court, they are of necessity made when only selective and limited information is available usually by way of affidavit. So it was in this case. The orders are usually made on the application of a party claiming to be injured. The orders are interim ones. That means for a limited time only. The Court will almost invariably fix a "Return Date" - one on which all parties affected by the orders will attend a hearing and argue the legal and factual issues, or the court will give to the parties liberty to apply to the judge to have the restrictive order varied or set aside entirely. It was that course which was taken here. The issues in this case attracted an almost classical set of circumstances giving rise to an application for injunction. It was a case of extreme urgency. It was a case of and involving parties both from in and out of the jurisdiction of the Kingdom of Tonga. It involved large capital sums placed in serious jeopardy by any delay. It involved the shipping of a cargo of deteriorating primary produce. It involved allegations of a prima facie breach of contractual relationship.

Courts are never able to determine the merit of allegations without full evidence and full argument. The legal device of injunction is designed to provide a breathing space enabling the alleged offending party to be stopped from further activity and brought before the court so that the issues can be resolved. To that end rules have evolved which are used to guide the courts and practitioners.

The starting point is to be found in the Rules of the Supreme Court of Tonga - Order 22. For any interpretation of those rules the Court may have resort to statutes of general application of England and the approach adopted by the English courts in interpreting the rules governing English injunctive orders.

There is an English practice direction relating to Mareva Injunctions (the kind sought and initially obtained in the present case). The reference to that practice direction is [1994] 4 All ER 52.

All injunctions are subject to important legal safeguards designed to defeat overt and inordinate disadvantage by the sometimes cataclysmic effects of interim injunctive orders upon their subject whose guilt of any unacceptable behaviour may be non-existent or impossible to establish. There is no rigid formula.

The Courts must be. satisfied by an Applicant seeking an injunction:

- That there exists a serious question to be tried; and
- Where the balance of convenience lies.

Those principles have been established by the decision in American Cyanamid Co v Ethicon Limited [1975] UKHL 1; [1975] AC 396 HL.

Those two heads are by no means exhaustive considerations. As Cooke J (as he then was) said in Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited [1985] 2 NZLR 140 CA, at 142:

"Marshalling considerations under them is an aid to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the judge has finally to stand back and ask himself that question. At this final stage, if he has found the balance of convenience overwhelmingly or clearly one way - as the Chief Justice did here - it will usually be right to be guided accordingly. But if the other rival considerations are still fairly evenly poised, regard to the relative strengths of the cases of the parties will usually be appropriate. We use the word "usually" deliberately and do not attempt any more precise formula: an interlocutory decision of this kind is essentially discretionary and its solution cannot be governed and is not much simplified by generalities."

In the present case the Respondents contend for a finding that there is no serious question to be tried, arguing that there is an absence of an effective enforceable contractual relationship between Plaintiffs and growers. With particularity, the Respondents submit that the evidence before the court reveals no enforceable right to purchase the crop and at any rate the contract, if that is what it is, is void for uncertainty since there is no certainty of price and nor is it an agreement to enter an agreement for the same reason.

Since there is a need for the courts to leave the parties with a clear understanding of the basis of the judgment of the Court, it is necessary to make comment on that submission. Contracts may only be upheld as binding upon the parties where there exists certainly of price at law. Here there is no such certainty. The price will not be determined, as I understand the contractual relationship between buyer and seller, until just before shipment. At the time of the injunctive orders, it is now clear that the certainty of the selling price was not settled. Accordingly having heard the arguments of the respondents to these injunctions I can no longer be satisfied of the existence of any binding contractual agreement.

The next argument advanced by the respondents to the injunction is that the so-called contract offends against section 16 of the provisions of the Land Act (Cap 132) which provides:

"It shall be unlawful for any Tongan subject to make any mortgage agreement or other document pledging or charging or selling his growing crops of coconuts, yams or other produce or any part thereof. Any person acting in contravention of this section shall on conviction be liable to fine not exceeding $100 or to imprisonment for any period not exceeding six months".

Parliament has clearly placed a sanction upon the proscribed activities in section 16 and the sanction is extensive and clearly embraces squash pumpkin the subject of the present application. On any reading of the statutes there is no saving section for pumpkin squash. Pumpkin squash must be read as being "Produce" within the meaning of section 16. The clear and unmistakeable object of the contractual relations between the sellers and buyers in this case is to pledge or charge a growing crop. I conclude that it is not to strain the legislation if one is to construe the provisions of section 16 in this way.

One must therefore conclude that there is no "Serious Question to be tried." The activity the subject of the injunction is proscribed by no lesser device than a statute carrying a penal sanction- one which involves the possibility of a sentence of imprisonment. The legislation would render the alleged agreement between the applicant company and the respondents invalid even if it could be said in every other respect to be a valid contract binding on the parties.

Next the respondents invoke the balance of convenience argument. Putting it shortly it is necessary for the court to decide whether the grant or refusal of an injunction is the optimum way of adjusting the rights of the parties fairly after the conclusion of the litigious process. Counsel for the respondents refers to the dictum of May LJ in Cayne v Global Natural Resources Plc [1984] 1 All ER 225, 237 who said when considering the phrase "Balance of Convenience", that the balance would be better expressed as "the balance of the risk of doing an injustice". In the present case it has been necessary to engage in precisely that exercise for here all the elements of urgency are present and needed to be carefully weighed. In my opinion, the balance falls in favour of no injunction.

If a remedy which favoured the plaintiff were to be reached, (and I make no comment on the merits of the respective cases) this Court must turn its attention to whether the simple remedy of damages would suffice in the exercise of deciding whether or not to impose an injunction: I conclude that damages would be adequate, given the evidence now before the Court (but which I might add was not before the Court at the time of the Plaintiffs Application,) and the disruption and loss accompanying an injunction would be much reduced.

A factor which operates as a safeguard to which the Courts must have regard is the relative circumstances of the parties and the prevailing circumstances of the public interest. Reference to this factor was made in the New Zealand decision Finnegan v New Zealand Rugby Football Union (No 2) [1985] 2 NZLR 181, 188 referred to by counsel for the respondents.

"The interest of the public and of the nation in not having the tour go ahead is a most potent factor. That interest has been recognized by the Court of Appeal. The tour is contrary to a clear indication from the government because of the harm it will do to our national interest; to the unanimous resolution of Parliament for the serious harm it would do to New Zealand's interests at home and abroad; and to the spirit of the Gleneagles agreement to which the country is fully committed."

Counsel for the respondent contends that this matter gives rise to considerations of the participation of Tonga as a trader in international markets, contending that what the Plaintiff is doing in this case amounts to restraint of trade in a way which is contrary to Tongan public interest and consequently the agreements which have that consequence are void as being contrary to public interest.

That is as may be. However, it would be a bold court which acted upon such a submission standing alone and without having heard evidence. There is I think, greater weight in the alternative submissions of the respondents.

The Mareva injunction sought and obtained by the Plaintiff corporation in an interim form is subject to even more stringent considerations that the device of the simple injunctive order. It was devised in the case Mareva Company Naviera SA v National Bulk Carriers ("The Mareva") [1980] 1 All ER 213.

A Mareva Order operates in personam against the defendants and not in rem against their assets. It confers no property right. It turns on the probability of a potential judgment debtor dissipating assets before trial in order to have the advantage over a judgment creditor who would seek to execute against assets. The risk of dissipation of assets is central to the Mareva type injunction. Its prerequisites include a need to demonstrate a good arguable case, the need to demonstrate that the respondent has the appropriate assets in the jurisdiction and the need to show real risk of a dissipation of assets by the respondent with an intent to deprive the judgment creditor of execution. The principles have been considered in:

Third Chandris Corporation v Unimarine [1979] 2 All ER 872

Wilsons Cement v Gatx-Fuller [1985] 2 NZLR 11, 21

Barclay - Johnson v Yuill [1980] 3 All ER 190, 195.

It is trite law that the Court should weigh the risks in the same way that a prudent commercial operator would weigh them. The Plaintiff must demonstrate by evidence the defendant's ability to dissipate assets or his failure to undertake not to dissipate them and the existence of a reciprocal enforcement of judgment regime is a relevant consideration; Rocket Cargo (NZ) Ltd v Chipperfield Enterprises Ltd [1988] NZHC 140; (1988) 2 PRNZ 566.

An applicant has a duty to disclose all material facts and to act with the utmost good faith in making disclosure of possible defences to the Court - Brink's Mat v Elcombe [1988] 3 All ER 178.

In SCF Finance Co Ltd v Masri [1985] 2 All ER 747, the following principles were set down:

- A Mareva injunction will only be granted against assets prima facie belonging to a third party if there are good reasons for supposing that those assets are the defendants.

- A Court does not have to accept without enquiry an assertion by the defendant or by the third party that the third party owns the assets against which the injunctions are sought.

- The Court when deciding whether to accept the applicants or respondents assertion will be guided by what is just and convenient.

- Further enquiry can be made before the main action or during it.

It is good law and good sense that a Mareva injunction should not interfere with a third party's freedom to trade even when there is an undertaking to indemnify for loss.

Having considered the material that has been placed before the court since imposing the interim injunctive orders I am now of the opinion that:

- As to the injunction generally and as to the purported agreement in the present case, there appears to be no right in the exporter to purchase the crop and there is no certainty of terms (price).

- That on the fact of the law (and without having heard full legal argument) the provisions of section 16 of the Land Act (Cap 132) appear to render the subject agreements in this case void by reason of illegality, were the Court to declare them to be valid and binding on the buyers and sellers.

- Given the foregoing matters the balance of convenience or the balance of the risk of doing an injustice would best effect the adjustment of the rights of the parties by refusing to impose the injunctions sought absolutely.

- Having heard counsel I conclude that damages would be an adequate remedy in the event of the success of the plaintiff corporation in the suit.

- As to the Mareva injunction, given the state of the evidence before this court I am persuaded that no such injunction may be contemplated for the reasons I have given.

Accordingly it is order that -

1. the injunction order dated 9 November 1995 be discharged.

2. Costs of this application be in the cause.