Brezeale v Lam [2008] WSSC 64 (21 August 2008)

IN THE SUPEME COURT OF SAMOA
HELD AT APIA

BETWEEN:

JAKE MICHAEL BREZEALE
of Las Vegas, USA, Businessman
Plaintiff

AND:

JACK TOAIVA LAM
of Los Angeles, USA, Retired
First Defendant

AND:

COLLEEN FABRICIUS MOORS
of Honolulu, Hawaii, and
PHOEBE FABRICIUS OLDEHAVER
of Los Angeles, USA, Company Directors
Second Defendants

Counsel: TRS Toailoa for plaintiff
R Drake for first and second defendants

Hearing: 10, 11 June 2008
Ruling: 21 August 2008

RULING OF SAPOLU CJ

Proceedings

[1] These proceedings are concerned with two motions by the first and second defendants. The first is a motion to rescind an interim injunction that was granted ex parte restraining the defendants from withdrawing, remitting or otherwise dealing with any sums of money held by any of them in any bank in Samoa; the second is a motion to strike out the plaintiff’s statement of claim as disclosing no reasonable cause of action.

The parties

[2] The parties in these proceedings are closely related and all of them reside in the USA. In May 2000, the mother of the plaintiff who was a shareholder in the company E & R Fabricius Ltd assigned her shares in the company to her son, the plaintiff.

[3] Even though counsel for the first and second defendants disputes on technical grounds that the plaintiff is not a shareholder of the company and therefore has no standing to bring proceedings against the defendants, it is clear from the material before the Court that the company and the second defendants had all along been dealing with the plaintiff as a shareholder of the company. It will not be appropriate to say now that the plaintiff is not a company shareholder. I, therefore, conclude that the plaintiff is a shareholder of the company. However, this is not conclusive of the question whether the plaintiff has standing to bring civil proceedings against the defendants as it will appear later.

[4] The first defendant is a brother of the plaintiff’s maternal grandmother. He is not a shareholder in the company E & R Fabricius Ltd.

[5] The second defendants are also shareholders in the company and are the directors of the company. They are aunties of the plaintiff.

Brief background

[6] These proceedings arose from the sale in October 2007 of the company’s only substantial asset which was its property at Matafele in Apia.

[7] According to the plaintiff, the first defendant had in 2002 granted financial accommodation to the company to pay off certain loans which were secured over the company’s property at Matafele. It is alleged by the plaintiff that an agreement was reached between the company and the first defendant that the latter will use his best endeavours to sell off, at the most within one year, the company’s Matafele property in order to reimburse his funds plus one year’s interest and reasonable expenses.

[8] It is then alleged by the plaintiff that contrary to the said agreement, the first defendant did not employ his best endeavours to sell off the Matafele property at the earliest opportunity or at all. As a consequence, when the Matafele property was sold in 2007 the first defendant charged the company with mounting interests plus costs and expenses over a five year period. In that way, the plaintiff and other company shareholders have been deprived of their rightful shares in the proceeds from the sale of the Matafele property.

[9] The plaintiff also claims against the second defendants as directors of the company for alleged breach of fiduciary duty said to be owed to the plaintiff and other shareholders for not safeguarding the interests of the company and the shareholders against the excessive claims made by the first defendant. At the hearing of these proceedings, counsel for the plaintiff conceded that the directors of a company owe fiduciary duties only to the company but not to its shareholders. So this part of the plaintiff’s claim relating to breach of fiduciary duty alleged to be owed by the second defendants as company directors to the plaintiff as shareholder was abandoned.

[10] It is also claimed by the plaintiff that the second defendants as directors have been in breach of their fiduciary duties to the company in two other respects, namely,:

(a) the second defendants had tendered accounts of their personal expenses which were paid from the sale proceeds of the Matafele property without proper justification or verification;

(b) the second defendants acted ultra vires the articles of association of the company by not calling a special meeting of the shareholders to sanction the dividends to be paid to the shareholders from the sale proceeds of the Matafele property.

[11] By an ex parte motion dated 31 October 2007, the plaintiff sought an interim injunction to restrain the defendants from withdrawing, remitting or otherwise dealing with any sums of money held by any of the defendants with any bank in Samoa.

[12] The motion was granted and an order was issued by the Court to freeze all bank accounts held under the names of the first and second defendants with any bank in Samoa until further order. The defendants have now moved to rescind the ex parte interim injunction and to strike out the statement of claim filed by the plaintiff.

The defendants motions

[13] The defendants motion to rescind the interim injunction is based on three grounds, namely,:

(a) the plaintiff’s motion for an interim injunction is not maintainable in law;

(b) the plaintiff’s motion for an interim injunction was not accompanied by an undertaking as to damages; and

(c) there is no admissible evidence to support the plaintiff’s motion for an interim injunction.

[14] The defendants motion to strike out the statement of claim is also based on three grounds, namely,:

(a) the plaintiff’s claim is untenable as a matter of law;

(b) the statement of claim discloses no reasonable cause of action; and

(c) the statement of claim is frivolous and / or vexations.

Discussion

(a) Motion to rescind the interim injunction

[15] In relation to the first ground of the motion to rescind the interim injunction which is that the plaintiff’s motion for an injunction was not maintainable in law, counsel for the first and second defendants submitted that the plaintiff had no standing to bring this motion and the second defendants as company directors owed no fiduciary duties to the plaintiff as a shareholder.

[16] It was submitted for the defendants that the plaintiff is not a shareholder of the company E & R Fabricius Ltd and therefore had no standing to file an interim injunction against the defendants or to bring a civil claim against the defendants. The reason given for this submission is that even if the mother of the plaintiff had assigned her shares in the company to the plaintiff in 2000 there has been no share transfer executed in terms of article 17 of the company’s articles of association or an approval of such share transfer by the directors in terms of article 19.

[17] Whilst it is true that no proper share transfer has been executed in terms of article 17 or approved by the directors in terms of article 19, it is clear from the material before the Court that the company and the second defendants of the company had all along been dealing with the plaintiff as a shareholder and the plaintiff had conducted himself on that basis. It is, therefore, not appropriate to say now for the purposes of these proceedings that for technical reasons the plaintiff is not a shareholder when all along the second defendants had regarded the plaintiff as a shareholder of the company and the plaintiff acted on the basis of that understanding.

[18] It is also true as submitted by counsel for the defendants that in principle the directors of a company owe fiduciary obligations to the company but not to the shareholders. It is also true that the directors are usually charged with the management of the company. However, those principles are not conclusive of the question of whether the shareholder of a company may bring civil proceedings against the company or its shareholders.

[19] I am not satisfied from the submissions of counsel that the first ground in support of the motion to rescind the interim injunction has been made out.

[20] In relation to the second ground of the motion to rescind the interim injunction which is that there was no undertaking as to damages which accompanied the plaintiff’s motion for an interim injunction, what was filed with the plaintiff’s motion was an undertaking as to costs. This is not an undertaking as to damages. Costs and damages are two different things.

[21] The undertaking as to costs is also not signed by the plaintiff but by one Earnest Brezeale who claims to be the plaintiff’s lawful attorney. This is not acceptable. An undertaking as to damages is a personal undertaking. It must be personally signed by the person who is giving the undertaking.

[22] Another defect is that it is said in the undertaking as to costs that a copy of the power of attorney which authorised Earnest Brezeale to sign the undertaking as attorney for the plaintiff was sent to the land registry. The power of attorney or a copy of it should have accompanied the undertaking as to costs that was filed in Court to confirm that Earnest Brezeale is an attorney for the plaintiff and that in terms of the power of attorney he has the authority to do what he did. No power of attorney was or has been produced to the Court.

[23] In the circumstances, I accept the submission by counsel for the defendants that no undertaking as to damages accompanied the plaintiff’s motion for an interim injunction

[24] The practice of the Court with regard to a motion for an interim injunction is to require the party (usually the plaintiff) who brings the motion to file an undertaking as to damages. The reason for this was explained by this Court in Board of Trustees of the Congregational Christian Church of Samoa v Pouvi [2003] WSSC 4 where it is said:

"As the authorities show, the correct procedure to be followed by the defendant who has sustained loss in consequence of an interlocutory injunction that was granted in error upon application by the plaintiff is to apply to the Court to enforce the plaintiff’s undertaking as to damages. It is therefore of significance to note the form of the undertaking as to damages that has been filed by the plaintiff. Without an undertaking the Court has no jurisdiction to award damages for loss sustained by the defendant in consequence of an injunction that was wrongly made. It is the undertaking that gives the Court jurisdiction. As a matter of practice, the Court usually requires an undertaking from the plaintiff who applies for an interlocutory injunction before an injunction is granted. This is mainly because if the injunction turns out to have been granted in error, the defendant who has suffered loss will be without a remedy if the plaintiff has not given an undertaking. In Equity and Trusts in Australia and New Zealand (2002) 2nd ed by Dal Pont and Chalmers, it is stated at p821:

"If damages would not provide an adequate remedy, the Court will consider whether, if the plaintiff fails, the defendant would be adequately compensated under the plaintiff’s undertaking in damages, in which case an interlocutory injunction may be granted. The practice of requiring an undertaking constitutes an implicit recognition that, without such undertaking, the defendant would be without remedy in the event of the injunction having been improperly ordered. Moreover, the undertaking functions to protect, not solely the defendant, but also the Court, from improper or indiscriminate applications for injunctions. The undertaking is given to the Court, not to the party enjoined. In the absence of such undertaking, the Court has no power to award damages for the harm suffered by the defendant from the order made in error. The Court’s jurisdiction in this context arises out of the plaintiff’s undertaking. So damages awarded under such an undertaking are of a different nature than those awarded at common law, having a special character deriving from their source in the plaintiff’s own voluntary undertaking, given as the price of obtaining an injunction. The damages in question are generally those which flow directly from the injunction and which could have been foreseen when the injunction was granted."

[25] The failure of a party seeking an interim injunction to give an undertaking as to damages may provide good ground in the exercise of the Court’s discretion to refuse an injunction. But the absence of an undertaking as to damages is not of itself sufficient ground for refusing an interim injunction or for discharging an order for an interim injunction: Equity and Trusts in Australia and New Zealand (200) 2nd ed by Dal Pont and Chalmers at pp821, 822

[26] So it is not enough for the purpose of a motion to rescind an interim injunction to say that the plaintiff did not file an undertaking as to damages. The defendant would have to go further and show that the Court in the exercise of its discretion, taking into account the absence of an undertaking as to damages, should not have granted the interim injunction which should therefore be rescinded.

[27] The third ground of the defendants motion to rescind the interim injunction is that there was no admissible evidence to support the plaintiff’s motion for an interim injunction. As the argument for the defendants unfolded at the hearing of these proceedings, it became clear that the defendants are saying that the affidavit that was filed in support of the plaintiff’s motion for an interim injunction is hearsay and should not have been accepted.

[28] The reason given for this is that the affidavit filed in support of the motion for an interim injunction is not signed or sworn by the plaintiff but by one Earnest Brezeale who claims to be the lawful attorney of the plaintiff under a power of attorney. Counsel for the defendants submitted that in terms of s.13 of the Oaths, Affidavits and Declarations Act 1963 and on authority the affidavit should have been excluded.

[29] In terms of s.13 of the Act an affidavit for use in any proceedings shall be in the form prescribed in the second schedule to the Act s.13 (1); the full name, true place of abode and occupation of the deponent shall be inserted in the affidavit s.13 (2); the deponent’s statement shall be in the first person through the affidavit s.13 (3); the affidavit shall be divided into paragraphs numbered consecutively s.13 (4); the affidavit shall be confined to such facts as the deponent is able of his own knowledge to prove except that affidavits for use in interlocutory motions may make statements as to the deponent’s belief with the grounds thereof s.13 (5); and the deponent shall sign his affidavit or if he cannot write set his mark thereto s.13 (6).

[30] A deponent in the context of s.13 of the Act is a person who gives evidence by affidavit. He is required to depose only to such facts as he is able of his own knowledge to prove or as to his belief if the affidavit is for use in interlocutory motions. The deponent is then required to sign his affidavit.

[31] The affidavit which accompanied the plaintiff’s motion for an interim injunction was not signed or sworn by the plaintiff as the deponent who appears in the affidavit. It was signed and sworn by someone who claims to be the lawful attorney of the plaintiff under a power of attorney that was not produced. This is contrary to s.13 (6) of the Act.

[32] It also appears to me that to accept this affidavit will be to drive a wedge through the hearsay rule. This cannot be done as one person cannot give evidence on behalf of another.

[33] Counsel for the defendants also referred to the English case of Clauss v Pir [1987] 2 All ER 752 which was concerned with proceedings for the grant of letters of administration. The Court in that case ordered the parties to verify their respective list of documents by affidavit. The defendant’s affidavit was not sworn by himself but by his wife on whom he had conferred a power of attorney. The headnote of the case states at p.752:

"A party could not do by an attorney an act which he was only competent to do by virtue of some duty of a personal nature requiring skill or discretion for its exercise... The verification of the relevant documents by affidavit could not be delegated by the defendant since it was a personal duty which he alone could perform because of the personal knowledge required."

[34] In the judgment itself, the Judge (Francis Ferris QC) said at p.756:

"Accordingly, if, as I think, an order under Ord 24, r 3 on the face of it requires the principal to do what is mentioned in the order, that is a personal duty which he alone can perform because of the personal knowledge which is required. After all, he is being compelled to give a particular form of evidence and in no other field could it be possible to say that a party may give evidence through an attorney...The order which was made by Master Munrow in this case...required the defendant to serve a list of documents verified by affidavit. The requirement that he should serve his list verified by affidavit is not something which can be delegated. It required the defendant to do something personally which cannot be done by means of an attorney."

[35] In Gregory v Turner [2003] EWCA 183, Brooke L J in the English Court of Appeal when referring to the text Powers of Attorney (2000) 9th ed by Trevor Arlidge said at para. 71

"He (Trevor Arlidge) describes the limitations on the powers that can be granted by power of attorney. One well-established example is the power to make a will which cannot be delegated by power of attorney. He also refers to some reported cases, illustrating the limitations. The most recent is Clauss v Pir [1988] Ch 257 in which it was held that a requirement under the Court rules to verify a list of documents by affidavit could not be performed by the defendant’s solicitors under a power of attorney. The judge (Francis Ferris QC, as he then was) referred to Halsbury’s Laws of England 4th ed vol 1 para 703, for the general preposition that –

"whatever a person has a power to do himself he may do by means of an agent"

but noted the qualifications, one of which was –

"where the competency to do the act arises by virtue of the holding of some public office or by virtue of some power authority or duty of a personal nature requiring skill and discretion for its exercise."

[36] On the authority of Clauss v Pir [1987] 2 All ER 752; [1988] Ch 257, I conclude that the obligation of making an affidavit and having it sworn for the purpose of supporting a motion for an interim injunction is a duty of a personal nature to be performed by the deponent personally, and it cannot be delegated to an attorney or agent.

[37] From the above discussion, I accept the submissions by counsel for the defendants that there was no undertaking as to damages or valid supporting affidavit filed with the motion for an interim injunction. However, I do not propose to rescind the interim injunction but to order the plaintiff to file an undertaking as to damages signed by himself and a supporting affidavit sworn personally by himself within fourteen days. The plaintiff resides in Las Vegas, USA, but those documents can be executed in the USA and promptly faxed to Samoa with the originals sent by registered mail through a courier. This injunction would then be reviewed.

[38] I do, however, propose to vary the interim injunction, It is clear from the plaintiff’s statement of claim that in 2002 the first defendant had granted financial accommodation to the company to pay off certain loans which were secured over the company’s property at Matafele. It is alleged that an agreement was reached between the company and the first defendant that the latter will use his best endeavours to sell off, at the most within one year, the company’s Matafele property in order to reimburse his funds plus one year’s interest and reasonable expenses.

[39] It is then alleged that contrary to the said agreement the first defendant did not employ his best endeavours to sell off the Matafele property at the earliest opportunity or at all. As a consequence, when the Matafele property was sold in 2007 the first defendant charged the company with mounting interests plus costs and expenses over a five year period. In that way the plaintiff and other company shareholders have been deprived of their rightful shares in the sale proceeds of the Matafele property.

[40] It is also claimed that the accounts tendered by the second defendants for their personal services were paid from the sale proceeds of the Matafele property even though there was no proper justification or verification of those accounts.

[41] As it is admitted by the plaintiff that the first defendant granted financial accommodation to the company, the first defendant should be paid the equivalent of that money from the sale proceeds of the Matafele property. He should also be given an amount equivalent to one year’s interest at 14% which is the interest rate that he charged. I will also allow $30, 000 in part payment for reasonable expenses that the first defendant must have incurred.

[42] The interim injunction is therefore varied to the extent that an amount equivalent to the financial accommodation granted by the first defendant to the company plus 14% interest for one year and $30, 000 in part payment of reasonable expenses the first defendant must have incurred must be released to the first defendant.

[43] On the material before the Court, I am not able to order a similar variation to the interim injunction in favour of the second defendants as there is nothing to show that the expenses they claimed from the company were reasonable.

[44] Before leaving this part of the proceedings, I have to say that the interim injunction that was sought by the plaintiff has the features of a mareva injunction to freeze any bank account in Samoa under the names of the first and second defendants. This appears from the plaintiff’s motion for an interim injunction where it says that all the defendants reside in the USA and the proceeds from the sale of the company’s Matafele property will be remitted out of Samoa to the USA through a local bank. The concern of the plaintiff is that once the money leaves Samoa for the USA there will be no funds available to satisfy any judgment he may obtain from the Samoan Courts against the defendants. The reason for this is that there are no reciprocal enforcement of judgments arrangements between Samoa and the USA.

[45] If these proceedings had been approached on the basis of a mareva injunction, taking into account its requirements, some of the issues involved would have been more clear. One of these requirements is that the plaintiff should specify a maximum sum for his estimated entitlement so that not all the bank accounts under the names of the defendants will be frozen but only such an amount that will be sufficient to satisfy the plaintiff’s claim if he succeeds. Both counsel may wish to give this requirement some consideration so that the injunction will be limited to such a maximum amount that will be sufficient to satisfy the plaintiff’s claim if he succeeds.

(b) Motion to strike out the statement of claim

[46] As the argument unfolded, it became clear that the motion to strike out the statement of claim is really based on two grounds. The first ground is that the plaintiff has no standing to bring his claim against the defendants and the second ground is that the statement of claim discloses no reasonable cause of action which is maintainable in law. These two grounds overlap to an extent.

[47] The two grounds I have identified of the strike out motion are really based on the common law rule known as the rule in Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461. The rule is stated in Modern Company Law (1969) 3rd ed by Professor Gower where the learned author said at pp 581-582:

"If the duty to be enforced is one owed to the company, then the primary remedy for its enforcement is an action by the company against those in default. If, therefore, complaint is made that the directors have broken their duties of loyalty, care, or skill, the company is the proper plaintiff in an action against them. This is the famous rule in Foss v Harbottle, so called after the decision in which it was first clearly articulated. Later, however, the rule was extended to cover all cases where what is complained of is some internal irregularity in the operation of the company; for example, to dispute the validity of the appointment of some of the directors, or to attack the refusal to call a poll at a meeting.’

[48] In Konamaneni v Rolls Royce Industrial Power (India) Ltd [2001] EWHC Ch 470, Lawrence Collins J said at paras 24 and 25:

"24 It is an elementary principle that ‘A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C’: Prudential Assurance Co Ltd v Newman Industries (No 2) [1982] Ch 204, 210.

"25 The usual rule is that a company is the proper claimant in an action to redress a harm done to the company or enforce a cause of action vested in the company (the so-called ‘Rule in Foss v Harbottle’). There are, however, exceptions".

[49] In an article entitled The Derivative Action in Australia and New Zealand: Will the Statutory Provisions Improve Shareholders’ Enforcement Rights? [1998] Bond L Rev 5 by M Berkhan which is referred to in the submissions by counsel for the defendants, it is stated:

"The rule as set out by Sir James Wigram VC in Foss v Harbottle, simply stated that in respect of wrongs to the company, ‘the corporation should sue in its own name and in its corporate character, or in the name of someone whom the law has appointed to be its representative’

Thus if an action did not have the support either of the directors of the company, in whom the power to bring proceedings on the company’s behalf generally rests, or of a majority of shareholders, it could not proceed.

This principle was later expanded to also state that if the alleged wrong is ratifiable by a majority of the company’s shareholders, the minority may not sue. Mellish L J in MacDougall v Gardiner emphasised the practical advantage of the rule in avoiding futile litigation when he said:

"If the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly... there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called, and then ultimately the majority gets its wishes.

"Consequently, when reference is made to the ‘rule in Foss v Harbottle’, it is generally this broader set of principles which is being referred to, rather than just the locus standi rule referred to by Sir James Wigram in Foss v Harbottle itself".

[50] In Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, the English Court of Appeal said pp 210-211:

"The classic definition of the rule in Foss v Harbottle is stated in the judgment of Jenkins LJ in Edwards v Halliwell [1950] 2 All ER 1064 as follows. (1) The proper plaintiff in an action in respect of a wrong alleged to be done to the corporation is, prima facie, the corporation. (2) Where the alleged wrong is a transaction which might be made binding on the corporation and on all its members by a simple majority of the members, no individual members of the corporation is allowed to maintain an action in respect of that matter, because, if the majority confirms the transaction, cadit quaestio; or, if the majority challenges the transaction, there is no valid reason why the company should not sue. (3) There is no room for the operation of the rule if the alleged wrong is ultra vires the corporation, because the majority of members cannot confirm the transaction. (4) There is also no room for the operation of the rule if the transaction complained of could be validly done or sanctioned only by a special resolution or the like, because a simple majority cannot confirm a transaction which requires the concurrence of a greater majority. (5) There is exception to the rule where what has been done amounts to fraud and the wrongdoers are themselves in control of the company. In this case the rule is relaxed in favour of the aggrieved minority, who are allowed to bring a minority shareholders’ action on behalf of themselves and all others. The reason for this is that, if they were denied that right, their grievance could never reach the court because the wrongdoers themselves, being in control, would not allow the company to sue."

[51] I have referred to some of the definitions of the rule in Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461 in order to give a clearer picture of what is involved in the rule, as this is the first Samoa case in which this rule has been raised as an issue.

[52] Whilst counsel for the defendants relied on the rule in Foss v Harbottle and submitted that none of its exceptions applies to these proceedings, counsel for the plaintiff relied on the exceptions to the rule and submitted that in the circumstances of these proceedings the plaintiff may bring a common law derivative action under one or more of the exceptions to the rule. Counsel for the plaintiff also submitted that apart from a derivative action, the plaintiff may also bring a personal action.

[53] I do accept that in appropriate circumstances a shareholder may bring a derivative action under the exceptions to the rule in Foss v Harbottle. The derivative action is explained and discussed in a number of cases and academic writings in other jurisdictions. I need only refer to a few of them to show what is a derivative action in the context of a company.

[54] In the article The Derivative Action in Australia and New Zealand: Will the Statutory Provisions Improve Shareholders Enforcement Rights? [1998] Bond L Rev 5 by M Berkhan, the learned author states:

"A derivative action is an action brought by a shareholder or director of a company in the name and on behalf of that company. Such an action is ‘derivative’ in the sense that the right to sue belongs not to the party actually bringing the action, but is ‘derived’ from that of the company. Its purpose is to achieve relief in situations where a wrong has been done to the company, rather than to its shareholders personally. Normally, the decision to take action on the company’s behalf lies with the directors, as they generally have the responsibility of managing the company. However, in some cases it is necessary that the shareholders be given the right to commence action on the company’s behalf, usually because some or all of the board are themselves responsible for the wrong that has been committed."

Further on in the same article, the learned author goes on to say:

"Under the common law, a derivative action was generally possible only if the applicant could invoke one of the exceptions to the rule in Foss v Harbottle."

The learned author then further on points out in his article:

"Case law on this point, and on the common law derivative action in general, was sparse in Australia prior to about 1990, and continued to be so in New Zealand right up until the statutory provision came into force in 1994. Sealy notes that between 1971 and 1989 Foss v Harbottle was mentioned a total of only 11 times in reported Australian cases, more often than not merely in passing, or to say that the rule had no application."

[55] Perhaps I should point out here that other jurisdictions like Australia and New Zealand now have statutory derivative actions which are more liberal than the common law derivative action. We are still relying on the common law.

[56] In Prudential Assurance Co Ltd v Newman Industries Ltd (No.2) [1982] Ch 204, the English Court of Appeal said at p.210:

"A derivative action is an exception to the elementary principle that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested."

[57] The procedures which apply under English law when bringing a derivative action may be found in Konameni v Rolls Royce [2001] EWHC Ch 470, where it is stated at para 30:

"A derivate action is brought in representative form, and the company is joined as a defendant in order for it to be bound by any judgment and to receive the funds (if any) of the judgment and because the action has not been authorised by its board or general meeting: Spokes v Grosvenor v West End Railway Terminals Hotel Co Ltd [1897] UKLawRpKQB 99; [1897] 2 QB 124."

In Jafari – Fini v Skillglass Ltd [2005] EWCA 356, Chadwick LJ, in a judgment concurred in by Pill and Latham LJJ, says at para 34:

"The general principles governing the pursuit of derivative claims were set out in this court by Peter Gibson LJ in Barrett v Duckett [1995] 1 BCLC 243 at 249 h to 250 c.

"The general principles governing actions in respect of wrongs done to a company or irregularities in the conduct of its affairs are not in dispute:

1. The proper plaintiff is prima facie the company.

2. Where the wrong or irregularity might be made binding on the company by a simple majority of its members, no individual shareholder is allowed to maintain an action in respect of that matter.

3. There are however recognised exceptions, one of which is where the wrongdoer has control which is or would be exercised to prevent a proper action being brought against the wrongdoer: in such a case the shareholder may bring a derivative action (his rights being derived from the company) on behalf of the company.

4. When the challenge is made to the right claimed by a shareholder to bring a derivative action on behalf of the company, it is the duty of the court to decide as a preliminary issue the question whether or not the plaintiff should be allowed to sue in that capacity.

5. In taking that decision it is not enough for the court to say that there is no plain and obvious case for striking out; it is for the shareholder to establish to the satisfaction of the court that he should be allowed to sue on behalf of the company.

6. The shareholder will be allowed to sue on behalf of the company if he is bringing the action bone fide for the benefit of the company for wrongs to the company for which no other remedy is available. Conversely if the action is brought for an ulterior purpose or if another adequate remedy is available, the court will not allow the derivative action to proceed."

[58] I also accept that a shareholder may in appropriate circumstances bring a personal action. The distinction between a derivative action and a personal action is explained in the article entitled The Statutory Derivative Action: Lessons That May Be Learnt From Its Past [2002] UWSLR 4. by L Griggs where the author says at Part 3:

"It has never been clear what can be regarded as a wrong to a corporation supporting a derivative action (for which leave is now regained), as against a personal wrong (which entitles the shareholder to exercise their own rights without the need to seek leave). The case law is ‘confusing and irreconcilable.’ Wrongs to the corporation include breaches of fiduciary duty, the recovery from third parties for wrongs to the entity, fraud against the corporation and the failure by the corporation to pursue a legal right such as an antitrust claim. Personal wrongs include the issue of shares for an improper purpose, the failure to give proper notice of a meeting, interference with the right to vote and breach of contract with a shareholder. Given that leave must be sought to bring a derivative action, whereas leave is not required for a personal action or an action under the oppression remedy, a foundation question for any shareholder to determine is whether the action is personal or derivative. It is a critical issue in Australia, England, the United States of America and Canada.

"The critical threshold question in shareholder litigation...is whether the action is personal or derivative. It was the answer to the question that tripped the plaintiffs in Farnham v Fingold which was potentially the most significant corporate action in Canada, and which has bedevilled the course of action in Goldex Mines Ltd v Revill et al."

[59] Whether leave is necessary to bring a common law derivative action in this country is a question that was not raised in these proceedings and therefore I am not required to express any view on it.

[60] With regard to oppression remedy provided in s.209 of the Companies Act 1955 (NZ) which is still applicable to Samoa, the learned author of the article The Derivative Action in Australia and New Zealand: Will the Statutory Provisions Improve Shareholders’ Enforcement Rights [2002] UWSLR 4 makes the following observations:

"In the past, the provision has been interpreted very narrowly, and only a handful of successful actions were brought in New Zealand between 1955 and 1981. However, amendments to both the New Zealand and Australian provisions in the early 1980s have resulted in a significant liberation of the Courts’ approach to the oppression remedy.

It is doubtful whether the said amendments made in the 1980s in New Zealand apply to Samoa. Further on the learned author says:

"Uncertainty remains, however, regarding whether or not it [the oppression remedy] may be used to remedy corporate (as opposed to personal) wrongs."

[61] From the above passages, the scope of the oppression remedy provided in s.209 of the Act must be doubtful. The opposing and conflicting submissions by counsel on this point were not conducive to bringing certainty to the matter.

[62] This is the first Samoan case in which the rule in Foss v Harbottle, the shareholder’s derivative action, the shareholder’s personal action, and the statutory oppression remedy have been raised in a claim. These issues are not straightforward but complex. I have come to the conclusion that given the novelty and complexity of these issues, it will not be appropriate to come to any definitive views on them in these interlocutory proceedings. The issues require further submissions and consideration at the substantive hearing.

[63] The motion to strike out the statement of claim should therefore be denied.

Conclusions

[64] The interim injunction is varied so that a sum equivalent to the amount of the financial accommodation granted by the first defendant to the company E & R Fabricius Ltd plus one year’s interest at 14% and $30, 000 in part payment of reasonable expenses is to be released to the first defendant from the bank accounts frozen under the interim injunction if such a sum or part thereof has not already been released to the first defendant.

[65] The plaintiff is to file and serve an undertaking as to damages signed by himself and a supporting affidavit sworn personally by himself within 14 days. The interim injunction will then be reviewed.

[66] The motion to strike out the statement of claim is denied.

[67] Costs reserved.

[68] As all the parties are related to one another, I express the hope that this matter can be resolved within the family instead of pursuing it through litigation which can be quite prolonged and costly.

CHIEF JUSTICE

Solicitors
Toa Law firm
Drake & Co Solicitors