AMERASEKERE v. MITSU AND COMPANY LTD., AND OTHERS

002-SLLR-SLLR-1993-1-AMERASEKERE-v.-MITSU-AND-COMPANY-LTD.-AND-OTHERS.pdf


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Sri Lanka Law Reports
(1993) 1 Sri L.R.
AMERASEKERE
v.MITSUI AND COMPANY LTD., AND OTHERS
SUPREME COURT.
G.P.S. OE SILVA, J„ AMERASINGHE, J., AND KULATUNGA, J„
S.C. APPEAL NO. 33/92.
S.C. APPEAL NO. 34/92.
S.C. SPECIAL LEAVE TO APPEAL APPLICATIONS NOS. 18 & 19.
A. LEAVE TO APPEAL APPLICATIONS NO. 206 AND 208/91.
C. COLOMBO CASE NO. 3155/SPLNOVEMBER 18 AND 19, 1992.
Company Law – Right of shareholder not qualified under 210 and 211 to bringderivative action as representative of the Company and injunctive relief – Locusstandi.
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Amerasekere v. Mitsui and Company Ltd., and Others
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If in the circumstances it is impossible to get the company itself to bring an actionto protect its own interests because the directors are unwilling or helpless tointervene, a shareholder can sue in his own name, but in truth on behalf of thecompany, to enforce rights derived from it.
Where there is a prima fade case and a reasonable prospect of success andthe plaintiff has actual and legally recognizable rights and the balance ofconvenience in his favour, an interim injunction should be granted.
Per Amerasinghe J: 'However I am unable to accept Mr. Amerasinghe'ssubmission that the plaintiff had no standing at all and his suggestion thatthe plaintiffs case was, therefore utterly hopeless. If in the circumstancesalleged by the plaintiff, he was unable to induce the fourth defendantcompany to take effective steps to protect its own interests, and if as healleges what he complains of cannot be validly effected or ratified byordinary resolution, then it appears that he had every right as a representativeof the company to obtain an injunction'.
Cases referred to :
Wallersteiner v. Moir (No. 2) (1975) 1 All ER 849, 855, 856, 858.
American Cyanamid v. Ethicon Ltd., (1975) AC 396, 407.
Yakkaduwe Sri Pragnarama v. Minister of Education (1969) 71 NLR506, 511.
Bandaranaike v. State Film Corporation [1981] 2 Sri LR 287, 294-299, 302-303.
Dissanayake v. Agricultural and Industrial Credit Corporation (1962) 64 NLR283, 285.
Jinadasa v. Weerasinghe (1929) 31 NLR 33, 34.
Ceylon Cold Stores v. Whittal Boustead Ltd., C.A.L.A. 35/80 D.C. Colombo1820 Spl. C.A. Minutes of 22.4.80.
Ratnayake v. Wijesinghe and others [1989] 1 Sri LR 406.
Preston v. Luck (1884) 27 Ch. D. 497, 505-506, 508.
Hubbard v. Vosper [1972] 2 QB 84, 96.
Evans Marshall & Co., v. Bertola S.A. [1973] 1 WLR 349, 365, 378, 379.
Fellowes v. Fisher [1975] 3 WLR 225.
Hubbard v. Pitt (1975) 3 WLR 201.
Richard Perera v. Albert Perera (1963) 67 NLR 445, 447, 448, 449.
Gamage v. The Minister of Agriculture and Lands (1973) 76 NLR 25, 43-44.
Montgomery v. Montgomery [1964] 2 All ER 22.
Gouriet v. Union of Post Office Workers [1978] AC 435.
Gray v. Lewis (1873) 8 LR Ch. App. 1035.
Menier v. Hoopers Telegraph Works (1874) LR 9 Ch. 350, 353.
MacDougall v. Gardiner [1875] 1 Ch. D. 13, 24.
Mason v. Harris (1879) LR 11 Ch. 97, 104-105, 107-108.
Cook v. Deeks and others (1916) 1 AC 554.
Daniels and Others v. Daniels and Others [1978] 2 All ER 89, 96.
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Buriand v. Earle [1902] AC 81.
Prudential v. Newman Industries No. 2 [1982] 1 All ER 354, 357, 366.
Murugesu v. Northern Divisional Agricultural Producers Co-operative UnionLtd., (1952) 54 NLR 517.
Gnanapragasam v. Swaminathan [1983] 2 Sri LR 140.
Kumarasena v. Data Management Systems Ltd., [1987] 2 Sri LR 190.
Manchester Corporation v. Conolly [1970] 1 Ch. 420.
Woodward v. Smith (1970) 1 All ER 109.
Estmanco Co. (Kilmer House) Ud., v. Greater London Council [1982] 1 AllER—437.
London and Blackwell Railway v. Cross (1885) 31 Ch. 0. 354, 369.
APPEAL against order of Court of Appeal granting leave to appeal againstthe interim injunction granted by the District Court. (Order of Court of Appealis reported in (1992) 1 Sri LR.)
H.L. de Silva P.C. with K. Kanang-lsvaran P.C., with C.V. Vivekanandan, AnilTittewela and Harsha Cabral for petitioner.
Eric Amerasinghe, P.C. with LA. Wickramasinghe, H. Soza and Anil Silva for1st and 2nd Defendants-petitioners-appellants-respondents.
L.C. Seneviratne P.C. with T.C. Boange and S.D. Yogendra for 2nd defendant-respondent.
Cur. adv. vutt.
December 02, 1992.
AMERASINGHE, J.
Work on the construction of .the Colombo Hilton Hotel commencedin or about March 1984 and the hotel was opened for operationson 1st July, 1987. Mitsui & Co Ltd of Tokyo, the first defendant, andTaisei Corporation of Tokyo, the second defendant, were promoters,contractors, suppliers, financiers and shareholders who haverepresentation on the Board of Directors. The third defendant, KanoKikkau Sekkeisha Yzo Shibata & Associates, were the architectsresponsible for the design and supervision of the project. The fourthdefendant was formerly known as Lanka Japan Hotels Ltd. On 20thOctober 1983 it came to be known as Hotel Developers (Lanka) Ltd.This company owns the Hilton Hotel. Cornel Lionel Perera, thefifth defendant, is the Chairman and Managing Director of HotelDevelopers (Lanka) Ltd. The others named in the plaint as defendantsare Directors of the Board of Hotel Developers (Lanka) Ltd.
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Nihal Sri Ameresekere, the plaintiff, was also connected withthe Hilton project. He was one of the subscribers of the Memorandumand Articles of Association of the company that owns HiltonHotel; he is decribed as a Director in the Prospectus of the Companyissued on 11th March 1983 (P 5) ; he continued as a Director untilhis removal from that position on 22nd December 1990. He holds70,000 shares in the Company.
It seems that, for supposed or actual reasons, Ameresekere, wasunhappy or uncertain with regard to certain aspects of the executionof the project and from time to time sought clarification andinformation, and being dissatisfied with certain aspects of theconduct of the company's affairs eventually on 17th September 1990filed an action in the District Court of Colombo against the defendants.The plaintiff prayed as follows :
for a declaration that the 1st and 2nd Defendants are notentitled to any payments, whatsoever under and in termsof and according to the tenor of the said ConstructionAgreement referred to herein.
for a declaration that the said Mitsui, the 1st Defendant isnot entitled to any payment, whatsoever under and in termsof and according to the tenor of the said Supplies Contractreferred to herein.
for a declaration that the 3rd Defendant is not entitled tohave received any payments whatsoever, under and in termsof and according to the tenor of the Design & SupervisionContract referred to herein.
for a declaration that the said Mitsui Taisei Consortium, the1st and 2nd Defendants abovenamed are not entitled tomake any claim, whatsoever under the said Loan Agreementreferred to herein and therefore precluded from claimingunder or enforcing the said Guarantees referred to herein.
for a declaration that the said Hotel Developers, the 4thDefendant Company is not under any obligation to makeany further payment, whatsoever to the 1st and/or 2ndand/or 3rd Defendants abovenamed under the saidcontracts and agreements, namely; the Construction
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Agreement, Supplies Contract, Design & SupervisionContract and the said Loan Agreement.
for a declaration that the said Hotel Developers, the 4thDefendant is entitled to the reimbursement of all monies paidand received by the 1st and/or 2nd and/or the 3rdDefendants abovenamed, to date.
for an Interim injunction restraining the said Mitsui/TaiseiConsortium and the said Architects, the 1st, 2nd and 3rdDefendants respectively, by themselves, their represen-tatives, servants and agents or otherwise howsoever, fromdemanding, claiming, drawing, receiving and/or collectingany monies, whatsoever in any manner howsoever, underthe said Contracts and Agreements, namely ; theConstruction Agreements, Supplies Contract, Design &Supervision Contract, Loan Agreement and the said twoGuarantees and referred to in the plaint, until the finaldetermination of this action.
for an Interim Injunction restraining the 4th DefendantCompany by itself, its Directors, Servants and Agents orotherwise, howsoever, from entertaining any demand and/or claim from the 1st and/or the 2nd and/or the 3rdDefendants abovenamed in relation to the said claims andpayments allegedly due to the 1st and/or the 2nd and/orthe 3rd Defendants and/or paying any monies, whatsoever,in any manner, howsoever, under the said ConstructionAgreement, Supplies Contract, Design & SupervisionContract and Loan Agreement referred to in the plaint untilthe final determination of this action.
for a Permanent Injunction restraining the said Mitsui/TaiseiConsortium and the said Architects, the 1st, 2nd and 3rdDefendants respectively, by themselves, their representa-tives, servants and agents or otherwise, howsoever, fromdemanding, claiming, drawing, receiving and/or collectingany monies, whatsoever, in any manner howsoever, underthe said Contracts and Agreements, namely; theConstruction Agreement, Supplies Contract, Design &Supervision Contract, Loan Agreement and the said twoGuarantees referred to in the plaint.
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for a Permanent Injunction restraining the said HotelDevelopers, the 4th Defendant Company by itself, itsDirectors, servants and agents or otherwise howsoever, fromentertaining any demand and/or claims, whatsoever, fromthe 1st and/or 2nd and/or 3rd Defendants abovenamed inrelation to the said claims and payments allegedly dueto the 1st and/or the 2nd and/or the 3rd Defendant and/or paying any monies, whatsoever in any mannerhowsoever, under the said Construction Agreement,Supplies Contract, Design & Supervision Contract andAgreement referred to in the plaint.
for costs ; and
for such further or other reliefs as to the Court shall seemmeet.
The learned District Judge issued enjoining orders in terms ofprayer "g" restraining the first, second and third defendants frommaking claims and recoveries in respect of the specified agreementsrelating to the Hilton Project and in terms of prayer "h" restrainingHotel Developers (Lanka) Ltd., the fourth defendant, entertaining anydemands and making any payments with regard to the Hilton project.Upon notice being issued, and after considering the pleadings,objections and other documents filed, and submissions of learnedcounsel, the learned District Judge by his Order dated 9th September1991 issued the interim injunctions prayed for by the plaintiff.
The learned District Judge was of the view that the questionsraised by the plaintiff with regard to the appropriateness andnature of payments to the first, second and third defendants ; andwhether there was fraudulent collusion to "deviously siphon outforeign exchange" from the company and the country, ought tobe considered at a "full trial" and upon a consideration of theevidence adduced at such trial. However, he said, if what the plaintiffalleged was true, then injunctions should be issued to prevent such"siphoning out" because otherwise, the learned District Judge held,the "extensive loss" that would be caused would be "irremediable",for the possibility of recovery once the money had gone abroad wouldbe remote. A person seeking justice, he said, should not be preventedfrom doing so. On the other hand, as far as the first, second andthird defendants were concerned, any loss caused to them by delay
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in the making of any payments due could be offset by the paymentof interest.
The first and second defendants, and the third defendantseparately, sought leave to appeal to the Court of Appeal. On 31stJanuary 1992, the Court of Appeal granted leave to appeal.
The plaintiff sought special leave to appeal to the Supreme Courtfrom the order of the Court of Appeal granting leave to appeal inrespect of both applications 206 & 208 of 1991. This Court grantedleave to appeal on the question "whether granting of leave by theCourt of Appeal against the interim injunction by the District Courton 09.09.91 is sustainable in law". By consent of the parties it wasagreed that the appeals relating to the first and second as well asthe third defendants would be heard together.
I am of the view that the granting of leave by the Court of Appealagainst the interim injunction granted by the District Court on 09.09.91is not sustainable in law for several reasons.
To begin with, the Court of Appeal granted leave to appeal ina matter that was not before it. The Court erroneously assumed thatthe matter before it was concerned with an injunction granted againstthe fourth defendant, viz. Hotel Developers (Lanka) Ltd. The Courtof Appeal said: "The plaintiff in paragraph 61 (h) of his plaint prayedfor an injunction against the fourth defendant".
However, the fourth defendant did not file any objections or makeany submissions to the District Court on the matter. Nor did the fourthdefendant seek leave to appeal from the Order of the District Court.
Nevertheless the Court of Appeal permitted the participation ofCounsel for the fourth defendant at the hearing of the leave to appealproceedings relating to the application of the first, second and thirddefendants on the basis that the fourth defendant was a "necessaryparty". The fourth defendant was a necessary party to the proceedingsin the District Court, in relation to the granting of an injunction againstthe fourth defendant in terms of paragraph 61 (h) of the plaint, butnot in relation to an appeal concerning an injunction granted againstthe 1, 2 & 3 defendants in terms of paragraph 61 (g) of the plaint.In fact, when learned Counsel for the 4th defendant attempted tomake submissions at the hearing of the special leave to appeal
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application before the Supreme Court on 21.05.92, the Court refusedto let him do so. The Court of Appeal granted leave to appeal againstan order that was not before it and so, obviously, the grant of leavein these cases is not "sustainable in law."
The Court of Appeal seems to have been of the view that leaveto appeal should have been granted because the learned DistrictJudge had failed to satisfy himself that, in terms of section 54 ofthe Judicature Act No. 2 of 1978 sufficient grounds existed for thegranting of an injunction.
The Court of Appeal in its Order said as follows :
According to the provisions of section 54 of the Judicature Act,the Court must satisfy itself, "that sufficient grounds exist" beforeinjunctive relief is granted. It does not appear from the Order ofthe learned District Judge that he has addressed his judicial mindto the question whether the plaintiff-respondent has adducedsufficient evidence to make out a prima facie case, althoughreference to some documents by name has been made, in passing.
The Counsel for the 1st and 2nd defendant-respondentssubmitted that the plaintiff-respondent has no locus standi to bringthis action. He contended that the facts urged by the plaintiff-respondent does not disclose a cause of action. He also submittedthat plainiff-respondent does not have a right to bring a derivativeaction. The Counsel for the 7th defendant-respondent submittedthat right to bring a derivative action does not exist under theSri Lankan law. He submitted that the Companies Act of SriLanka is comprehensive on the rights of the shareholders. Hefurther argued that the only rights available to a shareholder arethose specified in section 210 and 211 of the Companies Act,in this regard. Those rights he pointed out could only be exercisedby a shareholder having a minimum of five percent of shares ofthe Company. The learned Counsel for the plaintiff-respondentcited section 3 of the Civil Law Ordinance, and contended thatthe law applicable in regard to the matter is the English Law.He pointed out that in the case of Wallersteiner v. Moir(no. 2) 01 this right has been recognised in England. Thereforehe argued that a right to bring a derivative action exists in SriLanka. In our view these are fit questions of law to be decidedin appeal and we accordingly grant leave to appeal.
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Mr. H. L. de Silva, P.C., referred to various averments set outin the plaint and argued that the learned District Judge had properlyexercised his discretion in granting the interlocutory injunctions prayedfor. Mr. de Silva, P.C., maintained that the learned District Judge hadduly considered and evaluated the abundant information in thepleadings, objections, documents filed and submissions made andsatisfied himself that there was a serious question to be tried at thehearing and that a prima facie case had been made out, both withregard to the reliefs sought and the existence of legally enforceablerights. The learned District Judge had then, having weighed the needsof the plaintiff and defendants, correctly determined that the balanceof convenience lay on the side of the plaintiff. Mr. de Silva referredto the provisions in the contracts, prospectus and other documentsand said that the plaintiffs case was that the first, second and thirddefendants had not carried out their work in accordance with thecontracts and arrangements entered into although they had been paidcertain sums already and might be paid other sums in future. Althoughordinarily it should have been the fourth defendant that should havesought the reliefs prayed for, yet, in the circumstances of this case,because it was impossible to get the company itself to bring thisaction, the plaintiff, as a shareholder had done so in his own name,but in truth on behalf of the company to enforce rights derived fromit. If the plaintiff eventually succeeds, a declaration that the fourthdefendant company, in terms of prayer (f) of paragraph 61 of theplaint, was entitled to reimbursement, would be rendered nugatoryand ineffectual by what the learned District Judge had called"siphoning out" of funds from the company and the country under,the pretext of making payments supposed to be due under thecontracts and agreements relating to this case. Whether the plaintiffwould succeed in obtaining such a declaration, based as it is oncontested facts and disputed questions of'law ex hypothesi isuncertain and will remain uncertain until final judgment is given inthe action. However, until such time, it was necessary by injunctionsto restrain the defendants from disturbing the status quo in order toensure that if he succeeds, the declarations would be meaningful andthat the plaintiff and the company would not be left with a pyrrhicvictory. The refusal to grant the injunctions would deprive the fourthdefendant of actual redress and result in eventual injustice. In thecircumstances leave to appeal should have been refused.
There was no dispute that there was a "serious question" in thesense of a matter to be tried that was "not frivolous or vexatious",as Lord Diplock put it in American Cyanamid v Ethicon Ltd <*> Nor
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was it in dispute that the learned District Judge had, as he oughtto have, made an assessment of the balance of convenience inaccordance with the applicable principles in that regard. (Cf. YakkaduweSri Pragnarama v Minister of Education <3) ; Bandaranaike v. StateFilm Corporation and Another w at 302-303).
Mr. Eric Amerasinghe, P.C., however maintained that much morethan that was required to have justified the learned District Judge'sorder granting the injunctions prayed for: The order in respect of aninterim injunction, he said, was a "final order" on which no furtherdetermination would be made and, therefore, he said it was "unlikeany other interlocutory determination". The granting of the interiminjunctions would create an estoppel and give rise to defences basedon res judicata. The questions before the court could not be finallydecided on a prima facie basis. The plaintiff is a mere shareholderwho had no locus standi. If, as suggested by the plaintiff, the fourthdefendant company was defrauded or its rights had been otherwiseviolated, it was for the fourth defendant to complain. If, as he nowsuggests, the plaintiff came into court claiming derivative rights, thatwas not evident from the form of the proceedings. There was, hesaid, “no hint or any suggestion in the plaint that this action wasbeing instituted as a derivative action". It was referred to for the firsttime in the oral submissions of Counsel to the learned District Judge.In any event, learned President's Counsel for the first and seconddefendants said that even "with some strained effort, by wadingthrough the rambling averments contained in the plaint" he coulddiscover nothing to show that the fourth defendant was entitled tothe reliefs claimed. Learned Counsel referred to various plans anddocuments including, what he said were duly amended and authorizedplans, especially (P 54), and submitted that the work had been carriedout by the first and second defendants in accordance with the relevantcontracts and agreements and that the fourth defendant had no causeof action against them. Therefore the plaintiff could not derive anyrights which the fourth defendant itself did not possess. Paragraphs31, 32, 40C, 57, 58 and 59 of the plaint, indicated that, in the allegedcircumstances of the case, a cause of action, if any was "rooted incontract". The rest of the plaintiff's averments, Mr Amerasinghesubmitted were concerned with the creation of a certain "atmosphere".They were introduced to suggest fraudulent conduct for the purposeof establishing that the defendants were “wrong-doers" and therebyenabling the plaintiff to suppose that he could bring the action. Theremedy for a breach of contract, if any, was confined to damages.
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The learned District Judge, Mr. Amerasinghe, P.C. said, had beenmisled by the irrelevant consideration of the remittance of moneyabroad. That was a matter for the authorities concerned with exchangecontrol and not a matter to be taken into account in granting aninjunction.
Although some decisions suggest that, apart from questionsrelating to the balance of convenience and equities, all that needsto be established is a "serious question" to be tried, (e.g. see perH.N.G. Fernando, J in Dissanayake v Agricultural and Industrial CreditCorporation (5) per Lord Diplock in American Cyanamid v Ethicon Ltd(supra), I agree that somewhat more was necessary before theinjunctions were granted. It is this : The learned District Judge shouldhave been satisfied that the plaintiff had a prima facie claim and areasonable prospect of success even in the light of the defencesraised in the pleadings, objections and submissions of the defendants.(See Jinadasa v Weerasinghe (6) per Dalton, J ; Ceylon Cold Storesv Whittal Boustead Ltd. m Bandaranayake v State Film Corporation(4) per Soza, J ; Ratnayake v Wijesinghe and others (8) perGoonewardene, J ; Preston v Luck <9> per Cotton, LJ ; Hubbard vVosper (,0) Evans Marshall & Co v Bertola S.AI (11) per Kerr, J. Seealso Fellowes v Fisher (12); Hubbard v Pitt.{'3)
I also agree that the injunctions should not have been issuedunless the learned District Judge was satisfied that the plaintiff hadactual, legally recognizable rights and not merely rights claimed byhim. (See Richard Perera v Albert Perera l,4> Gamage v The Ministerof Agriculture and Lands <15); Montgomery v Montgomery (16); Gouriet
v Union of Post Office Workers(17). The question the learned DistrictJudge had to consider was what was proper to be done betweenthe time for the matter relating to the injunctions and the hearingand final determination of the action. He did not have to decide therights of the parties any further than was necessary in determiningthe question. In order to determine that question it was essential forthe learned District Judge to see whether the plaintiff had any locusstandi. (Cf. Preston v Luck <9) per Lindley, LJ). However I am unableto accept Mr. Amerasinghe's submission that the plaintiff had nostanding at all and his suggestion that the plaintiff's case was,therefore, utterly hopeless. If in the circumstances alleged by theplaintiff, he was unable to induce the fourth defendant company totake effective steps to protect its own interests, and if as he allegeswhat he complains of cannot be validly effected or ratified by ordinary
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resolution, then it appears that he had every right as a representativeof the company to obtain an injunction. (E.g. see Row onInjunctions, 6th Ed. 1985 Vol 2 pp. 903 et seqq. Cf. also Gray vLewis (,8); Menier v Hoopers Telegraph Works (,9> per James, LJMacDougall v Gardiner (20) ; Mason v Harris <Z1> per Malins, VC andper Jessel, MR at pp. 107-108 ; Cook v Deeks and others (22) perLord Buckmaster, LC; Wallersteiner v Moir 01 especially per LordDenning, MR at pp. 855-856 ; Daniels and others v Daniels and others(23> especially at p. 96, per Templeman, J. Cf. also Gower’s Principlesof Modern Company Law, 1979, 4th Ed. esp. at pp. 644-656 ;Pennington's Company Law, 1985, 5th Ed esp. at pp. 727-742 ;Palmer's Company Law 24th Ed. 1987 Ch. 65 pp. 975-986). Whetherthe plaintiff will in fact establish the circumstances upon which hebases his derived rights to obtain the declarations of a permanent,as distinct from an interim nature is, of course, a matter that willdepend on what the evidence will lead the learned District Judgeto decide at the end of the trial.
I am unable to agree with Mr. Amerasinghe's submission that thefact that the plaintiff had not adopted a particular form in bringingthe action was a sufficient ground for rejecting the plaint and theprayer for the injunction. The usual form of action is merely a matterof procedure in order to give a remedy for a wrong that wouldotherwise escape redress. (Per Lord Davey in Burland v EarleWallersteiner v Moir (supra) per Lord Denning, MR, at p. 858).Indeed, the use of what was described in Prudential v NewmanIndustries (25> as the "time-honoured formula" for the purpose ofbringing a derivative action, namely, "AB (a minority shareholder) onbehalf of himself and all other shareholders of the Company vs. Thewrongdoing Directors and the Company", might even be misleading,for as Gower (quoted with approval by Lord Denning in Wallersteiner(ibid) points out, what really occurs is that the plaintiff shareholderis not acting as a representative of the other shareholders but asa representative of the company. The basis of the plaintiff’s claimis that he has been compelled to bring this action as a minorityshareholder, albeit holding what the first and second defendants intheir written submissions to this Court at paragraph 6.04 describedas "only 0.15% of the issued share capital as at 31st March 1990",because in the circumstances of the case, the directors, includingthe Government's representatives on the Board, will not assist or arehelpless to intervene, especially in view of the powers given by the
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Articles of Association (P1 and P10 a) to the representatives on theBoard of the first and second defendants, the “foreign collaborators",in protecting the fourth respondent company. Whether the evidencewill establish the averments supporting the plaintiff's position in thisregard will have to await the trial. However, at this stage, I am ofthe view that the plaintiff had sufficient standing, as established bythe material placed before the learned District Judge, to concludethat the interim injunctions should be granted. I should like to referto the following observations of Lord Denning, MR, in Hubbard vVosper <10) quoted with approval by Sachs, LJ in Evans Marshall &Co v Bertola S.A (supra) at p. 378 :
“ In considering whether to grant an interlocutory injunction, theright course for the judge is to look at the whole case. Hemust have regard not only to the strength of the claim but alsoto the strength of the defence, and then decide the best tobe done. Sometimes it is best to grant an injunction so as tomaintain the status quo until the trial. At other times it is bestnot to impose a restraint upon the defendant but to leave himfree to go ahead… The remedy by interlocutory injunction isso useful that it should be kept flexible and discretionary. Itmust not be made the subject of strict rules. "
Admittedly the learned District Judge did not in his judgmentdiscuss the material on the basis of which he came to the conclusionthat the plaintiff had a real prospect of success. Having regard tothe fact that at that stage questions involving serious allegationsagainst some of the defendants had to be assessed on incomplete,conflicting and untested evidence, and having regard to the fact thatsuch a discussion would also be necessarily embarrassing to thejudge who will have eventually to try the case, I think the learnedDistrict Judge quite properly, in the circumstances of this case,desisted from expressly referring in detail to these matters in hisjudgment. The learned District Judge might well have said, as I nowsay on my own behalf, in the words of Kerr, J. in Evans Marshall& Co v Bertola : “It is undesirable that I should say more thannecessary, and everything that I say is no more than by way ofpreliminary and prima facie impressions at this stage. "I want to makeit as clear as I can that what I am saying in the matter before meshould not in any way be construed at the trial as my concludedview on any matter of law or fact to be decided at the trial. That
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is not to say that some consideration of the substantive questionsat the stage of granting interim injunctions or in considering an appealfrom the granting such an injunction is necessarily irrelevant. (Cf. perH. N. G. Fernando, J in Richard Perera v Albert Perera ; perPathirana, J in Hewawasam Gamage v Minister of Agriculture andLands (,S)). Nor can it be said that the learned District Judge did notconsider what he ought to have taken into account. However, it wasnot for him at the stage of considering whether to grant the interiminjunction or for an appellate court considering the correctness of thegranting of an interim injunction to determine the substantivequestions. It can scarcely be gainsaid that there are cases in whichit may be appropriate to dispose of the substantive issues once andfor all. (E.g. see Richard Perera v Albert Perera (supra) at 449;.Murugesu v Northern Divisional Agricultural Producers Co-operativeUnion Ltd(Z6) Gnanapragasam v Swaminathan(Z7); Kumarasena v DataManagement Systems Ltd (28). See also Manchester Corporation vConolly (29) Woodward v Smith (30). However, this was not such acase. Therefore, what the learned District Judge was expected to dowas to consider the material before him placed by all the parties anddecide whether the plaintiff's prospect of success was real and notfanciful and that he had more than a merely arguable case. Thishe did, quite correctly, leaving the true and final position with regardto the complex questions of fact and difficult questions of law to bedetermined after what he referred to as a “full trial" after the actionwas fought to a finish. In deciding to grant the injunctions the learnedDistrict Judge was not deciding the substantive issues after afull-dress trial and making "final orders" on them bringing intooperation the principles of estoppel and res judicata, as Mr.Amerasinghe, P.C., supposed. The "final orders", as Mr. Amerasinghe,P.C. described them related to the interim reliefs prayed for and notthe substantive questions relevant to the permanent reliefs claimed.The substantive questions were not, as Mr. Amerasinghe complained,disposed of by the learned District Judge, as he said "in a primafacie way". The substantive questions were considered for the limitedpurpose of ascertaining whether the plaintiff had a reasonableprospect of success and, therefore, qualified to be granted the interiminjunctions he had prayed for. What more could the learned DistrictJudge have done except to consider the prospect of success on thebasis of preliminary and prima facie impressions? He correctly leftthe concluded views on the substantive questions to be determinedat the end of the trial. The Court of Appeal erred in assumingthat substantive issues in the suit were appropriately triable at the
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interim injunction stage and had been so tried ; and in deciding,therefore, that the matter before it was an appropriate case forgranting leave to appeal upon which appeal if could express its views.Such a view is erroneous and therefore not sustainable in law.
I agree that if at the end of the trial there really is no relief whichthe fourth defendant can ask for and which the District Court couldgive the company, the plaintiffs action must fail. (Cf. MacDougal vGardiner (20). And I do appreciate the dilemma that emerges whena court is confronted with an application for an injunction by a plaintiffwho brings the application in a derivative capacity. On the one hand,if the plaintiff can require the court to assume as a fact every allegationin the plaint as proved, the purpose of the rule in Foss v Harbottlewould be easily outmanoeuvred by the mere allegation of fraud andcontrol. If, on the other hand, the interim injunction is to be refuseduntil the issue of fraud or control is decided, the injunction wouldserve very little or no purpose. The interests of justice, I think, areserved in the circumstances by requiring the plaintiff to establish aprima facie case that (1) the company is entitled to the relief claimed,and (2) that the action falls within the proper boundaries of theexceptions to the rule in Foss v Harbottle. (Cf. Prudential v NewmanIndustries No (2) (supra) at p. 366). With regard to the first condition,where the facts alleged in the plaint are not disputed or clear, it hasbeen suggested that the injunction might be granted if the plaintiffhas an arguable case. (See Estmanco Co. (Kilmer House) Ltd vGreater London Councilm cf. also Pennington 6th Ed. 655). Theplaintiff points to articles 79,127 and 129 of the Articles of Associationof the fourth defendant which give the "foreign collaborators" specialrights. However, the effect of these on the question of control isdisputed, and therefore, the plaintiff had to have more than anarguable case. In my view, he succeeded in establishing a primafacie case with regard to both the conditions I have referred to.
With regard to the argument that considerations relating to theremittance of money abroad were matters for the exchange controlauthorities alone, it might be pointed out that it could not entirelybe a matter of indifference to the Government, especially in thealleged circumstances of this case. The Government of Sri Lanka,by entering into an investment agreement (P 9) dated 31st January1984, became a major shareholder in the fourth defendant company.
SC Amerasekere v. Mitsui and Company Ltd., and Others (Amerasinghe, J.)
37
Moreover, by issuing a letter of guarantee (P 17 (b) to induce TaiseiCorporation, the second defendant, to enter into a loan agreement(at the request of the Government of Sri Lanka) concurrently withMitsui & Co., the first defendant, pursuant to which Taisei Corporationwould lend a certain sum of money to the owners of the hotel, HotelDevelopers (Lanka) Ltd., the fourth defendant, the Government madeitself eventually responsible for the repayment of the monies borrowedby the fourth defendant.
The question of remittances was more directly relevant to thedecision of the learned District Judge in this way : Admittedly, ifdamages were an adequate remedy, then as a matter of law aninjunction should not have been issued. (E.g. see per Lindley, LJin London and Blackwell Railway v Cross,32). However, in the opinionof the learned District Judge, if the interim injunctions had not beengranted, the declaration prayed for relating to reimbursement, ifeventually granted, would be rendered meaningless and hollow. Theaction would then have been an exercise in futility.
In connection with Mr. Amerasinghe's submissions on the ques-tions of the adequacy of damages as a remedy as well as hisobservations on the supposed irrelevance of certain matters, I shouldlike to refer to the following observations of Sachs, LJ. in EvansMarshall & Co. v Bertola S.A (supra) at p. 379 para. H-p. 380 para.H:
The standard question in relation to the grant of an injunction,"Are damages an adequate remedy?”, might perhaps, in thelight of the authorities of recent years, be rewritten: "Is it just,in all the circumstances, that a plaintiff should be confined tohis remedy in damages?'1….The courts have repeatedly recog-nized that there can be claims under contracts in which, ashere, it is unjust to confine a plaintiff to his damages for theirbreach….So far the question of adequacy of damages has beendiscussed on the footing that if judgment was recovered (sic.)the sum awarded would be paid. But whenever the adequacyof damages falls to be considered in this class of case, therearises the further question – are the defendants good for themoney? Also (if they are abroad), will their government'sexchange control permit the payment? In other words, will thejudgment be satisfied?
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Sri Lanka Law Reports
(1993) 1 SriL.R.
As far as the learned District Judge was concerned, unless theinterim injunctions were granted to prevent what he described asthe “siphoning out of money" from the company and the country, thechance of eventual satisfaction of the judgment was “remote". Assumingthat the plaintiff will succeed, then, but for the interim injunctions,the fourth defendant company, like Pyrrhus after the battle of Asculumin Apulia, might well be constrained to say, "One more such victoryand we are lost."
Mr. L. C. Seneviratne, P.C., submitted that since the thirddefendant had already been fully paid, injunctions restraining thatparty from demanding, claiming, drawing, receiving and/or collectingmonies and restraining the fourth defendant from entertaining anydemand or claim or paying monies to the third defendant was in-appropriate. On the other hand Mr. Kanag-lswaran, P.C., pointed outthat, in terms of the published accounts of the fourth defendantcompany, certain sums of money were shown as yet due to the thirddefendant and that this was, therefore, yet another disputed questionto be decided at the trial, and not a matter for determination at thestage of deciding whether an interim injunction should be granted.I agree with Mr. Kanag-lswaran.
For the reasons set out in my judgment, I hold that the grantingof leave by the Court of Appeal against the interim injunction grantedby the District Court on 09.09.91 against the first, second and thirddefendants is not sustainable in law. I therefore set aside the orderof the Court of Appeal granting leave to appeal in Applications Nos.206 & 208 of 1991 and affirm the order of the learned District Judgeof Colombo dated 09.09.91 and delivered on 28.10.91 and direct theaction to proceed to trial which I further direct shall be held andconcluded as soon as practicable. I order the first and secondrespondents in these proceedings to pay a sum of Rs. 10,500/- ascosts. I order the third respondent to pay Rs. 5225/- as costs.
G. P. S. DE SILVA, C.J. – I agree.
KULATUNGA, J. – I agree.
Order of Court of
Appeal granting
leave to appeal set aside.