CEYLON COLD STORES LTD. v. WHITTALL BOUSTEAD LTD.

024-SLLR-SLLR-1980-V-2-CEYLON-COLD-STORES-LTD.-v.-WHITTALL-BOUSTEAD-LTD..pdf


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CEYLON COLD STORES LTD. v. WHITTALL BOUSTEAD LTD.COURT OF APPEALSOZA, J. & ATUKORALE, J.
C.A. (S.C.) APPLICATION NO. LA 35/80APRIL 10 1980
Interim injunction – Section 54(1) (b), Judicature Act – Considerations applicable- Serious matter to be tried at the hearing – Whether prima facie case of violationof rights tending to render judgment ineffectual – Balance of convenience.
The respondent company acquired a large number of shares in the petitionercompany (upon transfers, as well as allotments on bonus and rights issues) whilebeing its Managing Agents and Secretaries. Regulations under the Imports andExports (Control) Act imposed restrictions on the issue of licences to non-citizens; the petitioner’s Articles of Association entitled its Board to decline toregister transfers to non-citizens. The petitioner alleged that the respondent couldnot be deemed to be a “citizen'’, and had obtained the aforesaid transfers andallotments by misrepresentation, and instituted action for their cancellation.Similar actions were filed against three associate companies of the respondent.The petitioner unsuccessfully also sought interim injunctions restraining therespondent and its associates from exercising their voting rights; the applicationsfor leave to appeal were refused by the Court of Appeal.
Thereafter another shareholder requisitioned an Extraordinary General Meeting ofthe petitioner for the removal of two of its directors. The petitioner again sought aninterim injunction to restrain the respondent and its associates from exercisingtheir voting rights at the requisitioned meeting. The District Court order havingrefused such interim injunctions, the petitioner applied for leave to appeal andrevision.
Held:
That the petitioner was seeking to get, with special reference to the ExtraordinaryGeneral Meeting, what it failed to get initially. It was bound by the earlier order ofthe Court of Appeal and was therefore not entitled to be heard again on what wassubstantially the same matter.
Held further, that “a party seeking an interim injunction under section 54(1 )(b) ofthe Judicature Act No. 2 of 1978 must satisfy the Court that there is a seriousquestion to be tried at the hearing. He must make out a prima facie case thatduring the pendency of the action the opposing party is doing or committing ….an act or nuisance in violation of his rights …. in the subject-matter and alsotending to render the ultimate judgment ineffectual. As this is an equitableremedy and purely discretionary, if a prima facie case has been found to havebeen made out, the Court must go on and consider where the balance ofconvenience lies”. Interim injunctions were refused because;-
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the registration of the impugned shares and the exercise of the voting rightsattached thereto had not been shown to affect the petitioner in its trade orbusiness nor its rights in the action;
a prima facie case that the exercise of the impugned voting rights at theExtraordinary General Meeting would violate the rights of the petitioner in thesubject-matter of the action had not been made out; nor that it would tend torender the judgment ineffectual.
Cases referred to:
Jinadasa v. Weerasinghe (1929) 31 NLR33.
Preston v. Luck (1884) 27 Ch.D. 497, 506 (C.A.).
Richard Perera v. Albert Perera (1963) 67 NLR 445.
Gamage v. Minister of Agriculture and Lands (1973) 76 NLR 25.
Dissanayake v. Agricultural and Industrial Credit Corporation (1962) 64 NLR283.
Smithy. GriggLtd. (1924) 1 K.B. 655.
D. C. Thomson and Co. Ltd. v. Deaking (1952) 2 All E.R. 361.
J. T. Stratford and Son Ltd. v. L/ndfey(1964)3AII E.R. 102.
Cavendish House (Cheltenham) Ltd. v. Cavendish Woodhouse Ltd. (1970)R.P.C. 234.
American Cynamid Co. v. Ethicon Ltd. (1975) 1 All E.R. 504.
Follows v. Fisher (1975) 2 All E.R. 829.
Law Quarterly Review (1975) 91 LQR 168.
Hubbard v. Vtesper( 1972) 1 All E.R. 1023.
Yakkaduwe Sri Pragnarama Thero v. Minister of Education (1969) 71 NLR 506.
Ceylon Hotels Corporation v. Jayatunge (1969) 74 NLR 442.
APPLICATION for Leave to Appeal.
H. L. de Silva with Faiz Mustapha, W. D. D. Weerasinghe and Mark Fernando forpetitioner.
H. W. Jayawardene, Q.C. with C. Ranganathan, Q.C., K. N. Choksy andK. Kanag-lsvaran for respondent.
Cur adv vult.
22nd April, 1980.
SOZA, J.
The plaintiff-petitioner (hereafter referred as the petitioner or thepetitioner company) is the Ceylon Cold Stores Limited, a publiccompany incorporated in Sri Lanka and carrying on the business ofimporting food and allied products, selling and distributing such
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imports as well as food, soft drinks, ice-cream and other beveragesmanufactured from imported and local raw materials, processing andselling frozen meat products and also exporting seafood and passionfruit cordial.
The defendant-respondent (hereafter referred to as therespondent or the respondent company) is Messrs. Whittall BousteadLimited, a private company incorporated in Sri Lanka and belongs tothe group of companies known as the Whittalls Group of Companiesin which the other associate companies are Mortlake Ltd., CoboEstates (Ceylon) Ltd., Bosanquet and Skrine Ltd., and CeylonFinancial Investments Ltd. Principal business of the respondentcompany are Managing Agents and Secretaries of Companies,Insurance Agents, Travel Agents, Importers and Exporters.
About 1975 the petitioner was beset with a number of problemswhich culminated in the filing of case No. 1017/Spl. in the DistrictCourt of Colombo. On 27th November 1975 judgment was entered inthat case whereby 50,000 shares of the petitioner were directed to besold to the highest bidder subject to certain conditions. In theDirectorate of the petitioner at that time there were J. A. Naidoo asenior partner of Messrs. Julius & Creasy, who were and are thepetitioner’s lawyers and Mallory E. Wijesinghe. At the invitation ofthese two Directors and on the appropriate resolutions being passed,the respondent took over the post of Managing Agents of thepetitioner with effect from 1st December, 1975 and Managing Agentsand Secretaries of the petitioner with effect from 29th January, 1976.The 50,000 shares ordered to be sold as well as other shares werebought by the group of companies to which the respondentbelonged. About the same time Sanmugam Cumaraswamy whowas the Managing Director of the respondent Company andG. B. Paranagama who was one of its Directors were appointed tothe Board of Directors of the petitioner Company. On 23rd June 1978the authorised capital of the petitioner was increased fromRs. 5,800,000/- to Rs. 50,000,000/- divided into 6,225,000 ordinaryshares of Rs. 8/- each and 25,000 7% cumulative preference sharesof Rs. 8/- each. Of the authorised share capital 2,100,000 ordinaryshares of Rs. 8/- each and 25,000 7% cumulative preference sharesof Rs. 8/- each have been issued. The issued share capital istherefore Rs. 17,000,000/-. The Chairman of the Board of Directors ofthe petitioner Company is Mallory E. Wijesinghe and the otherDirectors are A. S. Goonetilleke, M. C. B. de Silva, C. P. de Silva,S. C. O. de Livera, Sanmugam Cumaraswamy, G. B. Paranagamaand L. de Silva.
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On 23rd June 1978 when the authorised share capital wasincreased, a bonus issue was granted of three new ordinary shares ofRs. 8/- each for every existing two ordinary shares of Rs. 8/- bycapitalization of reserve on a re-valuation of the immovable assets.Subsequently on 18th August 1978 there was a rights issue of one newordinary share for every five ordinary shares held as at 31st July 1978 inrespect of a new allotment of 350,000 ordinary shares ofRs. 81- each. The respondent entered into an underwriting agreement inrelation to these 350,000 ordinary shares with the petitioner. Beginningfrom 29th December 1976 the respondent Company whilst acting asManaging Agents and Secretaries acquired shares from time to time (inits own name) in the petitioner Company and by 12th September 1979held 238,666 shares of which 207,471 shares were taken in pursuanceof the underwriting agreement in respect of the rights issue.
At an Emergency Board Meting of the Petitioner Company held on9th October 1979 several important resolutions were passed. Onewas to remove the respondent from its position of Managing Agentsand Secretaries and a second was to withdraw consent to theregistration of the aforesaid 238,666 shares and to cancel suchregistration and also to cancel the bonus shares and shares allottedon the rights issue and underwriting agreement. The first resolutionled to the filing of case No. 1827/Spl. of the District Court of Colomboby the respondent against the petitioner challenging the validity ofthe removal and that case is still pending. In pursuance of thesecond resolution the instant case was filed. The chief ground onwhich the petitioner company seeks relief in the instant case may bestated shortly as follows: It is the declared policy of the Governmentthat the import trade should be restricted to Sri Lankan traders.Under regulations operative by virtue of the provisions of the Importsand Exports (Control) Act No. 1 of 1969 which now govern thissubject, restrictions were clamped down on the issue of import andexport licences to non-Sri Lankan traders. Earlier on 16th December1972 in order to achieve Ceylonisation of its share capital Article 40of the Articles of Association of the petitioner Company wasamended giving the Directors the right in their absolute discretion todecline to register any transfer of shares without assigning anyreason for it. The Board was also given the discretion to decline toregister transfers of shares unless they were in favour of citizens ofSri Lanka or in favour of Companies which are deemed to be citizensof Sri Lanka. For a private company to be deemed to be a citizen ofSri Lanka within the meaning of Article 40 one hundred percent of itseffective share capital had to be held bona fide by citizens of SriLanka and all the Directors had to be citizens of Sri Lanka. Therespondent Company had only two Directors who were citizens of
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Sri Lanka and not all of its effective share capital was held by citizensof Sri Lanka. The respondent Company cannot therefore be deemedto be a citizen of Sri Lanka. As the registration of the shares of therespondent had been procured by misrepresentation the petitioner inthe present suit seeks a declaration that the petitioner is entitled towithdraw its consent to the registration of the transfers of its sharesand to cancel such registration and also to cancel the allotment ofbonus shares and the allotment of shares on the rights issue andunderwriting agreement. In its plaint the petitioner prayed for aninterim injunction restraining the respondent until final adjudication ofthe matter in dispute from taking any steps towards exercising thevoting rights attached to the 238,666 shares now registered in thename of the respondent Company.
At the dates material to the present action SanmugamCumaraswamy who was the Managing Director of the respondentheld a majority of shares in a private company called MortlakeLimited, incorporated in Sri Lanka but according to the allegation ofthe petitioner not deemed to be a citizen of the Republic of Sri Lankawithin the meaning of that phrase as used in Article 40(2) of theArticles of Association of the petitioner Company. Mortlake Limitedheld the controlling and predominant interests in the respondentCompany. It also held the controlling and predominant interest inanother company called Cobo Estates (Ceylon) Limited, a companyincorporated in Sri Lanka but according to the allegation of thepetitioner not deemed to be a citizen of the Republic of Sri Lanka,within the meaning of that phrase as used in Article 40(2) aforesaid.The Directors of Cobo Estates (Ceylon) Limited were the saidSanmugam Cumaraswamy and G. B. Paranagama. This companyhas acquired 35,502 shares in the petitioner Company. MortlakeLimited also held the controlling and predominant interest in a privatecompany called Bosanquet & Skrine Ltd., incorporated in Sri Lanka,but according to the allegation of the petitioner not deemed to be acitizen of the Republic of Sri Lanka within the meaning of those wordsas used in Article 40(2) aforesaid. Sanmugam Cumaraswamy wasthe Chairman of Bosanquet & Skrine Ltd. and he and G. B.Paranagama held 500 shares each of the share capital. Bosanquet &Skrine Ltd., have acquired 61,263 shares in the petitioner Company.The respondent in the present case holds the controlling andpredominant interest in another private company called CeylonFinancial Investments Limited, incorporated in Sri Lanka,but according to the allegation of the petitioner not deemed to bea citizen of the Republic of Sri Lanka within the meaning ofthose words as used in Article 40(2) aforesaid. G. B. Paranagama isa shareholder of that company. Ceylon Financial InvestmentsLimited have acquired 11,875 shares in the petitioner company.
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The petitioner at the same time that it filed the instantcase instituted actions bearing numbers 1821/Spl., 1822/Spl. and1823 Spl. in the District Court of Colombo against Bosanquet & SkrineLtd., Cobo Estates (Ceylon) Limited and Ceylon Financial InvestmentsLtd., respectively, claiming identical declarations as in the instant casein respect of the shareholdings of these companies in the petitionercompany. In all these three cases 1821/Spl., 1822/Spl. and 1823/Spl.the present respondent was joined as the 2nd defendant.
On the application of the petitioner Company enjoining orderswere issued on 10.10.1979 along with notice of the application forinterim injunctions in all four cases 1820/Spl., 1821/Spl., 1822/Spl.and 1823/Spl., restraining the respective defendants in those casesfrom exercising the voting rights attached to their respectiveshareholdings pending the disposal of the application for interiminjunction. Thereafter on application of the defendants in therespective actions the enjoining orders were discharged and theapplications for interim injunctions too were refused. This was on28.11.1979. Applications for leave to appeal from the orders refusingthe applications for interim injunctions in the four cases were lodgedin the Court of Appeal. The Court of Appeal on 21.2.1980 dismissedthe applications for leave to appeal and directed that the trial shouldbe held before another District Judge as the Judge who heardthe applications for interim injunctions had already made a decisionon the substantive question which awaited determination at the trial.
In the meantime on 29.10.1979 the respondent in the presentaction instituted proceedings No. 1830/Spl. in the District Court ofColombo under section 360B of the Companies Ordinance claimingreliefs by way of injunctions against the petitioner and against itsDirectors excluding Sanmugam Cumaraswamy, G. B. Paranagamaand L. de Silva, restraining them inter alia from issuing shares withoutoffering a proportionate part of them to the respondent Company andits associate companies and from calling a General Meeting so longas cases 1820/Spl. to 1823/Spl. were pending. This action wasdismissed on 26.3.1980 with costs.
Thereafter Colombo Life Assurance Ltd., acting under Section 112of the Companies Ordinance by letter dated 12th March 1980addressed to the Directors of the petitioner company a requisition foran Extraordinary General Meeting of the company for the purpose ofconsidering and passing the following resolutions:
“(a) That Mallory Evan Wijesinghe, a Director of the Company,be removed from the office of Director under the provisionsof Article 94 of the Articles of Association of the company;
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That the shareholders do appoint another person asDirector in place of the aforesaid Mallory Evan Wijesingheunder the provisions of Article 95, such Director beingproposed under Article 93 of the Articles of Association ofthe company;
That Solomon Christoffel Obeysekera De Livera, a Directorof the company, be removed from the office of Directorunder the provisions of Article 94 of the Articles ofAssociation of the company;
That the shareholders do appoint another person asDirector in place of the said Solomon ChristoffelObeysekera De Livera, under the provisions of Article 95,such Director being proposed under Article 93 of theArticles of Association of the Company”.
At this stage it should be mentioned that Mallory Evan Wijesingheholds 18,723 shares in the petitioner company while S. C. O. deLivera holds 170 shares. Other Directors allegedly supporting thesetwo Directors are A. S. Gunatilleke holding 150 shares, M. C. B. deSilva holding 6,300 shares and C. P. de Silva holding 1,452 shares.Hence the two Directors Mallory Wijesinghe and S. C. O. de Liveraalong with their supporters hold 26,795 shares representing 1.2760%of the total issued share capital of the petitioner company. ColomboLife Assurance Limited holds 305,910 shares representing 14.5671%of the total issued share capital of the petitioner company. Bosanquet& Skrine Ltd. purchased 8,963 shares of Rs. 10/- each in theColombo Life Assurance Limited in the name of the aforesaid A. S.Gunatilleke. Thereafter the said shares were registered in the nameof Bosanquet & Skrine Limited which now holds 8,963 shares in theColombo Life Assurance Limited representing 44.815% of the issuedshare capital. These shares give Bosanquet & Skrine Ltd. in effect acontrolling interest in Colombo Life Assurance Ltd. The petitionerCompany submits that the Colombo Life Assurance Ltd. isrequisitioning the Extraordinary General Meeting of the petitionerCompany at the instigation and on the directions of SanmugamCumaraswamy who is its Chairman and holds and exercises adominating interest and influence over the affairs of that Company.This requisition has been made in order to alter the composition ofthe present Board of Directors of the petitioner by using the votingpower attached to the very shares held by the respondent and itsassociate companies which the petitioner is seeking to havecancelled in the present action and actions No. 1821/Spl., 1822/Spl.and 1823/Spl. Therefore the petitioner company is seeking an interiminjunction restraining the respondent and its associate companies
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who are defendants in the actions 1821/Spl., 1822/Spl. and 1823/Spl.from exercising the voting power attached to the impugned shares atthe Extraordinary General Meeting which will be summoned inresponse to the requisition of Colombo Life Assurance Ltd. and untilthe final adjudication of the dispute. The petitioner fears that by thewrongful use of the voting power of the shares whose registration issought to be cancelled in actions 1820/Spl., 1821/Spl., 1822/Spl. and1823/Spl. the Directorate of the petitioner company will be varied andthe actions themselves withdrawn while action No. 1827/Spl. will becompromised to the advantage of the respondent.
The learned Additional District Judge of Colombo after inquiry by hisorder of 26.3.1980 refused to issue notice of the application for aninterim injunction in all four cases. The present application and theapplications bearing Nos. 36/80, 37/80, 38.80 for leave to appeal andthe four applications for revision bearing numbers C.A. 408/80, C.A.409/80, C.A. 410/80 and C. A. 411/80 have been filed in respect ofthese orders of 26.3.1980 made in the four cases 1820/Spl. to 1823/Spl.respectively.
It is contended that the present application or interim injunction filedby the petitioner company praying for an interim injunction is differentfrom the earlier application in view of the new circumstances and newsituation created by the requisition for an Extraordinary GeneralMeeting making the use of the voting rights of the impugned 238,666shares a very live possibility, indeed almost a reality to scuttle thepresent action itself. The earlier application prayed for in the plaintitself was for an interim injunction restraining the respondent fromtaking any steps towards exercising or exercising the voting rightsattached to the impugned 238,666 shares. In paragraph 24 of theplaint, the petitioner averred that it has good reason to apprehend thatthe respondent is likely to take steps presently within its power toexercise the voting rights attached to the said 238,666 shares in orderto hamper the petitioner in the prosecution of the action and deprive itof the relief sought. In any event the respondent will be acting inviolation of the right of the petitioner to have the registration of the saidshares cancelled and this will tend to render the ultimate judgment ofthe Court ineffectual. In the present application for an interim injunctionthe petitioner amplifies on the same fears and relates them to theExtraordinary General Meeting being summoned on the requisitionpresented by Colombo Life Assurance Ltd. In short, the petitioner isseeking to get with special reference to the Extraordinary GeneralMeeting what it failed to get at its first essay. The petitioner is bound bythe earlier order made on 21.2.1980 by this Court and therefore notentitled to be heard again on what is substantially the same matter.Hence this application must fail.
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However, in view of the arguments adduced before us, I willproceed to consider the question before us on its merits also.
I will first consider the legal principles that are applicable when aCourt is confronted with a question like the present one whether aninterim injunction should issue or not. The legal provision applicableto the case before us is conceded to be section 54(1 )(b) of theJudicature Act No. 2 of 1978 (which is identical with the nowrepealed section 42(1 )(b) of the Administration of Justice Law No. 44of 1973 and section 86(b) of the Courts Ordinance). Under thisprovision an injunction will be granted if it appears –
that the defendant during the pendency of the action isdoing or committing or procuring or suffering to be done orcommitted, or threatens or is about to do or procure orsuffer to be done or committed, an act or nuisance,
that such act or nuisance
violates the plaintiff’s rights in respect of the subject-matter and
tends to render the judgment ineffectual.
The violation alleged in the instant case is of the petitioner’s rightto have its consent to the registration of 238,666 votes in the name ofthe respondent cancelled as the respondent is a private companyone hundred percent of whose effective share capital is not held bycitizens of Sri Lanka and not all of whose Directors are citizens of SriLanka and as these facts were misrepresented and suppressed inthe declarations made by the respondent when it applied for theregistration of the transfers of shares. Further, the respondentthreatens by the use of its voting rights to change the Directorate ofthe petitioner at an Extraordinary General Meeting of theshareholders shortly to be held on a requisition made by theColombo Life Assurance Limited by its letter of 12th March 1980 andcause this action and the other actions to be withdrawn and sothwart any judgment on the validity of the registration.
Our Courts have held that before an injunction is issued the Judgeshould be "satisfied that there is a serious question to be tried at thehearing and that on the facts before it there is a probability that theplaintiff is entitled to relief” – per Dalton, J. in Jinadasa v.Weerasinghe.m Dalton, J. was here adopting the rules as laid downby Cotton, L.J. in the case of Preston v. Luck,(2) In the same case
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Lindley, L.J. regarded it as almost axiomatic that the plaintiffs mustshow that they had a prima facie right to have matters kept in statusquo for an interlocutory injunction to issue.
How a Court must approach this question was explained by H. N.
Fernando, J. (later C.J.) in the case of Richard Perera v. AlbertPereraP Where the injunction is sought under section 86(b) of theCourts Ordinance (same as section 54(1 )(b) of the Judicature ActNo. 2 of 1978), it must appear that the defendant is doing orcommitting an act or nuisance in violation of the plaintiff’s rightsrespecting the subject-matter and tending to render the judgmentineffectual. Hence there must be some apparent violation of rights towhich the plaintiff appears to be entitled and not merely of rightswhich he claims. Where the plaintiff through his counsel or hisevidence reveals information which justifies the prima facie view thathe is not entitled to the substantive relief claimed in his plaint, itwould be wrong for a Judge to ignore such information and issue theinjunction. If the material actually placed before the Court reveals thatthere is probably no right of the plaintiff which can be violated, itwould be unreasonable to issue an injunction. This approach to thequestion was approved by Pathirana, J. in the case of Gamage v.The Minister of Agriculture & LandsP In an earlier case, that ofDissanayake v. Agricultural and Industrial Credit Corporation,5)
N. G. Fernando, J. (as he then was) had put the legal requirementthus:
“The proper question for decision upon an application for aninterim injunction is ‘whether there is a serious matter to be triedat the hearing’ (Jinadasa v. Weerasinghe)P If it appears frompleadings already filed that such a matter does exist, the furtherquestion is whether the circumstances are such that a decreewhich may ultimately be entered in favour of the party seekingthe injunction would be nugatory or ineffective if the injunction isnot issued”.
The principle that a plaintiff who seeks an interlocutory injunctionhad to make out a prima facie case was followed even in England fornearly a hundred years. I have already referred to the case ofPreston v. Luck{2) decided in 1884. In 1924 Atkin, L.J. in the case ofSmith v. Grigg Limited™ held that a plaintiff who applies for aninterlocutory injunction to restrain further infringements of an allegedright must establish to the satisfaction of the Court a strong primafacie case that the right which he seeks to protect in fact exists. In1952 in the case of D. C. Thomson & Co., Ltd. v. Deakingm it wasconceded at the Bar and accepted by Lord Evershed, M. R. that the
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plaintiffs must show that they had “a prima facie case, or, if you will, astrong prima facie case”, that they are entitled to the remedy theyseek. In 1964 there was the House of Lords decision in J. T. Stratford& Son, Ltd. v. Lindleym where Lord Upjohn after cautioning that anyexpression of opinion on the available evidence must not influence inany way the judgment of the trial judge when the matter comes upbefore him and he hears evidence not available on an interlocutoryapplication and has also, what is perhaps more important, the benefitof hearing oral evidence and seeking the witnesses, stated theprinciples as follow at page 116:
“An appellant seeking an interlocutory injunction must establisha prima facie case of some breach of duty by the respondent tohim. He may even obtain a quia timet injunction in case of athreatened injury …. He must further establish that therespondents are threatening and intending to repeat thatbreach of duty …. This being so, an injunction may be grantedif it is just and convenient so to do, the remedy being purelydiscretionary. The balance of convenience in these cases isalways of great importance
In 1970 in the case of Cavendish House (Cheltenham) Ltd. v.Canvendish-Woodhouse Ltd.® Harman, L.J. (Salmon, L.J. notablyconcurring) put the matter succinctly thus:
“Therefore you start of with a prima facie case. That, of course,is the essential prelude to the granting of interlocutory relief”.
This long-standing approach was however thrown overboard bythe decision of the House of Lords in the case of American CynamidCo. v. Ethicon LtdJ'0) where Lord Diplock (Lord Salmon was one ofthe Judges who concurred with him) said that there was no such rulethat the plaintiff seeking an interlocutory injunction should make out aprima facie case. The new doctrine propounded by Lord Diplockmay be set out in three sequential propositions:
Discover whether the plaintiff's case is frivolous orvexatious; in other words, whether there is a seriousquestion to be tried (p 510).
Decide in whose favour the balance of convenience lies.As to that, consider the extent to which the disadvantagesto each party would be incapable of being compensated indamages in the event of his succeeding at the trial. This isa significant factor in assessing where the balance ofconvenience lies (pp 510, 511).
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If the extent of the uncompensatabie disadvantage to eachparty does not differ widely “it may not be improper to takeit into account in tipping the balance the relative strength ofeach party’s case as revealed by the affidavit evidenceadduced on the hearing of the application. This, however,should be done only where it is apparent on the factsdisclosed by evidence as to which there is no credibledispute that the strength of one party’s case isdisproportionate to that of the other party” (p 511).
And then there is the warning that the Court is not justified inembarking on anything resembling a trial on material that isnecessarily incomplete, conflicting and untested by cross-examination – see pages 510,511.
On this last mentioned matter it may not be inapposite to quotewhat H. N. G. Fernando, J. said in the case of Richard Perera v.Albert Pereraf3) at page 447:
“While adhering to the view that the trial Judge should notdecide the substantive question in considering an applicationfor an injunction, l do not agree that some consideration of thesubstantive question at this early stage is necessarilyirrelevant."
With this view I am in respectful agreement.
The decision of Lord Diplock caused difficulties for the Court ofAppeal when that Court was called upon to decide the case ofFollows v. Fishery” Pointed expression has been given to theuncertainties caused by Lord Diplock’s new doctrine by PeterPrescott writing in the Law Quarterly Review02) and by AlastairWilson in an article entitled “Granting an Interlocutory Injunction” inthe New Law Journal of 27th March 1975, p. 302.
We have not adopted the doctrine propounded by Lord Diplock. Itis not likely that we will. Our law is that an interim injunction will issueonly if there is a substantial question to be investigated and theplaintiff makes out a prima facie case. The Court must assess therelative strength of the cases of the parties on the material before it.
In the words of Lord Denning, M. R. in Hubbard v. Vesper,<13)
“in considering whether to grant an interlocutory injunction theright course for a Judge is to look at the whole case. He musthave regard not only to the strength of the claim but also to thestrength of the defence, and then decide what is best to be done”.
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If the case is weak or is met by a strong defence the Court willrefuse the injunction. If the plaintiff succeeds in showing he has aprima facie case, that is, a case which he has a good chance ofwinning, the Court will go on to consider whether on the balance ofconvenience, it would be better to grant an injunction or not – see thecase of Follows v. Fisher ^at page 834.
His Lordship H. N. G. Fernando, C.J. in the case of Yakkaduwe SriPragnarama Thero v. The Minister of Education,14) explained thebalance of convenience rule citing with approval the followingpassage from Halsbury Vol. 21 3rd Ed. p. 366:
“Where any doubt exists as to the plaintiff’s right, of if his right isnot disputed, but its violation is denied, the Court, indetermining whether an interlocutory injunction should begranted, takes into consideration the balance of convenience tothe parties and the nature of the injury which the defendant, onthe one hand, would suffer if the injunction was granted and heshould ultimately turn out to be right, and that which the plaintiff,on the other hand, might sustain if the injunction was refusedand he should ultimately turn out to be right. The burden ofproof that the inconvenience which the plaintiff will suffer by therefusal of the injunction is greater than that which the defendantwill suffer, if it is granted lies on the plaintiff”.
In evaluating the balance of convenience regard must be had,where appropriate, to the question of uncompensatabledisadvantage or irreparable damage. Germane to the question ofbalance of convenience are also the conduct and dealings of theparties before the application to Court. The jurisdiction to interfere,being purely equitable, is governed by equitable principles.
As Sirimane, J. discussing this aspect of the question in the matterof granting an interim injunction, said in Ceylon Hotels Corporation v.Jayatungem:
“Such an injunction is granted on equitable grounds and theconduct and dealings of the parties before the application toCourt should be taken into consideration.”
To sum up, a party seeking an interim injunction under section54(1) (b) of the Judicature Act No. 2 of 1978 must satisfy the Courtthat there is a serious question to be tried at the hearing. He mustmake out a prima facie case that during the pendency of the actionthe opposing party is doing or committing or procuring or suffering to
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be done or committed or threatens or is about to do or procure orsuffer to be done or committed an act or nuisance in violation of hisrights (that is, rights to which he appears to be entitled) in thesubject-matter and also tending to render the ultimate judgmentineffectual. As this is an equitable remedy and purely discretionary, ifa prime facie case has been found to have been made out, the Courtmust go on and consider where the balance of convenience lies.
Turning to the facts of the case before us, I cannot see how theexercise of voting rights by the respondent can violate the petitioner’srights in the subject-matter. It cannot affect the petitioner’s business.It has not for the last three years and probably will not in the future. Itmust be remembered that the petitioner is a public company and solong as 51% of its effective share capital is held bona fide by citizensof Sri Lanka and the majority of its directors are citizens of Sri Lanka,it will be eligible for registration as a Sri Lankan trader. The WhittallGroup of Companies commands only 16.7670% of the voting rights(see document F) and even if all the companies in this Group cannotbe deemed to be citizens of Sri Lanka, it will not adversely affect thepetitioner's eligibility for registration as a Sri Lankan trader under theImport Control Notice No. 18/64 published in Government GazetteNo. 14152 of 27th August 1964 (see E1). Hence the registration ofthe impugned shares and the exercise of the voting rights attachedto them will not affect the petitioner in its trade or business. Nor will itaffect the petitioner’s rights in the action. The petitioner’s rights in theaction embraced not only the right to prosecute the suit but also towithdraw it. Subject to the rules of Court the petitioner is dominuslitis. Whether the suit is prosecuted or withdrawn no question willarise of the judgment being rendered ineffectual. The rights in anaction which a person has are one thing and the manner of theirexercise is quite another and a different thing. The manner of theexercise of his rights in the action will depend, subject to the rules ofCourt, on his own will. In the instant case on the will of the majority ofthe Board of Directors. Even if the will of the petitioner is gong to bechanged by changes in the Board of Directors for which therespondent is responsible, there is not involved any infringement orviolation of its rights in the action. On the contrary changes in theDirectorate are part of the democratic process which operates, orshould operate, in companies.
Further, it cannot be taken as certain that the SanmugamCumaraswamy group will get into the saddle at the forthcomingExtraordinary General Meeting for the voting strength available tothem on their own is only 16.7670%. Even after the 14.5671% voting
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strength of Colombo Life Assurance Ltd. is added, still other supportwould be needed. In any event the will of the majority must prevail.
It is significant that before the conflict between Mallory Wijesingheand Sanmugam Cumaraswamy which spawned the present litigationthere was no complaint of the Board being misled bymisrepresentations or fraud, or of error induced by the respondent.They co-existed peacefully for nearly three years. In fact MalloryWijesinghe and the Directors supporting him have a voting strengthof only 1.2760%. To retain their positions with such a small votingstrength they would have had to rely on alliances and bargains withother groups. The comment is therefore justified that the voting rightsnow being impugned would have stood Mallory Wijesinghe and theDirectors supporting him in good stead during the past few years.
When the respondent sought registration of the transfers of theimpugned shares beginning from December 1976 the Chairman ofthe Board of Directors of the petitioner Company was MalloryWijesinghe and in the Directorate there were J. A. Naidoo a seniorpartner of the well-known legal firm of Messrs. Julius & Creasy, and
M.T. L. Fernando a senior partner of Messrs Turquand Young & Co.who were the Auditors of the Whittall Group of Companies. Thesethree directors, or at least one or more of them, should have knownthe composition of the Board of Directors of the companies in theWhittalls Group – see the copy of the plaint in case No. 1827/Spl.marked D. These allegations are not specifically traversed in theanswer filed by the petitioner in that case but merely described asirrelevant and so not calling for a specific pleading – see documentE. It should also be observed that two members of the Board ofDirectors of the time, J. A. Naidoo and M. T. L. Fernando are nolonger there.
All these matters will have an important bearing at the trial. It mustnot be overlooked that in the matter of the registration of transfers ofshares, Article 40 of the Articles of Association of the petitioner givesthe Board of Directors an absolute discretion. The Board can refusean application for registration of a transfer of shares for any reason oreven for none. The Directors may also decline to register any transferof shares (whether fully paid or partly paid) unless the transferee ortransferees are, or, are deemed to be citizens of Sri Lanka inaccordance with the laws and/or regulations for the time beingapplicable – see Article 40(2) of the Articles of Association. On thematerial presented to Court it cannot be said that there is a legal bar
CA
Ceylon Cold Stores Ltd. v. Whittall Boustead Ltd. (Soza, J.)
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to the registration of the transfer of shares to a company not deemedto be a citizen of Sri Lanka. Such registration seems perfectly legal.Accordingly unless it can be established that the Board of Directorsthat functioned at the time material to the question, was misled bythe declarations of the respondent and its Associate Companies andfor that reason induced to give its consent to the registration, thepetitioner will fail. Even the question whether the respondent and itsAssociate Companies cannot be deemed to be citizens of Sri Lankais not free from difficulty. Further the reasons for the late discovery (inSeptember 1979) of the true character and composition of therespondent and its associate companies must be established. Thiswould be an uphill task if the opportunities for knowing these factsexisted as disclosed by the respondent. On the fact of it, theregistration is legal and the complaint in regard to the declarationshas come long after they were made. For nearly three years theDirectors of the Mallory Wijesinghe group benefitted by the supportof those in the Sanmugam Cumaraswamy group.
On the material before Court, a prima facie case that the exerciseof the impugned voting rights at the Extraordinary General Meetingshortly to be held will violate the rights of the petitioner Company inthe subject matter of the action, has not been made out; nor that itwill tend to render the judgment ineffectual. It may affect the positionof particular Directors but that is not a matter with which the Courtneed be concerned in these proceedings. The application for leaveto appeal is accordingly refused with costs.
ATUKORALE, J. -1 agree.
Application refused.