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PRINCIPAL REGISTRY CIVIL CAUSE NUMBER 713 OF 2000 CANDLEX LIMITED.........................................................PLAINTIFF VERSUS MARK KATSONGA PHIRI...............................................DEFENDANT
CORAM: D F Mwaungulu
the application The plaintiff, Candlex Limited applies, for an interim injunction. On 13th March 2000 the motion judge granted the plaintiff, Candlex Limited, an ex parte injunction. On 15th March 2000 the Court corrected the order. The ex parte injunction restrained the defendant, Mr. Katsonga Phiri, his servants or agents from remaining in or upon the plaintiff’s plot No. CC96. Further it enjoined the defendant preventing the plaintiff occupying the premises. The order was up to this application. One looks at the effect not the form of the order made. The final order
and the ex parte order are negative and mandatory. The injunction
prohibits the defendant doing certain things. In that sense the order is
negative. The defendant occupied the premises from 1982. The order requires
the plaintiff to vacate and surrender possession. The defendant has to
do something positive. That order is mandatory. Courts, on different principles,
grant interim injunctions of either type or in combination. The question
is whether this court should do so here.
the facts Candlex Limited started in 1982. The defendant, its founder, was a majority shareholder (96%). Initially a success, problems began in 1993. In 1996 the financial controller, Mr. Abbey, proposed shareholders’ cash injection. The defendant’s cash injection was inadequate. The defendant sold half his shares to Mr. Abbey (5%) and Mr. Hubbe (50%). The company’s fortunes never improved, at least immediately. The defendant’s share holding is now 5%. The defendant held various company positions. He was a director in 1982. He became managing director in 1984. The board of directors extraordinary meeting’s minutes of 6th May 1993 is important. First, minute 3 C-D shows, contrary to what the plaintiff avers, several companies related or associated to Candlex Limited existed: “The Managing Directors positions be upgraded to Group Chairman/Managing Director to over see Group operations. His salary to remain K20, 000.00 per month plus benefits commensurate to his position subject to review annually. Mr. Phiri to negotiate for his remuneration from associate companies on his own since that is not the responsibility of Candlex.” Minute 2 states the meeting’s purpose: “The meeting was called to review the functions of the Managing Director and Key Managers, considering that the company is growing and that it is providing services to associate companies created by the Managing Director which has increased work load.” Secondly, minute 3 E raises a distinction, denied by the plaintiff,
between the group chairman and chairmanship and directorship of Candlex
Limited’s board:
Minute 3 F underscores reporting procedures: “Managers will report to the Group Chairman/Managing Director on operational issues. Policy issues to be referred to the board.” Minute 3 F is unclear whether it refers to Candlex Limited’s or other associate companies’ managers. That is unimportant. Minutes of 13th August 1996 underscore the Group Chairman’s important role in Candlex Limited’s affairs: “It was agreed that the involvement of the Group Chairman in the running of the company was necessary and vital. Accordingly, his remuneration was set at K500000 for the year.” The defendant’s position, it appears, changed as his share holding dwindled. Mr. Hubbe has the majority share holding. The defendant’s share holding is 5%. Mr. Hubbe’s management, at least in the defendant’s eyes, is far from helpful. Consequently, the defendant on 8th June 1999 wrote to the Chairperson of Candlex Limited resigning from the Board of Directors with immediate effect. The letter should be reproduced. First, the plaintiff uses it to show that the defendant should not be on the premises because, if this was ever the basis of the occupation of the premises, the defendant is no longer director. Secondly, the letter should be understood in the circumstances obtaining. The defendant contends the resignation was conditional. It is important therefore to consider another defendant’s letter of that day and surrounding correspondence. The resignation letter is as follows: “I tender herewith my resignation from the Candlex Limited Board of Directors with immediate effect. I have enjoyed my time on the Board and of course my time in the Company. I wish your Board every success. Good luck.”
principles for granting interim relief There is difficulty to do justice in this matter. The difficulty is peculiar to injunctions and indeed other interim orders. Our legal system does not envisage security for judgement. Rights are fully determined by trial. Our system of procedure, all cards on the table, means that trial does not take place, at least in the near future. Meanwhile a party’s course of action may cause injustice or undermine the outcome at the trial. The consequences may leave the court’s decision useless and ineffective. Interim injunctions avoid such injustice. Avoiding injustice is the fulcrum of interim injunction relief. status quo is not the solo aim of interim injunction relief
“Our business is justice, not convenience. We can and must disregard fanciful claims by either party. Subject to that, we must contemplate the possibility that either party may succeed and must do our best to ensure that nothing occurs pending the trial which will prejudice his rights. Since the parties are asserting wholly inconsistent claims, this is difficult, but we have to do our best. In so doing we are seeking a balance of justice, not convenience.” In R. v. Secretary of State for Transport, ex parte Factortame Ltd. (No 2), [1991] AC 603, the House of Lords reaffirming the American Cynamid v. Ethicon principle, Lord Bridge said: “Questions as to adequacy of an alternative remedy in damages to the party claiming injunctive relief and a cross-undertaking in damages to the party against whom the relief is sought play a primary role in assisting the court to determine which course offers the best prospect that injustice may be avoided or minimised.” The American Cynamid v. Ethicon principle has been dutifully followed in this Court and the Supreme Court. The case has been followed in the United States. The principles do not apply in certain situations. Two concern us here. prospect of granting a permanent injunction An interim injunction is a stop gap mechanism. The court must bear in mind the likelihood of the Court granting a permanent injunction at the end of the trial. If the court cannot grant an injunction at the end of the trial, as, for example, where the action can only be met in damages, the court may not grant an interim injunction. When considering granting this interim relief, the court regards alternative remedies in damages. If an interim injunction can be granted, the House of Lords in American Cynamid v. Ethicon laid the following approaches, approaches confirmed by several decisions thereafter. There must be a triable issue and the court must decide where justice lies in refusing or granting the injunction. principles to follow when granting ex parte injunction
I have not read the judgement in Re First Express Ltd., (1991) The Times, 10 October. The case is cited by the authors of Civil Litigation, J O’Hare and R N Hill, Sweet & Maxwell, 8th ed. 1997, 290. That judgement is not binding on this Court. It is persuasive. It is however good law. Generally the court should grant an ex parte injunction where giving notice to the opponent would cause injustice to the applicant because of the urgency of the matter or because a provisional order is necessary for surprise. Further it should not be given unless it is clear to the Court that the risk in damage to the defendant can be compensated in money or is outweighed by the risk of injustice to the applicant. The defendant has had to be removed and prevented from using the premises
he has been using for the past decades or two only for purposes of this
application. In my judgement there was little harm in allowing the defendant
to use the premises until the hearing of the application inter partes.
On the facts of this case this was the right thing to do. The ex parte
order could only have been to maintain a state of things before the dispute
till the hearing of the inter partes summons. That position, in my judgement,
was to allow the defendant on the premises, not to remove him, till there
was a hearing inter partes. There was no damage that the ex parte order
was trying to ameliorate. The plaintiff’s concern was that the defendant
was interfering with management of Candlex Limited. There is an injunction
for that. There would not have been loss of rent. The premises were not
going to be rented any way. The defendant had not been paying rent at all.
There was no urgency or need for surprise in the injunction sought to justify
an ex parte order. The ex parte order should not have been made. The ex
parte application should have been ordered to be heard inter partes.
The question now however is whether the plaintiff should be granted the interim injunction. The plaintiff’s claim, no doubt, is not frivolous and vexatious and has a prospect of succeeding. Mr Ndau and Kalua, legal practitioners for the plaintiff and the defendant respectively, raised pertinent law and factual issues that confirm there are triable issues. The court has not to resolve these at this stage. In American Cynamid v. Ethicon Lord Diplock said: “It is no part of the Court’s function at this stage to try to resolve
conflicts of evidence on affidavits as to fact on which the claims of either
party may ultimately depend nor to decide difficult question of law which
call for detailed argument and mature considerations. These are matters
to be dealt with at the trial.”
are damages an adequate remedy for the plaintiff, can the defendant pay them Where the plaintiff’s claim is not frivolous nor vexatious and has prospect of success the court must seek a balance of justice. According to American Cynamid v. Ethicon this involves the following considerations. First, the court must consider whether damages are an adequate remedy for the plaintiff and the defendant can pay them. The Court will refuse the injunction if the answer is yes. The plaintiff contends that the damages here cannot be measured. He urges therefore that, following Woodford v. Smith, [1970] 1 All E R 1091, the court ought to grant the injunction.
parties do not want damages as remedy This however scarcely settles the matter. The American Cynamid v. Ethicon principles do not apply where, like here, the parties do not want damages as remedies. The case on the point is Cambridge Nutrition Limited v. British Broadcasting Corporation, [1990] 3 All ER 523. Lord Justice Kerr said at page 535: “The American Cynamid case provides an authoritative and most helpful approach to cases where the function of the court in relation to the grant or refusal of interlocutory injunctions is to hold the balance as justly as possible in situations where the substantial issues between the parties can only be resolved by a trial. In my view, for reasons which require no elaboration, the present case is not in that category. Neither side is interested in monetary compensation, and once the interlocutory decision has been given, little, if anything, will remain in practice.” are damages an adequate compensation for the defendant, is the undertaking sufficient to cover them
should the status quo be maintained? This leads to the third consideration in American Cynamid v. Ethicon. Here the matters are evenly balanced. While the plaintiff’s undertaking as to damages is inadequate to compensate the defendant’s losses, the plaintiff can compensate the defendant if only the undertaking could properly compensate the defendant’s loss. The loss to the defendant’s reputation is immeasurable. Where the factors are evenly balanced, it is preferable to maintain the status quo. The status quo refers to the situation prevailing before the last change. Lord Diplock in Garden Cottage foods Ltd. v. Milk Marketing Board, [1984] AC 130, 140, said: “The status quo is the existing state of affairs; but since states of affairs do not remain static this raises the query: existing when? In my opinion, the relevant status quo to which reference was made in American Cyanamid is the state of affairs existing during the period immediately preceding the issue of the writ claiming the permanent injunction or, if there is unreasonable delay between the issue of the writ and the motion for an interlocutory injunction, the period immediately preceding the motion. The duration of that period since the state of affairs last changed must be more than minimal, having regard to the total length of the relationship between the parties in respect of which the injunction is granted; otherwise the state of affairs before the last change would be the relevant status quo.” This must be obvious. For if the factors are evenly balanced justice would demand that there should be no alteration to the things as they were till the court has finally determined the matter. In the present case justice would demand that the defendant continue using the premises until the matter is finally determined. practical realities of granting the injunction
“My lords, when properly understood, there is in my view nothing in the decision of this House in American Cynamid Co. v. Ethicon Ltd [1975] A C 396 to suggest that in considering whether or not to grant an interlocutory injunction the judge ought not to give full weight to all the practical realities of the situation to which the injunction will apply.” the relative strength of the cases Finally the Court, only as a last resort, has to consider the relative strength of the parties’ cases. Here the effect of the injunction would be to preempt or obviate the need for a trial. The defendant would be removed from the premises. In such a case the court has to consider the relative strength of the plaintiff’s case. This entails a prediction about which party will win. That is why the matter is considered only as a last resort. If the plaintiff’s chances are good, the court should grant the injunction. Conversely, if it is likely a defense will be established an interim injunction should not be made ( NWL Ltd. v. Woods, [1979]1 WLR 1294; and Hadmore Productions Ltd. v. Hamilton, [1983] AC 191). the situation is more than a tenancy at will
Mr Ndau’s argument, although ingenuous, is a simplistic mesmerisation
of facts. There was, in my judgement, a situation more than, if not
different from, a tenancy at will. The defendant contends that occupation
of the premises was as of right as managing director and group chairman
of Candlex Limited and other associate companies. There could be a dispute
about that now. The matter has to be settled at the trial. As director
or chairman the defendant is entitled to the privileges and rights the
company accords him on the arrangements the director
“A director may hold any other office or place of profit under the company (other than the office of auditor) in conjunction with his office of director for such period and on such terms (as to remuneration and otherwise) as the directors may determine ...” has the defendant resigned as director as group chairman? Mr Ndau then submits that the position is untenable because the defendant resigned as managing director. The defendant contends that he only resigned from the position of director in Candlex. He never resigned as group chairman of Candlex Limited and associate companies. Mr Ndau, relying on Morsely v. Koffyfontein Mine, [1910] 2 Ch 38 2 argues that the effect of resigning as director of a company applies to all directorships, permanent or honourary. He relies on the same decision. This was a decision of the Court of Appeal. It was tacitly approved by the House of Lords( [1911] AC 409). The case is only persuasive in my court. It is also good law. The case however can be distinguished from the one present here. The reasoning in the Court of Appeal does not appear in the report. There are two insertions in the report that are far from helpful on the legal conclusion. The first is at page 392: “[His Lordship then dealt with the subsidiary question and held that Mr Mosely had undoubtedly resigned his office of director and had no continuing right of control over the exercise by the directors of the power validly vested in them.]”
“A subsidiary question was also raised whether, having regard to the fact that the plaintiff as a permanent director had not sanctioned the increase of capital by assenting to the resolution of 1903, that resolution could be acted upon, but this point does not call for detailed notice, as the Judge held that the plaintiff had in fact vacated his office of permanent director in 1897, in accordance with provisions of the articles.” The point was not considered in the House of Lords. As we have seen, the position of group chairman is very distinct. It emanates from the fact that the defendant was founding and a majority shareholder in all the companies including Candlex Limited and that he had an illustrious directorship on Candlex Limited. As we have seen, the minutes clearly demonstrate that, as group chairman, he was free to sit on any of the boards as group chairman. His group chairmanship was not undermined at any rate by his declining to sit on the boards of any of the companies. The minutes clearly delineate the position of director of a company and group chairman. They reiterate the importance of the position of group chairman to Candle x Limited. The letter of resignation is clear as to the position the defendant wants to relinquish. He resigns as director for Candlex Limited, not as group chairman. Where the directorship is multifaceted and cannot be confined to the activities of one company resignation of one directorship does not necessarily imply resignation of other directorships. In Morsely v. Koffyfontein Mine the director was permanent and ordinary director in one company. The Morsely v. Koffyfontein Mine decision can be distinguished on that score.
has the withdrawal of the resignation been accepted? Neither party produced the company’s articles of association. The exact wording of the article, if there was one, on a director’s resignation is not before this court. In Glossop v. Glossop, [ 1907] 2 Ch 370, there was a specific provision. It is clear from the judgment of Neville, J., that much depended on the construction of the relevant article. He said in relation to the particular article: “Then the question that remains is whether the defendants were right in treating the plaintiff as having vacated his office as managing director in consequence of the written notice sent by him to the company requesting the acceptance of his resignation as managing director. That seems to me to depend entirely upon the proper construction to be put upon the articles of association of the company, and I think the most material articles are 84 and 85.” The statement after that is however of general application: “I have no doubt that a director is entitled to relinquish his office at any time he pleases by proper notice to the company, and that his resignation depends upon his notice and is not dependent upon any acceptance by the company, because I do not think they are in a position to refuse acceptance consequently, it appears to me that a director, once having given in the proper quarter notice of his resignation of his office, is not entitled to withdraw that notice, but if it is withdrawn it must be by the consent of the company properly exercised by the managers, who are the directors of the company.” What he said about the particular provision is important in understanding
our section 145 of the Companies Act and article 42 (e) of table C of the
first schedule. Both provisions speak of the director resigning his office
“by notice in writing to the company.” It follows that a director’s resignation
properly done does not need acceptance from the company. Counsel for the
appellant contended that the words, much like those in our section 145
and article 42 (e), implied that there must be acceptance by the company.
Rejecting the contention, Neville, J., said:
Neville J did say that the withdrawal, if made, could be accepted by the company through its directors. It would appear to me that the composition of the directorship cannot be a matter for the directors themselves. It is a matter of the shareholders as well. The shareholders could accept the withdrawal of the resignation. The defendant states that the shareholders have decided to have him back. The plaintiff disputes this. That can only be resolved by trial. Trial will determine whether the withdrawal has been accepted. The case is not as simple, therefore. Equally important however is the defendant’s contention that the plaintiff’s
action is a fraud on the minority. The defendant contends that Mr Hubbe,
as majority shareholder, is operating to the detriment of minority shareholders
and hence against the company. It is significant that the shareholders
agreed that the defendant gets involved again in the management of the
company as the defendant’s memo of 22nd January, 1999 suggests. The defendant’s
position in the plaintiff company is clearly understood. There are privileges
enuring to him as founder of the company and shareholder as the minutes
of 9th June 1998 show. There is a sense in which on the evidence, and it
could be more pronounced at the trial, it can be said that the presence
of the defendant on the premises was a decision of the shareholders when
he was a majority shareholder. There is reasonable suspicion that Mr Hubbes
decisions, including, the removal of the defendant on the premises, are
taken in a context where other shareholders can react in a way that they
are being undermined because of the size of share holding in the company.
Any member would be entitled to complain. Section 203(1) of the Companies
Act provides:
(1) Any member of a company may apply to the court for an order under this section on the ground- (a) that the affairs of the company are being conducted or the powers
of the directors are being exercised in a manner oppressive to one
or more of the members or in disregard of his or their proper interests
as members of the company: or
Our section 203(1) is like section 459 of the Companies Act in the United Kingdom. The section has been construed in a way that does not restrict its scope to legal rights created by the articles of association but considering equitable principles as well. The statement of Hoffmann, J., in Re A Company, [1986] BCLC 376 is on point. The report is not accessible here. The statement is quoted in Palmer’s Company Law, 25th ed.Sweet&Maxwell, 1992, 8198: “Counsel for the company submitted that the section must be limited to conduct which is unfairly prejudicial to the interests of the members as members. It cannot extend to conduct which is prejudicial to other interests of persons who happen to be members. In principle I accept this proposition ... But its application must take into account that the interests of a member are not necessarily limited to his strict legal rights under the constitution of the company. The use of the word ‘unfairly’ in section 459 ... enables the court to have regard to wider equitable considerations ... Thus in the case of the managing director of a large public company who is also the owner of a smallholding in the company’s shares, it is easy to see the distinction between his interests as a managing director employed under a service contract and his interests as a member. In the case of a small private company in which two or three members have invested their capital by subscribing for shares on the footing that dividends are likely but that each will earn his living by working for the company as a director, the distinction may be more elusive. The member’s interests as a member who has ventured his capital in the company’s business may include a legitimate expectation that he will continue to be employed as a director and his dismissal from that office and exclusion from the management of the company may therefore be unfairly prejudicial to his interests as a member.” The interests of the members of a company have always attracted protection
from the Courts. It could very well be that the decision to remove the
defendant should be one that the shareholders have to decide. It seems
unusual to me that given all that there is here Mr. Hubbe decided, and
there is little to suggest that the decision was the board’s or the shareholders,
to remove the defendant from the premises. In my judgement, the relative
strength of the plaintiff’s case is evenly balanced. In such a case justice
is served by maintaining the status quo. This means that the defendant
should continue on the premises until the matter is resolved.
the mandatory injunction cannot be granted either I arrive at the same result in relation to the mandatory injunction.
The
“The Cynamide guidelines are not relevant to mandatory injunctions. The case has to be unusually strong and clear before a mandatory injunction will be granted at the interlocutory stage even if it is sought to enforce a contractual obligation. However where it is necessary that some mandatory order has to be made ad interim the court will make the order whether or not the high standard of probability of success at trial is made out.” The case cited for the principle is Leisure Data v. Bell [1988] F.S. R 367.I have not found the report to read the case. It is, in my judgement, a good principle that this Court must approve. I do not think, for reasons earlier stated, that this is a case where it is necessary to make an interlocutory injunction in the interim.
I would therefore dismiss the application for an interim injunction with costs. Made in Chambers this 11th Day of May, 2000
D F Mwaungulu |