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ΠΑΓΚΥΠΡΙΟΣ ΔΙΚΗΓΟΡΙΚΟΣ ΣΥΛΛΟΓΟΣ
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(V16) 1 CLR 122
1940 October 30
[CREAN, C.J., AND GRIFFITH WILLIAMS, J.]
THE CYPRUS PALESTINE PLANTATIONS COMPANY LIMITED,
Plaintiffs-Respondents,
v.
OLIVIER & COMPANY (CYPRUS) LIMITED,
Defendants-Appellants.
Civil Appeal No. 3678)
CIVIL PROCEDURE-APPLICATION FOR AN INTERIM ORDER TO RESTRAIN A COMPANY FROM DISTRIBUTING ITS PROFITS OR FUNDS-EX PARTE ORDERS-SECTIONS 4 (1) AND 8 (1) OF THE CIVIL PROCEDURE LAW, 1885.
Appeal from an Interim Order of the District Court of Larnaca restraining the defendant Company from distributing its profits.
HELD: (1) That under no circumstances will the Court, at the request of a mere creditor, interfere with the internal affairs of a limited liability company: Mills v. Northern Railway of Buenos Ayres Company (Ch. A.C., Vol. 5, p. 627) followed.
(2) The fact that the plaintiffs claim from the defendants damages amounting to more than their nominal capital, is not a "peculiar circumstance"; nor would the probability of the defendants distributing their profits on account of the action be a proof of "urgency," to warrant the making of an ex parte order under section 8 (1) of the Civil Procedure Law, 1885.
HELD, also: (By Griffith Williams, J.):-
(3) That the Court has no power under section 4 (1) of the Civil Procedure Law, 1885, to make an order affecting property not itself the subject of the action.
J. Clerides with M. C. Economakis for the appellants.
M. Houry with G. Vassiliades for the respondents.
The facts and points of law involved appear sufficiently from the judgments.
CREAN, C.J.: This is an appeal from an order of the District Court made on the 15th March, 1940. By this order Olivier & Co. Ltd., defendants in the action, were restrained from distributing any of their profits and dividends to any of their members.
The application was brought under section 4 of Law 10 of 1885, and article 40 of the Cyprus Courts of Justice Order, 1927. The applicants, the Cyprus Palestine Plantation Co., who are plaintiffs in the action, grounded their application on the evidence of one of the Directors of the Company, H. Martin Williamson, who says that the plaintiffs are entitled to receive from the defendant Company £2,390, but as to the remaining part of the plaintiffs' claim, he says, he cannot affirm.
The application in the first place was made ex parte under section 8 of the above Law of 1885. By this section any order which the Court has power to make can be made ex parte, on proof of urgency or other peculiar circumstances, and by virtue of it the President, District Court, made an interim order restraining the defendants from distributing any of their profits and transferring any of their agencies This order was made on the 22nd February, 1940, and was to remain in force until 2nd March, 1940, when the defendants could appear to shew cause against the order.
On that day, they did appear to shew cause, and to a certain extent succeeded, for the order dealing with the transfer of their shipping agencies was rescinded. But the order restraining them from distributing any of their profits was made final and from this order they now appeal.
For the defendant Company it is said that the District Court in the first place had no authority to make the order ex parte under section 8. It is further said on their behalf, that this order can only be made in their absence when there is proof of urgency before the Court, or of any peculiar circumstances. And as the affidavit filed in support of the application does not disclose any urgency, or any peculiar circumstances present in the case, there was no evidence before the Court to warrant the making of the order ex parte.
This contention is met by the argument of the plaintiffs' counsel that as the capital of the defendant Company is only £1,000, and their debt is almost £4,000 the position is not an ordinary one, and in regard to the urgency of the matter, he says that there was a strong probability of the defendants distributing their profits on account of the claim filed by the plaintiffs.
It seems to me that the fact of the order having been made ex parte in the first instance is not now of any great importance. The defendants got notice to shew cause on the 2nd March, 1940, against the order granted. They appeared on that day, and after being heard part of the order made ex parte was rescinded, I would say, that by appearing on that day they tacitly acquiesced in that procedure.
In my opinion the defendants' proper course was to appeal against the ex parte order immediately on being served with notice to shew cause. But I am not prepared to say that by their omission to do that they are debarred now from arguing that the original ex parte order was irregular, and if it were irregular when made, that part of it which was made final continues to be bad and so everything done in pursuance of it is irregular, and should be set aside There is something in this argument, for if the order was originally made without the necessary facts being proved to support the making of it, then, it could be argued that the continuation of part of that order is bad and should be set aside.
This argument of counsel for the defendants is a plausible one, but I think that once he appears on the notice to shew cause and is heard; and part of the original order is made final, that part which is made final can be considered as an order made on notice and not as an ex parte order. The defendants had an opportunity of being heard and after being heard the District Court was still of opinion the defendants should be restrained.
Counsel for the plaintiffs argues that the granting of the order ex parte was regular inasmuch as there was urgency, because in the plaintiffs' view there was a strong probability of the defendants distributing their profits quickly on account of the claim filed by plaintiffs. And that there were peculiar circumstances in this case, because the Company was purely a company for carrying on agencies and had a small capital. It had no assets except its profits, no stock, no property, and therefore if the profits were distributed there was nothing available for the creditors of the Company.
These reasons given by Mr. Vassiliades for the plaintiffs why the order was properly made ex parte are not in my opinion sufficient, and I would say there was no substantial or definite evidence before the District Court to warrant the granting of the order in the first instance.
The order was originally made ex parte under section 8 of the Civil Procedure Law of 1885, and once that was done the plaintiffs had recourse to section 4 of the same law and argue that this section is the one applicable to circumstances, such as are present in this case. It has been submitted by counsel for the defendant Company that, at least, it must be considered peculiar, to have an order granted under one section, and then confirmed or made final under another section for which a different procedure is manifestly prescribed. And on the interpretation of section 4 it has been submitted for the defendants that this section cannot be considered as providing for such a case as this Mr. Cierides for the defendant Company has made valiant efforts to get this Court to interpret the section in such a way that the words "person" and "property" referred to in the latter part of it, can only be considered as applying to property in such an action as one for nuisance, or for trespass to property. And that "person" mentioned therein can only be applied in such cases, as actions for defamation or custody of a child.
I am not prepared to say that this interpretation of the latter part of the section is not what was intended by the legislature as I have to admit that the section is not intelligible to me. If I were to say the words had any particular meaning, I should only be guessing, and as that is not very helpful in the interpretation of a section I don't propose to do so. It is said in the judgment of the District Court "that the "wording of this section was deliberately made in these very wide "terms to suit the particular conditions of this Colony." But as I am not aware of any particular conditions prevailing here, I am unable to make any comment on this view.
To my mind the principle of law referred to by Lord Hatherley in the case of Mills v. Northern Railway of Buenos Ayres Company, Chancery Appeal Cases, Vol. 5, p. 627, governs this case wholly and completely. It is said by Lord Hatherley in this case: "Work is done "for a limited company; no engagement is taken from them by way of "security; no debenture or mortgage is granted by them; but the work "is done simply on the credit of the company. The only remedy for a. "creditor in that case is to obtain his judgment and to take out "execution; or it may be that he may have a power, if the case warrants it, "of applying to wind up the company. But it is wholly unprecedented "for a mere creditor to say, 'Certain transactions are taking place "within the company, and dividends are being paid to shareholders "which they are not entitled to receive, and therefore I am entitled "to come here and examine the company's deed, to see whether or not "they are doing what is ultra vires, and to interfere in order that, "as by a bill quia timet, I may keep the assets in a proper state of "security for the payment of my debt whensoever the time arrives for "its payment'.
"The case must have occurred, of course, many years ago, before "joint stock companies were so abundant, but certainly within the "last twenty or thirty years the money due to creditors must have been many millions and the number of creditors must have been many "thousands; yet I have never before heard- and I asked in vain for any "such precedent- of any attempt on the part of a creditor to file a bill "of this description against a company, claiming the interference of this "Court on the ground that he, having no interest in the company, "except the mere fact of being a creditor, is about to be defrauded "by reason of their making away with their assets. It would be a "fearful authority for this Court to assume, for it would be called on to "interfere with the concerns of almost every company in the kingdom "against which a creditor might suppose that he had demands, which "he had not established in a court of justice, but which he was about "to proceed to establish."
From this judgment the principle appears to be that a simple contract creditor of a company cannot sustain a bill to restrain the company from dealing with their assets as they pleased, on the ground that they are diminishing the fund for payment of his debt.
Following the principle of the above case I think the appeal should be allowed and the order made by the District Court restraining the defendant Company from dealing with their own money as they please should be set aside.
GRIFFITH WILLIAMS, J.: This is an appeal from an order of the District Court, Larnaca, made under section 4 (1) of the Civil Procedure Law, 1885- restraining the defendant Company from distributing its funds or paying dividends to any of its member until the final disposal of the action. The action is a claim of damages for breach of contract, in which the plaintiffs, who are growers and exporters of citrus fruits, allege that the defendant Company, who are shipping agents, refused to carry out their contract with the plaintiffs for the carriage of their citrus fruit from Cyprus to England at a price of is per box during the period August, 1939, to April, 1940. The plaintiffs allege that owing to breach by the defendant Company of the alleged contract they have been compelled to pay the much higher freights prevailing during the months in question and have suffered a loss thereby of £2,390. The defendants deny that there was any subsisting contract between them and plaintiffs for carriage during the period claimed.
The writ containing the Statement of Claim was filed on the 22nd February, 1940, and on the same day the plaintiffs applied ex parte to the District Court, Larnaca, for an interim order to restrain the defendant Company from (a) distributing any of its profits or funds to any of its members; and (b) transferring or causing to be transferred any of the shipping agencies and business now done by them in Cyprus to any other person or group of persons.
This application was based on section 4 (1) of Law 10 of 1885, clause 40 of the Cyprus Courts of Justice Order, 1927, and Order 48 of the Rules of Court, 1938 to 1940, and was supported by an affidavit by one H. Martin Williamson, a Director of plaintiff Company. The relevant facts disclosed by the affidavit may be summarised as follows:-
The amount of £2,390 3s. 41/2p. claimed by the plaintiffs was to the best of the deponent s knowledge the true amount of liquidated damage the plaintiffs were entitled to receive. The authorized share capital of the defendant Company was £1,000. Article 83 of Table A, which applied to the Company, permitted the directors from time to time to pay such interim dividends as appeared to them justified by the profits of the Company. The affidavit further contained an expression of the deponent's opinion in his own words as follows: "that if the defendant "Company were left free to distribute its profits or to transfer any "of its business the plaintiffs might suffer irreparable damage not "being able to realize to the full extent any judgment which might "be given in their favour." It was not even suggested in the affidavit that it was the intention of the defendant Company to distribute its profits or transfer its business; nor was anything said as to the grounds on which the deponent's opinion was founded. Finally the affidavit contained in para. 9, the following statement. "I know from personal "knowledge that the defendant Company are in the shipping trade "and from the measure of shipping they are doing I conclude they are "making considerable profits."
The application was made ex parte under section 8 of the Civil Procedure Law, 1885, and a temporary order in terms obtained on 22nd February, 1940, granting the relief claimed until 2nd March, 1940, on which date the defendants would be at liberty to show cause. On the 2nd March cause was shown by defendants; and after argument the Court adjourned the matter for consideration having ordered that the interim order was to remain in force until further order. On 15th March, on delivering judgment, the District Court discharged the interim order as regards the restriction to parting with any of its shipping agencies or other business in Cyprus, but affirmed the order in respect of the distribution of profits to its members.
From this judgment and order the defendants appealed to this Court; and their case has been well argued before us by Mr. Clerides. The grounds of appeal as set out in appellants' Notice of Appeal were as follows:-
"1. That the order was originally made in the absence of any "evidence that the defendant Company intended to distribute their profits, or their funds, and no further evidence was adduced "to that effect to justify its being made final.
"2. That the order made is not an order within the meaning of the "latter part of section 4 (1) of Law .10 of 1885, i.e., an order for "preventing any loss, damage, or prejudice which but for the "making of the order might be occasioned to any person or "property; pending a final judgment on some question affecting "such person or property.'
"3. That the order, as made final, not being limited to any profits "existing at the time it was made, amounts to forcing upon the "defendants to continue their business and retain their future profits, if any, pending a final judgment, while, even if applicants "were judgment-creditors the Court could not order the defendants "to continue working and retaining their future profits for "satisfaction of a judgment given against them."
The first ground is in effect that the evidence is insufficient to support the order made, as there is no proof that defendant Company intends to distribute its profits or funds. This ground was not very seriously pressed by appellants' counsel in this Court. It is founded more on the requirements of clause .36 of the Cyprus Courts of Justice Order, 1927- where intention to make away with the property to prevent execution is a prerequisite to the order-than on those of section 4 (1) of Civil Procedure Law. The evidence in fact produced points to the defendant Company being in a very good position, and having no intention whatsoever of doing those things to protect the creditor against which clause 36 was made. I agree with the learned President, District Court, in his judgment that under section 4 (1) there is no necessity of proving any intention. Consequently I think there to be no substance in ground 1 of the Appeal.
To pass to ground .2: The appellants' counsel here argued that section 4 (1) is not applicable to protect any property other than that directly affected or forming part of the subject matter of an action. That the present case is an action for damages and not an action concerning property and therefore section 4 (1) does not apply. That this section cannot he made use of for obtaining an order of attachment before judgment on property in no way connected with the suit. In order to obtain such an order resort must be had to clause 36 of the Cyprus Courts of Justice Order, 1927., in which case it is necessary to prove intention on the part of the other party either to abscond or to remove property out of jurisdiction in order to obstruct or delay execution.
It seems to me that this submission is sound. There could be no object in having two sections in the law to effect the same purpose. Since section 4 (1) gives much wider power to act for the protection of property than clause 36, one would expect the class of property affected by the section to be more limited. The first part of the section applies only to property, the subject of litigation, so one would naturally expect the section as a whole, in so far as it applied to property, to apply only to property to which the action related; and not to extend to anything belonging to a party to the action that might become liable to be seized in execution. The latter part of the section is, however, very widely worded; in fact so widely that the learned President, District Court, appears to think it was intended to protect litigants against potential future losses, through the disappearance of property on which execution might be levied. But there seems to be no reason why the second part should be taken to give Court wide powers over the property of litigants which property is not itself before the Court or subject to litigation.
The principles found in the following extracts from Maxwell's Interpretation of Statutes may perhaps be usefully applied in seeking the correct meaning of the second part of section 4 (1).
1. "Every clause of a statute should be construed with reference "to the context and the other clauses of the Act, so as, so far as "possible, to make a consistent enactment of the whole statute or "series of statutes relating to the subject. matter." This principle was enunciated by Lord Davey in Canada Sugar Refinery Co. v. Reg. (1898 A.C., p. 741).
2. "The true meaning of any passage, it is said, is to be found in "comparing it with other parts of the Law, ascertaining with "reference to which the words were used, and what was the object "appearing from those circumstances which the legislature had "in view." Lord Blackburn in River Wear Company v. Adamson (1877, 2 A.C., p. 743).
These quotations point to the necessity of looking at both the Civil Procedure Law, 1885, as a whole, and at section 4(1) in particular, to see that the interpretation given to section 4 (1) is such. as not to be incongruous with the remainder of that section and of that Law; and then to compare it with other provisions in Cyprus law which have a similar object-notably clause 36.
A glance shows that whereas Parts 3, 4, 5, 6, etc. of the Civil Procedure Law deal with execution, Part 2-in which section 4 occurs-deals with powers of the Court. Sections 4 and 5 both have to do with the power of the Court to make an interim order during action for the protection of property. Section 6 specially qualifies this power by making sections 4 and 5 subject to the provisions of clause 36 of the Cyprus Courts of Justice Order, 1882 (now 1927). This clause deals with orders to prevent debtors absconding or making away with their property to defeat or delay execution. The Civil Procedure Law was passed later than the Cyprus Courts of Justice Order. Since section 4 is made subject to clause 36 it cannot be argued that section 4 (1) gives the Court power to make interim orders for the protection of property, that may become liable to execution, in any instance in which clause 36 could be held to apply. Under section 4 (1) the intention necessary to be proved by clause 36 is not wanted; it is certain therefore that section 4(1) is not intended to govern property on which execution can normally be levied. Hence earned profits of the Company could not come under it.
Now if section 4 (1) is looked at closely it will be seen that the first part of it down to the word "action" in line 4 can only refer to an order for something to be done regarding express property forming the subject matter of an action. The question to be decided is, does the latter part of the section refer to property not the subject matter of action, and cover property which may in certain events become liable to execution ? In other words, is the section a very wide alternative process to clause 36 of the Cyprus Courts of Justice Order to procure attachment in execution before judgment without any of the safeguards required under that clause? According to the President, District Court, it is " an "order that can be made without necessity of showing defendant's "intention of absconding or parting with property." Following his interpretation, however remote the damage to a litigant may be, an order for the protection of property on which he has no claim may be made, though the property is not subject to the action. This reading of the section seems to my mind to offend against the first maxim I quoted. It would not be consistent for the section to mean something different by "property" in the latter part of the section from what it does in the earlier. Then, following the second maxim quoted, section 4 (1) must not be inconsistent with clause 36; and so if clause 36 deals with obstructing or delaying execution there is no reason why it should be introduced afterwards into section 4 (1)-the object of which is primarily for the protection of property or persons subject to action.
Keeping in view the principles of interpretation I have referred to, the meaning of the latter part of section 4 (1), namely, "or an order "preventing any loss, damage or prejudice which (but for the making "of the order) might be occasioned to any person or property," is tolerably clear. The words I have enclosed in brackets are unimportant to its meaning. Without these words it reads" or an order preventing "any loss, damage or prejudice which might be occasioned to any ."person or property." Surely no protective powers could be wider. The words in inverted commas taken by themselves, without linking them to the first part of the section, would give the widest powers to the Court to make protective orders, not only to protect the parties to the case and their property, but to protect any persons or property within the jurisdiction of the Court being either parties to, or property of parties to, the suit or not, and covering property to whomsoever it might belong. But immediately following are these words: "pending a "final judgment on some question affecting such person or property." These words limit the scope of the protection order the Court might make above to some person or property the subject of the litigation. But a "question affecting such person or property" does not mean a "question affecting the property of such person "-nor indeed of "any other person "-nor "your property, the absence of which after "judgment may affect me." And this seems to be the peculiar interpretation put on it by the lower Court. The order involving protection of the person contemplates the protection of his body, character and comfort-such an order as an interim injunction to prohibit repetition of a tort. An order for protection of property is obtained by the owner or at least claimant of the property, and not by the opposing party who claims no right to possession or ownership. Finally to consider the words: "or pending the execution of the judgment." It seems to me that these words have been misinterpreted to mean that the section is in some way to protect property that may become subject to execution. But in fact they merely relate to time. They link on to the words they immediately follow, viz. "pending a final judgment (on some question "affecting such person or property) or pending the execution of the "judgment." The brackets are mine-if the words in the brackets be omitted instead of being left in parenthesis, it will be apparent that the whole idea of this part of the section is the fixing of a time limit for the duration of the interim order. It is to be an interim order to hold good until judgment or execution in the action. If for example the disputed property is in the hands of the claimant then the order will protect it until judgment; if in the hands of defendant, then no doubt the order will be required to protect the property till execution. The time of expiration of the order will naturally vary with circumstances of each case. Where an injunction is sought in a libel action the duration of any interim order will not be required to continue after judgment in that action when the permanent order is made.
The plaintiffs in this action made their application to the District Court ex parte under section 8 (1) of Law 10 of 1885, which is as follows: "Any order which the Court has power to make may upon proof of. "urgency or other peculiar circumstances, be made on the application "of any party to the action without notice to the other party."
The District Court granted the application ex parts on the ground of either urgency or other peculiar circumstances which he found in the affidavit. That there was no urgency can be seen from the last paragraph of the affidavit to the effect that defendants (appellants) were carrying on business and making good profits; and containing no suggestion that defendants intended to do other than continue their business. If, therefore, there was no urgency, there must have been "peculiar circumstances." What were these peculiar circumstances? The fact that the plaintiffs claim damages from the defendant Company amounting to more than its nominal capital? I can see no peculiar circumstances in this. I know of nothing to prevent the plaintiffs claiming ten times as much as they are ultimately found entitled to. The defendant Company is an agency company and does not require much capital to have a big business turn-over, and in consequence of this big turn-over the company runs the risk of incurring claims for damages exceeding the value of its nominal capital. The volume of business done shows considerable goodwill; and in a company doing business of this nature which makes use of other people's capital, the goodwill may well be of much greater value than the nominal capital. It can be nothing unusual for a company like defendants with small capital to become involved in a loss of more than the nominal value of its capital, without for a moment contemplating going into liquidation. Because a man runs up a big bill, the fact that he is worth nothing and will never be able to pay it, is by no means a peculiar circumstance; it must be very common. This section is not resorted to to enable orders to he made against a man ex parte merely because he cannot pay his debts. How much less would it be if the amounts were not debts but mere disputed claims.
Whether or not the plaintiffs had any right to their ex parte order under section 8 (1), it was acted on by defendants, who on the 2nd March showed cause under that order. And this appeal is from the confirmation of the first part of the order. Appellants argued that the order in the first place should not have been applied for ex parte and that this vitiated all subsequent proceedings on that summons. But it seems to me that by appearing and showing cause on 2nd March, instead of appealing the original order, the appellants must be taken. to have acquiesced in or consented to the procedure. Further the order made ex parts ceased to have effect on the 2nd March when cause was to be shewn; so that when the subsisting order was made the case had been fully argued before the District Court and in respect of the order as then armed the appellants are in no worse position than if the summons had originally been served on them.
With regard to the 3rd.ground: That the order seeks to bind unearned profits yet to be made by appellant Company and that the Court had no power under section 4 (1) to bind future assets or to be acquired property.
In Court this point was mentioned by Mr. Clerides but became merged in the wider principle of law in which the English case of Mills v. Northern Railway of Buenos Ayres Company (chancery Appeal Cases, Vol. 5, p. 627.) is the chief authority-namely, that the Court will not interfere in the private management of .a limited liability company at the suit of a creditor.
It seems to me that in passing over the case of Mills .v. Northern Railway of Buenos Ayres Company on the ground that that was a decision on ultra vires only and did not apply, the Court below has misunderstood that case. The principle therein laid down was that the Court will not interfere in the internal management of a company at the suit of a mere creditor. The circumstance that the acts the creditor complained of were ultra vires was merely incidental it served as an excuse for the application for interference by the Court. But though the judges decided the question of fact as to ultra vires in that particular case, the principle of law laid down by them was regarding interference by the Court with the management of a limited company. In that case a creditor sought to obtain an order .of Court to prevent the company, which owed him money, doing an act that he thought was ultra vires- and feared it would be harmful to him. The Court refused to interfere. But the creditor in the present action seeks an order of Court to restrain the defendant Company from doing anact admittedly within the powers of the Directors, .merey on the ground that he may be prejudiced thereby. The application in Mills case was in Chancery Division and turned on a question of Company Law, whereas the present application is made under the general provision of section 4 (1)of the Civil Procedure Law, 1885, in an action founded on an alleged breach of contract. But the principle established in Mills case applies. The mere fact of a company being made a party to an action at Common Law cannot be held sufficient to take from the company the protection of the principle of Company Law established by Mills case,, and to make it immediately subject to interference under section 4 (1)-should that section permit the drastic action against the property of litigants-which the lower Court seems to think may be ordered at its whim and pleasure. This point, however, has alrea4y been dealt with under ground .2 of Appeal.
For the above reasons I am of opinion that the appeal should be allowed. And I should like to add that even if there were power under section 4 (1) for the Court to make the order appealed from, the meager facts disclosed in the affidavit of Mr. Martin Williamson do not show the existence of such a state of affairs as to render necessary any protection order in this case.
Appeal allowed with costs here and in the Court below.