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Empire Electronics Limited v. Lane Printing Works Limited. Civ. Case 2-M-62; 31/1/70; Seaton J.



Empire Electronics Limited v. Lane Printing Works Limited. Civ. Case 2-M-62; 31/1/70; Seaton J.

This was an action for trespass to goods. The plaintiff company claimed that its goods were unlawfully seized by the defendant as a result of which it was unable to carry on its electrical business thereby allegedly suffering damages totaling Shs. 63,107/24 being the value of goods and loss of profits. The defendant admitted having seized the goods but claimed that this was done lawfully by a receiver appointed under powers contained in a debenture executed by the plaintiff company in favour of the defendant and duly registered as a charge. It appeared that just a few days before the appointment of the receiver (one M.S. Shah, who was a partner in a firm of court brokers) warrants for attachment and sale of the plaintiff’s goods had been issued in civil cases Nos. 131 and 158/10, to the said firm of court brokers. In original plaint Mr. Shah had in fact been joined as a second defendant but a preliminary objection having been taken, the suit against him was dismissed on the ground that it was time barred, the cause of action being tortuous and not contractual. The agreed issues in the present case were: - “(1) was the defendant indebted to the plaintiff in the sum of Shs. 5,624/30 acts. Or any amount on the 3rd May, 1960 when the defendant appointed Mr. Shs, i.e. the former second defendant as receiver? (2) Even if the defendant was indebted to the plaintiff on 3rd May, 1969, was the appointment of the receiver lawful? (3) If the answer to the first question is “Yes” to what relief is the plaintiff entitled to against the defendant?”

            Held: (1) As regards the state of accounts between the parties, the court after reviewing all the evidence found that the defendant was indebted to the plaintiff in the sum of Shs. 1,641/80 by 3rd May, 1960. (2) “Learned advocate for the defendant has submitted that even if the plaintiff was owed some money by the defendant, so long as the debenture was subsisting and an amount owing there under, the appointment of a receiver was lawful. The instrument creating the debenture must be looked at to see under what a circumstance was to be exercised the power of appointing a receiver”. [The court quoted relevant clauses of the debenture and continued]. “As a consequence of these clauses, the debenture created a floating charge upon the plaintiff’s asset and so long as the security floated, the plaintiff was free to carry on its business. One of the events which would stop the charge floating and cause it to crystallize was the issue of distress or execution against the company which was unpaid for seven days. Once this happened, the principal moneys became immediately payable and the defendant was entitled to exercise the power of appointing a receiver. I do not find this power to protect its security was

to be lost to the defendant company because it owed the plaintiff company the sum of Shs. 1,641/80”. “Learned advocate for the plaintiff has submitted that even if the defendant was entitled to appoint a receiver and manager, he had no power to appoint a receiver alone. With respect, I do not consider this a necessary interpretation of the provisions of the debenture. If the powers granted were less than those which might have been given, I would only consider this an inhibiting factor upon the receiver’s activities. This alone would not be an invalidating factor. There is Exhibit “T” dated 2nd May, 1960 to indicate that the defendant had by writing appointed Mr. Shah a receiver of the plaintiff’s property as required by the debenture. Exhibit T set out the powers which Mr. Shah would have and there is noting in evidence indicating the plaintiff objected that the appointment was invalid. Was there then anything to prevent Mr. M.S. Shah from acting in relation to the plaintiff’s business as a receiver would.” (3) “Learned advocate for the plaintiff submitted that the court should refer to the books of equity to ascertain whether the receiver’s appointment was valid. On the other hand, learned advocate for the defendant submitted that however wrongful or anomalous may have been Mr. M. S. Shah’s conduct, I could not affect the validity of his appointment as receiver. In my view, the position of Mr. Shah in attempting to wear the two hats of receiver and court broker was so inconsistent with his fiduciary duties that his acts as receiver were affected by the conflict of interest between Mr. Shah’s two positions. The inability of Mr. Shah to separate his dual capacities tainted the appointment. He evidence is not conclusive on the point whether Mr. Shah could have in his capacity as receiver obtained better prices for sale of the plaintiff’s goods which were new at the time. But in my view it does not follow that the appointment of the receiver was wrongful even if Mr. Shah’s conduct may have been. I therefore answer the second issue in the affirmative.” (4) “As relief, evidence established that the plaintiff company was in financial difficulties from as early as 6th November, 1959, when it was obliged to seek a loan of Shs. 10,000/- secured by the debenture and these difficulties continued up to May, 1960, when the receiver was appointed. It was also established that Mr. Shah had not delivered abstract of receipts and payments to the Registrant of Companies as required by Section 290 of the Ordinance; that he was in India for last few years and it was not known whether he will return. The plaintiff said that the receiver had “run away with all his books of account and other documents”. “Even if this were so, would such act or default of the receiver assist the plaintiff in his claim against the defendant? One must look to the terms of appointment of the receiver as well as the provisions of the debenture. In my view, the defendant’s responsibility for the acts or default of a properly appointed receiver is excluded by the provisions in the debenture that the receiver “shall be the agent of the Company”, i.e. of the plaintiff. It is precisely to avoid such liability that these words are included in a debenture. Although it is a frequent practice also to include a provision that “the company shall be solely responsible for the acts or defaults of the receiver”, it seems to me that even without such additional words, the result is the same.” “The Conveyancing Act, 1881 (44 and 45 Vict. C. 41), section 24(2) provided that receiver is deemed to be the agent of the mortgagor, and the mortgagor is solely responsible for his acts or defaults, unless the mortgage deed otherwise provides. This provision has been replaced in England

by the Law of Property Act, 1925 (15 Geo. 5, c. 20), s. 109(2); it is in conformity with the 1881 statute that the jurisdiction of this Court must be exercised, under s. 2(2) of the Judicature and Application of Laws Ordinance, Cap. 453. But the provisions of both statutes are similar in this respect. In Central London Electricity Ltd. v. Berners and others [1945] 1 Gel E. 160, the question had to be decided whose agent was a receiver and manager appointed by a debenture holder. The debenture holder relied on a clause of the debenture which stipulated that receiver and manager should be the gent of the company and he relied further on the Law of Property Act, 1925, s. 109. Hallett J. reviewed the cases in which a receiver had been held to be the agent of the company, citing inter alia Gosling v. Gaskell [1897] A. c. 575. He also cited Re Vimbos [1900] 1 Ch. 470 as an example of cases where the receiver had been held to be the agent of the debenture holders. Robinson Printing Co. Ltd. v. Chic Ltd. [1905]2 Ch. 123 was referred to in which Warrington, J. suggested that  for some purposes a receiver may be the agent of the company and for other purposes the agent of the debenture holders. Finally, Hallett, J. reiterated what he though was well-known, or certainly ought to known – that whether a receiver is the agent of the company or is the agent of the debenture holders depends upon the terms of his appointment and more particularly upon the terms of the debenture. In the case before him, Hallett, J. held that since by the provisions of the debenture the receivers were agents of the company, their undertaking to pay outstanding and future charges did not amount to a warranty of authority to bind the debenture holder personally.

            In the present case, it may be that the receiver was in breach of his duties, statutory, fiduciary or otherwise. Even so, this Court is precluded from giving a remedy against him in this suit, from which he has already been dismissed. It may be desirable to state that had I to give a remedy for the trespass to the plaintiff’s goods, I would have awarded Shs. 10,000/- general damages, being in my view the amount lost y the goods being sold by court brokers: no special damages for loss of profits as the plaintiff has not proved at the time he was carrying on a profitable business. It does not appear that Mr. M. S. Shah has rendered any account to the Registrar of Companies as required by s. 290 of the Companies Ordinance ….. “It would seem that the defendant company is entitled to an account from Mr. M. S. Shah as receiver, vide Leicester Permanent Building Society v. Butt, [1943]2 All E. R. 523. Where the receiver is the agent of he mortgagor, he is prima facie liable to account to the mortgagor as his principal but anyone injured by the non-performance of a statutory duty being a person for whose benefit and protection the duty is imposed is generally entitled to bring an action in respect of the breach.” “It might be that Mr. M. S. Shah as receiver still retains some of the moneys received by him which he was bound, after discharge of the principal money due to the defendant and in payment of all other legitimate expenses, to pay as residue to he plaintiff. If this is so, the plaintiff’s rights should be enforced by application to the court for the granting for an order for an account. No such relief has been sought and I desire to say nothing further concerning it because to do so is not relevant for the purpose of this case.” (5) Claim dismissed.

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