Gujadhur v Gujadhur and Singh

(1) Ghaneshwar Gujadhur

(2) Lajpati Gujadhur

(3) Rajkumar Gujadhur

(4) Sheoshankar Gujadhur

(5) Dimeshwar Gujadhur

Appellants

v.

(1) Gunness Gujadhur

(2) Sewpearee Singh

Respondents

FROM

THE COURT OF APPEAL OF

MAURITIUS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 26^th July 2007

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Present at the hearing:-

Lord Bingham of Cornhill

Lord Hoffmann

Baroness Hale of Richmond

Lord Carswell

Lord Brown of Eaton-under-Heywood

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[Delivered by Lord Hoffmann]

The Gujadhur family is well known in Mauritius, particularly in business and on the turf. The founders of its fortune were three brothers, Ackbar, Radhamohun and Gunness Gujadhur. For twenty years or so they traded as a family, holding their assets in undivided shares. In 1967 they decided to partition the assets and appointed Mr Harold Glover as arbitrator to allocate a fair share to each of the two surviving brothers and the three sons of Ackbar, who had died in 1956. The mechanism adopted by Mr Glover in his award was to vest the assets in suitable proportions in three existing companies and direct that each should thereafter be a vehicle for exclusive ownership. The three companies were Ackbar Gujadhur Ltd, which held the assets allocated to Ackbar’s children; Radhamohun Gujadhur Ltd, which held the assets allocated to Radhamohun (afterwards Sir Radhamohun) and Luxmi & Ganesh Ltd which held the assets allocated to Gunness.

Luxmi & Ganesh Ltd (“the company”) had been formed in 1961 as a family company. Its shares were therefore registered in the names of Radhamohun, Gunness and the three sons of Ackbar. To give effect to Mr Glover’s award, on 16 October 1967 Radhamohun and the three sons of Ackbar signed a “contre-lettre” in the following terms:

“We, Radhamohun Gujadhur, Madun Mohun Gujadhur, Khemraj Gujadhur, Moorli Manohar Gujadhur, hereby declare that although 1 share appears on each of our names in the Share Register Book of the company Luxmi & Ganesh Ltd, those 4 shares in truth and in fact belong to Mr Gunness Gujadhur in terms of our agreement.”

In 1967 there was an issue of 40 new shares. 37 were allotted to Gunness and one each to three sons of Radhamohun, namely Ghaneshwar, Lajpati and Ramapatee Gujadhur. In 1982 there was a further share issue of 20 shares each to the three younger sons of Sir Radhamohun, namely Rajkumar, Sheokumar and Vijay Kumar Gujadhur, and another 19 shares each to the three elder sons to whom single shares had been allotted in 1967. The result was that each of the sons of Sir Radhamohun became the registered owner of 20 shares. Contemporaneously with the allotment, each signed a contre-lettre in French in identical terms:

“Je soussigné ….déclare et reconnais pour rendre hommage à la vérité que toutes actions détenue par moi dans la compagnie ‘Luxmi & Ganesh Ltd’ appartiennent en fait à Monsieur Gunness Gujadhur.

En consequence je m’engage et m’oblige sur la première requisition du dit Monsieur Gunness Gujadhur à lui transférer ou à transférer à toute personne, société ou compagnie qu’il m’indiquera les dites actions.”

One may ask why, if Gunness Gujadhur wanted his shares held by a nominee rather than in his own name, he did not use the services of a bank, or at any rate one member of his family, rather than carefully distributing them on terms of equality among his brother’s children? If the children were, as the contre-lettres make clear, to be mere nominees, what did it matter whether they held them in equal shares or not? The answer appears to be that Gunness Gujadhur and his wife had no children of their own and that the share allotments looked forward to some possible future gift, testamentary or inter vivos, of the beneficial interests. In 1982, however, the contre-lettres show that Gunness clearly intended to retain the full beneficial interests in all the shares.

In 1984 there was a further issue of new shares to the six sons of Sir Radhamohun. By this time two grandsons had attained full age and some shares were allotted to them as well. In 1988, after the death of Sir Radhamohun, there was a transfer to his sons and grandsons of 300 shares which had previously been issued to Gunness himself. Again, however, Gunness made it clear that no beneficial interests were yet being transferred. Each of the sons and grandsons was party to a joint contre-lettre dated 14 September 1988 drafted by Lajpati, one of the elder sons, who was himself a lawyer:

“To Mr and Mrs Gunness Gujadhur…

We, the undersigned sons and grandsons of the late Sir Radhamohun Gujadhur, hereby write to inform and confirm that all the shares of the company Luxmi & Ganesh Ltd registered in our respective names in truth and in fact belong to you both during your lifetimes and you both have absolute proprietary rights over such shares for as long as you live and we undertake to do anything with such shares according to your wishes and instructions.”

The inclusion of Mrs Gujadhur as a beneficiary of the contre-lettre and the references to “during your lifetimes” and “for as long as you live” indicate the quasi-testamentary nature of the arrangement. Their Lordships express no view on the effect which this document would have had upon the deaths of the survivors of Mr and Mrs Gunness Gujadhur if the shares had then remained vested in the sons and grandsons but there can be no doubt that during their lifetimes Mr and Mrs Gunness Gujadhur were intended to retain complete beneficial ownership and the right to dispose of the shares as they wished.

In 1999 Mr Gunness Gujadhur appears to have been involved in arrangements to partition the assets of Sir Radhamohun and his company among his issue. The details of the proposals, concerning which he wrote to the sons and grandsons, are not material but his letter dated 7 May 1999 ended by saying:

“As far as the company Luxmi & Ganesh Ltd is concerned, I circulate copy of … [the contre-lettre of 14 September 1988] whereby it is acknowledged that the shares although registered in your respective names belong in truth and in fact to me and my wife. I do not propose to proceed to any distribution of the shares owned by that company.”

There was no reaction to this part of the letter. But despite the insistence of Mr Gunness Gujadhur on his beneficial ownership of the shares, there is no doubt that he allowed his nephews and great-nephews to receive benefits from the company. For example, the company had interests in land at Poste Lafayette and Curepipe which was leased to the nephews and great-nephews, but subject to a usufruct in favour of Mr Gunness Gujadhur and his wife. The company declared dividends in specie of shares in two other companies (Mauritius Commercial Bank Ltd and New Mauritius Hotels Ltd) which the nephews and great-nephews received and retained. Mr Gunness Gujadhur said that this was for the purpose of enabling them to build their own houses. Some payments were made to them in cash, described in the books of the company as loans but with no provision for repayment. But by far the bulk of the company’s income was drawn by Mr Gunness Gujadhur and his wife for their living expenses and the upkeep of the racing stable which was their main interest in life.

In about 2003 there was regrettably a falling-out among the sons of Sir Radhamohun, who divided into two equal factions. This made the management of the company, in which they had up till then participated as directors, very difficult. Until then, any one director and the secretary had authority to sign on the company’s bank account. But the quarrel meant that neither faction was willing to trust the members of the other with signing authority. Mr Gunness Gujadhur tried to keep the peace and eventually it was agreed that the company would adopt a new constitution which produced deadlock between the two factions and required the signature of Mr Gunness Gujadhur as well as one nephew from each faction on any cheque. The casting vote of the chairman of the board was removed, which meant that after the death of Mr Gunness Gujadhur neither faction would be able to outvote the other.

Shortly afterwards, the faction consisting of Ghaneshwar, Lajpati, Rajkumar and the sons of the two first-named, who are the appellants before the Board, quarrelled with Mr Gunness Gujadhur over the management of the racing stable. They formed the view that he was spending too much of the company’s money on the stable and started to refuse to sign cheques. Mr Gunness Gujadhur demanded, pursuant to the 1988 contre-lettre, that they transfer their shares into his name. The reaction of the appellants was to assert beneficial ownership in the shares. They did not deny the authenticity of the contre-lettre but said that it was spent (caduque) or that the right to rely upon it was statute-barred.

Mr Gunness Gujadhur and his wife, who are the respondents to the appeal, commenced proceedings by a “proecipe” claiming relief under “article 806 of the Code of Civil Procedure and section 73 of the Courts Act”. Section 73 is in terms familiar to an English lawyer. It provides that a judge may “grant an injunction, subject to a motion to the court to set aside the injunction…” Article 806 is part of the French heritage of Mauritian law, forming part of a group of articles headed “Des référés”. It is based on provisions of the Code Napoléon and can be traced back to the 17^th century if not to an earlier Roman origin:

“806. Dans tous les cas d’urgence…il sera procédé ainsi qu’il va être réglé ci-après.

809. Les ordonnances sur référés ne feront aucun préjudice au principal; elles seront exécutoires par provision, sans caution, si le juge n’a pas ordonné qu’il en serait fourni une.”

The référé procedure resembles the summary judgment procedure of English law in being summary. But, as Neerunjun CJ explained in Gujadhur v Reunion Ltd [1960] MR 208, the great difference in the two procedures is that an English summary judgment is, subject to appeal, final, whereas an order under article 806 is provisional in the sense that it can be displaced by an order in the principal proceedings. As the English summary judgment is final, the court will not shut out a defence unless there is clearly no issue to be tried. Under article 806, on the other hand, the summary remedy will be granted if an owner of property can show urgency and a clear title and the respondent cannot show a bona fide and serious defence. It is mainly used by owners of land to obtain a writ of possession but the grant of the order and the entry into possession by the applicant does not prevent the defendant from commencing a “principal case” claiming that he has a better title.

The relief sought by Mr and Mrs Gunness Gujadhur under article 806 and section 73 was, in summary, —

(a) An interim ex parte order to restrain the defendants from dealing with the shares;

(b) A summons calling upon the defendants to show cause why such ex parte order should not be continued pending determination of the claim for mandatory relief;

(c) An order “in the nature of a mandatory injunction” requiring the defendant to take all necessary steps to transfer the shares.

Matadeen J granted the ex parte order and authorized the issue of the summons, which came before Yeung Sik Yuen SPJ for inter partes hearing. He dealt with the application under article 806. Having found that there was urgency (since the applicants were old and their access to funds had been cut off), the contre-lettre showed a clear beneficial title to the shares and the allegations of caducité and limitation did not raise a bona fide and serious defence, he granted the order. His judgment was affirmed by Pillay CJ and P Lam Shang Leen J in the Supreme Court. The appellants now appeal to the Privy Council.

Mr Guthrie QC, who appeared for the appellants, submitted that in the absence of a principal action commenced by way of plaint with summons under rule 2 of the Supreme Court Rules 2000 (or an undertaking to issue such proceedings), the judge had no jurisdiction to make an order “in the nature of a mandatory injunction”. Under the English procedure which applies equally to section 73 of the Courts Act, the court cannot grant an interlocutory or final injunction unless there are or will be principal proceedings in existence: see Rajabally v Seegobin [1938] MR 99; Ramessur v Daby [1962] MR 100; Industrial Distributors (1946) v Senior [1975] MR 13. Mr Guthrie said that since the judgment of Glover SPJ in Rameshwarnath Temple Association v Mauritius Sanatan Dharma Temples Federation [1986] MR 100, there had been a view in Mauritius that this rule did not apply to mandatory injunctions. It was said that because they were not expressed to be “until trial or further order” but required an act to be done, there was no point in having a principal action to go to trial. Mr Guthrie said that this doctrine may have influenced the judge but it was mistaken. Even in the case of a mandatory injunction, a principal action was still necessary. The applicant had to give a cross-undertaking in damages and a trial might be needed to determine whether it had been wrong to grant the mandatory injunction and whether the applicant should be liable upon his undertaking.

Their Lordships are inclined to think that Mr Guthrie is right on this point and that a mandatory injunction should not be granted in interlocutory proceedings unless the applicant has commenced a principal action or undertakes to commence one. It should be remembered that the grant of an interlocutory injunction, whether prohibitory or mandatory, depends on what is sometimes called the balance of convenience but is more accurately an assessment of whether granting or withholding the injunction at that stage is more likely in the end to produce a just result: see Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670, 680. It does not necessarily require the judge to form the view that the applicant is likely to succeed at the trial and, even after the grant of a mandatory injunction, he may well fail. But this has no application to the référé procedure, which is an entirely freestanding instance and in which no order is made unless the judge considers that there is no serious and bona fide defence. It does not need the support of a principal action although either party is at liberty to commence one.

Mr Guthrie submitted that the référé procedure applied only to applications by owners of property (principally land) for writs of possession (habere facias possessionem) and not to applications for mandatory transfers of shares. Their Lordships can find nothing in the language of article 806 or the Mauritian or French jurisprudence to confine the application of the procedure in this way. In the present case, the applicants had (subject to the pleas of caducité and limitation) a clear beneficial title to the shares but were unable to enjoy the benefit of that title because the defendants were on the register, in the same way as an owner of land is unable to enjoy its benefit when someone else is in possession. The référé procedure is a most useful weapon in the armoury of the court for dealing with such a case.

The next question is whether the well established requirements for an order under the référé procedure – urgency, clear title and no serious defence – were established. Urgency is a question of fact and Mr Guthrie acknowledged that their Lordships would not be inclined to disturb the concurrent findings of the two lower courts that urgency existed. He likewise accepted that prima facie the contre-lettre established, as of 1988, a clear title. But he submitted that the judge and the Supreme Court had erred in law in not giving effect to the defences of caducité and limitation.

Caducité is a technical expression of French law which refers in general terms to a juridical act which has ceased to have effect by reason of some subsequent event. There appears to be no single English equivalent, but the frustration of a contract, the ademption of a legacy or the revocation of a will would be examples. As these illustrations show, the acts or events which will produce the caducité of the prior juridical act depend upon the nature of that act. In the case of a contre-lettre which acknowledges the existence of a state of affairs different from that evidenced by the public record, such as a beneficial ownership in shares which differs from what is shown on the register, caducité will require evidence that the parties intended that the beneficiary of the contre-lettre should relinquish his beneficial interest in favour of the registered holder. In the section Contrats et Obligations (Fasc. 138) by Professor Michel Storck in Juris-Classeur – 2002 V˚, he describes a contre-lettre in his introduction to the discussion of article 1321 of the Code Civile as —

“1. …un acte juridique secret, non révélé aux tiers, qui a pour objet de déroger en tout ou en partie aux composantes ou aux effets d’un acte juridique apparent, seul porté par les parties à la connaissance des tiers.”

In note 32 he discusses the circumstances in which a contre-lettre may become caduque:

“Lorsque, après avoir établi une contre-lettre, les parties conviennent de nouvelles dispositions incompatibles avec la contre-lettre, celle-ci doit être considérée comme caduque et cesse de produire effet.”

By way of example, the commentator cites a decision of the Court of Appeal of Paris (5^e ch., sect. C, 2 nov. 1990, Valence c/ Aubry: Juris-Data n^o 1990-024221) in which a contre-lettre by which the managing director of a company acknowledged that certain shares registered in her name had been merely deposited with her was held to be caduque when the parties entered into an agreement in terms “totalement incompatibles” with the contre-lettre, acknowledging proprietary rights of the director over the shares.

It would appear from this explanation that, as one might expect, a contre-lettre ceases to have effect when the parties agree, either expressly or by necessary implication, that it should cease to have effect. This accords with what Professor Storck describes (in note 29) as “la règle de l’autonomie de la volonté” in the law of contract.

In this case, there is no evidence that Mr Gunness Gujadhur ever expressly agreed to give up his beneficial ownership of the shares in favour of his nephews and great-nephews. There is no allegation of any occasion on which he is alleged to have said anything to that effect. The entire defence is based upon the proposition that the benefits which the appellants (with the consent of Mr Gunness Gujadhur) derived from the company and the new constitution adopted for the company in 2003 were “totalement incompatibles” with the contre-lettre and therefore amounted by necessary implication to an agreement that it should cease to have effect.

Their Lordships do not consider it possible to draw such an inference. As the judge said —

“the alleged ‘intervening’ events are far from being incompatible with the terms of the contre-lettres.”

For example, the benefits conferred upon the appellants are, as Mr Gunness Gujadhur suggested, equally consistent with generosity on his part. The new constitution was adopted, as under company law it had to be, by the votes of the registered shareholders but this tells one nothing about the beneficial ownership of those shares or whether, if they had not consented, Mr Gunness Gujadhur could have required them to do so. Mr Guthrie objected that, as the question depended upon the intention of the parties, the judge was not entitled to decide the case upon affidavits without cross-examination. But intention does not mean secret intention. It means intention manifested by words or deeds. As there are no words upon which the appellants can rely, they are reduced to reliance upon deeds and if the evidence of deeds, taken at face value, does not support the inference of an intention to donate beneficial ownership in the shares, the appellants have failed to demonstrate that they have a serious defence. The notion that the appellants can claim that they should be allowed to establish their defence by cross-examining Mr Gunness Gujadhur with a view to showing that he had an undisclosed intention to give them the beneficial ownership in his shares only has to be stated to be rejected.

That leaves the question of limitation. The appellants submit that the claim of Mr Gunness Gujadhur is an “action personelle” within the meaning of article 2270 of the Mauritian civil code and that time ran from the date on which the contre-lettre was executed in 1988. This, as Mr Guthrie acknowledged, would be a remarkable state of affairs. It would mean that the beneficiary of a contre-lettre who had no reason to think that there was any dispute over his beneficial entitlement had to bring an action to enforce it within 10 years (or obtain a new one) or else lose his property. Their Lordships do not think that the law of Mauritius could possibly be so unreasonable.

The appellants say however that this result must follow from the remedy for enforcing a contre-lettre, which, they say, is an action en déclaration de simulation, a personal action in which time runs from the date of the simulation or pretended transaction. Thus in Sewruttun v Mahadewoosing [1982] MR 166 the heirs of the deceased owner of land claimed that a transaction in 1943 by which he purported to sell the land to his son for Rs 400 was a disguised donation intended to deprive them of their rights of succession. Lallah J held that this was an action en déclaration de simulation in which time ran from the date of the allegedly simulated disposition.

Article 2271 of the Mauritian Civil Code, which was adopted from the Code of Quebec by Act No 9 of 1983, provides that “le délai de prescription court à compter du jour où le droit d’action a pris naissance.” The question therefore is when the cause of action arose. Their Lordships would observe that the proceedings in Sewruttun v Mahadewoosing were brought by third parties to the alleged simulation, upon whom (if it was a simulation) it would not have been binding, with a view to setting it aside. In such a case, where the action is in effect an attack on the validity of a transaction, it is perhaps understandable that time should run from the impugned transaction. The transaction itself gives rise to the cause of action.

But the proceedings in this case are of an altogether different nature. They are to enforce the contractual obligation constituted by the contre-lettre. In the ordinary case of an action under a contract, the cause of action does not accrue when the contract is made but when one of the parties fails to perform it.

Mr Cox QC, who appeared for the respondents, submitted that the claim to enforce the contre-lettre was in substance a proprietary rather than contractual claim, an action en revendication to recover the shares. For such an action there is no period of limitation. But their Lordships prefer not to express a view on this point. French law does not know of trusts or equitable interests and the contre-lettre appears to operate as part of the law of obligations. Mr Cox said, in the alternative, that it operated as a mandat, constituting the holder an agent of Mr and Mrs Gunness Gujadhur. This would mean that time ran from the date on which the holder of the shares breached an obligation as a mandataire. Their Lordships do not find it necessary to classify the contractual relationship. What matters is that it was contractual and that for the purposes of article 2271 of the Code, a cause of action arose when the appellants refused to perform the contract and not before. This did not happen until 2003.

Their Lordships therefore consider that the judge and the Supreme Court were right to hold that the requirements of the référé procedure were satisfied and that a mandatory order should be granted. They will dismiss the appeal.

Mauvillac Industries Ltd v Mohit Ragoobeer

Mauvilac Industries Ltd

Appellant

v.

Mohit Ragoobeer

Respondent

FROM

THE COURT OF APPEAL OF

MAURITIUS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 25^th June 2007

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Present at the hearing:-

Lord Bingham of Cornhill

Lord Rodger of Earlsferry

Lord Carswell

Lord Brown of Eaton-under-Heywood

Lord Mance

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[Delivered by Lord Rodger of Earlsferry]

The appellant is Mauvilac Industries Ltd (“Mauvilac”), a company which manufactures, produces and markets paints in Mauritius. The respondent is Mr Mohit Ragoobeer who was employed by Mauvilac from 1977 until he was dismissed for misconduct in 2001. In the present proceedings, begun by proecipe in the Industrial Court, under section 36(7) of the Labour Act 1975 (“the 1975 Act”), Mr Ragoobeer seeks payment of a sum equal to six times the amount of the severance allowance that would be due to him under section 36(3). Mauvilac, for its part, contends that Mr Ragoobeer was validly dismissed under section 32(1)(b) and that therefore no severance allowance at all was payable: section 35(1). Mauvilac further submits that, even if his dismissal was not effected within the appropriate time-limit, it was still entitled to dismiss Mr Ragoobeer by giving him notice and paying him the appropriate severance allowance in terms of section 31(3)(a) of the Act.

In early 2001 problems emerged in connexion with the accounts of one of Mauvilac’s customers, Quincaillerie Monaco. The suggestion was that Mr Ragobeer might be responsible for the discrepancy in the accounts. Mauvilac convened a disciplinary committee which held a hearing on 28 March 2001, after which the executive director of Mauvilac wrote to Mr Ragoobeer informing him that the committee had come to the conclusion that he could not be held responsible for any discrepancies, but giving him a severe warning about the way he had handled the account.

Subsequently, further apparent serious breaches of duty on the part of Mr Ragoobeer relating to the accounts of Quincaillerie Monaco were brought to the attention of Mauvilac’s management. By letter dated 11 May, the executive director suspended Mr Ragoobeer and asked him to appear before a disciplinary committee to be held on 17 May so that he could give his explanation of the situation. In the event, the committee hearing did not take place until 30 May and the committee did not report to Mauvilac until 4 June. On the same day as he received its report, the chief executive of Mauvilac wrote a letter to Mr Ragoobeer, informing him that the board had come to the conclusion that he had committed an act of gross misconduct in the course of his employment. The chief executive continued: “In view of the seriousness of the matter, we have no other alternative but to terminate your contract with immediate effect.”

The next day, 5 June, the letter was sent to Mr Ragoobeer by registered post. The magistrate found, and it is now accepted, that Mr Ragoobeer received the letter on 7 June. It follows that he did not receive notice of the termination of his contract of employment until 7 June. This was not in any respect due to any “faute” on his part.

The legal issues to which these facts give rise relate to the 1975 Act which replaced The Termination of Contracts of Service Ordinance 1963 (“the 1963 Ordinance”). Section 6 of the Ordinance provided inter alia:

“(1) An employer may not set up as a good and sufficient casue for the summary dismissal of a worker -

...

(c) the filing in good faith of a complaint or the participation in a proceedings against an employer involving alleged violation of laws or regulations....”

(2) An employer may not dismiss a worker for alleged misconduct except in a case where he cannot in good faith be expected to take any other course and unless such dismissal is effected within seven days after the employer becomes aware of such misconduct.”

Section 32 of the 1975 Act is headed “Unjustified termination of agreement”. It provides inter alia:

“(1) No employer shall dismiss a worker -

(a) by reason only of the worker’s filing in good faith of a complaint, or participating in a proceeding, against an employer involving alleged violation of law;

(b) for alleged misconduct unless -

(i) he cannot in good faith take any other course; and

(ii) the dismissal is effected within 7 days of –

(A) where the misconduct is the subject of a

hearing under subsection (2), the completion

of the hearing;

(B) where the misconduct is the subject of

criminal proceedings, the day on which the

employer becomes aware of the final

judgment of conviction; or

(C) in every other case, the day on which

the employer becomes aware of

the misconduct.

(2) (a) No employer shall dismiss a worker unless he has afforded the worker an opportunity to answer any charges made against him and any dismissal made in contravention of this paragraph shall be deemed to be an unjustified dismissal.

(b) The worker may, for the purposes of paragraph (a), have the assistance of a representative of his trade union, if any, of an officer or of his legal representative.

(3) (a) Subject to paragraph (c), a worker whose employment has been unjustifiably terminated may refer the matter to an officer and shall be allowed the assistance of a representative of his trade union, if any.

(b) Where a reference under paragraph (a) does not result in the matter being satisfactorily settled, the worker may lodge a complaint with the Court and shall be allowed the assistance of a representative of his trade union, if any.

(c) No worker shall, under paragraph (a), refer a matter to an officer unless he does so within 7 days after he has been notified of his dismissal.”

As the Supreme Court pointed out in Happy World Marketing v Agathe 2004 MR 37, the genesis of the provisions in both the 1963 Ordinance and in the 1975 Act is to be found in the Termination of Employment Recommendation 1963 (“the Recommendation”) (No 119) of the International Labour Organisation (“the ILO”) which was adopted on 26 June 1963, a few months before the 1963 Ordinance was passed.

Paragraph 3 of the Recommendation provides inter alia:

“The following, inter alia, should not constitute valid reasons for termination of employment:

...

(c) the filing in good faith of a complaint or the participation in a proceeding against an employer involving alleged violation of laws or regulations....”

Paragraph 4 is to this effect:

“A worker who feels that his employment has been unjustifiably terminated should be entitled, unless the matter has been satisfactorily determined through such procedures within the undertaking, establishment or service, as may exist or be established consistent with this Recommendation, to appeal, within a reasonable time, against that termination with the assistance, where the worker so requests, of a person representing him to a body established under a collective agreement or to a neutral body such as a court, an arbitrator, an arbitration committee or a similar body.”

Finally, paragraph 11 provides inter alia:

“(1) In case of dismissal for serious misconduct, a period of notice or compensation in lieu thereof need not be required, and the severance allowance or other types of separation benefits paid for by the employer, where applicable, may be withheld.

(2) Dismissal for serious misconduct should take place only in cases where the employer cannot in good faith be expected to take any other course.

(3) An employer should be deemed to have waived his right to dismiss for serious misconduct if such action has not been taken within a reasonable time after he has become aware of the serious misconduct.

(4) A worker should be deemed to have waived his right to appeal against dismissal for serious misconduct if he has not appealed within a reasonable time after he has been notified of the dismissal.

(5) Before a decision to dismiss a worker for serious misconduct becomes finally effective, the worker should be given an opportunity to state his case promptly, with the assistance where appropriate of a person representing him.”

The resemblances between the legislation in 1963 and 1975 and the ILO Recommendation show beyond any doubt that the legislation was framed with paras 3, 4 and 11 of the Recommendation in mind. This was expressly recognised by the Supreme Court in Savanne Bus Service Co Ltd v Peerbaccus 1969 MR 139.

Date of Effective Dismissal

It is common ground that Mauvilac dismissed Mr Ragoobeer for misconduct. But, in terms of section 32(b) of the Act, it was not to dismiss him on that ground unless it could not, in good faith, take any other course and the dismissal was effected within 7 days of the completion of the committee hearing. Mr Ragoobeer does not suggest that Mauvilac could in good faith have taken any other course. It is common ground that in this case the hearing itself was completed on 30 May, even though the committee took further time to make its report. Mauvilac also accepts that, if the dismissal was only effected when Mr Ragoobeer received the letter from the company on 7 June, it was not effected within 7 days of the completion of the hearing, as required by section 32(1)(b)(ii)(A).

The first point to be decided is when the dismissal took effect. Clearly, dismissal is a unilateral act: to take effect, it does not require any action by the person who is dismissed. Some unilateral acts are effective without the person affected having to be told about them (actes non-réceptices), others only when the person affected is told about them (actes réceptices). See J Martin de la Moutte, L’Acte juridique unilatéral (1951), p 189, para 197: “l’acte réceptice atteint donc sa perfection lorsque la manifestation parvient à la connaissance du destinataire”, cited with approval by the Supreme Court in Happy World Marketing Ltd v Agathe 2005 MR 37, 39. While the borderline between the two categories may not always be easy to determine, their Lordships have no doubt that dismissal of an employee is an acte réceptice, which takes effect only when the employee is notified. See, for example, Martin de la Moutte, L’Acte juridique unilatéral, p 175, para 181, where, giving clear-cut examples of actes réceptices, the author says: “En tout premier rang, on cite la résiliation du contrat, lorsqu’elle est possible, qui paraît constituer le type de l’acte dont l’existence est subordonnée à une notification.” Having given the example of the termination of a lease, he continues: “Il en va de même pour la résiliation du contrat de travail.” Confirmation of notification as being the decisive moment for purposes of section 32 of the 1975 Act is to be found in subsection (3)(c) which requires an employee who is going to challenge his dismissal as being unjustified to do so within 7 days “after he has been notified of his dismissal”.

During the hearing before the Board there was some discussion of various hypothetical examples where a letter notifying an employee of his dismissal reached his address within 7 days, but for some reason the employee did not know about it or read it until after the expiry of 7 days. The Board does not need to explore these questions in this case since it is agreed that Mr Ragoobeer read the letter on the day that it arrived. In these circumstances, in respectful agreement with the Court of Appeal, their Lordships are satisfied that Mr Ragoobeer’s dismissal became effective on 7 June 2001 and not before.

Unjustified termination

Was the termination of Mr Ragoobeer’s contract of employment on 7 June “unjustified” in terms of section 32 of the 1975 Act? On behalf of Mauvilac, Mr Sauzier contended that it was not: he pointed out that subsection (2)(a) is the only place in the body of the section where a termination is described as “unjustified”. Hence, he argued, a termination should not be regarded as “unjustified” unless the employer fails to give the employee an opportunity to answer any charges of misconduct that are made against him. Their Lordships are unable to accept that submission.

The heading of section 32 makes it clear that the section, as a whole, is dealing with unjustified termination of an employment agreement or contract. That is reflected in the structure of subsection (1) which specifies two grounds on which an employer is not to dismiss a worker – and where, accordingly, any termination of his employment must be unjustified. The first is where the employee is dismissed only because he made a complaint against his employer in good faith, or took part in a proceeding against his employer, involving an alleged violation of the law. The second ground on which an employer is not to dismiss an employee is for alleged misconduct – unless two requirements are met. Again, obviously, any termination of the employee’s contract of employment will be unjustified unless the two requirements are met. The legislation treats subsection (1)(a) and (b) as, in effect, describing terminations which are unjustified. They reflect para 11(2) and (3) of the ILO Recommendation. In subsection (2), the draftsman then identifies a specific situation where, even though the requirements of subsection (1)(b) are met – the employer could not do anything else and the dismissal takes place within 7 days – the dismissal is nevertheless “deemed to be unjustified”. In substance, if not in form, it corresponds to para 11(5) of the Recommendation.

To adopt the construction advanced by Mr Sauzier and limit the notion of an unjustified termination to section 32(2)(a) cases would be false to the scheme of the section and, indeed, of the Recommendation lying behind it. It would also make nonsense of the way that the provision operated in practice. For instance, if the employer could have taken some measure short of dismissal, then, by reason of subsection (2)(b)(i), the employee’s employment must have been “unjustifiably terminated” for the purposes of subsection (3)(a). Otherwise, the employee would not be able to challenge his dismissal by referring it to an officer and having the assistance of a trade union representative.

Of course, it may seem strange to describe the termination of an employee’s employment for established misconduct as “unjustified” merely because the necessary notice reaches the employee eight, rather than seven, days after the completion of the disciplinary hearing. Nevertheless, the legislature has adopted a policy of laying down a fixed time limit – clearly, with the Recommendation of the ILO in mind and with the aim of ensuring that both parties know where they stand as quickly as possible. See Mahatma Gandhi Institute v Mungur P 1989 SCJ 379 where the Supreme Court described the time-limit as being based on sound principles and added:

“Both from the point of view of the worker and that of the employer, it is in their best interests that the contractual bond be severed within a definite period of time when the continued employment of the worker becomes impossible through his proven misconduct.”

In subsection (3)(c) the legislation imposes a corresponding obligation on employees to act quickly: an employee cannot challenge his dismissal as being unjustified by referring it to an officer under subsection (3)(a), unless he does do so within 7 days of being notified of his dismissal. The courts must respect the policy which lies behind the time-limits that the legislature has imposed.

Their Lordships are therefore satisfied that, by 7 June, the statutory period had passed and Mauvilac was therefore not entitled to dismiss Mr Ragoobeer for alleged misconduct under section 32(1)(b). It follows that the termination of his employment was unjustified.

Simple or six-fold severance allowance?

If Mauvilac was not justified in terminating Mr Ragoobeer’s employment under section 32(1)(b) because it did not do so within the time-limit, then section 35(1), which excludes the payment of a severance allowance where the employee is dismissed under section 32(1)(b), does not apply. That is common ground. The parties are divided, however, on the appropriate award by way of severance allowance.

Mr Ragoobeer contends that, since the termination of his employment was not justified, under section 36(7) of the 1975 Act he is entitled to be paid a sum equal to 6 times the appropriate severance allowance:

“The Court shall, where it finds that the termination of the employment of a worker employed in any undertaking, establishment, or service was unjustified, order that the worker be paid a sum equal to 6 times the amount of severance allowance specified in subsection (3).”

Mauvilac contends that, since Mr Ragoobeer had in fact acted improperly, it was entitled to terminate his contract of employment on giving him the appropriate notice and paying him simply the appropriate severance allowance.

Mauvilac bases its stance on a line of cases which began while the 1963 Ordinance was in force. As originally drafted, section 7(4) of the Ordinance simply provided that, if the magistrate of the Industrial Court found that the termination of employment was not justified, he could order that the employee, if not reinstated, should be paid adequate compensation or afforded such other relief as was provided in the Ordinance. By section 5 of The Termination of Contracts of Service (Amendment) Ordinance 1966, however, section 7(4) was amended so as to read:

“The Magistrate of the Industrial Court shall be empowered, if he finds that the termination of employment was unjustified, to order that the worker concerned, unless reinstated, where appropriate with payment of unpaid wages, should be paid six times the amount of severance allowance calculated in accordance with the provisions of section 11 of this Ordinance.”

Although the amendment introduced the six-fold penalty, the provision simply conferred a power on the magistrate to make such an order. Section 7 was further modified by section 4(a) of The Termination of Contracts of Service (Amendment) Act 1971. Section 7(5) now provided:

“The Magistrate of the Industrial Court shall, if he finds that the termination of the employment was unjustified, order that the worker shall be paid a sum equal to six times the amount of severance allowance calculated in accordance with the provisions of section 11.”

In effect, this provision was the forerunner of section 36(7) of the 1975 Act.

In Harel Frères Ltd v Veerasamy 1968 MR 218 the employees were drivers of a caterpillar which had broken down in circumstances which suggested that it had been sabotaged. Their employer dismissed them for serious misconduct on the basis that they had been responsible for the sabotage. The magistrate in the Industrial Court held that the employer had failed to prove that the two employees were responsible and so had failed to prove serious misconduct on their part. In these circumstances, on the view that the termination of the employees’ employment had been unjustified, the magistrate ordered the employer to pay six times the appropriate severance allowance. The Supreme Court agreed with the magistrate that the employer had failed to prove that the employees had been responsible for the damage. It held, however, that he ought to have gone on to consider whether the employees’ actions had been suspicious and had, therefore, given their employer a valid reason for terminating their employment, albeit on payment of the appropriate severance allowance. Having referred to situations where the employer would be justified in terminating an employee’s contract, the Supreme Court continued:

“If, on the other hand, the conduct of the employee is not such as would amount to the misconduct contemplated by the said section 6 and 9, but such nevertheless as would justify the employer in not continuing to employ him, then the latter is entitled to put an end to the worker’s employment, but he must pay him any severance allowance due in accordance with section 9 and 11 of the Ordinance and, possibly also, give him the required notice.

This being the effect of subsection (3) of section 7 of the Ordinance, the jurisdiction of the magistrate under subsection (4) of that section to mulct an employer in six times the severance allowance is limited to those cases where the employer has no valid reason at all to discontinue employing a worker. It will, therefore, be the magistrate’s duty in any case of termination of employment referred to him in which the employer pleads as in the present case to enquire whether there was any reason for such termination and, if there was, whether it justified the summary dismissal of the worker or simply the discontinuance of his employment with payment of severance allowance.”

In Savanne Bus Service Co Ltd v Peerbaccus 1969 MR 139 the Supreme Court took its thinking a stage further. Whereas in Harel Frères the employer had failed to prove serious misconduct, in Savanne Bus Service Ltd the employer had proved serious misconduct on the part of the employee, but had not effected his dismissal within the statutory seven-day period. Applying the approach in Harel Frères, the court held that:

“the jurisdiction of the magistrate under section 7(4) to mulct an employer in six times severance allowance is limited to those cases where the employer has no valid reason at all to discontinue employing a worker and, in any case of termination of employment referred to him in which the employer pleads, as the appellant, the magistrate’s duty is to enquire whether there was any reason for such termination, and, if there was, whether it justified the summary dismissal of the worker or simply the discontinuance of his employment with payment of severance allowance. In this case the magistrate has found, quite rightly in our view, that there was a valid reason for the termination of the respondent’s employment and that the appellant would have been entitled to dismiss the respondent summarily, but for his failure to comply with the conditions of section 6(2) of the Ordinance. On such failure the appellant should merely be deemed to have waived his right to dismiss the respondent summarily and, consequently, that kind of termination was not justified. On the other hand, since there was a valid reason for the termination of the respondent’s employment, such termination with payment of any severance allowance due was justified and the magistrate was wrong to award to the respondent six times the allowance.”

Relying on essentially that reasoning, Mauvilac contends that, since there was a valid reason for terminating Mr Ragoobeer’s employment, the only effect of its failure to dismiss him within the statutory period of 7 days laid down in section 32(1)(ii) was that it must be deemed to have waived its right to dismiss him summarily. But it could still terminate his employment on payment of the appropriate severance allowance calculated in accordance with section 36.

The Supreme Court rejected that argument and followed the approach which it had adopted in Happy World Marketing Ltd v J P Agathe 2004 SCJ 154. In that case, the Supreme Court distinguished the decision in Savanne Bus Service Ltd on the ground that it had been decided under the 1963 Ordinance. In addition, it overruled two decisions where the approach in Savanne Bus Service Ltd had been applied to the 1975 Act.

In considering the authorities, their Lordships would not be disposed to distinguish the cases on the 1963 Ordinance on the basis that section 6(2) said that “an employer may not dismiss a worker for alleged misconduct...” whereas section 32 says “No employer shall dismiss a worker... for alleged misconduct....” And, indeed, the terms of the Supreme Court’s judgment in Happy World Marketing Ltd v Agathe indicate that, in truth, it was departing from the reasoning in the earlier decisions. Therefore, while, as it will explain, the Board considers that the earlier decisions can be distinguished, it too prefers simply to consider the validity of the two competing interpretations.

It respectfully seems to the Board that the approach adopted in Happy World Marketing Ltd v Agathe and in the present case is to be preferred. In a case like the present or Savanne Bus Service Co Ltd v Peerbaccus the reality is that the employer sets out to terminate his employee’s employment on the ground that he had been guilty of serious misconduct. Moreover, the employer proves that the employee was guilty of serious misconduct and gives the employee notice of dismissal on that ground. The problem arises because the notice is given too late and so the dismissal is not effected within the seven-day period laid down by the legislature. For that reason, the employer is not justified in dismissing the employee on the ground of his serious misconduct. But the fact that the notice is given late does not alter the ground on which the employer purports to dismiss the employee: it is his serious misconduct and remains his serious misconduct even though the dismissal is not effected in time. So in such a situation the employer dismisses his employee for misconduct in a situation where the law says that, by reason of delay, he is not justified in doing so. In these circumstances, under section 36(7) - by contrast with section 7(4) of the 1963 Ordinance as it stood when Harel Frères Ltd v Veerasamy 1968 MR 218 and Savanne Bus Service Co Ltd v Peerbaccus 1969 MR 139 were decided - the magistrate is not simply empowered but obliged to order the employer to pay the six-fold penalty. In that respect the earlier decisions are indeed distinguishable.

What is not legitimate, in their Lordships’ view, is to allow the employer to avoid the penalty prescribed by the legislature by, in effect, ignoring what he actually did and asking whether he might have had some other reason for terminating his employee’s contract in a different way - and then treating him as if he had done so. That is, in substance, to adopt a stratagem that defeats the intention of the legislature. Leaving aside any other difficulties, this appears to their Lordships to be the fundamental objection to the approach adopted in Savanne Bus Services Ltd applying so as to avoid the mandatory terms of section 36(7) of the 1975 Act. They understand the Supreme Court to have been putting forward essentially the same objection in Happy World Marketing Ltd v Agathe when it said:

“If an employer does not dismiss a worker within the mandatory statutory limit of seven days, he is deemed to have waived his right to dismiss the worker for serious misconduct and not to pay severance allowance (section 35(1) of the Act) so that any subsequent dismissal becomes unjustified and attracts severance allowance at the punitive rate, irrespective of whether he has or not a valid reason to discontinue with the employment of the worker, with or without payment of severance allowance at the normal rate – vide section 36(7) of the Act.”

Obviously, in a case like the present where the notice of dismissal is only a day late, the six-fold penalty can seem harsh and this doubtless explains why the Supreme Court was formerly prepared to adopt an interpretation of the legislation which mitigated this harshness. But the legislature was entitled not only to lay down a time-limit but - subject, of course, to any relevant provisions in the Constitution - to prescribe the penalty that is to attach to a failure to comply with that time-limit. In this case the legislature chose, as it was entitled to, a single, undifferentiated, sanction. Inevitably, those who just miss the deadline feel that it is unfair that they should be treated no differently from those whose failure is much worse. The particular impact of the sanction in a case like the present cannot, however, justify the courts in ignoring the plain meaning of section 36(7) of the Act.

Disposal

For these reasons the appeal must be dismissed.

Jacques Bénichou v Mauritius Commercial Bank

Jacques Benichou

Appellant

v.

Mauritius Commercial Bank

Respondent

FROM

THE COURT OF APPEAL OF

MAURITIUS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 23rd May 2007

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Present at the hearing:-

Lord Bingham of Cornhill

Lord Hope of Craighead

Lord Walker of Gestingthorpe

Baroness Hale of Richmond

Lord Carswell

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[Delivered by Lord Walker of Gestingthorpe]

This appeal is concerned with three consolidated sets of proceedings for the enforcement of securities granted by the appellant, Mr Jacques Benichou. The creation of these securities and their enforcement raise substantive and procedural issues under the Mauritian Civil Code and Code of Civil Procedure, both derived from the Code Napoleon. In such a matter the Board will naturally be very slow to differ from the Supreme Court of Mauritius, which has unparalleled knowledge and experience of the technical issues which arise on this appeal.

The issues arise in the context of the largest corporate insolvency in the history of Mauritius. The company in question, Woventex Ltd (“Woventex”) was incorporated in Mauritius in 1987. It was established as an ambitious joint venture for a new integrated mill and textile factory in Mauritius. The moving spirit was Mr Benichou. He was managing director (and latterly executive chairman) of Woventex. He was also a shareholder, either directly or through a Panamanian company called Soltex International (“Soltex”). The other principal participants were the Commonwealth Development Corporation (“CDC”), Deutsche Finanzierungsgesellschaft für Beteiligungen in Entwicklungsländern GmbH (“DEG”) and the Mauritius Commercial Bank (“the Bank”). The original plan, set out in a joint venture agreement dated 6 November 1987 (“the JVA”), was that the total cost of the project would be R580m. Mr Benichou was to take up about 56% of the equity capital (initially totalling R215m). CDC and DEG were each to take up about 14% of the equity and put in 30% of the loan capital (initially totalling R365m). The Bank was to take up about 14% of the equity and put in 40 % of the loan capital.

The project did not prosper. The detailed facts as to the deterioration of Woventex’s financial position, and of relations between the parties, is a complicated and contentious matter, on which no court in Mauritius has yet made findings (there have been some concluded legal proceedings in France, which it will be necessary to return to briefly). The ascertainment of the facts has been complicated by Mr Benichou’s having been in contempt of court since June 1994, when he failed to return to Mauritius in obedience to a court order permitting him to leave the Island for one month only. Mr Benichou has not himself made any affidavit, either in these proceedings or in linked proceedings (Woventex Ltd (In Receivership) v Benichou) in which the Board heard an appeal immediately before the hearing of this appeal. Instead he has caused a large number of affidavits to be sworn on his behalf. Some of these resemble pleadings or skeleton arguments rather than factual depositions. Much of their contents has been objected to as inadmissible hearsay, and before the Board leading counsel for Mr Benichou (Mr Hodge Malek QC) accepted that on matters of fact he could rely only on documentary evidence, the Bank’s own affidavit evidence, and such of the affidavits on behalf of Mr Benichou as the Bank did not object to; but there has been no formal striking-out of parts of the evidence filed on behalf of Mr Benichou. That is a further and regrettable complication on what is, on any view, a complicated matter.

Apart from his shareholding (through Soltex) in Woventex Mr Benichou had numerous other business interests. In particular he had a controlling interest in P R Ltd (“PR”), a Mauritian company which owned a hotel. PR is in receivership and is a party, as garnishee, in the first of the appeals. Mr Benichou also had interests in seven other companies (“the second group of garnishees”) which are parties, as garnishees, in the second appeal. The second group of garnishees includes a Mauritian company called Maurigarments Ltd (“Maurigarments”). The garnishee in the third appeal is Mr A K Rajah, who was Mr Benichou’s attorney but has ceased to act for him because of a conflict of interest. All the garnishees have submitted to the court and none of them has been represented before the Board.

PR, the second group of garnishees and Mr Rajah can conveniently be referred to as garnishees but none of them is an ordinary trade debtor of Mr Benichou. In relation to PR and the second group of garnishees Mr Benichou’s interest, which the Bank seeks to attach, was as a shareholder (in particular, Mr Benichou had 2,357m shares in PR, apparently the most successful of his companies). In relation to Mr Rajah, Mr Benichou’s interest was said to be as beneficial owner of funds which were held in a bank account in the name (or under the control) of Mr Rajah. In relation to all these assets the Bank relies on a floating charge dated 17 October 1990 entered into in its favour by Mr Benichou. Despite its date the actual signature of the charge by Mr Benichou may have occurred after his receipt of a letter dated 27 October 1990 about which there has been much discussion. The floating charge is a standard-form printed document suitable for execution by an individual surety providing a secured guarantee of a company’s indebtedness. It recites that Woventex had requested banking facilities of R15m (that sum being typed into the form). But in the body of the charge Woventex entered into an unlimited “all monies” obligation, as did Mr Benichou as guarantor; and Mr Benichou created in favour of the Bank “a floating charge of all his undertaking, goodwill, movable and immovable properties as well as on all or any part of his properties which may from time to time belong to him and generally on all his properties of any kind and nature whatsoever and wheresoever”.

The letter of 27 October 1990 has given rise to a good deal of argument. It is a commercial document, unlikely to have been prepared by lawyers, and there is no agreement or finding as to its commercial context (although it is clear from the letter itself that there were problems caused by the need for further financing of a project which was proving unexpectedly expensive and difficult). The gist of the letter was that the Bank would provide bridging finance to Woventex until further equity and loan capital had been contributed by various participants. Details of these were given and the letter went on (with paragraph numbers inserted for ease of reference):

[1] “. . . being guaranteed by:

(a) a pledge of all shares owned and/or controlled by yourself directly or indirectly in Maurigarments Co Ltd for an amount of R50M.

(b) a pledge of all shares owned and/or controlled by yourself directly or indirectly in PR Ltd, owner of Le Grand Gaube Hotel, for an amount of R50M

(c) a floating charge on your other personal assets in Mauritius for a total amount of R15M.

[2] It is hereby agreed that the above guarantees will be terminated automatically and proportionately as soon as CDC, DEG and yourself (Soltex) actually disperse loans or subscribe to equity as per above Table I.

[3] Put another way, the above guarantees will only stand for all amounts which, at any point in time, would still be financed by us beyond our commitments which are as follows.”

There is then a list of items of equity and loan capital totalling R202m.

Leading counsel for the appellant submitted that the Bank’s attachment, so far as it depended on the floating charge, must fail for the simple reason that the claim was (apart from accrued interest) for much less than R202m. But that cannot be the correct interpretation of the words of paragraph [3] set out above. The Bank had permanent commitments to Woventex, in equity and loan capital, which by October 1990 amounted to R202m. Mr Benichou was not responsible for any of those sums. The Bank was then providing Woventex with further, temporary bridging finance which Mr Benichou was required to guarantee. He was to be liable for everything which the Bank advanced to Woventex beyond its existing commitments totalling R202m. Mr Malek’s suggested interpretation would in effect put in place not one limit, but two limits of R202m. That point is in their Lordships’ view perfectly clear. There are other more obscure points on the letter of 27 October 1990 which it will be necessary to return to.

In relation to the PR shares (only) the Bank also relies on two pledges (nantissements) of Mr Benichou’s 2,357m shares made on 12 October 1991 for R50m in respect of the indebtedness of Woventex and then on 11 September 1992 for R20m in respect of the indebtedness of Maurigarments. The Bank’s case is that the pledges were to be effected by the delivery of blank transfers and share certificates, but that Mr Benichou repeatedly failed to comply with the Bank’s requests to hand over the share certificates. Nevertheless, the Bank says, the pledges were registered in the books of PR under section 85 of the Companies Act 1984, and that was good enough to enable them to be enforced by way of attachment. Had the share certificates been delivered as they should have been, it is said on behalf of the Bank, the security would have been enforceable without the need for any application to the court at all.

Three applications by way of praecipe were made to the Supreme Court: (1) on 18 April 1994 for the attachment and sale of Mr Benichou’s PR shares, (2) on 18 April 1994 for the attachment and sale of Mr Benichou’s shares in the second group of garnishees, and (3) on 9 June 1994 for the attachment of Mr Benichou’s funds in Mr Rajah’s hands. The sum claimed by the first attachment was just over R76,295m with accruing interest. The second and third attachments claimed just over R56,295m with accruing interest. The difference (of exactly R20m) is accounted for by the multiplicity of securities relied on in the first attachment, which cover (on the Bank’s case) Mr Benichou’s liability for indebtedness of Maurigarments as well as for indebtedness of Woventex.

Mr Benichou has, on various grounds, resisted all three of the Bank’s applications for attachment. But he did not take any positive action to protect his interests (as he could have done under article 2202-47 of the Civil Code) when the floating charge was crystallised. Nor did he contest the validity of the floating charge in a separate action (open to him under article 2202-15 of the Civil Code). The Supreme Court regarded Mr Benichou’s failure to take action as providing a very short answer to his objections to the enforcement of the floating charge:

“Above all and furthermore, as submitted by learned Counsel for the attaching party, at no point in time has the defendant contested the validity of the charge in a separate action as provided by article 2202-15 of the Code Civil or object[ed] to the crystallization of the charge as provided for by article 2202-47 of the Code Civil. The defendant cannot therefore in the present proceedings for the validation of the attachment orders and at this late stage contest the validity of the charge.”

Their Lordships are not satisfied that the Supreme Court, which has great experience in these matters, has been shown to have erred in this view. But in deference to the detailed arguments put forward by both sides their Lordships think it right to address the other issues raised in relation both to the floating charge and to the pledges of PR shares. In relation to the floating charge Mr Benichou raised before the Supreme Court a point on community of goods which was not relied on before the Board. But counsel for Mr Benichou did before the Board rely on two grounds of appeal which were considered in detail by the Surpreme Court. Counsel also relied on four further points which were, they say, raised in the Supreme Court (at least in written submissions) but were not considered (or were only very briefly considered) by the Supreme Court. These can be summarised as follows:

(1) Article 1326 of the Civil Code;

(2) Article 551 of the Civil Code;

(3) the sale of the Reunion property;

(4) the beneficial ownership of the funds held by Mr Rajah;

(5) the letter of 27 October 1990 and the R15m limit on the floating charge; and

(6) the agreement of 14 April 1992.

Their Lordships will consider these points in turn. They will then address the point taken by the appellant in relation to the pledges. Points (1) to (4) above, and the pledges, were argued by Mr Oakley, junior counsel for the appellant.

Article 1326 provides:

“L’acte juridique par lequel une seule partie s’engage envers une autre à lui payer une somme d’argent ou à lui livrer un bien fongible doit être constaté dans un titre qui comporte la signature de celui qui souscrit cet engagement ainsi que la mention, écrite par lui-meme, de la somme ou de la quantité en toutes letters et en chiffres. En cas de difference, l’acte sous seing privé vaut pour la somme écrite en toutes letters.”

It is common ground that the floating charge did not comply with this article, since although Mr Benichou signed it, the figure R15,000,000 was typed onto the printed form. The Supreme Court held that this did not make the instrument void. The appellant submits that that missed the point, which was that the charge, since it did not comply with article 1326, was not a titre executoire (enforceable security).

Before the Board Mr Sauzier (for the Bank) has put forward further arguments: that the floating charge, once registered, was enforceable under article 2202-7 and 2202-8 of the Civil Code, and that that effect could have been set aside only by an action under article 2202-15, which (as already noted) Mr Benichou never took. Mr Sauzier also submitted that article 1326 is giving effect to a policy of consumer protection, and that it has been held not to apply to commercial transactions between traders: see IOIB Ltd v Alleck [2004] SCJ 141 and Aquachem v Delphis Bank (in receivership) [2005] SCJ 32. Their Lordships accept these submissions as well-founded.

Article 551 provides:

“Il ne sera procédé à aucune saisie mobilière ou immobiliere, qu’en vertu d’un titre exécutoire, et pour des choses liquides et certaines: si la dette exigible n’est pas d’une somme en argent, il sera sursis, après la saisie, à toutes poursuites ultérieures, jusqu’à ce que l’appréciation en ait été faite.”

In short, an attachment is permitted only for a liquidated sum. If the sum claimed could be ascertained only by taking an account, attachment is not possible: Soomally v Soomally [1968] MR 138. That was a case in which a complicated account had to be taken in the administration of an estate, and it was admitted that some vouchers (needed for taking the account) were not available. The principle is not in doubt but their Lordships do not accept that it applies in this case. The Bank’s claim is for the principal of, and unpaid interest on, monies advanced to Woventex. The necessary computation may be complex but the entire claim is for a liquidated sum.

In November 1992 the Bank agreed to Mr Benichou selling a property known as Reunion on condition that its proceeds of sale were (as it was put in the Bank’s letter dated 20 November 1992) “lodged in Maurigarments’ current account with us: being shareholder’s equity or loan in the name of Mr J Benichou”. The consent of the Bank (as holder of the floating charge) was needed because the sale of the property was not a routine business transaction. But the proceeds were not used to reduce Woventex’s indebtedness to the Bank. The payment to Maurigarments was to be reflected either by an increased shareholding in Maurigarments owned by Mr Benichou, or by a debt owed by Maurigarments to Mr Benichou. The shares or debt would remain subject to the floating charge. This argument must therefore be rejected.

The point about the funds held by Mr Rajah must also be rejected. It was hardly mentioned in argument in the Supreme Court. There is no reliable evidence to support Mr Benichou’s claim that he was not the beneficial owner of the funds, and some documentary evidence contradicts it.

The letter of 27 October 1990 evidenced what was intended to be a short-term arrangement to provide bridging finance covering the amounts of further equity and loan capital to be put into Woventex by Mr Benichou (through Soltex), CDC and DEG. The total new finance from these sources was set out in the letter as R122.7m. CDC and DEG were institutions of high standing and were obviously good for the money, once the necessary consultants’ report had been obtained. The funds to come from Mr Benichou may have been regarded as more problematical.

In these circumstances it would not have made commercial sense if paragraph [2] of the letter (set out in para 6 above) had produced the result that Mr Benichou’s guarantee was drastically reduced in amount as soon as CDC and DEG complied with their obligations, even if (as happened) Soltex defaulted in its obligation. Leading counsel for Mr Benichou did not, as their Lordships understand it, press any argument to the contrary. Paragraph [3] of the letter, which their Lordships have already addressed, makes the position clear. It is also significant that in a recital (C) to a share subscription agreement dated 17 January 1992 (to which Mr Benichou was a party) it was recited that

“[the Bank] has made available to [Woventex] against securities provided by [Mr Benichou] a bridging overdraft in the amount of R36m bearing interest at variable rates.”

Leading counsel did however argue that there was a limit of R15m on the principal sum secured by the floating charge. That figure appears both in the floating charge itself and in the letter of 27 October 1990. But in the floating charge it appears only as a recital (possibly for stamp duty purposes, although that is a conjecture) and the operative part of the charge is clearly unlimited in amount. Their Lordships recognise that the limit mentioned in the letter seems to present more of a problem. The Supreme Court did not refer to it directly, but repeated the point that Mr Benichou had not objected to the crystallisation of the floating charge. That point seems to carry special weight in a situation where Mr Benichou was relying on an informal, collateral document to vary the effect of a formal, registered charge, under a Civil Code and Code of Civil Procedure which accord considerable importance to formalities. Their Lordships are not therefore satisfied that the Supreme Court was in error in failing to deal with this point at greater length.

Finally, in relation to the floating charge, there is a point taken on a shareholders’ agreement dated 14 April 1992. This contained a recital (D) that it replaced and superseded the JVA. That does seem to have been its effect, since it contained complex options and other provisions superseding those in the JVA. But there is no reason to suppose that the agreement of 14 April 1992 was intended to put an end to the collateral stipulations in the letter of 27 October 1990, so far they were still operative at the latter date. As already mentioned, an agreement dated 17 January 1992 had recited Mr Benichou’s secured liability for bridging finance provided to Woventex in the amount of R36m. For the reasons already mentioned their Lordships conclude that the collateral stipulations were still operative, and recital (D) did not bring them to an end.

Their Lordships can deal more briefly with the objections taken in regard to the pledges. They accept the submission of Mr Sauzier that, if the Bank had succeeded in obtaining custody of the share certificates which Mr Benichou had promised to deliver, it could have enforced its security (by a commercial sale) without the need for any judicial intervention. As it was, it had to go through the procedure of attachment. But that procedure was available, as the Supreme Court held, under section 85(2) of the Companies Act 1984 and article 2077 of the Civil Code.

Before the Board Mr Sauzier took some preliminary points which were not taken before the Supreme Court, and to which their Lordships have not yet referred. One was the submission that Mr Benichou, as a party who is still in contempt of court, ought not to be heard at all before the Board. The other main point relied on was that the subject-matter of the appeal is res judicata as a result of proceedings in France in which an appeal by Mr Benichou was dismissed by the Cour d’Appel de Paris on 10 April 2002 and again by the Cour de Cassation on 14 October 2004. Their Lordships have concluded that they ought not to refuse to hear Mr Benichou at all in a matter in which leave to appeal has been granted by the Supreme Court. They consider that it is not necessary or appropriate to go into the complex issues raised by the res judicata issue. For the reasons set out above, which are essentially the same as those of the Supreme Court, their Lordships dismiss this appeal with costs.