Date: 20040216
Docket: T-455-02
Citation: 2004 FC 231
Ottawa, Ontario, Monday, this 16th day of February 2004
PRESENT: MADAM PROTHONOTARY MIREILLE TABIB
BETWEEN:
FORESIGHT SHIPPING CO. LTD.
Applicant
- and -
UNION OF INDIA
and
FOOD CORPORATION OF INDIA
Respondents
- and -
THE SHIPPING CORPORATION OF INDIA LTD.
Intervener
REASONS FOR ORDER AND ORDER
TABIB P.
[1] In 1993, Foresight Shipping Co. Ltd. ("Foresight") obtained, after arbitration conducted in India, an arbitral award against the Respondents herein, the Union of India ("India") and Food Corporation of India ("FCI") in relation to a charter party dispute. The award was not paid by either
India nor FCI. The award was registered as a judgement of the High Court of Delhi in 2000. Still, neither India nor FCI paid the award. Registration proceedings in England in 2001 gave no better results, and in March 2002, Foresight successfully registered its award as a judgement of this Court. It appears that neither India nor FCI dispute the validity of the award or of the various registration orders issued in relation to it; nor do they seem to deny the fact of their indebtedness to Foresight, in an amount which now exceeds, with interests, C $1,000,000.00. However, they will simply not pay.
[2] It is not clear from the record before me why execution has not been pursued - or been successful - against FCI, but whatever the reasons, they are not directly relevant to the issues before me. As regards India, the record shows that the assets of India are not subject to writs of execution under Indian laws, so that "the only recourse a judgement creditor has [is] to wait until the central government makes a payment."[1]
[3] It has been ten years, and Foresight is still waiting. Not surprisingly, it is no longer content to wait and is seeking to enforce the debt against assets of India situated outside of India, where they are not immune from execution. As part of this effort, Foresight has sought and obtained in this Court a writ of seizure and sale against the ship "Lok Rajeshwari" in satisfaction of the award.
[4] However, the ship "Lok Rajeshwari" is neither owned by India nor by FCI. She is owned by The Shipping Corporation of India Ltd. ("SCI") who has objected to the seizure and has consequently filed the present motion for leave to intervene and for relief from the seizure. SCI's right to intervene is not contested, but Foresight does argue that the seizure should be upheld. Neither of the two Respondents have appeared to contest or support this motion.
[5] Foresight does not dispute SCI's ownership of the vessel. Rather, it argues that the writ of seizure and sale should nevertheless be upheld for the following reasons:
a) That, under Indian law, SCI is an alter ego of the government of India and as such its assets should be available to satisfy the debts of the Union of India.
b) That the Court should pierce the corporate veil and treat the assets of SCI as the assets of India for the purpose of execution.
a) The evidence:
[6] The evidence submitted by Foresight and SCI, in the form of the expert affidavits of Prashant S. Pratap and Subramanian Venkiteswaran as to Indian law and the affidavit of Dipankar Haldar, as corporate secretary of SCI, clearly show that SCI is a corporation, validly formed and governed under the Indian Companies Act, 1956; that the Companies Act, 1956 is the statute of general application governing all companies formed in India; that Indian law recognizes to corporations formed under the Companies Act, 1956 a juridical personality distinct from that of its shareholders, both as regards liability and assets; that SCI's shares are publicly traded on various stock exchanges in India; that SCI's shares are owned, in a proportion of 80.12% by the government of India, and in a proportion of 19.88% by various corporate and physical persons in India and abroad, who are free to publicly trade their shares; that SCI maintains separate audited accounts from those of its shareholders; that SCI is subject to the same revenue and taxation laws as other Indian citizens; and that, although through its majority shareholding, the government of India does have effective control over the appointment of the board members of SCI and over certain matters specified in SCI's Memorandum and Articles of Association of the Company (relating to important capitalization and indebtedness issues), the government has no more control over the operations of SCI as any majority shareholder of a private company would have. It is simply without question that under Indian law, SCI has a distinct juridical personality from the Union of India, such that their assets and liabilities are distinct and separate.
[7] The documents attached to the affidavit of Wilmot Moisey, submitted on behalf of Foresight, show that SCI describes itself as a "Government of India Enterprise" and that independent shipping publications appear to confuse (or could be read as confusing) SCI and the Union of India as actual owners of registered vessels. As the government is SCI's majority shareholder, I do not see how SCI's self-identification as a government enterprise is false or misleading. Shipowner's listings are published independently, and while they are often a reliable source of prima facie information as to which entities own or manage vessels, they are not conclusive in and of themselves. Furthermore, a careful review of the excerpts filed by Mr. Moisey shows that the confusion is more apparent than real. SCI is shown throughout as the registered owner of the "Lok Rajeshwari". The fact that SCI is listed under the general listing for the government of India may either show that India is identified as the controlling interest of SCI (information that is not only true but relevant to sistership arrests in many jurisdictions), or that the publishers of these listings are actually confused as to SCI's corporate status. Even if the latter is taken to be true, a third party's confusion is not relevant to the determination of a corporation's legal status.
[8] Mr. Pratap's evidence to the effect that SCI has in the past filed without protest security for the release of its ships when same were arrested in South Africa for debts of other entities owned by the Union of India was fulsomely explained in the counter-affidavit of Jennifer McIntosh, a South African lawyer, as the result of unequivocal provisions of South African law allowing ships owned by a company to be arrested as security for debts attaching to ships owned by associated companies.
[9] Finally, no evidence has been led to the effect that Foresight was misled as to the identity of the entity with which it contracted, or that it was induced to rely on the credit or assets of SCI or of any other government-owned corporation as security for debts India might incur in its regard.
b) The "alter ego" argument:
[10] Mr. Pratap, Foresight's expert, has opined that, for the purposes of judicial review of administrative action and the protection of constitutionally enshrined fundamental rights, Indian law considers certain state-owned or state controlled corporations as "organs" or "instrumentalities" of the State, that are accordingly subject to the Courts' control by way of high prerogative writs such as mandamus and certiorari.
[11] By extension of these principles, Mr. Pratap argues that SCI is an organ or instrumentality of India, and that "there is no reason why this analogy - and the whole body of law that has developed thereon - cannot be made applicable to execution levied against the property of a government company in respect of a debt owed by the government itself."[2] It is clear from the very formulation of his affidavit and from the lack of authorities cited in support of the wider application advocated, that Mr. Pratap is speaking of how Indian law could or should be shaped to meet what he considers to be an injustice - not of how Indian law currently applies.
[12] However, this Court, when applying foreign laws in resolving a conflict of law issue, must apply the foreign law as it exists, and not as reformers think it ought to evolve. I find, on the evidence before me, that in its current state, the law of India continues to recognize a distinct juridical personality to government-owned companies for the purpose of ownership of assets and enforcement of judgements.
b) Piercing the corporate veil
[13] The Courts, in certain circumstances, have pierced the corporate veil in order to hold the principals or shareholders of a company liable for that company's obligations. What Foresight urges the Court to do is to pierce the corporate veil to achieve the reverse result: to hold that a company's assets should be available to satisfy its principal's debts and liabilities. At the outset, this seems to me to be an inappropriate use of the doctrine of piercing or lifting the corporate veil. Be that as it may, and without deciding the point, I have not been persuaded that the circumstances of this case lend themselves to such an extraordinary step.
[14] In order to lift the corporate veil, the Court must find that the corporate entity is "completely dominated and controlled" by the owner, and that by this domination, it is used to disguise the owner's part in fraudulent or improper conduct or to shield it from liability for such actions (Transamerica Life v. Canada Life Insurance (1996) 28 O.R. (3d) 423).
[15] The complete domination referred to is more than mere ownership. The control must be such that the company does not, in fact, function independently. This, Foresight has failed to show.
[16] As regards the second element of the test, the corporation must be or have been used as a shield for fraudulent or improper conduct. This implies that there be a direct relationship between the fraudulent or improper conduct and the manner in which the owner of the company used its control over the company.
[17] Here, the only improper or fraudulent conduct alleged is the Union of India's failure to pay its debt to the Plaintiff, and its apparent reliance on the immunity from seizure of its assets in India to flout its clear obligations. Foresight argues that this amounts to fraud. It may or may not be. It certainly is unseemly, improper and even reprehensible. But that is not the point.
[18] Foresight has not shown that India is in any manner, shape or form using SCI for its allegedly nefarious purposes. SCI is not involved in India's refusal to pay. Foresight has not shown that India is using SCI in order to hide or shield its assets outside India. Indeed, the evidence shows that SCI was created as far back as 1950; it was therefore obviously not created for the purpose of facilitating India's improper conduct or shielding India from its liabilities. The "Lok Rajeshwari" was acquired by SCI in 1980, well before the facts that gave rise to the dispute between Foresight and India. SCI paid for the vessel with funds borrowed on its own indebtedness, which were repaid in full in 2002. The "Lok Rajeshwari" was not transferred to SCI by India for the purpose of avoiding payment of India's liability. There is in fact not a shred of evidence that SCI has or had anything to do with India's refusal to pay the award or its ability to continue to ignore its obligations.
[19] Foresight is, in my view, well founded in decrying India's conduct. However, no matter what opprobrium India's conduct may justifiably attract, the law does not provide that such conduct can be sanctioned by the dissolution of the boundaries between corporate entities and their owners. Piercing the corporate veil is not a punishment for a person's wrongful actions. It is only ever justified by the use to which a person or entity has put a company under its control. The conduct of the Union of India in failing to pay its debt to Foresight does not involve such a use of SCI.
[20] Finally, Foresight relies heavily on the decision of the Superior Court of Quebec in Med Coast Shipping Ltd. et al v. The Government of the Republic of Cuba, 1993 A.M.C. 2538. That decision was based on the Court's specific findings of fact, on the evidence before it, that one of the Defendant companies, Empresa de Navigacion Mambisa ("Mambisa"), was the owner of the vessel seized by reason of its position as disponent owner, and that under Cuban law and Mambisa's charter, Mambisa's property was Cuba's property, and its obligations were Cuba's obligations: In effect, that Mambisa did not have a distinct juridical personality from Cuba. The facts and the evidence in the present case are entirely different.
ORDER
IT IS ORDERED THAT:
1. Permission is granted to the Shipping Corporation of India Ltd., to intervene in the present proceedings for the purpose of opposing the seizure of the ship "Lok Rajeshwari" by writ of execution on September 11, 2002;
2. The seizure of the ship "Lok Rajeshwari" is set aside, and the said ship is released from seizure in this cause for all legal purposes;
3. The Registry is directed to return to counsel for the Intervener the bank guarantee filed into the Court record as security fort the ship "Lok Rajeshwari";
4. Costs are awarded to the Intervener.
______________________________
"Mireille Tabib"
Prothonotary
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-455-02
STYLE OF CAUSE: FORESIGHT SHIPPING CO. LTD
AND UNION OF INDIA AND FOOD CORPORATION OF INDIA AND THE SHIPPING CORPORATION OF INDIA LTD.
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: December 18, 2003
REASONS FOR ORDER
AND ORDER BY: Madam Prothonotary Mireille Tabib
DATED: February 16, 2004
APPEARANCES:
Marc DeMan FOR THE APPLICANT
David Colford FOR THE RESPONDENT
SOLICITORS OF RECORD:
De Man, Pilotte FOR THE APPLICANT
Barristers and Solicitors
Montreal, Quebec
Brisset, Bishop FOR THE RESPONDENT
Barristers and Solicitors
Montreal, Quebec