National Bank of Fiji v Raj [1992] FJHC 17; Hbc0097r.91s (27 March 1992)

IN THE HIGH COURT OF FIJI
At Suva
Civil Jurisdiction

CIVIL ACTION NO. 97 OF 1991

Between:

NATIONAL BANK OF FIJI
Plaintiff

- and -

1. DEO RAJ
s/o Narayan Balram
2. SURUJ KUMARI
d/o Ram Prasad
Defendants

Mr. R. Patel for the Plaintiff
Mr. T. Fa for the Defendants

RULING

In this application the plaintiff bank seeks to strike out the defendant's Statement of Defence under Order 18 r.18(1)(a), (b) and (d). The application is supported by an affidavit sworn by the Manager of the Samabula Branch of the plaintiff bank annexing various correspondence, a debenture and personal guarantee of the defendants.

The defendant for his part has sworn an affidavit opposing the application and annexing copies of 2 Bills of Sale executed by him in favour of the plaintiff bank.

In order to better understand this application it is necessary to set out briefly by way of background the dealings that appears to have occurred between the parties as 'banker' and 'customer' which dates from early 1988 when the 2 Bills of Sale were executed.

At that time the defendant was "... trading as Home & Office Furniture Centre" from a premises situated at "147 Ratu Mara Road, Samabula". Then on or about the 14th of March 1989 the defendants incorporated a limited liability company under the not insignificant name and style of "Home and Office Furniture Centre Limited" with themselves as shareholders and directors and with its registered office at '147 Ratu Mara Road, Suva'.

This latter company subsequently executed a debenture deed on the 15th of June 1989 in favour of the plaintiff bank (as the recital states):

"IN CONSIDERATION of the loans, advances discounts or other banking accommodation which have been ... made by the Mortgagee to the Company solely or together with any other corporation or person AND INCONSIDERATION of the Mortgagee's forbearing for one day from the date hereof to press for payment of past such advances and IN CONSIDERATION of any loans advances discounts or other banking accommodation which have been ... made to any customer of the Mortgagee on any guarantee bond, ... or other form of security now ... held by the Mortgagee on which the Company is ... liable ..." (the underlining is mine)

Clearly the above recital is as wide as it could possibly be and in my view contemplates and is wide enough to cover past advances made by the plaintiff bank whether or not to the company concerned and whether or not already secured by Bill of Sale.

In spite of that the defendant's Statement of Defence denies that any money was lent to the company Home and Office Furniture Centre Limited. The defendant also denied in his affidavit that the company had taken over any of the defendants' undoubted personal liability to the plaintiff bank incurred when he traded as an unincorporated firm.

Indeed it is claimed (contrary to the affidavit of the plaintiff bank's manager) that the debenture was given for the purpose of obtaining a "new loan" for the company and never at any time was it given as security for past advances to the defendant which it is claimed was already adequately secured by two Bills of Sale.

Not only do these assertion fly in the face of the clear wording of the recital but, in addition, they are difficult to reconcile with the undisputed fact that within 3 weeks of its execution the debenture was stamped so as to cover advances up to $70,000! How that figure was arrived at after so short a trading period remains unexplained by the defendant.

In any event it is clear that the defendants 'defence' is based on the trite proposition that an incorporated company is a separate and distinct legal entity from its subscribers and shareholders.

That proposition and the absence of any direct reference in the company debenture and in the personal guarantee of the defendants of a pre-existing debt owed by the defendants to the plaintiff bank has clearly emboldened the defendants to make the assertions that they have in their Statement of Defence and affidavit.

On this narrow issue the affidavit evidence is diametrically opposed and could even be said to be 'evenly-balanced', with the Manager of the plaintiff bank deposing that: "the said company took over the operations and the liability of the first defendant trading as Home and Office Centre" versus the first defendant baldly denying it and asserting that the debenture was given for a 'new loan'.

It is clear beyond mere coincidence that the physical persons remained the same throughout the entire banking history between the plaintiff bank and the defendants and that all that had occurred for all intents and purposes was that the defendants' 'interposed' a limited liability company into the course of their dealings with the plaintiff bank sometime in 1989.

If by the creation of that 'alter ego' the defendants hope somehow to 'distance' themselves from their pre-existing debt to the plaintiff bank then they have failed miserably to reckon with this court's power and duty to "lift the veil of incorporation" where the device of incorporation is used for some illegal, improper, or fraudulent purpose and of the equitable 'doctrine of estoppel' which would operate so as to prevent parties to a transaction based on an underlying assumption (in this instance that the company had taken over the defendants' existing debt) from denying or going back on it where it would be unfair or unjust to allow them to do so.

[See: Amalgamated Investment (in liquidation) v. Texas Commerce Bank (1982) 1 Lloyds Reps 27].

In the circumstances the defendant's Statement of Defence application must be considered 'frivolous' and is hereby struck out with costs to the plaintiff to be taxed if not agreed.

(D.V. Fatiaki)
JUDGE

At Suva,
27th March, 1992.

HBC0097R.91S