Eastern Express Ltd v Merchant Bank of Fiji Ltd [2001] FJHC 57; Hbc0026d.2001b (7 August 2001)

Fiji Islands - Eastern Express Ltd v Merchant Bank of Fiji Ltd - Pacific Law Materials

IN THE HIGH COURT OF FIJI

At Labasa

Civil Jurisdiction

CIVIL ACTION NO. 0026 OF 2001

Between:

EASTERN EXPRESS LIMITED

Plaintiff

- and -

ass=MsoNormal alal align=center style="text-align: center; margin-top: 1; margin-bottom: 1"> MERCHANT BANK OI LIMITED

CREDIT CORPORATION (FIJI) LIMITED

Defendants

Mr. A. Sen for the Plaintiff Company

Mr. R. Gordon for the 1st Defendant Company

Mr. V. Kapadia for the 2nd Defendant Company

RULING

This is an application to dissolve an interlocutory injunction granted by Pathik J. on 25^th May 2001 in the following terms :

`(1)  p; That that the defendants either by itself or by its servant or agents be restrained from advertising any winding up proceedings against the Plaintiff ;

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(2) ;&nbssp;&nnbsp;&bsp; &bsp; &nbssp;&nbs;&nnbp; That the defendants be restrained from taking into poion are buses of the plaintiff company or any other assets ;

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(3) &nnbsp; &nsp; &nbbp;&nnbp;&&nbp;; &nsp; That the dantnddo f do forthwith release to the plaintiff its buses Registration No : CO759 and CL370.’

In effect, the injunctions prevented the defendants from enforcing registeredrity documents (Bills of Saof Sale) each held over separate assf the plaintiff companympany that had been charged to secure loan facilities provided at different times to the plaintiff company in order to enable it to acquire the assets in question.

In particular, by a loan contract dated p>th April 2000 the 1^st defendant company lent the plaintiff company iany in excess of $250,000 to finance the purchase by it of seven (7) buses which were then charged under a Bill of Sale executed by the plaintiff company and further secured by a guarantee executed by an associated company namely Ram Bali Prasad and Sons Limited with which the 1^st defendant company also had dealt.

The 2^nd defendant company for its part whilst not annexing any primary documentation ecing a lending contract or t or asset purchase agreement(s), nevertheless provides duly executed copies of a registered Company Debenture and Bill of Sale both dated 20^th January 2001 with the latter securing a loan facility of $300,000 `now due and owing’ and charging some twenty eight (28) buses.

The sole basis for its claim to relief advanced by the plaintiff comps its claim :

`That the lawful directors of the plaintiff company have neither authorised any borrowing on behalf of the company nor has the plaintiff ever benefited from purported borrowing.’

This is further expanded in the affidavit of Ram Bali Prasad a director of the plaintiff company who deposed in his affidavit that the plaintiff company never authorised any borrowing nor anyone to borrow on its behalf from the defendant companies and accordingly the `purported charge over the said buses are void and of no effect’.

p class=MsoNormal stal style="text-align: justify; margin-top: 1; margin-bottom: 1"> In essence, the deponent claims that any loan transactionsluded with and securities issued therefor by the plaintiff tiff company are ultra vires the company and unenforceable as such.

Ram Bali Prasadn> accepts however that `the signatures on the documents securincuring purported advances to the plaintiff are of my sons (who) do not have a share in the plaintiff company as they live separately and operate a different company’. Sharehos are not however aver a prerequisite to a directorship unless specifically required by Articles.

Furthermore the Company Search 24.5.01 annexed to the affidavit discloses, on its face, that the > Directors of the plaintiff company were the deponent, and his son Pradeep Chand and not the deponent’s brother Sadhu Prasad as claimed in the affidavit. at rather basic fact the dthe deponent appears to be ignorant.

Plainly the deponent’s professed ignorance of the affairs of the plaintompany cannot be equated with the state of knowledge of thef the company itself, since the other two (2) directors who signed the security documents and who corresponded throughout with the defendant companies leading up to and after the execution of the documents must be presumed in the absence of any contrary evidence to be entitled to act on behalf of the plaintiff company.

Indeed, having heard plaintiff’s co it appears that the plaintiff company’s entire claim to relief is premised on the professefessed complete ignorance on the part of the deposing director of any relevant dealings having ever occurred between the plaintiff company and either defendant company and, because of that, the plaintiff company it is claimed, is entitled to an injunction until such time as the defendants are able to prove or establish the nature and extent of any dealings that may have passed between the companies, including verifying any loan amounts involved, together with the validity of the security documents relied upon. cannot be correct.

Counsel’s submission which is not`non est factum’, conveniently ignores the undeniable fact that all rell relevant security documents are signed by the deponent’s sons and bears the plaintiff company’s common seal. Furthermore, it ignohe face fact that since 26^th May 1998 according to the particulars lodged under Section 20 with the Registrar of Companies, the Directorectors of the plaintiff company were : The deponent, and his two sons, Pradeep Chand and Vinay Chand.

The submission also offends the `internal management rule’ enunciated in Royal Britank v. Turquand > [1856] EngR 470; (1856) 6 E & B 327 to the effect that third parties dealing with a company, although assumed to have notice of the contents of the company’s memorandum and articles, are nevertheless, not required to satisfy themselhat all the internalernal regulations of the company have been complied with.

Furthermore a company, not being a physical person, can only act by its agents or officech as its directors, and, ind, in this regard, Section 8 of the Companies Act 1983 (`the Act’) provides :

`No act of a company uding the entering into an agreement) and no conveyance ...... by a company, shall bell be invalid by reason only of the fact that the company was without capacity or power to do the act or execute ...... the conveyance.’

p class=MsoNormal stal style="text-align: justify; margin-top: 1; margin-bottom: 1"> and Subsection (2) relevantly provides that :

`...... any such lack of capacity or power may be asd or relied upon only in -

(a) ; proceedinas agai ag thet the company by a member of the company ...... ;p;; or 1"> (b)  p; &nbp;&nbp;  p; &nnsp;&&nsp; proceedings by the company, or by a member of the company, against the present or forffice> of ompany ;’

(my underlining for emphasis)

In this latter regard, by no stretch of the imagination can it be said that the present action, as constituted, comes within either of the above exclusive limbs for which complaint of `lack of capacity’ to act, may be made.

Finally Section 182 of the Act protects and validahe acts of a director `...... notwithstanding any defy defect that may afterwards be discovered in his appointment or qualification’.

As is said in Gowers Principles of Modern Company Law (6^th edn.) at p.224 :

`Where the person through whom the third party dealt occupies a positi the company such that it would be usual for an occupant ofnt of that position to have authority to bind the company in relation to the transaction concerned, the company will be bound. The tcompany dealing with with the company in good faith will be entitled to assume that the person has authority unless he knows the contrary or knows of facts which would put him on inquiry.&nbsps if the person acting for for the company is its (CEO) or managing director, then, ......, he may safely be assumed to be authorised. In practice he wiobably haly have actual authority, but, even if he has not, he will have ostensible authority and his acts will bind the company.’

[See also : Section 36(1)(a) of the Companies Act 198]

In the present case, it is nowhuggested in the plaintiff company’s affidavit material that the defendant companies had notd not acted in good faith, or that the securities were acquired fraudulently, or that the plaintiff company had no power to borrow monies, and accordingly, the plaintiff company, being a commercial enterprise, may be assumed to have an implied power to borrow monies for the purpose of its business and to mortgage or charge all or any part of its property to secure the money so borrowed : Byron v. Metropolitan Saloon Omnibus Co Ltd. [1858] EngR 1039; (1853) 3 De G & J 123.

Needless to say, other than a bald claim to not having benefited at all fro of the several loan facilities granted by the defendants, nts, the plaintiff company has nowhere denied ownership of the thirty five (35) buses covered by the security documents nor has it in any way, shape, or form explained how and in what circumstances it acquired them and why it claims that they are unencumbered assets. Thacertainly a relevant fant fact that must have been within its knowledge yet nothing is disclosed.

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Whatsmore the deponent, Ram Baliad appears ears to have conveniently over-looked the dated 2 29^th November 1999 that he personally signed guaranteeing the repayment `of all of money ...... which shallshall for the time being be owing or unpaid by (the plaintiff company) to (the 2^nd defendant company) ......’ This was an inonal nonl non-disclosure of a material fact for which the plaintiff company must suffer the consequences. Needless to sa very existexistence of the Guarantee suggestwledge in the guarantor’s pr’s part of the debt being guaranteed, moreso where the guarantor is a businessman.

Then something needs to be said about the two (2) buse subject matter of the mandatory injunction i.e. Order rder (3) above which was granted by Pathik J. ordering the immediate return of the buses Registration Nos : CO 759 and CL 370 to the plaintiff company.

p class=MsoNormal stal style="text-align: justify; margin-top: 1; margin-bottom: 1"> The basis for the grant of the injunction, as deposed in primary affidavit, is to the effect that that the first defendant does not have a charge (over the buses CO 759 & CL 370)’ and therefore, presumably, they were improperly seized.

The indisputable evidence provided by the 1^{st> defendant company however, establishes that these two 60 seater Hino buses are owne owned by Ram Bali Prasad and Sons Limited and were purchased from a loan provided by the 1st defendant company and secured under a registered Bill of Sale executed under the common seal of Ram Bali Prasad and Sons Limited.}

In other words as correctly deposed by the 1^st dent company’s Manager Northern :

`...... at all material times CO 759 and CL 370 was and is owned by Ram Bali Prasad and Sons Limited and was legally and validly encumbered and mortgaged and charged to the First Defendant. Whe Bali Prasad and Sons Lons Limited defaulted under the Loan Contract executed by it the First Defendant was legally and validly entitled to seize and/or repossess CO 759 & CL 370.’

Furthermore the 1^st defendompany’s `Section 221 Notices’ which triggered the injunction application is directirected not only to the plaintiff company but also to Ram Bali Prasad and Sons Limited and one can only wonder how ? the plaintiffacompcquired ired the necessary standing (1) to contest the Notice relating to Ram Bali Prasad and Sons Limite>&nbsbsp; and (2) to recover possession of the two buses CO 759 & CL b>CL 370 when neither ever belonged to the plaintiff company.

Indeed, so convincing was the 1^st defendant company’s affidavit and annexures on this aspect of the plaintiff company’s claim that counsel was constrained, at the end of the inter partes hearing to dissolve the injunction, to consent to thmary dissodissolution of item (3) of the ex-parte injunction order.

Accordingly, it is hereby formally recorded that Order (3) of the ex-parteinjunction granted on 25^th May 2001 is dissolved forthwith and the buses Registration Nos : CO 759 & CL 370 are ordered to be released forthwith into the possession and custody of the 1^st defendant company’s er, Labasaabasa.

Like>Likewise the reason(s) why the 2^nd defendant company was joinethe action at all remains uncleince there hare has beas been no equivalent statutory demand notice issued by it against the plaintiff company, nor has any correspondence emanating from the 2^nd defendant company, threatened enforcement of the securities held by it over the plaintiff company’s buses, nor has any actual seizure or repossession of the plaintiff company’s buses taken place.

If I may say so, the 2^nd defendant company appears to have been dragged into the proceedings by f a pre-emptive strike on t on the plaintiff company’s part and as a matter of convenience, since the plaintiff company was challenging the 1^st defendant company’s security documents. That is a gross abuse of process and will be reflected in the costs awarded.

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Accordingly, in so far as Order (1) purports to bind the 2^nd defendant company, I find that on the existing materials it is unwarranted, has no legal or factual basis and is hereby dissolved. Similarly, in so far as Order (2) as worded, purports to refer to further seizures by the 2^nd defendant company of the plaintiff company’s assets, there is no legal or facbasis for such an injunction and it too is hereby dissolvedolved as regards the 2^nd defendant company.

Finally, I turn to consider the principal plank urgeboth defence counsels in their oral and writtwritten submissions for the dissolution of the injunction namely, material non-disclosure on the plaintiff company’s part in seeking and obtaining the ex parte injunction.

The principle requiring full and frank disclosureb> ex parte applications has recently been enunciated and reaffirmed in BaBank of Mellat v. Nikpour (1985) F.S.R. 87 where Donaldson, L.J. said :

“This principle that no injunction obtained ex parte shall stand if it has been obtained in circumstances in whicre was a breach of the duty duty to make the fullest and frankest disclosure is of great antiquity. Indeed, it is so well enshrined in the law that it is difficult to find authority for the proposition ; we all know it ; it is trite law. But happilyave beferred toed to a dictum of Lord Justice Warrington in the case of R. v. Kensingtonngton Income Tax Commissioners, ex p. PrinEdmond de Polignac (1917) 1 K.B. 486 at p.509. He said : `Iperfectly well well sell settled that a person who makes an ex parte application to the court - that is to say, in the absence of the person who will be affected by that which the court is ask do - is under an obligatiogation to the court to make the fullest possible disclosure of all material facts within his knowledge, and if he does not make that fullest possible disclosure, then he cannot obtain any advantage from the proceedings, and he will be deprived of any advantage he may have already obtained by means of the order which has thus wrongly been obtained by him’.”

Furthermore, Lord Cozens-Hardy M.R. in dealing with the consequences of non-disclosure in ete applications apts aptly summed it up when he said in R. v. Kensington Income Tax Commissioners (op.cit) at p.505 :

“...... the court ought not to go into the merits of the case, but simply say, `we will not listen to your application because of what you have done’.”

In this regard mindful of the very and comprehensive affidavits and numerous annexures filed on behalf of the defendant compacompanies in seeking the dissolution of the ex parte injunction and counsel’s submissions, I am convinced that there has been numerous material non-disclosures on the part of the plaintiff company in obtaining the grant of the injunction ex parte.

Needless to say all the correspondence exchangedeen the plaintiff company and the defendant companies points irresistibly to a long standinanding business relationship between them and the various security documents are all registered company charges duly executed under the plaintiff company’s seal, and were available for inspection yy any member or director should he wish to do so (See : Section 108(1) of the Act).

The mere fact that thonent who has chosen, in this case, to depose the primary affidavit ,is woefully ignorant oant of the plaintiff company’s affairs does not and can not obviate the plaintiff company’s duty to make full and frank disclosure in an ex parte application. If such a deponent was tedepted then this principle `of great antiquity’ would be rendered nugatory by the easiest ploy of getting the least knowledgeable officer or member of the company to swear the affidavit. That cannot be counted in d in an ex parte application.

In this regard, given the almost complete lack of any knowledge of Ram Bali Prasad of the affairs of the plaintiff company, it is remarkable that no affidavit has been provided by either of the deponent’s sons who had signed the security documents and who would undoubtedly have had a good deal more knowledge about the affairs of the plaintiff company than their father.

The entire injunction must be a hereby dissolved with costs which are separately and summarily assessed as follows :

To the defendant company ;&nbssp;&nbs;&nbs; &nbp; ;&nbpp; &nnsp;&&nsp; &nbp; &nbbp;&nnbp;& &nbbsp; &nbp; &nbp; &nbssp; &&nsp;; -sp; - &bsp; ;&nbpp;&nbssp;&;nbsp;750.0050.00

: 1"> To the second defendant company &nnbsp; &nsp; &nbbp;&nnbp;&&nbp;; &nsp; ;&nspp;&nssp; &nbsssp; &nsp; &nsp;  p; - ;nbspp;nbsp; &nbp; &nbs;&&nbs;; .

>

D.V. Fatiaki

JUDGE

At Labasa,

7^th August, 2001.

HBC0026D.01B