Eastern Express Ltd v Merchant Bank of Fiji Ltd [2001] FJLawRp 63; [2001] 1 FLR 247 (7 August 2001)

EASTERN EXPRESS LIMITED v MERCHANT BANK OF FIJI LIMITED & CREDIT CORPORATION (FIJI) LIMITED

High Court Civil Jurisdiction

7 August 2001

HBC 0026/01B

Injunction – dissolution – restraining Defendants from advertising winding up action against Plaintiff – summary dissolution of injunction to return buses belonging to another company - whether Plaintiff directors authorised any borrowing – whether company benefited from purported borrowing – lack of capacity to borrow - internal management rule – existence of guarantee - validity of directors' acts – pre-emptive strike against D2 a gross abuse of power – full and frank disclosure required for ex parte injunction - Companies Act ss8(1), (2), 108(1), 36(1)(a), 182, 202, 221

D1 had earlier issued a s221 Notice under the Companies Act and proceeded to repossess 2 buses secured to it for monies lent. The High Court, acting upon an ex-parte application, granted injunction restraining the Defendants from advertising any winding up proceedings against the Plaintiff, from taking possession of any more buses or other assets, and to immediately release 2 buses seized by D1. The injunction prevented the each Defendant from enforcing their registered Bills of Sale held over Plaintiff's assets, charged to secure loan facilities, even though D2 had not taken any of the actions taken by D1. The Defendants applied to dissolve the injunction. The Plaintiff claimed that signatories of various security documents were not of proper authorised persons. The company claimed it had not benefited from the loan facilities, but the Court found it had not denied ownership of 35 buses covered by the security, nor disclosed how and in what circumstances the company acquired them and why it claims that they are unencumbered assets. Further, the Court found the Plaintiff had not suggested the Defendants had not acted in good faith, or that the securities were acquired fraudulently, or that the Plaintiff had no power to borrow monies, thus the one could assume the company had implied power to borrow monies for the purposes of its business, and charge all property to secure the money borrowed. As there was no inexplicable reason for the Plaintiff having standing to contest a s221 notice on behalf of Ram Bali Prasad & Sons Limited or to secure an ex parte injunction for the return of 2 buses seized under a Bill of Sale, the injunction relating to the 2 buses was summarily dissolved by consent. The Court found no legal or factual reason why D2 was dragged into the action, and dissolved parts of the injunction binding D2. The Court further found the ex parte injunction was obtained without full and frank disclosure and dissolved the entire injunction.

Held–(1) Two directors of the Plaintiff company signing the security documents and corresponding with the Defendants up to and after the execution of the security documents must be presumed, in the absence of any contrary evidence, to be entitled to act on behalf of the Plaintiff and the company must have had knowledge of this. The Companies Act s182 validates acts of directors notwithstanding a defect may be later discovered in their appointments or qualifications. Being a commercial enterprise, one may assume the Plaintiff has 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.

(2) A company, signing under common seal, is not entitled to an interim injunction until the Defendants prove the nature and extent of any dealings between their companies, including verifying any loan amounts involved, together with the validity of the security documents relied upon. a submission would offend fend the internal management rule.

Royal British Bank v Turquand [1856] EngR 470; (1856) 6 E & B 327 appl.

(4) The very existence of the Guarantee suggests knowledge in the guarantor's part of the debt being guaranteed, moreso where the guarantor is a businessman.

(5) A pre-emptive strike to injunct D2 form proceeding on winding up proceedings when it had not issued a s221 Notice under the Companies Act, nor acted upon its security document to repossess vehicles secured under it is a gross abuse of power and will be reflected in the costs award. Where there is no legal or factual basis for an order to bind D2, that part of the order is dissolved.

Injunction dissolved with costs against.

Other cases referred to in Ruling

Bank of Mellat v Nikpour (1985) F.S.R. 87
Byron v Metropolitan Saloon Omnibus Co Ltd. [1858] EngR 1039; (1853) 3 De G & J 123
R. v Kensington Income Tax Commissioners, ex p. Princess Edmond de Polignac (1917) 1 KB 486

Amrit Sen for the Plaintiff
Ronald Gordon for the First Defendant
Viren Kapadia for the Second Defendant

Editor's note: this case was struck out for non-prosecution on 27 June 2006.]

7 August, 2001

RULING

Fatiaki, J

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

'(1). That the Defendants either by itself or by its servant or agents be restrained from advertising any winding up proceedings against the Plaintiff;

(2). That the Defendants be restrained from taking into possession any more buses of the Plaintiff company or any other assets;

(3). That the Defendants do forthwith release to the Plaintiff its buses Registration No: CO759 and CL370.'

In effect, the inions pons prevented the Defendants from enforcing registered security documents (Bills of Sale) each held over separate assets e Plaintiff companympany that had been charged to secure locilities provided at differifferent times to the Plaintiff company in order to enable it to acquire the assets in question.
n parar, by a loan conn conn contract dated 29th April 2000 the 1st Defendant company lent the Plaintiff company in excess of $250,00finance the purchase by it of seven (7) buses which were then charged under a Bill of Sale 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 1st Defendant company also had dealt.

The 2nd Defendant co fony for its part whilst not annexing any primary documentation evidencing a lending contract or asset purchase agreement(s), nevertheless provides duly executed copies of a registered Companenture and Bill of Sale bote both dated 20th January 2001 with the latter securing a loan facility of $300,000 'now due and owing' and charging some twenty eight (28) buses.

The basis for its claimclaim to relief advanced by the Plaintiff company is its claim:

'That the lawful directors of the Plaintiff company have neither authorised any borrowing on behf the company nor has the Pthe Plaintiff ever benefited from purported borrowing.'
'purported charge over the said buses are void and of no effect'.

Ience, the deponent clat claims that any loan transactions concluded with and securities issued therefor by the Plaintiff company are ultra vires the company and unenforceable as such.Ram Bali Prasad acce accepts however that 'the signatures on the documents securing 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'. Shareholdings are not er aver a prerequisite to a directorship unless specifically required by Articles.

Furthe the Company Sear Search record dated 24.5.01 annexed to the affidavit discloses, on its face, that the Directors of the Plaintompany were the deponent, and his son Pradeep Chand and not the deponent's brother Sadr Sadhu Pras clas claimed in the affidavit. On that rather basic fact the deponent appears to be ignorant.

Plainly the deponent'seprofessed ignorance o affairs of the Plaintiff company cannot be equated with thth the state of knowledge of the company itself, since the other two (2) directho signed the security documents and who corresponded throuthroughout 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, haveard Plaintiaintiff's counsel it appears that the Plaintiff company's entire claim to relief is premised on the professed 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. That cane correct.
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Counsel'mission which iich is not a case of 'non est factum', conveniently ignores the undeniable fact that all relevant security documents are signed by the deponent's sons and bears thintiff company's common sean seal. Furthermore, it ignores the fact that since 26th May 1998 according to the particulars lodged under Section 202 with the Registrar of Companies, the Directors of the Plaintiff company were: The deponent, and his two sonsdeep Chand and Vinay Chand.hand.

The submission also offends the 'internal management rule' enunciated in Royal British Bank v Turquand [1856] EngR 470; (1856) 6 E & B 327 to the effect thatd parties dealing with a co a company, although assumed to have notice of the contents of the company's memorandum and articles, are nevertheless, not required to satisfy themselves that all tternalernal regulations of the company have been complied with.

Furthermore a company, not being a physical person, can only act by its agents or officers such as its directors, an this regard, Section 8 of 8 of the Companies Act 1983 ('the Act') provides:

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

and Subsection (2) relevantly provides that:

'...any such lack of capacity or power may be asserted or relied upon only in –

(a). proceedings against the company by a member of the company ...; or

(b)p edoceedings bngs by the company, or by a member of the company, against the present or former officers of the company;'

(my underlining for emphasis)

thiser re by no y no stretstretch ofch 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 validates the acts of a director '... notwithstanding any defect that may afterwards be discovered in his appointment or qualification'.

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

'Where the person through whom the third party dealt occupies a position in the company such that it would be usual for an occupant of that position to have authority to bind the company in relation to the transaction concerned, the company will be bound. The third company dealing 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 iy. Thus if the person acting for the company is its (its (CEO) or managing director, then, ..., he may safely be assumed to be authorised. In practice he willably 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 1983]

In the present case, it is nowhere suggested in the Plaintiff company's affidavit material that the Defendant companies had 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 from any of the several loan facilities granted by the Defendants, 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. That is inly a relevant fant fact that must have been within its knowledge yet nothing is disclosed.

Whatsmore the deponent, Ram Bali Prasad appears to conveniently over-looked the Guarantee dated 29th Novemberember 1999 that he personally signed guaranteeing the repayment 'of all su money .... which shall for the time being be owing or unpaid by (the Plaintiff company) toy) to (the 2nd Defendant company) ....' This was an intentional non-disclosure of a material fact for which the Plaintiff company must suffer the consequences. Nee to say the very existexistence of the Guarantee suggests knowledge in the guarantor's part of the debt being guaranteed, moresoe the guarantor is a businessman.

Then something needs to be said about the twoe two (2) buses the subject matter of the mandatory injunction i.e. Order (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.

The basis for the grant of the injunction, as deposed in Ram Bali Prasad's primary affidavit, is to the effect 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 1st Defendant company however, establishes that these two 60 seater Hino buses are 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 1st Defendant 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. When Ram 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 amp; CL 370.'

Furthermore the 1st Defendant comt company's 'Section 221 Notices' which triggered the injunction application is directed not only to the Plaintiff company but also to Ram Bali Prasad and Sons Limited and one can only wonder how? the Plaintiff company acquired the necessary standing (1) to contest the Notice relating to Ram Bali Prasad and Sons Limited; 2) to recover possession oion of the two buses CO 759 & CL 370 when neither ever belonged to the Plaintiff company.

ndeed, so convincing was the 1st Defendant company's affidavit and annexures on this aspectspect 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 the sumdissodissolution of item (3) of the ex-parte injunction order.

Accordingly, it is hereby formally recorded thder (3) of the ex-parte injunction granted on 25th May 2001 is dissolved forthwith aith and the buses Registration Nos: CO 759 & CL 370 are ordered to be released forthwith into the possession and custody of the 1st Defendant company's Manager, a.

Likp>Likewise the reason(s) why the 2nd Defendant company was joined in the action at all remains unclear, stherebeen been no equivalent statutory demand notice issued by it against the Plaintiff comf company, nor has any correspondence eman from the 2nd Defendant company, threatened enforcement of the securities held by it over tver 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 2nd Defendant company appears to have been dragged into the proceedings by way of a pre-emptive strike on the Plaintiff company's part and as a matter of convenience, since the Plaintiff company was challenging the 1st Defendant company's security documents. That gross abuse of procesrocess and will be reflected in the costs awarded.

Accordingly, in so far as Order (1) purportbind the 2nd Defendant company, I find that on the existing materials it is unwarranted, had, 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 2nd Defendant company of the Plaintiff company's assets, there is no legal or factual basis for such an injunction and it too is hereby dissolved as regards the 2nd Defendant company.

Finally, I turn to consider the principal plank urged by both defence counsels in their oral and written 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 disclosure in ex parte applications has recently been enunciated and reaffirmed in Bank 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 which there was a breach of the 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 happily we have referreferred to a dictum od Justice Warrington in the case of R. v Kensington Income Tax Commissionex p. Princess Edmond de Polignac (1917) 1 KB 486 at86 at p.509. He said: 'It is perfectll well 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 turt is asked to do - is under an obligation to the court tort 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 Cord Cozens-Hardy M.R. in dealing with the consequences of non-disclosure in ex parte applications 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 regindful of thof the very full and comprehensive affidavits and numerous annexures filed on behalf of the Defendant companies in seeking the dissolution of the ex parte injunction and cous submissions, I am convincnvinced that there has been numerous material non-disclosures on the part of the Plaintiff company in obtaining the grant of the injunction ex parte.

ess to say all the corr correspondence exchanged between the Plaintiff company and the Defendant companies points irresistibly to a long standing business relationship between them and the varsecurity documents are all all registered company charges duly executed under the Plaintiff company's seal, and were availableinspection by anyy any member or director should he wish to do so (See: Section 108(1) of the Act).

The fact that the depondeponent who has chosen, in this chis case, to depose the primary affidavit, is woefully ignorant 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 suchponent was acceptedepted 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 sthe affidavit. That chat cannotountenancenanced in an ex parte application.

In tegard, given the alhe almost complete lack of any knowledge of Ram Bali Prasad of the affairs of the Plaintiff company, it is remarkable that no affidavit has brovided by either of the deponent's sons who had signed thed 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 entijunction must bust be and is hereby dissolved with costs which are separately and summarily assessed as follows:

To thet Defendant compacompany - 00

To the Second Defendant company - $500.00.
r>Application granted.

Marie Chan