Hwang Shu Fen v National Bank of Solomon Islands Ltd [2010] SBHC 14; HCSI-CC 364 of 2008 (15 April 2010)

IN THE HIGH COURT OF SOLOMON ISLANDS
(Chetwynd J)

Civil Claim No. 364 of 2008

BETWEEN

HWANG SHU FEN
First Claimant

AND

YUNG HUANG FISHERIES COMPANY LIMITED
Second Claimant

AND

NATIONAL BANK OF SOLOMON ISLANDS LIMITED
First Defendant

AND

XU XIU FENG and KAZUO NAGASAWA
Second Defendant

AND

SOLGREEN ENTERPRISES LIMITED
Third Defendant

AND

ATTORNEY GENERAL
(Representing the Registrar of Companies And Titles)
Fourth Defendant

Mr Rano for Claimants
Mr Sullivan QC and Mr Kingmele for First Defendants
Mr Pitikaka for Second and Third Defendants
Ms Folaumoetu’u for Fourth Defendants

Date of Hearing: 31st March 2010
Date of Judgment: 15th April 2010

Judgment

1. This is an application by the First Defendants (NBSI). They are seeking an order that the Claim be struck out and for judgment to be entered in default on the basis the Claimants have not complied with the order made by Hon Mr Justice Cameron on 26th August 2009. They are also seeking an order that the First Claimant (HSF) withdraws the caveat lodged in respect of the FTE 192-010-3. There are also applications for costs and consequential orders relating to those costs.
   
2. The facts behind this case are somewhat convoluted and are the basis of a number of cases before the court. One case has been litigated as far as the Court of Appeal. I need not recite the facts in detail, they are set out in the various documents read at the application.
   
3. In essence, the Second Claimant (YHF) owned property at Ranadi (FTE 192-010-3) and other assets. There was a very close association between YHF and the Third Defendants (Solgreen). Solgreen had financial problems and in April 2005 NBSI advanced approximately SBD 400,000 to the Company. The loan was unsecured. In July 2005 NBSI demanded full payment of the loan but Solgreen did not have the funds to pay anything. Solgreen was also said to owe the Solomon Islands Government a considerable amount of money in unpaid taxes. Solgreen admitted it owed approximately SBD 1.3 million in taxes but other amounts were disputed.
   
4. NBSI were aware of the undisputed tax debt but negotiated a new facility with Solgreen amounting to SBD 3.7 million. Of that sum, approximately SBD 3.3 million was new money. The original loan was included in the SBD 3.7 million. Part of the new loan was to pay the Commissioner of Inland Revenue (Inland Revenue) the undisputed tax debt. NBSI wanted security for the loan and proposed YHF execute a mortgage over all it’s assets, including FTE 192-010-3. Inland Revenue were aware of the proposed new loan and the arrangements for security.
   
5. On 10th August 2005, in accordance with the new loan arrangements, YHF executed several charges (they are set out at page 56 of Mr Corcoran’s sworn statement [1]). Copies of the documents executed by YHF (and others) can be found beginning at page 64. In effect the assets of YHF were charged or mortgaged to NBSI.
   
6. On 23rd August 2005 Inland Revenue issued a notice of distraint directed to YHF in respect of all the plant, equipment and vehicles at the Ranadi property. [2] From pleadings in another case (Civil case 505 of 2005) a notice of distraint was also issued in respect of the fleet of fishing vessels [3]. Inland Revenue had also lodged a caveat in respect of FTE 192-010-3.
   
7. As a result of the actions by Inland Revenue, NBSI decided there had been "a material adverse change" in the fortunes of Solgreen and in accordance with the agreement mentioned at paragraph 4 above, declined to advance any further funds. However of course, the original unsecured borrowing by Solgreen of some SBD 400,000 was now fully secured.
   
8. The Claimants say the securities signed on behalf of YHF were signed by the Second Defendants who were not Directors of the Company. The Claimants say NBSI knew or should have known the Second Defendants had fraudulently put themselves forward as Directors. The Re-amended Claim [4] goes further and says the securities were only signed as a result malice, bad faith and undue influence on the part of NBSI. It is not exactly clear from the pleadings but this seems to be a claim partly based on the line of cases which followed on from Lloyds Bank v Bundy [5]. Which judgment, incidentally, opens with probably the most picturesque sentences to be found in any reported case. "Broadchalke is one of the most pleasing villages in England. Old Herbert Bundy was a farmer there. His home was at Yew Tree Farm."
   
9. The Claimants also say, in what to my mind must be a claim in the alternative, the securities were obtained by fraud, mistake and misrepresentation by NBSI. That claim appears to be mainly based on the long course of dealings NBSI had with the parties (particularly through contact between the Claimants, the Second and Third Defendants and NBSI’s then Managing Director, Mr Goodwin).
   
10. At this point I should mention the rather unfortunate history of the legal representation on behalf of the Claimants. The Legal Practitioner who apparently first advised and acted on behalf of the Claimants was Mr Levo from Xplain Lawyers. Mr Levo had previously been a Legal Officer for NBSI and had been actively involved on behalf of NBSI in the legal process following the new loan agreement [6]. Despite the clearest possible case imaginable of a conflict of interest, Mr Levo was reluctant to give up the case and the file to Mr Rano, the present legal representative for the Claimants. It was not until 26th May 2009 that Mr Rano was able to file a Notice of Change of Advocate, some 7 months after the original claim was filed.
    
11. Turning now to the application before me, it results from the Order made by Cameron J on 26th August 2009. It seemed to me the application was argued by NBSI on the basis that not only had there been a failure to comply with the order but also that there was no reasonable cause of action disclosed and the proceedings were an abuse of the process of the court. I queried this with Mr Sullivan at the conclusion of the hearing and he confirmed the application was based solely on the grounds the Claimants had not complied with clauses 2, 3 and 4 of the Order.
    
12. Mr Sullivan addressed me at length on the application. As regards the non compliance with clause 4, his main concern was that the pleadings were poorly drawn, even defective. He made the point the Re-Amended Claim filed on the 18th August was the 3rd attempt by the Claimants. I would have to agree with him to a degree and say the pleadings are not particularly well drawn. Rule 5 [7] sets out what is required by way of a statement of case and a claim. The Rules call for brevity, factuality, clarity and entirety. In that regard there is nothing new in the Rules, the courts have always required what is set out in Rules 5.3 and 5.5 when it comes to pleadings.
    
13. Mr Sullivan’s complaint is he still does not know the details of the case alleged against his client, NBSI, and in particular the allegations of fraud. He says the Claimants have still not complied with the Rules by reason of the poorly drawn pleadings and by the failure to provide adequate further and better particulars. He says for those reasons the claim should be struck out.
    
14. Having read the Re-Amended Claim and the Further and Better Particulars [8] it seems to me at least one of the allegations of fraud is clearly set out. The allegation is that following the lengthy course of dealings between the Claimants, the Second and Third Defendants and NBSI and after several meetings, NBSI knew or should have known the person controlling YHF was the First Claimant and in order to fully protect the unsecured borrowing of Solgreen, NBSI was complicit in the fraudulent registration of the Second Defendants as Directors of YHF. The alleged fraudulent registration cleared the way for the signing of the securities on behalf of YHF by the Second Defendants.
    
15. It maybe there are other allegations of fraud implied in the pleadings, for example it is possible to discern an implication that NBSI obtained the securities knowing it had no intention of completing the advance of the "extra" SBD 3.3 million. Leaving aside the issues of estoppel raised by Mr Sullivan, it is right to say allegations of fraud which can only be implied from the pleadings are not adequately pleaded.
    
16. There is also the allegation of what the Claimants call bad faith. The implication [9] seems to be NBSI should have taken more care because it knew the security being offered and signed away by the Second Defendants was owned by YHF. As a result added caution was called for on the part of NBSI but it neither cared nor checked. It was more concerned about securing the original unsecured loan to Solgreen. Whether this is an implied allegation of bad faith or something else is unclear. I do not mean to say these are the only issues with the pleadings, they are intended only to be illustrative of the fact that there is uncertainty as to what exactly it is the Claimants are basing their case on.
    
17. Turning now to the breach of clause 3 of the Order, Mr Rano has admitted delay on his part [10]. It is also described in what is left of Mr Pehu’s sworn statement [11]. However, it is equally clear inspection was offered and that offer has been partly taken up. It has not been completed and Messrs Sol-Law expect to return to Mr Rano’s office and to complete the process [12]. There is no evidence of refusal, the evidence is of delay. I do not think the delay has been so fundamental or inexcusable as to warrant the claim being struck out. Mr Rano has had the file nearly a year and apparently is now able to provide inspection of all the documents.
    
18. As regards the breach of clause 2 of Cameron J’s Order, what seems to be said is the Claimants have gone beyond what was required by Clause 2. b. of the Order. It appeared to me that Mr Sullivan was saying the Order allowed the Claimants to amend paragraphs 10 and 30 (of the unsigned Amended Claim) so that they made sense and nothing more. I do not see the Order as limiting the scope of amendment to just that. The permitted amendments were to clarify the matters pleaded in paragraphs 10 and 30. If I have misapprehended the thrust of Mr Sullivan’s submissions and he was saying that despite the contents of the Re-Amended Claim and the Further and Better Particulars the Defendants are still unable to clearly see what is pleaded in paragraphs 10 and 30 then I would only repeat, I agree the pleadings are poorly drawn.
    
19. Having said all that I do not think the deficiencies in the pleadings are so substantial, so ingrained, as to warrant the claim being struck out at this stage. I do not accept the failure to fully comply with Cameron J’s Order of 26th August 2009 is of such a magnitude that the Claimants should be barred from pursuing this matter. Any deficiencies can be rectified by further amendment. It is in the interests of all the parties in this case to know exactly what is being alleged and against whom. I will return to the question of further amendments later.
    
20. The application before me also asks for an order that the First Claimant withdraws her caveat over FTE 192-010-3. This is to enable NBSI to complete the sale of the property which was ordered following the entry of judgment in another case. Although the tendering process has stalled, partly because of the Court of Appeal case and partly because of the caveat, NBSI are anxious to arrange a sale in order to stop the debt increasing. It looks as if the original debt of SBD 400,000 has quadrupled and of course it continues to increase. It would be eminently sensible to stop the debt increasing. The Claimants say, in particular the First Claimant, they do not want the property sold. The reason seems to be that they have plans for the development of the site.
    
21. A more fundamental reason to leave the caveat in place appears to me to be this. If the property is sold and if the Claimants win, then their success will be a pyrrhic victory only. At present the only claim against NBSI is for orders cancelling the charge against the property. Effectively to return it to the control of YHF. However, if the bank has already sold the property, third parties will have acquired rights over it. It is unlikely in the extreme any court would interfere with third party rights acquired in good faith and for value. Put simply, any order declaring the Charge to be void ab initio would be completely worthless if in the meantime the property had been sold.
    
22. For that reason alone I would not be prepared to order the First Claimant to vacate or withdraw the caveat without some other recourse being available against NBSI. In practical terms, allowing the claim to be amended to include a claim for damages against NBSI. At the hearing before Cameron J an oral application to amend the claim to include damages was declined. I am unable to find any indication that His Lordship was asked to make any order in respect of the caveat as well. If he had been so asked his decision may well have been different. In the circumstances I do not believe now allowing the Claimants to amend the claim to include one for damages flies in the face of His Lordship’s decision back in August of 2009.
    
23. For all the reasons stated above I refuse the orders to strike out the claim. I also allow the Claimants to further amend the Claim. I do so with some grave concerns. The Claimants have this very last chance to put their pleadings in order. If they do not do so then they face the very real possibility of defending an application to strike out the claim. The likelihood of an application succeeding is very strong. Failing that, at the very best they can expect at trial to have substantial elements of their case thrown out. For the avoidance of doubt the claim can be amended to include a claim for damages as against the First Defendants. I am mindful that since the First Defendants prepared the request for further and better particulars of claim filed on 24th August 2009 the Re-Amended Claim has been filed.
    
24. Whilst I have doubts such a beast as a request for further and better particulars can exist under the new Rules, I believe it only equitable the First Defendant be given time to consider whether, given the Re-Amended Claim taken together with the further and better particulars filed on 18th August 2009, there are any other substantial matters the Claimants need to address in the further amended claim. I will allow the First Defendant 7 days to communicate any such matters to the Claimants legal representative (let us call that "the request"). If the First Defendant’s legal representatives do not wish to make such a request they should advise the Claimants legal representative in writing ("the notification"). The Claimants will have 10 days from the receipt of the request or the notification or 17 days from the date of this judgment, whichever shall be earlier, to file and serve the further amended claim. It is not a part of this order that the Claimants must take the request into account when drawing up the further amended claim but they would be foolish in the extreme to simply ignore it.
    
25. As for the removal or withdrawal of the caveat, I shall make an order in the terms set out in paragraph 2 of the First Defendant’s application filed on 18th September 2009, save that the time scale set out in paragraph 2.(b) shall be varied so that if the caveat is not removed by the time the further amended claim is filed then the remainder of the provisions contained in paragraph 2 shall take effect.
    
26. As the First Defendant has only succeeded in part I direct that each party shall pay their own costs of the application. If required, I certify the proceedings fit for Queens’ Counsel or Senior Counsel.
    

Chetwynd J

---

^[1] Statement of Thomas Mark Corcoran sworn the 9^th June 2009
^[2] Page 125 of Mr Corcoran’s sworn statement of 9^th June 2009
^[3] Pages 139 to 162 of Mr Corcoran’s sworn statement of 9^th June 2009
^[4] Re- Amended Statement of Claim filed 18^th August 2009
^[5] [1974] EWCA Civ 8, [1975] QB 326
^[6] Set out at paragraph 4 above.
^[7] Solomon Islands Courts (Civil Procedure) Rules 2007
^[8] Answer to Request for further and better particulars from facts pleaded in the Amended Statement of case, filed 18^th September 2009
^[9] See paragraph 10 of the Answers to request for further and better particulars filed 18^th August 2009
^[10] See exhibit “RK-2” item No.1 to the further sworn statement of Rodney Kingmele filed 6^th November 2009
^[11] Sworn statement of Alvin Pehu filed 20^th November 2009
^[12] See paragraph 3 (f) of the sworn statement of Rodney Kingmele filed 5^th November 2009