Hwang Shu Fen v National Bank of Solomon Islands [2011] SBHC 29; HCSI-CC 364 of 2008 (5 May 2011)

IN THE HIGH COURT OF SOLOMON ISLANDS
(Chetwynd J)

Civil Claim No. 364 of 2008

BETWEEN

HWANG SHU FEN
First Claimant

And

YUNG HUANG FISHERY COMPANY Ltd
Second Claimant

And

NATIONAL BANK OF SOLOMON ISLANDS
LIMITED
First Defendants

And

XU XIU FENG and KAZUO NAGASAWA
Second Defendants

And

SOLGREEN ENTERPRISES LIMITED
Third Defendants

And

ATTORNEY GENERAL
(Representing Registrar General and Registrar
Of Titles)
Fourth Defendants

Mr Rano for the Claimants
Mr Sullivan QC and Mr Katahanas for First Defendants
Mr Pitakaka for Second and Third Defendants
Mr Banuve for the Fourth Defendants

Date of Hearing: 11th and 12th April 2011
Date of Judgment: 5th May 2011

Decision

1. "There is in all of us a strong disposition to believe that anything lawful is also legitimate. This belief is so widespread that many persons have erroneously held that things are "just" because the law makes them so" [1].

2. The Claimants, on 7th May 2010, filed a Further Re-Amended Claim. This was as a consequence of my ruling on 15th April 2010. That followed an application by the First Defendant ("NBSI") for the claim to be struck out for failure to comply with orders of the court. I refused to make an order in those terms. Instead I gave the Claimants the "very last chance to put their pleadings in order" [2]. NBSI have now filed an application to strike out the claim in the Further Re-Amended Claim and the Second and Third Defendants cross claims (against NBSI) in the Amended Defence and Cross Claim filed on 20th July 2010.

3. The Third Defendant ("SEL") was a business run from premises at Ranadi in Honiara ("the property"). The registered owner of the property was the Second Claimant ("YHF"). I do not believe it is disputed that SEL had very little by way of assets except for ten fishing licences. The First Claimant ("Fen") was appointed as a Director of YHF in November 2001. She was also the "owner" of some or all of the fishing boats used by SEL as was the second named Second Defendant ("Nagasawa"). I believe the ownership of the fishing vessels was through a company not party to this action, Solco Ltd. Whether that is true or not is off no great consequence here.

4. In April 2005 NBSI offered SEL credit facilities amounting to SBD400, 000 ("the initial loan"). The debt was, according to the offer of advance at pages 233 and 234 of the record of appeal in Civil Appeal Case 2 of 2008, supposed to be secured by a guarantee given by YHF and a registered charge over the property also given by YHF. No security was taken. Fen says she refused to sign any securities for the loan. NBSI admit an advance was made, "Without the securities being in place at the time".

5. There is a further complication. It would seem the Commissioner of Inland Revenue ("the Commissioner") had issued three Notices of Assessment for unpaid income tax in respect of the year 2003. They were sent to SEL and were dated 15th September 2004. The amount required by the Commissioner was SBD 6,722,227.00 [3]. SEL admitted it owed some tax although it is not entirely clear when that admission was made. It is also unclear why, on 17th March 2004, the Commissioner issued and filed a caveat over the property in respect of the tax demand. The caveat appears to pre-date the demand.

6. NBSI was aware of the Notices of Assessment. It is not clear whether it was aware of the caveat. In any event, it is difficult to understand the bank's actions in allowing SEL to drawn down the initial loan without the securities being in place and when it was aware of the alleged debt to the Inland Revenue. It allowed itself to become an unsecured creditor for the monies advanced. NBSI do not allege any underhand behaviour by SEL or anyone associated with this case and so it appears to have put itself in that position through carelessness or incompetence. As a result there were negotiations between NBSI, YHF and Nagasawa. They resulted in another offer dated 1st August 2005 ("the new offer"). The letter of offer is shown at page 35 [4]. NBSI were offering a further SBD 3,700,000.00 to cover the initial loan, undisputed tax of SBD 1,320,733.00 and with the balance to be used as working capital. It involved securities being taken over the property, equitable charges and personal guarantees.

7. NBSI was also in negotiations with the Commissioner and had been since July 2005 [5].

8. On 10th and 12th August 2005 and in order to give effect to the new offer, a number of documents were signed which would fully secure the new loan. They are set out from page 40 to page 103 [6]. In order to register the land charge given by YHF [7] NBSI had to clear off the caveat issued by the Commissioner. To make that possible and following the negotiations mentioned above, an agreement was entered into between the Commissioner, NBSI, SEL and YHF. This became known as the Tripartite Agreement [8]. That agreement is dated 17th August 2005. It seemed from the Tripartite Agreement everyone would be happy. The bank would be able to fully secure its loans, the Commissioner would receive the undisputed tax owed and SEL would have working capital to continue its business.

9. Unfortunately everything then fell apart. NBSI did not pay the undisputed tax to the Commissioner. The Commissioner issued a letter of demand for all tax due and a Notice of Distraint dated 23rd August was sent to YHF [9]. The Commissioner seized all of SEL's property. It would appear that a second Distraint Notice was sent to Solco Limited seizing all the fishing vessels. NBSI then claimed there had been a material adverse change in the financial condition of Solgreen [10] and refused to advance further funds. In summary, the Commissioner says NBSI haven't paid the "undisputed tax" and issues a Distraint Notice. NBSI says because you have issued the Distraint Notice so we won't pay the undisputed tax.

10. As you can imagine, this state of affairs has generated quite a bit of litigation. In particular, the Commissioner sued YHF. Pursuant to an order by Kabui J (as he then was) NBSI were joined as Third Defendants (the Second Defendants being Registrar of Title). The pleadings filed by NBSI and the Commissioner at that time make for interesting reading. For example in the claim lodged by the Attorney General on behalf of the Commissioner it is said [11] " ...by reason of the Third Defendant's (NBSI) neglect or failure to pay the tax debt, the Third Defendant's claim to enforce the said charge and the enforcement thereof comprises unconscionable conduct". NBSI deny that, "allegation of fact" [12] and say that the Commissioner acted in bad faith in issuing the tax demands in the first place [13]. It would seem from the pleadings the Commissioner did not trust the bank and the bank did not trust the Commissioner. They certainly didn't seem to be speaking to one another.

11. In the defence to the Commissioner's claim NBSI also sets out the history of the tax debt, the caveat issued by the Commissioner, the loan agreement under the new offer, the tripartite agreement and the distraint. It goes on to say, "by reason of the matters pleaded in paragraphs 20 to 27 inclusive (those paragraphs relate to the distraint notices), the Third Defendant (NBSI) formed the opinion that there had been a material adverse change in the economy of Solgreen (i.e. there was a material adverse change in Solgreen's financial condition and ability to conduct business so as to be able to repay any advance made by the Third Defendant)." [14]. Of course, "Such opinion was reasonable and formed in good faith" [15]. That part of the defence was based solely upon the consequences of the distraint rather than any failing by YHF.

12. This differs slightly from the Defence in the present proceedings [16]. In that defence NBSI seek to shift some of the blame onto YHF by adding the lack of a realistic business plan and, just for good measure, Mr Sullivan mentioned in his submissions the matters raised at page 199 of the Court of Appeal bundle, namely the lack of port state control safety certificates. NBSI do not seek to explain why it is the second loan is different from the initial loan, where it is admitted, the funds were released without any security being in place and in the full knowledge of the debt said to be owed to the Inland Revenue. The initial loan was subject to the same "conditions" as the second loan.

13. I bear in mind the pleadings as between the Commissioner and NBSI in Civil case 505 of 2005 have not been tested by evidence. By notice dated 16th May 2007 the Commissioner discontinued the action against NBSI (and the Registrar of Titles) and they discontinued as against him. I understand the case is continuing and so I will now turn to another case.

14. In 2007 NBSI commenced proceedings against the First and Second Claimants and the Second Defendant in the present case plus other named directors of YHF and SEL [17]. Summary judgment was entered against SEL, YHF, Kazuo Nagasawa, Xu Xiu Feng and Mary Baura on 13th December 2007. It is noteworthy to see Fen was specifically excluded from the judgment. All the judgment debtors made an application for leave to appeal. Court of Appeal case No.2 of 2008 came into being. Several applications were considered by Goldsbrough JA as a single judge of appeal and he dismissed them all. An application was then made to extend time to file a notice of appeal. That was heard by Goldsbrough JA on 17th June 2008 and refused. His decision was appealed to the full court.

15. The Court of Appeal dismissed the appeal [18]. That decision has consequences for the parties in this case in particular the Second Claimant (YHF), the Second Defendants and the Third Defendant.

16. The First and Second Claimants (and indeed some of the Defendants) were unhappy about the position they found themselves in. All their assets had gone to secure the previously unsecured loan from NBSI. The bank was fully secured and had put itself in that position without having to make any further advances. NBSI had security for all its costs as well including those relating to the tripartite agreement. It seems from judgment in Civil case No 327 of 2007 the amount secured, including interest, fees and costs, went from SBD 400,000.00 to SBD 1,405,749.00. [19]

17. The final pleadings from the Claimants in this case, the Further Re-Amended Claim filed on 7th May 2011, run to 17 pages. It details much of what has been set out above.

18. Dealing with the Second Claimant first, its position in this case is said to be untenable. The draft defence YHF set out in the Court of Appeal case is effectively repeated as its case in the Further Re-amended Claim in this. There are allegations of fraud, misrepresentation and bad faith against NBSI. The Court of Appeal says in the decision dated 11th August 2008,

"Finally, there is no basis for the assertion in the draft defence that the bank's conduct was "unfair, unjustified and unreasonable". Nor is there any basis for asserting the registration of the charge over the second appellant's land was done in bad faith. No attempt to support these contentions was made before this court".

19. The Court of Appeal, it is said, has therefore already dealt with what the Second Claimant asserts in this case. The phraseology maybe slightly different, the averments may be set out in more detail but they amount to the same thing. The Second Claimant is saying NBSI acted in a way which might be described as unconscionable. There is an additional averment that NBSI through its officers caused YHF to act unlawfully in changing the details of the directors of YHF. What the Second Claimant appears to be saying is that NBSI (through Goodwin, the then managing director) knew Fen would not sign the legal charge over the property or any other form of security involving YHF and so it in some way acted in concert with YHF to arrange the appointment of a new director (Nagasawa) and a new company secretary (Nagasawa again). This was done without Fen's knowledge or agreement. The way was then clear for the company to sign the various documents securing the loan without having to resort to Fen.

20. NBSI have, in this application, asked for judgment against the Second Claimant under Rule 9.58, alternatively that the claim be struck out under Rule 9.75, or alternatively the claim be permanently stayed. This is on the basis the claim is per rem judicatem, by reason of issue estoppel, by reason of an Anshun estoppel or because the claim discloses no reasonable cause of action (against the First Defendant), is frivolous and or vexatious and is an abuse of the process of the court. Reducing all this to its most simplistic level, NBSI are saying this has all been litigated before and YHF should not be allowed to re-litigate what has already been decided. The legal principle involved has its roots in the case of Henderson v. Henderson [20]. As was said in that case;

"In trying this question I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."

21. A more recent authority in English law with regard to the principles involved is the case of Johnson v. Gore Wood & Co [21]. Mr Johnson was an "entrepreneur" based in Southern England. He had a property development company called Westway Homes Ltd, meaning he was the managing director of the company and holder of all but two of the issued shares. In the words of Lord Bingham, "Westway Homes Ltd was the corporate embodiment of Mr Johnson". Gore Wood & Co were a firm of solicitors. They acted for Westway Homes Ltd in the exercise of an option to purchase some land. It all went horribly wrong and the company sued the solicitors for professional negligence. The matter went to trial and in the sixth week of trial it was compromised by a settlement. Before the company had started its action Mr Johnson had notified Gore Wood's legal representatives that he had a personal claim against the solicitors as well. The settlement reflected that. Part of it provided, "Mr. Johnson undertakes that the amount of any claim made by him personally in any action against [GW] in respect of any losses suffered by him by reason of loss of income, dividends or capital distribution in respect of his position as a shareholder of [WWH] will not exceed £250,000 not including interest accruing in respect of any period after the date of this agreement nor costs. This undertaking does not limit any other of Mr. Johnson's rights against [GW]." Following settlement of the company's case Mr Johnson sued Gore Wood & Co for his personal losses, again relying on professional negligence. The solicitors representing Gore Wood & Co (or rather the solicitors representing the professional indemnity insurers and Gore Wood & Co) indicated they would apply to strike out the claim as an abuse of the process of the court. There were other preliminary issues argued which a very helpful in other aspects of this case and which I will return to later. At first instance Mr Johnson was successful, the lower court finding that in fact Gore Wood were estopped from maintaining Johnson's claim was an abuse because the settlement in the earlier case had been reached in full knowledge of Mr Johnson's intention to sue for personal losses. There was an appeal by Gore Wood and the Court of Appeal held that there had been an abuse of the process of court under the rule in Henderson v. Henderson and struck out Mr Johnson. The matter went to the House of Lords.

22. The Law Lords considered many of the cases previously decided involving estoppel by res judicata and/or estoppel by res judicata "in a wider sense". Lord Bingham expressed the view;

"The rule of law depends upon the existence and availability of courts and tribunals to which citizens may resort for the determination of differences between them which they cannot otherwise resolve. Litigants are not, without scrupulous examination of all the circumstances, to be denied the right to bring a genuine subject of litigation before the court (Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] UKPC 6; [1975] A.C. 581 at 590 per Lord Kilbrandon, giving the advice of the Judicial Committee; Brisbane City Council v. Attorney-General for Queensland [1979] A.C. 411 at 425 per Lord Wilberforce, giving the advice of the Judicial Committee)."

He went on to say;

"This does not however mean that the court must hear in full and rule on the merits of any claim or defence which a party to litigation may choose to put forward. For there is, as Lord Diplock said at the outset of his speech in Hunter v. Chief Constable of the West Midlands Police [1981] UKHL 13; [1982] A.C. 529 at 536, an

"inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people. The circumstances in which abuse of process can arise are very varied; those which give rise to the instant appeal must surely be unique. It would, in my view, be most unwise if this House were to use this occasion to say anything that might be taken as limiting to fixed categories the kinds of circumstances in which the court has a duty (I disavow the word discretion) to exercise this salutary power.""

23. The thread running through all the cases is the proposition that the courts can and will stop parties litigating what has already been decided or what should have been decided in earlier cases. The distinction between res judicata (what has already been decided) and one of the other forms of estoppel (what should have been decided) is sometimes difficult to determine. For example, Mr Sullivan in this case referred to Anshun estoppel [22] which probably is more akin to issue estoppel in the English courts. Lord Bingham cited the case of Bradford and Bingley Building Society v Seddon [23] where this difficulty was helpfully explained by Auld L.J.

"In my judgment, it is important to distinguish clearly between res judicata and abuse of process not qualifying as res judicata, a distinction delayed by the blurring of the two in the courts' subsequent application of the above dictum [of Sir James Wigram V.-C. in Henderson v. Henderson]. The former, in its cause of action estoppel form, is an absolute bar to relitigation, and in its issue estoppel form also, save in 'special cases' or 'special circumstances': see Thoday v. Thoday [1964] P. 181, 197-198 per Diplock L.J. and Arnold v. National Westminster Bank Plc. [1991] 2 A.C. 93. The latter, which may arise where there is no cause of action or issue estoppel, is not subject to the same test, the task of the court being to draw the balance between the competing claims of one party to put his case before the court and of the other not to be unjustly hounded given the earlier history of the matter . . .

"Thus, abuse of process may arise where there has been no earlier decision capable of amounting to res judicata (either or both because the parties or the issues are different) for example, where liability between new parties and/or determination of new issues should have been resolved in the earlier proceedings. It may also arise where there is such an inconsistency between the two that it would be unjust to permit the later one to continue. .

Lord Bingham adopting those comments concluded;

"..that what is now taken to be the rule in Henderson v. Henderson, has diverged from the ruling which Wigram V.-C. made, which was addressed to res judicata. But Henderson v. Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in early proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not."

24. In this case it is necessary to consider what was decided in the Court of Appeal and what is being claimed here. As I have indicated earlier, much of what is claimed here was put to the Court of Appeal by way of the draft defence. In the present case the allegations of unfair, unjustified or unreasonable conduct have now been further crystallised and amplified with an allegation of fraud, i.e. the bank colluded with Nagasawa and others to deceitfully remove Fen from the equation. Bearing in mind the court above clearly stated, "No attempt to support these contentions was made before this court", can it be said, in the terms of the Henderson rule, there was an adjudication. If there was, estoppel by way of res judicata would apply. Is adjudication something more or something less than full consideration? I do not think I even need to consider the question in such minute detail. The thrust of all the arguments against the claim proceeding is that to allow it to do so is an abuse of the process of the court. It is clear from Gore Wood that there is no hard and fast rule so far as abuse is concerned and what I need to do is consider the matter and come to a merits based judgment. The question I need to ask myself is whether it would be an abuse of the process of the court to allow YHF to pursue its claim in this case. It is also clear that I should not adopt a "too mechanical approach" [24]. Neither should I become engrossed with semantics.

"It depends on all the circumstances of each case. Once the court's consideration is directed clearly towards the question of abuse, it will be seen that the passage from Sir James Wigram V.-C.'s judgment in Henderson is a full modern statement of the law so long as it is not picked over semantically as if it were a tax statute."[25]

25. The correct approach is perhaps to look at what is now alleged and how it differs from what has been dealt with by the Court of Appeal? To the extent that the present claim directly corresponds with the defence considered by the Court of Appeal, res judicata would apply. However, if as in this case, it is not at all easy to discern the similarities or differences between the two pleadings I approach the question by looking at the overall balance of justice. Whilst the onus is clearly on NBSI to establish abuse there must be some explanation by YHF as to why the allegations in the present case were not fully presented in the earlier case. Some explanation as to why, given the Court of Appeal's decision, YHF should be allowed to argue what it has already argued. There is none. The arguments and submissions relate mainly to the First Claimant, Fen. I can discern no reason from submissions made and arguments raised why the facts and issues now sought to be litigated by YHF could not have properly been raised in the defence to NBSI's claim in Civil case 327 of 2007 and the subsequent appeal in Civil Appeal case 2 of 2008. Whilst I accept the latter only dealt with Goldsbrough J's refusal to extend time, an important consideration for the Court of Appeal was the defence to be argued. The draft defence filed dealt with most of the issues in this present case. Any additional matters now raised in this case would have been known to the parties at the time of the earlier cases. It is difficult to avoid the conclusion this case, so far as the Second Claimant is concerned, is simply an attempt to re-litigate old issues with just a bit more gloss added.

26. When considering the overall justice of the situation I should also bear in mind the consequences which flowed from the decisions in both Civil case No. 327 of 2007 and Civil Appeal case No. 2 of 2008. NBSI have resorted to the legal charge over the property. The power of sale has, I understand, been exercised. Judgment was entered against YHF on the basis of concessions made. It is has admitted much of what it now seeks to challenge.

27. In my view it would be an abuse of the process of the court to allow YHF to proceed with the claim in this case. I order the claim of the Second Claimant to be struck out.

28. NBSI also seeks to have the cross claim by the Second and Third Defendants struck out. Those cross claims clearly seek to go behind the judgment in Civil case No. 327 of 2007. They cannot be allowed to continue. The cross claims against the First Defendant by the Second and Third Defendants will be struck out.

29. I can now turn to the First Claimant, Fen, and consider the application in relation to her. I remind myself that judgment in 327 of 2007 was not entered against her. Neither, it seems, was she a party in the Court of Appeal case. NBSI seek either to have judgment entered against her on the basis her claim has no realistic prospect of succeeding (Rule 9.58) or to have her claim struck out under Rule 9.75. Different considerations therefore apply to the application in respect of her claim.

30. The bulk of her claim is premised on the fact she is, "the only shareholder and director in the Second Claimant" (YHF). Unfortunately although Fen may genuinely believe that to be so, it is not the case. Putting aside the Particulars of Directors or Secretary and of any Changes Therein form (commonly called a Form 32) dated 14th July 2005 and filed 20th July 2005, the Form 32 dated and filed on 30th November 2001 shows two directors Hwang Shu Fen and Xu Xiu Feng. Although the latter may be shown as "Manager" in column 6 he is also shown as a director. Whatever Fen thought (or thinks) he was, as a matter of law a director of YHF.

31. Dealing now with the changes in July 2005, Fen says there was no meeting to authorise a change of directors. Nagasawa says there was. He says the minutes were prepared by one Martine Hou (who has since died) and signed by Fen. Subsequently they were either "confiscated" by the Inland Revenue when they took over the property or lost in a fire. NBSI do not, apparently, have a copy.

32. That strikes me as somewhat odd. It must be remembered NBSI do not challenge Fen's allegation [26] that she refused to sign security documents relating to the initial loan. NBSI was also aware of her reluctance to sign any new documents and that she had not accepted the terms of the second offer [27]. NBSI's reliance solely on the 14th July 2005 Form 32 does seem to be a remarkable oversight. This is especially so as the change to the directors apparently occurred only a few days after the Fen's meeting with Goodwin, NBSI's Managing Director at the time. One would think, even as a matter of mere prudence, NBSI would ask for a copy of such important minutes. Goodwin was also aware Fen had left the Solomon Islands when it came time to sign all the documents.

33. Without a copy of those minutes it is impossible to say, one way or the other, whether Fen agreed to the change of directors or whether the lodgement of the Form 32 dated 14th July truly was fraudulent in that it was done without her knowledge or consent.

34. As to shareholdings, I have no evidence about those. All I can say is two shares were issued as at 12th August 1999 and they were to the original subscribers, Keizo Takahashi and Yoshikatu Goseki. There is nothing either to support or gainsay Fen's assertion that she is the only shareholder.

35. If I were to accept she is a shareholder, even the only shareholder, she still has to overcome the difficulties set before her by the rule in Foss and Harbottle. In simple terms the rule says that legal redress for a wrong done to a company can only be brought by the company itself as opposed to individual members. This is on the basis an individual member does not have an interest in the particular assets of the company. Certainly Fen has an interest or property rights in the shares of the company but she does not have an interest in the company assets simply because she owns shares in it.

36. The major asset we are concerned with in this case is the Ranadi property. Fen seeks orders and or declarations that the charge in favour of NBSI over the property is void. If she had been registered as the joint owner of the property with the company, YHF, she would have a right to sue in her own name. That is not the case here; there is no suggestion that YHF was not the sole registered owner. She has no rights personal to her in the property. The claim [28] is by the First and Second Claimants, that is to say Fen's claim is the same as the company's and vice versa. Unless the First Claimant can show she comes within the exceptions to the Rule in Foss and Harbottle the majority of her claim, insofar as it relates to company assets, must fail.

37. That is not an end to the matter. There is no doubt, and indeed no argument has been advanced to suggest otherwise, Fen has an entirely separate legal identity to YHF and therefore has separate rights from the company. A good deal of her claim [29] relates to the property. The property was owned by the company. Its loss is the company's loss. Foss and Harbottle would prevent action on Fen's part to recover company property. But loss of company property or a loss to the company can also result in loss to Fen. That possibility was considered in the Gore Wood case too [30].

"I consider it to be clear that where a shareholder is personally owed a duty of care by a defendant and a breach of that duty causes him loss, he is not debarred from recovering damages because the defendant owed a separate and similar duty of care to the company, provided that the loss suffered by the shareholder is separate and distinct from the loss suffered by the company. This principle was recently stated in the judgment of the Court of Appeal delivered by Sir Christopher Slade in Walker and others v. Stones and others [19th July 2000], the court stating that a claimant is entitled to recover damages where:

"131. (a) the claimant can establish that the defendant's conduct has constituted a breach of some legal duty owed to him personally (whether under the law of contract, torts, trusts or any other branch of the law) AND

132. (b) on its assessment of the facts, the Court is satisfied that such breach of duty has caused him personal loss, separate and distinct from any loss that may have been occasioned to any corporate body in which he may be financially interested.

133. I further conclude that, if these two conditions are satisfied, the mere fact that the defendant's conduct may also have given rise to a cause of action at the suit of a company in which the claimant is financially interested (whether directly as a shareholder or indirectly as, for example, a beneficiary under a trust) will not deprive the plaintiff of his cause of action; in such a case, a plea of double jeopardy will not avail the defendant.""

As Lord Hutton went on to observe though;

"....a more difficult question arises where the shareholder claims a loss which is not separate and distinct from the loss suffered by the company but his loss flows from loss suffered by the company"

38. The difficulties arise following the decision in Prudential Assurance Co Ltd v. Newman Industries Ltd (2) [1982] 1Ch.204. What a shareholder cannot do is,

"... to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a "loss" is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only "loss" is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 per cent. shareholding. The plaintiff's shares are merely a right of participation in the company on the terms of the articles of association. The shares themselves, his right of participation, are not directly affected by the wrongdoing. The plaintiff still holds all the shares as his own absolutely unencumbered property. The deceit practised upon the plaintiff does not affect the shares; it merely enables the defendant to rob the company."

This "Prudential Assurance principle", as Lord Hutton called it is followed to avoid the possibility of double recovery. In simple terms a defendant should not have to pay two separate plaintiffs, the company being one and the shareholder being the other, for exactly the same loss. The difficulties become more acute because of the decision in a New Zealand Court of Appeal case Christensen v. Scott [1996] 1 N.Z.L.R. 273. That court held,

"It may be accepted that the Court of Appeal was correct, however, in concluding that a member has no right to sue directly in respect of a breach of duty owed to the company or in respect of a tort committed against the company. Such claims can only be bought by the company itself or by a member in a derivative action under an exception to the rule in Foss v. Harbottle [1843] EngR 478; (1843) 2 Hare 461. But this is not necessarily to exclude a claim brought by a party, who may also be a member, to whom a separate duty is owed and who suffers a personal loss as a result of a breach of that duty. Where such a party, irrespective that he or she is a member, has personal rights and these rights are invaded, the rule in Foss v. Harbottle is irrelevant. Nor would the claim necessarily have the calamitous consequences predicted by counsel in respect of the concept of corporate personality and limited liability. The loss arises not from a breach of the duty owed to the company but from a breach of duty owed to the individuals. The individual is simply suing to vindicate his own right or redress a wrong done to him or her giving rise to a personal loss.

"We consider, therefore, that it is certainly arguable that, where there is an independent duty owed to the plaintiff and a breach of that duty occurs, the resulting loss may be recovered by the plaintiff. The fact that the loss may also be suffered by the company does not mean that it is not also a personal loss to the individual. Indeed, the diminution in the value of Mr and Mrs Christensen's shares in the company is by definition a personal loss and not a corporate loss."

39. The decision in the Christensen case has been followed in a number of subsequent English Court of Appeal cases and Lord Hutton recognised that the judgments in the two cases "are difficult to reconcile". Indeed their Lordships in the Gore Wood case had differing views on the two cases. Lord Millet saying;

""the diminution in the value of Mr. and Mrs. Christensen's shares in the company is by definition a personal loss and not a corporate loss. The loss suffered by the company is the loss of the lease and the profit which would have been obtained from harvesting the potato crop. That loss is reflected in the diminution in the value of Mr. and Mrs. Christensen's shares. They can no longer realise their shares at the value they enjoyed prior to the alleged default of their accountants and solicitors."

"I cannot accept this reasoning as representing the position in English law. It is of course correct that the diminution in the value of the plaintiffs' shares was by definition a personal loss and not the company's loss, but that is not the point. The point is that it merely reflected the diminution of the company's assets. The test is not whether the company could have made a claim in respect of the loss in question; the question is whether, treating the company and the shareholder as one for this purpose, the shareholder's loss is franked by that of the company. If so, such reflected loss is recoverable by the company and not by the shareholders.""

40. However, their Lordships in Gore Wood all agreed double recovery could not be allowed and that this was acknowledged by Thomas J in Christensen. It seems to me that provided there is no double recovery and if the shareholders loss can be ascertained according to the principles set out by Lord Hutton in the Walker and others case [31] losses by Fen as a shareholder can be recovered. That still leaves the major difficulty expressed by Lord Bingham,

"These principles do not resolve the crucial decision which a court must make on a strike-out application, whether on the facts pleaded a shareholder's claim is sustainable in principle, nor the decision which the trial court must make, whether on the facts proved the shareholder's claim should be upheld."

Lord Bingham was of the view the problem could only be resolved by close scrutiny of the pleadings at the strike out stage and, if the matter proceeded, by looking at the proven facts at trial.

".. the object is to ascertain whether the loss claimed appears to be or is one which would be made good if the company had enforced its full rights against the party responsible, and whether (to use the language of Prudential at page 223) the loss claimed is "merely a reflection of the loss suffered by the company." In some cases the answer will be clear, as where the shareholder claims the loss of dividend or a diminution in the value of a shareholding attributable solely to depletion of the company's assets, or a loss unrelated to the business of the company. In other cases, inevitably, a finer judgment will be called for."

We are, of course at the strike out stage and I bear in mind Lord Bingham's comment that at that stage "any reasonable doubt must be resolved in favour of the claimant."

41. As indicated earlier, parts of Fen's claim are plainly and simply claims in respect of company property. They are made jointly with the company. They cannot succeed and must be struck out. As to the balance, and bearing in mind the claim is prefaced "the First and Second Claimants seek" I will deal with the rest of the heads of claim as if they were made solely by Fen as against NBSI. I will not deal with any claims that are made specifically against any other party (i.e. the Second, Third and Fourth Defendants). At paragraph [A] (7) Fen's claims for loss of properties. It is not clear what property or indeed who's property. That aspect of the claim is not dealt with in the statement of case. Without more I can see no option but to strike out this claim. At [A] (8) the claim is for loss of business. It is nowhere pleaded the First Claimant had a separate business from the Second Claimant. Fen's only business in Solomon Islands was YHF. The loss of business must then be the loss of the company's business. The only other "business" that could be referred to in this head of claim is Fen's income from YHF. Nowhere in the pleadings is this set out and in any event income is specifically mentioned at [A] (9). Without more, this head of claim must also be struck out. Dealing with [A] (9) specifically, again there is no indication whether the lost income is that of YHF or that of Fen. In truth it is probably a bit of both but nowhere is that pleaded. Without more this head of claim must be struck out. Turning to [A] (10) this is such a nebulous claim it cannot succeed. It is unclear on what basis it is made. If it were to be successful it could only relate to the property the loan was secured against. It may relate to the recovery of all the costs and interest involved but again they were recovered only by resort to the security. I am firmly of the view that if any such claim as pleaded were to succeed it would be a reflection of the company's loss. It too must be struck out. I do not understand on what basis the exemplary damages are claimed ([A] (11)). I need not consider the question of costs at this stage.

42. I have said several times above "without more". I am mindful of Lord Bingham's comment of reasonable doubt being resolved in the claimant's favour. I would accept that amendments to the pleadings might resolve the question of whether strike out is appropriate. However, I also have to bear in mind this is the fourth (or so I believe) attempt at pleading the case and I cannot allow the First Claimant to go back and try yet again.

43. I now turn to the First and Second Claimants' claim against the Registrar General as Fourth Defendant ('the Registrar). The claim alleges negligence. In simple terms the allegation is that the Registrar failed to check various documents as to their authenticity. To my mind, it would be an abuse of the process of the court to allow the company, YHF, to allege fraudulent conduct by its officers and then allow it to succeed in a claim based on that fraud. That cannot be right. The claim by the Second Claimant against the fourth Defendant is struck out.

44. The First Claimant relies on the same allegations. Fen in her own name cannot succeed on those allegations either. I cannot see that the Registrar has any duty other than to consider and deal with such paperwork as is presented to him. He was entitled to accept the documents on their face value. Fen does not say the Registrar had any extraordinary or extraneous knowledge of what was going on inside the company. The "duty" of the Registrar is to register documents. That duty must include checking the documents have been duly completed, in the sense that he is bound to check they have been completed in accordance with the requirements of the various acts. As a matter of law, it is not part of his "duty" to go behind the documents presented to him and make all manner of additional enquiries. As Mr Banuve rightly submits, the onus is on the company to ensure the documents reflect the true position. The First Claimant's claim against the Fourth Defendant is struck out.

45. The upshot of all this is the only live issues are now between the Claimants and the Second and Third Defendants. I will not make any ruling on those claims at present. It may be, given the relationship between the remaining parties, the matter will not proceed. If they do proceed it certainly looks as if any victory would be a pyrrhic one.

46. Costs are in the discretion of the court. I order that the Second Claimant, Second Defendants and Third Defendant pay the First and Fourth Defendant's costs, those costs are to be taxed if not agreed. I will certify the application as fit for Queens Counsel should that be necessary. I will not make any order for costs for or against the First Claimant.

47. I understand the First Claimant, Fen, will be disappointed at the result of this application. She will no doubt feel, probably with some justification, that she has been badly let down by her professional financial advisers. She will probably feel they are the only ones to have benefitted from all that has happened. This is a court of law though, not a court of morals and I can only decide questions of law. I will finish as I started, "There is in all of us a strong disposition to believe that anything lawful is also legitimate. This belief is so widespread that many persons have erroneously held that things are "just" because the law makes them so"

Chetwynd J

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^[1] Frederic Bastiat (1801 to 1850) The Law
^[2] Paragraph 23 of the ruling dated 15^th April 2010
^[3] Paragraph 5(a) of NBSI’s defence and counter cross claim in Civil Case 505 of 2005 found at page 119 of the Record of Appeal Civil Appeal Case 2 No.2 of 2008
^[4] Record of Appeal in Civil Appeal Case No. 2 of 2008
^[5] See ibid page 114
^[6] Ibid
^[7] Ibid pages 63 to 72 inclusive
^[8] Ibid page 194 to 196 inclusive
^[9] Ibid page 104
^[10] Ibid page 207 to 208 inclusive
^[11] Paragraph 27 Amended Statement of Claim filed 12^th December 2005 (at page 115 ibid)
^[12] Paragraph 3 of Defence and Counterclaim and Cross Claim filed 16^th May 2006 (at page 118 ibid)
^[13] Paragraph 7(c) (iv) ibid (at page 120)
^[14] Paragraph 28 ibid (at page 132)
^[15] Paragraph 29 ibid
^[16] Paragraph 26(b) (i) to (iv) on page 60 of the Bundle of Relevant Pleadings
^[17] Civil case No. 327 of 2007
^[18] See pages 151 to 155 of the Applicant/First Defendant’s book of authorities
^[19] See pages 187 to 189 and 212 to 215 of the Record of Appeal Civil Appeal case No. 2 of 2008
^[20] [1843] EngR 917; (1843) 3 Hare 100
^[21] [2001] 1 All ER 481
^[22] Port of Melbourne Authority v. Anshun Pty Ltd 91981) 147 CLR 589
^[23] [1999] 1 W.L.R. 1482
^[24] Per Lord Bingham in Johnson v. Gore Wood & Co
^[25] Per May LJ Manson v. Vooght and Others [1999] BPIR 376
^[26] Paragraph 9 of the Further Re-Amended Claim
^[27] See page 5 of the Court of Appeal bundle at paragraph 6
^[28] See Further Re-Amended Claim at page 5 of the bundle of relevant pleadings
^[29] At paragraphs[A](1) to (6)
^[30] Per Lord Hutton Johnson v. Gore Wood & Co
^[31] See paragraph 34