Development Bank of Tuvalu v Tekavatoetoe Lagoon Resort [2022] TVHC 4; Civil Case 7 of 2021 (25 April 2022)

IN THE HIGH COURT OF TUVALU 2022

CIVIL CASE NO.7/21

BETWEEN

DEVELOPMENT BANK OF TUVALU PLAINTIFF

AND

TEKAVATOETOE LAGOON RESORT DEFENDANT

Before Hon Judge Sir John Muria

Hearing 29^th March 2022

Ms T. Drecala for Plaintiff
Ms F. T. Nelu for Defendant

J U D G E M E N T

Muria J: The defendant’s application is to strike out the named defendant on two grounds namely:

1. that the named defendant is joined improperly;
2. that the defendant does not exist.
   

Brief background

2. The plaintiff and defendant entered into three (3) loan agreements, two in 2008 and one in 2009. It is said that the defendant defaulted in the repayment of the loans and the plaintiff now claims against the defendant a total of $214,461.39 as outstanding loan repayment amount said to be owing by the defendant to the plaintiff.
   
3. The Writ of Summons indorsed with a Statement of Claim was issued on 29^th March 2021 and served on the defendant on 12^th April 2021. No appearance has been entered as well as no defence has been filed by the defendant to the Writ of Summons. Consequently, on 3^rd September 2021 the plaintiff filed a Motion for default judgment.
   
4. The case was called on 20^th December 2021 at which time Counsel for the plaintiff informed the Court that settlement out of Court was being pursued. Counsel further informed the Court that agreed settlement had been struck and that the agreed settlement document would be prepared. The Court adjourned the case to 31^st January 2022 at which time Counsel for the plaintiff would file the agreed settlement document. There was no appearance for or by the defendant.
   
5. The case was called on 31^st January 2022 and Counsel for the plaintiff advised the Court that the anticipated settlement had fallen through and that the plaintiff would now pursue its motion for default judgment against the defendant. The matter was fixed for 18^th February 2022 for the hearing of the plaintiff’s application for default judgment. Again there was no appearance for or by the defendant.
   
6. At the adjourned hearing on 18^th February 2022 Ms Nelu, instructed by the defendant, appeared for the defendant for the first time. At that hearing Ms Nelu of Counsel for the defendant raised a preliminary issue, namely, the legal status of the defendant. Counsel informed the court that the defendant would be filing the necessary application to object to the defendant being sued as it has no legal existence and so cannot be sued. The matter was adjourned to 14^th March 2022 for the defendant to file their Court papers.
   
7. On 25^th February 2022 the defendant filed its application challenging the status of the defendant as being improperly named. On 14^th March 2022, the Court directed the parties to file their supporting affidavits and their arguments for the hearing on 29^th March 2022. The parties have done those and the application by the defendant was heard on 29^th March 2022.
   

Delay in challenging Defendant’s Status

8. At the hearing, Ms Drecala raised the point that any challenge to the status of the defendant at this stage is too late. The defendant has delayed in raising the issue and should not be permitted to do so now, since the defendant has sat on its rights. The plaintiff also viewed the challenge to the defendant’s status as a delaying tactics.
   
9. Ms Nelu countered the plaintiff’s argument on the issue of delay by relying on Order 17 Rule 12 of the High Court (Civil Procedure) Rules 1964 which, Counsel submits, provides that an application can be made at “any time before trial” to add or strike out a party. Rule 12 of Order 17 provides as follows:
   

“Rule 12. Any application to add or strike out or substitute a plaintiff or defendant may be made to the Court at anytime before trial by motion or summons or at the trial of the action in a summary manner”

10. Apart from the fact that this is the first time the defendant has been legally represented and hence to be properly advised, Order 17 Rule 12 clearly allows an application to add or strike out a party at anytime before or at the trial. Counsel for the plaintiff did not raise any argument to counter the application of Rule 12 of Order 17 other than to contend that the defendant has sat on its right. The Court accepts the argument of Counsel for the defendant that Order 17 Rule 12 is the authority to bring the defendant’s present application and any delay on the part of the defendant would not deprive it of its entitlement under that rule unless the delay is unreasonable. In this case, the delay in raising the issue of the legal status of the defendant cannot be said to be unreasonable since it is only now that it has the benefit of legal advice.
    

Status of the Defendant

11. In the plaintiff’s Writ of Summons, “TEKAVATOETOE LAGOON RESORT” is named as the defendant. Paragraph 2 of the Statement of Claim averred that the defendant was a registered business located on Funafuti. There is no evidence produced to show that “TEKAVATOETOE LAGOON RESORT” is a registered legal entity nor is there any evidence that it was a registered business. These registered status are important. The former is essential in order for the defendant to sue and be sued, to enter into contracts and to own or hold property. The latter is necessary to operate a business under a registered business name. Neither of these statuses of the defendant has been shown in this case.
    
12. A receipt has been said to have been found showing the registration of the defendant as a business. That receipt has been attached to the affidavit of Paul Peniata indicating “IN SETTLEMENT OF Business registration in respect of Tekavatoetoe Lagoon Resort” paid on 14^th April 2008 in the sum of $100.00. In any case, a receipt is not necessarily proof of registration unless accompanied by a relevant document. Secondly, registration as a business does not confer legal entity status on the defendant. It merely shows the registered name of the business under which one is trading or carrying out its business activities.
    
13. The three loan agreements, which the plaintiff claimed the defendant to have defaulted in repaying them, were all signed between the plaintiff, Bank, and the defendant named as “the Borrower”. The guarantors to the loans were Falesa Pitoi, Taasi Pitoi and Peau Tasii. The person who signed for the borrower was Falesa Pitoi and the persons who acknowledged the loan from the plaintiff were Falesa Pitoi, Tasii Pitoi and Peau Tasii.
    
14. There is an affidavit evidence filed by Taasi Pitoi who acknowledged being served with the Writ of Summons and now denying the existence of “Tekavatoetoe Island Resort” as well as it being registered as a business. It must be pointed out that the defendant in the Writ of Summons is “Tekavatoetoe Lagoon Resort” not “Tekavatoetoe Island Resort”. I find this affidavit to be of little help to the parties or the Court. There may be another Resort called “Tekavatoetoe Island Resort” but the defendant in this case is “Tekavatoetoe Lagoon Resort”.
    
15. On the evidence before the Court, what is clear is that the plaintiff entered into three loan agreements with the defendant, “Tekavatoetoe Lagoon Resort” who is someone with no legal entity status. It did not and never has legal existence in the eyes of the law and as such it could not enter into contract with anybody, including the plaintiff. As rightly pointed out by Ms Nelu, the defendant does not exist in law. The general rule is that an unincorporated body, such as the defendant in this case, has no legal entity and as such cannot sue or be sued and does not have the legal capacity to enter into contracts. The only exception to the general rule is that if there is a statutory provision authorising such body, expressly or by necessary implication to sue or be sued. See Fotofili –v- Free Wesleyan Church [1995] TOLaw Rp 13; [1995] Tonga LR 91 (12^th May 1995). None has been shown in this case.
    
16. This is not a case of the plaintiff suing an entity like “Tekavatoetoe Lagoon Resort Ltd” or “Tekavatoetoe Lagoon Resort Ltd, trading as Tekavatoetoe Lagoon Resort”. In either of such cases there would be no objection to the defendant’s status. In this case, the plaintiff is suing a body that has no legal personality and with whom it entered into three loan contracts.
    
17. Ms Drecala sought to rely on the “Litigation Finger Test” as developed by Lord Devlin in Davies –v- Elsby Brothers Limited [1961] 1 WLR 170; [1960] EWCA Civ J 1102 – 1, where the plaintiff mistakenly named the defendant as Elsby Brothers (a firm) in a claim over an accident in 1956. However, the full name of the defendant should be “ Elsby Brothers Limited” an incorporated company. The plaintiff sought to amend the Writ in 1960 to correct the name of the defendant by adding “Limited” to “Elsby Brothers”. The defendant sought to have the plaintiff’s Writ struck out. On appeal to the Court of Appeal, the Court held that the amendment could have been allowed, if it were a mere correction of a misnomer. However, as at the time the Writ was issued there were two different bodies involved, and no evidence was presented to show that the plaintiff intended to sue the limited company (Elsby Brothers Limited) rather than the firm (Elsby Brothers) the amendment amounted to substituting or adding another party, out of time. The amendment was refused.
    
18. The general principle expounded by Lord Devlin is succinct:
    

“ In English law as a general principle the question is not what the writer of the document intended or meant but what a reasonable man reading the document would understand it to mean; and that, I think, is the test which ought to be applied as a general rule in cases of misnomer – which may embrace a number of other situations apart from misnomer on a writ, for example, mistake as to identity in the making of a contract...One of the factors which must operates on the mind of the recipient of a document, and which operates in this case, is whether there is or is not another entity to whom the description on the Writ might refer”.

19. It was argued for the plaintiff in this case that the right defendants are Mr & Mrs Taasi Pitoi with whom the plaintiff had been in discussions all along during the negotiations and securing of the loans. As such the plaintiff was able to point a “finger” at the right defendants. In other words the intended defendants were Mr and Mrs Taasi Pitoi. However, as pointed out in Davies –v- Elsby Brothers Ltd, the intention of the framer of the document (Writ) is immaterial but rather, it is what a reasonable person reading the document (the writ) would understand it to mean. In this case, looking at the writ itself and reading it, there was and, still there is nothing in the writ itself to indicate that Mr and Mrs Pitoi were the intended defendants. That may well be in the plaintiff’s mind, but it chose to sue on unincorporated body instead.
    
20. It was also pointed out in Dumford Trading AG –v- Oao Atlantrybflot [2005] EWCA Civ 24 that one can only look within the four corners of the document to say that the parties mush have intended to refer to one rather than the other entity, in which case the doctrine of misnomer would not apply. In such a case, it would no longer be case of a correction of the name but rather it would be a case of substitution of a party for the other: Davies –v- Elsby Brothers Ltd.
    
21. It must also be pointed out that there has never been any application by the plaintiff to add or substitute a party as a defendant. One would have expected that it would be in the best interest of the plaintiff to make inquiry as to the status of the defendant even before entering into the loan agreements or as to who should be the proper defendant before issuing the writ. Had that been done and once Mr and Mrs Taasi Pitoi were ascertained to be the “right defendants”, appropriate steps could have been taken to ensure the writ shows who the proper defendants should be.
    
22. Understandably, the argument put by Ms Drecala that the plaintiff was able to point a finger at the right defendants (Mr and Mrs Taasi Pitoi) who were persons with whom the plaintiff was dealing with during the loans negotiations and the signing of the loan documents. Unfortunately, they are not sued or named as defendants in the writ. The case of Davies –v- Elsby Brothers Ltd cannot be of help to the plaintiff in this case. The plaintiff must accept the consequences of suing, not only a wrong entity, but an entity that has no legal existence, one that cannot sue or be sued and one that has no legal capacity to enter into contract and be called a “borrower” and cannot hold properly. See Freeman –v- Mc Manus [1958] VicRp 5; [1958] VR 15.
    
23. The writ issued by the plaintiff in this case named “TEKAVATOETOE LAGOON RESORT” as the defendant. In the accompanying Statement of Claim, it refers to the loan agreements as being entered into between the plaintiff bank and the defendant. The guarantors were named as Falesa Pitoi, Tasii Pitoi and Peau Tasii. The only defendant named in the writ is TEKAVATOETOE LAGOON RESORT and no indication has been shown on the four corners of the writ that Mr and Mrs Taasi Pitoi are the intended defendants, although now the plaintiff says they are the “right defendants”.
    
24. Consequently, no judgment in default can be entered against the defendant TEKAVATOETOE LAGOON RESORT in the present case nor can there be any enforcement of the loans taken against it. The defendant’s application must succeed and the proper order to make in this case is that the plaintiff’s claim against the defendant TEKAVATOETOE LAGOON RESORT, is misconceived and it must be dismissed.
    
25. The defendant is not entitled to costs. However, Counsel for the defendant is entitled to her legal costs, which must be paid by the plaintiff to be taxed, if not agreed.
    

Order

26. 1. Defendant’s application is granted.
    
    2. The Claim against the defendant is misconceived and it is dismissed.
       
    3. The defendant’s Counsel’s legal costs to be paid by the plaintiff, to be taxed if not agreed.
       

Dated on the 25^th day of April 2022.

Sir John Muria
Judge