ANZ Bank (Samoa) Ltd v Summit Cargo Group Samoa Ltd [2005] WSSC 44 (22 April 2005)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

ANZ BANK (SAMOA) LIMITED
a duly incorporated company having its registered office at Apia
PLAINTIFF

AND:

SUMMIT CARGO GROUP SAMOA LIMITED
a duly incorporated company having its registered office at Savalalo, Apia
DEFENDANT

Counsel: Mr S Leung Wai for the plaintiff
Ms R Drake for the defendant

Date of Hearing: 13 April 2005
Date of Judgment: 22 April 2005

JUDGMENT OF VAAI J

The defendant, a customer of the plaintiff bank, operated a freight and forwarding business in Samoa since the year 2000. Two of the directors live and reside overseas whilst the third director Mr Fong, is a local who also managed the defendant. Mr Fong was appointed director in November 2001 and subsequently removed as director and manager in December 2003. Since his appointment as director and as local manager Mr Fong obtained from the plaintiff bank on a number of occasions financial assistance either by way of loan or overdraft for the operations of the defendant company. In November 2002 as a result of further requests by Mr Fong for financial assistance the plaintiff bank requested a mortgage debenture of the defendant’s assets, stocks, shares, revenues and undertaking as security for the loans, advances and other banking accommodation granted by the plaintiff to the defendant. A deed of mortgage debenture dated the 5th November 2002 from the defendant to the plaintiff was registered on the 21st November 2002. On the 25th February 2005 on an ex-parte application by the plaintiff this court granted an interim injunction against the defendant to restrain the defendant inter alia from disposing or selling its assets, undertakings, plants, machinery, debts and any other property pending the exercise by the plaintiff of its rights and remedies under the mortgage debenture.

Application by the defendant

In these proceedings the defendant seeks an order to discharge the order of interim injunction on the grounds:

(i) the plaintiff does not hold a valid debenture.
(ii) the plaintiff seriously misled the court.
(iii) the plaintiff and/or its counsel failed to make full and proper disclosure to the court of all material facts and/or any known defences.
(iv) The plaintiff is not entitled in law to any priority or preference.

I shall deal with the first and fourth ground first. It is not disputed that the mortgage debenture with the affixed seal of the defendant was signed by Mr Fong as director countersigned also by Mr Fong as second director and signed the third time by Mr Fong as secretary. Article 27(3) of the defendant’s Articles of Association which requires every instrument to which the seal is affixed to be signed by a director and countersigned by the secretary or by a second director or by some other person appointed by the directors for the purpose was clearly not complied with. The defendant also alleges that contrary to the Articles of Association there was no resolution by a properly constituted meeting of the directors to authorise the borrowing, the giving of the debenture and the affixing of the common seal. Affidavits were filed by the other two directors, Mr Zemby and Mr Feist to the effect that there was no meeting to discuss and authorise the borrowing and the giving of the debenture so that there was no resolution to authorise the affixing of the seal. As a consequence the defendant contends that the improperly executed mortgage debenture is not binding on the defendant as it was not executed by the defendant.

Counsel for the plaintiff submits that the debenture, despite the improper execution, is nonetheless a valid document and binding on the defendant. Reliance is placed on the indoor management rule also known as the rule in: The Royal British Bank v Turquand (1856)6 EL and Bl 327 [1856] EngR 470; (119 ER 886). According to the rule in Turquand’s case, persons dealing with a company in good faith may assume that acts within its constitution and powers have been duly performed and are not bound to inquire whether the acts of internal management have been regular. A number of affidavits have been filed by officers of the plaintiff to the effect that Mr Fong had on at least five occasions as the Manager and director of the defendant prior to his removal by the defendant requested financial assistance and it was Mr Fong who signed letters of offer, security documents and cheques for the defendant. This is partially confirmed by Mr Zemby himself in his affidavit at paragraph 10:

“That whilst I was aware the Defendant had from time to time sought temporary assistance from the plaintiff this was never for significant amounts and was handled by the local manager Wayne Fong - - -“

The same affidavits by the officers of the plaintiff and the attached exhibits also suggests that the defendant through Mr Zemby acquired further advances from the plaintiff in 2003 and 2004 and he knew and acknowledged then the indebtedness of the defendant with the plaintiff as well as the existence of the debenture. In any event it is not disputed that the defendant through Mr Fong did obtain loans and advances on several occasions from the plaintiff without any formal resolution by the directors.

Since the procedure adopted in these proceedings is the summary procedure it will be inappropriate to make any determination on disputed questions of facts. Whether the rule in Turquand’s case does apply and whether the defendant did ratify the execution of the debenture can only be determined after hearing of the evidence. Given the discrepancies in the affidavit evidence and the nature of the issue to be determined between the parties the matter should proceed to a substantive hearing and the first and fourth ground must fail.

I shall now deal with grounds (ii) and (iii). Counsel for the defendant submits that the plaintiff and/or its counsel failed to make full disclosure to the court of any defence opened to the defendant. Counsel relied on two New Zealand authorities : United People’s Organisation (World Wide) Inc. v Rakino Famrs Ltd (No. 1) 1964 NZLR 175 and Matich v United Building Society [1987] NZHC 1899; (1987) 2 NZLR 513.

In United People’s Organisation (World Wide) Inc. v Rakino Farms Ltd (No.1) supra it was said by Gresson J at page 738:

“It is well settled that it is the duty of a solicitor certifying to an ex parte application to make the fullest disclosure to the Court of all matters relevant to such an application, whether or not such solicitor considered any such matter unimportant. He has a duty to disclose to the Court the defence to the action if he knows it, and the facts on which it is based, so that the court can judge for itself whether they are material or not. Failure to do so may in itself furnish ground for dissolving the injunction, W v Public Trustee [1935] NZLR s.22; [1935] GLR 163; Excott v Thomas [1934] NZLR s.175; [1934] GLR 544; Simpson v Murphy [1947] GLR 411.

“If on a motion to dissolve an ex parte interim injunction it appears that the plaintiff had misstated his case, either by misrepresentation or by the suppression of material facts, so that an injunction has been obtained which might have been refused if all the facts had been stated, that in itself is sufficient ground for dissolving the injunction. There was no want of good faith on the part of the solicitors for the plaintiff, as is admitted by counsel for the defendant, but in my view there was a failure to make full disclosure of all the relevant facts including the terms of cl 19 of the agreement. Had these facts been placed before the court there is room for the suspicion, which might later prove either well-founded or unwarranted, that the application for the interim injunction was filed merely to gain time while the plaintiff endeavoured to extricate itself from the consequences of its failure to meet the June instalment and to pay interest at the appropriate rate. This might have involved refusing the interim injunction altogether, or granting it on “terms””.

Counsel for the defendant submits that as early as November 2004 the defendant through its solicitors challenged the validity of the debenture and this challenge of the validity of the debenture was not made known to the court at the ex parte application. I have earlier indicated that from the exhibits in the affidavits of the officers of the plaintiff it would appear that Mr Zemby and the defendant may have known about the existence of the debenture in late 2003 or early 2004 when Mr Zemby requested further substantial advances from the plaintiff.

There are significant discrepancies in the affidavits supporting the ex parte application and the affidavits in support of the application to rescind the order as well as further affidavits filed by the plaintiff to oppose the rescinding of the order. The combination of all these affidavit evidence now before the court does not lead me to a different view of the ex parte application. In fact if all the evidence now available to me were before me at the time of the ex parte application I would have no hesitation in granting the order. There is a serious question to be tried and the balance of convenience favours the grant of the interim order.

It should be noted that the practice as illustrated by Gresson J in United People’s Organisation (World Wide) Inc. v Rakino Farms Ltd (supra) is only a sufficient ground; it is not a mandatory requirement and in the end it is judicial discretion bearing in mind the circumstances at the time the ex parte order was sought.

To discharge the interim injunctions on the technical basis of non-disclosure or misrepresentation before their merits were able to be examined further could lead to serious injustice: see Tucker v News Media Ownership Ltd [1986] NZHC 216; (1986) 2 NZLR 716.

Having read the Statement of Claim, the affidavits in support of the ex parte application, the affidavits to support rescinding and the affidavits to support opposing the rescinding of the order I am not prepared to accept the allegation by counsel for the defendant that the injunction had been obtained in bad faith or in an attempt to deceive the court. The conflicting evidence should be resolved at the substantive hearing.

The second and third ground also fail. The application to rescind the interim order granted ex parte is refused and the matter shall proceed to a hearing and is adjourned to the 16th May 2005 for the defendant to file a Statement of Defence. Costs are reserved.

JUSTICE VAAI