Board of Trustees of the Congregational Christian Church of Samoa v Harbourside Investments Ltd [2019] WSSC 44 (30 August 2019)

SUPREME COURT OF SAMOA
Board of the Trustees of the CCS v Harbourside Investments Ltd [2019] WSSC 44

Case name:	Board of the Trustees of the CCS v Harbourside Investments Ltd
Citation:	[2019] WSSC 44
Decision date:	30 August 2019
Parties:	BOARD OF TRUSTEES OF THE CONGREGATIONAL CHRISTIAN CHURCH OF SAMOA a Charitable Trust established pursuant to the Charitable Trust Act 1965 having its registered office at Tamaligi Plaintiff A N D HARBOURSIDE INVESTMENTS LTD a duly incorporated company and HARBOURSIDE RESTAURANT a restaurant at Tamaligi. First Defendant A N D VE’A JONES also known as VE’A WATTS Businesswoman of Tiapapata. Second Defendant
Hearing date(s):
File number(s):
Jurisdiction:	Civil
Place of delivery:	Supreme Court of Samoa, Mulinuu
Judge(s):	Patu F M Sapolu Temporary Justice of the Supreme Court and Former Chief Justice
On appeal from:
Order:	- The two causes of action alleged in the written submission of counsel for the plaintiff against the second defendant are struck out. That leaves only the first defendant. - Counsel to file memoranda as to costs within seven (7) days if agreement between the parties cannot be reached on costs.
Representation:	T Leavai for plaintiff First defendant unrepresented P A Fepulea’i for second defendant
Catchwords:	contract of guarantee – guarantee – guarantor – Statute of Frauds 1677 (UK)
Words and phrases:
Legislation cited:	Companies Act 1955 Companies Amendment Act 2006 Contracts Enforcement Act 1956 (NZ) Property Law Act 2007 (NZ)
Cases cited:	Actionstrength Limited v International Glass Engineering IN GLEN Spa et al [2003] UKHL 17
	Fairstate Limited v General Enterprise & Management Limited [2010] EWHC 3072
Summary of decision:

IN THE SUPREME COURT OF SAMOA
HELD AT MULINUU

BETWEEN

BOARD OF TRUSTEES OF THE CONGREGATIONAL CHRISTIAN CHURCH OF SAMOA a Charitable Trust established pursuant to the Charitable Trust Act 1965 having its registered office at Tamaligi.
Plaintiff

A N D

HARBOURSIDE INVESTMENTS LTD a duly incorporated company and HARBOURSIDE RESTAURANT a restaurant at Tamaligi.
First Defendant

A N D

VE’A JONES also known as VE’A WATTS Businesswoman of Tiapapata.
Second Defendant

Counsel:
T Leavai for plaintiff
First defendant unrepresented
P A Fepulea’i for second defendant

Judgment: 30 August 2019

JUDGMENT OF SAPOLU J
TEMPORARY JUSTICE OF THE SUPREME COURT
AND FORMER CHIEF JUSTICE

Background

1. The plaintiff is a charitable trust established under the Charitable Trusts Act 1965. It owns a six-storey building called the “Ioane Viliamu Building” located at Tamaligi, Apia, where spaces are rented to approved tenants. The first defendant is a duly incorporated company which operated a restaurant called the Harbourside Restaurant. The second defendant was at the material times a director of the first defendant and manageress of the Harbourside Restaurant.
2. On 3 July 1984, the plaintiff leased a space within its Ioane Viliamu Building to a company called International Cuisines Ltd at a specified rent for a term of 15 years. On 7 February 2000, the lease was renewed for another term of 15 years. Then by deed of assignment of lease dated 6 March 2000, International Cuisines Ltd assigned its lease to the first defendant which then became assignee of the lease.
3. On 20 September 2012, the plaintiff filed a claim against the second defendant (as the only defendant at that time) for unpaid rent of $91,346.45. Subsequently, judgment by default was entered in favour of the plaintiff against the second defendant. This was followed by an application by the second defendant to set aside judgment and for a rehearing. The grounds of this application were that the second defendant was never served with the plaintiff’s proceedings and she had a good defence. The application must have been granted and the judgment was set aside.
4. Then on 14 March 2014, the plaintiff filed a motion for leave to amend its statement of claim that had been filed on 20 September 2012. That motion must have also been granted. Consequently, Harbourside Investments Ltd became the first defendant whilst Vea Jones who was the sole defendant to the 2012 statement of claim became the second defendant. Mr Fepuleai withdrew from acting as counsel for the first defendant and acted as counsel only for the second defendant. The first defendant was therefore unrepresented by counsel. The second defendant subsequently moved to strike out the plaintiff’s amended statement of claim.

The strike out motion

5. As it appears from the second defendant’s documentation, the ground of the strike out motion was that the amended statement of claim seeking substantial arrears of rent disclosed no reasonable cause of action against the second defendant which was maintainable in law. Both counsel accepted that the approach to be applied to the present strike out motion was that stated in Enosa v Samoa Observer et al [2005] WSSC 6 where this Court said:
   • “The jurisdiction to strike out a statement of claim for disclosing no reasonable cause of action must be sparingly exercised. The factual allegations in support of the claim are assumed to be true and correct. The jurisdiction will only be exercised where it is very plain and obvious that the plaintiff’s claim is so clearly untenable that it cannot possibly succeed”.

The assumed facts taken from the amended statement of claim

6. For the purpose of a motion to strike out a statement of claim on the ground of not disclosing a reasonable cause of action, the Court has to assume the facts pleaded in the statement of claim in support of a cause of action to be true, that is, capable of proof by the plaintiff.
7. Essentially, and at the real risk of being repetitive, the relevant facts pleaded in the amended statement of claim showed that the plaintiff leased a space in its Ioane Viliamu Building to a company called International Cuisines Ltd on 3 July 1984 at a specified rent for a term of 15 years. On 7 February 2000 the said term was renewed for another 15 years. On 6 March 2000 by deed of assignment of lease, the lease was assigned to Harbourside Investments Ltd, the first defendant. So the first defendant became lessee as from 6 March 2000. The second defendant did not become lessee; she was only a director of the first defendant and manageress of its restaurant.
8. It was then pleaded in the amended statement of claim that starting from mid-2006, the first and second defendants fell behind with their rental payments. This is incorrect. The first defendant was the lessee in terms of the deed of assignment of lease but not the second defendant who was only a director of the first defendant and a manageress of its restaurant. Thus, in reality it was the first defendant as lessee but not the second defendant who fell behind with rental payments. There is another fundamental difficulty if both the first and second defendants are taken to have owed rent to the plaintiff as pleaded. It would mean that both defendants were debtors of the plaintiff. But counsel for the plaintiff in her written submissions said that the second defendant was a guarantor or implied guarantor. This cannot be so. One cannot be a principal debtor and guarantor at the same time. You are either a principal debtor or a guarantor, but you cannot be both. It was also pleaded that in July 2006, the plaintiff served on the second defendant a demand notice for rental arrears. This was also inappropriate. The demand notice should have been served on the first defendant who was the lessee and therefore liable for rent and not on the second defendant who was not the lessee and therefore under no obligation to pay rent.
9. It was then further pleaded that in August 2006, a committee of the plaintiff met with the second defendant and both agreed that the latter would first pay an amount of $10,000 and then $500 per month towards the first defendant’s arrears of rent. It was alleged that the second defendant failed to comply with these arrangements and in spite of repeated reminders from the plaintiff continued to fail to comply with those arrangements. Correspondence that took place was alleged to have been between the plaintiff and the second defendant. This does not appear to be correct. Realistically, the correspondence to the second defendant was to her in her capacity as manageress of the first defendant the actual lessee and not as lessee herself because she was not the lessee. Eventually, on 20 September 2012 the plaintiff filed a statement of claim for $91,346.45 against the second defendant for unpaid rent. On 14 March 2014, the plaintiff filed a motion for leave to amend its statement of claim. Leave to amend was granted and an amended statement of claim was filed citing both the first and second defendants.

Submissions of counsel

10. Counsel for the plaintiff in her written submissions said that the plaintiff has two causes of action against the second defendant. The first cause of action was that the second defendant impliedly agreed to guarantee payments of rent for the first defendant; the second cause of action was that the second defendant was in breach of s.320 of the Companies Act 1955 and s.71 of the Companies Amendment Act 2006 by negligently continuing to operate the first defendant’s restaurant in the plaintiff’s premises knowing well that it was a losing venture. In consequence, the restaurant could not afford the rental payments.
11. There is no express mention in the statement of claim or amended statement of the two causes of action referred to in the written submissions of counsel for the plaintiff. There was also no pleading as to negligence. The first mention of the said causes of action was in counsel’s written submission at the conclusion of the hearing. It seems that the reason why counsel for the plaintiff submitted that the second defendant had impliedly agreed to guarantee payment of the rent was because of the numerous correspondence between the plaintiff and the second defendant regarding the rent payable by the first defendant as the lessee and the commitment made by the second defendant in her capacity as manageress of the first defendant’s restaurant to pay the arrears owed by the first defendant to the plaintiff. With respect, I do not accept this analysis by counsel. The first defendant which was the lessee in the plaintiff’s premises was a registered company. As such, it was an abstract legal entity. To carry out its business, the first defendant, being an abstract legal entity, had to act through human beings such as the second defendant as manageress of its restaurant. Any commitment made by the second defendant to pay the rental arrears was a commitment made by the second defendant in her capacity as manageress of the first defendant’s restaurant. It was not a guarantee given by the second defendant to the plaintiff that the second defendant would be personally answerable for the first defendant’s indebtedness. But even if it is assumed that the second defendant entered into a contract of guarantee with the plaintiff, counsel for the second defendant, in my view, correctly submitted that such a guarantee would be oral and not in writing. It was therefore unenforceable.
12. In relation to the alleged second cause of action based on s. 320 of the Companies Act 1955 and s.71 of the Companies Amendment Act 2006, there is no mention whatever of those statutes in the statement of claim or amended statement of claim. The first time the said statutes were mentioned in these proceedings were in the written submissions of counsel for the plaintiff produced at the conclusion of the hearing. I must say that if the plaintiff intended to raise a cause of action based on s. 320 of the Companies Act 1955 or s. 71 of the Companies Amendments Act 2006 then those provisions should have been expressly pleaded and the statement of claim to show how they had been breached.

Discussion

13. In English law, a guarantee that is not in writing is unenforceable. Section 4 of the Statute of Frauds 1677 (UK), to the extent that it is still in force, relevantly provides:
    • “No action shall be brought... whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriages of another ... unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorised”.
14. In the case of Actionstrength Limited v International Glass Engineering IN GLEN Spa et al [2003] UKHL 17, cited by counsel for the second defendant, Lord Hoffman at paras 19 - 20 explained the purpose of s.4 of the Statute of Frauds 1677 (UK) in the following terms:
    • “19. It is, however, important to bear in mind that the purpose of the statute was precisely to avoid the need to decide which side was telling the truth about whether or not an oral promise had been made and exactly what had been promised. Parliament decided that there had been too many cases in which the wrong side had been believed. Hence the title, ‘An Act for prevention of frauds and perjuries’. It is quite true, as Mr McGhee said, that the system of civil procedure in 1677 was not very well adapted to discovering the truth. For one thing, the parties to the action were not competent witnesses. But the question of whether the Act should be preserved in its application to guarantees was considered in 1953 by the Law Reform Committee (First Report, Statute of Frauds and Section 4 of the Sale of Goods Act 1893, Cmd 8809) and the recommendation of a very strong Committee was to keep it.

“20. The purpose of the statute therefore shows that Parliament, although obviously conscious that it would allow some people to break their promises, thought that this injustice was outweighed by the need to protect people from being held liable on the basis of oral utterances which were ill-considered, ambiguous or completely fictitious. This means that while normally one would approach the construction of a statute on the basis that Parliament was unlikely to have intended to cause injustice by allowing people to break promises which had been relied upon, no such assumption can be made about the statute”.

15. In Fairstate Limited v General Enterprise & Management Limited [2010] EWHC 3072, at para 55, the Court said:
    • “55. The purpose for which section 4 of the Statute of Frauds was enacted is stated in the long title to the Statute. It is ‘An Act for prevention of frauds and perjuries. For prevention of many fraudulent practices which are commonly endeavoured to be upheld by perjury and subordination of perjury’. The history and purpose of the section was recently analysed by the House of Lords in Actionstrength Limited (t/a Vital Resources) v International Glass Engineering IN GI. EN. Spa [2003] UKHL 17; [2003] 2 AC 541, where Lord Bingham of Cornhill stated that the mischief which section 4 was intended to address was ‘to prevent the calling of perjured evidence to prove spurious agreements said to have been made orally’. According to Lord Hoffman, its purpose ‘was precisely to avoid the need to decide which side was telling the truth about whether or not an oral promise had been made and exactly what he had been promised’ since ‘Parliament decided that there had been too many cases in which the wrong side had been believed’ .
16. In para 56, the Court went on to say:
    • “56. It was common ground between the parties that the requirements of section 4 may be satisfied in two ways. The first is by having a written agreement signed by the guarantor or his agent. The second is by having a note or memorandum of the agreement similarly signed”
17. In New Zealand, the Statute of Frauds 1677 (UK) was repealed and replaced by the Contracts Enforcement Act 1956 (NZ). In terms of s.2 of the Act, a contract of guarantee was unenforceable by action unless the contract or some memorandum, or note thereof, is in writing and is signed by the party being charged therewith or by some other person fully authorised by him. Section 2 of the Contracts Enforcement Act 1956 was in turn repealed by s.27 of the Property Law Act 2007 which now provides:
    • “27. (1) This section applies to contracts of guarantee coming into operation on or after 1 January 2008.
    • “(2) A contract of guarantee must be – (a) in writing; and (b) signed by the guarantor”.
18. Under Article 111 of the Samoan Constitution, the term “Law” is defined to mean the law that is in force in Samoa and it includes the English common law and equity for the time being in so far as they are not excluded by any other law in force in Samoa. There is no current law in Samoa which excludes the requirement that a contract of guarantee must be in writing and signed by the guarantor or his duly authorised agent or that there should be some memorandum or note thereof in writing signed by the guarantor or a duly authorised agent in order to be enforceable. It follows that in Samoa a contract of guarantee that is not in writing and signed by the guarantor, as it is claimed in this case, would be unenforceable. The plaintiff’s first cause of action against the second defendant based on an implied guarantee is not maintainable in law and is therefore struck out.
19. In respect of the second cause of action based on alleged breaches of s.320 of the Companies Act 1955 and s.71 of the Companies Amendment Act 2006, I must say that the Companies Act 1955 has been repealed by the Companies Act 2001. However, it is not clear whether the 2001 legislation has come into force as there was no evidence before the Court to show whether any commencement order has been published as required. If it has been effectively repealed, then reliance by the plaintiff on s.320 of the Companies Act 1955 was misplaced. But if the 2001 legislation has not come into force, then s.320 relates to the carrying on of the business of a company with intent to defraud creditors or for any fraudulent purpose. In such a situation, the Court may on application of a creditor declare that any person who was knowingly a party to the carrying on of a company’s business in a fraudulent manner shall be personally responsible for all or any of the debts or other liabilities of the company.
20. There is no pleading or suggestion of fraud in the amended statement of claim. As a matter of pleading, if a party wants to allege fraud against another, then fraud must be distinctly pleaded, distinctly particularised, and distinctly proved. There is no allegation of fraud against the first or second defendant in the amended statement of claim. So fraud is not distinctly pleaded or distinctly particularised in the amended statement of claim. This is fatal. I must also point out that simply because someone does not pay its debts does not mean that that person was fraudulently. In addition, whilst s.320 of the 1955 Act refers to fraud and fraudulent purpose, the allegation made by counsel for the plaintiff in her written submissions against the second defendant was not fraud but negligence. This is rather confusing. Anyhow, whichever way one looks at this particular cause of action, the allegation based on the bare citation of s.320 in the closing written submissions of counsel discloses no reasonable cause of action maintainable in law.
21. To the extent that the second cause of action is based on s. 71 of the Companies Amendment Act 2006, I must point out that s. 71, if it has come into force, provides for the appointment by a company of an auditor in certain specified circumstances when they arise. It has no application to the assumed facts of this case as pleaded in the amended statement of claim.
22. It follows from what has been said that the alleged second cause of action by the plaintiff against the second defendant is also not maintainable in law. It is therefore also struck out.

Conclusion

23. For the foregoing reasons, the two causes of action alleged in the written submission of counsel for the plaintiff against the second defendant are struck out. That leaves only the first defendant.
24. Counsel to file memoranda as to costs within seven (7) days if agreement between the parties cannot be reached on costs.

Patu F M Sapolu

Temporary Justice of the Supreme Court and

Former Chief Justice