N3089

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 1340 OF 2001

BETWEEN:

WHITE CORNER INVESTMENTS LTD
Plaintiff

AND:

REGINA WAIM HARRO
Defendant

Lae: Gabi, J
2006: 4 August &12 September

PRACTICE AND PROCEDURE – Interlocutory injunction – Undertaking as to damages – No cause of action – Application for enforcement of an undertaking is to be made in the proceedings in which the undertaking was given – Assessment of damages at the conclusion of trial – Applicable principles where injunction discharged before trial.

Cases Cited:

Papua New Guinea Cases:
Gabriel Apio Irafawe v Yawe Riyong N1915
Patterson Lowa, Minister for Minerals and Energy & Ors v Wapela 
Akipe & Ors [1991] PNGLR 265
PNG Forest Products Pty Ltd and Inchcape Berhad v The State and Jack Genia [1992] PNGLR 85
Vari Gari v Motor Vehicle Insurance Limited, Unreported and Unnumbered (June 2005)

Overseas cases:
Air Express Limited v Ansett Transport Industries (Operations) Proprietary Limited [1978-1981] 146 C.L.R 249
Brimson v Rocla Concrete Pipes Ltd: Supreme Court Proceedings New South Wales Vol.2 [13.029] of 30 April 1983
Cheltanham & Gloucester Building Society v. Ricketts & Ors [1993] 1 WLR 1545 
Financiera Avenida v Shiblag, The Times, 14 January; Court of Appeal (Civil Division) Transcript No. 957 of 1990
F. Hoffmann-La Roche & Co. A.G. v. Secretary of State for Trade and Industry [1975] A.C 295
Griffith v. Blake (1884) 27 Ch D. 474
Re Hailstone, Hopkinson v Carter (supra)
Re Hailstone, Hopkinson v Carter (1910) 102 L T 877
Smith v. Day (1882) 21 Ch.D. 421

Counsel:
P. Ousi, for the Plaintiff
K. Kua, for the Defendant

DECISION

12 September, 2006

Introduction

1. GABI, J: This is an application by the defendant to dismiss the proceedings pursuant to O.8 r.27 of the National Court Rules.

2. There were two (2) applications on notice before the Court; one by the plaintiff seeking an order to dispense with the defendant’s consent so as to have this matter listed for trial; and the other by the defendant to strike out the Statement of Claim for failing to disclose a cause of action, causing prejudice and embarrassment and being an abuse of process. The defendant relied on the affidavit of Kerenga Kua dated 24 May, 2006. No affidavit was filed by the plaintiff in reply. On the day of the hearing, it was agreed that the plaintiff’s application is dependent on the outcome of the application by the defendant and for that reason I heard the defendant’s application only.

Background

3. The facts are not in dispute. They are that in proceedings MC No. 6 of 1999, Elijah Harro, one of the principals and Managing Director of the plaintiff filed a petition for a dissolution of his marriage to the defendant. The defendant cross-petitioned for a divorce, custody of some of the children and for distribution of the family’s assets.

4. In September 2000, the defendant applied for an injunction to restrain the plaintiff from disbursing a sum of about K500,000 received by one of the family companies being insurance payout for a shop that was destroyed by fire at Eriku, Lae City. The defendant, in support of the application, filed an undertaking as to damages. The terms of the undertaking are:

"THE RESPONDENT undertakes to submit to such orders (if any) as the Court may consider to be just for the payment of compensation or damages as assessed by the Court or as it may direct to any person whether or not a party, affected by the operation of any interim injunction granted herein".

5. The injunction was granted on 29 September 2000. The injunction has been amended twice, but has not been dissolved or discharged. Secondly, the proceedings MC No. 6 of 1999 is still on foot pending determination. There is an appeal on an interlocutory order arising from it which is now before the Supreme Court 

6. This claim is based on that undertaking. Briefly, the plaintiff’s claim is that on 29 September 2000, the defendant improperly obtained an interlocutory injunction restraining Elijah Harro in his capacity as the principal shareholder and Managing Director of the plaintiff from dealing with any assets he has an interest in. The plaintiff claims that the injunction has caused him prejudice, loss and damage.

Submission

7. Mr. Kua of Counsel for the defendant submitted that a claim for damages against a party giving an undertaking for damages in an application for an injunction, cannot be sued for damages until the conclusion of the entire proceedings in which the undertaking has been given ( See Griffith v. Blake (1884) 27 Ch D. 474; Air Express Ltd v Ansett Transport Industries (1979) 146 CLR 249; and N.R. Burns, Injunctions – A Practical Handbook ( The Law Book Company Limited (1988), page 17). He argued that in this case the trial is yet to take place, the injunction is still in place, and the Court is in no position to decide if the injunction was improperly granted. A cause of action has not arisen as yet and will not arise until after the conclusion of the proceedings in MC No. 6 of 1999. Accordingly he argued that, as no cause of action is shown in the Statement of Claim no amendment can cure that defect. As such the Statement of Claim must be struck out

8. The plaintiff, on the other hand, argued that it has meritorious claim and a cause of action against the defendant so the matter must proceed to trial. It was submitted on behalf of the plaintiff that there was no good reason at law to stop or delay the matter from going to trial.

Issues

9. There are three (3) issues before the Court: 

(i) Whether an undertaking as to damages gives rise to a cause of action in law?

(ii) When is an undertaking enforceable?

(iii) Whether an undertaking may be enforced in an action, other than the action in which such undertaking was given?

Issues (ii) and (iii) will be dealt with together.

10. I heard the defendant’s application on 4 August 2006 and reserved my ruling. On 17 August 2006, the plaintiff filed a Notice of Motion seeking an order, inter alia, that it be given leave to use and rely on the affidavit of Elijah Coco Harro sworn on 13 and filed on 17 August 2006 and for such affidavit to be considered before a decision on the defendant’s application is delivered. On 5 September 2006, the application was heard. In his affidavit, Elijah Harro deposed that the defendant does not own nor was she involved in the creation of the plaintiff. Secondly, she has no interest in the settlement monies and therefore had no basis to fear the dissipation of the settlement monies. I ruled that the matters raised in the affidavit would be considered. I, however, indicated that those matters may be relevant to the issue of whether or not an injunctive order ought to have been granted. They may not be relevant to the application for dismissal of proceedings for failing to disclose a cause of action.

The Law 

11. Order 8 rule 27(1) of the National Court Rules provides:

"(1) Where a pleading –

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings; or

(c) is otherwise an abuse of the process of the Court, the Court may at any stage of the proceedings, on terms or otherwise, order that whole or any part of the pleading be struck out." 

12. In Vari Gari v Motor Vehicle Insurance Limited, Unreported and Unnumbered (June 2005), His Honour, Justice Lay discussed the jurisdiction of the Court under Order 8 rule 27 of the National Court Rules. He said:

"The jurisdiction of the Court under O8 r27 is to see if the pleadings plead an almost incontestably bad cause of action which cannot possibly succeed, and cannot be cured by amendment (PNG Forest Products Pty Ltd and Inchcape Berhad v The State and Jack Genia [1992] PNGLR 85), assuming the truth of the facts pleaded in the statement of claim (Gabriel Apio Irafawe v Yawe Riyong (N1915)), and to a lesser extend, in the defence, as explained by any evidence adduced on the application solely for the purpose of explaining the pleadings. It is not a demurrer procedure and should not be applied where the pleading is arguable but, on the evidence, the chances of success are slight. If the pleading is arguable and not otherwise embarrassing or vexatious an application under O8 r27 ought not to succeed (Brimson v Rocla Concrete Pipes Ltd: Supreme Court Proceedings New South Wales Vol.2 [13.029] of 30 April 1983). A cause of action is a right which is given by law (the "form of action") and which should be pleaded disclosing all of the necessary facts which give rise to the form of action (Patterson Lowa, Minister for Minerals and Energy & Ors v Wapela Akipe & Ors [1991] PNGLR 265)." 

Cause of action

13. An undertaking as to damages is given to the Court, not to the other party to the proceedings. As such there is no contract between the parties and no right is conferred on a party to the proceedings to sue. However, it enables the other party to apply for compensation for loss suffered as a result of the injunction. 

14. In Smith v. Day (1882) 21 Ch.D. 421, Brett L.J. said at page 428: 

"I am strongly of the opinion that the question whether an inquiry as to damages should be granted is within the discretion of the Judge who originally tries the case, and that his discretion ought not to be interfered with. In exercising this discretion the Court should act as nearly as may be on fixed rules, or by analogy to fixed rules. Now in the present case there is no undertaking with the opposite party, but only with the Court. There is no contract on which the opposite party could sue."(Emphasis added)

15. This point was also made by Farwell L. J in Re Hailstone, Hopkinson v Carter (1910) 102 L T 877. He said at page 880:

"The undertaking was …given to the court. It is not a contract between the parties which either party can sue upon or be sued upon. It is an undertaking given to the court, and to be enforced by the court, and the court only."(Emphasis added)

16. His Honour Justice Stephen elaborated further on this point in Air Express Limited v Ansett Transport Industries (Operations) Proprietary Limited [1978-1981] 146 C.L.R 249, where he said at page 318:

"Perhaps the first point to be observed is that undertakings such as this are given to the Court and not to the party enjoined. Brett L.J made this point when, in Smith v. Day (1882) 21 Ch.D. 421, at p.428 he said: ‘Now in the present case there is no undertaking with the opposite party, but with the Court. There is no contract on which the opposite party could sue.’ A claimant under an undertaking cannot complain of any breach of contract nor of any breach of duty, tortious or otherwise, owed to him, nor, of course, of any breach of the undertaking. What occurs when such an undertaking is extracted from a plaintiff is that the Court, as a condition of its grant of interim or interlocutory injunctive relief, has ensured that, should it turn out that that relief should never have been granted, it will have the power, so far as monetary compensation allows, to make good the harm which the grant has done to the defendant." (Emphasis added) 

17. And he went on to say at page 319-320 thus:

"It is quite a different thing to seek to apply common law rules of causation to a claim made under such undertakings; there is no such analogy as Lord Reid in Baker v Willoughby [1970] A.C 467 found to exist in the case of workers’ compensation. The reason for this is plain enough. In both contract and tort it is enough that the breach of contract or of duty is one direct cause of whatever damage a plaintiff has suffered – McGregor on Damages, 13 ed. (1972), pp. 69, 118. The breach is a wrongful act on the defendant’s part and the common law visits him with liability for the consequences to the plaintiff, subject always to rules as to remoteness. But a plaintiff who sues for an injunction and obtains interlocutory relief, giving an undertaking to the court as the price of that relief, commits no wrongful act, no breach of contract or of duty when, at the trial, he fails to any perpetual injunction. If, as a result of the grant of interlocutory relief, the defendant has been harmed there will, however, have been injustice and, an undertaking having been given, the court will thereby have been armed with jurisdiction, otherwise lacking, to right that injustice and compensate the defendant for the harm done to him." (Emphasis added)

18. In Cheltanham & Gloucester Building Society v. Ricketts & Ors [1993] 1 WLR 1545, the plaintiff applied, ex parte, for interlocutory injunctions against the defendants alleging that they were perpetuating a fraud which would cause it a substantial loss. A Mareva injunction was granted. Subsequently, but before trial of the action, the injunctions against the first and fourth defendants were discharged and an order was made that there should be an inquiry as to the liability of the plaintiff on its undertaking for any damage which the first and fourth defendants suffered as a result of the order. The plaintiff appealed against that order. The Court of Appeal allowed the appeal and ordered that the application to enforce the undertaking as to damages should be adjourned for hearing at the conclusion of the trial. The court held that where an injunction is discharged before trial the court has four options: (i) enforce the undertaking forthwith and assess damages immediately; (ii) determine that the undertaking should be enforced and order an inquiry as to damages; (iii) adjourn the application to the trial; or (iv) refuse the application. In that case, Neill L.J reviewed the cases on the enforcement of undertaking and set out a number of guidelines. At page 1551, he said:

"(1) Save in special cases an undertaking as to damages is the price, which the person asking for an interlocutory injunction has to pay for its grant. The court cannot compel an applicant to give an undertaking but it can refuse to grant an injunction unless he does. 
 
(2) The undertaking though described as an undertaking as to damages does not found any cause of action. It does, however, enable the party enjoined to apply to the court for compensation if it is subsequently established that the interlocutory injunction should not have been granted. 

(3) The undertaking is not given to the enjoined but to the court.

(4) In a case where it is determined that the injunction should not have been granted the undertaking is likely to be enforced, though the court retains the discretion not to do so.

(5) The time at which the court should determine whether or not the interlocutory injunction should not have been granted will vary from case to case. It is important to underline the fact that the question whether the undertaking should be enforced is a separate question from the question whether the injunction should be discharged or continued.

(6) In many cases injunctions will remain in being until the trial and in such cases the propriety of its original grant and the question of the enforcement of the undertaking will not be considered until the conclusion of the trial. Even then, as Lloyd L.J. pointed out in Financiera Avenida v Shiblag, The Times, 14 January; Court of Appeal (Civil Division) Transcript No. 957 of 1990 the court may occasionally wish to postpone the question of enforcement to a later date." (Emphasis added)

Enforcement of Undertaking 

19. The authorities show that the application to enforce an undertaking as to damages is made after the conclusion of the trial. It should be made in the proceedings in which the undertaking was given (see Re Hailstone, Hopkinson v Carter (supra)). 

20. In Griffith v Blake (1884) 27 Ch.D. 474 at page 477 Cotton L.J said: 

"…and that the rule is, that whenever the undertaking is given, and the plaintiff ultimately fails on the merits, an inquiry as to damages will be granted unless there are special circumstances to the contrary." (Emphasis added)

21. In the same case, Lindley L.J said at page 477:

"I am of the same opinion. I think that the evidence of nuisance is strong, and that if the plaintiff ultimately fails, the Defendants can obtain under the undertaking full compensation for the injury done to them by the injunction." (Emphasis added)

22. The principle in Griffith v Blake (Supra) was adopted and applied in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (supra). After a review of the authorities on the subject, Aickin J. said at page 261:

"The cases display a substantial variation in the language in which the principle is expressed. The following are examples of expressions used: some cases speak of damages being available if it turns out that the injunction was "wrongfully granted"; others of where "The court is ultimately of opinion that the order ought not to have been made", and others again say that the damage should not fall on the "litigant who has without just cause been made so". It seems that the first two expressions mean no more than that the plaintiff ultimately fails and are not concerned with the question whether it was correct in the circumstances prevailing at the time to grant the interlocutory injunction." (Emphasis added)

23. This principle was restated by the learned authors in Halsbury’s Laws of England, (4th edition), volume 24, page 597, paragraph 1073:

"The Plaintiff’s Undertaking as to Damages on an order for an injunction remains in force notwithstanding the dismissal or discontinuance of the action, and if the Plaintiff ultimately fails on the merits, that the Defendant is entitled to an enquiry as to damages sustained by reason of the interlocutory injunction unless there are special circumstances."(Emphasis added)

24. In his book, "Injunctions: A Practical Handbook" (Supra), the learned author, N.R. Burns, after a discussion of the English case of F. Hoffmann-La Roche & Co. A.G. v. Secretary of State for Trade and Industry [1975] A.C 295, in particular, the explanation given by Lord Diplock for the practice of extracting an undertaking as to damages, concluded at page 17 thus:

"So, if the final hearing determines that the defendant is right, and the interlocutory injunction ought not to have been granted the defendant will be entitled to have damages assessed. The court is concerned with the final result and not whether it was correct in the circumstances prevailing at the time to grant the interlocutory injunction." (Emphasis added)

25. It is clear from the authorities that where it is found at the conclusion of a trial that the defendant is right and that an interlocutory injunction ought not to have been granted the defendant will be entitled to damages. Secondly, an application to enforce an undertaking must be made in the proceedings in which that undertaking was given. Finally, an undertaking as to damages does not give rise to a cause of action in law. 

26. In this case, the undertaking was given in MC No. 6 of 1999, which is still pending final determination and the interlocutory injunction is still current. The plaintiff has commenced this proceedings based on that undertaking. The plaintiff clearly has no cause of action. For these reasons, I dismiss the entire proceedings with costs to be agreed, if not, to be taxed. 
_______________________________________

Warner Shand Lawyers: Lawyers for the Plaintiff
Posman Kua Aisi Lawyers: Lawyers for Defendant