N3210

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS 1118 OF 2005

BETWEEN:

LAWRENCE KISO
Plaintiff

AND:

WORKERS MUTUAL INSURANCE
(PNG) LIMITED
First Defendant

AND:

CONSTABLE KEN PAMENDA
Second Defendant

AND:

THE CENTRAL PROVINCIAL
POLICE COMMANDER
Third Defendant

AND:

THE INDEPENDENT STATE
OF PAPUA NEW GUINEA
Fourth Defendant

Waigani: Davani, .J
2007: 13 August
6 September

COMPANY LAW – appointment of Statutory Manager – when and where to serve originating process – leave to file court proceedings – 	consent of Central Bank – ss. 55 and 71 of Life Insurance Act.

PRACTICE AND PROCEDURE – application for default judgment – applicant must ensure proper compliance with process under Life Insurance Act – Service of process on registered office not proper service after appointment of Statutory Manager – s. 71 of Life 	Insurance Act.

Cases Cited:
Leo Hannet and Elizabeth Hannet v ANZ Bank (PNG) Ltd SC 505 dated 16th August, 1996
William Duma v. Yehiura Hriehwazi and Pacific Star Limited Trading as "The National" and Bank of South Pacific Ltd v PNG Nambawan Trophy Holdings Ltd (2004) N2717
Mapmakers Pty Ltd v Broken Hill, Proprietary Company Limited N8588

Counsel

D. Dotaona, for the plaintiff
Z. Dawidi, for first defendant

DECISION

6 September, 2007

1. DAVANI .J:	 Before me are two applications. These are the plaintiff’s notice of motion filed on 22 February, 2006 seeking orders for default judgment against the first defendants for their failure to file their Defences within time. Also before me is notice of motion filed by Allens Arthur Robinson Lawyers (‘AAR’) on 11 July, 2006, filed for and on behalf of the first defendant, seeking orders that the first defendant be given an extension of time to file its Defence. I heard the both applications together which were all opposed by either counsel.

2.     Dotaona Lawyers act for the plaintiff. Upon his request, the orders sought in paragraphs 2, 3, 4, 5 and 6 of that motion were adjourned generally.

3.     The first defendant relies on the following affidavits;

•	Tyson Boboro, sworn on 13 February, 2006 and filed on 17 February, 2006;
•	Ellison Pidik, sworn and filed on 21 March, 2006;

•	Stephen Humphries, sworn on 14 February, 2006 and filed on 17th February, 2006;

•	Zennia Dawidi, sworn on 9 August, 2006 and filed on 15 August, 2006;

•	David Guinn, Interim Liquidator, sworn on 4 December, 2006 and filed on 5 December, 2006.

4.     The plaintiff relies on his affidavit sworn on 22 February, 2006.

Background

5.     It is necessary that I set out the background to this matter which is to a large extent, undisputed. 

17 March, 2005	Bank of Papua New Guinea (‘BPNG’) (as regulator of life insurers) appoints David Kelso, statutory manager to WMI, under the Life Insurance Act.
	
20 May, 2005	BPNG revokes appointment of David Kelso as statutory manager and appoints Simon Fraser.
	
25 July, 2005	Plaintiff files Writ of Summons and Statement of Claim.
	
16 August, 2005	Plaintiff serves Writ of Summons and Statement of Claim upon statutory managers at Gabaka Street, Gordons, and received by receptionist.
	
2 November, 2005	WMI files Notice of Intention to Defend
	
18 November, 2005	BPNG revokes appointment of Simon Fraser as statutory manager and appoints Stephen Humphries.
	
22 November, 2005	WMI files Notice to Produce Documents requiring copy of agreement pleaded by plaintiff in his Statement of Claim.
	
9 January, 2006	AAR’s letter to the plaintiff advising of s. 71 requirement (Life Insurance Act) to seek consent of the statutory manager or alternatively, leave of the court prior to filing proceedings.
	
8 February, 2006	Date appointed by plaintiff for WMI to inspect purported agreement at the National Court Registry.
	
17 February, 2006	WMI files application to dismiss proceedings for failure to comply with s. 71 of the Life Insurance Act and alternatively, leave to file a defence out of time. Motion returnable on 22 March, 2006.
	
23 February, 2006	Plaintiff files application for default judgment.
	
22 March, 2006	Proceedings stayed by Justice Davani to allow plaintiff to obtain legal representation and advice.
	
3 July, 2006	Plaintiff is granted leave under the Life Insurance Act to pursue his claim, and AAR is given a copy of the alleged agreement pleaded by the plaintiff and annexed to plaintiff’s affidavit. AAR’s first sighting of the agreement.
	
11 July, 2006	WMI files fresh application for leave to file a defence (initially returnable on 17 July and adjourned to 18 July).
	
18 July, 2006
	WMI is granted an adjournment to file appropriate affidavits.
	
19 July, 2006	Court appoints David Guinn, Interim Liquidator under MP 252 of 2005
	
13 October, 2006	Plaintiff applies for and is granted leave by the court under the Companies Act 1997, to proceed (Motion filed 14/09/06).
	
5 December, 2006	WMI files and serves affidavit of Interim Liquidator, David Guinn.
	
8 December, 2006	Return date for plaintiff’s motion for default judgment and WMI’s application for leave to file defence. Plaintiff seeks adjournment to file an affidavit in response to affidavit of David Guinn.

Application for default judgment

6.     I consider first the application for default judgment filed by the plaintiff. The plaintiff moves his application pursuant to O. 12 r. 25 (d) and r. 28 of the National Court Rules (‘NCR’). 

7.     The writ of summons and statement of claim was filed on 25 July, 2005. The plaintiff named Workers Mutual Insurance (PNG) Limited as first defendant. It is necessary to point out at this time that on 17 March, 2005 the Bank of Papua New Guinea appointed a Statutory Manager to the first defendant by virtue of s. 55 of the Life Insurance Act (‘LIA’). Under s. 71 of the LIA, a party pursuing or intending to pursue a claim against a life insurer must first obtain the consent of the Bank of Papua New Guinea or leave of the court in order to bring or continue an existing suit against the life insurer. I have seen from the court records that on 3 July, 2006, the plaintiff was granted such leave under s. 71 of the LIA. Section 71 reads;

"71.	Effect of legal proceedings of Statutory Manager

(1)	A person cannot begin or continue a proceeding in a court against a licence holder while a statutory manager is in control of a licence holder unless – 

(a)	the court grants leave on the ground that the person would be caused hardship if leave were not granted; or

(b)	the Central Bank consents to the proceedings beginning or continuing.

(2)	A person intending to apply for leave of the court under subsection (1) shall give the Central Bank at least 10 days notice of the intention to apply, and the Central Bank may apply to the court to be joined as a party to the proceedings for leave.

(3)	In this section, a reference to a proceeding against a licence holder includes a reference to a cross-claim or third party claim against a licence holder."

8.     If the plaintiff raises any issue as to the capacity of the first defendant to be sued, I find that this was resolved by the court order of 3 July, 2006. I do not question the propriety of that order i.e the granting of leave after court proceedings have been filed, but it raises other issues which I will deal with later.

9.     I note also from the court records that on 19 July, 2006, an interim liquidator was appointed to oversee the first defendant’s affairs. The plaintiff then applied for leave from the liquidator to continue these proceedings. The application for leave made under the Companies Act 1997 was heard and orders for leave granted on 13 October, 2006. The relevant provision of the Companies Act is s. 298 (1) (a) – (g). 

"298.	Effect of commencement of liquidation.

(1)	With effect from the commencement of the liquidation of a company—

(a)	the liquidator has custody and control of the company's assets; and

(b)	the directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part; and

(c)	unless the liquidator agrees or the Court orders otherwise, a person shall not—

(i)	commence or continue legal proceedings against the company or in relation to its property; or

(ii)	exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company; and

(d)	unless the Court orders otherwise, a share in the company shall not be transferred; and

(e)	an alteration shall not be made to the rights or liabilities of a shareholder of the company; and

(f)	a shareholder shall not exercise a power under the constitution of the company or this Act except for the purposes of this Part; and

(g)	the constitution of the company shall not be altered."

10.     In relation to service of the writ of summons and statement of claim, Mr Dotaona referred the court to the affidavit of service of the plaintiff sworn on 19 December, 2005 which deposes that he did on 16 August, 2005 serve a sealed copy of the writ of summons upon the Statutory Manager through the receptionist who refused to sign the Service Detail Form but accepted the writ of summons for and on behalf of the Statutory Manager. Is that proper service? On thorough perusal of the LIA, the only provision affecting service is s. 71 of the LIA, that a person may not commence legal proceedings against a license holder whilst a Statutory Manager is in control of the license holder unless the court grants leave or the Central Bank consents to the proceedings beginning or continuing. 

11.     I do not know the basis under which leave was granted to continue proceedings against the Statutory Manager but it is correct and proper practice that court proceedings are to be filed after the appointment of a Statutory Manager. The plaintiff either first applies to the court for leave or requests the Central Bank for its consent prior to the proceedings beginning or continuing. Thereafter, if the person intends to apply for leave, he must serve the court documentation upon the Central Bank, and give at least 10 days notice of his intention to apply, and the Central Bank may apply to be joined as a party.

12.     In this case, the court granted leave to the plaintiff to continue the proceedings. But this grant of leave, with respect, did not address the issue of who was the proper plaintiff to be served. Was service of the writ at the first defendant’s office and accepted by a receptionist, proper service, for the purposes of the LIA? I do not think so. This is because a Statutory Manager is in control of the affairs of the first defendant. The plaintiff’s affidavit does not state that the Gabaka Street, Gordons office, is where the Statutory Manager operates from. In any event, the issue of service, to serve in a situation such as this, would have been properly dealt with if the plaintiff had first obtained the Central Bank’s leave prior to filing court proceedings.

13.     In this case, the plaintiff served as though the first defendant were a ‘normal’ defendant, which is not correct. The equivalent of s. 71 of the LIA can be found in the Companies Act at s.298(c) which states that with effect from the commencement of the liquidation of a company, unless the liquidator agrees or the court orders otherwise, a person shall not commence or continue legal proceedings against the company or in relation to its property or to exercise or enforce or continue to exercise or enforce a rightful remedy over or against a property of the company. The situation is the same where a Statutory Manager is in control of the entity’s affairs.

14.     It is at this time that I take into account Ms Dawidi’s submissions that the proceedings were irregularly filed and served at the outset. I note also that, the first defendant immediately took steps to have the proceedings dismissed by the filing of AAR’s notice of motion on 17 February, 2006 which sought the dismissal of proceedings pursuant to O. 12 r. 40 or alternatively that the defendant be given leave to file its Defence within 14 days from the hearing of that application. I do not know what became of this motion but the court records tell me that leave was granted by Justice Manuhu on 5 July, 2006 and following that, the first defendant’s lawyers filed their motion of 11 July, 2006 seeking leave to file Defence within 14 days.

15.     After Manuhu .J’s ruling, the first defendant had the option to file an appeal against the interlocutory orders of the 5 July, 2006, but did not. It appears by the filing of their motion of 11 July, 2006, the first defendant "accepted" the court’s orders of 5 July, 2006 to be proper. They have in fact "taken a fresh step" in the proceedings by the filing of their fresh notice of motion. They cannot now raise submissions that proceedings are irregularly before the court. I say this relying on O. 2 r. 9 of the National Court Rules which states;

"9.	Application to set aside for irregularity

An application to set aside any proceedings for irregularity shall not be allowed unless it is made within a reasonable time, or if made after the party applying has taken any fresh step with knowledge of the irregularity." (my emphasis)

16.     This issue was decided in Leo Hannet and Elizabeth Hannet v ANZ Bank (PNG) Ltd SC 505 dated 16 August, 1996. In that matter, the second appellant became aware of the irregularity of service when she returned from Bougainville about January, 1994. Following the default judgment which took effect on 22 March, 1994, Garnishee proceedings were taken out by the respondent in April, 1994. In response to these proceedings the second appellant instructed her lawyer, Mr Aisa, through whom an offer was made to adjourn the Garnishee proceedings on the basis of an undertaking to pay K10,000.00 and an instalment payment of K1,000.00 per month. The Supreme Court held that this constituted a fresh step taken with knowledge of the irregularity. Thereafter, the applicant’s application to set aside for irregularity was made after instruction was given to settle the full amount owing. The Supreme Court held that an application to set aside default judgment could not be allowed.

17.     Therefore, I will not accept submissions on proceedings being irregular before the court. 

18.     Ms Dawidi for the first defendant also submits that the plaintiff did not forewarn the first defendant, procedure available to it and which he should have complied with, to be done in accordance with Practice Direction 1 of 1987. Practice Direction 1 of 1987 states this;

"Default judgment – obligation to notify person or lawyer filing Notice of Intention to Defend.

In N8588 – Mapmakers Pty Ltd v Broken Hill, Proprietary Company Limited, the Chief Justice has laid down the following principle to be followed when entering default judgments, namely that there must be a practice of forewarning lawyers of the opposite side (or the defendant if in person) before entering judgment where there is a Notice of Intention to Defence filed.

In the event that this does not occur, then this failure may be a ground for setting aside the judgment."

19.     In this case, the Notice of Intention to Defend for and on behalf of the first defendant was filed on 4 November, 2005. In the plaintiff’s affidavit sworn on 22 February, 2006, he does not depose to the forewarning nor does he attach copy of a letter, forewarning the first defendant of the intended application for default judgment.

20.     Applications for default judgment are effectively the plaintiff’s way of saying that the defendant has not complied with the rules of court so judgment should be entered. It is based on technical grounds and does not in any way mean that the plaintiff has properly proven its claim. Therefore, the plaintiff/applicant must ensure that all requirements for default judgment are properly established and proven. If the applicant fails to prove any one component, for example, proper service of writ of summons and statement of claim or in this case the giving of the mandatory forewarning, then default judgment will not be granted and should not be granted. This is a very draconian procedure and only arises because the plaintiff claims the defendants have not shown interest in the proceedings. (my emphasis)

21.     In this case, I find the forewarning as required under Practice Direction 1 of 1987 and followed in numerous cases, was not given by the plaintiff. 

22.     Obviously, the plaintiff failed to properly serve the writ and also failed to forewarn the first defendant of the application for default judgment. It is for these reasons that I will refuse the application for default judgment. It is not necessary for me to consider other submissions made by counsel for plaintiff in support of his application for default judgment.

Application for leave to file Defence out of time

23.     The plaintiff moves under O. 1 r. 15 of the NCR which states;

"15.	Extension and abridgement

(1)	The Court may, on terms, by order extend or abridge any time fixed by the Rules or by any judgment or order."

24.     The Court also has an inherent discretion to extend time of its own volition.

25.     The tests or principles to be applied are identical to those in an application to set aside default judgment: See William Duma v. Yehiura Hriehwazi and Pacific Star Limited Trading as "The National" and Bank of South Pacific Ltd v PNG Nambawan Trophy Holdings Ltd (2004) N2717, where the court applied the following principles – 

(i)	whether the applicant has a defence on the merits;

(ii)	valid reasons for the delay or failure to file a defence within the prescribed time limits;

(iii)	whether there is a reasonable explanation for the delay in bringing the application for leave.

The issues for determination are;

(a)	does the first defendant have a defence on the merits;

(b)	is there a reasonable explanation for not filing a defence on time;

(c)	does the first defendant have a valid reason for bringing the application almost 2 years after the expiration of the time limit for filing its defence.

26.     The first defendant relies on the affidavit of David Guinn sworn on 4 December, 2006 and filed on 5 December, 2006. He is the interim liquidator for the first defendant, appointed under the Companies Act of 1997, by the National Court, on 19 July, 2006, in proceedings MP 252 of 2006.

27.     In the plaintiff’s statement of claim, he alleges that by an agreement dated 20 December, 2004, he entered into a written agreement together with his former employer, the first defendant, whereby the first defendant transferred the ownership of motor vehicle described as a Nissan Navara Utility single cab registration No. CAO 205 in return for the plaintiffs agreement to forego his rights to be paid his commissions, overrides and leave pay, accrued since 2000. The plaintiff alleges that the agreement was executed and performed by all the parties. However, thereafter, he was suspended and the reason for the suspension being the plaintiff’s refusal to return the motor vehicle to the first defendant. Because the plaintiff refused to return the motor vehicle, the first defendant through its servants and agents, with the assistance of the police, confiscated the motor vehicle and impounded it.

28.     Mr Guinn denies the existence of such an agreement. He deposes that the records do not show that the first defendant entered into any such agreement with the plaintiff. He states that the alleged agreement annexed to the plaintiffs affidavit sworn on 3 May, 2006 and filed on 5 May, 2006 appears to be an undertaking to transfer ownership of the vehicle to the plaintiff on the condition that the plaintiff foregoes his entitlements accrued since 2000. Mr Guinn attaches other documentation which show that according to the first defendants records, the plaintiff is indebted to the first defendant in the sum of K6,767.55. He also deposes that the plaintiff was not owed any money for his leave entitlements which are less than the value of the vehicle. Mr Guinn deposes that the transfer of the vehicle was highly improper because no attempt was made to quantify the value of the vehicle, the amount of entitlements due and the amount of commission owing, functions which were to have been performed by the former managing director of the first defendant.

29.     The principles in relation to filing of Defence out of time is set out above. As to delay, this is deposed to in various affidavits referred to above which are that -

(a)	The plaintiff served the Writ of Summons on an employee at WMI’s registered office on or about August 2005 by which time WMI was already under statutory management.

(b)	due to WMI’s management situation at the time, AAR only received instructions from BPNG on 2 November, 2005. The time for filing a defence had expired on 30 September, 2005.

(c)	To prepare its Defence, the first defendant required a copy of the purported agreement. The first defendant’s records did not hold such an agreement. The first defendant then issued a Notice to the plaintiff for production of the purported agreement on 22 November, 2005 to which the plaintiff responded only in February 2006 by appointing a time for inspection on 8 February, 2006. He could have just sent a copy.

30.     It is not disputed that when the writ of summons and statement of claim was served upon the first defendant’s office, the first defendant was already under statutory management. Service was allegedly effected on 16 August, 2005. The first defendant filed its Notice of Intention to Defend after being briefed by the Bank of Papua New Guinea, on 4 November, 2005, some 3 months after service. After that, the plaintiff filed Notice of Discovery on 19 December, 2005 requiring discovery of the agreement referred to by the plaintiff in his writ of summons and statement of claim.

31.     The time within which the first defendant was to have filed its Defence expired on 30 September, 2005. The first defendant could not file a Defence until after reviewing the agreement the plaintiff relied on in his statement of claim. The Notice of Discovery was given in December 2005 after which, instead of the plaintiff simply delivering to the first defendant lawyers a copy of the agreement, he requested an appointment for inspection, the next year.

32.     I do not consider that period to be an inordinate delay, because apart from the time period, the plaintiff contributed greatly to this delay. A lot of action has taken place on this file which shows that the first defendant took immediate steps through its lawyers, to properly respond to the writ of summons. I consider these to be credible reasons for delay in filing a Defence and bringing the application. I say this also because on 17 February, 2006, the first defendant filed an earlier application for leave to file its Defence out of time, before the plaintiff’s application for default judgment, which was filed on 22 February, 2006. It appears the plaintiff may have filed his application for default judgment after receiving the first defendant’s motion of 17 February, 2006, but without first giving the forewarning required under Practice Direction 1 of 1987.

33.     I find this sufficient explanation for the delay in bringing the application. 

34.     Is there a Defence on the merits? I have reviewed the affidavit of Mr Guinn, filed for and on behalf of the plaintiff to which is attached the first defendants draft Defence. The first defendant denies that there was an agreement between the first defendant and the plaintiff and for the plaintiff to own the car after foregoing various entitlements. The first defendant also has attached to Mr Guinn’s affidavit records from the first defendant’s files which show there to be monies owing to the first defendant by the plaintiff and payments having been made. The first defendant further alleges and pleads in his Defence that if an agreement was entered into between the plaintiff and the first defendant, which is denied, that it was done without the knowledge and authorization of the Statutory Manager who was appointed to the first defendant at that material time.
I find this to be a meritorious defence.

Conclusion

35.     The first defendant is given leave to file its Defence out of time. The plaintiff’s application for default judgment is refused.

36.     An interim liquidator has now taken control of the first defendants affairs. All the first defendant’s debts will be dealt with in order of priority as determined by the interim liquidator. The plaintiffs claim may be listed in that order of priority to be determined by the interim liquidator. As regards the present claim now before the court, I have already stated the courts position in relation to the application before me.

Formal orders

37.     These are the formal orders of the court;

1.	In relation to plaintiffs notice of motion filed on 22 February, 2006, the orders sought for default judgment are refused and the application for summary judgment and other orders sought are adjourned generally with liberty to re-list for hearing, on 14 days notice to the first defendant;

2.	The first defendant has leave to file and serve its Defence within 14 days from the date of these orders, to be filed in the form attached as annexure ‘O’ to the affidavit of David Guinn, sworn on 4 December, 2006 and filed on 5 December, 2006.

3.	The first defendant also has leave to file a cross-claim, if any, to be done within the same period stipulated in paragraph 2 above;

4.	Each party shall pay their own costs of their applications;

5.	Time is abridged to time of settlement to take place forthwith.

______________________________

Dotaona Lawyers: Lawyer for the Plaintiff
Allens Arthur Robinson Lawyers: Lawyer for First
Defendant/Interim :Liquidator/Statutory Manager