N6666
PAPUA NEW GUINEA 
 [IN THE NATIONAL COURT OF JUSTICE] 

WS 59 of 2016 

BETWEEN: 

AEROCENTURY CORPORATION
    Plaintiff 

AND:

TRAVEL AIR LIMITED
First Defendant

AND:

SARAKOLOK WEST TRANSPORT LIMITED 
TRADING AS TRAVEL AIR
Second Defendant

AND:
 
EREMAS WARTOTO
Third Defendant

Waigani: Hartshorn J 
       2017: 30th January  

Application to dismiss proceeding against two defendants, for injunctive relief and the taking of an account 
Cases: 

Kerry Lerro v. Stagg & Ors (2006) N3050
Mt Hagen Urban Local Level Government v. Sek No. 15 (2009) SC1007
Siu v. Wasime Land Group Incorporated (2011) SC1107
Takori v.Yagari & Ors (2008) SC905
Counsel:

Mr. M. Mukwesipu, for the Plaintiff
Mr. J.  Haiara, for the Defendants

30th January, 2017 
1. 	HARTSHORN J: This is a decision on a contested application that seeks amongst others, the dismissal of this proceeding against the second and third defendants, injunctive relief, and that an account be taken.
Background
2. 	The plaintiff leased three aircraft to the first and second defendants and the terms of each lease agreement have lapsed. The plaintiff claims that the first and second defendants:
a)	 defaulted in paying lease payments and the plaintiff demanded the return of the aircraft. 
b)	have refused to return the aircraft and have failed to settle the outstanding lease payments. 
3. 	The plaintiff commenced this proceeding seeking amongst others payment of over USD $7 million and the return of the aircraft.
4.	 Interim injunctive relief has been granted and remains in force. It is amongst others, that the defendants are to surrender full custody and control of the aircraft to the plaintiff.
Application to dismiss proceeding against second and third defendants
5. 	The defendants submit that the proceeding against the second and third defendants should be dismissed as:
a)	the second and third defendants are not privy to the lease agreements between the plaintiff and the first defendant;
b)	the plaintiff is an American registered company which only issues invoices to the first defendant;
c)	the third defendant is only a former director of the first defendant and is not liable to the plaintiff himself.
6. 	The plaintiff submits that the proceeding should not be dismissed against the second and third defendants as:
a)	it has a serious case against all of the defendants and its case against the second and third defendants is not incontestably bad and unarguable;
b)	the court has already determined that the plaintiff has a serious question to be tried when it granted the interim relief. The court should not be requested to alter its determination unless there is new evidence disclosed, which there has not been;
c)	the second defendant is a party to some of the lease agreements, and the third defendant is a director of the first defendant, and has at all material times held himself out as the servant or agent acting on behalf of the other defendants;
d)	the third defendant signed the leases on behalf of the other defendants and is sued in his capacity as a director and the agent for both of the other defendants.

Order 12 Rule 40 National Court Rules

7. 	There are numerous authorities in respect of the principles which apply to applications under Order 12 Rule 40 National Court Rules and I refer to the following cases in this regard: Kerry Lerro v. Stagg & Ors (2006) N3050, Takori v.Yagari & Ors (2008) SC905, Mt Hagen Urban Local Level Government v. Sek No. 15 (2009) SC1007 and Siu v. Wasime Land Group Incorporated (2011) SC1107. The Court in Mount Hagen v. Sek (supra) in paragraphs 27 to 30 conveniently sets out the requirements of Order 12 Rule 40 (1) (a), (b) and (c) as follows: 

“27.	The terms “vexatious”, “frivolous”, “abuse of the process of the Court” and “reasonable cause of action” under O.12 r.40 of the National Court Rules have been judicially considered, defined and expounded in a number of decisions in both the National and Supreme Courts. These cases include Ronny Wabia v. BP Exploration Co. Limited & 2 Others [1998] PNGLR 8 (N1697); PNG Forest Products Pty Ltd and Another v. The State and Genia [1992] PNGLR 85; Gabriel Apio Irafawe v. Yauwe Riyong (1996) N1915; Eliakim Laki and 167 Others v. Maurice Alulaku and Others (2002) N2001; Kiee Toap v. The Independent State of Papua New Guinea & Another (2004) N2766; Kerry Lerro trading as Hulu Hara Investments Limited v. Philip Stagg, Valentine Kambori & The State (2006) N3050; Philip Takori & Others v. Simon Yagari & 2 Others (2008) SC 905. These cases say the same thing. 

28.	The law with regard to an application for dismissal of proceedings based on O.12 r.40 is settled in our jurisdiction. We note that the principles are succinctly set out in Kerry Lerro’s case (supra) and which has more recently been approved and applied by the Supreme Court in Philip Takori’s case (supra). 

29.	The phrase ‘disclosing a reasonable cause of action’ consists of two parts; cause of action and form of action. A cause of action is defined as a legal right or form of action known to law whereby a plaintiff in a statement of claim must plead all necessary facts and legal elements or ingredients to establish or prove his claim.  The principles stated by these cases can be summarized as follows:

(i)	A plaintiff or claimant should not be driven from the judgment seat in a summary manner and that the Court should be cautious and slow in exercising its discretionary power.
 	
(ii)	The Court has an inherent jurisdiction to protect and safeguard its processes from abuse.

(iii)	The purpose of O.12 r.40, is to give the Court power to terminate actions or claims which are plainly frivolous or vexatious or untenable.

(iv)	A frivolous claim is one that is characterized as a claim that is plainly and obviously untenable, that cannot possibly succeed and bound to fail if it proceeds to trial.

(v)	A vexatious claim is one that is said to be a sham and cannot succeed where it seeks to merely harass the opposing party and put that party to unnecessary trouble and expense in defending or proving the claim.

30.	In an application under O.12 r.40 of the NCR, the Court may dismiss a proceeding or action where it is satisfied that the pleading in the statement of claim is seriously wanting where a necessary fact or legal element has not been pleaded.”
Consideration
8. 	As to the second defendant, although the defendants submit that the second defendant is not privy to the lease agreements between the first defendant and the plaintiff, the evidence given on behalf of the plaintiff is to the effect that the plaintiff signed the lease agreement with the second defendant on 20th June 2011 and at least two aircraft are registered in the name of the second defendant. The evidence of the lease with the second defendant is an annexure and it has “Travel Air” as the lessee although the lease is executed with the seal of “Travel Air Ltd”. Similarly in evidence filed on behalf of the defendants there is evidence of two leases with the lessee being “Travel Air” but with the seal of Travel Air Limited being affixed. Other leases have the lessee described as Travel Air Ltd. In these circumstances and given that the second defendant is Sarakolok West Transport Limited trading as Travel Air and that is the name under which two of the aircraft are registered, I am not able to come to the conclusion that the second defendant was not privy to the leases between the plaintiff and the first defendant and that the doctrine of privity of contract is applicable.
9.	 As to the third defendant it is pleaded in the statement of claim that the third defendant is a director of both the first and second defendants and was at all material times acting for and on behalf of them. In the affidavit of the third defendant sworn 19th February 2016 he deposes that amongst others that he is the group Chairman of the first and second defendant companies. From a perusal of that affidavit it is clear that the third defendant has a detailed knowledge of the dealings between the first and second defendants and the plaintiff. Mr. Frank Pegueros, the Vice President of the plaintiff, deposes that amongst others, the third defendant was the lead person in all of the arrangements and deals, “we have with the first and second defendants and he was in contact with us regarding the matter up to the days leading to the grant of the orders.” Further, he deposes that the debts were incurred when the third defendant was in control of the first and second defendants and his inclusion in the proceedings will assist parties resolve all issues arising from this case. 
10. 	Notwithstanding that the third defendant is not a party to the leases, the plaintiff has pleaded that at all material times the third defendant was acting for and on behalf of the other defendants. Although not specifically pleaded, the plaintiff submits that it is suing the third defendant as an agent. This is distinct from its claims against the first and second defendants and in respect of which the defendants are relying upon the doctrine of privity of contract. Given this and the third defendants undisputed involvement in the transactions between the plaintiff and the other defendants, I am satisfied that the third defendant’s inclusion as a party is necessary to ensure that all matters in dispute between the parties in this proceeding are resolved. 
11. 	I am satisfied that the plaintiff’s claims against the second and third defendants are not plainly and obviously untenable, and are not ones that cannot possibly succeed and are bound to fail if they proceed to trial. Consequently, the relief sought in paragraph 1 of the amended notice of motion should be refused.
12. 	As to the relief sought in paragraph 3 of the amended notice of motion that the plaintiff be injuncted from amongst others, dealing with two aircraft, this court was informed that aircraft MSN 20122 had already left Papua New Guinea at the time of the hearing of this application.
13. 	The defendants rely upon Order 14 Rule 9 National Court Rules for the relief that they seek. Order 14 Rule 9 gives the court the discretion to grant relief on the application of a person who intends to commence proceedings. In this instance proceedings have already been commenced by the plaintiff, the defendants have filed a defence and the first defendant has filed a cross claim. In these circumstances in my view, the defendants are not entitled to rely upon Order 14 Rule 9 National Court Rules for the relief that they seek. 
14.	 Counsel for the defendants submitted however, that this court may make orders under Order 14 Rule 9 at any stage of the proceedings, because of Order 14 Rule 16. The defendants though have not referred to Order 14 Rule 16 National Court Rules in paragraph 3 of their amended notice of motion and so are not able to rely upon that Rule by virtue of Order 4 Rule 49(8) National Court Rules. Consequently the defendants are not entitled to the relief that they seek in paragraph 3 of their amended notice of motion.
15. 	As to the relief that is sought in paragraph 4 of the amended notice of motion, that an account be taken of the cross claims of the first defendant/cross claimant against the claims of the cross defendant, the application is made pursuant to Order 14 Rules 1(1) and 2 National Court Rules. Order 14 Rule (1)(2)(a) provides that the court shall not make an order under sub-rule (1)(a) as against a defendant who has not given notice of his intention to defend unless he is in default of giving that notice.
16. 	In this instance the first defendant is relying upon its cross claim. The plaintiff is the cross defendant. Pursuant to Order 8 Rule 44(4), a plaintiff in a writ of summons need not give notice of intention to defend a cross claim in the same proceedings. Consequently, the plaintiff/cross defendant is not in default in giving its notice of intention to defend the cross claim. In such circumstances the court should not make an order under Order 14 Rule (1) (1)(a).
17. 	As to the reliance upon Order 14 Rule 2 National Court Rules which gives the court the discretion, on application by a party at any stage of the proceedings, to amongst others, make orders for the taking of any account; given that I have determined that the court cannot make such an order in this instance under a different Rule, that Rule not being subject to Order 14 Rule 2, it would defeat the purpose and intent of Order 14 Rule 1(2)(a) if I were to make orders that it specifically prevents. Consequently, the relief sought in paragraph 4 of the amended notice of motion is refused.
18.	 Given the above it is not necessary to consider the relief sought in paragraph 2 of the amended notice of motion or the other submissions of counsel.
Orders
19. 
a)	All of the relief sought in the amended notice of motion of the 	defendants filed 18th March 2016 is refused;
b)	The defendants’ shall pay the plaintiff’s costs of and incidental to the 	said amended notice of motion;
c)	Time is abridged.
__________________________________________________________
Gadens Lawyers 		: Lawyers for the Plaintiff                                        
Haiara’s Legal Practice 	: Lawyers for the Defendants