N10499

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO.215 OF 2023

BETWEEN:
3A COMPOSITES PNG LIMITED
Plaintiff

AND:
KILINWATA PLANTATIONS LIMITED
Defendant

Kokopo:  David, J
2023: 04th October

COMPANY LAW – application to dismiss proceedings – application to set aside creditor’s statutory demand – Companies Act, s.338(1), (2), (3) and (4), National Court Rules, Order 12 Rules 1 and 40.

Cases Cited:
Papua New Guinean Cases

Moran Development Corporation Limited v Akida Investments Limited (2003) N2458
Kerry Lerro v Philip Stagg (2006) N3050
Philip Takori v Simon Yagari (2008) SC905
Piunde Ltd, in re (2015) N5971
Nivani Limited, In re (2016) N6389
Pacific Assurance Group Limited v Pacific International Hospital Limited (2017) N6992

Overseas Cases

Dodds v Walker (1981) 2 All ER 609

Counsel:

Samantha M. Kiene, for the Plaintiff
Jeremiah Kihanges, for the Defendant

RULING

4th October 2023

1.	DAVID, J:	INTRODUCTION: By notice of motion filed on 29 August 2023, the defendant, Kilinwata Plantations Limited seeks an order for the dismissal of the proceedings pursuant to Order 12 Rule 40(1) of the National Court Rules as it claims that the application has been filed and served outside the one month period specified under s.338(2) of the Companies Act.  

BACKGROUND

2.	On 5 July 2017, the parties entered into a balsa production agreement called “2nd Rotation Balsa Production Agreement” (the Balsa Production Agreement).  The balsa production operation was to be carried out by the plaintiff on the defendant’s property described as Portion 553 Milinch Kokopo and Fourmil of Rabaul and being all the land contained in Certificate of Title Volume 8 Folio 42. A dispute arose out of a disagreement about the royalty rate payable by the plaintiff to the defendant under the Balsa Production Agreement.  This resulted in the defendant on 10 March 2023 commencing a suit against the plaintiff by writ of summons endorsed with a statement namely, WS No.83 of 2023 claiming general damages and other relief (the WS proceedings).  On 6 July 2023, the WS proceedings were dismissed for want of prosecution.  Following the dismissal of the WS proceedings, the defendant served on the plaintiff a Creditor’s Statutory Demand for Payment of Debt in the sum of K5,923,720.13 allegedly on account of monies owed by the plaintiff to the defendant for all balsa crops not paid at market price deemed to be K315.00 per cubic metre harvested from Kilinwata Plantation from October 2022 through to June 2023 (the Statutory Demand).  On 21 August 2023, the defendant filed a petition, MP No.6 of 2023 which was registered on 22 August 2023 to wind up the plaintiff. 

EVIDENCE 
 
3.	The defendant relies on the following affidavits:

1.	Affidavit of Gedion Waenavi sworn on 28 August 2023 and filed on 29 August 2023;
2.	Affidavit of Peter Woolcott sworn and filed on 29 August 2023; and
3.	Affidavit of Gedion Waenavi sworn on 3 October 2023 and filed on 4 October 2023.  

4.	In opposing the application, the plaintiff relies on the following affidavits:
	
1.	Affidavit of George Karoba sworn on 14 August 2023 and filed on 17 August 2023; and
2.	Affidavit of Kenny Maketu sworn on 24 August 2023 and filed on 19 September 2023.

SUBMISSIONS

5.	Mr. Kihanges for the defendant submits that the proceedings constituting the application to set aside the Statutory Demand should be dismissed as they; do not disclose any reasonable cause of action; are frivolous or vexatious; or are an abuse of the process of the Court because the proceedings were filed outside the one month period given after service of the demand contrary to s.338(2) of the Companies Act.

6.	Ms. Kiene for the plaintiff concedes that these proceedings were filed out of time, but submits that the motion should be dismissed because there is a substantial dispute as to whether or not there is a debt owing or due from the plaintiff to the defendant.  She states that that is demonstrated by the defendant commencing the WS proceedings on 10 March 2023 disputing the royalty or amount of royalty paid by the plaintiff which has since been dismissed for want of prosecution.

ISSUE

7.	The overarching issue that requires the Court’s determination is whether these proceedings should be dismissed.

LAW 

8.	Under Order 12 Rule 40(1) of the National Court Rules, proceedings may be dismissed if they; do not disclose a reasonable cause of action; are frivolous and vexatious; or are an abuse of the process of the Court. 
9.	Order 12 Rule 40 states:
“(1)     Where in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings- 
(a)     No reasonable cause of action is disclosed;
(b      the proceedings are frivolous or vexatious; 
(c) 	the proceedings are an abuse of the process of the Court.
the court may order that the proceedings be stayed or dismissed   generally or in relation to any claim for relief in the proceedings.
(2) 	The court may receive evidence on the hearing of an application for an order under sub-rule (1).”
10.	The Court’s power to stay or dismiss proceedings under any of the grounds specified in Order 12 Rule 40(1) is discretionary and also by its inherent jurisdiction, it has power to protect and safeguard any abuse of its processes.   
11.	Under Order 12 Rule 40, the Court may stay or dismiss the proceedings, either generally or in relation to any claim for relief in the proceedings. Evidence may be received by the Court on the hearing of an application for an order under this rule.
12.	The relevant principles to apply when dealing with an application under Oder 12 Rule 40 were summarised by Kandakasi, J in Kerry Lerro v Philip Stagg (2006) N3050 and endorsed by the Supreme Court in Philip Takori v Simon Yagari (2008) SC905 and they are set out below:
“1.	Our judicial system should never permit a plaintiff or a defendant to be “driven from the judgment seat” in a summary way, “without a Court having considered his right to be heard.” A party has a right to have his case heard, as guaranteed by the Constitution and the laws of the land.  The Rules are designed to enhance those rights and to ensure the prompt and fair disposal of matters coming before the Court. That right cannot be lightly set aside. 
2.	At the same time however, the law such as the Rules under consideration provide for and the Court has an inherent jurisdiction to protect and safeguard against any possible abuse of the processes of the Court.
3.	The object of these rules are therefore “to stop cases which ought not to be launched — cases which are obviously frivolous or vexatious or obviously unsustainable.”  In other words “the object of the rule was to get rid of frivolous actions.”
4.	A claim may be frivolous if it can be characterized as so obviously untenable that it cannot possibly succeed or that the claim or defence is bound to fail if it proceeds to trial.   
5.	A claim or defence may be vexatious if the case amounts to a sham or one which cannot succeed and is one that amounts to harassment of the opposing party who is unnecessarily put to the trouble and expenses of defending or proving the claim.   
6.	With regard to the issue of disclosing a reasonable cause of action or defence, the Court must be clear that there are two (2) parts to the phrase “cause of action”.  First, it entails a right given by law such as an entitlement to reasonable damages for breach of human rights under s.58 of the Constitution, commonly referred to as the “form of action”. Secondly, it entails the pleadings disclosing all the necessary facts which give rise to the form of action.
7.	The phrase “cause of action” could thus be defined in terms of a legal right or form of action known to law with:
“every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court.  It does not comprise of every piece of evidence which is necessary to prove each fact, but every fact is necessary to be proved.”

8.	A statement of claim or a defence (as the case may be) must therefore clearly plead the form of action by pleading the necessary legal elements or ingredients of the action and relevant and necessary facts (not the evidence) giving rise to the form of action.  It follows therefore that, where a statement of claim or a defence is so ambiguous or lacking in particularity that it does not facilitate orderly and rational pleadings, which would enable the real issues to be identified, and instead leaves it to guess work, it should be struck out. 
9.	These rules provide a summary judgment procedure or remedy which is available to a plaintiff or a defendant, and one which vests and calls for an exercise of a discretion by the Court.
10.	The discretion must be exercised sparingly and only in a case where the statement of claim or the defence (as the case might be) is “obviously and almost incontestably bad.”  In other words this discretion can be exercised only in cases that “are plain and obvious so that the master or Judge can say at once that the statement of claim [or defence] as it stands, is insufficient, even if proved, to entitle the plaintiff [defendant] to what he asks for.”  
REASONS FOR RULING

13.	Section 338(1), (2), (3) and (4) of the Companies Act is as follows:

“(1) 	The Court may, on the application of the company, set aside a statutory demand.

(2) 	The application shall be made, and served on the creditor, within one month of the date of service of the demand.

(3) 	No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the Court may extend the time for compliance with the statutory demand.
(4) 	The Court may grant an application to set aside a statutory demand where it is satisfied that–
(a) 	there is a substantial dispute whether or not the debt is owing or is due; or
(b) 	the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c) 	the demand ought to be set aside on other grounds...” (my emphasis)
14.	Section 338(2) is expressed in clear and unambiguous mandatory terms:  Nivani Limited, In re (2016) N6389.

15.	The failure to comply with s.338(2) will render an application to set aside invalid and incompetent:  Nivani Limited, In re (2016) N6389.
  
16.	In considering whether an application to set aside filed pursuant to s.338(1) is valid, competent and properly before the Court pursuant to s.338(2), it must be:

1.	made within one month of the date of service of the demand; and
2.	served within one month of the date of service of the demand.

16.	These two requisite requirements must be satisfied.

17.	It is not disputed that the Statutory Demand was served on the plaintiff on 17 July 2023.  That is also pleaded in the originating summons.

18.	Has the plaintiff met the two requirements of s.338(2)?  

19.	As to the first requirement, it is not disputed that the originating summons constituting the application to set aside relying on s.338(1) and (4)(a) of the Companies Act and Order 12 Rule 1 of the National Court Rules was filed on 17 August 2023.

20.	Was the application to set aside filed within one month of the date of service of the Statutory Demand? In the absence of a definition of the word “month” in the Companies Act, it is to be interpreted as “calendar month” by virtue of s.3 of the Interpretation Act:  Moran Development Corporation Limited v Akida Investments Limited (2003) N2458, Pacific Assurance Group Limited v Pacific International Hospital Limited (2017) N6992. A calendar month commences on a particular date in one month and ending on the corresponding date in the following month:   Moran Development Corporation Limited v Akida Investments Limited (2003) N2458, Pacific Assurance Group Limited v Pacific International Hospital Limited (2017) N6992.  This is called the corresponding date principle:  Moran Development Corporation Limited v Akida Investments Limited (2003) N2458, Pacific Assurance Group Limited v Pacific International Hospital Limited (2017) N6992, Dodds v Walker (1981) 2 All ER 609.  This interpretation accords with s.11(1) of the Interpretation Act which states that the day on which the event happens or the act or thing done is to be excluded in computing time for the purposes of a statutory provision:  Pacific Assurance Group Limited v Pacific International Hospital Limited (2017) N6992. The last date for the making or filing of the application to set aside was 17 August 2023.  The application to set aside was therefore “made” or filed within time. 

21.	The next question to ask is, was the application to set aside served within one month of the date of service of the Statutory Demand?  The last date for service of the application to set aside was 17 August 2023.  No affidavit evidence has been brought before the Court particularly by the plaintiff to demonstrate whether the application to set aside was served on the defendant on 17 August 2023 or not.  In the absence of such evidence, I find that the plaintiff has failed to meet the second requirement of s.338(2).  This finding is supported by Ms. Kiene correctly conceding that the application to set aside in the main was out of time. 

22.	Clearly the proceedings are not properly before the Court as they are time-barred.  They are ripe for dismissal under all of the grounds under Order 12 Rule 40(1) of the National Court Rules.

23.	No extension of time may be given for making or serving an application to set aside pursuant to s.338(3):  Piunde Ltd, in re (2015) N5971, Pacific Assurance Group Limited v Pacific International Hospital Limited (2017) N6992.  However, the plaintiff could have invoked s.338(3) for an extension of time for compliance with the Statutory Demand, but it has not.    

24.	There will be no consideration of an application to set aside pursuant to the discretionary power given to the Court under s.338(4) unless the two requisite requirements of s.338(2) are met.

25.	The application to set aside is invalid and incompetent.

26.	For these reasons, I would grant the defendant’s application.

ORDERS

27.	The formal orders of the Court are:

1.	These proceedings are dismissed in their entirety. 
2.	The plaintiff shall pay the defendant’s costs of and incidental to these proceedings, to be taxed, if not agreed.
3.	Time is abridged.
__________________________________________________________
Cornerstone Legal Services: Lawyers for the Plaintiff
Warner Shand: Lawyers for the Defendant