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Keu v Rural Development Bank [2000] PNGLR 320 (19 October 2000)

[2000] PNGLR 320

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

STEVEN KEU

V

RURAL DEVELOPMENT BANK; AND
QUEENSLAND INSURANCE (PNG) LTD

MT HAGEN: JALINA J
9, 19 October 2000

Facts

The plaintiff bought a 25 seater Mitsubishi bus with the assistance of loan finance from the first defendant. As a requirement of the loan finance, the plaintiff was made to take out comprehensive insurance with the second defendant and he did. During the currency of the insurance, the vehicle got involved in an accident and was damaged beyond repair. It only had a salvage value of K5,214.45 and since the first respondent had a mortgage over the vehicle, this money was then paid to it. The plaintiff unsuccessfully took proceedings seeking orders for the K5,214.45 to be paid by the second respondent, as his insurer, to him, and not the first defendant – arguing that the insurer wrongly paid the first defendant.

This is an application by the first defendant to have the proceedings dismissed pursuant to O 8 r 27 National Court Rules, in that the statement of claim does not disclose a reasonable cause of action and hence is an abuse of the court’s process and furthermore, pursuant to O 12 r 40, the proceedings are accordingly frivolous and vexatious.

Held

1. The plaintiff’s statement of claim, particularly at paragraph 15 does not raise any legally identifiable cause of action such as negligence or contract. It is just a bare assertion of certain facts.
   
2. I accept the applicant’s submissions. It is a fundamental principle of the law of contract that only parties to a contract are bound by its terms. Thus in the matter before me the applicant not being privy to the contract of insurance cannot be sued for damage to a vehicle the subject of a contract with the second defendant. In fact as a matter of law it should have been the applicant who should have sued the respondent for the unpaid portion of the loan. The statement of claim therefore does not disclose a reasonable cause of action. It is also in my opinion frivolous or vexatious and an abuse of the process of court.
   

Papua New Guinea cases cited

Mapmakers Pty Ltd v Broken Hill Propriety Company Ltd [1987] PNGLR 78.

Counsel

A Manase, for the applicant.
No appearance for respondent.

19 October 2000

JALINA J. This is an application by the first defendant to dismiss the claim against it as the statement of claim did not disclose a reasonable cause of action and that the claim was frivolous or vexatious and was further an abuse of process of the Court. It should be mentioned for the record that the respondent’s claim against the second defendant was dismissed by this Court on 25 March 2000. The application by the first defendant, if successful, would effectively terminate the entire proceedings.

When I commenced hearing the application only Mr. Manase appeared for the applicant. There was no appearance for the respondent. One might wonder why I decided to proceed ex parte. I did so after being satisfied that the respondent had had ample notice of the proposed application by the first defendant. This is clear from my enquiry with Mr Manase as well as from my perusal of the file pertaining to this matter that John Kil Lawyers are the lawyers on record for the respondent. Further perusal of the file has revealed that this application was filed on 4 September and was set down for hearing on 9 October 2000. The affidavit of John Isingi filed herein on 13 September 2000 shows that the notice of motion and affidavit of Alfred Manase both of which relate to this application were served on the respondent’s lawyer at his office at Section 20, Allotment 2, Pine Street, Hohola in the National Capital District on 7 September 2000. A letter which was handed to me during submission by Mr Manase dated 4 October 2000 shows that he enclosed with that letter his draft submission on this application on that day and receipt of same was acknowledged by someone from the respondent’s lawyer’s office. So the respondent has had ample notice through his lawyer.

The facts giving rise to this claim are summarized as follows. The plaintiff bought a 25 seater Mitsubishi Bus ("the vehicle") on or about 29 November 1993. The total cost of the vehicle was approximately K25,700.00. The plaintiff contributed K16,000.00 and the first defendant ("the Bank") lent the plaintiff K9,700.00. The Bank had a mortgage or a bill of sale over the vehicle. The vehicle was then comprehensively insured by the plaintiff with the second defendant, ("the Insurer").

During the currency of the insurance policy, the vehicle got involved in an accident and damaged beyond repair. The salvage value was about K5,214.45. The second defendant denied liability under the terms of its contract of insurance with the plaintiff and paid the salvage value of K5,214.45 to the first defendant in satisfaction of the outstanding loan under the terms of the loan agreement. The reasons for the refusal of liability by the Insurer is set out in its defence and includes among other things that the vehicle was involved in the accident whilst being driven by a person who was drunk. The basis upon which liability was denied by the Insurer is not relevant for present purposes.

The plaintiff then issued these proceedings against the defendants on 11 August 1995. The main cause of action was against the second defendant for breach of the terms of the Contract of Insurance of the vehicle. However, as indicated above, the court dismissed the proceedings against the second defendant on 25 March 2000.

The action against the first defendant remains. The allegations pleaded against the bank by the plaintiff in his statement of claim, (apart from the formal matters in paragraphs 3, 4 and 5) are as follows:

Paragraph 15.... "By a letter dated 24th October 1994, by the first defendant to the second defendant, the first defendant without informing the plaintiff accepted the second defendants denial of liability and opted to claim against the second defendant under concessions.

Paragraph 16... By letter dated 15th November 1994 and 7th December 1994 from the agent of the second defendant to the first defendant, 19th December 1994 from the first defendant to the second defendant or its agent and 28 December 1994 from the second defendants agent to the first defendant, an agreement was reached wherein the second defendant paid a sum of K5,214.45 to the first defendant and the first defendant also retained the salvage (vehicle) valued at K5,000.00.

Paragraph 17... The first defendant without the consent of the plaintiff discharged the second defendant from any further claims on the Insurance Policy Number 376168 which covered the plaintiff’s vehicle by signing such a discharge. The plaintiff will at the trial refer to the said Insurance Policy Number 376168 for its full terms and effect."

All the other allegations which were substantial were against the second defendant but have been dismissed by the Court as indicated earlier.

Mr Manase for the applicant has sought to dismiss the plaintiff’s proceedings against the first defendant pursuant to O 10 r 5, O 12 r 40 and O 8 r 27 of the National Court Rules. I propose to refer to the Rules in the order referred to by Mr. Manase in his written submissions. His first submission was based on O 10 r 5 which provides:

"5. Want of prosecution. (33/6)

Where a plaintiff does not, within six weeks after the pleadings are closed, set the proceedings down for trial, the Court, on motion by any other party, may, on terms, dismiss the proceedings or make such other order as the Court thinks fit."

Mr. Manase relied on his own affidavit filed herein on 4 September 2000 in support of this application. The affidavit as well as my perusal of the file shows, insofar as the applicant is concerned, that the respondent issued these proceedings on 11 August 1995. The applicant filed its notice of intention to defend on 11 August 1995 and its defence on 14 September 1995. These were done by its former lawyer Philip Ame. The respondents’ lawyer then filed his reply to the applicant’s defence on 3 November 1995, thus joining issue with the applicant’s defence. The second defendant took other steps such as issuing of notice of discovery to the respondent and following his failure to comply with such notice, successfully dismissed the proceedings against it on 25 March 2000.

Nothing further was done against the applicant by the respondent. Neither did the applicant do anything against the respondent through its former lawyer Mr. Ame. Pato lawyers took over as the applicant’s lawyers through ‘notice of change of lawyers’, filed herein on 11 March 2000.

On 25 July 2000 the applicant’s lawyer wrote to the respondent’s lawyer informing him of the change of lawyers.

On 31 July 2000 the applicant’s lawyers wrote to the respondent’s lawyer advising him that pleadings had closed and that he should arrange to have the matter listed for trial and inform them by return mail. Nothing was mentioned to the effect that failure to set the matter down for trial would result in them applying to the Court to dismiss these proceedings for want of prosecution.

On 30 August 2000 the applicant’s lawyer again wrote to the respondent’s lawyer referring to their letter of 31st July which remained unanswered. They further told the respondent’s lawyer to attend the National Court call-over on 4 September 2000 and have the matter listed for trial. Again the applicant’s lawyer did not indicate what they would do if the respondent’s lawyer failed to attend the Call-over on 4 September and list the matter for trial. Interestingly, Mr. Manase filed the present application on 4 September 2000. He does not say whether he himself attended the Call-over on 4 September prior to filing the motion now before me.

It seems to me from the above that the applicant has not given the respondent any warning at all let alone sufficient warning prior to making this application. (Mapmakers Pty Ltd v Broken Hill Propriety Company Ltd [1987] PNGLR 78.) I accordingly dismiss the application made under O 10 r 5 in the exercise of my discretion.

Mr. Manase’s second submission is based on O 8 r 27 and O 12 r 40 both of which deal among other things, with dismissal of proceedings which do not disclose a reasonable cause of action or on grounds of frivolity etc. O 8 r 27 provides:

27. Embarrassment, etc. (15/26)
    

(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 the whole or any part of the pleading be struck out.

(2) The Court may receive evidence on the hearing of an application for an order under Sub-rule (1).

And O 12 r 40 provides:

40. Frivolity, etc. (13/5)
    

(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; or

(b) the proceedings are frivolous or vexatious; or

(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).

He submits that the claim as pleaded in paragraphs 15, 16 and 17 did not disclose a reasonable cause of action or is otherwise frivolous vexatious or an abuse of process of the Court.

Paragraph 15 refers to a letter by the applicant accepting "denial of liability and opted to claim against the second defendant under concession." This is a bare assertion of certain facts, which does not raise any legally identifiable cause of action such as negligence or contract etc.

Paragraph 16, refers to certain letters between the applicant and the second defendant, which the respondent says comprised the agreement reached between them for the second defendant to pay to the applicant the salvage value of the vehicle.

He submits that the applicant had the first right of call on any insurance fund or payment for the salvage value payable by the insurer as the respondent mortgaged the vehicle in favour of the applicant. Hence, there was no cause of action against the Bank for enforcing its security. The applicant merely received what it was entitled to under the bill of sale or mortgage.

As regards paragraph 17, the respondent says he did not consent to the discharge of the second defendant under its insurance policy. But the applicant was not a party to the insurance contract between the respondent and the second defendant (Insurer). Hence, liability under the insurance contract cannot be discharged by the applicant as it is a stranger except that the Insurer was aware of the applicant’s interest in the insured vehicle which was used as security for the loan. So it paid the salvage value of K5,214.45 to the applicant as partial repayment of the loan.

Mr. Manase submits that all in all, the applicant has been wrongfully sued. The proper cause of action which the respondent had was against the second defendant (Insurer) for breach of the insurance contract and not against the applicant.

I accept the applicant’s submissions. It is a fundamental principle of the law of contract that only parties to a contract are bound by its terms. Thus in the matter before me the applicant not being privy to the contract of insurance cannot be sued for damage to a vehicle the subject of a contract with the second defendant. In fact as a matter of law it should have been the applicant who should have sued the respondent for the unpaid portion of the loan. The statement of claim therefore does not disclose a reasonable cause of action. It is also in my opinion frivolous or vexatious and an abuse of the process of court.

I accordingly dismiss the proceedings against the applicant with costs to be taxed if not agreed.

Lawyer for the plaintiff: John Kil Lawyers.
Lawyer for the first defendant: Pato Lawyers.