Bishop Shipping Services Pty Ltd v The Motor Vessel 'Pedro' [1980] PGLawRp 599; [1980] PNGLR 247 (10 September 1980)

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[1980] PNGLR 247 - Bishop Shipping Services Pty Ltd v The Motor Vessel "Pedro"

COMPANIES - Winding up - Conduct and incidents of liquidation - Proceedings against company - Leave to proceed - Counterclaim against company before winding up - Necessity for leave - Grounds for granting - Procedure on - Companies Act 1963, s. 230(3)[cccxciii]1, - Companies Rules, r. 7, r. 56.

COSTS - Security for costs - Against company - Belief in inability to pay costs - Prompt application required - Winding up order made - Delay in seeking security - Security refused - Companies Act 1963, s. 363(1).

On 21st July, 1975, the plaintiff company issued a writ and filed a statement of claim against the defendant ship for goods supplied to the ship.

On 19th July, 1977, the defendant filed a defence and counterclaim for, inter alia, charter fees, to which the plaintiff filed a reply and defence on 14th October, 1977; on 20th October, 1977, the defendant replied to the defence to the counterclaim.

On 6th October, 1978, the plaintiff company was wound up and a liquidator appointed.

On 2nd October, 1979, the parties joined issue and on 25th July, 1980, entered the matter for trial.

On 5th September, 1980, two motions came before the court, the first in time by the plaintiff seeking that the defendants’ counterclaim be struck out on the ground that as the company was the subject of a winding up order, the defendant must have leave to proceed, and the second by the defendant seeking leave to proceed against the plaintiff in respect of the counterclaim and seeking security for costs:

N1>(1) Failure to apply for leave to proceed with a counterclaim against a company against whom a winding up order has been made, as required by s. 230(3) of the Companies Act 1963, does not necessitate a striking out of the counterclaim; the effect of s. 230(3) is to automatically stay the proceedings until such time as leave to proceed may be obtained.

N1>(2) An application for “leave of the court” to proceed against a company against whom a winding up order has been made, as required by s. 230(3) of the Companies Act, should be made on summons to the Registrar of the Court.

N1>(3) In the circumstances special leave to proceed could be sought and granted under r. 7 of the Companies Rules 1969.

N1>(4) The grounds upon which leave to proceed under s. 230(3) of the Companies Act may be granted include whether there are any circumstances which render it necessary that the action should be continued, or whether the claim with which it is sought to proceed is not one which can be as easily dealt with in the winding up as in any other way.

N1>(5) Taking into account the service of the majority of the pleadings prior to winding up and the substantial issues between the parties for trial, leave to proceed with the counterclaim should be granted.

N1>(6) A party seeking security for costs against a company on the ground that there is reason to believe that the company will be unable to pay the costs of the defendant if successful, pursuant to s. 363 of the Companies Act, must seek such security promptly.

Jennings Ltd. (In Voluntary Liquidation) v. Cole [1934] N.Z.L.R. 55 at p. 56 referred to.

N1>(7) In view of the “inordinate delay” of the defendant in seeking security, the application for security should be refused.

This was the hearing of two notices of motion in an action in which the plaintiff claimed for goods supplied and the defendant counterclaimed for, inter alia, charter fees. One notice of motion dated 29th July, 1980 by the plaintiff sought to have the defendant’s counterclaim struck out, and the second notice of motion dated 5th August, 1980 by the defendant sought leave to proceed against the plaintiff in respect of the counterclaim.

PRATT J: In this matter the plaintiff issued a writ on 21st July, 1975, followed by a statement of claim delivered on 21st July, 1975, for certain goods supplied to the vessel “Pedro”. On 19th May, 1977, the solicitors for the defendant vessel delivered a defence and counterclaim which was responded to by way of a reply and defence to such counterclaim on behalf of the plaintiff in pleadings delivered 14th October, 1977, which was responded to by the plaintiff by way of a reply to the defence to counterclaim delivered 20th October, 1977. A further lengthy pause in the proceedings occurred and on 2nd October, 1979, the plaintiff replied to the defendant’s last pleadings and joined issue with the defendant. In the meanwhile however, an order of the National Court had been made on 6th October, 1978 directing under the provisions of the Companies Act that the company be wound up and that a liquidator for the purpose of the winding up be appointed. Entry for trial of the action was filed and dated 25th July, 1980, by the solicitors for the defendant.

On Friday 5th September, 1980, two notices of motion were brought before me. The first was a notice of motion dated 29th July, 1980 and filed on the same date by the plaintiff, asking that the defendant’s counterclaim delivered on 19th May, 1977 be struck out. During argument counsel for the plaintiff also indicated that a notice of motion would be filed requesting security for costs from the defendant. To this argument the defence objected that the required period of notice had not been observed and objected to any verbal application. It was not necessary for me to decide this matter as no notice of motion with affidavit in support was filed during the day.

However, there was also before the court a notice of motion by the defendant dated 5th August, 1980, and filed on that date requesting an order that the defendant be given leave to proceed against the plaintiff in respect of the counterclaim which was delivered to the plaintiff on 19th May, 1977. In the event of such leave being granted, then time for filing a reply to the plaintiff’s defence and counterclaim should be extended. The defendant maintained during argument that leave was not necessary but if the court ruled that such leave was required, then the notice of motion sought such leave. In addition, the notice also sought from the plaintiff security for costs in the sum of K5,000 but counsel did not press the request that the plaintiff’s claim should be stayed until such security be given.

Although both matters are intertwined, for the purpose of argument it was necessary to deal with the notices separately. Accordingly, I heard argument from both counsel in relation to the first notice of motion in time, that is the notice by the solicitors for the plaintiff, and reserved judgment thereon. Following this I then heard argument from both counsel in relation to the second notice and likewise reserved judgment. It was submitted by the plaintiff that as the company was the subject of a winding up order, it was necessary for the defendant to obtain leave of the court before proceeding further with his counterclaim. As this had not been done, the plaintiff was seeking to strike out the counterclaim. In my view, the authorities seem to indicate that in circumstances such as the present, leave is certainly required by the defendant before he can proceed further with the matter. His failure to apply for such leave does not necessitate a striking out of the counterclaim. Section 230(3) of the Companies Act 1963 says:

“When a winding up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except:

The effect of this is, to use the words of McPherson at p. 157 of his Law of Company Liquidation (2nd ed., 1980), to automatically stay proceedings. Thus as at 6th October, 1978, the defendant’s counterclaim against the plaintiff company came to a full stop and the defendant was not entitled to take any further action in the matter until leave had been obtained.

At p. 161 of his work however, McPherson points out that such leave “should be obtained before commencing the proceedings but may be granted nunc pro tunc in the case of proceedings instituted without leave”. One would have expected, therefore, that in the circumstances of this case such leave would have been sought shortly after 6th October 1978. It is apparent however from argument at bar that a number of attempts at negotiation were being made following the winding up order and no doubt this has contributed to the delay. I am not prepared to go to the length of saying that the price of such tardiness is a loss of the action altogether. I therefore dismiss the plaintiff’s application under notice of motion dated 29th July, 1980 and I shall deal with the matter of costs at the conclusion of my judgment on the defendant’s notice of motion.

In order to cover the possibility that his appreciation of the law may have been incorrect, the defendant sought to obtain leave by way of notice of motion in order to continue his counterclaim against the plaintiff. Mr. Glen, for the plaintiff, points out however such application by virtue of r. 56 of the Companies Rules 1969 should be made on summons to the Registrar. Although the phrase “by leave of the court” is used in s. 230(3) of the Companies Act, I agree with the plaintiff’s submission that in the present instance, the word “court” must be interpreted to mean “registrar of the court” as a necessary implication following from the fact that s. 230 has not been included either in reg. 53 covering matters which must be dealt with by way of motion and reg. 55 covering matters which must be dealt with by way of summons to a judge in chambers. I also note that by reg. 7, a matter which is authorized under the rule to be heard and determined by the registrar shall not be brought before a court unless it is referred by the registrar or is an appeal from the registrar’s ruling or by special leave of the court or a judge. No such special leave has been specifically sought in this case but it seems to follow by necessary implication that that is in fact what the defendant claimant is doing. It may be true that technically speaking the application by way of motion should be dismissed because of a failure to observe the rules. I am not prepared however to put the parties to further expense in a case such as this where inevitably the registrar would ultimately refer the matter to a judge under r. 8. In order to formalize the situation, however, under O. 93, r. 17 of the National Court Rules, I order that notice of motion be amended by adding at the beginning of par. 1 the following words: “special leave be granted under r. 7 of the Companies Rules, and that”.

The grounds upon which leave to proceed may be granted are succinctly set out by McPherson at p. 160 of the 2nd edition, wherein reference is made to a New Zealand case of Century Mercantile Co. v. Auckland Fruitgrowers’ Society[cccxciv]² in which the following words from Lindley on Companies were quoted:

“The only material question to be considered is whether there are any circumstances which render it necessary that the action should be continued, or whether the claim of the plaintiff is not one which can be as easily dealt with in the winding up as in any other way.”

It is relevant, I think, to take note of the fact that the majority of the pleadings in this matter were served on the parties prior to the winding up order. I am also of the view that there are substantial issues to be tried between the parties and whilst I agree with Mr. Glen that fundamentally the plaintiff’s issue arises out of a simple contract debt, I cannot ignore the fact that the action was commenced in the admiralty jurisdiction for the supply of necessaries, that the arrest and bail of a vessel is involved and that during this year three National Court judges, namely Kapi J., Miles J. and Bredmeyer A.J., have come to different conclusions as to whether or not the National Court retains an admiralty jurisdiction. In addition, the counterclaim is in part for charter fees which of itself may present some problems when brought in the admiralty jurisdiction. I note however that the writ was issued out of the then Supreme Court on 21st July, 1975, that is prior to Independence, and that factor may have some influence on the final outcome. It is apparent therefore that if the liquidator were to deal with the monetary claim of the plaintiff and the defendant’s claim for damages covered in the present writ and counterclaim, he must certainly have some doubt as to the legal situation, and being in such doubt he “should apply to a court for its advice or direction”. (McPherson, (2nd ed., 1980), p. 234.)

For these reasons I grant leave to the defendant to proceed against the plaintiff in respect of the counterclaim which was delivered on 19th May, 1977, and I extend the time for filing the reply to the plaintiff’s defence to the counterclaim.

The defendant also asks that the plaintiff pay into court the sum of K5,000 as security for the costs of this action. Mr. Glen also raised a number of objections to such a request and very properly drew my attention to the provisions of s. 363 of the Companies Act which says, inter alia, that if “there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence” then sufficient security must be given and a stay of proceedings may be ordered. Mr. Glen points out however that in McPherson’s work, reference is made at p. 308 to the necessity for a defendant in such circumstances to act promptly. Such a term could hardly describe the situation in the present matter. I appreciate from the affidavit of Brian Dennis White filed on behalf of the defendant, that seven months after the winding up order, attempts were commenced to negotiate a settlement and a considerable amount of correspondence has passed between the parties from then until June of this year. Nevertheless, I am of the view that because of the inordinate delay, the defendant has waived its right to claim security for costs. In Jennings Ltd. (In Voluntary Liquidation) v. Cole[cccxcv]³, Smith J. in dealing with a similar application said the following:

“The defendant has delayed his application so long that before the present application was made, discovery had been made by the defendant, the defendant had had a third party added, and the plaintiff company had obtained fixtures for the hearing of the action on two occasions. The defendant had also, as it appears to me, permitted the plaintiff to prepare for trial on those occasions without ever having asked for security. In my opinion, the defendant has waived his right to ask for security.”

With the present matter, the defendant without seeking any leave from the court, purported to enter the matter for trial on 25th July, 1980. It would seem completely improper to me for the defendant to be granted security for costs on an application made on 5th September, 1980. I therefore refuse the application.

Although I have dismissed the plaintiff’s application to have the counterclaim struck out, I do not think it unreasonable on the part of the plaintiff to seek the assistance of the court to make the defendant do what it is required by law to do in the first place, namely to seek leave of the court before continuing with the proceeding. Nevertheless, the situation is not clear and the defendant may well have been put off his guard by the words appearing in McPherson’s work Law of Company Liquidation (1st ed., 1968), where in discussing the interpretation to be given to the word “proceeding” in s. 230(3), he says:

“It is natural to expect that it would include any procedural step taken in the course of a legal action, but it has been held that pleading a counterclaim or lodging an appeal is not a proceeding for which leave of the court is required.”

Reference is made to Mersey Steel and Iron Company v. Naylor, Benzon, & Co.[cccxcvi]⁴ where a dispute arose over non-delivery of goods and a counterclaim was filed seeking damages for non-delivery. A further reference in the 1st edition is made to Dominion Trust Company v. Brydges[cccxcvii]⁵ which is apparently authority for the statement in the text that such counterclaim must arise “out of the same subject matter”. Unfortunately this report is not available in Papua New Guinea but it would seem to me that in the present instance, the counterclaim of the defendant does not arise out of the same subject-matter and consequently would not fall within the authority quoted or within the terms of Mersey Steel and Iron Company v. Naylor, Benzon, & Co. In the 2nd edition of his work however, McPherson revises his earlier statement in the light of the decision of Langley Constructions (Brixham) Ltd. v. Wells[cccxcviii]⁶ and distinguishes between a set-off, for which leave is not required, and a counterclaim for which leave is required. The 2nd edition has but recently come off the press whereas the 1st edition antedates the decision in Langley Constructions (Brixham) Ltd. v. Wells. The present action is clearly one of counterclaim and not set-off.

On the other hand, the defendant has been successful only in part on its notice of motion. I would expect under normal circumstances, an application for leave to continue an action would normally become a cost in the cause and then being one which must be taken in order to keep the matter alive, it seems reasonable that the costs of the application would follow the result of the case.

In all the circumstances therefore, the fairest thing to me seems to be to allow costs in both matters to follow the cause.

N1>1. In relation to the notice of motion by the plaintiff dated and filed on 29th July, 1980, I order that the application be dismissed and the costs of such application be treated as costs in the cause.

N1>2. In relation to the notice of motion dated and filed by the defendant on 5th August, 1980, I order:

N2>(a) that the notice of motion be amended by adding at the beginning of paragraph one thereof as indicated within the body of this judgment “special leave be granted under r. 7 of the Companies Rules, and that”;

N2>(b) that leave be granted to proceed against the plaintiff in respect of the counterclaim which was delivered to the plaintiff on 19th May, 1977;

N2>(c) that the time for filing the reply to the plaintiff’s defence to the counterclaim and subsequent pleadings be extended to the date of judgment herein;

N2>(d) that in the event of the defendant obtaining a verdict on the counterclaim, the judgment shall not be enforced without leave of the court;

N2>(e) that the defendant’s application for an order that the plaintiff pay into court the sum of K5,000 as security for costs of the action is dismissed;

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[cccxciii] Infra p. 249.

Editorial Note: for further proceedings see British Shipping Services Pty. Ltd. v. M.V. “Pedro” (No. 2) infra p. 263.

[cccxciv] [1921] N.Z.L.R. 272.

[cccxcv] [1934] N.Z.L.R. s. 55 at s. 56.

[cccxcvi] (1882) 9 Q.B.D. 648.

[cccxcvii] [1920] W.W.R. 952.

[cccxcviii] [1969] 1 W.L.R. 503.

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Papua New Guinea Law Reports

Bishop Shipping Services Pty Ltd v The Motor Vessel 'Pedro' [1980] PGLawRp 599; [1980] PNGLR 247 (10 September 1980)

Papua New Guinea Law Reports - 1980