N270(L)

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

NO. W.S. 277 "A" OF 1975 (NG)

BETWEEN

BISHOP SHIPPING SERVICES PTY. LIMITED
PLAINTIFF

AND:

THE MOTOR VESSEL "PEDRO"
DEFENDANT

Waigani: Pratt J
5 September 1980; 10 September 1980

INTERLOCUTORY JUDGMENT NO. 1

PRATT J: In this matter the plaintiff issued a writ on the 21st July 1975, followed by a statement of claim delivered on the 21st July 1975, for certain goods supplied to the vessel "Pedro". On the 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 the 14th October 1977, which was responded to by the plaintiff by way of a reply to the defence to counterclaim delivered the 20th October 1977. A further lengthy pause in the proceedings occurred and on the 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 the 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 the 25th July 1980 by the solicitors for the defendant.

On Friday the 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 the 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. In the upshot 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 the 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 the 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. S.230(3) of the Companies Act 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:

(a)	by leave of the court; and

(b) 	in accordance with such terms as the court imposes."

The effect of this is, to use the words of Doctor McPherson at p.157 of the Second Edition of his "Law of Company Liquidation", to automatically stay proceedings. Thus as at the 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, Doctor 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 the 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 the 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 Rule 56 of the Companies Rules 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 Regulation 53 covering matters which must be dealt with by way of motion and 55 covering matters which must be dealt with by way of summons to a judge in chambers. I also note that by Regulation 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 Rule 8. In order to formalize the situation, however, under Order 93, Rule 17, I order that notice of motion be amended by adding at the beginning of paragraph one the following words: "special leave be granted under Rule 7 of the Companies Rules, and that".

The grounds upon which leave to proceed may be granted are succinctly set out by Doctor McPherson at p.160 of the Second Edition, wherein reference is made to a New Zealand case 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 the 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, Second Edition at 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 the 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 K5,000.00 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 Limited (In Voluntary Liquidation) v. Cole, 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 the 25th July 1980. It would seem completely improper to me for the defendant to be granted security for costs on an application made on the 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 the First Edition of Doctor McPherson’s work 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 Mersy Steel and Iron Company v. Naylor, Benzon, & Co. where a dispute arose over non-delivery of goods and a counterclaim was filed seeking damages for non-delivery. A further reference in the First Edition is made to Dominion Trust Company v. Brydges 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 Mersy Steel and Iron Company v. Naylor, Benzon, & Co. (supra). In the Second Edition of his work however, Doctor McPherson revises his earlier statement in the light of the decision of Langley Constructions (Brixham) Ltd. v. Wells and distinguishes between a set-off, for which leave is not required, and a counterclaim for which leave is required. The Second Edition has but recently come off the press whereas the First Edition antedates the decision in Langley Constructions (Brixham) Ltd. v. Wells (supra). 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.

I therefore make the following orders:

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

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

(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 Rule 7 of the Companies Rules, and that";

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

(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;

(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;

(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;

(f) 	the costs of this motion shall be costs in the in the cause.

Solicitors for the Plaintiff: Beresford Love & Company
Counsel: T. Glen
Solicitors for the Defendant: Gadens
Counsel: P. Dempsey