Keran v Warun [1994] PGNC 62; N1266 (18 August 1994)

N1266

PAPUA NEW GUINEA
[In the National Court of Justice]

WS. 58 (L) of 1993

TITUS KERAN
Plaintiff

JERRY WARUN
First Defendant

COUNTRY MOTORS PTY LTD
Second Defendant

LAE: SEVUA, J.
17 & 18 August 1994

Practice and Procedure - Discovery - Default - Failure to deliver list of documents - Right of party to apply for dismissal of defence - Order 9 Rule 15 National Court Rules.

Failure to comply - Application to set aside judgment against Defendants - Discretionary power - No good reason for default - Application dismissed.

Held: Where the Plaintiff has served a notice for discovery pursuant to Order 9 Rule 1 of the National Court Rules and the Defendant has failed to comply, his defence has been struck out and judgment signed against him, and he applies to set aside that judgment or order, his application should be refused where he has failed to offer a reasonable explanation for his default.

Cases cited
Credit Corporation (PNG) Ltd -v- Gerald Jee [1988-89] PNGLR 11

L Dacre for Plaintiff
D Poka for Defendants

18 August, 1994.

SEVUA, J: The First and Second Defendants by way of notice of motion seek that the default judgment entered against them on 12 July 1994 be set aside and they be permitted to file and serve a list of documents with verification. They also seek costs and other orders. This application was made yesterday when the trial for assessment of damages and declaration was supposed to have been dealt with in pursuance of the order of 12 July, 1994.

On the outset let me briefly refer to the history of these proceedings. On 16 November, 1993, Writ of Summons No. 53(L) of 1993 was filed at the sub-registry in Lae. On 23 November, 1993 Senior Sgt. Arthur Taliva of Lae Police, effected service on the First Defendant. On 1 December, 1993 service was effected on the Second Defendant through its registered office at Section 88, Allotment 2, Aircorps Road, Lae in pursuance of the Companies Act. On 14th December, 1993 the Second Defendant filed a notice of intention to defend through its lawyer, Sawong and Gamoga. On 29th December, 1993 the First and Second Defendants' defence was filed. On 11th January, 1994 the Plaintiff filed notice for discovery with verification which was served on the Defendants' lawyer on 14th January, 1994. On 24th January, 1994, the Defendants' lawyer wrote to the Plaintiff's lawyer and acknowledged service. The Defendants' lawyers also advised the Plaintiff's lawyers that the Defendants were compiling all the necessary documents and as there was "a fair bit of documents," the Plaintiff was requested to consent to an extension till the end of February, 1994. On 28th January, 1994 the Plaintiff's lawyer advised the Defendants' lawyer that the Plaintiff has consented to an extension till 28th February, 1994 and that no further extension would be agreed to. The Plaintiff also insisted that the Defendants comply with the National Court Rules in the conduct of this case. The Plaintiff further intimated that if the Defendants did not provide a duly verified and sealed list of documents, an application would be made to the Court to have the Defendants' defence dismissed and judgment entered for the Plaintiff. The list of documents was never filed.

On 16 June, 1994 the Plaintiff filed an application seeking dismissal of the Defendants’ defence and that judgment be entered in his favour. That application was supported by the affidavit of Linda Dacre and both were served on the Defendants' lawyer on 6 July, 1994. On 12 July 1994 His Honour, Hinchliffe, J granted the following orders:-

1. The defence of the First and Second Defendants is struck out.
   
2. Judgment for damages and declarations to be assessed is entered for the Plaintiff.
   
3. The Defendants are jointly and severally restrained from disposing of any of the assets of the Second Defendant until this matter is finally disposed of.
   
4. The hearing of assessment for damages and declaration is set for the 17 August, 1994 at 9:00 a.m.
   
5. Costs are costs in the cause.
   

This Order was settled on 22 July, 1994.

On 29 July 1994, Sawong and Gamoga which had by then changed to Gamoga & Co., filed a notice of cessation to act for the Defendants. Mr Poka informed the Court yesterday that he had received instructions to act for the Defendants two days prior to the date the trial for assessment of damages was set, which to my calculation, would have been 10 July, 1994. On 16 August, 1994 Milner and Associates filed a notice of change of lawyers and the notice of motion, the subject of this decision. Two affidavits sworn on 15 August, 1994 by Patricia Rimbao and the First Defendant were also filed on the 16 July, 1994. These affidavits are in support of the said notice of motion.

Mr Poka appearing for both Defendants conceded that the order given on 12 July 1994 was regular and that the Plaintiff has the right and was entitled to apply under Order 9 Rule 15. However, he submitted that I should exercise my discretion in favour of his clients on the basis that due to the difficult circumstances of this case and the impracticability of the directors of the Second Defendant convening a meeting quickly the Defendants' position was allowed to reach the stage it had. It was further submitted by Mr Poka that in view of the fact that this action involves a substantial amount of money, i.e., more than K200,00.00, the Court should give a fair chance to the Defendants to be heard so that it would be in a better position to adjudicate. He finally submitted that although the orders were obtained regularly, the Court has inherent powers under S.155(4) of the Constitution to make the orders his clients were seeking. He relied on the affidavits of Patricia Rimbao and Jerry Warun which I will now refer to.

The evidence of Patricia Rimbao that she and other directors were not aware of this action is quite unconvincing. The writ was served on the Second Defendant on 1 December, 1994 at its registered office at Section 88, Allotment 2, Lae. Obviously she would have been notified or handed a copy since she claimed to be "the second highest share cash contributor to the initial purchase of the Second Defendant" and a director. As early as the second week of February, 1994 she became aware of the proceedings because the First Defendant had personally hand delivered a letter to her at Wabag. The first paragraph of that letter clearly states that a "civil law suit against the company" was to be defended. She would have been also verbally advised by the First Defendant, no doubt, that Country Motors Pty Ltd, the Second Defendant, was being sued. For a suit involving some K200,000.00 or more worth of assets belonging to the Second Defendant, it is quite strange she did not know. In fact I find it hard to believe her evidence that she and the other directors were not aware the Second Defendant was being sued. I consider she was lying.

The First Defendant by way of a letter referred to earlier and marked "A" to his affidavit was seeking authority from the Second Defendant to secure release of documents in the custody of Papua New Guinea Banking Corporation in Lae. He was advised by Patricia Rimbao that it was not possible to call a meeting soon as the directors were scattered all over the place and he would have to raise that matter at the next annual general meeting which did eventuate on 15 June, 1994. However by her own evidence, that matter was not raised in the AGM. Furthermore, by her own evidence, the documents could not be released without the approval of the Board of Directors of the Second Defendant through a proper quorum. I think there is some sense in that and I accept that as correct. I do not think I can accept that the Plaintiff and the First Defendant had conflicts in respect of "Jeti's Autobeat" and this did not involve the Second Defendant. The fact is the statement of claim in the writ was directed at both Defendants thus, the Second Defendant was involved from the start. The Writ specially joins the Second Defendant as a party to this action.

Whilst I sympathise with the predicaments faced by Mr Poka, I consider he is not at fault in any way. His client, the Second Defendant, was. From the date of service of writ to the date the Plaintiff filed his application on 16 June 1994, the Defendants had had five and a half months to act positively and decisively. In my view, either a special general meeting or an extra ordinary meeting should have been called in February or March, 1994. The Companies Act provides for the calling of such meetings. The directors of the Second Defendant failed or neglected to avail themselves to those provisions and really they have no excuse and no reasonable explanation as to the failure by the Defendants to file and serve a list of documents. In my view, they have had more than adequate time and opportunity to call a meeting to approve the release of the documents by their bank so that the documents could be used if necessary in these proceedings. I consider the attitude of the Second Defendant as typical of litigants who think they can sit back and let the Court wait for them.

Ms Dacre for the Plaintiff / Respondent opposed the application and argued that if this application was granted, his client would be prejudiced. One of the issues in this case is the 28,800 shares which the Plaintiff claims he has in the Second Defendant and which is being disputed by the Defendants. He has been deprived of property, chattels and tools. It is evident from the affidavit of Patricia Rimbao that the so called directors had resolved in their meeting of 15 June, 1994 that the Second Defendant be sold in an open market and obviously the assets are to be dissipated. I accept that the Plaintiff will be prejudiced by granting the Defendants' application.

Ms Dacre has referred me to the case of Credit Corporation (PNG) Ltd -v- Gerald Jee [1988-89] PNGLR 11 which deals with discovery and the failure to comply with the notice for discovery. I adopt the decision of His Honour, Woods, J in that case and apply it here. As I adverted to earlier, His Honour, Hinchliffe, J had on 12 July 1994 ordered that the Defendants' defence be struck out and judgment entered for the Plaintiff. He proceeded correctly and legally in making that order. He complied with the law, namely, Order 9 Rule 15 (b) which in substance, provides that when a defendant is in default the Court can order that his defence be struck out and judgment entered accordingly. The requirement to comply with the notice for discovery is mandatory and is subject only to the provisions of sub rules (2) and (3) of Rule 2. The Defendants were obliged to disclose all documents in their possession, custody or power. They did not do this because they claimed it was impracticable to call a directors meeting. In my view, this reason, which consequently enabled the Defendants' failure to comply with the notice, is totally unacceptable. In my view, it was not impossible nor impracticable to call a directors meeting. Whilst I appreciate that the directors were in three different locations, therefore convening a meeting would involve a fair bit of expenses, in my view, it was necessary they meet because these proceedings which affect their company's interest had been on foot since 16 November, 1993.

In the circumstances I consider that the Defendants had deliberately refused to comply with the discovery notice. It was within their power to comply but they failed and attempted to justify their failure by offering an excuse which I consider unacceptable. I agree with His Honour, Woods, J who said at p.12 in Credit Corporation that, "a party cannot just ignore Court process if he does, he does so at his peril" They ignored their responsibility and as it were, they found themselves in peril. They can blame no one except themselves.

Both counsels agree that the Order of 12 July 1994 was regular and they agree that in this application, the Court has a discretion to exercise. I agree with them. However, I consider that, in order for me to exercise this discretion in favour of the Defendants, I must be satisfied of the reasons for the Defendants' failure to comply with the law before exercising such discretion in their favour. This discretion must be exercised judicially and not for the sake of exercising it because a litigant has asked for it. There must be compelling reasons, in my view, to exercise this discretion in favour of the applicant. In the present case, I have found that there was no good reason for the failure of the Defendants in complying with the notice for discovery. Whilst I agree with Mr Poka that this Court has an inherent power under S.155(4) of the Constitution, I consider that this is one case where it is inappropriate to invoke that Constitutional power.

I therefore hold that, where the Plaintiff has served a notice for discovery pursuant to Order 9 Rule 1 of the National Court Rules and the Defendant has failed to comply and his defence has been struck out and judgment or order signed against him and he applies to have the judgment or order set aside, his application should be dismissed because he has failed to provide a reasonable explanation for his default.

Accordingly, in the exercise of my discretion, I order that the Defendants' notice of motion dated 15 August, 1994 be dismissed and the Plaintiff's costs of this application be met by the Defendants.

Lawyer for Plaintiff: Warner Shand
Lawyer for Defendants: Milner & Associates