Smithers v Forest Management Resources Ltd [2003] PGNC 112; N2396 (17 June 2003)

N2396

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE AT LAE]

OS NO. 279 OF 2003

NEIL MICHAEL SMITHIES

Applicant

- vs -

FOREST MANAGEMENT RESOURCES LIMITED

First Respondent

MARX KANAMON

Second Respondent

Lae: Manuhu, AJ.

2003: 17th June.

INTERLOCUTORY RELIEF – Application for subject matter to be placed in police custody pending declaration on ownership – Relevant principles in the exercise of discretion – Circumstances show relief not available - Application dismissed.

Cases cited:
Bromley v. Finance Pacific Limited (2001) N2156.
Tian Chen Ltd v The Tower Ltd (No. 1) (2002) N2313.

Counsel:
Mr. S. Toggo, for the applicant.
Mr. M. Zimike, for the respondents.

17th June 2003.

JUDGMENT

MANUHU, AJ: This is an application seeking interlocutory relief in the nature of an interim order that a Lucas mill and the accessories, the subject matters of the main proceedings, be kept at the Lae Police Station until the substantive proceeding is finalised.

The application initially came for an ex parte hearing. However, given the nature of orders sought, the lack of service of the substantive process, and the respondents being residents of Lae, I refused to proceed ex parte with the application. Instead, I directed that both the substantive and ancillary processes be served so that the respondents are firstly made aware of the substantive proceeding and secondly are accorded the opportunity to be heard in relation to the application. These directions have been complied with.

The substantive proceeding concerns a loan agreement between the parties. Consistent with the agreement, the applicant, on 7th November 2002, transmitted a sum of A$50,000.00 into an account accessible by the respondents. According to the applicant, and undisputed by the respondents, the loan would enable the respondents to purchase two complete Lucas mills and chainsaws to cut logs to process timber. The timber would then be sold to a proposed joint venture between the respondents and one Collin Morris and Wombat Wood Products Limited. As a term of the agreement, among others, the respondents would issue 25,000 redeemable shares to the applicant with a fixed return of eighteen per cent for three years. The first payment will become due on 7th November 2003.

After receiving the money, the respondents purchased two Lucas mills with the necessary accessories. However, the joint venture agreement between the respondents and the said Collin Morris and Wombat Wood Products Limited did not eventuate. Consequently, the applicant has demanded a reimbursement of A$50,000.00 by the respondents. In the meantime, he has taken possession of one Lucas mills. The other is the subject matter of the substantive matter of this proceeding wherein the applicant seeks a declaration that he is the owner of the two Lucas mills.

An interlocutory relief, being an equitable remedy, is a discretionary matter. Accordingly, the applicant must show that he has an arguable case, that is, there is a serious question to be tried, and; secondly, the balance of convenience is in favour of the course he has taken. In considering the balance of convenience, it has to be shown also that damages will not be an adequate remedy if the applicant succeeds: see Bromley v. Finance Pacific Limited[1] and Tian Chen Ltd v The Tower Ltd (No. 1).[2]

In this matter, it is apparent that the applicant is pursuing a two-headed course of action. On one hand, he demands a reimbursement of his A$50,000.00. On the other hand, he has impounded one Lucas mill and is pursuing the other through the substantive proceeding. Are the two courses legally available to the applicant? I do not think so for the following overlapping reasons.

Firstly, the loan agreement was influenced by but not dependent on the joint venture agreement so that the failure of the joint venture agreement does not affect the legal obligations contracted between the parties. The disclosure of the joint venture agreement was a demonstration to the applicant as to the viability of the investment and the anticipated returns. In other words, whatever happened to the joint venture agreement, the respondents still owe the applicant the sum of A$50,000.00 together with the stipulated interests. Consequently, the applicant should be suing the respondents for that liquidated sum if there has already been a breach of the contract between them. On the other hand, contrary to the applicant’s claim, the failure of the joint venture agreement does not tantamount to a breach of the contract between the parties. For this reason, the applicant might encounter difficulties in relying on the said alleged breach in the substantive proceeding.

Secondly, the two Lucas mills are legally owned by the respondents. They do not belong to the applicant. The respondents’ failure to reimburse the applicant does not alter and transfer the legal right of ownership of the equipments to the applicant lender. Consequently, the court should hesitate to grant interim orders that are inconsistent with the defendants’ ownership rights. The substantive matter is, thus, further undermined.

Thirdly, it has not been demonstrated that the applicant’s substantive claim, a declaration of ownership rights, cannot be quantified and adequately compensated for. The parties are both aware of the loan amount as well as the actual purchase prices of the two equipments and the accessories. Accordingly, the applicant’s claim is quantifiable and, consequently, is capable of recovery in ‘damages’.[3] Consequently, the substantive claim for ownership is questionable.

Furthermore, it may be deduced from the applicant’s actions that given the failure of the joint venture agreement, he fears that he may encounter difficulties in recovering his A$50,000.00. If that was the case, the applicant ought to have said so in his affidavit but he did not. Similarly, if the applicant fears that the equipments and parts might go missing, he should have said so but he did not. In the circumstances, all I can do is note that these matters may be of real concern to the applicant but it is also important to him to commence the substantive proceeding on the basis of the correct causes of action. Thus, without prejudice to the substantive matter, an order for A$50,000.00 in his favour would enable him to not only impound the equipments but also seek other forms of enforcement proceedings, such as a garnishee proceeding, to fully recover the money owed to him. Unfortunately, he has chosen another route.

In the end, the applicant’s best route would be to claim the said A$50,000.00. He cannot claim the two Lucas mills which are legally owned by the respondents. In other words, he might not succeed in his substantive claim. In particular, the applicant has failed to satisfy the court that he has an arguable case. He has also failed to satisfy the court that the balance of convenience is in favour of the course he has taken. Accordingly, I refuse to exercise my discretion in the applicant’s favour and I dismiss the application with costs.
Orders accordingly.
______________________________________________________________________
Lawyer for the applicant : Warner Shand Lawyers.
Lawyer for the respondents : Paulus M. Dowa Lawyers.

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^[1] (2001) N2156.
^[2] (2002) N2313.
^[3] I use ‘damages’ because the substance of the claim relates to a liquidated sum which is recoverable as such.