Sarakuma Investment Ltd v Merkendi [2004] PGNC 167; N2629 (10 September 2004)

N2629

[IN THE NATIONAL COURT OF JUSTICE]

WS NO 1812 OF 2004

SARAKUMA INVESTMENT LIMITED
T/A WABUSA MINI TAVERN
Plaintiff

V

PETER MERKENDI
CHAIRMAN,
EAST SEPIK LIQUOR LICENSING BOARD
1st Defendant
LEO KABILO
DEPUTY CHAIRMAN,
EAST SEPIK LIQUOR LICENSING BOARD
2nd Defendant
EAST SEPIK PROVINCIAL GOVERNMENT
3rd Defendant

WEWAK : CANNINGS J
26 AUGUST 2004

WAIGANI : CANNINGS J
10 SEPTEMBER 2004

PRACTICE AND PROCEDURE – application for default judgment – counter-application to strike out proceedings – Claims By and Against the State Act – Section 5, notice of claims against the State – whether applicable to provincial governments and provincial governmental bodies – failure to give notice – effect of failure – costs – conduct of successful party’s lawyer – discretion as to costs – orders.

Cases cited:
Marinda v The State (1991) N1026
Pato v Enga Provincial Government [1995] PNGLR 469
Pupune v Makarai [1997] PNGLR 622
The State v Tau Liu (1998) SC566
Minato v Kumo and The State (1998) N1768
William Trnka v The State (2000) N1957
SCR No 1 of 1998; Reservation Pursuant to Section 15 of the Supreme Court Act (2001) SC672
Bokin v The Independent State of Papua New Guinea (2001) N2111
Hewali v Police Force and The State (2002) N2233
Sakarius and Others v Tep and the Cocoa and Coconut Extension Agency (2003) N2355
Bal v Taiya (2003) N2481

Counsel:
Mr J Apo for the Plaintiff
Mr J Yamboli for the 1st, 2nd and 3rd Defendants

CANNINGS J:

INTRODUCTION

This case is about two interlocutory applications. First, on 12 August 2004 the plaintiff filed a motion seeking the entry of default judgment against the 3rd defendant. The amount claimed was K200,800.00 plus costs. Secondly, on 25 August 2004 the defendants filed a motion to dismiss the proceedings. The ground relied on was failure to comply with the Claims By and Against the State Act ("the Claims Act").

BACKGROUND

On 15 April 2004 the plaintiff, Sarakuma Investment Ltd, filed a writ of summons. The writ states that the plaintiff is a company carrying on business as Wabusa Mini Tavern. The plaintiff claims that the East Sepik Provincial Liquor Licensing Board wrongly refused to re-issue a liquor licence to the tavern. This happened in January 1999. The refusal was contrary to the East Sepik Liquor Licensing Act. The problem was not resolved until July 2000. As a result the tavern lost business. The writ named the chairman and deputy chairman of the East Sepik Liquor Licensing Board as 1st and 2nd defendants respectively. The provincial government was named as the 3rd defendant. The claim for loss of business was K200,800.00. It was only made against the 3rd defendant.
On 23 April 2004 sealed copies of the writ were served on an "admin clerk" at the licensing board and the provincial government.

On 26 April 2004 John Alman, Provincial Legal Officer, East Sepik Provincial Government, filed a notice of intention to defend and an appearance, for the three defendants.

No defence was filed.

On 1 June 2004 the plaintiff’s lawyers, Bayam Lawyers, wrote to the provincial legal officer, notifying him that the time to file a defence lapsed on 30 May 2004. They warned that unless he sought leave to file a defence out of time within 14 days, they would seek default judgment.

On 12 August 2004 the plaintiff’s motion for default judgment was filed. It was listed for hearing on 25 August 2004.

On 25 August 2004 the defendants’ motion to dismiss the proceedings was filed. Still no defence had been filed. Both matters were listed for hearing at Wewak that day. They were adjourned to the next day with the agreement of the parties. It was agreed that both applications would be heard together.

Mr Apo, for the plaintiff, submitted that the proceedings should not be struck out. He maintained that default judgment should be entered in favour of the plaintiff. Mr Yamboli, for the defendants, submitted that the proceedings should be struck out. In the alternative, the application for default judgment should be refused.

REQUIREMENTS OF THE CLAIMS BY AND AGAINST THE STATE ACT

The first issue to address is whether the proceedings should be dismissed for failure to comply with the Claims Act. Two provisions are of particular relevance.

Section 5 states:

(1) No action to enforce any claim against the State lies against the State unless notice in writing of intention to make a claim is given in accordance with this Section by the claimant to —

(a) the Departmental Head of the Department responsible for justice matters; or

(b) the Solicitor-General.

(2) A notice under this Section shall be given —

(a) within a period of six months after the occurrence out of which the claim arose; or

(b) where the claim is for breach of a contract, within a period of six months after the claimant became aware of the alleged breach; or

(c) within such further period as —

(i) the Principal Legal Adviser; or

(ii) the court before which the action is instituted,

on sufficient cause being shown, allows.

(3) A notice under Subsection (1) shall be given by —

(a) personal service on an officer referred to in Subsection (1); or

(b) leaving the document at the office of the officer with the person apparently occupying the position of personal secretary to that officer between the hours of 7.45 a.m. and 12 noon, or 1.00 p.m. and 4.06 p.m., or such other hours as may from time to time be declared by or under the Public Services (Management) Act 1995 to be the normal public service hours of duty, on any day which is not a Saturday, Sunday or a public holiday declared by or under the Public Holidays Act (Chapter 321).

Section 7 states:

(1) Where the State is a party to a suit, all process in the suit required to be served on it shall be served on—

(a) the Departmental Head of the Department responsible for justice matters; or

(b) the Solicitor-General.

(2) Service under this Section shall be effected by—

(a) personal service on the officer referred to in Subsection (1); or

(b) leaving the document at the office of the officer referred to in Subsection (1) with the person apparently occupying the position of personal secretary to that officer between the hours of 7.45 a.m. and 12 noon, or 1.00 p.m. and 4.06 p.m., or such other hours as may from time to time be declared by or under the Public Services (Management) Act 1995 to be the normal public service hours of duty, on any day which is not a Saturday, Sunday or a public holiday declared by or under the Public Holidays Act (Chapter 321).

KEY PRINCIPLES

There is now a long line of cases demonstrating the importance of these provisions. Key principles that emerge from the cases are as follows:

• A notice of an intention to make a claim is a condition precedent to issuing a writ of summons. Notice under Section 5 must be given first – before the writ is issued – even if the writ is issued within 6 months after the date of the occurrence out of which the claim arises. (Tohian and the State v Tau Liu (1998) SC566, Supreme Court, Kapi DCJ, Sheehan J, Jalina J.)
  
• Failure to comply with the mandatory requirements of the Claims Act is a ground on which a default judgment can be set aside. (Marinda v The State (1991) N1026, Woods J.)
  
• The purpose of requiring notice to be given is to give the State early notification, so that it can make enquiries as to the occurrence. It can carry out its own investigations while the trail of evidence is still fresh. It can meaningfully decide whether to settle an intended claim. (Minato v Kumo and The State (1998) N1768, National Court, Akuram J.)
  
• The requirement to give notice to the appropriate person and the method of serving the notice are mandatory. (Bokin v The Independent State of Papua New Guinea (2001) N2111, Davani J.)
  
• The notice under Section 5 must be in writing. It must give sufficient details of the intended claim, eg date, time and place of occurrence. If insufficient details are given, even a notice in writing will not comply with Section 5. (Hewali v Police Force and The State (2002) N2233, National Court, Kandakasi J.)
  
• The Attorney-General and the Court before which an action is instituted each has a discretion to extend the time for giving notice of a claim. "Sufficient cause" must be shown. There are no hard and fast rules. Good and acceptable reasons for delay must exist, eg inaccessibility to legal advice. (William Trnka v The State (2000) N1957, National Court, Sevua J.)
  
• The term "the State" in Section 13 of the Claims Act (no execution against the State) includes provincial governments and arms, departments, agencies or instrumentalities of provincial governments (See SCR No 1 of 1998; Reservation Pursuant to Section 15 of the Supreme Court Act (2001) SC672, Supreme Court, Amet CJ, Los J, Sheehan J, Salika J, Sakora J. In that case the Court preferred the view advanced by Injia J in Pupune v Makarai [1997] PNGLR 622 – "the State" includes provincial governments – to the opposite view of Kapi DCJ in Pato v Enga Provincial Government [1995] PNGLR 469.)
  
• The term "the State" in Section 13 of the Claims Act covers subsidiaries of governmental bodies. It includes companies owned and controlled by governmental bodies that are set up under the Companies Act. (Sakarius and Others v Tep and the Cocoa and Coconut Extension Agency (2003) N2355, National Court, Salika J. But compare with the Supreme Court’s views on that point in SCR No 1 of 1998 at page 7.)
  
• If the Claims Act is not complied with, the Court has the discretion to strike out proceedings on its own motion. It does not have to wait for a party to apply to the Court. The Court should not take a back seat in such matters. It must be vigilant in its delivery of justice by ensuring that parties comply with stipulated, mandated procedures. (Bal v Taiya (2003) N2481, National Court, Davani J.)
  

In the present case Mr Yamboli submitted that the Claims Act was breached, as a notice of intention to make a claim was not given. He referred to SCR No 1 of 1998 in support of that proposition. The question reserved for the Supreme Court in that case was specifically about Section 13 of the Claims Act. The Court was not asked whether the term "the State" used in other sections of the Act, also refers to provincial governments and provincial government agencies. I do not consider that much turns on that. The Supreme Court expressed the strong view that the Claims Act was intended to protect the assets and revenue of the State, or in other words the People of Papua New Guinea, whether the bodies or persons with direct control over the assets or revenue were the National Government or provincial governments or local-level government bodies.

The Court stated at pages 4 – 7:

The Constitution does not define "the State", but it defines the name "Papua New Guinea" to mean "the Independent State of Papua New Guinea". The Constitution also defines "governmental body" to mean —

(a) the National Government; or

(b) a provincial government body; or

(c) an arm, department, agency or instrumentality of the National Government or a provincial body; or

(d) a body set up by statute or administrative act for governmental or official purposes.

The Claims By and Against the State Act 1996 does not define "the State". The Interpretation Act defines "the State" as "the Independent State of Papua New Guinea." A provincial government is thus at least a "governmental body". Is it a part of "the State"? Is it a part of the governmental body making up the "Independent State of Papua New Guinea?" We believe it is and therefore its assets and finances must be protected from execution in the same way as the assets and finances of the National Government. The State therefore must also include a provincial government.

The policy justification for protecting state assets and finances was discussed briefly by Sheehan J in Wagambie and Kupo v General Rockus Lokinap and Ors [1991] PNGLR 145. In a motion seeking orders for payment into court of a judgment debt against the State and summons seeking to examine the Secretary for Finance as to availability of funds to meet the judgment debt, his Honour held that s. 6 of the Act was clear, that no execution or like process can issue against the State. His Honour said:

"Why should this be so? Why is the State exempt from execution process? Essentially it is because the State of PNG is a sovereign nation, endowed with the power of its people and, as the Constitution states, resolute in maintaining its national identity, integrity and self-respect."

While the State can sue and be sued in the courts established under the Constitution it, nonetheless remains a sovereign State representing the whole of this country's people. It is part of the State's integrity to accept the judgements of the Court created under the Constitution. But the dignity of a sovereign nation does not permit or require that it be subject to examination in the courts as to its means or ability to pay judgement debts. The Claims By and Against the State Act confirms that.

We believe these principles apply equally to a provincial government because it is a part of the governmental body that makes up the government of the Independent State of Papua New Guinea. We agree generally with Injia J's opinion that the total governmental system includes the National, Provincial and Local-level Governments. In our opinion there are in fact three levels of political governments intended; the National, Provincial and the Local-level. All three are established by the Constitution. Each is constituted by elected representatives. ...

We are of the opinion therefore that a provincial government is a "governmental body" making up the Independent State of Papua New Guinea for the purposes of the Claims By and Against the State Act. The power of the people is vested in all "governmental bodies" which administer and exercise them on behalf of the people. These governmental bodies include "the National Government", "a Provincial Government", "an arm, department, agency or instrumentality of the National Government or a Provincial Government" or "a body set up by statute or administrative act for government or official purposes". This power is exercised by these "governmental bodies" on behalf of the same people. The finances administered by a Provincial Government, is for and on behalf of the same people. The National Government administers the National Government funds and assets.

In principle therefore the assets and funds administered by the Provincial Government belong to the same people of Papua New Guinea that the Claims By and Against the State Act protects from execution. The term 'State' therefore includes Provincial and Local–level Governments for the purposes of the Act.

WAS THE ACT BREACHED?

In the present case the evidence is clear. The plaintiff has not at any stage given notice of the intention to make the claim made in the writ of summons. This has the following consequences.

The claims are against a provincial government and two members of a provincial government body, the East Sepik Liquor Licensing Board. Those claims are, in effect, against the State. Notice of an intention to make a claim had to be given under Section 5 of the Claims Act.

Notice had to be given to the Secretary of the Department of Attorney-General and Justice or to the Solicitor-General, in order to comply with Section 5(1). The method of service had to comply with Section 5(3).

Notice should have been given within six months after the occurrence out of which the claim arose. The occurrence – the refusal to re-issue a liquor licence – happened in January 1999. Notice should have been given by July 1999. Notice had to be given before the writ of summons was issued.

All of the above requirements were breached. As a result the plaintiff has no cause of action and the entire proceedings must be dismissed.

It follows that the plaintiff is not entitled to default judgment. His application in that regard must be dismissed.

COSTS

Normally costs follow the event, ie the successful party is awarded costs. But an order for costs is always at the discretion of the Court. It is relevant to consider how a case has been proceeded with. In particular to look at the conduct of the lawyers involved.

In the present case the defendants’ lawyer, John Alman, the East Sepik Provincial Legal Officer, filed a notice of intention to defend on 24 April 2004. Then he did nothing until the eleventh hour – the day that the application for default judgment was to be heard.

In his affidavit of 24 August 2004 he deposed that after serving the notice of intention to defend on the defendants, he passed the file to another lawyer in his office, Rodney Yahamani. Enquiries were made at the Solicitor-General’s office to ascertain whether notice was given to the State. In early June 2004 Mr Yahamani left for Lae to attend to personal matters. He has not come back. He locked his office before he left. When the notice of motion regarding the default judgment was served "the office file in this matter had to be retrieved from Mr Yahamani’s office by jumping the partition".

That is not a satisfactory explanation. It is a collection of excuses (rather pathetic ones, with respect) for what appears to have been a lack of diligence.

In these circumstances there will be no order for costs in favour of the successful party.

ORDER

For the reasons set out above the Court will order that –

1. The entire proceedings commenced by the plaintiff against the defendants are dismissed on the ground of failure to comply with Section 5 of the Claims By and Against the State Act.
   
2. The plaintiff’s motion for default judgment is refused.
   
3. The parties will bear their own costs.

_______________________________________________________
Lawyers for the plaintiff : Bayam Lawyers
Lawyer for the defendants : J Alman, Provincial Legal Officer