Bank of South Pacific Ltd v South Pacific Timber Exports Ltd [2004] PGNC 65; N2712 (12 November 2004)

N2712

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

OS No. 287 OF 2002

BANK OF SOUTH PACIFIC LIMITED
Plaintiff

v.

SOUTH PACIFIC TIMBER EXPORTS LIMITED
Defendant

Waigani : Sakora J
2003 : 11 June
2004 : 12 November

CIVIL PRACTICE AND PROCEDURE – Application to set aside Statutory Demand – Statutory Demand to enforce judgment for costs – Abuse of process – Companies Act, ss 335, 337 and 338; National Court Rules, O 13 r 2 and O 22 r 62.

Counsel:
Mrs T Nonggorr for the Plaintiff
Mr T Boboro for the Defendant.

RULING ON APPLICATION TO SET
ASIDE STATUTORY DEMAND

12 November 2004

Sakora J: This is the plaintiff bank’s application to set aside a Statutory Demand served on it by the defendant company on 13 May 2003 for the sum of K7,438.75, pursuant to s 338 Companies Act 1997 (the Act).

Mrs Nonggorr of counsel for plaintiff moved the court on the Notice of Motion filed 3 June 2003. In support of the application learned counsel referred to and relied on the two affidavits of John Maddison, the Assets Manager of the plaintiff bank, sworn 3 June and 6 June 2003 respectively.

The Originating Summons, the Notice of Motion and the first of the supporting affidavits (supra) in this application all filed on 3 June 2003, were duly served on the registered office of the defendant company and on its lawyers on record on 3 June 2003 (Affidavit of Service of Keith Iduhu sworn 11 June 2003). Despite this, there have not been any relevant materials filed by or on behalf of the defendant contesting this application.

However, counsel for the defendant was heard, without the benefit of any facts such as would be in a supporting affidavit underpinning one’s argument(s).

In his first affidavit Mr Maddison deposed to the history of the litigation between the parties, exhaustively outlining under paragraph (3) (a) to (t) inclusive, events following the plaintiff bank’s service on the defendant company of a Statutory Demand on 19 June 2001 for the sum of K331,396.61 pursuant to s 337 of the Act. This elicited a host of associated proceedings, commencing with the defendant’s application on 11 December 2001 to have the plaintiff’s Statutory Demand set aside pursuant to s 338 of the Act.

The defendant company’s application was based on and supported by an affidavit sworn by the Managing Director of the company Timothy Neville on 11 December 2001. The deponent, inter alia, admitted to the company owing only K279,646.00 to the plaintiff bank rather than the K331,396.61 that had been claimed.

The court granted the defendant’s application with costs on the basis that the difference between the sum claimed the subject of the Statutory Demand and the sum admitted as due and owing (K51,750.61) was substantial within the terms of the Act, thereby constituting a substantial dispute whether or not the debt is owing or is due, pursuant to s 338 (4) (a) of the Act.

It would appear that before the first Statutory Demand was dealt with by the court, the plaintiff bank served a further Statutory Demand on the defendant, this time for the amount admitted by the Managing Director in his affidavit of 11 December 2001 (supra). The defendant filed yet another application to set aside the second Statutory Demand. This application was granted also with costs on the basis that it was an abuse of process. Whilst this court is unable to determine, from the material before it, what exactly was it that constituted abuse of process, perhaps whatever situation it was before that court can be said to covered by what is envisaged under s 338 (4) (c) of the Act: the demand ought to be set aside on other grounds.

Be that as it may, the defendant company proceeded to have entered judgment against the plaintiff on 14 October 2002 for the costs awarded in respect of its two successful applications to set aside: for K2,172.50 and K5,266.25 respectively, totalling K7,438.75. It would appear further that this action was undertaken despite its inaction on the admitted debt of K279,646.0 as being due and owing to the plaintiff.

It is convenient to note at this juncture that the multiple proceedings constituting the litigation between the parties had its genesis on or about 18 April 1997 when the defendant is said to have entered into a lease agreement (in writing) with Nambawan Finance Limited for the lease of a heavy equipment machine, namely a KMC CA 220 Skidder which was purchased and used in the defendant’s business. Nambawan Finance is said to have advanced the sum of K239,439.19 for the purchase of the equipment on 29 May 1997.

It is now part of the corporate history that the Papua New Guinea Banking Corporation Limited (PNGBC) and Nambawan Finance Limited amalgamated, such amalgamation taking effect on 31 December 2000 with the Registrar of Companies giving formal effect under his hand and seal on 4 January 2001. As a consequence PNGBC assumed all rights and liabilities, to all choses in action, of the Nambawan Finance Limited. It is a further part of that history that PNGBC and this plaintiff bank subsequently amalgamated, with the legal consequence that all monies payable pursuant to the loan agreement by the defendant to the Nambawan Finance Limited became payable to the plaintiff the eventual successor.

It would appear that the lease agreement required the defendant to pay monthly repayments to the plaintiff. By 27 September 1999 there was a residual balance of K215,000.00 owing, which was re-written as a commercial loan and advanced for the defendants’ benefit on that date.

On 3 May 2002, the plaintiff bank had issued on its behalf a Writ of Summons (WS No. 570 of 2002) claiming the principal amount of K215,000.00 together with interest as per the plaintiff’s default rate of interest on a commercial loan and outlays in accordance with the loan agreement.

Upon due service of the Writ of Summons, the defendant company defaulted in its filing of a Defence within the time limit under the National Court Rules (NCR). Instead it applied for leave to file its Defence out of time, after expiry of the time limit. As a consequence of the defendant’s default, the plaintiff availed of the provisions of the NCR by applying for and obtaining Summary Judgment on 16 August 2002 (entered of even date). The amount of the claim was ordered to be assessed.

The Court cannot help but note from the chronology of events in these various proceedings that the defendant, whilst defaulting in complying with the requirements of the NCR in respect of the plaintiff’s Writ of Summons issued as a result of the defendant’s original default in the subject matter of the entire litigation, proceeded to have judgment entered in respect of the orders for costs (supra). Furthermore, once again despite its defaults, the defendant company had served on its behalf a Statutory Demand in the amount of K7,438.75 (supra), the subject of the plaintiff’s application before me.

In the second of his affidavits (sworn 6 June 2003), John Maddison deposes to the plaintiff’s due discharge of its obligation under the court order (judgment) for costs in the earlier proceedings, the subject of the defendant’s Statutory Demand served on 13 May 2003. This is deposed to as being evidenced by letter dated 6 June 2003 (Annexure "JMI" to this affidavit) advising the defendant that the amount of the "costs judgment" (K7,438.75) had been credited to the defendant’s loan account, thereby reducing the outstanding debt of the defendant standing as at that date of K466,288.05 to K458,849.30.

Thus, it was deposed, the plaintiff bank had no outstanding debt to the defendant. It was, as asserted, the defendant who, before this plaintiff’s application, owed the plaintiff the outstanding amount of K458,849.30 pursuant to its loan agreement with the plaintiff.

In support of this application, the first affidavit of John Maddison annexes correspondence the plaintiff’s lawyers had caused to be sent to the defendant’s lawyers between July and October of 2002 (Annexures "JM5", "JM6", "JM7" and "JM8") in respect of the debt, eliciting no response, not even letters of acknowledgement of receipts. It would appear that the only action taken which might be termed as remotely responding to the plaintiff’s unanswered correspondence was the service of a Statutory Demand for the princely sum of K7,438.75.

On the issue of the defendant’s Statutory Demand, it has to be noted (once again) that the demand is in respect of two judgments entered on the certified costs of K2,172.50 and K5,266.25 respectively, pursuant to O22 r 62 NCR. Thus, it would appear that the defendant’s Statutory Demand for the amount of K7,438.75 was to enforce those two judgments ordered on 14 October 2002 (entered 17 October 2002).

Rules for the enforcement of judgments in the National Court are to be found under O13 NCR, and not under the Companies Act. Order 13 r 2 is in the following terms:

2. Payment of money
   
   • (1) A judgment for the payment of money (not for the payment of money into Court) may be enforced by one or more of the following means –
     
     • (a) levy of property;
     • (b) attachment of debts;
     • (c) charging order;
     • (d) appointment of a receiver; and
     • (e) . . .
       
   • (2) . . . (re payment of money into court)
   • (3) Sub-rules (1) and (2) of this Rule do not affect any other means of enforcement of a judgment for the payment of money. (underlining mine).
     

In my respectful opinion, sub-rule (3) would be envisaging any other means provided for under the NCR. Furthermore, it would apply to enforcement of judgments only.

On the other hand, the right given to a creditor (of a company) to make a demand in respect of a debt owing by the company under s 337 of the Act, is found under Division 5 of Part XVIII of the Act. Part XVIII is in relation exclusively to Liquidations, and the various Divisions (nine of them) are concerned with the various processes and procedures associated with putting a company in liquidation, the circumstances for this and its legal consequences. And the right to serve a Statutory Demand under s 337 of the Act is part and parcel of this entire process. Needless to say, Division 5 where s 337 is located is concerned with a company’s inability to "Pay Its Debts". Section 335 defines what constitute an "Inability to Pay Debts", and reads as follows:

335. Meaning of "Inability To Pay Debts".
     

Unless the contrary is proved, and subject to Section 336, a company is presumed to be unable to pay its debts as they become due in the ordinary course of business where –

(a) the company has failed to comply with a statutory demand; or
(b) execution issued against the company in respect of a judgment debt that has been returned unsatisfied in whole or in part; or
(c) a person entitled to a charge over all or substantially all of the property of the company has appointed a receiver under the instrument creating the charge; or
(d) a compromise between a company and its creditors has been put to a vote in accordance with Part XV but has not been proved.

It is my respectful opinion that the availing by the defendant of the Statutory Demand under 337 of the Act is an abuse of process. It is tantamount to enforcing a judgment that the NCR provide specific rules and procedures to be undertaken. Section 337 of the Act does not envisage, in my opinion, what have to be undertaken under O 13 NCR. In fact, s 335 (b) of the Act envisages the availing and exhausting of the provision of the rules under O 13 NCR to demonstrate an "Inability to Pay Debts" preparatory to putting a company in liquidation.

It is the judgment of this Court that the service of the defendant’s Statutory Demand is misconceived. It is an abuse of process. There is not, therefore, a substantial dispute whether or not the debt is owing or is due, the judgment debt of K7,438.75 having been discharged (supra). This application is granted on the basis that the circumstances envisaged by s 338 (4) (a) and (c) of the Act are present.

The defendant’s Statutory Demand is set aside with costs.
__________________________________________________________
Lawyers for the Plaintiff: Gadens
Lawyers for the Defendant: Rageau Elemi & Kikira