Oph Ltd v China Railway Construction Engineering (PNG) Ltd [2021] PGNC 10; N8759 (16 February 2021)

N8759

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS (COMM) NO. 713 OF 2018

BETWEEN:
OPH LIMITED
Plaintiff

AND:
CHINA RAILWAY CONSTRUCTION ENGINEERING (PNG) LIMITED
Defendant

AND
CHINA RAILWAY CONSTRUCTION ENGINEERING (PNG) LIMITED
Cross-Claimant

AND:
OPH LIMITED
Cross-Defendant

Waigani: Anis J
2020: 12^th October
2021: 16^th February

NOTICE OF MOTION – Application for security for costs by the plaintiff/cross-defendant – Order 14 Rule 25(1)(b) and Order 14 Rule 26 – National Court Rules – whether shareholder can mean or include ‘other person’ who would stand to benefit – considerations – whether cross-claimant is suing for itself – whether cross-claimant is suing for its shareholder who may be regarded as ‘other person’ within the meaning of Order 14 Rule 25(1)(b) – National Court Rules – burden of proof discussed - want of satisfaction of the required prerequisites under Order 14 Rule 25(1)(b) of the National Court Rules

Cases Cited:
Papua New Guinea Cases

Deyuan Fishing Ltd v. Tim Neville (2008) N4848
Yarlett v. New Guinea Motors Ltd [1984] PNGLR 155

Overseas Cases

Neck v. Taylor [1893] UKLawRpKQB 52; [1893] 1 QB 560
Sykes v. Sacerdoti [1885] UKLawRpKQB 130; [1885] 15 Q.B.D. 423
Winterfield v. Bradnum [1878] UKLawRpKQB 25; [1878] 3 Q.B.D. 324
Mapleson v. Masini [1879] UKLawRpKQB 80; [1879] 5 Q.B.D. 144
Lake v Haseltine [1885] 55 L.J. (QB) 205

Counsel:

Mr M M Varitimos QC with counsel assisting Ms W Mai, for the Plaintiff
Mr I Molloy with counsel assisting G Geroro, for the Defendant

RULING

16^th February, 2021

1. ANIS J: This was a hearing of an application for security for costs. The application was made by the plaintiff on 12 October 2020. It was contested. I reserved my ruling to a date to be advised.

2. Parties have been notified so I will rule on it now.

BACKGROUND

3. On 5 October 2011, the plaintiff/cross-defendant (the plaintiff or plaintiff/cross-defendant) contracted the defendant/cross-claimant (the defendant or defendant/cross-claimant), for a sum of K123,870,073.79 to construct a 14 Story commercial tower (the contract). Disputes arose from the contract before the end of its tenure. The plaintiff claimed that the defendant breached various terms of the contract. One of its arguments (apart from arguments such as delay and defects) was that the defendant had used materials that contained a banned substance called asbestos in some of the materials that were used in the building the subject of the contract. As a result, plaintiff purportedly terminated the contract, and in so doing engaged a third party to complete construction of the 5 Story building.

4. The plaintiff files this proceeding to seek damages for losses it claims it suffered by the actions or inactions of the defendant, under the terms and conditions of the contract and under law.

5. The defendant denies the claim. It claims, amongst others, that the notice to show cause, that had been purportedly issued by the plaintiff under the contract, was not valid, and it also claims that it did not fail in its obligation to achieve Practical Completion of the construction work. It has also filed a crossclaim. In the crossclaim, it claims amongst others, that the plaintiff had breached alleged terms that were implied in the contract and that the plaintiff had wrongfully repudiated the contract. It also claims that the plaintiff is liable to it for the unpaid works that it had performed under the contract.

6. The substantive matter is pending hearing.

ISSUE

7. The main issue herein is this, whether the defendant/cross-claimant should be ordered to pay security for costs based on the reasons disclosed by the plaintiff/cross-defendant.

THE REASONS

8. The plaintiff’s reasons are as follows. It firstly says that the defendant is suing for its sole and only shareholder. The shareholder’s name is CRCE Group Co, Ltd. It says that the shareholder is a foreigner company that was incorporated in China. The second reason is this. It says it believes that the defendant will be unable to pay its costs. It states or discusses these 2 reasons under part D of its written submission filed on 29 September 2020.

SOURCE

9. I refer to the source of the Notice of Motion for security for costs. It was filed on 7 February 2020 (NoM). It relies on Order 14 Rule 25(1)(b) and Order 14 Rule 26, of the National Court Rules, and on the inherent jurisdiction of the National Court. I set out the 2 rules as follows:

25. Cases for security. (53/2)

(1) Where in any proceedings, it appears to the Court on the application of a defendant—

(a) that a plaintiff is ordinarily resident outside Papua New Guinea; or

(b) that a plaintiff is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that that plaintiff will be unable to pay the costs of the defendant if ordered to do so; or

(c) subject to Sub-rule (2), that the address of a plaintiff is not stated or is mis-stated in his originating process; or

(d) that a plaintiff has changed his address after the commencement of the proceedings with a view to avoiding the consequences of the proceedings,

the Court may order that plaintiff to give such security as the Court thinks fit for the costs of the defendant of and incidental to the proceedings and that the proceedings be stayed until the security is given.

(2) The Court shall not order a plaintiff to give security by reason only of Sub-rule (1)(c) if it appears to the Court that the failure to state his address or the mis-statement of his address was made without intention to deceive.

26. Manner of giving security. (53/3)

Where the Court orders a plaintiff to give security for costs, the security shall be given in such manner, at such time, and in such terms (if any) as the Court may by order direct.

IS A SHAREHOLDER ‘SOME OTHER PERSON’?

10. Before I venture further to consider the relevant factors and the full arguments, I note that the plaintiff has chosen Order 14 Rule 25(1)(b) as its basis for requesting security for costs. The plaintiff/cross-defendant, in my view, is therefore obliged to establish (i), that the defendant, as the cross-claimant, is not suing for its own benefit but for the benefit of some other person, and (ii), that there is reason to believe that the defendant/cross-claimant will not be able to pay its costs if ordered by the Court. In my view, both requirements must be established. If a plaintiff/cross-defendant fails to establish both or 1 of the 2 requirements, the burden of proof, in my view, shall not shift and an application for security for costs will fail.

11. So, I must ask myself this first question. Is the defendant/cross-claimant suing for its own benefit? I have considered the submissions of the parties including the case authorities that were cited. I make these observations. An Order 14 Rule 25 relief (i.e., order for security for costs) is available only to a defendant. In this case, the plaintiff files the NoM in its capacity as a cross-defendant to the defendant’s crossclaim. As such, I see no issue in that regard. Moving on, I note that the contract the subject of these proceedings including the crossclaim, was signed between the plaintiff and the defendant. I also note that the defendant is incorporated in Papua New Guinea, that is, under the Companies Act 1997 (the Companies Act). It was incorporated on 14 October 2008. Corporate personality or legal status of a company as a legal person who can acquire interests, assets, or liabilities, or who has abilities to negotiate or trade, is stated or governed by the provisions of the Companies Act. Amongst them is s. 16. It reads in part: A company is a legal entity in its own right separate from its shareholders and continues in existence until it is removed from the register. And when I consider the pleadings, it is expressly stated that the defendant/ cross-claimant is suing by its own right and for itself. I observe or note that one may say or regard that in addition to that, that the defendant/cross-claimant may also be considered as acting for its shareholders who may stand to benefit and therefore its shareholder should qualify as some other person as stated under Order 14 Rule 25(1)(b). It seems that the latter presumption may not be relevant for purposes of meeting the first requirement under Order 14 Rule 25(1)(b). I say this given the undisputed fact which is that the defendant/cross-claimant is suing or defending for its own self and benefit. I also note that any final judgment or order made in this proceeding, will most likely only benefit or affect the defendant/cross-claimant and the plaintiff/cross-defendant herein.

12. Based on these, my view, regarding the first requirement under Order 14 Rule 25(1)(b) where it states, that a plaintiff is suing, not for his own benefit, but for the benefit of some other person, is that the plaintiff/cross-defendant herein has fallen short of establishing it. I find that the defendant/cross-claimant is suing for itself as well as for its own benefit, that is, based upon the contract that it has or had with the plaintiff/cross-defendant. The defendant/cross-claimant, as a legal person, has filed its defence and cross-claim (as amended) to defend and also make a claim against the plaintiff/cross-defendant. Its name and capacity, as they appear on the writ of summons and in the pleadings [i.e., statement of claim, defence and crossclaim (as amended) and reply and defence to cross-claim] cannot be of any doubt. I make these findings accordingly.

13. But this is not the end of the matter. I will go one step further and ask myself this. Can the defendant’s shareholders be regarded as some other person within the meaning of Order 14 Rule 25(1)(b)? Again, I have noted the submissions and case authorities that have been provided by counsel of both parties. In particular, I note that the parties have made reference to the case of Deyuan Fishing Ltd v. Tim Neville (2008) N4848. At paragraphs 60 to 62 of the plaintiff’s written submission, it quotes paragraph 5 of Hartshorn J’s decision. The decision is also cited at page 15 of the defendant’s written submission. Therein, His Honour stated, and I quote:

As to Order 14 Rule 25(1)(b) it could be said that Deyuan being a company, is ultimately suing for the benefit of its shareholders.

14. In my view, His Honour did not make a determination but rather an observation. And I think that that it is revealed where His Honour used the words, it could be said that therein. The other reason is this. The reason why the Court in Deyuan ordered security for costs under Order 14 Rule 25(1)(b) was not based on his Honour’s observation as quoted. Rather, the Court was swayed by the fact that the plaintiff had been deregistered, and the Court took that into account which had formed the basis of its decision in ordering security for costs against the plaintiff.

15. Having said that, I note that even if my perceptions may be incorrect in regard to the Deyuan case, I am not bound by it.

16. So, it all now comes down to my view, which is this. The defendant’s/cross-claimant’s shareholder, or a shareholder of a company limited by shares for that matter, cannot be regarded separately as some other person for the purpose interpreting Order 14 Rule 25(1)(b). Shareholders, in my view, are all part and partial of a company limited by shares that is instituting an action. Shareholders form part of the internal or legal structure of a company, and on the same token, a company is regarded as distinct or separate by its corporate personality. Shareholders have rights which are governed by the Companies Act. Their liabilities are also limited or protected by the legal concept corporate veil. In a normal fashion, decisions made by a company shall be made with the blessings of its shareholders or executives, with the paramount interest of the shareholders at heart, so to speak. As such, it is in my view, incorrect, for the purpose of application of Order 14 Rule 25(1)(b), for one to argue (i) that shareholders of a company that is limited by shares, are a separate group of persons outside the company when the company is in fact representing their interest in the first place in coming or going to Court where they would stand to benefit, or (ii) that the company is not representing itself but is representing the shareholders who are other persons or third parties who may stand to benefit from the proceeding. Perhaps it may be better illustrated by answering this question. Who is a plaintiff company ultimately acting for if it is to regard its shareholders differently or as another group of persons who would stand to benefit within the meaning of Order 14 Rule 25(1)(b)? In applications for security for costs, if a plaintiff or a cross-claimant is a company that is limited by shares, then its shareholders, in my view, cannot be regarded some other persons within the meaning of Order 14 Rule 25(1)(b) of the National Court Rules. The term other person who stand to benefit, in my view, is intended to be used in a limited context, and refers to persons other than shareholders of a company. It rather, and in in my view, refers to for example persons such as those that are being expressly represented by a plaintiff, or in a case where a plaintiff is primarily suing in its representative capacity as shown in the pleadings.

CROSS-CLAIM BASED ON NEW CLAIM?

17. There is a further reason to refuse the NoM. I note that the crossclaim does not make any fresh claim, a cross-action or new set of allegations on matters that are outside or unrelated to the contract. Rather, the allegations in the crossclaim (as amended) relate to or are based on the contract itself and issues that arises from it.

18. Lord Esher, M.R in Neck v. Taylor [1893] UKLawRpKQB 52; [1893] 1 QB 560, cited these cases, Sykes v. Sacerdoti [1885] UKLawRpKQB 130; [1885] 15 Q.B.D. 423, Winterfield v. Bradnum [1878] UKLawRpKQB 25; [1878] 3 Q.B.D. 324, Mapleson v. Masini [1879] UKLawRpKQB 80; [1879] 5 Q.B.D. 144 and Lake v Haseltine [1885] 55 L.J. (QB) 205 in his decision. And at page 562 of his judgment, he summarised them where he said and I quote in part:

The rule laid down by the cases seems to be as follows: Where the counter-claim is put forward in respect of a matter wholly distinct from the claim, and the person putting it forward is a foreigner resident out of the jurisdiction, the case may be treated as if that person were a plaintiff, and only a plaintiff and an order for security for costs may be made accordingly, in the absence of anything to the contrary. Where, however, the counter-claim is not in respect of a wholly distinct matter, but arises in respect of the same matter, or transaction upon which the claim is founded, the Court will not, merely because the party counter-claiming is resident out of the jurisdiction, order security for costs; it will in that case consider whether the counter-claim is not in substance put forward as a defence to the claim, whatever form in point of strict law and of pleading it may take, and, if so, what under all the circumstances will be just and fair as between the parties; and will act accordingly. Therefore, the Court in this case will have a discretion. It is clear to me in the present case that the counter-claim is not in respect of a matter wholly distinct from and independent of that upon which the claim is based; on the contrary, it arises out of the very same transaction in respect of which the action is brought. It is, in reality, the defendant’s defence to the action, though, as a matter of pleading, it is, and necessarily is, put forward by way of counter-claim.

19. I note that in the present case, the defendant/cross-claimant is not resident overseas or an overseas based company, but rather, is a company that is incorporated and registered in Papua New Guinea. But that aside or regardless, its defence and crossclaim (as amended) do not contain matters that are wholly distinct or independent of that upon which the claim is based; they arise from or are based on the same contract that the parties signed on 5 October 2011.

YARLETT v. NEW GUUINEA MOTORS LTD

20. In remark, I refer to the requirements or factors the Court needs to take into account in an application for security for costs. Case law has identified some of them. In Yarlett v. New Guinea Motors Ltd [1984] PNGLR 155, this Court sets 6 requirements, and they are as follows, (i), whether the claim is bona fide, (ii), whether there is a reasonably good prospect of success, (iii), whether there is an admission on the pleadings or elsewhere that money is due, (iv), whether money has been paid into account, (v), whether the application for security is being used oppressively, or (vi) whether want of means has been brought about by any conduct of the parties.

21. Given my earlier findings, I need not consider these factors. The plaintiff/cross-defendant, in my view, has not satisfied the necessary pre-requisites of Order 14 Rule 25(1)(b) for me to fully consider these requirements or the merits of the application.

SUMMARY

22. In summary, I will refuse the plaintiff’s NoM. I will order cost to follow the event on a party/party basis to be taxed if not agreed.

ORDERS OF THE COURT

23. I make the following orders:

1. The plaintiff’s notice of motion seeking security for costs, filed 7 February 2020, is refused.
   
2. The plaintiff shall pay the defendant’s cost of and incidental to this notice of motion on a party/party basis which may be taxed if not agreed.
   
3. Time for entry of these orders is abridged to the date and time of settlement by the Registrar which shall take place forthwith.
   

The Court orders accordingly.
________________________________________________________________
Allens PNG: Lawyers for the Plaintiff
Geroro Lawyers: Lawyers for the Defendant