Ngusu Glan Ltd v VJ Holdings Ltd [2021] PGNC 593; N9413 (30 November 2021)

N9413

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS NO. 204 OF 2021

BETWEEN:
NGUSU GLAN LIMITED
Plaintiff

AND:
VJ HOLDINGS LIMITED
First Defendant

AND:
STEVEN WAOWAO and his agents and associates
Second Defendant

Kokopo: Suelip AJ
2021: 28^th October & 30^th November

CIVIL – Practice and Procedure – application for security for costs – order 14 rule 25(1)(b) NCR – principles for consideration – application for mediation – rule 4(2)(c) ADR rules – leave of the Court required – rule 5(2) ADR rules – court’s powers discretionary – applications refused

Case Cited

VJ Holdings Ltd v. Masstim Ltd & 2 ors OS No. 162 of 2021
J.S.T Limited v. Harkhefield Pty Ltd (2014) SC1352
Porebada Holdings Ltd & 2 ors v. Igo Baru & 2 ors [2012] N4516
Able Constructions Ltd v. WR Carpenter (PNG) [2014] N5636
Osprey Industries v. Hallam [1992] PNGLR 557
Reynolds v. Walcott & ors [1985] PNGLR 316
Odata Ltd v. Ambusa Copra Oil Mill (2001) N2106
Borok v. Ok Tedi Mining Ltd (2017) N7087

Legislations

Rules relating to the Accreditation, Regulations and Conduct of Mediators

Counsel

E Isaac, for the Plaintiff
R Raka, for the Defendants

DECISIONS ON DEFENDANTS’ APPLICATIONS FOR SECURITY FOR COSTS AND FOR MEDIATION

30^th November, 2021

1. SUELIP AJ: On 28 October 2021, I heard inter parte arguments on the defendants’ applications for security for costs and for mediation. I then reserved for ruling. These are my decisions on those applications.

2. Firstly, the defendants are seeking an order for security for cost in the sum of K600,000 to be paid into the National Court Trust account within 7 days from the date of the order, failing which these proceedings be stayed. The application is made pursuant to Order 14 rule 25(1)(b) and Order 12 rule 1 of the National Court Rules (NCR). The defendants are also seeking an order for this proceeding to be referred to mediation by an accredited mediator. This application is made pursuant to Rule 4(2)(c) and Rule 5(2) of the Rules relating to the Accreditation, Regulations and Conduct of Mediators (ADR Rules).

Background

3. The plaintiff is a landowner company (LOC) which represents the interests of the land/resource owners of Simbali area, Sinivit Rural LLG, Pomio District, East New Britain Province. The landowner group comprise of 3 clans which are Mavang, Avasaria and Allanas. The LOC is the holder of Timber Permit FCA No. 15-19 which has a tenure of 8 years from 7 October 2020 for the Simbali Tree Plantation Project.

4. On 15 August 2019, the plaintiff and the first defendant signed a Memorandum of Understanding (MOU) to develop the designated area. Then on 3 March 2020, both parties also signed a Logging and Marketing Agreement (LMA). The Forest Clearing Authority No. FCA 15-19 was approved on 7 October 2020 to the plaintiff.

5. On 20 April 2021, all agreements between the plaintiff and the first defendant were terminated by a letter from the plaintiff of the same date to the first defendant. The reasons for the termination are threefold. The first reason is that the first defendant failed to pay the bond fee within time. The other reason is that the first defendant engaged another company without the consent, knowledge and approval of the plaintiff. The last reason is that the first defendant does not have a good history with the landowners as past engagements were unsuccessful.

6. An earlier proceeding styled as OS No. 162 of 2021 – VJ Holdings Ltd v. Masstim Ltd & 2 ors regarding the same subject matter was discontinued by the plaintiff therein with leave of the Court on 22 July 2021.

7. In this proceeding, permanent restraining orders were ordered on 13 September 2021 against both defendants and their associates, the Police and the Governor of the province and his associates from harassing or intimidating the representatives of the plaintiff including Charles Lesley, Albert Sinn and Otte Kewafa.

The law

8. As regards the application for security for costs, the first defendant is applying pursuant to Order 14 rule 25(1)(b) and Order 12 rule 1 of the National Court Rules, which provisions provide the following:

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.

9. Order 12 rule 1 of the National Court Rules provides:

1. General relief. (40/1)

The Court may, at any stage of any proceedings, on the application of any party, direct the entry of such judgement or make such order as the nature of the case requires, notwithstanding that the applicant does not make a claim for relief extending to that judgement or order in any originating process.

10. In J.S.T Limited v. Harkhefield Pty Ltd (2014) SC1352, His Honor Justice Makail says from paragraph 12 to 14 the following about the considerations applied by the Court in an application for security for costs:

12. “... The applicable principles are stated in Osprey Industries v. Hallam [1992] PNGLR 557 and adopted and applied in subsequent numerous cases including Konze Kara v. Public Curator & The State (2010) N4055. The National Court referred to these principles and decided cases in its ruling and they are:

1. whether there has been delay in making the application.

2. the bona fides of the plaintiff's claim.

3. nullification of proceedings.

4. whether the defendant has a cross-claim.

13. The decided cases also held that the amount of security is also discretionary and there must be evidence to prove it. Proof of it is an important consideration because the amount that the Court may fix must be fair and reasonable. Security for costs must not be used as a tool to oppress the plaintiff and deny or delay the plaintiff the right to prosecute its claim. As to what is a fair and reasonable amount, in Reynolds v. Walcott [1985] PNGLR 316, the Court fixed the sum of security to about two thirds of the estimated party and party costs, but said that there is no hard and fast rule.

14. In other words, for an applicant to succeed in an application for security for costs, it is not sufficient to prove that the application is promptly made, that the plaintiff's claim is not bona fide, that the making of the order for security will not nullify the proceeding and that the respondent has a cross-claim, but there must also be evidence of the amount. Proof of the amount is a question of fact as the National Court must make findings of fact as to whether an amount should be ordered and if so, what the amount should be based on the evidence before it. Where evidence is lacking, there would be no evidentiary basis for the Court to make these findings. As to the type of evidence to prove the amount, the Court in the above decided cases relied on print out of bill of costs or stated that evidence must be given of the likely costs and outlays.” (underlining mine)

11. The Court’s power in granting an application for security for costs is discretionary. The amount of security ordered is also discretionary.

12. In relation to the second application for an order and referral of this proceeding to mediation by an accredited mediator, the defendants are seeking this order pursuant to Rule 4(2)(c) and Rule 5(2) of the ADR Rules. These provisions provide the following:

4. Exhaustion of or Dispensation with Mediation.

(1) ...

(2) Subject to Subrules (3) and (4) on the hearing of an application for leave, the Court may make any one or more of the following orders:

(a) to grant leave to proceed; or

(b) to dispense with the requirements of Subrule (3) (b); or

(c) that the matter be mediated and a mediator appointed in accordance with Rules 5 and 6 respectively,.

5. Ordering Mediation

(1) At any time following commencement of proceedings the parties may agree to participate in a mediation of the issues to which the proceedings relate.

(2) The Court shall on the request of all parties to a proceeding or on the application of any party to a proceeding or on its own motion order mediation for

(a) a resolution of all or any parts of the proceedings; or

(b) failing settlement, identify and limit the real and meritorious issues in the proceedings that warrant judicial consideration and determination; and or

(c) enable the parties to reach consensus on the conduct of litigation.

13. For an applicant to seek an order for mediation and for a mediator to be appointed pursuant to Rule 4(2), he must do with leave of the Court. Otherwise, Rule 5(2) becomes applicable where all the parties agree to mediation, or one party applies for mediation as in this case, or upon the Court’s own motion.

Defendants’ applications for security for costs and for mediation

14. The defendants seek security for costs pursuant to Order 14 Rule 25(1) National Court Rules on the grounds that the 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.

15. In support of their application is the affidavit of Chew Pang Heng sworn 29 September 2021 and filed 1 October 2021. The facts deposed in that affidavit includes the signing of the MOU and the LMA between the plaintiff and the first defendant. It also states the fact that FCA 15-19 was granted by Papua New Guinea Forest Authority (PNGFA). It deposes of the payment of the Performance Bond Fee of K595,000.00. It states the first defendant’s machineries and logistics movement into the project area costs K4 million. It further states that an appeal to the Supreme Court was filed by the first defendant after its application to dismiss the proceeding was refused. Mr Heng states there are restraining orders in force and the first defendant has since suffered losses and damages for not operating. He says the costs of losses and damages are in excess of K9.5 million but the first defendant only seeks the sum of K600,000.00 as security for costs to ensure that its losses are mitigated and that the plaintiff is serious in the matters raised in these proceedings.

16. In the defendants’ second application for these proceedings to be ordered and referred to mediation pursuant to Rule 5(2) of the ADR rules, they rely on another affidavit of Chew Pang Heng sworn 4 October 2021 and filed 5 October 2021. He says in his affidavit that there is division amongst the customary landowners who are not properly represented by the plaintiff as to who their preferred developer is. He says most of the landowners are illiterate and did not understand fully and gave their consent to the termination of the agreements with the first defendant and appoint a new developer.

17. The other affidavits relied on in seeking the mediation order are those of:

(a) Steven Waowao, the leader of Allanas sub-clan
(b) Lison Namas, a director of the plaintiff
(c) Nason Yao, a director and 50% shareholder
(d) Christopher Dominikus, a director of the plaintiff
(e) Jackson Allan, a secretary of the plaintiff
(f) Jeffrey Dominikus, a director of the plaintiff.

18. In common, the deponents of these affidavits say that Charles Lesley, the Chairman of the plaintiff is not authorised to terminate any contractual agreements on behalf of the plaintiff as he has failed to obtain the endorsement and approval of the directors and shareholders. Further, Steven Waowao, the second defendant herein and the leader of Allanas sub-clan, says in his affidavit that the Chairman is pursuing his own interest and not that of the landowners and the plaintiff. Jackson Allan, the plaintiff’s secretary says in his affidavit that he does not recall sending out notices for the meeting to discuss termination of the agreements with the first defendant.

19. The defendants referred to the case of Porebada Holdings Ltd & 2 ors v. Igo Baru & 2 ors [2012] N4516 where Her Honor, late Justice Davani gave a literal interpretation of Rule 4(2) of the ADR rules. The Court took into account Rule 5(3) considerations. In the end, the Court refused to order and refer that matter to mediation as it was of the view that there are legal issues to be tried. I will discuss more on this case later in my ruling.

20. The defendants also referred to Able Constructions Ltd v. WR Carpenter (PNG) [2014] N5636 where the Court sets out the basic conditions where it is not appropriate for a matter to be mediated.

21. In summary, the defendants submit that the preconditions of the security for costs pursuant to Order 14 rule 25(1)(b) of the NCR are satisfied and so this Court should exercise its discretion and grant the application. They also submit that pursuant to Rules 4(2)(c) and 5(2) of the ADR Rules, the Court should order this matter to mediation.

Plaintiff’s response

22. The plaintiff contests both applications and their evidence to support is in several affidavits. These include the affidavits of Charles Lesly, Albert Sinn, Otte Kewafa, Ruben Mamong, Joseph Steven, Smelda Nason, Hendrick Awarin, Lukas Sidio, Alphonse Mongka and Emmanuel Isaac in their various capacities as directors, leaders, office bearers and counsel for the plaintiff. Generally, the affidavits depose of the history of the relationship between the plaintiff and the first defendant from when the MOU and LMA were signed and the granting of FCA 15-19 on 7 October 2020. The affidavits also depose of the termination of all the agreements on 20 April 2021 and the first defendant receiving the termination notice on 7 May 2021. The combined affidavits state that thereafter there was a meeting of the landowners alleged to have been convened to support the first defendant. They say also that an earlier proceeding instituted by the first defendant was discontinued on 22 July 2021. They say further that in these proceedings, the restraining orders against the first defendant, the Police and the Governor of the Province to stop harassing and intimidating the plaintiff’s representatives were made permanent on 13 September 2021. They say this matter was set for hearing on 28 October 2021 but these applications by the first defendant took precedence over the hearing.

23. The plaintiff referred to Osprey Industries v. Hallam [1992] PNGLR 557 where the Court has wide discretion to consider security for costs. They also referred to J.S.T Ltd v. Arkhefield Pty Ltd (supra) where the Supreme Court refused an application for security for costs and amongst other reasons, that the order for security for costs must not be used as a tool to oppress the plaintiff or deny or delay the right of the plaintiff to prosecute the claim.

24. The plaintiff also outlined the circumstances which security for costs were ordered where plaintiff is resident outside the jurisdiction (Reynolds v. Walcott & ors [1985] PNGLR 316), where plaintiff is a foreign enterprise (Odata Ltd v. Ambusa Copra Oil Mill (2001) N2106) and where plaintiff has failed to pay an earlier taxed cost (Borok v. Ok Tedi Mining Ltd (2017) N7087). The plaintiff says none of these circumstances is evident in the defendant’s case.

25. The plaintiff therefore submits that the application for security for costs should not be granted for the following reasons:

(a) the application was made belatedly
(b) plaintiff’s claim is genuine

(c) defendants contributed to plaintiff’s incurring expenses after termination of agreement

(d) defendant’s request for security is likely to nullify the proceedings

(e) defendant’s costs are not legitimate

(f) Mr Heng’s affidavit in support is unsubstantiated

(g) defendant’s application is oppressing the plaintiff’s claim

(h) the warranty in the LMA1 is that the plaintiff has the financial and other resources to fulfil its obligations under the agreement.

26. As regards the application for mediation, the plaintiff submits that the application ought to have been made earlier and the only way mediation can be ordered at this stage is upon agreement of all the parties, which is lacking. They also submit that all issues are triable and are ready for determination. For these reasons, the plaintiff submits that the application for mediation should be dismissed with costs on an indemnity basis.

Consideration

27. The defendants seek security for costs on the grounds that the plaintiff is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so. However, the supporting affidavit of Chew Pang Heng sworn 29 September 2021 and filed 1 October 2021 does not depose any fact about whose benefit the plaintiff is suing the defendants for and on behalf of. If the defendants are of the view that the plaintiff is suing on behalf of Masstim Ltd, they failed to depose same in the supporting affidavit. The defendants are not relying on any other affidavits except that of Chew Pang Heng filed 1 October 2021.

28. The second reason for the defendant’s application for security for costs is that there is reason to believe that the plaintiff is unable to pay the costs of the defendant if ordered. In the supporting affidavit, it is deposed that the costs of losses and damages are in excess of K9.5 million but the defendant seeks the sum of K600,000.00 as security for costs to ensure that its losses are mitigated and that the plaintiff is serious in the matters raised in these proceedings. Ironically, it is also deposed that the Performance Bond Fee of K595,000.00 was paid which amount is nearly the sum the defendants are asking for as security for costs.

29. I adopt and now apply the principles in J.S.T Limited v. Harkhefield Pty Ltd (supra), and discuss whether the applicants have satisfied each one accordingly: -

1. whether there has been delay in making the application.

These proceedings were filed on 22 June 2021 and the application for security for costs was filed in October 2021, 4 months later. Is 4 months considered as delay? I am of the view that the application was filed within reasonable time.

2. the bona fides of the plaintiff's claim.

The plaintiff says its claim is bona fide and will succeed. I have read the affidavits filed so far in these proceedings and find there are conflicting views of the directors and shareholders of the plaintiff as to who it should appoint as its developer. Since it is a company, I will proceed on the basis that the claim is bona fide and with a reasonable prospect of success.

3. nullification of proceedings.

It is unclear at this stage that the making of the order for security for costs may or may not nullify these proceedings. The real cost of the proceedings is likely to exceed K600,000.00

4. whether the defendant has a cross-claim.

There is no cross claim filed by the defendants even though they were ordered to filed a cross claim earlier.

30. From the above discussions, not all the principles have been satisfied. Even if they were satisfied, there must be evidence of the amount of security for costs. The defendants say they have incurred costs in excess of K9.5 million but there is no particulars of the claim. Further, the plaintiff is not residing outside of the country and there is no failure by the plaintiff to pay an earlier taxed cost. The plaintiff is also a local LOC. The defendant has failed to make out a case to warrant an order for payment of security for costs.

31. In relation to the application to order and refer these proceedings to mediation, this Court can make such an order at any time as stipulated in Rule 5(1) of the ADR Rules. Whether the application is made by agreement of both parties, or by application from one party or by the Court itself, is not the issue. The issue is whether the Court should order and refer this matter to mediation. Rule 4(2) of the ADR Rules require the applicant to seek leave of the Court for an order and referral to mediation. In paragraph 27(i) of the judgement in Porebada Holdings Ltd & 2 ors v. Igo Baru & 2 ors (supra), Her Honour states as follows: -

“27. Notwithstanding the above, I will interpret the Mediation Rules as they appear, effectively, a literal interpretation. I interpret r.4(2) of the Mediation Rules as:

(i) That, after the filing of the defence; or after the expiry of the time for the filing of the defence; or after the first appearance of parties in Court, that the parties may not proceed with mediation, save only with leave of the Court.”
(underlining mine)

32. From evidence produced in affidavit material from both parties, the disagreement is amongst the directors and shareholders of the plaintiff. The directors and shareholders are divided as to who their preferred developer should be. Some are in favour of the first defendant while others are in favour of the new developer. However, there is nothing in the defendants affidavits nor in their submission that seeks leave of this Court to grant mediation orders. This application is therefore refused.

33. Having considered the applications, the issue between the parties remains. The best way forward to resolve this issue, in my view, is for all the landowners, the directors and the shareholders of the plaintiff to meet, discuss and resolve as to who their preferred developer is without any outsiders. As it is, it is highly likely that proceedings will continue to be mounted and challenged if the internal issues of the plaintiff are not resolved quickly because there is already overwhelming evidence of the division between the directors and shareholders of the company. Having said that, the Orders of the Court are: -

(a) The defendants’ applications for security for costs is refused.

(b) The defendants’ application for these proceedings to be ordered and referred to mediation is also refused.

(c) The defendants shall pay the costs of and incidental to these applications to be taxed if not agreed.

(d) Time is abridged until date of settlement.

(e) This proceeding is adjourned to the next Directions date on 6 December 2021.

________________________________________________________________
Emmanuel Lawyers: Lawyers for the Plaintiff
Nelson Lawyers: Lawyers for the Defendants