John R Giheno Holdings Ltd v City Pharmacy Ltd [2022] PGNC 151; N9571 (1 April 2022)

N9571

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 365 OF 2021
BETWEEN:
JOHN R. GIHENO HOLDINGS LIMITED
Plaintiff

AND:
CITY PHARMACY LIMITED
First Defendant

AND:
TONY TOREA in his capacity as the Property
Manager
Second Defendant

Goroka: Mugugia, AJ
2022: 15^th March, 1^st April

PRACTICE AND PROCEDURE – Defendants’ application to set aside default judgment - National Court Rules, Order 12, Rule 35 and Order 12, Rule 8(2)(a) and or Order 12, Rule 8(3)(a) – whether default judgement entered against the Defendants should be set aside – considerations - exercise of discretion – application refused.

Cases Cited:

Arman Larmer Surveys Ltd v. Chan Consolidated Ltd (2014) SC1609
Spirit Haus Ltd v Marshall (2004) N2630

Counsel:

D. Wayne, for the Plaintiff
P. Tabuchi, for the Defendants

RULING

1^st April, 2022

1. MUGUGIA, AJ: On 15 March 2022, I heard the Defendants’ motion filed on 21 February 2022 to set aside an ex parte default judgment order made by the Court on 10 December 2021. The supporting affidavit is the Affidavit of Nazar Mohamed Shaffee sworn on 19 February 2022, and filed on 21 February 2022. He is the First Defendant’s General Manager (Finance and IT). The motion also sought an order for leave to be granted to file a defence within 7 days. Counsel representing the Defendants Mr Tabuchi presented to Court submissions to set aside the ex parte default judgment order. This was contested by the Plaintiff. This is my ruling.

BACKGROUND

2. This is a claim for outstanding electricity arrears. The Plaintiff owns a property described as Section 6, Allotment 13, Goroka, Eastern Highlands Province (property). The Plaintiff had entered into a Commercial Lease Agreement with the First Defendant on 1 February 2017 for a period of 3 years with the option to renew. The First Defendant opted not to renew the agreement. On 18 November 2020, the Plaintiff was informed of the First Defendant’s intention not to renew the agreement, and to vacate the property by 21 December 2020. The Plaintiff notified the First Defendant that its electricity arrears totaling K78,097.69 remained outstanding. The Plaintiff filed its writ of summons on 23 June 2021. The First Defendant made a cheque payment of K65,577.63 to the Plaintiff for the electricity arrears on 24 July 2021. The Plaintiff claimed that there was a shortfall of K12,520.06, and the electricity arrears continue to be held against the property. When the Defendants failed to file their respective defences within the time prescribed by the National Court Rules, the Plaintiff filed its motion for default judgment on 9 September 2021. The default judgment application was made ex parte on 10 December 2021, and default judgment was entered against the Defendants.

ISSUE

3. The issue before me is whether default judgment entered against the Defendants on 10 December 2021 should be set aside.

THE LAW

4. The law in relation to setting aside ex parte default judgment is spelt out in Order 12, Rule 8(2), and Order 12, Rule 35 of the National Court Rules.

5. Order 12, Rule 8(2) states, and I quote:

“8. Setting aside or varying judgement or order.

(2) The Court may, on terms, set aside or vary a judgement-

(a) where the judgement has been entered pursuant to Order 12 Division 3 (default judgement); or

(b) where the judgement has been entered pursuant to a direction given in the absence of a party, whether or not the absent party had notice of trial or of any motion for the direction; or

(c) when the judgement has been entered in proceedings for possession of land pursuant to a direction given in the absence of a person and the Court decides to make an order that the person be added as a defendant.”

6. Order 12, Rule 35 states, and I quote:

“35. Setting aside judgement.

The Court may, on such terms as it thinks just, set aside or vary a judgement entered in pursuance of this Division.”

7. In Arman Larmer Surveys Ltd v. Chan Consolidated Ltd (2014) SC1609, the Court confirmed the 3 considerations required of an applicant in an application to set aside a regularly entered judgment. They are as follows:

(i) There must be an affidavit stating facts showing a defence on the merit;

(ii) The application must be made promptly within a reasonable time; and

(iii) There must be reasonable explanation(s) why judgment was allowed to be entered in default.
8. The Court also held in this case that the Court should also take into account whether irreparable prejudice would be caused to the plaintiff should the default judgment be set aside. Irreparable prejudice may be caused where there is an inordinate delay in the defendant seeking to have the default judgment set aside.

PARTIES’ SUBMISSIONS

Whether there is an affidavit stating facts showing a defence on the merit.

For the Defendants

9. Mr Tabuchi took the Court through his submissions which was handed up to Court at the hearing. These submissions were presented to Court:

• There is an affidavit disclosing a defence on the merits.

[The Draft Defence is Annexure marked “NMS-13” in Nazar Mohamed Shaffee’s affidavit].

• The Plaintiff is not a proper plaintiff. The default judgement is irregular. The evidence demonstrates that the named Plaintiff does not have the capacity to commence or bring this legal proceedings. The named Plaintiff no longer exists.
  
• Mr Shaffee deposes that he has been advised by his lawyers and verily believe that the proceedings have been incompetently commenced. He referred to Annexure marked “NMS-1” in his affidavit which is a copy of the Company Extract of JRG HOLDINGS LIMITED, Company No. 1-8948. This, he says is the search result confirming that the named plaintiff John R. Giheno Holdings Limited changed its name on 17 October 2018 to JRG Holdings Limited.
  
• The Plaintiff that commenced this proceedings is not the proper plaintiff because it changed its name in 2018.
  
• The authorities affirm that this is fatal to the proceedings, and goes to the very root of the entire claim.
  

[The Court was referred to the cases of Pacific Rim Constructors – Singapore PTE Ltd. v. Huala Hire & Construction Ltd. (2012) N4710, and Kuli v. Tande (2021) SC2099, and Section 16 of the Companies Act which provides for ‘Separate Legal Personality’.

• Mr Shaffee deposed in paragraph 8 of his affidavit that he is advised by his lawyers and verily believe that the named Plaintiff is not the entity that entered into the purported lease agreement with the First Defendant, and therefore this affects the competency of the proceedings.
  
• Mr Shaffee deposed in paragraph 9 of his affidavit that he is advised by his lawyers and verily believe that in accordance with section 19(1) of the Stamp Duties Act, the purported lease subject of this proceedings, as a matter of law, cannot be relied upon or pleaded as it has not been stamped.
  
• The lease that the Plaintiff is relying on cannot be pleaded because it has not been stamped in accordance with the Stamp Duties Act. There is no stamp from the Internal Revenue Commission on the lease to confirm the fact that it has been stamped in accordance with the Stamp Duties Act.
  
• In summary, the Defendants’ defences on merit which go to the root of the claim are that the proceedings have been incompetently commenced, the lease has not been stamped, and the lease cannot be relied on.
  
• Furthermore, the entity that entered into the lease agreement is not the current named plaintiff. It is Henganofi Development Corporation. The entity that entered into the lease had to have been pleaded properly.
  

For the Plaintiff

10. The Plaintiff’s lawyer Mr Wayne took the Court through his submissions filed on 9 March 2022. He relied on the evidence contained in Malcolm Giheno’s affidavit filed on 9 March 2022.

11. On the requirement of having a meritorious defence, Mr Wayne referred to the Supreme Court cases of Small Business Development Corporation v. Totamu (2010) SC1270, and Sapuri v. Kolly (2014) SC1310, and submitted that the Affidavit of Nazar Mohamed Shaffee does not give rise to a meritorious defence that can be sustained in law. The facts in this affidavit contain admissions and hearsay evidence. The grounds do not have merits. The draft defence is too broad and general. Paragraphs 1 to 5 of the draft defence are a misapplication of the relevant laws. Paragraphs 6 to 9 of the affidavit contain admissions, and paragraphs 10 to 12 are too broad.

12. Mr Wayne submitted that the Defendants’ draft defence does not conform to the established principles of law set out in Small Business Development Corporation v. Totamu, and Sapuri v. Kolly. Therefore, there is no defence on merits.

13. On whether the Plaintiff is a proper entity to institute the proceedings, the Plaintiff’s submissions were as follows:

• The Plaintiff is a proper legal entity to institute this proceeding. There was a name change from John R. Giheno to JRG Holdings Limited. The changing of name was a commercial decision. All the other attributes remained the same. The IPA registration number remained the same. The physical and postal address remained the same and the bank accounts remained the same. The Plaintiff elected to change its name depending on its business interests and/or ventures. Legally, it was allowed to do so under Section 24(4)(b) of the Companies Act 1997.
  
• “At law, a change in a company’s name does not render a company non-existent. Instead, the company continues to exist without affecting its rights, duties and obligations. Section 24(4)(b) of the Companies Act 1997 makes this clear.” (per Kandakasi J, at paragraph 25 in Jimm Trading Ltd. v. Maddison (2017) N6749).
  
• The statement of law in Jimm Trading Ltd. v. Maddison is adopted. The status of the Plaintiff in the present case is not affected.
  
• Section 16 of the Companies Act that Mr Tabuchi referred to is not correct.
  

Whether there is a reasonable explanation explaining why judgement was allowed to be entered in default.

For the Defendants

14. Mr Tabuchi submitted that there had been miscommunication. The matter was not elevated. Evidence of that is in the exchange of emails between his client’s officers. The fault was on his client’s representatives in Goroka because they did not raise it with urgency to the management in Port Moresby. The Second Defendant was supposed to bring it to the attention of the First Defendant. There was basically miscommunication.
For the Plaintiff

15. Mr Wayne submitted that the Defendants’ failure was as a result of an internal miscommunication. Administrative issues within the First Defendant’s management is not a valid ground. The grounds put forward by the Defendants are not valid grounds.
Evidence shows that the First Defendant is deemed to have knowledge of the claim or that default judgement had been entered against it.

16. Reference was made to the case of Sapuri v. Kolly (2014) SC1310, where the Supreme Court held that failure in the internal communication and misunderstanding are not valid grounds.

Whether the application was made promptly within a reasonable time.
17. Mr Tabuchi submitted that the default judgment order was made in December 2021, and they filed the application in February 2022. Noting the Court vacation period, the application was made without delay. On the other hand, Mr Wayne submitted that the delay is inordinate. Reasonable time depends on the circumstances. He adopted Hartshorn J’s reasoning in the case of 2 Fast Motors v. Digicel (PNG) Ltd. (2017) N6662.

CONSIDERATION

18. Mr Tabuchi relied on Order 12, Rule 35, and Order 12, Rule 8(2)(a), and or Order 12, Rule 8(3)(a) of the National Court Rules.
19. Order 12, Rule 8(2)(a) and Rule (3)(a) gives the court a wide discretion when setting aside a default judgment.

Defence on the merit

20. The Defendants advanced the argument that the Plaintiff is not the proper plaintiff. The default judgment is irregular. The Plaintiff that commenced this proceedings is not the proper plaintiff because it changed its name in 2018. The Defendants relied on the case of Pacific Rim Constructors – Singapore PTE Ltd. v. Huala Hire & Construction Ltd. (2012) N4710, and Kuli v. Tande (2021) SC2099. Section 16 of the Companies Act was considered in these cases. In addition, the Defendants argued that the proceedings had been incompetently commenced, and the lease cannot be relied on as it has not been stamped.

21. I have considered the law, the materials before me and both the written and oral submissions by the parties’ lawyers. I am convinced by the Plaintiff’s submissions. I find that the Defendants do not have a defence on merit. I set out my reasons for decision below.

22. The case of Pacific Rim Constructors – Singapore PTE Ltd. which the Defendants relied on concerned a Statutory Demand, and the issue of whether or not the Statutory Demand should be set aside. Section 16 of the Companies Act was considered. This section provides for ‘Separate Legal Personality. I am of the view that this case is irrelevant here because the facts of this case, and the issue are not similar to the case before me. The issue in the present case is in relation to change of name of a company.

23. Section 24(4)(b) of the Companies Act 1997 states, and I quote:

“24. CHANGE OF NAME.

(4) A change of name of a company-

(b) does not affect the identity of the company, or the rights or obligations of the company, or legal proceedings by or against the company, and legal proceedings that might have been continued or commenced against the company under its former name may be continued or commenced against it under its new name.”

24. A change in a company’s name does not render a company non-existent. The company continues to exist without affecting its rights, duties and obligations.

25. Section 24(4)(b) of the Companies Act 1997 is in clear terms. A change of name does not affect the identity of the company or any rights or obligations of the company or render defective any legal proceedings by or against the company.

26. If the Plaintiff was unregistered at the time of instituting this proceedings then the Defendants could have safely argued that the Plaintiff is non-existent, it is not the proper plaintiff, the proceedings had been incompetently commenced, and the default judgment is irregular.

27. As it is, the Plaintiff company is a registered company. Its status is not affected. It is a proper party, and it had the capacity to commence this proceedings. I find that the default judgment is not irregular.

28. The Defendants advanced the argument that the lease relied on cannot be pleaded because it has not been stamped in accordance with the Stamp Duties Act.

29. In Spirit Haus Ltd v Marshall (2004) N2630, Kandakasi J stated, and I quote:

“Secondly, s. 19 of the Stamp Duties Act (Chp. 117) prohibits in clear and mandatory language the pleading, reliance by a party and admission into evidence an instrument or a document liable to stamp duty but it has not met that requirement. At the same time, the Act provides that, on the payment of the appropriate amount of stamp duty and penalty assessments, the Court may accept the document into evidence.”

“The only way in which a person may sue upon or rely on an instrument or document without stamp duty is in equity. This can happen without necessarily relying on the instrument or document in question. That is possible particularly, in a case where there has been part performance and one of the parties to the instrument or document has benefited. That proceeds on the principle of restitution to avoid unjust enrichment. I alluded to that in Tian Chen Limited v. The Tower Limited (08/11/02) N2313, citing authorities like that of Wal Wine v. Bill Giglmai [1990] PNGLR 462.”

30. In equity, the Plaintiff in the present case may rely on the document constituting the lease.

31. A default judgment may be set aside if entered irregularly, that is, in breach of the rules of court or the law. In the present case, the Defendants failed to make submissions on which rule or rules of court was/were not complied with to render the entry of default judgment irregular. I find that there was no irregularity in the entry of judgment.

Reasonable explanation explaining why judgment was allowed to be entered in default.
32. Have the Defendants provided a reasonable or good explanation why the ex parte order was allowed to be entered in their absence? No.

33. Mr Tabuchi had submitted that there had been miscommunication. When asked by the Court whether this was a reasonable explanation, Mr Tabuchi submitted that it was not a reasonable explanation. He submitted that at the end of the day, it is a discretionary matter that the Court can take into account. I am persuaded by the Plaintiff’s submissions. I find that the explanation given by the Defendants is not reasonable.

Whether the application must be made promptly within a reasonable time.
34. Has there been any delay in filing the application to set aside the ex parte order? No.

35. Mr Shaffee deposed in his affidavit that on 24 December 2021, Douglas Wayne of Express Legal emailed Catherine Tawali of the City Pharmacy Limited. He enclosed his firm’s letter dated 24 December 2021, attaching the Court Order of 10 December 2021. I have considered the materials before me, and the submissions by both Counsels. I find that the application to set aside was filed within a reasonable time, considering the court vacation period in 2021.

CONCLUSION
36. Only one of the three requirements has been met by the Defendants. I am of the considered view that the interest of justice will not be served by setting aside the default judgment order. In the circumstances, and in the exercise of my discretion, I will refuse the Defendants’ application to set aside the default judgment order.

FORMAL ORDERS:

37. These are the Court’s formal orders:

1. The Defendants’ application to set aside the default judgment order made on 10 December 2021 is refused.

2. The Defendants shall bear the Plaintiff’s costs of and incidental to this application.

3. Time for entry of these orders is abridged to the date and time of settlement of these orders by the Registrar which shall take place forthwith.

The Court orders accordingly.
________________________________________________________________
D. Wayne: Lawyer for the Plaintiff
Young & Williams: Lawyers for the Defendants