Cresseri and Wiwa Korowi v Halla Resources Corporation [1985] PGSC 2; [1985] PNGLR 294 (27 September 1985)

Papua New Guinea Law Reports - 1985

[1985] PNGLR 294 - Angelo Cresseri and Wiwa Korowi v Halla Resources Corporation 

[1985] PNGLR 294

SC303

PAPUA NEW GUINEA

[SUPREME COURT OF JUSTICE]

ANGELO CRESSERI AND WIWA KOROWI

V

HALLA RESOURCES CORPORATION

Waigani

Bredmeyer Amet Los JJ

29 April 1985

27 September 1985

PRACTICE - Pleading - Statute of Frauds - Not specifically pleaded - Raising at trial - Where defendant taken by surprise on pleadings - Particular circumstances - Statutes of Frauds and of Limitations (Ch No 330).

CONTRACT - Guarantee - Action on - Statute of Frauds - Statute not specifically pleaded - When may be raised at trial - Where defendant taken by surprise on pleadings - Particular circumstances - Statutes of Frauds and of Limitations (Ch No 330).

A statement of claim for moneys owing under a contract for the supply and delivery of cement contained a claim for goods sold and delivered and moneys had and received and a further claim:

“... for money due on account stated between them in a guarantee by the second and third named defendants of debts of the first named defendant and more particularly described above ...”.

The defence contained the following paragraph:

“The second and third defendants deny the plaintiff’s claim as endorsed on the statement of claim and say that there is no guarantee as alleged or at all by them in respect of the debts of the first defendant”;

to which the plaintiff in reply alluded to particulars of an oral guarantee “with a document ... which is a note in writing of the said guarantee”.

The trial judge rejected a request to raise at the trial the Statutes of Frauds and of Limitations (Ch No 330) as a defence it not having been specifically pleaded.

Held

N1>(1)      A defendant may be allowed to raise the Statutes of Frauds and of Limitations (Ch No 330) as a defence without first pleading it where the plaintiff’s pleading is so bad that it has caught the defendant by surprise.

Brunning v Odhams Brothers Ltd (1896) 75 LT 602, adopted and followed.

N1>(2)      In the circumstances, although the reference in the statement of claim, to a claim for money due on an account stated was wrong and misleading, and although reference to a “claim ... in a guarantee ...” did not accord with proper pleading practices in respect of a claim on a guarantee, the paragraph together with the subsequent pleadings in reply fairly and adequately gave notice that at least part of the claim was on a guarantee and particulars thereof could have been sought:

Brunning v Odhams Brothers Ltd (1896) 75 LT 602, distinguished.

Cases Cited

Brunning v Odhams Brothers Ltd (1896) 75 LT 602.

Clarke v Callow (1876) 46 LJ QB 53.

Gonin decd, In Re [1979] 1 Ch 16.

Appeal

This was an appeal from a decision of Woods J in which he entered judgment for the plaintiffs against the defendant contractor on an original contract and against the defendants/guarantors on an oral guarantee.

Counsel

I Molloy and K Y Kara, for the appellants.

R F Mango and C J Coady, for the respondent.

Cur adv vult

27 September 1985

BREDMEYER J: This is an appeal from a decision of Woods J. The plaintiff, Halla Resources Corporation (hereinafter “Halla Resources”), is a Korean company and it agreed to supply cement to a Papua New Guinea company C & W Builders Suppliers Pty Ltd (hereinafter “Builders Suppliers”) a company especially formed by Mr Cresseri and Mr Korowi for that purpose. The cement was delivered and sold but Halla Resources was not paid. Halla Resources sued Builders Suppliers and Mr Cresseri and Mr Korowi and obtained judgment against Builders Suppliers on the original contract, and against Mr Cresseri and Mr Korowi personally on an oral guarantee, for K106,196.46 plus certain amounts of interest. Mr Cresseri and Mr Korowi, who were the second and third defendants in the trial below, have appealed against that decision. The first defendant Builders Suppliers is insolvent and has not appealed.

The learned trial judge held that although the Statute of Frauds and of Limitations Act (Ch No 330) could apply to an oral guarantee to pay the debt of another, it is an enactment as to evidence, it has to be specifically pleaded as a defence and he cited the National Court Rules, O 8, r 14. He found that it was not so pleaded in this case so the second and third defendants could not get the benefit of it.

The relevant parts of s 5 of the Statute of Frauds and of Limitations Act read:

“No action shall be brought ... whereby to charge the defendant upon any special promise to answer for the debt default or miscarriages of another person ... unless the agreement upon which such action shall be brought or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorized.”

The National Court Rules, O 8, r 14, provides:

“Matters for specific pleading

In a defence or subsequent pleading the party pleading shall plead specifically any matter, for example, performance, release, any statute of limitation, fraud, or any fact showing illegality:

(a)      which he alleges makes any claim, defence or other case of the opposite party not maintainable;

(b)      which, if not pleaded specifically, may take the opposite party by surprise; or

(c)      which raises matters of fact not arising out of the preceding pleadings.”

Our rule that specific defences, such as the Statute of Frauds, must be specifically pleaded is not unique to Papua New Guinea. It is copied from England where it had existed at least since the Judicature Acts, see Clarke v Callow (1876) 46 LJ QB 53. The current English rule is O 18, r 8. Mr Molloy, who argued the case capably for the appellant did not dispute this general rule but argued that in this case the plaintiff’s statement of claim was so badly pleaded that it barely disclosed a cause of action and that the learned trial judge erred in allowing it to succeed in that form. Mr Molloy argued that the trial judge should have required the plaintiff to amend and should have given the plaintiff leave to do so; and consequently given the defendant leave to file a new defence and hence an opportunity to plead the Statute of Frauds. Mr Molloy cited Brunning v Odhams Brothers Ltd (1896) 75 LT 602 in support of the proposition that a defendant can be allowed to raise the Statute of Frauds as a defence without first pleading it where the plaintiff’s pleading is so bad that it has caught the defendant by surprise. The case does support that proposition. I regard it as an exception to the general rule that specific defences need to be specifically pleaded. I think it necessary to discuss the facts of Brunning’s case to understand the decision and to compare those facts with the facts of the present case. Brunning was the managing director of Lux Publishing Company which published a weekly newspaper called Lux. The paper was printed by Odhams Brothers a printing firm. Lux Publishers owed a considerable sum to the printers for issues printed and the printers refused to print another issue unless Brunning gave a personal guarantee and signed it. Brunning signed a guarantee which read:

“If you will bring out the present number I will repeat my guarantee to see you paid in full.”

The printing company sued Brunning on the guarantee. The statement of claim read:

“The plaintiff’s claim is for £152-3-2 being an amount payable under a guarantee signed by the defendant and dated 11 June 1895 in respect of goods sold and delivered, and work and labour done for the Lux Publishing Company Ltd.”

At the trial the question between the parties was whether the guarantee referred to the fresh issue only or whether it extended, as the plaintiff maintained, to the debt due by the company for printing previous issues. To resolve this question the trial judge allowed the plaintiff to give oral evidence that Mr Brunning had previously given an oral guarantee for all the previous issues not paid for and that this written guarantee was in substitution for that oral guarantee. The trial judge gave judgment for the sum claimed which was the total debt owing and the judgment was upheld by the Court of Appeal presided over by Lord Esher.

The House of Lords reversed that decision. It held in effect that the defendant was misled by the pleadings and caught by surprise. The statement of claim specifically referred to a written guarantee, not an oral one, so why should the defendant plead the Statute of Frauds. The defendant did not deny the written guarantee; he argued that it only applied to one issue of the newspaper. How was the defendant to know from the pleadings that evidence would be led of a prior oral guarantee. He should have been told that in the pleadings which would have given him an opportunity to plead the Statute of Frauds. If that oral evidence was admissible at all, the trial judge should have required the plaintiff to amend its statement of claim and plead the prior oral guarantee, and allowed the defendant time to amend his defence and plead his defence to that oral guarantee. As this was not done the House of Lords reversed the judgment of the trial judge.

As I have said Mr Molloy argued that the plaintiff’s pleadings were so bad that our decision should be the same as that of the House of Lords in Brunning’s case. The first paragraph of the statement of claim in our case reads:

“The plaintiff claims against the first named defendant for goods sold and delivered in or about January to March 1983 and moneys had and received by the first named defendant to the use of the plaintiff in or about March 1983 together with interest thereon as more particularly detailed hereunder ... .”

Mr Molloy’s criticism is directed at the second paragraph which reads:

“and the plaintiff further claims as against the second and third named defendant money due from the said second and third named defendant to the plaintiff on account stated between them in a guarantee by the second and third named defendant of the debts of the first named defendant and more particularly set out above and the plaintiff claims as against the defendants K108,915.11 plus interest on K90,173.27 from 6 February 1984 until judgment at the rate of 18 per cent per annum as agreed between the parties and costs of K180.00.”

Mr Molloy said that the words “money due from the said second and third named defendant to the plaintiff on account stated between them” are the form of words for a claim on an account stated. I agree with that contention, see the form given for that form of action in Atkin’s Encyclopaedia of Court Forms in Civil Proceedings (2nd ed) Vol 1 at 269.

Mr Molloy argued that the second phrase in that paragraph is defective. That phrase reads as follows (omitting irrelevant parts):

“and the plaintiff further claims as against the second and third named defendant ... in a guarantee by the second and third named defendant of the debts of the first named defendant and more particularly set out above ... .”

Mr Molloy cited the form of guarantee given in Odgers Principles of Pleading and Practice (2nd ed) (1981) at 128 and in Bullen and Leake and Jacob’s Precedents of Pleadings (1975) (12th ed) at 462. The forms there give the date of the guarantee. One form states that the guarantee is in writing the other is silent on that point.

Although the reference in par 2 of the statement of claim to money due on an account stated was wrong and misleading, and not in reality part of the plaintiff’s claim, and although the reference to the guarantee by the second and third defendant of the first defendant’s debts omitted the date, the paragraph does give the second and third defendants notice that at least part of the claim was on a guarantee. The second and third defendant were not told the date of the guarantee nor whether it was oral or written but they could have obtained that information through a request for particulars. There was no request. The second and third defendants were not so blinded by the misleading reference to a claim on an account stated that they overlooked the claim on a guarantee pleaded in that paragraph. This can be seen by par 1 of their defence which specifically refers to the guarantee:

“The second and third defendants deny the plaintiff’s claim as endorsed on the statement of claim and say that there is no guarantee as alleged or at all by them in respect of the debts of the first defendant.”

In a reply to the defence of the second and third defendants the plaintiff pleaded:

“As to par (1) thereof:

1.       The guarantee was given by the second and third defendants on 2 June 1983 at the offices of Peate Marwick, Mitchell & Co Accountants, Mogoru Moto Building, Champion Parade, Port Moresby, and with a document signed and bearing the aforesaid date by one R J May is a note in writing of the said guarantee.”

The function of pleadings is to give fair notice of the case which has to be met and to define the issues which the court will have to decide. Despite the potentially misleading reference to a claim on an account stated in the claim, I do not consider that the present appellants were not informed of the claim on the guarantee, and hence of the need to plead the Statute of Frauds by way of defence to it. They could have obtained details of the guarantee by a request for particulars before framing their defence. They missed that chance to plead the statute. Later they could have sought leave to file an amended defence. The plaintiff’s reply clearly alluded to an oral guarantee; to refer to a note in writing is to adopt words of s 5 of the statute “unless ... some memorandum or note thereof shall be in writing ...”. The present appellants could have sought by leave to file a rejoinder to the reply (see National Court Rules, O 8, r 6) and plead the statute. Or they could have attempted at the outset of the trial to amend their defence to plead the Statute of Frauds preferably after having given prior notice. They may have succeeded as the defendant did In Re Gonin decd [1979] Ch 16. In that case Walton J, at 28-30, considered that the matter lay within his discretion after a review of several 19th century cases and a passage in Snell’s Principles of Equity (28th ed) (1982) to the contrary. None of these opportunities were taken.

I consider that the pleadings in this case are distinguishable from those in Brunning’s case, that the plaintiff’s pleadings fairly and adequately raised the claim on the guarantee, and that the appellants cannot blame the plaintiff’s inadequate pleadings for their own failure to plead the Statute of Frauds. No objection to evidence of an oral guarantee by the plaintiff was made and some evidence on the nature of that guarantee was given by Mr Cresseri and Mr Korowi. Failure to object to the admissibility of this evidence confirms my view that the evidence was within the ambit of the plaintiff’s case as pleaded.

Mr Molloy’s second argument was that no oral guarantee of the company’s debt was given by Messrs Cresseri or Korowi at a meeting with Messrs Hong and Lee of Halla Resources on 2 June 1983 in the office of Richard May, a Port Moresby accountant. Mr May gave evidence of what happened at the meeting and took minutes of it which were tendered. Messrs Hong, Cresseri and Korowi gave evidence of what happened at that meeting. Mr Molloy argued that no guarantee was actually given at that meeting; that the parties did not complete an agreement, but contemplated a later written guarantee. The written guarantee was never given. In other words it was a verbal offer to give a written guarantee not a guarantee by which they would be immediately bound.

There are a number of references on the evidence which support Mr Molloy’s view. Mr Hong, for example, used the future tense:

“They said they will give personal guarantees but they never gave me any written document. He told me at the conference with Richard May, he will give a personal guarantee.” [Emphasis mine.]

Part of Mr May’s notes of the meeting, which were accepted by other witnesses as an accurate record, read:

“As a short term measure Cresseri and Korowi indicated that they would be prepared to issue personal guarantees in favour of Halla for the full repayment of the current outstanding C & W debt.”

To ascertain whether Mr Cresseri and Mr Korowi offered a personal guarantee then and there (as the plaintiff contended), or promised to give a written guarantee later (as Mr Molloy argued) it is of value to see the context in which the words were uttered. They were uttered at a meeting held between the vendor and purchasers to discuss Builders Suppliers financial problems. The company owed Halla K185,000, it was overdue with payment and much of the cement had not been sold. Mr May advised of three options open to Halla:

N2>(1)      to place Builders Suppliers in liquidation;

N2>(2)      to repossess the cement and sell it itself; or

N2>(3)      to allow Builders Suppliers a further six months to sell the cement on the condition that personal guarantees were given by the company’s principals.

Option (3) was chosen by Halla Resources. It was the most generous option to Builders Suppliers and in return for not adopting the more drastic courses (1) and (2), the guarantee was extracted. I think Mr Korowi correctly stated the nature of the guarantee in his evidence.

“We gave our verbal guarantee because that would help sell the product and give us a cash flow to pay our debts, therefore we guaranteed.”

It is probably confirmation of my view that it was a present guarantee, that Mr Cresseri paid K10,000 of the debt by his personal cheque five weeks after the guarantee. I agree with the trial judge’s view that the principals gave a present oral guarantee at that meeting.

I would dismiss the appeal with costs.

AMET J: I have read the judgment of Bredmeyer J and agree with it and have nothing to add.

LOS J: I have the advantage of reading the judgment of Bredmeyer J and though I may differ on certain aspects of reasoning, with respect I agree with the conclusion reached thereto by his Honour. I would therefore dismiss the appeal with costs.

Appeal dismissed with costs

Lawyer for the appellants: K Y Kara.

Lawyer for the respondent: Kirkes.