Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees [2005] PGSC 37; SC776 (4 February 2005)

SC776

PAPUA NEW GUINEA

[IN THE SUPREME COURT OF JUSTICE AT WAIGANI]

SCA 145 of 2003

BETWEEN:

KUMAGAI GUMI CO LTD
Appellant

AND:

NATIONAL PROVIDENT FUND
BOARD OF TRUSTEES
Respondents

Waigani: Kapi CJ.
10th, 26th June 2004, 4th February 2005

APPEAL – Application to stay pending appeal under s 19 of the Supreme Court Act – Proper principles discussed.

APPEAL – Interim Orders to prevent prejudice to the claims of the parties, s 5(1(b) of the Supreme Court Act – The principles enunciated under s 19 of the Supreme Court Act in the decided cases is consistent with criteria under s 5(1)(b) of the Supreme Court Act.

PRACTICE AND PROCEDURE – Application for default judgment – Denial of natural justice on the issue of verified defence – Arguable ground of appeal.

PRACTICE AND PROCEDURE – Denial of natural justice in determining summary judgment – Arguable ground of appeal.

Cases cited:
Gary McHardy v Prosec Security and Communications Ltd Trading as Protect Security (Unreported Judgment of the Supreme Court dated 30th June 2000, SC646)
Hornibrook Constructions Pty Ltd v Kawas Express Corporation Pty Ltd [1986] PNGLR 30.
Motor Vehicles Insurance (PNG) Trust MVIT v Nand Waige & 2 Others [1995] PNGLR 202.
Micahel Newal Wilson v Harold Rosser Howard [1994] PNGLR 418.
Akipa & Others v Lowa & Others [1990] PNGLR 502.
Brian Curran v PNG [1997] PNGLR230
Peter Peipul Ipu v Pila Ningi & Electoral Commission (Unreported Judgment of the Supreme Court dated 28th October 1998, SC580.
Gillette Australia Pty Ltd v Energizer Pty Ltd [2002] FCAFC 223; 56 IPR 1 (Federal Court of Australia).

Papua New Guinea Legislations cited:
Constitution
Supreme Court Act
O 12 r 38 of the National Court Rules
O 8 r 25 & r 27 of the National Court Rules
O 8 r 28 of the National Court Act
O 8 r 27(b) and (c) of the National Court Rules
O 12 r 38 of the National Court Rules
O 12 r 37(b) of the National Court Rules
O 8 r 24(1) of the National Court Rules
O 8 r 27(1)(b) of the National Court Rules
O 8 r 21(2) of the National Court Rules
O 12 r 25 of the National Court Rules

Counsel:
Mr. Webb Q.C with R. Bradshaw for the Appellant
Mr. E. Anderson for the Respondents

4th February 2005

KAPI CJ: This is an application made under s 19 of the Supreme Court Act for an order to stay the judgment of the National Court (Kandakasi J) dated 5th December 2003 pending the determination of appeal to the Supreme Court.

The circumstances giving rise to this application may be summarized as follows. The National Provident Fund Board of Trustees (Respondent) sued Kumagai Gumi Co Ltd (Appellant). It is not necessary for the present purposes to set out the full details of the claim. The Respondent’s claim is based on an alleged fraudulent second acceleration claim by the Appellant for an increased cost claim where it is alleged that there was in fact no such acceleration work and no right to an increased cost claim and no consideration for the additional money other than the performance of the original contractual obligations.

The Appellant filed a defence and generally denied the claim.

The Respondent filed a notice of motion in the National Court for default judgment under O 8, r 25 (c) and r 27 and alternatively, for summary judgment under O 12 r 38 of the National Court Rules. The trial judge struck out the Appellant’s defence and entered default judgment and alternatively, entered summary judgment for the Respondent in the sum of K5, 805, 000.00 plus interest.

The Appellant has filed an appeal against the decision of the National Court on the following grounds:

"3 Grounds

(a) His Honour erred in law in determining the application before him on the basis that at the hearing on 11 September 2003 he had before him as evidence the affidavits of Erastus Kamburi made 16July and 10 September 2003 when in fact no evidence was adduced by the Respondent before him.

(b) His Honour erred in law by proceeding on the basis that all of the claims for relief in the Respondent’s notice of motion filed 25 June 2003 had been before him at the hearing on 11 September 2003 when in fact the application before him was confined to the issues:

• (i) Whether the defence of the Appellant pleaded the general issue contrary to Orders 8, Rule 28 of the National Court Act;
• (ii) Whether the form of the defence filed by the Appellant had a tendency to cause prejudice, embarrassment or delay in the proceedings or was otherwise an abuse of the process of the Court within the meaning of Order 8, Rule 27(b) and (c) of the National Court Rules; and
• (iii) Whether the Respondent was entitled to apply for summary judgment pursuant to Order 12, Rule 38 of the National Court Rules despite Order 12, Rule 37(b) and the nature of the claims made by the Respondent in its Statement of Claim.
  

(c) His Honour erred in law in failing to find that the defence filed by the Appellant in the National Court proceedings was not a denial of the general issue.

(d) His Honour erred in law in finding the claim made by the Respondent in the statement of Claim was a claim made against the Appellant for a liquidated demand within the meaning of Order 8, Rule 24(1) of the National Court Rules and that the Appellant was required by the said rule to verify its defence.

(e) His Honour erred in law in failing to find that the claim made by the Respondent in its Statement of Claim was a claim based on fraud within the meaning of Order 12, Rule 37.

(f) His Honour erred in law in finding that the Appellant was not entitled to plead its defence as it did given the nature of the allegations against it.

(g) His Honour erred in law in finding that the defence of the Appellant did not specifically answer any of the allegations made in the Statement of Claim against it.

(h) His Honour erred in law I finding that the Appellant’s defence:

• (i) was not in good faith; and
• (ii) was evasive.
  

(j) His Honour erred in law in finding that the defence of the Appellant had a tendency to cause prejudice, embarrassment or delay within the meaning of Order 8, Rule 27(1)(b).

(k) His Honour erred in law I finding that the Respondent could make application for summary judgment under Order 12, Rule 38 despite Order 12, Rule 37 of the National Court Rules.

(l) His Honour erred in law in making the determination in the proceedings based on the fact that the fact Appellant had not verified its defence.

(m) His Honour erred in law in making a determination that in the application heard before him that the Respondent had satisfied the requirements for summary judgment set out in Order 12, Rule 38 of the National Court Rules.

(n) His Honour erred in law in making orders for:

• (i) a strike out of the Appellant’s defence;
• (ii) an order for judgment against the Appellant
• (iii) an order for costs against the Appellant
  

(o) His Honour erred in law in exercising his discretion to order:

• (i) a strike out of the Appellant’s defence;
• (ii) an order for judgment against the Appellant
• (iii) an order for costs against the Appellant.
  

The law with regard to stay of proceedings pending an appeal is now well settled in Gary McHardy v Prosec Security and Communications Ltd Trading as Protect Security (Unreported Judgment of the Supreme Court dated 30th June 2000, SC646). After setting out the development of the law in this area in the decided cases, the Court said at page 7- 9:

"Because this Court is the highest of unlimited jurisdiction in this country, vested with inherent discretionary power to do justice, and because it must necessarily exercise such discretionary power on proper principles justly and reasonably, according to natural justice to all parties before it, it can consider and enunciate what factors and circumstances are to be appropriate or relevant for it is to take into account when exercising that discretion. The stipulation by the Court of the kinds of factors and circumstances it may consider taking into account cannot be exhaustive. They must necessarily vary from case to case and from time to time depending on different circumstances. These, in our view, must only be guidelines to assist both the Court and the parties making application before it. They cannot be exhaustive or hard and fast preconditions.

To conclude that the test for a successful application for stay should be whether there are ‘special. Or ‘exceptional’ or that there is a ‘good reason’ or that it is an ‘appropriate case’ is restrictive. We think what is important to articulate are the factors and circumstances that may be relevant or appropriate in differing cases from time to time.

We distil from the precedent cases the kinds of factors and circumstances that the Court will consider, amongst others, in the exercise of the discretion whether or not to grant a stay order. We start with the principle premise that the judgment creditor is entitled to the benefits of the judgment. The other factors include the following:

• Whether leave to appeal is required and whether it has been obtained.
• Whether there has been any delay in making the application.
• Possible hardship, inconvenience or prejudice to either party.
• The nature of the judgment sought to be stayed.
• The financial ability of the applicant.
• Preliminary assessment about whether the applicant has an arguable case on the proposed appeal.
• Whether on the face of the record of the judgment there may be indicated apparent error of law or procedure.
• The overall interest of justice.
• Balance of convenience.
• Whether damages would be sufficient remedy."
  

An order for stay pending the determination of appeal comes within the scope of s 5 (1) (b) of the Supreme Court Act. This provision sets out the criteria upon which an interim order may be granted, namely, to prevent prejudice to the claims of the parties. This is consistent with the principles set out in the cases.

In these kinds of applications, one starts with the premise that the successful party is entitled to the benefits of judgment.

Counsel for the Respondent submits that the Appellant has delayed in making the application to stay. He submits that this was compounded by the fact that a statutory demand was served on the Appellant to satisfy the judgment and it has committed an act of insolvency and it is now not possible to set aside the statutory demand. I bear in mind that the application for stay was made before the expiry date for application to set aside a statutory demand. If the stay is granted in this application, the question of any action for liquidation will not proceed. In having regard to the delay in making the application, I also bear in mind the attempt by the Appellant to offer a lesser amount towards the payment of the judgment. The consideration of delay of itself is not determinative of the issue before me.

In considering the hardship that may be faced by the parties, counsel for the Respondent submits that Appellant is a multi million dollar international company and it would not suffer any hardship and no question of whether the Respondent is able to pay back the money has been raised in the event that the appeal is successful. Counsel for the Appellant at the beginning of the hearing before me, conceded that there was no evidential basis for the Appellant to suggest that the Appellant was unable to pay the judgment sum. However, Counsel for the Appellant provided further documentary evidence by consent from the Annual Reports for 2002 and 2003. Counsel for the Appellant took me through the reports to make the submission that the financial standing of the Appellant is not as good as counsel for the Respondent made it out in his submissions.

I will have regard to these submissions when I consider all the considerations.

Counsel argued the question of pleading the general issue. The authorities referred to in this regard relied very much on the Hornibrook Constructions Pty Ltd v Kawas Express Corporation Pty Ltd [1986] PNGLR 301. I am familiar with the development of the law in subsequent cases (Motor Vehicles Insurance (PNG) Trust MVIT v Nand Waige & 2 Others [1995] PNGLR 202, Micahel Newal Wilson v Harold Rosser Howard [1994] PNGLR 418). I reviewed my decision in Hornibrook v Kawas (supra) on the strength of O 8 r 21 (2) of the National Court Rules in Akipa & Others v Lowa & Others [1990] PNGLR 502. The Supreme Court cases that followed my earlier decision (Hornibrook v Kawas) did not consider the issue in the subsequent case. In my view there would be an arguable case for consideration by the Supreme Court.

Counsel for the Respondent further relies on the bona fides of the defence by the Appellant. This issue was not before the National Court and I will consider this issue when I deal with the denial of natural justice.

In this application, counsel for the Appellant relies mainly on the consideration of an arguable case and an apparent error on record, namely, that there was a denial of principles of natural justice in determining the default judgment and summary judgment. Counsel relies on other considerations such as financial hardship to the Papua New Guinea branch of Kumagai Gumi.

While I do not ignore all the other considerations argued by the parties, I consider that the major issue which will determine the result of this particular application is the nature of the grounds relied upon by the Appellant in the appeal and the denial of natural justice.

I turn to consider this consideration. In order to appreciate the arguable grounds of appeal and the denial of natural justice, I need to set out the nature of the application and what transpired before the trial judge.

The motion before the trial judge sought two alternative remedies; default judgment under O 12 r 25 and summary judgment under O 12 r 38 of the National Court Rules.

When the motion came on for hearing, counsel for the Appellant raised two issues of law as preliminary issues to the default judgment and summary judgment respectively.

At the beginning of the hearing, a preliminary discussion took place between counsel and the trial judge as to the issues. Counsel for the Respondent indicated three distinct issues; first, that there has been a failure to verify the defence – the argument was whether or not claim is wholly for liquidated demand. This was the first basis for default judgment.

The second basis for default judgment was whether the defence pleaded the general issue and is therefore embarrassing and is an abuse of the process of the court and therefore should be struck out and judgment entered.

The third issue was whether the case was appropriate for summary judgment in a fraud case in view of O 12 r 37 of the National Court Rules.

Counsel for the Appellant submitted at the trial that as matters of evidence is time consuming, the appropriate way to proceed was to deal with the questions of law raised and if they are successful, there would be no need to deal with evidence. If however, they are not successful on the preliminary issues, the matter would then proceed to hearing on the evidence.

This course of action was adopted by the trial judge as well as counsel for the parties. It was quite clear in his Honour’s mind what was coming before him. There was going to be no question of any evidence until the issues of law raised were dealt with. In fact the trial judge expressly stated that the question of verified defence was not going to be raised and no question of any evidence on the question of summary judgment.

The trial judge then directed the question of pleading the general issue be argued on default judgment and the preliminary issue on summary judgment.

Counsel for the Respondent made no submissions on verification of defence as agreed and it was clear to the trial judge and he expressly acknowledged that when counsel for the Appellant replied. Counsel for the Appellant was not permitted to make any submissions on verification of defence.

Counsel for the parties made submissions on the preliminary issue in respect of summary judgment. At no stage did they address the trial judge on summary judgment on the merits. No question of evidence was argued and at no stage was there any evidence led on summary judgment.

The trial judge in reaching his conclusion on the pleading of the general issue relied very much on the lack of verification of the defence by the Appellant. He concluded on page 41 of the judgment:

"Based on this view, I find that Kumagai was under an obligation to verify its defence in relation to the specific claim against it. It did not do that and maintained the view that NPF’s claim was not liquidated within the meaning of O 8 r 24. That view could be correct only if the provisions of O 8 r 24 have not been authoritatively extended to cover all case in which it was certain as to the amounts the plaintiff was claiming as was seen in discussion of the law in the foregoing. Indeed, the defence of some of the other defendant’s such as that of the fifteenth and eighth defendant in this have been verified, thereby confirming the need to do so."

At page 43 he went on to state:

"The end result, in my view, is that Kumagai was required to plead its defence specifically to the matters alleged against it with verification rather than merely say, ‘it does not admit’ and ‘it is not required to plead.’"

At page 45 he concluded:

"Finally, if Kumagai was genuine in its defence, then what was the harm in having its defence verified, as did some of the other defendants? In the absence of anything to the contrary, it could mean that Kumagai was not prepared to go on oath and have its defence verified."

It is apparent from the record that the trial judge made an error in having to deal with the issue of verification when the matter was not before him and he did not allow counsel for the Appellant any opportunity to be heard on the issue.

The trial judge then dealt with the issue of summary judgment on two basis. The first relate to the application of O 8 r 37 of the Rules. He found the rules inappropriate in the circumstances of Papua New Guinea under Schedule 2.3 of the Constitution and did not apply it in the present case.

On the question of application of O 12 r 37, it is arguable whether the trial judge had any power to develop the law in this manner. What in fact his Honour did in the instant case was to repeal delegated legislation by way of development of the underlying law. Whether or not he had any jurisdiction to do this is arguable and I do not have to determine the merits of this argument for the purposes of the application before me.

The trial judge further proceeded to deal with summary judgment on its merits. He clearly made reference to evidence on affidavits which were filed in the Court file but never led in evidence at the hearing before the trial judge. Counsel for the Appellant was not given an opportunity to address the Court or given the opportunity to contest or to call any evidence. It is arguable that the trial judge may have fallen into error (see Brian Curran v PNG [1997] PNGLR 230, Peter Peipul Ipu v Pila Ningi & Electoral Commission (Unreported Judgment of the Supreme Court dated 28th October 1998, SC580, Gillette Australia Pty Ltd v Energizer Pty Ltd [2002] FCAFC 223; 56 IPR 1 (Federal Court of Australia)).

I have made reference to these issues to highlight the apparent error on the face of the record. It is not necessary for the present purposes to determine the merits of the arguments. This is a matter for the Supreme Court when appeal is finally heard. For the present purposes, I only need to determine that there is an arguable case. In the present case, there is a strong arguable case.

I have had regard to all the considerations raised by counsel and in the exercise of my discretion I would grant the stay of the orders of the National Court pending the hearing of the appeal.

I would direct that parties come before the Court for further directions in order to progress this matter to hearing of the appeal.
______________________________________________________________
Lawyers for the Appellant : BLAKE DAWSON WALDRON
Lawyers for the Respondent : GADENS