SC1620

Papua New Guinea
[IN THE SUPREME COURT OF JUSTICE]

SCA No. 46 of 2015

BETWEEN:
NAE LTD 
Appellant

AND:
Curtain Bros Papua New Guinea Limited {1-1815} and Clough Niugini Limited {1-1251} trading as Clough Curtain Joint Venture {6 80953}
First Respondents

AND:
Alex Tongayu in his capacity as the Registrar of Companies 
Second Respondent

Waigani: Injia CJ, Collier & Polume-Kiele JJ
2015: 30th October
SUPREME COURT- Appeals - From exercise of discretion - Review of by appeal court- proper principles discussed.
NATIONAL COURT - Practice and procedure - Dismissal of action for abuse of court or failure to disclose a reasonable cause of action- Relief pleaded in statement of claim not supported by relief pleaded in Originating Summons - Whether abuse of process- Claim founded on Fairness of Transaction Act - Whether reasonable cause of action disclosed in the pleadings - Relevant considerations in the exercise of discretion.

Cases cited in the judgement:

Akap v Korakali [2012] SC 1179
Takori v Yagari [2008] SC905
Kuman v Digicel (PNG) Ltd [2013] 5C1232
Mount Hagen Urban Local Level Government v Sek No 15 Ltd [2009] SCl007) 
     Counsel:
     I Molloy with A Kimbu, for the Appellants 
   M Varitimos with P Tabuchi, for the Respondents 

30th October, 2015

1.	       BY THE COURT:    Before the Court is a Notice of Appeal filed 21 April 2015, which appeals the judgment of Judge of the National Court made on 12 March 2015. In the Court below (matter OS 225 of 2014), the primary Judge dismissed the proceedings on the basis that they were an abuse of process and disclosed no reasonable cause of action pursuant to Order 12, Rule 4 of the National Court Rules. 

2.	      The appeal lies without leave as the grounds constituting the appeal pertain to the dismissal of the plaintiff's entire claim pursuant to s 14 (3) (iii) and/or s 14 (1) (a) and (b) of the Supreme Court Act. 

3.	        It is useful to set out the background to the current proceedings before turning to consideration of the grounds raised in the application. 

Background 

4.	     The matter below concerned two purported plant hire agreement contracts dated 26 August 2011 and 13 December 2013, between the appellant and the first respondent, who were respectively the plaintiff and first defendant in the matter below. The agreements concerned the hire of heavy equipment by the appellant to the first respondent. The machinery was for use by the first respondent in performing work pursuant to a main contract with Esso Highlands Limited or its affiliates on a project described as the PNG LNG Project – Upstream Infrastructure. 

5.	     On 25 April 2014, the appellant filed an Originating Summons seeking declaratory relief pursuant to various sections of the Fairness of Transactions Act 1993 and s 155(4) of the Constitution in respect of the purported contracts, claiming that they were unfair. The appellant also sought orders for damages on a quantum meruit basis or pursuant to s 155(4) of the Constitution, that both contracts be reviewed, and that the parties enter into mediation for settlement. 
6.	     On 19 May 2014, the National Court made a consent mediation order in this matter.  Importantly, paragraph 2 of those Orders provided: 
Prior to the Mediation process commencing, the Plaintiff shall file and serve by 2 June 2014 a Statement of Claim. 
7.	     A statement of claim was subsequently filed by the appellant on 2 June 2014.

8.	     The parties attended mediation on 24 June 2014, but the mediation was unsuccessful. 

9.	     On 25 June 2014, the first respondents filed a notice of motion seeking an order pursuant to Order 12 Rule 40 of the National Court Rules that the proceedings be stayed or dismissed, and alternatively, pursuant to Order 8 Rule 27 of the National Court Rules, that the statement of claim filed 2 June 2014 be struck out. The first respondents submitted that as there were major disparities between the relief sought in the originating summons and the relief sought in the statement of claim, neither a court nor a defendant should be required to deal with a case where there are disparities in the relief sought. 

10.	      On 4 July 2014, the plaintiff/appellant filed a notice of motion seeking, inter alia, orders that the proceedings continue on pleadings under Order 4 Rule 35(1) of the National Court Rules or for directions in respect of pleadings under Order 4 Rule 31 of the National Court Rules. Both notices of motion were filed against a background of correspondence between the lawyers for the appellant and the first respondent in the time immediately prior to the date of the mediation.  In particular we note the following correspondence: 
•	A letter from the first respondent’s lawyers to the appellant’s lawyers dated 11 June 2014, in which they wrote (inter alia): 

The Statement of Claim filed: 

a)	Discloses no reasonable cause of action or other case appropriate to the nature of the pleading; 
b)	Has a tendency to cause prejudice, embarrassment or delay in the proceedings; and 
c)	Is otherwise an abuse of the process of the Court. 

•	Accordingly, the pleading should be struck out pursuant to Order 8, Rule 27 of the National Court Rules. We invite your client to file and serve by 4pm 18 June 2014 an amended pleading, failing which an application will be made without further notice to strike out the Statement of Claim with costs. The dispute between the parties, properly and pleaded, is clearly based on an alleged breach of contract or contracts. If your client delivers an amended pleading based on the Fairness of Transactions Act, an application will be made to apply to strike out such amended pleading and possibly the entire proceedings, with costs. 
•	A letter from the appellant's lawyers to the first respondent's lawyers dated 11 June 2014, in which they wrote (inter alia): 
On 2nd June 2014, we filed the Statement of Claim pursuant to term 2 of the Consent Mediation order and served it on you. Consistent with term 3 of the Consent Orders whilst serving the Sealed Statement of Claim, we requested on our covering letter then that you provide a statement of response to our Statement of Claim so we could resolve all or any of the Claims or failing resolutions, identify and limit the real issues in the proceedings, that warrant judicial consideration and determination. In our honest view, Term 2 of the Consent Order was intended to facilitate easy mediation as opposed to amending our client's Originating Summons (OS). 
•	A letter from the first respondent's lawyers to the appellant's lawyers dated 18 June 2014, in which they wrote (inter alia): 
... If you are generally concerned about the clarity of the pleadings in the originating Summons and the Statement of Claim filed and served on you then we propose the following: 

Proposal 1, we inform the mediator on the issue that we need to settle on the alleged disparity between the Statement of Claim and Originating Summons before the Court on io" July, 2014 when the matter returns to Court and skip the mediation scheduled for 24th instant to avoid wastage of time and costs. Further, confirm the Mediator's view on the issues of clarity of pleadings. 

Proposal 2, we proceed with the mediation as scheduled on the basis of the Statement of Claim as filed by us and see if parties can resolve amicably by mediation. If you cannot agree to proposal 2, we ask again that you particularize what you consider is lacking in terms of understanding our client's claim as per the Statement of Claim which in fact your client had asked for in proposing the terms of the consent orders. We reserve our right to respond accordingly on your request regarding relief as we consider that it is not appropriate to discuss same strictly or legalistically at this stage of the mediation. We propose that parties attend the mediation with open mind to seize every opportunity to settle by agreement. We consider that our Statement of Claim provides the way forward in initiating the discussions for settlement as ordered by the Court on consent of parties. 

Decision of primary Judge 
12.	      Both motions came before the National Court for hearing. Judgment was delivered on 12 March 2015. His Honour found in favour of the first respondent in respect of its notice of motion, and made no findings in respect of the appellant's notice of motion. 

13.	      His Honour considered the first respondent's notice of motion in two respects - namely in the context of whether there had been an abuse of process by the appellant, and whether a reasonable cause of action had been disclosed in the appellant's case. 

14.	     The primary Judge found that the proceeding was an abuse of process on the part of the appellant, as there were major disparities between the relief sought in the originating summons and the relief sought in the statement of claim filed on 2 June 2014. In particular, his Honour found: 
[13] In this instance, the first defendant contends that it should not be required to deal with a case where there are disparities in the relief that the plaintiff seeks in the originating summons and the statement of claim. That there are disparities is clear. Examples of these  are that in the originating summons, amongst others, ten declarations are sought concerning two purported contracts, other orders are sought for damages and that the two contracts be reviewed, and that the parties enter into mediation.  In the statement of claim, two declarations and damages in varying amounts, are sought.
 
[14] From a perusal of the documentation, the declarations in the originating summons are sought pursuant to s. 1 (a) (i) and (ii}, 1 (b), 4, 5 (2)(b) and 12 FTA as well as s 155 (4) Constitution. The declarations in the statement of claim however are sought pursuant to s 8 FTA and the FTA generally. It is clear that the submission of the plaintiff that what it seeks in the statement of claim does not deviate from what is sought in the originating summons, is not correct. 

15.	    The primary Judge considered that the disparities in the relief claimed in the originating summons and the statement of claim rendered the pleadings of the plaintiff as to the relief sought, to be an embarrassment (at [17]). His Honour continued: 
[19] In this instance the first defendant does not know the relief or the particular relief claimed against it given the disparity between the originating summons and the statement of claim, and quite legitimately requested clarification from the plaintiff's lawyers. The plaintiff's lawyers, instead of supplying the clarification, reserved there [sic] rights to reply on the pretext that it was not appropriate to reply because of mediation. 

[20]  That it was not appropriate to give clarification as to the relief claimed because of mediation, is not a legitimate reason .... 
[22]  The position in which the first defendant was in, in guessing the relief against it, was unfair. The response of the lawyers for the plaintiff to a legitimate query has elevated the position in which the first defendant finds itself from unfair to manifestly unfair and can be properly viewed as an abuse of the process of the court. Consequently the proceeding should be dismissed. 
16.	     In relation to the question whether a reasonable cause of action was disclosed by the pleadings, the primary Judge concluded, inter alia, that the material before the Court did not support a finding of manifest unfairness in the contracts between the parties, within the meaning of the Fairness of Transactions Act. 

17.	     His Honour accordingly ordered that the proceeding be dismissed with costs. 

Notice of Appeal 

18.	     The Notice of Appeal, filed on 21 April 2015, contains extensive grounds of appeal.  In particular, we note: 
•	Ground 3.3, in which the appellant claimed that his Honour erred in erroneously entertaining an application to dismiss the proceeding, and in doing so placed great emphasis and reliance on the Statement of Claim filed on 2 June 2014 when that Statement of Claim had been prepared and filed purely for the purposes of mediation.
•	Grounds 3.4-3.7, in which the appellant claimed that his Honour failed to act fairly, by (inter alia) failing to allow the appellant a real opportunity to argue the issue whether the Statement of Claim had superseded the Originating Summons or related arguments on the issue (ground 3.4) Ground 3.8, in which the appellant claimed that his Honour erred in finding abuse of process, when in fact the Statement of Claim had been filed for the purpose of mediation pursuant to section 7 of the Fairness and Transactions Act and not to be an amendment or to supersede the Originating Summons filed on 25 April 2014 

•	Grounds 3.9-3.11, in which the appellant claimed that the primary Judge erred in finding no reasonable cause of action when the cause of action pleaded and the relief sought in the Originating Summons filed 25 April 2014 were consistent with the Fairness and Transaction Act, and therefore were sufficient to stand on their own in terms of pleading. 

19.	     The appellant seeks the following orders: 

•	That the decision of the Waigani National Court per Hartshorn J delivered on 12 March 2015 in the circumstances was unfair, ultra vires his powers or in error of law; 

•	That the decision of the Waigani National Court per Hartshorn J delivered on 12 March 2015, be quashed;

•	In line with Orders No 1 and/or 2 above, that the entire proceeding titled OS No 225 of 2014 - NAE Ltd v Curtain Bros Papua New Guinea Limited (1-1815) and Clough Niugini Limited (1-1251) trading as Clough Curtain Joint Venture (6-80953) & Alex Tongayu in his capacity as the Registrar of Companies, be reinstated and the matter proceed forthwith to the substantive hearing on the review pursuant to s 8 of Fairness of Transactions Act 1993. 

•	Costs of this appeal be borne by the first respondent. 
Consideration 
20.	     Powerful and persuasive oral and written submissions on behalf of the first respondent were made opposing the notice of appeal before the Court. We accept the proposition advanced by the first respondent that the Court should be slow to interfere with an exercise of discretion by the primary judge, and agree with the principle that an appellate Court should not seek to substitute its own view for that of the primary Judge simply because the appellate Court might have decided the matter differently. An appellate Court should only interfere with the exercise of discretion where the primary Judge was "clearly wrong": Akap v Korakali [2012] SC 1179 at [6], [7]. 
21.	     The key issue in considering whether the appeal ought to be allowed is whether his Honour misdirected himself in the exercise of his discretion to dismiss the proceedings summarily. An authoritative statement of the relevant principles can be seen in the decision of the Supreme Court in Takori v Yagari [2008] SC905: 
22.	     The starting point of course is, 0 12 r 40 of the Rules as interpreted and applied by the Courts. The principles built around this provision are now well established. The National Court in Kerry Lerra trading as Hulu Hara Investments Ltd v. Philip Stagg, Valentine Kambori and The Independent State of Papua New Guinea extracted the relevant principles from a number of overseas and our own Supreme and National Court judgments (noted in the footnotes) in this way: 
"1. Our judicial system should never permit a plaintiff or a defendant to be 'driven from the judgment seat' in a summary way, 'without a Court having considered his right to be heard.'A party has a right to have his case heard, as guaranteed by the Constitution and the laws of the land. The Rules are designed to enhance those rights and to ensure the prompt and fair disposal of matters coming before the Court. That right cannot be lightly set aside. 

2. At the same time, however, the law, such as the Rules under consideration, provide for and the Court has an inherent jurisdiction to protect and safeguard against any possible abuse of the processes of the Court.
3. The object of these rules are therefore 'to stop cases which ought not to be launched - cases which are obviously frivolous or vexatious or obviously unsustainable. .'In other words, 'the object of the rule was to get rid of frivolous actions'. 
4.  A claim may be frivolous if it can be characterized as so obviously untenable that, it cannot possibly succeed or that, the claim or defence is bound to fail, if it proceeds to trial. 
5.A claim or defence may be vexatious, if the case amounts to a sham or one which, cannot succeed and is one that amounts to harassment of the opposing party who is unnecessarily put to the trouble and expenses of 
defending or proving the claim. 
6.With regard to the issue of disclosing a reasonable cause of action or defence, the Court must be clear that, there are two parts to the phrase 'cause of action'. First, it entails a right given by law, such as an entitlement  to reasonable damages for breach of human rights under s. 58 of the  Constitution, commonly referred to as, the 'form of action'. Secondly, it entails the pleadings disclosing all the necessary facts which give rise to the form of action. 
7.The phrase 'cause of action' could thus be defined in terms of a legal right or form of action known to law with: 
'every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the court. It does not comprise of every piece of evidence which is necessary 
to prove each fact, but every fact is necessary to be proved.' 
8.A statement of claim or a defence (as the case may be) must therefore, clearly plead the form of action by pleading the necessary legal elements or ingredients of the action and the relevant and necessary facts (not the evidence) giving rise to the form of action. It follows therefore that, where a statement of claim or a defence is so ambiguous or lacking in particularity that it does not facilitate orderly and rational pleadings, which would enable the real issues to be identified, and instead leaves it to guess work, it should be struck out. 
9. These rules provide a summary judgment procedure or remedy which is available to a plaintiff or a defendant, and one which vests and calls for an exercise of a discretion by the Court. 
10. The discretion must be exercised sparingly and only in a case where the statement of claim or the defence (as the case might be) is 'obviously and almost incontestably bad. I In other words this discretion can be exercised "if proved, to entitle the plaintiff [or defendant] to what he asks (17) for only in cases that 'are plain and obvious so that the master or Judge can say at once that the statement of claim [or defence] as it stands, is insufficient, even if proved, to entitle the plaintiff [or defendant] to what he asks'[17] for." 
23.   After the above summation of the relevant principles, the National Court added: 
" ... the pleadings must be so bad and or vague and is not a case of lack of particulars or a lack of better pleading which cannot be cured by a request and or orders for further and better particulars and or amendment respectively under 0.8, rr. 36, 50 or 51 of the Rules. Lack of particulars or lack of better pleadings is distinctly separate from a failure to disclose a reasonable cause of action or an action that is frivolous, vexatious or harassment. As such, clear and separate consequences follow. There is provision under the rules for requesting and or orders for further and better particulars or better pleadings as opposed to a right in a defendant or an opposing party to apply for a dismissal straightaway. A party must be careful not to ask for and the Court must stop to ensure that it is not being asked to dismiss a claim because of lack of particulars or lack of proper pleading which can be cured by appropriate amendments to the pleadings. Regard must also be had to the fact that the Rules are not an end in themselves but a means to an end and by reason of which a strict compliance of the Rules can be dispensed in the interest of doing justice in accordance with O. 1, r.7 of the Rules in appropriate cases." (emphasis added) 
 
24.   We agree with the above summation of the relevant principles of law. We also agree with the addition to those principles because, they are consistent with the way in which the law has built around 0 12 r 40 in our jurisdiction to avoid any confusion between disclosing a cause of action as opposed to insufficiency of pleadings which can be cured by amendments. (see also Kuman v Digicel (PNG) Ltd [2013] 5C1232 and Mount Hagen Urban Local Level Government v Sek No 15 Ltd [2009] SCl007) 
25.  In this case his Honour's clear frustration with the position taken by the appellant in the National Court proceedings is clear from the primary judgment. It is also, in our view, quite understandable. We note, for example, that: 
•	There were disparities in the relief claimed by the appellant in the Originating Summons and the Statement of Claim subsequently filed. The only outstanding issue in dispute between the parties in this respect was whether the disparities were material. 
•	Despite numerous -legitimate and well-founded - requests in correspondence by the first respondents for clarification of these disparities, the appellants declined to provide explanation. The position of the appellant so far as concerned its explanation for these disparities has fluctuated considerably between its appearance in the National Court and this Court.  So whereas before his Honour the appellant appeared to take the position that the Statement of Claim was simply a document conveniently prepared for the purposes of mediation, and the Originating Summons was the principal pleading upon which it was relying, by the time the appellant appeared in this Court its position had apparently rotated 180 degrees, and it claimed that the Statement of Claim had in fact superseded the Originating Summons. 
•	In this Court the appellant submitted that it had, in fact, abandoned a number of claims for relief in the Originating Summons. 
•	At the hearing Mr Molloy for the appellant further conceded that the claims for quantum meruit in the Statement of Claim were actually misconceived, and would not be relied on by the appellant. 

26.	His Honour quite correctly rejected the proposition advanced by the appellant to the effect the Statement of Claim could be prepared in a cavalier fashion and without reference to the Originating Summons, in circumstances where it properly formed part of the appellant's pleadings in this case. Indeed we do not understand the appellant to cavil with the approach taken by his Honour to that extent.
 
27.	     Notwithstanding these findings, we consider his Honour erred in the exercise of his discretion to dismiss the proceedings in the following respects. 

28.	Primarily, we are unable to identify in the primary judgment a consideration of a critical issue required to be taken into account by his Honour in dismissing the proceeding summarily - namely the necessity for extreme caution to be exercised by Courts in making orders which summarily deprive a plaintiff of the opportunity to prosecute litigation in the Court and the prospect of amendment of the pleadings by the appellant to rectify any defects or disparities in the pleadings. In this light we note that: 

•	The appellant submits that it would be statute-barred from proceeding with claims under the Fairness of Transactions Act in respect of relevant agreements. This submission was not disputed by the first respondents, and in our view is a very important consideration in the context of summary dismissal, given the prejudice the loss of this cause of action could occasion to the appellant. 
•	Appellant in this case were obviously frivolous or vexatious or obviously unsustainable so as to constitute an abuse of process within the meaning of that term as Takori v Yagari.

29.	In particular, we note that the appellant's claims against the first respondent primarily lie under the Fairness of Transactions Act. 

•	While there is clearly an issue in relation to the pursuit by the appellant of quantum meruit claims, the options of amendment or strike-out were obvious and proper approaches to address any such defects in the pleadings. We cannot identify any proper consideration by the primary Judge of the prospect of amendment of the pleadings in this regard. 
•	The first respondent submitted that the appellant could not properly sustain a claim under the Fairness of Transactions Act because of the governing law of the relevant contracts, as well as the finding of the primary Judge that the current state of the pleadings does not support a claim of manifest unfairness. However it is not obvious to us how either his Honour or this Court could form the view urged by the first respondent in this respect, namely that no reasonable cause of action under the Fairness of Transactions Act exists. On the facts of this case, the complex questions whether the Act applies, and whether the facts support findings of manifest unfairness within the meaning of the Act, are clearly and properly questions for trial rather than for summary dismissal. 
30.	Much was made at the hearing of the appeal concerning whether the appellant had abandoned aspects of the Originating Summons not replicated in the Statement of Claim, or whether in fact the Originating Summons had, in some sense, been "modified" by the contents of the Statement of Claim. We do not consider it necessary in the circumstances of this appeal to determine this issue, particularly in light of the somewhat confused state of the appellant's case on this point between the National Court and this Court. We do, however, make the somewhat obvious observation that the pleadings constitute the case of the plaintiff, and they must be such that the defendant is properly put on notice of the case against it. In circumstances where there is doubt, disparity or confusion in the pleadings, a proper course is amendment of those pleadings. 
Conclusion 

31.	  It follows that the appeal should be allowed, to the extent that the order of the National Court dismissing the proceedings be quashed. However we have reached this view subject to two reservations. 

32.	   First, we consider it necessary to make a separate order, namely in the interests of justice to the first respondent, to give effect to the submissions put by the appellant to this Court at the hearing of the appeal, and to provide some clarity in the proceedings in the National Court going forward. Accordingly, we consider it appropriate to order that the case of the appellant in the National Court proceedings be confined to that pleaded in the Statement of Claim filed 2 June 2014, to the exclusion of the relief sought in the Originating Summons. Although the appellant conceded before us that the Statement of Claim required further amendments, for example in relation to the quantum meruit claims currently pleaded, this is an issue which it should properly take up in the National Court. 

33.	Second, and importantly, we consider that while the appellant has been partially successful in appealing the decision of the primary Judge, the background circumstances leading to the hearing before his Honour, the significant departure in this Court from the case put to his Honour, and the time and costs wasted by the first respondent in this matter, all lie at the feet of the appellant. We do not consider it appropriate to disturb the costs order of the trial Judge in respect of the hearing below. Further, we consider that the costs of the first respondent in this appeal should be paid by the appellant. 
34.	  The Court orders that:
1.	  The appeal be allowed in part.
2.	   Order (a) of the National Court delivered on 12 March 2015 in OS No 225 of 2014 - NAE Ltd v Curtain Bros Papua New Guinea Limited (1-1815) and Clough Niugini Limited (1-1251) trading as Clough Curtain Joint Venture (6-80953) & Alex Tongayu in his capacity as the Registrar of Companies, be quashed.
3.	  The proceeding OS No 225 of 2014 - NAE Ltd v Curtain Bros Papua New Guinea Limited (1-1815) and Clough Niugini Limited (1-1251) trading as Clough Curtain Joint Venture (6-80953) & Alex Tongayu in his capacity as the Registrar of Companies, be reinstated in the National Court.
4.	  The pleaded case of the plaintiff NAE Ltd in OS No 225 of 2014 be confined to the Statement of Claim filed on 2 June 2014 in OS No 225 of 2014. 
5.	 The costs of the first respondent in this appeal be borne by the appellant. 

_________________________________________________________
Greg Manda Lawyers: Lawyers for the Applicant
Young & Williams:  Lawyers for the Respondents