Naylor v Foundas [2004] VUCA 26; Civil Appeal Case 08 of 2004 (5 November 2004)

IN THE COURT OF APPEAL
OF THE REPUBLIC OF VANUATU
(Appellate Jurisdiction)

Civil Appeal Case No. 08 of 2004

BETWEEN:

ROXANNE NAYLOR
Appellant

AND:

EMMANUEL FOUNDAS
Respondent

Coram: The Hon. Chief Justice Vincent LUNABEK
The Hon. Justice Bruce ROBERTSON
The Hon. Justice John von DOUSSA
The Hon. Justice Daniel FATIAKI
The Hon. Justice Patrick TRESTON
The Hon. Justice Oliver SAKSAK

Counsel: Mr. Malcolm for the Appellants
Mr. Bill Bani for the Respondent

Date of Hearing: 28 October 2004
Date of Judgment: 05 November 2004

JUDGMENT

Background and Chronology of Events

In February 2000 the appellant instituted civil action against the respondent for damages in the sum of VT1, 282, 600 together with interest.

The respondent defended the action and filed his counterclaim against the appellant for the sum of VT3, 800, 000 in March 2000. All claims were contested and the matters proceeded to trial before His Honour Coventry J.

On 14^th August 2000 Coventry J gave judgment in favour of the respondent on the claim, and on the counterclaim entered judgment against the appellant for VT2, 517, 400. He also ordered interest at the rate of 5% on the judgment and costs on a party and party basis. An Enforcement order was issued by Coventry J on 8 December 2000 requiring the appellant to pay at the rate of VT100, 000 per month from 15 December 2000 and to continue thereafter until the judgment debt was wholly paid up.

The appellant made no payments to the respondent under the enforcement order. On 20 January 2004 the court issued a summons to the appellant to attend Court and give evidence and produce documents on 29 January 2004. The summons reads as follows:-

"SUMMONS TO ATTEND COURT, GIVE EVIDENCE

AND PRODUCE DOCUMENTS

To: Roxanne Naylor of Nambatu, Port Vila

The Supreme Court made an enforcement order against you on the 8^th December 2000.

You must attend the Supreme Court at Port Vila on 29 January 2004 at 2pm

To give evidence in this proceedings at the request of Emmanuel Foundas

You must bring with you sufficient documents to enable you to give a fair and accurate picture of your financial circumstances

Made at Port Vila, this 20^th day of January 2004

BY THE COURT

H. Bulu

Judge

WARNING: If you do not come to Court, you may be arrested,

brought to Court and fined or put in prison."

There is no record of a conference or hearing taking place on 29 January 2004. There is however a record of appearances before Bulu J on 2 February 2004 during which the appellant was examined as to her financial means. The matter was then adjourned to 2 p.m. on 4 February 2004. On that date the examination of the appellant continued and was adjourned further to 9^th February 2004 for a witness, a Mr. Atuary to be called to give evidence. On 9^th February the Court was informed that Mr. Atuary would not be called, and the matter was further adjourned to enable Mr. Foundas to brief a lawyer.

Mr. Bani filed a Notice of Beginning to Act for Mr. Foundas on 1 March 2004.

On 29 April 2004 the matter was heard in conference and adjourned to 7 May 2004 for a further conference. On 7 May the matter as adjourned further to 21 May 2004 when the following orders were issued -

"Upon hearing Mr. Bill Bani on behalf of the Defendant and Roxanne Naylor in person in relation to the Enforcement Order dated 8^th December 2000 against the Claimant and satisfying myself that the Claimant has failed to abide by the Enforcement Order, it is hereby Ordered that: -

1. The Claimant shall pay the Defendant the bull sum of VT2, 417, 400 to Bill Bani & Partner's Trust Account on or before 3pm on Wednesday 26^th May 2004.
   
2. The Claimant shall pay interest of 5% compounded on the sum of VT2, 517, 400 for the period 14^th August 2000 until 21^st May 2004 to a total of VT562, 180.
   

[We note that the figure of VT2, 417, 400 in paragraph 1 does not correspond to the figure VT2, 517, 400 in paragraph 2]

3. The Claimant shall pay the Defendant's costs of VT 1, 450, 000 itemized as follows: -
   

(a) Legal costs - VT 240, 000

(b) Debt recovery services - VT 900, 000

(c) Accommodation - VT 150, 000

(d) Airfares from and to Australia - VT 120, 000

----------------

VT 1, 410, 000

[We note again that the figures do not correspond.]

4. In the event that the Claimant defaults in such payment by the date and time as referred to (sic) Order 1, a Warrant of Remand shall be issued forthwith for the immediate arrest and detainment of the Claimant
   

Made at Port Vila, this 21^st day of May 2004.

H. Bulu

Judge"

On 23 June 2004, the defendant filed an application seeking a warrant for the arrest and remand of the appellant. The application was supported by a sworn statement of Mr. Foundas filed on the same date. In the mean time, this appeal was instituted.

The Appeal

The appeal was filed on 26 May 2004. The appellant also applied to have the Orders of 21 May 2004 stayed. It does not appear that the application for stay has been dealt with by the Court, but in any event no warrant has been issued.

The appeal is specifically against Orders 3 and 4 of the Orders dated 21 May 2004 (set out above). There is only one ground of appeal as follows: -

"1. There is no right in law or in the rules for the Supreme Court to order imprisonment for non-payment of a judgment debt. There was no taxation or proof in respect to the sums claimed under Order 3 of the Order."

The Hearing

At the commencement of the hearing of the appeal Mr. Bani conceded that Order 4 in the orders of the Supreme Court dated 21^st May 2004 should not have been made.

We agree and in the light of that concession this appeal must be allowed.

The basis on which the concession was made was not articulated, and the Court was concerned about the following matters not covered by the concession -

(a) The compounded interest of 5% awarded by paragraph 2 of the Order of 21 May 2004. Mr. Malcolm argued that the Order is not consistent with the Orders dated 14 August 2000.

(b) The respondent's costs in the sum of VT1, 450, 000 comprising the items in paragraph 3 of the Orders.

Mr. Malcolm argued first that the appellant was not given an opportunity to be heard in relation to those costs in accordance with Rules 15.6 and 15.7. Secondly, that the costs of the trial should be determined. And thirdly, that the debt recovery services, and the respondent's airfares from and to Australia and accommodation expenses are not recoverable from the appellant

(c) In relation to paragraph 4 of the Order of 21 May 2004, Mr. Malcolm argued that the appellant could not in the absence of any rule or legal provisions, have been imprisoned for non-payment of a debt. She could, however, be imprisonment for contempt of Court Orders under the provisions of Rule 18.11. However, he submitted this was not a case where imprisonment should be ordered.

Mr. Malcolm submitted therefore that the Orders of 21 May 2004 should be vacated including the Enforcement Orders of 8 December 2000. Mr. Malcolm also drew our attention to the appellant's application to stay the orders of 21 May 2004 filed on 26 May 2004, which he presumed is still alive. He further submitted that the only live orders were those issued by Coventry J dated 14 August 2000.

Taking these matters of concern in order -

(a) Interest

The right of a judgment creditor to recover interest is a statutory right. The right in this jurisdiction to award interest on a judgment arises under the old English statute of 1 & 2 Vic C.110, The Judgment Act, 1838, S. 17. The application of this Act was continued in Vanuatu after Independence Day under Act 95 (2) of the Constitution. Interest under that statute is simple interest, which runs from the date the judgement is pronounced. There is no statutory or other law that permits the award of compound interest on a judgment. We can only assume that the reference to compound interest in paragraph 2 of the Orders of 21 May 2004 was a mistake, as the original judgment of Coventry J correctly provided for simple interest.

(b) Costs

Mr. Bani conceded that the costs of trial ordered to be paid by Coventry J had been neither agreed nor determined by the Court. He was unable to suggest how the figure of VT240, 000 included in the Orders of 21 May 2004 was arrived at.

However it is the remaining items of costs that were allowed which are of particular concern. We do not think any of those items should have been awarded against the appellant.

Charges made by a debt recovery organization engaged by a creditor, including a judgment creditor, are not recoverable from the debtor, save in exceptional cases where a contract between the parties specifically provides for the costs of recovery action. Even in these cases it is likely that the contractual entitlement will cease on the entry of judgment as the contractual right will merge in the judgment.

If a judgment creditor engages the services of a recovery agent, the costs of doing so are entirely a matter between the him and the recovery services organization. These costs cannot be passed on to the judgment debtor. In the present case the claim for VT900, 000 debt recovery services should have been disallowed.

The claim for accommodation and airfares apparently incurred by the respondent, an Australian resident, relate to his attendance in Vanuatu in relation to the proceedings. No evidentiary basis to justify allowing any of these expenses was brought to the attention of this Court.

Generally speaking, if an overseas resident enters into a transaction in Vanuatu with a person ordinarily resident in Vanuatu, and later takes proceedings in the Vanuatu Courts in respect of that transaction, it will not be appropriate to allow the overseas resident, as part of the costs of the proceedings, expenses incurred in coming to Vanuatu in connection with the conduct of those proceedings.

However, that position is not an absolute one, and there may be situations where a proper exercise of the costs discretion would justify an award of expenses of that kind. If a transaction takes place overseas, and there are sound reasons for taking proceedings in the Vanuatu Courts, the position may be different.

In the present case if the respondent considers there are special circumstances that justify some or all of these expenses being allowed as part of the costs of the proceedings, those reasons, and if necessary supporting evidence, should be put to the Court when costs are determined under the Orders of 21 May 2004.

(c) Imprisonment for contempt

Imprisonment for making default in payment of a sum of money has never been the law in Vanuatu.

Before Independence, the Debtors Act 1869 (U.K.) had application. Section 4 of that Act, subject to six very narrow exceptions that have no application in a case like the present one, provides "... no person shall....be arrested or imprisoned for making default in payment of a sum of money".

The Debtors Act 1869 was an Act of general application. It was still in force in England on the Day of Independence, and in our opinion continued in force in this Republic after that day pursuant to Article 95 (2) of the Constitution.

The principle that a person should not be imprisoned for non-payment of a money sum extended to judgment debts. This was recognized in Order 45 of the High Court (Civil Procedure) Rules 1964 which formerly applied in Vanuatu. That order dealt with the available methods of execution on a judgment. Imprisonment for non-payment was not an available option, and Rule 7 specifically recognized this.

Rule 7 provided:

"A judgment requiring any person to do any act other than the payment of money, or abstain from doing anything may be enforced by writ of attachment, or by committal" (emphasis added)

The High Court (Civil Procedure) Rules 1964 were wholly replaced by the Civil Procedure Rules No. 49 of 2002 Part 14 of the new Rules which deals with Enforcement of Judgments and Orders does not provide for imprisonment for non-payment of money due under a judgment.

Moreover, it is now widely recognized internationally that to imprison a person for an inability to pay a debt or to meet some other contractual obligation is a serious breach of the fundamental human rights of liberty, security of the person and freedom from arbitrary detention. Those fundamental rights are now recognized in international law through the Universal Declaration of Human Rights (G A Res 217 (III) 1948) and further elaborated in The International Covenant of Civil and Political Rights (G A Res 2200(XXI) (1966)).

Article 11 of the Covenant provides:

"No person shall be imprisoned merely on the ground of inability to fulfil a contractual obligation."

The following commentary on Art. 11 appears in "The International Covenant on Civil and Political Rights; Cases, Materials and Commentary" 2^nd Ed (2004) by S. Joseph, J Schultz and M. Casten:

Article 11 protects against imprisonment as a punishment for inability to fulfil a contractual obligation. The 'contractual obligations' envisaged in article 11 are private law civil obligations, rather than, for example, statutory obligations. As the guarantee was primarily designed to tackle the phenomenon of 'debtors' prisons', 'contractual obligations' obviously include monetary debts. However, article 11 could apply to other contractual obligations, such as performance of services or delivery of goods. The reference to 'inability' indicates that the person must be incapable of fulfilling the relevant contractual obligation, rather than simply unwilling to do so. The word 'merely' indicates that the guarantee does not protect people who have committed some other offence over and above the contractual breach. For example, if one intentional manufactures one's 'inability' and commits fraud, one is not protected from imprisonment by article 11.

Article 11 is a non-derogable right, which has generated no meaningful jurisprudence, so its parameters remain largely undefined".

Vanuatu is not a signatory to the Covenant, so it is not part of the domestic law of this country.

However, Chapter 2 of the Constitution of the Republic of Vanuatu sets out fundamental rights and freedoms to which all persons are entitled. Article 5 (1), paragraphs (b), (c) and (e) recognize the fundamental rights and freedom to liberty, security of the person and freedom from inhuman treatment. It is from these broadly expressed fundamental human rights that article 11 of the Convention is derived.

Having regard to Article 5 of the Constitution and to the international law position, it is hardly surprising that counsel were unable to identify any law in Vanuatu that could justify the imprisonment of a person who is unable to pay a civil debt.

It is to misunderstand the law of contempt to think that the inherent contempt powers of the Court can or should be used to achieve by the back door what cannot be directly achieved under a specific law.

The Court has inherent power to deal with criminal contempts which undermine the administration of justice, and civil contempts that occur when a party to civil proceedings fails to comply with a specific order of the Court. Thus, if a party deliberately fails to comply with an injunction, imprisonment for contempt may be an appropriate order.

However, punishment for civil contempt is punishment for a deliberate failure to do something that is in the power of the defendant to do, but the defendant, in defiance of the order, chooses not to do. In the case of a judgment debtor who by reason of impecuniosity is unable to pay moneys ordered to be paid, the failure to comply is not a deliberate defiance to do what is possible, and imprisonment should not be ordered. Contempt proceedings for failure to pay a monetary judgment would only be appropriate where the judgment creditor leads clear evidence that the debtor had the means to pay, but chose not to pay so as to frustrate the creditor. There was no evidence that this was the case here. On the contrary there was evidence given on the appellant's examination that she was hopelessly insolvent.

For these reasons the Enforcement Orders of 8 December 2000 and the Orders of 21 May 2004 are set aside. We agree with Mr. Malcolm that the only live Order which remains is that dated 14 August 2000.

The respondent must pay the appellant's costs of this appeal which we fix at VT 125, 000 including disbursements.

Dated at Port Vila this 05th day of November 2004

BY THE COURT

VINCENT LUNABEK CJ
BRUCE ROBERTSON J
JOHN VON DOUSSA J
DANIEL FATIAKI J
PATRICK TRESTON J
OLIVER SAKSAK J