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Pundia v Kiwai [2011] PGNC 136; N4427 (21 October 2011)

N4427

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO 595 OF 2010

BETWEEN

MICHAEL PUNDIA
First Plaintiff

AND

ANNA YAKOPA KIWAI
Second Plaintiff

AND

JERRY KIWAI TRADING AS JERRY KIWAI LAWYERS OR JERRY KIWAI LAWYERS LIMITED
First Defendant

AND

JERRY KIWAI LAWYERS LIMITED
Second Defendant

AND

ALEX TONGAIYU-ACTING REGISTRAR OF COMPANIES
Third Defendant

AND

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Fourth Defendant

AND

BANK OF SOUTH PACIFIC LIMITED
Fifth Defendant

Mount Hagen: Makail, J
2011: 14th & 21st October

PRACTICE & PROCEDURE - Removal of party - Application of - Grounds of - Inconvenient joinder - National Court Rules - O 5, r 9 & O 13, r 9.

PRACTICE & PROCEDURE - Solicitor/client costs - Application of - Considerations of - Grounds of - National Court Rules - O 22, r 65.

Facts

The plaintiffs sued the defendants for damages for fraud and negligence. They alleged the defendants fraudulently and/or negligently removed them as shareholders of the second defendants and embezzled monies by moving them to an authorised account with the fifth defendant. The third and fifth defendants applied to be removed as defendants from the proceeding. The third defendant submitted it was an inconvenient party as the plaintiffs should have appealed its decision to the National Court pursuant to section 408 of the Companies Act, 1997. The fifth defendant submitted it was an inconvenient party because there was no claim pleaded against it and that any order that the plaintiffs obtained against it may be enforced against it without it being a party to the proceeding pursuant to O 13, r 9 of the National Court Rules.

The first and second defendants applied for costs of adjournment of the third and fifth defendants' applications of 10th June 2011 and the fifth defendant applied for costs on solicitor/client basis against the plaintiffs' lawyers in the event that it was successful with its application for removal as party pursuant to O 22, r 65 of the National Court Rules.

Held:

1. The third defendant was a proper party to the proceeding as the pleadings in the statement of claim alleged that the first defendant colluded with him to remove the plaintiffs as shareholders of the second defendant and/or was negligent in the discharge of his duty when he accepted the first defendant's application for change of shareholders and removed the plaintiffs as shareholders of the second defendant. The third defendant's application for removal as a party was accordingly refused.

2. The fifth defendant was inconveniently joined as a party to the proceeding as the pleadings in the statement of claim did not establish a cause of action against it. The fifth defendant's application for removal as a party was accordingly upheld and the fifth defendant was removed from the proceeding.

3. The costs of the adjournment of the applications of 10th June 2011 was awarded against the third and fifth defendants as they were responsible for causing the Court to adjourn the hearing of their applications because of lack of proof of service of the notice of hearing on the plaintiffs' lawyers.

4. In an application for costs on a solicitor/client basis under O 22 r 65 of the National Court Rules, an applicant must establish that costs were incurred;

(a) improperly; or

(b) without reasonable cause;

(c) were wasted by undue delay; or

(d) by other misconduct or default.

5. As the fifth defendant failed to establish that the costs were incurred improperly or without reasonable cause, its application for cost on solicitor/client basis against the plaintiffs' lawyers was accordingly refused.

Cases cited:

Jacob Sarapel -v- Fred Kulumbu (2003) N2405
Timothy Patrick & Ors -v- Pepi Kimas & Ors (2010) N3913
Islands Helicopters Services Limited -v- Wilson Sagati (2008) N3340
Rex Paki -v- Motor Vehicles Insurance (PNG) Limited (2010) SC1015

Counsel:

Mr A Baniyamai, for Plaintiffs
Ms J Nandape, for First & Second Defendants
Mr M Miningi, for Third Defendant
No appearance for Fourth Defendant
Ms V Palts, for Fifth Defendant

RULING
21st October, 2011

1. MAKAIL, J: This is a ruling on various applications. These applications are:

1. The third defendant's application for removal as a defendant in the proceeding or alternatively for leave to file its defence out of time pursuant to O 5, r 9 and O1, rr 7 & 15, O 12, r 65 of the National Court Rules respectively.

2. The fifth defendant's application for removal as a defendant in the proceeding and for costs on solicitor/client basis against the plaintiffs' lawyers pursuant to O 5, r 9 and O 22, r 65 of the National Court Rules respectively.

3. The costs of the last two adjournments of 10th June 2011 and 07th October 2011 and of the hearing of 14th October 2011.

Removal of Third Defendant as party

2. I deal first with the third defendant's application for removal as a party from the proceeding. According to the statement of claim endorsed with the writ of summons, the plaintiffs seek damages against the defendants for fraud and negligence. They alleged the first and third defendants fraudulently and/or negligently removed them as shareholders of the second defendants and then the first defendant embezzled monies of the second defendant by moving them from bank accounts held at ANZ bank to an authorised account with the fifth defendant.

3. In support of the third defendant's application for removal as a party, counsel for the third defendant Mr Miningi submitted the third defendant is an inconvenient party as the plaintiffs should have appealed the third defendant's decision in relation to the transfer of shares and changing of shareholders of the second defendant to the National Court pursuant to section 408 of the Companies Act, 1997. Counsel submitted this is because the third defendant had acted purely on the application of the first defendant to change the shareholders of the second defendant and changed the shareholding records of the second defendant. If the plaintiffs are aggrieved by the third defendant's decision or actions, they have a right to appeal the decision or actions of the third defendant to the National Court under section 408 of the Companies Act, 1997. That provision states:

"408. Appeals from Registrar's decisions.

(1) A person who is aggrieved by an act or decision of the Registrar under this Act may appeal to the Court within one month after the date of notification of the act or decision, or within such further time as the Court may allow.

(2) On hearing the appeal, the Court may approve the Registrar's act or decision or may give such directions or make such determination in the matter as the Court thinks fit."

4. But I am not at all convinced by Mr Miningi's submission. Such a submission is relevant and may be properly raised in an application for dismissal of a proceeding under O 12, r 40 of the National Court Rules but not in an application for removal of a party under O 5, r 9 of the National Court Rules. I consider under O 5, r 9, the Court may remove a party from a proceeding if it is established that it had been improperly joined or unnecessarily joined or has ceased to be a proper or a necessary party. Order 5, r 9 of the National Court Rules states:

"9. Removal of parties. (8/9)

Where a party -

(a) has been improperly or unnecessarily joined; or

(b) has ceased to be a proper or necessary party,

the Court, on application by any party or of its own motion, may, on terms, order that he cease to be a party and make orders for the further conduct of the proceedings."

5. In my view, Mr Miningi's submission based on section 408 of the Companies Act, 1997 does not meet the considerations of O 5, r 9 of the National Court Rules. In my view, the submission is misconceived and I reject it.

6. On the other hand, the submissions of Mr Baniyamai of counsel for the plaintiffs convinces me that the third defendant is a proper party to the proceeding and should not be removed from the proceeding. I accept his submission that the plaintiffs have alleged that the first defendant had colluded with the third defendant to remove the plaintiffs from being shareholders of the second defendant by changing or altering the records of the second defendant held by the third defendant. Secondly and or alternatively, that the third defendant was negligent in the discharge of his duty when he failed to properly check and verify the application to remove the plaintiffs as shareholders of the second defendant before changing or altering the records of the second defendant held at the office of the third defendant.

7. In my view, to remove the third defendant would deny the plaintiffs the opportunity to test their case against the third defendant. In my view also, the allegations of fraud and/or negligence against the third defendant strongly suggest that he is a proper and necessary party to the determination of the issues of fraud and negligence against him and the first defendant. For these reasons, I refuse the third defendant's application for removal as a party from the proceeding.

Third Defendant's application for leave to file defence

8. I turn to the third defendant's application for leave to file its defence out of time. The principles for application for leave to file a defence out of time are essentially that:

1. The applicant must provide a reasonable explanation for the failure to file a defence within time;

2. If there is a delay in bringing the application, a reasonable explanation for the delay;

3. The applicant must demonstrate that there is a defence on merit; and

4. There will be no prejudice if leave is granted.

9. Mr Miningi made no submissions in relation to why the third defendant did not file his defence within the prescribed time and also why he did not bring the application for leave within a reasonable time soon after the time for the filing of his defence expired. He focussed his submissions on the issue of defence on merit where he repeated his earlier submissions that the third defendant had pleaded and will be relying on section 408 of the Companies Act, 1997 as part of its defence of the case. He further submitted as the third defendant had made a decision to accept the application to change the shareholders of the second defendant, and as the plaintiffs are aggrieved by the third defendant's decision or actions, they ought to have appealed the decision or actions of the third defendant to the National Court under section 408 of the Companies Act, 1997. As they did not and commenced this proceeding, it is an abuse of process.

10. He further submitted the third defendant denied any fraud or negligence on his part. He submitted this is because the third defendant had acted purely on the application of the first defendant to change the shareholders of the second defendant and accordingly, changed the shareholding records of the second defendant. Mr Miningi's submissions were supported by Ms Nandape for the first and second defendants and Ms Palts for the fifth defendant.

11. Mr Baniyamai did not seriously oppose the third defendant's application for leave but suggested that the third defendant had failed to show why he did not file a defence within the prescribed time. On this part, he pointed out and emphasised that as the third defendant is a servant and agent of the fourth defendant, he had 90 days or 3 months to file his defence under section 9 of the Claims By and Against the State Act, 1996. Despite the length of time, he failed to do so.

12. Although there is no explanation given by the third defendant for the failure to file a defence within the prescribed time and also for the delay in bringing the application for leave, but as Mr Baniyamai did not seriously contest the application for leave, I am satisfied there is a defence on merit because first, the third defendant has raised an alternative process by which the plaintiffs could have raised and addressed their grievances through under section 408 of the Companies Act, 1997. Secondly, the third defendant has denied any fraud and/or negligence. In my view, these are triable issues that can only be determined at trial. Finally, I am satisfied the plaintiffs will not be seriously prejudiced if leave is granted to the third defendant to file his defence out of time. Leave is therefore granted.

Removal of Fifth Defendant as party

13. As for the fifth defendant's application for removal from the proceeding, Ms Palts of counsel strongly submitted the fifth defendant is an inconvenient party because there is no claim pleaded against it and that any order that the plaintiffs obtain against it may be enforced against it without it being a party to the proceeding. She referred to the affidavit in support of Mr John Maddison filed on 01st September 2011 where Mr Maddison who is the senior manager (legal) of the fifth defendant gave an assurance that the fifth defendant will comply with any orders of the Court against the fifth defendant. She then pointed to paragraphs 33(E) & 33(I) of the statement of claim and submitted the orders sought can be enforced against the fifth defendant without it being a party to the proceeding.

14. Mr Baniyamai referred the Court to paragraphs 26 and 27 of the statement of claim and submitted the allegations of fact pleaded in these paragraphs raised issues of fraud and/or negligence against the fifth defendant, in that the plaintiffs alleged the fifth defendant opened an account for the second defendant without first checking or verifying if there was a resolution by the shareholders of the second defendant approving the opening of the new account with the fifth defendant. In any case, he submitted if the pleadings against the fifth defendant were insufficient, the fifth defendant had recourse to and could have requested for further and better particulars from the plaintiffs.

15. The fifth defendant grounded its application on O 13, r 9 which states:

"9. Enforcement by or against non-party. (42/10)

(1) Where, in any proceedings, a person who is not a party obtains an order, or an order is made in favour of a person who is not a party, he may enforce the order by the same means as if he were a party.

(2) Where, in any proceedings, obedience to a judgement may be enforced against a person who is not a party, the judgement may be enforced against him by the same means as if he were a party.

(3) Where, in any proceedings, obedience to a judgement may be enforced against a corporation which is not a party, an officer of the corporation shall be liable to the same process of enforcement as if the corporation were a party."

16. From the parties' submissions, I consider that the issue of the fifth defendant being an inconvenient party is dependent substantially on whether there is a cause of action against the fifth defendant and not whether the pleadings in the statement of claim are insufficient. This is because, the plaintiffs are alleging fraud and/or negligence against the fifth defendant.

17. From my perusal of paragraphs 26 and 27 of the statement of claim and also the entire statement of claim, there is not one single allegation of fraud or negligence alleged against the fifth defendant. Despite the lack of pleadings on fraud and/or negligence against the fifth defendant, the first plaintiff has gone ahead and deposed at paragraphs 34-37 of his affidavit in support sworn and filed on 30th June 2010 that without the approval of the shareholders of the second defendant including the plaintiffs, the fifth defendant accepted the first defendant's application to open a new account for the second defendant with the fifth defendant and opened a new account. From there, the first defendant conducted various transactions including withdrawal of monies without the plaintiffs' knowledge and approval. He further deposed the fifth defendant failed to conduct proper inquiries and diligence check before opening the new account. Therefore, the fifth defendant's actions amounted to fraud and/or negligence.

18. I can see why the plaintiffs have named the fifth defendant as a defendant and that is to get it to transfer monies in the account of the second defendant to them, if they successfully sue the first and second defendants. That is their primary and main concern and that is why they have not pleaded fraud and/or negligence against the fifth defendant in the statement of claim. They have also not sought any order for damages against the fifth defendant, except an order to freeze the monies in the second defendant's account. That is precisely the essence of the fifth defendant's submission. It says, it will freeze the second defendant's account if the Court orders it to do so and that can be done without it being a party to the proceeding.

19. In my view, if the fifth defendant is removed as a party, the plaintiffs' interest in relation to the money in the second defendant's account will still be adequately protected as any orders that the Court may make in favour of the plaintiffs against the fifth defendant will still be enforced against it pursuant to O13, r 9 (above). In the circumstances, I accept the fifth defendant's submission and find that the fifth defendant has been improperly and unnecessarily joined in the proceeding and must be removed. I so order.

Cost of Adjournments and Hearing

20. The final matter is the cost of these applications. They arise from the last two adjournments of 10th June 2011 and 07th October 2011 and from the hearing of 14th October 2011. The cost of the adjournment of 10th June 2011 was reserved following parties' appearances before David, J at Minj National Court to be argued later and cost of the adjournment of 07th October 2011 was reserved by me to be argued later because of Mr Baniyamai's non-appearance.

21. In relation to the costs of the adjournment of 10th June 2011, Ms Nandape submitted the third and fifth defendants should be ordered to pay costs of the first and second defendants as at that time she was ready to respond to the third and fifth defendants' applications but the third and fifth defendants had failed to prove to the Court that they had notified Mr Baniyamai of the hearing date. At that time, Mr Baniyamai was absent. Mr Miningi and Ms Palts submitted the costs of the adjournment should not be borne by the third and fifth defendants because it was Mr Baniyamai's doing that their applications were adjourned.

22. Mr Baniyamai submitted otherwise. While he conceded he was absent on that date, he submitted it is wrong for the third and fifth defendants to put the blame squarely on him for the adjournment. He submitted the third and fifth defendants were also at fault because the Court was of the view that they did not sufficiently prove that they had served the notice of hearing on him and that for them to produce a letter as notice to the Court was not sufficient evidence of service.

23. I accept Mr Baniyamai's submissions. It is not entirely correct to say that because he was absent at the hearing that the plaintiffs should be ordered to pay the costs of the adjournment. It has been conceded by the third and fifth defendants that they did not prove to the Court that they had served a notice of hearing on Mr Baniyamai and producing a letter of notice from the bar table is not sufficient evidence of service. As they were unable to prove service on the plaintiffs' lawyers (Mr Baniyamai), the Court was forced to adjourn the applications and that resulted in the first and second defendants incurring costs.

24. On the issue of service, I have reminded counsel appearing in my Court to always file an affidavit of service. I have always reminded them that it does not cost a great deal of money to file an affidavit of service as proof of service of any document on another party to a proceeding, be it service of a notice of motion, affidavit, notice of hearing, etc as, apart from it being a procedural requirement under O 6, r 18 of the National Court Rules, it always becomes handy or relevant when an issue is raised on service of a document at the hearing.

25. In this case, it has been conceded by the third and fifth defendants that they had failed to file an affidavit of service or produce an affidavit of service as proof of service of the notice of hearing to the plaintiffs' lawyers on 10th June 2011 and that had resulted in the Court adjourning their applications and the first and second defendants incurring costs. For these reasons, I refuse the third and fifth defendants' application for costs of the adjournment of 10th June 2011 against the plaintiffs and grant the first and second defendants' application for costs to be paid by the third and fifth defendants.

26. As to the costs of the adjournment of 07th October 2011, again Mr Baniyamai was absent for the hearing of the third and fifth defendants' applications and the Court was forced to further adjourn the hearing of the applications at the request of the first plaintiff who appeared in person. There was proof of service by way of affidavits of services from the third and fifth defendants informing Mr Baniyamai of the hearing date of 07th October 2011. There was no word received from Mr Baniyamai as to whether or not he would be attending the hearing on that date. I adjourned the applications to 14th October 2011 and also ordered Mr Baniyamai to appear on that date and explain why his law firm should not be ordered to pay the defendants' costs of the adjournment.

27. Mr Baniyamai has appeared and apologised to the Court for his absenteeism on 07th October 2011. He explained he had no intention of staying away from the hearing nor did he intend to keep the Court and defendants waiting for him. He submitted he was very ill at that time and had sought medical treatment and was advised by doctors to take time off work to rest. He produced an affidavit enclosing medical reports from doctors verifying his claim of illness. The medical reports stated inter-alia, that he suffered from stress which was believed to be work related.

28. All counsel for the defendants did not seriously oppose Mr Baniyamai's submission. They all seem to concede that Mr Baniyamai had a good reason for being absent on 07th October and that being that, he was ill. As there is no serious objection to Mr Baniyamai's explanation for his absence on 07th October 2011 and that, based on the medical reports of doctors verifying that he was ill at the relevant time, I accept his explanation for his absenteeism on 07th October 2011. I find he had a genuine reason for being absent. Accordingly, I order that costs of the adjournment of 07th October 2011 shall be in the cause.

29. The final matter is the cost of the hearing of the applications of 14th October 2011. As I have refused the third defendant's application for removal as a party, should costs be awarded against the third defendant? As for the fifth defendant's cost of its successful application for removal as a party, should the plaintiffs' lawyers personally pay the fifth defendant's costs on a solicitor/client basis? Order 22, r 65 of the National Court Rules provides for solicitor/client costs as follows:

"65. Personal liability of solicitor for costs. (52/66)

(1) Where costs are incurred improperly or without reasonable cause, or are wasted by undue delay or by any other misconduct or default, and it appears to the Court that a solicitor is responsible (whether personally or through a servant or agent), the Court may, after giving the solicitor a reasonable opportunity to be heard -

(a) disallow the costs as between him and his client; and

(b) direct the solicitor to repay to his client costs which the client has been ordered to pay to any other party; and

(c) direct the solicitor to indemnify any party other than his client against costs payable by the party indemnified.

(2) Without limiting the generality of Sub-rule (1) a solicitor is responsible for default for the purposes of that Sub-rule where any proceedings cannot conveniently proceed, or fail or are adjourned without useful progress being made, because of the failure of the solicitor -

(a) to attend in person or by a proper representative; or

(b) to file any document which ought to have been filed; or

(c) to deliver any document which ought to have been delivered for the use of the Court; or

(d) to be prepared with any proper evidence or account; or

(e) otherwise to proceed.

(3) The Court may, before making an order under Sub-rule (1), refer the matter to the taxing officer for enquiry and report.

(4) The Court may order that notice of any proceedings or order against a solicitor under this Rule shall be given to his client in such manner as may be specified in the order under this Sub-rule."

30. Ms Palts strongly submitted that if the Court upholds the fifth defendant's application for removal as a party, the plaintiffs' lawyers should be ordered to pay cost on solicitor/client basis because first, there was no basis at all for the plaintiffs to sue the fifth defendant in the first place, secondly that the fifth defendant had repeatedly requested the plaintiffs' lawyers to be removed from the proceeding and the plaintiffs' lawyers failed to consent to the request and finally, it had forewarned the plaintiffs' lawyers that it would be seeking costs on solicitor/client basis if it was successful with its application. In support of these reasons, she referred the Court to her affidavit in support sworn and filed on 10th October 2011, where she annexed a number of letters sent to the plaintiffs' lawyers requesting their consent to remove the fifth defendant from the proceeding and the reasons for such a request.

31. Mr Baniyamai strenuously opposed the application and submitted his firm had on behalf of the plaintiffs informed the fifth defendant's lawyers that the plaintiffs had rejected the fifth defendant's request to consent to the application for removal of the fifth defendant from the proceeding. He said the plaintiffs took this position because they had a right to test their case against the defendants and the issues of fraud and negligence are matters for trial. That is why they maintained that the fifth defendant should remain to respond to these allegations.

32. I consider that, in an application for costs on a solicitor/client basis under O 22, r 65 of the National Court Rules, an applicant must establish that costs were incurred;

(a) improperly; or

(b) without reasonable cause;

(c) were wasted by undue delay; or

(d) by other misconduct or default.

33. I note in her submissions, Ms Palts did not specify the ground or grounds under O 22, r 65 upon which the fifth defendant relies upon to ask for costs on solicitor/client basis. However, from the reasons put forward by her in submissions, it appears the fifth defendant relies on the first and second grounds. That is to say, the costs were improperly or without reasonable cause incurred because of the plaintiffs' lawyers' refusal to consent to its application for removal as a party.

34. But I am not satisfied the plaintiffs lawyers' conduct resulting in the fifth defendant incurring cost can be described as improper or done without reasonable cause. To say that costs were improperly incurred or done without reasonable cause suggest that the plaintiffs' lawyers acted without good faith and that there was no basis in law to join the fifth defendant: Jacob Sarapel -v- Fred Kulumbu (2003) N2405, Timothy Patrick & Ors -v- Pepi Kimas & Ors (2010) N3913, Islands Helicopters Services Limited -v- Wilson Sagati (2008) N3340 and Rex Paki -v- Motor Vehicles Insurance (PNG) Limited (2010) SC1015.

35. It is clear from the evidence of the plaintiffs that they joined the fifth defendant because they had to protect their interest in the money that is held in the account of the second defendant with the fifth defendant. The fifth defendant does not dispute this point and I can see that the plaintiffs' intention is clear, though the manner in which they went about to protect their interest is misconceived. For this reason, I am not satisfied the plaintiffs' lawyers acted improperly or there was no reasonable cause to join the fifth defendant resulting in the fifth defendant incurring unnecessary costs.

36. For these reasons, I decline the fifth defendant's application for costs against the plaintiffs' lawyers on solicitor/client basis but order the plaintiffs to pay the fifth defendant's costs on party/party basis following the successful application for its removal as a party to the proceeding. As for the first and second defendants, as they took a neutral position with regards to the fifth defendant's application, I order that cost shall be in the cause. As for the third defendant's unsuccessful application, I order that cost shall also be in the cause.

Ruling accordingly.
____________________________________
Baniyamai Lawyers: Lawyers for the Plaintiffs
Nandape Lawyers: Lawyers for the First & Second Defendants
IPA In-House Counsel: Lawyers for the Third Defendant
Acting Solicitor-General: Lawyers for the Fourth Defendant
Twivey Lawyers: Lawyers for the Fifth Defendant