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JCA Lumber Co. (PNG) Ltd, In re [2015] PGNC 138; N6040 (29 June 2015)

N6040

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP 27 OF 2012

IN THE MATTER OF THE
COMPANIES ACT 1997

AND:

IN THE MATTER OF JCA
LUMBER CO. (PNG) LIMITED
(COMPANY NUMBER 1-29029)

Waigani: Hartshorn J.
2014: 9th September
2015: 29th June

Application for Security for Costs

Cases cited:

Papua New Guinea Cases

Yartlett v. New Guinea Motors Ltd [1984] PNGLR 155
Osprey Industries Ltd v. Hallam [1992] PNGLR 537
Odata Ltd v. Ambusa Copra Oil Mill Ltd (2001) N2106
Albright Ltd v. Mekeo Hinterland Holdings Ltd (2013) N5774
Albright v. Mekeo Hinterland Holdings Ltd (2014) SC1400

Overseas Cases

Evans v. Bartlam [1937] AC 473; 2 All ER 646
Gardner v. Jay (1885) 29 Ch 50
P M Sulcs and Assocs P/L v. Daihatsu Aust P/L [No 2] [2000] NSWSC 826
Sir Lindsay Parkinson & Co Ltd v. Triplan Ltd [1973] 2 All ER 273

Counsel:

Mr. J. Books, for the Applicants
Mr. E. G. Andersen and Ms. D. Gavara Nanu, for Messrs Chieng Puong Chin and Tan Lian Kee

29th June, 2015

1. HARTSHORN J: This is a decision on an application for security for costs.

2. Messrs Chieng Puong Chin and Tan Lian Kee, who are two of the respondents in this proceeding (respondents), seek that Messrs Jesus Vincente Magsaysay and Caesar Reyes Guidote (applicants) pay about K40,000 each as security for costs. The applicants oppose the application. There was no appearance on behalf of the other respondents.

3. The application is made pursuant to Order 14 Rule 25 (1) (a) National Court Rules.

Background

4. This matter involves a dispute over the shareholding in JCA Lumber Co. (PNG) Ltd (JCA). The applicants seek amongst others, the rectification of the share register of JCA under the Companies Act 1997.

This application

5. The respondents submit that the applicants should pay security for costs as amongst others:

a) the applicants are ordinarily resident overseas and do not have assets in Papua New Guinea apart from their claim to shares in JCA;

b) the applicants substantive claim is not likely to succeed;

c) the respondents have not contributed to any impecuniosity of the applicants;

d) the amount sought for security for costs is reasonable and will not have the effect of nullifying the proceeding;

e) there is no substantive cross claim in the proceeding;

f) any delay in bringing the application has not caused the applicants to incur further costs in preparing for trial.

6. The applicants submit that amongst others, although the respondents have a prima facie entitlement to an order for security for costs , this court should exercise its discretion and refuse the application as:

a) the application has not been made promptly;

b) the respondents did not seek security for costs when the other respondents successfully did so against the applicants almost 2 years ago;

c) the applicants have been attempting and continue to attempt to resolve or mediate the matter, the respondents have also filed a motion for the matter to be mediated, and the parties have agreed to mediate;

d) there are good prospects that the applicants will succeed in the substantive proceeding;

e) the applicants have already paid money into court as security for costs by virtue of the other respondents successful application almost 2 years ago. If the proposed mediation is unsuccessful those costs may be able to be applied to secure the costs of the respondents;

f) this application is being used oppressively as the respondents are seeking to consolidate this proceeding with complicated fraud proceedings between JCA shareholders but which do not concern the applicants, yet the respondents seek security for costs against the applicants;

g) the evidence of the costs claimed are inflated because of the complications that will result from the consolidation of the fraud related proceedings that do not involve the applicants;

h) if the application for the amount sought is successful, this may have the effect of nullifying the proceeding;

i) the respondents do not come to court with clean hands;

j) the respondents are also resident outside of Papua New Guinea;

k) it is not in the interests of justice to award security for costs in this instance.

Law

7. Order 14 Rule 25 National Court Rules is as follows:

"25. Cases for security. (53/2)

(1)Where in any proceedings, it appears to the Court on the application of a defendant—

(a)that a plaintiff is ordinarily resident outside Papua New Guinea; or

(b)that a plaintiff is suing, not for his own benefit, but for the benefit of some other person and there is reason to believe that that plaintiff will be unable to pay the costs of the defendant if ordered to do so; or

(c)subject to Sub-rule (2), that the address of a plaintiff is not stated or is mis-stated in his originating process; or

(d)that a plaintiff has changed his address after the commencement of the proceedings with a view to avoiding the consequences of the proceedings,

the Court may order that plaintiff to give such security as the Court thinks fit for the costs of the defendant of and incidental to the proceedings and that the proceedings be stayed until the security is given.

(2)The Court shall not order a plaintiff to give security by reason only of Sub-rule (1)(c) if it appears to the Court that the failure to state his address or the mis-statement of his address was made without intention to deceive."

8. There is a discretion given to the court as to whether to give security if the criteria in either (a) – (d) are met. There are numerous cases on a security for costs application in this jurisdiction and the court's discretion in considering such an application. As an example I refer to Yartlett v. New Guinea Motors Ltd [1984] PNGLR 155. In an application under Order 14 Rule 25 (1) (a), McDermott J followed Sir Lindsay Parkinson & Co Ltd v. Triplan Ltd [1973] 2 All ER 273 at 285, and held that:

"An order for security for costs is within the discretion of the court and all the circumstances of the case must be considered. In determining whether an order for security of costs should be made the following matters, inter alia, may be taken into account:

a) whether the claim is bona fide;

b) whether there is a reasonably good prospect of success;

c) whether there is an admission on the pleadings or elsewhere that money is due;

d) whether money has been paid into account;

e) whether the application for security is being used oppressively;

f) whether want of means has been brought about by any conduct of the parties."

9. As to the discretion conferred by Order 14 Rule 25 (1), I refer to the following statement that I reproduced in Albright Ltd v. Mekeo Hinterland Holdings Ltd (2013) N5774 at para 21. It is a statement by Bowen LJ in Gardner v. Jay (1885) 29 Ch 50, at p59:

"When a tribunal is invested by Act of Parliament or by Rules with a discretion, without any indication in the Act or Rules of the grounds upon which the discretion is to be exercised, it is a mistake to lay down any rules with a view of indicating the particular grooves in which the discretion should run, for if the Act or the Rules did not fetter the discretion of the Judge why should the Court do so?"

10. This statement was also quoted by Lord Wright in the House of Lord's decision of Evans v. Bartlam [1937] AC 473; 2 All ER 646, and recently in Albright v. Mekeo Hinterland Holdings Ltd (2014) SC1400 at para 29.

11. As there is no indication in Order 14 Rule 25 (1) of the grounds upon which the discretion is to be exercised once the criteria in either (a) – (d) are met, I am of the view that the discretion is unfettered and should be exercised with regard to all of the circumstances of the case.

12. In this instance it is not disputed that the applicants are ordinarily resident outside of Papua New Guinea and so the requirement of Order 14 Rule 25 (1) (a) has been met.

13. The respondents' first submission is that the applicants' substantive claim is not likely to succeed although it is conceded that the intent behind the proceeding is bona fide. The applicants though submit that they have a good chance of succeeding. In this regard, I have not heard from the parties witnesses and am not in a position to form a view on the merits. As to how this aspect should be considered, I note the following passage of Kirby J (as he then was) in P M Sulcs and Assocs P/L v. Daihatsu Aust P/L [No 2] [2000] NSWSC 826 as to the approach of Beazley J in K P Cable Investments Pty Ltd v. Meltglow Pty Ltd & Ors [1995] FCA 76, in a case concerning an application for security for costs in which Her Honour:

"......identified as a relevant matter, the strength and bona fides of the plaintiff's case. Her Honour adopted the observations of French J in Bryan E Fencott & Associates Pty Ltd v. Eratta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 at 514 when she said this: (at 197)

"As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success."

14. Here, in the absence of evidence to the contrary, I will proceed on the basis that the claim is bona fide and with a reasonable prospect of success.

15. Secondly, the respondents submit that they have not contributed to any impecuniosity of the applicants and the delay in bringing this application has not caused the applicants extra costs. The applicants submit that the respondents have given notice that they seek to consolidate this proceeding with other proceedings that concern the other shareholders of JCA and this will increase the costs exposure of the applicants.

16. As the motion for consolidation has not been heard, it is premature to submit that the applicants will be exposed to additional costs, apart from those that will be incurred in connection with the consolidation application. Apart from these costs, there is no evidence of the costs of the applicants that have been contributed to by the respondents.

17. Thirdly, the respondents submit that the amount sought for security for costs is reasonable and will not have the effect of nullifying the proceeding. The applicants submit that the amount sought for security for costs is inflated as it takes into account the complications that will result from the proposed consolidation of the fraud related proceedings that do not involve the applicants. Further, the applicants have already had to pay funds into court because of the previous security for costs application. Consequently, the amount sought for security for costs could have the effect of nullifying the proceeding.

18. The amount that is sought for security for costs is two thirds of the total draft bill of costs prepared by the lawyers for the respondents. From a perusal of that draft, it appears to be drafted on the basis that the proposed application for consolidation will be successful. It includes provision for three days of trial. It can, in my view, be considered premature to seek an amount for security for costs that is based upon a calculation that includes such costs.

19. Further, when the amount that is sought as security is considered together with the amount that the applicants have already had to pay, I consider there to be merit in the submission that the amount sought could prove to be too much for the applicants and have the effect of nullifying the proceeding.
20. The respondents' fourth submission is correct that there is no substantive cross claim in the proceeding.

21. As to the question of delay, the respondents submit that it is not delay generally that should count against an applicant for security for costs, but delay that has caused additional costs to be incurred by the other party in taking steps in the proceeding including preparing for trial. The respondents rely upon the cases of Odata Ltd v. Ambusa Copra Oil Mill Ltd (2001) N2106 and Osprey Industries Ltd v. Hallam [1992] PNGLR 537 in this regard.

22. In this instance the respondents submit, there is a complete absence of evidence from the applicants that they have been forced to incur expenses in the litigation. Further, there have been periods when the proceeding has stalled not caused by the respondents. The obligation is upon the applicants to progress the proceeding. There has been no urgency in the matter going to trial that warranted an urgent application for security for costs. Consequently, any delay in bringing the application should not be held against the respondents.

23. As to delay, the applicants submit that the respondents should have made this application when the other respondents made their application for security costs which was nearly 2 years ago. Counsel for the applicants did not specifically address the question of costs incurred in the litigation by the applicants. As to the application being made now, counsel for the applicants submitted that it was being used oppressively. This is because the parties have agreed to mediate, yet notwithstanding this, the application is made together with a proposed application for consolidation with proceedings that do not involve the applicants. Further, although the ADR Rules, 5 (5) (a) provide that an order for mediation does not automatically operate as a stay of proceedings, where there is an agreement to mediate, to amongst others facilitate the mediation process, no further substantive steps should be taken in the proceeding until the mediation process has been finalised.

24. I have considered the evidence, the submissions of counsel and the circumstances of the case. I am of the view that given that although there is no evidence as to the costs that the applicants have been forced to incur in the litigation; that this application could have been made at the same time as the previous application for security for costs, that there is no explanation as to why the application was not made then and why the application is being made now, in circumstances where the claim is bona fide and with a reasonable prospect of success and there is an agreement to mediate but also an application by the respondents for consolidation of proceedings and is for an amount that could have the effect of nullifying the proceedings, is indicative that the application is being used in an oppressive manner.

25. Consequently, I am not satisfied that in such circumstances it is in the interests of justice that this court should exercise its discretion in favour of the respondents and grant their application for security for costs. The application should be refused.

Orders

26. The Orders of the Court are:

a) The relief sought in the notice of motion of Messrs Chieng Puong Chin and Tan Lian Kee filed 7th August 2014 is refused,

b) Messrs Chieng Puong Chin and Tan Lian Kee shall pay the costs of the applicants of and incidental to the hearing of this notice of motion,

c) Time is abridged.

_____________________________________________________________
Ashurst Lawyers: Lawyers for the Applicants
Gadens Lawyers: Lawyers for the Messrs Chieng Puong Chin
and Tan Lian Kee