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Keran v Warun and Country Motors Pty Ltd [1994] PGNC 111; [1994] PNGLR 130 (18 August 1994)

PNG Law Reports 1994

[1994] PNGLR 130 - Titus Keran v Jerry Warun and Country Motors Pty Ltd 

[1994] PNGLR 130

N1266

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

TITUS KERAN

V

JERRY WARUN AND COUNTRY MOTORS PTY LTD

Lae

Sevua J

17-18 August 1994

PRACTICE AND PROCEDURE - Discovery - Default - Failure to deliver list of documents - Right of party to apply for dismissal of defence - Order 9 r 15 National Court Rules.

PRACTICE AND PROCEDURE - Failure to comply with notice - Application to set aside judgment against defendants - Discretionary power - No good reason for default - Application dismissed.

Facts

The defendants sought to get set aside a default judgment made against them when they failed to comply with the plaintiff's notice for discovery of documents.

Held

Where the plaintiff served a notice for discovery pursuant to O 9 r 1 of the National Court Rules and the defendant failed to comply, his defence has been struck out, and a judgment signed against him, his application to set aside that judgment or order should be refused where he has failed to offer a reasonable explanation for his default.

Cases Cited

Credit Corporation (PNG) Ltd v Jee [1988-89] PNGLR 11.

Counsel

L Dacre, for plaintiff.

D Poka, for defendants.

18 August 1994

SEVUA J:  The first and second defendants, by way of notice of motion, seek that the default judgment entered against them on 12 July 1994 be set aside and they be permitted to file and serve a list of documents with verification. They also seek costs and other orders. This application was made yesterday, when the trial for assessment of damages and declaration was supposed to have been dealt with in pursuance of the order of 12 July 1994.

On the outset, let me briefly refer to the history of these proceedings. On 16 November 1993, writ of summons No 53(L) of 1993 was filed at the sub-registry in Lae. On 23 November 1993, Senior Sgt. Arthur Taliva of Lae police effected service on the first defendant. On 1 December 1993, service was effected on the second defendant through it's registered office at section 88, allotment 2, Aircorps Road, Lae, in pursuance of the Companies Act Ch 146. On 14 December 1993, the second defendant filed a notice of intention to defend through it's lawyer, Sawong and Gamoga. On 29 December 1993, the first and second defendants' defence was filed. On 11 January 1994, the plaintiff filed notice for discovery with verification, which was served on the defendants' lawyer on 14 January 1994. On 24 January, 1994, the defendants' lawyer wrote to the plaintiff's lawyer and acknowledged service. The defendants' lawyer also advised the plaintiff's lawyer that the defendants were compiling all the necessary documents and, as there were "a fair bit of documents," the plaintiff was requested to consent to an extension till the end of February 1994. On 28 January 1994, the plaintiff's lawyer advised the defendants' lawyer that the plaintiff had consented to an extension till 28 February 1994 and that no further extension would be agreed to. The plaintiff also insisted that the defendants comply with the National Court Rules in the conduct of this case. The plaintiff further intimated that if the defendants did not provide a duly verified and sealed list of documents, an application would be made to the Court to have the defendants' defence dismissed and judgment entered for the plaintiff. The list of documents was never filed.

On 16 June 1994, the plaintiff filed an application seeking dismissal of the defendants' defence and that judgment be entered in his favour. That application was supported by the affidavit of Linda Dacre, and both were served on the defendants' lawyer on 6 July 1994. On 12 July 1994, His Honour Hinchliffe J granted the following orders:

N2>1.       The defence of the first and second defendants is struck out.

N2>2.       Judgment for damages and declarations to be assessed is entered for the plaintiff.

N2>3.       The defendants are jointly and severally restrained from disposing of any of the assets of the second defendant until this matter is finally disposed of.

N2>4.       The hearing of assessment for damages and declaration is set for the 17 August 1994 at 9 am.

N2>5.       Costs are costs in the cause.

This order was settled on 22 July 1994.

On 29 July 1994, Sawong and Gamoga, which had by then changed to Gamoga & Co, filed a notice of cessation to act for the defendants. Mr Poka informed the Court yesterday that he had received instructions to act for the defendants two days prior to the date the trial for assessment of damages was set, which, to my calculation, would have been 10 July 1994. On 16 August 1994, Milner & Associates filed a notice of change of lawyers and the notice of motion, the subject of this decision. Two affidavits sworn on 15 August 1994 by Patricia Rimbao and the first defendant were also filed on 16 July 1994. These affidavits are in support of the said notice of motion.

Mr Poka, appearing for both defendants, conceded that the order given on 12 July 1994 was regular and that the plaintiff has the right and was entitled to apply under O 9 r 15. However, he submitted that I should exercise my discretion in favour of his clients on the basis that, due to the difficult circumstances of this case and the impracticability of the directors of the second defendant convening a meeting quickly, the defendants' position was allowed to reach the stage it had. It was further submitted by Mr Poka that, in view of the fact that this action involves a substantial amount of money, ie, more than K200,000, the Court should give a fair chance to the defendants to be heard so that it would be in a better position to adjudicate. He finally submitted that, although the orders were obtained regularly, the Court has inherent powers under s 155(4) of the Constitution to make the orders his clients were seeking. He relied on the affidavits of Patricia Rimbao and Jerry Warun, which I will now refer to.

The evidence of Patricia Rimbao that she and other directors were not aware of this action is quite unconvincing. The writ was served on the second defendant on 1 December 1994 at it's registered office at section 88, allotment 2, Lae. Obviously she would have been notified or handed a copy, since she claimed to be "the second highest share cash contributor to the initial purchase of the second defendant" and a director. As early as the second week of February 1994, she became aware of the proceedings, because the first defendant had personally hand-delivered a letter to her at Wabag. The first paragraph of that letter clearly states that a "civil law suit against the company" was to be defended. She would have been also verbally advised by the first defendant, no doubt, that Country Motors Pty Ltd, the second defendant, was being sued. For a suit involving some K200,000 or more worth of assets belonging to the second defendant, it is quite strange she did not know. In fact, I find it hard to believe her evidence that she and the other directors were not aware the second defendant was being sued. I consider she was lying.

The first defendant, by way of a letter referred to earlier and marked "A" to his affidavit, was seeking authority from the second defendant to secure release of documents in the custody of Papua New Guinea Banking Corporation in Lae. He was advised by Patricia Rimbao that it was not possible to call a meeting soon as the directors were scattered all over the place, and he would have to raise that matter at the next annual general meeting, which did eventuate on 15 June 1994. However, by her own evidence, that matter was not raised in the AGM. Furthermore, by her own evidence, the documents could not be released without the approval of the board of directors of the second defendant through a proper quorum. I think there is some sense in that, and I accept that as correct. I do not think I can accept that the plaintiff and the first defendant had conflicts in respect of "Jeti's Autobeat", and this did not involve the second defendant. The fact is the statement of claim in the writ was directed at both defendants. Thus, the second defendant was involved from the start. The writ specially joins the second defendant as a party to this action.

Whilst I sympathise with the predicaments faced by Mr Poka, I consider he is not at fault in any way. His client, the second defendant, is. From the date of service of writ to the date the plaintiff filed his application on 16 June 1994, the defendants had five and a half months to act positively and decisively. In my view, either a special general meeting or an extra-ordinary meeting should have been called in February or March 1994. The Companies Act provides for the calling of such meetings. The directors of the second defendant failed, or neglected, to avail themselves to those provisions, and they have no excuse and no reasonable explanation as to the failure by the defendants to file and serve a list of documents. In my view, they have had more than adequate time and opportunity to call a meeting to approve the release of the documents by their bank so that the documents could be used, if necessary, in these proceedings. I consider the attitude of the second defendant as typical of litigants who think they can sit back and let the Court wait for them.

Ms Dacre, for the plaintiff/respondent, opposed the application and argued that if this application was granted, her client would be prejudiced. One of the issues in this case is the 28,800 shares which the plaintiff claims he has in the second defendant and which is being disputed by the defendants. He has been deprived of property, chattels, and tools. It is evident from the affidavit of Patricia Rimbao that the so-called directors had resolved in their meeting of 15 June 1994 that the second defendant be sold in the open market and, obviously, the assets are to be dissipated. I accept that the plaintiff will be prejudiced by granting the defendants' application.

Ms Dacre has referred me to the case of Credit Corporation (PNG) Ltd v Jee [1988-89] PNGLR 11, which deals with discovery and the failure to comply with the notice for discovery. I adopt the decision of His Honour Woods J in that case and apply it here. As I adverted to earlier, His Honour Hinchliffe J had on 12 July 1994 ordered that the defendants' defence be struck out and judgment be entered for the plaintiff. He proceeded correctly and legally in making that order. He complied with the law, namely, O 9 r 15(1)(b), which in substance provides that when a defendant is in default, the Court can order that his defence be struck out and judgment entered accordingly. The requirement to comply with the notice for discovery is mandatory and is subject only to the provisions of r 2(2) and r 2(3). The defendants were obliged to disclose all documents in their possession, custody, or power. They did not do this because they claimed it was impracticable to call a directors meeting. In my view, this reason, which consequently enabled the defendants' failure to comply with the notice, is totally unacceptable. In my view, it was not impossible nor impracticable to call a directors meeting. Whilst I appreciate that the directors were in three different locations and, therefore, convening a meeting would involve a fair bit of expenses, in my view, it was necessary they meet because these proceedings which affect their company's interest had been on foot since 16 November 1993.

In the circumstances, I consider that the defendants had deliberately refused to comply with the discovery notice. It was within their power to comply, but they failed and attempted to justify their failure by offering an excuse which I consider unacceptable. I agree with Woods J, who said at p 2 in Credit Corporation that, "a party cannot just ignore Court process if he does, he does so at his peril". They ignored their responsibility and, as it were, they found themselves in peril. They can blame no one except themselves.

Both counsels agree that the order of 12 July 1994 was regular, and they agree that, in this application, the Court has a discretion to exercise. I agree with them. However, I consider that, in order for me to exercise this discretion in favour of the defendants, I must be satisfied of the reasons for the defendants' failure to comply with the law. This discretion must be exercised judicially and not for the sake of exercising it because a litigant has asked for it. There must be compelling reasons, in my view, to exercise this discretion in favour of the applicant. In the present case, I have found that there was no good reason for the failure of the defendants in complying with the notice for discovery. Whilst I agree with Mr Poka that this Court has an inherent power under s 155(4) of the Constitution, I consider that this is one case where it is inappropriate to invoke that constitutional power.

I, therefore, hold that, where the plaintiff has served a notice for discovery pursuant to O 9 r 1 of the National Court Rules and the defendant has failed to comply, his defence has been struck out, a judgment or order signed against him, and he applies to have the judgment or order set aside, the defendant's application should be dismissed because he has failed to provide a reasonable explanation for his default.

Accordingly, in the exercise of my discretion, I order that the defendants' notice of motion dated 15 August 1994 be dismissed and the plaintiff's costs of this application be met by the defendants.

Lawyer for plaintiff: Warner Shand.

Lawyer for defendants: Milner & Associates.