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Pacific Native Timbers (PNG) Ltd v Donaldson [2005] PGNC 29; N2933 (18 November 2005)

N2933

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS NO 1620 OF 2005

PACIFIC NATIVE TIMBERS (PNG) LTD
Plaintiff

V

ANDREW DONALDSON
First Defendant

SHILOH TIMBERS LTD
Second Defendant

MADANG: CANNINGS J
9, 18 NOVEMBER 2005

RULING ON MOTION

INJUNCTIONS – interim orders – application to set aside or discharge interim injunction made ex parte – jurisdiction of court – considerations to take into account when deciding whether to set aside injunction.

The plaintiff filed proceedings against the defendants for breach of contract, claiming damages and orders for reimbursement of moneys obtained by the defendants allegedly on behalf of the plaintiff and for the transfer of property allegedly owned by the plaintiff and in the possession of the defendants. Soon after the filing of the substantive proceedings the court granted ex parte orders in the nature of an interim injunction. On the return date of the interim injunction the defendants applied to have the injunction discharged. This is a ruling on that application.

Held:

(1) The National Court has jurisdiction to set aside its earlier interim orders. This power exists irrespective of whether the previous orders were made by the same Judge who is dealing with the application to set aside the previous orders.

(2) There are at least six considerations to take into account in deciding whether to set aside an interim injunction. (Mainland Holdings Ltd and Others v Stobbs and Others (2003) N2522 and Mark Ekepa and Others v William Gaupe and Others (2004) N2694 applied.)

(3) Three of those considerations in this case were neutral. The remaining three strongly favoured the setting aside of the interim injunction.

(4) Accordingly the interim injunction was dissolved.

Cases cited:
The following cases are cited in the judgment:

Ewasse Landowners Association Inc v Hargy Oil Palms Ltd (2005) N2878
Mainland Holdings Ltd and Others v Stobbs and Others (2003) N2522
Mark Ekepa and Others v William Gaupe and Others (2004) N2694

NOTICE OF MOTION

This was an application made on the return of an interim injunction for the discharge of the injunction.

Counsel:
B Meten for the plaintiff
W Akuani for the defendants

CANNINGS J:

INTRODUCTION

This is a ruling on an application by the defendants to discharge an interim injunction.

BACKGROUND

Writ and statement of claim

On 20 October 2005 Narokobi Lawyers filed a writ of summons and statement of claim on behalf of the plaintiff, Pacific Native Timbers (PNG) Ltd. It is claimed that the first defendant, Andrew Donaldson, and the second defendant, Shiloh Timbers Ltd, had breached an oral agreement entered into with the plaintiff in January 2005. The terms of the agreement were that:

• the plaintiff would assist in the incorporation of the second defendant;
  
• the plaintiff would assist the first defendant secure a permit from the National Forest Authority to mill timbers;
  
• the plaintiff would provide venture capital to and be the management company for the second defendant;
  
• timber milled by the second defendant with machines and capital provided by the plaintiff would be exported by the plaintiff and money received by the plaintiff through its parent company, Pacific Native Timbers (NZ) Ltd, would be paid to the second defendant;
  
• ownership of machines, equipment, motor vehicles etc bought by the plaintiff or its parent company would remain with the plaintiff;
  
• the second defendant would mill timbers, and income from the sale of timber would be used to repay the loan to the plaintiff and reinvested into the second defendant’s operations.
  

The plaintiff claims that the defendants breached the agreement by not milling enough timber; incurring exuberant debts; directly receiving money derived from the export of milled timber and paying it into the second defendant’s account at Westpac, Madang and transferring it to a bank account of the wife of the first defendant in New Zealand.

The plaintiff raises breach of contract as its cause of action. It seeks damages and orders for reimbursement of moneys obtained by the defendants allegedly on behalf of the plaintiff and for the transfer of property allegedly owned by the plaintiff and in the possession of the defendants.

Notice of motion

On the same day that the originating summons was filed, 20 October 2005, the plaintiff filed a notice of motion seeking various orders in the nature of an interim injunction, supported by an affidavit by Tim Cronin of Madang, sworn on 20 October 2005, and an undertaking as to damages and costs.

Tim Cronin’s affidavit

Tim Cronin deposed that he is the managing director of the plaintiff and of its parent company in New Zealand. He was personally involved in negotiating the oral agreement with the defendants in January 2005 and relied substantially upon representations and information given by the first defendant. He says that the first defendant was appointed as general manager of the plaintiff in March 2005. He gives details of the alleged breaches of the agreement by the defendants. He refers to the purchase in New Zealand by the plaintiff’s parent company of two Toyota Hilux vehicles, which were imported into PNG and transferred into the possession of the defendants. He claims that in September 2005 he caused sawn timber worth K108,000.00 to be shipped to New Zealand, but the first defendant received the proceeds of this payment and diverted it to his wife’s New Zealand bank account and to the second defendant’s account at Westpac, Madang. As a consequence, the second defendant was taken off the company register and is no longer incorporated in PNG. He says that on 2 October 2005 he sent away another shipment of sawn timber and believed the defendants may try to get the proceeds paid to them.

Hearing and injunction

On 21 October 2005 Mr Meten of Narokobi Lawyers appeared for the plaintiff in the National Court at Madang before Sawong J and applied for the orders sought in the notice of motion. None of the court documents had, at that stage, been served on the defendants and the motion was heard ex parte.

On the same day, 21 October 2005, his Honour made the orders sought in the notice of motion, which relevantly provide:

1. The Court dispenses with the requirements of service ...
   
2. The defendants, their servants or agents be restrained from disposing, including selling or transferring, the title of any of their properties, machinery and other equipment until this case is heard and determined or the court otherwise orders.
   
3. The defendants, its servants, agents or relatives be restrained from collecting or receiving any payments in relation to the shipment of sawn timber on 2 October 2005 for which the first defendant picked up the bill of lading on 14 October 2005.
   
4. The second defendant’s account with Westpac Bank Ltd, Madang branch, be frozen until this proceeding is determined or the court orders otherwise.
   
5. The defendants shall forthwith return to the plaintiff motor vehicles bearing the registration Nos HAH 767 and HAH 768.
   
6. The first defendant be restrained from interfering with the plaintiff or its business until these proceedings are determined.
   

First return

The injunction was made returnable on 26 October 2005. By that day: the documents had been served on the defendants; William Akuani Lawyers of Madang had filed an appearance; and the first defendant, Andrew Donaldson, had sworn an affidavit. The matter came before Sawong J who gave directions for the further conduct of the matter and extended the return date of the injunction to 8 November 2005. On that day, it was further extended to 9 November 2005.

There are now two affidavits by the first defendant on file, sworn on 24 and 26 October 2004.

Andrew Donaldson’s affidavits

In the affidavit of 24 October 2005 the first defendant deposes that he is the owner, shareholder and a director (with two others) of the second defendant. He is also a shareholder and director of the plaintiff. Tim Cronin is not a director of the second defendant. The second defendant has a medium-scale sawmilling operation in the Ilia area of Madang Province. He believes Tim Cronin applied to the Investment Promotion Authority to have the second defendant removed from the company register; and if so, he did so without the authority or knowledge of the board of the second defendant. He claims Tim Cronin wrote to Westpac, Madang, asking the bank to freeze the second defendant’s account for various reasons including that it had been struck off the company register. He says that if he has been removed as a director of the plaintiff, this has been done without authority. He believes that Tim Cronin has presented false information to the court. He denies the claims about the two motor vehicles, which he says are the second defendant’s operational vehicles, and the claims about the proceeds of the sale of timber, which he says belonged to the second defendant. He says that the freezing of the second defendant’s bank account will cause great inconvenience, particularly regarding the payment of wages for workers.

In the affidavit of 26 October 2005 he denies that he or the second defendant entered into a management agreement with the plaintiff. He says that the plaintiff does not have a timber exporting licence. Tim Cronin, in September 2005, made seven shipments of timber belonging to the second defendant and has received K210,000.00. Numerous other claims made by Tim Cronin are denied in this affidavit.

Second return

The interim injunction returned substantively for the second time on 9 November 2005. The court heard submissions from Mr Meten on why the injunction should be continued and from Mr Akuani on why it should be discharged.

THE DEFENDANTS’ SUBMISSIONS

Mr Meten submitted that the plaintiff had a strong case, that the interim injunction was granted for very good reasons and that if it is discharged there is a danger that the second defendant’s assets will be removed from the jurisdiction of the court.

THE PLAINTIFFS’ SUBMISSIONS

Mr Akuani highlighted that the injunction was granted on the pretext that the second defendant was deregistered, but the plaintiff now concedes that that was and is not the case. The second defendant is still operating. There is insufficient evidence that there is a risk that the properties of the defendants will be removed from the jurisdiction of the court. Part of the injunction seeks to prevent things that have already taken place.

COURT’S JURISDICTION TO SET ASIDE INTERIM INJUNCTIONS

The National Court has jurisdiction or power to set aside its earlier interim orders. This power exists irrespective of whether the previous orders were made by the same Judge who is dealing with the application to set aside the previous orders. The power derives from both the National Court Rules and the Constitution.

National Court Rules

Order 12, Rule 8(3)(a) of the National Court Rules deals specifically with setting aside or varying ex parte orders.

It states:

The Court may, on terms, set aside or vary an order ... where the order has been made in the absence of a party, whether or not the absent party is in default of giving a notice of intention to defend or otherwise in default, and whether or not the absent party had notice of motion for the order ...

Order 12, Rules 8(4) and 8(5) deal with setting aside or varying interim orders generally – not only those made ex parte.

Rule 8(4) states:

In addition to its powers under Sub-rules (1), (2) and (3), the Court may, on terms, set aside or vary any order (whether or not part of a judgment) except so far as the order determines any claim for relief or determines any question (whether of fact or law or both) arising on any claim for relief and excepting an order for dismissal of proceedings or for dismissal of proceedings so far as concerns the whole or any part of any claim for relief.

Rule 8(5) states:

This Rule does not affect any other power of the Court to set aside or vary a judgment or order.

Constitution

The Constitution provides that the National Court is a superior court of record. Subject to the role of the Supreme Court, it has an inherent power to review the exercise of judicial authority. It has an inherent power to make, in such circumstances as seem to it proper, orders in the nature of prerogative writs or such other orders as are necessary to do justice in the circumstances of a particular case. (See Constitution, Sections 163(2), 155(3)(a) and 155(4).)

RELEVANT CONSIDERATIONS

There are at least six considerations to take into account in deciding whether to set aside an interim injunction. (Mainland Holdings Ltd and Others v Stobbs and Others (2003) N2522, National Court, Injia DCJ; Mark Ekepa and Others v William Gaupe and Others (2004) N2694, National Court, Cannings J.)

I will list the considerations and apply them to the facts of this case.

1. Has there been any change in circumstances since the previous orders were made, which render their continuation unnecessary or inappropriate?
   

This is a telling consideration, according to Injia DCJ in the Mainland Holdings case. If there has been a material change in circumstances, that substantially increases the applicant’s chances of having the earlier order dissolved or varied.

In the present case, little has changed since the interim injunction was granted.

2. What has been the relative conduct of the parties since the earlier orders were made?
   

Have they been behaving themselves? Are the hands of the person who is benefiting from the earlier order, still clean? (Bearing in mind the maxim that those who come to a court of equity must have ‘clean hands’.) If the party who obtained the interim injunction behaves badly, this is something that weighs in favour of dissolving the earlier order.

This is another neutral factor. The defendants have complied with the injunctive orders. The plaintiff has done nothing improper that the court knows about.

3. Are there previously undisclosed relevant facts, which have been discovered since the interim orders were made?
   

If there are, those facts can be taken into account. But they do not generally deserve the same weight, as when there is a material change in circumstances after the interim order was made.

In the present case there is a material fact that has come to light concerning the legal status of the second defendant. The interim injunction was granted on the pretext that Shiloh Timbers Ltd had been deregistered. It now turns out that this is not true. It has not been deregistered. The court has also been made aware of how it came to be thought that the company was deregistered: because Tim Cronin made an application for this to happen. He appears to have done that without authority. I find that this is a very strong factor in favour of discharging the injunction.

4. Has it subsequently been discovered that the order was granted on an erroneous legal basis?
   

In Mainland Holdings Injia DCJ indicated that this is something that might be taken into account. But it is not a very weighty consideration. I infer from what his Honour said that it should only be where the court has made a clear error of law in the course of making its earlier interim order, that the exercise of discretion entailed in the granting of the earlier order should be interfered with.

In the present case it is not apparent that the injunction was granted on an erroneous legal basis.

5. Were the grounds relied on to support the setting aside or variation of the interim order, argued before the Court when it granted the earlier order? Or did the party wanting to set aside or vary the earlier order have the opportunity to raise those grounds?
   

This takes into account whether the injunction was granted ex parte. If it was not, the court will generally be less inclined to set it aside. If it was granted ex parte the answer to these questions will be no, and that will favour the setting aside of the injunction.

In the present case, the answer to both these questions is no. The injunction was granted in the absence of the defendants. The court should therefore look at the issues afresh, in light of the evidence and submissions presented by the defendants, to see whether there are good reasons for having such an injunction in place. In a recent West New Britain case, Ewasse Landowners Association Inc v Hargy Oil Palms Ltd (2005) N2878, I summarised the factors the court usually takes into account when dealing with applications for interim injunctions. First, are there serious questions to be tried or does the plaintiff have an arguable case? Secondly, does the balance of convenience favour granting the injunction? Thirdly, is an injunction necessary to do justice in the circumstances of the case?

Applying those factors to this case, and given the evidence that has been filed by both sides of the dispute, I consider that:

• The plaintiff has something approaching an arguable case but its cause of action turns on a vague and inadequately particularised oral agreement that was entered into in January 2005, the existence of which is denied by the defendants. The absence of a written agreement means that there are significant evidential issues to be addressed if the matter goes to trial.
  
• The balance of convenience does not favour the continuance of the injunction.
  
• The interests of justice appear to lie in letting the second defendant continue its operations and business, especially as it is likely that there are workers who are being denied their wages due to the continuance of the injunction.
  

6. Was the court misled when it issued the interim injunction? If yes, was that attributable to the conduct of the party which sought the injunction?
   

This is a very important consideration, which focuses on the conduct of the party which obtained the original interim injunction. If it deliberately misled the court, this will be a factor weighing heavily in favour of setting aside the interim injunction.

I am not prepared to say that the court was deliberately misled in this case. However, it was certainly, objectively, misled about the legal status of the second defendant. This is another factor weighing strongly towards setting aside the injunction.

WEIGHING OF CONSIDERATIONS

Nos 1, 2 and 4 are neutral. Nos 3, 5 and 6 strongly favour the setting aside of the injunction and therefore that will be the result of these proceedings.

REMARKS

The interim injunction will be set aside. The plaintiff’s case remains on foot but parties should note the issues I have raised about the likelihood of success of the substantive action, based as it is on what is at this stage a vague and inadequately particularised verbal agreement.

COSTS

Normally costs follow the event, ie the party against whom an order is made is ordered to pay the other side’s legal costs. There is no reason to depart from that rule here.

ORDER

The order of the court will be that:

1. the interim injunction granted on 21 October 2005 is discharged;
   
2. other more particular orders regarding the bank account and properties of the defendants will be made in due course;
   
3. the plaintiff shall pay the defendants’ costs relating to the proceedings of 9 and 18 November 2005 on a party-party basis, to be taxed if not agreed.

________________________________________________________________________
Lawyers for the plaintiff : Narokobi Lawyers
Lawyers for the defendants : William Akuani Lawyers