N4758

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO.254 OF 2011

BETWEEN

DANIEL LEME
Plaintiff

AND

URE RAUKA AS GENERAL MANAGER OF
NATIONAL TEACHERS INSURANCE LIMITED
First Defendant

AND

NATIONAL TEACHERS INSURANCE LIMITED
Second Defendant

Goroka: Ipang AJ
2012: 08 & 22 July

CIVIL LAW – Motion- seeking to dismiss the entire proceedings or alternatively stay the proceedings pursuant to s.4 of Arbitration Act and Order 12 Rule 1 NCR.

Cases Cited 

Newsat Ltd v Telikom PNG Ltd [2007] PGNC 156; N3448 (3rd May, 2007) 

Counsel 

B.Koningi, for the Plaintiff
M.Nagle, previously for the Plaintiff
Ms. E.Suelip, for the Defendants

22 June, 2012

1. IPANG AJ: There are altogether three (3) motions filed before this Court. The first two (2) lots of motions were filed by the Defendants respectively. The first motion was filed on the 23rd of March, 2012. This first motion basically seeks to set aside ex parte order of 16th March, 2012 obtained by Paraka Lawyers in setting aside the order of 17th February, 2012. This first motion was filed pursuant to Order 12 Rule 8 (1) and (3)(a) and (b) of the National Court Rules.

2.	The second motion on foot was filed by the defendants on the 13th of February, 2012 seeking the following orders:

(1)	That the whole proceedings WS No. 254 of 2011 be dismissed or alternatively be stayed pursuant to section 4 of the Arbitration Act, Chapter 46; and to Order 12 Rule 1 of the National Court Rules.

(2)	That the Defendants are granted an extension of time to file and serve their Defence or alternatively the Defendants be granted leave or file their Defence out of time pursuant to Order 1 Rule 15 (1) and Order 7 Rule 6 (2) of the National Court Rules.

(3)	That the First Defendant be removed as a party to these proceedings pursuant to Order 5, Rule 9 (a) of the National Court Rules.

3.	The third (3rd) motion on foot was an amended motion filed by the plaintiff on the 7th of May, 2012. In this motion the plaintiff seeks default judgment to be entered against the Defendants in the sum of K70, 000.00 with interests and costs pursuant to Order 12, Rule 32 of the National Court Rules.

Manner of approach to deal with these motions

4.	The third motion by the plaintiff filed on the 7th of May, 2012 will be pending until the court deals with the Defendants' Second motion filed on the 13th of February, 2012. Whichever way, my ruling will go, will determine whether the plaintiff's motion will naturally bow out if I dismiss these proceedings or stay these proceedings. If I dismiss the Defendants' motion, the plaintiff will be at liberty to move his motion during the next motion date.

5.	The first motion to be moved by the Defendants is the motion filed on the 23rd of March, 2012. The Defendants seek through this motion to set aside the ex parte order of 16th March, 2012 obtained by Paraka Lawyers setting aside the order of 17th February, 2012. This motion was made pursuant to Order 12 Rule 8 (1) and (3) (a) & (b) of the National Court Rules.

6.	Ms. Suelip of counsel for the Defendants said the main reason for her clients moving the motion is that when Paraka Lawyers ceased to act, her clients have incurred costs. She said there was a proposal put to Paraka Lawyers and Paraka lawyers have yet to respond to her clients' proposal. Because Ms. Suelip's proposal to have Paraka Lawyers meet part of her client's costs has not been addressed, Paraka Lawyers undertook to consult with Principal of Paraka Lawyers and inform this court on the next motion date which is 22nd June, 2012. 

7.	This leaves this court to deal with the Defendants' motion filed on the 13th February, 2012. The Defendants seek the following relief:

(1)	That the whole proceedings be dismissed or alternatively be stayed

(2)	That the Defendants be granted an extension of time to file and serve their Defence or alternatively the Defendants be granted leave to file their Defence out of time.

(3)	That the First Defendant be removed as a party to these proceedings.

8.	In moving their motion, the Defendants rely on the following documents; affidavit of Ure Rauka sworn on the 26th August, 2011 and filed on the 29th August, 2011; the affidavit of Eric Vegoa sworn on the 23rd of September, 2011 and filed on the 29th of September, 2011, the affidavit of Helina Esana sworn and filed on the 05th of October, 2011; and the affidavit of Mathew Maitang sworn on the 31st of August, 2011 and filed on the 12th of September, 2011.

9.	The first relief sought from this court is for this court to dismiss the whole proceedings or alter natively for this court to stay the proceedings. Ure Rauka deposed in paragraph 10 of his affidavit that Clause 10 of the conditions set out in the Commercial Motor Vehicle Policy stipulates that:

"If any differences arise out from this policy, then the steps to be taken are;

(a)	The difference is first to be referred to an Arbitrator to be appointed, in writing, by both the Insured and NTIL. Where the Insured wishes to refer any matter to Arbitration they must do so within twelve months of the difference arising.

(b)	If agreement cannot be reached on the appointment of a single Arbitrator then within one month two Arbitrators are to be appointed in writing, one by the Insured and one by NTIL.

(c)	Should the Arbitrators met agree then they are to appoint, in writing an Umpire who is to preside at all meetings of the Arbitrators.

(d)	If after referring the difference to Arbitration the Insured is not satisfied with the decision of the Arbitrator or Arbitrators, the Insured may then take action in Court".

10.	Deponent Rauka deposed in paragraph 32 that the plaintiff has not complied with this process specified under the policy. Instead, the plaintiff has gone straight to Court. On the 30th of March, 2011 the plaintiff filed a Writ of Summons. In paragraph 33 Rauka said on 4th April, 2011 the plaintiff served the Writ of Summons on the Defendants.

The Arbitration Act, Chapter 46

11.	The Section 4 of Arbitration Act is worded in the following terms:

4. POWER TO STAY PROCEEDINGS WHERE THERE IS SUBMISSION
1. If a party to a submission, or a person claiming through or under hi, commences legal proceedings in any Court against another party to the submission, or a person claiming through or under him, in respect of a matter agreed to be referred, any party to the proceedings may, at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to that Court to stay the proceedings.

2. "if the Court to which application is made under subsection (1) is satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission, and that the applicant was, at the time when the proceedings were commenced, and still remains ready and willing to do all things necessary for the proper conduct of the arbitration, it may make an order staying the proceedings."

12.	The Defendants said the plaintiff has not complied with this process specified under the policy. Instead the defendants said the plaintiff has gone straight to court. Plaintiff filed his Writ of Summons (WS) on the 30th March, 2011.

13.	The Plaintiff argued that s.4 of the Arbitration Act allows a party against whom legal proceedings are commenced in relation to a contract, to apply to the Court for a stay of proceedings if the contract provides that present or future differences are to be submitted for arbitration. However, the plaintiff's counsel submitted that a stay of proceedings is not automatic and that the Court still has discretion to exercise.

14.	The Plaintiff submitted the following to be the number of considerations to be taken into account and these are:

1.	The application for a stay of proceedings is made promptly after the commencement of the proceedings;

2.	Each arbitration clause must be interpreted on its merits to glean the intention of the parties to the contract;

3.	If an arbitration clause makes arbitration necessary, an application for the stay of proceedings can still be refused if it is not made promptly;

4.	It is reasonable to presume that if a party commences court proceedings notwithstanding the existence of an arbitration clause and the other parties do not object to that cause of action within a reasonable time, that they acquiesce in the court proceedings;

5.	The arbitration clause in each contract was interpreted and applied in light of those principles, the court in each case concluding that a stay of proceedings was not warranted and that the dispute would not be referred to arbitration.

15.	In justifying his argument for the plaintiff, Mr. Koningi referred to the case of Newsat Ltd –v- Telikom PNG Ltd [2007] PGNC 156; N3448 (3rd May,2007. Counsel submitted in this case His Honour Cannings, J considered that even Telikom applied to stay the proceedings pursuant to s. 4 of the Arbitration Act after five (5) weeks from the date of filling of Writ of Summons (WS), His Honour considered five (5) weeks to be unreasonable and refused to grant the application made by Telikom to stay the proceedings.

16.	Basing on the ruling by Cannings, J in Newsat Ltd –v- Telikom PNG Ltd (supra), plaintiff's counsel submitted that the plaintiff had filed and served the Writ of Summons (WS), Statement of Claim and an Affidavit in Support on the 4th of April, 2011. The Defendants then filed their Notice of Motion, Affidavit in Support and the Draft Defence on the 29th of August, 2011. Counsel submitted that 4th of April, 2011 to 29th of August, 2011 will be 146 days which is equivalent to 20 weeks. Plaintiff's counsel therefore submitted that Defendants have not shown reasonable cause for the delay.

17.	The second relief the Defendants sought is that they (Defendants) be granted an extension of time to file and serve their Defence or alternatively, the Defendants be granted leave to file their Defence out of time.

18.	In an application for extension of time to file and serve their Defence out of time, there are four (4) requirements that the Defendants need to fulfill or satisfy. These are;

(i)	Are there any good reasons for the delay?
(ii)	Is the delay in filing a defence relatively brief?
(iii)	Does defendant appear to have good defence?
(iv)	Do the interests of justice favor granting leave?

Explanation for the delay

19.	Mr.Rauka stated that the plaintiff filed his Writ of Summons on the 30th of March, 2011. On the 4th of April, 2011, the plaintiff served the Writ of Summons on the Defendants. The time limit for the Defendants to file their Notice of Intention to Defend and Defence lapsed on the 4th of June, 2011 and on the 18th of June, 2011. On the 10th of June, 2011 Defendants filed their Notice of Intention to Defend.

20.	The Defendants explained that they could not file their Defence on time as after they received Arthur Barratt's Report on the 13th January, 2011, the report requested the Defendants to conduct their own investigations. So, the defendants did their own internal investigations to ascertain how the plaintiff's claim has been entertained by Ricky Kaos without authorization from the Defendants. 

21.	The Defendants concluded their investigations on the 13th July, 2010. The Defendants internal investigation revealed that the Receipt No. GB3471 issued by the Ela Motors in Goroka was fraudulently altered.

22.	The Defendants said they were also waiting on Ela Motors Management to complete their investigation to ascertain how their automated receipting process was manipulated to alter the Receipt No, GB3471.

23.	The Plaintiff argued that the Defendants' explanation for the delay can not suffice. The Plaintiff said from the records, the Defendants investigation commenced on the 9th September, 2010. The Plaintiff's Writ of Summons (WS) was filed on the 30th of March, 2011. The Plaintiff asserted that the Defendants were served the Writ of Summons on the 4th April, 2011. The Plaintiff says from 4th April, 2011 to 29th August, 2011 the Defendants did not say what kept them from filing their Defence either within or out of time.

24.	After the conclusion of their internal investigations in 2010 and after receipt of the Writ of Summons (WS) on the 4th April, 2011 there was no reasonable explanation as to how no attempt was made to file their Defence. I find the explanation given for the delay is not reasonable in the circumstances.

RULING ON DEFENDANTS MOTION FILED ON 13TH FEBRUARY, 2012

25.	The first relief sought by the Defendants in their motions filed on the 13th of February, 2012 is to dismiss the whole proceedings WS. No.254 of 2011 or to stay this proceeding.

26.	The Defendants argued that clause 10 of the Commercial Motors Vehicle Policy stipulated that if there is any differences emulated out from this policy, that differences should be first referred to an Arbitrator. The insured has twelve (12) months commencing from the time of difference arising.

27.	On the 13th July, 2010 plaintiff's Motor vehicle a Toyota Hiace 16 seater bus had an accident along the Highlands Highway close to Ramu Sugar. On the 14 & 19 July, 2010 the plaintiff informed the Defendants of the accident. On the 12th August, 2010 another attempt was made to call the First Defendant. On the 26th August, 2010 Ricky Koas faxed to the plaintiff a copy of offer of K38, 333.33. The Plaintiff said he was not satisfied and in the afternoon of the same day (even date) he sent a fax informing the Second Defendant of the same. The Plaintiff argued that his claim does not fall under the 30% but 10 – 15% deductions. On the 31st August, 2010 the Second Defendant in a faxed letter to the plaintiff maintaining their (Defendants) position of 30% deduction. Then on the 9th September, 2010 the Second Defendant drew a Bank South Pacific Cheque for the sum of K38, 333.33 to ANZ Bank and executed a Deed of Release, assuring the Second Defendant of no further claims. However, on the 22nd September, 2010 the First Defendant wrote to the Branch Manager of ANZ Bank Goroka and effected a stop payment.

28.	On 30th September, 2010 the plaintiff wrote an apology letter and filled in a Statutory Declaration Form admitting to committing of the offence of fraud. On 8th October, 2011 the Defendants re-confirmed their non-payment position. On 11th January, 2011 the Defendants wrote to the plaintiff expressing their unwillingness to pay the plaintiff because of the cancellation of the Insurance Policy. On the 14th January, 2011 the plaintiff pleaded with the Defendants that his genuine claim should not be affected by the alleged fraud. 

29.	From these chronological orders of events that transpired, it revealed that the plaintiff's possible differences regarding the offer of K38, 333.33 was naturally settled with the signing of the Deed of Release and the acceptance of K38, 333.33. However the Defendants later took up issue with the claim of fraud.

30.	The Defendants relied on clause 3 of the conditions set out in the Commercial Motor Vehicle Policy which is worded in the following terms.

'"if any claim is in respect fraudulent or if any false declaration is made or used in support thereof, or if any fraudulent means or devises are used by the Ins ured or anyone acting on behalf of the Insured to obtain any benefit under the policy in respect of the claim, all benefit under the policy in respect of that claim will be forfeited…"

31.	The independent investigations conducted into the alleged fraud by David Hakon of Nationwide Loss Adjusters Ltd revealed the following findings in his Supplementary Report No.1 annexed and marked "R" the Report stated:

Acting in accordance with instructions received from your office on the 14th of October, 2010, "we immediately made contact with your insured advising him of our engagement to this claim in particular to conduct an independent investigation in to the alleged fraudulent actions committed in the process.
 
We confirmed having met and interviewed the insured Daniel Leme at Ela Motors, Goroka Branch, where he is employed as Sales Representative and report our findings to yourselves as follows.

During the course of the interview the insured informed us that your former employee Ricky Kaos after registering this claim requested the Insured to pay for his affairs to Goroka to carry out inspection and assessment on his vehicle. The Insured then paid K749.00 equivalent to one way airfares to Goroka; we do not have the actual dates as to when this travel arrangement was made.

We further advise that whilst Ricky was in Goroka carrying out inspection, interview and assessment on the Insured's vehicle, Ricky then asked the Insured to give him K600.00 for a return trip via Nadzap to Port Moresby and a further K200.00 pocket money to travel down from Goroka to Lae. Daniel stated that whilst the claim was in progress nearing settlement stages, Ricky again requested the Insured to send him K200.00 advising the Insured that the money was required by Insurance officers to fast track his claim.

We do not believe that other officers in your office were involved and this money amounting K2000.00 was received by Ricky Kaos through Post PNG SMK Receipt Number 12846 dated 13th August, 2010, this Salim Moni Kwik (SMK) through Post PNG cost another K60.00 fee bringing the total monies paid to Ricky Koas to K3, 609.00.

We then queried the Insured about the towing Invoice from Ela Motors pertaining the Receipt No. GB 3471 dated 15th July, 2010 totaling K2, 100.00. When we questioned the Insured regarding this towing fee, he immediately admitted that this receipt was not for the actual towing fees for towing his vehicle from the scene of the accident to Goroka. Daniel then further elaborated that the receipt for K2, 100.00 is actually for a customer whom purchased a small Yamaha Generator from Ela Motors Goroka Branch for K2, 100.00.

Daniel admitted that he wanted to forward the actual towing invoice No.TGCSG66466 totaling K700.00 which is the amount said by Daniel to Ela Motors however, Ricky advice him that your office does pay for the recovery cost up to K2000.00 hence he (Ricky) convinced Daniel to submit an Invoice payment showing that he paid at least K2000.00 for the towing fees in this case, Daniel then made some alteration to the receipt then made some alternation to the receipt number GB3471 which is too hard, thereby admitting to his fraud which he advise would not have committed if Ricky Kaos did not convince him to do so.

From this findings it would appear that since Ricky Kaos have been demanding and receiving monies from the Insured totaling K3, 609.00 he may have wanted to square off his dealings by seeing the insured off his dealings by seeing the insured reimburse some of the monies by reimbursing the insured his towing expenses which Ricky advise the insured would get K2000.00 back.

We therefore of the opinion that the actual claim is genuine except for the towing invoices/receipt which has thrown suspicion of the part of insurers.

We can only advise after having interviewed the Insured that the fraudulent act committed in this aspect is in respect to the towing fees when the actual towing to be reimbursed to the Insured is K700.00 and not K2100.00.

We submit these findings for your consideration and your decision in this matter.

Yours faithfully,
NATIONWIDE LOSS ADJUSTER LTD

DAVID HAKON
Encl.

32.	Another of this reports –Annexed and marked 'T'is titled as "Progressive Report No.1 (Report No.2) 

In reference to the above and further to our report of 26th of November 2010 and subsequent correspondence since that date, we write to confirm receipt of your facsimile letter dated 10th of January 201 and received 11th of January 2011.

We note your comments in that letter and reply as follows:
We refer to the issue of fraud outlined in both our reports and your letter and mention that the fraudulent component of this claim was to do with the towing changes only and we note that this was submitted under coercion from your staff member.

We further note that your insured states he was tempted to agree with trying to obtain more funds from Insurers due to the fact that the incorrect excess had been applied to his claim in the first instance suggesting that the Armed Hold Up or Theft excess had been applied rather than an accident damage excess.

As we were not involved in the initial assessment of this loss we have no further comments in this regard and suggest your office look into this matter internally.

Whilst your insured has admitted to committing fraud in relation to the towing cost, we do not believe this supplies Insurers with the option of denying liability in regard to the entire claim.

It is our understanding that a fraudulent act is only considered against that portion of the claim that is considered fraudulent rather than an option to deny liability on the complete claim.
From information supplied it would appear that your insured has originally submitted a genuine claim for accident damages to his vehicle which was handled internally by your office and claims officer.

The evidence would also suggest that your insured has been coerced into committing a fraudulent act by your Insurance Officer and we suggest it would be unreasonable to deny your clients entire claim because of the actions of your officer.

We further note your comment in relation into internal investigations by Ela Motors Management and request to be advised of their findings.

We do not believe this would have any bearing on the outcome of your decision as Ela Motors action against their employee is entirely up to their management and as the employee has already admitted to the fact that he committed fraud with the towing invoice, there is nothing more to prove.

Whilst we agree that it is always the decision of insurers whether to accept or deny liability, we felt compelled to outline the above information for your further consideration.

However if you feel further investigation is required please advise our office accordingly. 

Yours faithfully, 
NATIONWIDE LOSS ADJUSTERS LTD 
ARTHUR BARRATT
Enclo…..

33.	The findings by NATIONWIDE LOSS ADJUSTERS LTD is consistent with Clause 3 of the conditions set out in Commercial Motor Vehicle Policy as I have quoted earlier and thus consistent also with the submission by Mr. Koningi of Counsel for the Plaintiff on the issue of incidental claims as opposed to principal claim. The incidental claims for reimbursement of towing fee and the fraud involved should not jeopardize the claiming of principal claim but only the claim for towing fee only. This is consistent with interpretation of clause 3 of Commercial Motor vehicle Policy. The Defendants defence does not have merit and is not a genuine Defence to the principal claim. 

34.	The interest of justice does not favor granting of leave for the Defendants to file their Defence out of time.

35.	There are serious issues and allegations raised. See statement of claim paragraph 13, 15, 16, 17, & 19. Therefore, it is appropriate that the First Defendant remain as a party to this proceedings and answer to those allegations. 

36.	In doing so, I dismiss the motion filed by the Defendants on the 13th February, 2012 and the reliefs sought, with cost. 

_______________________________

Koningi Lawyers: Lawyer for the Plaintiff
Mirupasi Lawyers: Lawyer for the Defendants