Pinpar Developer Pty Ltd and Rimbuan Hijau (PNG) Ltd v TL Timber Development Pty Ltd (2019) SC1892

• Jurisdiction: Papua New Guinea
• Judge: Kassman, Nablu and Berrigan JJ
• Judgment Date: 20 December 2019
• Citation: (2019) SC1892
• Docket Number: SCA NO. 99 OF 2006
• Court: Supreme Court
• Year: 2019
• Judgement Number: SC1892

Full Title: SCA NO. 99 OF 2006; Pinpar Developer Pty Ltd and Rimbuan Hijau (PNG) Ltd v TL Timber Development Pty Ltd (2019) SC1892

Supreme Court: Kassman, Nablu and Berrigan JJ

Judgment Delivered: 20 December 2019

SC1892

PAPUA NEW GUINEA

[IN THE SUPREMECOURT OF JUSTICE]

SCA NO. 99 OF 2006

BETWEEN

PINPAR DEVELOPER PTY LTD

First Appellant

AND

RIMBUAN HIJAU (PNG) LTD

Second Appellant

AND

TL TIMBER DEVELOPMENT PTY LTD

Respondent

Waigani: Kassman, Nablu and Berrigan JJ

2018: 18th December

2019: 20th December

SUPREME COURT – Appeal – Circumstances in which the corporate veil may be lifted or pierced – Agency – Sham, fraud and unconscionable conduct – Damages – Duty to take all reasonable steps to mitigate – Onus.

Cases Cited:

Papua New Guinea Cases

C.B.S Inc. and C.B.S Records Australia Limited and Bali Merchants Pty ltd –v- Ranu Investments Pty Ltd [1978] PNGLR 66

Pinpar Developer Pty Ltd v TL Timber Development Pty Ltd [1999] PNGLR 139

Odata Ltd v Ambusa Copra Oil Mill Ltd (2001) N2106

Overseas Cases

British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673

Jamal Moolla Dawood, Sons & Co. [1916] A.C 175

Smith Stone & Night Ltd v Birmingham Corporation [1939] 4 All ER 116

Re FG (Films) Ltd [1953] 1 All ER 615

Firestone Tyre & Rubber Co Ltd v Llewellin (Inspector of Taxes) [1957] 1 All ER 561

Kargotich v Mustica [1973] WAR 167

Brewarrana v Commissioner of Highways (1973) 4 SASR 476, at 480.

Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5

Industrial Equity Ltd v Blackburn (1977) 137 CLR 567

Woolfson v Strathclyde Regional Counsel [1978] SC 90 (HL) at 96

Adams v Cape Industries plc [1990] 1 Ch 433 (CA) at 539

Pialba Commercial Gardens Pty Ltd v Braxco Pty Ltd & Ors [2011] QCA 148

References Cited

S. 3 Supreme Court Act

S. 46 Forestry Act, 1991

Counsel

Mr I. Molloy and Ms E. Heagi, for the First and Second Appellants

Mr S. Soi, for the Respondent

DECISION ON APPEAL

20th December, 2019

1. KASSMAN J & BERRIGAN J.: This decision arises from an appeal from the decision of Justice Gavara-Nanu of 9 August 2006 in National Court proceedings WS 1088 of 1996: Pinpar Developer Pty Ltd v TL Timber Development Pty Ltd (2006) N3075.

2. As outlined further below, the matter has a long history. In terms of the appeal, leave was granted by the Supreme Court on 28 September 2009 and within time as extended by the Court. On 9 September 2016 the Supreme Court (Logan, Poole and Higgins JJ) dismissed an application for dismissal of the appeal by the Respondent finding that there had been no want of prosecution by the Appellants.

3. The appeal was heard on 18 December 2018 before a Supreme Court constituted by Kassman, Nablu and Berrigan JJ. The Court reserved its decision. On 28 July 2019 Nablu J. died. After being requested to inform the Court of their position, all parties agreed that the remaining judges should continue to hear the appeal pursuant to s. 3(1) of the Supreme Court Act. The judgement of the Court is now given.

Procedural and Factual Background

4. The Respondent, TL Timber Development Pty Ltd (TL), a landowner company, entered into a logging and marketing agreement (LMA) as permit holder for the Ormand Lako Timber Permit Area with the First Appellant, Pinpar Developer Pty Ltd (Pinpar), as contractor, in 1992. The Ormand Lako Timber Permit Area is located in the Kupiano District, Central Province.

5. A dispute subsequently arose and in 1996 Pinpar claimed damages against TL for breaching clause 34 of the LMA under which it was agreed that Pinpar would finance and build a sawmill in the Timber Permit Area (TPA) which would be wholly owned by TL. The cost of the sawmill was to be repaid to Pinpar by TL, without interest, within three years according to a repayment schedule to be agreed. The timber permit also provided that Pinpar would ensure that there was a steady supply of logs for the sawmill.

6. Pinpar claimed that it had built a sawmill in the TPA at a total cost of K751,280 but that, in breach of the agreement, TL had failed and refused to pay the costs of the sawmill, and furthermore had refused Pinpar access onto the land to conduct logging operations, in breach of the LMA.

7. On 6 March 1997 TL filed a defence and a cross-claim for K8,000,300.00 in lost project benefits for the balance of the LMA as a direct result of Pinpar’s withdrawal from the TPA. It also claimed that on 29 August 1996, in separate proceedings between Pinpar and TL, Pinpar sought to “legitimise” its withdrawal from the TPA by obtaining an ex-parte National Court order requiringTL to deliver to Pinpar its machinery and equipment in the TPA or to permit Pinpar to remove the machinery and equipment.

8. On 10 April 1997 Pinpar filed its cross-defence to the cross-claim, denying that TL suffered loss and damage and claiming, inter alia, that TL was still in possession of merchandise timber in the TPA which it could harvest by engaging another contractor.

9. On 12 March 1999 TL applied for the Second Appellant, Rimbunan Hijau (PNG) Ltd (RH) to be joined as a party to the proceeding. The basis of the application was that RH was the parent and controlling company of Pinpar. The application was granted by Kapi DCJ (as he then was), following which TL filed an amended cross-claim against both Pinpar and RH: Pinpar Developer Pty Ltd v TL Timber Development Pty Ltd [1999] PNGLR 139 (Pinpar Joinder Decision).

10. RH and Pinpar failed to file an amended cross-defence to the amended cross-claim and on 27 March 2000 default judgement was sought but stayed pending an appeal against the decision to join RH as a party. On 20 February 2001 the Supreme Court unanimously dismissed the appeal.

11. On 1 March 2001 TL gave notice of its intention to pursue default judgement against RH and Pinpar on the basis that they had still not filed an amended cross-defence.

12. The application for default judgement was heard on 21 March 2001 at which RH and Pinpar argued that Pinpar’s cross-defence to TL’s cross-claim was sufficient as it automatically enjoined all the issues arising from the amended cross-claim. In addition, RH and Pinpar argued that the amended cross-claim was defective for being filed without leave. Amet CJ found that the amended cross-claim was valid as it was the consequential effect of the order made by Kapi DCJ which had the effect of re-opening the pleadings and therefore the cross-claimant was entitled to amend its cross-claim. Similarly, RH and Pinpar were entitled to file their amended cross-defence to the amended cross-claim on the basis that the amended cross-claim necessarily implicated RH as being vicariously liable as a parent or the controlling company of Pinpar.

13. Despite these findings his Honour declined to order default judgement on the basis that the cross-defence sufficientlyenjoined all issues arising from the amended cross-claim.

14. The trial was heard in the National Court by Justice Gavara-Nanu on 6 October 2004.

15. At the trial before the National Court, Pinpar discontinued its claim against TL. The hearing proceeded on TL’s amended cross-claim against both Appellants for breach of the LMA.TL called four witnesses. The Appellants relied on the affidavit evidence of one witness from Pinpar.

16. The learned trial judge found in favour of TL. He found that Pinpar was the agent of RH, and that it was purposely incorporated to give it corporate status so that it could execute the LMA for RH to conduct logging business. RH was the undisclosed principal of RH, which was the parent and controlling company which ran and managed all the affairs of Pinpar. Furthermore, there was an element of fraud in the conduct of Pinpar and RH in having the landowners sign the LMA which was formulated by Pinpar and RH with little or no involvement, if any, by the landowners, which was unconscionable. In addition, there was constant breach of the LMA by Pinpar and RH. In that regard the landowners had legitimate concerns, which they tried to raise, but which were ignored by Pinpar and RH. The legislative scheme reflected in s. 46 of the Forestry Act 1991 provides for all parties dealing with resource owners to respect their rights. These rights were not embodied in the LMA but were totally disregarded by Pinpar and RH as “not important”.

17. In those circumstances, the learned trial judge found that RH should not have the protection of its corporate veil, and that it should be lifted so that it does not avoid its legal obligations. Furthermore, that RH is bound by the actions of Pinpar and is vicariously liable to TL.He awarded damages and interest in the amount of K3, 170, 166.20 for breach of the LMA.

Grounds of Appeal

18. The Appellants rely on eighteen (18) grounds of appeal, all of which have been considered in rendering this decision. The grounds, which allege errors of fact...