The National Provident Fund sued its building contractor for K5.8 million alleging a corrupt agreement. The trial judge entered judgment without a trial, having decided that the rule forbidding summary judgment in fraud cases no longer suited Papua New Guinea. The Supreme Court disagreed on every point.
Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees [2006] PGSC 2; SC837
Supreme Court, Waigani — Injia DCJ, Salika and Davani JJ, 22 May 2006. SCA 145 of 2003.
What happened
In 1997 Kumagai Gumi contracted to build NPF’s tower in Port Moresby for K45 million. Cost increases led to a settlement of about K54 million and further board-approved payments. NPF later sued Kumagai and its own former board members, alleging fraud and conspiracy, and claimed a liquidated sum together with costs, interest and punitive damages. Kumagai filed a defence denying the allegations but did not verify it as the writ required. NPF moved for judgment under several rules: embarrassing pleadings, pleading the general issue, summary judgment under Order 12 rule 38, and default judgment for failure to verify.
What the National Court did
The parties agreed before the trial judge to argue only points of law, leaving the affidavit evidence for a later hearing if needed. On 5 December 2003 the judge nonetheless made findings of fact on the affidavits, struck out the defence and entered judgment. On the rule that summary judgment is not available on a claim based on fraud, he acknowledged the binding decision in Kappo No 5 v Wong (1997) SC520 but held that Order 12 rule 37(b) was outdated and inapplicable to the circumstances of the country under Schedule 2.3 of the Constitution. He also treated the claim as a liquidated demand that Kumagai was obliged to verify.
What was argued
Kumagai raised fifteen grounds, chiefly that it had been denied a hearing on the evidence, that rule 37(b) barred summary judgment, that the claim was not a liquidated demand, and that a bare denial of fraud was a permissible non-admission. NPF defended the judgment as an exercise of discretion.
What the Court decided
Natural justice. Deciding the motion on evidence the parties had agreed not to address was a denial of natural justice to both sides, in particular the appellant, and a fundamental error.
No summary judgment on fraud. Order 12 rule 37(b) bars summary judgment on a claim based on fraud, as Kappo No 5 held. A judge of the National Court may waive compliance with a rule under Order 1 rule 7, but has no power to amend, repeal, disband or declare inapplicable a rule of court, which is delegated legislation made by the judges collectively under section 184 of the Constitution and section 8 of the National Court Act.
Liquidated demand. A claim for a specified sum that includes punitive damages for civil fraud is not a liquidated demand; the verification requirement in Order 8 rule 24 did not apply, and default judgment on that basis was wrong.
Pleading. A denial of fraud amounts to a non-admission under Order 8 rule 21(2); whether it was made in good faith is a question of fact that cannot be decided from the pleadings alone. Appeal allowed, judgment quashed, the balance of the motion remitted to a different judge.
Did it make new law?
The Court reversed the National Court and reaffirmed Kappo No 5. Its new contribution was the constitutional point: Schedule 2.3 lets a court develop the underlying law where there is no rule, not set aside a rule of court that exists. That principle has since been applied well beyond summary judgment.
Why it matters
Fraud must go to trial. A plaintiff who pleads fraud cannot shortcut proof by summary judgment; the remedy for a weak defence is a swift trial, not judgment on affidavits.
Agreed hearing scope binds the court. Where parties and judge agree to decide law first, a judgment on the facts without further hearing is liable to be set aside, as Bank South Pacific v Nad (2010) SC1278 later confirmed.
Check whether a claim is truly liquidated before relying on verification defaults; adding damages or penalties takes it outside Order 8 rule 24.
What it does not decide
Kumagai does not decide whether the NPF claim was well founded; that was remitted. It does not address summary dismissal of a fraud claim under Order 12 rule 40, which is governed by Takori v Yagari. Nor does it limit the judges’ collective power to amend the Rules, which they exercised in 2012 and 2022.
Recent cases applying it
- Powi v Kaku [2022] PGSC 101; SC2290 — Kumagai adopted and applied: no judge may unilaterally depart from the procedures established by legislation and the rules; a judgment delivered while the judge was outside the country was set aside.
- The State v Pinch [2023] PGSC 24; SC2374 — Kumagai applied on natural justice: a court that rules on evidence the parties were not given the opportunity to address commits a fundamental error of law.
- The State v Tamate [2021] PGSC 54; SC2132 — paragraph 23 of Kumagai quoted for the proposition that a single judge cannot disband a rule of court.
- Kuso Maila Anda Ltd v United Pacific Corporation Ltd [2019] PGSC 113; SC1894 — Kumagai among the authorities on the right to be heard before judgment.
Sources
- Kumagai Gumi Co Ltd v National Provident Fund Board of Trustees [2006] PGSC 2; SC837 (Injia DCJ, Salika and Davani JJ, 22 May 2006)
- National Court Rules 1983 — Order 1 r 7, Order 8 rr 21, 24, 27, 28, Order 12 rr 25, 37, 38; Constitution — s 184, Sch 2.3
- Powi v Kaku [2022] PGSC 101; SC2290; The State v Pinch [2023] PGSC 24; SC2374; The State v Tamate [2021] PGSC 54; SC2132; Kuso Maila Anda Ltd v United Pacific Corporation Ltd [2019] PGSC 113; SC1894
Kappo No 5 Pty Ltd v Wong (1997) SC520 and Bank South Pacific Ltd v Nad (2010) SC1278 are cited as they appear in the judgments and were not separately opened for this brief.
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