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Cawley v Sabumei, Sabumei and Numuni Hotels Pty Ltd [1990] PGNC 64; N922 (9 November 1990)

Unreported National Court Decisions

N922

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

WS 588/89
BETWEEN: MICHAEL CAWLEY
PLAINTIFF
AND: BENAIS SABUMEI
FIRST DEFENDANT
AND: LORNA SABUMEI
SECOND DEFENDANT
AND: NUMUNI HOTELS PTY LTD
THIRD DEFENDANT

Waigani

Jalina J
21 September 1990
9 November 1990

PRACTICE - Application to set aside judgment by default - Judgment for damages to be assessed - No irregularity in obtaining judgment - Defendant having good defence on the merits - Reasons for Defendant’s failure and grounds of defence on the merits not in affidavit in support of application to set aside - Application refused - National Court Rules O.12 r.8

Cases Cited

Barker v The Government of PNG and Bux [1976] PNGLR 340.

Geroge Page Pty. Ltd v Malipu Bus Balakau [1982] PNGLR 140.

Green and Co. Pty. Ltd. v Green [1976] PNGLR 73.

The Government of PNG and Davis v Barker [1977] PNGLR 386.

APPLICATION TO SET ASIDE JUDGMENT

This was an application on notice seeking to set aside a judgment entered in default of pleadings.

Counsel

P Payne, for Applicant/Third Defendant.

I Shepherd, for the Respondent/Plaintiff.

Cur adv vult

9 November 1990

JALINA J: This is an application under O 12, r 8 (3)(a) of the National Court Rules to set aside a default judgment entered on 23 February, 1990. Judgment was for damages to be assessed.

BACKGROUND

On 29 June 1989 The Plaintiff filed an amended Writ of Summons Claiming among other things, damages for breach of contract. Since the present application involves the issue as to whether or not the Third Defendant has a good defence “on the merits” I will set out the statement of claim in full.

STATEMENT OF CLAIM

1. The first and second defendants are the directors of the third defendant.

2. The third defendant is a company incorporated according to the Companies Act and entitled to be sued in the name cited.

3. The third defendant is and was at all material times aware of the breaches hereinafter referred to.

4. By a Memorandum of Understanding made between the plaintiff and the first and second defendants, the plaintiff agreed to manage the hotel owned by the 3rd defendant known as Lantern Lodge and situated at Allotment 46, Section 33, Town of Goroka in the Eastern Highlands Province for a period of two (2) years from 9 November 1987 and, at the expiration thereof, the defendants agreed to grant the plaintiff an option to purchase the said hotel for Five Hundred Thousand Kina (K500,000.00).

5. Prior to the expiration of the term of the said Memorandum of Understanding, the Plaintiff and the first and second defendants agreed to enter into a contract for sale and purchase of the shares in the third defendant for Six Hundred Thousand Kina (K600,000.00).

6. The said Memorandum of Understanding to manage the hotel was contained in writing and was dated 9th November 1987.

7. The said contract for the sale and purchase of the shares in the third defendant was partly oral, partly in writing and partly by conduct. In so far as it was oral, the contract was made at various interviews which occurred on the following dates:

(a) On or about 24 February 1988 at Lantern Lodge in Goroka between Michael David Cawley, Isikeli Tami and their legal representative, Mr Ross Howard of Warner Shand Wilson and Associates of Mount Hagen, the first and second defendants, and their legal representative, Mr Bernard Avery of Messrs Avery & Sawong of Lae.

(b) On 17 August 1988 at the Islander Hotel, Port Moresby between Michael David Cawley and the first defendant.

In so far as it was in writing, the said agreement was contained in or is to be inferred from the following documents or some or one of them:

(a) Contract for Sale of Shares in the third defendant, a copy of which was facsimiled from Messrs Warner Shand Wilson and Associates of Mount Hagen to Messrs Avery & Sawong on 8th April 1988.

(b) Letter to Messrs Avery & Sawong to Messrs Warner Shand Wilson and Associates dated 15 April 1988.

(c) Letter Messrs Warner Shand Wilson and Associates to Messrs Avery & Sawong dated 27 May 1988.

(d) Letter Messrs Warner Shand, Lae to Messrs Warner Shand Mount Hagen dated 17 August 1988.

(e) Letter Messrs Warner Shand, Lae to Messrs Warner Shand, Mount Hagen dated 18 August 1988 and redrafted Contract for Sale of Shares in third defendant of same date.

(f) Letter Messrs Warner Shand, Lae to Messrs Warner Shand, Mount Hagen dated 22 August 1988.

(g) Letter Messrs Warner Shand, Mount Hagen to Messrs Warner Shand, Lae dated 30 August 1988.

(h) Letter Messrs Warner Shand, Lae to Messrs Warner Shand, Mount Hagen dated 12 September 1988.

(i) Letter Messrs Warner Shand, Lae to Messrs Warner Shand, Mount Hagen dated 26 September 1988.

(j) Letter Messrs Warner Shand, Lae to Messrs Warner Shand, Mount Hagen dated 31 October 1988.

(k) Letter Messrs Warner Shand, Mount Hagen to Messrs Warner Shand, Lae dated 10 November 1988.

(l) Such further documents or letters that may be advised following discovery herein.

In so far as it was by conduct, the conduct consisted of or is to be inferred from the following:

(i) At all material times the first and second defendants well knew that the plaintiff had, since entering into possession of the said hotel in November 1987, expended large amounts of money on renovations and improvements over and above the K30,000.00 referred to in the said Memorandum of Understanding dated 9 November 1987 which clearly signified the plaintiff’s intention to complete the contract and the defendants, by acquiescing in the said expenditure thereby indicated that they were aware of the plaintiff’s intention to complete the said contract.

(ii) Further, the first and second defendants had full knowledge of the final terms of the Contract for Sale of Shares and were fully aware that 17 November 1988 was the settlement date that had been agreed to by all parties and their legal representatives as was confirmed in a letter from the first and second defendants’ lawyers to the plaintiff’s lawyers dated 31 October 1988.

8. In breach of both the Contract for Sale of Shares and the said Memorandum of Understanding, the defendants unlawfully terminated the said contract and memorandum on 8 November 1988.

9. The plaintiff, as he was entitled to do so, accepted the said termination and duly removed his furniture and fittings from the said hotel and duly vacated same.

10. By reason of the matters aforesaid the plaintiff has lost the benefit of the said Contract for Sale of Shares and Memorandum of Understanding and has lost revenue he would otherwise have received thereunder and has lost the benefit and property in the improvements and renovations effected by him and has suffered loss and damage.

Particulars

(i) Revenue as manager of the Lantern Lodge Hotel from 8 November 1988 to 8 November 1989.

(ii) Trading Profit from the ownership of the shares in the 3rd defendant from 8 November 1988.

(iii) Cost of renovations and improvements including architects fees.

(iv) Amounts advanced to the first and second defendants as advances on the purchase price for the shares in the third defendant.

AND the plaintiff claims:

1. An account of all profits received by the third defendant since 8 November 1988.

2. An order for the payment by the third defendant to the plaintiff of the amount found to be due to him on the taking of such accounts and damages for loss of profits, both past and future.

3. Damages for wrongful termination of both the Contract for Sale of Shares and Memorandum of Understanding.

4. Refund of K12,500.00 by the first and second defendants being the amount advanced to the first and second defendants as part payment of the purchase price for the shares in the third defendant.

5. An order for the appointment of a valuer to determine the value of the improvements and renovations made to the said hotel.

6. The amount determined by the said valuer as part of his damages herein plus the amounts expended by the plaintiff on architects fees and related costs.

7. Further and other relief.

8. Interest on damages.”

The Writ of Summons was served by sending a sealed copy to the Applicant/Third Defendant’s registered address on 3 July 1989. Notice of Intention to Defend was filed by the Applicant/Third Defendant’s lawyers on 2 August, 1989. A copy of such Notice was sent to the Plaintiff’s lawyer.

On 3 January 1990 the Plaintiff’s lawyers, after conducting a search at the National Court Registry and discovering that Defence had not been filed by the Third Defendant wrote to the Third Defendant’s lawyers giving notice of their intention to enter summary judgment against the Third Defendant if defence was not filed by the close of business the next day; 4 January, 1990. It was also pointed out that the Third Defendant was four (4) months overdue in filing its defence.

On 9 January, 1990 the Third Defendant’s lawyers wrote to the Plaintiff’s lawyers pointing out that because the court was on vacation, time did not run against their client pursuant to O 2, r 3 (iii) of the National Court Rules and that the Defence would be delivered prior to the expiration of the vacation. For convenience I set out O 2, r 3.

“3. Vacation

(i) There shall be a vacation in each year from the twentieth day of December to the following thirty-first day of January, both inclusive.

(ii) Any Judge may sit in vacation for another and may in vacation exercise any authority which any other Judge might exercise if he were present and sitting in Court.

(iii) The time of the vacation shall not be reckoned in the times appointed or allowed by these Rules for filing, delivering or amending any pleading unless so directed by a Judge nor shall a pleading be delivered or amended, nor judgment be entered in default, unless under the direction of a Judge.”

On 22 February 1990 a further search was carried out by the Plaintiff’s lawyers and further discovering that defence had not been filed by or on behalf of the Applicant/Third Defendant proceeded to and in fact obtained judgment on 23 February 1990 in default of defence as has been pointed out above. This, it must be noted, was almost one (1) month after the expiration of the period of court vacation referred to in O 2, r 3 (i) of the National Court Rules. However, in view of Mr Payne having conceded that the default judgment was obtained in accordance with the National Court Rules it appears to me that he no longer wishes to rely on an argument based on O 2, r 3 (iii). This course of action by Mr Payne appears to me to be a sensible one as he no doubt realised that an argument based on O 2, r 3 (iii) could not possibly succeed in the face of almost five (5) months delay between 2 August 1989 when Notice of Intention to Defend was filed on behalf of the Applicant/Third Defendant and 23 February, 1990 when default judgment was entered on behalf of the Respondent/Plaintiff against the Applicant/Third Defendant.

It is well established in this jurisdiction that in order for this Court to exercise its discretion in favour of the applicant, the applicant must establish why the default judgment, regularly entered, ought to be set aside. To do that the applicant must, by affidavit evidence advance a reasonable explanation as to why judgment was allowed to go by default, an explanation why there is a delay (if there was a delay) in bringing the application (or otherwise show that the application was made promptly) and material adverting to a defence on the merits of the application. See Green and Co.Pty.Ltd. v Green [1976] PNGLR 73, Barker v The Government of Papua New Guinea and Bux [1976] PNGLR 340, The Government of Papua New Guinea and Davis v Barker [1977] PNGLR 386, George Page Pty. Ltd v Malipu Bus Balakau [1982] PNGLR 140.

Mr Payne advances two arguments in favour of his client’s application. The first argument is based on the converse of the argument based on delay in applying for a default judgment, regularly entered, to be set aside. He says that because the Respondent has failed to serve a copy or notify the Applicant of the judgment coupled with its failure to have damages assessed, the Respondent would not be prejudiced in any way except as to costs which the Applicant was prepared to accept.

Although not raised by Mr Payne, the Respondent has not given any reason for its failure to serve a copy or notifying the Applicant or its lawyers of the judgment.

While I agree that the Respondent/Plaintiff has neither served a copy nor notified the Applicant/Third Defendant of the judgment and has further failed to take steps to have damages assessed, I do not consider it reasonable to say that that the Respondent would not be prejudiced in the circumstances of this particular case where the Applicant has also failed to protect its own interest for a period of almost five months. This is not a case where the Applicant was not represented. In fact it was represented by Blake Dawson Waldron, a reputable multinational law firm. Neither the Applicant nor its lawyers have explained why Defence was not filed for almost five months. After having been warned by the Respondent’s lawyers, the Applicant or its lawyers did not take steps to carry out a search at the Registry to ascertain whether or not default judgment had been obtained. In any case in my view whether or not a successful party (in this case the Respondent) in a civil suit enforces a judgment or order is a matter that it alone can decide. If it does not bring the terms of the judgment or order to the notice of the party against whom it is made, it cannot blame that party for failure to comply with it. If the Respondent does not have damages assessed then he takes the risk of not being paid any monies in damages. I therefore cannot accept failure by the Respondent to take steps to have damages assessed as sufficient ground to compel me to exercise my discretion in favour of the Applicant. For me to do so would be to open new grounds for setting aside default judgments, regularly entered, when such a ground is not contemplated by O 12, r 8(3).

The second argument is based on the Applicant’s defence on the merits. Before I consider this aspect however, I note that the Applicant has come to this court with a disadvantage (which has been pointed out above) that it has not, by affidavit evidence, given an explanation as to why judgment was allowed to be entered by default. It has failed to satisfy this court of the second rule of practice in applications of this nature.

Is there a defence on merits shown by affidavit? In support of his application on this ground Mr Payne relies on the affidavit of James Sleight dated 6 September, 1990 where in paragraph 5 Mr Sleight says in general terms that the Third Defendant has a good defence. The rule requiring the applicant to show his defence on the merits is clear. It must be by an affidavit disclosing defence on the merits. Such an affidavit, to be considered as showing a defence on the merits must set out statements of material fact sufficient to satisfy the court that the applicant has a prima facie defence and that it is reasonable that the applicant should be allowed to raise that defence. See Supreme Court decision in The Government of Papua New Guinea and Davis v Barker [1977] PNGLR 386. The applicant has not done so in this case. It has merely filed an affidavit containing a general statement. With respect, that is not good enough in my view. The end result is that in the exercise of my discretion in the circumstances I refuse the application. I order that the Applicant pay the costs of the Respondent of this application.

Lawyer for the Plaintiff (Respondent): Joseph K Pakau Lawyers.

Lawyer for the Third Defendant (Applicant): Blake Dawson Waldron.