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Kaumb v Papua New Guinea Banking Corporation [1997] PGNC 83; N1594 (16 July 1997)

Unreported National Court Decisions

N1594

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

WS NO. 85 OF 1996
BETWEEN
PAUL KAUMB - First Plaintiff
And
JOHN KEWA - Second Plaintiff
And
PAPUA NEW GUINEA BANKING CORPORATION - Defendant-Cross Claimant
And
PAN ASIA PACIFIC ASSURANCE PTY LTD - Cross-Defendant

Mount Hagen

Lenalia AJ
1 July 1997
16 July 1997

CIVIL JURISDICTION - Practice - Application by Cross-Defendant to set aside judgement by default - Irregularity in obtaining judgement - cross - defendant must have good defence on the merits - Whether affidavit shows defence on the merits - Irregularity of proceedings - Defence on the merits - Principles applicable -Absence of evidentiary proof - Application granted.

Cases Cited:

The following cases are cited in the judgement:

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

Barker v The Government of Papua New Guinea [1976] PNGLR 340

The Government of Papua New Guinea and Davies v Barker [1977] PNGLR 386

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

Application To Set Aside

This is an application on notice by the Cross-defendant seeking orders to set aside a judgement entered against them on 7th day of March 1997.

Counsel:

P Korowi for the Plaintiffs

P Dowa for the Defendant/Cross-Claimant

P Koeya for the Cross-Defendant

16 July 1997

LENALIA AJ: This is an application pursuant to O. 12 r 8 subrule (3) (a) of the National Court Rules to set aside a default judgement allegedly entered by consent against the two defendants on 7th of march, 1997. On that date only the lawyers representing the plaintiffs and the Defendant/Cross Claimant appeared. No representative appeared for the Cross-Defendant. The defence raised by the lawyer for the applicant is that his client was not served with the notice of process pursuant to O8 r 42 which provides for service of documents in cross-claims.

BACKGROUND

The background history of this case is this. On the 26th day of January, 1996 the plaintiffs filed a Writ of Summons claiming damages against the only defendant named in the Writ of Summons as Papua New Guinea Banking Corporation. Particulars of negligence included in the pleading was failure to declare the full insurable value of a Toyota Hiace 15 Seater Bus which vehicle full insurable valuewas placed at K28,000.00 but the defendant/cross claimant falsely declared the insurable value at K20,000.00. The applicant’s lawyer argued that they have a good defence on the merits and thus I should set aside my own consent orders made on 7th of March, 1997. I set out in full, the Statement of Claim in order to understand the full facts of this litigation.

STATEMENT OF CLAIM

1. At all material times to this action:

(a) The First Plaintiff was and is a subsistence farmer from Kuga village, Mount Hagen in the Western Highlands Province and is about 28 years of age.

(b) The Second Plaintiff was and is a subsistence farmer from Kuga Village, Mount Hagen in the Western Highlands Province and is about 45 years of age.

(c) The Defendant is a bank incorporated under the Companies Act Chapter 146 of the Revised Laws of Papua New Guinea and carries on the business of banking throughout Papua New Guinea and is capable of suing and being sued in tis corporate name, style and capacity.

2. On the 4th August, 1995 the Plaintiffs obtained a loan from the Defendant’s Mount Hagen Branch in the sum of K17,388.00 to purchase a new Toyota Hiace 15 Seater Bus at Ela Motors, Mt Hagen valued at K28,000.00 and in addition to the loan K2,000.00 for comprehensive insurance.

3. The Plaintiffs accepted the terms and conditions of the loan and signed the 2 approval letter of 4th August, 1995 of the Relieving Mount Hagen Branch Manager, one Mr KE Drosd.

4. The Defendant on the 8th August, 1995 took a Comprehensive Insurance cover with the Pan Asia Pacific Insurance (PNG) Pty Limited and declared the value of the vehicle at K20,000.00 when in fact the insurable value was K28,000.00 and the Defendant only paid a premium of K1,547.00.

5. A bill of sale signed by the Plaintiffs provided under clause C. 6 that the Grantor (Plaintiffs herein) will ensure and keep insured against loss or damage by fire or such other causes in their full insurable value with some insurance office the mortgaged property.

6. The Defendant waived the obligation of the Plaintiffs to insure the Toyota Hiace 15 Seater Bus by taking out a comprehensive insurance cover, costs of which were to be repaid by the Plaintiff.

7. The said Toyota Hiace 15 Seater bus registration No. P722 S was purchased by the plaintiffs and after a few days was involved in an accident on the 19th August, 1995 whilst being driven by one Kewa Rop and was damaged beyond repair.

8. When the Plaintiffs checked the Defendant on the comprehensive Insurance cover they discovered that the said vehicle was only insured at K20,000.00 and not at K28,000.00 being the full insurable value therefore, the Defendant’s Mount Hagen Branch was negligent.

Particulars of Negligence of the Defendant

(a) Failing to declare the full insurable value of the Toyota Hiace 15 Seater Bus being K28,000.00 when it falsely declared the full insurable value at K20,000.00.

(b) Misleading the Plaintiffs in its letter of the 4th August, 1995 that comprehensive insurance cost was K2000.00 which was sufficient premium for the value of the said bus when it actually paid only K1,547.00 premium not sufficient to cover the said vehicle in its full insurable value.

9. As a result of the negligence of the Defendant the Plaintiffs were deprived of a replacement vehicle for which the comprehensive insurance was supposed to cover and they (Plaintiffs herein) continue to suffer hardship and business loss for which the Defendant is liable.

The Writ of Summons was served on the Defendant/Cross-Claimant on the 19th of February but the affidavit of service was filed on 27th of June 1996. The defendant/Cross-Claimant filed a Notice of Intention to Defend as early as 5th of March and a formal defence was filed on 10th of July, 1996. In their defence the Defendant/Cross-Claimant (herein referred to as PNGBC) admitted that the plaintiffs took out a loan agreement with them but denies all other allegations by the two plaintiffs in their statement of claim. A reply to the defence was filed on 17th of July, 1996. This time on the reply to the Defence the name of the applicant was added to the notice of reply to the defence. As to how the name of the applicant was added as a party to the current proceedings is not clear from the records. Nor is there mention in the file endorsements how the applicant came to be added a party or whether the applicant was properly added as a party to the proceedings as required by O. 5 rr 2 & 4 of the Rules regarding joinder of causes of action and parties. Following the plaintiffs reply to the defence a notice of motion was filed on 7th of February 1997 orders in the following terms:

1. The Defendant/Cross-claimant’s Defence be struck out; and

2. Default judgement be entered against the Defendant/Cross-claimant in the sum of 28,000.00 with interest at 8% from the date of issue of the Writ of summons to the date of this judgement; and

3. The Defendant/Cross-claimant be indemnified by the Cross-defendant as to Order No. 2 above; and

4. The Defendant/cross-claimant and Cross-defendant to pay the Plaintiffs’ taxed costs; and

5. General damages and economic loss to be assessed; or

6. The Cross-defendant file and serve upon the Plaintiff and Defendant/Cross-defendant its Notice of Intention to Defend and defence to the Cross-claim within 14 days.

7. Any other orders the Court deems appropriate; and

8. The time for entry at this order be abridged to the date of assessment of damages which shall take place forthwith.

In support of the application filed on behalf of the two plaintiffs, Mr Korowi deposed in his affidavit that despite PNGBC filing their intention to defend and their eventual formal defence, the Applicant had not filed theirs yet. In his letters dated 2nd and 20th September 1996 (see anns. “C” and “D”) to PNGBC Loans Management at Waigani, Mr Korowi indicated that he was to press for orders in his motion seeking a con sent order against PNGBC but PNGBC was to be indemnified by the Cross-Defendant. A notice of search was filed by Hotley Pora in the employ of Kunai & Co. Lawyers testifying that he conducted a search at the Mount Hagen Registry Office and could only find a defence filed by PNGBC but not the Cross-Defendant. The plaintiffs’ motion was fixed for hearing on 7th of March 1997. An affidavit of service of the same was caused to be posted to PNGBC ordinary postal address through Mr Jacobus Kewa Puringi - Loans Management, PNGBC PO Box 295, Waigani.

In the course of their dealings, the plaintiffs lawyer secured an agreement with the Principal Legal officer of PNGBC to have a consent order. Mr Franklyn B Artihulawa signed the proposed consent orders. This proposed order was filed as well as being tendered to the Court sitting on the date the consent orders were made. After the consent orders were obtained they were served on all parties including the applicant. Following grant of the consent orders the plaintiffs further filed yet another motion on 30th May 1997 seeking leave of the Court to serve a Garnishee Notice pursuant to O. 13 r 56 of the National Court Rules. By consent, the notice seeking leave for a garnishee proceedings was stood over generally awaiting outcome of the applicant’s motion.

The Cross-Defendant now seeks orders in terms of their motion to set aside orders number 4 and 5 entered against them on the 7th of March this year. They seek a further order directing them to file a defence to the cross-claim within 14 days and an order for the Defendant/Cross Claimant to pay the applicant’s costs incidental to this application.

Evidence relied on by the applicant is contained in an affidavit deposed to by Mr Terry Ward in the employ of the Cross-Defendant as a Finance and Administration Manager. Mr Ward says that upon receipt of a sealed copy of the consent orders posted to them with a covering letter from Kunai & Co. Lawyers, he conducted a thorough search of the defendant’s business records kept by the applicant in relation to documents, letters, legal proceeding files and facsimile or otherwise, he found no such records of the current proceedings. Mr Lightfoot informed the deponent that, the former had enquired with an agent at their Mt Hagen office who obtained information from the Mt Hagen Registry Office that, there was no such affidavit of service of the cross-claim filed nor was there any document to show that the applicant was aware of the proceedings. Mr Lightfoot admitted receiving a copy of an unsealed affidavit of service from the defendant/cross claimant’s lawyer on the 27th of May 1997. I note that annexure “A” to Mr Ward’s affidavit is a copy of an affidavit of service only in relation to the Defence “and other relevant documents in relation to the above proceedings” without specifying what these documents were.

Mr Dowa for the Defendant/Cross Claimant argued that there is no way the Cross-Defendant could deny service of the process being served on them because Mr Lightfoot accepted service through their agent John Tomun and the Court must accept that admission by Mr Lightfoot should be deemed to be sufficient service.

The issue is whether service was effected on the Cross-Defendant. It is well settled law that in order for this Court to exercise its discretion in favour of the applicant, he must establish to the Court by evidence why the default judgement regularly entered ought to be set aside. To do that, the applicant must by affidavit evidence advance reasonable explanation as to why judgement was allowed to go by default. An explanation as to why there was delay (if there was one) in bringing the application (or otherwise show that the application was made promptly) and material adverting to the defence on the merits of their application: Green and Co. Pty Ltd v Green [1976] PNGLR 73: see also Barter v The Government of Papua New Guinea and Buy [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 Koeya advances one valid argument in favour of his client that the Writ of Summons was not served on their client otherwise a defence would have been filed. By careful perusal of all documents in this proceedings I find that there was an irregularity involved in the way the writ of Summons was drawn. I said at the outset of my discussion that the instillation on the Writ of Summons does not bare the name of the Cross-Defendant nor have I sighted any documents in the file suggesting to me if the Cross-Defendant was ever added a party to the proceedings pursuant to O. 5 of the National Court Rules. How did the Defendant/cross claimant expect the Cross-Defendant to know about the facts of the cross-claim without proper pleading being served on the applicant. Service referred to by Mr Dowa would seem to be service of the defence filed by PNGBC which in my view was quite inappropriate to define pleading filed by the parties. The Statement of Claim should have been served on the cross-defendant. The purpose of pleadings has been said to define the issues of facts or of law. The central role that the process plays is well summarized in an article “The present importance of pleadings” (1966) by Master 1 H Jacob at 171 it says:

“Moreover, pleadings do not only define the issues between the parties for the final decision of the court at the trial; they manifest and exert their importance throughout the whole process of the litigation. They contain the particulars or the allegations of which further and better particulars may be requested or ordered, which help still further to narrow the issues or reveal more clearly what case each party is making. They limit the ambit and range of the discovery of documents and the interrogatories that may be ordered. They show on their face whether a reasonable cause of action or defence is disclosed. They provide a guide for the proper mode of trial, and particularly for the trial of preliminary issues of law or fact. They demonstrate upon which party the burden of proof lies, and who has the right to open the case. They act as a measure for comparing the evidence of a party with the case which he has pleaded. They determine the range of the admissible evidence which the parties should be prepared to adduce at the trial. They delimit the relief which the court can award. They provide the basis for the defence of res judicata in subsequent proceedings by reference to the record in the earlier proceedings.” (emphasis added).

Mr Koeya further argued that the requirement to serve a cross-claim on the cross-defendant was not complied with in that the process was not served on the applicant pursuant to O. 8 r 42. As to how cross-claims are commenced Division 3 of O. 8 specifies the mode of commencement in relation to Cross-Claims. Rules 37-39 say this:

37. Application of Division 3.

(1) This Division applies to proceedings commenced by writ of summons.

(2) This Division applies to proceedings commenced by originating summons to such extent and with such modifications as the Court may direct.

38. Commencement.

(1) A party against whom a claim is made in proceedings and who claims relief by way of counter-claim, cross-action, set-off, third party claim or otherwise may make his claim by filing a pleading by way of cross-claim in those proceedings.

(2) A cross-claimant may file a cross-claim within the item fixed for filing his defence.

39. Form.

(1) A cross-claim shall e in form 20 or 21 as the case requires.

(2) A cross-claim shall be I intituled in the proceedings with an addition s howing the names of the parties to the cross-claim.

(3) Where a cross-claimant cross-claims solely against a party who claims in the proceedings against the cross-claimant, the cross-claimant may add the cross-claim to his defence.

(4) Where there are two ore more cross-claims, the second cross-claim to be filed shall be called the second cross-claim, the third to be filed shall be called the third cross-claim, and so on.

(5) subject to Rule 27 (embarrassing pleadings and the like), a cross-laimant may, in his cross-claim, plead all or any of the facts on which he relies by reference to the prior pleadings in the proceedings.

(6) A cross-claimant shall, in addition to pleading any other facts on which he relies, plead the facts showing that the claim is one which may be made in the proceedings.

(7) Order 4 Rule 7 (claims for relief in originating process) applies to a cross-claim whether or not the cross-claim is an originating process.

The proceedings required the Defendant/Cross Claimant to service the Writ on the applicant. The manner of service is also regulated by O. 8 r 42 in the following words:

(1) Where a defendant to a cross-claim has, on the date of filing the cross-claim, an address for service in the proceedings, the cross-claimant shall, on that date, serve the cross-claim on that defendant to the cross-claim.

(2) Where a defendant to cross-claim has an address for service in the proceedings, personal service of the cross-claim on him is not required.

(3) Order 6 Rule 14 (cases where filing operates as service) does not apply to the service of a cross-claim.

Conduct of proceedings in cross claims is regulated by O. 8 r 44 and r 45 regulates default of defendants to cross-claim. These rules say:

44. Conduct of proceedings generally. (6/6)

(1) Subject to this Division, the proceedings on a cross-claim shall follow as nearly as may be the course of proceedings on a writ of summons.

(2) Subject to this Division, and without limiting the generality of Sub-rule (1), these Rules apply to a cross-claim and the proceedings arising from it as they apply to a writ of summons and the proceedings arising from it.

(3) sub-rules (1) and (2) apply as if:

(a) the cross-claim were a writ of summons; and

(b) the cross-claimant were a plaintiff; and

(c) the defendant to the cross-claim were a defendant.

(4) A plaintiff in a writ of summons need not give notice of intention to defend a cross-claim in the same proceedings.

(5) A notice of intention to defend given by a party to the proceedings shall, on service of a cross-claim on him, operate as a notice of intention to defend the cross-claim.

(6) Subject to this Division, the trial and all other steps in the proceedings on the cross-claim shall as far as practicable be carried on together with the trial and similar steps in the proceedings on the writ of summons.

45. Default of defendant to cross-claim. (6/7)

Where a defendant to a cross-claim does not give notice of an intention to defend the cross-claim or file a defence as required by these Rules, or does not file a defence in accordance with an order to do so, a judgement (including a judgement by default or by consent) or decision (including a decision by consent) on any claim, question or issue in the proceedings on the writ of summons or on any other cross-claim in the proceedings shall, unless the Court otherwise orders, be binding as between the cross-claimant and the defendant to the cross-claim so far as the judgement or decision is relevant to any claim, question or issue in the proceedings on the cross-claim.

Having purused the file, I cannot find any affidavit of service to suggest that the Applicant was served with the Writ. The only affidavit of service of the process I find is the one filed by the plaintiff himself on 27th of June 1996 which was effected on the Defendant Cross-Claimant. There is no other proof of service of the Writ of Summons on anyone else.

Is there a defence on the merit shown by the affidavit filed by and on behalf of the applicant. The rule that the applicant must show a “defence on the merits” requires the applicant to show his defence on the merits is clear. It must be by affidavit evidence disclosing a defence on the merits. Such an affidavit to be considered as showing a defence on the merits must set out statement of material facts, 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 quite apparently satisfied this Court that there is a defence on the merits and I hold that it was incumbent upon the Defendant/Cross-Claimant to serve the cross-claim upon the applicant. This Court has power under O. 8 r 46 to set aside a judgement entered by default. Failure to serve on the Cross-Defendant can only amount to an holding that the orders granted on 7th of March this year were irregularly obtained. I must therefore order that any orders made against the applicant on the 7th of March this year must be set aside. I direct the Cross-Defendant to file their defence within 14 days. I also order the Defendant/Cross-Claimant to meet the costs of this Application.

Lawyer for the Plaintiffs: Kunai & Co Lawyers

Lawyer for the Defendant/Cross-Claimant: Paulus Dowa Lawyers

Lawyer for the Applicant Cross-Defendant: Carter Newell Lawyers