N5774

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

WS 258 OF 2012

BETWEEN:

ALBRIGHT LIMITED
Plaintiff

AND:

MEKEO HINTERLAND HOLDINGS LIMITED
First Defendant

AND:

LUCAS DEKENE, MINISTER FOR LANDS & PHYSICAL PLANNING
Second Defendant

AND:

ROMILLY KILA-PAT, SECRETARY FOR LANDS & PHYSICAL PLANNING
Third Defendant

AND:

INDEPENDENT STATE OF PAPUA NEW GUINEA
Fourth Defendant

Waigani: Hartshorn J.
2013: July 24th,
: September 30th

Application to set aside a default judgment – whether National Court can set aside an inter partes default judgment - Order 12 Rule 8(2)(a) and Order 12 Rule 35 National Court Rules considered - Setting aside a judgment entered regularly entered, factors for consideration – consideration of exercise of court's discretion - whether the State defendants are estopped from raising a defence on the merits – whether a defence disclosed

Cases cited:
Papua New Guinea Cases

Green & Co Pty Ltd v. Green [1976] PNGLR 73 
Leo Duque v. Avia Andrew Paru [1997] PNGLR 378
Smith v. Ruma Constructions Ltd (2000) N1982 
Lerro v. Stagg (2006) N3050 
State v. Downer Construction (PNG) Ltd (2009) SC979
Rangip v. Loko (2009) N3714 
Totamu v. Small Business Development Corporation (2009) N3702 

Overseas Cases

Henderson v. Henderson [1843] Eng R 917
Evans v. Bartlam [1937] AC 473; 2 All ER 646 
Collins Book Depot Pty Ltd v. Bretherton [1938] VLR 40 
Vacuum Oil Pty Co Ltd v. Stockdale (1942) 42 SR (NSW) 239
Kok Hoong v. Leong Cheong Kweng Mines Ltd [1964] AC 993 
Nicholson v. Nicholson [1974] 2 NSWLR 59 
Port of Melbourne Authority v. Anshun Pty Ltd (1981) 147 CLR 599 

Counsel:

Ms. M. Wal, for the Plaintiff
Ms. J. Tindiwi-Paki, for the Second, Third and Fourth Defendants

30th September, 2013

1. HARTSHORN J: This is an application to set aside a default judgment. 

Background

2. The plaintiff Albright Ltd (Albright), entered into a sub lease of land with the first defendant Mekeo Hinterland Holdings Ltd (Mekeo). Albright was to develop the land and was given exclusive rights to harvest timber and conduct agro forestry projects upon the land for a period of 98 years.

3. Albright contends that in December 2010 the National Court declared that Mekeo's title to the land that had been granted to it in November 2007 was null and void.

4. Albright commenced this proceeding seeking damages against the State and the Minister and Secretary for Lands and Physical Planning (State defendants) for their negligence in failing to follow proper procedures under the Land Act when the title to the land was issued to Mekeo, and against Mekeo for misrepresenting that it had a valid title to the land. Albright claims in excess of K 153 million.

5. Default judgment was ordered against all of the defendants on 24th October 2012 after an inter partes hearing at which the State defendants were represented. The State defendants had filed a notice of intention to defend but had not filed a defence.

6. The State defendants now apply for the default judgment entered against them to be set aside pursuant to Order 12 Rule 8(2)(a) and Order 12 Rule 35 National Court Rules.

Contentions

7. The State defendants contend that the default judgment ordered against them should be set aside as the statement of claim does not disclose a reasonable cause of action against them and that this constitutes a defence on the merits. It is conceded by the State defendants that they do not have a reasonable explanation for why default judgment was allowed to be entered against them - they had not filed a defence. Further, they concede that there has been delay in applying to set aside the default judgment. 

8. Albright contends that the default judgment should not be set aside as:

a) there is no reasonable explanation for why the State defendants did not file a defence.

b) the default judgment hearing was inter partes and the State defendants were required to present their whole case concerning a defence on the merits and the delay in filing a defence. If they did not argue those points at the default judgment hearing, they are estopped from arguing those points now. Further, if they did argue those points then they are estopped from arguing them now.

c) the default judgment hearing was inter partes and the court has given its decision. Such a decision can only be challenged on appeal to the Supreme Court and cannot be set aside by the National Court.

d) this setting aside application has not been made promptly.

e) the State defendants have not properly disclosed a defence on the merits.

Setting aside an inter partes default judgment

9. I will consider whether this court is able to set aside an inter partes default judgment first. The National Court Rules upon which the State defendants rely are as follows:

Order 12 Rule 8(2)(a)

"The Court may, on terms, set aside or vary a judgement –

 (a) where the judgement has been entered pursuant to Order 12 Division 3 (default judgement);"

Order 12 Rule 35

"The Court may, on such terms as it thinks just, set aside or vary a judgement entered in pursuance of this Division."

10. These Rules permit this court to set aside a judgement or default judgement that has been entered under Division 3 of Order 12. There is no dispute, as I understand it, that the default judgement sought to be set aside was made under this Division. Neither of the above Rules state that they only apply in respect of a judgment made ex parte or in the absence of a party or person, or before entry of a judgment or order, as do Order 12 Rules 8(1), (2)(b) and (c) and (3)(a) and (b).

11. Reliance is placed by Mekeo on the case of Smith v. Ruma Constructions Ltd (2000) N1982. In that case, Sakora J. said as to the power to direct the entry of summary judgement:

"When the power has been exercised when both parties have been present, the direction or order is a final order, and the other party can only challenge it on appeal……"

12. These comments are with respect, obiter, as the decision that was sought to be set aside in Smith v. Ruma (supra) was made in the absence of the defendant. This case is also distinguishable from the present case as it concerned an application under Order 12 Rule 8(2)(b) National Court Rules to set aside a summary judgment ordered in the absence of the defendant, as distinct from a default judgment ordered after an inter partes hearing, as is the case here.

13. Counsel for Mekeo also relies upon the case of Lerro v. Stagg (2006) N3050 for the proposition that this court does not have jurisdiction to set aside a default judgment entered inter partes. I note from a perusal of this decision that Order 12 Rule 8(2)(a) is not discussed or considered and although Order 12 Rule 35 is mentioned, it is not specifically discussed or considered. Further, the facts of Lerro v. Stagg (supra) can be distinguished from the facts of this case, as this case does not concern a further extension of time by the court to file a defence as occurred in Lerro v. Stagg (supra).

14. In Rangip v. Loko (2009) N3714, as to setting aside a final order, I said:

"although the general rule is that a court ordinarily has no power to set aside a final order once it has been passed and entered, Order 12 Rule 8 National Court Rules and the New South Wales equivalent, Pt 40 r 9 from which our Rule is derived, deal with several exceptions to the general rule: Ritchie's Supreme Court Procedure Vol. 1 40.9."

15. I then referred to the New South Wales Supreme Court decision of Nicholson v. Nicholson [1974] 2 NSWLR 59, where Jenkyn J., after noting that the power to set aside or vary an order can be given to a court by a statutory provision or a validly made rule, considered Pt 40 r 9, which is the same as Order 12 Rule 8 and concluded at p.64 that its application is not limited to interlocutory orders but applies also to final orders.

16. Given this, I am satisfied that this court does have jurisdiction to set aside an inter partes default judgment pursuant to the Rules relied upon by the State Defendants.

Setting aside a judgment entered regularly

17. The State defendants refer to the following cases that have set out the matters that the court should consider in determining whether a regularly entered default judgment should be set aside: Green & Co Pty Ltd v. Green [1976] PNGLR 73; Barker v. The Government of Papua New Guinea & Ors [1976] PNGLR 340; The Government of PNG & Davis v. Barker [1977] PNGLR 386; George Page Pty Ltd v. Malipu Bus Balakau [1982] PNGLR 140; Provincial Government of North Solomons v. Pacific Architecture Pty Ltd [1992] PNGLR 145; Hannet and Hannet v. ANZ Banking Group (PNG) Ltd (1996) SC505; Leo Duque v. Avia Andrew Paru [1997] PNGLR 378; Smith v. Ruma Constructions Ltd (2002) SC695; Totamu v. Small Business Development Corporation (2009) N3702 and Yamanka Multi-Services Ltd v. National Capital District Commission (2010) N3904.

18. They submit that the matters that an applicant must show for the court to exercise its discretion to set aside a regularly entered default judgment are:

a) there must be an affidavit stating facts showing a defence on the merits:

b) there must be a reasonable explanation why judgment was allowed to go by default; and

c) the application to set aside the default judgement must be made promptly and within a reasonable time.

19. Mekeo relies on the decision of Lerro v. Stagg (supra), a decision of Kandakasi J, in which His Honour refers to the same matters that the court should consider in determining whether to set aside a default judgment.

20. It is important in my view to emphasise that both Rules upon which the State defendants rely give a discretion to the court to set aside a default judgment. It is in this regard that I make reference to the House of Lords decision of Evans v. Bartlam [1937] AC 473; 2 All ER 646, referred to in Green v. Green (supra) and recently referred to in the decision of David J in Totamu v. Small Business Development Corporation (supra).

21. In Evans v. Bartlam (supra), Lord Wright at p488 quoted with approval the following statement of Bowen, LJ in Gardner v. Jay (1885) 29 Ch 50, at p59:

"When a tribunal is invested by Act of Parliament or by Rules with a discretion, without any indication in the Act or Rules of the grounds upon which the discretion is to be exercised, it is a mistake to lay down any rules with a view of indicating the particular grooves in which the discretion should run, for if the Act or the Rules did not fetter the discretion of the Judge why should the Court do so?"

Then at p489 Lord Wright said:

"A discretion necessarily involves a latitude of individual choice according to the particular circumstances, and differs from a case where the decision follows ex debito justitiae once the facts are ascertained. In a case like the present there is a judgment, which, though by default, is a regular judgment, and the applicant must show grounds why the discretion to set it aside should be exercised in his favour. The primary consideration is whether he has merits to which the court should pay heed; if merits are shown the court will not prima facie desire to let a judgment pass on which there has been no proper adjudication."

22. Also in Evans v. Bartlam (supra), Lord Russell of Killowen at p481 said:

"It was argued by counsel for the respondent that before the Court or a judge could exercise the power conferred by this rule, the applicant was bound to prove (a) that he had some serious defence to the action (b) that he had some satisfactory explanation for his failure to enter an appearance to the writ. It was said that until those two matters had been proved the door was closed to the judicial discretion, in other words, that the proof of those two matters was a condition precedent to the existence or (what amounts to the same thing) to the exercise of the judicial discretion. For myself I can find no justification for this view in any of the authorities which were cited in argument, nor, if such authority existed, could it be easily justified in the face of the wording of the rule. It would be adding a limitation which the rule does not impose."

23. I also make reference to what Jordan CJ said in the New South Wales decision of Vacuum Oil Pty Co Ltd v. Stockdale (1942) 42 SR (NSW) 239 at pp 243-4:

"The question is whether, upon the material that has been placed before us, there is a real likelihood that it would be unjust to the defendant to allow the judgment to stand. If so, it should be set aside on such terms as will minimise the possibility of injustice to the plaintiff. If not, we should not interfere."

24. Given the above, in considering the exercise of discretion upon which the Rules relied upon place no fetter, I shall be guided by the three matters to which counsel refer and a consideration of whether there is a real likelihood that it would be unjust to the State defendants to allow the default judgment to stand.

Whether a reasonable explanation has been given for allowing the default judgment to be ordered

25. The State defendants have conceded that they do not have a reasonable explanation for why default judgment was ordered against them - they did not file a defence. Further, there was no application by the State defendants for an extension of time by which they could file their defence, if as submitted, they had not received instructions sufficient to enable a defence to be filed in time.

Whether there has been delay in applying to set aside the default judgment

26. The State defendants have conceded that there has been delay in applying to set aside the default judgment. The default judgment was ordered on 24th October 2012, but the notice of motion to set aside the default judgment was not filed until 11th July 2013. No reasonable explanation for this delay is given by the State defendants and a delay of nine months is clearly unreasonable. This is especially so given that the State defendants were represented in court when the default judgment was ordered and so a lack of knowledge of the default judgment cannot be legitimately raised as a reason for the delay.

Are the State defendants estopped from raising a defence on the merits

27. Mekeo submits that the State defendants are estopped from raising a defence on the merits because of their conduct in either not raising that they have a defence on the merits at the inter partes default judgment hearing, or if they did raise that issue at that hearing, they are estopped from raising it again. Mekeo relies upon the decision of Kandakasi J in State v. Downer Construction (PNG) Ltd (2009) SC979. That decision was a minority decision. In his decision, Kandakasi J refers to "Anshun estoppel" and the decisions of amongst others, Henderson v. Henderson [1843] EngR 917 and Port of Melbourne Authority v. Anshun Pty Ltd (1981) 147 CLR 599. 

28. In Henderson (supra), at p319, Sir James Wigram VC said:

"….... where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward the whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of a matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce judgment, but to every point which properly belonged to the subject of litigation, in which the parties, exercising reasonable diligence, might have brought forward at the time."

29. The above statement of principle was approved in Port of Melbourne Authority v. Anshun Pty Ltd (supra). At p 602-603 Gibbs CJ, Mason J and Aickin J then said: 

"There will be no estoppel unless it appears that the matter relied upon……. was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking it would be unreasonable not to plead a matter if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why any party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of a particular issue, motives extraneous to the actual litigation, to mention but a few."

30. Their Honours had said that an estoppel arose in the case before them as the matter sought to be raised in the second action was a defence to a claim in the first action and was so closely connected with the subject matter of the first action, that it was to be expected that it would have been relied upon in that first action.

31. What is evident is that nowhere is it suggested in Henderson (supra) and Anshun (supra) that an estoppel of the category referred to in those two cases can occur in the course of one proceeding as distinct from two proceedings that may be related. I am satisfied that the State defendants are not estopped from raising a defence on the merits at this time, notwithstanding that they may have raised the issue at the inter partes default judgment hearing, as they are raising a defence on the merits in the same proceeding in an application that is permitted under the National Court Rules, to set aside a default judgment.

32. Further, I make reference to the decision of the Privy Council in Kok Hoong v. Leong Cheong Kweng Mines Ltd [1964] AC 993 on the issue of the effect of an estoppel that may arise on a default judgment. Viscount Radcliffe at p1010-1011 said:

"There is no doubt that by the law of England….. a default judgment is capable of giving rise to an estoppel per rem judicatam. The question is not whether there can be such an estoppel, but rather what the judgment prayed in aid should be treated as concluding and for what conclusion it is to stand. For, while from one point of view a default judgment can be looked upon as only another form of a judgment by consent…. and, as such, capable of giving rise to all the consequences of a judgment obtained in a contested action or with the consent or acquiescence of the parties, from another a judgment by default speaks for nothing but the fact that the defendant for unascertained reasons, negligence, ignorance or indifference, has suffered judgment to go against him in the particular suit in question. There is obvious and, indeed, grave danger in permitting such a judgment to preclude the parties from ever reopening before the Court on another occasion, perhaps of very different significance, whatever issues can be discerned as having been involved in the judgment so obtained by default………

There Lordships are satisfied that, where a judgment by default comes in question, it would be wrong to apply the full rigour of any principle as widely formulated as that of Henderson v. Henderson. It may well be doubted whether the Vice-Chancellor had in mind at all the peculiar circumstances of a default judgment and whether such a judgment would not naturally fall into his reservation of "special cases." In any event it is clear from what has been said in other authorities more immediately directed to the point that a much more restricted operation must be given to any estoppel arising from a default judgment."

33. Given these comments, I am of the view that if the default judgment sought to be set aside has given rise to an estoppel, of whatever category, it would be wrong to apply the full rigour of any estoppel principle and preclude the State defendants from raising a defence on the merits on their application to set aside the default judgment. Consequently, I will now consider the question of whether the State defendants have disclosed a defence on the merits.

Whether a defence on the merits is disclosed
34. Mekeo relies upon the decision of the Supreme Court in Leo Duque v. Avia Andrew Paru [1997] PNGLR 378. At p380 the Court said:

"It is clear to us from the authorities we have set out earlier in our judgment and subsequent cases in this jurisdiction that as a matter of practice, an applicant must in an affidavit state material facts showing a defence on the merits."

35. Here, however, submits Mekeo, the State defendants have not stated in an affidavit material facts showing that they have a defence on the merits. Indeed, the second and third defendants have not filed any affidavits at all.

36. Counsel for the State defendants submitted that as their proposed defence is that no reasonable cause of action is disclosed against them in the statement of claim, it is not necessary that they state material facts in an affidavit showing a defence on the merits.

37. It is the case that the only affidavit filed on behalf of the State defendants that refers to a defence is that of Ms Jubilee Tindiwi-Paki, the current Acting Solicitor General. Ms Tindiwi-Paki deposes amongst others that she believes that the State defendants have a meritorious defence based on law "which raises valid grounds in Defence why the entire proceedings should be dismissed entirely, alternative default judgment should be set aside and leave be granted to file a Defence out of time". A draft defence is annexed to her affidavit. In that draft defence it is pleaded that amongst others, there is no actionable statutory duty owed by the State defendants to Mekeo under the Land Act 1989 and there is no proper cause of action in law pleaded against the State defendants.

38. As to the statement in Leo Duque (supra), that as a matter of practice an applicant must file the requisite affidavit, this in my view is in accordance with the earlier authority of Collins Book Depot Pty Ltd v. Bretherton [1938] VLR 40 which held that on an application to set aside a default judgment, there is no inflexible rule that an affidavit of merits should be required. His Honour considered Evans v. Bartlam (supra) to be a conclusive authority that there is no inflexible rule that an affidavit showing a defence on the merits must always be filed. Consequently, notwithstanding that it is a matter of practice for such an affidavit to be filed, there is no inflexible rule that such an affidavit must be filed. For it to be otherwise would impinge upon the discretion given to the court by the relevant National Court Rules.

39. In this instance, as the proposed defence relied upon is not primarily concerned with a factual dispute, but with whether Mekeo has pleaded a proper cause of action, I am satisfied that in the circumstances the affidavit of Ms Tindiwi-Paki is sufficient. Further, from a perusal of the draft defence and the statement of claim, I am satisfied that the State defendants have disclosed that they have a defence on the merits particularly as to whether the State defendants owed and breached a statutory duty to Mekeo.

Consideration
40. The State defendants have conceded that, and I am satisfied that they have no reasonable explanation for why default judgment was ordered against them and no reasonable explanation for why it took about nine months for a notice of motion to be filed to set aside the default judgment. I am satisfied though, that the State defendants have disclosed that they have a defence on the merits and that this is the primary consideration in an application such as this: Evans v. Bartlam (supra). I am also cognisant of the fact that in its statement of claim Mekeo is claiming in excess of K153 million. I am entitled to consider this aspect as the discretion I am exercising is not fettered under the Rules relied upon. I am reminded in this regard of the words of Lord Wright in Evans v. Bartlam (supra) that:

"A discretion necessarily involves a latitude of individual choice according to the particular circumstances……"

41. Given the defence disclosed, and the amount claimed, I am satisfied that upon the material that has been placed before me there is a real likelihood that it would be unjust to the State defendants to allow the default judgment to stand. Any prejudice caused to Mekeo by the default judgment being set aside can be compensated by a costs order against the State defendants. Such a costs order is also justified because of the lack of any reasonable explanations given by the State defendants in allowing the default judgment to be ordered and in not applying to set aside the default judgment without delay.

Orders
42. The formal Orders are:

a) the default judgment entered on 24th October 2012 against the second, third and fourth defendants is set aside.

b) the second, third and fourth defendants are granted leave to file their defences within 14 days of today.

c) the plaintiff's costs of and incidental to the notice of motion of the second, third and fourth defendants filed 11th July 2013 are to be paid by the second, third and fourth defendants.

d) time is abridged.

_____________________________________________________________ 
Wal & Associates Lawyers: Lawyers for the Plaintiff 
Office of the Solicitor General: Lawyers for the Second, Third and Fourth Defendants