N2877

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS NO 826 OF 2004

URBAN GIRU
Plaintiff

V

LUKE MUTA
First Defendant

WEST FARM RESOURCES LTD
Second Defendant

WEST NEW BRITAIN PROVINCIAL GOVERNMENT
Third Defendant

KIMBE: CANNINGS J
24 JUNE, 12 AUGUST 2005

RULING ON MOTION

Practice and procedure – application for default judgment – defence filed out of time – whether parties can agree to late defence being filed – preconditions for entry of default judgment – checklist to be satisfied – court has discretion whether to enter default judgment when defendant in default –National Court Rules, Order 12, Rule 32.

The plaintiff, a former employee of the second defendant, commenced proceedings against the three defendants, claiming damages for their negligence in not securing sufficient capital for him to properly manage the copra operations of the second defendant. He claimed that he was forced to resign and suffered loss of face and pain and suffering. The defendants filed a notice of intention to defend but were eight weeks late in filing a defence; then failed to serve the defence for several months after that. The plaintiff brought a motion for default judgment.

Held:

(1)	In determining whether a default judgment should be entered there is a checklist of at least six items that the court should consider.

(2)	If all items on the checklist are satisfied the matter is ripe for entry of default judgment.

(3)	However a plaintiff is not entitled to default judgment as of right. Entry of default judgment is a matter for the discretion of the court.

(4)	In the circumstances the plaintiff had established that all items on the checklist were satisfied and the defendants were in default.

(5)	However the statement of claim did not clearly disclose a reasonable cause of action. Therefore the court refused the application for default judgment. 

Cases cited:
The following cases are cited in the judgment:

Andrew Kerowa and Securimax Security Limited v Gilbert Som Keke (2004) N2756
Bala Kitipa v Vincent Auali, Supply and Tenders Board of Western Highlands Provincial Government and Others (1998) N1773
Beecroft No 51 Ltd trading as Ronnie's Hot Bread v Neville Seeto and Others (2004) N2561
Chief Collector of Taxes v Dickson Panel Works Pty Ltd [1988] PNGLR 186
Christopher Smith v Ruma Constructions Ltd (2002) SC695
Eliakim Laki and 167 Others v Maurice Alaluku and Others (2000) N2001
Grace Lome v Allan Kundi (2004) N2776
John Kunkene v Michael Rangsu and The State (1999) N1917
Kante Mininga v The State & Others (1996) N1458
Las Korowa v Koi Kala and Pai Wai (2004) N2760
Luke Tai v ANZ Banking Group (PNG) Ltd (2000) N1979
Mapmakers Pty Ltd v BHP Co Pty Ltd [1987] PNGLR 78
Tiaga Bomson v Kerry Hart (2003) N2428

NOTICE OF MOTION

This was an application on notice seeking entry of default judgment.

Counsel:
G Linge for the plaintiff
S Lupalrea for the defendants

CANNINGS J: 

INTRODUCTION

This is an application for default judgment. The plaintiff filed a writ of summons. He served it on the defendants, who filed a notice of intention to defend and a defence. The plaintiff says the defence was filed late and therefore the defendants are in default of the National Court Rules. He says the other requirements for entry of default judgment are satisfied. The defendants concede that they were late in filing the defence but say it was not a lengthy delay and the plaintiff’s lawyer agreed that it could be filed late. They oppose the application.

BACKGROUND

In the substantive case the plaintiff is claiming damages against the defendants for losses, pain and suffering he claims to have incurred because of, it appears, the negligence of the three defendants. The plaintiff’s cause of action is not immediately clear from the pleadings and I will address the significance of that later.

The plaintiff claims that he was previously the manager of copra trading for the second defendant, West Farm Resources Ltd. The first defendant, Luke Muta, is the managing director of that company and the third defendant, the provincial government, is its major shareholder and owner. The plaintiff claims that each of the defendants negligently failed to secure and provide sufficient funds to enable the plaintiff to manage, run and operate the copra operations of the second defendant. As a result of cash flow problems and the lack of capital injection, the plaintiff was unable to run the copra trading operations effectively, eg cheques were bounced, workers went unpaid, shipowners and businesses demanded payments, he was abused and called a thief and his reputation was tarnished by events beyond his control. Consequently he was forced to resign from his position with the second defendant, he spent money from his family business to save face, his life was put at risk and he was admitted to hospital because of the stress.

On 6 July 2004 the plaintiff filed a writ of summons, with a statement of claim endorsed on it. On 20 July 2004 he served the writ on the defendants. On 26 July 2004 the defendants filed a notice of intention to defend.

The date by which the defendants should have filed and served a defence was 3 September 2004, being the date 44 days after the date of service of the writ. (See National Court Rules Order 8, Rules 4(a), 23(1); Order 4, Rule 11(b)(i).) 

On 29 October 2004 the first and second defendants filed a defence, eight weeks late. Leave of the court was not sought or granted to file the defence out of time. No defence was filed by the third defendant.

The defendants say that in the meantime, on 20 August 2004, the plaintiff’s then lawyer, Mr Paisat, of Epita TT Paisat Barristers and Solicitors, had agreed with the defendants’ lawyer, Mr Gileng, of Blake Dawson Waldron Lawyers, that the defendants’ defence could be filed out of time.

Though the defence was filed on 29 October 2004 it remained un-served for a considerable period.

On 8 November 2004 Epita TT Paisat sent a letter to Blake Dawson Waldron warning that if they did not receive the defence within seven days they would apply for default judgment.

Blake Dawson Waldron responded the next day, 9 November 2004, saying that they had dispatched the defence to the National Court Registry in Kimbe on 23 September 2004 and had been following up the matter without success.

On 24 February 2005 the plaintiff changed lawyers from Epita TT Paisat to Linge & Associates.

On 14 March 2005 Linge & Associates wrote to Blake Dawson Waldron, notifying them that the defence was filed out of time and had not been served and therefore an application would be made for default judgment.

On 21 March 2005 the defence was served on Linge & Associates. That was six months and 18 days late (see National Court Rules, Order 8, Rule 4). Blake Dawson Waldron also wrote to Linge & Associates on that day, giving reasons for the delay and asking that the application for default judgment not be pursued. They said that the plaintiff had commenced proceedings in the name of his company, Kivulo Ltd, against the second defendant for breach of contract in WS No 698 of 2004, and Lupalrea Lawyers were acting for his company. The second defendant was preparing to apply to have those proceedings dismissed because of the plaintiff’s failure to respond to a request for further and better particulars. Epita TT Paisat had agreed in August 2004 to allow the defence to be filed out of time, on condition that the application to dismiss WS No 698 of 2004 not be pursued.

On 31 March 2005 the plaintiff filed the notice of the motion presently before the court. It was supported by an affidavit of Gerhard Linge, of Linge & Associates, deposing to the defendants’ default.

On 1 April 2005 the notice of motion and affidavit were served on the first defendant.

On 4 May 2005 Mr Gileng of Blake Dawson Waldron swore and filed an affidavit deposing to the above matters. 

On 23 June 2005 Mr Paisat swore and filed an affidavit deposing to the agreement he made with Mr Gileng on 20 August 2004 to allow the defence to be filed out of time.

On the same day, 23 June 2005, the plaintiff filed and swore an affidavit deposing that Mr Paisat had not told him of the agreement to allow the defence to be filed out of time and that he had not consented to Mr Paisat agreeing to that course of action. 

On 24 June 2005 the motion was argued. Mr Linge appeared for the plaintiff. Mr Lupalrea, of Lupalrea Lawyers, was briefed by Blake Dawson Waldron and appeared for the defendants. Mr Linge objected to Mr Lupalrea’s appearance on the ground that Lupalrea Lawyers is acting for the plaintiff’s company in the related matter, WS No 698 of 2004. I acknowledged that there was a prima facie conflict of interests but found that the parties were different legal entities. I dismissed the objection and heard argument on the motion from Mr Linge and Mr Lupalrea.

THE ‘CHECKLIST’

In most cases where the court deals with an application for default judgment, there is a checklist of at least six pre-conditions to consider. All the items on the checklist must be satisfied or ticked ‘OK’ before the court can exercise its discretion to enter default judgment. If one is not satisfied, the Court will refuse the application, unless there are special circumstances. (See generally National Court Rules, Division 12.3 (default judgment).)

Once entered, a default judgment can be set aside if it has been irregularly entered or if the application to set it aside is made promptly, there is a good explanation for the judgment being allowed to be entered by default and there appears to be a defence on the merits (Christopher Smith v Ruma Constructions Ltd (2002) SC695, Kapi DCJ, Los J, Kandakasi J; Grace Lome v Allan Kundi (2004) N2776, National Court, Lay J). 

The items on the checklist are as follows:

No 1: Proper form

Is the notice of motion for default judgment in the proper form and is it supported by affidavit, as required by Division 4.5 (motions) of the National Court Rules, in particular Rules 40 (contents of motion) and 44 (affidavits)?

No 2: Service of notice of motion and affidavits

(a)	Has the notice of motion and the affidavit(s) in support and all other documents the plaintiff is relying on, been served on the defendant three days before the motion is heard, and is proof of service provided by an affidavit of service? (National Court Rules, Order 4, Rules 38 (notice necessary), 42 (time for service of notice), 43 (service) and 44 (affidavits).) OR

(b)	Has the defendant expressly or by implication waived compliance with those service requirements, eg is the defendant represented in court and ready and willing to argue the motion?

No 3: Default

The defendant must be ‘in default’.

(a)	Has a notice of intention to defend NOT been filed or been filed late? (The normal time limit for giving a notice of intention to defend is 30 days after service of the writ: National Court Rules, Order 12, Rule 25(a) (default); Order 4, Rule 9 (notice of intention to defend); Order 4, Rule 11(1)(b)(i) (time for giving notice of intention to defend).) OR 

(b)	Has a defence NOT been filed or been filed late? (The normal time limit for filing a defence is within 44 days after service of the writ: National Court Rules, Order 12, Rule 25(b) (default); Order 8, Rules 4(a) (defence), 23(1) (close of pleadings); Order 4, Rule 11(b)(i) (time for giving notice of intention to defend).) OR

(c)	If the defendant is required to verify its defence, has the defence not been verified or has it been verified late? (The normal time limit for verifying a defence is the same as the time limit for filing the defence: National Court Rules, Order 12, Rule 25(c) (default); Order 8, Rule 24 (defence: verification).)

Note that the time for filing a defence may be extended by order of the court or by consent without an order of the court (National Court Rules, Order 1, Rule 15 (extension and abridgment)). 

No 4: Warning

(a)	Has the defendant NOT given a notice of intention to defend? OR

(b)	If the defendant has given notice of intention to defend, has the plaintiff given the defendant at least seven days notice of the intention to apply for default judgment, as required by Practice Direction No 1 of 1987? (See Mapmakers Pty Ltd v BHP Co Pty Ltd [1987] PNGLR 78, National Court, Kidu CJ; Chief Collector of Taxes v Dickson Panel Works Pty Ltd [1988] PNGLR 186, National Court, Bredmeyer J.)

No 5: Proof of service of writ 

(a)	Has the plaintiff filed an affidavit proving due service of the writ of summons or notice of the writ on the defendant? (National Court Rules, Order 12, Rule 34(a) (proof of service of writ).) OR

(b)	Has the plaintiff produced a copy of the writ that has been endorsed by the defendant’s lawyer with a statement that the lawyer accepts service of the writ on the defendant’s behalf? (National Court Rules, Rule 34(b) (proof of service of writ).)

No 6: Proof of default

Has the plaintiff filed an affidavit proving the default upon which the plaintiff relies? (National Court Rules, Order 12, Rule 34(c) (proof of service of writ).)

THE PRESENT CASE

I will now apply the checklist.

No 1 is OK. The notice of motion filed on 31 March 2005 is in the proper form and is supported by the affidavit of Mr Linge, sworn and filed on the same day.

No 2 is OK. An affidavit of service of the motion and supporting affidavit was filed on 1 April 2005. No issue has been taken by the defendants about the mode or timing of service. 

No 3 is OK. The defendants were in default of the National Court Rules by filing their defence eight weeks beyond the time limit, without the leave of the court and without the agreement about the late filing of the defence being duly recorded (Luke Tai v ANZ Banking Group (PNG) Ltd (2000) N1979, National Court, Kapi DCJ). I accept the affidavit evidence in relation to the late filing of the defence at face value. The plaintiff’s then lawyer, Mr Paisat, consented to the defendants filing a late defence without imposing any time limit. Before granting consent he did not consult the plaintiff. Those matters do not, however, detract from the fact that the defendants were in default. They may however be relevant to the exercise of the court’s discretion, which will be considered later. 

No 4 is OK. The plaintiff issued a warning letter in relation to the intention to make an application for default judgment on 14 March 2005. 

No 5 is OK. Proof of service of the writ is contained in the affidavit of Mr Linge sworn and filed on 31 March 2005. 

No 6 is OK. Proof of the defendants’ default is contained in the affidavit of Mr Linge sworn and filed on 31 March 2005. 

DISCRETION 

The plaintiff has complied with all six pre-conditions on the checklist, so the proceedings are ripe for the entry of default judgment. However that does not mean that the plaintiff is entitled to default judgment as of right. The court still has a discretion to exercise. (National Court Rules, Order 12, Rule 32 (general).) The cases on the subject show that in deciding now to exercise its discretion the court can take into account a wide range of considerations, including:

•	whether the statement of claim raises serious allegations of fraud or deceit, in which case the interests of justice may require those allegations to be proved by evidence in a trial before judgment is given on the merits (Bala Kitipa v Vincent Auali, Supply and Tenders Board of Western Highlands Provincial Government and Others (1998) N1773, National Court, Injia J); 

•	the extent of the default by the defendant (John Kunkene v Michael Rangsu and The State (1999) N1917, National Court, Kirriwom J);

•	whether the defendant appears to have a good defence (Kunkene);

•	whether the statement of claim amounts to an abuse of process (Eliakim Laki and 167 Others v Maurice Alaluku and Others (2000) N2001, Sevua J);

•	whether the pleadings are vague, ie whether the statement of claim discloses a reasonable cause of action (Laki v Alaluku);

•	whether the plaintiff has prosecuted his case diligently (Tiaga Bomson v Kerry Hart (2003) N2428, Kirriwom J);

•	whether the entry of judgment would prejudice the rights of co-defendants (Kante Mininga v The State & Others (1996) N1458, National Court, Injia J; Beecroft No 51 Ltd trading as Ronnie's Hot Bread v Neville Seeto and Others (2004) N2561, National Court, Davani J). 

To those considerations I would add:

•	whether the interests of justice would be served by the entry of default judgment.

HOW SHOULD THE DISCRETION BE EXERCISED?

I am satisfied that the plaintiff has acted reasonably diligently in prosecuting his case. It is not the sort of case that appears to be an abuse of process. There has been a clear default on the part of the defendants. The defence was filed eight weeks late. Then it was not served on the plaintiff for a further four months. This was a serious breach of the National Court Rules, Order 8, Rule 4. The explanation for the late service (the documents were posted from Port Moresby to the Kimbe registry and there was a delay in the registry) is unacceptable. As I stated in two recent Mt Hagen cases: lawyers who file documents in the registry, ‘hope for the best’, and do not effectively follow up, query or challenge delays are courting disaster (Andrew Kerowa and Securimax Security Limited v Gilbert Som Keke (2004) N2756; Las Korowa v Koi Kala and Pai Wai (2004) N2760).

I take into account that a defence has been filed and the filing of a late defence was consented to by the plaintiff’s then lawyer, Mr Paisat. But the agreement to allow a late defence was oral, open-ended and vague. A consent order should have been filed or the terms of the consent recorded. Failure to do such things demonstrates tardiness and lack of attention to detail on the part of the defendants’ lawyers and favours the entry of default judgment.

Against those factors, however, I am troubled by the plaintiff’s statement of claim. I am not satisfied that it discloses a reasonable cause of action. It appears that the plaintiff is suing the defendants for damages relying on the common law tort of negligence. He might be alleging that as an employee of the second defendant and manager of their copra operations he was owed a duty of care by each of the defendants; that they breached that duty; and that their breach of duty caused him injury (financial losses, loss of reputation, stress etc). However, if that is his cause of action I do not think it is clearly pleaded. It is, moreover, to my mind, a novel claim, raising issues that really should be argued carefully in a trial. I think the defendants may have defences on the merits. The interests of justice require in my view that default judgment not be entered.

I am not making a finding that the plaintiff’s statement of claim does not disclose a reasonable cause of action. Rather, it is not clearly apparent that there is a cause of action. Therefore I refuse to enter default judgment. This matter should proceed to trial.

COSTS

Normally costs follow the event. However, having commented on the tardy manner in which the defendants have dealt with this case to date, I consider that the plaintiff’s attempt to obtain default judgment was reasonable. Therefore I will as a matter of discretion award costs of these proceedings to the plaintiff.

ORDER 

The order of the court will be that:

1	the plaintiff’s application for default judgment is refused; and

2	costs of these proceedings shall be paid by the defendants to the plaintiff on a party-party basis, to be taxed if not agreed.
________________________________________________________

Lawyers for the plaintiff		:	Linge & Associates
Lawyers for the defendants		:	Blake Dawson Waldron