SC1315

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 40 0F 2004

PUBLIC OFFICERS SUPERANNUATION FUND BOARD
Appellant

V

ICBM INDUSTRIES LIMITED
Respondent

Waigani: Salika J, Batari J, Cannings J
2005: 2 May,
2006: 12 May

PRACTICE AND PROCEDURE – default judgment – failure to file defence in time – whether parties to proceedings in the National Court can consent to defence being filed out of time – whether leave of the court required.

PRACTICE AND PROCEDURE – application for leave to file defence out of time – reasons for delay – whether delay justifiable – whether defence on the merits.

APPEALS – issue of law raised on appeal that was not argued in the court below – whether fresh issue can be ventilated.

The respondent commenced proceedings against the appellant in the National Court, claiming damages for trespass, unlawful detention of goods, conversion and improvement to premises and other remedies. The appellant filed a defence out of time, then withdrew it and filed an application for leave to file it out of time. The National Court refused that application and upheld an application by the respondent for default judgment. The appellant appealed against the entry of default judgment and the refusal to grant leave to file its defence out of time.

Held:

(1)	Default judgment was properly entered against the appellant (the defendant in the National Court) as, at the time of hearing the motion for entry of default judgment, no defence was on file, and no good reasons were advanced for failure to file a defence in time; the defence having already been withdrawn, albeit on the direction of the primary judge.

(2)	The application for leave to file a defence out of time was properly refused, for the same reasons.

(3)	The primary judge may have erred in:

(a)	finding that parties are unable to consent to pleadings being filed late (as Order 1, Rule 15(3) of the National Court Rules allows the period for filing a pleading to be extended by consent without an order for extension); and

(b)	directing the appellant to withdraw its defence.

(4)	However, the primary judge's finding and direction in that regard were not challenged in the National Court and it was not proper for the appellant to challenge them in the Supreme Court.

(5)	The appellant was bound by the conduct of its own case. It withdrew its defence and must suffer the consequences. The appeal was accordingly dismissed, with costs.

Cases cited

The following cases are cited in the judgment:

Chief Collector of Taxes v Dickson Panel Works Pty Ltd [1988] PNGLR 186
ICBM Industries Ltd v Divine Word Institute, Big Rooster (PNG) Ltd, Brian Patrick Henry and POSFB, OS No 1197 of 2002, 19.09.03, unreported
Luke Tai v Australia and New Zealand Banking Group (PNG) Limited (2000) N1979
Mapmakers Pty Ltd v BHP Co Pty Ltd [1987] PNGLR 78
The Papua Club Inc v Nusaum Holdings Limited and Others (2005) SC812
Urban Giru v Luke Muta, West Farm Resources Ltd and West New Britain Provincial Government (2005) N2877

APPEAL

This was an appeal against entry of default judgment and refusal of an application to file a defence out of time.

Counsel

P Kuman, for the appellant
D L Dotaona, for the respondent

12th May, 2006

1. BY THE COURT: This is an appeal against a decision of Sevua J in the National Court in which his Honour ordered the entry of default judgment in favour of the respondent and refused the appellant's application to file a defence out of time (ICBM Industries Ltd v Divine Word Institute, Big Rooster (PNG) Ltd, Brian Patrick Henry and POSFB, OS No 1197 of 2002, 19.09.03, unreported). 

2. The appellant, Public Officers Superannuation Fund Board, was a governmental body established by the Public Officers Superannuation Fund Act 1990. Its functions and operations have recently been subsumed by POSF Ltd. However, neither of the parties to this appeal wished to make an issue of that. It was the fourth defendant in the National Court. It had default judgment entered against it and its application to file a defence out of time was refused. The first three defendants – Divine Word Institute, Big Rooster (PNG) Ltd and Brian Patrick Henry – were removed as parties before the National Court made the orders that are now appealed against. They have played no part in the appeal.

3. The respondent, ICBM Industries Ltd, is a private company. It was the plaintiff in the National Court. It applied for and was awarded the default judgment against the appellant. It successfully argued against the granting of leave to the appellant to file its defence out of time.

4. On 10 September 2002 the respondent commenced proceedings against the appellant in the National Court by writ of summons No 1197 of 2002. It is claiming damages for trespass, unlawful detention of goods, conversion and improvement to premises and other remedies. The premises at the centre of the proceedings are those at Waigani Drive, Port Moresby, previously developed by the respondent as the site of a Jollibee fast-food outlet and later developed by a company controlled by the appellant as a Big Rooster fast-food outlet. The writ was served on the appellant on 11 September 2002.

5. On 20 September 2002 the appellant filed a notice of intention to defend. 

6. On 24 October 2002 the time for the appellant to file its defence expired, without a defence being filed. There was no defence filed until January 2003.

7. On 2 January 2003 the respondent's lawyers, Dotaona Lawyers of Port Moresby, wrote to the appellant, notifying that if its defence was not filed by close of business on 7 January 2003 "we will be applying for default judgment against POSFB without further notice to you".

8. On 6 January 2003 Posman Kua Aisi Lawyers of Port Moresby wrote to Dotaona Lawyers to notify them that they had been instructed to act for the appellant. They enclosed a draft defence, said that it would be filed together with an application for leave to file it out of time, and asked "that you consent to such an application so that it will expedite the proceedings to trial".

9. On 7 January 2003 the appellant filed its defence. Leave of the court was neither obtained nor sought to file it out of time. 

10. On 17 February 2003 the appellant filed a motion, seeking an order that WS No 1197 of 2002 be dismissed as an abuse of process or alternatively an order that the respondent make an election to either maintain WS No 1197 of 2002 or related proceedings, WS No 625 of 2000. 

11. That motion came before Sevua J on 19 March 2003. The respondent elected to maintain WS No 1197 of 2002 and WS No 625 of 2000 was discontinued. Then something else happened. The appellant's counsel, Mr Kuman, indicated that he would later move a motion seeking leave to file the defence out of time. His Honour pointed out that the defence had already been filed. Mr Kuman replied that that had been done as the respondent's lawyer had given the appellant until 7 January 2003 to file a defence, failing which an application would be made for default judgment; so the defence had to be filed within the time set. His Honour expressed the view that a party cannot consent to a defence being filed out of time. Only the court can do that. The proper procedure, his Honour indicated, was for the party who wanted more time to come before the court and seek leave to file its defence out of time. Mr Kuman then agreed that the appellant's defence would be withdrawn and a new motion filed, seeking leave to file the defence out of time. The defence was subsequently withdrawn. 

12. On 20 March 2003 the respondent filed a motion seeking entry of default judgment against the appellant.

13. On 28 March 2003 the appellant filed a motion seeking leave to file its defence out of time.

14. Both motions were argued before Sevua J on 7 April 2003. Mr Dotaona appeared for the respondent, ICBM Industries Ltd, (then the plaintiff). Mr Kuman appeared for the appellant, POSFB, (then the defendant).

15. On 19 September 2003 his Honour ruled on both motions, granting the respondent's motion and refusing the appellant's motion. His Honour published a written judgment.

16. On 19 April 2004 the appellant filed a notice of appeal, appealing against the whole of his Honour's judgment. We presume that the appellant was granted leave to file its appeal after the normal period of 40 days allowed by Section 17 of the Supreme Court Act. The respondent did not make an issue of this at the hearing of the appeal.

THE NATIONAL COURT PROCEEDINGS

Motion for default judgment

17. His Honour granted this motion for the following reasons:

•	The appellant (POSFB, the defendant in the National Court) was in default of the National Court Rules under Order 12, Rule 25(b), which states:

A defendant shall be in default for the purposes of this Division … where he is required to file a defence and the time for him to file his defence has expired but he has not filed his defence. 

•	The onus was on the appellant to explain why the defence was not filed within time and to give a reasonable explanation for the delay. This must be proven by credible evidence. This is the case even if it had a defence on the merits.

•	The appellant was unable to satisfy the court that it had a good reason for not filing its defence in time. The reasons given were that at the time the writ and the notice of intention to defend were filed, the matter was being dealt with by one of the appellant's in-house lawyers, Ian Mileng. Mr Mileng resigned around the time – October 2002 – that the time for filing a defence expired. The matter was not brought to the attention of the appellant's principal legal officer, Patricia Taureka, until she received the letter from the respondent's lawyers on 2 January 2003. She then quickly instructed Posman Kua Aisi to act for the appellant. His Honour considered that those reasons were pathetic:

The [appellant] is a major corporate entity with easy access to the court and lawyers and besides, it has in-house lawyers to take care of its legal affairs. It is simply unacceptable for a lawyer to leave his job without the principal lawyer knowing of a suit against the Board. The court is therefore unable to accept the explanation of Ms Taureka as reasonable. In any event, as principal legal officer, it was her managerial responsibility to take over any legal matters that she had entrusted to Mr Mileng. …

I consider the [appellant's] explanation inexcusable.

•	The defence filed on 6 January 2003 was invalid as it was a late defence filed without the leave of the court.

Motion for leave to file defence out of time

18. His Honour refused this motion for the same reasons he allowed the other motion:

•	There was no reasonable explanation for the delay in filing a defence.

•	Even if there is a defence on the merits, the applicant for leave must still give a reasonable explanation for the delay.

THE APPEAL 

Grounds of appeal

Default judgment 

19. The notice of appeal sets out the following grounds of appeal regarding that part of the National Court judgment that granted the motion for default judgment:

(1)	The learned primary judge erred in law and fact in failing to recognize that parties to a proceedings can, by consent, extend time for filing pleadings including the time to file a defence out of time because;

(a)	Order 1, Rule 15(3), National Court Rules clearly provides that:

"The period within which a person is required by these Rules or by an Order to serve, file or amend any pleading may be extended by consent without an order for extension."

(b)	The respondent in its letter of 2 January 2003 offered the appellant an extension of time to 7 January 2003 to file its defence;

(c)	The appellant accepted the extension of time and filed its defence on 6 January 2003;

(d)	The respondent having accepted the defence so filed on 6 January 2003 and the appellant then filed its notice for discovery on 11 March 2003.

(2)	The learned primary judge erred in holding (as he must have) that he had some power to intervene to set aside a consent lawfully made in accordance with Order 1, Rule 15(3), when in fact, he did not.

(3)	In consequence of the aforesaid errors, the learned primary judge proceeded on the erroneous premise that the appellant had not filed a valid defence, and thus required leave to defend.

Leave to file defence out of time

20. The notice of appeal sets out the following grounds of appeal regarding that part of the National Court judgment that refused the motion for leave to file a defence out of time:

(1)	The learned primary judge fell into further error in failing to properly consider the interests of justice by;

(i)	assessing the merit of the plaintiff's claim against the defendant; and
(ii)	assessing the merit of the defendant's defence.

(2)	Had the learned primary judge done so, it is respectfully submitted, he would have recognized the weaknesses in the plaintiff's claim, and the arguability of the defendant's defence.

(3)	Instead, the learned primary judge took into account irrelevant considerations.

(4)	His Honour erred in law and fact by not exercising his discretion in the interest of justice;

(a)	when the claim involved an attempt to overlook the separate legal personality that a company has from its shareholders in consequence of Section 16 of the Companies Act 1997.

(b)	when there was no allegations in the statement of claim directly in relation to the appellant:

(i)	interfering in any contractual relationships; or
(ii)	unlawfully seizing, detaining and using the property and equipment; and

(c)	when it was clear from the statement of claim that, the appellant's only connection to the entire allegations was by virtue of its shareholding in Big Rooster Limited, a defendant in the National Court proceedings.

Relief sought

21. The appellant asks the Supreme Court for five substantive remedies:

(1)	The decision of the National Court of 19 September 2003 granting default judgment with damages to be assessed be quashed;

(2)	The decision of the National Court of 19 September 2003 refusing leave to the appellant to file its defence out of time be quashed;

(3)	The appellant's earlier defence filed on 6 January 2003 be reinstated;

(4)	Alternatively, the appellant be allowed to file its defence within 21 days from the date of the order;

(5)	That the matter be remitted to the National Court for trial before another judge.

APPELLANT'S SUBMISSIONS

22. As for the default judgment, Mr Kuman's principal argument was that the primary judge erred when he held that the parties themselves could not agree or consent to a defence being filed out of time. His Honour's insistence that only the court could grant leave to file a defence out of time was contrary to Order 1, Rule 15(3) of the National Court Rules, which states:

The period within which a person is required by these Rules or by any order to serve, file or amend any pleading may be extended by consent without an order for extension.

23. Mr Kuman submitted that the respondent had consented to the appellant's defence being filed late by the terms of the letter of 2 January 2003 from Dotaona Lawyers to the appellant. The respondent, in effect, offered the appellant an extension of time to 7 January 2003. The appellant accepted the offer of an extension by filing its defence on 6 January 2003. There can be no default, he submitted, in filing a defence out of time if the parties agree under Order 1, Rule 15(3) to extend the time for filing the defence. He relied on the decision of Kapi DCJ, as he then was, in Luke Tai v Australia and New Zealand Banking Group (PNG) Limited (2000) N1979 to support that proposition. As to the refusal to grant leave to file a defence out of time, Mr Kuman argued that the primary judge erred by refusing to consider that the appellant had a defence on the merits. 

RESPONDENT'S SUBMISSIONS

24. Mr Dotaona maintained that the primary judge had reached the correct conclusion regarding the default judgment: the appellant was in default and had no good reasons for the delay in filing a defence. Even if it were open to the parties to consent to the defence being filed late, there was no agreement in this case; just a warning from the respondent to the appellant that an application for default judgment would be made if the defence was not filed within seven days. The primary judge's reasons for refusing to grant leave to the appellant to file its defence out of time were legitimate, Mr Dotaona submitted.

THE ISSUES 

25. The issues are straightforward:

•	Did the primary judge err in entering default judgment in favour of the respondent?

•	Did the primary judge err in refusing the appellant leave to file a defence out of time?

•	If either issue is answered yes, what relief, if any, should be granted?

THE FIRST ISSUE: DID THE PRIMARY JUDGE ERR IN ENTERING DEFAULT JUDGMENT IN FAVOUR OF THE RESPONDENT?

26. The appellant's principal argument is that the primary judge led himself into error by misstating the law on the circumstances in which a defence can be filed out of time. His Honour said that only the court can grant leave to a defendant to file its defence out of time. No party can consent to this. 

27. We agree with the appellant that, if that is what his Honour was actually saying, it was incorrect. The reason we express reservations about his Honour's dicta is that, as argued by Mr Kuman, Order 1, Rule 15(3) provides – if not expressly then by implication – that the parties can consent to, or enter into an agreement to allow, a late defence being filed. It is useful to consider the whole of the rule, and not just sub-rule (3). Order 1, Rule 15 (extension and abridgement) states:

(1)	The Court may, on terms, by order extend or abridge any time fixed by the Rules or by any judgement or order.

(2)	The Court may extend time under Sub-rule (1) as well after as before the time expires whether or not an application for the extension is made before the time expires.

(3)	The period within which a person is required by these Rules or by any order to serve, file or amend any pleading may be extended by consent without an order for extension.

28. Mr Kuman points out that in Luke Tai v Australia and New Zealand Banking Group (PNG) Limited (2000) N1979 Sir Mari Kapi analysed the circumstances in which a defence could be filed out of time and stated:

Where [a] defence is not filed within the prescribed period, parties may by consent extend time without the leave of court (Order 1, Rule 15(3)). If there is no agreement between the parties, or the defendant fails to file within the agreed extended period, the court may order extension (Order 1, Rule 15(1). [Emphasis added.]

29. o similar effect are the following comments by Cannings J in Urban Giru v Luke Muta, West Farm Resources Ltd and West New Britain Provincial Government (2005) N2877:

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)). [Emphasis added.]

30. We conclude that it is open to the parties to consent to a defence, or any other pleading, being filed late, without leave of the court. To the extent that the primary judge's judgment relied on the contrary statement of law, it contained an error. However, that does not mean that his Honour erred in entering the default judgment. We say that for four reasons.

31. First, his Honour's judgment of 19 September 2003 contained very little discussion on the point now being argued by the appellant. That point was dealt with in the proceedings on 19 March 2003. By the time the matter returned on 7 April 2003 the appellant's defence had been withdrawn. No defence was on file. There was a clear default, and no good reasons were advanced for failure to file a defence within time. We agree with the primary judge's description of the reasons given: "pathetic".

32. Secondly, the appellant has not appealed against the primary judge's direction, of 19 March 2003, to the appellant, to withdraw its defence. It should have, but it hasn't.

33. Thirdly, by arguing that the primary judge erred by failing to recognise that parties can consent to a defence being filed late, the appellant is arguing a new point that was not argued before the primary judge when his Honour heard the motion. Mr Kuman raised the point in the proceedings on 19 March 2003. However, when his Honour put the contrary position to him, Mr Kuman buckled, conceded the point, and agreed to withdraw the defence. He failed to push the point when he went back before his Honour on 7 April 2003. He is now trying to resuscitate it but we feel that it is lost irretrievably. In civil proceedings the Supreme Court needs to be convinced that there are very good reasons or special circumstances existing to exercise its discretion to allow a party to raise a new point that it had the opportunity to raise in the National Court, but failed to do so (The Papua Club Inc v Nusaum Holdings Limited and Others (2005) SC812). We are not satisfied that the discretion should be exercised in favour of the appellant in this case. In civil appeals the elementary rule is that a party is bound by the conduct of its case. The appellant withdrew its defence and must suffer the consequences.

34. Finally, we are persuaded by Mr Dotaona's submission that, given that it is open to the parties to consent to the defence being filed late, on the facts of this case it is not clear that the respondent did give consent to the late defence being filed or that an agreement was made that, if the defence was filed within seven days, no motion for default judgment would ever be filed. The respondent gave the seven-day warning, it seems, to comply with the Registrar's Practice Direction No 1 of 1987 and the decisions in Mapmakers Pty Ltd v BHP Co Pty Ltd [1987] PNGLR 78 and Chief Collector of Taxes v Dickson Panel Works Pty Ltd [1988] PNGLR 186. Giving such a warning does not, without more, constitute consent to the defence being filed late. Nor does it by itself operate as an estoppel against the party who has given the warning, preventing it applying for default judgment.

35. Each case must be assessed on its merits and it must be borne in mind that the decision whether to enter default judgment is, once the various pre-conditions have been satisfied, ultimately a matter for the discretion of the primary judge (Urban Giru v Luke Muta, West Farm Resources Ltd and West New Britain Provincial Government (2005) N2877). We are not satisfied that the primary judge's discretion was unlawfully exercised. His Honour did not err in entering default judgment. We dismiss the first ground of appeal.

THE SECOND ISSUE: DID THE PRIMARY JUDGE ERR IN REFUSING LEAVE TO FILE A DEFENCE OUT OF TIME?

36. No. We agree with his Honour that the considerations relevant to this issue were essentially the same as those taken into account when determining the motion for default judgment. The appellant put two arguments to the primary judge: there were good reasons for the delay in filing a defence and it had a defence on the merits. We agree with his Honour that the reasons for the delay were unacceptable. There may be defences on the merits but they are not so clear as to disturb, in the face of the tardy manner in which the appellant dealt with the need to file a defence, the exercise of his Honour's discretion to refuse leave. We are not satisfied that the primary judge's discretion was unlawfully exercised. His Honour did not err in refusing leave to file the defence out of time. We dismiss the second ground of appeal.

THIRD ISSUE: REMEDIES

37. Neither of the grounds of appeal has been upheld, so the judgment of the National Court will not be disturbed. The appeal will be dismissed.

COSTS

38. The general rule is that costs follow the event, ie a successful party has its costs paid for by the losing party. The question of costs is a discretionary matter. There are no special circumstances in this case that warrant departure from the general rule.

JUDGMENT

39. The Supreme Court will direct entry of judgment in the following terms:

1	the whole of the appeal is dismissed;

2	the judgment of the National Court of 19 September 2003 in WS No 1197 of 2002 is affirmed;

3	the respondent's costs of the appeal are to be paid by the appellant on a party-party basis, to be taxed if not agreed.
 
Judgment accordingly.
________________________________________________________
Posman Kua Aisi Lawyers: Lawyers for the Appellant
Dotaona Lawyers: Lawyers for the Respondent