SC1253

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA No. 79 of 2012

Between:

ARMAN LARMER SURVEYS LTD
Appellant

And:

CHAN CONSOLIDATED LIMITED
Respondent

Waigani: Injia, CJ
2013: 12, 18 March

SUPREME COURT – Appeal – Application for leave to appeal interlocutory judgment – Appeal from decision refusing to set aside default judgment for assessment of damages –Principles – Exercise of discretion - Leave to appeal granted

Cases Cited:

Bank of South Pacific v Spencer [1983] PNGLR 140
Barker v The Government of Papua New Guinea, Davis & Bux [1976] PNGLR 340
Boyepe Pere v Emmanuel Ningi (2003) SC711
Chief Collector of Taxes v Bougainville Copper Limited (2007) SC853
Green & Co Pty Ltd (Receiver appointed) v Green [1976] PNGLR 73
Page Pty Ltd v Malipu Balakau [1982] PNGLR 140
Matiabe Oberia v Police and the State (2005) SC801
Sir Julius Chan v Ombudsman Commission of Papua New Guinea [1999] PNGLR 240
Smedon v Davara House Pty Limited [1979] PNGLR 324

Counsel:

B Frizzell, for the appellant
M Goodwin, for the respondent

18th March, 2013 

1.	This is an application for leave to appeal from an interlocutory judgment given by the National Court on 23 May 2012 in which the Court dismissed an application to set aside a default judgment for damages to be assessed. The respondent contests the application. 

2.	There is no contest on the relevant principles on grant of leave to appeal. Counsel for the respondent referred me to two of the main cases which adequately canvass those principles: Matiabe Oberia v Police and the State (2005) SC 801 & Sir Julius Chan v Ombudsman Commission of Papua New Guinea [1999] PNGLR 240. Counsel for the appellant also referred me to two other cases that affirm the same principles: Boyepe Pere v Emmanuel Ningi (2003) SC711 and Chief Collector of Taxes v Bougainville Copper Limited (2007) SC853. The main test discerned from these cases is whether the applicant has shown that there is a prima facie case, arguable and meritorious case that the decision was wrong and that substantial injustice will be done by leaving the erroneous decision intact. With regard to appeals from interlocutory judgments in civil cases which involve trial Judge's exercise of discretion on a procedural matter within the Court's jurisdiction, a higher test is envisaged by the Supreme Court in its decision in Sir Julius Chan v Ombudsman Commission of Papua New Guinea. I quote from the majority judgment of Sheehan & Jalina JJ, at page 258:

"So to obtain leave to appeal an interlocutory judgment, it is not simply a matter (of) asserting there is an arguable case; that there has been some error. It is not the case that every error will effect the outcome of the substantive proceedings. What must be shown is, not only that there is patent error, but that the error affects a party's substantive rights or will prevent the proper determination of the issues."

3.	I apply those principles to the circumstances of the case before me in this manner. 

4. The respondent brought a claim in relation to survey work it carried out for certain properties owned by the appellant. The proceedings were duly served on the appellant. The appellant failed to file a Notice of Intention to Defend and Defence within time. The respondent moved for default judgment which was granted by the Court. The Court granted judgment in on liability for damages to be assessed. The appellant moved a motion to set aside the default judgment and for leave to file a Defence and Cross Claim. An affidavit was filed in support of the application which purported to disclose facts and material relevant to defence on the merits. In dismissing the application, the Court reasoned that the appellant had failed to satisfy one of two mandatory requirements- that it had failed to provide reasonable explanation for the delay in filing the necessary notice and Defence within time. The Court having found against the appellant on this point, the court considered it unnecessary to deal with the second requirement - that there was a bona fide defence on the merits. Consequently leave sought to file the Defence and Cross Claim was not dealt with or dealt with fully.

5. An issue arises as to whether the Court erred in not considering the second requirement. Mr Frizzell argues that both requirements are relevant and fall to be considered together by the trial judge in exercising its discretion whether to set aside the default judgment. The failure to do so has prejudiced the appellants right to litigate the issue of liability. Further it is submitted if this Court rejects the application, the appellant will be estopped from raising the issue of liability in an appeal from judgment on quantum. Therefore there is no further recourse open to challenge the judgment either in the Court below or before this Court; hence his client's right to litigate the issue of liability stands to be prejudiced. 

6. It is submitted by Mr Goodwin that the two requirements are mandatory; failure to satisfy one is sufficient to dispose of the application. Further, even if the defence was considered, it was not a bona fide defence to the claim because there was really no dispute as to the failure to perform the contract. The dispute in essence is over amount of damages and who is responsible to pay those. In the Cross claim the appellant clearly admitted the error in the survey performed by it the subject of the claim and shifted the blame to another architect company and the State. As such the cross- claim could not be maintained against the respondent. He submits these matters can be addressed in the course of the trial on damages and if the appellant were still aggrieved by the final judgment, it can appeal those judgments as of right. The appellant has shown no prejudice to its right to litigate those matters in the Court below. No cause has been shown why the trial should be interrupted. The application should be dismissed with costs. 

7. I deal with a preliminary point first. There is no doubt that the judgment the subject of this application is an interlocutory one and leave to appeal has been properly sought. If leave were refused, the preponderance of case law support the view that that is not the end of the matter for the applicant. It can still appeal against the interlocutory judgment on liability in the context an appeal against the final judgment as of right. That is precisely the reason why leave to appeal is required in the first place. There appears to be a misconception of the law on this point on the part of the applicant. 

8. With regard to the main points, I accept Mr Frizzell's submission that the Court should consider both requirements in the exercise of its discretion. Case law in this jurisdiction makes a clear distinction between default judgments entered regularly and those entered irregularly. A regularly entered default judgment may be set aside by showing 3 things – application to set side is made promptly, a reasonable explanation is offered for the delay in allowing judgment to be entered by default; and, an affidavit showing prima facie defence on the merits. The Court has an unfettered discretion to set aside a regularly entered default judgment after taking into account all those and other relevant matters: Barker v The Government of Papua New Guinea, Davis & Bux [1976] PNGLR 340. A default judgment irregularly entered is set aside as of right, regardless of a defence on the merits: Green & Co Pty Ltd (Receiver appointed) v Green [1976] PNGLR 73, Smedon v Davara House Pty Limited [1979] NGLR 324, Page Ptl Ltd v Malipu Balakau [1982] PNGLR 140, Bank of South Pacific v Spencer [1983] PNGLR 140. 

9. The appellant conceded before the Court below that the default judgment in the present case was regularly entered, and it was on this basis that it relied upon an affidavit which provided an explanation for the delay and defence on the merits. 

10. I am satisfied that a procedural error has been demonstrated on this point. The error was fatal to the maintenance of the default judgment based on which the ensuing trial is mounted. The judgment affects the appellant's substantive right to contest the issue of liability and to prosecute the cross claim. 

11. The default judgment is open to be appealed from after final judgment is given if the appellant were aggrieved by the decision on damages. The appellant has not provided a satisfactory answer as to how its right to appeal against the judgment on liability is prejudiced in the light of established principles I referred to earlier. If the appellant has strong views on the irregularity of the interlocutory judgment on liability, it could simply ride out the trial on damages and appeal both judgments at the end of the trial; but then the trial on damages will be all but a waste of time (and costs). It seems to me that a defendant whose application to set aside default judgment and for leave to file defence and cross claim out of time were not dealt with on their merits because of a procedural flaw or blunder on the Court's part, that would certainly prejudice its right to litigate the issue of liability and its cross claim. I do not think litigation of those issues in the context of a trial on damages can properly take place. 

12. In all the circumstances, I am satisfied that there is an arguable case demonstrated by the applicant that there was a patent error that prejudiced the applicant's right to litigate the issues of liability and prosecute its cross claim. I grant leave to appeal.

13. The formal orders I grant are:

(1)	Application for leave is granted.
(2)	Costs of the application shall be in the cause of the appeal. 
_____________________________________________
Warner Shand Lawyers: Lawyer for the Appellant
O'Briens Lawyers: Lawyer for the Respondent