SC1338
PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 44 OF 2014

BETWEEN

MOTOR VEHICLES INSURANCE LTD
Appellant
 
AND

NOMINEES NIUGINI LIMITED
Respondent

Waigani: Makail, J
2014: 17th April & 22nd May

PRACTICE & PROCEDURE – Application for stay – Stay of decision of National Court – Entry of default judgment – Stay of garnishee order absolute – Principles of – Arguable case – Reasonable prospect of success of appeal – Balance of convenience – Supreme Court Act – ss. 5(1)(b) & 19 .

Cases cited:

Agnes Kunton & Ors v. John Junias & The State (2006) SC929
Gary Mc Hardy v. Prosec Security & Communication Ltd [2000] PNGLR 279; (2000) SC646
Hilary Singat v. Commissioner of Police (2008) SC910
Map Makers Limited v. Broken Hill Proprietary Company Ltd [1987] PNGLR 78
Motor Vehicle Insurance Limited v. Niugini Nominees Limited (2014) SC1334 
Urban Giru v. Luke Muta & West New Britain Provincial Government (2005) N2877

Counsel:

Mr E Anderson with Mr R Lindsay, for Appellant
Mr P Lowing & Mr G Geroro, for Respondent

RULING

22nd May, 2014

1.	MAKAIL, J: On 15th April 2014, in proceedings SCA No 47 of 2014 between the same parties, this Court refused the appellant's application for leave to appeal the decision of the National Court to refuse its' application for adjournment of the respondent's application for default judgment on 13th March 2014. The respondent moved its application and the Court entered default judgment in the sum of K22, 261, 650.00. Subsequently, the respondent commenced enforcement proceedings by seeking to garnishee funds of the appellant held at Bank of South Pacific Limited and on 10th April 2014, obtained a garnishee order absolute. The respondent served the garnishee order on the bank and it obliged. It drew a cheque for the said sum and handed it to the respondent's lawyers. The Court's full reasons may be found in Motor Vehicle Insurance Limited v. Niugini Nominees Limited (2014) SC1334. 

2.	This appeal is against the entry of default judgment. On 17th April 2014, the appellant moved the Court to stay the default judgment and garnishee order pending the hearing of the appeal. Counsel for each party ably made submissions both in written and oral form on the relevant principles on stay and their application to the facts of this case. The application is made pursuant to s. 19 of the Supreme Court Act. A grant of stay is very much discretionary and the onus is on the appellant to establish a case for stay. The principles are set out in Gary Mc Hardy v. Prosec Security & Communication Ltd [2000] PNGLR 279; (2000) SC646 and counsel submissions focussed on the question of arguable case, the preliminary assessment of the success or otherwise of the grounds of appeal, the possible hardship, inconvenience or prejudice that may be caused to either party, the balance of convenience, the financial ability of the applicant and overall interests of justice. Let me also briefly restate the main points of their submissions here.

3.	Mr Anderson's submissions are these:

•	The appellant does not need leave to appeal because the decision is final and that the application is promptly made. 

•	It failed to file a notice of intention to defend and defence within the time limit prescribed by O 4, r. 11(b) (i) and O 8, r 4 of the National Court Rules respectively but it eventually filed a notice of intention to defend, two days before the hearing of the application for default judgment. Thus, there has been some compliance with the requirements of the Court Rules and the respondent was obliged to give a forewarning notice to the appellant of its intention to apply for default judgment. It failed to do so and equally guilty of being in default of this requirement.

•	Notwithstanding the failure to file a defence, a grant of default judgment is not automatic. It still remains a discretionary matter and the Court must be satisfied that the respondent has made out a case for the discretion to be exercised in its favour. 

•	One of the arguable grounds in the appeal is that no forewarning notice was given by the respondent to the appellant of its intention to apply for default judgment.

•	The other is that, the pleadings are woefully inadequate and embarrassing in many respects. The terms of the contract and the breach are unclear, the legal mortgage and its terms and it is unclear how the legal costs and associated costs of K1 million are calculated. In so far as interest is concerned, except for a general allegation that the appellant agreed to pay interest at 11.75% per annum to cover for any short fall on the principal loan, there are no pleadings in relation to how the sum of K10, 011,650.00 is calculated.

•	Where the pleadings does not disclose a cause of action or are insufficient or vague, the Court has discretion to refuse default judgment even if the requirements of the National Court Rules have not been complied with. The National Court decision of Urban Giru v. Luke Muta & West New Britain Provincial Government (2005) N2877 (Cannings, J) and Supreme Court decision of Agnes Kunton & Ors v. John Junias & The State (2006) SC929 were cited to support this submission.

•	The other arguable points are raised in grounds 2(c), (d), (e) and (g) in relation to there being no evidence before the Court of the contract, the alleged breaches and the calculation of the losses pleaded in the statement of claim, there being no evidence of a debt due and owing and that there being no evidence as to the appellant agreeing to borrow from the respondent a sum of K100 million.

•	The final arguable point is raised in ground 2(f) in relation to the legality of the alleged contract, that is, it is alleged that it is null and void for non compliance with s. 46B of the Independent Public Business Corporation Act and s. 110 of the Companies Act 1997. 

•	As the appellant is a public body and established by the National Government to provide insurance cover and compensation to motor vehicle owners and victims of accidents in the country, public interest demand that in the interests of justice, the default judgment and garnishee order be stayed.

•	Any submission by the respondent that the funds are now subject of a section 272 notice under the Income Tax Act is of no relevance. The Court should focus on the issues of among others, whether the appellant has established an arguable case. 

•	Further and finally, the financial status of the respondent is of no relevance. If it has outstanding tax liabilities, it is a matter for the respondent to resolve with the Internal Revenue Commission. 

4.	Mr Lowing and Mr Geroro's submissions are:

•	The starting point is the basic premise that the judgment creditor is entitled to enjoy the fruit of the judgment. It is not a valid reason that the judgment debt is large therefore the appellant does not want to pay it. 

•	There has been delay in making the application. On 13th March, default judgment was entered and on 10th April, the garnishee order was obtained and executed on the same day. The supplementary notice of appeal was filed on 15th April. It and the application were not served until the afternoon of 16th April. This is a delay of 35 days and it is such that judgment has been overtaken by the completion of the execution process. 

•	To make matters worse, the application was filed 7 days after the execution. The appellant has not challenged the default judgment with due diligence and should not benefit from its own delay. 

•	There is no urgency and utility in the application because there is no judgment to stay. Following the default judgment, the respondent obtained garnishee order absolute and the judgment sum was remitted to the bank account of the respondent. It has since become a subject of a section 272 notice under the Income Tax Act. This notice is a demand to the respondent to pay the money to the Internal Review Commission because of outstanding taxes by the respondent.

•	Given that the appellant did not file its notice of intention to defend within 30 days of service of writ, the requirement to forewarn it of the respondent's intention to apply for default judgment does not apply. 

•	The pleadings are sufficient and clear. They were considered by the primary judge and he was satisfied that they sufficiently disclosed a cause of action, namely breach of contract and he entered default judgment.

•	None of the grounds in the appeal have any prospect of success. Grounds 2(b) to (e) were not raised in the National Court and it is not open to the appellant to raise them. 

•	In any case, the whole appeal and this application are incompetent because the appellant has recourse to set aside the default judgment in the National Court. By so doing, it can raise the issue of insufficient pleadings there.

5.	There is no issue that the appeal is as of right as the entry of default judgment in the sum of K22, 261, 650.00 is final judgment and no leave is required to appeal such judgment. I accept the respondent's submission that in considering whether to grant a stay, the respondent must be given the benefit of the judgment and it is not a valid reason that the judgment debt is large and therefore the appellant does not want to pay it. On the other hand, there must be some compelling reasons. Has the appellant put forward compelling reasons for the discretion to be exercised in its favour? 

6.	First, the submission by Mr Anderson that it is arguable that the ground of appeal in relation to the respondent not forewarning the appellant of its intention to apply for default judgment prior to filing and making the application for default judgment cannot be sustained. This submission is contrary to the established principles in Map Makers Limited v. Broken Hill Proprietary Company Ltd [1987] PNGLR 78 where it was held that a forewarning notice must be given in cases where a defendant has given a notice of intention to defend but has failed to file a defence: see also Practice Direction No 01 of 1987 and Hilary Singat v. Commissioner of Police (2008) SC910.

7.	In this case, the appellant did not file and serve a notice of intention to defend. As such, the respondent was not obliged to comply with the forewarning notice requirement. It was entitled to file for default judgment and did exactly that. The respondent filed its notice of intention to defend two days before the date fixed for hearing of the application for default judgment. It was very late. In my view, there is nothing controversial in the exercise of discretion by his Honour in this regard.

8.	But, I accept Mr Anderson's submission that the failure to file a defence does not automatically entitle the respondent to default judgment. Apart from the default, the Court must consider whether the pleadings are vague or sufficient and clear, that is whether the statement of claim discloses a reasonable cause of action: Urban Giru (supra) and Agnes Kunton (supra). The Court is bound to consider the pleadings on its own volition and satisfy itself whether the statement of claim discloses a cause of action before it may enter default judgment. 

9.	In this regard, this is probably the most convincing aspect of the appellant's case. I have examined the statement of claim and I accept Mr Anderson's submission that the pleadings are woefully inadequate and embarrassing and it is not inconceivable that ground 3(b) in the appeal which raises the issue of lack and vague pleadings is likely to succeed. A clear and succinct statement of claim pleading breach of contract would set out the allegations of facts in relation to the formation of the contract, the terms of the contract, the particulars of breach and finally, the particulars of losses flowing from the breach. The current state of the pleadings does not comply with these essentials ingredients of pleadings and it is arguable that the pleadings are inadequate. 

10.	To put Mr Anderson's submission into perspective and appreciating that all I need to determine at this stage is that the ground is arguable and not the merits of the appeal, it is alleged at para. 5 of the statement of claim that the appellant's board of directors agreed to borrow K100 million from National Capital Limited and at para. 6, based on that, the appellant and the respondent entered into an Equity Monetarisation Contract (EMC"). But it does not set out the terms of the contract. 

11.	At paras. 14 and 15, it is alleged that the appellant gave certain warranties but it does not set out the particulars of the warranties and their breaches. It only makes a general allegation that the appellant breached the warranties and at para. 16, makes a claim of K176, 107.803.00. As to the particulars of the losses, it claims loss of interest of K11, 250,000.00 but there are no pleadings as to how interest is calculated. It also makes a claim of K1 million for legal costs and associated costs. Again, there are no pleadings as to the basis of the claim and how it is calculated. 

12.	As to grounds 3(c), (d), (e) and (g) in the appeal which are said to raise arguable points, I am also satisfied that in a case where the cause of action is one of breach of contract and the relief sought is a liquidated sum, it is arguable that there must be evidence proving the liquidated sum or the debt due and owing. Such evidence as a copy of the contract and/or invoice of payment of debt due and owing may be relevant to support a default judgment for a liquidated sum. In a usual case, they attached to an affidavit sworn in support of the default judgment. In this case, it is apparent that the default judgment was for a liquidated sum and no such evidence were produced in support of the default judgment.

13.	While it may be argued that the appellant's final arguable point raised in ground 2(f) in relation to the legality of the alleged contract was not raised in the National Court and it is not open to the appellant to raise it on appeal, it can also be equally argued that the issue is one of law and it is open to the appellant to raise it. If that course is taken, it is arguable and not inconceivable that the contract may be illegal, null and void for non compliance with s. 46B of the Independent Public Business Corporation Act and s. 110 of the Companies Act, 1997. I am satisfied this ground is arguable.

14.	In Gary McHardy (supra), the Supreme Court said that the principles on stay it formulated are not exhaustive and the Court may take into account other matters it considers relevant in its exercise of discretion. In this regard, I consider that the events subsequent to the entry of default judgment are relevant. In this case, the judgment sum has now become a subject of a section 272 notice under the Income Tax Act is relevant. But I am not persuaded by Mr Lowing's submission that as the judgment sum is subject to this notice, an order for stay would serve no purpose. 

15.	I say this because as Mr Anderson pointed out in his submission, the financial status of the respondent is of no relevance. If the respondent has outstanding tax liabilities, it is a matter between it and the Internal Revenue Commission to resolve. As far as the appellant is concern, it has a judgment to satisfy and seeks to stay it. I note that the appellant has specifically sought a consequential order for payment of the judgment sum into Court pending the appeal in the event that a stay is granted: see para. 1(g) of the Amended Application. It further supports the appellant's contention that if a stay is granted, the judgment sum must be returned to the appellant, but this time to the Trust Account of the Registrar of the Court. 

16.	The delay in making the application is also a relevant factor. While the appellant's right to appeal is preserved until the end of 40 days under s. 17 of the Supreme Court Act, the conduct of the appellant can be best described as one of arrogance and insensitive. It had a judgment against it and mind you, a substantial judgment sum and any self respecting litigant receiving appropriate legal advice as to its right to appeal and prospects of success in the appeal would have immediately filed an appeal and sought an order to stay it. 

17.	It did not until 35 days later by which time the respondent had exercised its right to enforce the judgment by taking out garnishee proceedings against its funds held at the Bank of South Pacific Limited. On 10th April 2014, the respondent obtained garnishee order absolute. From 13th March 2014 to 10th April 2014 is a period of 29 days which the appellant allowed to go by without taking steps to protect its interest. The respondent had every right to enforce the judgment against the respondent regardless of the appellant's right to appeal, therefore, it was incumbent on the appellant to take reasonable steps to protect its interest. In my view, it failed and its failure is a demonstration of its arrogance and insensitiveness to the seriousness of the judgment of the Court. As a result, an additional sum of K600, 149.69 presumably being for the interest component as ordered by the National Court was added to the judgment sum giving a total judgment sum of K22, 861,799.69.

18.	In my view, it cannot now turn to the public policy and public interest argument to rescue itself from the predicament it is in. If it is the public body and the body established by the National Government to provide insurance cover and compensation to motor vehicle owners and victims of accidents in the country, it was and is obliged to take necessary action to protect its interest. This argument gives it all the more reason for it to quickly take steps to protect itself or minimise itself from further risks. But it did not.

19.	All these factors go against the appellant but because most of the grounds in the appeal are arguable, I am of the view that it is important that a stay is necessary to preserve the likelihood of the judgment sum being dissipated until the question of who is entitled to it is finally resolved. Based on the grounds, I am of the further view that there is a reasonable prospect of the appeal succeeding. As the appellant has filed an appeal and seeks a stay, it is not necessary to refer the matter back to the National Court for the appellant to apply to set aside the default judgment. In any case, if the contention is that the whole appeal and this application are incompetent, such competency issue would fall within the jurisdiction of the full Court and it is not open for consideration before me as a single judge. 

20.	I am of the further view that the balance of convenience favours the grant of stay because there is no evidence that the appellant is impecunious and will be unable to satisfy the judgment debt. 

21.	The Court has power to make orders to prevent prejudice to the claims of the parties. This power is found in s. 5(1) (b) of the Supreme Court Act. This power may include the kind of order the appellant seeks, that is the judgment sum be paid into the Registrar's Trust Account pending the determination of the appeal. I am satisfied that if a stay is granted, the judgment sum be paid into the Registrar's Trust Account pending the determination of the appeal. I so order.

22.	The orders are:

1.	The application for stay is upheld.

2.	The default judgment of 13th March 2014 and garnishee order of 10th April 2014 are stayed pending the determination of the appeal.

3.	The sum of K22, 861,799.69 be paid to the Registrar's Trust Account pending the determination of the appeal.

4.	The appeal is adjourned to Monday 02nd June 2014 at 9:30 am for directions hearing.

5.	The costs of the application shall be in the appeal.

6.	The time for entry of these orders shall be abridged to the date of settlement by the Registrar which shall take place forthwith.
________________________________________________________________
Gadens Lawyers:	Lawyers for Appellant
Leahy Lewin Nutley Sullivan Lawyers: Lawyers for Respondent