SC1609

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO. 79 OF 2012

Between:
ARMAN LARMER SURVEYS LIMITED 
Appellant

And:
CHAN CONSOLIDATED LIMITED 
Respondent

Waigani:  Injia CJ, Sawong & Collier JJ 
2014:  27th & 31st October

APPEAL - appeal against decision refusing to set aside default judgment awarded in favour of respondent - appellant failed to file a defence within time prescribed by National Court Rules- no notice given of intention to enter default as required by practice directions - exercise of discretion by primary judge - considerations in exercising discretion - evidence of appellant that respondent indicated proceedings would not be pursued - no undue delay in commencement of proceedings to set aside default judgment alleged -  whether primary judge failed to properly exercise discretion in declining to consider merits of defence proposed by appellant : whether primary judge erred in dismissing application to set aside default judgment on sole basis that he was not satisfied a satisfactory  explanation had been provided by appellant for failure to file defence -failure to consider matter as a whole. 

Facts

The respondent filed a notice of motion in the National Court. The appellant did not file a defence within the time prescribed by the National Court Rules and default judgment was awarded in the respondent's favour. The appellant sought to have the default judgment set aside, but this was refused by the primary judge primarily on the basis that no sufficient explanation was given for the delay in filing any defence. The evidence of the appellant was that the respondent had indicated that it intended to resolve the dispute outside of court through a form of arbitration or mediation and that no notice of intention to have default judgment entered was provided. 

Held: 

1.	 A decision to set aside a judgment regularly obtained by default against a defendant requires the exercise of judicial discretion. 

2.	An appellate Court will only review a determination of a primary judge involving the exercise of judicial discretion if the primary judge acted upon a wrong principle, or  allowed extraneous or irrelevant matters to guide or affect him or her, or mistook the facts, or did not take into account material consideration: House v The King (1936) 55 CLR 499 at 505, R v McGrath [1971-72] PNGLR 247; Kewakali v The Independent State of Papua New Guinea (2009) SC 1 091; Ramu Nico Management (MCC) Ltd v Eddie Tarsie (2010) SC1075; Telikom PNG Ltd v ICCC (2008) SC908; Hon. Patrick Pruaich MP v Chronox Manek (2010) SC 1 052; Kawaso Ltd v Oil Search PNG Ltd [2012] POSC 51; Curlew is v Yuapa [2013] PGSC 54. 

3.	The judge's discretion in respect of setting aside a default judgment is unconditional and unfettered: Evans v Bartlam [1937] AC 473; Xiao Hui Ying v Perpetual Trustees Victoria Limited [2012] VSCA 316; Dai v Zhu [2013] NSWCA 412; Albright Ltd v Mekeo Hinterland Holdings Ltd [2013] PGNC 262. 

4.	However, there are guidelines which are recognised as assisting Courts in their exercise of that discretion. These are not fixed rules binding on a Court: Evans v Bartlam [1937] AC 473, Norbis v Norbis (1986) 161 CLR 513. 

5.	The following factors are particularly relevant to a Court in exercising its jurisdiction to set aside a default judgment: 

a. There must be an affidavit stating facts showing a defence on the merits. 
b.	There must be reasonable explanation why judgment was allowed to go by default; and 
c.	The application must be made promptly and within a reasonable time. 

Evans v Bartlam [1937] AC 473, Green & Company Pty Ltd (Receiver Appointed) v Green (1976) PNGLR 7, Barker v The Government of Papua New Guinea, Davis and Bux (1976) PNGLR 340, George Page Pty Ltd v Malipu Bus Balakau trading as Kokope Enterprises (1982) PNGLR 140, Hannet and Hannet v ANZ Banking Group (PNG) Ltd [1996] PGSC 7 (SC505), Embrey v Snart [2014] QCA 75 at [42]. 

6.	     The Court should also take into account whether irreparable prejudice would be caused to the plaintiff should the default judgment be set aside. Irreparable prejudice may be caused where there is an inordinate delay in the defendant seeking to have the default judgment set aside: Cook v DA Manufacturing Co Pty Ltd [2004] QCA 52 at 19, National Australia Bank Ltd v Singh [1995] 1 Qd R 377, Attwood v. Chichester (1878) 3 QBD 722, Grimshaw v Dunbar [1953] 1 QB 408 at 415, Kostokanellis v Allen [1974] VR 596, Green & Company Pty Ltd (Receiver Appointed) v Green at 77, Russell v Cox [1983] NZLR 654, Tuntafa v Kayapo [2008] PGNC 12, Xiao Hui Ying v Perpetual Trustees Victoria Limited [2012] VSCA 316, Clover Flats Dairy Farm Limited v Wilson [2012] NZHC 957, Paterson v Wellington Free Kindergarten Association Inc [1966] NZLR 975 at 983. 

7.	     While certain factors may assume greater importance depending on the facts of the individual case, the principal issue to which the Court should have regard is the merits of any defence advanced by the defendant: Green & Company Pty Ltd (Receiver Appointed) v Green at 76, National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441, Troiani v Alfost Properties Pty Ltd [2002] QCA 281, Dai v Zhu [2013] NSWCA 412 at [89]. 

8.	     The overarching question for the primary judge in the exercise of his or her discretion to set aside a default judgment, even one regularly obtained, is whether the interests of justice would be served by an order setting aside a default judgment: Rosing v Ben Shemesh [1960] VR 173, Tuntafa v Kayapo [2008] PGNC 12, Hitron Ltd v Independent Consumer and Competition Commission [2011] PGNC 271, Dai v Zhu [2013] NSWCA 412 at [89], Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24, Paula Jensen v Bank of Queensland Limited [2011] NSWCA 36 at [15]. 

9.	     Failure to consider a matter as a whole, in particular whether the defence warranted the orders sought will lead to legal error: Russell v Cox [1983] NZLR 654; Xiao Hui Ying v Perpetual Trustees Victoria Limited [2012] VSCA 316. 

10.	     The primary judge's reasons indicate that his Honour adopted a formulaic approach to the exercise of his discretion, such that the view he adopted concerning the explanation given by the appellant was determinative of his decision without consideration of other relevant factors. This approach was wrong. 
11.	      Notwithstanding the fact that the explanation offered by the appellant for its failure to file a defence within time is weak, the other factors identified in this case - including the merits of the appellant's defence and the apparent lack of prejudice that would be suffered by the respondent if default judgment were set aside - warrant intervention by this Court to set aside default judgment.

Cases cited: 
Papua New Guinea Cases 

Albright Ltd v Mekeo Hinterland Holdings Ltd [2013] PGNC 262 
Barker v The Government of Papua New Guinea, Davis and Bux (1976) PNGLR 340 
Curlew is v Yuapa [2013] PGSC 54 
George Page Pty Ltd v Malipu Bus Balakau tradind as Kokope Enterprises (1982) PNGLR 140 
Green & Company Pty Ltd (Receiver Appointed) v Green (1976) PNGLR 7 
Hannet and Hannet v ANZ Banking Group (PNG) Ltd [1996] SC505
Hitron Ltd v Independent Consumer and Competition Commission [2011] PGNC 271 
Hon. Patrick Pruaich MP v Chronox Manek (2010) SC 1 052 
Kawaso Ltd v Oil Search PNG Ltd [2012] PGSC 51 
Kewakali v The Independent State of Papua New Guinea (2009) SC 1091 
Rv McGrath [1971-72] PNGLR 247 
Ramu Nico Management (MCC) L,td v Eddie Tarsie (2010) SCI075 
Telikom PNG Ltd v ICCC (2008) SC908 
Tuntafa v Kayapo [2008] PGNC 12 

Overseas cases 

Attwood v. Chichester (1878) 3 QBD 72
Clover Flats Dairy Farm Limited v Wilson [2012] NZHC 957 
Cook v DA Manufacturing Co Pty Ltd [2004] QCA 52 
Dai v Zhu [2013] NSWCA 412 
Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24 
Embrey v Snart [2014] QCA 75 
Evans v Bartlam [1937] AC 473 
Grimshaw v Dunbar [1953] 1 QB 408 
House v The King (1936) 55 CLR 499 
Kostokanellis v Alien [1974] VR 596 
National Australia Bank Ltd v Singh [1995] 1 Qd R 377 
National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441 
Norbis v Norbis (1986) 161 CLR 513 
Paterson v Wellington Free Kindergarten Association Inc [1966] NZLR 975 
Paula Jensen v Bank of Queensland Limited [2011] NSWCA 36 
Rosing v Ben Shemesh [1960] VR 173 
Russell v Cox [1983] NZLR 654 
Troiani v Alfost Properties Pty Ltd [2002] QCA 281 
Xiao Hui Ying v Perpetual Trustees Victoria Limited [2012] VSCA 316 

Counsel: 

B. Frizzell, for the Appellant 
M Goodwin & F. Aigilo, for the Respondent 

DECISION 

31st October, 2014 

1.	     BY THE COURT: This is an appeal from an ex tempore decision of a Judge of the National Court wherein the Judge dismissed an application to set aside an order for default judgment against the appellant, and further refused to grant the appellant leave to  file a cross-claim against two third parties. 

2.	       The grounds of appeal in this Court are set out in the supplementary notice of appeal filed on 6 September 2012. 

3.	        In summary, the respondent had served a writ of summons and statement of claim on the appellant on 30 January 2012. The respondent's claim against the appellant concerned a survey carried out by the appellant in relation to a construction project on allotments of land in Waigani owned by the respondent. The respondent had also engaged a construction company ("CRC") and an architect, Peddle Thorp PNG Ltd ("Peddle Thorp"), in relation to the construction project. The appellant carried out the survey in 
March 2008, and provided a report on the survey to the respondent. The respondent claimed that the survey was not properly conducted, performed and completed, and that in particular: 

•	The appellant failed to properly survey and measure the position of the boundary lines of the property, resulting in a topographical discrepancy of 1.395 metres between the survey report and Grid Line Set Out Drawings for the position and construction of building on the respondent's property; 
•	The appellant failed to note that boundary markers at the respondent's property had been removed; 
•	The appellant failed to make inquiries and searches at the Office of the Surveyor General, the Department of Lands or any other appropriate authority to assist in ascertaining the correct position and dimensions of the boundaries for the survey; and 
•	The appellant failed to ensure that the measurements on the original survey (which were in imperial measurements of links and chains) were properly converted to metric dimensions on the respondent's property.
 
4.	     The respondent claimed damages, costs and interest as a result of the losses it suffered as a consequence of what it claimed to be the appellant's breach of agreement/negligence/breach of duty. 

5.	     The appellant did not file a notice of intention to defend nor a defence within the time prescribed by the National Court Rules and default judgment was entered against it on 10 March 2012. On 27 April 2012 the defendant filed a notice of motion to set aside the default judgment pursuant to 0 12 r 35 National Court Rules. This notice of motion was heard and determined by his Honour below on 23 May 2012. 

6.	     The appellant concedes that no defence was entered within the time required and takes no issue with the regularity of the manner in which judgment was entered, except to the extent that no notice was given to it of the intention to enter default as required by the practice directions. However, the appellant claims that the decision of His Honour below refusing to set aside the default judgment was tainted by errors of law or mixed fact and law, primarily relating to the alleged failure of his Honour to take into account the merits of the proposed defence of the appellant.
 
The judgment below 

7.	      Before the primary judge, Counsel for the appellant made submissions explaining the background of the proceedings and the reason for the failure of the appellant to file a defence. In doing so, Counsel also referred his Honour to affidavits which had been filed on behalf of the appellant. The affidavits were those of: 

• Mr Michael Lenz, the general manager of the appellant, and 
•	Mr Frederic C Pratt, a surveyor retained by the respondent to review its records concerning the subject matter of these proceedings. 

8.	     In his affidavit sworn 28 April 2012 Mr Lenz deposed, in summary: 

•	On receipt of the writ of summons he sent a copy immediately to all company directors. 
•	The chairman of the appellant told him to inform Mr Greg Rudani of Peddle Thorp that the appellant would much prefer to negotiate a resolution than go to court. 
•	Mr Rudani informed Mr Lenz that he also wished to defuse the situation and that they would meet on 1 February 2012. 
•	On 31 January 2012 Mr Lenz contacted the appellant's insurance underwriter, and asked them to contact the insurer but not to take any action at that stage. 
•	When Mr Lenz and Mr Rudani met on 2 February 2012 Mr Rudani said that he would ask the respondent to consider arbitration/mediation, and would contact Mr Lenz the following day. 

•	Mr Lenz and Mr Rudani met again on 5 February 2012 when Mr Rudani informed him that Mr Rudani had met Mr Glenn Petersen, the architect engaged by the respondent for design of the further building on the land. 
•	On 6 February 2012 Mr Rudani informed Mr Lenz that as Mr Rudani understood it, Mr Petersen would discuss the claim with Mr Michael Larmer, the chairman of directors of the appellant. 
•	On 19 February 2012 Mr Lenz by chance met Mr Rudani at a club in Port Moresby. Mr Rudani informed Mr Lenz that Mr Rudani had spoken with Mr Chan of the respondent and that the respondent wanted to drop the court case and choose either arbitration or mediation. Mr Lenz asked Mr Rudani to confirm this by email on 20 February 2012 but received no further correspondence from Mr Rudani. 
•	On 20 February 2012 Mr Lenz emailed Mr Larmer and advised him of the situation as currently positioned. Mr Lenz deposed: "By this stage he and I had agreed that the plaintiff was not going to pursue a course of litigation but would opt for either arbitration or mediation." 
•   For this reason no instructions were issued to lawyers in relation to the claim. 

9.	     Mr Pratt in his affidavit deposed, in summary: 

•	He is an experienced surveyor, having been actively involved in surveying since approximately 1959. 
•	The position of the original boundary as pegged was in error by 1.08 metres. The appellant has always acknowledged this, but says that this is due to an error in the Lands Department plans following conversion of the original measurements to metric. 
•	Neither the builder CRC nor Peddle Thorp informed the appellant of the discrepancies in the boundaries of which they were aware. If they had, the surveyor would have sent a surveyor to site to check the distance from the pegged position of the boundary to the existing building. 
•	Peddle Thorp made errors in calculation of the grid line set out. Had Peddle Thorp followed standard construction practice delays of which the respondent complained would not have occurred. 
•	The concrete pour of 13 January 2010 used the foundations as set -out by the builder in November 2009. 
•	There is no explanation as to why a boundary shift of 1.08 metres necessitated a major redesign of the western car park on the property. 
•	Peddle Thorp continued to use the appellant's survey report as the basis of their design after the boundary error was discovered. 
•	The respondent has provided no reason why delays in the project were due to the appellant. The appellant had no further involvement with the site and project after repegging the boundaries in January 2011. The respondent claimed that the delays caused by the appellant was 72 days - in fact, those delays involved the architect, the builder and the respondent itself. 

10.	     In relation to the case of the appellant before his Honour, materially, the transcript of the  proceeding below reads as follows: 

MR FRIZZELL: .... The claim in this matter, your Honour, is against the defendant in relation to a construction; saying that they are in - they were negligent or in breach of duty to their client, the plaintiff, in providing a survey. And the statement of claim proceeds on the basis that as a result of that, there were losses sustained and damage in relation to the completion of the project construction for the plaintiff. Now, the defence on the merits, the details of that are set out in a rather dense, I might 
say, affidavit deposed by Mr Pratt. I just summarise the main points there at D. 

HIS HONOUR: Basically, what Mr Pratt deposes to is that there was no error on the part of the defendant, is that correct? Is that the way --- 

MR FRIZZELL: Your Honour, what he says is that the - a summary of what he says is that, yes, they did the survey. The survey was correct and in accordance with the registered survey plan but that construction was to commence, I think, in November 2000 - well, I think it is 2009 or thereabouts - and it did not commence because there appeared to be errors in the manner in which the building was set out for construction. 
There is a way of setting out a building for construction. There was an existing building on the site. What he is saying is that the ordinary construction techniques are that you take the existing building and work off that to set out your foundations for the new building. 
I am paraphrasing what he is saying here. And that instead of that - well, that was done by the construction company, I think, called CRC and the material. That there was a difference between their set out and that of the project managers or perhaps architects, Peddle Thorp, and that error resulted from them taking their - if you like - foundations set up from the boundaries of the survey plan. What he says is that ultimately Arman Larmer re surveyed the areas and that is when they discovered - this is in January the following year - when they discovered that there was a 1 metre error in the registered survey plan. They were not able to find any 
pegs earlier but they then discovered there was a 1 metre error. And what he is saying is that, okay, they accepted that was an error but that the delays in - well, sorry, in January they were aware that that was the situation. Concrete was eventually- construction was started in early January the following year that is 2010, using the  original set up of the construction company, that is CRC. 

And what Pratt is saying is that, well, to the extent there were any delays in the construction, they only relate to the period up to when it was discovered - if you like - that there was an error in the survey plan. But so far as there were delays there, in fact they were not contributed by the survey plan, but was contributed to by the project manager and the construction company taking different measurements or different versions of measurements to set out how they were going to do the building. But in any event after 6 January, the surveyors had no further interests in or no further input in the construction so that any other loss or delay caused after January 2010 is a matter for the plaintiff and other parties, perhaps the constructor. That is the - sort of another of the defence. I guess, your Honour, there is no point reading the affidavit of 

Mr Pratt. It is quite - it only refers to lots of matters but in substance, that is what he is saying. 

HIS HONOUR: But is he not, in his affidavit, saying that those errors that you were referring to in the gridline --- 

MR FRIZZELL: Yes, it --- 

HIS HONOUR: That is Peddle Thorp and --- 

MR FRIZZELL: CRC. 

HIS HONOUR: And survey plan were wrong? 

MR FRIZZELL : Yes, he says, well, that was wrong and that is demonstrated by the fact that they in fact used the CRC set out - that is the building company set out in the end when they poured the concrete in January. So, he says that really that they are not responsible for those errors. But to the extent they are, well, they are the only - that is the only period for which they could be responsible. Anything after January when 
they actually discovered the survey error, there was no further input by them. 

HIS HONOUR: So Mr Pratt's affidavit goes to a question of whether there is --- 

MR FRIZZELL: Defence .on the merits. 

HIS HONOUR: Good defence on the merits. 

MR FRIZZELL: Yes. Well, the obligation of the defendant is to show - I have an affidavit which shows - that states material facts showing there was a defence on the merits and I suppose my submission is that he shows - he states sufficient material facts to show that there is a defence. (transcript WS 41 of 20 12 23 May 2012 page 2 line 36 – page 4 line 37) 

11.	        In relation to the failure of the appellant to file a defence, before his Honour Mr Frizzell submitted as follows:

MR FRIZZELL: And having that fixed appropriately or left that open. Now, the weakest area here of my client's application is why he did not do anything after he was served with the statement of claim. That is set out in the affidavit of Michael Lance as the local manger, and he details - the assumption that can be summarised by saying that the defendants and its officers assumed that if there was a dispute, it was going to go to arbitration or mediation as would most building disputes, and they did not expect the proceedings would have issued. That is not much of an excuse, I realise but notwithstanding, they did make contact with everyone in relation to it and that is what they say is the reason - it is a valid reason for not having taken any steps in relation to the service of the writ. (transcript WS 41 of2012 23 May 2012 page 5 lines 9-20) 

12.	     In relation to the period between the entry of the orders as default judgment against the appellant and the commencement of proceedings to set aside those orders, Counsel for the appellant submitted as follows: 

The last matter, your Honour, is when the application is made to set aside the proceedings. Judgment was entered in March and the orders taken out in April. There is a period of time there. But it is to the extent that your Honour might consider that is long by the number of days or otherwise what we say about that is once it was discovered that they in fact had to do something about the claim, they engaged Pratt to go through their - or, well, they sent their records down to him in relation to the project, asked him to go through it and he lives in Australia. The effect of that is the number of days. I do not think that that is consistent with there being unreasonable delay in making the application. (transcript WS 41 of2012 23 May 2012 page 5 lines 22-31) 

13.	     In conclusion, Counsel for the appellants before his Honour referred to the cross-claim that the appellants wished to file and submitted as follows: 

... Ordinarily, we need to file a cross-claim within so many days of filing the defence and of course, without having filed a defence, we need leave to file a cross-claim. The Pratt affidavit details, of course, that there are claims to be made against Peddle Thorp and the State; Peddle Thorp in relation to what the defendant says are errors made by 
it and in relation to the State for the 1.08 metre error in the registered survey plan, which came about when it was converted from links and chains to metres. (transcript WS 41 of2012 23 May 2012 page 5 lines 34-41) 

14.	       Counsel for the respondent before his Honour below submitted, in summary, that the judgment in default as to liability of the appellant was correctly and properly obtained on the cases pleaded at the time, and that there was nothing formal in the agreement between the parties that required arbitration. The respondent made no submissions as to the proposed cross-claim. 

15.	     His Honour's judgment was delivered after the parties had completed their submissions, and was as follows: 

As Mr Frizzell properly submitted in moving his client's notice of motion setting aside of a default judgment entered on 4th of - sorry, ordered on 4 April 2012 that of the principles relevant for such applications, the weakest point in his client's submissions or his client's case is the question of satisfactory explanation as to why the default - why the judgment was allowed to go by default. 
It is clear from the affidavit material filed in support of the application and in particular, that point - being the affidavit of Michael Lance filed 27 April 2012, there is an assumption that the plaintiff was not going to pursue litigation but rather wait for arbitration and mediation. 

His assumption was based on hearsay evidence that was - hearsay information that was never confirmed in any way whatsoever, and it is very difficult for me to accept that. Whilst it may be an excuse offered by the defendant as a reasonable explanation why, not only the defence was not filed but the notice of intention to defend was not filed, and there was no evidence that the matter was even referred to lawyers, not that that is critical. 
Not being satisfied with the fact that no reasonable explanation has been presented to the court regarding the default in not filing notice of intention to defend and a defence, I refuse the application for setting aside of the default judgment. That being the case, I do not consider it proper for me to entertain the application for cross-claim to be considered at this stage. I think, as suggested by Mr Poole, that maybe the appropriate way for that matter to be brought to court is for the defendant to consider separate action against the other two parties he considers might be liable, that is, Peddle Thorp and the State .... (transcript WS 41 of2012 23 May 2012 page 7 line 40 - page 8 line page 9 line 25) 

16.	     His Honour further ordered that the appellant pay the respondent its costs in respect of the application. 

Grounds of appeal 

17.	       The appellant's grounds of appeal against the decision of his Honour are as follows: 

a.	The National Court erred in law and in fact and law in wrongly exercising its discretion by failing to attach sufficient weight to the merits of the defence disclosed in the affidavits of Mike Lenz sworn 27.04.2012 and Frederic Pratt sworn 30.04.2012 and attaching too much weight to the merits of the explanation for the failure to file a 
defence and thereby refusing to set aside the default judgment. 
b.	The National Court erred in law and in fact and law when refusing to set aside the default judgment in failing to take into account that there was no evidence of any prejudice caused to the plaintiff/respondent by the delay which could not be cured by an order for costs. 
c.	The National Court erred in law and in fact and law in refusing to set aside the default judgment when there was sufficient evidence to show that there was a defence on the merits, a reasonable explanation in the circumstances as to why the judgment was allowed to go by default and the application to set aside the judgment was made within a reasonable time of the judgment becoming known and when there was no evidence of any prejudice caused the plaintiff/respondent by the delay which could 
not be cured by an order for costs. 
d.	The National Court erred in law and in fact and law in refusing to grant leave to file a cross claim against the first cross defendant and the second cross defendant when those pleadings disclosed a cause of action and there was no prejudice to the plaintiff. 
e.	The National Court erred in law and in fact and law in refusing to grant leave to file a cross claim against the first cross defendant and the second cross defendant when those cross claims sought, inter alia, indemnity against the cross defendants from any judgment that may be entered against the defendant or contributions to such judgment, if entered and the granting of leave would prevent a multiplicity of separate actions 
concerning the same subject matter. 
f.	The National Court erred in fact and law in finding that the affidavit of Mike Lenz sworn 27.04.2012 relied solely on hearsay evidence to support the assumptions of the plaintiff detailed in that material when there was sufficient material in that affidavit which was not hearsay and which the court did not or apparently did not consider in relation to the explanation for allowing the default. 
g.	The National Court erred in law and in fact and law in refusing to grant leave to file a cross claim against the first cross defendant and the second cross defendant in proceedings WS 41 of 20 12, inter alia, on the basis that the defendant should file new proceedings against the first and second cross defendants and thereafter make application to have the proceedings consolidated when such decision had the effect of creating a multiplicity of separate actions and to increase unnecessarily the costs of 
parties. 
h.	The court erred in law in considering that the filing of separate proceedings in respect of the cross claims in relation to the same subject matter as the statement of claim was more appropriate than granting leave to file a cross claim. 

18.	     The appellant seeks orders setting aside the judgment of the National Court given on 23 May 2012, granting the appellant leave to file its defence within fourteen days, granting leave to the appellant to file its cross claims as detailed in the affidavit of Mr Lenz, and costs. 

   Consideration
 
19.	    The decision of his Honour to dismiss the application to set aside the default judgment granted to the respondent was clearly an exercise of judicial discretion. That this is so was not disputed by either party to this appeal. 

20.	    While the appellant's supplementary notice of appeal contains numerous grounds of appeal, those grounds appear to be variations of two grounds, namely that his Honour:

•	failed to properly exercise his discretion in declining to take into consideration the merits of the defence proposed by the appellant to the respondent's writ of summons and; 
•	erred in dismissing the application to set aside the default judgment on the sole basis that his Honour was not satisfied that a satisfactory explanation had been provided by the appellant for its failure to file a defence. 

21.	     Certainly the parties argued the case in this manner before us. 

22.	     The law in respect of applications to set aside default judgments which are obtained regularly is relatively settled, and indeed is very similar across jurisdictions. The relevant principles can be summarised as follows: 

(1)	A decision to set aside a judgment regularly obtained by default against a defendant requires the exercise of judicial discretion. 
(2)	An appellate Court will only review a determination of a primary judge involving the exercise of judicial discretion if the primary judge acted upon a wrong principle, or allowed extraneous or irrelevant matters to guide or affect him or her, or mistook the facts, or did not take into account a material consideration: House v The King (1936) 
55 CLR 499 at 505; R v McGrath [1971-72] PNGLR 247; Kewakali v The Independent State of Papua New Guinea (2009) SC 1 091; Ramu Nico Management (MCC) Ltd v Eddie Tarsie (2010) SCI075; Telikom PNG Ltd v ICCC (2008) SC908; Hon. Patrick Pruaich NiP v Chronox Manek (2010) se 1 052; Kawaso Ltd v Oil 
Search PNG Ltd [2012] PGSC 51; Curlewis v Yuapa [2013] PGSC 54. 
(3)	The judge's discretion in respect of setting aside a default judgment is unconditional and unfettered: Evans v Bartlam [1937] AC 473; Xiao Hui Ying v Perpetual Trustees Victoria Limited [2012] VSCA 316; Dai v Zhu [2013] NSWCA 412; Albright Ltd v 
Mekeo Hinterland Holdings Ltd [2013] PGNC 262. 

23.	     However, there are guidelines which are recognised as assisting Courts in their exercise of that discretion. These guidelines are simply guidelines - they are not fixed rules binding on a Court: Evans v Bartlam [1937] AC 473, Norbis v Norbis (1986) 161 CLR 513. 

24.	     Those guidelines posit that the following factors are particularly relevant to a Court in exercising its jurisdiction to set aside a default judgment: 

a.	There must be an affidavit stating facts showing a defence on the merits; 
b.	There must be reasonable explanation why judgment was allowed to go by default; and
c.	The application must be made promptly and within a reasonable time: Evans v Bartlam [1937] AC 473, Green & Company Pty Ltd (Receiver Appointed) v Green (1976) PNGLR 7, Barker v The Government of Papua New Guinea, Davis and Bux (1976) PNGLR 340, George Page Pty Ltd v Malipu Bus Balakau trading as Kokope Enterprises (1982) PNGLR 140, Hannet and Hannet v ANZ Banking Group (PNG) Ltd [1996] PGSC 7 (SC505), Embrey v Snart [2014] QCA 75 at [42]. 
d.	There is authority that the Court should also take into account whether irreparable prejudice would be caused to the plaintiff should the default judgment be set aside. Irreparable prejudice may be caused where there is an inordinate delay in the defendant seeking to have the default judgment set aside: Cook v DA Manufacturing Co Pty Ltd [2004] QCA 52 at [19]; National Australia Bank Ltd v Singh [1995] 1 Qd R 377, Attwood v. Chichester (1878) 3 QBD 722, Grimshaw v Dunbar [1953] 1 QB 408 at 415, Kostokanellis v Allen [1974] VR 596, Green & Company Pty Ltd 
(Receiver Appointed) v Green at 77, Russell v Cox [1983] NZLR 654, Tuntafa v Kayapo [2008] PGNC 12, Xiao Hui Ying v Perpetual Trustees Victoria Limited [2012] VSCA 316, Clover Flats Dairy Farm Limited v Wilson [2012] NZHC 957, 
Paterson v Wellington Free Kindergarten Association Inc [1966] NZLR 975 at 983. 

e.	While certain factors may assume greater importance depending on the facts of the individual case, as a general proposition the principal issue to which the Court should have regard is the merits of any defence advanced by the defendant This is because it is not often that a defendant who has an apparently good ground of defence would be refused the opportunity of defending: Green & Company Pty Ltd (Receiver Appointed) v Green at 76; National Mutual Life Association of Australasia Ltd v Oasis Developments Pty Ltd [1983] 2 Qd R 441; Troiani v Alfost Properties Pty Ltd [2002] QCA 281; Dai v Zhu [2013] NSWCA 412 at [89]. 

f.	Finally, there is authority that the overarching question for the primary judge in the exercise of his or her discretion to set aside a default judgment, even one regularly obtained, is whether the interests of justice would be served by an order setting aside a default judgment: Rosing v Ben Shemesh [1960] VR 173; Tuntafa v Kayapo [2008] PGNC 12; Hitron Ltd v Independent Consumer and Competition Commission [2011] PGNC 271; Dai v Zhu [2013] NSWCA 412 at [89]; Dunwoodie v Teachers Mutual Bank Ltd [2014] NSWCA 24; Paula Jensen v Bank of Queensland Limited [2011] NSWCA 36 at [15]. 

25.	Viewed in light of these principles, it is clear to us that his Honour erred in the exercise of his discretion, and that the appeal should be allowed. 

26.	  As is clear from the transcript, his Honour focussed on one aspect only of the case before him to support his decision to dismiss the application to set aside the default judgment - namely the explanation provided by the appellant for its failure to file a defence within the prescribed time. In doing so, it appears that his Honour considered that the unsatisfactory nature of the explanation was sufficient to warrant dismissal of the application. However such an outcome would only be justified if either: 

•	The guidelines relevant to the exercise of discretion to set aside judgment were akin to rules of law, wherein failure in respect of one rule would justify dismissal by the Court without the Court needing to consider other matters. As we have already noted, however, such a formulaic approach does not represent the law in relation to determining whether a default judgment ought to be set aside; or 
•	After considering all relevant circumstances his Honour considered that the unsatisfactory nature of the explanation was such a critical factor in determining the matter before him so as to warrant dismissal of the application to set aside the default judgment. 

27.      The latter avenue of reasoning would only be available however if his Honour actually considered other factors relevant to the exercise of his discretion. On the facts before his Honour, relevant factors included the merits of the defence available to the appellants (as set out in the annexure to Mr Lenz's affidavit, and in further detail in the affidavit of Mr Pratt) and the question whether the respondent would be prejudiced by an order setting 
aside the default judgment. 

28.       Before us the respondent submitted that his Honour clearly considered the merits of the appellant's defence, and referred in particular to the following: 

•	the nature of the appellant's prospective defence was canvassed in submissions before  his Honour; 
•	at page 4 line 31 of the transcript his Honour noted that Mr Pratt's affidavit went to the question of whether there was a good defence on the merits of the case; and 
•	in the judgment his Honour identified the failure of the appellant to file a defence within time as "the weakest point" in the appellant's case, thus suggesting that his Honour recognised that there were stronger points in the appellant's case. 

29.    In our view however these propositions do not support a finding that his Honour actually considered and/or gave any weight to the appellant's defence to the claim of the respondent. Rather, the absence of specific consideration by his Honour of the appellant's defence is evident, both from the language used in his Honour's judgment and the brevity of the decision. So: 

•	despite extensive submissions to his Honour in respect of the merits of the appellant's defence, his Honour does not refer to those merits in his judgment. 
•	the observation of his Honour in respect of whether the appellant had a "good defence on the merits" could be equally explained as a qualification of the immediately prior submission of Mr Frizzell where Mr Frizzell had referred to the need of the appellant to establish that it had a defence. 
•	the reference of his Honour to the poor explanation for failure to file a defence being "the weakest point" of the appellant's case appears referable to Mr Frizzell's concession at page 5 line 10 of the transcript that this was "the weakest area here of my client's application". 

30.      Importantly, in this case the material before his Honour indicated that the appellant proposed to defend itself against the respondent's claim on grounds including: 

•	The survey prepared by the appellant was in accordance with the error in the Registered Survey Plan, which was not discovered until 6 January 2010 (paragraphs 23-28 and 34-44 of the Pratt affidavit). 
•	Delays in construction in respect of which the respondent claimed damages were referable to the conduct of Peddle Thorp rather than the appellant (paragraph 33 of the Pratt affidavit). 
•	The appellant had no further input into construction from 6 January 2010 and any other delay or loss claimed by the respondent was in fact attributable to other parties (paragraph 44 of the Pratt affidavit).
•	The delay particularised in paragraph 9.4 of the statement of claim was actually caused by the respondent's own agent. 

31.       In our view these grounds of defence are prima facie meritorious. We do not consider that the proposed defence was so inadequate that his Honour could have discarded it as irrelevant to his consideration whether the default judgment against the appellant should be set aside. 

32.       Further, his Honour did not consider whether the respondent would have been prejudiced by an order setting aside the default judgment. Indeed, the material before this Court indicates that the respondent took no issue with the promptness with which the appellant commenced proceedings to have the default judgment set aside. To that extent, no potential prejudice affecting the respondent in the event of such an order was apparent. 

33.      While it is clear that his Honour placed great weight on the explanation provided by the appellant for failure to file a defence, the failure of his Honour to consider the matter as a whole and in particular whether the merits of the defence warranted the orders sought by the appellant means that his Honour clearly erred in his approach. We note other cases where appellate Courts have reached similar views, on similar facts. One example is the decision of the Court of Appeal of New Zealand in Russell v Cox [1983] NZLR 654 where their Honours allowed an appeal against the decision of the Court below refusing to set aside a default judgment, concluding at 660: 

On the material before him Sinclair J was entitled to regard Russell's conduct as somewhat contumacious and to treat the reasons he advanced for his absence from the hearing with some cynicism. But, assuming that Russell's default in not appearing to contest the case was inexcusable, as Sinclair J was entitled to find, the fact that he has now become subject to a penal judgment for three times the amount of the loss actually suffered by the respondents, through the operation of this ancient statute, the 
application of which to these circumstances is contested, must be a material consideration in any inquiry as to the justice of the case, particularly when the appellants, as part of the terms of an order for the stay of proceedings on the judgment, have had to pay $14,000 to the respondents' solicitors and that this sum has been invested at 12 Y2  pending the final outcome of the proceedings. In the face of the payment there is nothing to suggest that the respondents will suffer any irreparable harm if the judgment obtained by them is set aside .... When the consequences of this penal judgment are weighed against Russell's seemingly inexcusable failure to appear we think the interests of justice warrant the setting aside of the judgment. The appellants can be sufficiently punished for their default by having to pay the costs of 
the respondents on the abortive hearing, the cost of the unsuccessful application in the High Court to set the judgment aside, and the costs of this appeal. 

32.	34.    Similarly in Xiao Hui Ying v Perpetual Trustees Victoria Limited [2012] VSCA 316 the Court of Appeal of Victoria observed at [60]: 

What emerges from these authorities is that under a rule such as [Rule 49.02(2)], what the judge is required to do is to determine what, in his opinion, is the just way in which the court's discretion should be exercised. To do this must involve weighing up the extent to which the defendant is prejudiced by allowing the order and judgment to stand and the prejudice to the plaintiff in setting them aside .... However, it does not necessarily follow that if the explanation does not amount to something which can be categorized as a 'sufficient reason' the defendant's application should fail. It must all depend on the circumstances. In this connexion, reference may be made to passages in the judgment of Smith, J, in Shepperdson v Lewis [1966] VR 418, at pp.423-4, where, in dealing with the discretion to be exercised on an application to dismiss an action for want of prosecution, it was pointed out that the adoption of a formula created by erecting what are merely relevant factors into arbitrary principles so as to allow the automatic production of a solution in all but the exceptional case, is a quite fallacious approach to the exercise of a discretion. 

33.	      In this case the submissions of the respondent invite the Court to endeavour to read the mind of the primary judge from the brief material in the primary judgment, and to draw inferences as to his Honour's process of reasoning from the surrounding facts. This approach is neither appropriate nor just to the parties in this case. 

34.	     The judgment of his Honour indicates that his Honour adopted a formulaic approach to the exercise of his discretion, such that the view he adopted concerning the explanation given by the appellant was determinative of his decision without consideration of other relevant factors. This approach was wrong. The flaws in his Honour's judgment become further apparent following consideration of the merits of the appellant's defence and the 
apparent lack of prejudice which the respondent would suffer in the event that the default judgment were set aside. Notwithstanding the fact that the explanation offered by the appellant for its failure to file a defence within time is weak, the other factors identified in this case warrant intervention by this Court to permit the default judgment to be set aside. 

35.	     In relation to the orders sought by the appellant concerning its cross claims against Peddle Thorp and the State of Papua New Guinea (as detailed in the affidavit of Mr Lenz) the respondent has adopted a neutral position. In the circumstances, it is appropriate to grant leave to the appellant to file those cross claims. 

36.	     Finally, no submissions were made as to costs, although the appellant sought its costs in the event that it was successful. In our view the Court should follow the ordinary course, and order that costs follow the event. 

37.      The court orders that: 

1.	The judgment of the National Court given on 23 May 2012 in WS 41 of2012 be set aside. 
2.	The appellant be granted leave to file its defence to the statement of claim within fourteen days. 
3.	The appellant be granted leave to file the cross claims referred to in the affidavit of Mike Lenz sworn 27 April 2012 within fourteen days. 
4.	The costs of the appellant in the proceedings be paid by the respondent, to be taxed if not otherwise agreed. 
______________________________________________________________
Warner Shand Lawyers:  Lawyer for the Appellant	
0'Briens Lawyers: Lawyer for the Respondent