SC1435

PAPUA NEW GUINEA
[IN THE SUPREME COURT OF JUSTICE]

SCA NO 44 OF 2014

MOTOR VEHICLES INSURANCE LIMITED
Appellant

V

NOMINEES NIUGINI LIMITED
Respondent

Waigani: Kandakasi J, Cannings J, Hartshorn J
2015: 30 March, 25 June

PRACTICE AND PROCEDURE – default judgments – circumstances in which a plaintiff must forewarn a defendant of intention to apply for default judgment – whether evidence to prove cause of action must be provided when applying for default judgment – relevance of whether statement of claim discloses cause of action.

The appellant appealed to the Supreme Court against the decision of the National Court to enter default judgment against it. The appellant had only filed and served a notice of intention to defend the day before the hearing of the motion for default judgment and was clearly in default of the National Court Rules. The appellant conceded that formal requirements for entering default judgment were complied with but argued that the primary Judge erred in law by ordering default judgment, in three respects: (1) failing to consider that the respondent did not issue the appellant a letter forewarning its intention to apply for default judgment; (2) failing to consider that there was no evidence to prove the breach of contract apparently pleaded as the cause of action; (3) failing to consider that the statement of claim did not set out the breaches of contract and calculations relied on and thus failed to disclose a cause of action. The respondent argued that the appeal should be summarily determined for two reasons. First, the primary relief sought by the appellant – to "quash" the judgment and order of the National Court – was not a remedy that the Supreme Court could lawfully grant. Secondly, all grounds of appeal were invalid as they only alleged irregularities in the entry of judgment, which should have been, but were not, relied on in support of an application to set aside the default judgment. The respondent further argued that all grounds of appeal lacked merit, the appeal ought to be dismissed and the judgment of the National Court affirmed.

Held: 

(1)	As to the preliminary points: (a) it is appropriate for an appellant to seek an order quashing an order of the National Court and there is nothing in the Supreme Court Act or any other law to prevent the Supreme Court quashing an order of the National Court; and (b) the appellant was not obliged to apply to the National Court prior to appealing to the Supreme Court and the grounds of appeal were not invalid. The appeal was not summarily dismissed.

(2)	Two of the grounds of appeal were without substance in that: (a) the respondent was not obliged to issue a forewarning letter, because at the time of filing the notice of motion for default judgment, no notice of intention to defend had been filed and served; and (b) the respondent was not obliged to present evidence in support of the elements of the cause of action pleaded (which was apparently breach of contract) as to cast such an obligation on an applicant for default judgment would offend against Order 8, Rule 8 of the National Court Rules, which requires that a statement of claim contain only a statement in a summary form of the material facts relied on, not the evidence by which those facts are to be proved.

(3)	As to the alleged failure to take into account that no cause of action was disclosed, the National Court properly recognised that entry of default judgment required, after being satisfied as to the formal requirements for entry of default judgment, an exercise of discretion, and that in exercising its discretion it had to be satisfied that a reasonable cause of action was disclosed by the statement of claim.

(4)	A proper examination of the statement of claim would have revealed that it was vague and confusing as it failed to plead fundamental aspects of the contract relied on, failed to plead breaches of contract, failed to particularise the calculations on which the liquidated sum of K22,261,650.00 was sought and therefore failed to disclose a cause of action and to provide a proper basis on which to enter judgment, especially a judgment for a liquidated sum.

(5)	The National Court erred by not subjecting the statement of claim and notice of motion to a sufficiently rigorous examination, which vitiated the exercise of discretion. The ground of appeal alleging error in that regard was upheld.

(6)	The appeal was upheld, the order of the National Court was quashed and the case was remitted to the National Court.

Cases cited

The following cases are cited in the judgment:

Agnes Kunton v John Junias (2006) SC929
Albright Ltd v Mekeo Hinterland Holdings Ltd (2013) N5774
Albright Ltd v Mekeo Hinterland Holdings Ltd (2014) SC1400
Aundak Kupil v The State [1983] PNGLR 350
Avia Aihi v The State (No 1) [1981] PNGLR 81
Bank South Pacific Ltd v Robert Tingke (2012) N4901
Barlow Industries Pty Ltd v Pacific Foam Pty Ltd [1993] PNGLR 345
Bean v Bean [1980] PNGLR 307
Curtain Brothers (PNG) Ltd v UPNG (2005) SC788
David Lambu v Paul Torato (2008) SC953
Dempsey v Project Pacific Pty Ltd [1985] PNGLR 93
Grace Lome v Allan Kundi (2004) N2776
Jeffery Balakau v Sir Arnold Amet (2013) N5313
Kawaso Ltd v Oil Search PNG Ltd (2012) SC1218
Leo Hannet v ANZ Banking Group (PNG) Ltd (1996) SC505
Lerro v Stagg (2006) N3050
Lina Kewakali v The State (2011) SC1091
Muriso Pokia v Mendwan Yallon (2014) SC1336
Nangamanga Ltd v Gold Exports Ltd (2011) N4570
Papua New Guinea v Stanley Barker [1977] PNGLR 386
Ramu Nico Management (MCC) Ltd v Eddie Tarsie (2010) SC1075
Re Section 19 of the Criminal Code [1982] PNGLR 150
Sialis Tedor v PNG Ports Corporation (2011) SC1137
Stettin Bay Lumber Company Pty Ltd v Arya Ship Management Ltd (1995) SC488
Telikom PNG Ltd v ICCC (2008) SC906
The State v Brian Josiah (2005) SC792
Ume More v UPNG [1985] PNGLR 401
Urban Giru v Luke Muta (2005) N2877
Wellcos Engineering Ltd v Hami Yawari (2008) N3443
Yamanka Multi Services Ltd v NCDC (2010) N3904

APPEAL

This was an appeal against the decision of the National Court to order default judgment against the appellant.

Counsel

E Andersen, for the Appellant
S M Littlemore QC & R Mulina, for the Respondent

25th June, 2015 

1. BY THE COURT: Motor Vehicles Insurance Ltd, the appellant, appeals against an order of the National Court to enter default judgment against it, in favour of the respondent, Nominees Niugini Ltd.

2. The respondent, as plaintiff, commenced proceedings by writ of summons (WS No 1300 of 2013) against the appellant, as defendant, claiming K22,261,650.00 as a debt due under a contract between the appellant and the respondent. The appellant failed to file a defence within the time allowed by the National Court Rules. The respondent filed and served a notice of motion, and later an amended notice of motion, seeking an order for default judgment.

3. The amended motion was heard on 13 March 2014 by Justice Sakora. His Honour, after hearing Mr Lowing for the respondent and Mr Lindsay for the appellant, gave an ex tempore ruling. His Honour refused an application by the appellant for adjournment of the hearing, which had been filed one day prior to the hearing. His Honour ruled that the appellant was in default of the National Court Rules and that all formal requirements for entry of default judgment were satisfied. His Honour acknowledged that entry of default judgment was a matter of discretion and identified no reason not to exercise the discretion in favour of the respondent. His Honour ordered that default judgment be entered against the appellant in the sum of K22,261,650.00 "plus interest at the rate of 8% per annum from the date of filing of the action to the date of entry of judgment". That is the order appealed from.

GROUNDS OF APPEAL AND RELIEF SOUGHT

4. The appellant concedes that the formal requirements for entering default judgment were complied with but argues that his Honour erred in law by ordering default judgment, in three respects:

(1)	failing to consider that the respondent did not issue the appellant a letter forewarning of its intention to apply for default judgment (ground (a) of the supplementary notice of appeal);

(2)	failing to consider that there was no evidence to prove the breach of contract relied on as the cause of action (grounds (c) to (g) of the supplementary notice of appeal);

(3)	failing to consider that the statement of claim did not set out the breaches of contract and calculations relied on and thus failed to disclose a cause of action (ground (b) of the supplementary notice of appeal).

5. The primary relief sought by the appellant is an order quashing the order of 13 March 2014.

RESPONSE

6. The respondent has raised two preliminary points. First, that the primary relief sought by the appellant – to "quash" the judgment and order of the National Court – is not a remedy that the Supreme Court can lawfully grant. Secondly, that all grounds of appeal are invalid as they allege irregularities in the entry of judgment, which should have been (but were not) relied on in support of an application to set aside the default judgment. The respondent argues that each of those points warrants summary dismissal of the appeal and that, in the event that neither is upheld and the appeal is determined on its merits, all grounds of appeal lack merit, the appeal should be dismissed and the judgment of the National Court affirmed.

PRELIMINARY POINTS

National Court order cannot be "quashed"

7. The argument that it is not open to this Court to order that the order of the National Court be "quashed" is based on Section 16 (decision etc on appeal) of the Supreme Court Act, which states:

On the hearing of an appeal, the Supreme Court shall inquire into the matter and may—

(a)	adjourn the hearing from time to time; or
(b)	affirm, reverse or modify the judgement; or
(c)	give such judgement as ought to have been given in the first instance; or
(d)	remit the case in whole or in part for further hearing; or
(e)	order a new trial. 

8. Mr Littlemore for the respondent submitted that Section 16 provides an exhaustive statement of the powers available to the Supreme Court and does not allow the Court to "quash" the judgment appealed from. He submitted that the appellant is seeking an order that is meaningless and therefore the appeal should be summarily dismissed. We are not persuaded by the argument. Section 16 must be interpreted in the context of and subject to the Constitution, which confers broad powers on the Supreme Court to make orders when determining proceedings in its original, review or appellate jurisdiction. The key provision is Section 155(4) (the national judicial system), which states:

Both the Supreme Court and the National Court have an inherent power to make, in such circumstances as seem to them proper, orders in the nature of prerogative writs and such other orders as are necessary to do justice in the circumstances of a particular case.

9. Section 155(4) does not confer primary rights on a party (Avia Aihi v The State (No 1) [1981] PNGLR 81, Re Section 19 of the Criminal Code [1982] PNGLR 150, Aundak Kupil v The State [1983] PNGLR 350, Ume More v UPNG [1985] PNGLR 401, Nangamanga Ltd v Gold Exports Ltd (2011) N4570). It does not relieve the Supreme Court of the duty, in its appellate jurisdiction, to determine whether an appellant has proven error of fact or law on the part of the National Court, before deciding what orders or declarations to make. However, once it is satisfied that an error has occurred, it is constrained by only two express factors in framing the order or other relief it grants when determining an appeal:

•	the circumstances seem to it proper; and
•	the order is necessary to do justice in the circumstances of the particular case.

10. This Court can therefore, if the circumstances seem to it proper and it seems to be necessary to do justice in the circumstances of the particular case, quash an order of the National Court, ie nullify the order or render it ineffective or null and void or remove its validity. All those terms mean the same thing. That the word "quash" does not appear in Section 16 of the Supreme Court Act is inconsequential. Section 16 provides a non-exhaustive list of the types of orders that the Supreme Court might make.

11. That non-exhaustive list is supplemented by Section 8(1)(e) (supplemental powers of Supreme Court) of the Supreme Court Act, which states:

For the purposes of this Act, the Supreme Court may, if it thinks it necessary or expedient in the interests of justice to do so ... exercise in relation to the proceedings of the Court any other powers that may for the time being be exercised by the National Court on appeals or applications.

12. The powers that may be exercised by the National Court on appeals include those available under Section 220(1)(c) (power of National Court on appeal) of the District Courts Act, which provides that the National Court may "affirm, quash or vary the conviction, order or adjudication appealed from".

13. It is therefore proper for a Supreme Court appellant to seek an order quashing an order of the National Court. It is a common and conventional order to seek. It is an order almost routinely granted when the Supreme Court upholds an appeal. We reject the respondent's first preliminary point.

Grounds of appeal invalid

14. The respondent's second preliminary point is that all grounds of appeal are invalid as they concern the alleged irregularity of the order of the National Court. It is argued that what the appellant could, and should, have done, rather than appealing to the Supreme Court, was to apply to the National Court to set aside the order for default judgment.

15. It is correct that an option available to a defendant aggrieved by a default judgment entered against it – rather than appealing to the Supreme Court – might be to apply to the National Court under Order 12, Rule 8 (setting aside or varying judgment or order) or Rule 35 (setting aside judgment) of the National Court Rules for an order setting aside the judgment on the ground that it was irregularly entered or a nullity (Leo Hannet v ANZ Banking Group (PNG) Ltd (1996) SC505, Muriso Pokia v Mendwan Yallon (2014) SC1336, Grace Lome v Allan Kundi (2004) N2776, Wellcos Engineering Ltd v Hami Yawari (2008) N3443, Yamanka Multi Services Ltd v NCDC (2010) N3904).

16. The question arises whether that option is available when the default judgment followed an inter partes hearing. The recent decision of the Supreme Court in Albright Ltd v Mekeo Hinterland Holdings Ltd (2014) SC1400, upholding the decision on this point of Hartshorn J in Albright Ltd v Mekeo Hinterland Holdings Ltd (2013) N5774, suggested that a defendant can apply to the National Court to set aside a default judgment where the original National Court hearing was inter partes. 

17. Prior to Albright, it was the general practice that if the default judgment followed an inter partes hearing the aggrieved defendant could not apply to the National Court to have it set aside; the rationale being the defendant has already had the opportunity to present its case to the National Court and ought not to be allowed to go back before the same court to reargue it. The only course of action available was to appeal to the Supreme Court (Sialis Tedor v PNG Ports Corporation (2011) SC1137, Lerro v Stagg (2006) N3050). 

18. In the present case the default judgment followed an inter partes hearing. If the approach adopted in cases such as Tedor and Lerro is applied, the only option available to the appellant was to appeal, which it has done. 

19. If the more recent approach adopted in Albright is applied, the appellant could have applied to the National Court to set aside the default judgment. But, should its failure make such an application be held against it? Is it guilty of some sort of abuse of process by appealing, without exhausting the avenues available to it to have the default judgment set aside? The respondent says yes. The appellant says no. We agree with the appellant. There is no provision of the National Court Rules or the Supreme Court Rules or any other law, and no case authority has been brought to our attention, that requires a party aggrieved by a default judgment to exhaust all avenues available in the National Court before appealing to the Supreme Court.

20. So, even if the grounds of appeal are regarded as a series of alleged irregularities and suitable grounds for an application to the National Court to set aside the default judgment, and the more recent approach adopted in Albright were followed, the appellant was not obliged to argue them in the National Court before coming to the Supreme Court. They are not 'invalid' grounds of appeal, which is how the respondent argued they should be labelled. 

21. We find it unnecessary to rule on whether the approach adopted in cases such as Tedor and Lerro or the more recent approach adopted in Albright is the preferred approach. To summarise: if the Tedor and Lerro approach is applied, the appellant had no option but to appeal. If the Albright approach is applied, the appellant had the option of either applying to the National Court to set aside the default judgment or appealing to the Supreme Court. It opted to appeal. It has properly exercised the option. Either way, we reject the respondent's second preliminary point and we rule that the appeal is properly before us. 

We therefore refuse to summarily dismiss the appeal.

THE APPEAL

22. We now address the merits of the appeal.

(1)	FAILURE TO ISSUE FOREWARNING LETTER

23. The appellant argues that the primary Judge erred in law by not taking into account that the respondent failed to issue it with a forewarning letter. It is agreed that the respondent did not issue such a letter. The argument is raised through ground (a) of the appeal, which states:

His Honour erred in granting the respondent's application when the respondent did not issue a forewarning letter to the appellant's lawyers when the appellant's lawyers filed and served on the respondent's lawyers the appellant's notice of intention to defend the proceedings which is one of the elements required to be satisfied by an applicant for entry of default judgment.

24. The argument is based on Order 4, Rule 49(19)(3)(a)(i)(4) (default judgment procedure) of the National Court Rules, which provides:

An applicant for default judgment shall file the following documents:

... An affidavit in support (to also attach copy of the letter to the other party forewarning of the application, if a notice of intention to defend has been filed).

25. We consider that that requirement only arises if, on the date of filing the motion for default judgment, a notice of intention to defend has been filed. There was no obligation to issue a letter here as, on the date that the amended notice of motion for default judgment was filed, 4 March 2014, no notice of intention to defend had been filed. The notice was not filed until 13 March 2014, the day before the motion was heard. The respondent was not obliged to issue a forewarning letter. Ground (a) of the appeal is dismissed.

(2)	ABSENCE OF EVIDENCE

26. The appellant argues that the primary Judge erred in law by failing to consider that there was no evidence to prove the breach of contract relied on as the cause of action. The argument is raised through grounds (c) to (g) of the appeal, which state:

There was no evidence before the court of the contract, the alleged breaches of the contract and the calculations arrived at by the respondent in seeking the amounts in the statement of claim.

There was no evidence before the court that there was a debt due and owing to warrant the grant of default judgment on a liquidated sum by the court.

The statement of claim at paragraph 6 pleaded the appellant agreed to borrow from National Capital Ltd the sum of K100 million. There was no evidence before the court as to the appellant agreeing to borrow from the respondent.

His Honour erred in granting the respondent's application when the respondent did not prove by affidavit evidence the existence of the contract the subject of the National Court proceedings which is one of the elements required to be satisfied by an applicant for entry of default judgment to show there is a valid cause of action.

His Honour erred in granting the respondent's application when the respondent did not prove by affidavit evidence breaches of the contract by the appellant which gave rise to the National Court proceedings which is one of the elements required to be satisfied by an applicant for default judgment to show there is a valid cause of action. [Emphasis added.]

27. We find no merit in these arguments. They disregard Order 8, Rule 8 (facts, not evidence) of the National Court Rules, which requires that a statement of claim contain only a statement in summary form of the material facts relied on, not the evidence by which those facts are to be proved. The evidence that a plaintiff applying for default judgment has to provide is evidence, by affidavit, of:

•	service of the writ (National Court Rules, Order 12, Rule 34(a) (proof of service of writ));

•	a recent search of the Court file (National Court Rules, Order 4, Rule 49(19)(3)(a)(i)(3) (default judgment procedure));

•	issuance of a forewarning letter, if necessary (National Court Rules, Order 4, Rule 49(a)(i)(4) (default judgment procedure));

•	service of the notice of motion for default judgment and supporting affidavits (National Court Rules, Order 4, Rule 44 (affidavits));

•	the defendant's default (National Court Rules, Order 12, Rule 34 (proof of service of writ)).

28. The respondent was not obliged to present evidence in support of the elements of the cause of action. The primary Judge made no error in the manner contended for. We dismiss grounds of appeal (c) to (g).

(3)	FAILURE TO DISCLOSE CAUSE OF ACTION

29. The appellant argues that the primary Judge erred in law by failing to take into account that the statement of claim did not set out the breaches of contract and calculations relied on and thus failed to disclose a cause of action. The argument is raised through ground (b) of the appeal, which states:

The statement of claim did not set out the breaches of the contract and the calculations arrived at by the respondent in seeking the amounts in the statement of claim.

30. Mr Littlemore conceded that the statement of claim was not clearly drafted and may have contained some errors. He went so far as to describe the pleading as impenetrable. However, he emphasised that the respondent had met all requirements for entry of default judgment, that the appellant accepted that it was in default and had made no attempt to show that it had a defence on the merits, and that the primary Judge was rightly unperturbed by any deficiencies in the statement of claim. His Honour had exercised his discretion to enter default judgment lawfully and the appellant had not established any good reason to interfere with it, he submitted.

31. The primary Judge properly recognised that entry of default judgment was not a matter of right. His Honour correctly observed that he first had to be satisfied as to the formal requirements for entry of default judgment, which his Honour referred to as a checklist. That colloquialism has been used in other default judgment cases including Bank South Pacific Ltd v Robert Tingke (2012) N4901 (Kandakasi J) and Urban Giru v Luke Muta (2005) N2877 (Cannings J). It is useful and appropriate.

32. Then, once satisfied of those requirements, his Honour properly considered that the question of whether to enter default judgment involved an exercise of discretion. In exercising that discretion his Honour remarked that he had to be satisfied that a reasonable cause of action was disclosed by the statement of claim. In taking that approach his Honour acted consistently with a number of Supreme Court judgments highlighting that the question of whether to enter default judgment ultimately involves an exercise of judicial discretion, and that one of the prime matters to take into account when exercising the discretion is a determination of whether the statement of claim discloses a reasonable cause of action: Agnes Kunton v John Junias (2006) SC929, David Lambu v Paul Torato (2008) SC953 and Lina Kewakali v The State (2011) SC1091.

33. We are persuaded, however, by the submissions of Mr Andersen for the respondent that although the primary Judge outlined the correct approach, his Honour did not subject the statement of claim to a sufficiently rigorous examination to enable the conclusion to be properly reached that it disclosed a reasonable cause of action. If his Honour had done so, it would have been observed that the inadequacies of the statement of claim were significant. The statement of claim consisted of 23 paragraphs. Omitting the formalities of the first four paragraphs, headed "PARTIES", it states:

BACKGROUND TO THE TRANSACTION BETWEEN THE PLAINTIFF AND DEFENDANT

5	The Defendant is and was at all material times the owner of 530,105,100 ordinary fully paid shares in the Bank South Pacific Limited representing 11.63% of the issued share capital of BSP (the BSP Shares). By minute of a full board of directors meeting of the Defendant on 14 July 2009, the Defendant's resolved that:

(a)	the Company borrow the amount of K100 million from National Capital Limited and that amount be repaid in or within 5 years with interest at 11.75%, all as more fully set forth in the term sheet and other supporting documentation as presented and reviewed by the Board; and

(b)	the Managing Director and Bernard Fong, (a director of the Defendant) be authorized to execute the relevant documentation to give effect to the matters contemplated by the resolution specified in paragraph 5(a) of this statement of claim.

6	On or about 24 July 2009 in accordance with its resolution the Defendant entered into a equity monetarisation contract (the EMC) with the Plaintiff pursuant to which the Plaintiff agreed to lend the Defendant the amount of K100,000,000 taking as security for the loan, the BSP shares.

7	Pursuant to a legal mortgage of shares dated 22 July 2009 granted to the Plaintiff by the Defendant (the Mortgage) the Plaintiff held the BSP shares as the legal mortgagee to secure for the Plaintiff the obligations of the Defendant under the EMC.

8	The legal mortgage provided, inter alia, that the "secured property" under the Mortgage includes all of the Defendant's present and future interest in the BSP shares. In accordance with the mortgage the Defendant deposited with the Plaintiff signed transfers of the BSP shares until the Plaintiff discharge the mortgage.

9	On or about 22 July 2009 pursuant to the terms of the mortgage a share transfer form of the BSP shares was executed on behalf of the Defendant as transferor and the Plaintiff as transferee (the Transfer) and provided to the Plaintiff. The Plaintiff paid stamp duty on the Transfer and the BSP shares were transferred to the Plaintiff.

10	The EMC provided the share dividends from the BSP shares were to be utilized to pay interest of 11.75% per annum on the principal amount under the EMC until the maturity date of the EMC.

11	Pursuant to the EMC if there were any shortfall in dividends from the BSP shares to offset the interest payments the BSP shares held by the Plaintiff could be sold within 30 days of such shortfall at the prevailing market rate.

12	The EMC further provided that the Defendant was bound to pay the Plaintiff on the repayment date under the EMC the principal owing under the EMC by the transfer to the Plaintiff of that number of BSP shares to satisfy such amount.

13	In accordance with the EMC and mortgage a loan of K100,000,000 was made by the Plaintiff and drawn down the net amount of K94,400,000 after deductions for those matters contemplated under the EMC.

BREACH OF THE EMC

14	The Defendant gave certain warranties under the ECM regarding, inter alia, the ability of the Defendant to enter into the ECM and its ability to carry out the warranties thereto (the Warranties).

15	On or about 31 May 2011 the Plaintiff issued a notice of default to the Defendant on the basis of a breach by the Defendant of the Warranties (the Notice) and the Plaintiff thereafter exercised its rights under the ECM.

THE CLAIM

16	In accordance with the ECM and the Mortgage the Defendant in response to the Notice was to pay the Plaintiff the sum of K176,107,803.00 (the Sum).

Particulars

Principal
Interest to 31 May 2011
Repayment date shares fee increment
Loss of interest
Legal and associated costs	K100,000,000
10,011,650
53,846,153
11,250,000
1,000,000
K176,107,803	

17	The Plaintiff agreed to accept in repayment as the EMC Repayment Date shares to the value to K153,846,153.00 and proceeded to sell 21,542,893 BSP shares thereto.

18	The agreement referred to in clause 17 hereof was subject to the Plaintiff's reservation of rights under the EMC should the Defendant be in breach of any post settlement indemnities (the Indemnities).

19	The defendant has breached the Indemnities and the Plaintiff now claims the balance of the Sum.

AND THE PLAINTIFF CLAIMS:

1	Judgment in the amount of K22,261,650 being the balance of the Sum.

2	Alternatively, damages for breach of the Warranties by the Defendant.

3	Such further or other orders as the Honourable Court deems just.

4	Interest on moneys due or payable pursuant to the above orders in accordance with the Judicial Proceedings (Interest on Debts and Damages) Act. [sic]

34. We uphold Mr Andersen's submission that the statement of claim was inadequate, in that:

(a)	In paragraph 5(a) it is pleaded that the defendant's (the appellant's) board agreed to borrow money from "National Capital Ltd", which is confusing as that company is not a party to the proceedings and has no obvious connection with the appellant or the respondent and is not mentioned elsewhere in the statement of claim. If it is an error it should have been corrected but has not been.

(b)	It fails to plead that the appellant committed a breach of contract. The closest it comes is in paragraphs 14 and 15: "the Defendant gave certain warranties under the EMC" (para 14) and "the Plaintiff issued a notice of default to the Defendant on the basis of a breach by the Defendant of the warranties" (para 15). There is no cause of action other than breach of contract that is being pleaded, so the absence of a pleading that the appellant breached the contract represents a failure to plead a fundamental element of the cause of action. Further, the warranties that, by implication, the appellant is alleged to have breached are unspecified.

(c)	As to existence of a contract, it pleads in paragraph 6 the date on which the appellant entered into the equity monetarisation contract with the respondent, but fails to plead the manner and form of the contract (whether it was a written or oral contract or partly written and partly oral); and it fails to plead the inclusion in the contract of a right in the respondent to issue the notice of default pleaded in paragraph 15, which, it is suggested, the appellant did not comply with.

(d)	It is pleaded in paragraph 16 that in response to the notice of default the appellant was obliged to pay "Principal K100,000,000", but it fails to plead any obligation on the part of the appellant to pay the amount of the principal beyond the amount drawn down, which is pleaded in paragraph 13 to be K94,400,000.

(e)	It is pleaded in paragraph 16 that in response to the notice of default the appellant was obliged to pay the respondent "Interest K10,011,650", but it fails to plead any obligation on the part of the appellant to pay interest, other than the apparently contrary pleading in paragraph 10 that "share dividends from the BSP shares were to be utilized to pay interest of 11.75% per annum on the principal amount under the EMC until the maturity date of the EMC".

(f)	It is pleaded in paragraph 16 that in response to the notice of default the appellant was obliged to pay the respondent "Repayment date shares fee increment K53,846,153", but it fails to plead any obligation on the part of the appellant to pay such a sum.

(g)	It is pleaded in paragraph 16 that in response to the notice of default the appellant was obliged to pay the respondent "Loss of interest K11,250,000", but it fails to plead any obligation on the part of the appellant to pay such a sum.

(h)	It is pleaded in paragraph 16 that in response to the notice of default the appellant was obliged to pay the respondent "Legal and associated costs K1,000,000", but it fails to plead any obligation on the part of the appellant to pay such a sum.

(i)	It is pleaded in paragraph 17 that the Plaintiff (the respondent) "agreed to accept in repayment as the EMC Repayment Date Shares to the value of K153,846,153.00", but it fails to plead that the appellant agreed to pay that sum.

(j)	As to the agreement to pay K153,846,153.00, which is sought to be pleaded in paragraph 17, it fails to plead the date, manner and form of the agreement (whether it was a written or oral contract or partly written and partly oral).

(k)	It fails to plead the relationship between the sum of K153,846,153.00 and the 21,542,893 BSP shares referred to in paragraph 17.

(l)	It pleads in paragraphs 18 and 19 the breach of "post settlement indemnities", which is pleaded as the basis of the claim for "the balance of the Sum", but it fails to plead the existence, manner or form of such indemnities.

(m)	It fails to plead compliance with statutory requirements for a State Owned Enterprise such as the appellant to enter into contracts, including Section 46B of the Independent Public Business Corporation of Papua New Guinea Act 2002 (ministerial approval required for certain contracts involving payment exceeding K1,000,000.00).

35. The combined effect of those inadequacies is that the statement of claim was vague and confusing. It failed to plead fundamental aspects of the contract relied on, failed to plead breaches of contract, failed to particularise the calculations on which the liquidated sum of K22,261,650.00 was sought and therefore failed to disclose a cause of action. It failed to provide a proper basis on which to enter judgment, especially a judgment for a liquidated sum. A default judgment for a liquidated sum should only be entered when the amount of the claim can readily be ascertained by a simple arithmetic calculation and there is no element of assessment on judgment (Dempsey v Project Pacific Pty Ltd [1985] PNGLR 93, Barlow Industries Pty Ltd v Pacific Foam Pty Ltd [1993] PNGLR 345, The State v Brian Josiah (2005) SC792, Jeffery Balakau v Sir Arnold Amet (2013) N5313). Those prerequisites did not exist here.

36. We conclude with respect that the primary Judge erred in law in finding that the statement of claim disclosed a reasonable cause of action. Ground (b) of the appeal is upheld.

CONCLUSION 

37. Two of the three categories of grounds of appeal (the arguments that the respondent was obliged to issue a forewarning letter and to adduce evidence in support of the elements of the cause of action) had no substance and have been dismissed. The third category of grounds of appeal (the argument that the primary judge erred in law in finding that the statement of claim disclosed a reasonable cause of action) has been upheld.

38. As to the consequences of upholding one of the three categories of grounds of appeal, we are mindful of the caution that must be exercised as the appellant is asking that the order of the National Court entering default judgment be quashed. Caution is necessary as the appellant is seeking an order that would interfere with the exercise of discretionary power by the National Court. An appellate court should only interfere with the exercise of the lower Court's discretion, particularly in regard to a matter of civil practice and procedure, if the lower court has acted upon a wrong principle, given weight to extraneous or irrelevant matters, failed to take into account relevant considerations, made a mistake as to the facts or in the absence of identifiable error made a decision that is unreasonable or plainly unjust (Papua New Guinea v Stanley Barker [1977] PNGLR 386, Bean v Bean [1980] PNGLR 307, Stettin Bay Lumber Company Pty Ltd v Arya Ship Management Ltd (1995) SC488, Curtain Brothers (PNG) Ltd v UPNG (2005) SC788, Telikom PNG Ltd v ICCC (2008) SC906, Ramu Nico Management (MCC) Ltd v Eddie Tarsie (2010) SC1075, Kawaso Ltd v Oil Search PNG Ltd (2012) SC1218).

39. We consider that the learned primary Judge failed to take account of a relevant and significant consideration, that the statement of claim was vague, confusing and failed to disclose a reasonable cause of action. That was an error which vitiates the exercise of discretion. It warrants an order quashing the order for entry of default judgment and remitting the case to the National Court.

40. As to the costs of the appeal, though the appellant has succeeded, not all grounds of appeal were upheld, the appeal has been necessitated by its lack of diligence in properly defending the National Court proceedings, and it has succeeded on a point of law which, though put to the National Court, was not well articulated. In these circumstances, it is appropriate (as it was in Dempsey v Project Pacific Pty Ltd [1985] PNGLR 93) that the parties bear their own costs.

ORDER 

(1)	The appeal is allowed.

(2)	Order No 2 of the National Court of 13 March 2014 in WS No 1300 of 2013, by which default judgment was entered against the appellant and interest awarded against it, is quashed.

(3)	WS No 1300 of 2013 is remitted to the National Court and shall be placed on the Commercial List and dealt with in accordance with Order 10A of the National Court Rules.

(4)	The parties shall bear their own costs.

Judgment accordingly.
_________________________________________________________________

Gadens Lawyers: Lawyers for the Appellant 	
Leahy Lewin Lowing Sullivan Lawyers: Lawyers for the Respondents